Understanding Contracts: Offers, Agreements, and Enforceability, Exams of Law

Download Understanding Contracts: Offers, Agreements, and Enforceability and more Exams Law in PDF only on Docsity! Contracts (bar exam) Questions and answers Contracts - General Issues CORRECT ANSWERS✅ Applicable law Formation of contracts. Terms of contract. Performance. Remedies for unexcused nonperformance. Excuse of nonperformance. Third-party problems. Unilateral Contract CORRECT ANSWERS✅ results from an offer that EXPRESSLY REQUIRES performance as the ONLY POSSIBLE METHOD OF ACCEPTANCE Bilateral Contract CORRECT ANSWERS✅ ALL other offers → usually offer is silent as to the method of acceptance BILATERAL Contract UNLESS: CORRECT ANSWERS✅ 1) reward, prize, context; OR 2) offer expressly requires performance for acceptance Quasi Contract CORRECT ANSWERS✅ equitable remedy Common Law applies to CORRECT ANSWERS✅ Ks that are primarily for things other than goods (i.e., SERVICES, real estate) Article 2 of the UCC applies to CORRECT ANSWERS✅ applies to Ks that are primarily for SALES OF GOODS Contracts (bar exam) Questions and answers mixed deals CORRECT ANSWERS✅ General RULE: all or nothing; more important part EXCEPTION: if K DIVIDES PAYMENT, then apply UCC to sale of goods part and common law to rest definition of contract CORRECT ANSWERS✅ an AGREEMENT that is LEGALLY ENFORCEABLE 1) look for an agreement 2) determine whether the agreement is legally enforceable Things to look for when trying to find an agreement: CORRECT ANSWERS✅ 1) information about the initial communication (offer) 2) what happens after the initial communication (termination of the offer) 3) who responds and how she responds (acceptance) test for whether the initial communication is an offer CORRECT ANSWERS✅ manifestation of commitment manifestation CORRECT ANSWERS✅ words or conduct offer CORRECT ANSWERS✅ a manifestation of an intention of one person to contract → words or conduct showing commitment by one person Contracts (bar exam) Questions and answers b) later UNAMBIGUOUS CONDUCT by offeror indicating an unwillingness or inability to contract that the offeree is aware of NOTE: multiple offers does NOT constitute revocation Which offers are irrevocable? CORRECT ANSWERS✅ irrevocable: no possibility revocable: possibility revoked: actuality General RULE: offers can be freely revoked by the offeror 4 Situations in Which an offer is IRREVOCABLE: CORRECT ANSWERS✅ 1) Option Contract 2) UCC "Firm Offer Rule" 3) Reliance 4) *unilateral contract* option contract CORRECT ANSWERS✅ an offer cannot be revoked if the offeror has not only made an offer, but also: (i) promised to not revoke (or promised to keep the offer "open"); AND (ii) this promise is supported by payment or other consideration ("option") -Example of Option K: S offers to sell B her car for $400. B pays S $10 for S's promise "not to revoke the offer for a week." UCC "Firm Offer Rule" CORRECT ANSWERS✅ an offer cannot be revoked for up to 3 months if: (i) offer to buy or sell goods; Contracts (bar exam) Questions and answers (ii) signed, written promise to keep the offer open (no oral promises); AND (iii) party is a MERCHANT (merchant: generally, a person in business) -NOTE: no consideration necessary -Example of Firm Offer: S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The offer is in writing, signed by S, and expressly promises it will be kept open for a week. Reliance (situation in which an offer is irrevocable) CORRECT ANSWERS✅ an offer cannot be revoked if there has been: (i) reliance that is (ii) REASONABLY FORESEEABLE and (iii) detrimental *unilateral contract* CORRECT ANSWERS✅ the start of performance under an offer to enter into a unilateral K makes that offer irrevocable for a reasonable time to complete the performance unilateral contract - mere preparation CORRECT ANSWERS✅ -NOT enough to make the offer irrevocable under the unilateral K rule -HOWEVER, mere preparation may be enough to trigger detrimental reliance Phrases that indicate there is a unilateral contract: CORRECT ANSWERS✅ offer + "only by" 3 Methods of Indirect Rejection: CORRECT ANSWERS✅ 1) Counteroffer Contracts (bar exam) Questions and answers 2) Conditional Acceptance 3) Additional Terms counteroffer CORRECT ANSWERS✅ -generally terminates the offer and