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Contract Law
Ch-1: Offer and Acceptance

Topic

Page
1. The Offer 3
2. Offer, Acceptance and Contract 3
3. Offers by Merchants and the Uniform Commercial Code (UCC) 4
4.1. Offers and Counter Offers Between Merchants 4
4.2. Memorializing Oral Contracts 5
5. Demonstrating Acceptance of an Offer 5
6. Silence and Acceptance 5
7. Methods of Communication, Offers and Responses 6
8. Advertisements vs. Unilateral Contracts 6
9. Revocation of Offers Reviewed: -
9.1. Revocation Common Law
9.2. Revocation Estopped by Option
9.3. Revocation Merchants
9.4. Revocation - by Mail
9.5. Revocation - by Hearsay
9.6. Revocation - Unilateral Contracts
8
9
10. Advertisement Offers and Special Offers 10
11. Illusory Contracts 10
12. The Mailbox Rule Offer and Rejection 11
13. Offers and Quotes 11
14. Offers and Expressions of Further Enquiry 12
15. Acceptance of Offers and New Negotiations 12
16. Gifts: Offer and Acceptance 12
17. Offers and Multiple Acceptances 13
18. Termination of the Offer by Counter Offer 13
19. Contracts With Price Term Left Open 13
20.1 Offers Calling for the Shipment of Goods 14
20.2
21.
Subsequent Cancellation of the Order
Offers made with C.I.F. (Cost +Insurance & Freight)
14
22.1. Requirement Contracts 15
22.2. Requirement Contracts: Fluctuating Market Conditions 15
22.3. Requirement Contracts: When Price Left Open 15
22.4. Requirement Contracts: When Things Go Wrong 16

23. Term: Within One Month 16
24. Offer: Rewards (Review) 17
25. Sales Commission Contracts 18

Contract Law
Ch-2: Consideration, Assignment, Delegation and
Third Party Beneficiaries

Topic: Consideration Page
1. Consideration Introduction 3
2.1 Consideration and Contract Modification 3
2.2. Good Faith Modification vs. Consideration 3
3. Consideration and Contract Modification Between Merchants 4
4. The Doctrine of Promissory Estoppel 4
5. Implied-In-Fact Contracts,
Unjust Enrichment and
Quasi Contracts
4
6. Consideration and Pre-Existing Duties 5
7. Service Contract Modifications vs. Merchant UCC Contract
Modifications
6
8. Consideration and Gifts: Promissory Estoppel and Detrimental
Reliance
6
9. Consideration and Forbearance 7
10. Consideration Before the Promise is Made. (Lost, Found and
Reward)
7
11. Excusing New Consideration for an Existing Moral Obligation 8

Topic: Assignment and Delegation Page
1. Assignments Introduction 9
2. Assignments (Novation) vs. Delegations 10
3. Delegation 11
4. Delegation and Consent Requirements 11
5. Delegation of Performance or Delegation Performance and
Assumption of Duty
11
6. Multiple Assignments 12
7. Assignments and Changing the Obligors Obligation 13
8. Assignments: Intentions to Assign vs. Present Assignments 13
9. Assignments and Garnishments 14
10. Assignments and Leases: Liability of Assignor and Assignee 14
11. Assignments and Liabilities of Landlord 15

Topic: Third Party Beneficiaries (3PBs) Page
1. 3PB: Introduction 16
2. 3PB: Intended vs. Identical 16
3. Identifying an Intended 3PB 17
4. The Rights of an Intended 3PB
4.1. Donee 3PB
4.2. Creditor 3PB
17
17
18
5. Creditor Intended 3PB vs. Donee 3PB 18
6. Creditor Suing Promisee or Promissor: Vesting Rights 19
7. Intended 3PB Rights and Obligations 19
8. Defending a Claim Against a Vested 3PB 20
9. 3PB and Insurance Policies (Review)
The Insurance Policy
The Effect of the Insurer Re-insuring a Policy
20
20
21

Contract Law
Ch-3: Statute of Frauds and Parol Evidence Rule

Topic: Statute of Frauds

Page
1. Statute of Frauds: Introduction 2
2. Modifying Contracts 3
3. Statute of Frauds: Sale of Land and the Essential Terms That Must
be Included in the Writing.
3
4. Sale of Land and Description Requirements 3
5. Sale of Land and Parties Signing the Contract 4
6. Sale of Land and the Doctrine of Equal Dignities 4
7. Sale of Land and Specific Performance 4
8. Statute of Frauds & UCC: Sales of Goods 4
9. Statute of Frauds: Full Performance
(& Exceptions)
5
10. Privity of Statute of Frauds Contracts 5
11. Errors and Omissions in the Contract 6

Topic: Parol Evidence

Page
1. Parol Evidence Introductions 7
2. Oral Evidence to Explain- Not to Contradict Written Contract 7
3. Contemporaneous Oral or Prior Agreements 7
4. Parol Evidence and Latent Ambiguity 8
5. Parol Evidence: Complete and Partial Integration 9
6. Parol Evidence: Hindsight 9
7. Parol Evidence: Consideration 9
8. Parol Evidence: Plain Meaning Rule 10

Contract Law
Ch-4: Condition & Discharge

Topic: Condition

Page
1. Conditions Introduction 2
2. Conditions Precedent 2
3. Condition Precedent (Review) 3
4. Condition Precedent vs. Condition Subsequent 3
5. Constructive Condition Precedent 4
6. Condition Concurrent 4
7. Implied Conditions 4
8. Warranty: Satisfaction Guaranteed 4
9. Warranties: Warranty of Truthfulness 4
10. Insurance Clauses: Time of Payout Stipulated 5
11. Misrepresentation 5
12. Time of the Essence 5

Topic: Discharge

1. Unilateral Mistake 7
2. Mutual Mistake 7
3. Mutual Mistake and Assumption of Risk 7
4. Mistake by an Intermediary (Mistake in the Transmission) 7
5. Mistake: Correcting Acknowledged Errors 8
6. Doctrine of Mistake Reviewed 8
7. An Accord 8
8. Satisfaction of the Accord 9
9. Accord and Satisfaction: Checks 9
10. Discharge for Material Breach 9
11. Destruction of Subject Matter 10
12. No Discharge Due to Appreciation of Risks 11
13. Discharge: Frustration of Purpose 11
14. Discharge: Impossibility & Impracticability 11
15. Discharge: Failure of Star Performer 12
16. Impossible Deadline and Schedules 12
17. Contracts With an Illegal Purpose 12
18. Contracts Involving Minors 13
19. Automobile Accidents and Offers to Pay Medical Expenses 14

Contract Law
Ch-5: Remedies

Topic:

Page
1. Anticipatory Repudiation (AR) 3
2. AR and Prospective Inability to Perform 3
3.1. AR and Equivocal Repudiation 4
3.2. Selling to Buyers Who May be Insolvent 4
4. Specific Performance and Personal Services 5
5. Liquidated Damages 6
6. Waiving Rights Under a Contract 6
7. Entire Contracts 6
8. Divisible Contracts 7
9.1. Option Contracts 8
9.2. Options: Buyer Changes His Mind and Advises Seller 8
9.3. Expired Options 9
9.4. Options and Bids (Tenders) 9
9.5. Options and Specific Performance 10
9.5. Options and Consideration 10
9.7. Options and Revocation 10
10. Doctrine of Release 11
11. Time of the Essence: Late Performance Under a Contract 11
12. Calculating Damages for Cancelled Orders or Rejecting Non-
Conforming Goods
11
13. Non-Conforming Goods and Damages 12
14. Revocation of Acceptance: Rejecting Goods After Acceptances 13
15. How Does the Seller Know Whether the Goods Have Been
Accepted?
13
16. Goods Stolen or Damaged in Transit 13
17. Breach of Building Contracts 14
18. Rejecting Non-Confirming Goods 14
19. Seller Refuses to Accept Rejected Goods and Will Not Refund
Monies
15
20. Right of Inspection of Shipped Goods 15

1

Contract Law
Ch-1: Offer and Acceptance

Topic

Page
1. The Offer 3
2.1. Accepting the Offer 3
2.2. Crossing Offers and Acceptance 3
3. Offers by Merchants and the Uniform Commercial Code (UCC) 4
4.1. Offers and Counter Offers Between Merchants 4
4.2. Memorializing Oral Contracts 5
5. Demonstrating Acceptance of an Offer 5
6. Silence and Acceptance 6
7. Methods of Communication, Offers and Responses 6
8. Advertisements vs. Unilateral Contracts 6
9. Revocation of Offers Reviewed: -
9.1. Revocation common law
9.2. Revocation Estopped by Option
9.3. Revocation Merchants
9.4. Revocation - by Mail
9.5. Revocation - by Hearsay
9.6. Revocation - Unilateral Contracts
8
9
10. Advertisement Offers and Special Offers 10
11. Illusory Contracts 10
12. The Mailbox Rule - Offer and Rejection 11
13. Offers and Quotes 11
14. Offers and Expressions of Further Enquiry 12
15. Acceptance of Offers and New Negotiations 12
16. Gifts: Offer and Acceptance 12
17. Offers and Multiple Acceptances 13
18. Termination of the Offer by Counter Offer 13
19. Contracts with Price Term Left Open 13
20.1. Offers Calling for the Shipment of Goods 14
20.2. Subsequent Cancellation of the Order 14
21. Offers Made With C.I.F. (Cost +Insurance & Freight) 14
22.1. Requirement Contracts 15
22.2. Requirement Contracts: Fluctuating Market Conditions 15
22.3. Requirement Contracts: When the Price Left Open 15
22.4. Requirement Contracts: When Things Go Wrong 16
2

23. Term: Within One Month 16
24. Offer: Rewards (Review) 17
28. Sales Commission Contracts 18

3

1. The Offer

Rule: For a communication to be considered an offer, it must be made in
the form of a clear expression of a promise, an undertaking, or
commitment. When taken as a whole the offer creates an obligation on the
offeror to perform something. The offer must be communicated to the
offeree.

2.1.

2.2.

Accepting the Offer

Rule: Although it may sound elementary, an offer must be accepted to
complete the formation of a contract. We also need to look at how the
offer should be accepted: -

1. Does the seller require prompt acceptance?
2. Does the seller require acceptance only by performance?
3. Does the seller require telephone or written confirmation of
acceptance followed by performance, or
4. Does the seller require telephone and written confirmation followed
by performance?
5. Is the offer time limited?

These are called implied or express terms of acceptance.

Therefore, when an offer is made, check if the offer was accepted in the
manner specified by the seller, (if at all). We need to check that if there
was a specified manner was it complied with? These issues will help
determine the precise moment the contract was formed.

Crossing Offers and Acceptance

Rule: Sometimes, the seller will make an offer in the mail. The buyer,
unaware of the sellers offer, may simultaneously mail an offer to the
seller. Here, even if the offers are for the same amount, no contract will be
created until either party acknowledges and accepts the offer received.
Thus, there must be a genuine acceptance of an offer.

4
Example: Sid and Bill talk about the possibility of Sid selling his
automobile to Bill for $5,000.00. Both guys said theyd think about it.
A few days later Sid decides to send Bill a note saying I really need
the money so I want to offer you my auto for $4,500. Sid mails this
letter in the morning. Bill on that same day wonders if Sid would
accept $4,500 for the auto since thats all Bill could afford. Bill mails
his offer to Sid on the same day. The question becomes, has a contract
been formed between them? The answer is no because neither side
has yet accepted each others offer.

3. Offers by Merchants and the Uniform Commercial Code (UCC)

Rule: At common law, unless consideration is paid to the seller to keep the
offer open, the offer will be revocable at will, even if the seller has
promised to keep the offer open unless consideration was paid to keep that
offer open. Under the UCC, a signed written offer by a merchant will be
irrevocable. If no period as to how long the offer is to remain open is
stated, the offer will be deemed open for 90 days.

4.1. Offers and Counter Offers Between Merchants

Rule: At common law, a variation in the terms of the offer by the buyer
will be deemed a counter offer. However, under the UCC, a slight
variation in the terms of the contract by the buyer will not be deemed a
counter offer. Instead it will be treated as a modification of the original
offer. In the alternative, the modification will be treated as being
collateral to the original offer that becomes part of the overall deal.
Modifications to a contract will not be effective where: -

1. The counter offer substantially and materially alters the nature of
the offer.*

2. The original offer forbids any alterations.

3. The modification is rejected within a reasonable time (10 days).

5
*Commentary:

Remember, when a merchant makes a counter offer it will not, as in
common law, be deemed a rejection of the original contract. Instead, the
modification will simply not be incorporated if it substantially or materially
alters the nature of the contract. Thus, the parties (merchant to merchant)
will still be bound by the terms of the original terms of the contract.

4.2. Memorializing Oral Contracts

Rule: Here, A and B orally make an agreement after negotiation of all the
salient terms & conditions. Thus, A and B have an oral agreement.
Providing there are no Statute of Fraud issues A & B may or may not
reduce their agreement to a writing.

Therefore, having reached an agreement A and B could further agree
to memorialize the agreement. This simply means to put the agreement
in writing as a record. If for some reason the agreement is never
memorialized and signed by both or either party this will not affect the
oral contract made in any way. In fact, if there was an agreement to
memorialize the oral agreement and this does not take place, this will
merely be a breach of the oral agreement to memorialize and will not
be a breach of the substantive contract.

5. Demonstrating Acceptance of an Offer

Rule: An offer can be accepted by performance or a promise to do the act
bargained for. Thus, if A offers B $1000 to paint his house, B can
actually paint the house, thus demonstrating his acceptance; or B can
communicate acceptance by promising to paint the house at an agreed time.

