Contracts Video Outline

Bar Bri

1L – Final Exam

Memory jogger to remember seven major areas of contracts – Always flush toilets please everybody remember that ------

A= applicable law, F=formation, T=terms of K, P= performance, E=excuse for non-performance, R= remedies, T= third parties problems

4 terms really need to know:

1. Contract – Legally enforceable agreement – not same as word agreement, its an agreement plus, whatever it takes to make it legally enforceable

2. Qausi – contract – sort of like but not exactly – equitable remedy – means not governed by contract law – governed by maxims of equity

3. Unilateral contract – a K that results from a offer that requires performance to accept

1. Context – all K’s are uni or bi

4. Bilateral K- The K that results from an offer that is open to how it is accepted

Abbreviations used:

Uni = Unilateral contract Bi = Bilateral contract c/l or C/L = common law

Cadi = Cadillac

What one fact in a question will tell you bi or uni – what do you focus on – all goes back to nature of the offer, that is what controls what kind of K that have – did the offer req. performance, if yes then uni – of on the other hand offer open to how it is accepted it is still bilateral, it is the nature of the offer

Two basic fact patterns for uni – the reward or contest situation - $500 to find my lost dog, only way to turn that offer into a contract is by performance – or contest

Also unilateral contract if offer expressly req. performance

Seven Problem areas –

1. Applicable Laws – you will cover two separate bodies of law – 1. Common law, law from decision of courts 2. Statute – Article 2 of the UCC – this is similar from common law, most of derived from common law – most tested areas are where the UCC is different from the common law.

It is common law unless it is a sale of goods – for example – Atlanta Braves sign Fred to K, this is a service K – I buy Fred T-shirt that is a sale of goods –

Goods are moveable, personal property – anytime anybody sells goods we do article 2, but that is the only time

First thing – look to see what the subject matter of K is – sale of goods article 2 – if not common law – this is the gist of applicable law

2. Formation of Contracts – next problem area:

Primary focus on any contracts examination

In order to form a K you need an agreement, then is it legally enforceable

First, do you have an agreement – issue here is offer and acceptance – when talk about offer and acceptance you have folks that have made and agreement

Now – offers – what is it – two general components to offer – it is a manifestation and second is a commit – so want a manifestation of commitment – this is done by words and actions – look at what written and what done, actions – do not look at, what is irrelevant – is what is in a persons heart, head, mind or sold – not concerned with intentions but the manifestations of commitment – a willingness to be bound, to held to those words or actions – offer = manifestation of commitment

4 problem areas regarding offers that you see on exams –

1. Rule with respect to advertisers – general rules advertisement are not offers, but invitations to you to make an offer (carbolic smoke balls case). What is tricky here is the term advertisement is broad and general – e.g. walk into store sign says shirt $10, this is an advertisement, an invitation to you to make an offer, you take the shirt and go to clerk in store and you hand her $10 you are making the offer

2. The problem involving a missing price term – can an offer show a willingness to be bound with no price term – matters whether article 2 or common law – if sale of real estate and there is a missing price term, the communication cannot be an offer – common law requires all material terms to constitute an offer – now what if have a Cadillac – this is a sale of goods now apply article 2 – under UCC a communication can be an offer even w/missing price term as long parties intend this

3. Rule regarding ambiguous material terms - there is a term, just not clear, will sell you Cadi for reasonable price, is that sound like a deal, sound like a commitment to be bound – both under common law and UCC where have unclear term – the communication is not an offer, you cannot have a vague material term – the parities must mean to have further negotiations to work that out

4. Final problem – Requirements contracts – two rules need to understand here – a req. K measures the quantity of goods to be purchased by the buyers needs – I reach agreement with local store will by all my Thunderbird wine from that store – in req. it is OK to treat quantity terms in req. in a reasonable vague matter – not considered vague – watch for an increase in req. here – e.g. what if by 10 bottles of wine for 10 months then want 100 bottles, the test here is an unreasonably disproportionate test

Once identify communication as an offer, now make sure offer not terminated – need to know the effect of termination and 4 ways termination happens

Termination of an offer means offer is gone forever – you cannot get it back – if terminated it is dead

4 ways termination happens –

1. Lapse of time – if offer states a time that controls, if not only open for a reasonable time

2. Death of either party before acceptance – if make offer to someone then die before acceptance offer dies with me

3. Next two more difficult – Revocation of an offer – that is a situation where offer made, offer to sell Cadi, then before acceptance he pulls back offer, offeror changed his mind – legal issue need to watch for with this fact pattern – you need to be able to answer three question – 1. How does revocation happen, looking for one of two fact patterns, statement offeror has changed his mind, or later conduct on part of offeror indicating changed his mind, offer to sell Cadi then sell it to someone else. – Almost always issue – key is offeree must be aware of what was done, said or written, what for offeree awareness – fact pattern: I offer to sell my Cadi to Sharon Stone, next day while in shower I exclaim I change may mind I do not want to sell, not revocation because she was not in the shower – for effective revocation she needs to hear the revocation, must be aware of the change of mind- look for offeree awareness’ – not enough for offeror alone to change his mind.

2. When and when not – when does revocation of offer become effective, two rules here – 1. Have to complete revocation be acceptance has occurred, must precede acceptance – offer to sell Cadi for $400, you accept, cannot change mind at this point. 2. If a revocation of an offer is sent through the mail not effective until it is received – sell Cadi for $400 – Then mail on Tues revocation, and receive Revoation on Thursday, effective on Thursday.

