contracts Flashcards
(167 cards)
1
Q
what are the three foundational qs of contract law?
A
- has an enforceable contract been formed?
- has the contract been performed (or, has performance been excused)?
- what are the remedies for breach?
2
Q
define contract
A
a contract is a legally enforceable agreement
agreement + bargained-for exchange (consideration)
3
Q
what universe are you in if the contract has elements of both services and goods?
A
- all-or-nothing rule
- predominant purpose
exception: divisible contracts
4
Q
formation
what should you evaluate to determine if an enforceable contract has been formed?
A
- Agreement (offer + acceptance)
- Consideration (and substitutes)
- Defenses to formation
- Statute of Frauds
5
Q
formation
define offer
A
an offer is a manifestation of a willingness to enter into an agreement (by the offeror) that creates a power of acceptance (in the offeree)
6
Q
formation
are offer and acceptance governed by the objective or subjective test?
what does that mean?
A
objective
means that the key question is whether the offeror displays an objectively serious intent to be bound
7
Q
formation
towards whom must an offer be directed?
A
an offer must usually be directed to a specific offeree. you cannot accept an offer unless it is directed at you
exception: rewards, contest offers that promise something to anyone who accomplishes a task
8
Q
formation
what terms should a contract contain to be enforceable?
A
common law: all essential terms. this means parties, subject, price, and quantity
UCC: only essential term is quantity (UCC will gap-fill)
9
Q
formation
what is a requirements contract?
A
B promises to buy 100% of whatever amount is needed from this individual S (often for a given time period)
specific enough under UCC: no quantity term but formula for calculation of such term
10
Q
formation
what is an output contract?
A
S offers to sell 100% of whatever amount is produced to an individual B
specific enough under UCC: no quantity term but formula for calculation of such term
11
Q
formation
why is an invitation to deal not a valid offer?
A
it does not convey the power of acceptance to the other side. it reserves the final right of approval (acceptance) with the original speaker
12
Q
formation
is an advertisement an offer? why or why not?
A
no. usually understood as an invitation to deal
exceptions: reward ads; ads that are very specific and leave nothing open to negotiation, including how acceptance can occur
13
Q
termination and revocability
how many ways to revoke an offer? what are they?
A
- express communication to offeree
- constructive revocation (offeree learns that offeror has taken an action inconsistent with a continuing ability to contract)
- rejection by offeree
- counteroffer by offeree
- offeror dies before K is formed
- reasonable amt of time passes
14
Q
termination and revocability
what are the four kinds of irrevocable offers?
A
- option contract –remember that the option needs consideration for the offer to be irrevocable for that period of time
- firm offer –UCC only; offeror must be a merchant (any businessperson when transaction is commercial in nature)
- unilateral K after offeree has started performance –bc unilateral contract can only be accepted by performance. but remember that offeree is not required to complete performance
- detrimental reliance –offeree reasonably and detrimentally relies on the offer in a foreseeable manner
15
Q
acceptance
define acceptance
A
acceptance is a manifestation of a willingness to enter into the agreement by the offeree
16
Q
acceptance
how must the offeree accept the offer?
A
the offeror is the master of the offer, and therefore dictates its terms.
the offeree must accept the offer according to the rules of the offer
17
Q
acceptance
what if B says “please ship me 500 blue beads by next week for $5 each.”
S sends 500 green beads the next day, instead.
is there a contract?
A
yes – a court would treat this as both acceptance and breach by S
18
Q
acceptance
in the case of an open-to-all offer (e.g. reward) what is required of the person who performs in order for the offeror to be bound?
A
the person who performs must have known about the offer prior to their performance (intent to enter into agreement) in order to “accept” it.
without that prior knowledge, there is no K
19
Q
acceptance
acceptance must be X to the other party in order for it to become effective
A
communicated
20
Q
acceptance
when is an acceptance normally effective?
A
mailbox rule: usually effective at the moment it is sent by the offeree
21
Q
acceptance
what are the exceptions to the mailbox rule?
A
mailbox rule does not apply:
1. if offeree sends something else first (rejection, counteroffer) and then changes their mind and sends an acceptance. then whichever reaches the offeror first will prevail
2. to other types of communications (revocations, rejections, etc.)
3. to option contracts
unclear to what degree this applies to other media like fax or email
22
Q
acceptance
when is acceptance by silence allowed?
A
- unilateral reward offers or contests
- unilateral offers in which parties are so geographically close that the offeror will see that performance has occurred
- past history of silence serving as acceptance (such that offeree should reasonably notify offeror if they do NOT accept the offer; e.g. when parties have a regular business relationship)
- offer says acceptance must come by silence AND the offeree intends to accept the offer by silence
23
Q
acceptance
what is an implied-in-fact contract?
A
this is when an action is communicated by gestures or actions (without writing or speaking)
24
Q
counteroffers and UCC §2-207
what common-law rule is implicated when the terms of an acceptance do not exactly match the terms of the offer?
