Contractual Duties Flashcards
(211 cards)
1
Q
What is the most common way to discharge or terminate contractual duties?
A
By the performance of those duties.
2
Q
What does it mean to discharge a contract by performance?
A
It means both parties fulfill their contractual obligations, ending the contract.
3
Q
In a contract for the sale of a Lexus RX for $48,000, how is the contract discharged by performance?
A
The buyer pays $48,000 to the seller, and the seller transfers possession of the Lexus to the buyer.
4
Q
What are absolute promises in a contract?
A
Promises that must be performed regardless of any conditions; failure to perform constitutes a breach of contract.
5
Q
What is a condition in a contract?
A
A qualification based on a possible future event that affects a party’s obligation to perform.
6
Q
What happens if a condition in a contract is not satisfied?
A
The obligations of the parties are discharged.
7
Q
What is a condition precedent?
A
A condition that must be fulfilled before a party’s duty to perform arises.
8
Q
Give an example of a condition precedent in a contract.
A
A university housing lease conditioned on the person being a student at the university.
9
Q
In Maciel v. Regent University, why was Maciel’s lease terminated?
A
Because his continued occupancy was conditioned on being an RU student, and he withdrew from the university.
10
Q
What did the court decide in Maciel v. Regent University?
A
The court affirmed his trespassing conviction, stating that student enrollment was a condition precedent to housing rights.
11
Q
How are most contracts discharged?
A
By performance—when both parties fulfill their contractual duties.
12
Q
What is a tender in contract law?
A
An unconditional offer to perform by a party ready, willing, and able to do so.
13
Q
What are the two basic types of performance in contract law?
A
Complete performance and substantial performance.
14
Q
What is complete performance?
A
Performance that exactly matches the terms of the contract; any deviation is a breach.
15
Q
What is substantial performance?
A
Performance that does not vary greatly from the contract terms and provides substantially the same benefits.
16
Q
What are the requirements for substantial performance?
A
1) Good faith, 2) Minor variations only, 3) Substantially same benefit provided.
17
Q
What happens if performance is not substantial?
A
It is considered a material breach, and the nonbreaching party is excused from performance.
18
Q
What damages are awarded for substantial performance?
A
The cost to bring the performance into compliance, or the difference in value if cost is unreasonable.
19
Q
What did the court decide in Jacob & Youngs v. Kent?
A
Substantial performance was present; the plaintiff was entitled to payment minus the difference in value.
20
Q
When must performance personally satisfy a party in a contract?
A
When the subject matter is personal, like art or tailoring.
21
Q
When is satisfaction judged by a reasonable person?
A
When the contract’s subject matter is mechanical or commercial, unless stated otherwise.
22
Q
A
23
Q
Can a party sue for any breach?
A
Yes, but only a material breach discharges the nonbreaching party’s duties.
24
Q
What is anticipatory repudiation?
A
When one party refuses to perform before performance is due; treated as a material breach.
25
Why is anticipatory repudiation treated as a material breach?
To allow the nonbreaching party to mitigate damages and avoid waiting unnecessarily.
26
When is time for performance considered vital in a contract?
When the contract expressly states that time is “of the essence.”
27
What if no time for performance is stated in a contract?
A reasonable time is implied for performance.
28
What can happen if a party fails to complain about a delay in performance?
They may be considered to have waived the breach of the time provision.
29
How can a contract be discharged by agreement of the parties?
Either through a term in the original contract or by forming a new contract for the purpose of discharging the original one.
30
What is mutual rescission?
The process by which both parties agree to cancel a contract and return to their pre-contract positions.
31
What must a mutual rescission include to be enforceable?
An offer, acceptance, and legal consideration—often each party’s promise not to perform.
32
Are oral rescissions always enforceable?
Oral rescissions are enforceable for executory contracts, but UCC and real estate contracts often require a writing.
33
When is additional consideration required for rescission?
When one party has fully performed and received nothing in return for canceling the contract.
34
What is a novation?
A new contract that substitutes a third party for one of the original parties, discharging the original obligation.
35
What are the four requirements for a valid novation?
1) A valid original contract, 2) Agreement of all parties, 3) Discharge of the old obligation, 4) A new valid contract.
36
How does novation differ from an assignment?
Novation discharges the original contract; assignment transfers rights but does not discharge the original duty.
37
What is a settlement agreement?
A new agreement between the original parties that settles a dispute and discharges the prior contract.
38
How does a settlement agreement differ from a novation?
A settlement does not involve a third party, while a novation does.
