Simple. CONTRACTS & UCC Outline. NINETY PERCENT of the LAW in NINETY PAGES. Tim Tyler, Ph.D., Attorney at Law

NAILING THE BAR Simple CONTRACTS & UCC Outline Tim Tyler, Ph.D., Attorney at Law NINETY PERCENT of the LAW in NINETY PAGES

NAILING THE BAR Simple CONTRACTS & UCC Outline Table of Contents CHAPTER 1: CONTRACT FORMATION... 1 1. CONTRACT OFFERS... 1 A. Manifestation of Intent... 1 1) QUESTIONS as offers... 1 2) SUGGESTIONS as offers... 2 B. Present Intent... 2 C. Reasonable Certainty of Terms... 2 D. The OK Rule... 3 E. Implied Offers... 3 F. Advertisements Rarely Offers... 3 G. Catalogues Never Offers... 4 H. Offeror is King of the Offer... 4 1) OFFEROR CONTROLS terms of offer and contract... 4 2) PLAIN MEANING defines the offer... 4 3) DRUNKS and JESTERS... 5 I. Consideration... 5 1) CONDITIONAL PROMISES... 5 2) Offeree must GIVE IN EXCHANGE... 6 3) Offeree must GIVE AT LEGAL DETRIMENT... 6 4) Promises to NOT ACT... 6 5) Consideration must be BARGAINED FOR... 7 6) GIFT OFFERS and GIFTS... 7 J. Offer Conditions... 8 1) Conditions PRECEDENT and SUBSEQUENT... 8 2) Conditions EXPRESS and IMPLIED... 9 3) FAILURE OF CONDITION... 9 4) TIME OF PERFORMANCE conditions... 9 K. Unilateral and Bilateral Offers... 9 1) UNILATERAL offers... 9 2) GENERAL offers... 9 3) BILATERAL offers... 10 L. The Power of Acceptance...10 1) OFFER MAILBOX RULE: Effective upon receipt... 10 2) EXPRESS OFFER CONDITIONS... 10 3) IMPLIED OFFER CONDITIONS... 11 M. Acceptance must be Timely... 11 N. Acceptance Subject to Available Supply... 12 O. Acceptance Must Occur Before Revocation... 13 1) REVOCATION MAILBOX RULE: Effective upon receipt... 13 2) INDIRECT revocation... 13 3) IMPLIED revocation... 13 4) UNILATERAL offer revocation... 13 5) Revoking GENERAL OFFERS... 14 6) OPTION CONTRACTS - irrevocable offers... 15 P. Mailbox Rules: Offer and revocation both sent... 16 1) Offer BEFORE revocation... 16 2) Revocation BEFORE offer... 16 2. ACCEPTANCE OF AN OFFER... 16 A. The Mirror Image Rule... 16 B. Acceptance Determined by Plain Meaning... 17 C. Joking or Drunken Acceptance... 17 D. Acceptance by Silence... 17 1) IMPLIED acceptance by ACTION... 17 2) IMPLIED acceptance by SILENCE... 17 3) IMPLIED acceptance by REQUIRED SILENCE... 18 E. Mailbox Rule: Acceptance May be Effective on Dispatch... 18 1) Acceptance by REQUIRED MEANS... 18 2) Acceptance by SAME MEANS OF TRANSMISSION... 18 iv

v Table of Contents 3) Acceptance by EQUALLY QUICK MEANS... 18 F. Mailbox Rule: Incorrect Acceptance is Never Effective...19 G. Mailbox Rule: Slower Acceptance Effective on Receipt...19 H. Effect of Gift Promise Acceptance...19 I. Effect of Gift Promise Exchange...19 3. REJECTION OF OFFERS...20 A. Express Rejections...20 1) QUESTIONS are never rejections... 20 2) CRITICISMS are not usually rejections... 20 B. Implied Rejections...20 1) COUNTEROFFERS always IMPLIED REJECTIONS... 20 2) ACTIONS may be REJECTIONS... 21 C. Mailbox Rule for Rejections: Effective on Receipt...21 D. If Acceptance and Rejection Both Sent...21 1) If OFFEROR REACTS - REJECTION effective... 21 2) If OFFER DOES NOT REACT ACCEPTANCE effective... 21 4. THE BATTLE OF THE FORMS...22 5. EXPRESS AND IMPLIED-IN-FACT CONTRACTS...22 6. SUMMARY OF CONTRACT FORMATION...23 CHAPTER 2: CONTRACT ENFORCEABILITY...24 1. VOID CONTRACTS...24 A. Contracts Void Ab Initio...25 1) Void by MUTUAL MISTAKE... 25 2) Void by ILLEGALITY of purpose... 25 3) Void because UNCONSCIONABLE... 26 B. Subsequently Failed Contracts...26 1) Subsequent FAILURE OF EXPRESS CONDITIONS... 26 2) Subsequent FAILURE OF IMPLIED CONDITION... 27 3) Supervening ILLEGALITY... 27 4) Supervening IMPOSSIBIILITY... 27 5) Subsequent FAILURE OF CONSIDERATION... 27 6) DEATH of a party usually does not void a contract... 28 2. VOIDABLE CONTRACTS...28 A. Contract Rescission...28 B. Rescission At-Will...29 C. Rescission for Lack of Capacity...29 D. Rescission for Failure of Condition...29 1) Rescission for LACK OF INTENT... 30 2) Rescission for UNILATERAL MISTAKE... 30 3) Rescission for LACK OF SATISFACTION... 31 4) Rescission for TARDY PERFORMANCE... 31 5) Rescission for FRUSTRATION OF PURPOSE... 32 6) Rescission for NON-COOPERATION or INTERFERENCE... 32 7) Rescission for COMMERCIAL IMPRACTICABILITY... 32 8) Rescission for FAILURE OF CONDITION compared to BREACH... 33 3. UNENFORCEABLE CONTRACTS...33 A. Fatally Vague Contracts...33 B. Contracts with Parties Lacking Capacity...34 C. Contracts Violating the Statute of Frauds...34 1) Contracts conveying INTERESTS IN LAND... 35 2) Contracts requiring MORE THAN A YEAR to perform... 35 3) Contracts GUARANTEEING DEBTS of others... 36 4) WAIVER of condition... 36 D. Enforcement Barred by 13 th Amendment...37 E. Unenforceable Non-Competition Agreements...37 F. Unenforceable Liquidated Damages Clauses...37 4. ENFORCEABLE CONTRACTS...38 A. Standing of Executors...38 B. Standing of Third Parties...38 C. Standing of Assignees...38 D. Standing to Enforce Against Delegatee...38

