Contracts Flashcards

Question

Agreement to agree ## Footnote UCC open price terms

Answer 1

The parties **if they so intend** can conclude a K for sale even though the **price is not settled**. In such a case the price is a reasonable price at the time for delivery if: * Nothing is said as to the price; or * The price is left to be agreed by the parties and they fail to agree; or * The price is said to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. where the **parties do not intend to be bound unless the price is fixed or agreed** and it is not fixed or agreed, there is no K ## Footnote in the UCC, the Quantity is an essential term because without it no objective way to figure out anything

Answer 2

Parties may **form a contract** when they manifest assent to an exchange **even though they contemplate memorializing the terms in a formal writing**, but the circumstances may show that the discussions are preliminary negotiations * The **test** for determining whether a contract was formed is **whether the parties intended to be bound by their initial agreement.**

Answer 3

Is this type of agreement usually put in writing? * if yes, weighs in no formation Will the final agreement contain many details? Did the parties agree on the essential terms of the bargain? * if yes, weighs in favor of formation Does it involve a large amount of money? * if yes, weighs in favor no formation Did the parties indicate that a formal written document was contemplated at the end of the negotiation? * if yes, weighs in favor of formation When in the process were the negotiations abandoned? * if later, shows intended to be bounded Did the party seeking to disclaim a K give assurances that induced the other party’s reliance on the anticipated transaction? * if yes, more likely they convey intention to be bound ## Footnote make sure to see if unambiguous cancellation clause like this * "the parties do not intend this letter of intent to be binding in any way. The parties intend to be bound only on execution of the formal written contract. Each party reserves the right to break off negotiations prior to executions prior to execution of the K for any reason whatsoever, or for no reason”

Answer 4

* To constitute consideration, a performance or a return promise must be bargained for * A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. * Recipricol Mutual inducement | no need for actual bargaining -- can be express or implied ## Footnote it can be a promise or a performance which may consist of * an act other than a promise * forbearance * the creation, modification, or destruction of a legal relation

Answer 5

Not enforceable because it is not exchanged for anything * not supported by consideration Test * whether the thing exchanged actually benefits the promisor * if there is actual bargaining * who are the two parties? commercial entities? ## Footnote Pennsy case * AA offered free aggrite, and requested the party that wants it to take it away * Court held act of taking away the aggrite was not a conditional gift, they took this hazardous material off AA's hands (AA received a benefit, saving disposal costs) so this is an inducement * conversely, the prospect that someone would take it off their hands induced american ash to offer the aggrite for free does not always need to be promisor to promisee third party allowed if bargained for

Answer 6

* Gratuitous promise (promise of a gift) * Past consideration (past performance) * Moral consideration * False recital of consideration (written in contract but not actually given) * Nominal or sham consideration * Illusory promise * Contract modifications/performance of pre-existing duty ## Footnote Courts will generally not inquire into the adequacy of consideration false recital * creates rebuttable presumption

Answer 7

if a promise as expressed makes performance entirely optional on the part of one party * cannot constitute consideration for a return promise * BUT even a slight restriction on the promisor's discretion not to perform is enough to get us out of this problem

Answer 8

1. A person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge/skill of the goods/practices involved in the transaction 2. Any symbol used by a party with the intent to authenticate a writing 3. Printing, typewriting, or any other intentional reduction to tangible form ## Footnote Merchant * anyone in business would meet this defintion but you gotta find something that says this person is in business

Answer 9

* Offer must be a **merchant** * Offer must be in **writing signed** by the offeror * The writing must **contain an assurance from the offeror** that the offer will be held open * If the writing with the assurance is a **form provided by the offeree**, the offeror must sign the term with the **assurance separately** | 3 month ## Footnote Last element * if i supply the form to you and im arguing you made the firm offer, you not only sign the form but you basically go to sign or initial the provision of the form in which you assure the offer will be held open Remember * Gotta figure out if there is an offer first! (CL def)

Answer 10

1. A contract for the sale of goods may be made in **any manner sufficient to show agreement**, **including conduct** by both parties which recognizes the existence of a contract 2. An agreement sufficient to constitute a K for sale may be found even though the **moment of its making is undetermined** 3. Even though **one or more terms are left open**, a K for sale does not fail for indefiniteness if the **parties have intended to make a K** and there is a reasonably certain basis for providing remedy. ## Footnote General Rule: price quotes are not understood as offers, but as invitations to make offers but can still meet all requirements and become one

Answer 11

Correctly identify the offer * usually buyer's purchase order if valid acceptance, and K formed * additional terms are proposals * the original **offeror explicitly agrees** to them * OR subsection 2 clause 2 b/w **MERCHANTS** terms *become part* of the K **UNLESS** * the original offer expressly limits acceptance to the terms of the offer * materially alter it * notification of objection before or after but reasonable time if cant conclude K formation under (1) but they still behave as K formed * Terms of the K are any **that match** and beyond that default UCC rules * Matching rule

Answer 12

Parties exchange standard forms, the second form has additional or different terms * this can be an acceptance if the essential terms are the same! under CL, this would be counter Unless Clause * This is true **UNLESS** that second form, the purported acceptance, is **expressly made conditional on the offerors' assent** to the additional or different terms. * Must be clear and explicit: **“subject to terms” is NOT sufficient.** Suppose the **essential terms are different** between the parties * No expression of assent, so no K, it is a counter offer ## Footnote Seasonable? * An action is seasonably taken if it is taken within the time, agreed or if no time as agreed, within a reasonable time Expression of acceptance? * assent

Answer 13

Unreasonable surprise test * a term materially alters a K if it cannot be presumed that a reasonable merchant would have consented to it in the circumstances look to other facts as well * something customary in the field * Parties have done prior deals together for a long time and they talked about the provision at issue | Arbitration clauses? look to custom ## Footnote generally do materially alter * disclaimer of warranties, guarantees of performance that depart from what is customary, right to terminate for nonpayment, time limits on complaints generally do not materially alter * Force majeure clauses, time limits on complaints, inspection clauses, clauses limiting the right of rejection for small defects, clauses limiting remedies in a reasonable manner

Answer 14

UCC 2-207(2) only applies to **additional terms** **Knockout Approach**: **Different** terms knock each other out and neither becomes part of the K.

