Contracts and Sales from lecture Flashcards
1
Q
Seven General Issues
A
- Applicable law; 2. Formation of contracts (1/3 of questions on bar exam); 3. Terms of contract; 4. Performance; 5. Remedies for unexcused nonperformance; 6. Excuse of nonperformance; 7. Third-party problems.
2
Q
Mneumonic for 7 general issues
A
Armadillos from Texas play rap, eating tacos.
3
Q
Unilateral contracts definition:
A
results from AN OFFER that expressly requires performance AS THE ONLY POSSIBLE METHOD OF ACCEPTANCE.
4
Q
Bilateral contract definition:
A
All other (other than unilateral) offers. Usually offer is silent as to the method of acceptance.
5
Q
A contract is a bilateral contract unless:
A
- reward, prize, contest; 2. offer expressly requires PERFORMANCE FOR ACCEPTANCE.
6
Q
Quasi contract is what?
A
An equitable remedy–not a contract at all.
7
Q
First step on exam is to ask yourself what?
A
What law do I apply: Applicable Law
8
Q
What are the choices of applicable law on a contracts question?
A
- Common law; 2. Article 2 of the UCC
9
Q
What does Article 2 apply to?
A
Applies to contracts that are primarily for sale of goods.
10
Q
What are the factors that determine whether Article 2 applies?
A
- type of transaction (sale); and 2. subject matter of transaction (goods, i.e., tangible, personal property.)
11
Q
What is not included in the term goods for purposes of Article 2?
A
real estate and service contracts.
12
Q
What sale of goods does Article 2 cover?
A
All sale of goods, regardless of the amount of money involved and whether the buyer and seller are merchants.
13
Q
What law is applicable to a mixed deal where you have one agreement but it covers both goods and services?
A
General rule: all or nothing. We pick one body of law to apply to the entire deal (both goods and services). We choose the most important part of the deal (goods or services) to determine what body of law applies.
14
Q
What is the exception to the all or nothing rule regarding what law is applicable?
A
If contract DIVIDES PAYMENT, then apply UCC to sale of goods part and common law to the rest.
15
Q
On the bar exam, there is no responsibility for what?
A
- revised article 2–no state has adopted it; 2. Article 2A of UCC (if your state does cover it it will be in state materials provided by barbri)
16
Q
Contract definition:
A
A contract is an AGREEMENT that is LEGALLY ENFORCEABLE.
17
Q
On the bar exam, when looking for an agreement, watch for information in the question about:
A
- the initial communication (offer) and 2. what happens after the initial communication (termination of the offer) and 3. who responds and how she responds (acceptance).
18
Q
Steps in analyzing the Formation of a Contract:
A
- Is the communication an offer; 2. Was the offer terminated?; 3. Acceptance of an offer; 4. Legally enforceable.
19
Q
What test do we use to deterimine if the initial communication is an offer for the purpose of forming a contract?
A
General test: Manifestation of commitment
20
Q
What is the manifestation of commitment test?
A
An offer is a manifestation of intention of one person to contract–words or conduct showing commitment by one person. The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract.
21
Q
An offer creates what?
A
A legal obligation on the part of the offeror. The offeree does not have an obligation, but has an opportunity.
22
Q
Specific problems regarding offer that comes up on the bar exam include issues concerning:
A
- Content; 2. Context
23
Q
Content issues that affect whether or not an offer has been made:
A
- Missing price term in a sales contract; 2. Vague or ambiguous MATERIAL terms; 3. Requirement contracts/output contracts.
24
Q
What is the effect of a missing price term in a sales contract?
A
Sale of real estate (common law) requires a price and description to be an offer. 2. Sale of goods (Article 2) has no price requirement.
25
What is the rule about vague or ambiguous MATERIAL terms in a sales contract?
Not an offer under either common law or UCC.
26
What are examples of vague or ambiguous material terms?
Appropriate, fair, reasonable.
27
What is a requirements/output contract?
A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer's requirements or seller's output. Requirement/output contracts are not vague or ambiguous and are valid.
28
What words would you look for in a requirements/output contract?
all, only, exclusively, solely
29
When is an increase in a requirements/output contract allowable?
Buyer can increase requirements so long as the increase is in line with prior demands. No unnecessarily disproportionate limitation on increases.
30
What is the general rule regarding context of an offer?
An advertisement or price quotation is NOT an offer.
31
What are the exceptions to the rule that advertisements and price quotations are not offers?
1. An advertisement can be a unilateral offer if it is in the nature of a reward (Carbolic Smoke Ball Company promises 100 pound reward to anyone who catches the flu after using its smoke ball as directed; 2. An advertisement can be an offer if it specifies quantity and expressly indicates who can accept (Lefkowitz Department Store advertises "1 fur coat $10--first come, first served"; 3. Price quotation can be an offer if sent in response to an inquiry.
32
What are the 4 methods of terminating an offer?
1. Lapse of time (time stated or reasonable time); 2. Death or incapacity of either party PRIOR TO acceptance (exception: irrevocable offers); 3. Words of conduct of offeror, i.e., revocation of an offer; 4. Words or conduct of the offeree: rejection.
