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165 Cards in this Set
- Front
- Back
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Offer
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2 Elements:
(1) Outward manifestation of intent to form a contract, AND (2) signal that acceptance will conclude the deal Objective standard Contrast invitations for an offer or preliminary negotiations |
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Commercial advertisements
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Generally treated as invitations for offers rather than offers, UNLESS the advertisement identifies the means by which the goods/services will be allocated in the event of excess demand and eliminates the need for further assent from the advertiser
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Reward Offers
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Generally treated as offers for unilateral contract that can be accepted by performance
2 Types: (1) self-limiting - i.e., can only be performed once; (2) open field - i.e., can be performed by more than one |
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Auctions
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General rule is that the bids are offers, and the auctioneer is inviting offers
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Legal Effect of an Offer
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(1) Creates the power of acceptance in an eligible offeree
(2) When an offeree exercises the power of acceptance before that power is terminated, then a legally binding contract is formed |
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Termination of an Offer
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(1) Lapse of time
(2) Death of incapacity of either party (3) Revocation by offeror (4) Rejection by offeree |
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Termination of Offer - Lapse of Time
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Generally terminates after either:
(1) After the time stated in the offer, OR (2) If no time stated, after a reasonable time (which varies based on (a) the circumstances/market conditions, and (b) the degree of urgency communicated by the means of transmission) |
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Face-to-Face Conversation Rule
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An offer made during a face-to-face conversation usually lapses at the end of that conversation
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Termination of Offer - Death/Incapacity of Party
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Will terminate the offer
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Termination of Offer - Revocation of Offeror
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Under American rule, offeror is free to revoke an outstanding offer at any time for any reason, as long as it:
(1) occurs prior to acceptance, AND (2) is effectively communicated |
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Direct Revocation and Indirect Revocation
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Direct revocation - offeror communicates directly with the offeree
Indirect revocation - can occur where: (1) the offeror has taken definite action inconsistent with the intention to enter the proposed contract (i.e., selling to another party), AND (2) the offeree acquires reliable information of the offeror's inconsistent action |
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Revocation of Offer to Multiple Offerees (such as reward, advertisement, etc.)
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Functional Equivalents Rule -Power of acceptance may be terminated by communicating the revocation by advertisement or general notification equivalent to that used for the offer and no better means of notification is reasonably available
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Option Contract
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Three elements required:
(1) an offer (2) subsidiary promise to keep the offer open, AND (3) some valid mechanism for securing enforcement of the subsidiary promise (i.e., consideration Also see UCC Firm Offers |
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UCC Firm Offers
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Merchant can make a firm offer (irrevocable offer), if three elements are met:
(1) the offer is made by a merchant (2) the offer is made in a writing signed by the merchant, AND (3) the offer expressly states by its terms that it will be held open Will be held open for the time specified or, if no time is specified, for a reasonable time, but NEVER LONGER THAN 3 MONTHS, UNLESS the requirements of a common law option contract have been met |
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Revocation of Subcontractor Bids
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Majority rule is where a general contractor uses a subcontractor's bid to formulate his own, an implied option contract is created via promissory estoppel, preventing the subcontractor from revoking his bid despite a lack of consideration to keep the bid open.
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Termination of Offer - Rejection by Offeree
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This can occur by
(1) outright rejection (2) counteroffer (but not a "mere inquiry") OR (3) non-conforming acceptance (mirror image rule - a non-conforming acceptance results in a rejection and a counteroffer) |
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Revival of an Offer
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The maker is master of the offer; ONLY the offeror has the power to revive a rejected offer
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Unilateral Contracts
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Offer that requires acceptance by performance rather than an exchange of promises to perform
NOTE - the Mailbox Rule does NOT apply to Unilateral Contracts, ONLY to bilateral contracts |
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Where it is unclear whether acceptance is meant to be by performance or promise, then
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the offeree is free to accept by either means
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Revocation of Unilateral Contract
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At COMMON LAW, the offeror was free to revoke a unilateral K up until the time the offeree COMPLETED performance
MODERN rule, which is still the minority rule, is that once the offeree BEGINS performance, an option contract is created and the offeror may not revoke; the offeree may complete performance and be entitled to the benefit of the contract |
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Method of Acceptance
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If the offer specifies a method of acceptance, that method must be followed exactly
If the offer is silent regarding acceptance, the offer may be accepted by any REASONABLE method |
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Reasonable Methods of Acceptance
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(1) the means used by the offeror
(2) means customarily used in similar transactions OR (3) a means of communication that is equivalent in expeditiousness and reliability to that used by offeror |
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Acceptance by Silence
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Is valid ONLY where
(1) Offeree takes the benefit of offeror's services with a reasonable opportunity to reject them and with reason to know the offeror's intentions (2) Where offeror has given the offeree reason to understand that acceptance may be communicated by silence AND (3) Where, because of prior dealings or other circumstances, it is reasonable that the offeree should notify the offeror if he does not intend to accept |
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Mailbox Rule
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General rule is that ACCEPTANCES are valid on DISPATCH, but all other correspondence (offers, revocations, rejections, and counteroffers) are effective on RECEIPT
There is an EXCEPTION to this rule where the offeree has first mailed a rejection, but then immediately after mailed an acceptance; under those circumstances the acceptance is NOT valid on dispatch. If the acceptance arrives first, then there is a contract. If the rejection arrives first, the offer is rejected and the subsequently arriving acceptance is treated as a counteroffer. |
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Simultaneous Identical Offers
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Do not create a binding contract. There must be acceptance by one of the parties before a contract is made.
