Contracts Rules Flashcards
1
Q
Breach
A
(1) Promisor under an absolute duty to perform
(2) Duty has not been discharged
(3) Failure to Perform
2
Q
Minor Breach
A
- Doesn’t excuse nonbreaching party’s performance and only entitles to damages
- Minor is the obligee gains substantial benefit of the bargain
3
Q
Material Breach
A
If the nonbreaching party does not receive the substantial benefit of the bargain
Can end the contract and counterperformance is discharged
4
Q
Substantial Performance Factors
A
- Bene
5
Q
In a single delivery contract, when a buyer rejects goods due to defects, the seller may cure within the time originally provided for performance in the contract:
A
by giving reasonable notice to the buyer and making a new tender of conforming goods, which the buyer must then accept.
6
Q
When a party that offers a rare or unique service has breached a service contract, the court may grant __________ to the nonbreaching party.
A
Injunctive Relief
7
Q
What law applies?
A
- Article 2 of UCC for Sale of Goods
- Common Law: Contracts for Services
8
Q
Express Contract
A
Formed by language either oral or written
9
Q
Implied Contracts
A
Formed by conduct
10
Q
Quasi-Contract
A
When an otherwise unenforceable contract results in unjust enrichment
11
Q
Bilateral Contract
A
Exchange of mutual promises and can be accepted in any reasonable way. That is by promising or beginning performance
12
Q
Void Contract
A
A void contract is one that is totally without any legal effect from the beginning, it cannot be enforced by either party (agreement to commit a crime)
13
Q
Voidable Contract
A
One that one or both parties may elect to avoid by raising a defense
14
Q
Unenforceable Contract
A
Otherwise valid but isn’t enforceable due to a defense
15
Q
“Goods”
A
All things movable at the time they are identified as the items to be sold under the contract. Most tangible things.
16
Q
Formation of a Contract
A
Mutual Assent (Offer + Acceptance) + Consideration - Any Applicable Defenses
17
Q
Advertisements as Offers
A
- Not generally offers because that do not create a reasonable expectation to enter a contract
- Merely an invitation to offer
18
Q
Offer
A
- Must create a reasonable expectation in the offeree that the offeror was willing to enter into the contract
- Must be communicated to the offeree
19
Q
Reasonable Expectation for Offer Considerations
A
- Expression of promise, undertaking, commitment to enter the contract
- Certainty and definiteness in the essential terms
- Communication of the above to the offeree?
20
Q
Promise, Undertaking, Commitment
A
- Must be intent to enter a contract
- Look to language “I offer”, “I promise” and surrounding circumstances (Joke)
- Broader the communication of media the more courts contrue it is a solicitation of an offer
21
Q
Definite and Certain Terms
A
- Can the contract be enforced based on the essential terms provided
- Offeree must be identified
- Subject matter must be certain
22
Q
Term Requirements for Specific Types of Contracts
A
- Offer involving real estate must identify the land and the price terms. Most courts will not supply a missing price term
- Sale of Goods - Quantity Term
23
Q
Requirement Contract
A
- B promises to buy from S all goods B requires
- Can’t be a demand of a quantity unreasonably disproportionate to (1) any stated estimate, (2) in the absence of a stated estimate, any normal or comparable prior output or requirements
- Watch for the following words “Require”, need, produce, all, only, exclusively, solely
24
Q
Output Contract
A
S promises to sell to B all goods S produces
25
Employment Contract Term
- If duration is not specified and offer is accepted it is presumed at will contract
26
Missing Terms
- Price can be added under article 2, just need it for real property
- Time must be performed within a reasonable time
27
Vagueness
- If contract is too vague cannot be enforced
28
Lapse of Time Termination
Offer terminated if not accepted within reasonable time. If the offeror states the time then it is that time but if not then it is reasonable.
29
Express Rejection
I dont want this. This rejection will terminate the offer.
30
Counteroffer as rejection
- When a counteroffer is made that contains the same subject matter as the original offer then it is a revocation
- Both a rejection and a new offer
- Look for a Period
- Effective when received by the offeror
31
Mere Inquiry
- Inquiry won’t terminate the offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration. “Would you consider lowering the price by $5,000?
- Look for a Question Mark for mere bargaining
32
Rejection of Option Contract
- A rejection or counteroffer to an option does not constitute a termination of the offer
- Offeree still free to accept unless offeror has detrimentally relied on offeree’s rejection
33
Termination by Offeror - Revocation
- Offeror can directly revoke by doing it expressly
- An offer made by publication must be directly revoked by publication
- Effective when received. When it is delivered to an authorized location, doesn't matter whether they read it
34
Offeror can revoke indirectly if the offeree receives:
- Correct information
- From a reliable source
- Of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
35
Limitation of Offeror's Power to Revoke
- Option Contract
- Merchant Firm Offer
- Foreseeable Detrimental Reliance
- Beginning Performance in Response to True Unilateral Contract Offer
- Beginning Performance - Offer Indifferent as to Manner of Acceptance
36
Option Contract
The offeree gives consideration for a promise by the offeror not to revoke an outstanding offer
37
Merchant Firm Offer (Article 2)
- If a merchant offers to buy or sell goods in a signed writing, and the writing gives assurances that it will be help open then the offer is not revocable for lack of consideration during the time stated, or if no time state, for a reasonable time (no longer than 3 months)
- If time is longer than 3 months they will only be bound for three months
38
Foreseeable Detrimental Reliance
When the offeror could reasonably expect that the offeree would rely to their detriment of the offer, and the offeree does sol rely, the offer will be held irrevocable as an option contract for a reasonable period of time.
