pmbr flash cards - contracts - 2007

Torts rum

Property Evil

Contracts . Constitu

©2007 Multistate Le al Studies Inc.

Copyright © 2007 byMULTISTATE LEGAL STUDIES, INC.

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1 Offer

Describe an offer.

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1ANSWERAn offer is the manifestation of a willingnessto enter into a contract which justifies theofferee in believing that his acceptance willcreate a contract. Whether a statement con-stitutes an offer is determined objectively (i.e.,would a reasonable offeree have believedthat the offeror intended to create a power ofacceptance), rather than subjectively (i.e., didthe offeror, in fact, intend to create the powerof acceptance in the offeree?).

EXAMPLESPrice quotations in advertisements, fliers and catalogsordinarily do not constitute an offer (unless there hasbeen an explicit commitment to sell a specified numberof items upon particular terms).

Bids submitted to general contractors by prospectivesubcontractors are ordinarily considered offers, unlessthe former should have realized that the bids were notso intended.

Promises made by one family member to another areusually not considered "offers", unless the circumstancesstrongly indicate that the offeror intended her statementto have legal consequences if accepted.

•EXAMINATION TIP: The party attempting toavoid the transaction would raise this issuewhenever there is an ambiguity as to whetheran offer has been made.

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2 Mistakes in Computation

Describe when an offerwhich is based uponmistaken calculations oran error in transmission iscapable of acceptance.

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2ANSWEROffers containing an error resulting from (1)miscalculation by the offeror, or (2) misprintsin its transmission, are not capable of accep-tance where the error was so obvious that theofferee should have realized that a mistakehad been made.

EXAMPLEIn determining if a mistake was "so obvious" that theofferee should have realized that an error had beenmade, two factors are frequently considered: (1) thecloseness in amount of the next best offer (i.e., if themistaken "offer" quoted a price of $60,000, and the nextbest offer was $150,000, the offeree probably shouldhave recognized that a mistake had been made), and(2) the offeree's prior experience with respect to the typeof transaction involved (i.e., if the best offer receivedin the past was $80,000, and the offer in question is$35,000, the offeree arguably should have recognizedthat a mistake had been made).

•EXAMINATION TIP: Where the facts of ahypothetical indicate only that a mistake wasmade by the offeror or the transmitting entitywhich he/she had selected, analysis of the twofactors described above will determine if theofferor can avoid the agreement.

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3

Firm Offer

Describe a "firm" offer.

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3ANSWER

A firm offer is one which (1) pertains to a saleof goods, (2) is made in a signed writing by amerchant, and (3) assures the offeree that itwill be held open. It is non-revocable for thetime stated or a reasonable period of time, butin no event may the offeror's inability to revokeexceed three months. UCC Section 2-205.

EXAMPLESA (an attorney) offers to sell his lawnmower to B (a doctor) for$200, and states in a signed writing that his offer is "firm" forone month. One week later, however, A informs B that his offeris revoked. Immediately thereafter, B advises A that the offer isaccepted. A's revocation is valid since he is not a "merchant"with respect to lawnmowers (i.e., he is not in the business ofselling those items). Thus, no "firm offer" was made (eventhough A purported to make his offer non-revocable).

Joe, who owns a tract of residential homes, promised (in writ-ing) to sell one of them to X for $50,000. Prior to X's accep-tance, Joe withdrew the offer. Joe's revocation would be valid.He had not made a firm offer because: (1) no assurance that theoffer would not be withdrawn had been given, and (2) Joe isnot a merchant (i.e., he is a vendor of land, not goods).

• EXAMINATION TIP: The firm" offer doctrine per-tains only to contracts for the sale of goods. UCCSection 2-205.

• EXAMINATION TIP: Unlike most other frequently-tested UCC sections, 2-205 does require amerchant.

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4 Offer — Material Terms

Describe the requirementthat an offer be sufficientlydefinite as to its materialterms.


4ANSWER

At common law, an offer must articulate thematerial terms of the bargain or else theofferee would have no idea what to accept.

EXAMPLEX offers to sell his home to B for $100,000, and Baccepts. If X later seeks to avoid the transaction, hecould argue that the offer was not sufficiently definite asto the following material terms: (1) when the transactionwas to close, (2) what type of deed (quitclaim or war-ranty) X was to convey to B, and (3) whether the entirepurchase price had to be paid in cash (or could B pay aportion of it on credit)? However, it might be impliedinto the agreement that (1) closing must occur within areasonable period of time, (2) the deed would be thetype which is ordinarily utilized in similar transactions inthat locale, and (3) payment had to be entirely in cash.

• EXAMINATION TIP: The "definiteness" issueoften arises on exams where the purportedoffer is made in a single sentence. "Gapfillers" are frequently implied into an agree-ment to cure this type of alleged defect.

• EXAMINATION TIP: The UCC is quite liberalin supplying material terms where an agree-ment was actually intended. UCC Section2-204(3). Unless the circumstances indicateotherwise, (1) price, (2) place of delivery,and (3) time of performance can all beimplied into an agreement. UCC Sections2-305, 2-308 and 2-309, respectively.

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5 Offer — Unilateral Contracts

Describe an offer for aunilateral contract.

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5ANSWERAn offer for a unilateral contract is one whichcan be accepted only by (1) performance of aspecific act, or (2) refraining from performingan act which the offeree was otherwise enti-tled to undertake.

EXAMPLEX advises Y that, if the latter paints his (X's) barn withinthree days, he will pay $500 to Y. Even if, at that time, Yadvises X that he will paint the barn within three days,no contract is formed. Y can accept X's offer only byactually painting the structure. If X offers to pay Y $500"for painting his barn," Y could probably accept by apromise or actually painting the structure within a rea-sonable period of time.

• EXAMINATION TIP: Where it is unclearwhether the offer is one for a unilateral orbilateral contract, acceptance may be madeby either a promise or performance.

• EXAMINATION TIP: Issues pertaining to theunilateral/bilateral contract distinction arisein the context of revocation (i.e., an offeror isattempting to revoke his offer prior to the timethe act described in the offer has been com-pleted). If the offer is bilateral in nature, andthe offeree accepts by a promise, the offeror'sability to revoke is extinguished. However, ifan offer is unilateral in nature, it can ordi-narily be revoked at any time prior to theofferee's having made a substantial begin-ning toward performance.

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6 Offeree's Obligations —Unilateral Contracts

Describe the obligations ofan offeree under an offerfor a unilateral contract.


6ANSWER

An offeree under a unilateral contract ordinar-ily has no obligation to the offeror until hisperformance is completed. In some jurisdic-tions, however, where the offeror (1) is awarethat the offeree under a unilateral contract hascommenced performance, and (2) relies uponthe completion of such undertaking, theofferee's conduct may be construed as animplied promise to complete performance.Rest. 2d. Section 90.

EXAMPLESA promises to pay B the sum of $500 if B paints theformer's barn within three days. B purchases the neces-sary paint and goes to A's barn. However, just before thejob is begun, C offers B $700 to paint his (C's) barn. Bthen left A's premises and commenced work on C'sstructure. A could not successfully sue B, since no con-tract between them had arisen. Purchasing the paint wasmere preparation.

A promises to pay X the sum of $500 if the latter willbuild a rowboat for the former. A observes X commencework on the craft and pays a $50 entrance fee for an up-coming rowboat race (assuming that X would completethe job before the competition). If X completes the row-boat, but then desires to sell it to Z, A might be able tosuccessfully contend that X had impliedly promised tocomplete the craft for him.

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7 Acceptance

Describe an acceptance.


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7ANSWER

An acceptance is the expression of present,unequivocal, unconditional assent by theofferee to each and every term of the offer.Unless the offeror specifies a particular modeof acceptance, it can ordinarily be made in anyreasonable manner.

EXAMPLES

X sends a letter to Y, offering to sell the latter widgets at5 cents apiece. The letter also states that "if the price isacceptable, please mail me a confirmation to that effect."Y calls and advises X that the contract has beenaccepted. X then responds that (1) the offer is revoked,and (2) Y's telephonic acceptance is invalid (i.e., accep-tance had to occur by mailing a confirmation). However,since X's offer had not stipulated that acceptance couldbe made only by mailing the confirmation, Y's accep-tance was probably valid.

X writes to Y, offering to sell the latter an automobile for$400.00 and stating that, unless X hears from Y to thecontrary in 3 days, he (X) will assume that Y accepts hisoffer. Unless X and Y had previous dealings whichwould lead X to reasonably believe that Y's inaction con-stituted an acceptance, Y's failure to respond to X's letterwould not create a contract.

•EXAMINATION TIP: Inaction ordinarily doesnot constitute acceptance.

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8 Mirror Image Rule

Describe the "mirrorimage" rule.

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8ANSWER

If an offeree's purported acceptance varies theterms of the offer in any manner, her responseis ordinarily deemed to constitute both a rejec-tion and a counter-offer.

EXAMPLESA offered to sell Blackacre to B for $500,000. Bresponded that he "accepted" A's offer, but insisted thatA repair the defective doorbell (a task which could becompleted for about $25.00) before the transaction wasconsummated. B's response would constitute a rejectionand counter-offer. If B then advised A that he acceptedthe offer (without requiring repair of the doorbell), Acould refuse to sell Blackacre to B (B's earlier responsehaving constituted a rejection).

A offered to sell Blackacre to B for $500,000. Bresponded that he accepted A's offer, provided a currenttitle report disclosed no impediments to A's title. Assum-ing it would be implied into an agreement for the sale ofland that the vendor's title be free of any conflictinginterests, the "mirror image" rule would not be violated.B's acceptance did not vary the terms of the offer (i.e.,the stipulated requirement was already implicit in A'sstatement).

•EXAMINATION TIP: Where the transactioninvolves the sale of goods, the "mirror image"rule may be inapplicable. UCC Section 2-207.

