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Contracts Law BarBri Outline

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					Contracts Law BarBri Outline


7 major contracts questions
      Is there a deal? Was a deal or agreement made?
      If there is a deal, how do courts enforce deals?
      Assuming there is a deal, is there any reason for the court not to enforce that deal?
      What is the deal exactly? What was agreed to?(ea. side has their own version of
      the deal)
      Once we know what deal is, did anyone not do what he agreed to do?
      If someone didn’t do what he agreed to do, did he have an excuse?
      Does anyone other than the two guys who made the deal, have legal rights b/c of
      the deal?

Definitions

1. Contract–legally enforceable agreement
2. express contract–verbal—based solely on words
3. implied contract–based at least in part on conduct, parties acting as though they have
a deal
        *Unilateral contracts are usually (1) rewards or contests (such as $500 for finding
         my lost dog Fluffy) or (2) offer expressly requires performance
 4. Quasi contract–equitable remedy (tells you that it is not contract law and rules of
contract law have no application at all)
        *Since it is equitable remedy, and equity is about doing what is fair
        *If it seems unfair to apply contract law on a question, add a paragraph discussing
         quasi Contract
5. Unilateral contract –contract results from offer that requires performance to accept
6. Bilateral contract –contract results from an offer that is open as to how it can be
accepted
        *Offeror doesn’t require specific way to be accepted
        *It is bilateral world
7. executory–means that it has not yet been performed


What is contract law?

*case law—what courts say the law is
*Restatement of Contracts: secondary source (treatise)—the view of bunch of smart
people about what law is or should be
*Courts are not obligated to follow this—it is not binding on courts
*Restates what common law rules are
*Article 2 of UCC: some contracts are governed by this—2 basic questions
       *When do I do article 2?
              *It will never say use article 2


Must be
sale of goods
 to use this article (never services)
2



Goods=something that is moveable personal property (ex. can of coke)


Fact pattern: mixed deal
—
lots of deals are like this


When pay for paint and labor of painter


How do you deal with this? 2 part test
o

All or nothing
—
apply it to whole deal or not at all
o

What is more important part of deal?


Is it a sale of goods or putting paint on wall more important? Painter
—
so use common law for whole deal
o

Relationship of article 2 and common law contract


There are 3 pieces to relationship only concerned about one piece
They overlap


Common law deals with a lot of stuff article 2 doesn’t deal with
 How do you determine whether it is a unilateral or bilateral agreement?


You look to the nature of the offer


If it requires a performance for acceptance, then it is a unilateral agreement


If it is open as to how it can be accepted then it is a bilateral agreement.
 QUESTION 1: Is there a deal?
Issues to consider in formation questions:


Was there ever even a deal proposed? Did we even have an offer?


Did the proposal die out? Was the offer terminated?


Was the deal for the offer accepted?
Applicable Law
Looking to the applicable law is always the first step in answering a question. What law
you look to depends on the subject matter of the contract. If the contract concerns the
sale of goods the contract is subject to article 2 of the UCC. For anything other than the
sale of goods, the contract is subject to common law. Which law governs contract
depends on subject matter of contract 1.

U.C.C. Article 2
–
 Sale of Goods 2.

Common Law
–
 anything other than the sale of goods (land, services, etc)
Formation of Contracts
First find the agreement then look to whether it is legally enforceable.
OFFER AND ACCEPTANCE

Offer
—
commitment
—
has it been terminated
—
words to offeree
—
indirect rejection
—
who accepted and how did they accept it
3

Offer

–
 need manifestation of a commitment through words or conduct. Exam key: they will
give information about what offeror intended but this is a red herring b/c not looking at
intentions but manifestations.


Commitment can be manifested through an individual’s words and actions indicatin
g a willingness to be bound


always include phrase ―manifestation of mutual assent‖ on questions about formation.



Offeror: person who makes offer


Offeree: person to whom offer is made


offeror revokes offer


offeree rejects offer Things to watch for


Look for
content
 to see if is an offer
o

Terms ―for immediate acceptance‖
- language suggest commitment
o

Fact pattern will give you what communication says


Look for missing terms
—
see if communication seems incomplete


There is no longer requirement that communication contain all of the material terms
—
there can be gaps and still be manifestation of commitment


Look for missing price problem
—
will see this in context of communication relating to proposed sale


Under common law price term and description of real estate are essential or there is no
manifestation of commitment


Article 2
—
communication
can
 be an offer even though there is a missing price term
o

Also look for an ambiguous term ―fair‖ ―reasonable‖ ―appropriate‖
- indicate no commitment


Missing v. ambiguous rule


Missing terms: person was willing to make commitment and leave it to court to fill in-
Person wasn’t insisting on that term



Ambiguous- courts will conclude it was not a commitment and no deal 1.
Advertisements

–
 Advertisements are not offers
—
they are invitations to the shopper to
make an offer. A store sign that says ―Shirts $10‖ is not an advertisement. The sign
invites
the shopper to take the shirt to the counter, offer $10, an offer that is accepted by the
cashier ringing up the sale. Gives the store the right to refuse to sell to a customer.


exceptions focus on whether ad is specific about how many ads are available and about
who can accept the ad 2.

Missing Price Term

–
 Whether a contract that is missing a price term is an offer depends on whether the UCC
or common law governs the interchange Common law
–
 not offer, must include the material term UCC
–
 can be offer if the parties intended it to be so
4

3.

Ambiguous Material Terms

–
 In this case the term is there, but it is ambiguous, or vague. Neither the UCC nor CL
considers this an offer. The material terms cannot be vague and still be considered an
offer.
 Ambiguity
  Contracts must be sufficiently clear to be legally enforceable. Raffles v. Wifflehaus is the
prime example of ambiguous terms. The contract is for cotton to be shipped on the boat
Peerless. The problem was that there were 2 sailings of the ship Peerless. Each of the
parties had different sailings in mind, and the court could not establish an agreement for
the parties. It was fatal ambiguity. 1.

ambiguous term in contract 2.

each party must have different meaning in mind 3.
neither party knows or has reason to know of meaning attached by the other If B knew
that there were 2 sailings, it takes the case out of the Raffles realm. The situation is then
legally enforceable under the terms as understood by the other party. 4.

Requirements Contracts
–
  Here the measure of the quantity of goods to be purchased by
the buyer is determined by the buyer’s needs. For example, you make a deal with a
local
supplier say
ing that I’ll buy all of my wine from you—
exclusivity agreement. In this case the quantity is not vague or ambiguous and the offer
is therefore
valid
.


If you increase your requirements under this type of agreement, it cannot be
unreasonably disproportionate. If you buy 10 bottles for the first 10 months, you
can’t increase your demand to 100 bottles for the last two. That is considered to be
unreasonably disproportionate you have to match what he asked for previously to what
he asked for today.
o

Is there a ceiling? YES, unreasonably disproportionate
o

Increase must be proportionate to other demands


Context
—
what is the setting?
o

Watch for the bargaining history
—
history of negotiations- that adds to argument that it is a manifestation of commitment
o

Watch for advertisements- generally ads are not offers but invitations to make an offer.
Once the offer is found, check to see if it has been terminated
 Termination
–
once an offer is terminated, it’s gone forever.

