Contracts & Sales Flashcards
(212 cards)
1
Q
3 main contracts questions
A
1) has an enforceable contract been formed
2) has the contract been performed (or, has performance been excused)?
3) what are the remedies for breach?
2
Q
What is a contract?
A
a legally enforceable agreement (look for an agreement plus a special legal basis for enforcing the promise).
3
Q
What are the two parallel universes of contracts & sales?
A
1) common law (we are in this universe when a contract deals with real estate or services)
2) article 2 of the UCC (we are in this universe whenever a contract deals with goods regardless of whether the parties in the agreement are merchants)
4
Q
Is the law of contracts often the same in both universes?
A
Yes, however there are some key differences.
5
Q
What are the two rules that deal with situations where a contract has elements of both services and goods (mixed contracts)
A
Rule 1: all or nothing rule. Under this rule, you cannot be in two universes at the same time, so mixed contracts must fall into one universe or the other. (there is an exception for divisible contracts where the agreement is divided into two mini-contracts)
Rule 2: the predominate purpose rule. Under this rule you ask whether a good or service plays a bigger role?
6
Q
What is an example of a divisible contract?
A
you agree to purchase a hot water heater from Boilermaker Inc. for $950. As part of the deal, Boilermaker promises to install the hot-water heater in your home for an additional $50. The installment aspect and the purchase of the water heater are divisible so the common law would apply to the latter installment.
7
Q
What are the 4 big topics within the question of whether an enforceable contract has been formed?
A
(“All Contracts Don’t Stink”)
1. Agreement (offer and acceptance)
2. Consideration (and related theories for when you have to keep your promises)
3. Defenses to formation (incapacity, duress, etc.)
4. Statute of Frauds (enforceability)
8
Q
Definition of offer
A
an offer is a manifestation of a willingness to enter into an agreement (by the offeror) that creates a power of acceptance (in the offeree).
9
Q
What test are offer and acceptance governed by?
A
objective test: the outward appearance of words and actions matters - not secret intentions. The key questions is whether an offeror displays an objectively serious intent to be bound. Watch out for human or anger where the offeror may not be displaying a serious intent to be bound under the objective test. Expressions of opinion also do not count.
10
Q
Can you accept an offer that was not directed towards you?
A
No. An offer must be directed to a specific offeree. In other words, you cannot accept an offer unless it is directed at you.
11
Q
What is the limited exception that offers must be directed to a specific offeree?
A
contest offers or reward offers that promise something to anyone who accomplishes a certain task.
12
Q
How specific must your offer be under common law?
A
all essential terms must be covered in the agreement. This typically means the parties, subject, price, and quantity.
13
Q
How specific must your offer be under the UCC?
A
The law is more willing to fill gaps and find a contract, even if the agreement leaves out some key terms. Under the UCC, the only essential term is the quantity. The price does not need to be stated.
14
Q
What is a requirements contract?
A
A contract where the buyer promises to buy everything it needs of a particular product from the seller but the seller is still able to sell the other buyers as well. The buyer just cannot buy from another seller. “I don’t know how many I need over the next year, but I promise to buy all of them from you.”
15
Q
What is an output contract?
A
This is a contract where the seller is promising to sell 100% of its output to the buyer. The buyer is still free to buy from other sellers as well but the seller cannot sell to another buyer. “I don’t know how many I will make over the next year, but I promise to sell all of them to you.”
16
Q
Are output and requirements contracts specific enough under the UCC even though they don’t state an exact quantity term?
A
Yes, they provide a formula for calculation.
17
Q
What is an invitation to deal?
A
a preliminary communication that reserves a final right of approval with the speaker. It does not convey a power of acceptance to the other side.
18
Q
Are advertisements an offer?
A
it is usually understood as an invitation to deal, however, there are some exceptions:
- reward advertisements
- advertisements that are very specific and leave nothing open to negotiation including how acceptance can occur.
19
Q
In regards to terminating the offer (squashing the caterpillar), look for one of six recurring fact patterns on the MBE (but also be aware of irrevocable offers).
A
1) the offeror revokes the offer by express communication to the offeree
2) the offeree learns that the offeror has taken an action that is absolutely inconsistent with a continuing ability to contract (constructive revocation)
3) the offeree rejects the offer
4) the offeree makes a counteroffer (a counteroffer is a rejection plus a new offer)
5) the offeror dies
6) a reasonable amount of time passes
20
Q
How can an irrevocable offer arise? There are 4 ways:
A
1) option
2) Firm offer
3) unilateral contract - offeree has started performance
4) detrimental reliance
21
Q
What is an example of an option?
A
I offer to sell you my house for $1 million. You also pay me $100 in exchange for a promise that I will not revoke this offer for one week. Five minutes later, I say “never mind” and revoke the offer… but you can still accept because the option makes the offer irrevocable for that one week. What is the $100 will go toward the $1 million purchase price if you exercise the option? It is the same result and still a valid option.
22
Q
What is a firm offer?
A
a merchant in the UCC universe can make a firm offer to buy or sell goods (a binding free option)
23
Q
who is a merchant?
