Contracts And Sales

Front 1

Contract-General Definition

Back 1

K is promise or set of promises for the breach of which law gives a remedy or performance of which law, in some way, recognizes a duty

Front 2

Common Law v. Art 2 Sale of Goods

Back 2

CL governs ks. Ks involving sale of goods, Art 2 of UCC applies. Art 2 has adopted much of CL of ks, but when common law and Art 2 differ, Art 2 prevails in k for sale of goods.

Front 3

Art 2 Sale of Goods-"Goods" Defined

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All things movable at time they are identified as goods to be sold under k. Art 2 applies to sales of most tangible things but n/a to sale of real estate, services, or intangibles, or construction ks.

Front 4

Merchants v. Nonmerchants

Back 4

Important for Art 2 stuff. Art 2 defines merchant as one who regularly deals in goods of kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to practices or goods involved. For Art 2 provisions dealing w/ general biz practices (e.g., SOF, confirmatory memos, firm offers, modification), almost anyone in biz can be deemed a merchant. Some Art 2 provisions are narrower and require person to be merchant w/ respect to goods of kind involved in subject transaction.

Front 5

Good Faith and Fair Dealing

Back 5

Every k w/i the UCC imposes an obligation of good faith in its performance and enforcement. Good faith is honesty in fact and observance of reasonable comm'l standards. CL also imposes a duty of good faith and fair dealing. A breach of this duty usually involves exercising discretion in a way that deprives other party of fruits of k.

Front 6

Types of Contracts-As to Formation-Express Contract

Back 6

Formed by language, oral or written.

Front 7

Types of Contracts-As to Formation-Implied in Fact Contract

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Formed by manifestations of assent other than oral or written language, i.e., by conduct

Front 8

Types of Contracts-As to Formation-Quasi-Contract or Implied in Law Contract

Back 8

Not ks at all. Constructed by courts to avoid unjust enrichment by permitting P to bring an action in restitution to recover amount of benefit conferred on D

Front 9

Acceptance-Bilateral Contracts

Back 9

Consists of exchange of mutual promises, i.e., a promise for a promise, in which each party is both promisor and promisee.

Front 10

Acceptance-Unilateral Contracts

Back 10

Traditional unilateral k is one in which offeror requests performance rather than promise. Here, offeror-promisor promises to pay upon completion of requested act by promisee. Once act is completed, a k is formed. In such ks, there is one promisor and one promisee.

Front 11

Acceptance-Modern View

Back 11

Under Art 2 and 2nd Restatement, traditional unilateral k occurs in only two situations: (i) when offeror clearly (unambiguously) indicates that completion of performance is only manner of acceptance and (ii) where there is an offer to public, such as reward offer.

Front 12

Validity-Void Contract

Back 12

One that is totally w/o any legal effect from the beginning (e.g., agreement to commit a crime). It can't be enforced by either party.

Front 13

Validity-Voidable Contract

Back 13

One that one or both parties may elect to avoid (e.g., by raising defense that makes it voidable, such as infancy or mental illness).

Front 14

Validity-Unenforceable Contract

Back 14

Agreement that is otherwise valid but which may not be enforceable due to a defense, extraneous to k formation, such as SOL or SOF.

Front 15

Creation of Contract

Back 15

When suit is brought in which 1 party seeks to enforce a k or obtain damages for breach of k, a ct must first decide whether there was in fact a k. In making this determination, ct will ask 3 questions:

1) Mutual assent?

2) Consideration or some substitute?

3) Any defenses to creation?

Front 16

Mutual Assent-Offer and Acceptance

Back 16

For an agreement to be enforced, must be mutual assent. I.e., one party must accept other's offer. Whether mutual assent is present will be determined by an objective standard; i.e., did words or conduct manifest a present intent to enter into a k?

Front 17

Offer

Back 17

Creates power of acceptance in offeree and corresponding liability on part of offeror. For a communication to be an offer, it must create reasonable expectation in offer that offeror is willing to enter into a k on basis of offered terms. In deciding whether a combination creates this reasonable expectation, ask: (i) an expression of a promise, undertaking, or commitment to enter into a k; (ii) certainty and definiteness in essential terms; (iii) communication of above to offeree

Front 18

Offer-Promise, Undertaking, or Commitment

Back 18

For communication to be an offer, must contain a promise, undertaking, or commitment to enter into a k, rather than mere invitation to begin prelim negotiations, i.e., must be intent to enter into k.

Front 19

Offer-Promise, Undertaking, or Commitment-Language

Back 19

Language used may show offer was or wasn't intended. Technical language such as "I offer" or "I promise" is useful but not necessary. Phrases such as "I quote," "I am asking $30 for," tend to be construed merely as invitations to deal rather than offers.

Front 20

Offer-Promise, Undertaking, or Commitment-Surrounding Circumstances

Back 20

Circumstances surrounding language will be considered by courts in determining whether an offer exists. E.g., if a statement is made jest, anger, or by way of bragging, it's reasonably understood in this context, it will have no legal effect.

