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3 kinds of K law—common law, UCC Article 2, and UCC Article 2A. How do you know which one applies?
- Article 2: Sales of goods (moveable, personal property)
- Article 2A: Leases of goods (not real property)
- Common Law: All other contracts
What is a "Contract"?
A (1) legally enforceable (2) agreement
I.e., you can have an agreement, but if it is not legally enforceable, it is not a contract.
Contracts can be express or implied. How is each one created?
- Express Ks: Created by parties' WORDS
- Implied Ks: Created by parties' CONDUCT
What is a Quasi-Contract?
It's NOT a contract at all!
Rather, it is a REMEDY that courts can employ to protect against unjust enrichment when contract law produces an unfair result.
Exam tip: If you see an unfair result, but contract law doesn't provide any remedies, consider whether quasi-contract could be applied
If a court imposes a quasi-contract, how much can the wronged-party recover?
Can recover the reasonable value of the benefit conferred on the unjustly-enriched party.
Note: "reasonable value" ≠ K price
A contract can be Bilateral or Unilateral. What does this mean?
- Bilateral K: offer can be accepted in any reasonable way
- Unilateral K: Offer can be accepted only by performing
Exam tip: A contract is bilateral UNLESS (i) the offer expressly limits acceptance to performance, or (ii) you're dealing with a reward, contest, or prize.
Has a Contract been formed?
- 1: There was an OFFER
- 2: The offer was not TERMINATED.
- 3: The offer was ACCEPTED.
OFFER: Can an Advertisement be an offer?
- Generally: advertisement are NOT offers.
- However: an advertisement that specifies quantity of a good for sale can be an offer if the price is also supplied or can be determined.
- Example (offer): "One blue dress just like Monica's, only $ 1!"
- Example (not an offer): "Incredible offer! Breakfast special for $2.49."
OFFER: What is the issue with Indefinite terms?
If a term is too indefinite, a court will not be able to enforce it. If you lack enforceability, you lack a contract (all you have is an agreement).
OFFER: Will an open Price term make an agreement unenforceable?
Depends on whether a court would be able to read-in a reasonable price for the open term.
An open term does not usually present a bar to enforcement—a court is usually able to read-in a reasonable price for the open term. HOWEVER, where real property is involved, an open term will present a bar to enforcement, as a court will not attempt to read-in a reasonable price in such a case.
A Requirements Contract is one based on the buyer's "needs" or "requirements." Are such agreements enforceable?
Although quantity may be uncertain, UCC Article 2 allows such agreements to be enforceable. The quantity is based on the buyer's good faith needs or requirements, and can usually be determined.
Note: Where there is a sudden and drastic increase in the buyer's needs, the buyer cannot require the seller to deliver more than is reasonable based on past experience. To do so would be to unfairly "surprise" the seller. This is true even if the sudden and drastically increased order quantity is made in good faith.
An illusory promise is not a contract: e.g. "I agree to buy as many as I want."
How is an offer TERMINATED?
- Death of a party before acceptance
TERMINATION: When does an offer LAPSE?
An offer lapses after a stated term or a reasonable time has passed.
Hint: Look at the amount of time between the date offer is made, to when acceptance is finally given. If it seems longer than you'd think is reasonable, it probably is
TERMINATION: WHEN can an offer be REVOKED?
GENERALLY, an offeror may revoke
his offer at any time BEFORE acceptance
- EXCEPTIONS: (offeror may not revoke):
- 1) Options
- 2) Foreseeable reliance
- 3) Starting performance (on a unilateral K)**, and
- 4) Firm offers (Art. 2 Ks from a "merchant")
EXAM TIP: For firm offers, check to see if it's an option first before falling back on Art. 2 firm offers.
**MBE: Once an offeree starts to perform, offeror can no longer revoke, but merely preparing to perform is not enough (could try foreseeable reliance).
TERMINATION: HOW may an offeror REVOKE his offer?
- Direct revocation: Tell offeree directly that change of mind.