A
someone who regularly deals in the type of good at issue, i.e., a businessperson, of a person holding himself out as having knowledge or skills particular to the goods. For purposes of this rule, a merchant is any business person, when the transaction is commercial in nature.
24
Q
what are the requirements of a firm offer?
A
a firm offer must be written, signed by the offeror, and contain an explicit promise not to revoke.
25
what is the time period of a firm offer?
either (1) as long as stated in the offer, or (2) for a reasonable time period not to exceed 90 days. According to UCC 2-205, the "reasonable time" is not to exceed 3 months.
26
What is a unilateral contract (offeror has started performance)
A unilateral offer to contract cannot be revoked by the offeror if the offeree has started to perform. A unilateral contract arises from a promise that requests acceptance by an action of the promise.
27
what is a bilateral contract?
a contract where a promise is exchanged for a return promise
28
Once an offeree begins performance of a unilateral contract, are they required to complete performance?
No they can stop at any time.
29
What is detrimental reliance?
arises when an offeree reasonably and detrimentally relies on the offer in some foreseeable manner. Look for a general contractor/subcontractor context. This is a special variant of the reliance theory of contractual liability (sometimes called "promissory estoppel."
30
Definition of acceptance
a manifestation of a willingness to enter into the agreement by the offeree
31
what test is acceptance governed by?
the objective test
32
In regards to unilateral vs bilateral offers, who decides which type of offer to make?
The offeror decides which type of offer to make, and the offeree must play by those rules.
33
What if there is ambiguity about whether the offer is a unilateral or bilateral offer?
Under the modern approach, acceptance can be by either performance or a return promise.
34
What happens if a seller tries to accept an offer by shipping the wrong goods?
The UCC treats this as an acceptance plus breach.
35
Must an offer be specifically directed to the person trying to accept it?
Yes
36
With an open-to-all offer, must you know about that offer in order to accept it?
Yes
37
Do you have to communicate your acceptance to the other party in order for it to become effective?
Yes, you must normally communicate your acceptance to the other party in order for it to become effective.
38
What does the mailbox rule deal with?
timing issues that arise when communicating an acceptance...the general rationale is to determine when an acceptance has been legally communicated when there is some delay between sending and receiving.
39
what is the mailbox rule?
an acceptance by mail is effective when the latter is sent/posted.
40
when does the mailbox rule NOT apply?
1) if the offeree sends something else back first (rejection, counteroffer)
2) to other types of communications (revocations, rejections)...this rule only applies to acceptance.
3) to option contracts
4) it is unclear whether this applies to other media (fax, email).
41
What are the exceptions to the requirement that you must communicate an acceptance to the offeror?
1) unilateral reward offers or contests (lost cat Monster)
2) unilateral offer in which the parties are geographically close (such that the offeror will see that performance has occurred)
3) a past history of silence serving as acceptance (such that the offeree should reasonably notify the offeror if she does not accept)
4) the offer says that acceptance must come by silence, and the offeree intends to accept the offer by silence.
42
what are implied-in-fact contracts?
This is where you can communicate an acceptance without writing or speaking. This communication by gestures or actions is called an "implied-in-fact" contract.
43
What is an example of an implied-in-fact contract?
I walk into Cheapcuts, a popular haircut franchise where the
service offerings and prices are posted above the cash register. The energetic receptionist offers to put my name in, and I sit down to wait. A short time later, someone comes forward and calls my name. I follow, and she cuts my hair.
When I walk toward the exit, the receptionist tells me that I owe them $15. Here, you must pay because this is an implied-in-fact contract.
44
What is the common-law mirror image rule?
the terms in the acceptance MUST match the terms of the offer exactly - or it is not an acceptance, but a counteroffer. A conditional acceptance is another form of a counteroffer (look for "if", "only if", "on the condition that", "but", etc.
45
What is the UCC rule regarding acceptances that do not match the terms of the offer exactly?
UCC 2-207, it is more forgiving for acceptances that do not match the terms of the offer exactly. The UCC replaces the mirror-image rule with 2-207. In some cases, a purported acceptance that does not match the terms of the offer exactly can still count as a legal acceptance (but do not assume that all terms in the purported acceptance will govern the contract).
46
text of 2-207(1)
A definite and seasonable expression of acceptance [or a written confirmation] which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional upon assent to the additional or different terms.
47
Under 2-207(2), when may an additional/new term within an acceptance control?
All of the following must be true:
1) both parties are merchants
2) the new term does not materially alter the deal
3) the initial offer did not expressly limit acceptance to its terms; and
4) the offeror does not reject or object within a reasonable time to the new term.
48
What is the knock-out rule? (different terms) (minority and majority approaches)
arises when the acceptance has a different term from the initial offer (as opposed to just an additional term)
Minority: when the different term does not govern under 2-207(2), the initial offer controls the terms
Majority: "knock out" both of the different terms; neither term will govern and the general gap-filling provisions of the UCC will apply.
49
UCC 2-207(3) - acceptance based on conduct
Parties might fail to make a contract but still act as though there is an agreement (exchange goods for money)...