4. When not – some offers cannot revoke – 4 important situations cannot revoke offer – 1. An option – where I offer to sell Cadi for $400 and you pay $25 to hold offer open for a week, receiving consideration for that promise. 2. Where the offer has been reasonably and foresee ably relied upon – e.g. assume that Bar Bri decides to hire someone to remodel a room, and X goes out and seeks bids from others to supply chairs, and X uses the bid to making bid to Bar Bri, your offer is irrevocable, it has been relied upon. 3. Where there has been part performance of an offer to enter into a unilateral contract – offer to enter into uni, offer that req. performance to accept – I will pay $500 to paint house, and to accept you must paint my house, expressly req. performance so offer is uni, if paint house you cannot revoke, and started performance cannot revoke, now what if same thing paint house $500, this time all do is go out and buy all the paint, but not start painting house yet, you can revoke, mere preparation is not enough.

Where contract rules may produce a result not really happy with – Quasi K rules are out there

The number 4 way K is irrevocable – this is a UCC rule – the firm offer rule – under this rule if a merchant, in a signed writing promises to keep offer open then she cannot revoke, only apply to a sale of goods – instead of consideration here UCC says, if person is a merchant and that person puts it in a signed writing they are sophisticated enough to understand what they are doing – this wraps up revocation the 4 different ways it generally takes place.

Another way offers get terminated is rejection – this is where offeree turns it down, Offers to sell Cadi and you say no – direct rejection is what this is called

3 forms of indirect rejection –

1. Counter-offer – to counter is to reject – e.g. offer sell Cadi for $400, you say only give $200, the $200 is a rejection of $400 and counter is a rejection. If you sell for 400 you say no 200, then say ok 400, offer is dead, you have to now offer to buy at 400 to bring back the offer. Bargaining legally different from counter, offer to sell Cadi for 400, you say will you consider 200, the 400 offer still alive and on the table, bargaining does not kill and offer.

2. Conditional acceptance – I accept if, means I reject – you get offer from law firm and you say I accept if not in tax team means you rejected their offer.

3. To add additional terms – I accept and – UCC different from common law here – C/L rule here is mirror image rule – that means acceptance must look exactly like offer – add any terms to acceptance you just rejected – I offer to lease room, you respond I accept and I will cook in room, you added a term and under c/l you rejected, violated mirror image rule – different rule for sale of goods – 2-207 – the battle of the forms- basically, no mirror image rule, possible to add terms in acceptance – e.g. – offer does not say anything about arbitration of dispute, to say will accept and problems will be arbitrated, you have to make distinction here, is the acceptance merely adding or insisting on the terms, if only adding then acceptance is valid, if on other hand insisting, then you have I accept if, then have no acceptance, insistence can kill the whole thing – phrase in 2-207 is seasonable expression of acceptance, acceptance can add terms, and still be seasonable, you do have offer and acceptance even though have added terms, but which is final deal the old terms or new terms that were added – basically, depends if both parties are merchants and whether new terms materially alter the deal or whether the new terms were rejected to by offeror. If both are merchants and no objections, and to viewed as material change then new terms you still have acceptance to terms in original offer.

Lets now assume we have an offer – with no problems – now need to see if accepted, two things to watch for: 1. Who is accepting. 2. How are they accepting.

Who is accepting – A. person who is accepting must be the person to whom the offer was made, offers a person specific. B. Offeree must know of offer at the time he accepts this is the reward, prize, or contest exception. $500 reward for dog, find dog did know about the reward return dog do not get the reward, or offeror not obligated anyway

How is acceptance happening – 1. By a return promise – offer to sell Cadi, I promise to buy, general rule that is good enough, most offers can be accepted by a simple promise. Only time promise not enough to accept, offer to enter into uni, an offer that req. performance 2. Fact pattern where, all that has happened is a start of performance, offer made and there is a start of performance, 500 to paint house, you start, by starting to paint house have you accepted, you deal with this by, looking to the nature of the offer, what does offer say, if offer says, this offer can be accepted only by performing, it is a uni offer, this req. performance not merely the start of performance, that means whole 9 yards, starting is not acceptance, now starting to perform makes offer irrevocable – means that you do not have to finish painting house, merely starting does not obligate the offeree, if it is a uni deal. Now what if offer silent as to method of acceptance, bi deal – starting to perform under a offer to enter into a bi K is acceptance and creates the K, so when get fact pattern – start but not completion if uni not a K, offeree can walk away offeror cannot revoke – bi K start of performance is acceptance

Third acceptance fact pattern – Mailbox rule – only applies to acceptance – Adams v. Lindsel – where it is reasonable to respond by mail, federal express or fax, or whatever, reasonable way – then acceptance dates from the time it was sent rather than time it was received. Rule generally tested with rule of revocation – I offer to sell Cadi for 400, and I send offer through mail, on Tuesday change mind, and mail another letter revoking offer, that letter revoking offer does not arrive until Friday, only good when received is the rule for revocation, what if acceptance mailed letter on Wednesday, legally acceptance happened before revocation so cannot revoke the original K

----------- What makes an agreement legally enforceable: concepts here- consideration, statute of frauds, capacity, mistake.

Consideration or consideration substitute:

Three word definition for consideration – a bargained for legal detriment, or some substitute – bargained for consideration is, look at person who made the promise, ask yourself what is that person asking for, what is he bargaining for – next legal detriment, suffered some legal detriment, can take form of doing something not obligated to do, promising to do something, or refraining from something, forbearance, or promising to forbear.