creates a NEW OFFER -where a counteroffer has been made, there is NO EXPRESS CONTRACT unless the counteroffer itself has been accepted -Example: S offers Blackacre to B for $10,000. B responds, "I will only pay $9,000." -NOTE: counteroffers do NOT terminate options -NOTE: distinguish counteroffer from bargaining → bargaining does NOT terminate the offer -Example: S offers Blackacre to B for $10,000. B's response is, "Will you take $9,000?" → When the response to an offer is a question, it is bargaining and NOT a counteroffer. conditional acceptance CORRECT ANSWERS✅ -terminates the offer -common law: rejects and becomes a counteroffer that can be accepted by conduct -UCC: rejects Words/Phrases that indicate there is Conditional Acceptance: CORRECT ANSWERS✅ response to offer → "accept" + "if", "only if", "provided", "so long as", "but", OR "on condition that" Contracts (bar exam) Questions and answers 4) Existing Laws that Prohibit the Performance of the Agreement 5) Public Policy 6) Misrepresentations 7) Nondisclosure 8) Duress 9) Unconscionability 10) Ambiguity in Words of Agreement 11) Mistakes at the time of the Agreement as to the Material Facts 3 Step Process for dealing with Consideration: CORRECT ANSWERS✅ 1) identify the promise breaker 2) determine whether that person asked for something in return for the promise 3) look at the person trying to enforce the promise and determine what legal detriment that person sustained Possible CONSIDERATION issues CORRECT ANSWERS✅ (i) Bargained For: asked for by the promisor IN EXCHANGE for the promises (ii) Legal Detriment (iii) Promise as Consideration → this is valid -illusory promise exception → Example: S promises to sell her house to B, unless she changes her mind -EXAM TIP: NEVER choose an answer with illusory promise; NEVER choose an answer with adequate consideration *Most Likely Consideration Issues* CORRECT ANSWERS✅ 1) Past Consideration Contracts (bar exam) Questions and answers 2) Pre-existing Contractual or Statutory Duty Rule (common law different from Art. 2) 3) Part Payment as Consideration for Release 4) What are Consideration SUBSTITUTES? Past Consideration CORRECT ANSWERS✅ RULE: NOT consideration EXCEPTION: EXPRESSLY REQUESTED by promisor AND expectation of payment by promisee Pre-existing Contractual or Statutory Duty Rule - Common Law General Rule CORRECT ANSWERS✅ -doing what you are ALREADY legally obligated to do is NOT new consideration for a new promise to pay you more -Example: Conan contracts with Iron & Wine to perform on his show for $15,000. Notwithstanding the contract, Iron & Wine refuses to play unless they are paid $20,000, not $15,000. Conan promises to pay Iron & Wine $20,000. Iron & Wine performs. Conan only pays Iron & Wine $15,000. → Conan's promise is NOT legally enforceable b/c Iron & Wine's promise to perform as they were already obligated to is NOT new consideration Pre-existing Contractual or Statutory Duty Rule - Common Law General Rule EXCEPTIONS CORRECT ANSWERS✅ EXCEPTION: addition to or change in performance -Example: Conan contracts with Iron & Wine to perform on his show for $15,000. Conan then promises to pay Iron & Wine $5,000 if Iron & Wine will play "The Trapeze Swinger" instead of "Passing Afternoon". EXCEPTION: unforeseen difficulty so sever as to excuse performance EXCEPTION: 3rd party promise to pay Contracts (bar exam) Questions and answers -Example: Conan contracts with Iron & Wine to perform on his show for $15,000. Notwithstanding the contract, Iron & Wine refuses to play unless they are paid $20,000, not $15,000. Andy Richter promises to pay Iron & Wine $20,000. Iron & Wine performs. → Andy Richter's promise is legally enforceable. Pre-existing Contractual or Statutory Duty Rule - UCC Article 2 general RULE: CORRECT ANSWERS✅ New consideration is NOT required to modify a sale of goods contract (no pre-existing duty rule) → GOOD FAITH is the test for changes to an existing sale of goods contract Part Payment as Consideration for Release CORRECT ANSWERS✅ -i.e., promise to forgive balance of debt -RULE: key is whether debt is due and undisputed → if debt is due and undisputed, then PART payment is NOT consideration for release What are Consideration SUBSTITUTES? CORRECT ANSWERS✅ -NOTE: only used if there is NO consideration -RULE → a promise