Contracts & Sales

Question 1

What is a contract?

Answer 1

A K is a promise or set of promises that the law will enforce.

Question 2

What law governs Ks for the sale of goods?

Answer 2

Art. 2 of the Uniform Commercial Code (UCC).

Goods are tangible movable things at the time of identification to the K for sale.

Question 3

What law governs all non-goods related Ks (i.e. service Ks)?

Answer 3

The common law.

Question 4

How do court’s decide which law governs a K if the K involves both goods and services?

Answer 4

Predominant Purpose Test: when a K involves both goods and services, Art 2 applies to the entire K if the K is predominantly for the sale of goods and the services are merely incidental to the K.

Vice versa for common law contracts.

Question 5

Elements of a K

Answer 5

TACO

Definite [T]erms, expressed or implied
[A]cceptance of the terms
[C]onsideration, and
[O]ffer inviting acceptance

Question 6

What are material terms of an agreement?

Answer 6

Subject matter, quantity, quality, price.

All must be reasonably definite or the agreement is unenforceable.

Question 7

What is an offer?

Answer 7

A promise to perform or to refrain from doing something in the future, conditioned on the other party’s acceptance.

Question 8

First Come, First Served Advertisements

Answer 8

An ad to a set number of people on a “First Come First Served” basis is deemed an offer because it is deemed promissory.

Question 9

What is NOT an offer?

Answer 9

Form letters, advertisements, and catalogues are deemed expressions of an intent to sell, NOT offers.

Written offers offered to several people simultaneously = invitations to negotiate.

Question 10

How can an offer terminate?

Answer 10

An offer terminates by R.I. DIRT:

[R]evocation (express or implied)*
[I]ncapacity or death of the offeror or offeree**
-
[D]estruction of the subject matter of the K
Intervening [I]llegality
[R]ejection (express or implied/counteroffer)
Lapse of Reasonable [T]ime***

*Revocation - offer can be revoked by:
(1) a manifestation of an intention not to enter the proposed K; or
(2) conduct of the offeror which is inconsistent with the offer, of which the offeree is aware
UNLESS it falls under FOUR categories:
(1) [F]irm offer (by a merchant signed in writing under the UCC; will be held open for a reasonable time - 3months under the UCC);
(2) [O]ption K (promise to hold an offer held open with consideration);
(3) [U]nilateral K (if offeree begins performance of a unilateral K, offer is held open for a reasonable time); and
(4) [R]eliance (reasonably foreseeable substantial reliance on the offer)

NOTE: revocation must be communicated to the offeree prior to acceptance of the offer, except where there is a reward-type offer, which can be revoked by communicating the revocation in a manner with the same or greater publicity than the offer.

**Death will terminate an unaccepted offer; BUT will not terminate an accepted offer EXCEPT under the doctrine of impossibility where the deceased had a non-delegable duty to perform the K.

***Generally, unless otherwise agreed, in face-to-face or phone dealings, an offer does not survive the conversation unless the offeror renews it/says offer still stands.

Question 11

What is acceptance?

Answer 11

Acceptance is a manifestation of assent by the offeree to the terms of the offer. K is formed when parties “mutually assent” to the same terms.

To invite acceptance, other party must KNOW of offeror’s offer.
EXCEPTION: certain standing offers by the government can be accepted without knowledge of the offer.

To determine mutual assent: courts interpret the language of the offer and acceptance to be what a reasonable person would mean in light of the surrounding circumstances.

Question 12

How to accept?

Answer 12

Modern rule: “unless otherwise indicated by the language or circumstances of the offer, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.”

Question 13

Acceptance of a bilateral K (a promise for a promise)

Answer 13

A bilateral K can be accepted by: (1) a promise to perform OR (2) beginning performance

Distinguish: beginning performance vs. mere preparation to begin.
Mere preparation does NOT affect offeror’s right to revoke the offer.

Question 14

Acceptance of a unilateral K (a promise for performance)

Answer 14

A unilateral K can only be accepted by full performance.

Question 15

Acceptance under Art 2 UCC

Answer 15

An offer for the sale of goods is accepted by (1) promising to ship OR (2) shipping the goods.

