California Bar Examination Contracts and Sales (UCC Article 2) Syllabus

List the principal exceptions that satisfy or take a sale-of-goods contract out of the Statute of Frauds.

(1) Goods specially manufactured (not resaleable) once seller substantially begins; (2) admission in pleadings/testimony (up to the quantity admitted); (3) payment made/accepted or goods received/accepted (to that extent); and (4) the merchant's confirmatory memo rule.

Explain the UCC merchant's confirmatory memo exception to the Statute of Frauds.

Between merchants, if one party sends a signed written confirmation of an oral agreement within a reasonable time, and the recipient merchant has reason to know its contents, it binds the recipient too — unless he objects in writing within 10 days of receipt.

State the parol evidence rule and what it bars.

When parties express their agreement in a writing intended as the final integration, the parol evidence rule bars admission of prior or contemporaneous oral/written statements that contradict or (if fully integrated) supplement the writing.

What evidence is NOT barred by the parol evidence rule?

Evidence to: (1) explain/interpret ambiguous terms; (2) show a formation defect (fraud, duress, mistake, illegality); (3) show a condition precedent to effectiveness; (4) supplement a partially integrated writing with consistent additional terms; and (5) prove a subsequent modification (PER applies only to prior/contemporaneous).

Distinguish complete (total) integration from partial integration for parol evidence purposes.

A complete integration is the final and exclusive statement of all terms — no additional or supplementary terms allowed. A partial integration is final as to the terms it contains but not complete — consistent additional terms may be admitted. A merger clause is strong evidence of complete integration.

Under the UCC, what hierarchy controls when express terms, course of performance, course of dealing, and usage of trade conflict?

Express terms control over all; then course of performance (conduct under THIS contract) controls over course of dealing (prior contracts between these parties); which controls over usage of trade (custom in the industry). All are read consistently when possible.

Define course of dealing, course of performance, and usage of trade.

Course of dealing: a sequence of prior conduct between the parties in PREVIOUS transactions. Course of performance: conduct in performing THE present contract (esp. repeated occasions accepted without objection). Usage of trade: a practice so regularly observed in a place/trade/vocation that parties expect it to be observed.

State three key common law rules of contract interpretation.

(1) Contra proferentem: ambiguities construed against the drafter; (2) specific terms control over general terms; and (3) the contract is read as a whole to give effect to all provisions and the parties' principal purpose, preferring an interpretation that makes the contract valid and reasonable.

Define a condition, and distinguish a condition from a promise.

A condition is an event (not certain to occur) that must occur (or be excused) before performance becomes due or that discharges a duty. A promise is a commitment to act. Breach of a promise gives a damages claim; failure of a condition merely means the conditioned duty never arises (no liability for the failure itself).

Compare conditions precedent, concurrent, and subsequent.

Condition precedent: must occur before a duty to perform arises. Concurrent conditions: each party's performance is due simultaneously (each conditioned on the other's tender). Condition subsequent: an event that, after a duty arose, extinguishes (discharges) that duty. The party asserting a condition subsequent bears the burden of proof.

Distinguish express conditions from constructive (implied) conditions and the standards governing each.

Express conditions are stated by the parties and require strict/literal compliance. Constructive conditions are imposed by courts to ensure fairness in order of performance and require only substantial compliance (substantial performance).

How can a condition be excused?

By: (1) waiver/estoppel; (2) the conditioned party's wrongful prevention or hindrance; (3) anticipatory repudiation by the other party; (4) election; or (5) to avoid disproportionate forfeiture where the condition was not a material part of the bargain.

List the warranties implied or created under UCC Article 2.

(1) Express warranties (affirmations of fact, promises, descriptions, samples that become part of the basis of the bargain); (2) implied warranty of merchantability; (3) implied warranty of fitness for a particular purpose; and (4) warranties of title and against infringement.

State the implied warranty of merchantability and when it arises.

In every sale of goods by a merchant who deals in goods of that kind, the goods are warranted to be merchantable — fit for the ordinary purposes for which such goods are used (also adequately packaged/labeled and of fair average quality). It is implied automatically; no specific promise needed.

State the elements of the implied warranty of fitness for a particular purpose.

It arises when (1) the seller (any seller, not only a merchant) has reason to know the buyer's particular purpose and (2) that the buyer is relying on the seller's skill or judgment to select suitable goods, and (3) the buyer in fact relies.

How are implied warranties of merchantability and fitness disclaimed under the UCC?

Merchantability: disclaimer must mention 'merchantability' and, if written, be conspicuous (or by 'as is'/'with all faults'). Fitness: disclaimer must be in writing and conspicuous. Examination of goods (or refusal) excludes warranties for defects an exam should have revealed.

State the doctrine of substantial performance and where it applies.