33
How is an offer revoked (2 ways):
1. Later UNAMBIGUOUS statement by offeror to OFFEREE of unwillingness or inability to contract, or 2. Later UNAMBIGUOUS conduct by offeror indicating an unwillingness or inability to contract that OFFEREE is aware of.
34
Revocation does not include:
Making multiple offers--an offeror can make the same offer to multiple people, but the offer remains open to each person until the offer is actually revoked.
35
Which offers are irrevocable?
1. Option; 2. UCC Firm Offer Rule; 3. Reliance; 4. Unilateral contract;
36
What is the difference between irrevocable, revocable, and revoked?
irrevocable=no possibility, revocable=possibility, revoked=actuality
37
What is an option?
Has two components: An offer cannot be revoked if the offeror has not only made an offer but also (1) promised to not revoke (promised to keep the offer open) AND (2) the promise is supported by payment or other consideration ("option")
38
After the time period of an option expires, is the offer revoked?
No, it just becomes revocable.
39
UCC Firm Offer Rule:
An offer cannot be revoked for up to 3 months if 1. offer to buy or sell goods, 2. signed, written promise to keep the offer open, and 3. party is a merchant (business person on the bar exam).
40
What is the difference between an option and a UCC Firm Offer?
No payment of consideration.
41
When does reliance make an offer irrevocable?
If there has been 1. reliance that is 2. reasonably foreseeable and 3. detrimental.
42
When does a unilateral contract become irrevocable?
The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance. (cannot be mere preparation for performance-unless there is detrimental reliance--paint can't be returned)
43
Indirect methods of rejection:
1. counteroffer; 2. conditional acceptance; 3. additional terms to a common law contract
44
What are the rules regarding counteroffers terminating the offer?
Counteroffer generally terminates the offer and creates a new offer. Counteroffers need to be distinguished from bargaining. Bargaining does not terminate the offer. Counteroffers do not terminate options.
45
What should one look for with regard to a conditional acceptance?
A response to an offer with the word "accept" followed by one of these words or phrases: if, only if, provided, so long as, but, or on condition that
46
How do you tell bargaining from counteroffer?
"Will you take $9000?" is bargaining. The critical difference is the form of a question.
47
What is the difference between common law and UCC regarding a conditional acceptance?
Common law: rejects and becomes counteroffer; UCC: rejects
48
Mirror Image Rule:
Under common law, a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance.
49
What is the rule regarding additional or different terms under UCC Article 2?
Not rejection.
50
What is required for a "seasonable expression of acceptance" under UCC?
Under the UCC, a response to an offer that adds additional or different terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance (seasonable expression of acceptance). It does not matter if the parties are merchants or not.
51
Under the UCC, is the additional term a part of the contract?
The additional term is a part of the contract only if 1. both parties are merchants AND 2. additional term is not "material" (fact question) AND 3. the additional term is not objected to by original offeror.
52
What are the rules regarding method of acceptance?
1. The offeror can control the method of acceptance (e.g., offer states that it can only be accepted by performance), the time that a distance acceptance is effective (e.g., offer states that its acceptance is effective only when it has been received at offeror's Richmond office), or whether the offeree must give notice that it has accepted by performance (e.g., acceptance by performance will not be effective until offeror has been so notified.
53
When is start of performance an acceptance for a contract?
Start of performance is an acceptance of a bilateral contract but not a unilateral contract. A unilateral contract is only accepted upon completion of the performance. In a unilateral contract, start of performance does not obligate the offeree to continue. However, the offeror cannot retract because of detrimental reliance by the offeree.
54
Rules regarding distance and delay in communications:
1. All communications OTHER THAN ACCEPTANCE are effective only WHEN RECEIVED; 2. Acceptance is GENERALLY effective WHEN MAILED (mailbox rule); 3. If a rejection is mailed before an acceptance is mailed, then neither is effective until received; 4. You cannot use the mailbox rule to meet an option deadline.
55
What is the rule when a seller of goods sends the "wrong" goods:
General rule: there is a contract because there was acceptance even though there was a breach of the contract.
56
What is the accomodation exception?
When you send wrong goods with an explanation there is no contract and therefore no breach.
57
Generally, an offer can be accepted only by what?
(1) a person who knows about the offer at the time she accepts (2) who is the person to whom it was made.
58
To accept a reward offer, what must be present?
The person must know of the offer. (I offer $500 reward to the person who finds my lost dog. You find the dog and return it, not knowing of the reward. Do I have to give you the reward? No. No contract.
59
What is the rule regarding assignability of offers?
Offer are not assignable, unless they are options.
60
Legal reasons for not enforcing an agreement include:
1. lack of consideration or a consideration substitute for the promise at issue; 2. lack of capacity of the person who made that promise; 3. Statue of Frauds; 4. existing laws that prohibit the performance of the agreement; 5. public policy; 6. misrepresentations; 7. nondisclosure; 8. duress; 9. unconscionability; 10. ambiguity in words of agreement; 11. mistakes at the time of the agreement as to the material facts affecting the agreement.
