CONTRACTS Flashcards
What are the key elements of an offer?
1) Promise/Commitment/Undertaking to enter contract (Intent)
2) Terms (Certain/Definite)
3) Knowledge by the Offeree
What factors determine intent to enter contract?
Language - Technical (‘I wish’, ‘I promise to’) - NOT mere invitation (‘I am asking for’, ‘I would consider’)
Surrounding circumstances parties’ previous relationship/practice methods of communication - NOT publication (too broad) - NOT advertisements (mere invitation)
Signed offer - NOT offer requiring BOTH parties’ signatures
What is required for definite/certain terms?
Services Contracts: 1) Parties 2) Subject matter 3) Price 4) Quantity
Real Estate: 1) Land description 2) Price
Sale of Goods (UCC): Quantity - other terms (UCC may add gap-filler terms)
Sale of Goods (output/requirement contracts): 1) Wording (all/exclusively/only) 2) Good faith 3) Quantity not unreasonably disproportionate to prior contract/statute reqs/anticipated amounts
How can missing terms in sale of goods contracts be ascertained?
UCC gap-filler terms Court can produce reasonable terms: 1) Intent to make contract 2) Reasonably certain basis for remedy
Price - Sale of goods (reasonable price at time of delay)
Services - Intent to create contract w/o price settlement) (NOT real estate)
Time - Express/Implied (by law) - Continuing contracts
What is required for valid communication of an offer to offeree?
Offeree has knowledge of offer.
How may an offer be terminated by law?
Death/Insanity of offeror - NOT options contract
Destruction of subject matter
Supervening illegality
How may offeror revoke his offer?
Direct Communication: Offeree NOT required to read revocation
Indirect Communication: 1) Reliable TP source 2) Reasonable person would assume termination based on Offeror’s conduct
Public Offer - Same manner as offer made - Comparable means as offer made
What is required for a valid options contract to prevent revocation/rejection?
Prevent offeror’s revocation:
1) Open offer 2) Consideration
Prevent offeree’s rejection:
1) Open offer 2) Consideration 3) Offeror made NO detrimental reliance on offeree’s rejection => Offer still open for stated period
What is required for Merchant Firm Offer Rule to prevent revocation?
1) Merchant offeror
2) Sale of goods (Article 2)
3) Signed writing
4) Open period - If stated time => Stated time (open up to 3 months) - If 3 months after stated time => Open (until Offeror revokes) - If NO stated time => Reasonable time
What is required for offeree’s detrimental reliance to prevent revocation?
1) Offeror could reasonably expect Offeree’s detrimental reliance on offer
2) Offeree detrimentally relies on offer
3) Offer becomes options contract - For ‘reasonable time’
What is required for offeree’s part performance to prevent revocation?
Unilateral Contract - Must give reasonable time to complete performance - NOT substantial preparation - Cannot be required to complete performance
Bilateral Contract - Commencement must give time to complete performance
What is required for offeree’s lapsed acceptance to terminate the offer?
Specified time
Reasonable time
What is required for offeree to reject an offer?
Express: 1) Unequivocal 2) Offeror receives rejection
Counteroffer - Unequivocal (only if) (new price) - NOT mere inquiry (what if) (keep old offer under consideration)
What is required for acceptance under a unilateral contract?
1) Offeree has knowledge of offer
2) Offeree ‘completes’ performance - For Offeror - For TP
What happens if offeror does not have knowledge of completed performance in a unilateral contract?
Offeror is discharged from his contractual obligation
What is required for acceptance under a bilateral contract?
1) Offeror has knowledge of acceptance
2) Offeree promises to perform/ ‘starts’ performance - Implies promise to complete performance
3) Mirror image rule (common law) - ‘Unequivocal’ acceptance of ALL terms - UNLESS different/new terms => Counteroffer/Rejection (services)
What is required for acceptance under the Mirror Image Rule?
Unequivocal acceptance of ALL terms => Acceptance New/Different terms => Counteroffer/Rejection - Services (NOT goods)
How may silence constitute acceptance?
Prior dealings/trade - Commercially reasonable expectation that silence creates acceptance - Offeree accepts benefits
Offeree knew/should have known ability to prevent mistake ‘by a word’ + expected compensation (common law)
What is required for acceptance of shipment of goods (Article 2)?
Shipment of non-conforming goods - Acceptance + Breach - Rejection + Breach
Shipment of non-conforming goods w/ notice (goods as ‘accommodation’) - Acceptance - Rejection (NO breach)
What is required for acceptance of different/new terms under Battle of the Forms?
1) Offeree’s definite + timely acceptance - UNLESS offer expressly made conditional on assent
2) Either - BOTH Seller + Buyer are nonmerchants - One of parties is merchant + Offeror expressly agrees to different terms (otherwise mere proposal => NOT part of contract)
3) BOTH parties MERCHANTS - Additional terms - NOT materially alter original terms (based on facts) - NOT expressly limit acceptance - NOT already objected/objected within reasonable time after notice received
4) Different terms (Knockout Rule) - Parties assumed to have objected conflicting terms => UCC to fill in missing terms - Merchant Confirmatory Memorandum is subject to Knockout Rule
What is required for acceptance under the Mail Box Rule?
1) Properly addressed + stamped
2a) Acceptance sent before rejection - Acceptance CONTROLS - NOT if rejection arrives first + Offeror detrimentally relied on rejection 2b) Acceptance sent after rejection - Acceptance arrives first - NOT if rejection arrives first
3) Effective - Once sent - Once received (options contract/as contract states)
What is required for acceptance of auction contracts (UCC)?
