Contracts California Bar Exam Long Outline



Did the parties form an agreement?

  1. Three-Elements

    1. Mutual assent(offer and acceptance)

    2. Consideration(bargained for legal detriment)or a substitute; and

    3. No defensesto formation

  2. Mutual Assent (offer and acceptance)

    1. Offer: (i) an expression of promise, undertaking or commitment to enter into a contract; (ii) definite and certain in its terms, and (iii) communicated to the offeree. Watch for:

      1. Content: generally, an offer is not required to contain all material terms. But, enough of the essential terms of a contract must be provided to make it capable of being enforced.

        1. Certain missing terms may be supplied by the court if they are consistent with the parties’ intent. Under the UCC, a reasonable price term and a reasonable time for performance may be supplied by the court.

        2. A vague term may defeat formation unless acceptance or part performance makes the vague term clear.

        3. Special considerations:

          1. Sale of real estate (CL) – price and description are required

          2. Employment K (CL) – duration of the employment required

          3. Sale of good (UCC)– price not required, but vague or ambiguous material terms could invalidate an offer.

            1. Look for “fairorreasonableorappropriate” price → not an offer b/c terms are vague or ambiguous.

          4. Requirement/output contract (UCC) – quantity expressed in terms such as “all” or “only” or “solely” → valid offers.

            1. Buyer may increase requirements so long as the increase is in line with prior demands.

        4. Generally, an advertisement is NOT an offer.

          1. Exception: rewards

          2. Exception: specificity as to quantity and expressly indicates who can accept. E.g. “1 fur coat $10 – first come, first served.”

      2. Termination of an offer – an offer cannot be accepted if has terminated – 4 methods of termination

        1. Lapse of time – unreasonable delay in response; or lapse of time stated

        2. Revocation by offeror: unambiguous statement by offeror to offeree or conduct by offerer which offeree is aware of that indicates revocation.

          1. Revocation by mail is NOT effective until received

          2. Irrevocable offers:

            1. Options Contract: an offer cannot be revoked if the offeror has (1) promised to keep the offer open AND (2) the promise is supported by payment or other consideration

            2. Firm Offer (UCC): an offer for the sale of goods cannot be revoked for up to 3 months if (1) signed, written promise to keep the offer open, by (2) a merchant.

            3. Detrimental reliance by the offeree that is reasonably foreseeable.

            4. Start performance in a unilateral contract makes the offer irrevocable for a reasonable time to complete the performance.

        3. Rejection by offeree: Either direct: words, conduct (if by mail, effective when received) or indirect:

          1. Counteroffer: terminates the offer, replaces it, and becomes new offer. Note: bargaining (?) ≠ termination

          2. Conditional acceptance: terminates the offer and becomes new offer. Look for: conditional language (e.g. if, provided, so long as, on condition that).

          3. Additional terms (CL only): acceptance must be the mirror image of the offer. Thus, acceptance that adds new terms, terminates the offer and becomes anew offer.

            1. Additional Terms Under UCC 2-207:

              1. A response to an offer that adds new terms (but does not make the new terms a condition of acceptance) is treated as an acceptance. E.g. a “seasonable expression of acceptance.” There is a K.

              2. But is the additional term part of the K?

                1. If at least 1 non-merchant: new term = proposal (may be accepted or rejected)

                2. It 2 merchants: new term = part of the K UNLESS: (1) the new term materially changes the offer OR (2) the offeror objects to change.

        4. By operation of law

          1. Death or insanity of either party

          2. Destruction of the proposed K’s subject matter or

          3. Supervening illegality

    2. Acceptance of an Offer

      1. Generally, an offer can be accepted only by (1) a person who knows about the offer and (2) who is the person to whom the offer was made. Offers cannot be assigned. But, options can be assigned unless otherwise provided.

      2. Methods of Acceptance:

        1. Bilateral Offers (leaves open the method of acceptance):

          1. Full performance = acceptance (must notify offeror of performance if reason to belief that the offeror would not learn of the acceptance.

          2. Start performance = acceptance

          3. Promise to perform = acceptance (failure to perform = breach).

          4. Mailed acceptance = acceptance if (1) delivery made in a manner and by a means invited and (2) the offeree has not already sent a rejection, which arrived first. (mailbox rule)

          5. Delivery of the wrong goods (w/out an explanation) = acceptance of an offer AND breach. (there is a K, but it was breached).

