Contracts Flashcards
Meta Questions
- What source of law governs the transaction?
- Did the parties form a contract?
- If the parties formed a contract, is it unenforceable for failure to satisfy the SoF
- If the parties failed to form a contract, is there an alternative basis for liability?
- if there is an enforceable contract, what are the terms (parol evidence rule), and what do they mean (contract interpretation)?
- Has a party breached the contract, and is the breach material?
- Does the breaching party have valid defenses to enforcement of the contract?
- if there is an enforceable contract that has been breached and the breaching party has no defenses, what remedy, if any, is available to the nonbreaching party?
MQ1
Sources of Contract Law
UCC Art. 2 and Common law
- R2d
- UCC = Transactions in Goods — All things that are movable but not money or securities
- For the UCC, CL fills the gaps
MQ1
If it is unclear which source of law
Predominant purpose test
* when we have a mixed transaction with goods and something else, we look at what the predominant purpose of the K was
Factors
* Language of the K
* Nature of the business
* intrinsic worth of the materials
is there title changing?
MQ2
Contract Formation?
2 elements
Formation of a contract requires a bargain in which there is a manifestation of mutual assent to an exchange and consideration
MoMA
Do you have to intend to be legally bound to enter a K?
- Neither real nor apparent intention that a promise be legally binding is essential to formation of K
- BUT a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a K
MoMA
Mode of assent
- MoMA ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties.
- MoMA may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined
MoMA
Offer
Definitition of offer and promise
- An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
Promise
* a manifestation of intention to act in a specified way so as to justify the promisee to understand a commitment has been made
Elements
Offer
ERCR
- Expression of commitment to a bargain
- With reasonably certain terms
- Communicated to an identifiable offeree
- That gives the offeree reason to believe acceptance will conclude the bargain – give the power of acceptance
In applying these requirements, courts interpret words and actions as a reasonable person in the position of the parties would understand them
Reasonably certain terms?
- They are reasonable certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy
- The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
The more important the uncertainty, the stronger the indication is that the parties do not intend to be bound
Preliminary negotiations
- A manifestation of willingness to enter into a bargain does not constitute an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
Duration of Offer
also the third party thing
- All offers are freely revocable at any time prior to acceptance
- An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect –> even a third party
Counter-Offer
breaking of mirror image rule but there are ways to keep power of acceptance as well
- An offeree’s power of acceptance is terminated by his making of a counter-offer
- unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.
example – when some counteroffers and they say, hey I don’t intend to extinguish this or I’m going to take it under advisement while you think about my counteroffer – this will preserve power of acceptance
Advertisements?
General Rule
- The general rule is that ads are not offers, but invitations to other parties to make offers.
A mere request.
Advertisements?
when can they become offers?
- Is the alleged offeror exposed to the risk of multiple acceptances that exceed inventory, or does the nature of the ad and proposed transaction eliminate that risk?
- Did the communication invite performance of a specific act without further communication and leave nothing to negotiation?
- Did the advertiser express an explicit intention NOT to be bound?
- Is it intended or reasonably foreseeable that the ad could induce substantial reliance on the part of the recipients?
- Are there other facts and circumstances that would lead to a reasonable person to conclude that the ad was an offer? (use of the word offer etc)
Acceptance
Definition and two ways acceptance can happen
- Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited/required by the offer
- When an offer can be accepted either by promise or by performance, beginning performance acts as acceptance and thus completes the process of mutual assent
offeror is the master of the offer
Time when Acceptance takes effect
- Unless the offer provides otherwise:
- An acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror.
- Mailbox Rule!
- At this point in time, the offer can no longer be revoked and there will be a K. but remember where an offeror has made specific instructions.
Termination of the Power of Acceptance
3 general rules
Rejection or Counter
* unless offeror specifies otherwise
* unless offeree makes manifestation of intent to take offer under further advisement
* Timing –> Acceptance sent after rejection or counter-offer is effective if it is received first. If received after, it is a counter-offer.
Lapse of Time
* time specified by offer. If none, reasonable time
Revocation by the offeror
A rejection is not effective until received – different than mailbox rule of acceptance that is effective on dispatch
Unilateral Contract
K only involves the promise of future peformance on one side
* The promise of future performance in exchange for actual performance.
The offer is only accepted and the uni-K is only formed when the offeree completes the requested performance.
If offeree begins performance under a unilateral contract, an option contract is created
* Offeror cannot revoke, but offeree is not bound to complete performance
* the offeror’s duty of performance is conditional on completion of invited performance
they can expressly reserve power to revoke
Washington University
How to tell if unilateral K?
start with the general categories of Uni K
* rewards
* bonuses
* commission
then look at language of the offer to see if a clear intention the offer can only be accepted by completed performance
Invitation of promise or performance?
In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.
The idea here is that if the offeror really intends that the offeree can only accept by completing performance and not by merely promising to perform, the offeror needs to make that intention clear
Otherwise, we will resolve this ambiguity in favor of the offeree by promising to perform or perform
Important distinction
b/w bilateral and unilateral
We need to distinguish between a uni-k offer which can only be accepted by completed performance and on the other hand an offer of a bilateral K that the offeree could assent to, not through words but by actually starting to perform – and the start of that performance, we interpret as a promise to complete the rest
Option K
Def and requirements
- An option is a promise which meets the requirements for the formation of a K and limits the promisor’s power to revoke an offer
* Promise to keep offer open
* Separate consideration
irrevocable for time promised, and if no specific, reasonable time
acts may create consideration sufficient to make contract binding if –> acts benefit the optionor or impose legal obligation
even if a tiny consideration, a court will not inquire
Acceptance of an Option K is ineffective until RECEIVED – same for firm offer
If a party enjoys an option and rejects or counters the og offer, is the power to accept the og offer terminated?
No
* The power of acceptance under an option contract is not terminated by rejection or counteroffer, by revocation, or by death or incapacity of the offeror
Agreement to agree
R2d – Walker Rule
To be enforceable and valid, a contract to enter into a future contract must specify all material terms and leave nothing to be agreed upon in future negotiations.
* IF the parties have not agreed to an essential term OR a method of determining the term there is no MoMA and no enforceable contract
Rent is an essential term!!
Agreement to agree
UCC open price terms
The parties if they so intend can conclude a K for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:
* Nothing is said as to the price; or
* The price is left to be agreed by the parties and they fail to agree; or
* The price is said to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
where the parties do not intend to be bound unless the price is fixed or agreed and it is not fixed or agreed, there is no K
in the UCC, the Quantity is an essential term because without it no objective way to figure out anything
Formal writing contemplated
Parties may form a contract when they manifest assent to an exchange even though they contemplate memorializing the terms in a formal writing, but the circumstances may show that the discussions are preliminary negotiations
* The test for determining whether a
contract was formed is whether the parties intended to be bound by their initial agreement.
Formal writing contemplated
WE$ConAR
Factors to see whether parties intended to be bound
Is this type of agreement usually put in writing?
* if yes, weighs in no formation
Will the final agreement contain many details? Did the parties agree on the essential terms of the bargain?
* if yes, weighs in favor of formation
Does it involve a large amount of money?
* if yes, weighs in favor no formation
Did the parties indicate that a formal written document was contemplated at the end of the negotiation?
* if yes, weighs in favor of formation
When in the process were the negotiations abandoned?
* if later, shows intended to be bounded
Did the party seeking to disclaim a K give assurances that induced the other party’s reliance on the anticipated transaction?