MULTISTATE SPECIALISTMULTISTATE SPECIALIST flash cards

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Additional Terms —Acceptance Under UCC

Describe the UCC rulepertaining to additionalterms contained inan acceptance orconfirmation.


9ANSWERAdditional terms contained in an expressionof acceptance or written confirmation becomepart of a contract between merchants, unless:

ANSWER(1) an expression of acceptance was madeconditional on assent to the additional terms,(2) the offer explicitly limited acceptance to itsterms,(3) the additional terms materially alter thecontract, or

(4) notification of objection to the additionalterms is given within a reasonable time afternotice is received.

EXAMPLES

A and B agree on the telephone that A will sell 100widgets to B at $2.00 each. B then sends a confirmationto A which contains an arbitration clause. Assuming (1)A and B were merchants, and (2) A did not object to thearbitration clause after receiving B's confirmation, thearbitration clauses would become part of the parties'agreement if this provision did not "materially alter" thecontract.

X sends Y an offer to sell the latter 100 widgets at $2.00each. Y responds that he accepts, but would pay only$1.95 per widget. Because Y's response materially altersthe terms of the bargain (it goes to price), UGC Section2-207 would not be applicable. Y's response constitutesboth a rejection of X's offer and a counter-offer.

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10 rpf Offer

Describe the "lapse" rulepertaining to terminationof an offer.


ANSWERAn offer lapses (1) automatically, after thetime stated for acceptance has expired, or (2)where no time for acceptance has been speci-fied, after a reasonable period of time.

EXAMPLESIn a written memo, A offers to sell his used car to B for$2,000. Five days later, B tenders the required amount toA. A could contend that a reasonable period of time hadexpired prior to B's purported acceptance (and thereforeA's offer had lapsed).

A sends a letter to B dated January 4, whereby A offersto sell Blackacre to B for $10,000. However, the writingstates that the offer will expire "in 10 days." B, whoreceived A's letter on January 6, validly accepts A's offeron January 15. B's acceptance is timely because sheaccepted within 10 days after receipt.

• EXAMINATION TIP: Where an offer is madein a face-to-face or over-the-telephone con-text, it ordinarily expires when the discussionis concluded, unless a contrary intention iscommunicated to the offeree by the offeror.Rest. 2d, Section 40.

• EXAMINATION TIP: Where a dated writingcontains an offer which states that it will beheld open for a specified number of days, thetime period within which to accept ordinar-ily commences from the date of the offeree'sreceipt (rather than from the date uponwhich the letter or telegram was sent).

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11 Rejections/Counter-offers

What is the effect of arejection or a counter-offerby the offeree?

M ULTISTATE SPECIALIST

ANSWER

An offer terminates automatically when it hasbeen rejected by the offeree or the latter hasmade a counter-offer.

EXAMPLES

If in response to an offer to purchase a desk for $75.00,the offeree responded (1) "No way, that's too high" (arejection), or (2) "I'll pay you $60.00 for it" (a counter-offer), the original offer would be extinguished. Theofferee no longer has the right to accept the offer (evenon its originally proposed terms).

A mere inquiry by an offeror (i.e., "Would you take$60.00 for it?"), however, does not constitute a rejection.Despite this question, the original offer probably couldstill be accepted (assuming it had not otherwise lapsed).

EXAMINATION TIP: Where a rejection ismailed by the offeree, and the latter thendispatches a valid, overtaking acceptance(i.e., one which reaches the offeror prior tothe rejection), the acceptance will ordinarilybe controlling. On the other hand, if therejection arrives first, the fact that the accep-tance was dispatched will not control.

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12 Revocation of Offer

Describe how an offer isterminated by arevocation.

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ANSWER

Revocation of an offer by the offeror is ordi-narily effective when the offeree (1) receivesnotice from the offeror, prior to acceptance,that the latter's offer is withdrawn, or (2)learns, from a "reliable source," of an act orstatement by the offeror which is inconsistentwith her offer. A revocation, however, proba-bly does not occur merely because the offereelearns that the offeror has made a similar offerto another party.EXAMPLEA offered to sell Blackacre to B for $50,000. Three dayslater, before having accepted A's offer, B learned fromA's best friend that A had just sold the land to C. At themoment B acquired knowledge of the sale, A's offerwould be revoked.

• EXAMINATION TIP: Where a valid accep-tance is followed by an overtaking revoca-tion, the acceptance will ordinarily becontrolling.

• EXAMINATION TIP: Since (1) a valid accep-tance is effective upon dispatch, and (2) arevocation is effective only when actuallycommunicated to the offeree, a revocationwhich is dispatched after a valid acceptancehas been made is ineffectual (even thoughthe offeror had not received the acceptance).This result is sometimes called the "mailboxrule."

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13 Output/Requirements Contracts

Describe an "outputs" or"requirements" contract.


ANSWER

A requirements contract is one in which thebuyer promises to purchase all of her require-ments of a particular product from the seller,and the seller agrees to sell such amount tothe buyer. An outputs contract is one in whichthe vendor agrees to sell her entire output of aparticular product to the buyer, and the latteragrees to purchase that amount from theformer.

EXAMPLEIf A and B entered into a requirements contract, and A'stypical requirements prior to the agreement were 500widgets per month, B probably would not be obligatedto fill an order from A for 750 widgets during a particularmonth (i.e., this amount being a 50% increase over A'snormal requirements).

•EXAMINATION TIP: "No quantity unreason-ably disproportionate to any (1) stated esti-mate, or (2) in the absence of a statedestimate, normal or otherwise comparableprior output or requirements, may be`tendered or demanded' ". UCC Section2-306(1).

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Pre-existing Duty Rule

Describe the pre-existingduty rule.

MULTISTATEMULTISTATE SPECIALIS T

ANSWER

A promise given in exchange for (1) a promiseto undertake an act, -or- (2) the actual under-taking of an act, which the promisee wasalready legally obliged to perform, is notenforceable, because the promisor receives noconsideration in exchange for his promise.

EXAMPLEA, who owed $500 to B, advised B that the debt wouldnot be paid, unless B promised to wash A's car after pay-ment was made. B agreed. However, after A made the$500.00 payment, B refused to wash A's car. A could notsuccessfully sue B for the price of a car wash. A wasalready under an undisputed, pre-existing duty to pay$500 to B. The fact that A relinquished his "right" tobreach the contract with B is not significant (Foakes v.Beer).

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15 Pre-existing Duty Rule (UCC)

Describe the UCCexception to thepre-existing duty rule.


ANSWER

Where a contract involves the sale of goods,modifications of it in a manner which benefitsonly one of the parties is enforceable withoutconsideration, if the modification was obtainedin good faith. UCC Section 2-209(1).

EXAMPLEA and B agreed that A would sell 100 widgets to B for$2.00 each. A subsequently advised B that he would beobliged to charge $2.25 for each widget to offset unantic-ipated production costs. B agreed to the increase. B'spromise to pay an additional 25 cents per item wouldprobably be enforceable (even though B received noadditional benefit for the increased price).

• EXAMINATION TIP: A modification which isnot obtained in good faith is unenforceable.If in the Example, A knew that B needed thewidgets to meet a delivery deadline with C,and therefore would agree to an increasedamount per widget to avoid default to thelatter, B could subsequently repudiate herpromise.

• EXAMINATION TIP: This exception to the pre-existing duty rule applies only to situationswhere the underlying transaction involvesthe sale of goods.

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16 Mutual Mistake

Describe the mutualmistake doctrine.


ANSWER

Where, at the time a contract was made, bothparties were mistaken with respect to amaterial fact upon which the agreement waspremised, contract will be void, and recissionwill be the appropriate remedy.

EXAMPLESWhere (1) two parties entered into an agreement for thepurchase and sale of a residential home, and (2) it wassubsequently discovered that a large deposit of oil islocated below the surface of the land, the mutual mis-take doctrine would not be applicable. Each partyreceived that for which he had bargained (the seller haddesired to sell a home, and the buyer had desired topurchase it).

Buyer agreed to buy a Picasso painting from Seller. If itwas subsequently determined that the work had beendone by another artist, Buyer could probably rescind thetransaction. In this instance, there was a mutual mistakeof fact going to the essence of the contract.

If A agrees to purchase a residential home from Bbecause she (incorrectly) believes oil lies beneath thesurface of the land, A cannot later avoid the agreementwhen her mistake becomes evident, unless B knewthat A was entering into the agreement with thatunderstanding.

•EXAMINATION TIP: Unilateral mistake isordinarily not a basis for avoiding acontract.

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17 Option Contract

Describe an optioncontract.

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ANSWER

An option contract is one in which the offeror,for consideration, has relinquished his usualright to revoke an offer for a period of time(either the time specified in the option agree-ment, or a reasonable period of time if noprecise duration has been stipulated).

EXAMPLEA offers to sell Blackacre to B for $50,000. B advises Athat he needs 30 days to determine if he can obtain thatamount. B promises to deliver his used vehicle to Awithin two weeks if the latter will extend the offer forone month. If A agrees, the parties have entered into anoption contract.

• EXAMINATION TIP: If acceptance of the offercontained in the option contract is not madeby the offeree within the requisite period oftime, the offer will automatically cease toexist.

• EXAMINATION TIP: In a few jurisdictions, anoffer is binding as an option contract, with-out consideration, if it (1) is in writing, (2) issigned by the offeror, (3) recites a purportedconsideration for the option, and (4) pro-poses an exchange of fair terms within areasonable period of time. Rest. 2d Section8 7(1)(a).

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18 Forbearance to Sue

Describe the forebearanceto sue rule.


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ANSWER

Forebearance to sue is good and valuable con-sideration even where no valid claim exists, ifthe promisor reasonably believes that he has avalid claim.

