Contracts Flashcards
Sources of Contract Law –> In General
There are two principal sources of K law: Article 2 of the UCC and state CL.
–> In deciding which source of K law applies, first look for the subject matter covered by the UCC; if UCC does not apply, then CL will apply.
Sources of Contract Law –> The UCC: General
UCC governs “sales of goods”; if UCC applies, it trumps any contrary CL rule.
–> Even if UCC, CL still applies unless UCC contradicts it.
Sources of Contract Law –> The UCC: Definitions - “Sales” and “Goods”
Sales: any transaction in which the seller transfers title of goods to buyer.
Goods: any movable item; does not include intangibles (goodwill, IP), money, legal claims, services, or real property.
Sources of Contract Law –> The UCC: Hybrid Cases (predominant purpose + 3 factors)
Hybrid cases (involves both sale of goods + service Ks) - determined by PREDOMINANT purpose of the transaction (majority rule).
3 Factors for determining predominant purpose:
(1) K language: was K described as a goods K?
(2) Nature of supplier’s business (ie Best Buy sells goods)
(3) Value of goods v. services (ie $30 in goods but $2 in services)
Sources of Contract Law –> The UCC: Services Contract w/ Incidental Goods
A rendition of services w/ goods incidentally involved (such as a K w/ an artist to paint a portrait) would be governed by common law.
Sources of Contract Law –> The UCC: Sale of Goods w/ Incidental Services
A sale of goods w/ services being incidentally involved (such as the sale and installation of a water heater) would be governed by the UCC.
Sources of Contract Law –> The CL of Contracts (what does it cover + examples)
Ks that do not involve the sale of goods are covered by the CL of Ks.
—> Frequently encountered examples are services Ks, Ks involving real property, and assignments of legal claims.
Sources of Contract Law –> Basic Definitions and Concepts of Contract Law: Contractual Obligations - Express Contractual Obligations
Oral and written expressions of the agreement.
Sources of Contract Law –> Basic Definitions and Concepts of Contract Law: Contractual Obligations - Implied-in-Fact Contractual Obligations
Formed by conduct rather than words.
Sources of Contract Law –> Basic Definitions and Concepts of Contract Law: Contractual Obligations - Implied-in-Law Contractual Obligations, Definition
Arises where one party bestows benefit on another and it would be unjust not to pay the reasonable value of the benefit.
Sources of Contract Law –> Basic Definitions and Concepts of Contract Law: Contractual Obligations -Implied-in-Law Contractual Obligations, Quantum Meruit
Where a party failed to fulfill an express condition or is in material breach, breaching party may still recover in quantum meruit:
—-> Reasonable value of benefits conferred; however, recovery reduced by damaged caused by breach
Sources of Contract Law –> Basic Definitions and Concepts of Contract Law: Signed Writing Reqs
A number of rules in K law require a “signed writing” in order to create an enforceable legal obligation.
—> Majority: email and the like are suff to satisfy the writing reqs of K law.
Contract Formation: Offer and Acceptance –> The Offer: 2 Elements
To be an offer, party’s communication must meet 2 Elements:
(1) Outward manifestation (oral, written, or via conduct)
(2) Signal that acceptance will conclude the deal (grant power of acceptance)
Contract Formation: Offer and Acceptance –> The Offer: Multiple Offerees (CAR - common mult offeree situations)
Commercial Advertisements
- -> American Rule: Ads, catalogs, price lists are invitations for offers, since responses may exceed available supply of goods or services.
- ———–> EXCEPTION: language that identifies who gets limited supply of goods even if there is an excess demand (ex: first come, first services; first 10 customers)
Auction
—> Situations where an item is sold to the highest bidder.
Reward Offers
–> Offers because they are communications that promise $ in exchange for performance of specific tasks (ex: $500 for finding/returning lost dog)
Contract Formation: Offer and Acceptance –> The Offer: The Legal Effect of an Offer - 4 Ways to Terminate Power of Acceptance
Offer creates the power of acceptance in the offeree; 4 ways to terminate this power:
(1) Lapse
(2) Death or incapacity
(3) Revocation of offer by Offeror
(4) Termination by Offeree’s Rejection
Contract Formation: Offer and Acceptance –> The Offer: The Legal Effect of an Offer - Lapse of Time
Lapse occurs after time stated in offer or after a reasonable time.
Reasonable time determined by:
(1) subject matter/market conditions; and
(2) degree of urgency and means of transmission
Face-to-Face Conversation Rule
–> An offer made in face-to-face conversation generally lapses at the end of the conversation.
Contract Formation: Offer and Acceptance –> The Offer: The Legal Effect of an Offer - Death/Incapacity of Either Party
Death/incapacity of either party after offer is made terminates the power of acceptance.
Contract Formation: Offer and Acceptance –> The Offer: The Legal Effect of an Offer - Revocation By Offeror
Offeror (person who made the offer) may revoke an offer at any time, for any reason.
–> Must be revoked before acceptance + revocation must be communicated to the offeree.
Two ways to communicate revocation to offeree:
- -> Direct revocation: offeror directly communicates to offeree an intent to withdraw the offer
- -> Indirect revocation: 2 requirements:
(1) Offeror takes action that is inconsistent w/ the intent to go through w/ the offer; and
(2) Offeree learns of such action from a reliable source
Contract Formation: Offer and Acceptance –> The Offer: The Legal Effect of an Offer - Revocation of Offer Made to Multiple Offerees (Functional Equivalents Rule)
Under 2nd Rest of Ks, where an offer is made by advertisement in a newspaper or other general notification to the public, the power of acceptance is terminated when:
(1) the notice of revocation is communicated by advertisement or other general notification equivalent to that used for the offer and
(2) no better means of notification is reasonably available
Contract Formation: Offer and Acceptance –> The Offer: The Legal Effect of an Offer - Rejection by the Offeree
3 Ways:
(1) Outright rejection
(2) Rejection via counteroffer (counteroffer = rejection + new offer)
- ———> EXCEPTION: offeree can test the waters by making a mere inquiry
(3) Rejection via non-conforming acceptance (mirror image rule - CL)
Contract Formation: Offer and Acceptance –> The Offer: The Legal Effect of an Offer - Mirror Image Rule
CL Rule; acceptance must mirror the terms, and any variation is a counteroffer (and a rejection of the initial offer).
Contract Formation: Offer and Acceptance –> The Offer: The Legal Effect of an Offer - Revival of the Offer
The maker is the master of the offer.
Therefore, an offeror has the power to revive an offer that the offeree has rejected (and with it the offeree’s power of acceptance), and he can also revive an offer that has lapsed.
—> All he must do is communicate the revival to the offeree.
Contract Formation: Offer and Acceptance –> The Offer: Option Contracts (Preventing Revocation) - Definition and Reqs
Option Contract (CL) Elements:
(1) Offer
(2) Separate promise to keep it open; and
(3) Valid mechanism for enforcing subsidiary promise (consideration is the most common way)
Contract Formation: Offer and Acceptance –> The Offer: Option Contracts - Special Rule for Construction Contracts
Reliance/Construction: Cts will hold offers open when the offeree has detrimentally relied on them (such as when general contractors rely on subcontractor’s bids in forming their own bids on a project).
Contract Formation: Offer and Acceptance –> The Offer: Firm Offers - The UCC “Firm Offer” Rule
Irrevocable offer by merchant to buy or sell goods w/o consideration.
3 Requirements:
(1) offer made by a merchant (in the business of buying or selling goods);
(2) in a writing signed by the merchant; and
(3) expressly stating it will be held open
- —> Irrevocable for time stated or reasonable time, BUT no longer than 3 months even if stated otherwise.
Contract Formation: Offer and Acceptance –> The Offer: Option Contracts and Firm Offers - Merchants
The UCC defines “merchant” in terms of his special knowledge/skill w/ respect to the practices/goods involved in a transaction.
—> Any person may be considered a merchant even if he only has knowledge of the goods, or knowledge of the practices.
Contract Formation: Offer and Acceptance –> The Offer: Offer and Acceptance under Unilateral Contracts
Offer seeking performance in return (ie reward offers).
–> Offeror not bound until offeree completes performance, and offeree is NEVER bound.
Contract Formation: Offer and Acceptance –> The Offer: Revocation of the Offer in a Unilateral Contract
Once offeree begins performance, an option K is created and offeror may not revoke.
–> Mere preparations do not create an option K, only beginning performance.
Contract Formation: Offer and Acceptance –> Communicating Acceptance Under CL: General Rule and Exceptions
Acceptance must:
(1) mirror terms of offer; and
(2) be communicated to the offeror
2 Exceptions:
(1) Unilateral Ks
- -> acceptance effective only be completing performance, no communication reqd unless offer provides otherwise
(2) Acceptance by mail (CL Mailbox Rule)
- -> acceptance by mail is effective upon DISPATCH if properly posted
- -> Applies only to acceptances and not to any other communication (ie not revocations/rejections)
- -> Default rule: it applies unless the offer provides otherwise
Contract Formation: Offer and Acceptance –> Communicating Acceptance Under CL: Communicating Acceptance (How + when not necessary)
If the offer stipulates a particular means of communicating acceptance, the offeree must utilize those means to make an effective acceptance.
If the offer is silent as to means of communication, the offeree is free to use any reasonable means of transmission; transmission reasonable if it is:
(1) the means used by the offeror;
(2) the means customarily used in similar transactions; or
(3) a means of communication that is equivalent in expeditiousness and reliability to the means used by the offeror.
3 situations where communicating acceptance req does not apply:
(1) acceptance by silence;
(2) acceptance by performance;
(3) acceptance by mail or other correspondence.
Contract Formation: Offer and Acceptance –> Communicating Acceptance Under CL: Acceptance by Silence (3 circs)
Generally, an offeree’s silence in response to an offer cannot constitute acceptance except in following 3 circumstances:
(1) where offeree takes the benefit of the offeror’s services w/ a reasonable opportunity to reject them and w/ reason to know the offeror’s intention;
(2) where offeror has given offeree reason to understand that acceptance may be communicated by silence;
(3) where (because of previous dealings/circumstances) it is reasonable that offeree should notify offeror if he does not intend to accept
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: General
Unless the K language or circumstances unambiguously indicate otherwise, acceptance may be made in any manner and by any medium reasonable under the circumstances.
—> UCC rejects CL mirror image rule and recognizes binding Ks despite presence of nonconforming acceptance in two situations: (1) the shipment of nonconforming goods and (2) battle of the forms.
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: Seller’s Shipment of Conforming and Nonconforming Goods
Seller can accept buyer’s offer to purchase goods for prompt or current shipment in 3 ways:
(1) promise to ship goods
(2) shipping conforming goods
(2) shipping non-conforming goods, unless the seller sends the shipment as an accommodation (ie counteroffer)
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: The Battle of the Forms
UCC rejection of the mirror image rule.
An offeree’s nonconforming acceptance or confirmation (w/ additional terms) will operate as an effective acceptance of the offer, thus forming a K (not a counteroffer).
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: Nonconforming Acceptance or Confirmation - Transaction Involving a Consumer
When at least one party to the transaction is not a merchant, the additional/different terms are construed as proposals for addition to the K.
