Contracts and Sales

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Professor David Epstein

Copyright © 2012 by BARBRI, Inc.

 2012 CONTRACTS (INCLUDING ARTICLE 2 SALES)

TEACHING HYPOTHETICALS

By David G. Epstein, UNIVERSITY OF RICHMOND LAW SCHOOL

depstein@richmond.edu

SEVEN GENERAL ISSUES

1. Applicable law
2. Formation of contracts
3. Terms of contract
4. Performance
5. Remedies for unexcused nonperformance
6. Excuse of nonperformance
7. Third-party problems

"Armadillos from Texas play rap, eating tacos."

Copyright © 2012 by BARBRI, Inc.

2. Contracts

VOCABULARY

Unilateral contract – results from an offer that expressly requires performance as the
only possible method of acceptance.

Bilateral contract – all other offers. Usually offer is silent as to the method of
acceptance.

Bilateral contract unless (1) reward, prize, contest (2) offer expressly requires
performance for acceptance.

Quasi contract – equitable remedy.

(H1) [Example of bilateral contract]. NBC offers Ashlee Simpson $25,000 to sing
“Autobiography” on “Saturday Night Live.” Ms. Simpson agrees to sing. What
if Ms. Simpson does not do what she agreed to do; what if she “lip syncs” instead
of sings?

FIRST ISSUE: APPLICABLE LAW

You are responsible for parts of (i) the “common law” of contracts (largely case law) and
(ii) UCC law of sales (largely statutory).

(1) “COMMON LAW”

(2) ARTICLE 2 OF THE UCC

Article 2 applies to contracts that are primarily for sales of goods. The factors
that determine whether Article 2 applies are thus (i) type of transaction – sale and
(ii) subject matter of transaction – goods, i.e., tangible, personal property.

(3) SIMPLE HYPOTHETICALS

A. Real estate – common law

(H2) Conviser, the guy who invented BRI, contracts to buy a house. Does Article 2
apply?
 Contracts 3.

B. Services contract – common law

(H3) Conviser contracts with Epstein to wash his 2012 Rolls. Does Article 2 apply?

C. Sale of goods – UCC 2

(H4) Conviser contracts to buy Epstein’s 1973 Cadillac for $400. Does Article 2
apply?

(4) MIXED DEALS

A. General rule – all or nothing/more important part

(H5) Under Conviser’s agreement with Epstein to buy Epstein’s car, Epstein is also
obligated to provide Conviser with two lessons in parallel parking a 1973
Cadillac. Does Article 2 apply if there is a disagreement about the parking
lessons?

(H6) Conviser contracts to buy a new Duncan Glo-Yo yo-yo and receive ten lessons
from Yo-Yo Ma for $40,000. Does Article 2 apply if there is a dispute about the
Duncan yo-yo?

B. Exception – if contract divides payment, then apply UCC to sale of

goods part and common law to the rest

(H7) Same facts as (H6) above, except that the contract provides that Conviser will pay
$10 for the yo-yo and $39,990 for the lessons. Does Article 2 apply if there is a
dispute about the Duncan yo-yo?

(5) NO REVISED ARTICLE 2

4. Contracts

(6) ARTICLE 2A OF THE UCC

Article 2A applies to leases of goods. Not leases of land or buildings. NOT ON

MULTISTATE BAR. NOT ON STATE PART OF BAR IN MOST STATES. IF
YOUR STATE TESTS ON ARTICLE 2A, YOU WILL HAVE AN OUTLINE
COVERING IT IN YOUR STATE MATERIALS.
 Contracts 5.

SECOND ISSUE: FORMATION OF A CONTRACT

(1) DEFINITION OF CONTRACT

A contract is an agreement that is legally enforceable. Accordingly, look

first for an agreement. Then, second, determine whether the agreement is
legally enforceable.

(2) OVERVIEW OF AGREEMENT PROCESS ON BAR

In looking for an agreement, watch for information in the question about (i)
the initial communication (“offer”) and (ii) what happens after the initial
communication (“termination of the offer”) and (iii) who responds and how
she responds (“acceptance”).

(3) FIRST POSSIBLE AGREEMENT ISSUE: IS THE INITIAL COMMUNICATION

AN OFFER

A. General test: Manifestation of commitment

An offer is a manifestation of an intention of one person to contract –

words or conduct showing commitment by one person. The basic test is
whether a reasonable person in the position of the offeree would believe
that his or her assent creates a contract.

B. Specific problems to watch for

1. Content

(a) Missing price term in sales contract

(i) Sale of real estate – common law – price and

description required, not an offer

(H8) Can a communication from S to B relating to S’s sale of Blackacre to B be an

offer even though nothing is said about price? Offer?

(ii) Sale of goods – Article 2 – no price requirement

(H9) Can a communication from S to B relating to S’s sale of her car to B be an offer
even though nothing is said as to price?
6. Contracts

(b) Another specific content problem to watch for: Vague or

ambiguous material terms not an offer under either common
law or UCC
[Appropriate, fair, reasonable]

(H10) Can a communication from S to B relating to S’s sale of her car to B be an offer if
it provides for the sale for a fair price? [Compare with (H9)]

(c) Yet another content problem: Requirements

contracts/output contracts:
A contract for the sale of goods can state the quantity of
goods to be delivered under the contract in terms of the
buyer’s requirements or seller’s output.
[All, only, exclusively, solely]

(i) Requirements or output contracts are not vague or

ambiguous and are valid.

(H11) B “offers” to buy grits from S for five years. There is not a specific quantity term
in the “offer”; instead, it provides that B shall purchase all its grits from S. Offer?

(ii) Increase in requirements. Buyer can increase

requirements so long as the increase is in line with
prior demands. No unreasonably disproportionate
limitation on increases.

(H12) Same facts as (H11). B buys 1,000 pounds of grits in each of the first three years
of the agreement. B then orders 1,020 pounds the fourth year. What result?

2. Context

(a) General rules: An advertisement or price quotation is not an

Offer.

(b) Exceptions

(i) An advertisement can be a unilateral offer if it is in the

nature of a reward. For example, Carbolic Smoke
Ball Company promises 100 pound reward to anyone
 Contracts 7.

who catches the flu after using its smoke ball as

directed.

(ii) An advertisement can be an offer if it specifies

quantity and expressly indicates who can accept. For
example, Lefkowitz Department Store advertises “1
fur coat $10 – first come, first served.”

(iii) Price quotation can be an offer if sent in response to

an inquiry.

(4) SECOND POSSIBLE AGREEMENT ISSUE: WAS THE OFFER

TERMINATED? [four methods]

Offers generally create the power of acceptance in the person to whom the offer
was made (the “offeree”), creating a contract. However, an offer cannot be
accepted if it has been terminated. An offer that has been terminated is “dead.”

A. First method of termination: Lapse of time – time stated or reasonable

time

(H13) During the break, I write in your notes that I offer to sell you my 1973 Cadillac
for $400. The writing fails to indicate how long the offer will be kept open. Can
you accept the offer five years from now?

B. Second method of termination of an offer: Death of a party prior

to acceptance.

1. General rule: Death or incapacity of either party after the offer, but
before acceptance, terminates offer.

2. Exception: Irrevocable offers (see below)

C. Third method of termination of offer: Words or conduct of offeror;

i.e., revocation of an offer.

1. How an offer is revoked:

(a) Later unambiguous statement by offeror to offeree of

unwillingness or inability to contract, or

(b) Later unambiguous conduct by offeror indicating an

unwillingness or inability to contract that offeree is aware of.
8. Contracts

(H14) On January 15, I offer to sell Sharon Stone my 1973 Cadillac for $400. The next
day, while standing in the shower, I exclaim, “I have changed my mind. I do not
want to sell my Cadillac to Sharon Stone.” Is the offer to Ms. Stone revoked?

(H15) On January 15, I offer to sell Sharon Stone my Cadillac for $400. The next day I
sell my Cadillac to Conviser. Is the offer to Ms. Stone revoked?

(H16) On January 15, I offer to sell Sharon Stone my Cadillac for $400. The next day I
sell my Cadillac to Conviser. Ms. Stone sees Conviser driving my Cadillac on
January 16 and learns from him that he has bought the Cadillac. Is the offer to
Ms. Stone revoked?

(H17) [Multiple offers not revocation]. On January 15, I offer to sell Sharon Stone my
Cadillac for $400. The next day I make the same offer to Conviser. Ms. Stone
learns that I have made the offer to Conviser. Is the offer to Ms. Stone revoked?

2. Which offers are irrevocable, i.e., cannot be revoked?

Be sure you know vocabulary – know the difference among
“irrevocable” (no possibility), “revocable” (possibility), and
revoked (actuality). [Generally offers can be freely revoked by the
offeror.] There are four different situations in which an offer cannot
be revoked, i.e., the offer is irrevocable.

#1 Option: An offer cannot be revoked if the offeror has not

only made an offer but also (i) promised to not revoke (or
promised to keep the offer “open”) AND (ii) this promise is
supported by payment or other consideration (“option”)

(H18) [Option]. S offers to sell B her car for $400. B pays S $10 for S’s promise “not
to revoke the offer for a week.” Can S still revoke the offer?

Can B accept the offer eight days later?

(H19) [Not an option]. S offers to sell her car to B for $400. S promises “to keep the
offer open for a week.” Can S still revoke the offer notwithstanding her promise
not to revoke?
 Contracts 9.

#2 UCC “Firm Offer Rule”: An offer cannot be revoked for up to

three months if (i) offer to buy or sell goods, (ii) signed,
written promise to keep the offer open, and (iii) party is a
merchant. (Merchant is GENERALLY a person in business.)

(H20) S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The offer is in
writing, signed by S, and expressly promises it will be kept open for a week. Can
S revoke? [Compare with (H18)]

(H21) S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The offer is oral
and includes a promise that it will be kept open for a week. Can S revoke?

(H22) S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The written offer is
signed by S and states it will not be revoked for six months. Can S revoke?

(H23) S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The written offer is
signed by S and states it will not be revoked but does not state a time period. Can
S revoke?

(H24) S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The written offer is
signed by S. Can S revoke?

(H25) S offers to sell B her house for $100,000, and the written offer states that it cannot
be revoked for the next 4 months. Can S revoke?

#3 Reliance: An offer cannot be revoked if there has been (1)

reliance that is (2) reasonably foreseeable and (3)
detrimental.

(H26) G is a general contractor who is bidding on a contract to build a new hotel, using
various subcontractors. S, a subcontractor, submits a bid to G to do the painting
work for $100,000. G relies on S’s bid in making its bid and is awarded the hotel
construction contract. Can S still revoke its bid?
10. Contracts

#4 Unilateral contract: The start of performance pursuant to an

offer to enter into a unilateral contract makes that offer
irrevocable for a reasonable time to complete performance.

(i) Unilateral/performance.

(H27) O offers P $1,000 to paint O’s house. O’s offer states that it can be accepted only
by performance. P starts painting. Can O still revoke?

(ii) Unilateral/mere preparation.

(H28) O offers P $1,000 to paint O’s house. O’s offer states that it can be accepted only
by performance. P buys paint. Does this trigger rule #4 so that O cannot revoke?

D. Fourth method of termination of an offer: Words or conduct of the offeree

– Rejection:

Watch for one of the following three methods of indirect rejection – (1)
counteroffer, (2) conditional acceptance, or (3) additional terms. First two
apply to all contracts; additional terms rule does not apply to contracts for
sale of goods, i.e., common law only.

1. First method of indirect rejection – Counteroffer:

Counteroffer generally terminates the offer and creates a new

offer. Thus generally, where a counteroffer has been made there is
no express contract unless that counteroffer has itself been
accepted. Counteroffers need to be distinguished from bargaining.
Bargaining does not terminate the offer. And, counteroffers do not
terminate options.

(H29) [Counteroffer general rule]. S offers Blackacre to B for $10,000. B responds,

“I will only pay $9,000.” Can B later accept S’s offer to sell for $10,000?

(H30) [Counteroffer: option exception]. On January 15, S offers Blackacre to B for

$10,000. B pays S $2 for S’s promise not to revoke the offer until April 5. On
March 3, B makes a counteroffer to S of $9,000. Can B still accept S’s offer?
 Contracts 11.

(H31) [Bargaining]. S offers Blackacre to B for $10,000. B’s response is, “Will you
take $9,000?” Can B later accept S’s offer?

2. Second method of indirect rejection – Conditional Acceptance:

A conditional acceptance terminates the offer. Look for a response
to an offer with the word “accept” followed by one of these words or
phrases: “if,” “only if,” “provided,” “so long as,” “but,” or “on
condition that.”

(a) Common law: rejects and becomes a counteroffer that can

be accepted by conduct

(H32) L offers to lease an apartment to T by sending T a signed lease that is silent about
arbitration of disputes. T adds a paragraph that states that T “accepts provided
that all disputes shall be resolved by arbitration of disputes” and signs. Has T
accepted L’s offer creating an express contract?

If, after receiving T’s conditional acceptance, L sends T the keys to the apartment,
is there a contract?

Is the arbitration term a part of the contract?

(b) UCC: rejects.

(H33) B sends S a purchase order for polyester pant suits. The purchase order makes no
mention of arbitration of disputes. S sends an acknowledgment form that
provides for arbitration of disputes and states “accept only if you agree that all
disputes shall be submitted to arbitration.” No further communications or actions.
Has S accepted B’s offer creating an express contract?

If S sends B the polyester pant suits and B pays for them, is there a contract?

Is the arbitration term a part of the contract?

3. Third method of indirect rejection – Additional terms to a common

law contract: Mirror Image Rule:
Under common law, a response to an offer that adds new terms is
treated like a counteroffer rather than an acceptance.
12. Contracts

(H34) L offers to lease a building to T by sending T a signed lease that is silent about
arbitration of disputes. T adds a sentence that states that “All disputes shall be
resolved by arbitration of disputes,” and signs. Has T accepted L’s offer creating
an express contract?

Can T later accept L’s offer?

4. Additional or different terms not rejection under UCC Article 2

(2-207): Seasonable expression of acceptance:
A fact pattern in which there is (i) offer to buy or sell goods and (ii) a
response with additional or different terms raises two separate
questions:

(a) First question: Is there a contract?

