* Contracts * 

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1. ** Two Applicable Law in Contracts

   1. Common Law 

      1. Definition: The system of law which is based on the decisions of the judge and on custom rather than on written laws (i.e., the law is generally used in land sales, service, employment, etc.) 

      2. The Article 2 of the Uniform Commercial Code (UCC)

         1. Definition: A comprehensive set of laws governing all commercial transactions (i.e., This law is generally used for the sale of goods)

            1. Goods are movable and tangible object

            2. Merchants are someone who regularly deals with the types of goods of the kind or hold oneself out as having knowledge or skill to the goods involved in the transaction ​

               1. However, in order for the UCC to apply, the parties do not have to be merchants​ 

      3. If there is a mixed deal (e.g., land sales & sale of goods), the general rule is all or nothing based on the most important part of the contract which you will need to figure out on your own while you read the exam question  ​

  2. ​Formation of Contracts ​(Need Offer & Acceptance & Consideration) 

1. Offer 

   1. Definition of Offer

      1. Manifestation of an intention to enter into contract, containing certain and definite terms (cannot be vague or ambiguous), and communicated to the other party ** 

   2. Content in the offer ​

      1. Generally, an offer is not required to contain all material terms. Yet, enough of the essential terms of a contract must be provided to make the contract to be enforced 

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

      3. Under the UCC, there are three elements that must be included in the contract which are; (i) parties (ii) subject matter (iii) quantity of goods

         1. Certain missing terms may be supplied by the court if they are consistent with the intent of the parties

         2. A reasonable price term and a reasonable time for performance may be supplied by the court

         3. And even though the quantity of goods is an essential term under the UCC, in case of Requirement contracts/Output contracts (either the buyer exclusively buy from seller/ the seller exclusively sell to the buyer), these contracts will not be excluded just because of  vagueness of the quantity ** 

   3. Advertisement as an offer 

      1. Generally advertisement is not considered as legally binding offer yet merely an invitation to the deal

         1. Exceptions​

            1. Advertisement can be a legally binding offer if :

               1. it is a reward (e.g., if you find my purse, I will reward you $ 20)

               2. the ad is specific as to quantity and expressly indicates who can accept 

               3. it is a price quotation sent in a response to an inquiry ** 

   4. Termination of Offer

      1. By Operation of Law 

         1. Lapse of Time: Time usually stated in the offer or a reasonable time

         2. Death: Either party should have passed away prior to the acceptance, unless the offer was an irrevocable offer

         3. Insanity: Insanity of either party

         4. Destruction: Destruction of the subject matter of the contract **

      2. Revocation (by offeror)

         1. Unambiguous statement by offeror to offeree, or conduct by offerer which offeree is aware of that indicates revocation

         2. Revocation by mail is not effective until received

         3. Irrevocable offers:

            1. Options Contract: An offer cannot be revoked if the offeror has (a) promised to keep the offer open, and (b) the promise is supported by payment or other consideration

            2. Firm Offer (UCC): An offer for the sale of goods cannot be revoked for up to 3 months if (a) signed, written promise to keep the offer open, by (b) a merchant (unlike Options Contract above, Firm Offer does not need any payment or consideration) 

            3. Detrimental reliance by the offeree of the offer by the offeror that is reasonably foreseeable the offeree will detrimentally rely on the offer 

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

      3. Rejection (by offeree)

         1. Counteroffer: A counteroffer is a rejection of the original offer, and becomes a new offer, which vests the original offeror with the power to create a contract by accepting the counteroffer (yet not in the case if the contract is an options contract)

            1. Example) Please give me the item at a lower price​

         2. Conditional Acceptance: A conditional acceptance is a rejection of the original offer, and if the offeree accepts with a condition, it becomes a new offer, which vests the original offeror with the power to create a contract by accepting the counteroffer 

            1. Example) I accept if it comes with another piece​

         3. In case a party wants to add new (additional or different) terms in the contract 

            1. Common Law: Adding new terms by the offeree is a rejection of the original offer, which terminates the original offer, and becomes a new offer

            2. UCC

               1. In case both parties are merchants

                  1. Adding new terms by the offeree is not a rejection. Any new terms included in the acceptance of that offer become part of the final agreement unless:

                     1. the offer limits acceptance to only its own terms,

                     2. the responding party objects to new terms within a reasonable time, or

                     3. the new terms materially alter the terms of the offer (i.e., the terms that would surprise or impose hardship on the other party will be regarded as materially altering the terms of the offer) 

               2. In case one party or none are merchants ​

                  1. ​If there are additional terms in an acceptance, those are considered proposals only (i.e., they are not binding or included as part of the final agreement)

                  2. If the terms are different, then any different term included in an offer is incorporated into the contract unless the acceptance was conditioned on the other party’s agreement to all of its terms, which will be a counteroffer instead **

