Contracts Flashcards
GOVERNING LAW
Governing Law
Contracts for the sale of goods are governed by Article 2 of the Uniform Commercial Code. Most other contracts are governed by the common law of contracts.
Contracts may be mixed (or “hybrid”) in the sense that they contains both sale-of-goods aspects (the sale of equipment and tools used in the pottery-making process) and nongoods aspects (the apprenticeship training). In such a hybrid contract, involving both goods and non goods, courts typically use a “predominant purpose” test to determine which body of law applies to the whole contract, rather than dividing the contract into goods and nongoods aspects.
Common law principles remain applicable, though, to the extent not displaced by the UCC.
GOVERNING LAW
Article 2 of the UCC
Article 2 of the Uniform Commercial Code applies to transactions in goods. Goods includes all things movable at the time of their identification to the contract for sale, so the computer constitutes goods.
UCC
Sale of Goods Contracts
Article 2 of the Uniform Commercial Code. UCC § 2-204(1) provides that a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. Thus, UCC § 2-204(1) is satisfied and there is a contract for the supplier to sell, and the grocer to buy, 100 shopping carts.
UCC
Statute of Frauds: Sale of Goods $500+
UCC § 2-201(1) provides that except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought. Therefore, where the contract for goods is for a total price of $500 or more, it is subject to the writing requirement of UCC § 2- 201(1) unless an exception applies.
UCC
Enforcing Contract Against a Supplier
In order for the document to be sufficient to make the contract enforceable against the supplier under UCC § 2-201(1), however, the document must be signed by the supplier.
UCC § 2- 201(2) provides an exception that if the contract is between two merchants and within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.
UCC § 2-201(3)(a) causes a contract to remain enforceable if the goods are specially manufactured for the buyer and are not suitable for sale to others.
UCC
Warranty of Fitness for Particular Purpose
Under UCC § 2-315, when a seller of goods has reason to know both the buyer’s particular purpose for the goods and that the buyer is relying on the seller’s skill or judgment to select goods appropriate for that purpose, the contract contains an implied warranty that the goods are fit for that purpose unless the warranty is excluded or modified as provided in UCC § 2-316.
UCC
Instances where Implied Warranty for Fitness may be Excluded
Under UCC § 2-316(2), the implied warranty of fitness may be excluded by language that is sufficient for that purpose, so long as it is in writing and is conspicuous. The statute explicitly provides that a statement that “there are no warranties which extend beyond the description on the face hereof” is sufficient to exclude all implied warranties of fitness, so the language of the 12th paragraph of terms and conditions on the back of the purchase agreement is sufficient language to exclude the implied warranty here. In addition, the statement is in writing, so that requirement is satisfied.
UCC § 2-316(3) presents an alternative method to disclaim the implied warranty of fitness for a particular purpose. It provides that, unless the circumstances indicate otherwise, all implied warranties are disclaimed by expressions like “as is,” “with all faults,” or “other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty.” While the text of § 2-316(3) does not state that those expressions also must be presented conspicuously, cases have so held. It is unlikely that a court would hold that the 12th paragraph of terms and conditions would satisfy the alternative requirements of UCC § 2-316(3).
CONTRACT FORMATION
Offer
A person makes an offer when the person communicates to another 1) a promise, undertaking or commitment to enter into a contract; 2) with its terms certain and definite; and, 3) communication of the promise and terms to the offeree.
UCC
UCC Acceptance
Acceptance occurs under UCC § 2-606(1) when the buyer (a) after reasonable opportunity to inspect the goods, signifies to the seller that the goods conform to the contract or that the buyer will retain them despite nonconformity, (b) after reasonable opportunity to inspect the goods, fails to reject them within a reasonable time, or (c) does any act inconsistent with the seller’s ownership of the goods.
An offeree may accept an offer and thereby create a contract unless the offeree’s power of acceptance has been terminated.