Under the UCC, a response to an offer that adds additional
or different terms, but does not make the new terms a
condition of acceptance, is generally treated as an
acceptance – a “seasonable expression of acceptance.”
Whether the parties are merchants is irrelevant in answering
this first question.

(H35) B sends S a signed purchase order for grits that is silent about arbitration of
disputes. S responds by sending back a signed acknowledgment form that states
that “All disputes shall be resolved by arbitration.” Is there a contract? [Compare
with (H33)].

(b) Second question: Is the additional term a part of the

contract?
The additional term is a part of the contract only if (i) both
parties are merchants AND (ii) additional term is not
“material” [fact question] AND (iii) the additional term is not
objected to by original offeror.

(H36) Epstein offers to sell his 1973 Cadillac to Conviser for $400. Conviser responds:
“I accept. Deliver it on Saturday.” No further communications or actions. Is
there a contract?

With Saturday delivery as a contract term?

What if both Epstein and Conviser were merchants?

 Contracts 13.

(H37) Same facts as (H36), but Conviser’s response is, “I accept on the condition that
you agree to Saturday delivery.” Is there a contract?

(5) THIRD POSSIBLE AGREEMENT ISSUE: ACCEPTANCE OF AN OFFER

Look at the offer for information about how the offer was accepted and who
accepted.

A. Method of acceptance:

1. The offeror can control the method of acceptance (e.g., offer

states that it can only be accepted by performance), the time that a
distance acceptance is effective (e.g., offer states that its
acceptance is effective only when it has been received at offeror’s
Richmond office), or whether the offeree must give notice that it has
accepted by performance (e.g., acceptance by performance will not
be effective until offeror has been so notified).

2. On most bar exam questions, the offer is silent as to the method of

acceptance, time of acceptance or notice of acceptance. Instead,
bar exam questions on acceptance usually involve one of the
following three fact patterns:

(a) First common acceptance fact pattern: the offeree starts to

perform:
Watch for fact patterns with three characteristics. First,
verbal offer, second, no words in response, and third, start
of performance.

(i) General rule: start of performance is acceptance.

Starting to perform is treated as an implied promise to
perform and so there is a bilateral contract.

(H38) O offers P $1,000 to paint his house. P starts painting the house. Has P accepted
O’s offer?

(ii) Exception: Start of performance is not acceptance of

unilateral contract offers. Completion of performance
is required. Again, start of performance is an implied
promise to perform. Offers to enter into unilateral
contracts cannot be accepted by a promise. If offer
14. Contracts

requires “performance” for acceptance, then

“performance” for purposes of acceptance of that offer
means completion of performance.

(H39) O offers P $1,000 to paint his house. O’s offer states that it can be accepted only
by performance. P starts painting O’s house. Has P accepted O’s offer so that he
is contractually obligated to continue painting O’s house? [Compare with (H38)
and with (H27)].

(b) Second possible acceptance fact pattern: distance and

delay in communications:
The offeror and the offeree are at different places and there
are delays in receipt of communications. Four rules. First, all
communications OTHER THAN ACCEPTANCE are effective
only when received. Second, acceptance is GENERALLY
effective when mailed (i.e., the “mailbox rule”). Third, if a
rejection is mailed before an acceptance is mailed, then
neither is effective until received. Fourth, you cannot use the
mailbox rule to meet an option deadline.

(H40) Conviser receives a letter from Epstein offering to sell Conviser his 1973 Cadillac
for $400. On January 10, Conviser mails his letter of acceptance. On January 11,
Conviser receives a letter from Epstein revoking the offer. Is there a contract?

(H41) Conviser receives a letter from Phish inviting him to replace Trey in a new
version of the group. On August 8, Conviser mails a letter to the group rejecting
their offer. On August 9, he changes his mind and mails a letter of acceptance.
What result if the rejection letter arrives first?

(H42) B and S execute an option contract that gives B the option to buy Blackacre from
S for $100,000. The option contract provides that it expires on July 13 at 5 p.m.,
EST. B mails S a letter on July 13 at 4:50 p.m. EST, exercising the option and
agreeing to buy Blackacre for $100,000. Did B meet the option deadline?

(c) Third possible acceptance fact pattern: the seller of

goods sends the "wrong" goods:

(i) General rule: acceptance and breach.

(H43) B orders 100 red widgets. S sends 100 blue widgets. Is there a contract?
 Contracts 15.

Is there a breach of contract?

(ii) Accommodation (i.e., explanation) exception:

counteroffer and no breach.

(H44) B orders 100 red widgets. S sends 100 blue widgets with the explanation “out of
red, hope that you can use blue instead.” Is there a contract?

Is there a breach of contract?

B. Person who accepts:

Generally, an offer can be accepted only by (1) a person who knows about
the offer at the time she accepts (2) who is the person to whom it was
made. Offers can not be assigned; options can be assigned unless the
option otherwise provides. [We will see later that contract rights can be
assigned]

(H45) [Rewards and knowing of the offer]. I offer a $500 reward to the person who
finds my lost dog. You find and return my dog, not knowing of the reward. Is
that acceptance of my offer?

(H46) [Nonassignability of offers]. I offer to sell you my 1973 Cadillac for $400. Can
you sell the offer to Conviser so that he can accept the offer?

(H47) [Assignability of options]. You pay me $10 for a ten-day option to buy my
Cadillac for $400. Can you sell the option to Conviser so that he can now
exercise the option and accept the offer?

(6) FORMATION: SECOND VIEW/OVERVIEW

Again, remember that a contract is more than an agreement. Some agreements

are not legally enforceable. Legal reasons for not enforcing an agreement
include (1) lack of consideration or a consideration substitute for the promise at
issue; (2) lack of capacity of the person who made that promise; (3) Statute of
16. Contracts

Frauds; (4) existing laws that prohibit the performance of the agreement; (5)
public policy; (6) misrepresentations; (7) nondisclosure; (8) duress; (9)
unconscionability; (10) ambiguity in words of agreement; and (11) mistakes at the
time of the agreement as to the material facts affecting the agreement.

(7) REASON FOR NOT ENFORCING AGREEMENT: LACK OF CONSIDERATION

OR CONSIDERATION SUBSTITUTE

A. What is consideration?

The doctrine of consideration is of limited practical significance. In most

transactions, particularly most commercial agreements, there will be no
issue as to consideration. Article 2 of the UCC has further reduced the
practical significance of consideration in modification.

In dealing with consideration questions on the bar exam, go through the

following three steps. First, identify the promise breaker, i.e., the person
who is not doing what she promised to do. Second, ask whether that
person asked for something in return for her promise, i.e., bargained for
something. Third, look at the person who is trying to enforce the promise
and ask what requested legal detriment that person sustained. In sum,
look for bargained-for legal detriment.

B. What are possible consideration issues?

1. “Bargained for:”
Asked for by the promisor IN EXCHANGE for her promises.
Consideration fact patterns have people doing stuff that they were
asked to do.

(H48) L rents an apartment to T. One month before the lease expires, L sends T a letter
promising to renew the lease at the same rental rate. T paints the apartment.
Notwithstanding her promise to T, L increases the rent. T sues L for breach of
contract. L asserts no contract because no consideration. Is T’s painting the
apartment consideration for L’s promise to renew the lease at the same rental
rate?

2. “Legal detriment:”

(H49) I make the following promise to you: “Stop listening to records by Kinky
Friedman, (www.kinkajourecords.com) for two months and I'll pay you $100.”
You don’t listen to Kinky Friedman records, not “Asshole From El Paso,” not
“Why Did You Bob Your Nose, Girl?”, not “They Ain’t Making Jews Like Jesus
 Contracts 17.

Anymore,” not any of his other “classics.” Notwithstanding your “forbearance,” I

don’t pay. You sue for breach of contract. Is there consideration, i.e., bargained-
for legal detriment, supporting my promise to pay you $100?

3. Promise as consideration:

(H50) On April 15, B and S enter into a written agreement in which B promises to buy
S’s house and S promises to sell his house to B, with B’s payment and S’s transfer
of title to occur on June 6. Is there consideration for B’s promise to buy?

Is there consideration for S’s promise to sell?

(H51) Illusory promise exception: Same facts as (H50) except S promises to sell unless
she changes her mind. Is there consideration for B’s promise to buy?

4. Adequacy of consideration:
Not relevant in contract law.

C. What are the most likely consideration issues?

1. "Past consideration,"

(a) General rule: not consideration

(H52) Apu saves Lisa’s life. Homer is so grateful that he promises to pay Apu $3,000.
Homer later changes his mind. Is there consideration for Homer’s promise so it is
legally enforceable?

(b) Exception: expressly requested by promisor and

expectation of payment by promisee:

(H53) Homer sees Lisa in danger and asks Apu to save her, knowing that Apu would
expect to be paid. After Apu saves Lisa, Homer promises to pay Apu $3,000. Is
this promise legally enforceable?

2. “Pre-existing contractual or statutory duty rule” [Common law

different from Article 2]:
18. Contracts

(a) Common law

(i) General rule: doing what you are already legally

obligated to do is not new consideration for a new
promise to pay you more to do merely that. Under
common law new consideration is required for
contract modification.

(H54) Kinky Friedman contracts with Lil Jon to perform as the opening act at a crunk
show at Town Hall for $15,000. Notwithstanding the contract, the Kinkster
refuses to sing unless he is paid $20,000, not $15,000. Lil Jon promises to pay
Kinky $20,000. Kinky performs. Lil Jon only pays Kinky $15,000. Is there
consideration for Lil Jon’s promise to pay the additional $5,000?

Is that promise legally enforceable?

(ii) Exception: addition to or change in performance:

(H55) What if Lil Jon promised to pay Kinky the additional $5,000 if Kinky will sing
Tom Lehrer’s “I Am Spending Hanukkah in Santa Monica,” instead of Kinky’s
usual opening song, “Get Your Biscuits in the Oven and Your Buns in the Bed”?

(iii) Exception: unforeseen difficulty so severe as to

excuse performance:

(H56) The sound system at Town Hall is inoperative. Lil Jon agrees to pay Kinky an
additional $5,000 if he will still perform. Kinky performs. Is the promise to pay
the additional $5,000 legally enforceable?

(iv) Exception: third-party promise to pay:

(H57) Same facts as (H54) except Conviser, not Lil Jon, promises to pay Kinky the
additional $5,000. Is Conviser’s promise to pay the additional $5,000
enforceable?
 Contracts 19.

(b) Article 2:
Article 2 does not have a pre-existing legal duty rule. New
consideration is not required to modify a sale of goods
contract. Good faith is the test for changes to an existing
sale of goods contract.

(H58) S contracts to sell 1,000 pounds of grits to B for $1,000. S subsequently tells B
that it cannot deliver the 1,000 pounds of grits for less than $1,300. B promises
by telefax to pay the additional $300. S delivers the 1,000 pounds of grits. Is
there new consideration for B’s new promise to pay $300 more?

Is that new promise nonetheless legally enforceable?

3. Part payment as consideration for release, i.e., promise to forgive

balance of debt:
Key is whether debt is due and undisputed. If debt is due and
undisputed, then part payment is not consideration for release.

(a) Due and undisputed:

(H59) D owes C $3,000. The debt is due and undisputed. C and D agree that D will pay
$2,000 in exchange for a release, i.e., C’s promise that she will not take any action
to collect the remainder of the debt. D pays $2,000. Did C receive new
consideration for her new promise to release the balance of the debt?

Is the debt settlement legally enforceable?

(b) Not yet due (or disputed):

(H60) Same facts as (H59), except the $3,000 debt was due on January 15. C agrees to
take $2,000 on or before January 11 in full satisfaction of the debt. D pays the
$2,000 on January 11. Did C receive new consideration for his new promise to
release?

D. What are consideration substitutes?

A promise is legally enforceable even though there is no consideration if

there is one of the following consideration substitutes:
20. Contracts

1. A written promise to satisfy an obligation for which there is a

legal defense is enforceable without consideration.

(H61) D owes C $1,000. Legal action to collect this debt is barred by the statute of
limitations. D writes C, “I know that I owe you $1,000. I will pay you $600.” Is
there new consideration for D’s new promise?

Can C enforce the new $600 promise?

2. Promissory estoppel (detrimental reliance):

(a) Elements:

(i) Promise,

(ii) Reliance that is reasonable, detrimental, and

foreseeable, and

(iii) Enforcement necessary to avoid injustice.

(b) Comparison of consideration and promissory estoppels:

(H62) L leases a building to T. L sends T a letter promising to renew the lease without a
rent increase. T paints the building. Notwithstanding her promise and T’s
painting the building, L increases the rent. T sues L for breach of contract. Is T’s
painting the building “consideration”?

Is T’s painting the building promissory estoppel? [Compare with (H48)],

3. Seals
If your state still recognizes seals as a consideration substitute,
your state supplement will so state.

(8) REASON FOR NOT ENFORCING AGREEMENT: DEFENDANT

PROMISSOR’S LACK OF CAPACITY

A. Who lacks capacity to contract?

1. infant – under 18,

 Contracts 21.

2. mental incompetents – lacks ability to understand agreement, or

3. intoxicated persons if other party has reason to know.

B. Consequences of incapacity:

1. Right to disaffirm by person without capacity:

(H63) Conviser hires Eric Cartman to lecture on Contracts for $100 a lecture. If
Cartman does not do the lectures, can Conviser enforce the agreement?

(H64) If Cartman does the lectures and Conviser does not pay him, can Cartman
enforce the agreement?

2. Implied affirmation by retaining benefits after gaining capacity

(ratification):

(H65) S sells B a car on credit. B is only 17. B does not pay S but refuses to return the
car. B later turns 18. B keeps the car without complaint or objection. Can S now
enforce the agreement that B made when she was 17?

3. Quasi-contract liability for necessaries:

A person who does not have capacity is legally obligated to pay for
things that are necessary such as food, clothing, medical care or
shelter, but that liability is based on quasi-contract law, not contract
law.

(H66) X, a person who is mentally incompetent, leases an apartment from L. The lease
agreement provides for $400 a month rent; L’s other tenants are only paying $300
a month for a comparable apartment. Can L enforce the agreement to pay $400 a
month?