1) Auctioneer announces sale by auction - With reserve (can withdraw before announcing completion) - Without reserve 2) Either; - Fall of hammer (UNLESS another bid during the fall => Auctioneer can reopen auction OR accept original bid) - Other customary manner
What is required for consideration?
1) Bargained-for exchange between parties
2) Legal value
What is required for bargained-for exchange?
Promise to act/forbear - Benefit to Promisor - Detriment to Promisee - Economic/Non-economic - NOT gift
Moral consideration (overcome technical defense preventing enforceability of previous promise, e.g. SoL) => New promise - Writing - Part performance
Past consideration => New promise (some states) 1) Promisor benefitted from Promisee’s act 2) Promisee acted at Promisor’s request/In response to emergency 3) Promisee did not intend to confer gift
What is required for consideration to have legal value?
Promise not to sue on claim - Valid claim - NOT valid claim (reasonable person would believe claim well-founded + Promisor (not to sue on claim) made claim in good faith)
Adequate - NOT sham - NOT entirely devoid of value
Legal benefit 1) Promisee’s forbearance/performance of act 2) Promisor not legally entitled to expect/demand 3) Confers benefit on Promisor Legal detriment - Promisee’s obligation not legally required - Promisee’s refrain from legally required act
What is the rule for pre-existing legal duties?
Promise to perform/performance of pre-existing legal duty is NOT consideration
What are the exceptions to pre-existing legal duties (as new consideration)?
Goods (Art 2) - Honest in fact + observance of reasonable commercial standards in fair dealing (good faith) => Valid (NOT as new consideration) - NOT extort modification from other party (bad faith)
A change in PERFORMANCE
TP promising to pay
Unanticipated circumstances at time of contract (fair + equitable, rises to impracticability)
Promising partial payment for release from debt - is debt CURRENTLY due and UNDISPUTED
What is required for consideration to be mutual (not illusory)?
Express - Offeror + Offeree give consideration
Implied (by courts) - Requirements/Output contract - Conditional promise (NOT entirely within Promisor’s control) - Exclusivity agreements - Voidable promises - Option contracts - Unilateral contracts - Gratutitous suretyship promises (Surety promised before/at time Creditor performs) - NOT right to cancel
Alternative choices - Power to choose is with Promisee/TP + at least one of choices has legal detriment to Promisor - ALL choices have legal detriment to Promisor
What is required for enforcing contracts by promissory estoppel without consideration (as substitute for consideration)?
1) NOT valid contract - Gratuitous promise 2) Promisor would reasonably expect Promisee’s detrimental reliance 3) Promisee’s actual detrimental reliance
What remedies are available for promissory estoppel?
Second Restatement (some states) - Award ‘as justice requires’ (reliance damages)
Some states - Expectation damages (promised under contract)
What is the difference between bilateral and unilateral contracts?
Bilateral contract - Seeks promise to perform in return => Offeree’s promise to perform becomes acceptance => Contract formed - NOT revocable (once accepted)
Unilateral contract - Seeks performance in return (consideration) - Revocable (NO acceptance involved)
What is required for infancy as defense?
Under 18 years of age
What remedies are available for infancy?
Voidable: Infant can affirm contract (after 18) - Expressly - Implicitly (fail to disavow contract after 18) - By conduct (encourage other party to perform) => To be governed by NEW terms (NOT original terms)
Infant can disaffirm contract (before/after 18) - Infant to pay necessaries (food/shelter/clothing/medical care) for Infant’s health/education (quasi-contract liability) UNLESS Infant lied about his age => Other party can void contract based on fraud
What is required for mental incapacity as defense?
NOT able to understand the contract’s nature/significance
Able to understand the contract BUT acted unreasonably + Other party knows he acted unreasonably
What remedies are available for mental incapacity?
Adults (voidable) - Affirm contract (complete recovery/during lucid interval) - Disaffirm contract (legal rep appt/during lucid interval)
Children (void) - Pay necessaries (food/shelter/clothing/medical care) for child’s health/education (quasi-contract liability)
What is required for intoxication as defense?
Voidable 1) Intoxicated party incapable of understanding the contract’s nature/significance 2) Other party had reason to know of intoxication
Void 1) Intoxicated party incapable of understanding the contract’s nature/significance 2) Other party had NO reason to know of intoxication
What remedies are available for intoxication (if voidable contract)?
Affirm - After recovery
Disaffirm - After recovery Recover necessaries
What is required for duress as defense?
Improper threat towards innocent party to procure assent (Physical duress)
Withhold innocent party’s economic needs (Economic duress) 1) Threat to reduce party’s property/finance 2) Innocent party has NO available adequate means to prevent threatened loss
What remedies are available for duress?
Voidable - Affirm - Disaffirm
What is required for undue influence as defense?
1) Undue susceptibility to pressure 2) Excessive pressure 3) Confidential/Caregiver relationship (most cases)
What is required for mistake as defense?
Mutual 1) Both parties made mistake 2) Basic assumption of ‘existing’ fact 3) Material to contract 4) Party seeking avoidance did NOT assume risk of mistake
Unilateral 1) One party made mistake 2) Can prove all elements of mutual mistake and EITHER 3) mistake would make contract UNCONSCIONABLE or 4) the other side knew of, had reason to know of, or caused the mistake
What are examples of assuming risks of mistake?
Value
Party seeking avoidance was in position to know better
Both parties knew the assumption was doubtful
What remedies are available for mistake?
Voidable (by mistaken party)
What is required for misrepresentation?
