Governing Law: The body of law that governs a contract depends entirely on its subject matter.

Article 2 of the UCC (Sale of Goods): Governs contracts for the sale of goods. Definition of Goods: Movable items that are identifiable at the time of the contract (i.e., tangible personal property). Examples: Lumber, logs, or heavy items like 10 school buses are goods. Real estate (like an orchard) and services (like constructing a log cabin) are not goods. General Common Law (Majority View): Governs all other contracts, namely those for services and real estate. For the bar exam, you are only required to know the majority rule.

Mixed Contracts: When a contract involves both goods and services (e.g., harvesting trees and selling the finished lumber), you must determine which aspect predominates the transaction. Whichever part is more predominant dictates the governing law for the entire contract under an "all or nothing" rule. Exception: The only exception to the all-or-nothing rule is if the contract explicitly divides separate payments for the goods purchased and the services provided.

Types of Contracts: A contract is defined as a legally enforceable agreement.

They are categorized by how they are formed and how they are accepted.

Express vs. Implied Contracts
Express Contracts: Formed by express language, which can be either written or oral. Statute of Frauds: Oral express contracts may fall under the Statute of Frauds, which provides a possible defense to the existence of the oral contract.

Implied Contracts: (1) Implied-in-Fact: Formed entirely by conduct rather than words. The actions of the parties indicate an intent to be bound (e.g., stepping onto a bus implicitly signifies agreement to pay the fare).

Implied Contracts: (2) Implied-in-Law (Quasi-Contract): This is an equitable remedy, not an actual contract, used when contract theory fails to produce a just result. It prevents unjust enrichment when a party confers a benefit on another with a reasonable expectation of payment, or when a party reasonably relies on a gratuitous promise (promissory estoppel).

Bilateral vs. Unilateral Contracts
Bilateral Contracts (Exchange of Promises): Occur when both sides make a promise to perform in the future. Most contracts are bilateral. For instance, if Wanda promises to mow Peter's lawn for $25 a week and Peter promises to pay her, they have formed a bilateral contract. Rule of Thumb: All contracts are considered bilateral unless they fall specifically into the unilateral exceptions.

Unilateral Contracts (Acceptance by Performance): Occur when the offer expressly demands acceptance only through completing performance. The offeree makes no promises and retains the right to choose whether to perform or not.

Common Scenarios: Offers involving a reward, prize, or contest (e.g., posting a flyer offering $100 for the return of a lost cat).

Unilateral Contracts 2: Express Requirements: Can also occur anytime the offer states that performance is the only accepted manner of agreement (e.g., saying "Mow my lawn tomorrow and I will give you $25"). Promising to mow the lawn does not form the contract; only executing and completing the work does.

Unilateral Contracts 3: Notice of Acceptance Requirement: An offeree typically accepts simply by rendering the performance and is not required to give separate notice. Notice is only required if the offeree has reason to know the offeror will not learn of the completed performance with reasonable certainty and promptness (e.g., the offeror is living abroad for the summer).

For a valid contract to form, three requirements must be met: (1) mutual assent (offer and acceptance), (2) consideration from each party, and (3) the absence of any defenses to formation.

A. Mutual Assent: Whether mutual assent exists is determined by an objective standard. It consists of two components: an offer and an acceptance.

B. Offer: An offer is a proposal manifesting a present intent to contract, communicated in definite and certain terms, which gives the offeree the power of acceptance.

Offer 2: Intent to be Bound: This is judged by a "reasonable person" (objective) standard. The test is whether a reasonable person in the offeree's position would believe that simply saying "yes" (assenting) would create a binding contract.

Offer 3: Advertisements (Invitation to Deal): Generally, advertisements are not offers, but rather invitations to negotiate because they lack an immediate intent to commit. Exceptions: An ad becomes an offer if it is in the nature of a reward or contest (e.g., offering $100 for a lost cat). It is also an offer if it is highly specific regarding quantity limitations and expressly indicates who can accept (e.g., "5 TVs for $500 on a first-come, first-served basis").

Offer 4: Definite & Certain Terms: The offer must contain essential terms with sufficient specificity so the contract can be enforced.
o Real Estate: Must specifically identify the land and the price.
o Sale of Goods (UCC): Only the quantity must be certain or determinable; a specified price is not required as long as the parties intended to contract. Output, requirements, and exclusivity contracts (e.g., buying a seller's entire output or buying all of one's requirements) are sufficiently definite because quantity is determinable based on reasonably foreseeable figures and an implied duty of good faith. However, demands for quantities unreasonably disproportionate to estimates or prior norms are invalid.
o Employment: Must specify the duration. If no duration is specified, or if it promises "permanent" or "lifetime" employment, it is considered an "at-will" contract that either party can terminate at any time without breach.
o Vague Terms: Words like "appropriate," "fair," or "reasonable" do not constitute an offer.

Offer 5: Communication: The offeree must have actual knowledge of the offer to have the power of acceptance.

Termination of Offer An offer must be accepted before it terminates. It can terminate in five ways.

Termination of Offer: 1. Lapse of Time: Terminates after the time stated in the offer, or if no time is stated, after a reasonable time.

Termination of Offer: 2. Death or Incapacity: The death or incapacity of either the offeror or the offeree prior to acceptance terminates the offer.

Termination of Offer: 3. Revocation: Words or conduct by the offeror indicating they will no longer contract. Revocation is only effective upon receipt by the offeree. If a revocation is lost or never communicated, it is ineffective. Merely making multiple offers does not revoke earlier ones; the offeree must receive notice.

Termination of Offer: 3.2 Irrevocable Offers: Offers generally can be revoked, but exceptions exists. Option Contracts is an exception of no revocable offers: The offeror promises to hold the offer open in exchange for consideration (usually money) from the offeree.

Detrimental Reliance (Promissory Estoppel) is an exception of no revocable offers: The offer is held open for a reasonable time if the offeree reasonably, foreseeably, and detrimentally relies on it (e.g., a general contractor relying on a subcontractor's bid).

Start of Performance on Unilateral Contract is an exception of no revocable offers: Starting the requested performance makes the offer temporarily irrevocable to give the offeree a reasonable time to finish. Mere preparation is not enough.

UCC Firm Offer Rule is an exception of no revocable offers: A written, signed offer by a merchant promising to hold an offer open is irrevocable without consideration. A merchant is someone who regularly deals in the goods of the kind. A firm offer stays open for the time stated (or a reasonable time), but the irrevocability cannot exceed three months.

