Contracts Flashcards
(184 cards)
1
Q
Contract Formation
A
Mutual Assent, i.e. (offer and acceptance)
2
Q
Defenses to Contract Formation
A
- Statute of Frauds
- Mistake/Ambiguity
- Illegality
- Incapacity
- Unconscionability
- Fraud, Duress
3
Q
UCC: Merchant
A
Under the UCC a merchant is one who regularly deals in the goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved.
4
Q
Express Contract
A
Formed by language, oral or written
5
Q
Implied in Fact Contract
A
Created by conduct that infers a contract exists.
6
Q
Quasi-Contract
A
NOT A CONTRACT. They are constructed by Courts as an equitable remedy to avoid unjust enrichment to recover the benefit conferred to the defendant.
6
Q
Unilateral Contract
A
Offeror requests performance rather than a promise, and the offeror promises to pay upon completion of the requested act. Contract is formed by FULL performance.
7
Q
CONTRACT ELEMENTS
A
ALWAYS REVIEW THESE ON ESSAY:
- Mutual Assent i.e, Offer/Acceptance
- CONSIDERATION
- Defenses
8
Q
Offer
A
For a communication to be an offer, it must create a REASONABLE EXPECTATION in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.
9
Q
What can affect the validity of an offer
A
- Surrounding circumstances of the ‘offer’ (e.g., joking around)
- The language used, e.g., “I quote, I’m asking for, I would consider selling for” are probably not offers.
- Prior practice/relationship of the parties, i.e., more of a relationship means more likely that certain remarks may constitute offer/acceptance.
- Broader the offer, the less likely it is a true offer, i.e., an advertisement over the TV.
10
Q
Definite and Certain Terms of Offer
A
Offer must contain:
- Identification of the offeree (or class of potential offerees)
- Definiteness of the subject matter: (i) for land, the identity of the land and price terms; (ii) for goods, the quantity of the goods; and (iii) for employment, the duration and type of service to be provided.
11
Q
Output/Requirement Contracts
A
Valid, but cannot ask for an unreasonably disproportionate amount from prior orders.
12
Q
Missing Terms
A
Missing terms MAY not prevent contract formation where it appears the party intended to make a contract and there is a reasonably certain basis for a remedy. The following terms may be supplied by the Court:
- Price. EXCEPT IN CONTRACTS FOR REAL PROPERTY.
- Time.
DOES NOT APPLY TO VAGUE TERMS.
13
Q
Vague Terms
A
The Court cannot supply reasonable terms to replace vague terms, that only applies to missing terms.
14
Q
Termination of Offer
A
- Explicit revocation prior to acceptance; or
- Offeree receives (i) accurate information, (ii) from a reliable source, (iii) of acts of the offeror indicating to a reasonable person that they no longer wish to make the offer.
Revocation is effective when received, or where offer made by publication, when published.
15
Q
Option Contract
A
Contract to hold an offer open for a period of time, must be supported by consideration, can last for any period of time.
16
Q
Merchants Firm Offer
A
Holds an offer open for the period of time set by the Merchant for a period NOT TO EXCEED THREE MONTHS, when the Merchant (i) offers to hold open the offer for the specified period of time; (ii) in a signed writing; and (iii) it contains assurances it will be held open.
NO CONSIDERATION NEEDED
17
Q
Detrimental Reliance
A
Notwithstanding the requirements of an option contract or merchants firm offer, where an offeror could reasonably expect an offeree would rely to their detriment on an offer, then the offer will be held irrevocable as an option contract for a reasonable length of time.
18
Q
Beginning Performance
A
A unilateral offer is IRREVOCABLE when performance has begun.
Note: preparations to perform doesn’t make it irrevocable, but may constitute detrimental reliance.
19
Q
Termination by Offeree
A
- Express rejection.
2. Counteroffer is both a rejection and a new offer.
20
Q
Termination by Operation of Law
A
- Death or insanity of either party (EXCEPT FOR AN OPTION)
- Destruction of the proposed contract’s subject matter
- Supervening illegality
21
Q
Offeree Knowledge
A
An offeree must know of the offer in order to accept it, whether bilateral or unilateral.
22
Q
Acceptance of a Unilateral Offer
A
Offer not accepted until completely performed HOWEVER, partial performance can make it irrevocable.
23
Q
Unilateral Contract Offeree Notice
A
Offeree must generally notify the offeror in a reasonable period of time after completion, HOWEVER no notice is required if (i) offeror waived notice; or (ii) performance of the unilateral contract would normally come to the offerors attention.
24
Acceptance of the Bilateral Contract
Usually by express acceptance or partial performance.
25
Silence as Acceptance
Generally silence is not acceptance, HOWEVER, if the prior relationship of the parties or trade practices make it commercially reasonable to construe silence as acceptance, then a Court may do so.
ALSO if an offeree knows services are being offered in expectation of compensation and could have stopped it, and by their silence does not, they may be held to have accepted the offer.
26
Merchant Acceptance of Offer
1. Express acceptance (promise to ship)
| 2. Prompt shipment of conforming OR nonconforming goods.
27
Common law mirror image rule
At common law the acceptance must EXACTLY mirror the terms offered, or it is a rejection and a counter offer.
28
Shipment of Nonconforming Goods
A shipment of nonconforming goods is acceptance AS WELL AS a breach, UNLESS the seller seasonably notifies the buyer that the nonconforming goods are only being offered as an ACCOMODATION.
If it is an ACCOMODATION then the Buyer is NOT required to accept the goods and may reject them.
If the ACCOMODATION is rejected, the Seller is not in breach.
TIP: Watch out for a pattern where Seller has express acceptance and THEN tries to ship nonconforming goods as an ACCOMODATION. This is a breach, NOT AN ACCOMODATION.
