Flashcards in Contracts 4 - SOF and Interpretation Deck (101):
Statute of Frauds
Contract must be evidenced by a writing signed by the party against whom enforcement is sought.
3 Steps for Evaluating a SOF Issue
1. Does the agreement fall within the SOF?
2. Is the SOF satisfied?
3. Is alternative enforcement available?
6 Categories for SOF
1. Marriage contracts.
2. Contracts not to be performed w/in 1 year of their making.
3. K for the sale of land.
4. K of an executor or administrator to answer for a duty of a decedent.
5. K of guarantee or suretyship.
6. K for sale of goods >$500
Contracts Not to Be Performed Within 1 Year
From the date of making rather than the date of beginning performance. Question is whether it is at all possible to complete the required performance within a year.
Present Conveyance of Land Promised for Money
Is outside of the land provision of the SOF
Real Estate Brokerage Agreements
Are service contracts so not governed by SOF.
Land Sale Contracts
Are governed by SOF if it's a future sale of land or lease of real property.
Must be in writing except:
(1) When the creditor discharges the original debtor from his obligation on the faith of a guarantee by a 3rd party to pay the debt.
(2) Main purpose doctrine. The main purpose of the guarantor is to protect his own economic interests.
Writing Requirement - Timing
Can be written any time before, during, or after contract formation.
All that is necessary is writing be a memorandum of the agreement. E.g.: (1) a letter from one party to a 3rd party describing the agreement.
(2) A written offer, acceptance of which formed the K.
(3) A letter from one of the parties repudiating, but so admitting the agreement.
Writing Requirement - Necessities
(1) The identity of the parties to the trans.
(2) The nature and subject matter of the K.
(3) The essential terms of the agreement such as price and date of performance.
Required Description under the Land Provision
Traditionally needed a formal legal description of the land, some courts now allow an address or other description of the property.
Just needs a symbol or mark used with the intention to authenticate the writing. E.g. initials, stamped or pre-printed signature, or even letterhead.
Tacking Together Multiple Documents
A party may satisfy SOF by using several documents that once combined satisfy all the necessary requirements.
Tacking Together - Signatures
(1) If all docs are signed, or a signed doc incorporates unsigned docs by reference, SOF is satisfied.
(2) If unsigned docs are not incorporated, the signed and unsigned docs satisfy SOF if: (a) Must be at least 1 signed writing unambiguously establishing a K between the parties; (b) Signed an unsigned docs clearly refer to same subject matter; and (c) must be clear and convincing evidence of acquiescence to the unsigned docs by the party against whom enforcement is sought.
SOF may be satisfied with respect to some of the categories via part performance.
Part Performance - Land Contracts
Requires a showing of any or all three:
(1) Payment of all or part of the purchase price.
(2) Taking of possession.
(3) Making substantial improvements to the property.
Part Performance - 1 year+ K's
(1) If fully performed, then an oral K not to be performed in 1 yr becomes enforceable.
(2) If only partially performed, oral 1 yr+ K is not enforceable.
(3) Quantum Meruit is a possible workaround to part performance.
Quasi Contract / Unjust Enrichment
Where one party bestows benefits upon another in connection with an oral K, even if K is barred by SOF, the aggrieved party may recover the value of the benefits incurred.
May be available for detrimental reliance for losses suffered on the faith of an oral K that is unenforceable. Likely if a party promises the other party he will create a signed writing but doesn't actually do it.
Ways to Satisfy UCC SOF - Signed Writing
2. Signed by party against whom enforcement is sought.
3. Must be sufficient to indicate a K for sale has been made between parties. Writing affords basis for believing the oral evidence rests on a real transaction.
4. Must have quantity term. K is unenforceable beyond stated quantity. Except when: (a) other language in writing provides unambiguous basis for measuring the quantity, or (b) output or requirements K's
UCC SOF and Written Offers
Written offers dont satisfy because they dont show a K has been made. A Firm Offer is ok though.
Ways to Satisfy UCC SOF - Merchant's Confirmation
2 merchants and one sends written confirmation, if other fails to send written notice of objection within 10 days:
(1) Confirmation is signed and contains quantity term.
(2) Writing is confirmation of oral K.
(3) Sent w/in a reasonable time of formation.
(4) Must be based on real agreement or discussion and must actually be received.