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UCC Acceptance
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Rejects the Mirror Image Rule, and recognizing a binding acceptance in 2 situations: (1) shipment of nonconforming goods, and (2) battle of the forms
Acceptance may be made by any reasonable means unless the terms of the offer state otherwise |
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UCC Seller Acceptance of Buyer's Offer to Purchase
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Can occur in 3 ways:
(1) Promise to ship goods in conformity with the terms (acknowledgment form) (2) Prompt shipment of goods in conformity with the terms of the offer, OR (3) Shipment of NON-CONFORMING GOODS |
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UCC Seller Shipment of Non-Conforming Goods as Acceptance
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Shipment constitutes ACCEPTANCE of the buyer's offer AND likely constitutes a simultaneous BREACH of the resulting contract under the Perfect Tender Rule (discussed later)
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Battle of the Forms: UCC 2-207
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Unless Acceptance is made expressly conditional on the assent to the new/different terms, the acceptance is effective and a contract is formed. 2-207 will govern which terms are included in the contract
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UCC 2-207: If one party is NOT a merchant
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Then additional/different terms are treated as PROPOSALS for addition to the contract, and are not included unless the offeree expressly assents
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UCC 2-207: If BOTH parties are merchants
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Then ADDITIONAL TERMS become part of the contract UNLESS
(1) the offer expressly limits acceptance to the terms of the offer (2) the offeror objects to the additional terms within a reasonable time OR (3) the additional terms would materially alter the contract DIFFERENT terms, however, get the KNOCKOUT RULE, in which both terms are knocked out of the contract and UCC default provisions govern |
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UCC 2-207: Written Confirmations
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Similar rules, but CANNOT make expressly conditional on acceptance of the terms, because a binding contract (the oral contract) already exists
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Lack of Consideration: Illusory Promises
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A promise to perform that leaves performance to the discretion of the promising party is ILLUSORY and thus not enforceable.
Exception (sort of) - valid requirements contracts |
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Gratuitous Promise vs. Gift
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While a gratuitous promise is unenforceable for lack of consideration, a COMPLETED gift cannot be revoked under law of personal property
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Past Consideration
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General rule is that a promise given in exchange for a benefit already conferred will NOT satisfy the consideration requirement
EXCEPTIONS: (1) promise to pay a debt barred by the statute of limitations (2) promise to pay a debt discharged in bankruptcy (both ONLY enforced up to the amount promised, not to the full amount of the debt) |
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Promissory Estoppel
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Elements:
(1) Promise (2) Foreseeable Reliance on that promise (3) Actual Reliance on that promise (4) Injustice without enforcement (some states balance the harms, and enforce if harm to promisee of non-enforcement is greater than harm of enforcement to promisor) |
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Statute of Frauds: Categories of Agreements Covered
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MY LEGS
6 Categories of Contracts governed by Statute of Frauds: (1) Marriage (2) Year (greater than one year) (3) Land (4) Executor/administrator to answer for duty of decedent (5) Guarantee/Suretyship (6) Sale of goods for $500 or more |
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Statute of Frauds: Contracts for Greater than One Year
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Year is measured from the date of formation, NOT the date of the beginning of performance
If no dates specified, question is whether it is at all POSSIBLE for the contract to be completed within a year Majority rule - LIFETIME contracts do not fall within the statute of frauds, because death is possible within 1 year, and the contract would thus be fully performed |
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Statute of Frauds: Guarantee/Suretyship Agreements
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General rule is that promises to answer for the debt of a 3rd party are subject to the Statute of Frauds
EXCEPTIONS: (1) Where original debtor is DISCHARGED based on promise by 3rd party to pay, that agreement is NOT within SofF (2) Main Purpose exception - where purpose of the promise is to protect the guarantor's OWN ECONOMIC INTERESTS, rather than the interests of the debtor, the contract is NOT within the SofF |
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Satsifaction of Statute of Frauds
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General rule is that the contract will not be enforced UNLESS:
(1) There is a SIGNED WRITING (2) SIGNED by the party against whom enforcement is sought |
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Statute of Frauds: Writing Requirement
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Need not be a contract as such, could be a written acknowledgement of the terms, a memorandum, a letter, a written offer, etc.
REQUIRED TERMS: (1) Identity of the parties (2) nature and subject matter of the transaction AND (3) the essential terms of the unperformed promises In land cases, must be specific description of the land |
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Statute of Frauds: Signature Requirement
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Actual signature NOT required; any mark, symbol, typed, letterhead, etc. will suffice if used with the intention to AUTHENTICATE the writing
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Statute of Frauds: Multiple Documents
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May tack together different documents.
If all signed or explicitly incorporate unsigned documents by reference OR If unsigned, unincorporated, AND (1) there is at least one signed writing unambiguously establishing a contractual relationship, (2) the signed and unsigned documents clearly refer to the same subject matter, AND (3) there is CLEAR AND CONVINCING EVIDENCE of acquiescence to the unsigned documents by the party against whom enforcement is sought |
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Statute of Frauds: Satisfaction by Performance
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(I) Land sale contracts - part performance will make an oral contract for sale of land enforceable in 2 situations:
(1) Buyer vs. Seller, NOT seller vs. buyer (2) Action for SPECIFIC PERFORMANCE, NOT money damages Part performance requires showing some or all of the following: (1) payment of some/all of purchase price; (2) taking possession, and (3) making substantial improvements to the property (II) One-Year Contracts - full performance will make the contract enforceable, but PART performance will NOT (recovery for PART performance may be had in quantum meruit) (III) Sale of goods (see UCC statute of Frauds |
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Statute of Frauds: Enforcement where Statute NOT Satisfied
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(1) Restitution -
(2) Quantum Meruit (3) Promissory Estoppel (NOT IN OHIO) |
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UCC Statute of Frauds
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Applies to goods valued at $500 or more, and requires:
(1) a writing (2) signed by party against whom enforcement is sought AND (3) is sufficient to indicate that a contract for sale has been made between the parties REQUIRED TERMS: The ONLY required term is the QUANTITY term (or other language that provides an UNAMBIGUOUS basis for measuring quantity, including "output" or "requirements") |
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UCC Statute of Frauds: Ways to Satisfy
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(1) Signed writing
(2) Merchant's Confirmation (3) In-Court Admission (in a pleading or testimony of any kind) (4) Partial Performance (for goods for which payment has been made AND accepted or which have been received AND accepted; if divisible, then ONLY those delivered/paid for, and not the full K) (5) Substantial Reliance by Seller of Specially Manufactured Goods |
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UCC Statute of Frauds: Satisfaction by Merchant Confirmation
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May be satisfied as between 2 merchants where 1 sends a confirmation of an oral agreement and the recipient fails to object to the confirmation in a timely fashion
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UCC Statute of Frauds: Satisfaction by Substantial Reliance by Seller of Specially Manufactured Goods
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Five Elements:
1. Goods are specially manufactured for buyer 2. goods are not suitable for sale to others in normal course of business 3. seller has substantially begun to manufacture or committed to procure goods 4. actions undertaken to begin manufacture are done under circumstances indicating goods are for the buyer AND 5. actions undertaken to begin manufacture occurred BEFORE seller received notice of buyer's revocation |
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Effect of a Statute of Frauds Defense
