Contracts Flashcards
Difference between Consequential and Incidental
Consequential - damages resulting from breach but arise out of special circumstances unique to the parties
Incidental - commercially reasonable expenses incurred as a result of the breach
SoF exception for UCC
- Specially Manufactured Goods
- Partial payment or Full Performance
- Receipt and acceptance of goods
- Failure to object to signed confirmation memo within 10 days of acceptance (if both parties are merchants).
SoF UCC
Goods over 500, must be in writing, signed by party to be bound, identify quantity term.
Can be a memo sent by one party after oral agreement. If not both merchants, then receiving party needs to sign it to have it enforced against them.
When can a repudiation be retracted?
Can be retracted as long as the following has not occurred:
- other party acts in reliance on the repudiation
- other party accepts the repudiation
- other party sues for breach of contract
Course of performance, course of dealing, trade usage in UCC contract
Even if terms are unambiguous, parties to a UCC contract can introduce evidence in following heirarchal order:
Express terms
course of performance
course of dealing
trade usage
UCC seller’s remedies
- Resale: notify buyer of intent to resale, resell in good faith and commercially reasonable manner, can recover K minus cost of resale (including incidental damages such as shipping)
Implied warranty of merchantability
- Seller must be merchant
- Goods must be fit for ordinary purpose
Can be disclaimed with as is clause. Otherwise a conspicuous statement (not in writing), saying merchantability
Implied warranty of fitness for a particular purpose
- Implied whenever seller has reason to know that buyer has specific use and is relying on seller’s particular skill in selecting
- Can be disclaimed if conspicuous writing or as is clause
Impracticability (UBA)
- Performance becomes impracticable because
- unforeseeable event occurs
- non-occurrence was a basic assumption upon which K was formed
- Neither party assumed the risk or was at fault in causing the event
But, party can seek restitution for any benefit already conferred.
Frustration of Purpose
- Unexpected event occurs that destroys one parties’ purpose in entering into the K.
- Event must be so severe that it cannot be said that party assumed the risk of the event happening
-neither party at fault
Ex.- airplane lessons paid for in advance, payor dies one month before. Result? Discharged
Rescission
- Unilateral rescission - Grounds for Rescission must have existed at time K was made
- Mutually - can be rescinded by mutual agreement. Surrender of rights is sufficient consideration for rescission.
- EXCEPTION: if third party beneficiary rights have vested then cannot rescind.
Destruction/Damage to IDENTIFIED goods
- IDENTIFIED Goods are destroyed before risk of loss passes to buyer and no party is at fault - performance excused
- Good damaged - K avoided, unless Buyer chooses to take goods at reduced price with no other claim against Seller.
When does risk of loss pass to buyer? Depends on whether shipment or delivery K.
Third party beneficiary
Intended - can enforce
Incidental - cannot enforce
Rights of intended beneficiary vest when:
1 - detrimental reliance
2 - manifests assent to K at one party’s request
3 - files a lawsuit to enforce rights
Is an assignment of rights irrevocable?
It is only irrevocable if consideration is paid for the assignment. If consideration is not paid for assignment, then it is revocable.
Is assignment of K always allowed
Unless (1) it materially increases duty or risk of obligor, or (2) materially reduces risk of obligor obtaining performance, then an assignment is allowed.
Anti-assignment provision does not affect assignment of rights, only delegation of duties.
When is delegation of a K not allowed?
Delegation is not allowed when the other party to the K has substantial interest in a particular party performing the K.
Does the delegator of a K remain liable?
Yes.
Further, the delegatee is liable because acceptance of delegation constitutes a promise to perform. If consideration is given or consideration substitute then promise is enforceable.
Exceptions to SoF
Promissory Estoppel
Judicial Admissions
Parole Evidence Rule
Prevents introduction of prior or contemporaneous evidence that contradicts terms of written K.
Totally integrated - cannot introduce extrinsic evidence
Partially integrated - can introduce extrinsic evidence if it is consistent with the writing.