39
Beginning Performance in Response to True Unilateral Contract Offer
- Offer for a true unilateral contract becomes irrevocable once performance has begun
- Offeror must give the offeree a reasonable time to complete performance
- Offeree is not bound to complete performance they may withdraw at any time and no acceptance until performance is complete
- Substantial preparation to perform does not make the offer irrevocable but may be detrimental reliance
40
Beginning Performance - Offer Indifferent as to Manner of Acceptance
- A bilateral contract may be formed upon the start of performance by the offeree
- Notification of the start of performance may be necessary
41
Termination by Operation of Law
- Death or insanity of either party (need not be communicated)
- Destruction of the proposed contract's subject matter
- Supervening Illegality
42
Acceptance
- The language of the offer controls the manner of acceptance
- Generally only the person who received the offer may accept
- Power of acceptance may not be assigned, however if it is an option contract supported by consideration it is transferable
- Offeree must know of the offer in order to accept
- Acceptance must be communicated
43
Acceptance of Offer for Bilateral Contract
Can be accepted by a promise to perform or by the beginning of performance
44
Silence as Acceptance
Silence may be considered acceptance if, because of prior dealing or trade practices, it would be commercially reasonable for the offeror to consider silence an acceptance
45
Method of Acceptance
Acceptance must be in any reasonable manner and by any reasonable medium under the circumstances
46
Offer to Buy Goods for Current or Prompt Shipment
Under Article 2, offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of goods.
47
Common Law Acceptance
- Must be unequivocal, for every term of the offer. Any different or additional terms is a rejection or counteroffer
48
Acceptance of Offer for Unilateral Contract
- A unilateral contract is not accepted until the performance is completed. Offeree not obligated to complete performance if they begin. However, once they begin performance then the offeror cannot revoke
49
Notice of Performance for Unilateral Contract
The offeree is now required to give the offeror notice that he has begun performance but is required to notify in a reasonable time after performance has been completed
50
Article 2 Acceptance (Battle of Forms)
- Mirror image not required
- Inclusion of additional or different terms in a timely acceptance does not constitute a counteroffer but is an effective acceptance unless the acceptance is made expressly conditional on the new terms.
- Whether the additional terms become part of the contract depends on whether both parties are merchants
51
Contracts involving Nonmerchant
If any party is not a merchant the additional or different terms are mere proposals that do not become part of the contract unless the offeror expressly agrees
52
Contract between merchants - Additional Terms
If both parties to the contract are merchants, additional terms in the acceptance will be included unless:
1. They materially alter the original terms of the offer
2. The offer expressly limits acceptance to the terms of the offer, or
3. The offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received
53
Contract between merchants - different terms
- Some courts use the same test for additional terms
- Knockout Rule - some courts
Conflicting terms in the offer and acceptance are knocked out of the contract, because each party is assumed to reject those terms
Gaps left by knockout terms are filled by the UCC
54
Material Change of Terms
- Causes hardship or surprise, if a term is customary it is not a material change
55
Merchant's Confirmatory Memo - Additional Terms
Merchant’s memo confirming an oral agreement that contains different or additional terms is also subject to battle of the forms
56
Mailbox Rule
Acceptance by mail or similar means is effective at the moment of dispatch, provided that the mail is properly addressed and stamped
57
Exceptions to Mailbox Rule:
- The offer stipulates that acceptance is not effective until received
- An option contract is involved (Effective only upon receipt)
- The offeree sends a rejection and then sends an acceptance, whichever arrives first is effective
- The offeree sends an acceptance and then a rejection, then the mailbox rule applies unless the offeror receives the rejection first and detrimentally relies on it
58
Acceptance by Unauthorized Means
May be still be effective if it is actually received by the offeror while the offer is still in existence
59
Auction Contract
- A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in another customary manner.
- Contracts are with reserve unless they are specifically put up without reserve.
- “With reserve” means the auctioneer may withdraw the goods at any time until he announces the completion of the sale
60
Consideration Elements
- A bargained for exchange between the parties and
- Legal value meaning that which is bargained for must be considered of legal value
61
Legal Value
A benefit to the promisor or a detriment to the promise
- Sham consideration is insufficient
- Legal detriment results if promises does something they are not legally obligated to do or refrains from doing something they have the legal right to do
62
Bargained-For-Exchange
- Requires that promise induce the detriment and the detriment induce the promise
- No consideration for gifts
- Act by promisee must be of benefit to promisor. Benefit need not be economic
63
Past or Moral Consideration
- A promise given for something already done does not satisfy the bargain requirement
Exceptions:
- Where a past obligation is unenforceable, that obligation will be enforceable if a new promise is made in writing or is partially performed.