NOTE: If the seller ships non-conforming goods with an accommodation letter = counteroffer; if the seller ships non-confirming goods without the letter = an acceptance and a breach.

Question 16

Timing of acceptance

Answer 16

Acceptance is effective when SENT (mailbox rule) even if acceptance is never received or it is subsequently withdrawn from the postal system by the offeree.

EXCEPTIONS:

• Under an option K, acceptance is effective upon RECEIPT
• if offeree mails a rejection then an acceptance, whichever is FIRST RECEIVED controls. If rejection = first, power to accept terminated.

Question 17

Terms of acceptance

Answer 17

Common law: acceptance MUST be a mirror image of the offer

UCC: mirror image not required; acceptance may have different/additional terms. Between merchants, additional term will be part of the K UNLESS
(1) it materially alters the K;
(2) the offeror objects within a reasonable time; OR
(3) the offer limits acceptance to the terms of the offer.
Under the majority rule, a different term will be knocked out and replaced with gap fillers.

Question 18

What is a merchant?

Answer 18

A merchant is a person who:

1) regularly deals in goods of that kind; OR
2) by their occupation, holds themselves out as possessing knowledge or skill concerning the goods involved in the transaction.

EXAM!: Almost everyone in business is deemed a merchant, but individuals characterized as “amateurs” or described as doing an activity “as a hobby” in a fact pattern is not a merchant.

Question 19

Terms of acceptance

Answer 19

Common law: acceptance MUST be a mirror image of the offer
UCC: mirror image is not required; acceptance may have different/additional terms. Between merchants, an additional term will be part of the K UNLESS (1) it materially alters the K; (2) the offeror objects within a reasonable time; OR (3) the offer limits acceptance to the terms of the offer. Under the majority rule, a different term will be knocked out and replaced with gap fillers.

Question 20

What is consideration?

Answer 20

Consideration is bargained for exchange. Courts will generally not inquire into the adequacy of consideration (peppercorn doctrine).

Promisee must suffer some detriment, induced by promisor’s promise.

NOT consideration: promise to make a gift, moral obligation, past consideration, or an illusory promise (one party reserves the right to alter/revoke the K at any time).

MINORITY EXCEPTION: Material Benefit Rule = a preexisting moral obligation is sufficient consideration to support a present promise to pay for past benefits bestowed on the promisor by the promisee.

Question 21

Is there a substitute/alternative to consideration?

Answer 21

RELIANCE! If there is a promise AND foreseeable and justifiable reliance, courts will enforce the K as necessary to avoid injustice.

Question 22

Consideration in K Modification

Answer 22

Common law: NEW consideration is required to modify a K under the pre-existing duty rule UNLESS it meets an exception:

• Unforeseen difficulty
• Good faith lawsuit settlement
• Good faith payment in full of a due and disputed debt
• A written promise to pay a time-barred debt
• A duty was owed to a third person

UCC: good faith is required to modify a K

Question 23

Option Contracts

Answer 23

An option is an offer giving the offeree express assurances that it will be held open and will not be revoked for a period of time.

Using the word “option” or the words “firm offer” gives sufficient assurances.

Acceptance: upon receipt!

Termination: NOT R.I. Dirt; but OPTION Ks can DIE.
[D]estruction of the subject matter
Intervening [I]llegality
[E]xpiration of the stated time

Question 24

Exception to Consideration in Option K Req: Merchant’s Firm Offer

Answer 24

Under UCC, a merchant’s SIGNED, WRITTEN option “giving assurances that it will be ‘held open’” is a firm offer and is NOT REVOCABLE by the merchant for lack of consideration.

If no time stated, open for reasonable time/3 months.
After 3 months, the firm offer converts into a regular revocable offer.

If CONSIDERATION & Merchant’s Firm Offer: IRREVOCABLE for the duration of the option (no 3 month time limit).

Question 25

Breach of K

Answer 25

Party breaches when it fails to perform under the K terms.