Is there any other basis for requiring X to pay for this requested necessary?
22. Contracts

(9) REASON FOR NOT ENFORCING AGREEMENT: STATUTE OF FRAUDS

DEFENSE

The Statute of Frauds is a statute designed to prevent fraudulent claims of the

existence of a contract. Statute of Frauds makes it harder to make such a false
or fraudulent claim by requiring the claimant to have proof other than just
testimony that a contract exists before the claimant gets its day in court. The
proof required to satisfy the Statute of Frauds is generally proof of either (1)
performance (2) or a writing signed by the person who is asserting that there was
no such agreement.

Statute of Frauds is in essence a barrier between a litigant’s asserting a contract

claim and a trial on that claim. If a contract claim is “within the Statute of
Frauds,” then the Statute of Frauds’s requirement of “special proof” (performance
or a writing) must be satisfied to get through that Statute of Frauds barrier to get
to a trial.

A. Four contracts within the Statute of Frauds

1. Promises to answer for the debts of another [suretyship]:

Not merely a promise to pay but rather a promise to pay if someone
else does not. LOOK FOR A GUARANTEE. LOOK ALSO FOR
THE MAIN PURPOSE EXCEPTION. If the “main purpose” of the
obligation allegedly guaranteed was to benefit the guarantor, then
not even that guarantee is within the Statute of Frauds.

(H67) S Store sells P paint on credit for $400. S Store sues Conviser for the $400,
alleging Conviser promised to pay for the paint. Conviser files a motion to
dismiss based on the Statute of Frauds. Is Conviser’s alleged promise within the
Statute of Frauds?

(H68) S Store sells P paint on credit to be used in painting Epstein’s house. S Store
sues Conviser alleging that Conviser promised to pay for the paint if P did not
pay. Conviser files a motion to dismiss based on the Statute of Frauds. Is
Conviser’s alleged promise within the Statute of Frauds?

(H69) Same facts as (H68) except that S Store sells P paint to use in painting Conviser’s
house. Is Conviser’s alleged promise within the Statute of Frauds?

2. Service contract not “capable” of being performed within a year

from the time of the contract (i.e., more than one year):
 Contracts 23.

(a) Specific time period, more than a year – S/F applies.

(H70) P sues D for breach of an alleged three-year employment contract. D files a

motion to dismiss based on the Statute of Frauds. Is this within the Statute of
Frauds?

(H71) Same facts as (H70) except that P also claims that the three-year employment
contract could be terminated on thirty days’ notice. Is this within the Statute of
Frauds?

(b) Specific time, more than a year from date of contract – S/F
applies.

(H72) Kenny G sues Club Putz for breach of an alleged January 15, 2011, contract to
perform on December 24, 2012. Club Putz files a motion to dismiss based on the
Statute of Frauds. Is this within the Statute of Frauds?

(H73) P claims that O agreed to employ her for a year, starting next month. Is this
within the Statute of Frauds?

(c) Task (nothing said about time) – S/F does not apply. Recall
the language of the Statute: “not capable of being
performed” within a year. “Capable,” in essence, means
theoretically possible with unlimited resources; ignore what
actually happens; key is what might have happened with
unlimited resources.

(H74) P claims that D hired him on January 15, 2012, to cut all of the trees on D’s land.
Is this within the Statute of Frauds?

(d) Life – S/F does not apply.

(H75) P claims that D hired her to work for her for the rest of P’s life. P is only 21 years
old and in great health. Is this within the Statute of Frauds?
24. Contracts

3. Transfers of interest in real estate (with exception for leases of year

or less):

(H76) P claims that D agreed to build a house on Blackacre. Is this within the Statute of
Frauds?

(H77) P claims that D agreed to sell Redacre to P. Is this within the Statute of Frauds?

Is an option to sell Redacre within the Statue of Frauds?

(H78) P claims that D agreed to sell an easement on Greenacre. Is this within the Statute
of Frauds?

(H79) P claims that D agreed to lease Blackacre for one year. Is this within the Statute
of Frauds?

4. Sale of goods for $500 or more:

(H80) Conviser sues Epstein, claiming that Epstein agreed to sell him his 1973 Cadillac
for $500. Epstein files a motion to dismiss based on the Statute of Frauds. Is this
within the Statute of Frauds?

(H81) Same facts as (H80), except that Conviser claims that the agreed upon price was
$400. Is this within the Statute of Frauds?

B. How is Statute of Frauds satisfied?

If Statute of Frauds is applicable, then the requirements of the Statute of

Frauds must be met (“satisfied”) in order for the agreement to be
enforceable. If the requirements of the Statute of Frauds are not satisfied,
there is a Statute of Frauds defense. And, if there is a Statute of Frauds
defense asserted and established, there is no legally enforceable
agreement – no contract liability.
 Contracts 25.

1. Performance:
The Statute of Frauds can be satisfied by performance. The five
rules for satisfaction of the Statute of Frauds by performance vary
depending on whether the contract is a real estate transfer contract,
services contract, or a sale of goods contract.

(a) Performance and transfer of real estate.

(performance rule #1):
Part performance satisfies the Statute of Frauds in transfers
of real estate. Part performance requires any two of the
three: (i) improvements to the land, (ii) payment, and (iii)
possession.

(H82) B claims that S orally agreed to sell Blackacre to B for $10,000. When S refused
to deed Blackacre to B, B sues for breach of contract. S asserts a Statute of
Frauds defense. B is in possession of Blackacre and made improvements. Does S
have a Statute of Frauds defense?

(H83) Same facts as (H82) except that all that B has done is pay S $10,000. Does S
have a Statute of Frauds defense?

(b) Performance and services contracts:

(i) Full performance by either party satisfies the Statute

of Frauds.
(performance rule #2):

(H84) Conviser and Ludacris agree that (i) Ludacris will write new mini review
materials and (ii) Conviser will advertise the course as the Ludacris Mini Review
for the next five years. Is this agreement within the Statute of Frauds?

Ludacris completes the materials. Conviser continues to call the course the
Conviser Mini Review. Ludacris sues Conviser for breach of contract. Conviser
asserts a Statute of Frauds defense (in essence contending that there is no contract
– that Ludacris is fraudulently claiming that there is a contract). Is the Statute of
Frauds satisfied?

(ii) Part performance of a services contract does not

satisfy the Statute of Frauds.
(performance rule #3):
26. Contracts

(H85) P agrees to work for D for three years. P works for 13 months and then D fires
her without cause. P sues D for breach of contract. D asserts a Statute of Frauds
defense. Is the Statue of Frauds satisfied by P’s working for 13 months?

Can P recover under contract law for the 13 months of work she had done?

Under quasi-contract?

(c) Part performance and sale of goods contracts:

(i) Seller’s part performance – ordinary goods

General rule is that part performance of a contract for
the sale of goods satisfies the Statute of Frauds, but
only to the extent of the part performance. More
specifically, look to see if question is about delivered
goods or undelivered goods.
(performance rule #4):

(H86) [Delivered goods]. S orally agrees to sell 2,000 sacks of grits to B for $10,000.
S delivers 600 sacks of grits. S sues B for payment for the 600 sacks that have
been delivered. Does B have a Statute of Frauds defense?

(H87) [Undelivered goods]. Same facts as (H86) except that B sues S for failure to
deliver the remaining 1400 sacks. S asserts a Statute of Frauds defense. Does S
have a Statute of Frauds defense?

(ii) Seller’s part performance – specially manufactured

goods:
If the contract is for the sale of goods that are to be
specially manufactured, then the Statute of Frauds is
satisfied as soon as the seller makes a “substantial
beginning.” This means that the seller has done
enough work that it is clear that what she is working
on is specially manufactured, i.e., custom made or
made to order.
(performance rule #5):
 Contracts 27.

(H88) S sues B alleging B breached a contract for a $500 pair of cowboy boots by telling
S, after S had made a “substantial beginning,” that she did not want the boots. B
asserts a Statute of Frauds defense. Does B have a Statute of Frauds defense?

2. Writing:
The requirements of the Statute of Frauds can also be satisfied by
a writing. Remember (1) not every writing satisfies the
requirements of the Statute of Frauds and (2) the requirements of
the Statute of Frauds can be satisfied without a writing [as we just
learned in the performance materials].

(a) Statutes of Frauds other than Article 2:

Look at the contents of the writing OR WRITINGS – all
material terms test [who and what]. Look also at who signed
the writing. The writing satisfies the Statute of Frauds so
that there is no Statute of Frauds defense if the writing has
been signed only by the defendant, i.e., person who is
asserting the Statute of Frauds defense.

(H89) “Your offer of January 15th is hereby accepted.” s/ Dana Scully. Does this
writing satisfy the Statute of Frauds?

(H90) “The law firm of Franklin & Bash (FB) hereby agrees to employ Harriet Miers as
an attorney for three years at $200,000 a year.” s/Peter Bash for the firm. FB
wrongfully dismisses Ms. Miers. She sues for breach of contract. FB asserts a
Statute of Frauds defense. Did the writing satisfy the Statute of Frauds so that FB
does not have a Statute of Frauds defense?

(H91) Same writing as (H90). Ms. Miers breaches. FB sues Ms. Miers for breach of
contract; she asserts a Statute of Frauds defense. Does the writing satisfy the
Statute of Frauds?

(b) Article 2 Statute of Frauds:

Again, look to the contents of the writing and who signed the
writing. The Article 2 Statute of Frauds’ requirements for
contents of a writing are different from the common law
“material terms test.” The writing must simply indicate that
there is a contract for the sale of goods and contain the
quantity term [how many].
28. Contracts

(H92) S sues B for breach of an alleged contract to buy hominy grits for $500. The only
writing is the following: “I agree to buy 100 pounds of grits.” s/B. Does the
writing satisfy the Statute of Frauds?

(H93) S, a grits distributor, receives the following fax from B, a grits store: “As we
agreed during our telephone conversation today, you will be sending me 200
sacks of grits.” s/B. S does not respond. S never sends the grits. B sues S for
breach of contract. S asserts a Statute of Frauds defense. Has the Statute of
Frauds been satisfied even though S did not sign anything?

3. Judicial admission:
If the defendant asserting a Statute of Frauds defense admits in a
pleading or testimony that he had entered into an agreement with
the plaintiff, the purpose of the Statute of Frauds – protection
against fraudulent or otherwise false claims of an agreement – is
fulfilled and so the Statute of Frauds is satisfied – no Statute of
Frauds defense.

4. Estoppel:
Some cases hold that the plaintiff’s reliance on the defendant’s oral
promise can estop the defendant from asserting a Statute of Frauds
defense.

(10) USE OF STATUTE OF FRAUDS ON THE BAR EXAM FOR QUESTIONS

OTHER THAN WHETHER THERE IS A STATUTE OF FRAUDS DEFENSE TO
ENFORCEMENT OF AGREEMENT

A. Written proof of authorization to enter into contract for someone else:

Issue is when do RULES OF LAW REQUIRE that a person have written

authorization in order to execute a contract for someone else. RULES OF
LAW REQUIRE that the authorization must be in writing only if the
contract to be signed is within the Statute of Frauds, i.e., the authorization
must be of “equal dignity” with the contract.

(H94) Landlord (L) sues Sharon Stone for breach of a one-year apartment lease that
Epstein entered into, claiming that he was authorized to act on Ms. Stone’s behalf.
Does contract law require written evidence of Epstein’s authority to act on behalf
of Ms. Stone?
 Contracts 29.

B. Written proof of contract modification:

Sometime there is no LEGAL requirement of written evidence of an

alleged modification of a written contract. Resolve any LEGAL issue of
whether such written evidence of the modification is needed by (1) looking
at the deal with the alleged change and (2) determining whether the deal
with the alleged change would be within the Statute of Frauds. If the deal
with the alleged change would be within the Statute of Frauds, then the
alleged modification agreement must be in writing.

(H95) T leases a building from L for one year. L claims they later agreed to increase the
term to three years. Does contract law require written evidence of the alleged
modification?

(H96) T leases a building from L for three years. T later claims that they agreed to
reduce the duration of the lease from three years to one year. Does contract law
require written evidence of the alleged modification?

(H97) Conviser contracts to buy 600 bottles of Thunderbird wine from Epstein for $600.
Conviser later claims that they agreed to modify the contract to reduce the price to
$3. Does contract law require written evidence of the alleged modification
agreement?

C. Contract provisions requiring written modification:

1. Under common law, contract provisions requiring that all

modifications be in writing are not effective – ignore contract
language.

(H98) R employs E for eleven months. They sign a contract. It provides that all
modifications have to be in writing. E claims that they later agreed to reduce the
employment term to seven months. R alleges that there was no such later
agreement. Is a writing required AS A MATTER OF LAW?

(H99) Same facts as (H98), except that E claims that they later agreed to extend the
employment term to seven years. Is a writing required?
30. Contracts

2. Under UCC, contract provisions requiring written modifications are

effective unless waived.

(H100) Epstein contracts to sells his Cadillac to Conviser for $400. They sign a contract
providing that all modifications must be in writing. Epstein claims that they later
agreed to raise the price to $499. Conviser refuses to pay $499. Is a writing
required as A MATTER OF LAW [even though $499 is less than $500]?

(11) ANOTHER REASON FOR NOT ENFORCING AN AGREEMENT: ILLEGALITY

A. Illegal subject matter:

If the subject matter is illegal, the agreement is not enforceable.

(H101) [Illegal subject matter]. Epstein agrees to pay $7,000 to Sarah Silverman to
injure Conviser. If Silverman does not injure Conviser, can Epstein recover from
Silverman for breach of contract?

B. Illegal purpose:

If the subject matter is legal, the agreement is enforceable if the plaintiff

did have reason to know of the defendant’s illegal purpose.

(H102) [Illegal purpose]. Silverman contracts with Delta for a nonrefundable ticket to
fly from Los Angeles to Chicago where Conviser is. If Silverman does not pay
for the ticket, can Delta recover from Silverman for breach of contract?

