contracts and sales Flashcards
Express Contract
contract that results from words
- oral or
- written
Implied contract
contract that results from conduct
-a reasonable person would infer a promise from the conduct
Quasi Contract
A remedy that may be granted when certain elements exist
- P has conferred a benefit on D and
- P reasonably expected to be paid and
- D would realize unjust enrichment if P not compensated
Bilateral Contract
Formed from an offer that is open as to the method of acceptance
1. ex. I will pay you 1K to paint my house. could accept by return promise, or by beginning to perform
Unilateral contract
Formed from an offer that requires performance as the only method of acceptance, a return promise will not work
2 common fact patterns
1. sometimes the offer expressly requires performance (uncle promises nephew that if he doesnt drink, smoke, gamble until 21, he will pay him 5K)
2. offer of a reward/prize/contest
Article 2 of the UCC applies
2 factors: the type of transaction is
- a sale: the passing of title from the seller to the buyer for a price
- subject matter: goods-Personal moveable property
- services contrat are not governed by article 2
- if you have a hybrid or a mixed contract: goods and services
offer
- a manifestation of an intention to contract
- the basic test is whether a reasonable person in the position of the offeree would believe that his assent creates a contract (objective theory of K)
- focus on what the person did or wrote
- key work is manifestation
- it doesnt matter what the person intended: (if they had a secret intent to not sell, it doesnt matter, what matters is that they manifested an intent to sell)
contract
legally enforceable agreement
measure of recovery in quasi contract
it may as justice requires be measured by:
- the reasonable value of the services renders (quantum meruit) or
- to the extent to which the other party’s property has been increased in value his other interests advances
can a breaching party recover in quasi contract?
Modern rule: can recover as long as they acted in good faith/ as long as it is not a will full breach for the party’s own convenience or financial advantage
Traditional rule: they could not recover
article 2 applies regardless
regardless of the amount of money and regardless of whether the seller is a merchant
the statute of frauds only applies is over 500 and certain parts of article2 the seller has to be a merchant
what do you do with a hybrid or mixed contract?
the predominant purpose test:
if the main purpose is the goods: apply UCC
If services: no UCC
How do you decide??
- how much money spent on goods v. services
- how much time on the labor? how long will the services take?
- how sophisticated is the labor?
- does the contract contain typical sales language? (buyer and seller, warranties)
how definite does an offer have to be?
have enough of the essential terms been decided so that the court could enforce it
generally includes: parties, subject matter, price, delivery of performance, nature of the work involved, the quantity
2. the more that is left open, the more the court will find it to be negotiations
Gap fillers in a potential contract (contract)
- certain terms are left out and the court supplies the missing terms so that they can enforce the K
- the court kind of pieces together some of the information from references to the external sources of terms
- usually a price term is missing: if land, have to ID the land and have a price term (b/c land is unique)
- if the contract is for goods: can have an offer without the price if the parties so intend. (have to intend to be bound, and the court will supply a reasonable price)
vague or ambiguous term in the price of K
- at common law and under the UCC, this is not an offer.
2. there is an attempt to come up with a price but they didn’t do it clearly enough, cant determine what they meant
output contracts/ requirement contracts
the quantity can be measured by the buyer’s requirement or the seller’s output
ex. delta buys all the jet fuel it requires from exxon for a 5 years period, or a butcher sells all it hides it outputs to a purse maker
- has to be a good faith output or requirement
- can vary a little throughout the time: no quantity or unreasonably disproportionate to comparable prior output or requirement
Advertisements
- generally not an offer, it is a mere invitation for offers
- exception: an advertisement can be an offer if it is specific as to quantity and indicated who can accept
- exception: can be an offer if it is in the nature of a reward.
Auctions
- what is the offer? the bid, not the auctioneer asking for bids. the auctioneer is inviting offers
- if the auction is being conducted without reserve, auctioneer is obligated to sell to high bidder, auction with reserve unless terms state that is without reserve
Termination of an offer
- an offer cannot be accepted if it has terminated
- things that will kill an offer:
- lapse of time:
- words or conduct of offeror: revocation of the offer
termination by lapse of time
if no time is expressed, an offer lapses after a reasonable time under all of the circumstances
revocation of an offer by the words or conduct or offeror
- statement made by the offeror to the offeree indicating the unwillingness to contract or
- conduct of offeror that is inconsistent with an intention to make the contract AND of which the offeree is aware
- If the oferee hears a rumor that the offeror has revoked: if the information is reliable, the offer is revoked,
- general offer( advertisement of reward): when notice of termination is given publicity equal to that given by the offer
when does the revocation of an offer become effective?
- sent through the mail is not effective until the revocation is received
- an offer cannot be revoked after it has been accepted but generally an offer can be revoked any time prior to acceptance.
an option contract
- if the offeror has promised to keep the offer open and the promise is supported by consideration
- this offer cannot be revoked
- what is the consideration is token or nominal?
a. courts normally do not inquire into the adequacy of the consideration,
b. But if it is a mere sham, or it is not bargained for, then it is not consideration
c. even nominal consideration is sufficient to support an option contract - what if you recite the consideration but do not actually give it? generally presumed it is given, but if you can prove that it is not been given, then no consideration
offers that cannot be revoked
- option contract
- UCC rule: firm offer rule
- reliance: reasonable and foreseeable
- performance has begun in a unilateral contract
firm offer rule
- only applies to the contract for the sale of goods
- a written promise to keep the offer open
- promise made by a merchant
- in the absence of consideration the offer can only be irrevocable for 3 months
- if no time is set, the offer is irrevocable for a reasonable time not to exceed 3 months
- if the offer is oral, it is revocable
merchant
- deals in goods of the kind or who otherwise holds himself out as having knowledge or skill particular to the practices or goods involved.
