Contracts Flashcards
Accord and satisfaction
An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some OTHER, DIFFERENT performance.
- NEW agreement between parties who are already under contract to each other
- SUSPENDS the obligations under the original contract UNTIL party satisfies accord/fails to satisfy
- If FAILS to satisfy, can sue either under original agreement or under the accord itself
SATISFACTION is the performance of the accord agreement.
- Discharges not only the ORIGINAL contract but also the ACCORD contract
- Generally may be accomplished by tender and acceptance of a CHECK marked “payment in full” where there is a bona fide dispute as to the amount owed
Accord and Satisfaction v. Modification
Accord and satisfaction is usually triggered by a dispute over AMOUNT DUE
- Party looking to discharge duty
If there is no dispute, consider modification
- Parties want the contract to continue
Additional term in acceptance materially alters the offer…
UCC, an ACCEPTANCE is valid even if it contains additional terms.
- Whether an additional term in an acceptance materially alters the offer affects whether the term will be INCLUDED in a contract between merchants; it does not affect whether a contract was FORMED
- C.f. common law mirror image rule, it’s a rejection + counteroffer and no contract is formed
- Also applies to Merchant’s Confirmatory Memo!
The contract will be formed WITH the additional terms if
- The contract is for the sale of goods
- The parties are BOTH merchants
- The offer did not limit acceptance to its terms
- The terms do not materially alter the contract
- The offeror did not object to the new terms within a reasonable time
If the parties are NOT both merchants, the offer is LIMITED to acceptance on its terms, the terms do MATERIALLY alter, or the offeror does OBJECT, A CONTRACT IS STILL FORMED! Just does not include the additional term
Assignment
Contract in which one of the parties transfers his rights to another. All contracts are assignable and delegable EXCEPT unique personal service contracts and long term requirement contracts.
- Once the assignment is EFFECTIVE, the assignee becomes the real party in interest, and he alone is entitled to performance under the contract. Can enforce DIRECTLY.
- Once the obligor has KNOWLEDGE of the assignment, he is bound to render performance to the assignee
- Can be oral/in writing
- Can be GRATUITOUS or for VALUE. If gratuitous, absent any RELIANCE, are revocable. Assigned for value, irrevocable.
- Assignor still responsible if there is a breach of contract
- As long as the defense is inherent in the contract, such as failure of a condition, it is always available against an assignee because it was in existence when the contract was made
- C.f. TPB…does not contemplate performance to a third party when the contract is made
- The assignee always takes subject to conditions in the original agreement between the obligor and the obligee
** Bilateral Contract
Unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract and may be ACCEPTED EITHER by a promise to perform or by the beginning of performance.
Breach of construction contract
Where a builder in a construction contract breaches during the construction, the nonbreaching party is entitled to the cost of completion plus compensation for any damages caused by the delay in completing the building.
- Most courts, however, will allow the builder to offset or recover for work performed to date to avoid the unjust enrichment of the owner. This restitutionary recovery is usually based on the benefit received by the unjustly enriched party.
- If substitute performance is readily obtainable, damages are measured by the unpaid contract price minus the cost of completion (up to the value of the benefit received by the defendant).
- Recovery measured by the claimant’s detriment (i.e., his reliance interest) is an appropriate alternative only where the standard “benefit” measure would achieve an unfair result; it is not applied where the party seeking restitutionary recovery was the breaching party
BREACH BY OWNER
- Before completion: expected profit + costs expended
- After completion: contract price
BREACH BY BUILDER
- Cost of completion + Damages for delay - Quasi-contract recovery for benefit conferred by builder
Consequential Damages
Losses beyond those covered by the standard measure that a reasonable person would have FORESEEN would occur as a result of the breach
- Did the breaching party know of the other party’s circumstances?
1. FORESEEABLE: MUST be foreseeable to be recoverable - Foreseeable if a reasonable person in the position of the breaching party would have known at the time of contracting that DAMAGES were LIKELY to occur as a result of BREACH
2. ASCERTAINABLE with reasonable certainty - Not SPECULATIVE!
- Traditionally, no damages for businesses not yet started.
- Modern trend, allow recovery if there is sufficient evidence to determine profits with reasonable certainty
Custom
One of the general rules of contract construction, including contracts for goods under the UCC, is that courts will look to see what custom and usage are in the particular business and in the particular locale where the contract is either made or to be performed
- Can be offered regardless of the completeness of the written agreement
* A written contract’s terms may be explained or supplemented by evidence of course of performance, course of dealing, and usage of trade-regardless of whether the writing appears to be ambiguous.
Damages calculation for construction contracts
If the builder has ALREADY begun his performance, the builder gets
1. Any PROFIT he would have derived from the contract
&
2. Any COSTS he has incurred to date.
Damages for breach
BREACHING party does not get paid!