Front 21

Offer-Promise, Undertaking, or Commitment-Prior Practice and Relationship of Parties

Back 21

In determining whether certain remarks constitute offer rather than preliminary negotiations, a court will look to prior relationship and practice of parties involved.

Front 22

Offer-Promise, Undertaking, or Commitment-Method of Communication-Use of Broad Communications Media

Back 22

Broader the communicating media (e.g., publications), the more likely it is that courts will view communication as merely solicitation of offer.

Front 23

Offer-Promise, Undertaking, or Commitment-Method of Communication-Advertisements, Etc.

Back 23

Advertisements, catalog letters, and the like containing price quotations are usually construed as mere invitations for offers.

Front 24

Offer-Definite and Certain Terms

Back 24

An offer must be definite and certain in its terms. Basic inquiry is whether enough of essential terms have been provided so that a k including them would be capable of being enforced.

Front 25

Offer-Definite and Certain Terms-Identification of Offeree

Back 25

To be considered an offer, statement must sufficiently identify offer or class to which she belongs to justify inference that offeror intended to create power of acceptance.

Front 26

Offer-Definite and Certain Terms-Definiteness of Subject Matter

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Subject matter of deal must be certain, b/c court can enforce a promise only if it can tell w/ reasonable accuracy what promise is.

Front 27

Offer-Definite and Certain Terms-Requirements for Specific Types of Contracts

Back 27

An offer involving realty must identify land and price terms. Land must be identified w/ some particularity, but deed and description is not required (e.g., "my house in Erewhon" is sufficient if seller has only one house in Erewhon). Most courts will not supply a missing price term for realty.

Front 28

Offer-Definite and Certain Terms-Sale of Goods

Back 28

In a k for sale of goods, quantity being offered must be certain or capable of being made certain

Front 29

Offer-Definite and Certain Terms-Sale of Goods-Requirements and Output Contracts

Back 29

In a requirements k, buyer promises to buy from certain seller all of goods buyer requires, and seller agrees to sell that amount to buyer. In an output k, a seller promises to sell to certain buyer all goods seller produces, and buyer agrees to buy that amount from seller. Assumed that parties will act in good faith; hence, may not be a tender of or demand for quantity unreasonably disproportionate to (i) any stated estimate, or (ii) in absence of state estimate any normal or otherwise comparable prior output or requirements.

Front 30

Offer-Definite and Certain Terms-Employment and Other Services

Back 30

In ks for employment, if duration of employment is not specified, offer, if accepted, is construed as creating a k terminable at will of either party. For other services, nature of work to be performed must be included in offer.

Front 31

Offer-Definite and Certain Terms-Missing Terms

Back 31

Fact that one or more terms are left open does not prevent formation of a k if it appears that parties intended to make a k and there is reasonably certain basis for giving remedy. In such case, majority of jurisdictions and Art 2 hold that court can supply reasonable terms for those that are missing.

Front 32

Offer-Definite and Certain Terms-Missing Terms-Price

Back 32

Except in ks for real property, failure to state price doesn't prevent formation of k if parties intended to form a k w/o price being settled. Note that if a k for sale of goods is missing a price term, Art. 2 provides that price will be reasonable price at time of delivery.

Front 33

Offer-Definite and Certain Terms-Missing Terms-Time

Back 33

If agreement doesn't specify time in which act s to be performed, law implies it is to be performed within reasonable time.

Front 34

Offer-Definite and Certain Terms-Vague Terms

Back 34

Presumption that parties' intent was to include a reasonable term goes to supplying missing terms. Presumption can't be made if parties have included a term that makes k too vague to be enforced (e.g., an agreement to split profits on a "liberal basis"). However, uncertainty can be cured by part performance that clarifies the vague term or by acceptance of full performance.

Front 35

Offer-Definite and Certain Terms-Terms to be Agreed on Later

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Often, an offer will state that some term is to be agreed on at future date. If term is material term, offer is too uncertain.

Front 36

Offer-Communication to Offeree

Back 36

To have power to accept, offer must have knowledge of the offer. Therefore, proposal must be communicated to her.

Front 37

Termination of Offer

Back 37

An offer can't be accepted after it's been terminated by an act of either party or by operation of law.

Front 38

Termination of Offer-Termination by Offeror

Back 38

Revocation. Retraction of an offer by offeror. An offeror may revoke by directly communicating revocation to offeree (e.g., I revoke my offer of May 25). An offer made by pub can be directly revoked only by pub through comparable means. An offer may also be revoked indirectly if offer receives: (i) correct info; (ii) from a reliable source, (iii) of acts of offeror that would indicate to reasonable person that offeror no longer wishes to make offer (e.g., after offeror offers to sell his car to offeree, offeree is told by reliable 3rd party that offeror just sold his car to someone else).

Front 39

Termination of Offer-Termination by Offeror-Effective When Received

Back 39

Revocation is generally effective when received by offeror. Where revocation is by publication, effective when published.