A
mirror-image rule
in this case the “acceptance” is a counteroffer
25
# counteroffers and UCC § 2-207
what is a conditional acceptance?
a conditional acceptance is an acceptance that is based on the occurrence of a specified event. e.g. I accept IF ...
a conditional acceptance is another form of counteroffer
26
# counteroffers and UCC § 2-207
what is UCC § 2-207
replaces the mirror-image rule
a purported acceptance that does not match the terms of the offer exactly can still count as a legal acceptance (maybe not all of its terms, though)
27
# counteroffers and UCC § 2-207
what is the text of UCC § 2-207(1)
"a definite and seasonable expression of acceptance [or a written confirmation] which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, **unless acceptance is expressly made conditional upon assent to the additional or different terms**"
28
# counteroffers and UCC § 2-207
when can an additional term in an acceptance control?
under which provision of the UCC?
1. both parties are merchants
2. new term does not materially alter the deal
3. intial offer did not expressly limit acceptance to its terms **AND **
4. the offeror did not reject or object within a reasonable time to the new term
29
# counteroffers and UCC § 2-207
what are the majority and minority rules for acceptances with different terms from the initial offer?
**majority**: KNOCK-OUT RULE. "Knocks out" both the different terms from the contract. Neither will govern and instead, the general gap-filling provisions of the UCC will apply
**minority**: when different term does not govern under UCC § 2-207(2) (i.e. when it is not an "additional" term), the initial offer controls the term
30
# counteroffers and UCC § 2-207
what is an acceptance based on conduct?
to what provision of the UCC does it correspond?
when parties fail to make a K but still act as though there is an agreement, then under UCC § 2-207(3) only the terms that both writings agree on become part of the contract, with all other terms supplied by the UCC default rules
31
# counteroffers and UCC § 2-207
what is a confirming memo?
when parties have a K (usually oral agreement) and one party sends a confirming memo with additional terms.
UCC § 2-207(1): "...a written confirmation which is sent within a reasonable time operates as an acceptance..."
32
# consideration
what is consideration?
a bargained-for deal in which the parties exchange promises involving a legal detriment or benefit
33
# consideration
what is an example of something that does not count as consideration?
gifts
also look out for conditional gifts -- are they really bargaining for the person to accept?
34
# consideration
when is consideration adequate (rather than nominal)?
as long as there is subjective value to the person receiving it, consideration will be adequate
35
# consideration
what is an illusory proimse?
promisor does not clearly commit to the deal – there must be a way for them to breach
in this case there is no consideration and therefore this is an illusory promise.
e.g. "I can sell you my jeep for $5000." "Ok, i will buy the jeep for $5000 if i feel like it"
36
# consideration
what are some examples of real contracts that could be mistaken for illusory contracts?
satisfaction contracts. these are still real contracts with consideration.
* the usual standard of satisfaction for these Ks is objective ("would a reasonable person be satisfied?")
* for Ks involving aesthetic satisfaction (art, tutoring services), use a subjective standard of satisfaction
output & requirements contracts – there is still a way for the parties to breach here
37
# consideration
when is settling a legal claim / promising not to sue sufficent consideration?
1. P has good faith belief in the validity of the claim OR
2. there is reason to doubt the validity of the claim due to uncertain law
38
# consideration
preexisting duty rule
(common law)
a promise to do something you are already legally obligated to do is not consideration
this is why contract modifications need new consideration
39
# consideration
exceptions to the rule that contract modification needs new consideration
1. change in performance (e.g. renewing lease for an additional year, at lower rent)
2. third party promising to pay OR
3. unforeseen difficulties that would excuse performance
40
# consideration
what is the general rule at common law with respect to modifying contracts?
need new consideration
41
# consideration
if a creditor promises to release a debtor from a debt obligation if they render partial payment, is this modification binding?
if the debt is currently due and undisputed, then the modification is NOT binding
but if the debtor is paying part of their debt early in order to be released from the debt obligation, or the debt is disputed, then the modification is likely binding
42
# modification
what standard governs when there is a modification under the UCC?
good faith
if the modification is made in good faith, then it is binding even without new consideration
hold-ups, for example, are not binding bc they are not modifications made in good faith
43
# promissory estoppel (PE)
when might promissory estoppel arise?
when one party makes a promise, and the othe party relies on that promise to take some action
44
# PE
what are the elements for a claim under PE / reliance?
1. promise made that would be reasonably expected to induce reliance
2. promisee does indeed take detrimental action in reliance on that promise AND
3. injustice can only be avoided by enforcement of the promise
45
# PE
when does a quasi-contract arise?
what is it also known as?
arises when party would have made K if they could have, but could not
OR
when one party has conferred a benefit on another party and it would be fair to pay for that benefit
also known as a contract "implied-in-law"
46
# PE
what are the elements of a quasi-contract?
1. P confers measurable benefit on D
2. P reasonably expected to get paid AND
3. it would be unfair to let D keep the benefit without paying
*REMEMBER TO ASK: did P give D an opportunity to decline? If not, is there a good reason why there was no opportunity to decline (e.g. emergency)?
