california bar exam outline - contracts
California Bar Exam Outline - Contracts
This is an outline which I created as part of my preparations for the July 2000 California Bar Exam. I started with the outline of subjects covered on the MBE exam provided by the National Conference of Bar Examiners. To that outline I added the additional topics tested on the California Bar Exam. I then filled in the substantive information for those categories from the following sources:
- PMBR lecture tapes (24 tapes covering torts, K, property, con law, crim law, and evidence).
- BarBri "Early Bird" lectures covering K, evidence, crim law, crim pro, con law, civ pro, bus org, community property, and property.
- PMBR Multistate Workbook Volume 1 Outlines (torts, K, property, crim law, crim pro, evidence, con law)
- PMBR Multistate Workbook Volume 1 MBE answers
- PMBR Multistate Flashcards
- Strategies and Tactics for the MBE, by Emanuel
- PMBR 6-day lecture and �Early-Bird� Workbook (MBE answers and Multistate Issue Graphs)
- Exam approach
- Applicable law (CL or UCC); formation (offer, acceptance, consideration, defenses); terms of the K and defenses; performance and excuses to performance (frustrations); breach � major and minor (be sure to discuss both); TP beneficiaries, assignees, delegees; Remedies and damages (money, restitution, then equity).
- UCC Applicability
- Applies to sale of goods (not land, services or intangibles).
- If between merchants (makes a livelihood by dealing in the subject matter, or represents that he does), K triggers harshest provisions of UCC modifying common law, and between non-merchants, or merchant/non-merchant.
- Formation (favored)
- Objective theory of K formation: Viewing the actions of the parties as a reasonable person, did the parties manifest mutual consent? Public policy tends to presume that a contract was formed.
- K: Legally enforceable agreement, either express (words) or implied (conduct).
- Unilateral K: K results from offer requiring performance or refraining from performance to accept. Fact pattern indicates reward, contest, or if offer expressly requires performance (if you do X, I�ll do Y).
- No revocation after offeree makes substantial beginning toward performance, but not mere preparations (CL required total and complete performance).
- At common law, offeree wasn�t bound to complete performance unless offeror knowingly relied upon offeree�s conduct. Modern law and UCC says that part performance communicated to offeror carries implied promise that offeree will fully perform. If performance is defective, breach exists.
- Offeree should notify offeror of acceptance to preclude revocation of offer.
- Performance must be done within a reasonable period of time.
- If offeror improperly revokes, offeree must complete performance per offer to recover damages.
- ML favors bilateral, and if it is unclear whether offer is uni or bi, acceptance can be made by either promise or performance.
Bilaterial K: K results from offer open as to how it can be accepted. Performance may be one way to accept. Quasi-K: Equitable remedy to avoid unjust enrichment. No actual K exists. Implied-in-fact K: Created by conduct of the parties, such as auction where bidder raises hand to bid.Offer
- Manifestation of a willingness to be presently bound by K which reasonably justifies the offeree in believing that his acceptance will create a K.
- Advertisements are invitations for offers and not offers without explicit commitment to sell specific items upon specific terms (i.e. "first come, first serve"). But advertisement is an option if it has definite language making it apparent that advertiser is willing to be bound. If the option is made to more people than can accept, it is an invitation.
- Preliminary negotiations not offers. Test is if a reasonable person in offeree�s position would have concluded that an offer had been extended. Factors: Seriousness of language, significance of setting, addressed to specific person or public. Auction with reserve is an invitation to make offers, while without reserve is an offer to sell.
- Not an expression of future intent.
Sufficiently definite as to essential material terms: Parties, subject matter, time for performance, price.
- If the offer is silent as to a term, UCC implies reasonable term: Price is reasonable and due at time of delivery; performance is reasonable time at seller�s place. K still exists so long as parties intended there to be a K, and reasonably certain basis exists for remedy.
- Ambiguity of essential term which threatens the commercially reasonable expectations of the parties
- If ambiguous to both, no K exists.
- If ambiguous to one, the innocent party is protected. p �s terms used if D �s interpretation is not reasonable, or if D was responsible for failing to preclude the misunderstanding while p had no such opportunity. p can waive misunderstanding and adopt D �s interpretation.
- Outputs (X buys all Y produces) or requirements K (X buys all she needs from Y) can be vague to quantity if expressed in terms of buyer requirements. But parties not bound to quantity unreasonably disproportionate to any stated estimate or normal prior quantity. UCC: Previous conduct between parties may be used to interpret K, and common usage of the trade.
Mistake: Where the terms do not convey intention of one or both of the parties or the parties were mistaken as to a material fact:
- If the mistake is solely about the value of the subject matter, no rescission. If the mistake is about the quality, then rescission allowed if it was mutual.
- Mutual mistake: Either party can rescind K if mutual mistake (i.e. mistake of fact existing at formation stage) which negates a basic assumption of both parties which is of major consequence.
- If K is executed, equity of rescission exists only if mistake discovered within reasonable time.
- Disclaimer of warranties has no effect on ability to rescind K.
- Unilateral mistake: No avoidance unless other party knew of mistake.
- If the mistake was caused by miscalculation by offeror, or type-o in transmission, no acceptance where error was so obvious that offeree should have realized that a mistake had been made (considering terms of other offers and prior course of dealings). Otherwise, K exists on the mistaken terms! No relief for merely a business judgment error, even if too good to be true.
