Contract Law and Sales

Introduction Black Letter Law

 What is a Contract?
o It is an enforceable promise
o Ways for parties to enforce obligations
o Binding agreements that provide legal recourse
o Assurances on life by relying on people’s words
o Protects economically encase other people does not honour their promise

7 Basic questions in organising Black Letter law :

o Love for dogs treat every rover terrifically is the 7 contract questions:

1. L- Stands for Law, what law applies? Applicable Law- Common

law or Article 2?

 You need to distinguish where or not you have a contract that is governed by common
law(general case law) or governed by Article 2 of the uniform commercial code which
governs sales of goods
 Common law governs everything other than sales of goods.
 Common law governs personal service contracts, employment contracts, real estate sale
contracts and look at the case law that governs these contracts

When you get a common law contract question apply to rules to the cases

 Sale of goods such as a sale of a car, watch, laptop are covered by Uniform
Commercial Code of Article 2
 Tangible personal property- Article 2
 Article 2 defines goods as anything movable when identified to the contract

 If you have a question that has both goods and common law, you need to use the all or
nothing rule. Which one is the more important part of your transaction.

 Example 1: If I have a contract to sell you my Cadillac I exchange for $10,000 and I
agree to throw in 2 driving lessons.
o We have part goods(Cadillac) and part services(driving classes)
o What is the most important part of the transaction?
o It’s the sale of a Cadillac so sale of goods Article 2 rules will apply.
o The driving classes are just merely thrown in

 Predominant Purpose Test:

o What part of the deal is more valuable?
o How much time is likely to be spent during the service or the goods?
 How sophisticated is the service?
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 o Driving not that sophisticated
 Example: if it’s a physician performing a service such as planting a pace
maker inside that is not a sale of goods that’s a sophisticated service that’s
a common law service not sale of goods
o
 Does it contain sale of goods terms or sales language?
o then it will be a sale of goods question

 Article 2A – Governs leases of goods

 Restatement of Law –
o Attempts by smart people (law professors, judges) in trying to restate/summarise
what the black letter law is
o They are not codified and not actual law but helpful summarise

2. F- Stands for Formation- How is the contract validly formed?

1) Offer- do we have a legally valid offer
 Objective theory of contract formation such as using a reasonable person
standard to look at the language of offer and ask or inquire whether or not
it met the requirements such as the willingness to bargain seeking another
person’s mere agreement, all the terms reasonably certain

2) Termination of offer- 4 methods in determining termination such as:

1) Death of 1 of the parties

2) Lapse of time- if time is stated or a reasonable time

3) Revocation- an act that the offeror engages in by taking back her offer in a clear
unambiguous indication of her unwillingness to contract with the offeree
revoking her offer. You cannot accept an offer that’s been revoked

4) Rejection- Acts that the offeree engages in in order to reject the offer. Examples
are:
o counter offers (invalidates original offer),
o conditional acceptance (ill accept but)
o Additional terms thrown in- In common law it is a termination of the
original offer because of the mere image rule which means it has to be
the exact terms of the contract and if any addition terms are thrown in it
invalids the contract it’s like a counter offer
 Additional Terms in Article 2- you can have additional terms thrown in and it can be
valid acceptance and not termination

3) Acceptance- do we have a legally valid acceptance- in common law the mirror image
rule you have to have an acceptance that mere the term of the offer exactly

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 o Article 2 UCC- As long as you have a reasonable expression of acceptance
even if you have additional terms thrown in you still have a contract formed.
Sometimes the additional terms are part of the deal unless they are a material
change of the terms of the offer

4) Consideration- ground for enforcement of your agreement. It is a bargain for exchange

of legal value
 What it means to have a bargain for exchange
 What is legal value?
 Whether you have adequate or inadequate consideration
 Nominal consideration
 If you don’t have grounds for consideration you may have alternatives to
consideration such as promissory estoppel, detrimental reliance , material benefit
conferred, subsequent promise to pay

 Every contract is an agreement formed plus a ground for enforceability

 Different ways to classify contracts, such as how it was formed:

o Express Contract – Contract formed by the party’s words, either oral or

written

o Implied Contract- Looks at the parties conduct to help figure out whether a
contract was actually formed

 Example: Jim comes to paint your house or build a wall in between

your 2 properties. You know he expects to be paid because
he is providing some service that benefits you. Even
though you did not expressly say you are paying him you
might have situations where the conduct of the parties he
is providing you some benefit you knew he expected to be
paid. You might have a situation in where the conduct of
the party might imply a contract and an obligation to pay.

o Constructive Contract (fictional contract/ quasi contract/ quantum

merit)- Restitution Remedy by preventing unjust enrichment. A
defence in contract enforceability.