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ONLY effect is to defeat enforcement of the K against the non-signing party
The contract MAY be valid and enforceable for other purposes: (1) To establish an element of another legal claim (2) To establish a defense to a legal claim apart from breach (3) To prove value of services rendered |
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UCC Implied Warranties
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(1) Warranty of Title and Against Infringement
(2) Warranty of Merchantability (3) Warranty of Fitness for a Particular Purpose |
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Warranty of Title and Against Infringement
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Implied warranty of good title to goods, and that no liens or other security interests attach to the goods
This warranty CAN be excluded or modified by: (1) specific language OR (2) circumstances giving buyer reason to know that the seller does not claim unencumbered title Also warrants that goods will be free from valid claims of infringement, EXCEPT where seller manufactures goods according to buyer's own specifications |
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Warranty of Merchantability
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If the seller is a merchant with respect to goods of the kind sold, the warranty guarantees fitness for the ordinary purposes for which those goods would be used
MAY be excluded by language that MENTIONS "MERCHANTABILITY"; but NEED NOT BE WRITTEN. If it IS in writing, must be CONSPICUOUS |
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Warranty of Fitness for Particular Purpose
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Warranty grants that goods are fit for a particular purpose where the seller has REASON TO KNOW:
(1) the particular purpose for which the goods are being bought, OR (2) the buyer is relying on the seller's skill or judgment to select or furnish reasonable goods MAY be excluded by language that is IN WRITING and CONSPICUOUS |
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UCC Express Warranties
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Created by:
(1) Any affirmation of fact or promise made by seller (2) any description of the goods that becomes part of the basis for the bargain creates a warranty that the goods will conform to the description (3) any sample or model that is part of the basis for the bargain creates a warranty that the goods will conform to the model NO formal requirements for language, but a MERE AFFIRMATION OF VALUE of the goods will not create a warranty |
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UCC Missing Terms/Default Terms
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(1) Missing price - default rule is a reasonable price at the time established for delivery
(2) Time term - performance within a reasonable time (3) Place of delivery - default is the seller's place of business |
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Common Law Missing Terms/Default Terms
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(1) Missing price - reasonable value of services RENDERED; i.e., quantum meruit
(2) Missing duration - employment will be considered at will |
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Obligation of Good Faith and Fair Dealing
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Good faith = honesty in fact in the conduct or transaction; and in the case of merchants, honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade
ONLY applicable to performance and enforcement issues, but NOT to bargaining/negotiation issues |
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Obligation of Good Faith and Fair Dealing: Open Price Term
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If price to be fixed by 1 party, must be done in good faith
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Obligation of Good Faith and Fair Dealing: Satisfaction Term
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If party's obligation is complete only when it is done to "satisfaction" of the other party, the other party must make that determination in good faith
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Obligation of Good Faith and Fair Dealing: Open Quantity Term
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Applies to output/requirements contracts
Must be determined in good faith UCC also prohibits any UNREASONABLY DISPROPORTIONATE demand or tender, if there was either (1) a stated estimate or (2) comparable prior outputs/requirements |
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Interpreting Ambiguous Language in a Contract
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Objective meaning typically controls over subjective meaning, EXCEPT:
(1) where one party harbors a subjective meaning and the other party knows or has reason to know of the first party's subjective understanding, then that subjective interpretation will prevail OR (2) where BOTH parties harbor the SAME subjective understanding, then that interpretation will prevail |
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Rule of Contra Proferentem
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If an ambiguous term is included, it will be interpreted AGAINST the party that supplied the term during negotiations or drafting`
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Doctrine of Reasonable Expectations
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Even unambiguous terms MAY be interpreted against the drafting party IF they conflict with the REASONABLE EXPECTATIONS of the other party
This generally applies to boilerplate ONLY, NOT dickered terms Most common example is insurance contracts |
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Trade Usage, Course of Dealing, and Course of Performance
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May NOT be used to CONTRADICT unambiguous terms of the contract, but MAY be used to either:
(1) Fill gaps in the contract OR (2) interpret an ambiguous term Hierarchy of Evidence (from MOST to LEAST important, in the event they conflict) (1) Course of Performance (2) Course of Dealing (3) Trade Usage |
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Parol Evidence Rule
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Generally, governs extrinsic evidence of contract terms that are not contained in the "four corners" of the document
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PER: Integration
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(1) Completely Integrated - the terms within the contract are intended to be the FINAL, COMPLETE, and EXCLUSIVE agreement between the parties
(2) Fully integrated - terms within the contract are intended to be the final discussion OF THOSE TERMS (3) Partial Integration - anything besides COMPLETE INTEGRATION (i.e., if some terms are fully integrated) |
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PER: Evidence of Integration
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(1) Merger clause - most important
(2) Other evidence - (3) Parol and other extrinsic evidence MAY BE ADMISSIBLE on the question of integration |
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PER: Purpose for which Evidence is Introduced
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3 Purposes:
(1) to EXPLAIN OR INTERPRET the terms of the writing; majority rule is that parol evidence is ALWAYS admissible for this purpose (2) to SUPPLEMENT the terms of the writing; parol evidence WILL be admitted for this purpose UNLESS the contract is COMPLETELY INTEGRATED (under UCC, course of performance, trade usage, and course of dealing always admissible, even for completely integrated) (3) to CONTRADICT terms of a writing; parol evidence WILL be admissible UNLESS the terms in question are FULLY INTEGRATED |
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PER: Parol Evidence Rule is NOT Applicable
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(1) Subsequent Agreements
(2) Collateral Agreements (3) Without a VALID, WRITTEN agreement |
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PER: Parol Evidence will NOT be excluded when offered to attack the validity of the underlying agreement
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(1) Failure of oral condition precedent
(2) Absence of consideration (3) Mistake (4) Duress (5) Fraud (6) Reformation (where there was a valid antecedent agreement incorrectly reflected in writing, proved by clear and convincing evidence) |
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UCC Seller's Obligations: Non-Carrier Cases
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(1) In non-carrier cases, i.e. where goods not intended to be transported by common carrier, the seller is obligation to tender delivery-- i.e., to put and hold conforming goods at buyer's disposition and give reasonable notification. Delivery must be tendered at a reasonable hour, and must be kept available for a period reasonably necessary to enable buyer to take possession
Unless otherwise agreed, buyer must furnish facilities reasonably suited to receiving the goods |
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UCC Seller's Obligations: Carrier Cases
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4 Types of Carrier Cases:
(1) Shipment (2) Destination (3) F.O.B. (free on board) (4) F.A.S. (free alongside) |
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Carrier Cases - Shipment Contract
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This is PRESUMED absent agreement to the contrary
Seller is NOT obligated to deliver at a named destination, and does NOT bear the risk of loss (unless specifically agreed to); ONLY obligation is to deliver possession to a carrier and make arrangements for them to be sent to buyer |
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Carrier Cases - Destination Contracts
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Seller HAS agreed to tender goods at a particular destination, and must put and hold the conforming goods at the buyer's disposition at that location
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Carrier Cases - F.O.B.
