Contracts (Main Deck)* Flashcards
WHAT 7 AREAS SHOULD YOU
CONSIDER WHEN
APPROACHING A
CONTRACTS QUESTION?
STEP 1: FORMATION
(Was the contract properly formed?)
STEP 2: INTERPRETATION
(Are there any questions regarding the interpretation of the contract?)
STEP 3: THIRD PARTY ISSUES
(Are any third parties affected by the contract?)
STEP 4: PERFORMANCE
(Has a duty to perform arisen and was it fulfilled?)
STEP 5: BREACH
(Did either party breach its duty of
performance?)
STEP 6: DEFENSES
(Are there any defenses to an accusation
of breach?)
STEP 7: REMEDIES
(What remedies are available?)
PRELIMINARY ISSUE:
WHEN DO YOU USE THE COMMON LAW OF
CONTRACTS & WHEN DO YOU USE THE UNIFORM COMMERCIAL CODE (UCC)?
Rule: Generally, contracts are governed by the common law. However, Article 2 of the Uniform Commercial Code (UCC) governs transactions and contracts for the sale of goods. When Article 2 and the common law conflict over an issue regarding the sale of goods, Article 2 controls.
Note: If a contract is primarily a service
contract that involves the incidental sale of
goods, the UCC does not apply.
PRELIMINARY ISSUE:
DEFINE GOOD, SALE & MERCHANT UNDER THE UCC
Good: Under UCC § 2-103, a good is anything, other than money, that is tangible and movable.
Sale: Under UCC § 2-106, a sale is the present or future transferring of title from the seller to buyer in exchange for a price.
Merchant: Under UCC § 2-104, a merchant is a person who deals in goods and represents herself as having a skill or knowledge particular to dealing in goods of that kind.
PRELIMINARY ISSUE:
DEFINE 3 TYPES OF CONTRACTS (CLASSIFIED BY FORMATION)
Express Contract: An agreement in which mutual assent is manifested bywords, either oral or written.
Implied Contract (Implied in Fact Contract): An agreement in which mutual assent is manifested by conduct.
Quasi-Contract (Implied in Law Contract): An obligation imposed by a court to avoid unjust enrichment (thus, not a “real” contract).
PRELIMINARY ISSUE:
WHAT IS A UNILATERAL CONTRACT?
Definition: A unilateral contract is a contract in which a promise (by the Offeror) is exchanged for an act (by the Offeree).
Note:
1) Unilateral contracts generally arise in two circumstances:
a) The Offeror indicates that performance is the only manner of acceptance, OR
b) An offer is made to the public that clearly anticipates acceptance by performance.
2) The Offeror’s obligation to perform does not arise until completion of performance by the Offeree.
3) The Offeree’s failure to perform does not constitute a breach because acceptance does not occur until the Offeree renders complete performance.
4) The Offeror may not revoke an offer under a unilateral contract once performance has begun.
PRELIMINARY ISSUE:
WHAT IS A BILATERAL CONTRACT?
Definition: A bilateral contract is a contract in which a
promise is exchanged for a promise.
STEP 1 -
FORMATION OF CONTRACTS:
IDENTIFY THE PRIMARY PARTIES INVOLVED IN A CONTRACT & THE REQUIREMENTS TO FORM A VALID CONTRACT
Offeror: The person who makes an offer.
Offeree: The person to whom the offer is being made and in whom power is vested to accept or reject the offer.
Rule: To form a valid contract, three elements are required:
1) Offer.
2) Acceptance, AND
3) Consideration.
Note: The parties’ subjective intent to enter into a contract on mutually agreed upon terms is inherent in the elements of offer and acceptance, which together form the mutual assent requirement.
MUTUAL ASSENT
(Define & State the Rule)
Definition: Mutual assent is the agreement by the Offeror and Offeree to the same terms and their intent to be bound by the agreed upon terms.
Rule: To form a valid contract, mutual assent must be present.
Note: An objective (i.e.. reasonable person) standard is generally used to interpret the parties’ words and actions.
FORMATION OF CONTRACTS:
OFFER
(Define & State the Rule)
Definition: An offer is a manifestation of the Offeror’s
present intent to enter into a contract and be contractually bound upon acceptance of the offer.