- or one to whom such knowledge or skill may be attributes by the employment of an agent who holds himself out as having such knowledge or skill
reasonable reliance that is foreseeable
an offer cannot be revoked if there has been reliance by the offeree that is reasonably foreseeable but reliance alone is not enough
ex. contractor solicits bids from suppliers for construction project, contractor uses that bid for making a larger bid.
performance has begun in a unilateral contract
- cannot be revoked
- once performance has begun, it is irrevocable
- if not begun performance, but preparation: can still be revoked
- but if the consideration can be broken down into clear and distinct segments, then the offer can be revoked for those yet to be performed (ex. 10 houses to be painted, painter paints 3, can revoke for the remaining houses but not the 3 painted)
difference in preparing to perform and performing?
1.look at whether the offeror has benefited in any way yet
if yes, then more like beginning or performance
if not, more like preparation
Termination of the offer by the words or conduct of the offeree
- terminated any right to accept the offer
- rejection sent through the mail is effective when received
- a counter offer, terminates any right to accept the offer
- a mere inquiry does not kill the offer, (bargaining) (if in the form of a question, more of a bargain)
- a rejection or counteroffer does not terminate the offer under an option contract (but look out for estoppel, a P may be estopped from arguing the right to exercise the option if they made it clear they would not want the option and the D relied on that)
conditional acceptance
- under the common law and UCC: a conditional acceptance terminates the offer
- proviso clause: I accept provided you agree to this: no contract at this point, a counter offer which killed the offer
- what is the goods are delivered and paid for but the dispute above still arises: a contract implied from conduct, but no express contract.
- in this case, the agreed upon terms become the K, the disputed terms are thrown out, and the code fills the gaps
acceptance with additional terms
- common law: acceptance must be the mirror image of the offer or it operates as a rejection (the mirror image rule)
- UCC: the additional terms become part of the contract if both parties are merchants and the additional term does not materially alter the contract and the offeror does not object within a reasonable time
- otherwise, the additional term is a mere proposal for the addition to the contract which must be separately accepted by the other party
How do you know if an additional term materially alters a contract?
- surprising, oppressive term
2. arbitration clauses are generally found to materially alter the K
acceptance with different/conflicting terms
- common law: mirror image rule applies and rejected
- UCC: different term can be ok as long as a definite and seasonable expression of acceptance
- if it is quantity, price or another major term, it is not ok, otherwise it is
- some courts treat different terms like a additional term
- most courts apply the knock out rule: the conflicting terms knock each other out and the code fills the gaps
termination of an offer because of death or a party prior to acceptance
- general rule: death terminates the offer whether or not the other party knows
- exceptions: option contract and part performance in a unilateral contract
may have a defense of impossibility
who can accept an offer?
- generally, only the person to whom the offer is made can accept.
- offer cannot be assigned unless an option (unless the option otherwise provides).
- have to have knowledge of an offer to accept it (public offer: reward poster)
methods of accepting the offer
- performance
- promise to perform
- acceptance through the mail
- seller sends the wrong goods
- offeree is silent
acceptance by performance
- unilateral contract: once performance has begun, the offer is irrevocable but there is not acceptance until the performance is complete
- bilateral contract offer: beginning to perform is acceptance
acceptance through promise to perform
- if the offer is open to the method of acceptance, then the promise to perform is a good acceptance
- if the offer is for a unilateral contract, a promise is not enough for acceptance
acceptance though the mail
- acceptance if effective when posted
- if the offer arrives by mail or if acceptance by mail is customary, it is generally reasonable to accept by mail
- what if the acceptance never arrives?: doesn’t matter
exceptions to the mailbox rule
- rejection mailed first then letter of acceptance, rejection was received first: the letter of acceptance operates as a counter offer
- acceptance is mailed first, then the rejection is sent and the rejection is received first: estoppel may apply. if the rejection was relied on before they knew the acceptance was mailed then estopped from arguing that there was a contract formed
- the offeror has control over the terms that he proposed, so he can impose limitations on the time, place or manner if the acceptance. if that is the case, the mailbox rule does not apply if the offeror says acceptance has to be in person or via phone (no acceptance until) BUT if the offeror merely suggests a way to acceptance, then the offeree can use any reasonable means and the mailbox rule applies
option deadlines and the mailbox rule
- generally, you cannot use the mailbox rule to meet an option deadline
- response has to be received by the option deadline unless the offer says the acceptance has to be postmarked or mailed by the date
seller sends the wrong goods and acceptance
- shipping the goods is an acceptance and if it is the wrong goods, it is a breach of contract
- exception: the seller sends the wrong thing but says i hope you accept this instead (an accomodation letter) this is a counter offer
offeree is silent as to acceptance
- generally the offeror cannot unilaterally turn the offeree’s silence into acceptance
- if past dealings or trade custom show that silence is reasonable acceptance, then it can be
consideration
elements:
1. the promisee must suffer some legal detriment
2. the detriment must induce the promise (promisor makes his promise to induce the conduct of the promisee)
3. the promise must induce the detriment (the promisee is induces to act by the promise)
ASK: did the promise by the promisor induce the promisee to act AND did the conduct of the promisee induce the making of the promise by the promisor look like a bargained for exchange?