47
# PE
how are quasi-contract damages measured?
limited as justice required to the fair value of the benefit conferred
48
# PE
what is the "half theory"?
half theory = moral obligation + subsequent promise to pay
some jxdns have case law suggesting that a moral obligation plus a subsequent promise to pay can be binding
but usually this would be past consideration and is thus not binding
49
# defenses
what are the defenses to K formation?
1. misunderstanding
2. incapacity
3. mistake
3. fraud (incl. misrepresentation or nondisclosure)
4. duress
5. illegality (+ contracts against public policy)
6. unconscionability
50
# defenses
misunderstanding defense:
when does this arise?
what must the party show?
arises when each party attaches a different meaning to the same words
must show:
1. the parties use a material term that is open to two or more **reasonable interpretations** (the objective test cannot apply)
2. each side attaches a different meaning to the term, AND
3. **neither party knows, or should know**, of the ocnfusion
51
# defenses
incapacity defense: who lacks the capacity to make a K?
1. infants (minors)
2. people who are mentally ill either **(A)** the person cannot understand the nature and consequences of their axns OR **(B) **the person cannot act in a reasonable manner in relation to the transaction AND the other side knows or has a reason to know this
3. very intoxicated persons (if the other side knows or has reason to know this)
52
# defenses
incapacity defense: what happens to a K if it is made w someone who lacks capacity?
it is VOIDABLE
the incapacitated party can disaffirm
**exceptions**:
* in a K for necessities (food, clothing, shelter) the party without capacity must still pay
* party w/o capacity might stil ratify the deal by keeping the benefits of the K after capacity is obtained. e.g. this is why the minor cannot disaffirm after reaching the age of majority
53
# defenses
mistake defense: what is a "mistake" in this context?
a mistake is a belief that is not in accord with a present fact
54
# defenses
mistake defense: when there is a mutual mistake, when may the adversely affected party rescind?
when there's a mutual mistake, the adversely affected party may rescind if:
1. there is a mistake of fact that existed at the time the deal was made;
2. the mistake relates to a **basic assumption** of the K and has a **material impact** on the deal; AND
3. the impacted party did not bear the risk of mistake
55
# defenses
mistake defense: when there is a unilateral mistake, when may the adversely affected party rescind?
when there's a unilateral mistake, the adversely affected party may rescind if:
1. they can prove all the elements of mutual mistake AND
2. either: (A) the mistake would make the K unconscionable OR (B) the other side knew of, or had reason to know of, or caused, the mistake
56
# defenses
what is misrepresentation?
what must a party show to assert misrepresentation?
an intentional (fraudulent) or accidental statement at the time of contracting that is not true
1. misrepresentation of a present fact (not opinion)
2. that is material or fraudulent (intentional) AND
3. that is made under circumstances in which it is justifiable to rely on the misrepresentation
57
# defenses
what is fraud in the factum?
intentional misrepresentation of a present fact
58
# defenses
what is fraud in the execution?
one party tricks the other into signing something that they do not even know is a K
59
# defenses
what is nondisclosure?
one party does not learn the truth about something but now you just remain quiet*
*normally, you do not need to tell the other side about all material facts related to the deal
*LOOK FOR a special (fiduciary) relationship between the parties OR active concealment
60
# defenses
what is duress?
relatedly, describe undue influence
duress: an improper threat that deprives a party from making a meaningful choice to contract
* economic duress: arises when one party makes threats to induce another party to contract (or modify a contract)
undue influence: arises when one party puts very intense sales pressure on another party, who often seems weak-minded or susceptible to high-pressure sales tactics
61
# defenses
which of the defenses are defenses to contract **formation**?
* misunderstanding
* incapacity
* mistake
* fraud (incl. misrepresentation & nondisclosure)
* duress
62
# defenses
which of the defenses are defenses to contract **enforcement**? (i.e. won't prevent formation of a contract, but cannot be enforced by one party against the other)
why are these not defenses to K formation?
* illegality (including Ks against public policy)
* unconscionability
these are not defenses to K formation bc they don't impact the requirement that the contracting parties have a "meeting of the minds."
63
# defenses
when is a K containing elements of illegality be unenforceable?
an illegal K is unenforceable
but a contract entered in furtherance of an illegal act (that is not in itself illegal) will still be enforced
e.g. Party A hires Party B, a cab driver, to drive him to the place where Party A is planning to commit a crime. Party A cannot assert the illegality defense to avoid paying the cab driver
64
# defenses
what is a contract against public policy?
a contracting situation that is not formally illegal but present some other policy concern (e.g. a broad exculpatory agreement)
65
# defenses
unconscionability
shocks the conscience of a reasonable person
two kinds:
* procedural unconscionability: defect in the bargaining process itself (hidden term; absence of meaningful choice)
* substantive unconscionability: rip-off
66
# defenses
how do jxdns handle unconscionability defenses? what must the party asserting the defense show?
depends on the jxdn. in some jxdns, both procedural AND substantive unconscionability must be present for the deal to be struck down. in other jxdns, only one variety need be present
67
# SOF
what is the Statute of Frauds?