Rule: An offer creates in the Offeree the power to form a contract by accepting the offer.
BY WHAT STANDARD IS THE INTENT TO OFFER MEASURED?
Rule: Courts use an objective standard to determine whether an Offeror intended a communication to be an offer.
Note: Courts apply the standard of a reasonable person in the Offeree’s position (i.e., “Would a reasonable person in the Offeree’s position have understood the Offeror’s communication to be an offer?’). Thus, evidence of a prior relationship between the parties or industry custom may be relevant to determining whether an offer was made.
LIST 5 COMMON EXAMPLES OF COMMUNICATIONS THAT ARE NOT OFFERS
1) Invitations to submit a bid,
a) Exception: Under UCC § 2-328, no-reserve auctions are treated as irrevocable offers.
2) Price estimates,
3) Written memos of preliminary negotiations,
a) Exception: A memo that evidences an intent to be bound to the terms will be treated as an offer.
4) Opinions, jokes, hopes, or expectations about future results,
5) Advertisements,
a) Exception: Advertisements that contain specific terms or words of commitment (e.g., “First come, First served”) are treated as offers.
WHEN CAN AN OFFEREE ACCEPT AN OFFER?
Rule: An offer may be accepted as long as the offer has not been terminated. Upon termination of the offer, the Offeree’s power to accept also is terminated.
Note: The five ways a revocable offer can be terminated by an act of one of the parties are:
1) Express rejection of the offer by Offeree,
2) Counteroffer by Offeree,
3) Expiration of the offer (lapse of time),
4) Revocation of the offer by Offeror,
5) Death or insanity of either the Offeror or Offeree.
TERMINATION OF AN OFFER:
EXPRESS REJECTION
(State the Rule)
Rule: Generally, an offer will terminate upon the Offeror’s
receipt of the Offeree’s rejection.
Note: The Mail Box Rule provides for a limited exception.
TERMINATION OF AN OFFER:
COUNTEROFFER
(State the Rule)
Rule: An offer will terminate upon the Offeror’s receipt of a
counteroffer by the Offeree.The counteroffer is treated as
a rejection of the offer and an offer of new terms to the
original Offeror (who becomes the Offeree).
TERMINATION OF AN OFFER:
EXPIRATION/LAPSE OF TIME
(State the Rule)
Rule: An offer will terminate if the Offeree fails to accept the offer within:
1) The time specified. OR
2) A reasonable time, if no time is specified.
Note: If the offer was made in a person-to-person communication, the offer will remain valid only for the duration of the conversation unless a party can provide evidence of intent to keep the offer open.
TERMINATION OF AN OFFER:
REVOCATION OF THE OFFER
(State the Rule)
Rule: An offer will terminate if the Offeror:
1) Communicates the revocation of the offer to the Offeree, OR
2) Acts inconsistently with a continued willingness to enter into a contract and the Offeree learns of the Offeror’s acts.
OFFEROR’S POWER TO REVOKE
(State the Rule)
Rule: Generally, offers not supported by consideration or
detrimentally relied upon by the Offeree can be revoked at
will by the Offeror.
WHEN WILL AN OFFER BECOME IRREVOCABLE?
Rule: An offer may not be revoked if:
1) The offer has been accepted by the Offeree,
2) The offer is made as part of an option contract,
3) The offer meets the requirements of the Firm Offer Rule (UCC § 2-205),
4) The Offeree has detrimentally and foreseeably relied on the offer, OR
5) The Offeree has begun performance in a unilateral contract.
a) Note: Mere preparation to perform is not sufficient to make the offer irrevocable.
OPTION CONTRACT
(Define)
Definition: An option contract is created when the Offeree gives consideration for the Offeror’s promise not to revoke an offer for a period of time.
Note:
1) Under the common law, the Offeror must actually receive something in consideration for keeping the offer open.
2) Under the 2nd Restatement, the Offeror need not actually receive the consideration if the Offeror acknowledges receipt of the consideration (e.g., “For consideration of 1 dollar, receipt of which isacknowledged…’).