29
UCC Mirror Image Rule
In contracts BETWEEN MERCHANTS different terms in acceptance is NOT a rejection and counteroffer UNLESS (i) the original offer limited acceptance to the original terms; or (ii) the acceptance limits acceptance to the new terms. Accordingly, where there is acceptance with ADDITIONAL terms, said terms are:
1. Usually included in contracts between Merchants except where they materially alter the original terms of the offer (change party risk or remedies);
2. Not included if ANY party to the contract is not a merchant. Then this is just a proposal;
3. Not included if offer limits acceptance to original terms; or
4. Not included where the offeror has (a) already objected; or (b) objects within a reasonable time after the additional terms are received.
30
UCC Mirror Image DIFFERENT TERMS
Acceptance with DIFFERENT terms as opposed to additional terms.
1. Some treat different terms as additional terms and follow the normal additional terms rules.
2. Some follow 'knock out rule' conflicting terms are knocked out of the contract and replaced with UCC gap fillers.
TIP: DIFFERENT TERMS can indicate a lack of meeting of the minds. Examine it.
31
Merchants Confirmatory Memo
1. Confirmatory writing from a Merchant to another Merchant confirming the terms of an ORAL CONTRACT.
2. Different/additional terms put through battle of the forms/mirror image test.
32
Conditional Acceptance
This is where a merchant conditions acceptance on the inclusion of the new terms. Where this happens it is a REJECTION AND COUNTER OFFER, HOWEVER it cannot be accepted by performance. If acceptance comes from shipment of goods/performance it DOES NOT include the new terms.
33
Mutual Assent Uncertain
If uncertain but conduct suggests a contract, UCC considers this a contract.
34
Mailbox Rule: Acceptance
Acceptance is effective on dispatch, except:
1. Offer stipulates acceptance is not effective until received;
2. Option contract (ONLY EFFECTIVE UPON RECEIPT)
3. Rejection following by acceptance, whatever is received first is effective.
4. Acceptance and then a rejection, acceptance is usually effective (mailbox rule applies) UNLESS the rejection arrives first AND the offeror detrimentally relied on it.
TIP: Unauthorized method of acceptance may still be effective if it is actually received by the Offeror.
35
Auction Contracts
Auction sale complete when the auctioneer announces by the fall of the hammer. If auctioned with a reserve (which is the presumption) auctioneer may withdraw the goods at anytime prior to the completion of sale.
36
Elements of Consideration
1. Bargain for exchange;
| 2. Must be of legal value.
37
Past Consideration
Past consideration is generally NOT consideration for a binding contract. EXCEPT:
1. Where past obligation is unenforceable, new promise may be enforceable if in writing or partially performed.
2. If past act benefited promisor, and was performed for promisor in response to an emergency, a later offer to pay for that act will be enforceable.
38
What can consideration be?
Almost anything, including a legal benefit or a legal detriment. Cannot be a sham consideration.
39
Consideration: Preexisting Legal Duty
Generally a preexisting legal duty cannot be consideration, except where:
1. New or different consideration is promised (generally a lesser amount paid is not consideration, BUT can be if its paid differently, or at a different time)
2. The promise is to ratify a voidable obligation
3. The preexisting legal duty is OWED TO A THIRD PERSON
4. There is an honest dispute as to the duty
5. There are unforeseen consequences that would discharge the legal duty.
40
Forbearance to Sue
Promise not to sue is consideration if there is a GOOD FAITH reason to believe the claim was valid, even if later discovered to not be valid.
41
Illusory Promises
Illusory promises are those that appear to form contract language but which do not, e.g., "All that I want" as opposed to "All that I require". Examples that satisfy it:
1. Requirement/Output contracts
2. Conditional promises, unless the condition is ENTIRELY in the promisors control;
3. Contracts where a party has the right to cancel, if that right is somehow restricted (e.g., notice requirement)
4. Exclusivity agreements
5. Voidable promises
6. Unilateral/option contracts
7. Gratuitous suretyship promises made before or at the same time that consideration lows to the principal debtor.
42
Right to Choose Alternatives
Generally, the ability to choose among alternatives is ILLUSORY UNLESS all of the options involve a detriment to the promisor. HOWEVER, it will not be found to be illusory if:
1. At least one alternative involves legal detriment and THE POWER TO CHOOSE rests with the promisee or a third party;
2. A valuable alternative is actually selected.
43
Promissory Estoppel/Detrimental Reliance
Elements:
1. Promisor should reasonably expect to induce action or forbearance; and
2. Such action or forbearance is actually induced.
Some award reliance damages, some award expectation damages.
44
Mutual Mistake as to Existing Facts
Mutual mistake about existing facts NOT FUTURE HAPPENINGS can make a contract voidable if:
1. Mistake concerns a basic assumption;
2. The mistake has a material effect on the agreed-upon exchange; and
3. The party seeking avoidance DID NOT ASSUME THE RISK.
Not a defense if the party bore the risk! This usually applies where one party is in a position to know the risks than the other party.
IMPORTANT: Mistake in value alone is GENERALLY not a defense.
45
Unilateral Mistake
Generally a unilateral mistake DOES NOT prevent contract formation. However, it will where the non-mistaken party knew or had reason to know of the mistake made by the other party.
Same other rules as mutual mistake (i.e., material fact, not have assumed risk).
46
Mistake by Intermediary
If a mistake is the result of an intermediary in transmission the message as transmitted is operative.
47
Misunderstanding
Where a term or provision can be read in more than one way (i.e., ambiguous) the outcome depends on the parties awareness of the ambiguity:
1. Neither party aware, then there is no contract unless both parties intended the same meaning
2. Both aware, then there is no contract unless both parties intended the same meaning
3. One party aware, binding contract based on the ignorant party reasonably believed to be the intended meaning.
48
Fraudulent Misrepresentation
Where a party uses fraud to induce another party to enter into a contract, then it is VOIDABLE by the innocent party IF they justifiably relied on the fraudulent misrepresentation.
