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1

What is the implied warranty of fitness for a particular purpose (UCC 2-315)

A warranty created by operation of law whenever, at the time of contract, the seller of a good(UCC) has...
(1) reason to know that there is a particular purpose for which the goods are required by the buyer, and
(2) reason to know that the buyer has relied on the seller's skill or judgement to provide suitable goods for that particular purpose.

-Effect: goods must be fit for the buyer's particular purpose. Otherwise, seller has breached warranty.

2

What is the implied warranty of merchantability (UCC 2-314)

A warranty created by operation of law that the goods shall be merchantable if the seller is a merchant with respect to the goods being sold.
To determine whether merchantable:
(1) the goods must be fit for the ordinary purposes for which such goods are used, AND
(2) the goods must pass without objection in the trade

-Effect: Goods must be merchantable, otherwise there's a breach.

3

What is the rule statement you would state when doing Implied Duty of Good Faith and Fair Dealing

Every contract includes an implied duty of good faith and fair dealing. Under UCC-201, good faith includes both honesty in fact and the observance of reasonable commercial standards of fair dealing.
Bad faith includes conduct that undermines the spirit of the contract either (1) by enabling one party to realize gains that in making that contract he had implicitly agreed to surrender, or (2) by unfairly denying to the other party the fruits of the contract that she reasonably expected to receive.
The factors to be considered in deciding whether the duty was breached are (1) relative sophistication of parties, (2) whether parties have equal bargaining power, (3) reasonable expectations of the parties, (4) purpose for which the contract was made, and (5) bad faith or outright dishonesty.
This duty can (1) add express terms to the contract, (2) permit finding of breach even where no breach of express term, but where bad-faith performance present (like D using his express contractual right to terminate the contract, but did so in bad faith), or (3) address the bad-faith exercise of discretion.




4

What is the rule statement and approach to a Parol Evidence Rule problem

First, you say that one party will argue that a statement during oral communications are part of the express terms of the agreement, and that the other party will argue that the Parol Evidence Rule bars the party from introducing the statement.

Then, you'll state the rules, as such:

The Parol Evidence Rule must be applied to determine whether the parties' PCAN can become part of the express terms of the agreement. The Parol evidence Rule states that (1) evidence of PCAN is not admissible to contradict the terms of a partially or completely integrated writing; and (2) that evidence of PCAN is not admissible to supplement the terms of a completely integrated writing.

The first step is to determine the level of integration:

A partially integrated writing is one adopted by the parties as a final expression of one or more terms of the agreement.

A completely integrated writing is one adopted by the parties as a final, complete, and exclusive statement of all the terms of the agreement.

In evaluating partial integration, courts look at the thoroughness and specificity of the writing, as well as any other factors bearing on whether parties intended the writing as a final expression.

In evaluating complete integration, courts look at the following factors: (1) length of writing, (2) level of detail in the writing, (3) presence/absence of a merger clause, (4) formality/informality of setting.

And under the Modern Corbinian Approach, courts can consider evidence of PCAN to determine whether the writing is unintegrated, partially integrated, or completely integrated.

The second step is to determine whether the purpose of bringing in the PCAN is to contradict the terms, supplement the terms, or for some other reason under an exception to the PER.

Contradicting would be bringing in a term that is inconsistent with an existing term in the contract.

Supplementing would be bringing in a term that is consistent.

Other purpose: (1) Integration, (2) interpretation, (3) Validity, (4) Collateral Agreement, (5) Equitable Remedy, (6) Oral Condition Precedent

5

Frustration of Purpose

Res. 265:
-After a contract is made
-Party's principal purpose
-Is substantially frustrated
-By occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made
-The duty to render that performance is discharged
-Unless, language or the circumstances indicate that the party's duty to perform should not be discharged (must show he does not bear the risk)

At this point, the contract must be virtually worthless to the party seeking to justify his nonperformance. To satisfy the principle purpose element, it is not enough that he had in mind some specific object without which he would not have made the contract. The object must be so completely the basis of the K that, as both parties understand, without it the transaction would make little sense.
To satisfy the Substantial Frustration element, it is not enough that the transaction has become less profitable for the affected party or that he will sustain a loss. The frustration must be so severe that it is not fairly to be regarded as within the risks that he assumed under the contract. To satisfy the basic assumption element, it must pertain to the existence, identity, quantity or quality of the subject matter.

