Contracts Flashcards
1
Q
Contract Equation
A
K = MA(O + A) + C - D
2
Q
Quick definitions of express conduct, implied in fact, and quasi-contract
A
Express conduct: Formed by words
Implied in-fact: Formed by conducts
Quasi-contract = constructed by courts for restitution, last resort
3
Q
Bi-lateral Contract
A
both parties promisor and promisee
4
Q
Unilateral Contract
A
One promisor and promisee. Offeror asks for performance. Pays upon completion of performance.
“My offer can be accepted only by [action]”
Reward for public
5
Q
Common Law vs UCC
A
UCC applies to sales of good
Special artificial rules
Goods: Anything movable when identified to the contract
Tangible, personal property
Covered by Article 2 of the UCC
Common law covers contracts for services
6
Q
Merchant
A
One who regularly deals in goods of kind sold, or
Holds themselves out as having special knowledge or skills as to practices or goods involved
Note: UCC can still apply, but special rules for merchants
7
Q
What if contract for both sale of goods and services?
A
Depends on whether goods or service portion are predominant.
Ie. sale of car with driving lessons thrown in
If even split, then Article 2 applies to sales portion and common law to services
8
Q
Mutual Assent
A
Offer + Acceptance
9
Q
Offers
A
Offer: manifestation of an intention to be bound
Creates power of acceptance in offerree
Creates liability for offeror
Must be objective intent to enter into a contract,
Determined by what a reasonable person would see
A bid is an offer
10
Q
Advertisements as Offers
A
Advertisements are invitations to deal, not offers
Exception:
Advertisement contains a promise
Certain/definite terms
Quantity, amount, etc
Offerree identified
11
Q
Offers Usually Must Include
A
Offeree’s name
Offer’s subject matter
Price
12
Q
Offers Usually Must Include: Land Sale Offers
A
Also need:
Price
Description of land
—With some particularity, but deed description not required
—Most courts will not supply a missing price term, therefore deal is not valid
13
Q
Offers Usually Must Include: Sale of Goods
A
Only quantity term is valid
Court can fill in price term usually
14
Q
Requirements Contract
A
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.
15
Q
Output Contract
A
In an output contract, a seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.
Watch out for unreasonable increase in demand
Percent or two is okay, but huge leap then seller is not liable
16
Q
Offers Usually Must Include: Employment Contracts
A
If duration not specified, contract created is terminable at will for either party
For other services, the nature of the work to be performed must be included in the offer
17
Q
Terminating Offers: Lapse of time
A
Offeree’s failure to accept within stated time, or not accepted in reasonable time with no deadline
Read dates carefully
Raise issue if over month
Depends on goods too
18
Q
Terminating Offers: Rejection
A
Offer terminates when offeree rejects it
19
Q
Express Rejection
A
An express rejection is a statement by the offeree that they do not intend to accept the offer. Such a rejection will terminate the offer
20
Q
Counteroffer as Rejection
A
A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms (for example, “I’ll take the house at that price, but only if you paint it first”).
Mere bargaining does not kill off initial offer
Mere Inquiry
May not terminate offer if aligned with initial goals
Tip: Watch for punctuation at end of offerees response because often:
Period = counteroffer
Question mark = bargaining
21
Q
Conditional Acceptance as Rejection
A
When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer.
The conditional acceptance is essentially a new offer, and the original offeror may form a contract by expressly assenting to the new terms.
However, the offer that results from a conditional acceptance cannot be accepted by performance.
If the parties ship or accept goods after a conditional acceptance, a contract is formed by their conduct, and the new terms are not included.