39
What is an accord and satisfaction?
An agreement to accept different performance (the accord), and its fulfillment (the satisfaction), which discharges the original duty.
40
What happens if the accord is not performed?
The obligee can sue on either the original contract or the accord.
41
Example: Fahreed agrees to accept Ling’s car instead of $8,000. What is this?
An accord. If the car is transferred, it is satisfied and the debt is discharged.
42
What distinguishes novation from accord and satisfaction?
Novation involves a new party and discharges immediately; accord and satisfaction involve different performance and suspend the original duty until satisfied.
43
What are the circumstances under which a contract may be discharged by operation of law?
Material alteration, statute of limitations, bankruptcy, impossibility or impracticability of performance, and frustration of purpose.
44
What is the effect of a material alteration of a contract?
If one party materially alters a written contract without consent, the innocent party can treat the contract as discharged.
45
What do statutes of limitations do in contract law?
They set time limits within which a party must sue for breach; after this time, the claim is barred.
46
What is the typical limitation period for breach of oral and written contracts?
Oral: 2–3 years; Written: 4–5 years.
47
What is the UCC time limit for breach of contract in the sale of goods?
4 years after the cause of action accrues, which can be reduced to 1 year but not extended.
48
What is the legal effect of a bankruptcy discharge on contractual obligations?
It prevents creditors from enforcing most of the debtor’s contracts; partial repayment does not revive the debt.
49
What is impossibility of performance?
When an unforeseen event makes performance objectively impossible, discharging the contract.
50
How is objective impossibility different from subjective impossibility?
Objective: “It can’t be done by anyone”; Subjective: “I can’t do it.” Only objective impossibility discharges a contract.
51
51
What are three examples of objective impossibility?
1) A party to a personal contract dies or is incapacitated, 2) Subject matter is destroyed, 3) Law change makes performance illegal.
52
What is temporary impossibility?
A temporary event suspends performance; once it ends, performance must continue as planned.
53
What did the court decide in the Hurricane Katrina house sale case?
The damage caused only temporary impossibility; the seller had to repair the house and honor the contract.
54
What is commercial impracticability?
When performance becomes extremely difficult or costly due to unforeseeable circumstances, possibly discharging the contract.
55
What must be shown to invoke commercial impracticability?
Performance became significantly more difficult/costly and the burden was not foreseeable when the contract was made.
56
What is frustration of purpose?
When unforeseen events undermine the contract’s central purpose, making the performance essentially worthless to one party.
57
How does frustration of purpose differ from commercial impracticability?
Frustration affects the value received; impracticability affects the difficulty or cost of performance.
58
What is a waiver of breach in contract law?
A knowing relinquishment of a legal right to require full and satisfactory performance of the contract.
59
What happens when a waiver of breach occurs?
The waiver erases the past breach, the contract continues, and the waiving party cannot take action on that breach.
60
Does a waiver of breach apply to the entire contract?
No, it applies only to the specific breach waived, not to the entire contract.
61
Can a waiver of breach extend to future breaches?
Generally, no—unless a pattern of waivers leads a reasonable person to believe future defective performance will also be acceptable.
62
How can a nonbreaching party avoid unintentionally waiving future breaches?
By giving notice that full performance will be required in the future.
63
Is the breaching party still liable for damages if a breach is waived?
Yes, the waiving party can recover damages caused by the defective or partial performance.
64
What is the purpose of waiving a breach in a business context?
To obtain any remaining benefit from the contract without declaring it terminated.
65
What are the five ways a contract can be discharged (Exhibit 13–3)?
By operation of law
By performance
By failure of a condition
By agreement
By breach
66
What are examples of discharge by operation of law?
Material alteration, statute of limitations, bankruptcy, impossibility or impracticability, frustration of purpose.
67
What are two types of performance that can discharge a contract?
Complete performance and substantial performance.
68
What is required for performance when discharge is based on a condition?
The condition must occur for the duty to perform to become absolute.
69
What are four types of discharge by agreement?
Mutual rescission, novation, settlement agreement, accord and satisfaction.
70
What are two ways a contract may be discharged by breach?
Material breach and anticipatory repudiation (including waiver of breach).
71
What are the two main types of mistakes in contract law?
Mistakes of value and mistakes of fact.
72
73
Example of a mistake of value that cannot be rescinded?
Buying a box of trading cards for $10 that includes a card later found to be worth $1,000.
74
What are the two types of mistakes of fact?
Unilateral mistake of fact and mutual mistake of fact.