6

Plain Meaning Rule

In applying Restatement 201, some of the most important evidence to consider is the parties’ communications with each other prior to the K being signed (PCAN). A threshold question is whether such evidence is admissible under the Plain Meaning Rule. The first step is for the judge to determine whether the term at issue is reasonably susceptible to more than one meaning. Under the liberal view, a judge may consider evidence of PCAN in deciding whether the term is susceptible to more than one meaning. Once the first step has been established, the second step is for the jury to determine which meaning of the term is most supported by the evidence of PCAN and all other evidence

7

Introducing an Interpretation Issue (All the rules)

A will argue that the term at issue means one thing; B will argue that the term at issue means another thing.

Introducing PCAN for the purpose of interpretation of an express term is an established exception to the Parol Evidence Rule. However, the Plain Meaning Rule (liberal view) must be satisfied first. *State plain meaning rule*

-In determining whose meaning prevails, Restatement 201 states the following... (omitted)

-To determine whether the party knew, had reason to know, or what a reasonable person would do under 201, we must analyze the (1) interpretation factors as articulated by the Frigaliment case, (2) basic principles of interpretation, and (3) maxims of interpretation:

Factors: (1) language of the contract, (2) industry standards, (3) prior communications between the parties before entering into K, (4) course of dealings, (5) conduct of parties after entering into K, (6) applicable statutes and regulations, (7) Market realties

Maxims: Presumption is against the drafter. If one party had control over doc, that term is interpreted against them.

Basic Principles: (1) Purpose Principle: In interpreting a term, the principal purpose of the parties should be given great weight. (2) Whole agreement principle: The term should be interpreted in light of the agreement as a whole. All writings that are part of the same transaction should be interpreted together. (3) All relevant circumstances principle: In determining the meaning of a term, a court is free to look at all relevant circumstances surrounding the transaction.

8

Express Warranty (UCC 2-313)

A warranty is a promise that the goods that are the subject of the transaction meet a certain standard, match a certain description, or have a certain feature.

An Express Warranty under UCC 2-313 is a warranty created by the seller in acting in one of the following ways:
1. Making a specific promise to the buyer about the goods
2. Making an affirmation of fact to the buyer about the goods
3. Describing the goods to the buyer in a particular way
4. Offering or displaying a sample of the goods to the buyer

if the promise, affirmation of fact, description, or sample are made part of the basis of the bargain.

Effect: the good must conform to the promise, affirmation of fact, description, or sample.

Affirmation of value or seller's opinion about the goods (puffery or sales talk) do not constitute an express warranty.

9

What is a merchant under UCC 2-104?

A person who deals in good of the kind, or who otherwise by his occupation holds himself out as having knowledge or skill with respect to the practices or goods involved in the transaction.

10

Impracticability (Res. 261)

Impracticability arises when, due to change in circumstances after the contract was entered into, performance become either impossible or severely more burdensome than anticipated. A changed circumstances that results in lost profits is not a valid impracticability justification, and a change in expense MAY be valid, if it beyond the normal range of such expenses.

Res 261:
Where, (1) after a contract is made, (2) a party's performance is made impracticable (3) without his fault (4) by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, (5) unless the language or the circumstances indicate the contrary.

11

Impossibility

Where, (1) after a contract is made, (2) a party's performance is made impossible (legally impossible) (3) without his fault (4) by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, (5) unless the language or the circumstances indicate the contrary.

12

Res 224: Expressed Conditions

Rest 224: A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.

