Final Flashcards
Good Faith when it comes to contracts
required in performance and enforcement of every contract. Also the context for evaluating seller and buyer performance of obligations
In transactions between merchants, the UCC imposes
commercial reasonableness standard which is a heightened good faith (Parties operate in keeping with reasonable commercial standards of fair dealing)
A party seeking to enforce a promise under Promisory Estoppel must establish three things:
-Party made a promise and either knows or should know the other party will reasonably rely on it
-Other party reasonably relies on the promise and suffers damages
-Only way to avoid injustice is for court to enforce the promise
Estoppel can’t be invoked if
the parties have a contract. Aggrieved party could seek recovery under contract, defeating the purpose.
Perfect Tender Rule
If goods or tender of delivery fail in any respect to conform to contract specifications, buyer has right to:
-Accept the goods
-Reject entire shipment, or
-Accept part and reject part
(Eliminates material vs. immaterial)
Substantial performance rule
Used in common law, meaning immaterial defects do not constitute breach by seller.
Seller has right to repair/replace nonconforming goods, must:
- Promptly communicate intent to cure and
- Complete cure within the contract time for performance.
Both parties are excused from performance when goods that have been identified to the contract are
destroyed through no fault of parties before the risk of loss passes to the buyer.
Substantial Impairement
Buyers can revoke previous acceptance only if the defect substantially impairs the goods’ value.
Commercial Impracticability Doctrine
Delay in delivery or nondelivery does not constitute a breach if an event that was not thought about (Ex. Legislation) at time of contracting occurs that makes performance impracticable
What concept governs the inspection process?
Concept of Reasonableness
After inspecting, if goods aren’t in accordance with contract, buyer can
accept, partially accept, revise contract, or reject.
After inspecting, if goods are in accordance, buyer can
Must accept.
Seller is entitled to presume acceptance if buyer
fails to reject goods within a reasonable time.
Buyer can revoke acceptance if
the nonconformity substantially impairs the goods’ value, but only if buyer had a legitimate reason for initially accepting.
UCC Policy for rewards on Sale and Lease Contract Breaches
No Windfalls for non-breaching party
Contract damages not meant to punish or vindicate social policy.
Lost Profits for the seller are sometimes available, especially if
the seller can’t resell the goods in the usual course of business.
Seller UCC Remedies for Buyer Breach:
-Cancel contract
-Withhold delivery
-Resell/Dispose of goods
-Sue to get benefit of the bargain
-Claim liquidated damaged under agreement or UCC
-Stop delivery
-Reclaim the goods
Preferred seller remedy when buyer breaches is
Seller sells the goods to another buyer and seeks recovery from buyer for any loss.
Least desired remedy for when buyer breaches is
Contract cancellation (UCC prioritizes maintaining commercial transactions)
Liquidated Damages
Damages specified in contract
Courts when it comes to liquidated damages
Courts generally enforce a liquidated damages clause as long as it is reasonable and not punitive
“Liquidated damages” provision
Allows non breaching seller to recover from breaching buyer 20 percent of the purchase price or $500, whichever is less, as liquidated damages.
Buyer UCC Remedies for Seller Breach:
-Cancel contract
-Buy cover (substitute goods)
-Sue to recover damages
-Recover the goods
-Economic Loss rule
-Obtain specific performance
-Reject nonconforming goods
-Revoke acceptance of nonconforming goods
-Accept nonconforming goods and seek damages
In covering, buyer must:
-Demonstrate good faith in obtaining substitute goods
-Pay reasonable price for substitute goods
-Act without unreasonable delay in buying substitute goods
-Buy goods that are reasonable substitutes.
Cover is preferred buyer remedy because
It sets up clear and simple measure of damages:
Cover price - contract price - incidental costs
Specific performance as a buyer remedy
Under limited circumstances, seller may be required to deliver particular goods identified in the contract.
UCC allows buyer to demand specific performance if:
-The goods are unique or
-There is no adequate remedy at law (money damages are inadequate)
Economic Loss
A loss resulting from product failure when there is no personal injury or damage to other property
Economic Loss Rule
Prevents tort recover for economic loss
Reason behind Economic Loss Rule
Contract law, not tort law, provides the appropriate avenue for recovery when there is no personal injury or physical injury to property
What statute of limitations applies to Physical injury consequential of seller breach?
UCC Statute of limitations applies to breach of warranty claims even if the plaintiff is seeking to recover physical injury damages.