Answer 15

1. purchaser must review T & C and click button/box to agree to terms in order to complete the transaction. 2. purchaser advised that the website contains link to T & C and that the purchaser agrees to the terms by using the website. Users must have actual or constructive notice. 3. purchaser receives T & C in box with product after payment. Warning on box states that purchaser agrees to terms by using the product.

Answer 16

Constructive notice * (1) Terms must be **sufficiently conspicuous** to put a reasonably prudent internet user on notice. * Proximity (visible without scrolling) and design are both factors. * (2) The website must provide textual notice to users that continued use of the site constitutes assent to the terms ## Footnote Case * Flower arrangements sold thru website. Arbitration clause in terms of use link at bottom of each page and confirmation email. Link was similar color to background, on submerged screen → not sufficiently conspicuous.

Answer 17

the seller makes the offer when it ships the goods and the buyer accepts the offer from the seller when the buyer retains the goods * additional terms become part of the offer from the seller * if the buyer accepts by **receiving the goods and retaining them** after having had a meaningful reasonable opportunity to reject them, then **buyer accepts all the terms in the box** ## Footnote For the enclosed terms to become part of the K, **the consumer must be place on clear notice that by accepting the product,** the consumer is accepting the enclosed terms and that the consumer can reject them by returning the product. * Use language that a reasonably prudent customer would be on notice they can reject terms by returning goods * “If for any reason customer is not satisfied with a dell-branded hardware system, customer may return the system under the terms and conditions of dell’s total satisfaction return policy.”

Answer 18

1. Sale of an interest in land (the whole bundle of sticks) 2. K not to be performed within a year 3. Sale of goods where price is over $500

Answer 19

1. DO NOT conflate the SoF and K formation 2. SoF is a defense against ENFORCEMENT 3. A K may fall into more than one category ## Footnote It is important to recognize the satisfaction of SoF just takes the affirmative defense off the table

Answer 20

Is a K **covered** by SoF? * if no, SoF is not a bar to enforcement * if yes, Q2 If SoF applies, is there a **memorandum** (writing), signed by the **party against whom enforcement is sought**(party to be charged)? * if yes, the SoF is not a bar to enforcement * if no, Q3 If the SoF applies and there is not a memorandum (a writing) that satisfies the requirements of the statute, **does an exception apply**? * if yes, the SoF is not a bar to enforcement * if no, the alleged K is not enforceable

Answer 21

* Reasonably identifies the subject matter of the K * Sufficient to indicate a K between the parties (OR offered by the signer to the other party) * States with reasonable certainty the terms of the unperformed promises of the K. * Be signed by the party to be charged – in other words, the party against whom enforcement is sought | apply all even if you think one fails ## Footnote Writing does NOT need to be created with intent to memorialize the info therein. informal writings can be sufficient

Answer 22

Two or more documents may be combined to form a writing that complies with SOF if the documents together: * contain all essential terms * at least one doc is signed by the party to be charged * unsigned document on its face shows it relates to the same transaction * evidence shows assent to the unsigned writing ## Footnote Last element * Party to be charged must show assent to the unsigned evidence and Parol evidence is allowed

Answer 23

* Under the one year provision, if **any** of the promises in the K cannot fully be performed within the year, all of the entire K falls within the SoF * Ks only fall into the one year provision if by their express terms, they cannot be performed within a year * The mere possibility that a K could be terminated due to a breach within a year, courts have found not to be enough to take K out of one year provision. ## Footnote * ex) K for construction of desalination plant. Anticipated to take 6 or 7 years but court held it COULD be built within a year so the one year provision does not apply. * ex) two year employment term cannot by definition be performed in a year so it applies * ex) what about a lifetime employment K? It is possible to die within a year so it can be performed within a year.

Answer 24

* Requires **a writing signed by the party to be charged** * On its face, requires “**some writing sufficient to indicate that a K for sale has been made b/w the parties**” * The only term which must appear is the **quantity term** which need not be accurately stated but recovery is limited to the amount stated. **Parties** too but no need to say which is seller/buyer * There is no UCC provision on multiple signed and unsigned writings so CL fills the gaps ## Footnote All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction.

Answer 25

one year provision * When **one party to a contract has completed his performance**, the one-year provision of the Statute does not prevent enforcement of the promises of other parties * removes that K from SoF BUT only the one year provision!

Answer 26

Promissory estoppel trumps the SoF when it is necessary to prevent a miscarriage of justice * Promise * Reliance on the proomise must be reasonably foreseeable * Promise must actually induce reliance * Injustice can be avoided only by enforcment of the promise ## Footnote injustice * whether other remedies are available * whether reliance is definite and substantial * clear and convincing evidence of a promise AND its terms * Reasonableness of the action or forbearance * Extent to which the action or forbearance was foreseeable by the promisor

Answer 27

applies if the **plaintiff has taken possession** and either **made improvements** or **paid part of the purchase price**. ## Footnote This is a narrow rule, if you see facts like a land K, and party is seeking specific performance as a remedy, 129 comes in – outside of that fact context, use 139 promissory estoppel exception to SoF

Answer 28

**Part Performance Exception** * If payment has been made and accepted (or goods have been received and accepted), SOF does not apply **Merchant Confirmation Exception**: * both parties merchants * one party must send a written confirmation * Other party must receive the confirmation within a reasonable time * Recipient of confirmation must have reason to be aware of its contents * Recipient must not give written notice of objection within 10 days * Written confirmation must be sufficient against the party that sent it --- signed by sender & ID's the parties, subject matter, and quantity **Promissory Estoppel** **Specifically manufactured goods exception** **admissions in court**

Answer 29

* Promise * Reliance on promise must be reasonably foreseeable * Promise must actually induce reliance * Injustice can be avoided only by enforcement of the promise ## Footnote both express promises and promises implied from conduct are enforceable under a promissory estoppel theory reliance can be something you are not legally obligated to do, such as voluntarily resign

Answer 30

Factors for element of injustice * was reliance detrimental * Was promisee’s reliance reasonable in the circumstances? * Is the reliance of a definite and substantial character in relation to the remedy sought? * What level of formality did the promise involve? ## Footnote If you can show some kind of detrimental reliance, **some change in position and that reliance was reasonable in the circumstances**, the element of injustice will usually be satisfied

Answer 31

* A charitable subscription finding when there’s a promise to give property to a charitable subscription and that promise is supported by either consideration **or** reliance ## Footnote Building new library wing; taking care of letters; holding a convocation → constitute sufficient reliance/consideration to make King’s donation binding.

