1
Q
acronyms for writing essay in order
A
Formation: ACD (all contracts don’t stink)
- agreement
- consideration
- defenses to formation (misunderstanding, incapacity, mistake, fraud/misrepresentation, duress, illegality, unconscionably)
- statute of frauds (enforceability)
statute of frauds: M SOUR
- marriage
- suretyship (unless paying off someone’s debt for own economic advantage)
- one year (no possible way)
- satisfied by: full performance (not part) by either side OR writing (parties & essential elements) - UCC (goods $500+) (custom-made goods exempted)
- satisfied by signed writing (don’t need price, must mention quantity) OR judicial admission OR
- merchants: failure to object to confirming memo within 10 days - real property (transferring interest, not building)
- satisfied by signed writing OR part performance + 2/3 possession, payment, improvements to land
performance: PWCE (pizza with crawling
1. parol-evidence rule
2. warranties
3. conditions
4. excuse (impracticability, frustration of purpose)
2
Q
applicable law
A
*always start by discussing this
the UCC governs all contracts involving the sale of goods, and common law rules govern contracts involving services
mixed contract: when a contract includes both goods and services, whichever one predominates will determine the governing law (exception for divisible Ks)
merchants: in addition, special rules apply to merchants under the UCC. a merchant includes not only a person who regularly deals in the type of goods involved in the transaction, but also any business person when the transaction is of a commercial nature
3
Q
formation of contract
A
a valid contract requires offer, acceptance, and consideration
4
Q
offer
A
- an offer requires a promise, terms, and communication to the offeree
- promise: a statement indicating a present intent to enter into a contract
terms:
- CL: all essential terms must be provided (parties, subject matter, price, quantity)
- UCC: only essential term is quantity (don’t need price, court will gap fill other missing terms)
- requirement/output contracts don’t need quantity (buy/sell as many as need from specific person)
communication:
- the offer must be communicated to the specific offeree (she must know of the offer)
- ads generally are not offers unless specific & limit who may accept the offer (contest/reward offers)
unilateral/bilateral offer:
- bilateral contract: parties exchange promises, can be accepted by promise OR beginning of performance
- unilateral contract: offeror makes promise and offeree must perform (only accepted by complete performance)
*A “general offer” is an offer made to a large number of people, generally through an advertisement. A general offer can be revoked only by notice that is given at least the same level of publicity as the offer
5
Q
irrevocable offers
A
offers are generally revocable prior to acceptance, but can be irrevocable under certain circumstances:
- CL option contract: an offer where offeror promises to hold offer open for certain period of time, offeree must pay consideration to offeror to hold offer open
- UCC merchant’s firm offer: an offer in writing (signed by offeror) where offeror explicitly promises to hold offer open for certain period of time (max 90 days), no consideration required
–> [A firm offer in a form prepared by the offeree, however, must be separately authenticated by the offeror to protect against inadvertent signing.]
* option offers don’t expire upon death - unilateral K when offeree started performance
- detrimental reliance: offeree reasonably & detrimentall relies on offer in foreseeable manner (general contractor/subcontractor K)
6
Q
termination of offer
A
- revocation of offer:
- can be terminated if offeror revokes offer prior to acceptance
* either express or constructive revocation (offeree learns offeror has taken an action absolutely inconsistent with continuing ability to contract)
- revocation is effective when received (mailed revocation not effective until received) - rejection by offeree
- counteroffer by offeree
- lapse of time
- if not accepted within reasonable amount of time - death: if offeror dies before offer is accepted
7
Q
acceptance
A
acceptance is the objective manifestation by the offeree to be bound by the terms of the offer
bilateral or unilateral K:
- bilateral K can be accepted by promise OR beginning of performance
- unilateral K can only be accepted by complete performance
manner of acceptance
- any reasonable means of acceptance is allowed; unless the offer limits the means of acceptance