Communication of intent and content to identified offeree made and intended by offeror. Termination (no resurrection)
- Revocation by offeror
- Later statement or conduct by offeror indicating revocation, effective when learned of by offeree from offeror or reliable source is an effective revocation, even if statement by offeror was false (i.e. O said he sold the car to someone else, but he really didn�t).
- Public offer revocable by making reasonable efforts to communicate with the same audience to whom the original offer was extended.
- Valid even if offeror promised not to revoke, unless irrevocable:
- Option K: Promise to keep offer open supported by consideration. Offer foreseeably and reasonably relied upon by offeree. Example: Subcontractor�s bid which contractor passed on to purchaser. Partial performance of offer to enter into unilateral K (but mere preparation is insufficient). UCC Firm Offer: Merchant�s signed written offer for sale of goods, promising to be kept open for time stated, or a reasonable time, up to 90 days. If form provided by offeree, clause must be separately signed. Auction: Goods put up at an auction "without reserve" may not be withdrawn once auctioneer calls for bids. Reserve auction different??
Rejection by offeree
- Counteroffer, but not inquiry to bargain
- Conditional acceptance ("I accept, if <new term>") is a rejection (and a counteroffer).
Lapse of time, either as stated in offer or after reasonable time given subject matter.
- In-person or phone offer usually lapses at end of conversation. For a dated writing which states it will be held open for specified number of days, the time period begins upon receipt.
Death or incapacitation of either party, unless option K exists. Destruction of subject matter Supervening illegality of subject matter Attempted acceptance of terminated offer is counteroffer.Acceptance
Expression of assent by offeree to the offer, communicated to offeror prior to revocation or termination of the offer.
- Medium: Under common law, acceptance had to be by same manner and medium as offer. UCC says acceptance can be by any reasonable manner or medium, unless expressly specified in offer. Silence: Valid acceptance if offeree intends acceptance and offeror prescribes silence as a means of acceptance; or previous dealings imply acceptance; or if offeree takes the benefit or exercises control over the goods. Acceptance by shipment of goods (when allowed) is a valid acceptance, even if the goods shipped are nonconforming. Timing
- Acceptance effective when dispatched via expressed or commercially reasonable manner, otherwise when received.
- Offer K requires actual receipt of acceptance by offeror of acceptance.
- Revocation or counteroffer effective when received.
- Mailing acceptance before revocation received forms K (mailbox rule).
- Rejection followed by acceptance: Whichever is received first by offeror wins.
- Acceptance followed by retraction: Bargain formed at dispatch of acceptance (mailbox rule).
Person: Only the person to whom the offer was made can accept.Terms
Unequivocal acceptance, even if "grumbling", forms K. Proposing new terms
- "I accept, if�" is a rejection.
- CL proposal for new/different terms (not mere inquiries for a better offer) makes acceptance invalid and acts as counteroffer (rejection).
- Doesn�t include offeree making explicit a term which was implied.
- Offeror can revive an offer which was rejected by manifesting an intent to trade on the original terms.
- Shipping the wrong goods in response to an order is not a counteroffer � it�s a breach.
- UCC: A definite and seasonable acceptance which proposes new but not inconsistent terms forms a K on offeror�s terms if offeree�s acceptance is in writing. Offeror may accept or reject new terms (2-207).
- UCC between merchants: A definite and seasonable acceptance which proposes new but not inconsistent terms forms a K including the new terms, unless: Offeror explicitly objects to new terms within reasonable time; acceptance is conditional on assent to new terms; new terms materially alter original offer; or offer expressly limited to offeror�s terms (if any of these apply, K formed excluding new terms).
- Consistency: Materially change offer by shifting economic position or risk, or impedes remedies.
- Knock-out rule (old law??): Explicitly contradictory terms cancel each other out and a commercially reasonable term is implied.
Modern courts are willing to find a K if the conduct of the parties recognizes a K and if a reviewing court can somehow reconstruct the essential terms.Modification
Common law modification required new consideration because of pre-existing duty rule (although enforcement possible if reliance exists). Still applies to non-UCC K�s. Modern common law (MBE) doesn�t require consideration so long as modification was fair and equitable under the circumstance. Example: One party to a K can�t finish performance without more money due to unforeseen difficulty, so outer party agrees to pay. Under the UCC, no new consideration is required for modification, and mod is enforced so long as entered into in good faith. UCC: K which excludes modification except by signed writing cannot otherwise be modified, but subsequent inconsistent conduct can waive this restriction. A form provided by a merchant with this clause on it must be separately signed by a non-merchant party. Modification of K under SOF requires compliance with SOF, even if the modification itself doesn�t qualify for SOF.Valuable consideration
- Consideration (both sides)
- Any benefit to the promisor, or detriment to the promisee.
- Bargained for exchange
- If fiduciary or confidential relationship exists, the bargain must be fair � not merely containing legal detriments.
- Gift K is unenforceable because no exchange of consideration, unless reliance. Gift with string attached: Test is whether the condition benefits the promisor in any way, and if it doesn�t, no K. If the condition is a legal detriment (a restriction on something), no K even if it does benefit the offeror. Exchange of nominal consideration ($1) is insufficient to convert a gift to a K � it�s a sham.