- Also, if a past act benefitted the promisor and was performed by the promissee at the promisor’s request or in response to an emergency, a subsequent promise to pay will be enforceable
64
Preexisting Legal Duty
- Promising to perform an existing legal duty is insufficient consideration
- Someone asking for more money for something they already agreed to do
65
Exceptions to Preexisting Duty Rule
- New or different consideration is promised
- The promise is to ratify a voidable obligation
- The preexisting duty is owed to a third person rather than to the promisor;
- There is an honest dispute as to the duty; or
- There are unforeseen circumstances sufficient to discharge a party (impracticability), if the modification is fair and equitable in view of the circumstance not anticipated when the contract was made
66
Modification of Contracts (Common Law)
Contracts can't be modified unless supported by new consideration
67
Modification of Contracts (Modern View) (MBE Adopted)
Permits modification without consideration if:
- The modification is due to circumstances that were unanticipated when the contract was made and
- It is fair and equitable
68
Modification (UCC)
- Consideration is not necessary to modify, all the parties need are good faith promises of new and different terms
69
Discharge of Debts
- Debt can be discharged through accord and satisfaction
- Accord must be supported by consideration even if of lesser value than the initial bargained-for consideration it is sufficient if different type or claim is to be paid to a third party.
69
Mutual and Illusory Promises
Consideration must exist on both sides of a contract. If only one party is bound to perform, the promise is illusory and will not be enforced. Courts often supply implied promises (like a party must use best efforts) to infer mutuality
69
Forbearance to Sue
Promise to not sue is valid consideration if claim is valid or the claimant believed it was valid in food faith
70
Contracts that Satisfy Mutuality
- Requirement and output contracts
- Conditional promises, unless the condition is entirely within the promisor’s control
- Contracts where a party has the right to cancel, if that right is somehow restricted
- Exclusivity agreements because the court will find an implied promise to use best efforts
- Voidable promises
- Unilateral and option contract, and
- Gratuitous suretyship promises made before or at the same time that consideration flows to the principal debtor
71
Illusory Promise
- A promise to choose one of several means of performance is illusory unless every alternatives involves legal detriment to the promisor; or
- At least one alternative involves legal detriment and the power to choose rests with the promisee or a third party, or a valuable alternative is actually selected
72
Promissory Estoppel/Detrimental Reliance as Consideration
- Consideration is not necessary if the promisor should be estopped from not performing in the interest of justice.
- Promise enforceable if:
The promisor should reasonably expect to induce action or forbearance, and
Such action or forbearance is in fact induced.
- Court could award reliance damages
73
Defenses Based on Lack of Capacity (minors)
- anyone under the age of 18 lacks capacity. But promises by adults made to minors are binding on adults).
- Disaffirmance (minor may disaffirm at any time before age of majority)
- Items necessary for subsistence, health, or education. A minor may disaffirm a contract for necessaries but will be liable in restitution for value of benefits received.
- A minor may affirm a contract when they reach majority. Can affirm either expressly or by conduct, such as failing to disaffirm within a reasonable time
74
Exceptions for Minors
- Student Loans
- Insurance Contract
- Agreements not to reveal an employer's proprietary info
75
Mental Incapacity
- Mental capacity is so deficient they are incapable of understanding the nature and significance of a contract then the contract is voidable.
- Liable in quasi-contract for necessaries.
- No ability to contract once a guardian has been appointed.
76
Intoxicated Persons
- So intoxicated that they don’t understand the nature and significance of their promise may be held to have made a voidable promise if the other party had reason to know of the intoxication.
- Same rule for necessaries
77
Duress
- Assent secured by improper threat
Economic Duress occurs if:
- The party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and
- There are no adequate means available to prevent the threatened loss
78
Undue Influence
- Undue susceptibility to pressure by one party, and
- Excessive pressure by the other party
- Often arises when the dominant party is a confidant or caregiver for the influenced party
79
Absence of Mutual Assent
- Ambiguous Contract Language (contract includes a term with at least two possible meanings) - Only binding if only one party knew and is binding based on what the ignorant party believed
- Mutual Mistake
- Unilateral Mistake
- Mistake by the Intermediary
80
Mutual Mistake
- If both parties are mistaken about existing facts relating to the agreement, contract may be voidable by the adversely affected party if:
T- he mistake concerns a basic assumption on which the contract is made
- The mistake has a material effect in the agreed upon exchange
- The party seeking avoidance did not assume the risk of the mistake: Occurs when one party is in position to better know risks than the other
- Mistake in value generally not a defense
81
Unilateral Mistake
- If only one of the parties is mistaken, the mistake will not prevent the formation of the contract. But, if the nonmistaken party knew or had reason to know of the mistake made by the other party, then the mistaken party may void.