Under UCC 2-207(3), only the terms that both writings agree on become part of the contract, with all other terms supplied by the UCC default rules.
50
What is an confirming memo under 2-207?
arises when the parties have a contract (usually by verbal agreement) and one party sends a confirming memo with additional terms. If you see a fact pattern (early agreement + written confirmation with new terms), work through the same steps as 2-207(2) but recognize that the new terms will very rarely come in.
51
bargained for consideration
consideration - a deal in which the parties exchange promises involving a legal detriment or benefit.
Ask the following questions:
1) who is making the promise that needs to be supported by law?
2) is there a benefit to the promisor or a detriment to the promisee? (just need one)
3) was this bargained for? (did the parties think that they were making a deal when they exchanged promises?)
52
What is a legal detriment?
not doing something that you are legally entitled to do (ex: not watching the bachelor)
53
Do gift promises and conditional gifts count as bargained for consideration?
Nope
54
Adequacy of consideration (nominal consideration)
a pretense of consideration is insufficient (ex: I promise to sell you my jeep for $1...is that bargained for consideration? no because $1 is inadequate).
55
Is a difference in economic value between the items exchanged grounds for finding inadequate consideration?
No it is not...as long as there is enough value, even subjective value to the person receiving it, consideration will be adequate.
56
If you promise to buy my jeep for $5,000 on December 1, "if you feel like it" is there bargained for consideration?
No this is an illusory promise
57
Must there be a way for a promisor to breach an agreement for there to be consideration?
Yes, a promisor must clearly commit to the deal or there is no consideration and it would be an illusory promise.
58
Are satisfaction contractions illusory?
No; they are real contracts with consideration
59
Is past consideration consideration?
Nope, past consideration is not consideration.
60
When is promising not to sue (settling a legal claim) sufficient consideration?
settling a legal claim can be sufficient consideration, but only if:
a) the plaintiff has a good faith belief in the validity of the claim; or
b) there is reason to doubt the validity of the claim due to uncertain law.
61
What is the common law preexisting duty rule for contract modification?
a promise to do something that you are already legally obligation to do is NOT consideration.
62
what are some exceptions to the preexisting duty rule for contract modification?
1) a change in performance
2) a third party promising to pay; or
3) unforeseen difficulties that would excuse performance.
63
When someone is promising partial payment for release from a debt obligation, is the modification going to be finding if the debt is currently due or undisputed?
no, it is not going to be binding.
64
Does the UCC follow the preexisting duty rule?
Nope, under the UCC ask whether the modification is made in good faith. If so, it is binding even without new consideration.
65
When does promissory estoppel arise?
can arise when one party makes a promise, and the other party relies on that promise to take some action.
66
what are the 3 key elements for a claim under reliance (promissory estoppel)?
1) a promise is made that would be reasonably expected to induce reliance;
2) the promisee does indeed take detrimental action in reliance on the promise; and
3) injustice can only be avoided by enforcement of the promise.
67
Do charities have to prove detrimental reliance for a reliance claim?
Nope, charities do not need to prove detrimental reliance (the second element of promissory estoppel) when pursuing a reliance theory to collect on a charitable-gift promise.
68
When does a quasi-contract/contract implied-in-law arise?
arises when you would have made a contract if you could have, but you could not, or when one party conferred a benefit on another party, and it would be fair to pay for that benefit.
69
Quasi-contract elements
1) the plaintiff confers a measurable benefit on the defendant;
2) the plaintiff reasonably expected to get paid; and
3) it would be unfair to let the defendant keep the benefit without paying
(look for an opportunity to decline or a good reason why there was no opportunity to decline).
70
What are quasi-contract damages limited to?
they are often limited, as justice requires, to the fair value of the benefit conferred.
71
What is the moral obligation plus subsequent promise (the "half theory")?
a few jurisdictions have some case law suggesting that a moral obligation plus a subsequent promise to pay can be binding. Normally, this would be past consideration and thus not be binding.
72
7 defenses to contract formation (the D in "All Contracts Don't Stink")
1) misunderstanding
2) incapacity
3) mistake
4) fraud/misrepresentation/ nondisclosure
5) duress
6) illegality
7) unconscionability
73
misunderstanding (arises when)?
arises when each party attaches a different meaning to the same words
74
What must be shown for the defense of misunderstanding?
1) the parties use a material term that is open to two or more reasonable interpretations (the objective test cannot apply);
2) each side attaches a different meaning to the term; and
3) neither party knows, or should know, of the confusion.
75
who lacks capacity to make a contract?
1) minors/youths (under age of 18)
2) people who are mentally ill
3) very intoxicated persons (if other side knows or has reason to know this).
76
what are the two standards for mental illness?
1) the person cannot understand the nature and consequences of his actions; or
2) the person cannot act in a reasonable manner in relation to the transaction (if the other side knows of has reason to know this).
77
what happens if you make a K with a person who lacks capacity?
