when your ad was specific as to quantity

and told me exactly what I needed to do to show up

to get the offer, right?
All I had to do is be first in line with my dollar bill.
I have accepted your offer.
So says the court in the mink stole case.
Same with Carbolic Smoke Ball.
In Carbolic Smoke Ball, there was a company
that put an ad in the newspaper that said,
buy our carbolic smoke ball.
Inhale it as directed for the next two weeks.
And if you still get the flu that's plaguing our country,
we guarantee you, we promise you,
we offer you a 100 pound reward.
Customer buys the smoke ball.
She uses it as directed for the next two months,
not just two weeks.
And what do you know?
Inhaling carbolic acid doesn't actually cure the flu, right?
You've got to get the flu shot for that.
And so she sues to collect her 100 pound reward.
The company says, don't you know the general rule?
Ads are not offers.
And she says, come on, that's the general rule,
but here you were specific as to quantity.
You had indicated you had 1,000 pound deposited in the bank
to show your sincerity.
I did exactly what I needed to do to collect that reward.
I should collect that reward, so says the court in the Carbolic
Smoke Ball case.
But those are the exceptions.
If you just generally see a company advertising
in the newspaper, t-shirts $10, I
would use the general rule ads are not offers.
Next issue for offers is the issue of indefiniteness.
How definite do those terms have to be?
And the favorite bar exam testing issue
is the open price term in a sales contract.
And there you have to distinguish
whether you're looking at a common law rule or a UCC rule,
right?
Sale of goods, sale of a car missing price, right?
You could still have an offer.
There's lots of gap fillers in the UCC to fill in price.
But if it's common-law like sale of Blackacre missing
price, no offer.
The land sale missing price, I want
you to tell them there is no definite terms there.
If you have a sale of real estate,
you've got to have all the terms definite.
You need to have price.
You need to have a description of your real estate.
But if you get a sale of a car or sale of a widget missing
price, remember UCC gap fillers will fill it in,
and you can still have an offer in the sale of goods case
because UCC Article 2 tells us that.
Next offer issue is the requirements contract
situation.
Remember Article 2 says you can have
valid offers and valid contracts here,
even though we don't know quantity exactly at the outset.
You can contract for all your requirements or all
of seller's output.

Hypo 2c.
Tesla offers to buy all of its requirements of batteries
from SolarCity for six years for $10,000 a battery.
Question, is that a valid offer?
Yes, Article 2, right sale of good lets the quantity be measured by the buyer's needs, all of the
buyers requirements. Article 2 presumes that the buyer will exercise her requirements in good
faith. We put good faith limitation onto the buyer and the seller, but these are valid offers and
valid contracts, even though we don't know exactly how many batteries they're going to buy at
the outset.

SolarCity accepts Tesla's offer.

For the last three years, Tesla has ordered
100,000 batteries per year.
Question to you, can Tesla require
SolarCity to deliver a million batteries this next year?
No. If you see a buyer buying 100,000 widgets per year or 100,000 batteries per year and then
the next year or three years down the road
she's trying to quintuple her order or in this case
multiply her requirements by 10 times, that is an unreasonable
increase in buyers demands.
The rule is that the buyer can increase her requirements,
but only as long as the increase is
in line with her prior demands.
So if she's going up 1%, 2%, 3% a year, I would say that's OK.
But if she's trying to really jump up her requirements,
even if it's in good faith, seller's
not going to be on the hook for a million batteries.
After all, they had no reason to foresee that buyer would
go from 100,000 to a million.
Now, you can make a new offer for that,
but you're not going to be bound to deliver a million batteries
in the next year.
That's stage 1, offer.
Stage 2 of the agreement formation process,
let's talk about termination, the second step
in our formation process.
Four methods of termination that we're going to look at,
lapse of time, revocation, rejection, and death.
Let's talk about lapse of time first.
The rule is that the offer will lapse after the stated time
in the offer, right?
So the offeror can say it's open for three days.
Or more commonly, the offeror doesn't state any time at all,
and so then it comes down to a quote, "reasonable time."
Offers are not open forever.
They're only open for a reasonable time.

Hypo 2d, on January 1, I offer to sell Bill Gates my 2010

Toyota Prius for $8,000.
My offer doesn't contain a termination date at all.
Can Gates accept my offer on December 31?
No way.
Why not?
More than a reasonable time has passed here, right?
You've got to read dates carefully.
A lot of students just skim over dates quickly.
They think they're irrelevant.
They think they don't matter.
Bar exam tip, dates matter.
If you see dates in your fact pattern,
you've got to look at them again.
Offer made on January 1, acceptance made on December 31,
that's 364 days later.
Offers don't last forever.
They last for a reasonable time.
And general rule of thumb, if you
see dates in your fact pattern separated by more than a
month or so in time, I would raise this issue.
Is this offer still open or has it terminated due to
lapse of time?
The rule is the time stated or a reasonable time
if no time is stated.
And obviously, what's a reasonable time
depends on all the facts and circumstances, right?
An offer to sell steel rods will last longer than an offer
to sell bananas because bananas are going to go bad in a week.
Steel rods presumably can last a little bit longer than that.
But I'm not worried about exactly how
long it's going to be.
I'm worried about you raising this issue
and laying out the rule, right?
Is this offer still open or has it terminated due to
lapse of a reasonable time?
Second method of termination, revocation.
Revocation is where the offeror terminates the offer, right?
An offeror can revoke her offer any time before acceptance.
So revocation, remember its offerors who revoke.
What do we call it when offerees respond negatively to an offer?
We don't call that revocation, we call that rejection.
So quick terminology distinction,
only offerors can revoke, only offerees can reject.
Let's talk about revocation.
Direct revocation is where your offeror indicates directly
to the offeree that he or she has changed her mind.
I revoke.
Forget about it, right?
I no longer wish to contract with you, right?
That's a direct revocation.
A lot of times, though, watch out
on the bar for indirect revocation.
This is where the offeror engages
in conduct that indicated she has changed her mind,
so she sells the house to somebody else
or she sells the car to somebody else
that she originally offered to you.
She engages in that conduct, but you've
got to make sure that the offeree is
aware of the offeror's conduct.
So importantly, revocation is a two-player game.
Offeror revokes, but make sure you get offeree awareness.
A lot of time, they give you offeror attempted revocation
without the offeree knowing about it.
If the offeree doesn't know about it,
that's not an effective revocation.
So make sure you lay out the rule.
Revocation is a two-player game.
Make sure your offeree is aware.
Watch out for indirect revocation.

Hypo 2e, on January 1, I offer to sell Gates

my Prius for $8,000, right?
That's my offer.
The next day while giving these Barbri lectures to you guys,
I exclaim, I no longer wish to sell my Prius to Bill Gates,
right?
I'm trying to revoke my offer.
Question put to you, though, can Gates still accept?
Absolutely yes.
Why?
Unless he is in the lecture hall with us,
and I don't see him out there in the room,
he's got better stuff to do like curing malaria and polio
and AIDS and all the good stuff Bill Gates likes to do,
he has no awareness of my attempted revocation.
So I did try to revoke.
I said I no longer wish to sell my Prius to Bill Gates,
but look for him not having knowledge.
If he doesn't have knowledge, my revocation was not effective.
Question two here, if I sell my Prius
to Jeff Bezos, Gates' arch rival on January 4,
can Gates still accept my original offer?
Yes. Gates has no awareness. He doesn't know that I sold my Prius to Jeff Bezos, that's why he
still has the contract right to accept and then obviously sue me for breach. He's not going to get
the Prius. But Gates will sue me for breach and damages.

Hypo 3 here, though, subpart 3, Bezos now

tells Bill Gates that he bought the Prius from me.
Question, can Bill Gates still accept my offer now?
No. I'm giving you offeree awareness. Once Bezos communicates to Bill Gates that he bought
the Prius from me, now Bill Gates actually knows I revoked my offer.

But more commonly, they'll give you the first or second part
of this hypo.You have an attempted revocation by an offeror
but you have an offeree who doesn't know about it.

four exceptions
that limit or take away the offeror's ability to revoke.
The first is the option contract situation.
That's where you have a promise to keep the offer open
that is paid for, right?
Basically, the seller says to the buyer,
I will hold this open until Friday.
Buyer pays valuable consideration
in exchange for that promise.
You put those two together and you've got an option,
offeror can no longer revoke.
That's hypo 2f.
Let's imagine I offer my Prius to Beyonce now for $8,000
and I promise her that I will keep my offer open for a week.
Can I revoke?
Yes.There's no consideration paid for that promise to hold it open for a week, She hasn't paid me
any consideration, so I can make the promise and I can break the promise here.
Dickinson v. Dodds,
where the seller promised to hold her offer to sell
the house open for a week.
Buyer said awesome, but buyer never
offer consideration in return.
Later, the seller sold the house to somebody else.
Buyer came back in the train station and was trying to say,
I accept, I accept, and I accept.
And the court says, well, you know,
sellers still had the right to revoke
because there was no option.
Buyer, you should have paid consideration
to hold that offer open.
So in the second part of this hypo,
that's where I gave you the requirements for option.
Let's imagine I'd promised to keep my offer open for a week
now if Beyonce pays me $100 and she goes ahead and pays
the $100 consideration to support my promise.
Can I still revoke now?
No. option contract's form takes away the offeror's power to revoke.
Make sure you get a promise to hold it open
and make sure you see consideration paid for it.
So if Beyonce is not paying me consideration,
we're in the first part of that hypo.
If she pays me $100 of consideration,
we're in the second part.
And you get a different answer either way.
Second method, making offers irrevocable
is a special Article 2 merchant firm offer rule.
This is an Article 2 rule here, so you've
got to make sure you have a sale of goods.
If you want to have merchant firm offer
rule holding that offer irrevocable,
what do you need to see?
You need to see a merchant who promises in a signed writing
to keep her offer open.
If you put all of those requirements together,
that will make that offer irrevocable even
without consideration.
So previously, I was talking about option contracts
making offers irrevocable, you need
to have consideration for options.
Here, when it comes to the merchant firm offer rule,
no consideration is required.
But you do have to meet all of those requirements.
And I do want to emphasize, though,
that the term merchant and the term
signed are pretty broadly defined under UCC Article 2.
Anybody operating any business I think
you can probably treat her as a merchant for purposes
of the firm offer rule.
And signed, when it comes to whether or not
she signed the letter, anything that looks authenticated,
right?
So if a merchant is sending an offer on her own stationery,
I would consider that a signed letter.

Hypo 2g, CarMax-- that's a merchant--

makes a written offer on CarMax letterhead-- signed--
to sell a 2011 Tesla Roadster, potential sale of goods.
The offer states that CarMax will not revoke for two weeks.
She's promising to hold the offer open.
Question, can CarMax still revoke its offer?
No.Not because there was any consideration.T here's no option contract here.
Rather, it's because of merchant firm offer rule
protection, right?
You have a signed letter.
Well, you say, wait a second, is it signed?
It's on letterhead.
I would treat that as signed.
It's a merchant making a promise to keep the offer open.
It's a sale of goods, you have all your requirements
to hold that offer open for two weeks.
However, what if the writing provides
that CarMax will not revoke the offer for six months?
You can't go six months under merchant firm offer rule.
There's a three-month ceiling under UCC Article 2.
If you're trying to rely on just the merchant firm offer rule,
you cannot make that offer irrevocable for more than three
months.
So three months max on merchant firm offer rule.
Now, if you want to get a six-month deal here,
six month holding that offer open, how should you do it?
Pay consideration, in which case you would be protected
by an option contract.
But if there's no consideration and there's no option,
maximum ceiling on merchant firm offer protection
is three months.
Sub-hypo 3, what if CarMax promises
not to revoke its offer but doesn't
set a time period at all?
If you get that fact line up, you
want to say you are still entitled to merchant firm offer
rule protection, the inquiring mind
wants to know what's the time period.
A reasonable time period to be fixed by the court.
Court will fix a reasonable time period but not more than three
months because you can't go more than three months
under the merchant firm offer rule.
Court will fix a reasonable time period.
And then the last sub-hypo here is probably the most
frequently tested on the bar, so watch out for this trick here.
Number 4, CarMax makes a signed written offer
to sell a 2011 Tesla Roadster.
Can CarMax still revoke?
Yes.
What is missing in this last sub-hypothetical?
We still have a merchant making a signed offer,
it's still a sale of goods.
The problem is you don't have a promise to hold the offer open.
Read carefully.
If it's just a promise to sell a car,
that's not the same thing as a promise
to hold it open for two weeks or a month or whatever.
So make sure you see that exact language,
I promise to hold it open for two weeks.
I promise to make it irrevocable for a month or whatever.
If it's just a promise to sell a car,
you do not qualify for merchant firm offer rule protection
in this last sub-hypothetical.
And by the way, as an exam tip, when
you get a sale of goods situation,
I think first off, you should look for an option contract,
right?
Somebody paying consideration to hold the offer open, right?
If you do that, you're good, right?
You can hold it open for six months, for whatever you
want to hold it open for.
If you don't have an option contract form,
secondly, look for firm offer rule protection, merchant firm
offer rule.
But that's subject to several limitations, right?
You've got to make it a merchant, signed writing,
promise to hold it open, and you can't go above three months.
Third method of making offers irrevocable
is foreseeable reliance, foreseeable reliance.
And I wanted to distinguish here between reliance before
versus after acceptance because this is a little bit more
rare than people think it is.

Hypo 2h, I offer to sell you a machine.

Before accepting my offer, you have an expensive foundation
custom-made to fit the machine.
Can I still revoke my offer?
Absolutely yes.
Why?
Because the offeror usually expects the offeree
to accept first before the offeree relies.
I have no idea that you built this custom-made
foundation for my machine.
You never accepted my offer.
I could not foresee you were going
to engage in this reliance.
That means I can still revoke in this hypothetical.

hypothetical 2i, by comparison, subcontractor S

submits a bid to do the plumbing work on a school
project for $10,000.
By the way, any time somebody is submitting bids in your bar
exam testing experience, I want you
to note that bids are offers.
Just mark out the word bid, write an offer in your brain.
Bids equal offers.
So subcontractor S is submitting an offer
to do the plumbing work for $10,000.
General contractor G relies on the sub's bid
in computing his own bid, and he wins the overall school
building project.
Can S the subcontractor still revoke her offer?
No. Here is where you do have foreseeable detrimental
reliance.
Obviously, when the sub submits her bid,
she knows that the general is going to rely on that bid.
She wants the general to rely on that bid.
The general actually did rely on that bid.
The general won the overall school project,
comes back to the sub.
The general is just about to say I accept.
The sub says, I revoke.
Don't you know the general rule?
I can revoke any time prior to acceptance.
And then the general comes back and says, not so quick, right?
Calandrillo taught me that where there
is this foreseeable reliance, that makes the sub's bid
irrevocable.
Here, the offer is irrevocable.
But that's the rare case, right?
If you're in 2h where the other party cannot foresee
the reliance, then, obviously, in 2h,
there is no reliance making the offer irrevocable.
Look, however, for the construction
bidding context
hypo 2i to make that offer irrevocable.
That's the situation where the sub can
foresee the general will rely.
Fourth method of making offers irrevocable
is starting to perform under a unilateral contract offer.

Hypothetical 2j-- Meg Ryan offers me $10,000

to paint her house.
Her offer states that it can be accepted
only by painting the house.
Remember I told you earlier magic words "offer only by"
that tells you you're in a unilateral contract offer
situation.
And then what do I do?
I go out and I start painting the house.
Can Meg still revoke?
No.
Here, we have the start of performance
pursuant to a unilateral contract offer,
and you remember the rule that once
you start to perform under a unilateral contract offer, that
makes the offeror's offer irrevocable
for a reasonable time necessary to complete performance, right?
Meg has got to give me a chance to finish painting her house.
This probably reminds you of the seminal Brooklyn Bridge hypo
that you probably saw during your 1L Youth.
In the Brooklyn Bridge hypo, Professor Wormser
offered $100 to you to walk across the Brooklyn Bridge.
What happens if you start walking across the Brooklyn
Bridge?
Can Professor Wormser still revoke his offer?
In the old days, Wormser believed
it was only fair that he should be
able to revoke his offer because he said
after all, the offeree doesn't have to finish walking
across the Brooklyn Bridge.
I should similarly be free to revoke my offer.
That was the old rule.
The modern rule I'm sure you remember under the restatement
is that once the offeree starts walking just one
step onto the Brooklyn Bridge or one paintbrush
onto Meg's house, that suspends the offeror's ability
to revoke.
However, part 2 of this hypo, what if I had just ordered
paint but not yet started painting the house,
can Meg still revoke?
This is what the bar examiners like
to call mere preparation to perform.
Mere preparation to perform is not the start of performance.
That means Meg Ryan could potentially still
revoke under this rule, right?
I have not actually started to perform yet.
However, you would also say if there
was foreseeable detrimental reliance
by the offeree like buying paints or moving
all my equipment to her job site and setting it all up,
maybe under that basis I could make Meg Ryan's offer
irrevocable.
But not under the start of performance rule.
I have not yet started to perform
if I've merely ordered paint.
And a lot of the stuff that they give you, right?
Painter orders paint, painter moves equipment
to the job site, painter climbs the ladder,
painter starts going like that with the brush, all of that
is mere preparation.
It's not the start of performance yet.
But I would also try to fall back
on the foreseeable detrimental reliance rule making the offer
irrevocable if the offeror had reason to foresee that you
would engage in that activity.
Next, let's talk about timing of revocation.
Rule, revocations are effective upon receipt.
There is no mailbox rule for revocations.
Just because somebody is dropping a revocation letter
in the mailbox, I don't want you to start
yelling about mailbox rules.
That only applies to acceptance letters.
Revocation letters must be received to be effective.

So watch out for hypo 2k.

On Monday, I offer to sell my Prius to JLo.
On Tuesday, I mail her a revocation letter.
On Wednesday, JLo accepts my offer, right?
She hasn't yet received my revocation.
She has no idea I tried to revoke.
On Thursday, she receives my revocation letter.
Is my revocation effective?
Absolutely not.
Revocations are only effective upon receipt, not when sent.
She accepted on Wednesday, that means
contract formed on Wednesday.
What do you call it if she gets my revocation
letter on Thursday?
You call that breach, right?
She already accepted on Wednesday.
Now I'm trying to back out later on
to sell my Prius to somebody else.
No way, that's called breach.
Once an offer has been accepted on Wednesday,
it cannot be revoked.
Third method of termination is called rejection, rejection.
So we looked at lapse of time.
We looked at revocation.
We looked at the exceptions to revocation.
Now let's talk about rejection.
An offer terminates when the offeree rejects it,
gives an inappropriate response.
Now, I want to tell you that the real world is very different
when it comes to rejection than your bar exam experience likely
would be.
In the real world, rejection is almost painfully obvious
and painfully direct.
When I offered to take Debbie Greenware to my senior prom,
her answer was hell no.
There was no doubt at all that I had been rejected
and that my heart lay broken on the high school floor.
But that's not the way the bar exam looks
when it comes to rejection.
They give you kind, soft, sweet, indirect rejections.
They try to make everything on the bar exam
look like an acceptance.
But most of the time, your offeree responses on the bar
exam are indirect rejections.
They try to make it look and fool you
into thinking it's an acceptance,
but you're not going to be so easily fooled.
Watch for rejection counteroffers.
Watch for conditional acceptances.
Watch for additional terms thrown into a common law offer.
None of those are acceptances.
Counter offers first.
These operate as rejections.
But do distinguish counter offers from mere bargaining.
Mere bargaining does not kill off the original offer.

Hypo 2l, Jeff Bezos offers to sell his house

to Bill Gates for $500,000.
Gates responds, I will only pay $490,000.
Bezos predictably refuses.
Question, can Gates later accept Bezos' $500,000 offer?
No way.
Why not?
Because counteroffers kill.
This is a rejection, right?
Counteroffers are rejection.
They kill off the original offer.
And I don't care what your religious philosophy
is, there is no such thing as a born again
offer on the bar exam.
Once you kill it, it is dead for ever.
So counter offers kill.
You cannot accept the $500,000 original offer.
It's dead.
Part 2, though, what if Gates had responded,
will you take $490,000?
Answer here, then Gates could still
accept Bezos' $500,000 offer.
Why?
Because this is not a rejection counteroffer.
This is what the bar examiners call mere bargaining.
Mere bargaining is not a rejection.
It's just an inquiry.
It is not a killer.
Now, bar exam tip.
You need to read carefully for the punctuation mark
at the end of the offeree's response.
If they give you an offeree response that says,
I will pay $490,000 period, I want you to treat that
as a counteroffer that kills.
On the other hand, if they give you
an offeree who responds with a question mark,
will you take $490,000 question mark,
treat that as mere bargaining.
Mere bargaining is not a killer.
But do read carefully for periods and question marks
on the bar exam.
In one case you've killed off the original offer
with your counteroffer, that's a rejection.
In the other case, you have not.
Conditional acceptances are also killers.
They operate as a rejection and counteroffer.

Hypo 2m, Disney sends Bill Clinton

an offer to appear in the film Waiting to Inhale.
Bill agrees on the condition that he get top billing.
Is there a contract formed?
No way.
Remember, just because they say Bill agrees
doesn't mean you have a contract form.
This is a conditional acceptance.
Conditional acceptances are not acceptances.
They are a rejection plus a new offer.
And this is true, by the way, not just under common law
but also under Article 2.
Sometimes students see sale of goods fact patterns
and they say, oh, I remember under Article 2
it's a lot easier to form contracts.
That's true.
But even if they gave you a sale of widgets,
if it's expressly conditional, the offeree's response, right?
I accept only on the condition that I get this or that,
or my acceptance is expressly conditional on this term
being part of our deal, conditional acceptances
are killers.
They are not acceptances.
Watch out for that.
Now, obviously, in this hypo, Disney
could always say OK to Bill's counteroffer,
but they don't have to.
This is a conditional acceptance.
It is a counteroffer.
Third method of indirect rejection/termination
is where you have a purported acceptance that
adds terms or tries to bury the offer.
You remember the common law rule here
is very different than the Article 2 rule.
And under common law, your purported acceptance
must mirror the terms of the offer exactly.
If you are adding terms or changing terms,
is that an acceptance?
No way.
That's a rejection counteroffer.

So watch out for hypothetical 2n,

the common law additional terms equals rejection counteroffer.
Landlord sends tenant a signed lease.
Just because this lease is signed
doesn't mean we have a contract.
This is just an offer by the landlord to the tenant that
says nothing about having pets.
The tenant then adds a clause, tenant may keep a pet.
She signs the lease.
She returns the signed lease to the landlord.
Has the tenant accepted landlord's offer?
No way.
Tenant has violated the mirror image rule, right?
Mirror image rule says acceptance must mirror
the terms of the offer exactly.
If you see an offeree throwing in additional terms
to a common law situation, lease of an apartment
is governed by common law, you would call
that a rejection/counteroffer.
However, if you have a sale of goods situation,
remember what law applies, UCC Article 2.
There is no mirror image rule under Article 2.
All you need to do as an offeree is quote,
"make a seasonable expression of acceptance."
You can throw in additional terms.
It doesn't defeat your acceptance.
So you should know that Article 2,
it is easier to form contracts.
Even if you have an offeree throwing in additional terms,
a contract can still be formed as long
as there was a seasonable expression of acceptance.
However, the offeree's additional term
is not part of the contract unless both parties are
merchants, it is not a material change,
and there's no objection to it within a reasonable time.
So remember the merchant to merchant dealing situation,
not only can you have a contract form,
the additional term might be automatically included
in the deal.
For that situation, you need to have merchants to merchants,
and the additional term cannot be a material change and there
cannot be objection to it within a reasonable time.
So significantly, the offeree's additional term
sometimes does not make it into the contract, right?
It depends.
Even though Article 2 makes it easier to form contracts,
it's only automatically part of the deal
if it's merchant to merchant dealings,
not a material change, and the other party didn't object to it
within a reasonable time.

Hypo 2o, B the buyer makes a written offer

to buy 100 widgets from S the seller.
Offer doesn't mention anything about warranties.
S's written acceptance disclaims all warranties, right?
So she makes a seasonable expression of acceptance
but she throws in this additional term disclaiming
warranties.
Is there a contract formed?
Yes, this is the Article 2 acceptance rule.
We're talking about a sale of widgets here,
not a sale of real estate, right?
Article 2 governs.
No mirror image rule in Article 2
as long as you have a seasonable expression
of acceptance contract formed.
However, does it include the seller's disclaimer?
No, right?
Disclaimers are considered a material change, a material
alteration.
Even if you have merchant to merchant dealings,
if the term is a material change,
it's not part of the deal.
How do we know if it's a material change?
The definition is that it's likely to cause hardship
or surprise to the offeror.
That's how UCC defines it, a term that
would be likely to cause hardship
or surprise to the offeror.
So disclaimers, you're not expecting that to be thrown in.
That is not automatically included.
However, sub-hypo 3, what if seller hadn't disclaimed
all warranties, instead, she merely
added a term that said Monday delivery?
If you get that type of fact lineup, not only
do you have a contract formed, that additional term,
I would say, is automatically part of the deal
as long as the dealings are between merchants.
Between merchant to merchant dealings,
additional terms are automatically
included unless it's a material change
or unless the other side objects to it.
Monday delivery is no big deal.
I would automatically include it.
But then part 4, what if buyer responded that Monday delivery
wasn't convenient?
Answer here, the buyer can keep out any term
no matter how minor it is.
Even though I said Monday delivery wasn't a big deal,
if the other side objects to it within a reasonable time,
you can keep out that additional term.
So Monday delivery would not be included if the buyer responded
it was not convenient to her.
Now, by the way, our exam tip, especially for the MBE,
if they tell you in your facts that a certain term is
customary in the industry, I want
you to treat that as a non-material change.
It is not a material change to throw in a term that
is customary in the industry.
OK, with that, let's do a review question on your Article 2
acceptance rules.
Barbri has done quite a lot of bit of research
on learning science, and they have discovered
that it's easier for you to remember all of these issues
and rules and cement the answers deep inside your brain
if you apply your new-found knowledge
and tackle these review questions on your own first,
not just listen to me but actually make a step
at identifying the new-found knowledge
and applying it to the new-found hypothetical.
So I want to give you a minute for you
to take to go through this review question on Article 2
acceptance applying your new-found knowledge
and then we'll review it together in a minute.

OK, let's review our first activity question.

These are designed to model the MBE multiple choice type
questions that you'll see on the bar exam.
And as I said, if you take the knowledge that we've
gone through over our first hour together
and apply it to these new fact patterns,
hopefully, it will cement those rules in your brain
so that they are easier to recall quickly
in the heat of passion on the bar exam.
And let me assure you, there's a lot of passion going on.
You want to be able to recall these rules quickly.
Article 2 acceptance activity question.
A wholesale seller of TVs emailed a message
to the owner of a retail electronics store.
So right away, they're setting you up for merchant
to merchant dealings, right?
They're both store owners here, stating that he had recently
received a new shipment of 200 X brand televisions, goods,
that were available for sale to the store owner.
In return email, the store owner agreed
to purchase the televisions-- that
sounds like a seasonable expression of acceptance--
but she added that it'd be easier,
given his limited space, if the wholesaler delivered
50 of the televisions each month for the next four months.
That sounds like an additional term thrown in.
The wholesaler, though, then emailed back to the store owner
saying that he would only ship the entire order of 200
televisions right now.
So that's called objection to that additional term
within a reasonable time.
Normally, you would think in between merchants,
the additional term is automatically part of the deal.
However, here we have objection to it right away.
Then there's no further communication
between the parties.
Question put to you, if the wholesaler--
that's our seller of TVs--
then tenders all 200 televisions,
how may the store owner, the buyer, legally respond?
Let's look at our choices to see what's right
and what's a trick.
A says reject the entire delivery.
B says accept the entire delivery, right?
Diametrically opposed there, you got
to decide which is going to be correct.
C says demand that the wholesaler
deliver 50 TVs a month for the next four months.
Did that additional term make it in?
And D says accept 50 TVs and reject the rest.
Let's go through each choice.
What's the problem with A?
A says buyer can reject the entire delivery.
I'm sure you remember that if you
are a victim of a nonconforming tender,
buyer has the right to reject the entire delivery.
But this is not a nonconforming tender.
This is a tender that conforms perfectly
with what the seller said she was going to deliver
and what the buyer actually accepted.
So buyer does not have the right to reject the delivery.
A is false.
B is our correct bar exam-winning answer.
Buyer has to accept the entire delivery.
Why?
The wholesaler or the seller objected to the store owner's
additional delivery term.
Even though we thought they were going down
the road of trying to make us think
that the installment delivery term was going
to be automatically part of our deal
because it was merchants to merchants dealing
over a sale of goods, what's the problem with that?
That additional term did not become part of the deal
because the other party objected within a reasonable time.
Since that didn't become part of the deal,
you have to accept the entire 200 televisions right now,
choice B. What's wrong with choice C?
Demand that the wholesaler deliver 50 TVs a month
for the next four months.
As I just got done saying, that installment delivery term
didn't become part of the contract
since seller objected to it.
If seller had not objected to it,
then maybe that term between merchants
would have automatically been part of the deal assuming
it wasn't a material change.
What's wrong with D?
D says accept 50 TVs and reject the rest.
Again, buyer only has the choice to accept some and reject
others if she can show that seller is in breach.
There is no breach by seller here.
Buyer cannot just decide I'll accept 50 and not the rest.
Buyer has to accept all 200, choice B.
And that's the end of our first review question.
Next, let's discuss our fourth and final method
of offer termination, death.
Death does occur from time to time on the bar exam.
Hopefully, it will not be your own,
it'll just be one of the parties in your fact pattern.
And you got to know that death of either party in your fact
pattern before acceptance occurs will
terminate a revocable offer.
If either party dies before that offer has been accepted,
that offer goes to the grave with the deceased.
But warning, death does not automatically
terminate a contract.
So if you already have a contract form, that's
where there's been offer plus acceptance
and then later on somebody dies, usually,
the obligations under that contract
go to the estate of the deceased person.
If I borrow a million bucks from a bank to buy a house
and I'm paying off that mortgage for the next 30 years and 10
years into it I sadly die, it's not like the bank says,
oh, don't worry, Calandrillo.
You no longer have to make good on that contract
just because you're dead.
I assure you they're going to go after my estate
to try to collect the money from my estate.
Same thing is true about death not terminating
an irrevocable offer.
So if you had an irrevocable offer, remember under an option
contract situation where the offeree paid consideration
to hold the offer open for a week or a month or whatever
or where you see the start of performance
pursuant to a unilateral contract offer that
makes the offer irrevocable for a reasonable time,
in those situations, death won't even
terminate that offer, right?
So death only terminates revocable offers.
Next, let's discuss the third stage of our agreement
formation process because we knocked down offer,
we knocked down termination, now we
get to stage three, acceptance.
And of course, the language of the offeror
controls the manner of acceptance, right?
If the offeror says you have to accept via FedEx,
you can't send a letter via snail mail.
You've got to control the manner.
Normally, they don't control it.
But if the offeror does, make sure your offeree complies.
Hypothetical 2p, Chris Harrison emails Hannah Brown a job
offer that states you can accept this offer only by reporting
for work on Monday.
Hannah eagerly emails back, I accept.
Has she accepted that offer?
No, offeror controlled the manner of acceptance.
He said you got to show up on Monday.
And if the offeror controls the manner of acceptance,
make sure Hannah shows up on Monday.
After all, that's how she can validly accept Chris Harrison's
offer in this hypothetical.
Most offers can be accepted by a return email
or a return promise but not if the offeror controls the method
of acceptance differently.
Next, starting performance as potential acceptance.
Here, you need to distinguish between bilateral contract
situations versus unilateral contract offers.
If you get any bilateral contract situation
where your offeror leaves it open as to the method
of acceptance, your offeree has choices.
And if she starts to perform under a bilateral contract
situation, that operates as an implied acceptance, a promise
that she'll complete her performance.

So watch out for hypothetical 2q.