UCC
UCC Revocation of Acceptance
A buyer who has accepted goods may revoke that acceptance under limited circumstances. UCC § 2-608. There are three basic requirements. First, revocation must occur within a reasonable time after the buyer discovers or should have discovered the ground for it. Second, the goods must fail to conform to the contract and that nonconformity must substantially impair the value of the goods to the buyer. Finally, if the buyer accepted the goods without discovery of their nonconformity, the acceptance must have been reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances.
COMMON LAW
Common Law Revocation of offer
Under the common law of contracts, an offer may be revoked by the offeror at any time before acceptance unless an option contract is created limiting the power of revocation.
Under the common law of contracts, an offer may be revoked by the offeror at any time before acceptance unless an option contract is created limiting the power of revocation. No option contract is created where there is no consideration for the promise to keep the offer open, and there was no writing reciting a purported consideration. As the Restatement notes, a promise to hold an offer open may also be made binding by statute.
An offer is revoked when the offeree “receives from the offeror a manifestation of an intention not to enter into the proposed contract.”
UCC
Rightful Revocation: Damages
Under UCC § 2-711, when a buyer rightfully rejects goods or justifiably revokes their acceptance, in addition to recovering the purchase price, the buyer is entitled to damages under UCC § 2-713. Under that section, the buyer is entitled to the difference between the contract price of the goods for which he contracted and their market price.
REMEDIES
Damages for Expected Performance of a Contractor
Generally, the party injured by a breach of contract has a right to damages based on the party’s expectation interest. Such damages are “intended to give him the benefit of his bargain by awarding him a sum of money that will, to the extent possible, put him in as good a position as he would have been in had the contract been performed.”
REMEDIES
Consequential Damages
Under the rule announced in the landmark case of Hadley v. Baxendale, as currently applied in almost every state, such damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. Loss may be foreseeable as a probable result of a breach if it follows from the breach either in the ordinary course of events or as a result of special circumstances beyond the ordinary course of events that the party in breach had reason to know of.
Consequential damages (e.g., lost profits) are recoverable only if the nonbreaching party proves the dollar amount with reasonable certainty.
Consequential damages (ie., losses arising from a nonbreaching party’s special circumstances) are appropriate if the breaching party:
1. knew about the special circumstances; or,
2. could have reasonably foreseen the harm, in light of the circumstances, that would result from a breach.
REMEDIES
Duty to Mitigate
In addition to foreseeability, consequential damages can be limited for reasons related to “mitigation” or “avoidability.” As a general rule, a party cannot recover damages for loss that the party could have avoided by reasonable efforts. Once a party has reason to know that performance by the other party will not be forthcoming, the party is expected to take such affirmative steps as are appropriate in the circumstances to avoid loss by making substitute arrangements or otherwise. Thus, the amount of loss that the aggrieved party could reasonably have avoided by stopping performance, making substitute arrangements, or otherwise is simply subtracted from the amount that would otherwise have been recoverable as damages.
Affirmative steps to avoid loss are not required, however, if they would involve undue risk, burden, or humiliation.
TERMS
Parol Evidence Rule
Whether the terms of an oral agreement that predates a written agreement are part of the resulting contract is determined by application of the “parol evidence rule.” The common law parol evidence rule applies if a contract has been reduced to a writing that is “integrated”; that is, constituting a final expression of one or more terms of an agreement.
The effect of the integrated writing under the common law parol evidence rule depends on whether the writing is “completely integrated” or only “partially integrated.” A completely
integrated agreement, one that is adopted by the parties as a complete and exclusive statement of the terms of the agreement discharges prior agreements to the extent that they are within its
scope. If the writing is only partially integrated (i.e., sets forth the parties’ final agreement about some, but not all, the terms), the parties can introduce supplemental evience (oral or written) that is consistent with the writing and does not contradict its terms.
The parol evidence rule does NOT bar evidence of prior or contemporaneous communciations between contracting parties when the evidence is offered to establish a defense to enforceability (e.g., unconscionability).
COMMON LAW
Contract Modification
Under the common law, an agreement modifying an existing contract, like other promises, generally must be supported by consideration.
While there are exceptions to the consideration requirement for modifications, such as the rule in Restatement (Second) Section 89(a) that consideration is not required if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made.