 Example: An oral 3-year employment contract that violates the statute of fraud
requirements that any long-term contract be in writing. This employee might
have still provided 6 months of labour to his employer. Later on, the employer
uses the statute of frauds defence to that oral employment contract
 Statute of frauds oral contracts do no suffice however she still did provide
6 months of her labour
 In this situation you might have a restitution recovery to prevent
defendant’s unjust enrichment

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  After all she conferred a benefit (6months of labour) she had the
reasonable expectation that she would be paid, it came at the employers
express or implied request
 We measure restitution by the reasonable fair market value of the benefit
conferred that’s the amount of money that takes away the defendant’s unjust
enrichment in restitution

 How they may be classified by their manner of acceptance:

o Bilateral contracts – Promise in exchange for a promise

o Unilateral contracts- An offer that expressly requires performance as the only

possible method of acceptance

 Example: Professor offers $100 to walk across the Brooklyn bridge, he is

not seeking your return promise rather he is seeking an act.
 You must accept by performing the act

 Courts also classify contracts by their enforceability distinguishing between:

o Void Contract- nullity from its inception- no one can enforce it because it never
existed in the eyes of the law

o Voidable Contract- Gives the aggrieved party the option of rendering the
contract unenforceable
 This is important for defences because they will render contracts voidable
they will give your aggrieved party the option of rendering her contract
unenforceable only a few defences such as illegality if you contract is matter
is illegal we will render the contract void

3. D stands for Defences: what makes the contract unenforceable

 Statute of Frauds- oral contract will have a problem with the statutes of fraud

 Subject matter that falls within the statute of frauds (such as no writing)

 Only certain agreements have to be in writing

 Only certain agreements fall within the statute of frauds

 Certain subject matter falls within the statute of frauds and if it does make sure you
get your agreement in writing

 Mistake and Mutual Mistake- Where both parties are mistaken by fundamental
fact that govern their transaction and if that can grant relief such as render your
contract unenforceable
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  Unilateral Mistake- where 1 party makes a mistake about their deal and whether or
not she can grant relief, avoid contract enforcement(harder) because if the other
party knew then why can’t they know?

 Misrepresentation and Fraud- innocent or negligent untrue assertion of fact or

omission.
 Example: sellers tell buyer that the house has no termites and seller honestly believes the
house has no termites. The house later has termite damage.
 The buyer can seek rescission that she wants out of the contract not based on an
intentional lie but on an innocent or negligent assertion of fact that the seller made to
the buyer. Misrepresentation as a defence to rescission

 Fraud- The seller knows that her house has termites but lies about it deliberately and
intentional lie or omission or might cover it up. (fraud defence to enforcement of that
contract)

 Duress- Physical and Economical duress

o Economical Duress- One party makes an improper or wrongful threat usually
to breach their contract and the other party has no reasonable alternative but to
agree

 Unconscionability- 2 types such as procedural and substantive :

o Procedural- An absent of a meaningful choice in the bargaining process.

Intoxicated or has no attorney when the other party does

o Substantive- unduly or harsh so oppressive terms of the contract

 Lack of Capacity- Unenforceable contract based on:

o Minor
o Insanity
o Intoxication
o Illegality/public policy- if it is illegal it will not be enforcing or goes against
public policy such is not being liable for a tort, non-compete clause

4. T stands for Terms- The terms of the contract

 Influence of the Parole evidence rule on what are the terms in the final agreement
between the parties
o whether or not some parties can bring in some oral testimony right before we sign
the contract seller also agreed to do X, Y or Z
o Parole evidence rule may prohibit the introduction of that evidence

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  Parties conduct – If the parties had long history or dealings and they interpreted a term
in a certain way, that course of performance or dealing can help provide evidence of what
that term means in respect to future installments of the party’s contract

