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Flashcards in MBE and NY Distinctions (Contracts) Deck (30):
1

3RD PARTY BENEFICIARIES

3rd Party Beneficiary (TPB)
Promisee contracts with promisor that promisor will render some performance that will benefit TPB.

TPB must be explicitly named in the contract, or else she is ONLY an incidental beneficiary w/no contract right of enforcement

Rights Vest in TPB ONLY if TPB has(1) knowledge PLUS (2.a) detrimental reliance OR (2.b) assent as requested

Rights of TPB
 TBP has contract law right of enforcement even w/o consideration w/ promisor.
 However, TPB is subject to any defenses promisor has against promisee.
 TPB also has NO right to sue promisee unless TPB is a creditor of promisee.

2

CONTRACT FORMATION

Contract Formation

Implied in Fact: implied through party conduct (e.g. patient undergoes surgery after repeated promises of success by doctor

Quasi Contract: 2 Situations
• No contract but detriment to one party
• No express contract provision to deal with problem (e.g. what to do with deposit if contract is breached).

Waiver of Contract Right: right must be known and appreciated; if so, cannot be reclaimed.

3

PERFORMANCE:
EXCUSE OF PERFORMANCE
When is contract performance excused b/c of impossibility?

Impossibility
• Increased cost is NOT an excuse
• Destruction of necessary object (concert hall) IS an excuse
• Death of necessary person is only an excuse where the person is unique (e.g. architect)

Sale of Goods
• S has Risk of Loss: destruction of goods excuses
• B has Risk: destruction does not excuse (must pay)
• Fungible Good: destruction of S’s quantity of fungible good NOT an excuse: can be replaced
• Commercial Impracticability: may excuse (1) crop failures for specifically ID’able crop; (2) labor strike; (3) weather problems; (4) trade embargoes.

Frustration of Specific Known Purpose: at time of contract both parties know specific purpose for contract which is then frustrated: performance excused (e.g. rent apt to see parade which is then cancelled).

4

ASSIGNMENTS
Requirements, Prohibitions, & Invalidations, Rights & Defenses and Multiple Assignments

Assignment: Transfer of Benefits
Assignor assigns contract benefits; obligor must perform

Requires: present (NOT future) lang. (“I assign” NOT “I promise to assign.”; NO CONSIDERATION; +$5k must be in writing

Restrictions in Contract (Prohibition vs. Invalidation)
 Prohibition: “not assignable”: assignee w/o knowledge of prohibition CAN still enforce against obligor.
 Invalidation: “assignments are void”: NO enforcement against obligor (regardless of knowledge)
 C/L Limitation: assignment cannot change obligor’s duties significantly

Rights and Defenses: assignee steps into obligor’s shoes, so
 Assignee CAN sue obligor for breach
 Obligor has same defenses vs. assignee as vs. assignor
 Payment to assignor OK until obligor knows of assignment

Multiple Assignments: gift assignments (no consid) = last in time wins; but if consid, 1st assignee wins, but 2nd can sue assignor

5

CONTRACT DELEGATION:
PERFORMANCE OF CONTRACT DELEGATED TO 3RD PARTY NOT ASSOCIATED
WITH THE ORIGINAL CONTRACT

Delegation: Transfer of Duties

General Rule: contract can be delegated to 3rd party for performance

Exceptions:
 Contract prohibits delegation/assignment
 Contracting party has specific skills/rep (artist).

Breach:
 Delegating Party is liable to other contracting party for breach by delegatee (3rd party).
 Delegatee (3rd Party) is NOT liable to original non-delegating party for breach, unless delegatee assumes the duty by promising to

6

PERFORMANCE:
EXCUSE OF PERFORMANCE
When is contract performance excused b/c of express condition?

Excuse of Performance: Express Condition

Condition must be explicit contract language that expressly limits contract obligations.

 Explicit Conditional Language: “if,” “provided,” “on condition that,” “so long as,” “unless,” “when.”
 Can be Condition Precedent or Subsequent.
 If there is an express condition, strict compliance is required (e.g. Reading Pipe means Reading Pipe).
 Condition can be eliminated by explicit words or conduct of a person who the condition protects
o Includes party who fails to cooperate with a condition designed to protect that party.

