Sie sind auf Seite 1von 32

CONTRACTS & SALES

Armadillos From Texas Play Tennis, Riding Elephants

VOCABULRY
 Contract: Legally enforceable agreement/promise. The law recognizes a duty to perform
and provides a remedy in the event of breach.
 Unilateral K: Offer expressly requires performance as the only manner of acceptance.
 Bilateral K: exchange of promises.
 Express K: promises communicated by language
 Implied K: parties’ conduct indicates that they assented to be bound.
 Quasi-K: Not a K; its an equitable remedy that permits pty to bring an action in restitution
to recover the amount of the benefit conferred to D. Usually arises when there is an
unenforceable agreement, but one side has, inequitably, realized a benefit.
o Look for:
 Benefit conferred by P to D
 P reasonably expects to be paid
 D knowingly accepted benefit
 D will be unjustly enriched if P isn’t compensated.
 Void, voidable, & unenforceable Ks:
o Void: K never had any legal effect from the beginning. NO enforcement by either
party
o Voidable: One or both parties may elect to void the K. [i.e. infancy/incapacity]
o Unenforceable: Otherwise valid K that is unenforceable because a defense applies.
[e.g. SOL or SOF].

APPLICABLE LAW: Common Law or UCC Art. 2

1. Common Law: Most K’s except sales of goods. E.g. Real estate, service K’s
2. UCC: Governs sale of goods.
a. Merchants: if both parties are merchants, UCC has additional special rules. Merchant is
one who regularly deals in goods of the kind sold or holds self out as having special
knowledge as to the practices or goods involved in transaction.
i. Merchant must be acting in mercantile capacity – related to the business – for
merchant rules to apply.
ii. Not a merchant for purposes of sales that are solely personal [e.g. related to
stamp collecting hobby]
3. Mixed K’s: K’s involving both goods & services, predominant purpose of K dictates applicable
law. [All or nothing]
a. EXCEPT – if K terms expressly divide payments between the goods & services, apply
UCC only to sale of goods portion of K and CL to remainder.
4. Notable Distinctions:
a. Acceptance:
i. CL: Mirror image rule
ii. UCC: If both merchants, additional terms become part of K unless they
materially change the offer or offeror objects.
b. Option Ks:
i. CL: requires consideration or reliance
ii. UCC: No consideration required for merchant’s firm offer
1. Firm offer – irrevocable for time stated, or up to 3 months if no time
stated [permanently revocable if consideration provided]
c. Modification:
i. CL: consideration usually required
ii. UCC: No consideration required
d. Substantial performance vs perfect tender:
i. CL: if there is substantial performance by one party to K, the other party must
perform, or pay.
ii. UCC: buyer isn’t required to pay unless seller makes perfect tender of goods.

FORMATION OF CONTRACTS:

1. ANALYSIS— IS THERE AN ENFORCEABLE K:


a. Mutual assent:
i. Offer – promise, undertaking, or commitment with definite & certain terms
communicated to offeree AND
ii. Acceptance – before termination by revocation, rejection, or operation of law
b. Consideration:
i. Bargained for exchange of something of legal value
ii. No Preexisting legal duties
iii. Substitute for consideration
a. Promissory estoppel
b. Detrimental reliance
c. Good faith modification under the UCC
iv. No illusory promises
c. No defenses:
i. Mistake: mutual or unilateral [under certain conditions]
ii. Capacity: makes K void or voidable
iii. Illegality: usually renders K void
iv. SOF
v. Misrepresentation/fraud
vi. Unconscionability
vii. Misunderstanding
viii. Duress
2. OFFER: For a valid offer, there must be an (1) objective manifestation of present intent to K
demonstrated by (2) a promise, undertaking, or commitment (3) certain and definite terms (4)
and communication to an intended offeree.  creates power of acceptance in offeree.
a. Objective Manifestation of Intent to K: Offer must give offeree a reasonable person
an expectation that offeror is willing to enter into a K.
i. Words or conduct showing intent to commit. Can look to parties’ prior
relationships or custom in the industry.
ii. Real intent of the parties is irrelevant.
b. Promise, Undertaking, or Commitment: rather than mere invitation to begin
preliminary negotiations. i.e. must be intent to K
i. Look to: Language, circumstances, prior practice/relationship, methods of
communication:
ii. Advertisements or Price Quotations: Generally NOT an offer.
1. ADs: Can be offer if
a. offer for reward – “$100 reward to anyone who catches flu after
using carbolic smoke ball as directed”
b. can be an offer if specific as to quantity and expressly indicates
who can accept. – 1 fur coat $10 first come first serve.
2. Price quotation – Can be offer if given in response to an inquiry that
contains quantity terms.
c. Definite & Certain Terms: An offer must be definite & certain in terms. Basic inquiry
is whether enough essential terms provided so that a K including them would be capable
of enforcement.
i. Identify Offeree: offer must identify offeree or class to which she belongs to
infer that offeror intended to create power of acceptance.
ii. Definiteness: SM of deal must be certain, court can only enforce a promise if
they can tell w reasonable accuracy what promise is.
1. Real estate: requires price + identification of land [not deed]. Most courts
wont supply missing price term for realty.
2. Sale of goods UCC: Quantity must be certain or capable of being made
certain [Req. or output Ks]. Price not required – can be supplemented by
court using FMV @ time of delivery.
a. Requirements K: B promises to buy from S all goods B requires,
and S agrees to sell that to B.
b. Output K: S promises to sell to B all goods that S produces, B
agrees to buy that from S.
c. Language: require, need, produce, all, only, exclusively, solely.
d. Effect: in req or output Ks quantity doesn’t need to be explicit.
Its assumed that they will act in good faith when setting estimated
quantity.
i. No unreasonably disproportionate increase in quantity or
limitation on increases allowed.  must be in line with
prior demands.
3. Employment: Duration required. If not, the offer, if accepted, construed
as creating a K terminable at will of either pty.
a. Price can be supplemented by court.
4. Services: Nature of the work to be done must be included.
a. Price can be supplemented by court.
5. Missing terms: Missing terms don’t always prevent formation if it appears
that parties intended to K and there is a reasonably certain basis for the
court to give a remedy.
a. Majority of jdxs and Art 2 hold that court can supply reasonable
terms when missing.
b. Price: except RE; if ptys intended to K without price being
settled ct will supply.
c. Time: for performance. Law implies performance within a
reasonable time.
6. Vague terms: No presumption of reasonable terms where ptys include a
term that makes K too vague to be enforced. If material term is
vague/ambiguous it is not an offer at CL or UCC.
a. Uncertainty can be cured by part performance that clarifies vague
term or by acceptance and full performance.
b. E.g. agree to split profits on “liberal” basis; terms like
appropriate, fair, reasonable.
7. Agreed on later: statement that some term will be agreed on in future. If
term is a material term, offer is too uncertain.
d. Communication to identified offeree: offeree must know of and have the power to
accept. Proposal must be communicated to her.
e. TIP: offer can be a continuing offer – an offer to form a series of Ks. E.g. to sell certain goods for certain
price over a specified time period or up to a certain quantity. Acceptance can occur multiple times as offer
remains open for that time period or until quantity reached.
3. TERMINATION OF OFFER: Offer can’t be accepted after termination. (1) Revocation by
offeror (2) rejection by offeree (3) Lapse of time (4) by operation of law [death, insanity,
destruction, illegality]
a. Offeror Revokes: Unambiguous statement or conduct of offeror to offeree of
unwillingness or inability to contract. Can be expressly communicated to OFE. Can be
indirect if OE receives (1) correct info (2) from reliable source (3) of acts of OFO that
would indicate to RPP that he no longer wishes to make offer.
i. When effective: revocation generally effective when received. Doesn’t matter
that OFE actually reads revocation or not.
ii. Publication: if offer made by publication, revocation may be made in a
comparable means [same newspaper] of publication. [becomes effective when
published]
iii. Irrevocable offers: OFO can revoke at will, even if he promised not to, except:
1. Option Ks: Promise to keep an offer open in exchange for additional
consideration.
a. General contractor whenever a general contractor relies on a
bid from sub-contractors to submit a bid, an option K is formed.
2. UCC Firm Offers: If a (1) merchant offers to (2) sell goods in a signed
writing and (3) writing gives assurances that it will be held open (4) it
is irrevocable for time stated or reasonable time not exceeding 3
months, No consideration required for firm offer.
a. If offer states option beyond 3 Mo. Period, he will only be bound
for 3 months.
b. TIP: If offer DOES include consideration, it is an option K NOT a firm
offer. Offer can be held open for as long as parties specify, even if by
merchants & sale of goods.
3. Detrimental reliance: If (1) OFO could reasonably expect that OFE
would rely to his detriment on offer (2) OFE does so rely (3) offer will be
held irrevocable as an option K for reasonable length of time.
