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Flashcards in Contracts Deck (59):

Requirements for Specific Types of Contracts

  1.  Real Estate Transactions - Land and Price Terms an offer involving realty must identity the land and the price terms. The land must also be identified with some particularity.  
  2. Sale of Goods - Quantity Term. In a contract for the sale of goods, the quantity being offered must be certain or cable of being made certain.
    1. Requirements and Output Contracts. - requirements - buyer promises to buy from a certain seller all of the goods the buyer requires, and seller agrees to sell that amount. Output - buyer agrees to buy all of the product that the seller produces. It is assumed that the parties will act in good faith. There may not be a tender of or a demand for a quantity unreasonably disproportionate to
      1. any stated estimate, or
      2. any normal or otherwise comparable prior output requirements.
  3. Services - Nature of Work - The nature of Work to be performed is required in a offer for services.


What happens when there are Missing Terms in a contract?

Vague Terms?

Terms to Be Agreed upon Later?


A.  Missing Terms do not prevent the formation of a contract if:

  1. it appears that the parties intended to make a contract; and
  2. there is a reasonably certain basis for giving a remedy

In such cases, the majority and Article 2 hodl that the court can supply reasonable terms

i.e. when the price is a missing term, the court will substitute a reasonable price at the time of delivery. 

B.  Vague Terms - vagueness can make a contract unenforcable, since it cannot be presumed that the vague terms were intended to be reasonable.  Vagueness can be cured by partial performance that clarifies the vague term.

C.  Terms to be agreed on later - This is fine, unless the term to be agreed upon is a material term to the contract.  Then the offer is too uncertain. 


Termination of Offer

Termination by Offeror

  1. Termination by Acts of the Parties
    1. Termination by the Offeror - Revocation -
      1. may revoke by directly communicating the revocation to offeree
      2. what about offer made by publication?  Can be revoked by similar means
      3. an offer can be revoked indirectly, if offeree receives:
        1. correct information
        2. from a reliable source
        3. acts of the offereor would indicate to a reasonable person that the offeror no longer wishes to make the offer
    2. Effective when recieved
      1. revocation effective when received by offeree.  where by publication, it is effective when published.
  2. Limitations on Offeror's Power to Revoke
    1. Option contacts
    2. Merchant's firm offer under Article 2
      1. Merchant
      2. offers to sell goods in a signed writing
      3. the writing gives assurances that it will be held open, but no longer than three month if no term of openness is stated
    3. Detrimental Reliance
      1. when the offeror could reasoably expect that the offeree would rely to her detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time. 
    4. Part Performance - True Unilateral Contract Offers
      1. Implied Contract for Reasonable Time.  an offer for a true unilateral contract becomes irrevocable once performance has begun. The offeror must give offeree reasonable time to complete.  Offeree not bound to complete, bc of unilateral nature of contrat.
      2. Distinguish - preparations to peform
        1. does not make offer irrevocable, but offeree may have claim for detrimental reliance.  
    5. Part Performnce - Offer Indifferent as to Manner of Acceptance
      1. start of performance forms bilateral contract.  therefore, once performance begun, it is impossible to revoke offer since contract has offer has been accepted. 


Termination of Offer - Termination by Offeree

  1. Rejection
    1. Express Rejection
    2. Counteroffer as rejection
      1. however an inquiry into different terms will not terminate an offer
    3. rejection effective when received by the offeror
    4. Rejection of Option - not a rejection of the offer, because the option keeps it open.  however, if the offeror has detrimentally relied on offeree's rejection, then not enforceable by offeree.
  2. Lapse of Time - an offer may be terminated by offeree's failure to accept within a specified time or if within a reasonable time period if none was specified.  
  3. Termination by Operation of Law
    1. Death or insanity of either party
    2. Destruction of proposed contract's subject matter
    3. supervening illegality



A promise or set of promises for the breach of which the law gives a remedy or performance of which the law, in some way, recognizes as a duty



Article 2

Sale of Goods, then Article 2 applies

  • Goods - all things movable (not land, services, or construction
  • Merchant - one who regularly deal in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved


Questions to ask when looking at whether a contract was created

  1.  was there mutual assent (i.e. offer and acceptance)
  2. Was there consideration or some substitute for consideration (promise for promise, promissory estoppel, or detrimental reliance)
  3. Are there any defenses to the creation of the contract
    1. mistake
    2. lack of capacity
    3. illegality
    4. statute of frauds



Types of Contracts

As to Formation and

As to Acceptance

As to Validity

As to Formation:

  1. Express - formed by language, written or oral
  2. implied - formed by manifestations of assent
  3. quasi-contract - not a contract used to avoid unjust enrichment

As to Acceptance:

  1. Bilateral - promise for a promise
  2. unilateral - one promise to pay offeree only upon completion of task
    1. only full completion of requested act forms the contract
  3. modern view - most contracts are bilateral unless:
    1. offer is CLEAR that completion of performance only matter of acceptance
    2. offer is to the public, like a reward offer

As to Validity

  1. Void - one that is totally without any legal effect from the beginning (i.e. agreement to comitt a crime)
  2. Voidable - a contract that one or both parties may elect to avoid (i.e. by raising defenses such as infancy or mental illness)
  3. Unenforcable - otherwise valid, but which may not be enforceable due to a defense extraneous to the contract formation, such as statute of limitations or the statute of frauds.