METHODS OF TERMINATION
1.

Lapse of Time

–
 the offer is open only so long as is specified by its terms, if not time is not included the
offer is open for a reasonable period of time
5



Look at when offer was made


How long a gap was there before offer was responded to? 2.

Death of either party
–
 offer is terminated if not completed before either party dies


Offer dies with person a gap was there before offer was responded to 3.

Revocation of offer
1)

Offeror puts offer on table and changes his mind and takes it back 2)

How
 does contract terminate?
–
 if the offeror later changes her mind and decides not to enter into deal, whether the
offer can be revoked depends on the offeree. The offer must be revoked before the
offeree accepts it. The offeree must also be aware of the revocation. Sharon Stone in
the shower example.


Looking for words or conduct of offeror that was communicated to the offeree


Revocation is two player game
Essential offeree be aware of it 3)

When

does a revocation become effective? It’s all about the timing
 i.

must complete revocation before acceptance occurs ii.

if
revocation is sent through the mail, it’s not effective until it’s received
 4)

When
it is impossible to revoke? Some offers cannot be revoked, and offeror is held to the
offer i.

Option

contract
–
 If I offer to sell my caddy to you for $400 and you pay me $25 to hold the deal open, I
cannot revoke that offer. If there is consideration paid for a promise to keep an option
open it cannot be revoked. ii.

Offer reasonably and foreseeably relied upon

–
 offer cannot be taken back. If X
uses Y’s bid to bid on a contract and wins that contract, X has relied on Y’s bid and
can be held to the offer.


Bid=offer


Drennan Star Paving
—
it is irrevocable b/c reliance


Jaimes Baird
—
reliance does not make offer irrevocable iii.

Part performance of an offer to enter into unilateral contract

–
 unilateral contracts require performance for acceptance of a contract. Once a
unilaterally contracted party begins starts performance, the offeror can no longer revoke
the offer. However if all the party has done is buy paint in preparation to perform,
there has been no partial performance and the offeror can revoke the offer. Use quasi-
contract law to recover for money spent on reliance of the contract.


Start of performance pursuant to offer to enter into unilateral contract


Fact pattern: this offer can only be accepted by performance=unilateral


Will never get direct rejection as a question iv.

Firm offer rule
–

special UCC rule only applicable if it’s for the sale of goods. If a
merchant puts promise to keep offer open in a signed writing, then the promise cannot
be revoked. This is only applicable in the sale of goods. There is no consideration
required because we assume that a business woman knows what she puts into writing
and its implications.
6



Sale of goods and writing signed by a merchant that not only promises to buy or sell, this
writing must expressly promise that offer will not be revoked
—
MUST HAVE ALL OF THESE EXACTLY


3 month ceiling to it
—
only impt. when writing says it will keep it open for 6 months
o

even if writing says it is irrevocable for 1 year, still only open for 3 months 4.
Rejection
–
 if the offeree turns offer down, the offer is terminated.


There are three forms of indirect rejections:
1)

Counteroffer

–

offer is killed. Offer for $400 with the reply ―I’ll only give you $200.‖
This is a rejection and takes the offer completely off of the table. There is a fuzzy fact
line between a counter offer and bargaining. A bargain would consist of the following
reply to the $400 offer ―Will you take $200?‖ By asking you are clearly bargaining an
d the offer is still there. It shows that you understand the difference between
counteroffers and bargaining. 2)

Conditional acceptance

–

―I accept, if ...‖ is a rejection.



No mutual assent


This is changing the deal so you are killing the deal


Exception
—
implied contracts


Fact pattern where words don’t connect up
 3)

I accept, and...
–
 whether an offer is accepted with the addition of additional terms depends on whether
you are dealing with the UCC or CL
Additional terms rule
—
common law rule only


I accept and is a rejection


Something new is added


I accept if/provided…no express contract common law or UCC



Different from I accept and…not insisting on this term but throwing it out as
proposal
o

In common law, still no express contract
o

Acceptance can’t add anything to of
fer
—
mirror image rule i.

CL
–
 Mirror image rule requires that the acceptance look just like the offer ii.

UCC §2-207

–
 The Battle of the Forms allows additional terms so long as they are merely added and
not insisted upon. To insist makes it a conditional acceptance, which is actually a
rejection.


Most often UCC code tested


Sale of goods where communications don’t match up
iii.

Hypo
–
 if offer falls under UCC §2-207 and the acceptance attaches additional terms. There is
an offer and an acceptance, but which one governs the deal? The offer says X and the
acceptance says X+Y. Which one is binding? That determination depends on whether
both people are business people, whether new
7

terms materially alter the deal, whether the new terms were objected. If the new terms
were objected to and they did create a material difference, there is still an acceptance
and the terms that govern the deal are those in the original offer.

Did other guy agree to deal? 3
rd
 part to question 1 Look at fact pattern and it will go in terms of two possible issues of
acceptance


Look at who is accepting


How they are accepting
Acceptance

–

once the offer has been made and there’s no problem with rejection, you must
then look to the acceptance. 4 Fact patterns regarding acceptance to watch for


Mailbox rule
—
where parties are contracting from distance
o

Adams v. Lindsell


What has happened is the offer is made, and then in response to offer, person to whom
offer was made, starts performance
o
Start of performance is acceptance is viewed as implied promise to perform so it is
enough to make deal
o

Gives us manifestation of mutual assent


Where offer requires performance to accept
—
this does not create a bilateral contract


Notice of acceptance
—
2 rules to apply
o

Acceptance by promise has to be communicated to offeror
o

Acceptance by performance
—
whether facts are such that the person would reasonably know you have performed


Must give notice when other party wouldn’t know that you have started
performing


Sale of goods question
—
where facts are that buyer offers to buy goods and seller sends the wrong stuff
—
2 consequences
o

That creates a deal
—
sending wrong stuff is acceptance
o

Can now sue for breach
o

Accommodation exception
—
sends wrong stuff with explanation


Doesn’t create contract, simply a counteroffer
 1.

Who accepted the offer 1)

Must be person to whom offer is made. The offer is person specific. 2)

Offers are not assignable 3)

Need manifestation of personal assent
—
only assented to sell to specific person 4)

In rewards and contests, the offeree must know of the offer at the time he accepts. He
must know of the award when he catches the dog
8

2.

How acceptance occurs
—
offeror can control how acceptance happens 1)

Return promise
–
 most offers can be accepted by merely a promise 2)

Start of performance only
–
 if you start performance, have you accepted the offer? You have to look at the nature
of the offer. If the offer is a unilateral one accepted only by performance, partial
performance does not constitute an acceptance. If the offeror revokes the offer after
partial performance, you are under no obligation to finish the performance. In the case
of unilateral contracts, full performance is required for acceptance. However, once you
begin performance the offer becomes irrevocable. If
the offer doesn’t say anything about the method of acceptanc
e, a bilateral contract, then starting performance is an acceptance and creates the
contract. If the offer is made, the work is started, but is not completed, look to the
nature of the offer to determine whether offer had been accepted. i.

Uni
–
 start, irrevocable, can walk away, not actual acceptance, can only be accepted by
performance ii.

Bi
–
 start is acceptance, duty to complete, can be accepted in any way


Presumption is it is bilateral


Unless expressly required performance, it is bilateral Unilateral/bilateral not used today
3.

