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162 Cards in this Set
- Front
- Back
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Applicable Law: UCC v. Common Law
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UCC applies to sales of goods (moveable, tangible objects) while common law applies to all other types of contracts.
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CREATION OF A CONTRACT (K)
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A court will ask the following 3 basic questions:
1. Was there MUTUAL ASSENT? 2. Was there CONSIDERATION or some substitute for consideration? 3. Are there any DEFENSES to creation of the K? |
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K Formation
In order to form a valid K, the following elements must be present: |
OFFER
ACCEPTANCE CONSIDERATION |
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MUTUAL ASSENT--OFFER & ACCEPTANCE
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Mutual assent = "a meeting of the minds"
The process by which parties reach this meeitng of the minds generally is some form of negotiation, during which, at some point, one party makes a proposal (an OFFER) and the other agrees to it (an ACCEPTANCE). Courts use an OBJECTIVE measure to determine if a meeting of the minds has occurred. |
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OFFER
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An offer is a manifestation of an INTENT TO CONTRACT (words or conduct showing commitment = "PROMISE, UNDERTAKING OR COMMITMENT). An offer must also have DEFINITE AND CERTAIN TERMS and be COMMUNICATED to the offeree.
An offer must create a REASONABLE EXPECTATION in the offeree that the offeror is willing to enter into a K on the basis of the offered terms. |
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Offer: PROMISE, UNDERTAKING, OR COMMITMENT
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There must be an intent to enter into a K. The criteria used to determine whether a communication is an offer include the following:
a. Language. b. Surrounding circumstances c. Prior practice and relationship of the parties d. Method of communication e. Industry custom |
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Offer: Promise, Undertaking, or Commitment -- Language
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Language used may show that an offer was or was not intended.
Technical language like "I offer" or "I promise" are useful to show an offer was made but are not necessary. Be careful of "feelers," which often arise in phrases like "I quote" or "I am asking $30 for..." |
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Offer: Promise, Undertaking, or Commitment -- Surrounding Circumstances
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The circumstances surrounding the language will be considered by courts in determining whether an offer exists.
Ex: where a statement is made in anger or by way of bragging, and the statement is reasonably understood in this context, it will have no legal effect. |
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Offer: Promise, Undertaking, or Commitment -- Prior Practice or Relationship of the Parties
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In determining whether certain remarks constitute an offer rather than preliminary negotiations, a ct will look to the prior relationship and practice of the parties involved.
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Offer: Promise, Undertaking, or Commitment -- Method of Communication
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1) the broader the communicating media, the more likely it is that ct will view the communication as merely the SOLICITATION of an offer.
2) Advertisements, catalogs, circular letters, and the like containing price quotations are USUALLY construed as mere INVITATIONS for offers. (Some ads have been held as offers where the language of the advertisement can be construed as containing a promise, the terms are certain and definite, and the offeree(s) are clearly identified). |
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Advertisements as Offers
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Although most advertisements are not offers, rather invitations for offers, where the language of the advertisement can be construed as containing a promise with certain terms and where the offeree, or class of offerees, is clearly identified it will be considered an offer.
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Offer: Promise, Undertaking, or Commitment -- Industry Custom
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The courts will also look to generally accepted custom in the industry in determining whether the proposal qualifies as an offer.
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Offer: DEFINITE & CERTAIN TERMS
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An offer must be definite and certain in its terms. Basic question is whether enough of the essential terms have been provided so that a K including them would be CAPABLE OF BEING ENFORCED.
Depends on the kind of K contemplated. Typically, the following are important: (i) the IDENTITY OF THE OFFEREE; (ii) the SUBJECT MATTER; and (iii) the PRICE to be paid. However, a promise generally will be enforceable even if it does not spell out every material term, as long as it contains some OBJECTIVE STANDARD for the ct to use to supply the missing terms. |
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Offer: Definite & Certain Terms -- Identification of the offeree
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To be considered an offer, a statement must sufficiently identify the offeree or a class to which she belongs to justify the inference that the offeror intended to create a power of acceptance.
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Offer: Definite & Certain Terms -- Definiteness of Subject Matter
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The subject matter of the deal must be certain, because a court can enforce a promise only if it can tell with reasonable accuracy what the promise is.
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Requirements for Real Estate Ks
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An offer involving realty must identify the LAND and the PRICE terms. The land must be identified with some particularity but a deed description is not required. Most courts will NOT supply a missing price term.
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Requirements for Sale of Goods
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In a K for the sale of goods, the QUANTITY being offered must be certain or capable of being made certain.
No price requirement under Article 2. BUT, vague or ambiguous MATERIAL terms are NOT an offer under either common law or UCC. Magic Words: "appropriate," "fair," or "reasonable" = BAD; "all," "only," "exclusively," or "solely" = GOOD |
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"Requirements" and "Output" Ks
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In a requirements K, a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.
In an output K, a seller promises to sell to a certain buyer all of the goods the seller produces, and the buyer agrees to buy that amount from the seller. Although no specific quantity is mentioned in offers to make these Ks, the offers are sufficiently definite because the quantity is CAPABLE of being made certain by reference to objective, extrinsic facts. --It is assumed that the parties will act in good faith; unreasonably disproportionate terms are not recognized as tender. --must also be an established business. |
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Requirements for Service Ks
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The nature of the work to be performed is required in an offer for services.
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Offer: Definite & Certain Terms -- Missing Terms
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The fact that one or more terms are left open does NOT PREVENT THE FORMATION of a K if it appears the parties INTENDED TO MAKE A K and there is a REASONABLY CERTAIN BASIS for giving a remedy.
In such a case, a majority of jxns and Article 2 hold that a court can SUPPLY REASONABLE TERMS for those that are missing. Only if consistent with the parties' intent as otherwise expressed. |
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Offer: Definite & Certain Terms -- Price
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Except in Ks for real property, the failure to state the price does not prevent the formation of a K if the parties intended to form a K without the price being settled.
1. Article 2 gap filler 2. Price fixed by party under Article 2 |
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Offer: Definite & Certain Terms -- Vague Terms
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The presumption that the parties' intent was to include a reasonable term goes to supplying MISSING terms. However, the presumption CANNOT be made if the parties have INCLUDED a term that makes the K too vague to be enforced.
--Vagueness can be cured by part performance --Uncertainty can be cured by acceptance --Focus on the K -- even if the offer lacks certainty, the problem can be cured if there is some way in which the offer is capable of being made certain. |
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Offer: Definite & Certain Terms -- Terms to be Agreed Upon Later
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In Ks to be agreed upon at a future date: If the term is a MATERIAL TERM, the offer is TOO UNCERTAIN. Cts will not supply a reasonable term, as the parties have provided otherwise. However, Art. 2 permits a reasonable PRICE term to be supplied by the ct under these circumstances if the other evidence indicates that the parties intended to form a K.
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Offer & Acceptance: Communication to Offeree
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To have the power to accept, the offeree must have KNOWLEDGE of the offerer. Therefore, the proposal must be communicated to the offeree.
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TERMINATION OF OFFER
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The power of acceptance created by an offer ends when the offer is terminated.
