Contracts

Contracts
I. Vocabulary
A. Contract:
1. Legally enforceable
2. agreement

B. Quasi Contract
1. Not a contract
2. Contract rules do no apply
3. Equitable remedy
4. Any time we get an inequitable result using contract rules, we use quasi contract
5. Example
a. P conferred a benefit on D and
b. P reasonably expected to be paid
c. D realized unjust enrichment
d. Recovery will be the benefit conferred to D.

C. Bilateral Contract: results from an offer that is open as to the method acceptance
D. Unilateral Contract:
1. Requires performance as the only method of acceptance
2. Reward, prize, contest
3. Ofer expressly requires performance for acceptance

II. Applicable Law

A. Common Law: case law as developed by the courts
B. Article 2 of the UCC
C. Examples
1. Services: Common Law
2. Real Estate: Common Law
3. Sale of Goods: Article 2 of UCC
a. all goods
b. any price
c. doesn’t have to be with businesses or merchants
4. Mixed Deal: More important part
a. Part good and part services
i. If Goods are more important than services, UCC applies to both goods and services
ii. If services are more important, only common law
iii. Exeption: contract divides payment between goods and services, UCC applies to the
good and common law applies to the services

III. Article 2A of UCC

A. Applies to the lease of goods
B. Similar to Article 2
C. Similar to Article 9 when
1. default by lessee or
2. Priority contest between lessor and third parties

Formation of a Contract

IV. Level one: Offer

A. Manifestation of an intention to contract, words or conduct showing commitment.
B. Test: Would a reasonable person (offeree) believe assent creates a contract?
1. offer need not contain al material terms
2. Price
a. must contain price: common law
b. no price requirement: Article 2

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i. Exception: No vague or ambiguous price terms
ii. Example: “appropriate price, fari price,reasonable price

3. Amount/output
a. Valid terms: “All”, “only”, “exclusevely”, “solely”
b. Increases
i. Not unreasonably disproportionate limitation
ii. Buyer can increase so long as in line with prior demands

C. Advertisments
1. advertisements are not offeres
2. Exceptions
a. Can be an offer if its nature is of a reward
b. Can be if specific as to quantity and expressly indicates who can accept
c. Examples
i. “X promises 100 pound reward to anyone who …..”
ii. “1 fur coat, $10, first come, first served”

V. Level two: what happens after the initial communication

A. Revocation/Terminiation of Offer
1. Lapse of Time
a. time state or
b. reasonable time lapse

2. Words or Conduct of Offeror

a. Unambigous statement of unwillingness or inability to contract
i. offeree must be made aware (Sharon Stone must be in the shower with Epstein)
ii. Awareness that the same offer has been made to another does not revoke the original
offer

b. Unambiguous conduct of unwillingness or inability to contract

i. offeree must be aware of conduct

c. Mailbox Rule: Revocation of an offer sent through the mail is not effective until received by the
offeree
d. Offer cannot be revoked after it has been accepted

B. Irrevocable Offers
1. Options
a. promise to keep the offer open
b. supported by payment of other consideration

2. Firm Offer Rule (Article 2)

a. offer to buy or sell goods
b. signed, written promise to keep offer open, not revoke
c. party is a merchant (business person)
d. only up to three months even if terms say longer
3. Detrimental Reliance
a. Reasonably foreseeable that offeree would detrimentally rely
b. Ex. General contractor submits a bid based on subcontractor’s bid and General Contractor is
awarded the bid, subcontractor cannot revoke

4. Start of Performance

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a. offer of a unilateral contract.
b. Ex. Words accepted “only by performance”
c. Exception: Mere preparation is not start of performance; however, does trigger deterimental
reliance

C. Offeree Rejection
1. Counter offers kill the offer (common law and UCC)
a. ex. “I will only pay …”
b. Exception: Bargaining does not kill the offer look for
i. “Will you take …?” ? indicates bargaining

2. Conditional Acceptance (common law and UCC)

a. “if”, “provided”, “so long as”, “but”, “on condition that” treat this as a counter-offer

3. Additional terms (common law only)

a. Mirror Image Rule: Common law, acceptance that adds new terms is treated like a counter offer
b. Exception: If offeree adds new terms and offeror begins to perform, the new terms become part of
the new contract.
i. ex. Offeror sends lease, offeree sends back lease with new terms, offeror sends keys
to the building. Original offeror denied. Counter-offer is the new offer, performance
is the acceptance.