Answer 32

There is no requirement that a promisee give up something they are legally entitled to in order to satisfy the element of actual reliance Case: It was enough that katz gave up something that he was not legally obligated to do – resign voluntarily and give up the opportunity to earn ## Footnote Retiring from an at-will employment CAN be reliance, even though the employee can be fired at any time. (Katz).

Answer 33

outside of this very specific fact pattern * court have been resistant to accepting PE arg to make an offer irrevocable because an offeree relied on it

Answer 34

alternative basis for recovery when there is no express or implied promise Elements * **Enrichment** -- a benefit given * **Injustice** -- retaining the benefit without just compensation would be unjust ## Footnote It is not always unjust to retain benefits IF * if the benefit was given gratuitously * or if it was unreasonable interference in the affairs of another in a subcontractor scenario there is two additional elements * The subcontractor has exhausted all remedies against the general contractor and remains unpaid; and * The owner has not given consideration to any party for the work done by the subcontractor

Answer 35

Moral obligation itself cannot be consideration exception * promise to pay debt * debt that had been incurred by a minor * pay a debt that has been discharged by bankruptcy ## Footnote why are these allowed? * All of these involve promises based on a preexisting legal obligation * They were originally a quid pro quo – bargained for exchange * Their original form were supported by consideration

Answer 36

extrinsic evidence beyond the four corners of the K * verbal exchanges * written exchanges in the time leading up to the K

Answer 37

* Is there a written expression of the agreement and, if so, what is the level of integration? * Is the parol evidence (the written or oral evidence extrinsic to the final writing) being offered to contradict, supplement, or explain the agreement? * Are there any exceptions that would allow the admission of parol evidence?

Answer 38

Written agreement is a final expression of one or more terms of the K, but does not include all of the terms the parties agreed to. * We are saying what is in the writing is final, but the writing itself is not exclusive – there might be some other terms out there

Answer 39

Written agreement if final, complete, exclusive expression of all of the terms of the contract. * Complete means no other terms – all of the terms

Answer 40

"this is the entire agreement" * A merger clause will create a strong intention to produce complete integration but it is not dispositive * but if it clearly assented to (initialed) it is dispositive

Answer 41

Complete = only explain Partial = Supplement or explain * supplment = consistent additional term ## Footnote you can NEVER contradict you can ALWAYS explain

Answer 42

one party asserts some term that is related to the transaction but tangential/distinct was agreed upon in some separate oral/written exchange | Can NEVER contradict ## Footnote for these * try to argue its partial first and win on integration and bring it in as supplmental/consistent additional term * but if you lose and its complete do the test

Answer 43

**Test 1**: Does the collateral term contradict the terms of the written agreement? If it does not, was the collateral term agreed to for consideration separate from that in the written agreement? * If YES, the exception applies and evidence of the term is admissible * If NO, the exception may not apply go to test 2 **Test 2**: In the circumstances, would reasonable parties ordinarily (or, as sometimes stated, ‘naturally’ or ‘normally’) have included the term in their final agreement? * If YES, then the exception does not apply and the parol evidence rule operates to exclude evidence of the collateral term * If NO, the exception does apply, and evidence of the collateral term is admissible

Answer 44

Judge considers parol evidence in camera and asks: **considering the evidence, is the term at issue reasonably susceptible to the proffered interpretation?** * If **yes**, parol evidence on interpretation is admitted * If **no**, parol evidence on interpretation is not admitted no means that party is not trying to enter evidence to explain but vary the agreement ## Footnote the issue * When is evidence being offered to explain so extreme that we're actually supplmenting or contradicting the more improbable the interpret, the more it departs from a reasonable interpretation, the more extrinsic evidence required and a judge has flexibility to decide enough is enough

Answer 45

similar BUT * course of dealing, trade usage, or course of performance is always allowed UNLESS explicity and carefully negated ## Footnote kind of has a presumption against complete integration

Answer 46

customary business practices in a location or trade that are so established that it is fair to make an assumption that the parties consider that apart of their agreement

Answer 47

how we have interacted with each other in the 5 previous contracts, not the one at issue

Answer 48

refers to a sequence of conduct between two parties with respect to a particular transaction * how have we understood terms and interacted with each other in performing the exact contract at issue | you price protected us on two other occasions ## Footnote **course of performance** concerns conduct **after a contract has been formed** whereas course of dealing is concerned with conduct that occurred before the contract in question was formed.

Answer 49

* Trade usage must exist * Trade usage must actually be binding on party against whom it is sought to be enforced (shell) (**they should be a member of the trade**) * evidence of trade usage, course of dealing, course of performance must not be inadmissable under the PER (so cannot contradict) (courts will bend over backwards to allow it so it just cant **totally negate**)

Answer 50

Subsequent agreement/Modifications * Other agreements and modifications to the original agreement that are made after the original agreement do NOT have to be written down. Evidence introduced to invalidate K * Evidence of illegality, fraud, duress, mistake etc always admissible Scrivener’s error * “We had a deal but there was an error writing it down” Oral condition precedent to formation * able to introduce evidence that they had agreed that this condition had to be satisfied before the K would even come into being.

Answer 51

Determine whether there is ambiguity. * apply contextualist approach If there is ambiguity, apply the rules in R2d sec. 20 and 201 to try to sort out the ambiguity * also the principles If you do not have a strong argument for an interpretation at step 2, consider tiebreakers If there is a failure of mutual assent, ask whether it is practical to unwind the transaction. If not, ask whether it is feasible for the court to supply a reasonable term.

Answer 52

Ambiguity → reasonably susceptible to more than one meaning. Decided by judge based on the text of the contract and all extrinsic evidence. * IF the contract is UNAMBIGUOUS (that is, if the textual and extrinsic evidence overwhelmingly supports one party), THEN the judge rules for that party. * IF the contract is AMBIGUOUS (that is, if a reasonable jury could rule for either party), THEN the court proceeds to stage 2. ## Footnote Chickens! Bee -- form of the K, different termination provisions

Answer 53

MUTUAL ASSENT → Party A’s Meaning Controls * Party A **does not know/reason to know** Party B has attached a different meaning and Party B **knows/reason to know** Party A has attached a different meaning ## Footnote Think about fault with these series of rules * The person with more knowledge is at fault Trick * if one party has reason to know but other knows --> knows is stronger and they are at more fault and lose

Answer 54

Neither Party’s Meaning Controls → NO MUTUAL ASSENT * NEITHER Party A NOR Party B knows or has reason to know the other party has attached a different meaning OR * BOTH Party A and Party B both know or have reason to know the other party has attached a different meaning

Answer 55

MUTUAL ASSENT, and the meaning of the two parties controls even if a reasonable person would attach a different meaning * BOTH Party A and Party B attach the same meaning to the contract ## Footnote Party that seeks enforcement of K bears the burden of proving that the meaning they attach to a term is the meaning that prevails.