Misrepresentation: 1) Misrepresentation of a PRESET FACT (not opinion) 2) MATERIAL or fraudulent AND 3) justifiable RELIANCE - Even if reasonable care could reveal misrepresentation - Even if failure to read contract
What remedies are available for misrepresentation?
Voidable - Affirm/Disaffirm
Rescission
Breach remedies
What is required for illegality as defense?
Illegal consideration/performance => Void - UNLESS Plaintiff is not aware - UNLESS Defendant is aware - UNLESS Neither is aware
Illegal purpose => Voidable (by party seeking avoidance) - Party not aware - Party aware + not facilitate purpose + no moral turpitude
What is required for unconscionability as defense?
(E.g. Big company vs average consumer) Unfairness in bargaining procedure (at time of contract) - Boilerplate clauses (shift risk to another) - Adhesion (take it or leave it) (not procure necessary goods unless agreement) - Exculpatory clauses (release from intentional wrongful/negligent act) - Limit remedies (fails of its essential purpose)
What remedies are available for unconscionability?
Not enforce contract
Enforce contract - NOT unconscionable clause
Limit enforcement of any clause - Avoid unconscionable result
What is required for misunderstanding/ambiguity as a defense?
1) At least 2 possible meanings in term 2) Parties’ awareness (subjective) - Both/Neither aware => NO contract - One aware/Both intended same meaning => Contract (term based on innocent party’s reasonable meaning)
What is required for an agreement to fall within SOF?
1) Writing (reasonably identifies) - Contract made - Parties - Essential elements (subject matter - quantity of goods; price + description of land)
2) Signed by party to be ‘charged’ - Handwritten/Printed/Electronic/Initials
When do surety agreements require writing?
Surety promises to pay ‘if Debtor does NOT repay loan’ to Creditor NOT if for Surety’s pecuniary gain
When do marriage agreements require writing?
Promise in consideration of marriage - E.g. Prenuptial agreements
When do land interests require writing?
Land sale transactions
Leases/Easements (more than 1 year)
Mortgages/Fixtures/Buyer’s severance of structures
When do land interests not require writing?
Land sale transactions: Seller’s full performance
Land sale transactions: Buyer’s part performance (at least 2/3 elements required) - Payment (whole/part) - Possession - Valuable improvements
When do service contracts require writing?
1) Express terms: Not performable within one year (at least one year)
2) From date of agreement (NOT performance)
When do service contracts not require writing?
Full performance
Lifetime employment contracts - Employee may die before one year
When do sale of goods contracts require writing?
$500 or more - Enforceable up to quantity in writing
When do sale of goods contracts not require writing?
Specially manufactured goods (part performance): 1) Specially manufactured for Buyer 2) NOT for sale in Seller’s ordinary course of business 3) Seller made substantial part performance/committed to purchase before repudiation notice received
Part payment/delivery - Enforceable up to paid/delivered quantity
Judicial admission by defendant -Testimony/Pleading - Enforceable up to admitted quantity
Merchant Confirmatory Memorandum Rule 1) BOTH merchants 2) Written confirmation sent to recipient (within reasonable time after contract made) 3) Recipient has reason to know confirmation’s contents 4) Recipient fails to respond within 10 days (in writing) - NO writing required
What exceptions do not require writing?
Promissory Estoppel - Inequitable to allow SOF to defeat claim with merit
Do oral modifications require writing?
Common Law - If modified contract falls within SOF => Signed writing required - If contract requires written modifications BUT modified contract does NOT fall within SOF => NO signed writing required
Article 2 - If modified contract falls within SOF => Signed writing required - If contract requires written modifications BUT modified contract does NOT fall within SOF => Signed writing required - Other party detrimentally relied on oral modification => Waiver of original terms (unless retracted + no detrimental reliance)
What are charged party’s options if the agreement is not within SOF?
Enforce NOT enforce
Fail to enforce SOF as defense => Waiver
What are the charging party’s remedies if the agreement is within SOF?
Enforce Sue; - Reasonable value of services - Part performance rendered - Restitution of conferred benefit - Expectation damages (part performance only)
What are the charging party’s remedies even if the agreement is not within SOF?
Sue - Reasonable value of services - Part performance (quasi-contract recovery) - Restitution of conferred benefit
When must the writing be created?
Before/After contract formation
What is required for integration (within scope of PER)?
1) Writing intended as ‘final’ agreement 2) Intent; - Complete (NO supplement/contradiction allowed) (e.g. Merger clause) - Partial (can be supplemented by consistent additional terms, NOT contradicted) 3) BOTH parties saw agreement
What type of agreements are not admissible for supplement/contradiction of integration?
Writing/Oral agreements made BEFORE integration
Oral agreements made AT TIME of integration
What type of validity issues can be used as parol evidence?
Formation defects (UNLESS reformation possible) - Duress - Fraud - Mistake - Illegality Condition precedent
What type of collateral agreements can be used as parol evidence?
1) Related to subject matter 2) NOT conflict w/ integration (not related to primary purpose) 3) NOT ordinarily expected to include in integration - Naturally omitted terms doctrine (Restatement of Contracts)
What type of issues may be interpretated by parol evidence?
Ambiguity/Uncertainty (NOT plain)
Dispute over meaning (NOT plain)
How can ‘true consideration’ be used as parol evidence?
To prove consideration was never given
What type of modifications can be used as parol evidence?
Subsequent modifications - PER only applies to prior/contemporaneous writings
How may Article 2 introduce parol evidence?