Examples – come by house will give you Cadi – is that basis for K, it depends, not enough facts, if trying to get you to my house, bargaining for you to be at my house, tried everything – to finally get you there you give up Cadi ok you have K – if just want to give Cadi away then just a conditional gift

Legal detriment – if you stop listening to Manalow music – will give 100 – you can enforce you have legal right to listen this music – Hammer v. Sidway

Three problem areas in consideration –

1. Past consideration – no such thing, generally no such thing is past consideration – e.g. situation in which, F is so grateful that D saves N’s life he promised would pay 100, this promise not enforceable, what is consideration, no bargained for legal detriment, you cannot bargain for something that has already passed or happened

2. Part payment of a debt – that is situation where I owe 1000 and say look how about I give you 600 and forget rest, I agree and you agree, can you still collect rest, yes, no consideration, while you may have bargained it is thought there is no legal detriment in paying 600 when owe a 1000, part payment a debt not disputed is not consideration, no detriment in paying in part of what you owe. Now if debt in dispute, you say a 1000, I say 500 settle on 600 that is consideration – and if owe and debt not yet do, and pay 600 earlier than 1000 came due that is consideration

3. The pre-existing legal duty rule – doing something already obligated, legally, is not consideration. Assume Willie Nelson K’s to play in local night club for 20,000, he shows up do not want to play, club owner says please, I’ll pay you 30,000 – is the agreement for 30,000 enforceable, there is no detriment for Willie to play cannot get 30,000 – now how can sport players renegotiate K – different term of years so gets around pre-existing duty rule

Here UCC different form c/l no pre-existing duty rule in the UCC – if have K for sale of jeans for 1000, then you want 1300, under c/l no legally enforceable, UCC says do not worry about duty rule, under UCC becomes good faith test

Consideration substitute is promissory estoppel – 3 things need to know -

1. Consideration substitute is what promissory estoppel is – e.g. sports teams always go with starter first only if first string doing bad put in second, so address consideration issue first then go to substitutes

2. Need to know three elements of promissory estoppel – what is this all about – a. looking for a promise b. promise that is relied upon that is reasonable, detrimental and foreseeable, c. enforcement necessary to avoid injustice

3. What a promissory estoppel fact pattern looks like – what if I got a mortgage on your house and I promise will not foreclose, even though in default, you then go out paint house, I then try to foreclose, you have to argue promissory estoppel, think about the elements, this cannot be consideration, not bargained for legal detriment – may be detriment to have painted the house but not bargained for - a consideration story will always be somebody doing something or not doing something somebody asked you to do, now if go off and do something nobody asked you to do then this cannot be consideration must be a promissory estoppel issue

Capacity –

Each of the K parties must have capacity – people who lack capacity

1. Infants – people under 18

2. Mentally incompetent people – key word is ability – person does not have ability to understand what he agreed to

3. People who are so intoxicated cannot understand what doing – this is a little different than others – 2-factor test – 1. Fact of intoxication, and 2. Other parties reason to know of it

Rule for necessaries – capacity exception – food, clothing, shelter, a way to make a living – want everybody to have these – general concept here – trick to watch for – even persons lacking capacity are legally obligated to pay for necessaries – e.g. if Bill and Hillary decide she is responsible for White Water, she is under 18, needs motor bike for do paper route to make living, this is quasi K liability, which means all that can be recovered is value of performance to that person not necessary the K price

Statute of Frauds –

Need to be able to answer three questions – which K are within s/f and how do I satisfy the s/f in regards to those K’s and finally, what happens if s/f is not satisfied.

Which K’s are within s/f -

This means K is covered by s/f, or governed by – means s/f is involved

Certain kinds of K’s within s/f – what kinds are they – three primary times needs this special proof:

1. Service K not capable to be preformed within a year, by capable mean – make a k to cut all trees on x’s land is it capable of being done in a year, now with unlimited resources can complete the K then do not worry about s/f – no matter how long it really takes – I hire you to work for rest of your life, does not matter how long you live, but you could die with in a year so no s/f problem – here is a trick – if you agree to work for two years then you have a s/f problem, this is a definite term issue – lifetime deal no s/f problem, specific time period then you have s/f problem. Finally, fact pattern, performance must be on a particular date and that date greater than one year, John Denver rule – suppose club hires Denver to play in May 2002 – does not matter how long John going to play he cannot complete K within a year so have a s/f problem, there was a specified date that is more than a year from time of contracting, service K not capable of being done in a year s/f problem.

2. Transfer of interest in real estates – agree to sell Blackacre – difference between me selling you B and building a hotel on B – not transferring an interest in real estate and K can be done within a year not a s/f problem – if the interest in real estate if for a year or less not a s/f issue – just good business to get a K, not a s/f issue

3. A sale of goods for $500 or more UCC 2-201 – if $500 within s/f – e.g. – I buy a shirt for $10, it is within UCC, but not within s/f

Now how do I satisfy this statute:

1. Look for performance facts

2. Look for writings

Performance is a way for satisfying s/f – whole bunch of specific performance rules – generally performance is important – two rule of performance if services K – if service K, full performance by either party satisfies the s/f, rule #2 if services K part performance does not satisfy the s/f- e.g. I agree to work for X as lecturer for 5 years at 1000/month – now work for them for 9 months and not paid – is this agreement within s/f – yes, 5 year term, part performance – you cannot recover under K theory but can collect for the 9 months under quasi k theory