Mutual Assent 

Offer and Acceptance

Offer - 3 elements

  1. Expression of a promise, undertaking, or commitment to enter into contract
  2. certainty and definiteness in the essential terms
    1. must identify offeree, or at least a class to which the offeree belongs
    2. the subject matter must be certain
  3. Communication of the above to the offeree
    1. the broader the communication, the less likely it is to be an offer


The Acceptance

An Acceptance is a manifestation of assent to the terms of an offer

  1. only offeree may accept
  2. offeree must know of the offer
  3. acceptance of offer for unilateral contract only occurs upon completion
    1. notice to offerer that performance has begun is not necessary.  but notice that performance is complete must occur within a reasonable time, unless
      1. offeror waived notice, or
      2. offeree's performance would normally come to the offeror's attention within reasonable time
  4. Acceptance of Offer for Bilateral Contract - by return promise or performance
    1. generally, acceptance must be communicated to offeror
    2. method - any objective manifestation of the offeree's counterpromise is sufficient
    3. Offers to buy goods for current or prompt shipment
      1. acceptance by either shipment or promise to ship
      2. the shipment of nonconforming goods is an acceptance creating a bilateral contract AS WELL AS A BREACH of contract, unless the seller notifies the buer that a shipment of nonconforming goods is offered only as an accommodation.
        • buyer does not have to accept accommodation
        • if not accepted, shipper not in breach
        • if seller promises to ship, then option to send accommodation is not available
    4. Acceptance must be unequivocal
      1. Common Law - acceptance must be mirror image of offer
      2. Article 2 - the proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is effective as an acceptance (unless the acceptance is expressly made conditional on assent of additional terms)
      3. Bilateral contracts formed by performance. beginning of perforamces creates the contract/acceptance
    5. Auction Contracts - a sale by auction is complete when the auctioneer so announces by the fall of the hammer
    6. Acceptance by unauthorized means - may still be effective if it is actually received by the offeror while the offer is still in existence


Mailbox Rule

Acceptance by mail or similar means creats a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless:

  1. The offer stipulates that acceptance is not effective until received
  2. an option contract is involved (acceptance is effective only upon receipt)
  3. if the offeree sends a rejection and then sends an acceptance, whichever arrives first is effective
  4. If the offeree sends an acceptance and then a rejection, the acceptance is effective, unless the rejection arrives first and the offeror detrimentally relies on it.  



Elements of Consideration

Two elements necessary

  • there must be a bargained for exchange between the parties, and
  • that which is bargained for must be considered og legal vaule, or it must constitute a benefit to the promisor or a detriment to the promisee
  1. bargained for exchange
    1. gifts are not bargained for
    2. act or forbearance by promisee myst be of benefit to promisor, benefit need not be economic
    3. Past consideration - bargained for exchange must be for something in the future, not an act already performed
      1. exceptions - where past obligation is unenforceable b/c of defense (SOL), then that obligation will become enforceable again if a new promise is made in writing or partially performed
      2. modern trend - if past act benefited promisor and was at promisor's request, a subsequent promise to pay will be enforceable
  2. Legal Value Element
    1. adequacy of consideration - consideration cannot be devoid of value
    2. majority of courts also state the a party incur detriment .  minority rule states that conferring a benefit is also sufficient
    3. preexisting legal duty not consideration
      1. exceptions
        1. new or different consideration is promised
        2. the promise is to ratify a voidable obligation
        3. the preexisting duty is owed to a 3rd person rather than the promissory directly
        4. there is an honest dispute as to the duty
        5. there are unforeseen circumstances sufficient to discharge a party
    4. Forbearance to Sue - can be consideration if claim is valid or claimant in good faith believes claim to be valid




Requirement of Mutuality

Consideration must exist on both sides of the contract. If only one party is bound to perform, the promise is illusary and will not be enforced.  


A promise to choose one of several alternative means of performacne is illusory unless every alternative involves legal detriment to the promisor. 


Consideration - 

Promissory Estoppel

consideration is not necessary if the facts indicate that the promisor should be estopped from not performing

  1. the promisor should reasonably expect to induce action or forbearance
  2. of a definite and substantial character (1st restatement only
  3. and such action or forbearance is in fact induced

1st restatement - will award expection damages

2nd restatement - will award reliance damages




Defenses as to Formation - 

  1. Absence of mutal assent
    1. mutual mistake as to existing facts
      1. mistake concenrs basic assumption
      2. mistake has a material effect
      3. party seeking avoidance did not assume the risk
    2. Assumption of risk - when party is with superior knowledge, or where assumption of fact was doubtful
      1. mistake as to value not a defense
    3. Unilateral mistake -
      1. not a defense, unless
      2. the nonmistaken party knew of the mistake by the other party.  then contract is voidable
    4. Mistake by intermediary - message as it was transmitted is operative, unless other party knew or should have known about the mistake
    5. ambiguous contract language
      1. neither party aware - no contract, unless parties intended same meaning
      2. both parties aware - no contract, unless parties intended same meaning
      3. on party aware - binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous words
    6. Misrepresentation
      1. fraud in the inducement - contract voidable
      2. when misrepresentation is material, and innocent party justifiably relied on statement, then contract voidable 
      3. innocent party may rescind at any time
  2. Absense of consideration
    1. illusory promise does not create a contract
  3. public policy defenses - illegality
    1. if subject matter is illegal, then contract void (contract to sell crack is void)
    2. if purpose is illegal, then contract voidable by party who was unaware of the purpose, or aware of purpose, but did not facilitate and purpose does not involve serioud moral turpitude (contract to fly plane from columbia to USA voidable upon learning that the plane is transporting crack)