4. Additional terms (UCC Article 2)

a. offer to buy or sell goods
b. response with additional terms but No expressed language saying new terms are a condition of
acceptance,
i. consider a seasonable expression of acceptance

c. response with additional terms with expres language saying new terms are a condition of
acceptance
i. One party not a merchant
- new term is out
ii. Both parties are merchants
- additional term is part of contract
- Exceptions
• additonal term is not part of contract if it material changes the offer
• not part of contract if offeror objects to the change

D. Death of a Party Prior to Acceptance.

1. Death or incapacity of either party after the offer but before the acceptance terminates the offer
2. Exceptions:
a. option
b. part performance of offer to enter into unilateral contract

VI. Level three: who responds and how does she respond.
A. Who Accepts offer
1. Person who know about offer
2. Person to whom the offer was made
a. offers cannot be assigned
b. exception: Options can be assigned
i. unless the option says it cannot be assigned

B. Methods of Accepting an Offer

1. Offeree fully performs
a. Notice of Offeree to Offeror
i. look at what offer requires
ii. did offeree have reason to believe that offero will not learn of acceptance
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- watch for geography

2. Offeree starts to perform

a. general rule: start of performance is acceptance treated as an implied promise
i. holds true in bilateral contracts
ii. not acceptance in a unilateral contract ex. Offer requires acceptance “only by
performance” Offeree is not contractually obligated to complete contract; however,
offeror is legally obligated, she chose the unilateral format of contract. Compare to
V,B,4

3. Offeree promises to perform

a. most offers can be accepted by a promise to perform
b. Exeption: if offer expressly requires performance, promise to perform is not acceptance

4. Conflicting Communications (distance contracting, delay in communication)

a. general rule: communication is effective when received
b. Exception: Acceptance is effective when it is sent, unless offeree sent a rejection first, then the
first received.
i. Offeree sends acceptance and then receives revocation from offeror: Contract
ii. Offeree sends rejection and then sends acceptance: Depends which gets there first

5. Seller of Goods sends Wrong Goods

a. Acceptance (by seller) and Breach (by seller)
i. seller creates the contract by shipping the wrong goods
ii. contract is breached by sending the wrong goods

b. Accomodation (explanation) Exception

i. sending different items with an explanation creates a counter offer
ii. no breach

VII. Consideration
A. Definition
1. Must be bargained for
a. asked for in exchange for her promises
b. ex. No consideration: L promises to re-lease apartment at same rate. T paints apartment. L sends
lease with increased terms. No consideration.
2. Legal detriment
a. ex. Consideration. I promise to pay you $100 if you stop smoking. You stop smoking. I owe you
$100.

B. Types of Consideration and Consideration Substitutes

1. One promise for another promise. A promises to buy B’s house and B promises to sell the house to A.
a. Exception: Illusory promises don’t work. A promises to buy B’s house if he feels like it.

2. Adequacy of Consideration
a. always a wrong answer on the multi-state
b. Even a peppercorn is adequate

3. Past Consderation
a. not consideration
b. A saves B life and B promises to pay A 1,000. No consideration.
c. Exception: Expressly requested and there is an expectation of payment.

4. Preexisting contractual duty

a. Common Law. doing what you are already legally obligated to do in not new consideration for a
new promise to pay you more to do merely that. Need new consideration for contract modification
i. Exception: addition to or change in performance

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ii. Exception 2: unforeseen difficulty so severe as to excuse performance
iii. Exception 3: third party promise to pay

b. UCC: No pre-existing legal duty rule. Good faith is the test.

