CA Bar: Contracts (2009)

CA Bar Contracts

CA BAR: CONTRACTS Vocab A. Contract: Contract: legall legally y enforceable enforceable agreeme agreement nt or promise promise B. Quasi Quasi K: equita equitable ble remedy remedy 1. K rules rules of law law don don’t ’t alway alwayss appl apply y 2. Elements: a. P has has con confe ferr rred ed a ben benef efit it on on D, b. P reas reasona onable ble expect expected ed to be paid paid c. D realized realized unjust unjust enrichment enrichment if P not compensat compensated ed 3. Meas Measur uree of of rec recov over ery y a. K price is is not the the measure measure of recovery; recovery; focus on on the value value of the the benefit benefit conferred conferred.. b. K price price is a ceilin ceiling g if P is in in defaul default. t. C. Unilateral K: results from an offer that that expressly requires performance as the only possible method of acceptance. Doesn’t turn on on the response to the offer. D. Bilate Bilateral ral K: all all other other K’ K’s. 1. Start Start w/ strong strong presum presumptio ption n that most most K’s K’s are bilate bilateral. ral. 2. It’s always a bilateral K unless: a. Reward Reward,, prize prize or contes contestt (reward (reward for for findin finding g dog) dog) b. Offer expressly requires performance for acceptance (every K requires performance.) Part 1: Applicable Law A. Do you apply the C/L C/L or or Art 2 of of the UCC? UCC? 1. C/L: C/L: majo majori ritty rul rulee 2. Art Art 2 wil willl app apply ly when when:: a. Type of txn—Art 2 applies to sales b. Subject matter of txn—goods, ie tangible, personal property; not land or real estate, services c. NB: for the purpose purposess of whether whether Art Art 2 applies, applies, the dollar dollar amount amount doesn’t doesn’t matter matter,, w/ 1 exception only d. NB: for mixed deals deals that are part part goods-part goods-part services, services, it’s it’s all or nothing—yo nothing—you u apply Art 2 to all of the deal or to none of the deal. important part of the (lump sum)deal, services or goods? If 1) Rule: what is the more important goods, use Art 2. 2) Mixed Deal Deal Exception Exception:: If the K divides divides the payment payment b/t b/t the sale of the the goods and and of the services, then apply the UCC to the sale of goods and C/L to the rest. B. No Art 2 A questions in California. 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”-ma “offers”-manifes nifestatio tation n of an intentio intention n to K—words or conduct conduct showing showing commitment. commitment. Would a reasonable person in the position of the offeree believe that his assent creates a K? 2. Spec Specif ific ic pro probs bs to to watc watch h for: for: a. Gen rule: offier is not required required to contain contain all material terms. terms. (Offer + acceptance 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 for sales of of real estate, estate, offer offer must must state the the price price term 1

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CA Bar Contracts

2) UCC Rule: Rule: for sales sales of goods, goods, offer offer need need not state state price price if parties parties so intend intend c. Prob: vague vague or ambig ambiguous uous material material terms are are not “offer “offers” s” for both both UCC and and C/L 1) Key language: If offer contains words “appropriate, fair or reasonable,” then no offer under UCC or C/L. d. Prob: Require Requirements ments K’s/Ou K’s/Output tput K’s: K’s: K for the sale sale of goods goods where amount amount to be delivered under the K in terms of the buyer’s requirements or seller’s output in terms of exclusivity exclusively or solely,” solely,” his goods 1) Key language: if buyer commits to buying “all, only, exclusively 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 disproportionate increase. (50%+ increase increase is invalid) 3. Context a. Gen Gen Rule Rule:: ads ads are are not not “off “offer ers” s” b. Except Exception ions: s: it it can can be an off offer er if: if: 1) Rewards 2) Ad = offer offer if it is is specific specific as to quanti quantity ty and expressl expressly y indicates indicates who who can accept. accept. (Ex: Dept Store: 1 fur coat, $10—first come, first served) B. Termina erminatio tion n of of Off Offers ers 1. An offer offer cannot cannot be accepte accepted d if it has has been termin terminated ated.. An offer offer that has has been termi terminated nated is 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 Acceptance a. Rule: on on the death death or incapaci incapacity ty of either either party party after the the offer but but before before acceptance, acceptance, terminates the offer b. Exc Exceptions 1) Option 2) Part perform performance ance of of offer offer to enter enter into into unilater unilateral al K 4. Words/Conduct of Offeror = Revocation of an Offer a. Only Only offe offero rorr can can revo revoke ke.. b. b. How How an an off offer er is revo revoke ked: d: 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 Making multip multiple le offers offers to diff diff people people isn’t isn’t by itself itself a revocation revocation of earlier earlier offers. But if one of the persons accepts, accepts, then offeror must inform all the the other offerees. c. When When revo revocat cation ion become becomess eff effect ective ive 1) Revocation of an offer through the mail  effective upon receipt 2) Can’t Can’t revoke revoke after after accept acceptanc ancee d. Which Which offers offers are irrevo irrevocab cable: le: 1) Generally Generally,, offers offers can be freely freely revoke revoked d by the offeror offeror.. th e offeror has not no t only made an offer of fer but also i) 2) Option : offer cannot be revoked if the has promised to keep the offer “open” and ii) promise is supported by consideration.









