Contracts Outline

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Contracts Outline
I.
Summary
a. Common Law or UCC
b. Contract Formation in General
c. Offer
d. Rejection and Counter-Offer
e. Acceptance
f. Agency and Contract
g. Tricky Terminology
h. Consideration
i. Promissory Estoppel
j. Statute of Frauds
k. Terms of the Contract
l. Performance
m. Excuses and Defenses
n. Is There a Breach?
o. When Can You Sue for Breach of Contract?
p. 3rd Party Issues
q. Remedies
II.
Common Law or UCC?
a. Common Law Governs
i. For land, employment, services, construction
b. UCC Governs
i. For “goods” - Sale of movable objects (also crops to be severed); OR
ii. Predominant Factor Test
1. When goods and services are combined and the value of goods
“predominate”  UCC controls
c. Maryland: UCC
i. Gravamen Test: When goods and services are combined in a contract
where the services “predominate”  If the “gravamen” (heart of the
complaint) involves the goods, UCC still controls
ii. Example:
1. Buy in-ground pool with diving board
2. There is an accident on diving board
3. The value of construction “predominates” over the value of the
goods
4. But, accident occurs on the diving board
5. Diving board retains its character as a good (its detachable) and
the gravamen of the complaint concerns something that would be
a “good” if sold separately
6. So, UCC with implied warranties applies
d. For UCC  You do not need a merchant, BUT…
i. The UCC applies to transactions in goods whether or not a merchant
(expert in the trade) is involved
ii. However, a FEW UCC provisions apply only to merchants, so always note
if the seller or buyer is a merchant
III.
Contract Formation in General
a. Generally:
i. For a contract you need:
1. Mutual Assent (offer and acceptance), PLUS
2. Consideration or Promissory Estoppel
b. Mutual Assent = Agree to Contract
i. Scenarios
1. Two corporations “agree” to merge
a. Shake hands and say, “Writing will follow”
2. Two parties sign a document (perhaps called a letter of intent)
that contains some contractual language/terms and says,
“Contract to follow”
ii. Is there a contract at the handshake/”preliminary agreement” OR not
until the follow-up writing?
1. It does not matter if you can’t tell which is the “offeror”
2. To tell if there is a contract at the handshake/”preliminary
agreement,” ask  “What did the parties intend?”
a. Language of the agreement is paramount
b. If many terms are left to the follow-up  There is no K
until that writing is completed
iii. Intent is always determined objectively
1. What would a reasonable viewer (listener, reader) believe?
2. If A says, “I want to sell,” but whispers to another, “I’m joking” 
A wants to sell
IV.
Offer
a. Offer: Permits specific offeree to create contract by assent
b. NOT an Offer
i. Statement of General Intent
1. “I’d like to sell. Are you interested?  NOT offer
ii. Advertisements  NOT offers, UNLESS:
1. Language of specific promise: 1st come, 1st served
2. Rewards
iii. Form Letters (Same letter to many recipients)  Not offers, UNLESS:
1. Recipient not able to tell it’s a form letter
2. Multiple performances possible
a. i.e. Pay if could remedy does not work
iv. Statements in OBVIOUS Jest or Anger  NOT offers
c. How long to offers last?  NOT Forever
i. If NOTHING else happens  Offer ends either:
1. By its own terms,
a. i.e. You have until 6 pm
2. If no stated limitation  After a reasonable time (under the
circumstances), OR
3. Oral offer ends with conversation, unless stated otherwise
ii. Offer ends IMMEDIATELY if:
1. Revocation
a. By offeror
2. Rejection or Counter-Offer
a. By offeree
d. Revocation (of an Offer)
i. Death
1. Offer dies if offeror dies
ii. Revocation
1. Offer dies if offeror revokes
iii. Key Rule  Revocability of Offers: An offer can be revoked any time
prior to acceptance, EVEN if offeror promises to keep offer open
1. i.e. A offers to mow B’s lawn for $100 and says, “I promise to keep
offer open until Friday.”
a. A can revoke on Thursday
2. *LIAR WINS
iv. Revocation only effective when Received
1. Example:
a. Day 1: A offers to sell land to B, “open for a week”
b. Day 2: A sells same land to C
c. Day 3: B learns of sale
2. Note:
a. B could still accept on Day 2
b. Revocation only at Day 3  B learns A doesn’t want to
contract anymore
v. 3 Ways to make an Offer IRREVOCABLE
1. Option Contract
a. Essentially, paying for time to think
b. Example:
i. A offers land to B for $1 million
ii. B says, “I will pay $100 to you to keep offer open
until Friday”
iii. A agrees, and B pays $100
iv. A must keep offer open
v. B can, but need not, buy land for $1 million
2. Reasonable Reliance on an Offer
a. Bid by Subcontractor
i. City wants school built, will award to the lowestbidding general contractor
ii. General contractor gets bids from subcontractors
(electricians, carpenters, etc.)
iii. General contractor calculates bid to City by adding
lowest electrician + lowest carpenter + …
iv. If City awards K to general contractor, reliance on
subcontractor’s bid makes a kind of “option
contract”
1. Lowest subcontractor can’t revoke bid
2. General contractor can, but need not,
choose lowest subcontractor
b. Part Performance of Unilateral Contract
i. “I will pay you $100 if you walk to Camden Yards”
1. If you begin walking, I cannot withdraw the
offer
3. *UCC ONLY  Firm Offer
a. Signed written promise by a merchant to keep offer open
i. Enforceable up to 90 days
b. Note: Firm offer does NOT apply to:
i. Common law, OR
ii. UCC transactions involving ONLY non-merchants
V.
Rejection and Counter-Offer
a. General Rule: Rejection and counter-offer destroy (terminate) an offer
b. Rejection Destroys an Offer
i. Example:
1. A offers car for $10,000
2. B says, “No”
3. B says, “OK I accept for $10,000”
4. NO CONTRACT  Rejection kills offer
ii. Hint: Revocation and Rejection are effective when Received
c. Counter-Offer Kills Original Offer
i. Offeree makes new offer for substituted bargain
ii. Example:
1. A offers car for $10,000
2. B says, “I’ll take it for $9,000”
3. A says, “No”
4. B says, “OK I accept for $10,000”
5. NO CONTRACT  A’s offer was destroyed by B’s counter-offer
iii. *Note: Mere “INQUIRY” is NOT a counter-offer
1. A offers car for $10,000
2. B says, “That’s a high price. Could you lower it to $9,000?”
3. A says, “No”
4. B says, “OK, I accept for $10,000”
5. Valid acceptance because B only made an inquiry, not a counteroffer
VI.