Ways to Satisfy UCC SOF - In-court Admission/Judicial Estoppel
A party admits in his pleading, testimony, or otherwise in court that a K for sale had been made. K is only enforceable up to the quantity admitted.
Ways to Satisfy UCC SOF - Partial Performance
Works for goods for which payment has been both made an accepted and goods which have been received and accepted. If divisible goods only quantity delivered or paid for, if indivisible good then partial payment renders K fully enforceable.
Ways to Satisfy UCC SOF - Specially Manufactured Goods
(1) The goods are to be specially manufactured for the buyer.
(2) The goods are not suitable for sale to others in the ordinary course of the seller's business.
(3) Seller has substantially begun to manufacture, or made commitments to procure the goods.
(4) The actions undertaken to begin manufacture or procure occurred under circumstances which reasonably indicate that the goods are for the buyer; and
(5) Those actions occurred before the seller received notice of buyer's revocation.
UCC SOF - Promissory Estoppel
1. Majority of courts hold PE is available if a strong case of reliance is shown.
2. Minority say UCC precludes PE.
3. All courts protect general contractors with PE with oral sub contracts.
K's barred by SOF may still be useful in:
(1) Providing evidence in establishing an element of a legal claim other than breach of contract.
(2) Providing evidence establishing a defense to a legal claim apart from breach.
(3) Evidence of the value of the services already rendered.
What judges use to fill in gaps when a K doesn't address a matter. Parties are free to set those rules aside by contracting otherwise though.
Implied Warranty of Title
(1) Good title to the goods.
(2) Rightful transfer of the goods.
(3) No liens are attached to the goods.
Warranty can be excluded or modified by:
(a) specific language
(b) Circumstances which give the buyer reason to know the seller does not claim unencumbered title
Implied Warranty of Merchantability
Only if seller is merchant. Guarantees that the goods are fit for the ordinary purposes for which those goods would be used. Can be displaced with specific mention of merchantability and conspicuous disclaimer or other language or circumstances such as "as is" or "any patent defects"
Implied Warranty of Fitness for a Particular Purpose
Goods being sold are fit for the particular purpose for which the buyer intends to use them when seller has good reason to know:
(1) The particular purpose; and
(2) The buyer is relying on the seller's skill or judgment to select or furnish reasonable goods.
Can be negated by clear and conspicuous disclaimer or if goods have patent defects which were easily detectable.
K can create warranty by:
(1) Any affirmation of fact or promise
(2) Any description of the goods.
(3) Any sample or model.
But a mere affirmation of the value of goods or huffing doesn't create a warranty.
UCC Missing Price Term
Default rule is a reasonable price at the time established by the contract for delivery.
UCC Missing Time Term
Default rule is a reasonable time.
UCC Missing Place of Delivery
Default is seller's place of business.
Common Law Missing Price Term
A reasonable value for the services rendered.
Common Law Missing Duration Term
The employment is at will.
Honesty in fact. And for a merchant observance of reasonable commercial standards of fair dealing in the trade.
Good Faith - Open Price Term
If K leaves price to be fixed by one party, party must fix the price in good faith.
Good Faith - Satisfaction Term
If K contains a satisfaction clause, the determination as to whether a party's performance obligation is complete must be exercised in good faith.
Good Faith - Open Quantity Term
In output and requirements K's party demanding delivery of requirements or demanding purchase of outputs must determine that quantity in good faith. UCC prohibits unreasonably disproportionate demand or tender if there was a stated estimate or past course of dealing.
Objective meaning trumps subjective meaning except where:
(1) One party has reason to know of the other's subjective understanding.
(2) At time of K both parties had same subjective understanding.
If K was drafted by one of the parties, a case of doubt over an ambiguous term is construed against the drafter.
Doctrine of Reasonable Expectations
Even unambiguous terms may be interpreted against drafting party if they conflict with the reasonable expectations of the third party. Usually like insurance K's. Defeats enforceability of boilerplate terms which are inconsistent with reasonable expectations of purchaser.
Usage of Trade
Any practice or method of dealing having such regularity of observance in a place or trade as to justify an expectation that it will be observed with respect to the transaction in question.
Course of Dealing
A pattern of conduct concerning previous transactions between the parties that is fairly to be regarded as establishing a common basis of understanding for interpreting their subsequent expressions and other conduct.
