Contracts Flashcards
Article 2
Applies to the sale of goods (Moveable, personal property)
Common Law
Applies to any other Contract
Do the parties have to be merchants for Article 2 to apply?
No, just has to be a contract for a sale of goods
Mixed Contract (Goods and Services)
Which is more important? What item does she want and what’s being thrown in?
Whatever is more important apply law (good= article 2, class= common law)
Texas Essays on Contracts
No Common Law, UCC only
Texas Essays on Contracts Article 2A
Lease of goods
Express Contract
Created by the parties words (oral or written)
Implied Contract
Created by parties conduct
Contract
Legally enforceable agreement
- Not every agreement is enforceable
Restitution (Quasi- Contract)
Protects against unjust enrichment whenever contract law yields an unfair result.
- Restitution is remedy of last resort
- Recovery in restitution is reasonable value of benefit conferred, not contract price
Recovery in Restitution
Value of benefit conferred, not contract price
Bilateral Contract
Where an offer can be accepted I any reasonable way (flexible)
Unilateral Contract
Where an offer can be accepted only by performing (inflexible)
- Where offer says accepted only by performing
- Reward, Contest, Prize
Was there an offer?
A manifestation of an intention to be bound
- A possibility of contract formation
Advertisements in Contracts
Generally not an offer (no quantity term)
- Trade Journal is not an advertisement (broader communicating media)
- Exception: Where the advertisement specifics quantity, then ad is an offer
Open Price Term
Court will read in a reasonable price except for a contract involving sale of real property - - No price, read in
- Usually fair market value at time of contract
Quantity and Requirement Contracts, Article 2
- Quantity can be measure by buyers needs or requirements, don’t have to be a specific number
- Even if ordering in good faith buyer cannot take seller by surprise. Buyer won’t be able to make seller give. Any increase cannot be out of line with buyers prior requirements
When does an offer lapse?
an offer lapses after a stated term or after a reasonable time has passed
- Offer doesn’t last forever, lapses after reasonable time
What effect does revocation have on the offer?
An offer terminates when the offeror revokes the offer
When can an offer be revoked?
An offer can be revoked any time before acceptance
What are the two types of revocation
Direct Revocation, Implied Revocation
Direct Revocation
The offeror indicates directly to the offeree that he has changed his mind about the deal
- Doesn’t have to say “revoke offer” just something ot let offeree know that he has changed his mind
Indirect Revocation
The offerror engages in conduct that indicates he’s change his mind and the offeree is aware of the conduct
- Look Out: where offeror has made offer, sold to someone else, and then original oferee comes to accept offer. If offeree did not know about transaction the offer was not revoked. Need evidence that oferee knew about transaction, then offer will be revoked and won’t be able to accept
Option
An option is a promise to keep the offer open that is paid for. Promise + $
- Offer cannot be revoked
Firm Offer
- Offer cannot be revoked
In a sale of goods (article 2), if a merchant promises in a signed writing to keep an offer open the offer is irrevocable - Held open for 3 months, can’t contract for anymore time
- If time period not stated it will be for reasonable time not to exceed 3 months
- Look Out: where it’s just a writing to agree to sell something for certain price, won’t be a firm offer. Has to have a promise to keep offer open
Foreseeable reliance before acceptance
- Offer cannot be revoked
Offeror expects offeree to accept first and then rely - Usually not foreseeable that this would be other way around
- Subcontractors know that contractors rely on their bids. Won’t need acceptance first
Starting to perform on a unilateral contract
- Offer cannot be revoked
- What if you did things in order to prepare but did not start? Mere Preparation does not make offer irrevocable under this exception. Have to actually started the contract job. (Could be foreseeable reliance though)
When is revocation effective?
When it’s received (no mailbox rule)
- If person accepted before they received your revocation in the mail, have to accept because revocation only effective when received not sent
A revocation _______s an offer
Terminates
What effect does a rejection have on an offer?
An offer terminates when the offeree rejects it
What effect does a counter offer have on an offer?