Bill Gates offers me $10,000 to paint his house,
but he doesn't specify how to accept.
He leaves it open as to the method of acceptance.
That means he's inviting a bilateral contract situation.
Now, I could have given a return promise.
But here in this hypo, I choose to start painting the house.
Question to you, have I accepted Gates' offer so that I
am bound to finish the job?
Absolutely yes.
Bilateral contract can be accepted
in any reasonable manner.
So starting performance is good enough to accept.
If the offeror leaves it open, you
want to give your offeree the choice.
She can either give a promise or she can start performing.
But either way, she has accepted.
Once she starts painting, she has to finish the job or else
she's in breach.
However, distinguish that from the unilateral contract
situation where, as I said earlier,
starting performance is not yet acceptance.
You have got to give complete performance
pursuant to a unilateral contract offer
if you want to accept it.

Hypo 2r, Gates' offer states that I can accept only

by painting his house, right?
Magic words, that's unilateral.
Offer only by, that tips you off you're in unilateral territory.
Then I go out and start painting his house.
Have I accepted Gates' offer so that I
am bound to finish the job?
No.
Starting performance is not acceptance
of a unilateral contract offer.
How do you accept unilateral contract offers?
By completing the job.
So I can start painting the house
and I can stop painting the house
if we're in hypothetical 2r.
However, once I start painting, can Gates still revoke?
That's the second part of this hypothetical.
And the answer to that is no.
Once I start performing pursuant to a unilateral contract offer,
that takes away the offeror's ability to revoke his offer.
I don't have to finish the job, though.
This is why the Brooklyn Bridge hypo is so frequently talked
about in your 1L class, right?
Remember I talked about it briefly earlier.
Professor Wormser offered you $100
to walk across the Brooklyn Bridge.
Clearly unilateral.
What if you start walking across the bridge?
Do you have to finish?
No.
And so he thought, well, how is that fair
that I can't revoke but you don't have to finish the job?
Hey, tough luck, Wormser, tough luck, Gates.
You chose clearly unilateral contract language.
The modern rule is that once the offeree starts to perform,
offeror can no longer revoke.
Has to give her offeree a chance.
But the offeree doesn't have to finish the job.
Now, obviously, I'm not going to get paid
for painting the house here.
I'm not going to get paid for walking across the Brooklyn
Bridge unless I complete the job.
But I'm not in breach unlike our previous hypothetical.
So watch out for that dichotomy.
Clearly unilateral contract offer,
once the offeree starts to perform, offeror can't revoke.
But the offeree has not yet accepted in hypo 2r.
Next, improper performance as acceptance.
Bar examiners like to test on this.
What if you just simply see somebody
doing the wrong performance, has she accepted?
Absolutely yes.
And obviously, she's also breached.
So watch out, improper performance
equals simultaneous acceptance plus breach.

Hypothetical 2s, Jay Inslee the Green governor

from Washington state offers me $10,000
to paint his house green.
What do I do?
I paint it purple.
Have I accepted his offer?
Yes.
And obviously, I've also breached the contract.
I've accepted by doing the performance incorrectly,
and I've breached that contract.
Obviously, he contracted for a green house, not
a purple house.
He can sue me for breach.
You might get a similar example under Article 2 of the UCC.

That's hypo 2t.

B the buyer orders a Beyonce CD from S the seller.
S simply ships a Lady Gaga CD instead.
Has S the seller accepted B's offer?
Yes.
Shipping the wrong goods, right, improper performance
here by the seller, it equals acceptance
and it equals breach.
Obviously, you don't got to keep the Lady Gaga CD,
you ordered Beyonce.
But make sure you say the seller has accepted,
the seller has breached.
However, part 2 of the hypo, what
if the seller had included a note saying, look,
I'm out of Beyonce CDs.
I'm sending you this Lady Gaga CD as a quote, "accommodation."
Treat that as a magic word, accommodation.
That is a seller making a counteroffer to the buyer.
I don't have exactly what you're looking for.
I don't have Beyonce, but I do have Gaga.
I'm trying to accommodate your needs to listen to high quality
music.
But that's not a acceptance, that's not a breach.
That's basically a counteroffer.
So if you see an accommodation, you
want to let the bar examiners note that
is called a counteroffer.
It's an accommodation.
It's not an acceptance.
It's not a breach.
It's a seller trying to give the buyer something else
because she doesn't have what the buyer asked for.
And then the buyer has a choice to accept it or not.
Buyer doesn't have to accept Gaga, obviously.
Next, what if the offeree simply stays quiet, silence.
Is silence effective acceptance?
No way.
You remember the general rule, I should say.
Silence is not an effective acceptance.
Why not?
We're using the objective theory of formation here.
A reasonable person has to look at the words
or actions of both parties and think that a contract was made.
If the reasonable person is looking
at an offeree who simply stays quiet,
the reasonable person is not going
to think that she has accepted.
General rule, silence is not acceptance.

Hypo 2u, I leave a note on your outline at the break.

I offer to sell you my Prius for $8,000.
If I don't hear from you by 9 o'clock tonight,
you've accepted.
You say nothing in response.
Have you accepted my offer?
No way.
General rule, silence is not an effective acceptance.
Offeror cannot single-handedly turn the offeree's silence
into an acceptance.
That would not be fair to the offerees of the world
if offerors could simply say, I'm
going to send you something, and if you stay quiet,
you're going to have to pay for it.
I remember when I was a kid, I used
to get these offers in the mail from BMG Music.
I don't know if they're still around,
but they would send me CDs and they would send me tapes
and they would say, by staying quiet, you accept.
Only if I communicate that to them
would that be an effective acceptance.
Here, if you simply see a seller saying
I offer to sell you my car for $8,000, and if you stay quiet,
you accept, you go with the general rule.
Silence is not an effective acceptance.
It has to be communicated out loud
in order for the reasonable person
to think that this buyer accepted.
You may have studied one of the famous exceptions,
though, to the silence rule.
Remember the custom exception that
was the eel skin case Oliver Wendell Hill was on--
Oliver Wendell Holmes, I should say,
was on the Hill for the eel skin custom exception.
That was where you had a seller and a buyer who
had a previous custom where the seller would send eel
skins the buyer, and five or six months in a row, the buyer
accepted by silence.
Just put the check in the mail paying for the eel skins.
In month seven, the seller sends more eel skins to the buyer,
but the buyer never pays for them.
So the seller comes to the buyer says, where's my money?
The buyer says, hey, I never communicated my acceptance out
loud.
Don't you know the general rule?
Silence is not an effective acceptance.
And Oliver Wendell Holmes said, well, that's true.
That's the general rule.
You will have a duty to speak where
the previous custom between the parties
indicated that a silent acceptance was reasonable.
But that's the exception to the general rule.
We start out with the general rule
and then look to see if your facts fit into the exception.
But normally, silence is not an effective acceptance.
Next, let's discuss the timing of acceptance.
This raises what you came to know and love in your 1L youth
as the mailbox rule.
I'm sure all of these rules are coming back to you fondly
as we refresh the greatest hits of your 1L year.
The mailbox rule says that acceptance is effective
when mailed, not when received.
Earlier today, I talked about rejections and revocations.
There's no mailbox rule for those.
Those have to be received.
Acceptance letters, on the other hand,
are effective upon dispatch.
As soon as you drop the letter of acceptance
in the mailbox, that's the moment
you have a contract formed.
That's the moment of acceptance.
It doesn't matter if it takes another few days to reach
the offerer's location.
Immediately, acceptance letters are effective.
The policy, you remember, is to protect offerees
of the world against revocations once the offeree has mailed
her acceptance letter because after all, offerors
are generally free to revoke any time prior to acceptance.
That's a rule that's very favorable to the offeror.
How do we help out an offeree?
We give her the mailbox rule.
As soon as she drops the letter of acceptance in the mailbox,
she is protected.

Hypothetical 2v, on July 1, Elon Musk

offers to sell his original Tesla Roadster to Mark
Zuckerberg for a million bucks.
Relatively rich guys can afford these Teslas.
On July 2, Zuckerberg mails an acceptance letter, right?
Mailbox rule acceptance.
On July 3, Zuckerberg receives a letter
from Musk revoking that offer.
You'll note that revocation letter
might have been sent first.
Is that going to matter?
No way.
What result are we going to have here?
A contract formed on July 2.
I don't care if Elon sent that revocation letter first.
Even if he can prove he sent it first, it doesn't matter.
Revocations are effective upon receipt.
Acceptance letters are effective when sent, right?
So watch out for acceptance letters
and revocation letters crossing in the mail on the bar exam.
Acceptances are effective when mailed.
Part 2 of the hypo, what if the acceptance letter got
lost in the mail?
Don't get fooled by that trick.
That is totally irrelevant.
It doesn't matter if that acceptance letter never
arrives.
You might have a problem proving you've accepted,
but that's not our bar exam problem.
Our bar exam problem is to say what
is the moment of formation?
And the rule is acceptance letters
are effective when sent.
It doesn't matter in this hypothetical.
OK, with that, let's do another review question testing you
on your new-found knowledge of the mailbox rule
cementing it inside your brain.
Take a moment to go through this on your own then
we'll review it together in a minute.
OK, we just learned about the mailbox rule.
Here, we have an MBE-style question testing you
on your new-found knowledge of that rule.
Bill Gates receives a letter from Pearl Jam
inviting him to replace Eddie Vedder
in a new version of the group.
Legendary Seattle band now going to be headlined
by Billy G instead of Eddie.
On August 8, Gates mails a letter
to the band accepting that offer.
On August 9, though, he changes his mind,
and he calls the group to politely decline.
So he tries to reject after he's already made an acceptance.
On August 10, Pearl Jam receives Gates' letter of acceptance.
Remember that acceptance letter that was sent on August 8.
Question to you, if Pearl Jam brings
an action against Gates for breach,
how should the court rule?
A says for Gates because the letter is too indefinite
to be an offer.
No, that's ridiculous.
It just depends on what the letter says, right?
A letter could certainly be definite enough to accept.
B says for Gates because Pearl Jam
received his rejection via phone call before they
received his acceptance letter.
That is the answer that I think they're trying to trick you
into choosing, right?
Because in the fact pattern, they clearly
tell you that when he calls on August 9, he's rejecting.
And on August 9, they have no notice
that he already mailed his acceptance on August 8.
That doesn't matter at all.
Choice B is just a trick.
Acceptance is already effective on August 8 mailbox rule.
That's why the correct answer is choice C. You're
going to rule for Pearl Jam.
Gates' letter accepting their offer
was effective when he mailed it.
What do you call it when he tried to back out on August 9?
You call it breach.
Choice D says, for Pearl Jam because Gates' rejection
was oral.
That's also just a red herring ridiculously thrown in.
Obviously, rejections could be oral,
but they've got to come first and be received
before the acceptance letter if you want
that rejection to be effective.
Otherwise, go with your general mailbox rule, acceptance
effective on August 8.
So make sure you understand that as you review that activity
question.
We've just tackled the mailbox rule.
Now, let's tackle the exceptions to that rule.
First is where the offer states otherwise.

Hypothetical 2w, Elon Musk offers

to sell his original Tesla Roadster to Zuckerberg
for a million bucks.
His offer states, your acceptance
must be received by July 9.
He's telling you when you've got to have it received,
not when you've got to have that letter sent.
On July 9, Zuckerberg mails his acceptance letter
but Musk doesn't receive it until July 11.
Is Musk bound to deliver the Tesla to Zuckerberg?
No.
Offeror can override the mailbox rule.
Even though mailbox rule says generally,
acceptance is effective when sent on July 9, here,
the offeror controlled the method
and controlled the timing, I should say,
of when that acceptance must be received.
Therefore, Musk is not bound.
Acceptance has to be received by Musk deadline.
That's what he said.
Next, irrevocable offers.
Like an option contract, for example, no mailbox
rule for those.

Acceptance must be received in hypo 2x.

Elon Musk offers to sell his Tesla Roadster to Zuckerberg
for a million.
Zuckerberg pays him $3,000 to hold the offer open
until July 9, right?
Option contract.
The offeree paying money to hold the offer open until July 9.
On July 9, Zuckerberg mails his acceptance letter.
On July 11, Musk receives it.
Is Zuckerberg's acceptance effective?
No.
Remember when it comes to option contracts
where you paid consideration to hold the offer open until July
9, obviously, the offeror can't revoke it before July 9.
But there's no mailbox rule for acceptances under options.
You've got to get your acceptance actually received
by the deadline.
Here, his acceptance wasn't received until July 11.
That is not going to be effective.
Watch out for acceptance under option contracts.
And again, option contracts remove
the reason for the mailbox rule protection.
Mailbox rules exist to protect offerees
against offeror revocation.
Once you have an option contract, offeror can't revoke.
But offeree, you've got to make sure
that if you had that option, your acceptance is received
by the end of that option.
No mailbox protection.

Lastly, rejection sent first and then acceptance, also you lose mailbox rule protection in

hypo 2y.
Elon Musk offers to sell the Roadster to Zuckerberg
for a million dollars.
Zuckerberg mails a rejection letter on July 8
and then he mails an acceptance letter on July 9.
Is Musk bound?
Answer, it depends.
It's basically a race when you get this fact line up.
Whichever arrives first is going to prevail.
Zuckerberg will lose the benefit of the mailbox rule,
though, if he sends a rejection letter first.
So if rejection is sent first, then you
want to look to which letter gets there first.
If the rejection arrives first, that's
going to kill off the original offer.
There's not going to be a contract.
If the acceptance letter arrives first,
you will still have a contract, but it
will be effective and formed at the moment of receipt.
Why?
You lose the benefit of the mailbox rule
if you sent a rejection first.
So remember those exceptions to the general mailbox
rule when it comes to the timing of acceptance.
Next, let's discuss consideration.
Consideration makes that agreement
that you formed legally enforceable.
That's what turns it into a contract.
You've gone through offer and termination and acceptance.
Now, show me some consideration to give me
a legally enforceable contract.
And I will say that consideration is really
only important on the bar exam, not in the real world.
When I was at the big law firm in Seattle
prior to my academic career, I was drafting contracts
every single day.
I don't think we ever had a single debate
about consideration.
It was always in there in the real world.
On the bar exam, though, you might
get tested on consideration, what it requires
and what it means.
What does it require, and what's the definition?
Show me some bargained for legal detriment or benefit.
That's what you're basically looking for,
a bargained for exchange of legal value.
That equals consideration, and that's
what turns your agreement that's formed into a legally
enforceable contract.
You can have a promise in exchange for promise, right?
Promises for promises equal consideration,
or you can have promises in exchange for performance,
or you can have promises in exchange for forbearance.
Any of those can constitute consideration.

Hypothetical 2z, Bill Gates promises

to sell Jeff Bezos a puppy in exchange for his promise
to pay $400.
Bezos now refuses to pay.
Was there consideration for Bezos' promise to buy the dog?
Absolutely yes.
If you get two parties exchanging promises,
I'll sell you this, other guy says,
I promise to pay you that, you don't need any performance
to occur in order to have a legally enforceable contract.
Promise for promise equals consideration.
No money needs to change hands yet.
You still have an enforceable contract.

Hypothetical 2aa, what if I promise

to pay you $100 to not read romance novels by E. L.
James for the next two months?
I don't know if you've ever read those Fifty
Shades of Grey novels.
You can't take the time to have those fill up your brain.
You've got to focus on bar exam studying.
I'm going to pay you $100 not to read that trash.
You go ahead and don't read her novels.
Question, is there a consideration for my promise
to pay you the $100?
Absolutely yes.
Forbearance can constitute consideration, right?
You are agreeing not to do something in exchange
for the payment of $100.
This is just a modern updated version of the seminal case,

Hamer v. Sidway. there was an uncle who promised his nephew $5,000
if the nephew agreed to refrain from drinking
and smoking and swearing and gambling
and to basically doing all the great stuff
that teenage boys like to do until he
turned 21 years of age.
Nephew refrained from doing those things.
He sued the uncle to collect the $5,000.
The uncle's estate said, hey, you know, what did you really
do for me?
It wasn't like you painted my house or did something for me.
And the nephew came back and said, look, I forbore.
I gave up the right to do stuff.
That equals consideration.
Now, part 2 of this hypo.
What if you would not have read the E. L. James novels anyway?
You know, like I told you, those Fifty Shades
of Grey novels, a lot of people don't
think they're worth the price of the page
that they're printed on.
Maybe you like them, maybe you don't like them.
Maybe you wouldn't have read that stuff anyway.
Is there a consideration still?
Of course, it is totally irrelevant
whether you would have read that stuff anyway.
If you are agreeing to give up the legal right
to do something that you otherwise could have done,
you could have read her novels if you felt like it, now
I'm paying you $100 to refrain from doing
so, that equals consideration.
Other consideration issues to watch out for,
past consideration.
It's a misnomer.
It's an oxymoron.
Basically, you're going to see an act that
occurred in the past now being recognized with a gift promise
lacking in consideration.
That's unenforceable.

Hypothetical 2bb.
Snooki helps Jwoww move into her new home.
Later, Jwoww promises to pay Snooki
$300 for helping her move.
Jwoww now refuses to pay, right?
She was motivated by temporary generosity.
She makes the promise to pay.
Now, she reneges on that promise.
Was there consideration for Jwoww's subsequent promise
to pay Snooki the $300?
No way.
This is called past consideration.
Past consideration is not consideration, right?
She did an act in the past helping her move in,
was recognized, subsequently, by gift promise,
but she has the right to renege on that gift promise.
You cannot bargain for something that's already been done
in the past.
This is just an unenforceable gift promise
lacking in consideration.
Next, what about the adequacy of consideration?
I'm sure you remember the rule, courts
do not look into the adequacy of consideration.
It is totally irrelevant.
Even a mere peppercorn in the eye of the beholder
may suffice.
Thousands of law students graduate law schools
all over America.
They all know that a mere peppercorn is enough.
Half of you guys have no idea what a mere peppercorn is,
but you all know it's enough to equal consideration
because who knows what a peppercorn is
worth in the eye of the beholder?
Courts don't want to go down that slippery slope.
They don't inquire into the adequacy of consideration.

Hypo 2cc, we agree that I will pay you $300 for your Billy
Joel greatest hits CD.
The CD is only worth $20, but I desperately
want it to complete my Billy J collection, right?
I have an idiosyncratic desire to collect
Billy J. I'm going to pay you 15 times
what it's worth on the fair market.
Is there a consideration for my promise
to pay you $300 for that CD?
Absolutely yes.
As long as there is a bargain, courts
do not inquire into the adequacy of consideration.
I don't care, and you don't care that I
could have gotten that CD elsewhere for $15 or $20.
If I'm wanting to pay $300 for it,
that is a bargained for exchange of legal value.
Courts do not go down the slippery slope
of looking whether or not it was worth the $300 I agreed to pay.
You may have studied the seminal Batsakis v. Demotsis
case in your 1L Youth.
Hopefully, all of these cases are coming back to you
in a flood of nostalgic joy.
In Batsakis v. Demotsis, you had a lender
giving the borrower 500,000 drachma during World War II
Greece.
In return, the borrower promised to repay $2,000 plus interest.
That was the bargain that was struck.
Now, what is 500,000 drachma really worth?
The borrower testifies that it was only
worth the equivalent of $25.
And the borrower sues to get out of her $2,000 promise.
She says, how can the court make me pay back
$2,000 when all I got was the equivalent of $25?
You remember what the court says,
even a mere peppercorn in the eye of the beholder
will suffice.
You got exactly what you bargained for.
Courts do not inquire into adequacy.
So borrower had to repay $2,000 plus interest,
even though she only got roughly $25.
Really harsh.
Maybe unconscionable.
Maybe you'd raise that defense later on.
But courts do not inquire into adequacy as long
as there is a real bargain.
Contract modifications, next.
Do you have to have consideration?
Common law rule, very different than your Article 2 rule
when it comes to modifications.
Obviously, under common law, any contract modification,
you got to show me consideration or some exception.
Why not?
Why do you need to have consideration?
Why is your modification not effective without it?
It's because common law has what we call the pre-existing duty
rule that new consideration is required for modifications.
Performing what you are already legally obligated to do
is not consideration for a promise
to pay you more money to do merely that.
Watch out for pre-existing duty rule.
Somebody asking for more money to do the exact same thing she
already agreed to do for less money,
you want to say where is the new consideration.
You need to show me new consideration
to modify a common law contract.

Hypo 2dd, Beyonce contracts to sing at the Coachella Music

Festival for $20,000.
On arrival, she demands $30,000.
Coachella agrees.
After Beyonce performs, Coachella
refuses to pay her the extra $10,000.
Is there consideration for Coachella's promise
to pay Beyonce the extra $10,000?
No, right?
She did not do anything extra.
This modification is not supported by new consideration.
She was merely doing what she was already obligated to do.
And you cannot get paid $30,000 to do something you already
agreed to do for $20,000.
Why not?
Pre-existing legal duty rule under common law.
You may have studied the case Alaska Packers.
It involved a group of fishermen who entered into a contract
to go catch salmon in Alaska in exchange for $50.
After they sailed from San Francisco
all the way up to Alaska, they all went on strike
and demanded $100 to catch the very same salmon they
were supposed to catch for $50.
The fishing boat captain figured he
was between a rock and a hard place
because there was no other fishermen out there
that he could hire.
He reluctantly agreed to pay them $100.
They called off their strike.
They caught the salmon.
They got back down to San Francisco.
They all demanded $100, and the fishing boat only
paid them $50, the original contract price.
Why?
Because the court said they had a pre-existing duty
to catch salmon in exchange for $50.
You can't get paid more money to do the exact same services you
agreed to do for less money.
However, part 2 of the hypo, what if Beyonce agreed to sign
autographs for an hour in exchange for the extra $10,000?
If they give you that fact line up,
there's no pre-existing duty rule violation.
Why not?
She is giving new consideration here.
She's doing something more than what she was originally
obligated to do.
That is not a violation of the pre-existing duty rule.
That modification is effective.
So if she's adding to her duties,
then that will support the additional promise
to pay $10,000.
Another exception to the pre-existing duty rule
is part 3.
What if the modification was fair in light
of unanticipated change in circumstances?
Remember a couple of years ago right
before Beyonce was supposed to sing at Coachella,
she got pregnant.
That might make her job more difficult to do.
It's an unanticipated change of circumstances.
And if they want to enter into a modification
to pay her more money and that modification is quote,
"fair and equitable" in light of those unanticipated
circumstances, then it is enforceable even
without new consideration.
You may have studied some of the rubble and debris cases
under this rule, right?
Contractor agrees to excavate a site for $100,000
and do everything requisite and necessary.
He then gets out on the job, discovers
all kinds of rubble and debris.
It's going to make his job twice as difficult to perform.
The other party agrees to pay him more money in order
to do the exact same job.
Later on, they claim pre-existing duty rule,
and he comes back with the, hey, this modification's
fair and equitable in light of an unanticipated change
in circumstances.
We all thought the soil was clean.
Now we discovered rubble and debris.
Makes my job twice as hard.
That's not a pre-existing duty violation.
Fourth part of the hypo, what if the promise
to pay the extra money was made by Kanye West,
not by Coachella.
Watch out for that trick question.
So even if Coachella had made the promise upfront,
you would go with pre-existing legal duty rule
because she can't get paid an extra $5,000 or $10,000
to sing if she already agreed to do it for less.
But if a third party like Kanye comes in
and he makes the subsequent promise to pay her more money,
that promise is enforceable.
That's the third party exception to the pre-existing duty rule.
Why?
Because Beyonce did not owe a duty to Kanye previously.
Previously, her only duty was owed to Coachella.
Now Kanye is making this promise.
She also owes a duty to Kanye here,
but that promise would also be enforceable in the last part
of this hypothetical.
It's not a pre-existing duty rule violation.
That's common law.
What about the sale of goods modification?
I'm sure you remember the rule.
No consideration is required at all
to modify sale of goods contracts.
UCC Article 2 says all you need to show me is good faith.
No consideration.

Hypo 2ee, Donna Karan contracts to sell a dress--

sale of good-- to Heidi Klum for $4,000.
Later, they agree to increase the price tag to $4,500, right?
So she's seeking more money to sell the exact same dress she
agreed to sell for less money.
Is Heidi's promise to pay the extra $500 legally enforceable?
Yes, as long as that modification
was made in good faith.
As long as there was a good faith reason
to modify the deal like supplies for the dress got
more expensive, who knows.
We do not inquire, right?
We do not make there be any new consideration under Article 2
in order to have a valid modification.
In fact, if you read the commentary to Article 2
here when it comes to UCC modifications,
they say these modifications are effective without regard
to the technicalities that the common law requires.
Now, what's the technicality that they're talking
about in that commentary?
They're talking about consideration.
It breaks my heart as a contracts professor
that they reduce consideration to a mere technicality.
I can tell it doesn't break any of your hearts.
It breaks mine because I think of contract law
and consideration as synonymous.
Consideration's like a bedrock principle of contract law.
Under Article 2, when it comes to modification,
it's a mere technicality.
No consideration required, only good faith.
But do make sure you get good faith, right?
If some seller is just trying to extort a buyer at the moment
that the buyer needs the goods, right?
Right before Heidi Klum is about to walk the runway
and there is no good faith reason, then obviously,
that modification would not have been enforceable.
Next, what about partial payment of a debt
that is due and undisputed?
There is no consideration for that,
and it is not going to be enforceable.
Watch out for this.
Even though this happens all the time
in the real world and people's go--
people go their separate ways and make these deals,
not on the bar exam.
Hypo 2ff, let's imagine that you owe Mastercard $3,000.
That debt is already due and undisputed.
Everybody agrees you owe it.
You and Mastercard then orally agree, though,
that if you pay $2,000, Mastercard will
forgive the rest of your debt.
They just want to get some money.
And so they say to you, if you pay $2,000,
we'll forgive the other thousand.
Question, if you pay the $2,000, can Mastercard still
recover the $1,000 balance?
Absolutely yes.
Mastercard can make that promise,
and Mastercard can break that promise.
Why?
There was no consideration for it.
You already owed $3,000.
There's no new consideration given
if you're merely promising to pay back $2,000 when
you already owed $3,000.
In the real world, people liquidate debts
for reduced sums all the time, right?
Mastercard just wants to get something.
Not on the bar exam.
I think it's almost a bar exam guarantee.
You'll get one of these due and undisputed debts,
and then later, Mastercard will tell you you only
have to pay back $2,000.
Later on, you want to let them collect the full $3,000.
Why?
There was no consideration for release of the extra $1,000.
Now, obviously, if you agree to pay back the debt early
or if there was some good faith dispute over whether or not
that debt was due, then you could liquidate it
for a reduced sum.
But typically, they give you the debt
that is already due and not disputed at all.
Next, time-barred debts as an exception
to the consideration rule.
A written promise to pay a debt collection of which
is barred by expiration of the statute of limitations
is enforceable even without consideration.

hypo 2gg, let's imagine now

that Mastercard is already barred
by passage of the statute of limitations, right?
It's already run out on collecting this debt.
They can't collect a dime at this point.
You write Mastercard a letter, though, look,
I know that I owed you some money.
I feel bad about it.
I will pay you $2,000.
Question, must you pay Mastercard the $2,000?
Yes.
Although Mastercard can't collect anything
anymore under the original debt because the statute
of limitations has run out and you can't be sued for it,
watch out for the debtor who's a good person with a good heart,
writes a letter back to her creditor and says, look,
I feel bad about this.
I know I owed you some money.
I promise to pay back half.
I promise to pay back $2,000.
That new promise if it's in writing
can be enforced even though there's
no consideration for it.
So that $2,000 is collectible, not the $3,000.
Obviously, that debt has expired due to expiration
of the statute of limitations.
Last exception to the consideration rule
is promissory estoppel, right?
Just because you don't have consideration,
don't forget to look for promissory estoppel.
Foreseeable detrimental reliance can make the promisor's promise
enforceable, even if it lacks consideration at the outset.
So you start out with a gift promise, unenforceable, right?
No consideration.
Transform it into enforceability if you
have promissory estoppel elements met.
What do you need?
Promise, reasonably foreseeable detrimental reliance,
therefore, justice requires enforcement of the promise.
Lay out those elements and bail out your promisee.
Hypo 2hh you might recognize is Ricketts v. Scothorn.
Grandpa promises to give his granddaughter
$2,000 as a gift where he says, I love all my grandkids.
I promise you two grand.
None of you should have to work.
In reliance, granddaughter predictably
quits her job as a bookkeeper.
Then what does grandpa do?
Predictably, grandpa dies.
What does the estate do?
Predictably, the estate reneges on grandpa's promise.
Because I assure you, there's all kinds
of other people trying to inherit grandpa's money.
Question one, is there a consideration
for grandpa's promise to give granddaughter $2,000?
No, there was no bargained-for exchange here.
This was just a gift promised by grandpa to his granddaughter.
He never required that she quit her job in exchange.
If you don't see any bargained-for exchange,
you don't have consideration.
But you're not done answering your question
because the second part asks, can granddaughter
enforce grandpa's promise on some other ground?
Absolutely yes.
Promissory estoppel.
Grandpa made me a promise.
It was reasonably foreseeable that I
would rely to my detriment on that promise.
I did actually reply by quitting my job as a bookkeeper.
Therefore, justice requires enforcement.
And on that basis, the court in Ricketts v. Scothorn
allowed Katie Scothorn to enforce grandpa's promise.
But bar exam tip, promissory estoppel
is only the right answer if there's no consideration.
First, you want to go through your consideration analysis,
lay out the rule, show me some bargained-for exchange
of legal value.
If it's not there, then you look for promissory estoppel,
lay out the three elements, and if they are met, on that basis,
you can rule for your promisee.
A promise made, reasonably foreseeable detrimental
reliance, justice requires enforcement.
OK with that, we have finished module 2 on the F-word for formation of contracts. Next, let us
move on to module 3 on defenses. Remember love for dogs. Dog stands for defenses Don't
forget to think about various defenses to your contract,
first of which we'll discuss is lack of capacity.
Three categories laid out for you in your outline.
Obviously, minors lack capacity, those individuals under age 18,
intoxicated people, even voluntarily intoxicated people
if the other party knew and took gross advantage of you,
and mentally incompetent individuals.
All of them will have a lack of capacity defense
to enforcement of the contract.
That's the general rule.
An incapacitated defendant has the right
to disaffirm her contract.
She doesn't have to disaffirm.
So if she wants to still go forward with the contract,
you should let her. But she has the right to disaffirm if she lacked capacity.

Hypothetical 3a, I agree to sell my 2010 Toyota Prius

to 17-year-old Justin Bieber.
The Biebs is a minor at the time of this deal.
Bieber later refuses to go through with our deal.
Can I enforce this agreement against Bieber?
Obviously not.
Young Bieber, the minor, has a lack of capacity defense.
He has the right to disaffirm, i.e.
get out of the contract.
Part 2 of the hypo, let's imagine
I believe that Bieber is 18 because he told me he was 18.
Does that matter?
No, generally not.
Generally, all that matters is Bieber's age
at the time the agreement was made.
If he's a minor, he has the lack of capacity defense.
He has the right to disaffirm.
However, part 3 of the hypo here,
watch out for this sub-hypo.
If I refuse to convey my Prius to Bieber, can he sue me?
Can Bieber enforce the contract against me?
Yes.
Why do the bar examiners like to give you this hypothetical?
They think they're going to trick you into answering no.
They clearly told you he was a minor,
and minors have the right to disaffirm.
Everybody knows that.
But watch out, the minor doesn't have to disaffirm.
If the minor wants to go through with the deal,
he or she is allowed to.
You're only worried about the defendant's capacity.
I'm the defendant now, right?
Bieber's suing me to try to get this car that I contracted
to sell him.
He can get that car.
He might have to have a guardian sue on his behalf
if he's under 18, but certainly, do not let me out of the deal.
I am of age.
I have capacity.
I can be sued.
So you only care about the defendant's capacity, not
plaintiff.
Watch out for that last part of hypo 3a.
Also watch out for implied affirmation
after gaining capacity.
Look for a minor retaining the benefit under her contract
after reaching age 18.
She'll sign a deal when she's 17.
Later, she turns 18.
She keeps the benefits under that contract
without complaining.
That's called implied affirmation.