'Fraud in the inducement'. Need not be spoken, can be inferred by conduct.
49
Material Misrepresentation
Regardless of fraud (e.g., accidental misrepresentation), an innocent party may void a contract if
1. They justifiably relied on the misrepresentation
2. The misrepresentation is material. Misrepresentation is material if (i) it would induce a reasonable person to agree; or (ii) the maker knows that for some special reason it is likely to induce a particular person to agree.
50
Misrepresentation: Justified Reliance
Not entitled to relief of the reliance was unjustifiable based on the circumstances.
HOWEVER JUST BECAUSE EXERCISE OF REASONABLE CARE COULD HAVE REVEALED THE MISREPRESENTATION DOES NOT AUTOMATICALLY MEAN THE RELIANCE WAS UNJUSTIFIED.
51
Public Policy Defenses
If consideration or subject matter is illegal then the contract is VOID (exception where plaintiff does not know of illegality, while defendant knew of the illegality, not uneven knowledge, illegality for failure to obtain a license and license is for revenue raising purposes, not the protection of the public).
If the PURPOSE is illegal, the contract is voidable by the party who was unaware of the purpose OR was aware but did not facilitate the purpose AND said purpose does not involve moral turpitude.
52
Contracts of Infants
1. Minors cannot consent to contracts, they are voidable by the minor after turning 18. Must be WHOLLY voided, cannot void only part of it. Must return anything that minor has received that still REMAINS as of the time the contract is voided/disaffirmed. EXCEPTION where minor enters into a contract for necessities, they can still void, but must return the value received.
FAILURE TO AFFIRM OR DISAFFIRM WITHIN A REASONABLE PERIOD OF TIME AFTER TURNING 18 COUNTS AS AFFIRMING THE CONTRACT.
2. Contracts made by Adults to minors are binding on the adults.
53
Mental Incapacity
1. May disaffirm/void when lucid or by legal representative
2. May affirm when ludic or by legal rep
3. Still be responsible as a minor for necessaries.
54
Intoxication
Only voidable if the other side knew of their intoxication. Intoxicated person my affirm the contract upon sobriety. Same rule for necessaries.
55
Duress/Undue Influence
Generally rule is may be voided by the coerced party.
Elements: 1. Undue susceptibility to pressure by one party; and 2. Excessive pressure by the other party.
56
Statute of Frauds Elements
1. Must be signed by the party to be charged (liberally construed, under the UCC a party's initials or letterhead is sufficient)
2. Reasonably identify the subject matter of the contract
3. Indicate the contract has been made between the parties
4. Reasonable certain as to the essential terms.
57
Type of Contracts Covered by the Statute of Frauds
1. Executor or Administrator promises personally to pay estate debts.
2. Promises to pay the debts of another (except if it is to serve the promisors own pecuniary interest).
3. Promises in consideration of marriage.
4. Interest in land, including (i) leases for more than one year; (ii) easements of more than one year; (iii) mortgages; (iv) fixtures; (v) minerals or structures if they are to be severed by the buyer.
58
Effect of Performance on SOF
Full performance takes the contract of frauds. Part performance might take it out.
59
SOF: One Year Requirement
SOF applies to promises that cannot be performed within 1 year of the EXECUTION of the contract.
60
SOF: $500 or more
SOF applies to goods price at $500 OR MORE.
61
SOF: Writing omission
If a term is omitted, the contract is still enforceable but not beyond the quantity of goods shown in the writing.
62
SOF: Specially Manufactured Goods
SOF does not apply to specially manufactured goods where:
1. Seller has made a substantial beginning or commitments for their purchase BEFORE notice or repudiation is received.
63
SOF: Admissions in Court/Pleadings
SOF doesn't apply where admissions or pleadings in court that a contract exists, but limited to the admission.
64
SOF: Payment or Delivery of Goods
If goods are either received or accepted or paid for, the contract is enforceable. HOWEVER it is not enforceable beyond the amount paid for (except where indivisible).
65
Confirmatory Memo Rule
Confirmatory memo rule applies between merchants, where a memo follows an oral agreement it binds the SENDER. It will also bind the RECIPIENT where (i) he has reason to know of the confirmation's contents; and (ii) he does not object to it in writing within TEN DAYS of receipt.
66
Effect of SOF Defense
If an SOF defense is applicable, then the party to be charged may choose to avoid the contract. If NOT RAISED AS A DEFENSE it is waived.
However, a party can still sue for the value of the services rendered or restitution of value delivered (quantum meruit).
67
SOF Exceptions: Land Sale Contracts
SOF exceptions:
1. Where seller conveys the land to buyer
2. Where buyer as done TWO of the following: (i) taken possession; (ii) made payment; and/or (iii) made valuable improvements.
68
SOF Exceptions: Equitable/Promissory Estoppel
Applies to SOF.
69
Unconscionability
Court may refuse to enforce a contract as unconscionable where:
1. Inconspicuous risk shifting provision in boiler plate contract
2. Contracts of adhesion
3. Exculpatory clause for intentional wrongful act (negligent exculpation may be unconscionable, usually if inconspicuous.
4. Limitation of a remedy that fails of its essential purpose (to make someone whole).
Unconscionability determined as of the time the contract was formed.
70
Effect of Unconscionable Clause
If a Court finds a contract or parts of it unconscionable:
1. Refuse to enforce contract; or
2. Enforce the remainder of the contract without unconscionable portion;
3. Limit the applicable of unconscionable clause to avoid the result.
Unconscionable is usually not the answer on MBE.
71
Parol Evidence Rule
When parties to a contract express their agreement in WRITING with the INTENT that it embody the final expression of their bargain this is an INTEGRATION. Any other expressions, written or oral, PRIOR to the contract, or written expressions CONTEMPORANEOUS with the contract, are inadmissible to VARY the terms of the contract.
72
Parol Evidence: Is a writing an integration?