Front 40

Termination of Offer-Termination by Offeror-Limitations on Offeror's Power to Revoke

Back 40

Offers can be revoked at will by offeror, even if he has promised not to revoke for certain period, except in following circumstances: Options, Merchant's Firm Offer Under Art. 2, Detrimental Reliance, Beginning Performance in Response to True Unilateral K Offer, Beginning Performance-Offer Indifferent as to Manner of Acceptance

Front 41

Termination of Offer-Limitations on Offeror's Power to Revoke-Options

Back 41

Distinct k in which offeree gives consideration for promise by offeror not to revoke an outstanding offer (e.g., an offeror offers to sell her farm to an offeree for $1 million and promises to keep offer open for 90 days if offeree pays offeror $1,000 to keep offer open).

Front 42

Termination of Offer-Limitations on Offeror's Power to Revoke-Merchant's Firm Offer Under Art. 2

Back 42

(i) If a merchant (ii) offers to buy or sell goods in a signed writing and (iii) the writing gives assurances that it will be held open, offer is not revocable for lack of consideration during time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed 3 months). Three-month limitation only applies to offers not supported by consideration.

Front 43

Termination of Offer-Limitations on Offeror's Power to Revoke-Detrimental Reliance

Back 43

When offeror could reasonably expect that offer would rely to her detriment on offeror, and offeree does so rely, offer will be held irrevocable as an option k for reasonable length of time.

Front 44

Termination of Offer-Limitations on Offeror's Power to Revoke-Beginning Performance in Response to True Unilateral Contract Offer

Back 44

Offer for true unilateral k becomes irrevocable once performance has begun. Offeror must give offeree a reasonable time to complete performance. Note that offeree is not bound to complete performance--she may withdraw at any time prior to completion of performance, and there is no acceptance until performance is complete.

Front 45

Termination of Offer-Limitations on Offeror's Power to Revoke-Preparations to Perform

Back 45

Substantial preparations to perform (as opposed to beginning of performance) do not make offer irrevocable but may constitute detrimental reliance sufficient to make the offeror's promise binding to extent of detrimental reliance.

Front 46

Termination of Offer-Limitations on Offeror's Power to Revoke-Beginning Performance (Offer Indifferent as to Manner of Acceptance)

Back 46

Most offers are indifferent as to manner of acceptance, and thus, a bilateral k may be formed upon start of performance by offeree. Therefore, once offeree begins performance, k is complete and revocation becomes impossible. But note: Notification of start of performance may be necessary.

Front 47

Termination by Offeree-Express Rejection

Back 47

Statement by offeree that she doesn't intend to accept offer. Such rejection will terminate offer.

Front 48

Termination by Offeree-Counteroffer as Rejection

Back 48

Offer made by offeree to offeror that contains same subject matter as original offer, but differs in its terms.

Front 49

Termination by Offeree-Mere Inquiry

Back 49

An inquiry will NOT terminate offer when it's inconsistent w/ idea that offeree is still keeping original proposal under consideration (e.g., "Would you consider lowering your price by $5k?"). Test is whether a reasonable person would believe that original offer had been rejected.

Front 50

Termination by Offeree-Effective When Received

Back 50

Effective when received by offeror.

Front 51

Termination by Offeree-Rejection of Option

Back 51

B/c an option is a k to keep an offer open, a rejection of or counteroffer to an option doesn't constitute a termination of offer. Offeree is still free to accept original offer within option period unless offeror has detrimentally relied on offer's rejection.

Front 52

Termination by Offeree-Lapse of Time

Back 52

Offer may be terminated by offeree's failure to accept w/i time specified by offer or, if no deadline was specified, within reasonable period.

Front 53

Termination by Operation of Law

Back 53

Death or insanity of either party (unless offer is of kind offeror couldn't terminate, e.g., an option supported by consideration). Death or insanity need not be communicated to other party.

Destruction of proposed k's subject matter.

Supervening illegality.

Front 54

Acceptance

Back 54

Manifestation of assent to terms of offer.

Front 55

Acceptance-Who May Accept

Back 55

Generally, only person to whom an offer is addressed has power of acceptance. One may also have power of acceptance if she is a member of class to which an offer has been directed. Generally, an offeree's power of acceptance can't be assigned. However, if offeree has paid consideration to keep offer open (i.e., an option k was created), right to accept is transferable.

Front 56

Acceptance-Offeree Must Know of Offer

Back 56

Offeree must know of offer in order to accept it, and this is true whether offer is for a bilateral or unilateral k. Thus, if A sends B an offer and B sends A an offer unaware of A's offer (i.e., a crossing offer situation), no k is formed, even if offers contain same terms.

Front 57

Acceptance-Acceptance of Offer for Unilateral Contract

Back 57

If offer provides that it may be accepted only by performance (i.e., an offer for unilateral k), note completion of performance and notice rules.