1) the K is voidable (the incapacitated party can disaffirm)
2) contract for necessities? (necessity = something you really need to live like food, clothing, or shelter): then the party without capacity must still pay fair value (not necessarily the K price).
3) a party without capacity can ratify the deal by keeping the benefits of the K after capacity is obtained.
78
What is a mistake?
a mistake is a belief that is not in accord with a present fact.
79
Under mutual mistake, what are the requirements for the adversely affected party to rescind?
1) there is a mistake of fact, existing at the time that the deal is made;
2) the mistake relates to a basic assumption of the K and has a material impact on the deal; and
3) the impacted party did not bear the risk of the mistake.
80
Under unilateral mistake (one party's mistake), what are the requirements for the adversely affected party to rescind?
1) she can prove all of the elements of mutual mistake AND
2) either:
- the mistake would make the K unconscionable; or
- the other side knew of, had reason to know of, or caused the mistake.
81
what is a misrepresentation?
a statement at the time of contracting that is not true (can be intentional aka fraudulent or accidental)
82
what must a party show to assert the misrepresentation defense?
1) a misrepresentation of a present fact (not opinion);
2) that is material OR fraudulent (intentional); and
3) that is made under circumstances in which is is justifiable to rely on the misrepresentation.
83
what is fraud in the execution?
when you trick someone into signing something that they do not even know is a K. If you do this, the person who signed unknowing it was a contract will not be bound.
84
when does nondisclosure amount to misrepresentation?
while normally you do not need to tell the other side about all material facts related to the deal, there are exceptions if there is a special (fiduciary) relationship or active concealment where steps are taken to conceal something.
85
What is duress?
an improper threat that deprives a party from making a meaningful choice to contract
86
what is economic duress?
arises when one party makes threats to induce another party to K (or modify a K).
87
what is undue influence?
arises when one party puts very intense sales pressure on another party, who often seems weak-minded or susceptible to high-pressure sales tactics.
88
are illegal contracts enforceable? What about a contract entered in furtherance of an illegal act that is not itself illegal?
Nope to the first question. Answer to the second question is that such a K will still be enforced.
89
what results from an illegal K?
typically, the law will just leave the parties where they stand. However, there is a modern trend toward allowing less-guilty parties to recover restitution (get their money back)
90
are Ks against public policy enforced?
Nope...these are contracting situations that are not formally illegal but present some other policy concern (broad exculpatory agreement).
91
what is the unconscionability defense?
where everything seems fine but the court simply looks at the deal and says this shocks my conscience.
there are two varieties:
1) procedural = defect in the bargaining process itself (hidden term or absence of meaningful choice)
2) substantive = rip-off in some term of the K.
some jurisdictions require both varieties to be present before a deal is struck down while others may act if only one variety is present.
92
what are the two questions with regard to SOF?
1) does it apply to the transaction at issue?
2) if so, has it been satisfied?
93
SOF applies to which types of contracts?
Mr. SOUR
M - marriage (contracts made in consideration of marriage..ex. prenup)
S - suretyship (K promising to guarantee the debt of another)
O - one year (K that by its terms cannot be performed within one year from its making)
U - UCC (applies to goods for a price of $500 or more)
R - real property (k for the sale of an interest in real property)
94
main purpose exception to suretyship SOF rule
if the main purpose in agreeing to pay the debt of another is for the surety's own economic advantage, then we are not in SOF world.
95
how is the one-year rule for SOF interpreted?
very narrowly, the question is whether there is NO POSSIBLE WAY for the K to be performed within one year.
96
are all contracts involving real property in SOF world?
NOPE only those transferring an interest in the property....leases of less than one year are usually not in SOF world.
97
what are the 2 main ways to satisfy the SOF?
by performance or by writing. However, the exact requirements differ between UCC and common law
98
SOF: service contracts that cannot be performed within one year
full performance of a services contract by either side satisfies the SOF. However part performance of a services contract does not satisfy SOF.
99
SOF: a writing signed by the party against whom the K is asserted
Both signatures are not needed on the writing, just the one whom you're enforcing the K against.
The writing does not need to be a formal contract.
It must cover fundamental facts: (1) show that a K has been made; (2) identify the parties; and (3) contain the essential elements of the deal.
100
For real estate, what satisfies the SOF?
a signed writing will satisfy the SOF.
Part performance of a real estate contract can satisfy the SOF if any two of the following 3 elements are met:
1) possession
2) payment
3) improvements to the land
101
SOF under the UCC (goods) - signed writing (how does it differ from common law)?
a signed writing will satisfy the SOF, but requirements differ a little from common law:
- there is no need to mention the PRICE
- the writing must mention the quantity of the goods sold.
102
SOF under UCC - part performance
part performance satisfies the SOF under the UCC but only for the quantity delivered and accepted.
103
SOF under UCC - custom-made (or specially manufactured) goods
these are exempted from the SOF...the maker can satisfy the SOF as soon as it makes a substantial beginning toward the manufacturing of the goods.
104
Does a judicial admission satisfy SOF under UCC?
a judicial admission includes a statement in a pleading or during testimony and it satisfies the SOF under the UCC.