- EXPECTATION: standard measure of damages; buy a SUBSTITUTE performance / PROFIT would have made.
- RELIANCE: cost of his performance, i.e., his expenditures in performing his duties under the contract.
- COMPENSATORY: expectation and reliance
Damages for breach of employment contract
When there is a breach of an employment contract by the employer, the standard measure of the employee’s damages is based on the full contract price.
- A non-breaching party cannot recover damages that could have been AVOIDED with reasonable effort. Reduced by the wages the plaintiff would have received in that comparable job
- Must comparable job in the same locale. Must be of the same type, similar pay
BREACH BY EMPLOYEE: Costs of replacing employee - Amounts owed to employee for work done
BREACH BY EMPLOYER: Contract Price - Amount employee would have made by taking similar position (employer must prove position available)
Damages for keeping non-conforming tender
Under the UCC, when a buyer ACCEPTS goods that turn out to be defective, he may recover as damages any “loss resulting in the normal course of events from the breach,” which includes the difference between the value of the goods ACCEPTED and the value they would have had if they had been as warranted (goods ORDERD), plus INCIDENTAL and CONSEQUENTIAL damages.
- Incidental damages: expenses reasonably incurred in inspection, receipt, and transportation, care, and custody of goods rightfully rejected.
- Consequential damages: any loss resulting from general or particular requirements and needs of which -
1. The SELLER at the time of contracting HAD REASON TO KNOW and
2. Which could not reasonably be PREVENTED by cover or otherwise, and
3. Injury to person or property proximately resulting from any breach of warranty (foreseeable) - Was the seller was told of any particular requirements and needs at the time of contracting/would the seller have reason to know ?
Delegation
Delegating duty to PERFORM.
- Where a delegate’s promise to perform the delegated duty is supported by CONSIDERATION, there results a third-party beneficiary situation, so that the nondelegating party to the contract can compel performance or bring suit for nonperformance
* When a duty is delegated to a delegate, the delegator remains liable should the delegate fail to perform
** Does a contractor have any obligation to award a subcontract to a particular subcontractor?
A contractor has no obligation to award a subcontract to a particular subcontractor unless there was a separate agreement that it would do so, such as the case here where the general contractor gave the carpenter a conditional promise that it would award the carpenter the subcontract if his bid was the lowest and if the general contractor was awarded the general contract.
** Effect of a clause prohibiting assignment
A contract clause prohibiting the assignment of the contract will be construed as barring only the delegation of the assignor’s duties.
- E.g., assign its right to payment would be permissible
- Nonassignment provisions will be enforced, but absent circumstances suggesting otherwise, a clause prohibiting the assignment of the contract will be construed as barring only the DELEGATION of the assignor’s DUTIES
Expectation Damages
Intended to put the injured party in the SAME POSITION as if the contract had been performed. Measured either through -
- Cost of RESTORATION
- Especially appropriate in case of willful breach and where restoration is the only means to allow the non-breaching party to use their land for its intended purposes - Difference in VALUE
- Often used where cost to restore is many times greater than the value of the property
Frustration
Frustration will exist where the purpose of the contract has become VALUELESS by virtue of some SUPERVENING EVENT not the fault of the party seeking discharge.
- Look for facts showing that a person has rented a venue for a specific purpose known to the owner of the venue and a subsequent event that was not reasonably foreseeable renders the purpose of renting the place moot
Must show:
1. There is some SUPERVENING act or event leading to the frustration;
2. At the time of entering into the contract, the parties did not reasonably FORESEE the act or event occurring;
3. The PURPOSE of the contract has been completely or almost completely DESTROYED by this act or event; and 4. The PURPOSE of the contract was REALIZED by both parties at the time of making the contract.
If an offeree sends a rejection but then an acceptance
Whichever received first controls
Impractiability
Where the nonoccurrence of an event was a basic assumption of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occurring, contractual duties may be discharged.
The test for a finding of impracticability is that the party to perform has encountered
- Extreme and unreasonable difficulty and/or expense; and
- Its nonoccurrence was a basic assumption of the parties.
Modern courts recognize that impracticability due to EXCESSIVE and UNREASONABLE DIFFICULTY or EXPENSE is a defense to breach of contract for nonperformance.