CA Bar Contracts

A) 3 months is a ceiling. A writing that that states 6 months will be scaled back to 3. A writing that gives no time frame will be fixed by the court for a reasonable period, not to exceed 3 months. months. Can be expressly written as less less than 3 months though. relia nce: offer cannot be revoked revo ked if there has been (i) reliance re liance that is (ii) 4) Through reliance reasonably foreseeable and (iii) detrimental Unilater al K Rule: the start of performance perfo rmance pursuant purs uant to an offer to enter into a 5) Unilateral unilateral K (K’s that can only be accepted by performance) makes that offer irrevocable for a reasonable time to complete performance. prepa ration rule : w/ unilateral K’s, mere preparation prep aration to perform per form isn’t A) Mere preparation enough to tender tender performance and make the the offer irrevocable. irrevocable. But mere preparation also isn’t reliance unless it’s detrimental reliance. Cond uct of o f Offeree Offe ree = Rejectio eje ction n 5. Words/Conduct a. Counteroffer 1) Rule: alway alwayss kills kills original original offer offer and becomes becomes a new offer offer.. Offeree Offeree cannot cannot go back back and try to accept original offer. 2) Bargai Bargaini ning ng is not a counte counterof roffer fer;; A) Bargaining vs counteroffer: counteroffer: if the response is is a question, then bargaining. bargaining. If response is a statement, then counteroffer. counteroffer. b. Conditional Acceptance 1) Rule: kills kills original original offer offer and becomes becomes the new new offer offer.. 2) Key language: “if,” “only if,” “provided that,” “so long as,” “but” or “on condition that…” c. C/L Mirror Image Rule 1) Rule: a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance. acceptance. Response must be be the mirror image of of offer. offer. Counteroffer must must be accepted to create K. Original offer is no longer longer a “live” offer. offer. d. UCC 2-207/Additional Terms 1) Fact Pattern: Pattern: offer offer to buy/sell buy/sell goods goods + response response which adds terms: terms: raises raises two q’s: q’s: A) Is ther theree a K? B) What What are are its its ter terms ms?? 2) Step 1: Is there a K? A) Yes: if response response adds new terms but does not not make the new terms terms a condition of acceptance (“seasonable (“seasonable expression of acceptance”). acceptance”). Go to Step 2 B) No: if response adds new terms and makes them conditions to acceptance  then this is a conditional conditional acceptance and doesn’t create an express K. So check if the conduct of the parties indicates that there is an implied K. C) NB: whether whether parties parties are merchan merchants ts doesn’t doesn’t matter matter at this this stage 3) Step 2: Are the the additio additional nal terms terms part part of the K? K? A) If at least 1 party is not a merchant  additional term is merely a proposal that is to be separately rejected or accepted B) If both parties are merchants  additional terms are part of the K, unless: 1) Addition Additional al term term materially materially alters the offer 2) Addition Additional al term is not part part of the K b/t mercha merchants nts if the offeror offeror objects objects to the the change C. Acce Accepta ptanc ncee of an an Offe Offerr









CA Bar Contracts

b. Offeree fully performs 1) Fact Pattern: Pattern: there is is a verbal offer offer + no words words in response response + respon response se is full full performance. 2) Rule: Full Full performanc performancee is acceptance acceptance but offeror offeror must must know that that performan performance ce has occurred. Thus offeree has a duty to give notice based on either either what offer requires or whether offeree has reason to believe that offeror will not learn of the acceptance (ie when events are occurring in two diff states.) If offeror cannot reasonably reasonably learn of full performance, then offeror is excused from paying offeree who performed. c. Offeree starts to perform 1) Fact pattern pattern:: verbal verbal offer offer + no words words in respons responsee + start of perform performance ance 2) Rule: Start Start of performa performance nce is accept acceptance ance of a bilater bilateral al K. But it’ it’s not an accept acceptance ance if unilateral K. Unilateral K’s K’s require acceptance by full performance, performance, not partial performance. A) Unilateral K’s: K’s: Offers requiring performance as acceptance, and not a promise to perform, are treated as requiring complete performance. But start of performance will obligate the offeror to not revoke before completion whereas offeree is free to not complete performance. d. Words of promise 1) Fact Pattern: Pattern: words of of offer + words words of accept acceptance ance + but no no performance performance 2) Rule: generally generally mere promis promisee to perform perform = acceptan acceptance ce e. Mailbox Rule 1) Fact Pattern: Pattern: 2 people people trying trying to make make a deal but aren’t aren’t dealing dealing face-to-f face-to-face ace + communicating using methods that involve delays in communications + conflicting communications 2) Rule: all all communicatio communications ns other than than acceptance, acceptance, (like (like a revocation) revocation) are effective effective only only when received 3) Rule: acceptance acceptance is general generally ly effect effective ive when when made made 4) Rule: if if a rejection rejection is mailed mailed before the the acceptance acceptance is mailed, mailed, then then neither neither is effective effective until received 5) Rule: you you cannot cannot use the mailbox mailbox rule rule to meet an option option deadlin deadlinee and say that that acceptance is effective when made f. Seller of goods sends the “wrong” goods 1) Acceptance Acceptance + sending sending wrong wrong goods goods = accept acceptance ance of K and breach breach 2) Rule: if if buyer orders orders one thing thing and seller seller sends sends somethin something g else, then then you treat treat that as an acceptance of the K and breach by the seller. seller. A) Exception: if seller sends sends the wrong stuff stuff + explanation explanation and attempt to accommodate the buyer, then treat that as not a K and not a breach, but rather a counteroffer. 2. Who can can acc accep ept? t? a. Rule: Rule: offe offerr can can be accep accepted ted only only by: by: 1) Someon Someonee who who knows knows about about the the offer offer A) Ie, in reward cases, if you you returned the the dog and and then later learned of of the reward, you cannot collect the reward 2) Who is the the pers person on to to whom whom it it was made made b. Offers Offers cannot cannot be be assig assigned ned to to other others. s. c. But options options can can be assigned assigned unless unless the option option agreement agreement otherwise otherwise provid provides. es.