Test:
1. Was the writing intended as the final expression of the parties?
2. If so, was it intended to be complete or partial?
Evidence IS ADMISSIBLE to show the INTENT of the parties.
TIP: A memo prepared by one party and not shown to the other party can NEVER be an integration.
TIP 2: A confirmatory memo under the UCC may be a partial integration.
73
Partial Integration
If it is only a partial integration then additional CONSISTENT terms may be added if evidenced.
UCC assumes all writings are partial integrations.
74
Parol Evidence Exceptions
1. Validity issues, i.e., evidence that the contract never came into being because (a) formation defects; or (b) conditions precedent to effectiveness.
2. Collateral Agreements, this is an agreement that is related to the primary agreement but does not conflict with it. Such as terms that would naturally be omitted. The test is (a) does not conflict; and (b) would not ordinarily be expected to include in the contract.
3. Interpretation of a disputed term.
4. To show consideration
5. Facts entitling a party to contract reformation (e.g., mistake)
6. SUBSEQUENT MODIFICATION
7. UCC exception: may add consistent additional terms unless (a) there is a merger clause; or (b) there is finding that the circumstances indicate the writing was intended to be the exclusive terms of the agreement.
8. UCC exception: written terms may be explained or supplemented by evidence of course of conduct/performance/industry practice.
75
UCC Gap Fillers
If contract is under the UCC the Court can supply the following missing terms:
1. Price (becomes reasonable price at time of delivery)
2. Place of delivery (becomes seller's place of business or home)
3. Time for shipment/delivery (becomes 'reasonable time')
4. Time for payment (becomes time and place at which the buyer is to receive the goods).
5. Assortment of goods (buyers option).
76
Delivery Terms and Risk of Loss: Non-Carrier Case
This is where it does not appear the goods would be transported by a common carrier, in such a case:
1. If seller is a merchant, risk of loss passes to the buyer ONLY when they take physical possession.
2. If the seller is NOT a merchant, risk of loss passes to buyer ONLY on tender of delivery.
77
Carrier Case: Shipment Contract
If the contract authorizes or requires the seller to ship goods by common carrier but does not require him to deliver them to a particular destination it is a shipment contract and risk of loss passes to the buyer when the goods are DELIVERED TO THE CARRIER.
Duties of Seller:
1. make a reasonable contract with carrier on behalf of buyer
2. deliver goods to the carrier
3. promptly notify the buyer of the shipment; and
4. provide the buyer with any documents needed to take possession of the goods.
78
Destination Contracts
If the K requires the seller to deliver goods to a particular destination the risk of loss passes to the buyer when the goods are TENDERED TO THE BUYER AT THE DESTINATION
79
F.O.B.
FOB = Free on Board. Always followed by a destination. It means the risk of loss passes to the buyer after delivery to the named destination.
80
F.A.S.
FAS = Free Alongside. Only used when delivered by boat, means risk of loss passes to buyer when delivered to the dock.
81
Effect of Breaches on Risk of Loss
Risk of loss does not shift where:
1. Where buyer has the right to reject goods, until the defects are cured OR buyer accepts the goods. (So in shipment of nonconforming goods the risk of loss remains with the seller)
2. If buyer rightfully revokes acceptance the risk of loss stays with the seller.
82
Risk of Loss: Sale or Return
In a sale or return contract (a contract where buyer takes the goods for resale but may return them if unable to resell them), risk of loss is treated normally, but upon return the risk remains with buyer while the goods are in transit.
83
Risk of Loss: Sale on approval
If buyer can return for any reason, risk doesnt pass until they accept.
84
Goods destroyed before risk of loss passes
If goods that were IDENTIFIED WHEN THE CONTRACT WAS MADE are (i) destroyed WITHOUT FAULT BY EITHER PARTY; and (ii) before the risk of loss passed to the buyer---then the contract is avoided.
Note: if goods not identified until after contract was made, seller has to show impracticability.
85
Warranty of Title
Warranty that the transfer is rightful, no liens or encumbrances that buyer is unaware of. Automatic and does not need to be mentioned in the contract.
Applies to ANY SELLER
86
Warranty Against Infringement
Warranty that the goods are free of patent, trademark, copyright, or similar claims.
ONLY FOR MERCHANT SELLER
87
Implied Warranty of Merchantability
Warranty that goods are fit for the ordinary purpose for which such goods are used. Implied in EVERY contract for sale BY A MERCHANT WHO DEALS IN GOODS OF THE KIND SOLD.
Absolute liability, not negligence.
88
Implied Warranty of Fitness for a Particular Purpose
Applies where:
1. ANY SELLER, has reason to know the PARTICULAR PURPOSE for which the goods are to be used;
2. The BUYER is relying on the Seller's skill and judgement in selecting the goods; and
3. The Buyer in fact does rely on that skill and judgment.
89
Express Warranties
Any affirmation of fact or promise with regards to goods, made by ANY SELLER, creates an express warranty as to such affirmation or promise, IF it is part of the BASIS OF THE BARGAIN.
Notes:
1. To be part of basis of bargain it need only be true that Buyer COULD have relied on promise. Though Seller's negation of that may eliminate the warranty.
2. Doesn't matter if Seller intended to create an express warranty.
3. Distinguish from statements of value or opinion. Not an express warranty.
90
Disclaimer of Warranties: Warranty of Title
Title Warranty can be disclaimed or modified by:
1. Specific language;
2. Specific circumstances that give buyer notice that seller does not claim title/selling only such rights as seller has.
90
Disclaimer of Warranties: Warranty of Title
Title Warranty can be disclaimed or modified by:
1. Specific language;
2. Specific circumstances that give buyer notice that seller does not claim title/selling only such rights as seller has.
91
Disclaimer of Warranty of Merchantability
Can only be disclaimed by SPECIFICALLY mentioning merchantability and must be conspicuous.