is legally enforceable even though there is no consideration if there is one of the following consideration substitutes: i) a WRITTEN promise to satisfy an obligation for which there is a legal defense and is enforceable WITHOUT CONSIDERATION ii) Promissory Estoppel (detrimental reliance) Promissory Estoppel (detrimental reliance) CORRECT ANSWERS✅ Elements: 1) promise; 2) reliance that is reasonable, detrimental, and foreseeable; AND Contracts (bar exam) Questions and answers -EXAM TIP: for MC, you almost never get w/in the SOF b/c it's a promise to answer for the debts of another Service contract not CAPABLE of being performed WITHIN A YEAR FROM THE TIME OF THE CONTRACT (i.e., more than one year) CORRECT ANSWERS✅ -specific time period, MORE THAN A YEAR → SOF applies -specific time, more than a year FROM DATE OF CONTRACT → SOF applies -*Example*: Joshua Radin sues the Duck Room for breach of an alleged January 15, 2011, contract to perform on December 24, 2012. The Duck Room files a motion to dismiss based on the Statute of Frauds. → This is w/in the SOF. It isn't how long the performance takes, it's whether the service can possibly be performed w/in a year; here, the date of the performance is more than a year after the date of the K -task (nothing said about time) → SOF does NOT apply How the SOF is SATISFIED: CORRECT ANSWERS✅ 1) Performance 2) Writing Performance and Transfer of Real Estate: CORRECT ANSWERS✅ -Performance RULE #1: part performance satisfies the SOF in transfers of real estate -Part Performance requires ANY 2 of the following 3: 1) improvements to the land 2) payment 3) possession Contracts (bar exam) Questions and answers Performance and Services Contracts: CORRECT ANSWERS✅ -Performance RULE #2: FULL performance by EITHER party satisfies the SOF -Performance RULE #3: PART performance of a SERVICES contract does NOT satisfy the SOF -Example: P agrees to work for D for 3 years. P works for 13 months (part performance) and then D fires her without cause. P sues D for breach of contract. D asserts a SOF defense. → SOF is NOT satisfied by P's working for 13 months because PART PERFORMANCE doesn't work for service Ks under the SOF. --Can P recover under contract law for the 13 months of work she had done? → NO --Under quasi-contract? → YES (watch for this on exam) Seller's Part Performance → ORDINARY Goods (satisfying the SOF) CORRECT ANSWERS✅ Performance RULE #4: part performance of a contract for the sale of goods satisfies the SOF, but only to the extent of the part performance → look to see if question is about delivered goods or undelivered goods Seller's Part Performance → SPECIALLY MANUFACTURED Goods (satisfying the SOF) CORRECT ANSWERS✅ -Performance RULE #5: if the contract is for the sale of goods that are to be SPECIALLY MANUFACTURED, then the SOF is satisfied as soon as the seller makes a substantial beginning -substantial beginning: the seller has done enough work that it is clear that what she is working on is specially manufactured, i.e., custom made or made to order a writing satisfies the SOF (other than article 2 SOF) if: CORRECT ANSWERS✅ -the writing has been signed ONLY BY THE DEFENDANT, i.e., the person who is asserting the SOF defense -ALL MATERIAL TERMS TEST (who and what) Contracts (bar exam) Questions and answers -Example: "The law firm of Franklin & Bash hereby agrees to employ Harriet Miers as an attorney for three years at $200,000 a year." s/ Peter Bash for the firm. → this satisfies the SOF b/c it gives us all the information we need: the parties, what is expected of them, and only the defendant signed the writing -NOTE: if ONE person signs, it means the other didn't a writing satisfies the SOF (article 2) if: CORRECT ANSWERS✅ (1) there is a contract (2) for the sale of goods that (3) contains the quantity term (how many) judicial admission CORRECT ANSWERS✅ if the defendant asserting a SOF defense admits in a pleading or testimony that he had entered into an agreement with the plaintiff, the SOF is satisfied estoppel CORRECT ANSWERS✅ the plaintiff's reliance on the defendant's oral promise can estop the defendant from asserting a statute of frauds defense *Written proof of authorization to enter into contract for someone else:* CORRECT ANSWERS✅ -Main Issue: when do RULES OF LAW REQUIRE that a person