—> Thus, they are not part of the K unless the offeror expressly agrees to the additional terms.
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: Nonconforming Acceptance or Confirmation - Battle of the Forms - Transaction Where Both Parties Are Merchants
Between merchants, the additional terms in offeree’s acceptance/confirmation become part of the K, EXCEPT (3 circumstances):
(1) The offer expressly limits acceptance to its own terms;
(2) If offeror objects to the additional terms w/in a reasonable time
(3) If the additional terms would materially alter the K
- -> Material alteration: terms that would result in surprise or hardship if incorporated w/o the express awareness of the other party.
- -> Examples of clauses that would materially alter the K: warranty disclaimers, clauses that materially shorten the deadline for raising complaints, and clauses that change usages of trade or past courses of dealing
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: Written Confirmations (BoF)
When parties enter a K (typically a real time via face to face or telephonic communications) and then one/both parties follow up w/ written confirmation containing terms additional to or different from terms of original deal.
Consumers
—> If at least one of the parties to the transaction is a consumer, any additional/different terms are mere proposals for addition to the K which the receiving party may accept/reject.
Merchants
- –> Any additional terms are part of the K unless:
(1) they would materially alter the K; or
(2) the receiving party objects to them w/in a reasonable time. - –> Any terms in a confirmation differing from prior agreement are proposals for inclusion in the K, which the receiving party may accept/reject.
- –> If both merchants send written confirmations and those confirmations contain conflicting terms, then the KNOCKOUT RULE applies and neither party’s term is in the K.
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: Battle of the Forms - Conditional Acceptance
If the offeree’s acceptance is specifically conditioned on offeror first agreeing to the additional terms in the acceptance before offeree will proceed, this nonconforming/conditional acceptance will NOT be effective to form a K (ie it’s a counteroffer).
–> No K is formed by the writings until the offeror expressly assents to the additional terms.
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: Other Situations Governed by the Battle of the Forms Rules - Contracts Formed by Conduct
UCC provides that parties’ conduct in recognizing the existence of a K is suff to est a K even though their writings do not otherwise est a K.
The terms of the K will be:
(1) Terms on which the writings of the parties agree; and
(2) Default terms provided by the UCC (note: express terms in the parties’ communications which do not match/agree are omitted).
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: Other Situations Governed by the Battle of the Forms Rules - Transactions w/o Preprinted Forms
Although most situations governed by these rules will involve transactions consummated via preprinted forms, the same rules apply to any sale of goods in which an offer is followed by a nonconforming acceptance or real time K is followed by confirmations.
Consideration and Promissory Estoppel –> Consideration and Bargain
General rule: promise is unenforceable unless support by consiration.
Bargain theory
–> promise is supported by consideration if it is based on a bargain for exchange
Bargained-for exchange
–> there was something (goods or services) that was promised, and the promise must have been made in order to obtain something else of value (quid pro quo for making the promise - usually a return promise or performance)
Consideration and Promissory Estoppel –> Insufficient Considerations v. Failure of Consideration: Insuff Consideration
A promisor defending against an attempt to enforce a gratuitous promise can state his defense in several ways:
(1) the promise is not supported by consideration
(2) there is a want of consideration (consideration is lacking); or
(3) there is legally insuff consideration
NOT to be confused with a failure of consideration
Consideration and Promissory Estoppel –> Insufficient Considerations v. Failure of Consideration: Failure of Consideration
Failure of consideration is a claim that the party has not performed in accordance w/ his promise.
Consideration and Promissory Estoppel –> Insufficient Considerations v. Failure of Consideration: Preexisting Duty Rule
A promisor cannot provide consideration where that consideration is a duty the promisor is already obligated to perform.
Consideration and Promissory Estoppel –> Inadequacy of Consideration
Cts do not police the equivalence or fairness of the exchange.
Consideration and Promissory Estoppel –> Illusory Promise
Promise of performance that leaves performance to the unlimited discretion of the promising party –> does NOT constitute consideration.
–> Ex: agree to paint a portrait and recipient agrees to pay for it if he decides he wants it.
Consideration and Promissory Estoppel –> Gratuitous Promises: Executed Gifts Distinguished
Promise to make a gift generally unenforceable due to insufficient consideration.
–> Exception: gratuitous transfers are legally binding
Consideration and Promissory Estoppel –> Gratuitous Promises: Recitals of Consideration
The req of consideration is not satisfied by a false recital.
—> Exception: some cts will enforce option Ks on the basis of a signed writing w/ a false recital of consideration
A condition on a gratuitous promise also does not satisfy the req of consideration (a condition is something a promisee must do to avail himself of the promisor’s benevolence).
—> Distinguish consideration from condition on gratuitous promise using 3 factors: (1) language of parties; (2) commercial v. charitable or familial context; and (3) benefit to the promisor.
Consideration and Promissory Estoppel –> Forbearance of a Claim or Defense
Valid consideration exists when a party agrees to forbear a claim or defense in exchange for a promise or performance by the other party (even if the claim/defense proves invalid).
However, forbearance to assert or the surrender of a claim/defense which proves to be invalid is not consideration unless:
(1) the claim or defense is in fact doubtful bc of uncertainty as to the facts or law; or
(2) the forbearing party believes that the claim or defense may be fairly determined to be valid.
Consideration and Promissory Estoppel –> Alternatives in the Absence of Consideration: Past or Moral Consideration
General rule: a promise in exchange for something already given/performed is NOT supported by consideration.
Exceptions (these are enforceable):
(1) a written promise to pay a debt barred by limitations
(2) a written promise to pay a debt discharged by bankruptcy
Material benefit test (minority rule)
- -> Promise made in recognition of a past benefit conferred is enforceable if:
(1) promisee conferred the benefit on the promisor (not a third party); and
(2) the benefit is material
Consideration and Promissory Estoppel –> Alternatives in the Absence of Consideration: Promissory Estoppel
Promisee that reasonably relies to his detriment on gratuitous promise may be able to enforce that promise even w/o consideration.
4 Requirements:
(1) A promise
(2) Foreseeable reliance
(3) Actual reliance (must be induced by the promise)
(4) Injustice w/o enforcement
Factors to analyze injustice requirement above:
(1) strength of proof of the other 3 reqs
(2) blameworthiness or willfulness of the breach
(3) relative position or equities of the parties
(4) extent to which the reliance was detrimental
(5) availability of alternatives short of enforcing the promise
Statute of Frauds –> Statute of Frauds in Operation
General rule: oral and written Ks are equally enforceable.
- —-> SOF = EXCEPTION : if the K falls under the SOF, it must be:
(1) in writing; and
(2) signed by party whom enforcement is sought
Statute of Frauds –> Evaluating Statute of Frauds Issues
(1) Does the agreement fall w/in SoF?
(2) Is the SoF satisfied?
(3) Is alternative enforcement available?
Statute of Frauds –> Analyzing Problems Under the CL Statute of Frauds: Mnemonic
6 Categories of Ks Subject to SOF = MYLEGS
–> Some categories have specific limitations w/in them that narrow the reach of the SOF.
(1) MARRIAGE Ks
(2) Ks that can’t be performed w/in one YEAR of their making
(3) Ks for the sale of LAND
(4) Ks of an EXECUTOR or administrator to answer for a duty of a decedent
(5) Ks of GUARANTEE or suretyship
(6) Ks for the SALE of goods at a price of $500 or more (UCC 2-201)
Statute of Frauds –> Analyzing Problems Under the CL Statute of Frauds: Specific Coverage Under the CL SoF (MYLEGS)
Marriage
—> A K upon consideration of marriage
Year
—> K that will not be completed w/in one year of the formation of the K
Land
—> K for the sale of an interest in land.
Executor
—> A K of an executor or administrator to answer for a duty of the decedent
Guarantee
—> A K of guarantee or suretyship
Sale of Goods
—> K for sale of goods at price of 500 or more
Statute of Frauds –> Analyzing Problems Under the CL Statute of Frauds: Performance w/in One Year
Ks not to be performed w/in one year: measured from date K made, not date performance begins.
–> Ask: at point of formation, is it at all possible (even if not probable) to complete reqd performance w/in one year?
Frequently tested situations:
(1) K that can be breached/excused w/in a year of its formation.
- -> This is potentially true of any K and so would swallow the one-year rule
- -> Irrelevant; what matter is not whether the K can be breached w/in one year but whether the K can be performed in full by its terms w/in one year of formation.
(2) A lifetime or permanent K of employment not governed by the one year rule because employee’s death is possible w/in one year
Statute of Frauds –> Analyzing Problems Under the CL Statute of Frauds: Land-Sale Contracts
Land provision governs Ks for sale of interest in land; most cts look to whether K is for future sale of land or present conveyance.
- –> K for future sale governed by land provision and reqs signed writing; present conveyance of land promised for money is outside land provision.
- –> Leases generally treated as Ks falling w/in the land provision bec a leasehold is an interest in land; however, most states except from land and 1 year provisions short term leases (for one year or less) or Ks to lease.
Statute of Frauds –> Analyzing Problems Under the CL Statute of Frauds: Guaranty/Suretyship Agreements
Main Purpose Exception
- -> Although guarantee Ks (secondary obligation) are generally w/in SoF, a primary exception is the main purpose doctrine.
- -> That is, where the main purpose of the guarantor is to protect his own economic interests, the guarantee agreement is not governed by the SoF and can be oral.
Statute of Frauds –> Satisfaction of the CL SoF: General
If a K falls w/in SoF, general rule is that K is unenforceable unless evidenced by a writing signed by the party against whom enforcement is sought.
Statute of Frauds –> Satisfaction of the CL SoF: The Writing Req
All that is necessary is that the writing be a memorandum of the agreement which can be prepared before, during, or after formation.
Following terms are reqd:
(1) Identity of the parties to the transaction;
(2) The nature and subject matter of the K; and
(3) The essential terms of the agreement, such as price and date for performance
Statute of Frauds –> Satisfaction of the CL SoF: The Signature Req - General
Any symbol with intention to authenticate the writing (ex: initials, typed, stamped, or preprinted signature or letterhead).
Statute of Frauds –> Satisfaction of the CL SoF: The Signature Req - “Tacking Together” Multiple Documents
The writing need not be a single document; a party may satisfy the SoF by tacking together several documents which (once combined) satisfy all the nec reqs of SoF.
- –> If all documents are signed by the party against whom K is being enforced (or if signed doc incorporated unsigned docs by reference) sig req is satisfied.
- –> If unsigned docs are not incorp by reference, tacking together still satisfies SoF if:
(1) there is at least one signed writing unambiguously esting a contractual relationship between the parties;
(2) the signed and unsigned docs clearly refer to the same subject matter; and
(3) there is clear and convincing evidence of acquiescence to the unsigned documents by the party against whom enforcement is sought.
Statute of Frauds –> Satisfaction of the CL SoF: Performance - General
SoF may be satisfied w/ respect to some categories of governed Ks via part performance, in an action for specific performance.
