law school outline: contracts


  1. Notes on Class & Professor

  1. Also see outline for Commercial Transactions, which also covered UCC Article 2.
  2. Text: Contract Law And Its Application, 5th Edition, Arthur Rosett
  3. Randomly calls on people in class so you have to be prepared.

  1. Introduction

  1. Predict what may happen; Provide for that contingency; and Protect your client with a remedy.
  2. CISG superior to UCC and CL.
  3. Focus of contract law/research: State statutes (especially Art. 2 of the U.C.C.), state case law

  1. Formation

  1. K is formed by the bargain of the parties. Express, implied, course of dealing, usage of trade, course of performance (2-204). Total legal obligations resulting from the parties� agreement.
  2. Inclusion and Meaning of Terms

  1. Description of instrument (heading)
  2. Caption (names of parties and legal action they are taking)

  1. Use shorthand (nicknames) to refer to parties ("lendor", etc.)
  2. Include date, if that is significant

  1. Transition (language of agreement)

  1. "The parties agree as follows:" or "It is agreed:"

  1. Recitals (background facts, purpose of K), can be used to express intent re: K
  2. Definitions of terms used within agreement
  3. Operative language

  1. Stating promise of both parties, using the word "shall." Use "shall" only to describe promises and duties ("shall" = "has the duty to")
  2. Remedies for

  1. Breach of each promise
  2. Actual or constructive fraud (misrepresentation of facts)
  3. Breach of warranty

  1. Declarations

  1. Force majeure (impracticality of complying with promise)
  2. Choice of law
  3. Merger
  4. Assignment and delegation
  5. Modification
  6. Severability
  7. Headings � part of clauses or not?

  1. Closing

  1. Signatures
  2. Date
  3. Parties addresses if not elsewhere

  1. Promises

  1. Seriousness

  1. No K if both parties know it�s a joke: One party can�t convert into a serious K by claiming it.
  2. If one party reasonably relied on promise, it is enforced.
  3. One sided (unilateral - promise in exchange for an act) promise in jest: I promise to give you $5 if you stand up. Unenforceable if offeree knows or should know it is a joke.
  4. People are expected to mean what they propose, but not be held liable for unintended propositions.

  1. Mistake

  1. Unilateral

  1. Nonmistaken party not aware of error: Binding K.
  2. Nonmistaken party should be aware of error: Voidable
  3. Snap-ups are not allowed (when buyer knows or should have known of mistake).

  1. Bilateral: Voidable

  1. Illusory K

  1. Both parties must be bound to a bilateral K, otherwise illusory. If both parties are not bound, neither will be bound. Exception for conditional & unilateral promises.
  2. General rule is good faith. When there is a K that sounds illusory, court reads in a standard of good faith. Court tries to interpret a K non-illusory.
  3. Optional act: Promising to do something if a promisor wants to is illusory.
  4. Right to terminate without notice is illusory.
  5. For sale of goods, obligation to use best efforts on both sides; Quantity must be reasonable.

  1. Factors that affect illusoryness in distributorship (A will distribute all of B�s goods) agreements:

  1. Criteria for termination � if termination is dependent upon third party action
  2. Time period for notice of termination
  3. Silence as to term � parties are not bound forever, even if no term specified
  4. UCC: reasonable notification required. If K says no notification required, still required if not notifying would be "unconscionable."

  1. An output (A will buy everything B makes) contract requires seller to make "actual, good faith output" (as defined in UCC) using best efforts to supply, with reasonable diligence, short of a major disaster (physical or financial). Estimate amount is used as a center, large variances not permitted.

  1. Satisfaction clauses

  1. Discretion: An agreement may not be enforceable if one party has an alternative that will not exchange something of value. (key words: illusory, consideration, mutuality, commitment)
  2. Good faith standard means honesty in fact in the conduct or transaction concerned (UCC).

  1. Objective "reasonable man": Quantifies good faith; would a reasonable person make the same judgment? Quality, operative fitness, mechanical utility.
  2. Subjective: Duty to exercise judgment in good faith. "Appeal to the fancy, taste or judgment"

  1. Is a promise to pay money for public praise of the promisor which is satisfactory to the promisor (under Mattei, the promisor must exercise good faith) unenforceable because the condition of satisfaction renders the promise illusory [by giving the promisor unfettered discretion not to perform]? (Mar)

  1. Standard of good faith would be objective. Why? And how to determine which standard?

  1. Implied

  1. Duty (and consideration) to use reasonable efforts to bring profits and revenues into existence.
  2. When city gives tax breaks in exchange for business locating there, business does not make any implied promise to keep jobs there for any length of time (unless company makes specific promises).