(12) ANOTHER REASON FOR NOT ENFORCING AN AGREEMENT: PUBLIC

POLICY

Courts can refuse to enforce an agreement because of public policy. Look for an
exculpatory agreement that exempts intentional or reckless conduct from liability
or a covenant not to compete without a reasonable need or reasonable time and
place limits.
 Contracts 31.

(13) ANOTHER REASON FOR NOT ENFORCING AN AGREEMENT:

MISREPRESENTATION

Look for (1) a statement of “fact” before the contract, (2) by one of the contracting
parties or her agent, (3) that is false, and (4) induces the contract. No
wrongdoing required for material misrepresentations.

(H103) S tells B that the house had no termites. S honestly believes that the house has no
termites, but the house has termites. B agrees to buy the house in reliance on S’s
representation. Can B rescind the agreement to buy the house?

(14) ANOTHER REASON FOR NOT ENFORCING AN AGREEMENT:

NONDISCLOSURE

Generally, a person making a contract has no duty to disclose what she knows.
E.g., B is contracting to buy land for a new Walmart but does not have to disclose
that fact to sellers. Wrongdoing requirement for nondisclosure. Look for
fiduciary-like relationship or concealment.

(H104) In selling his 1973 Cadillac to Conviser, Epstein not only does not tell Conviser
that much of the car has rusted but also paints the car burnt orange to conceal the
rust. Can Conviser rescind?

(15) ANOTHER REASON FOR NOT ENFORCING AN AGREEMENT: DURESS OR

UNDUE INFLUENCE

A. Physical duress.

B. Economic duress.

1. Elements of economic duress:

(a) “bad guy” – improper threat which is usually threat to breach

existing contract,

AND

(b) “vulnerable guy” – no reasonable alternative.

2. Most common example of economic duress:

32. Contracts

(H105) D has a contract to supply 1,000 pounds of kosher grits to P for Chanukah sales in
2012. D refuses to perform this contract until P agrees to buy 4,000 pounds of
cheese grits in 2013. P has no other source of kosher grits and so agrees. D
delivers the kosher grits. Can P get out of the agreement to buy 4,000 pounds of
cheese grits in 2013?

C. Undue influence:

Look for (1) special relationship between the parties and (2) improper
persuasion of the weaker by the stronger

(16) ANOTHER REASON FOR NOT ENFORCING AGREEMENT: `

UNCONSCIONABILITY

This doctrine, originally applicable only to sales of goods but (1) now a part of
contracts law generally, (2) empowers a court to refuse to enforce all or part of
an agreement. The two basic tests, (i) unfair surprise (procedural) and
oppressive terms (substantive) are, (ii) tested as of the time the agreement was
made (iii) by the court.

(17) ANOTHER REASON FOR NOT ENFORCING AGREEMENT, I.E., AMBIGUITY

IN WORDS OFAGREEMENT [Raffles v. Wichelhaus]

There will be no contract if (i) parties use a material term that is open to at least
two reasonable interpretations, and (ii) each party attaches different meaning to
the term, and (iii) neither party knows or has reason to know the term is open to
at least two reasonable interpretations.

(H106) B and S contract for cotton to be delivered on the Peerless. B intends the October
Peerless; S intends the December Peerless. Neither B nor S knows that there are
two ships named Peerless. Can S enforce an agreement to buy the cotton on the
December Peerless?

(H107) What result in (H106) if B (but not S) knows that there are two ships named
Peerless?
 Contracts 33.

(18) FINAL REASON FOR NOT ENFORCING AGREEMENT: MISTAKE OF

FACT EXISTING AT TIME OF CONTRACT

A. Mutual, material mistake of existing fact:

(H108) S and B contract for the sale of a cow named Rose for $80. Both were certain that
Rose was barren. Rose turned out to be fertile and worth $750. S refused to
deliver Rose. B sued for breach of contract. What result?

B. Unilateral mistake of material fact:

Generally, courts have been reluctant to allow a party to avoid a contract

for a mistake made by only one party. There will be relief for situations in
which the other party had reason to know of the mistake, i.e., palpable
mistake.

(H109) BRI gets bids from ten vendors for new hoodies. Nine of the bids were more than
$100,000. The other bid by X which BRI accepted was for $30,000 because X
made a clerical error. Can X rescind the contract because of its unilateral
mistake?
34. Contracts

THIRD ISSUE: TERMS OF THE CONTRACT

(1) WORDS IN THE WRITTEN CONTRACT:

(2) WORDS OF THE PARTIES NOT IN THE WRITTEN CONTRACT AND THE
PAROL EVIDENCE RULE:

A. Triggering facts:

1. Final written contract.

2. Earlier words of one or both parties.

B. Overview of the parol evidence rule:

1. Policy:
The underlying premise is that the final written version of a deal is
more reliable than anything said or written earlier.

2. Bar exam approach:

FOR PURPOSES OF THE BAR EXAM, the parol evidence rule is
like an evidence rule in the sense that (1) the issue is whether
evidence is admissible and (2) admissibility often depends on the
purpose for which the evidence is to be introduced.
And remember, no “e” in “parol.”

3. Vocabulary of parol evidence:

(a) Integration:
Written agreement that court finds is the final agreement,
triggers the parol evidence rule.

(b) Partial integration:

Written and final, but not complete.

(c) Complete integration:

Written and final and complete.

(d) Merger clause:

Contract clause such as, “This is the complete and final
agreement.”

(e) Parol evidence”

- Words of party (or parties),
 Contracts 35.

- Before integration, i.e., before agreement was put in written

Form,

- Oral or written.

C. Five parol evidence fact patterns

1. Changing/contradicting terms in the written deal

Regardless of whether the writing is a complete or partial
integration, evidence of earlier agreements is not admissible for the
purpose of contradicting the terms in the written contract.

(H110) [General rule – cannot use parol evidence to change/contradict]. S contracts

in writing to sell B 1,000 chickens a month for 12 months. When S limits
deliveries to 1,000 chickens a month, B sues for breach of contract. B claims that
S told him just as they were signing the contract that S would deliver as many
chickens as B needs during the 12-month contract term, and offers evidence of
pre-contract telefaxes from S supporting this claim. Can the court admit this
evidence that changes/contradicts the terms of the contract?

What about evidence of post-contract statements and telefaxes?

2. Mistake in integration, i.e., clerical mistake:

A court may, however, consider evidence of such terms for the
limited purpose of determining whether there was a mistake in
integration, i.e., a mistake in reducing the agreement to writing.

(H111) [Mistake in integration]. Same written contract as (110). Various earlier letters
state that the deal is that S will deliver 1,200 chickens a month for 10 months. If
B sues for breach of contract for delivering only 1,000 chickens a month instead
of 1,200, can this evidence be admitted for the limited purpose of determining
whether there was a mistake in putting the agreement in writing?

3. Defenses, i.e., getting out of a written deal:

And, regardless of whether the writing is a complete or partial
integration, the parol evidence rule does not prevent a court from
admitting evidence of earlier words of the parties for the limited
purpose of determining whether there is a defense to the
enforcement of the agreement, such as misrepresentation, fraud, or
duress.

(H112) [Defense exception]. Same basic facts as (H110). S contracts in writing to sell B
1,000 chickens a month for 12 months. B claims that S told him just as they were signing
36. Contracts

the contract that S would deliver as many chickens as B needs during the 12-month
contract term, and offers evidence of pre-contract telefaxes supporting this claim. If B
sues for rescission, can the court admit this evidence for the limited purpose of
determining whether there is a misrepresentation defense to the enforcement of the
agreement?

4. Ambiguity, i.e., explaining term in the written deal:

Regardless of whether the writing is a complete or partial
integration, the parol evidence rule does not prevent a court from
admitting evidence of earlier agreements to resolve ambiguities in
the written contract.

(H113) S contracts in writing to sell B chickens. B contends that the word “chickens” in
the contract means only fryers while S contends that the term includes boiling
hens. Can the court admit evidence of pre-contract statements by B and S as to
what they mean by the word “chicken”?

5. Adding to the written deal:

The parol evidence rule prevents a court from admitting evidence of
earlier agreements as a source of consistent, additional terms
unless the court finds (i) that the written agreement was only a
partial integration or (ii) that the additional terms would ordinarily be
in a separate agreement.

(H114) S contracts in writing to sell B chickens. The written contract does not specify
how the chickens are to be packaged and wrapped. Can the court admit evidence
of earlier agreements between S and B as to how the chickens are to be packaged
and wrapped for the purpose of determining whether such packaging terms should
be added to the terms of the written contract?

(3) CONDUCT

A. Conduct can also be a source of contract terms.

B. Forms of conduct:

On the bar, such conduct takes one of three forms. Courts look first to
course of performance, second to course of dealing, third to custom and
usage to explain words in contracts or to fill gaps in contracts: Consider
again the example of a written contract for the sale of “chickens.”
 Contracts 37.

1. Course of performance – same people, same contract:

S contracts to sell 1,000 chickens a month to B for 12 months. The
first three shipments are boiling hens, and B does not complain.

2. Course of dealing – same people, different but similar contract:

S contracts to sell 1,000 chickens a month to B for 12 months.
Under prior chicken contracts, S sent B boiling hens, and B
complained.

3. Custom and usage – different but similar people, different but

similar contract:
S contracts to sell 1,000 chickens a month to B for 12 months. It is
customary in the chicken industry to use the word “chicken” when
the deal covers chickens up to six pounds including boiling hens.

(4) UCC FOR TERMS IN SALES OF GOODS CONTRACTS (“default”terms)

A. Delivery obligations of seller of goods if delivery by common carrier:

If there is an agreement as to place of delivery by a common carrier, then

the question is: what does the seller have to do to complete its delivery
obligation. There are two possible UCC answers to that question:

1. Shipment contracts:
One possibility is that the contract is a shipment contract which
means that the seller completes its delivery obligation when it (i)
gets the goods to a common carrier, and (ii) makes reasonable
arrangements for delivery, and (iii) notifies the buyer.

(H115) S, a Snook, Texas pet store, contracts to deliver armadillos to B, a Buffalo, New
York pet store. What are S’s delivery obligations if this is a shipment contract?

2. Destination contracts:
The other possibility is that the contract is a destination contract,
which means that the seller does not complete its delivery
obligation until the goods arrive at the destination.

3. Determining whether contract is a shipment or destination contract:

Most contracts with delivery obligations are shipment contracts.
Watch for the use of FOB – free on board (city) – as source for
determining whether the contract is a shipment contract or a
destination contract. FOB followed by city where the seller is or
where goods are means shipment contract; FOB followed by any
other city means destination contract.
38. Contracts

(H116) Same facts as (H115), i.e., Snook seller and Buffalo buyer. What if the contract
provides for the shipment of the armadillos to Chicago, F.O.B., Chicago?

B. Risk of loss:

1. What is a risk of loss problem?

Risk of loss issues arise where (i) after the contract has been
formed, but before the buyer receives the goods, (ii) the goods are
damaged or destroyed, and (iii) neither the buyer nor the seller is to
blame.
For example, a grocer in New Ulm, Minnesota ordered coffee from
a New York seller. Even though the coffee was shipped in the best
available containers, rats "infiltrated" the coffee while it was in
transit. The coffee was delivered; the grocer paid for the coffee.
The grocer then opened the packages of coffee and wrote the
following letter of complaint:

Schentlemens in New York:

Der last two pecketches ve got from you off koffe was mit rattschidt
gemitz. Der Koffee may be gute enuff, but der rattsdurds schbeels the
trade. Ve did not see der rattschidt in der sambles vich you sent us for
examination. It takes so much time to peck der rattsturds from the
koffee. Ve order der kelen koffee and you shipt schidt mit der koffee; it
vas a muschtake, YA? Ve like you to schipp us der koffee in van sak und
der rattschidt in a udder sak. Den ve mix it to suit our kostorner.
Write please if ve shudt shipp der schidt bak and keep der koffee or if ve
shudt keep der schidt and schipp der koffee back or ship der whole
schidten verks bak. Ve vant to do rite in der madder, but ve don't like dis
rattschidt bizziness.
Mit mutch respeckts,
Karl Brummenschidt

2. What are the possible consequences in a risk of loss problem?

If the risk of loss is on the buyer, he has to pay the full contract
price for the lost or damaged goods. If the seller has the risk of
loss, no obligation on the buyer and possible liability on the seller
for nondelivery.

3. What are the risk of loss rules?

There are four risk of loss rules. None involve “title.” Title is
irrelevant. Do rule #1 first, if it does not apply, then #2 and if it does
not apply, then
 Contracts 39.

#1 Agreement: agreement of the parties controls.

#2 Breach: breaching party is liable for any uninsured loss

even though breach is unrelated to problem.

(H117) What if the seller in the coffee hypo, S, was two weeks late in delivering the
coffee?

#3 Common carrier delivery: risk of loss shifts from seller to

buyer at the time the seller completes its delivery obligations.

(H118) What if the coffee was shipped from New York by the New York seller by
common carrier, F.O.B. New York?

#4 “Catch-all” (no agreement, no breach, no delivery by a

carrier): the determining factor is whether the seller is a
merchant. WHETHER THE BUYER IS A MERCHANT IS
IRRELEVANT. Risk of loss shifts from a merchant-seller to
the buyer on the buyer’s “receipt” of the goods; risk of loss
shifts from a nonmerchant seller when he or she “tenders”
the goods.

(H119) B buys a stove from S, a used appliance dealer. S tells B that he can pick up the
stove at the loading dock. Before B can drive his truck to the loading dock,
lightning strikes the stove. Does B have to pay for the damaged stove?

(H120) B, a used appliance dealer, buys a used stove from S. S tells B to pick up the
stove at his convenience that the stove is on S’s back porch. Later, vandals
damage the stove before B gets it. Does B have to pay for the damaged stove?

C. Warranties of quality

1. Express:
Look for words that promise, describe or state facts. Distinguish
from sales talk which is more general, an opinion. Or, look for
sample or model.

(H121) Which of the following is/are an express warranty:

(a) “all steel.”
(b) “top quality.”
40. Contracts

(c) guaranteed to operate for two years.

(d) seller’s showing buyer a sample.

