Contracts Flashcards
(47 cards)
A. General Principles
1. Common Law vs. UCC
a) The gateway issue in all contracts and sales essay questions will be to determine whether the
common law or Article 2 of the UCC governs:
(1) The common law governs if a contract deals with services or real estate (e.g., hiring someone
to mow your lawn).
(2) The UCC governs if a contract deals with goods (e.g., agreement to buy 100 reams of paper
from a paper supply company).
b) For mixed contracts (contracts that have elements of both services and goods), two rules operate
to determine whether the common law or UCC applies:
(1) The common law and UCC CANNOT both govern one indivisible contract at the same time.
Thus, mixed contracts must fall into one class or the other. However, there is a limited
exception for divisible contracts (contracts that can divide the goods and services portions
into separate mini-contracts).
(2) The predominant purpose of the contract determines whether the common law or UCC
governs (i.e., whether a good or service plays a bigger role in the contract). If the predominant
purpose of the contract involves the purchase or sale of goods, the UCC applies. If the
predominant purpose of the contract involves services or real estate, the common law
applies.
Requirements to Form a Valid Contract
a) A traditional, enforceable contract is formed when there is:
(1) Mutual assent (a valid offer + valid acceptance of that offer);
(2) Consideration; AND
(3) No defenses to formation that would invalidate the otherwise valid contract.
II. Formation of Contracts
A. Mutual Assent (Offer + Acceptance)
Offer 08.6%
a) To form a valid offer, the offeror must:
(1) Manifest an OBJECTIVE willingness to enter into an agreement; AND
(a) Objective Test. The offer is governed by an objective test, which means that outward
appearances of words and actions are determinative – not subjective hidden intentions
(e.g., If a person makes an offer as a practical joke with his fingers crossed behind his
back but his outward words and actions demonstrate willingness to enter the agreement,
it is a valid offer. The offeror’s subjective intent is irrelevant).
(2) Create a power of acceptance in the offeree (i.e., the offeree can simply say, “I accept” and
know that he has concluded the deal).
(a) Specific Offeree. Generally, an offer must be directed to a specific offeree. However, there
is a limited exception for contest offers and reward offers that promise something to
anyone who accomplishes a certain task (e.g., a posted sign that offers a cash reward for
finding lost puppy is a valid offer).
(b) Advertisements. An advertisement is usually considered to be an invitation to deal
rather than an offer, because advertisements usually fail to confer a power of
acceptance to the other side. However, advertisements that are very specific and leave
nothing open to negotiation may constitute offers.
II. Formation of Contracts
A. Mutual Assent (Offer + Acceptance)
2. Terms Required in the Offer
a) Certain terms MUST be specified in the offer in order for the offer to be valid.
b) Under the common law, all essential terms must be specified in the offer. Generally, this includes
the following four terms:
(1) Parties;
(2) Subject;
(3) Quantity; AND
(4) Price
c) Under the UCC, the law is more willing to plug the gaps. Unlike the common law, PRICE IS NOT
REQUIRED in the offer. Generally, only three terms are required under the UCC:
(1) Parties;
(2) Subject; AND
(3) Quantity
(a) Requirements and output contracts are valid under the UCC even though they do not
specify an exact quantity. In a requirement contract, the seller agrees to sell as much as
the buyer would require. In an output contract, the seller agrees to sell his entire
production to the buyer.
II. Formation of Contracts
A. Mutual Assent (Offer + Acceptance)
3. Terminating the Offer
a) If a valid offer is terminated at any time before acceptance, the offer is invalidated. It CANNOT be
accepted or revived unless a new offer is made. An offer is terminated if any of the following occur
at any time BEFORE acceptance:
(1) The offeror revokes the offer by express communication to the offeree (unless the offer is
irrevocable – see below).
(2) The offeree learns that the offeror has taken an action that is absolutely inconsistent with a
continuing ability to contract (“constructive revocation”);
(3) The offeree rejects the offer by express communication to the offeror;
(4) The offeree expressly communicates a counteroffer to the offeror;
(5) The offeror dies or otherwise becomes incapacitated (only terminates the offer, not a previous
valid contract);
(6) A reasonable amount of time passes (usually requires weeks, not days); OR
(7) The subject matter of the offer becomes illegal or is destroyed.