Mailbox rule
–
 only applies to acceptance. Where reasonable to respond to offer by mail, fax, or
FedEx and response is so done, the acceptance dates from the time the acceptance is sent,
the time placed in mailbox. This concept is usually tested with a revocation of the offer.
Example

–
 I offer to sell you my Caddy for $400 via mail. On Tuesday I change my mind and
mail you another letter revoking the offer. The letter of revocation doesn’t arrive until
Friday. (The revocation is only good once it is received, unlike the acceptance that is
good once it enters the mailbox.) If you mail a letter of acceptance on Wednesday,
when acceptance is good when posted, what happens when you receive the revocation?
The offer was not terminated
so long as the right person accepted it. You don’t have a contract, but it
is legally enforceable.
 QUESTION 2
—
how do courts enforce deals?

Specific performance
—
court will order person to do what person agreed to do


This is equitable remedy
—
must say this
Only applied where money damages are inadequate


Real estate deals fall under this category


Sale of goods only when dealing with unique goods (art, antique or custom made)


Never do it in services or employment contracts


Negative specific performance
—
where someone has agreed to work with you and breached the contract
9

o

Can’t force them to work for you

o

Can get negative specific performance by preventing them from working for competitors
Money damages
—
most exam questions


Punitive damages
—
never for breach of contract


Liquidated damages
—
this is phrase that describes contract provision that tries to fix or set the way of fixing
damages
o

General rule is that liquidated damages are recognized
—
valid way of fixing damages
o
Exception
—
parties cannot by agreement set out an amount of damages that would be penalty
o

Issue will always be is this liquidated damages clause some kind of disguise for penalty


Expectation damages
—
general standard for damages
o

Trying to make the world same as it would have been had contract been performed
o

Judicial effort
o

3 steps


ask yourself, what would Π now have if the contract had been performed?



What does Π actually have?



What does it take to get her from 2 to 1 (from what actually have to what supposed to
have)?
o

Hawkins v. Mcgee
—
doctor promised perfect hand


What is value of perfect hand? What is value of gross hand received?
o

3 limitations on expectation damages
rule with respect to avoidable damages
—
they are not recoverable


2 different fact patterns that raise avoidable damages
o

fact pattern 1: an agreement followed by a breach, followed by continuing performance
by non breaching party


must mitigate damages


watch for following two things


was there clear breach? or was it ambiguous?


Is this a situation in which it can be fairly argued that continuing to perform decreases the
damages rather than increases them?
o

fact pattern 2: employment contract


argument that Π could’ve gotten comparable job



judgment call whether comparable or not


Shirley MacClaine
 case


Not taking comparable job to reduce damages


Rule of consequential damages
10
Rule is that they are recoverable only if foreseeable (in contemplation) by both parties at
time of contract


Hadley v. Baxendale
: mill in small village where mill breaks
o

Contract to transport milling machinery
o

Transporting company took far too long and they agree they breached the deal
o

Mill had to be closed b/c of them taking so long
o

Not reasonably foreseeable by both parties here


Consequential damages are where
Π is saying b/c you breached
contract with me, something else bad happened
—
special damages
which don’t arise in every situation



Economic waste


Peevinghouse and Groves v. John Wunder
o

contracts involving work done on land
o

unrestored land has same market value as restored land
o

assume that deal was that land will be completely restored and appraisers say that if it
was completely restored it will be worth $100,000--if not restored, only worth $80,000
o

contract is breached and land is not restored
o

Π will argue th
at it will cost $75,000 to restore my land now

QUESTION 3
—
any reason not to enforce the deal?
 WHO MADE DEAL?
did Δ have capacity? Does he have legal right to disaffirm

Capacity


Agreement is not enforceable if party lacks capacity
o

Person under age of majority
o

Intoxication
o

Mental incompetence


Must mention ―disaffirm‖ in this type of question

o

Ability to get out of agreements that he has made
o

With infancy, only requirement is age


2 exam exceptions to capacity rule


implied affirmation
—
enter into agreement when 17 years old
o

that person continues to retain benefits of agreement
o

by continuing to retain benefits of contract after gaining capacity, just like you made a
new deal
11



necessaries
o

most common test question
o

food, clothing, shelter, health care
o

situation where 17 year old rents apartment
o

even though lacks capacity, if necessary, legally obligated to pay
o

not contract obligation though
—
quasi K obligation
o

not agreed to pay agreed upon amount but fair and appropriate amount 2.2

–
 Capacity
   Each of the agreeing parties must have capacity. The following group of persons are
not held capable of being held to contracts:
1.

Infants (under 18) one fact rule
2.

Mental incompetents one fact rule
3.
Intoxicated two fact rule 1.

intoxication 2.

significance of persons need to know of it There is a specific rule for necessaries. We
want everyone to be able to get what they need to survive, so we do require those
persons lacking competence to pay for necessaries. The agreement to provide an infant,
mental incompetent, drunk with a necessary is not a contract (they do not have the
capacity to contract) but a quasi-
contract. The only thing that can be recovered from this group of individuals is the value
of the performance to that person and not necessarily the contract price. Which person?
The contractor or the incompetent? HOW WAS DEAL MADE? look for following


Duress
—
not just physical duress but economic duress too
o

Looking for 2 things in economic duress


Improper threat by Π—
did person who is trying to enforce deal do something improper


Δ—
is he left with any reasonable alternative?


Improper threat standard
o

Watch for 2 fact patterns


Fact pattern #1: involving changing the deal
—
modification in contracts


Look at litigation settlement where Π settled for less than she had
previously acknowledged that she would
Undue influence
o

Unfair threat not improper
—milder standard for Π

o

Look at Δ—
tougher standard
—must be under domination of Π

12

o

Must talk about duress and undue influence
o

Looking for prob with how deal was done
o

Look at Δ and see if

he was under the domination of Π

o

Looking at a weaker Δ

o

Culpability is harder on Π in duress



Misrepresentation
o

When only reason deal was made was b/c of misrepresentation
o

Looking that I understand contract law concept of misrep and tort law concept
Tort
—
looking for negligence or intent


Contract
—don’t need to show intentional or careless



Must show misrep, that it was material and that it was relied on


Mistake
o

Guys who made deal didn’t understand surrounding facts

o

Not language of deal but surrounding facts
o

Sherwood v. Walker


Rose the cow who both owner and buyer thought was barren


Where there is mutual mistake, about a ―basic material fact‖ then deal is not
enforceable


To trigger this rule, need mistake that is basic and material


If mistake about what something is (the nature of what it is) then this qualifies


If mistake about what it is worth, that is never material!!


Never ground for not enforcing deal
Mistakes of Fact
  Sherwood v. Walker is a prime example of a mutual mistake of fact. The case involved
the sale of a cow believed to be barren, but wound up being fertile and with calf. The
court determined that there was no contract, because the contract was for a barren cow
that did not exist. When the parties make a mistake about a material fact, there is no
contract.
It’s not enough just to have a mutual mistake. There must be a mutual mistake of
material fact. Value is not considered a material fact. Example

–

I’m selling you a painting that we both believe to be an authentic Warhol. If it turns
out that it is not, that is a material fact that would invalidate the contract. If I am selling
you a Warhol that we believe is worth $10K but winds up only being worth $1K, that is
a question of value and is not considered a material fact. Mutual Mistake

–
 the contract can be rescinded Unilateral Mistake

–
 is not a basis or defense for contract formation Exception
–
 if it is an obvious mistake where the other side knows or has reason to
know of the other’s mistake, they cannot take advantage of them.