Answer 56

Express language * is there an ambiguity? * Patent ambiguity = prima facie (chicken) * Latent ambiguity = revealed w/ context (peerless) Preliminary negotiations * Testimony of what was said to each other before K Legal Definitions * relevant but not dispositive Trade usage Course of dealing Course of performance ## Footnote Pecking order in case of conflict * Express>Course of performance>course of dealing>trade usage

Answer 57

**Interpret the K as a whole** * Do not take things out of context **Preference for interpretation that does not place terms in conflict** * Reasonable to assume parties drafted the K to be internally consistent **Preference for interpretation that does not make terms superfluous** * Prochazka case had this – why did we have two other termination clauses **An interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred over an interpretation which leaves a part unreasonable, unlawful, or of no effect.** * Contract for grass → not mean marijuana * Reasonable to assume BNS would not sell at a loss in the chicken case **The principle purpose (overall purpose) of the K is given great weight** **A word in a series is understood with reference to others in the series** * “cattles, hogs, and other animals” – it is reasonable to assume that might include sheep and other farm animals but not snakes **Expressing specific terms without general or inclusive ones exclude the other items** * only cattles and hogs -- reasonable to understand as excluding other farm animals **Specific provisions control over general provisions**

Answer 58

* **Public Interest Preferred**: Interpretation that favors the public interest is favored. * **Construe Against Drafter**: If we know who drafted the term, interpretation favorable to the non-drafting party is preferred

Answer 59

An agreement for exclusive dealing in the kind of goods imposes an obligation on the seller and buyer to use best efforts to supply the goods and to promote their sale. * best efforts = reasonable efforts ## Footnote when an arrangement is sufficiently exclusive to trigger this * Contract permitted a requirement seller (**a seller obligated to provide all inventory the buyer requires**) to maintain relationships with some of its other existing customers

Answer 60

Termination of K requires reasonable notification be received by the other party Reasonable notification? * depends on facts * Distributor needs sufficient time to sell off its remaining inventory before its exclusivity is terminated * Or time to recoup its investment EXCEPT ON THE HAPPENING ON AN AGREED UPON EVENT ## Footnote what if they agreed no notice of termination is required * enforceable because express terms over implied terms BUT unless unconscionable

Answer 61

Every K or duty imposes an obligation of good faith in its performance and enforcement * it is a derivative * The duty of good faith only applies to the performance and enforcement of a K once it has been formed --> not in negotiations ## Footnote Look for * actions that undermine the spirit of the K that unfairly deny the other party of the fruits of the K * think of spiteful behavior Parol evidence does not apply to good faith unless it contradicts an express term

Answer 62

Defendant unreasonably frustrated the purpose of K by engaging in conduct that **falls into one of the (3) Good Faith Situations categories**. Defendant must do so with **ill motive or bad faith** which can be shown by *applying subjective or objective standard*: * **Subjective Standard**: Malice, dishonest purpose, intention to cause harm. * **Objective Standard**: Violation of any commercially reasonable standard. ## Footnote disparity of bargaining power is a factor but not dispositive

Answer 63

Imply Intended Terms: * When it is necessary to imply terms to effectuate the intentions of the parties and give the K business efficacy * If woods sat on his hands and did nothing for lucy this category would be invoked Improper Motive: * When termination or some similar action appears intended to deny the other party the benefits under the K, but an **express term is invoked as a pretext to cover up the bad faith action** Discretion: * When the K permits one party to exercise discretion (for example, in setting the price or determining satisfaction), the exercise of discretion should be limited by principles of good faith and fair dealing

Answer 64

Requirements K: * A K pursuant to which a buyer agrees to purchase from a seller, and the seller agrees to sell to the buyer, all of a particular good the buyer requires * Whatever the buyer requires, the seller is obligated to provide Output K: * A K pursuant to which a buyer agrees to purchase from a seller, and the seller agrees to sell to the buyer, the entire quantity of a particular good that the seller produces. | requires good faith ## Footnote Wouldnt we have a consideration problem because they could require nothing? * nope the consideration is that the buyer agrees to buy from the seller everything it requires and not buy from anyone else! aka forebearance! ok no mutuality of obligation! both parties arent bound! * nope R2d rejects that and dont forget uni-k, offeree is not bound to complete performance its too indefinite! no specific quantity! * nope we can determine from course of dealing/performance, trade usage

Answer 65

Objective Standard: * If it is practicable to determine whether a reasonable person would be satisfied, then the term is interpreted by an objective standard for good faith enforcement of the term. * Practicability depends on the nature of the project (supplying iron vs. painting a portrait). Subjective standard * Rejection MUST be honest/good faith ## Footnote we have a building – it is not a thing a beauty – it is a function of cost and utility If an agreement is clear that the parties have chosen a subjective standard of satisfaction – that standard will apply * they have to be very clear

Answer 66

an affirmation or promise about goods that is expressly made (1) one of three communications (**any** written/oral kind) from seller * Affirmation of fact or promise made by the seller relating to the goods; * Description of the goods; OR * Sample/model of the goods; AND (2) That is the basis of the bargain. * Buyer MUST be aware of the communication. ## Footnote **MUST be more than a commendation, opinion, or affirmation of value.** * But the key is, is the statement objectively verifiable? * this boat is a beauty? NO

Answer 67

(1) Seller must be a merchant dealing in particular type of good at issue; AND (2) Standards in UCC 2-314(2) must be met: * Goods would pass without objection in the trade. * TEST: Significant segment of buying public would object to buying the goods. **OR** * Goods are fit for their ordinary purpose. * TEST: Are goods reasonably capable of performing their intended purpose? ## Footnote Merchants of goods of that kind (narrower def in this context)