6
6. Silence and Acceptance

Rule: Generally, silence cannot be interpreted as an acceptance to an offer.
However, there has been some prior course of dealings where silence was
the agreed method of acceptance, silence could be interpreted as a form of
acceptance. So if A makes an offer to B saying, If I dont hear from you
by Friday, Ill take it as an OK to start work the following Monday. If B
does not reply to As offer no contract would have been formed. This is
because there has been no acceptance. Therefore, even if A starts the work
no contract has been formed, B would have needed to have communicated
acceptance verbally or in writing.

As mentioned earlier, if A and B had developed a long history of
doing business this way then Bs silence may be deemed as an
acceptance. In this case if B wanted to prevent a contract from being
created he would need to let A know within a reasonable time that on
this occasion any silence should not be interpreted as an acceptance.

7. Methods of Communicating Offers and Responses

Rule: Any reasonable method of communicating offers and responses are
acceptable.

8. Advertisements vs. Unilateral Contracts

Rule: Advertisements are generally regarded as mere invitations to treat.
This means that responses to adverts are inquiries and it is then up to the
seller to make the offer prompted by the buyers inquiry.

EG: Seller receives an order for 50 widgets, but only ships 10. This is in
effect a counter offer. If the buyer accepts the 10 widgets (by treating them
as his own property), even if the buyer has an expectation of receiving the
remaining 40 widgets the seller will not be liable to the buyer for any more.
This is because the buyers order of 50 widgets will be regarded as an
offer. This offer was rejected with a counter offer of 10 widgets. The buyer
accepted the counter offer by treating the goods as his own. Therefore a
contract was formed and executed.

7
The buyer, upon receiving only 10 widgets, could have rejected them
and demanded the full order, or advise the seller that this counter offer
was not accepted. The buyer and seller could then enter into further
negotiations.

Contrasting Advertisements With Unilateral Contracts.

In contrast, a unilateral contract is quite different. With unilateral contracts
there are no negotiations, no deals, no invitations to treat. Instead the
offerors terms and conditions are final and are open to acceptance only.

Unilateral contracts generally appear where the offeror clearly and
unambiguously indicates that performance is the only method of
acceptance.

EG1: A beauty pageant seeks entrees, and the terms, conditions and prizes
are stated on the entry form. Clearly, in this situation any contestant would
not be able to enter into negotiations regarding any of the entry terms. This
is the principle of a unilateral contract.

EG2: Also, if A says to B if you can come up with $X by Friday you
can buy my sailboat. This would also be a unilateral contract since the
only way B can accept As offer is to come up with $X by Friday. Another
type of unilateral contract would be an offer to the public at large, such as a
reward. The offeror clearly wants to pay only if the terms of the reward are
satisfied.

EG3: Information leading to the arrest of X would also be a unilateral
contract in the form of a reward. Alternatively, the reward could be for a
lost pet. Telling the offeror that they are actively trying to satisfy the
conditions of the reward will not change the fact that acceptance of the
offer can only be demonstrated by actual satisfaction of the reward
conditions.

8

9.

9.1.

9.2.

9.3.
Revocation of Offer Review

Revocation common law

Rule: At common law when an offer is made, it may be revoked at anytime
up until the offer has been accepted. Thus, the key here is to make sure
that the offer is withdrawn before it is accepted.

Revocation - Estopped by Option

Rule: Also, the buyer may pay for the offer to be kept open. This is called
buying an option. The option is itself a collateral contract and must be paid
for with additional consideration. Thus, any promise by seller to keep an
offer open that is not supported with additional consideration will be
unenforceable.

Revocation - Merchants

Rule: Under the UCC a signed written offer by a merchant will be
irrevocable. If no period as to how long the offer is to remain open is
stated, the offer will be deemed open for 90 days.

9.4. Revocation by Mail

Rule: Remember, in order for an acceptance of an offer to be effective it
must be accepted before it is withdrawn or revoked by the offeror.

If an offer is accepted by mail, it is effective upon its dispatch. If the
offer is to be withdrawn by mail, the offeree must receive the
revocation before the offeree mails his acceptance.

9.5. Revocation by Hearsay

Rule: An offer is effectively revoked when the offeree acquires knowledge
of the offers revocation. This information can be acquired from a third
party or where the offeree finds out that the offeror has already disposed of
the item on offer. At this point the offeree has lost his power of acceptance.

9
9.6. Revocation Unilateral Contracts

Rule: We know that a unilateral contract is an offer that can only be
accepted when the offeree completes performance. In most cases, merely
looking for the lost pet or keeping a look out for a missing person, will not
constitute an acceptance of a unilateral contract. However, some unilateral
contracts will be deemed accepted if the condition is a process rather than a
single act, eg, a writing competition, an endurance sport or a race. In these
types of events there should be a closing date that would allow a reasonable
time for completion.

Once a unilateral contract has been accepted by performance of the
process the offer becomes irrevocable to all those who have begun or
completed the process, i.e., started the race, begun writing a story etc.

Therefore, even if an offeree, (subsequent to commencing
performance), becomes aware of the offer being withdrawn, it will
be ineffective as to that offeree. The withdrawal will however be
effective against anyone who had not commenced performance of
the offer. If a unilateral contract is revoked, anyone who has
already commenced performance of the contract can quit and sue
for damages or complete the condition and sue for the prize
money. Even if the offeree dies having performed the unilateral
contract the estate of the deceased may still claim on the
decedents behalf.

10

10. Advertisement Offers and Special Offers

Rule: As discussed earlier, advertisements are generally regarded as mere
invitations to treat. This means that responses to adverts are generally
regarded as inquiries and it is then up to the seller to make the offer
prompted by the buyers inquiry.

If the advertisement is in the form of a special offer this is treated as
an offer open to all those who become aware of the special offer. In
other words, if a buyer makes a deal with the seller and the buyer was
unaware of the special offer, the contract formed will be binding as
negotiated. Therefore, even if the buyer subsequently became aware of
the special offer, the buyer may not go back to demand a rebate, refund
or take advantage of the benefit of the special offer.

11. Illusory Contracts

Rule: We know that to create a valid contract, each promise must be
supported by consideration. Where only one party appears to be under a
clear obligation to the other party, the contract will be deemed illusory.
This is because both parties must be under some mutual obligation in order
to form the contract. However, once the offeree makes a good faith
payment based on the terms of the offer made, this will create a binding
contract from that point.

In contrast, a merchants signed written offer to another party (although
not creating a contract in and of itself) will be irrevocable by that
merchant at least for a reasonable period of time. The recipient can
then take advantage of the offer by accepting it. At that point a contract
will come into existence.

11

12. The Mailbox Rule - Offer and Rejection.

Rule: Under the Mailbox Rule, acceptance of an offer by mail creates a
contract the moment the acceptance is mailed. The letter must be properly
addressed and stamped.

EG: A accepts an offer by mailing acceptance to B. If A later that
same day changes his mind and telephones B, even if B agrees to it
because he is unaware of the earlier mailed acceptance, As revocation
will be ineffective. A will be bound. Any attempt by A to not honor
the agreement will place him in breach of contract.

In contrast, with a rejection of an offer, the rejection is effective
only when the other party receives it. For revocation to be effective,
it must be received before the offeree communicates acceptance.
Note: If the period for acceptance is stated in the offer the offeree
must accept the offer within that period to create a contract. The
Mailbox Rule does not apply where the offer states that acceptance
will not be effective until received.

13. Offers and Quotes

Rule: A request for a quote is not an offer, but merely an inquiry to receive
offers for consideration or perusal. This is also true when a seller sends
generalized estimates in the neighborhood consisting of flyers, and mail
outs. These are regarded as invitations to treat. Sending a quote is not an
offer unless it creates a reasonable expectation in the mind of the offeree
that the offeror is willing to enter in a contract on the basis of the offered
quote.

EG: If A asks B to quote for a specific project, this is more likely to
be interpreted as an offer. If A asks B for his catalog wherein a
certain product and price is published, the sending of the catalog will
not be deemed an offer. However, if A asked B about a particular
product and B sends his catalog containing that product with the price,
this would be deemed an offer and the contract would be formed upon
B placing an offer based on the price quoted in the catalog. Therefore,
the courts will always consider the circumstances surrounding the way
the quote or offer was made.

12
14. Offers and Expressions of Further Enquiry

Rule: Once an offer has been made the offeree may respond, not with a
counter offer, but with an expression of further enquiry. This is different
from a counter offer as it is merely an enquiry from the offeree for more
information about the offer on the table, Does the sale price include X or
Is the seller flexible on price or delivery dates. In other words, the
buyers response does not amount to a rejection of the offer, but merely a
request for further details about the offer.

The test is- would a reasonable person believe that their offer was being
rejected or merely explored?

15. Acceptance of Offers and New Negotiations

Rule: Sometimes a buyer can accept the sellers offer without question.
The buyer can then make a further offer to the seller as to potential repeat
sales. If the seller rejects the repeat sale offer, it will not invalidate the
buyers acceptance of the sellers offer and acceptance of the original deal.
This is because the original order stands as an independent contract from
the repeat sales offer that can be rejected independently.

EG: A offers B ten boxes of chocolates at $100 per crate. B accepts
As offer and sends the $100 with a note. The note reads, Id like to
order another ten boxes but could you do it for $90.00 per crate? If A
rejects this offer, then the original deal for the ten boxes that has already
been accepted at $100. If A rejects the offer and decides not to send
any chocolates at all, A will be in breach of the original deal for ten
boxes at $100 per crate, but not the repeat sales offer, because it was not
accepted.

16. Gifts: Offer and Acceptance

Rule: A gift is not complete until the donee becomes aware of it. Thus,
until the donee becomes aware of it from the donor directly, the donor may
revoke the gift at any time. This is because the donees rights have not
vested. The donees right will vest if the donee becomes aware of the gift
from the donor and detrimentally relies on it before the donor withdraws
the gift.

13
If the donor actually places the gift in the hand of the donee and makes
a clear and unambiguous declaration of a present intention to transfer
title to the donee, especially if witnessed, then the transfer will be
deemed complete there and then. In these circumstances it is no longer
possible for the donor to subsequently change his mind and revoke the
gift. Its simply too late.

17. Offers and Multiple Acceptances

Rule: Sellers may accept more than one offer for a product on sale and the
seller will be generally bound to honor all the offers accepted, even if the
seller has to buy in more products to cope with demand. Only if the seller
is unable to honor any accepted offer will the seller be in breach of his
contractual obligations.

18. Termination of the Offer by Counter Offer

Rule: We know that generally speaking an offer will be terminated by an
express rejection by the offeree. Also offers can lapse if the offer is time
limited. Once an offer has been terminated it cannot be resurrected. The
offer is dead. Instead a new offer would need to be made.

An offer can be terminated by way of a counter offer. Under common
law if the offeree makes a counter offer the original offer is terminated
and the counter offer becomes the new offer on the table.

19.

Contracts with Price Term Left Open

Rule: As long as the parties intended to be bound by their agreement the
parties may leave the price term out of the contract. However, there must
be a clear method of determining the final price including a quantity term.

At the time the price is to be fixed it is possible for the buyer and seller
not to agree on the price. In such cases the court will determine a
reasonable price. The buyer will be able to buy the item at that price.

Alternatively, if the seller fails to set a good faith price as
promised, the buyer may cancel the contract or fix a reasonable
price and purchase it at that price and tender payment in good
faith.

14

20.1.

20.2.
Offers Calling for the Shipment of Goods

Rule: Remember, an offer can be accepted by performance or a promise of
performance. Therefore, an offer calling for the prompt shipment of goods
can be accepted by simply shipping the goods, or by promising to ship the
goods according to the order.

Subsequent Cancellation of the Order

Rule: Sometimes the buyer may subsequently cancel the order having
entered into a contract for prompt shipment. Even if the goods have not yet
been shipped, any cancellation (repudiation) by the buyer would be a
breach of contract for which the seller could seek damages.

21. Offers Made With C.I.F. (Cost + Insurance & Freight)

Rule: In sale of goods contract it is common for sellers to use the phrase
C.I.F. as a part of their offer or published pricing catalogs. C.I.F. means
that the published price is subject to the additional charges of insurance and
freight. In other words Cost +Insurance and Freight.

Whenever a seller receives an order, the order is treated as an invitation
to treat. In other words, the seller will need to make an offer to the
buyer that the price will be subject to C.I.F. At this point there is no
contract until the buyer agrees to the C.I.F. clause. If the buyer does not
agree with the C.I.F clause no contract is formed and no party has any
claim against the other.

15

22.1. Requirements Contracts

Rule: A requirements contract arises where retailer A agrees to have
supplier B satisfy all As requirements for a certain product at a set price.
Typically, these contracts will be exclusive and for a set duration. In
practice, the agreement need not have all these elements in place. However,
there must be a clear obligation of mutual commitment between the parties.
These contracts are based on the principle of good faith.

22.2. Requirement Contracts: Fluctuating Market Conditions

Rule: When parties sign up to a requirements contract both sides are
deemed to assume the risk of fluctuating market conditions. The price of
the product could go up for the supplier. In such an instance, that increase
in price could not be passed on to the retailer, unless the contract allowed.
Similarly, if the demand for the retailers business declined due to market
conditions, the retailer could not simply cancel the agreement.

22.3. Requirement Contracts: When Price Left Open

Rule: Leaving the price term open will not destroy the contract. Under
U.C.C. rules, where the price term has been left open the price can be set at
the prevailing market price at the time the product is due for delivery.
Remember, where the parties are unable to agree the price at that time the
court can decide a fair price. Also the buyer may tender a good faith price
and retain the goods, if already received.