Now what if it is a transfer in interest for real estate – B orally agrees to by Black from S – if real estate deal part performance can satisfy s/f so long as 2 of 3 are the part performance – 1. part payment by buyer, 2. Possession by buyer, 3. Improvements by the buyer these provided the needed proof to show there was a K - must have 2 of these three, any two but must have two

Third situation – sale of goods for 500 or more – two different part performance rules – 1. if it is specially manufactured goods, custom made, the start of performance by the seller satisfies the s/f, messed up color of cowboy boots, buyer is stuck once seller starts making them – now ordinary goods, rule is part performance of a K for sale of goods satisfies s/f but only to the extent of the part performance – this means – K to sell 1000 widgets one dollar per, 1000 dollar deal s/f, what if deliver 400 widgets, you are allowed to recover for the 400 widgets, now what if you turn around and say suing for non-performance of other 600 widgets no s/f defense, buyer needs proof for the rest – so writing will show really had a deal for a 1000 than have a c/a

What kind of writing there was is the other part –

Look for two issues – resolution depends whether common law or UCC – look at what writing says and who signed the writing

Under common law – services K and transfers in real estate - what the writing says, all material terms must be in writing – material terms means two things, who the people are and what each is agreeing to do – firm agrees to employ Marsha Clark at 400,000/year for four years good K - now who signed the writing – the last example firm signed the offer so Marsha can sue if they do not follow through – Marsha did not sign, s/f defense she did not sign, must be signed against person you are trying to enforce it against

Under the UCC – sale of goods for $500 or more – again have a writing – what it says and who signed the writing again important – e.g. you have a writing that I send to X – I hereby agree to buy 17 dolls signed Bob, if sale of goods all that has to be is a quantity term and a signature is all you need – who signed the writing – special rule for merchants, under article 2 – if both parties are merchant and one receives a signed writing that claims there is a K to buy and sell goods and person who received that writing fails to respond within 10 days then that provides the needed evidence this indeed was the agreement and that satisfies the s/f

Third s/f question need to answer is – final thing – what are the consequences for not comply with s/f – s/f is a defense to K formation – so when have situation that is within s/f and s/f is not complied with there is a defense that needs to be pleaded and proved that will prevent K formation – also look for quasi K remedy if cannot collect under K theory

They’re some other situations where writing are req. but they are not exactly s/f situations – two things- equal dignity rule – when is it necessary that a person have written authority to act for someone else in a K, e.g. you authorze me to enter in K for lease for you for apartment, does not depend if lease is written but whether it is a s/f issue – need to lease apartment for 3 months not s/f no dignity rule – 3 years then need written authorization for equal dignity rule to satisfy s/f

Next – modification of contracts – when does a modifying agreement have to be in writing – test to apply is, look to the K as modified – if after you made the change it is still something within s/f then modification has to be in writing, or if after make the change modification not within s/f does not need to be in writing – e.g., you and I K lease building for 2 years within s/f you and I change rent modification still within s/f must be in writing, still have a 2 year lease so modification must still be in writing, now if modify same K to less then one year so does not have to be in writing, the lease is now less than one year – sell beer, now modify deal to sell $600 of beer this has to be in writing, s/f – now modify deal to sell same number of beer but only for 498 no s/f no writing needed

Unconscionability –

Only three major points really need to know –

1. When we talk about unconcionabilty we talk about the ability of court to refuse ot enforce all or part of K because the terms are oppressive or were presented in such a way that unfairly surprise the other party

2. Whether a K is unconscionable is always tested as of the time the K was entered into

3. Issues of unconcionability always go to the judge never the jury

A level beyond unconcionability is illegality – this turns on difference between illegal subject matter and illegal purpose

Assume J agrees to pay T 5000 to cause injury to K, can either enforce this, no, this agreement has illegal subject matter you cannot injure people.

Illegal purpose – with above agreement – K skating at next town, will pay 200 to drive me to see her, J wants to injure K but you do not know, legal to drive him to next town, the purpose is illegal but not the subject matter, driving me to next town is subject matter, not illegal – rule – where one party has an illegal purpose but subject matter legal the innocent person so long as does not know of illegal purpose can enforce the agreement

Related concept – ambiguity – situation in which an agreement is not sufficiently clear to be legally enforceable – Raffles v. Wiffleshouse is the major case here – K for sale of cotton to be delivered on ship Peerless, but there was two sailing of ship Peerless, B in Oct S in November, really cannot enforce this, fatal ambiguity – 3 necessary facts to trigger this, 1. has to be ambiguous term in K 2. each party must have different meaning in mind 3. neither party knows or has reason to know of the meaning attached by the other. If either party knows of ambiguity then out of this Peerless case and it becomes enforceable

Finally w/ respect to K formation – Mistakes of fact – classic case here, Sherwood v. Walker – mutual mistake of fact – Sale of cow, Rose 2d of Albeone – sold by her owner, because owner thought Rose was barren, buyer thought this to, but turned out Rose was pregnant, once this discovered seller tried to get out of K – court said mutual mistake of material fact, agreement not legally enforceable – e.g. – not enough there be a mutual mistake, must be of material fact – material is a mistake about what it is that is being sold, that is basic and material, if on other hand it is a mistake on value of what being sold, not basic not material – I sell you what we both think is a Picasso painting believe worth 5000, turns out not a Picasso, that is a mutual mistake of material fact, goes to what it is we are selling - still selling a Picasso think worth 10,000 turns out only worth 100, mistake on value not material K is still enforceable

