Seven General Areas
Armadillos from Texas play rap, eating tacos: Applicable Law; Formation of Contracts; Terms of Contract; Performance; Remedies for Unexcused Nonperformance; Excuse of Nonperformance; Third-party Problems
Vocabulary: Quasi Contract or Implied in Law Contract
Not a contract at all; one party is unjustly enriched at the expense of the other party, so that the enriched party must pay restitution to the other party equal to the unjust enrichment
Elements: Quasi Contract
1. P has conferred a benefit on D, and
2. P reasonably expected to paid, and
3. D realized unjust enrichment if P not compensated
Measure of Recovery: Quasi Contract
Contract price is not the measure of recovery; focus on value of benefit conferred; the contract price is a celing if P is in default
Vocabulary: Unilateral Contract
Acceptance by performance; results from an offer that expressly requires completion of performance as the only possible method of acceptance (look for "offer" followed later in the sentence by "only if")
Vocabulary: Bilateral Contract
Exchange of mutual promises; each party is both a promisor and a promisee
A contract is bilateral, unless . . .
1. Reward, prize, contest
2. Offer expressly requires completion of performance as the only manner of acceptance
All things movable at the time they are identified as the goods to be sold under the contract; most tangible things (e.g., cars, horses, hambureges)
One who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved; generally, almost anyone engaged in business is a "merchant"
Vocabulary: Void Contract
One that is totally without any legal effect from the beginning; it cannot be enforced by either party
Vocabulary: Unenforceable Contract
An agreement that is otherwise valid but which may not be enforceable due to a defense extraneous to contract formation, such as a statute of limitations or the Statute of Frauds
What are the three (3) basic questions to ask in detemrining whether there is in fact a contract?
1. Was there mutual assent?
2. Was there consideration or some substittue for consideration?
3. Are there any defenses to creation of the contract?
An offer is a manifestation of a present intent to contract demonstrated by a promise, undertaking or commitment, stated in definite and certain terms, and communicated to an identifiable offeree. The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract.
1. Bargained-for exchange of something of legal value, or
2. Substitute for consideration
Types of Defenses to Contract Formation
2. Lack of capacity
4. Statute of Frauds
In deciding whether a communication creates a reasonable expectation, the three (3) basic questions to ask are . . .
1. Was there an expression of a promise, undertaking, or commitment to enter into a contract?
2. Were there certainty and definiteness in the essential terms?
3. Was there communication of the above to the offeree?
Exception: Mixed Deal
If the contract divides payment, then apply the UCC to the sale of goods part and the common law to the rest
Epstein's Two-part Approach to Formation
1. Look for an agreement
2. Determine whether the agreement is legally enforceable
According to Epstein, in looking for an agreement, one should watch for infomraiton int he question about . . .
1. Initial communication
2. Termination of the offer (what happens after the initial communication)
3. Acceptance (who responds and how she responds)
General Test: Offer
An offer is a manifestation of an intention to contract (words or conduct showing commitment)
General Test: Manifestation of Commitment
Whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract
Is it required that an offer contain all material terms?
Generally, no; as long as there is a reasonably certain basis for giving a remedy, a could can supply reasonable terms for those that are missing.
What happens if the price term is missing in a contract for the sale of real estate?
Under common law, the price and legal decription are required; without these two terms there is no offer
What happens if the price term is messing a contract for the sale of goods
Under Article 2, there is no price requirement; there is an offer if the parties so intended
What happens if an offer contains vague or ambiguous material terms (appropriate, fair, reasonable, TBD)?
Under common law and the UCC, there is no offer
Vocabulary: Requirements Contract
Buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount ot the buyer
Vocabulary: Output Contract
Seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller
Increase in Requirements
Buyer can increase requirements so long as the increase is in line with prior demands; "not unreasonably disporportionate limitation on increases"
What are the two excpetions to the general rule that an advertisement is not an offer?
1. An advertisement cna be an offer if it is in the nature of a reward (e.g., company promises $100 reward to anyone who catches the flu after using its product as directed)
2. An advertisement can be an offer if it specifies quantity and expressly indicates who can accept (e.g., store advertises "1 fur coat $10---first come, first served)
What happens if an offer for services does not include the nature of the workd to be performed?
In determining whether there was intent to enter into a contract, look at . . .
2. Surrounding circumstances (e.g., statements reasonably understood to have been made in jest, anger, or for the purpose of bragging)
3. Prior practice and relationship of the parties
4. Method of communication (i.e., the broader the communicating media, the more likley it will be viewed as a solicitation of an offer; advertisements)
What are the four (4) methods of terminating an offer?
1. Lapse of time
2. Death of a party prior to acceptance
When will an offer terminate (become "dead") due to lapse of time?
Under the lapse rule, an offer automatically terminates after the time for acceptance has expired, and when no time for acceptance is stated, after a reasonable time.
General Rule: Termination of an Offer due to Death
Death or incapacity of either party after the offer but before acceptance terminates the offer
What is the only exception to the general rule that an offer terminates if either party dies or become incapacitated after the offer but before acceptance?
What are the two ways in which an offer may be revoked?
1. Unambiguous statement by offeror to offeree of unwillingness or inability to contract
2. Unambiguous conduct by offeror indicating an unwillingness or inability to contract that the offeree is aware of
How is an offer by publication revoked?