105
Confirming memo - UCC
the failure to object to a confirming memo within 10 days will satisfy the SOF - but ONLY IF both parties are merchants.
106
do you need a signed writing to authorize an agent to form a K that is in SOF world?
Yes - this is known as the equal dignity rule.
107
If you have a K that is in SOF world, and the requirements are met, if you want to modify the K, must the modification also satisfy the SOF?
not automatically...
ask whether the deal, with the alleged modification, would be in the SOF world.
- if so, the SOF requirements must be met for the modification
- if not, there is no SOF requirement.
108
Parol evidence rule
if the parties have reduced their contract to a comprehensive writing, then earlier statements or writing related to this agreement are not part of the deal under the PER.
109
Does PER apply to later written or verbal agreements about the deal?
No, that's a modification
110
Does PER apply to earlier written documents?
yes
111
Gateway question for PER
have the parties created an integrated writing?
complete integration = the contract expresses all terms of the agreement
partial integration = there is a final writing, but some terms are not included.
112
what is evidence of a complete integration?
merger clause ("this is the entire agreement between the parties")
113
What happens if a court determines that under the circumstances, an extrinsic term of the agreement would "naturally be omitted" from the writing?
If that is the case, it may not violate the PER and can be introduced as evidence IF it does not contradict the writing.
114
PER and UCC
UCC is more forgiving...it presumes that a writing is, at most, only a partial integration UNLESS the parties would have certainly included a disputed term in the writing.
115
what are situations in which the PER does not apply to bar earlier evidence?
1) will not bar evidence relevant to a defense against K formation
2) even if a writing is completely integrated, a party can introduce evidence of a second, separate deal.
3) even if a writing is completely integrated, a party might be able to introduce evidence of a prior communication that is designed to interpret an AMBIGUOUS TERM in the final agreement.
116
SOF vs PER
if the question does not have a signed writing think SOF...whereas if the question does have a signed writing, along with an earlier discussion of the deal, think PER.
117
What is a warranty?
a warranty is a promise about a term of the K that explicitly shifts risk to the party making the promise
118
can you disclaim all warranties?
yes... ex: if you sell on an "as is" basis.
119
express warranty
a promise that affirms or describes the goods and is part of the basis of the bargain is an express warranty unless it is merely the seller's opinion. The use of a sample or model creates an express warranty that the goods sold will be like the sample.
120
implied warranty of merchantability
This warranty is triggered only when the seller is a MERCHANT dealing in the goods at issue. It warrants that the goods are fit for ordinary commercial purposes. A merchant can disclaim this warranty if it is very clearly done (look for VERY CONSPICUOUS language; and look for the term "merchantability"). "As is" basis may also disclaim the warranty...the disclaimer may be oral, but it must use the term "merchantability" and must be conspicuous if in writing.
121
Implied warranty of fitness for a particular purpose
This is triggered when a buyer relies on a seller's expertise to select a special type of good that will be used for a special purpose. It warrants that the goods will satisfy this purpose. A non merchant can extend this warranty by implication as long as the buyer relies on the seller's expertise. It can be disclaimed but must be conspicuous and the disclaimer must be in writing.
122
What are express conditions
These are conditions that are created by language in the contract (look for magic words like "only if", "provided that", "on the condition that," "only in the event that," etc.).
123
Do express conditions need to be strictly satisfied?
Yes, unless the condition is somehow excused.
124
How are express conditions met?
It depends on the nature of the performance...
the preferred approach is to use an objective standard of satisfaction (if most reasonable people would be satisfied, then the condition is met).
However, contracts involving taste, such as art or tutoring services, use a subjective standard (but the party can still breach if they claim dissatisfaction in bad faith).
125
Waiver (of conditions)
the party receiving the protection of the condition may waive the condition by words or conduct. A condition will also be waived if the other party wrongfully interferes with or hinders the occurrence of the condition (this will be judged by a good-faith standard).
126
The constructive condition of exchange (CCE)
When one party's performance is conditioned on the other side's performance. For example, if you agree to buy my jeep for $5,000 next Friday and the day we meet I refuse to sign over the pink slip, then you do not have to pay me the $5,000.
127
What satisfies the constructive condition of exchange under the common law?
the doctrine of substantial performance states that a party will satisfy the CCE if there is not a material breach (material = big deal).
Additionally, substantial performance only works to satisfy the CCE if the failure is not willful.
128
Under common law, if substantial performance is met and payment must be made because there is only a minor problem, can the no breaching party recover damages for the deficiency?
Yes...these are typically measured as the cost to complete the performance and is sometimes limited to the diminution in market value.
129
Can a breaching party who fails to satisfy the CCE due to a material breach get paid anything?
Not on the contract but maybe as a quasi-contract.
130
can a breaching party who fails to satisfy an express condition get paid in quasi-contract?
Usually not, express conditions must be strictly satisfied.
131
If a contract is clearly divisible, will it be broken into mini-contracts for the purposes of determining if there has been substantial performance?
Yes
132
If the contract involves goods, should you discuss substantial performance or material breach?
