Contracts Flashcards
What is a contract?
A promise or a set of promises, the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty
Sales of goods are governed by _________
the Uniform Commercial Code, Article 2
What is a sale for purposes of the UCC?
A contract in which title to goods passes from the seller to the buyer for a price
What are goods for purposes of the UCC?
all things movable at the time they are identified as the items to be sold under the contract
In a contract that is for both the provision of services and the sale of goods, what law controls?
The law of the predominant part of the contract controls the entire contract.
What law controls in a mixed contract where the contract divides payment between goods and services?
UCC Article 2 will apply to the goods and Common Law will apply to the services.
Who is a merchant?
One who regularly deals in goods of the kinds sold or who otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved.
In order to be considered a merchant, a person must be acting in their ___________ capacity.
Mercantile.
For Example: If a computer sales person sells her car to her neighbor she is not acting in her mercantile capacity at the time of the sale.
Does every contract within the UCC impose an obligation of good faith in its performance and enforcement?
Yes
How does the UCC define good faith?
is honest in fact and observance of reasonable commercial standards
Does every contract within the Common Law impose an obligation of good faith and fair dealing on each party ti a contract with respect to its performance and enforcement?
Yes
Is the breach of this duty a question of law or fact?
Fact
How does a party breach their common law duty of good faith and fair dealing?
It usually involves exercising discretion in a way that deprives the other party of the fruits of the contract.
What are the three potential categories of possible contracts?
(1) express
(2) implied
(3) quasi * (not technically a contract)
How is an express contract formed?
by language, oral or written
How is an implied contract formed?
by manifestations of assent other than oral or written language, i.e. conduct.
Example: a person sits a barbers chair and the barber cuts his hair, a contract has been formed by the parties conduct
What is the goal of quasi-contract?
to avoid unjust enrichment to a party.
What can be recovered under quasi contract theory?
the value of the benefit conferred.
What is a bilateral contract?
traditionally, bilateral contract is one consisting of the exchange o mutual promises where each person is both a promisor and a promisee.
What is a unilateral contract?
traditionally, unilateral contracts are those in which the offeror request performance rather than a promise as a means of accepting the contract.
When does the offeror intend to complete their performance in a unilateral contract?
upon completion of the requested act by the promisee
When is the unilateral contract accepted (i.e. when does contract formation occur)?
Once the promisee completes the act
Most contracts are (1) bilateral or (2) unilateral?
bilateral
All offers are indifferent, meaning that they may be accepted by promising or beginning performance, UNLESS…
the terms of the offer clearly indicate others by language or circumstances.
In what two situations do unilateral contracts arise?
(1) where the offeror clearly, read unambiguously, indicates that the competition of performance is the only manner of acceptance; and
(2) where there is an offer to the public, such as a reward offer, which so clearly contemplates acceptance by performance rather than a promise that only the performance requested in the offer will manifest acceptance
What is a void contract?
a contract that is totally without any legal effect from the beginning.
Can a void contract be enforced by any party?
No.
What is a voidable contract?
a contract that one or both parties may elect to avoid
What is an unenforceable contract?
a contract that is otherwise valid, but which may not be enforceable due to various defenses extraneous to the contract formation (statute of limitations, statute of frauds)
What three basic questions will the court ask to determine whether a contract has been formed?
(1) was there mutual assent?
(2) was there consideration or some substitute for consideration?
(3) Are there any defense to the creation of a contract?
What is mutual assent?
“a meeting of the minds”
Must a contract have an actual subjective meeting of the minds in order to satisfy the requirement of mutual assent?
No. Mutual assent is determined by an objective standard.
What is the test for mutual assent?
it is an objective test, stating that each party is bound to apparent intention that he manifested to the other party
What is an offer?
a communication that creates a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.
What power is created in an offeree at the time a valid offer is made? in the offeror?
Offeree: The power to accept.
Offeror: A corresponding liability
What factors will courts look to when determining whether an offer created a reasonable expectation of the offeror willingness to enter into a contract?
(1) expression of a promise, undertaking, or commitment
(2) certainty and definiteness
(3) communication to the offeree
Must an offer state the words “I offer, or I promise”?
No.
When can a price quote be considered an offer?
when it is made in response to an inquiry that contains a quantity term.
Will the courts consider circumstancing surround the language when determining whether an offer exists?
Yes, but subjective intent is irrelevant. The standard is objective manifestation
Will the courts consider the prior practice and relationship of the parties when determine whether an offer exists?
Yes.
The use of a broad communication method makes it more/less likely that the communication will be considered an offer?
Less. It will likely be viewed as a solicitation of an offer.
Are advertisements generally construed as offers?
Generally, no but they can be.
When will an ad be treated as an offer?
when the language of the ad can be construed as contains a promise, the terms are certain and definite and the offeree is clearly identified.
Example: Store advertises a court would $140 for $1 on a first come, first served basis.
Will the courts look to industry custom in the industry when determining if an offer has been made?
Yes.
When is an offer sufficiently definite and certain?
When enough of the essential terms have been provided so that a contract including them would be capable of being enforced.
What terms are typically considered important?
(1) identity of the offeree
(2) the subject matter
(3) the price to be paid
Is it permissible to include an objective standard used to supply a missing term instead of a concrete term itself?
Usually, yes.
What two things MUST an offer involving realty include?
(1) identification of the land
(2) price terms
Will most courts supply a missing price term in a realty contract?
No.
What must a contract for the sale of goods include?
either a quantity term, or a method to ascertain the quantity term.
What is a requirement contract?
a contract in which a buyer promises to buy from a certain seller all of the goods that the buyer requires, and the seller agrees to sell that amount to the buyer.
What is an output contract?
a contract in which a seller promises to sell to a certain buyer all of the goods the seller produces and the buyer agrees to buy that amount form the seller.
Do requirement and output contracts contain a sufficiently definite quantity term?
Yes because they are capable of being made certain by reference to extrinsic facts.
With respect to an output or requirement contract, there may not be a tender or demand for a quantity that is _______ __________ to any stated estimate or normal comparable prior output or requirement
unreasonably disproportionate
Is an offer allowing a person to select between a reasonable range of choices sufficiently definite?
Yes.
Example: I will sell you any of these bikes for $100. Pick one.
Does the fact that one or more terms is missing from a contract prevent contract formation under the UCC?
No, as long as it appears the parties intended to make a contract and there is a reasonably certain basis for giving a remedy.
The more terms left open in an offer, the ____ likely the court will find intent for the offeror to be bound?
less
Will the lack of a price term defeat contract formation?
Only in a contract for real property
If an agreement does not state a specific the time in which an act is to be performed, what standard will the law imply in its place?
the law implies that it is to be performed within a reasonable time
Is an offer valid if it contains a vague term at common law? Under the UCC?
No and No.
Example: an agreement to purchase land for $8000 or less. This is impermissibly vague.
When can an impermissibly vague offer be cured?
(1) part performance; or
(2) acceptance
If an offer states that a material term will be decided on in the future, it will be found _______ _______ to be enforceable
too uncertain
Must an offeree have knowledge of the offer in order to accept?
Yes.
What is a revocation?
the retraction of an offer by the offeror.
What is the effect of a valid revocation?
it terminates the offeree’s power of acceptance if it is communicated to her before she accepts.
May an offer be terminated by publication?
Only if the offer was made through publication.
Is is possible to revoke an offer through in direct communication?
Yes.
What must the offeree indirectly receive in order for a valid revocation?
(1) correct information
(2) from a reliable source
(3) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer.
When is a revocation effective?
generally when received by the offeree.
NOTE: if the revocation was published, it is effective when published.
When is a communication received by a party at common law?
when it comes into the possession of the person addressed (or someone authorized to receive the communication).
Does a communication have to be read in order for it to have been received at common law?
No.