13

Things to Look for
 Offer, manifestation of commitment Revocation
–
 know how offers are revoked
***Unconscionability


always decided by judge but fact driven



Need to know where it comes from
o

UCC 2-302: Williams v. Walker Thomas
—
since that case it is common law too
o
Now ucc and common/case law


What the 2 issues are that we need to discuss
o

How the deal was made?


procedural unconscionability


whether terms were hidden or clearly expressed


get into bargaining laws


flaws in bargaining process
—
disparity of bargaining power or surprise in terms


substantive unconscionability


―oppressive terms‖



problems with the terms themselves
Unconscionability
 This concept was introduced with the UCC, but now it is generally included in all
contracts, including those covered by common law.
Major Points

1.

Court can refuse all or part of agreement because the terms are oppressive or presented
in a way that they unfairly surprised the other party
2.

Whether terms are oppressive is tested as of the time the contract was entered into. This
is important in long-term contracts. What was reasonable 20 years ago may not be
reasonable today (option to buy)
3.

Issues of unconscionability always go to the judge. They are questions of law.
CONSIDERATION

 In order for a contract to be valid, there must be consideration or consideration
substitute.
Legal Detriment

–
 the promisee must show that he suffered some bargained for legal detriment. Detriment
entails doing something, promising something, promising to forbear or refraining from
doing something there is a legal right to do.
14

―If you come by my house I will give you my Caddy.‖ If I am trying to get you to
come over to
my house as my objective, and nothing else worked (such as listen to music, come over
for dinner, drinks), then my giving you my Caddy is a bargained for detriment. If I just
want to give
the car away, and you just happened to be walking by at the time I wanted to do so,
that’s a
benevolent gift that is not enforceable.
―If you stop listening to Barry Manilow I’ll pay you $100.‖
 That is a bargained for detriment because you have a legal right to listen to Barry
Manilow, and if you give up that right then there is legal detriment. Hamer v. Sidway

4 step approach to consideration
1. what is promise in question?
o

Promise that is in dispute is one to focus on
2. Identify promisor and promisee
o

Promisor Δ who made the promise

o

Promisee Π

3. What was the promisor asking for in exchange for the promise? What bargaining for
in exchange?
o
Concept of consideration is a concept of exchange
o

Will be asking for 1 of 4 things in exchange


Performance
—
to wash car for example


Promise to perform


Forbearance
—
Willy my boy



o

Person who made promise must be asking for something in return
o

Willie my boy
—
if bargaining for return promise and person does not perform then no consideration
4. Is there some new benefit or detriment?
o

Thing she was bargaining for, was it benefit to promisor and detriment to promisee?
o

Need benefit to promisor and detriment to promisee
o

3 situations where issue of detriment needs to be discussed in answering question


past consideration


can’t bargain for anything already done
must have bargain for new benefit and detriment


There is no such thing as past consideration. Past consideration is no consideration at all.
(Generally) If you are grateful for someone saving your life and you promise to pay
them $100, this is not a legally enforceable promise. There is no consideration for the
promise. You cannot bargain for something that you have already done. An agreement
is not the same thing as a contract. Things must happen before an agreement
15



Pre-existing legal duty


Doing something you are already legally obligated to do is not consideration for promise
to pay you more money to do it


There is no legal detriment in doing something that you are already obligated to do.
There is no PELDR in the UCC.


Example

–
 When sports stars renegotiate their contracts, there is usually a different term of years in
the new contract. If there were 3 years left in the original contract, the renegotiated
contract would be for 4 years. Otherwise, the contract would be subject to the pre-
existing legal duty rule.


Amount of consideration is not discussed
—
peppercorns will suffice


Part payment on debt


Question is usually obtuse as to what the problem is
Promise in question will often be the creditor promising to release the rest of the claim


Part payment of a debt that is due and undisputed, is not consideration for a release


Since you have legal obligation already for the whole amount, it is no new detriment to
me to pay smaller amount

CONSIDERATION SUBSTITUTES
—
3 of them
Promissory Estoppel
 (#1)


6 step approach 1.

what is the promise in question 2.

label promisor and promisee 3.

what did promisee do after promise was made? what was reliance? 4.

was this thing, action or inaction, that promisee did, was it induced or caused by, did it
happen b/c of promise?


Tells you whether you are doing consideration or promissory estoppel


No one has asked promisee to do what she is doing
—
she is doing b/c of the promise


Ex. I hold the mortgage on your house. I promise I will not foreclose your mortgage for
5 years. (promise in question) a.

I try to foreclose anyway. But after you have painted house. There is no consideration
for my promise, but under promissory estoppel it may be. b.

Is it legally enforceable? i.

I wasn’t asking for anything, simply making promise not to foreclose
c.

In Willy, if uncle just promised money for being a good person and Willy chose to
refrain from smoking
—that wasn’t asked for



After promise, promisee does something that was caused by the promise but not asked
for (like refraining from smoke 5.

Should guy who made promise anticipated this action? was it reasonably foreseeable?
16



Should mortgage holder have anticipated that mortgagee would paint house? 6. Would
it be unjust not to enforce this promise? Promissory estoppel

1)

Four elements of PE 1.

promise 2.

reasonably relied on to the actor’s detriment
 3.

only way to avoid injustice
MORAL OBLIGATION
(#2)



may make a promise legally enforceable


situation in which worker injures himself saving his employers life and employer promises
to pay employee


no consideration for modifications Modification of Contract
–
 does a modification of a contract have to be in writing? You have to look to the
contract as modified. If after you made the contract, it still falls within the SOF the
modification must be in writing. If the contract no longer falls within the SOF, the
modification does not have to be in writing. Example

–
 Enter into lease for 2 years, it has to be in writing. If the amount paid in rent changes,
the modification must be reflected in the writing. If you change the length of the lease to
just 1 year, then the modification does not have to be reflected in the lease.
Why would you not put it in writing, when you really trust the person? UCC §89
—
enforceable modification contracts made in good faith even if no consideration
Statute of Frauds
 (#3)



certain agreements have important subject matter or susceptible to fraudulent claims


―within the statute of frauds‖

o

need to use this phrase
o

above phrase only means statute of frauds applies
1.

Which contracts fall within the SOF?
  The SOF is concerned with contracts that are so important or so susceptible to fraud
that we need special proof of their existence.
1)

Personal services contracts not capable of being performed in 1 year a.

Contract to cut down all trees on your land. It is capable of being done in one year
regardless of size with enough men and saws. b.

If I hire you to work for me for the rest of your life, this too could only last for one year.
You could die within the year. c.

If I hire you to work for me for 2 years
–
 SOF applies. Granted, you could still die tomorrow, but then you would not have
completed performance.
17

d.