Termination of Offer: 4. Rejection: Words or conduct by the offeree expressing an unwillingness to deal.
Express Rejection: Immediately terminates the offer.
Counteroffers: A counteroffer always terminates the original offer and becomes a new offer.
Declarative vs. Interrogative: A declarative change (e.g., "I will take it for $150k") is a counteroffer. A mere inquiry or interrogative statement (e.g., "Are you including appliances?") is just bargaining and does not terminate the offer.
Conditional Acceptance: Using words like "provided that," "only if," or "so long as" terminates the original offer and acts as a counteroffer.

Termination of Offer: 5. Supervening Illegality: If the proposed contract becomes illegal between the time of the offer and acceptance, the power to accept terminates.

Acceptance: Acceptance is the offeree's words or conduct manifesting assent to the terms of the offer.

Acceptance 2: Requirements: The offeree must have knowledge of the offer (e.g., returning a lost dog without knowing of a reward does not form a contract). Assent must be unequivocal; a mere statement of future intention is not enough. Acceptance must be communicated.

Acceptance 3: Who May Accept: Only the specific offeree to whom the offer was made can accept, as offers are non-assignable. Exception: Option contracts supported by consideration are assignable unless stated otherwise.

Acceptance 4: Additional or Different Terms: Common Law (Mirror Image Rule): Applies to real estate and services. Acceptance must perfectly mirror the offer. Any deviation acts as a rejection and counteroffer.
UCC Exception: Rejects the mirror image rule. Acceptance with different terms still forms a contract. If only one party is a merchant, the new terms are mere proposals. If both parties are merchants, the new terms automatically become part of the contract UNLESS: (1) the offer expressly limits acceptance to its exact terms, (2) the new terms materially alter the contract (e.g., disclaiming warranties), or (3) the offeror objects within a reasonable time.

Acceptance 5: Mode of Acceptance: Offers can be accepted by the manner authorized or any reasonable means. The UCC specifically allows any reasonable means.
The Mailbox Rule: An acceptance is generally effective upon dispatch (when mailed), not upon receipt. Exceptions: (1) The offer explicitly states acceptance is only valid upon receipt; (2) A rejection is mailed first (in this case, whichever document is received first governs); (3) Option contracts are only accepted upon receipt. Note: All other communications (rejections, revocations) are only effective upon receipt.

Methods of Acceptance 1: Bilateral vs. Unilateral: For a bilateral contract (exchange of promises), promising to perform is a valid acceptance.

For a unilateral contract (acceptance by performance only), promising to perform is not acceptance; only completing performance is.

Methods of Acceptance 2: Completing Performance: Constitutes acceptance, but the offeree must provide reasonably prompt notice if the offeror is unlikely to discover the performance. Substandard performance acts as both an acceptance and a simultaneous breach.

Methods of Acceptance 3: Starting Performance: In a bilateral contract, starting performance implies a promise to complete it, and constitutes acceptance. In a unilateral contract, starting does not equal acceptance, but it makes the offer temporarily irrevocable.

Methods of Acceptance 4: UCC Shipment of Goods: An offer to buy goods can be accepted by a prompt promise to ship or prompt actual shipment. Shipping nonconforming goods is simultaneously an acceptance and a breach. Exception: If the seller ships nonconforming goods alongside a Notice of Accommodation, it does not act as an acceptance/breach, but rather a counteroffer which the buyer can accept or reject.

Methods of Acceptance 5: Silence: Generally, silence is not acceptance. Exceptions exist if the parties have a prior history of dealing that way, or the offeree accepts the benefits of the contract.

Consideration 1: Consideration is the bargained-for exchange of legal value between the parties.

Consideration 2: Elements: Something must be sought by the promisor and given by the promisee in return. It requires a legal detriment or forbearance (doing something one is not legally obligated to do, or refraining from something one has a legal right to do). Gratuitous gifts completely lack consideration.

Consideration 3: Adequacy of Consideration: Courts generally do not inquire into the adequacy, amount, or equivalency of the consideration, as long as a bargain occurred.
Exceptions: Token consideration (entirely devoid of value) is not valid. Illusory promises (reserving absolute discretion, e.g., "unless I change my mind") lack consideration.
Output/Requirements Contracts: These do not lack consideration because the buyer/seller are bound by an implied duty to use best efforts and act in good faith, restricting their discretion.

Consideration 4: Past Consideration: Acts completed in the past cannot serve as consideration for a present promise. Exception: If the past act was expressly requested by the promisor, or performed in an emergency, a subsequent promise to pay for it is enforceable.

Consideration 5: Pre-Existing Legal Duty Rule:
Common Law: Promising to do something one is already legally obligated to do is not valid consideration. Contract modifications require new consideration. Exceptions include a minor change in performance, unforeseen difficulties making modification fair and equitable, an honest dispute over the duty, or a promise made to a third party.
UCC (Sale of Goods): Rejects the pre-existing legal duty rule. Contract modifications do not require new consideration, they only require good faith.
Part Payment of Debt: If a debt is due and undisputed, partial payment does not constitute consideration to enforce a release of the rest of the debt. If the debt is not yet due or is disputed in good faith, a partial payment serves as new consideration because both parties are surrendering their claims.

Consideration 6: Consideration Substitutes: Promises lacking bargained-for exchange may still be enforceable.
1.                 Seal: Although obsolete in many states and under the UCC.
2.                 Written Promise for Barred Debts: A written promise to pay a valid debt that is barred by the statute of limitations.
3.                 Promissory Estoppel (Detrimental Reliance): Protects a party who relied on a promise without providing consideration. It requires: (1) words of a promise, (2) actual reliance by the promisee, (3) that is reasonable, detrimental, and foreseeable, and (4) enforcement is necessary to avoid injustice.

A valid contract can generally be enforced by either party, but the presence of a defense can alter its enforceability. Defenses fall into three primary categories regarding their effect:

Void (Void Ab Initio): The contract is void from the outset and has no legal effect whatsoever, meaning neither party can enforce it (e.g., a contract to commit a crime).

Voidable: The contract can be voided at the election of one or both parties. The party possessing the right to void may choose to escape the contract or treat it as fully valid and enforceable.

Unenforceable: The agreement is valid, but it cannot be enforced in a court of law due to a defense unrelated to contract formation (e.g., the Statute of Frauds or Statute of Limitations).

A. Lack of Consideration: A contract must be supported by valid consideration, meaning a bargained-for exchange of something of value. Both parties must be required to perform a detriment in exchange for receiving a benefit. The absence of this mutual consideration is a defense to contract enforcement.