Course of Performance
When a particular K involves repeated occasions for performance by a party, and the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection. Can establish a wavier or modification of even express terms.
Parol Evidence Rule
Governs the admissibility of both oral and documentary evidence of negotiations and other communications between the parties that took place prior too or contemporaneously with the execution of the K.
Parol Evidence Analysis
(1) What is the purpose for which the evidence is being introduced?
(2) Does the evidence relate to a term or contract which is integrated?
The terms contained in the K are intended to be the final expression of those specific terms.
The parties intended the contract to represent a complete and exclusive statement of all the terms.
Evidence that a K is completely integrated if contains merger clause saying "the writing contains the complete and entire agreement of the parties" or words to that effect.
PER - To explain or interpret terms of a written contract
Parol evidence is always admissible for this purpose.
PER - To supplement the terms of a written contract
Parol evidence is admissible for this purpose unless the K is completely integrated.
UCC - Completely Integrated K's
Trade usage, course of dealings, and course of performance can supplement even a completely integrated agreement.
PER - To Contradict Terms of a Written Contract
Parol evidence is not admissible for this purpose if the terms in question are integrated.
When PER Doesn't Apply
(1) Subsequent agreements entered into after the execution of the written document.
(2) Collateral agreements between the parties that are entirely distinct from the contract at issue.
(3) Attack on the validity of the written agreement.
Ways to attack validity of an agreement with parol evidence
(1) Failure of an oral condition precedent to the agreement.
(2) Absence of Consideration
(3) Mistake or Duress
Where parties to a sale of goods contract agree to use a common carrier. e.g. ups
Where parties to a sale of goods contract do not agree to use a common carrier.
Risk of Loss in Non-Carrier Cases
(1) Seller non-merchant, risk of loss passes to the buyer upon tender of the delivery.
(2) Seller is merchant, risk of loss passes to buyer only when the goods are physically in the buyer's possession.
Is a K where the seller promises to turn the goods over to a carrier. If a K is silent to this it will be a shipment contract.
Is a K where the seller promises to tender delivery at a particular destination point.
Risk of Loss Shipment Contract
The risk of loss passes to the buyer when the goods are delivered to the carrier. Identified as FOB seller.
Risk of Loss Destination Contract
The risk of loss passes to the buyer when the goods are tendered at the destination point specified in the K. Identified as FOB Buyer.
Preexisting Duty Rule
A promise to increase compensation for duties already owed under an existing K is an unenforceable modification because there's no new consideration.
(1) Both parties agree to a performance that is different from the one required by the original K.
(2) The difference in performance is not a mere pretense of a newly formed bargain.
Preexisting Duty Rule - Unforeseen Circumstances
Rule will not apply if a promise of increased compensation is given in exchange for a promised performance that has been rendered substantially more burdensome than reasonably anticipated at formation.
Modification under UCC
An agreement modifying an existing K for the sale of goods needs no consideration as long as there is good faith. Even if consideration, a modification is unenforceable if the appearance of the mutual bargain is merely a pretext to hid a bad faith change of terms.
Mistake - Materiality
Mistaken facts must significantly impact the value of the transaction to one or both parties.
Is not excused except:
(1) Where the other party knew or had reason to know of the party's mistake.
(2) Where there's been a serious or almost unconscionable clerical error. Unless error was caused by extreme negligence on part of the party making the error or if the other party relied on the clerical error.
K is voidable by disadvantaged party when:
(1) Mistaken assumption relates to material facts;
(2) Mistake must be made by both parties; and
(3) The disadvantaged party did not bare the risk of mistake under the parties' agreement.
(1) Impossibility must be for anyone because of circumstances beyond control of parties. E.g. subject matter of k is destroyed, performing party has died or become incapacitated, supervening law has rendered performance illegal.
(2) The contingency that created impossibility was not know at the time of making the K.
(1) the contingency causing the impracticability was unforeseen.
(2) The increase in the cost or burden of performance would be far beyond what either party anticipated.
E.g. shortages caused by war or embargo, local crop failure, or unforeseen shutdown of major sources of supply.
Frustration of Purpose
(1) Parties principal purpose in entering the K is frustrated.
(2) Frustration is substantial in nature.