II. Formation of Contracts
A. Mutual Assent (Offer + Acceptance)
4. Irrevocable Offers
a) The offeror is normally free to revoke at any time prior to acceptance; however, there are four types
of offers that are irrevocable:
(1) Option contracts. An agreement where consideration is given in exchange for a promise to
keep an offer open (e.g., “I promise not to revoke this offer for one week if you pay me an
additional $100 to keep the offer open.”).
(2) Firm offers. Under the UCC, a merchant (someone who regularly deals in the type of good at
issue – i.e., a businessperson) can make a firm offer to buy or sell goods. A firm offer will either
last as long as stated in the offer or for a reasonable time period not to exceed 90 days. A firm
offer MUST:
(a) Be in writing;
(b) Contain an explicit promise not to revoke; AND
(c) Be signed by the merchant.
(3) Offeree has started performance. A unilateral offer to contract cannot be revoked by the
offeror if the offeree has started performance. A unilateral offer arises from a promise that
requests acceptance by an action of the promisee (versus a return promise, which is called a
bilateral contract).
(4) Detrimental Reliance. An offer cannot be revoked if the offeree reasonably and detrimentally
relies on the offer in a foreseeable manner.
II. Formation of Contracts
A. Mutual Assent (Offer + Acceptance)
5. Acceptance
a) An acceptance is a manifestation of a willingness to enter into the agreement by the offeree
(usually must be communicated to the other party – silence generally does not manifest
willingness unless there is a past history of silence serving as acceptance).
b) The offeror is the master of the offer, which means that the offeree MUST accept the offer
according to the rules of the offer (e.g., whether the offer is bilateral or unilateral).
(1) For bilateral contracts, the start of performance manifests acceptance.
(2) For unilateral contracts, the start of performance only makes the offer irrevocable – the offer
is only accepted once performance is complete.
c) Acceptance is governed by an objective test, which means that outward appearances of words
and actions are determinative – not hidden intentions (e.g., a person accepts an offer with his
fingers crossed behind his back).
d) The offer must be specifically directed to the person trying to accept it – cannot accept an offer
directed elsewhere (for open-to-all contests and reward offers, the person must know about the
contest or reward offer in order to accept it.).
II. Formation of Contracts
A. Mutual Assent (Offer + Acceptance)
6. Mailbox Rule
a) Remember, if a valid offer is terminated at any time BEFORE acceptance, the offer is invalidated. It
CANNOT be accepted or revived unless a new offer is made. The mailbox rule establishes the
moment in time that an acceptance becomes effective.
b) Mailbox Rule. An ACCEPTANCE that is sent by mail, email, or fax is valid at the moment of dispatch
(not when the letter is received), UNLESS:
(1) The offeree-sender uses the wrong address or has improper postage (e.g., the offeree-sender
forgets to put a stamp on the envelope);
(2) The offeror expressly stipulates that the acceptance is valid upon receipt;
(3) An option contract is involved;
(4) The offeree-sender sends a termination letter BEFORE the acceptance letter; OR
(a) If the offeree-sender places a counteroffer/rejection letter in the mailbox and a moment
later, places an acceptance letter in the mailbox, whichever letter the offeror receives
and opens first controls. Notably, if the offeree-sender places an acceptance letter in the
mailbox first, then the acceptance becomes effective at the moment of dispatch (unless
another exception applies).
(5) The offeror detrimentally relies on a termination BEFORE he receives the acceptance letter.
II. Formation of Contracts
A. Mutual Assent (Offer + Acceptance)
7. Counteroffer vs. Acceptance
a) A counteroffer operates as both a rejection that terminates the original offer AND as a formation of
a new offer.
b) Mirror Image Rule. Under the common law, the terms in the acceptance MUST match the terms of
the offer exactly – otherwise it is not an acceptance, it is a counteroffer (i.e., the terms of the offer
and acceptance must mirror each other exactly).
c) UCC § 2-207 (“Battle of the Forms”). Under the UCC, the acceptance does NOT have to mirror the
offer (i.e., the acceptance can include different or additional terms from those in the offer). UCC §
2-207(1) determines whether the purported acceptance (containing new terms) will operate as an
acceptance or as a counteroffer. It states:
(1) A definite and seasonable expression of acceptance or written confirmation;
(2) Which is sent within a reasonable amount of time;
(3) Operates as an ACCEPTANCE even though it states terms additional to or different from those
offered or agreed upon;
(4) UNLESS acceptance is expressly made conditional upon assent to the additional or different
terms.