Warranty
Assurance by one party that the other party can rely on its representations of fact
Express Warranty
Expressly stated in the contract
Implied Warranty
Automatically (by operation of law) applied to contract - title and quality
Where can express warranties be found:
-Advertisements/Brochures
-Term in a written contract
-Salesperson’s oral promise or factual statement
-A sample or model
Sales “Puffing”
Does not create express warranty
Not a statement of fact, merely a statement of opinion.
Implied Warranty of Title:
-Seller has good and valid title to goods
-Seller has right to transfer free and clear of liens, judgements, or infringements of IP rights of which buyer has no knowledge.
Implied Warranty of Merchantability
UCC codifies the reasonable expectation of how a good will perform (Goods should perform how a good should perform)
Applies only to sales by merchant
To satisfy the merchantability warranty, goods must:
-Be the same as similar goods
-Meet the product’s description
-Be fit for ordinary purposes
-Be produced within the variations permitted by agreement
-Be adequately contained, packaged, and labeled as agreement may require.
-Conform to any promises or affirmations on package/product label.
Implied Warranty of Fitness for Particular Purpose
Warranty implied when a buyer relies on the seller to select the goods to fit a specific request
Implied Warranty of Fitness for Particular Purpose arises when seller knows or should know:
-Purpose for which buyer is buying goods and
-buyer is relying on seller’s judgement to recommend/select certain product
Implied Warranty of Trade Usage
If a certain way of doing business is understood, it is not necessary for the seller to state it will abide by the custom; implied warranty arises from the usage of trade.
Three approaches to the question of extending seller warranties to third parties:
- Buyer’s household members and guests
- Any reasonable and foreseeable user (Most common)
- Anyone injured by the good
*Disclaimers of implied warranties must be
Clear and conspicuous
Warranties of Fitness for particular purpose must be
Written
Warranties for Merchantability must be
Written or oral, but some states require disclaimer to expressly mention “merchantability”
Buyer actions that can waive warranty:
-Buyer fails or refuses to examine goods when warranty arose from display of sample or model
-Buyer fails or refuses to inspect goods as request by the seller
-Buyer fails to file suit within applicable statute-of-limitations period.
Magnuson-Moss Warranty Act of 1975
Federal law enacted to protect consumers by detailing the obligations of warrantors that offer written warranties on consumer products.
“Full” Warranty
Warranty doesn’t say it’s limited
Applies to every part
“Limited” Warranty
Doesn’t apply to every part (a particular part)
In case of defect, malfunction, or failure to conform with “Full” written warranty, the warrantor
-Can remedy the product within a reasonable time at no charge to consumer
-May not impose any limitation on duration of any implied warranty.
-May not exclude or limit consequential damages
-If you try over and over again for an unreasonable amount of times, seller must permit the consumer to elect either a refund or replacement without charge.
Three legal bases for product liability recovery:
-Negligence
-Strict Liability
-Breach of Warranty
(Can claim multiple)
Product may be defective due to:
-Manufacturing defect
-Design defect
-Inadequate warnings/instructions
To establish defendant’s liability of a negligence-based product defect theory, the plaintiff must show:
-Defendant manufacturer/seller owed duty of care to plaintiff
-Defendant breached duty of care by supplying defective product
-Defendant’s breach of duty caused plaintiff’s injury
-Plaintiff suffered actual injury
Factors in evaluating whether failure to warn was negligent:
-Likelihood of injury
-Seriousness of injury
-Ease of warning
Damages recoverable for Negligence-Based Product Liability Issues AND Strict-Liability-Based Product Liability Issues:
-Compensatory damages for personal injuries and property damage
-Punitive damages
Defenses available for Negligence-Based Product Liability Issues:
-Assumption of the risk
-Contributory/comparative/modified comparative negligence
-Product misuse
-State-of-the-art defense (how the word was back than)
-Preemption- compliance with federal laws
*To establish defendant liability on a strict-liability-based product liability claim, the plaintiff must show:
-Product was defective when sold
-Product was so defective that it was UNREASONABLY DANGEROUS
-Product caused plaintiff’s injury
For strict-liability-based product liability claims, plaintiffs usually rely on
Expert testimony (assists the jury)
Who can sue and who is liable in Negligence-Based Product Liability Issues AND Strict-Liability-Based Product Liability Issues:
Sue: Any reasonably foreseeable injured party
Liable: Any commercial supplier in distribution chain
Defenses available for Strict-Liability-Based Product Liability Issues:
-Product misuse
-Assumption of the risk
-Lapse of time - statute of limitations; statute of repose
To establish defendant’s liability on a warranty-based product liability claim, plaintiff must show:
-Representation by manufacturer/seller was basis of the bargain
-Breach of representation (Doesn’t need to prove it was defendant’s fault)
Damages recoverable under Warranty-based product liability issues:
-Economic damages (difference between value of goods as warranted and value of goods as delivered)
-Consequential personal or property damages
Defenses available under Warranty-based product liability issues:
-Assumption of the risk
-Product misuse
-Disclaimer
To establish liability based on breach implied warranty of fitness for a particular purpose, plaintiff must prove:
-The seller has knowledge of the customer’s specific purpose for the good
-The buyer relied on the seller’s skill and judgement in selecting the good
Market Share Liability
Assigning responsibility of liability to a number of manufacturers
To invoke market share liability, plaintiffs must prove:
-All defendants made product with same defects.