CA Bar Contracts

F. G. H. I. J. K.

Misre Misrepr pres esen enta tati tion onss Nond Nondis iscl clos osur uree Duress Unco Uncons nsci cion onab abil ilit ity y Ambigu Ambiguity ity in words words of agreem agreement ent and Mistakes Mistakes at the time of the agreement agreement as to the the material facts facts affecting affecting the the agreement agreement

Lack of Consideration A. App Approac roach h: 1. ID the promise promise maker maker and the promise promise breaker breaker,, ie who is not doing doing what what they promised promised to do do 2. Did the the promise promise breaker breaker ask for someth something ing in in return, return, ie bargaine bargained d for somethi something ng 3. Did the other person person sustai sustain n a legal legal detriment? detriment? B. Forms Forms of consid considera erati tion: on: 1. Performance Performance (of (of somethin something g not legally legally oblig obligated ated to do) do) or promise promise to perfor perform m 2. Forbearance Forbearance (of (of something something that that you’re you’re legally legally entitled entitled to do) or promise promise to forbear forbear C. One promis promisee can be consi considerati deration on for anothe anotherr promise. promise. 1. Illusory Illusory promise: promise: “I “I make a promise promise to sell unless unless I change change my mind” mind” ≠ considerati consideration on D. Adequacy of consideration consideration is irrelevant. Don’t look at amount amount of consideration. consideration. E. “Pas “Pastt Con Consi sider derat atio ion” n” 1. Rule: generally generally not considered considered considerat consideration ion 2. Exceptions: a. Express Express request request that that someone someone do somethi something ng + the act act + later later promise promise to pay pay = proper consideration F. Pre-E Pre-Exi xist stin ing g Duty Duty Rul Rule: e: 1. C/L: doing doing what what you’re alread already y legally legally obligated obligated to do isn’t isn’t new consid consideratio eration n for a new promise to pay you more to do merely that. a. Exception Exception:: adding adding to or changin changing g performance performance w/ w/ new consid consideratio eration n is ok b. Exception Exception:: unforeseen unforeseen difficul difficulty ty so severe as to excuse excuse performance performance + considera consideration tion to do something anyway is ok c. Exception Exception:: third party party promise promise to pay or or give new consid considerati eration on for pre-exist pre-existing ing duty duty is ok 2. UCC a. New consider consideratio ation n isn’t isn’t required required to modify modify sale sale of goods goods K’s. K’s. Changing Changing an existi existing ng K in food faith is ok. G. Part paymen paymentt for considerati consideration on for for release release 1. Ie, promise promise to forgi forgive ve balance balance of debt debt in exchange exchange for for some consi considerati deration. on. 2. Rule: if if debt is due and and undispute undisputed, d, then part part payment payment is not consider consideration ation for for release. 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. Consid Considera eratio tion n Substi Substitut tutes es 1. Seals: Seals: now now not not a conside considerat ration ion subs substit titute ute 2. A writte written n promise promise to satisfy satisfy an obligatio obligation n for which which there is a legal legal defense defense is enforceabl enforceablee w/o consideration. a. Hypo: Hypo: an existin existing g obligatio obligation n is no longer longer enforceabl enforceablee b/c SoL SoL expired. expired. But the the person person who is excused by the SoL sends a new written promise to pay. pay. This is not new consideration for a new promise, however the new agreement can be enforced. 3. Prom Promis isso sory ry Esto Estopp ppel el









