MBE Contracts Flashcards

Question

Implied Warranties

Answer 1

A warranty is a promise regarding a contract UCC Ks have default implied warranties, which can be disclaimed **Express warranty**—promise about the quality or feature of a product * E.g., manufacturer claims cell phone is water proof to 20 feet * Breached if the product falls short of seller’s promise or description * *Cannot disclaim express warranties * XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX **Implied warranty of merchantability**—*MERCHANTS ONLY* -- warranty that goods are *fit for the ordinary purposes for which such goods are used*; or conform to sellers representations *METHODS OF DISCLAIMER* (waiver of warranty) * SPECIFIC: *ORAL or CONSPICUOUS written statement SPECIFICALLY disclaiming “merchantability”* * GENERAL: expressions like *“as is”* or *“with all faults”* * buyers inspection of goods or refusal to do so, but only for defects that inspection would reveal * course of dealing, course of performance, trade usage **Implied warranty of fitness for a particular purpose**—*ANY SELLER* (whether or not a merchant) warrants that goods are fit for buyer’s purpose if: * Buyer has a particular purpose; * Buyer relies on seller to select suitable goods; and * Seller has reason to know of buyer’s purpose and reliance on seller *METHODS OF DISCLAIMER* (waiver of warranty) * SPECIFIC: *CONSPICUOUS written statement* - (“there are no implied warranties which extend beyond the description on the face hereof.”) * GENERAL: expressions like *“as is”* or *“with all faults”* * buyers inspection of goods or refusal to do so, but only for defects that inspection would reveal * course of dealing, course of performance, trade usage *Remedy limitation*—limits recovery upon breach of warranty * Generally valid for all warranties *Damages for breach*—generally damages amount to the difference between current value and value as warranted by seller

Answer 2

**Express Warranties** Created by: * Any affirmation of fact or promise made by the seller to the buyer, * any description of the goods, and * any sample or model *Disclaimers:* * the basic obligation created by the description of the goods cannot be read out of the contract by a disclaimer clause.

Answer 3

*Conditions:* An event, of which the occurence or nonocurrance will make someone perform or discharge from performing. **Types of Conditions** *1) EXPRESS CONDITIONS* - Substantial performance *will NOT suffice* *expressed in the contract* - “on the condition that” or “provided that” * Express conditions must be complied with fully unless excused; substantial performance will not suffice. *"Satisfaction" Conditions* * In contracts based upon aesthetic taste, the party’s dissatisfaction must be in GOOD FAITH, and not just to get out of their obligations *2) IMPLIED CONDITIONS* - *Substantial performance will suffice* *"implied in fact” conditions* -- Nature of the agreement suggests that the parties truly intended the condition but failed to expressly include it *“constructive” or “implied in law” conditions*-- which are supplied by a court if reasonable under the circumstances. * *“constructive conditions of exchange”* (construction and employment contracts) A court will imply that the builder or employee must perform first (at least “substantially”) before the other side’s performance (the payment of money) becomes due. * *UCC duty of Cooperation* - In addition to good faith, the UCC implies a duty of cooperation on the parties when performance of one party is dependent upon the cooperation of the other party. If a party fails to cooperate, the other party may suspend her own performance without being in breach. **VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV** *Timing of Conditions* *Precedent*: condition that must occur *before* a duty of performance arises in the other party. *Subsequent*: A condition that occurs *after* performance, the occurrence of which cuts off the duty of performance. *Concurrent*: Conditions that are capable of occurring *together*, and that the parties are bound to perform at the same time. **VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV** **When Non-Occurance of a Condition is EXCUSED** *i) WAIVER of Conditions* * Only the party benefiting from condition can waive, by words or conduct. * A *material* condition may be reinstated. * A *non-material* condition may be reinstated if (i) The waiving party *communicates* a retraction of the waiver *before the condition is due to occur*; and (ii) The other party has *not already detrimentally relied* *ii) Wrongful Interferance* * Condition will be waived if party wrongfully prevents or interferes with condition's occurrence *iii) Estoppel* * Party indicates condition will not be enforced AND * Other party reasonably & detrimentally relies on belief that condition has been waived *iv) Disproportionate Forfeiture* * Party substantially performed & will be significantly harmed if condition is enforced

Answer 4

**1) Legal remedies = MONEY** *Expectation*: To put the non breaching party in the position had the contract been performed. *Liquidated Damages*: Parties predetermine damages at the time of entering the contract because the damages would be too difficult to calculate at the time of breach. Enforceable so long as reasonable and not acting like a penalty/punishment. * Generally 10% or less of the contract is always reasonable. 40, 50, 60% more likely to be a punishment/penalty. **2) Equitable remedies = MONEY WON'T HELP** (no adequate remedy at law) *Specific performance* - Judge making someone perform. * Granted when contract is UNIQUE (ex: LAND. However, a subsequent purchasor w/o notice of prior sale will not be required to specifically perform) *Injunction* - Judge preventing someone from performing. * Granted to prevent irreperable harm. (ex: trade secrets) *Recission* - Put parties back in position prior to entering the contract. * Granted when there was no meeting of the minds. (ex: Mistake, misrepresentation) The parties were not on the same page

Answer 5

Contract already exists. *Modification* is the changing of existing material terms. **Common law** (services + land) * *ADDITIONAL CONSIDERATION NEEDED* **UCC** (goods) * no additional consideration needed, *ONLY GOOD FAITH* **XXXXXXXXXXXXXXXXXXXXXXXXXXXXX** *General Rule: Can be ORAL or Written* **"No oral Modification" Clauses** *Common Law* * NOM clause enforceable ONLY IF modification must be in writing under statute of frauds (eg., Land) *UCC* * ALL parties are MERCHANTS – NOM clause ALWAYS enforceable * If not – NOM clause in merchant's form must be separately signed by nonmerchant(s) to be enforceable *Waiver* * NOM clauses can be waived through the parties' words or conduct, and the waiver cannot be retracted if a party has materially changed position in reasonable reliance on the waiver. ## Footnote not to be confused with formation