forms of the legal detriment
- performance ie. doing something not legally obligated to do
- forbearance i.e not doing something legally entitled to do
- promise to perform
- promise to forbear
possible issues with consideration
- conditional gift: if either of the parties intended to make a gift, she was not bargaining for something and there is no consideration. (see if the meeting of the condition benefits the promisor)
- legal detriment: doesn’t necessarily make you worse off, just giving something up that you are legally entitled to do
- ** past consideration**: not consideration, when the promise is made is the promisor bargaining for something
- adequacy of consideration
Past consideration: moral obligation
- Moral obligation: generally is not enough to substitute for consideration BUT if acts have previously been performed by the promisee at the promisor’s request and the promisee has an expectation of payment, the modern trend is to enforce a new promise
ex. someone asks a man to rescue his wife and he knows that the rescuer would expect payment, and then after the rescue promises to pay the rescuer 3K, this is likely enforceable - material benefit rule: some courts enforced promises made by a person who received a material benefit and then promised to pay for it
ex. man throwing something off building, realizes his boss is below and holds on and steers the thing away from boss, the boss later promises to pay the man per week for what he did, the court enforced it - promissory estoppel
adequacy of consideration
courts do not inquire into the adequacy of consideration, BUT if gross disparity it could be a fraud or duress or capacity issue
pre-existing duty rule: common law
- the performance of a pre-existing legal duty (contractual or statutory) is not consideration
ex. willie nelson agrees to play for 15K then later demands 20K for the same performance, the extra 5K is not enforceable unless he promises to sings longer or sign autographs - pre-existing duty owed to a third person: because there is no pre-existing duty to the third party, there can be an enforceable promise
ex. willie nelson threatens to cancel, a local bar owner promises to pay 5K if he still plays because the bar owner will see an increase in profits, the promise is likely enforceable
unforeseen difficulty exception to pre-existing duty rule: common law
- something happens that you haven’t foreseen the risk of
- ex. contractor excavating a foundation and hits a lot of unforeseen rock, the owner promises to pay more money
- it is enforceable as long as it is fair and equitable in view of circumstances not anticipated when the contract was entered into
- basically it has to be so bad, that the party could claim impossibility as an excuse, it has to be very severe to make performance vitally different
article 2: consideration for modification
- dont need consideration to modify a sale of goods contract: no pre-existing duty rule
- good faith is required for modification
Part payment as consideration for promise to forgive balance of debt
the key is whether the debt is due and undisputed. if so, then part payment is not consideration
ex. 3K is due and disputed. d offers to pay 2K and c promises not to sue…c can sue for the rest of the money
if not due yet or disputed: payment is consideration here and C couldnt sue for the rest
settlement of a claim as consideration
can be consideration as long as the party giving up the claim in good faith believes that the claim is valid
promise to pay debt barred by the statute of limitations as consideration
- Creditors rights: a written promise to pay a debt barred by the statute of limitations is enforceable, there is no need for consideration.
- only the new promise is enforceable, not the original debt
Illusory Promises
is a promise in form but not in substance. such a promise is not consideration for the other promise
1. promise to buy a house if I decide i want it
promissory estoppel as consideration substitute
elements:
- promise
- reliance that is both foreseeable and justifiable
- enforcement necessary to avoid injustice
comparison of consideration and promissory estoppel
promissory estoppel: the remedy may be limited as justice requires:
Capacity to contract
- have to be 18
- mental capacity
- intoxicated persons
Mental incompetent and capacity to contract
- a person is unable to understand in a reasonable manner the nature and consequences of the transaction or is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of this condition
Intoxication and capacity to contract
the other party has reason to know that , by reason of intoxication, he is unable to understand in a reasonable manner the nature and consequences of the transaction or he is unable to act in a reasonable manner in relation to the transaction.
consequences of incapacity
- right to disaffirm: have to disaffirm while you are a minor or within a reasonable time when becoming an adult (can ratify as an adult, the other party cannot disaffirm)
- liability for neccesaries: they need it to survive, what is a necessary is a question of fact. liable not on the contract for the necessary, but liable on a quasi contractual theory: pay for the benefit you received
Statute of frauds defense
Issues:
- is the contract within the statute of frauds?
- is the statute of frauds satisfied?
- if not why?
contracts within the statute of frauds
- promise in consideration of marriage: a pre-nup agreement usually, promise to marry is not within the statute
- promise by executor or administrator to pay an obligation of the estate from his own funds
- promises to answer for the debt of another (when third party promises to the creditor only)
1) primary benefit exception (if the party making the promises to pay the debt for the primary benefit of themselves, not within the statute) - contract which is not capable of being performed within one year of the date that it was entered into (key is what might have happened)
- promise creating an interest in land: if easement for over a year, or a lease for over a year etc
- sale of goods for $500 or more
- modifications
lifetime contract and statute of frauds
not within the statute because you could die in a year
statute of frauds and orally agree to employ for 3 years but allow either party to terminate on 30 days notice
majority rule: within the statute
Minority rule: not within the statute because within a year could terminate with 30 days notice, ohio potentially follows this rule
equal dignity rule
- contract for the sale of land has to be in writing
- therefore, a writing is needed to authorize someone to sign the contract for you
- but if agent signing in your presence, no written authorization is required
modifications
look to the contract as modified, if within the statute of frauds, the modification must be in writing (if it involves an essential term)
are written modification clauses enforced at common law?
no, but they are in the UCC
UCC modification of the contract
does it involve 500 or more?
is there a provision requiring that all modifications be in writing? (unless it is waived)
only the quantity really needs to be stated so the original writing might satisfy the statute
how is the statute of frauds satisfied?
writing (an electronic record is ok most of the time) this is the most common way to satisfy the statute must have:
- identify the parties
- identify the subject matter
- contain all the essential terms
- signed by the party to be charged (electronic signature okay)
part performance of an oral agreement that cannot be performed within a year, can the part performance satisfy the statute?
does not satisfy the statute of frauds if cannot be performed within 1 year
but the P can usually recover under quasi contract
signed by the party to be charged
- who is raising the defense
2. statute only satisfied as to the party who signed it
part performance of an oral agreement to buy real estate satisfy the statute of frauds?
part performance in real estate and 2 of 3
1. full or part payment
2. possession
3. improvements
mere payment alone does not satisfy the statute
statute of frauds and promissory estoppel: multistate
modern trend: a promise may be enforceable to avoid injustice using promissory estoppel even when the statute of frauds is not satisfied
- only enforceable to the extent that it avoids injustice
- what if there is an oral promise to draw up a written employment agreement? there would be reliance on the promise to put the agreement in to writing
stat of frauds and promissory estoppel and ohio
promissory estoppel can be used to get around the SOF only if there has been misrepresentation that the statute has been satisfied or there is a promise to put it in writing
2. reluctant to generally apply promissory estoppel
Sale of goods for over $500 or more and satisfy the statute of frauds
- common way to satisfy the statute is writing which has to state a quantity (can be requirement or output)
- must indicate that a contract for sale has been made between the parties (must afford a basis for believing there is a K)..easier to satisfy than common law
- signed by the party to be charges
UCC writng signed by the person seeking to enforce the contract: the merchant
a writing can satisfy the SOF without the signed party raising the defense if:
- both parties are merchants
- writing claims that there is a K
- writing is signed and states quantity
- failure to object in writing within 10 days of receipt
part performance of contract for the sale of goods
- generally part performance for sale of goods satisfies the SOF to the extent of part performance
- only enforceable to the extent of the part performed
specially manufactured goods
specially manufactured and not suitable for sale to others (ex custom cowboy boots)
1. once the seller has made a substantial beginning of the manufacture, the contract is enforceable and the statute of frauds is satisfied
judidial admissions and the SOF
if a party admits under oath that you had a contract, you do not have the SOF defense
1. this is a ucc rule but some courts have extended it to other contracts too
what is the SOF applies but you have not satisfied it?