Add consistent additional terms - NO merger clause - NO court conclusion as complete agreement
Explain/Contradict integration (order of most importance to least importance) 1) Express terms 2) Course of performance 3) Course of dealing (previous transactions) 4) Trade usage
Can parol evidence ever be used to contradict terms?
NO
How should the price be determined?
Price
NO price 1) No price/to be agreed/agreed by TP 2) Court determines reasonable price at time of delivery
How should the place of delivery be determined?
Specified place
NO specified place => Seller’s place of business/residence
How should the time of shipment/delivery be determined?
Specified time
NO specified time => Reasonable time
How should time of payment be determined?
Expressly stated in contract
Impliedly stated in divisible contract (condition concurrent) - Seller must deliver goods when Buyer pays
NOT stated in contract (condition precedent) 1) Seller must deliver goods 2) Buyer will pay after receipt
Can missing quantity be determined by courts?
NO - Must be originally included in contract
When does risk of loss pass to Buyer in non-carrier cases?
Merchant seller - Risk of loss passes to Buyer when ‘Buyer receives physical possession’
Non-merchant seller - Risk of loss passes to Buyer when ‘Seller delivers’
When does risk of loss pass to Buyer in carrier cases?
Shipment Contract (Seller’s place of Business) (No location) - Risk of loss passes to Buyer when ‘Seller delivers to Carrier’
Destination Contract (Buyer’s place of Business) (Location) - Risk of loss passes to Buyer when Seller ‘delivers’ to Buyer ‘at location’
Free on Board contracts (No location) - Risk of loss passes to Buyer when Seller delivers to Carrier - Expenses of delivery are borne by Buyer
Free on Board contracts (Location) - Risk of loss passes to Buyer ‘at location’ - Expenses of delivery are borne by Seller
Free Alongside contracts (Shipment by boat) - Risk of loss passes to Buyer when Seller delivers ‘at dock’
What are Seller’s duties in a shipment contract?
1) Get goods to common Carrier 2) Make arrangements for DELIVERY to Carrier 3) Promptly notify Buyer of delivery to Carrier
Who bears the risk if there is a breach on the risk of loss?
Conforming goods - If Buyer accepts => Buyer bears risk - If Buyer rejects => Seller bears risk (up to extent of deficiency in Buyer’s insurance coverage) - Risk of loss: From acceptance to rejection
Non-conforming goods - If Buyer accepts => Buyer bears risk - If Seller cures defect => Buyer bears risk - If Buyer rejects => Seller bears risk
Who bears the risk in sale contracts?
Sale/Return Contract (Buyer cannot resell so return) - If Buyer accepts => Buyer bears risk - If Buyer returns => Buyer bears risk (while goods are being returned)
Sale on Approval Contract (Buyer can use and return) - If Buyer accepts => Buyer bears risk - If Buyer rejects => Seller bears risk
What happens if goods are destroyed before risk passes?
Identified goods at time of contract - No party’s fault - Seller excused (void contract)
NOT identified goods at time of contract - Seller must show impracticability - Seller discharged
Who do warranties apply to?
Initial buyer (UCC) Buyer’s family/household - Natural persons
Buyer’s home (guests) (Alternative A - some states) 1) Reasonably expected to use goods 2) Suffers personal injury from goods
What is required for express warranty?
1) Affirmation of fact/promise/description/model/sample (becomes basis of bargain) - No intent required - NOT value of goods/opinion 2) At time when Buyer could have relied on - No actual reliance required
Can express warranties be disclaimed?
Yes (very difficult)
What is the purpose of implied warranty of merchantability?
Goods fit for ‘ordinary’ purpose for which goods are used
Seller is ‘absolutely’ liable whether or not Seller knew defects
What is required for implied warranty of merchantability?
1) Merchant seller
2) Deals in goods of the kind sold
What is required for implied warranty of fitness for purpose?
1) Seller has reason to know particular purpose + Buyer’s reliance on Seller’s skill to select suitable goods
2) Buyer relies on Seller’s skill
What is required for disclaiming implied warranties?
General disclaimer (less likely effective - depends on circumstances) - ‘As is’/’With all faults’ - Buyer’s examination/refusal to examine before entering contract - By course of dealing/performance/usage of trade
Specific disclaimer 1) Conspicuous writing 2) ‘Merchantability’ mentioned (only for implied warranty of merchantability)
What remedies are available for breach of warranties?
Express/Implied Warranty 1) Damages (based on warranted value) 2) Incidental damages 3) Consequential damages
Are there limits to remedies/disclaimers?
Limitation on damages clause (remedies) - UNLESS personal injury - UNLESS remedy fails of its essential purpose
Unconscionability test (remedies/disclaimers)
What are examples of promises (most courts assume)?
Commitment to do/not do
‘Promise’/’Agree’/’When’ (not within Obligee’s control)
What are examples of conditions?
Event/State of world which must occur/not occur - Before duty to perform - Releasing duty to perform
‘If’/’Provided’/’When’ (within Obligee’s control)
What is the difference between a promise and a condition?
Promise - Bound under duty to perform - Failure => Breach
Condition - Bound under duty to perform once condition occurs - Failure => Release from duty to perform
What factors may courts consider to determine whether a promise or condition is present?
Parties’ use of words/phrases
Parties’ previous works
Any TP performance required
Related custom in business community
What type of conditions are there?
Condition precedent - Event must occur ‘before’ duty to perform arises
Condition concurrent - Events occur ‘together’ => Both parties bound to perform at same time - Events are CP to each other
Condition subsequent - Event cuts off duty to perform
How should condition satisfactions be determined?