Good Faith and Fair Dealing Covenant
The implied covenant of good faith and fair dealing, which exists in every contract, requires that both parties do nothing to prevent performance by the other party.
CONTRACT FORMATION
Valid Contract
A valid contract requires mutual assent – an offer and acceptance – and consideration.
CONTRACT FORMATION
Acceptance
Acceptance is an unqualified assent to the terms of the offer.
CONTRACT FORMATION
Counter-offer
A counter-offer operates as a rejection of the original offer and a new offer.
CONTRACT FORMATION
Conditional Acceptance
A conditional acceptance operates as a rejection and a counter-offer.
CONTRACT FORMATION
Consideration
Consideration is a bargained for exchange for a return promise or performance.
DEFENSES TO ENFORCEABILITY
Consideration: Material Benefit (moral consideration) Rule
Some states recognize an exception to past consideration limitation in cases in which the promise is made after receipt of a significant benefit. Under the material benefit rule, a promise not supported by consideration may be enforceable if it is made in recognition of a benefit previously received by the promisor from the promisee. However, the material benefit rule does not apply if the promisee conferred the benefit as a gift, or to the extent that the value of the promise is disproportionate to the benefit conferred.
DEFENSES TO ENFORCEABILITY
Consideration: Pre-existing Duty Rule (common law only)
Promise of performance of a legal duty already owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration
Exception: Unanticipated changes—Under the Second Restatement of Contracts, a promise modifying a duty under a contract not fully performed on either side is binding even if not supported by consideration, if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made. The issues are whether the modification was in fact “fair and equitable” and whether it can be justified in light of unanticipated circumstances. In many cases in which modifications have been upheld, a party encountered difficulties or burdens in performing far beyond what was knowingly bargained for in the original contract, with the result bordering on impracticability.
COMMON LAW
Modification
Under the common law, an agreement modifying an existing contract, like other promises, generally must be supported by new consideration, which requires both parties to alter their duties in some way.
Remember, performing or promising to perform a pre-existing duty is insufficient for consideration and will not support a modification.
Exception to consideration requirement—Under the Restatement (Second), consideration is not required if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made.
UCC
Modification
Unlike common law, an agreement modifying a contract under the UCC needs no consideration to be binding. Even though consideration is not required, modifications must be made in good faith. Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing.
DEFENSES TO ENFORCEABILITY
Duress
A contract is voidable on the ground of economic duress by threat when it is established that a party’s manifestation of assent is induced by an improper threat that leaves the party no reasonable alternative. In order to void its agreement, the party must demonstrate that:
- a threat was made;
- the threat was improper or wrongful;
- the threat induced a party’s manifestation of assent to the modification; and,
- the threat was sufficiently grave to justify the party’s assent.
DEFENSES TO ENFORCEABILITY
Statute of Frauds
Under the Statute of Frauds, a contract must be in writing if it involves: consideration for marriage; the contract can’t possibly be performed within one year (i.e., 1 year+); creation or conveyance of any interest in land; executor; the sale of goods of $500 or more, or a promise to pay the debt of another.
DEFENSES TO ENFORCEABILITY
Statute of Frauds: UCC Writing Requirements
For the sale of goods of $500 or more, the UCC requires the writing include the quantity of the goods and signed by the party to be charged with breach. The UCC interprets “signature” broadly—a party’s letterhead is sufficient.
DEFENSES TO ENFORCEABILITY
Statute of Frauds: Sale of Goods Enforcement
The contract is not enforceable beyond the quantity of goods shown in such writing.
UCC
Merchant’s Confirmatory Memo
Under the UCC, a written confirmation between merchants satisfies the statute of frauds as to both parties if it:
1. is sent within a reasonable time,
2. satisfies the statute of frauds (i.e., signed writing AND quantity stated); and,
3. is not objected to in writing within 10 days.