Statute of Frauds –> Satisfaction of the CL SoF: Performance - Land Contracts
Part performance reqs a showing of any combination (2) or all three of the following:
(1) payment of all or part of purchase price
(2) taking possession of land
(3) making substantial improvements to property
Statute of Frauds –> Satisfaction of the CL SoF: Performance - One-Year Contracts
If fully performed –> enforceable despite SoF
If only partially performed –> not enforceable
Statute of Frauds –> Enforcement Where the CL SoF Is Not Satisfied: Recovery for Benefits Conferred
Where one party bestows benefits on another in connection w/ an oral K (even if K is barred by SoF) aggrieved party has option of filing cause of action for RESTITUTION (recovery of benefits conferred).
Alternatively, if services are involved, party may recover on theory of QUANTUM MERIUT (meaning he could sue to recover the reasonable value for the services rendered).
Statute of Frauds –> Enforcement Where the CL SoF Is Not Satisfied: Promissory Estoppel
Where a party suffers losses in reliance on an oral K, but the enforcement of that K is barred under SoF, the party may be able to recover damages via PE.
Among cts recognizing PE, some impose stiffer reqs on claimant than those applicable under ordinary PE action; those cts look for:
(1) the definite and substantial character of reliance, and its relationship to the remedy sought;
(2) the extent to which the reliance is corroborated by the evidence of the formation and terms of the K; and
(3) the extent to which the formation and terms of the K are otherwise est’d by clear and convincing evidence.
Statute of Frauds –> Specific Coverage Under the UCC SoF
Does the agreement fall w/in SoF?
–> Ks for sale of goods $500 or more are under the UCC SoF.
Statute of Frauds –> Satisfaction of the UCC SoF: Mnemonic (SMIPS)
Signed writing Merchant's confirmation In-ct admission Part performance Substantial reliance by seller of specially manufactured goods
Statute of Frauds –> Satisfaction of the UCC SoF: Signed Writing
Signed writing:
(1) writing
(2) quantity
(3) signed by the party against whom enforcement is sought
Statute of Frauds –> Satisfaction of the UCC SoF: Merchant’s Confirmation
Two merchants enter oral agreement, one sends the other written confirmation of agreement; SoF satisfied against the recipient merchant if:
(1) both sender and recipient are merchants
(2) writing is in confirmation of the K and contains a quantity; and
(3) recipient does not send written objection w/in 10 days
Statute of Frauds –> Satisfaction of the UCC SoF: In-Court Admission
Party admits K formation in pleading, testimony, or otherwise in ct.
Statute of Frauds –> Satisfaction of the UCC SoF: Part Performance - General
Despite absence of writing, an otherwise valid K is enforceable for:
(1) goods for which payment made/accepted; or
(2) goods which have been received/accepted
Statute of Frauds –> Satisfaction of the UCC SoF: Part Performance - Divisible Goods
If the K in question involves divisible goods (eg widgets) part performance secures enforcement for any quantity that has already been paid for by the buyer or delivered by the seller (not enforceable beyond that quantity).
Statute of Frauds –> Satisfaction of the UCC SoF: Part Performance - Indivisible Goods
If the K in question involves indivisible good (eg a speedboat), majority rule holds that partial payment secures enforcement of entire K.
—> Minority: refuse enforcement unless full payment made
Statute of Frauds –> Satisfaction of the UCC SoF: Substantial Reliance by the Seller of Specially Manufactured Goods
SoF satisfied against buyer who orders custom goods from a manufacturer if:
(1) Manufacturer detrimentally relied by beginning performance before buyer’s withdrawal; and
(2) Manufacturer can’t resell goods in the ordinary course of business
Statute of Frauds –> Enforcement Where the UCC SoF is Not Satisfied (+ construction contractors)
If party has relied to his detriment on an oral K whose enforcement is barred by the UCC SoF, the aggrieved party may be able to secure a remedy via PE.
—> Among cts recognizing PE, some impose enhanced proof reqs on claimant (such as proving unconscionable injury or that other party would be unjustly enriched w/o enforcement of the K).
Construction Contractors
—> Bc of unique vulnerability of CCs to revocation by their subcontractors, virtually all cts have protected a general contractor via PE even if oral subcontract is for goods at a price of 500 or more.
Statute of Frauds –> Effect of Satisfying SoF
Satisfaction of SoF does not ensure a win; the aggrieved party must still go on to est both a valid K and a breach thereof to succeed on claim.
—> Thus, satisfying SoF is necessary but not suff alone to enforce K
Statute of Frauds –> No Mutuality of Obligation Under SoF Signing Req (+ exception)
SoF does not req both parties have a signed writing, only that the party against whom enforcement of the K is sought has signed.
—> If writing evidencing K is signed by only one of the parties, the K will be enforceable against the signing party but not against the non-signing party.
Exception (merchant’s confirmation provision 2-201)
—> A signed written confirmation sent by one party to the other will defeat a SoF claim by the receiving party as well as the sending party unless certain conditions are met.
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: Implied Warranties Under the UCC - Warranty of Title and Against Infringement
Warranty of title:
(1) For the sale of all goods, there is an implied warranty of:
- —-> good title to the goods
- —-> rightful transfer of the goods; and
- —-> no liens/security interests are attached to the goods
Can only be excluded/modified by:
(1) specific language; OR
(2) circumstances which give buyer reason to suspect seller does not claim unencumbered title
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: Implied Warranties Under the UCC - Warranty of Merchantability
Warranty that goods fit for ordinary purposes for which those goods would be used.
–> ONLY applies if seller is merchant
Displaced by:
(1) Specific use of word “merchantability” and conspicuousness if in writing; OR
(2) Any other language/circumstances that would reasonably be understood by a buyer to exclude the warranty (“as is” or patent defects)
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: Implied Warranties Under the UCC - Warranty of Fitness for a Particular Purpose
Warranty that goods being sold are fit for the particular purpose buyer intends to use them for.
- -> ONLY applies when, at time of contracting, seller has reason to know:
(1) particular purpose for which the goods are reqd; AND
(2) the buyer is relying on seller’s expertise to select reasonable goods
Warranty negated when:
(1) disclaimer is written, clear, and conspicuous; OR
(2) goods have patent defects which were easily detectable
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: Implied Warranties Under the UCC - Language Excluding All Implied Warranties
Language to exclude all implied warranties of fitness is suff if it states (for ex) that “there are no warranties which extend beyond the description on the face hereof”
However, language above not necessary to exclude/modify warranty if:
(1) the K includes an expression like “as is” or “with all faults” or other similar language that in common understanding calls the buyer’s attention to the execution of warranties and makes plain there is no implied warranty;
(2) buyer has fully examined the goods before entering into the K; or has refused to do so, in which case there is no implied warranty as to defects that should have been apparent from examination; or
(3) course of dealing, course of performance, or usage of trade indicate that the warranty is excluded/modified
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: Express Warranties Under the UCC
Goods will conform to some standard, arises whenever seller expressly makes them as part of the basis of the bargain in the following ways:
(1) any affirmation of promise or fact;
(2) any description of the goods; or
(3) any sample or model
Need not use words “warrant” or “guarantee” to create.
–> However, vague or “sales talk” statements are considered “puffing” not warranty
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: Missing Terms Under the UCC
Under the UCC, where there are pertinent missing terms, the following default rules will fill in those missing terms:
(1) price term –> reasonable price at the time est by the K for delivery
(2) time term –> reasonable time
(3) place of delivery term –> seller’s place of business (ie FOB seller)
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: CL Default Rules for Service and Employment Contracts - Missing Price Term
If one party performs services at the request of another, but no price is discussed in advance, then CL default rule applies: reasonable value for services rendered.
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: CL Default Rules for Service and Employment Contracts - Missing Duration Term
Employment At Will Rule
In practically every jdx, the employment at will rule is the default rule for duration of an employment K; absent an agreement to the contrary, an employer may dismiss and an employee may quit, at any time for any reason.
—-> However, in a majority of jdxs, oral or written assurances of job security made to an individual employee, as well as assurances contained in policy docs distributed to the workforce, may suffice to take the K out of the default rule.
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: The Obligation of Good Faith and Fair Dealing
Another source of gap-filling is the obligation of good faith and fair dealing in the performance and enforcement of the K. (UCC and Restatement)
–> Good faith: honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade
Good faith obligation where terms of K leave critical term (such as price, satisfaction, or quantity) open to the determination of one party.
- -> Open price terms: if K leaves price to be fixed by one of the parties, then that party must fix the price in good faith.
- -> Satisfaction terms: if K contains a satisfaction clause or similar term, then the determination as to whether a party’s performance obligation must be exercised in good faith
- -> Open quantity terms (output and reqs K)
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: Open Quantity Term: Output and Requirements Contracts
Open quantity terms arise in two contexts:
(1) Output contract: buyer agrees to purchase all or a percentage of a seller’s output for a particular good
(2) Requirements contract: seller agrees to supply the buyer w/ all or a percentage of the buyer’s reqs for a particular good.
Under the UCC, the party entitled to determine the particular quantity of goods to be sole (either the buyer demanding delivery of his reqs or the seller demanding purchase of her output) must make that determination in good faith.
UCC also prohibits any unreasonably disproportionate demand or tender, if there was either:
(1) a stated estimate; OR
(2) a past course of dealing
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Interpreting Ambiguous Language: Objective v. Subjective Meaning
Generally, objective meaning trumps subjective meaning.
EXCEPTION
–> When one party has reason to know of the other party’s subjective understanding the first party is bound by that meaning.
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Interpreting Ambiguous Language: Contra Proferentem and the Doctrine of Reasonable Expectations
Rule: if ambiguous term is included in K, then in case of doubt it is construed against the drafter.
Ks subject to this rule of construction
–> All Ks drafted by one of the parties, whether an adhesion K or one between parties of equal bargaining power
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Trade Usage, Course of Dealing, and Course of Performance
Extrinsic evidence that can be used to fill gaps and resolve ambiguities in Ks.
(1) Usage of trade
- -> Any practice/method of dealing having such regularity of observance in a place or trade as to justify an expectation that it will be observed w/ respect to the transaction in question (ie what all members of the trade do).
(2) Course of dealing
- -> A pattern of conduct concerning previous transactions between the parties that is fairly to be regarded as establishing a common basis of understanding for interpreting their subsequent expressions and other conduct (ie what the parties did in their previous Ks)
(3) Course of performance
- -> Present when a particular K involves repeated occasions for performance by a party and the other party (w/ knowledge of the nature of the performance and opportunity for objection to it) accepts the performance or acquiesces in it w/o objection (ie how the parties have acted under their current K).
Admissible uses
–> To fill in gaps (supplement terms) and resolve ambiguities (explain terms)
Inadmissible uses
–> To contradict express terms of K
If conflict, course of performance prevails over course of dealing and usage of trade, and course of dealing prevails over usage of trade.
Gap-Filers, Interpretation, and the Parole Evidence Rule –> The Parole Evidence Rule: In General
Governs admissibility of oral and documentary evidence of negotiations and other communications between the parties that took place prior to or contemporaneously w/ the execution of the K.
Gap-Filers, Interpretation, and the Parole Evidence Rule –> The Parole Evidence Rule: Analyses
When a party seeks to introduce parole evidence, the ct will determine the admissibility of the evidence based on 2 questions:
(1) What is the purpose for which the evidence is being introduced?