- Indirect: The offeror (i) engages in conduct that indicates he's changed his mind, AND (ii) the offeree is aware of the conduct.
TERMINATION: When will an OPTION prevent an offeror from revoking?
MBE: When the option is paid for—i.e., supported by consideration.
TERMINATION: When will FORESEEABLE RELIANCE prevent an offeror from revoking?
ONLY situation is subcontractor who offers the performance of work to a general contractor submitting a bid.
The reason is that a subcontractor, through experience and industry custom, would expect the general contractor to rely on the sub's pricing in negotiating a prime K. Outside of this specific situation, however, courts and the examiners will treat pre-acceptance "reliance" as unforeseeable.
TERMINATION: When will STARTING PERFORMANCE of a unilateral K prevent an offeror from revoking?
MBE: When performance BEGINS
Further note: merely preparing to perform is not enough to prevent an offeror from revoking under with the MBE
TERMINATION: When will a FIRM OFFER prevent an offeror from revoking?
UCC Article 2 Firm Offers: When the offer is for (i) the sale of goods, (ii) from a merchant, and (iii) the merchant PROMISES in a signed writing to keep an offer open.
Firm offers have a MAX TIME LIMIT of 3 months.
TERMINATION: How can the bar examiners trick you in a FIRM OFFER (revocation) question?
Firm offers > 3 months
: An offer can only be firm (i.e., irrevocable) under Article 2 for 3 MONTHS. After 3 months, the offer may still be open, but the offeror merchant can revoke.
- No time period stated: The offer will be held open for a reasonable time, not to exceed 3 months
- Signed, written offers: Must also have a PROMISE to hold open in order to be firm (i.e., irrevocable). This is a frequent trick on the bar.
TERMINATION: Suppose an offeror has decided to revoke. WHEN is her revocation EFFECTIVE?
When it is actually RECEIVED by the offeror
TERMINATION: How can an offeree REJECT an offer?
- Counteroffers such as "I will only pay $ X.XX." (but mere bargaining is not a counteroffer)
- Conditional "Acceptance" (not an acceptance at all—it is the same as saying "no")
- Common Law* Mirror Image Rule: Acceptance that varies the terms of the offer–even slightly–operates as a revocation.
- *Separate card for Art. 2 rule
TERMINATION: Under UCC ARTICLE 2, can an acceptance MODIFY the terms of an offer without operating as a rejection?
. Under Article 2 (sale of goods), an acceptance can modify the terms of an offer and still operate as a valid acceptance.
, the modified term will be included
in the resulting K only if
ALL THREE of the following are satisfied:
- 1) BOTH parties are MERCHANTS
- 2) the modification is NOT A MATERIAL CHANGE***
- 3) NO OBJECTION is made by the offeror within a REASONABLE TIME
If ANY condition is not mt, offeree's term is NOT part of the K, but still have a enforceable K!
- ***A disclaimer of all warranties is treated as a material change
- ***If a term is customary in the industry, it is not material
TERMINATION: When will a party's DEATH terminate an offer?
- 1: Party dies before acceptance, AND
- 2: Offer was revocable (i.e., no option, foreseeable reliance, starting performance, or firm offer from merchant)
How is an offer ACCEPTED?
- If the K is BILATERAL, acceptance is can occur through any reasonable means
- If the K is UNILATERAL, acceptance occurs by performance
ACCEPTANCE: When is a K UNILATERAL?
- • Offer expressly states that performance, and performance alone, will constitute acceptance
- • Offer is for a reward, contest, or prize
, the K will be bilateral, and acceptance may be manifested through any reasonable means.
ACCEPTANCE: Does an offeree manifest acceptance of a BILATERAL K by commencing PERFORMANCE?
An offeree may manifest acceptance to a bilateral contract through any reasonable means—this includes COMMENCING performance, as commencing performance to a bilateral contract carries with it an implied promise to finish the job.