5. Part Payment as consideration for a promise to forgive the balance of debt

a. Due and undisputed: no consideration
b. Not yet due or undisputed: Early payment will serve as consideration

6. Written Promise to Pay Debt Barred by a Technical Defense such as the Statute of Limitation.
a. written promise is not new consideration
b. Serves as a substitute for consideration
c. Can collect on the new written promise

7. Seals do not serve as consideration

8. Promissory Estoppel (Detrimental Reliance).
a. The most important Consideration Substitute
b. Elements
i. promise
ii. reasonable reliance (detrimental and foreseeable)
iii. Enforcement is necessary to avoid injustice

VIII. Capacity
A. No capacity
1. Infants- under 18
2. Mental Incompetents – lacks ability to understand the agreement
3. Intoxicated People – If other party has a reason to know

B. Consequences of Incapacity
1. Right to Disaffirm by person without capacity
a. capacity of a plaintiff is irrelevent
b. those with incapacity can hold the person with capacity liable

2. Implied Affirmation
a. Retaining the benefits after gaining capacity
b. Child contracts, turns 18, other party can hold 18 year old liable

3. Quasi-contract Liability for Necessaries

a. Incapacitants must pay for food, clothing, medical care, and shelter; however, no contract liability,
only quasi-contract.
b. Don’t have to pay the agreed upon rate but the value of the benefit conferred.

IX. Statute of Frauds

A. “Within” the Statute of Frauds: Is it subject to the Statute of Frauds?
1. Promise in Consideration of Marriage. Not a promise to marry.
2. Promise by Executor or Administrator to Pay the Debt of the Decedent Personally
3. Promise to creditors to answer for the debts of another.
a. Answer for: Guarantee to pay debts if they don’t pay
i. Main Purpose Exception: if you can show that the alleged guarantor was the benefee
of the transaction, don’t need a writing. Not within the Statute of Frauds.

4. Service Contract not capable of being performed within a year from the time of the contract (more than a
year)
a. Employment contract for three years
i. Possiblity of early termination is irrelevent. So contracts for more than one year with
a 30 day termination agreement is still within the Statute of Fruads

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b. Can the contract be completed within a year? If contract made for a date more than one year in the
future, it is within the statute of frauds.
c. One year employment starting next month. Within the Statute of Frauds
d. Tasks are not subject to the Statute of Frauds: If theoretically possible with unlimited resources.
e. Life time agreement are not within the Statute of Frauds. Person could die within a year.

5. Transfers of Interest in Real Estate

a. Easements: within the statute of frauds
b. Selling property: withing the statute of frauds
c. Exceptions:
i. Agreement to build a house on property: not within the statute of frauds
ii. Leases of a year or less: not within the statute of frauds

6. Sale of goods for $500 or more

a. Remember, although something may not apply within the UCC statute of frauds (is less than 500)
the sale of goods is still subject to all of the rest of the UCC.

7. Leases of goods with payments totaling $1000 or more

a. always within the statute of frauds

B. How is the Statute of Frauds satisfied?

1. Terminology: If Statute of Frauds is satisfied, there is not a Statute of Frauds Defense
a. Questions may ask:
i. “Is the Statute of Frauds satisfied?” or synomonously
ii. “Is there a Statute of Frauds defense?”

2. Performance
a. Service Contracts
i. full performance by either party satisfies the statute of frauds
ii. Part performance of a services contract does not satisfy the Statute of Frauds
- Defendant will have a Statute of Frauds defense
- Plaintiff cannot recover under contract law
- Plaintiff may recover under quasi contract

b. Sale of Goods
i. Part performance of a contract for the sale of goods satisfies the Statute of Frauds but
only to the extent of the part performance
- Delivered Goods: no Statute of Frauds defense
- Undelivered Goods: Statute of Frauds defense
ii. Specially Manufactured Goods Exception
- Statute of Frauds is satisfied as soon as seller makes a “substantial beginning”
to make the product
- Look for custom made or made to order fact patterns

c. Performance and Transfers of Interest in Real Estate

i. Two of the following three Satisfies the Statute of Frauds
- full or part payment
- possession
- improvements
ii. Full payment alone does not satisfy the statute of frauds

