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Contracts II > Contract Interpretation > Flashcards

Contract Interpretation Flashcards

1
Q

Judicial Efficiency

A
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2
Q

UCC 2-206 Excuse

A
  1. Discovery especially difficult
  2. Failure to discover indicated by the seller
  3. The buyer reasonably assumed assumed the sellers cure
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3
Q

Advantages of Parol Evidence Rule

A
  1. Encourages parties to be look out for themselves when contracting
  2. Prevents the fraudulent addition of terms not part of the original agreement
  3. Saves court from having to referee a swearing match of terms
  4. Prevents sympathetic hindsight contract rewriting
  5. Aids with summary judgement and judicial efficiency.
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4
Q

Name the 2 forms of Ambiguity

A
  • Patent - Vague or ambiguous on the face of the text
  • Latent - Not obvious, need to choose from different possible meanings
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5
Q

Anticipatory Breach

A
  1. Repudiation, or
  2. Obligors own act makes its performance impossible
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6
Q

Buyers Breach - Restitution?

A
  • Buyers acknowledges breach entitled to restitution
  • Cannot keep goods
  • Earnest money, interest, progress payments
  • No restitution in case of LDC
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7
Q

Can a party retract a repudiation?

A
  • If a retraction in time, can erase a repudiation
  • If retraction too late, then no
    • If the injured party has relied on the repudiation and sought substitution, e.g.
    • indicates that repudiation is final
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8
Q

Can you revoke acceptance?

A

to revoke acceptance and restore my right to reject the goods, a buyer must show serious defect and excuse.

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9
Q

What is the “Certainly Would Have Rule” - UCC

A

Permits the presumption favoring the inclusion of a non-contradictory supplementary terms unless it is argued that the parties “certainly would have included” such a term.

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10
Q

What is a Complete Integration?

A

An agreement reduced to its final written form and intended by the parties to be the complete statement of their agreement.

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11
Q

What is Concealment?

A

Failure to disclose a fact, not a ground per se for rescission/tort claim.

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12
Q

What is a Condition Precedent?

A

A condition necessary to be satisfied before contract can be formed.

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13
Q

Consequential Damages

A

Damages which occur as a consequence of the breach, lost profits, personal injury, injury to property, etc.

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14
Q

Constructive Condition - Simultaneous Performance

A
  • Each party must tender performance to fulfill a condition of other’s duty. Mutually dependent conditions.
    • Tender is a present willingness and ability to perform
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15
Q

Constructive Condition - Work as Payment

A

Work taking time is a presumed condition of owners duty to pay.

Express schedule of units of work for units of pay (ratable)

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16
Q

Constructive Condition of Performance

A

Rest.2d 237 - It is a condition of each party’s remaining duties that there is no uncured material faliure to perform a duty owed by the other party at an earlier time.

  • YOU HAVE TO KEEP PERFORMING UNLESS THE OTHER PARTY HAS MATERIALLY BREACHED
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17
Q

Demand for Assurance

A
  • Some new condition which causes a reasonable ground for insecurity
  • An obligor’s failure to give assurance is a repudiation
  • Unilateral Modification of the Contract
    • cannot be excessive
    • or unreasonable
  • UCC requires a written demand and 30 day waiting period
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18
Q

Discretion

A

Freedom in the exercise of judgment, the power of free decision-making. One party has freedom, the other party does not with respect to a contract term or condition

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19
Q

Disputed Terms - Material

A
  1. If the term is material and in dispute the court can:
    1. Adopt the best meaning
    2. Rule no contract - mutual restitution
    3. Adopt the likely intended meaning
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20
Q

Effort Based Promise

A

A promise based on the effort of the promisor to fulfill, must make a good faith attempt.

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21
Q

Ejusdem Generis

A

General word or phrase will be interpretated to include only items of the same class as those listed

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22
Q

What is Equitable Reformation?

A

In the case of a drafting error the contract can be read as the parties mutually intended (reformed)

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23
Q

Express Warranty

A

Any description (of performance, features, attributes) that is a basis of the bargain

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24
Q

Expressio Unis Est Exclusio Alterius

A

Stating one thing might imply exclusion of another

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25
Q

Fit for Intended Purpose

A

If the sellers knows of the buyers intended purpose and the buyer relies on the sellers recommendation

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26
Q

Fixed Overhead

A

Costs a party would have incurred irrespective of the formation of the contract (Prop. Taxes, etc.)