- Lack of profits does not make a contract impracticable; requires extraordinary unforeseen event
*REMEDY: discharged from performance
Merchant’s confirmatory memo
In contracts made between merchants, if one party, within a REASONABLE time after an oral agreement is made, sends the other party a written confirmation of the agreement that is sufficient under the SOF to bind the sender, it will also bind the RECIPIENT if -
- he has reason to know of the confirmation’s contents
- He does not object to it in writing within 10 days of receipt
** BOTH parties must be merchants
** REASONABLE time…30 days-ish
- Merchant can use its own confirmation to satisfy SOF against another merchant
Merchant’s firm offer
Not revocable during the time stated. Offer must be -
- in WRITING
- SIGNED BY MERCHANT
- By its terms gives assurance that it will be held open for stated period
- No time stated, reasonable time; court won’t enforce past 90 days.
- If the stated period extends beyond three months, the firm offer will stand, but it will only last for the three-month maximum
- If there is CONSIDERATION, it’s actually an option contract and can be held open for however long!
Modification
- COMMON LAW: to modify, need NEW CONSIDERATION to support modification because of pre-existing duty rule.
- Obligations of both parties are varied.
- It is usually immaterial how slight the change is - MODERN: a modification is enforceable without consideration if the modification is FAIR AND EQUITABLE in view of the unanticipated circumstances, and need for modification was UNFORESEEABLE at the time of entering into the contract.
- This is the MBE approach - UCC: Does not require new consideration, as long as modification is in GOOD FAITH
Novation
A novation occurs where a NEW contract substitutes a NEW party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract.
- A novation discharges the old contract
- Will be found when there is
1. A previous valid contract
2. An AGREEMENT among the PARTIES, including the new party to the new contract
3. The immediate extinguishment of contractual duties as between the original contracting parties, and
4. A valid and enforceable new contract
Oral Contract for Specially made and manufactured goods that is supposed to be in writing under the SOF
. Note that the boat builder might also be bound under another exception to the Statute-for specially manufactured goods if the sails were made specially for the yacht and were not suitable for sale to others
Parol evidence rule
Where the parties to a contract express their agreement in a WRITING with the INTENT that it embody the FINAL expression of their bargain, any expression made PRIOR to the writing and any oral expression CONTEMPORANEOUS with the writing is inadmissible to vary the terms of the writing.
- C.f., modifications, AFTER the writing. The parol evidence rule does not prohibit evidence of a subsequent modification of a written contract
- A memo prepared by one party and NOT SHOWN to the other can never be fully integrated because the parties could not have intended it to be the final writing if one never saw it
- Although the parol evidence rule prohibits CONTRADICTING the writing, the terms of the writing may be EXPLAINED or SUPPLEMENTED by consistent additional terms, unless the court finds from all the circumstances that the writing was intended as a complete and exclusive statement of the parties’ agreement.
- To determine whether the parties intended the writing to be the complete and exclusive statement of their agreement, it must be determined whether parties situated as were the parties to this contract would naturally and normally include the extrinsic matter in the writing.
- Under the UCC, which applies here because a sale of goods is involved, a writing is presumed not to be the complete and exclusive integration of all of the terms of the agreement. While the presumption may be overcome if the parties actually intended a total integration or it is certain that similarly situated parties would have included that term.
- Certain forms of extrinsic evidence are deemed to fall outside the scope of the parol evidence rule
1. Oral agreement that the written contract would not become effective until the occurrence of a condition
If the writing is only a partial integration, and not a complete embodiment of the parties’ intentions, under the parol evidence rule, it cannot be contradicted, but it may be supplemented by proving up consistent additional terms
Part Performance
Part performance is sufficient to take a contract for the SALE OF GOODS out of the SOF if -
- The goods have been specially manufactured
- The goods have either been paid for or accepted
- If a sales contract is only partially paid for / accepted contract is only enforceable to the extent paid/accepted
Part performance for a oral sale of land
Part performance that unequivocally indicates that the parties have contracted for the sale of land takes the contract out of the SOF. Requires at least two of
- Payment
- Possession
- Improvements
INSTALLMENT contracts: In the absence of other facts, e.g., large down payment, possession + payment does not unequivocally indicate a contract for a sale of land
- Also consistent with a lease
Perfect tender
Perfect tender is required under the UCC, which governs contracts for the sale of goods. If a delivery or goods do not conform to the contract in ANY way there is a breach, and the buyer may ACCEPT all, REJECT all, or ACCEPT SOME commercial units and reject the rest
- Includes not enough being sent
- The buyer always has the option to reject all of the goods if they or the delivery do not conform to the contract exactly
Reformation
If there is an agreement between the parties, the agreement is put into writing, and there is a variance between the original agreement and the writing, the writing can be reformed to reflect the intent of the parties. A plaintiff who wants to obtain reformation of a contract must show that there was an antecedent agreement that is not correctly reflected in the writing (e.g., by mistake).
Under the doctrine of reformation, either of the parties to the contract may ask a court in equity to modify the terms of the contract where the writing, through mistake or misrepresentation, does not incorporate the terms orally agreed upon.