B. Lack of Capacity: A party lacking the legal capacity to contract has the right to disaffirm (void) the agreement, but the contract remains binding on the opposing party if the incapacitated party chooses to enforce it. The plaintiff's capacity is irrelevant.
Who Lacks Capacity: (1) Minors (under 18), (2) mental incompetents, and (3) intoxicated persons (but only if the other party had reason to know of the intoxication).

Lack of Capacity 2: Quasi-Contract Liability for Necessaries: An incapacitated person is legally obligated to pay the reasonable value of "necessaries" they contract for, such as food, clothing, medical care, or shelter. This is considered quasi-contractual liability, not actual contract liability.

Lack of Capacity 3: Implied Affirmation: If a party enters a contract while lacking capacity (e.g., as a minor) but subsequently gains capacity (e.g., turns 18) and continues to retain the benefits of the contract without complaint, the contract is deemed affirmed and enforceable.

Lack of Volitional Consent: This defense applies when a party has legal capacity, but their free will is overcome by duress or coercion, making the contract voidable by the innocent party.

Lack of Volitional Consent 1: Duress: Requires an improper or wrongful threat/act that overcomes the party's free will. Economic duress (e.g., an improper threat to breach an existing contract combined with the other party's vulnerability) is also a valid defense.

Lack of Volitional Consent 2: Undue Influence: Requires undue susceptibility to pressure (often established by circumstances like a confidential relationship, e.g., parent-child or attorney-client) combined with excessive pressure from the opposing party. Unlike duress, no wrongful threat is required.

D. Statute of Frauds (SOF): The Statute of Frauds requires certain contracts to be evidenced by a writing to be enforceable.
1: Incapable of Being Performed within One Year: If there is no possibility the contract can be completed within one year of its formation, it falls under the SOF. The possibility of early termination is irrelevant. If performance requires a specific date more than a year away, it is within the SOF. Contracts for "specific tasks" without a date or "lifetime" contracts do not fall under the SOF because they can theoretically be completed or the person could die within a year.
2: Sale of Goods for $500 or More: Subject to the SOF under the UCC.
3: Promises in Consideration of Marriage: Includes prenuptial and postnuptial agreements, but not mere reciprocal promises to marry.
4: Guarantees to Pay Debts of Another: A promise to answer for someone else's debt if they default. A mere promise to pay is not enough; it must be a guarantee. Exception: The "Main Purpose" exception removes the promise from the SOF if the main purpose of guaranteeing the debt was to benefit the guarantor.
5: Executor Promises: An executor promising to pay estate debts using their own individual funds.
6: Real Estate Transfers: Agreements to transfer an interest in real property. Exception: Leases of one year or less are not within the SOF.

Satisfaction of the SOF 1: By Writing:
Common Law: The writing must identify material terms (who the parties are and what they are agreeing to) and be signed by the party asserting the SOF defense.
UCC (Goods $500+): Must indicate a contract for the sale of goods was formed, state the quantity (price is not required), and be signed by the party asserting the defense.
UCC Confirmatory Memo Rule: If both parties are merchants and one sends a written confirmation of the deal, the SOF is satisfied unless the receiving party objects within 10 days.

Satisfaction of the SOF 2: By Performance 1:
Services: Full performance satisfies the SOF. Part performance does not, but the performing party may recover the value of benefits conferred via quasi-contract to prevent injustice.

By Performance 2: Sale of Goods: Part performance satisfies the SOF only to the extent of the part performance. For ordinary goods, delivery and acceptance satisfies the SOF for those specific goods, but the defense remains for undelivered goods. For specially manufactured goods, a substantial beginning (starting production or committing to procurement) completely eliminates the SOF defense. Part payment for multiple goods satisfies the SOF proportionally to the payment made; part payment for a single good satisfies the SOF completely for that item.

By Performance 3: Land Contracts: Requires two of the following three elements: (1) Buyer takes possession, (2) buyer pays all or part of the purchase price, or (3) buyer makes substantial improvements.

Satisfaction of the SOF 3: By Judicial Admission: The SOF defense is defeated if the party asserting it admits under oath (e.g., in pleadings or discovery) that a contract existed.

Other SOF Issues 1: Equal Dignity Rule: If a contract falls within the SOF, any authorization for an agent/third party to enter into that contract on the principal's behalf must also be in writing.

Other SOF Issues 2: Contract Modifications: If a contract as modified falls within the SOF, the modification must be in writing (e.g., increasing a good's price from $400 to $600).

Other SOF Issues 3: Prohibiting Oral Modifications: Express clauses requiring modifications to be in writing are ignored under the common law, but are considered valid under the UCC unless waived.

Misrepresentation (Fraud) A misrepresentation is a statement not in accord with the facts.

Misrepresentation (Fraud) 2: Fraud in the Inducement (Voidable): Occurs when a party knows they are entering a contract but does so based on false information. If a party intentionally/fraudulently misrepresents a fact, the defrauded party can void the contract if they justifiably relied on it, regardless of whether the deal was fair.
Non-disclosure vs. Affirmative Hiding: There is no general duty to disclose facts, but affirmatively hiding material facts to induce a contract is fraudulent misrepresentation.
Statute of Limitations: Begins to run when the party knows or has reason to know of the misrepresentation, not at the time of formation.
Non-Fraudulent/Innocent Misrepresentation: If the false statement was innocent, the contract is only voidable if the innocent party justifiably relied on it and the misrepresented fact was materially important to the deal.

Misrepresentation (Fraud) 1: Fraud in the Factum (Void): Occurs when a party signs an agreement without realizing it is a contract or misunderstanding its binding nature/content due to false information. The contract is void ab initio.

Mistake of Fact A mistake is a belief not in accord with existing facts (it does not apply to wrong predictions about the future).

Mistake of Fact 1: Mutual Mistake: Both parties share the same mistaken belief. It is a defense if: (1) it relates to a basic assumption of existing fact regarding the subject matter, not just value; (2) it has a material adverse effect on the agreement; and (3) the adversely affected party did not assume the risk of the mistake. (Note: Sellers are presumed to assume the risk of knowing what they own and are selling).

Mistake of Fact 2: Unilateral Mistake: Only one party is mistaken. This is generally insufficient to void a contract unless the mutual mistake requirements are met AND either: (a) the opposing party knew or should have known of the mistake (bad faith), or (b) enforcing the contract would be unconscionable.

Mistake Due to Ambiguity: This formation defect occurs when a material term has at least two reasonable interpretations, each party has a different meaning in mind, and neither party is aware of the ambiguity.
• If both intend different meanings and neither knows of the ambiguity, no contract is formed (it is rescinded).
• If one party is aware of the ambiguity, a valid contract is formed based on the terms as understood by the unaware party.