WHAT IS THE MERCHANT FIRM OFFER RULE?
Rule: Under UCC § 2-205. an offer to buy or sell goods may not be revoked during the time promised if the offer:
1) Was made by a merchant.
2) Was made in a signed writing, AND
3) Promises to hold the offer open for a period of time.
Note: If no time is stated, the offer cannot be revoked for a reasonable time, but in no event more than three months.
ACCEPTANCE:
HOW MAY AN OFFER BE ACCEPTED?
Rule: An offer may be accepted by:
1) Rendering complete performance (unilateral contract), OR
2) Making a promise to perform (bilateral contract).
Note:
1) Traditionally, the terms of the contract strictly controlled, and the Offeree’s performance under a contract that specified a return promise as the only method of acceptance was not treated as acceptance.
2) Under the modern view, the Offeree’s start of performance is treated as acceptance if:
a) The Offeree begins to perform without making a return promise, AND
b) The Offeror learns of the start of performance and implicitly or explicitly agrees to the manner of acceptance.
WHAT IS REQUIRED FOR VALID ACCEPTANCE OF A BILATERAL CONTRACT?
Common Law (Mirror Image Rule): Under the Mirror Image Rule, the terms of the acceptance must be identical to the terms set forth in the offer. Acceptance is not valid and no contract is formed if the acceptance includes different or additional terms.
UCC: Under UCC § 2-207, different or additional terms will not defeat formation of the contract, unless the Offeree expressly makes acceptance conditional on the Offeror’s agreement to the different or additional terms.
Note: The inclusion of different or additional terms in a merchant Offeree’s acceptance of an offer by a merchant Offeror leads to the so-called Battle of the Forms problem.
WHAT IS THE EFFECT OF ADDITIONAL TERMS IN AN ACCEPTANCE?
Rule: Under UCC § 2-207, the effect of additional terms depends upon the status of the parties to the transaction:
1) If at least one party is a non-merchant: The Offeror’s terms control, and additional terms are treated as proposals for modification of the contract created on the Offeror’s terms,
a) Exception: If the Offeree has explicitly made acceptance conditional on the additional terms, the communication is treated as a counteroffer.
2) If both parties are merchants: The additional terms will be included as part of the contract, unless:
a) The offer expressly limits acceptance to the terms of the offer,
b) The additional terms materially alter the terms of the offer, OR
c) The Offeror objects to the additional terms within a reasonable period.
WHAT IS THE EFFECT OF DIFFERENT TERMS IN AN ACCEPTANCE?
Rule: The UCC does not discuss the effect of different terms, and courts are split on the treatment of different terms in sale-of-goods contracts:
1) Majority Rule (Knockout Rule): Conflicting terms are deleted and replaced with UCC gap-filler terms.
2) Minority Rule: Different terms are treated like additional terms and the same rules apply.
WHO BEARS THE RISK OF MISTAKE IN THE COMMUNICATION OF AN OFFER?
Rule: The Offeror bears the risk of mistakes made in the communication of an offer. Upon acceptance by the Offeree, the terms as received by the Offeree will control.
Exception: If the Offeree knew or should have known that the terms of the offer were inconsistent with the terms intended by the Offeror (i.e., the communicated terms were obviously and undeniably the result of a mistake), the Offeree’s acceptance will not form a contract based on those terms.
Note: A minor mistake in the communication of an offer is often referred to as a Scribner’s Error.
WHAT IS THE EFFECT OF PERFORMANCE IF THE PARTIES’ WRITINGS FAILED TO CREATE A CONTRACT?
Rule: If the parties fail to create a contract but begin performance as though a valid contract exists, the UCC recognizes a valid contract consisting of all terms on which their writings agree. Supplementary terms are supplied by the UCC where needed.
BY WHAT STANDARD IS ACCEPTANCE ANALYZED?
Rule: Acceptance is judged by an objective standard (i.e.,
“Would a reasonable person in the Offeror’s position believe that her offer was accepted by the Offeree?”).
HOW SHOULD ACCEPTANCE BE COMMUNICATED?