UCC § 2-207(2). If the purported acceptance is a valid acceptance under UCC § 2-207(1), the next
issue is whether the additional or different terms in the acceptance will govern the contract or
whether UCC gap fillers will be implemented. Under UCC § 2-207(2), the ADDITIONAL terms (see
distinction between “additional” and “different” terms below) will govern the contract if BOTH
parties are merchants UNLESS:
(1) The initial offer expressly limited acceptance to its terms;
(2) The additional terms materially alter the deal; OR
(3) The offeror objects to the additional terms within a reasonable amount of time.
The Knockout Rule. Most courts apply the knockout rule with UCC § 2-207(2) to determine whether
the new terms control or whether UCC gap fillers must be implemented. Under the knockout rule, a
distinction is made between “different” and “additional” terms.
(1) A different term is a term that was not included in the original offer that conflicts with the
terms of the original offer (e.g., offeree changes the price term from $5,000 to $4,000 and
sends it back to the offeror).
(2) An additional term is a term that was not included in the original offer that does NOT conflict
with the original offer (e.g., offeree adds a choice of law provision that was not included in the
original offer and sends it back to the offeror).
Under the knockout rule, different terms in the original offer and acceptance knock each other out
creating a gap in the contract. UCC gap fillers are then used to plug this gap (regardless of
whether the parties are merchants). The knockout rule does not apply to additional terms added
by the offeree. UCC § 2-207(2) will determine whether the additional terms control or whether UCC
gap fillers must be implemented.
II. Formation of Contracts
B. Consideration
- Consideration 05.7%
a) To form a traditional, enforceable contract, the agreement must be supported by consideration.
Consideration involves a transfer of legal value in a bargained-for exchange. Consideration is
present if:
(1) The promisee incurs a legal detriment OR the promisor receives a legal benefit (most courts
only focus on whether the promisee incurred a legal detriment irrespective of whether the
promisor received a benefit); AND
(a) A legal detriment generally consists of:
(i) Promising to do something the party has no prior legal duty to do;
(ii) Performing an action that the party is not otherwise obligated to undertake; OR
(iii) Refraining from or promising to refrain from exercising a legal right which the party
is otherwise entitled to exercise.
(b) Promising not to sue (settlement of a legal claim) will constitute a legal detriment so
long as the party promising not to sue has an honest and good faith belief in the validity
of the claim.
(2) The promise induces the detriment AND the detriment induces the promise (i.e., a
“bargained-for exchange”).
b) Gift promises are NOT consideration (e.g., A promises to give B his truck for free. Here, B incurs no
legal detriment and A’s promise to give B his truck is not induced by any action or forbearance
from B. This is a gift promise, not bargained-for consideration.).
c) Conditional gift promises are NOT consideration (e.g., A promises to give B his truck if B will drive 30
minutes away to pick the truck up from A’s house. Here, A’s promise to give B his truck is not
induced by B coming to pick the truck up. Thus, A is not bargaining for B to come. This is a
conditional gift, not bargained-for consideration.).
d) Preexisting legal duties are NOT consideration (e.g., A promises to pay B $100 if B refrains from
smoking crack-cocaine for 6 months. Here, B already has a preexisting legal duty imposed by law
to refrain from smoking crack-cocaine. Thus, B incurs no legal detriment, which means
consideration is not present.).
e) Past consideration is NOT consideration (e.g., A’s truck catches fire as A is demonstrating the
truck’s safety features to B. After the fire erupts, B rushes over and extinguishes the flames saving
A’s life. Grateful, A promises to pay B $100 for the rescue. Here, B’s detriment (saving A’s life) was not
induced by A’s promise. This is past consideration, not bargained-for consideration.).