Counteroffer is treated as a rejection and terminates the offer
Counteroffer vs. Mere Bargaining
Mere bargaining is not a counteroffer/rejection. If just mere bargaining could always accept original offer
- How about $50 vs. I will only pay $50
Conditional Acceptance
Operates as a rejection and a counter offer under common law and article 2
- Remember an offerror could always agree to this and accept counter offer
- I will only accept if I get 10% off full cash payments
Acceptance Varying Offer / Common Law
Acceptance must mirror offer
- Adding of changing any terms operates as rejection (even minor change)
Acceptance Varying Offer / Article 2
No mirror image, adding and changing term does not prevent acceptance BUT term only included if:
A. Both parties are merchants
B. No material change and
C. No objection within a reasonable time
- If term customary it’s not a material change, disclaiming warranties material change
- Any response will reject term even if it’s minor
- Can form a contract and leave that term out
Death of either party before acceptance
Terminates a revocable offer but not an irrevocable offer (option or firm offer)
Has offer been accepted/ Contract Language
If it says you can only accept one way, telling the person “I accept” will not be acceptance, have to accept how the contract says
Has offer been accepted / Bilateral Contract
Starting performance is acceptance and carries with it an implied promise to finish the job
- Bilateral, doesn’t say how you can accept so can accept in any reasonable way
Has offer been accepted/ Unilateral contract
Completing performance is acceptance merely starting performance is not
- Don’t have to finish job, but once you start performance offeror cannot revoke offer.
Improper Performance
Simultaneous acceptance with breach
Improper Performance / Sale of Goods Accommodation
If seller tells buyer its sending nonconforming goods as an accommodation there is no acceptance and no breach
Oferees Silence as Acceptance
Generally not an acceptance
- If you don’t respond to this by 10 you have accepted
When is acceptance effective?
Acceptance is effective when mailed (mailbox rule)
- Can’t revoke offer once it’s mailed (accepted)
What if acceptance is lost in the mail?
burden of loss is on offeror, all that matter is letter was mailed, once mailed its effective
If buyer mails acceptance then calls to reject
mailbox rule applies and buyer accepted first
Exceptions to the Mailbox rule
- If offer says that acceptance must be received by certain date then mailing won’t be effective, letter must be received by that date
- Irrevocable offer: Have to accept before offer expires, mailing won’t be acceptance but receipt will
If buyer sends rejection letter and then acceptance letter
No mailbox rule, it will be a race and whichever one gets there first is effective
Lack of Capacity
Minors, Intoxicated, Mentally incompetant
Incapacitated Defendants rights to contract
Right to disaffirm contract
Minors Age
Minors actual age at time of contract matters, doesn’t matter if they said they were older
Implied Affirmation
Retaining the benefit after gaining capacity
- If you don’t disaffirm contract and continue to use it after gaining capacity contract can now be enforced against you (implied in conduct)
Incapacitated parties and Necessaries
- food, shelter, clothing, medical care
- But only for the reasonable value, not contract price
If incapacitated person is trying to enforce contract
they will be able to enforce it, we care about the capacity of the defendant. The incapacitated person has a right to void but the other party does not
Ambiguity/Misunderstanding
Parties each mean separate thing (different ships): There will be no contract because of ambiguity unless one party knows or had reason to know of the parties meaning. Then there would be a contract and innocent parties meaning would prevail
Mutual Mistake
No Contract if it is to a material fact
Mutual Mistake about value
not generally considered material. Contract will be enforceable as to either party
- If seller didn’t realize it was worth more or buyer thought it was worth more
Unilateral Mistake
One parties mistake is not a fatal flaw unless other party know or had reason to know about it
- Almost never a defense
Consideration
Bargained for legal detriment/benefit
- Can bargain for a promise, performance, or even forbearance
Past Consideration
Can’t use act that was already done for consideration
Adequacy of Consideration
irrelevant, just need a bargain
Contract Modification / Common Law
New Consideration is required to modify contract
- Preexisting duty rule: Performing a preexisting duty is not enough
Need something extra to get more money.
- Only person who can use this is parties to original contract
Preexisting Duty Rule
Contract modification under common law, need new consideration to modify contract cannot by existing duty
Contract Modification / Article 2
Consideration is not required to modify a contract for sale of goods, but you must have good faith to modify
Contract Modification/ Partial Payment of Debt
- If debt is due and undisputed, no consideration to pay part of the debt and forgive the rest. Won’t be valid. You’re not giving them anything the shouldn’t already get
- If you agree to pay portion early or there is a dispute over the actual amount owed then there is consideration to pay some of debt
Time-Barred Debt
a written promise to pay a debt, collection of which is barred by statute of limitations is enforceable even without consideration
Promissory Estoppel
Substitute for consideration
- Forseaable reliance may make a promise enforceable even without consideration
(Right answer only if there is no consideration)
What Contracts need to be in writing (statute of frauds)
MY LEGS
Marriage, Term of Years, Land Sale contracts, Executory Contracts, Goods for $500 or more, Surety Agreements
Statute of Frauds/ Interest in Real Property
- Sale of property needs to be in writing
- Any interest of property needs to be in writing including lease and easements
Statute of Frauds/ Performance cannot be completed within a year
- It does not matter if performance actually takes more then a year. As long as full performance within a year was theoretically possible no writing is required
- Contracts for “rest of life” do not fall under Statute of Fraud (could do in 1 year)
- If you contract with someone for something that’s to take place for more then a year in future needs to be in writing. Duration of that performance is irrelevant, it’s when you contracted for it to happen
Does a contract for the “rest of your life” need to be in writing?