Objective standard: Reasonable person’s satisfaction - Mechanical fitness/utility/marketability
Subjective standard: Promisor’s satisfaction (good faith) - Aesthetic taste/judgment
What limitations are there towards express conditions?
NOT to benefit/protect only ONE of the parties
What are the types of constructive (implied) conditions?
Of performance - Party to tender performance
Order of performance - Possible concurrent performance - Longer performance precedent to shorter performance
Of cooperation - Party to cooperate if other party tenders performance
Of notice - Party to notify other party when performance is due
How can a party recover equitable damages (unjust enrichment theory)?
1) One party satisfies/fails condition => Contract not enforceable 2) Other party fully/partially performs (Damages could be LESS than contract price)
What extent of compliance with conditions is required to activate duty to perform?
Express conditions - Strict compliance
Implied conditions - Strict compliance - Substantial compliance (activates duty to perform BUT also can reduce damages)
How can conditions be determined in substance or form?
Form - Interpretation NOT as part of contract (on its own)
Substance - Interpretation as part of contract
How may hindrance/failure to complete duty to perform excuse a condition?
‘Wrongful’ prevention - Other party would not have contemplated/reasonably assumed such risk - No bad faith/malice required
How may actual breach of condition when performance is due excuse a condition?
Article 2 - Breach => Automatic excuse
Common law - Major breach => Automatic excuse - Minor breach => Suspend duty (courts can award damages/mitigate performance of non-breaching party)
How may anticipatory repudiation excuse a condition/cause a breach?
1) Bilateral contract - Neither party yet performed - Otherwise non-repudiating party (who performed) must wait to sue until repudiating party’s performance was originally due 2) Unequivocal statement (repudiation) before performance due - Words/Conduct
How may substantial performance excuse a condition?
1) Minor breach 2) Constructive condition - NOT express condition (defeats parties’ express intent) 3) Common law - NOT Article 2 (Perfect tender rule) => Non-breaching party can mitigate damages suffered for incomplete performance
How may waiver excuse a condition?
Estoppel waiver 1) Indicate/Waive before occurence 2) Other party detrimentally relied on waiver - UNLESS retracted
Election waiver 1) Condition not occurred/Performance is broken 2) Beneficiary either terminates liability (no duty to perform)/continues contract by waiving condition (duty to perform)
Installment contracts 1) Waiver before occurrence 2) Other party detrimentally relied on waiver 3) Consideration!!!
Are waivers revocable?
If NO consideration is given => Yes
How may destruction of goods excuse a condition?
Impossibility
Impracticability
Frustration
How may a divisible contract excuse a condition?
(Similar to substantial performance) If party performs unit => Party is entitled to agreed-on equivalent for that unit
If party fails unit => 1) Other party has cause of action for other units 2) Other party can withhold own performance for other units
What is required for a divisible contract?
Common law (presumed divisible) 1) Each party’s performance is divided into +2 parts 2) No. due parts from each party is same 3) Each party’s performance is equivalent of corresponding part - Otherwise courts may interpret as divisible based on fairness (avoid hardship/forfeiture) => Price per unit
Article 2 (presumed entire, not divisible) 1) Authorised delivery in several lots 2) Apportioned price for each lot => Price deemed for each lot
How may prospective inability/unwillingness to perform excuse a condition?
1) Conduct/words 2) ‘Merely’ raises doubts of performance - NO adequate assurance => Excuse (repudiation)
How may prospective inability/unwillingness to perform not excuse a condition?
1) Conduct/words
2) ‘Merely’ raises doubts of performance - Adequate assurance => NO excuse (suspends duty to perform until assurance received) - Response within reasonable time (within 30 days - sale of goods) => NO excuse (suspends duty to perform until assurance received) - Regains ability to perform + notifies other party => Retraction
Can a party receive adequate assurance for another’s prospective ability to perform a different contract?
Yes
What is required for performance to discharge a duty to perform?
Full + Complete
What is required for tender of performance to discharge a duty to perform?
1) Good faith 2) ‘Present’ ability to perform
Can condition subsequent occurrence discharge a duty to perform?
Yes
What is required for supervening illegality to discharge a duty to perform?
1) Illegal subject matter 2) Occurred ‘after’ contract made - NOT before => No contract
What is required for impossibility to discharge a duty to perform?
1) Non-occurrence of event 2) Neither party assumed risk 3) Objective impossibility - No other party can perform duty (otherwise subjective) 4) Occurred ‘after’ contract made - NOT before => Voidable by mistake (contract formation issue)
What are examples of impossibility?
Death/Physical incapacity - Personal services (unique) (non-delegable) => Discharge - Personal services (not unique) (delegable) => No discharge
Supervening illegality Destruction - Subject matter (necessary) - Source for fulfilling contract (specified) - Risk of loss (not passed to buyer)
Buildings (Construction) - If Contractor NOT responsible for destruction => Contractor excused (not liable) (most courts) - If Contractor responsible for destruction => Contractor NOT discharged (liable for work in progress, if he can still rebuild) (entitled to contract price only) Buildings (Repair/Remodel) - Nothing left to repair - Entitled to restitution
What options are available under impossibility?
Full impossibility - BOTH excused - Sue for rescission/restitution
Partial impossibility - Discharge (to partial extent)
Temporary impossibility - No discharge (suspend performance until possible)
Part performance - Recover at contract/reasonable rate (whichever is most convenient mode of valuation) (quasi-contract remedy)
What is required for impracticability to discharge a duty to perform?
1) Extreme + Unreasonable difficulty/expense 2) Non-occurrence of event (basic assumption) 3) NOT foreseeable => Discharge (to extent of impracticability)
What are examples of impracticability for sale of goods?