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Free on board cases
If FOB the seller's place of shipment, seller need only, at his expense and risk, put the goods in the possession of the carrier If FOB the destination, the seller must, at his expense and risk, tender delivery of the goods at the destination |
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Carrier Cases - FAS
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If delivery is free alongside, the seller must deliver the goods alongside the vessel or on a dock designated by buyer and obtain and tender a RECEIPT for the goods
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UCC Buyer's Obligations
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(1) Tender of Payment (unless otherwise agreed, tender of payment is a condition to the seller's duty to tender and complete delivery;
(2) Inspection of goods (right to inspect before acceptance or payment, unless K requires payment before inspection and nonconformity is not obvious); payment before permitted inspection will amount to acceptance (3) Risk of loss (transferred to buyer if goods shipped by common carrier, or custody given to bailee to be delivered without being moved |
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Modification of Contract: Common Law
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Pre-Existing Duty Rule - promise to increase compensation for same performance is unenforceable because there is no consideration for the promise
EXCEPTIONS: (1) Mutual modification - if both parties agree to a different performance and different compensation, and the difference in performance is not mere pretense (2) Unforeseen circumstances - where a promise of increased compensation is given in exchange for performance that has been rendered substantially more burdensome than reasonably anticipated by the parties, then pre-existing rule will not apply |
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Modification of Contract: UCC
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Pre-existing Duty Rule is ABOLISHED, and a modification does NOT require additional consideration
The ONLY requirement is that the modification be made in GOOD FAITH Defense of duress is available against modifications |
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Modification of Contract with No Oral Modification Clause
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Modifications can generally be oral unless SofF applies
Common law: oral modification clauses invalid, and even today many courts will not enforce such a clause where there is RELIANCE on an oral modification UCC: oral modification clauses are PRESUMED valid, but oral modification MAY be enforceable if there is (1) reliance, or (2) course of performance consistent with the modification |
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Unilateral Mistake
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Will NOT excuse performance UNLESS
(1) the other party knew or had reason to know of the mistake OR (2) the mistake was based on a clerical error (and not the result of extreme negligence on the part of the mistaken party) |
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Mutual Mistake
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Contract will be VOIDABLE by the disadvantaged party where
(1) the fact about which the parties were mistaken was ESSENTIAL to the K (2) BOTH parties were mistaken (3) the disadvantaged party did NOT BEAR THE RISK of the mistake under the agreement |
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Impossibility
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Excuses BOTH parties from their obligations under a contract of the performance of EITHER party has been rendered impossible by events occurring after the K was formed
2 Requirements: (1) OBJECTIVE impossibility (not subjective, i.e. must be actually impossible, not merely unfeasible) AND (2) the occurrence of the contingency must NOT have been known to the parties at the time of contracting (either it happened after, or they learned of it after) |
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Impracticability
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Promisor MAY be excused from performance where unforeseen difficulties make performance prohibitively expensive or otherwise extremely burdensome
The following elements would be required: (1) Unforeseen contingency (2) Risk not assumed or allocated to the burdened party (3) Increased cost was far beyond what either party had anticipated UCC lists some contingencies that trigger impracticability, namely extreme shortages of raw materials or supplies that are caused by (1) war or embargo, (2) local crop failure, or (3) unforeseen shutdown of major source of supply |
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Frustration of Purpose
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May excuse a party from its contractual obligations where the contingency DRAMATICALLY reduces the value of performance to the receiving party (example is the London case to watch royal parade)
Modern Test: 3 Elements (1) Principal purpose of the contract is frustrated (2) there is substantial frustration AND (3) non-occurrence of the event was a basic assumption on which the contract was based |
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Excusing Performance by Agreement
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Parties can agree to discharge eachother's remaining duties under the contract. Consideration will be provided in the form of each party's discharge of the other's duty
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Accord and Satisfaction
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Accord - an agreement under which the obligee promises to accept SUBSTITUTE performance in satisfaction of an existing duty
Satisfaction - the PERFORMANCE of the accord The duty is ONLY discharged on the occurrence of SATISFACTION; the ACCORD does NOT discharge the original duty MUST be consideration for the accord |
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Accord and Satisfaction: Existing Debt
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Where a creditor agrees to accept part payment of an existing debt that the debtor tenders in full satisfaction of the debt will ONLY be considered adequate consideration for an accord and satisfaction where there is a bona fide or good faith dispute as to the debt
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Anticipatory Repudiation
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Occurs when, prior to the time performance is due, a party announces his intent NOT to perform, or the circumstances make such an intent reasonably clear to the aggrieved party
Aggrieved party has the option to immediately treat the anticipatory repudiation as a breach and be entitled to remedies as such |
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Adequate Assurances
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If anticipatory repudiation is not established but there are REASONABLE GROUNDS FOR INSECURITY, the insecure party may demand adequate assurance of performance
Under UCC, the assurance MUST be in writing (Restatement requires either oral or in writing) Failure to respond with reasonable assurances constitutes a repudiation |
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Suspension of Performance by Insecure Party
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Upon making a demand for assurances, a party with reasonable grounds for insecurity may suspend its own performance so long as suspension is: (1) commercially reasonable, and (2) the insecure party has not yet received the agreed upon return for the suspended performance
Insecure party may also suspend performance where the performing party (1) does not respond to request for assurances within a reasonable time (30 days under UCC), OR (2) does not respond in a manner that provides reasonable assurance of performance |
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Rights of the Aggrieved Party upon Repudiation
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Can treat as a breach and either
(1) cancel the K and terminate all rights and obligations under it, OR (2) bring an action for damages or specific performance This can be done immediately or after performance was due Party may not continue to perform after repudiation if performance would increase his damages |
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Retraction of Repudiation
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Party may retract a repudiation UNLESS the other party:
(1) has acted in reliance (2) positively accepts repudiation by signalling this to the breaching party, OR (3) commences suit |
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Conditions: Promissory vs. Pure Conditions
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Promissory Condition - where the contract performance is conditioned on the occurrence of the promised performance by the other party
Pure Conditions - performance is conditioned on the occurrence of events beyond the control of either party |