 Trade Customs- Are community norms of what the party should be aware. It can help
insert terms into the party’s contract where the parties have omitted them

 UCC Article 2- terms that get directly implied

 Implied terms- implying terms straight into your contract if you have a sale of goods
contract

 Perfect Tender Rule- Standard of performance under the UCC, 100% perfect tender.
i. If the seller delivers goods that are imperfect buyer will
generally have the right to reject, buyer has the right to insist on
a perfect tender
ii. In certain situations, the seller will have the chance to cure an
imperfect tender

iii. Delivery obligations – of the seller of goods, what a seller must

do to complete her delivery obligations of her goods

iv. Risk of loss rules: such as if the goods get destroyed while there
in transit, UCC rules on who bares the risk of loss?

v. Implied warranties of merchantability- Such as the goods are

fit for the ordinary purpose of which they are to be used.

vi. Implied warranties for the fitness for particular purpose

1. whereas the seller knows the buyer has a special purpose,
knows the buyer is relying on the seller to select suitable
goods for a particular purpose
2. you have an additional implied warranty that those goods
will be fit for the particular purpose

 How the seller might disclaim those warranties

o “As is” clause- As sell you my goods as is I don’t want to
be held to any implied warranties.
5. E stands for Excuse – Doctrines that might excuse the contract for
non-performance
 Material breach – one that undermines the substantial benefit of your
bargain, you have the right to suspend performance of your own
obligations, you are excused

 Minor breach- Still have to perform your obligation but can sue for
damages, does not excuse your performance

 Conditions-

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  Conditions president,
 Conditions subsequent,
 Classify conditions by timing and how they are formed
 Standard for complying with those conditions
o Example: you have an express condition precedent in your
contract, you don’t have any obligation to perform your
duties under that contract until that express condition has
been strictly complied with that means close is not good
enough

 Doctrines of Estoppel or waiver

 Stop someone from relying on a condition of either doctrine

Other events that may excuses non-performance such as:

 Performance being impossible :

 Example: to perform at a music hall and the hall is burned down

 Impracticability – make performance extremely and unduly burdensome, it’s not

impossible to perform but just extremely unduly burdensome that might provide a
ground for excuses

 Frustration of purpose- mutually understood purpose of your contract has been

destroyed, still possible to be performed, it’s not any harder to perform, it just
doesn’t make since anymore. The might equal to excuses using frustration

6. R stands for Remedies- when there has been a breach what are
the remedies that are available?
 Anticipatory and Repudiation Breach-
o someone makes a statement of non-performance

 Retraction rules
o Remedies for excused for non-performance
 Non-monetary remedies are:

o Specific performance- make your defendant honour the promise that he intended
to do. Make him specifically perform.
 It is an equitable remedy it is only available if the legal remedy in
inadequate.
 What is the legal remedy? Money, you have to first show that no
amount of money would adequately compensate the plaintiff for
her loss (most of the time it would)

o Reformation- getting the courts to rewrite a contract getting it to say what you
wanted or thought it was going to say
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 o Reclamation- the right of an unpaid seller of goods to get her goods back

 Monetary Remedies:

o Expectation Interest-
 providing the aggrieved party, the amount of money that will put her in the same
position that she would have been in, had the contract actually been performed

o 3 limitations on recovering those expectations interest damages they must be:

1. Reasonably certain
2. Foreseeable and
3. unavoidable

o Reliance Interest Damages:

 Failback measure by providing the amount of money that will
 Put your plaintiff back in the position she was in before the contract was
ever made

o Liquidated Damage Clauses: These clauses cannot be a penalty

 Parties themselves tell you in the event of a breach such as damages
should be X, Y or Z- they tell you what the damages should be in a
breach
 Not enforceable if it penalizes

o Restitution Damages:
 looks at the defendant and how much has he been unjustly enriched?
 It takes away the unjust enrichment of the defendant

7. T Stands for Third Party Rights and Obligations

 Third party beneficiary situations-
o You look at 2 people contracting not to benefit themselves but benefiting a 3 rd
party
 Example: Life insurance policy when you die you want the money to
go to a 3rd party such as your spouse she can enforce that contract
directly even though she never made it

 Assignment- under 3rd party situations

 Is a transfer of contract rights in 2 separate steps?
1) First you have a contract formed between 2 guys, later on 1 of
those parties transfers those rights under the contract to some
other 3rd party. Typically, it’s the right to collect the money.