NB: IF the contract were unilateral, however, merely commencing performance would not constitute acceptance. In a unilateral contract, only completion of performance constitutes acceptance.
ACCEPTANCE: Does an offeree manifest acceptance of a UNILATERAL K by commencing PERFORMANCE?
Although a bilateral K may be accepted by commencing performance, an offeree is not treated as accepting a UNILATERAL contract until performance is COMPLETE. This means that even after commencing performance, an offeree may cease performance without being in breach because there has been no acceptance.
ACCEPTANCE: What result, if an offeree performs but does so improperly?
- Common Law: Simultaneous acceptance and breach
- Sale of Goods (Art. 2): Simultaneous acceptance and breach unless seller is sending the goods as an accommodation to buyer (counteroffer, not an acceptance)
ACCEPTANCE: Can an offeree's SILENCE operate as an acceptance?
That would be unfair to the buyer, who might not be aware of the offer.
ACCEPTANCE: When an acceptance is delivered by MAIL, when is it effective?
MAILBOX RULE: Unless an exception applies, a mailed acceptance is effective as soon as it is placed in the mail
- • offer expressly requires actual receipt (acceptance must be received to be effective)
- • offer is irrevocable (acceptance must be received to be effective)
- • acceptance sent first, followed by rejection (acceptance effective on mailing unless offeror receives rejection first and relies on it)
- • rejection sent first, followed by acceptance (it's a race, whichever the offeror receives first is effective)
DEFENSES to contract FORMATION
- Lack of legal capacity (voidable, but not for necessities or if ∆ enjoys benefits of K)
- Economic duress (rarely successful)
- Misrepresentation or Non-Disclosure of a Material Fact (even if innocent)
- Ambiguity or Misunderstanding (unless one party knows or has reason to know of other party's misunderstanding, then the innocent party's understanding will govern)
- Mutual Mistake regarding a Material Fact
- Lack of Consideration (see separate cards)
- Public Policy
- K is Unconscionable
LACK OF CAPACITY Defense to K Formation
Infants, Intoxicated, Mentally Incompetent
GENERAL RULE: Any incapacitated ∆ may disaffirm the K. (Only care about capacity of ∆.)
- Incapacitated ∆ is still liable for necessaries (food, shelter, clothing, medical care), but only on a quasi-contract basis.
- Implied Affirmation: π may enforce K against ∆ after ∆ gains capacity and retains the benefit of K without complaint.
When is a promise supported by CONSIDERATION?
When its been "bargained-for" in exchange for a legal detriment or benefit.
A person can bargain for a promise (usually the case), performance, or even forbearance. Whether consideration is adequate is irrelevant—the law does not care about actual value, and will presume adequacy if there has been bargaining.
Can past consideration support a present promise?
MBE: No. Past consideration is not consideration at all.
Can a K be modified without new consideration?
- Common Law: NO. Performance of a pre-existing duty is not enough to make a K modification enforceable. To be enforceable, the modification must be supported by new consideration (e.g., additional money, extra performance, etc.)
- Sale of Goods (Art. 2): YES. New consideration is not required to make a K modification enforceable, but the proponent of the modification must show good faith.
Can PARTIAL PAYMENT of a DEBT be consideration that supports FORGIVENESS of the debt's balance?
Depends on whether the debt is in dispute.
If the debt is undisputed, partial payment is not sufficient consideration to support a promise to forgive the balance, because payment of the balance is treated as a pre-existing duty.
If the debt is disputed, acceptance of a partial payment on the debt is sufficient to forgive the balance.
If a debtor gives his creditor a signed promise to pay an outstanding debt, can the creditor enforce that promise even if it is made after the statute of limitations on collection has run?
A signed and written promise to pay a debt, collection of which is barred by the statute of limitations, is enforceable even without consideration
Can foreseeable reliance on a promise make that promise enforceable even without consideration?
YES, because of PROMISSORY ESSTOPPEL. for example . . .
Facts: T's lease expires next month. L promises to renew T's lease. In reliance on L's promise, T paints the apartment. L now refuses to renew T's lease.