In other words, a condition is something that has to happen in order for a party to have a duty to perform under a contract, such as (1) the occurrence of an event (fire), (2) under the control of a third party (bank approving a loan), or (3) under the control of the party whom is supposed to perform (based on owner's satisfaction).

A condition is different from a promise in that a condition is something that must occur in order for someone to perform their promise, but a promise is something that you have to perform.

Strict compliance is required, because parties should be held liable for the conditions they expressly agree to.

The obligor is the party whose performance depends on the occurrence of the condition. The obligee is the party to whom performance is owed if the condition occurs.

The obligee may argue that the condition was excused by (1) waiver: obligor manifests intent to no longer have his performance depend on the occurrence of the condition, (2) Estoppel: The obligor manifested an intent not to insist on the condition and the obligee materially relied on it, (3) Prevention: obligor did something to prevent condition from occurring, and (4) Disproportionate Forfeiture: obligee would suffer a substantial loss if the condition is not excused.

13

Was there a material breach at the time of suspended performance? (Rest 241)

When a party has materially breached the contract by failing to substantially perform his or her performance obligations, the non-breaching party is justified in suspending his performance. There are five factors to determine whether there was a material breach under Res. 241:

1. To what extent will the injured party be deprived of the benefit he reasonably expected? (larger extent = material breach. Lesser extent = no material breach)
2. To what extent can injured party be adequately compensated for the part of that benefit of which he will be deprived? (larger extent = no material breach. lesser extent = material breach)
3. To what extent will the party failing to perform suffer forfeiture? (larger extent = no material breach. Lesser extent = material breach.
4. Likelihood that party failing to perform will cure (higher likelihood = no material breach. lesser likelihood = material breach.
5. To what extent did the party failing to perform act in good faith? (larger extent = no material breach. Lesser extent = material breach)

14

Res. 242: Total Breach

A total breach is what a material breach becomes if the other party doesn't cure, or if it becomes clear that cure is impossible or not going to happen. When there has been a total breach, the non-breaching party's performance obligations are discharged, and thus they may terminate the contract and secure substitute performance.

The factors for determining whether a total breach occurred are the same 5 factors from Material breach + 3 additional factors. These three additional factors determine whether the party has waited long enough to consider the breach total:
1. Extent to which further delay appears likely to prevent or hinder the making of substitute arrangement by the non-breaching party.
2. Degree of important that the terms of the agreement attach to performance without delay.
3. Reasonableness of the injured party's conduct in communicating his grievances to the breaching party.

15

Res 152: Mutual Mistake

Restatement 152: Where a mistake of both parties at the time a contract was made as to a basic assumption on which the K was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in section 154.

1. Mistake: A belief that is not in accord with the facts
2. Of both parties
3. At the time K was made
4. As to a basic assumption on which K was made: must be a mistake as to the existence, identity, quantity, or quality of the subject matter.
5. Has a material effect on the agreed exchange of performances: Imbalance in the exchange so severe that the disadvantaged party can not fairly be expected to carry it out (Barren Cow) (what one is giving and what the other is receiving)
6. And the adversely effected party does not bear the risk of mistake under 154: (a) risk allocated to him by agreement (Lenawee); (b) aware that he has limited knowledge but treats it as sufficient anyway (conscious ignorance); or (c) risk allocated by the court based on reasonableness.

16

Res 153: Unilateral Mistake

Restatement 153: Where a mistake of one party at the time a contract was made as to the basic assumption on which he made the K has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under 154, AND (a) the effect of the mistake is such that enforcement of the contract would be unconscionable (serious hardship), or (b) the other party had reason to know of the mistake or his fault caused the mistake.

-A mistake
-Of one party
-At the time K was entered into
-As to a basic assumption on which he entered into the K
-Has a material effect on the agreed exchange of performance that is adverse to him
-And the adversely effected party does not bear the risk of mistake under 154
-AND, (1) the effect of the mistake is such that enforcement of the K would be unconscionable, OR (2) the other party has reason to know of the mistake or his fault caused the mistake.