61
Lack of consideration or a consideration substitute results in what?
An agreement being legally unenforceable.
62
What is consideration?
bargained for legal detriment
63
In dealing with consideration questions on the bar exam, go through the following 3 steps:
1. Identify the promise breaker, i.e., the person who is not doing what she promised to do. 2. Ask whether that person asked for something in return for her promise, i.e., bargained for something. 3. Look at the person who is trying to enforce the promise and ask what legal detriment that person sustained.
64
A legal detriment does not have to be what?
An actual detriment--just means you refrained from doing something you were legally allowed to do.
65
What is the rule regarding promise as consideration?
A promise can be consideration for another promise.
66
What is the illusory promise exception?
An exception to the rule that a promise can be consideration in exchange for a promise. An illusory promise has a condition like if i want to. Never see this on a bar exam because too hard to hide. So if the answer has illusory promise in it, don't pick it.
67
What is the rule regarding adequacy of consideration?
Not relevant in contract law. Mere peppercorn of consideration is enough.
68
What are the most likely consideration issues?
1. Past consideration; 2. Pre-existing contractual or statutory duty rule; 3. Part payment as consideration for release, i.e., promise to forgive balance of debt.
69
What is the rule regarding past consideration?
General rule: not consideration. Can't bargain for somebody to do something they have already done.
70
What is the common law rule for a promise to be consideration where there is a pre-existing contractual or statutory duty?
Doing what you are already doing legally obligated to do is not new consideration for a new promise to pay you more to do merely that. Under common law new consideration is required for contract modification.
71
What are the exceptions to the common law rule regarding a promise being consideration where there is pre-existing contractual or statutory duties?
1. Promise to pay more for additional or change in performance; 2. Unforeseen difficulty so severe as to excuse performance will cause a promise to pay more be legally enforceable; 3. third party promise to pay is the same as the original offeror making the promise with regard to enforceability
72
Instead of consideration, what does the UCC require for a legally enforceable contract?
Article 2 does not have a pre-existing legal duty rule. New consideration is not required to modify a sale of good contract. Good faith is the test for changes to an existing sale of good contract.
73
What is the key to part payment as consideration for release, i.e., promise to forgive balance of debt:
Key is whether debt is due and undisputed. If debt is due and undisputed, then part payment is NOT consideration for release.
74
What are consideration substitutes?
1. A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration (example: collection of debt is barred by statute of limitations, but if the debtor promises to pay, the promise is enforceable even though there is not consideration, as long as it is a written promise.); 2. Promissory estoppel; Seals (not on MBE, may be on state exam.
75
What is another name for promissory estoppel?
detrimental reliance
76
What are the elements of promissory estoppel?
1. Promise; 2. Reliance that is reasonable, detrimental, and foreseeable, and 3. enforcement necessary to avoid injustice.
77
Who lacks capacity to contract?
1. Infant (under 18); 2. Mental incompetents; 3. Intoxicated persons if other party has reason to know.
78
Consequences of incapacity:
Person who lacks capacity has the right to disaffirm the contract. But the person without capacity can enforce the contract. Contract voidable not void.
79
What is the rule of ratification regarding incapacity?
Implied affirmation by retaining benefits after gaining capacity.
80
What is the rule regarding necessaries?
Quasi-contract liability: A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law, not contract law.
81
What is the most important thing that we will cover in BARBRI contracts?
Statue of Frauds: more heavily tested than anything else.
82
What is The Statute of Fraud?
A statute designed to prevent fraudulent claims of the existence of contract. Makes it harder to make such a false or fraudulent claim by requiring the claimant to have proof other than just testimony that a contract exists before the claimant gets its day in court.
83
What is the proof required to satisfy the Statute of Frauds?
1. performance; 2. a writing signed by the person who is asserting that there was no such agreement.
84
What are the four contracts WITHIN the Statute of Frauds:
1. Promises to answer for the debts of another (suretyship); 2. Service contract not "capable" of being performed within a year from the time of the contract (i.e., more than one year); 3. Transfers of interest in real estate (with exception for leases of 1 year or less); 4. Sale of goods for more than $500 ore more.
85
Courts have interpreted the phrase "answer for the debts of another" with what?
Guarantees.
86
What is the main purpose exception for the Statute of Frauds regarding suretyship?
If the "main purpose" of the obligation allegedly guarantee was to benefit the guarantor, then not even that guarantee is within the Statute of Frauds.
87
With regard to the time requirement on Statute of Frauds what should you look out for?
Refers to performance, not time allowed for termination or other.
88
Trick to pay attention to on Statute of Fraud with regard to the time element?
Capable means being able to be performed within a year where you have unlimited resources, even if the actual parties don't have unlimited resources. Also, does not apply to life.
89
If the Statute of Frauds is applicable, then the requirement of the Statute of Frauds must be met (satisfied) in order for the agreement to be enforceable. How is the Statute of Frauds satisfied?
writing or performance
90
What are the situations where satisfaction of the Statute of Frauds can be by performance:
1. Performance and transfer of real estate; 2. Performance and service contracts;
91
What is the rule for Performance and transfer of real estate with regard to Statute of Frauds:
Part performance satisfies the Statute of Frauds in transfers of real estate. Part performance requires any two of the three: 1. improvements to the land, 2. payment, and possession.
