Professional Documents
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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.
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 buyers needs. For example, you make a deal with a local
supplier saying that Ill buy all of my wine from youexclusivity 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
cant 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
Contextwhat is the setting?
o Watch for the bargaining historyhistory 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, its 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
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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
revokedMUST HAVE ALL OF THESE EXACTLY
3 month ceiling to itonly 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
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? 3rd 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 theres no problem with rejection, you must
then look to the acceptance.
4 Fact patterns regarding acceptance to watch for
Mailbox rulewhere 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 acceptthis does not create a
bilateral contract
Notice of acceptance2 rules to apply
o Acceptance by promise has to be communicated to offeror
o Acceptance by performancewhether facts are such that the person would
reasonably know you have performed
Must give notice when other party wouldnt know that you have started
performing
Sale of goods questionwhere facts are that buyer offers to buy goods and seller sends
the wrong stuff2 consequences
o That creates a dealsending wrong stuff is acceptance
o Can now sue for breach
o Accommodation exceptionsends wrong stuff with explanation
Doesnt 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 assentonly 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
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2.2
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 thoughquasi K obligation
o not agreed to pay agreed upon amount but fair and appropriate
amount
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 quasicontract. 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
Duressnot just physical duress but economic duress too
o Looking for 2 things in economic duress
Improper threat by did person who is trying to enforce deal do
something improper
is he left with any reasonable alternative?
Improper threat standard
o Watch for 2 fact patterns
Fact pattern #1: involving changing the dealmodification in contracts
Look at litigation settlement where settled for less than she had
previously acknowledged that she would
Undue influence
o Unfair threat not impropermilder standard for
o Look at tougher standardmust be under domination of
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reason to
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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.
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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, thats a
benevolent gift that is not enforceable.
If you stop listening to Barry Manilow Ill 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 who made the promise
o Promisee
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
Performanceto wash car for example
Promise to perform
ForbearanceWilly my boy
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 actors detriment
3. only way to avoid injustice
MORAL OBLIGATION (#2)
situation in which worker injures himself saving his employers life and employer
promises to pay employee
3) The earlier agreement doesnt 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 judges 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 doesnt 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: cant 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
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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 isnt 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 dont have to perform b/c other guy didnt 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
dont 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 housedeal 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
Dont have 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 exceptionif contract said I will pay you 1000 for painting
my house white on the condition that you use Sherwin Williams paint
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did it
o
o
o
o
Rule of thumbif 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 excusedusually 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 doesnt 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
3rd party beneficiaries
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Contract between two people and both intend for a third party to benefit from the
contract
Life Insurance contractinsured 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
o Gotham=assignor
o Metropolis=assignee
Here we have changed Batmans dutieshe 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.
a. A buyer that has a particular purpose and is relying on the seller to provide that good and
the seller knows of the buyers need and reliance on the sellers 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 dont 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 cant 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
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II.
Excuse of Nonperformance
A. Nonperformance is sometimes excused, 5 grounds for excuse
B. If there was a conditional obligation and the condition wasnt 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 cant sue because it
excuses the other party (Cant 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 occurrence that is no ones 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, cant
use concert hall.
2. Frustration of Purpose performance isnt 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. Its not
impossible, but the purpose for agreement is frustrated by later occurence.
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?
There are NO PUNITIVE DAMAGES IN CONTRACT LAW or UCC. Contract law is
not interested in punishing breaching parties. Torts allow punitive.
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.)
Reformation need to conform the written contract to what it is that the party
actually agreed to. We agree its the 19 south acres, but the written agreement
comes out 19 southeast acres. Conform to meet the parties agreement.
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 he doesnt want to.
They cant sue him to force him to coach, but they can get an injunction disallowing
him from coaching another team.
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, thats where the person would be had the contract
been performed
b. Ive 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?
B.
C.
D.
E.
F.
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c. Sale of goods sell Caddy thats in mint condition, but its not in mint condition.
You want to keep the car, but you want some of the money back because its 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.
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 3rd 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 cant sue on the contract, always look for a quasi-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 Ys purpose in going to the spot.
Rejection - Counter offer, conditional acceptance, adds terms under common law
Terms of Contract
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The terms of a contract are found in what is written and what is said. You can also find
them in the terms of previous dealings, if there has been a course of dealings between the two
parties. The custom of the industry is relevant and can dictate the terms and what they mean.
Prior dealings how these people did their deals together, person specific
Custom and usage info about how deals with other people in the industry were
done
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