BREACH
Material Breach/Substantial Performance
Under the common law doctrine of substantial performance, a party that breaches a contract is nonetheless entitled to the other party’s performance if the breaching party has not “materially breached” the contract, but instead has “substantially performed.” Courts consider several factors in determining whether there has been a “material breach” by one party that excuses the injured party’s performance:
1) The extent to which the injured party will be deprived of a benefit he or she reasonably expected;
2) The extent to which the injured party can be adequately compensated for the part of the benefit of which he or she will be deprived;
3) The extent to which the party failing to perform will suffer forfeiture;
4) The likelihood that the party failing to perform will cure that failure; and,
5) The extent to which the behavior of the party failing to perform comports with standards of good faith and fair dealing.
Willful breach—Some courts have held that when a party’s breach is “willful,” that party’s performance cannot be substantial, regardless of the impact of denying that party the right to enforce the obligations of the other. Other cases, however, have held that even a conscious and intentional departure from the contract specifications will not necessarily defeat recovery, but may be considered as one of the several factors involved in deciding whether there has been full performance.
If a party fails to substantially perform its contractual obligations, the other party is excused from its obligation to pay on the contract.
BREACH
Promissory Estoppel
Under the doctrine of promissory estoppel, a breaching party may recover for damages if they detrimentally relied on the promise of the promisor before acceptance. Promissory estoppel requires:
- the promisor, when making the promise, should have reasonably expected that the promisee would change his position in reliance on the promise;
- the promisee did in fact change position in reliance on the promise;
- the change in position was to the promisee’s detriment and injustice can be avoided only by enforcing the promise.
BREACH
Divisible Contracts
If the breaching party’s performance on the contract is divisible, the breaching party may be entitled to some payment. A contract is divisible if the performances to be exchanged can be divided into corresponding pairs of part performances in such a way that a court will treat the elements of each pair as if the parties had agreed they were equivalents.
REMEDIES
Expectation Damages
The normal measure of damages for breach of contract is expectation damages, which aim to give the nonbreaching party the benefit of the bargain. Expectation damages must be foreseeable, and proved with reasonable certainty.
(FMV – K; K – Cost of Sale)
REMEDIES
Punitive Damages
Punitive damages are not generally recoverable as an element of damages in a breach of contract action unless the conduct constituting the breach is also a tort for which punitive damages can be recovered.
REMEDIES
Restitution
A party is entitled to restitution for any benefit that was conferred by way of part performance that would unjustly enrich the other party. The measure of restitution damages is the value of the benefit conferred less the innocent party’s damages (i.e., incidental and consequential damages).
REMEDIES
Damages for Breach of a Construction Contract
The general rule of damages for a breach of a construction contract is that the injured party may recover the reasonable cost of replacement or completion. When, however, there has been substantial performance of the contract and the cost of replacement or completion would be disproportionately high compared to the economic benefit it confers (e.g., $7,000 to replace v. $500 decrease in market value), courts have instead measured damages by the difference between the value of the property if construction had been properly completed and the value as constructed (e.g., $10,000 -$500).
CONTRACT FORMATION
Advertisements
Advertisements are generally not offers, unless there is a quantity. Otherwise, they are merely an invitation to an offer.
Advertisements are offers if it:
1. specifies the subject matter, quantity, and price; and,
2. places a reasonable time limit on who may accept the offer.
A revocation of a general offer is only effective if it publicized at least as heavily as the offer.
REVOCATION
Irrevocable Contracts
Offers may not be revoked if they are: 1) option contracts; 2) firm offers; 3) offers where there was foreseeable reliance; or, 4) a unilateral contract that has become irrevocable due to start of performance.
REVOCATION
Revocation
A revocation terminates the offeree’s power of acceptance if it is communicated to the offeree before she accepts. A revocation can be communicated directly, or indirectly if 1) the offeror engages in conduct that indicates she’s changed her mind; and, 2) offeree is aware of the conduct.
REVOCATION
Option Contracts
An option contract is a promise to keep the offer open that is paid for. If there is no consideration, the option contract is revocable.
Revocation occurs when:
1. the offeror directly communicates the revocation to the offeree; or,
2. offeree obtains reliable information that reasonably indicates the offer was revoked.