(2) Does the evidence relate to a term or K which is integrated?
Gap-Filers, Interpretation, and the Parole Evidence Rule –> The Parole Evidence Rule: Integration
Partial integration
–> terms w/in K are intended as final expression of those specific terms (note: full integration and partial integration are interchangeable).
Complete integration
–> K intended to represent a complete and exclusive statement of all the terms
Gap-Filers, Interpretation, and the Parole Evidence Rule –> The Parole Evidence Rule: Determining Full Integration
Judge will rely on following evidence:
(1) the thoroughness and specificity of the written instrument in connection w/ the terms at issue, which are considered strong indicators that the parties intended the writing to represent their final agreement; and
(2) parole and other extrinsic evidence are admissible
Determination not based on writing alone; all the circumstances (including proffered parole evidence and other extrinsic evidence to written K) is considered.
Gap-Filers, Interpretation, and the Parole Evidence Rule –> The Parole Evidence Rule: Determining Complete Integration
Presence of merger clause indicates complete integration.
–> merger clause: writing contains complete/entire agreement or other words to that effect
Gap-Filers, Interpretation, and the Parole Evidence Rule –> The Parole Evidence Rule: Purpose for Which Evidence is Introduced
Effect of the rule depends on the purpose the parol evidence is being introduced.
Purpose #1: to explain/interpret terms of written K
–> (Majority) Parol evidence is always admissible for this purpose.
Purpose #2: to supplement terms of written K
- -> Rule: parol evidence admissible for this purpose UNLESS K is completely integrated (ie has merger clause).
- -> UCC distinction: trade usage, course of dealings, and course of performance CAN supplement a completely integrated agreement
Purpose #3: to contradict terms of written K
–> parol evidence is not admissible for this purpose
Gap-Filers, Interpretation, and the Parole Evidence Rule –> The Parole Evidence Rule: When the Parol Evidence Rule Will Not Apply
(1) Subsequent agreements
(2) Collateral agreements
- -> PE rule will not affect agreements between parties that are entirely distinct from the written agreement of the K at issue.
(3) Attack on validity of the written agreement
- -> PE rule only applies if there’s a valid written agreement; thus, the PE rule will not bar efforts to prove the following bases for the invalidity of the K:
(1) Failure of oral condition precedent to agreement
(2) Mistake or duress
(3) Fraud
(4) Reformation
- ————> for P to obtain, must be shown: (1) there was an antecedent valid agreement; (2) that this antecedent agreement is incorrectly reflected the writing because of mistake/fraud; AND (3) that proof is estd by clear/ convincing evidence.
Performance, Modification, and Excuse –> Obligations Under the UCC: General
Risk of Loss Rules
(1) Seller’s obligations: transfer and deliver goods
(2) Buyer’s obligations: accept and pay for goods
(3) When something happens to the goods before the buyer receives them:
- ———> If seller bears ROL, he must provide replacement goods.
- ———> If buyer bears ROL, he must pay the K price regardless.
Performance, Modification, and Excuse –> Obligations Under the UCC: Seller’s Obligations - Non-Carrier Cases
Parties to a sale of goods K do not agree to use a common carrier.
When does ROL transfer to buyer?
(1) If seller is NOT a merchant: as soon as goods are made available to him (tendered)
(2) If seller IS a merchant: once goods are physically in buyer’s possession
Performance, Modification, and Excuse –> Obligations Under the UCC: Seller’s Obligations - Carrier Cases
Parties to a sale of goods K agree to use common carrier (trucking firm, train, etc.).
When does ROL transfer?
(1) Shipment K: ROL passes to buyer when goods are delivered to carrier.
- ———> Identified as FOB Seller, or K is silent (default rule)
- ———>Buyer bears ROL if goods are damages in transit
(2) Destination K: ROL passes to buyer when goods are tendered at the destination point specified in the K
- ———> Identified as FOB Buyer
- ———> Seller bears ROL if goods are damages in transit
Performance, Modification, and Excuse –> Obligations Under the UCC: Seller’s Obligations - F.O.B. v. F.A.S.
In Ks that specify that delivery is free on board (FOB) the FOB point is the delivery point.
- —-> FOB [the location of seller] = shipment K
- —-> FOB [any other location] = destination K
In Ks that specify that delivery is free alongside (FAS), the seller must deliver the goods alongside the vessel (in the manner usual at the port of delivery) or on a dock designated by the buyer and obtain and tender a receipt for the goods.
Performance, Modification, and Excuse –> Obligations Under the UCC: Buyer’s Obligations (+ inspection of goods)
Unless otherwise agreed upon, the buyer’s tender of payment is a condition to the seller’s duty to tender and complete deliver.
Inspection of goods
- —-> Generally, unless the parties agree otherwise, the buyer has the right to inspect the goods upon tender or delivery before making payment/acceptance.
- —-> Payment before inspection will not constitute acceptance of goods or impair the buyer’s right to inspect or any of his remedies
Performance, Modification, and Excuse –> Obligations Under the UCC: Risk of Loss
If the seller is reqd or authorized to ship the goods by carrier, the risk of loss passes to the buyer (2 situations):
(1) when the goods are delivered to the carrier if the K does not req the seller to deliver the goods at a particular destination (ie shipping K); or
(2) when the goods are tendered at a partic destination by the carrier so that the buyer is able to take delivery if the K reqs the seller to deliver the goods at a particular destination (ie destination K)
In any other case:
(1) if the seller is a merchant, the risk of loss passes to the buyer when the buyer receives (takes physical possession of) the goods; and
(2) if the seller is not a merchant, the risk of loss passes to the buyer upon tender of delivery
Performance, Modification, and Excuse –> Obligations Under the UCC: Effect of Breach on Risk of Loss
If the seller breaches the K by making nonconforming tender/delivery, the ROL remains on seller until cure/acceptance.
If the buyer rightfully revokes acceptance, the buyer may treat the ROL as having been on the seller from the beginning.
If the buyer breaches before the ROL passes to the buyer, the seller may treat the ROL as resulting on the buyer for a commercially reasonable time.
Performance, Modification, and Excuse –> Modification: At CL - The Preexisting Duty Rule
A promise to increase compensation for duties already owed is unenforceable because there is no consideration for the modification.
—> Preexisting duties are not deemed consideration because the promisor must already perform that duty on the basis of the original K.
Performance, Modification, and Excuse –> Modification: At CL - The Preexisting Duty Rule: Exceptions
(1) Mutual modification
- -> MM of an existing K is enforceable if both parties agree to different performance from what was originally reqd by the original K.
(2) Unforeseen Circumstances
- -> Preexisting duty rule not applicable if increased compensation is given in exchange for a promised performance that has been rendered substantially more burdensome than reasonably anticipated when K formed.
Performance, Modification, and Excuse –> Modification: Modification and the Sales of Goods Under UCC
Agreement modifying an existing K needs no consideration to be enforceable as long as made in good faith.
Performance, Modification, and Excuse –> Modification: Duress and Midterm Modifications
A party who agrees to a contractual modification in commercially extortionate circumstances may also be able to raise the defense of duress.
—–> The duress defense is available not only in CL cases, but also in sales of goods cases under UCC.
Performance, Modification, and Excuse –> Modification: Effect of “No Oral Modification” Clauses
Unless reqd by SoF, mods can generally be oral or written.
—–>However, enforceability of an oral mod to an agreement may depend on whether K contains a “no oral mod” clause.
CL Cases
- —-> Originally, there wa a CL rule that made oral mod clauses invalid; even today, most cts will not enforce them where a party has reasonably relied on the oral agreement.
- —-> However, enforcement becoming more likely in modern cases, particularly in construction context.
UCC Cases
- —-> Under 2-209, clauses prohibiting oral mods are presumptively invalid.
- —-> An oral mod made in violation of such a clause may nevertheless be enforceable if the disadvantaged party relies on the mod or the parties perform in accordance therewith.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: General
A party entering a K makes many assumption about the present and future; when such assumptions turn out to be faulty, the parties may be excused under the doctrines of mistake, impossibility, impracticability, and frustration of purpose.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Mistake -Definition
Faulty assumptions regarding present material facts.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Mistake - Unilateral Mistake
1 party’s mistake about present material facts is NOT excused unless the other party knew/had reason to know of the party’s mistake.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Mistake - Mutual Mistake
Voidable by disadvantaged party when all 3 met:
(1) mistaken assumption relates to material facts (not just value);
(2) mistake made by both parties; and
(3) disadvantaged party did not bear the risk of mistake under the K
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Impossibility -Doctrine of Impossibility
Both parties excused if performance has been rendered impossible by events occurring after K formed.
Requirements:
(1) Impossibility must be objective.
(2) The contingency that creates the impossibility was not known to the parties at the time of making the K; it arose after the K and was unanticipated.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Impossibility -Objective Impossibility
Objective impossibility occurs when performance literally impossible for anyone due to circumstances beyond control of the parties.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Impossibility -Subjective Impossibility
Occurs when the performance under the K becomes impossible bc of some failure/fault on the part of the performing party.
—–> Under these circs, performance obligation not excused and will be considered breach of K.
EXCEPTION: Will not apply where…
(1) the parties have allocated the risk of the contingency and provided remedial measures in the event of tis occurrence; or
(2) events render performance only temporarily impossible (this typically only suspends the obligations of the parties until the impossibility ends).
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Impossibility -Types of Impossibility
What circumstances are we likely to find objective impossibility?
(1) when the subject matter of the K is destroyed
(2) when there is a personal services K and the performing party has died or becomes incapacitated
(3) when supervening law/legal developments have rendered performance legally impermissible
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Impossibility -Death or Incapacity
If the existence of a particular person is necessary for the performance of a K (eg personal performance by individual is reqd, or performance is to be rendered to a specific person) then that persons’s death/incapacity will trigger the doctrine of impossibility and parties obligations will cease.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Impracticability - Doctrine of Impracticability
Courts are reluctant to excuse performance for any reason other than impossibility; however, under the doctrine of impracticability, a promisor may be excused from performance where the following 2 Elements are proven:
(1) Contingency causing impracticability was unforeseen; and
(2) Increased cost/burden of performance would be far beyond what either party anticipated
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Impracticability - Contingencies Not Excusing Performance
- —-> Increased cost alone, unless due to an unforeseen contingency and it alters the essential nature of performance.
- —-> Rise or collapse of the market
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Impracticability - Contingencies Excusing Performance
- —-> Where a severe shortage of raw materials/supplies is caused by:
(1) was/embargo
(2) local crop failure; or
(3) unforeseen shutdown of major sources of supply
—–> Where the severe shortage either caused a market increase in cost or prevents the seller from securing the necessary supplies for performance.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Frustration of Purpose - Doctrine
Where a contingency occurs that dramatically reduces the value of performance to the receiving party.
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Frustration of Purpose - Modern Test
3 Requirements:
(1) Principal purpose is entering K is substantially frustrated;
- —-> This means that the frustration of incidental / non-material purposes would not trigger the excuse of frustration of purpose.