  1. Donative promises

  1. Gift promises unenforceable unless:

  1. Has been delivered
  2. Reasonably relied upon
  3. Is under seal (in some jurisdictions) � more formality = less consideration required.
  4. Is in writing (presumption of consideration)
  5. Previous "moral" consideration exists (includes debt barred by statute of limitations)

  1. Conditional gift has consideration if condition was the price for the gift, not just a part of making the gift, otherwise unenforced.

  1. Relied-upon promises: Promissory estoppel.

  1. A reasonably relies on B�s promise. B stopped from denying promise.
  2. Stops someone from denying a promise for lack of consideration: Reliance treated as consideration
  3. Unbargained for action in reliance can make a promise enforceable. Precludes a party who has led another to reply on the existence of a particular state of facts from then denying those facts.
  4. Elements

  1. Promise: Promissor could reasonably expect to induce foreseeable reliance
  2. Reliance by promissee
  3. Detriment by promissee

  1. Restatement �90: Promise which promisor should reasonably expect to and which does induce action or forbearance is binding, if injustice can be avoided only by enforcing the promise.
  2. A gift (no traditional consideration) may be estopped because of reliance if p changes his position to his disadvantage in reliance on the promise. Reliance must be foreseeable, reasonable and probable.
  3. Remedy limited to extent of reliance (real loss).
  4. Also see equitable estoppel below which also applies generally (not just to statute of frauds).

  1. Offer

  1. Intent to enter into a bargain and be bound by its terms, as indicated by language, surrounding circumstance (R24).

  1. Estoppel
  2. Not advertisements (indefinite, addressed to general public) preliminary negotiations, proposals, requests for bids (R26). Exception: Performance promised in return for something requested without further communication.
  3. Auction (R28, 2-318)

  1. Offer: Bid
  2. Acceptance: Gavel bang

  1. Certainty (R33) and definiteness of terms such that other person could conclude a bargain merely by giving assent in the manner required (R24).

  1. Missing terms may imply lack of offer, but court can imply missing terms (2-204).

  1. Subject matter
  2. Price (reasonable at time of delivery or custom implied if not specified 2-305)
  3. Quantity / Duration
  4. Delivery location (2-308)
  5. Delivery time (2-309)

  1. Termination (R36)

  1. Rejection (R38): Acceptance after rejection is counter-offer. Acceptance before rejection means K.
  2. Counter-offer (R39) Rejects original offer. Mere inquiry does not reject original offer.
  3. Death or incapacity of either party (R48)
  4. Lapse of time (R41)

  1. If not express, reasonable time implied (2-309/R41a1) (usually same day).
  2. Transmission delay added to time period unless offeree knew of delay.
  3. Merchant�s signed firm written offer (2-205; limited to 3 mos)

  1. Offer lapses after reasonable period, which can be indicated by K, etc., and may be longer than 3 mos.

  1. Revocation

  1. Direct or indirect (R42-43, 46), effective upon receipt (CA on dispatch)
  2. Unavailable if reliance (R90) or unilateral with part performance in reasonable time (R45).

  1. Option K (R25) survives all termination unless reliance on attempted termination (R37)

  1. Acceptance

  1. Unless indicated otherwise (30, 60), acceptance can be made in any manner and by any medium reasonable (2-206)

  1. Effective upon dispatch (63), but option K not accepted until received.
  2. Delay or defect acts as counteroffer. Clock begins running when offer received until acceptance dispatched.
  3. Crossings

  1. Revocation received after acceptance dispatched = K
  2. Rejection received before acceptance sent = no K.
  3. Rejection received after acceptance received = K.

  1. By Promise

  1. Offeree must exercise reasonable diligence to notify offeror of acceptance (56) by reasonable method, or by method expressed in offer (206)
  2. Purchase orders (offers) not enforceable K�s until accepted by offeree (seller)

  1. By Performance (50)

  1. Only allowed if offer invites acceptance by performance and offeree performs with intent to accept (53)
  2. Even if performance begins before learning of offer (R1)
  3. Notification (54) required only if requested or if offeror won�t learn of performance within reasonable time (206(2)).

  1. By Silence, allowed only when (69):

  1. K or previous conduct (207(3)) establish silence as ok
  2. Affirmative duty to act to reject, created by inquiry notice (beggar window washers on street corners).

  1. Terms

  1. CL Mirror image rule: Acceptance must comply with requirements of offer (58) and be positive, unambiguous and unequivocal. Otherwise counter-offer (59). Note: Clerical error is excused.
  2. Battle of the Forms (2-207)

  1. Acceptance with additional or different terms is a valid acceptance to offered terms. If acceptance is expressly conditional on assent to additional/different terms, no acceptance.
  2. Additional terms are proposals for addition to K; Between merchants, automatically become part of K unless:

  1. Offer expressly limits acceptance to terms of offer; or
  2. New terms materially alter K (price, payment, quality, quantity, delivery terms, warranty/liability changes, etc.); or
  3. Notification of objection to new terms given in the past or within a reasonable time

  1. Different terms may knock out contradicted terms and UCC implies new terms.
  2. Conduct between the parties can establish a K even when even when there is no express K or the terms are different.