Unconscionability: Courts can refuse to enforce a contract or a specific provision if it is so one-sided as to be unconscionable. This is measured strictly by the circumstances existing at the time of contract formation. Unconscionability often involves procedural overreaching, substantially disparate bargaining power, contracts of adhesion ("take it or leave it"), inconspicuous risk-shifting, or terms against public policy.

Illegality & Public Policy 1: Illegal Consideration or Subject Matter (Void): If the subject matter or consideration itself is illegal (e.g., a contract to kill someone or pay in cocaine), the contract is void and legally unenforceable. Exceptions: The plaintiff may recover damages if they were completely unaware of the illegality while the defendant knew. Relief may also be sought if the parties are not in pari delicto (one is much less culpable than the other).

Illegality & Public Policy 2: Illegal Purpose (Voidable): If the contract is for a perfectly legal subject matter but was formed for an illegal purpose intended by one party, it is voidable by the unaware party. It can also be voided by a party who was aware of the illegal purpose but did not facilitate it, provided the purpose does not involve serious moral turpitude.

Illegality & Public Policy 3: Violation of Regulatory Statute: A contract violating a regulatory statute is unenforceable against public policy if the policy against enforcement outweighs the interest in enforcing voluntary agreements. Exception: The contract can still be enforced by the specific class of persons the statute was designed to protect (e.g., a homeowner enforcing a contract against an unlicensed plumber).

The Parol Evidence Rule (PER) The parol evidence rule limits the admissibility of certain prior or contemporaneous expressions (written or oral) during disputes about the terms of a contract. The underlying principle is that a final written contract is the most reliable evidence of the parties' agreement.

The Parol Evidence Rule (PER): Application: It prohibits the introduction of prior or contemporaneous statements to prove the content of the contract. It does not apply to subsequent oral or written agreements, which are considered modifications.

The Parol Evidence Rule (PER): Integration Requirement: For the PER to apply, a court must determine that the written contract is an "integration"—meaning it was intended to be the final agreement between the parties.

Types of Integration & General Rules The application of the PER depends on whether the integration is partial or complete.
Complete Integration: The document is written, final, and contains all the details of the agreement. Rule: Parol evidence is inadmissible to contradict or supplement (add consistent terms) the writing.

Partial Integration: The document is written and final, but does not include all the details of the agreement. Rule: Parol evidence is inadmissible to contradict the writing, but it is admissible to supplement it by adding consistent terms.

Exceptions (When Parol Evidence is Admissible) Parol evidence is generally inadmissible to contradict a contract regardless of the integration type. However, there are several situations where the rule does not apply:

Applies to BOTH Complete and Partial Integrations:
o Mistake in Integration: Admissible to show a clerical or transcription error.
o Defenses to Formation: Admissible to prove defects like illegality, fraud, duress, mistake, or lack of consideration.
o Condition Precedent: Admissible to establish that an oral condition applied that may excuse performance.
o Consistent Collateral Contract: Admissible to show a separate, consistent agreement that normally wouldn't be included in the main writing.
o Clarifying Ambiguity: Admissible to explain or interpret ambiguous terms in the contract. (Note: California allows extrinsic evidence to first demonstrate that an ambiguity exists).

Applies ONLY to Partial Integrations: Supplementing: As stated above, consistent additional terms can only be added if the integration is partial.

Merger Clause: A clause stating the contract is the "complete and final agreement" (or that prior agreements are merged into it). Under common law, this strongly indicates a complete integration, triggering the strict PER.

Reformation: An equitable action allowing a court to modify the written contract to reflect the actual, true intent of the parties based on legitimately admitted oral evidence.

Interpretation of Contract Terms When a contract term is disputed, courts must determine if it is ambiguous and how to interpret it. 1. Theories of Interpretation (Finding Ambiguity)
Four Corners Approach: Interpretation is governed strictly by the document itself. No extrinsic evidence is allowed to determine if an ambiguity exists.
Plain Meaning Approach: Courts consider the context/circumstances of the agreement to find ambiguity, but will not consider pre-contract preliminary negotiations.
Liberal Approach: Courts will consider all extrinsic evidence, including preliminary pre-contract negotiations, to determine if an ambiguity exists.

2. Maxims of Interpretation Courts use several rules of thumb to interpret contracts:
1. Whole Document: Contracts and all related transaction writings are interpreted as a whole.

2. Primary Purpose: The parties' ascertainable primary purpose is given great weight.

3.Specific over General: Exact/specific terms carry more weight than general language.

4.Negotiated over Standard: Terms specifically negotiated, added, handwritten, or typed control over standardized, pre-printed form language.

5. Against the Drafter: Ambiguities are generally construed against the party who drafted the contract.

6. Ordinary Meaning: Language is given its generally prevailing meaning unless a different intent is clear.

7. Technical Terms: Terms of art are given their technical meaning within their specific field.

3. Hierarchy of Interpretive Evidence When interpreting obligations, courts look to external manifestations of intent, ordered by persuasiveness:

1. Express Terms: Carry the greatest weight and trump all other evidence.

2. Course of Performance: Evidence from how these specific parties have acted under the current, partially performed contract in dispute.

3. Course of Dealing: Evidence from how these specific parties performed in different, past contracts with one another.

4. Usage of Trade (Custom): Evidence of how different people generally perform similar contracts within a particular industry.

Default UCC Terms (Gap Fillers) If a contract for the sale of goods omits certain terms, the UCC supplies default gap fillers.

Delivery Obligations: (1) Time: Within a reasonable time. (2) Place: The seller's place of business (or residence, if they have no business).

Delivery NOT by Common Carrier (Direct Exchange):
Merchant Seller: Delivery is complete when the buyer actually receives the goods.
Non-Merchant Seller: Delivery is complete when the seller tenders the goods (makes them available and notifies the buyer how to get them).

Delivery BY Common Carrier (FedEx, UPS, etc.):
Shipment Contract (Default): Designated by "F.O.B. [Seller's City]". The seller must deliver the goods to the carrier, make reasonable arrangements, provide necessary documents, and promptly notify the buyer. The delivery obligation is complete before the goods reach the buyer. (Failure to notify only allows buyer rejection if it causes material delay or loss).o Destination Contract: Designated by "F.O.B. [Any City other than Seller's]". The seller must deliver the goods to the specified final destination. Delivery is complete only upon arrival.