92
Disclaimer of Warranty of Fitness for a Particular Purpose
Can only be disclaimed by a conspicuous writing.
93
Conspicuous Writing
1. Larger than other text
2. Contrasting color, font, etc.
3. Is set off with marks that call attention to it.
94
"As is"
Language that states goods are sold "As is", "with all faults" or similar language will, if not hidden, disclaim implied warranties of merchantability and fitness.
95
Examination or Refusal to Examine
If the buyer has examined the goods or has refused to examine the goods, there is no warranty as to defects that a reasonable examination would have revealed.
96
Disclaimers and Course of Dealing
Implied warranties may also be disclaimed by the course of dealing, course of performance, or usage of trade.
97
Disclaimer of Express Warranties
Almost impossible to disclaim.
98
Warranties: Limitation on Damages
Parties can limit damages available for breach of warranties, however these will not be upheld where:
1. It causes the remedy to fail in its essential purpose
2. Limit damages for personal injury for breach of warranty for consumer goods.
99
Disclaimers: Form
1. Must be on outside of box.
| 2. Software clickboxes are OK.
100
Buyer's Damages for Breach of Warranty
1. Difference between the value of the goods tendered and the value of the goods as warrantied. Buyer can also recover appropriate incidental and consequential damages.
2. If warranty of title is breached then damages usually equals the value of the purchase price.
101
To Whom do Warranties Extend
To the buyer, and to any natural person who is in the family or household of the buyer, OR who is a guest in the buyers of home if it is reasonable to expect the guest would use or be subject to the good and the guest suffers a personal injury.
102
Modification of Contract Terms: Consideration
General rule is that new consideration is required for any modification, however modern view permits it where:
1. there are unanticipated circumstances; and
2. it is fair and equitable.
103
Common Law: Modification of Contracts
Even where contract says it can only be modified by writing, it may be modified orally. NOT A PAROL EVIDENCE ISSUE THIS IS A SUBSEQUENT MODIFICATION.
104
UCC No Modification Clauses
These are effective, however if between a merchant and a nonmerchant it must also be signed by the non-merchant.
105
Parol Evidence: Subsequent Modification
Remember! Parol evidence admissible for subsequent modification.
106
Modification: Waiver
If you cant modify a contract by oral agreement, but try anyway, it may act as a waiver as to the issue in question.
107
Common Law: Duty to Perform
Substantial performance of all that is called for.
108
UCC: Duty to Perform
Generally requires perfect tender (but remember non-conforming goods can still be acceptance).
109
Delivery and Payment
1. In non-carrier cases, unless contract provides otherwise, payment is due concurrently with tender of deliver.
2. In carrier cases, the price is due only at the time and place buyer actually receives the goods.
Note: You can typically pay by check.
110
Installment Contracts
Seller may demand payment for each installment of the price can be so apportioned.
111
Buyer's Right of Inspection
Right to inspect the goods before payment unless the contract is cash on delivery (COD) or otherwise indicates buyer promise to pay without inspection.
112
Failure of Condition v. Breach of Contract
Failure of a condition/condition precedent is not breach of contract, instead it discharges the liability of the promisor.
Look to the intent of parties to see if a provision is a condition or a promise, when in doubt Courts tend to hold that something is a promise.
113
Condition of Satisfaction
1. Mechanical Fitness, Utility, or Marketability: Reasonable person standard of satisfaction.
2. Personal taste/judgment, but must be exercised in good faith.
3. Satisfaction of third parties, actual satisfaction required, must be exercised in good faith.
114
Constructive Condition of Cooperation and Notice
This is a constructive condition that the other party will cooperate in enabling performance by the other party.
115
Excuse of Conditions
A condition must either be fully performed or excused. It may be excused where:
1. One party has WRONGFULLY failed to cooperated or hindered the performing party from performing the condition.
2. Actual breach of K, but at common law it must be material. Minor breach would just suspend.
116
Anticipatory Repudiation
ONLY APPLIES IN BILATERAL CONTRACTS where promisor indicates he cannot or will not perform when the time comes. If conditions are met this will excuse condition of non-repudiating party. Must be unequivocal. If it occurs, non-repudiating party has 4 remedies:
1. Treat it as a total repudiation and sue immediately.
2. Suspend own performance and wait to sue till performance date.
3. Treat it as an offer to rescind and treat contract as discharged.
4. Ignore and urge promisor to perform NOTE this does not waive other remedies.
If non-repudiating party has not cancelled K, materially changed position in reliance thereof, or indicated that they consider the repudiation FINAL, then the repudiating party may rescind repudiation and perform. Must supply assurances justifiably demanded by non-repudiating party.
117
Prospective Inability or Unwillingness to Perform
Occurs where party has reason to believe the other party will be unable or unwilling to perform. NOT ANTICIPATORY REPUDIATION. Doubts vs. Certainty.
Where this is the case the doubting party can suspend performance until adequate assurances are received. Failure to receive assurances may allow doubting party to treat as a repudiation.
Retraction of the doubt inducing party is possible.
118
Condition: Substantial Performance
Complete performance may be excused where there is substantial performance. Only applies to constructive conditions, not express ones. Not applicable to a willful breach of K. Other party can still mitigate by deducting damages.
NOT APPLICABLE TO SALE OF GOODS.
119
Excuse of Condition by Divisibility of a Contract
If a K is divisible then a performing party may recover what is owed for those 'units' of the contract performed.
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Divisible Contract
1. Performance of each party divided into two or more parts;
2. The number of parts due from each party is the same; and
3. Each performance is a quid pro quo of the other (i.e., I make and give you X and you pay Y)
121
Excuse of Condition by Waiver or Estoppel
May excuse or waive condition as follows:
1. Say you are waiving a condition and the other party detrimentally relies on it.
2. Choosing to continue under the K despite failure of a condition acts as a waiver by the party who had the right to terminate for non performance.