Answer 68

Seller knows or has reason to know that the Buyer intends to use the good for a particular purpose AND Seller knows or has reason to know that the buyer is relying on the seller’s skill or judgment to select or furnish the right goods * Seller must actually use choose or recommend product * Buyer must in fact rely on seller’s skill or judgment | it has to be for the particular purpose! boat to go more than 30mph ## Footnote in general * Actual knowledge not required * This is not limited to merchants * The buyer does not have to show that, to satisfy this claim that the goods are defective or unfit for the ordinary purpose for which they are used, only has to show they are unfit for the particular purpose

Answer 69

Exclusion of implied warranty of merchantability * Language must mention ‘merchantability’ and be conspicuous **OR** * Language such as ‘as is’ or ‘with all faults’ must be used Exclusion of implied warranty of fitness for a particular purpose * Language must be in writing or conspicuous **OR** * Language such as ‘as is’ or ‘with all faults’ must be used * Does not even mention fitness – a general exclusion of warranties would suffice but can't be buried in fine print | subject to Parol evidence rule and if contradicts not going in ## Footnote Negation of express warranties * express warranties survive if they are inconsistent with general disclaimer . . . tie goes to EW * Difficult to exclude → if an EW is made, general disclaimer of EWs is insufficient.

Answer 70

If the buyer has examined the goods prior to entering into K or if the seller has insisted that she do so and she has refused, there is no implied warranty for defects that could reasonably have been discovered * If Crow has test drove the boat, the dealer would not be liable for any defects that he could reasonably have discovered through that test run An implied warranty can be modified by trade usage–so, for example, if you can show that people in a particular trade always buy goods, “as is,” there are no implied warranties ## Footnote warranties are cumulative * The mere existence of an express warranty does not negate the existence of an implied warranty * Express warranties displace inconsistent implied warranties other than the implied warranty of fitness for a particular purpose * So if you think you have a warranty issue, you want to run an express warranty analysis and look at both of the implied warranties

Answer 71

an uncertain-to-occur event that, unless excused, must occur before performance under a K is due * if condition is not satisfied, discharged from duty to perform ## Footnote Look at language → “if…then,” “unless…” * The language must be unambiguous and unmistakable * If it is ambiguous, and it is within the power of the obligor to cause a condition to occur, we prefer to interpret it as a promise non occurrence of a condition is not a breach by a party unless that party’s also under a duty that the condition occur

Answer 72

To the extent that the non occurrence of a condition would cause **disproportionate forfeiture**, a court may **excuse the non occurrence** of that condition **unless** its occurrence was a material part of the exchange ## Footnote What is a material condition? * Material condition are generally conditions that are a substantive part of what the parties were bargaining for * Conditions of a more **procedural** or technical nature tend to be considered non-material Forfeiture? * denial of compensation that results when the obligee loses its right to the agreed exchange after it has relied substantially * a loss Disporportionate * think about compared to other party

Answer 73

Non-material condition and condition waived by parties protected * a contracting party protected by the condition may waive the condition explicitly or implicitly * but can be retracted if still time Condition (material or non-material) waived and NEW consideration for waiver * this is like a modification Condition (material or non-material) waived, and detrimental reliance (promissory estoppel elements satisfied) * satisfy elements of promisory estoppel Doctrine of prevention * so if a party’s duty to perform its promise is conditional and that same party does things to prevent the condition from being satisfied * we’re going to excuse the condition – you're no longer discharged from your duty to perform

Answer 74

If Party A does a non-material breach * Party B's duty to perform is not suspended or discharged, but B may seek damages If Party A does a material breach * Party B's duty to perform is suspended if Party A does a total breach (uncured material breach) * Party B's duty to perform is discharged ## Footnote Discharged * nonbreaching party does not need to perform remaining promises and it can recover damages for total breach

Answer 75

*Loss/Burden on nonbreaching party* * the extent to which the injured party will be **deprived of the benefit** which he **reasonably expected** * the **extent** to which the injured party can be **adequately compensated** for the part of that benefit of which he will be deprived * the **likelihood** that the party failing to perform or to offer to perform will **cure his failure**, taking account of all circumstances, including reasonable assurances Forfeiture of breaching party * the extent to which the party to perform or to offer to perform would **suffer forfeiture** Fault/motive of breaching party * the extent to which the **behavior** of the party failing to perform or to offer to perform comports with standards of **good faith** ## Footnote Bottom line * at what point in time are the interests of the injured party unfairly compromised?

Answer 76

re-weigh material factors The extent to which it reasonably appears to the injured party that delay may harm her ability to make reasonable substitute arrangements * Will delay prejudice the other party? Whether the agreement itself provides for performance without delay * Did the parties clearly intend to require prompt performance ## Footnote Start here * At what point in time will the breach unreasonably prejudice the interests of the non breaching party? * then work backwards

Answer 77

Perfect Tender Rule * If the goods or the tender of deliver fail in any respect to conform to the K, the buyer may reject the goods and refuse payment.

Answer 78

If time for performance not expired * Must give notice of intention to cure * we will give seller a chance to cure If reasonable grounds to believe goods acceptable to buyer * something that gives me reasonable grounds to believe something short of perfect tender would be acceptable | subject to good faith ## Footnote So this section qualifies perfect tender but only does so temporarily * i must make perfect tender in the end – NO substantial performance doctrine as in R2d

Answer 79

If non-conformity substantially impairs value; AND * Accepted on reasonable assumption that non-conformity would be cured; OR * Failed to discover non-conformity because the seller made assurances. ## Footnote Must be made in a reasonable time and before natural deterioration (i.e. perishable goods).