22
Q
Revocation
A
Offeror’s retraction of offer
Can be revoked anytime before acceptance
NO mail box rule, revocations effective upon receipt
23
Q
Direct revocation
A
Offeror makes it explicit the offer is revoked
24
Q
Indirect revocation
A
Offer revoked indirectly if:
Offeree receives incorrect information
From reliable source
Of Offeror’s acts indicating revocation to reasonable person
Essentially, offeror does conduct that shows they changed mind and offeror must be aware
25
Four exceptions that limit ability to revoke
Option Contract
Merchant Firm Offer Rule
Foreseeable Detrimental Reliance
Starting to Perform Under a Unilateral Contract
Death
26
Limits on Ability to Revoke: Option Contract
Offeree gives consideration for offeror to not revoke offer for period of time
27
Limits on Ability to Revoke: Merchant Firm Offer Rule
Merchant promises:
In signed writing
---Anything that looks authenticated will work (ie. merchant’s own stationary)
To keep offer open for time stated or reasonable time
---Enforceable for up to 3 months
28
Limits on Ability to Revoke: Foreseeable Detrimental Reliance
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.
29
Starting to Perform Under a Unilateral Contract
Look for magic words, “offer only by” for unilateral
Start of performance of unilateral contract offer = irrevocable offer.
“Just one step, just one brush of paint”
Mere preparation to perform does not equal a start to perform
30
Death
Death of either party before acceptance occurs will terminate a revocable offer
Death does not automatically terminate a contract or an irrevocable offer
Estate can be liable
31
Acceptance
Language of offer controls manner of acceptance
32
Performance as potential acceptance
Bi-lateral contracts: Open as method of acceptance, then offeree has options. If they start to perform then it is an implied acceptance
Unilateral: Must complete performance for acceptance, but does take away ability to revoke
33
Acceptance under Article 2: Shipment of Nonconforming Goods
The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract
unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation.
---COUNTER OFFER
The buyer is not required to accept accommodation goods and may reject them. If the buyer rejects, the shipper isn’t in breach and may reclaim the accommodation goods, because the tender does not constitute an acceptance of the buyer’s original offer
34
Acceptance: Silence
Silence is not an effective acceptance
Custom exception:
Silent acceptance reasonable if done customarily before
35
Acceptance: Common-law
Purported acceptance must mirror offer terms at common law
36
Acceptance: UCC
No mirror image rule under Article 2, offeree must “make a seasonable expression of acceptance”
Additional terms won’t defeat acceptance
Offeree’s additional term not part of contract unless:
BOTH are merchants
It’s not material, and
Offeror doesn’t object
Note: disclaimers are a material change, delivery date maybe not
37
Acceptance: UCC: Material change
A term that would cause hardship or surprise to offeror
If MBE notes something is a custom the industry, likely not a material change
38
Acceptance: Timing: Mail box rule
Acceptance effective when sent (upon dispatch, once put in mailbox)
Irrelevant if acceptance letter never arrives (may have problem proving it but still acceptance)
39
Exceptions to Mailbox rule
Offer states otherwise
Offer is irrevocable
Rejection is sent before acceptance
If rejection arrives first, kills offer
If acceptance arrives first, still contract but effective and formed at confirmation of receipt
40
Consideration
Makes agreement legally enforceable
Look for bargained-for-exchange
Only needs to be valuable to the party (promises for promises is valid)
Forbearance can constitute consideration
Irrelevant whether activities would have been avoided anyways
Past Consideration is not consideration
Courts do not look into the adequacy of consideration
41
Contract modification
Show consideration or an exception
Pre-existing legal duty rule: Common law, need new consideration to modify contract
42
Pre-existing legal duty rule Exceptions
Exceptions:
New or different consideration is promised;
The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud);
The preexisting duty is owed to a third person rather than to the promisor;
There is an honest dispute as to the duty; OR
There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.
43
UCC Modification
Just good faith needed, no extra consideration
Watch out for undisputed debts
44
Promissory Estoppel
Promise plus performance. No consideration but…
Foreseeable detrimental reliance in the form of some sort of performance can make the promisor’s promise enforceable without initial consideration
Justice requires enforcement of the promise
Elements:
Promise made
The promisor should reasonably expect to induce action or forbearance, and
Such action or forbearance is in fact induced.
