Contracts

Question 1

If the parties have merely agreed to make an agreement in the future, and the terms and conditions under which the agreement would be assumed are vague and uncertain, has a contract been formed?

Answer 1

No, there is no enforceable contract. Virginia courts treat this as an unenforceable “agreement to agree.”

Question 2

What does Virginia require for consideration to exist?

Answer 2

Virginia follows the minority First Restatement view that a legal detriment or benefit can constitute valid consideration.

Question 3

Is past consideration enforceable?

Answer 3

No, Virginia rejects the modern trend of enforcing promises to pay for past acts.

Question 4

What happens when a dispute arises over the existence of a requirements contract?

Answer 4

The court will consider all documents involved, as well as parol evidence. If the court cannot find clear unambiguous language specifically referring to a requirements contract, the parties’ intent will control, which will be determined by a jury.

Question 5

Does Virginia recognize promissory estoppel?

Answer 5

No, Virginia does not recognize promissory estoppel as a cognizable cause of action, meaning that promissory estoppel cannot be asserted offensively as an affirmative claim.

Question 6

Is relief available for a unilateral mistake?

Answer 6

No—in Virginia, a unilateral mistake is not a basis for equitable relief, such a reformation or rescission of a contract.

Question 7

Three-part inquiry to determine whether an infancy defense can be raised

Answer 7

1. As a matter of law, do the things supplied to the infant under the contract fall into the category of “necessities?”
2. Is there sufficient evidence to determine whether the things supplied were in fact necessary in the instant case?
3. Were the things supplied actually necessary to the position and condition of the infant?

If all three inquiries are answered in the affirmative, then the plea of infancy is defeated. However, even if the claim is defeated, the claimant is still not entitled to enforcement of the express contract, but rather the infant is bound on the implied contract.

Question 8

Unconscionability standard

Answer 8

In Virginia, an unconscionable bargain is one that “no man in his senses and not under a delusion would make, on the one hand, and as no fair man would accept, on the other.” The inequality must be so gross as to shock the conscience.

Question 9

Public policy defense re: exculpatory and indemnity clauses

Answer 9

In Virginia, a pre-injury release provision (i.e., an exculpatory clause) regarding personal injury and pertaining to future negligence is void as against public policy because it reduces the incentive of the person obtaining the release from exercising ordinary care.

However, an indemnity clause that predetermines how potential losses incurred during the course of a contractual relationship will be distributed between the potentially liable parties is not.

Question 10

Quantum meruit v. Unjust enrichment

Answer 10

A claim for quantum meruit arises when one party requests a service be performed by the other, but there was insufficient discussion of the terms to create an express contract. By contrast, when a party has not requested the service, the claim is for unjust enrichment.

Question 11

Quantum meruit

Answer 11

A claim for quantum meruit arises when one party requests a service be performed by the other, but there was insufficient discussion of the terms to create an express contract. In this scenario, the law implies the existence of a contract, and the performing party can seek reasonable compensation for the services provided.

Question 12

Unjust enrichment

Answer 12

By contrast, when a party has not requested the service, the claim is for unjust enrichment. In Virginia, a plaintiff bringing an unjust enrichment action is required to establish:

1. A benefit conferred on the defendant by the plaintiff;
2. Defendant’s knowledge of receipt of the benefit; and
3. Retention of the benefit without payment would be inequitable.

The measure of damages in an action for unjust enrichment is the benefit realized and retained by the defendant.

Question 13

Under what circumstances can a party seek quantum meruit or unjust enrichment recovery?

Answer 13

The existence of an express contract between the parties prevents a quantum meruit recovery by a party to the contract from the other party.

However, a person who is neither a party to a contract nor in privity with a contracting party may be able to seek unjust enrichment recovery that arises out of the contract.

Question 14

When can an express warranty modify a contract?

Answer 14

An express warranty can be made subsequent to the contract for sale. Although this would modify the original agreement, under the UCC, no consideration is needed to make a modification enforceable.

Question 15

Scope of implied warranty of merchantability

Answer 15

In Virginia, the implied warranty of merchantability pertains to used goods, as well as new. The buyer must establish the following elements by a preponderance of the evidence:

1. The seller sold the goods;
2. The buyer was a person reasonably expected to use the goods;
3. The seller was a merchant of the type of goods sold;
4. The goods were not of merchantable quality at the time of the sale;
5. The breach of warranty caused buyer’s damages; and
6. Within a reasonable time after the buyer discovered or should have discovered the breach, the buyer notified the seller of the breach.