f) A pretense of consideration is NOT consideration (e.g., A and B are cousins. A wishes to give B his
truck that is valued at $10,000 as a gift for B’s birthday. Attempting to form an enforceable contract,
A “sells” B his truck for $1 solely to meet the consideration requirement. Here, A is not induced to give
B his truck for the $1. This is merely a pretense of consideration, not bargained-for consideration.).
g) An illusory promise is NOT consideration (e.g., A promises to buy B’s truck if “he feels like it.” Here, A
is not committing to the deal. This is an illusory promise, not bargained-for consideration.).
II. Formation of Contracts
B. Consideration
2. Contract Modification and the Preexisting Duty Rule
a) Under the common law, contract modifications MUST be supported by consideration. The common
law follows the preexisting duty rule, which means that a promise to do something that a party is
already legally obligated to do (by contract or otherwise) is NOT consideration.
(1) Watch out for this Bar Exam trick: Alex rents an apartment from Slumlord for one year at a
rent of $1,500 per month. Later that year, Alex (running short on cash) and Slumlord both agree
to modify the rent to $1,000 per month. Here, under the common law, Slumlord can sue Alex at
the end of the month for the extra $500, because there was no consideration for the
modification of the contract (Alex had a preexisting legal duty to pay the full $1,500).
b) Under the UCC, there is no consideration requirement. A contract modification is valid if it is made
in good faith (i.e., the UCC does NOT apply the preexisting duty rule).
II. Formation of Contracts
C. Consideration Substitutes (Alternative Theories of Enforcement)
1. Promissory Estoppel
a) Promises that lack consideration may still be enforced under the doctrine of promissory estoppel if:
(1) The promisor should reasonably expect the promise to induce action or forbearance from the
promisee;
(2) The promise does induce such action or forbearance to the promisee’s detriment; AND
(3) Injustice can be avoided only by enforcement of the promise.
b) Under the restatement approach, the remedy granted for promissory estoppel may be limited as
justice requires. Courts that follow the restatement approach usually limit the plaintiff’s recovery to
the monetary value of the losses incurred in reliance on the promisor’s promise (i.e., reliance
damages).
c) Promissory estoppel often arises in fact patterns where gift promises that lack consideration are
made to charity organizations. Under the second restatement, a charitable subscription (i.e., a
written promise) or a marriage settlement is binding without proof that the promise induced
action or forbearance
II. Formation of Contracts
C. Consideration Substitutes (Alternative Theories of Enforcement)
2. Quasi-Contract
a) Contracts that lack consideration (“quasi-contracts”) may be enforced to avoid unfair results if:
(1) The plaintiff confers a measurable benefit on the defendant;
(2) The plaintiff reasonably expected to get paid; AND
(3) It would be unfair to let the defendant keep the benefit without paying.
b) Under a quasi-contract theory, the plaintiff’s recovery is limited to restitution (i.e., an amount equal
to the economic benefit that the plaintiff conferred on the defendant).
II. Formation of Contracts
C. Consideration Substitutes (Alternative Theories of Enforcement)
3. Moral Obligation + Subsequent Promise
a) A few jurisdictions have some case law suggesting that a moral obligation plus a subsequent
promise can be binding. Normally, this type of promise would be past consideration and thus
nonbinding (e.g., Tom’s truck catches fire. Brady rushes over and extinguishes the flames saving
Tom’s life. Grateful, Tom promises to pay Brady $100 for the rescue. Here, this is NOT bargained-for-
consideration. However, Brady could argue that the promise should be enforced due to the strong moral obligation involved.).
D. Defenses to Contract Formation
1. Incapacity
a) A party must have capacity to enter into a contract. There are three main types of incapacity
(infancy, mental illness, and intoxication).
b) Infancy. Unless a statute provides otherwise, a person has the capacity to incur only voidable
contractual duties until the beginning of the day before the person turns 18. I.e., if a minor enters
into a contract with an adult, the minor may choose to either:
(1) Disaffirm (rescind) the contract and avoid liability under it; OR
(a) If the minor chooses to disaffirm the contract, the minor must return anything that he
received under the contract that still remains in his possession at the time of
disaffirmance (there is no obligation to return anything that has been negligently
squandered or destroyed).