CA Bar Contracts

A. Who lack lackss capaci capacity ty to cont contrac ract: t: 1. Infa Infant nt—u —und nder er 18 18 2. Ment Mental al inco incomp mpet eten ence ce 3. Intoxicat Intoxicated ed persons persons—if —if other other party has reason reason to know know and his obligations. But if B. If promissor has a lack of capacity, then he can disaffirm the K and promissor does perform, despite his lack of capacity, capacity, he can still enforce the K. Only D’s capacity or lack thereof matters; P’s capacity doesn’t matter. C. Ratificati Ratification: on: if D lacks age capacity capacity but makes makes agreement, agreement, and then then reaches age age 18 and has kept the benefits of the K w/o complaint, P-Seller can now sue to enforce the agreement. liability, not D. Quasi-K Liability for Necessities: a person who lacks capacity never has contract liability, even for necessities. But the person lacking capacity still has an obligation obligation to pay the reasonable value of the benefit conferred for the necessities. Statute of Frauds Defense A. Purpose: concerned w/ people making making fraudulent claims for enforcing enforcing a K when it didn’t exist. SoF thus requires more proof, incl. writings. B. SoF Defense: Defense to enforcement if it’s supposed to be w/in the SoF and isn’t satisfied; if he admits to the existence of a K in his pleadings, testimony etc, then court will ignore the SoF issue and infer a K to the extent of the admissions. C. Vocab 1. “within the SoF”—SoF covers it or it’s subject to the SoF? 2. Has the the SoF been been satisf satisfied? ied? --Assumin --Assuming g you are are in the the SoF, SoF, has it it been satis satisfied? fied? 3. Is there there an an SoF defe defense nse to to the enfo enforce rcemen mentt of a K? D. K’s Within the SoF: (must be in writing to be enforced) Guarante e or Suretyship : a promise to answer for the debts de bts of another 1. Guarantee a. Cts have read this phrase to limit it to guarantees if the primary promisor fails to pay b. Main purpose purpose excepti exception: on: if the main main purpose purpose of this this debt that that was guarantee guaranteed d was to benefit the guarantor, then doesn’t fall in the SoF repr esentativee to pay estates’ debts out of their own funds 2. Promise by an estate representativ a. It’s It’s so unusual unusual for the estate estate rep to incur incur any kind kind of personal personal oblig obligatio ation, n, that we’re we’re concerned about fraud. 3. Promises in consideration of marriage a. Not merely merely a promise promise to marry marry but but rather rather a promise promise to do somethi something ng or refrain refrain from from doing something if we marry will fall w/in SoF (prenups and postnups) b. Don’t Don’t need need SoF for just just an allege alleged d promise promise to marry marry Servic e K’s that are not “capable” of being bein g performed w/in 1 year from the time of the K (ie, 4. Service it’ll take more than one year to perform) a. Rule: a promis promisee that by its its terms terms cannot cannot be performed performed w/in w/in 1 year year is subject subject to the the SoF: 1) Time Time runs from date date of agreement, agreement, not not date date of performa performance nce 2) Ex: A enters enters into into employmen employmentt K on March 15, 2003 2003 and agrees agrees to work from from April April 2, 2003 until March 31, 2004. 2004. Agreement must be in writing. writing. b. If the K has has a specific specific time time period period of more than than 1 year, year, then SoF SoF applies applies 1) Test: is there any conceivable way that the K could be completed in 1 year, w/ unlimited resources? resources? If so, then SoF not not necessary 2) Tip: Tip: prob will give give two days days that that are more more than 1 year year apart, apart, SoF applies applies c. K’s K’s not not with within in the the sta statu tute te::











CA Bar Contracts

a. Transfers include sales, leases, easements on land, fixtures, mortgages and other security liens b. Exception for leases of 1 year or less—writing less—writing not necessary c. NB: if the the seller seller conveys conveys to the the purchaser purchaser (ie, (ie, fully perform performs), s), the seller seller can can enforce enforce the buyer’s oral promise to pay d. NB: part performan performance ce doctrine: doctrine: conduct conduct (ie partial partial performance) performance) that that unequivoc unequivocally ally indicates that the parties have contracted for the sale of the land will take the K out of the SoF. SoF. Most jurisdictions require two of the following: following: payment (in whole or in part), possession, and/or valuable improvements. 6. Sale of goods for $500 or more a. Gene Genera rall lly y requ requir ires es a wri writi ting ng b. b. Exce Excep ption tions: s: 1) Specially manufactured goods + substantial beginning on their production  oral K can be enforced 2) Written confirmation 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 satisf satisfied ied? ? 1. If SoF defense defense is asserted asserted and establi established, shed, there there is no legally legally enforcea enforceable ble agreement agreement and and no K liability. 2. Types ypes of Q’ Q’s: a. Is the the SoF SoF sati satisf sfie ied? d? b. b. Is ther theree an an SoF SoF def defen ense se?? c. Is ther theree K lia liabi bili lity ty?? 3. Elements: a. Performance (in lieu of writing) b. Writing c. Judi Judici cial al Admi Admiss ssio ion n 4. Performance a. Performance can satisfy the SoF. b. b. Perfo Perform rman ance ce and and Servi Service ce K’s K’s 1) Full performance by either party takes K out of the SoF 2) Partial Partial performan performance ce of a service servicess K doesn’ doesn’tt satisfy satisfy the the SoF c. Sale Sale of Good Goodss K’ K’s