- silence is generally not acceptance unless 1. offeree has reason to believe offer could be accepted by silence, was silent, & intended to accept offer by silence, or 2. bc of previous dealings/pattern of behavior
- implied-in-fact contracts: communicate acceptance without writing or speaking; by gestures/actions (walking into haircut place and sitting in chair)
- if seller tries to accept by shipping the wrong goods, UCC treats this as acceptance plus breach (unless sent as “accommodation”
- under the UCC, if acceptance is conditioned upon the offeror’s assent to the offeree’s additional terms, then it is not an acceptance, but rather a rejection and counteroffer
8
Q
counteroffers & mirror image rule
A
CL: mirror image rule:
- acceptance must mirror the terms of the offer
- any changes/additions to the terms constitutes a rejection of the original offer and is a counteroffer
UCC 2-207: acceptance (or confirming memo) with changes/additions is valid acceptance
additional term only comes in if:
- both parties are merchants
- new term doesn’t materially alter the deal
- initial offer didn’t expressly limit acceptance to its terms, &
- offeror doesn’t reject/object within reasonable time to new term
different term: knockout rule:
- majority: knock out both different terms; neither term governs & general gap-filling provisions of UCC will apply
- minority: initial offer controls the terms
9
Q
mailbox rule
A
acceptance is valid when placed in the mail
exceptions:
1. offeree sends something else first (rejection, counteroffer)
2. other types of communications (revocations, rejections) - mailbox rule doesn’t apply if offer is revocable
3. option Ks (if there’s an option contract or firm offer, acceptance is valid when received and must be received before offer expires)
4. unclear whether applies to other media
10
Q
consideration
A
requires a bargained-for change in the legal position btw parties. most courts find consideration if there’s a detriment to the promisee, regardless of the benefit to the promisor. a minority of courts look to either a detriment or a benefit, not requiring both
*gift promises & conditional gifts are not consideration
legal detriment: can take the form of a promise to do/not do something, or performance/refraining from performance
adequacy of consideration: court will look at adequacy of consideration (e.g. monetary value of items being exchanged), pretense is insufficient
*past consideration is not consideration
- illusory promise: no consideration if promise to sell “if you feel like it”
- there must be a way for promissor to breach
- satisfaction Ks are not illusory
- consideration can be promise not to sue if good faith belief in claim or uncertain law
- no consideration required for promise to pay a debt after SOL has run
11
Q
consideration-related issues
-gift
-preexisting duty rule
-past consideration
-promissory estoppel
A
- gift: a gift from one party is not supported by consideration (receiving party not suffering legal detriment:
- preexisting duty rule: promise to perform preexisting legal duty is not consideration bc promisor is already required to perform (no additional legal detriment)
- past consideration: a legal detriment incurred in the past does not constitute consideration bc it was not bargained for and it was not in exchange for a legal detriment in return
-BUT modern trend for moral consideration/material benefit rule: a promise not supported by consideration may be enforceable if it is made in recognition of a significant benefit previously received by the promisor from the promisee.
–>This rule does not apply if the promisee conferred the benefit as a gift to the promisor.
–>The court may also reduce the amount of money owed under the promise if it is disproportionate to the benefit conferred by the promisee. - promissory estoppel (consideration substitute): if a promise is made by a party, but no consideration provided by both sides, promise still enforceable if certain conditions are met:
a. promisor should reasonably expect the promise to induce reliance,
b. the promisee takes detrimental action in reliance on promise, and
c. injustice can be avoided only by enforcement of the promise
- -> the damages awarded under promissory estoppel are usually limited to reliance damages (money spent on reliance of the promise)
*A charitable subscription—i.e., a written promise to contribute money or property to a charitable institution—is enforceable on promissory-estoppel grounds without proof of detrimental reliance or substantial injustice. All that is needed is proof that the promisor reasonably expected to induce reliance on the promise.