4. Start of performance – Unilateral Ks: once performance begins, beyond
mere preparation, the offer becomes irrevocable for a reasonable time
period to complete performance. No acceptance until completion.
a. OFE is not bound to complete performance he can withdraw at
any time prior to completion.
b. Preparation: doesn’t make offer irrevocable. But may constitute
detrimental reliance sufficient to make offer binding to extent of
that detrimental reliance.
5. Start of performance – Bilateral Ks: where offer doesn’t explicitly state
manner of acceptance, K may be formed upon the start of performance.
This is acceptance. Revocation becomes impossible.
i. Notification of start of performance may be necessary if no way
for OFO to know about start of performance.
b. Offeree Rejects: (1) express rejection to OFO (2) counteroffer
i. Counteroffer: Offer made by OFE to OFO that contains same subject matter as
original offer, but differs in terms. This is both a rejection & a counteroffer.
1. Mere inquiry: inquiry will not terminate offer when its consistent with
idea that OFE is still keeping original proposal under consideration. E.g.
would you consider lower price?
a. Test: whether RPP would believe original offer rejected.
2. Time effective: when received by OFO. Don’t need to read/hear
3. Options: rejection or counteroffer of option does not terminate offer.
OFE still free to accept original offer within option period unless OFO
has detrimentally relied on OFEs rejection.
4. Limitations: Generally, can’t reject if already accepted.
c. Lapse of Time: OFE fails to accept within time specified by offer or, if no deadline
specified, within a reasonable time period.
d. By operation of law:
i. Death or Insanity of either party: [unless irrevocable offer] Death or insanity
does not need to be communicated to the other party and will still terminate the
offer by operation of law.
ii. Destruction: of proposed K’s subject matter.
iii. Supervening illegality
4. ACCEPTANCE: Objective manifestation of assent to the terms of offer
a. Who accepts: Person to whom offer is addressed or if member of a class offer was
directed at.
i. Assignment: power of acceptance can’t be assigned unless it is an option K, in
which the right to accept is transferable.
b. Offeree must know of offer: for both unilateral and bilateral Ks.
c. Mailbox rule: Acceptance by mail or similar means [email, phone/VM] creates a K at
the moment of dispatch, provided mail is properly addressed and stamped unless:
i. Offer stipulates acceptance not effective until received
ii. Option K involved [acceptance under option K effective only when received]
iii. OFE sends rejection and then sends acceptance  first to arrive controls
iv. OFE sends acceptance then rejection  mailbox rule applies [acceptance
effective] unless rejection arrives first and OFO detrimentally relies on rejection.
d. Acceptance by unauthorized means: Acceptance transmitted by unauthorized means
or improperly transmitted by authorized means can still be effective if it is actually
received by OFO while offer still exists.
e. Unilateral Ks: Offer says only can be accepted by performance. OFE must know of
offer to accept.
i. Completion of performance: offer not accepted until performance is
completed. Start of performance creates an option for reasonable time to
complete performance. OFE not required to complete performance – only
complete performance is acceptance.
ii. Notice: generally, not required to give notice that he started performance.
Required to tell OFO within a reasonable time of completion of performance
UNLESS (1) OFO waived notice (2) performance would normally come to
OFOs attention within reasonable time.
f. A Bilateral Ks: Can be accepted by promise to perform or by beginning performance.
i. Notice of acceptance: must be communicated to OFO, unless offer explicitly
says acceptance need not be communicated.
1. Silence: OFE can’t be forced to speak or have silence treated as
acceptance. If bc of prior dealings or trade practices it would be
commercially reasonable for OFO to consider silence as acceptance,
court could find it is.
a. Services: If recipient of services knows or should know that
services are being rendered with expectation of compensation
and, by a word, could prevent the mistake, she may be held to
have accepted if she was silent.
ii. Methods of acceptance: Unless provided in K, offer is construed as inviting
acceptance in any manner and medium reasonable under the circumstances. Any
objective manifestation of assent by OFE is usually sufficient.
1. UCC current or prompt shipment: offers to buy goods for current or
prompt shipment is construed as inviting acceptance either by promise
to ship or current or prompt shipment of both conforming and non-
conforming goods.
iii. CL Mirror Image rule: Acceptance must be unequivocally and absolutely
mirror each and every term of the offer. Any different or additional terms in the
acceptance make the response a rejection and counteroffer.
iv. Bilateral K formed by performance: i.e. not formed by communications but
they begin performance as if K is formed, a K is performed.
g. UCC K’s:
i. Offer to buy goods for Current or Prompt shipment: May be accepted by (1)
promise to ship or by (2) shipment of conforming and non-conforming goods.
1. Acceptance by promise to ship: once promise to ship is made it’s a
bilateral K. No shipment or shipment of nonconforming goods is a
breach.
a. BREACH if S ships accommodation for nonconforming goods.
2. Acceptance by shipment of conforming goods: Once shipped, offer is
accepted.
3. Acceptance by Shipment of non-conforming goods: This is an
acceptance creating a bilateral K as well as a breach of the K unless S
sends accommodation.
a. Accommodation: S seasonably notifies B that shipment of
nonconforming goods is offered as an accommodation.
i. B is not required to accept accommodation goods and
can reject the goods.
ii. If B rejects accommodation goods, S is not in breach and
can reclaim nonconforming goods because S’s tender is
not an acceptance of B’s original offer.
iii. TIP: Accommodation rule only applies when shipment is used as a
form of acceptance. When S accepts by promising to ship, any
nonconforming goods that are shipped is a breach.
ii. Battle of the Forms: Mirror image not required. Generally, an acceptance with
additional or different terms is still an acceptance of original offer, and a K is
formed UNLESS acceptance expressly made conditional on assent to new/diff
terms. Question becomes whether new terms are incorporated into the K.
1. Incorporation into K:
a. K with a Non-merchant: Additional or different terms are
considered proposals to modify the K. Original Offer is accepted,
but new terms [of proposal] are not included unless OFO
expressly agrees to them.
b. Between 2 Merchants: K is formed. Incorporation depends:
i. Additional terms will be included in the K unless:
1. They materially alter the original terms of offer –
e.g. change party’s risk or the remedies available
[trier of fact]
2. Offer expressly limits acceptance to terms of offer
3. OFO objected to terms or objects w/I reasonably
time after notice of new terms are received.
ii. Different terms: those different to terms in offer – not
in addition to them.
1. Some courts treat them like additional terms.
2. Knockout rule: Other courts follow knockout rule
– conflicting terms in offer & acceptance are
knocked out of K because each party is assumed
to object to diff terms. Gaps left by knocked out
terms are filled in by the UCC.
3. TIP: even though different terms are an acceptance, still
must have a meeting of the minds or there is no K. Watch
out for diff terms re price, quantity, or quality – these
indicate there is no meeting of minds to constitute a K.
2. Confirmation memo: Oral agreement between B and S. S later sends a
confirmation memo that contains additional or different terms  Memo
is put through battle of forms provision as if it was an acceptance, even
though agreement was already formed orally.
3. Conditional acceptance: When acceptance of the offer is expressly
conditioned on assent to new or different terms, additional or different
terms in an acceptance are treated as a rejection and counteroffer:
a. Conditional acceptance is treated as a new offer
b. Original OFO may assent to new terms, forming new K with
new term incorporated.
i. Original OFO can’t accept by performance - only by
assent to new terms.
c. If ptys ship or accept goods, new terms are not assented to, the K
is formed by their conduct and new terms are not included.
iii. Moment of mutual assent: If we can’t determine with certainty which specific
communication was offer and which was acceptance, but parties act like there is
a K, UCC considers this a binding K even though moment of its making is
uncertain.
iv. Auction Ks: UCC has special rules. Sale by auction is complete when auctioneer
so announces by the fall of the hammer or other custom. Auctions are with
reserve unless otherwise explicitly stated. If auction is with reserve, auctioneer
may withdraw the goods at any time until the hammer falls.
5. CONSIDERATION: Consideration requires: (1) a bargained for exchange between the parties
(2) for legal value [a benefit to promisor OR detriment to promisee] (3) Consideration substitute
a. Bargained for exchange: Promise must induce a detriment and the detriment induce
the promise. There is no bargain involved when a gift is given.
i. Act or forbearance by PE must benefit PO: Act or forbearance/promise to
act of forbear is sufficient consideration if it benefits PO. Benefit doesn’t need to
be economic. POs gratification of influencing PEs mind is enough.
ii. Past or Moral consideration: promise given in exchange for something already
done is not a bargained for exchange. EXCEPT:
1. If a past obligation unenforceable because of a defense [e.g. SOL] this
obligation will be enforceable if (1) new promise is made in writing or (2)
is partially performed after the defense was available.
a. E.g. debt is barred by SOL, new written promise to fulfill debt is
enforceable without consideration, but only according to new
terms.
2. Past act benefitted PO and was performed by PE: (1) at PO’s request and
PE expected payment or (2) in response to emergency  subsequent
promise to pay for that act will be enforceable.
b. Legal value:
i. Adequacy: Courts generally do not inquire into adequacy of consideration. If
there is a possibility of value in the thing bargained for, it will be found even if
value never comes into existence.
