Contracts Flashcards
Generally: Big Ticket Items
(1) UCC or CL
(2) Formation Issues
(3) Modification
(4) Parole Evidence Rule
(5) Performance
(6) Third Party Rights
(7) Remedies
(8) Quasi-K
UCC or CL? –> Goods/Merchants
Goods
UCC governs “sales of goods”; if UCC applies, it trumps any contrary CL rule.
–> Even if UCC, CL still applies unless UCC contradicts it.
—> Goods: any movable item; does not include intangibles (goodwill, IP), money, legal claims, services, or real property.
Ks that do not involve the sale of goods are covered by the CL of Ks.
—> Examples are services Ks, Ks involving real property, and assignments of legal claims.
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.
UCC or CL? –> Hybrid Cases - Predominance Test
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)
Formation Issues –> Issues
(1) Offer?
(2) Acceptance?
(3) Consideration?
(4) Defenses to Formation
Formation Issues –> Offer: General Rule
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)
Formation Issues –> Offer: Multiple Offerees
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)
Formation Issues –> Offer: Open Offer - Option Contracts
(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)
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).
Formation Issues –> Offer: Open Offer - 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.
Formation Issues –> Offer: Offer Terminated - Ways
1) Rejection
2) Revocation
3) Impossibility
4) Lapse of time
5) Death
Formation Issues –> Offer: Offer Terminated - Rejection
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)
REVIVAL
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.
Formation Issues –> Offer: Offer Terminated - Revocation
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.
Unilateral Ks
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.
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
Multiple Offerees
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
Formation Issues –> Offer: Offer Terminated - Impossibility
What circumstances are we likely to find OBJECTIVE impossibility?
(1) When subject matter of the K is DESTROYED.
(2) When there is a personal services K and the performing party has DIED or becomes INCAPACITATED
- –> Death/incapacity of either party after offer is made terminates the power of acceptance.
(3) When supervening law/legal developments have rendered performance legally impermissible (ILLEGAL).
Formation Issues –> Offer: Offer Terminated - 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.
Formation Issues –> Acceptance: Mirror Image Rule (CL)
CL Rule; acceptance must mirror the terms, and any variation is a counteroffer (and a rejection of the initial offer).
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.
Formation Issues –> Acceptance: Different and Additional Terms (UCC)
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.
Formation Issues –> Acceptance: Mailbox Rule
(Restatement/Majority) Mailbox rule is not applicable and acceptance is only effective upon receipt.
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
If offeree dispatches two responses to offer (one purporting to reject the offer and one purporting to accept it):
–> Mailbox rule does not govern if rejection is mailed before acceptance, and whichever arrives first will be effective.
Formation Issues –> Acceptance: CL Rule
Acceptance must:
(1) mirror terms of offer; and
(2) be communicated to the offeror
Formation Issues –> Consideration: Generally
General rule: promise is unenforceable unless support by consideration.
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)
Whether there is a benefit to the promisor and/or a detriment to the promise.
- –> Legal detriment test is whether the promisee is:
(1) doing something he had a legal right NOT to do, OR
(2) forgoing some activity he HAD a legal right to do
Insuff Consideration v. Failure of Consideration
- –> Insuff: legally insuff
- –> Failure: a claim that the party has not performed in accordance w/ his promise.
Cts do not police the equivalence or fairness of the exchange.
Formation Issues –> Consideration: Not Consideration
Preexisting Duty Rule
A promisor cannot provide consideration where that consideration is a duty the promisor is already obligated to perform.
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.
Executed Gifts
Promise to make a gift generally unenforceable due to insufficient consideration.
–> Exception: gratuitous transfers are legally binding
Past or Moral Consideration
General rule: a promise in exchange for something already given/performed is NOT supported by consideration.
Formation Issues –> Consideration: 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.
Formation Issues –> Consideration: 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
Formation Issues –> 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
Remedies
The type of interest a party may recover under promissory estoppel depends on the jdx, as some cts award:
(1) expectation damages;
(2) reliance damage; or
(3) choose on case-by-case basis and tailor the remedy to the injustice at issue
Formation Issues –> Defenses to Formation: SoF - Generally
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
- –> 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:
- Identity of the parties to the transaction;
- The nature and subject matter of the K; and
- The essential terms of the agreement, such as price and date for performance
(2) SIGNED by party whom enforcement is sought
- –> Any symbol with intention to authenticate the writing (ex: initials, typed, stamped, or preprinted signature or letterhead).
Formation Issues –> Defenses to Formation: SoF - Applicable Ks
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)
Formation Issues –> Defenses to Formation: SoF - 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
Formation Issues –> Defenses to Formation: SoF - 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.
Formation Issues –> Defenses to Formation: SoF - “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.
