Contracts Flashcards
A binding K requires…
1) manifestation of mutual assent
2) consideration
3) lack of valid defenses
What is an offer?
objective manifestation of a willingness by offeror to enter into agreement that creates power of acceptance in offeree
What is the intent requirement for an offer?
- Person to whom it is communicated could reasonably interpret it as an offer
- Expresses present intent of a person to be legally bound by a K
What is the knowledge requirement for an offer?
offeree must know of the offer in order to have the power to accept
What is the general terms requirement for an offer?
must be certain and definite or the K fails for indefiniteness
What terms are required for an offer under CL?
Essential terms (parties, subject matter, price, quantity) must be covered in K.
If the parties intended to create a K, the court may supply missing terms.
What terms are required for an offer under UCC?
Only essential term is quantity.
Exception—requirements or output Ks (UCC implies “good faith”).
UCC “fills the gap” if other terms are missing.
K formed if both parties intend to K and reasonably certain basis for giving remedy.
When do you use the UCC and when do you use CL?
UCC: goods
CL: services and real prop; construction contracts
What kind of language/targeting is required in an offer?
offer must contain words of promise, undertaking, or commitment, and be targeted to a number of people who could actually accept
What is a bilateral K?
Exchange of promises that render both enforceable. When a return promise is requested.
What is a unilateral K?
Promise to do something by one party in return for an act of the other party. When an act is requested.
Are advertisements offers or invitations to deal?
advertisements are only an invitation to receive offers (but may qualify as an offer if sufficiently specific and limit who can accept or if associated with a stated reward)
When does an offer lapse due to the passage of time?
When there is a specified termination date or a reasonable period of time if none is stated
Does an offer lapse after death/mental incapacity of the offeror?
Generally, offer terminates, even if offeree does not learn of offeror’s death until after the offeree has sent what he believes is an acceptance.
Exception—offers for option Ks do not terminate because consideration was paid to keep the offer open.
Does an offer terminate after the destruction of the subject matter of the offer?
Yes
Does an offer terminate due to illegality?
Yes
Up to when can an offer be revoked? When does a revocation become effective?
Any time prior to acceptance (even if it states it will be open for specific amount of time).
Not effective until communicated. Revocation sent by mail not effective until received.
When is an option K offer enforceable?
When consideration has been given.
What is the UCC firm offer rule?
Offer irrevocable (for reasonable time but no more than three months) if offeror is a merchant (or any business person), and assurances (in authenticated writing) are made that offer will remain open. No consideration needed to keep offer open.
What is the rule around promissory estoppel and the revocability of offers?
If offeree reasonably and detrimentally relies on offer it may become irrevocable.
What is the rule around partial performance and the revocability of offers?
For all Ks, offeree must have knowledge of offer when
performance begins.
Unilateral K—offeror cannot revoke once offeree has begun performance.
Bilateral K—commencement of performance operates as promise to render complete performance.
What is the rule for revocation of a general offer (to large number of people)?
Revocable only by notice given at least same level of publicity as offer (effective even if potential offeree acts in reliance on offer).
What counts as a rejection of an offer and when is it effective?
Offeree clearly conveys to offeror that he no longer intends to accept the offer.
Rejection usually effective upon receipt.
What does a counteroffer count as?
Acts as rejection of original offer and creates new offer
Define an acceptance generally
objective manifestation by the offeree to be bound by the terms of the offer
Does starting performance count as an acceptance wrt a unilateral K?
Starting to perform is not enough, but it will make offer irrevocable for a reasonable period of time to complete performance.
Is there a knowledge requirement on the part of the offerree for a unilateral K?
Yes–Offeree must be aware of offer before acting.
What is an acceptable means for acceptance of an offer?
unless offeror specifies, offeree can accept in any reasonable manner/means
When is silence acceptance?
not acceptance unless offeree has reason to believe offer could be accepted by silence or previous dealings make it reasonable to believe that offeree must notify offeror if he does not intend to accept
Can the shipment of goods count as acceptance?
Yes. Buyer’s request that goods be shipped is inviting acceptance either by seller’s promise to ship or by prompt shipment of goods.
What if an offer is accepted by shipping goods but they are nonconforming goods?
both an acceptance and a breach, unless seller
seasonably notifies buyer that goods are an accommodation (counteroffer); buyer may then accept or reject the nonconforming goods
What is the mailbox rule?
Applies only to acceptance, almost exclusively to bilateral Ks. Acceptance effective when sent (not upon receipt), unless offer provides otherwise.
What happens if a rejection follows an acceptance?
acceptance will control even if offeror receives rejection first (but if offeror detrimentally relies on rejection then offeree estopped from enforcing K)
What happens if an acceptance follows a rejection?
mailbox rule does not apply; first one received
(i.e., in possession of offeror or her agent, or deposited in mailbox) will prevail; offeror need not actually read the received communication
Does the mailbox rule apply to options and other irrevocable offers?
mailbox rule does not apply; acceptance must be received by offeror by a certain date or before offer expires
What is the notice requirement for a unilateral K?
Offeree not required to give notice after completing performance, unless: Offeror wouldn’t learn of performance with reasonable certainty and
promptness; or Offer requires notice.