Answer 6

Goods recieved were not what the buyer wanted *may reject, may accept, may accept in part, may reject in part* **RULES** If goods received *PRIOR to K delivery day*... * Buyer must give opportunity to cure before K day If goods received *ON K delivery day*... * BUYER CHOOSES * If the seller had *reasonable belief* the buyer would accept it...seller has reasonable amount of time to fix it. vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv *ACCEPTING nonconforming goods* If a buyer *ACCEPTS* a shipment of nonconforming goods * *May Recover Warranty Damages* -- The *difference between the value* of the goods as delivered and the value they would have had if they had been *according to contract* * *Notice Required* -- the buyer must, *within a reasonable time* after she discovers or should have discovered the defect, notify the seller of the defect. If she does not notify the seller within a reasonable time, she loses her right to sue. *REJECTING nonconforming goods* If a buyer *REJECTS* a shipment of nonconforming goods, they *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 if * the buyer is a merchant, * the goods are perishable, and * there is no local agent to whom the goods can be returned. ## Footnote Goods recieved were not what the buyer wanted

Answer 7

**1) Anticipatory Repudiation** -- Applicable PRIOR TO K performance date, one party *UNEQUIVICALLY and ABSOLUTELY refuses to perform* * The non-repudiating party *can sue immediately* the repudiating party for Total breach, or * *can wait* until K performance date to see if they perform, and if they dont, sue. *Exception (Partial Breach) - Contracts Calling for Installment Payments* * If a contract calls for payments in installments and a payment is not made, there is only a *partial breach*. The aggrieved party is *limited to recovering only the missed payment(s)*, NOT the entire contract price. * However, the contract may include an *acceleration* clause making the entire amount due on any late payment, in which case the aggrieved party may recover the entire amount. **2) Retraction:** The repudiating party may *retract* their repudiation UNTIL the non repudiating party has: * *sued* for breach, * change their position in material *reliance* on the repudiation, or * *stated* that they are treating the repudiation as final **3) Assurances:** One party's *prospective inability to perform* under the contract gives the other party: * the *right to demand assurance* of performance and *suspend its own performance* until assurance is provided. (UCC demand must be in writing) * Failure to provide assurance within a *reasonable time* (not to exceed *30 days under the UCC*) constitutes a *repudiation* and a breach. * Repudiating party can retract repudiation until next performance is due, unless other party has sued for breach, relied on repudiation, or indicated that they consider the repudiation final) *Notes* * Cannot demand assurances If there is no reason to be nervous ## Footnote Florida Distinction - Point of Law: Anticipatory Repudiation * a party’s comments or actions demonstrate a probable failure to perform. A refusal to perform that is “distinct, unequivocal, and absolute” is repudiation permitting the other party to seek assurance of performance, to seek damages, or to mitigate damages.

Answer 8

**Promissory estoppel** is referred to as a consideration “substitute.” The doctrine of promissory estoppel (detrimental reliance) can be used under certain circumstances to enforce a promise that is not supported by consideration. **Requirements: A promise is binding if:** * the promisor *reasonably expected to induce reliance* on the promise * the promisee *reasonably relied* on the promise, to their *detriment* * *injustice* can be avoided only by enforcing the promise. *EXCEPTION -- Charitable Subscriptions; detrimental reliance not required* — promises IN WRITING to contribute money or property to a charitable institution is enough to enforce. *Construction contracts and promissory estoppel:* Under promissory estoppel, a subcontractor cannot revoke a bid after inducing justifiable and detrimental reliance in the general contractor. * The general contractor is not bound to accept it upon becoming the successful bidder for the general contract. A general contractor can enter into a subcontract with another subcontractor for a lower price. **Remedies** *1) Restitution* damages (fair market value of services; quantum meriut) *2) Reliance* damages (out-of-pocket expenses) * Remember reliance must be reasonable *3) Rescission* (when there’s mistake, fraud, or misrepresentation) * We put the party back in the position they would have been in before the contract. *4) Reformation* allowed when upon clear and convincing evidence showing mutual mistake or fraud. * This allows the court to “rewrite” the Contract based on conduct of the parties. ## Footnote * Can award *expectation* damages (i.e., what was promised under the contract), * but jurisdictions following Second Restatement provides that the remedy “may be limited as justice requires.” Thus, might award only *reliance* damages (i.e., whatever the promisee spent in reliance on the promise),

Answer 9

**Discharged from performance (defenses)** **Impossibility** — Performance is objectively impossible. * Now considered too restrictive, modern approach AND Florida follows "impracticability" **Impracticability** * an *unforeseen* event occurs * nonoccurrence of the event was a *basic assumption* on which the contract was made, and * the party seeking discharge is *not at fault.* Due to *unforeseen circumstances*, performance—while possible—has become too difficult/expensive, And *would not be fair* * standard price fluctuation in the economy = foreseeable * big price fluctuation due to war, covid, etc. = unforeseeable *Effect* * both parties are no longer required to perform However, a party may seek *restitution* damages for any benefit conferred on the other party if it would be unfair to allow the other party to keep the benefit without providing compensation (i.e., unjust enrichment) **Frustration of the Purpose** -- Performance can still occur, but it undermines the entire reason for the K *Frustration of purpose vs. impossibility*—distinction is that impossibility concerns duties specified in the K, whereas frustration of purpose concerns the reasons a party entered into the K * E.g., A landlord rents space to B restaurateur to open ice cream parlor; if the property is destroyed by an earthquake, A & B are excused from performing due to impossibility * However, if the city passes an ordinance banning the sale of sweetened food, the K’s purpose is frustrated b/c A knew B intended to open an ice cream parlor

Answer 10

**1) Mutual mistake** -- both parties are mistaken about an underlying factual assumption at the time of K formation. K is voidable by an adversely affected party if: * Both parties are *mistaken concerning a basic assumption of fact*; * Mistake *materially affects* the agreed-upon exchange; and * *Adversely affected party did not assume risk* of the mistake *NOTES* *Conscious Ignorance PREVENTS Defense* (assumption of the risk) "bore the risk" * If party is *aware* at the time of the contract that they have only *limited knowledge* of the facts and they accept their limited knowledge as sufficient, they bear the risk of a mistake * Mistaken Party's Negligence in Good Faith does NOT PREVENT the defense *Reformation for mistake of both parties* * When a *writing fails to express the agreement because of a mistake of both parties*, the court may, at the request of a party, reform the writing to express the agreement, EXCEPT to the extent that rights of third parties who have *relied on the document*, such as good-faith purchasers for value, will be *unfairly affected.* Reformation of a writing for mistake is available if: * There was a *prior agreement* (either oral or written) between the parties; * There was an *agreement* by the parties *to put that prior agreement into writing*; and * As a result of a mistake, there is a *difference between the prior agreement and the writing.* **2) Unilateral mistake: NOT A DEFENSE** —one party makes a mistake concerning facts of an agreement; usually arises with computational errors * Unilateral mistake will not prevent K formation * *Exception*—*mistaken party may void K if* mistake is material and non-mistaken party knew/should have known of mistake ## Footnote **1) Unilateral mistake:** One party has a mistaken belief about facts relating to the agreement. **2) Mutual mistake:** Both parties were mistaken about facts relating to the agreement.