2. Implied warranty of merchantability:

When any person buys any goods from any merchant, a term is
automatically added to the contract by operation of law – that the
goods are fit for the ordinary purpose for which such goods are
used.

(a) Triggering fact: seller is a merchant WHICH HERE MEANS

IT DEALS IN GOODS OF THAT KIND.

(b) Warranty: goods are fit for ordinary purposes.

(H122) Conviser buys a “gold” chain from Golden Fleece Fine Jewelry Store. Nothing
was written or said about the quality of the chain. When Conviser puts the new
chain on, his seven chest hairs fall out. Can Conviser recover from the seller on a
breach of warranty theory?

(H123) Conviser buys a car from the Golden Fleece Fine Jewelry Store. One day later
Conviser cannot get the car to start. Can Conviser recover from the seller on a
breach of warranty theory?

3. Implied warranty of fitness for a particular purpose:

(a) Triggering facts: buyer has particular purpose; buyer is

relying on seller to select suitable goods; seller has reason
to know of purpose and reliance.

(b) Warranty: goods fit for particular purpose.

(H124) Bubba Conviser, Richard’s country cousin, tells a clerk at a shoe store that he
needs some shoes to wear to interviews with Wall Street firms. The clerk shows
and sells Bubba a pair of white, patent leather loafers. The Wall Street lawyers
take one look at Bubba’s shoes and terminate the interview. Is there an implied
warranty of fitness?

Has it been breached?

 Contracts 41.

(H125) Same facts as (H124). Is there an implied warranty of merchantability?

Has it been breached?

D. Limitations on warranty liability:

1. Statute of limitations:
There is a four-year statute of limitations, and generally the statute
starts running on possible warranty actions when the “tender of
delivery is made,” not when the buyer learns that the product is
defective.

2. Privity:
If the plaintiff did not buy the goods from the defendant, there is a
possible privity issue. There is a division among states as to how
to resolve privity issues. Your state materials will explain the privity
law in your state if lack of privity is a possible state essay issue.

3. Buyer’s examination of the goods:

Look for a fact pattern that tells you that the buyer has examined
the goods. There are no implied warranties as to defects which
would be obvious on examination.

4. Disclaimer – e.g., “there are no warranties:”

(a) Express warranties generally cannot be disclaimed.

(b) Implied warranties of merchantability and fitness can be

disclaimed in EITHER of the following ways:

(i) CONSPICUOUS language of disclaimer, mentioning

merchantability, OR

(ii) “as is” or “with all faults.”

(H126) B buys a big screen television “as is” from S TV Store. Shortly after B turns the
television on in her home, it explodes. Can B sue S for breach of the implied
warranty of merchantability?

5. Limitation of remedies: does not eliminate warranties, simply limits

or sets recovery for any breach of warranty:

(a) possible to limit remedies even for express warranties.

42. Contracts

(b) general test is unconscionability.

(c) prima facie unconscionable if breach of warranty on

consumer goods causes personal injury.

(H127) B buys an oven from S. The contract provides that, “All operating parts are
guaranteed for two years” and “Warranty liability shall be limited to replacement
parts.” A defective heating element causes a fire which causes $100 of property
damages. If B sues S for breach of contract, what can B recover?
 Contracts 43.

FOURTH ISSUE: PERFORMANCE OF ARTICLE 2 CONTRACTS

(6 CONCEPTS)

(1) PERFECT TENDER

You need to know three things about “perfect tender” for the bar exam.
First, “perfect tender” only applies to sales of goods. Second, “perfect
tender" does not mean that the seller’s performance must be perfect; rather, the
goods and the delivery must conform to the contract terms. Third, a less than
“perfect tender” by the seller generally gives the buyer the option of rejection of
the delivered goods, so long as the buyer acts in good faith.

(H128) B and S enter into a contract for 200 green widgets. S delivers 199 green widgets
and one yellow widget. Is that a perfect tender?

(2) REJECTION OF THE GOODS

There are only four things you need to know about rejection of goods for the bar
exam. First, you need to be able to distinguish rejection of an offer from rejection
of the goods. Second, if the seller does not meet the perfect tender standard, the
buyer has the option to retain and sue for damages or reject “all or any
commercial unit” and sue for damages. Third, this rejection alternative is limited
by CURE, INSTALLMENT CONTRACT, and ACCEPTANCE. Fourth, buyer
must take reasonable care of the rejected goods.

(H129) [Rejection of an offer]. S offers to sell B 200 green widgets for $1,000. B
rejects the offer. Is there a contract?

(H130) [Rejection of the goods]. S offers to sell B 200 green widgets for $1,000. B
accepts S’s offer. S sends 199 green widgets and one yellow widget. If B rejects
the goods, is there a contract?

(3) CURE

In some instances, a seller who fails to make a perfect tender will be given a
"second chance," an option of curing. Note that a seller does not always have
the opportunity to "cure," and that the buyer cannot compel the seller to cure.

A. Seller’s reasonable ground to believe would be acceptable, perhaps with a

money allowance
44. Contracts

In very limited situations, a seller has the option of curing even after the
contract delivery date. “Reasonable grounds” is the statutory test. Look
for information in the question about prior deals between that buyer and
seller.

(H131) B and S enter into a contract for 2,000 green widgets. S delivers yellow widgets.
Previously, B had accepted widgets in colors different from what he had ordered.
After delivery, B rejects the widgets because they are yellow. Can S cure?

B. Time for performance has not yet expired:

(H132) B ordered green widgets from S to be delivered no later than 6/6. S delivers
yellow widgets on 5/5. B notifies S that she is rejecting the yellow widgets. Can
S cure?

(4) INSTALLMENT CONTRACTS

An installment contract REQUIRES or AUTHORIIZES (i) delivery of the goods in

separate lots (ii) to be separately accepted. The buyer has the right to reject an
installment only where there is a substantial impairment in that installment that
can't be cured.

Be sure that you see the differences between (1) entering into an installment
sales contract that provided for multiple deliveries and acceptances and (2)
buying something on credit and paying for it in monthly installments.

(H133) S and B enter into a contract for the delivery of 10 kegs of beer at 6 p.m. for each
night of the bar review course, payment on delivery. One night S delivers 9
kegs at 6:30 p.m. Can B reject that installment?

(5) ACCEPTANCE OF THE GOODS

A. Importance of acceptance:

If the buyer accepts the goods, it cannot later reject them.

B. Payment and acceptance:

Payment without opportunity for inspection is not acceptance.

 Contracts 45.

(H134) Epstein buys a “hair replacement system” from Bosley Hair, calling Bosley’s 800
number and using his credit card. Epstein’s new hair has not yet arrived. Has
Epstein accepted the goods?

C. Failing to reject:

Rejection must be timely. Failure to reject after the buyer had reasonable
time to reject is acceptance.

D. Retention as acceptance:

Effect of buyer’s keeping goods is implied acceptance – LOOK FOR THE

BUYER'S KEEPING THE GOODS WITHOUT OBJECTION: more
specifically look for a fact pattern that states when buyer first received
goods and when buyer first complained to seller.

(6) REVOCATION OF ACCEPTANCE OF THE GOODS

A. Effect of revocation of acceptance:

Same as rejection of the goods: buyer returns the goods and the seller
returns payments made. Remember that if a buyer accepts the goods, it
can NOT later reject the goods. In limited circumstances, a buyer can
effect a cancellation of the contract by revoking its acceptance of the
goods.

B. Requirements for revocation of acceptance:

The requirements for revocation are as follows:

1. nonconformity substantially impairs the value of the goods, and

2. excusable ignorance of grounds for revocation or reasonable

reliance on seller's assurance of satisfaction, and

3. revocation within a reasonable time after discovery of

nonconformity.

(H135) In July, B buys a sleeping bag from S. The contract provides that the sleeping bag
is insulated for temperatures as low as 10 degrees. B uses the sleeping bag for
various warm weather camping adventures throughout the summer. When B goes
46. Contracts

camping in October, she learns that the sleeping bag is not insulated for
temperatures as low as 10 degrees. Can B reject the goods?

Can B revoke her acceptance of the goods?

C. Comparison of rejection of the goods and revocation of the goods (two

different ways of buyer’s returning the goods and recovering any
payment):

Rejection Revocation
1. Timing Early, before Later, after
acceptance acceptance
2. Standard Generally, perfect Substantial
tender impairment
3. Other 1. seasonably notify seller
Requirements 2. hold the goods for seller
3. follow reasonable seller instructions
4. Consequences 1. Goods back to seller
2. No buyer payment obligation
 Contracts 47.

FIFTH ISSUE: REMEDIES FOR AN UNEXCUSED NONPERFORMANCE

(1) NONMONETARY REMEDIES (IN REM)

A. Specific performance/injunction:

Equitable remedy: Look for adequacy of remedy at law or unclean hands,

or other parties’ equities.

1. Contracts for sale of real estate

(H136) S contracts to sell Blackacre to B. S breaches. Can B get specific performance?

(H137) S contracts to sell Blackacre to B. S breaches and sells Blackacre to X, a bona

fide purchaser. Can B still get specific performance?

2. Contract for sale of goods: Unique goods: antiques, art, custom-

made or other appropriate circumstances.

(H138) S contracts to sell an antique desk to B. S breaches. Can B get specific

performance?

3. Contract for services: No specific performance, possible injunctive

relief.

(H139) Epstein contracts with BRI to lecture for BRI. Epstein breaches. Can BRI obtain
a court order requiring Epstein to lecture for BRI?

(H140) Same facts as (H139). Can BRI obtain a court order barring Epstein from
lecturing for a competing bar review course?

B. Seller’s reclamation from an insolvent buyer of goods:

Right of an unpaid seller to get its goods back. Key facts are that (i) the
buyer must have been insolvent at the time that it received the goods, and
(ii) the seller demands return of goods within 10 days of receipt (this “10-
day rule” becomes a “reasonable time rule” if, before delivery, there had
48. Contracts

been an express representation of solvency by the buyer), and (iii) the

buyer still has goods at time of demand.

(H141) On January 15, S sells B grits on credit. The grits are delivered to B on January
22. B is insolvent on January 22. S learns of B’s financial difficulties and
demands return of the grits on January 27. B still has the grits on January 27.
Can S get the grits back by reclamation?

C. Buyer’s recovery of identified, paid for goods from a seller who becomes
insolvent within 10 days:

(H142) On January 15, B contracts with S to buy a cow named Rose for $80. B pays
$25. The contract provides that B is to get delivery of Rose when she pays the
balance of the purchase price. S becomes insolvent on January 22. Does B have
a legal right to obtain Rose by paying the balance of the purchase price?

(2) MONEY DAMAGES FOR BREACH OF CONTRACT: GENERAL CONCEPTS

A. Overview:

1. Policy: Compensate plaintiff, not punish defendant.

2. Vocabulary:

(a) EXPECTATION
(b) Incidental
(c) CONSEQUENTIAL
(d) Avoidable
(e) Certainty
(f) Reliance
(g) Liquidated

B. Measure of damages:

1. General approach – protection of expectation:

Expectation simply means that people who contract expect that the
other person will not breach. Expectation damages protect that
expectation. Accordingly, (1) look to facts for dollar value of
performance without breach, (2) look to facts for dollar value of
performance with breach, and (3) compare the two to determine the
amount of damages.
 Contracts 49.

(H143) P contracts to paint O’s house for $1,000, payable when P completes the work. P
breaches – does not paint the house. O hires another painter who charges $1,400.
O sues P for breach of contract. What is the measure (amount) of O’s damages
that O can recover from P for P’s breach of contract?

(H144) P contracts to paint O’s house for $1,000, payable when P completes work. P
anticipates making $200 profit from this contract. O breaches after P has started
work and used $100 of paint and labor. P sues O for breach of contract. What is
the measure of P’s damages?
(a) $100 (b) $200 (c) $300 (d) $1,000

2. Damages rules for sales of goods:

Part 7 of Article 2 reflects the general contract damages policy of
putting the innocent party where it would have been had the
contract been performed, i.e., expectation. There are three
relevant facts: (1) who breached, (2) who has the goods, and (3)
was there a later “replacement” deal.

(a) Damages for seller’s breach:

(i) Seller breaches, buyer keeps the goods

[Fair market value if perfect – fair market value as
delivered] or [cost of repair].

(H145) S sells B an antique car for $30,000. B pays the $30,000, and S delivers the car.
Although the contract provided that all parts of the car were authentic and
original, some were not. B keeps the car and sues for breach of contract. The
jury finds that at the time and place of B’s acceptance of the car, the car as
delivered was only worth $20,000; the jury also finds that if the car had been
delivered as contracted, it would have been worth $34,000. How much can B
recover?

(ii) Seller breaches, seller has the goods:

[market price at time of discovery of the breach –
contract price] or [reasonable replacement price –
contract price].

(H146) S contracts to sell B carpeting for $5,000. S never delivers the carpeting (or S
delivers the carpeting and B rejects it because it is not a perfect tender). At the
time B learned of the breach, the market price of comparable carpeting is $6,600
but what if B pays $7,000 for comparable replacement carpeting?
50. Contracts

(b) Damages for buyer’s breach:

(i) Buyer breaches, buyer keeps the goods

[contract price].

(H147) B contracts to buy carpet from S. Contract price is $800. B receives the carpeting
and does not pay for it. The market price for that carpet is now $900. How much
does B owe?

(ii) Buyer breaches, seller has the goods:

[contract price – resale unless seller cannot resell in
which case the seller can recover the contract price
and in some situations provable lost profits].

(H148) Epstein contracts to sell his 1973 Cadillac to Conviser for $1,000. Conviser
breaches. Epstein then sells the Cadillac to Sharon Stone for $800.

(H149) Same facts as (H148) except that Sharon Stone pays Epstein $1,000.

(H150) [Lost profits for lost volume seller]. S&M Leather contracts to sell leather
clothing to Conviser for $1,000. (Assume that Conviser is buying goods that are
part of S&M’s regular inventory – “off the rack” so to speak.) Conviser breaches.
S&M sells the very same items to Anthony Weiner for $1,000. Can S&M recover
any damages from Conviser?

If so, how much?

(H151) S contracts to sell a painting to B for $1,000. B breaches. S sues B for $1,000.
What does S have to prove in order to recover $1,000?