SOF is a barrier that some Ks must meet in order to become legally binding
these Ks must satisfy a higher standard of proof, usually in the form of a writing
68
# SOF
why does the SOF exist?
the goal of the SOF is to prevent false assertions about a K that never was really created
69
# SOF
what is the SOF-relevant inquiry to contracts (i.e. what should be asked at this stage of determining whether an enforceable contract has been formed?)
1. does SOF apply to this transaction?
2. if so has the SOF been satisfied?
70
# SOF
what kinds of contracts are in SOF world?
M. SOUR
* **marriage** (incl. prenups, etc.)
* **suretyship** (K promising to guarantee the debt of another)
* **one year** (K that by its terms CANNOT POSSIBLY be performed within one year from its making)
* **UCC** of $500 or more
* **real estate** (if K is transferring an interest in real property)
71
# SOF
what is the main-purpose exception?
the main-purpose exception applies to suretyship contracts.
if the main purpose in agreeing to pay the debt of another is for the surety's own economic advantage, then we are NOT in SOF world
72
# SOF
what are the exceptions to the SOF rule for real estate Ks?
* leases of less than one year are usually not in SOF world
* transactions related to real estate that are not transferring an interest in real property
73
# SOF
how is the SOF satisifed?
two ways to satisfy the SOF:
1. performance
2. writing
74
# SOF
how does one satisfy the SOF for a K that cannot be performed within a year?
(i.e. what must be done so as to render the SOF defense unassertable?)
for a service K that cannot be performed within a year, the SOF defense can no longer be asserted if EITHER side fully performs
*NOTE: past performance of a services K does not satisfy the SOF*
75
# SOF
how do you know if a writing satisfies the SOF?
doesn't have to be a formal K, but the writing must cover the fundamental facts:
* show that a K has been made
* identify the parties AND
* contain the essential elements of the deal
it also must be **signed by the person against whom it is being asserted**
76
# SOF
how might a real estate K satisfy the SOF?
a signed writing related to the real estate transaction will satisfy the SOF
PART performance of a real estate contract can satisfy SOF if any TWO of the following three elements are met (even in the absence of a signed writing):
1. possession
2. payment
3. improvements to the land
77
# SOF
how can the SOF be satisfied in UCC world?
* **signed writing** can satisfy SOF for UCC (needs quantity but not necessarily price). K is only enforceable under the SOF for the quantity specified within the signed writing
* **Part performance** of the K will satisfy the UCC but only for the quantity delivered and accepted
* **judicial admission** – a statment in a pleading or during testimony can satisfy SOF for UCC
* **failure to object** to a conirming memo within 10 days will satisfy SOF, but only if BOTH parties are merchants
* **custom-made goods are exempted** from the SOF. the maker can thus satisfy SOF as soon as it makes a **substantial beginning** toward the manufacturing of the goods
78
# SOF
what is required to authorize an agent to form a K that is in SOF world?
a signed writing
this is known as the "equal dignity rule"
79
# SOF
when must a modification to an SOF K also satisfy the SOF?
ASK: would the deal, with the alleged modification, be in SOF world?
if so, then SOF requirements must be met for the modification
if not, then there is no SOF req even if the initial deal was in SOF world
*don't look at the modification alone*
80
# performance & PER
what should you evaluate to determine if a contract has been performed?
PWCE – pizza with crawling escargot
* Parol evidence rule
* Warranties
* Conditions
* Excuse of performance obligations (impracticability, frustration of purpose, etc.)
81
# performance & PER
what is the parol evidence rule?
The parol evidence rule generally **prevents** a party to a written contract from presenting extrinsic evidence of a prior or contemporaneous agreement that contradicts the terms of the contract as written
82
# performance & PER
what kinds of oral or written statements does PER apply to?
if parties have reduced their K to a comprehensive writing, then earlier statements or writings related to this agreement are not part of the deal under PER
meaning earlier statements or writings are excluded as evidence
83
# performance & PER
does the PER apply to later written or verbal statements about the deal?
why or why not?
no, PER does not apply to later written or verbal statements about the deal
those are modifications
84
# performance & PER
what is complete / total integration?
the final written K expresses ALL terms of the agreement
85
# performance & PER
what is partial integration?
there is a final writing, but some terms are not included
86
# performance & PER
how to distinguish an agreement that is not integrated from one that is completely or partially integrated?
* look for a merger clause (evidence of complete integration). merger clause does NOT mean that an agreement cannot be modified later
* courts may also ask whether, under the circumstances, an extrinsic term of the agreement would be naturally omitted from the writing (if so, then the term might not violate PER and may be introduced as evidence *if it does not contradict the writing*
87
# performance & PER
name some exceptions to the PER. When might the PER not apply to bar earlier evidence?