Mutual assent cannot be met where the termination occurs before the acceptance is effective. So, you must establish whether the offer has been terminated, and if so, how? |
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Termination of Offer: By acts of parties -- Revocation
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A revocation is the retraction of an offer by the offeror. A revocation terminates the offeree's power of acceptance if it is communicated to her BEFORE SHE ACCEPTS.
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Termination of Offer: Methods of Communication
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a) Revocation by direct communication
--revocation by publication (offers made by publication may be revoced through comparable means) b) Revocation by indirect communication -- offer may be effectively terminated if the offeree INDIRECTLY receives: (i) correct information; (ii) from a reliable source; (iii) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer. |
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Termination of Offer: Effective when Received
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A revocation is generally effective when RECEIVED by the offeree. Where revocation is by publication, it is effective when PUBLISHED.
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Termination of Offer: Limitations
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Offers can be revoked at will by the offeror, even if he has promised not to revoke for a certain period, except under certain situations:
(a) Option K (b) Merchant's Firm Offer under Art 2. (c) Detrimental reliance (d) Part Performance--Unilateral K Offers (e) Part Performance--Offer indifferent as to manner of acceptance. |
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Termination of Offer: Limitations -- Merchant's Firm Offer
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Under Art 2:
(i) If a MERCHANT; (ii) Offers to sell goods in a SIGNED WRITING; and (iii) the writing GIVES ASSURANCE THAT IT WILL BE HELD OPEN; then (iv) the offer IS NOT REVOCABLE for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed 3 months) |
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Termination of Offer: Limitations -- Option K
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An option is a distinct K where the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer.
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Termination of Offer: Limitations -- Detrimental Reliance
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Where the offeror could reasonably expect that the offeree would rely to her detriment on the offer, and teh offeree does so rely, the offer will be held IRREVOCABLE AS AN OPTION K FOR A REASONABLE LENGTH OF TIME.
At very least, offeree would be entitled to relief measure by the extent of the detrimental reliance. -- Reliance must be reasonable. |
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Termination of Offer: Limitations -- Part Performance--Unilateral K
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An offer for a true unilateral K becomes IRREVOCABLE ONCE PERFORMANCE HAS BEGUN. Once the offeree begins to perform, she is given a REASONABLE TIME to complete performance during which time the offer is irrevocable. Note: offeree is not bound to complete performance.
Rules apply only when offeree has EMBARKED on performance, not when they are only preparing to perform. |
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Termination of Offer: Limitations -- Part Performance--Offer indifferent as to manner of acceptance
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Most offers are indifferent as to manner of acceptance, and thus, a bilateral K may be formed UPON THE START OF PERFORMANCE by the offeree.
Therefore, once the offeree BEGINS PERFORMANCE, the K is complete and REVOCATION becomes IMPOSSIBLE. |
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Termination by Offeree: Rejection -- Express
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An express rejection is a statement by the offeree that she does not intend to accept the offer. This terminates the offer.
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Termination by Offeree: Rejection -- Counteroffer
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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. A counteroffer serves as a rejection of the original offer AS WELL AS A NEW OFFER.
Distinguish from mere inquiry. |
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Termination by Offeree: Rejection -- When effective
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A rejection is effective when RECEIVED by the offeror.
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Termination by Offeree: Rejection -- Revival
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If an offer is rejected, the offeror may restate the same offer and create a new power of acceptance --> revival of the original offer.
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Termination by Offeree: Rejection -- Option K
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Because an option K is a K to keep an offer open, a rejection of or a counteroffer to an option does NOT constitute termination of the offer. 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.
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Termination by Offeree: Lapse of Time
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(a) Must accept within specified or reasonable time.
(b) Look to when offer is received by offeree. If an offer provides an expiration, that period begins when the offer is received by the offeree. If the offer is delayed in transmission and this fact is or should have been apparent to the offeree, the offer terminates at the time it would have expired had there been no delay. |
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Termination by Operation of Law
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(a) Termination by death or insanity of the parties -- If either of the parties dies or is adjudicated insane prior to acceptance, the offer is terminated. It is NOT necessary that the death or insanity be communicated to the other party.
(b) Termination by destruction of subject matter -- Destruction of the subject matter terminates the offeree's power of acceptance. (c) Termination by supervening legal prohibition of proposed contract -- if the subject matter becomes illegal, then the offer will terminate. |
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ACCEPTANCE
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An acceptance must manifest an intent to contract to the terms of the offer and be communicated to the offeror.
The offeree exercises the power given her by the offeror to create a contract. |
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Acceptance: Who may accept
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1) generally, only the person to whom an offer is addressed has the power of acceptance.
2) Unlike rights under an existing contract, the offeree's power of acceptance CANNOT BE ASSIGNED. --Exception: Option Ks (b/c the power to accept is itself a K right, and contract rights are generally assignable). |
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Acceptance: Offeree must know of offer
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The offeree must know of the offer in order to accept, and this is true whether the offer is for a bilateral or unilateral K.
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Acceptance: Offer for Unilateral K
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If an offer provides that it may be accepted only by performance (offer for a unilateral K), there are several rules:
a) Completion of performance -- A unilateral K is not accepted until performance is completed. The beginning of the performance creates an option so that the offer is irrevocable. b) Notice -- generally, the offeree is NOT required to give the offeror notice that he has begun the requested performance, but is required to notify the offeror within a reasonable time after performance has been completed. However, no notice is required if: i) the offeror WAIVED NOTICE; or ii) the offeree's PERFORMANCE WOULD NORMALLY COME TO THE OFFEREE'S ATTENTION within a reasonable time. |
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Acceptance: Offer for Bilateral K
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Generally, acceptance of an offer to enter into a bilateral K must be communicated to the offeree.
Exception: WAIVER -- If an offer provides that acceptance need not be communicated, then no communication of acceptance is required. Silence as acceptance: If the offeree silently takes offered benefits, the courts will often find acceptance. Especially w/ prior dealings. |
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Acceptance: Method of Acceptance
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Unless otherwise provided, an offer is construed as inviting acceptance in ANY REASONABLE MANNER and by any medium reasonable under the circumstances.
The offeror is the "master of her offer" and may require an act to signify acceptance. |
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Acceptance: Must be Unequivocal
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Traditional K law required an absolute and unequivocal acceptance of eahc and every term of the offer (the "mirror image rule").
At CL, any different or additional terms in the acceptance make the response a REJECTION AND COUNTEROFFER. Art. 2 has "battle of the forms" |
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Acceptance: The Mailbox Rule
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Acceptance by mail or similar menas creates a K at the MOMENT OF DISPATCH provided that the mail is properly addressed and stamped, UNLESS:
(i) The OFFER STIPULATES that acceptance is not effective until received; or (ii) An OPTION K is involved (--> an acceptance under an option K is effective only upon RECEIPT). NOTE: because in most jxns a revocation is effective only upon receipt, under the mailbox rule if the offeree dispatches an acceptance BEFORE HE RECEIVES A REVOCATION sent by the offeror, a K is formed. |
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Acceptance: The Mailbox Rule -- Effect of offeree sending both acceptance and rejection
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Offeree sends rejection, then acceptance --> Mailbox rule DOES NOT APPLY. Whichever one is received FIRST is effective.