       2.   Acceptance 

1. Definition: Manifestation of assent to the terms of the offer communicated to the offeror (i.e., accepting an offer) 

2. Method of Acceptance

   1. Unilateral Offers: This offer is an offer which requires the offeree to perform an act. Thus, the method of acceptance to the unilateral offer is 'full performance'

   2. Bilateral Offers: This offer is an offer which requires two parties to agree to perform certain services or provide certain products for a specific price. Thus, the method of acceptance to the bilateral offers are 'promise to perform & start performance & full performance'

      1. Under UCC, Improper Performance is an acceptance but breach, unless accompanied by words of accommodation (i.e. explanation of the breach), which is not a breach but becomes a counteroffer 

3. Timing of Acceptance

   1. Acceptance is generally effective at the time it was mailed **

      1. Exception: As for options contract, acceptance is effective when  it is received

   2. If offeree mails an acceptance before mailing a rejection, the acceptance is effective at the time is was mailed

      1. However, if the offeror receives the rejection first and detrimentally relies on the rejection and acts on it, the acceptance is effective when it is received 

   3. If offeree mails a rejection before mailing an acceptance, the acceptance is effective when it is received. Thus, if the rejection is received is first, the rejection is effective and if the acceptance is received first, the acceptance will be effective

   4. Acceptance by unauthorized means is still effective when it is received  if the offer is still in existence **

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       3.   Consideration 

1. Definition: Bargained for exchange between the parties of legal value

   1. Bargained for exchange – Parties must exchange something

   2. Legal value – Courts require a party incur a legal detriment to satisfy legal value to benefit the other party

2. Forms of Consideration

   1. Performance or promise to perform

   2. Forbearance (i.e., refraining from the enforcement of a debt, right, or obligation that is due) or promise to forbear 

3. Possible Issues concerning Consideration 

   1. Past Consideration – a promise for something already done does not satisfy the bargain element

      1. Exception – expressly requested by the promisor and expectation of payment by the promisee

         1. Example) A saves B, then B promises to reward A (Here, in this case, even if the promise was made in the past, because A requested to give B the reward, and unless the A gives the reward to B, B is entitled to expect to receive the reward, thus, this past consideration is valid in the present time

   2. Part payment as consideration for release (i.e., promise to forgive the debt)

      1. Here the point is whether the debt is “due and disputed”. If the debt is not yet due or disputed (i.e., if you pay before the payment is due or pay part of a disputed amount), it is a valid consideration

   3. Pre-Existing Contractual Duty 

      1. Common law – New consideration is required for contract modification. That is, promise to pay more for already-agreed performance is unenforceable

         1. Exceptions:

            1. Addition or Change in performance by person under the duty

            2. Unforeseen circumstances are too severe to excuse the performance

            3. Pre-existing duty is owed to a third party instead of the promisor

            4. There is an honest dispute as to the duty

      2. UCC – UCC does not have a pre-existing contractual duty rule

         1. New consideration is not required to modify sale of goods contract

         2. Whether the party had "a good faith" in changing the sale of goods contract is the test for contract modification under UCC **

   4. Consideration Substitutes

      1. The promise is legally enforceable even though there is no consideration if:

         1. there is a written promise to satisfy an existing obligation and the written promise is a legal defense

            1. Example) The D owes C $ 70,000. If the D writes “I know I owe you $ 70,000, yet I will pay you $40,000". In this case even if there is no consideration, the written promise is still a legally enforceable agreement

         2. promissory estoppel: no consideration is necessary where there is a (1) promise between parties; (2) and one party reasonably and detrimentally relied on the promise; and (3) enforcement of the promise is necessary to avoid injustice to the party  

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       4. Contract will be Unenforceable if:

1.  Rule: Even if there is an offer & acceptance & consideration, the contract will be unenforceable under the following cases ​

   1. Lack of Consideration (see Consideration above) 

   2. Lack of Capacity ​

      1. If People who lack capacity enters into a contract, the contract is unenforceable 

         1. Infancy – person under 18 years old

         2. Incompetents – lacks mental ability to understand agreement

         3. Intoxicated persons 

      2. Consequences

         1. Voidable – a person who lacks capacity has the right to disaffirm the contract

         2. Ratification – a contract can be re-enforced if a person who lacked capacity impliedly affirms after gaining capacity **​

   3. Statute of Frauds

      1. ​Rule: A legal concept that requires certain types of contracts to be executed in writing

         1. Contracts that must be within Statute of Frauds. That is, contracts that must be in writing are as follows:  

            1. Land – Transfer of any interest in real estate (Exception: leases of a year or less do not have to be in writing)

            2. Goods – Contracts that involves goods that $ 500 or more must be in writing 

            3. Surety – Promise to be responsible for a debt of another (e.g., I will pay if he or she does not pay) must be in writing