What if notice is required in a unilateral K but it is not provided?
offeror’s duty is discharged, unless:
- Offeree exercises reasonable diligence to give notice;
- Offeror learns of performance within reasonable time; or
- Offer indicates notice of acceptance is not required.
What is the notice requirement for a bilateral K?
Offeree must give notice of acceptance.
If acceptance is made by beginning performance (like under UCC), notice is required within a reasonable time; failure to give notice results in offer’s lapse.
What if there are additional or different terms in the acceptance?
CL: Mirror-image rule: Acceptance must mirror the terms of the offer, so any change or addition to the terms acts as a rejection and a new counteroffer. Conditional acceptance terminates the offer and acts as new offer from original offeree.
UCC: Acceptance containing additional or different terms generally treated as acceptance.
What if there are additional terms in acceptance and neither party is a merchant, what happens under UCC?
Definite and seasonable expression of acceptance sent within a reasonable time is usually acceptance of original offer, and new terms are treated as proposed additions to the K that must be separately accepted by offeror.
Exception—an acceptance expressly conditioned on assent to new/different terms is treated as a counteroffer.
What if there are additional or diff(?) terms in acceptance and both parties are merchants, what happens under UCC?
Battle of the forms: Additional terms—automatically included in the K, unless:
- Term materially alters original K (i.e., would result in surprise or hardship);
- Offer expressly limits acceptance to terms of the offer; or
- Offeror objects to new terms within a reasonable time after notice of new terms is received.
If one of these exceptions is met, original terms of offer control.
What if there are diff terms in acceptance under UCC?
“knock-out” rule: different terms in offer/acceptance nullify each other, and court uses Article 2’s gap-filling provisions to patch holes in K
What if offer and purported acceptance differ too much
to create a contract but the parties begin to perform anyway, then UCC…
Allows for a contract to be recognized with the following terms:
- Any terms actually agreed upon in the parties’ writings, and
- Any supplementary terms filled in by the UCC
What is consideration?
Bargained-for legal detriment to the promisee.
Consideration can be return promise to do or refrain from doing something, or performance of or refraining from doing some act.
What are the elements of consideration?
- bargained-for in exchange for the
promise - promise must induce the detriment, and
- detriment must induce the promise
What makes a gift diff than consideration?
Test to distinguish gift from valid consideration is whether offeree could reasonably believe intent of offeror was to induce the action (if YES, then there is consideration
and promise is enforceable).
What is the concept of promissory estoppel wrt gifts?
If promisor/donor knows that promise to make a gift will
induce substantial reliance by promisee and failure to enforce it would cause substantial injustice, promise is enforceable.
How is the adequacy of consideration measured?
Subjective value—benefit to promisor need not have economic value; if promisor wants it, giving of it will constitute adequate consideration
What is the preexisting duty rule?
CL—does not qualify as consideration unless promisor gives something in addition to what is owed, or varies preexisting duty in some way.
Exception for third party—party’s promise to a third party to perform an act the party is contractually obligated to perform for another is sufficient consideration.
preexisting duty rule does not apply to a sale of goods governed by the UCC
Is past consideration ok?
modern trend towards enforcing past promises under the material benefit rule
What is the material benefit rule?
when a party performs an unrequested service for another party, the modern trend permits the performing party to enforce the promise of payment for material benefits received to extent necessary to prevent injustice (unless donative intent)
Does a contract mod require consideration?
CL—must be supported by consideration, and agreements to modify K are enforceable if:
- Rescission of existing K and entering into of new K
- Unanticipated difficulties arise and modification is fair and equitable, or
- New obligations arise on both sides
UCC–Requires only good faith. No consideration is necessary. The UCC Statute of Frauds generally requires that a modified contract be in writing where the value of the goods is $500 or more. There is an exception for specially manufactured goods, but for this exception to apply, the goods cannot be suitable for sale to others in the ordinary course of the seller’s business.
What is an accord?
one party agrees to accept a different performance from the other party to satisfy the other party’s existing duty
What counts as satisfaction (post-accord)?
Performance of the accord agreement will discharge both the original K and the accord K. Original K not discharged until satisfaction is complete.
An unliquidated or disputed claim may be discharged by negotiable instrument (e.g., a check with the note “Payment in full”).
What is the rule for illusory promises?
not legally binding because it is vague or promisor can choose whether or not to honor it
Can voidable or unenforceable promises constitute consideration?
Yes
What is a requirements K?
buyer agrees to buy all that he requires
What is an output K?
seller agrees to sell all that she manufactures
What’s a limitation on requirements/output Ks?
Quantities may not be unreasonably disproportionate to estimates.
What is the consideration for a requirements/output K?
There is consideration because promisor suffers legal detriment
Is a promise not to assert (or a release of) a claim or defense consideration?
No, unless the claim or defense is doubtful or the party promising not to assert (or releasing) the claim believes in good faith that it is valid
Is a new promise to pay debt after SoL has run enforceable with or without new consideration?
Without it
Is a new promise to perform voidable duty enforceable?
Yes if it doesn’t suffer from an infirmity rendering it voidable
When is a promise without consideration binding under doctrine of promissory estoppel?
- Promisor should reasonably expect it to induce action on the part of the promisee or a third person
- Promise does induce such action, and
- Injustice only avoided by enforcement of promise
What are void Ks? Voidable Ks? Unenforceable Ks?
Void: Entire transaction is null, as if no K existed.