Hypo 3b, what if Bieber doesn't disaffirm the contract

and he continues to use the Prius after he turns 18?
He's driving it all over the country having an awesome time in my car.
Implied affirmation. The minor, who lack capacity, only gets a reasonable time to disaffirm.
Once she turns 18, give her a month or so. after that, if she's still driving the car, make her pay
for it as if she said, OK, I'm bound. I'm 18 now. I would like the benefits under this contract.
Next exception to the incapacity defense
is the necessities or necessary situation.
An incapacitated party is still liable for necessaries,
things like food or shelter or clothing or medical care.
But you should know that it's not a contract obligation.
They're only going to be liable for the reasonable value
of that necessity, not the contract price.
They'll have a capacity defense to the contract price
but then make them pay the reasonable, fair market
value in restitution.

Hypo 3c, let's imagine that I rent Bieber a place to live,

i.e.
a necessary, in exchange for $20,000 a month.
Does Bieber have to pay?
Yes, but only for the reasonable value of that apartment.
So there's no contract claim here
because after all, he'll have a lack of capacity defense
if he's a minor.
He still, though, received a necessity, shelter.
He has to pay in restitution whatever
the reasonable, fair market value of that apartment
was worth.
So if it's worth roughly $10,000 or $5,000
or whatever other people are paying for similar places
to live, that's the amount he has to pay me.
He'll have a defense to contract price of $20,000
but still make him pay restitution
for whatever the value was that he actually
received because after all, I did confer a benefit on him.
He did receive an apartment.
He should have to pay whatever it was reasonably worth.
Second defense, ambiguity/misunderstanding.

Hypo 3d you may note is the seminal case

Raffles v. Wichelhaus 2 ships Peerless sailing in the night,
never their paths shall cross.
3d, B the buyer and S the seller contract
for the delivery of cotton on the ship Peerless.
B the buyer means the ship Peerless sailing in October.
S means the ship Peerless sailing in December.
They both have materially different meanings
attached to the word Peerless.
Is there a contract?
No.
There was no meeting of the minds here.
They both were talking about a different ship Peerless,
both had different interpretations,
and both were reasonable in their different
interpretations.
This was a material ambiguity that neither party knew about
or had reason to know about.
That means there's no contract, and that
means there's no remedy for other party
or for either party, right?
That means buyer's not going to get cotton in October,
and she can't sue for it, and the seller is not
going to get paid in December.
And she's-- you know, she can't sue for it, right?
No contract.
Nobody can enforce it, material ambiguity.
On the other hand, by the way, if they tell you
in your fact pattern that one of these guys
knew or should have known that there was actually
two ships named Peerless, then I would hold that ambiguity
against the party who knew about it
or should have known about it.
There would still be a contract if one of these guys
knew about it because the court would think, hey,
you knew there were two ships named Peerless.
Why didn't you clarify?
But if they tell you that both parties are reasonable,
and that was the facts in
Raffles v. Wichelhaus, both parties had reasonable meanings about what the ship named Peerless
actually meant, no contract. Otherwise, if one party knew or should have known, then there is a
contract on the innocent party's interpretation.

Third defense is mistake.

First, we'll talk about mutual mistake
then we'll compare it to unilateral.
Mutual mistake, everybody does the seminal case
Sherwoodv. Walker Two parties who both thought
that Rose the II the cow was barren.
That's what Sherwood v. Walker was all about.
They were bargaining over a cow named Rose the II.
Certain contract casebooks even had a picture of her
in pensive mood if you read the Dawson casebook.
They both thought she was barren.
They both agreed to pay 5 and 1/2 cents per pound
because what happens to barren cows?
Sadly, they get turned to hamburgers.
They're worth their price for their meat.
After the contract was entered into,
though, the seller discovered that Rose was pregnant.
She was, indeed, a fertile cow, and buyer
started to celebrate because he knew
that fertile cows were worth 10 times as much as barren cows.
And seller said, don't celebrate so fast.
This contract was infected by a mutual mistake.
We both assumed that she was a barren cow.
We bargained for her on that basis.
Court said this contract will be rescinded.
Seller will have a defense of mutual mistake.
On the bar exam, look to see whether the subject matter they
bargained over actually exists.
If it's a mistake about the existence of the subject
matter, grant relief.
No contract.
On the other hand, if it's just a mistake
about the value of the thing they
bargained over, that type of situation in the bar exam,
I want you to still enforce the contract.

3e all the parts to see which

of these contracts is going to be
unenforceable on the ground of mutual mistake versus
in which case will you still go ahead and enforce it.
Alex Rodriguez, A-Rod, agrees to sell Serena Williams a baseball
bat for $100,000.
Maybe she thinks it's going to be easier
to destroy tennis courts if she's got a baseball
bat instead of a racket.
Neither was aware that the baseball bat had actually been
destroyed two days earlier.
Does Serena still have to buy this baseball bat from A-Rod?
Obviously not.
Again, this is a mutual mistake about the existence
of the subject matter.
They're bargaining over a baseball bat
that no longer exists.
Grant Serena Williams relief.
She doesn't have to pay 100 grand for a bat that's
been destroyed.
Part 2 of 3e, A-Rod agrees to sell Serena
the baseball bat for $100,000.
Both believe it was used by Babe Ruth, that's
why the bat was so valuable.
After the agreement, though, they learned that it was not.
It's a fake.
It's a forgery.
Does Serena Williams still have to buy this bat?
No because again, this is a mutual mistake
about the existence of the subject matter.
They both assumed that it was a bat used by Babe Ruth.
It's just like the seller and buyer in
Sherwood v. Walker.
Both were assuming that the cow was a barren cow.
Fundamental mistake that has a material effect on the bargain.
Both assumed it, and it goes to the existence of the subject
matter.
This is just a fake Babe Ruth bat.
However, last part of the hypo.
What if they tell you that baseball bat was indeed
actually used by Babe Ruth but it was worth
only the $50,000, not the $100,000
that A-Rod and Serena thought?
In that last hypo, I want you to still enforce the contract.
This is just a mistake as to the value of the bat.
It is not considered material in the eyes of the bar examiners.
This contract is still enforceable.
So if the bat doesn't exist or if the bat
is a fake, no contract, right?
That's a mutual mistake about the subject matter.
On the other hand, if Serena just--
Serena Williams made a bad bargain
and it turns out the bat is only worth $50,000 or $70,000,
not the $100,000 she thought it was, of course,
don't inquire into the adequacy of consideration,
and she got exactly what she bargained for.
The bat was used by Babe Ruth.
Now, contrast that to unilateral mistake.
That's where only one guy makes the mistake.
And those cases are a little bit tougher.
Courts are a little more reluctant to grant relief.
They think, hey, the other guy knew what was going on,
why didn't you?
So look for assumption of risk fact patterns here.

Hypo 3f, at the time of their agreement,

Serena believed that Babe Ruth was
the original owner of the baseball bat
but A-Rod did not, right?
So this wasn't a mutual mistake here.
One guy thinks that Babe Ruth owned the bat,
one guy thinks that Babe Ruth didn't use the bat.
Later, Serena learned that she was
wrong, i.e. unilateral mistake.
Does she still have to buy the bat?
Absolutely yes, right?
Unilateral mistakes are not going
to grant her defense unless A-Rod knew about it
or should have known about it.
So obviously, he can't commit fraud
and represent that it was used by Babe Ruth
if he knows that she thinks it was used by Babe Ruth
and he knows that it wasn't, then
he has to correct her misunderstanding.
But otherwise, if he doesn't know about it
and she thinks it was used by Babe Ruth
and he doesn't, I would say that's a unilateral mistake
case.
And those are a little bit harder to prevail upon
unless the unilateral mistake is obvious or palpable, right?
If it's obvious that she's making a mistake,
then he can't take advantage of her.
So watch out for that exception to the general unilateral
contract rule.
Generally, no relief unless it's a palpable, obvious mistake.
By the way, palpable, obvious mistakes,
usually, if they want to give you that example,
they'll give you a construction bidding situation
where you have 10 plumbers making bids
to do a plumbing project for a school that's
about to be built. First nine plumbers all
come in around $10,000.
Last plumber comes in at a $1,000 bid.
School board says, I accept.
You can't do that.
That's an obvious, palpable unilateral mistake.
It's obvious that last plumber just left a zero off
of her bid.
In that case, I would still grant relief
to the unilaterally mistaken party.
Next defense, unconscionability.
This doctrine was originally applicable only
to sale of goods.
It started in Article 2.
It's now part of contract law.
Generally, though, whether it's common law or Article 2,
you could attempt to raise unconscionability as a defense.
It will empower a court to refuse to enforce
all or part of your contract.
Two basic tests, show me unfair surprise and oppressive
terms tested at the time of formation by the courts.
As an exam tip, if they are going
to test you on unconscionability,
they like to go after that fourth element
in the mini essay there.
They'll give you a long-term contract.
It was a 10-year deal.
We signed it 8 years ago.
It looked fair.
There was no surprise at the time we signed it.
But now that we're eight years down the road,
it looks like one guy got an awesome deal in the price term.
The other guy got a really raw deal.
Does that render the contract unconscionable?
No.
Unconscionability is judged as of the time of formation,
not in hindsight.
So they like to get at that fourth issue, unconscionability
tested as of the time the agreement was made.
But you all remember the seminal unconscionability case
from your 1L Youth.
It was called Williams v. Walker-Thomas Furniture.

Here it is in hypo 3g.

Ms. Williams rents to own a bunch of different items
from a Washington DC electronics shop.
She rents to own a TV for $300, a phone for $400,
a stereo for $500, a bunch of different items
over time adding up to a total $1,200 bill.
After she has paid off $1,100 of her total bill,
she misses the very final installment payment,
and the seller repossesses every single thing
she has ever rented to own in accordance with its rights
under the fine print cross collateralization
clause of the contract that it made her sign in blank.
They gave her this blank sheet of paper
that she signed on the dotted line.
It had a cross collateralization clause.
They kept the balance owing on everything.
She misses her last payment and they repo everything.
Come on, is that fair?
That is unconscionable, said the court
in Williams v. Walker-Thomas Furniture.
Can Ms. Williams avoid the harsh consequences of this contract?
Absolutely yes.
She was subject to unfair surprise.
She made these contracts in blank.
The terms were unduly harsh and oppressive.
She paid off 90% of the price tag
and they repossessed everything.
No court in good conscience can enforce that type of contract,
so said the court in Williams v. Walker-Thomas Furniture.
Next defense is duress.
Elements of economic duress that you might see on the bar exam.
Typically, they don't give you physical duress, right?
The guy beat somebody up in order
to induce him to enter a contract.
Obviously, that would render a contract void.
Normally, they give you economic duress.
Here, you want to look for two guys.
The first guy is the bad guy.
And he or she is going to make an improper or wrongful threat.
It's not a threat of physical violence.
Typically, it's a threat not to go through with the contract.
He or she says, I am not going to honor my side of the bargain
unless you do X, Y, or Z. Now, you
need to couple the bad guy with the vulnerable guy.
He or she has no other reasonable alternative
but to agree.
She calls up 10 other suppliers trying to mitigate her damages,
nobody can help her, and so she reluctantly
gives in to the improper wrongful threat.
Later, give her the defense of economic duress.

3h, a tweak on Austin versus Laurel

Corp, a case you might have studied in your 1L year.
D has a contract to supply 1,000 radar sets to P in 2020.
D then refuses to perform this contract
until P agrees to buy 4,000 erector sets in 2021, right?
So there's your bad guy defendant, right?
We had an original deal, but I'm not
going to honor it unless you also do something else.
You've got to buy erector sets too.
P has no other source of supply of radar sets,
and so she reluctantly agrees, right?
She's the vulnerable party, calls up 10 other suppliers,
nobody can get her radar sets in time.
That's why she gives in to defendant's threat.
D delivers the radar sets in 2020.
Question put to you, can P get out
of the agreement to buy 4,000 erector sets in 2021?
Absolutely yes due to economic duress.
Bad guy makes the improper or wrongful threat
to breach the contract.
Vulnerable guy has no reasonable alternative but to agree.
Put them together and let your vulnerable party out
of that deal to buy erector sets in 2021.
Next defense, our last defense is the most important defense,
and that is the statute of frauds.
Statute of frauds is probably the most heavily tested subject
in all of contract law.
You are absolutely guaranteed to see
statute of frauds questions.
Even though you have a contract formed,
it might not be legally enforceable
if you did not comply with the statute of frauds.
So the issue is when is a writing required?
When is an oral contract not good enough?
Well, when your contract subject matter
falls within the statute of frauds.
You remember most oral contracts are OK.
A lot of my 1Ls think oral contracts are no good on day
one, and I say that's not true.
Oral contracts are totally enforceable
unless their subject matter falls
within the statute of frauds.
Certain kinds of contracts, courts
are so worried about the potential for fraud
that we are going to require special proof, usually
a writing to prove the existence of a deal
and make sure that one party is not just
perjuring himself or perjuring herself on the stand making up
the existence of a deal, i.e. committing
fraud against the other party.
Six major statute of frauds covered categories.
I like to use the mnemonic device MYLEGS
to help students remember the six covered categories
of the statute of frauds.
Six areas where we're so worried about the potential for fraud,
we require the deal be in writing.
MYLEGS, M-Y-L-E-G-S, that's how you remember the six covered
categories.
M equals Marriage, Y equals Year, L equals Land sales,
E equals Executors, G equals sales
of goods over $500 or more, and S equal Sureties.
Those are the specific types of contracts that fall
within the statute of frauds.
Anything else, oral contract is fine.
But let's go through those six areas.
And watch for the tricks.
Sometimes they try to make you think
you're within one of these six areas when you're not.
M first.
M stands for Marriage.
Contracts in consideration of marriage
are subject to the statute of frauds,
not merely a promise to marry somebody.
That's not subject to the statute of frauds.

Hypo 3i, Piper claims that Alex promised

to relinquish claims to her assets
if she agreed to marry her.
Question, is this promise within the statute of frauds?
Obviously yes.
This is your classic prenuptial contract situation.
It is a contract or a promise made
in consideration of marriage.
I will not go after your assets held prior to marriage.
That is subject to the statute of frauds.
Why?
Well, after this marriage breaks up
and the parties now hate each other's guts,
the court is really worried about the potential for fraud.
Somebody is going to come into court
and simply lie about what they actually agreed to do
or not do.
That's why we insist that we have it in writing.
That will prevent fraud.
That's the theory.
However, part 2 of the hypo, Pete Davidson
alleges that Ariana Grande promised to marry him.
Is this promise within the statute of frauds?
There's all kinds of problems with this lawsuit
if Pete is going out trying to sue Ariana Grande to force
her to marry him, but the statute of frauds
is not one of them.
This is not a promise made in consideration of marriage.
Now, good luck getting any court in the world to enforce this
promise.
I think Pete's going to be out of luck,
but at least he doesn't have to worry about statute
of frauds violations here.
It's not a promise made in consideration of marriage,
right?
The prenuptial contract, though, that's our first example here.
That is a promise in consideration of marriage.
That does have to be in writing, but not
part 2 of our hypothetical.
Second category of our statute of frauds
is the Y. The Y in MY stands for Year.
And it's got to be more than one year contracts which cannot
possibly be completed within one year are subject to the statute
of frauds.
What's the rationale?
Well, we're starting out with what
we know was a long-term deal, so going out beyond a year.
And the court is worried that as time
passes by, year two, year three, year four,
memories are going to start to fade.
And if the contract was just oral,
that's going to provide an opportunity for people
to make things up and commit perjury on the stand.
And that's why long-term deals are
subject to the statute of frauds, right?
We want some proof, some existence
that the deal was actually made to prevent fraud later on.
Now, by the way, it doesn't actually
matter if performance winds up taking more than one year.
As long as performance within a year
was theoretically possible, you are not within this category.
So watch out for that.
No writing is required unless the contract terms require
performance more than a year from the date of formation.

3j and compare that to hypo 3k.

In 3j, Edward Scissorhands alleges
that on February 1, 2020, W orally
agreed to have Edward cut down all of the trees on his ranch.
Is this agreement within the statute of frauds?
No.
I don't care how long you think it's
going to take Edward to cut down all of those trees, right?
Let's imagine this ranch is millions of acres long.
There's no date specified, right?
And you need to see dates in your contract that take you out
beyond a year.
In theory, Edward can get this job done in less than a year.
You should always imagine you got Superman doing the job.
You got Superman doing a job, he can get it done in less than a
year, and that's why it's not subject to the statute
of frauds.
Part 2 of hypo 3j is another common bar trick.
What if they tell you Edward doesn't finish cutting down
the trees until August 1, 2021?
Don't fall for that trick.
It doesn't matter that it actually winds up
taking more than a year.
In theory, he could have gotten this job done in less than a
year.
There were no dates specified that took him out
beyond a year.
This is not subject to the statute of frauds, no matter
how brutal the job is, right?
Even if you've got to move every single pyramid
from downtown Egypt--
or sorry, I should say from Egypt to Downtown Seattle,
in theory, if you've got Superman flying them over,
you can get that task done in less than a year.
Tasks like these are not subject to the statute of frauds,
even if it winds up taking longer than a year to do it.
Same rule in 3k.
If you have a lifetime contract, no statute of frauds
required for lifetime deals.
ABC orally agrees to employ Chris Harrison
as host of The Bachelor for the rest of his life.
He's been doing it forever, and he's now
going to do it for the rest of his life.
Is a writing required here?
No.
Why not?
Because God forbid, Chris Harrison
could host The Bachelor for the next six months,
get hit by a bus and have fully performed all of his duties
under this lifetime contract in less than one year, right?
So you must see terms that force you out beyond a year.
And that's part 2 of hypo 3k.
What if ABC orally agreed to employ
Chris Harrison for three years?
Now we are within the statute of frauds.
Three-year contracts cannot be completed within one year.
But lifetime contracts in theory can.
So watch out for the first part of that hypothetical.
Lifetime employment contracts, not subject to the statute
of frauds.
Three-year employment contracts obviously
are subject to the statute of frauds.
I know that might seem bizarre and unfair,
but that's the bar exam rule.

Hypo 3l, another example of a greater than one-year contract

that some students sometimes miss.
On May 1, 2020, Club Galaxy orally
agreed to have Anya performance New Year's Eve
bash on December 31, 2021.
Question, is this oral agreement enforceable?
No way.
Why not?
Read those dates carefully again.
Date 1, May 1, 2020 is the date of formation.
When is Anya's performance going to occur?
Not till December of 2021.
Even though Anya's performance is only
going to take a few hours, I know
it might seem like forever for some of you,
and that's why some of you say, hey, you know,
it's only a few hours.
Maybe it seems like forever, but who cares about that.
Maybe it's just a couple hour concert not
subject to the statute of frauds.
Your bar exam task is to answer when
is performance going to occur?
Can it occur within a year from today's date?
No.
Anya's going to sing in December of 2021.
That's a year and a half from the date of formation.
You are subject to the statute of frauds in hypo 3l.
Oral agreement would not be enforceable here.
So watch out, even though somebody's performance might
only take a couple hours, if it's
going to occur 18 months from now or 12 months in a day
from now, it is subject to the statute of frauds.
Next category of the statute of frauds is the L for LEGS.
L stands for land sales, transfer of an interest
in real property.

Hypo 3m, Billy Ray Cyrus alleges that Lil Nas X orally
agreed to sell him the Old Town Road ranch for $4 million.
Is this within the statute of frauds?
Obviously yes.
This is very easy.
Sales of real estate, sales of land
are subject to the statute of frauds.
Part two, though, Cyrus alleges that Lil Nas X orally
agreed to lease him a cabin for the next two years
on the Old Town Road ranch.
Is that two-year lease covered by the statute of frauds?
Yes.
Most transfers of interest in land
if it's for more than a year are subject to the statute
of fraud.
So it doesn't have to be a sale.
If it's a two-year lease or if it's
a lease for more than a year, it is
subject to the statute of frauds.
Easements as well, if it's a two-year easement,
got to get it in writing subject to the statute of frauds.
Part 3, Billy Ray Cyrus now alleges that Liz Nas X orally
agreed to have him build a fence around the Old Town Road ranch.
Does the statute of frauds apply here?
No.
Just because they're talking about real estate in their fact
pattern, right?
The Old Town Road ranch, or sometimes they'll
throw in names like Greenacre or Redacre
or Blueacre or Blackacre doesn't automatically
bring you within the L land sale category
of the statute of frauds.
This is not a land sale.
This is just a construction contract.
It's a contract to build a fence.
And unless the terms require that you go out beyond a year,
remember, these are not subject to the statute of frauds.
Construction contracts are not necessarily
subject to the statute of frauds.
Part 4 of hypo 3m, Lil Nas X authorized an agent
to sell the ranch on his behalf.
Must the agent's authorization be in writing?
So sometimes they'll test you on this.
You probably never saw this in your law school career,
authorization to enter into a contract on behalf
of somebody else.
The issue is when do you need to have
that authorization in writing?
Can I just go up to you and say, hey,
you know, Bill Gates orally authorized me to enter
into a deal on his behalf?
Common sense tells you that you should get that authorization
in writing.
But common sense is not how you deal with bar exam problems.
Bar exam problems are governed by the equal dignity rule.
And the equal dignity rule says that the authorization
to enter into a contract on behalf of somebody else,
like for an agent to sell your ranch,
it must be in writing only if the underlying deal would
have been subject to the statute of frauds.
So the authorization must be of equal dignity
to the underlying deal.
And so here, obviously, the agent
has to get their authorization in writing.
Why?
The underlying deal is to sell a ranch.
That's a sale of real estate.
That is subject to the statute of frauds.
Agent's authorization must also be
in writing under the equal dignity rule.
But if they give you an underlying contract that's
not subject to the statute of frauds,
like let's say it was just a six-month lease not
subject to the statute of frauds,
oral would have been OK, equal dignity rule
would say that you can have oral authorization through agent
as well.
So watch out for that rule on the bar.
Next category of the statute frauds
is the E in LEGS, which stands for Executors.
Probably not going to see these guys on your bar exam fact
pattern, but you should know that a promise by an executor
of an estate to pay the estate's debts from some other source
of funds, not from the estate's liabilities or the estate's
assets, particularly from the executors own pockets, that
type of promise is within the statute of frauds.
I don't think you'll see it, but just in case you do,
you'll know you've got to get that promise in writing.
The G in LEGS is commonly tested.
G stands for goods $500 or more.
That's your special Article 2 statute of frauds category.

Hypothetical 3n, Bill Gates orally

agreed to buy a computer from Calandrillo for $500.
Is a writing required?
Yes.
Why?
Because here we have a sale of goods at $500 or more.
You should note it doesn't have to be $500 or more.
It doesn't have to be more than $500.
Exactly $500 on the nose or more is
subject to the Article 2 statute of frauds writing requirement.
However, what if the sale of the computer was only at $400?
Is that going to be subject to the statute frauds?
Is a writing required there?
Obviously not.
And that's so obvious that you might say, hey, Calandrillo,
why did you bother asking me the second part
of this hypothetical question?
Obviously, $400 is less than $500.
No statute of frauds is--
no statute of frauds requirement.
The reason I bother with that second part of the hypo
is to reemphasize the point that the rest of UCC Article 2
still applies to this deal.
Even if the price is $400 or $1, we
don't have to meet the statute of frauds
anymore, but all sales of goods at any price,
even between best friends like me and Billy G,
we are subject to UCC Article 2.
I can't tell you how many students
see a sale of goods at $400 and they
say UCC Article 2 does not apply because the price is $400.
That is a completely false statement of law.
You have sacrificed points, and you have sacrificed credibility
with the bar examiners.
All sales of goods are subject to Article 2.
Obviously, though, if the price is less than $500,
you don't have to have it in writing.
Rest of Article 2, though, still applies
except for the merchant rules if me and Billy G
are not merchants.
Last category of the statute of frauds is the S in LEGS.
That stands for suretyship, a promise to answer for,
i.e guarantee the debts of another person.
That's what a surety is.
It's a person guaranteeing the debts of another person.
But watch out.
It's not merely a promise to pay money.
And I should warn you, the surety category
is regularly tested as the wrong answer.
A lot of the times, they're trying
to trick you into thinking that you're
within this category when often you're not.

Hypo 3o, let's look at what is a surety versus what is not.

Bill Gates agrees to have me paint his house for $10,000.
Jeff Bezos chimes in, if Gates doesn't pay you, I will.
Is Bezos' promise to pay me within the statute of frauds?
Yes.
This is the easy suretyship question
where it is the right answer.
Bezos is a guarantor backup.
He's liable to pay me only if Gates doesn't pay, right?
If he doesn't pay, I will pay you.
That's what a surety looks like.
However, you're more likely to see
the second half of this hypo.
I have no contract with Gates.
Bezos says to me, go out and paint Bill Gates' house,
and I will pay you $10,000.
Is Bezos' promise to pay me the $10,000
within the statute of frauds?
No.
We do not have language of guarantee
in the second part of this hypothetical.
This is merely a promise to pay somebody money.
And if it's merely a promise to pay somebody money,
that does not bring you within the surety category.
You must see language that says, if he doesn't pay,
then I will pay.
That's what makes somebody into a surety.
That's what brings you within that category.
Otherwise, they're trying to trick you
into thinking you're within this category when you're actually
not.
OK, with that, let's take our second break of day two.
Take 10 minutes to rejuvenate yourselves,
and we'll come back fresh in 10 minutes
and do some more contract law.
Next, let's discuss contract modifications
and their interaction with the statute of frauds rules.
As I said, statute of frauds is heavily tested.
Sometimes the bar examiners do it indirectly.
They're testing you on modifications and when
those modifications have to be in writing.
And they're basically indirectly testing you
on your statute of frauds knowledge
because the rule is that your modification must
be in writing only if the contract as modified
would fall within the statute of frauds.
So you have to look at the contract, the new contract
with the alleged modification in place.
If it would fall within the statute of frauds,
then obviously, you have to get that modification in writing.
But if the new contract with that modification in place
would not fall within the statute of frauds,
you don't need writing for it.

Hypo 3p, Ariana Grande contracted

in writing to buy 20 tubes of hair gel for $20 each
from L'Oreal.
So 20 tubes at $20, it's $400 total price tag,
not subject to the statute of frauds.
L'Oreal claims, though, that they and Grande later
agreed to modify their contract to make it 40 tubes.
They're doing some quick math, it 40 tubes times 20,
that equals $800.
That's $500 or more.
That's subject to the statute of frauds.
Does the modification have to be in writing?
Absolutely yes.
Why?
Because this new contract with the modification in place
would be a sale of goods for more than $500.
Show me some writing.
However, what if L'Oreal instead claims that the number of tubes
was later reduced to just 10?
So now it's 10 tubes times $20 equals $200.
No writing required.
Why?
Because as modified, this new deal
is a sale of goods less than $500.
No statute of frauds requirement in Article 2
for sales of goods at $200.
Modification can be oral.
However, part 3 of this hypo 3p, same facts
except the original written contract
prohibited oral modification.
So sometimes parties will write into their contract,
if you want to modify this deal, it's got to be in writing.
Oral modifications are prohibited.
What result then?
Well, now, the modification would have to be in writing.
Article 2 lets the parties create
their own private statute of frauds.
Parties can write into their Article 2 contracts.
All modifications must be in writing.
If they try to orally modify it, it
would not be effective there.
However, exam tip, you should know that under common law,
clauses that prohibit oral modifications
are generally not enforceable.
The common law just assumes they've been orally waived,
even though the writing contained a clause requiring
written modifications.
So you can generally modify contracts orally
under common law, even if you have agreed not to.
My 1Ls hate that rule.
My bar exam students hate that rule.
But do understand the Article 2 rule
is different than common law.
Under Article 2, generally, if the parties
agree that all modifications have to be in writing,
you shouldn't force that clause.
Under common law, we assume that those clauses
are unenforceable.
We assume that they've been orally waived.
I don't know if that assumption makes you feel any better,
but you should know those rules for bar exam purposes.
Next statute of frauds issue, what
is an adequate writing to satisfy the statute of frauds?
Because once you get past one of those first six categories
of the statute of frauds, the question doesn't stop there.
You have to then answer whether or not
your writing was adequate to satisfy the statute of frauds.
Now, what do you need to have in your writing?
It depends on the nature of your contract,
whether you're looking at a sale of goods governed by Article 2
or are you looking at common law.
Let's knock down sale of goods first.
Article 2 says if you've got a sale goods at $500 or more,
the writing must importantly contain the quantity term
and be signed by the party to be charged with breach, i.e.
the defendant.
You don't need both parties signatures.
You need the defendant's signature.
And importantly for Article 2 sale of goods contracts,
show me the quantity term.
There's lots of other gap filler terms in Article 2
but not for quantity.
If you have no quantity specified, tough luck.
Your writing was not adequate.
If you do have quantity, even though your writing is
really short and not complete about a lot of other terms,
Article 2 will often fill them in.

Hypo 3q, I agree to buy 20 dumbbells from Muscle Memory

products for $500, signed, Arnold Schwarzenegger.
If Muscle Memory products sues to enforce this contract,
will this brief note satisfy the statute
of frauds against Schwarzenegger?
Yes.
Why?
Sale of goods, has quantity, 20 dumbbells,
it has defendant's signature.
We've got to prove that Schwarzenegger agreed.
Court sees Schwarzenegger's signature, statute of frauds
is satisfied.
However, what if instead the note read,
I agreed to sell 20 dumbbell to Schwarzenegger for $500,
signed Muscle Memory products.
Can Muscle Memory use that note to satisfy
the statute of frauds against Schwarzenegger?
No.
Why not?
What is missing?
Same brief note, but the problem is
we're missing Schwarzenegger's signature
and Muscle Memory is going after him.
It doesn't matter that Muscle Memory's signature
on the dotted line.
You need to show me the signature of the party
to be charged with breach.
Once we see Schwarzenegger's signature,
now the statute of frauds is satisfied.
But if it's just Muscle Memory's,
that is not going to cut it.
Muscle Memory could be making this all up.
Contrast Article 2 rules to common law contracts.
A little bit tougher writing requirements
to satisfy statute of frauds here.
The writing must contain all the material terms.
Basically, you've got to be able to answer
two questions, who, right?
Who is this contract between, and what.
What is this contract all about?
And obviously, show me that it was signed by the defendant.
That's what the common law statute of frauds requires.

Hypo 3r, Scully mails Mulder a signed note,

I accept your offer.
Does that note satisfy the statute of frauds?
Now, fans of The X-Files might be OK with this note
because you guys are all cool with the unknown.
But I assure you the bar examiners are not.
We cannot answer the questions who and what.
We don't know what this deal is all about.
There are no material terms here.
This is not going to satisfy the statute of frauds.
Hypo 3s, Fox News signs this letter,
we agree to employ Judge Judy as an expert legal consultant
for three years at a salary of $45 million
per year, signed, Rupert Murdoch.
A month later, Fox fires Judy without cause.
Judy sues Fox for breach.
Question, does that letter satisfy the statute
of frauds against Fox?
Yes.
Why?
It answers who and what.
Who is it between?
Judge Judy and Fox.
What is it all about?
She's going to work for three years as a consultant
at $45 million a year.
She's the highest paid judge in the world.
It's perfectly OK for your letters and writings
to be short as long as you can answer who, answer
what, and show me the defendant's signature.
It was signed by Fox.
We are cool.
However, same facts except now it's
Judge Judy who quits after just one month.
Fox is now suing Judge Judy for her breach.
Does the letter satisfy the statute
of frauds against Judge Judy?
Exact same letter, is it going to work against Judge Judy?
No.
Why not?
What's missing?
The signature of the party to be charged.
Who is the defendant in the second half
of this hypothetical?
Judge Judy.
Is her signature on the dotted line?
No, it's Rupert Murdoch's signature for Fox.
And so even though the writing would have worked against Fox
if Judy was suing them, if it's Fox suing her and her signature
is not on the dotted line, that writing
is not adequate to satisfy the statute of frauds.
Watch out on the bar exam.
They give you one person's signature buried deep
in the fact pattern.
And you have to read carefully to see whose it is.
If it's the plaintiff's, it doesn't matter.
You need to show me the defendant's signature
because that's the guy that the court is trying
to protect against fraud.
Once we see that he signed it, we
can be assured there's no fraud.
But if Judy's signature is not there,
Fox might be making this stuff up.
So read carefully, look for whose signature
is on the dotted line.
Also look for any potential exceptions
to the statute of frauds defense where
you might not need a writing.
And these are basically carved out
where there's less chance of fraud.
First category let's talk about is the land sale
of real property exceptions to the statute of frauds,
leases of one year or less.
Basically, this is a legislative exception
to protect tenants of the world.
If you have a lease that's exactly one year or less,
it can be oral.
Otherwise, you'd be worried about landlords making up
the existence of a deal or making up the existence of what
tenant agreed to do or not.
It has to be more than one year for the lease
to be subject to the statute of frauds.
Second category, part performance of real estate
contracts, right?
If you see a real estate sale that
starts out oral but then you see part performance
by a buyer of the real estate, and what is part performance?
Payment, possession, and/or improvements.
That can satisfy the statute of frauds even without a writing.
You need two out of those three things.
You don't need all three but one of those is not enough.
As Meat Loaf one says, two out of three ain't bad.
Show me two out of three and that will
satisfy the statute of frauds.