** Reformation for Unilateral Mistake
Typically, reformation is not available for unilateral mistake. However, if the writing is inaccurate because of a misrepresentation by the person who created the writing, the innocent party can seek reformation of the contract to reflect the original expressed intent of the parties.
** A party’s failure to read a contract will not necessarily preclude him from obtaining reformation of a contract based on a misrepresentation.
Third party beneficiary
If a CONTRACT between two parties CONTEMPLATES performance to a third party, that third party may have rights to enforce the contract.
- To do so, the third party must be an INTENDED beneficiary at the time the contract was made (e.g., designated in the contract). Must be
1. Specifically ID’d in the contract
2. Receives performance directly from the promisor or
3. In some relationship with the promisee that indicates an intent to benefit - C.f. assignment, does not contemplate performance to a third party when the contract is made. One party LATER transfers his rights to another
- C.f. INCIDENTAL beneficiary, just so happens to benefit from the contract
A TPB has RIGHTS under the contract as soon as she does something to VEST her rights:
- Manifests ASSENT to the promise
- Not merely learning about promise - Brings SUIT to enforce the promise
- The act of bringing the suit = vesting - Materially changes position by justifiably RELYING on the promise
* Once the third-party beneficiary’s rights have VESTED, the original contracting parties may not MODIFY the contract without the assent of the third-party beneficiary
* Third-party beneficiary is subject to any DEFENSES that the promisor could have used against the original promisee
Time to cure defects UCC
- Under the UCC, if a buyer has rejected goods because of defects, the seller may, within the time ORIGINALLY provided for performance, “cure” the defective tender by giving reasonable NOTICE of its intention to do so and making NEW tender of conforming goods, which the buyer MUST then ACCEPT.
- When the buyer rejects a tender that the seller reasonably believed would be acceptable, the seller, on reasonable notification to the buyer, has a further reasonable time BEYOND the original contract time within which to make a conforming tender
UCC Statute of Frauds
Sale of goods more than $500 must be in writing.
- SIGNED writing (by the party against whom enforcement will be sought)
- “Any mark made with the intent to authenticate the writing”
- Construed liberally
- Need not be handwritten
- Initials, letterhead - Indication that a contract has been MADE
- QUANTITY
Unilateral contract
Can only be accepted by performance
- Mere preparation is not enough to begin performance for purposes or revocability
- Does not terminate just because offeror DIES.
Unilateral mistake
Where only one of the parties is mistaken about facts relating to the agreement, the mistake usually will not prevent formation of the contract. Will not prevent contract formation UNLESS non-mistaken party KNOWS/has reason to know of other party’s mistake
- Cannot take advantage of mistaken party
- E.g., huge discrepancy in price
- Must be a mistake of fact going to a point that is material to the transaction / basic assumption for the contract
- The fact that one of the parties to the contract has superior knowledge about the subject matter of the contract does not by itself justify rescission
* REMEDY: the mistaken party will have the right to RESCIND the agreement
- Must establish that the mistake creates a material imbalance in the exchange and that he did not assume the risk of that mistake
What happens if an oral contract for goods was supposed to be written under the SOF, but party receives and accepts the goods anyway?
“Goods received and accepted” exception to SOF; bound despite the Statute!
What if a building under construction is destroyed?
The contractor is still obligated to build and is NOT entitled to anything other than the contract price
What if, in a contract to repair or remodel a building, the building is destroyed?
A building that is destroyed after work has begun is discharged and to the extent that the contractor has already performed, entitled to recover RESTITUTION of the value of the work done prior to the destruction
What is the remedy when a seller refuses to deliver goods?
Under the UCC, the buyer’s basic remedy where the seller breaches by refusing to deliver is the difference between the CONTRACT price and either
- The MARKET price
- COVER: the cost of buying replacement goods
- Buyer must make a reasonable contract for substitute goods in good faith and without unreasonable delay
When are merchants bound by a confirmatory memo?
- Binds the SENDING merchant IMMEDIATELY
- Binds the RECIPIENT merchant if he does not object within TEN DAYS
When is a writing signed by the party against whom enforcement will be sought NOT required?
“SWAP”
- Specially made goods
- Written confirmation by a merchant
- Admission in court
- Performance
Take the contract out of the SOF
Acceptance
Assent to the terms of an offer
- Must be communicated to the offeror
- Must be unequivocal
Generally, an offeree must accept the offer before relying on it.
Acceptance of an offer calling for the shipment of goods
May be accepted by -
- Prompt shipment with notice
- Promise to ship
Accepting a unilateral offer
The offeree, like all offerees, must KNOW of the offer. Acting unilaterally and later learning about the offer is insufficient.