Oferee sends acceptance, then rejection -- Mailbox rule GENERALLY APPLIES. A K is created upon dispatch of the acceptance. However, if the offeror received the rejection first and then CHANGED HIS POSITION IN RELIANCE on it, the offeree will be ESTOPPED from enforcing the K. |
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Acceptance: By Unauthorized Means
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An acceptance transmitted by unauthorized means or improperly transmitted by authorized means may still be EFFECTIVE IF IT IS ACTUALLY RECEIVED by the offeror while the offer is still in existence.
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CONSIDERATION
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Consideration is a BARGAINED FOR EXCHANGE whereby there is a DETRIMENT AND BENEFIT flowing from each party to the other.
LONG RULE: Two elements are necessary to constitute consideration: (i) there must be a BARGAINED FOR EXCHANGE between the parties; and (ii) that which is bargained for must be considered of LEGAL VALUE or, put differently, it must constitute a benefit to the promisor OR a detriment to the promisee. Detriment is determined by whether an exchange contains legal value. |
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CONSIDERATION: (i) Bargained-for exchange
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requires that the promise induce the detriment AND the detriment induce the promise. Both elements must be present.
It is not enough that the promisee incurs detriment; the detriment must be the PRICE of the exchange, and not merely fulfillment of certain conditions for making the gift. The TEST is whether the act or forbearance by the promisee would be of any benefit to the promisor. Economic benefit is not required. |
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Consideration: Bargained-for exchange -- Gifts
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If either of the parties intended to make a gift, he was not bargaining for consideration.
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K Defenses in General
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Even if an agreement is supported by valuable consideration or a recognized substitute, contract rights may still be unenforceable because there is a defense to formation of the contract, because there is a defect in capacity, or because a defense to enforcement of certain terms exists.
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DEFENSES to Consideration
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1. Absence of Mutual Assent
2. Absence of Consideration 3. Public Policy Defenses -- Illegality 4. Lack of Capacity 5. Defenses to Enforcement (i) Statute of Frauds (ii) Unconscionability |
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Defenses: ABSENCE OF MUTUAL ASSENT -- Mutual Mistake
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When both parties entering into a K are mistaken about the facts relating to the agreement the K may be voidable by the adversely affected party if:
(i) The mistake concerns a BASIC ASSUMPTION on which the K is made (i.e., not really a diamond, but instead a cubic z); (ii) The mistake has a MATERIAL EFFECT on the agreed-upon exchange (e.g., cubic z is only worth 1/100 of what the diamond is worth); and (iii) The party seeking avoidance DID NOT ASSUME THE RISK of the mistake. Mutual mistake is NOT a defense if the adversely affected party bore the risk that the assumption was mistaken. And generally, a mistake in value not a defense. |
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Defenses: ABSENCE OF MUTUAL ASSENT -- Unilateral Mistake
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If only one of the parties is mistaken about the facts relating to the agreement, the mistake will NOT prevent formation of a K. However, if the non-mistaken party KNEW OR HAD REASON TO KNOW OF THE MISTAKE made by the other party, the K is voidable by the non-mistaken party.
A majority of jxns hold that mistakes in COMPUTATION may be canceled in equity, assuming that the nonmistaken party has NOT RELIED on the K. Modern authority also has held that a unilateral mistake that is SO EXTREME that it outweighs the other party's expectations under the agreement will be a ground for cancellation of the K. Errors in judgment will NOT prevent the formation of a K. |
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Defenses: ABSENCE OF MUTUAL ASSENT -- Mistake by Intermediary (Transmission)
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When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message as TRANSMITTED is operative unless the other party knew or should've known of the mistake.
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Defenses: ABSENCE OF MUTUAL ASSENT -- Latent Ambiguity Mistakes
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A latent ambiguity occurs where the expression of the parties' agreement appears perfectly clear at the time the contract is formed, but because of subsequently discovered facts, the expression may be reasonably interpreted in either of two ways. The following possibilities are present:
a) Neither party aware of ambiguity -- No K unless both parties happened to intend the same meaning. b) Both parties aware of ambiguity -- No K unless both parties in fact intended the same meaning. c) One party aware of ambiguity -- Contract enforced according to the intention of the party who was unaware of the ambiguity. Subjective intention of parties controls. |
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Defenses: ABSENCE OF MUTUAL ASSENT
Misrepresentation: Fraudulent |
If a party induces another to enter into a K using FRAUDULENT misrepresentation, the K is VOIDABLE by the innocent party if she JUSTIFIABLY RELIED on the fraudulent misrepresentation. This is FRAUD IN THE INDUCEMENT.
Distinguish: If one of the parties was tricked into giving assent to the agreement under circumstances that prevented her from appreciating the significance of her action, the agreement cannot be enforced; it is VOID. |
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Defenses: ABSENCE OF MUTUAL ASSENT
Misrepresentation: Nonfraudulent |
Even if a misrepresentation is NOT fraudulent, the contract is VOIDABLE by the innocent party if the innocent party JUSTIFIABLY RELIED on the misrepresentation and the misrepresentation was MATERIAL. A misrepresentation is material if either:
(a) the information asserted would induce a reasonable person to agree; or (b) the maker of the misrepresentation knew the information asserted would cause a particular person to agree. |
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Defenses: ABSENCE OF MUTUAL ASSENT -- Absence of Consideration
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If the promises exchanged at the formation stage lack the elements of bargain or legal detriment, NO CONTRACT exists. In this situation, one of the promises is always illusory.
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Defenses: ABSENCE OF MUTUAL ASSENT -- Illegality
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If either the consideration of the subject matter of a K is illegal, this will serve as a defense to enforcement. Contracts may be illegal because they are inconsistent with the constitution, violate a statute, or are against public policy as declared by the courts.
Typical forms of illegality: 1) agreements in restraint of trade; 2) gambling contracts; 3) usurious contracts (lending money at incredibly high interest rates); 4) agreements obstructing administration of justice; 5) agreements inducing breach of public fiduciary duties; and 6) agreements relating to torts or crimes. ILLEGAL CONSIDERATION OR SUBJECT MATTER RENDERS A K VOID AND UNENFORCEABLE. |
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Defenses: ABSENCE OF MUTUAL ASSENT -- Illegality Limitations
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1. Plaintiff unaware of illegality;
2. Parties not in pari delicto (A person may successfully seek relief if he was not as culpable as the other); 3. Licensing: Revenue vs. Protection Revenue -- if the license is required merely to raise revenue, the K is generally enforceable. Protection of Public -- contract NOT enforceable. |
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Defenses: LACK OF CAPACITY -- Legal Incapacity
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Individuals in certain protected classes are legally incapable of incurring binding contractual obligations. Timely assertion of this defense by a promisor makes the K voidable at his election.
1. Ks of Infants (minors) 2. Mental Incapacity 3. Intoxicated persons |
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Defenses: LACK OF CAPACITY -- Duress and Coercion
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Ks induced by duress or coercion are VOIDABLE and may be rescinded as long as not affirmed.