No, possible to do within 1 year
Statute of Frauds / Sale for Goods $500 or more
Needs to be in writing
- If modification to contract is going to take price above $500 needs to be in writing
Statute of Frauds/ Suretyship
A promise to answer for the debt of another
Statute of Frauds/ Contract Modification Clauses Article 2
If sale of goods with modification goes over $500, needs to be in writing now
- If language of contract prohibit oral modification it needs to be in writing: Article 2 lets parties create their own statute of frauds
Statute of Frauds/ Contract Modification Clauses Common Law
clauses prohibiting oral modification are not enforceable so you can always modify a contract orally under common law, even if you have agreed not to
What must writing contain to satisfy statue of frauds under Article 2?
Must contain a quantity and be signed by party to be charged with breach (the defendant)
- If plaintiff is the only one who signed it’s not enforceable
What must writing contain to satisfy statute of frauds for any other contract besides article 2?
material terms and be signed by the defendant
- “I accept your offer” Not good enough, no material terms
Statute of Frauds can be a one way street if both parties didn’t sign. If it has defendant signature it’s enforceable
Exceptions to Statute of Frauds/ Real Property
- Leases of one year or less
- Part Performance: must have 2 out of 3: some payment, possession, improvements
Exceptions to Statute of Frauds/ Performance within 1 year
If person already preformed (ex: 2 years of work) and now refusing to pay, because person already performed they can enforce without writing
- Would still have to prove contract existed (formation issue)
- What if person couldn’t complete full performance (ex: fired 3 months into 2 year contract): Part Performance is not enough to satisfy full performance exception. Wouldn’t be able to recover because of statute of frauds. Could still recover restitution (reasonable value of work done)
Exception to Statue of Frauds/ Sale of Goods for $500 or more
- Where goods are accepted by buyer or goods are paid for by buyer
Exception: applies only to goods accepted/paid for NOT whole contract
-Exception: where buyer gives seller deposit and you can’t apportion goods, seller loses out on Statute of Frauds defense (ex: money given for boat, can’t use Statue of fraud to say contract doesn’t exist and can’t apportion boat, buyer gets boat)
Exception to Statute of Frauds/ Custom made goods
Not suitable for resell, made to buyers specifics
Exception to Statute of Frauds/ Judicial Admission
If you admitted it under oath
Exception to Statute of Frauds/ Merchants Confirmatory Memo
One party can use its own signed writing to satisfy statute of frauds against the other party if:
A. Both parties are merchants
B. Writing claims agreement/has Quantity
C. There’s no written objection within 10 days
Ex: agree to sale over phone and merchant sends follow up of it in writing
- Signed by person trying to enforce, that’s ok don’t need other persons if they didn’t reject it within 10 days
Statute of Frauds/ Suretyship
Main Purpose Exception
If main purpose of promise is to benefit yourself then no writing required
Ex: person is buying paint to paint your house and you orally say if person doesn’t pay for paint I will pay.
Parol Evidence Rule
Keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later writing
Look out for Parol Evidence vs. Statute of Frauds
Parol Evidence has to involve a writing, if no writing it’s a statute of frauds question
Exceptions to Parol Evidence
Correct clerical error, establish a defense against formation, interpret vague or ambiguous term, add to a partially integrated writing, later events
Parol Evidence / Plain Meaning Rule
If term not vague or ambiguous court will give term plain or obvious meaning, you won’t be able to show what term meant
Parol Evidence/ Partially Integrated Writing
If agreement doesn’t seem to be clear on it’s face, supplement it just not contradict it
Parol Evidence / Merger Clause
If contract says that “contract is limited to the terms herein” Writing is complete and can’t be supplemented, everything that came before is merged into later writing
Parol Evidence / Later Events
Parol Evidence Rule does not apply to events after terms are reduced to writing, looks backwards, nothing to do with what happens after writing
- May have a statue of frauds problem or consideration
Parol Evidence / Conduct of Parties
Can be used to explain terms/fill gaps
- Most important to Least important
Course of performance: How parties performed under this contract. Best evidence of what parties intended
Course of dealing: What parties did under prior contracts with each other
Usage of Trade: What others in the trade do in similar contracts
Sellers Warranties of Quality in Article 2
Express warranties, implied warranties (implied warranty of merchantability, implied warranty of fitness for a particular purpose)