CA Bar Contracts

1) Tip: Tip: watch watch out for 2 parties, parties, where where only 1 person person signs signs but it’s it’s the the other person 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 Merchant Failure Failure to Respond Respond Rule: Rule: if both parties parties are are merchants, merchants, and the 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 tha t the party sought sough t to be charged, admits in his pleadings, ple adings, 6. Judicial Admission : to the extent that testimony or otherwise that a K did in fact exist, the Statute doesn’t apply, at least to the extent of the admission F. Othe Otherr use usess for for the the SoF SoF 1. Author Authoriza izatio tion n to enter enter into into K for some someone one else else a. Rule of law require requiress that if the the contract contract to be signed signed is within within the SoF SoF, then there there must be written authorization to sign the K for someone else 2. Cont Contra ract ct Mo Modi difi fica cati tion on a. If the deal w/ the the alleged alleged change change would would fall within within the SoF SoF, then the modifi modificatio cation n 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 provisions as long as the modification is otherwise enforceable (ie supported by consideration, not w/in the SoF.) c. Sale of Goods Goods Rule: Rule: UCC contract contract provisi provisions ons requirin requiring g written written modificat modifications ions are are effective unless waived; waiver is fact-specific. Other reasons: illegality, illegality, public policy, misrepresentation, misrepresentation, non disclosure and duress A. Ill Illegal egaliity 1. Illega Illegall subject subject matt matter er vs illeg illegal al purpo purpose se 2. Illegal Illegal subject subject matter: matter: agreemen agreementt is not enforceabl enforceablee 3. Illegal Illegal purpose: purpose: if the subject subject matter matter is legal legal but the the purpose purpose is illegal, illegal, the the agreement agreement is enforceable only by the person who did not know of the illegal purpose B. Publ Public ic Poli Policy cy 1. Cts can can refuse refuse to enforce enforce an an agreement agreement b/c b/c of publi publicc policy policy.. 2. Tip: Tip: look for an exculpato exculpatory ry agreement agreement (person (person seeks to contract contract away away future future liability) liability) that exempts intentional or reckless conduct from liability. liability. C. Misre Misrepr pres esen enta tati tion on 1. False assert assertion ion of fact fact that that induces induces the the K. No wrongdoi wrongdoing ng is required required for mis entations entations









CA Bar Contracts

B. Allows a court to refuse to enforce enforce all or part of an agreement; always always a q of law, law, never decided by a jury. C. Test: unfair unfair surpri surprise se (procedural (procedural)) D. Test: oppressive oppressive terms (substanti (substantive) ve) Ambiguity in Words or Agreement A. Ther Theree will will be no K if: if: 1. Parties Parties use a material material term that that is open open to at least least 2 reasona reasonable ble interpret interpretatio ations ns 2. Each party attaches attaches a diff diff meanin meaning g to the term term and, and, 3. Neither Neither party party knows knows or has reason reason to to know the the term is is open to at least least 2 reasonable reasonable interpretations B. What if party A (but not not B) knows that that there are 2 reasonable reasonable interpretations? interpretations? Then interpret interpret the K according to B’s understanding. Mistake of Fact Existing at the Time of K A. This is diff from misrepresentations, which always contains a statement from one party to the other that just isn’t correct. 1. Mistake Mistake occurs occurs when one one party reaches reaches an incorrec incorrectt belief not not based on on what the other other party party said or what the K said. 2. Misunders Misunderstandi tanding ng is is based based on the the words words on on the the K. B. Mutual Mistake of Material Fact ( Rose of Abelone) 1. Ther Theree wil willl be be no no K if: if: a. Both Both par parti ties es are are mist mistake aken, n, and and b. Basic Basic assump assumptio tion n of of fact fact and c. It mater material ially ly affec affects ts the the agreed agreed exch exchang angee and d. It’s It’s not a risk that the the party party trying trying to to get out out of the the deal bears 2. It turns turns on on the fact factss and the the wordi wording ng of of the q. q. 3. If the mistake mistake is about about the value value of the thing thing being being transacted, transacted, that that would would not be a basic basic and material mistake. 4. Hypo: Hypo: S contracts contracts to sell Blackac Blackacre re to B. Both believe believe the the land land is suitable suitable only only for farmin farming. g. S then learns that that the land contains contains valuable mineral deposits. deposits. Can S rescind? No!! C. Unil Unilat ater eral al Mist Mistak akee 1. Generally Generally,, cts are reluctant reluctant to allow allow a party party to avoid a K for a mistake mistake made made by only one one party. 2. Tip: Tip: look for for situation situationss in which the the other party party had reason reason to know know of the mistake mistake,, ie palpable mistake.