1. Token consideration: if completely devoid of value its insufficient.
2. Sham consideration: insignificant sum recited in K also insufficient if not
paid.
ii. Legal benefit and detriment:
1. Legal detriment: results if PE does something he is not legally obligated
to do or refrains from doing something he has a right to do.
2. Legal benefit: forbearance or performance of an act that PO was not
legally entitled to demand or expect.
iii. Preexisting legal [K or statutory] duty: Performing or promising to perform
an existing legal duty is insufficient. Except consideration will be found where:
1. New or different consideration is promised for performance of
preexisting duty
a. E.g. payment earlier than required, payment in stock rather than
cash – could make payment of smaller amount sufficient.
b. E.g. debt is not yet due – paying before payment is due is valid
consideration
2. Promise is to ratify a voidable obligation
a. E.g. promise to ratify minor’s K after he is 18. Promise to go
through with K even though someone committed fraud.
3. Preexisting duty is owed to a 3P not PO
4. Honest dispute as to the duty to perform preexisting duty
a. E.g. promise to forgive debt: debt is disputed – paying part of
disputed amount is valid consideration
5. Unforeseen circumstances sufficient to discharge a party [e.g.
impracticability] and they later agree to perform obligation
a. [Modern view] Modification is fair and equitable in view of
circumstances not anticipated when the K was made
6. UCC
a. Good faith agreement modifying a K under the UCC doesn’t
need consideration.
iv. Forbearance to sue: promise to refrain from suing can be sufficient if the claim
is valid or claimant in good faith believed it was valid.
v. Illusory Promises: consideration must exist on both sides of the K [benefit
doesn’t need to flow to everyone]. If only 1 party is bound to perform, it is
illusory and unenforceable. E.g. “all the goods I want to buy/you want to sell” “I
can terminate whenever, but you can not.”
1. Implied by courts: courts will often imply promises to infer mutuality.
E.g. implied that party will use best efforts.
2. Not illusory:
a. Requirements and output Ks: will buy or sell ALL, ANY etc.
b. Conditional promises, unless condition entirely in POs control
c. K where one party has right to cancel, as long as that right is
restricted
d. Exclusivity agreements bc courts will imply promise to use best
efforts
e. Voidable promises
f. Unilateral and option Ks
g. Gratuitous and suretyship Ks made before or at the same time
that consideration flows to principal debtor.
3. Right to choose alternative courses: a promise to choose one of several
alternative means of performance is illusory unless every alternative
involves a legal detriment to PO.
a. Won’t be found illusory if: (1) at least one alternative involves
legal detriment and power to choose rests with PE or third party
(2) valuable alternative [involving legal detriment] is actually
selected.
c. Consideration substitute: A promise is enforceable without consideration if a
substitute exists.
i. Seal: NOT a substitute – common wrong answer on exam
ii. Legal obligation barred by law: written promise to satisfy an obligation that
has a legal defense is enforceable without consideration [e.g. SOL]
iii. Promissory Estoppel: Courts will enforce a promise if (1) PO should have
reasonably and foreseeably expected reliance by PE (2) PE acts or refrains from
acting such that his reliance is detrimental and (3) enforcement of promise is
necessary to avoid injustice.
6. NO DEFENSES EXIST: Defenses to formation of K, K is voidable, or defenses to
enforcement of certain terms.
a. Mutual Mistake of existing fact: both parties mistaken about existing facts [not future
happenings] relating to agreement, K may be voidable by adversely affected party if:
i. Both parties are mistaken
ii. Mistake concerns basic assumption of fact on which K was made
1. Mistake in value not a defense. If they make assumptions as to value of
subject matter, won’t be remedied bc both parties assume the risk that
their assumption as to value is wrong.
iii. Mistake materially affects agreed upon exchange
iv. Adversely affected party did not assume the risk of mistake
1. Not a defense if mistaken party bore the risk. Happens usually when one
party is in a better position to know the risks than other party [contractor
vs homeowner] or party knew their assumption was doubtful [aware of
ignorance]
b. Unilateral mistake: One pty makes mistake concerning facts [usually computational
errors]. Usually won’t prevent K formation. BUT if non-mistaken pty knew or had
reason to know of mistake by the other, K is voidable by mistaken pty if it has a material
effect on the agreed-upon exchange and mistaken party did not bear the risk of mistake.
c. Mistake by intermediary: Mistake in transmission of offer or acceptance by
intermediary, prevailing view is the message as transmitted is operative unless the other
party knew or should have known of the mistake.
d. Misunderstanding: If K includes ambiguous terms capable of 2+ meanings, result
depends on awareness of ambiguity of parties: [subjective intent taken into account]
i. Neither aware: no K unless both ptys intended same meaning.
ii. Both aware: No K unless both intended same meaning.
iii. One aware: K is binding based on what ignorant pty reasonably believed to be
the meaning of ambiguous word.
e. Misrepresentation:
i. Fraudulent misrepresentation: If pty induces another to enter into K by
asserting info she knows to be untrue, the K is voidable as to the innocent party
if (1) she justifiably relied on the fraudulent misrepresentation.
1. Fraudulent misrep can be inferred from conduct – concealing facts,
frustrating investigation of facts, falsely denying knowledge of a fact
ii. Material misrep: K is voidable by innocent party if innocent pty justifiably
relied on the misrep and the misrep was material. Misrepresentation is material if
(1) would induce a RPP to agree or (2) maker knows that for some special reason
it is likely to induce that particular person to agree, even if an RPP wouldn’t.
iii. Justified reliance: If reliance on misrep is unreasonable, no relief. Just bc a
misrep could be revealed by exercise of reasonable care doesn’t mean reliance
wasn’t justified.
1. Failing to read a K carefully doesn’t necessarily preclude misrep.
iv. Voidable: Innocent pty doesn’t have to wait to be sued on K. she can take
affirmative action in equity to rescind the K and can pursue all remedies available
for breach.
f. PP Illegality: Legality based on existing law at the time of K formation
i. if consideration or subject matter of K is illegal K is void. Except:
1. P is unaware of illegality and D knows of illegality
2. One party is not as culpable as the other
3. Illegality is failure to obtain license when license if for revenue raising
purposes rather than protection of the public
ii. If purpose behind K is illegal the K is voidable by pty who was
1. Unaware of illegal purpose or Aware but did not facilitate illegal purpose
and
2. purpose did not involve serious moral turpitude
g. Lack of Capacity:
i. Incapacity to K:
1. Infancy: Infants lack capacity to K binding on themselves. K promises by
an adult made to infants are binding on the adult.
a. Voidable: Infant can elect to disaffirm K any time before or
shortly after he is age of majority. When he reaches majority, he
can affirm the K choosing to be bound either expressly or by
conduct [failing to void K w/I reas time]
i. If infant voids K, he must return anything under the K
that still remains at the time K is voided but no obligation
to return what has been squandered, wasted, or
negligently destroyed.
1. Exception student loans, insurance Ks,
agreements not to reveal an employer’s
proprietary info
ii. Necessaries items necessary for infant’s subsistence,
health, or education – food, shelter, clothing, medical
care. Infant can void K, but will still be liable in
restitution for the value of benefits received for
necessaries.
2. Incapacity: Mental capacity so deficient that he is incapable of
understanding nature and significance of K can void [voidable] when
lucid or by legal guardian. Like infants, still liable for necessaries.
3. Intoxication: so intoxicated he doesn’t understand nature and significance
of K can be held to have made a voidable K if the other pty had reason
to know of intoxication. He can affirm upon recovery. Quasi-K recovery
for necessaries furnished.
ii. Duress & Undue Influence: Ks so induced are voidable and can be rescinded
as long as not affirmed.
1. Duress: Assent procured by an improper threat.
2. Economic duress: Taking advantage of another’s economic needs is not
duress  but withholding something someone wants or needs will be
economic duress if
a. Pty threatens to commit wrongful act that will seriously threaten
the other’s property or finances and
b. No adequate means available to prevent threatened loss
3. Undue influence: often arises where dominant pty is in
confidential/caregiver relationship with influenced pty.
a. Undue susceptibility to pressure by on pty and
b. Excessive pressure by other pty.
h. Statute of Frauds: Certain K’s must be evidenced by a writing by the party sought to be
bound. Noncompliance with SoF renders the K unenforceable at the option of the party
being charged [i.e. the D saying lack of writing is affirmative defense] If not raised as a
defense, it is waived.
i. Ks within SOF:
1. Marriage Ks – where consideration for promise is marriage, must be
written. i.e. promises to induce marriage by offering something of value
other than a return promise to marry
a. E.g. if you marry my son I will give you a house NOT I promise
to marry if you promise to marry.