45
Defenses: Lack of capacity
Defendants without capacity can disaffirm the contract
Minors
Generally doesn’t matter if other party thinks they’re of age
Mental Incapacity
Intoxicated (even voluntary if taken advantage of)
46
Defenses: Lack of capacity: Exceptions
Benefits after gaining capacity = implied affirmation
Only reasonable time to disaffirm, ie. minors get a month after turning 18
Necessities are necessary
Incapacitated party is still liable for necessities, only liable for reasonable value of the necessity
Note: Not contract price but FMV in restitution
47
Defenses: Duress
Look for two guys, one threatens to not honor side of contract without X, Y, or Z.
Other guy is vulnerable with no other options
Economic duress
Elements:
(1) undue susceptibility to pressure by one party, and
(2) excessive pressure by the other party.
Undue influence concerns often arise when the dominant party is in a confidential or caregiver relationship with the influenced party.
48
Defenses: Misunderstanding—Ambiguous Contract Language
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity:
a. Neither party aware—no contract unless both parties intended the same meaning;
b. Both parties aware—no contract unless both parties intended the same meaning; or
c. One party aware—binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
Material ambiguity = no contract
Unless one person should have known or did know, then hold against that party
Look to see if subject matter existed:
If just a mistake of value, that’s typically an enforceable contract
49
Defenses: Unilateral mistake
Slightly more reluctant to grant relief
Look for assumption of risk
Be aware of fraud
No relief unless obvious mistake
(ex. Construction bidding, massive reduction of average, palpable unilateral mistake)
50
Defenses: Unconscionability
Elements:
Unfair surprise and
Oppressive terms,
Tested when contract formed
51
Statute of Frauds
Always require a writing
When is oral contract not good enough?
When subject matter within SoF
SoF Covers (My Legs):
Marriage
Year
Land Sales
Executors
Goods for $500+
Sureties
52
SoF: Marriage
Contracts where marriage is consideration
Not just a promise to marry
53
SoF: Year
Contracts impossible to complete in 1 year
---Look for tasks, always assume superman doing job
Time of actual performance doesn’t matter
---Don’t fall for trick, it’s about contract language and impossibility
Lifetime deals not subject to this restriction
---Must see terms that force contract beyond a year
Ie. three-year contract can’t be completed in one year but lifetime contracts can
Ie. note performance that will take place a year later
54
SoF: Land Sales
Transfer of an interest in real property
Even leases for more than a year are subject (and easements)
Construction contracts are not necessarily within SoF
55
SoF: Land Sales: Equal Dignity Rule
Authorization to enter into a contract for someone else must be in writing only if underlying deal would be subject to SoF.
56
SoF: Executors
Promise by executor to pay estates debts from other source of funds is within SoF
57
SoF: Goods for $500+
UCC
$500 or more
Don’t confuse applicability of SoF with applicability of Article 2
58
SoF: Sureties
A person guaranteeing the debts of another person
Often will try to trick you into thinking this is what’s happening
59
Exceptions to SoF: Modifications
Must be in writing only if modified contract within statute
Unless oral modification prohibited
Parties can write SoF into Article 2 contracts
Under common law, clauses that prohibit oral modifications are typically unenforceable (assumed)
60
Exceptions to SoF: Leases of <1 year
Lease of exactly one year or less can be oral
61
Exceptions to SoF: Part Performance of Real Estate Contracts
Payment, possession, improvement
Need 2 of 3
62
Exceptions to SoF: Exception for Service contracts
Full performance contract satisfies SoF
But partial does not satisfy SoF
Remember restitution though at FMV
63
Exceptions to SoF: Exception for sales of goods
No SoF Defense if:
Goods accepted
Goods paid for
Substantial beginning on custom goods
Special goods that can’t be commonly resold
Applies only for the goods accepted
But if item not fungible, then applies even for deposit
64
Exceptions to SoF: Judicial Admissions Exception
Agreement admitted to under oath enforceable without writing
65
Exceptions to SoF: Merchant’s Confirmatory Memo
Elements:
Merchants
Agree to contract
One party sends signed writing containing quantity terms
No objection by recipient within 10 days
Can be used to satisfy SoF (look for confirmatory memo)
66
Adequate Writing to Satisfy Statute of Frauds: UCC (goods $500+):
Quantity term
Defendant’s signature
67
Adequate Writing to Satisfy Statute of Frauds: Common Law
All material terms must be in writing
---Who and what
Defendant's signature
68
Remedies If Contract Is Within Statute of Frauds
If a contract violates the Statute of Frauds, in almost all cases a party can sue for the reasonable value of the services or part performance rendered, or the restitution of any other benefit that has been conferred.