Risk of Loss Determines who bears the financial burden if goods are destroyed without fault before the buyer receives them.
1. Agreement Controls: Express terms always trump default rules.
2. Breach: A breaching party is liable for uninsured loss, even if the loss is unrelated to their breach.
3. Non-Carrier Delivery:
o Merchant Seller: Risk stays with the seller until the buyer receives the goods.
o Non-Merchant Seller: Risk shifts to the buyer once the goods are tendered.
4. Carrier Delivery: Risk of loss passes when the delivery obligation is completed.
o Shipment Contract: Risk passes when goods are delivered to the common carrier.
o Destination Contract: Risk passes when goods arrive at the final destination.

Warranties of Quality: Express Warranties: Created by statements of fact, promises, or showing a model/sample. Statements of value, opinion, or "puffery" (e.g., "world's best") are not warranties. Express warranties generally cannot be disclaimed.

Implied Warranties 1: Warranty of Title: Automatically warrants that title is good and transfer is rightful.

Implied Warranties 2: Warranty of Merchantability: Applies only if the seller is a merchant who regularly deals in goods of that specific kind. Warrants that the goods are fit for their ordinary purpose.

Implied Warranties 3: Warranty Against Infringement: A merchant seller also warrants the goods are free from rightful patent, trademark, or copyright claims.

Implied Warranties 4: Warranty of Fitness for a Particular Purpose: Applies if the buyer has a specific use in mind, the seller is aware of it, and the goods are implied to be fit for that specific purpose.

• Disclaimers & Limitations:
Implied warranties can be disclaimed if the language is conspicuous (e.g., different font/print).
Magic words like "as is" or "with all faults" effectively eliminate implied warranties.
Remedies for breach can be limited unless unconscionable. Limiting remedies for personal injury caused by consumer goods is prima facie unconscionable.

Third-Party Beneficiaries to Warranties: The UCC offers three alternatives for who can sue for breach of warranty besides the buyer:
o Alternative A (Majority): Narrow. Extends to family, household members, or guests who suffer personal injury reasonably expected from using the good.
o Alternative B: Broad. Extends to any natural person reasonably expected to be affected who suffers personal injury.
o Alternative C: Broadest. Extends to any person injured in any capacity (removes the personal injury requirement).

Price & Payment
Price: If the price is left open, not discussed, or fails to be set by a market/third party, the default is a reasonable price at the time of delivery. If the contract leaves the price to be fixed by one party, that party must do so in good faith.
Payment in Goods: If a contract is paid in goods, each party is considered a seller of the goods they transfer.
Payment Time/Place: Unless specified, payment is due at the time and place the buyer is to receive the goods.

UCC Parol Evidence Rule
• Like the common law, final written expressions cannot be contradicted by prior agreements.
• Differences from Common Law:
o A merger clause does not conclusively prove an agreement is completely integrated; courts must look at all circumstances.
o Agreements can always be explained or supplemented by course of dealing, usage of trade, or course of performance.
o Usage of Trade: The UCC highly favors this evidence. It is admissible to supplement an agreement unless the contract's express language completely negates the specific trade usage. Consistent additional terms can also be admitted unless the writing was intended as a completely exclusive statement.

Discharge of Contractual Duties: Once a valid contract is formed, the parties are expected to perform their obligations. However, performance can be excused or discharged either by an agreement between the parties to change the terms, or by the occurrence of unforeseen supervening events.

A. Rescission Rescission can be mutual or unilateral.
• 1. Mutual Rescission: An express agreement by both parties to cancel the original contract. This agreement to rescind is itself a binding contract supported by consideration, as each party gives up the right to enforce the other's obligations.
o Writing Not Required: An oral agreement to rescind is sufficient; there is no general rule requiring a writing.
o Must be Executory: For mutual rescission to be valid, the contract must be executory on both sides, meaning neither party has finished their required performance and both have outstanding obligations. Under the UCC, a seller's delivery and a buyer's payment are considered concurrent conditions of exchange.
o Third-Party Beneficiaries: If a third-party beneficiary's rights have already vested (they are owed a duty under the contract), the contract cannot be discharged by mutual rescission.

2. Unilateral Rescission: Occurs when one party has an adequate legal ground to rescind the contract, effectively relying on a defense to formation (e.g., fraud, duress, mistake, or lack of consideration).

Accord & Satisfaction
1. Accord: An agreement to accept a different, usually lesser, performance in satisfaction of an existing legal obligation. This often arises when there is a good-faith dispute about the performance or the statute of limitations has passed.
o Not Available if Due and Undisputed: Promising to accept a lesser performance for a debt that is currently due and undisputed is not a valid accord because it lacks consideration.
o Effect of Accord: An accord does not immediately discharge the prior contract. It merely suspends the right to enforce the original contract until the accord is either satisfied or breached.

2. Satisfaction: The actual performance of the accord agreement.
o Effect: Satisfaction immediately discharges both the original contract and the accord contract.
o Breach of Accord: If the accord is not satisfied (e.g., a check for the lesser amount bounces), the non-breaching party may sue on either the original un-discharged contract or for breach of the new accord agreement.

Contract Modifications (Substituted Agreement) A modification is an agreement to accept a different agreement in satisfaction of the existing obligation. Unlike an accord, a valid modification immediately discharges the original terms and replaces them with a new contract.

• 1. Consideration Requirements:
o Common Law: Requires new consideration to be valid, due to the pre-existing legal duty rule. Any modest addition or change in performance constitutes new consideration.
 Exceptions: New consideration is not required if there is an unforeseen difficulty making performance fair and equitable in light of unanticipated circumstances (assuming the contract is not fully performed). It is also not required if the promisee owes a pre-existing duty to a third party rather than the promisor.
o UCC (Sale of Goods): Rejects the pre-existing duty rule. No new consideration is required; modifications are valid simply if they are agreed upon in good faith.

2. Writing Requirements (Statute of Frauds):
o If the contract as modified falls within the Statute of Frauds (e.g., the price is increased from $400 to $600), the modification must be in writing.
o Prohibiting Oral Modifications: Express contract clauses prohibiting oral modifications are ignored under the common law, but they are valid under the UCC unless waived.

Novation (Substituted Person) A novation occurs when one or both parties to a contract are replaced by a third party who assumes the duties or receives the benefits.
Requirements: Must have (1) a previous valid contract, (2) agreement by all parties (including the new third party), and (3) a valid and enforceable new contract.
Delegation: If all parties do not mutually agree to the substitution, it is merely a delegation, and the original delegating party remains liable.
Effect: A valid novation immediately extinguishes the contractual duties of the original party being replaced, excusing them from liability.