Only by publication through comparable means (e.g., an offer placed in a newspaper cannot be revoked by publication in a magazine)
When is revocation of an offer effective?
When received by the offeree, or, if the offer was through publication, when published
What are the four (4) types of irrevocable offers?
Options, UCC "Firm Offer Rule", Detrimental reliance, Part Performance in a unilateral contract
1. Promise to not to revoke, or to keep the offer "open", and
2. Payment or other consideration supporting this promise
Elements: UCC "Firm Offer Rule"
1. A merchant
2. Offers to sell goods
3. The offer to sell goods is in a signed writing, and
4. The writing gives assuances that it will be held open
The offer is irrovocable for the stated time period, or, if no time period is stated, for a reasonable amount of time not to exceed three months
What is the effect of detrimental reliance on an offer?
The offer will be held to be irrevocable as an option contract for a reasonable length of time; at the very least, the offeree would be entitled to relief measured by the extent of any detrimental reliance
What is the effect of partial performance of a unilateral contract
The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance; here, partial performance makes the offer irrevocable, but does not constitute acceptance since there is not yet complete performance
The three methods of indirect rejection are . . .
2. Conditional acceptance
3. Additional terms: (a) Mirror Image Rule (common law only); (b) Seasonal expression of acceptance (UCC)
Distinguish "Counteroffer" from "Bargaining"
A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms; however, bargaining is an inquiry that is consistent with the idea that the offeree is still keeping the original proposal under consideration.
Whether a reasonable person would believe that the original offer had been rejected
What is the effect of a rejection of or a counteroffer to an option?
It does not terminate the offer and the offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree's rejection
What is the effect of a counteroffer?
A counteroffer amounts to a rejection (termination) and a new offer; however, bargaining does not terminate the offer
What is the effect of a conditional acceptance (e.g., "if," "only if," "so long as," "but," or "on condition that")?
A conditional acceptance always operates the same way as a counteroffer: it terminates the offer and becomes a new offer
Vocabulary: Mirror Image Rule
Under common law, a response to an offer that adds new terms is treated like a counteroffer rather than an aceptance
What are the two questions raised when a fact pattern involves an offer to buy or sell goods and a response that includes additional terms?
1. Is there a contract?
2. Is the additional term a part of the contract?
With a seasonable expression of acceptance question, how is the first question (Is there a contract?) answered?
Under the UCC, a response to an offer that ads new terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance
As to whether a contract exists (when evaluating a seasonable expression of acceptance), does it matter whether the parties are merchants?
Whether the parties are merchants is irrelevant in answering this first question of whether there is a seasonable expression of acceptance
With a seasonable expression of acceptance question, how is the second question (Is the additional term a part of the contract?) answered?
Look to see whether both parties are merchants: if at least one is not a merchant,, the additional term is merely a proposal that is to be separately accpeted or rejected; however, if both parties are merchants, the general rule is that the additional term is part of the contract
What are the two important exceptions to the general rules of seasonable expression of acceptance?
1. If the additional term materially changes the offer, then it is not a part of the contract
2. If the offeror objects to the change, then the additional term is not a part of the contract
What are the six (6) possible acceptance fact patterns?
1. Improper verbal response (indirect rejection) to an offer then later conduct indicating a contract
2. The offeree fully performs
3. The offeree starts to perform
4. The offeree promises to perform
5. Mail box rules
6. The seller of goods sends the "wrong" goods
What is the common law rule regarding acceptance via improper verbal response to an offer then later conduct indicating a contract?
Under common law, an improper verbal response (i.e., an indirect rejection) is treated as a counteroffer and the later conduct is treated as acceptance of that counteroffer; thus, all the terms of the the conditional acceptance are part of the contract
What is the UCC rule regarding acceptance via improper verbal response to an offer then later conduct indicating a contract?
Under the UCC, the contract is based solely on the conduct: the indirect rejection is not treated as a counteroffer and is not part of the contract; thus, the terms appearing only in the indirect rejection are not part of the contract
Where the offeree fully performs as his method of acceptance, what two factors are considered in order to determine if notice is required?
1. Wwhat the offer requires, or
2. Whether the offeree has reason to believe that the offeror will not learn of hte acceptance
Does an offeree's start of performance constitute acceptance in a bilateral contract?
Start of performance is acceptance of an offer to enter into a bilateral contract; starting to perform is treated as a promise to perform and so there is a bilateral contract
Does an offeree's start of performance constitute acceptance in a unilateral contract?
Start of performance is not aceptance of unilateral contract offers---completion of performance is required; since start of performance isan implied promise to permorm and unilateral conttracts cannot be accepted bya promise, an offer that requires performance for acceptance must necessarily mean completion of performance
Distinguish: Preparations to perform and part performance
Substantial preparations to perform do not make the offer irrevocable but may constitute detrimental reliance sufficient ot make the offeror's promise binding to the extent of the detrimental reliance
Does an offeree's promise to perform constitute acceptance?
Yes. Most offers can be accepted by a promise to perform; notable exceptions to this general rule include offers that expressly require performance for acceptance and reward offers
What is the exception to the general rule involving a seller who simply sends the "wrong" goods?
Accommodation (i.e., explanation) will be considered a counteroffer and not a breach; here, delivery of the wrong goods with an explanation does not qualify as acceptance, but merely a counteroffer; thus, there is no contract yet, nor a breach of contract
Generally, who can accept an offer?