3. In installment K's where not supported by consideration it is only applicable to that installment, not future ones.
4. Impossibility, impracticability, frustration.
Cannot waive the entire purpose of the K, only ancillary or collateral matters, i.e., you cannot 'waive' right to payment.
Waiver only severs right to treat failure as a total breach you can still sue for damages.
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Discharge by Impossibility
1. Must be objectively impossible.
2. Must arise after K is entered into (otherwise it goes to mistake of K formation).
3. Excuses all duties, and parties may be required to rescind all benefits received.
4. Partial impossibility only discharges that part that is impossible.
5. Temporary impossibility only suspends performance.
6. Quasi recovery for partial performance prior to impossibility.
123
Effect of Death or Physical Incapacity of a Party
1. Generally does NOT discharge performance where the obligations are those that could be delegated.
2. Generally DOES discharge performance where the person necessary to effectuate the K is dead/incapacitated.
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Destruction of Subject Matter of a K
Handled as follows:
1. In a construction K, it does NOT discharge obligation to build a structure. But will excuse contractor from original deadline.
2. If it is for repair or remodel, then the K is discharged and contractor can recover for value of the work done prior to destruction.
3. Destruction must be specific to the very subject matter of the K.
4. Does not apply where risk of loss has passed to the Buyer.
125
Discharge by Impracticability
Occurs where:
1. Extreme and unreasonable expense; and
2. Non-occurrence was a BASIC ASSUMPTION of the parties.
126
UCC: Impossibility, Impracticability, Destruction
1. Generally seller assumes the risk.
2. Shortage of raw materials or catastrophic local crop failure can discharge obligations. Mere increase in cost will not (even a 50% increase).
3. If partial inability to perform is valid, the Seller must allocate among customers and not prioritize one over another.
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Discharge by Frustration
Discharged where:
1. Some supervening act or event leading to the frustration;
2. Not reasonably foreseeable by the parties;
3. Purpose of the K has been destroyed or almost completely destroyed by the act; and
4. The purpose of the K was realized/understood by both parties at time of K formation.
Exam tip: look at venue rental agreements.
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Discharge by Mutual Rescission
Express agreement between the parties to discharge obligations of K. CANNOT DISCHARGE IF RIGHTS OF THIRD PARTY BENEFICIARY HAVE VESTED.
Also:
1. Usually only for bilateral Ks.
2. For unilateral K's must have (i) new consideration by nonperforming party; (ii) elements of promissory estoppel; or (iii) manifestation of intent by original offeree to make a gift of the obligation owed to her.
3. May be made orally. WATCH OUT FOR SOF OR SALE OF GOODS.
129
Partial Discharge by Modification of K
Exactly what it sounds like. Need:
1. Mutual assent
2. Consideration.
HOWEVER no consideration required for K for the sale of goods as long as sought in good faith.
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Discharge by Novation
A novation is the substitution of a new party to receive benefits and assume duties originally belonging to one of the original parties under the K. Will be effective to discharge the old K where:
1. Previous VALID agreement;
2. All parties agree including new party;
3. Immediate extinguishment of K duties as between original parties; and
4. There is a valid and enforceable new K.
131
Accord and Satisfaction
Accord: Where one party agrees to accept something else, in the future, to satisfy an obligation under the K.
Satisfaction: When the accord is actually performed. Discharges the accord agreement and prior agreement.
Also:
1. Accord must have consideration, offer to make partial payment will suffice if there is a bona-fide dispute as to payment.
2. Where there is a dispute as to payment an accord may be accomplished by a good faith tender of a check and it says CONSPICUOUSLY that it is in full satisfaction of the debt.
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Breach of Accord before Satisfaction
Breach by Debtor: Creditor can sue on accord or underlying agreement.
Breach by Creditor: (a) Raise accord as a defense; or (b) wait till you lose the underlying suit and bring an action for damages for breach of the accord K.
133
Modification vs. Accord.
Change of an existing agreement, as opposed to substitution of different performance. Duties of parties change immediately.
134
Discharge by Account Stated
Where the parties discharge K by agreeing to the final balance due and discharges all claims for amounts owed.
135
Discharge by Lapse vs. Statute of Limitations
1. Lapse is when there are concurrent duties set for a specific time, and that time passes without performance. If time is of the essence the respective duties lapse immediately, if not, it is a reasonable amount of time thereafter.
2. SOL: SOL does not discharge duty, just discharges enforcement, so you can use the promise to perform without new consideration.
136
Breach
1. Absolute duty to perform is in effect;
2. Failure to perform as required under K; and
3. Non-breaching party says they are ready able and willing to perform but for breaching parties breach.
137
Minor Breach
Breach is minor if the other party gains the substantial benefit of the bargain despite the defective performance. It does not relief the aggrieved party of their performance, it just gives them the right to OFFSET for damages.
HOWEVER, if coupled with anticipatory repudiation it can be interpreted as a major breach.
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Material Breach
Does not receive the substantial benefit of the bargain. May consider K terminated (no counter performance) and sue for damages.
Elements:
1. amount of benefit received
2. adequacy of compensation
3. extent of part performance
4. hardship
5. negligent or wilful behavior
6. likelihood that breaching party will perform the remainder of the K
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Breach: Timeliness
Failure to complete on time is generally not a material breach unless terms like "time is of the essence" are included.
140
UCC Perfect Tender Rule
If goods or their delivery fail to conform to the contract in any way the buyer may:
1. Reject all,
2. Accept all, or
3. Accept any commercial units and reject the rest.
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UCC Right to Reject and Acceptance
A buyer's right to reject goods under the PTR is cut off by acceptance. Under UCC a buyer accepts when:
1. After reasonable opportunity to inspect they indicate to seller that the goods conform
2. Fails to reject within a reasonable period of time.
3. Does any act inconsistent with seller's ownership.
142
UCC: Buyer Responsibility for Goods after Rejection
After rejecting goods Buyer:
1. Must not behave as though Buyer owns the goods.
2. Must hold onto the goods for a reasonable period of time.
3. Obey reasonable instructions for return of the goods to Seller.
4. If no instruction from seller within a reasonable period of time the Buyer may: (i) reship them to seller; (ii) store them and charge seller for the cost; or (iii) resell them and remit the funds to seller.