When is a communication received under the UCC?
(1) it comes to his attention or
(2) it is delivered at a place of business through which the contract was made, or other designated place.
Must a revocation be in writing?
No.
True or false: in the absence of an exception, an offer can be revoked at any time even if the offeror has promised to keep the offer open.
True
Under what situations is the offeror’s power to revoke an offer limited?
(1) option contract
(2) merchant firm offer
(3) detrimental reliance by the offeree
(4) start of performance of a unilateral contract
What is an option contract?
a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer.
When does the offer terminate in an option contract?
when the option expires
Does the merchant firm offer apply under common law or UCC Article 2?
UCC Article 2
What are the requirements of a merchant’s firm offer?
(1) If a merchant
(2) offers to buy or sell foods in a signed writing; and
(3) the writing gives assurances that it will be held open
What is the effect of a valid merchant’s firm offer?
the offer is not revocable during the time stated.
Is consideration required to be given in a merchant’s firm offer?
No
How long is a merchant’s firm offer if no time is stated?
a reasonable time, NOT to exceed three months
When will an offer be irrevocable for detrimental reliance?
where the offeror could reasonably expect that the offeree would rely to her detriment on the offer and the offeree does so rely. Such a contract is treated as an option contract.
How long will the offer be held open when it is irrevocable for detrimental reliance?
for a reasonable length of time
True or false: an offer for a true unilateral contract is revocable once performance has begun.
False. Once performance has begun, the offer is irrevocable.
In a unilateral contract, how long does the offer have to remain open once the offeree has begun performance?
for a reasonable time necessary to complete performance
When an offer has been made for a unilateral contract, is the offeree bound to complete performance once she has begun?
No. Because acceptance can only be given by complete performance, the offeree is under no duty to complete performance. The effect is that a contract has not been formed.
True or false: an offeror has the power to revoke an offer for a unilateral contract when the offeree is preparing to perform.
True, unless the preparations are so substantial as to constitute detrimental reliance
What happens if performance is tender by the offeree but refused by the offeror?
If the offeror’s cooperation is necessary for performance, her withholding of it upon the tender of performance is the same as beginning performance.
What is an express rejection?
a statement by the offeree that she does not intend to accept the offer.
What is the effect of an express rejection?
it terminates the offer.
What is a counteroffer?
an offer made by the offeree to the offeror that contains the same subject matter as the original offer but differs in its terms.
What is the legal effect of a counteroffer?
it serves as both a rejection of an original offer and a new offer.
What test is used to determine whether a response is a counteroffer?
Whether a reasonable person would believe that the original offer had been rejected.
When is a rejection effective?
when it is received by the offeror
Does a rejection or counteroffer to an option contract constitute a termination fo the original offer?
No. the offeree may still accepting within the option period unless the offeror has detrimentally relied on the rejection.
Within what time must an offeree accept an offer?
within a reasonable time.
What is the consequence if the offeree dies or is adjudicated insane prior to acceptance? What about the offeror?
in either scenario, the offer is terminated by operation of law.
Must the death or insanity of a party be communicated to the other party in order for an offer to terminate?
No.
If an option contract is formed, and one or both parties die is the contract terminated?
No.
If the subject matter of a contract is destroyed prior to acceptance, is the offer terminated?
Yes.
If the subject matter of a contract becomes illegal prior to acceptance, is the offer terminated?
Yes.
What is an acceptance?
a manifestation of assent to the terms of an offer.
What is the effect of a valid acceptance?
a contract is created (subject to valid consideration)
Who has the power to accept?
(1) a person to whom the offer was made; OR
(2) a member of a class to which an offer has been directed
Can an offeree’s power of acceptance be assigned to a 3rd party? Is the result different if subject to an option contract?
No, the power of acceptance cannot generally be assigned. However, the power to accept an option contract can be assigned.
Must the offeree know of an offer prior to acceptance in a bilateral contract? In a unilateral contract?
Yes and Yes.
An offer to accept a unilateral contract can be accepted by what?
Complete performance.
What is a carrier case?
A sale in which, either due to the circumstances or the express terms of the agreement, it appears the parties intended that a carrier be used to move the goods.
What is a carrier case?
A sale in which, either due to the circumstances or the express terms of the agreement, it appears the parties intended that a carrier be used to move the goods.
If a contract requires the seller tender delivery of goods at a particular destination, what must the seller do?
- Put and hold conforming goods at the buyer’s disposition, and
- Give the buyer any notice of tender that is reasonably necessary, and
- Provide buyer with any documents of title necessary to obtain delivery.
Can an offer to enter a bilateral contract waive the right to have acceptance communicated?
Yes.
When will silence be effective acceptance of an offer to enter a bilateral contract?
When the offeree takes offered benefits, especially if that was typical of the parties past dealings
In a shipment contract, absent an agreement otherwise, must a seller actually see that the goods reach the buyer?
No, tender may be completed by:
- Shipping the goods,
- Obtain and promptly tender any documents required by contract enabling the buyer to take possession, and
- Promptly notifying the buyer of the shipment.
Through what method can an offeree accept the offer?
Through any reasonable manner and by any medium reasonable under the circumstances.
Does a buyer have the right to inspect goods before payment?
Yes, unless the contract provides otherwise.
What happens at common law if the mirror image rule is violated
The offer has been rejected and the offeree has counteroffered.
What is a grumbling acceptance? Is it a valid acceptance?
An acceptance accompanied by an expression of dissatisfaction.
Yes, as long as it stops short of actual dissent.
Example: “I think its highway robbery at that price, but I guess I’ll have to accept.”
Under UCC Article 2 how may an offeree accept an offer?
Through promise to ship or by shipment of conforming or non-conforming goods.
In a noncarrier case, unless the contract states otherwise, a sale for goods is for what medium of currency and when is it due?
Cash on delivery
What is the battle of the forms provision under the UCC?
A rejection of the mirror image rule, providing that the proposal of additional or different terms in the offeree in a definite and timely acceptance does NOT constitute a rejection and counteroffer but rather is an effective acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms
When is payment by check insufficient?
If the seller demands legal tender and gives the buyer time to get cash.
In an installment contract, may a seller demand payment for each installment?
Yes, if the price can be so apportioned. (unless contrary intent appears)
Does a buyer have the right to inspect goods before payment?
Yes, unless the contract provides otherwise.
Is the shipment of a nonconforming set of goods a valid method of acceptance under the UCC?
Yes. It is acceptance and simultaneous breach
.
When there are additional terms contained in an acceptance to an offer under the UCC and one party is a non merchant, what terms are included in the contract?
Only the terms of the original offer. The additional terms are considered mere proposals to modify the contract that do not cede me part of the contract unless the offeror expressly agrees
Who bears the expense of inspection of goods by a buyer?
The buyer, but may be recovered from the seller if the goods do not conform and are rejected.
When may the buyer recover expenses for inspection of goods from the seller?
If the goods do not conform and are rejected.
If a contract provides for COD does a buyer have a right to inspect goods prior to acceptance?
No.
If payment is due before inspection, is the fact the goods are defective excuse nonpayment?
No, unless the defect appears without inspection or there is fraud in the transaction.
If a contract provides a party does not have a duty to perform unless a condition is fulfilled, will the party’s failure to perform be justified if the condition was not fulfilled?
Yes.
What is a conditional acceptance?
When an acceptance is made expressly conditional on the acceptance of new terms.
Is a conditional acceptance valid?
No, it constitutes a rejection and counteroffer
What is the mailbox rule?
Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped
What are the exeptions to the mailbox rule?
(1) the offer stipulates that acceptance is not effective until received
(2) option contract is involved (acceptance only effective upon receipt)
(3) If the offeree sends a rejection and then send an acceptance (whichever is received first is valid)
(4) If the offeree sends an acceptance and then a rejection then the acceptance is effective, UNLESS the rejection arrives first and the offeror deterimentally relies on it
What are the elements of consideration?