have written authorization in order to execute a contract for someone else? -RULE: RULES OF LAW REQUIRE that the authorization must be in writing ONLY IF the contract to be signed is within the SOF, i.e., the authorization must be of equal dignity with the contract -Example: Landlord (L) sues Mila Kunis for breach of a one-year apartment lease (not w/in SOF) that I entered into, claiming that I was authorized to act on Ms. Kunis's behalf. → Contract law does NOT require written evidence of my authority to act on behalf of Ms. Kunis. Contracts (bar exam) Questions and answers pounds of cheese grits in 2013? → Yes, because D threatened to breach, and P had no alternative. undue influence CORRECT ANSWERS✅ look for (1) special relationship between the parties and (2) improper persuasion of the weaker by the stronger unconscionability CORRECT ANSWERS✅ -a part of contracts law generally (not just sales of goods) -empowers a court to refuse to enforce all or part of an agreement TESTS: 1) unfair surprise (procedural) and oppressive terms (substantive) are, 2) tested as of the time the agreement was made by the court UNILATERAL Mistake of Material Fact CORRECT ANSWERS✅ -EXAM TIP: this is usually a wrong answer -in General: courts are reluctant to allow a party to avoid a K for a mistake made by only ONE party -HOWEVER, there will be relief for situations in which the other party had reason to know of the mistake → palpable mistake Words of the Parties NOT in the Written Contract and the Parol Evidence Rule - Triggering Facts CORRECT ANSWERS✅ 1) final written contract 2) earlier words of ONE or BOTH parties integration: CORRECT ANSWERS✅ written agreement that court finds is the final agreement, triggers the parol evidence rule Contracts (bar exam) Questions and answers partial integration: CORRECT ANSWERS✅ written and final, but not complete (usually a wrong answer on MBE) complete integration: CORRECT ANSWERS✅ written and final AND complete (usually a wrong answer on MBE) merger clause: CORRECT ANSWERS✅ contract clause such as, "This is the complete and final agreement." (persuasive but not conclusive) parol evidence is limited to: CORRECT ANSWERS✅ -words of party (or parties) -before integration, i.e., before agreement was put in written form -Oral OR Written 5 Parol Evidence Fact Patterns CORRECT ANSWERS✅ 1) Changing/Contradicting Terms in the Written Deal 2) Mistake in Integration, i.e., clerical mistake 3) Defenses, i.e., getting out of a written deal 4) Ambiguity, i.e., explaining term in the written deal 5) Adding to the Written Deal Changing/Contradicting Terms in the Written Deal - Parol Evidence CORRECT ANSWERS✅ -regardless of whether the writing is a complete or partial integration, evidence of earlier agreements is not admissible for the purpose of contradicting the terms in the written contract Contracts (bar exam) Questions and answers -General RULE: cannot use parol evidence to change/contradict Mistake in Integration, i.e., clerical mistake CORRECT ANSWERS✅ RULE: a court may consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration, i.e., a mistake in reducing the agreement to writing Defenses, i.e., getting out of a written deal CORRECT ANSWERS✅ RULE: regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, or duress Ambiguity, i.e., explaining term in the written deal CORRECT ANSWERS✅ RULE: regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier agreements to resolve ambiguities in the written contract Adding to the Written Deal CORRECT ANSWERS✅ RULE: the parol evidence rule prevents a court from admitting evidence of earlier agreements as a source of consistent, additional terms unless the court finds (i) that the written agreement was only a PARTIAL integration or (ii) that the additional terms would ordinarily be in a separate agreement Forms of Conduct CORRECT ANSWERS✅ FIRST → Course of Performance SECOND → Course of Dealing THIRD → Custom and Usage Contracts (bar exam) Questions and answers 3) neither the buyer nor the seller is to blame Possible consequences in a risk of loss problem CORRECT ANSWERS✅ -if the risk of loss is on the BUYER, he has to pay the full contract price for the lost or damaged goods -if the SELLER has the risk of loss, NO obligation on the buyer and possible liability on the seller for