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 2) The person (assignee) who is assigned those rights can also
enforce that promise directly

 Delegations – they are not transferring of rights under a contract

 They are transfers of duties, the duty to do the work

Love for dogs treat every rover terrifically is the 7 contract

questions:

1. Law- Applicable Law

 Common Law of contracts(case law) or Article 2 Uniform Commercial Code
 UCC adopted in 49 states
 All or nothing rule of important part of the contract

2. Formation- How the contract was formed

 Contract is a legally enforceable agreement
 1) An agreement formed
 2) Something that makes it enforceable
 Usually valuable consideration

 How Contracts are formed:

 Express
 Implied
 Constructive Contract/ fictional contract/ quasi contract/ quantum merit)
 Restitution

 How Contracts are classified by acceptance:

 Unilateral
 Bilateral

 Contracts classified by enforceability:

 Void
 Voidable

3. Defences- What makes the contract unenforceable

4. Terms- What are the terms of the contract
5. Excuse- Doctrines that might excuse parties for non-performance
6. Remedies- After a breach, what are the remedies available
7. Third Party rights and obligations- What are the rights of 3rd parties

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 Contract Law- Video 2 Contract Formation(1h13 min)
Outcomes:
1) Offer
2) Termination of offer
3) Acceptance
4) Consideration
5) Conclusion

o After you understand what law applies- Common law or UCC Article 2
o Look at Contract Formation issues we wants to apply the objective theory which is
o What a reasonable person standard would be used to address whether a contract was
actually formed
o What a reasonable person would conclude looking at the manifestation or the words or
actions of the parties in the formation

 Lucy V Zehmer- Enforceability of a contract

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  Dispute on whether Zehmer agreed to sell his farm to Mr. Lucy, even though
Zehmer wrote this offer of sale out to Mr. Lucy he later said he was merely joking
so I did not have subjective intent. Court said to bad it’s not about subjective intent
it’s about what a reasonable person would conclude.

 Henry V Hargadine Mckittrick

Employee who was very worried about his chances to

1) Offer

2) Termination of Offer

3) Acceptance

4) Consideration

5) Conclusion

Contract Law- Video 3 Remedies (33 min)

Outcomes:
1) Breach
2) Nonmonetary Remedies
3) Monetary Remedies
4) Restitution
5) Conclusion

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 Contract Law Video: Performance &
Discharge of Duty to Perform
Outcomes:
1) Introduction
2) Improper Performance
3) Failure of Conditions
4) Events that will Discharge Duty of Performance
5) Conclusion

1) Introduction
 E- Stands for Excuse: Doctrines that might excuse a contract for performance

 First: Must show that there was a valid contract formed (offer, no termination,
valid acceptance, valuable consideration

 Second: Establishing the terms (how courts establish the terms between the
parties)

2) Improper Performance
 Whether there is some reason/excuse why there should be an excuse of a parties non-
performance of their obligation under a contract. Here we will list excuses:

1. Breach:
 When the opposing party has caused a breach (improper performance), we need to
distinguish what kind of breach.

 There are 2 Types of Breach:

1. Minor Breach- Is a slight deviation from promise performance

o Example: You contract with a painter to paint your house
purple and he forgets to paint 1 of the closets. This is
a minor breach because you have still received the
substantial benefit of your bargain

2. Material Breach- One that undermines the substantial benefit of the

bargain.

o Example: You contract with a painter to paint your house

purple and he paints it white. This is a breach are
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 you have not received the substantial benefit of your
bargain and should excuse your obligation under the
contract

Why does it matter if it’s a minor or material breach?