  1. Consideration: Something of value in exchange for promise; Must exist, otherwise K is illusory.

  1. Definition

  1. CL: Benefit/detriment
  2. ML: Bargain, Enforceable element

  1. Purpose

  1. Functions

  1. Evidence of K
  2. Causes parties to reflect and be cautious
  3. Formality dictates result

  1. Economic health of society
  2. Promise with consideration is important enough to be protected and enforced
  3. Promisor should not be unfairly enriched.

  1. Non-Material Forms

  1. Act

  1. Any act of A to the benefit of B. p went to the open house, and that could have benefited D in that she could have bought a house.
  2. Conditional promise if condition imposes a duty to act and exercise good faith. Duty to act is the consideration. Subjective standard of good faith. (Mattei)
  3. Option to cancel requiring affirmative act = consideration.

  1. Forbearance (promising to hold off on legal action in exchange for a promise).

  1. Must have reasonable or good faith belief there is a valid claim. Written release ok for any claim, valid or not.
  2. Consideration must be related to the promise. Promise to hold off on legal action must be connected to other party�s promise, not simply a failure to sue.
  3. Surrender of claim must be actual, not a promise to surrender.
  4. Reasonable time imposed for forbearance.

  1. Promise is consideration if the performance promised would be consideration if it alone were bargained for.
  2. Creation, modification or destruction of a legal relation (marriage, divorce)

  1. Adequacy

  1. Values generally not examined, unless gross disparity or nominal (pretense) consideration. Gross disparity can support other defenses
  2. Nominal consideration is ok for options

  1. Past consideration

  1. A promise based on something that the promisor already has is not enforceable.
  2. Past material benefit (cares for, improves, preserves property) can make a present K enforceable

  1. Moral consideration (saving a life, etc.) not enough except in California
  2. Restatement �86 � Promise made in recognition of a benefit previously received by promisor is binding to the extent necessary to prevent injustice. Exceptions: Gift, no unjust enrichment, or if value of promise is disproportionate to benefit.
  3. NY Law � Promise for past consideration is valid if promise and consideration are in writing.

  1. Pre-existing duty

  1. Official or Fiduciary Duty: Person acting in an official capacity (police officer within jurisdiction) cannot collect a reward for doing that which he is already bound to do (catching a bank robber). Does not apply if person is outside scope of official duties (or jurisdiction).
  2. Modification of an ongoing K must have new consideration

  1. Promise made to induce a party to perform a pre-existing duty is without consideration and therefore invalid. Pre-existing duty measured by end result. If end result is the same under both old and new K, no consideration exists (unless middle K rescinding old K). Enforced if different performance (even slight) for new consideration, giving up a defense, or unanticipated circumstances. Writing is presumption of consideration.
  2. CL: Modification needs new consideration.
  3. ML: No consideration needed to modify.

  1. Goods: No consideration needed to modify a K, but good faith must exist.
  2. Services: Provider must not take advantage of circumstances to coerce customer into paying more, unless provider performs additional service. Written K can be modified orally, and when oral part is executed (performed), K valid.

  1. K can be canceled by mutual rescission (mutual release from obligations, a K itself) and a new one made (even if new one is basically a pre-existing duty).

  1. Ceremonial acts of surrendering and destroying old K lends credibility to termination of old K; or
  2. Gift releasing pre-existing duty: A releases B from B�s promise by surrendering right. Once B accepts gift, A can�t take it back.
  3. Doesn�t work when one party has performed.

  1. Drafting Modification Provisions: Clauses stating "no oral modification" can still be waived by the statements and actions of the parties. A provision barring waiver can itself be waived when non-breaching party fails to insist upon performance of K as written.

  1. Settlement of debts/claims (check-cashing rules) requirements:

  1. Mutual assent (offer and acceptance): Questionable in the check cashing cases
  2. Consideration, or a substitute

  1. Undisputed or clear amount: Payment of a lesser amount not consideration to discharge a greater outstanding debt. Additional or different performance (time, something material, etc.) can be consideration.

  1. But: CA Civ Code �1524 says part performance when accepted by creditor in writing for the purpose of satisfying an entire debt is ok even without consideration.
  2. Offers on the backs of checks (see below) are not valid for undisputed amounts unless separate consideration.

  1. Disputed or unclear amount (no or questionable preexisting duty): Payment of a lesser amount is consideration to discharge a greater outstanding debt. Creditor can reject by returning money.

  1. Requirements for accord (UCC 3-311)

  1. Good faith
  2. Sufficient notification: Conspicuous (UCC 1-201: reasonable person would notice) statement that check is to satisfy full debt

  1. Statement on back of check
  2. Good idea to have separate correspondence with same notification
  3. Payment / conspicuous statement must be sent to address creditor designates for disputes

  1. Check actually paid on or retained

  1. Scale of creditor�s operation irrelevant
  2. Reservation of rights, i.e. "without prejudice" or "under protest" is valid, but does not apply to an accord or satisfaction.