75
What is the general rule for unilateral mistakes of fact?
The contract cannot be rescinded unless an exception applies.
76
What are exceptions to the rule against rescinding unilateral mistakes?
If the other party knew or should have known of the mistake, or if there's a clerical error causing unfairness.
77
Example of a unilateral mistake that could be rescinded?
A car buyer specifies a red Mercedes-Benz, but the invoice mistakenly says white due to a clerical error.
78
When can a mutual mistake of fact make a contract voidable?
When both parties are mistaken about a material fact at the time of contracting.
79
Example of a mutual mistake that leads to rescission?
A barren cow sold as beef is later found to be pregnant; both parties were mistaken about a material fact.
80
What must a claimant prove to rescind a contract based on mutual mistake?
That both parties were mistaken about the same material fact—no additional proof is needed.
81
What does impossibility of performance do to a contract?
It discharges the contract by operation of law.
82
What is subjective impossibility?
When a party claims they cannot perform the contract, but it may still be possible for someone else to do so.
83
What is objective impossibility?
When no one can perform the contract due to circumstances beyond control.
84
What is required for a contract to be discharged due to impossibility?
The event making performance impossible must not have been reasonably foreseeable at the time the contract was made.
85
What are the three types of impossibility that can discharge a contract?
Death, destruction of the subject matter, and illegality.
86
How does death lead to impossibility of performance?
If personal services are required and the party is deceased or incapacitated, the contract can be discharged.
87
Example of impossibility of performance due to death?
Chuck Morris, a movie actor, signs a contract but becomes incapacitated in a coma before shooting, discharging the contract.
88
How does destruction of subject matter lead to impossibility?
If the subject matter of the contract is destroyed, performance may be impossible, discharging the contract.
89
Example of impossibility due to destruction of subject matter?
Good Neighbor Farms contracted to deliver tomatoes, but a late frost destroys most crops, discharging the contract.
90
How does a change in the law lead to impossibility?
If a change in law makes performance illegal, the contract is discharged by operation of law.
91
Example of impossibility due to change in law?
Cyberdyne Systems contracts to deliver drones, but new legislation makes the drones' use illegal, discharging the contract.
92
What must a party prove when claiming impossibility due to death, destruction, or illegality?
The event must not have been reasonably foreseeable when the contract was signed.
93
What is specific performance?
Specific performance is an equitable remedy that requires the breaching party to fulfill its obligations under the contract.
94
When is specific performance typically used?
Specific performance is used when monetary damages are not enough to compensate the non-breaching party, often for unique or one-of-a-kind items.
95
Can specific performance be awarded in contracts for the sale of goods?
Specific performance is rarely awarded in contracts for the sale of goods because most goods have substitutes in the market.
96
Why might a court grant specific performance for the sale of the Mona Lisa painting?
A court may grant specific performance because the Mona Lisa is a unique, one-of-a-kind painting, and monetary damages would not fairly compensate the buyer.
97
Can specific performance be ordered for personal services?
No, specific performance is not granted for contracts involving personal services, such as an artist painting a portrait.
98
What happens if the buyer breaches a contract for the sale of a unique item?
If the buyer breaches a contract for the sale of a unique item, the buyer may be ordered to fulfill the contract, such as purchasing the unique item.
99
What remedy can a buyer pursue if specific performance is not granted?
If specific performance is not granted, the buyer can still pursue monetary damages for the breach.
100
What is the main obligation of the buyer or lessee under a sales or lease contract?
The main obligation is to pay for the goods tendered, and to accept the goods once delivery is properly tendered.
101
When must a buyer or lessee make payment in the absence of specific agreements?
The buyer or lessee must make payment at the time and place the goods are received.
102
What happens when a sale is made on credit?
The buyer must pay according to the specified credit terms (e.g., 60, 90, or 120 days), starting from the shipment date.
103
What must a lessee do under a lease contract?
A lessee must make the lease payment specified in the contract.
104
What is the buyer or lessee's right regarding payment method?
Payment can be made by any agreed method, including cash or another generally acceptable method in commerce.
105
Does a seller have to accept only cash payment?
If the seller demands cash, they must permit the buyer reasonable time to obtain it.
106
Does the buyer or lessee have the right to inspect the goods?
Yes, unless the parties otherwise agree, or in C.O.D. transactions, the buyer or lessee has the right to inspect before payment.
107
What does the right of inspection allow?
It allows the buyer or lessee to verify that the goods tendered conform to the contract.
108
What happens if the goods do not conform to the contract?