* if yes, more likely they convey intention to be bound
make sure to see if unambiguous cancellation clause like this
* “the parties do not intend this letter of intent to be binding in any way. The parties intend to be bound only on execution of the formal written contract. Each party reserves the right to break off negotiations prior to executions prior to execution of the K for any reason whatsoever, or for no reason”
Consideration
rule and 3 kinds of performance
- To constitute consideration, a performance or a return promise must be bargained for
- A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
- Recipricol Mutual inducement
no need for actual bargaining – can be express or implied
it can be a promise or a performance which may consist of
* an act other than a promise
* forbearance
* the creation, modification, or destruction of a legal relation
Condition on a gift?
Not enforceable because it is not exchanged for anything
* not supported by consideration
Test
* whether the thing exchanged actually benefits the promisor
* if there is actual bargaining
* who are the two parties? commercial entities?
Pennsy case
* AA offered free aggrite, and requested the party that wants it to take it away
* Court held act of taking away the aggrite was not a conditional gift, they took this hazardous material off AA’s hands (AA received a benefit, saving disposal costs) so this is an inducement
* conversely, the prospect that someone would take it off their hands induced american ash to offer the aggrite for free
does not always need to be promisor to promisee third party allowed if bargained for
Checklist for insufficient consideration
GPMFINC
- Gratuitous promise (promise of a gift)
- Past consideration (past performance)
- Moral consideration
- False recital of consideration (written in contract but not actually given)
- Nominal or sham consideration
- Illusory promise
- Contract modifications/performance of pre-existing duty
Courts will generally not inquire into the adequacy of consideration
false recital
* creates rebuttable presumption
Illusory promise
if a promise as expressed makes performance entirely optional on the part of one party
* cannot constitute consideration for a return promise
* BUT even a slight restriction on the promisor’s discretion not to perform is enough to get us out of this problem
UCC Definitions
- Merchant
- Signed
- Writing
- A person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge/skill of the goods/practices involved in the transaction
- Any symbol used by a party with the intent to authenticate a writing
- Printing, typewriting, or any other intentional reduction to tangible form
Merchant
* anyone in business would meet this defintion but you gotta find something that says this person is in business
Elements
UCC Firm Offer Rule
Option K in UCC but w/o consideration
ALSO you can still have an option K in UCC scenario, this supplements not replaces.
- Offer must be a merchant
- Offer must be in writing signed by the offeror
- The writing must contain an assurance from the offeror that the offer will be held open
- If the writing with the assurance is a form provided by the offeree, the offeror must sign the term with the assurance separately
3 month
Last element
* if i supply the form to you and im arguing you made the firm offer, you not only sign the form but you basically go to sign or initial the provision of the form in which you assure the offer will be held open
Remember
* Gotta figure out if there is an offer first! (CL def)
UCC K formation
- A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a contract
- An agreement sufficient to constitute a K for sale may be found even though the moment of its making is undetermined
- Even though one or more terms are left open, a K for sale does not fail for indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for providing remedy.
General Rule: price quotes are not understood as offers, but as invitations to make offers but can still meet all requirements and become one
Steps
Battle of the forms
2-207
Correctly identify the offer
* usually buyer’s purchase order
if valid acceptance, and K formed
* additional terms are proposals
* the original offeror explicitly agrees to them
* OR subsection 2 clause 2
b/w MERCHANTS terms become part of the K UNLESS
* the original offer expressly limits acceptance to the terms of the offer
* materially alter it
* notification of objection before or after but reasonable time
if cant conclude K formation under (1) but they still behave as K formed
* Terms of the K are any that match and beyond that default UCC rules
* Matching rule
Step 1 of Battle of Forms
Vanilla situation
Parties exchange standard forms, the second form has additional or different terms
* this can be an acceptance if the essential terms are the same! under CL, this would be counter
Unless Clause
* This is true UNLESS that second form, the purported acceptance, is expressly made conditional on the offerors’ assent to the additional or different terms.
* Must be clear and explicit: “subject to terms” is NOT sufficient.
Suppose the essential terms are different between the parties
* No expression of assent, so no K, it is a counter offer
Seasonable?
* An action is seasonably taken if it is taken within the time, agreed or if no time as agreed, within a reasonable time
Expression of acceptance?
* assent
Material alteration?
2-207
Unreasonable surprise test
* a term materially alters a K if it cannot be presumed that a reasonable merchant would have consented to it in the circumstances
look to other facts as well
* something customary in the field
* Parties have done prior deals together for a long time and they talked about the provision at issue
Arbitration clauses? look to custom
generally do materially alter
* disclaimer of warranties, guarantees of performance that depart from what is customary, right to terminate for nonpayment, time limits on complaints
generally do not materially alter
* Force majeure clauses, time limits on complaints, inspection clauses, clauses limiting the right of rejection for small defects, clauses limiting remedies in a reasonable manner
Additional terms vs. different terms distinction
UCC 2-207(2) only applies to additional terms
Knockout Approach: Different terms knock each other out and neither becomes part of the K.
Electronic Contracts
- Clickwrap transactions
- Browsewrap transactions
- Shrinkwrap transactions
Definitions
- purchaser must review T & C and click button/box to agree to terms in order to complete the transaction.
- purchaser advised that the website contains link to T & C and that the purchaser agrees to the terms by using the website. Users must have actual or constructive notice.
- purchaser receives T & C in box with product after payment. Warning on box states that purchaser agrees to terms by using the product.
Browsewrap rule
Constructive notice
* (1) Terms must be sufficiently conspicuous to put a reasonably prudent internet user on notice.
* Proximity (visible without scrolling) and design are both factors.
* (2) The website must provide textual notice to users that continued use of the site constitutes assent to the terms
Case
* Flower arrangements sold thru website. Arbitration clause in terms of use link at bottom of each page and confirmation email. Link was similar color to background, on submerged screen → not sufficiently conspicuous.
additional terms
Shrinkwrap rule
ProCD approach
the seller makes the offer when it ships the goods and the buyer accepts the offer from the seller when the buyer retains the goods
* additional terms become part of the offer from the seller
* if the buyer accepts by receiving the goods and retaining them after having had a meaningful reasonable opportunity to reject them, then buyer accepts all the terms in the box
For the enclosed terms to become part of the K, the consumer must be place on clear notice that by accepting the product, the consumer is accepting the enclosed terms and that the consumer can reject them by returning the product.
* Use language that a reasonably prudent customer would be on notice they can reject terms by returning goods
* “If for any reason customer is not satisfied with a dell-branded hardware system, customer may return the system under the terms and conditions of dell’s total satisfaction return policy.”
MQ 3 – SoF!
Contracts covered under the SoF
- Sale of an interest in land (the whole bundle of sticks)
- K not to be performed within a year
- Sale of goods where price is over $500
SoF – key conceptual issues
- DO NOT conflate the SoF and K formation
- SoF is a defense against ENFORCEMENT
- A K may fall into more than one category
It is important to recognize the satisfaction of SoF just takes the affirmative defense off the table
Steps for SoF
Is a K covered by SoF?
* if no, SoF is not a bar to enforcement
* if yes, Q2
If SoF applies, is there a memorandum (writing), signed by the party against whom enforcement is sought(party to be charged)?
* if yes, the SoF is not a bar to enforcement
* if no, Q3
If the SoF applies and there is not a memorandum (a writing) that satisfies the requirements of the statute, does an exception apply?