69
Parol Evidence Rule
Exclude evidence of:
Prior or contemporaneous agreements
Contradicting final writing
---Not important without final writing
70
Parol Evidence Rule: Exceptions
Exceptions:
Partially integrated writing
---Final statement of terms included but not complete statement
---You can add to the deal, not contradicting, but only partial
---If contract has merger clause, cannot add to it
Defense against formation
---Victim of fraud, misinfo, etc is allowed
Explaining a vague or ambiguous term
Parol Evidence Comes Post to Agreement
---Anything after is an attempt to modify
---(reminder, preexisting legal duty need consideration under common law)
Correct clerical error
---Correcting a typo
71
Determining the Terms of the Contract (in this order)
Course of Performance
Parties’ conduct under prior installments of current contract
Course of dealing
Parties’ conduct in prior contracts (not difference)
Trade Usage:
Industry norms parties are aware of
72
Warranties under the UCC: Express Warranty
Any affirmation of fact or promise made by the seller to the buyer
any description of the goods
any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain
Buyer could have relied on the warranty at the time of the contract
But not: puffing, just an opinion
73
Warranties under the UCC: Implied Warranty of Merchantability
Goods fit for ordinary, foreseeable purpose
Applies to:
Merchant regularly selling the type of goods
Ie. Big wheel cycles has IWM for bikes, not for selling an old van
Implied by law
74
Warranties under the UCC: Implied Warranty of Fitness for Particular Purpose
Applies when:
Buyer comes in with special purpose
Seller knows of special purpose
Seller picks out goods fit for buyer’s special purpose
Beyond the normal purpose
75
Limitations on Warranty Liability
Seller can disclaim implied warranties but not express
Magic words:
“As is” or
“With all faults”
Serve to disclaim all implied warranties
Must be conspicuous to a reasonable person
76
Limitations on Damages
Parties may include in their contract a clause limiting the damages available in the case of breach of warranty, even express
However, such a limitation won’t be upheld if it’s unconscionable
Warranty disclaimers that limit damages for personal injury caused by a breach of warranty on consumer goods are prima facie unconscionable
77
Risk of Loss Terms
Goods destroyed before completion
Steps:
1. If agreement allocates risk, then thats who takes on risk
2. If not, breaching party will be liable even if breach didn’t damage the goods
78
Risk of Loss: Noncarrier Case
A noncarrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier.
In such a case,
if the seller is a merchant, risk of loss passes to the buyer only when they take physical possession of the goods.
If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery
Tender: where goods are, and how to get them
79
Risk of Loss: Common carrier
Burden shifts to buyer when delivery obligations are completed
80
Risk of Loss: Common carrier: Shipment Contract
Seller delivers goods to common carrier,
Arranges for delivery
Notifies buyer
Risk of loss passes to buyer on delivery to carrier
Tips:
Assume shipment contracts (buyer bears risk of loss before they ever get the goods)
Presumed unless contract states otherwise
If followed by seller city, then it’s a shipment contract and just need common carrier
81
Risk of Loss: Common carrier: Destination Contract
Seller must gets good to a specific destination
Tips:
Look for FOB (free on board), followed by a city name, risk of loss passes to buyer at named location. Destination.
82
Performance and Excuse for Nonperformance: Common Law Contracts
Substantial performance is enough
Meets contract’s essential purpose
Material breach is not okay
83
Performance Under UCC Article 2: Perfect Tender Rule
Seller must deliver perfect goods, in the right place, at the right time.
If not perfect, buyer can reject but does not have to.
More later.