Accepting goods
Acceptance usually occurs when the buyer takes POSSESSION of the goods.
- Once a buyer has ACCEPTED goods, his right to reject for nonconformity generally lapses and his only remedy is a suit for DAMAGES (not a full refund)
- In some cases, the buyer can REVOKE acceptance, but the breach must be SUBSTANTIAL and the buyer must have a GOOD REASON for ACCEPTING the goods (i.e., something more than not taking the time to carefully inspect)
Accommodation Shipment Rule
A shipment of nonconforming goods is both acceptance and breach unless the seller notifies the buyer that a shipment of nonconforming goods is offered only as an ACCOMMODATION
- The shipment is a COUNTEROFFER, which the buyer may accept or reject
- The buyer is not required to accept the goods, but if the buyer rejects, the shipper is not in breach and may reclaim the goods because the tender of the goods ≠ acceptance of the offer
- Only applies when shipment is used as a form of acceptance! Does not apply to PROMISE to ship.
Anticipatory Repudiation
Occurs when a promisor, prior to the time set for performance of his promise, indicates that he WILL NOT PERFORM when the time comes.
- Must be CLEAR statement of intent not to perform. DOUBT is inadequate.
- If not clear, non breaching party can seek ASSURANCES or WAIT for time called for by contract
May either treat the anticipatory repudiation as
- A TOTAL BREACH and pursue his breach of contract remedies immediately
- Suspend his performance and AWAIT the seller’s performance for a commercially reasonable time.
Anticipatory repudiation of a buyer’s offer to purchase goods
When a buyer breaches by repudiating his offer, as the wholesaler did here, the seller has a right to recover his INCIDENTAL damages PLUS EITHER -
- The difference between the contract price and the MARKET price or
- The difference between the contract price and the RESALE price of the goods
Minus any expenses SAVED as a result of the breach
Battle of the Forms
UCC
- Confirmations of oral agreements under the UCC
Can the BREACHING party collect on a partially performed contract?
Consider
- Substantial performance
- Divisibility
- Restitution
- Unjust enrichment / quasi contract
(Minus damages for breach)
Cancelling Installment Contracts
Under Article 2, a buyer may declare a total breach of an installment contract only if a defect SUBSTANTIALLY IMPAIRS the value of the ENTIRE contract.
Claimant is the breaching party
Courts will always limit relief to the contract price where the claimant is the breaching party.
Complete integration
Covers the entire agreement between the parties
- Contains mention of any oral agreements?
Condition Precedent
Act or event other than lapse of time that must occur first before a party is under a duty to perform
- E.g., satisfaction with the job (good faith), certain start date, obtaining approval
- Words like “provided,” “if,” “when”
- Failure of condition precedent excuses duty to perform
- Where there is an ORAL condition precedent, evidence of the condition falls outside the parol evidence rule.
When a condition is broken, the BENEFICIARY of the condition may -
1. Terminate his liability
2. Continue under the contract
- Waived the condition
*** Unlike BREACH, does not give rise to liability!
Condition Subsequent
Condition cuts off already existing duty
- Duty to perform is excused
Conditions Concurrent
Conditions to occur at the same time
- If one condition has occurred, performance of the other is due
Consequences of breach
Material or minor breach?
- Material: non-breaching party can CANCEL contract, sue for damages
- Minor: non-breaching party can sue for damages, but they still must PERFORM under the contract
** Without (specifically negotiated) “TIME IS OF THE ESSENCE” clause, lateness is not material.
Consideration
Bargained-for exchange. That which is bargained for must have legal value.
- Must be on BOTH sides of the bargain
Contract formation requires
- Offer
- Acceptance
- Consideration
Death or incapacity of one of the parties
A contract is NOT discharged if the person who was to perform the services if the services are of a kind that can be delegated (e.g., not unique personal services)
Destination Contract
Carrier contract containing “FOB” term or term explicitly allocating risk of loss
Different terms
May be treated as additional terms or, under the knockout rule, will be knocked out of the contract
Divisibility
If a contract is divisible and a party performs one of the units, they are entitled to the agreed upon equivalent of that unit even if they fail to perform the other units.
- E.g., common law contracts with price per UNIT
Requires all of -
1. Performance of each party is divided into two or more parts
2. The number of parts due from each party is the same
3. The performance of each part by one party is agreed on as the equivalent of the corresponding part; each performance is the quid pro quo of the other
* Generally turn on FAIRNESS
Duty to Mitigate
Does not PROHIBIT recovery, only reduces recovery
- Reduced by amount that could have been mitigated
Duty to perform, generally
In every contract, the duty of each party to render performance is impliedly conditioned on the other party rendering performance or making tender of his performance
Entrustment
Entrusting goods to a merchant who deals in goods of that kind gives them the power (but not the right) to transfer all rights of the entruster to a buyer in the ordinary course of business.