NAILING THE BAR Simple CONTRACTS & UCC Outline CHAPTER 3: CONTRACT INTERPRETATION... 39 1. CONTRACT INTEGRATION... 39 2. IMPUTING MISSING TERMS... 39 3. CORRECTING DRAFTING ERRORS... 39 4. RESOLVING AMBIGUITIES... 40 A. Four Corners Doctrine... 40 B. Collateral Agreement Doctrine... 40 C. Credible Evidence Rule... 40 D. Admission of Extrinsic Evidence... 41 1) COURSE OF DEALING and TERMS OF TRADE... 41 2) PAROL EVIDENCE RULE... 41 E. Resolving Contradicting Provisions... 42 F. Resolution of Ambiguity against Drafter... 42 5. DISTINGUISHING BILATERAL AND UNILATERAL CONTRACTS... 42 6. DISTINGUISHING EXPRESS CONDITIONS FROM COVENANTS... 43 A. Promises of Timely Performance... 43 1) UNEQUIVOCAL guarantees of timely performance... 43 2) IMPLIED MATERIAL CONDITIONS of timely performance... 44 3) COVENANTS of timely performance... 44 B. Promises of Satisfactory Performance... 44 1) UNEQUIVOCAL guarantees of personal satisfaction... 45 2) IMPLIED MATERIAL CONDITIONS of satisfaction... 45 3) COVENANTS of satisfactory performance... 45 7. IMPLIED CONDITIONS... 46 A. Constructive conditions... 46 1) Implied TIME and QUALITY of performance... 46 2) More TIME-CONSUMING duties FIRST... 46 3) Express ORDER OF PERFORMANCE AGREEMENTS... 46 4) EQUALLY TIME-CONSUMING duties SIMULTANEOUSLY...47 5) Effect of FAILURE of CONSTRUCTIVE CONDITION... 47 6) SUBSTANTIVE PERFORMANCE EXCUSES constructive conditions... 47 B. Implied Material Conditions... 48 1) Effect of FAILURE OF IMPLIED CONDITION... 48 2) GOOD FAITH and breach of contract... 48 3) Acting to HAMPER other contract parties... 48 4) Duty to help other parties PERFORM... 49 5) Duty to help other parties ENJOY BENEFITS... 49 6) Duty to SUBSTANTIALLY PERFORM CONTRACT DUTIES... 49 8. WAIVERS OF CONDITION... 50 9. EXCUSE OF CONDITIONS... 50 A. Excuse of Condition by Waiver and Estoppel... 51 B. Excuse of Condition by Failure of Prior Condition... 51 C. Excuse of Condition by Major Breach... 51 D. Excuse of Condition by Substantive Performance... 51 10. OPTION CONTRACTS AND CONTRACT OPTIONS... 51 A. Option Contracts... 52 B. Contract Options... 52 C. Effect of Option Offer Rejection... 53 CHAPTER 4: CONTRACT MODIFICATION... 54 1. MODIFICATION REQUIRES AGREEMENT... 54 2. SUPPORTING CONSIDERATION REQUIRED... 54 3. WRITTEN MODIFICATION MAY BE REQUIRED... 55 4. WAIVERS OF CONDITION... 56 5. MODIFICATION UNDER DURESS... 56 6. NO APPLICATION OF PAROLE EVIDENCE RULE... 56 7. ACCORD AND SATISFACTION... 56 A. Settlement of a Bogus Dispute is not Binding... 57 B. Accord without Satisfaction is not Binding... 57 C. Any Knowing Acceptance of Settlement Offer is Binding... 57 vi

vii Table of Contents CHAPTER 5: THIRD-PARTY BENEFICIARY CONTRACTS...58 1. STANDING...59 2. VESTING...59 3. INTENDED THIRD-PARTY BENEFICIARIES...59 A. Donee Beneficiaries...59 B. Creditor Beneficiaries...60 C. Breaches by Promisors...60 4. DEFENSES AGAINST BENEFICIARIES...60 CHAPTER 6: ASSIGNMENT AND DELEGATION...61 1. ASSIGNMENT OF CONTRACT BENEFITS...61 A. The Law Favors Assignment...61 B. Breach of Covenant to Not Assign...62 C. When Assignment becomes Effective...62 D. Promisee / Assignor Loses Standing...63 E. Gratuitous and Contractual Assignments...63 1) GRATUITIOUS Assignments... 63 2) CONTRACTUAL Assignments... 63 F. Revocation of Gratuitous Assignments...64 G. Liability of Promisee / Assignors...64 1) Promisee / Assignors are NOT LIABLE to Gratuitous Assignees... 64 2) Promisee / Assignors are LIABLE to Contractual Assignees... 65 3) Promisee / Assignors remain LIABLE to Promisors... 65 H. Promisors Liable to all Assignees...65 I. Defenses of Promisors...65 J. Defenses of Promisee / Assignors...66 1) Master Contract Defenses of Promisee / Assignors... 66 2) Assignment Contract Defenses of Promisee / Assignors... 66 K. Payments by Mistake to Promisee / Assignor after Assignment...67 2. DELEGATION OF CONTRACT DUTIES...67 A. Non-Delegable Duties...67 B. Promisor / Delegator Remains Bound...67 C. When Delegation is Effective...68 D. Gratuitous and Contractual Delegations...68 1) GRATUITIOUS Delegations... 68 2) CONTRACTUAL Delegations... 68 E. Revocation of Gratuitous Delegation...69 F. Gratuitous Delegatee not Liable...69 G. Contractual Delegatee Liable to Both Delegator and Promisee...69 H. Promisees Not Liable to Delegatees...69 I. Promisees Remain Bound...70 J. Promisor / Delegators Liable to Contractual Delegatees...70 K. Defenses of Promisors and Promisees Unchanged...70 3. ASSIGNMENT OF CONTRACT...70 CHAPTER 7: BREACH OF CONTRACT...71 1. BREACH OF EXISTING CONTRACT DUTIES...71 A. Breach of Express Conditions always Major Breach...72 B. Breach of Implied Material Conditions always Major Breach...72 1) Duty to help other parties PERFORM... 73 2) Duty to SUBSTANTIALLY PERFORM... 73 C. Breaches of Express and Implied Covenants always Minor Breach...73 2. ANTICIPATORY REPUDIATION...74 A. Request for Reasonable Assurances...74 B. Prospective Failure...75 C. Anticipatory Repudiation...75 D. Cure and Retraction of Anticipatory Repudiation...76 1) CURE of anticipatory repudiation... 76 2) RETRACTION of anticipatory repudiation... 76 3) SUBSTANTIAL REACTION prevents cure or retraction... 77