CA Bar Contracts

c. NB: these these are generally generally wrong wrong answers answers b/c b/c for most purposes purposes,, it’s it’s totally totally irrelevant irrelevant as to to whether the integration is partial or complete. What matters is whether there’s 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. Paro Paroll Evid Eviden ence ce:: a. Words of party (or parties), b. Occurring before integration, ie before agreement was put in written form c. Oral Oral or wr writte itten n 4. Reformatio Reformation: n: equitable equitable action action to modify modify written written K to reflect reflect actual actual agreemen agreementt C. Trigg rigger erin ing g fac facts ts:: 1. Written Written K that court finds finds is the the final final agreeme agreement, nt, and and 2. Oral statemen statements ts made at the the time the K was signed signed OR OR earlier oral oral or written written statemen statements ts by the parties to the K. D. Parol Parol evide evidence nce fact fact patt pattern erns: s: 1. Contradicting the written deal a. Rule: PER PER prevents prevents a court from from admitting admitting evidence evidence of earlier earlier agreemen agreements ts for the purpos purposee 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 re ducing the agreement in writing or some kind of clerical error. 2. Getting out of a written deal a. Rule: PER PER doesn’t doesn’t prevent prevent a court from from admittin admitting g evidence evidence of earlier earlier words of the the parties 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 PER does not not prevent prevent a court court from admitt admitting ing eviden evidence ce of earlier earlier agreement agreementss to resolve ambiguities in the the written. Inadmissible to contradict 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 the addition additional al terms terms would would ordinarily ordinarily be be in a separate separate agreemen agreementt E. Comp Compar arin ing g PER PER and and the the SoF SoF 1. SoF prob probss are trigge triggered red by: by: absen absence ce of a writin writing g 2. PER probs probs are trigger triggered ed by: superi superior or reliabili reliability ty of a written written agreemen agreementt









CA Bar Contracts

2. Is less less persu persuas asive ive than than cour course se of deal dealing ing UCC for Terms in Sales of Goods K’s (give “default” terms) A. Offers Offers default default terms in the the absence absence of specificat specification ion by parties parties B. Delivery obligations of Seller of Goods if Delivery by Common Carrier 1. If there is an agreeme agreement nt to deliver deliver by a common common carrier, carrier, q is what what does the the seller seller have to do to complete its delivery obligation? 2. Type ype 1: Ship Shipme ment nt K’s: K’s: a. Seller completes its delivery obligation when i) it gets its goods to the common carrier and ii) makes reasonable arrangements for delivery, delivery, and iii) notifies the buyer; seller’s obligation are complete before delivery is complete. b. b. Tip: ip: mos mostt com commo mon n on on bar bar 3. Type ype 2: Des Desti tina nati tion on K’ K’s a. Seller complet completes es his delivery delivery oblig obligation ation when when the goods goods arrive arrive where where the buyer’s buyer’s at 4. Distingu Distinguishi ishing ng Shipment Shipment K’s K’s from Destin Destinatio ation n K’s: K’s: a. Most contracts contracts w/ w/ delivery delivery obligati obligations ons are are shipmen shipmentt K’s K’s b. Free on Board (city (city)) where seller seller is or or where goods goods are = shipme shipment nt K c. FOB (any (any othe otherr city city)) = dest destina inatio tion n K C. Risk of Loss 1. Risk Risk of loss loss aris arisee whe where re:: a. After the the K has has been formed formed but before before the the buyer buyer receives receives the the goods goods b. The goo goods ds are are dama damaged ged or dest destroy royed ed c. Neithe Neitherr the the buyer buyer nor nor the the sell seller er is to blam blamee 2. Rule: if if the risk of loss loss is on the buyer buyer,, he has to pay the the full K price price for the lost lost or damaged damaged goods. If the seller has the risk of loss, no obligation on the part of the buyer. a. NB: possi possible ble liabil liability ity on seller seller for nondel nondeliver ivery y. 3. RoL Rules: a. Agre Agreem emen entt of the the party party con contr trol olss b. Breach: breaching party is liable for any uninsured loss even though breach is unrelated to the problem. c. Delivery Delivery by a common common carrier carrier other than than the seller: seller: risk risk of loss shifts shifts from from seller to buyer buyer at the time that the seller completes its delivery obligation d. No agreement, no breach, no delivery by a carrier: is the seller a merchant? Whether the buyer is a merchant is irrelevant. 1) Risk of loss loss shifts shifts from the the merchant-sel merchant-seller ler to the buyer buyer on the buyer’s buyer’s receip receiptt of the goods. 2) Risk of loss loss shifts shifts from a non-merch non-merchant ant seller seller when when he or she “tenders” “tenders” the the good











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b. Tip: q will tell you why product is being bought c. Warranty arranty:: goods goods fit fit for a partic particula ularr purpose purpose 4. Privi Privity: ty: Hori Horizont zontal al and and Vert Vertica icall a. Traditional Traditional requirement of K law; only refers to warranty issues b. Vertical b/t: Mfr  Wholesaler  Retailer  Customer c. Horizontal b/t: Customer  spouse  neighbor  bystander 1) Refers to suit suit b/t mfr/wh mfr/wholesa olesaler/r ler/retail etailer er and someone someone other other than the the customer customer E. Contractual limitations on warranty liability 1. Disclaimer mers a. K provision that eliminates implied warranties: 1) General language of disclaimer; must be conspicuous language mentioning merchantability (must be diff font or size) 2) Langua Language: ge: “as “as is” is” or “wit “with h all faul faults ts.” .” b. Express Express warrant warranties ies generally generally cannot cannot be disclaimed disclaimed 2. Limi Limita tati tion on of remed remedie iess a. Does not not eliminate eliminate warran warranties ties but but limits limits or sets sets recovery recovery for any any breach breach of warranty warranty;; affects remedies b. It’s It’s possibl possiblee to limit limit remedies remedies for express express warranties warranties.. c. Genera Generall test: test: uncons unconscio cionab nabili ility ty d. Prima facie facie unconscio unconscionable nable if breach breach of warranty warranty on on consumer consumer goods goods causes causes personal personal injury Part 4: Performance Sale of Goods Performance Concepts A. Perfect Tender Tender