            4. Marriage – Promise that are made in consideration of marriage (e.g., if you marry him or her, I will . . ) must be in writing 

            5. Year – Contracts that are not capable of being performed within a year from the date of the agreement must be in writing

               1. Exception: If the contract could end at any time, the contract does not need to be in writing

            6. Executor – Contract that involves a promise by an executor (i.e., executor is an administrator who is appointed to carry out the terms or his or her will) to personally pay a debt that belongs to the estate (i.e., the property and financial assets of an individual at the time of his or her death) **

      2. Elements of Statute of Frauds

         1.  Writing ( = to satisfy the Statute of Frauds in writing)

            1. Requirements of Writing 

               1. ​Identity of the parties, 

               2. Identification of the subject matter of the contracts,

               3. Terms and Conditions of the agreement, 

               4. Consideration, and 

               5. Signature of the party to be bound (i.e., it must be signed by the person who is asserting the Statute of Fraud)

                  1. Under UCC, the writing must contain:

                     1. ​quantity term, and 

                     2. signature of the party to be bound 

         2. Performance ( = to satisfy the Statute of Frauds in performance even if there is no signed written contract) 

            1. Service of Contracts 

               1. ​Full performance by either party must be made in order to replace the writing 

               2. Part performance by either party does not satisfy the writing ** 

            2. Sale of Goods

               1. Buyer

                  1. Statute of Frauds is satisfied to the percentage of goods paid for 

                     1. Example) If a person contracts to buy clothes for $ 400, and paid $ 200, Statute of Frauds is satisfied for the purchase of the clothes for $ 400

               2. Seller 

                  1. Part Performance by the seller in ordinary goods (i.e., any goods you see in a supermarket) satisfies the Statute of Frauds even if there is no written contract yet only to the extent of the part performance

                  2. Part Performance by the seller in specially manufactured goods satisfies the Statute of Frauds even if there is no written contract as long as the seller makes a substantial beginning in manufacturing the goods that are special and unique

               3. Real Estate ( = Land Contracts) Part performance by a buyer of real estate can satisfy Statute of Frauds even if there is no written contract, if the buyer performs two of below:

                  1. takes possession of the land

                  2. pays full or partial as to the price of the land 

                  3. makes improvement in the land **

      3. Confirmatory Memo

         1. Definition: No need for a signed written contract if, 

            1. both parties are merchants, 

            2. one party, within a reasonable time after oral agreement has been reached, sends a writing, signed by that party, that “confirms” the existence of a contract and indicates a quantity term,

            3. it is received by the other party, and

            4. the other party does not object within 10 days

               1. In this case, it satisfies the statute of frauds even if the other party has not signed the contract

      4. Promissory Estoppel 

         1. Definition: A promise must normally be in a deed (i.e., legal agreement or contract), or supported by consideration (i.e., things that are bargained for and received between the parties of the contract) to be enforced. Promissory Estoppel (i.e., estoppel means "bar"), however, may allow a promise to be enforced even though there was no written deed or received consideration under the Statute of Frauds ​​

         2. Requirements of Promissory Estoppel

            1. There must be a clear and definite promise or representation by one party,

            2. The other party relied on that clear representation or a promise,

            3. Because of the reliance, the other party suffered detriment, and 

            4. Thus, in this case, the D is estopped from asserting a Statue of Frauds defense. That is, the D cannot assert that the contract was not in writing  

               1. Example) D says to P, who is working to earn money to pay for his or her school tuition, to quit his or her job and study harder, and promises to pay the school tuition fee of P. P later actually does quit his or her job relying on the words of D. D, however, for a certain reason could not pay for P. In this case, because P incurred harm by relying on the words of D, D is estopped from denying his promise to P, and will be accountable of his or her conduct even though there was no written contract **

      5. Equitable Estoppel 

         1. Definition: A court will not grant a judgment or other legal relief to a party who has not acted fairly by having made false representations or concealing material facts from the other party. In this case, Equitable Estoppel may allow a promise to be enforced even though there was no signed written contract under the Statute of Frauds

         2. Requirement of Equitable Estoppel

            1. Facts misrepresented or concealed by D 

            2. D has knowledge of the true facts 

            3. There was a fraudulent intent by the D 

            4. P relied on the facts misrepresented or concealed and incurred injury **

      6. Judicial Admission 

         1. Definition of Admission

            1. A statement made by a party to a lawsuit or a criminal D, usually prior to trial, admitting that certain facts are true. Admission is different from “confession of blame or guilt” in that it "admits facts" made by a party in a judicial proceeding relating to an assertion of an opposing party 

         2. Definition of Judicial Admission

            1. An admission made by a party in a judicial proceeding relating to an assertion of opposing party, which generally must be in writing 