NAILING THE BAR Simple CONTRACTS & UCC Outline E. Waiver of Anticipatory Repudiation... 77 3. MAJOR BREACH OF CONTRACT... 77 A. Effect of Major Breach... 78 B. Waiver of Major Breach... 78 C. Remedy of Non-Breaching Party... 78 D. Remedy of Breaching Party... 78 4. MINOR BREACH OF CONTRACT... 79 A. Effect of Minor Breach... 79 B. Remedy of Non-Breaching Party... 79 C. Remedy of Breaching Party... 79 5. BREACH OF DIVISIBLE CONTRACTS... 80 A. Breach of Installment Contracts for Goods... 80 B. Breach of Divisible Employment Contracts... 80 C. Breach of Divisible Construction Contracts... 80 6. BREACH OF REAL ESTATE CONTRACTS... 81 A. Duty to Disclose... 81 B. Use of Escrow Accounts... 81 C. Timely Performance Seldom a Material Condition... 81 D. Duty to Deliver Marketable Title... 81 E. Simultaneous Performance is Concurrent Condition... 81 F. No Breach Unless Performance is Tendered... 82 G. Equal Dignity Rule Requires Written Broker Agreements... 82 H. Effect of Breach on Broker Commissions... 82 CHAPTER 8: CONTRACT REMEDIES... 83 1. THE ROLE OF A JURY... 83 2. AWARDS OF MONEY JUDGMENTS... 83 A. The Basis for the Judgment... 84 1) Judgments to NON-BREACHING parties... 84 2) Judgments to BREACHING parties... 84 B. Collection on the Judgment... 84 3. DAMAGES... 85 A. Expectation Damages... 85 1) Expectation damages for PROPERTY or SERVICES not provided... 86 2) Expectation damages when PROPERTY not paid for... 86 3) Expectation damages when SERVICES not paid for... 87 4) Parties may have NO DAMAGES... 87 B. Reliance Damages... 87 C. Incidental Damages... 87 D. Consequential Damages... 88 E. General and Special Damages... 88 F. Damage Amounts Must be Proven with Certainty... 88 G. Damages Must be Caused by Breach... 89 H. Damages Must be Unavoidable... 89 I. The Duty to Mitigate... 89 J. The Four C s... 89 K. Consequential Damages Require Sale before Breach... 90 4. LEGAL RESTITUTION... 90 A. Restitution to Non-Breaching Party... 90 B. Restitution to Breaching Party... 91 5. IMPLIED-IN-FACT CONTRACT REMEDIES... 91 6. LIQUIDATED DAMAGES... 91 7. JUDGMENT INTEREST... 92 8. OTHER LEGAL REMEDIES... 92 A. Eviction and Ejectment... 92 B. Legal Replevin... 93 C. Foreclosure... 93 D. Legal Rescission and Restitution... 93 9. ADEQUACY OF LEGAL REMEDIES... 93 viii

ix Table of Contents CHAPTER 9: EQUITABLE REMEDIES...94 1. EQUITABLE JURISDICTION...94 2. EQUITABLE CAUSES OF ACTION...95 A. Implied-in-Law Contract...95 B. Promissory Estoppel...96 C. Detrimental Reliance...97 3. ILLEGAL CONTRACT REMEDIES...97 4. REMEDIES FOR REVOCATION OF UNILATERAL CONTRACT OFFERS...98 A. Revocation Barred by Promissory Estoppel...98 B. Award of Equitable Restitution...98 5. EQUITABLE RESTITUTION...98 6. SPECIFIC PERFORMANCE...99 A. Specific Performance must be Feasible...99 B. Mutual Performance must be Assured...99 C. No Specific Performance of Personal Services by Natural Persons...99 D. Specific Performance must be Possible...100 7. EQUITABLE DEFENSES...100 A. Unclean Hands...100 B. Laches...100 CHAPTER 10: UCC MODIFICATIONS...101 1. UCC DEFINITIONS AND APPLICATION...101 A. Goods are Movable Objects...101 B. Combined Contracts Main Purpose Rule...102 C. Merchants...102 D. Conforming Shipments...102 E. Accepting versus Receiving Shipments...103 2. ARTICLE 2 CONTRACT FORMATION...103 A. Offer Gap Fillers...103 1) Gap fillers based on EXTRINSIC EVIDENCE... 103 2) REQUIREMENTS contracts... 104 3) OUTPUT contracts... 104 4) TIME of performance... 104 B. Merchant s Firm Offers...104 C. Offer Acceptance Indicated by Shipment...105 D. Acceptance of Offer with Varying Terms...105 E. Inclusion of Varying Terms...105 F. Contracts Proven by Behavior...106 G. Battle of the Forms...106 3. WRITTEN EVIDENCE OFTEN NEEDED...106 A. Exception for Special Made Goods...107 B. Exception for Contracts Admitted in Pleadings...107 C. Exception for Goods or Payment Accepted...107 4. MODIFICATION WITHOUT CONSIDERATION...108 A. Unenforceable Modification Acts as Waiver of Condition...108 B. Equitable Estoppel May Bar Retraction of Waiver...108 5. ASSIGNMENT AND DELEGATION...109 6. RISK OF LOSS AND LOSS IN TRANSIT...109 7. FAILURE OF SUPPLY...109 8. BREACH OF CONTRACT...110 A. Right to Demand Assurances...110 B. Breach of Divisible Contracts...110 9. RIGHT OF SELLER TO CURE BREACH...111 10. BUYER S RIGHT TO REJECT GOODS...111 11. BUYER S DUTY AS TO REJECTED GOODS...111 12. NON-BREACHING BUYER S RIGHT TO DAMAGES...112 13. NON-BREACHING SELLER S RIGHT TO DAMAGES...112 A. Insolvent Buyers...112 B. Awards of Damages to Non-Breaching Sellers...113