- Must by material effect and mistaken party must not have assumed the risk
82
Mistake by the Intermediary
When mistake in the transmission of offer and acceptance by an intermediary, the message as transmitted is operative unless the other party knew or should have known of the mistake
83
Fraudulent Misrepresentation
- If party induces another to enter into a contract by asserting info they know to be untrue, the contract is voidable if they justifiably relied on the fraudulent misrepresentation.
- Fraud in the inducement
- Does not need to be spoken or written but can be inferred from conduct
84
Material Misrepresentation
- Even if not fraudulent, contract is voidable if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material,
- Misrepresentation is material if: (1) It would induce a reasonable person to agree, or (2) the maker knows that for some special reason it is likely to induce this particular person to agree.
85
Justified Reliance
Failure to read a contract or use care in reading does not necessarily preclude a party from avoiding a contract for misrepresentation
86
Public Policy Defenses
- Illegality
- Unconscionability
87
Illegality
- If the consideration or subject matter of a contract is illegal, the contract is void
- If only the purpose behind the contract is illegal, the contract is voidable by a party who was unaware or aware but did not facilitate and does not involve serious moral turpitude
88
Unconscionability
- Allows a court to modify or refuse to enforce a contract based on unfair terms. Usually due to unfairness in the bargaining process.
89
Procedural Unconscionability Examples
- Inconspicuous Risk-Shifting Provisions
- Contracts of Adhesion (Take it or leave it)
- Exculpatory Clauses
90
Limitations on Remedies
- A clause limiting damage to property generally will not be found unconscionable unless it is inconspicuous
- However, if the contract limits to a certain remedy and the remedy fails its essential purpose- Ex. remedy of repair when the item can’t be repaired
91
Effect of Unconscionability
If the court finds a contract or any clause unconscionable when made they may; (1) refuse to enforce the contract, (2) enforce the remainder of the contract without the unconscionable clause; or (3) limit the application of any clause so as to avoid an unconscionable result
92
Statute of Frauds
- Requires certain agreements to be evidenced by a writing:
93
MYLEGS
- Marriage
- Contracts that can't be completed within one year
- Sales of Land
- Executor
- Sale of Goods above $500
- Surety
94
Effect of noncompliance of Statute of Frauds
- Renders the contract unenforceable at the option of the party to be charged. If the statute isn’t raised as a defense, it is waived
95
Contract Modifications (SOF)
A written contract can be modified orally but the modification must be in writing if the contract as modified falls within the SOF
96
Common Law Oral Modification Prohibition
The common law rule is that even if a written contract expressly provides that it may be modified only by a writing, the parties can orally modify the contract
97
UCC - No Modification Clauses Effective
Under the UCC, if a contract explicitly provides that it may not be modified or rescinded except by a signed writing, that provision is given effect. However if between a merchant and nonmerchant, this provision requires nonmerchant separate signature.
98
Waiver (SOF)
Oral modification will not be valued unless a waiver is found where the party has changed position in reliance of the oral modification
99
Performance (SOF)
- If a seller conveys property to the buyer, the seller can enforce the buyer’s oral promise to pay.
- Like the buyer can seek to specifically enforce an oral land sale contract under the doctrine of part performance. Part performance that unequivocally indicates that the parties have contracted for the sale of land is not subject to SOF.
- Most jurisdictions at least two of the following: payment, possession, or valuable improvements
A purchaser may enforce an oral contract by specific performance only not damages
100
Services Contract - Full Performance Required (SOF)
An oral contract that cannot be completed within one year but has been fully performed by one party is enforceable
101
When Writing Not Required
- Specially Manufactured Goods
- Admissions in Pleadings or Courts
- Merchants - Confirmatory Memo
- Equitable and Promissory Estoppel
- Judicial Admission
102
Writing Requirements
- One or more writing that (1) reasonable identify the subject matter of the contract, (2) indicate that a contract has been made between the parties, and (3) state with reasonable certainty the essential terms
If a law requires a record to be in writing, an electronic record satisfies the law
- Under UCC, the quantity term is required for sale of goods above $500
- Material terms depends on the contract
Land - description of land and price
Employment - length of employment
Sale of Goods Contract - must indicate that a contract has been made and specify the quantity term
103
Signature Requirements
- Any mark or symbol made with the intention to authenticate the writing as that of the signer
- Does not need to be handwritten
- Under the UCC, a party’s initials or letterhead may also be sufficient. An electronic signature is also sufficient
104
Parol Evidence Rule
- When a contract is fully integrated, the parties expressed that this writing is the final expression of their intent to come to an agreement, parol evidence is barred.
- Only prohibits extrinsic evidence that seeks to vary, contradict or add to an integration
105
Determining if the writing is an integration
(1) Whether the writing was intended as the final expression of the agreement; and
(2) Whether the integration was intended to be complete or partial
- Evidence is admissible to show parties intent
106
Partial Integration
- Additional terms are permitted but cannot be contradictory must be consistent additional terms.
- UCC presumes all writings are partial integrations
107
Evidence outside scope of PER
- Validity issues based on fraud, duress, mistake, etc.