Acceptance
a. Generally
i. *Exam Tip: Bad acceptance usually becomes a counter-offer
ii. Only those addressed by offeror can accept offer
iii. Usually can accept either by performing or promising to perform,
UNLESS the offeror specifies only one way to accept
b. UNILATERAL Contracts
i. Accept by Performing
1. Reward
2. Real Estate Broker
3. “Success” Contracts
a. “I’ll pay if you make Dean’s list”
b. “I’ll pay if you win MVP”
ii. Must Know Offer before Acceptance by Performance
1. If accept by performing, offeree must know of offer before
performance is complete to accept unilateral offer
2. Must know of reward offer before capture
c. BILATERAL Contracts
i. Accept by Promising Future Performance
1. “I will give you a car, if you promise to give me $5,000”
2. Especially if BOTH parties sign
d. Mailbox Rule
i. Acceptance of bilateral K is effective WHEN MAILED (before received)
e. What if acceptance is not identical to the offer?
i. AKA  Battle of the Forms
ii. Example:
1. A makes offer with terms 1,2, and 3
2. B responds, “I accept with terms 1, 2, and 4”
3. Is there a contract? If so, what are the terms?
iii. Common Law
1. Mirror Image Rule: Acceptance must be exactly the same as the
offer
a. If terms of the acceptance change EVEN ONE TERM, the
“acceptance” will be viewed as a “counter-offer”
iv. Special UCC Rule 2-207
1. An acceptance with clear language of agreement creates a
contract, even with additional or different terms
a. Contract consists of terms in the original offer and new
terms are deemed proposals for addition to the contract
2. When BOTH PARTIES = MERCHANTS  Contract terms include:
a. Terms in original offer, AND
b. New terms from acceptance IF:
i. Not objected to, and
ii. Do not “materially alter” (make a big change in) the
contract (different terms usually materially alter
the contract)
3. EXCEPTION: If acceptance says, “THIS ACCEPTANCE IS EXPRESSLY
CONDITIONED ON THE OFFEROR AGREEING TO MY DIFFERENT
TERMS” (MAGIC WORDS) there is NO contract, UNLESS the
offeror expressly agrees to those terms
a. EXCEPTION TO EXCEPTION (“Knockout Rule”): If the
parties both then act like they have a contract - paying
and delivering - a contract will be created by their conduct.
The terms of this contract are where the 2 parties agreed,
plus “UCC gap-fillers” for all other terms
VII.
Agency and Contract
a. *MD Favorite
i. Most common fact pattern is ER/EE
b. Generally
i. Principal is liable in contract when agent enters into a contract on
principal’s behalf with AUTHORITY
ii. Principal can enforce a contract against a 3rd party when the agent enters
into a contract on the principal’s behalf with AUTHORITY
c. Types of Authority
i. Actual Authority
1. Express or implied
ii. Apparent Authority
iii. Ratification
1. Not really authority, but the result is the same
d. Type of Principal/Liability for Agent
i. Disclosed Principal
1. 3rd party knows there is a principal and knows the ID of the
principal
2. Agent is NOT personally liable on the contract
ii. Partially Disclosed Principal
1. 3rd party knows there is a principal, BUT does NOT know the ID of
the principal
2. Agent IS personally liable on the contract
iii. Undisclosed Principal
1. 3rd party does NOT know there is a principal
2. Agent IS personally liable on the contract
e. Agency Related Damages
i. Indemnification
1. Between principal and agent
2. Wrongdoer pays other’s entire damages
ii. Contribution
1. Both principal and agent were wrongdoers
2. Each pays fair share
VIII.
IX.
Tricky Terminology
a. Express Contract
i. Formed with words - oral or written
ii. i.e. “I will sell you my car for $500”
b. Implied (In Fact) Contract
i. Formed by conduct - mutual conduct shows mutual assent
ii. i.e. Sitting silently in a barber chair
c. Recovery if No Enforceable Contract
i. Available ONLY if there is NO enforceable contract
ii. *EXAM TIP: It’s IMPOSSIBLE to NOT AGREE that quasi-contract is a
MINOR issue
1. Unenforceable contract because of impossibility
2. No agreement means no contract
a. i.e. Doctor saves an unconscious person. Court orders
payment to avoid unjust enrichment.
3. Unenforceable contract (voidable) because of minority
iii. Quasi-Contract
1. 1 concept with 4 names  In essay, try to include all of these
terms
a. Quasi-Contract = Implied in Law Contract
b. Unjust Enrichment = Purpose of Contract
c. Quantum Meruit = Remedy Afforded
iv. Measure of Damages for Quasi-Contract  Restitution for Unjust
Enrichment
1. Unjust gain to Defendant
2. i.e. Painter works 5 hours, usual rate $30/hour ($150); increased
value to homeowner because paint job is $100
a. If implied-in-fact contract  Recover $150
b. If quasi-contract  Recover $100
Consideration
a. Generally
i. Consideration = Legal Detriment that is Bargained For
ii. Contract needs more than agreement
iii. KEY RULE (*LIAR WINS)  “A gift promise without reliance is
unenforceable”
b. Legal Detriment
i. Generally, either:
1. Do what you do not have to do, OR
a. No matter how small, even if give a “peppercorn”
2. Refrain from doing what you are permitted to do
a. Note: Not filing a law suit is valid consideration, if good
faith belief that suit might succeed
ii. Pre-Existing Duty Rule (*LIAR WINS): Not consideration if only do what
already bound to do
1. Police officer captures a bank robber in jurisdiction  NO
REWARD
2. “A will pay $100 if B stops walking across A’s yard”
a. B supplies no consideration because there is a pre-existing
duty not to trespass  NO CONTRACT
3. Paying less amount of AGREED upon, CURRENTLY OWED debt is
NOT CONSIDERATION
a. Example:
i. We agree: “You owe me $1,000 today”
1. I say: “I won’t sue for the rest if you pay
$700”  You agree and you pay
2. I can sue for the rest. There is no
consideration for my promise because you
ALREADY OWED me the $
ii. BUT, enforce Creditor’s promise not to sue for the
rest (Accord and Satisfaction) IF:
1. Creditor cashes check and either:
a. Good faith dispute over amount
owed; OR
b. Debtor pays earlier than required
2. “In Full Satisfaction”  Promise of creditor
to not sue for remaining balance
c. Modification
i. Modification: An agreement to change terms of an existing contract
1. Example:
a. Contract: A works for B for 1 year for $1,000/week. After 2
months, B wants to give A a raise to $1,200/week
b. Problem: Where’s consideration to support B’s new
promise to pay the extra $200/week?