Hypo 3t, Bill Gates alleges that Jeff Bezos orally

agreed to sell him Bezos' Mercer Island mansion for $4 million.
Gates has paid Bezos the entire $4 million upfront.
Does Gates' full payment satisfy the statute of frauds?
No way because that was just one out of three.
What is this buyer going to have to also show
if he wants to satisfy the statute of frauds?
Move in, take possession of the mansion
or make valuable improvements.
You don't have to do both.
You just need to show me two out of three.
Watch out, favorite bar exam wrong
answer that they will try to trick you
into choosing is that the buyer has to do all three
of those things, right?
Buyer has to pay money.
Buyer has to move in.
Buyer has to make improvements.
You could do all three but you don't need to.
Two out of three is enough.
The other trick that they'll try to get you to choose
is that just one out of those three
is enough like I gave you in 3t.
One out of three is not enough.
Show me two out of three.
If you get that, as Meat Loaf said, you are good.
Second exception is for service contracts.
Full performance of service contracts
provides the necessary proof to satisfy the statute of frauds
even without a writing.
But partial performance of service contracts does not.

Hypo 3u, Sesame Street orally agrees

to employ Big Bird for two years for $50,000.
Big Bird works for two years but Sesame Street
refuses to pay him.
Question, does Big Bird need any writing to satisfy
the statute of frauds?
No.
Why not?
Even though this was a two-year employment contract,
even though that's more than a year, even though I
said that it is subject to the statute of frauds,
what do we have here?
Full performance by Big Bird.
There's little chance of fraud.
Nobody goes out and works for Sesame Street for two years
unless he or she really had a deal with Sesame Street.
The theory is full performance of service contracts
provides the necessary greater proof to assure the court
that no fraud is occurring here.
However, what if Sesame Street fires Big Bird after only three
months?
Part performance of service contracts
is not enough to satisfy the statute of frauds.
So Big Bird cannot enforce the contract now.
Why?
Sesame Street will have a statute of frauds defense,
right?
Big Bird's alleging an oral two-year employment contract,
hey, there's a statute of frauds problem
there if it was only oral.
Three months worth of service is not full performance.
That's only partial performance.
Part performance doesn't satisfy the statute of frauds
However, remember as I said earlier on, what
do you do any time you apply strict contract law rules
and you get to an unfair, unjust result on the bar exam?
Turn to restitution to bail out your plaintiff.
After all, Big Bird worked three months for Sesame Street.
Big Bird should get restitution for the value of his services.
How do you measure it?
Not by any contract price.
After all, Sesame Street has a defense to the contract.
Statute of frauds was not satisfied
by Big Bird's performance.
Instead you turn to look to the reasonable, fair market
value of the benefit conferred.
Whatever three months of Big Bird's labor
was actually worth in restitution,
provide that remedy to Big Bird outside of the contract.
Next exception to statute of frauds, let's talk about sales
of goods, right?
For sale of goods $500 or more, you
know you're subject to the statute of frauds.
What if it was oral, and what if some of those goods
have already been accepted or paid for by the buyer?

Hypo 3v, Tom Brady orally agrees to buy 50 regularly

inflated footballs-- he's going to turn over
a new leaf-- for $100 each.
Seller takes Tom Brady's check for $2,000 for the first 20
footballs and she cashes it.
Seller refuses to deliver any footballs to Tom Brady.
Brady sues seller for breach.
Does seller have a statute of frauds defense?
Now, you're thinking to yourself,
hey, oral sale of goods.
When you multiply 50 or-- yeah, 50 footballs times $100, that's
$5,000.
That's subject to the statute of frauds.
But some of these footballs have been paid for.
So the answer to this question is no and yes, right?
There's no statute of frauds defense,
i.e. the statute of frauds is satisfied for the 20 footballs
that Tom Brady has already paid for, right?
After all, he can prove he already
sent the check to the seller for those first 20 footballs.
He should get those first 20 footballs.
But seller will have a statute of frauds defense
for the next 30 footballs.
So remember this exception applies only
for goods that the buyer has already accepted,
the footballs are already in Tom Brady's possession
or if the buyer has already paid for them.
That takes us outside the statute of frauds.

Part 2, what if Tom Brady orally agrees

to buy a boat now for $50,000?
Seller takes a $10,000 check deposit from Tom Brady.
Seller doesn't deliver that boat.
Tom Brady sues.
Question, does seller have a statute of frauds defense?
No, you cannot apportion a boat the way you could apportion
footballs.
In our previous hypothetical, you
can apportion the first 20 footballs
and make the seller deliver those 20 footballs.
But you can't just divide the boat in fifths
and give him one fifth of a boat.
So here, Brady's deposit takes the whole contract outside
of the statute of frauds because you
can't cut up a boat like you can apportion the footballs.
Here, the deposit takes the whole contract outside
of the statute of frauds.
Also, what about custom-made goods?
Here, you just need to show a substantial beginning
of those goods to satisfy the statute of frauds.
What's a substantial beginning mean?
It means that enough has been done
to show that those goods are made to order, right?
That these are custom-made goods.
That the seller cannot resell them to anybody else.
So if your buyer orally agrees to buy some custom-made cowboy
boots for $500 from a seller and these cowboy boots are going
to be size 19 and be pink and green and purple and have
the name Bubba right inscribed on the side, and at that point,
Bubba cancels his order, the seller--
can seller still collect against Bubba?
As long as seller has engaged in a substantial beginning
of the making or obtaining of the goods.
Nobody goes out and builds size 19 cowboy boots
that are pink and green and purple
and puts Bubba name right on the side
unless they actually had a deal with that buyer.
At that point, the theory is that substantial beginning
provides the proof to the court that a deal was actually made.
But if the seller hasn't done anything yet,
if no substantial bargaining has occurred,
then there would have been a statute of frauds defense.
Judicial admissions also satisfy the statute of frauds.
If you see a defendant admitting under oath
that she had a deal with the seller or with the buyer,
she will later lose her statute of frauds defense.
Typically, you'll see somebody say something
like, yeah, I know we agreed.
But it was only oral.
We never got it in writing.
It was never an enforceable contract.
I want to have a statute of frauds defense.
Too bad.
You just agreed under oath that you had a deal.
The court is no longer worried about fraud.
And then lastly, the merchant confirmatory memorandum rule
will also satisfy the statute of frauds
even without defendant's signature.
One party can use his or her own signed
writing to satisfy the statute of frauds
against the other party if both parties are merchants,
so this is a special merchant to merchant rule only,
the writing claims an agreement and also includes the quantity
term, remember importantly, you need
quantity for statute of frauds UCC style,
and no written objection by the receiving merchant
within 10 days.
You put that all together and that merchant confirmatory
memorandum can satisfy the statute of frauds
even without the receiving merchant's signature.
So bar exam tip, typically, what you'll see
is two merchants talking to each other on the telephone.
One guy later sends a written confirmatory memorandum
to the other guy later on.
Article 2 will let that merchant use its own confirmatory
memorandum to satisfy the statute of frauds
against the other merchant.

It's hypo 3w.

Vera Wang Design Studio sends Victoria's Bridal Shop
a signed letter confirming our earlier oral agreement
over the telephone for the sale of nine gowns for $2,700.
Sale of goods, more than $500, right away you're
thinking you need some writing.
They had a deal over the phone.
That was just oral.
It's now being followed up with a confirmatory letter.
Victoria's Bridal Shop, though, doesn't respond.
Victoria's Bridal never signs that memo either.
Will Vera Wang's letter satisfy the statute
of frauds against Victoria?
Yes.
Even though you don't have defendant's signature
on the dotted line, this is the special merchant confirmatory
memorandum rule.
Victoria will lose her statute of frauds defense.
Why?
The theory here is that a reasonable merchant
would have responded right away if the other merchant was
committing a fraud, right?
When you get this letter that's allegedly
confirming your deal that you had over the phone
earlier today, you would have said within 10 days,
we never had a deal, or you're making this up,
or our price tag was X not Y. And Article 2 says
that that confirmatory memorandum letter can be used
against the receiving merchant if there's a quantity
term, if it's signed by the sending merchant
and the receiving merchant has reason to know its contents
and fails to respond within 10 days.
Fourth statute of frauds exception is for suretyship.
Let's think about the main purpose exception
to the suretyship rule, again, taking us
outside the coverage of the statue of frauds.
And remember I said with respect to sureties,
they're often trying to make you think
you're within the statute of frauds when often you're not.

Hypo 3x, let's imagine that I buy paint on credit

from Home Depot--
I like to call them home despot--
to paint Bill Gates' house.
Gates orally promised to pay Home Depot if I don't pay.
So they're setting you up for what looks like a surety,
right?
Somebody guaranteeing the debt of another person.
He's going to pay if I don't pay.
Normally, that would be subject to the statute of frauds,
but not here.
Why not?
Can Home Depot still enforce Gates' oral promise
against him?
Yes.
Why?
This is the main purpose exception
to the general suretyship rule.
If the sureties main purpose in making the promise
is to benefit himself, no writing is required, right?
He's not making this promise just to help me out,
he's getting the benefit of the paint.
The paint is going up on his house.
And obviously, Bill Gates should have
to pay for paint that is going up on his house, right?
So watch out for this main purpose exception.
A lot of time, this surety category is a trick.
It's usually a wrong answer to think that you are
within the statute of frauds.
Usually, it is you are not.
Now, there's a bunch of other defenses
that I don't include in this workbook outline here.
You might remember I'm sure fondly from your 1L days
defenses like illegality or fraud or misrepresentation.
Frankly, they are not that frequently tested.
And if they are, they're usually relatively easy to issue spot.
You're not going to miss it if somebody is just
violating a statute.
Obviously, you want to talk about it
and say that it constitutes a defense.
If you're confused about any of those other defenses,
you can look to the long outline to lay out those rules.
But that's it for module 3 on defenses.

VIDEO 2
Welcome to module 4 on terms, terms of your contract. Remember my mnemonic device, love
for dogs. Treat every rover terrifically.
Treat stands for terms.
Let's talk about terms.
Obviously most important to figure out the terms
are the words of the parties, but also
how they interact with the parol evidence rule.
By the way, you'll note that there's no E in the word parol.
The word evidence has a lot of E's.
It sucks all the E's out of the word parol.
You put them all the word evidence.
And you will spell parol, P-A-R-O-L,
leave the E off the end.
Now, why are so many students spell it P-A-R-O-L-E and put
the E at the end?
My guess is because all of you guys are pronouncing it parole.
Every time I ask students across the land how many of you
guys are calling this parol, nobody's
calling it parol anymore.
Everybody's calling it parole.
Why?
So many people have mispronounced it
for so many years that the dominant pronunciation
in Black's Law Dictionary is parole.
And parol, as I like to say, has been
reduced to the secondary, subsidiary pronunciation.
When I first started teaching 20 years ago,
I intentionally called it parole just
to fit in with all you guys.
But now that I'm 20 years deep into my career,
I'm a lot more confident in myself.
And I've gone back to the parol evidence pronunciation.
Not that you're tested on pronunciation or spelling,
although it enhances your credibility just a little
bit if you leave the E off the end.
Spell it P-A-R-O-L.
I don't care how you pronounce it.
But I do care about the effect.
It keeps out evidence of prior or contemporaneous agreements,
either oral written, if it contradicts a later
final writing.
That's what the parol evidence rule is all about.
What are the final terms?
It's the final writing, not what somebody
says we agree to do right before we sign the final writing.
The gist is final writing supersedes
prior oral or written evidence.
Why?
Because it is more reliable.
You probably studied the seminal case Mitchill v Lath.
In Mitchill v Lath, there was a final writing
that talked about the sale of a farm house
in exchange for $8,400.
However, the buyer said to the seller right
before they signed the deal, hey,
I would like you to remove that ice house across the street
because after all, it's hideous.
It's a brutal eyesore.
And allegedly, the seller orally represented to the buyer
that she would remove the ice house across the street.
The problem for the buyer is that the deal
to remove the ice house across the street
was not part of the final written integration.
And so later on, the buyer tried to introduce
this parol evidence.
Well orally, she said she would remove this ice
house across the street.
And the court said in Mitchill v Lath, sorry.
Final writing is more reliable evidence.
You cannot contradict the terms of a final writing with this
parol evidence.
That's like the basic gist of parol evidence rule.

It looks like hypothetical 4A.

Jennifer Lopez, JLo, signs a lease for the grand ballroom
at the Beverly Hills Hotel for her upcoming wedding.
She's going to get married to A-Rod.
They want to have a great place to stay.
JLo claims that she could select any ballroom at the Beverly
Hills Hotel.
And she has a fax from the Beverly Hills
Hotel sent before the written lease supporting her claim.
Question.
If JLo asked the court to reform, i.e.
rewrite this contract, to get it to say
what she's alleging it says, can she
get that fax admitted into evidence?
No way.
That's your basic parol evidence rule.
It says you cannot contradict the terms of a final written
integration.
Final writing is more reliable evidence.
Final writing says grand ballroom.
JLo, you cannot contradict.
That that's the theory.
Now by the way, parol evidence rule, I want you to know,
requires the existence of a final writing.
If your fact pattern tells you that JLo and the Beverly Hills
Hotel only have an oral agreement,
you don't have any parol evidence room analysis.
You need to show me a final writing.
And that's what triggers your parol evidence rile analysis,
the contest between the final writing
and what came right before the final writing.
If they just have an oral deal, you
might have a statute of frauds issue on your hands.
So any time you see the word oral, red flag
goes off in your head.
I've got to think about whether my subject matter falls
within the statute of frauds or not.
But you don't have any parol evidence rule analysis
until you show me a final writing and then
some contest between that final writing
and what happened just before that writing.
Now let's look at some exceptions
to the parol evidence rule.
When can you get the parol evidence
admitted into a court of law?
First, you can bring in parol evidence
to correct a clerical error, a typo.
That evidence is admissible.
I'm not contradicting the final writing judge.
We just juxtaposed some numbers.
We put the 0 where the 2 is supposed to go, the two 2
where the 0 is supposed to go.
We're correcting a typo.
That is allowable.
Secondly, parties can bring in parol evidence
to establish a defense against formation,
a defense against formation.
Not contradicting the writing, I just want out of the writing.

Hypo 4B.
Before JLo signed the lease, the manager
at the Beverly Hills Hotel told her
that the grand ballroom was soundproof.
Turns out it's not.
The manager lied to her.
JLo seeks rescission because of this misrepresentation.
Can JLo get this evidence in?
Yes.
Why?
Because the evidence is being proffered to establish
a defense to enforcement here.
Parol evidence is generally admissible
not to contradict the writing but to establish a defense
to enforcement.
I just want out of the deal here, judge.
I don't want you to rewrite it for me.
I don't want you to contradict the deal.
I was a victim of fraud.
I was a victim of misrepresentation.
You can bring in parol evidence to establish defenses
to enforcement.
The agreement process itself was flawed.
Parol evidence is allowable.
Third exception.
You can bring in parol evidence to interpret
a vague or ambiguous term.
Parol evidence will get in.
You're not contradicting the writing.
You're just interpreting, explaining the vague term.

Hypo 4C.
JLo signed a lease for a ballroom.
JLo says it was specifically for the grand ballroom.
JLo has a fax from the Beverly Hills
Hotel sent before they signed the written lease supporting
her claim.
Question, can the court consider this fax?
Yes.
This is an attempt to bring in parol evidence,
this previous fax to interpret what the word ballroom means.
I can show you that last week they sent me a fax.
And it said that the ballroom was
going to be the grand ballroom.
I'm not contradicting the writing.
I'm just explaining the term ballroom.
Allow the parol evidence in.
And by the way, as a bar tip, parol evidence
can be oral or written.
You will note here that she's trying to bring in a fax.
Some students make the mistake of thinking that parol evidence
can only be oral.
That's the favorite bar exam trick.
They will try to get you to answer, well,
this is a writing, that doesn't count.
It only can be oral.
Why do students fall for that trick?
Well, they look at the word parol
and they see it's got a lot of the same letters
as the word oral.
Maybe in old England, this is how you spelled oral.
I'll tell him that parol evidence can only be oral.
No.
Parol evidence can be oral or written.
She can bring in either oral prior evidence or written
prior evidence to explain what the term ballroom meant.
Last category, last exception to the parol evidence rule
is where you bring the evidence to add to a partially
integrated writing.
Parol evidence is allowed to add to a partially integrated
writing but not a complete integration.
Partial integration is a final statement of the terms included
but not a complete statement as to the entire deal.
You can bring in parol evidence if it's a partial integration.
But if it's a complete integration, not going to work.

Hypo 4D.
The lease says nothing about the sleeping arrangements.
JLo claims that before signing the lease
the manager promised to throw in the bridal suite for free.
Can JLo get this promise into evidence?
Yes, assuming this writing was only a partial integration.
You can bring in parol evidence to add to the deal.
I'm not contradicting the deal.
I'm not explaining the deal.
I'm just adding to the deal.
Parol evidence is allowable if this was merely
a partial integration.
However, part two, what if the written lease also
said this contract is limited to the terms herein?
That is the quintessential merger clause.
We are merging together all of our prior oral and written
understandings into the four corners of this document.
That's a complete integration.
And if you have a complete integration,
parol evidence is not admissible to add to it.
So if it's only a partial integration,
you can bring in parol evidence to add to it.
If it's a complete integration, you see one of these merger
clauses, you cannot add to it with parol evidence.
By the way, as a bar tip, usually when
they're throwing the words partial
versus complete integration at you,
it's usually the wrong answer.
It only matters in this category where one guy is
trying to add to the deal.
Typically, they don't put you into that category
as the wrong answer.
It's usually a red herring.
They're usually trying to fool you into thinking it matters.
It only matters in this question 4D part 2 or part 1, partial
versus complete.
Also note that later events, if you see bad stuff happening
after your contract was entered into,
parties agreeing to change the terms afterwards,
that's not a parol evidence test.
Students get confused here.
Parol evidence is irrelevant.
Parol evidence only looks backwards at the stuff that
happened before the writing.

Hypo 4E.
After signing the lease, the manager
promised JLo that the hotel would throw in the bridal suite
for free.
Does the parol evidence rule prevent JLo
from getting this promise into evidence?
No.
Parol evidence looks at stuff that
happened before the final written integration.
If it's stuff that happened allegedly
after the final writing, that's now an attempt
to modify the contract.
And if you see an attempt to modify like that,
you have to think about, well, is it
common law modification, in which
case, pre-existing legal duty rule applies.
Show me some new consideration or an exception
to the consideration rule.
Or is it a sale of goods modifications?
In which case, I need good faith.
You also might think about whether the modification has
to be in writing or not, depending upon whether it's
within the statute of frauds.
But later term changes, exam tip, that's
a modification fact pattern.
That's a statute fraud's maybe issue
that's a consideration issue.
It's not a parol evidence rule issue.
So parol evidence rule is irrelevant in 4E.
Next, let's think about the party's conduct
as a source of terms.
Because it's not just their words
either in the final writing or things
that they said before the writing,
it's also their conduct that can supply terms.
First is course of performance.
Definition is this is how the parties have performed
with each other under prior installments
of the current contract.
So for example, you might have a seller and a buyer who've
contracted for the sale of 100 chickens per month
for the next 12 months.
Let's imagine that the first three installment shipments
under this contract are broilers, not stewing fowl.
Well in month four, when you're thinking
about what the word chicken means, that previous course
of performance, the first three months
under this installment deal, they were all broilers.
That can provide evidence for what the chicken means
in month four.
Course of performance is how the parties
performed under prior installments
of the current deal.
And that's pretty good evidence to figure out
what the term chicken means.
Next comes the course of dealing.
This is what the parties did with each other
in prior contracts.
Sometimes, students think course of dealing
is the same thing as course of performance.
It's similar but it's different.
It's still the same to people dealing with each other.
But now we look to previous contracts
to help define the terms in the current contracts.
So for example let's imagine last year's contract,
seller sent stewing chicken to buyer.
And that obviously can help define the term chicken
in the current contract.
But it's less important than the course of performance.
Course of performance is how these two guys
are performing in prior installments
of the present contract.
Course of dealing is how they interpreted the word chicken
in last year's deal, previous deals, a little bit
less reliable evidence of what the term chicken means.
And then last in the hierarchy of evidence of intention
comes trade usage, trade custom.
These are community norms of which the parties either are
or should be aware, i.e.
people in industry all think that the word chicken means X.
So if everybody in the chicken industry
thinks the word chickens means chickens up to six pounds,
including broilers or fryers, you
can use that trade custom to help fill in the term chicken.
But each of these is not equally important to each other.
Words come first.
Obviously, if the parties define chickens
as having to be 10 pounds, they got to be 10 pounds.
Then you can look to their course of performance,
what they did under prior installments of this contract.
Then next you looked a course of dealing.
That's a little bit less important.
And then lastly, least important is usage of trade.
Next, let's discuss seller warranties of quality.
Again if you have a sale of goods, lots of terms
come straight out of Article II.
Let's talk about express warranties first,
then we'll talk about implied warranty second.
express warranties are where you have
a seller who describes the goods or she
promises facts about the goods.
She shows a buyer a sample or a model of goods.
All of those are express warranties but not a seller
expressing an opinion, simply puffing up her product.
That is not an express warranty.

So in hypo 4F, let's distinguish what

is versus what is not an express warranty.
Number 1, this ring is solid 24-carat gold.
Is that an express warranty?
Absolutely yes.
Any statement of fact or description of the goods
equals an express warranty.
And your seller doesn't have to use the word warranty.
This is an express warranty.
Number 2, this computer is guaranteed for two years.
Absolutely yes.
That is an express warranty.
This is a promise that the goods are
going to work for two years.
That equals an express warranty.
Number 3, seller uses a sampler or model of her products.
That is an express warranty.
Do not fall for the favorite bar exam trick.
They are going to trick you into answering
that showing a sample or a model equals an implied warranty.
That is not true.
Implied warranties are implied by law.
If you see a seller is showing a sample or a model,
that's an express warranty that the goods that the buyer buys
are going to work like the sample or the model did.
Number 4, all parts of my widgets
are top notch or best quality.
You'll often see sellers promising their goods are
superior quality.
Is that an express warranty?
No way.
That's the quintessential example of puffing.
It is merely an opinion.
It is not an express warranty.
And by the way, this is why so many sellers
promise that their goods are top quality.
They all know they can make that promise
without being held to that promise,
because it's merely an opinion about what
best quality, top notch is.
It is not an express warranty.
Now implied warranties by comparison--
and frankly, these are more commonly tested and more
important for you to know.
Implied warranty of merchantability-- definition,
that the goods are fit for the ordinary foreseeable purpose.
Key fact, if you want to show me an implied warranty
of merchantability, your triggering fact,
you need to show me a merchant seller who is regularly
selling that type of good.
Not just any businessman.
It's got to be a merchant regularly
selling that type of goods.
And if it's a merchant regularly selling that type of good
to a consumer, automatically implied by law under Article C
is that those goods come with the implied warranty
of merchantability that they are fit
for the ordinary foreseeable purpose for which they
are to be used.
Not because of anything that the seller said expressly,
it's implied by law.

Hypo 4G.
You buy a bicycle from Big Wheel Cycles.
Is there an implied warranty of merchantability?
Obviously yes.
That's a merchant regularly selling that type of good.
She's making an implied promise that the bicycle
is going to be good for its ordinary foreseeable purposes.
However, what if Big Wheel Cycle sells you a delivery van?
They used to have this van to make deliveries.
They decided they don't need it anymore.
And they sell it to you.
Does that come with an implied warranty of merchantability?
No.
Even though Big Wheel Cycles is a merchant,
she is not in the business of regularly selling
delivery vans.
So make sure you make that distinction.
Big Wheel Cycles selling bicycles
equals implied warranty of merchantability.
Big Wheel Cycle selling anything else, not an implied warranty
of merchantability.
Make sure it's a merchant who regularly sells
that type of goods before you hold her to the implied
warranty of merchantability.
Contrast that to the implied warranty of fitness
for a particular purpose.
Sometimes it confuses my students in law school.
A little bit easier on the bar exam.
Basically, you need to show that the goods are going
to be fit for the buyer's particular purpose
beyond the ordinary purpose.
The key fact that they will give you
if they want to give you implied warranty of fitness,
they are going to give you a buyer who comes in
with a special purpose.
Seller is going to know that buyer has that special purpose.
And seller is going to pick out suitable goods for that
and knows that the buyer is relying on the seller
to pick out suitable goods for buyer's special purpose.
You put all those facts together and you
have this additional implied warranty
of fitness for that particular purpose
beyond the normal purpose.
And by the way, you should note seller doesn't even
have to be a merchant here.
If she knows that this buyer says,
my special purpose is X and then that seller picks out
goods that fit X, that's the implied
warranty of merchantability.

OK, let's look at an activity question

now testing you on your warranty knowledge.
Take a minute on your own to tackle it.
And then we will review it together in a minute.
OK, we've been learning about warranties,
both express and implied.
Let's look at this activity question reviewing
your newfound knowledge.
A woman went to her local department store
and she told the salesperson that she wanted
a coat that was extremely warm.
That's my special purpose.
The salesperson went into a stockroom
and brought out four different styles of super warm coats.
Right away, they're setting you up,
you think, for implied warranty of fitness
for a particular purpose.
Seller picking out goods for buyer's special purpose.
The woman tried on each of these four coats
but she didn't like the way any of them looked.
While walking around the store, however, the young woman
saw coat she did like.
And she told the salesperson to bring her one in her size.
The salesperson brought her the coat
and he said it was made of the finest cashmere.
That sounds like an express warranty.
You're promising that it's made of cashmere.
And that it would probably last for years--
that sounds like more of an opinion to me.
The young woman tried on this coat.
And she told the salesperson that she would take it.
And she paid him.
After wearing the coat twice, however, she
decided that it was not actually warm enough for her climate.
She took the coat back to the department store.
She demanded her money back.
The store owner refused.
Question, if the woman sued the department store
for breach of contract, is she likely to prevail?
Let's look at our choices.
A says yes, the store breached the implied warranty of fitness
for a particular purpose.
Now as I said, it looked like that's where they were going.
Buyer comes in.
She says I need a really warm coat.
Seller picks out a really warm coat.
What's the problem, though, with that answer?
The buyer declined the seller's advice.
Buyer said I hate all four of those warm coats.
I want that coat instead.
That's why choice A is wrong.
B says yes, the store owner breached the implied warranty
of merchantability.
Well, it is true that you have a department store selling coats.
It's going to come with this implied
warranty of merchantability.
But all that says is that the good is
fit for its ordinary purpose.
There's no implied warranty of merchantability that's
going to be a super warm coat.
And that's why choice B is not our correct answer.
This coat is fit for its ordinary purpose,
even though it's not fit for buyer's special purpose.
C says yes, the store breach an express warranty.
No.
The only express warranty here is
that the coat is made by cashmere and any express
warranty that comes from showing the buyer a sample.
But that is not--
there's no evidence that that was breached.
That's why our correct answer in this activity question
is choice D, no.
This woman is going to lose.
She declined the seller's advice.
No implied warranty of fitness for a particular purpose.
She is not going to get her money back.
Tough luck.
Now that we've learned about warranties under the UCC,
let's learn about the limitations
on warranty liability.
First, we'll talk about disclaimers.
Secondly, we'll talk about limitation
of remedies provisions.
Disclaimers first.
The seller can disclaim implied warranties but not express.
So if she makes an express promise about her goods,
she cannot disclaim that.
If it's merely an implied warranty, she can do so.

Let's talk about disclaimers in hypo 4H.

A contract for a machine provides that all parts
are guaranteed for two years.
That's an express warranty.
You're promising that your goods are
going to work for two years.
What if it also provides that all warranties are disclaimed?
I just said you cannot do that.
If you make a promise, you cannot just break that promise.
Express warranty survives that attempted disclaimer.
Part two.
Contract provides for the sale of a machine as is
or with all faults.
You should look at those words as magic words, as is
or with all faults.
They make implied warranties disappear.
The contract says nothing else about quality.
Are there any implied warranty under this contract?
No way.
Those are the magic words that Article II gives us.
If your seller wants to get rid of implied warranties,
she can sell her goods as is or with all faults.
Seller disclaimed warranties.
Number three.
A contract says that there are no implied warranty
of merchantability or fitness instead of using
one of my magic phrases.
She doesn't sell it as is.
She doesn't sell it with all faults.
She says no implied warranties of merchantability or fitness
in all caps.
Are there any implied warranties?
No, as long as this disclaimer was conspicuous.
So there's two ways sellers can disclaim warranties.
They can sell the goods as is or with all faults,
or they can make a conspicuous disclaimer.
You don't have to use the words as is or with all faults.
But you have to make it conspicuous.
What's conspicuous?
It means so written that a reasonable person
would notice it.
A reasonable person would notice it.
You can't bury it in tiny, 2-point font on page 16.
You got to do it like I do it here, all caps, all bold.
It's got to be reasonably obvious to a reasonable person.
And if you do so, you can make implied warranties go away.
You can't disclaim express warranties.
But you can disclaim implied warranties
either by selling as is or by having a conspicuous disclaimer
such as this.
But by the way, usually, they give you
the as is language because this conspicuous language is
so conspicuous that none of you would miss it.
And they like to ask difficult, non-obvious questions
on the bar exam.
Typically, they just give you one of those magic phrases.
Now let's compare those disclaimers
to limitation of remedies clauses.
General rule, seller can limit buyer's remedies
for breach of any warranty.
Even an express warranty, you can limit remedies for as long
as the limitation is not unconscionable, as long
as it is not unconscionable.
Now obviously, there is an exception
to this ability where personal injury occurs.
Limiting buyer's remedies for personal injury
in the case of consumer goods.
We just presume those type of limitations are unconscionable.
But general rule, you can limit remedies
even for an express warranty as long
as it's not unconscionable.