nondelivery risk of loss rules CORRECT ANSWERS✅ (do rule #1 first, if it doesn't apply, then do #2, etc.) 1) Agreement 2) Breach 3) Common Carrier Delivery 4) "Catch-All" (no agreement, no breach, no delivery by a carrier) Agreement - risk of loss rules CORRECT ANSWERS✅ Agreement of the parties controls Breach - risk of loss rules CORRECT ANSWERS✅ breaching party is liable for any uninsured loss even though breach is unrelated to the problem Common Carrier Delivery - risk of loss rules CORRECT ANSWERS✅ -risk of loss SHIFTS from seller to buyer at the time the seller completes its delivery OBLIGATIONS (delivery doesn't need to be completed) Contracts (bar exam) Questions and answers -Example: Coffee was shipped form NY by the NY seller by common carrier, free on board NY → seller's city (free on board NY) makes it a shipment contract; buyer has risk of loss b/c it's a shipment contract "Catch-All" (no agreement, no breach, no delivery by a carrier) - risk of loss rules CORRECT ANSWERS✅ -the determining factor is whether the seller is a MERCHANT -WHETHER THE BUYER IS A MERCHANT IS IRRELEVANT -risk of loss SHIFTS from a merchant-seller to the buyer on the buyer's "receipt" of the goods -risk of loss SHIFTS from a NON-merchant seller when he or she tenders the goods (tender: to make goods available) -Example: B buys a stove from S, a used appliance dealer. S tells B that he can pick up the stove at the loading dock. Before B can drive his truck to the loading dock, lighting strikes the stove. → B does NOT have to pay for the damaged stove b/c B never received the stove; thus, RISK OF LOSS NEVER SHIFTED Express Warranties of Quality CORRECT ANSWERS✅ -look for words that promise, describe or state facts distinguish from sales talk which is more general, an opinion -or, look for sample or model Implied Warranty of MERCHANTABILITY CORRECT ANSWERS✅ -when any person buys any goods from any merchant, a term is automatically added to the contract by operation of law → that the goods are fit for the ordinary purpose for which they are used -triggering fact: seller is a merchant Contracts (bar exam) Questions and answers -merchant: deals in goods of that kind (here, alone, definition of merchant is limited) -warranty: goods are fit for ordinary purposes Implied Warranty of MERCHANTABILITY - Examples CORRECT ANSWERS✅ - Example: Tony buys a car from the Golden Fleece Fine Jewelry Store. One day later Tony cannot get the car to start. → Tony cannot recover from the seller on a breach of warranty claim; the seller does NOT deal in goods of that kind -Example: Tony buys a "gold" chain from Golden Fleece Fine Jewelry Store. Nothing was written or said about the quality of the chain. When Tony puts the new chain on, his seven best hairs fall out. → Tony can recover from the seller on a breach of warranty; there is an implied warranty that the goods are OK if you use them for ordinary purposes Implied Warranty of FITNESS for a PARTICULAR PURPOSE: CORRECT ANSWERS✅ - triggering facts: buyer has a particular purpose (this makes it obvious, b/c you aren't told why a buyer is buying something otherwise) -buyer is relying on seller to select suitable goods; seller has reason to know of purpose and reliance -warranty: goods fit for a particular purpose Implied Warranty of FITNESS for a PARTICULAR PURPOSE - Examples CORRECT ANSWERS✅ -Example: Dan tells a clerk at a shoe store that he needs some shoes to wear to interviews with Wall Street firms. The clerk shows and sells Dan a pair of white, patent leather loafers. The Wall Street lawyers take one look at Dan's shoes and terminate the interview. → There is an implied warranty of fitness here because Dan had a particular purpose; the law firm interview. This is a breach of the implied warranty of fitness for a particular purpose. Contracts (bar exam) Questions and answers when seller has the option to cure CORRECT ANSWERS✅ -RULE: in very limited situations, a seller has the option of curing even after the contract delivery date. -TEST: reasonable grounds -EXAM TIP: look for information in the question about prior deals between that buyer and seller -Example: B and S enter into a contract for 2,000 green widgets. S delivers yellow widgets (not a perfect tender). Previously (triggers cure), B had accepted widgets in colors