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27
Q

Bad Faith

A
  1. Predatory or opportunitstic acts shocking the conscience
  2. Conduct rendering the contract illusory
  3. Conduct that is destructive of reasonable expectations
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28
Q

Immaterial Terms

A

Terms which are not central to the deal, like LDC, choice of law, choice of forum, Davy Jones, etc.

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29
Q

Implied in Fact

A

A contract that the parties presumably intended as their tacit understanding, as inferred from their conduct and other circumstances.

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30
Q

Implied in Law

A

A remedy that allows the plaintiff to recover a benefit conferred on the defendant.

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31
Q

Implied Warranties

A
  1. Merchantability
  2. Fit for Intended Purpose
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32
Q

What are Incidental Damages

A

Damages which naturally flow from the breach,

  1. Costs of halting transaction (recalling, transporting, storing, etc.)
  2. Costs of searching for and arranging a substitute
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33
Q

Information Sharing Requirements

A
  • No duty to disclose during negotiation
  • After K formation, disclosure might be needed to:
    • perform
    • enjoy the purpose of the K
  • Compare claimants need with obligors burden
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34
Q

Installment Contracts

A
  • UCC 2-612 - installment contract involves delivery in separate lots over an extended time.
    • time less likely to be critical
    • there are opportunites for cure in later installments
    • more likely to involve major sunk investments in the contract (irretreviable reliance costs)
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35
Q

Interpretation - Hierarchy

A
  1. The words of the contract (express)
  2. Conduct of the parties during performance (course of performance)
  3. Conduct of the parties in prior contracts (course of dealing)
  4. Usage of trade or community for the terms
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36
Q

Interpretation Rules - Within Four Corners

A
  1. Avoid an interpretation that would render the contract illegal or in violation of public policy
  2. Avoid interpretations which would lead to conflict between the provisions of the contract
  3. Avoid an unreasonable outcome
  4. Prefer giving meaning and effect to all words on the text.
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37
Q

Is it Impracticable or Impossible?

A
  • Impractibility is normally argued by the seller
  • Impossibility is normally argued by the buyer
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38
Q

Limitations of Parol Evidence Rule

A
  1. Doesn’t allow evidence when there is a fraudulent denial
  2. Drafters advantage over non-drafter
  3. Allows a cure for a “standard form” versus actual intent
  4. Accounts for difficulties in listing all assumptions nad customs in a contract
  5. Serves justice by hearing evidence
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39
Q

Material Terms

A

Terms which are central to the deal, like quantities, price, warranties, etc.

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40
Q

Merchantability

A

The product will perform as per its ordinary purpose

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41
Q

Modification

A

A post integration agreement which modifies the contract

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42
Q

When is the “Naturally Omitted Rule” used - Rest.2d

A

When a term the parties expected to be bound by was not included in the integration and is one that they might “naturally omit”.

43
Q

Naturally Omitted Terms

A
  1. Customs
  2. Standardized forms
  3. Promises included in other documents
  4. Uncertain propriety
  5. Terms omitted from negotiable notes
44
Q

Objectively Unique

A

Large group of buyers, collectors to buy them

45
Q

Pacta Sunt Servanda

A

A promise must be fulfilled

46
Q

Parol Evidence - Application

A
  1. What is the party trying to prove?
  2. What purpose is the evidence offered?
  3. Is the written contract an integration of their agreement?
    1. Does it superseding the parties prior oral or written agreements?
    2. Is there an integration/merger clause?
    3. Is it a complete or partial integration?
  4. Does the parol evidence contradict or supplement?
    1. What is the scope of the integration?
      1. What transaction does it cover?
      2. Integration might be a complete or partial integration.
  5. Is alleged parol term about a topic in scope of the integration?
    1. Collateral agreement
47
Q

Parol Evidence and Contract Formation

A

Parol evidence can be used to negate the formation of a contract, if a condition precedent is present and not satisfied.

48
Q

Parol Evidence Rule

A

Extrinsic evidence of prior or contemporaneous negotiations or promises (agreements) cannot be used to vary or contradict the terms in a fully integrated (written) contract.

-Confines terms to the four corners of the contract

49
Q

Parol Evidence Rule - Exception Fraud

A

In the case of fraud (misrepresentation), parol evidence can be offered to establish intent of the party at the time of the promise

50
Q

Parol Evidence Rule - Exceptions

A

Extrinsic evidence can be used to determine the meaning of terms, or intent of the parties when making the agreement.

51
Q

Parol Evidence Rule Exception - Collateral Agreement

A

A collateral agreement is a related but separate transaction. Resolved by a separate agreement.