3. Writings
a. All materials Test (Services)
i. who
ii. what

b. Signatures

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i. Must be signed by the person who is asserting the Statute of Frauds defense in order
for that defense to fail. If does not say so in the question, assume the person did not
sign.

c. UCC Requirments (goods)

i. How many is the only question, who and what and even purchase price not needed

d. Signatures (UCC)
i. Both parties must be merchants
ii. Statute of Frauds can be satisfied if one party fails to respond and reject regardless of
the fact that there is not a signature.

e. UCC 2A Requirement (leases of personal property)

i. indicate that it is a lease
ii. describe what is being leased
iii. states the duration of the lease

4. Judicial Admission of Sale of Goods

a. Satisfies the Statute of Frauds
b. Ex. “Yes your Honor, we agreed, but we never put it in writing.”

C. Authorization to enter into contract for someone else

1. Proof of Authorization must be in writing only if the contract to be signed is within the Statute of Frauds.
2. Equal Dignity Rule

D. Contract Modification
1. Does the modifying agreement have to be in writing to satisfy the statute of frauds?
a. Imagine the agreement with the alleged change
b. Is alleged change within the statute of Frauds?
i. if yes, must be in writing
ii. if no, no writing needed

2. What if original contract require that all modifications to the contract be in writing?
a. Common Law: Ignore that requirement
b. UCC: requirement is effective unless it is waived

X. Illegality, Public Policy, Misrepresentation, Duress

A. Illegality
1. Illegal Subject Matter: no enforcement of contracts with illegal subject matter
2. Illegal Purpose: there can be other contracts for the purpose of completing a contract with illegal subject
matter, if contracting party does not know of the illegal purpose, valid contract.

B. Public Policy
1. Contracts exempting intentional or reckless conduct from liability not enforceable
2. Covenants not to compete without a reasonable need or reasonable time or place limits. Sometimes
unenforceable

C. Misrepresentation or Fraudulent Concelement

1. Can be a Torts question or Contracts question
a. Torts question: all about one guy trying to recover money damages from the other
i. honest, innocent, misrepresentations will not allow recovery
ii. must be at least negligent
b. Contracts: one guy wants out of the deal
i. even honest, innocent, misrepresentation is a basis for rescinding

D. Duress
1. Economic Duress
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a. need bad guy, improper threat to break an existing contract
b. vulnerable guy, no reasonable alternative to get what is needed in the original contract
c. Vulnerable guy can get out of the contract

XI. Unconscionability
A. Tested as of the time the agreement was made
B. Always decided by the court, never the jury
C. Now part of general contracts law
D. Empowers courts to refuse to enforce all or part of an agreement
E. Two basic tests
1. Unfair Surprise
2. oppressive

F. Under 2A: A court may grant relief from a consumer lease even though no provision of the lease is
unconsciounable, if there is unconscionable conduct in inducint or enforcing the lease.

XII. Misunderstanding
A. No contract if
1. parties use a material term that is open to at least two reasonable interpretations
2. each party attaches a different meaning to the term
3. neither party knows or has reason to know the term is open to at least two reasonable interpretations

B. If one party knows of the other interpretation, there will be a contract under the terms of the unknowing party

XIII. Mistake of Fact Existing at Time of the Contract

A. Distinguish from misunderstanding which focuses on words in contract and misrepresentation which focuses on
words before the contract
B. Mutual Mistake of Material Fact
1. There will be no contract if
a. both parties mistaken
b. basic assumption of fact
c. materially affects the agreed exchange
d. not a risk that either party bears

C. Mutual mistake about what something is: unenforceable contract

D. Mistake about what something is worth: enforceable contract
1. not basic
2. not material
3. buyer beware

E. Unilateral Mistake of Material fact

1. No relief
2. Exception
a. if the other party to the contract knows or should have known of the mistake, courts grant relief to
the mistaken party
b. Mistakes discovered before significant reliance by the other party