(1) there must be a bargained for exchange; AND
(2) that which is bargained for must be considered of legal value (benefit to the promisor or a detriment to the promisee)
Will courts inquire into the adequacy of consideration?
No
What is a legal detriment?
It results if the promise does something he is not legally obligated to do or refrain from doing something he has a legal right to do
True or False: under common law promising to perform an existing legal duty is sufficient consideration for a promise.
False.
Does an agreement that modifies a contract for the sale of goods require consideration in order to be valid?
No
True or false: If a debt is due on January 30, and the debtor promises to pay half the debt on January 1, the promise will fail for lack of consideration.
False. Generally an offer to pay less than a debt owed will be barred by the preexisting duty rule. However the offer to pay less, but pay EARLIER will be sufficient consideration to uphold the promise.
Will a promise to refrain from suing on a claim constitute sufficient consideration?
Yes, if the claims is valid, or the claimant in good faith believed th claim was valid
What theory will validate a contract that would be otherwise unenforceable for lack of consideration?
Promissory Estoppel
What are the requirements for promissory estoppel?
(1) a promise;
(2) that a reasonable person would be expected to rely on to their detriment; AND
(3) that person does actually rely on the promise to their detriment
What is the remedy allowed when promissory estoppel is substituted for consideration?
Some jurisdiction will award traditional expectancy damages; some follow the Restatement 2nd of Contracts which provides for the remedy “may be limited as justice requires” (typically interpreted as reliance damages)
What is required to establish the defense of mutual mistake of existing facts?
(1) both parties are mistaken about existing (not future) facts relating to the agreement;
(2) themistake concerns a basic assumption on which the contract is made;
(3) the mistake has a material effect on the agreed upon exchange;
(4) the party seeking to avoid the contract did not assume the risk of the mistake
If mutual mistake as to existing facts is established, is the contract void; or voidable by the adversely affected party?
Voidable by the adversely affected party
When does a party bear the risk sufficient to preclude assertion of the mutual mistake defense?
When one party is in a position to better know the risks than the other party, or when the party was consciously aware of their ignorance
Will the parties’ mutual mistake as to the value of the subject matter of the contract at the time it was made be a valid grounds to void the contract on a theory of mutual mistake?
Generally no
Will a unilateral mistake be sufficient defense to enforcement of a contract?
Only if the non mistaken party knew or had reason to know of the mistake.If so, the contract is voidable at the option of the mistaken party
What is the result if a party can establish fraudulent misrepresentation (fraud in the inducement) as a defense to contract enforcement?
The contract is voidable at the option of the innocent party if she justifiably relied on the fraudulent misrepresentation.
What is required to establish material misrepresentation as a defense to contract enforcement?
The contract is voidable at the option of the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material.
When will a misrepresentation be considered material?
When:
(1) it would induce a reasonable person to agree; OR
(2) the maker knows that for some special reason it is likely to induce th particular person to agree, even if a reasonable person would not
What remedy may an innocent party (with a valid defense of material misrepresentation, fraud in the indictment,or mutual mistake) pursue?
(1) seek affirmative recision of the contract; AND
(2) all remedies available or breach of contract
What is the most common public policy defense to contract enforcement?
A contract will be void if consideration or subject matter of the contract is illegal
What are the exceptions to the illegality defense to contact enforcement?
(1) the plaintiff is unaware of the illegality while the defendant knows of the illegality;
(2) the parties are not as culpable as the other;
(3) the illegality is the failure to obtain a license when license is for revenue-raisin purposes rather than for protection fo the public.
Is a contract with an illegal purpose void?
No. It is voidable by the party who was (1) unaware of the purpose; or (2) aware bout did not facilitate the purpose and the purpose does not involve serious moral turpitude
Why types of persons lack capacity to contract?
(1) minors
(2) mentally incapacitated
(3) intoxicated persons
Is a contract entered into with a person who lacks capacity void or voidable?
It is voidable by the incapacitated persons
May a minor affirm (choose to be bound) by a contract entered into while a minor when he reaches the age of majority?
Yes, either by (1) expression; or (2) implied from conduct, i.e. keeping the benefit
Are contracts entered into bony duress or unde influence void or voidable.
Voidable by the disadvantaged party
When will the withholding something that someone wants or needs count as duress?
When (1) the party threatens to commit a wrongfula ct that would seriously threaten the other contracting parties property or finances; AND
(2) there has are not adequate means available to preverent the threatened loss.
What ar the elements of undue influence?
(1) undue susceptibility to pressure by one party; AND
(2) excessive pressure but he other party
When will undue influence be most likely to be found by a court?
When the dominant party is in a confidential or caregiver relationship with the influenced party
are oral contracts generally valid?
Yes
What is the statute of frauds?
Statutory requirement that certain types of contracts be evdienced by a writing signed by the party sought to be bound
What type of writing is required under the statute of frauds?
One or more writings that:
(1) reasonably identify the subject matter of the contract;
(2) indicate that contract has been made between the parties; AND
(3) state with reasonable certainty the essential terms
What types of agreements are subject to the statute of frauds ?
MY LEGS
(1) promises made in consideration of MARRIAGE
(2) performance not capable within one YEAR of date of contract
(3) interest in LAND
(3) EXECUTOR or administrator promises personally to pay estate debts
(4) GOODS $500+
(5) SURETYSHIP promises (promises to pay the debt of another)
What is the main purpose exception to the SoF requirement for surety promises?
If the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the contract is not within the statue of frauds, even if the effect is still to pay the debts of another.
What types of contracts fit within the land requirement under the statute of frauds?
(1) leases for more than one year
(2) easements of more than one year
(3) mortgages and other security liens
(4) fixtures
(5) minerals or structures if they are to be severed by the buyer
What are the exceptions to the goods $500+ Requirement under the statute of frauds?
Writing is not required when:
(1) the goods are specially manufactured
(2) the party against whole the enforcement is sought admits in pleadings, testimony or otherwise in court that contract for sale was made;
(3) the goods are received and accepted or paid for
(4) merchant confirmatory memo rule applies
What is the merchant confirmatory memo?
In a contract between two merchants, if one party within a reasonable time after an oral agreement has been made, send to the other party a written confirmation fo the understanding that is sufficient under the state frauds to bind the sender it will also bind the recipient if:
(1) he has reason to know of the confirmation’s contents AND
(2) he does not object to it in writing within 10 days of receipt
What does the concept of unconscionability allow a court to do?
A court may refuse to enforce a provision or an entire contract to avoid unfair terms, usually do to unfairness in the bargaining process
Is unfair price a ground for unconscionability?
No, not on its own
What are common instances of procedural unconscionability?
(1) inconspicuous risk-shifting provisions;
(2) contracts of adhesion (take it or leave it)
(3) exculpatory clauses
(4) limitations on remedies (if the remedy allowed fails of its essential purpose)
At what point in time is unconscionability judged?
At the time of contract formation
When is an agreement, expressed in writing, considered an integration?
When the parties to a contract express their intent that the writing embody the final expression of their bargain
What is the parol evidence rule?
If an agreement is found to be an integration, any other expressions, written or oral, made prior to or contemporaneous with the writing are inadmissible to vary the terms of the writing
What questions must be answered when analyzing a writing as an integration?
(1) was the writing intended as the final expression of the agreement; and
(2) was the integration complete or partial?
True or false: if an integration is complete, the writing cannot be contradicted or supplemented.
True
What is the consequence of finding a writing to be a partial integration?
The writing may not be contradicted but may be supplemented by proving consisten additional terms.
True or false: under the UCC all writings are presumed to be partial integrations
True
What is a merger clause and what is its effect.
It is a clause that recites that the agreement is the complete agreement between the parties.