• Material breach = any duty still owed by non-breaching party is excused and the K can be treated as terminated.
• Immaterial breach = does not totally relieve other party of the duty to perform

Recovery:
Majority - materially breaching party recovers nothing
Minority - materially breaching party can bring separate claim for unjust enrichment to extent of any benefits bestowed on non-breaching party

Determining whether breach is material or immaterial = HAIL

• [H]ardship on the breaching party if a total material breach is declared
• [A]mount of the benefit bestowed on the non-breaching party (greater the benefit, the less likely the court is to find the breach material)
• Whether the breach was [I]nnocent or willful
• [L]ikelihood of full performance being achieved quickly and inexpensively

Breaching party has burden of proving substantial performance and the cost to complete the K.

NOTE: Failure to timely perform by the date stated in the K is generally NOT a material breach UNLESS it is clear under the circumstances that performance was required by the stated date, OR the date fixed was expressly made “time of the essence.”

Question 26

K Performance under the Common Law

Answer 26

Substantial performance of K duties for the other party’s duty to arise (opposite of a material breach). If a party has substantially performed, any breach is immaterial.

Recovery: [contract price] - [cost to complete performance].
BUT where the cost of completion is grossly out of proportion to the benefit to be achieved, measure of damages becomes the difference in value between [value of substantial performance] - [value of what would have been tendered if there had been full performance] to avoid economic waste.

EXCEPTION: express conditions (e.g., I will buy it if I like it or I will buy it if I can get X interest rate) must be strictly complied with.

Question 27

Divisible Ks under the UCC (“installment K”)

Answer 27

Divisible K/”Installment K”: if parties have divided performances under a single K into multiple units, with the intention that a given unit of one party was the equivalent of a given unit of the other party.

Generally, construction Ks are NOT considered divisible, but employment Ks are.

A breach of one part does NOT discharge the other party from its duty to perform under the other parts of the K.

An installment K is one contract with separate units to be delivered, accepted and paid for. There is a continuing right for a breaching seller to cure a non-conforming shipment. In sale of goods Ks, the “perfect tender rule” does not apply, so it becomes difficult to reject a single installment and almost impossible to cancel the remaining installments.

Question 28

K performance under the UCC

Answer 28

Seller must provide perfect tender of the good, or buyer may reject. UCC defines “tender” as S’s act of placing and holding conforming goods then giving B any notification of S’s readiness to perform under the K terms to enable B to take delivery.

Perfect Tender Rule: permits B to reject goods and sue for breach if S’s goods or tender fail to conform to the K in any respect (quantity, quality, or timeliness of delivery).

Perfect Tender does NOT APPLY to ICOP:
[I]nstallment Ks;
Where timely delivery is [C]ommercially Impracticable by an event that was not considered by the parties at the time of K;
Where S had an [O]bjective and Reasonable belief goods would be acceptable to B;
Where the defect was cured [P]rior to date of Performance.

If S does not provide perfect tender and B rejects, S only has an automatic right to cure if (1) time left to perform under the K; OR (2) S reasonably believed B would accept non-conforming goods with/without a discount (e.g., S sent better/nicer goods than K specified), and upon notification of non-conforming from B, S indicates intention to cure, THEN B must give S additional reasonable time to tender conforming goods even beyond the date fixed in the K for performance.*
*If B doesn’t give that additional reasonable time to cure but invokes PTR and repudiates the K based on S’s breach, then B has wrongfully breached.

EXCEPTION: Installment K - buyer may reject an installment if there is a “substantial impairment” and S cannot cure the installment. Courts use HAIL to determine substantial impairment.

NOTE re. revocation: if B accepts goods, he may not reject them. However, he may later revoke the acceptance. Revocation is a higher standard than rejection as it requires showing that the defect substantially impairs the value of the goods to him, among other things.

Question 29

Output & Requirements Ks

Answer 29

Under UCC:
- a B may enter a requirements K to exclusively purchase from S all of a particular product that B requires.
- S may enter an output K to exclusively sell its entire output of a particular product to a B.
NB: lack of exclusivity in either would render K illusory.

Requirements K: not bad faith for B to reduce order to nothing when biz falls off, BUT would be bad faith to buy cheaper elsewhere if price drops.

Output K: S cannot get out of output K simply by refusing to make any further product bc S was not making profit. S can in good faith cease production if further production would financially imperil S’s biz.

Estimate in either K implies that no quantity may be demanded or tendered unreasonably disproportionate to any normal or otherwise comparable prior output/requirement.

Question 30

Delivery obligations?

