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CA BAR: CONTRACTS
Vocab
A. Contract: legally enforceable agreement or promise
B. Quasi K: equitable remedy
1. K rules of law don’t always apply
2. Elements:
a. P has conferred a benefit on D,
b. P reasonable expected to be paid
c. D realized unjust enrichment if P not compensated
3. Measure of recovery
a. K price is not the measure of recovery; focus on the value of the benefit conferred.
b. K price is a ceiling if P is in default.
C. Unilateral K: results from an offerthat expressly requires performance as the only possible
method of acceptance. Doesn’t turn on the response to the offer.
D. Bilateral K: all other K’s.
1. Start w/ strong presumption that most K’s are bilateral.
2. It’s always a bilateral K unless:
a. Reward, prize or contest (reward for finding dog)
b. Offer expressly requires performance for acceptance (every K requires performance.)
Part 2: Formation of a K
• Is there a K? If so, is it legally enforceable?
• Focus on: the initial communication (the “offer”), whatever happens afterward (“termination of
the offer”), and who responds and how she responds (“acceptance”).
A. Offers
1. Test for “offers”-manifestation of an intention to K—words or conduct showing commitment.
Would a reasonable person in the position of the offeree believe that his assent creates a K?
2. Specific probs to watch for:
a. Gen rule: offier is notrequired to contain all material terms. (Offer + acceptance must be
“reasonably certain” test—basis for determining existence and breach.)
b. Prob: missing price term in sales K’s.
1) C/L Rule: for sales of real estate, offer must state the price term
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2) UCC Rule: for sales of goods, offer need not state price if parties so intend
c. Prob: vague or ambiguous material terms are not “offers” for both UCC and C/L
1) Key language: If offer contains words “appropriate, fair or reasonable,” then no offer
under UCC or C/L.
d. Prob: Requirements K’s/Output K’s: K for the sale of goods where amount to be
delivered under the K in terms of the buyer’s requirements or seller’s output in terms of
exclusivity
1) Key language: if buyer commits to buying “all, only, exclusively or solely,” his goods
from this seller, then it’s a valid offer and is not ambiguous or vague
2) Rule: Increase in requirements: buyer can increase requirements so long as the
increase is in line w/ prior demands and is not an unreasonably disproportionate
increase. (50%+ increase is invalid)
3. Context
a. Gen Rule: ads are not “offers”
b. Exceptions: it can be an offer if:
1) Rewards
2) Ad = offer if it is specific as to quantity and expressly indicates who can accept. (Ex:
Dept Store: 1 fur coat, $10—first come, first served)
B. Termination of Offers
1. An offer cannot be accepted if it has been terminated. An offer that has been terminated is
“dead.”
2. Lapse of Time
a. Rule: Time stated or reasonable time has elapsed
b. Tip: If bar prob tells you when offer was made and time of response to the offer, then it
may be a lapse of time prob
3. Death of a Party Prior to Acceptance
a. Rule: on the death or incapacity of either party after the offer but before acceptance,
terminates the offer
b. Exceptions
1) Option
2) Part performance of offer to enter into unilateral K
4. Words/Conduct of Offeror = Revocation of an Offer
a. Only offeror can revoke.
b. How an offer is revoked:
1) Unambiguous statement or conduct by offeror to offeree of unwillingness or inability
to K, that offeree is aware of
2) Offeree must be aware of the revocation; if no awareness, there is no revocation
3) Rule: Making multiple offers to diff people isn’t by itself a revocation of earlier
offers. But if one of the persons accepts, then offeror must inform all the other
offerees.
c. When revocation becomes effective
1) Revocation of an offer through the mail effective upon receipt
2) Can’t revoke after acceptance
d. Which offers are irrevocable:
1) Generally, offers can be freely revoked by the offeror.
2) Option: offer cannot be revoked if the offeror has not only made an offer but also i)
has promised to keep the offer “open” and ii) promise is supported by consideration.
After option has expired, the offer can still be accepted until offeror revokes.
3) UCC Firm Offer Rule: an offer cannot be revoked for up to 3 months if: (i) offer for
sale of goods, (ii) signed written promise to keep offer open and (iii) party/offeror is a
merchant (generally a person in business or business experience). Unlike options, the
Firm Offer Rule requires a promise to hold open but no consideration required.