The presence of a merger clause is determiniative in larger commercial contracts, but it is generally only considered to be a factor in determining integration in most contracts
What type of evidence does the parol evidence rule prohibit?
Extrinsic evdience that seeks to vary contradict or add to an integration.
For what purposes can extrinsic evidence be allowed without violating the parol evidence rule?
(1) attack the agreement’s validity
(2) evidence of a collateral agreement, or a naturally omitted term
(3) interpretation of uncertain or ambiguous terms
(4) showing of true consideration
(5) reformation
(6) subsequent modifications
(7) additional terms under Article 2
What are the most common validity issues, which can be proven by extrinsic evidence (i.e. not in violation of the parol evdience rule)
(1) formation defects; and
(2) conditions precedent to effectiveness
What is the function of the naturally omitted terms doctrine?
It allows evdience of terms that would naturally be omitted from the written agreement.
What is a naturally omitted term?
It is a term that (1) does not conflict with the written integration; and (2) it concerns subject that similarly situated parties would not ordinarily be exprected to include in the written instrument?
True or false: the parol evdience rule will allow evidence to explain all terms in a contract under the common law..
False, it will only be allowed to if there is uncertainty or ambiguity in the written agreement’s terms
True or false: the parol evdience rule will allow evidence to explain all terms in a contract under the UCC Article 2?
True, regardless of whether the terms are ambiguous
What is the key term to forming a contract under the UCC?
The quantity term
What are the most common gap-filler terms under the UCC?
(1) price
(2) place of delivery
(3) time for shipment or delivery
(4) time for payment
(5) Assortment
What is a noncarrier case in the sales of goods context
one where it appears that the parties did not intend that the goods would be moved by a common carrier
In a noncarrier case, if the seller is a merchant, when does the risk of loss pass to the buyer?
when the buyer takes physical possession
In a noncarrier case, if the seller is a nonmerchant, when does the risk of loss pass to the buyer?
upon tender of delivery
When is a tender of delivery made?
when they are ready for pickup at the agreed upon location
What are the two types of carrier cases?
shipment contracts and destination contracts
What is a shipment contract?
a contract that authorizes or requires the seller to ship the goods by carrier but does not require him to deliver them at a particular destination
When does the risk of loss pass to the buyer in a shipment contract?
when the goods are delivered to the carrier.
True or false: in the absence of an agreement, UCC presumes that contracts are destination contracts.
False, it presumes they are shipment contracts
What are the sellers duties under a shipment contract?
(1) make a reasonable contract with the carrier on behalf of the buyer;
(2) deliver the goods to the carrier;
(3) promptly notify the buyer of the shipment;
(4) provide the buyer with any documents needed to take possession of the goods
What is destination contract?
One that required the seller to deliver the goods at a particular destination
When does the risk of loss pass to the buyer in a destination contract?
when the goods are tendered to the buyer at the destination.
What does FOB stand for?
Free on board
When does the risk of loss pass to the buyer if the contract states that it is FOB “some location”
The risk of loss passes to the buyer when the goods reach the named location
Who bears the expense and risk of getting the goods to the named location in an FOB contract?
The seller
When does the risk of loss pass to the buyer if the buyer has a right to reject the goods?
not until the defects are cured or she accepts the goods in spite of their defects
What is the result if goods identified in a contract are destroyed, without fault by either party, before the risk of loss has passed to the buyer?
The contract is avoided (i.e. seller’s performance is excused)
What elements must be shown to prove a sale for a good contains an implied warranty of merchantability
(1) sale by a merchant
(2) who deals in goods of the kind sold
What guarantee is provided by the implied warranty of merchantability?
that the goods are at least fit for the ordinary purpose for which such goods are used
What elements must be shown to prove a sale for a good contains an implied warranty of fitness for a particular purpose?
(1) any seller, merchant or not;
(2) has reason to know the particular purpose for which the goods are to be used;
(3) the seller has reason to know the buyer is relying on her judgment; AND
(4) the buyer does in fact rely on the seller’s judgment
When will a sample or model shown create an express warranty?
When it is part of the basis of the bargain
Must the buyer actually rely on the showing of a sample or model in order for there to be a valid express warranty?
No, the sample just needs to be shown at a time that the buyer could have relied on it when she entered into the contract.
Does the buyer have show that she actually relied on representations of the seller to enforce an express warranty?
No, but the seller may negate the warranty by proving that the buyer as a matter of fact did not rely
What type of disclaimer is required to disclaim the implied warranties of merchanatibility or fitness for a particular purpose?
General or specific disclaimers will suffice
What is required in order for a specific disclaimer of the implied warranty of merchantability to be valid?
It must:
1) mention merchantability; AND
(2) be conspicuous (if in writing
What is required in order for a specific disclaimer of the implied warranty of fitness for a particular purpose to be valid?
It must be in a conspicuous writing
When will a limitations on damages clause be struck down by the courts?
When it is unconscionable
True or false: limitations on damages for personal injury caused by a breach of warranty on consumer goods are prima facile unconscionable.
True
True or false: a disclaimer of a warranty contained on the inside of a package is invalid
True, it must be outside of the package.
What is the traditional rule required for a contract to be modified at common law?
new consideration
What are the requirements under the modern view of contract modification at common law?
Modification is allowed without new consideration if:
(1) the modification is due to circumstances that were unanticipated boy the parties when eh contract was made; AND
(2) the modification is fair and equitable
What is required to modify a contract under the UCC?
(1) good faith promises;
(2) of new and different terms
Is consideration required to modify a contract for the sales of goods under the UCC?
No
May a written contract be modified orally?
Generally yes
When must a contract modification be in writing?
When the contract as modified falls within the statute of frauds
May the parties validly contract to prohibit oral modifications?
At common law: No
UCC: Yes, but if the contract is between a merchant and a non merchant, the provision requires the non merchants separate signature
Does the parol evidence rule apply to contract modifications?
No
What is a party’s duty to perform under common law
Each party’s basic duty is to substantially perform all that is called for in the contract
What is a party’s duty to perform under the UCC?
A party must make perfect tender, meaning the delivery and conditions o the goods must be exactly as promised int the contract
In a noncarrier case, what type of payment is and when is payment due in the absence of an agreement?
Cash due at the tender of delivery
In a carrier case, when is payment due?
At the time a place at which the buyer received the goods
Does a buyer have the right to inspect the goods before payment?
Yes, unless the contract provides for payment COD
Is the failure of a contractual provision that is a condition a breach of contract?
No.
What is the result when there is a failure of a condition?
It relieves a party of the obligation to perform
What words typically indicate a condition, instead of a promise?
“Provided”; “if”; “when”
What is a condition precedent?
One that must occur before an absolute duty of immediate performance arises in the other party
What is a condition subsequent?
One that, when it occurs, cuts off an already existing absolute duty of performance
What is an anticipatory repudiation?
Occurs if a promisor prior to the time set for performance of his promise, indicates that he will not perform when the time comes
True or false: anticipatory repudiation only applies when there are duty’s left to be performed on both sides of a contract.
True
Must an anticipatory repudiation be unequivocal ?
Yes
What are the options of a nonbreaching party when the other party anticipatorily repudiates the contract?
The non-repudiating party can:
(1) sue immediately
(2) suspend performance and sue on the performance date
(3) treat the repudiation as an offer to rescind and treat the contract as discharged; OR
(4) ignore the repudiation and urge the promisor to perform
If a nonrepudiating party elects to ignore the repudiation and urge the other party to perform, has she waived her right to sue under the repudiation?
No, she still may suspend performance and sue for breach as long as the promisor has not retracted the repudiation
How may a repudiating party retract an anticipatory repudiation ?
A repudiating party may at any time before his next performance is due, withdraw the repudiation unless:
(1) the other party has canceled, materially changer her position in reliance on the repudiation or otherwise indicated that she considers the repudiation final.