* if yes, the SoF is not a bar to enforcement
* if no, the alleged K is not enforceable
Requirement of a memorandum (writing)
SKTS
- Reasonably identifies the subject matter of the K
- Sufficient to indicate a K between the parties (OR offered by the signer to the other party)
- States with reasonable certainty the terms of the unperformed promises of the K.
- Be signed by the party to be charged – in other words, the party against whom enforcement is sought
apply all even if you think one fails
Writing does NOT need to be created with intent to memorialize the info therein. informal writings can be sufficient
Linking Multiple Writings
ESRA
Two or more documents may be combined to form a writing that complies with SOF if the documents together:
* contain all essential terms
* at least one doc is signed by the party to be charged
* unsigned document on its face shows it relates to the same transaction
* evidence shows assent to the unsigned writing
Last element
* Party to be charged must show assent to the unsigned evidence and Parol evidence is allowed
K not to be performed within a year
- Under the one year provision, if any of the promises in the K cannot fully be performed within the year, all of the entire K falls within the SoF
- Ks only fall into the one year provision if by their express terms, they cannot be performed within a year
- The mere possibility that a K could be terminated due to a breach within a year, courts have found not to be enough to take K out of one year provision.
- ex) K for construction of desalination plant. Anticipated to take 6 or 7 years but court held it COULD be built within a year so the one year provision does not apply.
- ex) two year employment term cannot by definition be performed in a year so it applies
- ex) what about a lifetime employment K? It is possible to die within a year so it can be performed within a year.
UCC SoF
- Requires a writing signed by the party to be charged
- On its face, requires “some writing sufficient to indicate that a K for sale has been made b/w the parties”
- The only term which must appear is the quantity term which need not be accurately stated but recovery is limited to the amount stated. Parties too but no need to say which is seller/buyer
- There is no UCC provision on multiple signed and unsigned writings so CL fills the gaps
All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction.
SoF Exceptions
one year provision
one year provision
* When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties
* removes that K from SoF BUT only the one year provision!
SoF Exceptions
Promissory Estoppel
ADERE
Promissory estoppel trumps the SoF when it is necessary to prevent a miscarriage of justice
* Promise
* Reliance on the proomise must be reasonably foreseeable
* Promise must actually induce reliance
* Injustice can be avoided only by enforcment of the promise
injustice
* whether other remedies are available
* whether reliance is definite and substantial
* clear and convincing evidence of a promise AND its terms
* Reasonableness of the action or forbearance
* Extent to which the action or forbearance was foreseeable by the promisor
SoF Exceptions
Specific performance
applies if the plaintiff has taken possession and either made improvements or paid part of the purchase price.
This is a narrow rule, if you see facts like a land K, and party is seeking specific performance as a remedy, 129 comes in – outside of that fact context, use 139 promissory estoppel exception to SoF
SoF Exceptions UCC
Part Performance Exception
* If payment has been made and accepted (or goods have been received and accepted), SOF does not apply
Merchant Confirmation Exception:
* both parties merchants
* one party must send a written confirmation
* Other party must receive the confirmation within a reasonable time
* Recipient of confirmation must have reason to be aware of its contents
* Recipient must not give written notice of objection within 10 days
* Written confirmation must be sufficient against the party that sent it — signed by sender & ID’s the parties, subject matter, and quantity
Promissory Estoppel
Specifically manufactured goods exception
admissions in court
MQ 4
Promissory Estoppel
Elements
- Promise
- Reliance on promise must be reasonably foreseeable
- Promise must actually induce reliance
- Injustice can be avoided only by enforcement of the promise
both express promises and promises implied from conduct are enforceable under a promissory estoppel theory
reliance can be something you are not legally obligated to do, such as voluntarily resign
injustice for regular promissory estoppel
DRDF
Factors for element of injustice
* was reliance detrimental
* Was promisee’s reliance reasonable in the circumstances?
* Is the reliance of a definite and substantial character in relation to the remedy sought?
* What level of formality did the promise involve?
If you can show some kind of detrimental reliance, some change in position and that reliance was reasonable in the circumstances, the element of injustice will usually be satisfied
PE for Charity
- A charitable subscription finding when there’s a promise to give property to a charitable subscription and that promise is supported by either consideration or reliance
Building new library wing; taking care of letters; holding a convocation → constitute sufficient reliance/consideration to make King’s donation binding.
PE in commercial setting
There is no requirement that a promisee give up something they are legally entitled to in order to satisfy the element of actual reliance
Case: It was enough that katz gave up something that he was not legally obligated to do – resign voluntarily and give up the opportunity to earn
Retiring from an at-will employment CAN be reliance, even though the employee can be fired at any time. (Katz).
PE in subcontractor v. contractor
outside of this very specific fact pattern
* court have been resistant to accepting PE arg to make an offer irrevocable because an offeree relied on it
Restitution
alternative basis for recovery when there is no express or implied promise
Elements
* Enrichment – a benefit given
* Injustice – retaining the benefit without just compensation would be unjust
It is not always unjust to retain benefits IF
* if the benefit was given gratuitously
* or if it was unreasonable interference in the affairs of another
in a subcontractor scenario there is two additional elements
* The subcontractor has exhausted all remedies against the general contractor and remains unpaid; and
* The owner has not given consideration to any party for the work done by the subcontractor
A promise that would otherwise establish nothing more than a moral obligation can be enforceable
Moral obligation itself cannot be consideration
exception
* promise to pay debt
* debt that had been incurred by a minor
* pay a debt that has been discharged by bankruptcy
why are these allowed?
* All of these involve promises based on a preexisting legal obligation
* They were originally a quid pro quo – bargained for exchange
* Their original form were supported by consideration
MQ 5
Parol Evidence Rule
What are we talking about?
extrinsic evidence beyond the four corners of the K
* verbal exchanges
* written exchanges
in the time leading up to the K
3 step process of Parol evidence rule
- Is there a written expression of the agreement and, if so, what is the level of integration?
- Is the parol evidence (the written or oral evidence extrinsic to the final writing) being offered to contradict, supplement, or explain the agreement?
- Are there any exceptions that would allow the admission of parol evidence?
Integration
Partial
Written agreement is a final expression of one or more terms of the K, but does not include all of the terms the parties agreed to.
* We are saying what is in the writing is final, but the writing itself is not exclusive – there might be some other terms out there
Integration
Complete
Written agreement if final, complete, exclusive expression of all of the terms of the contract.
* Complete means no other terms – all of the terms
Merger clause
“this is the entire agreement”
* A merger clause will create a strong intention to produce complete integration but it is not dispositive
* but if it clearly assented to (initialed) it is dispositive
Complete v. Partial
Complete = only explain
Partial = Supplement or explain
- supplment = consistent additional term
you can NEVER contradict
you can ALWAYS explain
When do collateral agreements arise?
one party asserts some term that is related to the transaction but tangential/distinct was agreed upon in some separate oral/written exchange
Can NEVER contradict
for these
* try to argue its partial first and win on integration and bring it in as supplmental/consistent additional term
* but if you lose and its complete do the test
Exceptions to Parol Evidence
Collateral agreements
Tests
Test 1: Does the collateral term contradict the terms of the written agreement? If it does not, was the collateral term agreed to for consideration separate from that in the written agreement?
* If YES, the exception applies and evidence of the term is admissible
* If NO, the exception may not apply go to test 2
Test 2: In the circumstances, would reasonable parties ordinarily (or, as sometimes stated, ‘naturally’ or ‘normally’) have included the term in their final agreement?