 It matters because it effects the aggrieved(innocent parties) rights

 Material Breach has the right to sue for damages for the breach and also to suspend
her own performance obligation.
 The aggrieved parties performance is excused due to the other parties improper
performance/material breach

 Minor Breach cannot excuse their own contract obligations and must still honor
their obligations under the contract. They still have the right to sue for damages but it
will be small

3) Failure of Conditions
 Excuse due to failure of conditions

 The duty of performance is generally due if there are no conditions to performance OR

 All of those conditions have been satisfied or excused
 At this point the party must either perform or risk the remedy for breach

What is a Condition?
 A condition is an event not certain to occur that can either trigger or terminate a parties
performance obligation.
 They can be classified by their timing, source,
 When looking for conditions, look for words like if, until, provided that, on the condition
that, so long as.

Types of Conditions are Classified by their:

 Timing &
 Source

2. Conditions Precedence (timing)

 The occurrence of a condition precedence will trigger someone’s performance obligation,
it has to come first.
 If you have a condition precedence inserted in your contract, you need the condition
precedence to occur first before you have any contract performance obligations under
the contract. It will trigger a duty of performance if it occurs.

o Example: I agree with you to lease gym space and pay $1000 rent,
if I am first able to sell 2000 memberships to my new
health club. I do not have any duty of
performance/current obligations. I have to first get that
condition precedence satisfied by selling 2000
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 membership and then once that condition precedence has
occurred then that will trigger my performance
obligation to pay $1000/month rent. But as of now I have
no duty yet. As condition precedence must be satisfied
first and once they are that will trigger the other parties
duty of performance and if it hasn’t the other party does
not need to perform his side of the bargain.

3. Conditions Subsequent (timing)

 A condition subsequent cuts off a parties duty of performance. It will terminate/cut off
your already existing obligations of performance.

o Example: I have a current duty to pay you $1000/month rent until

the zoning in this neighbourhood changes from
commercial to residential only. Currently I have a duty to
pay you rent BUT if that condition a subsequent occurs
and that legislature gets together and changes the zoning
from commercial to residential only, that occurrence of
that condition subsequent will stop/cut off my own
performance obligations and I will no longer have a duty
to pay you $1000/month rent.

4. Concurrent Conditions to Performance (timing)

 They are simultaneous conditions (at the same time) to performance

o Example: At a real estate closing the seller is going to turn over the
deed for their house at the same moment the buyer turns
over the cash to buy the house. These are viewed as
concurrent conditions to the other parties performance
obligations.

5. Express Conditions (source)

 The parties words themselves is what set up this express condition
 Express conditions are strictly construed (close is not good enough, must have
exactly 100% satisfaction)

o Example: If buyer agrees to buy sellers house for the condition

that it apprises at $200k and that appraisal comes in at
199k that is a failure of that condition precedence to
occur. Buyer has no performance obligation, he is
excused because express conditions are strictly
construed.

6. Implied/Constructive Conditions (source)

 The rule is that substantial performance is generally enough

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Jacob & Youngs V Kent
 Implied Condition and substantial performance is enough

 Plaintiff Jacob & Youngs, built a house for Defendant Kent. Defendant specified that
all pipe in the house must be Reading pipe, but Plaintiff installed pipe that was not
Reading pipe. Defendant demanded that the work be redone, which would have
required the demolition and reconstruction of substantial parts of the house, but
Plaintiff refused. The measure of damages for a trivial(value) and innocent omission
is not the cost of replacement but the difference in value.

Issue. Is Defendant entitled to the cost of replacement of the pipe for Plaintiff’s breach of
contract?

 No. Equity and fairness dictate that one who unintentionally commits a trivial wrong
will not be condemned to a fate so clearly out of proportion with the transgression.
To permit Defendant to recover the cost of replacement of the pipe would be unduly
oppressive. Defendant will be adequately compensated by recovering the difference
in value of a home with the Reading pipe and the value of the home, as it exists, with
a different kind of pipe.
 Plaintiff, either intentionally or grossly negligently, failed to perform the contract.
Defendant had the right to have it performed correctly. Therefore, he is entitled to
replacement cost.
 A person is entitled to damages that will permit him to complete that which he
contracted for as he intended it to be completed. However, where the cost of
completion is grossly and unfairly disproportionate to the good to be attained, the
measure of damages is the difference in value.

How Might Conditions be Excused?