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Conditions: Express vs. Implied Conditions
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Express - expressly included in the terms of the contract
Implied - those created under CL or UCC to address order of performance and rights on breach |
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Failure of an Express Condition
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Generally excuses further performance, UNLESS
(1) the condition is WAIVED (2) the condition fails as a result of bad faith conduct on the part of the benefitted party (3) at the court's discretion to avoid forfeiture (great loss to one or both parties) |
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Failure of an Implied Condition: Material Breach vs. Substantial Performance
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Court can treat the breach as MATERIAL, in which case further performance will be excused, or treat it as SUBSTANTIALLY PERFORMED, in which cacse the aggrieved party will NOT be discharged of his obligation (particularly applies to construction contracts)
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Material Breach: Total vs. Partial
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If TOTAL, tthe claim is for damages based on ALL of the injured party's remaining rights to performance
If PARTIAL, claim for damages based on ONLY part of the remaining rights |
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If contract is divisible
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In other words, if contract occurs in installments over time, then failure of a condition that is not excused may be severable
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UCC Conditions
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No difference between express/implied conditions; both subsumed under Perfect Tender , under which EVERY contractual obligation is treated as an express condition, and a breach of the performance obligation by the seller will relieve payment obligation of the buyer
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Perfect Tender Rule
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Gives buyer a course of action for breach if the goods or the tender of delivery fail IN ANY RESPECT to conform to the contract
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Buyer's Remedies for Seller's Failure under Perfect Tender Rule
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3 Options:
(1) REJECT the goods and sue for breach (within reasonable time and notify seller; must keep the goods for a reasonable time sufficient for seller to remove them, and if seller fails to do so, buyer can keep the goods on seller's account, or resell them for seller's account; if resold, seller is entitled to reasonable expenses) (2) ACCEPT the goods and pay the contract price after reasonable opportunity to inspect (signified through stating to the seller that the goods conform, taking the goods in spite of non-conformance, failing to make an effective rejection, or taking any action inconsistent with seller's ownership of the goods) OR (3) ACCEPT PART AND REJECT PART of the goods |
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Buyer may revoke acceptance
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ONLY where the nonconformity substantially impairs the value of the goods and he was initially unaware of the nonconformity due to difficulty of discovery or acceptance was predicated on assurances of conformity or that nonconformity would be cured
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Seller's Ability to Cure
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(I) If seller makes nonconforming tender but time of performance has not yet expired, seller MAY SUBSTITUTE conforming goods IF:
(1) seller gives reasonable notice of intent to substitute AND (2) seller makes conforming delivery within delivery period in K (II) If seller makes nonconforming tender and had REASONABLE GROUNDS to believe the delivery would be acceptable to buyer, then he MAY SUBSTITUTE conforming delivery IF: (1) seller gives buyer reasonable notice of intention to substitute, AND (2) seller makes conforming delivery within reasonable time (even if that time is AFTER the contract period for delivery) |
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Perfect Tender Rule and Installment Ks
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If nonconforming tender substantially impairs the value of the ENTIRE contract, then there is a breach of the whole K
Otherwise, if a breach substantially impairs the value of THAT INSTALLMENT, seller cannot cure, and buyer may reject that installment; if value is NOT substantially impaired, seller may cure if gives reasonable assurance |
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Defenses
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(1) Incapacity (infancy, mental incompetence)
(2) Misrepresentation (3) Duress (4) Undue Influence (5) Unconscionability (6) Public Policy |
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Defenses: Infancy
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If a person under the age of 18 at the time of contracting enters a contract, the contract will be VOIDABLE at the option of the minor
Contract is still enforceable against any party OTHER THAN the minor Upon exercise of power of avoidance, minor is OBLIGATED to return any goods received or any proceeds from the sale of any goods received (minor is NOT responsible for damage to the goods, and if value received was a service or other non-returnable item, then no return is required) |
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Infancy and Ratification
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Upon reaching age of maturity, the minor may RATIFY the contract, thereby making it fully enforceable
SILENCE is NOT sufficient to constitute ratification UNLESS the minor continues to take advantage of the goods/svcs after reaching age of maturity (minority rule is that a contract is ratified if minor fails to disaffirm within a reasonable time) |
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Exceptions to Infancy Defense
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(1) Contracts for NECESSARIES - still voidable, BUT the other party has right to recover REASONABLE VALUE of goods/services provided in quasi-contract (if minor paid MORE than reasonable value, he is entitled to a refund)
(2) Minority rule - misrepresentations by minor |
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Defenses: Mental Incompetence
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Incompetent IF:
(1) declared/judged incompetent (2) cognitive defects - incapable of understanding in a reasonable manner the nature and consequences of the transaction (3) volitional defects - person is unable to act in a reasonable manner with respect to the transaction AND the other person has reason to know of this defect Majority rule - Ks are voidable Minority rule (2nd Restatement) - Ks are void May ratify if later become mentally competent MUST pay REASONABLE VALUE of any benefits retained as a result of the K Same rules as minors regarding NECESSARIES |
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Defenses: Misrepresentation
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Can be both a 'sword' (basis for relief) and 'shield' (defense to relief)
Misrepresentations are untrue statements or assertions that relate to EXISTING FACTS |
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Types of Misrepresentation
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(1) Fraudulent Misrepresentation
(2) Non-fraudulent misrepresentation (3) Fraudulent Non-disclosure |
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Fraudulent Misrepresentation
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MUST show the following:
(1) Defendant made an assertion that was INCONSISTENT WITH EXISTING FACTS (includes fraudulent conduct, e.g. concealing facts) (2) State of Mind (requires both (a) scienter - knowing the statement was false or knowing that he had no idea whether it was true or false AND (b) intent to mislead) (3) misrepresentation must be MATERIAL to the contract (objective or subjective standard) (4) there must have been REASONABLE RELIANCE on the representation (because of "duty to read", generally not reasonable to rely on an opposing party's characterization of the terms of a written contract) |
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Non-fraudulent Misrepresentation
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Negligent or innocent misrepresentation
SAME elements, minus the mental state, as Fraudulent Misrepresentation; SAME remedies available for both |
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Fraudulent Non-disclosure
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Defendant maintains silence where he has a duty to disclose
Elements: (1) nondisclosure was MATERIAL to the contract, and (2) there was REASONABLE RELIANCE on the nondisclosure |
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Fraudulent Non-Disclosure: When does a duty to disclose exist?