1. will not bar evidence relevant to a **DEFENSE** against contract formation
2. even if a writing is completely integrated, a party can introduce evidence of a **SECOND, SEPARATE** deal
3. even if a writing is completely integrated, a party may be able to introduce evidence of a prior communication that is designed to interpret an **AMBIGUOUS TERM** in the final agreement
88
# warranties
what is a warranty?
a warranty is a promise about a term in the K that explicitly shifts risk to the party MAKING the promise
89
# warranties
what is the purpose of a warranty?
a warranty is designed to ensure the other party that they have some protection without having to use traditional K defenses
e.g. if i sell you a jeep and we only discuss price, but no other terms, and the wheel falls off as you are driving away, can you get out of the deal? only if you can successfully employ a traditional defense like mistake, duty to disclose, etc. a warranty would allow you to get out of it without doing so (e.g. warranty that the jeep will run fine for the first 1000 miles)
90
# warranties
what are the three types of warranties that might arise, and in which universe (CL vs UCC) is each warranty?
1. express warranty, UCC
2. implied warranty of merchantability, UCC
3. implied warranty of fitness for a particular purpose, UCC
91
# warranties
what is an express warranty?
an express warranty is a promise that affirms or describes the goods and is part of the basis of the bargain--UNLESS the statement is merely the seller's opinion
this includes the use of a sample or model -- that creates an express warranty that the good(s) sold will be like the sample
92
# warranties
when is the implied warranty of merchantability triggered?
what does it warrant?
the implied warranty of merchantability is triggered ONLY when the seller is a merchant dealing in the goods at issue
it warrants that the goods are **fit for ordinary commercial purpose / use**.
93
# warranties
can a seller disclaim the implied warranty of merchantability?
yes, a merchant seller can disclaim the implied warranty of merchantability but only if it is very clearly done:
* look for VERY conspicuous language if in writing
* look for the term "merchantability" (including in oral statements)
other methods of disclaim:
* buyer's inspection of the goods or refusal to do so (but only for defects that inspection would reveal)
* expressions like "as is" or "with all faults"
* course of dealing, course of performance, and trade usage
94
# warranties
when is the implied warranty of fitness for a particular purpose triggered?
what does it warrant?
this is triggered when a **buyer relies on a seller's expertise** to select a spl type of good that will be used for a spl purpose
it warrants that the goods will satisfy the spl purpose
seller does not need to be a merchant
95
# warranties
can the implied warranty of fitntess for a particular purpose be disclaimed?
yes. the seller can disclaim the implied warranty of fitness for a particular purpose but the disclaimer must be
* conspicuous
* in writing
96
# conditions
what is a condition?
a condition is another way to shift risk by stating that one party's contractual obligation will only kick in if some future event takes place
97
# conditions
what are the two kinds of conditions?
provide an example of the each type
1. express conditions – an example of an express condition is a satisfaction contract
2. implied conditions – most important implied condition is the constructive condition of exchange
98
# conditions
how are express conditions created and what is the standard to fulfill them?
express conditions are created by language in the K
an express condition must be **strictly satisfied**
99
# conditions
when and how may a condition be waived?
a party receiving the protection of a condition may waive the condition by words or conduct.
the condition may also be waived it the other party wrongfully interferes with or hinders the occurence of the condition. judged by good faith standard
the rest of the K would still be valid!
100
# conditions
what is the constructive condition of exchange?
the CCE is when one party's performance is conditioned on the other side's performance
101
# conditions
under common law, when is the CCE satisfied?
under common law, the doctrine of substantial performance satisfies CCE if:
* there is not a material breach AND
* if the failure is not willful
102
# conditions
if the nonbreaching party recovers damages for deficiencies, when they must pay for substantial performance?
how are these damages measured and/or limited?
yes – if payment is required because the other party substantially performed and the deficiency is minor, the nonbreaching party can recover damages for the deficiency.
* usually measured as the cost to complete the performance
* sometimes limited to the diminution in market value
103
# conditions
when a party fails to meet CCE due to a material breach, can they get paid anything?
not in K
but maybe in quasi-contract
104
# conditions
can a party who performs but fails to satisfy an express condition get paid?
why or why not?
no, not in K and usually not in quasi-contract
usually express conditions must be strictly satisfied
105
# performance in UCC
what is the standard for performance under the UCC?
perfect tender
106
# performance in UCC
what does perfect tender require?
1. perfect goods
2. perfect delivery
107
# performance in UCC
buyer's right to revoke:
when may a buyer revoke acceptance of **goods**?
a buyer may revoke an acceptance of the goods if the goods seem OK when delivered but a defect is discovered within a reasonable time
108
# performance in UCC
seller's right to cure:
when does the seller have this right?
if S fails to tender perfect goods **AND** there is time left on the contract **OR** the S had reasonable grounds to believe that B would accept a replacement, then B must give S a chance to cure the imperfect tender
109
# performance in UCC
what is the default method of delivery under UCC?
one delivery of the goods
110
# performance in UCC
in UCC, when might the requirement of one, single delivery of goods be excepted?
does B have any rights to reject delivery under this exception?
the UCC allows for installment contracts, where B and S agree to a series of deliveries in separate lots)
B can reject a specific delivery that is not perfect ONLY when there is **substantial impairment** in the installment that **CANNOT be cured**
(e.g. a 15-min delay for a delivery probably does not qualify)
111
# performance in UCC
what are the three main kinds of tender / delivery?