EXAMPLESA was hurt as a consequence of B's negligent driving. Athreatened to sue C (B's father and the car's owner). Aerroneously (but nevertheless in good faith) believesthat, under applicable law, C is liable for his son's opera-tion of the car. C, unaware that he has no liability for B'snegligent driving, promises to pay $500 to A in settle-ment of the latter's claim against him. If C subsequentlyattempted to renege upon his promise because of a lackof consideration (i.e., C received no benefit from thepromise made to A, since A could not have successfullysued C), A would probably prevail.

A owes $500 to B for breaching a contract to sell thelatter widgets. If B delivers a signed, written release ofthat obligation to A, B's claim is discharged (even thoughB received no consideration for relinquishing her rightsagainst A).

•EXAMINATION TIP: Any claim arising out ofan alleged default of a commercial contractcan be discharged, without consideration, ifthe aggrieved party signs and delivers awaiver of such right to the breaching party.UCC Section 1-107.

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19 Illusory Agreements

Describe an illusoryagreement.


ANSWER

An illusory agreement is one in which a party(1) has assumed no obligation to the other, or(2) can unilaterally avoid his obligations to theother.

EXAMPLESWhere A is to receive a commission for the sale of itemsproduced by B, but A never specifically obligated herselfto undertake any efforts to sell B's items, B might con-tend that the contract is illusory. However, a court couldfind that there was an implied promise by A to use her"reasonable best efforts" to market B's products (Wood v.Lucy Lady Duff Gordon).

A contract between X and Y provides that Y may termi-nate the agreement upon "5 days notice to X". It is prob-ably not illusory. Even if Y gives notice immediately afterthe contract is made, she must still perform under theagreement for five days.

• EXAMINATION TIP: Implied terms or prom-ises sometimes afford the consideration nec-essary to avoid the illusory doctrine.

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20 Statute of Frauds

Describe the Statute ofFrauds and the contractssubject to this defense.


ANSWERTo be enforceable, contracts within the Statuteof Frauds must be memorialized in a writing (orgroup of related writings) which (1) indicatesthat a contract has been formed, (2) containsthe essential terms, and (3) is signed by theparty against whom enforcement is sought.Contracts within the Statute of Frauds include:(1) any transfer of an interest in real property,(2) a contract involving an executor or adminis-trator, (3) one that cannot, by its terms, be per-formed within one year from the date uponwhich it was made, (4) guarantees (promises toperform the obligations of another), (5) prom-ises in consideration for an agreement to marry,and (6) contracts for the sale of goods with anaggregate price of $500.00 or more. UCC Sec-tion 2-201.

• EXAMINATION TIP: The writing which isnecessary to satisfy the Statute of Frauds maybe created after the contract was formed.

• EXAMINATION TIP: Where an agreement, asmodified, is one of the types of contractsdescribed above, the modification must alsobe memorialized in a writing which satisfiesthe Statute of Frauds to be enforceable.

• EXAMINATION TIP: You can rememberthe Statute of Frauds with the mnemonicMYLEGS: Marriage, 1 Year, Land, Executor,Guarantee, Sale of Goods of � $500.

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21 Guarantee Agreements

Describe a guaranteeagreement.


21ANSWER

A guarantee is a promise to be liable for theobligation of another person (the debtor). Theguarantor makes the promises to the debtor'sobligee (the person to whom the debtor isobligated).

EXAMPLESIf A is considering making a loan to B, but is apprehen-sive about B's ability to repay it, A might require C toguarantee B's obligation (i.e., C would repay the debtto A if B was unable to do so). C's promise to A wouldbe subject to the Statute of Frauds (and so, if not embod-ied in a writing signed by C, would ordinarily beunenforceable).

A offered to make a loan to B. However, B was reluctantto accept. B was unsure if his usual income would besufficient to cover the monthly loan payments. If Cpromised to indemnify B with respect to his contractwith A (i.e., make any of the monthly payments to A if Bwas unable to do so, provided B would repay C at astipulated interest rate), and B accepted C's offer, C'spromise to B would be an indemnity (i.e., a promisemade to a potential debtor). Indemnity agreements neednot satisfy the Statute of Frauds to be enforceable.

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22 Main Purpose Rule

Describe the "main"or "primary" purposeexception to the Statuteof Frauds.


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ANSWERA guarantee promise is not subject to theStatute of Frauds if the guarantor's main orprimary purpose in making his promise to thedebtor's obligee was to further his owninterests.

EXAMPLES

A, a subcontractor who was working on a home ownedby C, became involved in a good faith dispute with thegeneral contractor, B. As a consequence, A refused tocontinue his work. C then orally promised to pay A if Bfailed to do so by a specified date. Since C's purpose inguaranteeing B's obligation to A was arguably to protecthis own interests (i.e., the completion of his home), C'spromise need not be in writing to be enforceable. Rest.2d, Section 116.

A desired to buy a new car, but was advised by the ven-dor that his (A's) parents would have to guarantee thecredit portion of the purchase price. If A's parents did soorally, their debt would not be enforceable under theStatute of Frauds. Their promise was obviously to benefitA, rather than themselves.

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23 One-Year Rule

Describe the "impossibilityof performance withinone year" rule pertainingto the Statute of Frauds.


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ANSWERWhere a contract, by its terms, cannot possiblybe performed within one year from the dateupon which it was made, it must satisfy theStatute of Frauds to be enforceable.

EXAMPLESA and B entered into an oral agreement on December15, whereby B would be A's chauffeur for a specifiedsalary during the succeeding calendar year. The contractis within the Statute of Frauds. It cannot, by its terms, beperformed within one year from the date upon which itwas made (the contract would not conclude untilDecember 31 of the following year).

D agrees to be A's chauffeur for the rest of A's life. SinceA (even if he is a relatively young person) might diewithin one year from the date upon which the contractwas made, the agreement is not within the Statute ofFrauds. The contract is not, by its terms, impossible ofperformance within one year from the date upon whichit was made.

A and B orally agree that B will be A's chauffeur for aperiod of two years, but if B inherits $10,000, he will bedischarged from his obligations. The contract is withinthe Statute of Frauds. A stipulated contingency whichcould excuse performance does not remove a contractfrom the Statute of Frauds.

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24 Offeror's Right to Terminate

Describe when theofferor's usual ability toterminate an offer priorto acceptance ceases toexist.


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ANSWER

An offeror cannot revoke an offer where:(1) she has entered into an option contract,(2) she has made a firm offer,(3) the offeree has foreseeably and detrimen-tally relied upon the offer, and(4) (in the case of an offer for a unilateral con-tract), the offeree has made a substantialbeginning toward completion of theagreement.

EXAMPLESX (a sub-contractor) submits a bid to Y (a prime contrac-tor), who integrates it into an offer which is made to Z(who requested several construction entities to submitbids relating to the construction of an office building).After Y's bid was submitted to Z, X revokes his offer(i.e., a construction bid in the construction industry isordinarily viewed as an offer) to Y. Assuming Y couldno longer alter his bid to Z, X might be estopped fromrevoking his offer to Y (i.e., Y has foreseeably and detri-mentally relied upon X's bid to him).

X promises to pay $50,000 to Y, when the latter con-structs and delivers a particular type of sailboat to theformer. Y purchases the necessary materials and beginsbuilding the craft. When he has completed about 1/4 ofthe boat, X attempts to revoke his offer. X's purportedrevocation is invalid. He must now permit Y to have areasonable period of time to complete construction ofthe sailboat. Rest. 2d. Section 45.

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25 Completed Performance

Describe the "completedperformance" exceptionto the Statute of Fraudsrule pertaining tocontracts which cannot, bytheir terms, be performedwithin one year.

piwbv/ MULTISTATE SPECIALIST

ANSWER

Even if a contract is not, by its terms, capableof performance within one year from the dateupon which it is made, where either side hasfully performed his obligations, the agreementis enforceable (despite lack of compliancewith the Statute of Frauds).

EXAMPLES

A orally promised to prepare B's case summaries for the3 years during which the latter attended law school. Atthe end of that time, B would pay $15,000 to A. If A fullyperforms his obligations under the agreement, B cannotsubsequently contend that the lack of a writing makeshis obligation unenforceable.

A and B orally agree that B will be A's chauffeur for aperiod of 2 years, for which services A agrees to immedi-ately pay B the sum of $10,000. If A pays the $10,000 toB, the contract is enforceable, despite the lack of compli-ance with the Statute of Frauds. Rest. 2d, Section 130.

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plods,*MULTISTATE SPECIALIST flash cards

26

Part Performance Doctrine

Describe the "partperformance" doctrine,under the common lawStatute of Frauds.

potable/MULTISTATE SPECIALIST

ANSWER

Many courts will enforce an oral promise oragreement pertaining to the transfer of aninterest in land where the transferee has(a) taken possession of the land, or made sig-nificant improvements to the real property,and, (b) in some states, paid at least a portionof the purchase price.

EXAMPLESX orally agrees to sell his property, Blueacre, to Y for$350,000. Y pays X $250,000 as a down payment andinstalls a new septic system on the property. X thenattempts to back out of the sale, citing the Statute ofFrauds. Under part performance doctrine, Y will proba-bly be entitled to the property.

A agrees to sell his family home, Whiteacre, to B for$20,000. B pays A $4,000 as a down payment. A thendecides to back out of the deal, citing the Statute ofFrauds. A will probably prevail, as B has neither takenpossession of the property nor made significant improve-ments to it.

•EXAMINATION TIP: A few courts take theview that specific performance should bepermitted in this context whenever a granteehas '"so changed his/her position thatinjustice can be avoided only by specificenforcement"; Rest. 2d, Section 197.

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41.1111910MULTISTATE SPECIALIST flash cards

27 Non-Objecting Merchant Rule

Describe the non-objecting merchant ruleexception to the UCC'sStatute of Frauds rule.

posalke/MULTISTATE SPECIALIST

0

cn

ANSWERBetween merchants, where a writing in con-firmation of the contract is sent by one partyto the other, which writing would be effective(i.e., satisfies the UCC's Statute of Frauds'requirements) against the sender, the Statute ofFrauds is deemed to be satisfied if (1) the con-firmation is sent within a reasonable time afterthe agreement was made, and (2) the recipientfails to object to it within 10 days after receipt.UCC Section 2-201(2).