(2) Frustration must be substantial in nature; and
(3) non-occurrence of the event that cause frustration was a basic assumption of the K
Performance, Modification, and Excuse –> Excusing Performance Due to Faulty Assumptions: Frustration of Purpose - Contractual Allocation of the Risk
Where the parties contractually allocate the risk of nonoccurrence of the event, the doctrine of frustration of purpose will not be available.
Performance, Modification, and Excuse –> Excusing Performance by Agreement of the Parties: Rescission
Is permissible where both parties to a K have remaining performance due.
–> Consideration is provided by each party’s discharge of the other’s duties.
Performance, Modification, and Excuse –> Excusing Performance by Agreement of the Parties: Accord and Satisfaction - Definitions
The parties may make an accord, which is permissible when one party has already performed and is waiting on the other party to finish performing.
- -> Accord: obligee promises to accept substituted performance in satisfaction of the obligor’s existing duty.
- -> Bilateral executory accord: an agreement that an existing claim will be discharged in the future by the rendition of a substituted performance.
Legal Effects
- -> Accord and satisfaction satisfies the obligor’s original obligation
- -> The accord alone does not discharge the obligor’s duty; it only suspends the obligor’s duty
Performance, Modification, and Excuse –> Excusing Performance by Agreement of the Parties: Accord and Satisfaction - Validity of Accord- Consideration Req
General contract law applies - consideration is reqd.
May be suff consideration if:
(1) Where the accord involves an agreement for partial or substituted performance, the substituted performance differs significantly from the original performance, or its obligation is doubtful
(2) Where the accord involves an agreement for partial payment, there is a good-faith or bona fide doubt about the amount owed
Performance, Modification, and Excuse –> Anticipatory Repudiation: General
AR may be estd by:
(1) Party’s definitive statement that it will breach; or
(2) Party’s voluntary act that renders party unable to perform its contractual obligations
Performance, Modification, and Excuse –> Anticipatory Repudiation: Adequate Assurance of Performance - General
If AR cannot be estd but there are reasonable grounds for insecurity, the insecure party may make a demand for adequate assurance of performance.
Failure to give adequate assurance
- -> Failure to respond w/ reasonable assurances: repudiation
- -> This can occur where the other party: (1) does not respond to a demand for assurance in reasonable time (30 days under the UCC); or (2) Does not respond in a way that provides reasonable assurances
Performance, Modification, and Excuse –> Anticipatory Repudiation: Adequate Assurance of Performance - Suspension of Performance by the Insecure Party
Upon making a demand for assurances, a party w/ reasonable grounds for insecurity may suspend its own contractual performance so long as:
(1) suspension is commercially reasonable; and
(2) the insecure party has not yet received the agreed upon return for the performance in question
Performance, Modification, and Excuse –> Anticipatory Repudiation: Rights of the Aggrieved Party Upon Repudiation
(1) Cancel K and terminate all rights/obligations under it;
(2) Bring action for damages or specific performance; OR
(3) Ignore the repudiation and continue under the K
Performance, Modification, and Excuse –> Anticipatory Repudiation: Retraction of Repudiation
A party who has made an AR to the other party may retract unless/until the other party:
(1) Acts in reliance on repudiation;
(2) Accepts repudiation by signaling this to breaching party; OR
(3) Commences suit for damages/specific performance
Performance, Modification, and Excuse –> Conditions: Promissory v. Pure Conditions
Promissory condition: K performance is conditioned on the occurrence of the promised performance by the other party.
Pure condition: K performance is conditioned on the occurrence of events beyond the control of either party
Performance, Modification, and Excuse –> Conditions: Express v. Implied Conditions
Identifying express conditions: look for clear language of the parties.
- —> “The party’d duty to perform is expressly conditioned on the promised performance.”
- —> “ There is no obligation to proceed unless and until the following steps are taken.”
- —> “The party has a duty to perform on the condition that certain events occur” or “only if certain event occur”
- —> “Payment is due upon completion”
- —> OTHER CONDITIONAL PHRASES: “on condition that” “as long as” “when” “provided that”
Performance, Modification, and Excuse –> Conditions: CL Rules Governing the Order of Performance
The rights of the parties in the event of a failed condition depends on whether the condition is express or implied.
–> Any failure of an express condition (ie less than 100% strict compliance) will discharge the party’s obligation to perform.
Performance, Modification, and Excuse –> Conditions: UCC Rules Governing the Order of Performance
Parties are free to specify the order of performance, and where the K contains those specifications, the performance obligations under that K will be performed according to K terms.
—–> Because sales Ks most commonly involve delivery and payment of goods, performance is treated as concurrent, and so each performance is conditioned on the performance of the other.
Performance, Modification, and Excuse –> Conditions: CL Rules Governing the Failure of a Condition - General
In CL cases, the rights of the parties in the event of a failed condition depend on whether the condition is express or implied.
Performance, Modification, and Excuse –> Conditions: CL Rules Governing the Failure of a Condition - Express Conditions
Where the party’s performance under the K is subject to an express condition, the failure of that condition will discharge the party’s obligation to perform.
Performance, Modification, and Excuse –> Conditions: CL Rules Governing the Failure of a Condition - Excusing Failed Express Conditions
Two situations in which failure of the condition may be excused such that the performance obligation of the party who stood to benefit from the condition is not discharged.
(1) Situation 1: Waiver
- —> The party who has been discharged from performing by the failed condition may waive the right to discharge and perform anyway.
- —> Some cts treat this as a mid-tern modification, which in a CL case reqs consideration
(2) Situation 2: Bad Faith Conduct
- —> When a party acts in bad faith so as to prevent the condition, that party’s performance obligation will not be discharged.
Performance, Modification, and Excuse –> Conditions: CL Rules Governing the Failure of a Condition - Implied Conditions, Material Breach v. Substantial Performance
When the possibility of a breach is not addressed by an express condition, it is still a breach.
–> However, under the law of implied conditions, cts can treat that breach in one of two ways: either as a material breach or substantial performance.
Material Breach
- —> If breach is serious enough, ct will treat like failure of an express condition.
- —> The aggrieved party is generally discharged from his own performance obligations.
Substantial Performance
- —> If the breach is less serious, ct will treat performance as “close enough,” party has rendered substantial performance.
- —> The aggrieved party will not be discharged of his own performance obligations.
Performance, Modification, and Excuse –> Conditions: CL Rules Governing the Failure of a Condition - Implied Conditions, Total Breach v. Partial Breach
A material breach can be treated as either a partial breach or a total breach.
- —-> A claim for damages for total breach is one for damages based on all of the injured party’s remaining rights to performance.
- —-> A claim for damages for partial breach is one for damages based on only part of the injured party’s remaining rights to performance.
A nonmaterial breach can only be a partial breach.
Performance, Modification, and Excuse –> Conditions: Failed Condition That Cannot Be Excused
Where a condition has failed and cannot be excused, there are other methods of enforcement to mitigate the consequences for the breaching party.
Divisibility of the K
- —> Breaching party can argue K is divisible and only part of K has been materially breached.
- —> Divisibility Test: is the K easily apportioned into agreed equivalents?
- —> TIP: If the whole is merely the sum of its party’s, then it’s divisible; but if it’s more than the sum of the party’s, it is not divisible (ie a house).
Performance, Modification, and Excuse –> Conditions: UCC Rules Governing the Failure of a Condition - Perfect Tender Rule
Under the perfect tender rule, terms of a K for sale of goods are enforced exactly, every K term treated as an express condition.
- —> The seller is in breach if the goods fail in any respect to conform to the K.
- —> If seller fails to make perfect tender, buyer had 3 courses of action available: reject goods; accept goods; accept some reject some
Performance, Modification, and Excuse –> Conditions: UCC Rules Governing the Failure of a Condition - Perfect Tender Rule, Reject the Goods
Must reject w/in reasonable time AND notify seller.
Buyer may then sue for damages unless cure applies.
If buyer fails to reject in manner specified above, then it is deemed an acceptance of the goods by the buyer.
Performance, Modification, and Excuse –> Conditions: UCC Rules Governing the Failure of a Condition - Perfect Tender Rule, Accept the Goods
Occurs when buyer had reasonable time to inspect AND signifies acceptance by:
(1) Stating that goods conform to the K;
(2) Taking the goods despite non-conformance;
(3) Failing to make effective rejection; OR
(4) Taking any action inconsistent w/ seller’s ownership of goods (like putting goods on the showroom floor).
Legal consequences of buyer’s acceptance:
(1) Buyer must pay K price;
(2) Buyer may seek damages for any non-conformity if seller has been reasonably notified;
(3) Buyer can revoke acceptance if non-conformity substantially impairs value of the goods, AND:
- —> 1. if buyer accepted because unaware of non-conformity; OR
- —> 2. seller assured cure but failed to cure
Performance, Modification, and Excuse –> Conditions: UCC Rules Governing the Failure of a Condition - Perfect Tender Rule, Reject Part and Accept Part of Goods
Buyer can only do so in terms of commercial units of that good (can’t accept half a loaf of bread only).
Performance, Modification, and Excuse –> Conditions: Seller’s Ability to Cure (workarounds for breaching sellers)
Right to Cure (before K deadline)
- —> If seller makes non-conforming tender but time for performance has not passed, then seller may substitute conforming goods.
- —> 2 Requirements:
(1) Seller must give buyer reasonable notice of intent to cure; and
(2) Seller must make conforming delivery by K deadline
Right to Cure When There Were Reasonable Grounds to Believe Delivery Was Acceptable (after K deadline)
- —> Belief must be based on buyer’s express assurances, trade usage, course of dealing, or course of performance.
- —> If such grounds for belief exist, there are 2 requirements for seller’s cure:
(1) Seller must give buyer reasonable notice of intent to cure; and
(2) Seller must make conforming delivery w/in reasonable time
Performance, Modification, and Excuse –> Conditions: Special Rules for Installment Contracts
Imperfect Tenders in Installment Ks
- —> Under the UCC, installment Ks are Ks that contemplate delivery of goods in separate lots to be separately accepted by the buyer.
- —> Perfect tender rule DOES NOT apply to installment Ks; Buyer must generally give seller opportunity to cure any defects in the installment deliveries, unless the seller substantially impairs the value of the entire K.
Defenses –> Incapacity: Infancy - Definition
Modern Rule: Minors (under 18) may enter into a K, but it is voidable at minor’s option.
- —> Majority of jdxs: neither of the following affect minor’s avoidance rights:
(1) marriage or emancipation
(2) misrepresenting the minor’s age
Defenses –> Incapacity: Infancy Exception - Power of Avoidance (or Disaffirmation)
If minor exercises right to disaffirm K: minor is obligated to return any goods received but not liable for any damages or reasonable value for use of any goods/services.
Defenses –> Incapacity: Infancy Exception - Ratification
Once minors turn 18, they may expressly or impliedly ratify Ks entered into during minority and bind themselves to obligations they might otherwise have disaffirmed.
Defenses –> Incapacity: Infancy Exception - Necessaries
A minor’s K for necessaries (food, clothing, shelter, medical care) is voidable, but merchant has quasi K right to recover reasonable value of goods/services.
Defenses –> Incapacity: Infancy Exception - Misrepresentation By Minor
Minority: if a minor has misrepresented her age to the contracting party in order to obtain the goods/services of the K, he may be equitably estopped from proving his real age in ct.