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F. Misrepresentations
G. Nondisclosure
H. Duress
I. Unconscionability
J. Ambiguity in words of agreement and
K. Mistakes at the time of the agreement as to the material facts affecting the agreement
Lack of Consideration
A. Approach:
1. ID the promise maker and the promise breaker, ie who is not doing what they promised to do
2. Did the promise breaker ask for something in return, ie bargained for something
3. Did the other person sustain a legal detriment?
B. Forms of consideration:
1. Performance (of something not legally obligated to do) or promise to perform
2. Forbearance (of something that you’re legally entitled to do) or promise to forbear
C. One promise can be consideration for another promise.
1. Illusory promise: “I make a promise to sell unless I change my mind” ≠ consideration
D. Adequacy of consideration is irrelevant. Don’t look at amount of consideration.
E. “Past Consideration”
1. Rule: generally not considered consideration
2. Exceptions:
a. Express request that someone do something + the act + later promise to pay = proper
consideration
F. Pre-Existing Duty Rule:
1. C/L: doing what you’re already legally obligated to do isn’t new consideration for a new
promise to pay you more to do merely that.
a. Exception: adding to or changing performance w/ new consideration is ok
b. Exception: unforeseen difficulty so severe as to excuse performance + consideration to do
something anyway is ok
c. Exception: third party promise to pay or give new consideration for pre-existing duty is
ok
2. UCC
a. New consideration isn’t required to modify sale of goods K’s. Changing an existing K in
food faith is ok.
G. Part payment for consideration for release
1. Ie, promise to forgive balance of debt in exchange for some consideration.
2. Rule: if debt is due and undisputed, then part payment is not consideration for release.
3. Rule: if the debt is not yet due or there is disputed debt, then part payment can be
consideration for early release from the debt
D. Consideration Substitutes
1. Seals: now not a consideration substitute
2. A written promise to satisfy an obligation for which there is a legal defense is enforceable
w/o consideration.
a. Hypo: an existing obligation is no longer enforceable b/c SoL expired. But the person
who is excused by the SoL sends a new written promise to pay. This is not new
consideration for a new promise, however the new agreement can be enforced.
3. Promissory Estoppel
a. Elements:
1) Words of promise
2) Reliance that is reasonable, detrimental and foreseeable
3) Enforcement is necessary to avoid injustice
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a. Transfers include sales, leases, easements on land, fixtures, mortgages and other security
liens
b. Exception for leases of 1 year or less—writing not necessary
c. NB: if the seller conveys to the purchaser (ie, fully performs), the seller can enforce the
buyer’s oral promise to pay
d. NB: part performance doctrine: conduct (ie partial performance) that unequivocally
indicates that the parties have contracted for the sale of the land will take the K out of the
SoF. Most jurisdictions require two of the following: payment (in whole or in part),
possession, and/or valuable improvements.
6. Sale of goods for $500 or more
a. Generally requires a writing
b. Exceptions:
1) Specially manufactured goods + substantial beginning on their production oral K
can be enforced
2) Written confirmation of an oral agreement b/t merchants unless objecting merchant
objects w/in 10 days of receiving the confirmation
3) Admission in pleadings or court that a K for goods existed K is enforceable
4) Partial payment or delivery made and accepted K is enforceable to the extent of
the goods received and accepted
E. How is the SoF satisfied?
1. If SoF defense is asserted and established, there is no legally enforceable agreement and no K
liability.
2. Types of Q’s:
a. Is the SoF satisfied?
b. Is there an SoF defense?
c. Is there K liability?
3. Elements:
a. Performance (in lieu of writing)
b. Writing
c. Judicial Admission
4. Performance
a. Performance can satisfy the SoF.
b. Performance and Service K’s
1) Full performance by either party takes K out of the SoF
2) Partial performance of a services K doesn’t satisfy the SoF
c. Sale of Goods K’s
1) Rule: seller’s partial performance of a K for the sale of goods but only to the extent
of the part performance.
A) Delivered goods: SoF has been satisfied
B) Undelivered goods: there is an SoF defense
C) Specially manufactured goods: if seller has made a “substantial beginning” on
the custom manufacturing of made-to-order/custom goods, then SoF has been
satisfied
2) Rule: Buyer’s part performance (ie payment) on multiple items, SoF will be satisfied
to the extent of the part performance
3) Rule: Buyer’s part performance (ie payment) on a single item, partial performance
satisfies the SoF
5. Writing
a. Not every writing will satisfy the SoF and the SoF can be satisfied by performance.
b. All Material Terms Test for Writings: Who is a party to the K and what have all the
parties agreed to?
c. Rule: the writing has to be signed at least by the person asserting the SoF defense
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1) Tip: watch out for 2 parties, where only 1 person signs but it’s the other person
asserting the SoF defense
d. UCC SoF Rule: look at contents of the writing and who signed the writing; writing must
indicate that there is a K for the sale of goods and contain the quantity term. Price term
need not be stated, though price is important to determine whether it’s an SoF prob.