The buyer or lessee has no duty to pay and can reject the goods.
109
What are the possible ways a buyer or lessee can accept the goods?
By indicating the goods are conforming, by failing to reject within a reasonable period, or by performing acts inconsistent with the seller's ownership.
110
What happened in the Hemacare Plus case involving pharmaceutical products?
Hemacare accepted the goods by using them, which led to the court ruling in favor of Cardinal Health, awarding damages.
111
What is partial acceptance?
Partial acceptance occurs when some goods delivered do not conform to the contract, but the buyer or lessee still accepts them.
112
What is a commercial unit?
A commercial unit is a unit of goods treated as a single whole in trade, and cannot be divided without impairing its character or market value.
113
What is anticipatory repudiation?
Anticipatory repudiation occurs when one party clearly communicates their intention not to perform before the contract's performance time.
114
What choices does the nonbreaching party have when anticipatory repudiation occurs?
The nonbreaching party can treat the repudiation as a final breach or wait to see if the repudiating party will honor the contract.
115
What happens if the repudiating party retracts their repudiation?
The repudiating party’s rights are reinstated, unless the other party has canceled or materially changed position.
116
What is the basic obligation of the seller or lessor in a sales or lease contract?
The basic obligation of the seller or lessor is to transfer and deliver conforming goods.
117
What is the basic obligation of the buyer or lessee in a sales or lease contract?
The basic obligation of the buyer or lessee is to accept and pay for conforming goods in accordance with the contract [UCC 2–301, 2A–516(1)].
118
How is overall performance of a sales or lease contract controlled?
Overall performance is controlled by the agreement between the parties. If the contract is unclear and disputes arise, the courts look to the UCC and impose standards of good faith and commercial reasonableness.
119
What is the UCC's good faith provision?
The UCC’s good faith provision reads: 'Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement' [UCC 1–304].
120
What does good faith mean in the context of the UCC?
Good faith means honesty in fact. For a merchant, it means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade [UCC 2–103(1)(b)].
121
Are merchants held to a higher standard of performance or duty than nonmerchants?
Yes, merchants are held to a higher standard of performance or duty than nonmerchants.
122
Obligations of the Seller or Lessor
The basic duty of the seller or lessor is to deliver the goods called for under the contract to the buyer or lessee.
123
Conforming Goods
Goods that conform to the contract description in every way are called conforming goods.
124
Tender of Delivery
Tender of delivery occurs when the seller or lessor makes conforming goods available and gives the buyer or lessee necessary notification.
125
Reasonable Hour for Tender
Tender must occur at a reasonable hour and in a reasonable manner. Example: A seller cannot call the buyer at 2:00 a.m. to say the goods are ready.
126
Single Delivery Tender
Normally, all goods called for by a contract must be tendered in a single delivery unless the parties have agreed on delivery in several lots.
127
Place of Delivery
If not specified, the place for delivery is either the seller's place of business, residence, or the location of the goods.
128
Example of Place of Delivery
In a contract for trucks, if the goods are located in a Chicago warehouse, delivery will be at the warehouse unless specified otherwise.
129
Delivery via Carrier
In carrier contracts, the seller fulfills delivery by shipping goods, either under a shipment or destination contract.
130
Shipment Contracts
A shipment contract requires or authorizes the seller to ship goods by a carrier rather than deliver to a particular destination.
131
Shipment Contract Seller's Duties
The seller must place goods into the carrier's hands, contract for transportation, obtain and deliver necessary documents, and notify the buyer of shipment.
132
Destination Contracts
In a destination contract, the seller agrees to deliver goods to a particular destination where the buyer will take possession.
133
Perfect Tender Rule
Under the UCC, the seller must deliver goods that conform to the contract in every respect. The buyer or lessee may accept, reject, or accept part and reject part of the delivery.
134
Case in Point: U.S. Golf & Tennis Centers
Inc.
135
Exceptions to the Perfect Tender Rule
Exceptions to the perfect tender rule may be established by agreement, such as allowing defective goods to be repaired or replaced.
136
Cure
The UCC allows a seller or lessor to cure a defect by repairing, adjusting, or replacing nonconforming goods if the time for performance has not expired.
137
Substitution of Carriers
If an agreed-on carrier becomes unavailable, a substitute carrier must be used. The seller is responsible for additional shipping costs unless stated otherwise in the contract.
138
Commercial Impracticability
When unforeseen events make performance commercially impracticable, the perfect tender rule no longer applies, but the seller or lessor must notify the buyer of delays or nondelivery.