NAILING THE BAR Simple CONTRACTS & UCC Outline 1) Damages determined by salvage sale... 113 2) Damages determined by market price... 113 3) Damages equal to lost profits... 113 4) Damages equal to contract price... 114 14. ARTICLE 1: CONTRACTS FOR SALE OF RIGHTS... 114 15. ARTICLE 3: ACCORD AND SATISFACTION... 114 CHAPTER 11: CONCLUSION... 116 INDEX... 117 x

Chapter 1: Contract Formation Chapter 1: Contract Formation The first major concern of contract law is whether a contract has formed at all. This is called contract formation. A contract is a promise or exchange of promises the performance of which the law will recognize as a duty and for the breach of which the law will provide a remedy. The first part of this book explains the common law of contracts, and the last part in Chapter 10 explains how the Uniform Commercial Code (UCC) modifies the common law rules for contracts for the sale of goods in almost every state. Contracts form when the parties reach agreement, and that is often called the time of contract or perhaps the time of execution of the contract. Time of execution does NOT refer to the time when contract duties are performed. The term parties means the people who have entered into a contract. There are usually two contract parties, but there can be more. While more than two people can enter into a contract it gets very unstable and messy like a ménage à trios. Precision of terminology and attention to exact language is extremely important in all legal studies. You must pay attention to the exact words used to explain the law and strive to use exact words in answering law school examinations! It is tempting to argue that quibbling over exact words is "merely semantics." Of course it is. So what? Remember this: SEMANTICS is the mother's milk of lawyers! 1. Contract Offers The genesis of every contract is a contract offer. One party, the offeror, promises to do (or not do) something if, and only if, the other party, the offeree, will do (or not do) something in exchange. A contract offer is a manifestation of present contractual intent by the "offeror" communicated to the "offeree" with sufficient certainty of terms that an objective observer would reasonably believe assent would form a bargain. When the term offer is used in contract law it usually means a contract offer, and promises may also be called covenants. The person who makes a promise is called a promisor and the recipient of the promise is called a promisee. A. Manifestation of Intent ---o0o--- A contract offer must manifest intent to enter into a contract at the present time, not at some future time. That means an offer promising to do something such that a reasonable person would think immediate assent to the offer would create an agreement binding on both parties. 1) QUESTIONS as offers Questions are usually not contract offers because they usually promise nothing; they just ask for information and don t make any promises. 1

NAILING THE BAR Simple CONTRACTS & UCC Outline Chapter 2: Contract Enforceability The initial consideration when interpreting the terms of a contract is whether it is a binding agreement at all. If the contract is not binding there are no legal remedies and the only possible remedy a party may obtain would be in equity which is explained in Chapter 9. Professors and legal writers often call a binding contract a valid contract but that term has no consistent meaning. A better terminology would be to think of contracts as being VOID, VOIDABLE, UNENFORCEABLE, or ENFORCEABLE because those terms are used uniformly. If a contract is enforceable it is binding, meaning that the parties have a legal right to a remedy if the contract is breached. This may also be called a legal contract or an enforceable contract. Professors or legal writers may refer to this as a valid contract, but that term is also often used to simply mean contracts that are not void, and that causes considerable confusion because some contracts that are not void are also not binding. That is explained below. Professors and legal writers also often refer to failed contracts but that term is also used inconsistently. Some use the term failed contract to mean any contract that is not enforceable or binding. Others use the term failed contract to mean contracts were initially binding but later became void or unenforceable. Yet others use the term failed contract to mean contracts that are not void, even if they are also not enforceable. Most contracts are binding (i.e. enforceable ), so it is easier to explain the reasons a contract might NOT be binding, and if none of those apply to a particular situation, the contract is binding by default. When contracts are not binding, they cannot be enforced in a Court of LAW. Then the parties have no right to a legal remedy and can only plead for an equitable remedy in a Court of EQUITY. That is explained in Chapter 9: Equitable Remedies. 1. Void Contracts If an agreement is void, no contract exists. If the agreement was void (not a contract) from the beginning it was void ab initio, and no contract ever existed. 5 In other cases the agreement may become void after it is first created because of events beyond the control of the parties, a subsequent failure of condition. In that case it was a binding contract until it became void, but after it becomes void neither party has any legal right to a legal remedy in a Court of LAW. Void contracts are not actually contracts at all but they are generally called void contracts. ---o0o--- 5 Beginning law students absolutely love to say supra to show off what they learned in law school. Unfortunately supra only means above so why not say above anyway? So it you want to show off, say ab initio instead. It actually means something harder to say in English. 24

Chapter 3: Contract Interpretation Chapter 3: Contract Interpretation Even if contracts are binding the terms and conditions must still be interpreted by the Court. The Court must piece together the communications between the parties, impute missing terms, correct drafting errors, resolve ambiguities, and interpret the stated and implied contract conditions. 1. Contract Integration A contract often forms after a flurry of communications between the offeror and the offeree. If there is no fully integrated written agreement the Court must piece together the communications to establish exactly what their agreement was. This is called contract integration. 11 In the process of integrating the various communications between the parties, the Court will generally include the terms that both parties have expressly or impliedly agreed to, and knock out or eliminate the terms that one or the other party has expressly objected to unless they expressly agreed to it after first objecting to it. This process of knocking out terms that one party or the other objected to is called the Knock-Out Rule. 2. Imputing Missing Terms If parties enter into a contractual agreement without clearly specifying all the terms of the agreement, the Court must decide whether or not the unspecified terms are so important the contract is void from the beginning. This applies to both oral and written contracts. Under the UCC most of the terms of contracts for the sale of goods can be imputed from the past course of dealing between the parties and standards in the trade. That will be explained more in Chapter 10: UCC Modifications. The common law often applies the same principal. Under the common law some terms can also be imputed. If parties fail to specify the time or date when performance of contract duties is to take place, the Court will almost always presume that the parties intended for performance to take place within a reasonable time. If parties do not expressly say what standard of performance is required, the Court will generally presume performance must meet the usual standards of the trade. 3. Correcting Drafting Errors If a contract is written it may contain drafting errors. This means differences between the offer accepted by the offeree and a record of that agreement later reduced to a writing. Drafting errors are also called scrivener s errors. Scrivener s errors or other deviations of a written contract from the actual agreement of the parties have no effect on the terms of the contract, even if the parties sign the agreement without discovering the error. Once the Court determines the written contract deviates from the intended agreement the errors will be disregarded or corrected. 11 The term integration is used by the law in different contexts but it always means the same thing, piecing together different statements or documents to create an integrated statement of intent. 39