7. There are 4 Doctrines that Might Excuse Conditions:

1. Failure to Cooperate(hinderance)
 Is when you fail to cooperate in good faith with the occurrence of a
condition precedence, it will then be excused and will no longer able to be
relied on because its hindered from occurring

o Example: After the contract is enter into, the condition precedence

is you must first sell 2000 memberships before you have
the obligation to pay the monthly rent. You then don’t
want to pay the monthly fee, so to get out of having any
obligation is that you hinder that condition precedence
from occurring. You do this by standing outside the
gym with a big poster saying “don’t buy memberships
here they have rats”! By doing so you are failing to
cooperate in good faith with the occurrence that
condition precedence and it will be excused and will no
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 longer be able to rely on that condition precedence
because you hindered it from occurring

2. Substantial Performance
 Will discharge an implied condition Jacob & Youngs V Kent.
 Closeness

3. Equitable Doctrines of Waiver or Estoppel

 Estoppel is based on statements made by a person protected by a condition

before the conditioning event was to occur and it requires a change of position in
reliance by the other party.

o Example: Home owners hires a builder to build her house. Home

owner agrees to pay a progress payment for each month
provided that the builder obtain a certificate from an
architect certifying that the work the builder has done
was great so far. This is a condition inserted to protect
the home owner. The home owner then says “you no
longer need to get the architects permission as your
work has been great so far”. When it comes time to pay
the home owner says “you did not get the architects
permission in the last 3 months”. The builder then says
“the condition has been excused due to estoppel”. The
builder changed his position in reliance and the home
owner is no longer allowed to rely on that protection of
that condition due to estoppel.

 Waiver is based on statement by a person protected by a condition made after the

conditioning event already failed to occur.

o Example: The builder never gets the architects certificate even in

the first month. When the builder goes to the home
owner and asks for payment and the home owner says
“don’t worry about the certificate, I will still pay you”.
This is after the conditioning event failed to occur, the
home owner could have insisted on the protection of that
condition but instead she waived it. This is excuse of that
condition due to waiver.

4. Impossibility, Impracticability& Frustration of Purpose

 These doctrines will discharge a duty of performance and will also
discharge a condition.

4) Events that will Discharge Duty of Performance

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 1. Actual Performance

2. Tender of Performance-
 It is an offer to pay or perform by one who is willing and able to do so.

o Example: You hire a painter to paint your house in exchange for

$1000, the painter shows up with all his equipment and
you repudiate on the painter saying you are not going to
pay them for painting the house. She then will not go
ahead with performance. Home owner later then sues
painter for not painting her house. Painters obligations
were discharged/excused because of the fact that they
tendered their performance and the home owner
repudiated the painter and said they were not going to
pay them. So they had tender of performance where they
discharged there duty of performance.

3. Condition Subsequent-
 The occurrence of a condition subsequent will cut off a duty of
performance

o Example: When I had the obligation to pay you $1000/month rent

for gym space until the zoning changes from commercial
to residential only. Once that condition subsequent
occurs, that will discharge my duty of performance, I
will no longer have a duty to pay you $1000/month rent.

4. Unforeseen Post Formation Change of Circumstances-

 Is a reason to excuse your contract non-performance
 Supervening Illegality

o Example: You contract with someone for the sharing of liquor

proceeds and then the legislature passes a law banning
the sharing of liquor proceeds. This type of supervening
illegality will excuse your obligations under the
contract, you do not have to do something that is made
illegal under your contract as it is a unforeseen post
formation change of circumstance.

5. Impossibility/Impracticability

I. Impossibility-
 It is objective, no one can get the job done anymore

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Taylor V Caldwell
 Impossibility excuses their obligations

This case established the doctrine of impossibility through destruction of the subject
matter.
 Plaintiff sued Defendant for breach of contract to rent out Defendant’s facility for
four concert dates. A party’s duty, under a contract is discharged if performance of
the contact involves particular goods, which without fault of either party are
destroyed, rendering performance impossible. The music hall burned down before
the concert was performed.

Issue. Whether the loss suffered by Plaintiffs, is recoverable from the Defendant?
 No. The Defendant was discharged from performing, and his failure to perform was
not a breach of the contract.
 The destruction of the hall without fault of either party excuses both parties due to
impossibility, the Plaintiff from using the concert grounds to perform and from
paying the money and the
 Defendant from performing their promise to give the use of the hall for them to
perform, due to it being destroyed (as you cannot provide something that is destroyed
nothing there).