NOPE, UCC requires perfect tender... there are however exceptions if the K explicitly changes the default rule or in the case of installment contracts.
133
two main obligations of perfect tender
1) perfect goods
2) perfect delivery
134
Under the UCC, can a buyer revoke an acceptance of the goods if the goods seem OK when delivered but a defect is discovered within a reasonable time?
Yes
135
What is the seller's right to cure?
if the seller fails to tender perfect goods and time is left on the K or the seller had reasonable grounds to believe that the buyer would accept a replacement, then the buyer must give the seller a chance to cure the deficiency.
136
what is the default method of delivery under the UCC?
One delivery of the goods
137
If there is an installment K under the UCC, when can a buyer reject a specific delivery that is not perfect?
Only where there is a substantial impairment in the installment that cannot be cured.
138
what actions must a seller take to satisfy perfect delivery in a shipment contract?
1) get the goods to a common carrier (like UPS)
2) make arrangements for delivery; and
3) notify the buyer
139
destination contract
if the K is a destination K, then the seller must get the goods to the buyer's business and notify the buyer.
140
If there is a goods K, followed by damage or destruction of the goods before the buyer receives them, who bears the loss, the seller or buyer?
1) did the parties already deal with this issue in the K? if so the K will control.
2) did either party breach? if so, the breaching party bears the risk of loss...this is true even if the breach is totally unrelated to the delivery damage.
3) if there was no breach, and the goods are being shipped, was it a shipment or destination K? If it was a shipment K, then the risk of loss during delivery rests with the buyer. If it was a destination K, then the risk of loss during delivery rests with the seller.
4) in all other cases, ask whether the seller is a merchant. If so, the risk of loss stays with the seller until the buyer receives the goods, if not, the risk of loss moves to the buyer when the seller tenders the goods.
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what is a K excuse?
when there is a K but something has happened to prevent one side from having to perform.
The excuses include:
1) impossibility and impracticability
2) death after a K
3) frustration of purpose
4) performance is excused because the initial K has been modified or canceled.
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common fact patterns for impossibility and impracticability
- performance becomes illegal after the K is formed
- the subject matter of the K is destroyed or
- in a services K with a "special person" the performing party dies or is incapacitated.
143
Does something that makes performance more expensive than expected excuse performance?
Nope...look for something that hinders the ability to perform, not just the cost to perform. Look for an unforeseen event in which the non-occurrence of the event was a basic assumption of the K, and the party seeking discharge was not at fault.
144
Does dying normally excuse liability on a K that has been made?
Nope...the estate will normally be on the hook for any contractual obligations. However, if there is something special about the person performing (like Mick Jagger performing), then that may excuse the K since it may make no sense to continue.
145
frustration of purpose
This is where performance can still occur but something has happened to undermine the entire reason for the creation of the K. This is very rare, the event must be extreme and not previously allocated to one of the parties.
146
Can parties ever just walk away from a K?
Yes, as long as there is performance remaining from each side. Otherwise, there is no consideration for the modification (this is called rescission or cancellation by mutual agreement)
147
accord and satisfaction
the parties to an earlier contract can agree that performance will be satisfied instead by the completion of a different performance...this new performance is called the accord and the excusal of the initial performance obligation is called the satisfaction. If the accord is not performed, the other side can sue on either the original obligation or the new promise.
148
accord & satisfaction versus modification
if the party to perform has an option to satisfy the K obligation by doing something else, then that is an accord and satisfaction. However, in a modification, it is clearer that the parties have changed the performance obligation.
149
Novation
arises when both parties agree that a substitute person will take over the contractual obligations. In a valid novation, then the original promisor will be excused from performance.
150
can one side decide to create a novation by asking someone else to do the work?
Nope, that is a delegation.
151
anticipatory repudiation: what are the remedies when the other side says they are not going to perform on the K (repudiation) before performance is due?
if a party clearly and unequivocally repudiates, the non breaching party has two options:
1) treat the repudiation as a breach and sue immediately for damages (BUT, if you have completed the entire performance and are only waiting for payment, you cannot sue early)
2) ignore the repudiation, demand performance, and see what happens.
152
can a party retract its repudiation?
yes, as long as the other side has not:
1) commenced a lawsuit; or
2) acted in reliance on the repudiation (by materially changing its position)
153
UCC - adequate assurance
Under the UCC, if reasonable grounds for insecurity about the other side's performance, then you may demand adequate assurance of performance. If the party fails to respond within a reasonable time, you can treat this as repudiation.
154
what is the normal way to calculate damages in contracts?
expectation damages...the goal of these damages is to put the party in the same economic position it would be in if the K has been performed as promised.
155
how are expectation damages measured?
they are measured by comparing the value of the performance without the breach to the value of the performance with the breach.
156
Limits on expectation damages
1) they must be proven with reasonable certainty
2) unforeseeable consequential damages are not recoverable unless the breaching party had some reason to know about the possibility of these special damages at the time of contracting.
3) mitigation: a breached-against party must take reasonable steps to reduce damages from breach.