ii. To be enforceable, a modification needs:
1. An agreement to modify; AND
2. Either (1 of these 4):
a. Consideration, OR
i. Pay more for more work
b. Recission, OR
i. Physically tear up first contract and replace with
new one
ii. On exam, NO recission unless torn up
c. Common Law, OR
i. Good faith response to unforeseen hardship
d. UCC
i. Good faith (no extortion)
d. Consideration Twists
i. Illusory Promise
1. Where promisor has 100% discretion whether to perform, so no
consideration
2. i.e. “I will buy if I feel like it” does not require anything - not
detrimental
3. BUT, courts imply good faith and best efforts
a. “I will be your exclusive agent, and give you 50% of my
sales, if any”
b. Courts imply best efforts, so we have a valid contract
ii. Alternate Promises
1. “Or” means “do either”
2. “You will pay. I will build a fence OR stop trespassing”
3. If one option is non-detrimental  No Contract
iii. Multiple Exchange
1. “And” means “do both”
2. “You will pay. I will build a fence AND stop trespassing.”
3. If one prerequisite is detrimental  Valid Contract
e. “Bargained For”
i. Consideration means detriment that’s been BARGAINED FOR
1. Need true exchange
ii. NOT hidden family gift (sham)
1. Dad promises Daughter a house when he dies
2. Daughter says, “Here’s a dollar to make it binding”
3. Not enforceable
iii. NOT conditional gift
1. “IF you come to my office after class, I will let you borrow my
book”
2. Not enforceable
iv. NOT past consideration
1. Because you named your son Wilber, I will give you $100
2. Not enforceable because it already happened
v. Special EXCEPTION
1. A debt barred by the Statute of Limitations can be revived by a
new promise to pay
a. I owed you $1,000, now time barred
b. I say, “I will pay you $600”
c. Enforceable to extent of the new promise: $600
X.
Promissory Estoppel
a. Usually a WRONG answer
b. Needs:
i. Promise, AND
ii. Reasonable Reliance on Promise
c. KEY TIP: Don’t use promissory estoppel as an answer if problem gives you
consideration
d. Examples:
i. “If you study 3 hours a day, I will pay for trip to every big league ballpark”
1. Enforce fully because of consideration, NOT because of
promissory estoppel
ii. “Because you studied hard, I will pay for trip to every big league ballpark”
1. You go to 3 parks, and then I call to cancel
2. Enforce because of promissory estoppel, despite no
consideration (only past consideration)
3. However, only get cost of reliance
a. 3 parks and then come home…why? (see below)
e. IMPORTANT: Only enforce “to extend necessary to avoid injustice”
i. Frequently, does not enforce the total promise
XI.
Statute of Frauds
a. When Applicable
i. “SLY ME GOODS”
1. Need writing for contract to be enforceable if contract involves
SLY ME GOODS
a. Suretyship
b. Land
c. Not performable within one Year
d. Marriage Contracts
e. Estate Executor’s Contracts
f. GOODS princes $500 or more
ii. S = Suretyship
1. Guaranty debt of another
a. Song of Suretyship = “If he doesn’t pay you back, then I
will”
b. 2 contracts with the same creditor  primary debtor and
surety - contingent debtor
2. Needs a writing (plus either consideration or reliance) to be
enforceable
3. STRANGE EXCEPTION
a. *MD = If the “main purpose” of the surety is to protect his
own economic interest, its called an “original
undertaking” and does not need a writing
i. Example: One debtor, many creditors. Creditor A
threatens to drive debtor into bankruptcy.
Creditor B wants debtor to stay in business so tells
Creditor A, “If the debtor doesn’t pay you back,
then I will.” Since the main purpose is B’s own
economic gain, this is an original undertaking and
does not need a writing.
b. *MULTISTATE = Same concept as above, but its called the
“Main Purpose” Exception and does not need a writing as
well
iii. L = Land
1. Transferring any interest in land needs a writing
2. EXCEPTION - PART PERFORMANCE
a. Pay, occupy, and improve
i. i.e. Oral K to buy land; Buyer pays, moves on land,
and builds fence; enforceable even though not
written
iv. Y = Contract Not Performable within One Year
1. If K has a time period requiring performance to extent beyond 1
year from the date of the making of the K, you need a writing for
the K to be enforceable
2. TIP: Compare date when K is MADE with EARLIEST time when
performance might POSSIBLE BE COMPLETED
a. Contract: “Work for 2 years”
i. NEEDS writing
b. Contract Today: “Work for 1 year”
i. Does NOT need a writing
c. Contract Today: “Work for 1 year starting after the bar
exam”
i. NEEDS writing
d. Contract Today: “Work for 1 day, July 4, 2020”
i. NEEDS writing
e. Contract Today: “Work for life”
i. Does NOT need writing - could die tomorrow
f. Contract Today: “Cut down all the trees in Alaska”
i. Does NOT need a writing because K does not
contain a time provision
ii. It theoretically could be performed quickly
3. TRICK: Clock restarts if “restate terms”
a. Oral 13 months contract (not enforceable) but…
i. After 2 months, employer says, “You have 11
months to go.”