Sellers Warranties of Quality in Article 2 / Express Warranties
Any statement of fact or description of goods, promise about goods, seller using sample or model
- Sellers expression of opinion is not express warranty (looks for vague or objective or general statement)
Sellers Warranties of Quality in Article 2/ Implied Warranty of Merchantability
Goods are fit for ordinary purpose
- Seller is a merchant who deals in goods of the kind (has special knowledge about the particular goods being sold)
- To Disclaim: must be part of offer and acceptance processes or must be agreed to by the buyer as a modification (not on a box)
Sellers Warranties of Quality in Article 2/ Implied Warranty of Fitness for a Particular Purpose
goods are fit for buyers particular purpose
- Seller knows buyer has special purpose and is relying on seller to select suitable goods. Seller does not have to be any kind of merchant
Disclaimers in Contracts
A seller can disclaim implied but not express warranties
- Even if contract says all warranties are disclaimed, express warranties will not be disclaimed
Disclaiming Language
- The phrase “as is” or “with all faults” in a contract will disclaim implied warranties
- In the absence of a magic phrase the writing must be conspicuous (bigger font, bold print, all caps), has to draw attention of reasonable buyer. If a seller wants to disclaim merchantability have to actually say those words
Limitations of Buyers Remedies
Seller can limit buyers remedies for breach of warranty (express or implied) if the limitation is not unconscionable (shock conscious)
- Limit is if it was unconscionable at the time of the contract
Exception: Limiting buyers remedies for personal injury in the case of consumer goods is presumed unconscionable (Consumer protection clause)
- Seller can rebut this but its difficult
Risk of Loss in Article 2
When goods are damaged before buyer gets them and neither buyer nor seller is to blame, who bears the risk of loss
If Seller bears Risk of Loss: Seller must provide new goods to buyer for no additional cost or be liable for breach of contract
If Buyer bears Risk of Loss: Buyer must still pay the contract price
Risk of Loss Hierarchy
- The agreement between the parties controls
- Breach: Breaching party bears risk of loss even if loss is unrelated to breach
Ex: Because you had a problem you shipped late and now you have risk of loss
Non-carrier case: buyer picking up or seller delivering
- When Risk of Loss passes depends on if seller is a merchant or not
Merchant Seller: Seller bears Risk of Loss until buyer takes physical possession of goods
Non-Merchant Seller: Buyer bears Risk of Loss once seller tenders the goods (makes the goods available to buyer)
- Risk of Loss passes sooner. When you tell buyer where goods are and hot to pick it up
Shipment Contract / Delivery by Common Carrier (UPS, Central Freight)
Seller must get the goods to a common carrier, make delivery and notify buyer
- Shipment contract is presumed unless contract clearly states otherwise
- Look Out: shipment contract where buyer bears risk of loss before it actually gets the goods (its counterintuitive so tested often)
Destination Contract / Delivery by Common Carrier (UPS, Central Freight)
Seller must get the goods all the way to a specific destination (usually where buyer is located)
FOB: Free on Board, followed by place or city / Delivery by Common Carrier (UPS, Central Freight)
Risk of loss passes to buyer at the named location
- If it’s where seller is located it’s a shipment contract
- If it’s other city the contract is destination contract
Non-carrier case: buyer picking up or seller delivering / Merchant Seller
Seller bears Risk of Loss until buyer takes physical possession of goods
Seller bears Risk of Loss until buyer takes physical possession of goods / Non-Merchant Seller
Buyer bears Risk of Loss once seller tenders the goods (makes the goods available to buyer)
- Risk of Loss passes sooner. When you tell buyer where goods are and hot to pick it up
Performance of Contract Article 2 / Perfect Tender Rule
Perfect Tender Rule: Seller must deliver perfect goods in the right place at the right time. If tender is not perfect buyer has the right to reject the goods
- Buyer doesn’t have to reject nonconforming goods but it has the option to if it wants
Performance of Contract Article 2 / Option to Cure
A seller who fails to make perfect tender may have an option to cure. Whether Seller has option to cure usually depends on whether the time for performance has expired
If time has not expired, seller has an option cure (still time to perform correctly)
Time has expired: No option to cure
Exception: seller has reason to believe that buyer would take nonconforming goods based on their prior dealings
Installment Contracts Article 2
Requires or authorizes delivery in separate installments (otherwise the goods have to be delivered in a single delivery)
- Doesn’t matter about what seller actually did, it’s did the contract require or authorize installments?