When does the prospective failure of a condition arise?
When a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due
What is the effect of a prospective failure of a condition?
It allows the innocent party to suspend further performance on her side until she recieves adequate assurances that performed will be forthcoming
If a party demands adequate assurances in response to a prospective failure of a condition, and the other party fails to provide those assurances, what is the result?
The innocent party may treat the failure to respond as an anticipatory repudiation
Is consideration required for a valid waiver of a contract condition?
No
When will courts consider a waiver of a condition to be binding, so that the waiving party is estopped from suing under the condition?
When the person receiving the waiver detrimentally relies on the waiver
What conditions may be waived in a contract?
If no consideration is given for the waiver, only ancillary or collateral conditions are waivable
Does a person waiving a condition loss all rights to sue for damages?
No, it only severs the right to consider the failure of the condition as a total breach, excusing couterperformance.
What is the most obvious way to discharge a contractual duty?
Full and complete performance
Will a good faith tender of performance made in accordance with contract terms also discharge a party’s duty to perform under the contract?
Yes
What is the result on a party’s duties to perform under the contract if the subject matter of the contract has become illegal?
Performance is discharged
What are the basic requirements for a contract to be discharged on the grounds of impossibility, impracticality, or frustration?
(1) the non occurrence of the event was a basic assumption of the parties; AND
(2) neither party has expressly or implied assumed the risk of the event occurring
When will a party’s contractual duties be discharged due to impossibility?
When it is impossible for the party to perform them
What is the test for discharge of contractual duties by impossibility?
The impossibility must be objective, meaning that the duties could not be performed by ANYONE.
Subjective impossibility, i.e. the duties could be performed by someone but not the promisor, will NOT suffice
When must the impossibility arise in order for it to discharge a party’s duties to perform under a contract?
After the contract is entered into
If the conditions arise before contract formation, you should analyze the problem as one of contract formation (i.e. did the mistake prevent contract formation)
What is the effect if a party’s contractual duties are discharged by impossibility?
Each party is excused from duties arising under the contract that are yet to be fulfilled
Each party may sue for rescission, and restitution to receive back any benefit conferred.
True or false: if performance to be rendered under a a contract becomes partially impossible, the duties are discharged only to that extent.
True, they will be partially discharged
What is the effect of a temporary impossibility to perform contractual duties?
Performance is suspended. When the impossibility ends, the duties “spring back” into effect.
NOTE: unless the burden on either party to contract would be substantially increased or different than that originally contemplated by the parties
What are a parties rights for partial performance rendered prior to contractual duties being discharged by impossibility?
If a party partially performed before the impossibility arise, that party will have a right to recover under unjust enrichment for the reasonable value of his performance
When does a death of a party discharge a contract?
When that person is necessary to effectuate the contract
Will a contract be discharged if a person who is to perform services dies?
Generally no, if the services are a type that can be delegated (i.e. unique).
If the services are unique, then the parties duties are discharged.
Is a contractor’s duty to build a house discharged if the house is destroyed?
No, but most courts will not hold the contractor to the original deadline in these situations
If a contractor agrees to build a house, and that house is subsequently destroyed (due to no fault of either party) what remedy is that contractor entitled to for the original building that was destroyed?
Nothing. The contractor is under a duty to rebuild the house, and is entitled to the original contract price.
Is a contractor’s duty to repair a house that is subsequently destroyed discharged by impossibility?
Yes, the subject matter no longer exists so it is impossible to perform
What remedy is a contractor entitled to, when she partially performs a repair of a house that is subsequently destroyed?
Restitution for the value of the work done prior to the building’s destruction
True or false: the rules relating to discharged because of destruction fo the subject matter will not apply if the risk of loss as already passed to be buyer?
True
What is the test for discharge of contractual duties because of impracticability?
the party to perform has encountered:
(1) extreme and unreasonable difficulty and/or expense; AND
(2) its nonoccurances was a basic assumption of the parties
True or false: sales for goods under the UCC follow the same rules for discharge by impossibility and impractibility as the common law.
True, if performance has become impossible or commercially impracticable the seller will be discharged to the extent of the impossibility or impracticability
When will contractual duties become discharged by frustration?
Went the purpose of the contract as become valueless by virtue of some supervening event not the fault of party seeking discharge
What are the elements necessary to establish frustration as a basis for discharge of contractual duties?
(1) there is a supervening act
(2) at the time of entering the contract, the parties did not reasonably foresee the act or event occuring;
(3) the purpose of the contract has been completely or almost completely destroyed by this act or event
(4) The purpose of the contract was realized by both parties at the time of making the contract
True or false: paying money is never impracticable.
True.
What are the types of rescission?
Mutual and unilateral
What is mutual rescission?
The contract may be discharged by an express agreement between the parties to recind.
It is itself a binding contract that is supported by consideration (each party is giving up their right to recieve counter performance under the original contract)
If the rights of a third-party beneficiary have vested, can the original parties to a contract mutual rescind the contract?
No
May the parties mutually rescind a contract orally at common law?
Yes, even if the contract to be rescinding expressly states that it can be rescinded only by a writing; BUT NOT if the subject matter of the contract it be rescinded falls within the statue of frauds
May the parties mutually rescind a contract orally under the UCC?
Yes, but the parties may agree in the original contract that any rescission must be in writing.
What is unilateral rescission?
When one of the parties to the contract desires to rescind it but the other party desires that the contract be performed according to the terms.
What must a party show to obtain unilateral rescission?
Adequate legal grounds, such as:
(1) mistake
(2) misrepresentation
(3) duress
(4) failure of consideration
What is the effect of a valid contract modification?
The terms subject to the modification will be discharged
What requirements must be met for terms to be discharged because of a contract modification?
(1) mutual assent
(2) consideration (at common law, NOT under the UCC)
NOTE: no consideration is necessary if the modification is to correct an error in the original contract
When does an novation occur?
When a new contract substitutes a new party to recieve benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract
What is the effect of a valid novation?
It discharges the old contract
What are the elements of a valid novation?
(1) a previous valid contract;
(2) an agreement among all the parties, including the new parties to the new contract;
(3) the immediate extinguishment of contractual duties as between the original contract parties; AND
(4) a valid and enforceable new contract
Does a contract to release claims and/or not to sue on those claims serve to discharge the parties pre-existing contractual duties?
Yes, such an agreement will be upheld when the agreement is:
(1) in writing (usually required); AND
(2) supported by new consideration; OR
(3) the promissory estoppel elements
May a contract be discharged because of accord and satisfaction?
Yes
What is an accord?
An agreement in which one party to an existing contract agrees to accept in lieu of the performance that she is supposed recieve from the other party to the existing contract, some other different performance.
Must an accord agreement be supported by consideration?
Yes
What consideration is sufficient to support an accord agreement?
(1) consideration of the same type as was supporting the original contract if it is equal to or greater than that consideration’s value; BUT if it is a lesser value it must:L
(2) be of a different type; OR
(3) paid to a third-party
If an accord agreement offers a smaller amount (of money) than the amount due under an existing obligation in satisfaction of the claim, will there be sufficient consideration to support the accord?
Generally, no unless:
(1) there is a bona fide dispute as to the claim; OR
(2) There is otherwise some slight alteration in the debtor’s consideration
What is the effect of creating a valid accord?
It suspends the right to enforce the prior contract in accordance with the terms of the accord contract.
It DOES NOT alone discharge the prior contract
What is the difference between a modification and an accord?
A modification is an agreement to enter into a different agreement between the parties.
An accord is an agreement to accept different future performance.
When does an accord agreement typically arise?
When payment or performance is overdue or there is a dispute as to th performance due
When does a modification typically arise?
Prior to performance being due
Wha is a satisfaction?
It is the performance of the accord agreement
What is the effect of a valid satisfaction?