Generally, economic duress is not a defense. However, withholding something someone wants or needs will constitute economic duress if: (i) The party threatens to commit a wrongful act that would seriously threaten the other contracting party's property or finances; AND (ii) There are no adequate means available to prevent the threatened loss. |
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DEFENSES TO ENFORCEMENT
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Defects in the subject matter of a bargain or in the capacity of one party to a K arise at the formation stage and make the agreement void or voidable. Other defenses, however, involve failure of the agreement to qualify for judicial relief and may arise at the formation stage or later.
1. Statute of Frauds 2. Unconscionability |
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Defenses: STATUTE OF FRAUDS (SOF)
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In most instances, an oral contract is valid. However, certain agreements, by statute, must be evidenced by A WRITING SIGNED BY THE PARTIES SOUGHT TO BE BOUND.
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Defenses: Statute of Frauds: WRITING REQUIREMENT
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The SOF does not require that the K be in writing; it requires only that there be one or more writings signed by the person sought to be held liable on the K that reflect the MATERIAL TERMS of the K. Thus, a letter, receipt, or check even indicating the quantity in the memo line would be sufficient.
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Defenses: Statute of Frauds: SIGNATURE REQUIREMENT
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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.
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Defenses: Statute of Frauds: AGREEMENTS COVERED
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1) Promises in Consideration of MARRIAGE
2) Performance not within 1 YEAR 3) Interest in LAND 4) EXECUTOR or administrator promises personally to pay estate debts 5) GOODS priced at $500 or more 6) Promises to pay debt of another (SURETYSHIP promises) ---Must be a collateral promise ---Main purpose must not be pecuniary interest of promisor |
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Defenses: Statute of Frauds -- Interests in Land
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A problem may exist as to whether the subject matter of a given K constitutes an interest in land. In addition to agreements for the sale of REAL PROPERTY, the following items are among the more important interests in lad generally covered by Statute:
(1) Leases for more than 1 yr; (2) Easements of more than 1 yr; (3) Fixtures; (4) Minerals (or the like) or structures if they are to be severed by the buyer. (5) Mortgages and most other security liens |
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Defenses: Statute of Frauds -- Effect of Performance
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If the S conveys to the B, the S can enforce the B's oral promise to pay. Similarly, the B may be able to specifically enforce a land K if the "part performance doctrine" is applicable. Under the doctrine, conduct that unequivocally indicates that the parties have contracted for the sale of the land will take the K out of the SOF. What constitutes sufficient part performance varies by jxn. Most require AT LEAST TWO of the following: payment, possession, and/or valuable improvements.
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Defenses: Statute of Frauds -- Performance not within 1 yr
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The date runs from the date of the AGREEMENT and not from the date of performance.
If the K is possible to complete within 1 yr, it is not within the 1-yr prong of the SOF. If a K that cannot be performed within 1 yr allows both parties the right to terminate within a year, there is a SPLIT in jxns. MAJ view is that nonperformance is not performance within 1 year, and so the K is still within the SOF. |
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Defenses: UNCONSCIONABILITY
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The concept of unconscionability allows a court to REFUSE TO ENFORCE A PROVISION OR AN ENTIRE K to avoid "unfair" terms. It is sometimes said that there are two types of unconscionability: substantive unconscionability (i.e., based on price alone) and procedural unconscionability (i.e., based on unfair surprise or unequal bargaining power). However, few cases recognize substantive unconscionability based on price alone.
TIMING: Unconscionability is determined by the circumstances as they existed at the time the K was formed. Effect if Ct finds unreasonable: the court may: (i) refuse to enforce the K; (ii) enforce the remainder of the K without the unconscionable clause; or (iii) limit the application of any clause so as to avoid an unconscionable result. |
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Defenses: Unconscionability -- Common instances of PROCEDURAL unconscionability
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1) Inconspicuous risk-shifting provisions
2) Contracts of adhesion -- "take it or leave it" 3) Exculpatory clauses 4) Limitations on Remedies |
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IMPOSSIBILITY
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A contract may be voided if no one can perform the contract. Impossibility requires objective impossibility as opposed to subjective impossibility.
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Defenses: Procedural Unconscionability -- Inconspicuous Risk-Shifting Provisions
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Standardized printed form Ks often contain a material provision that seeks to shift a risk normally borne by one party to the other. Examples of such provisions are:
(i) CONFESSION OF JUDGMENT clauses, which are illegal in most states; (ii) DISCLAIMER OF WARRANTY provisions; and (iii) "ADD-ON" CLAUSES that subject all of the property purchased from a seller to repossession if a newly purchased item is not paid for. Typically, such clauses are found in the fine print ("boilerplate") in printed form Ks. Courts have invalidated these provisions because they are inconspicuous or incomprehensible to the average person, even if brought to his actual attention. |
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MUTUALITY
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Consideration must exist on both sides of the K; promises must be mutually obligatory.
Agreements where one party is bound and the other is not lack mutuality and are considered "illusory." If so, consideration fails. |
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COMMERCIAL IMPRACTICABILITY
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One must show that there are unforeseeable and unforeseen circumstances at the time the K was entered into that dramatically increase the burden of performance.
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Mutuality: Requirements and Output Ks
UCC 2-306 |
"Requirements Ks (promises to buy "all that I require") and "Output" Ks (promises to sell "all that I manufacture") are enforceable.
Consideration exists because the promisor is suffering a legal detriment; he has parted with the right to buy (or sell) the goods he may need from another source. |
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Mutuality: Conditional Promises
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Conditional promises are ENFORCEABLE, no matter how remote the contingency, UNLESS the condition is entirely within the promisor's control.
A promise to pay conditioned on satisfaction with the goods is NOT ILLUSORY b/c the buyer cannot reject the goods unless the buyer is truly dissatisfied. (UCC 1-304). |
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Mutuality: Unilateral/Option Ks
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Unilateral Ks, because one has begun performance, or option Ks, because one has purchased time to decide, are NOT held objectionable on "mutuality" grounds.
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Mutuality: Suretyship Promises
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A suretyship K (promise to pay debt of another) are NOT enforceable unless supported by consideration. Compensation for a suretyship will serve as consideration for the promise, but if it is gratuitous, the consideration reqt will cause problems (look to timing).
Surety makes promise before (or at same time) creditor performs or promises to perform --> Consideration present Surety makes promise after creditor performs or promises to perform --> generally no consideration to support surety's promise. |
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Mutuality: Right to Choose Among Alternative Courses
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A promise to choose one of several alternative means of performance is illusory unless EVERY ALTERNATIVE involves SOME LEGAL DETRIMENT to the promisor.
However, if power to choose rests with the promisee or some 3rd party not under the control of the promisor, the promise is enforceable as long as AT LEAST ONE ALTERNATIVE involves some legal detriment. |
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PROMISSORY ESTOPPEL or Detrimental Reliance
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Absent consideration, if a party detrimentally relied on a promise it can serve as a substitute for consideration. One must show that the promisor intended for him to rely on the information and that he in fact relied on it to his detriment.