            1. Note – Accommodation Exception: if explanation accompanies delivery of the wrong goods, there is NO K. There is only a counter-offer.

        2. Unilateral Offers (requires performance as the only acceptance):

          1. Only full performance = acceptance (must notify offeror of performance if reason to belief that the offeror would not learn of the acceptance).

          2. Start performance ≠ acceptance

          3. Promise to perform ≠ acceptance

  3. Consideration (bargained for legal detriment)

    1. Mutuality Required: consideration must exist on both sides of a contract (although the benefit of the consideration generally need not flow to all parties).

      1. If only 1 party is bound to perform, the promise is illusory and is unenforceable

      2. Court may supply implied promises (e.g. a party must use her best efforts) to infer mutuality.

      3. A promise to choose one of several alternatives is illusory unless every alternative involves legal detriment to the promisor.

    2. Forms of Consideration

      1. Performance, i.e. doing something not legally obligated to do

      2. Forbearance, i.e. not doing something legally entitled to do

      3. Promise to perform

      4. Promise to forbear

    3. Bargained-for: asked for by the promisor in exchange for her promises.

      1. Past consideration (promise given in exchange for something already done) ≠ consideration unless expressly requested and expectation of payment.

    4. Legal Detriment: doing something you are not legally obligated to do or refraining from something you have a legal right to do.

      1. Pre-existing duty ≠ consideration.

        1. General rule: Need new consideration for K modification

        2. Exceptions:

          1. An addition to or change in performance

          2. Unforeseen difficulty so severe as to excuse performance

          3. 3rd party promise to pay

        3. UCC: no pre-existing duty rule; good faith is the test for changes in an existing sale of goods K.

      2. Payment of a smaller sum than due on an existing debt ≠ consideration if debt is due and undisputed

        1. D owes C $3000. The debt is due and undisputed. C and D agree that D will pay $2000 and C will not take any action to collect the remainder of the debt. D pays $2000.

          1. C did NOT receive adequate consideration for the promise to release the debt

          2. C may now collect the remaining $1000 despite the promise.

        2. But, early payment of a smaller sum than due does = consideration.

    5. Consideration Substitutes

      1. Promissory Estoppel: detrimental reliance

        1. Promise

        2. Reliance that is reasonable, detrimental and foreseeable

        3. Enforcement of the promise is necessary to avoid injustice.

Recovery limited to that which will return P to the position she was in before reliance.

      1. UCC: consideration is NOT necessary to a good faith written modification of a K

  1. No Defenses

    1. Defenses to Formation

      1. Ambiguity: precludes K formation if it effects an essential term of a bargain

        1. Latent (hidden): neither trader recognizes that an essential term is reasonably susceptible to more than one meaning, and each has attached a different meaning

          1. Neither party aware → no K unless both intended same meaning

          2. Both parties aware → no K unless both intended same meaning

          3. One party aware → binding K based on what the ignorant party reasonably believed to the meaning of the ambiguous words

        2. Patent (obvious): at the formation stage, the traders have used language which is obviously susceptible to more than one meaning.

          1. If the parties are equally guilty of fault → no K

          2. If the ambiguity was hidden to one of the parties → protect the interest of the innocent party → give the term the subjective understanding of the innocent party

      2. Mistakes of Fact Existing at Time of K(absence of mutual assent)

        1. Mutual mistake of material fact. There will be no K if

          1. Both parties mistaken, and

          2. Concerns a basic assumption on which the K was made, and

          3. Materially affect the agreed exchange (what the subject of the K is, not what the value of the K), and

          4. The adversely affect party did not assume the risk of mistake.

        2. Unilateral mistake of material fact: no defense unless

          1. Palpable mistake” or

          2. Non-mistaken party knew/should have known of the mistake, or

          3. Mistake discovered before significant reliance by the other party

        3. Mistake by intermediary: the message will usually be operative as transmitted unless the party receiving the message should have been aware of the mistake.

      3. Misrepresentation → voidable K. Look for false assertion of facts or concealment of facts that induces the K. No requirement of fraud.