  1. Form of settlement agreement determines consequence of breach

  1. Accord & Satisfaction � New deal is dominant over old one, but old deal still remains as a backup until new deal is performed. If breach, can sue for satisfaction of accord or unsuspend old deal.

  1. Accord is an agreement for future discharge (release) of an existing claim by a substituted performance. The promised performance is to discharge the existing claim, not the promise to render such performance. This happens when civil cases settle. Also supported by debtor�s reliance even in absence of consideration.

  1. Substituted K � Discharges and dismisses original duty, claims and promises entirely.

  1. Novation � Brings in a new party
  2. Occurs when a term is inconsistent with a term of the earlier K.

  1. Option K

  1. If I offer, then revoke before you accept, unenforceable.
  2. If I offer and promise not to revoke but I do revoke before you accept, unenforceable (no consideration for promise not to revoke).

  1. Exception is if in writing by merchant selling goods, then consideration presumed. (UCC 2-205)

  1. If I offer to sell something for $100 and promise not to revoke for one week in exchange for $5, I can�t revoke for one week.

  1. At some point, courts will say consideration is so nominal that it reflects a pretense of bargaining. Courts are very tolerant of small amounts of consideration in the case of option k�s.

  1. Interpretation

  1. Courts generally enforce consequences logically implied in the language of legal documents
  2. Terms are construed as consistent with each other, against drafter, stronger party, and party trying to use the term to his advantage.
  3. Parol Evidence Rule (2-202)

  1. "Final" expression may not be contradicted by evidence of prior or contemporaneous agreements. Extraneous consistent terms or terms to explain or supplement K is ok.
  2. No extrinsic evidence at all if K is completely integrated.

  1. Complete integration shown by intent, document, circumstances.

  1. Rule does not apply to (R214)

  1. Performance is subject to occurrence of an oral condition (R217)
  2. Subsequent agreements
  3. Formation issues
  4. Proof or repudiation of complete integration
  5. Clarification of an unclear term (evidence excluded if term not reasonably susceptible to the interpretation)
  6. Remedy issues, reformation, rescission, etc.
  7. Demonstrate untrue facts (R218-1)
  8. Existence of consideration (R218-2)

  1. Warranties: Inconsistent terms which negate or limit warranties are inoperable if unreasonable.
  2. Practical application: Courts generally examine the parol evidence and determine the effect of the evidence on the issue, and then determine if the evidence should be admitted.

  1. Plain Meaning Rule: If a writing appears to be plain and unambiguous, its meaning must be determined from the four corners of the instrument without resort to extrinsic evidence of any nature. Only if a K is ambiguous on its face will the court look to evidence of the parties� intent as shown by the K as a whole and other extrinsic evidence. Interpreted objectively, as a reasonable person in addressee�s shoes.
  2. Context Rule: Ambiguity in the meaning of K language does not have to exist before evidence of surrounding circumstances is admissible

  1. Defenses (only apply if pled)

  1. Statute of frauds (UCC 2-201)

  1. K must be in writing and be signed if:

  1. K for sale of goods greater than $500 ($10k in revision); must state a quantity, must be received by promisee.

  1. Unless goods are custom made, promisor admits in court K existed (not in CA), or payment had been made (partial payment ok in some jurisdictions).
  2. Unless K for sale of goods between merchants if no objection to confirmation.

  1. Not to be performed within one year
  2. Payment for the debt of another
  3. Leasing for more than one year
  4. Sale of real property
  5. Agreement not to be performed during life of promisor
  6. Paying a debt secured by a mortgage
  7. Loan money greater than $100k
  8. K in consideration of marriage (prenups)

  1. International K can be proved by any means available, including witnesses
  2. Equitable estoppel (stops someone from denying facts that were relied upon � applies generally, not just in statute of fraud cases) can cause a K that would otherwise be unenforceable under the statute of frauds to be enforced if promisee substantially changed his position in reliance on the K.

  1. A relies on B�s statement of facts. B stopped from denying facts.
  2. Reasonable to expect promisor to induce action or forbearance (foreseeability), and actually does cause action or forbearance. (Promisor must have had reasonable knowledge that promisee would rely on facts).
  3. Injustice can be avoided only by enforcing promise
  4. UCC doesn�t establish estoppel as a defense, but it is established in common law, and applies to the UCC via 1-103.

  1. Recovery does not allow one party to retain benefits received under the K without paying for them or returning them, even if voidable under statute of frauds.

  1. Public policy

  1. Constitution says no state shall pass any law impairing obligation of K�s, yet we do to further public policy.
  2. A K does not have to be illegal to be void, merely being against public policy (i.e. K to manufacture drug paraphernalia) can be voided. Public policy usually isn�t truly furthered by voiding these types of K.