(2) Affirm (enforce) the contract and hold the adult party liable under it.
(a) A minor may affirm the contract expressly or implicitly by failing to disaffirm the contract
within a reasonable amount of time after turning 18 thereby ratifying the contract.
c) Mental Illness. A person incurs only voidable contractual duties by entering into a transaction if by
reason of mental illness or defect, the individual is unable to:
(1) Understand in a reasonable manner the nature and consequences of the transaction, OR
(2) Act in a reasonable manner in relation to the transaction AND the other party has reason to
know of his condition.
If the mentally ill party wishes to avoid liability under the contract, he may disaffirm the contract
when lucid or by his legal representative. However, a party to a contract who is mentally ill CANNOT
disaffirm the contract if:
(1) The contract was made on fair terms; AND
(2) The other party is without knowledge of the mental illness or defect (e.g., the the mentally ill
party is in a lucid state at the time of contracting).
d) Intoxication. A person incurs only voidable contractual duties by entering into a transaction if the
other party has reason to know that due to intoxication, the individual is unable to:
(1) Understand in a reasonable manner the nature and consequences of the transaction, OR
(2) Act in a reasonable manner in relation to the transaction.
If the intoxicated party wishes to avoid liability under the contract, he must act promptly upon
recovery to disaffirm the contract and is required to return any value received, if possible.
e) Necessaries Doctrine. When necessaries (e.g., food, shelter, clothing, healthcare, etc.) are furnished
to a party who lacks capacity (i.e., minors, mentally ill parties, and intoxicated parties), the party
who lacks capacity is liable for the reasonable value of the services or goods (not the agreed-
upon price) under a quasi-contract theory of restitutionary recovery.
D. Defenses to Contract Formation
2. Mistake
assumption on which the agreement is made. The adversely affected party may rescind the deal if:
(1) There is a mistake of fact, existing at the time that the deal is made;
(2) The mistake relates to a basic assumption of the contract;
(3) The mistake has a material impact on the deal; AND
(4) The impacted party did NOT assume the risk of mistake.
(a) The impacted party assumes the risk of mistake when:
(i) He is aware, at the time the contract is made, that he has only limited knowledge
regarding the facts to which the mistake relates but treats his limited knowledge as
sufficient; OR
(ii) The risk is allocated to him by agreement of the parties (e.g., “as is” contracts).
b) Unilateral Mistake. A unilateral mistake is a mistake made by one party that is unknown to the
other party. The adversely affected party may rescind the deal if:
(1) There is a mistake of fact, existing at the time that the deal is made;
(2) The mistake relates to a basic assumption of the contract;
(3) The mistake has a material impact on the deal;
(4) The impacted party did NOT assume the risk of mistake; AND
(5) The mistake would make the contract unconscionable OR the other side knew of, had reason
to know of, or caused the mistake.
D. Defenses to Contract Formation
3. Misrepresentation
a) A misrepresentation is a statement at the time of contracting that is NOT TRUE. It can be
intentional (fraudulent) or accidental. To assert this defense, the party must show:
(1) A misrepresentation of a present fact (not opinion);
(2) That is material OR fraudulent (knowingly or reckless); AND
(3) That is made under circumstances in which it is justifiable to rely on the representation.
D. Defenses to Contract Formation
4. Duress and Undue Influence
a) Duress. A contract is VOID if a party to the contract is compelled by physical duress, such as the
threat to inflict physical harm (e.g., “Sign this or I’ll break your legs with my baseball bat.”).