It discharges both the original contract and the accord agreement
What happens if a debtor breaches an accord agreement?
The creditor may sue under EITHER the original agreement or the accord agreement
What happens if a creditor breaches an accord agreement (likely by suing under the original contract)
the debtor may:
(1) raise the existence of the accord as an equitable defense to enforcement of the original contract; OR
(2) wait until she is damaged, and then bring an action for damages based on the breach of the accord
When does a breach of contract occur?
When it is found that:
(1) the promisor is under an absolute dut to perform;
(2) this duty has not been discharged
What must a non breaching party show if they sue the breaching party for breach of contract?
That she is willing an able to perform, but for th breaching party’s failure to perform
What is a minor breach?
One where the obligee gains the substantial benefit of her bargain despite the obligor’s defective performance.
What is the effect of a minor breach?
It does not relieve the aggrieved party of her duty to perform under the contract; it merely gives her a right to damages for the minor breach
NOTE: these damages are sometimes called setoff
What is a material breach
One where the obligee does not recieve the substantial benefit of her bargain
What is the effect of a material breach?
the nonbreaching party may:
(1) treat the contract as at an end,discharging any duty of counter performance on her part; AND
(2) will trigger an immediate right to all remedies for breach of the entire contract, including total damages
What are a nonbreaching party’s rights if a minor breach is coupled with an anticipatory repudiation
she may treat it as a material breach
What factors will a court look to in determining whether a breach is material or minor?
(1) amount of benefit received by the nonbreaching party
(2) the adequacy of compensation for damages to the injured party
(3) the existence of part performance but the breaching party
(4) hardship to the breaching party
(5) negligent or willful behavior of the breaching party
(6) the likelihood that the breach party will perform the remainder of the contract
Is a failure to perform by the time stated typically a material breach?
No, in the absence of an agreement stating time is of the essence, if performance is rendered within a reasonable time
Does the UCC follow the common law rule of substantial performance?
No, the UCC insists on perfect tender
What is the perfect tender rule under the UCC?
It states that if goods or their deliver fail to conform to the contract in any way, the buyer generally may reject all accept all or accept any commercial units and reject the rest.
When is a buyer’s right to reject under the perfect tender rule cut off?
By her acceptance of the goods
When does a buyer accept the goods under the UCC?
(1) after a reasonable opportunity to inspect, she indicates to the seller that they confirm to the requirements or that she will keep them even though they fail to conform;
(2) She fails to reject within a reasonable time after tender or delivery of the goods or fails to notify the seller of her rejection; OR
(3) she does any act inconsistent with the seller’s ownership
What are the buyer’s duties with respect to rejected goods?
She must hold them with reasonable care at the seller’s disposition and obey any reasonable instructions as to the rejected goods.
What may a buyer do with rejected goods if the seller gives no instructions as to the goods?
(1) She may reship the goods to the seller,
(2) store them for the seller account or
(3) resell them for the sellers account
If the buyer resells rejected goods, what is she entitled to?
Reasonable expense and commission for the sale
When may a buyer revoke acceptance under the UCC?
When the goods have a defect that substantially impairs their value to her AND:
(1) she accepted them on the reaonable belief that she defect would be cured; OR
(2) She accepted them because of difficulty of discovery of the defects or
(3) because of the sellers assurance that the goods conformed to the contract
If a buyer is entitled to revoke an acceptance, when must the revocation occur?
(1) within a reaonable time after the buyer discovers or should have discovered the defects and
(2) before an substantial change in the goods occurs that is not caused by a defect present at the time the seller relinquished possession
In what scenarios are there limitations on the buyers right to demand perfect tender?
(1) installment contracts;
(2) where the seller has a right to cure
True or false: if a contract for the sale of goods is an installment contract, it follows the common law substantial performance doctrine and rejects the UCC general rule of perfect tender.
True
When can an installment shipment under an installment contract for the sale of goods be rejected?
Only when the nonconformity substantially impairs the value of that installment and cannot be cured
When can an installment contract be breached?
Only when the nonconformity substantially impairs the value of the entire contract
When does a seller have a right to cure in a single delivery contract?
If the buyer has rejected goods because of defects, the seller may, within the time originally provided for performance, “cure” by giving reaonable notice of her intention to do so and making anew tender of conforming goods.
If a seller in a single delivery contract validly cures a shipment of defective goods what may the buyer do?
She must accept the goods
Does a seller in a single delivery contract have any right to cure a shipment of defective goods past the time originally provided for performance?
Ordinarily, no; BUT
If the buyer rejects a tender of noncorming goods that the seller reasonably believed would ben acceptable with out without money allowance the seller, upon a reaonable notification to the buyer, has a further reasonable time beyon the original contract time to cure.
What must a seller show in order to show she is entitled to cure a defective shipment in a single delivery contract after the time provided for in the original contract has already passed?
(1) trade practices or prior dealing with the buyer led the seller to believe the goods would be acceptable; OR
(2) the seller could not have known of the defect despite proper business conduct (i.e. packaged goods from a supplier)
May a defective shipment in a n installment contract be rejected
Generally no, if it can be cured.
What is the primary nonmonetary remedy for breach of contract?
Specific performance
What condition must be shown before a party can seek specific performance?
The party must show the legal remedies are inadequate
Does the presence of a liquidated damages clause make the remedy at law inadequate sufficient to order specific performance for a breach of contract?
No
True or false: specific performance is always available for land sale contracts.
True
What type of personal property is specific performance always available for?
Goods that are rare or unique at the time performance is due
When is specific performance never available?
To enforce service contracts, even if they are rare or unique
May a the court enter an injunction as alternate remedy to specific performance of a rare or unique service contract?
Yes,
EXAMPLE: the court may enjoine a breaching employee from working for a competitor thought the duration fo the contract if the services contracted for a rare or unity
When will a court grant an order of specific performance to enforce a contract not to compete?
(1) the services to be performed are unique (i.e. money damages are inadequate); AND
(2) the covenant is reasonable
When is a covenant not to complete reasonable?
(1) When it reasonably necessary to protect a legitimate interest of the person benefited by the covenant; AND
(2) it must be reasonable as to its geographic scope and duration; AND
(3) the covenant must not harm the public
What defenses is a claim of specific performance subject to?
(1) the standard contract defenses
(2) laches
(3) unclean hands
(4) sale to a bona fide purchaser
What is the defense of laches?
A claim that the plaintiff has delayed bringing the action and that the delay has prejudiced the defendant
What is the defense of unclean hands?
a claim that the party seeking specific performance is guilty of wrongdoing in the transaction be sued upon
What is the defense of sale to a bona fide purchaser
A claim that the subject matter has been sold to a person who purchased for value and in good faith
What are the buyer’s nonmonetary remedies available under the UCC?
(1) Cancellation;
(2) Buyer’s right to replevy Identified Goods;
(3) Buyer’s Right to Specific Performance
What is a buyer’s right of cancellation as a remedy to breach of contract under the UCC?
If a buyer rightfully rejects goods because they do not conform to the contrat, one of her options is simply to cancel the contract
When may a buyer replevy the goods from the seller:
If the buyer has made at least part payment of the purchase price, and the seller has not delivered the goods, the buyer may replevy the goods from the seller in two circumstances:
(1) the seller becomes insolvent within 10 days after receiving the buyers first payment; OR
(2) the goods were purchased for personal family or household purposes; OR
If the buyer may also replevy identified and undelivered goods:
(3) if after reaonable effort, the buyer is unable to secure adequate substitute goods
If the buyer validly replevys goods from a seller, what is his duty to the seller?
To tender any unpaid portion of the purchase price to the seller
When may a buyer seek specific performance of the contract for the sale of goods?
where the goods are unique or in other proper circumstances
NOTE: the court may order specific performance even where the goods have not yet been identified to the contract by the seller
What are the seller’s nonmonetary remedies under the UCC?