17

Statute of Frauds (2-201)

Certain types of contracts must be in writing to be enforceable. This was created to avoid perjury, by saying there was a contract when there really wasn't. There is a 3-part inquiry for analyzing the statute of frauds.

1. Does it fall within the scope of the state?
In order to fall within the scope, (1) it must be a contract for the sale of goods for (2) $500 or more.

2. Is there a writing sufficient to satisfy the statute? (compliance)
There must be (1) a writing sufficient to indicate that a K for the sale of goods has been made between the parties, (2) signed by the party against whom enforcement is sought, and (3) must specify a quantity. It is not enforceable beyond the specified quantity.
-Any authentication which identifies the party to be charged satisfies the signing requirement.

3. Is there an applicable exception to the statute?
-Promissory Estoppel
-Part Performance: When either goods have been paid for and accepted, or when goods have been received and accepted.

18

Statute of Frauds

Certain types of contracts must be in writing to be enforceable. This was created to avoid perjury by saying there was a contract when there wasn't. There is a 3-part inquiry when analyzing the statute of frauds.

1. Does the contract fall within the scope of the statute?
-MYLEGS

2. If so, is there a writing sufficient to satisfy the statute?
There must be a writing, signed by, or on behalf of the party to be charged, which :
(a) reasonably identifies the subject matter of the contract,
(b) sufficiently shows that a contract has been made between the two,
(c) states the essential terms of the unperformed promises
-Memorandum can be pieced together if (1) one writing is signed, and (2) the writings clearly relate to the same transaction.
-Memo need not have been made with the intent to evidence a K, so writing in a diary or sending an email are sufficient.

3. If not, are there any applicable exceptions to the SOF?
-Promissory estoppel
-Part performance

19

Res 175: Duress By Improper Threat

Restatement 175: When a party's manifestation of assent is induced by an improper threat by the other party that
leaves the victim no reasonable alternative, the contract is voidable by the victim.

-An improper threat
176-1: A threat to commit a crime or tort; threat of criminal prosecution; bad-faith threat to use civil process (lawsuit); threat that is a breach of the duty of good faith and fair dealing under a contract between the parties (economic duress)
176-2: Resulting exchange is not on fair terms, AND either (1) threatened act would harm the recipient and would not significantly benefit the party making the threat, OR (2) prior unfair dealing by threatening party significantly increases threat's effectiveness, or (3) threatened act is a use of power for illegitimate ends.

-Which induced the other party's manifestation of assent: threat is what caused him to agree to the K

-And the threat leaves the victim no reasonable alternative: like finding funds from somewhere else, legal action, putting up with it

-Contract is voidable (binding unless disaffirmed by the victim of duress)

Source of Financial hardship: Under the Majority approach, financial hardship must have been caused by threatening party. Under the Minority approach, the financial hardship need not have been caused by the threatening party.

Bad faith and knowledge: to be bad faith, the threatener must know that the party has no reasonable alternative (will suffer financial hardship), unless he assents to the K.

20

Res 177: Undue Influence

Unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.

-Unfair Persuasion: Odorizzi Factors: discussion at an unusual or inappropriate time; consummation of the K at an unusual place; insistent demand that the deal be done at once; Extreme emphasis on serious consequences of delay; multiple persuaders by dominant party against single servient party; absence of third party advisors for servient party; statements that there is no time to consult advisors.

-Of a party who is under the domination of the person exercising persuasion:
(1) power imbalance: excessive pressure by dominating party (employer/employee),
(2) Unusual susceptibility: (a) Total weakness of mind (totally incapacitated, left entirely without understanding), (b) Lesser Weakness of Mind (not totally incapacitated, but not capable of entering into a K, (c) Weakness of Spirit (lack of vigor due to age, emotional distress, physical condition)

OR

-Of a party who is justified in assuming on the basis of the relationship that the person will not act in a manner inconsistent with his welfare (confidential relationship, like lawyer, doctor, spouse, parent)

21

Res. 164: Misrepresentation

-Misrepresentation by one party (false statement or an assertion that is not in accord with the facts)

-That is fraudulent or material
-Fraudulent: when the maker intends his assertion to induce a party to manifest assent, and the maker (1) knows or believes the assertion is not in accord with the facts, (2) Does not have the confidence he states or implies in the truth of the assertion, (3) knows that he does not have the basis he states or implies.
-Material: when the misrepresentation is likely to induce a reasonable person to manifest his assent, or the maker knows it would be likely to induce recipient's manifestation of assent.