Voidable: Operates as valid K until/unless one party takes steps to avoid it.
Unenforceable: Valid K that cannot be enforced if one party refuses to carry out its terms.
Can a mutual mistake be a defense to K formation?
Yes. If both parties mistaken as to essential element, K generally voidable by party adversely affected if:
- Mistake existed when K was formed
- Mistake relates to basic assumption of K
- Mistake has material impact on transaction, and
- Adversely affected party did not assume the risk of mistake
But neither party can avoid K if reformation available to cure mistake. Court can reform writing except to extent that rights of third parties who relied on K
would be unfairly affected.
Can a unilateral mistake be a defense to K formation?
Either party can enforce K on its terms, but mistaken party can void K if he didn’t bear risk of mistake and either:
- Mistake would make enforcement of K unconscionable, or
- Non-mistaken party caused the mistake, had duty to disclose or failed to disclose mistake, or knew or should have known the other party was mistaken.
Must be absence of serious prejudice to other party to rescind K.
What constitutes a K misunderstanding?
both parties believe they are agreeing to same material terms, but they in fact agree to different terms
What happens if neither party knows or has reason to know about a K misunderstanding?
No K if material term involved
What happens if one party knows or has reason to know about K misunderstanding?
K formed based upon meaning of material term as understood by unknowing party
What happens if both parties know the terms are ambiguous at the time of K formation and there ends up being a misunderstanding?
no K unless both parties intended same meaning
Waiver—one party can choose to enforce K according to other party’s understanding
Are misunderstandings judged objectively or subjectively?
Subjectively
What is a misrep in the K context?
an untrue assertion of fact (i.e., present event or past circumstance)
Fraudulent misrep
A misrepresentation is an untrue assertion of fact. A fraudulent misrepresentation can render a contract voidable by the adversely affected party if
(i) the misrepresentation is fraudulent (i.e., a false assertion of fact made knowingly or recklessly without knowledge of its truth, and with the intent to mislead the other party),
(ii) the misrepresentation induced assent to the contract, and
(iii) the adversely affected party justifiably relied on the misrepresentation.
A statement as to a future event is generally an opinion rather than a statement of fact. However, when a statement about a future event implies that it is based on facts unknown to the listener, the listener may be justified in believing that the speaker knows of facts that justify the opinion, or at least that the speaker does not know of any facts that are incompatible with the opinion.
What is the rule around nondisclosure (in context of defenses to K formation)?
A type of misrep. Conduct to conceal a fact or nondisclosure of a known fact is tantamount to an assertion that the fact does not exist.
What is the consequence of a fraud in factum (execution)?
fraud misrep prevents party from knowing character/essential term of transaction, so no K is formed and apparent K is void unless reasonable diligence would have revealed K’s true terms
What is the consequence of a fraud in the inducement?
fraudulent misrepresentation is used to induce another to
enter into a K; K voidable by adversely affected party if she justifiably relied on the misrepresentation
What is the consequence of nonfraudulent misrep (innocent/negligent)
renders K voidable by adversely affected party who justifiably relied on material misrepresentation and was
induced to assent to K because of it
What if it’s a party’s fault in not knowing or discovering facts before entering into K?
a party’s fault in not knowing or discovering facts before entering into the K does not prevent the party’s reliance on the misrepresentation from being justified (unless it constitutes a failure to act in good faith)
Can misrep be cured?
Yes, K not voidable if facts cured before deceived party has avoided the K
What can a deceived party do when content/legal effect of K is misrepresented?
deceived party can avoid K or reform it to express what was represented
What is undue influence? What are its elements?
unfair persuasion of a party to assent to a K
Relationship between dominant party and dependent party due to lack of expertise or experience, or diminished mental capacity. Persuasion of one party seriously impairs the free and competent judgment of other party.
When there is a confidential relationship and undue influence…
dominant party has burden of proving K was fair (may be held to higher standard of disclosure)
When there is third party undue influence…
victim may void K unless nonvictim party to K gave
value or materially relied on K in good faith and without knowledge of undue influence
What damages are available when undue influence is a defense to K formation?
Restitution available
What is duress? What are its elements?
Improper threat that deprives party of meaningful choice.
- Improper threat–Threats of criminal or civil action (made in bad faith), or threats to breach K in violation of good faith and fair dealing
- Deprivation of meaningful choice—person has no reasonable alternative such that threat induced his assent
What is the consequence for duress?
K is void when duress is through physical compulsion and voidable in other instances
What is the rule for children and capacity to K?
Infancy (under 18)—voidable by infant but not by adult (except for reasonable value of necessaries)
What is the rule for mental illness and capacity to K?
K is void for one who is adjudicated mentally incompetent, but only voidable if there has been no adjudication
What is the rule for when someone is under a guardianship and their capacity to K?
K is void for individuals under guardianship (except for reasonable value of necessaries)
What is the rule for intoxication and capacity to K?
K is voidable by intoxicated party if she was unable to understand nature/consequences of K and other party knew of intoxication
What are the rules about illegality and enforcement of a K?
K is unenforceable if consideration/performance under K is illegal
K is void if it contemplates illegal conduct
Duty to perform is discharged if K becomes illegal after formation
If one party is justifiably ignorant of facts making K illegal or lacks illegal purpose can he recover (assuming guilt of other party)?