NAILING THE BAR Simple CONTRACTS & UCC Outline Chapter 5: Third-Party Beneficiary Contracts A third-party beneficiary contract is a legally enforceable contract entered into by two parties (a promisor and a promisee) for the intended purpose of benefiting a third party. This means that at least one contract party intended for the contract to benefit a third party, and the other contract party was aware of that intent. The third party the contract is intended to benefit is called an intended third-party beneficiary. 19 For example: Pompous Gravesite enters buys a life insurance contract from Aetna. Pompous will pay Aetna $100 a month and in exchange Aetna promises to pay Pompous son, Wastrel Gravesite, $500,000 when Pompous dies. If Wastrel receives this money he will be able to pay his debts. Since the purpose of the Pompous-Aetna contract is to benefit Wastrel, this is a third-party beneficiary contract. Wastrel is the intended thirdparty beneficiary. Even though Wastrel s creditors will benefit from the contract, that is not the purpose of the contract. They are just incidental beneficiaries. Life insurance policies illustrate the typical third-party beneficiary situation. In the example above Pompous is the promisee, Aetna is the promisor and Wastrel is the intended thirdparty beneficiary. When analyzing third-party beneficiary contract issues, expressly identify the promisor, the promisee, and the intended third-party beneficiary. All the rules that apply to other contracts also apply to the contract between the promisor and promisee in a third-party beneficiary contract. But different rules apply to the relationship between those parties and intended third-party beneficiaries: 1. Parties who are not intended to be the beneficiaries of a contract are incidental beneficiaries, and they have no standing to enforce the contract against anybody, whether they would have benefited from it or not. 2. Intended third-party beneficiaries almost always have a legal right to enforce contracts against the promisors. This is called standing. In some jurisdictions the intended thirdparty beneficiaries must be vested. This is explained below. 3. If promisees enter into third-party beneficiary contracts to satisfy legal obligations, the intended third-party beneficiaries have a legal right to enforce contracts against the promisees. In this case the intended third-party beneficiaries are called creditor beneficiaries. 4. If promisees enter into third-party beneficiary contracts for gratuitous purposes, the intended third-party beneficiaries have NO legal right to enforce the contracts against the promisees. In this case the intended third-party beneficiaries are called donee beneficiaries. 5. The promisors can raise any defenses against intended third-party beneficiaries that could have been raised against the promisees. 6. The promisees can raise any defenses against intended third-party beneficiaries that could have been raised against the promisors. 19 Hint: It helps to draw little T-diagrams of the relationships between parties, labeling the identity of each. 58

Chapter 6: Assignment and Delegation Chapter 6: Assignment and Delegation The original parties to a bilateral contract are both promisors and promisees in every case. Each has given a promise in exchange for a promise. Parties can almost always assign their rights to receive contract benefits to other parties after contracts form. And they can often delegate their duties under the contract to other parties too. This is called assignment and delegation. 20 If a contract has not been fully performed by either party the term assignment is often used to mean both an assignment of contract rights and an implied delegation of contract duties. Assignment and delegation of a contract involve other parties like a third-party beneficiary contract but when a third-party beneficiary contract forms the contract purpose is to benefit the intended third-party beneficiary. In contrast, contract assignment and delegation takes place after a contract forms, and no intent to benefit third parties is required at the time of contract. 1. Assignment of Contract Benefits Parties promised benefits by a contract are promisees as to those benefits. Promisees can convey their contract rights to other parties. That is called assignment. The parties who are assigned the rights are called assignees, and the promisees who assigned their rights are called assignors. For clarity you might call these promisee / assignors. When analyzing assignment issues and writing exam answers about them, it is very beneficial to identify each of the parties as being the promisor, promisee / assignor, gratuitous assignee or contractual assignee. Assignees may also be called donee or creditor assignees. The promisor may also be called an obligor. The contract that created the rights being assigned may be called a master contract for purposes of clarity. For example: County promises to pay Contractor $10 million to pave 10 miles of road. Contractor is the promisee. Contractor needs money for labor and materials so he assigns his rights under the master contract to Bank in exchange for a $9 million. Contractor is the promisee / assignor of the right to receive the payment, and Bank is the assignee of the rights. When Contractor finishes the job County will pay Bank the $10 million. A. The Law Favors Assignment ---o0o--- The law favors contract assignment to foster commerce. Most assignments of contract benefits concern who gets paid, and there is a substantial trade in commercial paper or which means the purchase and sale of debt obligations. For example: Broker gives sub-prime loans to 10,000 home buyers, each secured by a mortgage on the property purchased. Broker is the promisee of the borrowers. Broker sells the mortgages to Fannie Mae. This is an assignment, Broker is the promisee / assignor and Fannie Mae is the assignee. The borrowers are given notice of the assignment and their 20 Hint: As with third-party beneficiary contracts, it also helps to draw little T-diagrams of the relationships between parties, labeling the identity of each, when dealing with assignment and delegation situations. 61

Chapter 8: Contract Remedies Chapter 8: Contract Remedies Legally enforceable contracts give the parties a legal right to remedies. If there is no legally enforceable contract, the only possible remedy of the parties is in equity. That is explained in Chapter 9: Equitable Remedies. Further, parties that commit major breaches have no legal right to a remedy and must also seek a remedy in equity. So discussion of contract remedies only applies to non-breaching parties and breaching parties that have committed minor breaches. The possible legal remedies are: Awards of money judgments; Eviction (removal of people or objects from land); Legal Replevin (repossession of chattel); Foreclosure; AND Legal rescission and restitution. Of these, contract classes focus almost entirely on the award of money judgments, and the other legal remedies are hardly ever mentioned. It is important to understand that there are no punitive damage awards in contract law. While fraud and duress are reason for voiding a contract, it is not a basis for awarding punitive damages unless the movant (plaintiff or cross-complainant) pleads in tort. 1. The Role of a Jury In a breach of contract action the parties have a right to a jury trial. The jury is the finder of fact. The right to a jury can be waived and often is waived by the parties. In that case the judge is the finder of fact, and that is called a bench trial. The first thing to be determined by a finder of fact is whether there was, in fact, an enforceable contract. If not, the parties have no legal remedies and the only remedies are in equity. Equitable remedies are determined by the judge alone, not a jury. They are explained more in Chapter 9. If the finder of fact determines there was an enforceable contract the remaining issues are whether there was a breach, the damages caused, if any, whether a party should be awarded a money judgment, and if so, the appropriate amount of that judgment. 2. Awards of Money Judgments The legal remedy that is the focus of most discussion in contracts classes in law school is the award of a money judgment. A money judgment (in contract law) results when the finder of fact determines there was a legally enforceable contract, that it was breached, and that one of the parties has a right to receive an award of damages or restitution. 83