Rule: Acceptance may be communicated by any reasonable method, unless the Offeror expressly limits acceptance to a particular method. The acceptance must provide the Offeror with notice that his offer has been accepted.
WHAT IF THE OFFEREE IS SILENT AFTER RECEIVING AN OFFER?
Rule: An Offeree’s silence will not result in acceptance of the offer, unless the offer specifically states that silence
will mean acceptance. An Offeree’s silence for more than
a reasonable time will result in termination of the offer.
WHAT IF THE OFFER DOES NOT SPECIFY THE METHOD OF ACCEPTANCE BUT ONLY THAT THE GOODS BE SHIPPED?
Rule: Under UCC § 2-206, an offer that fails to specify the method of acceptance may be accepted by:
1) A prompt promise to ship the goods,
2) Prompt shipment of conforming goods, OR
3) Prompt shipment of non-conforming goods.
a) Note: The Offeree’s shipment of non-conforming goods is considered a simultaneous acceptance and breach unless the Offeree notes that the shipment is an accomodation, in which case the shipment is treated as a counter-offer and no contract is formed.
ACCEPTANCE OF AN OFFER:
TIMING
(State the Rule)
Rule: Generally, acceptance is effective at the moment the communication is sent.
Exception: Acceptance will not be effective at the moment sent in the following circumstances:
1) If the offer stipulates acceptance will not be effective until received, the terms of the offer control.
2) In the case of an option contract, acceptance will not be effective until receipt by the Offeror.
3) If the Offeree sends a rejection before
sending an acceptance, whichever the
Offeror receives first is effective.
ACCEPTANCE OF AN OFFER:
THE MAIL BOX RULE
(State the Rule)
Rule: Under the Mail Box Rule, an acceptance is effective when sent.
Exception: If the Offeree sends both an acceptance and a rejection:
1) And the acceptance is sent first: The acceptance is effective at dispatch and the later-sent rejection is ineffective, regardless of the order in which the acceptance and rejection are received, unless the Offeror received the rejection first and detrimentally relied it.
2) And the rejection is sent first: The Mailbox Rule does not apply, and whichever arrives first is effective. If the rejection is received first, the acceptance acts as a new offer.
Note: If the contract is an option contract, acceptance is effective only upon receipt by the Offeror.
MAIL BOX RULE:
WHAT HAPPENS IF THE ACCEPTANCE IS IMPROPERLY ADDRESSED OR IS LOST IN TRANSIT?
Improperly Addressed: If the acceptance is sent to the wrong address, the acceptance will be valid upon dispatch if the acceptance is received within the time it would have taken a properly addressed acceptance to be
delivered.
Lost in Transit: If the acceptance is sent to the correct address but lost in transit, the acceptance remains valid upon dispatch. However, Courts may discharge the Offeror’s contractual duties if justice so requires.
CONSIDERATION
(Define & State the Rule)
Definition: Consideration is a bargained-for exchange between parties in which each party incurs a legal detriment (i.e., gives up something of value).
Rule: To be enforceable, a promise must be supported by consideration. The consideration required depends upon the type of contract:
1) Bilateral Contract: The parties’ exchange of promises fulfills the bargained-for exchange requirement.
2) Unilateral contract: The exchange of an act for a promise fulfills the bargained-for exchange requirement.
Note:
1) The exchange need not result in an economic benefit to either party.
2) Promissory estoppel may apply in the case of a party’s detrimental reliance on a promise made without consideration.
CONSIDERATION:
IS CONSIDERATION REQUIRED TO MODIFY A CONTRACT?
Common Law: Additional consideration is required to
modify a contract.
UCC: No additional consideration is required if the modification was made in good faith.
CONSIDERATION:
CAN A PROMISE GIVEN IN EXCHANGE FOR AN ACT ALREADY COMPLETED SATISFY THE BARGAINED-FOR EXCHANGE REQUIREMENT?
Rule: A promise given in exchange for an act already completed will not satisfy the bargained-for exchange requirement.
Exception: A new promise to pay will satisfy the bargained-for exchange requirement if the completed act was performed at the Promisor’s request.