Terms of the Contract

XIV. Parol Evidence Rule

A. Overview
1. Evidence rule in the sense that issue is whether court can consider evidence and
2. purpose for which the evidence is to be introduced is often determinative
3. Underlying premise is that final written version of the contract is more reliable than anything that might
have been said or written earlier

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4. Importance of written contract as source of contract terms, exclusionary effect of written contract on
earlier or contemporaneous agreements as a possible source of terms of the contract

B. Vocabulary
1. Integration: written agreement that court finds is the final agreement, triggers the parol evidence rule
2. Partial Integration: written and final, but not complete
3. Complete Integration: written and final and complete
4. Merger Clause: contract clause such as “this is a complete and final agreement.”
5. Parol Evidence: words of parties
a. before integration
b. oral or written

6. Reformation: equitable action to modify written contract to reflect actual agreement

C. Triggering Facts
1. Written contract that court finds is the final agreement AND
2. Oral statement made at the time the contract was signed OR earlier oral or written statements by the
parties to the contract

D. Admissiblity Rules
1. Contradicting the written deal
a. prevents a court fro considering ealrier agreements as a source of terms that contradict the terms of
the written contract.
b. Exception: Mistake in Intergration: may consider evidence to determine whether there was a
mistake in integration, mistake in reducing the agreement to writing
c. Note: Evidence post contract are admissible, not parol evidence

2. Getting out of the Written Contract

a. Defense Exception: Court may consider the earlier words to determine if there is a defense to the
enforcement of the agreement such as misrepresentation, fraud, or duress.

3. Explaining a Term in the Written Deal

a. Court can use parol evidence to resolbe ambiguities in the written contract

4. Adding to the written contract

a. Court may not consider parol evidence as a source for additional terms
b. Exceptions:
i. ageement was only a partial integration
ii. additional term would ordinarily be in a separate agreement

E. Comparison of Parol Evidence Rule and Statute of Frauds

A. Triggering the Parol Evidence Rule: Written agreements
B. Triggering the Statute of Frauds: Absence of a written agreement

XV. Conduct and Course of Performance

A. Clarifying what the terms mean through
1. Course of Performance
a. same people, same contract
b. most pursuasive
2. Course of Dealing
a. same people but different similar contract
b. Less pursuasive
3. Custom and Usage
a. different but similar people and different but similar contract
b. Least pursuasive

XVI. UCC for Term in Sale of Goods Contracts (Default Terms)

A. Delivery Obligations of Seller of Goods

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1. No place of delivery has been agreed upon
a. sellers place of business
b. unless everyone knows that the goods are some where else

2. Delivery Obligations of seller if delivery by “Common Carrier”

a. shipment contracts: Seller completes obligation when
i. it gets the goods to a common carrier
ii. seller makes reasonable arangements for delivery
iii. seller is obligated to notify the buyer

b. Destination Contracts
i. Seller does not complete delivery obligation until the goods arrive where the buyer is

c. Determining whether Shipment or Destination Contract

i. Most are shipment contracts
ii. FOB: Free On Board (city)
- if city is where seller is, or goods are: shipment contract
- if city is any other: destination contract

B. Risk of Loss
1. Fact Pattern
a. after contract formed but before received by buyer
b. goods are damaged
c. neither buyer nor seller is to blame

2. Any agreement of the parties controls

3. Breaching party is liable for any uninsured loss even though breach is unrelated to the problem
4. Delivery by a common carrier
a. risk of loss shifts from the seller to the buyer at the time the seller competes its delivery
obligations

5. No agreement, No breach, no common carrier

a. if seller is a merchant (business person)
i. shifts to buyer upon reciept of the goods

b. if seller is not a merchant

i. risk of loss on tender (makes the goods available)

6. 2A Leases of Personal Property

a. Unallocated risk of loss is on the lessor

C. Warranties of Quality
1. Express
a. words that promise, describe, or state fact or for use of a sample or model.
b. Distingish from sales talk which is more general, an opinion
i. All steel: warranty
ii. Top quality: no warranty, opinion
iii. Guaranteed to operate for two years: warranty
iv. Sellers showing buyer a sample: warranty