Formation Issues –> Defenses to Formation: SoF - Part Performance
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
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
Formation Issues –> Defenses to Formation: SoF - 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).
Formation Issues –> Defenses to Formation: SoF - Promissory Estoppel
Where a party suffers losses in reliance on an oral K barred by the SoF, the party may be able to recover damages via PE.
Promissory estoppel serves as a substitute for consideration.
- –> The P must show:
(1) a promise,
(2) reliance that is foreseeable and justifiable, and
(3) that enforcement is necessary to avoid injustice.
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.
Formation Issues –> Defenses to Formation: Mistake
Mistake: Faulty assumptions regarding present material facts.
Unilateral Mistake
1 party’s mistake about present material facts is NOT excused unless the other party knew/had reason to know of the party’s mistake.
Mutual Mistake
Voidable by disadvantaged party when all 3 met:
(1) mistaken assumption relates to material facts (not just value);
(2) mistake made by both parties; and
(3) disadvantaged party did not bear the risk of mistake under the K
Remedies
-Rescission; Unjust Enrichment
Formation Issues –> Defenses to Formation: Misrepresentation - Generally
Untrue statements or assertions that relate to existing facts.
—–> Do not relate to future conduct or actions, nor do they relate to statements based on a party’s mere opinion, guess, or supposition.
Exception
Where one party disguises a fact as opinion, then this will constitute misrepresentation.
—–> Where a party holds himself out to have knowledge or special skill, and asserts an opinion on the basis of the skill/knowledge, his assertions are held to relate to underlying facts and (therefore) suff to est misrepresentation.
May be: (1) fraudulent misrepresentation, (2) non-fraudulent misrepresentation, or (3) fraudulent nondisclosure.
Formation Issues –> Defenses to Formation: Misrepresentation - Fraudulent Misrepresentation (Types and Elements)
4 Elements:
(1) A misrepresentation
- —–> D must have made an assertion inconsistent w/ existing facts.
- —–> What would be suff to prove this element?
- Oral or written misrepresentations
- Fraudulent conduct such as concealment
- A half-truth
- —–> Misrepresentations are not:
- Broken promises, but rather only misstatements of existing fact
- Opinions or guesses
(2) State of Mind (need BOTH scienter and intent)
- —–> Scienter: satisfied if D made assertion either knowing it to be false OR knowing he had no idea whether true or false; AND
- —–> Intent to mislead: satisfied if D made assertion for purpose of misleading the aggrieved party OR knowing there was a substantial likelihood to mislead
(3) Materiality of Misrepresentation
- —–> Objective materiality: where such an assertion is likely to induce a reasonable person to enter into a K.
- —–> Subjective materiality: if the party making the assertion had reason to know that it was likely to induce the particular aggrieved party into entering the K
(4) Reasonable reliance on the misrepresentation
- —–> What counts as unreasonable reliance?
- If aggrieved party has independent knowledge or reason to know that the statement in question is false.
- If aggrieved party has reason to believe that the statement in question was made by a person who is unreliable
- If no reasonable person would have believed the assertion
- If aggrieved party could have easily ascertained the truth by cursory inspection of the goods
Formation Issues –> Defenses to Formation: Misrepresentation - Non-Fraudulent Misrepresentation (Types and Elements)
2 Types: Negligent and Innocent Misrepresentation
Elements:
(1) A misrepresentation
(2) Materiality of misrepresentation
(3) Reasonable reliance on misrepresentation
(4) (DIFFERENT) Don’t need scienter/intent to mislead; rather:
- —–> For negligent misrepresentation, D would have known the assertion was false had he exercised reasonable care.
- —–> For innocent misrepresentation, D made an assertion not in accord w/ existing facts
Formation Issues –> Defenses to Formation: Misrepresentation - Fraudulent Nondisclosure (Types and Elements)
The fraud consists of D’s silence when duty to disclose.
Elements:
(1) The nondisclosure was material to the K;
(2) Reasonable reliance on nondisclosure;
(3) A duty of disclosure and failure to fulfill it
Is there a duty? (Element 3)
- —–> Although there is generally NO duty of disclosure for trading partners, if a party is aware of material facts that are unlikely to be discovered by the other party in the exercise of ordinary care and diligence, then there will be a duty to disclose that info in these circumstances. Duty in 3 situations:
(1) Parties enjoy relationship of trust and confidence (eg familial relationships or the relationship between a professional and a client)
(2) Party has made an assertion that was true at the time but has been rendered untrue by intervening events
(3) If obligation of good faith would req that the party disclose the info (eg real estate transaction where one party knows of a termite infestation).
Formation Issues –> Defenses to Formation: Misrepresentation - Remedies
Victims of fraudulent misrepresentation, non-fraudulent misrepresentation, and fraudulent nondisclosure may use those claims in 2 ways:
(1) avoidance; or
(2) rescission and reliance damages
Victims of fraudulent and non-fraudulent misrepresentation have 3rd option: they may live with the K and sue for benefit of the bargain.