If revocation occurred and offeree did not know, offerror is in breach.
REVOCATION
Merchant’s Firm Offer
A merchant’s firm offer must be in writing and, by its terms, gives assurances that the offer will be held open. If no time is stated, it will be held open for a reasonable time. After three months, the offer becomes revocable. However, if it is not revoked by the merchant, the offeree may still accept the offer.
A merchant’s firm offer to buy or sell goods is irrevocable for the time stated in the offer, or if no time is stated, for a reasonable time (not to exceed 3 months in either case). Once the offer becomes revocable, it may lapse (just like any other revocable offer) if it is not accepted within a reasonable time. **look at facts to determine reasonable time.
REVOCATION
Mailbox Rule
Under the mailbox rule, an offer can be accepted by mail and will be effective upon dispatch, if a mailing is a reasonable method of communicating acceptance.
Any attempt to revoke offer after this is ineffective.
CONTRACT FORMATION
When Nonbinding Offer becomes Binding Offer
An offer that is illusory will become legally binding if:
1. circumstances change such that the offer imposes obligations on both parties; and,
2. the offer is accepted after the change in circumstances.
illusory example: manufacturer receives a purchase order with right to cancel and then sends response accepting offer. becomes binding when right to cancel expires and manufacturer ships conforming goods.
UCC
Doctrine of Impracticability
Under the UCC, the doctrine of impracticability will excuse a seller’s nonperformance (e.g., late or nondelivery of goods) if:
- an unanticipated or extraordinary event made it impossible or commercially impracticable for seller to perform as agreed; and,
- contract was formed under a basic assumption that the event would not occur.
BUT, this doctrine does NOT apply if seller assumed the risk of event–e.g., the circumstances indicate the seller foresaw the risk yet failed to make a contractual provision for it.
UCC
Seller’s recovery when buyer fails to pay
A seller can only recover the contract price of the goods after the buyer failed to pay if:
- buyer accepted the goods;
- goods were lost or damaged within a commercially reasonable time after the risk of loss passed to the buyer; or,
- buyer returned or rejected the goods and seller could not resell them.
3RD PARTIES
Intended Beneficiary
An intended beneficiary’s contractual rights vest when the beneficiary:
- detrimentally relies on the rights created;
- manifests assent to the contract; or,
- files a lawsuit to enforce it.
Any effort to rescind or modify the contract after vesting is void, UNLESS the beneficiary agrees to the rescission or modification.
UCC
Statute of Frauds: Exception for Partial Payment
no writing, but buyer partially paid
Under the UCC, contracts for the sale of goods for $500 or more must be in writing and signed by the party against whom enforcement is sought for it to be enforceable.
However, a partial payment for separable goods renders the contract enforceable only up to the quantity paid for in full, while a partial payment for an indivisible good renders the entire contract enforceable.
BREACH
Anticipatory Repudiation
Anticipatory repudication occurs when a contracting party clearly and unequivocally, by words or actions, indicates that she will not perform. Upon repudiation, the nonrepudiating party can suspend her own performance and either:
- treat the repudiation as a breach and sue; or,
- ignore it and demand performance.
Breaching party does not need to inform other party of repudiation; it can be implied.
3RD PARTIES
Incidental Beneficiary
Intended beneficiaries receive a direct benefit, while incidental beneficiaries receive an indirect benefit.
Incidental beneficiaries do not have contractual rights.
Courts glean intent from what the parties said in their contract, not what they allegedly meant.
example of incidental: A promises to buy B a car manufactured by C.
example of intended: A promises to paint B’s house if B promises to pay $500 to C.
CONTRACT FORMATION
Consideration: Pre-existing Duty Rule in Debt Cases
Under the pre-existing duty rule, a debtor’s promise to pay all or part of a liquidated debt (i.e., one that is certain and undisputed) is not sufficient consideration to support a creditor’s return promise.
TERMS
Admissibility of Prior Agreements/Negotiations
Even where a contract is completely integrated (e.g., as evidenced by a merger clause), parol evidence can be used to prove the existence of a separate collateral agreement supported by its own consideration (e.g., lessons in exchange for $50/violin lessons).