Mistake fact pattern where there is a unilateral mistake – only one of K parties makes a mistake about the facts the other does not – e.g. assume B decides to by new chairs for lecture, and each of many submits bid in excess of 30,000, but one bids only 3,000 – Can B take advantage of his obvious mistakes – general rule – uni mistake is not a basis for defense for K formation – the agreement is legally enforceable – but there is an exception to the rule – even though mistake was uni if it is an obvious mistake were other side knows or has reason to know it cannot take advantage to of this mistake

Overview of K formation: General Review of above:

Look for offer then acceptance – make sure offer is not terminated – if offer revoked when and how did if occur, and could the party revoke – make sure the offer was not rejected, directly or indirectly – acceptance, mirror rule, who accepted and how it was accepted, starting to perform, mailing the response – now have an agreement

Now need to see if legally enforceable – consideration, capacity, s/f, unconcionabiltiy and so forth

Terms of the Contract-

Once K formed – what are the terms – terms are in words of parties, this is the primary source but not exclusive source, look to prior dealing of parties, if see prior dealings look for terms there, the way they handled term previously important – next another source is custom and usage.

Do not mix with prior dealings, these are party specific, how these people did it – custom and usage how other people did it in the same industry

Parole evidence rule –

When the question is about what exactly is the deal, what are the terms that is when this rule comes into play –

4 things responsible for here –

1. What the rule is

2. Know what facts trigger the rule

3. Possible issue

4. How this is different form s/f

What is the parole evidence rule – where there is a written K, has to be written, intended by parties to be the final agreement, then you cannot use earlier agreements to change the terms of that written K, this is the rule.

What facts trigger the rule – first of facts, has to be a written K, if nothing writing never get to parole evidence rule, rule all about effect on writing. Second not just any kind of K, special because parties intended it to be the final agreement, integrated agreement – writing intended to be the final agreement. Third, is there must have been some earlier agreement; oral or written does not matter. Rule all about all about effect integrated agreement has on earlier agreements, you cannot use the earlier ones to interpret the integrated one.

Possible issues – first of issues, does the parole evidence rule apply, will probably know about agreement written, and earlier agreements, but is it an integrated agreement, may not always know this. To figure this out will look for a merger clause, short hand way of saying, this is a provision stating this is our final agreement – once a judge decides the rule applies the next thing judge will look for is there an applicable exception to the parole evidence rule.

Three basic exceptions to parole evidence rule:

1. You can always intro evidence of earlier agreement to establish a defense to the existence of a contract – say look judge, need to consider earlier agreement not because it changes the terms but because I have defense there is not K here, some fraud or mistake, you can always intro in this situtation

2. You can intro earlier agreements to show there was a mistake in reducing the agreement to this final writing – you have some sort of evidence through partial writings or oral evidence to show deal was to sell 190 acres not 191 and there was a mistake in reducing this down to writing

3. Hardest one – A situation in which the earlier agreement does not change terms of written agreement but adds terms the written agreement, the final writing – assume written agreement between two to sell Cadi for 600 court says looks like an integrated agreement, looks final, but you say judge was earlier agreement that he would paint the car before I got it and it was not, and you say judge writing says nothing about painting, your not trying to change the writing you are trying to add to it – issue is was the writing intended by parties not only to be their final agreement, but their complete and final agreement, difference between compete integration and a partial integration – e.g. there is a writing, court said final agreement, an integration, you come in with evidence car is supposed to be painted not changing terms, you can’t do that but adding a term that car painted is to be sold for 600 – when can you add terms, answer up to the judge and will ask – did the parties mean for the writing not only be their final agreement but also be their complete and final agreement

Will see parole evidence rule when or where – when question is what exactly are terms of K and which of agreements made can the court consider

4. Final review – watch for combinations of parole evidence rule and s/f – do not confuse these two – s/f only going to come up when wondering if have a legally enforceable agreement, a defense to contract formation – Parole evidence has nothing to do with legally enforceable agreement passed that, concerned with what terms of K – think about trigger facts, what one word going to think about s/f, if there is an oral agreement – is oral good enough, do we need a writing, oral will trigger s/f concerns, on the other hand what fact do you need to parole evidence rule, you need a written contract on stuff that happened earlier

Common fact pattern – parties who make oral agreement later reduce oral to writing, this sets up a parole evidence issue – started with s/f – if told all have oral agreement never will you have a parole evidence problem

K Terms – UCC – can effect terms of the K – sales of goods – two problem areas:

1. 2-207 – battle of the forms – situation in which you have an offer and have an acceptance not identical to offer, mismatch, generally this is a deal acceptance is still good, art.2 does not req. mirror image just as long as parties are in general agreement. Terms problem offeror sends one thing offeree sends another – rule of thumb, everything in offer makes it in, if something in offeree form contradicts the offer they are kicked out, objected to, everything similar it is in, different it is out, what about the new stuff, additional stuff – now if both parties are merchants, business people – new stuff will not make it in if objected to. Offer to sell Cadi 400, you accept and deliver on Saturday, you say ok but will not deliver on Saturday but still have deal, and new stuff will not make it in if it is a material change. But if not business people or one is ordinary folks and just one is – then the new stuff makes it in the K only if it is agreed to, just like suggesting to me, must be agreed to by the other party.

Review – what if form has new stuff insisted upon – that is a new deal, rejection, is it conditioning, if so rejecting, if just setting out new terms, then see if parties merchants then see if objecting if private parties follow rules above.