Otherwise, a contract is VOIDABLE by the adversely affected party if the adversely affected party’s
assent is induced by an improper threat that leaves the adversely affected party no reasonable
alternative. A threat is improper if:
(1) What is threatened is a crime or tort, or the threat itself would be a crime or tort if it resulted in
obtaining property;
(2) What is threatened is a criminal prosecution;
(3) What is threatened the use of civil process AND the threat is made in bad faith;
(4) The threat is a breach of the duty of good faith and fair dealing under a contract with the
recipient; OR
(5) The resulting exchange is NOT on fair terms; AND
(a) The threatened act would harm the recipient and would not significantly benefit the party
making the threat;
(b) The effectiveness of the threat in inducing the manifestation of assent is significantly
increased by prior unfair dealing by the party making the threat; OR
(c) What is threatened is otherwise a use of power for illegitimate ends.
b) Undue Influence. A contract is VOIDABLE by the adversely affected party if the adversely affected
party’s assent is induced:
(1) Due to the adversely affected party’s susceptibility to pressure; AND
(2) The other side’s application of excessive pressure.
D. Defenses to Contract Formation
5. Illegality
a) If the consideration or performance under a contract is illegal or contrary to public policy, the
contract is VOID and will not be enforced (e.g., a contract to commit murder). However, a contract
entered into in furtherance of an illegal purpose will generally be enforced (e.g., hiring an
unsuspecting taxi driver to get somewhere in order to commit a murder).
b) Performance will be discharged if a contract that was legal when formed subsequently becomes
illegal.
D. Defenses to Contract Formation
Unconscionability
a) If a contract is so unfair or oppressive to one party such that it shocks the conscience of the court,
a court may find it unconscionable and refuse to enforce it. There are two types of
unconscionability that courts consider:
(1) Procedural Unconscionability. This type occurs when there is a defect in the bargaining
process (e.g., dominant party applies unfair pressure).
(2) Substantive Unconscionability. This type occurs when the terms of the deal are grossly unfair
and one-sided in one party’s favor.
b) Some courts will only refuse to enforce a contract if both types of unconscionability are present.
Other courts may refuse to enforce a contract if only one type is present.
E. Statute of Frauds
1. Contracts Triggering The Statute of Frauds
MY LEGS
a) The following contracts are NOT valid unless they satisfy the statute of frauds (usually requires that
the contract be a signed writing):
(1) Marriage. A contract made in consideration of marriage (e.g., a prenup);
(2) Suretyship. A contract promising to guarantee the debt of another;
(a) Main Purpose Exception. If the main purpose in agreeing to pay the debt of another is for
the guarantor’s own economic advantage, then the Statute of Frauds does NOT apply.
(3) One Year. A contract that by its terms cannot be performed within one year from its making;
(a) The one-year provision is interpreted very narrowly – there must be no possible way that
the contract could be performed within one year from the time the contract is formed
(e.g., A hires B to teach him contract law “for the rest of A’s life” – the statute of frauds is
not triggered under the one-year provision because A could die at any time before one
year passes).
(4) UCC. A contract for the purchase or sale of goods for $500 or more; AND
(5) Real Estate. A contract to transfer, receive, or create an interest in real estate.
b) Modifications. The statute of frauds applies to a modification ONLY IF the contract as modified (not
the original contract) falls within the statute of frauds.
E. Statute of Frauds
2. Satisfying the Statute of Frauds
a) Once it is determined that the statute of frauds is triggered (see above), the next issue is whether
the statute of frauds has been satisfied. There are two main ways to satisfy the statute of frauds –
by writing and by performance.
b) Satisfaction by Writing. A writing will satisfy the statute of frauds if the writing:
(1) Is signed by the party against whom enforcement is sought;
(2) Shows that a contract was formed; AND
(3) Includes the requisite terms.
(a) The requisite terms under the common law are parties, subject, quantity, and price. The
requisite terms under the UCC are parties, subject, and quantity.
c) Satisfaction by Performance. The performance required to satisfy the statute of frauds depends on
the type of contract involved:
(1) Services Contracts under the One-Year Provision. Under the common law, FULL performance
of a services contract by either side satisfies the statute of frauds. Part performance does NOT
satisfy the statute of frauds.
(2) Contracts to Transfer, Receive, or Create an Interest in Real Estate. In most jurisdictions, real
estate contracts can satisfy the statute if:
(a) The seller FULLY performs (i.e., conveys the land to the buyer); OR
(b) The buyer performs two of the following three actions:
(i) The buyer takes possession of the property;
(ii) The buyer makes payment in full or part; AND/OR
(iii) The buyer makes substantial improvements to the land.