NAILING THE BAR Simple CONTRACTS & UCC Outline Chapter 9: Equitable Remedies If promises or agreements do not create enforceable contracts the parties have no legal rights to a remedy, and the only possible remedies for the parties are in equity. This may be because no contract was ever intended (e.g. gift offers ), because a contract offer was revoked (e.g. revocation of unilateral contract offers), because any contract that was intended was void ab initio (e.g. mutual mistake ), perhaps because contracts that did form were voided by a failure of condition or legal rescission, or when there has been retraction of a waiver of condition. Further, parties that commit major breaches have no legal rights to remedies. The parties in a breach of contract action do have a legal right to have a jury decide these issues, whether a contract existed at all, whether it was enforceable, whether it was breached, and whether the breach was a major or minor breach. But after deciding those issues the jury would have no further involvement in deciding whether or not to grant equitable remedies. That decision is entirely up to the judge alone, although his decision may be in response to a jury s finding. Even if a jury does determine there was a legally enforceable contract and recommends award of a money judgment to one of the parties, the judge has discretion to decide it would not be an adequate legal remedy. This is most likely if a seller of unique property or services has breached the contract. In that case the judge may grant an order of specific performance instead. Parties seeking remedies are called movants and the other parties are respondents. 1. Equitable Jurisdiction The authority of a Court (i.e. the judge) to provide an equitable remedy is called equitable jurisdiction. The Court has no equitable jurisdiction and no power to provide an equitable remedy if the movant seeking a remedy has a right to adequate legal remedies. Therefore, movants that plead for equitable remedies have the burden of proving they have no adequate legal remedies. This is threshold issue in every situation. Often it is said that movants must also prove they are facing irreparable harm. This is usually redundant because if they had an adequate legal remedy the harm they face would not be compensable and not irreparable. It is also often said that movants must prove the balance of equity favors them. This simply means that the equitable arguments in favor the movant must outweigh the arguments in favor of the respondent. Among these considerations is whether the remedy sought by the movant would be overly burdensome for the Court to supervise. If equitable jurisdiction is established, the Court has discretion to provide a remedy, but only to the extent necessary to either prevent an unjust result or protect the public interest. And even if equitable jurisdiction is established, the decision whether to grant or refuse an equitable remedy is at the discretion of the Court. That means the judge has discretion whether to grant or deny equity. 94

Chapter 10: UCC MODIFICATIONS 101 Chapter 10: UCC Modifications The common law applies to all contracts, but the Uniform Commercial Code (UCC) modifies some common law rules. You must understand the common law rule first in order to understand how the UCC modifies some of them. Never assume the UCC totally replaces common law. This Chapter primarily explains UCC Article 2, contracts for the sale of goods with only slight mention of Articles 1 and 3 at the end. This Chapter explains the Article 2 provisions that are most commonly tested. BUT you should read all sections of the UCC that might be tested on your exams. There is a slight inconsistency between word usage in the common law and the UCC. Under common law the word discharged is used to mean a party is released from a duty, and the word excused is used to mean a promise is released from a condition. Under The UCC the word excused is used to mean a party is released from a duty. 1. UCC Definitions and Application UCC Article 2 governs contracts for the sale of goods. Goods are moveable things. They are chattel, objects that are being sold and delivered. The UCC applies to ALL contracts for the sale of goods, and it does not matter who is selling them or the dollar value of the sale. For example: Tom agrees to sell his stereo to Dick for $100. The UCC applies to this transaction because a "stereo" is a moveable object. Article 2 does not apply if the contract is to pay someone to make goods. That is just a contract for labor services. And Article 2 does not apply if the contract is to buy intellectual property (e.g. songs, song rights, architectural designs) even if the property is recorded on tape or in the form of blueprints. If the thing sold could be transmitted electronically it is not a good. For example: Tom downloads a song to his Ipod. It is not a good. Article 2 only applies to sales of objects. Do not think or say that it applies to transactions. Many transactions are not sales or even contracts. A. Goods are Movable Objects ---o0o--- Goods are things that are moveable at the time they are identifiable to the contract. That means when the seller is going to deliver them to the buyer. They don t have to be moveable at the time of contract. They have to be moveable at the time of performance. The key identifier of a good is that will be delivered to the purchaser. By definition (UCC 2-105) unborn animals (e.g. a farmer selling calves before they are born) and growing crops are goods. The money used to buy goods and investment securities are not goods.