(3) The non-occurrence of the event precipitating frustration must have been a basic assumption of the contract.
Is permissible where both parties are mid performance; the consideration is provided by each parties' discharge of the other's duties.
Accord and Satisfaction
Parties may make an accord under which the obligee promises to accept substitute of performance in satisfaction of the obligor's existing duty.
Accord and Satisfaction - Consdieration
Must be sufficient consideration if the substituted performance differs significantly or its obligation is doubtful or where there's partial payment there must be a good faith or bona fide dispute about the amount owed.
If a party definitively states indicating it will commit a breach of contract or a voluntary act that renders the party unable to perform its contractual obligations.
Adequate Assurance of Performance
If anticipatory repudiation cannot be established but there are reasonable grounds for insecurity, the insecure party may make a demand for adequate assurance of performance.
Suspension of Performance by an Insecure Party
Upon making a demand for assurance, a party with reasonable grounds for insecurity may suspend his own performance so long as it is commercially reasonable to do so.
Failure to Respond with Reasonable Assurances
Constitutes a repudiation by the non-responding party. Can occur when party doesn't respond in a reasonable time (30 days under UCC) or does not respond ina way that provides reasonable assurance.
Rights of the Aggrieved Party upon Repudiation
(1) Can cancel the K and terminate all rights and obligations under it.
(2) Can bring an action for damages or specific performance.
(3) Can ignore the repudiation and continue under the K.
Retraction of A Repudiation
Can be retracted unless and until the other party:
(1) Acts in reliance on the repudiation
(2) Accepts the repudiation by signaling this to be a breach
(3) Commencing a suit for damages or specific performance
Where the K performance is conditioned on the occurrence of the promised performance by the other party.
Where the K performance is conditioned on the occurrence of events beyond the control of either party.
Those that the parties expressly include in provisions of the K.
Fiction employed by the courts to deal with the potential effect of breaches of contract.
Failure of an Express Condition
Will discharge the parties' obligation to perform.
Excusing Failed Express Conditions
(1) Waiver by the party who was excused
(2) Bad faith conduct by a party to prevent the condition.
(3) Gross forfeiture, courts will excuse to avoid grossly disproportionate loss for a relatively minor infraction
Implied Condition - Material Breach
If breach is serious enough, the court will treat the breach in the same way it would treat a failure of an express condition. The aggrieved party is generally discharged from his own performance obligations.
Implied Conditions - Substantial Performance
If the breach is less serious the court will treat the party's performance as close enough and they have rendered substantial performance and the aggrieved party will not be discharged from his own performance obligations.
Factors to distinguish between material breach and substantial performance
(1) The extent to which the aggrieved party will be deprived of the benefit that she reasonably expected to receive under the K
(2) The extent to which the aggrieved party can adequately be compensated via damages
(3) The extent to which the breaching party will suffer forfeiture if a material breach
(4) The likelihood that the breaching party will cure his failure
(5) The extent to which the breach was willful or in bad faith rather than merely negligent or innocent
Where a party failed to fulfill an express condition or is in material breach:
(1) The breaching party may recover the reasonable value of the benefits incurred
(2) Such recovery will be reduced by the damages caused by the breach.
Failure of Condition under UCC
Perfect tender rule - if the goods fail in any respect to conform to the contract, the seller is in breach.
Buyer Options if Seller Fails to Make Perfect Tender - Reject the goods
(1) Reject within a reasonable time after deliver and notify the seller.
(2) Once rejected, bring action for damages against seller, unless cure applies.
(3) If he doesn't reject its deemed an acceptance.
Buyer Options if Seller Fails to Make Perfect Tender - Accept the Goods
(1) Buyer must pay the contract price for goods
(2) Buyer may seek damages for any non-conformity so long as the seller has been seasonably notified.
When Buyer can Revoke Acceptance of Non-conforming Goods
(1) The reason for the acceptance was that the buyer was unaware of the non-conformity; or
(2) The seller assured the buyer that a known non-conformity would be cured by the seller failed to do so.
Right to Cure
If a seller makes a non-conforming tender, but time for performance remains under the K, the seller may substitute conforming goods if:
(1) Seller must give buyer seasonable notice of his intention to cure
(2) Seller must make conforming delivery within the time specified by K