         3. Judicial Admission as to Statute of Frauds

            1. If a D asserting Statute of Frauds (i.e., asserting that the agreement must be writing) admits in a pleading or testimony that he had entered into an agreement with the P, there is no need to prove that the agreement was in writing **

   4. Illegal Subject Matter & Illegal Purpose

      1. If subject matter is illegal, then the contract is void

         1. Exception 

            1. The D is unaware of the illegality,

            2. A party is not as culpable, and 

            3. The illegality is due to a failure to obtain a license for revenue related purposes, not a license to protect the public​

      2. If subject matter is legal, but purpose is illegal, the contract is enforceable only by the party who did not know of the illegal purpose

         1. Exception 

            1. The subject matter will still be void, whether the parties knew of the illegal purpose or not, if the purpose involves a serious moral turpitude (i.e., crimes like murder)

   5. Unconscionability 

      1. ​If the terms of the agreement are said to be unconscionable (i.e., unreasonable), it empowers the court to refuse to enforce all or part of the contract

      2. Two requirements that make the terms unconscionable (i.e., both requirements are tested by the court at the time the agreement was made):

         1. procedural unconscionability: time pressure or unfair surprise (i.e., the party who drafts the contract includes terms in the contract knowing that those terms are not in line with the expectation of the other party and knowing that the other party will not notice that the terms have been inserted), and 

         2. substantive unconscionability: unjust terms of the contract **

   6. Misrepresentation/Nondisclosure  

      1. Misrepresentation

         1. Negligent Misrepresentation 

            1. An unintentionally false fact which induces the other party into making a contract. That is, the individual did not directly lie, but made a statement that they did not know was false at the time, which led the other person to incur injury

               1. ​Thus, in the case there is a Negligent Misrepresentation, the contract will be unenforceable

         2. Fraudulent Misrepresentation 

            1. Purposely making a false statement to trick the other party into making an agreement

               1. Thus, in the case there is a Fraudulent Misrepresentation, the contract will be unenforceable

      2. Non-Disclosure

         1. Person entering into a contract generally has no duty to disclose facts about a contract or circumstances, however, failing to tell the other party about the fact in order to conceal or fraud is a problematic issue 

            1. Thus, in the case there is a Non-disclosure relevant to conceal or fraud, the contract will be unenforceable **

   7. Duress

      1. Improper threats used to gain consent

         1. Economic duress ( = Business compulsion)

            1. There must be an improper threat that threatens the property or finance of other parties to enter into/breach existing business/contract, and  

            2. There is no reasonable alternative to turn to other businesses 

               1. Note that in order to be within the scope of Duress, it requires more than one party taking economic or financial advantage of another

                  1. Thus, in the case there is a Duress, the contract will be unenforceable **

   8. Undue Influence

      1. An individual is able to persuade a decision of another due to the special relationship the two parties have

      2. A party claiming to be the victim of undue influence may be able to void the terms of the agreement, if there was an excessive pressure by the other party to enter into/breach existing business/contract

         1. Thus, in the case there is an Undue Influence, the contract will be unenforceable ** 

   9. Ambiguity in Words ( = Misunderstanding)

      1. There will be no contract to be enforced if:

         1. the parties use a material term that has at least two reasonable interpretations,

         2. each party attaches different meaning to the term, and 

            1. neither party knows or has reason to know the term has at least two reasonable interpretations

      2. However, if one party knows there are two reasonable interpretations, the contract will be enforced, and the term will be understood the way the ignorant party understood

   10. Mistake of Fact

       1. Mutual Mistake of Fact

          1. In the case where both parties are mistaken of a material fact, there will be no contract to be enforced if:

             1. both parties are mistaken,

             2. of a basic assumption of fact,

             3. which materially affects the agreed up upon exchange, and 

             4. the party did not assume the risk

       2. Unilateral Mistake of Fact

          1. In the case where one party is mistaken of a material fact, there will be no contract if:

             1. Where the other party had reason to know of the mistake of the material fact

                1. Note that if the mistake is to the value or quality of work done, the courts will enforce the contract regardless of knowledge

  3. ​Terms of the Contract ​ 

1. Parol Evidence Rule
   1. Definition of Parol Evidence Rule: Evidence of prior or contemporaneous negotiations and agreements that contradict or supplement contractual provisions or terms are inadmissible if the written contract is intended as a complete and final expression of the parties

      1. Definition of Parol Evidence: Prior or contemporaneous verbal or written statements of a party

   2. What triggers Parol Evidence Rule:

      1. when there is written contract that court finds is the final agreement between the parties, and 

      2. when there is a verbal statement made at the time the contract was signed that contradicts or supplements the contractual provisions or terms of the written contract, or there was an earlier verbal or written statements made by the parties to the contract that contradict or supplement the contractual provisions or terms of the written contract **