Defenses Based on Lack of Capacity

  1. Legal Incapacity to contract
    1. minors
      1. minor may disaffirm contract before or shortly after reaching age of majority.  must return contents of contract unless squandered, wasted, or negligently destroyed
      2. minor may affirm the contract upon reaching majority
      3. exceptions  - infant/minor bound to pay the reasonable value of necessities
    2. mental incapacity - person incapable of understanding the nature and signicance of a contract may disaffirm once lucid.  He may also affirm while lucid.  contract is voidable, not void.
    3. intoxicated person - enters into voidable promise if other party had reason to know of intoxication

Dures and Coercion  - contracts induced by duress or coercion are voidable


Defenses to Enforcement

  1. Statute of Frauds
    1. writing required that reflects the material terms of the contract.
      1. electronic record is fine. 
    2. signature requirement - liberally construed.  must have indicia of signature, i.e. letterhead, initials, e-signature.  only party to be charged must sign
    3. agreements convered under statute
      1. executor promises personally to pay estate debts
      2. suretyship-cosign
      3. promises in consideration of marriage
      4. interest in land
        1. also applies to leases for more than one year
        2. easements of more than one year
        3. fixtures
        4. minerals
        5. mortgages
        6. Not within statute
          1. contract to build on land
        7. effect of performance on land contacts - to enforce oral agreement on land
          1. payment (whole or in part)
          2. possession and/or valuable improvements
      5. perfomance not within one year
        1. effective date - runs from the date of agreement, not from date of performance
        2. lifetime contracts - not within SOF b/c a person can die at any time
      6. Goods priced at $500.00 or more
        1. exception when writing not required
          1. specially manufactured goods - goods are only made for one buyer
          2. admission in pleadings or court
          3. payment or delivery of goods - only enforceable up to the amount of goods paid for. 
        2. Merchants - contracts between merchants
          1. written confirmation of an oral contract sufficient if:
            1. recipient of communication has reason to know of the confirmation's contents, and
            2. he does not object to it in writing within 10 days
    4. Effect of Noncompliance with SOF - renders contract unenforceable at the option of party to be charged.  if not raised as defense, then it is waived
    5. remedies if contract is within SOF -
      1. reasonable value of the services or performance rendered
      2. restituttion
      3. part performance doctrine (see above for land) - if part performance takes the contract out of the SOF, the performing party has option of suing on the contract for expectation damages, rather than merely restitution for value of benefit conferred. 
  2. Unconscionability - allows a court to refuse to enforce a provision or entire contract to avoid unfair terms due to some unfairness in teh bargaining process
    1. Common Instances
      1. Inconspicuous risk shifting provision -
      2. contracts of adhesion - all vendors require the provision and it is not bargained for.  take it or leave it provision
      3. exculpatory clauses - releasing a contracting party from liability for his own INTENTIONAL wrongrul acts.  
      4. Limitations on Remedies 
    2. timing - unconscionability is determined by the circumstances as they existed at the time the contract was formed
    3. effect if court finds unconscionable clause
      1. refuse to enforce contract
      2. enforce remainder of contract without the unconscionable clause
      3. limit the application of any clause as to avoid unconsionable result



Year (within one)



Goods (for $500 or more)




General Rules of Contract Construction

  1. Contracts will be construed as a whole
  2. courts will construe words according to their ordinary meaning
  3. written or typed provision will prevail over printed provisions
  4. courts will look to the custom and usage in the particular business
  5. courts try to reach a detrmination that a contract is valid and enforceable
  6. ambiguities in a contract are construed against the party perparing the contract


Parol Evidence Rule - Supplementing, Explaining or Contradicting Terms

When an integration exists, any expressions, written or oral, made prior to the writing, as well as any oral expression contemporaneous with the writing, are inadmissible to vary the terms of the writing under the parol evidence rule.

  1. Is the writing an integration?
    1. Is the writing intended as a final expression
    2. Is the writing a complete or partial integration
  2. Extrinsic Evidence outside scope of the parol evidence rule
    1. Attacking validity
      1. evidence of formation defects (ie fraud, durress, mistake, etc
      2. conditions precedent - integration conditioned upon a previous oral agreement
    2. Interpretation - if a term is unclear in the integration, then parol evidence is allowed to reach correct interpretation
    3. Parol evidence allowed to show that true consideration was or was not paid
    4. reformation - parol evidence allowed to allege facts (ie mistake) to reform the contract
  3. Collateral Agreements and Naturally Omitted Terms
    1. evidence allowed when
      1. it does not conflict with written integration, and
      2. it concerns a subject that would not ordinarily be expected to include in the writing
  4. Parol evidence allowed to show subsequent modificaitons
  5. Article 2
    1. allows a party to add consisten additional terms, unless
      1. there is a merger clause, or
      2. the courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms
    2. Allows terms to be explained or supplemented by
      1. parties course of dealing (previous transactions)
      2. usage of trade (practice or method of dealing)]
      3. parties course of performance - if repeated performance is required, then evidence of previously accepted performance is admissible. 