Answer 80

Statements or actions that demonstrate **clear** intention not to perform are enough * CL = equivalent to total breach ## Footnote a suggestion for modification is not repudiation must be definite, unambiguous, unequivocal So I fail to perform and I declare i have no intention to perform at the same performance day * total breach

Answer 81

Retraction is permitted IF * Injured party notified of retraction (directly or indirectly) * Injured party has NOT materially relied on repudiation; AND * Injured party has NOT indicated that it considers K to be repudiated (final)

Answer 82

There is a right to adequate assurances IF * reasonable ground for insecurity * assurance demand reasonable and in good faith * demand in writing (UCC only but always really) * if not returned in 30 days (UCC) or reasonable time = total breach ## Footnote Examples of reasonable grounds for insecurity * minor breaches, financial difficulty, doubt about willingness * **But an unreliable rumor or a minor risk generally is not enough** circumstances must arise after K formed

Answer 83

A person under 18 can only form voidable contracts when it is voided, minor must return whatever is left of the consideration and in her possession Exception to necessaries * If this exception applies, we are not enforcing the K against the minor, we are saying the seller has a claim in restitution for the reasonable value of the shelter food etc Under this rule, minor may disaffirm the K either before 18 or upon reaching the age of 18 at a reasonable time ## Footnote Minors cannot cherry pick which provisions of a contract she does and does not want to enforce

Answer 84

Cognitive Test: * K is voidable if a party is unable to understand the nature and consequences of the transaction due to mental illness. Volitional Test: * K is voidable if a party is unable to act in a reasonable manner with respect to the transaction due to mental illness, EVEN IF the person can understand the nature and consequences of the transaction. * Other party MUST have reason to know of the mental illness. Must the incapacitated party restore consideration? * if K made on fair terms AND the compentant party does not know or have reason to know * Then, ability to void k may be limited as justice requires (restitution) ## Footnote Need medical expert testimoney/evidence Do not need to be diagnosed

Answer 85

A person incurs only voidable contractual duties by entering into a transaction **IF** the other party has reason to know that by reason of intoxication * He is unable to understand in a reasonable manner the nature and consequences of the transaction **OR** * He is unable to act in a reasonable manner in relation to the transaction | more likely if other party induced intoxication in some way ## Footnote In all cases the party must know or have reason to know for the defense to apply

Answer 86

K is voidable IF * There must be an **improper threat**, * the improper threat must **induce the victim** to contract; AND * the victim must have **no reasonable alternative**. | this is a subjective test ## Footnote Legal remedies may not be alternatives if they would take too long. BUT normally are

Answer 87

A threat is improper if: * The threat or what is threatened is a crime or tort; * A party threatens criminal prosecution; * A party threatens to use the civil process in bad faith; * The threat is a breach of the duty of good faith and fair dealing; **OR** The exchange is not on fair terms AND * The threatened act would harm the recipient and NOT benefit the threat-maker (spite); * Prior unfair dealing by the threat-maker increases the threat’s effectiveness (manipulation); OR * The threat is otherwise a use of power for illegitimate ends. | you got to identify a threat and fit it into one of these categories ## Footnote power for illegitimate ends * Water co. threatening not to supply water to construction site unless terms are accepted. Prior unfair dealing * Manipulative conduct prior to the formation of the K, kind of leaves one party at the mercy of the other breach of good faith * if other party has a colorable claim of breach or it doesnt owe performance, then no breach of good faith Reasonable alternative = very fact dependant * pursuing legal remedies normally are reasonable alts unless it wouldnt afford effective relief * if a minor inconvenience, reasonable alt Unfair terms? * the substance of the exchange

Answer 88

K under duress are voidable at the election of the victim * So still a K until victim disaffirms it by raising the defense against enforcement or bringing an action for rescission K that are made under duress can be explicitly or implicitly ratified by the victim later * Ex – a k made under duress might be considered ratified if the victim accepts the benefits of the K, moves forward with the deal, accepts the consideration of the other party, and perform their side of the bargain Courts have taken different approaches to the question of whether in economic duress cases, the party’s improper threat must actually create a financial hardship * MAJ -- there should be a casual link

Answer 89

K is voidable IF → (2) Elements: * Relationship of **dominance** (weaker party under dominance of the stronger party) OR **confidence** (confidential relationship) AND * Unfair persuasion (i.e., **excessive pressure**) by the dominant party induces the weaker party to contract. AKA strong enough to overbear the weaker party's free will | subjective test ## Footnote a confidential relationship (not employment) is not required

Answer 90

* **Unusual** or inappropriate time * **Unusual** place * Demand that business be **finished** at once * Emphasis on **consequences** of delay * **Multiple** persuaders * No third-party **advisors** * **Statement** that there is not time to consult outside advisors

Answer 91

K is voidable for misrepresentation IF: * There must be a **misrepresentation** that is either **fraudulent** or **material**; * The fraudulent or material misrepresentation **induced** a party to enter into the K; AND * The party’s reliance on the fraudulent or material misrepresentation must be **justified** ## Footnote Misrepresentation = An assertion that is not in accord/inconsistent with the facts. induce = substantially contribute to party's decision to enter

Answer 92

Misrepresentation is fraudulent IF the person making misrepresentation: * Intended to induce a party to manifest assent AND * Actually knows or believes the assertion is not in accord with the facts; OR * Does not have the confidence that he states or implies with respect to the truth of the assertion; OR * Know that he does not have the basis he states or implies. ## Footnote Overall you either know the statement you're making is false or you make the statement recklessly, it could be false but you don't show that * So even if we can't show fraudulent intention, we can try for material, below, but an innocent misrepresentation must be a material one

Answer 93

Misrepresentation is material IF: * It would be likely to induce a reasonable person to manifest assent; **OR** * The person making the misrepresentation knows it would be **likely to induce the particular recipient** to assent. (aware of some idiosyncrasy of the other party) ## Footnote * a material misrepresentation can be established even in the absence of intent to deceive. It could be an innocent misrepresentation/honest mistake

Answer 94

* When the opinion is **not honestly held** OR * When the person making the assertion **does not know facts** justifying the opinion OR **does know facts that are incompatible** with the opinion OR * When there is a relation of **trust and confidence** OR * When it appears that the person giving the opinion has **superior skill** OR * When the person relying on the opinion is **particularly susceptible**

Answer 95

When a person knows of a fact; AND One of (4) circumstances applies: * (1) Person knows disclosure necessary to prevent a **previous assertion** from being fraudulent or material misrepresentation (**fail to correct prior statement**) OR * (2) Person knows that disclosure would **correct a mistake as to a basic assumption related to the K** and non-disclosure would amount to a failure to act in good faith OR * (3) Person knows that disclosure **would correct a mistake as to the content or effects** of the K OR * (4) There is a **relationship of trust** and confidence between the parties. | fail to disclose is the legal equivalent of affirmative statement ## Footnote Only applies to material facts. * Would a reasonable person attach importance to the fact? * Does the party have reason to know the other party would care about the fact? Actual knowledge of undisclosed fact is required.