II. Impracticability-
 It is when performance has become unduly and unreasonably expensive
or unburdensome to discharge your duty of performance or obligation.
 It is still possible to perform but it is 10 times more expensive, severe
shortage or an item(famine). It has to rise to the level of impracticability
if you want your reasons to be excused

III. Frustration of Purpose

 It is a reasons to excuse your contract obligations
 A mutually/central understood purpose of the contract must be
undermined.
 The central purpose of the contract is gone, it is still possible to perform
but it does not make sense anymore.
Krell V Henry

 The doctrine of frustration of purpose states when a party’s purpose is frustrated by

intervening events the duties of the parties will be discharged. A party’s purpose is
frustrated when events occur which destroy this purpose, even though performance of the
contract is not impossible.
 The Plaintiff sued the Defendant for the remaining of the balance for which Defendant
rented a flat to watch the coronation of the King and then the king felt ill.

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  A party’s duties are discharged where a party’s purpose is frustrated without fault by the
occurrence of an event, which the non-occurrence of which was a basic assumption on
which the contract was made.

Issue. When the subject of the contract is frustrated is non-performance of one of the
parties excused?
 Yes.
 Defendant is excused from performance because his purpose for entering into the contract
was frustrated. Defendant’s purpose of entering into the contract was to view the
coronation of the King.
 The purpose was understood by both parties and regarded as the foundation of the
contract
 Performance of the contract was not rendered impossible, since Defendant could remain
in the flat even though the coronation procession did not take place. However, Defendant
would not receive any benefit from staying in the flat, therefore he must be excused from
performing.
 The court held that Defendant was excused from performing under the contract and
Plaintiff’s claim is dismissed due to excuse of frustration of purpose.

6. Later Agreement
 A later formed contract that might discharge a parties previous obligation and may excuses
those previous obligation in the original contract.

I. Rescission Agreement
 Is a situation in which the both parties exchange mutual promises to end the
original contract obligations.
 Those original contract obligations will be excused and the parties no longer
have to perform as the contract has been rescinded by mutual agreement.
 Make sure that there is still some performance still owed by each of the
contracting parties, this is called a executory contract.

 Executory Contract is a contract that has no yet been fully executed. It is a contract
in which both sides still have important performance remaining.

II. Modifications
 Is when the parties mutually agree to change their contract, modify it so that it says
something else
 If you have a valid modification it will excuse the original contract obligations

What do you need to have a valid modification?

a. Modifications Under Common Law:

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  Requires new consideration in order to be binding

 Instead, If it is asking someone for more money to do the exact same thing that she
already promised that she would do, that is a violation of the pre-existing legal duty
rule
 If you want the new modification to be valid under common law, there needs to be
new consideration for it, something that the parties were not already obligated to do.
 No new consideration then the modification is not enforceable under common law

b. Modifications Under Sale of Goods Contract

 Requires no new consideration in order to make that modification enforceable

 All that is required under the UCC is that the modification must have been
made in good faith.
 If you have that modification then the existing/original obligations will be
gone

III. Novation
 Is a mutual agreement to substitute a new party to do the performance obligation
under your original contract
 It is the same performance occurring but just a different person who
tackles that performance obligation
 If there is a valid Novation where both the original contracting parties got
back together and they enter into a novation to substitute painter #2 in
place of painter #1. Painter 1 obligations are excused because home owner
has now agreed to take painter 2 instead to do the same performance just a
different guy doing the performance and novation will excuse
performance of the guy who gets replaced
 It requires a mutual agreement of both parties of a original contract where
1 party gets substituted out or replaced

iv. Accord and Satisfaction/ Accounts Stated

a. An Accord
 Is an agreement by the parties to an existing obligation to accept a different
performance in satisfaction of the existing obligation

o Example: A creditor owes a debtor $1000, but then they get back
together as the creditor says if you deliver me 20
widgets I will forgive your debt of $1000. They then
enter into such an accord as it is an agreement by the
parties to an existing obligation to take a different
performance in satisfaction.