Note: If a past obligation is no longer enforceable, a new promise made in writing will revive the past obligation and render it enforceable. The obligation is enforceable according to its new terms, as stated in the writing.
CONSIDERATION:
LEGAL DETRIMENT
(State the Rule)
Rule: A legal detriment has been incurred when a party:
1) Engages in an act that the party had no previous obligation to perform, OR
2) Refrains from engaging in an act the party may legally engage in.
Note: Generally, courts will not inquire into the adequacy or fairness of consideration. Only if something is completely devoid of value or a sham will courts find it insufficient. If there is a possibility of value, consideration will be found even if the value never materializes.
CONSIDERATION:
PREEXISTING LEGAL DUTY RULE
(State the Rule)
Rule: Generally, performing or promising to perform an act one has a preexisting duty to perform does not constitute legal detriment.
CONSIDERATION:
MUTUALITY REQUIREMENT & ILLUSORY PROMISES
(State the Rule)
Rule: Both parties must be bound to perform by the terms of the contract. If only one party is bound, the promise will be deemed illusory and not enforced. An illusory promise will not satisfy the consideration requirement.
Note: An illusory promise may be found if:
1) A promise is subject to a condition entirely within the control of the Promisor, OR
2) The Promisor, at the time the promise is made, knows that a condition upon which the promise is based cannot possibly occur.
CONSIDERATION:
CAN A PROMISE WITHOUT CONSIDERATION EVER BE ENFORCED AT COMMON LAW?
Rule: Under the common law, a promise made without consideration may nonetheless be enforceable if:
1) The promise induced the Promisee to detrimentally rely on the promise (promissory estoppel),
2) A new promise is made in writing to pay a past debt (even if the Promisor no longer has a legal obligation to pay),
3) A new promise is made after an original promise that was voidable due to mistake, misrepresentation, or undue influence, OR
4) The original promise is voidable due to the Promisor’s incapacity, and a new promise is made by the Promisor after gaining capacity.
CAN A PROMISE WITHOUT CONSIDERATION EVER BE ENFORCED UNDER THE UCC?
Rule: Under the UCC, a promise made regarding the sale of goods unsupported by consideration may nonetheless be enforceable if the promise:
1) Is a contract modification,
2) Is the release of a claim in a signed writing, OR
3) Is a written promise by a merchant not to revoke an offer.
CONTRACTS ENFORCEABLE WITHOUT CONSIDERATION:
PROMISSORY ESTOPPEL
(State the Rule)
Rule: Promissory estoppel may substitute for consideration and make a contract enforceable if:
1) A Promisor makes a promise,
2) The promise reasonably induces action or forbearance by the Promisee,
3) The action or forbearance worked to the detriment of the Promisee, AND
4) The action or forbearance was reasonably foreseeable by the Promisor.
Note: Promissory estoppel will be applied to save an otherwise invalid contract only to the extent necessary to prevent injustice.
STATUTE OF FRAUDS
(State the Rule)
Rule: If an agreement falls within the Statute of Frauds, the agreement must:
1) Be in writing,
2) Be signed by the party against whom enforcement of the contract is sought or his agent, AND
a) Note: The UCC creates an exception for the sale of goods between merchants.
3) Specify:
a) Non-Goods Contracts (Common Law): The essential terms of the contract with reasonable certainty,
b) Goods Contracts (UCC): The quantity of goods that are the subject of the contract.
WHAT ESSENTIAL TERMS MUST BE IN WRITING TO SATISFY THE STATUTE OF FRAUDS UNDER THE COMMON LAW?
Rule: Under the common law, a contract that falls within the Statute of Frauds must identify:
1) The name of the contracting parties,
2) The contract’s subject matter,
3) The terms and conditions of the agreement, AND
4) The consideration offered.
WHAT IS THE UCC EXCEPTION TO THE STATUTE OF FRAUDS’ SIGNATURE REQUIREMENT?
Rule: In a contract for the sale of goods between merchants, an oral agreement may be enforced if:
1) The merchants enter into an oral contract,
2) One merchant sends a signed writing memorializing the agreement,
3) The other merchant receives the writing and knows or should know of the writing’s contents, AND
4) The recipient merchant fails to object in writing within 10 days of receipt.