LONG RULE: CONSIDERATION IS NOT NECESSARY if the facts indicate that the promisor should be estopped from not performing. Under RS90, a promise is enforceable if necessary to prevent injustice if: 1) the promisor should reasonably EXPECT TO INDUCE ACTION OR FORBEARANCE; 2) OF A DEFINITE AND SUBSTANTIAL CHARACTER; 3) And SUCH ACTION OR FORBEARANCE IS IN FACT INDUCED. Modernly, the Second Restatement 90 no longer requires the action or forbearance to be of "definite and substantial character" and further provides that the remedy "may be limited as justice requires." Typically award expectation damages. |
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BREACH: When does a breach occur?
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If (i) a promisor is under an absolute duty to perform, and (ii) this absolute duty of performance has not been discharged, then this failure to perform in accordance with the K terms will amount to a breach of K. The non-breaching party who sues for breach of K must show that she is WILLING AND ABLE to perform but for the breaching party's failure to perform.
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MINOR BREACH
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A breach of K is minor if the obligee gains the substantial benefit of her bargain despite the obligor's defective performance.
The effect of a minor (immaterial) breach is to provide a remedy for the immaterial breach to the aggrieved party; the aggrieved party is NOT relieved of her duty of performance under the K. Examples: insignificant delays in performance or small deficiencies in the quality or quantity of performance when precision is not critical. |
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MATERIAL BREACH
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If the obligee does not receive the SUBSTANTIAL BENEFIT OF HER BARGAIN as a result of failure to perform or defective performance, the breach is considered material. If the breach is material, the consequences are more severe. The non-breaching party:
(i) may treat the K as at an end, i.e., any duty of counterperformance owed by her will be discharged; and (ii) will have an IMMEDIATE right to all remedies for breach of the entire K, including total damages. |
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BREACH
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When a party fails to perform materially by the terms of the K he is in breach. The nonbreaching party may seek damages.
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K DAMAGES IN GENERAL
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To claim compensatory damages characterized as any of the following, expectation (that which the nonbreaching party would have received in the absence of breach), consequential (those incurred indirectly as a result of the breach) and/or reliance damages (those incurred by the nonbreaching party in reliance of the other party’s performance), one must show damages are non-speculative and foreseeable when the contract was made. The Plaintiff must also mitigate (make less) his damages.
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PAROL EVIDENCE RULE
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When the parties to a K express their agreement in a WRITING with the INTENT that it embody the full and final expression of their bargain (i.e., the writing is an "INTEGRATION"), any other expressions--written or oral--made PRIOR TO the writing, as well as any oral expressions CONTEMPORANEOUS WITH the writing, are INADMISSIBLE to vary the terms of the writing under the parol evidence rule.
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TERMS: General Rules of K Construction
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1. Ks will be construed as a WHOLE; specific clauses will be subordinated to the Ks general intent;
2. The courts will construe words according to their PLAIN MEANING unless it is clearly shown that they were meant to be used in a technical sense. 3. If provisions appear to be inconsistent, WRITTEN or TYPED provisions will prevail over printed provisions; 4. The courts will generally look to see what CUSTOM AND USAGE is in the particular business and in the particular locale where the K is either made or to be performed; 5. It is important to note that courts generally will try to reach a determination that a K is VALID and enforceable; 6. AMBIGUITIES in a K are construed against the party preparing the K, absent evidence of the intention of the parties. |
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Parol Evidence Rule: Contradicting Terms
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Regardless of whether the writing is a complete or partial integration, the parol evidence rule prevents a court from admitting evidence of earlier agreements if for the purpose of contradicting the terms in the written K.
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Parol Evidence Rule: Mistake in Integration
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A court may consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration, i.e., a mistake in reducing the agreement to writing.
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Parol Evidence Rule: Getting out of a written deal
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Regardless of whether the writing is complete or partial integration, the PER 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.
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Parol Evidence Rule: Explaining a term in the written deal
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Regardless of whether the writing is a complete or partial integration, the PER does not prevent a court from admitting evidence of earlier agreements to resolve AMBIGUITIES in the written K.
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Parol Evidence Rule: Adding to the written deal
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The PER prevents a court from admitting the evidence of earlier agreements as a source of consistent, additional terms UNLESS the court finds:
(i) that the written agreement was only a PARTIAL INTEGRATION; or (ii) that the additional terms would ordinarily be in a separate agreement. |
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Parol Evidence Rule: ARTICLE 2
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Article 2 generally follows the PER, providing that a party cannot contradict a written K but he may add CONSISTENT ADDITIONAL TERMS unless:
(i) there is a merger clause; or (ii) the courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement. Article 2 also provides that a written Ks terms may be EXPLAINED or SUPPLEMENTED by the following, whether or not ambiguous: 1. The parties COURSE OF DEALING; 2. A USAGE OF TRADE; or 3. The parties' COURSE OF PERFORMANCE. |
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Article 2: BATTLE OF THE FORMS (2-207)
Ks involving NON-MERCHANTS |
If any party to the K is not a merchant, the additional or different terms are considered to be mere proposals to modify and DO NOT become part of the K unless the offeror expressly agrees.
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Article 2: BATTLE OF THE FORMS (2-207)
Ks between MERCHANTS |
If BOTH parties to the K are merchants, ADDITIONAL terms int he acceptance will be included in the K UNLESS:
(i) they MATERIALLY ALTER the original terms of the offer; (ii) the offer EXPRESSLY LIMITS ACCEPTANCE to the terms of the offer; or (iii) the OFFEROR HAS ALREADY OBJECTED to the particular terms, or OBJECTS WITHIN A REASONABLE TIME after notice of them is received. |
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Article 2: BATTLE OF THE FORMS
"Knockout Rule" |
Some courts treat different terms like additional terms, and follow the rule of Ks between merchants.
OTHER COURTS follow the KNOCKOUT RULE, which states that conflicting terms in the offer and acceptance are knocked out of the K, because each party is assumed to object to the inclusion of such terms by the K. Under the knockout rule, gaps left by the knocked out terms are filled by the UCC. |
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Article 2: "Gap-Filler"/Supplemental Terms
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The key to forming a K for the sale of goods is the quantity term. If other terms are missing, Article 2 has gap-filler provisions to fill in the missing terms:
NO PRICE: then the price is a REASONABLE PRICE at the time for delivery. NO PLACE OF DELIVERY: then the place is usually the SELLER'S PLACE OF BUSINESS (if he has one); otherwise, seller's home. NO TIME FOR SHIPMENT OR DELIVERY: then shipment or delivery is due in a REASONABLE TIME. NO TIME FOR PAYMENT: then payment is due at the time and place at which the buyer is to RECEIVE the goods. ASSORTMENT OF GOODS: if the party who has the right to specify the assortment does not do so SEASONABLY, then the other party is excused from any resulting delay and may either proceed in any reasonable manner or treat the failure as a breach. |
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Article 2: Delivery Terms -- Noncarrier Case
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A noncarrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier. In such a case, if the seller is a MERCHANT, risk of loss passes to the buyer only when she TAKES PHYSICAL POSSESSION of the goods. If the seller is NOT A MERCHANT, then risk of loss passes to the buyer upon TENDER OF DELIVERY.