- Moral consideration is insufficient
- The exchange must be present: A past or future exchange of promises fails for want of consideration. Example: A saves B�s life, and then B promises to pay A $ in thanks. No K, because saving life was past consideration).
Promise to perform something but for the K he is not already obligated to do, or promise to refrain from legal right but for the K he could exercise.
- Forebearance to sue is effective so long as promisor reasonably believes he has a cause of action against other party.
Not an undisputed pre-existing legal duty (something party was already obligated to perform). Test: But for the promise, would D �s failure to comply be actionable by the p ?
- On-duty police officer can�t collect reward for capturing criminal since that was already his duty. But off-duty PD can get reward.
Illusory promise: Promisor did not undertake any obligation at all, and therefore can avoid the K. Full performance of K cures the defect, but part performance does not.
- K where one party retains complete discretion over whether he will perform is illusory, but court requires party to make reasonable best efforts toward satisfaction of the K (UCC codifies this), which satisfies the consideration.
- Requirements or output K is not illusory because parties have legal detriment even if nothing is ever produced (promise to buy/sell exclusively from other party). Promise to forebear on litigation is valuable consideration unless the lawsuit is completely groundless. Reserving an unqualified right to cancel the K makes it illusory, unless the right is conditional (i.e. 10 days written notice). UCC requires reasonable notification for such cancellations.
Adequacy is not a factor as long as the detriment can be identified.Nominal consideration: If the K recites consideration, courts won�t inquire into the adequacy. Parole Evidence Rule would exclude evidence that the $1 wasn�t paid.Substitutes for consideration (defense to illusory K)
- Promissory estoppel
- D made promise reasonably foreseeable to induce reliance.
- p did actually reasonably rely on promise to his detriment.
- D breached
- p was unjustly impoverished.
- Enforcement of K is required to avoid unjustice
- Remedy: Reliance interest. Put p back where he was before promise was made.
Complete performance Parties in business transaction operate under a covenant of good faith dealing Pre-existing duty which has been modified, increased in value due to difficulty of other party being able to perform, accord & satisfaction (paying more to get other party to perform). New promise to perform discharged obligation (written promise to repay debt after bankruptcy). Ratification of voidable K�s (those entered into by minors) Charitable subscriptions (donations to charity)Defenses
- Types of defenses
- Real: Precluded formation of the bargain, and courts can notice them immediately without need for proof. Example: Illegality of subject matter. Personal: Affirmative defenses which render the obligations of the party voidable. Party to be charged (not TP) must assert them in a timely manner. Example: Unconscionability, statute of frauds.
Problems with offer, acceptance, termination, ambiguity or consideration (covered above).Capacity
Makes K voidable even after performance, but gives other party restitution of subject matter which still exists. Affirmative ratification upon gaining capacity makes K unavoidable. No defense if subject is necessaries of life (food, clothing, shelter, medical attention), which is a quasi-K, so only FMV of value performance to p can be recovered (not necessarily price paid). One of the parties is a minor at time of K (CL said 21, some states lowered to 18), even if age was misrepresented. K is voidable at option of minor within a reasonable period of time after reaching majority. Adult cannot void the K. Minor who voids K is liable for reasonable value of necessaries (food, clothing, shelter) received under quasi-K. Lack of mental capacity, permanent or temporary. Intoxication by drugs or alcohol and p knew. Lack of agency (but limited � resitution is available in corporate law).Content
Renders attempted bargain void. Court will help innocent party or member of protected class with quasi-K restitution for market value of services so long as p has clean hands and subject matter merely "malum prohibitum", but if the subject matter is "intrinsically illegal" (malum in se), no resititution. Revokes outstanding offer. Discharges performance based on impossibility. If subject matter is legal but purpose is not (hiring a taxi to go to a bank, where you will commit a robbery), K is enforceable. UCC requires merchant to try to find acceptable legal substitute. Example: Father pays son $100 not to smoke pot for a year. Illegal K, void.Substantive unconscionability
Liquidated damages which act as punishment. Limitation on consequential damages in consumer K (UCC). Terms are contrary to public policy, such as one party selling something inherently dangerous who tries to disclaim all warranties, some K�s of adhesion, and some restraints of trade. Court (judge, not jury) can either void the K, or more likely equitably "blue line" the K to eliminate terms which are oppressive or unfair surprise of the K, at the time the K was entered into.Procedural unconscionability
Grotesque imbalance of bargaining strength or sophistication, and terms which are oppressive. Goal is to prevent oppression and unfair surprise, defined as terms which are grossly out of line with market expectations. Adhesion K: "Take it or leave it" proposition by a superior party to a weaker party, generally in need of the subject matter. Not unconscionable per se, but since there is no bargaining, judicial deference is lower. Remedy: Courts can refuse enforcement of K, limit application of unconscionable clause, or make dominant party prove that weaker party understood the clauses and assented to their terms.Tactics
Fraud-in-fact: Any contrivance to deceive victim from even knowing a K existed (i.e. getting a person to sign blank piece of paper and filling in K terms). Fraud-in-inducement: Victim was seduced into K by lies or half-truths. Fraud-in-execution: Victim enters into oral K trusting that written K will represent oral, and signs writing without reading. Victim had easy self-help by reading K, but some courts overlook that to protect victim, others say negligence bars relief. Personal duress: Physical or mental force makes K voidable. Economic duress: Victim has desperate pressing need for subject matter at the direct or indirect cause of other party, and other party takes advantage of that need with harsh and one-sided terms to which victim has no reasonable alternative. Undue influence / Overreaching: Barbaining strategies designed to overcome the will of the weaker party.Form
- Statute of frauds (no writing exists)
- Applies to MY LEGS
- Where a person promises consideration to another for latter�s promise to marry the former, agreement is within SOF.