Punitive damages
—–> Because fraudulent misrepresentation is an intentional tort, the aggrieved party may secure punitive damages against the D to penalize the D on the basis fo the fraudulent intention.
Formation Issues –> Defenses to Formation: Illegality
The public policy defense is a claim that cts should not enforce a K bc doing so would violate or undermine some important public policy.
—> Rescission available
Formation Issues –> Defenses to Formation: Capacity - Infancy
Infancy Rule
Modern Rule: Minors (under 18) may enter into a K, but it is voidable at minor’s option.
—-> Majority of jdxs: neither of the following affect minor’s avoidance rights:
(1) marriage or emancipation
(2) misrepresenting the minor’s age
Infancy Exceptions
- Power of Avoidance
- –> If minor exercises right to disaffirm K: minor is obligated to return any goods received but not liable for any damages or reasonable value for use of any goods/services. - Ratification
- –> Once minors turn 18, they may expressly or impliedly ratify Ks entered into during minority and bind themselves to obligations they might otherwise have disaffirmed. - Necessaries
- –> A minor’s K for necessaries (food, clothing, shelter, medical care) is voidable, but merchant has quasi K right to recover reasonable value of goods/services. - Misrepresentation by Minor
- –> Minority: if a minor has misrepresented her age to the contracting party in order to obtain the goods/services of the K, he may be equitably estopped from proving his real age in ct.
- —-> This would deny the minor the defense of infancy and make the K enforceable.
Formation Issues –> Defenses to Formation: Capacity - Mental Incompetence
Under modern rules, a person lacks capacity to K if mentally incompetent (ie to reasonably understand the transaction) at the time of contracting.
Cognitive Defects
A person will be deemed mentally incompetent and lacking the capacity to enter a K if the person is unable to understand in a reasonable manner the NATURE and CONSEQUENCES of the TRANSACTION.
Volitional Defects
Mental incompetence can be est’d if:
(1) a person is unable to ACT in a reasonable manner in relation to the transaction; and
(2) the other party has reason to KNOW of this condition
Legal Consequences
- Power of Avoidance (Disaffirmation)
- —> If mentally incompetent person exercises right to disaffirm K:
(1) Unlike minors, the mentally incompetent person is obligated to not only return any goods received, but IS ALSO liable for any damages or reasonable value for use of any goods/services.
- —>UNLESS other party was aware of incompetence then mentally incompetent parties are treated just like minors. - Ratification
- —> A party who was mentally incompetent at the time of contracting may expressly/impliedly ratify the K if he becomes competent at a later time. - Necessaries Exception
- —> The mentally incompetent party can disaffirm the K but the provider of the necessaries can recover in quasi-K for the reasonable value of the goods/services.
- —> Additional necessary: legal representation in connection w/ incompetency proceedings
- —> Incapacity defenses are unavailable under CL and the UCC
Modification –> At CL: The Preexisting Duty Rule
A promise to increase compensation for duties already owed is unenforceable because there is no consideration for the modification.
—> Preexisting duties are not deemed consideration because the promisor must already perform that duty on the basis of the original K.
Exceptions
(1) Mutual modification
- -> MM of an existing K is enforceable if both parties agree to different performance from what was originally reqd by the original K.
(2) Unforeseen Circumstances
- -> Preexisting duty rule not applicable if increased compensation is given in exchange for a promised performance that has been rendered substantially more burdensome than reasonably anticipated when K formed.
Modification –> Modification and the Sales of Goods Under UCC
Agreement modifying an existing K needs no consideration to be enforceable as long as made in good faith.
Modification –> Effect of “No Oral Modification” Clauses
Unless reqd by SoF, mods can generally be oral or written.
—–>However, enforceability of an oral mod to an agreement may depend on whether K contains a “no oral mod” clause.
CL Cases
- —-> Originally, there was a CL rule that made oral mod clauses invalid; even today, most cts will NOT ENFORCE them where a party has reasonably RELIED on the oral agreement.
- —-> However, enforcement becoming more likely in modern cases, particularly in construction context.
UCC Cases
- —-> Under 2-209, clauses prohibiting oral mods are PRESUMPTIVELY INVALID.
- —-> An oral mod made in violation of such a clause may nevertheless be enforceable if the disadvantaged party relies on the mod or the parties perform in accordance therewith.
Parole Evidence Rule –> Generally
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.
Analysis
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?
Parole Evidence Rule –> Integration
Partial/Full integration
- -> Terms w/in K are intended as final expression of those specific terms (note: full integration and partial integration are interchangeable).
- –> 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.