EXAMPLEA and B, who are each merchants, orally agree on thetelephone that B will furnish 500 widgets to A at $4 peritem. Since the aggregate price of the goods is $500 ormore (i.e., $2,000 in this instance), the UCC's Statute ofFrauds must be satisfied. If (1) promptly after the tele-phone conversation, B sent a signed acknowledgementdescribing the terms of their agreement to A, and (2) Afailed to object to the writing within 10 days after itsreceipt, the Statute of Frauds defense could -not- be suc-cessfully raised by A (even though he never signed amemorandum pertaining to the transaction).

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IPMULTISTATE SPECIALIST flash cards

28 Part Performance Rule

Describe the "partperformance" exceptionto the UCC's Statute ofFrauds rule.

MULTISTATE SPECIALISTMULTISTATE SPECIALIST

1NSWER

To the extent that goods have been (1)accepted by the seller, or (2) paid for, by thebuyer, a contract within the UCC's Statute ofFrauds is enforceable, despite the absence of awriting.

EXAMPLESA orally ordered 500 widgets from B at $4 per item.Since the aggregate price is "$500 or more" (i.e., $2,000),the Statute of Frauds is applicable. If B delivered, andA accepted, 100 widgets, A would be liable for paymentof those items (i.e., A would be liable to B for $400),despite the absence of a writing. B could, however, con-tend that the balance of the agreement is unenforceableunder the Statute of Frauds.

A telephonically ordered 500 widgets from B at $4.00 peritem. If A prepaid $1,000 to B, A could enforce the con-tract to the extent of 250 widgets. However, A probablycould -not- enforce the balance of the contract (i.e., thesale of the remaining 250 widgets).

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possine flash cardsMULTISTATE SPECIALIST

29 Specially Manufactured Goods —UCC

Describe the "speciallymanufactured goods"exception to the UCC'sStatute of Frauds rule.


ANSWER

Where (1) goods are to be specially manufac-tured for the buyer, (2) they are not suitablefor sale to others in the ordinary course of theseller's business, and (3) the circumstancesreasonably indicate that the goods are for thebuyer, an oral contract is enforceable, notwith-standing lack of compliance with the Statute ofFrauds, if the vendor had (1) made a substan-tial beginning with respect to the manufactur-ing of the items, or (2) undertaken substantialcommitments for their procurement, prior torepudiation of the agreement by the buyer.

EXAMPLEX orally contracted with Y for the latter to construct aspeedboat pursuant to a blueprint delivered by the for-mer to Y. After Y had expended $16,000 to purchase thenecessary raw materials, X orally advised Y that (1) hehad decided not to participate in the race for which thespeedboat was being built, and (2) therefore, he had noneed for the craft. Since (1) Y had expended $16,000prior to receiving X's notice of repudiation, and (2) X'sblueprint was probably unique, the "specially manufac-tured goods" exception to the UCC's Statute of Fraudsrule would be applicable.

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1/,

flash cards

30 Promises to Marry

Describe which contractspertaining to marriageare within the Statute ofFrauds.

possisie/ MULTISTATE SPECIALIST

ANSWERWhere a person promises consideration toanother for the latter's promise to marry theformer, the agreement is ordinarily within theStatute of Frauds.

EXAMPLESA orally promised to give 1,000 shares of IBM stock to B,if she would marry him. B accepted A's offer. If A subse-quently changed his mind and declined to marry B, A'spromise to deliver the stock would not be enforceableunder the Statute of Frauds.

Mrs. A and Mrs. B were the mothers of X and Y, whowere engaged to be married. Mrs. A and Mrs. B orallyagreed that each would give $10,000 to her son anddaughter, respectively, when the latter two persons mar-ried (an event which was already scheduled to occur inone month). If the marriage occurred and Mrs. B repudi-ated her obligation to give $10,000 to her daughter, herpromise would not be enforceable. In this instance, noconsideration was offered in exchange for a promise tomany.

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pmabiPMULTISTATE SPECIALIST flash cards

31 Statute of Frauds

Describe the effect offailing to comply with theStatute of Frauds.


ANSWER

A contract which is within the Statute ofFrauds is voidable, not void. Failure to complywith the Statute of Frauds is a defense tobreach if it is raised in a timely manner. Wherethe Statute of Frauds is applicable, no evi-dence pertaining to the oral promise or agree-ment may be admitted.

• EXAMINATION TIP: Assignments of a con-tract which is within the Statute of Fraudsordinarily need not be in writing. X and Yentered into a written agreement, wherebyX would purchase Blackacre from Y. Xorally assigns the agreement to Z. Y cannotsuccessfully defend against an actionagainst him by Z by claiming that the X-Zassignment is unenforceable because it wasnot in writing.

• EXAMINATION TIP: When a defendant suc-cessfully raises a Statute of Frauds defense,a plaintiff may still recover under a quasi-contract theory.

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flash cardsMULTISTATE SPECIALIST

32 Aggregation of Documents Rule

Describe the "aggregationof documents" rulepertaining to the Statute ofFrauds.


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co

ANSWER

Several writings may be aggregated to meetthe requisites of the Statute of Frauds, pro-vided their inter-relationship is reasonablyapparent from the face of the documents.

EXAMPLEA submitted a signed, written offer to B for the purchaseof Blackacre from the latter for $50,000. B orallyaccepted it. Two days later, B sent a letter to A, statingthat she (1) had changed his mind about selling Black-acre pursuant to A's offer, and (2) was sorry for anyinconvenience her decision might cause A. Although(1) B never signed A's memorandum, and (2) B's letterdid not contain the essential terms of the agreement (i.e.,the price of Blackacre), a court might aggregate A's offerand B's letter, since the latter refers to the former. Insuch event, the Statute of Frauds would be satisfied (i.e.,taking both writings together, the essential terms areembodied in a memorialization signed by B).

•EXAMINATION TIP: This rule applies to bothcommon law and UCC contracts.

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tossabss flash cardsMULTISTATE SPECIALIST

33

Quasi-Contract/Statute of Frauds

Where a contract is notenforceable under theStatute of Frauds, maythere be recovery under aquasi-contract theory?

pliableMULTISTATE SPECIALIST

no4nmicn

ANSWERWhen a contract is not enforceable by reasonof the Statute of Frauds, courts will sometimespermit the plaintiff to recover in quasi-contractfor the reasonable value of the benefitbestowed upon the defendant.

EXAMPLE

A orally agreed to summarize B's cases during the 3years B was in law school for $5.00 per summary. Sincethe agreement, by its terms, cannot be completed within1 year, it is within the Statute of Frauds. It is thereforeunenforceable. Three months into B's first semester, Badvised A that (1) A's services were no longer necessary,and (2) no payment to A would be made. A could prob-ably recover for the reasonable value of the time whichshe expended on B's behalf prior to his repudiation.

• EXAMINATION TIP: Where recovery is per-mitted in quasi-contract, the contractual rateof compensation is not dispositive. While Amight be awarded $5.00 per case summary,she could alternatively be reimbursed at agreater (or lesser) rate. Market value is oftenused as a measure.

• EXAMINATION TIP: Where a plaintiff hasforeseeably relied in a substantial, detrimen-tal manner upon the defendant's promise toreduce an oral agreement to writing, the lat-ter might be estopped from asserting theStatute of Frauds.

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34 Agreements with Minors

Describe the effect ofcontracts between anadult and a minor.

M ULTISTATE SPECIALISTMULTISTATE SPECIALIST

n0

1-ici)

ANSWER

Contracts between an adult and a minor areordinarily voidable at the option of the latter,provided he disavows the agreement within areasonable period of time after reaching major-ity. The minor may, however, enforce the con-tract against the adult.

EXAMPLEA and B entered into a contract whereby A, an adult,agreed to sell a bike to B (a 17-year old) for $100. If theage of majority is 18, B could repudiate the agreement,provided he acts within a reasonable period of time afterreaching majority.

• EXAMINATION TIP: Where a minor disaf-firms a contract, he is ordinarily liable forthe reasonable value of any necessaries (i.e.,food, shelter, clothing, etc.) received pur-suant to the agreement under a quasi-contract theory.

• EXAMINATION TIP: If a minor fails to disaf-firm a contract within a reasonable periodof time after reaching majority, he is deemedto have affirmed the agreement.

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pitsibieMUL flash cardsTISTATE SPECIALIST

35 Express Conditions Precedent

Describe an expresscondition precedent.


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naicn

ANSWERAn express condition precedent is an event,not certain to occur, which the parties haveagreed must occur before performance underan existing agreement becomes obligatory.

EXAMPLE

A and B agreed that A would purchase Blackacre from Bfor $50,000, if A, within 30 days, could obtain a loan forthat amount at an interest rate not exceeding 10%. Theacquisition of the loan is a condition precedent to A'sobligation to purchase Blackacre. If A is unable to obtainfinancing within 30 days, she is not obliged to purchaseBlackacre. If, however, A fails to exercise her reasonablebest efforts to obtain the loan, the condition is deemedto be satisfied.

•EXAMINATION TIP: There is no substantialperformance of an express condition prece-dent. A agrees to sell his car to B for $1,000,provided B runs a 5-minute mile within thenext two weeks. B makes several attemptswithin the stipulated period, but his best"time" was 5:02 minutes. A's obligation tosell B the car for $1,000 has been discharged(even though B failed to satisfy the conditionprecedent by only 2 seconds). A could, ofcourse, waive the condition precedent, sincethis provision was obviously inserted for hisbenefit.

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"mobs*MULTISTATE SPECIALIST flash cards

36 Personal Satisfaction

Describe the effect ofan express conditionprecedent which is basedupon personal satisfaction.