Answer 11

A **misunderstanding** arises when the parties to a contract assign different meanings to the same term. When the misunderstanding involves a material term, whether a valid contract was formed depends on *WHO knew or had reason to know that there was a misunderstanding*: * **neither party OR both parties** – in which case *no contract* was formed; unless both parties intended same meaning * **one party** – in which case a valid contract was formed, and the *unknowing party's* meaning of the term *controls* VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV *Waiver of the misunderstanding* one party may waive the misunderstanding and *choose to enforce the contract according to the other party’s understanding*

Answer 12

**1) Misrepresentation** a misrepresentation (innocent or negligent) can still render a contract voidable by the adversely affected party if: * The misrepresentation is *material* (i.e., information that would cause a reasonable person to agree or that the person making the misrepresentation knows would cause this particular person to agree); * The misrepresentation *induced assent* to the contract; and * The adversely affected party *justifiably relied* on the misrepresentation. A party’s *Negligence with regard to learning about the falsity of the misrepresentation* is not sufficient to prevent them from avoiding the contract unless it constitutes a failure to act in good faith and fair dealing **2) Non-Disclosure** *i) Affirmative conduct to conceal a fact* is equivalent to an assertion that the fact does not exist. *ii)* In addition, mere *nondisclosure* of a known fact is considered an assertion that the fact does not exist, if the party not disclosing the fact knows that: * Disclosure is *necessary to prevent a previous assertion* from being a misrepresentation or fraudulent or material; * Disclosure *would correct a mistake* of the other party as to a basic assumption, and the failure to disclose would constitute lack of good faith and fair dealing; * Disclosure *would correct a mistake* of the other party as to the contents or effect of a writing evidencing their agreement; or * The other party is entitled to know the fact because of a *confidential or fiduciary relationship*. **3) Fraudulent misrepresentation** Fraudulent misrepresentation requires proof of the following: * The misrepresentation is *fraudulent*; (i.e.,A false assertion of fact made knowingly, or recklessly without knowledge of its truth; and With intent to mislead the other party; * The misrepresentation *induced assent* to the contract; and * The adversely affected party *justifiably relied* on the misrepresentation. **VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV** *EFFECT* **a) Fraud in the factum** (or fraud in the execution) -- When a fraudulent misrepresentation *prevents a party from knowing the character or essential terms of the transaction.* * Contract is *void* (i.e., not enforceable against either party), unless reasonable diligence would have revealed the true terms of the contract. **b) Fraud in the inducement** - When a fraudulent misrepresentation is *used to induce another to enter into a contract.* * Contract is *voidable by the adversely affected party* if she justifiably relied on the misrepresentation in entering into the agreement. ## Footnote Florida Distinction: Fraudulent Misrepresentation In Florida, relief for a fraudulent misrepresentation is granted when * (1) a person makes a false statement concerning a material fact, * (2) that person knows that the representation is false, * (3) the representation was made with the intent of inducing another to act on it, and * (4) relying party was consequently injured

Answer 13

Contracts induced by duress or undue influence are *voidable* and may be rescinded as long as not affirmed. **Duress** -- 2 types *1)* an *improper THREAT* that *deprives a party of meaningful choice*; VOIDABLE threats of: * crime or tort * criminal prosecution - even if guilty * BAD FAITH civil action * BAD FAITH breach of K *2)* if a party is *physically forced/compulsed* to sign against her will; VOID (very limited) * e.g., a stronger person grabs her hand and signs the contract with the victim’s hand or the victim signs the contract at gunpoint **Undue influence** -- unfair *persuasion* of a party who is under the domination of someone exercising the persuasion or by virtue of the relationship between them in which one party is *dominant and the other dependent*: * trustee-beneficiary, * lawyer-client, * doctor-patient, * financial advisor-client, * parent-child

Answer 14

Parties must be *competent.* Incompetency arises because of: **1) Infancy** — Under 18. * *VOIDABLE* by the minor only, not the other party. The individual's void must be effectuated either before the individual reaches the age of majority (18) or within a reasonable time thereafter. If not, then the individual is deemed to have ratified the contract. *EXCEPTION -- Necessities* * When necessities are furnished to the minor, the minor must pay for them, but the recovery by the person furnishing the necessities is limited to the *reasonable value* of the services or goods, which may or not be the agreed-upon contract price. **2) Mental illness** * *VOIDABLE* 2 Standards -- if the individual is unable to: * understand nature/consequences of transaction; or * act in a reasonable manner with regard to the transaction, and the other party has reason to know of this fact. **3) Guardianship** — under guardianship by reason of an adjudication (such as for mental illness or defect, habitual intoxication, narcotics addiction) * any purported contract made by the individual is VOID. **4) Intoxication** — A person lacks the capacity to enter into a contract if that person was *too intoxicated to reasonably understand the nature or consequences of the contract* * *Voidable* by intoxicated party. * The intoxicated person may affirm the contract upon recovery. **CONTRACT FOR NECESSITIES**—the party without capacity must still pay *fair value* (not necessarily the contract price)

Answer 15

**1) Illegality** - contravenes a statute or a rule of common law * If a contract contemplates illegal conduct before formation, it is void. If a contract becomes illegal after it is formed, the duty to perform under the contract is discharged. * When a contract violates *a law that was designed to protect the party seeking to enforce the contract,* the contract can be enforced to avoid frustrating the public policy behind the statute. **2) Unconscionability** — courts may refuse to enforce all or part of a K that is unfair or oppressive to one party based on *bargaining power* or *terms* * Arises with adhesion Ks, exculpatory clauses for intentional acts, etc. * Look for an absence of meaningful choice by the disadvantaged party *Notes* * A contract (or part of a contract) is unconscionable when it is so unfair to one party that *no reasonable person* in the position of the parties would have agreed to it. * The contract or part of the contract at issue *must have been offensive at the time it was made* *procedural unconscionability* * when a party is induced to enter the contract without a meaningful choice due to deception, compulsion, or significantly unequal bargaining positions * Examples of procedural unconscionability may include boilerplate contract provisions that are inconspicuous, hidden, or difficult for a party to understand, or contracts of adhesion (a take-it-or-leave-it contract) when there is greatly unequal bargaining power between the parties *substantive unconscionability* * Occurs when the substance of the contract itself is unduly unfair.