-Allegedly harmful products made by the different defendants are identical and share same defective qualities
-Plaintiffs are unable to identify which defendant caused injury - through no fault of the plaintiffs
-Manufacturers of substantially all the defective products in relevant area and during relevant timeframe are named as defendants.
Things that affect insurance considerations for product liability risks:
-Business’s maturity and safety track record
-The product’s nature and purpose
Secured Interest
Interest in personal property/fixtures that secures payment/performance of obligation
Secured Party
Person/party that holds interest in secured property
Debtor
Person/party that has obligation to secured party
Security Agreement
Agreement in which debtor gives secured interest to secured party
Collateral
Property subject to security interest
Collateral under UCC can include:
-Goods
-Indispensable paper
-Intangibles
-Proceeds
Creation of a security interest requires:
- Written Agreement that describes collateral and is signed by debtor
- Item of value given from creditor to debtor
- Debtor must have rights in the collateral
Purchase-money security interest (PMSI)
Interest formed when debtor uses borrowed money from secured party to buy collateral
Security Interest Perfection
The process by which a secured party legally protects its claim to collateral
Methods of perfection:
-Filing financial statement
-Possessing the goods
-Automatic perfection of PMSI (WHEN RETAILER SELLS CONSUMER GOOD)
-Notation on certificate of title of motor vehicle or boat - under state motor vehicle laws
Movable Collateral
When debtor moves collateral to another state, secured party must reperfect in new state.
Financing statements for perfection must:
-Be signed by debtor
-Include debtor’s and secured party’s correct name and address
-Be filed correctly under the debtor’s name
-Identify the collateral accurately and reasonably definitely
Termination Statement
Must be filed by the secured party when the debtor pays off the debt, terminating the security interest.
Termination Statement Requirements:
-Must be filed in filing office
-Secured party has up to one month after debt is paid to file it
-If debtor asks creditor in writing to file it, creditor than has 20 days
What happens if creditor doesn’t file termination statement?
Debtor may recover $500 from creditor
*If buyer buys goods in ordinary course of business without knowing it is collateral,
he or she has right to that good
***If PMSI creditor has filed a financing statement before the debtor resells a consumer good,
Creditor may REPO the consumer good from the buyer
If buyer does not know consumer good is collateral,
buyer takes the good free from security interest
If buyer purchases chattel paper and instruments, he or she is
free from security interest
If debtor defaults, creditor can:
-Sell, lease, or transfer collateral
-May choose to keep collateral as payment of debt.
-Sue debtor for entire amount instead of dealing with collateral (most likely if debtor is more useful keeping the collateral)
Creditor can repo through
Judicial Process or without it as long as it does so “without breach of the peace”
Lien
Claim to property (or proceeds of property sale)
Lienholder
A person who holds a lien
Three types of Liens:
Consensual- Secured interest in property created by parties’ agreement
Statutory- Arise as a matter of state statues
Judicial- Court ordered
Mechanic’s lien
Claim on real property based on work/materials provided to improve the real property
Artisan’s lien
Claim on personal property based on work/materials used in repairing/improving the property
Both Artisan’s and Mechanic’s liens have
priority over other types of liens
Attachment
Court order permitting local court officer to seize debtor’s property while underlying collection case proceeds
Writ of execution
Authorizes law officer to seize debtor’s NONEXEMPT property after the creditor wins the underlying collection case
Exempt property are things like family home
Garnishment
Order that satisfies debt by seizing debtor’s property or wages being held by third party - commonly bank or employer
Attorney’s lien
Attorney’s right of attorney to keep client’s money/possessions until client pays debt
Tax Lien
Government claim on real or personal property for unpaid taxes
Landlord’s Lien
Claim on furniture and personal property in apartment by landlord
Medicare Lien
Medicare has claim on any personal injury lawsuit recovery by covered person
Inkeeper’s Lien
Claim on baggage and belongings of guests who stay at inn and are unable to pay bill
Creditors’ Composition Agreement
Contract between creditors and a debtor in which creditors agree to accept a lesser amount to discharge remaining debt.