Front 58

Acceptance-Acceptance of Offer for Unilateral Contract-Completion of Performance

Back 58

Most courts hold that an offer to form unilateral k is not accepted until performance is completed. Beginning of performance may create option so that the offer is irrevocable. However, offeree is not obligated to complete performance merely b/c he has begun performance, as only complete performance constitutes acceptance of offer.

Front 59

Acceptance-Acceptance of Offer for Unilateral Contract-Notice

Back 59

Generally, offeree is not required to give offeror notice that he has begun requested performance, but is required to notify within reasonable time after performance has been completed. However, no notice required if (i) offeror waived notice; or (ii) offeree's performance would normally come to offeror's attention within a reasonable time.

Front 60

Acceptance-Acceptance of Offer for Bilateral Contract

Back 60

Unless an offer specifically provides that it may be accepted only through performance, it will be construed as offer to enter into bilateral k and may be accepted either by promise to perform or by beginning of performance (compare offers for true unilateral ks, which may be accepted only by full performance).

Front 61

Acceptance-Acceptance of Offer for Bilateral Contract-Acceptance Communicated

Back 61

Generally, acceptance of an offer to enter into a bilateral k must be communicated to offeror, unless offer provides that acceptance need not be communicated.

Front 62

Acceptance-Acceptance of Offer for Bilateral Contract-Silence as Acceptance

Back 62

Generally, an offeree can't be forced to speak or have her silence treated as acceptance. However, if b/c of prior dealings or trade practices, it would be commercially reasonable for offeror to consider silence an acceptance, ct may so find. Also, if recipient of services knows/should have known that services were being rendered w/ expectation of compensation and, by a word, could have prevented mistake, she may be held to have accepted offer if she fails to speak.

Front 63

Acceptance-Acceptance of Offer for Bilateral Contract-Method of Acceptance

Back 63

Unless otherwise provided, an offer is construed as inviting acceptance in any reasonable manner and by any medium reasonable under circumstances. Any objective manifestation of offeree's counter promise is usually sufficient.

Front 64

Acceptance-Acceptance of Offer for Bilateral Contract-Offers to Buy Goods for Current or Prompt Shipment

Back 64

Under Art 2, offer to buy goods for current or prompt shipment is construed as inviting acceptance, either by promise to ship or by current or prompt shiptment of conforming or nonconforming goods.

Front 65

Acceptance-Acceptance of Offer for Bilateral Contract-Acceptance Must be Unequivocal

Back 65

Traditional k law insists on absolute and unequivocal acceptance of each and every term of offer (the "mirror image rule"). At CL, any different or add'l terms in acceptance make response a rejection and counteroffer.

Front 66

Acceptance Under Art 2-Offers to Buy Goods for Current or Prompt Shipment

Back 66

An offer to buy goods for current or prompt shipment may be accepted by either promise to ship or by shipment of conforming or nonconforming goods.

Front 67

Acceptance Under Art 2-Offers to Buy Goods for Current or Prompt Shipment-Shipment of Nonconforming Goods

Back 67

Shipment of nonconforming goods is acceptance creating bilateral k as well as a breach of k unless seller reasonably notifies buyer that shipment of nonconforming goods is offered only as accommodation. Buyer is NOT required to accept accommodation goods and may reject them. If he does, shipper is not in breach and may reclaim accommodation goods, b/c her tender doesn't constitute an acceptance of buyer's original offer.

Front 68

Battle of Forms Provision-Mirror Image Not Required

Back 68

Art 2 has abandoned mirror image rule, providing instead proposal of add'l or diff terms by offeree in definite and timely acceptance does not constitute a rejection and counteroffer, but rather is effective as an acceptance, unless acceptance is expressly made conditional on assent to add'l or diff terms. Whether add'l or diff terms become part of k depends on whether or not both parties are merchants.

Front 69

Battle of Forms Provision-Terms Included

Back 69

B/c Art 2 provides that k can be formed even through terms of acceptance don't match terms of offer, Art 2 also has specific rules for determining what terms are included in k in such case. These rules are dependent on whether both parties to transaction are merchants.

Front 70

Battle of Forms Provision-Terms Included-Ks Involving a Nonmerchant

Back 70

If any party to k is not merchant, additional or diff terms are considered to be mere proposals to modify k that do not become part of k unless offeror expressly agrees.

Front 71

Battle of Forms Provision-Terms Included-Ks b/w Merchants

Back 71

If both parties to k are merchants, additional terms in acceptance will be included in k unless: 1) they materially alter original terms of offer (e.g., they change party's risk or remedies available); 2) offer expressly limits acceptance to terms of offer; or 3) Offeror has already objected to particular terms, or objects w/i reasonable time after notice of them is received.

Front 72

Battle of Forms Provision-Terms Included-Ks b/w Merchants-Diff Terms May or May Not be Included

Back 72

Split of authority over whether terms in acceptance that are diff from (as opposed to or in addition to) terms in offer will become part of k. Some courts treat diff terms like add'l terms, and follow 3 part test in determining whether terms should be part of k. Other courts follow "knockout rule" which states that conflicting terms in offer and acceptance are knocked out of k, b/c each party is assumed to object to include of such terms in k. Under knockout rule, gaps left by knocked out terms are filled by UCC.