different from what he had ordered. After delivery, B rejects the widgets because they are yellow. → S can cure; S was reasonable in the belief that B would accept different colored widgets. cure - elements CORRECT ANSWERS✅ 1) Seller's Reasonable Ground to Believe would be Acceptable, perhaps w/ a money allowance 2) Time for performance has not yet expired installment contracts CORRECT ANSWERS✅ -An installment contract REQUIRES or AUTHORIZES: (i) delivery of the goods IN SEPARATE LOTS (ii) to be separately accepted -The buyer has the right to reject an installment only where there is a SUBSTANTIAL IMPAIRMENT in that installment that CAN'T BE CURED -NOTE: be sure that you see the differences between (1) entering into an installment sales contract that provided for multiple deliveries and acceptances and (2) buying something on credit and paying for it in monthly installments Contracts (bar exam) Questions and answers installment contracts - example CORRECT ANSWERS✅ Example: S and B enter into a contract for the delivery of 10 kegs of beer at 6 p.m. for each night of the bar review course, payment on delivery (installment contract; this tells us it's an ongoing relationship). One night S delivers 9 kegs at 6:30 p.m. → S CANNOT reject that installment. It is a minor problem that can be reconciled in different installments. *Importance of Acceptance* CORRECT ANSWERS✅ if the BUYER accepts the goods, it CANNOT later REJECT them Payment and Acceptance CORRECT ANSWERS✅ -payment w/o opportunity for inspection is NOT acceptance -Example: Coco buys a "hair replacement system" from Bosley Hair, calling Bosley's 800 number and using his credit card. Coco's new hair has not yet arrived. → Coco has NOT accepted the goods even though he has paid for them; no opportunity to inspect the goods, thus, no acceptance Importance of failing to reject CORRECT ANSWERS✅ -Failing to Reject: rejection must be TIMELY; failure to reject after the buyer had REASONABLE TIME to reject IS ACCEPTANCE -Retention as Acceptance: Effect of buyer's keeping goods is IMPLIED ACCEPTANCE → look for the buyer's keeping the goods WITHOUT OBJECTION (more specifically, look for a fact pattern that states when the buyer first received goods and when buyer first complained to seller) Effect of REVOCATION of Acceptance: CORRECT ANSWERS✅ -same as rejection of the goods → buyer returns the goods and seller returns payments made Contracts (bar exam) Questions and answers -NOTE: Remember that if a buyer accepts the goods, it CANNOT later reject the goods. In limited circumstances a buyer can effect a cancellation of the contract by revoking its acceptance of the goods. *Requirements for Revocation of Acceptance* CORRECT ANSWERS✅ 1) nonconformity substantial impairs the value of the goods; 2) excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction; AND 3) revocation w/in a reasonable time after discovery of nonconformity Specific Performance/Injunction CORRECT ANSWERS✅ -EXAM TIP: almost never the right answer on MBE or essay -it is an Equitable Remedy Situations in which Specific Performance is Preferred: CORRECT ANSWERS✅ 1) Contracts for Real Estate 2) Contract for sale of goods → unique goods: antiques, art, custom-made or other appropriate circumstances 3) Contract for services: NO specific performance, possible injunctive relief Seller's reclamation from an insolvent buyer of goods: CORRECT ANSWERS✅ -right of an unpaid seller to get its goods back -key facts are that: (i) the buyer must have been insolvent at the time that it received the goods; Contracts (bar exam) Questions and answers Example: S sells B an antique car for $30,000. B pays the $30,000, and S delivers the car. Although the contract provided that all parts of the car were authentic and original, some were not. B keeps the car and sues for breach of contract. The jury finds that at the time and place of B's acceptance of the car, the car as delivered was only worth $20,000; the jury also finds that if the car had been delivered as contracted, it would have been worth $34,000. → B can recover $14,000. -Expectation is about dollar value w/o breach FMV ($34,000) - FMV as delivered ($20,000) = $14,000 Damages for Seller's Breach when Seller breaches, seller has the goods CORRECT ANSWERS✅ market price at time of discovery of the