Article 2

Battle of the Forms

  1. Contracts involving a nonmerchant - terms of offer govern
  2. contracts between merchants - additional terms in acceptance usually included: unless
    1. materially alter the original terms  (change risk/remedies)
    2. the offer expreslly limits acceptance to the terms in the offer
    3. offeror has already objected to the terms, or objects within a reasonable time after notice of the additional terms are received
  3. Contracts between merchants - different terms in acceptance may or may not be included
    1. some courts treat different terms as additional terms
    2. other courts use knockout rule - conflicting terms are knocked out of the contract.  gaps in the contract are then filled by the UCC



Article 2

Gap-Filler Terms

The key to forming a contract under article 2 is the quantity term. if other terms are missing, then article 2 has gap filler provisions.

  1. price is a reasonable price at the time of delivery if:
    1. nothing has been said as to price
    2. price is left open to be upon later and they fail to agree
    3. the price is to be fixed in terms of some standard set by third party
  2. if delivery not specified, then seller's place of business or home
  3. if time for shipment or delvery is not specified, then it is due in a reasonable time
  4. if time of payment not specified, then time and place at which the buyer is to receive the goods
  5. if contract provides that an assortment of goods is to be delivered, the assortment is at the buyer'soption
    1. failure to choose assortment either give seller cause to choose for buyer or to treat the failure as a breach


Article 2

Delivery Terms and Risk of Loss

  1. Noncarrier case -
    1. if seller is merchant, then risk passes to buyer upon physical possession of the goods
    2. if seller is non-merchant, then risk of loss passes to buyer upon tender of delivery
  2. Carrier Case
    1. Shipment Contract - seller only required to ship goods, but not to a particular destination, then the risk of loss passes upon delivery to the carrier
    2. Destination Contract - seller required to deliver goods to a particular destination, then risk of loss passes to buyer when the goods are tendered to the buyer at the destination
    3. Common Delivery Terms
      1. CIF - cost insurance freight - shipment contract
      2. FAS - free alonside - shipment by boat, risk basses once goods delivered to the dock
      3. FOB - free on board - risk of loss passes at the named locatoin of delivery
  3. Effect of Breach on Risk of Loss
    1. Defective goods - risk of loss does not pass to buyer if the buyer rejects them.  seller has opportunity to cure.  buyer can accept in spite of defects
    2. Revocation of Acceptance
      1. if buyer rightfully revokes acceptance, risk of loss is on the seller
  4. Risk in Sale or Return and Sale on Approval Contracts
    1. Sale or Return - risk remains with buyer while goods are in transit
    2. sale on approval - risk of loss remains with seller until buyer accepts



Warranty of title

Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encubrances against title.  this warranty arises automatically


Can be disclaimed only by specific language that give buyer notice that seller does not claim title


Warranty Against Infringement

a merchant seller automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similary claims.  A buyer who furnishes specifications for goods to the seller, must hold the seller harmless against such claims.  


Implied warranty of merchantability

  1. implied in every contract for sale by a merchant
  2. fit for the ordinary purposes for which such goods are used
  3. seller's negligence does not matter.  this is absolute liability

can be disclaimed by either specific or general methods of disclaimer

specific disclaimer must mention merchantability and must be conspicuous


Implied Warranty of Fitness for a Particular Purpose

In every contract when:

1. any seller has reason to know the particular purpose for which goods are to be used, and

2. the buyer relies in fact on the seller's skill or judgment


can be disclaimed by specific or general methods of disclaimer

specific disclaimer must be conspicuous writing


Express Warranties

Any affirmation of fact made by seller to buyer, description, etc is a part of the basis of the bargain. actual reliance on description not necessary, only that buyer could have relied on it. 


Difficult to disclaim


Disclaimer of Warranties

General Disclaimer - UCC methods for disclaiming implied warranties

  1. By general disclaimer language - "AS IS"
  2. by inspection or refusal to inspect - after buyer has inspected, or refused an inspection, then there is no warranty as to defects that a reasonable examincation would have revealed
  3. by course of dealing - disclaimed by course of dealing, course of performance, or usage of trade

Limitation of Damages - contrcats may limit damages available in breach of warranty, unless limitation is unconscionable

Timing of Disclaimer - must be present on the packaging or prior to installation of software

Limitations on damages for personal injury are prima facie unconscionable


Damages for breach of warranty

  1. in General damages are for the difference between goods tendered and the goods as warranted
  2. Breach of warranty of title - when goods taken back by rightful owner, the damages are the value of the goods as warranted, which is often the purchase price
    1. the value of goods in breach of warranty of title is at the time of dispossession, not at the time of acceptance

Warranties extend to any natural person who is in the family or household of the buyer or who is a guest in the buyer's home if it is reasonable to expect that the person may use, consume, or be affected by the goods and that person sufferes personal injury because of a breach of warranty.