CONTRACT FORMATION
When Mailbox Rule does not apply
The mailbox rule (i.e., acceptance effective upon dispatch) does not apply if it is inconsistent with the offer’s terms, such as when the offer states that acceptance is effective only on receipt.
The mailbox rule does NOT apply if the offeree first sends a rejection (generally effective upon receipt) and then an acceptance (generally effective upon dispatch). In that case, whichever communication is received first controls.
acceptance –> dispatch
rejection –> receipt
UCC
Firm Offer Rule
Under the UCC firm offer rule, a merchant’s written and signed assurance that an offer will remain open is irrevocable for the time stated in the offer (i.e., irrevocable until the deadline).
CONTRACT FORMATION
Objective theory of contracts
Contract formation requires mutual assent, which occurs when both parties objectively convey their assent to enter a binding agreement. The resulting contract cannot be rescinded due to one’s secret intent not to be bound.
EXCUSE TO PERFORMANCE
Constructive conditions
Each party’s performance of its own promise is a constructive (ie., implied) condition precedent to the other party’s duty to perform. If either party fails to substantially perform, the other party’s duty is excused.
Example: fleet owner failed to substantially perform his end of the bargain by purchasing from another supplier. thus, the dealer’s duty to use the owner’s wife’s agency (intended beneficiary) was excused.
UCC
UCC gap fillers
The UCC fills the gap when certain terms are missing from a sale of goods contract.
For example, the gap filler for the place of delivery is generally the seller’s place of business if the seller has one.
And unless the contract specifies otherwise, payment is due at the time and place the buyer is to receive each shipment of goods.
DELAY OF PERFORMANCE
Condition precedent
A condition precedent delays performance until a specified event occurs and requires the plaintiff to prove event occurred to prevail.
delays and creates duty/obligation
EXCUSE OF PERFORMANCE
Condition subsequent
A condition subsequent excuses performance once a specified event occurs and requires the defendant to prove that the event occurred to avoid liability.
extinguishes duty/obligation
REMEDIES
Recovery for buyer in sale of land contract
When a seller breaches a land sales contract by refusing to sell the property to the buyer, the buyer can recover for loss of bargain – i.e., the FMV of the property on the date of the breach minus the contract price.
FMV on date of breach - K price = recovery expectation damages.
Weighing public policy v. interest in enforcing illegal contract
Illegal contracts are generally void as against public policy. But, when a party does not have a required license, the enforceability of the contract depends on whether the purpose behind the requirement is:
- economic, in which case the contract is enforceable; or,
- regulatory, in which case contract is unenforceable if the public policy behind the requirement clearly outweighs the interest in enforcement.
Statute of Frauds: Suretyships
Under the Statute of Frauds, certain contracts must be in writing. This includes suretyships–ie., contracts in which one party (surety) promises a second party (obligee) that the surety will answer for the debt of a third party (principal).
Exception to Pre-Existing Duty Rule
A promise to perform a pre-existing duty is generally unenforceable. But, a debtor’s renewed promise to pay all or part of a pre-existing debt is enforceable if:
- the debtor renewed her promise despite a technical defense (e.g., statute of limitations); and,
- the renewed promise was made in writing or partially performed.
example: statute of limitations barred recover on lender’s claim against debtor for $1500. Despite defense, debtor made renewed promise to pay $500 of pre-existing debt, so it’s enforceable.
Contract negotiations by mail
Acceptance by mail is:
1. permitted if mail is a reasonable method of communicating acceptance (e.g., if offer was communicated by mail); and,
2. effective upon dispatch (i.e., when acceptance is properly addressed and placed with the postal service with paid postage).
Misunderstanding
A misunderstanding occurs when the contracting parties attach different meanings to the same material term. This prevents contract formation when neither OR both parties know or have reason to know of the misunderstanding.
If only one party has misunderstanding, there is still a valid contract.