1. tender at S's place of business
2. shipment K
3. destination K
112
# performance in UCC
what is required of the parties when tender is at the seller's place of business?
S just needs to give the goods to B
113
# performance in UCC
what are the requirements for a shipment contract?
[F.O.B. Seller's place of business]
S must:
1. get goods to a common carrier
2. make arrangements for the delivery AND
3. notify B
risk of loss during delivery rests w B
114
# performance in UCC
what are the requirements for a destination K?
who bears the risk of loss (typically)?
[F.O.B. Buyer's place of business]
S must:
1. get the goods to B's business
2. notify B
risk of loss during delivery rests w S
115
# performance in UCC
what are the steps required to determine which party bears the risk of loss at a given moment?
1. have the parties already dealt with risk problem in K? **if so, K controls**
2. has either party breached the K? If so, **breaching party bears risk of loss**, even if the breach is totally unrelated to delivery damage
3. **what kind of delivery K** was it? (shipment v. destination)
4. in all other cases – **was the seller a merchant?** if YES, then risk of loss stays with S until B receives the goods. if NO, then risk of loss moves to B when S tenders the goods
116
# excuses
what are the 4 main reasons why performance may be excused?
1. impracticability and impossibility
2. death after K (usually not)
3. frustration of purpose
4. performance is excused bc initial K was modified or canceled
117
# excuses
when does the impracticability excuse arise?
impracticability arises when an unforeseen event in which the non-occurrence of the event was a basic assumption of the K, AND the party seeking discharge was not at fault
*look for something that hinders ABILITY to perform, not just COST to perform*
* e.g. performance becomes illegal after K is formed
* e.g. subject matter of K is destroyed
* e.g. in a services K with a spl person, the performing party dies or is incapacitated
118
# excuses
what happens if a person dies before executing their contractual promise?
dying usually does not excuse liability – estate will be on the hook
but if there was something special about the person performing on the K, such that it makes no sense to continue if they die, then maybe performance is excused
119
# excuses
when does frustration of purpose arise?
frustration of purpose arises when performance can occur but the something happened that undermined the entire reason for the creation of the K
120
# excuses
when can both parties just walk away from a K and say forget it?
as long as there is some performance remaining undone from each side, parties can walk away by mutual agreement
if there is no performance remaining from one side or another, then there is no consideration for this modification
121
# accord & satisfaction
what is accord and satisfaction?
this arises when the parties to an earlier K agree that performance will be satisfied instead by the completion of a different performance
**accord** is the new performance
**satisfaction** is the excusal of the initial performance obligationy
122
# accord & satisfaction
how might a nonbreaching party seek remedy if an accord is not performed?
why?
nonbreaching party can sue EITHER on the original K OR the new promise
this is bc usually, the breaching party would have had the OPTION of satisfying the K by doing the original performance or the new performance (by contrast, a K modification is more absolute and non-elective)
123
# novation
when does a novation arise?
a novation arises when BOTH parties agree that a substitute person will take over contractual obligations
original promisor is excused from performance – only new substitute person can be sued in breach
124
# remedy
remedy at common law:
CCE
if one party fails to substantially perform, other side may withhold their own performance
cannot withhold payment if other side has substantially performed, but may be able to get recover for the deficiency
125
# remedy
remedy at UCC:
CCE
UCC requires perfect tender. otherwise, S is in breach
material breach doctrine applies in installment sales, though
126
# remedy
what is anticipatory repudiation?
anticipatory repudiation is when one side says, CLEARLY AND UNEQUIVOCALLY, before performance is due, that they are not going to perform on the K?
127
# remedy
what are the remedial options for the other party if one party clearly & unequivocally repudiates?
1. treat the repudiation as a breach and **sue immediately** for damages *UNLESS you've completed your performance and are just waiting for payment. then, cannot sue early*
2. ignore the repudiation, demand performance, and **see what happens**
128
# remedy
can a party retract its repudiation?
yes
UNLESS the other side has:
* commenced a lawsuit OR
* acted in reliance on the repudiation (by materially changing their position)
*
129
# remedy
what happens if a party is equivocal about their intent to perform?
at both CL and under UCC, if a party has reasonable grounds for insecurity about the other side's intent to perform, the party can **demand assurances and suspend their own performance** until such assurances are provided. failure to render assurances within a reasonable period of time may be treated as a repudiation
under the UCC, the *demand* must be in writing and the "reasonable time" to render assurances is limited to 30 days.
130
# remedy
what is the goal of expectation damages?
how are they measured?
goal is to put a party in the same economic position as it would be in had the contract been performed as promised
ASK: what would the party have earned if the K had been performed as promised? to what $ amount were they entitled under the K?