      4. Duress (physical or economic) → voidable K. Look for “bad guy” – improper threat and “vulnerable guy” – no reasonable alternative.

      5. Absence of Consideration: if promises exchanged at the formation stage lack elements of bargain or legal detriment → no K exists

      6. Illegality:

        1. Illegal subject matter → K is void;

        2. Legal subject matter, but illegal purpose → K is enforceable only by the person who did not know of the illegal purpose.

      7. Misunderstanding: There will be no K if

        1. Parties use a material term that is open to at least 2 reasonable interpretations

        2. Each party attaches a different meaning to the term, AND

        3. Neither party knows or has reason to know the term is open to at least 2 reasonable interpretations.

    2. Unconscionability: empowers a court to refuse to enforce all or part of an agreement if:

      1. Unfair surprise (procedural) and oppressive terms (substantive)

      2. Tested as of the time the agreement was made by the court.

    3. Lack of capacity.

      1. May be claimed by: (1) children under 18; (2) mental incompetents; (3) intoxicated persons if the other person has reason to know of the intoxication

      2. Consequences

        1. Only matters if the D lacks capacity

        2. Affirmation will be implied by retaining benefits after gaining capacity

        3. Person w/out capacity is still legally obligated to pay for things that are necessary, but liability is based on quasi K law.

    4. Statute of Frauds: requires proof that a K exists in some circumstances.

      1. Applies to:

        1. Promises in consideration of marriage (pre-nups and post-nups)

        2. Promise by an estate representative to pay the debt of the decedent out of their own funds

        3. Promise to answer for the debt or default of another

          1. Guaranty: if she doesn’t pay, I will pay

          2. Main purpose exception: where the purpose of the agreement is to benefit the guarantor → statute of frauds does NOT apply

        4. Transfer of an interest in real estate of a term or more than a year

          1. Lease for one year → SoF does NOT apply

        5. Service contracts not capable of being performed w/in one year.

          1. Possibility of early termination is irrelevant

        6. Agreements for the sale of goods for $500 or more

          1. Sale of car for $500 → SoF DOES apply

      2. How satisfied? (e.g. Is there a SoF defense?)

        1. Service Contracts:

          1. Full performance by either party DOES satisfy the SoF: where one party fully performs his side of the deal, the proof requirement is met, no SoF defense.

          2. Part performance does NOT satisfy the SoF → D has a SoF defense → there is NO K → could be quasi K defense

        2. In sale of goods:

          1. Ordinary Goods: part performance of a K for the sale of ordinary goods satisfies the SoF but only to the extent of the part performance

            1. If goods delivered → SoF met → no SoF defense

            2. If undelivered goods → SoF NOT met → SoF defense → No K

          2. Specially Manufactured Goods: SoF is satisfied as soon as the seller make a “substantial beginning” which means that the seller has done enough work that it is clear that it is custom made.

        3. Real Estate:

          1. Part performance satisfies SoF if 2 of 3: (1) full or part payment, (2) possession and/or (3) improvement.

          2. Full payment alone by buyer does NOT satisfy the SoF

        4. In Writing:

          1. Other than UCC: look to

            1. The contents of the writing or writings – it must contain all material terms (who and what) and

            2. Who signed the writing – must be signed by the person against whom you are trying to enforce it, i.e. the defendant

              1. If only one person signed, the writing is not legally enforceable against the other party → she will have a SoF defense

          2. UCC: look to

            1. The contents of the writing – must contain the quantity term (how many)

            2. Who signed the writing – must be signed by the person against who you are trying to enforce the agreement

              1. But, may be enforced against non-signer if: (1) both parties are merchants and (2) the person who receives a signed writing w/ quantity terms that claims there is a K fails to respond w/in 10 days of receipt. “Answer the darn letter rule

      3. Related Issues

        1. Equal Dignity Doctrine: Authorization to enter into K for someone else must be in writing only if the K to be signed is within the statute of frauds.

        2. Whether you need written evidence of modification of a written K depends on whether the RULES of LAW REQUIRE IT → look to whether the deal w/ the alleged change would be within the SoF

          1. At CL: Contract provisions that require all modifications be in writing has NO effect → ignore the K language → look to whether the deal w/ the alleged change would be within the SoF

          2. Under UCC: Contract provisions that require written modifications ARE effective unless waived.


What are the terms of the agreement?