139
Case in Point: Maple Farms
Inc.
140
Destruction of Identified Goods
If goods are destroyed before risk passes to the buyer or lessee, the parties are excused from performance.
141
Assurance and Cooperation
If one party has reasonable grounds to believe the other will not perform, they can demand adequate assurance. Failure to provide assurance may be treated as repudiation.
142
Obligations of the Buyer or Lessee
The main obligation of the buyer or lessee under a sales or lease contract is to pay for the goods tendered after the seller or lessor has adequately tendered delivery.
143
Payment Timing
In the absence of specific agreements, payment is due at the time and place the goods are received. For credit sales, payment is due according to specified credit terms.
144
Payment Methods
Payment can be made by any method agreed between the parties, including cash or other generally accepted commercial methods. If cash is demanded, the seller must give the buyer reasonable time to obtain it.
145
Right of Inspection
The buyer or lessee has the right to inspect the goods before making payment, unless agreed otherwise or for C.O.D. transactions. Inspection is a condition precedent for enforcing payment.
146
Inspection Costs
The buyer bears the costs of inspecting goods, but can recover those costs from the seller if the goods do not conform and are rejected.
147
Acceptance of Goods
Acceptance occurs if the buyer or lessee indicates that the goods are conforming or will be retained despite nonconformity, or if they fail to reject the goods within a reasonable time.
148
Case in Point: Hemacare Plus
Inc.
149
Partial Acceptance
A buyer or lessee can make a partial acceptance if some goods do not conform, unless the nonconformity is discoverable before acceptance or the seller fails to cure.
150
Commercial Unit
A commercial unit is a unit of goods that is treated as a single whole in trade, which cannot be divided without impairing its value or use.
151
Anticipatory Repudiation
Anticipatory repudiation occurs when one party communicates the intention not to perform before the time for performance. The nonbreaching party can either treat it as a breach or wait for retraction.
152
Retraction of Repudiation
The UCC allows a breaching party to retract their repudiation by clearly indicating the intent to perform. However, retraction is not allowed if the other party has already canceled or materially changed their position.
153
What must a seller do if they breach a warranty in a sales or lease contract?
If a seller breaches a warranty, the buyer or lessee can sue for damages. In some cases, they may also rescind (cancel) the agreement.
154
How does an express warranty differ from an implied warranty in a sales contract?
An express warranty is a seller's explicit promise regarding the goods, while an implied warranty arises automatically based on the nature of the transaction (such as the warranty of merchantability).
155
Under what conditions can a buyer or lessee cancel the contract due to a breach of warranty?
A buyer or lessee may cancel the contract if the warranty breach is significant enough to warrant rescinding the agreement, or if the breach is not remedied within a reasonable time.
156
What happens if a warranty is breached and the buyer has already used the goods?
If the goods are used, the buyer may still have accepted the goods, which could affect their right to reject the goods or cancel the contract, depending on the situation.
157
How would the implied warranty of merchantability affect a buyer's rights if goods are found to be defective?
The implied warranty of merchantability ensures that goods are fit for the ordinary purposes for which they are used. If the goods are defective and fail to meet this standard, the buyer can seek a remedy such as repair, replacement, or a refund.
158
What role does the Uniform Commercial Code (UCC) play in warranties related to sales and leases?
The UCC governs the creation and enforcement of warranties in sales and lease contracts, outlining the seller's obligations and the buyer's or lessee’s rights in the event of a breach.
159
What are the three types of title warranties under the UCC?
Good title, no liens, and no infringements.
160
What does the warranty of good title guarantee?
It guarantees that the seller has good and valid title to the goods and that the transfer of title is rightful.
161
What is the purpose of the no liens warranty?
It protects buyers and lessees who are unaware of any encumbrances or claims against the goods at the time the contract is made.
162
Can a buyer or lessee recover if the goods are subject to a security interest they did not know about?
Yes, if the buyer or lessee had no actual knowledge of the security interest, they can recover from the seller for breach of warranty.
163
What type of warranty arises automatically when the seller or lessor is a merchant?
A warranty of title that the goods are free of infringements from any third-party copyright, trademark, or patent claims.
164
Can a seller or lessor disclaim or modify title warranties?
Yes, but only by including specific language in the contract.
165
What is the effect of a security interest on a buyer who has actual knowledge of it?
The buyer has no recourse against the seller if they have actual knowledge of the security interest.
166
How does Article 2A of the UCC protect lessees?