STATUTE OF FRAUDS:
WHAT TYPES OF CONTRACTS FALL WITHIN THE STATUTE OF FRAUDS?
Rule: The following contracts must comply with the Statute of Frauds:
1) A service agreement that, by its own terms, cannot be performed by one year from the date of the contract,
2) Contracts for the sale of goods for $500 or more (UCC§ 2-201),
3) Contracts for the lease of goods for $1,000 or more (UCC § 2A-201),
4) Contracts for the sale of personal property for more than $5,000 (UCC § 1-206),
5) Agreements for the sale of land or an interest in land,
6) Agreements for the lease of real property for more than one year,
7) An agreement to answer for the debt of another, AND
8) Agreements made in consideration of marriage.
WHEN WILL A CONTRACT FOR THE SALE OF GOODS FOR $500 OR MORE FALL WITHIN AN EXCEPTION TO THE STATUTE OF FRAUDS?
Rule: An agreement for the sale of good for $500 or more does not have to comply with the Statute of Frauds if:
1) The goods are specially manufactured for the buyer and are not suitable for sale to another within the ordinary course of business,
2) Partial payment for the goods has been made,
a) Note: Only the portion of the goods that have been paid for will be removed from the Statute of Frauds.
3) Part of the goods have been received and accepted, OR
a) Note: Only the portion of the goods that have been accepted will be removed from the Statute of Frauds.
4) The party claiming the Statute of Frauds defense admits to the contract’s existence in a court document.
WHEN WILL A LAND SALE AGREEMENT FALL WITHIN AN EXCEPTION TO THE STATUTE OF FRAUDS?
Rule: Partial performance on a contract for the sale of land will remove the contract from the Statute of Frauds if the party claiming contractual rights can show that she:
1) Took possession of the land, AND
2) Made valuable improvements to the land.
WHEN WILL A SERVICE CONTRACT FALL WITHIN AN EXCEPTION TO THE STATUTE OF FRAUDS?
Rule: Full performance of a service contract by either party removes the contract from the Statute of Frauds.
STATUTE OF FRAUDS:
EXCEPTION DUE TO PROMISSORY ESTOPPEL
(State the Rule)
Rule: If strict compliance with the Statute of Frauds would
result in injustice, courts may use promissory estoppel to
remove the contract from the statute.
STATUTE OF FRAUDS:
ORAL RESCISSIONS
(State the Rule)
Common Law: A split of authority exists regarding the validity of an oral rescission of a contract that falls within the Statute of Frauds:
1) Traditional View: Traditionally, an oral rescission of a contract that fell within the Statute of Frauds was invalid.
2) Modern Approach: Modernly, an oral rescission is valid if one or both parties have relied on the rescission.
UCC: Under UCC§ 2-209, oral rescissions are valid unless a valid contractual provision forbids oral rescissions. Whether a provision forbidding oral rescissions is valid depends upon the status of the contracting parties:
1) If the contract is between a merchant and a non-merchant: The provision must be separately signed by the non-merchant to be valid.
2) If the contract is between two merchants: The provision need not be separately signed to be valid.
STATUTE OF FRAUDS:
ORAL MODIFICATIONS
(State the Rule)
Rule: If the contract as changed by an oral modification brings the contract within the Statute of Frauds, the oral modification will not be valid, and the original unmodified contract remains valid.
Note: If the contract includes a no-oral-modification clause (NOM Clause):
1) Common Law: NOM clauses are valid but may be waived by the parties (i.e., if both parties agree to an oral modification, they have waived the NOM clause).
2) UCC: Under UCC § 2-209, the validity of a NOM clause depends upon the status of the contracting parties:
a) If the contract is between a merchant and a non-merchant: The provision forbidding oral contract modifications must be separately signed by the non-merchant to be valid.
b) If the contract is between two merchants: The separate provision need not be separately signed to be valid.
STATUTE OF FRAUDS:
EQUAL DIGNITY RULE
(Define & State the Rule)
Definition: The Equal Dignity Rule requires that a document authorizing an agent to represent a person in a contractual matter be executed with the same formalities required for the contract in which the agent will represent the individual.