- unenforceable
it is not illegal
mistake: ambiguity (mutual misunderstanding) in the bargaining process
there is no contract is:
- the parties use a material term open to at least two reasonable interpretations and
- each party attaches different meaning to the term and
- neither party knows or has reason to know the meaning attached by the other
- usually one party attaches a more reasonable meaning to the contract which will control
- rarely do both parties attach equally reasonable meanings
mutual mistake of a material fact
no contract if:
- both parties are mistaken
- basic assumption of fact
- materially affects the agreed exchange
- not a risk that either party bears
- the key is whether the agreed upon subject matter exists
ex. both party’s think they are bargaining for a picasso, it turns out to be a fake: no contract
-but if only a mistake as to value…no relief
unilateral mistake
generally: courts have been reluctant to allow a party to avoid a contract for a mistake that was not shared
exceptions:
1. obvious mistake: if the other party’s knows or should have known there was a mistake
2. avoidance before significant reliance by other parties: (bidder’s relief if avoidance is sought before any significant reliance by the other party, especially if it is a clerical error or if it would impose a very oppressive contract on the mistaken party
Duress
- party is left with no reasonable alternative but to enter into a contract
- personal duress (gun to the head)
- economic duress (day before wedding, caterer demands more money) - the preexisting duty rule usually goes along with it (a lot of time court will not allow this if the money is already given so cant get the money back but duress can get you the money back)
- if the contract is entered into under duress, it is voidable
undue influence and contract
- unfair persuasion rather than coercion
- may exist where a person uses a position of trust or confidence or dominance to convince the other to enter into a transaction that is not in the other parties best interest
- usually an unjust enrichment
- makes the contract voidable
fraud in the inducement of a K
- the person knows they are signing a K
- the other party lied about the subject matter to induce the party to sign it
- voidable
fraud in the factum
- fraud in the execution
- decieved about the mature of the document you are signing
- do not understand that this is a contract
- generally the courts require excusable ignorance (usually you are bound by what you sign)
- there was no contract at all because there was no mutual assent
innocent misrepresentation
- reasonably relied on the misrepresentation, can avoid the contract
- has to be a material misrepresentation to be voidable, can still maybe get damages for this misrepresentation
nondisclosure
generally there is no duty to disclose facts
exceptions:
1. statutory disclosure rule (truth in lending act)
2. act of concealment (treated like a misrepresentation)
3. where partial disclosure is misleading
4. changing circumstances cause a previous assertion to no longer be true
5. party become aware that other party is operating under a mistake as to a vital fact
6. there is a confidential or fiduciary relationship
unconscionability
- based on unfair surprise and oppression
- look for both procedural (gross disparity in bargaining power, terms tucked away) and substantive unconscionability (grossly unfair terms). most court require both
- judged at the time the contract is entered into
- decided by a judge
illegal contract
- contract illegal as to subject matter (never actually comes into court)
- sometimes, the subject matter is legal but the purpose is illegal (lease a plane for transport of drugs) if one party does not know of the illegal purpose and then finds out, can recover for breach of K
- can be illegal because a party does not have a license required by statute, the enforceability depends on the reason for the license requirement (if to raise money, generally enforceable, if a regulatory purpose a contract is unenforceable by person who violated the statute)
- illegal if against public policy: not usually tested because no one really knows what it means or where it comes from
custom and usage
how these deals are usually done in this particular place and this particular trade
ex. 50% lean might mean between 48% and 51%
past dealings between parties
how these people have performed their contract in the past
ex. no warranties or certain warranties
UCC, if sale of goods and terms
certain terms, like implied warranties, that become part of the K unless specifically excluded
parol evidence rule in contracts
- may prevent terms from becoming part of the contract
- nature of the rule: substantive law, not a rule of evidence
- facts that trigger the rule:
- written contract intended as final agreement totally or completely integrated
- earlier or contemporaneous agreements: does not apply to oral or written agreement made after the final writing it does not apply to modifications - RULE: where parties have agreed to a written contract as the final expression of their agreement, a prior written or oral agreement, or a contemporaneous oral agreement, cannot be used to vary the terms of the agreement
parol evidence issues that the judge decides
- do the parties decide even though it is not complete the written agreement is final as to the terms in that agreement (partial integration)
- the parties intent the written agreement to be not only final as to the terms in the agreement but also their complete agreement: complete integration
(merger clauses or integration clause are strong evidence that the parties intended complete integration)
what does a judge look for in parol evidence
- merger clause
- how complete does it look:typed? written?
- now long were negotiations?
- were the parties represented by lawyers?
exceptions to the parol evidence rule
- using the earlier agreement to explain the final writing (not adding too it or contradicting)
- using the earlier agreement to establish a defense (fraud, duress, mistake)
- using the earlier agreement to show that the written contract would not become effective until a condition occurred
- using earlier agreement to add to the final writing if the court concludes that the final writing was not intended as the complete agreement (partial integration)
- note: collateral agreements are admissilbe
- oral or written agreements after the final writing
collateral agreements
- agreed to for separate consideration OR
2. is such an agreement as in the circumstances might naturally be omitted from the writing
shipment contract
the seller completes it delivery obligation when
- gets the goods to the carrier (a third party carrier) and
- makes appropriate arrangements for shipment (considering the nature of the goods) and
- notifies the buyer that the goods are coming (and obtains and tenders any documents necessary to enable the buyer to take possession)
destination contract
seller’s delivery obligation is not complete until the goods are tendered to the buyer
sources of the delivery term
- course of dealing, usage of trade
- parties words:
FOB (free on board) city
CIF (costs insurance and freight) city
C&F cost and freight: city
FAS free along side: ship or port
Ex-ship-from the carrying vessel - general rule: most contracts are shipment K bt contracts with ex-ship and FOB and the buyers place of business…destination contract
- if the language is unclear: the presumption if a shipment contract
risk of loss
- if on the buyer: he has to pay the full price of the contract for the lost or damaged goods
- if on the seller: no obligation on the buyer and there is a possible liability on the seller for nondelivery though commercial impracticability may excuse the nondelivery
how to recognize a risk of loss question?