2. Implied Warranty of Merchantability

a. seller is a merchant (does not include anyone in any business) limited to a person who deals in
goods of that kind
b. Warranty: Goods are fit for ordinary purposes

3. Implied Warranty of Fitness for a Particular Purpose

a. buyer has a particular purpose
b. buyer relies on seller to select suitable goods
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c. seller has reason to know of purpose and reliance
d. Warranty: goods are fit for particular purpose

4. 2A Warranties on Leases
a. Lessor of personal property makes the same warranties as a seller
i. express
ii. merchantability
iii. fitness

b. Finance Lease: warranties made by the supplier to the lessor are enforceable by the lessee against
the supplier, not the lessor
i. lessee cannot stop paying the lessor

D. Contractual Limitation On Warranty Liability

1. Disclaimer
a. ex. There are no warranties
b. eliminates implied warranties
c. express warranties generally cannot be eliminated or disclaimed
d. Disclaiming implied warranties of merchantability and fitness
i. “as is” , or “with all faults”
ii. Conspicuous language of disclaimer, mentioning merchantability

2. Limitations of Remedies
a. does not eliminate warranties
b. Places limits on how much can be recovered for breach of warranties, even express warranties
c. Test: Unconsciounability
i. if breach of warranty on consumer goods causes personal injury
ii. warranty will not prevent the seller from being liable for the personal injury

Performance of a Contract

XVII. Common Law

A. Look to the terms of the contract

XVIII. Sale of Goods

A. Perfect Tendor
1. The seller is obligated to deliver perfect goods

B. Rejection of the Goods

1. Must occur before acceptance of the goods
a. buyer can retain and sue for damages or
b. reject all or any commercial unit and sue for damages
i. seasonably notify seller
ii. hold the goods for seller
iii. follow reasonable seller instructions
iv. goods go back to seller
v. no buyer payment obligation

2. Limitations
a. Cure
i. second chance given to seller to make the contract correct
- seller had reasonable grounds to believe that the goods delivered would be
satisfactory
• prior dealings between buyer and seller
• time for performance has not yet expired

b. Installment Contract
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i. contract requires or authorizes
- delivery in separate lots
- to be separately accepted
• buyer can reject only where there is substantial impairment
• in that installment can’t be cured
c. Acceptance
i. if buyer accepts, he cannot later reject them
ii. payment without opportunity for inspection is not acceptance
- ex. Pay with credit card before delivered
iii. Implied Acceptance
- retention after opportunity for inspection
- general rule, 1 month is acceptance
- look for time between delivery and complaint

d. Revocation of Acceptance of the Goods

i. nonconformity of goods substantially impairs the value of the goods and
ii. excusable ignorance of grounds for revocation or reasonable reliance on seller’s
assurance of satisfaction
iii. revocation within a reasonable time after discovery of nonconforming nature of
goods
- example10 degree sleeping bag purchased in July and used all summer cannot
be rejected; however, if in November, discover that the sleeping bag does not
insult for 10 degrees could allow buyer to revoke acceptance of the sleeping
bag

iv. seasonably notify the seller

v. hold the goods for seller
vi. follow reasonable seller instructions
vii. goods back to seller
viii. no buyer payment obligation

Remdies for unexcused Non-performance

XIX. Nonmonetary Remedies

A. Specific Performance
1. Equitable remedy. Unclean hands, lack of adequacy of remedy at law (monetary damages)
2. Contracts for sale of Real Estate
a. exception: no specific performance if seller sells property to a third party

3. Contracts for the sale of goods

a. only if goods are unique
i. antiques
ii. work of art
iii. custom made

4. Services Contracts
a. never get specific performance
b. can get injunctive relief (negative specific performance)
i. prevent party from performing for a competative party