If I hire you to perform at my wedding on July 1, 2002, the contract cannot be
performed within one year and is subject to SOF. 1.

full performance by either party satisfies the SOF, it provides needed proof that this was
what the agreement was 2.

part performance does not satisfy SOF, but you can be quick to add quasi-contract claims
2)

Transfers of interest in real estate
–
If the interest in real estate is for one year or less, the contract does not fall within the
SOF. For example a 12-month lease would not fall under the SOF, but a lease for 13-
months would.


Regardless of dollar amount


Key is that it has to be real estate interest that has a term of duration of more than a year
B orally agrees to buy Blackacre from S. Part performance can satisfy the SOF in real
estate dealings if two or more of the following occur: a.

partial payment by the buyer b.

possession by the buyer c.

improvements made by the buyer
3)

Sale of goods of $500 or more (UCC §2-201)


Article 2 applies regardless of if you are a merchant and dollar amount does not
apply Specially manufactured goods
–
 for goods that are custom made the start of performance satisfies the SOF


Ordinary goods
–
 partial performance of a contract for the sale of goods satisfies the SOF, but only to the
extent of partial performance. Example

–
 you contract to sell me 1000 widgets for $1000. You deliver 400 widgets. You can
recover for the 400 widgets because you partially performed. But the deal was for 1000
widgets, what about the other 600? I cannot recover those, but I
must pay for the 400 delivered. (what if there was reliance on the entire 1000
being delivered? If you don’t have them all it’s not worth having any, is there
anything that can be done in that instance?)
2.

How do you satisfy the SOF?
 Full performance is a way of satisfying that there was an agreement and you followed
through with its terms


Look at what question tells you about what writing says


Not enough that there is a writing
—
there are requirements for writing


In order for writing to satisfy statute of frauds, all material terms must be in writing (not
for sale of goods b/c that is UCC)
o

From the writing alone you can tell


Who the contracting parties are


What did each agree to do
18



If sale of goods, all the writing must say is quantity


Doesn’t have to name parties
o

Look at who signed the writing unless it is sale of goods question which would be UCC


In order to satisfy statute of frauds it must’ve been signed by Δ—
if common law


UCC special rule for sale of goods of $500 or more there is situation under 2-201 in
which all that is needed is signing by Π



This would happen when both are me
rchants and Δ received notice of the
contract and never answered the letter


If don’t answer the letter, assumed that you are on board with deal

o

Situations where performance can satisfy statute of frauds


Ignore for exam
What type of writing does it need to be?
What type of writing depends on the type of contract in consideration.
1.

Common Law
1.

material terms 2.

signed by person against whom you are trying to enforce agreement
All material terms must be included in the writing. ―Your offer on November 9, 1999 is

accepted‖ is not an adequate writing. There is no indication of who they are and what
they are
intending to do. It is important to look at who signed the writing, because only those
who signed their name to the document can be held to what it says. Example
–
 A contract for K&S and Marsha Clark for a 3-year term at $400,000 a year exists. This
contract was signed by K&S, but not by Marsha Clark. Marsha can sue K&S (who did
sign the contract) on the contract even though she did not sign her name to it. K&S, on
the other hand, cannot sue Marsha on the contract because she did not sign her name to
the terms. She may have agreed to the terms,
but it’s not binding and she has an SOF claim.

2.

UCC
1.

Quantity term 2.

Signed Unlike the common law requirement for all material terms, under the UCC a
valid writing only needs quantity term to complete, the UCC will fill in the rest. There is
a special rule that applies if both parties are merchants. If one of the parties sends a letter
to the other claiming that the other has entered into a contract, the notified party has 10
days to respond or else the contract becomes legally binding.


PAROL EVIDENCE RULE


Impact of a written agreement
—
superiority of written agreement


Impact a writing has on earlier agreements
19

o

Even if earlier agreements are in writing


Parol evidence
: evidence of some agreement made prior to this writing
o

Does not have to be oral


Integrated agreement
: it is written, intended by parties to be their last word
o

Written and final word


Complete integration
: it is a writing that is final and complete


Partial integration
: it is written, final as to what it covers but it may not be the whole deal


Merger clause
: shorthand way of describing a contract provision that says this is the complete deal
o

To determine if complete or partial
Parol Evidence Rule
 There is a contract, but what are the terms? Rule of contract law about what the terms
of the contract are. Four issues to know: what the rule is, what facts trigger the rule,
possible issues, how the rules are different from statute of frauds. Often the two are
confused and tested together. 1.

Parol evidence rule

–
 when there is a WRITTEN contract that is intended by the parties to be their final
agreement, then you CANNOT use earlier agreements to change the terms of that
written contract. 2.

What triggers the rule?
 a.

There MUST be a WRITTEN CONTRACT (if there is nothing in writing you never get to
the parol evidence rule). Effect the written contract has, the importance of the terms
included. b.

It MUST be the contract that the parties intended to be the final agreement.
(Integrated agreement
–
 writing intended to be the final agreement) c.
There MUST have been some earlier agreement, oral or written. Effect of agreement has
on earlier agreements, the effect is that you cannot use the previous agreements to
change the terms. 3.

Possible issues
 a.

Does the parol evidence rule apply (Was it an integrated agreement? This is a question
of law for the judge.) b.

Was there a merger clause
?
–
 a contract provision stating that this is our final agreement. c.

Is there an applicable exception to the parol evidence rule? 1)

You can always introduce evidence to establish a defense to the existence of the contract.
(i.e. argue fraud, duress) 2)

You can introduce the earlier agreement to show a mistake in reducing the agreement to
this final writing. (i.e. evidence through partial writings, oral conversations)
20

3)

The earlier agreement doesn’t change the terms of the written agreement, but it adds
terms to the written agreement. Was the writing intended by the parties to be their
complete and final agreement? (was it partial integration?) ARE NOT TRYING TO
CHANGE THE WRITING. It is at the judge’s discretion as to whether the contract is
integrated or partially integrated. Did the parties mean for the writing to be their final
and complete agreement? 4.

How different from the Statute of Fraud?
 The SOF is brought up when you are deciding whether you have a legally enforceable
agreement. Triggered by the phrase there was an ORAL agreement. For Parol Evidence,
you are past that stage and you are considering the terms of the contract. There must be
a WRITTEN contract. 3 basic points 1) where you have an integrated agreement, parol
evidence can never contradict it
2)

What if parol evidence doesn’t contradict
the integrated agreement but simply adds terms to it?
o
When will the court consider parol evidence here?
o

Ques. for court--Need to find out if this is a complete integration?
3)

even if it is a complete integration, parol evidence can be used to explain ambiguous
terms
parol evidence rule: can’t contradict, can supplement and can explain

CONTRACT INTERPRETATION
what does the deal mean?

course of performance


all about what these people have previously done under this very duty


persuasive form of extrinsic evidence as to what the deal means


same people, same deal
course of dealings


not as persuasive


what these very people have done under earlier similar deals


same people, similar deal
custom and usage


what different people have done under different but similar deals


relevant and some evidence but not as persuasive as first two
GAP FILLERS



what if deal is more than what party has said?
Fact pattern governed by common law


Implied duty of good faith


Wood v. Lucy Lady Duff Gordon


UCC it is sale of goods question you are encountering
21



UCC is great to fill gap
o

Implied obligation of good faith
—
good faith is made part of performance of any sale of goods contract


Sale of goods
—
always do article 2


Firm offer rule
o

Implied warranty of merchantability


Situation in which a person who regularly sells goods of that kind, sells something and it
turns out to be defective


Ex. anytime jewelry store sells jewelry, even though no discussion of quality, you have to
assume it is ok


Seller must be in business of selling goods of that kind, then law imposes obligation on
that seller
Adds a term to the contract
—
the goods must be okay
—
must be fit for ordinary purposes
QUESTION 5
—
DID SOMEONE NOT DO WHAT HE AGREED TO DO?