-And the other party is justified in relying on (reasonable person would rely on it; it's not known to be highly implausible)

-Which indues manifestation of assent (causation: must be substantial factor, not just but for)

-K is voidable by recipient of misrepresentation

22

Res. 161: Non-disclosure

Nondisclosure is a form of misrepresentation. Some but not all non-disclosures are misrepresentation. A person's non-disclosure of a fact known to him is equivalent to an assertion that the face does not exist, only...
(a) when he knows disclosure is necessary to prevent a previous assertion from being a misrepresentation or from being fraudulent
(b) when he knows disclosure would correct a mistake of the other party as to a basic assumption on which the party is making the K and if non-disclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
(c) when he knows disclosure would correct a mistake of the other party as to the contents or effect of a writing, evidencing, or embodying an agreement in whole or in part
(d) other person is entitled to know the fact because of a relationship of trust and confidence between them.

23

Res 208: Unconscionability

Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonable favorable to the other party.
-Procedural Unconscionability: Refers to the lack of meaningful choice by one party or some defect in the bargaining process (Factors: unequal bargaining power, deceptive sales practices, fine print)
-Substantive Unconscionability: Refers to the fairness of the terms of the resulting bargain.
-terms to be considered in light of the general commercial background and commercial needs of the particular trade or case. Corbin's test: "are the terms so extreme as to appear unconscionable according to the mores and business practices of the time and place?"

-Sliding scale approach
-Counter: term had to be harsh so business can protect itself from high risk of people not paying
-Result: court may (1) refuse to enforce K, (2) enforce remainder of K without unconscionable clause, or (3) limit the application of any unconscionable clause as to avoid unconscionable result.

24

Res 250: Anticipatory Repudiation

Anticipatory Repudiation occurs when performance has not become due yet, but one party tells the other party he can no longer perform his duties under the contract. This discharges the non-repudiating party's remaining duties of performance, allowing the non-repudiating party to make substitute arrangements. It also gives the non-repudiating party a claim for damages for a total breach.

Under UCC 250, there are two types of repudiation:
(1) Repudiation by Statement: A statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim a claim for damages for a total breach (the language must be definite and unambiguous that party will not perform... Mere expression of doubt about willingness or ability to perform is not enough)
(2) Repudiation by Act: A voluntary affirmative act which renders obligor unable or apparently unable to perform without a total breach.

Retracting a Repudiation:
The repudiating party can retract the repudiation up until the point that the non-repudiating party either (1) materially changes his position in reliance on the repudiation (i.e., makes substitute arrangements or sells the property to another), or (2) indicates to the other party that he considers the repudiation final.

25

Res 73, 89, and UCC 2-209: Modifications

Modifications usually occur when there are two contracts which are mostly similar but there is a change in the obligation.

The party seeking to justify his nonperformance will argue Res 73, the Pre-existing Duty Rule, which states that performance of a legal duty to a promisor which is neither doubtful nor the subject of honest dispute, is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of a bargain. In other words, there is no exchange when the parties already had a legal obligation to do something.

There are two ways to avoid the pre-existing duty rule:
(1) Adding a new obligation: Make it so that both parties agree to do something in addition to what they originally agreed to do.
(2) Mutual rescission + new agreement: Agreeing to cancel the first contract, then make a new contract. However, if the one of the parties have already fully performed on the original K, there would be a lack of consideration.