- Collateral Agreements and Naturally Omitted Terms
- Interpretation
- Showing of "True Consideration"
- Reformation
- Subsequent Modification
108
Naturally Omitted Terms Doctrine
- Allows evidence of terms that would naturally be omitted from the writtent agreement.
A term would be naturally omitted if:
- It does not conflict with the written integration; and
- it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument
109
Additional Terms under Article 2
- Says a party can't contradict a written contract but may add consistent additional terms unless:
- there is a merger clause, or
- the courts find from all of the circumstances that the writing was intended to be completely integrated as a complete and exclusive statement
- Terms may be explained or supplemented by evidence of COP, COD, and UOT
110
General Rules of Contract Construction
- Contracts will be construed as a whole, specific clauses will be subordinated to the contract’s general intent
- Courts will construe words according to their “ordinary meaning unless it is clearly shown that they meant to be used in a technical sense
- If inconsistent, written or typed provisions will prevail over printed provisions
- The courts will generally try to reach a determination that K is valid
- Ambiguities in K are construed against the party preparing the contract, absent evidence of intent of the parties
- COD, COP, and UOT can be used to interpret
111
When Rules Conflict:
- Express terms are given greater weight than COP, COD, and UOT
- COP is greater than COD and UOT
- COD is greater than UOT
112
Supplemental Gap-Filler Terms (UCC)
Quantity terms need to be there, other terms can be filled using gap-filler provisions
Price:
- If no agreement on price, then the price is a reasonable price at the time of delivery
Place of Delivery:
- If not specified, the place usually is the seller’s place of business, or their home if no business
Time for Shipment or Delivery:
- Not specified, due within a reasonable time
Time for Payment:
- If not specified, payment is due at the time and place at which the buyer is to receive the goods
Assortment:
- If contract provides for an assortment of goods, the assortment is ay the buyer’s option
- If party doesnt specify the assortment in time, the other party may proceed in any reasonable manner or treat failure as breach.
113
Express Warranties
- Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample or model is part of the basis of the bargain.
- must come at a time the buyer could have relied on it
- Statements saying value of goods or seller's opinion is not an express warranty
114
Implied Warranty of Merchantability
- Goods fit for ordinary, foreseeable purpose
- Have to be a merchant regularly selling those type of goods
- Does not matter if the seller did not know of the defect or they couldn't have discovered it, absolute liability
115
Implied Warranty of Fitness for A Particular Purpose
- Buyer has a special purpose
- Any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used
- Buyer is relying on seller’s skill and judgment to select suitable goods
- Buyer in fact relies on the seller’s skill or judgment
116
Warranty of Title
- Any seller of goods warrants that the title transferred is good, right, and there are no liens that the buyer is unaware of
- Can be disclaimed or modified only by specific language or the buyer having notice that seller doesn't claim title (quit claim)
117
Warranty Against Infringement
- A merchant seller regularly dealing in goods of the kind sold warrants that the goods are free of patent, trademark, copyright, or similar claims. But a buyer who furnishes specifications for the goods, must hold the seller harmless against such claims
118
Disclaimers of Implied Warranties
- Can be disclaimed by specific or general disclaimer
- IWM (Can be disclaimed or modified only by mentioning merchantability. Must be conspicuous.
- Warranty of Fitness for PP (Can be disclaimed only by a conspicuous writing)
119
Conspicuous Rules
- When it is “so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it.
- Language in the body of a writing is conspicuous if: (1) it is larger type than surrounding text, (2) it is in a contrasting type, font, or color, or (3) it is set off from the text by marks that call attention to it.
120
UCC Methods for Disclaiming
Disclaimers can be waived by language such as “as is”. Does not have to be conspicuous but cannot be hidden
121
Disclaimer By Examination or Refusal to Examine
If you examined or could have examined then no warranty for defects that a reasonable exam would reveal
122
Disclaimer by COP, COD, UOT
Implied warranties may by disclaimed by COP, COD, and UOT.
123
Limitations on Damages
- Parties may limit damages for BOW
- Cannot be unconscionable
- Damages that limit for personal injury are prima facie unconscionable
124
Buyer's Damages for Breach of Warranty
- Difference between the value of goods accepted and the value of goods warranted
125
To whom do warranties extend?
Provides that liability extends to any natural person who is in the family or household of buyer or a guest and it is reasonable to expect the person to come in contact with the goods
126
Effect of Breach on Risk of Loss (Defective Goods)
- If buyer has right to reject, risk of loss doesn’t pass until defects are cured or buyer accepts in suite. Buyer has right to reject for any defect
- If acceptance is revoked, risk of loss remains with seller
127
Risk of Loss (Noncarrier Case)
- Parties did not intend for goods to be moved by common carrier (grocery haul)
- If the seller is a merchant, risk of loss passes to buyer only when they take physical possession
- If seller is not a merchant, risk of loss passes to the buyer upon tender of delivery
128
Risk of Loss (Carrier Case)
- Parties intend for the goods to be moved by a carrier (Shein haul)
Shipment Contracts:
- Contract authorizes the seller to ship goods by carrier but does not require them to deliver goods at a particular destination, risk of loss passes to the buyer when goods are delivered to the carrier. In the absence of language, article 2 presumes shipment contract
Destination Contracts:
- If seller required to deliver goods at particular destination, the risk of loss transfer to the buyer when goods are tendered to buyer at the destination
129
Goods Destroyed before risk of loss passes
- If goods are destroyed without fault by either party and before the risk of loss passes to the buyer, the seller’s performance is excused.