  1. Parol Evidence Rule: underlying premise is that final written version of a deal is more reliable than anything said or written earlier.

    1. Triggering Facts:

      1. Written K that the court finds is the final agreement

      2. Oral statement made at the time the K was signed OR earlier oral or written statements by the parties to the K.

    2. Prevents a court from considering earlier agreements to change the terms of the deal UNLESS

      1. Mistake in Integration Exception: 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 typographical error in reducing the agreement to writing).

      2. Defense Exception: Court may admit parol evidence for the purpose of determining whether there is a misrepresentation defense to the enforcement of the agreement.

      3. Explanation Exception: Court may admit parol evidence to explain the written deal to resolve ambiguities in the written contract.

    3. PER also prevents a court from considering earlier agreements as a source of consistent, additional terms UNLESS the court finds that

      1. The written agreement was only a partial integration OR

      2. The additional terms would ordinary be in a separate agreement.

  2. Conduct and Course of Performance

    1. Three sources for K terms based on performance in CL

      1. Course of performance: what has already been done under this K. The most persuasive form of K terms.

      2. Course of dealing: what these people did under previous similar Ks.

      3. Custom and usage: what other people have earlier done under their similar Ks.

    2. UCC for terms in sales of good Ks

      1. Delivery obligations of the seller

        1. Shipment Ks: seller obligated to

          1. Get the goods to the common carrier

          2. Make reasonable arrangements for the delivery

          3. Notify the buyer

Delivery obligation complete before the seller gets the goods.

      1. Destination Ks: the seller does not complete its delivery obligations until the goods arrive where the buyer is.

    1. Risk of Loss: If after the K is entered into goods are lost or destroyed without fault of any party:

      1. Agreement of the parties controls. But if no agreement:

      2. Breaching party is liable for any uninsured loss even though breach is unrelated to the problem.

      3. If delivery by a common carrier other than seller; risk of loss shifts from seller to buyer at the time that the seller completes its delivery obligations.

      4. No agreement, no breach, no delivery by a carrier – the determining factor is whether the SELLER is a merchant.

        1. If MERCHANT-seller risk of lost shifts from the seller to the buyer on the buyer’s “receipt” of the goods (actual physical possession).

        2. If NON-merchant seller, risk of loss shifts when seller “tenders” the goods (tender = anytime the seller has told the buyer where the stuff is and how to get it).

    2. Warranties of Quality

      1. Express: look for words that promise, describe, or state facts or use of a sample or model. Cannot be disclaimed.

      2. Implied warranty of merchantability: where seller is a merchant dealing in goods of that kind, there is an implied warranty that the goods are fit for the ordinary purpose for which such goods are used. Can be disclaimed with “as is” or “with all faults” or conspicuous language of disclaimer.

      3. Implied warranty of fitness for a particular purpose: where (1) buyer has particular purpose, (2) buyer is relying on seller to select suitable goods, (3) seller has reason to know of purpose and reliance there is an implied warranty that the goods are fit for a particular purpose. Can be disclaimed with “as is” or “with all faults” or conspicuous language.

      4. Limitations of remedies

        1. Possible to limit remedies even for express warranties

        2. General test is unconscionability

        3. Prima facie unconscionable to prevent recovery if breach of warranty on consumer goods causes personal injury.


Do the terms of that contract or the subsequent conduct of either of the parties who formed it confer any rights or impose any duties on non-traders?

  1. 4 Steps

    1. Is the 3rd party an intended beneficiary?

    2. If yes, have his rights vested?

    3. If yes, in the event of breach what defenses may the promisor raise faced with a cause of action by the intended beneficiary?