84
Performance Under UCC Article 2: Installment Contracts
In an installment contract (that is, one that requires or authorizes delivery in separate installments), the seller may demand payment for each installment if the price can be so apportioned,
unless a contrary intent appears.
85
Performance Under UCC Article 2: Buyer’s Right of Inspection
The buyer has a right to inspect the goods before they pay unless the contract provides for payment C.O.D. or otherwise indicates that the buyer has promised to pay without inspecting the goods
Paying up front is not enough to accept goods
86
Performance Under UCC Article 2: Payment by Check
Generally Ok
Tender of payment by check is sufficient unless the seller demands cash and gives the buyer time to get it. If a check is given, the buyer’s duty to pay is suspended until the check is either paid or dishonored.
If the check is paid, the buyer’s duty to pay is discharged.
If the check is dishonored, the seller may sue for the price or recover the goods.
87
Conditions
Limits obligations created contract language
A contract may provide that a party does not have a duty to perform unless some condition is fulfilled. In that case, the party’s failure to perform is justified if the condition was not fulfilled.
“As, until, provided that, etc”
88
Express Conditions
Must be perfectly satisfied. Close is not good enough.
Buyer may still waive condition but can reject purchase
Conditions do not create promises or liability
89
Express Conditions: Satisfaction Conditions
Satisfaction measured by the reasonable person standard unless:
Contract deals with art or personal taste
90
Excusing Conditions
Conditions may be excused by action or inaction of person protected by condition
Must operate in good faith in concurrence with the express condition
91
Excusing Conditions: Waiver
Giving up of condition’s protection
Can retract waiver for future payments if builder hasn’t relied on it yet
92
Anticipatory Repudiation
Early statement of non-performance
Other party may
suspend obligations or
sue for breach immediately
Repudiations can be retracted so long as they haven’t already been relied on
93
Failure to Give Adequate Assurances
Party may ask for assurance other party will perform in writing
Assurance not received = anticipatory repudiation
Cannot use adequate assurance provision to rewrite contract or demand certain assurance
Only entitled to adequate assurance
94
Changing Obligations: Rescission
Party’s mutual agreement to cancel contract
Each party must have some performance remaining for effective rescission
95
Changing Obligations: Modification Agreement
Replaces existing contract with new one immediately
Can expunge duties, and modifications take effect right away
96
Changing Obligations: Accord and Satisfaction
Agreement to accept different performance to satisfy existing duty
Does not excuse original debts for accords without satisfaction
Modification: debt excused immediately, Accord and S: Debt excused later
“If… then…” is usually A&S
97
Changing Obligations: Novation
Agreement to substitute a new party for an existing one
Removes liability on novation
98
Changing Obligations: Delegation
One party finds replacement party to perform
Original party’s obligations not excused
99
Changing Obligations: Impossibility/Impracticability
Later unforeseen event makes party’s performance impossible
100
Changing Obligations: Death or Incapacity
Must be of someone essential to the contract and excuses performance
Must be essential in the sense that only this person could do this task for the purposes of the contract
101
Changing Obligations: Supervision and Gov Regulation
If law makes performance illegal, then performance is excused
102
Changing Obligations: Destruction of contract’s subject matter
Ie. music hall burns down, excuses performance
103
Changing Obligations: If Risk of Loss Has Already Passed to Buyer
The rules relating to discharge because of destruction of the subject matter will not apply if the risk of loss has already passed to the buyer.
104
Changing Obligations: Discharge by Impracticability
Modern courts will also discharge contractual duties where performance has become impracticable.
Test for Impracticability:
Extreme and unreasonable difficulty and/or expense, and
Its nonoccurrence was a basic assumption of the parties.
105
Changing Obligations: Impossibility/Impracticability under UCC
If performance has become impossible or commercially impracticable, the seller will be discharged to the extent of the impossibility or impracticability.
106
Changing Obligations: Frustration of Purpose
Elements:
There is some supervening act or event leading to the frustration.
At the time of entering into the contract, the parties did not reasonably foresee the act or event occurring.