Answer 16

**Common Law — Substantial Performance** * as long as no material breach * Material breach allows the non-breaching party to withhold performance and pursue breach remedy * with minor breaches - the non-breaching party must still perform, can seek remedies for minor breach * Breaches of Express conditions are material vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv **UCC — Perfect Tender** * Requires perfect goods and perfect delivery. * "Perfect" means in accordance with the contract provisions or in accordance with the UCC if the contract is silent on tender. *EXCEPTIONS* **1) INSTALLMENT Contracts**— One nonconforming installment is not a material breach. *Rejecting non-conforming Installments* * Buyer can *reject* the non-conforming installment *ONLY if* the nonconformity SUBSTANTIALLY IMPAIRS that installment and cannot be cured. *Cancelling the Entire K* * A buyer can *cancel the entire contract ONLY if* the non-conformity with respect to one or more installments SUBSTANTIALLY IMPAIRS the value of the *ENTIRE K.* **2) SINGLE DELIVERY K**—Sellers right to cure depends on performance date *Seller's Right to Cure Before Contract Performance Date* * Can Cure by Notice and New Tender *Seller’s Right to Cure Beyond Original Contract Time* - Only if reasonably believed would be acceptable. The seller, upon a reasonable notification to the buyer, has a further reasonable time within which to make a conforming tender. *Reasonable Belief if the seller can show that:* * (i) trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or * (ii) the seller could not have known of the defect despite proper business conduct (e.g., packaged goods purchased from a supplier).

Answer 17

Under UCC Ks, seller’s performance must be perfect with respect to the goods delivered and the manner of delivery * Imperfect tender = seller sends defective/nonconforming goods **Buyer’s options upon seller’s imperfect tender**—buyer can either: * *Keep*—retain goods delivered and sue for damages, or * *Reject*—reject some or all goods and sue for damages *Requirements*—buyer who REJECTS goods must: * Notify seller of rejection in a reasonable time; * Hold the rejected goods using reasonable care; and * Give seller reasonable time to arrange for removal of goods Note: If seller gives no information regarding removal, buyer can return goods to seller, store goods for seller, or resell goods on behalf of seller (i.e., for seller’s profit) **Installment K**—where delivery of goods occurs in separate lots * *Rejection*—buyer can only reject a delivery/installment if 1) Defect substantially impairs the installment; and 2) Defect cannot be cured * Rejection is limited to the defective installment, not the entire K * Buyer can only cancel *ENTIRE K* due to a defective installment if the installment *substantially impairs the entire K’s value* Note—seller of imperfect goods may be able to cure

Answer 18

**General rule: Risk of loss remains with seller until seller delivers conforming goods** XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX **Shipment by carrier** (e.g., FedEx)—K type determines risk of loss (“ROL”): *Shipment Ks*—seller only obligated to ship goods to buyer * Risk of loss passes to buyer *when seller delivers goods to carrier* * If K is otherwise silent on shipment terms, shipment K is PRESUMED if K requires shipment by third-party carrier *Destination Ks*—seller obligated to ensure goods reach buyer (destination specified) * Risk of loss passes to buyer only *when buyer takes delivery* **Non-carrier delivery**—goods not shipped by common carrier * *Non-merchant seller*—ROL passes to buyer *upon tender* of delivery * *Merchant seller*—ROL passes to buyer when he *takes physical possession* XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX **Goods destroyed before ROL passes** * K is avoided if no party at fault **“FOB [location]”**—seller bears risk and expense of getting goods to the named location, at which point risk passes to buyer * E.g., A in Akron sells goods to B in Boise; K states “FOB Boise”; A is responsible for getting goods to Boise, then risk passes to B **Breach & ROL**—Effect of a breach of contract on risk of loss *1) Seller’s breach* * If the seller delivers nonconforming goods, the risk of loss remains on the seller until the buyer accepts or there is a cure. * If the buyer rightfully revokes acceptance, the risk of loss shifts back to the seller to the extent of any lack of insurance coverage by the buyer. *2) Buyer’s breach* * if the buyer is in breach of the contract, the risk of loss passes to the buyer to the extent of any deficiency in the seller’s insurance coverage

Answer 19

When money damages are an inadequate remedy * Be aware of fact patterns involving land or other unique goods, when damages are more obviously insufficient to put the nonbreaching party in as good a position as he would have been without the breach. *Real Property* - Contracts involving the transfer of an interest in real property may be enforced by an order of specific performance because every parcel of real property is considered unique. *UCC* -- when the goods are rare or unique, or in other circumstances, such as for breach of a requirements contract when there is not another convenient supplier. *Limitations* -- Courts do not grant specific enforcement of contracts for *personal services,* (the court cannot supervise enforcement, involuntary servitude) * although Courts may restrain the breaching party from working for another when the contract contains a *noncompete* clause XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Defenses * Equitable defenses, such as laches (prejudicial delay in bringing the action) or unclean hands (when the nonbreaching party is guilty of some wrongdoing in the transaction at issue) may be raised by the breaching party. * A party may also seek an injunction against the breaching party to enforce the contract.