12
Q
defenses to formation overview
A
- misunderstanding
- incapacity
- mistake
- fraud/ misrepresentation/ nondisclosure
- duress (economic & undue influence)
- illegality
- unconscionability
13
Q
mistake
A
a belief that’s not in accord with a present fact
mutual mistake: allows adversely affected to rescind if:
- there is a mistake of fact, existing at the time the deal is made,
- the mistake relates to a basic assumption of the contract and has a material impact on the deal, and
- the impacted party did not bear the risk of mistake
- reformation: the parties can ask a court to reform the K and rewrite it to reflect the correct elements
unilateral mistake: allows adversely affected party to rescind if:
- she can prove all elements of mutual mistake, and
- either:
a. mistake would make contract unconscionable, or
b. the other side knew of, had reason to know of, or caused the mistake
14
Q
misrepresentation
(& fraud in the execution + non disclosure)
A
party must show:
- misrepresentation of a present fact (not opinion, at the time of contracting)
- that is material OR fraudulent (intentional), and
- that is made under circumstances in which it is justifiable to rely on the misrepresentation
fraud in the execution: trick someone into signing something they don’t even know is a contract
nondisclosure: other party doesn’t learn the truth about something, but now you just remain quiet
- usually you don’t need to tell other side about all material facts related to deal
- exception: special relationship or active concealment
15
Q
undue influence
A
occurs when a party unfairly persuades the other party to assent to a contract
this can occur in certain relationships where the innocent party is susceptible to persuasion
16
Q
duress
A
when a party is improperly threatened and has no meaningful choice but to agree
(Economic or physical)
17
Q
incapacity
A
certain parties are considered to be incompetent to enter into a contract:
- minors: under 18
- mentally ill
- can’t understand nature & consequences of actions, or
- can’t act in reasonable manner in relation to transaction (if other side knows/has reason to know) - intoxicated people (if other side knows/has reason to know)
if make K with incapacitated person:
- contract is voidable: incapacitated person can disaffirm
- but still liable for necessities that they contract for (housing, food, clothing)
- party without capacity can ratify deal by keeping benefits of K after capacity is obtained
18
Q
misunderstanding
A
- parties use a material term that is open to two or more reasonable interpretations
- each side attaches a diff meaning to the term, &
- neither party knows, or should know, of the confusion
19
Q
illegality
A
a court will not enforce a contract that involves illegal consideration or performance
*but a contract entered in furtherance of an illegal act (that’s not itself illegal) will still be enforced
*A party to an illegal contract may recover restitution damages if that party conferred a benefit on the other party and (1) was justifiably ignorant of the facts that made the contract illegal, (2) was less culpable than the other party, or (3) withdrew before the contract’s illegal purpose was achieved and did not engage in serious misconduct.
20
Q
unconscionability
A
a court will not enforce a contract that is so unfair, no reasonable person would agree to it
if a court finds unconscionability, it can refuse to enforce the entire contract, or strike the unconscionable portion of the contract, or limit the unconscionable terms
procedural unconscionability:
- bargaining process leading to formation of K is unfair
- e.g. if party is in superior position and takes advantage of this position
substantive unconscionability:
- occurs when actual terms of the contract are unfair
- there must be a significant showing of unfairness in the contract to find this
21
Q
statute of frauds
A
approach to SOF:
- determine whether the SOF applies to the K
- if SOF applies, determine whether the requirements (written, signed by party to be charged) are met
- if requirements are not met, discuss exceptions (part/full performance, estoppel)
types of contracts SOF applies:
- marriage (prenup)
- suretyship (if main purpose in agreeing to pay off another’s debt is for the surety’s own economic advantage, then not in SOF world)
- contracts (usually for services) that cannot be performed within one year of making (impossible)
- sale of goods (UCC) for $500 or more, and
- real property (interest in)
- leases of less than 1 year are usually not in SOF world
requirements:
- there must be a writing signed by the person to be charged (the person against whom enforcement is sought) that contains the essential terms of the deal
- the writing does not have to be a formal contract (can be letters/receipts) and multiple writings can be put together to meet the requirements, as long as they reference each other
*important: the writing does not have to exist at the time of the promise; it can be created after the promises are made and still meet the SOF
22
Q
exceptions to SOF
A
*if SOF is not met, a court will still enforce the contract in limited circumstances
- contracts (usually for services) that cannot be performed within 1 year of making
- full performance has occurred - UCC sale of goods $500+
- if full performance by party seeking to enforce (goods fully delivered/paid for), K fully enforceable
- if part performance (part of purchase price paid), K enforceable to the extent the money has been paid
- no writing required if K involves specially manufactured goods for buyer (satisfies when makes substantial beginning toward manufacture)
- confirmatory memo: both parties are merchants, one party sends confirmatory memo to other who knowingly receives it & doesn’t respond within 10 days; K enforceable against receiving party, even if it didn’t sign the memo - sale of land
- part performance: if K involves the sale of land, K enforced if at least 2 of 3 acts have occurred:
a. purchaser pays part or all of purchase price,
b. purchaser takes possession of land, or
c. purchaser substantially improves the property - estoppel (applies to all K types)
- if a party reasonably and detrimentally relies on a promise made by the party to be charged, a court may enforce the K, despite the failure to meet the SOF
*equal dignity rule: need signed writing to authorize an agent to form a K that’s within SOF world
23
Q
modification
A
after a valid K has been formed, any change to terms is a modification, both parties must agree
CL: modification must be supported by consideration
- watch out for offers to pay more money to complete on time (pre-existing duty rule)
- exceptions: 1. change in performance, 2. third party promising to pay, or 3. unforeseen difficulties that would excuse performance
- unless destroy original K before enter into new one lol
UCC: modification doesn’t require additional consideration as long as modification is entered into in good faith by both parties
*a provision prohibiting oral modifications to a sales contract is valid under the UCC
SOF: if the modified K falls within the SOF, it must be in writing (unless exception)
24
Q
accord & satisfaction
A
the parties to an earlier K agree that performance will be satisfied instead by the completion of a diff performance
the “accord” is the new performance
the “satisfaction” is the excusal of the initial performance obligation (the diff performance is completed by the other party)
if the accord is not performed, the other side can sue on either the original obligation or the new promise
*consideration is met: the party performing diff performance is incurring a legal detriment; the party agreeing to accept diff performance is giving up right to dispute original K and sue for breach
*Where the new consideration is worth less than what was agreed to in the original contract, it will be sufficient only if:
-there is a good-faith dispute as to the amount owed OR
-the new consideration is of a different type than what was owed under the original contract (e.g., goods in lieu of cash).