- Exception: Mutual promise to marry (no tangible consideration).
- Rule doesn�t apply to promises made by or to TP�s.
- Agreement which is impossible of being completely performed within one year.
- Exception if any possibility of performing K within one year exists, even if isn�t actually performed within that year ("rest of life" could end in the next year).
- Satisfied by full and completed performance by either party.
- Stipulated contingency which could excuse performance within 1 year doesn�t remove K from SOF.
- Transfer of interest in real property or permanent fixtures, and leases for greater than one year.
- Satisfied by substantial performance, if two of these exist: Part payment, possession of buyer, improvements by buyer.
- Some courts allow specific performance if buyer has detrimentally change position.
- Promise to perform the obligation of another (pay debt of another).
- SOF not applicable to indemnification agreement, or when guarantor�s primary purpose is to further his own interests.
- Sale of goods if aggregate price > $500
- Requires writing with quantity and signed by party to be charged (D ).
- Merchant�s memo exception: If between merchants, oral offer can be accepted by written confirmation of the terms sent by one party to another, so long as no prompt objection by other party (10 days).
- To the extent that goods have been accepted by seller or paid for by buyer, K is enforceable.
- Exception for substantial beginning of manufacture or procurement of special custom-made goods not suitable for ordinary resale, prior to repudiation.
Sale of personal property not enforceable beyond $5k unless in writing signed by party to be charged identifying subject matter and price. Agreement not performed within lifetime of promisor (i.e. agreement to make a will or testamentary devise) Promise to pay a discharged/SOL debt.Oral K is fine, but p can�t recover unless SOF is satisfied (K is voidable). Satisfied by memorandum of essential terms (parties, subject matter, time, price) signed by party to be charged (D - signature can be any authentication). Writing may be created after K is formed, and may consist of several writings (aggregation).
- Equal dignity rule requires that agent have principle�s written authority to act when K is required by SOF to be in writing.
- Modification of K must be in writing if the K, as modified, falls under SOF.
- Where SOF applies, no evidence of verbal promise or agreement may be admitted.
Defenses and exceptions to SOF
- Equitable remedies for unjust enrichment and quasi-K (restitution of reasonable value of benefit to D ).
- Estoppel may limit SOF, i.e. where party relies on promise of another, the later is estopped from asserting SOF.
- Part performance is accepted in equity as a substitute for writing if the performance points to terms of the alleged K.
- Assignments of K�s which are within the SOF do not themselves need to comply with SOF.
Parol evidence rule (writing exists)
- Written K exists, and one party wants to introduce a prior or contemporaneous understanding not in the four corners of the document in order to vary, add to or contradict the K terms (explaining but not creating a latent or patent ambiguity is ok)
- Prohibited if the writing is integrated (intended to be the full and final expression of the terms of the K). Indicated by a merger clause stating that intent, or if reasonable parties would have included the alleged prior/contemporaneous agreement into the writing, but didn�t.
- Except to prove:
- Defense of K (fraud)
- Partial integration (the traditional four-corner�s test has been rejected by the UCC)
- Existence of collateral K of lesser importance than integrated K, which does not contradict integrated K, and the subject of which is sufficiently distinct from first K that it would not naturally have been included in the integrated K. (Only applies if there is no integration clause).
- Contemporaneous or prior agreement which adds to but does not contradict first can be introduced but NOT if parties intended the integrated agreement as their "complete and final agreement."
- Subsequent course of conduct between the parties is admissible to show a meaning of a term, even if the term is unambiguous, because it is considered the best indication of what the parties intended the K to mean.
- Subsequent agreements are not within the parol evidence rule.
Maturity of obligations (performance)
- If a condition hasn�t been met (obligation hasn�t matured), D can claim want of consideration, as he has not yet become obligated to perform his promise.
- Conditions vs. covenants
- Conditions allocate risk in the event of breech and determine when and if the duties in covenants must be performed, and when breach occurs.
- No problem with consideration so long as there is a possibility that the K duty could become a matter of present obligation.
- Covenants determine what must be performed in order to discharge K duties.
- Operates two ways: Either it must be satisfied before liability matures, or it will extinguish what had been a present duty to perform.
- Vague language is construed as a covenant.
- Types of conditions
- Precedent: Contingency must be satisfied by an event not certain to occur, before duty arises to perform dependent promise. Shifts risk of breach to other party. "I am not liable to perform until you �" or "provided that". Burden of proof on p . Concurrent: Contingency must be satisfied simultaneously with maturity of liability. Usually implied-at-law, not express. Used to regulate performance when parties did not otherwise specify. If performance obligations are physically capable of being performed at the same time, then mutual tenders (ready, willing and able to perform) are required. Subsequent: Always express, never implied. Occurrence of event not certain to occur will extinguish a present liability to perform promise, and is an affirmative defense to breach. Example: Your attempted assignment of rights extinguishes my liability to perform. Burden of proof on D . Very rare.