Under common law constructive conditions, a party who substantially performs (only a minor, non-willful breach remains) may recover on the contract minus damages for the defect. It applies to common law contracts, NOT to UCC sales of goods (perfect tender governs) and NOT to express conditions.

Distinguish material breach from minor breach and their consequences.

A material breach deprives the non-breaching party of the substantial benefit of the bargain — it suspends/discharges that party's remaining duties and allows immediate suit. A minor breach gives only a claim for damages; the non-breaching party must still perform. Factors: extent of benefit received, adequacy of damages, hardship, willfulness, and likelihood of cure.

State the UCC perfect tender rule.

In a single-delivery sale of goods, if the goods or tender of delivery fail in ANY respect to conform to the contract, the buyer may (1) reject the whole, (2) accept the whole, or (3) accept any commercial units and reject the rest. Tender need not be substantial — it must be perfect.

Describe the seller's right to cure under the UCC.

A seller who makes a non-conforming tender may cure by notifying the buyer and making a conforming delivery: (1) within the original contract time if that time has not yet expired; or (2) after the time, for a further reasonable time, if the seller reasonably believed the non-conforming tender would be acceptable (e.g., with or without a money allowance).

How does the installment contract rule modify the perfect tender rule?

In an installment contract, the buyer may reject a single installment only if the non-conformity substantially impairs the value of THAT installment and cannot be cured. The buyer may treat the WHOLE contract as breached only if the defect substantially impairs the value of the entire contract.

What is anticipatory repudiation and what options does it give the non-repudiating party?

An unequivocal statement or voluntary act, before performance is due, indicating a party will not perform. The aggrieved party may: (1) sue immediately, (2) suspend his own performance and await performance, (3) treat the contract as discharged, or (4) urge retraction. (Sue immediately only if the repudiator's duty was not already fully performed.)

When can a repudiating party retract an anticipatory repudiation?

A repudiation may be retracted until the other party (1) materially changes position in reliance, (2) sues, or (3) otherwise indicates he considers the repudiation final. Retraction reinstates the contract, subject to the other party's right to demand adequate assurances.

Explain the right to demand adequate assurances under UCC 2-609.

When reasonable grounds for insecurity arise about a party's performance, the other party may demand in writing adequate assurance of due performance and (if commercially reasonable) suspend his own performance until he receives it. Failure to provide assurance within a reasonable time (max 30 days) is treated as a repudiation.

State the elements of impossibility as an excuse for non-performance.

Performance is excused where, after formation, an unforeseen event makes performance objectively impossible (it cannot be done by anyone). Classic triggers: death/incapacity of a person essential to performance, destruction of the contract's subject matter, or supervening illegality.

Define impracticability and how it differs from impossibility.

Impracticability excuses performance when an unforeseen event, the non-occurrence of which was a basic assumption, makes performance extremely and unreasonably difficult or expensive (not merely more costly). Unlike impossibility, performance is still physically possible but commercially senseless; mere increased cost is generally insufficient.

State the elements of frustration of purpose.

(1) A supervening event not reasonably foreseeable, (2) the non-occurrence of which was a basic assumption, (3) that substantially destroys the value/purpose of the contract for one party, where (4) the purpose was understood by both parties. Performance remains possible but pointless; that party's duties are discharged.

Under the UCC, who bears risk of loss when there is NO breach and a carrier is involved (shipment vs. destination)?

Shipment contract (e.g., FOB seller's city): risk passes to the buyer when the seller duly delivers conforming goods to the carrier. Destination contract (e.g., FOB buyer's city): risk passes when the goods are tendered to the buyer at the destination. Default is a shipment contract if unspecified.

Under the UCC, who bears risk of loss with no carrier (no shipment), and how does breach affect risk of loss?

No carrier: if the seller is a merchant, risk passes to the buyer on the buyer's RECEIPT of the goods; if a non-merchant, on the seller's TENDER. Breach: the breaching party bears risk of loss to the extent of any uninsured loss (a non-conforming tender keeps risk on the seller until cure or acceptance).

Define the expectation, reliance, and restitution damage interests.

Expectation: puts the non-breaching party in the position as if the contract had been fully performed (benefit of the bargain) — the default measure. Reliance: reimburses expenses incurred in reliance on the contract (position as if never made). Restitution: recovers the value of the benefit conferred on the breaching party (prevents unjust enrichment).

What are consequential and incidental damages, and what limits them?

Consequential (special) damages flow from the buyer's particular circumstances and are recoverable only if foreseeable to the breaching party at formation (Hadley v. Baxendale). Incidental damages are costs of dealing with the breach (inspection, transport, custody, resale costs). Both must also be proven with reasonable certainty and be reasonably mitigated.

State the four classic limitations on recoverable contract damages.