1) Merchant Failure to Respond Rule: if both parties are merchants, and the person
receives a signed writing w/ a quantity term that claims that there is a K, fails to
respond w/in 10 days, the failure to respond satisfies the SoF
6. Judicial Admission: to the extent that the party sought to be charged, admits in his pleadings,
testimony or otherwise that a K did in fact exist, the Statute doesn’t apply, at least to the
extent of the admission
F. Other uses for the SoF
1. Authorization to enter into K for someone else
a. Rule of law requires that if the contract to be signed is within the SoF, then there must be
written authorization to sign the K for someone else
2. Contract Modification
a. If the deal w/ the alleged change would fall within the SoF, then the modification
agreement must be in writing.
b. At C/L, a written K provision stating that K modifications must be in writing is
ineffective. Parties may alter their agreement orally in spite of such provisions as long as
the modification is otherwise enforceable (ie supported by consideration, not w/in the
SoF.)
c. Sale of Goods Rule: UCC contract provisions requiring written modifications are
effective unless waived; waiver is fact-specific.
Other reasons: illegality, public policy, misrepresentation, non disclosure and duress
A. Illegality
1. Illegal subject matter vs illegal purpose
2. Illegal subject matter: agreement is not enforceable
3. Illegal purpose: if the subject matter is legal but the purpose is illegal, the agreement is
enforceable only by the person who did not know of the illegal purpose
B. Public Policy
1. Cts can refuse to enforce an agreement b/c of public policy.
2. Tip: look for an exculpatory agreement (person seeks to contract away future liability) that
exempts intentional or reckless conduct from liability.
C. Misrepresentation
1. False assertion of fact that induces the K. No wrongdoing is required for misrepresentations.
2. Even if the person making the assertion “honestly” or “innocently” believes his
(mis)representation, under K law, the other party can sue for breach. But for honest and
innocent misrepresentations, the remedy is just rescission of the K.
3. Wrongful nondisclosures (ie intentional or affirmative misrepresentation or wrongful
withholding of information) can lead to an action for breach. Remedy can be rescission.
D. Duress
1. Physical
2. Economic duress:
a. Improper threat to breach an existing K
b. Need a “bad guy” and a “vulnerable guy”
c. NB: is an evolving legal concept so bar exam q’s will be relatively straightforward.
Unconscionability
A. Is always tested as of the time the agreement was made.
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B. Allows a court to refuse to enforce all or part of an agreement; always a q of law, never decided
by a jury.
C. Test: unfair surprise (procedural)
D. Test: oppressive terms (substantive)
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c. NB: these are generally wrong answers b/c for most purposes, it’s totally irrelevant as to
whether the integration is partial or complete. What matters is whether there’s integration
or not.
2. Merger Clause: K clause such as “This is the complete and final agreement” strengthens
presumption that all negotiations are in the writing.
3. Parol Evidence:
a. Words of party (or parties),
b. Occurring before integration, ie before agreement was put in written form
c. Oral or written
4. Reformation: equitable action to modify written K to reflect actual agreement
C. Triggering facts:
1. Written K that court finds is the final agreement, and
2. Oral statements made at the time the K was signed OR earlier oral or written statements by
the parties to the K.
D. Parol evidence fact patterns:
1. Contradicting the written deal
a. Rule: PER prevents a court from admitting evidence of earlier agreements for the purpose
of contradicting the terms in the written K.
b. Rule: A court may consider evidence of such terms for the limited purpose of whether
there was a mistake in integration, ie a mistake in reducing the agreement in writing or
some kind of clerical error.
2. Getting out of a written deal
a. Rule: PER doesn’t 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
3. Explaining terms in the written deal
a. Rule: PER does not prevent a court from admitting evidence of earlier agreements to
resolve ambiguities in the written. Inadmissible to contradict terms in the K.
4. Adding to the written deal
a. Rule: PER prevents a court from admitting evidence of earlier agreements as a source of
consistent, additional terms unless the court finds:
1) Written agreement was only a partial integration or
2) That the additional terms would ordinarily be in a separate agreement
E. Comparing PER and the SoF
1. SoF probs are triggered by: absence of a writing
2. PER probs are triggered by: superior reliability of a written agreement
Part 4: Performance
3. Substantial impairment test: if imperfect tender would result in substantial impairment, then
buyer can reject. This doesn’t require perfect tender by the seller.
E. Acceptance of the Goods
1. Rules:
a. If the buyer has accepted the goods, he cannot later reject them.
b. Payment: payment w/o opportunity to inspect is not acceptance
c. Buyer must keep the goods w/o objection
2. Tip: look for fact pattern where B first received goods and then later complains to S; rule of
thumb is that 1 month+ of acceptance means that B can no longer reject. (Though B may be
able to revoke acceptance.)