—–> This would deny the minor the defense of infancy and make the K enforceable.
Defenses –> Incapacity: Mental Incompetence - Rule
Under modern rules, a person lacks capacity to K if mentally incompetent (ie to reasonably understand the transaction) at the time of contracting.
Defenses –> Incapacity: Mental Incompetence - Requirements- Cognitive Defects
A person will be deemed mentally incompetent and lacking the capacity to enter a K if the person is unable to understand in a reasonable manner the nature and consequences of the transaction.
Defenses –> Incapacity: Mental Incompetence - Requirements- Volitional Defects
Mental incompetence can be est’d if:
(1) a person is unable to act in a reasonable manner in relation to the transaction; and
(2) the other party has reason to know of this condition
Defenses –> Incapacity: Mental Incompetence - Legal Consequences
Power of Avoidance (Disaffirmation)
- —> If mentally incompetent person exercises right to disaffirm K:
(1) Unlike minors, the mentally incompetent person is obligated to not only return any goods received, but IS ALSO liable for any damages or reasonable value for use of any goods/services. - —>UNLESS other party was aware of incompetence then mentally incompetent parties are treated just like minors.
Ratification
—-> A party who was mentally incompetent at the time of contracting may expressly/impliedly ratify the K if he becomes competent at a later time.
Necessaries Exception
- —> The mentally incompetent party can disaffirm the K but the provider of the necessaries can recover in quasi-K for the reasonable value of the goods/services.
- —> Additional necessary: legal representation in connection w/ incompetency proceedings
- —> Incapacity defenses are unavailable under CL and the UCC
Defenses –> Misrepresentation: Definition
Untrue statements or assertions that relate to existing facts.
—–> Do not relate to future conduct or actions, nor do they relate to statements based on a party’s mere opinion, guess, or supposition.
Defenses –> Misrepresentation: Exception
Where one party disguises a fact as opinion, then this will constitute misrepresentation.
—–> Where a party holds himself out to have knowledge or special skill, and asserts an opinion on the basis of the skill/knowledge, his assertions are held to relate to underlying facts and (therefore) suff to est misrepresentation.
Defenses –> Misrepresentation: Elements - Material to the Contract
Materiality can be shown by either an objective standard or a subjective standard.
Defenses –> Misrepresentation: Types - Fraudulent Misrepresentation
4 Elements:
(1) A misrepresentation
- —–> D must have made an assertion inconsistent w/ existing facts.
- —–> What would be suff to prove this element?
- Oral or written misrepresentations
- Fraudulent conduct such as concealment
- A half-truth
- —–> Misrepresentations are not:
- Broken promises, but rather only misstatements of existing fact
- Opinions or guesses
(2) State of Mind (need BOTH scienter and intent)
- —–> Scienter: satisfied if D made assertion either knowing it to be false OR knowing he had no idea whether true or false; AND
- —–> Intent to mislead: satisfied if D made assertion for purpose of misleading the aggrieved party OR knowing there was a substantial likelihood to mislead
(3) Materiality of Misrepresentation
- —–> Objective materiality: where such an assertion is likely to induce a reasonable person to enter into a K.
- —–> Subjective materiality: if the party making the assertion had reason to know that it was likely to induce the particular aggrieved party into entering the K
(4) Reasonable reliance on the misrepresentation
- —–> What counts as unreasonable reliance?
- If aggrieved party has independent knowledge or reason to know that the statement in question is false.
- If aggrieved party has reason to believe that the statement in question was made by a person who is unreliable
- If no reasonable person would have believed the assertion
- If aggrieved party could have easily ascertained the truth by cursory inspection of the goods
Defenses –> Misrepresentation: Types - Non-Fraudulent Misrepresentation
2 Types: Negligent and Innocent Misrepresentation
Elements:
(1) A misrepresentation
(2) Materiality of misrepresentation
(3) Reasonable reliance on misrepresentation
(4) (DIFFERENT) Don’t need scienter/intent to mislead; rather:
- —–> For negligent misrepresentation, D would have known the assertion was false had he exercised reasonable care.
- —–> For innocent misrepresentation, D made an assertion not in accord w/ existing facts
Defenses –> Misrepresentation: Types - Fraudulent Nondisclosure
The fraud consists of D’s silence when duty to disclose.
Elements:
(1) The nondisclosure was material to the K;
(2) Reasonable reliance on nondisclosure;
(3) A duty of disclosure and failure to fulfill it
Is there a duty? (Element 3)
- —–> Although there is generally NO duty of disclosure for trading partners, if a party is aware of material facts that are unlikely to be discovered by the other party in the exercise of ordinary care and diligence, then there will be a duty to disclose that info in these circumstances. Duty in 3 situations:
(1) Parties enjoy relationship of trust and confidence (eg familial relationships or the relationship between a professional and a client)
(2) Party has made an assertion that was true at the time but has been rendered untrue by intervening events
(3) If obligation of good faith would req that the party disclose the info (eg real estate transaction where one party knows of a termite infestation).
Defenses –> Misrepresentation: Remedies
Victims of fraudulent misrepresentation, non-fraudulent misrepresentation, and fraudulent nondisclosure may use those claims in 2 ways:
(1) avoidance; or
(2) rescission and reliance damages
Victims of fraudulent and non-fraudulent misrepresentation have 3rd option: they may live with the K and sue for benefit of the bargain.
Punitive damages
—–> Because fraudulent misrepresentation is an intentional tort, the aggrieved party may secure punitive damages against the D to penalize the D on the basis fo the fraudulent intention.
Defenses –> Duress: CL v. ML Elements
ML Elements
(1) A threat
(2) that is wrongful in nature
- —–> 3 types/circumstances “wrongful in nature”:
1. what is threatened is a crime/tort;
2. what is threatened is a criminal prosecution or bad faith civil process;
3. what is threatened is a bad faith breach of K (aka economic duress - most commonly tested)
(3) no reasonable choice but to succumb to the threat
- —–> Seldom an issue when what is threatened is a crime or tort, a criminal prosecution, or a bad faith civil suit, for risking the eventuality of any of those is scarcely a “reasonable choice”
- —–> Hard cases: economic duress (threatened breach of K); 3 common situations:
1. No adequate and reasonably priced substitutes for the services/goods that are threatened to be withheld.
2. The threatened breach would cause aggrieved party to break his own Ks (a threatened breach of a subcontractor that may force the general contractor to breach his own Ks)
3. When the alternative of acquiescing to the threat and then suing for damages is inadequate as a remedy.
Defenses –> Duress: Economic Duress
A threat is suff to constitute duress if what is threatened is a bad faith breach of K (known as economic duress).
—–> Note: not every demand for change in price is bad faith demand; if the demand is due to the fact that performance under the K has become extremely burdensome because of unanticipated circums, NO duress.
Defenses –> Duress: Third Party Duress
If the wrongful threat is made by a 3rd party, rather than the other party to the K, the aggrieved party will still have a valid duress claim, unless:
(1) the other party gives value/relies materially on the transaction; and
(2) the other party is proceeding in good faith w/o reason to know of the duress.
Defenses –> Duress: Remedies
Ks made under physical compulsion are void.
Ks entered into under other forms of duress are voidable at the option of the aggrieved party; the aggrieved party is:
(1) entitled to restitution fo any benefits conferred under duress; and
(2) reqd to return excess value of benefits to the perp
Defenses –> Undue Influence: Definition and Elements
2 Elements:
(1) Unfair persuasion used (multi-factor test)
- —–> Discussion of transaction at an unusual/inapprop time
- —–> Consummation of transaction at unusual place
- —–> Insistent demands that transaction/busines be finished immediately
- —–> Extreme emphasis on the untoward consequences of delaying the transaction
- —–> The use of multiple persuaders against target of persuasion
- —–> Absence of third-party advisors to the target of persuasion
- —–> Statements that there is not time to consult financial advisors/attorneys
(2) Other party was vulnerable to such persuasion; can be estd if one of the following exists:
- —–> Circumstance 1: mental infirmity is due to age/illness
- —–> Circumstance 2: vulnerability due to recent trauma/event
- —–> Circumstance 3: there is a relationship of trust or confidence
Defenses –> Undue Influence: Remedies
K obligatons assumed under undue influence are voidable at the option of the aggreived partyaq
Defenses –> Unconscionability: Rule
2 Elements: Procedural and substantive unconscionability
Defenses –> Unconscionability: Procedural Unconscionability
Element 1: Procedural Unconscionability
——> Bargaining process created an absence of meaningful choice of aggrieved party
Defenses –> Unconscionability: Substantive Unconscionability
Element 2: Substantive Unconscionability
——> K terms are unreasonably favorable to one party to the K (ex: excessive price; extreme consequences for breach; or grossly unfair provisions)
Defenses –> Unconscionability: Remedies
Upon finding of unconscionability, ct may:
(1) Refuse to enforce K
(2) Excise the offending clause and enforce remainder
(3) Limit application of offending clause to avoid unconscionable result
Defenses –> Public Policy (Illegality): Rule
The public policy defense is a claim that cts should not enforce a K bc doing so would violate or undermine some important public policy.
Defenses –> Public Policy: When Applicable
Can be raised in 3 contexts:
(1) Subject of K itself specifically prohibited by law (ex: prostitution)
(2) K formed for purpose of committing a crime/tort
(3) K performance would violate certain values/freedoms designated by the state
Defenses –> Public Policy: Contracts Frequently Falling Under the Public Policy Doctrine - Non-competition Agreements
Many employment Ks, as well as Ks for the sale of a business, contain a provision that prevents on party from competing for a certain period of time or in a certain area.
- —-> Where this provision is reasonable, cts will generally enforce it.
- —-> However, where the noncompete provision imposes an unreasonable geographical barrier, duration, or term, then the enforcement of such a provision may be considered a violation of the public policy of promoting a citizens’ freedom to work.
Defenses –> Public Policy: Contracts Frequently Falling Under the Public Policy Doctrine - Blue Pencil Rule
Under the blue pencil rule, most jdxs remove the offending portion of the non-competition clause while enforcing the remainder of it.
Defenses –> Public Policy: Contracts Frequently Falling Under the Public Policy Doctrine - Sales of Goods via Bribery
If a K for the sale of goods was based on bribery by any party, then the public policy defense could be used by the victim of the bribe to make the K unenforceable.
Defenses –> Public Policy: Contracts Frequently Falling Under the Public Policy Doctrine - Sales of Goods Intended for Unlawful Use
If a K is for the sale of goods that the seller knows the buyer intends for an unlawful uses, then the public policy defense would be available to defeat an action either by the seller seeking payment or by the buyer seeking delivery.
Defenses –> Public Policy: Contracts Frequently Falling Under the Public Policy Doctrine - Liability-Limiting Provisions
When the provisions of a K would limit a party’s liability for tortious behavior by restricting the right of the injured party to pursue claims against the reckless or intentional harms caused by the party, the provision would not be upheld, bc to do so would violate public policy.
Defenses –> Public Policy: Contracts Frequently Falling Under the Public Policy Doctrine - Unlicensed Goods or Services
When a K is for unlicensed goods/services, then the K may be rendered unenforceable by the PP defense.