The other party may argue that there was an exception to the pre-existing duty rule, as articulated by Restatement 89, which states that: a promise modifying a duty under a contract not fully performed on either side is binding if:
(a) the modification is fair and equitable in a view of circumstances not anticipated when the K was made (Unanticipated circumstances)
(b) To the extent provided by statute, such as UCC 2-209, which states that an agreement modifying a contract needs no consideration to be binding, as long as the modification was made in good faith. A modification made without legitimate commercial reason is ineffective as a violation of the duty of good faith.
(c) To the extent that justice requires enforcement in view of material change of position in reliance on the promise.

26

Remedy Analysis

Because the party did not perform his performance obligations, the other party is entitled to a remedy. There are two types of remedies (specific and substitutional). Here, we will analyze compensatory damages, which fall under substitutional remedies. We will calculate the Expectation Interest to measure the compensatory damages that the party is entitled to, which puts both parties in a position as they would have been had they both performed.

Under a total breach, the expectation interest consists of the sum of the loss in value and other loss, subtracted by the cost avoided and loss avoided.

-Loss in value is the difference between the value of the contract and the value to the injured party of what, if anything, was actually received. To determine this amount we will subtract the total contract price by the amount that was actually received.

-Other loss. Any loss caused by the breach, as long as it satisfies all the limitation requirements, is recoverable. However, in contract law, you cannot recover punitive damages, damages for emotional distress, or attorney's fees. Other loss consists of Incidental Damages and Consequential Damages. Incidental damages are the additional costs incurred after the breach in a reasonable attempt to avoid loss, arrange substitutional performance, etc. Consequential damages are either (a) injury to a person or property caused by the breach, or (b) lost profits on collateral transactions.

Cost avoided is the cost of performance that the injured party gets to avoid as a result of the breaching party's total breach.

Loss avoided is any amount saved through salvaging or reallocating resources, such as selling the material.

27

Limitations on Expectation Damages

However, there are four limitations on expectation damages, which must be satisfied in order for the party to be entitled to the total expectation interest. These limitations are foreseeability, causation, certainty, and mitigation. The first three are applied to loss in value and other loss, while the last limitation is applied to cost avoided and loss avoided.

-Foreseeability: Was it reasonably foreseeable to the party at the time the contract was made, that should he breach, the losses that were suffered here would follow as a probable result of the breach?

3 elements: (1) loss had to be reasonably foreseeable at the time K was made, (2) loss had to be foreseeable by the breaching party, and (3) loss had to be foreseeable as a probable result of the breach.

(res 351): Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. Loss may be foreseeable as a probable result of the breach because it follows from the breach (a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.

-Causation: But for Roy's breach, would the city have incurred the loss in value? But for Roy's breach, would the city have incurred the other loss? The test for the causation limitation is "but for"

-Certainty: Can we be reasonably certain that the amount of other loss/loss in value is what they actually incurred?

(res 352): Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. The injured party must show that with reasonable certainty that the venture would in fact be profitable and the amount it would be.
-Reasonable certainty of Fact of Lost Profits: Must show not only that the transaction that was missed was profitable, but also that it was D's breach that caused them to miss out on the lost profits. (financial analysts)
-Reasonable certainty of amount of lost profits: Is the amount of the lost profits established with reasonable certainty? (track record)

-Mitigation: Would a reasonable person in the injured party's position be able to avoid more of the cost avoided that they actually avoided?
-The injured party has a duty to mitigate in a way that a reasonable person would avoid losses.
-Rest 350: Doctrine of Avoidable Consequences:
(1) Except as stated in subsection (2), damages are not recoverable for cost or loss that the injured party could have avoided without undue risk, burden, or humiliation.
(2) The injured party is not precluded from recovery by the rule stated in subsection (1) to the extent that he has made a reasonable but unsuccessful effort to avoid cost or loss.

-However, the injured party may also argue that he was a lost volume seller, in that he could have entered into both the substitute transaction and the initial transaction simultaneously, thus he did not have a duty to mitigate, and thus the substitute performance should not be counted as loss avoided.