(1) Seller’s right to withhold goods
(2) Sellers right to recover goods
(3) Sellers ability to force goods on a buyer (limited)
When may a seller in a contract for the sale of goods withhold goods?
(1) When the buyer fails to make a payment due on or before delivery; AND
(2) When the seller sold the goods on credit and the seller discovers that the buyer is insolvent (but the seller must deliver if the buyer tenders cash for the goods)
When may a seller in a contract for the sale of goods recover goods from a buyer?
On buyer’s insolvency if:
(1) the seller makes demand within 10 days after the buyers receipt of the goods (10 day limitation does not apply if a mispresentation of solvency has been made in writing to the particular seller within three months before delivery)
When may a seller force goods on a buyer?
It is limited to an action for price when the seller is unable to resell the goods at a reasonable price
When may a party demand assurances?
When there are reasonable grounds for insecurity with respect to party’s performance, the other party may demand in writing assurances that the performance witll be forthcoming at the proper time
Must a party continue to perform under the contract if he has made a valid claim for adequate assurances?
No, his performance may be suspended.
How long does a party have to give assurances after a valid demand from the other party?
A reasonable time (around 30 days)
What result if a party fails to give adequate assurances within a reasonable time?
The party requesting the assurances may treat the failure to respond as an anticipatory repudiation
What is generally required in order for damages to be awarded?
They must be proved with reasonable certainty and shown that they could not have been avoided with reasonable effort
What is the goal of compensatory damages?
To put the nonbreaching party in the positions she would have been in had the promise been performed
What is the standard measure of damages in a contract case?
Expectation damages
What are expectation damages?
Damages sufficient for the non breaching party to buy a substitute performance
What are reliance damages?
Damages that award the plaintiff the cost of her performance, i.e. put the plaintiff in the position that she would have been in head the contract never been formed
When are reliance damages typically awarded?
When the plaintiffs expectation damages are too speculative
What are consequential damages?
They are special damages that reflect teh losses over and above standard expectation damages. They arise because of the nonbreaching party’s particular circumstances.
NOTE: most common type —> Lost profits
What must a plaintiff show in order to recover consequential damages?
At the time the contract was formed, a reasonable person would have foreseen the damages as a proble result of a breach.
True or false: in order to recover for consequential damages, the defendant must have known or had reason to know fo the plaintiffs special circumstances at the time the contract was breached.
False: the defendant must have known of the circumstances at the time the contract was formed.
Who may recover consequential damages when a sale of goods contract is breached?
Only the buyer
What are incidental damages?
Damages that include expenses reasonably incurred by a buyer in inspections, receipt transportation and care and custody of goods rightfully rejected and other expenses reasonably incident to the sellers breach
Are punitive damages awarded in contract cases?
Generally no
May nominal damages be awarded in a contract case?
Yes, if a breach is shown but no actual loss is proven
What are lidquated damages?
Damages that parties stipulate to in advance of a breach, providing what damages are to be paid in the event of a breach
What are the requirements to enforce a liquidated damages clause?
(1) damages must have been difficult to estimate or ascertain at the time the contract was formed; AND
(2) the amount agreed on must be a reasonable forecast of compensatory damages in teh case of breach
What is the test for reasonableness of a liquidated damages clause?
A comparison between the amount damages prospectively probable at the time the contract was formed and the liquidated damages figure
What is an invalid liquidating damages clause called?
A penalty clause
Will a liquidated damages provision be upheld if there are no actual damages shown?
Yes
What is the measure of damages awarded to a buyer if a seller doesn’t deliver, buyer rejects the goods, or buyer validly revokes acceptance of the goods?
The difference between the contract price and either:
(1) the market price or
(2) the cost of buying replacement goods
PLUS
Incidental and consequential damages
MINUS
Expenses saved as a result of the breach
When is the market price for a good determined?
At the time the buyers learns of the breach at the place of tender
When are a sellers damages measured?
At the time for delivery
What are the requirements for a buyer to recover the cost of a cover contract?
The buyer must make a reasonable contract for substitute goods in good faith and without unreasonable delay
What is the measure of damages awarded to a buyer if a seller delivers nonconforming goods?
The difference between the value of the goods as delivered and the value they would have had if they had been according to contract
PLUS
Incidental and consequential damages
What must a buyer do as a prerequisite to recovering damages for defects in accepted goods?
The buyer must within a reaonable time after she discovers or should have discovered the defect, notify the seller of the defect
What is the measure of damages if a seller anticipatorily breaches a contract?
The difference between the market price at the time the buyer learned of the breach and the contract price.
Buyers of what types of goods will create an inference that the seller knew of the particular circumstances sufficient to award the buyer consequential damages?
Buyers of goods necessary for manufacturing and goods for resale
What is the measure of damages awarded to a seller if a buyer repudiates or refuses to accept conforming goods?
Incidental damages
PLUS either:
(1) the difference between the market price (measured at the time and place of delivery) and the contract price;
(2) Resell the goods and recover the difference between the contract price and the resale price; OR
(3) if the above measures are inadequate because the seller could have made an additional sale (lost volume seller) the seller can recover the lost profits, the difference between the contract price and the cost to the seller
What is the measure of damages awarded to a seller if a buyer has accepted the goods but has not paid?
If the seller is unable to resell them at a reasonable price or if the goods have been lost or damages at a time the risk of loss was on the buyer, the seller may maintain an action against the buyer for the full contract price.
What is the measure of damages for a breach of a land sale contract?
The difference between the contract price and the fair market value of the land
What is the measure of damages of an employment contract when the employer breaches the contract?
The full contract price (although they may be reduced if the employee fails to mitigate)
What is the measure of damages of an employment contract when the employee breaches the contract?
If an employee materially breaches, the employer is entitled to recover the cost of replacing the employee (wages the employer must pay to a replacement minutes the wages that were due to the breaching employee)
NOTE: the employee may offset money owed for work done to that date
What is the measure of damages when a construction contract is breached by the owner?
The builder is entitled to profits that would have resulted from the contract plus any costs expended.
NOTE: if the contract is breached after the construction is completed, the damages are the full contract price plus interest
What is the measure of damages when a construction contract is breached by the builder?
The owner is entitled to the cost of completion plus reasonable compensation for the delay.
NOTE: most courts will allow the builder to offset or recover for work performed to date to avoid unjust enrichment of the owner
If a contract calls for payments in installments, and payment is not made there is a _____ breach
Partial
What may the aggrieved party recover whenever there has been a missed payment in a contract providing for payments in installments?
Only the missed payment, unless there is an acceleration clause.
What is an acceleration clause?
A clause that makes the entire contract amount due on any late payment.
What is the doctrine of mitigation?
Under the common law, the nonbreaching party cannot recover damages that could have been avoided with reaonable effort
True or false: a party may recover the expenses of mitigation.
True
Does the doctrine of mitigation apply under the UCC?
Generally, no.
What is restitution?
It is a remedy available in contract-type situations that is designed to prevent unjust enrichment when one party has conferred a benefit on another without gratuitous intent.
What is an action for restiutionary damages often referred to as?
(1) implied in law contract;
(2) quasi-contract;
(3) quantum meruit
What is the measure of restitutionary damages?
The value of the benefit conferred
When will the value of the detriment to the plaintiff be used as the measure of restituitionary damages?
When the the benefits are difficult to measure or the benefit measure would achieve an unfair result
What must a nonbreaching party do to recover restitutionary damages for breach of contract?
If the nonbreaching party has not fully performed, they may cancel the contract (via an action for rescission) and sue to prevent unjust enrichment
NOTE: if the plaintiff has fully performed, she is limited to her contract damages
Will modern courts allow a plaintiff who breaches a contract to seek restitution?