B. Reclamation
1. right of an unpaid seller to get it goods back
2. Buyer must have been insolvent at the time the goods were received
3. seller demand return of goods within 10 days of receipt (becomes a reasonable time rule if before
delivery there had been an express representation of solvency by the buyer
4. Buyer still has goods at time of demand

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C. Rights of Good Faith Purchaser in Entrustment
1. Owner leaves her goods with a person who sells goods of that kind
2. that person wrongfully sells the goods to a third party
3. Such a good faith purchaser from dealer cuts off rights of the original owner/entruster
4. Left with a conversion claim against the person who sold the goods

D. Theft
1. Thief steals from owner
2. thief sells to Business
3. Business sells to Customer
4. O can recover from Customer
5. You never get good title from a thief

XX. Money Damages for Breach of a Contract

A. Vocabulary
1. Expectation:
a. when a person makes a contract, she expects the other person will perform without breaching. We
place the person in the same position she would have been in had there not been a breach. As if the
contract had been performed
b. “Money damages in this state are based on compensating the plaintiff by protecting expectation
interest.” Use that on an essay question
2. Reliance
a. put plaintiff in same economic position as if contract had never happened
3. Restitution
a. Put the defendant in the same economic position as if the contract had never happened
b. Look at how the defenadant benefitted from the work done and make him pay for it.
4. Incidental
5. Consequential
6. Avoidable
7. Liquidated
8. Limitation of remedies

B. Damages Rules for the Sale of Goods (protection of the expectation interest) Aritcle 2
1. Seller Breaches, buyer keeps the goods
a. Fair market value if perfect tendor minus fair market value of goods as delivered

2. Seller Breaches, seller keeps the goods

a. market price at time of discovery of breach minus contract price or
b. repalcement price minums contract price
3. Buyer Breaches, Buyer has the goods
a. buyer is responsible for the contract price

4. Buyer Breaches, seller has the goods

a. contract price minus market price at time and place of delivery or
b. contract price minus resale price and in some situations
c. provable lost profits
i. most difficult concept in money damages
ii. Lost volume seller
iii. fact pattern: 1) contract to buy regular inventory, 2) breach by buyer, 3) a later sale
at exactly the same price as the first sale. Provable lost profit. Usually a percentage,
profit margin.

C. Additions and Limitations

1. Incidental Damages:
a. cost incurred in dealing with the breach (cost in finding a replacement)
b. always recoverable

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2. Cosequential Damages (special damages, only to this plaintiff)
a. damages arising from Plaintiff’s special circumstances
b. recoverable only if the Defendant had reason to know at the time of the contract

3. Less Avoidable damages

a. no recovery for damages that could have been avoided without undue burden on the plaintiff
b. Burdens of pleading and proof is on the defendant

4. Certainty limitation (must establish damages with certainty)

a. Reasonable certainty test
b. Look for a fact patten involving a new business or a new business activity which would make it
unclear what the damages would be

5. Liquidated Damages, Contract provision regarding damages

a. Validity: often concern that the provision is too high
i. damages were difficult to forecast at the time the contract was made
ii. provision is a reasonable forcast
iii. Usually one single number for damages fails the reasonable forcast test
iv. Daily damages are more flexible and presumptively valid

Excuse of Non-Performance of Contract Because of Something that Happened After the Contract Was Made

XXI. Other Party’s Improper Performance

A. Common Law
1. Damages can be recovered for any breach
2. Only a material breach by one party excuses the other party from performing
3. Whether a breach was material or not is a fact question
a. material breaches are major screw ups
b. When given number based performance and less than half are completed, consider it a material
breach.
i. plaintiff cannot recover for the percentage completed under contract law; however,
ii. may recover in quasi-contract

c. Divisible contract Exception: similar to b but this time, contract price is on an apartment basis.
i. material breach test is applied on a unit by unit test
ii. contract law recovery can occur

B. Article 2, Perfect Tender Rule

XXII. Non-Occurrence of a Condition

A. Condition:
1. mutually agreed upon promise modifier
2. Language in the contract
3. not merely language in response to an offer
4. language does not create a new obligation
5. Limits or excuses obligations of other language in the contract
6. Words such as
a. if
b. only if
c. provided that
d. so long as
e. subject to
f. in the event that
g. unless
h. when
i. until