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3. Substanti Substantial al impairment impairment test: test: if imperfect imperfect tender tender would result result in substant substantial ial impairment impairment,, then buyer can reject. This doesn’t require require perfect tender by the seller. seller. E. Acceptance of the Goods 1. Rules: a. If the buyer has accept accepted ed the the goods, goods, he he cannot cannot later later reject reject them. them. b. Payment: Payment: payment payment w/o w/o opportu opportunity nity to to inspect inspect is is not acceptance acceptance c. Buyer Buyer must must keep keep the goo goods ds w/o w/o obje objecti ction on 2. Tip: Tip: look for for fact pattern pattern where where B first received received goods goods and then then later complai complains ns to S; rule of thumb is that 1 month+ month+ of acceptance means that B can no longer 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. Nonconform Nonconformity ity substa substantial ntially ly impairs impairs the value value of the goods, goods, and and b. Excusable Excusable ignoran ignorance ce of grounds grounds for revocati revocation on or reasonabl reasonablee reliance reliance on seller’s seller’s assurance of satisfaction, and c. Revocation Revocation w/in a reason reasonable able time time after after discovery discovery of noncomf noncomformit ormity y 2. Watch out out for accept acceptance ance rule rule vs revocat revocation ion of of acceptance acceptance rule. rule. G. Comparison of Rejection of the Goods and Revocation of Acceptance of Goods 1. See p. 44 2. Buyer Buyer vs selle seller—d r—depe epends nds on on what’ what’ss at issue issue C/L Performance Concepts A. In a sale of goods K, if the seller makes a perfect tender , then the buyer must perform by paying the contract price. B. At C/L, there is no “perfect tender” concept. If one party substantially substantially performs, then the other









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3. If B sells the the goods before before the the right to reclamat reclamation ion is asserted asserted,, then S cannot cannot reclaim. reclaim. C. Entrustment 1. If an owner owner leaves leaves her goods goods w/ a person person who who sells goods goods of that that kind and and that person 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 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 sale is due to theft, theft, then then original original owner owner can recover recover the goods goods b/c can’t can’t transfer transfer bad title. Money Damages: for Breach of K—General Concepts A. Policy: Policy: compensa compensate te the P, P, don’t don’t punish punish the D B. Vocab: 1. Expec pectation 2. Reliance 3. Restitution 4. Inciden dental 5. Cons Conseq eque uen ntial tial 6. Avoidable 7. Liquidated C. Expectation Damages 1. All CA money money damages damages rules rules are premised premised on protecting protecting P’s P’s expectation expectation interest interests. s. 2. Expectati Expectation on interest: interest: put put P in the the economic economic position position as if if the K had been performe performed—ie d—ie compare money value of D’s performance w/o breach with value of D’s performance w/ the breach 3. Tip: Tip: Use expect expectation ation damages damages unless unless expressl expressly y told otherwi otherwise. se. D. Reliance









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1. Inci Incide dent ntal al Dam Damag ages es a. Rule: are costs incurred in finding replacement performance (not the additional costs of replacement)—always recoverable 2. Cons Conseq eque uent ntia iall Dama Damage gess a. Rule: the the kind of loss loss that is is special special to this this P; arise from P’s P’s special special circumstance circumstancess 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: Tip: the special special circumst circumstances ances will will be given given to you in the fact fact pattern pattern and the breachi breaching ng party will know about these special circumstances 3. Avoid voidab able le Dam Damag ages es a. Rule: no recover recovery y for damages damages that could’v could’vee been avoided avoided w/o w/o undue burden burden on P. P. Burden of pleading and proof on D. 4. Cert Certai aint nty y limi limita tati tion on a. Rule: damages damages must be be proven proven w/ reasonabl reasonablee certainty certainty—very —very much much a fact questio question. n. b. Tip: Tip: look for for fact patterns patterns involv involving ing a new busines businesss or a new business business activit activity y where damages might lack certainty. c. Tip: Tip: if can’t prove prove expectat expectation ion damages damages w/ reasonab reasonable le certainty certainty,, might be able able to nonetheless recover reliance or restitution damages. 5. Liqu Liquid idat ated ed Dam Damag ages es a. Rule: if if the K fixes fixes the amount amount of damages damages,, the issue issue will will be validit validity y. The concern concern is that that it might be too high, especially since the court can only compensate and not punish w/ punitive damages. b. Tests for the the valid validity ity of liqui liquidated dated damages: damages: 1) Were damages damages difficu difficult lt to forecas forecastt at the time time the K was was made? 2) Is it a reaso reasonab nable le foreca forecast? st?