&NSWER

Where one party's obligation is expressly con-ditioned upon his satisfaction with the otherside's performance, an objective (i.e., reason-able person) or subjective (good faith belief)standard will ordinarily be implied into thedetermination.

EXAMPLEA and B agree that (1) A will paint a portrait of B, and(2) if B is satisfied with the picture, she would pay$5,000 to A. After the painting is completed, B advisesA, in good faith, she is dissatisfied because the portraitmakes her appear too elderly. B is discharged from anyobligation, whatsoever, to A. A cannot even recover thecosts incurred for paints and other materials.

• EXAMINATION TIP: Where the determinationinvolves matters of a business or commercialnature, an objective standard (i.e., reason-able person) will usually be implied into theagreement. Where the underlying agreementinvolves matters of a personal or aestheticnature, good faith is implied. Where a con-tract stipulates that the satisfaction ofanother party is a condition precedent, thegood faith standard is ordinarily utilized.

• EXAMINATION TIP: Recovery in quasi-contract may not be obtained where it isinconsistent with an express conditionprecedent.

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37 Conditions Subsequent

Describe a conditionsubsequent.


ANSWERA condition subsequent is an event, not certainto occur, whose occurrence extinguishes anoutstanding contractual obligation.

EXAMPLESA and B enter into a contract whereby B agrees to be A'schauffeur for A's life, at the rate of $250 per week; pro-vided, however, if B's uncle dies and leaves the latter aninheritance in excess of $10,000, B may leave A'semploy. The death of B's uncle and bequest to B of anamount in excess of $10,000 are conditions subsequentto the A/B agreement. If both occur, B may, at hisoption, leave A's employ.

A, a franchisee, enters into a requirements contract withB, to supply the latter with stools to be obtained by Afrom her franchisor, C. If (1) C terminates the franchiseagreement with A, and (2) the A/B contract said nothingabout this contingency, continuation of the franchisearrangement might be viewed as a condition subsequentof A's obligations to B.

• EXAMINATION TIP: The burden of proofwith respect to the occurrence of a conditionsubsequent is upon the defendant. (Theplaintiff has the burden of proof with respectto the occurrence of an express conditionprecedent).

• EXAMINATION TIP: Conditions subsequentare sometimes implied into an agreement.

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loossinto flash cardsMULTISTATE SPECIALIST

38 Constructive Conditions

Describe a constructivecondition.


ANSWER

A constructive condition is an event, not cer-tain to occur, which is implied into certaintypes of contractual agreements.

•EXAMINATION TIP: The typical situations inwhich constructive conditions are impliedinto a contract are the following:

(1) Where one party's promises in a bilateralcontract will take a period of time to perform,and the other's promises can be performedinstantaneously, substantial performance ofthe initial party's promises is a conditionprecedent to the latter's obligation to performhis promises,

(2) If the promises of each party can beperformed simultaneously, each party'sperformance (or readiness to perform) is acondition concurrent to the other party's per-formance, and

(3) Where one party must perform his prom-ises by a fixed date and no time is prescribedfor the other party's performance, substantialperformance by the former is a conditionprecedent to the latter's obligations.

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postinte flash cardsMULTISTATE SPECIALIST

39 Constructive and ExpressConditions

Describe the majordifferences betweenconstructive and expressconditions.


0

39ANSWER

A constructive condition is not written orspoken, whereas an express condition is. Thesubstantial performance doctrine applies toconstructive conditions, but is not applicablewith respect to express conditions.

EXAMPLESA and B enter into an agreement, whereby A promises topaint B's barn for $1,000. Nothing is said as to time ofpayment. However, since A's promise would take aperiod of time to perform and B's performance (the pay-ment) could be done instantaneously, substantial perfor-mance by A of his obligations is a constructive conditionprecedent to B's duty to pay A. If A completed the job,but did a small portion of it in a sloppy manner, B wouldnevertheless be obliged to pay A (since A had substan-tially performed). B could, however, deduct an amountfrom the contractual price equal to the cost which wouldbe incurred to complete A's promised performance.

If, on the other hand, an express condition precedent toB's obligation to pay A was completion of the job to B'sgood faith satisfaction, B (assuming he was, in fact,dissatisfied with A's performance) would have no liabilityto A.

hpats*MULTISTATE SPECIALIST flash cards

40 Perfect Tender Rule

Describe the UCC's"perfect tender" rule.


ANSWER

Where a transaction involves the sale of goods,the seller's performance must ordinarily strictlyconform to the agreement, or the buyer mayreject the items (i.e., the seller is in materialbreach of the contract if his tender is not per-fect). UCC Section 2-601.

EXAMPLEA orders 100 widgets from B. If (1) B sends only 99widgets, or (2) one of the 100 widgets is defective, A canreject the entire order and sue B for damages. A couldalso, at her option, accept any amount of the tenderedwidgets, and sue B for the balance.

•EXAMINATION TIP: The 'perfect tender" ruleis subject to several exceptions:

(1) Where an installment contract exists, theseller (if he gives adequate assurance ofcure) must be given an opportunity to cure adefect in any installment which does not sub-stantially impair the value of the whole con-tract (UCC Section 2-612), and

(2) Where the seller had reasonable groundsto believe that the tender would be acceptableto the buyer, he may, if he seasonably notifiesthe buyer, have a further reasonable periodof time to substitute a conforming tender(UCC Section 2-508).

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MULTISTATEMULTISTATE SPECIALIST flash cards

41 Installment Contracts

Describe an installmentcontract.


ANSWER

An installment contract is one which requiresor authorizes the delivery of goods (1) inseparate lots, or (2) to be accepted separately,even if the agreement contains a clause stating"each delivery is a separate contract" (or itsequivalent). UCC Section 2-612(1).

EXAMPLES

X, the best Bananas Foster chef in town, contracts withY, a banana grower, to sell him 100 pounds of bananaseach weekday for the next two months. Y will deliverthe bananas to X's restaurant each weekday morning.This would be an installment contract.

If Y delivers only 95 bushels of bananas to Y oneWednesday morning and X sues for breach of the install-ment contract, Y will probably prevail. The minor vari-ance in quantity does not substantially impair the valueof the entire contract.

•EXAMINATION TIP: Under an installmentcontract, a seller is not in material breach ifa default with respect to one or more install-ments does not substantially impair the valueof the whole agreement.

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42 Material Breach/Quasi-Contract

Describe the interfacebetween the materialbreach and quasi-contractdoctrines.


ANSWER

Where a party has materially breached, hecannot recover under the contract. However,the breaching party will sometimes be per-mitted to recover the value of the benefitbestowed upon the other side under a quasi-contract theory.

EXAMPLEX agreed to build a tavern for Y, but the completedstructure failed to conform to the contractual stipulations(i.e., the building was supposed to be 400 feet by 200feet, but as constructed was only 360 feet by 180 feet).Y could assert that a material breach has occurred, andtherefore she is obliged to pay X nothing. If X has sub-stantially performed, he can recover the agreed uponconsideration, less an offset equal to the amount itwould cost Y to correct his breach. However, even if X'sbreach is material, he might still be permitted to recoveran amount equal to the benefit his labor had bestowedupon Y.

• EXAMINATION TIP: Substantial performanceand material breach are sides of exactly thesame coin. If a party has substantially per-formed, she has not materially breached theagreement. Conversely, i f a party has mate-rially breached, she has not substantiallyperformed.

• EXAMINATION TIP: The material breach doc-trine is often asserted as a defense by theparty attempting avoid his obligations underan agreement.

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pitsabir• flash cardsMULTISTATE SPECIALIST

43 Divisibility Doctrine

Describe the interfacebetween the materialbreach and the divisibilitydoctrines.


0

ANSWER

A divisibility theory is sometimes utilized tomitigate the harsh effects of the materialbreach doctrine (pursuant to which a breach-ing party could recover nothing under thecontract).

EXAMPLE

X contracts to build four houses for Y for a total price of$50,000. X completed three of the homes, but not thefourth one. Y could take the position that a materialbreach has occurred, and therefore he owes X nothing.In response, X could assert the substantial performancedoctrine (pursuant to which he could recover under thecontract, less an offset equal to his breach). X couldalso argue that the contract was actually four separateagreements (each house to be constructed for $12,500).Under this theory, X would be entitled to $37,500 for thethree homes constructed, less Y's damages for X's non-completion of the last house.

•EXAMINATION TIP: Whether a contractwill be deemed to be divisible or not is usu-ally a question of the parties' intent. Thisis determined from all of the pertinentcircumstances.

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psitsboMULTISTATE SPECIALIST flash cards

44 Recovery in Quasi-Contract

Describe the circumstancespursuant to whichrecovery in quasi-contractmay be permitted.


ANSWER

Quasi-contract is an equitable doctrine whichpermits recovery under circumstances whereit would be unfair to allow the defendantto completely avoid his obligations to theplaintiff.

EXAMPLEX notices a break in a fence holding Y's cattle in aremote pasture. In order to prevent the escape of theanimals, X repairs the break. Y would be liable to pay Xthe reasonable value of such service as a matter of law,to avoid Y's unjust enrichment.

*EXAMINATION TIP: Quasi-contract is ordi-narily applied where (1) the plaintiff ren-dered performance with the expectation ofbeing compensated, and (2) the defendantwas aware of this expectation. These situa-tions frequently occur where the defendantcan successfully assert an affirmative defense(i.e., Statute of Frauds, material breach,etc.) to the plaintiff's action.

•EXAMINATION TIP: When you see the words"unjust enrichment", think quasi-contract!

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pm InMULTISTATE SPECIALIST flash cards

45 Waiver

Describe the waiverdoctrine.

pitiableMULTISTATE SPECIALIST

n0

P-1cp

ANSWERA waiver occurs where a party explicitly orimplicitly (i.e., through his conduct) forgives aprospective term or condition to be performedby the other side.