Question 16

Limitations on written disclaimers

Answer 16

A disclaimer that is immersed in the body of a contract and printed in the same size, style, and color as most of the other contract provisions is not “conspicuous,” and therefore is ineffective.

Additionally, a blank and unsigned “Limited Warranty” form showing no connection whatsoever to the buyer is insufficient to show that a manufacturer disclaimed all implied warranties that accompanied the sale of its goods.

Question 17

Test to establish the existence of an implied warranty of fitness for a particular purpose

Answer 17

To establish the existence of an implied warranty of fitness for a particular purpose, the buyer must prove by a preponderance of the evidence:

1. The seller had reason to know the particular purpose for which the buyer required the goods;
2. The seller had reason to know the buyer was relying on the seller’s skill or judgment to furnish appropriate goods; and
3. The buyer in fact relied upon seller’s skill or judgment.

Question 18

Test to establish a breach of an implied warranty of fitness for a particular purpose

Answer 18

To establish a breach of the implied warranty of fitness for a particular purpose, the buyer must prove by a preponderance of the evidence:

1. The seller sold the goods;
2. The buyer was a person reasonably expected to use the goods;
3. The seller impliedly warranted the goods to be suitable for the particular purpose;
4. The goods were not suitable for the particular purpose for which they were warranted;
5. The breach of warranty cause seller’s damages; and
6. Within a reasonable time after the buyer discovered or should have discovered the breach, the buyer must notify the seller of the breach.

Question 19

Partial impracticability

Answer 19

In Virginia, when partial commercial impracticability occurs, the seller may allocate his goods in any manner that is fair and reasonable. The buyer has the right to refuse acceptance and legally cancel the contract.

It would be “fair and reasonable” to allocate the goods proportionately to several buyers’ needs. It would not be fair and reasonable to only ship the orders with the highest price.

Question 20

Writing requirement under SOF

Answer 20

In Virginia, a writing need not conclusively establish the existence of a contract to overcome the Statute of Frauds; it must only provide a basis for believing that the offered oral evidence rests on a real transaction.

Additionally, a writing may satisfy the Statute even if it was made before the contract was formed.

Question 21

Additional categories under Virginia’s SOF

Answer 21

1. A promise to pay a debt incurred during infancy or ratification of a contract made during infancy;
2. A promise by the executor of an estate to pay a debt of the estate with the executor’s own money;
3. A real estate brokerage contract; and
4. A promise to lend money or extend credit in the amount of $25,000 or more.

Question 22

Test to establish part performance

Answer 22

Under Virginia law, the defense of part performance is established by a showing that:

1. the parol agreement relied on is “certain and definite in its terms,”
2. the acts proved in part performance “refer to, result from, or [were] made in pursuance of the agreement,” and
3. the agreement was “so far executed that a refusal of full execution would operate a fraud upon the party, and place him in a situation which does not lie in compensation.”

Question 23

Parol Evidence Rule

Answer 23

Virginia recognizes the parol evidence rule. The rule does not apply when the writing on its face is ambiguous, vague, or indefinite, or does not embody the entire agreement. In these cases, parol evidence is always admissible, not to contradict or vary the terms, but to establish the real contract between the parties.

Ambiguities are resolved against the party who drafted the contract.

Question 24

Ambiguity and interpretation under PER

Answer 24

Virginia adheres to the plain-meaning rule. Virginia courts do not rewrite contracts to insert provisions that were omitted by the parties or construe contracts without a time limit as requiring performance for a reasonable time period.

Question 25

When may a plaintiff sue for anticipatory repudiation?

Answer 25

Under Virginia law, in an anticipatory repudiation situation, the plaintiff may sue on the contract without waiting for the time of the defendant’s performance to arrive.

Question 26

When may punitive damages be awarded in a contract action?

Answer 26

Generally, punitive damages are not awarded in a contract action regardless of the motives for the breach, unless compensatory damages are also awarded and the breaching party is liable for a willful, independent tort.

Question 27

When may attorney’s fees be awarded in a contract action?