1. Because can finish in less than a year after
“restatement” - now enforceable
v. M = Marriage
1. Promise to give consideration in exchange for marriage must be
written
vi. E = Estate Executor’s Contracts
1. Like the surety rule, where executor agrees to be personally liable
for an estate obligation - must be written
vii. G = Goods
1. Goods with price of $500 or more
b. SOF Writing Requirement
i. Writing that satisfies the Statute of Frauds  “Written Memorandum”
(anything written down)
ii. Common Law (SLY ME) Needs:
1. All essential terms, PLUS
a. Price, amount, time
2. Signature of party “being charged” (defendant)
a. Example: Law firm writes you, offering 3 year job; you call
to accept. They signed the writing and can be “charged” if
they breached. You did not sign; you are NOT bound by
the K
b. STRANGE RULE
3. MD EXCEPTION
a. In-court admission that K exists satisfies the statute
iii. UCC (GOODS) Needs:
1. Only essential term is quantity
2. Need signature of party “being charged” BUT…
a. Merchant’s Exception: If 2 merchants, one sends signed
writing that satisfies SOF for both, UNLESS the other gives
written objection in 10 days
3. UCC EXCEPTIONS TO SOF  Do NOT need writing for UCC if:
a. “Specially manufactured goods”
b. In-court admission that K exists
c. To the EXTENT that goods have been accepted and paid
for
XII.
Terms of the Contract
a. READ the Contract
b. PAROL EVIDENCE RULE
i. Generally
1. Parol evidence is Prior to a written contract
2. ISSUE: Is the jury allowed to consider what preceded a written
contract to interpret its meaning?
3. How to analyze:
a. Is the writing intended to be a final “contract”  Intended
to be integrated?
i. If not, OR if oral K  Use all evidence to interpret
contract meaning
b. If the writing was “intended to be final”  Is the writing
“fully” or “partially” integrated?
ii. Partial v. Full Integration
1. FULL (TOTAL) Integration  If not written, NOT part of K
2. PARTIAL Integration  Use parol evidence to add terms, but can
NOT contradict writing
3. PRESUME PARTIAL INTEGRATION OF WRITTEN K
4. Merger Clause aka Integration Clause:
a. If there is a conspicuous “merger clause” stating, “This K is
total and complete”  Treat as FULL Integration
5. Example:
a. Writing says, “Deliver Delicious Apples; $1 a bushel.”
Seller ships Red Delicious Apples. Buyer claims oral
agreement for Golden Delicious.
i. If FULL integration  Stick to writing, color not in
K, NO breach
ii. If PARTIAL integration  Color “supplements”
writing, part of K, breach
b. Note: Cannot use oral evidence to say 90 cents a pound contradicts writing
iii. WHEN do you ALWAYS allow in Parol Evidence?
1. Allow in evidence occurring AFTER the contract
2. Allow in order to clear up ambiguity
a. 2 reasonable meanings for the same word or phrase
3. To show NO K at all
a. i.e. Fraud
4. To show K’s existence was conditioned on some contingency
5. Example:
a. Writing says, “A + B will swap stocks.” A wants to prove
they had an oral agreement stating either:
i. “Until we raise $1 million, K is NOT IN EFFECT.”
1. Without $ there is no K at all  All evidence
for parol evidence rule comes in
ii. “Until we raise $1 million, this agreement is NOT
BINDING.”
1. Without $ there is no K at all  All evidence
for parol evidence rule comes in
2.
iii. “Until we raise $1 million, we don’t have to
PERFORM.”
1. Don’t have to perform; K still exists
b. Use parol evidence to show i and ii  Showing no K at all
exists
c. If merger clause  Can’t use parol evidence to show
example iii above, because this does NOT deny the
existence of a K, just do not need to perform
6. UCC: Use to supplement, but NOT contradict, the writing with (in
order of preference):
a. Course of Performance
i. What these parties have done under this contract
b. Course of Dealing
i. What these parties have done in the past
c. Trade Usage
i. What those in the same business do
c. Duties and Conditions
i. Duty = Promise
1. Covenant, obligation, guaranty, I will, you shall, you must
2. Perform or pay damages, UNLESS excused
3. Excuses like “changed circumstances” or … failure of condition
ii. Condition = Event that causes a duty to be owed
1. Express Condition
a. Language of express condition: “If,” “When,” “Unless,”
“On condition that…”
b. Example: IF I have an accident (condition), Allstate will pay
me (duty).
c. Express Conditions must be literally fulfilled
i. Example: K  “If A wins 20 games, B will pay a
bonus.” “If A wins 19 games, B does not have to
pay a bonus.”
2. Constructive Condition
a. 2 independent sounding duties without an express
relationship
b. Constructive conditions need only be substantially
performed
c. Example: K  “A will clean 100 windows. B will pay.” If A
substantially performs, B will have to pay something. (If A
cleans 99 windows, B must pay K price MINUS harm
caused by the breach.)
3. Who goes First in Constructive Conditions?
a. If one long performance and one short  Long (painting)
goes first
b. If both short (stock for stock, money for title) called
“concurrent conditions”  Whoever wants to go first,
goes first. If no one does, then there is no breach.
d.
e.
f.
g.
c. Contract can always give order of performance: “Pay
Monday, paint Tuesday”
Covenant Not to Compete
i. Enforce to extent REASONABLE in 3 ways:
1. Time
a. How long can’t you compete?
2. Geography
a. Where can’t you compete?
3. Scope
a. In what kinds of work can’t you compete?
ii. Purpose of a covenant not to compete must be to prevent unfair
competition (from using trade secrets or stealing clients due to inside
information). It is not to be enforced if purpose is to limit competition in
general.
