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82 Cards in this Set

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Applicable law MBE
• MBE: 1) common law of contracts and 2) UCC article 2
○ UCC Article 2: applies to Sale of Goods. Goods= moveable, personal property. Applies regardless of price or whether merchant
§ Mixed goods and services: which element is more important. If goods are more important, UCC applies.
Common law: applies to all other contracts--for services, leases, loans, credit arrangements, and real property.
Applicable law NY
• NY Bar: 1) common law of contracts; 2) UCC article 2: 3) UCC article 2A
○ Article 2A of UCC applies to lease of goods, by any parties. Not for leases other than goods (i.e., real property).
○ Lease car from Avis: NY applies article 2A. MBE apply common law.
Contract versus quasi-contract
• Contract is a legally enforceable agreement
○ Express contract: created by parties' words, either oral or written
○ Implied contract: create by parties' conduct.
• Quasi-contract: equitable remedy protects against unjust enrichment when contract law yields an unfair result. Remedy of last resort.
○ Not limited by contract rule; governed by equity. Remedy: get back reasonable value of benefit conferred, not contract price.
Bilateral versus unilateral contract
• Bilateral contract: an offer that can be accepted by any reasonable way (promise, performance, etc.)
• Unilateral contract: offer that can be accepted only by performance (complete performance).
○ Offer says it can be accepted only by performing
○ Reward, contest or prize
Offer
Offer: manifestation of intention to be bound.
○ Advertisements: no generally offers, unless specifies quantity and who can accept.
§ If ad specifies quantity, it is an offer.
○ Indefiniteness:
§ Open price term: not a problem in most cases. Court will read in a reasonable price except in contract for sale of real property
§ Requirements contract: quantity specified by buyer's need. Ok under article 2 despite uncertain quantity.
□ Look out for increase in requirement. Buyer can't take seller by surprise--even if increase is in good faith, any increase in buyer's requirement must be in line with buyer's prior demand.
Termination of offer before acceptance
2. Termination of offer before acceptance: offer cannot be accepted if it is terminated
○ Lapse of time: offer lapses after specified date or reasonable period (if not stated).
○ Offeror's revocation: can be revoked anytime before acceptance
§ Direct revocation: offeror indicates directly to oferee that he has changes his mind (don't have to say "revoke.")
§ Indirect revocation: offeror engages in conduct that indicates he's changed his mind AND offeree is aware of conduct.
□ Trick question: Offer to Eva, sell to Teri, Eva can still accept offer because no evidence that Eva knew about sale.
§ Timing: revocation is effective only when it is received.
4 exceptions where offer cannot be revoked
□ Option: promise to keep offer open (any duration) that is paid for (consideration required).
® MBE: Merely promising to keep offer open is not enough.
® NY distinction: signed, written promise not to revoke is enforceable, even without payment.
□ Foreseeable reliance before acceptance: extremely rare because reliance before acceptance is generally not foreseeable. More than mere preparation.
® Rare case: Subcontract bid used for contractor bid--knows contractor is going to rely before accepting.
□ Starting to perform in a unilateral contract: start of performance, not mere preparation.
® NY distinction: must be complete performance and not part performance.
□ Firm offer under Article 2: signed, written promise by merchant to keep offer open. No payment need. 3 month limit for irrevocable; look first for option.
® Merchant is broadly defined by article 2: almost every business person.
® Article 2: Letterhead, initials, sign or symbol is enough for signed
Termination of offer before acceptance: Offeree's rejection
§ Counteroffer: operates as a rejection ending original offer. However, mere bargaining is not a rejection.
□ "will you take $X?": If offeree asks question regarding price, considered mere bargaining and not rejection.
§ Conditional "acceptance": operates as a rejection and terminates offer. "on condition that", "provided that," or "if" is just like saying no.
§ Acceptance varying offer: common law differs from Article 2 on battle of forms
□ Common law: acceptance must mirror offer or its rejection (mirror image rule), adding or changing an term, even trivial, operates as a rejection.
□ Article 2: acceptance need not mirror offer. Additional terms become part of contract, only if 1) both parties are merchants; 2) term is not a material change (likely to cause hardship or surprise offeror BUT NOT terms customary to industry); and 3) if offeror does not object within reasonable time.