- Promisor must use best efforts to achieve objective of the bargain.
- Condition must be satisfied precisely �substantial performance is not adequate.
- Determination of satisfaction
- If subject matter is non-personal (fitness, mechanical utility, or structural completion), the reasonable person standard is used to measure the objectively quantifiable attributes, even if, in good faith, the promisee is not satisfied.
- If subject matter is personal (taste, aesthetics), then the subjective satisfaction of the promisee is examined, but good faith is implied. The express condition of requiring personal satisfaction must be obvious enough to warn of its content. If promisee is not satisfied, no recovery in quasi-K - promisor is SOL.
- If TP is to be satisfied, TP must be neutral and use good faith, and any bad faith automatically matures the dependent promise to make payment.
- Otherwise, the K is illusory and quasi-K would be the only remedy.
Implied-in-fact: Inferred from physical necessity and reasonable assumptions of the parties (you can�t paint a house that just burned down � although that would not cause a breach because no fault). Promise to cooperate in good faith in receiving other party�s performance. Implied-at-law (constructive): Applies when parties failed to fix an order of performance, and thus defaults to concurrent performance. But if one takes more time than the other, or when one party�s performance must be performed by a fixed date, than that performance goes first (constructive condition precedent).
- Conditions implied-at-law require only substantial performance (trivial and innocent deviation from full performance which do not deprive promisee of function nor utility he expected as benefit of the bargain � intentional deviation from K terms cannot be substantial performance).
- But UCC states that perfect tender is required, else buyer is privileged to reject the whole, accept the whole, or accept commercially reasonable part and reject the rest.
Other party�s breach Doctrine of prevention: Party can�t hinder other party�s performance (obligations of good faith and fair dealing in performance and enforcement of K�s). Failure to cooperate excuses condition, but cooperation does not extend to requiring a party to do a collateral act such as filing a lawsuit against another party. Waiver: Voluntary relinquishment, express or implied, of a known and appreciated right. Retraction only if before other party has changed position in reliance on waiver, if additional reasonable extension to perform term or condition is permitted (to compensate for the flip-flopping). Once covenant or condition is knowingly waived, it cannot be reclaimed. Equitable estoppel: Protected party creates impression that he will not insist upon satisfaction, and other party acts in reasonable reliance on this impression by changing his position. Can be reversed before other party relies to his detriment.Third party rights or duties (common law)
- TP beneficiary
- Creation: Promisee pays promisor to perform to TP.
- Status of beneficiary is determined by intent of parties
- Incidental beneficiaries: Promisee had no specific intent or motive to confer a benefit on TP.
- No rights against promisee or promisor.
Intended donee beneficiary: Promisee intended to confer a gratuitous gift on TP. Main intent of the K was to benefit TP. Rights vest upon knowledge of K (minority requires reliance).
- Rights against promisor: TP stands in shoes of promisee in suit against promisor.
- Rights against promisee: TP may prevent promisee from rescinding original contract, but may not sue promisee if promisor fails to perform.
Intended creditor beneficiary: Promisee intended to confer a benefit on TP to satisfy a pre-existing debt or obligation. Main intent of the K was to benefit TP. Rights vest upon reliance on K.
- Rights against promisor: TP stands in shoes of promisee in suit against promisor.
- Rights against promisee: TP may sue promisee on original obligation, regardless of underlying K, unless there was a novation.
TP can bring suit for tortious interference with K rights against party trying to tamper with the K. Only TP can bring suit to remedy breach of vested rights. Promisor�s defenses against promisee transfer to TP: No K existed, failure of consideration, counterclaims related to same K.K can be canceled or modified until K specifies, or rights vest in TPAssignment of rights to TP
Present, operative, non-revoked assignment must be honored by the party who owes performance. Present assignment: Party manifests intent to make present (not future) assignment of the right to receive performance of suitable present subject matter under a present K.
- No writing is required � oral assignment is fine.
- Whole or partial assignment permitted.
- Future rights are freely assignable in the present, but cannot agree to a future assignment.
Common law favors ability; consent of other party not required for assignment.
- A non-assignment clause restricts the right to assign, and therefore gives obligor damages for wrongful assignment, but does not restrict the power of assignor to assign (assignment is still effective). Clause may rescind the K or have express condition subsequent which revokes K upon assignment, and those clauses are valid.
- UCC: Assignment of rights to receive money damages for K breach or to receive payment due are invalid.
Revocable by assignor if oral and no consideration, otherwise irrevocable. Revocation by notice to assignee or obligor, or creation of conflicting assignment. Gratuitious assigment revocable unless delivered writing, performed, or estoppel is present. Performance
Post-assignment modification between assignor and obligor is valid if made in good faith. Obligor cannot satisfy K by tendering performance to assignor after receiving notice of assignment � must tender to assignee. But obligor not liable to assignee for performance rendered before receiving notice of assignment. Obligor is bound to honor the assignment, unless performance owed to him is prejudiced (materially alters nature or extent of duties or risk assumed). Example: Personal services, requirement or output K (UCC requires good faith and amounts not unreasonably disproportionate), insurance coverage (but proceeds freely assignable).Multiple conflicting TP�s:
- Gratuitous oral assignee is eliminated by creation of subsequent assignment.