Good Faith
i. In every aspect of contract performance
ii. UCC  Honesty
1. For merchants, honesty and “fair dealing”
iii. Imply “best efforts” by exclusive agents
iv. Non-Prevention: Can’t benefit by preventing the other from completing
the task
v. Condition of Satisfaction: Usually, must be subjective, good faith
determination
1. Rejection allowed if dissatisfied with performance, NOT with COST
2. For 3rd party satisfaction (architect), parties bound by good faith
decision (no fraud)
Liquidated Damages
i. Definition: A clause/statement in contract of remedy in case of breach
ii. If provided for in K, can recover liquidated damages for breach
iii. But, only recover liquidated damages if they are a “reasonable estimate”
of the harm that could be anticipated
iv. If liquidated damages are excessive, treat as unenforceable punitive
damages
UCC Warranties
i. Promise of Quality: Can be express or implied
1. EXPRESS Warranties
a. Fact statement (odometer) or Promise (repair for the next
30 days)
b. NOT puffery or opinion
i. i.e. “I Can’t Believe It’s Not Butter”
c. Express warranty rules apply to common law contracts too
i. Cannot (usually) be disclaimed
2. IMPLIED Warranties
a. Generally
i. Merchantability and Fitness for a Particular
Purpose
b. Merchantability - Must be a merchant
i. Goods fit for “ordinary purpose”  No defects
1. 3 typical defects:
a. Manufacturing Defect
b. Design Defect
c. Insufficient Instructions
ii. ONLY if sold by a MERCHANT
iii. To disclaim  Must use word “merchantability”
and be conspicuous
c. Fitness for Particular Purpose
i. *MD Favorite
ii. Goods fit for buyer’s special purpose
iii. NEED:
1. Special (not ordinary) purpose for buying
goods;
2. Seller knows purpose; AND
3. Buyer relies on seller
a. Buyer NOT rely if ask for trade name
iv. Fitness warranty can be given by ALL UCC SELLERS
(MERCHANTS and NON-MERCHANTS)
v. Disclaimed by conspicuous language - “as is”
ii. Disclaimers of Implied Warranties
1. MBE
a. Can disclaim both implied warranties with conspicuous
language  Use word “merchantability” in disclaimer
b. Implied warranties disclaimed if sold “as is” or “junk”
c. Cannot disclaim express warranties
2. *MD Difference
a. Can NOT disclaim either implied warranty for consumer
goods
b. Manufacturer can NOT limit remedies for breach of
express warranty for consumer goods, UNLESS the
manufacturer provides easy means to perform express
warranty obligations
h. Express UCC Terms
i. Output and Requirements Contracts
1. Output Contract
a. Buyer promises to buy all seller produces
b. “I will buy all the bread crumbs you bake”
2. Requirements Contract
a. Seller promises to provide all the buyer needs
b. “I will provide you all the gasoline you need”
3. What Amount is Due?
a. “Not unreasonably disproportionate from estimates or
past practice”
b. Ask: Is there a good faith reason for large deviation?
ii. Installment Contracts
1. K provides for multiple deliveries of goods
iii. Places of “Delivery”
1. Legal Delivery: When legal ownership changes, not necessarily
physical possession; can occur at 4 possible places:
a. Seller’s place of business
b. 3rd party holds goods (garage, repair shop)
c. Shipment Contract: When seller gives to ship, truck, etc.
d. Destination Contract: When goods actually reach buyer
iv. Mercantile Symbols
1. Shorthand for when during transit, obligations and risks shift from
seller to buyer
2. FOB = Free for Buyer until…
a. “FOB NYC”  Free for buyer until goods reach NYC; seller
responsible until then, and buyer is responsible after
b. “FOB Cars”  Free for buyer until seller loads goods onto
cards
c. “FOB Shipment Point”  Free for buyer until at dock;
buyer pays to load and ship
XIII.
Performance
a. Do the facts show that the duties discussed in the “terms” section were
performed?
b. Risk of Loss
i. “Delivery” and Risk of Loss
1. KEY TIP: Which party loses when goods are destroyed depends on
location of “delivery”
ii. Who loses when goods are destroyed?
1. If delivery at seller’s place of business:
a. If seller is a merchant  Risk of loss stays on seller until
pickup
b. If seller is a non-merchant  Risk to buyer a “reasonable
time” after goods available
2. If goods move in transit:
a. If Shipment K or “FOB Seller’s Place”  Risk on buyer
after the carrier gets goods
b. If Delivery K or “FOB Buyer’s Place”  Risk on seller until
at delivery point
3. If train blows up and goods are destroyed:
a. If risk on buyer  Buyer pays price and gets nothing
b. If risk on seller  Seller replaces or is liable for nondelivery
i. BUT - Identified Goods:
1. If a specific good is “identified” at time of K
(and specific unique antique desk or buyer
is told common goods “selected” for buyer),
and destroyed, and risk on seller  no
breach - neither party has to perform
2. Basically: If goods have been identified and
goods are destroyed  K is now void
because K is now impossible (no breach)
a. But if goods are not identified, then
seller still needs to perform by
sending new goods
4. Special cases:
a. If seller ships non-conforming goods  Risk always on
seller
b. “Sale on Approval”  Contract says buyer is purchasing
goods for OWN use and can return even if they conform
 Return at seller’s risk
c. “Sale or Return”  Contract says buyer has right to return
conforming goods that are not resold  Return at buyer’s
risk
XIV.
Excuses and Defenses
a. Generally
i. Some are defenses to contract formation, leading to a finding that no
contract never existed OR that the contract is voidable
ii. Some excuse performance where there was a valid contract
b. Capacity
i. Usually minors (under 18 years old)
1. If under 18, contract is VOIDABLE
2. ONLY the kid can get out, adult is bound
3. ONLY obligation for kid  Return what they have, if anything
4. EXCEPTION FOR NECESSARIES (food, clothing, etc.)
a. Then, enforce as a “quasi-K”  Is it a fair price for kid to
pay?