7

PERFORMANCE DISPUTES IN
SALE OF GOODS CONTRACT

Performance in Sales of Goods Contracts
 Perfect Tender: general std for sales of goods; less-than perfect tender (breach): B has option to reject and not pay
 Cure: less-than-perfect tender before contract deadline date: S can cure by re-attempting perfect tender
o If S can show that B had previously accepted imperfect tender, S will get opportunity to cure.
 Installment Sales Contract Not Subject to Perfect Tender Rule: ONLY if explicit in contract language (NOT just b/c S made installment delivery);
o Continuing relationship = mistakes fixed in future
 Acceptance of Goods: accepted goods can’t be rejected
o Requires reasonable time for opportunity to inspect and payment before inspection is NOT acceptance.
 Revocation of Acceptance: (1) something really wrong with goods, (2) that is difficult to discover.
o Immediate act=rejection; later act=revocation
 Payment: check OK by deadline, but S’s option to reject

8

EXCUSE OF CONTRACT B/C OF LATER AGREEMENT
What are the 4 forms of later agreements that will excuse performance?

4 Later Agreements that Excuse Contract Performance

Accord and Satisfaction:
o New agreement between parties which agrees to discharge old contract if accord is satisfied instead.
o Breach of Accord: sue on original deal OR accord
o Cashing check marked “paid in full” of disputed debt
Modification → Substituted Agreement:
o New agreement immediately discharges old contract, regardless of performance on modification
Novation:
o Mutually-agreed upon substitution of a new party to the contract: steps into the shoes of the existing party
Rescission → Cancellation:
o If neither party has accomplished full performance both parties can mutually agree to rescind contract

9

UCC AS GAP FILLER IN SALE/LEASE OF GOODS
EXPRESS & IMPLIED WARRANTIES

Express Warranties: statement of fact or promises, NOT opinions (puffing) CANNOT be Disclaimed

Implied Warranty of Merchantability: goods sold by merchant who regularly sells such goods, must be fit for their ordinary purpose

Implied Warranty of Fitness for Particular Purpose: if B has particular purpose known to merchant

Leases do have warranties of fitness/merchantability.

Disclaimer of Implied Warranties:
 Magic Phrases: “as is” “w/all faults”
 Conspicuous Writing of Disclaimer

Remedies for BOTH implied & express warranties can be limited UNLESS unconscionable; limitations on personal injuries in consumer goods is prima facie unconscionable

10

PERFORMANCE OF
C/L CONTRACTS
Substantial Performance & Partial Performance

Performance of C/L Contracts
Substantial performance makes breach immaterial and non-breaching party must still perform (sue for damages)
(e.g. use of Reading Pipe instead of Cohoe Pipe)

 Any breach, even immaterial breach = damages
 Partial performance that is NOT substantial performance is a breach so there is NO contract, and non-breaching party does NOT have to perform (pay)
 BUT breaching party can sue in quasi-contract for work completed.
 Express divisible contract divides payment on per-unit basis, so we examine performance on per-unit basis.
 Anticipatory Repudiation: unequivocal indication of non-performance (not just a request for more money).

11

PAROL EVIDENCE RULE

Parol Evidence Rule
For integrated agreement, a court cannot consider parol evidence that contradicts that agreement.

 Integrated: written final deal
 Parol Evidence: written OR spoken prior to or contemporaneous with writing (not after)
 Merger Clause: highly persuasive only

Exceptions: Parol Evidence Admissible
 Reformation (Scrivener’s Error): NOT different deal; parol evidence to prove clerical error
 Rescission: NOT different deal; parol evidence to prove flaw in process makes deal unenforceable.
 Explanation: parol evidence explains vague terms
 Additional Words Rule: parol evidence adds term to contract; ONLY for partially integrated agrmnt

12

UCC AS GAP FILLER IN
SALE/LEASE OF GOODS
DELIVERY OBLIGATION AND RISK OF LOSS

UCC as Gap-Filler in Sales/Leases of Goods

S’s Delivery Obligation in Common Carrier Contracts
 Shipment Contract: S obligation compete before receipt (1) goods to carrier; (2) delivery arrangements; (3) notify B.
 Destination Contract: S has obligation to get goods to B; “FOB (Buyer’s City)”

Risk of Loss in Sale of Goods: Rules
1. Agreement Controls
2. Breaching Party is Liable (EVEN if breach unrelated to loss)
3. Shipment Contract: S retains risk until obligation complete
4. Destination Contract:
o Merchant S retains risk until B physically receives
o Non-merchant S has risk until she tenders (makes goods available to B: how, where, when to get goods)

Lease of Goods: owner/lessor retains risk of goods in hands of lessee, UNLESS finance lease (e.g. Bank buys, leases to lessee).