- Does contract say deliver in separate installments
Installment Contract and Perfect Tender
does not apply to installment contracts
- Harder to reject, Buyer may reject only for substantial impairment
- If not substantial impairment cannot reject the installment or the entire contract
- If installment is substantially impaired you can reject that installment but not whole contract
- If whole contract is substantially impaired you can reject whole contract
Buyers Acceptance of Goods/ Implied Acceptance
Buyer keeps goods after having an opportunity to inspect them
- Not actual inspection, just time to inspect
- If there is a long delay between receipt/complaint look for implied acceptance
Consequences: Once buyer accepts goods it is to late for buyer to reject them, but buyer can still get damages for sellers breach
Buyers Revocation of Acceptance of Goods
- Buyer cannot revoke acceptance of goods
Exception: If the non-conformity substantially impairs the value of the goods and was difficult to discover (latent defect)
Ex: mobile home and rain - Revocation must be in reasonable time after discovering defect
Consequences of rejection/revocation of acceptance
Return: Buyer can return the goods to seller at sellers expense
Refund: Buyer can get back any money buyer has paid for the goods
Damages: Buyer can get damages from seller for breach of contract
Buyers Obligation to Pay
A check is ok, but seller can refuse it
- Look for scenarios where buyer brings check at deadline, Buyer not in breach because buyer has reasonable time to get cash even though deadline has passed
Acceptance of Contracts at Common Law
Performance does not have to be perfect . Substantial performance is all that’s required. A party cannot commit a material brief
- Almost is good enough
- If hardly did anything under contract then most likely material breach
Buyers options if sellers performance is not perfect
- Reject the whole shipment (conforming and nonconforming)
- Accept the whole shipment (conforming and nonconforming)
- Accept some of the shipment and reject the rest of the shipment (conforming and nonconforming)
- Whatever option buyer chooses, buyer can still get damages from seller (seller breached contract)
Injured parties options if contract breached at common law
The injured party can recover damages for any breach of contract, whether breach is material or not
- Breach: when contract is due
- But only a material breach provides an excuse
- So buyer will get damages for breach but will still pay the contract price because seller has substantially performed
- If material breach committed then buyer gets damages and is excused from paying contract (keep in mind that seller can have restitution for reasonable value of work done)
- Finishing a job late is not a material breach unless time is of the essence
Divisible Contract Breach at Common Law
Where payment is on a per unit basis the breaching party can recover the contract price for any unit on which he has substantially performed
- Watch for situations where you could easily divide up what each piece is worth, contract will say if its for a per unit basis
- Substantial performance will be on a per unit basis and seller will get money for completed units
Anticipatory Repudiation
Provides an excuse unless retracted (treated like material breach)
- Person can stop and sue for damages as soon as you tell them that you are going to breach contract
- Breach before contract is due
Law allows for retraction or take back of repudiation unless party has relied on repudiation (Ex: took another job)
- Situations that say “Might” are NOT anticipatory repudiation has to be unequivocal
Article 2 Failure to Give Adequate Assurance
Buyer can in writing, ask seller for adequate assurance about quality of goods.
- If seller does not provide adequate assurance, buyer can treat it as anticipatory repudiation
- Cannot use this provision to rewrite the contract. You are only entitled to adequate assurance
Ex: if you hear buyer isn’t paying people and you’ve already agreed to give goods on credit, cannot now demand cash assurance
Recession
an agreement to cancel the contract
- Each party must have some performance remaining. If one party has already performed there would be no consideration for recession, and need consideration to make recession agreement
Modification
An agreement to replace an existing contract with a new one (now)
- Agreement takes place immediately
Accord & Satisfaction
An accord is an agreement to accept performance in future satisfaction of an existing duty. Satisfaction is performance of the accord
- Do something and THEN I’ll do something
Novation
- If original party agrees to substitute new party, original party has given up rights to go after the other original party. Can only go after the substituted new party for breach
- If original party agrees with new party without consulting the other original party, that original party could sue the original party, never agreed to new party so never gave up rights
Impossibility (Article 2= Impracticability)
Excuse of Contract
A later unforeseen event that makes performance impossible may provide seller with an excuse.