breach - contract price = damages OR reasonable replacement price - contract price = damages USE WHICHEVER IS HIGHER -Example: S contracts to sell B carpeting for $5,000. S never delivers the carpeting (or S delivers the carpeting and B rejects it b/c it is not a perfect tender). At the time B learned of the breach, the market price of comparable carpeting is $6,600, but what if B pays $7,000 for comparable replacement carpeting? → damages = $2,000 Damages for buyer's breach when Buyer breaches, buyer keeps the goods CORRECT ANSWERS✅ [contract price] = damages Damages for buyer's breach when Buyer breaches, seller has the goods CORRECT ANSWERS✅ contract price - resale (unless seller cannot resell, in which case the seller can recover the contract price and in some situations provable lost profits) Contracts (bar exam) Questions and answers Additions and Limitations (damages) CORRECT ANSWERS✅ Plus INCIDENTAL damages Plus foreseeable CONSEQUENTIAL (special) damages Less AVOIDABLE damages Less damages that cannot be established with reasonable certainty Contract Provisions regarding damages, i.e., LIQUIDATED damages: CORRECT ANSWERS✅ -look for contract provision fixing amount of damages -issue will be validity → concern is whether provision is too high; a penalty TESTS: 1) damages were difficult to forecast at time contract was made and 2) provision is a reasonable forecast anticipatory repudiation CORRECT ANSWERS✅ -an UNAMBIGUOUS statement or conduct (i) that the repudiating party will not perform (ii) made prior to the time that performance was due -anticipatory repudiation by one party excuses the other party's duty to perform -anticipatory repudiation GENERALLY gives rise to an immediate claim for damages for breach UNLESS the claimant has already finished her performance -Anticipatory repudiation can be withdrawn (retracted) so long as there has not been a material change in position by the other party. If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided. Contracts (bar exam) Questions and answers insecurity CORRECT ANSWERS✅ -arises when the other party makes performance uncertain -RULE: if the words or conduct of one party give "reasonable grounds for insecurity," then the other party can, in writing, demand adequate assurance and if it is "commercially reasonable," can suspend performance until it gets adequate assurance insecurity - elements CORRECT ANSWERS✅ 1) reasonable grounds for insecurity; 2) written demand for adequate assurance; AND 3) commercially reasonable to stop performance Excuse because of Improper Performance - Common Law and Material Breach Rule CORRECT ANSWERS✅ FIRST: damages can be recovered for any breach SECOND: only a material breach by one guy excuses the other guy from performing a contract governed by common law THIRD: whether a breach is material is a fact question (and so whether a breach is material is not likely to be a bar exam question) FOURTH: if there is substantial performance, then the performance was not substantial 1) Material breach because of the quality of performance 2) Material breach b/c of the quantity (amount) of performance 3) Divisible Contract EXCEPTION: in a divisible contract there can be a contract law recovery for substantial performance of a divisible part even though there has been a material breach of the entire contract Contracts (bar exam) Questions and answers effect of accord AND SATISFACTION CORRECT ANSWERS✅ -if the new agreement (the accord) is performed (satisfaction), then performance of the original obligation is excused -if accord is NOT performed, then the other party can recover on either the original obligation or the accord modification CORRECT ANSWERS✅ an agreement by parties to an existing obligation to accept a different AGREEMENT in satisfaction of the existing obligation Novation CORRECT ANSWERS✅ an agreement b/w BOTH parties to an existing contract to the substitution of a new party, i.e., same performance, different party Who is liable after novation? CORRECT ANSWERS✅ novation excuses the contracted for performance of the party who is substituted for or replaced Delegation vs. Novation CORRECT ANSWERS✅ -NOVATION requires the agreement of BOTH parties to the original contract, and excuses the person replaced from any liability for nonperformance -DELEGATION