Complete integration
- -> K intended to represent a complete and exclusive statement of all the terms
- –> Presence of merger clause indicates complete integration.
- –> merger clause: writing contains complete/entire agreement or other words to that effect
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
Parole Evidence Rule –> When the PER Does 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
(4) Ambiguity
(5) No Formation (no deal)
(6) Condition precedent
Performance (Is It Excused?) –> Conditions: Generally
Promissory v. Pure Conditions
- –> Promissory condition: K performance is conditioned on the occurrence of the promised performance by the other party.
- –> Pure condition: K performance is conditioned on the occurrence of events beyond the control of either party
Express v. Implied Conditions
Identifying express conditions: look for clear language of the parties.
—-> “The party’d duty to perform is expressly conditioned on the promised performance.”
—-> “ There is no obligation to proceed unless and until the following steps are taken.”
—-> “The party has a duty to perform on the condition that certain events occur” or “only if certain event occur”
—-> “Payment is due upon completion”
—-> OTHER CONDITIONAL PHRASES: “on condition that” “as long as” “when” “provided that”
Performance (Is It Excused?) –> Conditions: Order of Performance (UCC v. CL)
CL
The rights of the parties in the event of a failed condition depends on whether the condition is express or implied.
–> Any failure of an express condition (ie less than 100% strict compliance) will discharge the party’s obligation to perform.
UCC
Parties are free to specify the order of performance, and where the K contains those specifications, the performance obligations under that K will be performed according to K terms.
—–> Because sales Ks most commonly involve delivery and payment of goods, performance is treated as concurrent, and so each performance is conditioned on the performance of the other.
Performance (Is It Excused?) –> Conditions: Failure of a Condition (CL) - Generally
In some Ks, the obligation to perform is conditioned upon some event or action by the other party.
–> Where there are such conditions in a K, obligations are triggered when the conditioning event or action occurs.
In CL cases, the rights of the parties in the event of a failed condition depend on whether the condition is express or implied.
Performance (Is It Excused?) –> Conditions: Failure of a Condition (CL) - Express Conditions
Where the party’s performance under the K is subject to an express condition, the failure of that condition will discharge the party’s obligation to perform.
Excusing Failed Express Conditions
Two situations in which failure of the condition may be excused such that the performance obligation of the party who stood to benefit from the condition is not discharged.
(1) Situation 1: Waiver
- —> The party who has been discharged from performing by the failed condition may waive the right to discharge and perform anyway.
- —> Some cts treat this as a mid-tern modification, which in a CL case reqs consideration
(2) Situation 2: Bad Faith Conduct
- —> When a party acts in bad faith so as to prevent the condition, that party’s performance obligation will not be discharged.
Performance (Is It Excused?) –> Conditions: Failure of a Condition (CL) - Implied Conditions
When the possibility of a breach is not addressed by an express condition, it is still a breach.
–> However, under the law of implied conditions, cts can treat that breach in one of two ways: either as a material breach or substantial performance.
Material Breach
- —> If breach is serious enough, ct will treat like failure of an express condition.
- —> The aggrieved party is generally discharged from his own performance obligations.
Substantial Performance
- —> If the breach is less serious, ct will treat performance as “close enough,” party has rendered substantial performance.
- —> The aggrieved party will not be discharged of his own performance obligations.
A material breach can be treated as either a partial breach or a total breach.
- —-> A claim for damages for total breach is one for damages based on all of the injured party’s remaining rights to performance.
- —-> A claim for damages for partial breach is one for damages based on only part of the injured party’s remaining rights to performance.
A nonmaterial breach can only be a partial breach.
Performance (Is It Excused?) –> Conditions: Failure of a Condition (UCC) - Perfect Tender Rule
Under the perfect tender rule, terms of a K for sale of goods are enforced exactly, every K term treated as an express condition.
- —> The seller is in breach if the goods fail in any respect to conform to the K.
- —> If seller fails to make perfect tender, buyer had 3 courses of action available: reject goods; accept goods; accept some reject some
Reject the Goods
- –> Must reject w/in reasonable time AND notify seller.
- –> Buyer may then sue for damages unless cure applies.
- –> If buyer fails to reject in manner specified above, then it is deemed an acceptance of the goods by the buyer.
Accept the Goods
- –> Occurs when buyer had reasonable time to inspect AND signifies acceptance by:
(1) Stating that goods conform to the K;
(2) Taking the goods despite non-conformance;
(3) Failing to make effective rejection; OR
(4) Taking any action inconsistent w/ seller’s ownership of goods (like putting goods on the showroom floor). - –> Legal consequences of buyer’s acceptance:
(1) Buyer must pay K price;
(2) Buyer may seek damages for any non-conformity if seller has been reasonably notified;
(3) Buyer can revoke acceptance if non-conformity substantially impairs value of the goods, AND: - —> 1. if buyer accepted because unaware of non-conformity; OR
- —> 2. seller assured cure but failed to cure
Performance (Is It Excused?) –> Conditions: Seller’s Ability to Cure
Right to Cure (before K deadline)
- —> If seller makes non-conforming tender but time for performance has not passed, then seller may substitute conforming goods.