It provides similar protection for lessees as it does for buyers regarding liens and encumbrances on leased goods.
167
How can a seller or lessor create an express warranty?
By making representations concerning the quality, condition, description, or performance potential of the goods.
168
What are the three conditions under which an express warranty arises?
1. The goods conform to any affirmation of fact or promise made by the seller or lessor. 2. The goods conform to any description of them. 3. The goods conform to any sample or model shown to the buyer or lessee.
169
Can express warranties be found outside the contract?
Yes, they can be found in advertisements, brochures, or promotional materials, in addition to being made orally or in the contract.
170
Do sellers or lessors need to use formal words like 'warrant' or 'guarantee' to create an express warranty?
No, it is only necessary that a reasonable buyer or lessee would regard the representation as part of the basis of the bargain.
171
What does the phrase 'basis of the bargain' mean in the context of express warranties?
It means that the buyer or lessee must have relied on the representation when entering into the agreement.
172
What kind of statements do not create express warranties?
Statements of opinion or value, such as a recommendation about the goods or a claim about their worth.
173
Can a statement from an expert create an express warranty?
Yes, if the expert gives an opinion about the goods to a layperson, a warranty may be created.
174
Why did the court dismiss Kathleen Arthur's breach-of-warranty claim against Medtronic?
The court dismissed the claim because the sales representative's statement about the Infuse device was an opinion, not an express warranty.
175
What is an implied warranty?
An implied warranty is one that the law derives by inference from the nature of the transaction or the circumstances of the parties.
176
What are the two main types of implied warranties under the UCC?
Implied Warranty of Merchantability and Implied Warranty of Fitness for a Particular Purpose.
177
When does the implied warranty of merchantability apply?
It applies to sales or leases by merchants who deal in goods of the kind sold or leased.
178
What does it mean for goods to be merchantable?
They must be reasonably fit for the ordinary purposes for which such goods are used, of average quality, adequately packaged and labeled, and conform to any promises on the label.
179
Can a non-merchant create an implied warranty of merchantability?
No, only merchants who regularly deal in goods of that kind can create this warranty.
180
What happens if goods are defective or nonmerchantable?
The buyer can sue for breach of the implied warranty of merchantability.
181
What caused Joy Pipe to win its lawsuit in Case in Point 14.26?
Joy Pipe proved the steel was of lower grade than promised, making the goods nonmerchantable, which breached the implied warranty of merchantability.
182
When does the implied warranty of fitness for a particular purpose arise?
When the seller knows the particular purpose the buyer needs the goods for and that the buyer is relying on the seller’s skill or judgment to select them.
183
How does fitness for a particular purpose differ from merchantability?
Merchantability relates to ordinary use; fitness for a particular purpose relates to a specific, known use by the buyer.
184
What happened in Example 14.27 involving Sheryl and the paint?
The store breached the implied warranty of fitness for a particular purpose by giving her the wrong color of paint, despite its general quality.
185
Does a seller need actual knowledge of the buyer’s particular purpose to create this warranty?
No, it's enough if the seller has reason to know of the purpose and the buyer’s reliance.
186
Can implied warranties be created by trade customs or prior dealings?
Yes, courts can infer implied warranties from established trade customs or past conduct between parties.
187
What does UCC say about usage of trade creating warranties?
If both parties know of a recognized trade custom, it can imply a warranty unless evidence shows otherwise.
188
What is an example of a trade custom creating an implied warranty?
Lubricating a new car before delivery; if not done, the dealer can be liable for breach of implied warranty.
189
What does the UCC generally require for a warranty disclaimer to be valid?
It must use specific and unambiguous language in a way that protects the buyer or lessee from surprise.
190
How can a seller disclaim oral express warranties?
By including a clear and conspicuous written disclaimer in the contract that is brought to the buyer's or lessee's attention.
191
When must a buyer or lessee be made aware of warranty disclaimers?
At the time the contract is formed.
192
What common phrase is used to disclaim implied warranties of merchantability and fitness?
'As is' or 'with all faults.'
193
Why is clarity important when using 'as is' or 'with all faults'?
So that both parties clearly understand there are no implied warranties.
194
Can all states enforce 'as is' disclaimers?
No, some states prohibit 'as is' disclaimers or make it illegal to disclaim warranties on consumer goods.
195
What must be included to specifically disclaim an implied warranty of merchantability?
The word 'merchantability' must be used, and if in writing, it must be conspicuous.
196
Does a disclaimer of the implied warranty of merchantability have to be written?