(3) UCC Goods Contracts for $500 or More. There are four main ways a contract can satisfy the
statute of frauds under the UCC (“P.A.W.S.”):
(a) Performance. Under UCC § 2-201(3)(c), the statute of frauds is satisfied for the quantity
of goods for which payment has been made and accepted or which have been received
and accepted (the contract is not enforceable under this provision beyond the quantity
of goods for which payment has been made and accepted or which have been received
and accepted).
(b) Admission in Court. Under UCC § 2-201(3)(b), the statute of frauds is satisfied if the party
against whom enforcement is sought admits in his pleading, testimony, or otherwise in
court that a contract for sale was made (the contract is not enforceable under this
provision beyond the quantity of goods admitted).
(c) Written Confirmation between Merchants. Under UCC § 2-201(2), the statute of frauds is
satisfied if:
(i) After an oral agreement between merchants;
(ii) Either party sends a signed, written confirmation of the oral contract (must be
signed by the sender); AND
(iii) The written confirmation is received by the other merchant to the oral agreement;
UNLESS
(iv) The party receiving the written confirmation gives a written notice of objection
within 10 days after receipt of the written confirmation.
(d) Specially Manufactured Goods. Under UCC § 2-201(3)(a), the statute of frauds is satisfied
when a seller makes a “substantial beginning” toward manufacture of custom goods
that are to be specially made for the buyer and are not suitable for sale to others in the
ordinary course of the seller’s business under circumstances that reasonably indicate
that the goods are for the buyer.
III. Performance
A. Parol Evidence and Interpretation
a) When the parties to a contract express their agreement in a writing with the intent that it embody
the final expression of their bargain, the writing is an integration. If the writing is not an integration
(e.g., non-final expressions such as tentative drafts), the PER does NOT apply. Otherwise, an
integration may be complete or partial:
(1) Complete Integration. If the writing completely expresses all of the terms of the parties’
agreement, then it is a complete integration. ALL other expressions or statements, written or
oral, made prior to the writing, as well as any oral expressions made contemporaneously with
the writing, are inadmissible.
(a) Merger Clause. A merger clause recites that the agreement is the complete agreement
between the parties. This is usually strong evidence that the writing is a complete
integration.
(2) Partial Integration. If the writing sets forth the parties’ agreement about some terms, but not
all the terms, then it is a partial integration. Other expressions or statements, written or oral,
made prior to the writing, as well as any oral expressions made contemporaneously with the
writing, are admissible to supplement the writing so long as the evidence does NOT contradict
the terms of the writing.
The PER does NOT apply if any of the following exceptions exist:
(1) Defenses. Extrinsic evidence may be offered to establish a defense to the formation or
enforcement of a contract (e.g., incapacity, mistake, duress, lack of consideration, etc.).
(2) Separate Deals. Extrinsic evidence may be offered if it represents a distinct and separate
contract.
(3) Condition Precedents. Extrinsic evidence may be offered if a party asserts that there was an
oral agreement that the written contract would not become effective until a condition
occurred.
(4) Ambiguity and Interpretation. Extrinsic evidence may be offered for the purpose of
interpreting or clarifying an ambiguity in the agreement.
c) NOTE. The PER does NOT apply to agreements made between the parties AFTER the the execution
of the writing. Agreements made after the execution of the writing would be analyzed as contract
modifications, and do NOT trigger the PER.
B. Warranties
1. Express Warranties
a) Under the UCC, express warranties by the seller are created as follows:
(1) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods
and becomes part of the basis of the bargain creates an express warranty that the goods
shall conform to the affirmation or promise.
(2) Any description of the goods which is made part of the basis of the bargain creates an
express warranty that the goods shall conform to the description.
(3) Any sample or model which is made part of the basis of the bargain creates an express
warranty that the whole of the goods shall conform to the sample or model.
b) Disclaimer. Disclaimers that grossly conflict with express warranties are unenforceable (e.g., broad
disclaimers such as, “all warranties, express or implied, are disclaimed” are not enforceable). A
seller is liable for breach of contract if she violates an express warranty.