92
What is the rule for Performance and services contracts with regard to Statute of Frauds:
Full performance by either party satisfies the Statute of Frauds. Part performance of a services contract does not satisfy the Statute of Frauds. (Always on the bar exam.) So look to Quasi contract.
93
What is the rule for Part performance and sale of ordinary goods with regard to satisfying the Statute of Frauds?
General rule is that part performance of a contract for the sale of goods satisfies the Statute of Frauds, but only to the extent of the part performance. More specifically, look to see if question is about delivered goods or undelivered goods.
94
What is the rule for part performance and sale of ordinary goods when the goods are delivered goods with regard to the satisfaction of the Statute of Frauds?
General rule is that part performance of a contract for the sale of goods satisfies the Statute of Frauds, but only to the extent of the part performance. More specifically, look to see whether the question is about delivered or undelivered goods.
95
What is the rule for Seller's part performance of specially manufactured goods with regard to satisfaction of the Statute of Frauds?
If the contract is for the sale of goods that are to be specially manufactured, then the Statute of Frauds is satisfied as soon as the seller makes a "substantial beginning." This means that the seller has done enough work that it is clear that what she is working on is specially manufactured, i.e., custom made or made to order.
96
What are the rules regarding a writing satisfying the Statute of Frauds?
1. Not every writing satisfies the requirements of the Statute of Frauds and 2. the requirements of the Statute of Frauds can be satisfied without a writing (performance).
97
What writings satisfy the Statute of Frauds (except for sale of goods)?
All material terms test: must be able to answer the questions of who and what from the writing.
98
What writings satisfy the Statute of Frauds for sale of goods/
A writing must simply indicate that there is a contract for the sale of goods and contain the quantity of term (how many). There is no requirement that the price is in the writing, even though Statute of Frauds does not kick in unless the deal is for $500 or more.
99
Judicial admissions for satisfying the Statute of Frauds:
If the defendant asserting a Statute of Frauds defense admits in a pleading or testimony that he had entered into an agreement with the plaintiff, the purpose of the Statute of Frauds -- protection against fraudulent or otherwise false claims of an agreement -- is fulfilled and so the Statute of Frauds is satisfied -- no Statute of Frauds defense.
100
Estoppel for satisfaction of Statute of Frauds:
Some cases hold that the plaintiff's reliance on the defendant's oral promise can estop the defendant from asserting a Statute of Frauds defense. Cases closely divided on this so not on MBE. But may be on the state portion of the exam.
101
When do rules of law require that a person have written authorization in order to execute a contract for someone else.
Equal dignity doctrine: The authorization must be in writing only if the contract be signed is within the Statute of Frauds, i.e., the authorization must be of "equal dignity" with the contract. (If contract is required to be in writing, then authorization is required to be in writing.)
102
When does the law require written proof of a contract modification?
2 steps: 1. look at the deal with the alleged change; 2. determine whether the deal with the alleged change would fit within the Statute of Fraud. If the deal with the alleged change would be within the Statute of Frauds, then the alleged modification agreement must be in writing.
103
What are the rules regarding contract provisions that require written modification?
Under common law: contract provisions requiring that all modifications be in writing are not effective--ignore contract language. Under UCC: contract provisions requiring written modification are effective unless waived.
104
What is the rule for not enforcing an agreement for illegality when the subject matter is illegal?
If the subject matter is illegal, the agreement is not enforceable.
105
What is the rule for not enforcing an agreement for illegality when the purpose is illegal?
If the subject matter is legal, the agreement is enforceable if the plaintiff did not have reason to know of the defendant's illegal purpose.
106
What is a public policy reason for not enforcing a contract?
Exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete without a reasonable need or reasonable time and place limits.
107
What is a misrepresentation that will result in a contract being unenforceable?
Look for 1. a statement of "fact" before the contract, 2. by one of the contracting parties or her agent, 3. that is false, and 4. induces the contract. No wrongdoing required for material misrepresentation. This is used to rescind a contract.
108
What is the rule regarding nondisclosure being a reason to not enforce a contract?
Generally there is no duty to disclose. Exception: fiduciary-like relationship or concealment.
109
When will duress or undue influence result in an unenforceable contract?
1. Physical duress; 2. economic duress: requires a improper threat which is usually threat to breach existing contract and no reasonable alternative (need bad guy and vulnerable guy); 3. Undue influence: look for special relationship between the parties and improper persuasion of the weaker by the stronger.
110
What are the rules regarding unconscionability with regard to unenforceable contract?
This doctrine, originally applicable only to sales of goods but 1. now a part of contract law generally, 2. empowers a court to refuse to enforce all or part of an agreement. The two basic tests are 1. unfair surprise (procedural) and oppressive terms (substantive) are, 2. tested as of the time the agreement was made 3. by the court.
111
What is the rule of not enforcing an agreement due to ambiguity in words of agreement?