No, but if it is written, it must be conspicuous.
197
What are the requirements for disclaiming an implied warranty of fitness for a particular purpose?
It must be in writing and must be conspicuous; it does not have to mention the word 'fitness.'
198
What is an example of a valid disclaimer of fitness for a particular purpose?
A statement such as 'There are no warranties that extend beyond the description on the face hereof.
199
Dom enters into a contract to buy Ezra’s office building for a certain price subject to an appraiser’s evaluation of the structure’s condition. If the appraiser deems the condition to be substandard, the parties’ obligations will be
discharged.
performed.
altered.
breached
discharged
In this case the contract would be discharged by mutual agreement between Dom and Ezra because they agreed to an independent appraiser evaluation of the condition of the structure. When the appraiser deemed the condition substandard, the contract is discharged.
200
Megan contracts to sell Nonny her horse for $4,000. This contract will be fully discharged when Megan and Nonny
agree that the deal is fair.
sign a receipt.
exchange the horse for the money.
execute a bill of sale.
exchange the horse for the money
The great majority of contracts are discharged by performance. The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. Once Megan pays Nonny for the horse and takes possession of the animal, both parties have met their obligations.
201
Jamal and Keri enter into a contract for Jamal to renovate Keri’s house by a certain date. Jamal never performs. After the applicable limitations period has passed, Keri decides to bring a suit against Jamal for breach. This suit
can no longer be brought.
must be filed between four and five years after Keri decides to sue.
can be brought up within 20 years, based on state law.
can be filed within four years of notice to Jamal that Keri decided to sue.
can no longer be brought
The statute of limitations has passed for Keri to sue Jamal. This is an example of discharge by operation of law. The limitations period for bringing suits for breach of oral contracts usually is two to three years, and for written contracts, four to five years. Parties generally have ten to twenty years to file for recovery of amounts awarded in judgments, depending on state law.
202
Trucking LLC enters into a contract to deliver a certain quantity of potatoes to United Foods’s refrigerated warehouse in exchange for a specified payment. Trucking delivers the potatoes to the location. United’s duty to pay is
qualified.
discharged.
conditioned.
absolute.
absolute
United’s duty to pay is absolute. Trucking has performed exactly as agreed. This is called complete performance. As such, United has an absolute duty to pay in order to fulfill their contract obligations. Should they fail to pay, they will be in breach and Trucking may seek relief.
203
Nature’s Eggs Inc. agrees to supply Omelet Express with five hundred eggs. Nature’s Eggs can reasonably ask Omelet Express to pick up the eggs at
any reasonable hour.
no time—as a seller, Nature’s Eggs must deliver the goods.
no specific time—only a buyer can set the time.
any hour.
any reasonable hour
In a sales contract the seller has the obligation to make the goods available to the buyer; the buyer has the obligation to pay for those goods. If Omelet Express opens for breakfast at 5 a.m., they might want to pick up the eggs at 4 a.m. to alleviate the need to store the eggs in the cooler. But Nature’s Eggs can require customers to pick up their eggs during their normal business hours. Performance of the obligations of the contract do not require unreasonable actions or considerations.
204
ABC Hardware Store orders one hundred power hand-drills from Drilling Tools Inc. When the hand-drills are delivered, they are all missing pieces. ABC rejects the shipment. To exercise a right to cure, Drilling must
pick up the nonconforming tools before the end of the business day.
pay a cure fee.
promptly notify ABC of the intent to cure.
enter into a new contract with ABC.
promptly notify ABC of the intent to cure
The UCC does not specifically define the term cure, but it refers to the right of the seller or lessor to repair, adjust, or replace defective or nonconforming goods [UCC 2–508, 2A–513]. The seller or lessor has a right to attempt to “cure” a defect when the following are true: 1. A delivery is rejected because the goods were nonconforming. 2. The time for performance has not yet expired. 3. The seller or lessor provides timely notice to the buyer or lessee of the intention to cure. 4. The cure can be made within the contract time for performance. In this case the drills were not complete when delivered. ABC had the right to reject the shipment. Drilling now has the opportunity to make it right.