2. Service Ks incapable of being performed within one year
a. Employment Ks – must state length of employment [over 1 yr]
b. Performance: only full performance removes from SOF
3. Land-related Ks – transfer of any property interest including leases for
duration longer than one year
a. Must contain description of land and price
b. Leases and easements of more than 1 year
c. Mortgages and other security liens
d. Transfer of fixtures
e. Transfer of mineral or structures if to be severed by the buyer
[i.e. left to old owner]
f. NOT
i. K to build or K to find buyer for seller
g. Performance: will satisfy SoF and B can enforce oral K but can
only sue for specific performance, not damages.
i. Full Performance: full performance conveyance satisfies
SoF
ii. Part performance: by the buyer – 2 of 3: full/part
payment, possession of prop, valuable improvement of
prop
1. EXCEPT: Installment land Ks [unless HUGE
down payment plus possession or improvement]
or leases for more than 1 yr [i.e. make monthly
payments & have possession – could be short
term]
4. Executor promises – promises by executor or administrator to personally
pay for the debts of decedent’s estate [not from decedents $]
5. Guarantees – promises to pay debt of another only if that person does
not herself pay
a. Main purpose exception: if main purpose is so person
promising to pay gains a pecuniary benefit of his own, K is not
within the SOF.
i. Eg. I will pay your debt to bank, so that you can buy the
supplies needed to paint my house.
6. Sale of goods $500 or more.
a. Writing req: Only some signed writing indicating that K is made,
specifying quantity term
i. don’t forget outputs/requirements Ks
ii. Writing is sufficient if it omits or incorrectly states a term.
iii. BUT K is not enforceable beyond the quantity of goods
shown in writing.
b. Writing not req: 3 situations SWAP
i. Specialty goods: Goods specialty made for B and not
suitable for sale to others in S’s ordinary course of
business.
1. SoF satisfied if S has (1) under circumstances
reasonably indicating goods are for B (2) made a
substantial beginning toward manufacture or
commitments for the purchase before notice of
repudiation is received.
ii. Admission in court pleadings: If D [against whom
enforcement sought] admits in court that K was made,
SOF satisfied but K only enforceable up to quantity of
goods admitted.
iii. Payment or delivery: goods received accepted or paid
for, SoF satisfied and K enforceable only up to quantity
accepted or paid for.
1. If indivisible item is partially paid for, most courts
hold SoF satisfied for whole item.
c. Merchant Confirmation memo: K between merchants. If 1 pty,
w/I reasonable time after oral agreement, sends other pty a
written confirmation memo sufficient to bind S under SoF, it will
also bind B if (1) B has reason to know of confirmation’s
contents and (2) he doesn’t object in writing within 10 days of
receipt.
7. K where incapable of performance within 1 year of K date – Promise
where, by its terms, cannot be performed within one year of the date of
agreement [not date of performance] is subject to SoF.
a. Part performance: doesn’t satisfy SoF.
b. Full performance: removes K from SoF
ii. Writing requirement: doesn’t require formal writing [can be napkin]. Can be
multiple writings taken together to provide essential terms. Only requires that (1)
writing reasonably identify subject matter of K (2) indicate that K has been
formed between ptys and (3) state w reasonable certainty the essential terms.
1. Can be letter, check w details in memo line, written offer that was orally
accepted, email or electronic record
2. Essential or material terms: depends on the K, context, and conduct.
a. Must be enough to enable court to enforce
b. If essential terms are in writing, PE admissible to explain
particulars, but not to add missing terms
c. E.g. of essential terms –
i. identity of parties
ii. description of subject matter
iii. terms necessary to make K definite
iii. Signature requirement: liberally construed. Any mark or symbol made w
intention to authenticate writing. Can be typed/printed. Don’t need both parties
to sign, just the one being sued [bc demonstrates no fraud]
1. UCC: can be initials or letterhead or electronic.
iv. Equitable and promissory estoppel: Estoppel can be applied if it would be
inequitable to allow SoF to defeat a legit claim – e.g. D falsely/intentionally tells
P that K not w/I SoF; D induces P to change position in reliance on oral
agreement.
v. Judicial admission: if pty admits in court that there is an agreement, its treated
as if there was a writing.
vi. Remedies: If K found violative of SoF, a party can sue for reasonable value of
services or part performance rendered or the restitution of any other benefit that
was conferred. If performance take K out of SoF, pty can sue on the K for
expectation rather than just restitution.
i. Unconscionability: Allows ct to refuse enforcement of certain K provisions or to
modify the K to avoid unfair terms, usually bc of unfairness during bargaining process.
Unfair price alone is not enough. Determined based on circumstances at time K was
formed. If found court can: (1) refuse enforcement of entire K (2) strike unconscionable
clause (3) limit application of clause to avoid unconscionable result
i. Inconspicuous risk shifting: Standard form Ks often have material provisions
shifting a risk normally borne by one to another. Usually boilerplate printed form
Ks. Courts have invalidated these for being inconspicuous or incomprehensible
to average person even if brought to his attention.
ii. Ks of adhesion: Take it or leave it clauses - If signer unable to procure necessary
goods from any other seller without agreeing to a similar provision, courts often
deem clause unconscionable and unenforceable.
iii. Exculpatory clauses: releasing a K party from liability for his own intentional
wrongful acts. Usually found unconscionable as against PP in most states.
Exculpatory clauses for negligent acts may also be unconscionable of they are
inconspicuous [hidden or not understandable]. BUT usually upheld where
activities are known to be hazardous.
iv. Limitation on remedies: K clause limiting liability for damages to property will
only be found unconscionable if found to be inconscpicuous. If K limits pty to
certain remedy and that remedy fails of its essential purpose [e.g. limits to repair
but cant be repaired] a court may find it unconscionable and ignore it.

TERMS OF CONTRACTS
1. GENERAL RULES OF CONSTRUCTION:
a. K construed as a whole: specific clauses subordinate to Ks general intent
b. Words according to ordinary meaning: unless clearly shown they were meant in
technical sense
c. Inconsistent provisions: written/types prevail over printed
d. Try to enforce: cts try to reach conclusion that K is valid and enforceable
e. Ambiguities: construed against drafter absent intention of parties
f. Conflicting rules: Express terms > course of performance > course of dealing > and
trade usage
i. Course of performance: Same people, same K. How have parties acted in this
agreement. i.e. K involves repeated occasions for performance and ptys can
object to such performance, an accepted course is relevant to determine K
meaning.
ii. Course of dealing: Same people, different yet similar K. How have parties acted
in past agreements. conduct in previous transactions can establish basis a
common basis of understanding
iii. Usage of trade: Similar people in similar K. how do people in this industry act.
practice/method of dealing regularly observed in particular industry as to justify
expectation that it will be followed in this transaction
2. PAROL EVIDENCE RULE: Evidence of prior or contemporaneous negotiations [PE – oral
or written] and agreements that contradict, modify or vary K terms are inadmissible if the
written K is intended as a complete and final expression of the parties [i.e. integrated agreement]
a. Determining Integrated agreement: a writing that is intended by both parties to be
the final expression of their agreement. PE is admissible to show intent to be final
expression and intent to be complete or partial.
i. Complete: if integration complete, writing cant be contradicted or supplemented
ii. Partial integration: writing cannot be contradicted but can be supplemented by
consistent additional terms.
1. UCC: presumes all writing is partially integrated.
iii. Merger clause: says agreement is complete agreement between parties. Usually
determinative in large commercial Ks. Modern trend for other Ks is to consider
it as a factor in determining integration.
iv. Reformation: equitable action to modify written K to reflect actual agreement
b. PE doesn’t apply: other forms of extrinsic evidence [not to vary, contradict, or add to
integrated agreement] will fall outside PER.
i. Attacking K Validity: Validity can be shown by extrinsic evidence. pty
conceding that writing reflects agreement, but asserting that an agreement was
never actually formed because:
1. formation defects - fraud, duress, mistake, illegality
2. Condition precedent - There was oral agreement that written K wont be
effective until a condition occurred.
ii. Collateral agreements & naturally omitted terms: PE admissible if prior
agreement is related to subject matter but not part of primary promise [i.e.
collateral] and does not conflict.
1. Restatement naturally omitted terms doctrine: allows evidence of terms
that would be naturally omitted if it (1) doesn’t conflict and (2) concerns
subject that similarly situated parties would not ordinarily include in
writing.
iii. K interpretation: uncertainty or ambiguity in writing or dispute as to meaning of
terms, PE can aid trier of fact in interpreting agreement. BUT if the meaning is
plain, PE isn’t admissible.
iv. Consideration: evidence that consideration in K was never paid not barred.
v. Reformation: if pty alleges facts entitling him to reformation of K, PER doesn’t
apply.  e.g. Mistake in integration
vi. Subsequent modification: PE allowed to show subsequent modification of K.
vii. PE under the UCC:
1. Can’t use PE to contradict a writing
2. May use PE to add consistent additional terms unless
a. Merger clause in K
b. Court finds from circumstances that writing intended as complete
and exclusive statement of terms of agreement
3. May use PE [course of performance, course of dealing, trade usage] to
explain or supplement regardless of ambiguity in K.