1 13 th Amendment, unenforceable contracts, v, 37 A Acceptance in jest, drunkenness, iv, 17 Acceptance of goods, UCC 2-606, 103 Acceptance of offer, UCC 2-206, 105 Acceptance of offers by silence, iv, 17, 18 Acceptance with varying terms, UCC 2-207, ix, 105 Acceptance, gift promises, v, 19 Acceptance, interpretation of terms, iv, 17 Acceptance, mirror image rule, iv, 16 Acceptances, lapse of oral offers, 12, 21 Acceptances, timeliness requirement, iv, 11 Acceptances, writing exception, UCC 2-201, ix, 107 Accord and satisfaction, 56, 57 Accord and satisfaction, acceptance, vi, 57 Accord and satisfaction, UCC 3-311, 114 Admissions, writing exception, UCC 2-201, ix, 107 Advertisements, as offers, iv, 3 Anticipatory repudiation, breach, vii, 74, 75 Anticipatory repudiation, cure and retraction, vii, 76 Anticipatory repudiation, waiver of, viii, 77 Assignees, enforceability of contracts by, v, 38 Assignment of contracts, 61 Assignment, covenants prohibiting, vii, 62 Assignment, effect of payments by mistake, vii, 67 Assignment, effect on rights of assignor, vii, 63 Assignment, for consideration, vii, 63 Assignment, gratuitous, vii, 63 Assignment, revocation of gratuitous, vii, 64 Assignment, when effective, vii, 62 Assignors, defenses of, vii, 66 Assignors, liability of, vii, 64 Availability of supply, implied condition of, iv, 12 B Bad faith, defined, vi, 48 Battle of the Forms, v, 22 Bilateral and unilateral contracts, distinguishing, vi, 42 Bilateral offers, defined, iv, 9 Breach, effect on divisible contracts, viii, ix, 80, 110 Breach, major, viii, 78 Breach, minor, viii, 79 Breach, of covenants distinguished, vii, 73 Breach, of express conditions, vii, 72 Breach, of implied material conditions, vii, 72 C Capacity, lack of, v, 29 Catalogues, never offers, iv, 4 Collateral Agreement Doctrine, vi, 40 Commercial impracticability, voidable contracts, v, 32 Concealment, voidable contracts, v, 30 Concurrent conditions of performance, real estate contracts, viii, 81 Conditional promises, iv, 5 Index 117 Index Conditions precedent, defined, iv, 8 Conditions precedent, oral, 42 Conditions subsequent, defined, iv, 8 Conditions, excuse of, 50 Conditions, express and implied, iv, 9 Conditions, time of performance, iv, 9 Conforming shipments, UCC 2-106, 102 Consequential damages, proof of, viii, 90 Consideration, defined, 5 Constructive conditions, vi, 46, 47 Constructive conditions, effect of failure, vi, 47 Constructive conditions, excuse of, vi, 47 Contract assignment, 61 Contract integration, vi, 39 Contract modifications, 54 Contract options distinguished from option contracts, vi, 51 Contract rescission, v, 28 Contract terms, imputing, vi, 39 Contract terms, resolution against drafter s interest, vi, 42 Contract terms, resolution of ambiguities, vi, 40 Contract terms, resolving contradictions, vi, 42 Contract, implied-in-fact, v, 22 Contracts for sale of rights over $5,000, need for a writing, UCC 1-206, 114 Contracts proven by behavior, UCC 2-204, ix, 106 Contracts void ab initio, v, 25 Contracts, enforceability, v, 24 Contracts, express, v, 22 Contracts, modification under UCC, 108 Contracts, option, vi, 51 Contracts, voidable, v, 28 Course of dealing, significance, vi, 41 Covenants, vi, 43 Covenants not to assign contract, vii, 62 Credible Evidence Rule, vi, 40 D Damages, burden of proof, 88, 89 Damages, calculation of, 85 Damages, consequential, 85, 88, 90, 112 Damages, expectation, 85 Damages, incidental, 87 Damages, reliance, 87 Death, effect on existing contracts, v, 28 Delegatees, enforceability of contracts against, v, 38 Delegation, acceptance for consideration, vii, 68 Delegation, defenses of promisees, vii, 70 Delegation, defenses of promisors, vii, 70 Delegation, defined, 67 Delegation, gratuitous acceptance, vii, 68 Delegation, implied by assignment, 61 Delegation, liability of delegator, vii, 67 Delegation, liability of delegators, vii, 70 Delegation, liability of gratuitous delegatee, vii, 69 Delegation, liability of promisees, vii, 69, 70 Delegation, non-delegable duties, vii, 67 Delegation, revocation of gratuitous, vii, 69 Delegation, right to reasonable assurances, UCC 2-210, 109 Delegation, when effective, vii, 68 Detrimental reliance (equitable theory), 97 Disclosure, duty in real estate contracts, 81

NAILING THE BAR Simple CONTRACTS & UCC Outline Divisible contracts, breach of, viii, ix, 80, 110 Divisible contracts, UCC 2-612, 110 Drafting errors, vi, 39 Duress, voidable contracts, v, 30 Duties, ripening of contract promises, 8 Duty to mitigate damages, viii, 89 E Election, to ignore anticipatory repudiation, viii, 77 Election, to ignore major breach, viii, 78 Enforceability of contracts, v, 24 Equal Dignity Rule, need for written agreement, viii, 82 Equitable causes of action (theories), 95 Equitable defenses, 100 Equitable jurisdiction, 94 Equitable remedies, ix, 14, 23, 24, 34, 64, 71, 72, 73, 78, 83, 94 Estoppel, blocking revocation of waiver, 56 Eviction and ejectment, viii, 92 Excuse of condition, 50 Executors, enforceability of contracts by and against, v, 38 Express conditions, iv, 9 Express conditions and covenants, distinguishing, vi, 43 Express conditions of timely performance, v, 31 Express conditions, timely performance, vi, 43 Express contracts, v, 22 Extrinsic evidence, admission of, vi, 41 F Failure of condition versus breach, v, 33 Failure of consideration, voiding of contracts, v, 27 Failure of express conditions, effect on contracts, v, 26 Failure of implied conditions, effect on contracts, v, 27 Failure of prior condition, as excuse of condition, vi, 51 Failure of supply, UCC 2-615, 2-606, 109 Fatally vague contracts, enforceability, v, 33 Firm offers, UCC 2-205, 104 Forbearance as consideration, iv, 6 Foreclosure, legal remedy, viii, 83, 93 Four Corner s Doctrine, vi, 40 Fraud, voidable contracts, v, 30 Frustration of purpose, voidable contracts, v, 32 G Gap fillers, UCC 2-202, 103 Gift exchanges, effect of, v, 19 Gift offers, iv, 7 Gift promises, effect of, v, 19 Good faith, defined, vi, 48 Guarantees of debts, Main Purpose Rule, 36 Guarantees of debts, Statute of Frauds, v, 36 H Hadley v. Baxendale, 88 I Illegal contracts, v, 25 Illegal contracts, partial illegality, 25 Illegal contracts, remedies, 97 Implied acceptance of offers, iv, 17 Implied condition of availability of supply, iv, 12 Implied conditions, iv, 9 Implied material conditions, vi, 27, 31, 32, 44, 45, 46, 48, 49, 50, 51, 60, 71, 72, 73, 77, 81 Implied material conditions, defined, 48, 72 Implied material conditions, failure of, vi, 48 Implied offer conditions, iv, 11 Implied offers, iv, 3 Implied rejection by counteroffer, 16 Implied-in-fact contracts, v, 22 Implied-in-fact contracts, remedies, viii, 91 Implied-in-law contract (equitable theory), 95 Implied-in-Law Contract, defined, 14 Impossibility, voiding of contracts, v, 27 Impracticability, voidable contracts, v, 32 In pari delicto, 97 Incidental damages, defined, 85, 87 Insolvent buyers, rights of sellers, UCC 2-702, 112 Integration of contracts, vi, 39 Interest on judgments, viii, 92 Interference and non-cooperation, voidable contracts, v, 32 Interpretation of contract terms, vi, 32, 39, 56, 72 Irrevocability of of option contract offers, iv, 15 J Judgments, interest on, viii, 92 K Knock Out Rule, 22, 106 L Laches, equitable defense, 100 Lack of capacity, enforceability, v, 34 Lack of capacity, voidable contracts, v, 29 Land contracts, Statute of Frauds, v, 35 Lapse, oral offers, 12, 21 Last Shot Doctrine, 22, 106 Legal detriment, defined, 6 Legal remedies, eviction and ejectment, viii, 92 Legal replevin, viii, 83, 93 Legal rescission and restitution, viii, 93 Legal restitution, viii, 90 Legal restitution to breaching parties, viii, 91 Legal restitution to non-breaching parties, viii, 90 Liability of assignors, vii, 64 Licensing violations, effect on contracts, 25 Liquidated damages, unenforceable contracts, v, 37 M Mailbox rules, effectiveness of offers, iv, 10 Mailbox rules, effectiveness of revocation, iv, 13 Mailbox rules, offer and revocation both sent, iv, 16 Mailbox rules, when acceptance effective, iv, 18 Mailbox rules, when rejection effective, v, 21 Main Purpose Rule, application of UCC, ix, 102 Main Purpose Rule, guarantees of debts, 36 Major breach, as excuse of condition, vi, 51 Major breach, effect of, viii, 78 Major breach, remedy of breaching party, 78 118