UCC
UCC Parol Evidence Rule
The UCC parol evidence rule allows the use of trade usage evidence to explain or supplement the terms of a final, written contract so long as the evidencce is reasonably consistent with, not negated by, those terms.
UCC
Seller’s response to buyer’s offer for prompt shipment
Under the UCC, an offer to buy goods for prompt shipment can be accepted by:
1. promising to ship the goods;
2. shipping conforming goods; or,
3. shipping nonconforming goods without a notice of accommodation. However, the shipment of nonconforming goods without a notice of accommodation is also a breach of the resulting contract.
When buyer orders good for prompt shipment
If seller promises to ship goods, this is an acceptance and buyer must pay for goods.
If seller ships conforming goods, this is an acceptance + performance and buyer must pay for goods.
If seller ships non-conforming goods with notice of accommodation, this is a rejection + counteroffer, and buyer may accept or reject goods.
If seller ships non-conforming goods without notice of accommodation, this is an acceptance + breach, and buyer may accept or reject goods + sue for breach.
COMMON LAW
“no oral modification” clause
Common law ignores “no oral modification” clauses and allows written contracts to be modified by subsequent oral agreements, unless the modified ccontract falls within the staute of frauds.
Nondelegable contractual duties
Delegation of contractual obligations is permitted unless:
- the other party to the contract has a substantial interest in having the delegating party perform; or,
- the delegation is prohibited by the contract.
After a delegation, the delegating party remains liable under the contract, unless the other party agrees to release and substitute a new one (ie., agreed to a novation).
Unconscionability
A party may assert the defense of unconscionability if the bargaining process and/or terms of the contract were so unfair to that party when the contract was made that no reasonable person would have agreed to it.
Compensatory damages in employment contract actions
Following an employer’s breach of an employment contract, employee is expected to make reasonable efforts to mitigate losses by securing comparable employment. Failure to do so results in a reduced recovery from the employer (i.e., unpaid salary–loss that could’ve been avoided by accepting comparable employment).
Example: $50,000 (contract salary offer) - $47,000 (alternative employment salary) = $3,000 (compensatory damages)
Liquidated damages
Where it would be difficult to establish actual damages, the parties may agree to liquidated damages–i.e., fixed measure of damages for breach set forth in the contract.
No unjust enrichment occurs if parties agreed to liquidate damages in contract.
Risk of loss when seller delivers goods by 3rd party carrier with no location specified
A contract that requires the seller to deliver the goods by 3rd party carrier but does not specify a delivery location is a shipment contract.
Under such a contract, risk of loss shifts to the buyer when the seller delivers the goods to the carrier and makes a proper contract for their shipment.
UCC acceptance method
Under the UCC, a sale of goods contract can be made in any manner sufficient to show the parties’ agreement–even if they negotiate in an unusual way that makes the moment of acceptance uncertain (e.g., identical cross-offers–can operate as an offer and acceptance only if the parties understood them to have the effect of forming a contract).
Lapse/Reasonable time for acceptance
An offer will lapse if it is not accepted within a reasonable time stated in the offer.
If no time i stated, the offer will lapse within a reasonable time–e.g., before the conversation ends in a face-to-face negotiation.
Exculpatory clause/delegation liability
An exculpatory clause releases a party from liability for damages caused during the execution of the contract.
This would include damages caused by a delegatee, so the party to be released cannot delegate his duties without the other party’s consent. This goes against controlling principle that a delegating party is not relaesed from liability for damages caused by a delegatee unless the other party to the contract expressly agrees to a release.
UCC
UCC seller’s acceptance of buyer’s offer
Under the UCC, a seller can accept an offer (e.g., purchase order) by shipping or promising to ship the ordered goods. Accceptance by shipment is effective immediately and creates a contract with terms identical to those of the offer.
Once created, the contract cannot be modified unless both parties agree to this (e.g., if acknowledgment form sent with new terms and other party does not agree, it does not become part of the contract).
If either party breaches, the other party can recover consequential damages (e.g., lost profits).
COMMON LAW
Land contracts/essential terms
Land sale contracts are governed by common law. At common law, all essential terms must be covered in an agreement, and those terms must be sufficiently certain and definite.