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No general duty of disclosure, but there WILL be a duty to disclose if a party is AWARE of material facts unlikely to be discovered by the other party exercising ordinary care and diligence, AND one of the following is true:
(1) the parties enjoy a relationship of trust and confidence (family, professional-client, etc.) (2) party made an assertion that was true at the time but has since been rendered untrue (3) obligation of good faith would require disclosure |
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Remedies for Misrepresentation
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2 Ways to exercise fraudulent misrepresentation, non-fraudulent misrepresentation, or fraudulent nondisclosure claims:
(1) Avoidance OR (2) Rescission and reliance damages A THIRD option is available ONLY for victims of fraudulent and non-fraudulent misrepresentation: (3) live with the contract and sue for the benefit of the bargain PUNITIVE damages available for fraudulent misrepresentation ONLY, as an intentional tort |
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Defenses: Duress
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3 Elements to modern duress claims:
(1) A threat (2) wrongful in nature (i.e., involves criminal or tortious conduct, or threat to pursue criminal charges, threat to bring civil claims IF IN BAD FAITH, or a BAD FAITH breach of K) AND (3) absence of reasonable choice (usually only an issue if threat is bad faith breach; will be an absence of reasonable choice where there are no reasonably available substitutes, where it would cause the aggrieved party to breach is own contracts, when the alternative of acquiescence and suit for damages would be inadequate to redress the harm) |
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Remedies for Duress
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Contracts under physical compulsion are VOID, and all other forms of duress are VOIDABLE at the option of the aggrieved party
The aggrieved party is entitled to restitution of benefits conferred AND required to return excess value of benefits to the perpetrator |
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Defenses: Undue Influence
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2 Elements
(1) Unfair persuasion AND (2) other party was VULNERABLE to such persuasion Unfair persuasion shown by discussion of transaction at unusual/inappropriate time or place, insistent demands that the transaction be finished immediately, extreme emphasis on untoward consequences of delay, use of multiple persuaders, absence of 3rd party advisers to transaction, statements that there is no time to consult advisers or attorneys Vulnerable party may be established by: metal infirmity that falls short of mental incompetence, recent trauma, or where vulnerable party is reliant on the other party because of a relationship of trust and confidence |
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Remedies for Undue Influence
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Contract is VOIDABLE at option of the aggrieved party, and aggrieved party is entitled to restitution and must compensate for excess value of benefits conferred by other party
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Defenses: Unconscionability
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2 Elements:
(1) Procedural Unconscionability (bargaining process created absence of meaningful choice, i.e. near-miss cases of mental deficiency, language barrier, etc., absence of bargaining power, or fine print terms) AND (2) Substantive Unconscionability (contract terms are unreasonably unfavorable to the aggrieved party, i.e. grossly excessive price, grossly disproportionate consequences for breach, provisions binding on only one party, provisions that are grossly unfair) |
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Remedies for Unconscionability
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Court may
(1) refuse to enforce the K (2) excise the offending clause(s) and enforce the remainder of the K OR (3) limit the application of the offending clause to avoid any unconscionable result |
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Defenses: Public Policy
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Available in 4 contexts:
(1) subject matter of the K is specifically prohibited by law (2) K is formed for the purpose of committing a crime or violating a regulation (3) K performance would not be a crime but would constitute a tort (4) K performance would violate certain values and freedoms designated by the state or jurisdiction It does NOT matter which party attempts to avoid enforcement; court will NOT enforce contracts against public policy, even if the party attempting to avoid enforcement is "culpable" in attempting to engage in conduct against public policy |
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Sources of Public Policy
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(1) Legislation
(2) Judicial decisions |
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Specific Examples of Public Policy Clauses: Non-competes, Bribery, Sale of goods for unlawful use, limited liability, unlicensed goods/services
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(1) Noncompete agreements - enforceable where REASONABLE in duration and scope
(2) Bribery - public policy defense available to victim of bribe (3) Sale of goods for unlawful use - PP defense available to either party where seller knows or should know of intended use (4) limited liability provisions - generally NOT permitted to limit liability for reckless or intentional torts, ONLY for negligence (5) Unlicensed goods/svcs - may be unenforceable |
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Monetary Remedies for Breach: 4 Types
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(1) Expectation Damages
(2) Reliance Damages (3) Restitution Damages (4) Liquidated Damages |
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Expectation Damages
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The default rule for breach of contract cases is expectation damages. Meant to place parties in the position they would be in if there had been FULL PERFORMANCE
Formula: Loss of value of breaching party's performance + any incidental and consequential costs caused by breach - payments received from breaching party - costs saved as a result of breach = Expectation Damages |
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Limitations on Recovery of Expectation Damages
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(1) Cost of performance greatly exceeds the market value of performance (Peeveyhouse)
(2) Expectation damages cannot be calculated with reasonable certainty (3) Where damages are UNFORESEEABLE (Hadley) - i.e., not liable for consequential damages that the party did not know and did not have reason to know would occur (4) Damages can be MITIGATED (i.e., cannot recover for losses that could have been avoided without unreasonable risk, burden, or humiliation - MUST take reasonable efforts to mitigate) |
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Reliance Damages
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Reliance may be available where expectation damages are NOT available (such as when they are difficult to calculate or would be speculative)
Calculated by the amount of money necessary to restore the parties to the position they were in BEFORE the contract |
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Restitution Damages
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Aggrieved party may take restitution damages AT HIS OPTION, but ONLY where his performance WAS NOT COMPLETE (if complete, then limited to expectation damages)
The party will then recover the VALUE OF BENEFITS CONFERRED on the breaching party Damages are measured by EITHER: (1) reasonable value of the benefits conferred, OR (2) the extent to which the benefit conferred has INCREASED the value of the breaching party's property Available to both the breaching and aggrieved parties |
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Liquidated Damages
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Will be enforced if it is valid, but NOT if it constitutes a penalty
TEST for validity: (1) Is the clause intended as a penalty or liquidated damages clause (2) was the clause REASONABLE AT THE TIME OF CONTRACTING in relation to the ANTICIPATED harm of breach AND (3) Was the clause REASONABLE in relation to the harms and losses that ACTUALLY occurred due to the breach If (2) is satisfied, some courts will enforce even if (3) is not, but other courts will still invalidate the clause if (2) is met but the provision is grossly disproportionate to the actual harm caused Burden of proof is on the party claiming that it is a penalty |