® Tip: offeree's term often does not make it into contract--has accepted and added term.
termination of offer before acceptance: death
○ Death of either party before acceptance: offer is terminated if any party dies before acceptance, whether or not other party knows of death. Terminates only a revocable offer.
Acceptance--language of offer controls form of acceptance
○ Language of offer controls what constitutes acceptance ("only by"). Usually can be accepted by promising, performing or starting performance.
§ Bilateral: accepted by any reasonable way and once you accept implied obligation to finish job.
§ Unilateral: starting performance is not acceptance of offer, accepted only by complete performing.
□ MBE: once started performing, offer is irrevocable. Offeree can walk away because no acceptance, so no contract.
□ NY distinction: can revoke offer until performance is complete.
Improper performance as acceptance
○ Improper performance as acceptance:
§ Common law: simultaneous both acceptance and breach of contract
§ Accommodation exception under Article 2: simultaneous both acceptance and breach of contract, unless seller is sending good as an accommodation to buyer. (if seller tells buyer sending wrong goods to try and accommodate buyer's needs, then no acceptance and therefore no breach).
Silence generally not acceptance
○ Silence: general rule that silence is not acceptance. Offeror cannot single-handedly turn offeree's silence into acceptance.
§ NY distinction: if someone sends unsolicited merchandise in mail, considered to be gift.
Timing of acceptance
○ Timing of acceptance: Mailbox rule: acceptance is effective when mailed (designed to protect offeree from revocation once dropped acceptance into mail). Burden of loss on offeror once mailed.
§ Exceptions to mailbox rule:
□ If offer provides otherwise: offer specifies receive date, must be in hand on that date
□ Irrevocable offer (offeree does not need mailbox rule protection against revocation):
□ Offeror relies on overtaking rejection: acceptance is sent first but rejection arrives first.
□ Rejection sent first (offeree doesn't need protection of mailbox rule, he rejected offer). Whichever one gets there first is effective.
Defense to formation
lack of capacity
• Lack of capacity to contract: general rule incapacitated D may disaffirm (get out of) contract, with limited exceptions for minor in NY. Incapacitated P can enforce contract.
○ Categories: minor (under 18), intoxicated, mentally incompetent
○ Implied affirmation: incapacitated party retains benefit of contract without complaint after gaining or regaining capacity. P can enforce contract against formerly incapacitated D.
○ Necessaries: incapacitated party is liable for necessaries (food, shelter, clothing, or medical care), but only on a quasi-contract basis (reasonable value, not contract price).
Defense to formation
economic duress
• Economic duress: rarely successful defense against formation, only if 1) threat to break existing contract and 2) no reasonable alternative available.
Defense to formation
Misrepresentation and nondisclosure
• Misrepresentation or non-disclosure of material fact: material misrepresentation (even honest and innocent) can be fatal flaw.
Defense to formation
Ambiguity and misunderstanding
• Ambiguity/misunderstanding: depends on parties' awareness, saying same thing, but mean different things.
○ Neither party aware: no contract unless intended same meaning
○ Both parties aware: no contract unless intended same meaning
○ One party aware: binding contract based on what ignorant party reasonably believed meaning was.
Defense to formation
Mistake
○ Mutual mistake about material fact: renders contract unenforceable (critical aspect of contract--existence, artist, but not mistake as to value)
§ Market value: mistake as to market value (price) is not considered material
○ Unilateral mistake: one party makes mistake, usually not effective defense because it's so easy to invent mistake.
§ One party's mistake is not a fatal flaw unless the other party knew about it or had reason to know about it.
Defense to formation
Consideration and past consideration
○ Consideration: bargained for exchange of legal detriment/benefit (money or promise or action).
§ Promise: one party's promise can be consideration for another party's promise--usual case
§ Forbearance: not doing something in exchange for promise is consideration for promise.
○ "Past consideration"
§ MBE: past consideration is not consideration. Cannot bargain for something that's already been done.
§ NY distinction: past consideration is consideration if expressly stated in writing and can be proven.
○ Adequacy of consideration: irrelevant--if there is bargain, law does not care about equality of exchange.