EXAMPLEA agrees to construct a home for B, containing 2-footsquare windows. A informs B, however, that only win-dows which are 20 inches square are readily available.If B advises A that the smaller windows may be utilized,B would have waived the provision calling for 2-footsquare windows.

*EXAMINATION TIP: A waiver can ordinarilybe retracted (1) before the other party haschanged her position in reliance thereon,and (2) where an additional, reasonableextension to perform the term or condition inquestion is permitted. Assume that, in theExample, B changes his mind about permit-ting the 20-inch windows prior to the time Apurchased the smaller items. Since A has notchanged his position in reliance upon thewaiver, retraction by B is probably per-missible. However, B might have to give Aadditional time to complete the house, sincethe initial waiver may have delayed A'sperformance.

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pstabro flash cardsMULTISTATE SPECIALIST

46 Frustration of Purpose

Describe the frustration ofpurpose doctrine.

plumbs*MULTISTATE SPECIALIST

ANSWERWhere (1) one party has a special purpose forentering into a contract (of which the otherside is aware), and (2) that purpose is frus-trated by a subsequent, unforeseeable event(the risk of which was not assumed by theparty asserting this doctrine), she is relieved ofher prospective performance until the frustrat-ing event has ceased to exist.

EXAMPLEX Hotel contracts with nearby Y Tennis Club to pay $500per month to Y to reserve three tennis courts for guestsof X's Hotel. Subsequently, the X Hotel is destroyed by afire. If Y continues to demand the $500 per month pay-ment, X could assert the frustration of purpose doctrine.Since the special purpose of the contract was to affordguests at X's hotel a place to play tennis, X's monthlyobligation would probably cease during the time thehotel was inoperable. However, when X Hotel wasrebuilt, it would be obliged to resume its monthly pay-ments to Y.

• EXAMINATION TIP: The frustration of pur-pose doctrine is not negated by the fact thatthe party asserting it is capable of performingher obligations under the agreement. Thus,in the Example above, the fact that X Hotelcan afford to make the $500 per month pay-ments while the structure is being rebuilt isnot significant.

• EXAMINATION TIP: The subsequent eventmust be neither foreseen (subjective) orforseeable (objective) at the formation stage.

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pitaint* flash cardsMULTISTATE SPECIALIST

47 Impossibility of Performance

Describe the impossibilityof performance doctrine.


0

,7

ANSWER

There are two types of impossibility, subjectiveimpossibility and objective impossibility. Sub-jective impossibility occurs when it becomesimpossible for a party to perform his obliga-tions under a contract, but it would be possi-ble for some other person to perform undersome set of circumstances. Objective impossi-bility occurs when performance would not bepossible by anyone under any circumstancesat any time.

EXAMPLESOn Tuesday, A hires B to mow A's lawn on the follow-ing Saturday. On Thursday, B breaks his leg. On Friday,someone breaks into B's garage and steals his lawn-mower. B's performance will not be excused because,while it is probably impossible for him to mow A's lawn,someone else could do so.

On Tuesday, A hires B to mow A's lawn on the follow-ing Saturday. On Wednesday, A's lawn becomes infestedwith a type of grub that quickly eats and destroys grass.By Saturday, the lawn is merely dirt. B's performance isexcused because no one could mow A's lawn under anycircumstances. Note that, if A replants the grass, B mayhave a subsequent duty to mow.

•EXAMINATION TIP: In personal service con-tracts, the death, illness or incapacity of aparty will ordinarily excuse her performance.Note, however, that in the EXAMPLES above,we have an ordinary contract, not a personalservice contract (i.e., it is not a contract call-ing for a unique skill or qualification).

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plash,*MULTISTATE SPECIALIST flash cards

48 Anticipatory Repudiation

Describe an anticipatoryrepudiation.


ANSWERAn anticipatory repudiation occurs where aparty to a bilateral contract (1) unequivocallyadvises the other that his prospective perfor-mance will not be forthcoming, or (2) volun-tarily undertakes an act which makes hisability to perform dubious. An anticipatoryrepudiation can be retracted prior to the timethat the aggrieved party has (1) materiallyrelied upon it, or (2) advised the repudiatingparty that the repudiation will be treated asfinal.EXAMPLEOn September 1, X entered into a contract to sellBlackacre to Y. The deed and purchase price were tobe exchanged on December 1. On October 1, X soldBlackacre to Z. Y can immediately sue X for breach oftheir contract. Rest. 2d, Section 264.

• EXAMINATION TIP: Where an anticipatoryrepudiation occurs by words, the languagemust be unequivocal. A statement by oneparty that he is "unsure" or "doubtful" thathis performance can be completed by therequired date would probably not constitutean anticipatory repudiation.

• EXAMINATION TIP: The doctrine of anticipa-tory repudiation does not apply to unilateralcontracts or to bilateral contracts where oneparty has fully performed.

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plods.* flash cardsMULTISTATE SPECIALIST

49 Anticipatory Repudiation

Describe the effect of ananticipatory repudiation.

posebsteMULTISTATE SPECIALIST

n0

1-icp

ANSWER

Where an anticipatory repudiation hasoccurred, the aggrieved may (1) treat her obli-gations as discharged and immediately sue forbreach of the agreement (unless the innocentparty has completely performed and the repu-diating party's only remaining obligation is thepayment of money), or (2) urge the other sideto retract his repudiation.

EXAMPLES

On May 1, A promises to paint B's barn within twoweeks. In return, B promises to pay A $1,000 on June 1.After A completes about 30 % of the barn, B advises Aon May 15 that he will not pay the latter. A would not beobliged to complete the job, and could commence abreach of contract action against B.

If, immediately after A completed painting B's barn onMay 15, B repudiated his promise to pay A, A wouldhave to wait until June 1 to commence an actionagainst B.

•EXAMINATION TIP: The anticipatory repu-diation doctrine is frequently asserted as adefense (i.e., a party justifies his nonperfor-mance by asserting that the other side hadpreviously made a prior anticipatoryrepudiation).

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MULTISTATE flash cardsMULTISTATE SPECIALIST

50 Reasonable Insecurity Doctrine

Describe the "reasonableinsecurity" doctrine.


ANSWERWhere, in a transaction involving the sale ofgoods, one party has reasonable grounds forinsecurity, she may demand adequate assur-ances from the other side that prospectiveperformance will be forthcoming. If such ade-quate assurances are not received within areasonable period of time (not exceeding 30days), the innocent party may treat the otheras if the latter had made an anticipatory repu-diation. UCC Section 2-609.

EXAMPLEX and Y had agreed on February 1, that (1) X woulddeliver an airplane to Y on May 1, and (2) Y would ten-der 1/2 of the purchase price of $250,000 to X on March1 and the balance ($250,000) to X upon delivery of theaircraft. However, on February 15, Y heard rumors that Xwas almost insolvent. Since these circumstances wouldprobably constitute "reasonable grounds for insecurity,"Y could (1) refrain from making the March 1 payment,and (2) demand adequate assurances from X of his abil-ity to perform. If X fails to give Y such adequate assur-ances, Y can treat X as being in breach of contract.

•EXAMINATION TIP: The "reasonable insecu-rity" doctrine allows one party to, in effect,"push" the other side into an anticipatoryrepudiation (even though the latter has notsaid or done anything to indicate that per-formance might not be forthcoming).

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possimP flash cardsMULTISTATE SPECIALIST

51 Commercial Impracticability

Describe the commercialimpracticability doctrine.


ANSWER

Where the transaction involves a sale of goods,if (1) a post-contract contingency occurs,(2) the non-occurrence of which was a basicassumption upon which the contract wasmade (i.e., was unforeseeable and not a riskassumed by the vendor), and (3) such contin-gency makes the vendor's performance com-mercially impracticable, the seller is relievedof his obligations while such impracticabilityexists. UCC Section 2-615.

•EXAMINATION TIP: Where the imprac-ticability is only partial in nature (i.e., as aconsequence of an oil embargo, suppliers ofgasoline can obtain only 60% of the amountthey normally purchase), a vendor is obligedto perform any outstanding contracts to theextent that he is able to do so.

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52 Novation

Describe the novationdoctrine.


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ANSWER

Where a third party offers to perform thepromises of another (the obligor) pursuant toan existing agreement, and the other party (theobligee) to the contract agrees to (i) releasethe obligor, and (ii) substitute the new party inlieu of the obligor, a novation has occurred. Asa consequence, the obligor is relieved of herobligations under the original agreement.

EXAMPLES

X enters into a contract with B, whereby A is to deliver20 widgets to B each month. X validly assigns all of hisrights and obligations under the contract to C. X and Cexpressly advise B of the assignment. If C failed todeliver the widgets, B could bring an action against bothX and C. No novation has occurred. B did not explicitlyagree to substitute C in lieu of X. A delegation of dutiesdoes not relieve the original obligor of his obligations tothe obligee.

X owes $1,000 to Y, payable in one month, for goodspreviously delivered by Y to X. Z advises Y that if Y willrelease X from the underlying obligation, he (Z) willmake the payment. If Y accepts this offer, a novation hasoccurred and X is released from his obligation to Y.

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53 Accord and Satisfaction

Describe an accord andsatisfaction.


ANSWER

An accord is an agreement whereby one partyagrees to accept performance which is differ-ent from that presently owed to her. The satis-faction occurs when the accord is performed(thereby discharging both parties from theircontractual obligations). If the accord is notsatisfied, the obligee can sue under either theold contract or for breach of the accord.

EXAMPLEA owes $1,500 to B for performance previously renderedby the latter to the former. A does not dispute his obliga-tion to B. B, however, agrees to accept A's car in lieu ofpayment, if it is delivered to him (B) within one week.If A agrees, the parties have entered into an accord. If Afails to deliver the car within a week, B could sue A(1) to convey the vehicle, or (2) to recover $1,500. If Bdelivers the car, an accord and satisfaction has occurred,and A's obligation is extinguished.