    4. Also, what rights if any accrue to the promisee who bargained for that arrangement?

  2. Third-Party Beneficiaries

    1. Intended beneficiary: (1) direct undertaking of the promisor (2) with the intention to benefit the 3rd party (B consciously intended that the benefit of A’s performance run to T)

    2. Two-Types:

      1. Creditor Beneficiary: a person to whom a debt is owed by the promise

      2. Donee Beneficiary: a person the promise intends to benefit gratuitously

    3. May only enforce contractual rights when rights have vested:

      1. Manifest assent to a promise in a manner requested by the parties

      2. Brings a suit to enforce the promise OR

      3. Materially changes position in detrimental reliance on the promise

    4. Consequences:

      1. K can no longer be rescinded or modified

      2. If one of the parties attempts to tamper w/ the K → T has tort claim for interference w/ K and is entitled to any pay off money under conversion

    5. Who can sue whom?

      1. Beneficiary v. Promisor for breach

        1. Promisor may defend on any grounds he would have against the promisee

        2. But, intended beneficiary is subject to counter-claims

      2. Creditor beneficiary v. Promissee on pre-existing debt (donee beneficiary can NOT sue promisee).

      3. Promissee v. Promisor for specific performance to force promisor to provide benefit to the intended beneficiary (only if beneficiary fails to assert the cause of action).

  3. Assignment or Rights

    1. Assignment: transfer of rights under a K in two separate steps: (1) K between only two parties, and (2) one of the party’s later transfers his rights under that K to a third party

    2. Limitations on Assignment

      1. Contract provisions:

        1. Prohibition (“rights are not assignable”) – if party assigns w/out knowledge of the prohibition, the assignment is still enforceable.

        2. Invalidation (“all assignments under this K are void) – if party assigns despite the language, the assignment is NOT enforceable.

      2. Common law: bars an assignment that substantially changes the duties of the obligator.

    3. Requirements for Assignment

      1. Assignor must manifest an intent to immediately and completely transfer her rights

      2. Assignment usually does not need to be in writing, but right being assigned must be adequately described

      3. Consideration is NOT required

    4. Revocation of Assignment

      1. An assignment for consideration is irrevocable.

      2. An gratuitous assignment is generally revocable UNLESS:

        1. The obligor has already performed

        2. A token (i.e. a tangible claim, such as a stock certificate) is delivered

        3. An assignment of a simple chose (i.e. an intangible claim, such as a K right) is put into writing OR

        4. The assignee can show detrimental reliance on the gratuitous assignment

      1. A revocable gratuitous assignment may be terminated by:

        1. The death or bankruptcy of the assignor

        2. Notice of revocation by the assignor to the assignee or the obligor

        3. The assignor taking performance directly from the obligor

        4. Subsequent assignment of the same right by the assignor to another

    1. Rights of Assignee

      1. Assignee can sue the obligor

      2. Assignee can sue the assignor for wrongfully exercising the power to revoke in an irrevocable assignment situation.

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

      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

    2. Multiple Assignments

      1. If assignment are gratuitous → last assignee wins UNLESS the gift assignment is not revocable.

      2. If assignment is for consideration → first assignee for consideration wins UNLESS later assignee (1) does not know of the earlier assignment and (2) is the first to obtain payment, a judgment, a novacation or indicia of ownership.

  1. Delegation of Duties: party to a K transfers work under that K to a third party

    1. Generally, all duties may be delegated. UNLESS

      1. Contract prohibits delegation or prohibits assignment OR

      2. Contract calls for very special skills OR

      3. Contract calls for very special reputation

    2. Effective delegation requires the delegator to manifest a present intent to make a delegation. May be written or oral.

    3. If 3rd party doesn’t perform:

      1. Delegating party always remains liable

      2. Delagetee liable only if she receives consideration from delegating party.

      3. Note: delegation for consideration creates a 3rd party beneficiary obligation.

IV. what performance is required

  1. Common law performance: substantialperformance required

  2. Sale of goods

    1. General standard: perfect tender – seller is obligated to deliver perfect goods. IF less than perfect tender, buyer may:

      1. Accept and sue for damages

        1. Once buyer accepts, he cannot later reject

        2. Payment w/out an opportunity for inspection ≠ acceptance.

        3. Implied acceptance occurs where the buyer retains the goods after opportunity to inspect

      2. Reject and sue for damages

        1. Rejection of the goods must occur before acceptance of the goods.

      3. Accept some and reject others and sue for damages

    2. Cure – in some instances a seller who fails to make a perfect tender will be given a “second chance,” an option of curing Usually occurs where

      1. There are prior deals between the party which gives the seller reasonable grounds to believe that the imperfect delivery would be ok.