* If YES, then the exception does not apply and the parol evidence rule operates to exclude evidence of the collateral term
* If NO, the exception does apply, and evidence of the collateral term is admissible
Exceptions to Parol Evidence
Evidence offered to explain/interpret terms
Test
Judge considers parol evidence in camera and asks: considering the evidence, is the term at issue reasonably susceptible to the proffered interpretation?
* If yes, parol evidence on interpretation is admitted
* If no, parol evidence on interpretation is not admitted
no means that party is not trying to enter evidence to explain but vary the agreement
the issue
* When is evidence being offered to explain so extreme that we’re actually supplmenting or contradicting
the more improbable the interpret, the more it departs from a reasonable interpretation, the more extrinsic evidence required and a judge has flexibility to decide enough is enough
UCC Parol Evidence
similar BUT
* course of dealing, trade usage, or course of performance is always allowed UNLESS explicity and carefully negated
kind of has a presumption against complete integration
Trade usage
customary business practices in a location or trade that are so established that it is fair to make an assumption that the parties consider that apart of their agreement
Course of Dealing
how we have interacted with each other in the 5 previous contracts, not the one at issue
Course of performance
refers to a sequence of conduct between two parties with respect to a particular transaction
* how have we understood terms and interacted with each other in performing the exact contract at issue
you price protected us on two other occasions
course of performance concerns conduct after a contract has been formed whereas course of dealing is concerned with conduct that occurred before the contract in question was formed.
Rules for trade usage
- Trade usage must exist
- Trade usage must actually be binding on party against whom it is sought to be enforced (shell) (they should be a member of the trade)
- evidence of trade usage, course of dealing, course of performance must not be inadmissable under the PER (so cannot contradict) (courts will bend over backwards to allow it so it just cant totally negate)
Parol evidence
Other exceptions
Subsequent agreement/Modifications
* Other agreements and modifications to the original agreement that are made after the original agreement do NOT have to be written down.
Evidence introduced to invalidate K
* Evidence of illegality, fraud, duress, mistake etc always admissible
Scrivener’s error
* “We had a deal but there was an error writing it down”
Oral condition precedent to formation
* able to introduce evidence that they had agreed that this condition had to be satisfied before the K would even come into being.
Steps
Interpretation
Determine whether there is ambiguity.
* apply contextualist approach
If there is ambiguity, apply the rules in R2d sec. 20 and 201 to try to sort out the ambiguity
* also the principles
If you do not have a strong argument for an interpretation at step 2, consider tiebreakers
If there is a failure of mutual assent, ask whether it is practical to unwind the transaction. If not, ask whether it is feasible for the court to supply a reasonable term.
Ambiguity
Ambiguity → reasonably susceptible to more than one meaning.
Decided by judge based on the text of the contract and all extrinsic evidence.
* IF the contract is UNAMBIGUOUS (that is, if the textual and extrinsic evidence overwhelmingly supports one party), THEN the judge rules for that party.
* IF the contract is AMBIGUOUS (that is, if a reasonable jury could rule for either party), THEN the court proceeds to stage 2.
Chickens!
Bee – form of the K, different termination provisions
If there is ambiguity, apply the rules in R2d sec. 20 and 201
Party A’s meaning controls
Mutual Assent
MUTUAL ASSENT → Party A’s Meaning Controls
* Party A does not know/reason to know Party B has attached a different meaning and Party B knows/reason to know Party A has attached a different meaning
Think about fault with these series of rules
* The person with more knowledge is at fault
Trick
* if one party has reason to know but other knows –> knows is stronger and they are at more fault and lose
Neither party’s meaning controls
no mutual assent
Neither Party’s Meaning Controls → NO MUTUAL ASSENT
* NEITHER Party A NOR Party B knows or has reason to know the other party has attached a different meaning OR
* BOTH Party A and Party B both know or have reason to know the other party has attached a different meaning
the meaning of the two parties controls even if a reasonable person would attach a different meaning
mutual assent
MUTUAL ASSENT, and the meaning of the two parties controls even if a reasonable person would attach a different meaning
* BOTH Party A and Party B attach the same meaning to the contract
Party that seeks enforcement of K bears the burden of proving that the meaning they attach to a term is the meaning that prevails.
Methods/evidence of interpretation
Remember courts try to effectuate the intent of the parties at the time the contract was formed
Express language
* is there an ambiguity?
* Patent ambiguity = prima facie (chicken)
* Latent ambiguity = revealed w/ context (peerless)
Preliminary negotiations
* Testimony of what was said to each other before K
Legal Definitions
* relevant but not dispositive
Trade usage
Course of dealing
Course of performance
Pecking order in case of conflict
* Express>Course of performance>course of dealing>trade usage
Principles of interpretation
Interpret the K as a whole
* Do not take things out of context
Preference for interpretation that does not place terms in conflict
* Reasonable to assume parties drafted the K to be internally consistent
Preference for interpretation that does not make terms superfluous
* Prochazka case had this – why did we have two other termination clauses
An interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred over an interpretation which leaves a part unreasonable, unlawful, or of no effect.
* Contract for grass → not mean marijuana
* Reasonable to assume BNS would not sell at a loss in the chicken case
The principle purpose (overall purpose) of the K is given great weight
A word in a series is understood with reference to others in the series
* “cattles, hogs, and other animals” – it is reasonable to assume that might include sheep and other farm animals but not snakes
Expressing specific terms without general or inclusive ones exclude the other items
* only cattles and hogs – reasonable to understand as excluding other farm animals
Specific provisions control over general provisions
Tiebreakers: If R2d secs. 20 & 201 are not conclusive, look to tiebreakers:
- Public Interest Preferred: Interpretation that favors the public interest is favored.
- Construe Against Drafter: If we know who drafted the term, interpretation favorable to the non-drafting party is preferred
Implied terms
Exclusive dealing K
An agreement for exclusive dealing in the kind of goods imposes an obligation on the seller and buyer to use best efforts to supply the goods and to promote their sale.
* best efforts = reasonable efforts
when an arrangement is sufficiently exclusive to trigger this
* Contract permitted a requirement seller (a seller obligated to provide all inventory the buyer requires) to maintain relationships with some of its other existing customers
K termination
MFC/DIST context
Termination of K requires reasonable notification be received by the other party
Reasonable notification?
* depends on facts
* Distributor needs sufficient time to sell off its remaining inventory before its exclusivity is terminated
* Or time to recoup its investment
EXCEPT ON THE HAPPENING ON AN AGREED UPON EVENT
what if they agreed no notice of termination is required
* enforceable because express terms over implied terms BUT unless unconscionable
Good Faith
in general
Every K or duty imposes an obligation of good faith in its performance and enforcement
* it is a derivative
* The duty of good faith only applies to the performance and enforcement of a K once it has been formed –> not in negotiations
Look for
* actions that undermine the spirit of the K that unfairly deny the other party of the fruits of the K
* think of spiteful behavior
Parol evidence does not apply to good faith unless it contradicts an express term
Elements of a Claim for Breach of Good Faith
Defendant unreasonably frustrated the purpose of K by engaging in conduct that falls into one of the (3) Good Faith Situations categories.
Defendant must do so with ill motive or bad faith which can be shown by applying subjective or objective standard:
* Subjective Standard: Malice, dishonest purpose, intention to cause harm.