Now article 2 as a source of terms-

Terms issue in sale of goods issue – the warranty term – three kinds of warranties

1. Express warranty

2. Implied warranty of merchantability

3. Implied warranty of fitness

Express – words of parties that describe, or state facts, or make promises about goods being sold – need to distinguish these terms from sales talk, called puffing, no legal significance, it is general and it is an opinion – e.g. unbelievable bargain, top quality, quality construction all puffing – but if say all steel construction this is a warranty, specific – this is a warranty that simply comes from words spoken

Implied warranty of merchantability – concept – when buy something from somebody in business of selling this type of stuff part of deal is that it is ok, safe to use, that it is merchantable fit for ordinary purposes – e.g. buy gold chain from jewelry store, nothing said by jeweler – but should be ok to use, if neck turns green or head falls off should be able to sue for breach – if by goods from merchant in business of selling goods of that type but we add term to K that it is fit for ordinary purposes

Implied warranty of fitness for a particular purpose – in order to set this will need many facts and know where question is going – you have buyer that has a particular purpose, buyer relying on seller to provide a specific good or appropriate goods, seller aware of reliance and particular purpose, will need to know why buyer is buying this is generally odd information so keep eye open, dead give away – e.g. go into shoe store going mountain climbing 1^st time, and say I need shoes for mountain climbing and does not say have no idea what you need so sells regular sneakers – now merchantability here was ok because can use sneakers in a normal way but the fitness warranty was broken, you said I need mountain climbing shoes and clerk does not admit ignorance as to what is needed just sells the sneakers to you – he knew what wanted and knew about your reliance he broke the warranty

Over view of above–

Writing parole evidence, looks at customs of past – UCC issues and warranties

Performance Obligations –

Once have terms of the K next concern is performance

Performance turns on terms of the contract

Need to understand significance of conditions – what if obligation is termed on a condition – a condition is something that modifies obligation to perform – will sell Cadi if Mets win the pennant – that is a condition

I will buy your house if appraised for 120,000 this is a condition on a obligation to perform – look for language of condition such as – if, provided, subject to, or on condition that

When find language need to see how we satisfy or deal with that language of condition –

Hour 5 – Contracts and Sales – contracts with conditions:

General rule – an express condition must be strictly complied with – I will buy house if appraised at 120,000, what if appraisal comes in at 117,000 – not obligated to buy, must have strict compliance

Watch out for – I will pay if I am satisfied – three things need to know about this –

1. That is a legally enforceable agreement

2. If subject matter of K is such that it involves personal taste, then it is read literally, if not satisfied I do not have to pay, does not matter what anyone else says

3. Now this is different if it is more ordinary kind of K – suppose K language says I will pay you if you paint my house and I am satisfied – people are not generally as picky in this type work so becomes a reasonable person standard in this type of situation

Now before we complete performance we need to know three concepts with respect to performance of a sale of good contract – what is it the seller has to do when she sells goods – three important phrases – UCC applications -

1. Perfect tender- general standard for seller of goods – seller obligated to deliver exactly what the terms call for – if K is for 100 widgets, then 99 are a breach –

• If goods are not perfectly tendered – buyer has option of the rejection of the goods

Do not confuse between rejection of offer and rejection of goods – I sell you my Cadi – he said no – that is rejection of offer – Next, offer to sell 73 Cadi for 400 you say ok, then I deliver you a ’75 Ford, this is a breach – we still a K and I can sue you for breach

2. Revocation of acceptance of the goods – contrast with rejection of the goods – in rejection of the goods buyer is acting immediately and buyer can reject the goods if they are anything less than perfect – situation in which send widgets slightly wrong color – standard is a perfect tender standard – what if buyer does not act immediately and takes a while to discover problem with goods and then does discover and wants to return the goods – that is what is called renovation of acceptance of the goods – possible only if there was a substantial problem with goods and difficult to discover earlier

When talk about performance issues in a K – first look to see if any obligations to perform were conditional obligations and if dealing with sale of goods must have the perfect tender standard.

Excuse of Non-Performance –

About 5 situations where it is ok not to do what legally obligated to do –

1. What if have conditional obligation where condition not met, you are excused

2. Other party’s breach – I agree to buy goods from you, goods delivered are not perfect that is a breach I am excused, and if sale of goods, perfect tender rule

Standard in common law contracts – Material breach – Kind of breach that will excuse other party from performing – now any time someone breaches there is a legal consequence but what kind of breach excuses you.

e.g. – enter in agreement will paint your house white and you pay me 1000 – I paint do not do a great job, I got some paint on windows – probably not have to pay the 1000 – should you get paint job free of charge, no, only if there is a major screw up – e.g. instead of white I paint your purple, that is a major screw up – that is a material breach – court decides what is a material breach

3. Anticipatory repudiation by the other party - I am not going to do what agreed to do, early repudiation – I make a K to paint house for 1000, you come back later and say you are doing good job but I am not going to pay you anymore, so the guy stops paying

4. Later agreement – two kinds – a novation and second accord and satisfaction – tow forms that excuse non-performance –

• Novation – two people make a contract and then later both parties agree that someone else can perform the K - I agree to paint house for 1000, later we both agree that Bob paint your house instead of me – both parties have to agree – you can’t sue me because both agreed to Bob paying – now if I go to Bob and can you paint house instead of me and he does owner can still sue because both of you did not mutually agree to the substituted party

• Accord and satisfaction – you have to have both parts – K between two people and they make later agreement – they do not bring anyone new into agreement they just change what the deal is – e.g. I owe you 1000, this is a K, then you say here is what we ought to do, what if I paint your house instead of giving you a 1000 – both agree, that is accord and satisfaction – same people just new agreement to do something else – the new agreement, I will paint you house is called the accord, the painting of the house is called the satisfaction, and to have it excused must have both the accord and satisfaction.