Rule: If an agreement in which an individual is represented by an agent falls within the Statute of Frauds, the contract authorizing the agent’s representation must also meet the Statute of Frauds.
STEP 2 -
INTERPRETATION OF TERMS:
PAROL EVIDENCE RULE
(Define & State the Rule)
Definition: The Parol Evidence Rule limits the admissibility of evidence of prior or contemporaneous negotiations or agreements when interpreting the terms
of written contracts.
Rule: Under the Parol Evidence Rule, all previous agreements between contracting parties are considered merged into the final written agreement. Whether extrinsic evidence will be admissible to assist in the interpretation of a contract depends upon the extent to which the contract is intended as the final representation of the parties’ agreement:
1) Complete Integration: Extrinsic evidence that contradicts or supplements the terms of the contract is not admissible.
2) Partial Integration: Extrinsic evidence that contradicts the terms of the contract is not admissible. Evidence that supplements the terms of the contract is admissible.
Note: The Parol Evidence Rule does not limit the admissibility of extrinsic evidence of negotiations or agreements that are made after the contract has been signed.
PAROL EVIDENCE RULE:
PARTIAL & COMPLETE INTEGRATION
(Define)
Complete Integration: A complete integration occurs where the parties to the contract intended the final document to include all ofthe details of their agreement.
Partial Integration: A partial integration occurs where the parties to the contract intend the final document to include some but not all ofthe details of their agreement.
Note: A presumption that the contract is a complete integration arises if:
1) The contract includes a boilerplate merger clause, OR
2) The contract appears complete on its face.
WHEN MAY EVIDENCE BE ADMITTED AS AN EXCEPTION TO THE PAROL EVIDENCE RULE?
Rule: Extrinsic evidence of prior or contemporaneous negotiations or agreements may be offered as an exception to the Parol Evidence Rule to:
1) Determine the parties’ intent regarding ambiguous terms,
2) Determine whether formation defects exist (i.e., mistake, fraud, lack of consideration),
3) Establish the existence of a condition precedent to a contract,
4) Establish the existence of collateral agreements supported by separate consideration,
5) Establish that integration is partial or complete.
INTERPRETATION OF TERMS:
WHAT DO COURTS LOOK TO WHEN INTERPRETING THE TERMS OF A CONTRACT?
Rule: To interpret the terms of a contract, courts look to (in order of decreasing significance):
1) The express terms of the contract,
2) Course of performance,
a) Definition: The conduct the parties engaged in after formation of the contract.
3) Course of dealing, AND
a) Definition: The pattern of conduct between the parties prior to formation of the contract.
4) Custom and usage (Trade Usage),
a) Definition: Common business practices in the field in which the parties are engaged (i.e., industry custom).
INTERPRETATION OF TERMS:
MISSING TERMS
(State the Rule)
Common Law: Where a term is missing, a reasonable term may be supplied by the court if the term is consistent with the parties’ intent. Courts will often look to industry practice to provide a reasonable term.
UCC: The UCC provides gap-fillers if the contract fails to specify:
1) Price terms,
2) Time for performance,
3) Terms of delivery, OR
4) Place of delivery.
MISSING TERMS:
PLACE OF DELIVERY
(State the Rule)
Rule: If a place of delivery is not agreed upon in the contract, the place of delivery will be provided by the UCC (§ 2-308):
1) Generally, the place of delivery is the seller’s place of business (or residence, if no place of business).
2) If the goods are held by a third party, the place of delivery is the location of the goods.
3) If the parties have agreed to the shipment of the goods to the buyer, the place of delivery is the address at which the buyer will receive the
goods.
UCC TERMS:
IMPLIED WARRANTY OF MERCHANTABILITY
(State the Rule)
Rule: By operation of law, contracts for the sale of goods by a merchant include an implied term that ensures the goods are fit to be used for the purpose for which such goods are ordinarily used. To determine if goods are fit for ordinary use, courts will look to whether the goods:
1) Are consistent in quality within each unit and among all units,
2) Conform to any promises or affirmations made on the container or label,
3) Are adequately packaged and labeled, AND
4) Are commonly accepted in the market to which they were introduced.