1. A person who knows about the offer, and
2. Is the person to whom the offer was made
What are the four (4) mailbox rules?
- All communications other an acceptance are effective only when received
- Acceptance is generally effective when mailed
- If a rejection is mailed before an acceptance is mailed, then neither is effective until received (first received wins). But, if acceptance is mailed just before rejection and rejection is received first, there is only no contract if the offeror detrimentally relies on the rejection prior to receiving the acceptance
- An option deadline cannot be met using the mail box rule
What are the eleven (11) legal reasons for not enforcing an agreement?
1. Lack of consideration or a consideration substitute for the promise at issue
2. Lack of capacity of the person who made the promise
3. State of Frauds
4. Existing laws that prohibit the performance of the agreement
5. Public policy
10. Ambiguity in words of agreement
11. Mistakes at the time of the agreement as to the material facts affecting the agreement
What three steps should be taken in dealing with a consideration question?
Identify the promise breaker
Ask whether that person asked for something in return for her promise (i.e., bargained for something)
Look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained
What four (4) forms does consideration take?
1. Performance (i.e., doing something not legally obligated to do)
2. Forbearance (i.e., not doing something legally entitled to do)
3. Promise to perform
4. Promise to forbear
1. There must be a bargained-for exchange between the parties, and
2. That which is bargained for must be considered of legal value or must constitute a benefit to the promisor or a detriment to the promisee
Vocabulary: Bargained-for Exchange
This element of consideration requires that the promise induce the detriment and the detriment induce the promise
What is the legal effect of past consideration or moral consideration?
A promise given in exchange for something already done does not satisfy the bargain requirement
What is the exception to the general rule regarding past consideration?
If the past action was expressly requested by the promisor and there was an expectation of payment by the promisee, then there will be consideration found
What is the common law rule regarding a preexisting contractual or statutory duty?
Doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that; new consideration is required for contract modification. If the parties agree to modify their k, consideration is usually found to exist where the obligations of both parties are varied (e.g., modification should not benefit only one party).
What are the three (3) exceptions to the common law rule regarding a preexisting contractual or statutory duty?
1. Addition to or change in performance
2. Unforeseen difficulty so severe as to excuse performance
3. Third party promise to pay
What is the rule under the UCC regarding a preexisting contractual duty?
Article 2 does not have a preexisting legal duty rule. New consideration is not required to modify sale of goods contracts; good faith is the test for changes in an existing sale of goods contract
What is the standard regarding adequacy of consideration?
Generally, courts do not inquire into the adequacy of consideration; however, if something is entirely devoid of value, it is insufficient (e.g., sham consideration). If there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence
What if there is an honest dispute as to the preexisting duty, will consideration be found in a modification?
What is the key in determining whether part payment as consideration for release of a debt is sufficient?
Whether the debt is due and undisputed: if the debt is due and undisputed, then part payment is not consideration for release
What are the three (3) types of consideration substitutes?
2. A written promise to satisfy an obligation for which there is a legal defense
3. Promissory estoppel (detrimental reliance)
Elements: Promissory Estoppel
2. Reliance that is reasonable, detrimental, and foreseeable
3. Enforcement necessary to avoid injustice
What is the amount of recovery under a promissory estoppel theory?
Recovery is limited to that which justice requires
Who lacks capacity to contract?
1. Infants (i.e., under 18)
2. Mental incompetents
3. Intoxicated persons jif the other party has reason to know of the intoxication
What is the test for mental incompetency?
Whether the person lakcs the ability to understand the agreement
What are the possible outcomes of a contract made with an individual who lacks capacity due to infancy?
1. The person without capacity has the right to disaffirm the contract
2. Implied affirmation
3. Quasi-contract liability for necessaries
Vocabulary: Implied Affirmation
If the person who lacked capacity when the contract was made retains the benefits of the contract after gaining capcity, he is then said to have ratified the contract
A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care, or shelter, but liability is based on quasi-contract law, not contract law
What are the possible outcomes of a contract made with an individual who lacks capacity due to mental incompetence?
One whose mental capacity is so deficient that he is incapable of understanding the nature and significance of a contract may disaffirm when lucid or by his legal representative; he may likewise affirm during a lucid interval or upon complete recovery, even without formal restoration by judicial action; in other words, the contract is voidable; mental incompetents are also liable in quasi-contract for necessities furnished during the incapacity
What are the possible outcomes of a contract made with an individual who lacks capacity due to intoxication?
One who is so intoxicated that he does not understand the nature and significance of his promise may be held to have made only a voidable promise if the other party had reason to know of the intoxication; the intoxicated person may affirm the contract upon recovery and there may be quasi-contractual recovery for necessities furnished during hte period of incapacity
Vocabulary: Statute of Frauds
Designed to prevent fraudulent claims of the existence of a contract by making harder to fool the court
What are the two (2) special types of proof required to satisfy the statute of frauds?
Performance and a writing signed by the person who is asserting that there was no agreement
What are the three steps in analyzing a statute of frauds question?
1. Is the contract within the statute of frauds?
2. If, so, is the statute of frauds satisfied?
3. Is there a statute of frauds defense
What six types of contracts are within the statute of frauds?