The purpose of the contract has been completely or almost completely destroyed by this act or event.
The purpose of the contract was realized by both parties at the time of making the contract.
Central purpose for both parties
Eg:
Both parties understood the central purpose
Performance excused if contract’s essential purpose undermined
107
Breach
If it is found that
(1) the promisor is under an absolute duty to perform, and
(2) this absolute duty of performance has not been discharged,
Then this failure to perform in accordance with contractual terms will amount to a breach of the contract.
The nonbreaching party who sues for breach of contract must show that they are willing and able to perform but for the breaching party’s failure to perform.
108
Common Law Breach: Determining Breach
Determine whether material breach or substantial performance
Determining Materiality of Breach
In determining whether a breach is material or minor, courts look at:
a. The amount of benefit received by the nonbreaching party
b. The adequacy of compensation for damages to the injured party
c. The extent of part performance by the breaching party
d. Hardship to the breaching party
e. Negligent or willful behavior of the breaching party AND
f. The likelihood that the breaching party will perform the remainder of the contract
109
Common Law Breach: Minor Breach
A breach of contract is minor if the obligee gains the substantial benefit of their bargain despite the obligor’s defective performance.
A minor breach does not relieve the aggrieved party of their duty of performance under the contract
Substantial performance by a breaching party means the other party must still perform then get remedies
110
Common Law Breach: Material Breach
No performance and no substantial performance
No benefit of bargain to nonbreaching party
Contract ended
Counter-performance discharged
Note: willful and not in good faith is more likely to be material
Also: If strong likelihood breaching party can and will cure the breach, not material
111
Common Law Breach: Substantial Performance
Look to:
Benefit received by nonbreaching party
Part performance by breaching party
Hardship to breaching party
112
Common Law Breach: Time for Performance
Failure to perform within stated time is NOT a material breach unless time is of the essence
Courts look to all circumstances
Dates of performance alone not enough
113
Breach: UCC: Perfect Tender Rule Softened
If goods don’t conform, buyer may:
Reject the entire shipment
Accept entire shipment, or
Reject in part, accept in part
Buyer may take goods and recover for difference in value
Acceptance of nonconforming goods may occur if not rejected in a reasonable amount of time
If buyer accepts goods, may no longer reject them
114
UCC: Acceptance of Goods
Buyer gets reasonable time to inspect the goods
Buyer accepts goods if they:
Indicate goods conform to contract
Indicate they’ll keep nonconforming goods
Fail to reject within reasonable time
Fail to notify seller of rejection
Act inconsistent with seller’s ownership
(ie painting the object)
115
UCC: When Acceptance May Be Revoked
The buyer may revoke their acceptance if the goods have a defect that substantially impairs their value to the buyer and:
They accepted the goods on the reasonable belief that the defect would be cured and it has not been OR
They accepted the goods because of the difficulty of discovering the defects or because of the seller’s assurance that the goods conformed to the contract.
Revocation of acceptance must occur:
(1) within a reasonable time after the buyer discovers or should have discovered the defects; and
(2) before any substantial change in the goods occurs that is not caused by a defect present at the time the seller relinquished possession.
Remember, can’t divide good
116
Exceptions to the Perfect Tender Rule: Seller’s Right to Cure
Seller has right to cure nonconforming goods within time for performance
Single Delivery Contracts
Seller Can Cure by Notice and New Tender Within Time for Performance
If the buyer has rejected goods because of defects, the seller may within the time originally provided for performance “cure” by giving reasonable notice of their intention to do so and making a new tender of conforming goods that the buyer must then accept.
Time to Cure:
Depends on if they have time under the contract
117
Note Difference with Perfect Tender in UCC and Common law
UCC must notify seller within reasonable time of defect
Common law the defect must be substantial to a degree
118
Seller’s Right to Cure Beyond Original Contract Time
Ordinarily, the seller has no right to cure beyond the original contract time. However, if the buyer rejects a tender of nonconforming goods that the seller reasonably believed would be acceptable “with or without money allowance,” the seller, upon a reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender.