Hypo 4I.
Let's imagine that you buy an oven for your home
from Al's Kitchen Appliances.
So you're seeing a kitchen appliance store selling ovens.
Right away, you're thinking that's a merchant
seller regularly selling that type of goods.
It's going to come with an implied
warranty of merchantability.
The contract provides all parts are guaranteed for two years.
That's an express warranty.
And Al's liability is limited to replacement parts.
That's a very typical limitation of remedy clause.
It's not a disclaimer.
But it limits the remedy if a breach of warranty occurs.
Predictably a year later, there's a defect in the oven.
It causes a fire.
It destroys your kitchen.
Can you get damages from Al for your kitchen being destroyed?
Probably not.
You want to lay out the rules.
Seller can limit buyer's remedies
for breach of an express warranty.
Even though there's an express warranty and even
though you can't disclaim it, you
can limit remedies as long as the limitation is not
unconscionable.
So the question is, was this limitation unconscionable
at the time the contract was entered into?
Make sure you make that point, too.
Remember we talked about unconscionability.
We don't judge it in hindsight, after the fire.
We judge it at the time the contract was made.
Was this limitation of remedies provision unconscionable?
You can't disclaim express warranties,
but you can limit buyer's remedies for breach
of an express warranty even--
or I should say, as long as it isn't unconscionable.
Secondly, what if you were also injured in the fire?
Now obviously, as I said, if consumer winds up
being personally injured in the fire,
it is prima facie unconscionable to limit her remedies.
Let her recover damages for her injuries.
To limit remedies to replacement parts would be unconscionable.
But otherwise, if it is some property damage,
maybe the court will enforce it.
Maybe not.
It hinges on whether they determine
that that limitation of remedies clause
was unconscionability-- unconscionable or not.
Next, let's discuss risk of loss terms
if you have a sale of goods.
The issue to wrestle with here is
when you have goods that get damaged or destroyed
before the buyer gets them, and neither your seller
or your buyer is at fault, who bears the risk of loss
for those goods?
If the seller bears the risk of loss,
then she has to provide new goods
to the buyer for no additional cost
or she's going to be liable for breach.
On the other hand, if the risk of loss
has already passed to the buyer, buyer's
got to pay the contract price even though those goods are
damaged or destroyed.
So let's talk about our risk of loss rules.
There's a hierarchy.
I want to take these in order.
And you should take these in order as well.
Look for the following things in the order they listed here.
First, number one, if the agreement allocates risk,
obviously the agreement of the parties controls.
But that's so obvious that you're not
going to get a bar exam question on that.
They like to ask hard questions, not obvious questions.
But you should know for your real world knowledge,
if the contract says buyer bears risk, buyer bears risk.
But I will tell you, the bar examiners
don't give you a question where they say, hey, contract
says buyers bears risk.
Question to you, who bears risk?
Not a single person is going to miss those points.
So typically, they don't give you an agreement
that allocates risk.
They then will sometimes give you an agreement
where somebody is in breach.
The rule there is that the breaching party will be liable,
will bear the risk of those lost or destroyed goods,
even though her reach was not related
to the reason why the goods got damaged or destroyed.

So in hypo 4J, Starbucks Seattle, my hometown,

contracts to ship coffee to Central Perk in New York City.
Rats answer the call of nature inside the coffee containers
while they are in transit.
So we now have what I, in Seattle,
might call a mixed blend.
The coffee contract is silent on who bears the risk.
And neither party is to blame for the rats.
Who has the risk of loss if Starbucks
ships the coffee after the contract deadline, i.e.
Starbucks is in breach, it's late
delivering the coffee, who has to pay?
Does Starbucks have to get new coffee
or does the buyer have to eat rat-turd blended coffee?
Well, Starbucks here will bear the risk of loss.
Why?
They're in breach.
Contract didn't allocate risk.
But Starbucks was late delivering the coffee.
Starbucks is in breach.
Starbucks bears the risk of loss.
Even though their delay had nothing
to do with rats getting in, we got to hold the risk of loss
against somebody.
Starbucks seems less innocent because they were in breach.
They bear the risk of loss.
Next, if the contract doesn't allocate risk,
if there's no breach by either party, the third thing
you look for is where there's delivery by common carrier.
Common carrier is a third party in the shipping business.
And by the way, this is the bar exam's favorite category here.
The risk of loss will shift to the buyer
when the seller completes its delivery obligations.
So look for a contract with a common carrier involved.
That's a third party in the shipping business,
like UPS or FedEx or the US Postal Service.
And the rule is risk of losses shifts from seller buyer
when seller completes its delivery obligations,
not when actual delivery occurs.
So typically, the bar examiners don't actually
care about delivery.
They care about delivery obligations
of a seller of goods.
And so you might be asking yourself,
especially if you never took a sales
course, what is that all about?
What are delivery obligations?
Well, there's two possibilities here.
First, you might have a shipment contract.
By the way that's the bar examiner's favorite.
Second, you might have a destination contract.
Let's talk about what the delivery obligations
are under each of these.
Under a shipment contract, seller completes her delivery
obligations, which one, gets the goods to a common carrier,
makes reasonable arrangements for delivery,
and notifies the buyer.
That's what seller's delivery obligations are.
At that point, the risk of loss would pass to the buyer.
On the other hand, if you get a destination contract,
seller must get the goods all the way
to a specific destination, usually where
the buyer is located.
So seller will keep the risk of loss
longer under a destination contract as its name implies.
But exam tip, first off, most importantly,
I want you to assume you're looking at a shipment contract.
That is, far and away, the bar examiner's favorite category.
In a shipment contract, buyer bears the risk of loss
before she ever gets the goods.
It's counterintuitive.
That's why they like to test on it.
Shipment contract is presumed unless the contract clearly
indicates otherwise.
Now by the way, what's the clear indication
of whether you're looking at shipment or destination?
Look for the term FOB.
It stands for free onboard, FOB followed by a city name.
Risk of loss will pass to the buyer at the named location.
If you get FOB followed by seller city,
that's a shipment contract.
All the seller has to do is get the goods to common carrier,
make arrangements for delivery, and notify the buyer.
And at that point, seller is done
with her delivery obligations.
Risk of loss passes.
If you get FOB followed by any other city,
it could be the buyer city or any other location,
the risk of loss stays with the seller a little bit longer.
Those are destination contracts.
But normally, they give you shipment contracts.

Hypo 4K.
What if the coffee was shipped FOB Seattle?
What's FOB Seattle?
That's FOB seller city.
What is that?
That's a shipment contract.
Now they just got done saying what
are seller's delivery obligations under a shipment
contract.
Get the goods to a common carrier.
You bring the coffee down to the UPS delivery station.
You make arrangements for shipment.
You notify the buyer.
And at that point seller, has completed delivery obligations.
And the risk of loss passes to the buyer.
And that means when rats get in halfway through the country,
buyer has got to pay for mixed blended coffee.
However, what if it's some other city like FOB New York?
That would be a destination contract
if it said FOB New York.
And then obviously, the seller would bear the risk of loss
until the coffee arrived in New York correctly.
So if rats get in while in transit,
seller would bear the risk.
If it was a destination contract,
seller would have to deliver new coffee.
Last rule.
If there's no common carrier, the last factor you can look to
is whether or not your seller is a merchant.
So for these non-carrier cases is where your buyer picks up
the goods directly, or maybe the seller delivers them directly.
The risk of loss rule here depends on
whether your seller is a merchant.
It doesn't matter what your buyer is.
It matters whether your seller is a merchant.
Merchant sellers, these are repeat players.
They bear the risk of loss for a long time
until the buyer receives possession of the goods.
Why?
Well, merchants are repeat players.
And they can buy insurance against the risk of loss.
Or they can just jack up the price on everything
they sell to guard against the risk of loss.
Non-merchant sellers, though, they pass the risk of loss
sooner.
The buyer will bear the risk of loss
once the non-merchant seller tenders the goods.
She makes the goods available to the buyer at that point,
if she is a non-merchant seller, she's off the hook.

Hypo 4L.
Chryssa contracts to buy a floor model couch
from Costco, merchant seller.
She's to pick it up at the loading dock.
No common carrier, she has to go to the loading dock
with her truck to get it.
Before she does, the couch is ruined by yuppie kids jumping
all over it.
I don't know if you've ever been to Costco,
but they got yuppie kids everywhere ruining couches.
Question, does Chryssa still have
to pay for the ruined couch?
No.
Why?
As I said, this is a merchant seller.
Merchant seller bears the risk of loss
until the buyer takes possession of the goods.
She hadn't picked up the goods.
She doesn't have to pay for them.
However, part two, Chryssa contract
to buy a couch at a garage sale now.
The owner tells her where the couch
is located in the back bedroom and how to pick it up.
That's called a tender.
It's a seller telling the buyer where the goods are
and how to get them.
Before Chryssa picks up the couch,
it is ruined by bargain hunters jumping all over it.
Does Chryssa still have to pay for the ruined couch?
Yes.
Non-merchant seller passes the risk of loss to the buyer
once she tenders the goods.
As I said, tender is a seller telling the buyer
where are the stuff is and how to get it.
At that point, the non-merchant seller, the garage sale owner,
passes the risk of loss to the buyer.
If it's a merchant though, she keep the risk of loss longer.
Next, let's discuss performance terms and performance terms
if you have a common law contract versus next,
we'll talk about the Article II performance terms.
In common law, it's pretty easy.
Performance doesn't have to be perfect.
Substantial performance is all that is required.
A party cannot commit a material breach.
And again, you just look to the terms of the contract
to see what the performance obligations are.
And make sure there is "substantial performance," i.e.
we meet the essential purpose of the contract.
That's what substantial performance looks like.
It meets the essential purpose of the contract.
Obviously, material breach is not OK.
That's where you don't have substantial performance.
And we'll talk about that later in module 5.
Obviously, that will excuse the innocent party's performance
obligations.
Performance terms, though, are a lot more interesting
if you have a sale of goods.
Then you're looking obviously to UCC Article II rules.
And the most important term under Article II performance
obligations is the perfect tender rule.
That is an absolute bar exam lock to be tested,
the perfect tender rule.
Seller must deliver perfect goods
in the right place at the right time.
If her tender is not 100% perfect,
buyer has the right to reject all of those goods.
He doesn't have to.
Buyer has several choices.
We'll talk about those in a little bit.
But typically, your seller has to come in 100% off or 100%
perfectly good.
If she is 99% good, that is a violation of her perfect tender
obligation.

Hypothetical 4M.
Seller contracts to deliver 50 purple t-shirts to buyer.
Seller delivers 49 purple t-shirts and one gold t-shirt
instead.
Really, really close.
What are buyer's rights?
As I said, buyer has the right to reject everything.
Seller has not met her obligation of perfect tender.
49 and one is not the same thing as 50 purple t-shirts.
Now secondly, after you go through perfect tender
rule and the buyer's ability to reject those goods,
you want to talk next about the possibility of cure option--
of cure, a second chance in certain situations.
A seller who makes an imperfect tender
might still have the option of cure.
Whether seller can cure usually depends upon
whether there is still time remaining for performance.
So if time has not yet expired, so this
is a seller comes in with a wrong delivery but she's early,
seller obviously does get the additional time to cure.

Her widgets weren't due until next month like in hypo 4N.
Same facts except the contract provides
for delivery of the t-shirts no later than June 6.
Seller delivers 49 purple and one gold t-shirt on May 5.
Buyer rejects the t-shirts.
Does seller have the option of cure?
Absolutely yes.
How?
By delivering the 50 t-shirts that are purple before June 6.
Time has not yet expired on contract performance here.
Seller has the right to try to come
in with the correct delivery before June 6.
So bar tip, look for a question with a deadline.
Deadline is in June, for example.
Seller comes in a month early.
Buyer has the right to reject.
She's screaming about perfect tender rule violations.
And then you want to say that's fine.
But hey, seller gets until June 6
to come in with the correct delivery.
This was a wrong delivery, but it happened to be early.
The second cure situation you might
see, not quite as common as the first,
is where time has already expired.
Seller usually doesn't get an option
to cure if time has already passed unless she
had reasonable grounds to think that her imperfect tender would
have been acceptable.
And as an exam tip, if they want to give you reasonable grounds
to think that the improper delivery was going to be OK,
look for information in your fact pattern
about past deals between seller and buyer
in which the buyer did not require perfection.
Buyer wasn't fussy in the past and that's
what giving seller reasonable grounds
to think that imperfect tender would be acceptable.

Hypo 4O is how it looks on the bar exam.

Same facts except seller delivers 49 purple t-shirts
and one gold t-shirt on June 6 right at the deadline.
She's not early.
Buyer rejects them.
The facts go on, though, to tell us that in the past,
the buyer had accepted gold t-shirts instead of purple.
The course of dealing between these two parties
was at previous deals, buyer didn't
care if they were gold, purple, green or blue.
Question, does the seller have the option
to cure even though the contract deadline has already passed?
Yes.
This seller had reasonable grounds
to think that the imperfect tender was
going to be acceptable.
And that gives her an additional reasonable time
beyond the contract delivery date
to come in with the correct 50 purple t-shirts.
So you should note that even though buyer didn't insist
on perfect tender in past contracts,
buyer still has the right to insist on perfect tender here.
But seller gets the chance to cure
because she had reasonable grounds
to think that imperfect tender was going to be OK.
Next thing to think about when it comes to performance
in the sale of goods contracts is the installment sales
contract situation in which you have no perfect tender
rule at your disposal.
Instead, it's about substantial impairment.
An installment sales contract is one that requires or authorizes
the seller to deliver in separate installments.
Otherwise, obviously, your seller
has to deliver all the goods right away
in a single delivery.
You can't just deliver 10 widgets
here, there, and everywhere for months on end.
But an installment contract calls for X widgets per month.
It requires or authorizes the seller
to deliver in separate installments.

Hypo 4P.
BARBRI contracts to buy 3,000 donuts from Krispy Kreme
donuts, with Krispy Kreme to deliver 100 donuts here
by 9:00 AM each day of the 30-day bar review course.
Each day, they want to keep your kids happy and well fueled.
Question, is that an installment contract?
Yes.
As I said, the contract requires delivery
and separate daily installments to keep you guys going.
Eat those donuts.
I don't know if they're so healthy.
But at least you get a sugar high for a few hours
to go through contracts.
However, if you get one of these installment sales contract,
you've got to be careful about rejection under those.
Perfect tender rule does not apply to installment contracts.
It's harder for your buyer to reject.
Buyer can reject one of those installments
only if there is a substantial impairment
in that delivery, i.e.
something really bad is wrong with that delivery.
If it's just some minor imperfection,
no perfect tender rule is going to help out your buyer there.

That's hypo 4Q.

One day, Krispy Kreme delivers only 99 donuts at 9:01 AM.
What are BARBRI's rights?
So you have Krispy Kreme a little bit late
and a little bit short.
But hey, 99 donuts.
That's close.
That's good enough.
And when it comes to installment sales contracts,
buyer does not have a perfect tender rule to rely upon.
Buyer cannot reject.
BARBRI cannot reject those donuts even though it's less
than a perfect tender.
BARBRI would have had to shown a substantial impairment
in the value of this delivery that cannot be cured
in subsequent deliveries.
So presuming tomorrow, BARBRI will get 101 donuts at 8:59
from Krispy Kreme.
And we'll call it even.
The theory is we want to preserve
these ongoing relationships.
Any minor problem in the installment sales
contract in one delivery, we can cure it the next day
and we want to preserve the relationship.
Next, buyer's acceptance of the goods.
Let's talk about the effect of buyer's acceptance.
And I want you to watch out especially
for implied acceptance.
So this isn't a buyer saying I accept but imply
a buyer keeping the goods after having a reasonable opportunity
to inspect.
Even if she hasn't expressly stated her acceptance,
that will be held, in the eyes of the law,
to be an acceptance.

Hypo 4R.
Lonzo Ball contracted to buy new sneakers from Nike.
He paid before the shoes arrived at his home.
Did Lonzo impliedly accept the sneakers
by paying for them in advance?
No.
Merely paying for goods up front is not yet acceptance.
You still have to get a reasonable opportunity
to inspect those goods.
So when you and I buy stuff on Amazon or eBay,
just because we're paying up front
doesn't mean we've accepted yet.
Lonzo has not impliedly accepted yet.
Unless you go to part 2 of the hypothetical.
The sneakers arrive at Lonzo's LA house
more than three months ago.
But he's been too busy helping out
his dad's at a basketball league throughout Europe
to open up the box.
Really long delay between when the buyer receives the goods.
And then three months have gone by.
Let's imagine he tries to reject these goods now.
Has he already impliedly accepted these sneakers?
I would say probably yes.
This is a buyer keeping the goods for more than a
reasonable time, having had reasonable opportunity
to inspect.
You can't just stuff the box in the corner of your living room,
wait six months or three months, and then
claim that the sneakers are not the right size.
So watch out, read for dates carefully.
That's my exam tip.
Any time you see a long delay, more than a month or so,
between when the buyer got the goods
and when the buyer first starts to complain about the goods,
I would say that buyer's already gone down acceptance avenue.
It's too late to reject.
This is an implied acceptance.
Now let's note and let's talk about the consequences
of buyer's acceptance.
As I just said, if you've accepted,
it's too late to reject.
So buyer goes, comes across the fork in the road.
She goes down acceptance avenue or rejection road.
But you can't do both right.
Each way is one way, a one way street.
You have to choose whether to accept or to reject.
You can't do both.
Now obviously, buyer can still get damages for seller's breach
if there's been some seller's breach.
But in some limited circumstances,
buyer might try to revoke her acceptance of the goods.
The general rule is you can't revoke your acceptance.
You've already gone down acceptance avenue.
Exception, though, if the nonconformity and the goods
substantially impairs the value of the goods to the buyer,
and it was difficult to discover, i.e.
it was what the law calls a latent defect.
In those situations, even though your buyer is already gone down
acceptance avenue, I would let her
try to revoke her acceptance of the goods and that way,
get her money back.

Hypo 4S.
In July, B the buyer buys a sleeping bag from S the seller.
Contract provides that the sleeping bag
is insulated for temperatures as low as 10 degrees.
So that's a express warranty here.
B the buyer uses the sleeping bag
for various warm weather camping adventures
throughout the summer, going all through the US
because she doesn't have to study for BARBRI.
And she's having a great time.
When B goes camping in October, though, she
learns that the sleeping bag is not
actually insulated for temperatures
as low as 10 degrees.
She's out on Mount Rainier and she's freezing to death.
Question 1, can the buyer reject the goods?
And normally, I said any minor defect,
buyer has the perfect tender rule and can reject the goods.
But what's the problem with rejection here?
There has been a really long delay.
You bought the sleeping bag in July.
It's now October, four months have passed.
I would say it's too late to go down rejection road.
However, can your buyer get her money back
by revoking her acceptance of the goods?
Yes, assuming she shows a substantial impairment
in the value of the goods.
Not some minor little problem with the sleeping bag,
but it's not actually insulated.
Therefore, I'm freezing.
And secondly she's got to show excusable ignorance
for her delay.
Now, why did you not figure out this defect sooner?
Well, it was July.
It was August.
It was September.
It was still hot outside.
The temperature didn't fall down to 10 degrees
until we got to October.
Once I discovered that defect in October,
then I can now revoke my acceptance.
So the wait and defect that was not easily
discoverable over the summer time.
And on that basis, I would let your buyer
revoke her acceptance.
Next, consequences of buyer's rejection assuming you
meet the requirements for rejection
or of revocation of acceptance.
Obviously, your buyer can return those goods
at the seller's expense.
You don't want that sleeping bag anymore.
Two, buy buyer can get a refund.
Buyer can get any money back that she's paid, assuming she meets the requirements
for either rejection or revocation
as we just discussed.
And also buyer can get damages for breach of contract.
You thought you were going to get a perfect sleeping bag,
and you didn't get a perfect sleeping bag.
And then finally, when it comes to performance terms
and our UCC, let's talk about the buyer's obligations
to pay money.
What are the payment terms that your buyer has to meet?
First rule, with cash unless otherwise agreed.
Rule two, though, is you should know
that checks are generally OK.
So tell your grandma, because she's probably
the only one left in America using checks,
that her check is OK.
However, seller can refuse her check because, after all, you
don't know if the buyer has any money in our checking account.
But that gives the buyer an additional reasonable time
to come in with the cash.
What do the questions look like here?

They look like hypo 4T.

I contract to sell Bill Gates my 2010 Toyota Prius.
Our contract requires him to pay me by 5 o'clock
on Sunday night.
Gates gives me a personal check at 5:00 PM on Sunday.
If I refuse this check because, after all,
who knows if Gates has any money in his bank account,
is Gates in breach?
No.
Even though the general rule is you got to pay cash,
checks are generally OK.
He is not in breach.
He has met his payment obligation.
However, I don't have to take Bill Gates his check.
Who knows if he's got any money left?
If I refuse his check, though, that gives him
an additional reasonable time to cash the check,
come in with the money.
Monday morning, 9:00 AM when all the bank's open up,
he brings in the bills.
So these questions are relatively easy to issue spot.
As a bar tip, they always give you one of these sales of goods
where the buyer will have a deadline that
falls on a weekend.
The buyer is going to come in with a check
right at the deadline.
First question is going to be has the buyer met
her performance obligation.
Yes, you can pay it by check unless otherwise agreed.
And secondly, the seller can refuse our check.
But that gives the buyer an additional reasonable time
to come in with the cash.
With that, we have finished module 4 on terms.

Next, let's tackle module 5 on excuse. Remember love for dogs, treat every Rover terrifically.
Every stands for excuse.
Do not forget to think about things that
might excuse non-performance.
And in the heat of exam passion, it
can be easy to leave out excuse, but not
if you remember every Rover, every equals excuse.
First off, the other party's breach
may provide an excuse depending on the nature of the contract,
depending on whether you have an Article II situation
or a common law situation.
Let's look at the rules for excuse.
For sale of goods contracts, obviously, you're
looking at Article II rules.
You remember perfect tender rule applies.
And so if seller's performance is not
perfect in every respect, buyer has pretty much free reign.
Buyer has three options here.
She can reject everything, i.e. buyer
is excused from paying a dime under her sales contract.
Or buyer could accept everything.
Just because the goods aren't perfect
doesn't stop the buyer from accepting them.
Or buyer could reject some and reject the rest,
or reject and accept some, accept and reject some.
Buyer has all of those three choices at her disposal
if she is a victim of even a slightly imperfect tender.

Hypo 5A.
Seller contracts to sell 50 purple t-shirts to buyer.
Seller delivers 49 purple t-shirts and one gold t-shirt.
What can buyer do?
As I said, buyer has those three options at her disposal.
She can reject all of the t-shirts, not just
the gold one.
All 50, you can reject.
Ouch, that hurts.
But that's the way it is.
Buyer is excused because of seller's imperfect tender.
Or buyer could just accept all the t-shirts.
She could say, I don't care.
Purple, green, gold, whatever, I take them all.
Or as I said, third option.
Buyer can accept some of the t-shirts and reject the rest.
And by the way, as an exam tip, whichever option buyer chooses,
buyer can still get damages.
After all, your seller has not given a 100% perfect tender.
So always start out with the perfect tender
rule in Article II.
Look for 100% perfect tender.
Usually, your seller is only 99% perfect.
And you want to say that's a violation of her performance
obligation.
It excuses the buyer from paying anything
if that's what the buyer wants to do.
On the other hand, common law contracts, typically,
what you're going to see is a damage situation.
Person hasn't met her performance obligations.
Obviously, the injured party in common law
can recover damages for any breach of contract,
whether the breach is material or not.
Major breach, small breach, either way,
you can get damages.
But is your aggrieved party excused
if it's a common law situation?
Only if she's a victim of a material breach.
Only a material breach excuses the innocent party's
performance obligations.
Either way, you can get damages.
And obviously, if it's just a minor breach,
your damages are probably pretty small.
But if you want to suspend your own performance obligations,
you've got to show you're a victim of a "material breach."
That's one that undermines the substantial benefit
of the bargain.
That's one that undermines the substantial benefit
of the bargain.
And if you are a victim of material breach,
you are excused.

Hypo 5B.
I hire Martha Stewart to decorate my house.
She finishes except for one bathroom.
What are my rights?
This is only a minor breach.
She decorated most of my house.
She forgot one bathroom.
Of course, I can get damages for that breach, whatever
the monetary value of my expectation interest is.
But I am not excused from paying under this contract
because Martha has substantially performed.
In common law contracts, you just
look for substantial performance.
I can still get damages.
They're probably pretty slight.
I am not excused under the contract.
However, what if Martha quits after decorating only one room
and she left off the other 20 rooms in my house?
Well, that now is a material breach,
one that undermines the substantial benefit
the bargain.
And if I am a victim of material breach,
that excuses me under the contract.
I can sue for damages right away.
And I don't have to go ahead with any other of my contract
performance obligations because now, I'm
a victim of a material breach.
You should also note, though, if Martha has still conferred
some benefit on me, because after all, she
did do one room, decorated one room,
she might be able to get restitution
for the value of that work if she has conferred
some lasting benefit on me and assuming
I can find somebody else to cover and enter
into a new contract and decorate my entire house
within the original contract price.
So potentially, restitution for the value of that room.
But again, that's outside of the contract.
Material breach excuses my obligations under the contract.
What if the contract required me to pay Martha
$25,000 for each room that she decorates?
What I'm giving you here is what's
called a divisible contract.
And in a divisible contract, the material breach rule
is applied on a unit by unit basis.
So you go through each room in the house.
She's entitled to $25,000 for each room the house.
And only for the rooms that she didn't
decorate will she not get paid.
But obviously if it was a divisible contract like hypo 5B
part three, Martha is entitled to the $25,000 for the rooms
that she's decorated.
So watch out for that if they give you
the divisible contract, then you're
not going to be looking at an overall material breach
excusing all of my obligations under the contract.
Otherwise, if they don't divide the contract for you,
you just ask has the victim of this contract been
a victim of material breach, one that
undermined the substantial benefit of her bargain.
And if yes, you excuse all of the obligations
under contract law.
Next basis for excuse is anticipatory repudiation.
Basically this is an early statement of nonperformance.
And that provides an excuse unless that repudiation
is retracted, and unless it hasn't been relied upon yet.

Let's look at hypothetical 5C.

Martha Stewart contracts to decorate
my house payable on completion.
After Martha starts the job, I tell her
that I'm simply not going to pay her.
You're doing an awesome job so far Martha,
but I'm just the type of guy that doesn't
pay my interior decorators.
What are Martha's rights?
Well, she's been a victim of my anticipatory repudiation.
And she has the right to suspend her own performance
obligations, i.e. she's excused from finishing
decorating the house.
And two, she can sue me immediately for breach.
So anticipatory repudiation not only
excuses the innocent party, Martha here,
it also gives rise to an immediate claim
for damages for breach.
So watch out for one of those anticipatory repudiations.
On the other hand, repudiations can be retracted.
Part 2 of hypo 5C says what if I tell Martha the next day
that I've changed my mind, and I will indeed
pay her as promised.
That's called a retraction.
And the rule is that repudiations
can be retracted so long as they have not been relied upon yet.
So if I retract my repudiation and she hasn't relied upon it
yet, that reimposes the duty under the contract upon Martha.
I go back to her and I say, look, I had a bad day at BARBRI
yesterday.
I couldn't stand my contracts professor.
But today, I'm in a better mood.
Please finish the job.
I will indeed pay you for decorating my house.
That's a retraction of my repudiation.
And that will reimpose the contract duties
on Martha assuming she hasn't relied
on my repudiation the day before.
Because if the facts go to show you
that Martha, when I repudiated, lined up job number two
and moved away all of her interior decorating supplies,
that's called reliance.
And once the repudiation has been relied upon,
it would no longer be able to be retracted.
Next, failure to give adequate assurance.
Special Article II rule here.
A party with any reasonable grounds
for being secure about the other party's performance
may, in writing, request adequate assurance
that the other party will perform in accordance
with the contract.
So you have to have reasonable grounds,
though, to think that you are insecure about the other guy
going forward.
And if you are and you request those adequate assurances
in writing, and you don't receive
those adequate assurances, then you
can treat that as an anticipatory repudiation.
Meaning now, the innocent party is
excused from her own performance obligations.

That's hypo 5D.

Calandrillo contracts to buy computer chips from Bill Gates.
Calandrillo then learns from other buyers
that Gates's recent deliveries have contained
lots of defective chips.
I have reasonable grounds to be insecure
that Gates is going to give me a good computer stuff.
What can Calandrillo do?
Well I, as the buyer here, can request adequate assurance
about the quality of those chips that Gates
is going to deliver me under the contract.
I had reasonable grounds for thinking that these chips might
not be good.
And the theory is once he gives me adequate assurance,
it will give me, the buyer, peace of mind
to know that I'm getting good computer chips.
What if Gates doesn't provide Calandrillo
with adequate assurance?
Then what are my rights against him?
Me, the buyer here, I can treat that
as an anticipatory repudiation of the contract.
Meaning my obligations under the contract are excused.
I requested adequate assurance because I
had reasonable grounds.
I didn't get adequate assurance.
That basically excuses me from my obligations
under the contract.
But part three of hypo 5D, Gates contracts
to sell Calandrillo goods on credit.
Later, Gates learns that Calandrillo
has failed to make payments to other suppliers.
And he's been hearing rumors that I'm just broke
and not paying anybody.
Can Gates now demand that I pay cash?
No.
You cannot use this adequate assurance provision to rewrite
a contract or to demand a particular kind of assurance.
Remember, you're only entitled to adequate assurance.
And that depends on the particular facts of the case.
You can't rewrite the deal just because you're now
feeling insecure about me actually paying money,
and I haven't paid anybody else.
You can request adequate assurance.
But you can't rewrite the deal.
Next, let's talk about later agreements
that are formed on the bar exam that
might excuse the original party's obligations.
Four types of labor agreements that we're going to talk about.
First is rescission.
What is a rescission?
It is a mutual agreement to cancel the contract.
We agree to end the deal.
If you have a valid rescission, that obviously
will excuse both of us from our obligations under the contract.

Hypo 5E.
John contracts to perform yard work for Gabrielle.
Before John does the yard work, he and Gabrielle
agreed to rescind the contract.
If John does not perform the yard work,
then can Gabrielle sue him for breach of contract?
Obviously not.
John's performance is excused due to this rescission.
The parties got back together.
They said, hey, we have this deal.
I'm supposed to do yard work.
You're supposed to pay me.
They both exchanged mutual promises to end that deal.
That's called rescission.
If Gabrielle sues John afterwards to do the yard work,
he's going to say no way.
My duties were excused by rescission.
You should note, though, that for a rescission
to be effective, each party must have at least some performance
remaining under the contract.
If John had already finished the yard work
and then they agreed to rescind and rip it up
and said Gabrielle doesn't have to pay him,
that would not work.
So make sure there's still some performance remaining
from each of the parties before you
say your decision is effective.
Next type of labor agreement excusing original obligations
is the modification agreement.
This is an agreement to replace an existing contract
with a new one right away.
Modifications take effect immediately.
They excuse the original contract obligations
right away.

Hypo 5F.
John borrows $500 from Gabrielle.
And he promises to repay her with interest.
Later, Gabrielle agrees to discharge the debt now
if John promises to do her yard work for a year.
John makes the promise to do her yard work for a year.
What are Gabrielle's rights if John does not
do the yard work as promised?
Answer, she can only go after him on the new yard work deal.
The old $500 debt, that has already
been excused due to this modification.
His original duty to pay her back $500
is excused by modification.
Modifications take effect right away.
Right now, she agreed to excuse that debt.
He made the promise right now to do the work.
She can only sue him on the work deal.
Debt is gone, it's excused.
Let's look at how accord and satisfaction is a little bit
different than modification.
An accord is an agreement to accept a different performance,
I'm emphasizing the word different performance,
and future satisfaction of an existing duty.
The original duty is suspended by the accord
because now you've agreed to do something different.
But it doesn't get excused until the accord is actually
satisfied, i.e.
performed.
That's what satisfaction means.
You need to show me that that accord has
been satisfied before there's excuse of the old obligation.
So it's a little different than modification.

Hypo 5G.
Same facts, except they agree that only if John does
the yard work for a year, only then
will Gabrielle discharge his debts.
What are Gabrielle's rights if John doesn't
do the yard work as promised?
So they entered into this accord now to do the yard work.
But he doesn't do the yard work.
She can now sue him on the accord to do the yard work or on the original $500 debt.
Why?
Because this was an accord without satisfaction.
He never did the yard work.
That does not suspend--
I should say that does not excuse his original obligation
to pay the $500 debt.
Watch out on the bar exam for accords without satisfaction.
It doesn't excuse the original debt.
She can go after the $500 debt or the accord
to do the yard work instead.
The debt is excused only once the accord is satisfied.
As exam tip, whether you have a modification or an accord
and satisfaction depends on the time.
Is the underlying obligation excused right now, right away?
That was my previous hypothetical.
She agreed to discharge the debt immediately.
Or only later on?
That's the accord and satisfaction situation.
Only if you do the work, then I will excuse your original $500
debt.
Now normally, they don't ask you to make the judgment call
on the bar exam, should you name it a modification
or should you name it an accord and satisfaction.
Usually, they just ask you is there any basis for excuse.
And so again, if it's in accord and satisfaction line up,
you want to say you're only going to have excuse
if that accord gets satisfied.
And look for the word then.
If followed by then, that is typically an accord
and satisfaction situation.
Last type of labor agreement excusing original obligations
is the novation situation, an agreement
to substitute a new party for an existing one.