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UCC: Buyer's Right to Revoke Acceptance
Can revoke when the goods have a defect that substantially impairs their value and:
1. Buyer accepted them on the reasonable belief the defect would be cured; OR
2. Buyer accepted them because of the difficulty in discovering the defects OR because the Seller's assurances that the goods conformed to the K.
The foregoing must (i) occur within a reasonable amount of time after Buyer discovers or should have discovered the defects; and (ii) before any substantial change in the goods occurs that is not caused by the defect.
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Exceptions to the PTR
1. In single delivery contracts where Buyer rejects goods due to defects, the Seller may cure by: (i) giving reasonable notice of Buyer's intention to cure; and (ii) making a new tender of conforming goods that the Buyer MUST then accept.
2. Ordinarily Seller has NO RIGHT to cure beyond original K time. Exception if Buyer rejects goods that Seller reasonably believed would be acceptable, then the Seller, upon reasonable notification to the Buyer has a further REASONABLE TIME beyond the K time to cure.
3. If it is an INSTALLMENT K then Buyer CANNOT REJECT if the defect can be cured.
TIP as to #2: Likely to be found where there is past business relationship or Seller could not have known of defect.
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Specific Performance
1. Available if a legal remedy is inadequate. Liquidated damages do not discharge right to specific performance?
2. Available for land or rare or unique goods.
3. Not available for breach of K for services.
146
Non-Compete K's
Available where services in question are unique and the covenant is reasonable. Reasonable where:
1. legitimate interest;
2. reasonable geographic scope and duration; and
3. must not harm the public.
147
Equitable Defenses to Specific Performance
1. Laches: Delay has prejudiced the Defendant.
2. Unclean hands: Mutual wrongdoing.
3. Sale to a bona fide purchaser (regarding subject matter of the K)
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Replevin
Replevin is where the Buyer has made part payment of purchase price and seller has NOT delivered the goods Buyer may replevy the goods under the following 2 circumstances:
1. Seller becomes insolvent within 10 days after receiving Buyer's first payment; or
2. The goods were purchased for personal, family, or household purposes.
Buyer must tender any unpaid portion of the purchase price to the seller.
149
Seller Right to Withhold Goods
May withhold goods until payment, or if sold on credit, if Seller discovers buyer is insolvent, but must then deliver goods if payment is made.
150
Right to Recover Shipped or Stored Goods from Bailee
1. On Buyer insolvency
| 2. On Buyer's breach.
151
Compensatory Damages
Goal is to put the non-breaching party in the position they were in had the promise been performed.
1. Standard Measure of Damages: Expectation Damages, i.e., benefit of the bargain.
2. Reliance Damages: Exactly what it sounds like. Put you in position you were in before the detrimental reliance.
3. Consequential Damages: Special damages, these are the consequences of the damage that a reasonable person would have foreseen being the result of a breach of the K. In sale of goods only a Buyer may recover for special damages.
4. Incidental Damages (expenses, etc.)
Certainty Rule: Generally require certainty as to the amount of the above damages. Lost profits is often an exception.
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Punitive Damages, Nominal Damages, and Liquidated Damages
1. Punitive Damages not awarded in K cases.
2. Nominal damages can be awarded where there is breach but no damage shown.
3. Liquidated damages are for a sum certain, are permitted where (i) difficult to estimate or ascertain at the time K was formed; (ii) agree that it is a reasonable forecast; and (iii) recoverable even if no actual damages.
153
Sale of Goods: Buyer's Damages
1. (i) Market price; or (ii) Cost of replacement plus Incidental and Consequential Damages, less any expenses saved as a result of seller's breach.
2. Buyer's damages measured as of the time they learned of the breach, while seller's are measured as of the time for delivery.
3. For breach by shipment of non-conforming goods, the damages are the value of the goods as delivered and the value they would have had if they had been according to the K, plus Incidental and Consequential Damages. Must notify Seller of defect within a reasonable period of time.
154
When is Seller liable for Consequential Damages
1. When seller knew of buyer's general or particular requirements; and
2. Subsequent loss resulting from those needs could not reasonably be prevented by Buyer opting to 'cover'.
155
Seller Damages: Where Buyer Repudiates or Refuses to Accept Conforming Goods
Seller gets:
1. Difference between market and K price;
2. Difference between resale and K price; or
3. If above measures are not adequate because Seller could have made an additional sale, then recovery under lost profits is allowed. (APPLIES WHERE SELLER HAS UNLIMITED SUPPLY)
156
Seller Damages: Action for Price
Where Buyer has accepted the goods and wont pay, Seller brings suit for K price.
157
Damages: Sale of Land
Difference between K price and FMV of the land.
158
Damages: Employment Contracts
Breach by Employer: Full K price (employee has to try and mitigate)
Breach by Employee: Cost of replacing employee - amount owed to employee for work done.
Employment at Will: None/Not available.
159
Damages: Construction Contracts
Breach by Owner: Profits + Incidental
Breached by Builder: Cost of completion + $$ for delay.
***Courts generally wont impose a remedy that forces correction of a marginal defect if it would impose undue economic hardship, e.g., uses Copper Tubing instead if Special Brand Copper Tubing.
160
Damages: Installment Contracts
Limited to recovery on missed installment, but may be liable for whole K if there is an acceleration clause.
161
Avoidable Damages/Mitigation
Generally have to try and mitigate damages, a party can recover the expenses of mitigation.
Employment: Terminated employee has to try and get another job.