13

UNENFORCEABILITY B/C OF CONTENT OF AGREEMENT: ILLEGALITY; AGAINST PUBLIC POLICY; AND UNCONSCIONABILITY

Unenforceable B/c of Content of Agreement

Illegality:

Public Policy:
 Covenants Not to Compete: (1) time limitation, (2) geographic limitation; (3) business need
 Exculpatory Clause: usually negligence OK BUT NOT intentional torts/gross negligence

Unconscionability:
 Oppressive terms; unfair surprises at the time of contract in substance/process

14

DISPUTE OVER
AGREEMENT TERMS
How is conduct relevant to contract interpretation?

Conduct Can:
 Explain Words in the Contract
 Fill Gaps in the Contract

Order of Importance of Conduct:
1. Course of Performance: what parties have done under this contract?
2. Course of Dealing: what these parties have done in earlier similar contracts
3. Custom & Usage: what is the custom in the industry in similar situations?

15

SOF: SATISFYING SOF
WITHOUT A WRITING
What are the 4 ways a party can satisfy the
SOF w/o a writing?


 Full Performance of Services Contract
o NOT partial=quasi-contract recovery ONLY

 Real Estate: Payment + Improvement OR Possession
o NOT full payment if no improvement/possession

 Already-Delivered Goods +$500 (rcvd/accepted)
o ONLY portion of good already delivered by S to B
o Exception: specially manufactured goods not suitable for resale if S substantially begins production

 Judicial Admission
o Party asserting SOF admits contract in pleading, depo, testimony

16

SOF: SATISFYING THE SOF
WITH A WRITING
What is required to satisfy the SOF WITH a writing?

Satisfying the SOF WITH a Writing

 Sale of Goods: Writing must include: (1) quantity; (2) signature of person asserting SOF;
• BUT NOT price
• 2-Merchant Exception: B/M sends signed letter to S/M confirming agreement, & S/M does NOT respond (later raises SOF); B/M letter admissible.

 Lease of Goods: (different from sales): writing must state: (1) it is a lease; (2) number of items leased; (3) length of lease, and (4) amount of lease.

 Real Estate/Services/Guarantees: (1) all material terms: who and what AND signed by person against whom enforcement is sought.

17

SOF: AGREEMENTS W/I SOF
What 8 types of agreements are w/i the SOF?

Statute of Frauds: Agreements Are Within SOF
 Transfer of Real Estate Interest of MORE than 1YR (366 days)
 Services Contract & Performance Impossible w/i 1 Yr of Agreement (NOT start of performance).
o “Lifetime” Deal: MBE NOT w/i SOF; NYS: w/i SOF
 Sale of Goods +$500 (Or Lease of Goods +$1k total)
o Both Merchants & Non-merchants
 Promise to Answer for the Debts of Another (Suretyship)
o Express “if X doesn’t pay, I will” language
o Estate rep. personally paying estate expenses.
o BUT: main purpose exception if direct benefit to surety
 Promise in Consideration of Marriage (e.g. prenup)
 NYS: assignments of insurance policy; promise to name insurance beneficiary; commissions/finder’s fees
 Alleged Contract Modifications: ONLY when contract WITH alleged modification would come w/i SOF (courts ignore provisions purporting to require modifications in writing)
 Written Authority to Sign Real Estate Agreement (Equal Dignity Rule): ONLY if underlying agreement is w/i SOF

18

CONSIDERATION: LACK OF CONSIDERATION/SUBSTITUTE

Consideration/Consideration Substitutes
Consideration = bargained-for exchange

 Peppercorn: adequacy irrelevant
 Past consideration NOT bargained for exchange
 Pre-existing duty NOT new consideration (requires some new benefit/detriment), BUT:
 TP Exception: promise to pay from 3rd party not part of original agreement
 Goods: new consideration unnecessary (agreement to ↑ price w/o consideration OK)
 Due & Undisputed Debt: part payment NO consideration (BUT written promise to pay debt barred by SOL is enforceable without conisderation)
 Promissory Estoppel = Consideration Substitute: though no consideration, foreseeable and detrimental reliance will make promise enforceable (w/o consideration)