Allocation of risk of loss => Seller - Generally assumed - UNLESS unfair to place risk on Seller in extraordinary occurrence
Raw materials shortage
Inability to convert materials into product by contingent events (war/unforeseen shutdown)
What are not examples of impracticability for sale of goods?
NOT mere shortage NOT mere cost increase (generally +50%) NOT Seller’s partial inability to perform - Should allocate deliveries among customers NOT construction workers’ strike
What is required for frustration to discharge a duty to perform?
1) Supervening act 2) Destroys purpose of contract 3) BOTH parties realized purpose (at time of entering contract) 4) BOTH parties could not reasonably foresee supervening act (at time of entering contract)
Is there frustration if a contract is still capable of performance?
Yes - Destroys purpose (not performance)
What is required for mutual rescission to discharge duty to perform?
1) Contract - Bilateral - Unilateral (new consideration/promissory estoppel) 2) Either; - Oral rescission (unless falls within SOF - written rescission required/executed rescission/promissory estoppel) - Written rescission 3) NO TP rights ‘vested’
What is required for unilateral rescission to discharge duty to perform?
1) Adequate legal grounds - Mistake - Misrep - Duress - Failure of consideration 2) Non-rescinding party voluntarily grants rescission - Otherwise => Rescinding party can file equitable action to obtain rescission
What is required for novation to discharge duty to perform?
1) Original contract is valid 2) New contract is valid 3) Transfer of ALL rights + duties 4) ALL parties agree novation 5) Immediate extinguishment of duties
What is required for release/contract not to sue to discharge duty to perform?
1) In writing 2) New consideration/Promissory estoppel
What is required for a substituted contract to discharge duty to perform?
1) Intent for immediate discharge 2) BEFORE performance of second contract - Otherwise => Executory accord
What is required for lapse of time to discharge duty to perform?
1) Condition concurrent (both parties do not perform) 2) Lapse of time - Time of essence (lapse immediately) - No time of essence (lapse after reasonable time)
What is required for accord and satisfaction to discharge duty to perform?
Accord 1) Agreement to accept different future performance => Suspends original duty - Otherwise different future agreement => Discharges original duty 2) Consideration - More than original - Less than original (different type/TP to pay/bona fide dispute of debt payment)
Satisfaction - Performance of accord - Discharges original duty to perform + accord
What is the difference between accord and modification?
Accord - At time performance is due - Dispute re performance due date - Intent to discharge
Modification - Before performance is due - No dispute re performance due date - Intent to continue
What remedies are available for breach of accord before satisfaction?
Debtor’s breach - Creditor can sue for breach of original duty - Creditor can sue for breach of accord
Creditor’s breach (sues Debtor for breach of original duty) - Debtor can raise accord as equitable defense - Debtor can wait until damaged if Creditor succeeds on original duty => Debtor can sue for breach of accord
Can expiration of statute of limitations discharge duty to perform?
No discharge - Bars judicial remedies (breach) - Party’s duty denied by SoL can agree to perform anyway (no new consideration required)
Is impracticability subjective or objective?
Subjective
What is required for non-breaching party to sue for breach?
1) Breaching party had absolute duty to perform - Not discharged 2) Breaching party made breach 3) Non-breaching party was ‘willing and able’ to perform but for breach
What are examples of minor breach?
Non-breaching party obtains substantial benefit of bargain - Insignificant delay - Small deficiency in quality/quantity of performance
Timeliness of performance - Breaching party performs within reasonable time - Breaching party performs by date included in contract
What remedies are available for minor breach?
Sue for damages - Setoff NO discharge
What are examples of material breach?
(Fact question) Non-breaching party NOT obtain substantial benefit of bargain
Factors - Compensation adequacy - Part performance extent - Hardship suffered - Negligent/Wilful behaviour - Likelihood of remainder performance
Minor breach + anticipatory repudiation
Timeliness of performance - Time is of essence (contract’s nature/provision) (NOT just specified date) (traditional view) - Time is of essence (parties’ true intention/significance of specified date) (modern view)
Divisible contract
What remedies are available for material breach?
Most breaches 1) Discharge duty => Treat contract as ended 2) ‘Immediately’ sue for breach (total contract damages)
Minor breach + anticipatory repudiation 1) Discharge duty => Treat contract as ended 2) Either; - Stop manufacturing => Sell unfinished goods (some courts) - Continue manufacturing => Sell finished goods (UCC) (avoid selling at lower value)
Divisibility contract - Recovery limited to performed divisible portion only
What is required for anticipatory repudation?
1) Bilateral contract - Neither party yet performed - Otherwise non-repudiating party (who performed) must wait to sue until repudiating party’s performance was originally due 2) Unequivocal statement (repudiation) before performance due - Words/Conduct
What remedies are available for anticipatory repudiation?
Treat contract as ended => ‘Immediately’ sue for breach (total contract damages) Suspend own performance + wait until repudiating party’s performance due => Sue Treat contract as rescinded + discharge duty
Urge repudiating party to perform - Suspend own performance (otherwise lose damages) - If repudiating party fails to perform => Sue for breach (no waiver of repudiation) - UNLESS repudiation retracted
Can a repudiating party retract his anticipatory repudiation?
Before performance due UNLESS - Non-repudiating party cancelled/naturally damaged position in reliance on repudiation - Non-repudiating party considers repudiation final
What are the parties’ obligations towards any sale of goods contracts?
Act in good faith 1) Honesty in fact 2) Observe reasonable commercial standards of fair dealing
Can you waive the duty to act in good faith?