Answer 30

Carrier Cases:

• Most Ks are shipment Ks (K is silent or has terms like FOB Seller’s Place of Biz; CIF; C&F; FAS). S only has to get goods to the shipper and the risk of loss (ROL) passes to B at that point.
• For destination Ks (K’s that state FOB Buyer’s Place of Biz or Ex-Ship), S must get goods to destination before ROL passes to B.

Non-Carrier Cases:

• If S is a merchant, S must deliver goods to B for ROL to pass.
• If S is NOT a merchant, S must tender delivery (make goods avail) for ROL to pass.

Breach: if S is in breach, ROL is on S until S cures defective goods (DG) or DG are accepted by B.

Question 31

When may a party’s performance be excused?

Answer 31

Party is excused from performing if other party breaches.

Question 32

What is anticipatory repudiation?

Answer 32

Anticipatory repudiation occurs when a party unequivocally breaches. If AR occurs, the non-breaching party may: (1) treat the K as breached and immediately sue; (2) wait and urge the breaching party to perform; or (3) wait and sue.

The repudiating party may retract the repudiation, but NOT IF the other party has:

1) brought suit;
2) effectively communicated to the repudiating party an intent to treat the repudiation as final/K as breached; or
3) relied on the repudiation and materially changed her position

Question 33

What is a prospective inability to perform?

Answer 33

A prospective inability to perform is when a party has reasonably grounds for insecurity that the other will not perform. The insecure party can demand adequate assurances that performance will take place.

NOTE: conditions can also be waived.

Question 34

Discharging the duty to perform?

Answer 34

A duty may be discharged by:
- The occurrence of a condition subsequent

• Agreement - e.g., novation (new party steps into an existing party’s shoes), modification, release, accord & satisfaction (parties agree to new or different consideration), and recission (the K is undone)
• Frustration of purpose - the primary purpose of the K known by both parties at the time of contracting is substantially frustrated by an unforeseeable event that occurred after the K was entered into.
• Impossibility - an event that renders performance impossible occurs after the K was made, was not reasonably foreseeable at the time of K, was assumed by the parties not to happen, was neither party’s fault, and neither party bears the risk.

Question 35

What are K warranties?

Answer 35

• Express warranties: affirmations of fact about the goods or a sample of the goods. [CANNOT BE DISCLAIMED!] Mere puffery doesn’t create a warranty.
• Implied warranty of merchantability: made by a merchant and warrants that goods are fit for their ordinary purpose. [CAN BE DISCLAIMED BY EXPRESS LANGUAGE]
• Implied warranty of fitness for a particular purpose: made by any S who knows of B’s specific purpose and the B relies on the S. [CAN BE DISCLAIMED].
  NOTE: S does NOT have to be a merchant.
• Limitation of remedies clause: limits or controls the remedies. Enforceable unless (1) unconscionable OR (2) fails of its essential purpose. Clause will be unconscionable if it attempts to limit or avoid paying consequential damages for a personal injury due to a consumer product.

Question 36

How are Ks interpreted?

Answer 36

General Rule: (1) express terms control > THEN courts will look to (2) course of performance, (3) course of dealing, and (4) trade usage.

UCC Gap Fillers = default rules for terms governing Ks for the sale of goods if no term is stated in the K (e.g., if price term silent in K, price is a reasonable price at the time of delivery).

Question 37

What is the parol evidence rule (PER)?

Answer 37

PER applies when a party wants to add a term from negotiations to a final agreement.

Steps:

1) If K = complete integration, NO TERMS ADMITTED to evidence. [Look for merger or integration clause in K - “this is the full and final agreement”].
2) If K = partial integration, CONSISTENT additional terms will be added.

PER does NOT apply to FICCL:

• [F]ormation defenses
• [I]nterpretation of a term
• Failure of a [C]ondition Precedent
• [C]lerical errors
• [L]ater modifications

Question 38

Does third party have rights under the K?

Answer 38

Third party beneficiaries (TPB)

• Intended TPBs = have rights under a K once their rights vest. Rights vest when the TPB (1) assents; (2) relies; or (3) brings suit to enforce their rights.
• Incidental TPBs = do NOT have rights under a K.