- Promises to answer for the debts of another (guarantee and suretyship)
- Promises by an executor to answer personally the debts of the estate
- Promises in consideration of marriage
- Service contracts not capable of being performed within a year from the time of the contract
- Transfers of interests in real estate
- Sales of goods for $500 or more
Does the statute of frauds require that the contract be in writing?
No, it requires only that there be one or more writings signed by the person sought to be held liable on the contract that reflect the material terms of the contract
What is the legal standard regarding the signature in a statute of frauds case?
The signature requirement is liberally construed by most courts: it need not be hand-written; it can be printed or typed; a party's initials or letterhead may also be sufficient
What five (5) interest in land are included under the statute of frauds?
1. Leases for more than one year
2. Easements of more that one year
4. Minerals or structures if they are to be severed by the buyer
5. Mortgages and most other security liens
In what three (3) ways can one satisfy the satute of frauds?
2. Signed writing
3. Judicial admission
The rules for satisfaction of the statute of frauds by performance vary depending on whether the contract is . . .
A services contract, a contract for the sale of goods, or a real estate transfer
What level of performance is necessary to satisfy the statute of frauds with a services contracts?
Full performance by either party
What effect does a seller's part performance on a normal goods contract under the statute of frauds?
The general rule is that part performance of a contract for the sale of goods satisfies the statute of frauds, but only to the extent of the part performance
What effect does a seller's part performance on a specially manufactured goods contract under the statute of frauds?
The statute of frauds is satisfied as soon as the seller makes a sustantial beginning, which means that the seller has done enough work that it is clear that what he is working on is specially manufactured
Regarding transfers of interests in real estate, what does the statute of frauds require for satisfaction when there is only part performance?
Part performance requires that the buyer have done any two of the following three:
Distinguish: Satisfying the statute of frauds under the UCC compared to other cases
Cases other than those involving the UCC require that the writing(s) contain all material terms, which means the "who" and the "what," and it is signed by the person who is asserting the statute of frauds defense; under Article 2, the writing must indicate that there is a contract for the sale of goods and contain the quantity term (i.e., how many), as well as be signed by the person asserting the statute of frauds defense; however, the UCC has an exception to this general rule
What is the UCC's exception to the general rule that the statute of frauds is only satisfied if signed by the person asserting the defense?
The exception is based on the merchant's failure to respond to a signed writing from another merchant and has three (3) requirements
1. Both parties must be merchants
2. The person who receives a signed writing with a quantity term claims that claims there is a contract
3. The person who received the signed writing fails to respond within ten day sof receipt
In what ways can a party satisfy the statute of frauds by judicial admission?
By admitting the existence of a contract under oath, e.g., a pleading, deposition or other testimony
Does the statute of frauds rules require that a person entering into a contract for someone else have written authorization to do so?
The authorization must be in writing only if the contract to be signed is within the statute of frauds ("equal dignity")
Does the statute of frauds require written evidence of modification of a written contract?
If the deal with the alleged change would be within the statute of frauds, then the alleged modification must be in writing
If a written agreement requires that all modifications be in writing does violating such a provision raise a statute of frauds defense?
Under common law, contract provisions requiring that all modification be in writing are not effective; under the UCC, such provisions are effective, unless waived (this includs contracts for the sale of goods no matter the price)
Distinguish: Illegal subject matter and illegal purpose
If the subject matter is illegal, the agreement is not enforceable; if the subject matter is legal but the purpose is illegal, the agreement is enforceable only by the person who did not know of the illegal purpose
What two fact patterns are likely to make a contract unenforceable because they violate public policy?
An exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete without a reasonable need or reasonable time and place limits.
If a party induces another to enter into a contract by using fraudulent misrepresentation (e.g., by asserting information he knows is untrue), the contract is . . . ?
Voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation (fraud in the inducement)
If a misrepresentation is not fraudulent, the contract is . . . ?
Voidable by the innocent party if she justifiably relied on the misrepresentation and the misrepresentation was material
When is a misrepresentation material?
1. The information asserted would induce a reasonable person to agree, or
2. The maker of the misrepresentation knew the information asserted would cause a particular person to agree
Elements: Economic Duress
1. Improper threat (bad guy)
2. No reasonable alternative (vulnerable guy)
What are the two basic elements of unconscionability
1. Unfair surpise (procedural)...the process that led to the agreement (e.g., print so small buyer could not read it...some flaw in the agreement process)
2. Oppressive terms (substantive)...the terms are harsh and oppressive. The test is at the time of the contract.
At what point in time is the unconscionability of a contract evaluated?
At the time the contract was entered into
There will be no contract due to ambiguity in words of agreement if . . . ?
1. The parties use a material term that is open to at least two reasonable interpretations
2. Each party attaches a different meaning to the term
3. Neither party knows or has reason to know the term is open to at least two reasonable interpretations
Vocabulary: Mutual Mistake of Fact
Where both parties entering into a contract are mistaken about facts relating to the agreement.
What is the effect of a mutual mistake of fact?
The contract may be voidable by the adversely affected party if
1. The mistake concerns a basic assumption on which the contract is made
2. The mistake has a material effect on the agreed-upon exchange
3. The party seeking avoidance did not assume the risk of the mistake
Vocabulary: Unilateral mistake
Where only one of the parties is mistaken about facts relating to the agreement
What is the effect of a unilateral mistake?
The mistake will not prevent formation of a contract; however, if the nonmistaken party knew or had reason to know of the mistake made by the the other party, the contract is voidable by the nonmistaken party
What is the effect of one party being aware of a latent ambiguity?