Illusory promise
○ Illusory promise: looks like committing, but not committing to do anything at all. Not enforceable.
§ Requirement contract is not illusory because quantity is measure by buyer's needs. Buyer has given up right to purchase his or her need elsewhere.
Contract modification
§ Common law: pre-existing duty rule. New consideration required to modify a contract, performing pre-existing duty is not enough (because too much threat of fraud or duress).
□ NY distinction: no consideration needed if modification is in signed writing.
□ Pre-existing duty rule cannot be used as defense by third-party, only by original contract
§ Article 2: consideration is not required to modify contract, but must show GOOD FAITH. (example: later increase in purchase price)
Partial payment of debt
○ Partial payment of debt: depends on whether debt is in dispute
§ Due and undisputed: partial payment of debt that is due and undisputed is not consideration for other party's promise to forgive debt.
§ Promise in writing:
□ MBE: promise is not enforceable because there is no consideration.
□ NY distinction: promise is enforceable if promise to forgive is in signed writing.
§ Due and debt in dispute: payment is consideration for promise to release and promise is enforceable. Law favors settlement of disputed claims.
Promise to pay debt barred by statute of limitations
○ Promise to pay debt barred by statute of limitations: written promise to pay debt, collection of which is barred by statute of limitations, is enforceable even without consideration (both MBE and NY: signed writing is substitute for consideration here).
Promissory estoppel
○ Promissory estoppel as substitute for consideration: foreseeable reliance may make promise enforceable even without consideration.
§ Tip: look first for consideration. Then look for foreseeable and detrimental reliance on promise as consideration substitute.
Public policy
§ Covenants not to compete: court will invalidate or narrow covenant not to compete that operates as restraint of trade.
□ Scope of covenant: too broad in terms of duration and geography
□ Need for covenant: consider uniqueness of services.
§ Exculpatory clause: exculpatory clause can eliminate liability for negligence but not for gross negligence or intentional torts.
Unconscionability
○ Unconscionability: contract or term should be eliminated because it shocks conscience of court. generally not valid defense.
§ Substantive: terms of contract are unfair
§ Procedural: process by which parties reached agreement in unfair. Small print, imbalance in bargaining power, etc.
Statute of frauds
Real property
• Transfer of interest in real property--
○ Sale: sale of land must be in writing.
○ Lease: for more than 1 year must be in writing
○ Easement: for more than 1 year must be in writing
○ Agent's authority: authorization concerning real property must be in writing under equal dignities rule.
Real property exception to statute of frauds
• Real property:
○ leases of one year or less (legislative exception to ensure that short-term leases are not invalidate by statute of frauds)
○ "part performance"--requires two of three facts: 1) buyer is possession of real property; 2) buyer made some payment; 3) buyer made improvements to property.
§ Even full payment is not enough alone for "part performance".
Statute of frauds for Contract incapable of being fully performed within 1 year.
○ Does not matter if performance actually takes more than a year. If full performance within 1 year was theoretically possible, no writing is required.
○ Specific tasks: no statute of frauds problem because in theory any task can be performed within one year. No writing can possibly be performed within one regard (regardless of whether it actually take more than a year to complete.
○ Lifetime contract:
§ MBE: lifetime contracts not under Statute of Frauds
§ NY distinction: lifetime contracts do fall under NY statute of fraud.
○ Specified time period greater than 1 year falls within statute of frauds:
○ Specified time period one year, starting next Monday: clock starts to run when agreement made, not when performed, so falls within statute of frauds.
Exception to contract fully performed within 1 year
• One year prong: full performance exception to writing requirement when full performance is done (orally agreement for 2 years is completed).
○ Part performance does not satisfy SOF. However, can still recover in quasi-contract for reasonable value of part performed services.
Statute of frauds
sale of goods for $500
• Sale of goods for $500 or more (UCC Article 2): exactly $500 falls within SOF.
exception for sale of goods for $500
○ Goods accepted or paid for by buyer: applies only to good accepted or paid for, not whole contract.
§ Deposit/downpayment take entire contract out of statute of frauds.