- If the goods were not identified until after the contract was made, the seller would have to prove impracticability
130
Performance at Common Law
- Substantial performance is enough (Meet's contract's essential purpose
- No substantial performance will result in material breach
131
Performance Under Article 2
Perfect Tender Rule: The seller must deliver perfect goods. Must be exactly as promised in the contract
Obligation of Good Faith: Requires all parties to act in good faith, honest and reasonably commercial
132
Delivery and Payment Concurrent Conditions
- In noncarrier cases, unless contract says otherwise, a sale is for cash and price is due at delivery. If shipped by carrier, the price is due only at the time and place at which the buyer receives the good
133
Installment Contract
- Requires deliver of goods in separate installments over specified period.
134
Buyer's Right of Inspection
- The buyer has a right to inspect the goods before they pay unless the contract provides for payment C.O.D. or buyer has promised to pay without inspecting the goods
- Keeping for more than a reasonable time and having reasonable opportunity to inspect will waive this
135
Payment by Check
- Sufficient unless the seller demands cash and gives the buyer time to get it
- Generally cash unless otherwise agrees
Seller can refuse a check but it gives a buyer an additional reasonable time to get the check
136
Conditions
- Limit obligations created by contract language
- Party’s failure to perform is justified when conditions are not fulfilled
- If, as long as, until, on the condition that, etc.
Express Condition:
- Must be perfectly satisfied
- No substantial performance rule for express conditions
137
Difference between Promise and Condition
- Failure of a contractual provision relieves the party of obligation to perform
- Failure of a promise is a breach and gives rise to liability. Promises are commitments to do something
- If performance is needed from a third-party it’s more likely to be a condition than an absolute promise
138
Promisor's Satisfaction as Condition Precedent
- Condition that the party will pay only if satisfied with the performance
- Satisfaction measured by reasonable person standard unless: contract deals with art or personal taste (subjective)
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Satisfaction of Third Person as Condition
- When satisfaction of a third person is required, most courts will say it’s the actual personal satisfaction of the third person. However, dissatisfaction must be honest and in good faith
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Condition Precedent
Something must occur before an absolute duty of immediate performance arises in the other party
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Condition Concurrent
Those that are capable of occurring together, and that the parties are bound to perform at the same time
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Condition Subsequent
One that when it occurs cuts off an already existing absolute duty of performance
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Implied/Constructive Conditions
- Duty of each party to render performance is conditioned on the other party either rendering their performance or making a tender of their performance
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Have Conditions Been Excused?
- Conditions may be excused by action or inaction of person protected by condition
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Excuse of Condition by Hindrance or Failure to Cooperate
If a party having a duty to perform that is subject to a condition prevents the condition from occurring, the condition will be excused in the prevention is wrongful.
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Excuse of Condition by Waiver or Estoppel
- Someone protected by a condition can indicate by words or conduct that they will not worry about the condition. Consideration is not required
- Voluntary giving up of protection
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Excuse of Condition by Actual Breach
An actual breach of the contract when performance is due will excuse the duty of counterperformance. At common law only if the breach is material.
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Excuse of Condition by Anticipatory Repudiation
- Occurs if a promisor, prior to the time they need to perform the promise, lets someone know that they won’t perform when the time comes.
Requirements:
- Applies only if there is a bilateral contract with unperformed duties on both sides
- Words that they can’t do it must be unequivocal
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Effect of Anticipatory Repudiation
Nonrepudiating party has 4 alternatives:
- Treat the anticipator repudiation as a total repudiation and sue immediately
- Suspend their own performance and wait to sue until the performance date
- Treat the repudiation as an offer to rescind and treat the contract as discharged, or
- Ignore and urge the promisor to perform
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Retraction of Repudiation
A repudiating party may withdraw their repudiation at any time before their next performance is due unless the other party has canceled, materially changed in reliance, or otherwise indicate they thing the repud is final.
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Excuse of Condition by Prospective Inability or Unwillingness to Perform
- Prospective failure occurs when a party has reasonable grounds to believe the other party will not be able to perform
- Not an anticipatoruy repudiation but involves conduct or words that merely raise doubts that the party will perform
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Failure to Give Adequate Assurances
- Party may ask for assurance that other party will perform
- Assurance not received will equal an anticipatory repudiation
- Cannot use adequate assurances to rewrite a contract
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Discharge by Rescission
- Party’s mutual agreement to cancel contract
- This is a binding contract supported by consideration. Consideration is each party giving up their right to counterperformance
- If the rights of a third-party beneficiary have already vested, contract cannot be discharged by mutual rescission
- Duties must be executory on both sides
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Discharge by Modification
- Replaces existing contract with new one immediately. Excuse original contract obligations
- Requires mutual assent and consideration
- Debt excused immediately
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Discharge by Accord and Satisfaction
- Agreement to accept different performance to satisfy existing duty
Must have satisfaction with the accord
Debt excused later
“If….then” = Accord and Satisfaction
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Novation
- Agreement to Substitute new party for an existing party
Elements:
- A previous valid contract
- An agreement among all parties, including the new party to the new contract
- The immediate extinguishment of contractual duties as between the original contracting parties,
- A valid and enforceable new contract
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Delegation
- One party finds replacement party to perform
- Does not excuse original parties obligations
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Impossibility
- Contractual duties will be discharged if it has become impossible to perform them.