The accord does not excuse the old agreement – if fail the satisfaction then can be sued on the old contract, the $1000 in the example above

Review –

I have agreement to pay you 1000, instead of paying 1000 will pay you 600, how do you handle – this kind of looks like accord and satisfaction but what is different – is consideration rule if have a part payment of a debt that is due and undisputed that is not enforceable, consideration problem

What if what you have is an existing agreement – contract modification – when does the modification have to be in writing – ask does it come into the s/f – lease year or more, sale of goods 500 or more – when do we need consideration for a modification agreement – not if it is a sale of goods, no pre-existing duty rule but if common law K you need to have consideration for a modification agreement

5. The later unforeseen occurrence – concept of impossibility and frustration of purpose

Case of Taylor v. Caldwell – T wanted to lease a music hall from C, after deal made the hall burned – T sued C for breach – C said sorry can’t do – judge said doctrine of impossibility – if a later unforeseen occurrence – that is key – unforeseen and no ones fault – this excuses the non-performance

The counter-part is frustration of purpose – later unforeseen occurrence – does not make occurrence impossible it takes away the purpose of the performance – case here is Krell v. Henry – K wanted to see a coronation parade so rented a flat with great view – after the K there was an influenza epidemic and parade got called off – this excuses the agreement – the purpose has been frustrated by a later occurrence

Murky example – I entered in K to dig a well on you land – that is out K – after enter into K the township passes a law no one can you well water – which is this – this is frustration because law did not make it illegal to have the well just took away its purpose

Breach remedies -

If the non-performance is not excused need a remedy –

Memory jogger to remember seven major areas of contracts – Always flush toilets please everybody remember that ------

A= applicable law, F=formation, T=terms of K, P= performance, E=excuse for non-performance, R= remedies, T= third parties problems

Liquidated damages – parties have agreed what the damages are to be – these are valid if meet two tests – first, this is a K where it is uncertain as to what possible damages are going to be if there is a breach – second, liquidated damages are a reasonable measure of what these uncertain damages maybe

On exam what will happen is that liquidated damages will either be way too high or way too low, trick is information is irrelevant – the tests are both tested as of the time the agreement is made, when nobody knows what the damages are going to be – so when see information what real damages are, or even say no damage was caused this does not matter, that is using information that was not available to the parties when they made the agreement, all you ask yourself is at the time K was made, was it uncertain what damages were going to be – usually answer is yes.

Punitive damages – there are no punitive damages in K law ever, UCC and Common – you must pursue a tort theory for this, NO punitive damages in K law

Consequential damages – rule – recoverable only if reasonably by both the parties – classic case – Hadley v. Baxendale –Mill in village, had to go outside village to get machine fix, K between Mill owner and cart service to take it to next town – that K was breached, inexcusable delay, Mill owner was not satisfied with just get carry fee waived, wanted damages for time Mill closed, cart guy said did not know mill closed – though had other machinery – so court said because you breached something else bad happened those type of indirect damages are consequential are recoverable only if reasonable foreseeable by both parites at time of K formation

Another e.g. – enter into K to paint house for 1000, I breach you have to go out and pay someone 1500 to pay someone instead of 1000 and now there is a delay and because of delay you missed season to sell your house and lost 5000, the 500 is not a consequential that is a direct damage and for sure can get that – but the 5000 is Hadley – and only recoverable if reasonably foreseeable by both parties

Reformation –means need to conform written K to what it is parties really agreed to – we agree to it is the 19 south east to be sold but for some reason agreement read the south west – so you conform the agreement to what it is parties agreed to.

Specific performance – court order directing parties what it was they agreed to do

• Equitable remedy – only available when legal remedy, money is not adequate

Generally see this concept – when I K to sell black – theory is each piece of land is different so money is not good enough

Specific performance for goods – the goods need to unique to get equitable remedy – three types of unique goods –antiques, works for art and made to order – only time you can get s/p with regards to goods

Personal services K – I K to work for you – can you get s/p – NO – no s/p for personal services – can get negative s/p or injunctive relief – Pat Riley suppose to coach Nicks, but can stop him coaching Miami Heat – you cannot make someone work to proper level to screw it negative specific performance of injunctive relief is your remedy

Hour six -

Final remedy Money Damages -----

There a number of specific rules here –

Fall back position – All rules have common conceptual bases – the policy of putting the innocent person the non-breaching party in the same position as if contract had been performed – legal terms = an expectation analysis – award, reward or protect the innocent person K expectations

Have to do three steps –

1. Identify the non-breaching party

2. Ask what would that person have received if K had been performed

3. Award that person what it is he would have been received, put that person in the same position

Examples –

K to paint house for 1000, I breach, new painter charges 1500 you can recover 500, cannot get 1500 because then got house painted for free

I K to paint house for 1000 – this time I bought some of paint and start working you Breach fire the guy – how do you measure the recovery – cannot get 1000 did not do all the work – how about costs, not enough – that puts you where you were before the K you want to be in position as if K had been properly performed – you need cost plus a provable lost profit – works in all situations not just common law, also works for UCC

I K with you to sell you my ’73 Cadi and K it is in mint condition for 2000 turns out not in mint condition – but you want to keep the car but want damages for breach of warranty it is in mint condition – what if jury finds this car way delivered car worth only 1500 – but if car in mint condition would have been worth 5000 – do what suppose to do same position if K properly performed – you were getting a car worth 5000 you got a car worth 1500 – you can recover difference between 5000 and 1500