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UCC: Monetary Damages, Seller's Remedies
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(1) Action for PRICE - entitled to collect K price for any goods delivered and accepted
(2) Damages for Nonacceptance/repudiation - if seller RESELLS, then entitled to the difference between the K price and the resale price; if seller does NOT resell, then entitled to the difference between the K price and the market price at the time and place of delivery; in EITHER case, entitled to incidental damages |
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Lost Profits for Lost Volume Sellers
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Lost Volume Seller = one whose supply of goods exceeds the demand for the same; i.e., the seller can satisfy ALL potential buyers who seek to buy from him
To recover lost profits, seller must show: (1) that he could have made BOTH the sale to the breaching buyer AND the resale (2) that it would have been profitable to make both sales AND (3) that he probably WOULD have made the additional sale absent buyer's breach |
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UCC: Monetary Damages, Buyer's Remedies
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(1) If Buyer COVERS, he is entitled to the difference between the K price and the cover price
(2) If Buyer does NOT cover, he is entitled to the difference between the K price and the market price AT THE TIME HE LEARNED OF THE BREACH Incidental damages are available in EITHER case (3) If Buyer receives NON-CONFORMING goods, he is entitled to the difference in value between the goods contracted for and the goods received Buyer MAY DEDUCT all or part of damages from breach from the price still due under the SAME K, if gives notice of intent to withhold |
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Equitable Remedies
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Available where an award of money damages would be inadequate to compensate the aggrieved party
2 Types: (1) Specific Performance (2) Negative Injunctions |
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Equitable Considerations
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Decision is within the court's discretion, and court will generally consider the following:
(1) whether the aggrieved party has CLEAN HANDS (2) definiteness of the terms (3) whether performance by the aggrieved party can reasonably be assured (4) whether the terms are fair (5) whether performance would be in the public interest |
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Specific Performance
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An extraordinary remedy available ONLY where money damages are inadequate compensation
Generally available for: (1) UNIQUE objects, OR (2) Real Property (which is presumed unique) Where NEVER available: (1) Personal Service contracts (2) Contracts requiring ongoing cooperation between the parties |
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Specific Performance under UCC
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Slightly liberalized rules
Allows specific performance (1) where goods are unique OR in "other proper circumstances (2) EVEN where ongoing cooperation would be required between the parties so long as the requisite inability of a party to cover can be established Buyer also has right of REPLEVIN (to repossess property) where: (1) after reasonable effort, buyer is unable to cover (2) circumstances reasonably indicate that effort to cover will be unavailing OR (3) goods have been shipped under reservation (seller maintains a security interest in the goods) and satisfaction of the security interest in them has been made or tendered |
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Negative Injunctions
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Orders prohibiting the breaching party from taking particular action. Most commonly used in the employment context. Same limitations apply as to specific performance.
(1) Mid-term relief - if employee under K for specified period, negative injunction will be available to prevent employee from competing directly or indirectly with the former employer IF the services are unique or extraordinary (mostly entertainers or professional athletes) (2) Post-employment Relief - also known as non-compete clauses; validity depends on 3 factors: (1) significant business justification for enforcement (2) reasonable in length and scope AND (3) most courts will issue ONLY if the noncompete clause exists in the employment K |
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Remedies for Promissory Estoppel
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Courts split:
(1) some award expectation (2) some award reliance, and (3) some use case-by-case approach taking account of: strength of proof, blameworthiness of breach, extent of detrimental reliance, relative positions of the parties, and availability of alternatives to full enforcement Ohio uses case-by-case approach, allows expectancy damages where they can be sufficiently proved |
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Restitution and Unjust Enrichment Remedies
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A party who bestows benefits on another may seek to recover the value of those benefits in an action for restitution.
Restitution may be available when: (1) K fails (for SofF, consideration, incapacity, fraud, duress, undue influence, unconscionability) (2) Benefits conferred by a breaching party (right of OFFSET) (3) Emergency benefits conferred by a Health Care Professional - exception to the rule requiring a bargain where patient is UNABLE to consent (4) Benefits conferred by MISTAKE (court will consider blameworthiness of the error, whether recipient was aware of the error in time to prevent it, and whether the recipient availed himself of the benefits) |
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Agreed-to Remedies
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(1) Liquidated damages (see previous card)
(2) Provisions limiting remedies (enforceable UNLESS the are unconscionable; under UCC, limiting consequential damages for personal injury as a result of consumer goods is prima facie unconscionable) |
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Equitable Remedies
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Available where an award of money damages would be inadequate to compensate the aggrieved party
2 Types: (1) Specific Performance (2) Negative Injunctions |
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Equitable Considerations
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Decision is within the court's discretion, and court will generally consider the following:
(1) whether the aggrieved party has CLEAN HANDS (2) definiteness of the terms (3) whether performance by the aggrieved party can reasonably be assured (4) whether the terms are fair (5) whether performance would be in the public interest |
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Specific Performance
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An extraordinary remedy available ONLY where money damages are inadequate compensation
Generally available for: (1) UNIQUE objects, OR (2) Real Property (which is presumed unique) Where NEVER available: (1) Personal Service contracts (2) Contracts requiring ongoing cooperation between the parties |
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Specific Performance under UCC
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Slightly liberalized rules
Allows specific performance (1) where goods are unique OR in "other proper circumstances (2) EVEN where ongoing cooperation would be required between the parties so long as the requisite inability of a party to cover can be established Buyer also has right of REPLEVIN (to repossess property) where: (1) after reasonable effort, buyer is unable to cover (2) circumstances reasonably indicate that effort to cover will be unavailing OR (3) goods have been shipped under reservation (seller maintains a security interest in the goods) and satisfaction of the security interest in them has been made or tendered |
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Negative Injunctions
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Orders prohibiting the breaching party from taking particular action. Most commonly used in the employment context. Same limitations apply as to specific performance.