COMPARE: value of performance without breach to value of performance with breach
131
# remedy
what are the limits on expectation damages?
1. inability to prove with reasonable certainty
2. unforeseeable consequential damages
3. failure by nonbreaching party to mitigate growth of damages
132
# remedy
what is the *Hadley* rule?
*Hadley* rule – unforeseeable consequential damages are not recoverable unless the breaching party had some reason to know about the possibility of these special damages at the time of contracting
133
# remedy
differentiate between general & consequential damages
**general** – type of loss that almost anyone would incur from the breach. this includes incidental damages (cost of storing rejected goods, finding a new B, finding a replacement vendor)
**consequential** damages – losses that are unique or spl to this particular P
134
# remedy
what does mitigation mean in the context of remedy?
what happens if a party fails or refuses to mitigate?
who bears the burden of proving a mitigation failure?
mitigation means that a breached-against party must take reasonable steps to reduce dmgs from breach
if a party fails/refuses to mitigate, law will calculate dmgs as if the party did mitigate
D bears the burden of proving a mitigation failure
135
# remedy
what are lost volume profits?
under what category of damages do they fall?
LVP may arise when:
1. the paying party breaches, and the selling party needs to mitigate by reselling the goods or services to another person AND
2. the S is a retailer who sells this type of product all the time
(because S could have sold an additional set of that product in the same time period - no set number of products to sell in that time)
136
# remedy
what is economic waste in the context of expectation damages?
how could it be fixed?
expectation damages are usually calculated by the cost to complete the job
but sometimes the cost of completing the job will dramatically overcompensate P. this is **economic waste**
so one solution is that damages would be calculated by **diminution in market value (DMV)**
* ASK: how much lower is the mkt value of the actual product v. the expected product? that would be the remedy
* breaching party must normally have acted in an innocent and unintentional manner for DMV damages
137
# remedy
what is the goal of reliance damages?
how are they measured?
the goal of reliance damages is to put a party in the same econoimc position that it would be in if the K had never been created in the first place
ASK: what loss has P incurred that would never have taken place but for the breached K?
*NOTE: a party cannot recover both expectation and reliance damages*
138
# remedy
what is the goal of restitution damages?
the goal of restitution damages is to give P an amount = to the economic benefit that P conferred on D
139
# remedy
what are liquidated damages?
when might courts award **punitive** liquidated damages?
liquidated damages are damages stated in K as an explicitly negotiated amount due upon breach
courts will only award punitive liquidated damages if:
1. the amount of liquidated damages was reasonable at the time of contracting AND
2. actual damages from breach would be uncertain in amount and difficult to prove
140
# remedy
when are punitive damages allowed in contract law?
almost never
maybe in the case of a breach that looks like a tort (fraud or something very extreme)
141
# remedy
what does equitable relief look like in contract law?
when might it be awarded?
equitable relief is the exception, not the norm, in K law
it might be awarded ONLY if monetary damages are considered inadequate for some reason
142
# remedy
what are two key presumptions relevant to specific performance being awarded as a remedy?
specific performance is presumptively available for real estate transactions (b/c each tract of land is considered unique in some sense)
specific performance is presumptively NOT avialable for Ks of personal service (risk of involuntary servitude, etc.)
* **BUT** a court might rarely grant an injunction prohbiting a breaching party from performing similar services for a competitor for a reasonable period of time (*Lumley* doctrine)
143
# remedy
what is the right of reclamation, and how would a seller assert this remedy?
the right of reclamation arises when an unpaid S tries to reclaim goods that were sold on credit when B is insolvent
following facts must be present for S to assert right of reclamation:
1. B is **insolvent at the time of reciept** of the goods
2. S must **demand the return** of the goods within 10 days of receipt (or within a reasonable period of time if B misrepresented their insolvency to S in writing within three months before delivery)
3. B **still has** the goods
144
# 3d party beneficiaries
what are the two main types of 3d party beneficiaries and how do their rights differ?
**intended** beneficiaries have the right to sue
**incidental** beneficiaries do not
*to differentiate, ASK: did the initial counterparties (promisor and promisee) intend to convey enforcement rights to the 3d party in the event of a breach?*
145
# 3d party beneficiaries
when does a creditor beneficiary arise?
a creditor beneficiary arises when the promisee strikes a deal with the promisor in order to repay some earlier debt TO the 3d party
146
# 3d party beneficiaries
when does a donee beneficiary arise?
a donee beneficiary arises when there is no preexisting obligation, but the **promisee clearly intends to confer a gift of enforcement** on a 3d party
147
# 3d party beneficiaries
what causes a 3d party's rights to vest (and, by extension, what prevents the counterparties from revoking or modifying the 3d party's right to enforce the K?)