Front 73

Battle of Forms Provision-Forms Included-Merchant's Confirmatory Memo

Back 73

Merchant's memo confirming an oral agreement that contains different or add'l terms is also subject to battle of forms provisions.

Front 74

Battle of Forms Provision-Forms Included-Conditional Acceptance

Back 74

When acceptance is made expressly conditional on acceptance of new terms, it is rejection of offer. It can be considered counteroffer only to extent that original offeror may expressly assent to new terms and thus form a k. It isn't considered counteroffer that may be accepted by performance. If parties ship or accept goods after a conditional acceptance, a k is formed by their conduct and new terms aren't included.

Front 75

Battle of Forms Provision-Moment of Mutual Assent Uncertain

Back 75

In situations in which it can't be determined w/ certainty which specific communication was offer and which acceptance but parties act as though there is a k, UCC considers this a binding k even though moment of its making is uncertain.

Front 76

Acceptance-Bilateral Contracts Formed by Performance

Back 76

If k is not formed by parties' communications, but they begin to perform as if they formed a k, a k is formed.

Front 77

Acceptance-When Effective (Mailbox Rule)

Back 77

Acceptance by mail or similar means creates a k at moment of dispatch, provided that mail is properly addressed and stamped unless:

-offer stipulates that acceptance isn't effective until received

-option k is involved (an acceptance under an option k is effective only upon receipt)

-if offeree sends rejection and then sends acceptance, whichever arrives first is effective

-if offeree sends acceptance then rejection, acceptance is effective (i.e., mailbox rule applies) unless rejection arrives first and offeror detrimentally relies on it

Front 78

Acceptance-When Effective-Acceptance by Unauthorized Means

Back 78

Acceptance transmitted by unauthorized means or improperly transmitted by unauthorized means may still be effective if it is actually received by offeror while offer is still in existence

Front 79

Acceptance-Auction Contracts

Back 79

UCC contains special rules regulating auction sales. Sale by auction is complete when auctioneer so announces by fall of hammer or in another customary manner. Action sale is with reserve unless goods are explicitly put up w/o reserve. "With reserve" means auctioneer may withdraw goods at any time until he announces completion of sale.

Front 80

Consideration

Back 80

Courts will enforce promise as a k only if supported by consideration or consideration susbtitute

Front 81

Consideration-Elements

Back 81

Two elements: (i) bargained-for exchange b/w parties and (ii) that which is bargained for must be considered of legal value (i.e., must constitute a benefit to promisor or a detriment to promisee)

Front 82

Consideration-Bargained-For Exchange

Back 82

Requires that promise induce detriment and detriment induce promise. No bargain involved (i.e., no consideration) when one party gives gift to another)

Front 83

Consideration-Bargained-For Exchange-Act or Forbearance by Promisee Must be of Benefit to Promisor

Back 83

An act or forbearance by promisee (or promise to act or forbear) is sufficient consideration to form a k if it benefits promisor. Benefit, however, need not be economic (e.g., gratification of influencing mind of another is sufficient).

Front 84

Consideration-Bargained-For Exchange-Past or Moral Consideration

Back 84

Promise given in exchange for something already done doesn't satisfy bargain requirement.

Front 85

Consideration-Bargained-For Exchange-Exceptions

Back 85

Where past obligation is unenforceable b/c of technical defense (e.g., SOL), that obligation will be enforced if new promise is made in writing or is partially performed. Also, under modern trend, if past act benefited the promisor and was performed by promisee and promisor's request or in response to an emergency, subsequent promise to pay for that act will be enforceable.

Front 86

Consideration-Legal Value Element-Adequacy of Consideration

Back 86

In general, courts do not inquire into adequacy of fairness of consideration. However, if something is entirely devoid of value (token of consideration), it is insufficient. Sham consideration (insignificant sum recited in k) is also insufficient if not paid. But note that if there is a possibility of value in thing bargained for, consideration will be found even if value never comes into existence.

Front 87

Consideration-Legal Value Element-Legal Benefit and Legal Detriment

Back 87

Legal detriment results if promisee does something he isn't legally obligated to do or refrains from doing something he has legal right to do. Legal benefit is reverse. Forbearance or performance of an act that promisor was not legally entitled to demand or expect.

Front 88

Consideration-Legal Value Element-Preexisting Legal Duty

Back 88

Traditionally, performing or promising to perform an existing legal duty is insufficient consideration.

Front 89

Consideration-Legal Value Element-Preexisting Legal Duty Exceptions

Back 89

There is consideration if: (i) New or different consideration is promise; (ii) Promise is to ratify a voidable obligation (e.g., promise to ratify a minor's k after reaching majority, a promise to go through with a k despite other party's fraud); (iii) Preexisting duty is owed to a 3rd person rather than to promisor; (iv) There is an honest dispute as to duty; (v) Unforeseen circumstances sufficient to discharge a party (e.g., impracticability), or under modern view, if modification is fair and equitable in view of circumstances no anticipation when k was made. Also, gf agreement modifying k subject to UCC needs no consideration to be binding.