52
Q

Parol Evidence Rule Exception - Mutual Mistake

A
  1. Mistake must be mutual
  2. Earlier draft or discussions are admissible to prove error
  3. Corroboration by parties behavior
53
Q

Parol Evidence Rule Exception - Partial Integration

A

A partial integration permits supplementary, not contradictory parol terms.

54
Q

What is a Partial Integration?

A

A writing that contains only some of the agreed terms and is integrated fully for only the contained terms.

55
Q

Perfect Tender - Checklist

A
  • Defects violate contract specs
  • implied warranty based on a sellers sample goods
  • or passing quality required by implied merchantability
  • or average quality required by implied merchantability, or
  • was the buyers rejection in violation of duty of good faith?
56
Q

Perfect Tender Rule - Elements

A
  • Imperfect tender permits buyer to reject goods, refuse to pay
  • Perfect tender only requires conformity not perfection
  • Good Faith
  • Exceptions
  • UCC Standard for Buyer
57
Q

Perfect Tender Rule - Exceptions

A
  • Parties can agree to different standards
  • Installment Contracts
  • Convention on Int’l Sale of Goods, Unidroit - Fundamental Breach
58
Q

What are Rights and Duties?

A
  • Duties are Delegable
  • Rights are Assignable
59
Q

Representation

A

A statement of fact, not a promise. Falsity is not breach of subsequent contract unless contract recited the representation as a promise

60
Q

Response to Material Breach - Modern Approach

A
  • Rest. maintains contract in the case of an immaterial breach
  • Material breach, suspend and allow for cure
    • Do not fire breaching party, do not substitute
  • If cure not reasonably possible, then treat breach as final
61
Q

Results Based Promise

A

A promise of results limits promisor to perform regardless of an “fault”, that is liable to perform under all conditions

62
Q

Rule for Latently Ambiguous

A

Extrinsic evidence is conditionally admissable to choose between different but reasonable (plausibly alternative) meanings.

63
Q

Rule for Patently Ambiguous

A

For obvious ambiguity, extrinsic evidence is allowed to interpret meaning

64
Q

Subjectively Unique

A

Intrinsic Value (sentimental)

65
Q

Suspension of Performance

A
  • Injured party must be willing to perform if cure is implemented
  • Does not cancel your duty to perform (pay/work)
  • Must cooperate and not interfere with other party’s performance
  • Do not cover or resale
66
Q

What are the UCC rules for LDC Remedies

A
  1. Valid LDC
  2. If no #1 then Implied LDC, then seller has right to lesser of, 20% of K, or $500
67
Q

Unidroit Provisions

A
  • 6.2.2 - Hardship is an event fundamentally altering the equilibrium of a contract
    • Similar to mistake, impractibility, or frustration
  • 6.2.3 - Party suffering hardship may seek negotiation to modify the contract to change the terms of its performance
    • If that fails court can reform
  • No PER in UNIDROIT and CISG
68
Q

Variable Overhead

A

Costs incurred as a result of the contract (materials, labor, electricity, etc.) that can be claimed within UCC 2-708(2)

69
Q

Waiver

A

A promise to forgive or permit, usually limited to a small number of occasions

70
Q

Warranty

A

Promise that goods are of a particular quality. Failure of warranty breaches contract.

71
Q

What is Wasteful Demolition or Economic Waste?

A

When the cost to fix the defect is unreasonably high and far exceeds the diminution in value of the defective property

72
Q

Ways to Limit Risk of Difficulty

A
  1. Promise Effort, Not Result
  2. Draft an Express Condition
73
Q

What are Expectation Damages?

A

Expectation is the value of the bargain if performed, what the party would expect to receive if the K had been performed

74
Q

What are fungible goods?

A

Goods that easily obtained and interchanged, like commodities.

75
Q

What are the Excuses for Constructive Conditions?

A
  • One party’s interference with the performance of the other party
  • One party’s failure to cooperate when part of its duty may excuse other party’s non-performance
  • Waiver
  • Estoppel
  • Election
  • Repudiation
76
Q

What are the exceptions to the perfect tender rule

A
  1. Parties can agree to a different standard
  2. Implied warranty of merchantability
  3. Installment sales/contracts
77
Q

What are the options if the other Party Repudiates

A

A repudiation of a material duty is a total breach

  • Option 1 - Ignore, continue to perform if reasonable (duty to minimize damages) and await a retraction
  • Option 2 - Suspend Performance, demand assurance, await retraction
  • Option 3 - Treat as Total Breach. Nuclear option, burn it down!!!!! (find alternatives and sue)
78
Q

What are the two processes used for determining the effect of contract?