There will be no contract if 1. parties use a material term that is open to at least two reasonable interpretations, and 2. each party attaches different meaning to the term, and 3. neither party knows or has reason to know the term is open at least two reasonable interpretations.
112
What is the rule regarding not enforcing a contract due to mistake of fact existing at the time of the contract?
1. Mutual, material mistake of existing fact: no contract. 2. Unilateral mistake of material fact: generally, courts have been reluctant to allow a party to avoid a contract for a mistake made by only one party. There will be relief for situations in which the other party had reason to know of the mistake, i.e., palpable mistake.
113
Integration:
written agreement that court finds is the final agreement, triggers the parol evidence rule
114
Partial integration:
written and final, but not complete (when see this rule of thumb is that this is wrong answer)
115
complete integration:
written and final and complete (when i see this in an answer the rule of thumb is that this is wrong answer)
116
Merger clause:
Contract clause such as, "This is the complete and final agreement."
117
Parol evidence:
1. words of party or parties; 2. before integration, i.e., before agreement was put in written form, 3. oral or written.
118
Parol evidence rule and changing/contradicting terms in the written deal:
Regardless of whether the writing is a complete or partial integration, evidence of earlier agreements is not admissible for the purpose of contradicting the terms in the written contract.
119
Parol evidence rule's effect on statements or writings after the contract:
parol evidence only applicable to statements or writings before or during the contract formation.
120
What is the parol evidence rule regarding mistake in integration, i.e., clerical mistake:
A court may consider evidence of such terms for the limited purposed of determining whether there was a mistake in integration, i.e, a mistake in reducing the agreement to writing.
121
What is the parol evidence rule with regard to defenses, i.e., getting out of a written deal:
Regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier words of the parties for a limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, or duress.
122
How does the parol evidence rule apply to ambiguity, i.e., explaining a term in the written deal:
Regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier agreements to solve ambiguities in the written contract.
123
How does the parol evidence rule apply when adding to the written deal?
The parol evidence rule prevents a court from admitting evidence of earlier agreements as a source of consistent, additional terms unless the court finds (1) that the written agreement was only a partial integration or (2) that the additional terms would ordinarily be in a separate agreement.
124
What is a source of contract terms?
Words and conduct.
125
What are the forms of conduct that can be a source of contract terms?
Courts first look to course of performance (same people, same contract), second to course of dealing (same people, different but similar contract), and third to custom and usage (different but similar people, different but similar contract) to explain words in contract or to fill gaps in contracts.
126
Under the UCC, the delivery obligations of a seller of goods if delivery by common carrier will be one of what two contracts?
Shipment contract or destination contract
127
What is a shipment contract?
Delivery obligation is completed before delivery. Seller completes its delivery obligation when it 1. gets the goods to a common carrier, and 2. makes reasonable arrangements for delivery, and 3. notifies the buyer.
128
What is a destination contract?
The seller does not complete its delivery obligation until the goods arrive at the destination.
129
How does one determine whether you have a shipment or destination contract?
The most common is shipment contract. But if you see FOB (freight on board) followed by the name of the city of the seller, then a shipment contract. If it has any other city, then this is a destination contract.
130
What is risk of loss?
Risk of loss arise where 1. after the contract has been formed, but before the buyer receives the goods, (2) the goods are damaged or destroyed, and 3. neither the buyer nor the seller is to blame. However, the risk of loss will be on one or the other and someone will be liable.
131
What are the risk of loss rules:
REMEMBER THAT TITLE IS IRRELEVANT. 1. Agreement: agreement of the parties controls; 2. Breach: breaching party is liable for any uninsured loss even though the breach is unrelated to problem; 3. Common carrier delivery: risk of loss shifts from seller to buyer at the time the seller completes its delivery obligations; 4. Catch all: the determining factor is whether the seller is a merchant. WHETHER THE BUYER IS A MERCHANT IS IRRELEVANT. Risk of loss shifts from a merchant-seller to the buyer on the buyer's receipt of the goods; risk of loss shifts from a nonmerchant seller when she "tenders" the goods.
Do the analysis in the order of the steps.
132
Express warranty:
Look for words that promise, describe or state facts. Distinguish from sales talk (puffing) or opinion. Or look for a sample or model.
133
Implied warranty of merchantability:
When any person buys any goods from any merchant, a term is automatically added to the contract by operation of law--that the goods are fit for the ordinary purpose for which such goods are used. Triggering fact: seller is a merchant WHICH HERE MEANS IT DEALS IN GOODS OF THAT KIND. Warranty: goods are fit for ordinary purposes.
134
Implied warranty of fitness for a particular purpose:
Statutorily supplied warranty. Triggering facts: buyer has particular purpose; buyer is relying on seller to select suitable goods; seller has reason to know of purpose and reliance. Warranty: goods fit for a particular purpose.
135
Statute of limitations on warranty liability:
Four year, generally starts running when the "tender of delivery is made" not when the buyer learns that the product is defective.
136
Privity for warranty liability:
If the plaintiff did not buy the goods from the defendant, there is a possible privity issue. Depends on the state and will be in state materials. Generally, contract law requires that the plaintiff who is suing the defendant actually contracted with that defendant--is in privity with that defendant.