16
22.4. Requirements Contracts: When Things Go Wrong

Rule: When a requirements contract goes sour for either the supplier or the
retailer, a common claim by the losing party is that their continued
performance under the contract would result in losses and thus performance
would be impracticable.

Discharge from a contract on the grounds of impracticable performance
is available but the standard is very difficult to meet. To satisfy this
claim the claiming party would need to demonstrate that they would
suffer extreme hardship due to events totally unforeseeable by both
parties. These difficulties would need to be more than could reasonably
be assumed from the risk of fluctuating market conditions.

Alternatively, the buyer could claim that the market had completely
dried up. The retailer could no longer sell any of the products even
with substantial price discounting or aggressive marketing. In this
case both sides could be relieved of their obligations providing the
above claim was made in good faith and not because the retailer
simply wanted to change suppliers.

23. Term: Within One Month

Rule: Where the phrase within one month is used in a contract it is
generally taken to mean that payment will fall due 30 days after
completion, and not before.

17

24. Offers: Rewards (Review)

Rule: Rewards are also unilateral contracts. These are offers to the public
at large. Rewards are contractual offers creating a power of acceptance by
performance only, not by a promise to perform.

Information Leading to the Arrest and Conviction of Felon: Where the
purpose of the reward is to apprehend a felon, this is taken to mean that the
offeror will be satisfied with the supply of information that leads to the
arrest and conviction of the felon. The offeree is not personally required to
apprehend the felon himself.

Rewards are Irrevocable Offers: Generally speaking once the offer of a
reward has been made it is irrevocable against anyone who has seen the
offer and who has commenced a search for that person or object. The
reward can only be revoked against anyone who has not commenced his or
her search. In addition, the revocation must be made with the comparable
amount of publicity as the original reward offer.

Revocation of Reward by Lapse of Time: Rewards can be deemed revoked
by lapse of time. If no time limit has been stated on the reward then the
offer will lapse after a reasonable amount of time. What is a reasonable
amount of time would become a matter of fact for the court to determine.

Rewards and Bounty Hunters: Bounty hunters typically work under a paid
contract by a private company to find someone. Can the bounty hunter
also claim any public reward? If the bounty hunter finds out about the
reward after he tracks down the wanted person he may still be able to claim
the public reward as a bounty hunter. The bounty hunter could argue that
the nature of the offer was that of a bounty and therefore the traditional
elements of contract theory are not applicable. This could be argued where
the offeror was a government agency.

Rewards and Hiring a Private Investigator: Firstly, let us remind ourselves
that a reward is a unilateral contract that is accepted by performance only,
i.e., actually looking for the person/object according to the reward. If the
investigator is hired on a daily basis, bearing in mind the fugitive could be
found at any time, they are, in effect, entering into a series of daily
unilateral contracts. Accordingly, a daily contract can be terminated at the
end of any given day.

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25. Sales Commission Contracts

Rule: The best approach to these types of contracts is to read the terms of
the contract under which the employment was entered.

Tip: If the terms are clear and it is an integrated contract then these terms
must be applied rigorously even if they appear harsh or biased in some
way.

1
Contract Law
Ch-2: Consideration, Assignment, Delegation and
Third Party Beneficiaries

Topic: Consideration Page
1. Consideration: Introduction 3
2.1 Consideration and Contract Modification 3
2.2. Consideration vs. Good Faith Modification 4
3. Consideration and Contract Modification Between Merchants 4
4. The Doctrine of Promissory Estoppel 5
5. Implied-In-Fact Contracts,
Unjust Enrichment and
Quasi Contracts
6
6. Consideration and Pre-Existing Duties 7
Modifications
8
Reliance
8
9. Consideration and Forbearance 9
10. Consideration Before the Promise is Made. (Lost, Found and
Reward)
10.1 Refraining to File Suit May Equal Consideration P.10
9
11. Excusing New Consideration for an Existing Moral Obligation 10

Topic: Assignment and Delegation Page
1. Assignments Introduction 11
2. Assignments (Novation) vs. Delegations 12
3. Delegation 13
4. Delegation and Consent Requirements 13
5. Delegation of Performance or Delegation Performance and
Assumption of Duty
13
6. Multiple Assignments 14
7. Assignments and Changing the Obligors Obligation 15
8. Assignments: Intentions to Assign vs. Present Assignments 15
9. Assignments and Garnishments 16
10. Assignments and Leases: Liability of Assignor and Assignee 16
11. Assignments and Liabilities of Landlord 17

2

Topic: Third Party Beneficiaries (3PBs) Page
1. 3PB: Introduction 18
2. 3PB: Intended vs. Identical 18
3. Identifying An Intended 3PB 19
4. The Rights of an Intended 3PB
4.1. Donee 3PB
4.2. Creditor 3PB
19
19
20
5. Creditor Intended 3PB vs. donee 3PB 20
6. Creditor Suing Promisee or Promissor: Vesting Rights 21
7. Intended 3PB Rights and Obligations 21
8. Defending a Claim Against a Vested 3PB 22
The Insurance Policy
The Effect of the Insurer Re-insuring a Policy
22
22
23

3

Topic: Consideration

1. Consideration Introduction

Rule: In order for a contract to be valid the parties need to exchange
something of legal value. This is called consideration. The offeror must
communicate an offer, which is a clear expression of a promise, an
undertaking, or commitment which when taken as a whole creates an
obligation. Likewise the offeree must make a reciprocal commitment.
Thus, the exchange of these obligations between the parties can be
regarded as consideration as the obligations exchanged have legal value: -

1. Money
2. Labor, (including promotion & distribution)
3. Services
4. Forbearance
5. Promises, undertakings and obligations.

2.1. Consideration and Contract Modification

Rule: If a contract is modified there needs to be reciprocal modifications to
the obligations (mutual consideration) of both parties for the modification
to be enforceable.

EG: If A contracts for B to build As house for $100,000 any
subsequent modifications must result in a benefit to both parties, i.e.,
less work, less payment, more work, more payment. Not less work,
same payment. Even if A agreed that B could do less work for the
same contract payment, B would not be able to enforce that
modification. This is because any modifications must be reciprocated
on both sides.

Note: Even if the reciprocated modification is not of equal value
this will be ok as long as there is a measure of reciprocation, i.e.,
consideration.

4

2.2. Consideration vs. Good Faith Modification

Rule: Where the seller forgets to include a certain term or item in the sale
contract and this omission was made in good faith, providing the buyer
agrees to a subsequent modification this will be acceptable where: -

1. The modification will need to be in writing if the sale price is over
$500.

2. The modification will need to be in writing if the modification
would take the sale price over $500.

3. If the contract is under $500 then the oral agreement on the
modification will be enforceable.

Commentary: Contrast With the Pre-existing Duty Doctrine

In the pre-existing duty doctrine parties have agreed under contract to
perform some mutual obligations. Here, one party wishes to change their
obligation under the contract in some way, without reciprocating value.
Essentially it boils down to less work for the same money.

Although this type of arrangement is acceptable and valid under the
minority court view, the majority court view holds that mutual
consideration in contract modification is required. Thus, even if the
innocent party agrees to the modification for no benefit this agreement will
be unenforceable.

3. Consideration and Contract Modification Between Merchants

Rule: Under the UCC contract modifications between merchants do not
require consideration to be enforceable. As long as the modification is
proposed in good faith then once agreed the modification will be binding
upon both parties.

5

4. The Doctrine of Promissory Estoppel

Rule: When an offeror/offeree makes a promise to do something as part of
a contractual obligation then it is reasonably foreseeable and expected that
the person receiving the promise will rely on it to his or her own detriment.

Where it can be shown that the promise did in fact induce the other party
into a contract, this contract will be deemed enforceable if the only way to
avoid injustice to the other party would be to enforce the contract.

However, where the promise was made for a specific purpose i.e., wedding
expenses and it was discovered by the promisor before payment was made
that the promisee really wanted to use the money for some other purpose,
then the promisor would not be estopped from refusing to make the
payment. Note, even if the promisee had already detrimentally relied on the
promise of funds for that secondary purpose, the promisor could still
legally refuse to make the payment.

6

5. Implied-in-Fact Contracts, Unjust Enrichment and Quasi-Contracts

Rule: These are all forms of contract that can arise without the typical
formalities of offer and acceptance or consideration requirements. The
remedies here are all based on equitable doctrines.

Implied-in-Fact Contract: This form of contract will arise where acceptance
of the offer is demonstrated by conduct.

EG: For example, a customer enters a barbershop and takes a seat in the
barbers chair. When a customer does this and receives a haircut, an
implied contract is formed based on the customers conduct. Thus, the
customer accepted the barbers offer to cut his hair by simply sitting in the
barbers chair. The customer must therefore pay for his hair cut.

Other common examples include scenarios where a delivery truck driver or
contractor conveys some benefit to the wrong neighbor. The neighbor sees
the error, but remains silent and allows the work to continue. By not
objecting to the contractor conveying a benefit the recipient is deemed to
agree to enter into an implied-in-fact contract. Thus, the recipient must pay
for the work when it is completed, even though no oral or written bargain
was negotiated.

If the buyer tenders payment in full when the offer is made this will create
an implied-in-fact contract. The buyers full performance will also satisfy
the Statute of Frauds requirement for the agreement to have been reduced
to a writing.

Unjust Enrichment: This arises where there is no enforceable contract at
all, yet one person has for some reason conferred a benefit on another
person with the reasonable expectation of being paid. If the other party
were to retain the benefit without paying for it he would be unjustly
enriched. The court will therefore, when appropriate, create what is called a
quasi contract and enforce it to avoid unjust enrichment to one party.

Quasi Contract: A quasi contract as outlined above is a legal fiction used to
remedy situations of potential unjust enrichment.

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6. Third Party Consideration vs. Pre-Existing Duties

Pre-Existing Duties

Rule: This is really a development on the doctrine of consideration and
contract modification. We know that the pre-existing duty doctrine requires
parties to have agreed by way of contract to perform some mutual
obligations. Where one party subsequently wishes to change their
obligation under the contract, (essentially, less work for the same money),
the majority court view holds that mutual consideration in contract
modification is required. Therefore, even if the innocent party agrees to the
modification for no reciprocal benefit this agreement will be unenforceable.

Third Party Consideration

However, theres an important distinction here. A and B are in contract,
where B is contracted to build As house for $200,000 by April 1
st
. If C
promises to pay B a further $50,000 if B completes the house for A by
April 1st, C will be bound to that promise because this second agreement
is in privity between C and B and is regarded as an independent contract.

There is no pre-existing duty between C and B. Therefore, no additional
consideration is required. It does not matter that A and B are in contract
for B to do the same thing. The two relationships are independent. If A
had promised to pay B the extra $50,000 to ensure that B completed the
house by April 1
st
, then this would be unenforceable under the pre-existing
duty rule.

8

Modifications

Service Contract Modifications: These are contracts not involving the sale
of goods. These contracts always follow the traditional common law rules
requiring that any contract modification will require reciprocal (but not
necessarily equal in value) consideration.

Merchant UCC Contract Modifications: These are contracts between
merchants. In this case contract modifications do not require additional
consideration providing:

1. The modification does not materially alter the contract.
2. The original contract does not forbid modification.
3. The promisee does not object to the modification within a
reasonable time (up to10 days)

Reliance.

Rule: Where a donor wishes to bestow a gift to another, no consideration is
required from the donee. The donee is merely receiving a gift. Thus, it is
generally not possible for the donee to enter into a contractual arrangement
since an essential element of contract formation is an exchange of
consideration. So, if the donor decided to change his mind he would be free
to do so.

However, the equitable doctrines of promissory estoppel and
detrimental reliance would be available to any donee that could argue
they had been told about the gift, specifically by the donor,
(notification by a third party will not count), and had detrimentally
relied on the gift. Secondly, this detrimental reliance was foreseeable.
In this case the promise would be enforceable to prevent injustice.

In deciding these claims the courts would also take into account all
the surrounding factors including out of pocket expenses incurred
by the donee.

9
9. Consideration and Forbearance

Rule: Forbearance is a well-established form of consideration. Forbearance
is the giving up of a right to do something one is legally entitled to do.

EG1: A contracts with B that A will not mow his own lawn on Sunday
mornings before noon. By negotiating this contract this will give B the
opportunity to sleep peacefully since B works nights. B pays A $500 per
month under this agreement.

Here, A has provided consideration to the contract simply by giving up
his right to mow his lawn at the agreed time. Even if A had no intention
of mowing his lawn at that time B would still be obliged to pay A
under the contract.

EG2: If A has good faith grounds to sue B over a dispute, B can offer
money to A not to file suit. If B subsequently discovers that A would
have probably lost anyway, B will still be required to pay A the money
promised for not filing suit. The consideration on As part was the giving
up of his right not to sue. As long as A had a good faith basis for bringing
suit, B is liable to pay A under the agreement made. (See also point 10.1).

10.

Consideration Before the Promise is Made. (Lost, Found and Reward)

Rule: This can be best described as the lost, found and reward doctrine.
Meaning, if A loses something, e.g., a dog, B finds the dog and returns it
to A, if A then subsequently promises B a reward for finding the dog,
this promise is wholly unenforceable. This is because the promise came
after the volunteered act and thus no consideration was given to enforce the
contract. In other words, it should have been lost, reward and found
meaning, A loses dog; A posts a reward, which is the promise of
payment, and therefore an obligation. B upon seeing the offer of a reward
searches for and finds the dog. This amounts to an acceptance. Finding the
dog is also full performance of the contract on Bs part therefore B can
enforce the contract. The offer was made; the offer was accepted and
performed; now A must pay to complete his obligation.

10
10.2 Refraining To File Suit May Equal Consideration

New circumstances can arise that create new consideration and obligations
that can be enforceable.