Remedies –> Monetary Damages at CL: General
A party aggrieved by a breach of K may be able to recover money damages calculated to protect that party’s (one of the following 3 remedies):
(1) expectation interest,
(2) reliance interest, or
(3) restitutionary interest.
Remedies –> Monetary Damages at CL: Expectation Damages - Definition/Formula
Ct’s default; Aggrieved party will be entitled to amount that will restore him to the position he would have been in had the K been fully performed.
Formula
Loss of value of breaching party’s performance [+]
Any incidental and consequential costs generated by the breach [-]
Any costs saved as a result of the breach [=]
Expectation damages of the aggrieved party
Remedies –> Monetary Damages at CL: Expectation Damages - Limitations on Recovery for Expectation Damages
Aggrieved party may not be able to recover the full amount in the following situations:
(1) Expectation damages cannot be calculated w/ reasonable certainty.
- —–> Mathematical certainty is not reqd, but the ct can’t pull numbers from thin air
(2) Damages are unforeseeable.
(3) Where damages can be mitigated.
Remedies –> Monetary Damages at CL: Expectation Damages - Cost of Performance
The cost that would be incurred in an effort to perform as promised under the K.
Remedies –> Monetary Damages at CL: Expectation Damages - Market Value of Performance
The net increase in the market value of finding substitute performance of the K.
Remedies –> Monetary Damages at CL: Expectation Damages - Hadley Rule
Under this rule, a breaching party will be liable for general damages (those damages naturally flowing from the breach) but not for special or consequential damages (those that result from the particular circumstances of the aggrieved party).
—-> UNLESS: at the time of contracting, the breaching party knew or had reason to know that the consequential damages would result from breach.
Common type of consequential damages: lost profits
Remedies –> Monetary Damages at CL: Reliance Damages
Designed to restore the aggrieved party to the position he was in prior to the K; measured by:
(1) any expenditures made in preparation for performance or in actually performing
(2) Less: any loss which the breaching party can prove the aggrieved party would have suffered even if the K had been fully performed
——> May be available where expectation damages are not available, such as when they are too uncertain or speculative
Remedies –> Monetary Damages at CL: Restitutionary Damages
The value of benefits conferred upon the other party in the transaction.
Calculation- Ct’s discretion and as justice reqs by either:
(1) Reasonable value/cost of benefits conferred; OR
(2) Extent to which the other party’s property has increased in value because of the performance rendered
——> Aggrieved party is likely to elect to recover restitutionary damages when it would exceed the amount recoverable based on expectation interest, and that is most likely to arise in the context of a “losing K”
Limitation
——> Available if aggrieved party has partially performed but NOT if the party has fully performed
Remedies –> Monetary Damages at CL: Liquidated Damages Provisions - Liquidated Damages Clauses, Generally
Designed to provide damages of their own choosing in the event of breach.
- —–> Enforceable if ct finds it to be valid liquidated damages clause designed to compensate for breach
- —–> Unenforceable if ct finds it constitutes a penalty designed to punish a breach:
- If cts find it is in fact a penalty –> strike from K, damages in accordance w/ default rules
Remedies –> Monetary Damages at CL: Liquidated Damages Provisions - Anticipated v. Actual Harm
LDP Test: 2 Prongs, either can uphold the clause:
(1) Was the clause reasonable at the time of contracting in relation to anticipated harm?
- —–> Key question: whether there was an anticipated harm that would be difficult to prove?
(2) Was the clause reasonable in relation to the harm and losses that actually occurred due to breach?
- —–> Hindsight question
Remedies –> Monetary Damages Under the UCC: Seller’s Remedies
Right to recover depends on whether the goods were delivered and accepted by the buyer.
Remedies –> Monetary Damages Under the UCC: Action for the Price
When goods are delivered to and accepted by the buyer, the remedy is the K price.
Remedies –> Monetary Damages Under the UCC: Damages for Nonacceptance or Repudiation
When not delivered and accepted (because buyer wrongfully rejected or repudiated), then the seller can recover damages and the measure depends on whether the seller has resold goods to a third party.
- —–> If seller has re-sold: damages are difference between K price and resale price
- —–> If seller has not re-sold: difference between K price and market price
Remedies –> Monetary Damages Under the UCC: Lost Profits for Lost Volume Sellers
For volume sellers.
Supply of goods exceeds the demand; recover the profit they would have made on the lost sale.
Remedies –> Monetary Damages Under the UCC: Buyer’s Remedies - Covered v. Not Covered
Depends on whether buyer has covered (aka bought replacement goods).
- —–> If buyer covers (in good faith): difference between K price and cover price
- —–> If buyer does not cover: difference between K price and market price
Remedies –> Monetary Damages Under the UCC: Buyer’s Remedies - Difference in Value Damages
Difference in value damages for accepted goods
- —–> Available if buyer receives and accepts nonconforming goods from the seller.
- —–> Buyer is entitled to recover the difference between value of the goods contracted for AND value of the goods received
Remedies –> Equitable Remedies: Specific Performance - Rule
Extraordinary remedy by which breaching party is ordered to perform.
—–> Only available when monetary award is considered inadequate.
Remedies –> Equitable Remedies: Specific Performance - Cases Where SP is Generally Available
Money damages are generally presumed inadequate when party is purchasing:
(1) Unique objects (works of art and precious heirlooms)
(2) Real property
Where SP is not available; Ks for:
(1) Personal services
(2) Long-term relationships
Remedies –> Equitable Remedies: Specific Performance - Equity Considerations
Whether to grant or deny SP is committed to the ct’s remedial discretion based on the competing equities in particular cases, and is not bound by hard-and-fast rules (such as those governing money damages).
Ct will take into account following factors:
(1) whether the aggrieved party has clean hands (has dealt fairly and in good faith w/ the breaching party)
(2) whether the terms of the K in question are suff definite
(3) whether performance by the aggrieved party can be reasonably assured
(4) whether the terms of the K are fair; and
(5) whether SP would be in the public interest
Remedies –> Equitable Remedies: Specific Performance - Contracts for Personal Services
SP not available.
Remedies –> Equitable Remedies: Specific Performance - Contracts Requiring Ongoing Cooperation Between Parties
AKA long-term relationships; SP not available.
Remedies –> Equitable Remedies: Specific Performance - Sale of Goods Contracts under the UCC
The UCC liberalizes the rules governing the availability of SP.
“Uniqueness” Req
—–> Need only adequately search and be unable to find reasonable substitutes, and so is unable to “cover” the breach by seller.
“Capable of immediate performance” Req
—–> SP allowed in output and reqs Ks (classic long-term relationship that reqs cooperations of the parties)
Remedies –> Equitable Remedies: Specific Performance - Replevin
The buyer also has a right of replevin (action to repossess property) for goods identified in the K if:
(1) after reasonable effort, the buyer is unable to recover;
(2) the circumstances reasonably indicate that an effort to cover will be unavailing; or
(3) if the goods have been shipped under reservation (ie the seller has reserved a security interest in the goods) and satisfaction of the security interest in them has been made or tendered.
Remedies –> Equitable Remedies: Negative Injunctions - Definitions
Orders prohibiting breaching party from doing something.
- —-> Most common and important area: employment setting
- —-> Availability turns on whether former employee is seeking mid-term or post-employment relief
Remedies –> Equitable Remedies: Negative Injunctions - Midterm Relief
When employee under K for specific period of time and breaches by departing before the end of the period, a neg injunction will be available, even absent a K prohibition, to prevent competing if employee’s services are unique or extraordinary (pro athletes and entertainers).
Remedies –> Equitable Remedies: Negative Injunctions - Post-Employment Relief
K provision that prohibits post-employment competition.
Validity depends on 3 factors/considerations:
(1) Is there significant business justification for enforcing post-employment restraints?
- —-> Ex: don’t need NCC against McDonalds worker
(2) Is the scope of the non-compete clause reasonable in duration and geographical reach?
- —-> Ex: can’t work for competing hardware store for 50 years
(3) Is there an express provision? (ct won’t imply one)
- —-> Must be express covenant not to compete
Remedies –> Equitable Remedies: Rescission
Cancels the K (and forms the basis for restitution); both parties are placed back where they were before the K was executed.
—-> Party seeking rescission must be ready to return to the other party all benefits received.
Rescission available:
(1) by consent of both parties
(2) for mistake (unilateral or mutual)
(3) for fraud, misrepresentations, and nondisclosure
(4) for duress or undue influence
(5) for illegality; or
(6) for failure of consideration (which would also be a material breach)
Remedies –> Other Possible Remedies: Promissory Estoppel
The type of interest a party may recover under promissory estoppel depends on the jdx, as some cts award:
(1) expectation damages;
(2) reliance damage; or
(3) choose on case-by-case basis and tailor the remedy to the injustice at issue
Remedies –> Other Possible Remedies: Restitution
Restitution (where express K): an alternative to expectation damages that a party can recover for breach of K.
—–> However, in the following contexts, restitution may be available even when the other party has not breached (ie restitution is also a separate cause of action):
(1) Benefits Conferred under a Failed K
- When a party bestows benefits on his trading partner in connection w/ what turns out to be a “failed” K (eg incapacity, fraud, duress), the party bestowing the benefits may recover their value via restitution.
(2) Benefits Conferred by a Breaching Party
- A party that breaches a K may recover the benefits it conferred on the non-breaching party, so long as there is an offset for any damages caused by the breach.
Remedies –> Other Possible Remedies: Ageed-To Remedies
Parties may contract out of the legal and equitable remedies available under the law by specifying agreed-to remedies in the K.
Two typical forms:
(1) liquidated damages provisions; and
(2) provisions limiting or excluding damages
Provisions Limiting/Excluding Damages
- —> Provisions that limit/alter the measure of damages available.
- —> Exclusive remedies, such as limits to repair or replacement of defective goods
- —> Such provisions are generally enforceable UNLESS unconscionable OR they fail of their essential purpose
- —————> Limitation of consequential damages for personal injury in he case of consumer goods is prima facie unconscionable.
Third Party Beneficiaries –> Classification of the Third Party Beneficiary: Definition
In some Ks, one of the parties promises a performance that will benefit a third party (a third-party beneficiary).
—-> Critical issue: the circumstances under which the third-party beneficiary can sue to enforce the K.
The right of an aggrieved third-party beneficiary to bring an action against a breaching promisor or promisee depends on the classification of the beneficiary.
Third Party Beneficiaries –> Classification of the Third Party Beneficiary: Terminology
Intended Beneficiary: one whom the contracting parties intended to benefit (often named in the K).
- —> Creditor Beneficiary: Promisee seeks a performance from promisor to satisfy an obligation owed to a third party.
- —> Donee Beneficiary: Promise seeks performance from promisor in order to make a gift of that performance to a third party.
- —> Standing to sue (YES): intended beneficiaries can sue the promisors who directly promised to provide the benefit, but can’t sue the promisees based on the K, although they can still sue on any prior obligation (if any).
Incidental beneficiary: third parties who will benefit from a promisor’s performance as a practical matter, but are not intended beneficiaries.
—-> Standing to sue (NO): incidental beneficiaries cannot sue anyone to enforce the K.