*Under an accord and satisfaction, a party can fulfill its contractual obligation by rendering different performance than the one initially promised. This can be accomplished through a negotiable instrument (e.g., check) if three conditions are met:
1. the obligation is unliquidated (i.e., uncertain in amount) or otherwise in dispute
2. the obligor, in good faith, tenders the negotiable instrument with a conspicuous statement that the instrument is tendered as full satisfaction of the obligation and
3. the obligee obtains payment of the instrument (e.g., by cashing the check).
25
parol evidence rule
under the PER, extrinsic evidence of oral or written communications prior to the written contract are generally inadmissible for contradicting the terms of the contract
integration
-first, court will ask if writing in question was intended to be final agreement (does it integrate) the terms of the K
- if K is not integration (not final agreement), PER doesn't apply
- total integration: if the writing contains all the terms of the agreement, total agreement & no parol evidence is admissible
- partial integration: if the writing contains some of the terms of the agreement, it's a partial integration and parol evidence is admissible as long as it's consistent with the writing (doesn't contradict any of the terms)
- determining total or partial integration: court will look at the words in the K to determine if the parties intended for it to be a total/partial integration
- -> merger clause: if K has a merger clause stating that K is final & complete understanding of the parties, it's likely to be total integration
- -> also ask whether under circumstances, extrinsic term would've naturally been omitted from the writing (then may be introduced if doesn't contradict writing)
- -> UCC is more forgiving, presumes writing is partial integration (unless parties would've certainly included term or is merger clause)
26
exceptions to PER
* remember: the PER doesn't prohibit evidence of modifications or statements made AFTER the contract was written
1. will not bar evidence relevant to a defense against contract formation (duress, mistake, fraud, etc)
2. ambiguity & interpretation: evidence is admissible for purposes of interpreting or clarifying an ambiguity in the contract
3. collateral deal: evidence of a separate deal btw the parties is admissible, if the deal is not part of the written contract
4. UCC: evidence of usual performance and dealing btw parties is admissible
5. condition precedent: evidence of a condition precedent to the existence of the contract is admissible
27
performance of the contract overview
*after determining the existence of a contract and the terms of the contract, the next issue is the performance of the contract
- promise or condition
- discharge of duty to perform
28
condition overview
a condition is an event that must occur before a party's contractual right or obligations are created, destroyed, or enlarged (if condition not met, may be no K at all)
conditions can be express or implied
condition precedent: condition must occur before other party has obligation to perform
condition subsequent: if condition occurs, duty to perform will be excused
29
express condition
```
conditions expressed (written) in K itself
-"on condition that"
```
express conditions must be strictly satisfied unless excused
preferred approach is objective standard of satisfaction, but for aesthetic taste use subjective standard
can waive condition by words or conduct or if other party wrongfully interferes/hinders occurrence of condition
30
implied condition
the constructive condition of exchange (CCE): one party's performance is conditioned on the other side's performance
CL:
-substantial performance satisfies the CCE (if not willful)
-divisibility: if K is clearly divisible, will be broken into mini-Ks for purposes of determining if there has been substantial performance
UCC:
- requires perfect tender (except if K changes default rule or installment Ks)
1. perfect goods
2. perfect delivery
- revocation of acceptance: buyer may revoke acceptance of the goods if goods seem ok when delivered but defect is discovered within reasonable time
- seller's right to cure: if seller fails to tender perfect goods & time is left on K or seller had reasonable grounds to believe buyer would accept replacement, buyer must give seller chance to cure
- delivery:
- -> default is one delivery of goods
- -> UCC allows for installment contracts. buyer can reject specific delivery that's not perfect only when there's substantial impairment in installment that can't be cured. Buyer must pay upon each delivery unless the price cannot be apportioned.