EG: B finds As dog without knowledge of an offer. A promises a reward
but changes his mind. B threatens to sue believing in good faith that he has
a case. To prevent the suit A then offers B $200 not to file. If B accepts
As offer and does not file and A once again, changes his mind B can sue
for the $200. This is because both sides exchanged that will be deemed
adequate consideration.

11. Excusing New Consideration for an Existing Moral Obligation

Rule: Here, two parties A and B enter into an agreement. A breaches his
obligations under the contract. B will have a certain amount of time under
the Statute of Limitations or the Statute of Latches to file suit for As
breach. However, if the time period has lapsed for B to take legal action,
A and B may enter into a new agreement based on As pre-existing duty
to perform the task as previously bargained. No new or additional
consideration will be required. Thus, if A once again breaches the
agreement, lack of new consideration will not bar recovery by B. The
court will find that A was already under a pre-existing moral obligation to
perform.

11

Assignments and Delegations

An obligor is the person who owes a duty of performance.
The obligee is recipient of the obligors performance.

1.
Assignments: Introduction

Rule: Generally, all contractual rights may be assigned. In fact, even where
the contract specifically forbids assignment, this restriction is regarded as
meaning, no assignment as to who will do the work. In other words
either side may assign the benefit under the contract to a third party.

EG: A contracts with B for B to build a house for A. The contract
contains the no assignment clause. In this case B must build the
house. B cannot assign the building of the house to his friend C.
However, B can assign his interest in the payment of the house to D.
As long as B notifies A of the assignment A must pay D. D upon
receiving notice of this arrangement becomes an intended third party
beneficiary (3PB).

If A ignores this assignment having received notification of it and pays
B anyway, A will still be liable to D, upon Ds demand.

Where there is no restriction assigning a contract, once the assignment
has been made the assignor is no longer in privity with the obligee (the
other party to the original contract). Thus, the assignor generally has no
lingering interest in the contract. Instead the new assignee and the
obligor become contractually bound to each other. The assignee
inherits the same rights and obligations as the original assignor. Thus
the assignee can enforce the contract.

12

2. Assignments: Novation vs. Delegations

Rule: With an assignment of both the benefit and the obligation under the
contract, the assignor with the consent of the obligee is seeking to step out
of all obligations and benefits in the contract. This type of assignment is
intended to create a completely new relationship or privity of contract
between the obligee and the new assignee. Where all parties consent to
such an assignment we have what is called a Novation.

In other words, where the obligee agrees to the assignment of the contract
he is agreeing to discharge the assignor of all his duties under that contract.
Thus, the obligor not only takes on the assignors duties, but also assumes
all the assignors liabilities under the contract. In so doing, the assignor is
completely released and the assignee / obligor enter into complete privity
with the obligee.

When an assignor assigns his obligations under the contract, he also
promises the assignee that he is not aware of any reason why the obligee
(the person with whom the assignor has been in contract with) may be
excused performance under the contract. Note here that the assignor is
now going as far as to guarantee that the obligee will in fact perform. Thus,
if after the assignment the obligee does in fact fail to perform, the assignee
may not seek recovery from the assignor. The assignor is no longer in
privity of contract with the assignee or the obligee.

If the obligee does not consent to the assignment, the assignor may still
assign the contract but this will be deemed a delegation and the assignor
(now delegator) will contractually remain in privity with the obligee and
the assignee. Thus, if the assignee (now delegatee) fails to perform, the
obligee can bring an action against the delegator and possibly the delegatee
(see below).

13

3. Delegation

Rule: Generally, all contractual duties may be delegated to a delegatee and
the consent of the obligee is not required. However, there are several
contracts that cannot be delegated or assigned: -

1. Personal Management: Duties involving key personal judgment or
skill.
2. Client-Attorney: Duties involving special trust.
3. Expectancy: If the delegation would materially change the obligees
expectancy, i.e., a substantial deterioration in anticipated profits,
performance, results or quality.
4. Contract expressly forbids delegation.

4. Delegation and Consent Requirements

Rule: We know that consent is not required when a delegator wishes to
delegate the performance of the work to a delegatee (except for the
aforementioned exemption). In addition to consent not being required, the
obligee cannot refuse to allow the delegatee to do the work without finding
himself in breach of contract.

5. Delegation of Performance and Assumption of Duty

Rule: Here we are concerned with whom the obligee may sue in the event
of poor performance of the contract. In other words, if the delegatee
performs badly, can the obligee sue the delegator and the delegatee? In this
situation the delegatee is the principal in that the delegatee must be the first
person the obligee claims against. However, if this initial claim fails then
since a delegator remains in privity of contract the delegator is said to stand
as surety if the delegatee fails to perform his obligations, he may be sued
next by the principal /obligee.

Before the principal / obligee can commence his claim against the
delegatee we need to look at the nature of the delegation. We need to
examine whether the delegatee agreed to assume all liabilities under
the contract or merely agreed to carry out the work on behalf of the
delegator.

14

The delegatees liability will turn on whether he was merely undertaking
the work on behalf of the delegator or whether he also took on the
assumption of duty in the contract. An indication of the latter would arise
where the arrangements concluded, according to the agreement, with the
obligee making payment directly to the delegatee.

Where it is not clear as to whether the delegatee assumed the duty in the
contract the majority courts would hold that unless a contrary intention is
made clear, the words assigning the contract or all of my rights under the
contract will be construed that the delegatee assumes only the duty of
performance. In other words, merely undertaking to do the work for the
delegator will not mean that the delegatee agreed to assume all liabilities
under the contract. An additional element of assumption on behalf of the
delegatee is required.

6. Multiple Assignments

Rule: If an assignor fraudulently assigns the same contract a second time,
this second assignment will be unenforceable against the obligee. Instead
the 1
st
and 2
nd
assignees will have to determine which assignment will
prevail. The majority view is very similar to the common law approach. If
an assignment has been given for consideration it is deemed irrevocable. In
other words, it cannot legally be re-assigned to someone else. Therefore, in
multiple assignments preference will be given to the assignment where
consideration was given for the assignment.

Further Note: No notice is required to be given to the obligor to perfect
an assignment of the benefit. The only purpose for notification of the
assignment to the obligor is to direct the obligors payment, not to
perfect the assignment. Thus, the assignment is deemed perfected upon
due execution of an assignment deed.

If the obligor is notified of the assignment but still pays the assignor,
then the assignee may still demand full payment from the obligor.
However, if the obligor is not notified of the assignment and pays
the assignor, then the obligor does not have to pay again to the
assignee.

[Remember: - The obligor is the person who owes a duty of performance.
The obligee is the recipient of the obligors performance].

15

7. Assignments and Changing the Obligors Obligation.

Rule: At common law, assignments cannot be made where the assignment
could change the nature of the obligation between the parties.

Requirements Contracts: Under the Unified Commercial Code (UCC) an
assignment of a requirements contract is allowable. However, to be
enforceable the assignment must not result in an unreasonable or
substantial change in the obligations between the new parties than was
anticipated by the original parties to the contract.

Exoneration Contracts: An exoneration clause insures a named person as to
their liabilities and performance under the contract. If the contract were to
be assigned, the insurers risk would substantially change from that
originally foreseen by the parties. Thus, an exoneration clause would
prevent such a contract from being assignable. It would make no difference
if the named assignee were as equally qualified as the name insured under
the contract as the risk would be deemed substantially changed.

Prohibited Assignments: Any future rights to a contract not yet drafted
cannot be assigned. Also, any attempt to assign future wages (e.g. to avoid
spousal payments) that have been garnished will be prohibited.

8. Assignments: Intentions to Assign vs. Present Assignments

Rule: As we have already covered, for the most part all contractual rights
may be assigned. In fact, even where the contract specifically forbids
assignments, assignment as to benefit under the contract is still assignable.
Now we have to look at the language of the assignor.

The absolute key here is to look for words that would indicate the
assignors present or immediate assignment as opposed to a mere
intention to assign. This distinction although subtle is crucial to the
outcome. For an assignment to be effective the assignor must actually
assign the contract immediately to the assignee. If the assignor merely
says that he will assign the contract, but does not actually execute that
intention then there is no assignment.

16

9. Assignments and Garnishments

Rule: A garnishment is a court order that enables a creditor to recover
monies owed by attaching or laying claim to a particular source of income
currently being paid to the debtor. For example, garnishing the debtors
wages, salary or royalties.

However, if the debtor has already irrevocably assigned his right to that
income to another for consideration, (as opposed to just giving the
rights away), then any attempt to garnish it would fail.

10. Assignments and Leases: Liability of Assignor and Assignee

Rule: When an assignor assigns a lease he remains liable for the covenants
under the lease that run with the land for the duration of the lease. For
example, the covenant to pay rent, maintenance dues, etc.

Note: Even though the assignor has assigned the lease, he is still
deemed to be in privity with the landlord. Thus, if the assignee, having
taken over the lease, defaults on the covenants the landlord may
recover losses from the original assignor. The assignee is also liable.
Therefore, the assignor and assignee are jointly and severally liable on
all covenants running with the land for the remaining term of the lease.

The assignor is said to be liable in Privity of Contract.
The assignee is said to be liable under Privity of Estate.

17

11. Assignments and Liabilities of Landlord

Rule: The landlord is liable for all his obligations (covenants running with
the land) for the duration of the lease he signs with his tenants. If the
landlord sells the tenanted property to a new landlord he remains liable for
all the leases he signed with the then tenants. For example, general repairs
etc.

The landlord is liable for the leases he signed under Privity of Contract.

If the new landlord breaches any of the covenants that were assigned to
him by the old landlord, both the old and the new landlord are said to be
jointly and severally liable on these leases.

With regards to the new tenants signed on directly with the new
landlord, these new tenants would only have recourse against the new
landlord as there is both privity of estate and privity of contract
between the two parties.

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Third Party Beneficiaries (3PBs)

[The promissor (obligor) is the person who owes a duty of performance to
the Promisee.
The promiseeis the person who provides consideration to the Promissor in
return for the promise.
The beneficiary/donee (obligee) is the person who receives the benefit of
the Promissors performance.]

1. 3PB Introduction

Rule: A 3PB arises where the promisee contracts with a promissor that the
promissor will be required to fulfill his obligation to a third party instead of
the promisee.

EG: A contracts with B for B to paint As house for $1,000. As part
of the agreement, B requests that instead of A paying B, B wants A
to pay C, Bs daughter.

This is the typical 3PB scenario. We then need to explore the rights
and obligations of each party concerned.

2. Intended 3PB vs. Incidental 3PB

Rule: There is an important distinction here. Only an intended 3PB may
enforce the contract between the promisee and the promissor. An intended
3PB is the person whom both parties had intended to specifically benefit
under the contract. Thus, if the intended 3PB does not get what was
promised under the contract an intended 3PB will have standing to enforce
the contract.

Incidental 3PBs have no right to enforce a contract. The best way to
determine whether a person is an intended 3PB is to ask: -

1. Is the 3PB to receive performance directly from the promissor? If
not they are more likely to be an incidental 3PB.
2. Is the 3PB named or ascertainable as a beneficiary from the
agreement? If yes, then more likely to be an intended 3PB.

19
3. Identifying an Intended 3PB

Rule: There are three key ways to determine whether the 3PB is an
intended 3PB: -

1. Is the 3PB actually mentioned or identified in the contract?
2. Does the promissor have to render performance directly to the 3PB?
Because the promisor has been paid to do so.
3. Does the promisee and the 3PB have any kind of family or business
relationship that would indicate that the promisee intended to benefit
them?

Commentary: It is not necessary to know the exact identity of the 3PB at
the time the contract is made, only that the 3PB will be identifiable at the
time the performance by the promissor is due. Note also, that the promisor
must not be acting gratuitously for the promisee. There must be some
contractual relationship between the promisor and the promisee.

EG: Pay to my children as are alive at the time of my death. Note
here, the promissors obligation does not commence until the
promisees death.

4.

4.1.

The Rights of an Intended 3PB

Rule: An intended 3PB has contractual rights that they can enforce.

Donee 3PB: A donee 3PB may sue the promissor for non-performance, but
may not sue the promisee whose act is gratuitous. The donor, not the
promissor, must tell the donee 3PB directly of the gift and the donor should
have foreseen that the donee would and in fact did detrimentally rely on the
promise of the gift.

The donor may revoke the gift even if the donee had been told of the
gift provided the promissor had not already performed the contract or if
the donee had not detrimentally relied on the gift yet.

20
4.2. Creditor 3PB

A creditor 3PB may sue the promissor and or the promisee for non-
performance. The equitable remedy of specific performance is also
available too. Where the promisee enters into a contract with the promisor
to do business, the promisee can stipulate that part of the consideration be
paid (or rendered) to 3PB, e.g., the promisor must pay 10% of the amount
due to the intended 3PB. Alternatively, the promisor may be required to
perform some service to the 3PB.

Where this is found to be the case, the 3PB may sue the promisor if he fails
to perform the contract as agreed with the promisee. It is also true that if
the promisee breaches his obligations under the contract, this will relieve
the promissors obligation to perform that part of the contract that
conferred benefit to the 3PB. Put another way, if the 3PBs rights had
vested, then he could sue the promisor.

5. Creditor Intended 3PB vs. Donee 3PB

Rule: A significant distinction between a creditor intended 3PB and a
donee intended 3PB is the fact that the intended 3PBs options for
enforcement depend on his classification here.

1. If the 3PB is a creditor, then the creditor may sue the promisee or
the promissor to enforce the promise.

2. If the 3PB is a donee, then the donee may only sue the promisee and
then only if the donee learned of the gift directly from the promisee
and detrimentally relied on the promise.