Common Law Destruction
Excuse of Contract
Destruction provides an excuse for non-performance
Sale of Goods Destruction
Excuse of Contract
Destruction provides an excuse for non-performance
Risk of Loss: A seller who bore risk of loss when goods were damages or destroyed is excused by impracticability
- Look Out: Risk of Loss, If risk of loss has passed to buyer then seller doesn’t need impracticability
- Unidentified Goods: Seller is excused only if the damaged/ destroyed goods had been identified to the contract
Ex: warehouse burns, seller only excused if specific goods had already been marked for buyer (can’t just be general)
Death/Incapacity of Essential Person
Excuse of Contract
Can’t just be any person, has to be essential
- If no unique skills are involved then anyone could do it and that person dying won’t excuse because he wasn’t an essential person (could delegate duty)
- Where unique skills are involved then impossibility has happened
- Paying for things: anyone can pay, won’t be excused, estate will pay
Increase in Cost of Sellers Performance MBE
Excuse of Contract
- You’ve agreed to sell me something at a certain price and all the sudden the market doubles the price of that item
MBE- Increase in cost never excuse
Frustration of buyers primary purpose
No point in buyer going through with contract
- Buyer will only be excused if seller knew what purpose of contract was when they entered into contract
- Excuse of Contract
Buyers options if sellers performance is not perfect
- Reject the whole shipment (conforming and nonconforming)
- Accept the whole shipment (conforming and nonconforming)
- Accept some of the shipment and reject the rest of the shipment (conforming and nonconforming)
- Whatever option buyer chooses, buyer can still get damages from seller (seller breached contract)
Injured parties options if contract breached at common law
The injured party can recover damages for any breach of contract, whether breach is material or not
- Breach: when contract is due
- But only a material breach provides an excuse
- So buyer will get damages for breach but will still pay the contract price because seller has substantially performed
- If material breach committed then buyer gets damages and is excused from paying contract (keep in mind that seller can have restitution for reasonable value of work done)
- Finishing a job late is not a material breach unless time is of the essence
Divisible Contract Breach at Common Law
Where payment is on a per unit basis the breaching party can recover the contract price for any unit on which he has substantially performed
- Watch for situations where you could easily divide up what each piece is worth, contract will say if its for a per unit basis
- Substantial performance will be on a per unit basis and seller will get money for completed units
Anticipatory Repudiation
Provides an excuse unless retracted (treated like material breach)
- Person can stop and sue for damages as soon as you tell them that you are going to breach contract
- Breach before contract is due
Law allows for retraction or take back of repudiation unless party has relied on repudiation (Ex: took another job)
- Situations that say “Might” are NOT anticipatory repudiation has to be unequivocal
Article 2 Failure to Give Adequate Assurance
Buyer can in writing, ask seller for adequate assurance about quality of goods.
- If seller does not provide adequate assurance, buyer can treat it as anticipatory repudiation
- Cannot use this provision to rewrite the contract. You are only entitled to adequate assurance
Ex: if you hear buyer isn’t paying people and you’ve already agreed to give goods on credit, cannot now demand cash assurance
Recession
an agreement to cancel the contract
- Each party must have some performance remaining. If one party has already performed there would be no consideration for recession, and need consideration to make recession agreement
Modification
An agreement to replace an existing contract with a new one (now)
- Agreement takes place immediately
Accord & Satisfaction
An accord is an agreement to accept performance in future satisfaction of an existing duty. Satisfaction is performance of the accord
- Do something and THEN I’ll do something
Novation
- If original party agrees to substitute new party, original party has given up rights to go after the other original party. Can only go after the substituted new party for breach
- If original party agrees with new party without consulting the other original party, that original party could sue the original party, never agreed to new party so never gave up rights
Excusing a Condition/ Waiver
Voluntarily giving up protection
- You can retract waiver for future things to extent other party hasn’t relied on it
Common Law Destruction
Destruction provides an excuse for non-performance
Sale of Goods Destruction
Destruction provides an excuse for non-performance
Risk of Loss: A seller who bore risk of loss when goods were damages or destroyed is excused by impracticability
- Look Out: Risk of Loss, If risk of loss has passed to buyer then seller doesn’t need impracticability
- Unidentified Goods: Seller is excused only if the damaged/ destroyed goods had been identified to the contract
Ex: warehouse burns, seller only excused if specific goods had already been marked for buyer (can’t just be general)
Death/Incapacity of Essential Person
Can’t just be any person, has to be essential
- If no unique skills are involved then anyone could do it and that person dying won’t excuse because he wasn’t an essential person (could delegate duty)
- Where unique skills are involved then impossibility has happened
- Paying for things: anyone can pay, won’t be excused, estate will pay
Specific Performance Service
Specific Performance is not available in service contracts but injunctive relief may be
- Can stop you from working for someone else, can’t force you to work for original person (indentured servitude)
Increase in Cost of Sellers Performance MBE
- You’ve agreed to sell me something at a certain price and all the sudden the market doubles the price of that item
MBE- Increase in cost never excuse
Frustration of buyers primary purpose
No point in buyer going through with contract
- Buyer will only be excused if seller knew what purpose of contract was when they entered into contract
Increase in Cost of Sellers Performance Texas
Excuse of Contract
- You’ve agreed to sell me something at a certain price and all the sudden the market doubles the price of that item
TEXAS: Seller may have excuse, look at
1. Absolute dollar amount of increase (how much lost money)
2 look at percent of increase
Supervening government Regulation
Excuse of Contract
Failure of Express Condition
Excuse of Contract
Limits obligation created by other contract language, but does not create an independent obligation.