NYS: written agreement eliminates need for consideration

19

ACCEPTANCE:
PERFORMANCE AS ACCEPTANCE

Offer CAN Control Method of Acceptance: if it does, the method is the exclusive means of accepting the offer.
 Unilateral Contract: requires explicit acceptance-only-by-performing language
 Any conduct/statement OTHER than what is prescribed is NOT acceptance; so NO contract = NO breach
 Part Performance As Acceptance:
 Bilateral Contract: start of performance implies agreement to complete, so constitutes acceptance. So, part performance followed by stop is breach.
 Unilateral Contract: acceptance only on completion so part performance followed by stop is NOT breach.
 Improper Performance as Acceptance:
 Improper performance IS performance.
 If performance = acceptance then there IS a contract and offeror can sue for breach.
 Accommodation (Art. 2): If S tries to accommodate B by shipping improper item w/express acknowledgment of impropriety; NOT acceptance, so NO contract.
• Otherwise shipping improper item=acceptance+breach

20

FLAWS IN THE AGREEMENT PROCESS: SUMMARY
What are the 6 primary flaws in the agreement process that can render an agreement unenforceable?

Flaws in the Agreement Process

 Lack of Capacity (infancy, intoxication, mental; CAN enforce; Exception for Necessaries; implied reaffirmation)
 Duress (physical or economic – threat to breach existing contract when other party has no other option)
 Misrepresentation Induces Agreement (including good faith/honest misrepresentations)
 Mutual Mistake of Material Fact At Time of Agreement: mutual mistake about what something actually is (NOT its value) shared by BOTH parties at the time of agreement.
 Statute of Frauds (SOF): prop. interest +1yr; services +1yr; goods $500+; lease+$1k tot.; debt of other w/i SOF, requires writing unless in exception (full perform svc contract; prop. payment+; already-delivered goods; judicial admission).
 Lack of Consideration/Consideration Substitute: peppercorn AND no preexisting duty or past consideration; NYS: written substitute always OK)

21

TERMINATION OF OFFER:
OFFEREE’S RESPONSE TO THE OFFER
What are the 3 possible offeree responses that can terminate an offer?

Termination of Offer B/c of Offeree’s Response
Counteroffers:
 Statement will kill ( “I will only pay…”; BUT a question will NOT kill (“Will you accept…?”)
 Option Contract: counteroffer won’t kill offer during period of option (unless there is detrimental reliance)

Conditional Acceptance:
 Clear statement of condition (“provided that” “so long as” “on condition that”) kills offer (MUST be absolutely clear conditional language)
o BUT conditional statement can be accepted by original offeror’s compliance w/condition
o 2 Merchants Rule: immaterial condition does NOT terminate

C/L Mirror Image Rule:
 C/L acceptances must be mirror image of offer

22

ACCEPTANCE:
MAILBOX RULE

Mailbox Rule for Contract Acceptance

Acceptance by mail is effective on deposit in the mailbox

 ONLY Applies to Acceptance

 Rule DOES apply when offeree sends acceptance THEN rejection: acceptance effective on deposit in mailbox, so rejection is ineffective.

 UNLESS rejection arrives 1st & offeror detrimentally relies

 Exception to Mailbox Rule for Acceptance: if rejection is sent first THEN acceptance is sent, whichever arrives first is effective.

23

IDENTIFYING OFFERS

IDENTIFYING OFFERS
 Manifestation of commitment (words/conduct)
 Create reasonable expectation of willingness to enter into contract.
 Context relevant to existence of offer: Ads NOT offers

Content of Offers:
o Vague Material Terms = NO Offer (“reasonable” “fair”)
o BUT “all “only” “solely” (“all A’s cars”) often DO= offer; requisite certainty b/c exclusivity (requirement contract)
 Reasonably proportionate demands in requirements contracts; NO unprecedented increases
o Offeror is master: carefully read requirements of offer.

Price Terms:
o C/L Contract for Land: must describe land & state price
o UCC: missing price OK; BUT vague price = NO offer (neg)
o Request for offer containing delivery terms + prices sent in response = read together to equal an offer

24

TERMINATION OF OFFER
OFFER REVOCATION &
IRREVOCABLE OFFERS


Revocation of Offer
(1) Unambiguous statement/conduct (sale to 3rd party) by offeror indicating change of mind, (2) known by offeree; (3) before acceptance.