   3. Result

      1. Partial integration: If a court determines that a contract is a partial integration (i.e., not a complete agreement), it will allow certain outside evidence that supplement or explain the provisions or terms of the contract. However, the parol evidence rule will restrict outside evidence of prior or contemporaneous evidence that contradict the provisions or terms of the written contract

         1. That is, the provisions or terms of the writing may not be contradicted by the evidence of prior or contemporaneous negotiation or agreement, yet may be supplemented with additional terms 

      2. Complete integration: If the court determines that a contract is a complete integration, the parol evidence rule limits all prior or contemporaneous outside evidence that contradicts, modifies, or supplements the contract 

         1. That is, all evidence can neither contradict nor supplement the provisions or terms of the writing because it is not part of the agreement, thus will be inadmissible 

         2. Note that there is an additional clause called ‘Merger Clause’ that works similar to the Complete Integration

            1. Merger Clause: This is a contract clause that implies any other prior discussions not mentioned in the contract, whether verbal or writing, do not form any part of the contract itself

               1. Therefore, after both parties sign a contract that includes a merger clause, neither party can force the other to abide by any other agreements or terms that are not identified in the contract. The merger clause itself serves as a reminder to both parties that, if either parties want any other terms to be part of the agreement, then it must be stated in the contract **

   4. Exception to Parol Evidence Rule

      1. However, the followings are not affected by the parol evidence rule. That is, the evidence below will be admissible to either contradict or supplement the provisions or terms of the writing even though it is not part of the agreement

         1. A formation defect in contract (e.g., fraud, duress, mistake, illegal subject matter or illegal purpose (see above))

         2. A mistake in integration 

         3. Collateral agreement (i.e., the agreement must not contradict the chief contract)

         4. Consideration (see above) problems

         5. Condition precedent (i.e., an event that must take place before a party to a contract to do their part)

         6. Contract subsequent modification 

         7. Explaining an ambiguous term

         8. Explaining additional terms if the written agreement was only a partial integration **

2. Course of Performance & Course of Dealing & Usage of Trade

   1. Rule: The courts will look to the course of performance, course of dealing, and usage of trade to determine the intent of the parties to the contracts

      1. Course of Performance: The court will look to “what the parties have done under the same contract in the past with each other” 

      2. Course of Dealing: The court will look to “what the parties have done under similar contracts with each other or a different person”

      3. Usage of Trade: The court will look to “what different people do under similar contracts the parties are currently engaged in” **

3. UCC (Sale of Goods) Default Terms

   1. Risk of Loss

      1. Risk of Loss when delivered by common carrier

         1. Definition of Risk of Loss: Determining which party should be responsible for the damage occurring to the goods after the sale has been completed, but before delivery has occurred, and neither party is to blame

            1. Shipment Contracts

               1. Definition: A contract that requires or authorizes the seller to send the goods to the buyer but does not require that he or she deliver them at any particular destination

                  1. Note that under the shipment contract, the risk of loss passes from the seller to the buyer when the goods are shipped 

               2. Rule

                  1. The buyer must pay for the shipping 

                  2. The seller is presumed to have completed its delivery obligations when: 

                     1. he or she delivered the goods to a common carrier

                     2. made reasonable delivery arrangements

                     3. notified the buyer

                     4. thus, under the shipment contract, the seller completes its delivery obligation before the goods is actually delivered to the buyer 

            2. Destination Contracts

               1. Definition: A contract that requires or authorizes the seller to deliver the goods to the destination where buyer prefers

                  1. Note that under the destination contract, the risk of loss passes from the seller to the buyer when the goods are delivered to the buyer

               2. Rule

                  1. The seller must pay for the shipping 

      2. Risk of Loss when delivered by a non-common carrier

         1. In case it is delivered by a non-common carrier, the risk of loss is determined depending on whether the seller is merchant or not

            1. When the seller is a merchant, the risk of loss passes from the seller to the buyer when the buyer “receives” the goods

            2. When the seller is a not a merchant, the risk of loss passes from the seller to the buyer when the buyer “tenders (i.e., make the goods available)” the goods ** 

   2. Warranties of Quality

      1. Definition of Warranty: An agreement by a seller to provide repairs or a replacement for a faulty product, component or service within a specified time period to the buyer

      2. Types of Warranties 

         1. Express Warranties

            1. Definition: Warranties that are clearly stated either verbally or in writing 

            2. How to know whether the goods include express warranties

               1. Look for words that:

                  1. describe or state facts (e.g., all steel)

                  2. promise or guarantee (e.g., we promise this will last 2 years)

                  3. use of a sample (e.g., this is what it will look like)

                  4. an opinion, however, cannot be express warranties (e.g., it is top quality) **

         2. Implied Warranties 

            1. Definition

               1. Warranties that automatically covers consumer goods valued under a certain amount, yet provides a base level of protection for the buyer