A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable if the seller can show that
(1) trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or
(2) the seller could not have known of the defect despite proper business conduct (for example, packaged goods purchased from a supplier).
119
Exceptions to the Perfect Tender Rule: Installment Contracts
Buyer can reject installment if nonconformity substantially impairs value of installment
Contract breached if nonconformity substantially impairs entire contract’s value
120
Exceptions to the Perfect Tender Rule: Anticipatory Repudiation
Early statement of non-performance
Repudiations can be retracted if not relied on
121
Remedies: Breach
expectation damages
Makes party whole
122
Remedies: Promissory estoppel
reliance damages
Puts party in position as if the contract never happened
123
Remedies: Restitution
Material benefit conferred to other party
124
Nonmonetary Remedies: Specific Performance
Money damages inadequate
Feasible to enforce decree
125
Nonmonetary Remedies: Specific Performance: When Available
Land Sales
---All land is unique
---Specific performance available in land sale contracts
Sales of Goods
---Generally not available
---Specific performance available only if:
------Goods are unique, or
------Buyer unable to cover
------Artwork, antiques, custom made goods
Personal Service Contracts
---Not available, indentured servitude
------13th amendment violation
---However, can be enjoined from working for competitors
126
Nonmonetary Remedies: Unpaid Seller’s Right to Reclaim Goods
Generally not getting it under Article 2
Article 2 Reclamation
Seller can get reclamation if:
Buyer insolvent at time she receives goods AND
Seller demands reclamation within 10 days of receipt
For reclamation to work, buyer must have goods at time of demand
Sue for breach in this case, good luck
127
Nonmonetary Remedies: Unpaid Seller’s Right to Reclaim Goods: Exception to Reclamation Rule
Seller can reclaim goods beyond the 10-day limit if:
Buyer misrepresents solvency
In Writing
Within 3 months before delivery
128
Monetary Remedies: Compensatory damages: Expectation Damages:
Put injured party in position they’d be in had contract been performed.
Look to full expectation damages (ie. hairy hand case)
What party expected to happen
129
Monetary Remedies: Compensatory damages: Reliance Damages
Available if expectation damages uncertain
Return nonbreaching party to status quo
130
Monetary Remedies: Compensatory damages: Restitution Damages
Measured by value of benefit conferred
131
Monetary Remedies: Compensatory damages: Incidental Damages
Costs incident to breach and arranging a substitutional transaction
Costs incurred in dealing with a breach
Always recoverable, no need to be foreseeable
132
Monetary Remedies: Compensatory damages: Consequential Damages
Recoverable if foreseeable at time of contract formation
Often lost profits and must be foreseeable to breaching party when contract formed
133
Monetary Remedies: Punitive Damages
No punitive damages in contracts
134
Monetary Remedies: Liquidated Damages Clause:
Upheld if:
Damages difficult to estimate at contract formation
Amount reasonable
Not a penalty, can’t be treated as such
Recoverable Even If No Actual Damages
If the above requirements are met, the plaintiff will receive the liquidated damages amount.
Tip:
Invariable lump sum liquidated damages = invalid
135
UCC Damages: Buyer’s Damages for Seller in Breach: Cover Damages
Cover price - original contract price
If cover in good faith
Even if slightly higher than FMV, still good
136
UCC Damages: Buyer’s Damages for Seller in Breach: Market Damages
Market price - original contract price
Generally used when buyer doesn’t cover
Or doesn’t cover in good faith
Ie. covers with extremely expensive alternative
137
UCC Damages: Buyer’s Damages for Seller in Breach: Loss in Value (Warranty Damages)
Value as promised - value as delivered
Imperfect goods kept
138
UCC Damages: Buyer’s Damages for Seller in Breach: Consequential Damages
Typically no unforeseeable lost profits recovery
Need to alert possible breaching party to receive lost profits
a seller is liable for consequential damages arising from their breach if:
(1) they had reason to know of the buyer’s general or particular requirements, and
(2) the subsequent loss resulting from those needs could not reasonably be prevented by cover.