No
What is the Perfect Tender Rule (Art 2)?
Goods must conform to contract requirements - Otherwise breach - UNLESS installment contracts
What are Buyer’s remedies for Seller’s breach of PTR?
Acceptance
Rejection
Revoke acceptance
How may Buyer accept goods?
Buyer makes reasonable inspection + notifies Seller (NOT awareness of non-conforming nature) - Goods conform with contract - Intent to keep goods
Buyer fails to reject/notify rejection within reasonable time after tender/delivery
Buyer acts inconsistently with Seller’s ownership
What are Buyer’s obligations if he rejects the goods?
If Seller gave instructions => Buyer must follow Seller’s reasonable instructions (if any) - Hold goods in reasonable care at Seller’s disposition - Obey any reasonable instructions regarding goods (e.g. reshipping)
If Seller gave NO instructions => Buyer may; - Reship goods - Store goods (for Seller’s account) - Resell goods (for Seller’s account) + recover expenses and reasonable commission
What is required for Buyer revoking his acceptance?
1) Defect substantially impairs value of goods 2) Buyer accepted due to; - Reasonable belief that defect would be cured - Difficulty discovering defect/Seller’s assurance of conformity 3) Revocation after B discovered/should have discovered defect 4) Revocation before substantial change in goods not due to defect
What are Buyer’s rights if he revokes his acceptance?
Reject all
Reject some; Accept some
What are Buyer’s rights if Seller ships non-conforming goods as accommodation?
Acceptance
Rejection - Counteroffer (NO contract => NO damages)
What are Buyer’s rights if Seller causes defect in installments?
Defect substantially impairs single instalment; - If curable => Buyer must accept - If NOT curable => Buyer may reject (single instalment, not entire contract)
Defect substantially impairs entire contract; - Buyer may reject (entire contract)
What are Buyer’s rights if Seller makes single delivery of non-conforming goods?
If Seller does NOT deliver cured goods => Buyer may reject
If Seller delivers cured goods => Buyer must accept
How can Seller cure non-conforming goods in single delivery?
Curable within time for performance 1) Seller notifies Buyer of intent to cure 2) Seller tenders conforming goods to Buyer
Curable beyond time for performance 1) Seller notifies Buyer of intent to cure 2) Seller has reasonable cause to believe non-conforming goods would be acceptable - Based on trade/Seller + Buyer’s previous dealings - Based on Seller’s lack of ability to discover defect
What are Buyer’s rights if Seller ships non-conforming goods/not all of the goods?
Accept ALL/some + Sue for damages
Reject ALL/some + Sue for damages
What is required for assignment?
1) Assignable right 2) Complete + Immediate intent to assign (objective) - Oral - Written (wages/land interest/security interest) 3) Adequate description of assignment 4) NO consideration - Gratuitous assignment effective
What is an assignable right?
Clause prohibiting assignment of ‘the contract’ - Only bars delegation Clause prohibiting assignment of ‘contractual right’ - Assignor only has power to assign (not right to assign) - Obligor can sue for breach (assignment) Clause prohibiting assignment of right to receive payment
What is not an assignable right?
Unique personal services (substantially change Obligor’s duty) - Lawyers/doctors/physicians/architects/author - NOT construction/repair (assignable)
Requirements/Outputs contract (substantially change Obligor’s duty) - Disproportionate to contemplated quantity
Future right of future contract - NOT future right of existing contract (assignable)
Law prohibiting assignment (public policy) - Government pensions - Alimony Clause prohibiting assignment as ‘void’ - Voidable (by Obligor)
Notice of non-assignment clause given to Assignee
What is the disadvantage of an oral and gratuitous assignment (no consideration)?
Revocable
What is the procedure for assignment?
1) Assignment revokes privity between Obligor + Assignor 2) Assignment creates privity between Obligor + Assignee 3) Assignee notifies Obligor of assignment 4) Obligor must tender performance for Assignee
What is required for a revocable assignment?
1) Gratuitous assignment 2) Either; - Assignor’s death - Assignor’s bankruptcy - Assignor notifies Obligor/Assignee - Obligor performs for Assignor (Assignee can sue Assignor for remaining performances) - Assignor assigns to another Assignee
What is required for an irrevocable assignment?
Assignment for value - Consideration - Payment of preexisting debt Gratuitous assignment, but; - Obligor performed for Assignee - Token chose delivered (tangible claim) - Simple chose assigned in writing (intangible claim) - Assignee’s detrimental reliance on assignment
What are Assignee’s rights against Obligor?
Sue for Obligor’s performance to Assignee
What are Obligor’s rights if Assignee sues Obligor?
Obligor can use defenses inherent in contract vs Assignee
Promisor can use same defense vs Assignee/Assignor
Defenses - Illegality - Impossibility - Lack of assent - Lack of consideration - Failure of condition
What is required for Assignee to sue Assignor?
1) Assignment for value (irrevocable) 2) Breach of implied warranties - Assignor has not made same previous assigments - Assigned right is not subject to undisclosed defences - Assignor will not interfere with assignment 3) Obligor capable of performing (solvent)
What is required for a subsequent assignment to revoke the original assignment?
If original assignment was revocable => Subsequent assignment revokes original assignment
If original assignment was irrevocable => Subsequent assignment revokes original assignment if; 1) Subsequent assignee paid value/not notified of original assignment 2) Either; - Subsequent assignee gets first judgment/payment claim/token chose delivery vs Obligor - Subsequent assignee is party to novation releasing Assignor - Subsequent assignee can use promissory estoppel vs Original assignee
What is the difference between Assignee and TP beneficiary?