  1. Object of K illegal, therefore K is void against public policy.
  2. If any one part of the K is illegal, entire thing is void.
  3. Means illegal businesses can�t rely upon court enforcement. Drives up price of contraband because businesses will be using cash more.
  4. Hypo: Radar detector business K�s illegal because they further speeding? No � too removed.

  1. Prevents parents from making settlement agreements re: child support without court�s assistance. The judgment that the court issues allows supported parent to have more weight. Goal is to protect child.
  2. Premarital agreement cannot govern alimony, child support, custody, chores, other piddly things.
  3. Express K�s between heterosexual domestic partners (common law marriage) are enforceable. Implied K�s not ok.

  1. Lack of capacity

  1. Minor can make voidable K�s. Enforced for misrepresentation of age, necessities.
  2. Mentally ill or intoxicated.

  1. Intimate relationships

  1. Mom not liable for implied K to pay son for personal services
  2. Factors

  1. Nature of relationship

  1. de facto
  2. de jure

  1. Nature of work performed: Professional status of person performing work
  2. Formality of request
  3. Prior course of dealing between parties
  4. Time and expense involved

  1. Duress

  1. Extracting a promise by means of a threat is unenforceable. Threat = those inducements that society wants to discourage.

  1. Physical duress not needed, just "taking advantage of the plight."
  2. Includes threat not to honor a contract unless K is modified.

  1. Settlement can be set aside where debt is not disputed, where D wasn�t responsible for financial circumstances, and where the original settlement was patently unreasonable.

  1. Old Rule: Objective test is whether the will of a reasonable person was overborne. Generally not a valid defense unless no immediate legal alternative remedy available.
  2. New Rule: Subjective standard of whether will of person in question was overborne, plus necessity of lack of immediate legal remedy.

  1. Unconscionability

  1. Procedural (bargaining process)

  1. Absence of meaningful choice
  2. Form K
  3. Inequality of bargaining power

  1. Substantive (terms): Unreasonably favorable to stronger party
  2. Unfair surprise: Unknown term does not accord with other party�s fair & reasonable expectations under the circumstances.

  1. Adhesion: Unequal bargaining power, "take it or leave it." Most K�s are adhesion. Protects more powerful party. Adhesion terms are void if a totally one-sided transaction, substantively unreasonable.
  2. Good faith and fair dealing requirement for filling open terms.

  1. Disclaimers & Limitations

  1. Disclaimers

  1. Intentional wrongs cannot be waived
  2. Negligence

  1. Personal injuries: Usually void, unless injured party had a choice during bargaining process.
  2. Property: Usually upheld as long as injured party had choice and no unfair surprise. Example: Yellow pages ad misprint.

  1. Limitations of warranty (generally discouraged)

  1. 2-313: Express warranties can be created by acts, affirmations, descriptions, samples.
  2. 2-314: Implied warranty of merchantability when sale by merchant. Limits must mention merchantability and if in writing, be conspicuous.
  3. 2-315: Implied warranty of fitness exists when seller knows of particular purpose for goods and buyer relies upon that knowledge. 2-316: Limits must be in writing and conspicuous, but not specifically mention fitness.
  4. Other implied warranties are waived by custom, words or conduct. Where reasonable, terms are construed as consistent with each other. If unreasonable conflict, the disclaimer is inoperative.
  5. Limitations cannot be commercially unreasonable (waiving all warranties)

  1. Limitations on remedy generally upheld unless exclusive remedy fails its purpose, unconscionable, or if personal injury.

  1. Misrepresentation

  1. Nonfeasance: No duty to disclose, unless confidential, trust or fiduciary relationship, or active concealment, or if seller is in a position of knowledge unlikely to be discovered by a prudent purchaser exercising due care.
  2. Misfeasance: Duty to not make intentional misrepresentations of existing fact. No partial disclosures, either by words or conduct. When seller makes buyer believe seller has made a full disclosure, but hasn�t, with intent to deceive, guilty of fraud.
  3. Assertions that are false

  1. Fraud

  1. False assertion
  2. Intent to induce
  3. Knowledge of falsity
  4. Assent is induced
  5. Justified reliance

  1. Material (less level of intent)

  1. False assertion
  2. Likely to induce
  3. No knowledge of falsity required
  4. Assent is induced
  5. Justified reliance

  1. Responsibility of attorney not to engage in fraudulent conduct
  2. Damages

  1. Out of pocket: What was paid (minus) Value of what was received
  2. Benefit of bargain: What they expected (minus) What they got

  1. If K was entered into without any intention to perform, that is a tort and can add to damages.

  1. Misunderstanding & Mistake

  1. Judgment: No excuse.
  2. Integration: Court will remedy if convinced of error
  3. Performance: Equitable remedy for unjust enrichment
  4. Misunderstandings: No K because none was ever made.
  5. Basic assumption: Ranges from misunderstanding to fraud.