Yes
If a party knows of the other party’s illegal use (of a K), can they still recover?
Yes, unless the party furthered the illegal use or the use involves grave social harm??
What are the exceptions to illegality defense to contract K?
- Ignorance or lacks illegal purpose
- Divisible K (legal v. illegal parts)
- Licensing violation: If licensing violation and req is just to raise revenue, party who fails to comply can still enforce; but if it has regulatory purpose, cannot enforce
- Restitution: When parties not equally at fault (not in pari delicto), less guilty party can recover; and party who withdraws from illegal K before improper purpose achieved may recover if not engaged in serious misconduct.
When is unconscionability a defense to K enforcement?
all or part of the contract must have been unconscionable at the time of contract formation
K is unconscionable when it is so unfair to one party that no reasonable person in the position of the parties would agree to it (e.g., hidden, complex boilerplate language, adhesion Ks)
When is public policy a defense to K enforcement?
K may be unenforceable if it violates significant public policy
What is an implied-in-fact K?
conduct, not words, indicates assent or agreement
What is a quasi-K/implied-in-law K?
A plaintiff confers benefit on a defendant and the plaintiff has reasonable expectation of compensation and court implies K to prevent unjust enrichment.
Such situations occur when: (i) the plaintiff has conferred a “measurable benefit” on the defendant; (ii) the plaintiff acted without gratuitous intent; and (iii) it would be unfair to let the defendant retain the benefit because either the defendant had an opportunity to decline the benefit but knowingly accepted it, or the plaintiff had a reasonable excuse for not giving the defendant such opportunity, usually because of an emergency.
In this case, the court can permit the plaintiff to recover the value of the benefit to prevent the unjust enrichment.
What is an express warranty wrt sale of goods Ks?
Any promise, affirmation, description, or sample that is part of the basis of the bargain, unless it is merely the seller’s opinion
disclaimers that unreasonably negate or limit express warranties are…
inoperative
What is an implied warranty of merchantability and when does it apply?
Implied whenever seller is a merchant (i.e., seller dealing in goods of the kind sold). Goods must be fit for their ordinary purpose.
What is an implied warranty of fitness for a particular purpose and when does it apply?
Implied whenever seller has reason to know (from any source) buyer has particular use for goods and buyer is relying on seller’s skill to select the goods.
Can an implied warranty of fitness for a particular purpose be disclaimed?
Yes. Disclaimer may use general language but must be in writing and conspicuous. Also ok if language makes plain that there is no implied warranty (e.g., sold “as is); buyer’s inspection of goods; excluded/modified by course of dealing, course of performance, or trade usage??
Can an implied warranty of merchantability be disclaimed?
Yes, with oral or written disclaimer using the term
“merchantability”; writing much be conspicuous; Also ok if language makes plain that there is no implied warranty (e.g., sold “as is); buyer’s inspection of goods; excluded/modified by course of dealing,
course of performance, or trade usage??
What are the elements of impracticability?
impracticability applies when the specific subject matter of the contract is destroyed, or when performance becomes impracticable
- Unforeseeable event has occurred;
- Nonoccurrence of event was basic assumption on which K was made; and
- Party seeking discharge is not at fault.
Impracticability defense is available when…
- Performance becomes illegal after K is made;
- Specific subject matter of K is destroyed;
- Performing party to the K dies or becomes incapacitated (personal services K); or
- Performance becomes impracticable.
Impracticability replaced…
CL doctrine of impossibility
Can a fact making K performance impractical exist when K is made for defense to be usable?
Not usually, but yes if party had no reason to know of the fact.
Exception to impracticability defense
Assumption of risk
What is the rule for temporary impracticability?
Only suspends duty. Discharged if perf is materially more burdensome after impracticability ends.
If seller is able to deliver some of the goods, they must be apportioned among all of the buyers with whom the seller has contracted. Buyer may refuse to accept and may cancel K.
If K specifically identifies a source, and source of supply
fails, what happens?
performance is discharged even if other sources are available
When does frustration of purpose apply?
unexpected event arises that destroys one party’s purpose in entering into the contract, even if performance of the contract is not rendered impossible. The event that arises must not be the fault of the frustrated party, and its nonoccurrence must have been a basic assumption of the contract. The frustrated party is entitled to rescind the contract without paying damages.
Unexpected event need not be completely unforeseeable, but must be so severe it’s not within assumed risks inherent under K.
What happens when there is a frustration of purpose defense?
Frustrated party entitled to rescind K without paying damages
Can frustration of purpose exist at time of K to be usable as a defense?
can arise at the time of K if a party has no reason to know a fact exists
What is rescission?
cancelling of K so as to restore parties to their positions before K was made
What is the rule about rescission of Ks?
Parties may seek to rescind for a variety of reasons but grounds for rescission must have existed at the time the K was made.
Rescission also possible by mutual agreement of the parties—surrender of rights under the original K is consideration for the rescission.
What if there is a third-party beneficiary but the parties want a rescission?
K not discharged by mutual rescission if third-party
rights have already vested
What is a release?
Writing that manifests intent to discharge another party from an existing duty
What is the rule about release?