Note: The implied warranty of merchantability applies only to merchants who regularly deal in goods ofthe kind that are the subject ofthe contract.
UCC TERMS:
IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE
(State the Rule)
Rule: Under UCC § 2-315, a sale of goods includes an implied warranty that the goods will be fit for a particular purpose if:
1) The buyer, at the time ofthe sale, has a particular purpose for which he seeks to purchase the goods,
2) The seller, at the time ofthe sale, knows or should know ofthe buyer’s purpose, AND
3) The buyer relies on the seller’s skill or judgment to select goods suitable for such purpose.
UCC TERMS:
EXPRESS WARRANTY
(State the Rule)
Rule: A seller creates an express warranty that goods will conform to the seller’s representations if the seller:
1) Makes a statement of fact relating to the goods,
2) Makes a promise relating to the goods,
3) Provides a description of the goods, OR
4) Provides a sample or model of the goods to be delivered.
Note: An express warranty will not be created by a seller’s opinion ofthe value ofthe goods.
UCC TERMS:
CONTRACTUAL LIMITATIONS ON WARRANTY LIABILITY
(State the Rule)
Rule: Under UCC §2-316, implied warranties of fitness can be excluded with language that reasonably calls the buyer’s attention to the exclusion of warranties and makes plain that there are no implied warranties.
STEP 3 -
CONTRACTS AFFECTING THIRD PARTIES:
WHEN MAY A THIRD PARTY HAVE A RIGHT OR DUTY UNDER A CONTRACT?
A third party may have or assume a right or duty in four
situations:
1) Third-Party Beneficiary Contracts
2) Assignments
3) Delegations
4) Novations
THIRD-PARTY BENEFICIARY CONTRACTS:
IDENTIFY THE 3 PARTIES INVOLVED IN THIRD-PARTY BENEFICIARY CONTRACTS
Third-Party Beneficiary: The person who is not a party to the contract, but receives a benefit from the agreement.
Promisor: The person who makes the promise that benefits the third party.
Promisee: The person who provides consideration in return for the promise that benefits the third party.
THIRD-PARTY BENEFICIARY CONTRACTS:
WHEN MAY A THIRD-PARTY BENEFICIARY HAVE A RIGHT OF ENFORCEMENT?
Rule: For a third-party beneficiary to have the right of enforcement, the beneficiary must be an intended beneficiary. The Promisor and Promisee must have intended through words or acts to create legally enforceable rights in the third party.
THIRD-PARTY BENEFICIARY CONTRACTS:
INTENDED & INCIDENTAL BENEFICIARIES
(Define & State the Rule)
Intended Beneficiary:
Definition: A person who is intended to receive a benefit from a contract. Intended beneficiaries are classified as:
1) Creditor Beneficiary: A person to whom the Promisee owes a legal debt.
2) Donee Beneficiary: A person intended to benefit gratuitously from the original contract.
Rule: An intended beneficiary has contractual rights and may sue.
Note: The status of an intended beneficiary as a creditor or donee is relevant when determining what remedies are available to the beneficiary.
Incidental Beneficiary:
Definition: A person who receives a benefit from the contract, but in whom the parties to the contract did not intend to create contractual rights.
Rule: An incidental beneficiary may not sue and does not have contractual rights.
THIRD-PARTY BENEFICIARY CONTRACTS:
WHEN DOES A THIRD-PARTY BENEFICIARY ACQUIRE CONTRACTUAL RIGHTS?
Rule: A third-party beneficiary acquires contractual rights when her rights have vested. A third-party beneficiary’s rights vest when the beneficiary:
1) Accepts the benefits from the contract,
2) Brings suit to enforce the promise made in the contract, OR
3) Alters her position in justifiable reliance on the promise.
Note:
1) Acquiring contractual rights means the third party can enforce a contract, and the contract cannot be cancelled or modified to the beneficiary’s detriment without the beneficiary’s consent.
2) Prior to the vesting of the third party’s rights, the original parties to the contract are free to modify or discharge a contract (unless the original parties have agreed not to allow contract modifications).