- —> 2 Requirements:
(1) Seller must give buyer reasonable notice of intent to cure; and
(2) Seller must make conforming delivery by K deadline
Right to Cure When There Were Reasonable Grounds to Believe Delivery Was Acceptable (after K deadline)
- —> Belief must be based on buyer’s express assurances, trade usage, course of dealing, or course of performance.
- —> If such grounds for belief exist, there are 2 requirements for seller’s cure:
(1) Seller must give buyer reasonable notice of intent to cure; and
(2) Seller must make conforming delivery w/in reasonable time
Performance (Is It Excused?) –> Anticipatory Repudiation: Generally
AR may be estd by:
(1) Party’s definitive statement that it will breach; or
(2) Party’s voluntary act that renders party unable to perform its contractual obligations
If AR cannot be estd but there are reasonable grounds for insecurity, the insecure party may make a demand for adequate assurance of performance.
Failure to give adequate assurance
- -> Failure to respond w/ reasonable assurances: repudiation
- -> This can occur where the other party: (1) does not respond to a demand for assurance in reasonable time (30 days under the UCC); or (2) Does not respond in a way that provides reasonable assurances
Performance (Is It Excused?) –> Anticipatory Repudiation: Suspension of Performance by Insecure Party
Upon making a demand for assurances, a party w/ reasonable grounds for insecurity may suspend its own contractual performance so long as:
(1) suspension is commercially reasonable; and
(2) the insecure party has not yet received the agreed upon return for the performance in question
Performance (Is It Excused?) –> Anticipatory Repudiation: Rights of the Aggrieved Party Upon Repudiation
(1) Cancel K and terminate all rights/obligations under it;
(2) Bring action for damages or specific performance; OR
(3) Ignore the repudiation and continue under the K
Performance (Is It Excused?) –> Anticipatory Repudiation: Topics
- Novation
- Accord/Satisfaction
- Later unforeseen events
- –> Impossibility
- –> Impracticability
- –> Frustration of purpose - Breach
- –> Minor
- –> Material - UCC
- –> Perfect Tender Rule
- –> Cure
Performance (Is It Excused?) –> Anticipatory Repudiation: Later Unforeseen Events - Generally
A party entering a K makes many assumption about the present and future; when such assumptions turn out to be faulty, the parties may be excused under the doctrines of mistake, impossibility, impracticability, and frustration of purpose.
Performance (Is It Excused?) –> Anticipatory Repudiation: Later Unforeseen Events - Impossibility (Generally)
Both parties excused if performance has been rendered impossible by events occurring after K formed.
Requirements:
(1) Impossibility must be objective.
(2) The contingency that creates the impossibility was not known to the parties at the time of making the K; it arose after the K and was unanticipated.
Objective Impossibility
—> Objective impossibility occurs when performance literally impossible for anyone due to circumstances beyond control of the parties.
Subjective Impossibility
- —-> Occurs when the performance under the K becomes impossible bc of some failure/fault on the part of the performing party.
- —-> Under these circs, performance obligation not excused and will be considered breach of K.
- —-> EXCEPTION: Will not apply where…
(1) the parties have allocated the risk of the contingency and provided remedial measures in the event of tis occurrence; or
(2) events render performance only temporarily impossible (this typically only suspends the obligations of the parties until the impossibility ends).
Performance (Is It Excused?) –> Anticipatory Repudiation: Later Unforeseen Events - Impossibility (Types)
What circumstances are we likely to find objective impossibility?
(1) when the subject matter of the K is destroyed
(2) when there is a personal services K and the performing party has died or becomes incapacitated
(3) when supervening law/legal developments have rendered performance legally impermissible
Performance (Is It Excused?) –> Anticipatory Repudiation: Later Unforeseen Events - Impossibility (Death or Incapacity)
If the existence of a particular person is necessary for the performance of a K (eg personal performance by individual is reqd, or performance is to be rendered to a specific person) then that persons’s death/incapacity will trigger the doctrine of impossibility and parties obligations will cease.
Performance (Is It Excused?) –> Anticipatory Repudiation: Later Unforeseen Events - Impracticability
Doctrine of Impracticability
Courts are reluctant to excuse performance for any reason other than impossibility; however, under the doctrine of impracticability, a promisor may be excused from performance where the following 2 Elements are proven:
(1) Contingency causing impracticability was unforeseen; and
(2) Increased cost/burden of performance would be far beyond what either party anticipated
Contingencies Not Excusing Performance
- —-> Increased cost alone, unless due to an unforeseen contingency and it alters the essential nature of performance.