(1) Causation; (2) Foreseeability (Hadley v. Baxendale — damages must have been foreseeable at formation); (3) Certainty (damages provable with reasonable certainty, not speculative); and (4) Mitigation/avoidability (no recovery for losses the plaintiff could have reasonably avoided).

When is a liquidated damages clause enforceable, and when is it an unenforceable penalty?

Enforceable if (1) actual damages were difficult to estimate at formation and (2) the amount is a reasonable forecast of probable harm. If the sum is grossly disproportionate to anticipated/actual loss, it is an unenforceable penalty. The UCC also allows review for unreasonably large amounts.

State the buyer's UCC damages for non-delivery or repudiation (cover vs. market measure).

Cover: buyer may buy substitute goods in good faith and recover (cover price − contract price) + incidental + consequential − expenses saved. Or market measure: (market price at time buyer learned of breach − contract price) + incidental/consequential − expenses saved.

What are the buyer's remedies when the buyer keeps (accepts) non-conforming goods?

The buyer may recover damages for breach of warranty: the difference between the value of the goods as accepted and the value they would have had if conforming, plus incidental and consequential damages. The buyer must give the seller notice of breach within a reasonable time after discovery.

State the seller's UCC damages on the buyer's breach (resale, market, and lost-volume measures).

Resale: (contract price − resale price) + incidental − expenses saved (good-faith resale). Market: (contract price − market price) + incidental − expenses saved. Lost-volume seller: lost profit on the deal when resale does not compensate (seller could have made both sales). Action for the price when goods cannot be resold.

What is the seller's action for the price under the UCC?

A seller may recover the full contract PRICE (plus incidental damages) when (1) the buyer has accepted the goods, (2) conforming goods are lost/damaged after risk passed to the buyer, or (3) the goods cannot be resold at a reasonable price after reasonable effort. It is the contract equivalent of forcing the buyer to complete the purchase.

When is specific performance available for breach of a sales contract?

Specific performance is granted when the legal remedy (damages) is inadequate, typically because the goods are unique or in 'other proper circumstances' (UCC 2-716). Real estate is presumed unique, so specific performance is routinely available to a buyer of land.

What equitable defenses can bar specific performance, and why are personal-service contracts not specifically enforced?

Equitable defenses: laches, unclean hands, sale to a bona fide purchaser, hardship, and indefiniteness. Personal-service contracts are not specifically enforced because of difficulty of supervision and the involuntary-servitude/13th-Amendment concern; courts may instead enjoin the breaching party from competing.

Define an intended third-party beneficiary and distinguish creditor from donee beneficiaries.

An intended beneficiary is one the contracting parties intend to benefit and who may enforce the contract. A creditor beneficiary is owed a prior debt the promisee is satisfying through the contract; a donee beneficiary receives the benefit as a gift. An incidental beneficiary is unintended and has NO enforcement rights.

When do a third-party beneficiary's rights vest, and why does it matter?

Rights vest when the beneficiary (1) detrimentally relies on the contract, (2) manifests assent at a party's request, or (3) brings suit to enforce it. After vesting, the original parties cannot modify or rescind the beneficiary's rights without the beneficiary's consent.

In a third-party beneficiary contract, whom may the beneficiary sue, and what defenses apply?

The beneficiary may sue the promisor (the one who promised the performance benefiting the beneficiary). The promisor may assert any defenses it had against the promisee (e.g., failure of consideration). A creditor beneficiary may also sue the promisee on the underlying debt.

Define assignment of rights and identify rights that cannot be assigned.

An assignment transfers a contractual right to a third party (assignee), who can then enforce it against the obligor. Rights are NOT assignable if assignment would: materially change the obligor's duty/risk, violate law or public policy, or be barred by a valid anti-assignment clause (which usually bars the right to assign but not the power, giving only a breach claim).

What are the rights of an assignee against the obligor, and how do successive assignees rank?

The assignee takes subject to all defenses the obligor had against the assignor and to payments made before notice of assignment. For gratuitous assignments, the LAST assignee generally prevails (revocable). For assignments for value, the FIRST assignee for value typically prevails, with exceptions (e.g., later assignee who first gives notice or obtains judgment/payment).

Define delegation of duties and identify duties that cannot be delegated.

Delegation is the appointment of another (delegate) to perform one's contractual duties. Duties are NOT delegable if (1) the contract prohibits it, (2) performance involves special skill/judgment or personal services where the obligee relied on the particular obligor, or (3) delegation would materially change the obligee's expectancy.

After a valid delegation, who remains liable to the obligee, and what is the effect of an assumption?

The delegating party (delegator) remains liable on the contract — delegation does not discharge the original duty (only a novation does). If the delegate ASSUMES the duty (for consideration), the obligee becomes an intended third-party beneficiary and may sue either the delegator or the assuming delegate.