  1. Can (at judge�s discretion) be remedied if pervasive and essential mistake making item substantially different than basic assumption of what was bargained for, not if collateral to the agreement (quality or value). Materially affects agreed performance of parties.
  2. "As is" assumes risk, no remedy

  1. Waiver: (2-208) Party promises to perform even though some contractual condition to his obligation to perform has not occurred. Enforceable if:

  1. It is given for separate consideration; or
  2. The waived condition was not a material part of the agreed upon exchange, and the uncertainty of the occurrence of the condition was not a risk assumed by the party who gave the waiver.
  3. Applies only as a unilateral voluntary relinquishment of a known right.
  4. Requires reliance to be effective.
  5. May be oral, express or implied. Express terms and performance shall be construed as consistent, but when unreasonable, express terms wins.
  6. Original term can be enforced only after reasonable, definite and specific notice of expectation of strict compliance.

  1. Performance

  1. Classification of terms

  1. Pure promise: Something to be done, failure of which gives damages. Default interpretation of clauses in bilateral K�s under R261.
  2. Pure condition (R224): Something to occur or fail to occur, failure excuses counterperformance

  1. Precedent: Creates or extinguishes duty.

  1. Condition of satisfaction: Good faith implied.
  2. Excused by waiver, prevention, estoppel, anticipatory breach, etc.

  1. Concurrent: Burden on p .
  2. Subsequent: Cuts off existing duty, discharges K. Burden on D .
  3. Implied Condition of Good Faith (R205)

  1. Promissory condition: Nonoccurrence is a breach giving rise to damages. I.e. A�s promise to do perform was a condition for B�s promise to pay.
  2. Nothing (no impact)

  1. Order (subject to different agreement in K)

  1. Long performance is condition to short performance
  2. Earlier performance is a condition to later performance
  3. Performances to occur simultaneously are conditions concurrent
  4. Buyer paying seller and seller delivering goods must occur concurrently (2-511(1) and 2-507 read together)

  1. Modification

  1. CL: New consideration needed for modification because of preexisting duty. 2-209(1) eliminates consideration if in good faith
  2. Provision excluding oral modifications is enforceable (2-209(2)). Attempted oral modification may be waiver if reliance (2-209(4)).

  1. Discharge

  1. Mistake re future facts can void K, unless parties expressly assumed risk
  2. Impossibility: Failure of presupposed conditions, destruction of subject matter, or failure of transportation.

  1. Force majure clause excuses performance due to acts of god, etc. Non-enumerated conditions must be of the same type as express conditions.

  1. Impracticability: Temporary or permanent interference with performance. Includes excessive and unreasonable cost.
  2. Frustration: Purpose destroyed.
  3. Courts re-write the K to avoid injustice based on these factors:

  1. Foreseeability of risk
  2. Attempts at risk limitation
  3. Existence of severe losses
  4. Customs and expectations of that business community

  1. Assignment & delegation to third parties

  1. Vocab

  1. Assign rights of payment
  2. Delegate duties of performance

  1. Delegation allowed unless personal service K or if delegatee has a much lower reputation or imposes additional burden on consumer.

  1. Holder in due coarse rule: If A contracts with B and B (assignor) assigns its rights to C (assignee), and assignor goes out of business, A can claim directly against assignee, regardless of clauses waiving right to claim against assignee.

  1. Intended beneficiaries can claim against promissor, incidental beneficiaries cannot claim.

  1. Security interest in an account (collection) requires public notice to protect against multiple assignments of the security interest.

  1. Breach

  1. Common Law

  1. Material Breach

  1. Criteria (R241 and R275, together)

  1. Damage to injured party
  2. Availability of damages
  3. Forfeiture to breachor
  4. Breachor�s good faith (innocence) vs. negligence
  5. Potential and likelihood for breacher to cure (2-508)
  6. Examples

  1. Failure to pay or deliver (not just delay)
  2. Repudiation
  3. Grossly defective performance
  4. Quantity
  5. Expressed details of performance

  1. Excuses counterperformance. (R237)

  1. In determining if counterperformance is excused, these factors are considered (2-242):

  1. Factors in R241
  2. Availability of cover
  3. If time is of the essence, and circumstances and agreement indicate that performance on that day was important.

  1. D can recover restitution for benefits conferred upon p .
  2. Non-breaching party must distinctly and seasonably assert the right of rescission.
  3. If court later finds that breach was not material, repudiator is guilty of material breach.

  1. Immaterial breach: Non-breaching party gets damages caused by breach and suspends counterperformance until breachor performs.
  2. Doctrine of substantial performance: Breachor has substantially performed and wants to receive entire K price, minus damages (cost of replacement or diminished value), rather than have non-breachor�s counterperformance excused.