Excuse of Condition by Hindrance
If a party with a duty of performance that is subject to a condition PREVENTS THE CONDITION FROM OCCURRING, he no longer has the benefit of the condition.
Express Warranty
An express warranty will arise from any statement of fact or promise.
- E.g., material
C.f. prediction of the future or puffery
Extremely difficult to disclaim
Firm offer on form supplied by offeree
Under the UCC, an offer by a merchant to buy or sell goods in a signed writing that, by its terms, gives assurances that it will be held open is not revocable for lack of consideration during the time stated (not to exceed three months).
If the term assuring that the offer will be held open is on a form supplied by the offeree, it must be separately signed by the offeror.
Forebearance from suit as consideration
Modern courts would hold that a promise to forbear suit on a claim that the promisor honestly and reasonably believes to be valid is good consideration to support an agreement, even if the claim ultimately turns out not to be valid.
Fraud in the inducement
Fraud in the inducement occurs when one party induces another to enter into a contract by asserting information he knows to be untrue, and the innocent party justifiably relies on the fraudulent misrepresentation
- Contract is VOIDABLE by the innocent party
- Can be inferred from conduct
Goods
All things moveable at the time they are identified as goods to be sold under the contract
Implied revocation
Offeree discovers offeror sold subject matter to someone else
Implied warranty of fitness for a particular purpose
Fit for buyer’s particular purpose; applies to sale of goods
Arises only when -
1. A seller has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller’s skill and judgment to select suitable goods; and
2. The buyer in fact relies on the seller’s skill or judgment
- Disclaimed by conspicuous WRITTEN disclaimer
Implied Warranty of Merchantability
Implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable. To be merchantable, goods must be adequately contained, packaged, or labeled according to the contract and must conform to any promises or affirmations of fact made on the label.
Applies to sales of goods of the kind REGULARLY sold by the MERCHANT; only applies to merchants!
- An implied warranty of merchantability will arise in every sale by a merchant unless disclaimed. To be merchantable, goods must be fit for ORDINARY purposes.
Disclaimed: any disclaimer mentioning merchantability
- If written, must be conspicuous
Impossibility
The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform.
- If the nonoccurrence of the event was a basic assumption of the parties in making the contract, and neither party has assumed the risk of the event’s occurrence, duties under the contract may be discharged
- If there is impossibility, each party is excused from duties that are yet to be performed
- If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed).
Is a breach material?
The court looks at
- Amount of benefit received
- The adequacy of damages
- Extent of performance
- Hardship to the breaching party
- Whether the breach was negligent or willful
If time is of the essence, any delay will be a material breach
Is a price quotation an offer?
Usually not, unless given in response to an inquiry that contains a quantity term
Kinds of contracts that fall under the Statute of Frauds
M: contracts where the consideration is marriage
Y: a promise that by its terms cannot be performed within a year
- “Lifetime” contracts can be completed within a year
L: land sales
E: executor / administrator
G: Goods over $500
S: surety; a promise to answer for the debt or default of another be evidenced by a writing
- Must be collateral to another person’s promise to pay rather than a primary promise (a promise to pay directly for the benefits given to another)
Lapse v. SOL
Lapse discharges the contract whereas SOL makes it unenforceable in court
Legal effect of a counteroffer
Both a rejection and a new offer
Lost Profits Doctrine
UCC; volume sellers/buyers. Entitled to profit they would have made from the sale as damages.
Main Purpose Rule
Exception to SURETY for SOF; can show main purpose of promisor promising to answer for the debt of another was to benefit THEMSELVES.
Making an inquiry v. counteroffer
Softer language; “would you consider….”
Measure of damages for breach in sale of goods contract
- BUYER’s damages measure when they LEARN of the breach
1. Benefit of bargain (Market-Contract) or
2. Cover (Reasonable replacement goods - Contract)
+ Incidental, Forseeable consequential, - Expenses saved - SELLER’s damages are measured as of the time of delivery
1. Benefit of bargain (Contract - Market)
2. Resale (Contract - Resale)
3. Lost profit (Contract - Cost of Goods)
4. Action for price (Contract) - Incidental damages and Expenses Saved
Merchant
Under the UCC, a merchant is one who regularly deals in in goods of the kind sold or otherwise by the profession holds themselves out as having special knowledge or skills as to the practices or goods involved
- Merchant must be acting in their mercantile capacity (relates to their business) for merchant rules to apply
Minor’s ability to enter into contract
Can contract for food, clothing, shelter, medical attention. Although infants generally lack capacity to enter into a contract that is binding on themselves, an infant may AFFIRM, i.e., choose to be bound by his contract, upon reaching majority.