Modification of Contract Terms

  1. Consideration
    1. UCC - new and different terms are valid without consideration
    2. common law - only new consideration can modify contract
  2. Writing
    1. Written contract can be modified orally, however, 
    2. for sale of goods, the modification must be in writing if the contract as modified falss within the SOF
    3. Common Law - provision prohibiting oral modification not effective
    4. UCC - "No Modification" clauses are effective
  3. Parol evidence rule does not apply to contract modifications



  1. Performance at Common Law - a party's basic duty at common law is to substantially perform all that is called for in the contract
  2. Performance under Article 2 - generally requires perfect tender.  delivery and condition of goods must be exactly as promised
    1. Obligation of good faith - requires all parties to act in good faith
    2. Seller's obligation of tender and delivery
      1. non carrier cases -
        1. tender of delivery must give buyer notice and must be at reasonable hour
        2. place of delivery is generally seller's place of business
      2. Carrier Cases
        1. shipment contracts
          1. seller must put goods in hands of reasonable carrier
          2. obtain and tender docs required by contract to enable buyer to take possession
          3. notify buyer of shipment
        2. destination contracats- seller must hold conforming goods at buyer's disposition
    3. Buyer's Obligation to Pay - Right to Inspect
      1. the Delivery and Payment are Concurrent conditions of the contract
      2. Payment by check is fine, unless cash is demanded
      3. installment contracts - seller may demand payment for each installment if the price can be so approtioned, unless contrary intent appears
      4. Buyer has right to insepct the goods before she pays, unless the contract provides for payment COD, or otherwise indicates that the buyer has promised to pay wihout inspecting the goods. 



There is a difference between a promise and a condition.  failure to perform promise is a breach of contract, while failure to satisfy condition relieves a party of the obligation to perform.

  1. Condition Precedent
    1. a condition that must occur before an absolute duty of immediate performance arises in the other party
      1. mechanical fitness, utility, or marketability - reasonable person satisfied
      2. personal taste or judgment (i.e. art) - personally satisfied
    2. one performace takes time to complete, the other is immediate, that is likely a condition precedent
  2. Conditions Concurrent
    1. conditions capable of occuring together.  each is a condition precedent of each other.
  3. Condition Subsequent
    1. condition which cuts off an already existing absolute duty of performance.  Duty to perform is excused.  
  4. Conditions Excused
    1. if one party prevents the condition from occurring, the other is excused from performance
    2. material breach of contract will excuse
    3. anticipatory repudiation - one party unequivolcally indicates it will be unable to perform, then other is let off the hook
      1. in that case, nonrepudiating party can:
        1. sue immediately
        2. suspend performance and wait to sue until performance date
        3. treat the contract as discharged
        4. urge promisor to perform
      2. repudiating party can retract repudiation unless the nonrepudiating party canceled, materially changed her position in reliance of repudiation
    4. excuse because of prospective inability or unwillingness to perform - based upon the innocent party's reasonable grounds to beleive inability to perform
    5. excuse of condition if substantial performance is present - only excuse to implied conditions
      1. other party may mitigate damages
      2. generally inapplicable to Article 2 matters
    6. Divisibility of contract - party has right to compensation for one completed parts even if he doesn't finish the others
      1. performance of each party is divided into two or more parts
      2. number of parts due from each party is the same
      3. quid pro quo performance of the separate parts
    7. excuse of condition by waiver or estoppel - one party may excuse the condition of another.  consideration not required.
    8. excuse of condition b/c of impossibility,impracticability, frustration


Has the Absolute Duty to Perform Been Discharged

  1. Duty can be discharged by complete performance
  2. good faith tender of performance
  3. occurance of condition subsequent
  4. performance becomes illegal
  5. discharge by impossibility, impracticability or frustration
  6. Temporary Impossibility - this only suspends contractual duties, it does not discharge them
  7. Death or physical incapacity - unless it was a delegable duty
  8. Recission -
    1. mutual recission of contract
    2. unilateral recission - when has issue in formation
  9. Novation - a new party takes over the duties of one of the old parties
  10. release - must be in writing and supposed by new consideration
  11. new contract between parties revokes prior contract
  12. discharge by an accout stated as final balance due
  13. discahrge by lapse of performance of one party


Accord and Satisfaction

  1. Accord - an agreement in which one party to an existing contract agrees to accept some other different performance in lieu of the performance originally promised
    1. An accord must be supported by consideration. consideration will be present if the claim is to be paid to a third party
    2. the effect of the accord will not discharge the prior contract, it merely suspends the right to enforece it in accordance with the terms of the accord contract
  2. Satisfaction - performance of the accord agreement.  its effect is to discharge not only orignal contract, but also the accord contract as well.
    1. Breach of accord by debtor - if debtor breaches accord, then creditor may sue either the original amount or for breach of the accord agreement
    2. Breach by Creditor -
      1. Raise the accord agreement as an equityable defense and ask that the action be dismissed
      2. wait until she is damages, and then bring an action at law for damages for breach of the accord contract


When does a Breach Occur?

If it is found that:

  1. The promisor is under an absolute duty to perform, and
  2. this absolute duty  of performance has not been discharged, then

breach has occurred.