Result: Even though there was no consideration given by T for L's promise to renew, T can enforce L's promise based on promissory estoppel because it was foreseeable that T would rely on L's promise to T's detriment.
PUBLIC POLICY: A court will invalidate or narrow a COVENANT NOT TO COMPETE that operates as a "restraint of trade." When factors should be considered when deciding whether a covenant acts in "restraint of trade"?
- Scope of the Covenant: consider duration and geography, and whether it is reasonable
- Need for the Covenant: consider the uniqueness of the activities restricted, and whether it is reasonably necessary to protect a legitimate interest of the benefitted party.
PUBLIC POLICY: To what extent may an EXCULPATORY CLAUSE limit tort liability?
An exculpatory clause can limit liability for ordinary negligence, but cannot limit liability for gross negligence or an intentional tort
UNCONSCIONABILITY Defense to K Formation
- K or term of K will be invalidated if it shocks the conscience of the court.
- Substantive unconscionability: do the K terms themselves "shock the conscience"? Terms are unfair.
- Procedural unconscionability: does the process of formation itself "shock the conscience"? (e.g., extremely small print, imbalance of power)
UNDUE INFLUENCE Defense to K Formation
Special relationship between the parties; and improper persuasion of the weaker by the stronger.
ECONOMIC DURESS Defense to K formation
Rarely successful unless the buyer made a threat to breach an existing K, and there was no reasonable alternative available.
What types of Ks require a writing to be enforceable?
- a) Transfers of an interest in real propertyincluding any lease GREATER than 1 year
- b) Full performance theoretically impossible to complete within one year (if full performance within one year is theoretically possible, no writing is required even if actual performance exceeds one year)
- c) Sales of goods for $500 or more ( ≥ $500) (UCC Article 2)
- d) Suretyships (Exam tip: be sure that there actually is a debt to which the surety may be called to answer)
- e) Contract modifications if the contract as modified is within the SOF
If a writing is required for a Sale of Goods (Art. 2), what must it contain?
- Quantity term, and
- Signed by ∆ (i.e., must be signed by the party to be charged with breach)
If a writing is required for K under COMMON LAW, what must it contain?
- All material terms (e.g., who, what, duration, price), and
- Signed by ∆ (i.e., the party to be charged with breach of K)
EXCEPTIONS to SOF: Real Property
- Interests in real estate don't require a writing if:
- Short-term leases: lease of property of a duration ≤ 1 year,
: any 2
of the following is true (i) buyer is in possession
of property, (ii) buyer made some payment
(need not be full payment), or (iii) buyer made improvements
EXCEPTION to SOF When Performance Cannot Be Completed Within One Year
MBE RULE: Lifetime contracts NOT within SOF.
FULL PERFORMANCE EXCEPTION: Party has already fully performed contract so don't need writing. Part performance is insufficient, but may be able to recover in quasi-contract.
Exceptions to SOF for Sales of goods for $500 or more (Art. 2)
- 1) Buyer accepts or pays for goods (note, partial payment of a single item does not count)
- 2) Goods are custom-made (not suitable for sale in ordinary course of business)
- 3) Admission of a K in a judicial proceeding (e.g., deposition, testimony)
- 4) Merchant's confirmatory memo (separate card)
What is the Merchant's Confirmatory Memo exception to the SOF?
- Exception to the SOF requirement for Art. 2 SOG that the writing be signed by the ∆.
- π can use its own signed writing to satisfy the SOF against a non-signing ∆ where ALL the following are true:
- 1) both parties are "merchants"
- 2) the writing claims a prior oral agreement
- 3) the writing is signed and has a quantity, and
- 4) there is no written objection within 10 days
What is the Suretyship "Main Purpose" exception to the SOF?
It provides an exception to the writing requirement for a surety arrangement
Rule: If the surety's main purpose in becoming a surety was to benefit himself, then no writing is required.
As a general rule, can a party use prior or contemporaneous WORDS to interpret a later writing?