CL—release must be supported by consideration
UCC—written waiver or renunciation signed/delivered by aggrieved party is enough (no consideration necessary)
What counts as destruction for purposes of K discharge? And what is the rule about it?
goods identified when K made are destroyed by no fault of either party before risk of loss passes to buyer
K is avoided, both parties are discharged, and neither
party is in breach
if risk of loss has passed to buyer, K is not avoided and seller may demand performance by buyer
What happens if goods are damages but not destroyed?
K avoided or buyer can choose to take goods at
reduced price without any other claim against seller
if risk of loss has passed to buyer, K is not avoided and seller may demand performance by buyer?
What is a third-party beneficiary contract?
when two parties contract with the understanding and
intent that performance by one of the parties is to benefit a third person
What kind of third party beneficiary can recover?
Intended ones, not incidental ones
What is an intended beneficiary?
one to whom the promisee wishes to satisfy an obligation or otherwise benefit by the promised performance; has the right to bring an action on the K
What is an incidental beneficiary?
one who benefits from a K even though there is no contractual intent to benefit that person; no right to enforce K
When do the rights of an intended beneficiary vest?
When beneficiary:
- Detrimentally relies on rights created;
- Manifests assent to K at one of the party’s request; or
- Files lawsuit to enforce K
What kind of defenses can a promisor raise against a third party beneficiary?
promisor can raise any defense against third party that he had against original promisee
When is assignment of rights not allowed?
Not allowed when it materially increases duty or risk of obligor or materially reduces obligor’s chance of obtaining performance
What is required to assign rights under a contract?
Need present intent to transfer the right immediately
Does an assignment of rights under a contract need consideration?
No, but if it has it, it is irrevocable
What happens when there is an assignment of rights under a contract?
Assignee takes all of the rights of assignor as the K stands at time of the assignment, but she takes subject to any defenses that could be raised against the assignor
What is the effect of a prohibition on the assignment of rights?
A prohibition on assignment does not affect the assignment of rights, but bars delegation of duties (unless circumstances indicate otherwise).
When is a delegation of duties allowed vs. not?
Generally allowed, except when other party to K has substantial interest in a specific individual’s performance (for example, personal services K involving special skill)
How is liability affected when there is a delegation of contractual duties?
When obligations are delegated, delegator is not released from liability, so he is still liable if delegate doesn’t perform (unless there is a novation).
What is the binding nature of a delegation on the delegate?
Delegate’s acceptance of a delegation constitutes a promise to perform the delegated duties; promise is enforceable if there is consideration or a consideration substitute
When can a party demand assurances due to a delegation of duties?
Delegation in contracts for the sale of goods may be treated by the other party as creating reasonable grounds for insecurity; the other party may demand assurances from delegate; conforming promises by permitted delegates must be accepted
When an assignment is not limited to contractual rights (ex: “this contract is assigned to”), generally treated as an assignment of rights or a delegation of duties?
Both
What is required if the statute of frauds applies?
Memo must be in writing, signed by party to be charged (i.e., any authentication that IDs the party, and contain the essential elements of the deal.
What type of Ks are within SOF?
- Marriage—any agreement in consideration of marriage
- Suretyship—K to answer for debt/duty of another
- One year—K that cannot be performed within one year after K is made
- UCC—when K for the sale of goods is at least $500, memo must indicate that K has been made, identify parties, contain a quantity term, and be signed by the party to be charged.
Exceptions—writing not required under UCC for:
a) Specially manufactured goods,
b) Part payment,
c) Receipt and acceptance,
d) Judicial admission, or
e) Failure to object to memo within 10 days of receipt (when both parties are merchants)
- Real property K—applies to Ks providing for subsequent conveyances of an interest in
property (subsequent acts showing existence of K may also make oral Ks for transfers of interest enforceable)
What are exceptions to SOF?
Promissory estoppel; judicial admissions
What is the parol evidence rule?
prevents introduction of prior extrinsic evidence that contradicts terms of written K
What is total integration and how does parol evidence rule apply to it?
Complete expression of all terms of parties’ agreement. Parties cannot introduce extrinsic evidence of prior/contemporaneous understandings or negotiations
What is partial integration and how does parol evidence rule apply to it?
If writing sets forth only some terms. Then parties are permitted to introduce supplementary extrinsic evidence of other terms that are consistent with writing (not
contradictory).
How is it determined whether there is total, partial or no integration?
Intent of the parties.
CL (“four corners” rule): can only look to writing itself for intent
Second Restatement: if an extrinsic term of agreement would naturally be omitted from a writing, then term can be introduced so long as it isn’t contradictory
UCC: assumes written K is only a partial integration and allows almost any outside terms
The parol evidence rule is inapplicable to…
communications occurring after the execution of the written K and when parties are (partial list):
- Raising a defense to formation
- Raising a defense to enforcement
- Proving condition precedent to existence of the K
- Interpreting/clarifying ambiguity in K
- UCC—supplementing even apparently unambiguous terms by evidence of trade usage or course of dealing (priority, highest to lowest: express terms, course of performance, course of dealing, trade usage)
What is a condition in a K?
future event that must take place before rights or obligations are created, destroyed, or enlarged
What happens when there is failure of a condition?
relieves a party of the obligation to perform
What type of language creates an express condition?
K includes words like “on the condition that” or “provided that”
What is the rule around express conditions?
Condition must be complied with fully unless excused; substantial performance will not suffice.