5. Kid can avoid (get out of K) any time while a kid
6. To RATIFY K (lose power to get out), kid becomes adult, AND
a. Does a positive act indicating assent; OR
b. Does nothing for “too long” after becoming an adult
c. Illegality
d.
e.
f.
g.
i. Usual Rule: Courts do not want to be involved AT ALL with illegal
contracts
ii. If one party is “less” at fault (debtor v. loan shark)  Weaker party can
sue
iii. If K was legal, but performance became illegal
1. “Impossible” to perform; no one is bound
iv. If only part of K is illegal  Sever and enforce the rest
Unconscionability
i. So one-sided as to “shock the conscience”
ii. Only if unfair when made, not later events
iii. Unconscionability is a question of law (for judge)
iv. Result: Court can strike out or limit unfairness
1. Contract NOT AVOIDABLE
Fraud
i. Makes K VOIDABLE
ii. Known lie
iii. No duty to give information, UNLESS need to:
1. Correct previous statement which has become inaccurate
2. Correct known arithmetic error
3. Correct “Basic Assumption” that other party could not discover on
their own
iv. Full disclosure if fiduciary (lawyer, broker)
Duress
i. Deprive of meaningful choice
ii. Makes K VOIDABLE
iii. NOT duress if take advantage of economic distress YOU DID NOT CAUSE
iv. ONLY duress if “wrongful threat” (i.e. “You will lose custody of your kids
if you don’t take pay cut.”) or physical threat
Mistake
i. Mistake of Material Fact at time of K - Makes K VOIDABLE
1. NOT bad prediction (“I thought stock would rise”)
2. NOT a “mistake” when assumed risk of error
a. K says, “Pay even if wrong.”
b. Conscious Uncertainty
i. If you are aware you lacked sufficient knowledge
and proceed anyway
ii. “I have a rock and am not sure what it is. I think it’s
only a topaz.” I sell it for $10. It turns out to be a
diamond worth $50K. NOT VOIDABLE.
ii. Mutual Mistake (LEGAL TERM)
1. Both parties wrong on material fact at time of K
a. Sell land with trees. Unknown to both, prior to K, fire
destroys all trees. VOIDABLE.
iii. Unilateral Mistake
1. One party wrong (Usually contractor bids too low)
2. Only avoid K if non-mistaken party knew or should have known
error OR if result is “unconscionable”
a. Example:
i. Four Bids: 3, 4, 5, and 6. Even if low bid is “error,” K
NOT VOIDABLE
ii. Four Bids: 3, 7, 7, and 7. Low bid is an “obvious
error,” K VOIDABLE
iv. Plain English Mistakes (Not legal mistakes)
1. Misunderstanding: 2 ships named Peerless, each party had
different equally reasonable understanding of the same word 
No K
2. Mistake in Transmission: Fax received different than sent a. K as received UNLESS mistake “known or should have
been known”
3. Reformation
a. 3 part story
i. Oral agreement
ii. Intend to put specific term in writing
iii. Writing omits or restates term
b. Result
i. Reform writing to include correct term
ii. K NOT VOIDABLE
h. Changed Circumstances - AFTER THE K IS MADE
i. MIGHT excuse non-performance, if not assume risk
ii. Types of Excuse by Changed Circumstances:
1. Impossibility
2. Frustration
3. Impracticability
iii. General Format
1. Day 1, K. Day 2, something surprising happens. Day 3,
performance due.
i. Impossibility (LEGAL TERM)
i. *BE CAREFUL: Bar examiners like to try and trick you by using
impossibility in its plain English meaning
ii. Requires OBJECTIVE Impossibility
1. No one could do it (i.e. port blockaded now illegal to do)
2. NOT “I’m out of money”
iii. Personal Service K and promisor dies
1. “Picasso will paint picture”
2. BUT, if K to buy car and buyer dies, estate must pay
iv. Destruction of SPECIFICALLY MENTIONED subject matter
1. K to rent Carnegie Hall, which burns down  Performance
excused
2. Farmer contracts to sell 100 bushels of potatoes from HIS FARM;
and drought causes no potatoes to grown on his farm 
Performance excused
a. TRICK: If Farmer contracts to just sell “potatoes” - NOT
potatoes from HIS FARM - he can always go to market to
buy other potatoes to perform K
v. NOTE: IF impossibility happens after performance begins
1. K to fix roof, ½ is done, fire destroys HOUSE. Impossible to fix roof
when house is gone; roofer is “excused.”
a. Gets paid pro rata share (1/2) for work as “quasi-K”
j. Frustration of Purpose
i. K has NO value
1. Pay to watch parade, and parade is cancelled
a. There is zero value in sitting in the room and watching an
empty street
k. Impracticability
i. Unforeseen change fundamentally alters nature of performance
1. Prices double; work MUCH harder than expected
2. Mathematically, at least more than TWICE the amount of
performance
XV.
Is There a Breach?
a. Breach at Common Law
i. 3 Types of Breaches  Total, Material, and Partial
1. Total Breach
a. A total breach is either:
i. A repudiation, or
1. An unequivocal statement of nonperformance
ii. A very, very serious breach, or
iii. A material breach that has not been cured
2. Material Breach
a. A material breach occurs when there is “no substantial
performance”
i. If promisor does less than 90-95%  There is a
material breach
1. i.e. Building only ¾ of a house is a material
breach
3. Partial Breach
a. Occurs when there is “substantial performance” but some
(usually minor) breach
i. i.e. Paints all of house, but missed the garage door
ii. EFFECT of Different Types of Breaches
1. Total Breach
a. Permits victim to:
i. Rescind contract
ii. Suspend own performance
1. i.e. Need not pay breacher
iii. Sue for damages
iv. Hire replacements
2. Material Breach
a. Permits victim to:
i. Suspend own performance
1. i.e. Need not pay breacher
ii. Sue for damages
iii. Can NOT hire replacements yet
3. Partial Breach
a. Permits victim to:
i. Can NOT suspend own performance
1. Must still perform
a. i.e. Must pay breacher
ii. Sue for damages
iii. Late Performance
1. Brief delay in performance usually is NOT a material breach,
UNLESS K says, “Time is of the essence.”
b. Breach Under UCC
i. Perfect Tender Rule
1. The buyer can reject the entire shipment if there is ANY defect,
no matter how small
ii. Right to Cure?
1. Can seller repair defect or try again?  Usually NO, UNLESS:
a. Time left on K to perform, OR
i. To deliver car on May 15, but deliver on May 1
b. Seller in Good Faith believed foods were going to be
acceptable, OR
i. Ship different but “improved” version of product
c. For Installment K (multiple deliveries), Seller always has
right to cure
c. Divisibility
i. Look for UNIT PRICING
1. Paint 3 houses, $2,000 EACH
ii. TRICK: Treat each unit like a separate contract
iii. Employment Contract
1. Usually divisible by salary period (i.e. weekly)
iv. Construction Contract
1. Usually not divisible
d. Waiver and Ratification
i. *MD Favorite
ii. Waiver
1. Intentional relinquishment of known right
2. Say, “It’s OK if you deliver a few days late”
a. Irrevocable upon reliance
iii. Ratification
1. Proceeding after knowledge of mistake, etc.
XVI.