Major breach, remedy of non-breaching party, 78 Marketable title, duty to deliver, viii, 81 Merchants, UCC 2-104, 102 Minor breach, viii, 79 Minor breach, remedy of breaching party, 79 Minor breach, remedy of non-breaching party, 79 Mirror image rule, iv, 16 Misrepresentation, voidable contracts, v, 30 Modification of contract, 54 Modification of contract, induced by duress, vi, 56 Modification of contract, need for consideration, 54 Modification of contract, need for written agreement, 55 Modification of contracts, UCC, 108 Modification without consideration, UCC 2-209, 108 Money judgments, award of, viii, 83 Money judgments, basis for, viii, 84 Money judgments, collection of, viii, 84 Moral obligation, no consideration, 7 Mutual assent, 25, 26, 30 Mutual mistake, v, 25 Mutuality of remedy, 99 N Need for writings, enforceability, UCC 2-201, 106 Non-breaching buyers, duties under UCC 2-605, 111 Non-breaching buyers, duties under UCC 2-603, 2-604, 111 Non-competition agreements, unenforceable contracts, v, 37 O Offer, defined, 1 Offeror, as, iv, 4 Offers made in jest, drunkenness, iv, 5 Offers subject to express conditions, iv, 10 Offers subject to implied conditions, iv, 11 Offers, bilateral, iv, 9 Offers, implied, iv, 3 Offers, unilateral, iv, 9 Offset, 79, 91 OK Rule, iv, 3 Option contracts, iv, vi, 14, 15, 51 Oral conditions precedent, defined, 42 Oral Conditions Precedent, defined, 42 Oral offers, lapse, 12, 21 Order of performance, express agreements, vi, 46 Output contracts, UCC 2-306, 104 P Parol Evidence Rule, vi, 41 Parol Evidence Rule, no application to modification agreements, vi, 56 Partially illegal contracts, 25 Past acts, no consideration, 7 Perfect Tender Rule, UCC 2-601, 110 Personal service contracts, enforceability, v, 37 Power of acceptance, iv, 10 Power of acceptance, lapse by revocation, iv, 13 Preponderance of the evidence, 88 Promisors, defenses against assignees, vii, 65, 70 Promisors, liability to assignees, vii, 65 Promissory estoppel (equitable theory), 96 Prospective failure, vii, 75 119 Public interest, 91, 94, 96 Publication, ii, iii, 116 Q Quantum Meruit, 14, 98 Quasi-contract, 14, 95 R Index Real estate commissions, effect of breach on, viii, 82 Real estate contracts, breach of, viii, 81 Real estate contracts, concurrent conditions of performance, viii, 81 Reasonable assurances, 74, 75, 76, 81, 99, 110, 112 Reasonable assurances, right to demand, vii, 74 Reasonable assurances, UCC 2-609, 110 Reasonable reliance, 96, 97 Rejection of irrevocable offers, effect, vi, 53 Rejection, termination of power of acceptance, 16, 20 Rejections, express, v, 20 Rejections, implied, v, 20 Remedies for contract breach, 83 Remedies of breaching sellers, right to cure, UCC 2-508, 111 Remedies of non-breaching buyers, right to reject, UCC 2-601, 2-602, 111 Remedies of non-breaching buyers, UCC 2-712, et seq., ix, 112 Remedies of non-breaching sellers, UCC 2-703, ix, 112 Remedies of non-breaching sellers, UCC 2-706, et seq., ix, 113 Remedies, equitable, ix, 14, 23, 24, 34, 64, 71, 72, 73, 78, 83, 94 Remedies, implied-in-fact contracts, viii, 91 Replevin, legal, repossession, viii, 83, 93 Requirements contracts, UCC 2-306, 104 Rescission, v, 28 Rescission at will, v, 29 Rescission for failure of condition, v, 29 Rescission for lack of intent, v, 30 Rescission for UNILATERAL MISTAKE, v, 30 Restitution, legal, viii, 90 Revocation of general offers, iv, 14 Revocation of gratuitous assignments, vii, 64 Revocation of offers before acceptance, iv, 13 Revocation of unilateral contract offers, iv, 13 Revocation, implied, iv, 13 Revocation, indirect, iv, 13 Rewards, 9, 10, 14, 15, 42 Right to inspect goods received, UCC 2-606, 103 Right to reclaim goods from insolvent buyers, UCC 2-702, et seq., 112 Right to stop goods in transit to insolvent buyers, UCC 2-702, et seq., 113 Risk of loss in transit, UCC 2-613, 2-509, ix, 109 S Sales of goods, need for writings, 106, 107, 108 Satisfaction, conditions of, voidable contracts, v, 31 Satisfactory performance, covenants and conditions, vi, 44 Satisfactory performance, covenants of, vi, 45 Satisfactory performance, express conditions of, vi, 45