- must arise after the contract has been entered into
- Each party is excused from duties
- If partially impossible, duties may only be discharge partially
- Temporary suspends as long as it's going
- Death
- Supervening Illegality
- Destruction of Contract's Subject Matter
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Impracticability Test
Party to perform has encountered:
- Extreme and Unreasonable difficulty and or/expense
- its nonoccurrence was a basic assumption of the parties
(paying money is never impracticable)
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Frustration of Purpose
- Some supervening act or event leading to the frustration
- When entering the contract, the parties did not reasonably foresee the act or event occurring,
- The purpose of the contract has been completely or almost completely destroyer by this act or event
- the purpose of the contract was realized by both parties at the time of making the contract
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Breach
- The promisor is under an absolute duty to perform; and
- the absolute duty of performance has not been discharged
- Nonbreaching party must be willing and able to perform but for the breaching party
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Determining Whether a Breach is material or minor
- the amount of benefit received by nonbreaching party
- the adequacy of compensation for damages to the injured part
- the extent of part performance by the breaching party
- hardship to the breaching party
- negligent or willful behavior of the breaching party; and
- the likelihood that the breaching party will perform the remainder of the contract
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Effect of Minor Breach
- Breach is minor if the obligee gains the substantial benefit of their bargain.
- Does not relieve the nonbreaching party of their duty but just a right to damages
- Material when coupled with anticipatory repudiation
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Effect of Material Breach
- If the obligee does not receive the substantial benefit of their bargain.
- Nonbreaching party may treat the contract as ending discharging their performance and will have an immediate right to all remedies for breach of the entire contract
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Timeliness of the Performance
- Failure to perform by the time stated in the contract is not a material breach unless time is of the essence.
- Modern courts will look at all the circumstances to determine whether performance needed to be at that time
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Perfect Tender Rule (Sale of Goods)
- If goods fail to conform in their in any way, the buyer can reject all, accept and reject some, or accept all
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Buyer's Right to Reject
- Cut off by acceptance
- A buyer accepts: after a reasonable opportunity to inspect the goods, they indicate to the seller that the goods conform to requirements or that they will keep the goods even though they fail to conform
- they fail to reject within a reasonable time; or
- they do any act inconsistent with the seller's ownership
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Buyer's Responsibility for Goods after Rejection
- Buyer has an obligation to hold the goods with reasonable care at seller's disposition
- If seller says nothing the buyer may: (1) reship the goods, (2) store them for the seller, (3) resell them for the seller after giving reasonable notice of the intent to resells.
- If buyer resells they are entitled to recover their expenses and a reasonable commission
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Buyer's Right to Revoke Acceptance
- The buyer may revoke their acceptance if the goods have a defect that substantially impairs their value to the buyer and: they accepted the goods on the reasonable belief that defect would be cured OR they accepted the goods because of the difficulty of discovering the defects or seller gave assurances
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Exceptions to Perfect Tender
- Seller's Right to Cure
- Installment Contract
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Seller's Right to Cure
- If buyer has rejected because of defects, the seller has within the time originally provided for performance by giving reasonable notice and tendering the conforming goods and the buyer must accept
- Seller may cure after original time if that reasonable believed nonperforming goods would have been acceptable based on trade practices or prior dealings
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Installment Contracts Rejection
- Installment can only be rejected if the nonconformity substantially impairs the value of the installment and cannot be cured
- Whole contract won't be cancelled unless it substantially impairs value of the entire contract
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Specific Performance
- If money is inadequate, the party can seek specific performance, which is an order from the court to perform
- Available for land and rare unique goods
- Injunction a type of specific performance
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SP for Covenant Not to Compete
Courts will grant SP to enforce a CNC if: (1) the services to performed are unique and (2) the covenant is reasonably necessary to protect a legitimate interest, is reasonable as to its scope and duration, and must not harm the public
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Equitable Defenses Available for SP
- Laches (a claim that the plaintiff has delayed bringing the action and that the delay has prejudiced the defendant
- Unclean hands - party seeking specific performance is guilty of wrongdoing
- Sale to a BFP - subject matter sold to a person who purchased for value
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Buyer's Right to Replevy
- If a buyer has made part payment of the purchase price of goods and the seller has not delivered, the buyer may replevy the goods from the seller in two circumstances: (1) the seller becomes insolvent within 10 days after receiving the buyer's first payment, or (2) the goods were purchased for personal, family or household purposes
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Seller's Right to Recover Goods
- If seller learns that buyer received goods while insolvent, the seller may reclaim the goods within 10 days of delivery, unless there was a written misrepresentation of solvency within 3 months of delivery
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Right to Demand Assurances
- If there are reasonable grounds for insecurity with respect to a party's performance, the other party may demand in writing assurances that performance will be forthcoming. Party can suspend performance until they receive adequate assurances
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Compensatory Damages
- Put the nonbreaching party in the position they would have been in had the promise been performed
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Expectation Damages
- Based on an expectation measure that is sufficient for the P to buy a substitute performance. What would the P have gotten if the contract was completed.