Enforceable even when the failure to meet the condition results in the denial of compensation.
What is an implied condition?
those deemed to be part of K because agreement suggests that parties truly intended the condition but failed to expressly include it, or because fairness requires its inclusion
What is the rule around implied conditions?
Only substantial performance required to satisfy condition
What condition does the UCC imply?
implies duty of cooperation when performance of one party depends on the cooperation of the other party
What is a condition precedent?
condition precedes the obligation to perform
What is a condition subsequent?
condition excuses the duty to perform after a particular event occurs
What are concurrent conditions?
each party’s duty to perform is conditioned on the other party’s duty to perform (each party must perform simultaneously)
How is satisfaction of a condition judged?
examined against objective, reasonable person standard unless aesthetic taste is involved (then subjective standard; the party must use good faith when assessing satisfaction; dissatisfaction must be honest, but may be unreasonable)
When is performance due?
unless the language or circumstances indicate otherwise, performance is due:
When one party’s performance requires a period of time—that party must complete his performance before the other party is required to perform
When both parties’ performance can be rendered at the same time—both parties must perform at the same time; one party’s failure to perform excuses the other party’s performance
When there is an express condition precedent, when is other party’s performance due?
parties are generally held strictly to the condition;
full compliance is required before other party’s performance is due
When there is an implied or constructive condition precedent, when is the other party’s performance due?
a party who substantially complies with the condition can trigger the other party’s obligation to perform
What are the damages available for substantial performance (excluding Ks for sale of goods)?
K price minus any amount it will cost other party to obtain complete performance as promised
Can a party recover even if they have not substantially performed (excluding Ks for sale of goods)?
Yes, potential recovery through restitution
Does a failure to substantially perform count as material breach?
Yes
How is willful breach treated?
more likely to be treated as a material breach (i.e., substantial performance is less likely to be found when the breach is willful
What is the perfect tender rule?
Under UCC, substantial performance insufficient, except for installment Ks and when parties agree.
must be in accordance with K provisions or with UCC if K is silent on tender
Under UCC, after seller transfers ownership and tenders goods conforming to warranty obligations, buyer…
may inspect goods (unless K provides otherwise), and if conforming, accept them, and upon acceptance, has obligation to pay for them. Rejection of conforming goods = breach.
What automatic warranties attach once ownership is transferred per a K for sale of goods?
Automatic warranty of good title, rightful transfer, and goods free of security interest of which buyer is unaware
Actual knowledge of security interest nullifies warranty of title
If method of transfer is “seller’s place of business” that means
seller must place goods at the disposition of the buyer
and give the buyer notice, if necessary
If method of transfer is a shipment contract (e.g., “F.O.B. seller’s place of business”)
seller must deliver goods to a carrier and make a contract for their shipment; when the K is silent, a
shipment K is presumed when the K requires shipment by third-party carrier
If method of transfer is a destination contract (e.g., “F.O.B. buyer’s place of business”)
seller must deliver goods to the place specified in contract and tender them there by holding them at
the buyer’s disposition
What if a party omits details to be specified?
otherwise valid K not invalid merely by omitting details to be specified by one of the parties; specifications must be commercially reasonable and made in good faith??
In divisible/installment Ks, what kind of recovery/damages can be had under CL?
Recovery limited to amount promised for the segment of K performed. Damages recoverable for breach of other segments.
In divisible/installment Ks, what kind of recovery/damages can be had under UCC?
Each shipment to be separately accepted. Perfect tender rule does not apply. Right to reject determined by “substantial conformity” standard—buyer can only
reject if nonconformity substantially impairs the value to buyer and cannot be cured. Buyer may cancel K only if nonconforming tender substantially impairs the
value of the entire K.
What is the definition of implied duty of good faith and fair dealing and when does it apply?
Imposed on each party in any contract (common law or UCC).
“Good faith”—“honesty in fact and the observance of reasonable commercial standards of fair dealing”
When can a party waive a condition?
party whose duty is subject to a condition can waive a nonmaterial condition by words or conduct
also a party who chooses to continue with a K after a condition is broken effectively waives that condition
Can a previously-waived condition be reinstated, and if so, how?
Conditions material to party’s primary purpose may be reinstated by the party.
Nonmaterial condition may be reinstated if the waiving party communicates the retraction of the waiver before the condition is due and the other party has not suffered detrimental reliance.
Once a party waives condition, he can be estopped from using that condition as a defense if other party reasonably relied on waiver.
If party whose duty is subject to a condition wrongfully prevents or interferes with occurrence of that condition, then…
the condition is excused and interfering party has absolute duty to perform (per implied duty of good faith and fair dealing).
What if a nonmaterial condition is not met?
Court may excuse nonmaterial condition if non-occurrence would cause disproportionate forfeiture.
When does a breach occur?
once duty to perform exists, nonperformance is a breach unless duty is discharged
What is a material breach and its consequence?
Under CL. Nonbreaching party does not receive substantial benefit of bargain.
Allows nonbreaching party to withhold any promised performance and to pursue remedies for breach, including damages.
What is a minor breach and its consequences?
Under CL. Breaching party has substantially performed.
Nonbreaching party entitled to pursue remedies for nonmaterial breach (damages) but must perform under
the K.
Under UCC, what counts as breach?