157
what are the two categories of damages
1) general damages: the type of loss that almost anyone would incur from a breach (also includes incidental damages such as the cost of storing rejected goods, or finding a new buyer, or finding a replacement vendor);
2) consequential damages: losses that are unique or special to this plaintiff.
158
If a party refuses to mitigate, will the law calculate the damages as if the party did mitigate?
Yes
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who bears the burden of proving a mitigation failure
the defendant
160
Lost Volume Profits (LVP)
if the paying party breaches, then normally the selling party needs to mitigate by reselling the goods or services to another person. But if the seller is a retailer who sells this type of product all the time, the seller might try to argue LVP. LVP is calculated by putting them in the situation they would be in if the K was honored (whatever profits they would have made from the sale).
161
If the paying party breaches in a partially completed building K, can the builder continue to work on the job?
No, this runs counter to mitigation - it would be "running up the damages."
You should adjust the recovery to take into account the fact that the builder did don't need to finish the job. Use this formula: expectation damages = contract price - amount already paid - amount that would be needed to finish the job.
162
Economic Waste and Diminution in Market Value Damages
While the normal measure of expectation damages is the cost to complete the job, sometimes the cost-to-complete damages will dramatically overcompensate the plaintiff. Diminution in market value is a measure that looks at how much lower the market value of what you got versus what you wanted. For DMV the breaching party normally must have acted in an innocent and unintentional manner for DMV damages.
163
Reliance Damages
the goal is to put a party in the same economic position that it would be in if the K had never been created in the first place...ask what loss has the plaintiff incurred that would never have taken place but for the breached K?
164
can a party recover both expectation and reliance damages?
Nope
165
Restitution Damages
the goal is to give the plaintiff an amount equal to the economic benefit that the plaintiff conferred on the defendant. This can sometimes equal reliance damages, but it need not.
166
Liquidated Damages
Stated in the K as an explicitly negotiated amount due upon breach. Courts are wary about awarding punitive liquidated damages and will do so only if:
- the amount of liquidated damages was reasonable at the time of contracting; and
- actual damages from breach would be uncertain in amount and difficult to prove.
167
Punitive Damages
These are almost never allowed in K law. Don't worry about these unless you see a breach that also seems like a tort.
168
when is specific performance/injunction (equitable relief) awarded in K law?
only when monetary damages are considered inadequate for some reason. It is available for real estate transactions since every parcel is considered unique. It is presumptively not available for contracts of personal service (could might grant an injunction prohibiting a breaching party from performing similar services for a competitor for a reasonable period of time/place).
169
is specific performance available for sale of goods under UCC?
only for unique goods like art of custom-made items.
170
Right of reclamation
Arises when an unpaid seller tries to reclaim goods that were sold on credit when the buyer is insolvent. To assert this remedy, the following facts must be present:
1) the buyer is insolvent at the time of receipt of the goods;
2) the seller must demand the return of goods within 10 days of receipt (or within a reasonable time if the buyer misrepresented his insolvency to the seller in writing within 3 months before delivery); &
3) the buyer still has the goods.
171
Which third party beneficiaries have the right to sue?
Intended beneficiaries...incidental ones do not. To determine whether a given 3rd party is an intended or an incidental beneficiary, ask whether the initial counterparties (promisor and promisee) intended to convey enforcement rights to the 3rd party in the event of a breach.
172
what is a creditor beneficiary
when the promisee strikes a deal with the promisor in order to repay some earlier debt to the third party.
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what is a donee beneficiary
arises when there is no preexisting obligation, but the promisee clearly intends to confer a gift of enforcement on a third party.
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a 3rd party will not lose enforcement rights if any of the following facts are true, as these facts cause the right to vest:
1) the beneficiary detrimentally relies on the rights (similar to promissory estoppel);
2) the beneficiary manifests assent to the contract; or
3) the beneficiary filed a lawsuit to enforce the K.
175
can a promisor assert any K defense against the third party that he would be entitled to assert against the promisee?
Yes
176
Assignment
the transfer of rights under a K
177
Delegation
the transfer of duties under a K
178
If a K prohibits assignments what happens?
the assigning party has beached when he makes the assignment, but the 3rd party can still recover from the guarantor
179
if the K invalidates assignments, what happens?
the 3rd party cannot recover because there is no power or right to assign.
180
what happens if someone assigns the same rights twice?
It depends on whether the assignee has paid consideration for the rights; if the rights are assigned without consideration, the assignment is generally revocable and the last assignment controls. If the rights are assigned for consideration, then the first assignment for consideration is typically irrevocable and will hold.
181
What happens if the second assignee does not know of the initial assignment and is first to obtain payment or a judgment (bona fide purchaser for value without notice)
a later assignment will take priority.
182
Is delegation acceptable?
generally, as long as the K does not prohibit delegation and as long as the other party does not have some special interest in having a special individual perform.
183
Is a delegate ever liable for breach?
generally not unless she receives consideration from the delegating party.
184
Under the UCC parol evidence rule, does it presume partial or complete integration?