137
Buyer's examination of goods for warranty liability:
There are no implied warranty as to defects that would be obvious on examination.
138
Disclaimers for warranty liability:
Express warranties generally cannot be disclaimed; implied warranties of merchantability and fitness can be disclaimed in one of two ways: 1. CONSPICUOUS language of disclaimer, mentioning merchantability or 2. "as is" or "with all faults"
139
Limitation of remedies for warranty liability:
Possible to limit remedies even for express warranties. The general test is unconscionability. Prima facie unconscionable if breach of warranty on consumer goods causes personal injury.
140
What do you need to know about "perfect tender" under the UCC?
1. Perfect tender only applies to sale of goods. 2. Perfect tender does not mean that the seller's performance must be perfect; rather, the goods and the delivery must conform to the contract terms. 3. A less than perfect tender by the seller generally gives the buyer the option of rejection of the delivered goods, so long as the buyer acts in good faith.
141
What do you need to know about rejection of the goods under the UCC?
1. You need to be able to distinguish rejection of an offer from rejection of the goods. Second, if the seller does not meet the perfect tender standard, the buyer has the option to retain and sue for damages or reject "all or any commercial unit" and sue for damages. 3. This rejection alternative is limited by CURE, INSTALLMENT CONTRACT, and ACCEPTANTCE. 4. Buyer must take reasonable care of the rejected goods.
142
What do you need to know about cure under the UCC?
In some instances, a seller who fails to make a perfect tender will be given a "second chance," an option of curing. Note that a seller does not always have the opportunity to "cure," and that the buyer cannot compel the seller to cure. A. Seller's reasonable ground to believe would be acceptable, perhaps with a money allowance. Look for information about prior deals between the buyer and seller.
B. Time for performance has not yet expired.
143
What do you need to know about Installment contracts under the UCC?
An installment contract REQUIRES or AUTHORIZES 1. delivery of the goods in separate lots 2. to be separately accepted. The buyer has the right to reject an installment only where there is a substantial impairment in that installment that can't be cured. Installment sales contract: multiple deliveries and acceptances.
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What do you need to know about acceptance of the goods under the UCC?
1. Importance of acceptance: if the buyer accepts the goods, it cannot later reject them. 2. Payment and acceptance: payment without opportunity for inspection is not acceptance. 3. Failing to reject: rejection must be timely. Failure to reject after the buyer had reasonable time to reject is acceptance. 4. Retention as acceptance: Effect of buyer's keeping goods is implied acceptance.
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Effect of revocation of acceptance:
Same as rejection of the goods: buyer returns the goods and the seller returns payment made. REVOCATION IS NOT REJECTION. ONCE IT HAS BEEN ACCEPTED, IT CANNOT BE REJECTED.
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Requirements for revocation of acceptance:
1. nonconformity substantially impairs the value of the goods, and 2. excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction, and 3. revocation within a reasonable time after discovery of nonconformity.
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Nonmonetary remedies: list
1. Specific performance/injunction; 2. Seller's reclamation from an insolvent buyer of goods; 3. Buyer's recovery of identified, paid for goods from a seller who becomes insolvent within 10 days.
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What do you need to know about specific performance?
Equitable remedy: look for adequacy of remedy at law or unclean hands. Exceptions where specific performance may be required: contracts for sale of real estate; contract for sale of unique goods. No specific performance for contract for services. But may get injunctive relief to prohibit person from competing or working for a competitor.
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What do you need to know about seller's reclamation from an insolvent buyer of goods?
Key facts are that 1. buyer must have been insolvent at the time that it received the goods, and 2. the seller demands return of goods within 10 days of receipt and 3. the buyer still has goods at time of demand.
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What is the policy for money damages for breach of contract?
Compensate plaintiff, not punish defendant. Always start essay with "the purpose for the damages is to compensate"
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What are expectation damages?
Expectation simply means that people who contract expect that the other person will not breach. Expectation damages protect that expectation. Accordingly, 1. look to the facts for dollar value of performance without breach, 2. look to facts for dollar value of performance with breach, and 3. compare the two to determine the amount of damages.
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What is the rule for sale of goods with regard to money damages where there is a breach?
UCC recognizes expectation damages. There are three relevant facts: 1. who breached, 2. who has the goods, and 3. was there a later replacement deal?
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Breach by seller of goods where the buyer keeps the goods: what is the rule?
The rule is fair market value if perfect minus fair market value as delivered OR cost of repair.
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Breach by seller of goods where the seller has the goods: what is the rule?
Market price at time of discovery of the breach minus contract price OR reasonable replacement price minus contract price WHICHEVER IS HIGHER
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Breach by buyer of goods where the buyer is keeping the goods: what is the rule?
Contract price--resale unless seller cannot resell in which case the seller can recover the contract price and in some situations provable lost profits.
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What is the rule for buyer breaches on a deal with a volume seller?
seller is entitled to provable lost profits (because even though sold the goods to someone else, would have sold to the other anyway--so still lost profits from the breached sale.
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What are the limitations on incidental damages?