Yes, but it will be limited to the contract price less damages incurred as a result of the breach
NOTE: restitution is not normally limited to the contract price
May a buyer in a sale of goods contract recover advanced payments of a purchase price when the buyer breaches the contract under the UCC?
Generally, yes the buyer is entitled to recover some of payments.
In this situation, The seller is entitled to keep 20% of the purchase price or $500 whichever is less, unless he can prove greater damages
Is restitution an available remedy when a contract in unenforceable?
Yes
What is required to be shown before a plaintiff can recover restitution from a defendant when there is no contractual relationship?
(1) the plaintiff has conferred a benefit on the defendant (rendering services or expending properties);
(2) the plaintiff conferred the benefit with the reasonable expectation of being compensated for its value;
(3) the defendant knew or had reason to know of the plaintiff’s expectation; AND
(4) the defendant would be unjustly enriched if he were allowed to retain the benefit without compensating plaintiff
What is recission?
A remedy whereby the original contact is considered voidable and rescinded
When must the grounds for recision arise in order to rescind a contract?
Before or at the time the contract was entered into
What are the grounds for rescission?
(1) mutual mistake;
(2) unilateral mistake if the other party knew or should have known of the mistake;
(3) unilateral mistake if hardship by the mistaken party is so extreme that it outweighs the other party’s expectation under the contract
(4) misrepresentation of fact or law by either party as to material factor in the negotiations that was relied upon;
(5) duress;
(6) undue influence;
(7) illegality;
(8) lack of capacity;
(9) failure of consideration
Is the plaintiff’s negligence a defense to an actions seeking rescission?
No
Are the traditional equitable defenses available in an action for rescission?
Yes
May an action for rescission be coupled with an action for restitution?
Yes
What is reformation?
A remedy whereby the writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties
What are the grounds for reformation?
Mistake or misrepresentation
What must be shown to reform a contract on the basis of mistake?
(1) there was an agreement between the parties;
(2) an agreement to put the agreement in writing; AND
(3) a variance between the original agreement and the writing
True or false: misrepresentation will only be grounds for reformation if it relates to content or the legal effect of the record, misrepresentations relating to the subject matter of the agreement will not suffice
True
The variance between the antecedent agreement and the writing must be established by what standard of evidence?
Clear and convincing
Is the parol evidence rule applied in reformation actions?
No
Does the Statute of Frauds apply to reformation actions?
Generally no, unless the contract seeks to add land to a contract without complying with the statute of frauds
What defenses is a reformation action subject to?
General equitable defenses;
the existence of a bona fide purchaser for value; AND
The rights of third parties if they will be unfairly effected.
What is the statue of limitations under the UCC?
4 years
May the parties contractually shorten the statute of limitations under the UCC?
Yes, but not lower than one year
May the parties contractually lengthen the statute of limitations under the UCC?
No
When does the statute of limitations under the UCC begin to run in an action for breach of contract?
When the party could bring suit (i.e. when breach occurs)
When does the statute of limitations under the UCC begin to run in action for breach of implied warranties?
Upon delivery of the goods, even if the buyer does not discover the breach until much later
When is an implied warranty breached?
Upon delivery if at all
Do incidental beneficiaries have contractual rights?
No
How do you determine whether a third party beneficiary is intended or incidental?
Consider:
(1) is the beneficiary identified in the contract?
(2) does the beneficiary recieve performance directly from the promisor;
(3) has some relationship with the promisee to indicate intent to benefit
When are the rights of a third party beneficiary vested?
When the third party:
(1) manifest assent to a promise in the manner requested by the parties;
(2) brings suit to enforce the promise;
(3) materially changes position in justifiable reliance on the promise
May the promisor and promisee modify or recind the beneficiaries rights under the contract prior to that party’s rights vesting
Yes
True or false: if a third-party beneficiary’s rights are vested, you must get the third-party’s consent in order to modify her rights under the contract.
True
May a third-party beneficiary sue the promisor on the contract?
Yes
May a third-party beneficiary sue the promisee?
If the beneficiary is a creditor, yes, they may sue the promisee on the existing obligation between them.
If the beneficiary is a donee, no, they may not sue unless grounds for a detrimental reliance remedy exist
May a promisee sue a promisor if the promisor is not performing for an intended third party beneficiary?
Yes, both in law or in equity for specific perfomnance
What is the typical assignment situation?
X (the obligor) contracts with Y (the assignor). Subsequently, Y assigned his right to X’s performance under that contract to Z (the assignee)
What contract rights may be assigned?
Generally, all rights may be assigned except:
(1) an assignement that would substantially change the obligor’s duty or risk
(2) an assignment of future rights to arise from future contracts;
(3) an assignment prohibited by law (wage assignments)
If a contract prohibits assignment of “the contract” or of “contractual duties” does it bar assignment of the contract?
Generally No. A contract provision can only bar assignement if it prohibits assignement and states that any attempts to assign will be void.
NOTE: if the assignee has notice of the nonassignment clause an assignment will be ineffective
What is the result of a valid assignement?
Privity of contract is created between the assignee and the obligor and privity of contract is extinguished between the obligor and the assignor
When must the obligor begin to render performance to the assignee?
When she recieves notice of the assignement
What is necessary for an effective assignment?
The assignor must manifest an intent to immediately and completely transfer her rights
Is a writing required to validate an assignment?
No
Is consideration required for a valid assignment?
No, gratuitous assignements are valid
When is an assignment for value?
If it is:
(1) does for consideration; OR
(2) taken as security for payment of preexisting debt
Can an assignment for value be revoked?
No
Is a gratuitous assignement revocable ?
Generally yes, exceptions:
(1) if the obligor has already performed;
(2) a token chose is delivered
(3) an assignment of a implement shoe is put in writing ; OR
(4) the assignee can show detrimental reliance on the gratuitous assignment
How may an assignment be revoked?
(1) the death or bankruptcy of the assignor;
(2) notice of revocation by the assignor to the assignee or the obligor;
(3) the assignor taking performance directly from the obligor;
(4) subsequent assignment of the same right by the assignor to another
Can the assignee sue the obligor?
Yes
Can the obligor cannot raise by way of defense any defense the assignor might have against the assignee?
No
Can an assignee sue an assignor?
In an assignment for value: yes, the assignee may sue for breach of any of the three warranties included in the assignment for value:
(1) He has not made a prior assignement of the same right;
(2) the right edits and is not subt to any undisclosed defenses;
(3) he will do nothing to interfere with the assigned right
What is the result if there has been successive assignments of the same rights?
If the first assignment was revocable, then the subsequent assignement revokes it.
If the first assignement was irrevocable, the first assignment will usually prevail.
What duties may be delgagted?
Generally all duties may be delegated. Exceptions:
(1) the duties involve personal judgment and skill;
(2) delegation would change the obligee’s expectancy;
(3) a special trust was reposed in the delegator by the other party to the contract; OR
(4) there is a contractual restriction on delegation
What is necessary for effective delegation?
The delegator must manifest a present intention to make a delegation
May a delegation be oral?
Yes
Must the obligee accept performance from the delegate of all duties that may be delegated?
Yes
May the obligee due the delegator for nonperformance ?
Yes
True or false: In the absense of an additional agreement, the obligee can still require that an delegate perform.
False.
True or false: words assigning “the contract” or “all my rights under the contract” are usually construed as including an assumption of the duties by the assignee unless a contrary intention appears
True
What rights does a merchant who deals in goods that kind obtain when goods of that kind are entrusted to him?
The right to transfer all rights of the entruster to a buyer in the ordinary course of business.
EXAMPLE: Amy leaves her watch with Jewler for repairs. Jewler sells the watch to Zoe, who does not know that Jewler doesn’t have the right to sell the watch. Zoe gets good title as against Amy. Amy’s only remedy is to sue Jewler for damages.