○ Custom made goods: if seller has made substantial start and not suitable for sale in ordinary course of seller's business
○ Judicial admission (e.g., in deposition in testimony)
○ Merchant's confirmatory memo: one party can us its own signed writing to satisfy SOF against other party if:
1. Both parties are merchants
2. Writing claims prior oral agreement
3. Writing is signed and has quantity, and,
4. No written objection within 10 days.
Statute of frauds leases
• NY UCC Article 2A: Lease of Goods for $1000 or more (total amount of lease payments)
Statute of frauds: surety
• Surety: promise to answer for debt of another
○ Writing required for a guarantor's agreement to pay if debtor does not pay.
○ Not suretyship if third party is only one who has obligation to pay. BIZARRE.
Exception:
○ MBE: Suretyship main purpose exception: if main purpose is to benefit guarantor then no need of writing.
○ NY distinction: exception does not apply.
Statute of frauds for contract modification
• Contract modification: must be in writing only if contract as modified (not original contract) is within statute of frauds.
○ Article 2: Original contract prohibited oral modification: would need to be in writing, not because of Article 2, but because parties agreed. Article 2 permits parties to create own statute of frauds.
○ Common law: clauses that prohibit oral modification are not enforceable, so can always modify contract orally even if agreed not to.
Miscellaneous NY statute of frauds
• Miscellaneous NY provisions--need a writing for: 1) assignment of insurance policy; 2) promise to pay discharged debt; 3) agreement to pay finder's fee or broker's commission, except to attorney, auctioneer or real estate agent.
Satisfying statute of frauds with a writing--depends on nature of contract
• Sale of goods (article 2): writing must contain quantity term and must be signed by D. No price is required.
• Lease of goods (Article 2A): writing must state it is a lease, include quantity, duration, and rental payments and be signed by D.
• Any other contract (common law): writing must contain all material terms (who/what) and be signed by D.
○ If only one party signs writing, Statute of Frauds can be one way street. Writing does not satisfy SOF against a party that does not sign (i.e., party who does not sign can claim writing is insufficient, can claim statute of frauds defense).
Parol evidence rule
Parol evidence rule: keeps out evidence of prior or contemporaneous agreement (either oral or written) that contradicts a later writing. Policy: give primacy to later writing, more reliable than anything that came before.
○ Subsequent developments: Parol evidence rule has nothing to do with what happens after agreement is reduced to writing. Governed by rules of modification.
Exceptions to parol evidence rule
§ To correct clerical error (typo, transposing numbers)
§ To establish defense against formation (not trying to change contract, trying to get out of contract). Flaw in agreement process is admissible.
§ To interpret vague or ambiguous term
□ Courts give terms their plain meaning.
§ To supplement a partially integrated writing: final statement of terms included, but not a complete statement of all terms that parties agreed to. Can supplement terms in writing with evidence of consistent additional terms. Can add to writing where contract is not complete on its face.
□ Merger clause: contract is limited to terms herein = evidence that writing is complete on its face and cannot be supplemented.
□ Under Article 2, only a merge clause will keep out parol evidence. Cannot contradict and cannot supplement.
Conduct of parties
• Conduct of parties
○ Course of performance: how parties have acted under this contract. Best evidence
○ Course of dealing: how parties acted under previous contracts together. Less good evidence because further removed.
○ Usage of trade: what others in the trade do under similar contracts. Least good evidence because furthest removed.
Express warranty
○ Express warranty: statement of fact, promise, or use of sample or model. Mere expressions of opinions are not warranties--vague statements "top quality". Must be basis of bargain--enough that buyer could have relied.
§ Model: seller's use of sample or model is express, not implied warranty, that buyer gets will be exactly like model
Implied warranty of merchantability
§ Implied warranty of merchantability: goods are fit for their ordinary purpose
□ Triggering fact: seller must be not just merchant, but merchant who deals in good of the kind (had special knowledge about particular goods in contract).
□ If merchant does not ordinarily deal in goods sold, no implied warranty attaches.
Implied warranty of fitness for a particular purpose
§ Implied warranty of fitness for particular purpose: goods are fit for buyer's special purpose): 1) buyer has special purpose, 2) buyer is relying on seller to select suitable goods, and 3) seller knows buyer has special purchase and buyer is relying on him
Seller does not have to be a merchant.