* Objective Standard: Violation of any commercially reasonable standard.
disparity of bargaining power is a factor but not dispositive
three good faith situations
Imply Intended Terms:
* When it is necessary to imply terms to effectuate the intentions of the parties and give the K business efficacy
* If woods sat on his hands and did nothing for lucy this category would be invoked
Improper Motive:
* When termination or some similar action appears intended to deny the other party the benefits under the K, but an express term is invoked as a pretext to cover up the bad faith action
Discretion:
* When the K permits one party to exercise discretion (for example, in setting the price or determining satisfaction), the exercise of discretion should be limited by principles of good faith and fair dealing
Output and Requirements K
Requirements K:
* A K pursuant to which a buyer agrees to purchase from a seller, and the seller agrees to sell to the buyer, all of a particular good the buyer requires
* Whatever the buyer requires, the seller is obligated to provide
Output K:
* A K pursuant to which a buyer agrees to purchase from a seller, and the seller agrees to sell to the buyer, the entire quantity of a particular good that the seller produces.
requires good faith
Wouldnt we have a consideration problem because they could require nothing?
* nope the consideration is that the buyer agrees to buy from the seller everything it requires and not buy from anyone else! aka forebearance!
ok no mutuality of obligation! both parties arent bound!
* nope R2d rejects that and dont forget uni-k, offeree is not bound to complete performance
its too indefinite! no specific quantity!
* nope we can determine from course of dealing/performance, trade usage
Satisfaction Clauses
Objective Standard:
* If it is practicable to determine whether a reasonable person would be satisfied, then the term is interpreted by an objective standard for good faith enforcement of the term.
* Practicability depends on the nature of the project (supplying iron vs. painting a portrait).
Subjective standard
* Rejection MUST be honest/good faith
we have a building – it is not a thing a beauty – it is a function of cost and utility
If an agreement is clear that the parties have chosen a subjective standard of satisfaction – that standard will apply
* they have to be very clear
UCC warranties
express warranties
elements
an affirmation or promise about goods that is expressly made
(1) one of three communications (any written/oral kind) from seller
* Affirmation of fact or promise made by the seller relating to the goods;
* Description of the goods; OR
* Sample/model of the goods; AND
(2) That is the basis of the bargain.
* Buyer MUST be aware of the communication.
MUST be more than a commendation, opinion, or affirmation of value.
* But the key is, is the statement objectively verifiable?
* this boat is a beauty? NO
UCC warranties
Implied warranty of Merchantability
elements
(1) Seller must be a merchant dealing in particular type of good at issue; AND
(2) Standards in UCC 2-314(2) must be met:
* Goods would pass without objection in the trade.
* TEST: Significant segment of buying public would object to buying the goods.
OR
- Goods are fit for their ordinary purpose.
- TEST: Are goods reasonably capable of performing their intended purpose?
Merchants of goods of that kind (narrower def in this context)
UCC warranties
Implied Warranty of Fitness for a Particular Purpose
Seller knows or has reason to know that the Buyer intends to use the good for a particular purpose AND
Seller knows or has reason to know that the buyer is relying on the seller’s skill or judgment to select or furnish the right goods
* Seller must actually use choose or recommend product
* Buyer must in fact rely on seller’s skill or judgment
it has to be for the particular purpose! boat to go more than 30mph
in general
* Actual knowledge not required
* This is not limited to merchants
* The buyer does not have to show that, to satisfy this claim that the goods are defective or unfit for the ordinary purpose for which they are used, only has to show they are unfit for the particular purpose
UCC exclusion of warranties
Exclusion of implied warranty of merchantability
* Language must mention ‘merchantability’ and be conspicuous OR
* Language such as ‘as is’ or ‘with all faults’ must be used
Exclusion of implied warranty of fitness for a particular purpose
* Language must be in writing or conspicuous OR
* Language such as ‘as is’ or ‘with all faults’ must be used
* Does not even mention fitness – a general exclusion of warranties would suffice but can’t be buried in fine print
subject to Parol evidence rule and if contradicts not going in
Negation of express warranties
* express warranties survive if they are inconsistent with general disclaimer . . . tie goes to EW
* Difficult to exclude → if an EW is made, general disclaimer of EWs is insufficient.
Other UCC warranties
test drive and trade usage
If the buyer has examined the goods prior to entering into K or if the seller has insisted that she do so and she has refused, there is no implied warranty for defects that could reasonably have been discovered
* If Crow has test drove the boat, the dealer would not be liable for any defects that he could reasonably have discovered through that test run
An implied warranty can be modified by trade usage–so, for example, if you can show that people in a particular trade always buy goods, “as is,” there are no implied warranties
warranties are cumulative
* The mere existence of an express warranty does not negate the existence of an implied warranty
* Express warranties displace inconsistent implied warranties other than the implied warranty of fitness for a particular purpose
* So if you think you have a warranty issue, you want to run an express warranty analysis and look at both of the implied warranties
MQ 6
Express conditions
Obligor
* party whose performance is protected by the condition
* real estate purchaser
Obligee
* party to whom the conditional duty is owed
* real estate seller
an uncertain-to-occur event that, unless excused, must occur before performance under a K is due
* if condition is not satisfied, discharged from duty to perform
Look at language → “if…then,” “unless…”
* The language must be unambiguous and unmistakable
* If it is ambiguous, and it is within the power of the obligor to cause a condition to occur, we prefer to interpret it as a promise
non occurrence of a condition is not a breach by a party unless that party’s also under a duty that the condition occur
Excuse of condition to avoid forfeiture
To the extent that the non occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non occurrence of that condition unless its occurrence was a material part of the exchange
What is a material condition?
* Material condition are generally conditions that are a substantive part of what the parties were bargaining for
* Conditions of a more procedural or technical nature tend to be considered non-material
Forfeiture?
* denial of compensation that results when the obligee loses its right to the agreed exchange after it has relied substantially
* a loss
Disporportionate
* think about compared to other party
Other excuses
Non-material condition and condition waived by parties protected
* a contracting party protected by the condition may waive the condition explicitly or implicitly
* but can be retracted if still time
Condition (material or non-material) waived and NEW consideration for waiver
* this is like a modification
Condition (material or non-material) waived, and detrimental reliance (promissory estoppel elements satisfied)
* satisfy elements of promisory estoppel
Doctrine of prevention
* so if a party’s duty to perform its promise is conditional and that same party does things to prevent the condition from being satisfied
* we’re going to excuse the condition – you’re no longer discharged from your duty to perform
Breach
If Party A does a non-material breach
* Party B’s duty to perform is not suspended or discharged, but B may seek damages
If Party A does a material breach
* Party B’s duty to perform is suspended
if Party A does a total breach (uncured material breach)
* Party B’s duty to perform is discharged
Discharged
* nonbreaching party does not need to perform remaining promises and it can recover damages for total breach
When is a breach material?
Loss/Burden on nonbreaching party
* the extent to which the injured party will be deprived of the benefit which he reasonably expected
* the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived
* the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all circumstances, including reasonable assurances
Forfeiture of breaching party
* the extent to which the party to perform or to offer to perform would suffer forfeiture
Fault/motive of breaching party
* the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith
Bottom line
* at what point in time are the interests of the injured party unfairly compromised?
When is it total?
re-weigh material factors
The extent to which it reasonably appears to the injured party that delay may harm her ability to make reasonable substitute arrangements
* Will delay prejudice the other party?
Whether the agreement itself provides for performance without delay
* Did the parties clearly intend to require prompt performance
Start here
* At what point in time will the breach unreasonably prejudice the interests of the non breaching party?