Yes obviously
QUESTION 6
—
DOES THE PARTY HAVE AN EXCUSE FOR NOT DOING WHAT THEY AGREED TO
DO?
Excuses for not doing what you agreed to do
1) situation in which there is an unmet condition of performance


Performance was conditional and one condition was unmet


Ex. B contracts to build building for O
—
there are progress payments
o

Payment of progress payments is conditioned on an architects certificate
o

If an architect doesn’t approve a month of work, don’t have to make the payment
b/c you are excused
o

Ok not to perform b/c condition not met


Ex. will buy house if appraised at 100,000 but it was only appraised at 90,000
—
no need to buy


Must look for express condition in fact patterns
o

Look for words ―if‖ ―provided that‖ ―so long as‖

o

Anything short of the phrase ―on condition that‖ you are going to add statement to
answer, ―if there is any d
oubt about whether the contract language creates an
express condition, that the preferred interpretation is no condition‖



If you determine that there is language of condition, the general test for conditions is
conditions must be strictly complied with
o

If the house is appraised at only $90,000
o

Jacobs & Young v. Kent


Owner wanted Reading pipe but builder used a different kind of pipe


Court said this was not language of express condition
22



Homeowner did not say I will only pay you if you use reading pipe


Different result if language was an express condition
o

Courts try to conclude that there isn’t a condition



If there is any way to conclude that there is not an express condition, that is way court
will go 2) Breach by the other party as an excuse for non performance
I don’t have to perform b/c other guy didn’t do what he was supposed to do



Remember to look to see what law to apply


Article 2 differs most from common law here
o

Article 2 has perfect tender standard


Anytime the seller of goods is less than perfect, not exactly what buyer wants, buyer is
excused from performing b/c seller did not do perfect tender


General standard for sale of goods is perfect tender


That standard is subject to 2 big exceptions
o

1.
cure
: in certain limited situations, b/c perfect tender standard is so high and demanding, give
seller second chance


watch for situation in which the seller sends the wrong stuff early!!


Must give delivery deadline in this fact situation


If seller can still get right stuff there by deadline, then no problem
o

2. installment sale contract
: where parties in their agreement have agreed that there will be deliveries in several
separate installments


if agreement provides for these installments, a problem with one installment, so long as
not substantial problem, will not excuse payment
it can be adjusted in future installments if common law contract, not a sale of goods and
one guy is arguing that one guy breached so
don’t have to perform, must do a
material breach rule (major screw up rule)


when will one parties non performance excuse the other?
o

Ex. H hires P to paint his house
—
deal is that house must be painted in two coats with Sherwin Williams paint


This is common law contract


Turns out that painter you hire is big fan of Price


So he paints your house purple


Don’t ha
ve to pay b/c material breach


What if painter buys different brand of paint instead by accident?


It is a breach but still have to pay b/c not a major screw up or material breach


2 exceptions to material breach rule
o

language of condition exception
—
if contract said I will pay you 1000 for painting my house white on the condition that
you use Sherwin Williams paint
23
this requires strict compliance b/c condition
o

divisible contract exception
—



ex. H has huge house 20 rooms
—
H hires P painter to paint whole house for 4000
—
P only paints 3 of the 20 rooms


is this material breach? YES


is H excused from paying? YES


if unfair, go to quasi K (equity)


ex. H hires P to paint 20 different apartments for 200 each


this is divisible


if painter paints 3 of the apartments, law would say this is divisible so you did perform
with respect to the 3 apartments
3)anticipatory repudiation
o

I tell you before you finish that I’m not going to pay you

o

Excuse for stopping work
o

Excuse of non performance
—
gives right to stop performance and sue immediately if
told you’re not going to be paid
 4)

later agreement
—
2 forms


novation
:
o

both of the guys who made first deal agree that another person can perform
o

other person is a no show
o

initial guys performance is excused by later agreement of ally mcbeal doing it


accord and satisfaction
:
o

change in what is going to get done
o

agreement to clean house instead of paying money (that is the accord
—
agreement to do something different than first agreed to do)
o

by actually cleaning house, that is satisfaction
o

―and‖
in order to have this excuse, must have both accord AND satisfaction
so that if I don’t actually clean house, can still sue me on original promise to
pay money
IMPOSSIBILITY, FRUSTRATION OF PURPOSE, IMPRACTICABILITY
Another excuse for non performance easy facts to watch for are time sequence
deal was made and later, after the deal something happened


what happened was unexpected (unless it is totally unexpected there is no excuse) harder
facts to watch for


whether either party had assumed the risk in some way
24



did it make the performance impossible?
o

Easy case: Taylor v. Caldwell: concert hall burning down
o

This is post contract occurrence, unforeseeable, and so it was impossible
o

This is destruction of subject matter of the contract
o

Variations are often on exams


Homeowner contracts to build house
—
when house is 90% complete it burns down


Neither party assumed risk


Relationship between unforeseen occurrence and performance


Not impossible to rebuild house


Is guy excused from performing? NO


May be excused from being late but still must build house
Not impossible nor impractical Rule of thumb
—
if all that happens is that there is a later unforeseen occurrence, that makes performance
more expensive, the tough luck rule, it is not impossibility or impracticability Some
situations in which even if it is not impossible that the burden may be so great that it will
be excused
—
usually judgment call


Impracticability
Frustration of purpose
 is similar and different from impossibility


Krell v. Henry: guy who rented a flat to watch the coronation parade
o

Parade gets canceled and he wants out of the deal b/c his whole reason for renting the
flat was to see the parade so his purpose has been frustrated
o

He can still use flat though
o

Where both guys know of the purpose of the deal at the time the deal is made and
there is something that happens after the deal, it doesn’t affect ability to
perform, it affects reason of performance
o

Non performance will be excused


Impossibility is in UCC


No UCC provision for frustration of purpose
o

May apply to sale of goods

Sometimes people who were not parties to contract have rights under the contract
3
rd
 party beneficiaries
25



Contract between two people and both intend for a third party to benefit from the
contract


Life Insurance contract
—
insured bought the contract, insuror is company and someone else will benefit


Where contract was made with intent to benefit you, you can sue to enforce it


Not purely insurance law


Intended third party beneficiary 3
rd
 party beneficiary
: didn’t make contract but i
ntended to be benefited promisor: guy whose promise goes to 3
rd
 party beneficiary


Guy who’s promise goes to the 3
rd
 party bene


Insurance company promisee: guy who takes out insurance policy creditor beneficiary
or donee beneficiary


rule of thumb
—
if in doubt, call it donee
only time creditor beneficiary is when third party was previous a creditor of promisee
o

ex. I owe Heidi 1000
—I say I’ll name her in life insurance policy instead—
she is creditor beneficiary
o

donee beneficiary is if I felt sorry for Heidi and said I would name her in policy