Hypo 5H.
John contracts to do some yard work for Gabrielle.
Later, John, Calandrillo, and Gabrielle
agree that Calandrillo will do the yard work instead of John.
If Calandrillo does not do the yard work,
is John liable for breach?
No.
Why?
John's duty to do the yard work is excused by novation.
His duties are excused by novation.
Gabrielle gave up her rights against John.
Importantly, I want you to note in a novation situation,
all of us are in on this new deal.
John goes back to Gabrielle.
He says, hey, do you know my friend, Calandrillo?
He can do your yard work.
And Gabrielle is super excited.
She's like Calandrillo is twice the yard worker that you are,
Mr. John.
I agree to take Calandrillo in your place.
That's called novation.
Two original parties mutually agreeing to substitute
a new guy to do the work.
And when you see that type of situation,
the original party, John in this case,
his obligations are excused.
Part two, though, John and Calandrillo
agree that I will mow the lawn without getting
Gabrielle's consent.
What I'm saying there is this is not novation anymore.
It is a mere delegation.
So delegation is where one party goes out on his own
and finds the replacement party.
So John finds me Gabrielle.
Has never even heard of me.
Does that excuse John's obligations?
No way.
Delegations do not excuse the original parties' obligations.
John is still on the hook.
My first part of this hypothetical, Gabrielle
agreed to take me in place of John.
In the second part of this hypothetical,
John went out and got me without Gabrielle's consent.
Gabrielle is going to say, I never
heard of this guy Calandrillo.
I contracted with you, John.
I am going after you.
Your obligations are not excused.
So delegations do not excuse, even though novation
does excuse the guy who gets contracted out or replaced.
With that newfound knowledge on modifications and excuse
and delegations and novations,

let's do a review question,activity question.

Give you a chance to apply that knowledge
and cement it in your brain.
We'll come back in a moment and review.
OK, let's review this activity question
on modification and excuse.
Carol's construction company agreed
to pave all of Farmer Fran's driveway for $10,000.
Rising asphalt costs led Carol and Framer Fran to later agree,
in writing, that Carol could omit
the portion of Fran's driveway behind the barn, saving $2,000,
and still receive the full contract price.
Question, under the general rule,
this subsequent written agreement is?
Let's look at our four choices to see
what's the best answer because it often
comes down to what's the best.
A says enforceable as a novation, which superseded
the original paving contract.
No.
As we just learned, novation is where
you get the mutual agreement of both of the original parties
to substitute a new party to do the work
under the original contract.
This is not a novation.
B says enforceable because an agreement modifying
a contract for the sale of goods, the asphalt,
needs no consideration to be binding.
Now remember, I did say that when
it comes to modifications of sale of goods contract,
all you need is good faith.
But is this a sale of goods contract?
You know asphalt is a good.
This is a service contract.
This is not a sale of goods contract.
You are agreeing to do paving work.
And even though the asphalt is the goods,
this is typically going to be construed as a construction
contract, a service contract.
And it's going to be covered by common law
and common law contracts do need consideration.
This is not a sale of goods.
C says enforceable on the theory that Carol gave up her right
to breach the contract and reliance on Farmer Fran's
agreement to the modification.
No way.
There is no such thing as a right to breach a contract.
True, sometimes people do breach contracts.
But if you see an answer choice that
says somebody has a right to breach of contract,
that is definitely not the right answer.
And your correct answer is choice D.
This modification is unenforceable for lack
of consideration even though it's in writing.
Common law contracts require new consideration
to support that modification.
You need that consideration.
And without it, it is unenforceable.
That is the end of that activity question
Let's take our first break of day 2.
Next excuse, let's discuss impossibility.
Impossibility is an excuse for your performance obligation.
And typically what, you'll see is a later, unforeseen event
that makes somebody's performance impossible.
Obviously, that might provide seller with an excuse.
Under Article II, usually the doctrine
is called impracticability.
Either impossibility or impracticability
might excuse somebody's performance.
Usually, they don't ask you to name it.
Usually, they're just asking you whether there's
some basis for excuse.
So first off, what makes things impossible to perform?
You might see destruction or destruction of something
necessary for performance.
Common-law, destruction of subject matter of your contract
obviously provides an excuse.

You probably studied the seminal case

Taylor v Caldwell
that looks like hypo 5I.
Caldwell leases a musical hall to Taylor for an upcoming
concert to be held on June 1.
Sadly, the hall burns down on May 26.
Is Caldwell excused from performing?
Obviously yes.
We have this later unforeseen event
make performance impossible.
The Tay is not really excited about the fact
that the music hall burns down, sues the music hall
owner Taylor to get a-- or I should say
Caldwell to get a music hall.
And the music hall owner says, look,
I'd love to provide you a music hall.
But look out at the field where it used to sit.
It's a pile of rubble and debris.
It is literally impossible for a music hall owner
to supply a music hall to a tenant that no longer exists.
Excuse due to impossibility when the subject
matter of your contract gets destroyed excuse.
Now sale of goods, obviously, are
governed by Article II, same rule about impossibility.
But watch out for two tricky situations.
First on the risk of loss.
Remember, we learned our risk of loss rules previously.
Seller who bore the risk of loss when
the goods get damaged or destroyed
is excused by impracticability.
So even though the seller bore the risk of loss,
she can still look for an excuse due to impracticability.
That's usually what you hear termed under Article II.

Hypo 5I, or I should say 5J.

Courtney contracted to sell her BMW to Chloe for $50,000.
After the risk of loss passed to Chloe,
the car is destroyed by a fire.
Question, is Courtney excuse from performing
due to impracticability?
Courtney doesn't need any excuse here since the risk of loss had already passed to the buyer,
Chloe.
So in a situation where seller bears risk of loss,
she might need to see some doctrine that
excuses her non-performance.
But if they give you facts that tell you that the risk of loss
has already passed, you don't have to worry about that.
Now on the other hand, if the risk of loss
has not yet passed, then seller does
need to look for some doctrine that has excuse that
will excuse her obligations.
And obviously, the subject matter of her contract
has been destroyed.
That will grant the seller an excuse.
But here, Courtney doesn't have to worry about that.
Risk of loss had already passed to the buyer, Chloe.
Next, let's discuss unidentified goods.
Seller is only excused if the goods that
are damaged or destroyed had been
"identified" to the contract.

Hypo 5K.
Buyer contracts to buy 500 computers from seller.
After the contract is formed, but before delivery occurs,
buyer sadly destroys one of seller's warehouses.
Thousands of computers get destroyed in the fire.
Is this seller excuse from performing?
Answer, maybe.
It depends only if the computers that were destroyed
had already been tagged or set aside for sale
to this particular buyer.
That's what it means to be "identified" to the contract.
Otherwise, if it's just widgets in your contract
and they haven't been identified to the contract,
then I would say generally seller has no excuse.
But here, in this situation, if you're
contracting for computers, they've
been identified to this particular warehouse,
and that particular warehouse burned down,
then in that situation, seller will have an excuse.
Next potential excuse, death or incapacity
of an essential person as an excuse due to impossibility.
Can't just be any person who dies in your bar exam fact
pattern.
It must be somebody special.
Special, an essential person, a special person.
I know your mom told you that everybody
was special in the eyes of God.
But clearly, the bar examiners do not think so sometimes.
They give you non-special people who die.
Non-special people, don't excuse.
But a special person, an essential person, that does
create an excuse.

Hypo 5L.
Idaho hires Van Gogh to paint her portrait.
If Van gets hurt and cannot paint, is he liable?
No.
He's a very special artist with very special skills.
Van Gogh is excused.
Two.
What if Ida had hired Van Gogh, though,
to paint her exterior of her barn instead
of her personal portrait?
No special skills are needed to paint the exteriors of barns
so van Gogh would not be excused.
In other words, he's not essential.
Even though he's a famous person,
if it's just a barn that's being painted,
he's not special or essential with respect to the barn,
even though he would be with respect to her portrait.
Subquestion three.
What if Van paints her personal portrait but then Ida dies?
Is her estate liable for the contract price?
Yes.
Watch out for that trick.
It is sad that Ida died.
But is it impossible for buyers to pay money
under their contracts?
No.
As I said, often, the obligations in her contract
go to the estate of the deceased buyer.
And her estate is going to have to pay
Van Gogh for this portrait.
Typically, it is not impossible for buyers to pay money.
So watch out in fact patterns for buyers who pass away.
That does not automatically mean they are excused.
If they had the risk of loss or if they died, in this case,
they still have to pay for the painting that Van Gogh made.
After all, he did the work.
He should get paid.
What about supervening governmental regulations?
Sometimes you'll see these new laws or regulations
that are passed, making performance under the contract
illegal.
That equals excuse due to impossibility.

It looks like hypothetical 5M.

A Seattle manufacturer contracts to sell desks of Washington
pine to a California retailer.
Washington state then passes a new law forbidding cutting down
Washington pine trees.
New regulation passed, making performance illegal.
Question, must the manufacturer perform as promised?
No.
If performance becomes illegal by subsequent governmental
regulation here, making performance illegal
cutting down Washington pine trees,
that equals excuse due to impossibility.
It is impossible in the eyes of the law
to do something that is illegal.
But watch out for an increase in the cost
of seller's performance.
Generally, you don't get an excuse, just like in my asphalt
activity question.
Just because the price of asphalt goes up a little
bit or even if it goes up a fair amount,
normally, increase in cost of performance is not excused.

Hypothetical 5N.
Burger King agrees to buy imitation meat
for its new impossible meat burger
from a vendor for $2 a pound.
An outbreak of vegetarian flu causes the market price
to double, increase in costs.
Is the vendor excused from performing?
Generally not.
An increase in cost, bar tip, is usually not
going to be enough to sell--
or sorry, to excuse a seller from her obligations
under the contract.
It has to be extreme and unreasonable.
That's what impracticability requires.
Otherwise, you just see costs go up.
Hey, that's the type of risk that business people
take every single day when they engage in these fixed price
contracts.
I generally would not grant people excuses on the bar exam
just because their costs wound up increasing.
It might mean they don't make a profit anymore.
But I would usually say tough luck to that.
Next, frustration of purpose as a reason
to excuse contract obligations.

Hypo 5O is a tweak on the seminal case Krell v Henry

you probably studied during your 1L youth.
Krell rents a loft for Thanksgiving day
because of its great view of the upcoming Thanksgiving Day
Parade.
You got an awesome bay window.
You're going to see all these big balloons perfectly.
The parade sadly gets canceled unexpectedly just
before Thanksgiving.
Question, does Krell have to go through
with the deal to rent the loft?
It's still perfectly possible to rent the loft
and pay for the loft.
But again, if the central purpose of the contract
is undermined and both parties understood
that was the central purpose, then
you would have excuse due to frustration of purpose.
So your answer here is it depends.
Only if the landlord and tenant understood
that the tenant was renting this apartment because it
had a beautiful bay window with a beautiful view
of the upcoming Thanksgiving Day Parade.
You might recall in the actual case Krell v Henry,
tenant rented a loft because it was
going to be on the day of the coronation of the King.
There was a big window in the apartment
so he'd have a perfect view.
The day before the parade was to occur, the King got sick,
canceled the coronation procession.
Tenant sought to get out of that contract.
And the landlord came back to him
and said it's not impossible for us to perform.
You can sit in my apartment, look out the window at nothing,
and still pay me the rent.
And so the tenant said yeah, it's true.
I don't have excuse due to impossibility.
But I should have excuse due to frustration of purpose.
If both parties knew that the central purpose was
that they were renting this flat because it
had a great view of the Thanksgiving Day Parade
or the coronation of the King or whatever it was,
then you will have excuse of the contract obligations.
But make sure it's the central purpose of both parties,
not just one guy's purpose that the other guy doesn't
know about.
Next, failure of an express condition.
If an express condition is not satisfied, obviously,
that will grant excuse to the innocent party.
Definition of conditions, look for language
in a contract already formed.
So conditions limit obligations created by other language
in the contract.
They don't create their own independent obligation.
Conditions are not promises.
You have a contract formed with an express condition inserted
in it.
Look for words like if, as long as, until, when,
unless, provided that, on the condition that.
That is language of condition.
And if you have an express condition in your contract,
you remember that the rule is strict compliance.
Express conditions must be perfectly satisfied,
strictly construe those express conditions.
What does that mean?
That means close is not good enough.
So if that condition precedent has not been perfectly met,
no obligation at all.

Hypo 5P.
Ariana Grande agrees to buy a house
from Taylor Swift, provided that it is appraised for at least $2
million.
That's a condition in their contract, provided that it's
appraised at $2 million.
The house is appraised for $1.9999 million.
Is Grande excused from buying the house?
Absolutely yes.
Express conditions are strictly construed.
That means close is not good enough.
Now Ariana Grande can still choose
to waive that condition if she wants to still buy the house.
She doesn't have to worry about the fact
that it only came in at 1.999 if she
wants to give up the protection of the condition.
But more commonly on the bar, they'll
give you one of these conditions that's really, really
close to being performed perfectly but just short of it.
There's no substantial performance rule when
it comes to express conditions.
Show me strict compliance.
However, part 2 of the question 5P says,
can Grande sue Swift for breach because the house did not
appraise for at least $2 million?
No.
Watch out for that question as well.
Express conditions do not create obligations.
Conditions are not the same as promises.
And sometimes, students confuse the two.
You have to promise, if you're the seller, that the house will
appraised at $2 million if the buyer is going
to have the right to sue you for not meeting that appraisal
requirement.
This is simply an express condition that has not yet
been satisfied.
That means the buyer doesn't have
to go out and buy the house.
But it also means that the buyer doesn't have a right
to sue the seller for breach.
There is no breach.
Conditions do not create obligations.
Now what about satisfaction clauses?
And a lot of times, you'll see these contracts
that say on the condition of my personal satisfaction.
I will pay you X If I am personally satisfied.
Satisfaction is measured by a reasonable person standard,
unless the contract deals with art or other matters
of personal taste.
In those situations, you can use your own subjective
satisfaction.
But otherwise, if it's just the painting
of a barn or a driveway, generally satisfaction
is judged by a reasonable person standard.

Hypo 5Q.
Britney contracts to have her driveway paved
and to pay $10,000 if she is satisfied with the work.
What if everybody loves the paving work except for Britney?
If you get that type of fact line up,
I would say, hey, go out and use the reasonable person rule
here.
There's nothing personal or artistic
when it comes to paving driveways.
If the reasonable person is satisfied,
Britney should have to pay for that driveway.
But if Britney was contracting with an artist
to paint a portrait to her personal satisfaction,
then what rule would apply?
As I said, art, personal portraits, that
is subject to personal taste.
And in that situation, we would use a subjective standard.
So all that would matter is whether Britney personally
was satisfied.
If it was a portrait to her satisfaction.
But if it's just her driveway being paved,
I would go with the reasonable person standard for that.
Now types of express conditions.
Most commonly, usually what you'll
see when it comes to conditions on the bar
are express conditions precedent,
an event that must occur before performance is due.
Previously, I said you must first see the appraisal
at $2 million.
If that isn't satisfied, then the buyer has excuse.
here I offer an example.
What if I agree to lease some gym space from you for $1,000
if I first sell 2,000 memberships?
That event, the selling of 2,000 memberships,
must occur first before I have any duty to pay you
$1,000 a month in rent.
That express condition precedent must come first.
Now on the other hand condition subsequents come later.
These are events that could happen afterwards
that will cut off somebody's duty to pay.
So for example, let's imagine I agree
to lease the gym space from you and pay you $1,000 a month
right now until the zoning changes from commercial
to residential only.
So right now, I have a duty to pay you money
until the zoning changes.
If that condition subsequent occurs and the legislature
changes the zoning to residential only,
that will cut off or terminate my obligation to pay.
More likely though, you'll see condition precedent
than a condition subsequent.
Finally, let's talk about some doctrines
that might excuse conditions.
Conditions may be excused by the later action
or inaction of the person protected by that condition.
As an exam tip, you want to ask who
is protected by the condition.
And then look to see if she did anything
to give up the protection.
She might fail to cooperate with it.
Or she might just decide to waive the protection
of that condition.
Failure to cooperate first.

Hypo 5R.
Bill Gates agrees to buy my house,
provided he obtains a $1.5 million
mortgage at 5% interest or less.
He makes no effort at all to get a mortgage.
Gates later claims that the express condition was not
satisfied.
He never got a mortgage for $1.5 million.
And so therefore, he's excused from having
to go forward and buy my house.
Is he right?
No way.
Go through the various steps that I list below.
First, you ask who's protected by the condition.
Bill Gates.
Just in case he couldn't get a mortgage,
he doesn't want to have to go ahead and buy
my house because he wants to know that someone's
going to give him money because, after all, he's broke.
Did he do anything to forfeit the protection
of that condition?
Absolutely yeah.
He didn't even try to get a mortgage.
He's got to cooperate in good faith
with the occurrence of that express condition.
What result?
Gates loses the protection of that condition due to his failure to cooperate. So even though there
was an express condition protecting Bill Gates in our contract, he failed to cooperate.
That excuses that condition. He can no longer rely on its protection. You got to cooperate in
good faith. Now waiver, on the other hand, is the voluntary giving up of protection.

hypo 5S.
Gates decides to build a house instead.
His duty to make monthly payments
is conditioned on the builders providing to him an architect
certificate for that month's work
certifying that the work was done correctly.
However, the builder predictably fails
to obtain the certificate.
Nevertheless, though, Gates tells the builder
he will still pay even though the builder never
got the required certificate.
Must Gates pay?
Yes.
Again, go through the various steps.
You ask first who's protected by the condition.
Bill Gates.
He doesn't want to have to pay until he
knows that the architect says the work is good.
Two, did the person protected by that condition
do anything to give up its protection?
Yeah.
He waived his right.
He said to the builder you don't have
to worry about that anymore.
I'm not going to worry about enforcing that condition.
What result?
Condition waived.
Gates has to pay.
He waived the protection of that condition.
He voluntarily gave it up.
Gates has to pay for that month's work.
But by the way, you can retract the waiver for future payments
if the builder has not relied upon it yet.
So he waived the requirement for this month's work.
If he hasn't-- if the builder hasn't relied upon that waiver
for subsequent months, Gates might be able to still retract
that waiver.
But either way, doctrine of failure to cooperate
or the doctrine of waiver.
Look for those doctrines as potentially excusing
the protection of a condition.
With that, we have wrapped up module 5 on excuse.

Next, let's hit module 6 on remedies.

Remember my love for dogs, treat every Rover terrifically.

Rover equals remedies.
Always points when it comes to remedies for breach of contract
you've got to think about what remedies might apply.
Let's knock off the nonmonetary remedies first.
And secondly, we'll do some money damages.
But non-monetary remedies.
Everyone in my first year law students, the favorite remedy
they always have for every breach is specific performance.
Specific performance, they always
want to make that evildoer defendant do exactly what he
said he was going to do.
You should know, both from your 1L year and more importantly,
from these BARBRI bar exam review lectures,
that specific performance is an equitable remedy and usually,
the wrong answer.
Bar examiners are slow to go with it as the correct answer.
Why?
Equitable remedies are available only if the legal remedy is
inadequate, the adequacy test.
Again, the legal remedy is money.
99 times out of 100, money is adequate to compensate
people for their losses.
Money is what people want on the real world and on the bar exam.
You first have to show that no amount of money
would be adequate to compensate plaintiff for her loss
if you want to get an equitable remedy of specific performance.
You also have to show that it would not
be too difficult to administer the specific performance
decree.
Courts do not want to get involved babysitting parties
who hate each other's guts.
It's a lot easier to order money than it is
to order specific performance.
But what it really boils down to when you're
thinking about the availability of specific performance
is what type of contract are you looking at.
Land sale contracts versus sale of goods contracts
versus personal service contracts.
That's the way I think about it when I think about whether you
can order specific performance.
For real property, for land sale contracts,
I'm sure you remember the rule.
All land is unique.
Specific performance is available.
Specific performance is available, all land is unique.
And don't fall for the bar exam trick
where they try to make the land look boring.
Sometimes they'll have a seller who
agrees to sell a lot 77 of 100-unit subdivision
to a buyer.
And then the seller breaches on her obligation
to sell a lot 77.
But lot 77 is totally boring, totally flat,
no trees, no views.
It just looks like lots 76 and 78 and 75 and 79.
And you're tempted to say, well, maybe
this land is not really unique.
Hey, all land is unique.
Lot 77 is the only lot located where lot 77 is located.
All land is unique.
That's the situation where you do award buyer
specific performance.
But the other categories?
You're generally not going to get specific performance.
Sale of goods-- if you contract to buy widgets
from factory number 1 and they breach, are you
going to be able to force them to deliver you those widgets?
No way.
You're going to have to go out into the marketplace,
get widgets from factory number 2,
and sue factory number 1 for the difference in price.
The general rule is that the sale of goods contracts,
specific performance is available
only if the goods were unique or there
are other appropriate circumstances.
That's the language of Article II.
What's other appropriate circumstances?
Inability to cover.
You cannot go out into the marketplace and buy these goods
elsewhere.
So if they're selling widgets, obviously you
have the ability to cover.
You're not going to get specific performance.
On the other hand, what do they give you
if they want you to go with the specific performance rule?
Watch out for artwork or antiques or custom-made goods.
Those are the situations in which you cannot cover and you
might be able to get specific performance.

hypo 6A, seller contracts to sell an antique painting

to buyer and then she breaches.
Question, can the buyer get that antique painting from seller?
Yes.
How do they give it away?
Well, they told you it was an antique painting.
You can't go out into the marketplace
and just get that Van Gogh from somebody else.
Antique paintings or custom-made goods,
those are the situations-- artwork--
where you can get specific performance.
Otherwise, general rule for sale of goods,
no specific performance is available.
Definitely not for widgets.
And then lastly, when it comes to personal service contracts,
I'm sure you remember the rule from your 1L youth.
There is no specific performance available.
Maybe injunctive relief.
But you are definitely not going to be
able to order a breaching employee to do the job that he
just promised he would do.

Hypo 6B.
Le'Veon Bell signed a contract with the Pittsburgh Steelers
for $8 million a year.
Bell breaches.
He simply decides he doesn't feel like playing football
for the Steelers.
Question, can the Steelers get specific performance?
No way.
That's always used to bother me as a kid.
I'd see these high priced athletes under contract
making $8 million bucks a year simply deciding
to hold out and not play.
And I would say, hey, order that guy on the field.
He made a promise that he would play football.
Get specific performance.
Now that I've been to law school,
now that I'm a law professor, I learned well
that violates the Constitution, the 13th Amendment prohibition
against involuntary servitude.
I didn't know about that one I was a kid.
Secondly, as a more practical problem,
it is really difficult for courts
to enforce a specific performance
decree in these personal service employment contracts.
If you order a breaching employee back on the job,
what's he going to do?
He's not going to comply with the spirit of the bargain.
He's going to jog through his patterns.
Courts are going to be drawn into endless litigation
over it.
Courts do not want to get bogged down in those little details.
No specific performance for the Steelers here.
Same facts in part 2 of this hypothetical.
But now, Bell breaches and wants to go out and play
for the competing Baltimore Ravens.
Can the Steelers at least get an injunction barring Bell
from playing for Baltimore?
Yes.
Courts will be willing to enjoin employees
from working for competitors.
If you have one of these high value employees,
like a professional athlete here, you're
not going to be able to force them back on the field for you.
But at least, you could stop him from going
to your archrival Baltimore and wind up
causing you irreparable harm.
So this is kind of what I like to call
negative specific performance.
You're not actually forcing him on the job
that he said he was going to do.
At least though you can get an injunction stopping him
from causing the Steelers irreparable injury.
Next on remedy to discuss is the unpaid seller's right
to reclaim her goods, Article II rule for reclamation.
Generally, you're not going to get it under Article II.
Now seller might have rights under bankruptcy law,
but that's way beyond the scope of this lecture.
You've got to talk to a bankruptcy person about that.
What I care about though, is the exception
to this general rule where your buyer was insolvent
when it received the goods.
And the seller makes her demand to reclaim
her goods within 10 days after buyer received the goods.
In that situation, seller can get reclamation of her goods.
So seller is not suing for money.
Seller wants our widgets back.

hypothetical 6C.
B the buyer buys goods on credit on May 10.
By the way, these reclamation cases always
start out with a credit sale.
Obviously if your buyer paid cash up front,
your seller is not going to need to go after her widgets
later on.
So it starts out with a credit sale on May 10.
Buyer happens to be insolvent on May 22
when buyer receives the goods.
Bar examiners love insolvent people.
She's broke on May 22.
Seller demands return of her goods on May 29.
Does seller have a right under Article II
to get her goods back?
Yes, assuming the reclamation requirements are satisfied.
One, you got to show me a buyer who was insolvent at the time
she received the goods.
Facts clearly tell us your buyer was broke.
Two, the 10-day rule.
Some students say, well, what about the dates here?
You know, Calandrillo, I could calculate 10 days
if you only gave me two dates.
But you gave me three dates.
When did the 10 days start running?
Is it May 10 or is it May 22?
It's May 22.
It's not the date the contract was formed.
It's the date the widgets or the goods
are delivered to the buyer.
That's May 22.
That's what triggers the running of the 10-day rule.
It's only May 29, seven days later.
We're within those 10 days.
Seller has the right to reclaim her goods.
So buyer insolvent.
10-day rule was met.
You put them together, seller gets her widgets back.
However, what if the seller--
sorry, what if the buyer doesn't have these goods
in her possession anymore?
What if she sold the goods to some third party on May 25?
If the goods are gone, so is seller's reclamation right.
You have got to show that the buyer still
had the goods in her possession at the time of seller's
reclamation demand.
So all you can do, if you're the seller,
if the buyer doesn't have the goods anymore,
sue the buyer for breach.
Sue them for the contract price.
Now good luck collecting because our facts
just told you our buyer was broke.
That's not our problem.
Just let the bar examiners know buyer
still has to have possession of the goods
at the time of seller's reclamation.
Exception though.
Seller can reclaim her goods at any time, even
beyond the 10-day rule, if the buyer misrepresents
his solvency to the seller in writing within three months
before delivery.
In this case, you don't have to worry about seller
requesting her goods back within 10 days.
So if you have a buyer who, when she makes the deal,
says I'm as rich as Bill Gates, you
don't have to worry about me coughing up the money.
In that situation, your seller will get more than the 10 days.
Why?
Because after all, buyer promised
the seller the buyer was rich.
Turned out the buyer was lying.
In that situation, seller can get more than just the 10 days.
Those are the nonmonetary remedies.
Let's contrast that with monetary remedies.
Money damages, frequently tested.
This is where most of the points come from,
money damage questions.
Expectation damages is your default monetary damage
measure.
You remember that we try to put our injured party
in as good a position as she would have been in
had her contract been fully performed, i.e.
we compensate people for their lost expectations.
Contracts create expectations.
Expectation damages reward those expectations.
So give expectation damages as the general rule.
I'm sure you studied the seminal case on expectation
damages, the Hairy Hand Case.
The Hairy Hand case, otherwise known as Hawkins v McGee,
involved a doctor who came upon a boy with a scarred hand.
And this doctor promised the boy that the doctor
would do an experiment in skin grafting on the boy,
take some skin from the boy's chest
and graft it on to his hand.
And he, the doctor, promised the boy a 100% perfect hand.
That was the basis under which the contract was made.
After the contract was made, doctor performed surgery.
Takes the skin from the chest, grafts onto the sad boy's hand.
And we all know what happened.
Not only did the boy not have a perfect hand,
not only did he not have a scarred hand anymore,
he had a scarred and hairy hand that was largely unusable
for the rest of his life.
He took this dense, matted chest hair, now grafted it
onto the boy's thumb.
And the boy sadly couldn't use his hand anymore
after this contract was performed.
Boy sued the physician for damages.
And the doctor said, well he never had a perfect hand
to begin with.
All he had was a scarred hand.
I'll just give him the difference between a scarred
hand and a hairy hand.
And the court said, you don't understand the purpose
of contract law Mr. Doctor.
We try to give expectation damages.
This boy expected a 100% perfect hand.
That's the value that the doctor has
to pay the boy minus whatever residuary value
the boy had in his hairy hand.
Look to full expectation damages.
That's how you measure it.
Not what he had before, not what he wound up with,
what he expected to have.
So common law expectation damages.
Hypo 6D.
I agree to paint Bill Gates' house for $10,000.
I breach.
Gates pays another painter $13,000 to paint his house.
How much can Gates recover from me?
Obviously, $3,000.
He expected to get his house painted for $10,000.
I walked out in breach.
He hires painter number 2 for $13,000.
What amount of money will put Bill Gates
in the exact same position he expected to be in?
Well, he gets a check from me for $3,000.
He pays painter number 2 $13,000.
But if he takes away the $3,000 that I paid him in damages,
out of pocket, he's looking at 13 minus 3 equals 10,
which is exactly the position he expected to be in.
$3,000 fulfills Gates expectations.
Part two.
Same facts except Gates refuses to pay me
after I've started painting his house.
Let's imagine I've already spent $5,000 in paint.
Let's imagine I also expected to clear $1,500 in profit
once I was done painting this house.
What are my damages?
If you're talking about expectation damages, again,
you want to put the aggrieved party, the innocent victim of breach-- that's me now-- in the
position I thought I'd be in at the end of the day.
Well, I thought I'd be up $1,500.
Right now, I'm down $5,000.
What amount of money gets me from negative
$5,000 to positive $1,500? $6,500.
Bill Gates gives me a check for $6,500.
And now I have reached my expectation.
Now what if my profits were uncertain?
Sometimes, they will signal to you
and ask you about reliance damages.
And typically, it's in the case were expectation profits
are uncertain.
And if they ask you about reliance damages,
you don't try to put the aggrieved party
in the position he would have been in after the contract.
Instead you return him to the pre-contract status quo.
So he's no worse off for having met the evil doer breacher.
So what have I spent in reliance on this contract?
I'm out $5,000.
If Gates gives me a check for $5,000, I'm no worse off.
That's my reliance damage interest.
I don't get my $1,500 expected profit,
but at least I'm no worse off once he gives me
back the $5,000 I've already spent in reliance.
And lastly, they might ask you about restitution damages.
If they ask you about restitution damages,
you measure those by the value of the benefit conferred, which
would not necessarily be the $5,000 worth of paint
that I've already used up.
You would ask what's the reasonable value
that I conferred on Bill Gates by painting part of his house.
So normally, though, you're thinking
about expectation damages.
That's where most of the questions come from.
If they ask you about reliance or restitution,
you want to remember you measure those differently.
Now let's compare those expectation damages
to sale of goods damages under Article II.
And most of the MBE questions on damages
come out of sale of goods cases.
And again, it's all about expectation damages.
Whether in common law or Article II, usually
you're trying to award the aggrieved party
her lost expectation of interest.
Let's look first at the buyer's damages
if you have a seller who breaches.
Then secondly, we'll look at seller's damages
if you have a buyer who's in breach.
So buyer has generally three options
if her seller is in breach.
Most commonly, normally what you'll see is cover damages.
You take your cover contract price
minus your original contract price
if the buyer covers in good faith.
So the seller walked out in breach.
Buyer goes into the marketplace and covers.
Give her the difference between the cover
price and the original contract price.

That's hypo 6E.