- —-> Rise or collapse of the market
Contingencies Excusing Performance
- —-> Where a severe shortage of raw materials/supplies is caused by:
(1) was/embargo
(2) local crop failure; or
(3) unforeseen shutdown of major sources of supply
—–> Where the severe shortage either caused a market increase in cost or prevents the seller from securing the necessary supplies for performance.
Performance (Is It Excused?) –> Anticipatory Repudiation: Later Unforeseen Events - Frustration of Purpose
Where a contingency occurs that dramatically reduces the value of performance to the receiving party.
Modern Test (3 Requirements):
(1) Principal purpose is entering K is substantially frustrated;
- —-> This means that the frustration of incidental / non-material purposes would not trigger the excuse of frustration of purpose.
(2) Frustration must be substantial in nature; and
(3) non-occurrence of the event that cause frustration was a basic assumption of the K
Where the parties contractually allocate the risk of nonoccurrence of the event, the doctrine of frustration of purpose will not be available.
Third Party Rights –> Assignment: Generally
Definition
A transfer of a right to receive a K performance; to be effective, owner of the right must:
(1) manifest an intention… to make a present transfer of an existing right.
—> Manifestation of intention is ordinarily est’d by the oral /written words of the assignor.
—> There are no magic words (not even an express reference to assignment) req’d to make a manifestation effective.
(2) to make a present transfer of an existing right.
—> Neither of the following are effective assignments:
1. a promise to transfer a currently existing right at a future date; or
2. a promise to transfer a right that the assignor expects to acquire in the future.
Rule
All rights generally assignable except when (EXCEPTIONS):
(1) When assignment would materially change the duties of other party;
(2) When the obligor has personal interest in rendering performance to the obligee and not a third party
(3) When it would violate applicable law or public policy
(4) When assignment is prohibited by the K
—-> However, most cts will treat this as a breach of K by assignor, but not a basis for nullifying assignee’s rights.
—->EXCEPTION: If the K provision provides that any assignments of the K “ARE VOID” or similar language, then any assignment is completely negated.
Third Party Rights –> Assignment: Rights of Assignee Against Obligor After Assignment
Rule
An assignee gets whatever rights to the K his assignor had; AND an assignee takes subject to whatever defenses the obligor could have raised against the assignor.
Payment to Assignor
Obligor’s payment to assignor is a defense unless the obligor has been notified that the payments are now owed to the assignee.
Defenses
These defenses include infancy, other incapacity that voids a K, fraud in the execution, duress (when it removes the parties’ capacity to K), discharge in bankruptcy, and any other discharge of which the assignee has reason to know.
Third Party Rights –> Assignment: Rights of Assignee Against Assignor After Assignment
Unless a contrary intention is manifested, one who assigns, or purports to make an assignment for value impliedly warrants to the assignee:
(1) that he will do nothing to defeat or impair the value of the assignment and has no knowledge of any fact that would do so;
(2) that the right as assigned actually exists and is not subject to any limitations or defenses against the assignor other than those stated or apparent at the time of the assignment; and
(3) that any writing evidencing the rights that are being delivered to the assignee to induce him to accept the assignment is genuine.
Third Party Rights –> Assignment: Rights Among Successive Assignees
Where an assignor assigns his right to receive money owed by the obligor to mult assignees, the assignor is liable to both assignees for assigning the same right twice.
—-> However, if the assignor is bankrupt or has fled the jdx and both assignees attempt to collect from the obligor, the majority rule is that the first assignee prevails.
In several jdxs (and under 2R) a subsequent assignee who has paid value and took the assignment in good faith will prevail if he:
(1) obtains payment from the obligor;
(2) recovers a judgment the debt;
(3) enters into a new K w/ the obligor; or
(4) receives delivery of a tangible token or writing from the assignor, the surrender of which is req’d by the obligor’s K.
Third Party Rights –> Delegation of Duties
Occurs when a third party agrees to satisfy a performance obligation owed by one of the parties to a K.
—> Generally, all contractual duties are delegable (exceptions: personal service Ks and when K prohibits delegation)
Rights of Obligee Against Delegator
A delegation of duties does NOT operate as a “transfer” of duties from delegator to delegatee.
—-> Absent a novation (agreed substitution of one obligor for another), a delegation does not relieve the delegator from his obligations under the K (obligee can still sue delegator).
Liability of Delegatee
(1) To the delegator
- —> If delegation was for consideration, delegator has a breach of K action against delegatee who doesn’t perform.
(2) To the obligee
- —> If delegation was for consideration, obligee can bring action against delegatee as an intended third-party beneficiary (a creditor beneficiary) of the delegation.