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Article 2: Delivery Terms -- Carrier Case
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A carrier case is a sale in which it appears the parties intended the goods to be moved by a carrier. There are 2 types: SHIPMENT Ks and DESTINATION Ks.
SHIPMENT K: if the K authorizes or requires the seller to ship the goods by carrier but does not require him to deliver them at a particular destination, it is a shipment K and the risk of loss passes to the buyer when the goods are DELIVERED TO THE CARRIER. DESTINATION K: if the K requires the seller to deliver the goods at a particular destination, the risk of loss passes to the buyer when the goods are TENDERED TO THE BUYER AT THE DESTINATION. |
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Article 2: Common Delivery Terms
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CIF and C&F: "cost, insurance, and freight" and "cost & freight"
--these mean that the price K includes the price of the goods, the cost of shipping, and (in the case of CIF) the cost of purchasing insurance for the benefit of the buyer in case the goods are destroyed. FAS: "free alongside" --term generally used when shipped by boat; risk of loss passes to the buyer once the goods are delivered to the dock. FOB: "free on board" --term is always followed by a location, and the buyer bears the risk of loss once the goods reach the named location. |
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Article 2: Defective Goods
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If goods are so defective that the B has a right to reject them, the risk of loss does not pass to the B until the defects are CURED or she ACCEPTS the goods in spite of their defects.
NOTE: a B generally has a right to reject for any defect. |
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Article 2: "Sale or Return" or "Sale on Approval"
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SALE OR RETURN:
--A sale on return K (e.g., when B takes the goods for resale and then cannot resell them) is treated as an ordinary sale and the risk of loss is on the seller. If the goods are returned to the seller, the risk remains on the B while the goods are in transit. SALE ON APPROVAL: --In a sale on approval (i.e., the B takes goods for use but may return them even if they conform to the K), the risk of loss does not pass to the buyer until she ACCEPTS. |
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Article 2: WARRANTIES
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Ks for the sale of goods automatically include a warranty of title (in most cases). They may also include certain implied warranties and express warranties.
WARRANTY OF TITLE & WARRANTY AGAINST INFRINGEMENT: Any seller of goods warrants that the title transferred is good (free of liens or encumbrances). This arises automatically and need not be mentioned in the K. A merchant seller regularly dealing in goods of that kind automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims. But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims. IMPLIED WARRANTY OF MERCHANTABILITY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE EXPRESS WARRANTIES |
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Article 2: IMPLIED WARRANTY OF MERCHANTABILITY
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1) implied in every K for SALE BY A MERCHANT;
2) to be merchantable, goods must at least be "fit for the ordinary purposes for which such goods are used." 3) seller's knowledge of defect is irrelevant. |
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Article 2: IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE
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A warranty will be implied in a K for the sale of goods whenever:
(i) ANY SELLER, merchant or not, HAS REASON TO KNOW THE PARTICULAR PURPOSE for which the goods are to be used and that the BUYER IS RELYING on the seller's skill and judgment to select suitable goods; and (ii) the BUYER IN FACT RELIES on the seller's skill or judgement |
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Article 2: EXPRESS WARRANTIES
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Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the BASIS OF THE BARGAIN.
Buyer need not prove that he actually relied on the statement, but that he COULD HAVE RELIED on it when he entered into the K. |
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Article 2: Disclaimer of Warranties
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WARRANTY OF TITLE can be disclaimed or modified only by specific language or by circumstances that give the buyer notice that the seller does not claim title or that he is selling only such rights as a third party may have (e.g., sheriff's sale).
IMPLIED WARRANTIES: 1. Disclaimer of Warranty of Merchantability: only by MENTIONING MERCHANTABILITY. Must be CONSPICUOUS. 2. Disclaimer of Warranty of Fitness for a Particular Purpose: only by a CONSPICUOUS WRITING. "Conspicuous" = reasonable person standard. Think contrasting type, font, color, size. Once an express warranty has been made, it is very difficult to disclaim. |
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MODIFICATION OF K TERMS
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CL required new consideration for new terms; UCC = changes are valid without consideration.
A written K can be modified orally. But a modification must be in writing if the K AS MODIFIED falls within the SOF. |
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Article 2: PERFORMANCE
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Article 2 generally requires a PERFECT TENDER--the delivery and condition of the goods must be exactly as promised in the K.
--Obligation of good faith --Seller's obligation of tender and delivery --Buyer's obligation to pay --Buyer's right to inspect |
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Condition to Performance
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"Condition" normally means EITHER: (i) an event or state of the world that must occur or fail to occur BEFORE a party has a duty to perform; or (ii) an event or state of the world the occurrence or nonoccurrence of which RELEASES a party from his duty to perform.
A condition is a "promise modifier." There can be no breach of promise until the promisor is under an immediate duty to perform. |
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Condition to Performance: Has the condition been excused?
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A duty of immediate performance with respect to a conditional promise does not become ABSOLUTE until the conditions (i) have been PERFORMED, or (ii) have been LEGALLY EXCUSED.
--Excuse of condition by hindrance or failure to cooperate --Excuse of condition by actual breach --Excuse of condition by anticipatory repudiation (NOTE: Anticipatory repudiation only applies if there is a bilateral K with executory (unperformed) duties on both sides). |
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NON-PERFORMANCE: Effect of Anticipatory Repudiation
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In the case of an anticipatory repudiation, the nonrepudiating party has 4 alternatives:
1) treat the anticipatory repudiation as a total repudiation and sue immediately; 2) suspend his own performance and wait to sue until the performance date; 3) treat the repudiation as an offer to rescind and treat the K as discharged; or 4) ignore the repudiation and urge the promisor to perform. |
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NON-PERFORMANCE: Prospective Inability or Unwillingness to Perform
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Prospective failure of condition occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. In such a case, the innocent party is allowed to suspend further performance on her side until she receives ADEQUATE ASSURANCES that performance will be forthcoming.
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NON-PERFORMANCE: Excuse of Condition by Substantial Performance
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Generally, the condition may be excused if the party has rendered substantial performance.
--arises if the breach is minor --not applied if breach was "willful" --damages will be offset by incomplete performance. |
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NON-PERFORMANCE: "Divisibility of K"
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If a K is divisible and a party performs one of the units of the K, he is entitled to the agreed-on equivalent for that unit even if he fails to perform the other units.
What is a "DIVISIBLE" K? (3 tests must be concurrently satisfied to make a K divisible): 1) the performance of each party is divided in to 2 or more parts under the K; 2) the number of parts due from each party is the same; and 3) the performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party. |
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NON-PERFORMANCE: Excuse of Condition by Waiver or Estoppel
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One having the benefit of a condition under a K may indicate by WORDS OR CONDUCT that she will no insist on that condition's being met. Consideration is not required for a valid waiver of condition.
Reliance of waiver leads to estoppel. However, absent detrimental reliance, the promise to waive a condition may be retracted at any time BEFORE the other party has changed his position to his detriment. |
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NON-PERFORMANCE: Has the absolute duty to perform been discharged?