The contract is formed based on the reasonable understanding of the ignorant party
In determining the terms of a contract, what three (3) areas should be considered?
1. Look for information about words used by people making the contract
2. Look for information about past or similar deals
3. Think about UCC warranty, delivery, and risk of loss terms if it is a sale of goods
What is the underlying premise regarding partis' words and the parol evidence rule?
The final written version of a deal is more reliable than anything or written earlier
Written agreement that court finds is the final agreement; triggers parol evidence rule--parties have put their agreement in writing and they intend the writing to be the final statement of the deal.
Vocabulary: Partial Integration
Written and final, but not complete. Presumption is the wrong answer.
Vocabulary: Parol Evidence
1. Words of parties
2. Before integration (i.e., before agreement was put in written form)
3. Oral or written
What facts trigger the parol evidence rules?
1. Integration (i.e., a written contract that the court finds is the final agreement)
2. Oral statements made at the time the contract was signed or earlier oral or written statements by the parties regarding the contract
What is the rule regarding parol evidence to contradict the written agreement?
Regardless of whether the writing is a complete or partial integration, the parol evidence rule precludes a court from admitting evidence of earlier statements for the purpose of contradicting the terms in the written contract; however, under the mistake in integration exception, a court may consider the evidence for the limited purpose of determining whether there was an error in reducing the agreement to writing
Can a court consider parol evidence for the purpose of determining whether there are legal grounds unenforcement of the contract?
Yes, regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement such as misrepresentation, fraud, or duress (not reformation)
Can a court consider parol evidence for the purpose of explaining a term in the written deal?
Yes, regardless of whether the writing is a complete or partial integration, parol evidence rule does not prevent a court from admitting evidence of earlier agreements to resolve ambiguities in the written contract
When is the only time that it matters whether the integration is complete or partial?
Adding to the written deal
Can a court consider parol evidence for the purpose of adding terms to the written deal?
The parol evidence rule prevents a court from admitting evidence of earlier agreements as a source of consistent, additional terms unless the court finds
1. that the written agreement was only a partial integration, or
2. that the additional terms would ordinarily be in a separate agreement
What fact will most often trigger a statute of frauds question?
"Oral" agreement; more often than not.
What fact will most often trigger a parol evidence rule question?
"Written" agreement. Rule is all about the preclusive effect of an original agreement.
What three forms does conduct take for the purpose of being a source of contract terms?
In order of preference, Course of performance, Course of dealing, Custom and usage
What is the default rule under the UCC regarding the "delivery obligations of a seller" of goods in a shipment contract if delivery is by common carrier?
Shipment contract: Seller must
1. Get the goods to a common carrier;
2. Make reasonable arrangements for delivery; and
3. Notify the buyer
When is the seller's obligation satisfied in a shipment contract for goods under the UCC default terms?
Delivery obligations in a shipment contract are complete before delivery.
When is the seller's obligation satisfied in a destination contract for goods under the UCC default terms?
When the goods arrive where the buyer is
How does one determine if a contract is a shipment or destination contract?
Watch for the use of FOB [city] as the source for determining whether the contract is a shipment or destination contract: FOB [seller/goods location] means it is a shipment contract; FOB [any other city] means it is a destination contract. Most contracts with delivery obligations are shipment contracts. If the destination after FOB is any city other than where seller is located, it is a destination contract. Seller does not complete its delivery obligation until the goods arrive where the buyer is.
What circumstances give rise to a risk of loss problem?
1. After the contract for sale of goods has been formed but before the buyer receives the goods
2. The goods are damaged or destroyed
3. Neither the buyer nor the seller is to blame
***someone has to eat the loss
What are the four (4) risk of loss rules?
1. Agreement: Agreement of the parties controls
2. Breach: Breaching party is liable for any uninsured loss even though breach is unrelated to problem
3. Delivery by common carrier other than seller: Risk of loss shifts from seller to buyer at the time that the seller completes his delivery obligation (gets goods to a common carrier, makes reasonable arrangements for delivery and notifies buyer).
4. Catch-all: The determining factor is whether the seller is a merchant; risk of loss shifts from a merchant-seller to the buyer on the buyers "receipt" of the goods (i.e., physical possession); risk of loss shifts from a non-merchant seller when he or she "tenders" the goods (i.e., told where the goods are and how to get them).
Vocabulary: Sale on Approval
Buyer takes goods for trial period and may return them even though they conform to the contract
What is the risk of loss rule for sale or return?
Rules for ordinary sale apply, but if goods are returned to seller, risk remains on buyer while goods are in transit
What is the risk of loss rule for sale on approval?
Risk does not pass until the buyer accepts goods (by failing to return them or to notify seller of intention within the required time); if buyer decides to return the goods, return is at the seller's risk
What circumstances give rise to issues regarding warranties of quality?