* then work backwards
UCC
Breach
none of the breach analysis from CL applies.
no non-material breach
Perfect Tender Rule
* If the goods or the tender of deliver fail in any respect to conform to the K, the buyer may reject the goods and refuse payment.
UCC breach
Seller right to cure
exception to perfect tender rule
If time for performance not expired
* Must give notice of intention to cure
* we will give seller a chance to cure
If reasonable grounds to believe goods acceptable to buyer
* something that gives me reasonable grounds to believe something short of perfect tender would be acceptable
subject to good faith
So this section qualifies perfect tender but only does so temporarily
* i must make perfect tender in the end – NO substantial performance doctrine as in R2d
Buyer right to object after acceptance
If non-conformity substantially impairs value; AND
* Accepted on reasonable assumption that non-conformity would be cured; OR
* Failed to discover non-conformity because the seller made assurances.
Must be made in a reasonable time and before natural deterioration (i.e. perishable goods).
Anticipatory repudiation
When a party declares it will not perform or takes some action that is obviously inconsistent with its ability to perform but that declaration or action is taken before the time for its performance is due under the K
Statements or actions that demonstrate clear intention not to perform are enough
* CL = equivalent to total breach
a suggestion for modification is not repudiation
must be definite, unambiguous, unequivocal
So I fail to perform and I declare i have no intention to perform at the same performance day
* total breach
Retraction?
Retraction is permitted IF
* Injured party notified of retraction (directly or indirectly)
* Injured party has NOT materially relied on repudiation; AND
* Injured party has NOT indicated that it considers K to be repudiated (final)
Assurances
There is a right to adequate assurances IF
* reasonable ground for insecurity
* assurance demand reasonable and in good faith
* demand in writing (UCC only but always really)
* if not returned in 30 days (UCC) or reasonable time = total breach
Examples of reasonable grounds for insecurity
* minor breaches, financial difficulty, doubt about willingness
* But an unreliable rumor or a minor risk generally is not enough
circumstances must arise after K formed
MQ 7 Defenses
Minority Defense
A person under 18 can only form voidable contracts
when it is voided, minor must return whatever is left of the consideration and in her possession
Exception to necessaries
* If this exception applies, we are not enforcing the K against the minor, we are saying the seller has a claim in restitution for the reasonable value of the shelter food etc
Under this rule, minor may disaffirm the K either before 18 or upon reaching the age of 18 at a reasonable time
Minors cannot cherry pick which provisions of a contract she does and does not want to enforce
Mental Incapacity
Both as a sword and a shield
Cognitive Test:
* K is voidable if a party is unable to understand the nature and consequences of the transaction due to mental illness.
Volitional Test:
* K is voidable if a party is unable to act in a reasonable manner with respect to the transaction due to mental illness, EVEN IF the person can understand the nature and consequences of the transaction.
* Other party MUST have reason to know of the mental illness.
Must the incapacitated party restore consideration?
* if K made on fair terms AND the compentant party does not know or have reason to know
* Then, ability to void k may be limited as justice requires (restitution)
Need medical expert testimoney/evidence
Do not need to be diagnosed
Intoxication
A person incurs only voidable contractual duties by entering into a transaction IF the other party has reason to know that by reason of intoxication
* He is unable to understand in a reasonable manner the nature and consequences of the transaction OR
* He is unable to act in a reasonable manner in relation to the transaction
more likely if other party induced intoxication in some way
In all cases the party must know or have reason to know for the defense to apply
Elements
Economic Duress
you already know physical duress
K is voidable IF
* There must be an improper threat,
* the improper threat must induce the victim to contract; AND
* the victim must have no reasonable alternative.
this is a subjective test
Legal remedies may not be alternatives if they would take too long. BUT normally are
improper threats?
A threat is improper if:
* The threat or what is threatened is a crime or tort;
* A party threatens criminal prosecution;
* A party threatens to use the civil process in bad faith;
* The threat is a breach of the duty of good faith and fair dealing; OR
The exchange is not on fair terms AND
* The threatened act would harm the recipient and NOT benefit the threat-maker (spite);
* Prior unfair dealing by the threat-maker increases the threat’s effectiveness (manipulation); OR
* The threat is otherwise a use of power for illegitimate ends.
you got to identify a threat and fit it into one of these categories
power for illegitimate ends
* Water co. threatening not to supply water to construction site unless terms are accepted.
Prior unfair dealing
* Manipulative conduct prior to the formation of the K, kind of leaves one party at the mercy of the other
breach of good faith
* if other party has a colorable claim of breach or it doesnt owe performance, then no breach of good faith
Reasonable alternative = very fact dependant
* pursuing legal remedies normally are reasonable alts unless it wouldnt afford effective relief
* if a minor inconvenience, reasonable alt
Unfair terms?
* the substance of the exchange
Economic Duress in general
K under duress are voidable at the election of the victim
* So still a K until victim disaffirms it by raising the defense against enforcement or bringing an action for rescission
K that are made under duress can be explicitly or implicitly ratified by the victim later
* Ex – a k made under duress might be considered ratified if the victim accepts the benefits of the K, moves forward with the deal, accepts the consideration of the other party, and perform their side of the bargain
Courts have taken different approaches to the question of whether in economic duress cases, the party’s improper threat must actually create a financial hardship
* MAJ – there should be a casual link
Undue Influence
Elements
K is voidable IF → (2) Elements:
* Relationship of dominance (weaker party under dominance of the stronger party) OR confidence (confidential relationship) AND
* Unfair persuasion (i.e., excessive pressure) by the dominant party induces the weaker party to contract. AKA strong enough to overbear the weaker party’s free will
subjective test
a confidential relationship (not employment) is not required
how to figure out excessive pressure
Odorizzi Factors
MUUFSAC
- Unusual or inappropriate time
- Unusual place
- Demand that business be finished at once
- Emphasis on consequences of delay
- Multiple persuaders
- No third-party advisors
- Statement that there is not time to consult outside advisors
Misrepresentation
Assertion → Misrepresentation → Fraudulent or Material → Induces K → Reliance Justified
K is voidable for misrepresentation IF:
* There must be a misrepresentation that is either fraudulent or material;
* The fraudulent or material misrepresentation induced a party to enter into the K; AND
* The party’s reliance on the fraudulent or material misrepresentation must be justified
Misrepresentation = An assertion that is not in accord/inconsistent with the facts.
induce = substantially contribute to party’s decision to enter
What makes a misrepresentation fraudulent
Misrepresentation is fraudulent IF the person making misrepresentation:
* Intended to induce a party to manifest assent
AND
- Actually knows or believes the assertion is not in accord with the facts; OR
- Does not have the confidence that he states or implies with respect to the truth of the assertion; OR
- Know that he does not have the basis he states or implies.
Overall you either know the statement you’re making is false or you make the statement recklessly, it could be false but you don’t show that
* So even if we can’t show fraudulent intention, we can try for material, below, but an innocent misrepresentation must be a material one
What makes a misrepresentation material
Misrepresentation is material IF:
* It would be likely to induce a reasonable person to manifest assent; OR
* The person making the misrepresentation knows it would be likely to induce the particular recipient to assent. (aware of some idiosyncrasy of the other party)
- a material misrepresentation can be established even in the absence of intent to deceive. It could be an innocent misrepresentation/honest mistake
General rule – a person is NOT justified in relying on statements of opinion EXCEPT
Opinion = assertion that express
* A mere belief, without certainty, as to the existence of a fact OR
* A judgment as to quality, value, authenticity, etc.