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Once it is determined that a party is under an immediate duty to perform, the duty to perform must be discharged:
1. Discharge by Performance 2. Discharge by Tender of Performance 3. Discharge by Occurrence of Condition Subsequent 4. Discharge by Illegality 5. Discharge by Impossibility, Impracticability, or Frustration |
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NON-PERFORMANCE: Discharge by Impossibility
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Contractual duties will be discharged if it has become impossible to perform them.
Impossibility is an "objective" standard (i.e., duties could not be performed by anyone). |
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NON-PERFORMANCE: Discharge by Impracticability
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The TEST for a finding of impracticability is that the party to perform has encountered:
a) EXTREME AND UNREASONABLE difficulty and/or expense; and b) Its nonoccurrence was a BASIC ASSUMPTION of the parties. |
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NON-PERFORMANCE: Discharge by Frustration
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Frustration will exist if the purpose of the K has become valueless by virtue of some supervening event not the fault of the party seeking discharge.
Requirements for Frustration: 1) There is some SUPERVENING ACT or event leading to the frustration; 2) At the time of entering into the K, the parties DID NOT REASONABLY FORESEE the act or event occurring; 3) The PURPOSE of the K has been completely or almost completely DESTROYED by this act or event; and 4) The purpose of the K was realized by BOTH PARTIES at the time of making the K. |
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NON-PERFORMANCE: Discharge by Rescission
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Rescission will serve to discharge contractual duties. Rescission may be either mutual or unilateral.
MUTUAL: The K may be discharged by an express agreement between the parties to rescind. K must be executory on both sides. UNILATERAL: If the K is unilateral (only one party owes an absolute duty), a K to mutually rescind where one party still has a duty to perform will be INEFFECTIVE. For effective rescission, the rescission promise must be supported by one of the following: 1) An offer of NEW CONSIDERATION by the nonperforming party; 2) Elements of PROMISSORY ESTOPPEL (i.e., detrimental reliance); or 3) Manifestation of an INTENT by the original offeree to make a gift of the obligation owed her. |
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NON-PERFORMANCE: Discharge by OTHER METHODS
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--Partial discharge by Modification of K
--Discharge by Novation --Discharge by Cancellation --Discharge by Release --Discharge by Substituted K --Discharge by Account Stated (final balance due) --Discharge by Lapse --Running of Statute of Limitations (but, only judicial remedies may be barred; the running of the statute does not discharge the duties). |
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NON-PERFORMANCE: Discharge by Accord & Satisfaction
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A K may be discharged by an accord and satisfaction.
ACCORD = an agreement in which one party to an existing K agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing K, some other, different performance. SATISFACTION = the performance of the accord agreement. Its effect is to discharge not only the original K, but also the accord K as well. |
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1. Ks Essay Checklist
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"Armadillos From Texas Play Rap, Eating Tacos."
A -- Applicable Law F -- Formation of Ks T -- Terms of the K P -- Performance R -- Remedies for Unexcused Nonperformance E -- Excuse of Nonperformance T -- Third-Party Problems |
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MATERIAL BREACH: Determining Materiality of Breach
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Courts look at:
1) The amount of benefit received by the nonbreaching party; 2) The adequacy of compensation for damages to the injured party; 3) The extent of part performance by the breaching party; 4) Hardship to the breaching party; 5) Negligent or wrongful behavior of the breaching party; and 6) The likelihood that the breaching party will perform the remainder of the K. |
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Art. 2: PERFECT TENDER RULE
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If goods or their delivery fail to conform to the K in ANY WAY, the buyer generally may reject all, accept all, or accept any commercial units and reject the rest.
Seller has a right to CURE. |
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Art. 2: PERFECT TENDER RULE -- Right to Reject Cut off by Acceptance
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A buyer's right to reject is generally cut off by acceptance. Under Art. 2, a buyer accepts when:
(i) After reasonable opportunity to inspect the goods, she INDICATES TO THE SELLER THAT THEY CONFORM to the requirements or that she will keep them even though they fail to conform; (ii) She FAILS TO REJECT within a reasonable time after tender or delivery of the goods or fails to seasonably notify the seller of her rejection; or (iii) She does any ACT INCONSISTENT WITH THE SELLER'S OWNERSHIP. |
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Art. 2: PERFECT TENDER RULE -- Right to Revoke After Acceptance
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The buyer may revoke her acceptance if the goods have a defect that SUBSTANTIALLY IMPAIRS their VALUE to her AND:
(i) She accepted them on the REASONABLE BELIEF THAT THE DEFECT WOULD BE CURED and it has not been; or (ii) She accepted them because of the DIFFICULTY OF DISCOVERING DEFECTS or because of the SELLER'S ASSURANCE THAT THE GOODS CONFORMED to the K. Revocation of acceptance must occur WITHIN A REASONABLE TIME after the B discovers or should have discovered the defect; and BEFORE ANY SUBSTANTIAL CHANGE IN THE GOODS OCCURS that is not caused by a defect present at the time the seller relinquished possession. |
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Art. 2: Perfect Tender Rule Exception -- INSTALLMENT Ks
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In an installment K situation, an installment can be rejected only if the nonconformity SUBSTANTIALLY IMPAIRS the value of that installment AND CANNOT BE CURED. In addition, the whole K is breached only if the nonconformity SUBSTANTIALLY IMPAIRS the value of the ENTIRE K.
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REMEDIES: Specific Performance
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SP is an equitable remedy. If the legal remedy is inadequate, the nonbreaching party can seek SP, which is an order from the court to the breaching party to perform or fact contempt of court charges.
In Ks for the sale of GOODS, look for unique goods such as ANTIQUES, ART, or other CUSTOM MADE items. Courts will grant SP for covenants not to compete if: (i) the covenant is necessary to protect a legitimate interest; (ii) it is reasonable as to its geographic scope or duration; and (iii) the covenant does not harm the public. |
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REMEDIES: Equitable Defenses to SP
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LACHES -- a claim that the P has delayed bringing the action and that the delay has prejudiced the D.
UNCLEAN HANDS -- a claim that the party seeking SP is guilty of wrongdoing in the transaction being sued upon. SALE TO A BFP -- a claim that the subject matter has been sold to a person who purchased for value and in good faith |
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REMEDIES: Reclamation
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Right of an unpaid seller to get its goods back.
Key facts: (i) the B must have been INSOLVENT at the time that it received the goods; and (ii) the S demands return of goods within 10 days of receipt (NOTE: this becomes a "reasonable time" rule if before delivery there had been an express representation of solvency by the buyer), and (iii) the B still has goods at the time of demand. |
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DAMAGES
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1) COMPENSATORY DAMAGES:
a) EXPECTATION Damages b) Reliance Damage Measure c) Consequential Damages d) Incidental Damages 2) PUNITIVE DAMAGES (NOT awarded in Ks) 3) NOMINAL DAMAGES (e.g., $1) 4) LIQUIDATED DAMAGES |
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DAMAGES: Compensatory Damages in General
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The usual goal of damages for breach of K is to "put the nonbreaching party where she would have been had the promise been performed."
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DAMAGES: Expectation Damages
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Standard measure of damages; based on an "expectation" measure, i.e., sufficient damages for her to buy a substitute performance.