The non-breaching party who sues for breach of contract must show that he is willing and able to perform, BUT FOR the breaching party's failure to perform


Material or Minor Breach - Common Law Contract

  1. Minor Breach
    1. when the obligee gains the substantial benefit of his bargain despite breach.  obligee has right to sue for damages (setoff)
  2. Material Breach
    1. when the obligee does not gain the substantial benefit of the bargain
    2. the non-breaching party may then
      1. treat the contract as at an end, any counter duty is also discharged
      2. will have an immediate right to all remedies for breach of the entire contract, including total damages
  3. Minor Breach coupled with Anticipatory Repudiation
    1. nonbreaching party may treat it as a material breach
    2. aggreived party must not continue with performance, because to do so would be a failure to mitigate damages.
      1. UCC modifies that rule when manufacturing of goods is involved to avoid salvage value
  4. material breach of divisible contract
    1. recovery is available for substantial performance of a divisible part even though there has been a material breach of the entire contract


Factors of Material Breach

  1. The amount of benefit recieved by nonbreaching party
  2. the adequacy of compensation for damages to the injured party
  3. the extent of part performance by the breaching party
  4. the hardship to the breaching party
  5. negligent or willful behavior of the breaching party, and
  6. the liklihood that the breaching party will perform the remainder of the contract

non breaching party must show he was willing and able to perform

Breach to perform duty on time is not a material breach if performance rendered in a reasonable time.  Exception when contract makes timely performance essential.



Perfect Tender Rule - Sale of Goods, Article 2

if goods or their delivery fail to conform to the contract in any way, the buyer generally may reject all, accept all, or accept any commerical units and reject the rest


Buyer's rights under Article 2 for Perfect Tender Rule

  1. Right to reject cut off by acceptance
    1. accecptence occurs when:
      1. buyer indicates to seller that goods conform to requirement
      2. buyer failes to reject within a reasonable time after tender
      3. buyer does any act inconsistent with the seller's ownership
  2. Buyer's Responsibility for Goods after rejection
    1. buyer has obligation to hold with reasonable care and obey the reasonable instructions of seller.  
    2. if seller gives no instructions as to goods after rejection, then buyer may:
      1. reship them back to seller
      2. store them for seller's account
      3. resell them for the seller's account (buyer then has right to commission and expenses)
  3. Buyers right to revoke acceptance
    1. buyer has right to revoke acceptance if the goods ahve a defect that substantially impairs their value to her AND:
      1. goods accepteced on reasonable belief that defect would be cured and it wasn't
      2. goods accepted because of the difficulty of discoverying defects or because of sellers assurance that goods conformed to contract
    2. revocation of acceptance must occur in a reasonable time after notice of defects and before any substantial change in the goods occurs.
  4. Exceptions to Perfect Tender Rule
    1. Installment contracts - can only be rejected if nonconforming goods substantially impairs value of that installement and it cannot be cured.
      1. whole contract is breached only when the nonconformity substantially impairs the value of the entire contract
    2. Seller's Right Cure -
      1. Single Delivery Contracts
        1. Seller can cure by notice and new tendre within time for performance
        2. Seller's right to cure beyond original contract time is allowable if the seller reasonably believed that the late cure would be acceptible.  The resaonableness will be deteremined by:
          1. trade practices or prior dealing or
          2. the seller could not have known of defect (packaged goods purchased from a supplier)
      2. Installment contracts - defective shipment cannot be rejected if the defect can be cured



  1. Nonmonetary
    1. Specific performance
    2. injunction
    3. covenant not to compete
    4. Under Article 2
      1. Buyer's side
        1. Cancellation
        2. Buyer's right to replevy identified goods (recover)
        3. Buyer's right to specific performance
      2. Seller's Side
        1. Seller has a right to withhold goods
        2. seller has right to recover goods
        3. Seller has a right to demand assurances
  2. Monetary Damages
    1. Compensatory damages
      1. Expectation damages
      2. reliance damages
      3. consequential damages
      4. incidental damages
    2. nominal damages  - award for $1.00 when a breach is shown but no actual loss
    3. liquidated damages
    4. Article 2 damages
    5. Sale of Land damages - difference between the contract price and the fair market value of the land
    6. Employment contracts
    7. Construction contracts
  3. Restitution
  4. Recission
  5. Reformation
  6. Statute of limitation - under article 2, it is 4 years.  can be contracted to be less, but no less than one year. period begins at breach.  


Remedies - Specific Performance

  1. Available for land contract or contract for existing rare or unique goods (picaso, etc)
    1. not available for services, but judge may enjoin employee from working for competetor
  2. Covenant not to compete - really just another contract, but here we go
    1. the services to be performeed are unique
    2. the convenant is reasonable:
      1. covenenant is reasonably necessary to protect legitimate interest
      2. must be reasonable to its geographic scope and duration
      3. must not harm the public
  3. Equitable defense -
    1. Laches - a claim that the delay in bring suit has prejudiced the defendant
    2. unclean hands - the plaintiff is guilty of wrongdoing in the transaction being sued upn
    3. sale to a bona fide purchaser - sold to a person who purchased for value and in good faith