1. It is a sale of goods
2. The goods have been delivered to the buyer
3. The buyer is unhappy with the quality of the goods
Vocabulary: Express Warranty
A statement, promise, description, sample, or model made by the seller to the buyer, any description of the goods, and any sample or model if such statement is part of the basis of the bargain; does not include statements relating to value or opinion
Vocabulary: Basis of the Bargain
A statement, promise, description, sample, or model that came at such a time that the buyer could have relied on it when she entered into the contract
Vocabulary: Implied Warranty of Merchantability
When any person buys any goods from any merchant (a merchant seller who regularly deals in goods of the kind sold), a term is automatically added to the contract by operation of law that the goods are fit for the ordinary purpose for which such goods are used
Elements: Implied Warranty of Fitness for a Particular Purpose
1. Buyer has a particular purpose
2. Buyer is relying on seller to select goods suitable for that particular purpose
3. Seller has reason to know of buyer's purpose and reliance
Vocabulary:Implied Warranty of Fitness for a Particular Purpose
Goods are fit for that particular purpose
How does a seller disclaim an implied warranty?
1. Conspicuous language of disclaimer, mentioning merchantability or "there are no warranties which extend beyond the description on the face hereof, or
2. "As is," "with all faults"
What is the general test for a limitation of remedies?
Unconscionability; a limitation of remedies is prima facie unconscionable if breach of warranty on consumer goods causes personal injury
When it is so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it; if in the body of a writing, a disclaimer is conspicuous if it is in larger type than surrounding text, it is in a contrasting type, font, or color, or it is set off from the text by marks that call attention to it
What are the six (6) concepts dealing with sale of goods performance?
1. Perfect Tender
2. Rejection of the Goods
4. Installment Contracts
5. Acceptance of the goods
6. Revocation of Acceptance
What are the three (3) most important things to know about perfect tender?
- It only applies to the sale of goods
- It means that the seller's performance must be perfect: perfect goods, perfect delivery
- A less than perfect tender by the seller generally gives the buyer the option to reject the delivered goods
What are the three (3) most important things to know about rejection of goods?
- distinguish rejection of an offer from rejection of the goods
- If the seller does not meet the perfect tender standard, the buyer has the option to retain and sue for damages or reject all or any commercial unit and sue for damages
3. This rejection alternative is limited by cure, installment contract, and acceptance
In what limited situations would a seller have the option of curing even after the contract delivery date?
When the seller has a reasonable grounds for believing that the improper tender would be acceptable (perhaps with a money allowance); look for information in the question about prior deals between the buyer and seller with such an allowance
What does an installment contract require?
Requires and authorizes (i) delivery of the goods in separate lots (ii) to be separately accepted. The buyer has the right to reject an installment only where there is a substantial impairment in that installment that can't be cured. Because it is a continuing relationship, the courts do not give effect to minor breaches. The impairment must be substantial.
What is the effect of acceptance of goods? Payment of goods?
1. If buyer accepts the goods, it cannot later reject them.
2. Payment without opportunity for inspection is not acceptance.
What is the effect of buyer's keeping goods' without objection?
If the buyer has kept the goods for a month or more, the buyer has accepted and cannot later reject.
What are the limited circumstances that a buyer can effect a cancellation of a contract by revoking its acceptance of the goods?
The requirements are:
(i) nonconformity substantially impairs the value of the goods, and (ii) excusable ignorance of grounds for revocation nor reasonable reliance on seller's assurance of satisfaction, and
revocation within a reasonable time after discovery of nonconformity.
What is specific performance?
Monetary remedy, when legal remedy is inadequate, but is is almost always the wrong answer. You do get specific performance to unique goods (antique, art, custom made). No specific performance for contract for services, but possible injunctive relief.
What is reclamation?
Right of an unpaid seller to get its goods back. The buyer (i) must have been insolvent at the time that it received the goods, and (ii) the seller demands return goods within 10 days of receipt (this "10 day-rule" becomes a "reasonable time rule" if before deliver there had been an express representation of solvency by the buyer), and (iii) the buyer still has goods at the time of demand. The 10 day calendar begins running when the buyer receives the goods. If the buyer no longer has the goods, there is no remedy for reclamation.
What is your first sentence of an essay for damages?
The purpose of damages is to compensate the non-breaching party. California court's accomplish this goal of compensation by protecting the expectation interest.
How do you measure expectation damages?
Sufficient damages for the plaintiff for her to buy substitute performance.
What are restitution damages?
Compensating the plaintiff by making the breaching party give back any gain.
What are the damages rules for sales of goods?
Article 2 reflects the general contract damages policy of putting the innocent party where it would have been had the contract been performed, i.e., expectation:
1. Seller breaches, buyer keeps the goods (fair market value if perfect-fair market value delivered.
2. Seller breaches, seller has goods (market price at time of discovery of the breach-contract price) or (replacement price-contract price)
3. Buyer breaches, buyer keeps the goods (contract price)
4. Buyer breaches, seller has the goods (contract price-market price at the time and delivery) or (contract price--resale price)
What are incidental damages?
Costs incurred in finding replacement performance - always recoverable.
What are consequential damages?
Consequential damages consist of losses resulting from the breach that any reasonable person would have foreseen would occur from a breach at the time of entry into the k. For the plaintiff to prevail, she must show that both parties were aware of special circumstances that existed at the time of the k formation. Under the UCC, only a buyer can recover consequential damages.
What is the distinction between a promise and a condition?
The failure of a promise gives rise to breach, whereas the failure of a condition excuses the obligation to perform.
What is an express condition?
An express condition is a mutually agreed upon promise modifier. It is language in a contract that does not create a new obligation, but merely limits obligations created by other language in the contract. Express conditions are created by the words "if", "only if" "provided that" subject to" "when" "unless".