3
rd
 party bene can always sue the promisor!!
 Rights of third party do not depend on provision of consideration or not
—
they are simply the intended beneficiary Promisor liable to 3
rd
 party beneficiary If 3
rd
 party bene was a creditor bene, he can also sue promisee on original debt
DELEGATION
 You start with contract between 2 people
—
later one of them gets someone else to do the work


what are consequences of a delegation?
o

what if third person doesn’t do work, can still

sue person who initially should’ve
done the work b/c not mutually agreed upon substitution
—
only delegation
o

delegations do not excuse
—
delegating party remains liable limitations on delegation
—
some duties are not delgable
if contract says you can’t delegat
e


or, subject matter of contract
—
some duties require special skills
26

o

can’t delegate special skills—
Salvador Dali cannot delegate to me to paint picture he was supposed to most duties are
delegable ex. H hires P to paint his house


contract says nothing about delgation


P gets X to do work instead


If X doesn’t do work, H can still sue P



X does the work
—
what result?


Issue of the question is is the duty delegable? YES
ASSIGNMENTS



Ex. Batman makes contract with Gotham to provide security services
o

Later, Batman comes to Robin, and tells Robin he can collect the money from the
contract


To make that a third party beneficiary How do you tell when he wants you to talk
about TP bene or assignment
3
rd
 party, all 3 people are involved in contract from beginning
—
intent to benefit from the beginning


if Robin was brought in from the beginning and told Gotham to pay Robin, then 3
rd
 party bene assignor would be Batman
—
makes contract and later assigns his rights to someone else assignee is Robin
—didn’t make contract but can
enforce it obligor
—
Gotham effect of assignment
—
assignee can sue obligor
—
if Batman does work, Robin can come in and sue Gotham for payment common law
limitation on making of assignments


cannot make an assignment that substantially changes the duties of the obligor


ex. assume Batman makes contract with Gotham to provide security services and assigns
right of payment to Robin
o

no prob b/c haven’t changed duties of Gotham (the obligor)

o

just as easy to pay Robin
o

assignment of a right to payment is never a problem
—
never substantially changes duties
ex. Batman makes contract with Gotham to provide security services, Metropolis wants
Batman to defend their city so Gotham gives Batman to them
o

Batman=obligor
27

o

Gotham=assignor
o

Metropolis=assignee Here we have changed
Batman’s duties—
he was supposed to protect Gotham, not Metropolis Assignments get combined with
delegation on exams. In real life, assignments and delegations get combined, especially
in the sale of a business. Often referred to in total as assignment.


PRIOR OUTLINE NOTES

Sale of Goods
–
 can effect the terms of the contract
§
2-207
–
Battle of the forms. Mismatching offer and acceptance. Each business has its own
form and they aren’t all identical. Which sheet of paper controls?
  1.

Doesn’t have to be th
e mirror image, it can be a seasonable expression of acceptance 2.

Everything in the offer is in the contract 3.

In the acceptance form different forms that contradict the original terms are kicked out.
They are objected to. 4.

In the acceptance form (only if both parties are merchants), the new terms are accepted
UNLESS they are objected to or if it is a material change. The additional terms do make
it into the contract. 5.
In an acceptance form and both parties ARE NOT both merchants, the new terms are
proposals, it is added only if it is separately agreed to by the other party. If the new
terms
are insisted upon, it’s a conditional acceptance and there is no acceptance.
 6.

Article 2 is a source of terms.
Warranties §2-
1.

Express warranty

–
 words of the party that describe the goods, state facts, or make
promises with respect to the goods being sold. (distinguish from ―puffing‖ (sales call)
general, opinion i.e. unbelievable price, high quality structure, as opposed to a
representation of fact - warranty specific, all steel structure) 2.

Implied warranty of merchantability
 a.

when you buy something from someone in the business world, part of the deal is that it
is merchantable for ordinary purposes. Go to jewelry store for gold chain, put it on and
head falls off, you can sue for breach. Add a term to the contract, nothing bad will
happen to you because you wear it. b.

If you buy something from someone that is in the business and nothing is said about the
quality, you can sue for breach of contract if it is defective. 3.

Implied warranty for fitness for a particular purpose

28

a.

A buyer that has a particular purpose and is relying on the seller to provide that good
and
the seller knows of the buyer’s need and reliance on the seller’s expertise. Test will have
to tell you why the buyer is buying the good and that the seller is AWARE. Go to the
shoe store because you need mountain climbing boots, but shoe sales man sells you
Converse tennis shoes. Adds term, ―I know what you want, I know what you need,
here it is.‖

I.
Performance Obligation
A.

Makes certain that the terms have been complied with. It turns on the terms of the
contract. B.

Conditions 1.

Modifies the obligation to perform (i.e. I will buy your house if it appraised at
$100,000). That is beyond the parties control 2.

An express condition must be strictly complied with. (i.e. if $95,000 you are not legally
obligated to buy) 3.

―I will pay if I am satisfied‖ (requires the approval of one of the contracting
parties a.

It is not illusory, it is legally enforceable b.

If the subject matter of the contract is such that it involves personal taste and individual
judgment, then it is read literally. (if the person is not satisfied,
they don’t have to pay). For example, if I contract a person to paint my
portrait, satisfaction is based on my subjective satisfaction. c.

If it a more ordinary contract (i.e. paint house), then even though the contract
language says ―I‖ it is read as if a reasonable person would be satisfied.
Objective standard. C.

Seller of Goods Performance Obligations - UCC
1.

There must be a perfect tender. The seller is obligated to deliver exactly what the terms
call for. (Contract for 100 widgets, 99 is a breach. This only applies in article 2) 2.

Rejection of the goods
–
 if the seller does not make a perfect tender, the buyer has the option to reject the goods.
a.

there is a difference between a rejection of an offer (no contract
–

can’t sue)
and a rejection of the goods (still contract
–
 can sue) 3.

Revocation of acceptance of the goods
–
 tested with rejection a.

The buyer is acting immediately and the buyer can reject
the goods if they are anything less than perfect. b.

If there was a substantial problem with the goods that was difficult to discover early on,
they can still revoke
 the contract
29

II.

Excuse of Nonperformance
A.

Nonperformance is sometimes excused, 5 grounds for excuse B.

If there was a conditional obligation and the condition wasn’t met (Buy house if
appraised at $120K, but turns out $118
–
 excused) C.

The other parties breach (UCC perfect tender
–
 the items are not perfect). A material breach
 excuses the other party from performing. Painting house for $1K, get paint on the
windows, can get away without paying $1K? Probably, but will have to pay something.
If I paint if purple rather than white, then payment would be excused because that is a
material breach. D.

Anticipatory repudiation
–
 early revocation. The other party is excused. E.

Later agreement that excuses nonperformance 1.

Novation
–
 two people make a contract and later both agree
 that a new party can perform the contract. If that third party
breaches, you can’t sue because it
excuses the other party (
Can’t sue the originally contracted party?

–
 yes, the original party is excused, agreement to substitution is critical) 2.

Accord and Satisfaction
–
 the excuse requires both the accord and the satisfaction. It changes the deal with the
same two parties. (i.e. Owe $1000. Paint house instead) a.