WHEN Can You Sue for Breach of Contract?
a. Non-Performance
i. Normally, only when it’s time for duty and duty actually not performed as
promised
b. Anticipatory Repudiation
i. Sometimes can sue when TOLD performance won’t occur
ii. Repudiation:
1. Clear and unequivocal statement or act, “I won’t perform”
iii. EXAMPLE
1. K made on 1st for A to paint on the 15th and B to pay on the 15th.
On the 10th, B says, “I won’t let you paint.” A can sue on the 10 th
OR wait until the 15th when performance was due.
iv. BAR TRICK
1. Plaintiff can’t sue early, but MUST WAIT for time when
performance is due IF either:
a. Good faith dispute over K
i. Disagree over what’s required
b. Plaintiff has finished performance
i. Example: K says, “A paints on the 15th. B to pay on
the 20th.” On the 16th, A is finished. B says, “I won’t
pay.” Because A is done working, A can’t sue on the
16th. A must wait until the 20th to sue. BUT, if A
was only partly done on the 16th, would be able to
sue on the 16th.
v. Retraction:
1. Repudiation can be retracted (“I changed my mind, I’ll let you
paint.”) UNLESS the other party:
a. Sues,
b. Relies on repudiation, OR
c. States, “I accept your repudiation”
vi. UCC ONLY
1. “Demand assurances” if:
a. Reasonable grounds for feeling insecure; and
b. Make written demand for assurances (can suspend own
performance while wait); and
c. If not receive good assurances in 30 days, treat as
repudiation and sue for breach
i. Quicker assurance if performance is due soon
XVII.
3rd Party Issues
a. 3rd Party Beneficiary
i. Example
1. A + B make a contract; A will paint B’s house, if B pays C
2. C is NOT a party to the contract, but may have rights
ii. 3 Issues:
1. Who Has Rights?
2. Defenses During Litigation
3. Vesting
iii. Who Has Rights?
1. INTENDED Beneficiaries
a. ONLY intended beneficiaries have rights
b. KEY: One party wants to help; the other knows of intent
c. TIP: Look for 3rd party NAMED in contract and facts give
some “reason” for helping him
i. Example: Creditor or relative of one of the parties
2. INCIDENTAL Beneficiaries
a. If no one really cares about 3rd party, he’s an incidental
beneficiary
b. Incidental beneficiaries have NO rights
iv. Defenses During Litigation
1. EXAMPLE
a. A and B make a contract
b. A will paint B’s house, if B pays C
c. After A paints, if B does not pay, either A (who is a party to
the K) or C (intended 3rd party) can sue
d. If A sues, B may have defenses
i. Breach by A, limitations, etc.
e. If 3rd party C sues, any defense B could have used against
A, can be used against C
v. Vesting
1. When A and B lose the right to change K, without C’s consent
2. Before vesting  A and B can change K so that C gets nothing
3. After vesting  A and B cannot change K without C’s approval
4. If K SILENT, vesting occurs when 3rd party either:
a. Changes position in reliance;
b. Sues to enforce; OR
c. Says, “I assent to this arrangement”
5. TIP: If C does NOT know of K, can’t be vested. So A and B can
change K to exclude C.
b. Assignment and Delegation
i. Generally
1. 2 different things  Even though exam often uses “assignment”
to refer to both
2. You assign RIGHTS to RECEIVE benefits
3. You DELEGATE DUTIES to DO something
4. It’s easy to assign rights, it’s difficult to delegate duties
ii. Assignment
1. Presume allowed to assign rights, unless K specifically says,
“Assignments are VOID” or “Assignment of Rights is Prohibited”
a. *MAGIC WORDS
b. CAN assign rights even if K says, “I will NOT assign this
contract.”
i. Still a breach, but damages are likely only nominal
2. Gift assignments are enforceable
a. Like any other gift, NEED:
i. Present donative intent (intend to give NOW),
AND
ii. Delivery
1. Of some physical thing - title, bank book,
piece of paper
3. Defenses during litigation involving assignments - EXAMPLE:
a. A sells TV on credit to B. A assigns right to receive
payments to C.
b. A is assignor; C is assignee; B is obligor (or debtor)
c. If B does not pay, C stands in the shows of assignor A for
lawsuit
d. C can sue B, but
i. Any defenses B could have used against A (i.e.
breach of warranty, fraud) are usable against C
ii. RULE: If B wouldn’t have had to pay A, not have to
pay C
4. Duty to NOT Impair Value of Assignment
a. Assignor (A) has responsibility to Assignee (C)  Not
impair value of assignment
b. Example
i. If Assignor (A) breaches warranty, Obligor (B) does
not have to pay Assignee (C)
ii. Assignor (A) then must pay Assignee (C) damages
iii. Delegation
1. Delegation NOT allowed if:
a. “No delegation” clause included in contract
b. Even without “no delegation” clause in contract, do NOT
allow delegation of “personal skill” - someone of
especially high skill
2. If delegation is allowed, Delegator remains liable
a. EXAMPLE: I agree to mow your lawn. I delegate my duty
by hiring kid to mow your lawn. If kid does a bad job, I am
still responsible, UNLESS… (Novation)
3. EXCEPTION  Novation
a. An express agreement to substitute and relieve the
original promisor (delegator) of duty  Delegator no
longer liable
b. HINT: NEVER IMPLY A NOVATION
i. Only find a novation if there is an express
statement that the original party is being replaced
and relieved
4. TIP: Look for delegation of contract duty; original obligee (party
owed duty in original K) is an intended beneficiary
a. EXAMPLE: B contracts to mow A’s lawn; B delegates duty
to mow to C; A is an intended beneficiary of K between B
and C and can sue C to enforce it.
XVIII.