3. INTERPRETATION OF UCC KS:
a. Supplemental Gap Fillers: Quantity terms are required in K. If other terms are missing
UCC uses gap fillers to fill in missing terms
i. Price: Price is a reasonable price at the time of delivery if
1. No price stated
2. Price left open to be agreed upon later
3. Price is to be fixed by some standard that is set by 3P or agency and it
isn’t set
ii. Place of delivery: not specified then it is the S’s place of business, otherwise S’s
home.
iii. Time for shipment or delivery: due in a reasonable time
iv. Time for payment: at the time and place at which B is to receive goods
v. Assortment: if K says an assortment of goods is to be delivered [various colors
shapes sizes] and doesn’t specify who chooses, the assortment is at B’s option.
1. If pty who has right to specify does not do so seasonably, other pty is
excused from resulting delay and can proceed in reasonable [choose
assortment] manner or treat failure as breach.
b. UCC Default terms: Delivery & risk of loss
i. Non-carriers: [buying groceries] ptys didn’t intend goods to be moved by
common carrier. If S is a merchant, risk of loss passes to B only when B takes
possession. If S is non-merchant, risk passes to B upon tender of delivery.
ii. Carriers: [buying on amazon] ptys intended goods to be moved by carrier.
Depends on shipment or destination Ks
1. Shipment K: Presumed in UCC unless otherwise expressed. FOB
(Seller’s city) K requires/authorizes S to ship by carrier but not required
to deliver them at a particular destination. Risk of loss is on B when S
delivers goods to the carrier.
a. S’s duties: (1) make reasonable K with carrier on behalf of buyer
(2) deliver goods to carrier (3) promptly notify B of shipment (4)
provide B with documents needed to take possession.
2. Destination K: FOB (any other city) requires S to deliver goods at a
particular destination. Risk of loss passes to B when goods are tendered
to B at the destination.
3. Terms:
a. FOB (location): Free on board. Risk of loss passes to B when
goods are delivered to that location. S bears risk and expense of
getting goods to location.
c. Effect of Breach on risk of loss: Risk remains on seller when goods don’t conform.
Don’t need to differentiate between destination or shipment K.
i. Defective goods: If B has right to reject goods, risk does not pass to B until
defects are cured or B accepts goods despite defects.
ii. Revocation of acceptance: if B rightfully revokes acceptance, risk is treated as
resting in S from the beginning to extent of deficiency in B’s insurance.
d. Risk in sale/return and sale on approval Ks:
i. Sale or return: sale or return K [B takes goods for resale but can return them if
unable to resell] treated as an ordinary sale. All above rules re shipment and
destination apply. If goods are returned to S, B retains risk while goods are in
transit.
ii. Sale on approval: i.e. B takes goods for trial period but may return even if they
conform, risk remains with S until B accepts [by failing to return them or notify S
with intention to return w/I required time]
e. Goods destroyed before risk passes: goods identified when K made are destroyed (1)
w/o either party’s fault (2) before risk passes to B  the K is avoided – S’s performance
is excused. If goods not identified until after K was made, S would have to prove
impracticability.
f. Warranties: UCC Ks automatically include warranty of title. Also include some implied
warranties and express warranties.
i. Warranty of title: [implied] S warrants that title transferred is good, transfer is
rightful, no liens or encumbrances against title that B doesn’t know about when
K-ing.
1. Disclaimed: can be disclaimed or modified by specific language or
circumstances giving B notice that S doesn’t claim title or selling only as
much as a 3P has.
ii. Warranty against infringement: [implied] Merchant S warrants goods are free
of patent, TM, copyright, or similar claims. B who furnishes specifications to S
must hold S harmless of such claims.
iii. Implied Warranty of merchantability: implied in every sale by merchant
dealing in goods of kind sold that goods are merchantable – at least fit for
ordinary purpose for which such goods are used.
1. S’s knowledge of a defect or that he couldn’t have discovered it is
irrelevant. Implied warranty based on absolute liability imposed on
certain sellers.
iv. Implied warranty of fitness for particular purpose: (1) B has a particular
purpose (2) B relying on S’s skill and judgment to select suitable goods (3) S has
reason to know of B’s purpose and reliance on skill or judgment.
v. Express Warranties: Any affirmation of fact/promise made to B, description of
good, sample or model – creates express warranty if statement, promise,
description, sample or model is the basis of the bargain.
1. Basis of bargain: affirmation came at a time that B could have relied on
when entering K. B doesn’t need to prove actual reliance, but S can
negate warranty by proving B did not rely. S need not intend that
affirmation create a warranty.
2. Statement of value or opinion: doesn’t create express warranty.
g. Disclaimer of Implied warranties: eliminates implied warranties.
i. Specific disclaimers:
1. Conspicuous: court decides this fact question. So written, displayed,
presented that RPP against whom it operates ought to have noticed it.
a. Larger type than surrounding text
b. Contrasting type, font, color
c. Set off in texts by marks calling attention to it
2. Merchantability: specifically disclaimed or modified by mentioning
merchantability. If written K, disclaimer must be conspicuous.
3. Fitness for particular purpose: Can only be disclaimed or modified by a
conspicuous writing.
a. Sufficient if it says “no warranties which extend beyond
description of the face hereof”
ii. General disclaimers:
1. As is: implied warranties can be disclaimed by “as is” “with all faults” or
others that express common understanding that calls B’s attention to fact
that no warranties. Doesn’t have to be conspicuous, but hidden or fine
print not effective.
2. Examination or refusal to examine: if before B enters K, examined
goods, sample, model as fully as she wants or refused to examine, then
no warranty as to defects that a reasonable examination would reveal.
3. Course of dealing etc: implied warranties disclaimed by course of dealing,
performance, trade usage.
h. Disclaimer of express warranty: Once express warranty is made, it is difficult to
disclaim.
i. Limitation on damages: Can K to limit damages available in breach of warranty. Wont
be upheld if unconscionable [remedy fails of its essential purpose; limits personal injury
damage for consumer goods]. Warranty disclaimers limiting damages for personal
injuries are prima facie unconscionable.
j. Timing disclaimers: disclaimer of warranty or limitation on damages must be agreed to
during bargaining process. Most courts hold that disclaimers on remedies or warranties
inside the box/packaging of goods is not effective against B.
i. Not clickwrap: click agree before installing. Usually upheld since B can return
software if he disagrees with conditions.
k. Damages for breach of warranty:
i. Generally: Value of Goods as tendered – as warranted = damages measured
@ time and place of acceptance.
ii. Breach of title warranty: title breached, reclaimed by true owner/lienholder
dispossessing B. B may: rescind K, revoke acceptance, sue for damages. Value of
goods as warranted when accepted [often same as purchase price]
1. Special circumstances like big depreciation or appreciation: value of
goods at time of dispossession rather than time of acceptance
l. Persons protected by warranty: S’s warranty liability extends to natural persons who in
family or household of B or who is a guest in B’s home if it is reasonable to expect that
guest will use, consume, or be affected by goods and that person suffers personal injury
because of warranty breach.
4. MODIFICATION OF K’S:
a. Consideration:
i. Traditional CL: Must be supported by new consideration.
1. Modern view: can modify without consideration if (1) mod due to
circumstances unanticipated when K formed (2) fair and equitable [taken
by bar examiners]
ii. UCC: good faith promises of new and diff terms valid w/o consideration.
b. Writing: written K can be orally modified. But, if K as modified falls in SoF, must be
evinced by writing.
i. No modification w/o writing clauses: prohibiting modification w/o writing
1. CL: even if K so provides, can still orally modify.
2. UCC: provision is given effect. But if between merchant vs non-
merchant, then this specific provision requires non-merchant’s separate
signature.
ii. Waiver: where K provides or SoF requires a writing to modify, and ptys attempt
to orally modify, technically an ineffective modification. But it can operate as a
waiver when a pty has changed position in reliance on oral modification.
1. Pty makes a waiver affecting executory [unperformed] part of K can
retract waiver by notifying other pty that strict performance of waived
term is required
2. Waiver cannot be retracted if other pty detrimentally relied on it.

PERFORMANCE & EXCUSE OF NON-PERFORMANCE

1. ANALYSIS
a. Condition to performance  If not, Absolute duty to perform
i. Condition excused  if so, absolute duty to perform
1. If not, has condition been satisfied  If so, absolute duty to perform
a. If not, no present absolute duty to perform.
b. Present absolute duty to perform  Duty discharged?
i. Duty Discharged for:
1. Performance
2. Impossibility
3. Impracticability
4. Frustration of purpose
5. Mutual rescission
6. Release
7. Modification
8. Accord and satisfaction
9. Novation
10. Lapse
ii. Not discharged performance due or party is in breach
2. COMMON LAW: Substantial performance required
3. UCC: requires perfect tender – delivery and condition of goods must be exactly as promised
a. Obligation of good faith & fair dealing: all ptys must act in good faith “honesty in
fact and observance of reasonably commercial standards of fair dealing.” Cant waive
obligation
b. S’s obligation to tender delivery:
i. Non-carrier: [not moved by carrier] S must put & hold goods @ B’s disposition
for time sufficient for B to take possession. S must give reasonable noice to
enable B to take possession and tender must be at reasonable hour. Generally at
S’s business or home unless otherwise specified.
ii. Carrier:
1. Shipment: B only (1) put goods with carrier and make reas K to transport
to B (2) obtain & promptly tender documents to enable possession (3)
promptly notify B of shipment.