Accord = new agreement, does not affect the original agreement. Breach results in suing
on either condition
–
 money or paint house. b.

Satisfaction = actual act c.

Does agreement as modified fall within the SOF? d.

When do we need consideration for changes in contract? Not UCC because there is no
PELDR, but it is required in common law cases. F.

Later unforeseen occurrence 1.

Impossibility
 - Where there is a later unforeseen o
ccurrence that is no one’s fault,
the non-performance is excused. Taylor v. Caldwell
–
 concert hall lease, after
agreement made the hall burned down. Taylor sued for breach of contract, can’t
use concert hall. 2.

Frustration of Purpose

–

performance isn’t
 impossible, but it takes away the purpose of the contract. The agreement is
unenforceable. Krell v. Henry
–
 guy
wants to see the coronation parade. Flu epidemic and parade called off. It’s not
impossible, but the purpose for agreement is frustrated by later occurence.
 III.

Breach Remedies
A.

Liquidated damages

–
 the parties have agreed what the damages are to be. They are valid if 1.

The contract is uncertain as to what the possible damages might be 2.

They are a reasonable measure of what these uncertain damages might be.
30



These are tested as to the time that the agreement is made, when no one knows what
the damages are. If you are told what damages actually made it is irrelevant, that info
was not available at the time of the agreement. Was this a reasonable way to deal with
it? B.

There are NO PUNITIVE DAMAGES IN CONTRACT LAW or UCC. Contract law is not
interested in punishing breaching parties. Torts allow punitive.
C.

Consequential damages

–
 recoverable only if reasonably foreseeable by both of the parties at the time of the
contract. Hadley v. Backsendale(?) English mill in small village. No one knew how to fix
the Crank Shaft. Inexcusable delay. Because you breached, something else bad
happened to me. These are indirect damages and only recoverable if reasonably
foreseeable by both of the parties at the time of the contract. (Lose money because delay
in painting caused owner to miss the season to sell the house, costing $5000. For
recovery, this must have been foreseeable by both parties.) D.

Reformation

–
 need to conform the written contract to what it is that the party
actually agreed to. We agree it’s the 19 south acres, but the written agreement comes
out 19 southeast acres. Conform to meet the parties’ agreement.
 E.
Specific performance

–
 court order directing the parties to do what they contracted to do. Equitable remedy
that is only used when the legal remedies are not sufficient. All equitable remedies are
only available when money damages are not enough. 1.

land sales
–
 land is unique, transfer of ownership 2.

sales of unique goods (antiques, works of art, made to order) 3.

personal services contracts
–
 NO SPECIFIC PERFORMANCE 4.

Negative specific performance or injunctive relief
–
 stops you from doing something. Pat Riley under contract to coach the Knicks, but h
e doesn’t want to. They can’t sue him to force him to coach, but they can get an
injunction disallowing
him from coaching another team. F.

Money damages
 1.

The goal is to put the non-breaching party in the same position that she would have
been in had the contract been performed. Expectation damages. a.

Identify the non-breaching party b.

What would the person receive if the contract had been properly performed c.

What would it take to award damages that would have been due? 2.

Examples a.

breach contract for $1000 for painting house. New painter charges $1500. If
breaching party pays $500, that’s where the person would be had the contract
been performed b.

I’ve bought the paint in preparation and you breach. How measure the
damages? Give costs and provable lost profits. What about unilateral contract
acceptance by performance?
31

c.

Sale of goods
–

sell Caddy that’s in mint condition, but it’s not in mint condition. You want to keep the
car, but you want some of the money back because it’s not
in mint condition. Delivered in $1500 condition, had it been in mint condition it would
be worth $5000. Trying to put the innocent in the same condition as if the contract had
been performed
–
 would have had car worth $5000, but you have car worth $1500. Consequential
damages recoverable only if reasonably foreseeable by both parties
IV.

Third Party Problems
A.

Third party beneficiaries
–
 two people contract with each other with the intent of benefiting a third party. The
third party has legal rights and can enforce it (i.e. buy life insurance policy, you agree to
pay payments, they agree to pay son at your death. Son can enforce the contract.) 1.

Third person bene
–
 person not a party to the contract but can still enforce it because the other parties made
the contract with the intent of benefiting them. a.

creditor bene b.

donee bene
–
 most 3
rd
 party benes. It is a donee bene UNLESS the 3
rd
 party was already a creditor of the promisee c.

canceling or modifying i.

contract language controls ii.
the contract can’t be canceled or modified until the 3
rd
 party knows and assents d.

the 3
rd
 party can sue the promisor and the promisee can sue the promisor e.

the 3
rd
 party can sue the promisee if the 3
rd
 party is a creditor bene. f.

Promisor = the person who is promising to do something for the 3
rd
 party (insurance company) g.

Promisee = other party to the contract 2.

Assignments
–
 an agreement between two people and one of the parties to the original contract
transfers away (assigns) his rights to a 3
rd
 party a.

The assignee can sue the obligor. The assignee steps in the shoes of the assignor. b.

Happens in steps
–
 two parties make a contract, THEN one of the parties assigns his rights to a third party c.

Simply substitutes one party for another party 3.

Delegations
–
 two people make an agreement and then later one of them gets somebody else to do
the work a.

When possible 1)

contract provisions always control 2)
if no provisions, you can generally delegate duties unless you are talking about a
situation that involves special skills or a person involving a special reputation
32

b.

Consequences 1)

the delegating party remains liable 2)

delegatee
–
 he is only legally obligated if he received consideration c.

Compare delegation and novation 1)

When you delegate, if you ask the other party and they agree, it becomes a novation 2)

Under delegation, you remain liable. 3)

Under novation, you can sue the delegatee. d.

Connection between 3
rd
 party bene and delegation 1)

if the delegatee receives consideration from the delegating party, it is a delegation for
consideration AND a third party bene. What happens if the SOF is not satisfied?
  The SOF is a defense to contract formation. When you have a situation that falls within
the SOF, and the SOF is not complied with its a defense that needs to be presented and
proved
to prevent enforcement. If you can’t sue on the contract, always look for a qu
asi-contract remedy.
Equal Dignity Rule

–
 this concerns when it is necessary to have written authority for a third party to act on
behalf of someone else in a contract. Authorization must have the same degree as the
contract the person is entering the other into. An agent needs written authority to
enter into a contract for another when the contract is required by the SOF to be in
writing. This issue turns on whether the SOF requires the contract to be in writing and
usually occurs in real estate dealings. In order to enter into a lease for another person,
do I need written authority to do so? If the contract is over 1 year I do need written
authority.
Illegality
 If there is a question of illegality, the issue turns on knowing the difference between a
contract with illegal subject matter and an illegal purpose. 1.

If X contracts with Y to kill Z for $5000, neither X nor Y can enforce the agreement. The
contract deals with illegal subject matter and is therefore void. 2.

If Y contracts with a cab driver to take him to the spot to kill Z, the cab driver can
recover from Y because their contract dealt with illegal purpose, and the cab driver is
more than
likely unaware of Y’s purpose in going to the spot.


Rejection - Counter offer, conditional acceptance, adds terms under common law



Terms of Contracts

				
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