F. Revocation of Acceptance of the Goods
1. Rule: if a buyer accepts the goods, he cannot later reject the goods but in limited
circumstances, a buyer can cancel the K by revoking his acceptance of the goods, if:
a. Nonconformity substantially impairs the value of the goods, and
b. Excusable ignorance of grounds for revocation or reasonable reliance on seller’s
assurance of satisfaction, and
c. Revocation w/in a reasonable time after discovery of noncomformity
2. Watch out for acceptance rule vs revocation of acceptance rule.
G. Comparison of Rejection of the Goods and Revocation of Acceptance of Goods
1. See p. 44
2. Buyer vs seller—depends on what’s at issue
3. If B sells the goods before the right to reclamation is asserted, then S cannot reclaim.
C. Entrustment
1. If an owner leaves her goods w/ a person who sells goods of that kind and that person
wrongfully sells the goods to a third party, then such a good faith purchaser from dealer cuts
off rights of the original owner/entruster. Original owner cannot get the goods back b/c it was
her choice to entrust to the seller in the first place.
2. But if the sale is due to theft, then original owner can recover the goods b/c can’t transfer bad
title.
1. Incidental Damages
a. Rule: are costs incurred in finding replacement performance (not the additional costs of
replacement)—always recoverable
2. Consequential Damages
a. Rule: the kind of loss that is special to this P; arise from P’s special circumstances and
recover is limited to the situations where D had reason to know of these special
circumstances at the time of the K.
b. Tip: the special circumstances will be given to you in the fact pattern and the breaching
party will know about these special circumstances
3. Avoidable Damages
a. Rule: no recovery for damages that could’ve been avoided w/o undue burden on P.
Burden of pleading and proof on D.
4. Certainty limitation
a. Rule: damages must be proven w/ reasonable certainty—very much a fact question.
b. Tip: look for fact patterns involving a new business or a new business activity where
damages might lack certainty.
c. Tip: if can’t prove expectation damages w/ reasonable certainty, might be able to
nonetheless recover reliance or restitution damages.
5. Liquidated Damages
a. Rule: if the K fixes the amount of damages, the issue will be validity. The concern is that
it might be too high, especially since the court can only compensate and not punish w/
punitive damages.
b. Tests for the validity of liquidated damages:
1) Were damages difficult to forecast at the time the K was made?
2) Is it a reasonable forecast?
b. Only if
c. Provided that
d. So long as
e. Subject to
f. In the event that
g. Unless
h. When
i. Until
j. On the condition that
k. In the K
B. Std for whether a condition has been satisfied—strict compliance is necessary to “satisfy” a
condition
C. How can a condition be excused?
1. If the condition doesn’t occur at all, all remaining contract obligations are excused.
2. Sometimes however, even the occurrence of the condition is excused; thus even if the
condition didn’t occur, all remaining contract obligations are not necessarily excused.
3. Waiver/Estoppel
a. Estoppel: statement by person protected by the condition before the conditioning event
was to occur and requires reliance by the other person.
b. Waiver: based on a statement by the person protected by the condition after the
conditioning event was to occur and doesn’t require reliance.
4. Prevention
a. If the party protected by the condition hinders or prevents the occurrence of the
condition, then the condition is excused and the K must be performed.l
5. Avoidance of forfeiture: cts will sometimes excuse the non-occurrence of a condition in order
to avoid excessive harm to the party not protected by the condition.
Insecurity
A. Anticipatory repudiation requires an unambiguous statement or conduct that a party will not
perform. But if the words or conduct merely make performance uncertain, then:
1. Other party has reasonable grounds for insecurity and
2. can in writing demand adequate assurance and
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3. if it’s commercially reasonable, can suspend performance until it gets adequate assurance
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3. Seller’s risk of loss and destruction of high inventory of goods: will not excuse S’s duty to
perform b/c S can still perform w/o unreasonable or extreme costs to him
4. Buyer’s risk of loss and destruction after S had performed: doesn’t affect B’s ability to
perform
C. Death after K
1. Rule: generally, death does not make a person’s K obligations disappear—can still recover
from the estate
2. If O and P contract but before either party even begins performance, one party dies, then it is
permissible for the surviving party to find a replacement and then sue the estate for the
difference in replacement costs.
3. Party to K who is a “special” person
a. If one party to the K is a “special person” (ie, unique and irreplaceable in some sense),
and that special person, then and only then does death excuse nonperformance.