- after the K if formed and before the buyer gets the goods they are damaged with no fault of buyer or seller
how do you know who has the risk of loss?
- agreement states it: it controls
- breach: were the goods non-conforming so that the buyer would have a right to reject or revoke? or did the buyer wrongfully repudiate
no agreement, no breach, delivery by common carrier other than the seller
- risk of loss shifts from seller to buyer at the time the seller completes delivery obligations
- so different for destination and shipment Ks
no agreement, no breach, no delivery by a common carrier (no 3rd party carrier)
- the determinative factor is whether the seller is a merchant
- risk shifts from a merchant seller on the buyer’s receipt of the goods (taking physical possession)
- if non merchant seller: risk shifts when the seller tenders the goods, making the goods reasonably available to the buyer
- after a commercially reasonable time has gone by (obvious buyer wont show up) seller is no longer entitled to the contract price but is limited to an action for damages
sale or return
nothing changes regarding delivery and risk of loss, the buyer has the right to return to the seller even though they conform to the contract (goods taken on assignment)
sale on approval
- risk of loss is on the seller until the buyer decides to accept the goods
- the goods are delivered to the buyer primarily for the buyer to use and the buyer has a right to return the goods even though they conform to the contract (buyer using a piece of equipment on a trial basis)
express warranties: relates to the quality of goods
- given by the seller who does not have to be a merchant
- made up of words, description affirmation that is part of the basis of the bargain, the words have a natural tendency to induce reliance and not mere puffing or sales talk
- how do you know which is which? if in writing more likely to be a warranty, the more specific the more likely to be a warranty, depends on the industry
express warranty created by conduct 9nonverbal express warranty)
- showing a sample or model drawn from a bulk
2. warranty is what you deliver will conform to the sample or model
implied warranty of merchantability
- only a specific merchant can give it
- when any person buys goods from a merchant who deals in goods of the kind
- goods are fit for ordinary purposes
- this term will be automatically added to the K by operation of law
- misuse of goods does not qualify for the fit for ordinary purpose (fit for ordinary purpose means any kind of foreseeable use)
implied warranty of fitness
- given by any seller
- triggered by the buyer having a particular purpose
- buyer relying on the seller to select suitable goods
- seller has reason to know of the purpose and reliance
implied warranty of title
seller warrants that it has good title and that there is no undisclosed security interests, liens, or other encumbrances
contractual limitation on warranty liability
- disclaimer: contractual clause seeks to eliminate the warranty
- limitation of remedies:
disclaimer of warranty
- express warranty cannot be disclaimed
- implied warranty of merchantability and implied warranty of fitness may be disclaimed if done in a conspicuous manner
- as is: can be a disclaimer
- implied warranties can be excluded or modified by course of dealing, course of performance, or usage of trade
- where the seller has demanded the buyer examined the goods fully, there are no implied warranties with regard to defects which an examination ought to have revealed
conspicuous disclaimer
so written that a reasonable person would notice
implied warranty of title disclaimer
- the warranty may be excluded or modified only be specific language or by circumstances which give the buyer the reason to know that the seller does not claim title in himself or is purporting to sell only an unknown or limited right
limitation of remedies
- a contract provision that limits or controls a recovery for any breach of warranty (cannot eliminate the warranty)
- rejection is hard on a seller, so more and more repair and replacement clauses
- limitation of consequential damages: dont want to get personal property, personal injury. generally ok to do this unless it is unconscionable (any attempt to limit for personal injury in the case of consumer goods is prima facie unsconscionable)
- these are valid as long as not unconscionable and does not fail of its essential purposes
- does not fail of its essential purposes (where the seller is unable or unwilling to make the necessary repairs, the limited remedy fails of its essential purposes) (lemon laws)-a reasonable number of attempts to fix
breach of warranty statute of limitations
generally 4 years which begins at the tender of delivery but when the warranty explicitly extends to future performance of the goods then the four year starts when the breach is or should have been discovered
condition
- a promise modifier, it holds up the performance of one or both of the parties. true conditions are events that are outside of the control of either party
- some are express and some are implied
condition coupled with a covenant
- an event that affects the duty to perform that is to some extent within the control of one of the parties and creates a legal obligation on the party to use reasonable good faith efforts to cause the events to occur
condition precedent
- must occur before an absolute duty of immediate performance arises int he other party
- the plaintiff must normally plead and prove the condition precedent
conditions concurrent
capable of occurring together and the parties are bound to perform at the same time
condition subsequent
occurrence of which cuts off an already existing duty of performance
-the defendant must plead and prove the condition subsequent
expres conditions
- in the contract, look for words “if, subject to, in the event that, unless, or on condition that”
constructive/implied by law conditions
- read into the contract by the court, they are created by operation of law
- done in the interest of fairness to ensure that both parties receive the performance for which they bargained
- a party’s substantial performance of the contract is said to be a constructive condition of the other party obligations to perform
- constructive conditions are keyed to the order of performance
- with a service contract, assume service before payment
excuse of conditions
look to the person who is protected by the condition. ask if that person has done anything that justifies taking away the benefit or protection leaving them unconditionally obligated to perform
failure to coorperate
- even though the condition was not satisfied, but it is excused because the person we are trying to protect doesnt put in a good faith effort
estoppel of condition
- estoppel: statement or conduct of a person protected by a condition before the conditioning event was to occur and requires a change of position
- requires reliance
waiver of a condition
- statement or conduct made after the conditioning even was to occur and does not require a change of position (doesnt require reliance)
satisfaction of express condition
- strict compliance is the general standard for satisfaction of an express condition
- this presents some special problems when the express condition is the approval of one of the contracting parties: look to the subject matter of the contract, and determine if it involves something that involves personal taste or judgement (a subjective good faith standard)
constructive conditions
- substantial performance is the general standard for satisfaction of a constructive condition