Later Unforeseen Events Performance can be excused if something unexpected occurs after contract formation but before performance.

1. Impossibility: Unforeseeable circumstances outside the defendant's control make performance objectively impossible (no one could perform). Subjective impossibility (the defendant cannot perform, but someone else could) does not excuse performance.
o Supervening Illegality: A change in the law makes performance illegal.
o Death or Incapacity: Generally, death does not excuse a contract (the estate is liable). However, the death or physical incapacity of a person specifically identified or necessary to effectuate the contract (e.g., a specific artist in a personal service contract) excuses performance.
o Destruction of Subject Matter: The contract is excused if the subject matter is destroyed without fault. Under the UCC, if goods identified to the contract are totally destroyed before the risk of loss passes to the buyer, the contract is avoided.
o Temporary Impossibility: Suspends duties, but does not completely discharge them.

2. Impracticability: A subjective test where unforeseen circumstances cause undue hardship on the defendant, making performance commercially unreasonable or infeasible.
o Foreseeable Events: Uncertain weather or normal fluctuations in market conditions/prices are considered foreseeable and will never excuse performance. It requires extreme changes like war, terrorism, epidemics, or destruction of shipping lanes.
o Temporary Impracticability: Also suspends duties without discharging them.

3. Frustration of Purpose: Supervening, unforeseeable events destroy the known purpose of the contract.
o Distinction: Unlike impossibility, performance is still technically possible (e.g., the buyer can still pay), but the purpose of the contract has become entirely pointless.

F. Failure of Condition Precedent A party's performance does not become due until all express conditions have occurred or are excused.

Express Conditions: Explicit language indicating something must occur before performance is due (e.g., "provided that," "so long as," "if," "unless," "subject to"). This is different from conditional acceptance, which prevents contract formation altogether.

Strict Compliance: Conditions require strict compliance; if an express condition is not fully satisfied, performance is excused. Only the party whose duty is protected by the condition can invoke its failure to avoid performance.

Excuse of Express Conditions: A condition can be eliminated or excused, obligating the protected party to perform, through:
o Waiver: The protected party waves the condition (can be reinstated for future acts).
o Estoppel: The protected party's words/conduct cause the other party to reasonably rely on the belief that the condition will not be required.
o Prevention: The protected party intentionally or negligently prevents the condition from occurring, violating the duty of good faith.
o Avoidance of Forfeiture: Courts may excuse a condition to avoid a disproportionate denial of compensation after a party has relied substantially through preparation or performance.

Anticipatory Repudiation Occurs when a party unambiguously and unequivocally manifests an intention not to perform (or an inability to perform) before the time for performance arises. Expressions of doubt or requests to modify the contract do not constitute anticipatory repudiation.

Through Conduct: Anticipatory repudiation can occur through conduct, such as selling the contracted goods to a third party before they are due to the original buyer.

Non-Repudiating Party Options:
1. Treat it as an offer to rescind the contract and walk away.
2. Sue for damages immediately. (Exception: If the non-repudiating party has already completed performance, they must wait until the contract becomes due to sue).
3. Suspend performance and wait to sue once the contract becomes due.
4. Do nothing and encourage performance.

Retraction: The repudiating party can retract the repudiation until the non-repudiating party either accepts it as final or detrimentally relies on it (e.g., by covering or hiring a replacement).

Adequate Assurance Doctrine (Reasonable Grounds for Insecurity) If a party merely expresses doubt and does not unequivocally repudiate, the non-repudiating party may have options if they have reasonable grounds for insecurity.

UCC Standard: A party with reasonable grounds for insecurity may demand adequate assurances of performance and suspend their own performance pending receipt. If the opposing party fails to provide adequate assurances within a reasonable time (not exceeding 30 days), it is treated as an anticipatory repudiation. The demand for assurances must be reasonable and justified.

Common Law Standard: Similar to the UCC, if reasonable grounds suggest the obligor will commit a material breach, the obligee may demand adequate assurance and suspend performance. Failure to provide assurance within a reasonable time is treated as a repudiation.

I. Material Breach Only a material breach completely excuses the non-breaching party's performance.

Breach & Remedies: A breach of contract occurs when a party to the agreement fails to perform after performance has become due. If performance is not yet due, there is no breach.

1. The Perfect Tender Rule Under the UCC, a seller is required to deliver "perfect tender," meaning the goods must conform perfectly to the contract terms. If tender is less than perfect, the buyer has three options:
• Reject All Goods & Sue for Damages: The buyer can rightfully reject the entire shipment and is entitled to the return of any payments made (e.g., deposits or down payments).
• Accept All Goods & Sue for Damages: The buyer keeps the nonconforming goods and is obligated to pay the contract price. However, that price is reduced by the damages resulting from the non-conformity.
• Accept Some & Reject the Rest: In a shipment of multiple goods, the buyer can accept the conforming items, reject the nonconforming ones, and sue for damages based on the defective goods.

2. Seller's Right to Cure Unlike the common law, the UCC gives a breaching seller the option to cure a defective delivery if:
• Time for Performance Has Not Expired: If there is a stated deadline that has not yet passed, the seller has the right to cure the earlier improper delivery before the deadline.
• Reasonable Grounds to Believe Acceptable: The seller can cure if they reasonably believed the nonconforming tender would satisfy the buyer (usually based on past course of dealing or performance).

3. Installment Sales Contracts (Substantial Impairment Standard) Contracts authorizing multiple shipments and payments do not follow the perfect tender rule; they follow a "substantial impairment" standard.
• Rejecting a Single Installment: A buyer can reject a specific installment only if its nonconformity substantially impairs the value of that specific installment and cannot be cured.
• Rejecting the Entire Contract: A buyer can cancel the whole contract only if the nonconformity in one or more installments substantially impairs the value of the entire contract.
• Note: Previously accepting a nonconforming installment does not waive the buyer's right to reject a future nonconforming one.

4. Acceptance and Revocation of Goods Once a buyer accepts goods, they generally cannot later reject them.
• What Constitutes Acceptance:
o Indicating goods conform or will be kept despite nonconformity, after a reasonable opportunity to inspect.
o Failing to reject or notify the seller of a complaint within a reasonable time (typically more than a month is implied acceptance). This applies even if the buyer never actually inspected them.
o Doing any act inconsistent with the seller's ownership (e.g., reselling or incorporating the goods into a manufactured product).
• Payment without the opportunity to inspect is NOT acceptance.

Revoking Acceptance: A buyer can revoke a prior acceptance only if:
1. The nonconformity substantially impairs the goods' value.
2. The buyer was excusably ignorant of the defect (latent defect) or reasonably relied on the seller's assurances.
3. Revocation occurs within a reasonable time after discovering the defect.