- Ones who paid value supersede those who don�t. Among value payers, in CA the first to provide notice of assignment to obligor wins; in the rest of America (the American Rule), the first person who paid consideration wins. Mass/Restatement rule: First in time is first in right, but junior assignee has priority by obtaining performance, judgment, or novation.
- Those who loose have tort COA for conversion.
Against obligor: Only assignee can sue for loss of bargain or material breach, because assignee stands in the shoes of assignor.
- Assignee may enforce all rights of assignor against obligor.
- Any defenses which obligor could have brought against assignor can be used against assignee, including setoffs which matured at time of assignee�s notice of status to assignor (i.e. arose prior to or at time of assignment) (based on claim external to the K??) and counterclaims (based on same K). Exception: Holder in due course of a negotiable instrument who paid value without notice of any defenses available to obligor, or obligor who waives defenses. Bars personal defenses, but real defenses (K formation) are still available.
Against assignor: Assignee receives no enforceable claim against assignor unless assignment is irrevocable. If assignor attempts to reassign irrevocable assignment, assignee can sue for conversion. If assignor attempts to revoke irrevocable assignment, or promisor refuses to perform, assignee can sue assignor for breach of implied warranty.Delegation of duties to TP
- Delegation can be effective by delegor identifying TP and manifesting consent to permit TP to perform some or all of the duties owed by delegor to other trader under existing K. To create a legal responsibility in the delegate, delegor must bargain for a promise from delegate, with consideration (but UCC allows merely assigning the K). Restrictions: Power to delegate is a unilateral legal privilege that doesn�t require consent.
- However, K restrictions will always be enforced. In the UCC, delegation in violation of K is reasonable grounds for insecurity (at which point insecure obligee can make written demand on delegate for adequate assurances, and failure to provide such assurances is a material breach).
- If no K restrictions, nonconsensual delegation will still be ineffective if delegation materially prejudices or threatens the commercially reasonable interests of other party. Example: The duties are of a personal character if the commercially reasonable expectations of the obligee include not only what is to be performed, but who is to perform it (reputation, skill, taste, discretion).
- Obligee may waive right to object, rendering delegation effective, by accepting performance by TP.
Other party has an affirmative duty to cooperate in receiving performance from TP. Breach by TP gives obligee the right to sue TP (under the theory that obligee is an intended beneficiary of the K between TP and delegor), or delegor under first K (who may in turn implead TP). TP can raise any defenses or counterclaims resulting from obligor�s breach. Versus novation: In novation, original parties agree to TP. In delegation, one party simply delegates.Excuseable nonperformance
- Casualty to identified goods (UCC)
- Identification: Both parties intend the K subject matter to be specific, existing goods. This may be done when K is made, when shipped, or when designated by seller as the goods to which K refers. Buyer may discharge or modify K where casualty without fault of either party has occurred before risk passes to buyer. If one party is at fault (negligence), no excuse and breach occurs. If the loss is total, K is avoided and buyer and seller are both discharged from duties. If the loss is partial, buyer has election to inspect and option to discharge K or accept goods "as is" with reduction of K price. Where casualty was not to goods but to the manner or mode of delivery or payment, commercially acceptable substitute must be tendered and accepted.
Objective impossibility: Unforeseeable physical or legal barriers erected subsequent to formation of bargain, not a risk assumed by either party in the K, which causes no person (objective) to be able to perform. Example: K to paint a building that burnt down after K, or singer who gets sick. Party who has performed can recover in quasi-K. Subjective impossibility is not a defense. In a personal service K, temporary impossibility of performance (broken leg) will temporarily delay performance. Commercially impracticable: K cannot be performed except by economic expenditure grossly beyond what is commercially reasonable (objective), which was unanticipated by either party at formation date. If the K assigns this risk to the party seeking excuse, he is SOL because he assumed the risk, same with if he could have protected himself with insurance. Party who has partially performed can get quasi-K damages, but no damages for preparing to perform (reliance interest).
- Mere increase in cost of raw materials doesn�t excuse performance � that is a risk assumed by seller.
Frustration of purpose: Subsequent to formation of bargain, unforeseeable (subjective and objective) circumstances are such that your performance is of no utility to me, and therefore I seek to have my performance to you excused. SOL if the risk was reasonabley foreseeable. Neither party can recover expectation interest, but party who has partially performed can get quasi-K damages. Reliance interest (preparing to perform) not protected against. Novation: Both parties agree that a new party (TP) can perform the K. Releases obligor of duties. Accord & Satisfaction: New agreement between the parties which is then fully performed will excuse the duties under a prior K.
- Accord: Agreement by which one party promises to modify performance and other party promises to modify original claim.
- Satisfaction: Executory accord is carried out and original debt is discharged. If executory accord fails, p can sue on either original claim or the accord.
- If a claim is unliquidated (disputed), and party offers certain amount which other party accepts as payment in full (such as a check marked "payment in full" with consent and knowledge of depositor), the debt it wiped out. If the claim is liquidated (undisputed), payment of less than the claim is not sufficient consideration to discharge the debt.