Front 90

Consideration-Legal Value Element-Forebearance to Sue

Back 90

Promise to refrain from suing on claim may constitute consideration if claim is valid or claimant in gf believed claim was valid.

Front 91

Consideration-Mutual and Illusory Promises-Requirement of Mutuality

Back 91

Consideration must exist on both sides of k (although benefit of consideration generally need not flow to all parties). If one party is bound to perform, promise is illusory and won't be enforced. Courts often supply implied promises (e.g., party must use her best efforts) to infer mutuality.

Front 92

Consideration-Mutual and Illusory Promises-Examples

Back 92

Common exs that satisfy mutuality requirement: 1) Requirements/ outputs ks; 2) Cond'l promises unless condition is entirely within promisor's control; 3) Ks where a party has right to cancel, if that right is somehow restricted (e.g., party must give 60 days notice); 4) Exclusivity agreements (e.g., exclusive marketing agreements) b/c court will find implied promise to use best efforts; 5) Voidable promises (e.g., one made by infant); 6) Unilateral and option ks; 7) Gratuitous suretyship promises made before or at same time that consideration flows to principal debtor.

Front 93

Consideration-Mutual and Illusory Promises-Right to Choose Alternative Courses

Back 93

Promise to choose one of several alternative means of performance is illusory unless every alternative involves legal detriment to promisor. Promise won't be found illusory if (i) at least one alternative involves legal detriment and power to choose rests w/ promisee or third party, or (ii) valuable alternative (i.e., one involving legal detriment) is actually selected.

Front 94

Promissory Estoppel or Detrimental Reliance

Back 94

Consideration unnecessary if facts indicate that promisor should be estopped from not performing. Promise is enforceable if necessary to prevent injustice if: (i) promisor should reasonably expect to induce action or forbearance AND (ii) such action or forbearance is in fact induced.

If elements for PE are present, some jurisdictions will award expectation damages (i.e., what was promised under k), but 2nd Rest provides that remedy may be limited as justice requires. Thus, ct following 2nd Rest might award reliance damages (i.e., whatever promisee spent in reliance on promise), which usually is something less than expectation damages, but theoretically can exceed them.

Front 95

Requirement that No Defenses Exist

Back 95

Even if ag is supported by valuable consideration or a recognized substitute, k rights may still be enforceable b/c there is a defense to formation of k, b/c there is a defect inc capacity (making obligations voidable by 1 of parties), or because a defense to enforcement of certain terms exist.

Front 96

Requirement that No Defenses Exist-Absence of Mutual Assent-Mutual Mistake as to Existing Facts

Back 96

If both parties entering into k are mistaken a/b existing facts (not future happenings) relating to ag, k may be voidable by adversely affected party if: (i) mistake concerns basic assumption on which k is made (e.g., parties think they are contracting for sale of a diamond but stone isn't); (ii) mistake has material effect on agreed upon exchange; and (iii) party seeking avoidance didn't assume risk of mistake.

Front 97

Absence of Mutual Assent-Mutual Mistake as to Existing Facts-Party Bore Risk

Back 97

Mutual mistake not defense if party asserting mistake as defense bore risk that assumption was mistaken. Commonly occurs when 1 party is in position to better know risks than other party (e.g., contractor vs. homeowner) or where parties knew that their assumption was doubtful (i.e., when parties were consciously aware of their ignorance).

Front 98

Absence of Mutual Assent-Mutual Mistake as to Existing Facts-Mistake in Value

Back 98

If parties to k make assumptions as to value of subject matter, mistakes in those assumptions will generally not be remedied, even though value of subject matter is generally basic assumption and mistake creates material imbalance, b/c both parties usually assume risk that their assumption as to value is wrong.

Front 99

Absence of Mutual Assent-Mutual Mistake as to Existing Facts-Unilateral Mistake

Back 99

If only one of parties is mistaken a/b facts relating to ag, mistake not prevent formation of k. However, if non mistaken party knew or had reason to know of mistake made by other party, k is voidable by mistaken party. As w/ mutual mistake, mistake must have material effect on agreed-upon exchange and mistake party must not have borne risk of mistake.

Front 100

Absence of Mutual Assent-Mistake by Intermediary (Transmission)

Back 100

When there is a mistake in transmission of offer or acceptance by intermediary, prevailing view is that message as transmitted is operative unless other party knew or should have known of mistake.

Front 101

Absence of Mutual Assent-Mutual Mistake as to Existing Facts-Misunderstanding (Ambiguous Contract Language)

Back 101

If k includes term w/ at least 2 possible meanings, result depends on parties' awareness of ambiguity: (i) neither party aware-no k unless both parties intended same meaning; (ii) both parties aware-no k unless both parties intended same meaning; (iii) one party aware-binding k based on what ignorant party reasonably believed to be meaning of ambiguous words. Ambiguity is one area where subjective intent is taken into account.