5. Open Terms & Default Rules Contracts are valid even if they leave performance particulars open, provided they are determined in good faith and within commercial reasonableness.
• Assortment of Goods: Left to the buyer's option.
• Shipment Arrangements: Left to the seller's option.
• If a party fails to specify, the other party is excused for resulting delays and can proceed reasonably or treat the failure as a breach.

B. Common Law (Substantial Performance)
1. Material Breach Under the common law, perfect tender is not required. Only a material breach—a refusal to perform that goes to the heart of the bargain and deprives the non-breaching party of the substantial benefit—will excuse the non-breaching party's performance. Whether a breach is material is a question of fact.

2. Order of Performance To know if a breach occurred, you must know whose performance was due first.
• Simultaneous Performance: If performances can be exchanged simultaneously (e.g., real estate closing), they are due at the same time.
• Time-Dependent Performance: If one party's performance requires time (e.g., painting a house), that party must finish before the other party is required to perform (e.g., pay).
• "Time is of the Essence": Date terms are only material if this phrase is included. Without it, reasonably delaying a closing is not a material breach. With it, any delay is a material breach.

3. Options in the Event of a Material Breach The non-breaching party can treat the contract as terminated, withhold their reciprocal performance, and immediately pursue all remedies.

4. Lump-Sum vs. Divisible Contracts
• Multiple Acts for Lump Sum: Performing less than half of the required acts is clearly a material breach. The breaching party might still recover the value of benefits conferred under quasi-contract.
• Divisible Contracts: Contracts apportioned into agreed equivalent pairs (e.g., weekly payments for weekly lawn service). Material breach is assessed individually per performance. The performing party can recover under contract law for each completed part.

C. Monetary Remedies
The primary goal of monetary damages is to protect the expectation interest. Punitive damages are never available for a breach of contract.
1. Core Measures of Damages
• Expectation Damages (Default): Puts the non-breaching party in the position they would have been in if the contract had been fully performed without breach.
o Formula: Loss in Value + Other Loss (Incidental/Consequential) – Cost Avoided – Loss Avoided.
• Reliance Damages: Puts the plaintiff in the economic position they were in before the contract was formed (out-of-pocket costs). Used when expectation damages are too uncertain.
• Restitution Damages (Quasi-Contract): Restores to the non-breaching (or breaching) party the value of any benefit conferred on the other, preventing unjust enrichment.

Additional Damages (Other Loss)
• Incidental Damages: Reasonable costs incurred after a breach to find a replacement (e.g., finders fees, advertising, reselling costs). Always recoverable.
• Consequential (Special) Damages: Damages flowing from the special needs or position of the non-breaching party (e.g., lost profits on a secondary deal). Only recoverable if they were reasonably foreseeable to the breaching party at the time of contract formation.

UCC Monetary Damages Formula (Expectation-Based)
• Seller Breaches:
o Buyer Keeps Goods: Fair Market Value (FMV) if perfect – FMV as delivered.
o Seller Keeps Goods (Buyer Covers): Replacement Price – Contract Price.
o Seller Keeps Goods (No Cover): FMV @ time of breach discovery – Contract Price.
• Buyer Breaches:
o Buyer Keeps Goods: The Contract Price.
o Seller Keeps Goods & Resells (Single Item): Contract Price – Resale Price.
o Seller Keeps Goods & Resells (Volume Seller): Contract Price – Resale Price + Lost Profits. Applies when a dealer has an unlimited supply; they lost the profit of a second sale.
o Seller Keeps Goods (No Resale): Contract Price – Market Price @ delivery time.
• Barter Contracts: When goods are exchanged for goods, the "seller" is whichever party's goods are in dispute.

Limitations on Damages
• Duty to Mitigate: The injured party must take reasonable steps to avoid loss. Failing to mitigate defeats a claim for consequential damages (though expectation damages remain). Mitigation expenses are recoverable even if the attempt fails.
• Reasonable Certainty: Damages (like lost profits for a brand-new business) must not be entirely speculative.
• Causation & Foreseeability: Must be caused by the breach and foreseeable at formation.

Liquidated Damages Damages explicitly specified in the contract. They are valid only if:
1. Actual damages were difficult to ascertain at formation, AND
2. The amount is a reasonable forecast of damages, not an excessive penalty.
• Presumptions: A single, set number (e.g., flat $1,000,000) is presumptively invalid. A sliding scale (e.g., $1,000 per day of delay) is presumptively valid.

D. Equitable (Non-Monetary) Remedies
1. Specific Performance An equitable court order compelling a party to fulfill their contractual duty. It is granted only when monetary damages are inadequate (e.g., speculative damages, unique items, or an insolvent defendant) and the plaintiff has fully performed. There must be a valid, definite contract with no equitable defenses (like Unclean Hands).

Real Estate: Generally granted because all land is considered unique. Exception: Not available if the land was already sold to a subsequent Bona Fide Purchaser (BFP) in good faith.

Service Contracts: Never granted due to prohibitions against involuntary servitude. However, courts can grant Negative Specific Performance (an injunction) stopping the breaching party from working for a competitor.

Sale of Goods (UCC): Available for unique goods (art, antiques, custom items) or specific appropriate circumstances. A simple shift in market price is not enough.

Rescission & Reformation
• Rescission: Voids the contract due to formation defects (mistake, fraud, lack of capacity). The contract is set aside as if it never existed.
• Reformation: Does not void the contract, but alters the written text to conform to the original intended understanding of the parties (usually correcting a mistake or misrepresentation).

Reclamation (UCC) A remedy allowing an aggrieved seller to reclaim delivered goods from an insolvent buyer. It requires:
1. The buyer must be insolvent at the time the goods are received.
2. The seller must demand return within 10 days of receipt (or a reasonable time if the buyer explicitly lied about their solvency).
3. The buyer must still possess the goods. If they have already been sold to a Bona Fide Purchaser, reclamation is unavailable and the seller is limited to monetary damages.

Third Party Beneficiaries A third-party beneficiary situation arises when two parties make a contract with the shared intent to benefit a third party.
1. The Parties & Terminology
• Promisor: The party who promises to perform a particular duty for the benefit of the third-party beneficiary.
• Promisee: The party to whom the performance for the benefit of the third party is owed.
• Third-Party Beneficiary: The party intended to benefit from the contract.

Types of Beneficiaries & Their Rights For a third party to have contractual rights, they must have knowledge of the contract, must have relied upon the contractual promise, and must be an intended beneficiary.

