Contracts Flashcards
Article 2 UCC vs Common law contracts
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.
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.
Contracts for the sale of goods
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.
Goods with a price of $500 or more are subject to the statute of frauds
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.
When an contract will be enforceable 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.
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.
Instances where the 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).
Offer
A person makes an offer when the person communicates to another a statement of “willingness
to enter into a bargain, so made as to justify” the other person “in understanding that his assent to that bargain is invited and will conclude it.”
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 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 revocation of acceptance
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.”
Rightful revocation triggers entitlement to 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.
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.”
Consequential losses
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.
Duty to mitigate when claiming damages
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.
Parole 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., integrated but not completely integrated), it
discharges prior agreements only to the extent that the written agreement is inconsistent with the prior agreement.
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.