2. Destination: S must put and hold conforming goods at B’s disposition.
c. B’s obligation to pay & right to inspect:
i. Delivery & payment: In non-carrier cases, unless K provides, sale is for cash &
price due concurrently with delivery. In carrier cases, unless K provides, when
goods shipped price is due at time and place at which B receives goods.
1. Shipment: payment due when goods given to carrier.
2. Destination: payment due when goods reach destination.
ii. Payment by check: Unless agreed to pay cash, check sufficient. If check given,
B’s duty to pay suspended until check is paid or dishonored. When paid, duty is
discharged. When dishonored, S can sue for price or recover goods.
iii. Installment Ks: requires/authorizes delivery in installments. S may demand
payment for each installment if price can be apportioned, unless contrary intent
expressed.
iv. B’s right of inspection: B has right to inspect goods before payment, unless K
says payment COD or otherwise indicates B promised to pay without inspection.
4. CONDITIONS: K can provide that no duty to perform unless condition is fulfilled. In which
case, failure to perform is justified if condition not met.
a. Promise vs condition:
i. Promise: commitment to do or refrain. If promise is unconditional, failure to
perform according to promise is a breach of K.
ii. Condition: either event or state of the world (1) must occur or fail before a party
has duty to perform or (2) occurrence or non-occurrence of which releases party
of duty to perform.
1. No breach of promise until PO is under duty to perform.
2. Failure of condition is not a breach; it discharges liability/duty to
perform
iii. Intent Controls: intent determines whether condition or promise. Cts will look
to words, prior practice, trade usage, custom and w
iv. hether performance needed by 3P [more likely condition]. If in doubt, it’s a
promise.
b. Classification:
i. Precedent: must occur before absolute duty of immediate performance arises
ii. Concurrent: capable of occurring together, parties must perform at the same
time.
iii. Subsequent: when it occurs it cuts off already existing absolute duty of
performance
c. Express conditions: explicit in K. provides that either (1) pty doesn’t have duty to
perform unless condition occurs/fails or (2) if condition occurs/fails pty’s obligation to
perform duties is suspended/terminated.
i. PO’s satisfaction is CP: express condition that PO will pay only when satisfied
with PE’s performance. PO not under duty to pay unless satisfied.
1. Construction or manufacturing K: satisfaction fulfilled if performance
would satisfy a reasonable person. Not subjective.
2. K requires personal taste or judgment: portrait, dental work – fulfilled
only when PO is personally satisfied. But must be honest and in good
faith. So, if PO refuses to examine performance or rejects performance in
bad faith. Condition of satisfaction will be excused.
ii. 3P satisfaction as condition: construction Ks often require architect or
engineer to be satisfied. Most courts require actual personal satisfaction of that
person. Will be excused if 3Ps dissatisfaction is in bad faith.
iii. Conditions purpose benefits one party: the other party’s duty wont be subject
to that condition.
d. Constructive/Implied conditions:
i. Performance: duty of each party to render performance is conditioned on the
other party either rendering his performance or making a tender of performance.
ii. Cooperation: obligation of one to render performance is impliedly conditioned
on other party’s cooperation in that performance.
iii. Notice: that performance is due. Usually implied where a party couldn’t
reasonably be expected to know a fact that triggered duty to perform unless
notice was given. [e.g. duty to repair]
iv. Order of performance:
1. Simultaneous performance possible: both can be rendered at same time,
they are constructively concurrent.
2. One performance takes time: while other can be rendered instantly.
Completion of longer performance is a constructive condition precedent
to execution of shorter performance.
e. Equitable remedy: if K not enforceable bc of condition, and one party has fully or
partially performed, he can usually recover under unjust enrichment.
f. Excuse of conditions:
i. Hindrance or failure to cooperate: If pty prevents occurrence of condition,
condition will be excused if prevention is wrongful [other pty wouldn’t have
foreseen or assumed risk of this type of conduct]
ii. Anticipatory repudiation: if PO, prior to time of performance, indicates he will
not perform when the time comes. If established, anticipatory repudiation will
excuse conditions
1. Only applies in bilateral K with executory [unperformed] duties on both
sides.
2. Unequivocal words or conduct of PO indicating he cannot or will not
perform when the time comes
3. Effect: non-repudiating party has 4 options
a. Treat s total breach and sue immediately
b. Suspend his own performance and wait to sue until performance
date
c. Treat repudiation as offer to rescind and treat K as discharged
d. Ignore repudiation and urge PO to perform [not waiving
repudiation. Can still sue for breach and is excused from
performance unless PO retracts repudiation]
4. Retraction of repudiation: can retract repudiation in any manner clearly
indicating intention to perform, but must include assurances justifiably
demanded by PE. Cannot retract when other party has cancelled,
materially changed position in reliance on repudiation, or otherwise
indicated she considers repudiation final.
iii. Prospective Inability to perform: will excuse condition. party has reasonable
grounds to believe other pty will be unable or unwilling to perform when due.
This is reasonable doubts as to performance, not unequivocal like anticipatory
repudiation.
1. Effect: allows innocent party to suspend further performance until she
receives adequate assurances that performance will be tendered. If not
provided, innocent party will be excused and may treat failure to provide
assurances as repudiation.
2. Retraction: possible if retracting party regains ability or willingness to
perform. Must be communicated to innocent party to be effective.
iv. Excuse by Substantial performance: condition of complete performance may
be excused if substantial performance is rendered. The other ptys duty to
perform becomes absolute. Will only be applied as to constructive conditions,
not express ones.
1. Only where breach is minor
2. Inapplicable to willful breaches
3. Even though substantially performing pty can enforce K, the other party
may mitigate and deduct damages suffered due to incomplete
performance.
4. Not applicable to UCC K’s
v. Excuse by divisibility of K: if K is divisible, and pty performs one of the units
of the K, he is entitled to agreed upon equivalent for that unit even if he fails to
perform the other units. Other party still has a c/a for failure to perform other
units and may withhold counter performance for those units.
1. Divisible Ks: 3 tests must be concurrently satisfied to be divisible
a. Performance of each party is divided into 2 or more parts under
the K
b. Number of parts due from each party is the same
c. Performance of each part by one party is agreed on as the
equivalent of the corresponding part from the other party [each is
the quid pro quo of the other]
2. UCC: assumes K is indivisible unless authorizes delivery in several lots
[installment K].
vi. Excuse by waiver or estoppel: Person who benefits from condition can
indicate by words or conduct that she will not insist on condition being met.
Consideration is not required for waiver of condition.
1. Estoppel waiver: pty indicates waiving condition or performance before
it is to be rendered to the other, who detrimentally relies on waiver,
courts will hold this as a binding estoppel waiver. BUT waiver can be
retracted any time before detrimental reliance by the other.
2. Election waiver: condition doesn’t occur or duty to perform is broken,
beneficiary of condition or duty must make an election she can (1)
terminate her liability or (2) continue under the K. if she continues, she
waives condition or duty. Election waiver cannot be withdrawn, even
without reliance.
3. Types of conditions that can be waived: no consideration given for
waiver, condition must be ancillary or collateral to main subject and
purpose of the K for waiver to be effective.  cant waive entitlement to
entire or substantially entire return performance.
4. Waiver in installment Ks: If waiver isn’t supported by consideration,
beneficiary of waived condition can insist on strict compliance with K
terms for future installments – as long as no detrimental reliance- by
giving notice that waiver is being revoked.
5. Right to damages for failure of condition: waiver severs only the right to
treat failure of condition as a total breach excusing non-performance.
Waiving party does not waive right to damages.
vii. Conditions can be excused by impossibility, impracticability, or
frustration of purpose.
5. DISCHARGE OF ABSOLUTE DUTY TO PERFORM:
a. Performance: discharge K duties by tendering complete performance.
b. Occurrence of condition subsequent: will discharge duties.
c. Illegality: if Subject matter of K has become illegal by subsequently enacted law or govt
act, performance is discharged.
i. If illegality existed at time of K, not K was formed.
d. Impossibility, impracticability, or frustration: non-occurrence of event was a basic
assumption of the parties in making the K and neither party expressly or impliedly
assumed the risk of the event occurring, K duties may be discharged.
i. Impossibility: become impossible to perform K duties.
1. Must be objective – duties could not be performed by anyone [not just
this party]
2. Timing – impossibility must arise after K formed.
3. Effect – each party is excused from unfulfilled duties under K. each can
sue for rescission and receive restitution for benefit conferred.
4. Partial impossibility – duty will be discharged only to that extent.
Remainder of performance may be required even if added expense or
difficulty.
5. Temporary impossibility – suspends K duties; not discharge. When
performance becomes possible again the duty springs back unless the
burden to either party would be substantially increased or different from
originally contemplated.