• Seller's warranties of quality in lease of goods (Article 2A--NY only):
• Seller's warranties of quality in lease of goods (Article 2A--NY only): same warranties as under Article 2
○ Exception: finance lease: no implied warranty of merchantability made by bank who is party to lease, only an implied warranty made by underlying company. (Ex. Bill Gates leases a computer from Citibank, which bought the computer from Gateway Computer Co.).
• Limitations on warranty liability in Sale and leases of Goods (Article 2 and Article 2A)
○ Disclaimers of warranties (clause that eliminates warranties): seller can disclaim implied, but not express, warranties.
§ Disclaim implied by including "as is" or "with all faults"--must use these phrases OR make disclaimer conspicuous (large print; bold print) and must actually use word "merchantability" if wants to disclaim merchantability.
○ Limit on buyer's remedies: can limit buyer's remedies for express and implied warranties as long as not unconscionable "shock conscience" at time of contract.
§ Exception: personable injury-- presumed to be unconscionable to limit recovery for personal injury in transaction involving consumer goods.
Failure of limited remedy: if limited remedy fails of its essential purpose, remedy provisions of article 2 apply.
Risk of loss
• Risk of loss in sales of goods (article 2): when goods are damages before buyer gets goods and neither buyer nor seller is to blame who bears risk of loss.
○ If seller bears risk of loss: seller must provide new goods to buyer for no additional cost.
○ If buyer bears risk: buyer must still pay contract price.
○ Hierarchy determines who bears risk of loss:
§ Agreement controls
§ Breach: breaching party bears risk of loss even if loss is unrelated to breach. (ship late, electrical problem--breacher still liable)
Risk of loss for delivery by common carrier
§ Delivery by common carrier: risk shifts to buyer when seller completes delivery obligations.
□ Shipment contract: seller must get goods to common carrier, make delivery arrangements, and notify buyer.
□ Destination contract: seller must get good to a specific destination (usually where buyer is located).
□ Tip: shipment contract where buyer bears ROL long before it actually gets goods.
□ FOB: free on board and is followed by name of city or place (seller's factory). ROL passes to buyer at named location.
® If city or place is where seller is located, contract is shipment contract.
® If city of place is anywhere else, then contract is destination contract.
Risk of loss non-common carrier delivery
§ Non-carrier cases (e.eg. Buyer pick up or seller to deliver): depends on whether seller is merchant.
□ If seller is merchant: seller bears ROL until buyer takes physical possession
□ If seller is non-merchant: seller bears risk of loss until seller tenders goods (i.e., makes good available to Buyer, where they are and how to pick them up).
• Risk of loss is leases of goods under Article 2A:
• Risk of loss is leases of goods under Article 2A: lessor bears risk of loss, even though goods are in possession of lessee.
○ Exception: finance leases: lessee bears ROL in finance lease.
Performance of contracts for Sale of Goods under Article 2
Performance of contracts for Sale of Goods under Article 2
• Perfect tender rule: if tender is not perfect, buyer may reject the goods.
○ Option to cure: seller who fails to make perfect tender may have option to cure. Depends on whether time for seller's performance has expired.
§ Exception: If seller has reason to believe wrong goods would be acceptable to buyer (from prior dealings), and delivery is made after time for performance has expired, seller can cure within reasonable time.
Installment sales
• Installment sales contract: requires or authorizes delivery of goods in separate installments. Conduct of seller does not matter, must be authorized by buyer.
○ Buyer may reject only for substantial impairment: perfect tender rule does no apply to installment contract, so it's harder for buyer to reject. Policy: assumes seller will cure in next installment.
Buyer's acceptance of goods
• Buyer's acceptance of goods (not acceptance of offer--assume contract formed):
○ Implied acceptance: when buyer keeps goods without objection after having opportunity to inspect. Merely paying for goods is not acceptance because buyer must have chance to inspect.
○ Consequence of acceptance:
§ Timing: once buyer accepts, too later for buyer to reject
§ Damages: but buyer who accepts can still get damages for non-conforming goods.