None.
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What are incidental damages?
Costs incurred in dealing with the breach such as costs of storing rejected goods in a sale of goods or finding a replacement in a services contract--always recoverable.
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What are consequential damages?
Does NOT mean all damages cause as a consequence of the breach. Consequential damages are damages limited to damages arising from P's special circumstances.
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When are consequential damages recoverable?
Recovery of consequential damages is limited to situations in which D had reason to know of these special circumstances at the time of the contract.
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What are avoidable damages?
No recovery for damages that could have been avoided without undue burden on plaintiff. Burdens of pleading and proof on defendant.
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Besides avoidable damages, what else will lower the amount of recovery for the Plaintiff?
damages that cannot be established with reasonable certainty: look for fact patter involving a services contract and plaintiff engaged in new business or a new business activity. Consider reliance recovery as an alternative expectation.
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Liquidated damages are what?
A contract provision for recoverable damages.
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What is the issue regarding liquidated damages?
Always going to be: are the liquidated damages invalid because they are too high and constitute a penalty.
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What is the usual test for recovery of liquidated damages?
Tests are 1. damages were difficult to forecast at time contract was made and 2. provision is a reasonable forecast.
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Is nonperformance by party an excuse of nonperformance by other party?
yes
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What is anticipatory repudiation?
Unambiguous statement or conduct 1. that the repudiating party will not perform 2. made prior to the time performance was due.
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What does anticipatory repudiation result in?
Excuse: anticipatory repudiation by one party excuses the other party's duty to perform.
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What is the time of recovery for anticipatory repudiation?
Anticipatory repudiation generally gives rise to an immediate claim for damages for breach unless the claimant has already finished her performance.
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Retraction of anticipatory repudiation:
Anticipatory repudiation can be withdrawn so long as there has not been a material change in position by the other party. If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided.
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Insecurity for excuse for nonperformance rules:
1. Reasonable grounds for insecurity; 2. written demand for adequate assurance; 3. commercially reasonable to stop performance.
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What is the rule for excuse because of improper performance for Article 2 and perfect tender rule?
Buyer can reject goods
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What is the rule for excuse because of improper performance for Common law and material breach?
1. Damages can be recovered for ANY breach (doesn't have to be material). 2. Only a material breach by one guy excuses the other guy from performing a contract governed by common law. 3. Whether a breach is material is a fact question. 4. If there is a substantial performance then the breach is not material. If the breach is material, then the performance was not substantial. (Material breach can be because of quality of performance or quantity of performance.) But person may still be able to recover under quasi contract (court has discretion).
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What is the divisible contract exception?
In a "divisible contract" there can be a contract law recovery for a substantial performance of a divisible part even though there has been a material breach of entire contract.
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What is an express condition?
It is language in a contract that limits obligations created by other contract language; triggering words: if, only if, provided that, so long as, subject to, in the event that, unless, when, until, on condition that.
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What is the standard for determining whether an express condition has occurred, i.e., been satisfied.
General rule--strict compliance is required for satisfaction of a condition.
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How can an express condition be eliminated so that its nonoccurrence does not affect performance obligations?
1. Waiver; 2. Prevention.
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How does one identify waiver of express condition?
Identify the person who benefits from or is protected by the express condition. Then look for a statement by that person giving up the benefits and protection of the express condition.
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How does one identify prevention of an express condition?
Look for the person protected by the express condition hindering or preventing the occurrence of the express condition.
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What is a condition precedent?
Almost all contract conditions are conditions precedent--conditions that excuse performance until and unless they occur.
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What is a condition subsequent?
conditions subsequent occur subsequent to the start of performance and excuse performance when they occur. Example: spike will sell you his Knicks tickets for $10 a game until the Knicks are in first place.
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Performance excused because of rescission (cancellation):
The key is whether performance is still remaining from each of the contract parties (executory). Cannot agree to cancel the agreement if all performance has been done. Rescission is invalid.
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Performance excused because of accord and d satisfaction (substituted performance):
If the new agreement (accord) is performed (satisfaction), then performance of the original obligation is excused. If the accord is not performed (satisfied) then the other party can recover on either the original obligation or the accord. Key words: IF the substituted performance is performed, THEN the original contract will be satisfied.
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Performance excused because of modification (substituted agreement):
Modification is an agreement by the parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation.
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Performance excused because of novation:
A novation is an agreement between BOTH parties to an existing contract to the substitution of a new party, i.e., same performance, different party. Novation excuses the contracted for performance of the party who is substituted for or replaced.
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How is delegation different from novation?
Novation requires the agreement of BOTH parties to the original contract, and excuses the person replaced from any liability for nonperformance. Delegation does not require the agreement of both parties and does not excuse.
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Performance excused because of a later, unanticipated event: Steps in analysis for Common law and Article 2.
3 steps: 1. which party is arguing that her performance is excused; 2. what her performance is; 3. whether contract occurrence affected her ability to perform, not just the cost of her performance.
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Excuse of performance due to damage or destruction of subject matter of contract: Article 2
If risk of loss is on the buyer, then the buyer pays. If the risk of loss is on the seller, then the buyer doesn't have to pay. Whether the buyer can recover damages from the seller depends on the facts--can the person still perform?