Intended Beneficiaries: These beneficiaries have legal contract rights and can sue the promisor to enforce the promise. A party can acquire these rights whether or not they are explicitly identified as an intended beneficiary at formation, provided there is subsequent knowledge and detrimental reliance. There are two types:
o Donee Beneficiary: The promise is made in order to confer a gift on the third party (e.g., hiring a painter to paint a portrait for a friend's birthday).
o Creditor Beneficiary: The promise is made in order to discharge an obligation or debt the promisee already owes to the third party.
• Incidental Beneficiaries: These parties have absolutely no contract rights and may not sue the promisor.

Discharge or Modification by Original Parties Generally, the original contracting parties retain the right to modify or discharge the contract's duties. However, this power is terminated (the beneficiary's rights "vest") under any of the following circumstances:
• The beneficiary materially changes their position by detrimentally relying on the promise.
• The intended beneficiary brings a lawsuit on the promise.
• The beneficiary manifests assent to the promise at the request of either original party. Once vesting occurs, the contract cannot be canceled or modified without the third party's consent.

Who Can Sue for Breach?
• Third Party vs. Promisor: An intended beneficiary may sue the promisor directly. The promisor may raise any defenses against the third party that they could have asserted against the promisee.
• Third Party vs. Promisee:
o Donee Beneficiary: May not sue the promisee.
o Creditor Beneficiary: May sue the promisee, but can only recover the value of the pre-existing debt.
• Promisee vs. Promisor: The promisee may always sue the promisor for breach of contract. (Note: Both the promisee and the third-party beneficiary cannot both recover against the promisor; only one can).

B. Assignment An assignment is the present transfer of rights or benefits under a pre-existing contract to a third party. Unlike a third-party beneficiary situation (which is established at formation), an assignment occurs after the contract is formed. It requires two steps: a valid contract between two original parties, and a transfer of those rights to a third party. Note that "assigning a contract" generally implies transferring both the benefits (assignment) and the obligations (delegation).

1. The Parties
• Assignor: The original party who makes the assignment and transfers their rights.
• Assignee: The third party receiving the assignment, who succeeds to the contract as it stands at the time of transfer.
• Obligor: The other original party to the contract who owes the performance.

1. Requirements for a Valid Assignment
• Writing: Generally not required, except for specific types: wage assignments, interests in land (Statute of Frauds), sale of goods over $500, and Article 9 security interests.
• Consideration: Because it is a present transfer and not a future promise, consideration is completely unnecessary. Gratuitous assignments (where nothing is received in return) are perfectly valid.
• Present Intent: There must be clear, present language of assignment demonstrating an intent to transfer rights now, not in the future.

2. Revocability of Assignments
• Gratuitous Assignments: Because they lack consideration, they are freely revocable.
o Automatic Revocation: Occurs if the assignor dies, makes a subsequent inconsistent assignment, or gives notice of revocation to the assignee or obligor.
o Irrevocability Exceptions: A gratuitous assignment becomes irrevocable if the assignee relies to their detriment, the obligor actually performs/pays, or the assignor puts it in writing or delivers a symbolic document (like a deed or insurance policy).
• Assignments for Consideration: Cannot be revoked.

3. Restrictions on Assignment
• Common Law Substantial Change: Even without a contract clause, common law invalidates assignments that substantially change the obligor's duty.
o Payment: Assigning the right to payment is always valid because it never changes the obligor's duty.
o Personal Services: Invalid if the contract is for unique personal services (e.g., painting a portrait), but valid for routine services.
o Requirements/Output Contracts: Invalid if it alters the quantity required in an unreasonably disproportionate manner.

Contract Provisions:
o "No Assignments" (Prohibition): The assignment remains valid if the assignee was unaware, but the assignor is liable for breach of contract.
o "Assignments are Void" (Invalidation): If the language explicitly voids assignments, the assignment is completely ineffective and prohibited.

Rights and Liabilities of the Parties Once assigned, the assignor's rights are extinguished, and the assignee stands in their shoes.
• Assignee vs. Obligor: The assignee can sue the obligor directly. The obligor may assert any defenses they had against the assignor. Note: If the obligor pays the assignor before receiving notice of the assignment, that payment is legally effective and fulfills their duty.
• Assignor vs. Obligor: The assignor cannot recover from the obligor after making an assignment for consideration.

Assignee vs. Assignor: The assignee cannot sue the assignor for a gratuitous assignment. However, if the assignment was for consideration, the assignor makes several implied warranties. The assignee can sue for damages if the assignor breaches the warranty that:
1. The right assigned actually exists and is valid.
2. The right is not subject to defenses by the obligor (it is unencumbered).
3. Any documents delivered are genuine.
4. The assignor will not take any action to impair the value of the assignment.

Multiple Assignments of the Same Right
• Multiple Gratuitous Assignments: The last assignment prevails, unless an earlier gratuitous assignment had already become irrevocable (e.g., through detrimental reliance or delivery of a document).
• Multiple Assignments for Consideration: The first assignee who pays consideration prevails.
Exception: A later assignee who pays consideration and does not know of the earlier assignment will win if they are the first to: (1) obtain payment or judgment from the obligor, (2) obtain a new contract (novation) from the obligor, or (3) possess indicia of ownership (e.g., a deed). First to notify the obligor is irrelevant.

C. Delegation A delegation occurs when an existing party to a contract transfers their duty to perform to a third party.
1. Valid Delegations Delegations are generally permissible and valid unless:
• Contract Prohibition: The contract expressly prohibits delegation. If attempted, it is a material breach. Note: A clause prohibiting "assignment" also automatically prohibits delegation.
• Special Skills or Reputation: The contract calls for the special skills or unique reputation of the delegator (e.g., an artist or celebrity). This cannot be delegated even if the third party has equal or greater skills.
2. The Parties
• Delegator: The original contracting party who transfers the obligation to perform.
• Delegatee: The third party who agrees to perform in place of the delegator.
• Obligee: The other original party to the contract who expects to receive the performance.

3. Liability for Non-Performance An effective delegation does not relieve the delegator of their duties.
• Delegator Liability: The delegator is always liable to the obligee unless the delegatee successfully fulfills the performance, or the obligee consents to the delegation (creating a novation).
• Delegatee Liability:
o Without Consideration: If the delegatee receives no consideration, they are not liable, and the obligee cannot sue them.
o With Consideration: If the delegator grants consideration to the delegatee, the delegatee is liable. The obligee may sue the delegatee directly as a third-party beneficiary of the delegation contract, or they may sue the original delegator.