Answer 96

if the induced party does not know or have reason to know of the character or essential terms of the agreement. | (NO K) ## Footnote Park 100 v. Kartes: Intentional/active misrepresentation of personal guarantee as “lease papers” overrides the Δ’s duty to read.

Answer 97

Procedural Unconscionability * Deception/abuse/unfairness in contracting process * Higgins: oppression and unfair surprise * Williams: Absence of meaningful choice by one party (difference in bargaining power) Substantive Unconscionability * Higgins: Terms that are unfairly one-sided * Williams: Terms unreasonably favorable to one party * UCC 2-302: Terms so one-sided as to be unconscionable in light of the general background and needs. | unconscionability is severable and can attack a provision ## Footnote We assess unconscionability with respect to commercial need and commercial practice

Answer 98

* Significant disparity in bargaining power * Lack of reasonable opportunity to understand terms * Terms drafted in confusing manner (not reasonably intelligible) or buried in fine print to obfuscate * Deceptive sales practices * Unsophisticated or uneducated party ## Footnote Principle behind unconscionability * The principle is one of the **prevention of oppression AND unfair surprise** and **not** of disturbance of allocation of risks because of superior bargaining power

Answer 99

1. form contract 2. offered by a party with superior bargaining power 3. on a take it or leave it basis | not unconscionable by itself ## Footnote * It is not the case that a party has to show a contract is a contract of adhesion (these three elements) in order to prevail on an unconscionability claim * But it is a factor to consider and could tip the scale and make it more likely

Answer 100

K voidable for mutual mistake IF * Mistake by both parties at the time of K; * Mistake relates to a basic assumption underlying the K; * Mistake has a material effect on the agreement; AND * Adversely affected party does not bear the risk of the mistake. ## Footnote Party bears the risk of mistake IF: * Allocated by K; * Party consciously ignored the risk; OR * Circumstances make it reasonable to allocate the risk. → Catch all What is a basic assumption? * something fundamental to the nature of the consideration exchange * Assumptions about market conditions do not fall into this category Material effect? * We must show the mistake causes a severe imbalance in the performance of the parties that would be unfair to enforce * **show one party is worse off and one party is better off**

Answer 101

K voidable for unilateral mistake IF * Mistake by one party at the time of K; * Mistake relates to a basic assumption underlying the K; * Mistake has a material effect on the agreement; AND Either * mistake would make enforcement unconscionable; OR * **other party** has reason to know of mistake *or* was at fault for causing mistake; AND * (5) Adversely affected party does not bear the risk of the mistake. ## Footnote What is this idea of unconscionability? Do we have to do the whole defense elements? * Courts tend to conclude this element of mistake is satisfied if the mistake would result in a **substantial loss** * BMW lost 10k and that was not enough * better arg if nonmistaken did not rely

Answer 102

A party’s duty to perform is discharged for supervening impracticability IF * After K is made, an event occurs that makes performance impracticable (significantly more difficult or expensive); * The non-occurrence of the event was a basic assumption on which the K was made; * The party claiming the defense is not at fault; AND * Language of the K and the circumstances do NOT indicate the contrary. * **UCC** = The party raising the defense must put the other party on notice. ## Footnote impracticable * not unprofitable or inconvenient, it means alot more difficult or expensive 2nd element * something unexpected happened after K formed, that made performance fundamentally different from what was reasonably in parties contemplation * Expectation that market conditions will continue is not a basic assumption * continuation of the financial situation of the parties ordinarily is not a basic assumption 4th * they have not assumed the risk Foreseeability comes in the 2nd and 4th element * the higher the degree of foreseeability, the harder it is to argue that the assumption that the thing would not occur was a basic assumption of parties entering into the deal * harder to argue we did not accept the risk by entering into K

Answer 103

* Death or incapacity of person necessary for performance * Destruction, deterioration, or failure to come into being of a thing necessary for performance * Prevention by government rule or regulations

Answer 104

A party’s duty to perform is discharged for supervening frustration IF * After K is made, **an event occurs that substantially frustrates a party’s principal purpose for entering into the K**; (only difference from impracticability) * Non-occurrence of the event was a basic assumption on which the K was made; * Party whose performance is frustrated is not at fault; AND * Language of K and the circumstances do NOT indicate the contrary (that the risk has been allocated). | force majeure clause -- excuse of perfromance by an act of god ## Footnote One party’s performance, because of the supervening event, has become **virtually worthless** to the other Difference? * In the case of frustration, performance of the K isn't impossible, **it is not much more expensive, it is not more burdensome** – there is no impediment to the lessees performance – here, it was not impracticable to perform – all di chem had to do was pay rent * for example, the lease just becomes more useless' If there is still some use, then not frustration **Purpose of K must be clear**

Answer 105

**Pre-existing duty rule** * Performance of a duty already owed is NOT consideration. * UNLESS whether the performance duty owed is doubtful or subject to honest dispute. * However, a similar performance IS consideration if it differs in a way that reflects more than a pretense of a bargain. ## Footnote So re-promising to do something you’re legally obligated to do already isn't consideration UNLESS your obligation to do that performance is somehow doubtful or the subject of honest dispute * Maybe you have an plausible defense * in this scenario – re-promising to do the same thing would be consideration Or you can change what you already did a little bit or do a little more

Answer 106

Material change in position in **Reliance** * promissory estoppel. * What kind of reliance? Maybe performing the K is sufficient, but it is very fact specific **Fair and equitable in light of circumstances not anticipated when K was made.** * Does NOT have to be unforeseen (can be market changes). * No obligation to modify, just allows modification. ## Footnote Duress is always a defense to enforcement of a modified K * but in this context must show they protested the modification

Answer 107

Modifications are enforceable without consideration. * STILL → general duty of good faith (deals with coercion) Roth Steel Test for bad faith * Party must have **a legitimate commercial reason** for seeking modification and **NOT attempt to coerce** by threatening breach. --> Market Shift IS a legitimate commercial reason (to ask) ## Footnote 2-209 (3) tells us that the UCC SoF must be satisfied if a K as modified is within its provisions * So if a modification involves a price in excess of 500$ the UCC SoF also applies to the modification * but this can be waived similar to no oral mod and can be answered same way

Answer 108

The basic question we’re asking is when is an oral mod enforceable in spite of the existence of a no oral mod clause * When the other party has materially relied on the mod and failing to enforce that would be unjust ## Footnote the rule adopted by CL is that these “no oral mod” clauses are not enforceable