B contracts to buy carpeting for $2,500.
S doesn't deliver, seller breached.
The market price for similar carpeting is $2,700.
What are these damages if B goes out and pays
$2,800 for the same carpeting?
So as I said, this is a buyer who's
breached on by seller number 1, goes out into the marketplace,
enters into a replacement transaction that's called
a cover contract for $2,800.
How do you calculate her damages?
You take your cover price of $2,800
minus your original price of $2,500 equals $300.
And you'll note here, buyer paid slightly more
than the market price of $2,700.
Some students say maybe she should only get $200.
Don't quibble about the fact that the buyers covered
contract wasn't the best possible price that she
could get.
As long as your buyer enters into a covered contract
in good faith, a reasonable purchase in good faith,
give her the difference between the cover
price and the original contract price.
$2,800 minus $2,500 equals $300.
Now second situation you might see
is where the buyer simply seeks market damages.
You calculate those by taking the market
price minus the original contract price.
But these are generally used where
your buyer doesn't cover, doesn't cover at all
or doesn't cover in good faith.
You still give them market damages in that situation.

Hypo 6F.
Same facts except now, B the buyer
pays $6,000 for much better carpeting.
Super awesome carpeting.
Question, can B recover the $3,500
differential between the cover price of $6,000
and the original contract price of $2,500?
No.
As I said, your buyer has to cover in good faith.
You can't buy carpeting that's 10 times better
and cost 10 times more, and still
get the difference between those two prices.
This buyer is trying to take advantage of seller.
You cannot do that.
That would not be fair to the seller.
So what are buyer's damages?
She's not going to get $6,500 minus $2,500.
But she also doesn't get 0 either.
After all, seller did breach.
She didn't deliver her the carpeting?
What do you give the buyer?
Market damages.
Market price of similar carpeting is $2,700.
The original contract price was $2,500
You take $2,700 minus $2,500 equals $200 market damages.
And that's true if the buyer doesn't buy any replacement
carpeting at all.
So the last part of hypo 6F part three.
If buyer doesn't buy any replacement carpeting,
buyer still gets the market damages of $200.
She doesn't have to cover.
Normally, buyers cover but they do not have to.
And if they don't cover, just give them their market damages.
Third possibility for buyers who've been briefed upon
is the loss in value measure.
There, you give the buyer the value of the goods
that she was promised minus the value of the goods
as they were actually delivered.
And this measure is used in the situation where buyer
keeps nonconforming goods.
So she got goods that were less than perfect.
Remember, she could have rejected.
She could have gone out somewhere else
and gotten the right goods.
But sometimes, buyers just keep imperfect goods.
Just because they kept the imperfect goods doesn't mean
they don't also get damages.
After all, they got goods that were not perfect.

Hypo 6G.
B contracts to buy an antique painting for $4,000.
B later discovers it's not antique.
So she's been a victim of a less than perfect tender.
She could have rejected.
But sometimes, buyers decide to keep the painting anyway.
So she's got an imperfect painting on her hands.
The painting in the imperfect condition is worth only $2,000.
Had it been actually antique, if it was actually
the way she contracted for, it would have been worth $5,000.
What are buyer's damages?
Well, you take your $5,000 value,
as if she got the perfect antique painting,
minus the value in the condition it was actually delivered.
In the non-antique condition, it's only worth $2,000.
$5,000 minus $2,000 equals $3,000.
$5,000 minus $2,000 equals $3,000.
That protects your buyer's expectation
because now, she's got an imperfect painting for $2,000.
Plus now, she'll get a check for $3,000. $2,000
plus $3,000 equals $5,000.
That makes her equally well off expectation damages of $3,000.
Now by the way, you'll note in all of these hypos here,
we're doing a little bit of math.
And sometimes, students come up to me at the break
and they say to me, hey, Calandrillo,
are we really going to have to do math on the bar exam?
After all, I went to law school because I
wasn't very good at math.
I thought I would never have to do math again.
And I say to those students yes, you
are going to have to do a little bit of math on the bar exam.
But the good news is the math that's
on the bar is math that you can do.
If you got past first grade, you could do 5 minus 2 equals 3.
And if you can't do 5 minus 2 equals 3,
you probably don't deserve a bar license either.
That's about as hard as the math gets on the bar exam.
You do have to calculate the damages, though.
Next, let's look at seller's damages if buyer is in breach.
So if we previously did the rules for buyer.
What remedies can buyer get if seller doesn't
deliver the goods perfectly?
Now, let's talk about seller's remedies.
Four options here for seller if your buyer
is the party in breach.
First and most commonly is resale damages.
Seller gets her original contract price
minus her resale price, assuming she resells
the goods in good faith.
This is the usual measure.

So hypothetical 6H.
I contract to sell my 2010 Toyota Prius
to Sofia Vergara for $1,000.
Sofia breaches the contract.
A week later, I sell my car to Eva Longoria for $800.
What are my damages?
Well, you take your original contract price
of $1,000 minus the resale price of $800.
$1,000 minus $800 equals $200.
Those are my resale damages.
And that $200 fills my expectations.
I sold it to buyer number two for $800,
plus I get a check for $200 from Sofia.
And I now wind up getting a total of $1,000 for my Prius,
which is what I thought I was going to get.
What if I sold that car to Eva Longoria for $1,000?
What are my damages?
Zero.
There are no damages if I resold my car for the exact same price
to buyer number two.
Now sometimes, people are unhappy about that.
They say what about punishment for the breaching party?
You're telling me Sofia Vergara can breach this contract on you
and she doesn't have to pay a dime?
Absolutely yes.
Because we don't punish people in contract law.
We attempt to compensate the victim of breach
for his economic loss.
Where's my economic loss?
There is no economic loss.
My damages are zero if I sold my Prius at the exact same price
that I was going to sell it to buyer number one for.
That's your normal measure of seller's damages.
Now some other situations, though, you
might see, second deals with market damages.
Take your contract price minus the market price of the goods.
This is where your seller doesn't
resell the goods in good faith or she doesn't resell the goods
at all.

Hypo 6I.
Let's imagine I sell to Eva for $100.
I originally was going to sell it to Sofia for $1,000.
I resell it to Eva for $100, bad faith resale.
Can I recover that $900 difference from Sofia?
No way.
Again, just like buyers had to use good faith previously,
so do sellers.
Sellers have to resell the goods in good faith.
If not, limit me to the contract price minus the market price.
And that's unknown in this example.
We don't know what the market price of the Prius is,
but that's what you would limit yourself to.
He has to resell the goods in good faith.
What if I don't resell the goods at all?
If I don't resell the goods at all,
again, I still get market damages.
The original contract price minus the market price.
So I don't have to resell.
I still can get market damages.
And as I said, we don't know what the market
price is for the Prius here.
If they told us what it was, that's
the number you would use in order
to calculate those damages.
If the market price was $950, I had a contract
to sell my Prius for $1,000, you'd
give me $1,000 minus $950 equals $50.
Third situation.
Potentially, you can give the seller the contract price.
But that's where the seller cannot resell the goods.
She doesn't resell the goods.
She can't resell the goods.
This is often the case in custom-made goods.
It's not like you can sell them to any other buyer.

Hypo 6J.
Let's imagine I agree to buy a custom
stamp from a seller featuring the Calandrillo name
and unique artwork to help market our raw honey business.
We just started raising beehives this year.
We got hundreds of pounds of raw honey out there.
And we buy a custom-made stamp to help market this honey.
But after we enter into that contract, sadly, I breach.
I don't pay the seller for the custom-made stamp.
What are the seller's damages?
Full contract price.
It's not like this seller can resell a custom-made stamp
to somebody else's raw honey business.
It's got the Calandrillo name all over it.
There is no market for this custom-made stamp.
Seller gets what she expected, full contract price.
And of course, I should get the stamp.
After all, I'm paying the full contract price and damages.
I should get that stamp.
And then the last situation for sellers who get breached upon
is known as the lost volume seller rule.
And I would like you to tackle this activity question first
before we go out and explain the lost volume seller rule
to understand how you calculate lost profits in this situation,
what expectation damages are.
So take a moment to review this activity question,
take a stab at calculating, and then in a minute,
we'll do it together

OK, let's review this question on lost profit damages

where you have a seller who is a lost volume dealer.
Not where the second sale replaces the first sale,
but a seller who would have had two sales but for buyer number
one's breech.
Very frequently tested on the bar exam,
and that's why I wanted you to take
a stab at calculating these damages before I go through it
all.
Here we have a Tesla dealer.
Merchant regularly sells goods of this kind, has a lot
Teslas in inventory.
Contracts to sell a Model X out of its regular inventory
to Mark Zuckerberg for $100,000.
They always give you a merchant dealer,
and they tell you that she's got a bunch of inventory.
The dealer would have made 100--
I'm sorry, would have made a $10,000 profit
on the sale of this Tesla.
But what do you know?
Zuckerberg happens to breach.
He backs out of his contract to buy the Tesla for $100,000.
A week later, the dealer sells the very same car
to Jay Inslee, the green governor from Washington state,
for the same exact contract price of $100,000.
Does this second sale replace the first sale?
The market price of the car is told to you to be $95,000.
Question put to you is, what are the damages.
Choice A says contract price of $100,000.
No way.
That would be an absolute windfall.
We don't make people better off through breach
than they would have been through full performance.
It is true that Zuckerberg breached on Tesla.
But Tesla still has that Model X in its inventory.
So you don't give him the full contract price.
They kept the car.
Usually, what students are tricked into choosing
is choice B, resale damages of 0.
That is a trick.
Why is this example different than the example of my Toyota
Prius?
Because in my Toyota Prius, I only have one.
I'm either going to sell it to Sofia Vergara
or I'm going to sell it to Eva Longoria.
But I'm not going to make two sales
and I'm not going to make two profits.
Here, this Tesla has a bunch of these Model X's
in their inventory.
And it's not like the second sale to Jay Inslee
replaced the sale to Zuckerberg.
This seller would have had two sales and two profits.
Don't fall for choice B, zero.
What about market damages of $5,000?
That's totally irrelevant.
That's a red herring trying to trap you.
This dealer lost a sale at $100,000
where she expected to make a profit of 10,000.
Who cares that the market price is $95,000?
What do you give your aggrieved lost volume seller?
You give her lost profits on the sale she lost.
That's why choice D is our correct answer,
lost profit of $10,000.
So watch out for that as an exam tip.
This is always how it's tested on the MBE.
They give you a dealer who's got a bunch of inventory.
Guy number 1 comes in, enters into a contract
to buy something right off the shelf or a car out of inventory
or a boat out of inventory.
And then guy number 1 breaches.
Guy number 2 comes in the next day,
buys the very same item at the very same price.
They're trying to trick you into answering damages equals zero.
You're not going to fall for it.
This is an illustration of the lost volume seller rule.
Lost volume seller rule says that that dealer
gets the lost profits on the sale that she lost.
OK, but that's the end of that activity question on lost
profit, lost volume dealer.
Now that we've tackled all of our expectation damages
situations, buyer's remedies, seller's remedies
lost volume dealers, let's look quickly at punitive damages.
Because again, as I said, a lot of my 1Ls
love to punish breaching parties.
They don't exist in contract law.
There is no punitive damages.
As I said before and I'll say again,
we compensate the victim of breach for her economic losses.
We do not punish.
Now sometimes, I'll call these breachers evil doers.
I don't care if they're evil or innocent or whatever.
You compensate the victim of breach for economic loss.
We never punish the breacher.
So don't think of good guys and bad guys.
Sometimes, I just think about it that way for rhetorical force.
Contract remedies are designed to compensate
the injured party, never punish a breacher.
If you want to punish somebody on the bar exam,
you find a crime.
For criminal law, you can be punished.
And sometimes, for tort law.
There are punitive damages available
in certain situations, but not in contract law.
So remember that.
No penalties for breach of contract.
Next thing to think about when it comes to damages
is what about liquidated damage clause?
This is where the parties decide the remedy themselves
in the contract.
They say, in the event of breach, damages equal X.
These liquidated damage clauses are
upheld only if the damages are difficult to estimate
at the time of contract.
So show me that damages were hard to estimate
at the time of contract formation.
And two, the liquidated damage amount that you chose
was a reasonable forecast of probable damages.
You've got to pick a reasonable estimate of what you
thought the damages would be.
And it cannot be a penalty.
As I just got done saying, we don't
penalize people for breach.
What do we try to do?
We try to compensate them for their losses.
So if the clause looks like a reasonable forecast of damages
that are difficult to estimate, then it's enforceable.
Otherwise, I want you to throw out the clause as an invalid
penalty clause.

Hypo 6K.
Don Draper hires Martha Stewart to redo his office.
The contract provides for damages of $100 a day
for each day that Martha is late.
Martha finishes 20 days late.
So he lost the profits presumably
of the 20 days he couldn't get into his office place.
Is this liquidated damages clause valid?
Probably yes, as long as that $100 per day figure
was a reasonable forecast of what the probable damages would
be, and two, the damages were difficult to estimate
in the first place.
We're not exactly sure how much Don Draper was
going to be making every day.
He says I'll probably be around $100 a day.
Each day that Martha is late, I'm
losing roughly an extra $100.
In that situation where you have a graduated liquidated damage
clause that bears some rough, reasonable relationship to what
the actual damages would have been,
you can probably enforce it.
However, part two, what if the contract provides
for $2,000 in damages in the event that Martha is late no
matter how late she is?

If she's one day, late she owes Draper $2,000.

If she's 100 days late, she owes him $2,000.
If she's a billion days late, she owes them $2,000.
Is that an enforceable liquidated damages clause?
No way.
That is an unenforceable penalty clause.
It bears no reasonable relationship
to what the damages would have been.
So bar exam tip, any time you get a single lump
sum liquidated damage clause that
doesn't vary with the severity of the breach,
you want to throw it out as an invalid penalty clause.
It must be proportionate to the harm.
If it's not proportionate to the harm,
it's not a reasonable estimate, it's
not going to be enforceable.
But part three of the question, does
that mean that Don Draper won't get any damages?
Will Don get some damages if his liquidated damage clause
is struck down as a penalty?
Definitely still try to give him some damages.
So many students, they see this penalty issue.
They throw out the liquidated damage clause,
and then they decide to give Draper nothing.
That's not fair.
He's been a victim of breach.
So you go through your liquidated damage clause
analysis.
If it's a single lump sum, you throw it as a penalty.
But don't make the mistake of giving Draper zero.
Give him whatever his expectation damages
would have been.
So if he thought it was roughly $100 a day
and he can prove that with reasonable certainty,
he would still be able to get his actual expectation.
And if his actual expectation was wildly uncertain,
then I would try to give him his reliance damages.
Don't give your aggrieved party nothing
just because the liquidated damage clause was invalid.
Next incidental damages, costs to the injured buyer or seller
of transporting or caring for the goods after a breach
and of arranging a substitute transaction.
These are always recoverable.
So add in incidental damages.
Basically, these are the costs incurred
in dealing with the breach.
After you're breached upon, you have
to spend some money to find a substitute transaction
or to care for the goods.
Add in those incidental damages.
They are part of the victim of breach's lost expectation.

Hypo 6L.
After Zuckerberg's breach-- remember the Tesla that he was
going to buy--
the seller had to store and insure the car,
and has to advertise it for sale in the newspaper in an attempt
to find another buyer.
Can seller recover these expenses from Zuckerberg?
Absolutely yes.
You want to let the examiners know that these are called
incidental damages, the costs incurred
in dealing with the breach.
You're going to have to spend some money to store the car,
advertise the car to find buyer number 2.
Add those money damages, incidental damages
in to the seller's recovery.
Now favorite wrong answer that the bar examiners try to trick
you into using or choosing-- you're not going to be
tricked--
they will couple the words incidental damages
with the word foreseeable.
It's a trick.
It's a wrong answer.
Sometimes, they'll say it's damages are recoverable here
because they're foreseeable.
Sometimes they'll say incidental damages are not recoverable
here because they're not foreseeable.
Both of those are wrong answers.
Both of those are tricks.
Why do they think they can trick you into choosing that answer?
Well, it's because that they know that that foreseeability
matters.
But it matters not with respect to incidental damages.
It matters with respect to our next category,
consequential damages.
Incidental damages are always recoverable.
Consequential damages, the indirect results from breach,
those are recoverable only if they
were reasonably foreseeable at the time
the contract was formed.
So if you see somebody looking for consequential damages,
indirect results from breach, often, it's
the lost profits that would have made.
You want to show that they were foreseeable to the breaching
party at the time of formation.
And by the way, you should also note
that consequential damages are not
available to sellers under Article II.
But you probably studied the seminal case
on consequential damages, Hadley v Baxendale.

Here it is, hypo 6M.

Hadley contracts with Baxendale to ship a broken mill
shaft back to the manufacturer for repair.
Baxendale delays in shipping the crankshaft.
Hadley doesn't have another shaft.
As a result, Hadley's mill is shut down
for an extra two weeks.
Question, can Hadley recover the $20,000 in profit
that it lost during the two-week period
that its mill was shut down?
No.
Why not?
Because here, the lost profits of the mill owners
trying to seek are not foreseeable
at the time of formation.
This courier has no idea about the mill being shut down,
doesn't know that Hadley is going to be suffering
$20,000 in lost profits.
This is what I like to call the be chatty rule.
You got to be chatty up front with your breaching party
before she's ever a breaching party.
She has to know the consequences that she's getting into.
Not everybody who's got a broken crankshaft, also has
a broken mill, is also losing profits.
You need to tell your courier up front, hey,
my mill is shut down.
I'm losing X thousand dollars in profits for every single day
you delay.
If you're chatty in that way, now the lost profit
consequential damages would be foreseeable.
If you're not chatty and the career
has no idea that you're going to be losing $20,000 in profits,
she's not on the hook.
Now the courier, the shipping company,
would always be liable for generally foreseeable damages.
Remember in Hadley, they say you're always
on the hook for what any reasonable person could
foresee.
So if you hire a shipper to ship your goods
and they breach on you, and now you have to hire a shipper 2
and they charge you $10 more, you
can always recover those damages because that's
generally foreseeable.
But watch out for somebody seeking lost profits.
That's the indirect results from the breach
here in hypothetical 6M.
The mill is shut down for two weeks.
Those lost profits are indirect consequence of the breach.
You must show they were foreseeable
at the time of formation if you want to recover them, at least.
And then lastly, a little bit easier.
Don't forget to subtract out voidable damages.
An injured party cannot recover damages that it could have
avoided, i.e.
Mitigated with reasonable effort.
This is what you came to know in law as the duty to mitigate,
the duty to mitigate.

Hypothetical 6N.
Shirley MacLaine is fired in violation of her contract.
Let's imagine she makes $900 a week.
Her former employer is able to prove
that Shirley could have gotten a comparable job paying
her $800 a week.
What are Shirley's damages?
Well, you take your $900 a week that she
was going to get paid under the original deal minus the $800
a week that the employer who breached
shows she could have made in a similar comparable job.
$900 minus $800 equals $100.
Why?
The other $800 was avoidable.
So if she decides not to take another job
and is just sitting on the couch watching television all day,
she could have mitigated that other $800 worth of damages.
She cannot recover any damages that could have been avoided
without any burden or humiliation.
Now some students complain.
They say, hey, Calandrillo, I had Shirley MacLaine case
in my law school career.
And the court said she didn't have to take the other job.
You did.
You had a case that was slightly different than my hypothetical.
It was called Parker versus 20th Century Fox.
And in Parker versus 20th Century Fox,
she had a deal with Fox to do a movie called Bloomer
Girl in exchange for $750,000.
After the contract was entered into, but before Bloomer Girl
got produced, Fox breached.
But they said, hey Shirley, we know
you have a duty to mitigate.
And we're going to offer you a new movie.
It's called Big Country, Big Man.
And what do you know?
It offers the exact same contract price of $750,000.
Did Shirley take movie number 2?
No.
She decided that that was not comparable or similar
employment.
Why not?
Well, movie number two, Big Country, Big Man,
was a country Western that did not
harness her singing and dancing talents like Bloomer Girl did.
Movie number 2 was going to be filmed in Australia,
not LA like Bloomer Girl did.
Movie number 2, she had no approval rights
over the script or director unlike Bloomer Girl.
And most importantly, Bloomer Girl
had a political message that she agreed with.
And Big Country, Big Man had the opposite.
And so the court said in that case,
there's no duty to take employment
of different or inferior kind.
We don't require that Shirley MacLaine humiliate herself
by taking employment of different or inferior kind.
But if the job is substantially similar or comparable,
you remember the rule, even in her case,
was generally have a duty to take comparable employment.
Or at least, if you don't you could not
have recovered any damages that were avoidable.
So if it's just a simple job, one job pays $900,
the other job pays $800.
And let's imagine it's the same job,
it's the same city, same location.
On the bar exam, if a person who has been breached upon refuses
to take that job, I would say she cannot recover any damages
that she could have otherwise avoided.
Now obviously if one job is grossly inferior to the other,
we're not going to require that Shirley MacLaine humiliate
herself by taking job number 2.
OK, that's the end of module 6 on remedies.

Welcome to module 7, our final module in the studies of contracts and sales for bar exam
purposes.
Here, we're talking about the last T for terrifically.
That stands for third party problems.
Third party problems, as I said in my intro,
you may not have seen in your law school careers
because they tend to come at the end of contract casebooks.
And most professors, including myself we are so disorganized,
we simply never make it to the end of the book.
But the problem for you is that the bar examiners do make it
to the end of the book.
So you got to know about third party problems in your bar exam
testing experience.
First, we'll talk about entrustment,
an area where contracts and Article II
overlaps a bit with property law.
And what you basically have in these entrustment
situations is where somebody, who owns goods,
brings her goods to somebody who is a regular dealer in that
type of good but not because the owner wants that person
to sell that type of good.
Typically, she wants her to fix her goods.
But you know what's going to happen
after the original owner entrust the dealer to fix her goods?
Predictably, on your bar exam fact pattern,
she's going to sell those goods to a bona fide purchaser
for value.
A third party comes in, pays value,
not having any notice that the goods belong to somebody else.
And the rule is an owner who entrusts her goods
to a merchant who regularly deals
in goods of that kind-- so make sure it's
a merchant dealer regularly selling goods of that kind.
That original owner will have no rights against the bona fide
purchaser.
The BFP cuts off the rights of the entrustor.

Hypo 7A.
Michael Phelps takes his watch to a jeweler to be repaired.
The jeweler wrongfully sells the watch
to Ryan Lochte, his archrival.
Can Phelps get his watch back from Lochte?
No.
Even though this was Phelps's watch
and he was the rightful original owner, what is Ryan Lochte?
Ryan Lochte is the BFP.
And American law generally prefers BFP's.
We want people when they go to watch store or a jeweler
regularly sells goods of that kind
to be able to be confident that they are buying and acquiring
good title to the goods that they purchase.
So the BFP beats the original owner.
Now of course, Phelps, the entrustor,
can still sue the jewelry shop.
After all, he didn't want his watch to be sold to Lochte.
He simply wanted his watch to be repaired.
So Phelps can still sue the jeweler for conversion.
But he's not going to be able to get his watch back.
So exam tip, the facts are always the same.
The owner takes jewelry or a car to be repaired
to somebody who is a merchant who regularly
sells that type of good.
On the bar exam, guaranteed, they
are going to sell goods to somebody else who's a BFP.
BFP prevails.
Now obviously, you have to buy those goods from a merchant
dealer.
I emphasize that.
If you're buying the watch out of the back of a van
at midnight on the side of the road in the bad section
of town, you have reason to know you're not
acquiring good title.
But if you're buying a watch from a jewelry store,
you're a BFP.
Next, third party beneficiaries.
And again, in law school, you may not have seen these guys.
What you're basically going to see in a fact pattern involving
third party beneficiaries is two people
entering into a contract with the intent
to benefit a third party.
That's two people contracting to benefit a third.
That third person isn't part of the contract at all.
But she's the third party beneficiary.
And she can enforce this contract directly
even though she never made it.
So for example, if I pay Eddie Vedder $25,000 to sing
for my wife, Chryssa, for her birthday, Calandrillo-- me--
and Eddie Vedder are two people contracting with the intent
to benefit a third party.
She, my wife Chryssa, isn't part of our deal.
But she's the third party beneficiary
and can enforce it directly.
So look for two people contracting with the intent
to benefit a third.
My wife, Chryssa, she loves Eddie Vedder.
I'm willing to pay anything to get her
to go see Eddie and Pearl Jam.
Let's learn the vocabulary of third party beneficiary law.
Intended beneficiary, first.
This is the person who's usually named in the contract.
Two people contract with the intent to benefit a third.
She's not a party to the contract
but she's named as the intended beneficiary.
She has rights to enforce that contract.
So Chryssa, my wife, is the intended third party
beneficiary of the contract between me and Eddie Vedder.
She wasn't part of the deal, never gave
consideration for the deal.
She can still enforce it directly.
That's the whole point of third party intended beneficiary law.
Now what about promisors or promisees?
These are also tested.
You got to know who's who.
The promisor is the party who promises
to perform for the third party.
After all, this is third party beneficiary law.
And your promisor is the guy who's
making the promise that will, then, later
run to the benefit of the third party.
So Eddie Vedder is the promisor.
Why?
He's promising to sing for the third party
beneficiary, Chryssa.
Eddie Vedder is the promisor.
Chryssa, as I said, is the intended beneficiary.
Who is the promisee?
That's me.
That's the party to the original contract
who secures the promise.
So I secured the promise from Eddie
that he was then going to later sing for my wife, Chryssa.
So I am the promisee.
Eddie Vedder is the promisor, promising to deliver
performance to the third party intended beneficiary.
And she is Chryssa, the intended beneficiary.
Promisor liability.
Eddie Vedder, remember?
He's our promisor, the guy who's making
the promise that will then deliver performance
to the third party.
Let's talk about his liability to the third party.

Hypo 7B.
Can Chryssa, the intended beneficiary here,
recover from Eddie Vedder, our promisor, for breach
if Vedder doesn't actually perform as he promised?
Absolutely yes.
That's the whole point of third party beneficiary law.
Even though she didn't make the contract,
she has the right to enforce it because me and Eddie,
we contracted with the intent to benefit her.
Question two of 7B.
What if Calandrillo's check to Eddie Vedder bounced?
I breached.
I never paid Eddie to sing.
Then he doesn't sing for her.
Well if I didn't pay him, obviously, Chryssa
is out of luck, too.
I could not recover from Eddie.
Let's imagine I sued him directly for not singing.
What's he going to say?
Hey, Calandrillo.
You never paid me.
Obviously, I shouldn't have to sing
for somebody who never paid me.
He would have that defense against me, the promisee.
Eddie, the promisor, will also keep the exact same defense
against the intended beneficiary.
So make sure you let your promisor, Eddie
Vedder in our hypo, keep his defense against the intended
beneficiary.
So if I sued him, he would have the defense of non-payment.
If Chryssa sues him, he would have
the defense of non-payment.
He shouldn't have to sing for her if I never
paid him to do so.
Part three of hypo 7B.
Let's imagine that Chryssa now invites Beyonce
to hear Eddie Vedder sing.
But Vedder did not show up.
So she invites her best friend, Bey,
to come out and listen to Eddie.
Can Beyonce recover from Vedder for breach of contract?
Because after all, he never sang.
But what's the problem?
Beyonce is what is called a mere incidental beneficiary.
When I entered into the deal with Eddie,
the deal was intended to benefit Chryssa.
She's an intended beneficiary.
Intended beneficiaries have the right to enforce the contract.
Incidental beneficiaries do not.
So that is also important on the bar exam.
Only an intended third party beneficiary
has the right to enforce the contract.
It is true that Beyonce would have also benefited.
She would love to hear Eddie sing, too.
But she's a mere incidental beneficiary.
She cannot enforce the contract directly.
This contract was intended to benefit Chryssa, not intended
to benefit Beyonce.
So only the intended beneficiary has legal rights.
And by the way, as bar tip, if you
see the two original contracting parties naming the third party
in the contract itself, I would treat her
as an intended beneficiary, Chryssa.
On the other hand, me and Eddie never
named Beyonce in our original contract.
It is true that after Chryssa invites her,
she would have been an incidental beneficiary.
But incidental beneficiaries do not have contract rights.
What about promisor liability to the promisee?
So again, promisor Eddie Vedder, is
he going to be liable to the promisee, me?

Hypo 7C.
Can Calandrillo recover damages from Eddie Vedder
if he doesn't sing for Chryssa as promised?
Of course.
I paid Eddie Money and he never honor his promise
to sing for my wife.
Either Chryssa, the intended third party beneficiary, or me,
we both have contract rights against the breaching promisor
Eddie.
So it's just like any other contract here.
Obviously, if I paid consideration to Eddie
to sing for my wife and he never got the job done,
I could sue him or my wife could sue him.
We both have contract rights.
Next, precision and modification of third party deals.
General rule is that your promisor and your promisee
can rescind or modify the contract
until the rights of the third party have "vested."
Once third party rights are vested, then generally,
we can't change the original contract.

Hypo 7D.
Can Calandrillo and Eddie Vedder modify or rescind
their contract before Chryssa learns about the contract?
Yes.
Her rights as the intended third party beneficiary
have not vested.
She doesn't know this contract exists.
If me and Eddie want to get back together and rescind,
we can do so.
However, 7D part two, let's imagine now
Chryssa learns of the contract.
And now she invites Beyonce to hear Eddie Vedder--
reliance.
Can Calandrillo and Vedder still modify or rescind our contract?
No.
Her rights as the intended beneficiary
vest when she learns of the contract and relies upon it.
At that point, if me and Eddie try to cancel it,
we cannot do so without her consent unless the contract
otherwise provides.
So that's the exception where contrary language controls
where the promisee can change the third party rights.

Hypo 7E.
Let's imagine the contract lets Calandrillo change
who Eddie Vedder will sing for.
Chryssa has relied though on our contract
by inviting Beyonce to hear Eddie Vedder sing.
Can Calandrillo still terminate Chryssa's rights?
Yes.
Because again, contract language always controls.
She should have known that the contract said
that I could change who Eddie Vedder was going to sing for.
Effectively, she's not relying reasonably
because she knows that I can change
who Eddie Vedder has to sing--
who Eddie Vedder will sing for.
So I can terminate her right even though she
relied by inviting Beyonce.
But that's only because there's contrary language
in the contract that allows me to do so.
So that's third party beneficiaries.
Let's contrast those situations to assignment situations.
Again, in an assignment situation,
we're going to see a transfer of rights from one party
to another just like in third party beneficiaries.
I'm transferring right to Chryssa in my previous example.
But in the assignment situation, it takes two steps.
It's not a one step situation like third party beneficiary
law.
And it's really important that you understand
that difference because they do frequently call
upon you on the bar to answer whether this is a third party
beneficiary situation or is it an assignment situation.
So in an assignment situation, you
get two guys who make a contract.
Later, one of those parties, the assignor,
will assign away his rights.
He'll transfer away his rights.
Typically, it's the right to get paid money.
He'll transfer it to some other third party.
That's not a third party beneficiary situation.
That's an assignee.
The assignor later on assigns his rights,
transfers his rights to some other third party.
The third party is called an assignee.
Now the assignee can also enforce this contract
against the obligor.
That's the party who owes the duty, typically the duty
to pay money, now to the third party--
the assignee instead of the assignor.
But it's important that you understand
assignment is two steps.
So for example, Batman contracts to provide security services
for Gotham City for $200,000.
Later on, Batman, the assignor, assigns his right
to the $200,000 payment to Robin.
Robin is called the assignee.
Batman is called the assignor.
Robin has the right to collect the cash from Gotham.
Gotham is the obligor obliged to pay Robin, ,
the assignee instead of Batman the assignor.
But exam tip, in an assignment to parties
enter into a contract and the third person, the assignee,
appears later on.
You know Robin wasn't part of the original deal.
He wasn't named in the original deal.
In a third party beneficiary situation,
Batman and Gotham are contracting,
but they typically will name Robin
as the beneficiary in the contract itself.
So assignment is like a two-act play.
Act one, it's just Batman and Gotham
talking about security services talking about money.
Then the curtain closes.
Act two opens up, Batman assigns his rights
to the money to Robin.
Third party beneficiary law, though, it's
all like a one-act play.
Batman and Gotham up on stage, they
keep talking about this guy Robin.
That's third party beneficiary.
Two parties contracting with the intent to benefit a third.
They name him in the contract itself.
Make sure you understand the one-step situation, third party
beneficiary, versus the two-step situation, assignment.
Now let's talk about valid assignments.
Show me language of present transfer.
Hypo 7F.
What if Batman promises to assign the right to receive
the $200,000 payment to Robin?
That is invalid.
You've got to show me language of present transfer.
It cannot be I promised to assign or I will assign.
It must say I assign or Batman assigns.
This is the most cruel form of reading skills
tested on the bar exam.
You have to read carefully for verb tense.
When you see an assignment fact pattern,
make sure you have language of present assignment.
Assignment is a present transfer.
However, consideration is not required
to make a valid assignment.