Answer 20

**MONETARY REMEDY -- DAMAGES** **1) COMPENSATORY DAMAGES** - The purpose of contract damages is to give compensation for the breach—i.e., *to put the nonbreaching party in the position she would have been in had the promise been performed* so far as money can do this. * The most common measure of this is the *value* of the breaching party’s performance that was *lost* (expectation damages), plus incidental and consequential damages, less any loss or cost saved by not having to perform. * (expectation + consequential + incidental - mitigated damages) *Non-Breaching Party's Duty to Mitigate* * A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience. The nonbreaching party is held to a standard of reasonable conduct in preventing loss. **a) Expectation** — Calculation: the *difference between* the value of performance without the breach *(what was promised)* and with the breach *(what was received)* * This is also known as *“benefit of the bargain”* damages. * Sufficient damages for them to buy a *substitute performance* * *GOODS:* Usually difference between K price and market price cost to cover/resell * *REAL ESTATE:* difference between K price and market value of property. (reminder: they havent actually paid anything yet) * *late delivery of property:* fair market rental value of the property for the time that the buyer was denied possession. *ALTERNATIVE - RELIANCE* * Used if expectation damages will be *too speculative* to measure (e.g., the plaintiff cannot show with sufficient certainty the profits she would have made under the K) **b) Consequential** — *Special Damages.* Losses over and above standard Expectation damages. Includes losses resulting from the nonbreaching party's particular circumstances that: * (1) were reasonably *FORESEEABLE* to the breaching party *at the time of contracting* and * (2) *could not reasonably be prevented by cover* or otherwise *(Usually Lost Profits)* *Foreseeability* * Plaintiff must show that the breaching party *knew or had reason to know* of the special circumstances giving rise to the damages. * UCC sale of goods: only a *buyer* may recover consequential damages. **c) Incidental** (UCC Sale of Goods)— Not necessarily foreseeable (above) but *Commercially REASONABLE Expenses incurred by effecting cover* * Buyer: Inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach and * Seller: Storing, shipping, returning, and reselling the goods as a result of the buyer’s breach. *Bonus* *Certainty Rule* — The plaintiff must prove that the losses suffered were certain in their nature and not speculative. * *New Businesses* -- Traditionally, if the breaching party prevented the nonbreaching party from setting up a new business, courts would not award lost profits from the prospective business as damages, because they were too speculative. * However, *modern courts may allow* lost profits as damages if they can be made more certain by observing similar businesses in the area or other businesses previously owned by the same party. **XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX** **2) PUNITIVE DAMAGES** — rarely available in contract actions. Some states allow punitive damages to punish fraud, for violation of a fiduciary duty, for acts of bad faith, or for deterrence. **3) LIQUIDATED DAMAGES** — agreed-upon K provisions that stipulate specified damages upon the occurrence of a breach *Requirements*—liquidated damages provisions are valid only if: * Damages are difficult to project at time of K formation; and * The provision is a reasonable estimate of actual damages (not a penalty)

Answer 21

**ALTERNATIVE TO K DAMAGES** **a) Reliance** — Award the plaintiff the cost of their performance (out-of-pocket expenses); i.e., *they are designed to put the plaintiff in the position she would have been in had the contract never been formed.* * *RELIANCE - ALTERNATIVE TO EXPECTATION DAMAGES*— Used if expectation damages will be too speculative to measure (e.g., the plaintiff cannot show with sufficient certainty the profits she would have made under the K) **b) Restitution** — based on *unjust enrichment* when one has *conferred a measurable benefit on another without gratuitous intent.* * *Remedy: fair market value of services conferred.* * Restitution can provide a remedy when: *a) Breach of K where the nonbreaching party has NOT fully performed* * If the plaintiff HAS fully performed, he is limited to his damages under the contract. *b) Unenforceable Contract* -- a quasi-contract action when a contract was made but is unenforceable and unjust enrichment otherwise would result. *c) No Contract* -- * (i) The plaintiff has *conferred a benefit* on the defendant; * (ii) with the *reasonable expectation of being compensated* for its value; * (iii) The *defendant has reason to know of the plaintiff’s expectation*; and *would be unjustly enriched* if he were allowed to retain the benefit without compensating the plaintiff. *d) UCC - Restitution of Buyer's Deposit If Buyer in Breach* -- Buyer is entitled to a refund of any payments made on the contract LESS * *damages provable by the seller,* AND * a penalty of *"twenty percent of the value of the total performance for which the buyer is obligated under the contract, or $500,* whichever is smaller."

Answer 22

*Reformation* * Reformation is the modification of a contract by a court upon petition by a party. The modification is typically based on the failure of the contract to reflect the intent of the parties to the contract. *Rescission* * Rescission is the unmaking of a contract, whether the contract is oral or written. Rescission leaves the parties to a contract in the same position they would have been in if the contract had never existed. (UCC it is called Cancellation) *Grounds* As equitable remedies, reformation, rescission, and cancellation require justification for modifying or negating existing legal rights. Generally, defenses that can be raised to the formation or enforcement of a contract can serve as grounds for these remedies * mistake, * fraud, * undue influence, * duress, and * lack of capacity

Answer 23

**SELLER DOES NOT DELIVER** *(or the buyer properly rejects or revokes acceptance)* *a) Cancel the K* — (if installment - must go to entire K) *b) Recovery of Payments* — (Security interest) *c) Damages - Difference between K price and market price* — determined as of the time the buyer learns of the breach or at the place of tender; or *d) Damages - Incidental and consequential damages; Liquidated Damages* *e) Cover price* — must be reasonable, in good faith, and without unreasonable delay. *f) Specific performance* — UNIQUE goods; or inability to cover *g) Replevin* — obtain identified, undelivered goods if: *Payment by the buyer* - buyer has made at least partial payment for identified goods, the buyer can obtain the undelivered goods from the seller if * (i) The seller becomes insolvent within 10 days of receiving the first payment from the buyer; or * (ii) The goods were for family, personal, or household purposes, and the seller has repudiated or failed to deliver the goods as required by the contract. To obtain the goods, the buyer must tender any unpaid portion of the price to the seller. *Buyer’s inability to cover* - The buyer can also obtain identified, undelivered goods from the seller if: * The buyer is unable to effect cover; * The circumstances reasonably indicate that reasonable effort to obtain cover will be unavailing; or * The goods have been shipped under reservation, and satisfaction of the security interest in the goods has been made or tendered. **VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV** **SELLER DELIVERS NON-CONFORMING TENDER** - if either the *tender* or the *goods* is nonconforming, then the buyer has the *right to accept or reject all of the goods*. When the goods are sold in commercial units, the buyer can accept one or more commercial unit(s) and reject the rest. Buyer has the *right to inspect* the goods before deciding whether to accept or reject. Payment does not constitute acceptance if there is no right of inspection before payment The seller has a *right to cure* a defective tender if: * Before K performance date; or * The seller had *reasonable belief that the buyer would accept* despite the nonconformity. *a) REJECTING* * Give *notice to the seller* within a reasonable time; (before acceptance) * Buyer must *retain* rejected goods *for a reasonable time* to allow the seller to reclaim them. *Buyer must sell the goods on the seller's behalf if* * the buyer is a *merchant*, * the goods are *perishable*, and * *no local agent to whom the goods can be returned* *Remedies* * Same as if no tender at all *b) ACCEPTING* * Expressly stating acceptance, using the goods; or failing to reject the goods. *Notice Requirement to Sue for Damages* * the buyer must, *within a reasonable time after she discovers or should have discovered the defect*, notify the seller of the defect. If she does not notify the seller within a reasonable time, she loses her right to sue. *Recover Warranty Damages* -- The *difference between the value* of the goods as delivered and the value they would have had if they *had been according to contract* *Revocation of acceptance* -- Must inform the seller of its decision to revoke within a reasonable time after the nonconformity is discovered. Rights become as if goods rejected. A buyer may revoke an acceptance of goods if the nonconformity SUBSTANTIALLY IMPAIRS their value to the buyer and: * The buyer accepted the goods on the reasonable belief that the seller would cure the nonconformity, but the seller has failed to do so; or * The buyer accepted the goods without discovery of the nonconformity, and such 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.