-A buyer must retain rejected goods for a reasonable time to allow the seller to reclaim them. In the absence of other instructions, the buyer must sell the goods on the seller's behalf only if (1) the buyer is a merchant, (2) the goods are perishable, and there (3) is no local agent to whom the goods can be returned
31
excuse of condition
1. waiver:
- party can waive condition by words or conduct, as long as condition isn't material to the K (then waiving party has duty to perform)
2. wrongful interference:
- if a party hinders the other party's performance and interferes with occurrence of condition, condition will be excused & wrongful party has duty to perform
3. estoppel:
- if a party indicates it won't enforce a condition and other party reasonably relies on this, the party will be estopped from later enforcing the condition
32
discharge of duty to perform (excuses) overview
in certain circumstances, a promisor party's duty to perform will be discharged, regardless of whether there is a promise or condition involved
- impossibility/ impracticability
- frustration of purpose
33
impossibility/impracticability
an unforeseeable event occurs, making it impossible for the party to perform
common fact patterns:
- performance becomes illegal after K performed
- subject matter of K is destroyed
- services K with "special person" the performing party dies/is incapacitated
* dying doesn't normally excuse liability on K that has been made unless something special about person performing
* something that just makes performance more expensive than expected will not normally excuse performance
* the nonoccurence of the event must have been a basic assumption at the time of the contract and the party seeking discharge was not at fault
34
frustration of purpose
performance can still occur, but an unexpected event arises that destroys the party's purpose for creating the contract
*very rare
similar to impracticability, the nonoccurence of the event must have been a basic assumption at the time of the contract and the party seeking discharge was not at fault
35
anticipatory breach/repudiation
promisor clearly & unequivocally indicates through words/actions it will not perform
*does not apply when all of the performance is completed and just waiting for payment
non-breaching party can:
1. treat repudiation as breach of K & sue immediately, or
2. wait for breach to occur & then sue for breach
retraction: can retract repudiation of K unless other party
1. commenced a lawsuit
2. acted in reliance on repudiation (materially changed position)
UCC: reasonable grounds for insecurity about other side's performance allows you to demand an adequate assurance of performance (& suspend your own until received)
- must be in writing
- a failure to provide reasonable assurances within a reasonable time (must not exceed 30 days) can be treated as a repudiation
36
breach of K
if a duty to perform does exist and has not been discharged, a party's non-performance is a breach
CL:
-material breach: failure to substantially perform means other side may withhold own performance & pursue remedies for breach
(a breach is material when the nonbreaching party does not receive the substantial benefit of its bargain)
-minor breach: breaching party substantially performed but not fully, non-breaching party entitled to pursue remedies for minor breach but still must perform under K
UCC: perfect tender, seller must strictly perform all obligations or be in breach
*doctrine of material breach applies to installment Ks
37
remedies overview
remedies compensate the non-breaching party for actual economic losses
- expectation damages
- consequential damages
- reliance damages
- incidental damages
- mitigating damages
- restitution
- specific performance
- equitable relief
38
expectation damages
normal way to calculate damages in contracts
goal: put injured party in same economic position as if K was performed
compare value of performance without breach to value of performance with breach
must be foreseeable & non-breaching party must be able to prove amount with reasonable certainty
In construction contracts, the general measure of damages for a contractor’s failure to begin or to complete a building project is the difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for the delay in completing the construction.