Third Party Rights –> Third Party Beneficiaries: Generally
In some Ks, one of the parties promises a performance that will benefit a third party (a third-party beneficiary).
- —> Critical issue: the circumstances under which the third-party beneficiary can sue to enforce the K.
- –> The right of an aggrieved third-party beneficiary to bring an action against a breaching promisor or promisee depends on the classification of the beneficiary (intended or incidental).
Intended Beneficiary: one whom the contracting parties intended to benefit (often named in the K).
- —> Creditor Beneficiary: Promisee seeks a performance from promisor to satisfy an obligation owed to a third party.
- —> Donee Beneficiary: Promise seeks performance from promisor in order to make a gift of that performance to a third party.
- —> Standing to sue (YES): intended beneficiaries can sue the promisors who directly promised to provide the benefit, but can’t sue the promisees based on the K, although they can still sue on any prior obligation (if any).
Incidental beneficiary: third parties who will benefit from a promisor’s performance as a practical matter, but are not intended beneficiaries.
—-> Standing to sue (NO): incidental beneficiaries cannot sue anyone to enforce the K.
Third Party Rights –> Third Party Beneficiaries: Rights
Under the 1R and 2R, an incidental beneficiary does not enjoy any right to seek enforcement of the K from either the promisor or promisee to the original agreement.
Third-Party’s Rights Against the Promisor
Any 3rd party beneficiary has a right to secure enforcement of the agreement from a breaching promisor.
—-> Applies to creditor and donee beneficiaries under the 1R and intended beneficiaries under the 2R.
Third Party’s Rights Against the Promisee
A 3rd party beneficiary will only have rights against the promisee resulting from the promisor’s failure to perform based on whether or not there is an independent obligation between the promisee and the 3rd party beneficiary.
Third Party Rights –> Third Party Beneficiaries: Vesting of Third-Party Right to Sue
Parties to a K are free to modify or rescind by mutual consent, and they may modify or rescind a third party beneficiary provision w/o consent unless beneficiary’s rights under the K have vested.
With intended beneficiaries, vesting occurs when:
(1) beneficiary brings suit on the matter;
(2) beneficiary changes position in justifiable reliance on the K;
(3) beneficiary manifests assent to the K at the request of promisor or promisee;
(4) rights of beneficiary have vested under express K terms
Remedies —> Damages Considerations
- Causation
- Certain (not speculative)
- Foreseeable
- Unavoidable (mitigate)
Remedies —> Monetary Damages at CL: Expectation Damages - Definition/Formula
Ct’s default; Aggrieved party will be entitled to amount that will restore him to the position he would have been in had the K been fully performed.
Formula
Loss of value of breaching party’s performance [+]
Any incidental and consequential costs generated by the breach [-]
Any costs saved as a result of the breach [=]
Expectation damages of the aggrieved party
Remedies —> Monetary Damages at CL: Expectation Damages - Limitations on Recovery for Expectation Damages
Aggrieved party may not be able to recover the full amount in the following situations:
(1) Expectation damages cannot be calculated w/ reasonable certainty.
- —–> Mathematical certainty is not reqd, but the ct can’t pull numbers from thin air
(2) Damages are unforeseeable.
(3) Where damages can be mitigated.
Remedies —> Monetary Damages at CL: Expectation Damages - Hadley Rule
Under this rule, a breaching party will be liable for general damages (those damages naturally flowing from the breach) but not for special or consequential damages (those that result from the particular circumstances of the aggrieved party).
—-> UNLESS: at the time of contracting, the breaching party knew or had reason to know that the consequential damages would result from breach.
Common type of consequential damages: lost profits
Remedies —> Monetary Damages under UCC: Consequential Damages
Under the UCC, buyer can additionally recover consequential damages that were reasonably foreseeable to the seller at the time the K was entered into (eg lost profits because of delay in obtaining goods).
—–> Article 2 does not explicitly give seller right to consequential damages
Remedies —> Monetary Damages at CL: Reliance Damages
Designed to restore the aggrieved party to the position he was in prior to the K; measured by:
(1) any expenditures made in preparation for performance or in actually performing
(2) Less: any loss which the breaching party can prove the aggrieved party would have suffered even if the K had been fully performed
——> May be available where expectation damages are not available, such as when they are too uncertain or speculative
Remedies —> Monetary Damages at CL: Liquidated Damages
Designed to provide damages of their own choosing in the event of breach.
- —–> Enforceable if ct finds it to be valid liquidated damages clause designed to compensate for breach
- —–> Unenforceable if ct finds it constitutes a penalty designed to punish a breach:
- If cts find it is in fact a penalty –> strike from K, damages in accordance w/ default rules
Anticipated v. Actual Harm
LDP Test: 2 Prongs, either can uphold the clause:
(1) Was the clause reasonable at the time of contracting in relation to anticipated harm?