C. Additions and limitations

1. Plus INCIDENTAL damages.

 Contracts 51.

Costs incurred in dealing with the breach such as costs of storing

rejected goods in a sale of goods or finding a replacement in a
services contract – always recoverable.

(H152) P contracts to paint O’s house for $1,000. P breaches. O spends $20 finding
another painter, X, who agrees to paint the house for $1,000. What is the measure
of O’s damages?

2. Plus foreseeable CONSEQUENTIAL (special) damages

The term “consequential damages” is very important. And very
confusing. Consequential damages does not mean all damages
caused as a consequence of the breach. Rather think of damages
as being either (1) general damages, i.e., kind of loss that any
person would sustain or (2) consequential damages, i.e., kind of
loss that is special to this plaintiff. Consequential damages are
limited to damages arising from P’s special circumstances and
recovery of consequential damages is limited to situations in which
D had reason to know of these special circumstances at the time of
the contract.

(H153) [No consequential damages]. M contracts with C carrier to transport goods to

another village for repair for $100. C breaches by nonperformance. M is unable
to find anyone else who will transport the goods for less than $150 and pays T
$150 to transport the goods. M sues C for breach of contract. What is the
measure of M’s damages?

(H154) [Consequential damages – not recoverable]. Same facts as (H153). C’s breach
resulted in a 5-day delay and M lost $1,000 in profits from the closure of M’s
mill. M sues C for breach of contract. What is the measure of M’s damages?

(H155) [Consequential damages – recoverable]. Same facts as (H154), except that M

told C before the contract that the mill was closed because of the broken shaft and
would remain closed until the shaft was repaired and returned. What is the
measure of M’s damages?

3. Less AVOIDABLE damages:

No recovery for damages that could have been avoided without
undue burden on plaintiff. Burdens of pleading and proof on
defendant.
52. Contracts

(H156) [Continuing to perform after the other party’s breach]. P contracts to paint
O’s house for $1,000. P anticipates that she will make $200 profit from painting
O’s house. O breaches after P has incurred $100 of costs for paint and labor.
Notwithstanding O’s breach, P finishes painting O’s house and incurs an
additional $700 of costs. How much can P recover?

(H157) [Turning down other, comparable opportunities]. P contracts to work for

Barnes, Lockheart law firm from September 1, 2012 to August 31, 2013 for
$100,000. On August 29, 2012, Barnes breaches. P sues Barnes for breach of
contract. Barnes pleads and proves that later on August 30, 2012, Cage, Fish, a
comparable law firm in the same city, offered P a comparable job for the same
period of time paying $99,000 a year. How much can P recover from Barnes?

4. Less damages that cannot be established with reasonable

certainty:
Look for fact pattern involving a services contract and plaintiff
engaged in new business or a new business activity. Consider
reliance recovery as an alternative to expectation.

(H158) Epstein, who has never promoted anything (other than himself), contracts with
Kinky Friedman for a Texas Jewboys reunion concert (first time in 20 years) in
Piggott, Arkansas. Kinky breaches two days before the concert. Epstein sues for
breach of contract, alleging that he expected to sell 3,000 tickets at $30 a ticket
(even though he had not yet sold any tickets and no one in Piggott knows Kinky
Friedman, Epstein, or anybody Jewish). Should Epstein be able to recover the
$90,000 as damages protecting his expectation interest?

(H159) Same facts as (H158), with the additional fact that, prior to Kinky’s breach,
Epstein has spent $2,000 arranging for and promoting the Kinky Friedman Texas
Jewboys reunion concert. Should Epstein be able to recover the $2,000?

D. Contract provisions regarding damages, i.e., LIQUIDATED damages:

Look for contract provision fixing amount of damages. Issue will be

validity: concern is whether provision is too high – a penalty. Tests are
(1) damages were difficult to forecast at time contract was made and (2)
provision is a reasonable forecast.
 Contracts 53.

(H160) B contracts to build store for O. Contract fixes damages for delay at $10,000. Is
this liquidated damages?

Valid liquidated damages?

54. Contracts

SIXTH ISSUE: EXCUSE OF NONPERFORMANCE OF CONTRACT BECAUSE OF

SOMETHING THAT HAPPENED AFTER CONTRACT WAS MADE

(1) OVERVIEW

Look for information in fact pattern about (1) nonperformance of contract and (2)
something happening after contract.

(2) EXCUSE OF PERFORMANCE BECAUSE OF THE OTHER GUY’S

NONPERFORMANCE

E.g., P contracts to paint O’s house on Saturday for $1,000. P does not paint the
house. Obviously, O does not have to pay P, i.e., O is excused from performing
(paying) because of P’s nonperformance.

(3) EXCUSE OF PERFORMANCE BECAUSE OF THE OTHER GUY’S

SAYING IT IS NOT GOING TO PERFORM (ANTICIPATORY
REPUDIATION)

A. Unambiguous:

Anticipatory repudiation is an unambiguous statement or conduct (i) that

the repudiating party will not perform (ii) made prior to the time that
performance was due.

B. Excuse:

Anticipatory repudiation by one party excuses the other party's duty to

perform.

(H161) P contracts to paint O’s house with payment to be made on July 13. On March
10, before P has finished painting, O tells P that she is doing a great job but that
O is not going to pay. Is P excused from continuing to perform?

C. Time of recovery:

Anticipatory repudiation generally gives rise to an immediate claim for

damages for breach unless the claimant has already finished her
performance.
 Contracts 55.

(H162) [General rule]. Same facts as (H161). If P stops painting and sues O on March
11, can P recover damages for breach of contract on March 11 even though the
contract date for payment was July 13?

(H163) [Exception]. Same facts as (H161) except that P had finished painting before O
repudiated on March 10. Can P recover damages for breach of contract on March
11 even though the contract date for payment was July 13?

D. Retraction of anticipatory repudiation:

Anticipatory repudiation can be withdrawn (retracted) so long as there has

not been a material change in position by the other party. If the
repudiation is timely retracted, the duty to perform is reimposed but
performance can be delayed until adequate assurance is provided.

(H164) Same facts as (H161), except that, before P finds another painting job or moves
her painting equipment, O tells P that he has changed his mind again, that he will
pay P for painting the house, and that the money has been placed in an escrow
account. Is P still excused from performing?

(4) EXCUSE BECAUSE OF INSECURITY ABOUT WHETHER THE OTHER

GUY IS GOING TO PERFORM

Recall that anticipatory repudiation requires an unambiguous statement or

conduct indicating that a party will not perform. What if the words or conduct of a
party merely makes performance uncertain? Look for this in sale of goods
problems. If the words or conduct of one party give “reasonable grounds for
insecurity,” then the other party can, in writing, demand adequate assurance and
if it is “commercially reasonable,” can suspend performance until it gets adequate
assurance. The three concepts again are (1) reasonable grounds for insecurity,
and (2) written demand for adequate assurance, and (3) commercially
reasonable to stop performance.

(H165) In January, B contracts to buy custom-made widgets from S with B’s payment in
advance and S’s delivery in April. In February, B learns that S was late on all
January widget deliveries to other customers and that a substantial number of the
widgets delivered were defective. Can B withhold performance (i.e., payment)?
56. Contracts

(5) EXCUSE BECAUSE OF IMPROPER PERFORMANCE

A. Article 2 and perfect tender rule:

B. Common law and material breach rule:

First, damages can be recovered for any breach. Second, only a material
breach by one guy excuses the other guy from performing a contract
governed by common law. Third, whether a breach is material is a fact
question (and so whether a breach is material is not likely to be a bar
exam question). Fourth, if there is substantial performance then the
breach is not material. If the breach is material, then the performance was
not substantial.

1. Material breach because of the quality of performance:

(H166) O hires P to paint his house white for $1,000. P, a big fan of the group Gogol
Bordello, http://www.youtube.com/watch?v=p_81l4DXlwM paints the house
purple. Did P materially breach?

Is O excused from performing, i.e., excused from paying anything?

Can O recover money damages?

(H167) O hires P to paint his house white for $1,000. P paints the house white but uses
the wrong shade of white paint in one of the closets. O has to pay another painter
$25 to repaint the closet. Did P materially breach?

Is O excused from performing, i.e., excused from paying anything?

Can O recover money damages?

(H168) O hires B to build a house for $100,000. Contract states that B will use only
copper Reading brand pipe. B instead uses copper Cohoe brand. Court finds that
copper Cohoe pipe is roughly comparable to copper Reading pipe and that use of
Cohoe pipe only reduces the value of the house by $1,000. O refuses to pay B
anything. B sues. Is O excused by B’s breach from performing the contract, i.e.,
paying B?
 Contracts 57.

Can O recover money damages from B?

2. Material breach because of the quantity (amount) of performance:

(H169) P contracts to paint ten identical apartments for O for $10,000. P breaches after
painting two apartments. Was P’s breach a material breach?

Under contract law, is O obligated to pay P for painting the two apartments?

Under quasi-contract?

3. Divisible contract corollary:

Divisible contract exception. In a “divisible contract” there can be a
contract law recovery for substantial performance of a divisible part
even though there has been a material breach of entire contract.
On the bar, look at whether price is stated as a lump sum or on a
per performance basis.

(H170) Same facts as (H169), except that the contract states that P will be paid $1,000 per
apartment?

(6) EXCUSE BECAUSE OF NONOCCURRENCE OF AN EXPRESS CONDITION

Overview of what you need to know: (i) what is an express condition, (ii) how
can you identify an express condition, (iii) how can an express condition be
satisfied, and (iv) how can an express condition be excused.

A. What is an express condition and how can express conditions be

identified?

1. language in a contract,

2. limits obligations created by other contract language,

3. triggering words:
“if,” “only if,” “provided that,” “so long as,” “subject to,” “in
the event that,” “unless,” “when,” “until,” and “on condition
that” in the contract.
58. Contracts

(H171) [Conditional acceptance]. S offers to sell B his house for $100,000. B

responds that she accepts “on condition that a mortgage at no more than 6% can
be obtained.” Is there a contract?

(H172) [Express condition]. S and B enter into an agreement that states that B will
buy and S will sell S’s house for $100,000 “on the condition that a mortgage at no
more than 6% can be obtained.” Is there a contract?

Notwithstanding B’s best efforts, B cannot obtain a mortgage at 6% or less. Is B

excused from buying the house?

B. What is the standard for determining whether an express condition has

occurred, i.e., been “satisfied”?

1. General rule – strict compliance is required for “satisfaction”

of a condition:

(H173) B contracts to buy a diamond pupik ring from S. The contract states, “This sale is
subject to the ring’s being appraised at $20,000.” If the ring is appraised at
$19,500, is B excused from any contract obligation to buy the ring?

(H174) B contracts to build O’s house. The contract states, “O’s payment for B’s work is
conditioned on B’s using only copper Reading pipe.” B instead uses comparable
copper Cohoe pipe. Is O excused from any contract law obligation to pay B?
[Compare with (H168)].

2. Exception: Condition of personal satisfaction of one of the

parties – honest and good faith dissatisfaction:
A promise by X to pay Y for her work only if X is satisfied with the
work is not an illusory promise. X is excused from paying Y only if
X’s not being satisfied is honest and good faith. In other words,
conditions of personal satisfaction of one of the contracting parties
do not have to be strictly complied with. While the contract
language is “only if X is satisfied with the work,” courts simply look
to whether a reasonable person would be satisfied.

C. How can an express condition be eliminated so that its nonoccurrence

does not affect performance obligations?
 Contracts 59.

1. Waiver:
Identify the person who benefits from or is protected by the express
condition. Then look for a statement by that person giving up the
benefits and protection of the express condition.

(H175) O’s making monthly progress payments to builder B for work done is conditioned
on B’s obtaining a certificate from architect A approving the work. Can O pay B
for work done last month even though B did not obtain A’s certificate?

2. Prevention:
Look for the person protected by the express condition hindering or
preventing the occurrence of the express condition.

(H176) Same facts as (H175) except that the reason that B did not obtain A’s certificate
was that O had instructed A to withhold certification even though the work had
been properly performed by B. Is O excused from paying B because of the
nonoccurrence of the condition?

D. What is the difference between conditions precedent and conditions

subsequent?

1. Different facts:
Almost all contract conditions are “conditions precedent” –
conditions that excuse performance until and unless they occur.
Conditions subsequent occur subsequent to the start of
performance and excuse performance when they occur For
example, you and Spike Lee agree that he will sell you his Knicks
courtside seats for $10 a game until the Knicks are in first place.

2. Same law:
Conditions subsequent, like conditions precedent, do not create
new performance obligations but instead merely limit performance
obligations otherwise created.

(H177) Spike Lee contracts to see you his New York Knicks courtside seats for $10 a
game so long as the Knicks are not in first place. The Knicks are now in second
place. Mr. Lee wants to stop selling you his tickets. Is Mr. Lee excused from
performing?

(7) EXCUSE BY REASON OF A LATER CONTRACT

60. Contracts

A. Rescission (cancellation):

The key is whether performance is still remaining from each of the

contract parties. (executory).

(H178) P contracts to paint O’s house for $1,000, with payment to be made when the
work is completed. P begins work. Before P completes the work, P and O agree
to rescind the contract. Is the rescission valid?

What if P had already finished the work before P and O agreed to rescind?

B. Accord and satisfaction (substituted performance):

You need to know (i) what an accord is and what a satisfaction is and (ii)
the effect of the making of the accord and (iii) the effect of getting no
satisfaction.

1. Meaning of “accord,” “satisfaction”:

On bar exam, accord questions will have an agreement by the
parties to an already existing obligation to accept a different
performance in satisfaction of the existing obligation.

2. Effect of accord AND SATISFACTION:

(a) If the new agreement (“the accord”) is performed

(satisfaction), then performance of the original obligation is
excused.

(H179) D borrows $1,000 from C and agrees to pay the loan with interest. Later D and C
agree that IF D delivers 20 widgets by the end of the month, THEN the debt will
be excused. D delivers the 20 widgets before the end of the month. Can C still
recover on the original loan agreement?