*sometimes cost-to-complete damages will dramatically overcompensate P, so as long as breaching party acted in unintentional manner, so get diminution in market value damages
39
consequential damages
reasonably foreseeable damages other than expectation damages that are related to the breach of K (e.g. loss of profit)
1. foreseeability: damages must be natural & probable consequence of the breach or contemplated by the parties at the time K was formed
- Hadley rule: unforeseen consequential damages not recoverable unless breaching party had some reason to know about possibility of them
2. causation: P must show damages were caused by D's breach; if damages would've occurred without D's breach, there can be no recovery
3. certainty: P must prove dollar amount with reasonable certainty. when amount of money is too speculative (e.g. new business), court won't award consequential damages
* consequential damages can be excluded in K (unless unconscionable)
40
incidental damages
damages that arise when the non-breaching party is trying to remedy the breach
e.g. cost of storing rejected goods, finding new buyer, or finding replacement vendor
41
mitigating damages
non-breaching party must take reasonable steps to reduce damages from breach
-seek replacements/substitutes for goods/services
if party refuses to mitigate, the law will calculate damages as if the party did mitigate
if paying party breaches in partially completed building K, builder can't continue to work job bc would be "running up damages"
-expectation damages = contract price - amount already paid - amount that would be needed to finish the job
42
reliance damages
goal: to put party in same economic position it would be if K had never been performed in the first place
damages that non-breaching party incurs in reasonable reliance upon the promise that the other party would perform
*cannot recover reliance & expectation damages; must choose btw them
43
restitution overview
goal: give P an amount equal to economic benefit P conferred on D
* sometimes equals reliance damages, but it need not (can get more)
allows non-breaching AND breaching parties to recover damages under an unjust enrichment theory (not based on K)
- non-breaching party
- breaching party
- quasi-contract (implied in law K)
44
non-breaching party restitution
arises when non-breaching party partially performed K & then other party breaches. non-breaching party seeks restitution damages for benefit conferred to breaching party. if breaching party doesn't pay restitution damages, it'll have been unjustly enriched by non-breaching party's performance
non-breaching party can't seek restitution if it has performed all of its duties & the only performance due from other party is payment under K (expectation damages instead)
-non-breaching party can seek damages based on the value of the benefit conferred on the other party
amount measured by reasonable value of what it'd cost breaching party to obtain benefit from another source, or increase in breaching party's wealth (e.g. increase in value of land) from having received the benefit
45
breaching party restitution
if party has not substantially performed, it will be in breach of K & cannot recover under K.
however, if non-breaching party has benefited from the breaching party's performance, the breaching party can recover for the benefit conferred minus the damages the non-breaching party is entitled to
46
quasi-contract (implied in law contract)
in certain situations, where there is no enforceable K, or a K doesn't exist at all, a court will award restitution damages on the basis of quasi-contract
elements:
1. P must confer a measurable benefit on D
2. P acted without gratuitous intent (intended to be paid) &
3. it would be unfair to let D retain the benefit bc D had opportunity to decline benefit but didn't, or P had reasonable excuse for not giving D such an opportunity
- e.g. emergency so P couldn't consult with D
47
specific performance
equitable relief is exception, not norm in contract law
non-breaching party can ask a court to order breaching party to perform the K
1. there must be a valid contract (offer, acceptance, consideration)
2. terms of K must be certain/clear
3. non-breaching party has satisfied any conditions precedent (or condition has been excused), so breaching party's performance is now due
4. money damages are inadequate (items are unique, e.g. land, pieces of art, antique car)
5. it's feasible for court to enforce & supervise breaching party's performance (won't require people to perform service contracts)
- rarely Lumley doctrine: prohibit performing similar service for competitor
6. no defenses exist: no SP if breaching party can assert defenses of laches or unclean hands
- laches: non-breaching party waited unreasonably long time to seek SP & delay prejudiced breaching party
- unclean hands: non-breaching party itself engaged in unethical/immoral acts relating to the K
48
equitable relief
replevin: allows P to recover specific goods or items in dispute (unique goods)
injunction: orders breaching party to stop doing something or not do something
1. immediate & irreparable harm will occur w/o injunction
2. no adequate remedy at law (unique)
3. likelihood of success on the merits
4. balance the equities
5. no defenses (laches, unclean hands)
49
warranties overview
a warranty is a promise about a term of the contract that explicitly shifts the risk to the party making the promise
- express warranty
- implied warranty of merchantability
- implied warranty of fitness for a particular purpose
*you can disclaim all warranties
50
express warranty
a promise that affirms or describes the goods and is part of the basis of the bargain is an express warranty unless it is merely the seller's opinion
the use of a sample or model creates an express warranty that the goods sold will be like the sample
51
implied warranty of merchantability
this warranty is triggered only when the seller is a merchant dealing with the goods at issue
warrants that the goods are fit for ordinary commercial purposes
merchant can disclaim this warranty with very conspicuous language & "merchantability"
*can be oral
52
implied warranty of fitness for a particular purpose
triggered when a buyer relies on a seller's expertise to select a special type of good that will be used for a special purpose
warrants that the goods will satisfy this special purpose
a non-merchant can extend this warranty by implication, as long as buyer relies on any seller's expertise
can be disclaimed, conspicuous language "as is"
*must be in writing and conspicuous so a reasonable person would notice it
53
UCC method of tender/delivery
tender at seller's place of business:
-if the goods are to be tendered at the seller's place of business, then the seller just needs to give the goods to the buyer
shipment contract (FOB seller's place of business): seller must take three actions to satisfy perfect delivery:
1. get the goods to a common carrier
2. make arrangements for delivery, and
3. notify the buyer
```
destination contract (FOB buyer's place of business):
-seller must get the goods to the buyer's business and notify the buyer
```
54
UCC risk of loss
arises when there's a goods contract followed by damage or destruction of the goods before the buyer receives them. who bears the loss?