SUBJECT TO EXCEPTIONS
PER Exceptions
Defense to formation or enforcement
Condition precedent
Interpreting or clarifying AMBIGUITY
UCC - course of performance; course of dealing; trade usage (even if unambiguous)
Conditions vs. Promises
EXPRESS Condition must be perfectly completed (no substantial performance)
IMPLIED Condition - substantial performance
Promise - substantial performance
Order of Performance
When one party’s performance requires a period of time - they must complete before other party is obligated to perform.
When both parties can perform at the same time - both must complete at the same time.
Substantial performance
N/A to sale of goods
If one party substantially performs, they can sue for breach if other party fails to perform.
If no substantial performance, material breach. Breaching party may still be able to get restitution damages.
If breach is INTENTIONAL, then court less likely to find that breaching party substantially performed.
Perfect Tender
Perfect Goods and Perfect Delivery
Buyer has a right to inspect goods. If Buyer accepts, must pay
Shipment vs Destination Ks
Shipment K presumed - risk of loss transfers to Buyer once Seller deliver’s goods to a carrier.
Destination - risk of loss on Seller until Buyer receives the goods.
Divisible or installment Ks
CL - if divisible, recovery is limited to those parts of the K performed. Only damages are recoverable for the breach of the other segments.
UCC - installment K, not required to follow perfect tender. Substantial conformity applicable.
Construction contracts are typically not divisible
Waiver of conditions
Condition can be waived by the party who duty is subject to the condition (party who benefits from condition) by words or conduct.
Reinstated?
Material - reinstated by the party
Immaterial - can be reinstated if (1) waiving party retracts waiver before condition to occur and (2) other party has not detrimentally relied.
Can also be waived by wrongful interference or election to continue with K
Breach of K under CL - material vs minor
Material - non-breaching party can withhold performance and pursue remedy for damages
Minor - non-breaching party must perform before suing.
Anticipatory Repudiation - CL (non-breaching parties options)
If there is a clear and unequivocal breach before performance is due, non-breaching party can:
treat repudiation as breach (immediately sue, subject to condition below)
Ignore repudiation and demand performance (but must mitigate)
Cannot sue immediately if the only obligation is payment and the date for performance has not passed
Anticipatory Repudiation UCC
Unequivocal refusal from buyer or seller.
Can also occur after demand for adequate assurances -
(1) reasonable grounds for insecurity
(2) written demand adequate assurances
(3) fails to respond within 30 days
When can AR be retracted?
CL - if party has relied on the repudiation, has accepted the repudiation, or sued for breach then you cannot retract.
UCC - if other party has materially changed position or cancelled K then you cannot retract.
When are liquidated damages enforceable?
(1) actual damages uncertain at time of K
(2) liquidated damages are a reasonable approximation of the damages (either actual or foreseen)
Not enforced if it looks like a penalty
Mitigation of damages
Nonbreaching party must take reasonable steps necessary to prevent loss. Does not need to take steps that involve undue risk, expense, or inconvenience
Restitution - nonbreaching party
Can recover restitution damages UNLESS he has FULLY performed and the only remaining performance is payment of definite sum of money.
Restitution - breaching party
Usually materially breaching party can recover under restitution theory, UNLESS
(1) breach was willful OR
(2) LD says nonbreaching party retains value conferred
Reliance damages
Recoverable if reasonable reliance. CANNOT recover both expectation and reliance damages
Specific Performance Factors
Inadequate remedy at law (difficulty of calculating $)
Party seeking SP ready, willing, and able to perform
Hardship to D
Balance of equities
Practicality of order
Example - real property or unique goods
Nonconforming goods
Reject - notify seller and then recover payments made
Accept - accept by using or failing to reject. Can still seek remedies for breach of any warranties
Seller has right to cure if time for performance has not passed OR if seller had reason to believe seller would accept despite non-conformity.
Risk of Loss
Unidentified - Party in breach bears risk of loss. If no party in breach? Generally remains on seller until buyer receives goods. BUT, if contract calls for shipment via third party carrier, THEN: Shipment vs. Destination K to determine who bears loss.
Identified - Seller is excused if goods are totally destroyed due to no fault of Seller. However, if the risk of loss passed to Buyer, then Seller can still sue for payment if Buyer accepts goods.
Statute of Limitations on Sales K
Four years after cause of action accrues (doesn’t matter if party doesn’t know)
When is an offer terminated?