3. If the 3PB is a potential contractor for a promisee and promissor
(P&P), in that the 3PB has been named in the contract under
negotiations by the P&P that has yet to be finalized. In this scenario,
neither P&P has directly informed the 3PB of their considerations.
Nevertheless the 3PB finds out and detrimentally relies on the
wording in the contract. The 3PB also incurs significant expenses
too. Ultimately, the P&P decide not to go ahead with the initial 3PB
mentioned in the draft contract. If that 3PB brings suit against P&P,
he will fail, because P&P did not directly communicate any
commitment to the 3PB.

21
6. Creditor Suing Promisee or Promissor: Vesting Rights

Rule: We now know that only a creditor 3PB has the dual option to sue the
promisee or promissor for enforcement of a contract. However, before the
creditor may commence his action we need to make sure that his rights
have vested.

There are several ways a creditor 3PB could establish that his rights have
vested.

1. Where the creditor 3PB agrees to the three-way arrangement.
Note: - even if the creditor were not initially aware of the
agreement, his rights would vest as soon as he became aware.

2. Where the creditor commences his action. This could start with a
simple invoice or letter to the P&P claiming the benefit under the
contract.

3. However, if the P&P agreed to change the 3PB in the contract
before the original 3PB became aware of it, then that original 3PBs
rights would not have vested.

4. If the 3PB rights have vested, then any subsequent change to the
contract as to a replacement 3PB would be void. The original 3PB
would prevail in any legal challenge.

5. Where the creditor detrimentally changed his position in reliance of
the contract as a result of learning of the contract from the promisee
himself.

7. Intended 3PB Rights and Obligations

Rule: We know that an intended 3PB has contractual rights in the contract
that they can enforce. However, the 3PB is limited up to those rights the
promisee would have. Thus, if the promisee only substantially performed
his part of the contract, the 3PB could only enforce up to the value of that
substantial performance, not the full concentrate value.

Note: In many scenarios the promisee is often referred to as an assignor
since he may have assigned the benefit he had in a contract, such as
royalties, to a creditor intended 3PB.

22
8. Defending a Claim Against a Vested 3PB.

Rule: Remember, once a 3PB's rights have vested, the original contracting
party may not modify the contract without the assent of the 3PB. However,
if the modification were due to a requirement of law or if the promissor had
a defense against the promisee as to non-performance, then the 3PB would
be equally subject to that legal defense. In other words, if the promissor
were claiming that the reason that he has not performed his obligation was
due to a breach by the promisee in the contract, then the 3PBs claim would
be subject to the promissors defense.

Another defense would be for the promissor to claim that the 3PB was not
a bona fide 3PB. This would have to be established by the promissor.


Rule: Although we have looked at the working of 3PBs, when these rules
are applied to insurance policies we need to be as clear as possible as to
how the relationships between the insured, the insurer and the ultimate 3PB
relate to each other.

The Insurance Policy:

Firstly we need to look at the policy itself. Here we are looking for the
following elements: -

1. The named 3PB
2. The power to change the 3PB stated in the policy
3. The power to assign the policy/ to use the policy as security

Where there is a power to change the 3PB reserved in the policy, the
insured can change the intended 3PB at will. This is providing the 3PB
(who is a donee 3PB) is unaware of the provision and has not already
detrimentally altered their position in reliance of the arrangement.

Where there is power to assign the policy (to use the policy as security
for a loan), in the event of the death of the insured and the loan not
being repaid, the policy proceeds will be used to clear the outstanding
loan first. This will be in preference to any other claim.

23
The Effect of the Insurer Re-insuring a Policy:

Insurers will often limit their exposure to risk by asking another insurer to
share the risk with them for a fee. This is known as re-insurance. This
creates a secondary 3PB relationship.

Here the original insurer becomes a promisee to the re-insurer, because
the re-insurer is now promising to pay out on behalf of the insurer to
the 3PB; the original insured. The insured is now a creditor 3PB as to
the insurer.

The insured is also in relationship with the insurer as promisee
promissor with a donee 3PB.

1
Contract Law
Ch-3: Statute of Frauds and Parol Evidence Rule

Topic: Statute of Frauds (S/F)

Page
1.1. Statute of Frauds: Introduction 2
1.2. Answering for the Debt of Another 2
2. Modifying Contracts 3
3. Statute of Frauds: Sale of Land and the Essential Terms That Must
be Included in the Writing.
3
4. Sale of Land and Description Requirements 3
5. Sale of Land and Parties Signing the Contract 4
6. Sale of Land and the Doctrine of Equal Dignities 4
7. Sale of Land and Specific Performance 4
8. Statute of Frauds & UCC: Sales of Goods 4
9. Statute of Frauds: Full Performance
(& Exceptions)
5
10. Privity of Statute of Frauds Contracts 6
11. Errors and Omissions in the Contract 6

Topic: Parol Evidence

Page
1. Parol Evidence Introductions 7
2. Oral Evidence to Explain- Not to Contradict Written Contract 7
3. Contemporaneous Oral or Prior Agreements 7
4. Parol Evidence and Latent Ambiguity 8
5. Parol Evidence: Complete and Partial Integration 9
6. Parol Evidence: Hindsight 9
7. Parol Evidence: Consideration 9
8. Parol Evidence: Plain Meaning Rule 10

2

1.1. Statute of Frauds: Introduction

Rule: Under the Statute of Frauds (S/F) certain contracts are deemed so
important in nature that unless the agreement has been reduced to a writing
/written form, the contract will be unenforceable.

Types of agreements that have to be in writing: -

1. A promise by the executors or administrators of an estate to cover
the estate debts out of their own pocket.

2. A promise to answer for the debts of another.

3. Promises made in consideration marriage.

4. Any agreement creating an interest in land. Creation of an interest
lasting more than one year i.e., an easement, or 2-year lease.
Employment contracts or any other contract that cannot by its terms
be completed in one year.

5. Any contract that cannot be completed in less than a year.

6. Under UCC, sale of goods of $500 or more.

Note: Contracts relating to the performance of services, i.e., electrical,
painting, building and entertaining are not subject to S/F rules.

3

1.2. Answering for the Debt of Another

Rule: We know that where the promise is to answer for the debt of another
this agreement must be in writing to satisfy the S/F. However, if the
beneficiary of the promise is the promisor then this will not need to be in
writing.

EG: A is an elderly man and needs B to take care of him by driving A
from place to place. B does not have a car so A stands as surety/
guarantor for B so that B can get the loan. A does not sign papers
confirming that he will stand as guarantor but nevertheless gives an oral
undertaking to the lender. If B defaults on the loan, A will not be able
defend the claim under the S/F since A was the principal beneficiary of the
promise. In other words, the beneficiary of the promise, A, was also the
promisor to the bank (promisee).

2. Statute of Frauds and Modifying Contracts

Rule: If a contract is within the S/F and has been reduced to a writing there
can be no effective modification of the contract, unless those modifications
were also reduced to a writing and signed by the party to be bound.

Note, that if the contract is not initially within the S/F, but is subsequently
modified, and the modification would bring the contract within the S/F,
then the modification would need to be in writing also.

The distinction here is, a contract can be valid because it meets the offer,
acceptance and consideration requirements, nevertheless the contract will
be unenforceable if the S/F requirements are not satisfied.

The S/F rules also apply to Merchant UCC Contracts. Therefore, although
merchant contracts do not require additional consideration where minor
modifications are concerned, if the contract touches on S/F issues the
contract and any subsequent modifications must be in writing to be
enforceable.

4

3. Statute of Frauds: Sale of Land and the Essential Terms That Must be
Included in the Writing.

Rule: Under the S/F, contracts for the sale of land must be in writing. For
other products the price may be left out provided there is a clear
mechanism for determining the price, (see below). However, the price of
the land cannot be left out of the writing to be decided later.

4. Sale of Land and Description Requirements

Rule: Under the S/F, the description of the land can be very simple, such as
the name of the property or a general description as to what and where the
land is located. In contrast, in the actual land sale document the description
must be very precise so as to avoid any ambiguity whatsoever. This is a
much higher standard.

5. Sale of Land and Parties Signing the Contract

Rule: If only the seller has signed the contract, only the seller will be bound
under the contract and vice versa. Therefore, only the parties who sign the
contract can be bound by it.

6. Sale of Land and Doctrine of Equal Dignities

Rule: Under the Doctrine of Equal Dignities any agent instructed to enter
into a sale of land contract must himself be appointed in writing to satisfy
the S/F. Failure to comply with this requirement will render the contract
unenforceable as against the party that has breached this rule.

7. Sale of Land and Specific Performance

Rule: Under the Doctrine of Specific Performance this equitable remedy is
available if the seller refuses to sell the property to a willing, able and
ready buyer under contract. However, if the buyer pulls out, the seller
cannot claim specific performance since damages are able to compensate
the seller for his loss of sale.

5
8. Statute of Frauds & UCC: Sales of Goods

Rule: Remember that under the S/F both parties need to sign any
contractual agreement to bind each of them. If only one party signs, then
under the S/F only the party that signed the agreement will be bound by its
terms.

In contrast, under UCC rules, a merchant party engaged in an
agreement for sale of goods for $500+may negotiate a modification to
the agreement that is only signed by the modifying party. Although
signed by only one of the parties the modification will bind both parties
as long as: -

1. The modification does not materially alter the contract.
2. The contract does not forbid alterations.
3. Any proposed modifications are not objected to within a
reasonable time (10 days).

Where the modification pertains to a quantity issue the
modified quantity must be stated in the contract.

9. Statute of Frauds & Full Performance
(& Exceptions)

Rule: We know that where a contract is required to be in writing failure to
do so will render the contract unenforceable.

Shipped, Received and Accepted:

However, under an exception to the S/F doctrine, if goods are shipped at
the request of the buyer and are received and accepted by the buyer that
contract is enforceable. Otherwise the buyer could argue S/F and not pay.

Special Order Goods:

Specially manufactured goods ordered by the buyer are not subject to S/F.
Thus, if the buyer cancels the specially ordered goods, he will be in breach
of contract even if the contract was oral. Provided the manufacturer had
begun substantial manufacture of the special order goods he could enforce
the contract. In either scenario whether the value of the goods exceeded
$500 is not relevant since S/F is waived.

6
10. Privity of S/F Contracts

Rule: The S/F as a defense or argument is only available to either of the
parties.

EG: A and B contract for B to build a driveway. Building of the
driveway came about as a result of an oral agreement creating an
easement between the land of A and C.

Subsequent to the agreement between A and B, A pays a deposit
to B in good faith. B now refuses to carry out the work arguing a
violation of the S/F between A and C. B claims that the
agreement violates the S/F as it creates an interest in land, which
must be evidenced in writing.

In this situation, B cannot argue as to the contractual
relationship between A and C as he is not in privity with
them. Therefore, even if the argument is true, it cannot
amount to a defense for any breach of contract B may
commit.

11. Statute of Frauds: Errors and Omissions in the Contract

Rule: These issues are often linked to a larger scenario covering other
related issues.

Example: An oral promise to pay Third Party Beneficiary (3PB) as
part of a land sale deal.

In this scenario A agrees to sell land to B. As part of the deal, A asks B
to make the payment to C. The agreement is reduced to writing as required
by the S/F. However, the agreement for B to make the payment to C
instead of A is omitted in error from the contract. Where do the parties
stand?

1. Firstly, we know that any agreement creating an interest in land
must be evidenced in writing to be enforceable to satisfy the S/F.
Because Cs interest is in the payment of money as opposed to
obtaining an interest in land, his rights as to enforcement is not,
prima facie, affected.

7

2. The oral promise to pay C should be regarded as a collateral
intended 3PB contract, since it falls outside S/F requirements.
Parol Evidence

1. Parol Evidence Introduction

Rule: Parol Evidence (PE) is the doctrine that seeks to allow into evidence
oral statements to an agreement that were not included in the written
contract. This situation will often arise where there is a dispute between the
parties as to what the complete terms of the agreement consisted of.
However, under PE, as to what information will be admissible is limited.

2. Oral Evidence to Explain Not to Contradict Written Contract

Rule: The whole purpose of PE is to admit evidence that could provide an
explanation as to the meaning of a written term within the contract.

This goes to the heart of the matter. For example, A and B enter into
a contractual agreement and omit to include a particular term or clause
into the contract. Unless the omitted clause would assist in explaining
the meaning of clauses in the contract then any oral statements omitted
are not admissible.

3. Contemporaneous Oral or Prior Agreements

Rule: Under PE, prior writings or contemporaneous oral statements,
agreements or contemporaneously made oral agreements may be admitted
for the sole purpose of explaining, (not contradicting), a term or clause in a
contract.

As to the meaning of contemporaneous oral statements, this would
include only oral statements execution of the contract. Once the
written contract was executed it became the sole controlling document
for court review. Remember, previously written agreements may be
admissible for the purpose of explaining ambiguous terms, but not to
contradict a term whose meaning is clear.

8
4. Parol Evidence and Latent Ambiguity

Rule: Ambiguity alone is not sufficient to trigger the admission of PE. In
fact, the awareness of the parties and their understanding as to the meaning
of the clause in question will determine whether or not a contract had been
formed at all. Thus: -

1. If neither party were aware of the ambiguity at the time the contract
was entered into then there would be no contract formation.
However if both parties understood the ambiguous clause in exactly
the same way there would be contract formation.

2. If both parties were aware of the ambiguity then once again,
providing both parties understood the ambiguity the same way and
thus had a meeting of minds, there is a contract.

3. If only one party was aware of the ambiguity then the contract will
be binding to the extent that the ignorant party reasonably
understood the ambiguous term.