Answer 27

While Virginia generally follows the so-called American rule and prohibits the award of attorney's fees to a successful litigant in the absence of a specific law authorizing the recovery of such fees or an agreement of the parties, Virginia does permit, at the discretion of the court, the award of attorney's fee to a successful litigant when a breach of contract action is coupled with a fraud action.

Question 28

Approach to specific performance

Answer 28

Under Virginia law, a party seeking specific performance must demonstrate that there is no adequate remedy at law and that the terms of the contract sought to be enforced are sufficiently definite. This “adequacy of legal remedy” is somewhat relative, and the modern approach is to compare remedies. However, doubts should be resolved in favor of the granting of specific performance.

Question 29

Test to determine the reasonableness of a non-compete clause

Answer 29

Non-compete clauses are not favored by Virginia courts, which will only enforce narrowly-drafted covenants not to compete that do not offend public policy. A plaintiff must prove by a preponderance of the evidence that the covenant is reasonable in the sense that it is: 1. No greater than necessary to protect its legitimate business interests, such as trade secrets; 2. Not unduly harsh or oppressive in restricting the employee’s ability to earn a living; and 3. Not against public policy.

Question 30

Limitations for non-compete clauses: legitimate business interests

Answer 30

Virginia courts will typically weigh the function, geographic scope, and duration of the covenant against the employer’s legitimate business interest to determine reasonableness. Covenants are only reasonable if they prevent the employee from entering into direct competition with the employer.

Question 31

Limitations for non-compete clauses: reasonable restriction

Answer 31

The plaintiff must show that the covenant is not harsh or oppressive in restricting the employee’s ability to earn a living. Generally, if the employee is not precluded from working in a capacity not in competition with the employer within the restricted area, or not precluded from providing similar services outside the restricted area, the covenant is not unduly harsh.

Question 32

Limitations for non-compete clauses: public policy

Answer 32

The plaintiff must show that the covenant is reasonable from the standpoint of a sound public policy, as Virginia does not favor restrictions on employment. Public policy concerns include a shortage of the skills provided by the employee and the monopolization of the business the employer has.

Question 33

Limitations for non-compete clauses: low-wage employees

Answer 33

Employers are not permitted to enter into a covenant not to compete with any low-wage employees (i.e., employees earning less than the average weekly wage of the Commonwealth). This prohibition may also apply to interns, students, apprentices, and trainees, whether paid or unpaid.

Question 34

Buyer’s remedies for seller’s failure to tender goods: replevin v. detinue

Answer 34

In Virginia, detinue (not replevin) is the cause of action.

Question 35

Effect of late rejection by buyer

Answer 35

If the notice of rejection is given unreasonably late, the rejection is not effective, acceptance is implied, and the burden of proof is on the buyer to establish any non-conformity of the goods.

Question 36

Scope of buyer’s revocation of acceptance: reasonable time

Answer 36

Whether a revocation has occurred within a “reasonable” time depends upon the facts and circumstances of each case. For example, when the delay in notification of revocation is brought about because the buyer gave the seller repeated opportunities to correct the defects and the seller procrastinated in accomplishing repairs, the delay is not unreasonable. (Note: The buyer bears the burden of proving, by a preponderance of the evidence, that the revocation was effected within a reasonable time.)

Question 37

Scope of buyer’s revocation of acceptance: remote manufacturer

Answer 37

A remote manufacturer may be liable to a buyer for damages arising from negligence or a breach of warranty, but the remedies available to a buyer upon revocation of acceptance are inapplicable to any defendant other than the seller who is a party to the contract sought to be rescinded.

Question 38

Scope of buyer’s revocation of acceptance: continued use after revocation

Answer 38

A buyer’s exercise of ownership over the goods (e.g., continuing to drive a car) after revocation is wrongful and can prevent the buyer from cancelling the contract unless such exercise is commercially reasonable. The buyer bears the burden of proving, by a preponderance of the evidence, that the continued use was commercially reasonable.

Question 39

Scope of buyer’s revocation of acceptance: attorney’s fees

Answer 39

Generally, a buyer who prevails in a revocation of acceptance action is not entitled to attorney fees.

Question 40

Effect of wrongful rejection by buyer

Answer 40

Under Virginia law, if a buyer claims that the goods are non-conforming, but they do in fact conform to the specifications of the contract, the buyer has a positive duty to accept them and his failure to do so constitutes a wrongful rejection which gives the seller immediate remedies for breach.