Front 102

Absence of Mutual Mistake-Misrepresentation-Fraudulent Misrepresentation (Fraud in Inducement)

Back 102

K voidable. If party induces another to enter into k by using fraudulent misrepresentation (i.e., by asserting info she knows is untrue), the k is voidable by innocent party if she justifiably relied on fraudulent misrepresentation. This is fraud in inducement.

Front 103

Absence of Mutual Mistake-Misrepresentation-Nonfraudulent Misrepresentation

Back 103

Even if misrep is not fraudulent, k is voidable by innocent party if innocent party justifiably relied on misrep and misrep was material. A misrep is material if: (i) it would induce reasonable person to agree; or (ii) maker knows that for some special reason it is likely to induce particular recipient to agree, even if reasonable person would not. Remember just b/c misrep could've been revealed by exercise of reasonable care does NOT mean reliance was unjustified.

Front 104

Requirement that No Defenses Exist-Absence of Consideration

Back 104

If promises exchanged at formation stage lack elements of bargain or legal detriment, no k exists. In the situation, one of promises is always illusory.

Front 105

Requirement that No Defenses Exist-Public Policy Defenses-Illegality

Back 105

If consideration or subject matter of k is illegal (e.g., k to commit a murder), k is void. Exceptions: (i) P is unaware of illegality while D knows of illegality; (ii) parties aren't in pari delicto (i.e., one party is not as culpable as other); or (iii) illegality is failure to obtain a license when license is for revenue raising purposes rather than for protection of public. If only purpose behind k is illegal, k is voidable by party who was (i) unaware of purpose; or (ii) aware but didn't facilitate purpose and purpose doesn't involve serious moral turpitude.

Front 106

Requirement that No Defenses Exist-Defenses Based on Lack of Capacity-Legal Incapacity to Contract-Contracts of Infants (Minors)

Back 106

Infants (in most jurisdictions, person under age 18) generally lack capacity to enter into k binding on themselves. However, k promises of an adult made to an infant are binding on adult.

Front 107

Defenses Based on Lack of Capacity-Legal Incapacity to Contract-Contracts of Infants (Minors)-Disaffirmance

Back 107

Infant may choose to disaffirm k any time before (or shortly after) reaching age of majority. If infant chooses to disaffirm, she must return anything she received under k that still remains at time of disaffirmance. However, no obligation to return any part of consideration that has been squandered, wasted, or negligently destroyed.

Front 108

Defenses Based on Lack of Capacity-Legal Incapacity to Contract-Contracts of Infants (Minors)-Disaffirmance Exceptions

Back 108

States have created a few statutory exceptions for student loans, insurance ks, and agreements not to reveal an employer's proprietary info.

Front 109

Defenses Based on Lack of Capacity-Legal Incapacity to Contract-Contracts of Infants (Minors)-Necessaries

Back 109

Items necessary for minor's subsistence, health, or education (e.g., food, shelter, clothing, medical care). Minor may disaffirm k for necessaries but in most states will be liable in restitution for value of benefits received.

Front 110

Defenses Based on Lack of Capacity-Legal Incapacity to Contract-Contracts of Infants (Minors)-Affirmance Upon Maintaining Majority

Back 110

An infant may affirm, i.e., choose to be bound by his k, upon reaching majority. He affirms either expressly or by conduct (e.g., by failing to disaffirm k w/i reasonable time after reaching majority).

Front 111

Defenses Based on Lack of Capacity-Legal Incapacity to Contract-Mental Incapacity

Back 111

One whose mental capacity is so deficient that he is incapable of understanding nature and significant of k may disaffirm when lucid or by his legal representative. He may likewise affirm during lucid interval or upon complete recovery, even w/o formal restoration by judicial action. I.e., k is voidable. As in case of infants, mentally incompetent persons ar reliable in quasi-k for necessaries furnished to them.

Front 112

Defenses Based on Lack of Capacity-Legal Incapacity to Contract-Intoxicated Persons

Back 112

One who is so intoxicated that he doesn't understand nature and significance of his promise may be held to have made only a voidable promise if other party had reason to know of intoxication. Intoxicated person may affirm k upon recovery. Once again, there may be quasi k recovery for necessaries furnished during period of incapacity.

Front 113

Defenses Based on Lack of Capacity-Duress and Undue Influence

Back 113

Ks induced by duress of undue influence are voidable and may be rescinded as long as not affirmed. Common type of duress occurs when party's assent is procured by an improper threat (e.g., sign K or I'll break your legs). Generally, taking advantage of another person's economic needs isn't duress. However, withholding something someone wants or needs will constitute economic duress if: (i) party threatens to commit a wrongful act that would seriously threat other k party's property or finance; and (ii) no adequate means available to prevent threatened loss. Elements of undue influence are (i) undue susceptibility to pressure by 1 party; and (ii) excessive pressure by other party. Undue influence concerns often arise when dominant party in confidential or caregiver relationship w/ influenced party.