  1. Breach may deviate significantly from K terms so long as market value is not diminished by variation.
  2. Treats breach as immaterial

  1. Article 2

  1. Demand for Assurances (2-609)

  1. A has caused non-breaching B to doubt whether A will perform, B can demand assurance of performance from A.

  1. Until A replies, B may withhold performance that is not already due to A.
  2. B can assume A has repudiated after reasonable period (30 days) of no response. Allows B to completely suspend B�s performance due.

  1. Unreasonable demand with suspended performance is anticipatory breach.
  2. Duty of good faith: Party cannot take advantage of circumstances. Response to unreasonable demand cannot suspend performance when party intends to breach anyhow.

  1. Standard Breach

  1. Acceptance: Express, implied by failure to reject after reasonable opportunity to inspect or by assuming ownership (2-606). But B wants to reject due to defect found after acceptance or acceptance with assurance of cure (2-607).

  1. Notice of defect required
  2. Keep goods

  1. Pay K price (2-607(1))
  2. Damages = $FMV as warranted minus $FMV as delivered (2-714).

  1. Revoke acceptance within reasonable time if nonconformity discovered after acceptance or with promise of cure. (2-608).

  1. Must comply with S�s disposition requests and hold goods with reasonable care for seller

  1. Failure to accept: If B breaches, S can withhold or stop delivery, resell goods (2-708). Damages:

  1. $K - $FMV@tender + Incidentals � mitigation/savings; or
  2. Expected profit + Incidentals - $resale

  1. Rejection (2-602) within reasonable time, with notice of defect, because of imperfect tender

  1. Must accept if S promises to cure (2-508) and deliver before due date
  2. Must comply with S�s disposition requests and hold goods with reasonable care for seller

  1. Acts demonstrating ownership may waive rejection or revocation (2-602)

  1. Installment K (2-612)

  1. Severability shown by intent of parties, ability to sell or valuate installments.
  2. Damages for nonconforming incurable products upon notice.
  3. If nonconforming installment(s) substantially impairs value of the whole, seller has breached the whole unless buyer accepts nonconforming installments.

  1. Anticipatory Repudiation (2-610)

  1. When D repudiates with regard to performance not yet due, p can suspend performance, mitigate damages and:

  1. wait for performance for a commercially reasonable period of time and sue later; or
  2. sue immediately, even if p has notified D he would wait for performance

  1. Does not apply when, at the time of repudiation, p has fully performed (unilateral K remains). p must wait to sue until there is an actual breach. Acceleration clause in a loan will protect p from defaulting D without having to wait until actual breach.
  2. Repudiation can occur by improper demand for assurances, express, implied (promissor puts it out of his power to perform), failure to comply with early installment. Repudiation is retractable (2-611) prior to actual breach unless p has accepted or detrimentally relied on repudiation.
  3. Damages considers mitigation, supervening events between anticipatory breach and trial.

  1. Defense: Had K continued, p would not be entitled to the performance, though he was apparently so entitled when D repudiated. Only available if judgment is made prior to actual breach.
  2. Death = impossibility, not repudiation. Must get judgment prior to death for repudiation. Can sue estate for actual breach occurring prior to death.

  1. Remedies & Damages

  1. Risk: Merchant seller has risk until buyer takes possession. Non-merchant seller has risk until buyer tenders.
  2. Damages

  1. Incidental damages: Clearly foreseeable, arising naturally from the breach of the contract. Probable result. Reasonably supposed to be in the contemplation of the parties at the time of making the K.
  2. Consequential damages: D must be made aware of circumstances and accept K with special conditions attached.

  1. Loss in profits, customers. Generally only kicks in if there is a need/duty to cover and they made a reasonable attempt to do so.
  2. Buyer can choose to cover breach with reasonable substituted goods within a reasonable time period, collect difference between K price and market price plus expenses.

  1. Punitive: Generally not available unless malicious, unlawful breach, or no intent to perform, even then limited.
  2. Emotional: If breach is especially bad or foreseeable.

  1. Non-Monetary Remedies

  1. Self help: Bank can repossess your car or house, but you can�t repossess something you sell to someone else who doesn�t pay you. What is the difference? Right to repossession has to be agreed upon by debtor granting a security interest to lender. Lender can sue debtor for deficiency.
  2. Specific performance: Generally not available, unless $ award would be inadequate, or if public interest is directly involved. Is available in some real estate, employment, construction & purchasing K�s. Available for unique goods (2-716).

  1. Specific performance by seller = action for full $K

  1. Duty to mitigate (avoidable consequences) (2-715)

  1. Non breaching party must not increase damages after receiving notice of breach.
  2. Breach of employment K means employee must use ordinary diligence to secure comparable or substantially similar employment elsewhere. Even if you can only find different employment, wages are still credited to D .
  3. Seller must attempt to resell and recover damages (fair market value).