Buyer's rejection/revocation of acceptance
○ Buyer's revocation of acceptance of goods: buyer cannot revoke acceptance of goods
§ Exceptions: substantial impairment and difficult to discover (i.e., latent defect). T
○ Consequences of rejection/revocation of acceptance
§ Return: buyer can return goods to seller at seller's expense
§ Refund: buyer can get back any money buyer paid for goods
§ Damages: buyer can get damages from seller for breach of contract.
○ Buyer's payment obligation under article 2:
§ Check: payment by check is fine, but seller doesn't have to take it.
Refusal: if seller refuses to take a check, buyer has reasonable time within which to get cash
Performance of contract under common law
• Performance of contract under common law: performance does not have to be perfect. Substantial performance is all that is required (i.e., no material breach).
○ Breaching party can seek reasonable value of work done under quasi-contract.
○ Finishing job late is not a material breach unless contract or circumstances indicate time is of the essence.
• Other party's breach: other party's breach may provide excuse for nonperformance. Whether it does depends on nature of contract
○ Sale of goods under article 2: if seller's performance eis not perfect in every respect (perfect tender), buyer has pretty much free reign
§ Accept all, Reject all, accept some.
○ Common law: any breach provides for cause of action for damages, but may still have to pay contract price because substantially performed. Only material breach provides excuse and don't have to pay contract price, but may have to pay in quasi-contract for benefit conferred.
§ Divisible contracts: where payment is to be made on per unit basis, beaching party can recover contract price for any unit on which is has substantially performed. ($9K per cabana, not $90K for 10).
Anticipatory repudiation
• Anticipatory repudiation (before time performance is due): non-repudiating party can rely on anticipatory repudiation of repudiating party, operates like a material breach.
○ Retraction: can retract anticipatory repudiation, so long as non-repudiating party has not relied.
○ Conduct that indicates one party will not adhere to contract operates as a repudiation.
Adequate assurance
• Failure to give adequate assurance (article 2): party with reasonable grounds for being insecure about other party's performance may request in writing adequate assurance that other party will perform in accordance with contract.
○ If seller refuses, buyer can treat as anticipatory repudiation.
○ Cannot use provision to rewrite contract or demand particular type of assurance.
Rescission
○ Rescission: agreement to cancel contract. Excuse from performing by rescission. BUT for rescission to be effective, each party must have some performance remaining, otherwise no consideration.
Modification
and
accord and satisfaction
○ Modification: agreement to replace existing contract with new one. Takes effect immediately.
§ Discharge debt now if promise to . . .
○ Accord and satisfaction: accord is an agreement to accept performance in future satisfaction of existing duty. Satisfaction is performance of accord. Existing duty is extinguished only when accord is satisfied.
§ If promise, then will discharge debt.
§ Distinguish modification and accord: right now (modification) or then (accord and satisfaction)
Novation
○ Novation (substitution of party): where one party to contract is excused from contract obligations and another party is substituted---only where remaining party to original contract agrees to substitution.
§ Where remaining party does not agree, it is mere delegation of duty and original party is still liable.
Impossibility: destruction of thing necessary for performance
○ Destruction of thing necessary for performance
§ Common law: destruction provides excuse for nonperformance
§ Article 2:
□ Unidentified goods: seller is excused only if damaged/destroyed good have been identified to the contract.
□ Risk of loss: seller who bore ROL when goods were damaged or destroyed is excused by impracticability but buyer is not
Impossibility con't
○ Death or incapacity of person essential for performance: death provides an excuse for non-performance only where person who died has special skills. If person did not have special skills, no excuse. Estate is not excused from performance.
○ Supervening governmental regulation: if performance of contract will be illegal based on government regulation or order occurring after contract, governmental order excuses performance.
○ Increase in cost of seller's performance:
§ MBE, an increase is sellers costs almost never excuses seller. Sells assumes risk of price increase by entering into fixed price contract.
§ NY: absolute amount of increase and percentage amount of increase--both relevant to NY court.
Frustration of purpose
• Frustration of purpose (generally buyer's remedy): at time of contract both parties understood what buyer's purpose was and later, an unforeseen event frustrates purpose (must be impossible to complete that purpose).