Third Party Beneficiaries –> Rights of Parties to Enforce the Contract: Third Party Beneficiary’s Rights - Rule
Under the 1R and 2R, an incidental beneficiary does not enjoy any right to seek enforcement of the K from either the promisor or promisee to the original agreement.
Third Party Beneficiaries –> Rights of Parties to Enforce the Contract: Third Party Beneficiary’s Rights - Third-Party’s Rights Against the Promisor
Any 3rd party beneficiary has a right to secure enforcement of the agreement from a breaching promisor.
—-> Applies to creditor and donee beneficiaries under the 1R and intended beneficiaries under the 2R.
Third Party Beneficiaries –> Rights of Parties to Enforce the Contract: Third Party Beneficiary’s Rights - Third Party’s Rights Against the Promisee
A 3rd party beneficiary will only have rights against the promisee resulting from the promisor’s failure to perform based on whether or not there is an independent obligation between the promisee and the 3rd party beneficiary.
Third Party Beneficiaries –> Rights of Parties to Enforce the Contract: Vesting of Third-Party Right to Sue
Parties to a K are free to modify or rescind by mutual consent, and they may modify or rescind a third party beneficiary provision w/o consent unless beneficiary’s rights under the K have vested.
With intended beneficiaries, vesting occurs when:
(1) beneficiary brings suit on the matter;
(2) beneficiary changes position in justifiable reliance on the K;
(3) beneficiary manifests assent to the K at the request of promisor or promisee;
(4) rights of beneficiary have vested under express K terms
Third Party Beneficiaries –> Rights of Parties to Enforce the Contract: Defenses Available to Promisor
Any valid defenses the promisor has against the promisee are effective against the third-party beneficiary.
—-> Promisor may not assert defenses based on separate transactions with the promisee
Third Party Beneficiaries –> Rights of Parties to Enforce the Contract: Promisee’s Rights Against the Promisor
When the promisor does not perform, the promisee has a claim for breach of K against the promisor.
- —> If the promisor’s performance is intended to benefit a donee beneficiary, the promisee ordinarily will not have suffered any economic loss for the nonperformance and (therefore) may be unable to recover more than nominal damages.
- —> As a result, some cts consider the damage remedy inadequate and will order SP.
- —> If the promisor’s performance is intended to benefit a creditor beneficiary, the promisee may secure SP of the promisor’s obligation.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Definition
A transfer of a right to receive a K performance.
—-> To be effective, owner of the right must manifest an intention to make a present transfer of an existing right.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Requirements of Effective Assignment - Rule
All rights generally assignable except when (EXCEPTIONS):
(1) When assignment would materially change the duties of other party;
(2) When the obligor has personal interest in rendering performance to the obligee and not a third party
(3) When it would violate applicable law or public policy
(4) When assignment is prohibited by the K
- —> However, most cts will treat this as a breach of K by assignor, but not a basis for nullifying assignee’s rights.
- —>EXCEPTION: If the K provision provides that any assignments of the K “ARE VOID” or similar language, then any assignment is completely negated.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Requirements of Effective Assignment - Manifest an Intention Element
Manifestation of intention is ordinarily est’d by the oral /written words of the assignor.
—-> There are no magic words (not even an express reference to assignment) req’d to make a manifestation effective.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Requirements of Effective Assignment - Present Transfer Element
Neither of the following are effective assignments:
(1) a promise to transfer a currently existing right at a future date; or
(2) a promise to transfer a right that the assignor expects to acquire in the future.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Partial Assignment
A partial assignment is valid; hence, there can be an assignment of a fraction of the assignor’s rights.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Rights to Be Assigned
General rule: all rights are assignable.
Exceptions:
(1) the right is not assignable if the assignment would materially alter the risks to or obligations of the other party to the K.
(2) a right is not assignable if the obligor has a personal interest in rendering the performance in question to the obligee and not a third party
(3) a right is not assignable if assignment would violate applicable law or public police; and
(4) a right is not assignable if assignment is prohibited by the K
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Assignment for Value v. Gratuitous Assignment
Assignment for Value
—-> Valid against obligor and cannot be revoked by assignor.
Gratuitous Assignment
- —> Has the following legal effects:
(1) Between assignee and obligor: valid against obligor, who cannot claim lack of consideration as a defense
(2) Between assignor and assignee: under law of gifts, an executory gift is revocable but an executed gift is not. - A gift is executed when there is intention coupled w/ actual or symbolic delivery.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Rights of Assignee Against the Obligor After Assignment - Rule
An assignee gets whatever rights to the K his assignor had; AND an assignee takes subject to whatever defenses the obligor could have raised against the assignor.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Rights of Assignee Against the Obligor After Assignment - Payment to Assignor
Obligor’s payment to assignor is a defense unless the obligor has been notified that the payments are now owed to the assignee.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Rights of Assignee Against the Obligor After Assignment - Setoffs and Counterclaims
If the obligor has a right of setoff that could be raised against the assignor, such right can always be raised against the assignee if the alleged setoff arises out of the same transaction.
—-> If the setoff arises out of a separate transaction, it is available against the assignee only if the transaction which gave rise to the setoff arose before notice of the assignment was given to the obligor.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Rights of Assignee Against the Obligor After Assignment - Waiver of Defenses
If one of the original parties to the K agrees that he will not raise defenses against an assignee in the event that the rights are assigned, the agreement is enforceable with two limitations:
(1) defenses that are in the nature of real defenses under Article 2 of the UCC can still be raised; and
(2) the agreement not to raise defenses is invalid if the obligor who signed the waiver was the buyer or lessee of consumer goods.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Rights of Assignee Against the Obligor After Assignment - Real Defenses
These defenses include infancy, other incapacity that voids a K, fraud in the execution, duress (when it removes the parties’ capacity to K), discharge in bankruptcy, and any other discharge of which the assignee has reason to know.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Rights of Assignee Against Assignor after Assignment
Unless a contrary intention is manifested, one who assigns, or purports to make an assignment for value impliedly warrants to the assignee:
(1) that he will do nothing to defeat or impair the value of the assignment and has no knowledge of any fact that would do so;
(2) that the right as assigned actually exists and is not subject to any limitations or defenses against the assignor other than those stated or apparent at the time of the assignment; and
(3) that any writing evidencing the rights that are being delivered to the assignee to induce him to accept the assignment is genuine.
Assignment of Rights and Delegation of Duties –> Assignment of Rights: Rights Among Successive Assignees
Where an assignor assigns his right to receive money owed by the obligor to mult assignees, the assignor is liable to both assignees for assigning the same right twice.
—-> However, if the assignor is bankrupt or has fled the jdx and both assignees attempt to collect from the obligor, the majority rule is that the first assignee prevails.
In several jdxs (and under 2R) a subsequent assignee who has paid value and took the assignment in good faith will prevail if he:
(1) obtains payment from the obligor;
(2) recovers a judgment the debt;
(3) enters into a new K w/ the obligor; or
(4) receives delivery of a tangible token or writing from the assignor, the surrender of which is req’d by the obligor’s K.
Assignment of Rights and Delegation of Duties –> Delegation of Duties: Definition
Occurs when a third party agrees to satisfy a performance obligation owed by one of the parties to a K.
Assignment of Rights and Delegation of Duties –> Delegation of Duties: Rights of the Obligee Against the Delegator
A delegation of duties does NOT operate as a “transfer” of duties from delegator to delegatee.
—-> Absent a novation (agreed substitution of one obligor for another), a delegation does not relieve the delegator from his obligations under the K (obligee can still sue delegator).
Assignment of Rights and Delegation of Duties –> Delegation of Duties: Liability of the Delegatee
To the delegator
—-> If delegation was for consideration, delegator has a breach of K action against delegatee who doesn’t perform.
To the obligee
—-> If delegation was for consideration, obligee can bring action against delegatee as an intended third-party beneficiary (a creditor beneficiary) of the delegation.
Assignment of Rights and Delegation of Duties –> Delegation of Duties: Delegable Duties
Generally, all contractual duties are delegable.
Exceptions:
(1) personal services
(2) when the K prohibits delegation
Contract Formation: Offer and Acceptance –> The Offer: Bilateral v. Unilateral Ks
Bilateral K: Offer seeking acceptance by a promise; a promise is being exchanged for a promise.
–> Once promises are exchanged, both parties are bound.
Unilateral K: Offer seeking performance in return (ie reward offers)
–> Offeror not bound until offeree completes performance, and offeree is NEVER bound
Contract Formation: Offer and Acceptance –> Communicating Acceptance Under CL: The Mailbox Rule and Option Contracts
(Restatement/Majority) Mailbox rule is not applicable and acceptance is only effective upon receipt.
If offeree dispatches two responses to offer (one purporting to reject the offer and one purporting to accept it):
–> Mailbox rule does not govern if rejection is mailed before acceptance, and whichever arrives first will be effective.
Contract Formation: Offer and Acceptance –> Acceptance and the UCC: Nonconforming Acceptance or Confirmation - Battle of the Forms - Different Terms
Different terms in two writings dealing w/ the same topic knock each other out (the “knockout” rule).
Consideration and Promissory Estoppel –> Consideration and Bargain: Benefit/Detriment Test (Legal Value Analysis)
Whether there is a benefit to the promisor and/or a detriment to the promise.
Legal detriment test is whether the promisee is:
(1) doing something he had a legal right NOT to do, OR
(2) forgoing some activity he HAD a legal right to do
Gap-Filers, Interpretation, and the Parole Evidence Rule –> Filling in the Gaps w/ Default Provisions: General
UCC default provisions: used to fill gaps when K doesn’t address the matter, but parties free to set default rules aside by contracting otherwise.
—> 3 types of implied warranties: warranty of title, warranty of merchantability, warranty of fitness for a particular purpose
Performance, Modification, and Excuse –> Conditions: General
In some Ks, the obligation to perform is conditioned upon some event or action by the other party.
–> Where there are such conditions in a K, obligations are triggered when the conditioning event or action occurs.
Remedies –> Monetary Damages Under the UCC: Incidental Damages
Buyer or seller can recover incidental damages, which are the expenses incurred in either seller dealing w/ goods after buyer’s breach (eg storing them) or buyer arranging for cover (eg transportation costs).
Remedies –> Monetary Damages Under the UCC: Consequential Damages
Under the UCC, buyer can additionally recover consequential damages that were reasonably foreseeable to the seller at the time the K was entered into (eg lost profits because of delay in obtaining goods).
—–> Article 2 does not explicitly give seller right to consequential damages
Remedies –> Other Possible Remedies: Unjust Enrichment
General Unjust Enrichment (no express K)
—-> A party that confers benefits on another may recover their value where it is unjust for the recipient to retain the benefits w/o paying, even absent any express or implied-in-fact K.
2 Recurring Situations where recovery is approp:
(1) Med services provided by a med professional; and
(2) Benefits conferred by mistake to one who availed himself of the benefits at issue
Recovery not approp:
- —> A person who bestows benefits w/o request by the benefitting party is considered an “officious intermeddler,” not entitled to recovery.
- —> EXCEPTION: drs and other health care professionals who provide emergency health care to a patient unable to consent (eg because too ill or unconscious)