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Reliance Damages
- Designed to put the plaintiff in the position that they would have been in had the contract been formed
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Incidental Damages
- Expenses incurred in the sale of goods that are usually just cost of doing business.
- Do not have to be foreseeable
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Consequential Damages
- Over and above standard expectation damages, usually consists of lost profits
- May be recovered only if at the time the contract was made a reasonable person would have foreseen the damages as a probable result of a breach
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Certainty Rule
- Plaintiff must prove that the losses suffered were certain and not speculative
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Punitive Damages
- None in contract cases
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Liquidated Damages Enforceability
Will be enforceable if: (1) damages for contractual breach are difficult to estimate or ascertain at the time the contract is formed and (2) the amount agreed on is a reasonable forecast of compensatory damages in the case of breach
- Recoverable even if no actual damages
- If amount is unreasonable or a lump sum courts will view as a penalty and not enforce
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Buyer's Damages for Sale of Goods
- If seller doesn't deliver or buyer rejects then the buyer damages consist of the difference between the contract price and either the market price or the cost of buying replacement goods
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Warranty Damages
- If buyer accepts goods that breach one of the seller's warranties buyer will recover the difference between the value of the goods delivered and the value they would have been if they were conforming
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Seller's Damages where buyer repudiates or refuses to accept conforming goods
The seller can: (1) resell the goods and recover the difference between the contract price and the resale price; (2) recover the difference between the market price (measured at the time time and at the place of delivery) and the contract price; or (3) if the above measures are inadequate because the seller could have made an additional sale, recover under a "lost profits" measure.
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Avoidable Damages (Mitigation
Under common law, cannot recover damages that could have been avoided. Nonbreaching party has the duty to mitigate
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Restitution
- Wants to prevent unjust enrichment
- Generally the measure is the value of the benefit conferred
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Entrusting
- Entrusting goods to a merchant who deals in goods of that kind gives them the power to transfer all rights to a buyer in the ordinary course of business. BFP always wins
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Voidable Title Concept
- If a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer.
- The defrauded seller may not recover the goods from a good faith purchaser for value if there has been a subsequent sale
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Thief's Title
- Thief unable to pass title to the buyer
Exception: if the buyer has made accessions (valuable improvements) then the true owner may be estopped from asserting title
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Intended Third-Party Beneficiary
- A TPB who is identified in the contract, receives performance directly from the promisor, or has some relationship with the promise to indicate intent to benefit
- Two Types: Creditor - a person to whom a debt is owed by the promisee; Donee - a person who the promisee intends to benefit gratuitously.
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Third-Party Beneficiary Rights
- beneficiary may sue the promisor on the contract
- Creditor beneficiary can sue the promisee but not donee beneficiaries
- Promisee may sue promisor for benefit to third-party
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When do intended beneficiary rights vest?
(1) manifest assent to a promise in the manner requested by the parties; (2) bring a suit to enforce the promise; or (3) materially change position in justifiable reliance on the promise
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Significance of Vesting
- Before the rights vest, the promisor and promisee may modify without consulting the third-party
- once they vest they need consent
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Assignment
- All contractual rights may be assigned except an assignment that would substantially change the obligor's duty or risk, an assignment of future rights to arise from future contracts, an assignment prohibited by law
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Effect of Assignment
- Establish privity of contract between the obligor and the assignee while terminating privity between obligor and assignor
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Assignment for Value
- An assignment is for value if it is: (1) done for consideration or (2) taken as security for or payment of a preexisting debt. Assignments for value cannot be revoked
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Gratuitous Assignment
An assignment not for value and is generally revocable. It is irrevocable if: (1) the obligor has already performed; (2) a token chose is delivered; (3) an assignment of a simple chose in put in writing; or (4) the assignee can show detrimental reliance on the gratuitous assignment
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Express Contract Provision Prohibiting Assignment
- Generally will not cancel assignment, will just be treated as a breach of contract.
- However, if language says that contract will be void then assignment is barred
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Which Assignee gets to collect
- If gratuitous assignments, then the last person who received will prevail
- if assignment for value then the first assignment will prevail
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Delegation
- The delegator promises to perform for X, Y delegates their duty to Z the delegate
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What duties may be delegated
- All duties may be delegated. Exceptions: 1. the duties involve personal judgment and skill; (2) delegation would change the obligee's expectancy; 3. a special trust was reposed in the delegator by the other party to the contract, 4. there is a contractual restriction on delegation