•EXAMINATION TIP: An accord and satisfac-tion should be distinguished from a compro-mise. Under the latter doctrine, where aclaim or defense is disputed in good faithand the parties reach a compromise, theoriginal obligation is totally extinguishedand the obligations created under the com-promise agreement are substituted in lieuthereof.

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54 Specific Performance

Describe when specificperformance is likely to begranted.

MULTISTATE hAVMULTISTATE SPECIALIST

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ANSWER

Specific performance is likely to be grantedwhen (1) the transaction involves a transferof land, or (2) monetary damages would bedifficult to calculate. Where the transactioninvolves a sale of goods, specific performanceis granted where the goods are "unique" or"other appropriate circumstances" exist. UCCSection 2-719. However, specific performancewill rarely be granted where a personal serviceagreement is involved.

• EXAMINATION TIP: A potential loss of good-will is often a sufficient justification forgranting specific performance (i.e., a buyerwill lose the good-will of her prospective cus-tomers if she is unable to obtain the itemsfrom the seller).

• EXAMINATION TIP: With respect to personalservice or employment agreements, theproper remedy is money damages.

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55 Liquidated Damages

Describe the circumstancesunder which a liquidateddamages clause isenforceable.


ANSWER

Liquidated damage clauses are enforceablewhere (1) damages would otherwise beextremely difficult to determine, (2) the partiesmade a bona fide effort to estimate the dam-ages which would result if a breach occurred,and (3), in some states, the damages stipulatedare reasonable in light of the actual losses sus-tained by the plaintiff. The goal of a liquidateddamages clause must be to fairly compensatethe aggrieved party.

EXAMPLEX agrees to sell Blackacre to Y for $10,000. They enterinto a written agreement, providing that (1) X is todeliver the deed to Blackacre after Y accomplishes cer-tain acts (i.e., deposits the purchase price into theescrow, etc.), and (2) if Y fails to accomplish thesethings, she will forfeit a $1,000 deposit which was placedinto the escrow. The latter provision (a liquidated dam-ages clause) would probably be enforceable. It would bedifficult for X to prove that he could have sold Blackacreto someone else while the sale to Y was pending (i.e.,no one would offer to purchase Blackacre if X wasalready obligated to sell the land to another).

• EXAMINATION TIP: The existence of a liqui-dated damages clause does not preclude theaggrieved party from alternatively seekingspecific performance.

• EXAMINATION TIP: A clause which purportsto be a liquidated damages clause but whichactually punishes the breaching party willnot be enforceable.

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56 Expectation Damages

Describe the "expectationdamages" doctrine.


ANSWER

To the extent possible, an aggrieved partyshould be put in the position she would havebeen had the defendant performed his con-tractual obligations (i.e., the plaintiff is entitledto recover all monetary damages resultingfrom the defendant's breach).

•EXAMINATION TIP: The foregoing rule is sub-ject to several qualifications;

(1) A plaintiff can only recover losses whichare calculable (i.e., reasonably susceptible ofestimation),

(2) The damages must have been reasonablyforeseeable at the time the contract wasmade,

(3) The aggrieved party must mitigate dam-ages to the extent he is capable of doing so,

(4) The plaintiff must avoid incurringunnecessary damages, and(5) Where expectation damages would beunreasonably disproportionate to the lossessustained by the aggrieved party, some courtspermit the plaintiff to recover only her actualdamages.

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57 Obligation to Mitigate

Describe the "mitigation ofdamages" doctrine.

M ULTISTATE'MULTISTATE SPECIALIST

ANSWER

Where a breach of contract has occurred, theaggrieved party must mitigate his damages tothe extent it is possible to do so.

EXAMPLEX was to deliver 100 widgets to Y on June 1, at $10 peritem. On May 1, X advised Y that he would not deliver.Y urges X to perform. On June 1 (the contractual dateof delivery), the widgets had increased to $20 per item.Assuming a reasonable period of time to await perfor-mance by X was 2 weeks (when the price per widgetwas only $12 each), Y could recover only $200 from X.

• EXAMINATION TIP: Where a personal ser-vices contract is involved, the party provid-ing such services is obliged only to acceptemployment which is substantially similar tothat which she had contracted to perform.

• EXAMINATION TIP: Where the transactioninvolves a sale of goods, an aggrieved buyermust "cover" (assuming he is capable ofdoing so) in order to be able to recover con-sequential damages. UCC Section 2-715(2)(a).

• EXAMINATION TIP: Where an anticipatoryrepudiation has occurred, an aggrievedparty who urges the other side to performcannot recover damages which wereincurred beyond a reasonable period timeafter the repudiation.

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58 Reliance Damages

Discuss the "reliancedamages" doctrine.


ANSWERWhere an aggrieved party's damages are notcapable of estimation and specific perfor-mance is inapplicable, she may recover anyexpenditures made in reliance upon thecontract.

EXAMPLES

X contracts with Y newspaper to run a full page adwhich was prepared by a professional graphics com-pany. The ad was about X's new book and indicated thatX would (1) be at Z's bookstore at a specified time, and(2) autograph his book. Y, however, failed to run the ad.As a consequence, X claims that she lost $10,000 inroyalties. It is probably impossible to determine howmany persons would have purchased X's book if the adhad appeared. Therefore, X's damages are not reason-ably susceptible of estimation. However, X could proba-bly recover the (1) amount paid to Y, (2) costs ofcreating the ad, and (3) expenses incurred in traveling toand from Z's bookstore.

A rents space at a convention center for vendors of rarecoins. The convention center, however, refuses A admis-sion (erroneously claiming that his check had not beenreceived). Since it is impossible to determine how manyorders A would have obtained, he can probably recoverhis reliance damages only (i.e., expenditures pertainingto attendance at the convention).

• EXAMINATION TIP: A plaintiff's claim toreliance damages is subject to the require-ments of foreseeability, unavoidability, andcertainty.

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59 Avoidability Doctrine

Describe the "avoidabilityof damages" doctrine.


ANSWER

An aggrieved party cannot ordinarily recoverfor damages which she could have avoided.

EXAMPLESX contracts to build a bridge for Y. After half of the jobhas been completed, Y repudiates the agreement. Never-theless, X completes the bridge. X would not be able torecover for the materials and labor expended afterreceiving Y's notice that the contract had been canceled.

X agrees to build and sell a boat to Y for $30,000. Xanticipates a $10,000 profit from the transaction. After Xexpends $14,000 for materials, Y repudiates the agree-ment. If X, in good faith, believes that a completed craftcan be sold for $20,000, he may finish it. If X is correct,Y would be liable for only $10,000 (rather than $24,000,less the salvage value of the incomplete boat). If, how-ever, X sells the completed boat for only $7,500, hecould still sue Y for $22,500.

•EXAMINATION TIP: An aggrieved seller ofgoods may complete the manufacture of anitem (despite a buyer's anticipatory repudia-tion), if, in the former's "reasonable com-mercial judgment," the buyer's damages willbe lessened by completion and sale of thegoods. UCC Section 2-704(2).

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60 Disproportionate Damages Rule

Describe the "actual valueof loss" exception to the"expectation damages"rule.

potableMULTISTATE SPECIALIST

ANSWERWhere an aggrieved party's expectation dam-ages would be "grossly disproportionate" tothe harm she actually sustained, the court maylimit her recovery to only the actual value ofher losses.

EXAMPLE

A promises to build an apartment house for B for$300,000. The structure is to have a pool with dimen-sions of 30' X 40'. When A completes the job, Bdiscovers that the pool was actually 24' X 36'. Since A'sbreach is probably not material, he is entitled to recoverunder the contract, less damages equal to the extent ofthe breach. B might contend that she is entitled todeduct an amount equal to that which it would cost herto break two sides of the pool and restore it to the origi-nal contractual specifications (approximately $48,000).A could argue, however, B should be able to recoveronly the overall diminishment in the value to the apart-ment house (i.e., approximately $10,000). Assuming A'sfailure to construct the swimming pool in accordancewith the contract was not deliberate, his argument wouldprobably be successful.

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61 Third Party Beneficiary Agreements

Describe a third partybeneficiary agreement.


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ANSWEROne is a third party beneficiary ("intended ben-eficiary") where (1) permitting her to enforcethe promisor's promise would effectuate theparties' (the promisor and promisee) intentions,and (2) performance by the promisor will sat-isfy the promisee's obligation to pay money tothe third party beneficiary, or (3) the circum-stances indicate that the promisee intended thebeneficiary to receive the promised perfor-mance. Rest. 2d., Section 133.

EXAMPLEX (a famous person) and Y agree that (1) X will speak atY's annual convention, at which approximately 15,000people will be present, and (2) Y will pay for X's stay atthe ABC Hotel (reputed to be the best inn in that city).ABC Hotel learns of this agreement, and immediatelynotifies X and Y that it would be pleased to have X staythere. However, Y subsequently advises X that it wouldbe more convenient if X stays at the DEF Hotel (which isnearer to the convention hall). X agrees to do so. If ABCHotel sues Y for failing to rent one of its rooms for X, itwould probably not be successful. Although the X-Yagreement alluded to the ABC Hotel, it was probably nei-ther party's intention to bestow a benefit on that estab-lishment. Rather, the ABC Hotel was selected simply forX's comfort. The ABC Hotel is merely an incidental bene-ficiary and would have no rights under the X-Y contract.

•EXAMINATION TIP: When analyzing whethera third party can recover under a contract,always apply the "intend to benefit" test. Wasthe third party intended to benefit from theagreement between the promisor and promisee?Your answer to this question must be 'yes".

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62 Vesting of Third Party

Beneficiary Rights

Describe when the rightsof a third partybeneficiary vest.


ANSWERThe rights of a third party beneficiary vestwhen he has (1) relied upon the underlyingcontract, (2) instituted suit against thepromisor, or (3) expressly assented to theunderlying contract in response to a request forassent by the promisor or promisee; Rest. 2d,Section 311.