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j. on condition that

7. No basis for recovering damages but is a basis for excuse

B. Conditional Acceptance: Conditional language in response to an offer

1. Language of only one party
2. Before the contract, not in the contract

C. Performance Condition: Contract language offering more if certain performaces are met

D. Covenant (Duty/Promise): Additional language promising to do something else. Will not be excused for not
performing on the main agreement of the contract unless the covenant was a material breach. Can recover for
contract damages related to the breach of the convenant

1. No basis for excuse but basis for recovering damages

XXIII. Standard for Satisfying an Express Condition

A. Strict Compliance with conditions
B. If you see language as outlined in 6a-6j. Strict Compliance.
C. If so, excuses performance

XXIV. Excusing a Condition

A. Identify the person who benefits from the condition
B. Only that person can can give up or waive the condition

XXV. Anticipatory Repudiation

A. Unambiguous statement or conduct indicating
B. That the repudiating party will not perform
C. Made prior to the time when the perfomance was due
D. Anticipatory repudiation by one party excuses the other party’s duty to perform
E. It also generally gives rise to an immediate claim for damages for breach unless the claimant has already finished
her performance
F. Anticipatory repudiation can be reversed or retracted so long as ther has not been a material change in position by
the other party.
1. if the repudiation is timely retracted, the duty to perform is reimposed
2. but performance can be delayed until adequate assurance is provide

XXVI. Inability to Perform

A. Same as anticipatory repudiation but arises in a fact pattern where
1. instead of money, there has been a bartered for item
2. party learns that the bartered for item has been sold, destroyed, or is gone

XXVII. Insecurity
A. Consider this with anticipatory repudiation also but
A. Words are ambiguous
B. But give one party “reasonable grounds for insecurity”
C. The other party can suspend performance until
D. It receives adequate assurance if it is “commercially reasonable to suspend performance”
E. Hint: look for this in sale of goods problems

XXVIII. Excuse by Reason of Later Contract

A. There was an original contract and a second contract is made
1. Recision (cancellation)
a. still some performance remaining from each of the contracting parties

2. Accord and Satisfaction (substitute performance)

a. Accord
i. agreement by parties to an already existing obligation
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ii. to accept a different performance in satisfaction of the existing obligation

b. Satisfaction
i. performance

c. If the accord is not performed

i. the other party can sue on either the original obligation or the accord

3. Modification (substitute agreement)

a. agreement by parties to an existing obligation to accept a different agreement in satisfaction of the
existing obligation

4. Novation
a. Definition
i. agreement between both parties to an existing contract
ii. to the substitution of a new party
iii. same performance, different party

b. liability
i. The substituted party is not liable for non-performance
ii. The new party is liable for non-performance

c. Compared to Delegation
i. delegation holds the original party and the obligator liable for non-performance

XXIX. Excuse of Performance by Reason of a Later, Unforeseen Event

A. Impossiblity, Impracticability, or Frustration of Purpose
1. Something happens after contract formation but before completion of contract performance and
2. that was unforeseen
3. makes perfromance impossible or commiercially impracticable or frustrates the purpose of performance

B. Impossibility: objective, can’t be done

C. Impracticability: subjective: can only be done with exteme and unreasoanble difficulty and expense
D. Exceptions:
1. Builders are not excused from building a house if it burns down, builder bares the risk
2. Seller contracts to sell 100 bags of grits, grits destroyed, no excuse because seller can come up with 100
more bags of grits.
3. Once risk of loss passes to buyer, destruction, not excused for payment

E. Notes
1. Death after a contract does not make a person’s contract obligations disappear
a. exception: “Special” person performance exception, no obligation to estate

2. Later Law and Regulations

a. Later Law makes performance illegal
i. excuse by impossibility

b. Later Law makes mutually understood purpose of contract illegal

i. excuse by frustration of purpose

Third Party Problems

XXX.

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3.

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