In hypo 7G, must Batman give Robin consideration

to make the assignment valid?
No.
You can make gift assignments.
They are very easily revoked, as we'll
talk about in a few moments, usually
by a second gift assignment.
That's typically the way they get revoked.
No consideration is required, even
though language of present transfer is required.
What about restrictions on assignments?
Contract language controls.
Again, I want you to read carefully an assignment
situations and distinguish between the clauses they give
you that "prohibit" assignments versus clauses
that invalidate assignments.
If you see language of prohibition,
assignments are not permitted.
Assignments are prohibited.
Then and assignee who did not know
of that language of prohibition can still collect.
On the other hand, if the bar examiners go further and give
you language of invalidation, like all assignments are
null and void, will have no force and effect,
goes beyond mere prohibition, then
you're assignee will not be able to collect on that assignment.
But normally, they just give you language of prohibition.

hypo 7H.
The Batman Gotham contract provides
rights under this contract are not assignable.
That's a prohibition.
Batman goes ahead, though.
He assigns the right to the payment to Robin anyway.
Can Robin still collect from Gotham?
Yes, as long as he, Robin, the assignee,
did not know of the language of prohibition.
This language merely says assignments are not permitted.
They're not assignable.
It does-- it says don't do it.
It doesn't say it'll be invalid, though.
So Batman's going to be liable to Gotham for breach.
After all, the contract said he wasn't supposed to do it.
But the assignment itself is still valid.
Robin, assignee, still can collect
as long as he didn't know about the prohibition.
On the other hand in part 2 of hypo 7H,
same facts except their contracts
dates all assignments under this contract are void.
Null and void language, invalid, will have no force in effect.
What I'm giving you there is invalidation language.
And if you get invalidation language,
it completely negates the assignment.
No rights are transferred.
But as an exam tip, if it's a close call,
I want you to opt for prohibition over invalidation.
Therefore, your assignee can still
collect as long as she did not know about the prohibition
language.
That's usually what they give you.
Also you should know that assignments can't substantially
change the duties of the obligor.
Regardless of what the contract says,
you cannot substantially change the duties of obligor.
That means you need to think about what
is a substantial change.
Here, you need to distinguish an assignment of money.
The transfer of money, not generally considered
a substantial change.
You have to pay some other guy instead of the original guy.
Versus an attempted assignment of a performance right.
That is a substantial change, and that's not allowable.

So in hypo 7I, does Batman's assigning his right

to the payment substantially change Gotham City's duties?
No.
It's just as easy to pay Robin as it is to pay Batman.
After all, they live together in the same Batcave.
You find one of them, you find the other one.
It's a piece of cake.
Not a substantial change in obligor duties.
However though, if we change our hypo in 7I part 2,
can Gotham now assign its right to Batman's security services
to Metropolis?
So now, Batman is supposed to defend
Metropolis instead of Gotham.
No way.
That is an attempted assignment of a performance right.
That is a substantial change in Batman's duties
and is not enforceable.
After all, Batman is going to say,
look I agreed to defend Gotham because I know Gotham
like the back of my hand.
It's a piece of cake to defend Gotham.
But Metropolis, hey, that's Superman's territory.
I don't know the first thing about defending Metropolis.
That's a substantial change in Batman's duties,
and that is not allowable.
Now what about the obligor liability the assignee
after payment?
You got know who your obligor is and your assignee is,
and who's liable after an assignment.
So obligor, Gotham, you should know
has got to pay the assignee.

hypo 7J.
Can Robin, the assignee, sue Gotham, the obligor
obliged to make payment, if he doesn't
get paid for Batman's services?
Robin is going to walk in the Gotham City offices.
He's going to demand the cash.
What's Gotham going to say to Robin?
They're going to say get out of here, Boy Wonder.
We never made a deal with you.
We made a deal with Batman.
And what's Robin going to say?
Hey, haven't you ever heard of assignment law?
Batman, the assignor, assigned the rights to me, the assignee,
to collect the cash.
The assignee has the right to sue the obligor directly.
That's the whole point of assignment law.
Robin, the assignee, gets to collect even though he never
made the deal with Gotham City.
On the other hand, part two, if Batman
fails to perform the security services,
can Robin still collect from Gotham City?
Obviously not.
Why not?
Batman never did the job.
So if Batman had sued Gotham to collect the cash,
they would have asserted the defense of nonperformance
against Batman.
This is Gotham would have said, hey,
Batman you never did the job.
When Robin sues Gotham, Gotham is
going to have the exact same defense against the assignee,
Robin, that they would have had against the assignor, Batman.
So the assignee Robin only has the same rights of the assignor
would have had.
No more, no less.
If Batman doesn't do the job, obviously, Gotham
shouldn't have to pay.
Part three.
In May, Batman assigns his rights
under the contract to Robin.
Unaware of this assignment, though, Gotham City
makes the June payment to Batman.
They don't know that Robin exists.
Is Gotham City liable to Robin?
No.
If you're totally unaware that an assignee exists,
how are you going to make payment to him?
So the rule is that you can continue
to go ahead and keep on paying your assignor Batman
until you know of or learn about the assignee Robin.
Once you're aware of the assignee Robin, then obviously,
the obligation would have to pay Robin instead of Batman.
But otherwise, how could Gotham ever pay Robin
if they never heard of him?
So rule is that payment to the assassin or Batman
will be OK until the obligor Gotham learns of the assignment
to the assignee Robin.
Next, let's deal with multiple assignments.
Assignment law, you probably don't consider it very much fun
going through all of these issues and rules.
But the bar examiners think it's so awesome
that they have lots and lots of multiple assignment
problems in your fact pattern, leading
to lots and lots of assignees all saying
pay me, pay me, and pay me.
And then you got to decide who gets the money.
So multiple assignments, which assignee gets to collect.
Gift assignments are easily revoked.
And therefore, the last guy in line usually wins.
The last gratuitous assignee generally
prevails over an earlier gratuitous assignment
because a later gift assignment revokes the previous gift
assignment.
Bar examiners like to test on this rule
because it's counterintuitive.
Most areas of the law, it's best to be at the front line.
But when it comes to multiple gift assignments,
it's best to be at the back.

Hypo 7K.
Batman assigns the right to the payment from Gotham City
to Robin as a gift.
Batman later assigns the very same right to payment
to charity.
Question, to whom should Gotham City make the payment?
Answer, to charity.
Generally, the last gratuitous assignee is going to prevail.
The theory, as I said, is that the making of a second gift
assignment revokes the earlier gift assignment.
Last in time rule for multiple gratuitous assignments.
On the other hand, when you see multiple assignments
with consideration, they are more durable.
And it is a more intuitive, first in time rule.
General rule, your first assignee for consideration
will prevail over all subsequent assignees, as well as
previous gift assignees.
So consideration assignments, they matter more.
Usually the first guy for consideration wins.
And what I want you to do, as an exam tip,
is analyze each assignment in the order
it's made to see if each is valid.
You look at one, you ask if it's valid.
Then you look at two, you look at if two
revokes the previous one.
Who's going to have superiority?
And this is we're basically going to do in our next activity question on assignment law.
I want you to read it carefully.
activity question on assignments, taking each of these
in order to see who's right and who's going to win.
On January 1, Batman assigns the right
to the payment from Gotham City to Robin as a gift.
Valid gift assignment but fragile.
On February 2, Batman promises to assign the same right to Ben
Affleck, his latest alter ego.
On March 3, Batman sells the very same right to the Joker
shortly before he's hanged for $100, assignment
for consideration.
On April 4, Batman sells the very same right
to Bill Gates for $1,000, a second assignment
for consideration here.
Question put to you, as I said, is you're
going to have to answer who should Gotham City pay.
Let's look at each of these assignments in order.
A says Robin, the first gratuitous assignee.
Well, it's true that that's a valid assignment.
And I said, gift assignments are valid
as long as you have language of present assignment.
But they're very fragile.
They can get revoked by later gift assignments
or by later assignments for consideration.
So Robin is good as of January 1.
But what's the problem?
On February 2, you have Batman promising
to assign the very same rights to Ben Affleck.
Is that going to revoke Robin's assignment?
Read again for the verb tense.
Promises to assign is not language a present assignment.
So you're thinking to yourself, OK, maybe Robin is still good.
But what's the problem?
March 3, Batman sells the very same payment right
to the Joker for $100.
That's an assignment for consideration.
That's a valid assignment for consideration.
The amount of money is totally irrelevant.
And the assignment to the Joker revokes the assignment
to Robin.
The assignment or attempted assignment from Batman
to Ben Affleck never actually worked
because the language was incorrect.
Promises to assign won't fly.
But the Joker is the first assignee for consideration.
And that's why choice C is our bar exam winning answer.
A, the assignment for Robin was valid,
but it's going to be revoked by the later assignment
to the Joker.
Ben Affleck, he's going to be down because after all,
promises to assign is not valid language of present assignment.
Joker is the first acidy for consideration.
He gets to collect.
Choice D says Bill Gates, the last assignee
for consideration.
No.
When it comes to assignments for consideration,
generally, it's a first in time rule.
That's why the Joker, choice C, is the one getting
to collect on this assignment.
OK, so we just learned the general rules on assignments
for consideration.
Usually, the first guy in line, when
it's an assignment for consideration, will prevail.
That is subject to a very limited exception
that a later assignee for consideration
prevails if he does not know of the earlier assignments
and is the first to get a payment from
or a judgment against the obligor.

Hypo 7L.
What if Gates is unaware of the other assignments
and is the first guy to notify Gotham City of his rights?
Gotham should still pay the Joker.
Being the first to notify is not enough.
It's irrelevant.
It's a trick.
For Gates to prevail, he must be the first party
to get payment from or a judgment against Gotham.
Otherwise, when you see assignments for consideration,
you're probably going to be going with the general rule.
First guy in line prevails.
OK, that's the end of assignments.
Now let's look finally at delegations, our last type
of third party problem.
And when it comes to delegations,
we're no longer talking about a transfer of rights.
Instead, we're talking about a transfer of duties.
When it came to third party beneficiaries and assignment
situations, you had some third party
trying to enforce the rights under the contract.
When it comes to delegations, we're
talking about the obligations of a third party
to do the work, the duty, under the contract.
General rule, contract duties may
be delegated to another party without the consent
of the person to whom performance is owed.
You generally don't have to go talk to the obligee
before you make one of these delegations.

Hypo 7M.
I contract to paint Bill Gates's house for $10,000.
I delegate to Van Gogh who does an awesome job.
But Bill Gates doesn't like the delegation.
He objects to it.
Does Gates still have to pay?
Absolutely yes.
Delegations are generally permitted.
Gates's consent is not required.
So long as Van Gogh does a good job, Gates has to pay.
Now if Gates doesn't like it and he
didn't want me to delegate the work to Van Gogh,
what should he have done?
He should have contracted to provide for no delegations
in our contract.

That's hypo 7N.

Exceptions or contract language to the contrary controls.
What if the contract between me and Gates
prohibits delegations?
As I said, now it's very simple.
I can't delegate.
The contract said I can't delegate.
It's not like language of assignment
before where I was talking about prohibitions
versus invalidations.
No delegations means no delegations.
What if our contract also prohibited assignment?
Watch out for this trick especially on the MBE.
No assignments also means no delegations.
So if you're not allowed to make assignments,
you are not allowed to make delegations either.
I know that's weird, but sometimes it
is tested like that on the MBE.
No assignments equals no delegations.
What about a person with some special skills or reputations?
Common sense will work for you here.
She cannot delegate her duties.
This is one of the very few areas where common sense works
on the bar exam.
Hypo 7O.
Felix Hernandez has a contract with the Seattle Mariners.
He used to be their star pitcher.
There's no contract language prohibiting
delegation or assignment.
Question, can Felix delegate his pitching duties to Calandrillo?
After all, I've always wanted to be a starting pitcher in Major
League Baseball.
I go up to Mariner manager Scott Servais,
And i say awesome news.
Felix has delegated his pitching duties to me.
I'll be on the Hill today instead of Felix.
Is that type of attempted delegation going to work?
Obviously not.
Felix has special skills that I don't possess.
His fastball is 95 miles an hour mine.
Even, in my prime, was somewhere around 60 miles an hour.
It's not going to exactly work the same way.
A person with special skills can't delegate.
What about part two?
Can Felix delegate is pitching duties to Clayton Kershaw?
Answer is still no.
Now some students protest they say, hey, Calandrillo,
you don't know your baseball.
We know Felix used to be good and all.
But Clayton Kershaw, he's the best.
He's got three Cy Young's under his belt.
The Mariners would love to have Clayton Kershaw on the Hill
instead of Felix Hernandez.
But then I say to those students,
what would we call it if the Mariners agreed
to take Clayton Kershaw in place of Felix Hernandez?
Would we call it a delegation?
No.
We would call it novation.
Two parties to the original contract
getting back together, agreeing mutually
to substitute a new party to do the work
under the original contract.
Obviously, you could try to get novation.
You could try to get those two parties to mutually agree
to have a third party do the job.
But if it's just one guy who has special skills, like Felix,
attempting to delegate to somebody else
like Clayton Kershaw, who's got even more special skills,
that type of delegation is not permitted.
And that's often the way it's tested on the bar.
They will give you somebody who's famous,
who's got a special reputation, special skills.
And she tries to delegate her duties
to somebody even more famous, even more special skills.
And when she's called on it, she says
what are you complaining about?
This person who I delegated to was twice as famous or twice as
special as me.
No way.
Common sense tells you that if it's a special person entering
into a contract, special reputation,
that person cannot delegate her duties under the contract.
Obviously, the other party to the original contract
could agree to take the new person to do the job.
But that would be called an novation, not delegation.
What about the rights of the obligee after there's
been a delegation?
I want you to remember the rule that a delegating party always,
and I emphasize the word always, remains liable.
Don't let the delegating party off the hook.
Very different than the novation situation.
Hypo 7P.
I contract to paint Bill Gates's house for $10,000.
Without consulting Gates, I delegate my painting duties
to Van Gogh.
This is a delegation, not novation.
Van Gogh cuts off his ear and fails
to paint Bill Gates's house.
Can Gates still sue me for breach of contract?
Absolutely yes.
Delegations do not excuse.
Gates never gave up his rights against me.
Gates never agreed to have Van Gogh paint
his house instead of me.
This is not a novation.
As I emphasized before, novation requires mutual agreement
by both of the original parties to substitute a new party
to do the work.
If Gates wanted Van Gogh instead of me and we got back together,
and we all agreed to have Van Gogh take over my place,
that would have been called novation.
And novation would have excused the original painter.
But otherwise, if it's just painter number 1
going out on his own finding painter number 2,
that does not leave painter 1 off the hook.
After all, the other party, Bill Gates,
had no idea about Van Gogh, never
agreed to take Van Gogh instead of me.
Gates can still sue me.
Next rule is that a delegate who gets consideration is liable.
So generally, delegates who don't
receive consideration, gift promises are not enforceable.
But if the delegate gets paid consideration,
then he is going to be liable.

Hypo 7Q is the type of synthesis question

that you'll be doing for yourself on the bar
exam in the heat of passion.
Can Bill Gates sue Van Gogh for breach of contract?
Answer, only if van Gogh received consideration from me.
So let's imagine I paid Van Gogh $1,000
to paint Bill Gates's house.
So I delegate my duties to Van Gogh to do the job,
and I paid him money to do the job.
And then he simply doesn't do the job.
If there's consideration, then Van Gogh
is liable not just to me, but also to Bill Gates.
And now some of you are saying, wait.
How could he be liable to Bill Gates?
Bill Gates never made the contract with Van Gogh.
Even though there's no privy of contract
between Bill Gates and Van Gogh, what does Gates become?
Any time you see a delegation for consideration--
I delegated the duty to Van Gogh.
I paid him $1,000 to do the job.
What do delegations for consideration create?
They create third party beneficiary obligations.
So delegations for consideration create a third party
beneficiary obligation.
Two people contracting, me and Van Gogh,
with the intent to benefit Bill Gates.
What does Bill Gates become?
He has become an intended third party beneficiary
of the contract between me and Van Gogh
so delegations for consideration create a third party
beneficiary obligation.
And that means Bill Gates can sue Van Gogh directly.
So watch out for that.
Now, obviously, if there was no consideration,
if Van Gogh was just making a gift promise out
of the kindness of his heart because he loved me so much
and that's why he agreed to paint Bill Gates's house,
gift promises lack consideration and are not enforceable.
But if there's consideration, delegations for consideration,
you want to let the bar examiners know
that creates a third party beneficiary obligation.
Third party can sue directly to force Van Gogh to paint.
Well, he might not be able to force personal services.
But at least he can get damages out of Van Gogh.

And that's the end of all the hypos in module 7.

I want you to memorize the next few pages.
And they're all about love for dogs,
treat every Rover terrifically.
You got to keep that mnemonic device front
and center in your brain any time you see a contract law
fact pattern.
Because the reason why a lot of people don't do well on the bar
exam is not that they don't know these issues in these rules.
It's that in the heat of passion,
they forget to go through them in a logical order.
They forget to think about what law applies.
They forget to go through all of the stages of agreement
formation process.
As long as you keep remembering love for dogs,
treat every Rover terrifically, you're going to remember.
Step one is what law applies.
They don't tell you.
You have to tell them if you have a common law
contract or an Article II UCC sale of goods contracts.
So sale of goods, make sure you're looking
for special Article II rules.
So many times in the heat of passion,
people just see a contract for the sale of a watch.
They use all the common law rules.
Hey, contract for a silver watch?
That's a sale of a good.
And you better get in special Article II rules
if you have a sale of a good.
That's L for love.
Love is first law.
Law comes first.
Two is the F word, love for.
For stands for formation.
Again, don't start talking to me about defenses and terms
and breach and remedies until we have a contract formed.
Agreement formation process, we spent
a lot of time talking about the three stages.
Offer, termination acceptance.
Go through each of those in order.
Don't skip around.
Don't jump ahead.
Look for ads.
Ads are generally not offers unless we
fit into one of the exceptions.
Offers are generally revocable any time prior to acceptance,
unless you get a paid for option contract,
or unless you have reasonably foreseeable
detrimental reliance, or unless you have the start
performance pursuant to a unilateral contract,
or unless you have a merchant firm offer under Article II.
Next stage after you tackled offer, termination.
Go through, look for issues that test on for possible ways
offers might be terminated.
Lapse of time, rule is generally a reasonable time.
Revocation, look for indirect revocations.
Offerors who engage in conduct that is
inconsistent with the intent to contract.
But make sure your offeree is aware of that conduct.
Rejection as our third method of termination,
an inappropriate response.
Look for counteroffers.
Look for conditional acceptances.
They try to make everything look like an acceptance.
It's usually an indirect rejection.
Look also potentially for death before acceptance.
That will terminate a revocable offer.
Third stage of agreement formation, acceptance.
Distinguished bilateral from unilateral contracts
and how you would accept under each of those.
Apply the mailbox rule, really important.
Mailbox rule governs the timing of acceptance.
Think about acceptance under common law
versus under Article II.
Common law, you want to scream about mirror image rule
violations.
Any term is different, any term is added,
that's a rejection counteroffer.
It's not an acceptance.
Under Article II, though, you can throw in additional terms
and still have an acceptance, as long
as you have a seasonable expression of acceptance.
Now the offeree's additional terms
are not automatically part of the deal
unless both parties are merchants.
And there's no material alteration or objection
to the additional term.
Next think about what makes that agreement that's been formed
enforceable, consideration.
Show me a bargained for exchange of value.
And if you don't have that, then look for promissory estoppel
to try to get that promise enforced.
Take formation in that order.
Then you come to the D for dogs, love for dogs.
Dogs stands for defenses.
Think about flaws in the agreement process.
We looked at lack of capacity first.
But make sure it's the defendant's lack of capacity
that we're looking for.
And also look for implied affirmation
and also necessities, potentially winding up,
receiving some restitution in the way of compensation.
Next defense we tackled was ambiguity.
No contract if both parties have a reasonable interpretation
of the same term.
Two ships Peerless, never their paths
shall cross because both intended
different ships Peerless.
Otherwise, if one guy should have known,
then you go with the innocent party's interpretation
of the ship Peerless.
Mutual mistake must go to a material fact.
Usually, the market value is not enough to grant relief.
Unconscionability, you remember Williams v Walker Thomas
Furniture, unfair surprise and oppressive terms.
Most importantly, unconscionability
is tested as of the time of formation of contract,
not in hindsight.
Economic duress.
Look for your two guys.
First guy makes the improper or wrongful threat
to breach the contract.
Second guy is the vulnerable guy who
has no other reasonable alternative but to agree.
You put them together, and you have an economic duress
defense.
Most important defense, though, is statute of frauds.
We spent a lot of time talking about the statute
of frauds categories where you need a writing to enforce
the contract.
Remember MY LEGS, M-Y-L-E-G-S.
Marriage, contract in consideration of marriage
like a prenup.
The Y stands for more than one year,
only if performance within one year is literally impossible.
L in leg stands for land.
Land sale contracts, any interest
in real property, not just the sale,
if it's for more than one year.
E in legs stands for executors.
This is the promise to go pay the estate
debts from some other source of fund, usually
the executor's own pockets.
But you're probably not going to see it tested.
G and leg stands for goods at $500 or more,
very frequently tested.
Exactly $500 or more is within the statute of frauds
if it's a sale of goods.
And then S in legs stands for sureties, a promise
to pay if the debtor does not pay.
That's what a surety looks like.
But a lot of times, they only give you
the first half of that equation, a mere promise to pay.
Or sometimes they give you the main purpose exception.
Usually, it's the wrong answer.
Now what about the contents of the writing
to satisfy the statute of frauds?
For sale of goods contract, show me the quantity term,
show me the signature of the defendant.
For every other contract, show me all the material
terms and the signature of the defendant.
And then finally, look for exceptions
to the statute of frauds.
Remember in the case of land, leases of one year or less
are not subject to the statute of frauds.
Also remember partial performance
in a sale of real estate can take it out
of the statute of frauds.
What does part performance mean?
Two out of three.
It's buyer who pays the money, a buyer who takes possession,
a buyer who makes improvements.
You need to show at least two out of three
for part performance to satisfy the statute of frauds,
assuming you don't have a writing.
Remember also the one year prong, full performance there.
Full performance proves to the court
that the deal was actually made.
No statute of frauds defense.
Remember when it comes to sureties, the main purpose
exception that I mentioned just before, no statute
of frauds problem there.
And remember when it comes to the sale of goods, goods that
are already accepted, you can see them
in the buyer's warehouse or already paid for by the buyer,
obviously, the seller will lose their statute
of frauds defense.
Same thing for custom-made goods.
Once there's been a substantial beginning,
the buyer will no longer be able to use
a statute of frauds defense.
Watch out for judicial admissions.
Somebody admits they had a deal.
Obviously later on, they'll lose the statute of frauds defense.
They admitted no fraud is going on here.
And look for a merchant confirmatory memorandum
rule satisfying the statute of frauds
even without defendant's signature.
Now I mentioned there's a bunch of other defenses
that are in the long book.
Illegality, fraud, misrepresentation.
I don't think you'll see them too much.
And if they're there, they're usually obvious.
And when they're so obvious like that, you'll spot them.
You'll write about them.
You'll write enough to get the points for them.
Then we got to the T where love for dogs, treat every Rover.
Treat stands for terms.
Think about what the final terms are in the parties contract.
Think about the interaction of the final writing
with previous agreements, either oral or written.
Apply the parol evidence rule.
I don't care how you spell it.
Well, leave the E off at the end, though.
You'll probably enhance your credibility just a little bit.
I don't care how you pronounce it.
You want to call it parole, go for it.
But you want to know that the rule says that you cannot bring
in parol evidence to contradict a later writing.
Final written integration, it wins.
It's more reliable evidence.
You can, however, bring in this extrinsic parol evidence
to fix clerical errors, to explain ambiguous terms,
or to establish a defense.
You can also think about the party's conduct
as a source of terms.
Remember, we went through course of performance,
course of dealing, and trade customer usage of the trade.
Take those in order, in order of importance.
They're not equal to each other.
Course of performance, first.
Next, course of dealing.
Last, trade custom.
We looked at terms, warranty terms that
come out of Article II, express warranties, statement of facts
or a promise or description of a goods
or the showing of a sample or model,
versus implied warranties.
Implied by law, seller must be a dealer in goods of that kind
if you want to have the implied warranty of merchantability.
Versus the implied warranty of fitness
for a particular purpose.
That's where you have a seller who
knows a buyer special purpose beyond the normal purpose
for those goods.
And then the seller picks out suitable goods
for buyer's special purpose.
Limitation on warranties, two types of provisions
that we looked at.
Disclaimers-- you can disclaim implied warranties but not
express--
versus limitation on buyer's remedies.
You can limit remedies even for express warranties,
but not if the clause is unconscionable.
We also talked about risk of loss terms.
Who bears the risk of loss?
Who has to provide new goods?
Who has to pay for those goods?
Look for delivery of common carrier.
Risk of loss passes when the seller completes its delivery
obligations.
Usually, you get a shipment contract.
In a shipment contract, buyers bear the risk of loss
before they ever receive the goods.
Counterintuitive, that's why it's tested so much.
Delivery by other means, usually turns on
whether your seller is a merchant.
Merchant sellers bear the risk of loss
long until the buyer receives the goods.
Otherwise, non-merchant sellers pass off the risk of loss
as soon as they tender the goods.
Performance under common law contracts.
Substantial performance is all that's required.
No material breach.
Versus if you get a sale of goods, sale of widgets UCC
contract, I want you to insist on 100% perfect performance.
Close is not good enough if it's an Article II
sale of goods case.
Perfect tender rule, I want you to scream about it.
I want you to let your buyer reject those goods even
if the seller was 99.99% perfect.
Now sometimes, your seller will get a chance to cure.
We went through two cure situations,
where time for performance has not yet come.
They have another month, let's say,
to give the correct t-shirts or the correct widgets.
Or if seller had reasonable grounds
to think that her improper tender would
have been acceptable.
Talk about the buyer's right to reject the goods
if the tender is not perfect, except in installment sales
contracts.
Remember there, you got to show me a substantial impairment
standard before you can reject one
of those installment deliveries.
Think about the buyer's right to revoke her acceptance but only
if there's a latent defect that substantially
impairs the value of the goods.
Not that something minor was wrong with the sleeping bag.
Something really bad is wrong with it,
and why didn't you figure it out sooner.
It's got to be a latent defect.
Then we came to the E word.
E for every stands for excuse.
Again, in the heat of passion, people just
leave out reasons to excuse the other side's performance
obligations.
So if the other side's in breach, material breach,
that excuses the innocent party from her own performance
obligations.
Look also for anticipatory repudiations.
It's like a material breach.
But remember, it can be retracted so long as it has not
been relied upon yet.
Potentially, you might see failure
to give adequate assurance under Article II.
You need to have reasonable grounds for insecurity.
If you do so, in writing, you can
request adequate assurance of the other party's performance.
Failure to give that adequate assurance
would be treated like an anticipatory repudiation.
Meaning the innocent party is excused from her obligations
under the contract.
We also looked at later agreements that excused
the original obligations.
Rescissions, modifications.
Modifications excuse right now.
Thirdly, we looked at accordant satisfaction.
It's only if the accord is satisfied, only then will it
excuse the original obligation.
And lastly, we looked at novations.
Two people getting back together,
mutually agreeing to substitute a new party to do
the work under the contract.
That's called novation, not delegation.
And novation excuse is the contracted for performance
of the party who got replaced.
We also talked about impossibility.
Later unforeseen event makes the seller's performance
impossible.
That equals excuse.
We discussed frustration of purpose briefly.
Later unforeseeable event frustrates
the buyers main purpose.
Make sure, though, understood by both parties
what the central purpose of the contract was.
Failures of express conditions, protected party is off the hook
if that express condition is not completely satisfied.
Strict performance rule when it comes to express conditions.
Then we got to the R for remedies.
Treat every Rover terrifically.
Rovers equal remedies.
Think about remedies.
But don't be too quick to hand out specific performance.
As I said, that's the favorite nonmonetary remedy
of all my students.
But bar examiners and courts are slow to go
with it as the right answer.
You have to first show that no amount of money
would be adequate to compensate plaintiff for her losses.
That's why normally, you're thinking about money damages.
That's your usual contract remedy.
Don't punish your breaching party.
Remember, no punitive damages in contract law.
If you get a liquidated damage clause,
make sure it's not a penalty.
Look for a graduated amount, not a single set lump sum.
But mostly when it comes down to damages,
you want to be able to calculate expectation.
Put the injured party in the same place as full performance.
In the buyer's case, give her the cover
of contract price minus the original contract
price assuming she covers in good faith.
We also talked about the situations
where you give her the market price minus the contract price
if she doesn't cover in good faith.
If the buyer keeps imperfect goods,
give her the value as promised minus the value as delivered.
On the other hand, if you have a buyer who's in breach,
what are your seller's remedies?
Most typically what you'll do is you'll
give the seller the original contract price minus her resale
price, assuming she resold the goods in good faith.
Sometimes, you'll give her the contract price minus the market
price if the seller chose not to resell
or she didn't resell in good faith.
Give her the contract price if she can't resell the goods,
like the custom-made stamp.
Give her the full contract price.
And watch out importantly for the lost volume seller.
She is not made whole by the resale to a second party.
That person gets her lost profits on the first sale
that she lost.
So they always give you a merchant
who's got lots of inventory, sells
the goods to buyer number 1.
Buyer number 1 breaches.
Buyer 2 comes in the next day, buys
the exact same item out of the inventory
for the exact same price.
Do not give a lost volume seller zero.
Give her provable lost profits on the deal she lost.
Think also about incidental damages.
The costs incurred in dealing with breach
are always recoverable.
They don't have to be foreseeable.
When does foreseeability matter?
Consequential damages, special damages,
recoverable only if they were foreseeable at the time
the contract was formed.
Subtract away any voidable damages.
You cannot recover damages that could have been reasonably
avoided.
Obviously, we're not going to require Shirley MacLaine
to humiliate herself by taking employment
of different or inferior kind.
Lastly the T for treating those Rovers
terrifically stands for third party problems.
We looked at entrustment.
Remember, the original owner will
have no rights against the BFP.
BFP prevails over the original owner.
Third party beneficiaries.
That's the situation where you have
two parties contracting with the intent
to benefit a third party.
The intended third party beneficiary,
she can enforce her rights under the contract
once those rights have vested.
Even though she didn't make the contract,
she has the right to sue directly.
Contrast that with an assignment situation.
Assignment is the 2-step situation.
Make sure you see language of present transfer.
Read very carefully for language of present transfer.
Make sure the assignment doesn't substantially change
the duties of the obligor.
You can't make Batman go out and defend
Metropolis instead of Gotham.
Remember, it's a last in time rule
for gratuitous assignments.
But it's a first in time rule for assignments
for consideration.
Lastly, think about delegation of duties, our last type
of third party problem.
That's the transfer of work.
Not the transfer rights, but the transfer of work.
And that's generally permitted unless the contract prohibits
or unless special skills, special reputation,
is involved.
But I want you to stick to that exam strategy.
Go through love for dogs, treat every Rover terrifically
in that order.
If you do it, you're going to remember enough of the issues
and remember enough of the rules to get most of the points
and pass the bar exam.
That's your goal.
That's my goal.
The only thing left for you to do
is to go out there and do it.
Good luck, and my best wishes.
And my sympathies on the next couple
of months of your life as you go through studying
for the bar exam.