- Look for words like if, as long as, when, provided that, on condition that, and unless
Strict compliance required: must be completely fulfilled or excuse is available
- Can go with deal if you want to, but you have excuse not to
- Even if it is for little thing you are excused (had to appraise at 200,000 and it did for 1,999,900)
- Can’t sue because condition didn’t happen. Didn’t create obligations, just limited obligations under the contract
Satisfaction Clauses
Excuse of Contract
Satisfaction is measured by reasonable person standard unless the contract deals with art or matters of personal taste
Ex: Will pay if I am satisfied with work, measured by reasonable person, unless art or matter of personal taste
Do Express Conditions have to be in writing? (precedent or subsequent)
Not if used to attack contract formation
- They are not contradicting writing
Condition precedent
IF an event happens we have a deal
- Event has to happen first before obligation to perform
Condition Subsequent
Until an event happens
- Cuts off obligation. Obligation starts but it’s cut short by the condition happening
Excusing a Condition
occurrence of a condition may be excused by the later action or inaction of the person protected by the condition
- Ask who is protected, then see if they did anything to lose condition
Excusing a Condition/ Failure to Cooperate
- If you put condition in and made no effort to hold up your end of the condition you will lose the protection of it and have to go through with deal
Ex: conditioned on you getting mortgage, but you never look for mortgage. Lose protection
Market Damages
Sellers Damages
Contract price – Market price if seller does not sell in good faith or does not sell at all
Lost Profit
Sellers Damages
If seller is a lost volume dealer ONLY
- A dealer resells the same goods for the same price. Don’t pick $0. Dealer has lost the profit it would have made on initial sale (would have 2 sales instead of 1)
- Watched for where seller is not making that good anymore, wouldn’t have lost profit because wouldn’t have made sell twice
Specific Performance Real Property
Specific performance is generally available because real property is considered unique (even if its not)
Specific Performance Article 2
Specific performance is available only if the goods are unique or there are other proper circumstances (an inability to buy substitute goods in the Market)
- Arts, antiques, custom made goods are unique and you’ll recover them if they haven’t been sold to third party
Specific Performance Service
Specific Performance is not available in service contracts but injunctive relief may be
- Can stop you from working for someone else, can’t force you to work for original person (indentured servitude)
Unpaid Sellers Right to Reclaim Goods
Not available under article 2 (seller may have rights under bankruptcy law)
Exception: If buyer was insolvent when it received the goods and seller makes a demand within ten days after buyer received them
- Usually buyer buys on credit (if paid cash, seller wouldn’t have right to get goods back)
- If buyer has sold goods to third party seller has no rights to reclaim goods from innocent 3rd party (if right exist its only against original buyer)
Exception: Seller can reclaim goods at any time if buyer misrepresented its solvency to seller in writing within 3 months before delivery
Punitive Damages
Not awarded for breach of contract because purpose of contract damages is to compensate not punish
- Want to compensate injured part, not punish breaching party
Third Party Beneficiary
Two people enter a contract intending to benefit a third party
- A person who is not party to a contract but has rights because the party was intended to benefit her
Expectation Damages
Put an injured party in as good a position as full performance. Expectation damages are general rule
- If you’ve spent money on contract you will get money you spent on reliance on contract and the profit you excepted (where you would have been if contract performed)
Sale of Goods Damages (article 2) Damages
Expectation Damages
Buyers Damages
Cover Damages, Market Damages, Loss in Value
Cover Damages
Buyers Damages
Cover price – contract price if buyer covers in good faith
- Cover is the extra they had to pay because contract fell through
- Paying more then market value is ok as long as its in good faith (don’t have to pick cheapest option)
Market Damages
Buyers Damages
Market price – Contract price if buyer doesn’t cover in good faith or doesn’t cover at all
Loss in Value
Buyers Damages
Value as promised – value delivered if buyer keeps nonconforming goods
- value you promised me I would have – value I actually got
Sellers Damages
Resale Damages, Market Damages, Lost Profit, Contract Price, Incidental Damages, Consequential Damages
Resale Damages
Sellers Damages
contract price – resale price if seller resells in god faith
- Could be $0 if I get what we contracted for
Market Damages
Contract price – Market price if seller does not sell in good faith or does not sell at all
Delegation of Duties (Burdens under contract)
Contractual duties may be delegated without the consent of the person to whom performance is owed (obligee)
Exceptions: contract language controls. If contract prohibits delegation then duty can’t be delegated
- If contract says not assignment then can’t delegate duty either
Contract Price
Sellers Damages
If Seller cannot resell the goods
- No market for goods, usually manufactured custom goods for buyer
- Will be able to get the whole contract price
Incidental Damages
Sellers Damages
Cost to the injured buyer or seller of transporting/caring for goods after a breach and of arranging a substitute transaction
- if they had to store goods, if they had to insure goods, if they had to advertise the goods were for sale
Consequential Damages
Sellers Damages
Damages that were reasonably foreseeable to the breaching party at the time of the contract.