1. have parties dealt with the problem in the contract?
- if so, their agreement will control
2. has either party breached (typically another part of K)?
- if so, breaching party bears risk of loss
3. if no breach and goods are being shipped:
- shipment K: risk of loss during delivery rests with the buyer
- destination K: risk of loss with seller
4. in all other cases, ask if seller is merchant:
- if so, risk of loss stays with seller until buyer receives the goods
- if not, the risk of loss moves to the buyer when the seller tenders the goods
55
novation
when BOTH parties agree that a substitute person will take over the contractual obligations
if there's a valid novation, then original promisor will be excused from performance
56
lost volume profits
if the paying party breaches, then normally the selling party needs to mitigate by reselling the goods or services to another person
but if the seller is a retailer who sells this type of product all the time, the seller might try to argue for LVP (had plenty others to sell)
57
liquidated damages
stated in K as explicitly negotiated amount due upon breach
courts will only award punitive liquidated damages if:
1. amount was reasonable at the time of contracting, and
2. actual damages from breach would be uncertain in amount and difficult to prove
*A liquidated damages clause, which allows the seller to retain the buyer's deposit if the buyer breaches the contract and refuses to purchase the property, is enforceable so long as the deposit bears a reasonable relation to anticipated damages. A deposit of no more than 10% of the purchase price is typically deemed reasonable.
58
right of reclamation
when unpaid seller tries to reclaim goods that were sold on credit when buyer is insolvent
1. buyer is insolvent at time of receipt of goods,
2. seller must demand return of goods within 10 days (or reasonable time if buyer misrepresented solvency in writing within 3 months before delivery)
3. buyer still has the goods
59
third-party beneficiary K
intended beneficiaries have the right to sue, but incidental beneficiaries do not
to determine if intended or incidental, ask whether initial counter-parties (promisor & promisee) intended to convey enforcement rights to the third party in the event of a breach
a creditor beneficiary is when promisee strikes a deal with the promisor in order to repay some earlier debt to the third party (can sue)
a donee beneficiary when no pre-existing obligation but promisee clearly intends to confer a gift of enforcement on third party
60
revoking third-party rights
third parties will not lose enforcement rights if:
1. beneficiary detrimentally relies on the rights (promissory estoppel),
2. beneficiary manifests assent to the contract, or
3. beneficiary files lawsuit to enforce K
*promisor can assert any contract defense against the third party that he would be entitled to assert against the promisee
61
assignment & delegation overview
assignment: transfer of rights under a K
delegation: transfer of duties under K
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assignment
almost all contract benefits can be assigned, in whole or part, unless K explicitly prohibits or invalidates assignments
if K states rights are not assignable, you must determine whether K prohibits or invalidates assignments
- if K prohibits assignments ("not assignable"): assigning party has breached when he makes the assignment, but the third party can still recover from the guarantor
- if K invalidates assignments ("assignments are void"): third party cannot recover
if someone assigns the same rights twice:
- if rights are assigned without consideration, assignment is generally revocable and last assignment controls
- if rights assigned for consideration, first assignment for consideration is typically irrevocable and will hold
- -> exception: later assignment will take priority if second assignee doesn't know of initial assignment and is first to obtain payment/judgment
*gratuitous assignment of K rights terminates when assignor dies (but still have to make payments)
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delegation
when a party to a K "outsources" her duties under the K
generally acceptable, as long as K doesn't prohibited delegation and as long as other party doesn't have some special interest in having a specific individual occur
delegatee generally not liable for breach unless she receives consideration from the delegating party
64
auctions
unless said otherwise, auction is with reserve: seller has right to withdraw item from sale any time before auctioneer announces completion of sale
when auctioneer knowingly accepts a bid by the seller or on her behalf, or procures such a bid to drive up the price of the goods, the winning bidder may avoid the sale or, at her option, take the goods at the price of the last good-faith bid prior to the end of the auction
- two exceptions:
1. seller may bid at a forced sale, and
2. seller may bid if she specifically gives notice that she reserves the right to bid
when bid is made contemporaneously with falling of hammer, auctioneer may, at his discretion, treat the bid as continuing the bidding process or declare the sale completed at the fall of the hammer
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The implied duty of good faith and fair dealing
the implied (in all contracts) duty of good faith and fair dealing, includes the duty not to hinder the other party’s performance and to cooperate when necessary
66
Entrustment
Under the UCC, the entrustment of goods by the owner to someone who sells goods of that kind (i.e., a merchant) gives the merchant the power to convey good title. Good title can be conveyed to a buyer in the ordinary course of business—i.e., someone who buys goods:
-in good faith
-without knowledge that the sale violates the owner's rights to the goods and
-from a merchant in the business of selling goods of that kind.