- When the opinion is not honestly held OR
- When the person making the assertion does not know facts justifying the opinion OR does know facts that are incompatible with the opinion OR
- When there is a relation of trust and confidence OR
- When it appears that the person giving the opinion has superior skill OR
- When the person relying on the opinion is particularly susceptible
Duty to Disclose
When a person knows of a fact; AND
One of (4) circumstances applies:
* (1) Person knows disclosure necessary to prevent a previous assertion from being fraudulent or material misrepresentation (fail to correct prior statement) OR
* (2) Person knows that disclosure would correct a mistake as to a basic assumption related to the K and non-disclosure would amount to a failure to act in good faith OR
* (3) Person knows that disclosure would correct a mistake as to the content or effects of the K OR
* (4) There is a relationship of trust and confidence between the parties.
fail to disclose is the legal equivalent of affirmative statement
Only applies to material facts.
* Would a reasonable person attach importance to the fact?
* Does the party have reason to know the other party would care about the fact?
Actual knowledge of undisclosed fact is required.
Misrepresentation prevents formation
if the induced party does not know or have reason to know of the character or essential terms of the agreement.
(NO K)
Park 100 v. Kartes: Intentional/active misrepresentation of personal guarantee as “lease papers” overrides the Δ’s duty to read.
a mere imbalance is not enough
Unconscionability
elements – Sliding Scale
Procedural Unconscionability
* Deception/abuse/unfairness in contracting process
* Higgins: oppression and unfair surprise
* Williams: Absence of meaningful choice by one party (difference in bargaining power)
Substantive Unconscionability
* Higgins: Terms that are unfairly one-sided
* Williams: Terms unreasonably favorable to one party
* UCC 2-302: Terms so one-sided as to be unconscionable in light of the general background and needs.
unconscionability is severable and can attack a provision
We assess unconscionability with respect to commercial need and commercial practice
Factors/circumstances relevant to procedural unconscionability
- Significant disparity in bargaining power
- Lack of reasonable opportunity to understand terms
- Terms drafted in confusing manner (not reasonably intelligible) or buried in fine print to obfuscate
- Deceptive sales practices
- Unsophisticated or uneducated party
Principle behind unconscionability
* The principle is one of the prevention of oppression AND unfair surprise and not of disturbance of allocation of risks because of superior bargaining power
Adhesion Contract
- form contract
- offered by a party with superior bargaining power
- on a take it or leave it basis
not unconscionable by itself
- It is not the case that a party has to show a contract is a contract of adhesion (these three elements) in order to prevail on an unconscionability claim
- But it is a factor to consider and could tip the scale and make it more likely
Mutual Mistake
BAMA
A mistake is a belief that is not in accord with the facts
Mistake is different than interpretation
* Ex – chicken – it was a dispute over the meaning of a chicken, not what the nature of a chicken is
K voidable for mutual mistake IF
* Mistake by both parties at the time of K;
* Mistake relates to a basic assumption underlying the K;
* Mistake has a material effect on the agreement; AND
* Adversely affected party does not bear the risk of the mistake.
Party bears the risk of mistake IF:
* Allocated by K;
* Party consciously ignored the risk; OR
* Circumstances make it reasonable to allocate the risk. → Catch all
What is a basic assumption?
* something fundamental to the nature of the consideration exchange
* Assumptions about market conditions do not fall into this category
Material effect?
* We must show the mistake causes a severe imbalance in the performance of the parties that would be unfair to enforce
* show one party is worse off and one party is better off
Unilateral Mistake
OAM(uf)A
K voidable for unilateral mistake IF
* Mistake by one party at the time of K;
* Mistake relates to a basic assumption underlying the K;
* Mistake has a material effect on the agreement; AND
Either
* mistake would make enforcement unconscionable; OR
* other party has reason to know of mistake or was at fault for causing mistake;
AND
* (5) Adversely affected party does not bear the risk of the mistake.
What is this idea of unconscionability? Do we have to do the whole defense elements?
* Courts tend to conclude this element of mistake is satisfied if the mistake would result in a substantial loss
* BMW lost 10k and that was not enough
* better arg if nonmistaken did not rely
Impracticability
IBFC
what are two things that are usually not a basic assumption
A party’s duty to perform is discharged for supervening impracticability IF
* After K is made, an event occurs that makes performance impracticable (significantly more difficult or expensive);
* The non-occurrence of the event was a basic assumption on which the K was made;
* The party claiming the defense is not at fault; AND
* Language of the K and the circumstances do NOT indicate the contrary.
* UCC = The party raising the defense must put the other party on notice.
impracticable
* not unprofitable or inconvenient, it means alot more difficult or expensive
2nd element
* something unexpected happened after K formed, that made performance fundamentally different from what was reasonably in parties contemplation
* Expectation that market conditions will continue is not a basic assumption
* continuation of the financial situation of the parties ordinarily is not a basic assumption
4th
* they have not assumed the risk
Foreseeability comes in the 2nd and 4th element
* the higher the degree of foreseeability, the harder it is to argue that the assumption that the thing would not occur was a basic assumption of parties entering into the deal
* harder to argue we did not accept the risk by entering into K
Specific application of impracticability doctrine
- Death or incapacity of person necessary for performance
- Destruction, deterioration, or failure to come into being of a thing necessary for performance
- Prevention by government rule or regulations
Frustration of Purpose
FBFC
imprac v. FoP
* here, performance obligation didnt change much still had to pay lease, but nothing about that became harder to do, but it just was not worth much
A party’s duty to perform is discharged for supervening frustration IF
* After K is made, an event occurs that substantially frustrates a party’s principal purpose for entering into the K; (only difference from impracticability)
* Non-occurrence of the event was a basic assumption on which the K was made;
* Party whose performance is frustrated is not at fault; AND
* Language of K and the circumstances do NOT indicate the contrary (that the risk has been allocated).
force majeure clause – excuse of perfromance by an act of god
One party’s performance, because of the supervening event, has become virtually worthless to the other
Difference?
* In the case of frustration, performance of the K isn’t impossible, it is not much more expensive, it is not more burdensome – there is no impediment to the lessees performance – here, it was not impracticable to perform – all di chem had to do was pay rent
* for example, the lease just becomes more useless’
If there is still some use, then not frustration
Purpose of K must be clear
CL
Modification
Pre-existing duty rule
* Performance of a duty already owed is NOT consideration.
* UNLESS whether the performance duty owed is doubtful or subject to honest dispute.
* However, a similar performance IS consideration if it differs in a way that reflects more than a pretense of a bargain.
So re-promising to do something you’re legally obligated to do already isn’t consideration
UNLESS your obligation to do that performance is somehow doubtful or the subject of honest dispute
* Maybe you have an plausible defense
* in this scenario – re-promising to do the same thing would be consideration
Or you can change what you already did a little bit or do a little more
CL
Exceptions to Pre-Existing Duty Rule
so no consideration required
Material change in position in Reliance
* promissory estoppel.
* What kind of reliance? Maybe performing the K is sufficient, but it is very fact specific
Fair and equitable in light of circumstances not anticipated when K was made.
* Does NOT have to be unforeseen (can be market changes).
* No obligation to modify, just allows modification.
Duress is always a defense to enforcement of a modified K
* but in this context must show they protested the modification
UCC
Modifications
Modifications are enforceable without consideration.