Answer 24

**A) Right to Full Contract Price** * *Accepted Goods* - the seller may sue for the full price * *Goods lost or damaged after risk of loss has passed to the buyer* - full price of the conforming goods * *Identified goods* - full price only if the seller is unable to sell the goods at a reasonable price after a reasonable effort or circumstances indicate that such an effort will not yield a sale **B) Right to Reclaim Goods** *Insolvent Buyer* * Seller (1) discovers the buyer received the goods on credit while insolvent and (2) demands the goods be returned within 10 days after their receipt. * But this 10-day limitation does not apply if the buyer *misrepresented its solvency in writing within three months before delivery* *Buyer Who Pays With a Check* * If the buyer pays with a check that is subsequently dishonored, then the seller may reclaim the goods following a demand made within a reasonable time. The seller’s right to reclaim is subject to the right of a good-faith purchaser **C) Stoppage of Goods in Transit** *Buyer’s breach* - A seller *can* stop the goods in transit because of the buyer’s breach; goods can be stopped in transit only if shipped in large-sized (e.g., carload, truckload) lots. The seller *cannot* stop goods in transit once the: * Buyer has received the goods; * Carrier or warehouseman has acknowledged the buyer’s rights; * Goods have been reshipped by the carrier; or * Title has been given to or negotiated with the buyer. *Buyer’s insolvency* * If the buyer becomes insolvent before the delivery of the goods, then the seller can stop goods in transit and refuse delivery except for cash. **D) Wrongful Rejection/Repudiation** (COMMONLY TESTED) *Collect damages* -- When a buyer breaches by repudiating the contract or wrongfully refusing to accept goods, the seller is entitled to damages that *place it in the same position as if the contract had been performed.* * *Difference between the K price and the market price* — determined as of the time the buyer learns of the breach or at the place of tender; plus incidental damages, less any expenses saved as a result of the buyer’s breach. * *Reselling goods* -- *Cover difference* -- good faith, commercially reasonable sale. * expected profits plus costs reasonably incurred minus any proceeds from reselling the goods. (expectation + consequential + incidental - mitigated) * *Unable to Resell* -- *Recover the full K price* -- only if the seller is unable to sell the goods at a reasonable price after a reasonable effort or circumstances indicate that such an effort will not yield a sale. * *Lost Volume Profits* — Lost volume seller is a seller who can obtain or manufacture as many goods as he can sell (e.g., a car dealership). Generally, lost volume profit is measured by the *contract price with the breaching buyer minus cost to the seller* * *Liquidated damages*

Answer 25

Compensatory Damages * EXPECTATION (K PRICE) + * CONSEQUENTIAL (LOST PROFITS) + * INCIDENTAL (COMMERCIALLY REASONABLE COSTS) - * Mitigated Damages **XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX** **1) Breach by seller** & *BUYER keeps goods*—depends on if buyer accepts: * *Non-acceptance*—damages = fair market value (FMV) of perfectly-delivered goods minus FMV of the goods actually delivered * *Acceptance*—damages = difference in value between the goods as delivered and the goods as ordered **2) Breach by seller** & *SELLER keeps or buyer returns goods*: Damages = whichever of the following is HIGHER: * *FMV of goods at the time of breach minus K price*, or * *Buyer’s costs of covering/replacing* goods minus K price XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX **3) Breach by buyer** & *BUYER has goods:* * Damages = *K price* * Arises if goods are: kept by buyer, destroyed after ROL passes to buyer **4) Breach by buyer** & *SELLER has goods*—either: * *K price minus market price* at the time of delivery, or * *K price minus resale price plus provable lost profits* (cover sale; reasonable good faith) *If seller is unable to resell* * *K price* **XXXXXXXXXXXXXXXXXXXXXXXXXXXXX** *Conversion*—FMV of goods at the time of the conversion *Losses*—buyers and sellers can also recover lost profits or damages for losses resulting from a breach/nonconformance *Note*—incidental and consequential damages may be available (see Card 39)

Answer 26

If construction contracts are involved, check to see whether the owner or the builder is breaching. **1) Breach by Owner** (did not pay) *a) Breach Before Construction Started* * Lost *profits* plus *cost incurred*, OR * *K price* minus *cost of completion* (benefit conferred) *b) Breach During Construction* * * Lost *profits* plus *cost incurred*, OR * *K price* minus *cost of completion* (benefit conferred) *c) Breach After Construction Completed* * Builder is entitled to the *full contract price plus interest* thereon **2) Breach by Builder** (owner paid) *a) Breach Before Construction Started* * Owner entitled to *cost of completion.* *b) Breach During Construction* * cost of *completion/correction* if no undue economic waste OR * value of *promised construction minus nonconforming construction* *c) Breach by Late Performance* * If the builder completes performance, but it is late, the owner has a right to damages for any loss incurred by not being able to use the property when performance was due, e.g., loss of reasonable rental value when property could have been leased. * However, if damages for this “lost use” are not easily determined or were not foreseeable at the time the contract was entered into, the owner can recover only the *interest* on the value of the building as a capital investment. **3) Restoration and Economic Waste** * Usually, when a building contract is not properly performed, the owner is entitled to the cost of fixing the defect. * if no undue economic waste