In general, seller must strictly perform all obligations under K or be in breach. Material breach only applies to installment Ks or when parties stipulate it in K.
What is anticipatory repudiation?
CL: Promisor repudiates before time of performance is due—repudiation must be clear and unequivocal through words or acts. Does not apply to unilateral Ks.
UCC: when there has been an unequivocal refusal of
buyer/seller to perform or when reasonable grounds for insecurity arise and the other party fails to provide adequate assurances within reasonable time (not to exceed 30 days).
Under CL, if there is anticipatory repudiation, nonbreaching party’s options are:
- Treat repudiation as a breach, or
- Ignore repudiation and demand performance of promisor, but suspend any performance by promisee if it would increase promisor’s damages
If date of performance has not passed and the only performance left is payment, must wait for actual breach before filing suit.
Can a repudiation be retracted under CL?
Can be retracted until promisee acts in reliance on
repudiation, accepts repudiation, or commences action for breach of K
Can a repudiation be retracted under UCC?
Permitted if other party has not canceled the K or
materially changed position
Under UCC, a party can demand assurances if…
reasonable grounds for insecurity about other party’s ability to perform (and may suspend performance until provided); the demand must be in writing.
Failure to provide adequate assurances within reasonable time (limited to 30 days) is treated as…
Failure to give adequate assurances within a reasonable time, not exceeding 30 days, can be treated as repudiation. If fail to provide assurances within a reasonable time, other party within its rights to reject the assurances and repudiate the contract. However, other party must cancel the contract or take some action in reliance on the failure to timely provide assurances.
What are expectation damages?
Intended to put nonbreaching party in same position as if K had been performed
What requirements exist for expectation damages?
Must be calculated with reasonable certainty
What is the formula for expectation damages?
Expectation damages = loss in value + other loss – cost avoided – loss avoided
If using this formula, plaintiff should not recover separately calculated consequential and incidental damages
What does a partially performing party recover under expectation damages?
work performed + expectation damages for work not yet performed
If there is defective performance under a construction K, what are expectation damages?
Generally the cost to correct the defect
When there is defective performance under K for sale of goods, expectation damages are…
equal to the difference between the value of the goods as warranted and the actual value of the tendered nonconforming goods
When there is defective performance under real estate K, expectation damages are…
difference between K price and market value; damages for late delivery = fair market rental value
What is economic waste in the construction/damages context, and what does the court do about it?
Occurs when the cost to fix or complete construction is clearly disproportional to any economic benefit/utility gained as a result.
Court can award damages equal to the diminution in the market price of property. If the breach is willful and only completion of the K will give the nonbreaching partythe benefit of its bargain, court can award damages to fix or complete construction even if it results in economic waste.
What type of expectation damages are awarded when there is a breach of warranty under a UCC sale of goods K?
difference between the value of the goods
accepted and the value they would have had if they had been as warranted (often, repair costs)
What are direct damages?
necessary and usual result of D’s wrongful act (i.e., “loss of value)
What are consequential damages?
damages that result from the breach, but arise out of special circumstances unique to the parties to the contract
When are consequential damages recoverable?
must be reasonably foreseeable to the breaching party (but need not be a usual result of D’s conduct), caused by the breach, and reasonably certain in value to be recovered.
Damages are recoverable if they are natural and probable consequences of breach, or if they were contemplated by the parties at K formation, or if they were otherwise foreseeable.
Unforeseeable—not recoverable unless the breaching party had some reason to know about the possibility of the unforeseeable consequential damages
What is a defense against consequential damages?
Causation: that P’s losses would have occurred regardless of D’s breach
What happens if consequential damages for lost profits are not reasonably certain enough bc too speculative?
If lost profits are too speculative, courts may limit recovery to reliance damages (reasonable expenditures made in connection with the K)
Under the UCC, who is allowed to seek consequential damages?
Only buyers
When can sellers seek consequential damages?
Based on CL/other statutes
Limitation of consequential damages for personal injury in the case of consumer
goods is…
prima facie unconscionable
Limitation of damages when the loss is commercial is…
not prima facie unconscionable
What are incidental damages?
compensation for commercially reasonable expenses incurred as a
result of other party’s breach
What are typical incidental expenses when there is a seller’s breach?
expenses incurred in inspection, receipt, transportation, care, and
custody of goods rightfully rejected; expenses in effecting cover; and any other reasonable expense incident to the delay or other breach
What are typical incidental expenses when there is a buyer’s breach?
any expenses incurred in stopping delivery; in the transportation, care, and custody of goods after the buyer’s breach; in connection with return or resale of the goods; or otherwise resulting from the breach
What are liquidated damages and penalties?
damages stipulated by the parties to the K as a
reasonable estimation of actual damages to be recovered in the event of a breach
When are liquidated damages/penalties enforceable?
Enforceable if:
- Parties intended to agree in advance to damages that might arise from breach
- Stipulated amount was reasonable at time of K, bearing some relation to damages that might be sustained, and
- Actual damages would be uncertain in amount and difficult to prove
When are punitive damages available?
rarely available in K actions but may be available if conduct constituting breach is also recoverable under tort theory
When are nominal damages awarded?
when no damages are alleged/proven
When are attorney’s fees recoverable?
in K, not recoverable absent express agreement or specific law
What responsibility does a nonbreaching party have to mitigate damages?