  1. Remedies (continued from last semester)

  1. Expectation damages

  1. p is awarded damages to put p in position he would have been in if the K had been performed. Benefit of the bargain.
  2. Difference between contract price and FMV as delivered

  1. Plus non-speculative, reasonable and foreseeable (Hadley)

  1. Incidental (2-715)
  2. Consequential (profit)
  3. Cover (2-712, 2-713)
  4. Deposits made (2-711)

  1. Minus materials on hand, mitigation, savings from breach (2-712), payments due for past service (2-717)
  2. Service: Cost of correction.
  3. Has security interest if owed money from S (2-711(3)), and can resell.

  1. Duty to mitigate (cover, stop production, resell, etc.)

  1. Resale if perishable or if seller won�t take back after reasonable time. Must be a commercially reasonable sale (2-706). Reseller gets difference between $K and $resell.

  1. Actual or nominal, not punitive. Emotional only if clearly foreseeable (dead body falls out of casket).
  2. If product has endless supply, p can still recover profit.

  1. Reliance

  1. p gets costs to put him in the position he was in prior to K.

  1. Restitution

  1. Implied promise in all K�s to pay for benefit conferred.
  2. Nonbreaching p gets fair market value of benefit conferred (R371). Useful for loosing K where FMV > $K.
  3. Breaching p limited to $K. Some juris prevent recovery for willful breach.

  1. Nominal: If no actual damages, p �s can recover nominal damages ($1). Limited by avoidable consequences, what could have been reasonably considered (foreseeability) and certain (speculative damages not recoverable).
  2. Liquidated: Specified damages (2-718(1)). Criteria:

  1. Actual amount difficult to determine
  2. Reasonable estimate at time of K � no penalties.
  3. Not adhesion K�s of unequal bargaining power.

  1. Exclusive: K may specify exclusive remedy in addition to or in substitution for Article 2 remedies (2-719(1)). Acts to limit buyer�s remedy to return, reject or replace goods.

  1. If the exclusive remedy fails in its essential purpose (after a reasonable number of attempts to fix under exclusive remedy), standard remedies under 2-711 are available. (2-719(2))

  1. Mediation

  1. Background

  1. Mediator does not have authority to impose a decision
  2. Mediation is the dominant method of dispute resolution in some places
  3. Ten years ago it was only used in international or labor relations
  4. Requires relatively equal bargaining power of both sides

  1. Otherwise risks dominance by stronger or more knowledgeable party, which can result in future legal problems

  1. Requires incentives for both parties to work out agreement (often time and money)
  2. Does not rely on nor sets precedent
  3. Emphasizes harmony, not rights or interests

  1. Modern use: Minor Disputes

  1. Referrals from Crim Justice system, disputants themselves
  2. Looking for speed and less cost

  1. Modern use: Major Disputes

  1. May concern many people in a locality
  2. Domestic relations

  1. Mandatory mediation for child custody issues
  2. Mainly voluntary for both parties

  1. More likely to be obeyed

  1. Saves both parties time and money

  1. Role of mediator

  1. Facilitate communication process
  2. Not to give legal advice
  3. Emphasis on plain language
  4. Advise parties, but each party may need their own counsel

  1. Risk of inappropriate disruption by outside lawyers
  2. Difficulty of representing both sides, especially if conflicting interests

  1. Work with other professionals (counselors, etc.) in resolution
  2. Full disclosure of risks, prior relationships
  3. Cannot represent either party in related future matter

  1. Requirements

  1. Education � both of students and practicing lawyers
  2. Change of current way of legal thinking

  1. Past view: Adversary & application of rule; reduction to monetary values; rights & duties established by rules; supported by:

  1. expectations of clients
  2. $
  3. predictability and clarity of law
  4. society�s interest in individual self-interest
  5. view of mediation as an economic threat to lawyers. Saving lawyers time doesn�t mean they have to earn less, but it does mean they are barred from representing same parties in future related actions
  6. Lack of education
  7. Threat to integrity and distinctiveness of bar and law schools

  1. Mediation: Creative solution & no precedent; no monetary reduction

  1. Consumer demand will be increasing
  2. Bar may get involved to keep from losing power, control or money
  3. Need for legal advice before, during and after mediation
  4. $ available for those who are good at mediating
  5. Ability to represent and collect fees from greater number of people
  6. Public interest
  7. New ethic of commitment, connectiveness, community � making law more responsive to the needs of the community. Ability to provide better service to the poor.

  1. Misc. Notes

  1. R205, UCC1-203: Every K imposes upon each party a duty of good faith and fair dealing in performance and enforcement
  2. UCC applies if a K that is for both goods and services has the "most significant part" being goods. Not measured by $ value.

  1. When applying Article 2 because the most significant part is goods, but service is the cause of the problem, try and read Article 2 to apply to services as well.

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