            2. Types of Implied Warranties

               1. Implied Warranty of Merchantability

                  1. Implied warranty by merchants that the goods are fit for the ordinary purpose for which such goods are used

               2. Implied Warranty of Fitness for a Particular Purpose  

                  1. This warranty arises when:

                     1. the buyer has a particular purpose & the buyer is relying on the seller to select suitable goods

                     2. the seller has reason to know of the purpose of and the reliance by the buyer 

         3. Contractual Limitations on Warranty Liability

            1. Disclaimer

               1. Definition: Allowing sellers to a contract rid themselves of certain responsibilities to the buyer 

                  1. Note that the disclaimer does not totally eliminate the warranty itself, yet reduce compensation to the buyer for any breach of warranty by the seller

               2. Rule

                  1. Under warranty liability, a seller cannot disclaim express warranties. That is, the seller may not rid himself or herself of certain responsibilities of express warranties

                  2. Under warrant liability, a seller can disclaim implied warranties. That is, the seller may rid himself or herself of certain responsibilities of implied warranties

                     1. Thus, the aforementioned implied warranties of merchantability and implied warranties of fitness for a particular purpose can be disclaimed by the seller in order to avoid liability by putting either:

                        1. conspicuous language of disclaimer, mentioning merchantability; or

                        2. "as is – no warranty", "with all faults (i.e., the buyer assumes the risk of all defects)" clause, etc. **

  4. Performance

1. Under UCC (see above)

   1. Perfect Tender Rule

      1. This rule applies to sale of goods

      2. Under this rule, the performance by the seller must be perfect 

      3. The goods and delivery by the seller must completely comply with the contract terms

      4. And less than perfect tender by the seller generally gives the buyer the option to reject the delivered goods

   2. Rejection under Perfect Tender Rule

      1. Rule: If the tender was not fulfilled correctly under the Perfect Tender Rule by the seller, the buyer has the right to reject the goods

      2. Rejection Procedure

         1. How the buyer could reject the goods

            1. The buyer could retain or reject all/any of the goods and sue for the damages by: 

               1. ​notifying the seller of the damages

               2. holding the goods for the seller (i.e., the buyer must take reasonable care of the rejected goods) **

         2. However, the rejection by the buyer has limits

            1. Ability to cure by the seller

               1. Rule: The buyer may not reject the goods if the time for performance has not expired which gives the seller the ability to cure the damages 

               2. However, if the time period for performance has passed, whether the buyer could reject the goods or not depends on whether the seller has reasonable grounds to perceive that the improper tender would be acceptable by the buyer or not 

            2. Installment contract

               1. Rule: Under the installment contract, generally perfect tender rule does not apply, thus the buyer does not have the right to reject the goods 

               2. Exceptions

                  1. However, the buyer has the right to reject the goods in installment contract where there is a substantial impairment in that installment that the goods cannot be cured by a subsequent delivery 

                  2. Additionally, the buyer has right to cancel the entire contract if the defect in an installment substantially impairs the value of the whole contract **

   3. Acceptance under Perfect Tender Rule

      1. Rule: If the buyer accepts the goods, he or she cannot later reject them

      2. Definition of Acceptance under Perfect Tender Rule:

         1. keep the goods even though the goods do not conform to the term of the contract 

         2. the buyer fails to reject the goods within reasonable time

            1. Note that if the buyer paid the goods without an opportunity given to inspect the goods, it is not an acceptance

   4. Revocation of Acceptance under Perfect Tender Rule

      1. The buyer still can ‘revoke’ the acceptance of the goods if: 

         1. non-conformity (i.e., the goods not conforming to the term of the contract) substantially impairs the value of the goods,

         2. non-conformity was difficult to discover at the time of the acceptance by the buyer, or the buyer reasonably relied on the assurance of satisfaction by the seller, or

         3. The buyer reasonably revokes within a reasonable time after discovery of the non-conformity 

            1. Note that ‘rejection (see above)’ occurs before a buyer accepts the goods, whereas 'revocation' occurs where a buyer has already accepted the goods **

2. Common Law Performance

   1. Definition of Common Law: A body of legal rules that have been made by judges as they issue rulings on cases, which is different from the rules and laws made by the legislature or in official statutes

   2. Rule: Under common law there is no Perfect Tender Rule unlike UCC. Instead substantial performance is an alternative principle to the Perfect Tender Rule. Namely, the substantial performance allows a court to flexibly decide a term that allows certain performance by the other party based on the party who acts first under the performance that is specified in the contract  

​

  5. Third-Party Beneficiary​

1. Definition of Beneficiary: A person who derives advantage from usually a trust, will, etc.

2. Issue: Under Beneficiary, in contracts, the issue arises where parties contract with the intent to benefit 'Third-Party Beneficiary (TPB)'