Entrustment includes any delivery and acquiescence to the possession of goods, regardless of conditions expressed between the parties.
*However, the owner may have a cause of action against the merchant (e.g., breach of contract, conversion).
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Assorted goods
When a contract for the sale of assorted goods does not specify who will choose the assortment, the UCC imposes a duty on the buyer to make that selection. If the buyer fails to specify the assortment of goods, then the seller can treat that failure as a breach—but only if the buyer's failure to specify the assortment materially impacts the seller's performance.
68
Agreement under UCC
Under the UCC, a contract is formed if the parties intended to contract and there is a reasonably certain basis for giving a remedy—even if the moment of formation is uncertain.
69
Auctions
The UCC has special rules for goods sold at auction. If goods are auctioned in lots, each lot represents a separate sale. Whether the goods can be withdrawn once the auctioneer calls for bids depends on the type of auction:
At a reserve auction—which is presumed unless a no-reserve action is announced—the auctioneer may withdraw goods from auction prior to completion of the sale
At a no-reserve auction—which must be specifically announced—goods cannot be withdrawn from auction after the auctioneer calls for bids unless no bid is received with a reasonable time
In either type of auction, a bidder may retract a bid until the auctioneer announces the completion of the sale (e.g., at the fall of the auctioneer's hammer). However, the bidder's retraction will not revive any earlier bids.
70
Ways to discharge contractual obligations
FIRM SCAN
Full performance
Impossibility, impracticability, or frustration of purpose
Release (in writing only)
Mutual rescission
Substituted contract
Contract or covenant not to sue
Accord & satisfaction
Novation
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UCC place for delivery
When a contract is silent as to delivery, the UCC provides that the place for delivery is the seller's place of business.
(However, the terms of an agreement may be supplemented by the parties' course of dealing.)
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rejection of non-conforming goods, right to inspect goods & damages
Under the UCC, if either the tender or the goods is nonconforming, then the buyer has the right to accept or reject all of the goods. The buyer has the right to inspect the goods before deciding whether to accept or reject them. Payment does not constitute acceptance if there is no right of inspection before payment. A valid rejection requires the buyer: (1) give notice to the seller (2) within a reasonable time and (3) before acceptance. Upon a rightful rejection, the buyer is entitled to a return of any payments made on the goods.
Even when the buyer accepts nonconforming goods, the buyer may revoke that acceptance if (1) the nonconformity substantially impairs the value to the buyer, (2) the buyer accepted the goods before discovering the nonconformity, and (3) acceptance was reasonably induced either by the difficulty of discovering the nonconformity before acceptance or because the seller gave assurances that the goods were conforming.
When a buyer rejects goods or justifiably revokes their acceptance, the buyer may be entitled to recover not only the purchase price, but also expectation damages, as well as incidental and consequential damages. Expectation damages are calculated as the difference between the contract price and the market price. Incidental damages are those incidental to the seller’s failure to perform, such as the costs of warehousing or transportation. Consequential damages are losses resulting from the buyer's general or particular requirements and needs which the seller knew or had reason to know of at the time of contracting.
*Here, the expert reported that the market price for an adequate computer was $3,200. The difference between that and what the father paid, $2,500, is $700. As there are no other incidental or consequential damages in these facts, the father is entitled to recover his purchase price plus $700.
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