Excuse based on failure of express condition
Excuse based on failure of express condition: limits obligations created by other contract language, does not create independent obligation. Look for words like "if", "as long as", "when", "provided that", "on condition that" and "unless".
○ Strict compliance required: if violated, non-breaching party is excused from performance.
○ Satisfaction clauses: satisfaction is measured by reasonable person standard unless contract deals with art or matters of personal taste.
○ Types of Express Conditions: precedent/concurrent/subsequent
§ Condition precedent: must be fulfilled before obligation matures (most likely to be tested)
§ Condition concurrent: condition must run along side the obligation.
Condition subsequent: performance comes first and then occurrence of condition cuts it off
Excusing occurrence of condition
○ Excusing occurrence of condition: occurrence of condition may be excused by later action or inaction of person who is protected by condition (every condition protects someone).
§ Failure to cooperate: contracts to get house, provided that gets mortgage at 5%, but makes no effort to get mortgage--was protected by condition, but gave up protect by failure to cooperate.
§ Waiver : voluntarily giving up protection, can't suddenly claim it, but can retract waiver as long as there was no reliance on waiver.
Specific performance
• Specific performance: equitable remedy available only if monetary damages are inadequate to compensate injured party. Availability depends on nature of contract
○ Real property: specific performance is usual remedy because real property is considered unique (even if it's not really unique).
○ Sale of goods (article 2): specific performance is available only if goods are unique or other proper circumstances (when buyer unable to buy substitute goods in market):
§ 1) works of art; 2) antiques; 3) custom made goods are considered unique.
○ Service contracts: specific performance is not available at all, but injunctive relief may be available to enjoin working for competitor.
Unpaid seller right to reclaim goods
• Unpaid seller's right to reclaim goods (article 2): not generally available under Article 2.
○ Exception: if buyer was insolvent when it received goods and seller makes demand within 10 days after buyer received them. Not right to reclaim goods from third party.
○ Exception: seller can reclaim goods at any time if buyer misrepresented its solvency to seller in writing within 3 months before delivery.
punitive damages
Punitive damages: not awarded for breach of contract because purpose of contract damages is to compensate, not punish. Tip: no good guys or bad guys.
Liquidated damages
• Liquidated damages: upheld if damages were difficult to estimate and are a reasonable forecast of probably damages, but cannot operate as a penalty.
○ Permissible: figure is flexible, damages are graduated--increase with length of delay: $100/day.
○ NY distinction: in real estate contract seller is generally entitled to keep down payment if buyer breaches, regardless of amount.
○ Impermissible: fixed figure/lump sum is probably not valid unless it is rather small.
○ If damages were unreasonable forecast, but turn out to be reasonable in light of actual damages, then struck down under common law, but enforceable under Article 2.
○ If struck down, will still be entitled to actual damages.
Expectation damages common law
• Expectation damages: put injured party in as good a position as full performance. Expectation damages are general rule.
○ Common law: includes expenses and expected profit to get to where expected to be after full performance
Expectation damages: article 2, buyer damages
§ Buyer damages
□ Cover damages: cover price minus contract price, as long as buyer covers in good faith (can be more than market value).
□ Market damages: market price minus contract price if 1) buyer doesn't cover in good faith or 2) doesn't cover at all (not required to mitigate)
□ Loss in value: value as promised minus value delivered if buyer keeps non-conforming goods.
Favorable bargain: buyer entitled to benefit of favorable bargain.
Expectation damages: article 2, seller damages
§ Seller damages
□ Resale damages: contract price minus resale price, if seller resells in good faith.
□ Market damages: contract price minus market price, if seller resells not in good faith or no resale.
□ ***Lost profit: lost volume sellers (dealers in good that are not one of a kind)can get lost profit from buyer's breach of contract. If breach deals with good sold out of regular inventory, seller can get expectation damages (lost profit, not entire contract price).
□ Whole contract price: when seller cannot resell goods. Extremely rare.
Incidental and consequential damages
○ Incidental damages: cost to injured buyer or seller of transporting/caring for good after a breach and of arranging substitute transaction.
○ Consequential damages: damages special to this P that were reasonably foreseeable to breaching party at time of contract.