(b) If the accord is not performed, then the other party can
recover on either the original obligation or the accord:

(H180) D borrows $1,000 from C and agrees to pay the loan with interest. Later, D and C
agree that IF D delivers 20 widgets by the end of the month, THEN the debt will
be excused. D does not deliver the widgets. Can C recover on the original loan
agreement?

Can C recover from D on the accord?

 Contracts 61.

C. Modification (substituted agreement):

Modification is an agreement by parties to an existing obligation to accept

a different agreement in satisfaction of the existing obligation.

(H181) D borrows $1,000 from C and agrees to repay the loan with interest. Later, D and
C agree that D will deliver 20 widgets by the end of the month instead of paying
$1,000 with interest. D does not deliver the widgets. Can C recover on the
original loan agreement?

D. Novation:

You need to know (i) what novation is, (ii) who is liable after a novation,
and (iii) what the factual and legal differences between a novation and a
delegation are.

1. What is a novation?
A novation is an agreement between BOTH parties to an existing
contract to the substitution of a new party, i.e., same performance,
different party.

(H182) P contracts to paint O’s house. Subsequently, P, O, and X agree that X will do the
work instead of P, i.e., will replace P. Is this a novation?

2. Who is liable after a novation?

Novation excuses the contracted for performance of the party who
is substituted for or replaced.

(H183) Same facts as (H182). X does not paint the house. Can O recover damages from
P for breach of contract?

3. How is delegation different from novation?

Novation requires the agreement of BOTH parties to the original
contract, and excuses the person replaced from any liability for
nonperformance. Delegation does not require the agreement of
both parties and does not excuse.
62. Contracts

(H184) P contracts to paint O’s house. Subsequently, P, without consulting O, asks X to

do the work and X agrees. X doesn’t paint the house. Can O recover damages
from P for breach of contract?

(8) EXCUSE OF PERFORMANCE BY REASON OF A LATER, UNANTICIPATED

EVENT

Bar exam questions often turn on your understanding. (1) which party is arguing
that her performance is excused, (2) what her performance is, (3) whether post-
contract occurrence affected her ability to perform, not just the cost of her
performance.

A. Damage or destruction of subject matter of contract:

1. Common law:

(H185) P contracts to paint O’s house for $1,000. After P begins painting, the house
burns down. Is P excused from performing on this contract so that P is now free
to take another painting job?

(H186) B contracts to build a house for O for $100,000. After B begins work, the house
burns down. Is B excused from performing on this contract so that B is now free
to take another construction job?

2. Article 2
If sale of goods [like Karl and his coffee] do risk of loss first.

(a) Risk of loss on the buyer:

If risk of loss is on the buyer, then the buyer pays.

(H187) [Buyer’s risk of loss and destruction]. Epstein contracts to sell Conviser his one
of a kind, 1973 Cadillac for $700. After Epstein had tendered the car to Conviser
so that the risk of loss had passed to Conviser, the Cadillac is destroyed by an
unseasonable flood. Who can recover what from whom?

(b) Risk of loss on the seller:

If the risk of loss is on the seller, then the buyer does not
have to pay. Whether the buyer can recover damages from
the seller depends on the facts.
 Contracts 63.

(H188) [Seller’s risk of loss and destruction]. Epstein contracts to sell Conviser his
1973 Cadillac for $700. After the contract, but before the risk of loss has passed
to Conviser, Epstein’s Cadillac is destroyed by an unseasonable flood. When
Epstein fails to perform the contract (i.e., fails to deliver the Cadillac) Conviser
sues Epstein for breach of contract alleging that the fair market value of the
Cadillac was $1,000. Who can recover what from whom?

(H189) [Seller’s risk of loss and destruction – different answer]. Epstein contracts to
sell Conviser 300 sacks of grits for $300. After the contract but before the risk of
loss has passed to Conviser, Epstein’s grits are destroyed by an unseasonable
flood. When Epstein fails to deliver grits, Conviser sues Epstein for breach,
alleging that the market price for grits is $700. Who can recover what from
whom?

B. Death AFTER contract:

1. General effect of death on contract obligations:

Death does not make a person’s contract obligations disappear.

(H190) D borrows $10,000 from C and signs a contract promising to repay the $10,000.
D dies, leaving an estate of $30,000. Under contract law, can C recover the
$10,000 from D’s estate?

Is contract performance excused by D’s death?

(H191) Conviser contracts with P to paint his house for $25,000. After contracting but
before Conviser’s paying or P’s painting, P dies. Conviser hires another painter,
AP, who charges $30,000 for painting Conviser’s house. Conviser sues P’s estate
for breach of contract, seeking expectation damages of $5,000. Is P’s contract
nonperformance excused by P’s death?

Under contract law, can Conviser recover the $5,000 from P’s estate?

2. Exception:
Death of party to contract who is “special” person excuses
performance.
64. Contracts

(H192) Owen Wilson contracts with HBO to star in the made for television movie: “Law
School Legend – The David Epstein Story.” Before filming starts, Wilson dies.
HBO sues Wilson’s estate for breach of contract. Is Wilson’s nonperformance of
the contract excused by impossibility?

C. Subsequent law or regulation:

1. Later law makes performance of contract illegal – excuse by

impossibility.

(H193) Conviser contracts with the Gold Club to be the featured dancer in the club’s
legendary “Bottoms Up Review.” After the contract but before Conviser dances,
the town passes a new law outlawing nude dancing. Nonetheless, Conviser comes
to the club nude, ready to dance. Is the Gold Club excused from performing?

2. Later law makes mutually understood purpose of contract illegal –

excuse by frustration of purpose.

(H194) Conviser tells his plastic surgeon P that he needs plastic surgery so that he will be
a “lean, mean, nude dancing machine” when he dances at the Gold Club.
Conviser and P agree that Conviser will pay P $7,000 and P will do liposuction
and other “more intimate” plastic surgery. After the agreement but before the
surgery, the town passes a law outlawing nude dancing. Is Conviser excused
from performing the surgery contract? [Krell v. Henry]
 Contracts 65.

SEVENTH ISSUE: THIRD-PARTY PROBLEMS

You will be tested on three different kinds of third-party problems: third-party

beneficiaries, assignments of contract rights, and delegations of contract duties.

(1) A PERSON TRYING TO ENFORCE A CONTRACT SHE DID NOT MAKE:

THIRD-PARTY BENEFICIARY

You will need to be able to (1) identify a problem as a third-party beneficiary

problem, (2) use the vocabulary of third-party beneficiary law, (3) deal with efforts
to cancel or modify a third-party beneficiary contract, (4) figure out who can sue
whom, and (5) assert any available defenses.

A. Identifying third-party beneficiary problems

Look for two parties contracting with the common intent of benefit to a
third party. For example,

(H195) Epstein takes out an insurance policy with Allstate Insurance. The insurance
contract provides that (i) Epstein will make annual premium payments of $3,000
and (ii) Allstate will pay Sharon Stone $250,000 on Epstein’s death. When
Epstein dies, does Ms. Stone have a contract law right to recover $250,000 from
Allstate?

(H196) B and S enter into a contract in which S agrees to provide 100 sacks of grits to T
and B agrees to pay S $200 for S’s providing the grits to T. When S fails to
deliver the grits, can T recover from S under contract law?

B. Knowing the vocabulary:

1. Third-party beneficiary:
Not a party to the contract. Able to enforce contract others made
for her benefit. [T (196)]

2. Promisor:
Look for person who is making the promise that benefits the third
party. [S in (196)]

3. Promisee:
Look for person who obtains the promise that benefits the third
party. [B in (196)]
66. Contracts

4. Intended/incidental:
Only intended beneficiaries have contract law rights. Intent of the
two parties to contract determines whether intended or incidental.

5. Creditor/donee:
Intended beneficiaries are either donees or creditors. Usually
donees. Look at whether third-party beneficiary was a creditor of
the promisee before the contract.

C. Dealing with efforts to cancel or modify:

The test is whether the third party knows of and has relied on or assented
as requested. If so, her rights have vested and the contract cannot be
canceled or modified without her consent unless the contract otherwise
provides.

(H197) Same facts as (H196). Can B and S cancel the grits contract before T learns of the
contract?

(H198) Same facts as (H196). Can B and S cancel the contract after T learns of the
contract and relies on it?

D. Who can sue whom? (Four bar exam important rules):

1. Beneficiary can recover from promisor:

(H199) Can T recover from S for breach of contract if T does not get the grits?

2. Promisee can recover from promisor:

(H200) If B pays $100 for the grits and S never delivers the grits to T, can B recover from
S for breach of contract?

3. General rule: Beneficiary cannot recover from promisee:

(H201) Can T recover from B for breach of the grits contract if T does not get the grits?
 Contracts 67.

4. Limited exception: Creditor beneficiary can recover from

promisee BUT ONLY on pre-existing debt

(H202) Can T recover from B if B owed T $100 before B ordered the grits to satisfy that
debt and the grits were never delivered?

E. Defenses:

If the third-party beneficiary sues the promisor, the promisor can assert
any defense that he would have had if sued by the promisee.

(H203) The check S receives from B bounces. S does not deliver grits to T. T sues S for
breach of contract. Does S have any defense?

(2) A PERSON TRYING TO ENFORCE A CONTRACT SHE DID NOT MAKE:

ASSIGNMENT OF RIGHTS

You need to know (1) what an assignment of a contract is, (2) the vocabulary of
assignment, (3) the limitations on assignment, (4) the requirements for
assignments, (5) the rights of assignee and (6) how to deal with multiple
assignments.

A. What an assignment is:

Assignment is a transfer of rights under a contract. Assignment involves

two separate steps: first step – contract between only two parties; and
second step – one of the parties later transfers rights under that contract
to a third party. Need to see the difference between assignment of an
offer and assignment of a contract. Need to see the difference between
assignment of a contract and third-party beneficiary.

(H204) Epstein offers to sell you his 1973 Cadillac for $400. Can you assign the offer to
Conviser?

(H205) Epstein offers to sell you his 1973 Cadillac for $400. You accept the offer. Can
you assign the contract to Conviser?

(H206) On January 15, Batman contracts with Gotham to provide security services for a
year; the contract provides that Batman is to be paid $300,000 for the services.
68. Contracts

Batman later transfers his rights under the contract to Robin. Is this an
assignment or a third-party beneficiary contract?

(H207) On January 15, Batman contracts with Gotham to provide security services for a
year; this January 15 contract provides that Gotham will pay Robin $300,000 for
Batman’s services. Is this an assignment or a third-party beneficiary contract?

B. Vocabulary:

1. Assignor: Party to the contract who later transfers rights under the
contract to another. [Batman in (H206)].

2. Assignee: Not a party to the contract. Able to enforce the contract

because of the assignment. [Robin in (H206)].

3. Obligor: Other party to the contract. [Gotham in (H206)].

C. Limitations on assignment

1. If there is a contract provision regarding assignment:

If the fact pattern includes language of contract regarding
assignability, determine whether the contract (a) prohibits
assignments or (b) invalidates assignments.

(a) Prohibition: Language of prohibition takes away the right to

assign but not the power to assign, which means that the
assignor is liable for breach of contract, but an assignee who
does not know of the prohibition can still enforce the
assignment.

(H208) Batman-Gotham contract provides “rights hereunder are not assignable.”

Notwithstanding this contract provision, Batman assigns the right to the $300,000
payment to Robin who does not know about the contract provision. Can Robin
collect from Gotham?

(b) Invalidation: Language of invalidation takes away both the

right to assign and the power to assign so that there is a
breach by the assignor and no rights in the assignee.

(H209) Batman-Gotham contract provides “all assignments of rights under this contract
are void.” Notwithstanding this contract provision, Batman assigns the right to
 Contracts 69.

the $300,000 payment to Robin, who does not know about the contract provision.
Can Robin collect from Gotham?

IF ANY DOUBT IN YOUR MIND AS TO WHETHER PROHIBITION OR INVALIDATION,

THEN PROHIBITION.

2. If there is nothing in fact pattern about contract language regarding

assignability:
Even if a contract does not in any way limit the right to assign,
common law bars an assignment that substantially changes the
duties of the obligor.

(a) Assignment of right to payment (never substantial change):

(H210) Batman assigns his rights to payment under the contract with Gotham to Robin,
i.e., Gotham is to pay Robin, not Batman. Does this substantially change the duty
of the obligor so that the assignment is not enforceable?

(b) Assignment of right to contract performance other than right

to payment (usually substantial change on bar):

(H211) Gotham assigns its rights to security services under the contract with Batman to
Metropolis, i.e. Batman is to defend Metropolis, not Gotham. Does this
substantially change the duty of the obligor so that the assignment is not
enforceable?

D. Requirements for assignment:

General rule is that consideration is not required, but gratuitous

assignments (and only gratuitous assignments) can be revoked.

(H212) Batman assigns the right to payment under the contract with Gotham to the
University of Richmond Law School for no consideration. Is this a valid
assignment?

(H213) Same facts as (H212). Before Gotham pays Richmond, Batman changes his
mind. Can Batman revoke the assignment to Richmond and obtain the $300,000
payment from Gotham himself?
70. Contracts

E. Who can sue whom?

1. Assignee can recover from the obligor.

(H214) Batman contracts to perform security services for Gotham for $300,000. Batman
then assigns his rights under the contract to Robin, and Batman performs the
contract. When Gotham refuses to pay Robin, Robin sues Gotham. Can Robin
collect from Gotham for breach of contract?

2. Assignor for consideration cannot recover from obligor:

(H215) After assigning the contract with Gothom to Robin for $10 and doing all of the
work himself, can Batman collect from Gotham?

3. Obligor has same defenses against assignee as it would have

against assignor:

(H216) If Batman fails to perform the services, can Robin still collect from Gotham?

4. Payment by obligor to assignor is effective until obligor knows of

assignment. Similarly, modification agreements between obligor
and assignor are effective if the obligor did not know of the
assignment.

(H217) You rent furniture from Acme Furniture Rentals. In March, Acme assigns your
rental contract to Baker Rents. You do not know of the assignment and so make
your next two rental payments to Acme. Baker then sues you for the two
payments it has not received. Can assignee Baker recover from you the obligor?