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b. Only if c. Pro Provided th that d. So long as e. Subject to to f. In th the ev event th that g. Unless h. When i. Until j. j. On the the con condi diti tion on that that k. In the K strict compliance is necessary to “satisfy” a B. Std for whether a condition has been satisfied— condition C. How can a condit condition ion be excus excused? ed? 1. If the conditio condition n doesn’t doesn’t occur occur at all, all remaini remaining ng contract contract obligati obligations ons are excused. excused. 2. Sometimes Sometimes however however,, even the occurren occurrence ce of the conditio condition n is excused; excused; thus thus even if the condition didn’t occur, all remaining contract obligations are not necessarily excused. 3. Waive aiver/ r/Es Esto topp ppel el a. Estoppel: statement by person protected by the condition before the conditioning event was to occur and requires reliance by the other person. W aiver: based on a statement by the person protected by the condition after the b. conditioning event was to occur and doesn’t require reliance. 4. Prevention a. If the party party protecte protected d by the conditi condition on hinders hinders or preven prevents ts the occurre occurrence nce of the 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.











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3. if it’s it’s commerciall commercially y reasonable, reasonable, can suspend suspend performan performance ce until it gets gets adequate adequate assurance assurance Excuse by Reason of a Later K A. Rescis Rescissio sion n (cance (cancella llatio tion) n) 1. Key: rescis rescission sion must must occur occur before before either either party party has finished finished perform performance. ance. Rescissio Rescission n not valid valid if it occurs after one party has tendered performance. B. Accord and Satisfacti Satisfaction on (subst (substitut itutee performan performance) ce) 1. Terms a. Accord: Accord: an agreement agreement by by the parties parties to to an already already existin existing g obligati obligation on to accept accept a diff diff performance in satisfaction of the existing obligation b. Satisfactio Satisfaction: n: if the new agreement agreement (the accord) accord) is performed performed (satisf (satisfied), ied), then then performance performance of the original obligation is excused 2. Rule: if if the new agreement agreement is is satisfied, satisfied, then then performance performance of the the original original obliga obligation tion is excused. 3. Rule: If the accord is not performed, then the other party can sue on either the original obligation or the accord









CA Bar Contracts

3. Seller’s Seller’s risk risk of loss and destructi destruction on of high inventor inventory y of goods: will will not excuse excuse S’s duty duty to perform b/c S can still perform w/o unreasonable or extreme costs to him 4. Buyer’s Buyer’s risk of loss and destruct destruction ion after S had performed: performed: doesn’ doesn’tt affect B’s B’s ability ability to perform C. Death after K 1. Rule: generall generally y, death does not not make a person’s person’s K obligations obligations disappear disappear—can —can still still recover recover from the estate 2. If O and P contract contract but but before either either party party even begins begins performa performance, nce, one party party dies, dies, then it is is permissible for the surviving party to find a replacement and then sue the estate for the difference in replacement costs. 3. Party Party to to K who who is is a “sp “speci ecial” al” person person a. If one party party to the the K is a “special “special person person”” (ie, unique unique and irrepla irreplaceabl ceablee in some some sense), sense), and that special person, then and only then does death excuse nonperformance. D. Subsequent law or regulation 1. Rule: If the later later law or reg reg makes the K illegal illegal,, then the the obligation obligationss are excused excused for for impossibility.









CA Bar Contracts

1. Benefi Beneficia ciary ry can can recove recoverr from from the prom promiso isor r 2. Promisee can recover from promisor but the beneficiary and promise cannot both recover from the promisor. promisor. 3. Generally, Generally, beneficiary cannot recover from the promise. a. Tip: comes comes up most often on the bar exam. 3rd party only has K rights against the promisor. b. Limited exception: a creditor-beneficiary can recover from promisee but only on preexisting debt. D. Defenses 1. Rule: if the 3 rd party sues the promisor, the promisor can assert any defenses that he would have if he had been sued by the promisee. Assignment of Rights A. “Assignment “Assignment”-a ”-a transfer transfer of rights rights under under a K in two separate separate steps; steps; 1. K b/t b/t only only two two par parti ties es









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doesn’t know about the assignment, assignment, then his payment to assignor is not breach and remains effective; unknown assignee cannot “double collect” from obligor. obligor. 5. Implied warranties of assignor in an assignment for value a. In assign assignments ments for considerati consideration, on, the the assign assignor or warrant warrants: s: 1) The righ rightt assign assigned ed actua actuall lly y exists exists 2) The right right assigned assigned is is not subject subject to to any defense defensess by the obligo obligor, r, and and 3) The assigno assignorr will do nothing nothing to impair impair the the value value of the assig assignment. nment. b. Assignor does not warrant what the obligor will do . F. Mult Multip iple le Ass Assig ignm nmen ents ts 1. Rule: if all are gratuitous assignments, then the last assignee in time generally wins. a. NB: such such gift gift assignme assignments nts can be freely freely revoked. revoked. Since a later gifting gifting revokes revokes an earlier earlier gifting, the last one generally wins if they are all gratuitous assignments. gratuitous assignment is not revocable if it is the subject matter of a b. Exceptions: A gratuitous 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.

CA Bar: Contracts (2009)

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