 Multiple Offers: latter offer does NOT revoke earlier offer b/c it is NOT unambiguous indicate of change of mind.
 When Effective? When offeree receives/knows about revocation, IF receipt is before acceptance (mailbox rule ONLY for acceptances; here receipt is operative).

4 Irrevocable Offers: (1) detrimental reliance; (2) part performance of unilateral offer; (3) option; (4) firm offer rule
1. Detrimental Reliance: reliance is foreseeable/reasonable
2. Pt. Perf. Of Unilateral: unilateral contract explicitly states “can only be accepted by [performance].”
 Mere preparations are NOT part perf. BUT CAN BE detrimental reliance IF foreseeable/reasonable.
3. Option: promise not to revoke exchanged for consideration
4. UCC Firm Offer Rule: (1) written explicit promise not to revoke; (2) by merchant; (3) for 3 mnths (more=auto  to 3)

25

DAMAGES: MONETARY DAMAGES
What are the 6 types of monetary damage remedies for breach of contract?

Punitive Damages
 NEVER available; contract damages = compensation

Liquidated Damages Provision
 (1) Damages Difficult to Forecast AND (2) Provision Reasonably Forecasts Damages (flexible/NOT lump sum)

Expectation Damages
 Benefit of Bargain: put Π in the position as if contract had been performed: (1) what would Π have w/o breach? (2) what does Π have after breach? (3) difference?
 Lost Volume Seller: proveable lost profit from lost sale (+1 of the good breached on, so S sells good, but loses profit)

Consequential/Special Damages (Specific to Particular Π)
 Reasonably Foreseeable: Π can recover damages in parties’ contemplation (should have been) at time of contract

Incidental Damages
 Cost of replacement deal: ALWAYS recoverable

Mitigation (Δ Affirmative Defense) (not if specially manufactured)
 Π must mitigate or recovery  (comparable benefit)

26

TERMINATION OF OFFER
What are the 4 ways which a valid offer can be revoked?

Termination of Contract Offer

Death of Party: offer dies w/party UNLESS option contract (promise not to revoke with consideration)

Lapse of Time: +1 month between offer and purported acceptance will terminate offer (unless explicit provision)

Revocation: unless irrevocable, offer can be revoked if both parties are aware (conduct/words)

Offeree’s Response: conditional acceptance, counteroffer, C/L mirror image rule can terminate offer

27

UNILATERAL VS.
BILATERAL CONTRACTS

Contracts usually bilateral (an exchange of promises: promise for a promise)

Unilateral: exchange of act for promise;
MUST clearly state that performance is the ONLY means of acceptance.

28

REMEDIES: IN REM REMEDIES What are the 3 forms of
in rem remedies for breach of contract?

Specific Performance
 Equitable Remedy: monetary damages inadequate
 Almost NEVER available to Π; NEVER for employment: indentured servitude
 Exceptions: (1) land transactions; (2) unique goods; (3) injunctions (negative specific performance)

Reclamation (Art. 2) (excludes all other remedies)
 Recover goods by unpaid S from B who was insolvent at the time of delivery of the goods; w/i 10 days of receipt; from B NOT 3rd party NOR proceeds if sold
 Generally, NO right for unpaid S to get goods back (damages); must qualify for reclamation for goods

Entrustment
 Generally entrusting owner has NO right to recover goods from BFP (sue for conversion) (e.g. watch to jeweler for repairs and jeweler sells).

29

CONTRACTS: SOURCES OF LAW

Common Law
 Majority of Bar Questions: anything but sales of goods or leases.

UCC Art. 2
 Contract is primarily for the sale of goods
 Personal AND commercial transactions

UCC Art. 2A
 Lease of GOODS (NOT buildings/land)
 Art. 2 Rules ALSO apply to 2A

30

INTRODUCTION
What are the 8 types
of contracts question
on the bar exam?

8 General Types of Contracts Questions on the Bar

 Enforcement & Remedies
 Finding Existence of Agreement
 Enforceability of Agreement Process (flaw in process)
 Enforceability of Content of Contract
 Dispute of Terms of Contract
 Dispute over Performance of Contract
 Enforceability Based on 3rd Party Performance
 3rd Parties Enforcing Agreements They Didn’t Make