Determining whether a TPB is intended:

(1) Is the TPB expressly designated in the K?
(2) Is performance directly to the TPB?
(3) Does the TPB have any rights?
(4) What is the relationship between the TPB and the promisee?

Question 39

TP Rights: Delegation

Answer 39

Generally, one may delegate duties under a K UNLESS the K prohibits it OR if the K involves special skill, judgment, or trust.

If delegation is proper, neither consent, nor consideration, nor a writing is required to delegation a duty.
Liability:
- Delegator STILL LIABLE after delegation
- Delegatee liable IF he receives consideration from the delegator

Question 40

TP Rights: Assignment

Answer 40

Generally, rights can be assigned UNLESS the assignment substantially changes obligor’s duties OR K prohibits it.

Assignment is IRREVOCABLE IF (1) there was consideration given OR (2) it is payment for a preexisting debt.

Assignment is REVOCABLE IF (1) assignor takes performance directly OR (2) makes a subsequent assignment to a different party.

Question 41

K Defenses: Statute of Frauds

Answer 41

RULE: SOF requires a writing signed by the party to be charged that evidences a K. [Party to be charged is usually D]. Signature is broadly defined - includes any symbol used to indicate the party’s intent to adopt the writing (e.g., letterhead).

SOF covers: MY LEGS

• [M]arriage
• Ks that cannot be performed within a [Y]ear
• [L]and sale Ks
• Promises made by an [E]xecutor to pay a debt from his estate
• Sale of [G]oods over $500
• [S]urety Ks

EXCEPTIONS:
Land - part performance (one’s actions evidence a K - e.g., buyer does 2/3 of the following: takes possession of property, improves the land significantly, or pays a substantial part of the purchase price)

Sale of goods - Exceptions: SWAMP
Ks for [S]pecially Manufactured Goods (S has made a substantial beginning in manufacture or commitments for specially manufactured goods made for B, not suitable for resale in S’ ordinary course of biz)
[W]aiver (SOF is an affirmative defense D must raise)
Judicial [A]dmission (party admits there is a K in pleadings, depo, or trial testimony, enforceable up to the quantity admitted)
[M]erchant’s confirmatory memo exception (2 merchants make an oral K and either sends the other a signed memo confirming the K within a reasonable time, K is enforceable if M receiving memo does not object w/in 10 days. Memo must state quantity).
[P]art performance (B pays for or accepts part of a K/S accepts that part payment; S’s delivery of the good prevents performing party from asserting SOF).

• Surety* - a promise to pay the debt of another if the other does not pay falls within the SOF UNLESS the main purpose of the surety promise is to provide a $ benefit to the surety.
• Cannot be performed w/in a year* - full performance on one side will serve as a substitute for a signed writing.

Question 42

K Defenses: Capacity

Answer 42

Incapacity: applies to minors, incompetents, or intoxicated persons. HOWEVER, they may be liable for “necessities.” ALSO if a minor ratifies the K after reaching majority, minor will be held to K.

Duress: when a party threatens to commit a wrongful act that would threaten the other party’s finances, property, well-being, or life.

Undue Influence: unfair persuasion where a person in a position of trust, confidence, or dominance uses that position to convince another to enter into a K that is not in that party’s best interest.

Question 43

K Defenses: Formation Defenses

Answer 43

Mutual Mistake: if BOTH parties are mistaken about a basic assumption of fact that materially affects the agreed upon exchange and neither bears the risk, K is voidable.

Unilateral Mistake: if a party knew or had reason to know of other party’s mistake, K is voidable – e.g., too good to be true offers.

Mutual Misunderstanding: no K IF both parties have a different understanding of a material term that is open to at least two reasonable interpretations and neither party has any reason to know of the meaning attached by the other.

Illegality:

• Illegal subject matter = K is void (e.g., K to sell drugs).
• Illegal purpose = K is voidable by the party who didn’t have the illegal purpose IF he didn’t know the purpose or he knew of the purpose but didn’t facilitate it and it doesn’t involve “serious moral turpitude”

Unconscionability: Voidable if two necessary elements:

(1) Procedural unconscionability - an unfair bargaining process - e.g., hidden or incomprehensible terms AND
(2) Substantive unconscionability - grossly unfair terms

Other defenses: fraud, misrepresentation, nondisclosure, and public policy.