Excuse of a condition by waiver or estoppel
One having a benefit of a condition under k may indicate by words or conduct that she will not insist on the conditions being met. Consideration is not required for a valid waiver.
What is estoppel waiver?
Whenever a party indicates that she is waving a condition before it it so happen, or she is waiving some performance before it is to be rendered, and the person addressed detrimentally relies on the waiver, the courts will hold this to be a binding estoppel waiver. The promise to waive a condition may be retracted at any time before the other party has changed his position to his detriment.
What is election waiver?
When a condition or a duty of performance is broken, the beneficiary of the condition or duty must bake an election; she may (i) terminate her liability, or (ii) continue under the contract. If she chooses to continue, she will be deemed to have waived the condition or duty.
How can an express condition be excused by prevention?
If the party protected by the express condition hinders the occurrence of the express condition, then the express condition is excused and the contract must be performed.
What is anticipatory repudiation?
An unambiguous statement or conduct indicating that the repudiating party will not perform (ii) made prior to the time the performance was due. Anticipatory repudiation by one party excuses the other party's duty to perform. It also generally gives rise to an immediate claim for damages for breach unless the claimant has already finished her performance.
Can anticipatory repudiation be reversed or retracted?
So long as there has not been a material change in position by the other party. If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided.
Are words or conduct that give a party insecurity sufficient grounds to suspend performance or repudiate?
Not repudiate. In sale of goods problems, the other party can demand assurances if there are (1) reasonable grounds for insecurity; and (2) written demand for adequate assurance and (3) it is a commercially reasonable can suspend performance.
What is mutual rescission?
An express agreement between the parties that excuses the k. The agreement itself is a binding k, supported by consideration, namely, the giving up by each party of her right to counterperformance from the other. the key is whether performance is still remaining from each of the k parties. if there is complete performance, no rescission, and performing party can recovery under k law for work pursuant to k. if partial performance, rescission valid usually, recovery for work performed unlikely, but Quasi-k possible
mutual rescission with contracts involving third-Party beneficiary rights
if the rights of the third-party beneficiaries have vested, the k may not be discharged by mutual rescission
An agreement by the party's to an already existing obligation to accept a different performance in satisfaction of the existing obligation
the performance of the accord agreement. its effect is to discharge not only the original k, but also the accord k as well. if the accord is not performed, then the other party can sue on either the original k or the accord, but not both
an agreement by parties to an existing k to accept a different agreement in satisfaction of the existing k. nonperformance of the modification does not create a recovery under the first k. look for the words "instead"
an agreement between both parties to an existing k to the substitution of a new party, i.e, same performance, different party
How is delegation different than novation?
novation requires the agreement of both parties to the original contract and excuses the person replaced from any liability for nonperformance. delegation does not require the agreement of both parties and does not excuse.
Performance of contractual duties can be excused under impossibility or impracticably or frustration of purpose when...
1. Something that happens after k formation but before the completion of the k performance; and 2. that was unforeseen; and 3. that makes performance impossible, or commercially impracticable or frustrates the purpose of the performance. Partial impossibility, duty may be discharged only to that extent. Temporary impossibility (replaceable goods), suspends k duties.
Excuse of performance by reason of a later unseen event--death after contract
Death does not make a person's k obligations if the services are of a kind that can be delegated. If the k was for personal services of a unique kind, the death or incapacity of the person could make performance impossible.
Excuse of performance by reason of a later unseen event - subsequent law or regulation
Later law makes performance of k illegal - excuse by impossibility
Late law makes mutually understood purpose of k illegal - excuse by frustration of purpose
Third Party Problems - Vocabulary - Third-party beneficiary
Not a party to the k. Able to enforce k others made for her benefit
Third Party Problems - Vocabulary - Promisor
Person who is making the promise that benefits the third-party
Third Party Problems - Vocabulary - Promisee
Person who obtains the promise that benefits the third-party
Third Party Problems - Vocabulary - Creditor/donee beneficiary
Person to who a debt is owned by the promisee/person whom the promisee intends to benefit gratuitously
Third Party Problems - Vocabulary - Incidental beneficiary
Do not have k rights. Only intended beneficiaries have k rights. Intended beneficiaries are identified in the k, receive performance directly from the promisor, or has some relationship with the promisee to indicate intent to benefit.
Third Party Problems - Dealing with efforts to cancel or modify
The test is whether the third-party knows of and has relied on or assented as requested. If so, her rights have vested and the k cannot be canceled or modified without her consent unless the k otherwise provides.
Third Party Problems - who can sue whom?
1. Beneficiary can recover from promisor
2. Promisee can recover from promisor
3. General rule. Beneficiary cannot recover from promisee
3.1. Limited exception. Creditor beneficiary can recover from promisee but only on pre-existing debt.
Third Party Problems - Defenses
I the third party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee
Third Party Problems - Vocabulary - Assignment
Transfer of rights under a k in two separate steps: (1) k between only two parties; and (2) one of the parties later transfers rights under the k to a third-party
Third Party Problems - Vocabulary - Assignor
Party to the who later transfers rights under the k to another
Third Party Problems - Vocabulary - Assignee
Not a party to a k. Able to enforce the k because of the assignment.
Third Party Problems - Limitations on Assignment - Prohibition
Language of prohibition takes away the right to assign but not the power to assign which means that the assignor is liable for breach of k but an assignee who doe snot know of the prohibition can still enforce the assignment.