6. Part performance – partial performance before impossibility will give
them a right to recover in quasi-K at K rate or reasonable value of
performance if that is more convenient valuation.
7. Specific situations
a. Death or physical incapacity necessary to effectuate K
i. Unless services are of kind that can be delegated – i.e. not
specialty or unique
b. Supervening illegality
c. Subsequent destruction of K subject matter or means of
performance. The very thing destroyed must be necessary to
fulfill the K. Destruction of the source of fulfilling the K will only
render the K impossible if that source is the one specified by the
parties. Also, will not apply if the risk of loss has already passed
to B.
i. Construction of building– not discharged by destruction
of work completed because not impossible. Can still
rebuild. But if not caused by contractor, most courts will
excuse him from meeting initial deadline.
1. Will only be entitled to K price
ii. Repair/remodel building – is discharged bc nothing left
to repair. To extent that he performed, he is entitled to
restitution for value of work done.
ii. Impracticability: party to perform has encountered (1) extreme and
unreasonable difficulty or expense and (2) its non-occurrence was a basic
assumption of the parties.
1. UCC: S will be discharged to the extent of impossibility or
impracticability.
a. Generally, S assumes the risk and must continue performance.
But if its reasonable to say that they would not have placed such
an extraordinary occurrence risk on S, he will be discharged.
b. Events sufficient
i. Shortage of raw materials
ii. Inability to convert raw materials into the product bc of
contingencies like war, strike, embargo, unforeseen
shutdown of major supplier, catastrophic local crop
failure
iii. Mere increase in cost not sufficient unless they change
the nature of the K – increase of less than 50% has been
held insufficient
c. Partial inability to perform – must allocate deliveries among his
customers and then, at his option, may allocate to customers not
under his K.
iii. Frustration: If the purpose of the K has become valueless because of
supervening event not the fault of party seeking discharge.
1. Supervening act or event leading to frustration
2. At time of K, parties didn’t reasonably foresee the act or event occurring
3. Purpose of the K has been completely or almost completely destroyed by
act or event and
4. Purpose of K was realized by both parties at time of K-ing
e. Discharge by Rescission:
i. Mutual: discharge by express agreement between parties. This agreement is itself
a binding K supported by consideration – namely giving up each party’s right to
counter-performance from the other. Can be made orally, even if expressly stated
otherwise in original K, unless subject matter of K falls in the SoF or under the
UCC [requires written rescission or modification if original K expressly requires
so]
1. Watch out for 3P beneficiary cases – if 3PB’s rights have vested K cannot be
discharged by mutual rescission.
2. Must be executory by both sides:
a. Unilateral K: for effective rescission where offeree has already
performed, rescission promise must be supported by one of the
following
i. Offer of new consideration by non-performing party
ii. Elements of promissory estoppel – detrimental reliance
iii. Manifestation of intent by original offeree to make a gift
of the obligation owed to her.
b. Partially performed bilateral Ks: whether partial performer is
entitled to compensation depends on terms of rescission
agreement.
ii. Unilateral: party seeking rescission must have adequate legal grounds.
Commonly, mistake, misrepresentation, duress, and failure of consideration. Pty
can file an action in equity to rescind K.
f. Partial discharge by modification: Modification will not discharge the entire K, only
those parts modified. To have partial discharge by modification there must be
i. mutual assent to modify
1. reformation: either party can bring an action to have K terms modified if
the writing, through mistake or misrepresentation, does not incorporate
terms orally agreed upon.
ii. Consideration – usually found bc each pty has a right to enforce original K as is.
No consideration necessary if effect of modification is to correct error in original
K. Consideration is not required to modify UUC Ks as long as mod sought in
good faith.
g. Novation: New K substitutes new party to receive benefits and assumes duties
belonging to original party under the old K. It will discharge old K. Elements:
i. Previous valid K
ii. Agreement among all parties, including new party, to the new K
iii. Immediate extinguishment of K duties as between original parties and
iv. Valid and enforceable new K
h. Cancellation: destruction of or surrender of a written K will discharge where both
parties manifest their intent to have these acts serve as discharge and consideration or
substitute is present.
i. Release: K not to sue- will discharge. Usually must be in writing and supported by new
consideration or promissory estoppel.
j. Substituted K: Parties enter into a new K that immediately revokes the first K expressly
or impliedly. Depends on intent of parties as to whether new K serves as immediate
discharge [substituted K] or a discharge only after performance of the 2nd K [executory
accord].
k. Accord and Satisfaction:
i. Accord: agreement where one party in existing K agrees to accept, in lieu of
performance from the other in first K, some other, different performance.
Requires consideration, which can be less than that in original K as long as it is a
different type or is to be paid to a different third party.
1. Partial payment of debt offer of smaller amount of $ under existing
obligation. Majority view is that it will suffice if there is a bona fide
dispute as to claim or some alteration in debtor’s consideration [even
slight].
2. Effect: suspends the right to enforce original K in accordance w accord
K.
3. Triggering facts: usually by dispute as to amount due – otherwise
consider modification.
ii. Satisfaction: performance of accord agreement. It discharges both the original
K and the accord K.
iii. Breach of accord before satisfaction:
1. By debtor: creditor may sue either on original K or for breach of accord.
2. By creditor: [i.e. sues on original agreement] debtor can either: (1) raise
accord K as equitable defense and ask that K action is dismissed or (2)
wait until she is damaged [i.e. creditor successful in action on original K]
and bring action for damages for breach of accord.
iv. Check tendered as payment in full: when monetary claim is uncertain or
subject to bona fide dispute- accord and satisfaction can be accomplished by
good faith tender and acceptance of a check conspicuously states that it is
tendered in full satisfaction of the debt.
l. Discharge by Account stated: K where parties agree to an amount as a final balance
due. This encompasses a number of transactions between ptys and merges all of these
transactions by discharging all claims owed.
m. Discharge by lapse: if duty of each is a condition concurrent to the others duty, its
possible that on the day of set performance, neither is in breach yet their obligations
lapse. If K states that time is of the essence, the lapse occurs immediately otherwise it
lapses after a reasonable time.
n. Statute of limitations: If SOL has run, only judicial remedies are barred – making K
unenforceable in court. Running of SOL doesn’t discharge duties so if party who has
advantage of SOL subsequently agrees to perform, new consideration isn’t required.
6. BREACH: Party is under absolute duty to perform and performance has not been discharged.
Failure to perform is a breach. Party suing for breach must show she is willing and able to
perform but for breaching party’s failure to perform.
a. CL breaches – material or minor
i. Minor breach: minor of oblige gains a substantial benefit of her bargain despite
obligor’s defective performance. Minor breach gives pty a right to damages
[setoff] for the minor breach it does not excuse her performance.
1. Coupled with anticipatory repudiation: non-breaching party may treat it
as a material breach and sue immediately for total damages and is
discharged from performance. To continue on would be a failure to
mitigate damages.
ii. Material breach: Obligee does not receive substantial benefit of her bargain.
Non-breaching party can (1) treat K as ending, discharging any duty of counter
performance she has and (2) will have an immediate right to all remedies for
breach of entire K, including total damages.
1. Divisible K: recovery available for substantial performance of a divisible
part even though material breach of entire K.
2. Determining materiality: Non-breaching party must show both willing
and able to perform
a. Amount of benefit received by non-breacher
b. Adequacy of compensation for damages to injured party
c. Extent of part performance by breacher
d. Hardship to breacher
e. Negligent or willful behavior of breacher
f. Likelihood that breacher will perform remainder of K
3. Time for performance: failure to perform by time stated generally not a
material breach if performance rendered within a reasonable time.
Except:
a. nature of the K makes timely performance essential
b. K provides time is of the essence
c. Merely including a date for performance doesn’t make time of the
essence
b. UCC Perfect Tender: if goods or their delivery fail to conform to the K in any way, B
may generally reject all, accept all, or accept any commercial units and reject the rest.
i. Rejection cut off by acceptance:
1. B’s right to reject is cut off by acceptance when
a. After reasonable opportunity to inspect goods, she indicates to S
that they conform or she will keep them even though they don’t
conform
b. Fails to reject within a reasonable time after tender or delivery or
fails to seasonably notify S of her rejection
c. She does any act inconsistent with S’s ownership
2. B’s responsibility after rejection: B obligated to hold goods w reasonable
care for S and obey any reasonable instructions given as to the goods
a. If S doesn’t give instruction in a reasonable time
i. B may reship to S
ii. Store them for S
iii. Resell them for S – if so she can recover her expenses and
reasonable commission
ii. B’s right to revoke acceptance: Once goods are accepted B cant reject and is
obligated to pay the price minus damages from S’s breach. In limited situations,
B can revoke acceptance, which has the effect of a rejection.