- Generally NO.
- Parol Evidence Rule (PER) keeps out evidence of a prior or contemporaneous agreement (either written or oral) that contradicts a later writing. Rationale: The PER assumes that a later writing is more reliable than anything that came before it.
What are the COMMON LAW exceptions to the PER?
A party may use evidence of a prior writing to contradict (or interpret) a later writing where the earlier writing is used to
- • correct a clerical error (e.g., a typo)
- • defend against K formation
- • interpret a vague or ambiguous term, or
- • supplement a partially-integrated writing–a final statement of the terms included, but not a complete statement of all the terms the parties agreed to. • MBE TIP: Merger Clause—“This contract is limited to the terms herein.” This is persuasive, but not conclusive
Art. 2 Exception(s) to Parol Evidence Rule
ONLY a merger clause will keep out parol evidence
Can a party use evidence of subsequent WORDS to interpret a writing?
The PER does not prevent a party from using SUBSEQUENT DEVELOPMENTS to interpret an agreement reduced to writing.
Note: Rules of contract modification apply.
Can CONDUCT between the parties explain terms or fill-in gaps in a contract?
! There are 3 ways of doing this (in order of descending importance)
- 1) Course of performance under the current K (best way)
- 2) Course of dealing under prior Ks with each other (next best way)
- 3) What others in the trade do in similar circumstances (least best, but still a way)
UCC ART 2: A seller is liable for breach of an EXPRESS Warranty. What are some examples?
- Statements of fact
- Descriptions of the goods
- Use of a sample or model (frequently tested)
A general or subjective statement (i.e., opinion) is not an express warranty, and is not enforceable.
UCC ART 2: Can a seller DISCLAIM liability for an express warranty?
A seller can't make an express warranty and then disclaim it. (E.g., "All parts guaranteed for two years . . . all warranties disclaimed" would disclaim an express warranty, and is not allowed)
UCC ART 2: Can a seller LIMIT a buyer's remedies for breach of an express warranty?
Generally: Yes, a seller can limit a buyer's remedies for breach of any warranty (whether express or implied) so long as the limitation is not unconscionable.
EXCEPTION: Limiting a buyer's remedies for personal injury in the case of consumer goods is presumed unconscionable, and therefore not allowed. Seller can rebut, but hard to do.
UCC ART 2: What does the IMPLIED WARRANTY OF MERCHANTABILITY ("IWM") mean?
Meaning: The IWM means that a seller impliedly warrants that a particular good is fit for its ordinary purpose.
Applicability: In order for the IWM to apply, the ∆ seller must be a merchant who deals in goods of the kind. The key is whether the seller has specialized knowledge about the particular goods provided.
Example: Foot Locker impliedly warrants shoes for their ordinary use, but would not impliedly warrant the ordinary fitness of a used delivery van it sells.
UCC ART 2: What does an Implied Warranty of FITNESS for a PARTICULAR PURPOSE mean?
Meaning: It means that seller warrants that goods are fit for a buyer's particular purpose.
Applicability: The implied warranty applies where (i) the buyer has a special purpose in mind; (ii) the buyer is relying on the seller to pick out suitable goods; and (iii) the seller knows of the buyer's purpose.
Need not be a "merchant": Note, the seller does not have to be a merchant at all, the seller could be someone on Craigslist, and the implied warrant could still apply.
UCC ART 2: Can a seller DISCLAIM an implied warranty?
A seller can disclaim an implied warranty through language such as "as is," "with all faults," or by referencing the word "merchantability" in the disclaimer (e.g., "no implied warranties of merchantability or fitness")
UCC ART 2: Can a seller LIMIT a buyer's remedies for breach of an implied warranty?
- Generally: Yes, a seller can limit a buyer's remedies for breach of any warranty (whether express or implied) so long as the limitation is not unconscionable.
- Exception: Limiting a buyer's remedies for personal injury in the case of consumer goods is presumed unconscionable, and therefore not allowed.