If debtor does not pay under the composition agreement, creditor may collect
on the original debt
Suretyship Contract
Contract between creditor and third party (“Surety”) who agrees to pay another person’s debt
*Surety is _______ liable for debt
Primarily
Guaranty Contract
Third party (“Guarantor”) must pay debt if debtor defaults
Defenses surety/guarantor can raise when creditor sues surety/guarantor to collect:
-Statute-of-frauds writing requirement
-Discharge from debt
-Bankruptcy (of the surety/guarantor)
-Debtor’s fraud
Subrogation
Surety/guarantor has all rights credit has against debtor
Reimbursement
Surety/guarantor can recover from debtor actual amount of debt it pays to creditor, plus legal expenses against debtor
Contribution
Other sureties/guarantors must pay their equal shares
Agency
Relationship between principal and agent
Agent
One authorized to act for or on behalf of principal
Principal
Person who hired agent to represent him or her
*Fiduciary
One with duty to act primarily for another person’s benefit
Four Forms of Authority to Create Agency Relationship:
-Expressed Agency
-Agency by implied authority
-Agency by estoppel
-Agency by ratification
Power of Attorney
Document that grants agent authority to sign legal documents on principal’s behalf
Durable power of attorney
Power of attorney that remains effect after principal becomes incapacitated and/or that springs into effect upon principal becoming incapacitated
Agency Relationship
Fiduciary relationship (relationship of trust) in which agent acts on principal’s behalf
Principal-agent relationship
Employer hires employee to enter into contracts on employer’s behalf; parties agree agent has power to bind principal in contracts
Employer-Employee Relationship
Employer hires employee to perform certain tasks; employer has right to control employees’ conduct
Employer-independent contractor relationship
Employer retains or hires persons (other than an employee) to carry out some task; employer has no control over the details of the independent contractor’s work
*Contractor vs employee in agency relationship
Employer can control employee conduct, has no control over the independent contractor’s work
Principal’s Duties to Agent:
-Compensation
-Reimbursement/Idemnification
-Cooperation
-Safe Working Conditions
Principal has no duty of _______ to agent
loyalty
Agent’s Duties to Principal:
-Loyalty
-Notification
-Performance
-Obedience
-Accounting
Principal’s rights and remedies against agent:
-Constructive trust
-Avoidance
-Idemnification
Agent’s rights and remedies against principal:
-Tort and contract remedies
-Demand for an accounting
-Specific performance
Special Power of attorney
Grants agent express authority over specifically outlined acts
General Power of attorney
Allows agent to conduct all business for principal
Authorized Acts
Agent acts that are within scope of agent’s authority
Disclosed Principal
A principal whose identity is known to a third party. The third party is aware that the agent is making an agreement on behalf of the principal. Agent not liable, principal liable
Partially disclosed principal
A principal whose identity is not known by a third party, although the third party is aware that the agent is making an agreement on behalf of a principal. Also called unidentified principal. Agent presumptively liable, principal liable
Undisclosed Principal
A principal whose existence is not known by a third party. That is, the third party does not know that an agent is acting on behalf of a principal. Agent liable, principal liable
*In disclosed, partially disclosed, and undisclosed principals,
Principal is liable in all three scenarios
Principal directly responsible for tortious conduct by agent in two situations:
-Principal directs agent to commit tortious act (or ratifies the agent’s unlawful act)
-Principal fails to give agent proper instruments, tools, or adequate instructions
Respondeat superior/vicarious liability
Principal/employer liable if employee, acting in scope of employment, wrongfully injured third party (on theory principal negligently hired agent)
Agent misrepresentation
If agent misrepresents himself or herself to third party, principal may be liable in tort for agent’s misrepresentation.