b. Satisfaction

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  Is performance of the new agreement which is the accord. Accord and
satisfaction must go together, with accord alone it will not excuse the contract
obligations. But once they go together the old obligations will be excused

o Example: Once the debtor delivers the 20 widgets, now your

original obligation to pay back $1000 is excused.
c. Accounts Stated
 Is a situation where you put a lump together an accord and satisfaction for more
than 1 transaction.
 Watch out for an accord alone without satisfaction, just because people
agree to do something else(accord) does not mean they are excused until
they have satisfied that accord.

o Example: When a debtor and creditor have entered into 10

transactions with each other and the total bill of the
transactions is $1000. The both agree to add all the debt
together and both agree to liquidate the debt for a
reduced sum(“if you pay me $700 I will forgive the
balance of your debt”). This is an account stated.
v. Statutes of Limitation
 Reliving a party of their duty of performance(excusing their performance
obligation) because once the statute of limitations has passed you cannot be sued
anymore and excused from performance as there is no enforceability.
 It is the time of breach that triggers the running of the statute of limitations and
not the timing of when the parties entered into the contract.

 Written contracts usually get a longer statute of limitation period usually

5-6 years.

 Oral contract/promissory estoppel cause of action the statute of limitation

is usually 3 years.

5) Conclusion:
 Is Performance due or was there some excuse for non-performance
 Material V. Minor breach
 Failure of Conditions and
 What Conditions look like and
 How Conditions can they be satisfied or excused
 Doctrine of Impossibility
 Doctrine of Impracticability
 Doctrine of Frustration of Purpose
 Parties Subsequent later agreement as excusing their original contract obligations

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 Contract Law- Video 5 MBE- Approach- (49 mins)
o There will be 28 Contract Questions on the MBE
o ½ will cover contract formation and performance, breach and discharge
o ½ will cover defenses, parole evidence, remedies and third-party rights
o 25% of hypos will be testing your understanding in Article 2 of the Uniform
Commercial Code

1. Contract law is permitting almost every aspect of our lives, try to connect rules to real life
fact patterns to help relate to the subject matter

2. Contract rules are common sense, fairness and how business people do transactions

3. Consider the purpose of the rules and put it in easy to remember terms, most buyers and
sellers use these terms without even knowing their formal language

4. Give an identity to each player in a contract- the seller, buyer a person you know

 How do you approach a Contract MBE Question?

 Example1: If the customer sues the supplier for breach of contract, is
the customer likely to prevail
 Step 1: What subject is the question testing?
o Contracts
 What is the broad area of the subject being tested?
o Contract formation
 What is the narrow topic being tested?
o Acceptance
 Narrow it down even further to:
o Mailbox rule
 Whether there was a validly formed contract?
o Offer, acceptance, consideration

Once you know you are in a contract question look for game changing facts

 Step 2: Game Changing Facts

 Look for hints on the specific doctrine being tested in the legally significant facts such as:
 1) Dates- play an important role in formation questions, so make a time line
 Example2: Was the contract formed on April 1st when Moe and
Larry shook hands or was it formed on April 15 when the
acceptance was received. You have to keep track of what
happened on each date.

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  2) Dollar Amounts- how much the widgets cost or the amount if which the
offeror contracted to sell Blackarc. It can signal a Statute of Frauds issues,
damages issue, mistake issue
 3) Contract formation words- these are words of offer, acceptance or
consideration
 Example 3:
Owen offered Paul $500 if Paul paints Owens’s house
Paul says “no, I’ll do it for $600
Paul changes his mind, says “ok, I’ll do it for $500
NO CONTRACT
Paul never accepted,
Paul rejected the original offer by making a counter offer
Which now must be accepted by Owen to form a contract
 Example 4:
Ronda saves Vinnie from falling ice, but Ronda breaks her
leg in the process
V offers to pay R’s salary while she recovers
V investments plummet and he now refuses to pay R
V does not have to pay because
NO CONTRACT
There is no consideration
No bargain for exchange

 4)Words of Condition-
 These includes words such as: “If, when and as soon as
 Words of condition may trigger a parole evidence rule or basis of an excuse not
to perform under the contract

 Example5: If there was a condition Precedent and that condition never

occurred then evidence of this condition precedent is not barred by the
parol evidence rule and can also be a basis for not performing
Or if someone offers to buy a painting for an artist for $500

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