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What is the rule on death after contract?
General effect of death on contract obligations: death does NOT make a person's contract obligations disappear.
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What is the exception for death after contract?
Death of party to contract who is "special" person excuses performance. Only the "special" person could have performed.
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Later, unanticipated occurrence: subsequent law or regulation: 2
Later law makes performance of contract illegal--excuse by impossibility.
Later law makes mutually understood purpose of contract illegal--excuse by frustration of purpose.
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How do you identify third party beneficiary problems:
Look for two parties contracting with the common intent of benefit to a third party. Most common: insurance policy. The third party beneficiary is not a party to the contract but has a right to recover in the event of a breach.
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Third party beneficiary:
Not a party to the contract. Able to enforce contract others made for her benefit.
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Promisor:
Look for person who is making the promise that benefits the third party.
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Promisee:
Look for person who obtains the promise that benefits the third party.
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Intended/incidental:
Only intended beneficiaries have contract law rights. Intent of the two parties to contract determines whether intended or incidental. On the bar exam, intended beneficiaries will always be named in the contract.
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Creditor/donee:
Intended beneficiaries are either donees or creditors. Usually donees. Look at whether third-party beneficiary was a creditor or the promisee before the contract.
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When has a third party beneficiary's rights vested so that the contract cannot be cancelled or modified without her consent unless the contract otherwise provides?
If the third party 1. knows of and has relied on or 2. assented as requested.
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Who can sue whom where there is a third party beneficiary?
General rule: Beneficiary can recover from promisor (as long as the promisee has not already recovered), but cannot recover from the promisee. Limited exception: Creditor beneficiary can recover from promisee BUT ONLY on pre-existing debt.
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If the third party beneficiary sues the promisor, the promisor can assert what defenses?
any defense that he would have had if sued by the promisee.
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You need to know these things regarding assignments:
1. what an assignment of a contract is; 2. the vocabulary of assignment; 3. the limitations on assignment; 4. the requirements for assignements; 5. the rights of assignee; 6. how to deal with multiple assignments.
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What is an assignment?
Assignment is a transfer of rights under contract. Assignment involves two steps: 1. contract between only two parties; and 2. one of the parties later transfers rights under that contract to a third party.
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What can you assign and what can't you assign?
Can assign contract and options but not offers.
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What is an assignor?
Party to the contract who later transfers rights under the contract to another.
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What is an assignee?
Not a party to the contract. Able to enforce the contract because of the assignment.
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Obligor is what?
Other party to the contract.
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Limitations on assignment:
If there is a contract provision regarding assignment: If the fact pattern includes language of contract regarding assignability, determine whether the contract (a) prohibits assignments or (b) invalidates assignments.
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Language of prohibition of assignment:
Language of prohibition takes away the rights to assign but not the power to assign, which means that the assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the assignment.
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Language of invalidation of assignment:
Language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.
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Rule regarding assignments: what you cannot do:
You cannot make an assignment that substantially changes the duties of the obligor. Assignment of payment is never a substantial change.
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What is the rule on gratuitous assignments?
Enforceable (don't need consideration), but can be freely revoked.
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Assignor for consideration:
No, cannot recover from obligor. 1. An assignment is a transfer of rights. 2. After the assignment, the assignor has no more contract rights. 3. Assignments for consideration cannot be revoked.
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What are the implied warranties for an assignment for consideration?
Assignor warrants 1. the right assigned actually exists, and 2. the right assigned is not subject to any then existing defenses by the obligor, and 3. the assignor will do nothing after the assignment to impair the value of the assignment. Assignor does not warrant what the obligor will do after the assignment.
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When you have multiple assignments, who has priority rights among the assignees?
Gratuitous assignments: last assignee generally wins. Assignments for consideration: first assignee for consideration wins. Does not matter who paid the most consideration.
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What is the exception to the first assignee for consideration having priority?
A subsequent assignee takes priority over an earlier assignee for value only if he both 1. does not know of the earlier assignment and 2. is the first to obtain payment, a judgment, a novation, or indicia of ownership. VERY VERY LIMITED. Being the first to notify is irrelevant.
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What you need to know about delegation of duties:
1. what a delegation is; 2. relationship of assignment and delegation; 3. which duties are delegable; and 4. what are the consequences of delegation.
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What is delegation?
Party to a contract transferring work under that contract to third party.
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Relationship of assignment and delegation:
A contract creates both rights and duties. Assignment is the transfer by a party to a contract of his rights or benefits under the contract to a third party who was not a party to the contract. Delegation is the transfer by a party to a contract of his duties or burdens under the contract to a third party who was not a party to the contract.
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Which duties are delegable?
Generally, contractual duties are delegable. The limitations on delegation are very limited. Delegations are permitted unless either 1. contract prohibits delegations or prohibits assignments or 2. "personal services contract" that calls for very special skills.
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Who is liable for nonperformance by delegate?
Delegating party always remains liable.
| Delegatee liable only if she receives consideration from delegating party.