Answer 27

**1) Specific Performance/Injunction** Awarded only when monetary damages are considered inadequate for some reason. * Specific performance is presumptively available for real estate/land transactions. * Specific performance is presumptively not available for contracts of personal service. * UCC—Specific performance is available only for unique goods **2) Reformation** modification of a K by a court. Usually based on the K's failure to reflect intent of the parties. * Allowed when upon clear and convincing evidence showing mutual mistake, fraud, misrepresentation **3) Recission** Unmaking of a K. Oral or written. We put the party back in the position they would have been in if K never existed. * mistake, fraud, misrepresentation

Answer 28

**Florida Distinction -- Liquidated Damages and Penalties** A term fixing unreasonably large liquidated damages is void as a penalty. Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of * the anticipated or actual harm caused by the breach, * the difficulties of proof of loss, and * the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A contract that provides for either *liquidated damages* OR *a lawsuit* to ascertain actual damages is NOT PERMISSABLE in Florida. * The choice between the two destroys the character of the forfeiture as agreed damages and the forfeiture becomes a penalty. **Florida Distinction -- Punitive Damages** punitive damages are not recoverable “unless the conduct constituting the breach is also a tort for which punitive damages can be recovered.” For a discussion of when punitive damages are recoverable in a tort action, see the Florida Torts Distinctions outline. **Florida Distinction -- Attorney’s Fees** In Florida, as in most jurisdictions, an award of attorney’s fees is not permitted in a contract action *unless authorized by statute or by the contract itself.* If a contract contains a provision allowing attorney’s fees to a party when the party is required to take any action to enforce the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract. **Florida Distinction -- Restrictive Covenants Regarding Non-Competition, Non-Solicitation, and Non-Disclosure/Confidentiality** In Florida, the violation of an enforceable restrictive covenant creates a *presumption of irreparable injury* to the party seeking enforcement of the covenant. A restrictive covenant must be expressly contained in a signed contract. The covenant must be reasonable in time, geographic area, and line of business. When not predicated upon the protection of trade secrets or as a result of a sale of a business, a restraint of six months or less is presumed to be reasonable. The party seeking enforcement of the restrictive covenant must also plead and prove it has a *legitimate business interest* that justifies the non-compete clause. A legitimate business interest includes the protection of trade secrets or confidential business information, as well as goodwill associated with a specific geographic location or a specific marketing or trade area.

Answer 29

**1) OFFERS** -- Essential Terms *Common law* - Parties, Subject, Price, and Quantity *UCC* (goods) - Quantity **UCC gap fillers:** *a) Price* * *reasonable price* at the time for delivery *b) Place of Delivery* * *seller’s place of business*, if they have one, otherwise the *sellers home*. * if parties know the *goods are in some other place, then that* is the place of delivery. *c) Time for Shipment or Delivery* * shipment/delivery is *due in a reasonable time*. *d) Time for Payment* * Payment is *due at the time and place at which the buyer is to receive the goods.* **XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX** **2) ACCEPTANCE** **Common Law** --*Mirror Image Rule* * Acceptance must be an absolute and unequivocal acceptance of each and every term of the offer. * Any different or additional terms in the acceptance make the response a *rejection and counteroffer.* **UCC**—2 issues often arise: *1) Battle of the Forms 2) Acceptance by Shipment* *1) Acceptance with ADDITIONAL TERMS*—if BOTH parties are MERCHANTS, K is formed WITH the additional terms UNLESS either: * *a) Additional terms materially change the offer,* * *b) Offer expressly limits acceptance to the offer’s terms, or* * *c) Offeror objects within a reasonable time* * if ONE party is not a merchant, K is formed WITHOUT additional terms and treated as new proposal *2) Acceptance by shipment*—a merchant may accept an offer to buy goods by either (i) Providing a promise to ship goods (usually by written confirmation), or (ii) Promptly shipping conforming goods * *Shipment of nonconforming goods*—acts as an acceptance, but may give rise to breach. * If, however, the seller “seasonably” notifies the buyer that the nonconforming goods are tendered as an accommodation, then no acceptance has occurred, and no contract is formed. The *accommodation is deemed a counteroffer*, and the buyer may then either accept (thereby forming a contract) or reject (no contract formed).

Answer 30

**1) COMMON LAW — SUBSTANTIAL PERFORMANCE** MATERIAL breach * allows the non-breaching party to withhold performance and pursue breach remedy * Breaches of Express conditions are material MINOR breach * the non-breaching party must still perform, can seek remedies for minor breach *Installment K* *a) Total breach:* nonperformance + repudiation * recover missed and remaining installments *b) Partial Breach:* if the only remaining duty at the time of the breach (1) is held by the breaching party and (2) is for the payment of money in unrelated installments. * recover missed installments * Acceleration clause allows a party to recover the entire repayment amount once the other party misses an installment payment **2) UCC — PERFECT TENDER** * Delivery and condition of the goods must be *exactly as promised* in the contract UNLESS: *a) INSTALLMENT K* — One nonconforming installment is not a material breach. *Rejecting Installment:* Buyer can reject the installment only if the nonconformity * SUBSTANTIALLY IMPAIRS that INSTALLMENT and * cannot be cured. *Cancelling entire K:* A buyer can cancel the contract only when the non-conformity with respect to one or more installments * SUBSTANTIALLY IMPAIRS the value of the ENTIRE K. *b) Buyers rights to nonconforming goods* The buyer has a right to inspect the goods, * if buyer accepts a shipment of nonconforming goods, he has an obligation to pay K price of goods minus reasonable losses from the non-conformity. * If a buyer rejects goods as nonconforming and time still remains to perform under a contract, the seller has a right to cure and tender conforming goods.

Answer 31

Recall that the key to forming a contract for the sale of goods is the quantity term. If other terms are missing from the agreement, Article 2 has gap-filler provisions to fill in the missing term(s). **1) Price** * If: (i) nothing has been said as to price; (ii) the price is left open to be agreed upon by the parties and they fail to agree; or (iii) the price is to be fixed in terms of some standard that is set by a third person or agency and it is not set, then the price is *a reasonable price at the time for delivery* **2) Place of Delivery** * If the place of delivery is not specified, the place is the *seller’s place of business*, if he has one; otherwise, it is the seller’s home. However, if the goods have been identified as the ones to satisfy the contract and the parties know that they are in some other place, then that is the place of delivery. **3) Time for Shipment or Delivery** * If the time for shipment or delivery is not specified, shipment/delivery is due in a *reasonable time*. **4) Time for Payment** * If the time for payment is not specified, payment is due at the *time and place at which the buyer is to receive the goods*. **5) Assortment** * If a contract provides that an assortment of goods is to be delivered (e.g., blouses in various colors and sizes) and does not specify which party is to choose, the assortment is to be *at the buyer’s option*. * If the party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (e.g., choose a reasonable assortment) or treat the failure as a breach.