Commentary: To recap where a merchant makes an offer as to the sale of
certain goods and there is an ambiguous term. If both sides argue its
interpretation in opposing ways the courts will find that there has been no
meeting of minds and therefore no contract formed. Remember, the courts
will not depart from giving a contract its literal interpretation unless there
are substantial grounds for showing that an alternate interpretation should
be given.

9
5. Parol Evidence and Complete and Partial Integration

Rule: We know that previously written agreements or contemporaneous
oral statements may be admissible to explain, not contradict, the terms of
the contract. PE can only be admitted on this basis.

Complete Integration: Where a contract is deemed to be the final draft it is
termed a complete integration of the negotiations. Once the agreement is
executed no PE may be admitted to vary the terms of the executed contract.

Partial Integration: It may be argued that the contract in dispute was not the
final draft of the contract. The argument here is that the contract is a partial
integration and thus contract negotiations were still on going.

Therefore, if one party can successfully argue that the agreement is not
a complete integration (final draft) then that party may avoid liability
under the contract. However, if both sides have signed the agreement
there will be a very strong presumption that the agreement was
understood by both parties to be the final agreement.

Scrivener Error: Where both sides fail to notice an error in the contract by
way of a mutual mistake in the integration the courts may grant relief to
amend the drafting error.

6. Parol Evidence and Hindsight

Rule: Any arrangements subsequent to the contract will not be admissible
under PE rules. The courts do not want to know what was in the minds of
either party with the benefit of hindsight. The courts only wants to know
what the parties agreed to and intended at the time the agreement was
executed.

7. Parol Evidence and Consideration

Rule: If there is an argument as to whether consideration was exchanged by
either party, evidence as to this issue can be admitted. This is because
consideration evidence will not vary the terms of the contract.
Consideration relates to the collateral issue as to whether a legal agreement
was formed.

10

8. Parol Evidence and Plain Meaning Rule

Rule: When reading the contract under dispute the court will give the
contract its plain literal meaning. There are occasions however, where
phrases are used that are unique to a particular trade or established over a
history of prior dealings between the parties. Where either party claims
this, the judge may depart from the plain meaning rule upon submission of
PE supporting this argument.

EG: Both A and B had always used the term 10 to mean 10 dozen
in their contracts. The literal meaning interpretation is 10. In the trade
or custom, 10 means 10 dozen. If either party can demonstrate that this
had been the case on prior dealings this evidence will be admitted.
Note that admission of this evidence will not vary the terms of the
contract only explain the meaning.

The court will need strong supporting evidence to depart from
giving the contract its plain literal interpretation. In other words, if
the contract is given its literal meaning this would create an
overwhelming anomaly.

EG: If the contract given its literal meaning a buyer would end up
paying 10 times the normal price of the product, i.e., if 10 were not
given its trade meaning as meaning 10 dozen.

1
Contract Law
Ch-4: Condition & Discharge

Topic: Conditions to Contracts

Page
1. Conditions Introduction 2
2. Conditions Precedent 2
3. Condition Precedent (Expanded) 3
4. Condition Precedent vs. Condition Subsequent 3
5. Constructive Condition Precedent 4
6. Condition Concurrent 4
7. Implied Conditions 4
8. Warranty: Satisfaction Guaranteed 4
9. Warranties: Warranty of Truthfulness 4
10. Insurance Clauses: Time of Payout Stipulated 5
11. Actionable Misrepresentation 5
12. Time of the Essence 6

Topic: Discharge From Contractual Obligations

1. Unilateral Mistake 7
2. Mutual Mistake 7
3. Mutual Mistake and Assumption of Risk 7
4. Mistake by an Intermediary (Mistake in the Transmission) 7
5. Mistake: Correcting Acknowledged Errors 8
6. Doctrine of Mistake Reviewed 8
7. An Accord 8
8. Satisfaction of the Accord 9
9. Accord and Satisfaction: Checks 9
10. Discharge for Material Breach 10
11. Destruction of Subject Matter 10
12. No Discharge Due to Appreciation of Risks 11
13. Discharge: Frustration of Purpose 11
14. Discharge: Impossibility & Impracticability 11
15. Discharge: Failure of Star Performer 12
16. Impossible Deadline and Schedules 12
17. Contracts With an Illegal Purpose 13
17.1. Contracts Made Illegal by Operation of Law 13
18. Contracts Involving Minors 14
19. Automobile Accidents and Offers to Pay Medical Expenses 15

2

Conditions To Contracts

1. Conditions Introduction

Rule: Conditions are the substantive or material elements of a contract. In
fact breach of a condition can result in the innocent party being discharged
from the contract altogether. In other words, a breach of a condition is
more than a slight under-performance of the contract.

Conditions can arise before the substantive contract becomes effective,
during the contract (concurrent), and after the contract (subsequent) has
been performed. Conditions can even be implied.

2. Condition Precedent

Rule: A condition precedent is a condition that must occur before the
substantive contract becomes effective, or an event that must occur before
an obligation to perform attaches.

EG1: A must complete all preliminary estimates in construction
before a set date, then the terms set out in the main construction
contract between A and B will become effective upon satisfactory
estimates.

EG2: A must deliver a product by a set date, then B will accept
goods and pay. If delivery is not made by that date, then B will be
under no duty to accept goods.

EG3: A and B agree that if the Patriarchs win the Super Bowl, A
and B will go into business together.

Where there is a condition precedent clearly established this must
be satisfied in full before any obligation to perform the substantive
contract attaches.

If the condition is not met then any renegotiation will
constitute a new contract. The terms of the new contract will
then be the only basis of the relationship. In other words the
new contract will be the controlling document.

3

3. Condition Precedent (Expanded)

Rule: A condition precedent is a condition that must be satisfied before the
obligations within the main contract become binding.

1. If the condition is not met or is impossible to meet despite due
diligence on the obligated party then both parties will be discharged
from the contract.

2. If the condition is reasonable, but still is not met by the obligated
party because of a lack of due diligence then the guilty party will be
in breach of contract for failure to fulfill the condition.

3. If the condition is for the benefit of the obligated party then that
party may choose to waive the condition and still hold the non-
obligated party to perform the substantive contract.

EG: A agrees under contract to buy Bs home. This agreement to
buy is conditioned upon A being able to obtain a mortgage of 8%
or less. If A is unable to obtain a mortgage at that rate, since the
benefit is for A he can still proceed to buy the property. The
condition is deemed waived. B cannot withdraw from the sale on
the grounds that A could not obtain the mortgage at the agreed rate.
The condition was only intended to benefit A, therefore, A has the
option to waive it. If A could not obtain a suitable mortgage then
A could decide that the condition be discharged from the contract
without being in breach.

4. Condition Precedent vs. Condition Subsequent

Rule: We know that a condition precedent is a duty that must occur first,
before any obligation on the other party arises. Until the condition
precedent is met, the other party is under no obligation or duty whatsoever.
In contrast, a condition subsequent acts to cut off an already existing
duty. For example, A contracts to buy widgets from B. The contract
is executed with the condition that, if A is not completely satisfied
within 30 days A can return the widgets and receive a full refund.
Here, the condition is subsequently applied after the purchase. If the
condition is activated, it will cut off As duty of performance which is
to pay for the widgets.
4

5. Constructive Condition Precedent

Rule: In addition to any express conditions in the contract the court may
also construct conditions into the contract so as to ensure both parties
receive the performance for which they had bargained.

6. Condition Concurrent

Rule: As the name suggests these are conditions that are capable of
occurring together and the parties are required to perform them at the same
time, concurrently, e.g. cash on delivery.

7. Implied Conditions

Rule: Implied conditions are conditions that could reasonably be implied
from the evidence of the intentions of both parties, in the absence of an
express condition written into the contract. For example, painter to buy
paint for the project and homeowner to pay for the paint.

8. Warranty: Satisfaction Guaranteed

Rule: When a contract guarantees personal satisfaction this will be deemed
to mean the personal satisfaction of the buyer. This is a subjective test.
Thus, as long as the buyer is not satisfied for any reason he may reject the
goods and return them without penalty, even if the buyers reason for a
rejection is irrational.

9. Warranties: Warranty of Truthfulness

Rule: Where an undertaking is given as to the truthfulness of a statement,
e.g., to the best of my knowledge or belief, the promissor is not ultimately
responsible. Thus, if the promissor is subsequently proved to be mistaken
this will not invalidate the contract or provide a cause of action against
him. The form of words to the best of my knowledge may not be
construed as a warranty or guarantee as to the accuracy of the statement. It
is merely an honest assertion.

5

10. Insurance Clauses: Time of Payout Stipulated

Rule: Insurance contracts have many types of clauses as to the timing of
payments. Where there is a clause as to the timing of a payout to a minor,
the court will interpret the meaning of the clause so as to avoid forfeiture if
the child does not reach the triggering age. Thus, if the child dies or is in
need prior to the scheduled triggering date the court will seek to benefit the
child.

Therefore, look at the motivation behind the clause. For example,
where a child is scheduled to receive a payout at 21, the motivation
would be to avoid the child receiving the money at too young an age.
However, if the child was in great need or died, the court could relax
the condition so as to benefit the child or childs next of kin to meet
associated expenses.

11.

Actionable Misrepresentation

Rule: In order to ground the tort of misrepresentation we need to ensure
that each element of the tort has been satisfied: -

1. An actual misrepresentation by D to P.
2. D to have made the statement with scienter (knowingly or with
reckless disregard as to the truth or falsity for the truth).
3. D made the statement with the intention to induce P to rely on Ds
statement. Note: Typically, D will be a sales type of person with
some financial interest in the outcome. However, even a
disinterested (no financial interest) D may be liable.
4. Ds misrepresentation caused / induced Ps to act accordingly.
5. It was reasonable for P to rely on the statement.
6. P suffered damages as a result.

6

1.2. Time of the Essence

Rule: The phrase time is of the essence means any delay beyond the
agreed delivery date will be deemed a material breach of contract and will
discharge the innocent party from further performance. However, time is
of the essence clauses should be clearly marked on the contract unless it is
patently clear that any delay beyond the agreed delivery date would be a
major material of contract, e.g., delivery of the wedding dress the day after
the wedding.

Where delivery is not a time is of the essence issue then a small delay
past the due date for delivery will be regarded as a minor breach of the
contract. Here, the innocent party will be able to deduct a small amount
if any harm or damage is suffered as a result of the delay.

7

Topic: Discharge from Contractual Obligations

1. Unilateral Mistake

Rule: Where only one party entering the contract is mistaken about a term
of the agreement, this unilateral mistake will not prevent the formation of a
binding contract. However, rescission is still available if the rescinding
party can establish legal grounds. For example that both parties were
mistaken as to a material term in the contract.

2. Mutual Mistake

Rule: Where both parties entering the contract are mistaken as to a
material term in the contract this will prevent the formation of a contract
altogether, since there was no meeting of minds.

3. Mutual Mistake and Assumption of Risk

Rule: When both parties entering into a contract are mistaken about facts
relating to the agreement, the contract may be voidable by the adversely
affected party if: -

1. The mistake related to a basic assumption on which the contract was
made.
2. The mistake has a material effect on the agreed-upon exchange.
3. The party seeking avoidance did not assume the risk of the mistake.

Commentary: Assuming the risk: If the party seeking to void the contract
was primarily responsible for the mistake, then the guilty party will most
likely not be granted relief.

4. Mistake by an Intermediary (Mistake in the Transmission)

Rule: Where there is a mistake by an intermediary in the transmission, by
way of fax or letter etc, the communication will be binding unless the other
party should have known that the communication as received was an error.
In other words, that the error was patent.

8
5. Mistake: Correcting Acknowledged Errors

Rule: Where both parties become aware of an error in the contract they can
agree to correct the error in the agreement orally or in writing. How the
error is corrected will depend on Statute of Frauds requirements. Should
there be a subsequent dispute over the original contract, evidence of the
subsequent agreement will be admissible. This does not violate the Parol
Evidence rule. Remember, under Parol Evidence, subsequent
arrangements or understandings cannot be used to explain ambiguous terms
of the original contract. However, in this case the evidence is would be
used to demonstrate the existence of a subsequent contract altogether.

6. Doctrine of Mistake Reviewed

Rule: Where only one party entering the contract is mistaken about a term,
this is unilateral mistake. As outlined above, a unilateral mistake will not
prevent formation of the contract.

If the non-mistaken party knows or had reason to know of the mistake
made, he is not permitted to take advantage of the error in the offer. In
other words, if the error is such that the offeree should have known and
relies on the defective offer anyway, (in order to take advantage of the
mistake), then the guilty party may be discharged from the contract.
In this situation the guilty party is said to have been put on notice of
the mistake and cannot take advantage of a patent error.

Discharge by Way of an Accord and Satisfaction

7. An Accord

Rule: Where there are two parties in genuine disagreement as to whether
complete performance has been made, both sides may enter into a
compromise agreement to resolve the matter. This new agreement is called
an accord. The accord must be supported by consideration on both sides.
For example, one party might forbear something whilst the other side
accepts less money as a compromise.

If either party breaches the accord by not performing their part of the
new bargain, the innocent party may sue under the original contract or
under the accord.

9
A creditor may attempt to breach an accord by refusing payment
under the accord and demand the original amount owed. Here, the
debtor can demand specific performance, in that the creditor accepts
the payment under the accord. Alternatively, the debtor could wait
until the creditor files suit then he could raise the existence of the
accord as a defense.

8. Satisfaction of the Accord

Rule: Where the accord has been fully performed by both parties, this will
completely discharge the parties from the original contractual obligations.
Thus, if the accord was a compromise as to the amount owed, once the
compromised amount has been paid, the creditor may not pursue the debtor
for any amount. The original amount is deemed cleared under the discharge
of the accord agreement.