1. Substantial impairment: B can revoke acceptance of goods when they
have a defect that substantially impairs their value to her and
a. B accepted on reasonable belief that defect would be cured and it
has not been
b. B accepted them because of the difficulty in discovering defects
or because S’s assurances that they conformed
2. Revocation must occur: within reasonable time after B discovers or
should discover defects and before any substantial change in the goods
occurs that isn’t caused by the defect at time S relinquished possession.
iii. Exceptions to perfect tender:
1. Installment Ks: right to reject is more limited. More like CL substantial
performance. Installment can only be rejected if (1) nonconformity
substantially impairs the value of that installment (2) and cannot be cured
(3) the whole K is breached only when the non-conformity substantially
impairs the value of the entire K.
2. S’s right to cure in single delivery Ks:
a. Within time for performance: If B rejected bc of defect, S can
cure within the time originally provided under the K for
performance by giving notice of intent to cure and making a new
tender of conforming goods that B must then accept.
b. Beyond K time: Generally, no right to cure. But if B rejected
goods that S reasonably believed would be acceptable –with or
without $ allowance – S, upon reasonable notification to B has a
further reasonable time to cure.
i. Reasonable cause usually when: (1) trade practices or
prior dealings w B led S to believe they would be
acceptable or (2) S could not have known of the defect
despite proper business conduct [package goods bought
from supplier]
3. S’s right to cure installment Ks: defective installment cannot be rejected
if the defect can be cured.
4. Accommodation: S provides notice that non-conforming goods were
shipped as an accommodation – this will be a counteroffer that B can
accept all or reject all. If not given notice of accommodation, shipment is
an acceptance of Bs offer and a breach of the K. B can accept all, reject
all, or accept any number and reject the rest. B also entitled to damages.
THIRD-PARTY PROBLEMS
1. s
REMEDIES FOR UNEXCUSED NON-PERFORMANCE
1. NON-MONETARY REMEDIES:
a. Specific performance: Legal remedy must be inadequate. Usually only available for K’s
involving real estate [land is unique] or unique goods.
i. E.g. rare paintings, gas in short supply bc of oil embargo
ii. Service K’s: Not available for breach of service K, even if services are unique bc
enforcement is difficult – court can supervise performance – plus, its involuntary
servitude.  can seek injunction to stop employee from working for a
competitor throughout duration of the K if services Kd for are rare or unique.
iii. Covenant not to compete: most courts will grant SP to enforce covenant not to
compete if (1) services to be performed are unique making damages inadequate
and (2) the covenant is reasonable:
1. Reasonably necessary to protect legitimate interest of person benefitted
2. Reasonable as to geographic scope and duration
a. cant be broader than benefitted person’s customer base and cant
be longer than 1 or 2 years
3. Covenant must not harm the public
iv. Defenses: in addition to K defenses, SP actions subject to equitable defenses of
1. Laches: claim that P has delayed bringing the action and that such delay
has prejudiced the D
2. Unclean hands: P seeking SP is guilty of wrongdoing in the current
transaction
3. Sale to bona fide purchaser: claim that subject matter has been sold to a
person who purchased for value and good faith.
b. UCC non-monetary remedies:
i. Buyer’s remedies:
1. Cancellation: if B rightfully rejects non-conforming goods, she can cancel
the K.
2. Replevin:
a. Pre-payment: if B made at least part payment and S has not
delivered, B may replevy in 2 situations and still must tender
unpaid portions to S
i. S becomes insolvent w/I 10 days of receiving B’s first
payment
ii. Goods were purchased for personal, family, or household
purposes
b. B’s inability to cover: B can replevy undelivered, identified
goods from S if B, after reasonable effort, is unable to secure
adequate substitutes. [i.e. cover]
3. B’s right to SP: where goods are unique or in other proper circumstances.
Court could order SP even if goods have not been identified to K by the
seller.
ii. Seller’s Remedies:
1. Withhold goods:
a. if B fails to make payment on or before delivery S can withhold
goods.
b. Goods are sold on credit and before delivery S discovers B is
insolvent  but S still must deliver if B tenders cash payment
2. Recover goods:
a. B’s insolvency: S learns B is insolvent and received goods on
credit, S can reclaim upon demand made within 10 days after
receipt of goods.
i. 10 day limitation doesn’t apply where B misrepresents
solvency in writing within 3 months before delivery.
b. Bailee:
i. B insolvent: S can stop delivery of goods in possession of
carrier if he discovers B’s insolvency. S still must deliver if
B tenders cash.
ii. B breaches: S can stop delivery if B breaches K or S has a
right to withhold performance pending receipt of
assurances [right to demand assurances]
iii. Right to demand assurances: reasonable grounds for insecurity re
performance, the other party may demand, in writing, assurances that
performance will be forthcoming at the proper time. Until assurances provided,
he can suspend performance. If not given within a reasonable time, he can treat
K as repudiated.
2. MONETARY REMEDIES:
a. Compensatory damages: goal is to put P in position she would have been in had K
been performed
i. Either
1. Expectation: [Standard formula] puts parties in same economic position
as if K was performed [i.e. no breach occurred]
2. Reliance: If expectation is too speculative [cannot show with certainty
what she would make if K performed]. Puts party in same economic
position as if the K was never formed.
ii. Consequential: Foreseeable losses indirectly resulting from the breach
recoverable if:
1. Damages were a foreseeable result of the breach and
2. When K was formed, D had reason to know P would suffer special, or
unexpected damages in the event of a breach
3. E.g. lost profits – new business: traditionally too speculative. Now, lost
profits can be valued based on observing similar businesses in the area or
other similar businesses the owner has.
4. UCC: only buyers can recover consequential damages.
iii. Incidental: [UCC both B and S can recover] Commercially reasonable expenses
incurred by non-breaching party [e.g. cost of inspecting, returning, storing,
transportation, care, custody, reselling]
iv. Liquidated damages: Agreed upon K clause stipulating amount of damages
upon breach. Recoverable even if no actual pecuniary damage suffered. Only
valid if:
1. damages difficult to project at time of K formation and
2. provision is a reasonable estimate of actual damages
a. reasonableness compares amount of probable damages at time of
formation vs liquidated damages figure. If unreasonable, it will be
construed as an unenforceable penalty.
b. UCC:
i. Seller’s breach & Buyer keeps goods:
1. FMV of perfectly tendered goods – FMV of goods actually delivered
a. If S breaches by sending non-conforming goods that are superior, B is not
responsible – doesn’t reduce B’s damages.
b. to recover for defects of accepted goods, B must notify S within
reasonable time after discovering defect or should have
discovered defect or B loses right to sue.
2. Plus incidental damages
3. Plus foreseeable consequential damages
a. Foreseeable:
i. B in business of reselling, S deemed knowledgeable of
resale.
ii. S knows goods provided are used in manufacturing
process, he knows breach causes disruption in production
leading to lost profits
ii. Seller’s breach –B returns goods, B rejects goods, B revokes acceptance:
Whichever is higher:
1. FMV of goods at time of breach – K price or
a. Use this when S anticipatorily repudiates
2. Buyer’s costs of covering or replacing goods – K price.
a. Cover B must make reasonable K for substitute goods in good
faith and without unreasonable delay
3. Plus incidental
4. Plus Foreseeable consequential damages
a. Foreseeable:
i. B in business of reselling, S deemed knowledgeable of
resale.
ii. S knows goods provided are used in manufacturing
process, he knows breach causes disruption in production
leading to lost profits
5. Minus expenses saved as a result of S’s breach
iii. Buyer’s breach & Buyer keeps goods: K price
1. Buyer accepts goods doesn’t pay
2. B rejects goods but S unable to resell at reasonable price
3. Goods damages or lost at time risk of loss is on B
iv. Buyer’s breach & Seller has goods:
1. Either
a. K price – market price at time & place of delivery or
b. K price – resale price
c. Lost volume seller can recover lost profits K price – cost of
goods
i. Where S resold item that was the subject of breach. Must
prove that S would have made a sale to 2nd buyer
regardless of the first buyers breach. i.e. would have sold
both
2. Plus incidental damages [cost of storage, shipping, reselling
v. Consequential: (1) reason to know of special circumstances and (2) subsequent
loss could not reasonably be prevented by cover.
c. Land Sale: K price – FMV of the land
d. Employment Ks:
i. Employer breach: Full K price – failure to mitigate
ii. Employee Breach: Wages paid to replacement employee – breaching
employee’s wages. Breaching employee may offset money owed for work done
to date.
e. Construction Ks:
i. Breach by owner before construction completed: builder entitled to profits
from K + costs expended
ii. Breach by owner after completion of construction: Full K price + interest
iii. Breach by builder: Cost of completion + damages from delay – quasi K
recovery for benefit conferred by builder
1. Owner gets cost of completion + reasonable compensation for delay.
Builder can offset or recover for work performed to date [UE]
2. If breach is only bc of late performance  owner gets damages incurred
because of late performance.
f. Installment K: can only recover missed payment not entire K UNLESS K includes an
acceleration clause making entire amount due when payment is late.
g. Restitution: Quasi-K. No enforceable K and a party has been unjustly enriched.
Awarded based on the value of the benefit wrongfully conferred.
EXCUSE OF NON-PERFORMANCE
1. d