- obligated to pay minus damages
perfect tender in a sale of goods
- if the goods or tender of delivery fail in respect to conform to the contract, the buyer can reject the whole, accept the whole, or accept any commercial unit or units and reject the rest
- there are some exceptions: there is a right to cure, the de minimis requirement ( a small mistake that is really not making something not perfect)
curing perfect tender
- seller fails to make a perfect tender and is given a second chance , but not every seller has the opportunity to cure and the buyer cannot compel the seller to cure
- contractual
- time performance has not yet expired
- time for performance has expired (does the seller have reasonable grounds for belief that even if it wasn’t perfect, they would adjust it) look to past performance
rejection of the goods: notice required
a buyer must affirmative action to avoid acceptance
- notice must be timely
- if the buyer fails to state a reason why they are rejecting, cannot rely on any unstated defect to justify rejection to establish a breach 1)if the seller could have cured the defect had he been told or 2) between merchants, when the seller has after rejection made a request in writing for a full and final written statement of all defects upon which the buyer proposes to rely (trap for the unwary)
when allowed to reject goods
- if the goods are less than perfect, the buyers has the option to reject unless an installment sales contract
- rejection must occur before acceptance
installment sales contract
- requires or authorize separate delivery to be separately accepted (past dealings or custom can come into play)
- buyer cannot just turn something into an installment K
- unless the installment is substantially impaired in that installment that cannot be cured, the buyer cannot reject (can still get damages)
- if the breach with respect to the installment substantially impairs the value of the entire contract can you reject the rest of the contract
acceptance of the goods: when does the buyer accept?
- after the buyer has reasonable opportunity to inspect indicates to the seller that the goods conform to requirements or that she will keep them even though they fail to conform
- when she fails to make an effective rejection or
- when she does any act inconsistent with the seller’s ownership
- contract requires payment upfront: still have opportunity to inspect
- buyer rejects but then uses it: this is acceptance
- except in the case of a mobile home or RV or something they have to keep using because there is no alternative, then court can be sympathetic
effect of acceptance of the goods
if the buyer accepts, it cannot later reject
revocation of acceptance of the goods
requirements:
- nonconformity substantially impairs the value of the goods to him (whether it would be a substantial impairment to a reasonable person in the buyers position)
- excusable ignorance of the grounds for revocation or you have relied on the sellers repair replacement clause and it has failed in its essential purpose
- revocation within a reasonable time after discovery of nonconformity and before any substantial change in the condition of the goods which is not caused by their own defects (normal wear and tear ok)
buyer rejection and holding the goods
- a buyer who rejects or revokes generally must hold the goods for the seller using reasonable care.
- a merchant buyer must follow any reasonable instruction form the seller if seller has no agent or place of business at the market of rejection or revocation
buyer’s payment obligation
- in the absence of an agreement for credit, the buyer must pay cash
- the buyer can pay be check and
- seller can refuse the check but if the seller demands cash, the buyer must be given a reasonable amount of time to get it
effect of breach on risk of loss
- if goods are so defective that a buyer has a right to reject them, the risk of loss remains on the seller until the defects are cured or the buyer accepts the goods in spite of defects
- if the goods are defective and the buyer rightfully revokes her acceptance, the risk of loss is on the seller to the extent of any deficiency in the buyer’s coverage
- where the seller has identified conforming goods to the contract and the buyer repudiates or otherwise breaches the K before the risk has passed to her, the risk of loss falls on the buyer to the extent of an deficiency in the seller’s insurance
excuse by reason of failure of an express condition
if a party’s duty to perform is expressly conditional, failure of the condition excuses the duty to perform
excuse by sale of goods, perfect tender
if the tender is less than perfect, the buyer can reject the goods and withhold payment, the buyer is excused from paying
excuse by material breach
- common law required only substantial performance. if one party to a K substantially performs, the other is required to perform
- a minor breach by one party, will not excuse the other party
- only a material breach by one party excuses the other party’s performance
- material breach is the converse of substantial performance
common law right to cure
If they materially breach, you have right to not pay, but if they are willing and able to cure in a reasonable time, they have the right and you can deduct damages
divisible contract
ex. paint house for 12K, 5K for outside and 7K for inside, only does one
1. consideration can be broken down into clear and distinct segments and each segment has independent value to the buyer
2. have to pay for the part that was substantially performed but excused from paying the rest
performance of an express condition
- if the contract contains an express condition, then strict compliance with that express condition is required and substantial performance is not enough
BUT express condition may be excused where disproportionate forfeiture would result if the condition were not excused (the harm to the painter is way worse than to the homeowner) - even if a party fails to satisfy an express condition and co cannot recover on the contract that party may be able to recover in quasi contract to prevent unjust enrichment
anticipatory repudiation
- a repudiation is an unequivocal manifestation by one party to the other that:
- the repudiating party cannot or will not perform the obligation made prior to the time performance is due
- expression of doubt is not enough
- anticipatory repudiation by one party to a contract excuses the duty to perform of the other party to the K and gives the party the option to sue right away from damages
anticipatory repudiation made because one party erroneously believes the other party materially breached
1.party is excused from performing and can sue for damages
what is someone tries to take back the repudiation
- so long as P has not relied on the repudiation, it may be retracted
what if one party has fully performed and then the other party repudiates?
- cannot immediately sue for the money, have to wait the time required for the other parties performance
excuse by reason of agreement of the parties
4 types of agreements:
- modification agreements
- accord and satisfaction
- rescission
- novation **
modification-excuse
- agreement changing the duties under the contract (not the parties to the agreement)
- discharge of the original obligations occurs as soon as the new agreement is entered into
excuse because of accord and satisfaction
- agreement to accept substituted performance in future satisfaction of a contractual duty,
- the accord is the new agreement to accept a different performance in order to discharge an existing contractual duty.