- UCC adds these terms to A2 K�s if not disclaimed
- Express warranties make promises re: condition and quantity of goods. Distinguished from sales puffery, which is more general, and an opinion.
- Implied warranty of merchantability: Goods purchased from merchant of those goods are fit for their ordinary purpose.
- Implied warranty of fitness for a particular purpose: Buyer tells seller of particular need for goods, and relies on seller to advise goods for that purpose, and seller who is aware of that reliance.
- Definition: Present breach is the failure or defective performance of a promise which has matured and has not been excused.
- Material: Seriously disappoints essence of the bargain or reasonable expectations of the aggrieved promisee. Breach results in immediate COA for loss of bargain damages, and non-breaching party must stop his performance (thus this is used as a defense to performance where other party has materially breached), and must mitigate damages. Breaching party cannot recover under K, but may be permitted to recover value of benefit bestowed upon p under quasi-K. Precludes substantial performance.
- Divisibility: If the K can be divided into separate agreements, breach of one of the agreements will not discharge non-breaching party�s duty with respect to the other agreements. Divisibility of K is a question of parties� intent. Example: Employment K is divisible.
- Perfect tender rule - If goods (UCC) are nonconforming in any respect:
- Prompt and specific notice of nonconformance within a commercially reasonable time period, else de facto acceptance. Nonspecific notice is waiver of defects which could have been cured upon specific notice.
- Rejection: Buyer may reject all, keep some and reject some (in commercial units), or keep all of the goods; Pay for goods accepted, with damages for defects.
- Merchant p must seek and follow D �s instructions re rejected goods, and follow reasonable instructions at p �s expense, or use self help to preserve the rejected goods to conserve commercial value (including resale & cover, D liable for costs).
- Resale requires notice to D of intent to resell, and must be done in a commercially reasonable manner.
Revocaton of acceptance
Where non-conformity escaped detection despite reasonable pre-acceptance inspection, if revocation is made with in a reasonable time after discovery (or should have discovered) defects. Revocation must take place before any substantial change to condition of goods. If buyer knowingly accepted non-conforming goods in reliance on seller�s express assurance of cure, failure to cure within seasonable time entitles buyer to revocation. Means of revocation
- Preserve economic value of goods and mitigate losses (timely cover)
- Cooperating with seller in efforts to cure
In absence of seller�s instructions, buyer can store them, ship them back to seller, or re-sell them. Cure
- Where seller had reasonable grounds to believe that tender would be acceptable to buyer, he may have further reasonable period of time to cure.
- If seller tendered early, he has until K date deadline to perfectly perform (unless he states he won�t). Seller must give seasonable notice to buyer of intent to make conforming delivery. Successful cure before K deadline eliminates damages.
- If p got most of the goods, D can request extra time and p has to cooperate, but doesn�t have to prejudice commercial interests.
- If non-breaching party waives breach, must give breaching party reasonable time to cure (K has been made indefinite in terms of time for delivery, so reasonable time is implied).
Cover: Obtain conforming goods in good faith from substitute seller, and then recover cost of cover from D . Aggrieved seller has similar duty to sell goods in commercially reasonable manner.Minor: Breach impaired bargain only in insignificant sense re: quality, quantity or time. Any breach after substantial performance is minor. Nonbreaching party must continue with performance, and sue for provable damages. N/A to sale of goods (perfect tender rule). Installment K: K which authorizes delivery of goods in separate lots, or to be accepted separately. CL and UCC prefer to isolate breach to individual installment (and allow money damages for that) rather than destroy entire K.
- UCC perfect tender rule doesn�t quite apply here. Under the UCC, buyer can reject non-conforming installment, subject to seller�s promise to cure. UCC also allows for a demand of adequate assurances pending suspension of p �s performance until assurances received w/in commercially reasonable time (30 days).
- Seller who gives adequate assurance of cure must be given opportunity to cure defect in any installment which doesn�t substantially impair value of the whole K.
- In order to terminate the K, p must demonstrate that the consequences of breach on one installment has defeated her expectations (impairs the value of the whole K) with respect to the entire bargain, or severely hampered her ability to carry out her own K obligations.
Prospective inability to perform (decline in promisor�s apparent willingness or ability to perform should condition be satisfied)
- Anticipatory repudiation: Communication of definite, unequivocal, unyielding refusal to perform which will substantially impair the value of the K to the other party is treated as a breach, even before liability to perform matures, and all of D �s performance is accelerated and matured.
- p can treat repudiation as present breach and bring immediate COA for loss of bargain, or urge D to retract repudiation. Discharges all of p �s covenants for failure of consideration.
- Or, p can affirm K by notice of awaiting performance for a reasonable period of time. Until D repents, p doesn�t have to perform.
- Duty to mitigate: COA is the only reasonable solution if waiting for D to repent would increase the consequential damages due to a rising market price for the goods
- UCC says p can await performance only for a commercially reasonable time before suing.
- Failure to accept repudiation within a reasonable time limits consequential damages to the point at which acceptance would be reasonable.
- If p misinterprets communication and in fact D did not anticipatorily repudiate, then p is in material breach.
- Under UCC, repudiating party can retract repudiation until time when p relies on repudiation.
- If p has no executionary duties on date of repudiation, he must wait until due date to sue.