Question 44

Contract Remedies

Answer 44

General Rule:
The damaged party recovers EXPECTATION damages =
[value of promised performance (K price)] - [value of what P received] + [Incidental & Consequential Damages] - [Expenses saved due to Breach].

Mitigation of damages REQUIRED.

Incidental damages: those relating to avoiding the loss from the breach (e.g., storing goods after a breach).

Consequential damages: those that are foreseen at the time the K is entered into. Typically lost profits.

Question 45

Seller’s Remedies

Answer 45

B & S precluded from recovering damages that could have been avoided.

If B breaches a K for the sale of goods by:

(1) wrongfully repudiating K
(2) wrongfully rejecting conforming goods; or
(3) failing to pay the K price or delivered goods/after assurances demand

Seller may [SPARKLE]
- [S]top goods in transit (remedy lost when carrier delivers goods to B; if B is insolvent, S may refuse to deliver unless B pays for goods/prior deliveries in cash upon delivery)

• Sue buyer for entire K [P]rice (3 situations only: (1) B accepts conforming goods on credit & fails to pay; (2) conforming goods are destroyed after ROL passes to B; or (3) B wrongfully fails to accept conforming goods & S can’t resell).
• Demand [A]ssurances of B’s performance
• [R]esell the goods to another B [resale must be commercially reasonable at private or public sale with notice to B]
• [K]eep part of breaching B’s deposit (S can keep 20% of total purchase price OR $500, whichever is less, + any damages caused by B’s breach).
• Sue buyer to recover [L]ost Profits (VOLUME SELLERS)
• [E]xercise the right to reclaim goods that were delivered to an insolvent B (S can demand return of goods in 10 days provided B received goods on credit while insolvent/paid for goods with a check that bounces) [If S successfully reclaims goods, precluded from all other SPARKLE defenses].

Question 46

Buyer’s Remedies

Answer 46

When S breaches via repudiation, failure to timely deliver, or delivered goods were non-conforming, buyer’s remedies are [CIDS WAR].

[C]over
[I]ncidental and consequential damages
Buyer’s [D]amages for lost bargain or price paid
[S]pecific performance for unique goods
Breach of [W]arranty
Revoking [A]cceptance
The Buyer [R]ejecting Non-conforming Goods

Cover = enables B to purchase similar goods as a sub for the goods due under the K and then sue S for difference in price. If B covers without unreasonable delay, B can simply seek the difference between the higher cost of cover and the OG K price. Cover not required, BUT without cover, B can’t recover consequential damages.

Incidental/Consequential Damages:

• Incidentals = costs incurred in a reasonable effort to avoid loss
• Consequentials = lost profits on collateral biz relationships following S’s failure to perform. B must show: (1) causation; (2) damages were foreseeable at time of K; (3) reasonable certainty as to amount; and (4) damages could not have been mitigated.

UCC prohibits S from recovering consequential damages, BUT S may contractually limit B’s remedies to refund, repair, replacement. If S limits B’s remedies to repair or replacement, but is unable to repair/replace the defective good, then B can recover full breach of K damages including consequential damages.

Lost profits/Price Paid:
If B doesn’t cover/goods were not delivered/non-conforming goods were delivered and rejected, then B’s measure of damages is the difference between: [fair market value when B first could have covered] AND [K price]; + [incidental damages & amounts paid to S by B].

Specific performance:
Right to replevy goods that is avail to B where goods are unique or where B cannot recover.

Warranties:
B may recover from S for S’s breach of [M-FEET]
- Implied warranty of [M]erchantability
- Implied warranty of [F]itness for a Particular Purpose
- [E]xpress warranties
- Warranty against [E]ncumbrances
- Warranty of [T]itle

> Implied warranty of merchantability - merchant impliedly warrants that the goods are fit for their ordinary purpose and they will pass in the trade without objection. Disclaimer of this warranty = ineffective UNLESS it is clear and conspicuous AND contains the word “merchantability” together with “as is” or “with all faults.”