Nonmonetary remedies under Article 2

  1. Buyer's side
    1. Cancellation
    2. Right to replevy
      1. On partial payment- if buyer has made part payment on the goods, then the buyer may replevy if
        1. seller becomes insolvent within 10 days after receiving buyer's first payment OR
        2. goods were purchased for personal, family, or household purposes.
        3. In either case, buyer must tender any unpaid portion of the purchase price to seller
      2. Buyer's inability to cover - if buyer cannot secured adequate substitute goods after reasonable effort, then he can replevy
    3. right to specific performance - similar to replevy, but it applies where the goods are unique in nature
  2. Seller's side
    1. Right to withhold goods - if non payment or if seller learns buyer insolvent (cash beats insolvency)
    2. right to recover goods
      1. on buyer's insolvency 
        1. seller has 10 days to recover, unless
        2. a misrepresentation of solvency was made in writing to seller within three months before delivery
      2. Recover from bailee
        1. on buyer's insolvency - seller may direct bailee (shipper) to hold off delivery.  once cash delivered, then seller must delilver
        2. on buyer's breach - seller may stop delivery at breach or when the seller has a right to demand assurances.
      3. Seller is not normally allowed to force goods onto the a buyer
  3. Right to demand assurances
    1. if the party reasonable fears that the other party will not perform, he may demand assurances that the perforamce will be forthcoming at the proper time.  fearful party has right to suspend performance until assurance is given.  
    2. differentiate from anticipatory repudiation where there is CLEAR INDICATION that other party is unable to perform.  


Monetary Remedy - Damages

Types of Damages

  1. Compensatory Damages- put nonbreaching party where she would have been had the promise been performed
    1. Expectation Damages - plaintiff will get sufficient damages for her to buy substitute performance
    2. Reliance Damage Measure
      1. put the plaintiff in the position she would have been in had the contract never been formed
      2. used in unilateral contracts, etc
    3. Consequential Damages - if plaintiff loses additional business opportunities as a result of defendant's breach, then you have consequential damages.  these are recoverable when the reasonable person would have forseen that breach would result in conseqential damages.  
    4. Incidental Damages - expenses reasonably incurred as a result of the breach
  2. Liquidated Damages - stipulated damages
    1. requirement for enforcement
      1. damages for contractual breach must have been difficult to estimate or ascertain at the time contract formed
      2. amount must be a reasonable forecast of compensatory damages in the case of breach
    2. Recoverable even if no actual damages


Monetary Remedy - Damages

Contracts for Sale of Goods

  1. Buyer's Damages
    1. entitled to benefit of the bargain
      1. Market Price minus Contract Price
      2. plus incidental damages and consequential damages
      3. minus expenses saved
    2. entitled to Cover
      1. cost of replacement minus contract price
      2. plus incidental damages and consequential damages
      3. minus expenses saved
    3. Warranty damages - if buyer accepts defective goods, then buyer is entitled to damages in the amount of the difference between contract price and actual value of defective item
    4. Seller anticipatorily breaches - contract price minus market price at time buyer learned of breach
    5. Consequential damages - seller has knowledge of consequences of breach if
      1. buyer is in the business of reselling goods
      2. seller knows that goods are to be used in manufacturing process
  2. Seller Damages
    1. Benefit of Bargain - contract price minus market price
    2. resale - contract price minus resale price
    3. lost profit - contract price minus cost of goods (only available if seller has inventory of item)
    4. action for price - contract price (only available if the goods are not marketable to another buyer
    5. in all of the above PLUS Incidental damages minus expenses saved



Contracts for Sale of Land

the difference between the contract price and the fair market value of the land


Employment Contracts


  1. Breach by Employee - costs of replacing employee minus amounts owed to employee for work done
  2. Breach by Employer - Contract price minus amount employee made or would have made by taking similar position (employer must prove position available)


Construction Contracts


  1. Breach by Owner -
    1. Before Completion - Expected profit plus costs expended
    2. After completion - contract price
  2. Breach by Builder
    1. Costs of completion plus damages from delay minus unjust enrichment to owner



Installment contracts

Certainty Rule

  1. Contracts calling for installment payments
    1. nonpayment of one installment is only partial breach, therefore plaintiff only entitled to missed payment
    2. such contracts can include acceleration clause
  2. Certainty Rule
    1. plaintiff must prove that the losses suffered were certaqin in their nature and not speculative



Avoidable Damages (mitigation)

Nonbreaching party has duty to mitigate losses

  1. Employment contracts - employee under duty to find additional similar employment
  2. contracts for sale of goods - seller must mitigate damages in some way and try to resell or repurpose the goods
  3. manufacturing contracts - manufacturing party has a duty to stop the creation of goods after breacfh.  however if completion of the goods will decrease rather than increase damages, then manufacturer can continue. 
  4. Construction contracts - builder must stop work once the owner has breached, unless completion will decrease damages 



based upon preventing unjust enrichment when on has conferred a benefit on another without gratuitous intent.  only available when no contract exists.  Damages are limited to the value of the benefit conferred

  1. If recission is available, the nonbreaching party may choose to rescind contract and pursue restitution
  2. if contract unenforceable, restitution may be available
  3. when no contract exists, restitution available if
    1. plaintiff conferred a benefit
    2. with reasonable expectation of compensation
    3. defedant knew of the expectation
    4. defendant would be unjustly enriched



  1. Mutual mistake
  2. unilater mistake if other party knew of the mistake
  3. unilateral mistake if hardship by mistaken party is so extreme it outweighs the other party's expectation
  4. misrepresentation of fact or law by either party to a material factor and it was relied upon
  5. other ground - duress, undue influence, illegality, lack of capacity, failure of consideration

Defenses -

  1. equitable defense (laches, unclean hands, etc) plaintiff's negligence not a defense




  1. Clear and convincing evidence between antecedent agreement and the writing
  2. parol evidence rule and statute of frauds do not apply
  3. defenses - equitable defense, existence of a bona fide purchaser for value


Statute of Limitations under the UCC

For Sales contracts UCC provides for a 4 years SOL.  Parties may shorten period to no less than one year by agreement.