Answer 32

**SELLERS OBLIGATION OF TENDER AND DELIVERY** 1) NONCARRIER CASES (no carrier used to move the goods) *i) Tender of Delivery* * In a proper tender of delivery, the seller must put and hold conforming goods at the buyer’s disposition for a time sufficient for the buyer to take possession. The seller must **give the buyer notice** reasonably necessary to enable her to take possession of the goods. The **tender must be at a reasonable hour**. *ii) Place of Delivery* * In the absence of an agreement otherwise, the place of delivery is the **seller’s place of business**, or if he has none, his residence. However, if at the time of contracting, the goods are, to the knowledge of both parties, at some other place, that place is the place of delivery. 2) CARRIER CASES (carrier used to move the goods) *i) Shipment Contracts—Where Seller Has Not Agreed to Tender at Particular Destination* seller need not see that the goods reach the buyer, but need only: * Put the goods into the hands of a reasonable carrier and make a reasonable contract for their transportation to the buyer; * Obtain and promptly tender any documents required by the contract or usage of trade or otherwise necessary to enable the buyer to take possession; and * Promptly notify the buyer of the shipment. *ii) Destination Contracts—Where Seller Has Agreed to Tender at Particular Destination* Seller must, at the destination, put and hold conforming goods at the buyer’s disposition. He must also give the buyer any notice of tender that is reasonably necessary and provide her with any documents of title necessary to obtain delivery. Tender of documents through ordinary banking channels is suffi- cient.

Answer 33

**BUYER'S OBLIGATION TO PAY—RIGHT TO INSPECT** 1) Delivery and Payment Concurrent Conditions In noncarrier cases, unless the contract provides otherwise, a sale is for cash and the price is due concurrently with tender of delivery. However, unless otherwise agreed, when goods are shipped by carrier, the price is due only at the time and place at which the buyer receives the goods. Therefore, in a shipment case, the price is due when the goods are put in the hands of the carrier, and in a destination contract, the price is due when the goods reach the named destination. 2) Payment by Check Tender of payment by check is sufficient unless the seller demands legal tender and gives the buyer time to get cash. If a check is given, the buyer’s duty to pay is suspended until the check is either paid or dishonored. If the check is paid, the buyer’s duty to pay is discharged. If the check is dishonored, the seller may sue for the price or recover the goods. 3) Installment Contracts In an installment contract (i.e., one that requires or authorizes delivery in separate installments), the seller may demand payment for each installment if the price can be so apportioned, unless a contrary intent appears. 4) Buyer’s Right of Inspection Unless the contract provides otherwise, the buyer has a right to inspect the goods before she pays. Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected. A buyer may inspect at any reasonable time and in any reasonable manner.

Answer 34

The UCC has special rules for auction sales. **1) Goods auctioned in lots** If goods in an auction sale are offered in lots, each lot represents a separate sale. **2) Completion of a sale** * When auctioneer announces end of sale (eg, by fall of hammer) * If bid is made contemporaneously with end-of-sale announcement, auctioneer has discretion to continue bidding **3) Type of Auctions** * in either type of auction, bidder has right to withdraw a bid until the completion of the sale. The bidder's retraction *does not revive any prior bids* *a) Reserve* (default type) * auctioneer may withdraw goods prior to completion of sale *b) No-reserve* (special announcement required) * goods cannot be withdrawn after auctioneer calls for bids unless no bid is received within reasonable time **4) When the seller bids** Winning bidder can avoid sale, or pay price of last good-faith bid, if auctioneer: * knowingly accepts bid by or on behalf of seller or * procures seller's bid to drive up price of goods *Exceptions where seller CAN bid:* * at forced sale or * if seller gives notice reserving right to bid

Answer 35

**Requirements K:** a buyer promises to buy from a certain seller all of the goods the buyer requires **Output K:** a seller promises to sell to a certain buyer all of the goods the seller produces vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv *1) Assumption: Parties Will Act in Good Faith* *2) Quantity Cannot Be Unreasonably Disproportionate* * It is assumed that the parties will act in good faith; * hence, there may NOT be a *tender* of OR a *demand* for a quantity *unreasonably disproportionate* to (i) any stated estimate, or in the absence of a stated estimate (ii) any normal or otherwise comparable prior output or requirements.

Answer 36

**Entrustment** of goods by an owner of a good to a merchant *who deals in goods of that kind* gives him the power (but not the right) to transfer all rights of the owner to a *buyer in the ordinary course of business.* Rule: Owner may sue merchant, but not the buyer. A buyer in the ordinary course is someone who buys goods * (1) in good faith, * (2) without knowledge that the sale violates the owner's rights to the goods, and * (3) from a merchant in the business of selling goods of that kind. *Example:* * Amy leaves her watch with Jeweler for repairs. Jeweler sells the watch to Zoe, who does not know that Jeweler has no right to sell. Zoe gets good title as against Amy. Amy’s only remedy is to sue Jeweler for damages. * Amy leaves her watch with Jeweler for repairs. Jeweler borrows money from the bank, giving specific items of inventory, including Amy’s watch, as pledged collateral. Amy can recover the watch from the bank. The bank is not a *buyer*. **Voidable Title Concept** 1) If a sale is induced by fraud, the original seller can *rescind* the sale and recover the goods from the fraudulent buyer. 2) However, the original seller may not recover the goods from a *subsequent good faith purchaser for value* who bought from the fraudulent buyer. * cannot have knowledge of the earlier fraud

Answer 37

**Divisible Contracts** A divisible (or installment) contract is one in which the obligations imposed on the contracting parties *can be separated* into corresponding pairs of part performances such that each pair constitutes agreed equivalents. * *Recovery* is limited to the performance promised for the corresponding portion of the contract that has been performed. Damages may be recoverable for breach of other obligations under other portions of the contract.

MBE Contracts Flashcards

(62 cards)