Particular needs must be made known to the seller, but general requirements usually need not be.
139
UCC Damages: Sellers Damages for Buyer Breach: Resale Damages
Contract price - resale price
Must resell goods in good faith
140
UCC Damages: Sellers Damages for Buyer Breach: Market Damages
Contract price - market goods price
Doesn’t resell or
Resells in bad faith
141
UCC Damages: Sellers Damages for Buyer Breach: Contract Price where Seller Cannot Resell Goods
Usually in custom made goods cases
Full contract price, but goods still stay with buyer
142
UCC Damages: Sellers Damages for Buyer Breach: Lost Volume Seller Rule
Unlimited supply
Lost profits measure of damages
143
UCC Damages: Sellers Damages for Buyer Breach: Avoidable Damages (Mitigation)
Damages that could have been mitigated or avoided are not recoverable
Remember: Duty to mitigate limited to similar/comparable subject matter
144
Entrustment
Merchant who ordinarily deals in goods of kind sells entrusted goods to BFP
Rule: Owner has no rights against BFP
Typically brought for fixing the item not selling
Sue for conversion here
BFP always wins
145
Intended Beneficiary
Third party named in contract
Can enforce contract
Defense Note: Promisor has same defenses against third party beneficiary as against the promisee (ie. lack of payment, no performance)
146
Incidental Beneficiary
Do not have right to enforce contract
147
Modification of 3P Beneficiary Contract and Vesting
Contract can be rescinded/modified until beneficiary’s rights have vested
Vesting:
Beneficiary’s rights vest when they:
learn of contract and
rely on it
Promisor and promisee can’t cancel contract after vesting unless:
Beneficiary consents, or
Contract provides otherwise
148
Assignment
Two parties contract
One party (assignor) assigns rights to third party (assignee)
Assignee can enforce rights against party who owes duty (obligor)
Note: Assignee not part of the original contract
149
Distinguishing Assignment and Beneficiary
3PB: 1 step, named initially
Assignment: 2 steps, no naming, later named (ie, later added and not in initial contract)
150
Valid Assignment Language
Language of present transfer
Must say “I assign” not “I promise to assign”
No consideration needed (gift assignments ok)
151
Restrictions on Assignments
Prohibit assignments vs invalidate assignments
Prohibition: Says assignments not permitted
Assignee without knowledge can still collect
Invalidation: Assignments null and void
Assignee can’t collect
On exam, opt for prohibition
Change of duties:
Assignments can’t substantially change the duties of the obligor
Changing payment usually not substantial
152
Assignee rights
Assignee can recover from the obligor directly
But obligor has same defenses against assignee as to the assignor
153
Obligor Rights in Assignment
Same defenses
If unaware assignment exists, then can pay assignor until know of or learn about assignee
154
Promisor v Promisee in 3PB Ks
Promisor: Party who promises to perform for third party
Promisee: Party who secures the promise
155
Multiple Assignments
Gift Assignments:
Easily revocable
Last gratuitous assignee wins
Later gift assignment revokes previous gift assignment
Consideration Assignments
First assignee for consideration wins over all subsequent assignees and previous gift assignees
Tip: Look at each in time and check if valid (language) and if revoked (new gifts or consideration)
156
Delegation
Party to contract delegates duty to third party
General:
Obligor can delegate duties without obligee’s consent
157
Delegation: Contract Language Exceptions
Prohibition against delegations = no delegations allowed
“No assignments” also = no delegations allowed
158
Delegation: Special Skills
Party with special skills can’t delegate
Even if next person has superior skills
Remember difference between novation:
If other party agrees to new party it’s a novation.
159
Delegation: Liability
Delegating party always liable to the obligee
Delegations do not excuse obligors rights against delegating party
160
Delegation: Liability of Delegates for Consideration
Consideration from delegator to delegatee
Liable to both parties, even with no contract between obligee
Delegations create a third party beneficiary obligation with obligee
161
Delegation: Liability of Delegates without Consideration
Delegates without consideration are not liable
Gift promises creates no obligation