1. beneficiary has detrimentally relied on the rights;
2. beneficiary manifests assent to the contract; OR
3. beneficiary has filed a lawsuit to enforce the contract
148
# assignment and delegation
what is assignment
assignment is the transfer of RIGHTS under K
149
# assignment and delegation
what is delegation?
delegation is the transfer of duties under a contract – basically when a party to a contract "outsources" their duties under the K
150
# assignment and delegation
how would one distinguish between assignment and intended 3d party beneficiaries?
in an assignment, by contrast, you usually see two distinct steps:
1. formation of K
2. transfer of the benefits of K from an original counterparty to some 3d party (AFTER the formation of the initial K)
so assignees are incorporated into the contract AFTER its original formation, whereas intended 3d party beneficiaries are a part of the K from the beginning
151
# assignment and delegation
what is the practical difference between a K that prohibits assignments or invalidates assignments?
* if a K **prohibits** assignments, the assigning party breached when they made the assignment—but 3d party assignee can still recover from the guarantor
* if a K **invalidates** assignments, the 3d party cannot recover from the guarantor bc there is no power or right to assign
152
# assignment and delegation
what happens if someone assigns the same rights twice?
if the rights were assigned** WITHOUT consideration** [gratuitous assignment], the assignment is generally revocable and the LAST assignement controls.
* *LIMITED EXCEPTION* – gratuitous assignments are generally revocable. However, a gratuitous assignment cannot be revoked if **(i)** the obligor has already performed, **(ii)** promissory estoppel applies, or **(iii)** a document evidencing the assigned right or a written assignment signed by the assignor was delivered to the assignee
if the rights were assigned **FOR consideration**, then the first assignment for consideration is typically IRREVOCABLE and will hold
* *LIMITED EXCEPTION* – a later assignment will take priority if the second assignee does not know of the initial assignment and is the first to obtain payment or a judgment
153
# assignment and delegation
when might delegation of duties NOT be acceptable?
delegation is usually acceptable
*UNLESS the K prohibits delegation
OR
the other party has a spl interest in having a specific individual perform ("special interest exception")*
can usually delegate without the other party's consent
154
# assignment and delegation
when might a delegatee be liable for breach?
a delegatee may be liable for breach if they receive consideration from the delegator
## Footnote
QUESTION TO CLARIFY: in this situation are BOTH the delegator and the delegatee liable for breach or just the delegatee?
155
# CL v. UCC
promise to hold offer open, CL v. UCC
CL: must be supported by consideration (option K)
UCC: No consideration required when merchant gives written & signed assurance (ie, firm offer)
156
# CL v. UCC
K formation, CL v. UCC
CL: must have O + [A with knowledge of that O]
UCC: any manner sufficient to show agreement -- parties intended to K + reasonably certain basis for giving remedy
157
# CL v. UCC
acceptance validity, CL v. UCC
CL: mirror-image rule, acceptance only valid if it exactly matches the terms of the offer
UCC: effective even w/ new or contradictory terms
158
# CL v. UCC
required / essential terms, CL v. UCC
CL: description of service or property; price; quantity; parties; time for performance
UCC: description of goods, quantity or certain formula for calculating quantity (in the case of req. or output K)
## Footnote
VERIFY
159
# CL v. UCC
bilateral modification, CL v. UCC
CL: must be supported by new consideraiton
UCC: no consideration required if made in good faith
160
# CL v. UCC
unilateral discharge, CL v. UCC
CL: death; destruction of subject matter
UCC: impracticability
## Footnote
??? this doesn't seem right
161
# CL v. UCC
suing for breach, CL v. UCC
CL: must be in privity or intended beneficiary
UCC: no privity/beneficiary requirement
162
how can a buyer accept goods under the UCC?
(i) expressly stating acceptance
(ii) using the goods
(iii) failing to reject the goods
if the tender was nonconforming, the buyer may reject all or part of the goods; but is required to pay for the value of the goods accepted
163
what does mutual assent mean in the context of K law?
mutual assent refers to an agreement by all parties to the contract
if there is a misunderstanding as to an essential term of the contract, the parties are not in mutual assent because they each thought that they were agreeing to different things
164
when can a repudiation of acceptance be retracted?
a repudiation of acceptance can be retracted when the other party has not canceled the contract or materially changed position
165
what kinds of contracts (of $500 or more) are excused from SOF? (i.e. when is a writing NOT required?)
* custom-made goods
* goods are not suitable for sale to others in the seller's ordinary course of business
* the seller has made either a "substantial beginning of their manufacture or commitments for their procurement."
if any of the above exist, the contract can be enforced in full, even if the disputed amount isn't memorialized in the writing (which might reflect a lower amount)
166
when is an act illegal for the purposes of contract law?
an act is illegal for contract law purposes if it contravenes a statute (or ordinance, etc.) OR a rule of law
167
# accord and satisfaction
if a claim is subject to dispute, how can it be discharged by the person against whom the claim is asserted?
* person must tender a negotiable instrument (e.g. check)
* accompanied by a conspiculous statement that the instrument was tendered in full satisfaction of the amount owed AND
* the claimant obtains payment of that instrument