- Affirmance may be either express or by conduct, e.g., failing to disaffirm the contract within a reasonable time after reaching majority.
- Disaffirmance discharges all liability.
- A contract entered into between an infant and an adult is voidable by the infant but binding on the adult
Mistake in the transmission of an offer by an intermediary
Where there is a mistake in the transmission of an offer by an intermediary, the offer as transmitted is operative unless the other party knew or should have known of the mistake.
Modifying contracts in light of unanticipated circumstances
Under the modern and better view of the Restatement (Second), a promise modifying a duty under a contract not fully performed on either side is binding if the modification is FAIR and EQUITABLE in view of circumstances not anticipated by the parties when the contract was made.
- Generally, modification of a contract requires consideration, and performance of a preexisting legal duty is not consideration.
Mutual mistake
When BOTH parties are mistaken about EXISTING facts (not future happenings) relating to the agreement, the contract may be VOIDABLE by the ADVERSELY affected party if:
- The mistake concerns a BASIC ASSUMPTION on which the contract is made
- Goes to the heart of the agreement - The mistake has a MATERIAL EFFECT on the agreed-upon exchange; and
- The party seeking avoidance (adversely impacted party) DID NOT ASSUME THE RISK of the mistake.
Mutual Recission
Generally discharges the parties, unless vested TPB
Offer
Expression of willingness to enter into a bargain, made in a way that the other party could reasonably believe that he could conclude the bargain by accepting
- INTENT to enter into a bargain
- Must have DEFINITE terms
Offer where period of acceptance is stated
If a period of acceptance is stated in an offer, the offeree must accept within that period to create a contract.
- Failure to timely accept terminates the power of acceptance in the offeree (i.e., a late acceptance will not be effective and will not create a contract).
Option Contract
An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer.
- Even a rejection by the offeree will not terminate the option, absent detrimental reliance on the part of the offeror,
Oral modification
A contract in writing MAY be modified orally UNLESS -
- The modification brings the contract within the Statute of Frauds
- In UCC cases, the contract provides that modifications must be in writing
** The parol evidence rule does not apply to subsequent oral agreements. Parol evidence can be offered to show subsequent modifications of a written contract.
Past / moral consideration
“Past” or “moral” consideration is not sufficient consideration because it was not BARGAINED for.
- If something was already given or performed before the promise was made, it will not satisfy the “bargain” requirement because it was not given in exchange for the promise.
Penalty clause v. Liquidated Damages
LIQUIDATED DAMAGES: the parties to a contract may stipulate what damages are to be paid in the event of a breach if -
1. Damages are difficult to ascertain at the time the contract is formed, and
2. The amount agreed on is a reasonable forecast of compensatory damages in the case of a breach.
* Does not matter if it’s called a “Penalty Clause,” may still be LD
- Plaintiff will receive the liquidated damages amount even if no actual money or pecuniary damages have been suffered
PENALTIES will not be enforced
Promissory Estoppel
Under section 90 of the Second Restatement, a promise is enforceable, even without consideration, if the promisor reasonably expects to induce action or forbearance and such action or forbearance is in fact induced. Substitute for consideration. Requires -
- Promise
- Reasonable expectation of reliance on that promise
- Reliance itself
- Interests of Justice requires enforcement
Receipt of a written document
A written communication is considered to have been “received” when
- It comes to a person’s attention, or
- It is delivered at a place of business through which the contract was made.
- The communication need not be read by the recipient to be effective
- Courts apply the same rules to phone messages
Reduction in Consequential Damages
- Costs AVOIDED because of breach (subtract expenses that non-breaching party did not have to expend)
- MITIGATION: a non-breaching party cannot recover AVOIDABLE damages. He must make REASONABLE efforts to stem losses after a breach.
Rejection of Goods
To properly reject, the rejecting party must, within a reasonable time after delivery and before acceptance, REJECT the goods or NOTIFY the seller of the rejection.
- Merely transferring payment for less than the contract price is improper
Release
A release that will serve to discharge contractual duties is usually required to be in writing and supported by new consideration or promissory estoppel elements.
Remedy for a violation of the SOF
Performing party has the option of suing on the contract for expectation damages
Required terms sufficient for a “meeting of the minds”
- Price
- Quantity
- Quality
Requirements contract
In a requirements contract, a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.
- Although no specific quantity is mentioned in offers to make these contracts, the offers are sufficiently definite because the quantity is capable of being made certain by reference to objective, extrinsic facts.
- Consideration also is present, as the promisor is suffering a legal detriment; it has parted with the legal right to buy the goods from another source
- Words like “I want” are insufficient, must be “Require”
Revocation
A revocation generally is effective when RECEIVED by the offeree.