What does it mean for a party in a Sale of Goods K (Art 2) to bear the RISK OF LOSS (ROL)?
- ROL on Seller: must provide new goods to buyer at no extra cost
- ROL on Buyer: must still pay K price
WHO bears ROL when goods are damaged before buyer takes possession, and neither party is at fault?
- (1) Agreement of parties controls
- (2) Breach: Breaching party bears risk of loss (even if loss unrelated to breach)
- (3) Common carrier**: ROL on buyer if shipment K or FOB-shipping point (ROL on seller for all others)
- (4) Non-carrier, seller is merchant: ROL on seller until buyer takes possession
- (5) Non-carrier, seller NOT merchant: ROL on seller "tenders" goods (i.e., makes them available)
Shipment K v. Delivery K
Shipment K: Seller must get goods to a common carrier, make delivery arrangements and notify buyer. Buyer bears ROL long before it gets the goods. "FOB [Seller's location]"
Destination K: Seller mut get the goods to a specific destination. "FOB [Anywhere else]"
Under the COMMON LAW, is a promisee entitled to PERFECT performance?
NO—only SUBSTANTIAL PERFORMANCE (i.e., no material breach)
Finishing a job late is NOT a material breach unless K or circumstances indicate that time is of the essence.
Under UCC Art 2, is a buyer entitled to PERFECT performance?
YES—If tender is not perfect, buyer may REJECT the goods.
This means that the buyer can return the goods at the seller's expense, get a refund of money paid, and collect damages from seller for breach of contract.
UCC ART 2: If a seller's tender of goods is not perfect, can the seller CURE?
- Time NOT expired: Seller may cure by delivering conforming goods.
- Time EXPIRED: Seller cannot cure, unless seller has a good faith belief from prior dealings that buyer would accept the nonconforming goods (flexible in the past).
What is an INSTALLMENT CONTRACT? And does the perfect tender rule apply?
- Installment Contract: requires or authorizes delivery of goods in separate installments.
- Reject for Substantial Impairment: buy can reject only for substantial impairment—perfect tender rule does NOT apply.
Buyer's ACCEPTANCE of Goods
Implied acceptance when buyer keeps
- 1) without objection, after having had a
- 2) reasonable opportunity to inspect.
Can a buyer REJECT goods after they've been accepted?
- Cannot reject: after buyer accepts (might be able to revoke acceptance)
- Damages: But, a buyer who accepts can still get damages (e.g., cover, market damages, loss in value)
Can a buyer REVOKE acceptance of goods?
- Generally NO: a buyer cannot revoke acceptance of goods
- Exceptions: can revoke if buyer can prove both (i) SUBSTANTIAL impairment, and (ii) DIFFICULT TO DISCOVER (i.e., latent defect). Must revoke within a reasonable time of discovering defect.
What CONSEQUENCES if buyer effectively rejects or revokes acceptance of goods?
- RETURN: goods at seller's expense
- REFUND: any money paid for goods
- DAMAGES: for breach of contract (e.g., cover, market damages, loss in value)
If a buyer accepts goods, what are his payment obligations?
- CHECK: may pay by check, but seller doesn't have to take it
- REASONABLE TIME FOR REFUSAL: if seller doesn't accept buyer's check, buyer has a reasonable time from refusal to get cash, EVEN IF payment is made and refused at the end of the last day for payment
Under the COMMON LAW, if a party breaches, what are the non-breaching party's rights (obligations) as to
1) When performance is excused?
3) Divisible contract?
- EXCUSAL OF NON-PERFORMANCE: only a material breach can excuse non-performance by non-breaching party.
- DAMAGES: non-breaching party can recover damages for any breach, regardless of whether the breach is material.
- DIVISIBLE CONTRACT: where terms provide for payment on a per-unit basis, breaching party can recover K price for any unit substantially performed.
1) What is it?
2) Can repudiating party change his mind?
- 1) DEFINED: a party refuses to perform an upcoming duty (before performance is set to occur). Must be unambiguous.