- the satisfaction is the performance of the new agreement
- the original duty is not discharges until performance of the new agreement, only suspended
- what is there is accord but no satisfaction, can sue on the original contract (because only suspended0 or on the accord
rescission and excuse
- cancellation of duties under the contract, discharge occurs at the time of the new agreement
- some performance must remain to be done on each side of the contract. if either or both parties have fully performed there is no valid rescission
- oral rescission is generally ok but what is rescinding a contract that was within the statute of frauds?-generally oral contract still ok with 2 exceptions: involves transferring an interest in land, or if the contract says all rescissions have to be in writing (UCC)
novation and excuse
- substitution of a party
- immediate excuse
- it requires the agreement of both parties to the original contract and the new party
- what if the new party does not perform? the original party is still discharged because they all agreed but in a mere delegation the original party is still liable
excuse by impossibility or impracticability
triggering facts:
- post contract occurrence
- that was not reasonably foreseeable at the time of the contract that was not a risk assumed by a party to the contract
- that renders performance impossible or commercially impracticable
- without the fault of the other party seeking to be excused
-because it is generally held that failure to cover a foreseeable risk in the contract deprives a party of defenses of impracticability, in real life often contained in a force majeure clause
destruction of subject matter of the contract or means of the performance
- common law: excused
- a builders duty to construct a building generally is not discharged by destruction of the work in progress (b/c of builders risk insurance)
- UCC: the destruction of the subject matter excused performance
- were the goods destroyed the subject matter of the contract?
- did the buyer have the risk of loss at the time of destruction and
- how is destruction of some of the goods that are the subject matter to be handled
partial impossibility
- can allocate among customers, but cant force the buyer to take fewer.
- as long as the allocation is fair and reasonable, the buyer cannot sue the seller for breach
- if risk of loss already shifted to the buyer, then buyer is responsible for the loss
incapacity of a person necessary to perform
- there is a contract, and one party dies, does the estate have to perform? yes if the person is not necessary to the party
- if the party is necessary to the contract (a boxer breaks his hand, a singer cant sing) if the contract is personal to someone, then it is excused
governmental regulation or order
both sides are generally excused
increase in the cost of performance
- generally a party is losing money on the contract
2. generally, increased cost alone is an assumed risk
temporary impossibility
temporarily suspends contractual duties but generally discharge them.
- when performance becomes possible the duty springs back into existence
- the duty will not spring back if the burden on either party to the K would be substantially increased or different from that originally contemplated
frustration of purpose
- post contract occurrence
- not foreseeable
- totally destroys the purpose or value of the contract, the purpose being know to both parties
- the subject matter is still available, but the purpose is just not there any more (ex. rent an apartment to see a coronation, which gets cancelled, dont have to pay the rest of the money)
liquidated damages
- contract can stipulate damages or method of fixing damages
- a contract cannot provide for a penalty
- the actual damages dont really matter, just have to be reasonable at the time that the K was entered into
two general tests for determining whether a contract provision is a valid liquidated damages clause or an invalid penalty provision
- at the time of contract, damages difficult to estimate and
- at the time of the contract, provision is reasonable forecast of possible damages
punitive damages
generally not recoverable for breach of K
general measure of damages for breach of ordinary contracts
- generally the injured party is entitles to recover an amount that would put him in as good a position as if the contract had been performed
- expectation damages
contracts for the sale of land
- land is unique so money damages are usually not enough, they want specific performance
- if they want money damages
- buyer: fair market value-contract price
- the seller gets contract price-fair market value
construction contracts
- can recover the cost incurred to date plus the profit
- if the buyer: the amount you have to pay the new builder minus the original contract price
- just want to put someone in the same position as they would have been if the original k was performed
employment contract
- can get the extra cost to replace the employment and may incidental damages
- but employee can get the full contract price minus avoidable damages
limitations and additions
- can recover incidental damages: cost incurred in a reasonable effort to avoid loss resulting from a breach
- ex. advertising for the job, storage fees, etc
- consequential damages: injury to persons or property and lost profits resulting from the breach
- generally have to be kind of foreseeable damages, have to naturally flow from the conduct or you bring to the attention of the other party
- minus avoidable damages: an injured party cannot recover damages that could reasonably have been avoided, must make reasonable efforts to mitigate the damages but not expected to take steps that involve undue burden risk or humiliation
- minus speculative damages: must be established to a reasonable certainty not mathematical accuracy, where plaintiff’s expectation damages are too speculative to measure, reliance damages may be recovered
damage rules for sale of the goods: seller breaches, buyer keeps the goods
fair market value if perfect - fair market value as delivered
UCC: seller breaches and keeps the goods
market price at time of discovery of the breach - contract price or replacement price - contract price
UCC buyer breached: buyer has the goods
contract price
UCC buyer breached, seller has the goods
contract price minus market price at the time and place for tender or contract price - resale price
resale has to be in good faith
lost volume seller: does their supply exceed the demand? if they can get all they want, they can sell 2 instead of 1 so they get the lost profits on the 1st sale
there are situations were there is a breach and no damages
equitable defenses
- unclean hands: if the plaintiff is guilty of improper conduct with respect to the same transaction involved in litigation
- impossibility and hardship: not going to order you to do something you just cant do, or balance the hardship between the p and d
- laches: where plaintiff has delayed bringing suit and this delay has substantially increased the cost or difficulty of performance by the defendant or it has made it much more difficult for the D to defend
equitable remedies
- generally only get is monetary damages are not adequate
2. land and other unique goods
specific performance
- land contracts and other unique goods
- you actually get what you wanted, but buyers and seller can get specific performance
3, generally no specific performance unless the goods are unique - negative specific performance: cant force you to perform a personal contract but can enjoin them from doing something instead of that performance (ex. cant force a singer to sing in cleveland but can enjoin them from singing elsewhere)
equitable rescission
- the remedy is available where performance duty is excused because of impossibility, impracticability or frustration of purpose.