      2. Time performance has not yet expired → seller may cure before the delivery due date

    3. Installment Sales K – Requires or authorizes (1) delivery in separate lots (2) to be separately accepted. The buyer has the right to reject an installment only where there is substantial impairment in that installment that can’t be cured (minor breaches ok b/c continuing relationship means minor problems can be fixed in subsequent deliveries).

    4. Revocation of acceptance allowed if:

      1. Non-conformity 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 reasonable time after discovery of nonconformity.

    5. Payment:

      1. Can be by “any manner current in the ordinary course of business”

      2. Seller can demand cash, but If he does, buyer has additional reasonable time

IV. Have the performance options created by the contract matured?

  1. Four Step Inquiry

    1. What are the conditions on liability?

    2. What is the impact of each condition on the covenant or promise it modifies?

    3. Has the condition been satisfied? (question of fact)

    4. Has the condition been excused?

  2. What are the conditions? Generally, conditions modify covenants.

    1. At the formation stage, traders use conditions to allocate risk

    2. Courts use condition to assign primary fault or responsibility

    3. Where there is ambiguity → it’s not a condition

    4. Look for express conditions, implied conditions and constructive conditions (those read into the K by the court in order to ensure that the parties receive what they bargained for: if performance by both parites are capable of being rendered at the same time, there a condition concurrent; if performance by one party will take longer it is the condition precedent; if the terms of the K set a date certain for one of the parties it is a condition precedent)

  3. What is the impact of each condition?

    1. Condition precedent: condition must occur before performance is due. Where condition occurs → performance is due. Where condition does not occur → no recovery for breach

    2. Condition concurrent: conditions occur at the same time. If one condition has occurred → performance of the other condition is due. Where condition does not occur → no recovery for breach.

    3. Condition subsequent: Condition cuts off already existing duty → duty to perform is excused. Where condition does not occur → no recovery for breach.

  4. Has the condition been satisfied? question of fact

  5. Has the condition been excused?

    1. Actual material breach by one party excuses the other’s duty of counter-performance

    2. Anticipatory reputation by one party excuses the other’s duty of counter-performance

    3. Prospective inability or unwillingness to perform

    4. Estoppel: party may waive a condition by indicated that he will not insist on it

    5. Conditions may be excused b/c of impossibility, impracticability, or frustration

    6. Substantial performance by one party ≠ excuse for non-performance

V. If the contract obligations have matured, has performance been excused?

Where there is a duty to perform (either because the duty is unconditional or the condition has been satisfied or excused). Ask, has that duty been discharged?

  1. Excuse because of the other party’s improper performance

    1. Material breach rule: only a material breach by one party excuses the other party from performing. Materiality is a question of fact.

  1. If series of jobs, and P does substantially less than half: P gets nothing, even the jobs he has done. Court may find a quasi contract.

        1. But, if the contract divides up the jobs, P may recover for the completed jobs (divisible contract exception → K law recovery)

  2. If sale of goods → less than a perfect tender → excuse for non-performance

  1. Excuse because of failure of a performance condition

    1. Where condition does not occur → performance is excused

  2. Anticipatory Repudiation or Inability to Perform

    1. Anticipatory Repudiation: an unambiguous statement (1) that the repudiating party will not perform (2) made prior to the time that performance was due.

  1. Excuses the other party’s duty to perform. It also generally gives rise to an immediate claim for reach unless the claimant has already finished her performance.

  2. Can be reversed or 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.

    1. Inability to Perform: usually occurs in a barter fact pattern. Where the desired good is transferred thus excusing the other party’s performance.

  1. Later Contract

    1. Recession

  1. Mutual recession: where both parties expressly agree to rescind. May be made orally unless the subject matter is within the SoF or it involves a K for the sale of goods

  2. Unilateral recession: one party desires to rescind. Party must have legal grounds (e.g. mistake, misrepresentation, or duress).

    1. Accord & Satisfaction: a later agreement by the parties to an already existing obligation to accept a different performance in satisfaction of the existing obligation.

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

    3. Novation: An agreement between BOTH parties to an existing contract to the substitution of a new party, i.e. same performance, different party. Excuses the contracted performance of the party who is replaced.