*Individual who hires independent contractor not liable for independent contractor’s tortious actions under doctrine of
Respondeat superior
*If agent commits crime,
agent is liable for crime
*If agent commits crime in scope of employment without authorization of principal,
principal not liable for agent’s crime
*If principal authorized agent’s criminal act,
principal liable for agent’s crime
Antitrust Laws
Promote fair competition and aim to prevent unfair business practices that jeopardize these benefits.
Sherman Antitrust Act (1890)
Applied to business practices that restrain trade or commerce
Sherman Act Section 1
Agreements between competitors that reduce competition. Prohibits Horizontal & Vertical Agreements to Restrain Trade
Horizontal Restraint of trade
Two competitors in the same market make an agreement to restrain trade
Price-fixing
Two or more competitors agree to set product/service prices
Market Allocation
Agreement between competitors to divide market among themselves by geography, customers, or products
Vertical Agreement restraint of trade
Two parties at different levels in manufacturing and distribution process make an agreement that restrains trade.
Sherman Act Section 2
Prohibits Actual and Attempted Monopolization
Clayton Act (1914) Sections 2 and 3
- Prohibits Price Discrimination.
- Prohibits Exclusionary practices.
*Clayton Act Section 7
Prohibits Anticompetitive meters and acquisitions
Federal Trade Commission Act
Prohibits unfair and deceptive methods of competition. Makes any anticompetitive behavior not prohibited by Sherman/Clayton to be potentially illegal.
Robinson-Patman Act (1936)
Made to limit buyers’ power and prohibit certain types of price discrimination
Beyonce-Taylor Article
-Beyonce and Taylor were connected through Ye, but both praise each other and don’t drop near one another.
-Back in the day it was good to drop on the same day since your record would be spotted in a store.
-Kanye-50 Cent, Barbie-Oppenheimer
Once collateral is sold, proceeds must be paid in the following order:
- Paying the reasonable expenses of retaking and disposing of the collateral (including attorney’s fees)
- Satisfying the debt of the secured party
- Satisfying remaining holders of junior security interests
Sellers are liable for warranties through
Warrant of merchantibility
Can agency relationships terminate by lapse of time?
NO
The perfect tender rule’s rigidity has been reduced by
Exceptions created by courts and UCC drafters
A defendant may attempt to argue that compliance with deferral laws I a defense to state tier law because the state tort law is
preempted by a federal statue designed to ensure the safety of a particular class of products.
If the debtor objects to the secured party’s retention of the collateral,
The secured party must sell of dispose of the collateral
Insolvency, the inability to pay debts does or doesn’t always result in the termination of the agency relationship
doesn’t
Which warranties can buyers waive?
Both express and implied warranties
Levista v. Ranbaxy Pharmaceuticals Case
Trade Usage
Case dismissed for failure to state cause of action
Dejesus v. Cat Auto Group Case
Inspection
Ruled for Jesus because Cat Auto Group failed to inspect goods
SCM Group v. Custom Designs Inc.
Presume acceptance
CDM has to pay the cost because they failed to notify SCM of their decision to reject.
Detroit Radiant vs BSH home appliance
Breach Damages
Detroit Radiant was entitled to lost profits in addition to the value of the unsellable inventory.
Almetals vs Wickeder
Specific Performance as Remedy
Wickeder tries to stop selling metal to Almetals because of how successful they’ve become.
Des Moins Flying Servs. vs. Aerial Servs.
Economic Loss Rule
Des Moins Flying can’t sue for tort for the broken windshield because it only resulted in economic loss.
Mortenson vs. Timberline
Modifications/Limitations to Remedies
Timberline software costs Mortenson a lot of money. Upheld the limitation on consequential damages.
Cannon v. Bodensteiner
Sales Puffing
Summary judgement for Bodensteiner cancelled because the salesperson was not sales puffing.
Albion College v. Stockade Buildings
Third Party under warranties
Leaky Roof, Albion College’s third party beneficiary denied because no contract to act to benefit the third party
Nobles v. Akinwande
Warranty Disclaimers/Waivers
Defendant sells broken motorcycle but didn’t do so with malicious intent, made no warranties.
Rancher’s Legacy Meat Company
Perfection by Filing Statement
Guy didn’t know that they changed name, unperfected, bankruptcy.