Assignee - Exists after contract is made
TP Beneficiary - Exists at the time contract is made
What is required for delegation?
1) Delegable duty 2) Present intent to delegate - Oral - Written
What is not a delegable right?
Personal judgment/skill - Exculpatory clause
Special trust in Delegator - Client relationship
Materially changing Obligee’s expectancy
Contract prohibition on assignment - Assignment still allowed - Delegation not allowed
When may Obligee sue Delegator?
Delegate fails to perform for Obligee
When may Obligee sue Delegate?
1) Delegate assumed duty to perform for Obligee (express/implied) - Assigning ‘the contract’ - Assigning ‘all my rights under the contract’ 2) Delegate fails to perform 3) Delegator gave consideration to Delegate - Delegate-Delegator contract - Obligee (as TP beneficiary) can sue Delegate (as Promisor)
What is required for an intended TP beneficiary?
Identified in contract - NOT incidental
Receives direct performance from Promisor Relationship w/ Promisee
What types of TP beneficiaries are there?
Creditor TP - Promisor to perform for TP a debt owed by Promisee to TP
Donee TP - Promisor to perform for TP a gift intended by Promisee to TP
When may TP enforce the contract?
TP’s rights must be vested - TP assents to contract (in manner invited by parties) - TP sues to enforce contract - TP materially changes position (justifiable reliance on contract) - Contract expressly states vesting
When may the parties modify or rescind the contract?
If TP’s rights vested => TP must consent
If TP’s rights NOT vested => TP’s consent not required
What are Promisor’s rights if TP sues Promisor?
If Promisor made ‘absolute’ promise to pay TP => Promisor can NOT use same defense vs Promisee/TP - Specified amount
If Promisor made promise to pay TP => Promisor can use same defense vs Promisee/TP - NO specified amount
Defenses - Illegality - Impossibility - Lack of assent - Lack of consideration - Failure of condition
How may TP sue Promisee?
TP creditor - Sue Promisee/Promisor (only one of them)
TP donee 1) Foreseeable reliance 2) Actual detrimental reliance 3) Can sue Promisee (by promissory estoppel) (not as TP beneficiary)
How may Promisee sue Promisor?
Recover from Promisor - Promisor fails to perform for TP Creditor (NOT Donee)
Specific performance from Promisor - TP Creditor - TP Donee (modern view - should at least obtain nominal damages) (traditional view - NO cause of action due to TP not suffering damages)
What is required to obtain monetary remedies?
1) Reasonable certainty - Lost profits (similar businesses in area/previously owned businesses) - Not speculative 2) Not avoidable with reasonable effort - Recoverable to such extent
What is the purpose of compensatory damages?
Place non-breaching party in position had Defendant performed promise
What are the types of compensatory damages?
Expectation damages 1) Substitute performance costs 2) Losses but for breach
Reliance damages - Expectation damages cannot show certain profits had Defendant performed promise - Cost of Plaintiff’s performance (Place Plaintiff in position had contract NEVER been formed)
Consequential damages - Sale of goods contracts - Reasonably foreseeable damages at time of contract + based on Plaintiff’s circumstances - Generally lost profits (losses over and above expectation damages) - Large companies (NOT new/startup companies - courts generally hesitant to award lost profits)
Incidental damages - Included in consequential damages - Seller’s incurred expenses due to Buyer’s breach (Storing/Shipping/Returning/Reselling) - Buyer’s incurred expenses due to Seller’s breach (Inspection/Receipt/Transport)
What is required for nominal damages?
1) Breach 2) NO actual loss (Nominal damages are like token damages, e.g. $1)
What is required for liquidated damages?
1) Breach damages difficult to estimate at time of contract 2) Reasonable amount - Compare probable damages v LD amount - NOT single number (e.g. $10,000) 3) NOT penalty clause
Are punitive damages generally awarded?
No (generally) - Punishes Defendant for wrongful conduct
Yes (if breach would also constitute tortious breach => Can recover punitive damages for the tortious breach, not contract breach)
What is Buyer entitled to if Seller fails to deliver goods/Buyer rejects?
1) Either; - Difference between Contract price vs Market price (when Buyer learns breach) - Difference between Contract price vs Replacement price (Cover)
2) Incidental damages
3) Consequential damages
4) LESS expenses saved by Seller’s breach
What is Buyer entitled to if Seller delivers non-conforming goods/Buyer accepts?
1) Difference between Non-conforming price vs Conforming price - Buyer must notify defect to Seller within reasonable time - Otherwise Buyer loses right to sue 2) Incidental damages 3) Consequential damages
What is required for consequential damages in sale of goods?
1) Seller should have known Buyer’s requirements - Buyer in business of reselling goods - Buyer used goods in manufacturing 2) Subsequent loss could NOT be reasonably covered - Unlike CD for compensatory damages
What is Buyer entitled to if Seller anticipatorily breaches a sale of goods contract?
Difference between Contract price vs Market price (when Buyer learns breach)
NO consequential/incidental damages
What is Seller entitled to if Seller delivers conforming goods and Buyer rejects/repudiates?
1) Difference between Contract price vs Market price (at delivery)
If NOT adequate; - Difference between Contract price vs Resale price + Resell goods; and/or (if not adequate) - Difference between Contract price vs Lost profits (Lost volume seller only - Unlimited supply where Seller can obtain all goods he can sell)
2) Incidental damages
3) LESS expenses saved by Seller’s breach
What is Seller entitled to if Buyer failed to pay/rejected and not resaleable/risk of loss is on Buyer?
Contract price