> Implied warranty of fitness - applies to merchant or non-merchant sellers and warrants that goods will be fit for buyer’s particular use/purpose. B must prove (1) S’s expertise re. the goods; (2) S’s knowledge of B’s purpose for the goods; and (3) B’s reliance on S’s expertise. Disclaimer of this warranty = ineffective UNLESS it is clear and conspicuous AND contains the word “merchantability” together with “as is” or “with all faults.”

> Express warranties: created when S makes factual assertions re. a product’s quality of capabilities. Breached when product fails to conform to those assurances. Express warranties are [SAD] - [S]ample or model; Any written Description or [A]ffirmation of fact/promise by S; Any [D]escription of the goods in an ad, brochure, or catalog. Mere “puffery” (embellished statement’s of S’ opinion) is not an affirmation of fact.

> Implied warranty against encumbrances: given by all S; implies that delivered goods are free from sec. int., IP infringements, or lawsuits related to the lawful possession/use of the goods.

> Implied warranty of title: S’s good title is implied in every sales K. Implies transfer is proper and title conveyed is valid. S of stolen goods breaches this warranty. Can only be disclaimed by specific language or circumstances that give B reason to know that S does not claim title herself.

Revoking Acceptance:
B allowed to revoke upon discovery of a latent non-conformity after acceptance WITHOUT knowledge of that non-conformity provided the non-conformity substantially impairs the worth of that good to B.

When non-conforming goods are tendered, B may reject the entire non-conforming shipment or may accept any “commercial unit” and reject the rest. A commercial unit is a single whole for the purposes of sale, the division of which would materially impair its character or value. [ACCEPTANCE of ANY PART of a commercial unit is ACCEPTANCE of the ENTIRE UNIT under the broken box rule].

BUT if B accepted goods WITH knowledge of the non-conformity, B cannot later revoke acceptance UNLESS B accepted those nonconforming goods on assurances from S that the defect would be cured.

If, after rejecting NC goods or revoking acceptance, goods are in B’s possession, B must hold the goods for a reasonable time and with reasonable care because B is now a bailee:
» If B is a merchant and breaching S is not local to B’s geographic area, B has a duty to follow any reasonable instructions received from S. S must pay all costs.
» If S gives NO instructions w/in a reasonable time, B can store, ship, or resell goods and such activity is not a conversion or acceptance.
» If NC goods are perishable/threaten to rapidly decline in value and S has given no instruction, B must make a reasonable effort to sell the goods on S’ behalf (mitigation of damages).

Rejecting Goods
If S delivers NCG, B can (1) reject; (2) accept and sue for $; or (3) upon discovery of a latent defect, revoke acceptance. B must notify S of NC w/in a reasonable time of discovery or B is barred from any CIDS WAR remedy.

Question 47

Damages: UCC Formulas

Answer 47

S breaches and B has goods:
B gets [value of goods contracted for] - [value of goods delivered] + [incidental & consequential damages]

S breaches and S has goods:
B gets [difference b/w market price (or replacement price) & K price] + [incidental & consequential damages] - [expenses saved]

B breaches and B has goods:
S gets K price

B breaches and S has goods:
S gets [difference b/w K price & market price (or resale price)] + [incidental damages] - [expenses saved]

Lost volume S (S has unlimited amount of product available):
S gets [lost profits] + [incidentals]

Question 48

Equitable Remedies

Answer 48

Specific performance: not usually avail UNLESS goods are unique OR land K (bc land is unique)

Injunction for a noncompete clause will be granted so long as the covenant is reasonable in time, scope, and geography.

Recission: undoing the K when K is void or voidable or due to impossibility.

Reformation: remedy either party may seek when K does not reflect the terms that the parties agreed to.

Question 49

Damages: Liquidated Damages

Answer 49

Liquidated damages clauses are enforced IF the damages are difficult to estimate at the time the K was made and a reasonable forecast of damages. Penalties are not permitted under K law.

Question 50

Damages: Restitution

Answer 50

P recovers [value of benefit conferred].

Restitution may be sought when K is (1) breached, (2) unenforceable, or (3) there is no contract.

Restitution is granted in Ks that are implied in law (i.e., quasi-K), which arises when the P has conferred a benefit on D, P reasonably expected to be paid, and D would be unjustly enriched otherwise.

Question 51

Damages in employment K

Answer 51

when an employer breaches an employment K, the standard measure of employee’s damages is the full K price.