  1. Later, Unforeseen Event

    1. Impossibility: requires:

  1. Something that happens after the K formation but before the completion

  2. That was unforeseen AND

  3. That makes performance impossible

  4. E.g. death or physical incapacity of a person necessary to effectuate the K; subsequently enacted law rending the contract subject matter illegal; subsequent destruction of the K’s subject matter

    1. Impracticality: requires that a party encounter extreme and unreasonable difficult or expense that was not anticipated, that makes performance commercially impracticable.

    2. Frustration of purpose: requires (1) a supervening event (2) that was not reasonably foreseeable at the time of entering into the K, (3) which makes the mutually understood purpose of the K moot. (K for plastic surgery in order to be a nude dancer → nude dancing outlawed → plastic surgery K excused).

V. Breach & Remedies

If performance has not been excused, and in the fact pattern it has not been tendered, there is breach. What are the remedies?

  1. Damages

    1. Three Common Law Approaches

  1. Generally,courts measure damages by protection of the expectation interest. Put P in the same economic position he would have been in had the contract been performed.

  2. Another approach: protect the reliance interest. Put P in the same economic position as if contract had never happened.

  3. Another approach: protect the restitution interest. Put D in the same economic position as if K had never happened.

    1. Damage Rules for Sales of Good

      1. If seller breaches, and buyer keeps the good: buyer recovers [fair market value if perfect] – [fair market value as delivered].

      2. If seller breaches, and seller keeps the goods: buyer recovers [market price at time of discovery of breach] – [contract price] OR [replacement price] – [contract price]

      3. If buyer breaches, and buyer keeps the goods: seller recovers the contract price.

      4. If buyer breaches, and seller has the goods: seller recovers [contract price] – [market price at time and place of delivery] OR [contract price] – [resale price] AND, in some situations, provable lost profits (where sell is from regular inventory).

    1. Additions and Limitations

      1. P may always recover incidental damages – costs incurred in dealing with the breach

      2. P may recover foreseeable consequential damages – damages arising from P’s special circumstances – recoverable only if D had reason to know at time of K.

      3. No recovery for avoidable damages – damages that could have been avoided without undue burden on P. Burdens of pleading and proof on D. NOTE: no duty to mitigate. It just reduces recovery.

      4. Recovery is limited those damages which are reasonably certain.

      5. Liquidated damages (providing for payment of a certain fixed amount in the event of a breach): valid if: (1) damages were difficult to ascertain ath the time the K was formed, and (2) the amount agreed upon was a reasonable forecast to compensatory damages.

        1. Flexible so amount varies depending on magnitude of breach→ valid

        2. Single figure to cover all situations → not valid.

  1. Non-Monetary Remedies

    1. Specific Performance: only available where money damages are inadequate.

      1. Available for:

        1. Contracts for sale of real estate

        2. Unique goods: antiques, art, custom-made (or other appropriate circumstances)

        3. SP NOT available for personal services, but the court has discretion to grant injunctive relief

      2. Defenses:

        1. Laches: P has delayed bringing action and delay has prejudiced the D

        2. Unclean Hands: party seeking SP is guilty of wrongdoing in the trax

        3. Sale to a bona fide purchaser: property has been sold to a person who purchased for value and in good faith.

    2. Reclamation: right of an unpaid seller to get its good back.

      1. Buyer must have been insolvent at the time the it received the goods

      2. Seller must demand return of good within 10 days of receipt

      3. Buyer must still have goods at time of demand.

  2. Rescission and Restitution: nonbreach may rescind (cancel) and sue for damages at law or in equity. If the nonbreach transferred a benefit to the breacher while attempting to perform, the non-breach is entitled to restitution for the benefit transferred.

  3. Quasi-Contract Relief: where there is no contract, quasi contract relief may be available.

    1. Where K failed → quasi K relief may be used if the failed K results in unjust enrichment to one of the parties.

    2. Where there is no contractual relationship → quasi-K relief requires that:

      1. One party has conferred a benefit on the other by rendering services or expending properties

      2. The conferring party had a reasonable expectation of being compensated

      3. The benefits were conferred at the express or implied request of the other person; AND

      4. Unjust enrichment would result if the D were allowed to retain the benefits w/out compensating P.

    3. Measure of relief = the benefit received by the D, or the detriment suffered by the P (relief may exceed the proposed K price).

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