- Consequential damages are not available to seller under article 2
- Has to be foreseeable at time of contract, not just foreseeable
Avoidable Damages
An injured party cannot recover damages he could have avoided (mitigated) with reasonable effort
- Can’t do nothing and expect to get full amount
- In job contracts you don’t have to take the job but your amount will be reduced accordingly
- Comparable: same kind of job, same city
Entrustment Article 2
an owner who entrusts goods to a merchant who deals in goods of the kind (dealer) has no rights against a bona fide purchaser
- Could sue dealer for conversion, but can’t get your good back from that BFP
- Usually always jewelry or a car to be repaired by a merchant who also sells that particular kind of good
Special Merchant: narrower here (and narrower for implied warranty of merchantability)
- Sells good out of regular stock or inventory
Third Party Beneficiary
Two people enter a contract intending to benefit a third party
- A person who is not party to a contract but has rights because the party was intended to benefit her
Third Party Beneficiary / Promisor
The party who promises to perform for the third party beneficiary
Third Party Beneficiary/ Promisee
the party who secures the promise
Intended Beneficiary
the person to whom performance is to be given under the contract (usually named in contract)
- has legal rights
Incidental Beneficiary
just happens to benefit from contract
- No legal rights
Donee Beneficiary
A person who is getting the performance as a gift
Creditor Beneficiary
Getting the performance to repay a debt
Recession and Modification/ Third Party Beneficiary
The promisor and promisee can rescind or modify the contract until the rights of the third party beneficiary have vested
- Vest once they learn of contract and rely on it
Contract Language with Recession and Modification/ Third party Beneficiary
if contract says they can recessed or modify then third party has no rights
Promisor Liability
Promisor liable to third party beneficiary
- Intended beneficiary can sue breaching promisor even though no privity of contract betweent them
- But their rights are limited. If promisee couldn’t recover because of material breach then third party couldn’t either. Third party only has rights promisee does to promisor
Delegation of Duties (Burdens under contract)
Contractual duties may be delegated without the consent of the person to whom performance is owed (obligee)
Exceptions: contract language controls. If contract prohibits delegation then duty can’t be delegated
- If contract says not assignment then can’t delegate duty either
Delegation of Duties where Special skill or reputation involved
Can’t delegate
- They hired you because of skill or reputation cant delegate even if you are trying to delegate to someone with more skill or better reputation
Assignment of Rights (transfer of benefit)
Two people make a contract, later one (assignor) transfers his rights to a third party (assignee). The party owes the duty is the obligor
- Assignments involve 2 steps. 1 Contract 2. 3rd party comes in
In an assignment two parties enter a contract and a third person appears later on. With third party beneficiary all three persons are present from the beginning
- Assignments must have language of present transfer ( I assign) not a promise to assign
- Consideration is not required. Can make assignment as gift, but its easier to revoke
Assignment Language
must have language of present transfer ( I assign) not a promise to assign
Restrictions on Assignment
Contract language controls. Distinguish a clause that prohibits assignment from one that completely invalidates assignment
- Rights under contract not assignable: This just says don’t do it, party would be liable for breach for assigning but assignment would still be valid
- All assignments under this contract are void would invalidate the assignment
Assignments of Obligors
Cannot substantially change duties of obligor
- Writing check to different person is easy
- Trying to change cities in contract is a substantial change
- Contract to buy can be assigned as long as assignees requirements are not out of line with assignors previous requirements
Obligor liable to assignee
- Assignee can sue to get paid
- Can’t sue if assignor materially breaches the contract (assignee steps into assignors shoes, has the same rights no more no less)
- If obligor doesn’t know that rights are assigned they will not have breached. Only liable if they are notified of assignment
Multiple Assignments / Gratuitous Assignment
easily revoked. The last gratuitous assignee prevails over earlier gratuitous assignees because a later give assignment revokes an earlier one
Assignments for consideration are more durable
- The first assignee for consideration prevails over all subsequent assignees (as well as prior gratuitous assignees)
Exception: A later assignee for consideration prevails if he does not know of the earlier assignments and is the first to get payment from or judgment against the obligor