does not require the agreement of both parties and does not excuse Excuse of Performance for Damage or Destruction of Subject Matter of Contract CORRECT ANSWERS✅ -Article 2 → if sale of goods, do risk of loss first -if risk of loss is on the BUYER → the buyer pays -if risk of loss is on the SELLER → the buyer does NOT have to pay -whether the buyer can recover damages from the seller depends on the facts Contracts (bar exam) Questions and answers Excuse of Performance by Death after Contract CORRECT ANSWERS✅ -general effect of death on contract obligations: death does NOT make a person's contract obligations disappear -EXCEPTION: death of party to contract who is "special" person excuses performance Excuse of Performance by Subsequent Law or Regulation CORRECT ANSWERS✅ - later law makes performance of contract illegal → excuse by impossibility -later law makes mutually understood purpose of contract illegal → excuse by frustration of purpose third-party beneficiary CORRECT ANSWERS✅ not a party to the contract; able to enforce contract others made for her benefit promisor CORRECT ANSWERS✅ look for person who is making the promise that benefits the third party promisee CORRECT ANSWERS✅ look for the person who obtains the promise that benefits the third party intended/incidental: CORRECT ANSWERS✅ only intended beneficiaries have contract law rights; intent of the two parties to contract determines whether intended or incidental Contracts (bar exam) Questions and answers creditor/donee CORRECT ANSWERS✅ -intended beneficiaries are either donees or creditors (usually donees) -look at whether third-party beneficiary was a creditor of the promisee before the contract Test for Dealing with efforts to CANCEL or MODIFY CORRECT ANSWERS✅ -whether the third party knows of and has relied on or assented as requested -if so, her rights have vested and the contract cannot be concealed or modified without her consent unless the contract otherwise provides 4 RULES about who can sue whom (3rd party beneficiary) CORRECT ANSWERS✅ 1) beneficiary can recover from promisor 2) promisee can recover from promisor 3) General RULE: beneficiary cannot recover from promisee 4) Limited EXCEPTION: creditor beneficiary can recover from promisee BUT ONLY on pre-existing debt Defenses - 3rd Party Beneficiary CORRECT ANSWERS✅ RULE: if the third-party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee Two Steps for Assignments: CORRECT ANSWERS✅ 1) contract between only two parties; AND 2) one of the parties later transfers rights under that contract to a third party NOTE: understand the difference b/w assignment of an offer and assignment of a contract and third-party beneficiary Contracts (bar exam) Questions and answers Multiple Assignments for consideration CORRECT ANSWERS✅ -general rule → FIRST assignee for consideration wins -very limited EXCEPTION: a subsequent assignee takes priority over an earlier assignee for value only if he both (i) does not know of the earlier assignment and (ii) is the first to obtain (1) payment, (2) a judgment, (3) a novation, OR (4) indicia of ownership ("four horsemen" rule) delegation CORRECT ANSWERS✅ -basic scenario: disputes arising from a person's performing a contract she did not make -party to a contract transferring work under that contract to third party -Example: P contracts to paint O's house for $1,000. P (delegating party) and X (delegatee) agree that X will paint O's (obligee's) house. Relationship of Assignment and Delegation CORRECT ANSWERS✅ -Assignment is the transfer by a party to a contract of his rights or benefits under the contract to a third party who was not a party to the contract -Delegation is the transfer by a party to a contract of his duties or burdens under the contract to a third party who was not a party to the contract. Which duties are delegable? CORRECT ANSWERS✅ -generally, contractual duties are delegable -Delegations are permitted unless either: 1) contract prohibits delegations or prohibits assignments or 2) personal services contract that calls for VERY SPECIAL skills Contracts (bar exam) Questions and answers consequences of nonperformance by third-party delegatee: CORRECT ANSWERS✅ 1) delegating party ALWAYS remains liable 2) delegatee liable only if she receives consideration from delegating party