- it can also be used where the contract is void or voidable on ground such as mutual mistake
reformation
this equitable remedy is used where the agreement was incorrectly recorded and either party can seek equitable remedy
UCC: reasonable grounds for insecurity/adequate assurance of performance
- when either party to a sale of goods contract has reasonable grounds for insecurity about that other party’s performance
- it may be in writing demand adequate assurance of performance and may if commercially reasonable suspend performance until it receives such assurance
- if such assurance is not received within a reasonable time not exceeding 30 days, it can be treated as repudiation
seller’s right of reclamation
- generally an unpaid seller has no special right in goods it has delivered to the buyer even though it has not yet been paid for the goods
- the seller can obtain special rights by obtaining an article 9 security interest or by meeting the requirements of section 2-702
under this section:
an unpaid seller has the right to reclaim its goods if - it is a credit sale
- the buyer is insolvent when it receives the goods
- demand for return is made within 10 days of buyers receipt of the goods or within a reasonable time if buyer made false representations of solvency
third party beneficiary contract
- a contracts with b for the benefit of c
2. insurance policies are a big area here
promisor in a third party beneficiary K
the person who is to render the performance which will benefit the third party beneficiary
promisee in a third party beneficiary K
the person bargaining with the promisor for the promisor’s performance that benefits the beneificary
intended/incidental beneficiaries
- only the intended beneficiary have the legal rights under a contract
- to determine you need to look at the promisee: was their purpose to benefit themselves or with the intent to benefit the 3rd party
- was the 3rd party expressly renovated
- was performance directly made to the third party
- does the third party have any rights
- does the third party have a relationship with the promisee from which one could infer that the promisee wished to make an agreement for the 3rd party benefit
creditor/donee in a third party beneficiary
- a third party is a donee unless it was a creditor of the promisee when the contract was entered into between the promisee and the promisor
when do the rights of the 3rd party B vest?
- when the 3rd party brings suit to enforce the promise or
- when the third party materially changes its position in justifiable reliance on the promisee or
- when the third party manifests assent to the promise in a manner invited or requested by the parties. if the 3rd party assent to the agreement?
- can the promisor or promisee modify? until one of the 3 above occurs, can modify
exception:a contractual provision saying you can change beneficiaries, that is okay
third party beneficiary: who can sue who
- beneficiary can sue the promisor
- defenses raised: only raise defenses arising out of the contract with the promisee - promisee can sue promisor
- creditor beneficiary can sue the promisee on the existing obligation between them
delegation of duties
- getting someone else to perform your duties under a K
- delegating party: the one delegating the duty
- the delegate: the one to whom the duty is delegated
- the obligee: the one to whom the duty is owed
* *watch out for assignment language, delegate duties, assign rights
is a duty delegable
- contract provisions: contract language controls
- is the contract says no assignments, no delegation either
- if the contract doesnt say anything: is this the type of thing that can be delegated or not?
- generally you can delegate unless special skills or special reputation is involved?
requirements for delegation?
- the obligee’s consent is not required
2. consideration is not required: if there was consideration can normally go against the delegate too
consequences of delegation
- delegating party is still liable
2. delegate is liable to obligee only if he receives consideration from the delegating party
assignment of rights
- with a 3rd party beneficiary, you are adding a person with rights
- with assignment, you are replacing one person with rights with another person
- assignor: assigns the rights
- assignee: the one to whom the rights are assigned
- obligor: one obligated to may the payment
limitation on assignment
- common law rule: assignment cannot substantially change the duties of the obligor
- assigning a right to a money payment is generally ok
- performance of service: cannot assign the right to another obligee if it changes the duties
- output/requirement contracts: good faith variations are ok as long as they are not unreasonably disproportionate to prior requirements so generally assignable
contract clauses that prohibit assignments
- does the contract have a clause that merely prohibits assignments or also invalidates assignments
- they can sue for breach either way, but sometimes it is still enforceable (it took away the right to assign but not the power to do so)
- if it says it invalidates the assignment: there is no right or power
requirements of assignment
- need present assignment language
- generally not required to be in writing but wage assignments, interests in land, and assignments or choses in action worth more than 5K and assignments intended as security interests in art. 9 have to be in writing - consideration not required but if not given, easily revoked, if given, harder to revoke
assignee v. obligor
- can sue,
- defenses raised by obligee: generally any defenses that the obligee has against the assignor can be raised against the assignee
- modification by the obligor and the assignor, yes until the obligor has received notice of the assignment
- can the obligor keep paying the assignor? if the obligor makes payment to the assignor before being notified of the assignment, the debt is discharged, but once notice, have to pay assignee
assignee v. assignee issues: gratuitous assignments
- when an assignor assign the same rights to the same people
- gratuitous assignment: such a gift assignment can be freely revoked, directly or indirectly
- a later gift assignment revokes a prior one, so last in time is entitled to the right
- not revokable if signed or under seal that is delivered by the assignor or the assignment is accompanied by the delivery of a writing of a type accepted symbol or as evidence of rights assigned
- gratuitous is irrevocable: to the extent that before the assignee right is terminated 1. the obligator already performed or 2. the assignee has obtained a judgement against the obligor or 3 the assignee has entered into a new contract with the obligor by novation or the assignee has relied on the assignment in a way that is reasonable, foreseeable and detrimental
assignment for consideration
generally: the first assignee for consideration has priority over all subsequent assignees and over all creditors of assignor
notice alone does not give priority
exceptions: without notice of the 1st assignee
1. a judgement against the obligor
2. already received payment
3. enter into a new contract with the obligor
4. delivery of a tangible token or writing 5. sets up an estopped against the 1st assignee
assignee v. assignor
- in an assignment for value the assignor makes certain implied warranties to the assignee
- the assignor warrants that the rights assigned actually existed and that he will do nothing to impair the value of the assignment
- basically, the assignor says It wont be his fault if the assignee does not get the money
- the assignor will not be liable to the assignee simply because the obligor is incapable of performing, the assignor does not warrant what the obligor will do
entrusting goods
- when the P entrusts good to D and the D sells the goods to a good faith purchaser
- when someone entrusts good to a merchant who deals in goods of the kind, that merchant has the power to transfer all rights of the entrustor to a buyer in the ordinary course.
- can sue them for conversion still, they have the power not the right