D. Subsequent law or regulation
1. Rule: If the later law or reg makes the K illegal, then the obligations are excused for
impossibility.
2. Rule: if the later law or reg makes the mutually understood purpose of the contract illegal,
then the parties are excused by frustration of purpose.
Assignment of Rights
A. “Assignment”-a transfer of rights under a K in two separate steps;
1. K b/t only two parties
2. One of the parties later transfers rights under that K to a 3rd party
B. Vocab
1. Assignor: party to the K who later transfers rights under the K to another
2. Assignee: not a party to the K. Able to enforce the K b/c of assignment.
3. Obligor: other party to the K
C. Limitations on Assignment
1. Contract provisions
a. Cts are reluctant to read K language as preventing assignments. Determine if the K:
1) Prohibits assignments or
2) Invalidates assignments
b. Prohibition: It takes away the right to assign but not the power to assign. Thus if assignor
asserts his “power” to assign:
1) Assignee who doesn’t know about the prohibition can still enforce the assignment.
2) Assignor though is still liable for breach of K to the obligor.
c. Invalidation: takes both the right and power to assign so that there is a breach by the
assignor if he attempts to assign. Assignee has no rights under the K.
1) Language: “all assignments of rights under this K are void.”
2. C/L
a. Rule: even if the K doesn’t in any way limit the right to assign, C/L will bar an
assignment that substantially changes the duties of the obligor.
1) Assignment of the right to receive payment always a valid assignment b/c doesn’t
change the obligor’s duty to pay
2) Assignment of the right to contract performance other than the right to payment
usually substantial change on the bar
D. Requirements for Assignment
1. Generally, don’t need consideration.
2. Gratuitous assignments (and only gratuitous assignments) can be revoked.
E. Right of Assignee
1. Assignee can recover from obligor
2. Assignor for consideration cannotrecover from obligor. Consideration isn’t generally
required but if assignor gives consideration to assignee, assignor cannot collect from obligor.
3. Obligor has the same defenses against assignee as it would have had against assignor.
4. Payment by obligor (who doesn’t know about the assignment)to assignor is effective until
obligor knows of assignment. Similarly, modification agreements b/t obligor and assignor are
effective if the obligor did not know of the assignment that assignor made. if obligor
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doesn’t know about the assignment, then his payment to assignor is not breach and remains
effective; unknown assignee cannot “double collect” from obligor.
5. Implied warranties of assignor in an assignment for value
a. In assignments for consideration, the assignor warrants:
1) The right assigned actually exists
2) The right assigned is not subject to any defenses by the obligor, and
3) The assignor will do nothing to impair the value of the assignment.
b. Assignor does not warrant what the obligor will do.
F. Multiple Assignments
1. Rule: if all are gratuitous assignments, then the last assignee in time generally wins.
a. NB: such gift assignments can be freely revoked. Since a later gifting revokes an earlier
gifting, the last one generally wins if they are all gratuitous assignments.
b. Exceptions: A gratuitous assignment is not revocable if it is the subject matter of a
writing delivered to the assignee, the assignee has received some notice of ownership or
the assignee has relied on the assignment that is reasonable, foreseeable and detrimental,
then assignment isn’t revocable and you don’t do the last in time rule.
2. Rule: first assignee for consideration wins.
a. Very limited exception: a subsequent assignee takes priority over an earlier assignee for
value only if he:
1) Doesn’t know of the earlier assignment, and
2) Is the first to obtain payment from obligor, judgment, a novation or indicia of
ownership.
Delegation of Duties
A. Delegation: a party to a K transfers the obligation or duties to do the work under that K to a third
party.
1. Delegating party: had promised to do the obligation
2. Delegatee: replaces as the new one to do the work
3. Obligee
B. Relationship b/t assignment and delegation
1. Assignment: transfers rights
2. Delegations: transfers the obligations
3. Tip: bar uses assignment and delegation loosely
C. Which duties are delegable
1. Rule: generally, contractual duties are delegable.
2. Are not permitted if:
a. K prohibits delegations or prohibits assignments
b. K calls for very special skills
c. Person to perform K has a very special reputation
3. If K says:
a. No assignment then also no delegation
b. No delegation then also no assignment
D. Nonperformance by the Delegate: what if the third party delegate doesn’t perform?
1. Fact pattern: K + delegation + nonperformance by delegatee
2. Rule: delegating party always remains liable
3. Rule: delegatee liable only if she receives consideration from delegating party
a. Rule: if no consideration, obligee and delegating party cannot sue delegatee
b. Rule: if yes consideration from delegating party to delegatee, then obligee or delegating
party can sue delegatee.
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