Third Party Problems - Limitations on Assignment - Invalidation
Language of invalidation takes away both the right to assign and th power to assign so that there is a breach by the assignor and no rights in the assignee
Third Party Problems - Limitations on Assignment - Common Law
Even if a contract doe snot in any way limit the right to assign, common law bars an assignment that substantially changes the duties of the obligor. Assignment of the right to payment never substantially changes. Assignment of the right to k performance other than right to payment (usually substantially change on bar)
Third Party Problems - Requirements of Gratuitous Assignment
General rule is that consideration is not required but gratuitous assignments (and only gratuitous assignments) can be revoked.
Third Party Problems - Rights of Assignee
1. Assignee can recover from obligor
2. Assignor for consideration can not recover from obligor
3. Obligor has same defenses against assignee as it would have against assignor
4. Payment by obligor to assignor is effective until obligor knows assignment. Similarly, modification agreements between obligor and assignor are effective if the obligor did not know of assignment.
Third Party Problems - Implied Warranties of Assignor in Assignment for Value
In an assignment for consideration only, the assignor warrants (1) the right assigned actually exists and (2) the right assigned is not subject ot any defenses by the obligor and (3) the assignor will no do nothing to impair the value of the assignment. Assignor, however, does not warrant the obligor will do.
Third Party Problems - Multiple Assignments - All Gratuitous Assignments
The general rule is last assignee generally wins. Gift assignment can be freely revoked. Since a later gift assignment revokes an earlier gift assignment, the general rule for resolving claims among assignees who did not provide consideration is a last in time rule.
Last Assignee Generally Wins Exception
A gratuitous assignment is not revocable if it is the subject matter of a writing delivered to the assignee, the assignee has received some sort of indicia of ownership, or th assignee has relied on the assignment in a way that is reasonable, foreseeable, and detrimental. If the gift assignment is not revocable, then it will take priority over a later assignment.
Third Party Problems - Assignments for Consideration - General Rule
First assignee for consideration wins
Third Party Problems - Assignments for Consideration - Exception
A subsequent assignee takes priority over an earlier assignee for value only if he both (i) does not know of the earlier assignment and (ii) is the first to obtain (1) payment, (2) a judgment, (3) a novation, or (4) indicia of ownership "four horsemen" rule.
Third Party Problems - Vocabulary - Delegation
Party to a k transferring work under k to third party.
Third Party Problems - Relationship of Assignment and Delegation
A contract creates both rights and duties. Assignment is the transfer by a party to a K of his rights or benefits under the k to a third party who was not a party to the k. Delegation is the transfer by a party to a contract of his duties or burdens under the k to a third party who was not a party to the k. Multistate examiners use the term assignment in a problem involving an assignment and delegation
Third Party Problems - Relationship of Assignment and Delegation - Which duties are delegable?
Generally contractual duties are delegable. The limitations on delegation are very limited. Delegations are permitted unless either (1) k prohibits delegations or prohibits assignments or (2) k calls for very special skills or (3) person to perform k has very special reputation.
Third Party Problems - Nonperformance by delegate. What if after delegation, the third party does not perform?
Delegating party always remains liable. Delegatee liable only if she receives consideration from delegating party.
In contracts for the sale of goods under the UCC, a party's duty to perform may be discharged where performance would be impracticable. Impracticability exists where a party encounters extreme and unreasonable difficulty and/or expense, and such difficulty was not anticipated. The facts giving rise to impracticability must be such that their nonoccurence was a basic assumption on which the contract was made.
What are the rights and liabilities of a delegate?
The obligee must accept performance from the delagate of all duties that may be delegated. The delegator remains liable on the k; thus the obligee may sue the delegator for nonperformance by the delegate. The obligee may sue the delegate for nonperformance, but can require the delegate to perform only if there has been an assumption (i.e., the delegate promises he will perform the duty delegated and this promise is supported by consideration or its equivalent.
Are there any remedies for a minor breach of contract?
Yes. A breach of k is minor if the nonbreaching party gets the substantial benefit of her bargain, despite the other party's defective performance. A minor breach does not relive the nonbreaching party of her duty to perform under the k, although she will be entitled to remedial damages for the breach.
When does late performance amount to a material breach?
Generally, late performance of a k is treated as a minor breach that gives the nonbreaching party a right to damages but does not relieve him of his duty to perform. Late performance will be considered to be material only if the nature of the k requires timely performance (goods contracts under the UCC) or if the k provides that time is of the essence.
What does it mean when it is said that which is bargained for must be of legal value?
It must constitute a benefit to the promisor or a detriment to the promisee.
When a buyer accepts goods that turn out to be defective, what may he recover as damages?
Any loss resulting in the normal course of events from the breach which includes the difference between the value of the goods accepted and the value they would have had if they had been as warranted, plus incidental and consequential damages.
What are incidental damages?
Incidental damages from the sellers breach include expenses reasonably incurred in inspection, receipt, and transportation, care, and custody of goods rightfully rejected.
What are included in consequential damages?
They include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise, and injury to person or property proximately resulting from any breach of warranty.
When can an installment contract be rejected?
The contract as a whole is deemed to be breach if nonconformity substantially impairs the value of the entire contract. The perfect tender rule (which allows a buyer to reject goods for any defect in the goods or tender) does not apply to installment contracts. Rights to cure must be permitted.