- 2) RETRACTION: repudiator can retract (change mind), as long as the non-breaching party has not relied on repudiation (e.g,. changed position)
Adequate Assurance under UCC Article 2
1) Who can request it, and when?
2) What happens when its not given?
1) ANY PARTY with reasonable grounds for being insecure about the other party's performance may request IN WRITING adequate assurance that the other party will perform under the K
2) ANTICIPATORY REPUDIATION results from the other party's failure to provide adequate assurance
When can a K be RESCINDED?
When BOTH parties to the K agree to cancel the contract
1) What is it?
2) When is it effective?
- 1) DEFINED: agreement to replace an existing contract with a new one
- 2) IMMEDIATE EFFECT: the modification takes place immediately.
ACCORD AND SATISFACTION
1) What is accord?
2) What is satisfaction?
3) What is their impact?
1) ACCORD: an agreement to accept performance different from that required under a pre-existing duty as future satisfaction of the existing duty
2) SATISFACTION: performance of the accord
3) IMPACT: the pre-existing duty is extinguished only when the accord is satisfied—i.e., when the new/modified performance is complete
1) What is it?
2) Who must agree to it?
3) What is its impact?
DEFINED: An agreement to substitute a new party for an existing one
WHO MUST AGREE: All parties must agree to the novation (i.e., both original parties, and the substituted party), otherwise its a mere delegation
IMPACT: The new party takes over the rights and obligations of the old party (i.e., the old party is excused from performance)
IMPOSSIBILITY (common law) & IMPRACTICABILITY (Art 2)
1) What is it?
2) When can it occur?
- (mnemonic: if you want to claim the defense, you'd better have CRED)
- 1) DEFINED: Excuses a seller's non-performance where later, unforeseen events make performance impossible or impracticable.
- 2) OCCURS WHEN
- a) increase in COST of seller's performance (MBE: almost never applies.
- b) government REGULATION makes performance impossible (e.g., supervening law)
- c) ESSENTIAL person's death/incapacity
- d) DESTRUCTION of something necessary for performance (for ART 2 Ks, destroyed goods must be "identified to the contract"). A seller who bore ROL when goods were damaged or destroyed is excused by impracticability. BUT, if ROL has passed to buyer before goods were damaged/destroyed, seller is off the hook.
FRUSTRATION OF PURPOSE
1) Who can claim?
2) What must be shown?
- BUYER can claim frustration of purpose, as a defense to performance
- MUST SHOW that seller knew of buyer's purpose for purchase, and that unforeseen events have frustrated achievement of that purpose.
FAILURE OF AN EXPRESS CONDITION
1) What is it?
2) How closely must be condition be satisfied?
3) How do you know whether the condition has been "satisfied"? (objective or subjective std?)
4) Can performance still be required?
- 1) EXCUSES PERFORMANCE of a party if a condition precedent, concurrent, or subsequent is not completely satisfied
- 2) STRICT COMPLIANCE of the condition is necessary (e.g., almost there isn't good enough)
- 3) REASONABLE PERSON standard applies, unless K deals with art or matters of personal taste
- 4) WAIVER OR FAILURE TO COOPERATE can obligate a party to perform, even if the condition is not satisfied. Every condition protects someone. Party can voluntarily waive that protection. Party may retract the waiver for future payments to the extent the other party has not relied on it.
Types of Express Conditions
- Condition precedent
- Condition concurrent
- Condition subsequent
When is an EQUITABLE REMEDY available?
ONLY IF monetary damages are inadequate to compensate injured party:
When is SPECIFIC PERFORMANCE available?
- Real property
- Goods are "unique" (e.g., no substitute goods in market)
- Covenants not to compete (e.g., prevent you from working for a competitor)
- Can NEVER require performance of services (tantamount to slavery)
When can an UNPAID SELLER RECLAIM GOODS (Art 2)?