——> Key question: whether there was an anticipated harm that would be difficult to prove?
(2) Was the clause reasonable in relation to the harm and losses that actually occurred due to breach?
——> Hindsight question
Remedies —> Agreed-To Remedies
Parties may contract out of the legal and equitable remedies available under the law by specifying agreed-to remedies in the K.
Two typical forms:
(1) liquidated damages provisions; and
(2) provisions limiting or excluding damages
Provisions Limiting/Excluding Damages
- —> Provisions that limit/alter the measure of damages available.
- —> Exclusive remedies, such as limits to repair or replacement of defective goods
- —> Such provisions are generally enforceable UNLESS unconscionable OR they fail of their essential purpose
- —————> Limitation of consequential damages for personal injury in he case of consumer goods is prima facie unconscionable.
Remedies —> Rescission
Is permissible where both parties to a K have remaining performance due.
- -> Consideration is provided by each party’s discharge of the other’s duties.
- -> Equitable remedy
Cancels the K (and forms the basis for restitution); both parties are placed back where they were before the K was executed.
—-> Party seeking rescission must be ready to return to the other party all benefits received.
Rescission available:
(1) by consent of both parties
(2) for mistake (unilateral or mutual)
(3) for fraud, misrepresentations, and nondisclosure
(4) for duress or undue influence
(5) for illegality; or
(6) for failure of consideration (which would also be a material breach)
Remedies —> Reformation
Must show:
(a) Was an antecedent valid agreement;
(b) Was incorrectly recorded due to mistake or fraud; and
(c) Proof by clear/convincing evidence
Remedies –> Specific Performance: Generally
Extraordinary remedy by which breaching party is ordered to perform.
—–> Only available when monetary award is considered inadequate.
Money damages are generally presumed inadequate when party is purchasing:
(1) Unique objects (works of art and precious heirlooms)
(2) Real property
Where SP is not available; Ks for:
(1) Personal services
(2) Long-term relationships
Remedies –> Specific Performance: Equity Considerations
Whether to grant or deny SP is committed to the ct’s remedial discretion based on the competing equities in particular cases, and is not bound by hard-and-fast rules (such as those governing money damages).
Ct will take into account following factors:
(1) whether the aggrieved party has clean hands (has dealt fairly and in good faith w/ the breaching party)
(2) whether the terms of the K in question are suff definite
(3) whether performance by the aggrieved party can be reasonably assured
(4) whether the terms of the K are fair; and
(5) whether SP would be in the public interest
Remedies –> Specific Performance: Sale of Goods Ks under the UCC
The UCC liberalizes the rules governing the availability of SP.
“Uniqueness” Req
—–> Need only adequately search and be unable to find reasonable substitutes, and so is unable to “cover” the breach by seller.
“Capable of immediate performance” Req
—–> SP allowed in output and reqs Ks (classic long-term relationship that reqs cooperations of the parties)
Remedies –> Specific Performance: Replevin
The buyer also has a right of replevin (action to repossess property) for goods identified in the K if:
(1) after reasonable effort, the buyer is unable to recover;
(2) the circumstances reasonably indicate that an effort to cover will be unavailing; or
(3) if the goods have been shipped under reservation (ie the seller has reserved a security interest in the goods) and satisfaction of the security interest in them has been made or tendered.
Remedies –> Specific Performance: Issues (Outline)
- Enforceable Contract
- Certain and definite terms
- Legal remedy inadequate
- Mutuality
- Feasible
- Defenses
Remedies –> Defenses: Laches
Unreasonable delay in making an assertion or claim, such as asserting a right, claiming a privilege, or making an application for redress, which may result in refusal.
Remedies –> Defenses: Unclean Hands
Clean hands, sometimes called the clean hands doctrine, unclean hands doctrine, or dirty hands doctrine, is an equitable defense in which the defendant argues that the plaintiff is not entitled to obtain an equitable remedy because the plaintiff is acting unethically or has acted in bad faith with respect to the subject of the complaint—that is, with “unclean hands”.
Quasi-K –> Unjust Enrichment
General Unjust Enrichment (no express K)
—-> A party that confers benefits on another may recover their value where it is unjust for the recipient to retain the benefits w/o paying, even absent any express or implied-in-fact K.
2 Recurring Situations where recovery is approp:
(1) Med services provided by a med professional; and
(2) Benefits conferred by mistake to one who availed himself of the benefits at issue
Recovery not approp:
- —> A person who bestows benefits w/o request by the benefitting party is considered an “officious intermeddler,” not entitled to recovery.
- —> EXCEPTION: drs and other health care professionals who provide emergency health care to a patient unable to consent (eg because too ill or unconscious)