- Exception: an offer cannot be revoked and will be treated as an option contract for a reasonable length of time where the offeror could reasonably expect that the offeree would rely to her detriment on the offer. Usually is applied in only two circumstances -
1. An offer for a unilateral contract
2. A subcontractor’s bid to a general contractor
Rights of the assignee
Generally, an assignee has whatever rights his assignor would have against the obligor.
- Similarly, the assignee is subject to any contract-related defenses that the obligor has against the assignor.
Risk of loss if a seller ships non-conforming goods
If a seller ships nonconforming goods, it eliminates determining if something is a SHIPMENT or DESTINATION contract because the risk of loss remains on the SELLER
Risk of loss in a non-carrier contract
Where the seller is a merchant, the risk of loss does not pass to the buyer until the buyer takes PHYSICAL POSSESSION of the goods.
If the seller is not a merchant, upon DELIVERY
Place of delivery: seller’s place of business
Sale on Approval Contract
Buyer takes goods for TRIAL period and may return them even though they conform to the contract
- RISK allocation: risk does not pass until the buyer accepts goods (by failing to return / notify seller of intention to return within specified time). If buyer decides to return the goods, return is at seller’s risk
Sale or Return Contract
Buyer takes goods for resale but may return them if unable to sell.
- RISK allocation: rules for ordinary sale apply, but if goods are RETURNED to the seller, risk remains on buyer while goods are in transit
Shipment contract
The UCC presumes a contract is a shipment contract in the absence of a contrary agreement. In a shipment contract, the seller must ship the goods by carrier but is not required to tender them at a particular destination
- A “ship to” address does not make a contract a destination contract
- The risk of loss generally passes to the buyer when the goods are delivered to the CARRIER
- There is an exception, however, if the buyer has a right to REJECT the goods, e.e. PERFECT TENDER. In that case, the risk of loss does not pass to the buyer until the defects are CURED or the buyer ACCEPTS the goods
- C.f., DESTINATION contract
Specific performance
Specific performance is available for contracts for the sale of goods where money damages would be inadequate to secure substitute goods.
- E.g., goods or services sought are unique
- Land
- Specific performance is not available as a remedy regarding a contract for services.
- One of the prerequisites for specific performance is that all of the plaintiff’s contractual conditions have been fulfilled, including all conditions precedent and a readiness to perform any conditions concurrent
- Specific performance is an equitable remedy and thus subject to equitable defenses
- Presence of a a LIQUIDATED DAMAGES clause does not foreclose possibility of specific performance
Substantial Performance
If the work remaining on the contract is minor, the breaching party will be seen as substantially performing its contract, and substantial performance will discharge its duty to perform and obligate payment
- Minor breach
- May recover damages for the less than complete performance
* Most courts will not apply the substantial performance doctrine where the breach was “willful”
Taking something “as is”
Unless the circumstances indicate otherwise, the implied warranties of merchantability and fitness will be disclaimed
- Cannot be hidden / fine print (though does not have to be conspicuous)
The Mailbox Rule
An acceptance generally is effective upon dispatch (i.e., the acceptance creates a contract at the moment it is mailed or given to the delivery company).
- Does NOT apply
1. To option contracts
2. Where the offer states that acceptance will not be effective until received. - Puts the burden of any negligence in delivery on the sender
Unconscionability
Contractual duties will be discharged by unconscionability only if, at the time the contract was made, it was one-sided and terribly unfair to one of the parties
- Shocks the conscience
- Unequal bargaining positions are usually required
- One-sided bargains where one of the parties has substantially superior bargaining power and can dictate the terms of the contract to the other party
- Rarely recognized based on price alone; only if the parties were in vastly unequal bargaining positions
Voidable contract v. Void contract
Voidable contract: contract that one or both parties may ELECT to avoid or to ratify.
- E.g., contracts of infants
Void contract: one that is totally without any legal effect from the beginning. Can NEVER be enforced.
- E.g., agreement to commit a crime
Waiver of condition precedent
One having the BENEFIT of a condition may indicate by WORDS or CONDUCT that he will NOT insist upon it.
- The waiver may be retracted at any time before the other party has detrimentally changed his position
- BINDING / ESTOPPEL WAIVER: whenever a party to a contract indicates that she is WAIVING a condition before it is to happen or some performance before it is to be rendered, and the person addressed detrimentally RELIES upon the waiver
Warranties
- Warranty of title
- Warranty of merchantability
- Warranty of fitness for a particular purpose
- Express
Warranty of title
Sale of goods; title is good, transfer is rightful, no liens/encumbrances
Writing for SOF
There just must be something in writing evidencing the essential terms
- Need not be formal
- Can be on different pieces of paper / emails