1) WITHIN 10 DAYS (of buyer's receipt) if buyer was INSOLVENT when goods were RECEIVED and seller demands return within 10 DAYS
2) ANY TIME if buyer misrepresented its solvency to seller in a writing within 3 MONTHS BEFORE delivery
What MONETARY REMEDIES are available?
- LIQUIDATED damages
- Common law EXPECTATION damages (generally applied)
- BUYER'S Article 2 expectation damages (cover, market, loss in value)
- SELLER'S Article 2 expectation damages (resale, market, lost profit for lost-volume sellers, contract price)
- INCIDENTAL damages
- CONSEQUENTIAL damages
BUYER'S ARTICLE 2 EXPECTATION DAMAGES. How do you calculate
3) Loss in value?
1) COVER = Cover price – K Price (if cover made in good faith) [usual measure]
2) MARKET = Market Price – K Price (if cover not in good faith, or no cover at all)
3) LOSS IN VALUE = Value as PROMISED – value AS DELIVERED
SELLER'S ARTICLE 2 EXPECTATION DAMAGES. How do you calculate
3) Lost profit?
4) Contract price?
1) RESALE = K price – Resale price (in good faith) [usual measure]
2) MARKET = K price – MARKET price (resale not in good faith, no resale at all)
3) LOST PROFIT = PROFIT lost from K breach where seller has an INVENTORY of goods (always on MBE)
4) CONTRACT PRICE = if seller can't resell the goods (no market exists)
What COSTS be recovered as INCIDENTAL DAMAGES?
- Arranging a substitute transaction
- Transport of goods
- Storage (care) of goods
When are CONSEQUENTIAL DAMAGES available?
Consequential damages are available when
- 1 ) THIS PARTICULAR damage
- 2) to THIS plaintiff was
- 3) REASONABLE FORESEEABLE to the breaching party
- 4) WHEN K WAS MADE
***Note, consequential damages are not available to a seller under Article 2
Can a party recover damages he could have avoided ("mitigated")?
NO—Not if the damages could have been avoided with REASONABLE EFFORT.
What is the rule on ENTRUSTMENT?
: An owner who entrusts goods to a MERCHANT
who deals in goods of the kind
has NO RIGHTS against a bona fide purchaser.
Only remedy is for owner to sue merchant for conversion.
Facts to watch for
- 1) Merchant who
- 2) Deals in goods
- 3) of the kind
- Thus, if any of those three are missing, the owner has rights against the third-party
When can a TPB enforce a contract?
an INTENDED beneficiary can enforce the contract once his/her RIGHTS HAVE VESTED
- 1) rights become vested when TPB knows about the K and relies on it OR when he/she benefits from it
- 2) only the INTENDED TPB has rights
- 3) once vested, need the intended TPB's consent to any modifications or rescissions of the K
THIRD PARTY BENEFICIARY: Liability: Who can sue whom?
- (1) Promisor is liable to intended TPB for breach, even though there is no privity of K.
- (2) Promisee (person who secures the promise) is liable to intended TPB for promisor's breach ONLY IF TPB was also a CREDITOR beneficiary (i.e., promisee's purpose was to satisfy debt to TPB) [rare]
- (3) Promisor is liable to promisee, just as in any other K.
DELEGATION OF DUTIES
1) What is the general rule?
2) What are the exceptions?
Can delegate without consent
of obligee (person to whom performance is owed)
- EXCEPTIONS (delegation w/o consent will be a breach of K)
- 1) contrary language in K, or
- 2) special skills or reputation
: If K prohibits assignment, then there is no delegation either!
ASSIGNMENT OF RIGHTS
- Need language of a PRESENT ASSIGNMENT (mere promise to assign in the future is not effective)
- Can't SUBSTANTIALLY increase obligor's duties
- Last-in-time GRATUITOUS assignment prevails**
- FIRST-in-time PAID-FOR assignment prevails against all others EXCEPT where subsequent assignee for consideration (i) does not know of prior assignment, and (ii) is first to get payment or a judgment against obligor.