5. Implied warranties of assignor in an assignment for consideration:

In an assignment for consideration, the assignor warrants (1) the
right assigned actually exists, and (2) the right assigned is not
subject to any then existing defenses by the obligor, and (3) the
assignor will do nothing after the assignment to impair the value of
the assignment. Assignor, however, does not warrant what the
obligor will do after the assignment.
 Contracts 71.

(H218) X signs a contract promising to pay Y $1,000. Y assigns the contract to Z for
$800. X was an infant when he signed the contract and refuses to pay Z. Can
assignee Z recover from assignor Y?

(H219) Epstein assigns the right to royalties from his splendid West bankruptcy casebook
to Sharon Stone for $1,000. Epstein then writes West and releases it from any
obligation to pay royalties. Can Ms. Stone collect from Epstein for breach of
implied warranty of assignment?

(H220) Epstein assigns the right to royalties from his splendid West contracts casebook to
Sharon Stone for $1,000. Two days later, West files for bankruptcy and refuses to
pay any royalties. Can Ms. Stone collect from Epstein for breach of implied
warranty of assignment?

F. Multiple assignments

1. All gratuitous assignments:

General rule: Last assignee generally wins

(H221) Batman gives the right to the $300,000 payment from Gotham to the University of
Richmond Law School on January 15. On April 5, Batman makes a gift of the
same payment right to the UJA. Which assignee has greater rights?

2. Multiple assignments for consideration:

(a) General rule: First assignee for consideration wins

(H222) On February 2, Batman assigns his rights under the contract with Gotham to
Robin for $1. On March 3, Batman assigns his rights under the same contract
with Gotham to Conviser for $250,000. Whom should Gotham pay?

(b) Very limited exception:

A subsequent assignee takes priority over an earlier
assignee for value only if he both (i) does not know of the
earlier assignment and (ii) is the first to obtain (1) payment,
(2) a judgment, (3) a novation, OR (4) indicia of ownership
[“four horsemen” rule].
72. Contracts

(H223) [Exception Not Applicable]. As before, Batman assigns to Robin for

consideration and then assigns to Conviser for consideration. Conviser does not
know of the assignment to Robin and Conviser is the first to notify Gotham that
he is an assignee. Gotham learns of the earlier assignment to Robin before it pays
Conviser. To whom should Gotham make the payment?

(3) DISPUTES ARISING FROM A PERSON’S PERFORMING A CONTRACT SHE

DID NOT MAKE: DELEGATION OF DUTIES

You need to know (1) what a delegation is, (2) relationship of assignment and
delegation, (3) which duties are delegable, and (4) what are the consequences of
delegation.

A. What delegation is:

Party to a contract transferring work under that contract to third party. For
example, P contracts to paint O's house for $1,000. P (delegating party)
and X (delegatee) agree that X will paint O's (obligee) house.

B. Relationship of assignment and delegation:

A contract creates both rights and duties. For example, if P contracts to

paint O’s house for $1,000, then P has a duty to paint and a right to
payment, and O has a duty to pay and a right to the painting of her house.
Assignment is the transfer by a party to a contract of his rights or benefits
under the contract to a third party who was not a party to the contract.
Delegation is the transfer by a party to a contract of his duties or burdens
under the contract to a third party who was not a party to the contract.

Often a contracting party makes both an assignment and a delegation of

his rights and duties under the contract to a third party. Often multistate
examiners use the term “assignment” in a problem involving an
assignment and a delegation and even in a problem involving only a
delegation.

(H224) P contracts with O to paint O’s house for $1,000. P and X agree that X will do
the painting and collect the $1,000 from O. Is this an assignment, a delegation or
both an assignment and a delegation?

(H225) Same facts as (H224), except that P and X agree that X will do the painting and P
will pay X $1,000. Is this both an assignment and a delegation?
 Contracts 73.

(H226) Same facts as (H225). X does the painting, and X does a great job. Can X
recover the $1,000 from O?

(H227) Same facts as (H226). Can P recover the $1,000 from O?

C. Which duties are delegable?

Generally, contractual duties are delegable. The limitations on delegation

are very limited. Delegations are permitted unless either (1) contract
prohibits delegations or prohibits assignments or (2) “personal services
contract” that calls for VERY SPECIAL skills.

(H228) Same facts as (H226), except contract provides “No delegations.” Can P recover
the $1,000 from O?

(H229) Again, same facts as (H226), except contract provides “No assignments.” Can P
recover the $1,000 from O?

(H230) Chipper Jones has a contract with the Atlanta Braves. No contract provision
regarding assignments or delegation. Can he delegate performance to Epstein?

D. Nonperformance by delegate:

What if, after delegation, the third-party delegatee does not perform?

1. Delegating party always remains liable.

2. Delegatee liable only if she receives consideration from delegating

party.

(H231) [Delegation without consideration]. P contracts to paint O’s house for $1,000.
X then agrees with P that she (X) will do the painting for P, because P is a good
friend. X does not do the work. Can O recover from P?
74. Contracts

(H232) Same facts as (H231). Can P recover from X?

(H233) Same facts as (H231). Can O recover from X?

(H234) [Delegation for consideration]. P contracts to paint O’s house for $1,000. P and
X then agree that X will do the work and P will pay X $900. X does not do the
work. Can O recover from P?

(H235) Same facts as (H234). Can P recover from X?

(H236) Same facts as (H234). Can O recover from X?

 Contracts 75.

CONTRACTS IN AN EVEN SMALLER “CONCENTRIC CIRCLE”

(LESS THAN 6 FULL PAGES)

I. APPLICABLE LAW:
If sale of goods, look for some special Article 2 rule.

II. CONTRACT FORMATION:

#1 Offer:
- Actual intent largely irrelevant.
- Missing terms [other than price in sale of land] ok – no “all
material terms” requirement for offers.
- Watch for “appropriate,” ”fair,” or “reasonable,” which are
disqualifying vague terms.
- Watch for “all,” “exclusively,” “only,” or “solely,” which manifest
commitment and give rise to requirements contract or output
contract.
#2 Termination of offer:
- Revocation of offers and where is Sharon Stone.
- “Firm offer” rule – writing signed by merchant expressly
promising to keep offer open (bar exam certainty).
- Counteroffers kills offers.
- Watch for acceptance followed by “if,” “provided,” “so long as,”
or “on condition that,” which means rejection.
- Mirror image requirement for common law but not for sale of
goods.
- In sale of goods, distinguish additional term, which means
contract generally without additional term, from conditional
acceptance, which means no express contract.
#3 Acceptance:
- Offer can control method and time of acceptance but on bar
exam rarely does.
- Bilateral world so most offers can be accepted by promise or
the implied promise resulting from start of performance.
- Start of performance pursuant to offer to enter into unilateral
contract makes offer irrevocable, but is not acceptance.
- Acceptance (and only acceptance) effective when sent unless
(1) meeting an option deadline, or (2) following a rejection.
#4 Lack of consideration as reason not to enforce agreement:
- Promise breaker must have asked for something in return for
her promise (bargained for).
- Promise can be consideration.
- Peppercorn can be consideration.
- Stuff done before promise (past consideration) is not
consideration.
76. Contracts

- Doing only what you are already obligated to do (pre-existing

duty) is not consideration.
- No consideration required to modify Article 2 contract.
- No new consideration in settlement of due and undisputed
debt.
- Foreseeable, detrimental reliance (promissory estoppel) is
substitute for consideration.
#5 Statute of Frauds as a reason not to enforce agreement:
- “Promise to answer for the debts of another” so limited
(guarantee only/main purpose exception) that is generally
wrong answer.
- Watch for Kenny G and performance more than a year away.
- “Task” never a Statute of Frauds problem.
- Not one year real estate lease.
- Full performance (BUT NOT PART PERFORMANCE) of
service contracts.
- Sale of goods whether dispute as to goods delivered.
- Real estate part performance by 2 of 3.
- If a writing, look for contents and who signed:
● Who and what and defendant signed if common law
● How many and defendant signed if Article 2 unless
“answer the damned letter” rule
#6 Misrepresentation as a reason not to enforce agreement:
- Even if honest and innocent, so long as material and relied on.
- Distinguish nondisclosure (must be wrongful) and mistake.
#7 Mistake of fact unlikely.

III. CONTRACT TERMS:

#1 Pre-contract words of parties and parol evidence rule:
- Vocabulary:
● Integration
● Parol evidence
● Merger clause
- Admissibility and purpose of proffer:
● Admissible to explain ambiguity
● Admissible to establish defense
● Admissible to establish mistake in integration (clerical
error)
● Admissible to add term, unless complete integration
● Inadmissible to contradict or otherwise change
#2 Conduct:
- 1st - course of performance: same people, same contract.
- 2d - course of dealing: same people, earlier contract.
- 3d - custom and usage: other people, similar contracts.
 Contracts 77.

#3 UCC:
- Delivery obligations of seller if shipment contract:
● Get goods to common carrier.
● Make delivery arrangements.
● Notify buyer.
- Risk of loss if common carrier turns on whether shipment
contract:
- Risk of loss if not common carrier turns on if seller is
merchant:
● Receipt rule for merchant sellers.
● Tender rule for others.
- Disputes over quality of delivered goods:
● Fit for ordinary purpose is seller regularly sells.
● Fit for buyer’s special purpose if seller knows.
● Look for “as is” / “with all faults” to disclaim implied
warranties.
● Look for limitation of remedies of express warranties.

IV. SELLER’S PERFORMANCE OF SALE OF GOODS CONTRACT:

#1 Perfect tender (read literally).
#2 Rejection of goods option for buyer if not perfect tender unless
installment contract.
#3 Rejection limited by seller’s option to cure if:
- Early delivery.
- Reasonable in light of past deals.
#4 Rejection not possible after acceptance:
- Buyer’s payment without opportunity to inspect not
acceptance.
- Buyer’s keeping goods without objection is acceptance.
#5 Revocation of acceptance:
- Substantial impairment (i.e., something really bad wrong).
- Not discoverable earlier.

V. BREACH OF CONTRACT REMEDIES:

#1 Specific performance:
- Only if money damages inadequate.
- Generally wrong answer.
#2 Reclamation:
- Delivery of goods on credit to buyer insolvent at time of receipt
- Timely (generally 10 days from buyer’s receipt of goods).
#3 Money damages:
- Generally expectation damages – compensate by putting P in
same position as if contract had been performed without
breach.
78. Contracts

● #1 Determine dollar result of performance without

breach.
● #2 Determine dollar result of performance with breach.
● #3 Compare #1 and #2.
- More than one question on consequential damages:
● Look for special facts about buyer that caused it to
sustain special loss.
● Recoverable only if other party knew special facts at
time of contract.
● Remember Conviser and Rove in their sets of leathers.

VI. THINGS HAPPENING AFTER CONTRACT THAT EXCUSE

PERFORMANCE:
#1 Other party’s material breach.
#2 Other party’s anticipatory repudiation:
- Unequivocal words or conduct.
- Watch for whether nonrepudiating party had already
performed to determine when there can be recovery of money
damages.
#3 Nonoccurrence of express condition:
- Determining whether there is an express condition:
● Modifies other contract duties, not create new duties.
● If, only if, provided that, so long as, in the event
that, unless, when, until, and on condition that.
● IF IN DOUBT, not a condition.
- Strict compliance test for satisfying condition.
- Excuse of condition: focus on word or conduct of person
protected by condition:
● Waiver.
● Prevention.
#4 Later agreement:
- Accord AND satisfaction:
● If no satisfaction, liability under accord OR original deal.
● Distinguish substituted agreement from accord and
satisfaction.
- Novation:
● Mutually agreed upon replacement party that excuses.
● Distinguish novation from delegation.
#5 Later occurrences that affect the ABILITY to perform or MUTUALLY
UNDERSTOOD PURPOSE of performance:
- Death of party generally not an excuse.
- Later illegality of performance of purpose generally an excuse
- Destruction of subject matter of contract is two part reading
comprehension test.
 Contracts 79.

● First, reading facts, what is the contract performance

obligation?
● Second, comprehending facts, how does later
occurrence affect ability to perform?
- Later performance becoming more expensive is no excuse.

VII. THIRD-PARTY PROBLEMS:

#1 Third-party beneficiary:
- Like life insurance: two people contracting with “intent” to
benefit third party.
- On bar, intended third-party beneficiary will be named in
contract.
- Promisor is contract party whose promise more directly
benefits third party.
- Third party can recover from promisor.
- Alternatively, promise can recover from promisor.
- Third party cannot recover from promise on the contract.
#2 Assignment:
- Two people contracting and then, later, one of the two (the
assignor) transfers to a third party (the assignee) his rights
under the contract against the other party to that contract (the
obligor).
- No consideration required for assignments but
assignments without consideration can be revoked and have
no implied warranties.
- Assignment cannot “substantially change duties of obligor:”
● Not an issue in assignment of right to payment.
● Issue in assignment of right to services.
- Contract provisions usually treated as prohibition, which
means that assignee who did not know of contract prohibition
still has rights of assignee.
- Assignee can recover from obligor.
- Assignor cannot recover from obligor unless assignment was
without consideration.
- Obligor has same defenses against assignee as it would have
against assignor.
- Multiple assignments:
● Last in time if not for consideration
● Otherwise, first assignee for consideration.
#3 Delegation:
- Two or more people contracting, and then later one of the two
transfers duty to perform.
- Need to be able to distinguish (1) a delegation and
assignment from (2) a delegation for consideration.
80. Contracts

- Delegatee is legally obligated only if delegation and

assignment or delegation for consideration.
- Delegating party is always liable after delegation.

Concluding Advice

1. Read the Conviser Mini Review.

2. Epstein’s top 10:

#1 Statute of Frauds
#2 Parol evidence rule
#3 Money damages
#4 Warranty
#5 Rejection of goods/Revocation of acceptance of goods
#6 Delegation/Novation
#7 Third-party beneficiary
#8 Rejection of offer
#9 Assignment
#10 Revocation of offer

3. Whenever you are in Charlottesville, Virginia, eat at my sons’

restaurant, EPPIES, on the Downtown Mall, eppiesrestaurant.com.
 Contracts 81.

If one picture is worth a thousand words, then . . .