- Lapse of time
- Death - unless option contract
- Destruction of property or illegality
- Revocation - any time prior to acceptance EXCEPT:
- Option K
- UCC firm offer
- Offeror merchant (or businessperson)
- Authenticated Writing
- States that offer will remain open
- Specific time - that specific time but not to exceed three months
- Not specific time - 3 months
- Still open after that until revoked maybe
- Promissory estoppel
- Partial performance
- Rejection
Can assignee of contract enforce the contract?
Yes, they take all the rights of assignor at the time of assignment (also subject to defenses against assignor, though)
SoF Exception for Surety
If surety entered into for surety’s own economic benefit, rather than the principal’s benefit, it does not need to comply with SoF.
Misrepresentation
Can succeed if (false statement of fact that is:)
1- material (even if innocent) or fraudulent
2- misrep induced assent to K
3- P justifiably relied on misrep
If fraudulent, then depends on whether in factum or in inducement.
If inducement, then voidable
If factum, then void
Modification of Contract (UCC vs CL)
- CL - must be supported by new consideration (new obligations). BUT
- rescind old K and enter new one valid
- unanticipated difficulties arise that make modification fair and equitable, and the parties AGREE
- UCC - no new consideration required, only requires good faith
UCC Mirror Image Rule
- One or both parties are not merchants:
- new/different terms are seen as new additions (offers) that must be accepted by the other party
- Both parties are merchants (battle of the forms)
- Additional/new terms are part of K unless:
- Materially different
- offer limits acceptance to those terms
- offeror objects to new terms within a reasonable amount of time
- Different terms:
- both are knocked out and the court fills in with UCC gap filler provisions
- If K fails because of knock out but parties continue to perform, UCC recognized contract to the extent the terms agree.
- Additional/new terms are part of K unless:
Mailbox Rule
- Acceptance effective when sent, EXCEPT:
- If sent after rejection, then whichever gets there first
- If sent before rejection, then acceptance will be valid (unless offerree detrimentally relies on rejection)
- If option contract, acceptance only effective when received.
Constructive Revocation of offer
If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked by a constructive revocation.
State the predominant purpose test
If the predominant purpose of entering into the K was the sale of goods, the UCC will apply to the entire transaction.
If the predominant purpose of entering into the K was for services, the UCC will only apply to those terms dealing with goods.
Accord and Satisfaction
Two Different Rules
Checks - if unliquidated, but disputed, claim can be satisfied by a check that states “payment in full”
If accord is for LESS than original K price, then there must be either (1) good faith dispute, or (2) the consideration is of a different kind than the original K identified consideration.
Promissory Estoppel (substitute for consideration)
Even if no consideration (e.g., a gift), a promise can still be enforceable if:
1 - promisor reasonably expects promise to induce reliance
2 - the promise actually induces such reliance
3 - Injustice can only be avoided by enforcement of the promise
Mistake - mutual and unilateral
mutual - both parties mistaken as to essential element of K.
Remedy 1 - reformation, but only if there was an agreement that later is put into writing, and the writing differs from what was originally agreed upon.
Remedy 2 - rescission, only if reformation unavailable. Can be voidable if (MBMA - Mr. Bean Makes Accidents)
1 - mistake of fact or law at time of K formation
2 - mistake relates to basic assumption of K
3 - mistake has material impact
4 - adversely affected party did not assume the risk
unilateral (also can’t rescind if assumed the risk) - can only void if:
1 - unconscionable; OR
2 - non-mistaken party failed to disclose mistake or caused, or knew or had reason to know of mistake
Duress (contracts)
If it leaves party with no meaningful choice but to enter K.
If physically compelled, VOID
If non-physically compelled (threat to file civil action), then VOIDABLE
Limitations on Consequential Damages for breach of warranty
Permitted unless unconscionable.
Per se unconscionable if consumer goods, but not if commercial goods.
When is an offer irrevocable?
Firm Offer
Option K
Partial performance on unilateral Ks
Promissory estoppel (think sub-contractor bids) - offeror can reasonably foresee reliance on bid, and offeree does rely, then it is irrevocable for a reasonable period of time)