9. Accord and Satisfaction: Checks

A common example of an accord and satisfaction arises where A and B
have a genuine dispute as to the amount owed. A drafts a check for a
lesser amount as a proposal for settlement and presents it to B. Written on
the check are the words payment in full. There may also be a reference
on the check to some oral or written agreement detailing the accord. If B
cashes the check this will be deemed an acceptance of the accord. The
actual cashing of the check will discharge or satisfy the accord. From that
point B will not be able to pursue A under the original agreement prior to
the accord.

If the check marked payment in full also refers to a letter with
conditions, then cashing the check will imply these written conditions
have also been accepted.

10
10. Discharge for Material Breach

Rule: Where there is a material breach of contract the injured party will be
able to discharge themselves from further obligations under the contract
and bring an action for breach of contract.

11. Destruction of Subject Matter

Rule: Generally, where the contract is between non-merchants and the
subject matter is destroyed through no fault of either party both sides will
be discharged of their obligations under the contract. Note, the contract
itself is not terminated by operation of law; merely the obligation to
perform under the contract is discharged. Remember, when dealing with
the issue of discharge were not saying that the contract formed was not
valid, only that the obligation to perform under the contract has been
discharged.

Builders Exception: A builder contracted to construct a building for
his client is not discharged from that duty if the building is destroyed
prior to delivery. The builder must rebuild or refund clients money. In
fact unless builder rebuilds the property at his own expense the builder
will be deemed in breach of contract and may be sued accordingly.
The only defense for the builder would be to argue that the buyer had
expressly assumed the risk.

Commentary as to Risk of Loss

1. For sale of goods by a non-merchant, risk of loss does not pass to
buyer until the goods are actually received.

2. For sale of goods by a merchant this will follow U.C.C. Here, the
risk of loss passes when the contract is made. Sometimes the seller
will state F.O.B. terms.

Thus, if a merchant selects out goods specifically for a buyer but before
goods are shipped or collected they are destroyed through no fault of
the either party then both parties are discharged. The U.C.C. does not
follow the Doctrine of Equitable Conversion. If this were the case then
the buyer would be liable to pay the merchant for the destroyed goods.

11
12. No Discharge Due to Appreciation of Risks

Rule: Where both parties enter into a contract aware that the risks involved
under the contract could result in either side losing or gaining substantially,
the court will not interfere. Thus, neither party will be able to seek
contractual discharge unless enforcement of the contract would result in
substantial loss.

13. Discharge: Frustration of Purpose

Rule: If the purpose of the contract has been frustrated, most courts will
discharge the contractual duties to perform, even though performance was
possible.

Frustration arises where both parties appreciate the purpose of the
contract at the time the contract was made, but subsequently that
purpose was destroyed by an unforeseeable supervening act or event.
For example, an open-air concert planned in J anuary for August is
frustrated due to a freak snowstorm in August. The concert facility is
destroyed.

14. Discharge: Impossibility & Impracticability

Rule: A contractual duty to perform may be discharged by what is called
objective impossibility. This means that no one under any circumstances
could have performed that contractual obligation. Where objective
impossibility is demonstrated the party unable to perform may be
discharged. In contrast, there is subjective impossibility. This means that
the party was unable to perform due to difficulties experienced by them
alone. In other words another person / company could have performed the
contract.

Example: A contracts to take B to the airport. The day before the trip
As car is stolen. This is not objective impossibility. This is because As
ability to fulfill his obligation was not impossible, as another carrier could
make the same trip. However, if As duty was to take B to the airport and
there was a severe blizzard blocking all routes to the airport, then this
would amount to objective impossibility since no other carrier could make
the same trip at that time either. In this latter case, A would be discharged
without penalty from his obligation to perform the contract.

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Discharge: Impracticability:

A party may claim discharge on grounds of impracticability where the
party has encountered extreme and unforeseeable difficulties. These
difficulties would need to be at the point where it would be unreasonable to
hold this party to their performance of the contract.

15. Discharge: Failure of Star Performer

Rule: If the contract is one for the personal services of a star performer and
the performer is injured or is too ill to perform, then both parties will be
discharged.

16. Impossible Deadlines and Schedules

Rule: An unavoidable delay will not be actionable where a supervening
event outside of the control of both parties occurs. So much so that the
delay of the work makes it impossible for timely completion stipulated in
the contract.

If the work had not yet started and there was a supervening event that
delayed the commencement of the work to the point where it would be
impossible to meet the deadline, the obligated party would also be
discharged from the contract without penalty.

13

17.1. Contracts with an Illegal Purpose

Rule: If either the consideration or the subject matter of a contract is illegal
the contract will be unenforceable.

However, if the contract was formed for an illegal purpose, but neither the
consideration nor subject matter is illegal then the contract may be
enforceable. The contract would be enforceable at the option of the party
not directly involved in the illegality.

EG: Landlord rents an apartment, but the tenant wishes to use the
apartment for an illegal purpose. Here, the letting of the apartment is not
illegal only the use of the apartment for unlawful activity is.

17.2. Contracts Made Illegal by Operation of Law

Rule: Sometimes during the contract formation process laws may change
that could render an otherwise legal contract illegal by operation of law.

1. Before offer made: If new law came into force before an offer was
made then any offer made was not being considered valid in the first
place.

2. After offer made: If the new law came into force after the offer was
made then it would have the effect of revoking the offer made.

3. After contract formed: If the new law came into force after the
contract was formed (offer and acceptance) then it would have the
effect of discharging the parties on the grounds of impossibility.

14

18. Contracts Involving Minors

Rule: Minors generally lack the capacity to enter into and be bound by a
contract. Any contract entered into as a minor is voidable. This means that
the minor, in order to avoid liability under the contract, must disaffirm his
obligations under the contract. The minor must communicate his intention
to hold himself discharged from the contract. Silence is insufficient. At all
times the contract will be binding upon the adult party to the contract.

Where the contract involves necessities such as medical treatment,
shelter, foods and furniture, the minor may not disaffirm their
obligation under the contract. The contract is binding.

Once a minor becomes an adult he may still disaffirm the contract
entered into as a minor. If he renegotiates the contract as an adult it
becomes binding.

A minor can enter into an insurance policy agreement. Once
entered into, the policy cannot subsequently be voidable by the
infant and both parties are thereby bound by its terms.

15

19. Automobile Accidents and Offers to Pay Medical Expenses

Rule: Where there has been an offer to pay the medical expenses of an
injured party we need to look to see if the offer was made conditionally,
i.e., in exchange for not filing charges. Where this type of conditional offer
is made this would be deemed bargained for exchange and as such would
be enforceable.

Where the offer is made with no conditions or obligations attached this
is said to be a gratuitous offer and as such is revocable at any time.
Unless, since the offer was made, the injured party had detrimentally
relied on the promise by incurring medical expenses.

Where the promise of paying the medical fees is made directly to
the treating physician, the paying person will be the promisee, the
doctor will be the promissor and the patient will be the intended
3PB. In this relationship the 3PB does not have to satisfy any
consideration requirements.

1
Contract Law
Ch-5: Remedies

Topic:

Page
1. Anticipatory Repudiation (AR) 3
2. AR and Prospective Inability to Perform 4
3.1. AR and Equivocal Repudiation 4
3.2. Selling to Buyers Who May be Insolvent 4
4.1. Specific Performance 5
4.2. Specific Performance and Personal Services 5
5. Liquidated Damages 6
6. Waiving Rights Under a Contract 6
7. Entire Contracts 6
8. Divisible Contracts 7
9.1. Option Contracts 8
9.2. Options: Buyers Changes His Mind and Advises Seller 8
9.3. Expired Options 9
9.4. Options and Bids (Tenders) 9
9.5. Options and Specific Performance 10
9.5. Options and Consideration 10
9.7. Options and Revocation 10
10. Doctrine of Release 11
11. Time of the Essence: Late Performance Under a Contract 11
12. Calculating Damages for Cancelled Orders or Rejecting Non-
Conforming Goods
11
13. Non-Conforming Goods and Damages 12
14. Revocation of Acceptance: Rejecting Goods After Acceptances 13
15. How Does the Seller Know Whether the Goods Have Been
Accepted?
13
16. Goods Stolen or Damaged in Transit 13
17. Breach of Building Contracts 14
18. Rejecting Non-Confirming Goods 14
19. Seller Refuses to Accept Rejected Goods and Will Not Refund
Monies
15
20. Right of Inspection of Shipped Goods 15

2

21. Shipping Non-Conforming Goods With Advance Notice to the
Buyer
16
22. Late Delivery of Goods 16
23. Risk of Loss: Free On Board: FOB [Location] 16
24. Risk of Loss and Shipping Defective or Non-Conforming Goods 16
25. Punitive Damages 17

3

1. Anticipatory Repudiation (AR)

Rule: AR occurs where one party (the repudiator), prior to the time set for
performance of his promise, indicates unequivocally that he will absolutely
not be able to perform the contract. In contrast, if one party said that they
would be starting the contract but that there would be a delay, then this is
clearly not a repudiation of the contract.

Where there is a repudiation the remedy for breach of contract will depend
on the following circumstances: -

1. If the innocent party has done their part under the contract and the
guilty party has now refused to do their part, the innocent party will
have to wait until the deadline for performance has past. This is to
give the guilty party the opportunity to change their mind within the
deadline agreed.

2. If neither party has completed their performance (i.e., executory)
then: -

i. The non-repudiator can take immediate action as to the
breach. The non-repudiator is not required to wait until
the deadline set for performance. The non-repudiator can
also suspend his performance under the contract.

ii. The non-repudiator has the option to wait until the
deadline.

iii. The non-repudiator can urge performance of the contract,
while at the same time seek other offers in order to
mitigate losses. This is because there is no guarantee that
the non-repudiator will be successful in persuading the
repudiator to resume performance.

4
2. AR and Prospective Inability to Perform

Rule: Here, we are dealing with the situation where there has been no
outright repudiation, but one party is nevertheless concerned that the other
party will not perform their part of the contract. In this case, the
concerned party may demand assurances of performance. If the potentially
guilty party does not address these concerns, the innocent party may treat
the contract as being repudiated and cease further performance.

3.1. AR and Equivocal Repudiation

Rule: Repudiation must be completely unequivocal. Therefore, any
attempt to re-negotiate a contract for more money should not be regarded
as a repudiation of the contract. If the contract is treated as repudiated due
to a request to re-negotiate, the re-negotiating party can sue for breach of
contract if the re-negotiator did not unequivocally walk off the job or
expressly refuse further performance.

3.2. Selling to Buyers Who May be Insolvent

Rule: Where a seller subsequently discovers that his buyer may be
insolvent his options and obligations are as follows: -

1. U.C.C. provides that the seller may demand that the buyer pay cash
immediately even if the payment date is not yet due.

2. U.C.C. provides that the seller may demand full payment of any
outstanding previous orders under the same contract. For example,
a recurring order contract. Payment can be demanded in cash before
the seller will be obliged to ship any further orders.

3. U.C.C. provides that the seller may demand the return of any goods
shipped up to 10 days after the buyer has received them if the goods
were sold on credit.

4. U.C.C. provides that where the seller is able to recover goods
previously shipped on credit this will release the buyer from any
further obligations.

5
4.1 Specific Performance

Rule: Specific performance is granted where: -

1. There is a valid contract in place.
2. Legal remedy (money damages) is inadequate.
3. Enforcement is still feasible. If the item under contention has been
sold in error or in good faith, enforcement under specific
performance is no longer feasible.
4. Mutuality is still present.

In essence, the courts are reluctant to award the equitable remedy of
specific performance where money damages will suffice. However
there are circumstances where money damages will not be deemed
sufficient as a remedy: -

1. Sale of land. Land is considered unique.
2. Goods that are considered rare, unique, works of art, pedigree or
specially bred animals.

4.2. Specific Performance and Personal Services

Rule: With regards to personal service contracts, the court will not order
specific performance. However, where such a contract is broken money
damages will be awarded and, if appropriate, the breaching party can be
prohibited for working for a rival company or in the same field.

Sports Player and Sport Club
Artist and Record Company
Actor and Film Studio
Designer and Architects etc.

In each case, while the company cannot force the artist to perform, they can
obtain an injunction preventing the artist from working for another label.
Thus, the company can obtain money damages and an injunction if
appropriate. However, where failure to perform is due to ill-health damages
will not be available. This is because the performer will be able to raise the
defense of impossibility. This defense will only be available as long as the
illness persists.

6

5. Liquidated Damages

Rule: Liquidated damage clauses are enforceable only if the damages were
difficult to estimate at the time the contract was formed. The amount
agreed upon must be reasonable and must be based as closely as possible
on the potential losses the innocent party could suffer in the event of a
delay. Thus, the damages must not be punitive.

If the liquidated damages clause is struck down, the innocent party may
still seek to recover any actual losses suffered as a result of the breach.

6. Waiving Rights Under a Contract

Rule: Rights under a contract must be waived knowingly. In other words
they cannot be waived in ignorance. Unless the party concerned has
expressly waived a right under the contract, the right will be preserved.

7. Entire Contracts

Rule: Many contracts can be described as either entire contracts or
divisible contracts. A divisible contract is one that can be split into equal
units. (See point 8 below). Entire contracts cannot be divided and can only
be treated as a whole. With entire contracts any substantial breach would
be treated as a breach of the whole contract.

EG1: A contracts with B to buy an automobile with delivery by May
1
st
. This would be regarded as an entire contract. There is no way to
divide performance of the contract. Thus, failure to deliver the
automobile would a complete breach of contract.