• EXAMINATION TIP: Prior to vesting, a thirdparty beneficiary's rights can be extin-guished or modified by agreement betweenthe promisor and promisee.

• EXAMINATION TIP: In some common lawjurisdictions which have not adopted theRestatement 2d, distinguishing between a"creditor" or "donee" beneficiary may beimportant for purposes of vesting. A creditorbeneficiary is a person to whom the promisor(1) owes an obligation, or (2) believes sheowes an obligation. A donee beneficiary is aperson upon whom the promisee desires toconfer a gift. Under the common law, adonee beneficiary's rights vest when the con-tract is made. Thereafter the third partybeneficiary's interests cannot be altered with-out her consent. However, a creditor benefi-ciary's rights vest only after he has (1)detrimentally relied upon the agreement, or(2) explicitly assented to the contract.

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63 Rights of Third Party Beneficiary

Describe the rights of athird party beneficiaryagainst the promisor.


ANSWERA third party beneficiary can ordinarily com-mence an action against the promisor for thelatter's non-performance. The promisor may,however, assert any defenses which she couldhave raised against the promisee, based uponthe underlying contract.

EXAMPLEA and B orally enter into a contract, whereby A woulddeliver 100 widgets to B for $1,000. A requests, and Bagrees, that B pay the contractual amount to C. If thewidgets which A delivers to B are defective, B couldassert this material breach against C. (Prior to acceptanceof the widgets, B could have also asserted the Statute ofFrauds against C, since the contract involves the sale ofgoods with an aggregate price of $500 or more.) If thewidgets were not defective and were accepted by B(thereby precluding B from asserting the Statute ofFrauds), but C previously owed $1,000 to B by reasonof a prior loan, B could not offset C's prior obligationagainst the $1,000 payment owed to C under the A/Bagreement. The loan obligation is not related to theunderlying contract between A and B.

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64 Rights of Third Party Beneficiary

Describe the rights of athird party beneficiaryagainst the promisee.

MULTISTATE SPECIALISTMULTISTATE SPECIALIST

ANSWER

A third party beneficiary ordinarily has norights against the promisee as a consequenceof the promisor's non-performance. However,where (1) the third party beneficiary's rightshad vested, and (2) the promisee neverthelessaccepted the performance owed to the thirdparty beneficiary, the latter can sue thepromisee for converting the consideration.

EXAMPLES

A agrees with B that, in return for A's delivering 50widgets at $100 each to B, B will deliver a new car to C(a nephew of A's, upon whom A desires to bestow thisgift). C learns of this agreement and relies upon it bypurchasing expensive new tires for the vehicle sheexpects to receive. However, A subsequently requests Bto pay the price of the widgets to him, and B complieswith this request. If C's reliance upon the A/B agreementis deemed to be material (thereby preventing A and Bfrom divesting her interest), C could sue A (or B) torecover the value of the car. If C's reliance is not viewedas material, she could not successfully sue A.

In the foregoing Example, B could have refused A'srequest to pay him (A) the price of the widgets, and(2) performed by purchasing the car for C.

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65 Non-Assignability

Describe when, even inthe absence of a non-assignability clause, acontract may not beassigned or delegated.


ANSWERA contract may not be assigned (or its dutiesdelegated) where: (1) the rights and duties arepersonal in nature, or (2) when the transactioninvolves a sale of goods, an assignment ofrights or delegation of duties will materiallychange the non-assigning party's burden ormaterially impair his chances of obtaining thebargained for performance. UCC Section 2-210.

EXAMPLES

X hires Y, for $1,000, to paint a picture of X's wife. Yassigns the agreement to Z. Assuming X retained Ybecause the latter has previously demonstrated anexpertise with respect to portraits, the agreement couldnot be delegated by Y.

On May 1, A offers to paint B's barn for $1,000. The jobwas to be completed by June 30 and paid for by B onJuly 15. B accepts A's offer. On May 10, however, B sellshis farm and assigns the outstanding contract with A toC. A may not have to perform the underlying agreement.Although painting a barn requires no special skill orexpertise, the underlying agreement contains a credit-term (i.e., A is obliged to render performance to B priorto receipt of payment). Such clauses are often viewed asbeing personal in nature.

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66 Assignor's Rights

Describe the rights of anassignor and the obligorafter an assignment hasbeen made.

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ANSWEROnce an assignment for consideration hasbeen made, the assignor ordinarily has noremaining rights in the underlying agreement.An obligor (i.e., the non-assigning party) isrelieved of liability to the assignee to theextent she had performed under the under-lying contract prior to receiving notice of theassignment.

EXAMPLEAssume that, for consideration, X is obligated to pay$100 per month to Y, for one year, starting January 1.Y assigns his right to receive these payments to Z onDecember 20. Before X receives notice of the assign-ment, X makes the January 1 payment to Y. Although Yhad no right to receive the January payment, X is notobligated to repay the January installment to Z (i.e., thepayment was made before X had notice of Y's assign-ment to Z). Z could recover the January payment backfrom Y under an unjust enrichment theory.

•EXAMINATION TIP: Prior to (1) delivery ofan appropriate token or writing, or (2)detrimental reliance by an assignee, agratuitous assignment may be revoked by theassignor.

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67 Obligor's Rights

Describe the rights ofan obligor against theunderlying assignee.


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ANSWERAn obligor may assert any defenses against theassignee which he could have asserted againstthe assignor based upon the underlying agree-ment; unless (a) the obligor has specificallywaived this right (UCC Section 9-206), or(b) the assignee is a holder in due course.

EXAMPLESA and B enter into a oral agreement whereby (1) Awould be B's chauffeur for 3 years, and (2) B would pay$2,000 per month to A. A assigns his right to receive hiscompensation under this contract to C. If (1) B fails topay C for the initial 2 months of the agreement, and(2) C sues B, B could assert the Statute of Frauds as adefense (i.e., the contract is one which cannot, by itsterms, be performed within 1 year from the date uponwhich it was made). B could not, however, offset againstthe payments due to C a prior debt which C owed to her(B). C's previous obligation to B is not a defense basedupon the underlying agreement.

A and B enter into an agreement which provides thateach side waives his right to assert any defense againstthe other's assignee. A assigns his rights under the con-tract to C. When C sues B to recover for non-payment ofgoods which A had sold to B, B claims that the goodsare defective. As a consequence of the waiver, however,B would have to pay C. B could recover for the paymentfor the defective goods from A.

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68 Assignee's Rights

Describe the rights of anassignee against herassignor.


ANSWER

Where the assignor, for consideration, hasassigned her rights against an obligor, there isan implied warranty that the obligor has nodefenses to the assignor's claim which arebased upon the underlying contract. However,there is no implied warranty as to the obligor'sfinancial ability to pay the debt.

EXAMPLES

C paid $50.00 to A for the right to collect A's claim for$75.00 against B (which was due in 2 weeks). However,when C (on the due date) demands $75.00 from B, Bclaims that A failed to complete the work necessary toearn the $75.00 fee. Assuming B's assertion is correct, Ccan recover the $50.00 payment which she previouslymade to A. If, on the other hand, B is unable to pay the$75.00 obligation because he is insolvent (rather thanbecause A's work was defective), C has no recourseagainst A. An assignee ordinarily assumes the "creditrisk" of the obligor.

For consideration, X assigns his right to a $1,000 pay-ment from Y under an existing contract to Z. Y, however,asserts an offset against Z for a previous loan made tothe latter. Since Y's purported defense is invalid, Z wouldhave no right to recover back any consideration paid toX for the assignment.

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69 Obligee's Rights

Describe the rights of thenon-assigning partyagainst the assignor anddelegatee.

pimbiteMULTISTATE SPECIALIST

ANSWERWhere a delegatee fails to perform the obliga-tions due to the non-assigning party (theobligee), the latter can (1) sue the delegatee, ifthere has been an assumption of the delega-tor's duties (i.e., the obligee is a third partybeneficiary of the delegator-delegatee agree-ment), and (2) sue the delegator.

EXAMPLE

X enters into an agreement to purchase Y's business for$100,000, payable in ten annual installments of $10,000each. Before the first payment is made, X assigns "theagreement" to Z. By failing to object to the obligation tomake payments to Y under the contract, Z has probablyassumed X's obligations to Y. UCC Section 2-210(4), Rest.2d, Section 160(2). If Z failed to pay Y, Y could sue Xand Z (since Y is a third party beneficiary of the X-Zagreement). X, of course, would be entitled to only onesatisfaction of the obligation owed to her.

•EXAMINATION TIP: An assumption of dutiesis usually implied where the delegatee acceptsan assignment of rights under an executorycontract without indicating that he is refus-ing to accept (i.e., such by taking "subject to"the underlying agreement) the delegator'sduties. UCC Section 2-210(4) and Rest. 2d,Section 160(2).

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Describe the parolevidence rule.

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70ANSWER

When a writing is a total integration (i.e., thecomplete and exclusive embodiment of theparties' agreement), no evidence of any prioror contemporaneous promise or agreementmay be admitted which contradicts, varies oradds to the contract.

• EXAMINATION TIP: In determining i f awriting is a total integration, a "merger"clause (i.e., "this agreement constitutes thesole and exclusive understanding of the par-ties hereto') is often dispositive.

• EXAMINATION TIP: In the absence of an inte-gration clause, evidence of additional prom-ises which do not contradict the writing areadmissible (1) under the common law,where the parties, situated as were those tothe agreement, would not ordinarily beexpected to include the alleged prior agree-ment or promise into the subsequent writtencontract, or (2) where the transactioninvolves the sale of goods, the alleged prioragreement or promise would not "certainlyhave been included" in the subsequent writ-ten contract. UCC Section 2-202.

• EXAMINATION TIP: Agreements made subse-quent to a partial or complete integration arenot within the parol evidence rule.

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