Party to K must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience
Nonbreaching party held to standard of reasonable conduct in preventing loss
What type of mitigation is required if a service K is breached?
a party is generally not required to accept any type of employment (only
employment of the same type as the party was contracted to perform)
What happens if there is a failure to mitigate damages?
Failure to mitigate reduces damages that may be recovered by nonbreaching party
What are restitutionary damages?
restores to a party the benefit conferred on the other party
How are restitutionary damages measured?
Measured by either the reasonable value of the D obtaining that benefit from another source, or increase in the D’s wealth from having received that benefit
What are the rules around restitutionary damages for the nonbreaching party?
Nonbreaching party may recover for any benefit conferred on breaching party by way of part performance or reliance
Nonbreaching party may not recover restitution if he has fully performed and the only remaining performance by the other party is the payment of a definite sum of
money
What are the rules around restitutionary damages for the breaching party?
If D has benefitted from P’s performance, P can recover for benefit conferred less
the D’s damages for the breach
P generally cannot recover if P’s breach was willful or if K provides that nonbreaching party may retain the value of the breaching party’s performance as liquidated damages
If P has not substantially performed and is in breach, Is P permitted to recover restitutionary damages?
No
What are reliance damages?
reasonable out-of-pocket expenses incurred by nonbreaching party
When are reliance damages recoverable?
Recoverable if nonbreaching party incurs expenses in reasonable reliance upon the promise that other party would perform
Party cannot recover both reliance damages and…
expectation damages
What is specific perf and when is it awarded?
an equitable remedy possible when damages are an inadequate remedy
Factors considered in determining whether damages are adequate (or need specific perf):
- Difficulty of proving damages with reasonable certainty
- Hardship to D
- Balance of the equities
- Wishes and understandings of the parties
- Practicality of enforcement
- Mutuality of agreement
When is specific perf often granted?
specific performance granted because real property is considered
unique
specific performance may be granted to the buyer when goods are rare or unique
What defenses can be brought against demand for specific performance?
laches (prejudicial delay in bringing the action) or unclean hands (nonbreaching party guilty of some wrongdoing in the transaction) may be raised by breaching party
What are a buyer’s remedies when seller fails to tender goods?
- Cancel K—if breach of installment K goes to entire K
- Recovery of payments—upon cancellation, buyer entitled to recover payments made for tender; on rejection or revoked acceptance, also gets security interest in goods in buyer’s possession
- Damages—market price minus K price plus incidental and consequential damages
- Cover—buyer may purchase similar goods elsewhere and recover replacement price
minus the K price - Specific performance—for unique goods
- Replevin—buyer can obtain undelivered goods from seller if at least partial payment is made or the buyer is unable to effect cover
What are a buyer’s remedies when there is nonconforming tender?
Rejection—buyer can reject goods if he gives notice to seller within a reasonable
time and before acceptance, and is then entitled to a return of any payments made or to seek same remedies as if no tender was made
Acceptance—buyer accepts goods by expressly stating acceptance, using the goods, or failing to reject the goods; to recover damages, buyer must give seller timely notice of breach; damages measured by difference between value of nonconforming
goods and value of conforming tender (usually cost of replacement or repair), plus consequential and incidental damages
buyer has right to accept or reject all or part of the goods (and the right to inspect before making that decision)
Right to cure—seller has right to cure defective tender if time of performance under
K has not yet elapsed or seller had reasonable grounds to believe that buyer would accept despite the nonconformity
What are a seller’s remedies under UCC?
Right to price—seller may recover the full price if buyer has accepted goods;
conforming goods are destroyed or lost after risk has shifted to buyer; seller cannot reasonably sell identified goods
Right to reclaim goods—from insolvent buyer if he makes a demand within 10 days after buyer receives goods
Stoppage of goods in transit—permitted if buyer breaches or is insolvent
Wrongful rejection by buyer—seller can collect damages, resell the goods, or recover the price, and, if the seller is a “lost volume” seller, lost profits; seller can also collect incidental damages
For unidentified goods, if goods are damaged/destroyed and there is no breach, risk of
loss is on…
seller until he satisfies delivery obligations (and then risk shifts to buyer)
When does risk of loss shift in shipment K?
risk of loss passes to buyer when the seller gives possession of the goods to the carrier and makes proper contract for their shipment
When does risk of loss shift in destination K?
risk of loss passes to buyer when the seller tenders the goods at the place specified in the K
For identified goods, if goods are totally destroyed through no fault of the seller prior to the risk of loss being shifted to the buyer…
the seller is excused
if seller delivers nonconforming goods, risk of loss…
remains on the seller until buyer accepts or there is cure
if buyer breaches/repudiates after goods have been identified but before risk of loss shifts, then risk…
immediately shifts to buyer (to extent of lack of insurance coverage by seller)
What is the SOL on a breach of sales K or warranty?
Four years after cause of action accrues. Generally, cause of action accrues when breach occurs, regardless of whether
aggrieved party knows.
Parties may reduce four-year limitations period to not less than one year, but they may not extend it.
Accord agreement
Under an accord agreement, a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty. When a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be consideration or a consideration substitute for the party’s promise to accept the lesser amount. For example, consideration can exist if the other party honestly disputes the claim or agrees to forego an asserted defense, or if the payment is of a different type than called for under the original contract.