Manufacturing: Upon awareness of breach seller must mitigate damages by not continuing to work after breach, except where stopping work would result in more cost to seller.
Construction: Builder has no duty to mitigate by securing other work, must only stop working. Same rules for that as for manufacturing.
UCC: No duty to mitigate.
162
Restitution
Based on unjust enrichment, a la quasi contract, quantum meruit, etc.
163
Rescission
K is considered voidable and rescinded as though never made. The grounds are:
1. Mutual mistake of material fact.
2. Unilateral mistake if the other party knew or should have known
3. Unilateral mistake if hardship by the mistaken party is so extreme it outweighs counter parties expectations
4. Misrepresentation of fact or law as to material factor that was relied upon
5. Duress
6. Undue influence.
7. Illegality.
8. Lack of capacity.
9. Failure of consideration.
164
Reformation
Reforms K to the original intent of the parties. Requires: (i) an agreement of parties; (ii) an agreement to put the aforesaid agreement in writing; and (iii) a variance between (i) and (ii).
Also remember:
1. Plaintiff can choose between avoidance and reformation if the variance is the result of misrepresentation.
2. Negligence is no bar to reformation.
3. Clear and convincing evidence standard for variance.
4. Parol evidence doesn't apply.
165
UCC: SOL
Four years. Begins either (i) when a party learns of breach; or (ii) in a warranty action UPON DELIVERY even if defect not discovered; or (iii) in a warranty action UPON DISCOVERY if it is an express warranty.
166
Intended vs. Incidental Beneficiary
Intended Beneficiary: (i) identified in the K; (ii) receives the performance directly from the promisor; or (iii) has some relationship with the promisee to indicate intent to benefit.
Incidental Beneficiary: Lack of any of the above elements.
167
Creditor v. Donee Beneficiary
Creditor Beneficiary: a person to whom a debt is owed by the PROMISEE
Donee Beneficiary: a person to whom the promisee intends to benefit gratuitously.
168
When do Third Party Beneficiary Rights Vest?
When third party:
1. Manifestly assents to a promise in a manner requested by the parties;
2. Brings suit to enforce the promise; or
3. Materially changes position in justifiable reliance on the promise.
169
What are the Rights of a Third Party Beneficiary vs. Promisor
1. Beneficiary may sue promisor on the K.
2. Promisor may raise any D may have had against promisee. (Except where it is an absolute promise to pay, then cannot assert D's.
170
What are the Rights of a Third Party Beneficiary vs. Promisee
A CREDITOR beneficiary may sue the promisee or the promisor on the existing obligation but can only secure satisfaction once.
Donee beneficiary generally has no right to sue the promisee without detrimental reliance.
171
What rights may be assigned?
Generally all contractual rights may be assigned. Gratis assignment is effective, consideration not required. Exceptions:
1. An assignment that would substantially change the obligor's duty or risk (e.g., where personal service K where the service is unique).
2. Assignment of future rights to future K's (not future rights in existing K).
3. Prohibited by law.
4. Contractual restrictions.
172
Contractual restriction of assignment
1. Clause prohibiting assignment of the K itself bars only the delegation of the assignors duties.
2. Clause prohibiting the assignment of the "K rights" does not bar assignment, but gives the other party the right to sue for damages.
3. Clause stating attempts to assign are 'void' then the parties can bar assignment.
173
Effect of Assignment
1. Creates privity between assignee and the other party and extinguishes it said party and assignor.
2. Once non-assigning party has knowledge of assignment they must render performance to or pay the assignee. Doing so to the assignor instead is at the risk of said party.
174
Revocable or Irrevocable Assignment
1. Assignments are irrevocable where it is done (i) for consideration; or (ii) taken as security for or payment of a preexisting debt. ASSIGNMENT FOR VALUE.
2. Assignment NOT FOR VALUE is generally revocable, except where: (i) obligor has already performed; (ii) a tangible claim is delivered (?); (iii) an assignment of a simple chose is put in writing; or (iv) detrimental reliance by assignee.
175
Methods of Revoking an Assignment
If it is a REVOCABLE GRATUITIOUS ASSIGNMENT the following will terminate the assignment:
1. Death or bankruptcy of assignor
2. Notice of revocation by the assignor to the assignee OR the obligor
3. Assignor taking performance DIRECTLY from obligor; or
4. Subsequent assignment of the same right by the assignor to another.
176
Rights of Assignee vs. Obligor
1. Assignee slips into shoes of Assignor and may sue for any rights under the K.
2. Likewise for Obligor, but Obligor may not use any defenses Assignor might have against Assignee.
177
Rights of Assignee vs. Assignor
In every assignment for value the Assignor warrants that:
1. he has not made a prior assignment of the same right;
2. the right exists and is not subject to undisclosed defenses; and
3. he will do nothing to interfere with the assignment of the right.
Assignee may sue for breach of above warranties. Assignor NOT liable to Assignee if Obligor is incapable of performing.
178
Multiple Assignments
1. Revocable Ks: Generally terminates the prior assignment.
2. Irrevocable Ks: First assignment will usually prevail, several exceptions, the biggest is where the second assignee has paid value and taken without notice of the first assignment,.
179
What Duties may be Delegated?
Generally all duties may be delegated. Exceptions:
1. the duties involve personal judgment and skill;
2. delegation would change obligees expectancy (requirement/output Ks);
3. a special trust was reposed in the delegator; or
4. There is a K restriction on delegation.
However, Obligee can only force the delegate to perform if there has been an assumption, i.e., the delegate expressly or impliedly promises he will perform the duty delegated and it is supported by consideration).
180
Novation
Substitutes a party to the K.
181
Entrustment
Basically, if you are a merchant who sells widgets, and I entrust my widget with the merchant, and then the merchant sells my widget to an unsuspecting customer in ordinary business, then that purchaser has good title. It's basically the bona fide purchaser issue in another form.
182
Voidable Title
Bona fide purchaser issue.