Third party problems – seventh and final area --------

Three kinds of third parties –

3^rd party beneficiaries

Assignments

Delegation

3^rd party beneficiary – where two people K with each other with the intent of benefiting a 3^rd party and this third party does not take part in K but they have legal rights in K and can enforce it

e.g. I go and buy a life insurance policy enter into K with Co. I will make payments and they will pay policy amount to my sons under the K - they can enforce K even though did not make the K – they are the 3^rd party beneficiary

Anytime two people enter into K with intent to benefit a 3^rd party

Assume really want to be a federal district judge – I will pay you 1000 to paint Janet Reno’s house, J not a party to K but she is 3^rd party

Vocabulary of 3^rd party beneficiary – need to know well ------

3^rd party beneficiary - a person who is not a party to K but still able to enforce K because the parties who entered into did so with intent to benefit him or her

Promisor – is, in this type of contract is, or what’s important about 3^rd party beneficiary is the 3^rd party – the promisor is the person who is promising to do something for the 3^rd party

The other party of course is the promisee

To kind of 3^rd party beneficiary either a creditor beneficiary or a donee beneficiary one or the other ---

Generally you have donee beneficiary most are donee beneficiary are donee

It is a donee beneficiary unless the 3^rd party was already a creditor of the promisee – Janet Reno hypo – she is going to be a donee unless she was a creditor of the promisee

Next thing need to know is canceling or modifying the rights of the 3^rd party – Rules –

Change my mind do not want to be a judge – do not paint the house – when can we change –

Rule 1 – contract language/provision controls if K says can change the beneficiary at anytime then can

If no language then the rule is, if the K can be cancelled or modified until 3^rd party knows and assents – means – make K with you for Janet Reno deal – if J has not heard we can cancel – but if she learns then you need her assent to cancel after she has knowledge

Now who can sue whom –

Janet Reno example – you never painted the house but I paid you 1000 – can J sue you – she can enforce the K because intent was to benefit her – definition – the 3^rd party beneficiary can sue the promisor – the promisee can also sue – I can sue you for paying you – 3^rd party does not replace the promisee she is an additional person with contract rights – so saying is – promisor is subject to suit by both 3^rd party and promisee

Third party can sue promisee if third party is a creditor beneficiary – this means even before deal was made she was a creditor of the promisee (me) – if house does not get painted she can sue both promisee, on original debt, and promisor for not following through duties

Assignments –

Agreement between two people and one the parites to original K transfers away his rights to a third party

e.g. – assume you have a K between batman and gothem – he get 10,000 to defend gotham – batman says pay robin instead of me – you have K between two people and then one party transfers his rights under K to anther, 3^rd party

Batman – assignor and robin –assignee and gothem is obligor

Rule here – assignee steps into shoes of assignor even though robin did not make but has all rights batman so if batman does all work and gothem no pay robin can sue gothem – the assignee can sue the obligor even though he was not a party thereto – he did not make the K – now if batman did not do the work, he breached they do not have to pay robin

How is this (assignments) different from third party beneficiaries - factually different – in 3^rd party K all three parties there from beginning – in assignments the 3^rd parties shows up later, it happens in steps – can use play analogy to make a difference – in 3^rd party all parties on stage from first act – in assignment only two parties there until the second act – conceptual difference is in 3^rd party beneficiaries both have rights against the promisor – in assignments you have a substitution of the benefiting party – from batman to robin

Final third party problem is delegation –

Assignment is situation where two parties make a K then one transfers rights, the benefits, the good part of K – batman keeps the work but robin keeps the money

Delegation- K between two people and one tries to shift the work to someone else

Many times to get assignment and delegation together

Delegation - First two people make an agreement and later one get someone else to do the work

With respect to delegation need to know 4 things –

1. When is delegation possible

2. Consequence of delegation

3. Compare delegation and novation

4. Connection between 3^rd party benefices and delegation

When is it possible –

K provisions always control – if K say no delegate then no delegate – if try then it is a breach

What if silent – generally it is possible to delegate duties unless situation that involves special skills or a situation involving a person with special reputation

e.g. – K to paint house can delegate many people can paint a house no special skills – but I want to play 2^nd base can Mark Lempke delegate his job, no, because of special skills involved

What are consequences of delegation –

2 primary consequences –

1. Delegating party remains liable – if person I delegate to paint you house you can still sue me. What about person who agreed to paint house, the delegatee, can he be sued, all agreements are not legally enforceable, must have a K – need consideration – he can be sued only if he received consideration for the promise

Quick review – delegation and novation – factually how is delegation different from novaiton – I K to paint house – can I delegate yes, what do I have to do to make a novation – go to you and say can Bob paint house you say sure, that is novation, both of us agree to get someone or replace me to do the work, simply replace without your permission that is delegation not novation – novation, mutually agreed upon – the legal difference is – I delegate you can still sue me you never agreed to Bob, but on other hand we agreed on Bob you can sue me – you agreed on Bob

Connection between delegation and 3^rd party beneficiary –

I agree to paint house for 1000, I go get someone else to do work and they screw up, not a legally enforceable promise unless they got consideration, but what if I go to someone and say I give you 1000 to paint her house, the delegatee got consideration from the delegating party to paint the house – under those facts when I make this agreement with this person to paint your house that is not only a delegation with consideration and you are also now an intended 3^rd party beneficiary – so a delegation with consideration creates a 3^rd party beneficiary situation

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