NOT available to seller under Article 2
Avoidable damages
○ Avoidable damages: injured party cannot recover damages he could have avoided or mitigated with reasonable effort.
§ Rule of mitigation does not apply in Article 2.
§ Employment contract: comparable employment is same kind of work in same city. Do not actually have to take job, but cannot recover damages she could have reduced by reasonable cover. § Burden: rule of mitigation is defense (not something P has to prove)
Entrustment
• Entrustment (article 2): owner who entrusts goods to merchant who deals in goods of the kind (dealer) has no rights against bona fide purchaser.
○ Only remedy is to sue merchant for conversion.
○ Tip: fact pattern is always owner takes car/watch/jewelry to be repaired by merchant who also sells that particular good.
Third party beneficiaries
○ Third party beneficiary: person who is not party to contract, but has rights because contract was intended to benefit him
§ Intended/incidental beneficiary: if third party beneficiary is named in contact, then intended beneficiary. Only intended beneficiary has legal rights.
§ Donee beneficiary: if promisee purpose was to confer gift on Third party beneficiary. If promisee's purpose was to pay off debt to third party beneficiary, then third party beneficiary is creditor beneficiary (rare).
recission or modification with third party beneficiary
○ Recission or modification: promisor and promisee can rescind or modify contract until rights of third party beneficiary have vested
§ Rights vest when: know about contract AND relied on contract. After vesting, cannot rescind or modify without getting third party beneficiary's consent.
§ Exception: contract language controls (so if contract allows fro modification then can modify without consent).
liability for third party beneficiary contract
○ Liability:
§ Promisor liable to intended third-party beneficiary--even though no privity.
§ Promisee liable to creditor beneficiary.
§ Promisor liable to promisee: just like any other contract. Can even recover damages if the TPB was a donee (but in that case damages are unlikely to be high as the performance was gratuitous).
Delegation of duties
• Delegation of duties: contractual duties may be delegated without consent of person to whom performance is owed ("obligee").
○ Exceptions:
§ Contract language controls: if it prohibits delegation, then cannot delegate.
□ Contract prohibits assignment: no delegation either (big on MBE!!)
§ Special skill or reputation: cannot delegate where contract involves special skill or party with special reputation.
○ Rights of obligee: Delegating party remains liable; Delegatee who gets consideration is liable
Assignment of rights
• Assignment of rights: 2 people make contract; later, one (assignor) transfers his rights to third party (assignee). Party who owes duty is obligor.
○ Assignment of rights is transfer only rights (more typical); assignment of an entire contract transfers both rights and obligations
○ Assignment is two step process: two parties enter into contract and then later on assignor assigns to assignee later on. With Third party beneficiary: all 3 parties are present from beginning.
○ Requirements:
§ Must have language of present transfer: promise to assign is invalid
§ Consideration is not required. Gift assignments are valid, but easily revoked.
○ Assignee steps into shoes of assignor: Obligor is liable to assignee, but if assignor could not collect (because committed material breach) then assignee cannot collect.
§ Must give notice to obligor.
Restrictions on assignments
§ Contract language controls: distinguish clause that prohibits assignment from one that completely invalidates assignment.
□ Language that prohibits assignment does not invalidate assignment. May be breach of contract for assigning, but assignment itself will still be valid. ("rights are not assignable")
□ Language invalidating assignment makes assignment void. (ex: "all assignments are void")
§ Cannot substantially change duties of obligor
□ Substantial changes: assignment of services to someone else.
□ Not substantial changes: mere payment to another in same place
□ Requirements contract: assignable as long as assignee's requirements are not out of line with assignor's
Multiple assignments
○ Multiple assignments: assigned to more than one party--who has preference?
§ Gratuitous assignments: last gratuitous assignee in time wins because later giver assignment revokes earlier on.
□ NY distinction: Gift assignment is irrevocable if in signed writing.
§ Assignments for consideration are more durable: first assignee for consideration prevails (over later gratuitous or those with consideration, amount of consideration not relevant).
□ Exception: later assignee for consideration prevails if 1) he does not know of earlier assignments AND 2) is first to get payment from or a judgment against obligor.
® Notifying obligor is not sufficient, must also get first payment or judgment against obligor.