Presumes partial integration and evidence that supplements is admissible but if it contradicts it then it is inadmissible.
185
Is a revocable assignment of contractual rights (such as one not supported by consideration) revoked upon death, incapacity, or bankruptcy?
Yes
186
Can a nonrepudiating party who materially breached the K recover damages for the other party's anticipatory breach?
No they cannot because the material breach discharges the other party's duty to perform.
187
When are consequential damages (losses arising from the parties' special circumstances) recoverable?
Only if they were reasonably foreseeable to the breaching party when the K was entered into.
188
does the mailbox rule apply to firm offers?
Nope
189
When is an acceptance of a firm offer, option, or other irrevocable offer effective?
only when it is received by the offeror.
190
Does a buyer have any duty with respect to goods they are rejecting due to imperfect tender?
a buyer must retain rejected goods for a reasonable time to allow the seller to reclaim them. In the absence of clear instructions, the buyer must sell the goods on the seller's behalf if the buyer is a merchant, the goods are perishable, and there is no local agent to whom the goods can be returned.
191
condition precedent parol evidence exception
evidence used to establish a condition precedent that must occur before a K becomes effective is admissible under an exception to the parol evidence rule.
192
UCC assortment of goods rule
the UCC imposes a duty on the buyer of assorted goods to specify the assortment unless the K states otherwise. The seller can treat the buyer's failure to specify the assortment as a breach ONLY IF it materially impacts the seller's performance.
193
UCC installment K rule
under the UCC, each shipment in an installment K is to be separately accepted by the buyer and payment by the buyer is due upon each delivery unless the price cannot be apportioned.
194
Do mere indecisions and inquiries (requests for clarification) constitute counteroffers?
Nope!
195
Under the UCC, is it presumed that a written K is only partially integrated?
Yes
196
UCC rule on goods sold at auction
during a reserve auction, the auctioneer may withdraw goods from auction prior to completion of the sale.
At a no-reserve auction, goods generally cannot be withdrawn after the auctioneer calls for bids.
197
If debt is certain and undisputed, can it be satisfied by a check for a lesser amount?
Nope! This is the case even if the creditor cashes the check.
198
An accord requires consideration to be valid, such consideration can be worth less than what was agreed to in the original K only if?
1) there is a good faith dispute as to the amount owed or
2) the new consideration is of a different type than what was owed under the OG K.
199
Is a new promise to pay a debt after the SOL has run enforceable without any new consideration?
Yes
200
What can a substantially performing party recover under the K?
generally, the K price - the cost to the other party of obtaining full performance.
201
when does material breach of K occurs?
when the nonbreaching party does not receive the substantial benefit of the bargain.
202
what does a material breach allow the non-breaching party to do?
withhold any promised performance and to pursue remedies for breach including damages.
203
If restitution available if the breach was willful?
NOPE....restitution is only available if the breach was NOT willful. A party who intentionally furnishes services that are materially different from what was promised cannot recover anything in restitution UNLESS the non-breaching party has accepted or agreed to accept the substitute performance.
204
Economic waste
when breach results in a defective or unfinished construction....if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may instead award damages equal to the diminution of market price caused by the breach. Economic waste occurs when the cost to complete construction is clearly disproportional to any economic benefit or utility gained as a result.
205
In construction contracts, what is the general measure of damages for a contractor's failure to begin or to complete a building project?
the difference between the K price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for the delay in completing construction.
205
what are consequential damages? what do they have to be to be recoverable?
a direct result of the breach but need not be the usual result of the breaching party's conduct. They must be the reasonably foreseeable result of the breach given the parties' specific circumstances. The breaching party must have reasonably foreseen the consequential damages for them to be recoverable.
206
when are consequential damages foreseeable?
when they were a natural and probable consequence of the breach, if they were "in the contemplation of the parties at the time the K was made" or if they were otherwise foreseeable.
207
At a reserve or no-reserve auction, does a bidder have the right to withdraw a bid until the auctioneer announces the completion of the auction sale? If so, does the bidder's retraction revive any prior bids?
The bidder does have the right to withdraw until the auctioneer announces the completion of the auction sale. However, the bidder's retraction will not revive any prior bids.
208
When does a person lack capacity to enter into a K based on intoxication?
When:
(1) that person who was too intoxicated to reasonably understand the nature or consequences of the K &
(2) the other party had reason to know of the intoxication.
209
Under the UCC, are no-oral-modification clauses generally enforceable?
Yes, if they are contained in a written signed contract.
210
When may a non-breaching seller reclaim goods from a buyer based on insolvency?
When the seller (1) discovers the buyer received the goods on credit when insolvent; and (2) demands the goods be returned within 10 days after their receipt. However, this 10 day limitation does not apply when the buyer misrepresented its insolvency in writing within 3 months before delivery.
211
When a buyer repudiates a K that deals with specifically identified goods, what occurs regarding risk of loss and recovery of deficiency?
The risk of loss immediately passes from the seller to the buyer. When this occurs, the seller can recover any deficiency between the seller's insurance coverage and the K price within a commercially reasonable time.
