Ch. 6 Flashcards
Consideration must exist on both sides of the contract; promises must be mutually obligatory. But, in some cases, the requisite mutuality will be found to exist in certain situations even
though the promisor has some choice or discretion. Notable among these are the
following
Requirements and Output Contracts
“Requirements” contracts (promises to buy “all that I will require”) and
“output” contracts (promises to sell “all that I manufacture”) are enforceable.
(See II.B.2.b.1)b)(1), supra.) Consideration exists, as the promisor is suffering
a legal detriment; he has parted with the legal right to buy (or sell) the goods
he may need (or manufacture) from (or to) another source. [UCC §2-306]
Conditional Promises
Conditional promises are enforceable, no matter how remote the contingency, unless the “condition” is entirely within the promisor’s control.
Promise Conditioned on Satisfaction
A promise conditioned on the promisor’s satisfaction is not illusory
because the promisor is constrained by good faith (for contracts
involving personal taste) and a reasonable person standard (for
contracts involving mechanical fitness, utility, or marketability).
Right to Cancel or Withdraw
Although reservation of an unqualified right to cancel or withdraw at any time
may be an illusory promise, the consideration is valid if this right is in any way
restricted, e.g., the right to cancel upon 60 days’ notice. Note that Article 2 implies a requirement of reasonable notice even if it is not specified in the
contract. [UCC §2-309(3)]
Exclusivity Agreements—Best Efforts Implied
A court may find an implied promise furnishing mutuality in appropriate
circumstances (such as exclusive marketing agreements). The courts
generally will find an implied promise to use best efforts and sustain agree
ments that might otherwise appear illusory
Right to Choose Among Alternative Courses
A promise to choose one of several alternative means of performance is
illusory unless every alternative involves some legal detriment to the
promisor. However, if the power to choose rests with the promisee or some
third party not under the control of the promisor, the promise is enforceable
as long as at least one alternative involves some legal detriment
“Gap-filling” provisions of UCC Article 2.
Article 2 of the Code provides many terms—like those stated in § 2-309—that will as a matter of law be implied in contracts for the sale of goods unless otherwise agreed by the parties. (Other examples are UCC §§ 2-308 (place of delivery), 2-310 (time of payment), 2-509 (risk of loss), and 2-513 (buyer’s right of inspection).) Rules of law that supply implied terms for the parties may be supported on the basis that the terms they provide are “fair” or “just.”
Assessing reasonable notice.
the Leibel opinion refers to some possibly relevant factors: the distributor’s need to sell off its remaining inventory and the question whether it still has substantial unrecouped investment made in reliance on the agreement. See, e.g., Sofa Gallery, Inc. v. Stratford Co., 872 F.2d 259 (8th Cir. 1989) (reasonable notice of termination without cause takes into account time needed to recoup reasonable initial or continuing investment, close out product line, and minimize losses). The court also quotes Comment 8 to UCC § 2-309 which refers to a related factor: whether there has been sufficient or “reasonable time” to find a “substitute arrangement.”
The determination whether notice is reasonable may also be affected by the terms contained in the parties’ present or prior agreement and by industry standards.
Obligation of Good Faith
Every contract within the UCC imposes an obligation of good faith in its
performance and enforcement. [UCC §1-304] The UCC’s definition of “good
faith” is honesty in fact and the observance of reasonable commercial
standards. [UCC §1-201(20)] The common law also imposes a duty of good
faith and fair dealing on each party to a contract with respect to performance
and enforcement. A breach of this duty is a question of fact, but it usually
involves exercising discretion in a way that deprives the other party of the
fruits of the contract.
In every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, which means that in every contract there is an implied obligation of good faith and fair dealing.
faith consists of attempts by one party to recapture “forgone opportunities”—occasions for the realization of gain that (in light of any applicable business practices or the course of dealing between the parties)
Textualist approach to “Good Faith”
“a new textualist approach,” giving a near absolute priority to express terms and rendering the implied duty of good faith irrelevant in many situations.
while nearly all courts recognize the implied duty of good faith, at least in principle, not all will give that concept a broad application.
“section does not support an independent cause of action for failure to perform or enforce in good faith. . . . [T]he doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed, and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached.”
Applications of the good faith principle.
First, a court may be persuaded that in order for the contract between the parties to have “business efficacy,” it is necessary to imply terms not expressly incorporated in the agreement
The court is careful to add, as have many other courts and commentators, that it will not imply any term that conflicts with the express terms of the parties’ agreement. Second, the court in Seidenberg indicates that the covenant of good faith may permit a finding of breach even where no express term of the agreement has been violated
Under UCC § 2–315, a buyer can establish that the implied warranty of fitness for a particular purpose has been made, so long as he or she proves that:
1) the buyer had an unusual or particular purpose in mind for the good, (2) the seller had reason to know of this particular purpose, (3) the seller has reason to know that the buyer is relying on the seller’s skill or judgment to select or furnish goods that will meet the buyer’s needs, (4) the buyer in fact relied on the seller’s skill or judgment in selecting suitable goods; and (5) the goods did not perform as warranted. (Note there is also a “notice” requirement for a successful claim under UCC § 2–607(3)
Implied warranty of merchantability
whether the good is of average quality, or fit for ordinary use for which such goods are made.
Express Warranty Claim
An actionable express warranty was made by means of an “affirmation of fact or promise made by the seller which relates to the goods,” when Sasha promised Bianca that the document with the lyrics on it was authentic. UCC § 2–313(1)(a). I
, an express warranty can be made if there is: (1) an affirmation of fact or promise that relates to the goods, (2) a description of the goods, or (3) a sample or model.
In order for a valid breach of express warranty claim, the affirmation must also become part of the “basis of the bargain.” UCC § 2–313(1).
- relied on the representation on whether to purchase the good or not?
- took place before purchase?
- Assume that the buyer did rely on every factual statement, than seller needs to prove that the buyer did not rely on it
Express Warranties + Parol Evidence Rule
The issue is controlled by UCC § 2–316(1). The general rule is when a sale has, “[w]ords or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit [that warranty]” then the “negation or limitation is inoperative. . .” However, that rule is “subject to the provisions of this Article on parol or extrinsic evidence (Section 2–202) . . .” UCC § 2–316.
What that means is that if both the warranty and the warranty disclaimer are in evidence, the warranty controls and the words of negation of the warranty are inoperative. But, there is a question of whether the oral words of warranty ever can be introduced into evidence. This is because the oral warranty is not consistent with the disclaimer, and under the parol evidence rule, an oral agreement made during negotiation that is not a “consistent additional term” with a term of the written agreement is excluded from evidence. UCC § 2–202.
Some cts will say that the disclaimer is unconscionable