A
  1. Identifying the contract terms
  2. Interpreting the terms
79
Q

What is a Condition?

A

A specific event which trigger or discharges specific duties or the entire contract. A failure to satisfy a condition gives a party an option to walk away from the deal, may not sue for damages.

“if, provided”

80
Q

What is a constructive condition?

A

Condition implied by law and setting the the order of performance in the absence of express contract terms

81
Q

What is a Liquidated Damages Clause, Rest.2d

A

A. Method of fixing damages is a reasonable forecast of the harm likely to be caused by a breach, and

B. A loss remedied by this clause is of a type impossible or difficult to estimate.

82
Q

When is a Liquidated Damages Clause Allowed, UCC?

A

A. Formula must be reasonable in light of the anticipated or actual harm

B. Proving the loss must be difficult

C. Otherwise adequate remedies are inconvenient or infeasible

83
Q

What is a Material Breach?

A
84
Q

What is a No Oral Modification (NOM) Clause

A
  • A clause that requires the contract to be modified in writing.
    • Enforced if
      • In a signed contract
      • Consumer signed NOM seperately
85
Q

What is Forfeiture?

A

Forfeiture is where a promisee will be deprived of value or benefit of promisors performance after promisee significantly relied.

86
Q

What is a Promise?

A

A duty to perform, if the promise is not satisfied, then the option to sue for failure to satisfy the promise, reduction in value (diminution).

“will, shall, must”

87
Q

What if a Promisory Condition is breached?

A

Can walk away or sue for damages

88
Q

What is a repudiation?

A
  • A statement by the obligor to the obligee indicating that the obligor will commit a breach (total), or
  • A voluntary affirmative act which renders the obligor unable or apparently unable to perform
89
Q

What is a contract term waiver

A

A voluntary relinquishment of a right to a contract term (express or implied) for a limited time or number of occurrences.

90
Q

What is a Warranty

A

A promise that the product conforms to a fitness for ordinary, particular, or specified performance

91
Q

What is an Integration or Merger Clause?

A

A clause that specifies that the writing is a complete expression of the intentions of the parties in the contract.

92
Q

What is Efficient Breach?

A

Where the breach of contract benefits one party while keeping the other party whole through expectation DAS.

93
Q

What is Mutual Mistake?

A
  • A fact was a basic assumption of both parties
  • The assumption was mistaken
  • Mistake materially affected value of exchange to one party
  • Party should not be asked to bear the risk Rest.2d 154

EFFECT : Duty excused, not breach. Restitution may be due.

94
Q

What is Reliance Interest?

A

Reliance would be the actions/costs that the party incurred as a result of the contract being formed.

95
Q

What is Restitution Interest

A

Restitution is the benefit conferred to the other party for formation of the contract.

96
Q

What is Specific Performance

A

A remedy (equity) requiring the actual performance and not a substituted performance (compensatory)

Applied to goods that are unique or other proper circumstances

97
Q

What is Substitutional Performance?

A

Legal Remedy - Cash Baby!!!!!!!!

98
Q

What is the Four Corners Rule?

A

NO extrinsic evidence unless a term in dispute is vague or ambiguous.

99
Q

What is the Perfect Tender Rule? UCC

A

If the goods or tender of delivery fail in any respect to conform to contract, a buyer may (good faith) reject and refuse to pay.

100
Q

What is Vague v. Ambiguous

A
  • Vague - Text has either a broad or narrow meaning, one including something and the other excluding it.
  • Ambiguous - Text has either one of two entirely different meanings, one including something the other excluding it.
101
Q

How to Avoid Forfeiture

A
  • Restitution
  • Reasonable Interpretation to soften or avoid condition
  • Override the condition
  • If promisor violated a duty to assure condition’s fullfillment, treat condition as met
  • Waiver, estoppel, election
102
Q

Impossibility

A
  • A thing or personal service is “identified to the K” and is either destroyed or severely damaged
  • Person identified is dead or physically unable to render performance
  • Where the facility for performance is destroyed
103
Q

Impracticability

A
  • A mutual assumption by the parties
  • The assumption was foreseeable
  • Some thing or event made the assumption impracticable
104
Q

What is a divisible contract?

A
  • Each party’s performance must be capable of division
  • Two or more portions
  • Each party’s division must be the same number of performance parts
  • Agreed to exchange of performances for each part

Contracts II (1 decks)

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