   1. Types of TPB

      1. Intended beneficiary: A beneficiary who benefits from a contract by acquiring contract rights (i.e., rights that are granted to a party through a valid contract), and has the ability to enforce the contract once those rights have vested (i.e., earn a right to a present or future benefit) 

         1. Note that, generally, intended beneficiary is named in the contract and have certain relationship with the contract to indicate intent to benefit

         2. Additionally, intended beneficiaries are either donees or creditors. If the reason for entering a contract is to provide a party with a gift, the intended beneficiary is a donee; while if the reason for entering a contract is to discharge a debt, the intended beneficiary is a creditor  

      2. Incidental beneficiary: A beneficiary who benefits from a contract between the parties, yet the parties of the contract did not intend the person to have benefited. Thus, unlike intended beneficiary, the incidental beneficiary does not have contract rights  **

3. Vest of Contract Rights  

   1. Rule: Contract rights are vested (i.e., granted) to the TPB depending on whether the TPB (a) knows of and has detrimentally relied on the contract, (b) assented to the contract as requested, or (c) brought a suit relevant to the contract

      1. Note that if the contract rights have vested to the TPB, the contract cannot be canceled or modified without the consent of TPB, unless the contract provides otherwise

   2. Example of TPB Contract)

      1. X enters into a contract with H to purchase a home to be given to L as a gift. If H takes the down payment and then refuses to continue with the sale, L could sue H as a TPB

4. Liability & Compensation 

   1. Rule: If any parties of the contract, the promisor (i.e., a person who is giving the assurance that benefits the TPB) and the promisee (i.e., a person who is receiving the assurance that benefits the TPB), incurs damage **

1. TPB (i.e., the TPB here will be L in the example above) can recover from a promisor (i.e., the promisor here will be H in the example above) 

2. Promisee (i.e., the promisee here will be X in the example above) can recover from promisor 

3. Creditor TPB can recover from promisee as to the pre-existing debt 

4. Donee TPB can recover from the promisee if the TPB detrimentally relied on the words of the promisee (e.g., H promises Donee TPB that H will gift his or her new car to TPB. TPB sells the car he or she had which is an important transportation TPB needs to be at work. Later, H refuses to give the new car. In this case, Donee TPB can recover compensation from H because Donee TPB detrimentally relied on the words of H and incurred damages)  

   1. Note that the promisor can assert any defense against the TPB that the promisor cant assert against the promisee 

​

      6. Assignment ​

1. Definition: Under a contract between two parties, one of the parties later transfers his or her rights and benefits of the contract to another party (i.e., a party to a contract gives the benefits of the contract to another party who is not named in the contract), which all parties could still be liable if there is a breach under the contract **

   1. Parties to the contract under Assignment of Rights

      1. Assignor: Party to the contract who later transfers his or her rights under the contract to another party

      2. Obligor: The other party to the contract (i.e., a person or entity who is legally or contractually obliged to provide a benefit or payment to the assignor/assignee for the performance done)

      3. Assignee: Party who is not a party to the contract​ who later receives the rights under the contract between the assignor and the debtor

   2. Example) Assignor agrees to build a school with the payment by the obligor under a contract. Later, the assignor assigns his or her duty to build a school to the assignee. Thus, unless otherwise stated under the contract, the payment by the obligor to the assignor will shift to the assignee (i.e., the payment by the obligor will be given to the assignee instead of the assignor)

2. Rule

   1. Generally, all contract rights (i.e., rights that are granted to a party through a valid contract) may be assigned from the assignor to the assignee

      1. Exception: However, not in the case where the assignment substantially changes the duty of the obligor (i.e., the assignment substantially changes what the obligor will do)

3. Contract Provision Limiting Assignment

   1. Important Notice: Generally, the courts favor assignability of contract rights and are reluctant to interpret  contract language as preventing assignment

   2. Types of Contract Provision Limiting Assignment

      1. Prohibition

         1. If the provision of the contract states, “the assignment is prohibited”, it takes away the “right” to assign, yet not the “power” to assign, thus the assignment is still valid. This implies the assignor is liable for breach of contract because the assignor has no right to assign, yet an assignee who does not know of the prohibition still has the power to enforce the assignment

            1. Note that, “the contract prohibits assignment of the contract” (this bars only delegation of duties, not assignment of rights. Although such provisions are upheld, narrowly construed)

      2. Invalidation

         1. If the provision of the contract states, “the assignment is invalid / void / not enforceable”, it takes away both the “right’ and the “power” to assign, thus the assignment is invalid. In this case, if the parties assign, both assignor and assignee are liable for breach of contract **

   3. Requirement in Assignment

      1. Assignor must clearly express the intent to immediately and completely transfer his or her rights to assignee

      2. In assignment, neither writing nor consideration (i.e., a value given by both parties to a contract that induces them to enter into the agreement to exchange performance) is required