EG2: A contracts with B to buy 1000 boxes of widgets with by
delivery by May 1
st
. This too is an entire contract. Here, although the
widgets could be divided into individual units, there is no indication
that there was any agreement by the parties that delivery would be
acceptable in a phased or staged way.

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Where there is no agreed plan by the parties to receive delivery of
performance in a staged way the contract will be deemed an entire
contract. In the event of a subsequent partial delivery, the partial-
performing party will be deemed in breach. The issue will then be about
whether the breach was a material breach or a minor breach.

8. Divisible Contracts

Rule: A divisible contract arises where it is agreed from the inception of
the contract that performance is to be completed in phases. In fact, even if
it was not intended by both parties that the contract was to be treated as a
divisible contract it may still be construed as such where each of the phases
of performance are identical in performance.

Where the contract phases of performance are not identical the contract
may not be deemed or construed as a divisible contract.

EG 1: A contracts with B for B to paint 20 identical apartments for
$20,000 in total. If B painted 15 apartments and quits, B would be
entitled to $15,000 if a divisible contract were found.

EG 2: If A agrees to pay B, for B to build As house and further agrees
that payment is to phased as follows: -

Foundation 30,000
Walls and Roof 30,000
All Interior Trim 30,000

If B quits after the foundation, walls and roof, this would not be regarded
as a divisible contract that would allow B to claim $60,000 representing
completion of 1
st
two phases. This is because each phase is not identical
in performance. Instead, A could sue B for the costs of completing the
building. B would be entitled to the actual value of the work done, less
damages claimed by A.

8

9.1. Option Contracts

Rule: Option contracts arise when a buyer wishes to have the seller keep an
offer open exclusively for the benefit of the buyer. During the option
period the buyer can take his time to decide whether or not to take
advantage of the offer. In order to secure an enforceable option the buyer
must pay some consideration to the seller for the option. Without this
consideration the offer becomes unenforceable and the seller may change
his mind and sell to another even if a promise had been given to the
original buyer to keep the offer open.

9.2. Options: Buyer Changes His Mind and Advises Seller

Rule: Here, the buyer has paid for an offer to remain open for a set period
of time. If the buyer tells the seller within the option period that he no
longer wishes to purchase the item the option must still remain open. This
is because the buyer could change his mind and he has paid for this right
within the time period of the option. Even if the buyer makes a counter
offer which is rejected, this will not affect the option contract. Again, the
offer must remain open for the duration of the option period. When the
buyer chooses to exercise his option within the option period the
substantive contract for the underlying offer is formed.

However, if the buyer communicates that he no longer wishes to
exercise his option and the seller detrimentally relies on that instruction
and sells the product, then the buyers power to exercise the option
would be lost and the seller would not be in breach of contract.
Therefore, providing the product had not yet been sold then the buyer
could still exercise his option. Any refusal by the seller to complete the
transaction would be deemed a breach of contract.

9

9.3. Options: Expired

Rule: If during the currency of the option the option is not exercised the
option will lapse. The option contract would have been fully performed.
Even though the promisee may not have taken up the option, the benefit to
the promisee was to at least have the choice.

If the promissor sells or disposes of the goods or services prior to the
expiry of the option, the promissor will be in breach of contract.

Some options have an up to X days period. This means that the option
can be held open from one day up to the X number of the days specified.
The up to period is taken to mean that the offeror can perform the task
under the option within the maximum number of days. For example, a
landlord might require a maximum of 15 days to check an applicants
credit and references. This task could be done in day 1, even though there
may be a 15-day option.

9.4. Options and Bids (Tenders)

Rule: Where offers are made as bids (tenders), they become binding on the
promissor (offeror). This is because the offeror is deemed to know that by
submitting the tender the recipient (offeree) is likely to detrimentally rely
on the bid. The offeree, having made his decision to accept the tender, must
have the confidence that the bid will be honored.

In other words, the offeree has an options contract. The offeree, upon
acceptance of the bid, picks up the option.

Once the bid is submitted by the offeror it is irrevocable and is
binding upon receipt by the offeree. The only way out is for the
offeree to waive the tender voluntarily. This is not a release, but
what is called making a gift of the offer back to the offeror.
Otherwise the offeror will have to wait to see if his option is
picked up or not.

10
9.5 Options and Specific Performance

Rule: Where the option relates to land, providing the option agreement has
been drafted in writing and consideration paid, a breach by either party will
enable the innocent party to claim specific performance, even if money
damages would suffice.

9.6. Options and Consideration

Rule: All option contracts must be supported by consideration in order to
be enforceable. The consideration agreed need not be recited in the option
agreement. The Parol Evidence rule will allow the evidence of
consideration since any discussion as to the issue of consideration will not
contradict or modify the terms of the contract.

9.7. Options and Revocation

Rule: Once an option contract has been entered into with due consideration
it becomes irrevocable for the duration of the option. However, the parties
may agree to include in the agreement that the person granting the option
may revoke the option at any time.

This appears to be a contradiction in the whole purpose of the option,
nevertheless the parties are free to so agree. However such an
agreement will be subject to collateral attack on the grounds that a
power to allow revocation at any time renders the contract illusory, as
one party is under no obligation to perform. All enforceable contracts
must place both parties under some mutual obligation of performance.

11

10. Doctrine of Release

Rule: A party may be deemed released from his obligations under the
contract: -

1. Where there has been a signed writing releasing the obligor the
party whose obligation has attached requires a release. Thus, in a
unilateral contract only the offeror would require a release.

2. An offeree having accepted an offer would need a release from the
offeror. If the offeree subsequently changed his mind about wanting
to perform his obligations under the contract. This would be
required where the offeror had detrimentally relied on the
acceptance of the offer.

11. Time of the Essence: Late Performance Under a Contract

Rule: Unless the nature of the contract is such as to make performance on
the exact day agreed upon vitally important or the contract stipulates that
time is of the essence, late performance will not, de facto, be regarded as
a material breach of contract.

Remember, where there is a material breach the innocent party can be
discharged from their obligation under the contract. Where there has
been a minor breach the innocent party may not be discharged from
their obligations under the contract but will be able to claim damages
sufficient to be compensated for the delayed performance.

12. Calculating Damages For Cancelled Orders or Rejecting Non-
Conforming Goods

Rule: When calculating the damages a seller or buyer may claim under
various formulae that can be used to calculate the loss.

If the buyer has been let down by the seller, the buyer will be looking to
recover the additional costs incurred, if any, from buying the goods
elsewhere. Often, in seeking to find an alternative supplier the goods are
invariably more expensive. The buyer will also be able to recover any
monies paid, deposit or full refund if no goods have been received.

12
If the seller has been let down by the buyer, the seller will be looking to
recover his loss of profit from that sale. This is recoverable even if the
seller quickly finds a new buyer. Since that seller would have found that
buyer anyway and thus would have made two sales instead of one.
Therefore, the seller may still recover his loss of profit.

Contract Price - Less - Market Price
Market price being determined as to what the goods could have been sold
for at the time the contract was made.

Contract Price - Less - Resale Price
Resale price being determined as to what the goods were actually sold for.

Contract Price - Less - Wholesale Price
This equals a sellers loss of profit if buyer cancels out on the contract.

Plus: Any other closely related and foreseeable costs incidental to the sale
foreseeable by the buyer, e.g., shipping and handling.

Plus: Any monies paid, deposit or full payment.

13. Non-Conforming Goods and Damages

Rule: When a buyer rightfully rejects non-confirming goods, he has several
options: -

1. A refund of any monies paid.

2. The cost, in damages, of buying replacements if more expensive else
where. (The contract price less the market price).

3. Reject the goods, cancel the contract and sue for damages.

4. Accept any conforming goods, reject the non-conforming goods and
sue for damages.

13
14. Revocation of Acceptance; Rejecting Goods After Acceptance

Rule: A buyer may accept goods believing them to be satisfactory upon a
cursory inspection. However he may subsequently discover that the
product under performs or has some latent defect that was not discoverable
at the time. In this case the buyer may revoke his initial acceptance. He
can then notify the seller and obtain a replacement and any damages
incidental to the breach of contract. If the seller refuses then the buyer has
the usual remedies as follows: -

1. A refund of any monies paid.

2. The cost, in damages, of buying replacements if more expensive else
where. (The contract price less the market price).

3. Reject the goods, cancel the contract and sue for damages.

4. Accept any conforming goods, reject the non-conforming goods and
sue for damages. If the goods accepted are of lesser value, then the
buyer may sue for the difference.

15. How Does the Seller Know Whether the Goods Have Been Accepted?

Rule: Acceptance occurs when the buyer: -

1. Indicates that the goods are acceptable after allowing for a
reasonable period for inspection.
2. Fails to reject the goods within a proper time
3. Does any act that is inconsistent with the sellers ownership.

16. Goods Stolen or Damaged in Transit

Rule: Under the UCC, when the contract is silent as to when the risk of loss
passes from seller to buyer, the risk of loss is deemed to have transferred
from seller to buyer when seller has placed the goods with a common
carrier. Thus, any loss or damage after that point will rest with buyer.

However, if the goods shipped are non-conforming or are so defective
that the buyer would have been unlikely to accept them anyway, then
the risk of loss will stay with the seller until the buyer accepts or rejects
the shipment.

14
17. Breach of Building Contracts

Rule: A (owner) and B (builder) enter into a contract for B to build or
remodel As property. A breaches the contract by refusing further
performance (non-payment). If B had started but not completed the
construction, B would be entitled to recover any profit as damages that he
would have made from the contract if he had been able to complete it plus
all of his costs.

EG: Builder contracts to build house for $100,000. Builder estimates
his profit as being $10,000. Costs are estimated at $90,000. Having
spent $50,000 in costs, Owner repudiates contract. Here Builder would
be able to recover $50,000 in costs plus $10,000, loss of estimated
profit.

18. Rejecting Non-Confirming Goods

Rule: Non-conforming goods are goods that are shipped to a buyer and the
goods shipped are not exactly what the buyer ordered. A buyer who
received such goods generally has the right to: -

1. Accept all
2. Reject all and cancel the contract
3. Accept any commercial units that are conforming and reject the rest

To properly reject non-conforming goods the buyer must do so
within a reasonable time after delivery. The buyer has a duty to
notify the seller promptly that the goods have been rejected. This is
because if the goods were shipped according to a deadline, the
seller, upon prompt notification, could cure the defect by
immediately shipping conforming goods.

Also, if the buyer intends to keep the non-conforming goods, but
pay a discounted price, the buyer must notify the seller of this
intention. Merely sending a discounted payment will not suffice
since the seller would rightly expect the balance to be paid in due
course.

15
19. Seller Refuses to Accept Rejected Goods and Will Not Refund Monies

Rule: Where the buyer has paid for goods which turn out to be non-
confirming and the seller refuses to accept the return of goods and refuses
to refund monies paid: -

1. The buyer may sell the goods and credit the proceeds to the amount
owed by the seller.
2. The buyer may sell the goods at a public sale without reference to
seller.
3. The buyer may sell the goods at a private sale, however the seller
must be notified.

20. Right of Inspection of Shipped Goods

Rule: Under UCC rules the buyer is allowed a reasonable time to inspect
the goods received before deciding whether to accept or reject them.

If the goods appear to be non-conforming, the buyer may take a
reasonable time (days) to inspect and test to see if the non-conforming
goods perform in a satisfactory manner. If these goods, during the
inspection and testing, fail to satisfy the buyers requirements then the
buyer may reject the goods and bring suit against the seller for breach
of contract.

However, if the buyer retains the goods longer than is reasonably
necessary the buyer is deemed to have accepted the goods and loses
his right of rejection.

Furthermore, if the buyer, seeing that the non-confirming goods
are not satisfactory, goes on to carry out further tests on a sample
of the products, any expense incurred will not be recoverable in
any breach action. Indeed the buyer would have been deemed to
have accepted any non-confirming goods unduly tested.

16
21. Shipping Non-Conforming Goods With Advance Notice to the Buyer

Rule: If the seller receives an order for a specific product, but only has a
similar product available, he may ship the non-conforming product to the
buyer without being in breach of contract providing the seller first notifies
the buyer of this intention. This is called an accommodation. If the seller
fails to do this and sends non-conforming goods anyway, a valid contract
would have been created, but the seller would be considered in breach of
his contract obligations for sending non-conforming products.

22. Late Delivery of Goods

Rule: As with non-conforming goods, if goods were to be delivered
according to an agreed deadline, the buyer has the same options as if the
goods were non-conforming. However, once the goods have been
received and are accepted then the buyer is bound on the contract according
to the terms therein. The buyer is deemed to have waived the late delivery.

23. Risk of Loss: Free On Board: FOB [Location]

Rule: The FOB is a shipping term that the seller declares in his sale and
shipping documentation. The FOB is typically followed with the seller or
buyers address. For example, FOB [Boston] being the buyers address.
Meaning that the seller remains liable for any damage that may occur to the
shipment until the buyer takes delivery of it. If the shipment is FOB
[California], the sellers address, then the sellers liability ends as soon as
the goods are transferred to the common carrier.

24. Risk of Loss and Shipping Defective or Non-Conforming Goods

Rule: If goods are shipped that are so defective that the buyer would have
every right to reject them, the risk of loss will not pass when the goods are
dispatched to common carrier. Instead, the risk of loss would stay with the
seller until the buyer receives the conforming goods. Thus if they were
stolen or damaged further in transit then the buyer would bear no risk at all.

17

25.

Punitive Damages

Rule: Punitive damages are available but only if the court determines that
Ds conduct was fraudulent or based on an intentional breach of a fiduciary
duty.

In the law of Torts, to ground punitive damages the P is required to show
that Ds conduct was reckless, malicious, willful or wanton. Therefore it is
very important to apply the right common law standard to the question
being tested.

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