The property description in a land sales contract meets this standard if it allows the court to determine the exact property being sold.
When nonoccurence of condition excused
Nonoccurrence of a condition may be excused if the party who benefits from condition waives it by words or conduct.
Example: parent company CEO said they’ll testify that company would have approved contract –> ie., satisfy condition.
UCC
When repairs fail to restore goods to warranted value
When repairs fail to restore goods to their value as warranted, the buyer’s damages are equal to the cost of repairs plus the difference between the value of the goods after the repairs and the value of the goods as warranted.
repairs + (value of goods as warranted - value after repairs).
Permanent employment contracts
A contract for permanent employment creates an at-will employment relationship that entitles either party to terminate the contract at any time and for any reason, without the termination being considered a breach.
UCC
UCC demand for assurances
The UCC gives a party with reasonable grounds for insecurity about the other’s performance (even if it’s about a different contract) the right to make a written demand for assurances that the other party will perform the contract.
Notification to enforce a contractual duty when offeror is out of the country or has no way of seeing if performance started
Notification is required to enforce a contractual duty when the offeror has no convenient way of ascertaining performance has begun. Otherwise, offeror’s contractual duty is discharged.
effect of destruction of damage to identifiable goods
When a contract deals with specifically identified goods (e.g., antique car), complete destruction of the goods excuses each party’s duty to perform if the destruction occurred: 1) without fault of either party; and, 2) before the risk of loss passed to the buyer.
irrevocable waiver of condition
Nonoccurrence of a condition precedent (e.g, agreement binding if partner approves. then, partner does not approve) may be excused if the party who benefits from the condition waives it by words or conduct.
The waiving party cannot retract the waiver if the other party has detrimentally relied on it.
When disclosure is required to avoid misrepresentation
Nondisclosure is equivalent to an assertion that a fact does not exist if the party not disclosing the fact knows that disclosure is necessary to prevent a previous assertion from being fraudulent.
Buyer’s rights under installment contract
In an installment contract for the sale of goods, the buyer must accept a nonconforming shipment if the seller gives adequate assurance that they will cure the defect.
The buyer cannot cancel the rest of the contract, unless the nonconforming shipment substantially impairs the value of the whole contract.
Acceptance by performance
An offeree who accepts by beginning performance must notify the offeror within a reasonable time that performance has begun.
When party assumes risk of mistake
Mutual mistake renders a contract voidable by the adversely affected party when:
- the mistake relates to a basic assumption of the contract;
- the mistake materially affects the agreed-upon exchange of performances; and,
- the adversely affected party did not assume the risk of mistake (analysis –> was the risk foreseeable? did they act reasonably?).
Example: a court would probably decide that the construction company assumed the risk of encountering subsurface granite because there is a foreseeable risk of encountering subsurface granite in excavation projects like this one and as a professional builder, the construction company should have been aware of the risk and so acted unreasonably by failing to hire a qualified expert to test for subsurface granite.
When party makes statement about prospective inability to perform
A party’s statements or condcut may cast doubt on its ability or willingness to perform under the contract. This prospective inability to perform is NOT a breach of the contract because unlike anticipatory breach, the party has not clearly and unequivocally refused to perform.
However, it gives the other party the right to demand assurances and suspend its own performance until assurance is provided. Failure to provide such assurance within a reasonable time (not to exceed 30 days under the UCC) constitutes a breach.
Recovery for breach of illegal contract
Illegal contracts are usually void and there is no recovery for breach.
However, a party who substantially performed and lacked an illegal purpose may recover–even if he knew of the other party’s illegal purpose (e.g., selling rifle to someone who intended to use it to hunt turkey outside of the mandated turkey hunting season)–UNLESS:
- performing party took action to further that illegal purpose; or,
- the purpose involves grave social harm.
When buyer re-sells rejected goods after seller said he would retrieve them
If a buyer wrongfully disposes of rejected goods, the seller may sue the buyer for conversion to recover the fair market value of the converted property at the time of conversion.
