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.