(1) Mid-term relief - if employee under K for specified period, negative injunction will be available to prevent employee from competing directly or indirectly with the former employer IF the services are unique or extraordinary (mostly entertainers or professional athletes) (2) Post-employment Relief - also known as non-compete clauses; validity depends on 3 factors: (1) significant business justification for enforcement (2) reasonable in length and scope AND (3) most courts will issue ONLY if the noncompete clause exists in the employment K |
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Remedies for Promissory Estoppel
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Courts split:
(1) some award expectation (2) some award reliance, and (3) some use case-by-case approach taking account of: strength of proof, blameworthiness of breach, extent of detrimental reliance, relative positions of the parties, and availability of alternatives to full enforcement Ohio uses case-by-case approach, allows expectancy damages where they can be sufficiently proved |
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Restitution and Unjust Enrichment Remedies
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A party who bestows benefits on another may seek to recover the value of those benefits in an action for restitution.
Restitution may be available when: (1) K fails (for SofF, consideration, incapacity, fraud, duress, undue influence, unconscionability) (2) Benefits conferred by a breaching party (right of OFFSET) (3) Emergency benefits conferred by a Health Care Professional - exception to the rule requiring a bargain where patient is UNABLE to consent (4) Benefits conferred by MISTAKE (court will consider blameworthiness of the error, whether recipient was aware of the error in time to prevent it, and whether the recipient availed himself of the benefits) |
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Agreed-to Remedies
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(1) Liquidated damages (see previous card)
(2) Provisions limiting remedies (enforceable UNLESS the are unconscionable; under UCC, limiting consequential damages for personal injury as a result of consumer goods is prima facie unconscionable) |
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Third Party Beneficiary: Classifying Beneficiaries
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First Restatement
(1) Creditor Beneficiaries - when performance sought is to satisfy a debt or obligation to the third party, that party is a creditor beneficiary (2) Donee beneficiary - when performance sought is to make a gift of that performance to a third party, that party is a donee beneficiary (3) Incidental Beneficiary - third parties who benefit from the performance as a practical matter, but are not INTENDED by the parties to benefit Second Restatement (1) Intended Beneficiaries - simply both the creditor and donee beneficiaries from the 1st Restatement (2) Incidental benficiaries - same |
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Third Party Beneficiary: Who can sue?
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Incidental beneficiaries may NOT sue either party to enforce the K
Intended beneficiaries MAY sue the breaching PROMISOR NEITHER beneficiary may sure the PROMISEE (party that procured the promise for their benefit), unless it is on a SEPARATE OBLIGATION All of the promisee's obligations are DISCHARGED when the promisor ACTUALLY PERFORMS, NOT when the contract is made |
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Third Party Beneficiary: When do the third party's rights VEST?
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Third party beneficiary does NOT have an automatic right to enforce the K or to prevent modifications or rescissions by the original parties
The third party's rights VEST when ANY of the following occur: (1) the beneficiary brings suit (2) the beneficiary changes his position in justifiable reliance (3) the beneficiary manifests required assent OR (4) the rights have vested under an express term of the contract |
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Assignment
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A transfer of a right to receive performance under a contract.
The owner of the right MUST: (1) manifest an intention (2) to make a PRESENT transfer of the right without further action by the owner or the obligor Partial assignments are valid An OFFER can NOT be assigned, but an OPTION CAN be assigned |
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Assignable Rights
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All rights are generally assignable
EXCEPTIONS (1) Assignment that materially alters risks or obligations to the other party (2) Obligor has personal interest in rendering service to the obligee (3) the assignment would violate the law or public policy (4) assignment is prohibited by the contract |
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Assignment for value vs. Gratuitous Assignment
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Assignment for value is NOT revocable by assignor, but can be modified like any other K
Gratuitous assignment is governed by the law of GIFTS (which require donative intent and delivery to make irrevocable); regardless, the assignment BECOMES irrevocable when payment of the obligation is MADE to the assignee, or if the assignee acts in detrimental reliance on the assignment |
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Rights of Assignee against Obligor
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Assignee takes assignor's rights against obligor, and is also subject to obligor's defenses against assignor
Payment to assignor is a defense if payment is made BEFORE notice of the assignment is given to obligor |
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Rights of Assignee against Assignor
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Assignor makes the following implied warranties (unless contrary intent is manifested):
(1) that he will do nothing to defeat or impair the value of the assignment and has no knowledge of any fact that would do so (2) that the right assigned actually exists and is not subject to any limitations or defenses other than those stated or apparent at the time of assignment (3) that any writing evidencing his rights is genuine Assignment does NOT include an implied warranty that obligor is solvent or will perform the obligation |
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Delegation
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Occurs when a third party agrees to satisfy a performance obligation owed by a party to the K
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Rights of Obligee against Delegator
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Delegation does NOT relieve delegator from his obligations under the K UNLESS there has been a novation; otherwise delegator/obligor REMAINS LIABLE to obligee for performance
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Novation
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Requires a promise by the obligee to release the delegator in return for the liability of the delegatee.
ASSENT is NOT sufficient to be a novation; there MUST be a PROMISE TO RELEASE the delegator |
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Liability of Delegatee
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Delegatee is liable to the DELEGATOR based on his agreement to perform delegator's contract obligations
Under a third-party beneficiary theory, he may also be liable to OBLIGEE, if the obligee is an intended beneficiary of the promse |
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Delegable Duties
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General rule is that all duties are delegable
EXCEPTIONS: (1) Personal performance (child care, artist, decorator, mechanic, etc.; anything where the recipient must rely on the qualities of the performer such as character, reputation, skill, taste, or discretion) (2) Contract prohibits delegation |