         1. However, once the consideration is given between the parties for assignment, the assignment is irrevocable

         2. Additionally, in case there are a number of assignees assigned to a contract, first assignee with consideration wins, unless:

            1. a later assignee did not know about the earlier assignment and was the first to acquire payment from the debtor, or

            2. a later assignee can prove he or she reasonably and detrimentally relied on the assignment with the assignor

      3. As to ‘gratuitous assignment (i.e., an assignment that is in the name of a gift, one in which an assignor receives nothing of value in return)”, in case there are a number of assignees assigned to a contract, the last assignee wins

         1. Generally, gratuitous assignment is revocable unless:

            1. the assignee can prove he or she reasonably and detrimentally relied on the gratuitous assignment, or 

            2. the obligor has already paid  

   4. Rights of Assignee

      1. Issue: Rights of Assignee issue arises when there is a breach under the performance of the contract. That is, the issue arises when each assignee, assignor, or debtor does not fulfill his or her duty imposed under the contract. This leads to the question who can the parties recover from in order for the duty to be fulfilled

      2. Rule

         1. the assignor can recover from the obligor

         2. the assignor for consideration cannot recover from obligor

         3. the assignor for no consideration can recover from obligor

         4. changing agreements under the contract between the obligor and the assignor are effective only if the obligor did not know the assignor has assigned his duty to the assignee. Thus, if the obligor knew about the the assignment, the obligor and the assignor cannot change the agreement, unless the assignee knows about the change of the agreement under the contract 

         5. payment by the obligor to assignor is effective until obligor knows of the assignment that the assignor has assigned his or her duty to the assignee. That is, after the obligor gets to know about the assignment, the obligor needs to pay to the assignee instead of the assignor

         6. the obligor, in defending oneself that there is no duty to pay the assignor/assignee, the obligor has the same defenses against assignor as against the assignee **

​

      7. Delegation

1. Definition: Delegation occurs when a party to the contract transfers the responsibility, for performing a particular contractual duty, to another person who is not a party to the contract

   1. Parties to the contract

      1. Delegator: Party to the contract who delegates 

      2. Obligor: The other party to the contract (i.e., a person or entity who is legally or contractually obliged to provide a benefit or payment to the delegator/delegatee for the performance done)

      3. Delegatee: Party to whom the delegation is made 

         1. Note that, unlike Beneficiary (see above) or Assignment (see above), Delegation does not involve the transfer of contract rights. Delegation transfers just a particular contractual duty 

2. Rule

   1. Generally, all contractual duties are delegable 

   2. Delegation is always for consideration (i.e., a value given by both parties to a contract that induces them to enter into the agreement to exchange performance)

3. Limitation of Delegation

   1. Delegation cannot be done under the contract if:

      1. the contract prohibits delegation

      2. a task requires specialized skills 

      3. public policy prohibits certain types of delegation (e.g., a public official may not delegate the duties of his or her office to "private citizens", although various statutes generally permit the delegation of duties to his or her "assistant")

4. Rights of Delegation

   1. Issue: Rights of Delegation arises when there is a breach under the performance of the contract. That is, the issue arises when each delegator or delegatee does not fulfill his or her duty imposed under the contract. This leads to the question who can the parties recover from in order for the duty to be fulfilled

      1. Rule

         1. Delegator always remains liable

         2. Delegatee remains liable to the obligor only if he or she receives consideration from the delegator party

            1. Note that the difference between “assignment” and “delegation” is that:                                  

               1. the former is to transfer the contract rights (i.e., rights and benefits that are granted to a party through a valid contract) of the assignor to the assignee (i.e., the payment from the debtor will be altered from the assignor to the assignee because the rights has been altered); while the latter is to transfer the duties of the delegator to the delegatee (i.e., the payment from the obligor will be given to the delegator because only the duties were transferred to the delegatee not the rights, thus, even if the delegatee is the person who will be performing the task, the delegator will be the person who will receive the payment from the obligor)

               2. the former does not require the consent of the assignee when transferring the contract rights, however, the assignor has a duty to notify the assignee of the transfer; while the latter requires the consent of the delegatee because the delegatee will be the person who will be performing the task instead of the delegator

            2. Examples)

               1. Assignment

                  1. I assign my “rights and benefits” to receive payments under the contract to you (i.e., assignment could have a broader term to transfer an entire contract including all rights and benefits)

                     1. If  a boss (i.e., assignor) was entitled to collect cash for a product, he or she can transfer the right to receive payment to his or her employee (i.e., assignee)

               2. Delegation

                  1. I delegate my “performance duty” under the contract to you (i.e., delegation cannot transfer rights) 

                     1. A boss (i.e., delegator) transfers a task to his or her employee (i.e., delegatee). Here, the duty will be performed by the employee, yet the payment will still be received by the boss from the obligor 

                        1. Note that when a contract has both assignment and delegation included, analyze both **