- Retraction: Allowed only prior to when aggrieved party has materially relied on repudiation, or when aggrieved party has advised repudiating party that repudiation will be treated as final.
Voluntary disablement: Voluntary action taken by D after formation which places power of performing beyond her powers. Need not be communicated directly to p . Discharges all p �s covenants, accelerates D �s duties, p must bring immediate COA or await due date. D cannot remedy. Failure to give adequate assurances of performance (UCC only): In face of reasonable insecurity that merchant [?] seller is unlikely to be able to perform:
- Other party may make written demand for adequate assurances of performance
- Once demand made, all p �s covenants are suspended pending receipt of adequate assurances.
- Unless merchant gives adequate assurances within commercially reasonable time (no more than 30 days), you can treat as anticipatory repudiation.
- Insecurity may arise from
Frequently a defense to accusation of breach. D justifies his nonperformance by asserting that p previously made a prior anticipatory repudiation.Evaluation of whether a breach as occurred is based on commercially reasonable expectations of the parties, consequenses of breach, and effect of consequences on expectations. If determination depends on person�s satisfaction: If subject matter involves personal taste, then if person isn�t satisfied, condition hasn�t been met. If subject matter involves ordinary K (i.e. painting a house), reasonable person standard applies.Remedies & Damages
- Money damages: Normal remedy; should place p in position he would have been in had the K been performed. Damages must be a consequence of the breach.
- Expectation: Goods - difference between FMV at time p learns of breach and K price. Services � employee can receive full K price less mitigation; employer can receive costs of replacement. Reliance costs: Recovery of expenses foreseeably made in preparation to perform. Incidental costs: Recovery of costs necessitated by breach, directly relating to the K itself (i.e. shipping, storage, inspection, reselling, repurchasing). Consequential: Money damages resulting from special situation of p (does not include mental anguish or inconvenience). Damages must be reasonably foreseeable by both parties at time of K as a probable consequence of breach (even if the particular injury wasn�t foreseeable). Includes damages for personal injury. Recovery is reduced by reasonable mitigation. Liquidated damages: K provision setting total amount of all money damages in event of breach (does not bar equitable remedies), which, if valid, precludes actual damages. If clause is invalid, p may prove and collect actual damages.
- Reasonable amount: Amount must be reasonable in light of parties� contemplations at time of K.
- Necessary: Amount of actual damages must be difficult to ascertain at time of K.
- Tailored to K: provision must be tailored to nature of K, and not boilerplate.
- Goal must be reasonable compensation, not to penalize breacher. Penalty clause is void as unconscionable and against public policy.
Punitive damages not available: Goal is not to punish but to compensate aggrieved party. Punitive damages are available if p brings separate tort COA, such as malicious or intentional breach. Restitution/Quasi-K: Equitable recovery of money already paid to D , goods delivered, or compensation for services already performed to D , to prevent unjust enrichment, even if no K ever existed. Measure of damages is not p �s costs but market value of D �s enrichment. Nominal damages: Even if p can�t get legal damages, if he wins he can still get nominal damages ($1). Where damages would be grossly disproportionate to harm suffered, court may limit recovery to actual value of losses (i.e. diminished FMV). Lost profits: p who is a high volume seller can sue for the profit he would have made on the sale to D , even though he resold the goods to a TP. If loss of bargain damages and equitable relief are unavailable to protect p �s expectation interest (because the amount of damages can�t be calculated), common law will restore p �s pre-agreement status quo.Specific performance: Court orders breaching party to perform the K.
- K must be valid and enforceable
- Money damages must be inadequate because amount not ascertainable, or unique subject matter (land, stock of close corporation, unique item, but never personal services K because of slavery � but can get injunction to prevent someone from doing something).
- Equitable defenses: Unclean hands, laches, estoppel.
Rescission: Cancellation of K to put parties as they were before the K.
- Grounds: Mutual mistake in formation, fraud, or major breach changing nature of agreement.
- Requirements: Non-breaching party must have clean hands, notification within reasonable time, restoration of breacher to status quo (p must return consideration unless reliance exists).
Reformation: Court may reform K to accurately describe the actual agreement, if there was a mutual mistake. Seller�s remedies: Stop goods in transit, sue for price, ask for further assurances, reclaim goods, resell goods at public or private sale, retain lesser of deposit or 20%, sue for lost profits. Duty to mitigate & avoid unnecessary damages
Precludes recovery of damages which could have been avoided by exercising due diligence. Requires reasonable conduct in commercial affairs. Personal services: No duty to seek out or accept replacement K for work of a different nature; nor work of the same nature for substantially inferior pay; nor if relocation is required. Burden on employer. p need only accept employment which is substantially similar to that which she contracted to perform. Goods: p must cover. Seller may complete manufacture of item if in p �s reasonable commercial judgment buyer�s damages will be lessened by completion and sale of goods. Non-conforming goods (UCC)
- Seller must provide tender: Make goods available for buyer�s disposition for reasonable period of time and give buyer notice to take delivery. Buyer�s obligation to make payment has matured.
- Buyer has duty to promptly inspect goods tendered, and has the right to do so before payment can be demanded or acceptance decision required.
- Failure to follow above procedures = waiver.
- Perfect tender rule then applies.