205
Chair Company contracts to deliver a dozen suites of dining room tables and chairs to Furniture Store on May 1. On April 15, Chair tells Furniture that delivery will be delayed until June 1. Furniture may
only await Chair’s performance for a commercially reasonable time.
only sue Chair for breach of contract.
await performance, sue Chair, or suspend its own performance.
only suspend its own performance.
await performance, sue Chair, or suspend its own performance
The basic obligation of the seller or lessor is to transfer and deliver conforming goods. The basic obligation of the buyer or lessee is to accept and pay for conforming goods in accordance with the contract [UCC 2–301, 2A–516(1)]. In this case the contract specified that the tables were to be delivered by May 1. Chair told Furniture that it could not meet the deadline. Chair has three choices – it can accept the new date; it can sue Chair for performance (which would not be resolved by May 1 or June 1) or suspend its performance. Chair can cancel the contract and look elsewhere for product.
206
Elegant Carpet Inc. agrees to sell a certain quantity of carpeting to Fabulous Floor stores under a shipment contract. Elegant must
place the goods in the hands of a carrier.
inspect the goods before shipping it.
deliver the goods to a particular destination.
allow the buyer to reject the goods for any reason.
place the goods in the hands of a carrier
A shipment contract requires or authorizes the seller to ship goods by a carrier, rather than to deliver them at a particular destination [UCC 2–319, 2–509(1)(a)]. Under a shipment contract, unless otherwise agreed, the seller must do the following: 1. Place the goods into the hands of the carrier. 2. Make a contract for their transportation that is reasonable according to the nature of the goods and their value. (For instance, certain types of goods need refrigeration in transit.) 3. Obtain and promptly deliver or tender to the buyer any documents necessary to enable the buyer to obtain possession of the goods from the carrier. 4. Promptly notify the buyer that shipment has been made [UCC 2–504].
207
Holiday Corporation sells Idyll brand campers and trailers. Under most circumstances, Holiday will be presumed to have warranted that its title to the goods is
a warranty of title is not presumed.
the same as every other merchant who deals in goods of the kind.
only such as the seller has acquired in the goods.
good and valid.
good and valid
Under the UCC, three types of title warranties—good title, no liens, and no infringements—can automatically arise in sales and lease contracts [UCC 2–312, 2A–211]. In most sales, sellers warrant that they have good and valid title to the goods sold and that the transfer of the title is rightful [UCC 2–312(1)(a)]. A warranty of title arises automatically when the seller or lessor is a merchant. A merchant-seller or lessor warrants that the buyer or lessee takes the goods free of infringements from any copyright, trademark, or patent claims of a third person [UCC 2–312(3), 2A–211(2)].
208
Jess, a salesperson for Kitchens Inc., shows Lane, a buyer for Metro Diner, display items in Kitchens’ showroom, stating that any purchased equipment will match the display. This is
a statement of opinion.
puffery.
an express warranty.
an implied warranty.
an express warranty
A seller or lessor can create an express warranty by making representations concerning the quality, condition, description, or performance potential of the goods. In this case, Jess is making a representation of the description that the purchased equipment will match the display. It is also possible that Jess is making representations about the quality and performance of the equipment as well, depending on what is shown on the display.
209
Bike Shop sells a trail bike to Ciena. When Ciena rides the bike, the frame breaks apart. The cause is something that Bike Shop did not know about and could not have discovered. This is a breach of
an express warranty.
a warranty of title.
puffery.
the implied warranty of merchantability
the implied warranty of merchantability
To be merchantable, goods must be “reasonably fit for the ordinary purposes for which such goods are used.” They must be of at least average, fair, or medium-grade quality. In addition, they must conform to the promises or affirmations of fact made on the container or label, if any. When goods are nonmerchantable, or defective, the buyer can sue for breach of the implied warranty of merchantability. It does not matter that the Bike Shop did not and could not have known about the defect, Ciena can sue for breach. It is up to the Bike Shop to sort out their loss with the manufacturer.
210
Sofia purchases a new vehicle from a neighborhood car dealer. The vehicle warranty specifically states that there is a bumper to bumper warranty for the first 30,000 and an engine and drivetrain warranty for 100,000 miles. The warranty documentation supplied with the car specifies that wear items such as brake pads, belts, wipers and bulbs and oil changes are excluded. After 25,000 miles, Sofia’s car needs new brake pads. She is told that this is not covered by the warranty. This exclusion is an example of:
a breach of the implied warranty of fitness for a particular use.
a warranty disclaimer.
a breach of the warranty of title.
a breach of the express warranty.
a warranty disclaimer
The UCC generally permits warranties to be disclaimed or limited by specific and unambiguous language, provided that this is done in a manner that protects the buyer or lessee from surprise. Note that a buyer or lessee must be made aware of any warranty disclaimers or modifications at the time the contract is formed. Subaru was clear, in writing, that brake pads are not covered by the warranty.