Answer 109

Reliance interest * Compensating an aggrieved party who suffers damages because she relied on a binding promise Expectation interest – likely to give highest value * Compensating a party for the value that she expected to receive when she entered into the K and that was not received because of the breach * “Benefit of the bargain” ## Footnote General rule is that we want to award damages to protect the non breaching party's expectation damages

Answer 110

Expectation damages = loss in value + other loss - costs avoided - loss avoided Loss in value * difference in value of the performance that was promised under the contract to the nonbreaching party and the value of the performance he actually received if anything * Intangible losses here would be hard to calculate due to reasonable certainty requirement Other losses * **Incidental damages** – costs incurred in an effort to mitigate the losses from the other party’s breach * **Consequential damages** – Other losses incurred as a result of the breach -- such as loss from lost profits from a collateral transaction Costs avoided * Costs the non breaching party would have had to incur to fully perform that he saved because his duties are discharged as a result of the other party’s breach Loss avoided * Losses a non-breaching party will be able to mitigate

Answer 111

[contract price - market price at the time of the breach] + other loss - costs avoided - loss avoided

Answer 112

[cost of completion] + other loss - costs avoided - loss avoided ## Footnote in Jacobs and Young they used the general but because no structure would have to be torn down to remedy the breach and because the breach was incidental

Answer 113

General damages * Damages as may fairly and reasonably be considered as arising naturally, i.e., according to the usual course of things, from such breach of contract itself Special Damages * damages that do not arise naturally BUT that may reasonably be supposed to have been in contemplation of both parties, at the time they made the contract, as the probable result of the breach of it

Answer 114

Foreseeability * Special Damages: Result from the party’s particular circumstances. * General Damages: Arise naturally, NO limitation. Flows in the ordinary course. * MUST show that the breaching party knew or had reason to know of the circumstances giving rise to the special damages. Causation * Damages must be natural and proximate consequence of the breach. Certainty * MUST prove that losses were reasonably certain and not speculative. New Business Rule: lost profits from new business are too speculative to be awarded. * Modern courts may look to similar businesses in the area to estimate damages. * Consider reliance damages instead. ## Footnote all damages must be foreseeable as a probable consequence of a breach at the time K was formed * cannot be remote in possibility

Answer 115

Must suspend performance to avoid compounding damages. & Must take reasonable efforts to avoid loss. * Efforts DO NOT have to be successful. Breaching Employer → has the burden of proving: * (1) employee’s lack of diligence in searching for/securing another position; AND * (2) there was a reasonable substitute position available (including same $ earned) ## Footnote If employee offered same job back → MUST take it. UNLESS special circumstances apply.

Answer 116

If seller fails to deliver/repudiates; buyer rejects goods/revokes acceptance: Buyer CAN * Cancel K; * Recover any price paid; **AND** * EITHER Cover by purchasing substitute goods and recovering the difference between cover and contract price; **OR** Recover the difference between market and contract price (at the time buyer learns of breach); **AND** * if buyer does either those 2, buyer is entitled to recover incidental/consequential damages, but must deduct expenses saved as a result of breach Consequential Damages: * Can recover for any loss resulting from general or particular requirements that seller had reason to know at time of K. * Buyer is obligated to mitigate if it could prevent consequential damages through substitute transaction. If buyer accepted non-conforming goods: Buyer CAN * Recover damages for non-conformity that result in the ordinary course of events. * Recover damages for breach of warranty: difference between value received/warrantied. * Recover incidental and consequential damages. * JUST DIFFERENCE IN VALUE ## Footnote Damages = [Market Price OR Cover Price - CP] + incidental and consequential damages - expenses saved as result of breach

Answer 117

If buyer wrongfully rejects, fails to pay, or repudiates, Seller CAN * Cancel the K; * Withhold delivery of goods not yet delivered; * Stop delivery of goods in transit/storage; AND * Recover damages based on marked price; OR Resell goods and recover based on resale price. if seller recovers under either of those, also entitled to recover incidental damages, but must deduct expenses saved as a result of buyers breach | resale must be in good faith ## Footnote damages = [contract price - market or resale price] + incidental damages - expenses saved as result of breach

Answer 118

Can recover expenditures made in preparation for performance. SUBTRACT any loss that breaching party can prove that the injured party would have suffered anyways under the K. May be preferred if: * K would cost the injured party $ (no expectation damages). * Expectation damages are hard to prove (new business rule). Reliance Damages must be: * (1) Foreseeable; AND * (2) Proven with reasonable certainty. ## Footnote dont run through alternative measures of damages unless the facts raise it as an issue * difficulty in expectation damages -- too speculative, not certain enough * Case = expectation damages consisted almost entirely on lost profits on this weird scheme * also if breaching party can prove that nonbreaching party would have suffered loss on that K had it been fully performed -- we will reduce amount of reliance damages

Answer 119

LDs must be compensatory, CANNOT be punitive. * The amount must be reasonable. * Evaluate reasonableness by the totality of the circumstances at the time of K formation. Reasonable in light of the anticipated loss OR actual loss. * NO duty to mitigate or requirement to prove actual harm. ## Footnote damages clause must be clear and unambiguous

Answer 120

Damages are difficult to prove with reasonable certainty. Substitute performance would be difficult or impossible to secure. * unique in some way * real estate is always unique Damages unlikely to be collected if awarded. * D is insolvent

Answer 121

SP **denied** IF: * Terms are not sufficiently certain to provide **BASIS** for an order of SP * SP would impose supervision burdens on the court disproportionate to benefit of SP. **Dont burden court**! * SP would cause **unreasonable hardship** or loss to the breaching party or third persons. Cant just say we would make more money with sears! or if sears would be hurt that would change balance * K induced by mistake/unfair practice or is grossly unfair. even if not fully satisfied the elements of a defense! **unclean hands**! * **Non-breaching** party has not substantially performed or its **performance is in doubt**. * Act of SP or the performance compelled would be **contrary to public policy**.

Answer 122

Buyer entitled to SP IF goods are unique. Seller may recover entire K price: * For any conforming goods accepted by buyer; * For conforming goods damages after risk of loss passed to buyer; OR * Seller unable to resell. ## Footnote 1964 rare red corvette does a special price make a good unique? * NO, we have buyers remedy

Contracts Flashcards

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