BENEFIT OF THE BARGAIN. |
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DAMAGES: Reliance Measure
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If P's damages are too speculative to measure (like lost profits), the P may elect to recover damages based on the "reliance" measure rather than an expectation measure.
Reliance damages award the P the cost of her performance; i.e., they are designed to put the plaintiff in the position she would have been in had the K never been performed. |
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DAMAGES: Consequential Damages
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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 sales of GOODS, only the BUYER can recover consequential damages. |
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DAMAGES: Incidental Damages
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Incidental damages include expenses reasonably incurred by the B in inspection, receipt, transportation, care, and custody of the goods rightfully rejected and other expenses reasonably incident to the Seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the Buyer's breach.
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DAMAGES: Liquidated Damages
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The parties to a K may stipulate what damages are to be paid in the event of a breach. Enforceable, so long as:
(i) Damages for K breach must have been DIFFICULT TO ESTIMATE OR ASCERTAIN AT THE TIM ETHE K WAS FORMED; and (ii) The amount agreed on must have been a REASONABLE FORECAST (if damages are too high, courts construe this as a penalty and will NOT enforce the provision) |
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DAMAGES: Article 2
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1) SELLER BREACHES, BUYER KEEPS THE GOODS: FMV if perfect - FMV as delivered
2) SELLER BREACHES, SELLER HAS THE GOODS: Market price at time of discovery of the breach - K price (OR replacement price - K price) 3) BUYER BREACHES, BUYER KEEPS THE GOODS: K price 4) BUYER BREACHES, SELLER HAS THE GOODS: K price - resale price (AND, in some situations, provable lost profits) |
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DAMAGES: Restitution in Quasi-K
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Measure of restitution is the Value of the benefit conferred. Restitution may be available in a quasi-K action when a K was made but is unenforceable and unjust enrichment otherwise would result. Restitution may be available if:
1) The P has CONFERRED A BENEFIT on the D by rendering services or expending properties; 2) The P conferred the benefit with the REASONABLE EXPECTATION OF BEING COMPENSATED for its value; 3) The D KNEW OR HAD REASON TO KNOW of the P's expectation; and 4) The D would be UNJUSTLY ENRICHED if he were allowed to retain the benefit w/o compensating the P. |
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RESCISSION
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Rescission is a remedy where the original K is considered voidable and rescinded. Parties are left as though no K had ever been made. Grounds for rescission must have occurred either before or at the time the K was entered into. Grounds include:
(i) MUTUAL MISTAKE of a material fact; (ii) UNILATERAL MISTAKE if the other party knew or should have known of the mistake; (iii) UNILATERAL MISTAKE if the hardship by the mistaken party is so extreme it outweighs the other party's expectations under the K; (iv) MISREPRESENTATION OF FACT OR LAW by either party as to a material factor in the negotiations that were relied upon; and (v) OTHER GROUNDS, such as duress, undue influence, illegality, lack of capacity, and failure of consideration. |
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REFORMATION
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Reformation is the remedy whereby the writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties. A reformation action is usually based on mutual mistake, but may also be possible for a unilateral mistake where the party who knows of the mistake did not disclose it and when the writing is incorrect because of misrepresentation.
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Statute of Limitations under the UCC
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For sales Ks, the UCC provides a FOUR YEAR statute of limitations period. The parties may shorten the period by agreement by no less than ONE YEAR, but they cannot lengthen it.
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THIRD PARTY BENEFICIARY Rules
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3rd Party Beneficiary: NOT a party to the K. BUT, able to enforce K others made for her benefit if it vested.
Intended/Incidental Beneficiaries: Only intended beneficiaries have K law rights. Intent of parties to K determines whether intended or incidental. WHO CAN SUE WHOM? 1) Beneficiary can recover from Promisor 2) Promisee can recover from Promisor 3) Beneficiary CANNOT recover from Promissee 4) Limited Exception: Creditor Beneficiary CAN recover from Promisee, BUT ONLY on a pre-existing debt. DEFENSES: If the Third Party Beneficary sues the Promisor, the Promisor can assert any defense that he would have had if sued by the Promisee. |
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ASSIGNMENT
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An assignment is a transfer of rights under a K.
Generally, all contractual rights may be assigned. EXCEPTIONS: (i) an assignment that would SUBSTANTIALLY CHANGE the obligor's duty or risk; (ii) an assignment of future rights to ARISE FROM FUTURE Ks; and (iii) an assignment PROHIBITED BY LAW. A clause PROHIBITING assignment of the K will be construed as barring only delegation of the assignor's duties. A clause prohibiting the right to assignment generally does not BAR assignment, but merely gives the obligor the right to sue for damages. If K provision says assignment will make the K VOID (invalidation), then it will bar assignment. |
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ASSIGNMENT: Multiple Assignees
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1. GRATUITOUS ASSIGNMENTS: Last assignee generally wins (but ALL the assignments must be gratuitous for this to apply)
2. ASSIGNMENTS FOR CONSIDERATION: First assignee for consideration wins. (remember: a mere "peppercorn" will suffice for consideration) |
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DELEGATION of Duties
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Delegations are permitted unless either:
(i) the K prohibits delegations or prohibits assignments; or (ii) it is a "personal services K" that calls for VERY SPECIAL skills. |
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OFFER: Termination by Operation of Law
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The following events will terminate an offer by operation of law:
1) DEATH OR INSANITY OF EITHER PARTY (unless the offer is of a kind the offeror could not terminate; e.g., an option supported by consideration). Death or insanity need NOT be communicated to the other party; 2) DESTRUCTION of the proposed contract's SUBJECT MATTER; or 3) SUPERVENING ILLEGALITY. |
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OFFER (2)
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An offer is:
(1) a promise, undertaking, or commitment; (2) with definite and certain terms; and (3) must be communicated to an identifiable offeree. To be valid, an offer must clearly demonstrate a manifestation of intent to be bound such that a reasonable person would construe it as inviting acceptance. |
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ACCEPTANCE: UCC
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Under the UCC, acceptance by any reasonable means is valid.
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UCC 2-201: Confirmatory Memo
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UCC 2-201 provides that a CONFIRMATORY MEMO detailing orally-agreed upon terms by one merchant will suffice if not objected to within 10 DAYS.
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Modification of K Terms under UCC 2-209
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Under UCC 2-209, modifications do not require consideration so long as they are made in GOOD FAITH.
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ANTICIPATORY REPUDIATION (short rule)
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An anticipatory repudiation occurs when a party to the K, PRIOR to the time set for PERFORMANCE of his promise, indicates an unwillingness to perform. This repudiation must be UNEQUIVOCAL.
Non-breaching party may make demand for further assurances. If UNEQUIVOCAL AR, non-breaching party may: (1) sue immediately; (2) suspend performance and wait to sue until performance is due; (3) treat the breach as a rescission and void the K; or (4) take no legal action and encourage performance. |
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COMMERCIAL IMPRACTICABILITY
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Under the doctrine of commercial impracticability, the promisor is RELEASED from his obligation on the grounds of an UNFORESEEABLE SUPERVENING EVENT that INCREASES THE COST OF PERFORMANCE OR DAMAGES LIABILITY beyond those originally anticipated.
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