Remedies
a. UCC Obligations PRIOR TO RECOVERY
i. Buyer options for delivery of NON-CONFORMING goods
1. Reject; Accept; or Revoke Acceptance
2. NOTE: Do NOT confuse this “acceptance” of goods with the
“acceptance” of an offer that creates a contract
3. Rejection of Goods
a. Buyer can reject goods for ANY defect (Perfect Tender
Rule)
b. Then, treat as if NEVER delivered
4. Acceptance of Goods
a. NOTE: Do NOT confuse this “acceptance” of goods with
the “acceptance” of an offer that creates a contract
b. Buyer accepts goods by saying “OK” or failing to reject
after time to inspect
i. NOTE: Buyer can physically have goods and pay for
them without accepting prior to time to inspect
c. Buyer can accept and keep defective goods and sue for
Warranty Damages:
i. Value of Goods As Warranted MINUS Value of
Goods As Delivered
1. Only if buyer GIVES NOTICE of
defect/breach in REASONABLE TIME
5. Revocation of Acceptance
a. *MD Favorite
b. Buyer can revoke acceptance ONLY IF:
i. Defection substantially impairs value (big
problem), AND
ii. EITHER
1. Buyer was told defect would be fixed and
it wasn’t, OR
2. Defect was difficult to discover on
reasonable inspection
c. If allowed to revoke acceptance, treat as rejection
b. Goal of Contract Remedies
i. Usually the remedy is $$$$
ii. GOAL is to compensate victim, not punish breacher
c. Expectancy Damages
i. Generally
1. Put victim where would have been if K was performed
2. 3 Types of Damages  (Can recover all 3):
a. Direct Damages
b. Consequential Damages
c. Incidental Damages
ii. Direct Damages
1. Difference between value of what you would have gotten if K
performed and value of what you actually received
2. EXAMPLE: K to build $100,000 home
a. If BUILDER breaches and buyer gets new builder for
$115,000
i. Damages: NEW K - OLD K
1. 115,000 - 100,000 = 15,000
b. If BUYER repudiates BEFORE work begins, and labor plus
supplies would cost $80,000
i. Damages: K PRICE - COST AVOIDED
1. 100,000 - 80,000 = 20,000 (or “expected
profit”)
c. If BUYER repudiates AFTER some work done, and builder
already put in $10,000
i. Damages: AMOUNT PUT IN + LOST PROFIT
1. 10,000 + 20,000 = 30,000
d. UCC Damages
i. Different remedies/damages for Buyer and Seller
ii. EXAMPLE: K for $10,000 car
iii. BUYER’S Remedies
1. If no delivery or there is a proper rejection OR revocation of
acceptance, BUYER can sue for either:
a. COVER DAMAGES  Buy substitute goods, OR
i. If get replacement car at good faith price of
$10,500
1. DAMAGES: COVER PRICE - K PRICE
a. 10,500 - 10,000 = 500
b. MARKET PRICE DAMAGES
i. If market price of that car at time of breach has
increased to $11,000
1. DAMAGES: MARKET PRICE - K PRICE
a. 11,000 - 10,000 = 1,000
iv. SELLER’s Remedies
1. If buyer does not accept conforming goods, SELLER can sue for
either:
a. RESALE DAMAGES, OR
i. If resell in commercially reasonable way for $8,000
1. DAMAGES: K PRICE - RESALE PRICE
a. 10,000 - 8,000 = 2,000
b. MARKET PRICE DAMAGES
i. If market price of that care at time and place of
delivery has decreased to $9,000
1. DAMAGES: K PRICE - MARKET PRICE
a. 10,000 - 9,000 = 1,000
2. 3 Special Remedies for Special Circumstances
a. Resell Unfinished Goods
i. If goods are being manufactured when buyer
repudiates;
ii. Seller either finishes and resells OR stops work
and sells as junk
1. Whichever leads to the lowest damages
b. Action for Lost Profits
i. Lost Volume Seller: If seller had 10 boats, K with A
to buy a boat, A repudiates, and seller sells same
boat to B at same price
ii. The remedy is Lost Profit
1. Seller would have sold 2 boats but for the
breach
c. Action for the Price
i. Seller can sue for full K price ONLY if can’t resell:
1. NO Resale Market, or
2. Goods destroyed, or
3. Buyer wrongfully keeps goods
e. Consequential Damages
i. Generally
1. Flow FROM direct damages
a. EXAMPLE: Bad construction of motel roof  2 types of
damages
i. Cost of repair of roof  Direct Damage
ii. Lost profit while being repaired  Consequential
Damage
ii. 3 Limitations on Consequential Damages
1. Foreseeable
a. Foreseeable at time of K
b. Foreseeable means either:
i. “Naturally occurring” - Natural and probable
consequences of the breach, OR
ii. Disclosed - Contemplated by the parties
2. Reasonably Certain
a. Damages must be established with reasonably certainty
b. Use business’s history to assess certainty of damages
c. Note: Lost profit of a new business is not “reasonably
certain,” UNLESS it replaced a similar business at the same
location or same owner has other stores
3. Unavoidable - Duty to Mitigate
a. KEY TIP: Never recover for losses you could HAVE
PREVENTED
b. Never recover for unnecessary payments (gratuity or tip)
c. Note: Employee suing former employer need only take
“similar job” to mitigate damages
f. Incidental Damages
i. Minor expenses resulting from breach
1. i.e. postage and handling; advertising and storage
g. Summary - Example
i. UCC K for $10K ice cream maker; no delivery; Buyer advertises for new
machine in paper costing $100 (cost of ad); Buyer buys replacement
machine for $12K and loses $500 profits while waiting for new machine
1. Buyer can recover:
a. Direct Damages from “cover”  12,000 - 10,000 = 2,000
b. Consequential Damages  Lost profits of 500
c. Incidental Damages  Cost of ad 100
h. NO PUNITIVE DAMAGES
i. Never penalize for breach
ii. But, if provided in K, can recover Liquidated Damages if they are a
“reasonable estimate” of the harm that could be anticipated
i. SPECIFIC PERFORMANCE
i. Equitable Remedy - Injunction to perform K promise
ii. KEY TIP: Only get specific performance if “unique”
iii. UCC
1. Unique goods (1940 Rolls Royce), or
2. Irreplaceable K (long-term K when no one else in the business is
offering)
iv. Land
1. All real estate
v. Employment
1. Can’t force someone to work, but can stop from working
elsewhere
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