* STILL → general duty of good faith (deals with coercion)
Roth Steel Test for bad faith
* Party must have a legitimate commercial reason for seeking modification and NOT attempt to coerce by threatening breach. –> Market Shift IS a legitimate commercial reason (to ask)
2-209 (3) tells us that the UCC SoF must be satisfied if a K as modified is within its provisions
* So if a modification involves a price in excess of 500$ the UCC SoF also applies to the modification
* but this can be waived similar to no oral mod and can be answered same way
No Oral Mod Clause
UCC or CL
The basic question we’re asking is when is an oral mod enforceable in spite of the existence of a no oral mod clause
* When the other party has materially relied on the mod and failing to enforce that would be unjust
the rule adopted by CL is that these “no oral mod” clauses are not enforceable
MQ 8
Damages
2 types
Reliance interest
* Compensating an aggrieved party who suffers damages because she relied on a binding promise
Expectation interest – likely to give highest value
* Compensating a party for the value that she expected to receive when she entered into the K and that was not received because of the breach
* “Benefit of the bargain”
General rule is that we want to award damages to protect the non breaching party’s expectation damages
General measure of damages
ED = LOV + OC(L) - CA - LA
Expectation damages = loss in value + other loss - costs avoided - loss avoided
Loss in value
* difference in value of the performance that was promised under the contract to the nonbreaching party and the value of the performance he actually received if anything
* Intangible losses here would be hard to calculate due to reasonable certainty requirement
Other losses
* Incidental damages – costs incurred in an effort to mitigate the losses from the other party’s breach
* Consequential damages – Other losses incurred as a result of the breach – such as loss from lost profits from a collateral transaction
Costs avoided
* Costs the non breaching party would have had to incur to fully perform that he saved because his duties are discharged as a result of the other party’s breach
Loss avoided
* Losses a non-breaching party will be able to mitigate
Buyer breach of real estate contract
[contract price - market price at the time of the breach] + other loss - costs avoided - loss avoided
Contractor breach of a construction contract
[cost of completion] + other loss - costs avoided - loss avoided
in Jacobs and Young they used the general but because no structure would have to be torn down to remedy the breach and because the breach was incidental
General v. Special Damages
General damages
* Damages as may fairly and reasonably be considered as arising naturally, i.e., according to the usual course of things, from such breach of contract itself
Special Damages
* damages that do not arise naturally BUT that may reasonably be supposed to have been in contemplation of both parties, at the time they made the contract, as the probable result of the breach of it
Limitations on damages
3 Limitations on Incidental and Consequential damages:
Foreseeability
* Special Damages: Result from the party’s particular circumstances.
* General Damages: Arise naturally, NO limitation. Flows in the ordinary course.
* MUST show that the breaching party knew or had reason to know of the circumstances giving rise to the special damages.
Causation
* Damages must be natural and proximate consequence of the breach.
Certainty
* MUST prove that losses were reasonably certain and not speculative.
New Business Rule: lost profits from new business are too speculative to be awarded.
* Modern courts may look to similar businesses in the area to estimate damages.
* Consider reliance damages instead.
all damages must be foreseeable as a probable consequence of a breach at the time K was formed
* cannot be remote in possibility
Mitigation
Must suspend performance to avoid compounding damages. & Must take reasonable efforts to avoid loss.
* Efforts DO NOT have to be successful.
Breaching Employer → has the burden of proving:
* (1) employee’s lack of diligence in searching for/securing another position; AND
* (2) there was a reasonable substitute position available (including same $ earned)
If employee offered same job back → MUST take it. UNLESS special circumstances apply.
UCC remedies
Buyer remedies
seller delivers nonconforming goods and buyer has rejected them
If seller fails to deliver/repudiates; buyer rejects goods/revokes acceptance: Buyer CAN
* Cancel K;
* Recover any price paid; AND
* EITHER Cover by purchasing substitute goods and recovering the difference between cover and contract price; OR Recover the difference between market and contract price (at the time buyer learns of breach); AND
* if buyer does either those 2, buyer is entitled to recover incidental/consequential damages, but must deduct expenses saved as a result of breach
Consequential Damages:
* Can recover for any loss resulting from general or particular requirements that seller had reason to know at time of K.
* Buyer is obligated to mitigate if it could prevent consequential damages through substitute transaction.
If buyer accepted non-conforming goods: Buyer CAN
* Recover damages for non-conformity that result in the ordinary course of events.
* Recover damages for breach of warranty: difference between value received/warrantied.
* Recover incidental and consequential damages.
* JUST DIFFERENCE IN VALUE
Damages = [Market Price OR Cover Price - CP] + incidental and consequential damages - expenses saved as result of breach
UCC
Seller remedies
If buyer wrongfully rejects, fails to pay, or repudiates, Seller CAN
* Cancel the K;
* Withhold delivery of goods not yet delivered;
* Stop delivery of goods in transit/storage; AND
* Recover damages based on marked price; OR Resell goods and recover based on resale price.
if seller recovers under either of those, also entitled to recover incidental damages, but must deduct expenses saved as a result of buyers breach
resale must be in good faith
damages = [contract price - market or resale price] + incidental damages - expenses saved as result of breach
Reliance Damages
when it is too speculative
can be done even if not promissory estoppal
Can recover expenditures made in preparation for performance.
SUBTRACT any loss that breaching party can prove that the injured party would have suffered anyways under the K.
May be preferred if:
* K would cost the injured party $ (no expectation damages).
* Expectation damages are hard to prove (new business rule).
Reliance Damages must be:
* (1) Foreseeable; AND
* (2) Proven with reasonable certainty.
dont run through alternative measures of damages unless the facts raise it as an issue
* difficulty in expectation damages – too speculative, not certain enough
* Case = expectation damages consisted almost entirely on lost profits on this weird scheme
* also if breaching party can prove that nonbreaching party would have suffered loss on that K had it been fully performed – we will reduce amount of reliance damages
Liquidated Damages
contractual provision where parties agree what the damages will be in case of breach
LDs must be compensatory, CANNOT be punitive.
* The amount must be reasonable.
* Evaluate reasonableness by the totality of the circumstances at the time of K formation.
Reasonable in light of the anticipated loss OR actual loss.
* NO duty to mitigate or requirement to prove actual harm.
damages clause must be clear and unambiguous
Specific Performance
3 factors
Damages are difficult to prove with reasonable certainty.
Substitute performance would be difficult or impossible to secure.
* unique in some way
* real estate is always unique
Damages unlikely to be collected if awarded.
* D is insolvent
Additional limitations
SP denied IF:
* Terms are not sufficiently certain to provide BASIS for an order of SP
* SP would impose supervision burdens on the court disproportionate to benefit of SP. Dont burden court!
* SP would cause unreasonable hardship or loss to the breaching party or third persons. Cant just say we would make more money with sears! or if sears would be hurt that would change balance
* K induced by mistake/unfair practice or is grossly unfair. even if not fully satisfied the elements of a defense! unclean hands!
* Non-breaching party has not substantially performed or its performance is in doubt.
* Act of SP or the performance compelled would be contrary to public policy.
UCC Specific Performance
Buyer entitled to SP IF goods are unique.
Seller may recover entire K price:
* For any conforming goods accepted by buyer;
* For conforming goods damages after risk of loss passed to buyer; OR
* Seller unable to resell.
1964 rare red corvette
does a special price make a good unique?
* NO, we have buyers remedy