SOL begins when the breach occurs.

Breach of Warranty - SOL begins upon delivery of goods.  an express warranty may extend the future performance of goods to a point beyond delivery.  In that scenario, breach does not occur until buyer should have discovered the breafh.  


Rights and Duties of Third Parties to the Contract

There are third party beneficiaries

Third parties who have been assigned rights or delegated duties of the contracted party

The Good faith purchaser


Third-Party Beneficiary

Typical situation - A contracts with B that B will render some performance to C

  1. Intended v. Incidental
    1. only intedned TPB have contractual rights. Consider the following:
      1. is TPB identified in contract
      2. receives performance directly from promisor
      3. has relationship with the promisee
    2. Creditor v. Donee Beneficiary
      1. creditor - a person to whom a debt is owed by the promisee
      2. donee - a person whom the promisee intends to benefit gratuitously
  2. When do rights of the beneficiary vest?
    1. when TPB manifests assent to a promise, or
    2. brings suit to enforce the promise, or
    3. materially changes position in justifiable reliance on the promise
  3. Signifigance of vesting
    1. prior to vesting, contract can be modified to remove TPB.  
    2. After vesting, contract modified only with TPB consent



Rights of the Third Party Beneficiary and the Promisee

  1. Third party beneficiary vs. promisor
    1. TPB may sue the promisor on the contract.  promisor may use any defense that it has against the promisee.  
    2. Promisor may use the promisee's defenses against TPB if there was not an absolute promise to pay.
  2. TPB v. Promisee
    1. a creditor TPB can sue the promisee on the existing obligation between them.  
    2. a donee TPB can only sue for detrimental reliance
  3. Promisee v. Promisor
    1. a Promisee may sue the promisor both at law and in equity for specific performance if the promisor is not performing for the third person


Assignment of Rights to TPB

  1. Assignment - X (the obligor) contracts with Y (the assignor).  Y assigns his right to X's performance to Z (the assignee).
    1. What rights may be assigned - essentially all legal, reasonably performed(assumption of risk exception) contractual rights
      1. Express contractual provision against the assignment
        1. generally does not bar assignment, but gives rise to damages.  it only bars delegation of duties
        2. However, contract can stipulate that attempts to assign will be void. 
        3. if assignee has notice of the nonassignment clause, the assignment will be ineffective
      2. Effect of assignment
        1. establishes privity of contract between the obligor and the assignee
      3. Necessities of Effective assignment
        1. manifest of an intent to immediately and completely transfer rights
        2. adequate description of the right
        3. consideration not required
      4. Is Assignment revocable or irrevocable
        1. Assignment for value -
          1. consideration
          2. taken as security for payment of preexisting debt. 
          3. cannot be revoked
        2. gratuitous assignments - generally revocable
          1. Exceptions -
            1. obligor already performed
            2. token chose (tangible claim, stock) already delivered
            3. assignment is put in writing
            4. assignee can show detrimental reliance
          2. methods of revocation
            1. death, bankruptcy of assignor
            2. notice by assignor to assignee or obligor
            3. assignor taking performance directly from obligor
            4. subsequent assignment of same right to another assignee
          3. Effect of revocation
            1. privity between assignor and obligor is restored
      5. Rights and liabilities of parties
        1. Assignee v. Obligor - assignee can sue on contract.  obligor cannot use defenses assignor might have against assignee.
        2. Assignee v. Assignor -
          1. assignee can sue for wrongful revocation when assignment irrevocable
          2. after obligor asserts a defense against the assignor in action by assignee
      6. problems with successive assignments
        1. two irrevocable assignments made, first in time wins, except:
          1. the subsequent assignee gets first judgment
          2. subsequent assignee gets first pament
          3. estoppel is always available betwen the assignee



Typical Delegation - Y (obligor/Delegator) promises to perform for X (the obligee).  Y delegates his duty to Z (the delgate)

  1. What duties may be delgated - all duties except
    1. ones involving personal judgment and skill
    2. delegation would change the oblgee's expectancy
    3. a special trust was reposed in the delgator by other party
    4. contractual restriction
  2. necessities of effective delegation
    1. manifestation of intent
    2. written or oral
  3. Rights and liabilities of parties
    1. obligee must acept perforamce
    2. delagator remains liable
    3. delegate may be sued for nonperformance
    4. once delegate assumes the promise and that assumption is supported by consideration, then  a contract created between delegator and delegate and obligee is TPB

Novation Distinguished - susbtites a new party for an original party.  requires assent of all parties and completely releases the original party



Power of Person other than owner to Transfer Good Title to a Purchaser

  1. Entrusting
    1. when a party entrusts goods to a merchant who deals in goods of that kind
    2. the merchant then sells the entrusted goods to a buyer in the ordinary course of business
    3. the buyer has good title
    4. the party who entrusted only has right to damages
  2. Voidable Title Concept
    1. if sale induced by fraud
    2. seller can rescind the sale and recover goods
    3. however, if good faith purchaser for value buys from fraudulent buyer, then seller cannot rescind
  3. Theif Generally cannot pass title
    1. no exception to good faith purchaser because his claim to the title is void.