Front 114

Requirement that No Defenses Exist-Statute of Frauds

Back 114

In most instances, an oral k is valid. However, certain agreements, by statute, must be evidenced by writing signed by party sought to be bound.

Front 115

Statute of Frauds-Writing Requirement

Back 115

SOF doesn't require formal written k. Among other things, writing can be receipt, letter, check w/ details in memo line, or written offer that was accepted orally. Statute requires only 1 or more writings that: (i) reasonably identify subject matter of k, (ii) indicate that k has been made b/w parties, and (iii) state w/ reasonable certainty essential terms.

Front 116

Statute of Frauds-Writing Requirement-Electronic Record

Back 116

Satisfies writing requirement. If law requires record to be in writing, electronic record satisfies law.

Front 117

Statute of Frauds-Writing Requirement-Essential or Material Terms

Back 117

No definitive list. What is essential depends on agreement, its context, and subsequent conduct of parties, including dispute that has arisen. Must be enough in writing to enable court to enforce k. If an essential term is contained in writing, evidence is admissible to explain particulars, but ev will not be admitted to add a missing term.

Front 118

Statute of Frauds-Writing Requirement-Essential or Material Terms Examples

Back 118

Identity of parties, description of subject matter, and terms necessary to make k definite. Writings evidencing land sale ks must contain description of land and price, and those for employment ks must state length of employment. For sale of goods, UCC requires only some signed writing indicating that k has been made and specifying quantity term.

Front 119

Statute of Frauds-Signature Requirement

Back 119

Liberally construed by most courts. Sig is any mark or symbol made w/ intention to authenticate writing as that of signer. Need not be handwritten; it can be printed or typed. Under UCC, a party's initials or letter head may also be sufficient. Electronic sig is also sufficient. Only party to be charged (i.e., person to be sued) must sign.

Front 120

Statute of Frauds-Agreements Covered-Executor or Administrator Promises Personally to Pay Estate Debts

Back 120

Out of his own funds must be evidenced in writing

Front 121

Statute of Frauds-Agreements Covered-Promises to Pay Debt of Another (Suretyship Promises)

Back 121

Must be evidenced by writing. Promise may arise as result of tort or k, but it must be collateral to another person's promise to pay, and not a primary promise to pay. However, if main purpose or leading object of promisor is to serve pecuniary interest of his own, k is not within SOF even though effect is still to pay debt of another (e.g., homeowner promises to pay contractor's debt to building supplier if contractor doesn't pay, so contractor can obtain supplies to work on homeowner's house).

Front 122

Statute of Frauds-Agreements Covered-Promises in Consideration of Marriage

Back 122

A promise the consideration for which is marriage must be evidenced by writing. This applies to promises that induce marriage by offering something of value (other than a return promise to marry-e.g., if you marry my son, I will give the two of you a house").

Front 123

Statute of Frauds-Interest in Land

Back 123

Promise creating an interest in land must be evidenced by writing. Includes not only agreements of sale of real property but also: leases for more than 1 year; easements of more than 1 year; mortgages and most other security liens; fixtures; and minerals (or the like) or structures if they are to be severed by buyer

Front 124

Statute of Frauds-Interest in Land-Items that Don't Create Interest in Land

Back 124

Ks to build a building or to find buyer for seller (e.g., broker's k) do not create an interest in land.

Front 125

Statute of Frauds-Interest in Land-Effect of Performance on Ks

Back 125

Full performance by seller will take k out of SOF. Part performance of buyer may also remove k from SOF.

Front 126

Statute of Frauds-Performance Not Within One Year

Back 126

Promise that by its terms can't be performed w/i 1 year is subject to SOF. Part performance doesn't satisfy SOF here. Date runs from date of ag and not from date of performance. Note that, even if k can't be performed w/i a year, full performance by one party will remove it from SOF.

Front 127

Statute of Frauds-Goods Price at $500 or More

Back 127

Generally must be evidenced by signed writing to be enforceable. Writing is sufficient even tho it omits or incorrectly states a term, but k isn't enforceable beyond quantity of goods shown in writing.

Front 128

Statute of Frauds-Goods Price at $500 or More-When Writing Not Required -Specially Manufactured Goods

Back 128

Specially Manufactured Goods-specially manuf for buyer and aren't suitable for sale to others by seller in ordinary course of biz, k is enforceable if seller has, under circs that reasonably indicate that goods are for buyer, made a substantial beginning in their manufacture or commitments for their purchase before notice of repudiation is received.

Front 129

Statute of Frauds-Goods Price at $500 or More-When Writing Not Required-Admissions in Pleadings or Court

Back 129

If party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that k for sale was made, k is enforceable w/o a writing (but in such case k is not enforced beyond quantity of goods admitted).

Front 130

Statute of Frauds-Goods Price at $500 or More-When Writing Not Required-Payment or Delivery of Goods

Back 130

If goods are either received and accepted or paid for, k is enforceable. However, k isn't enforceable beyond quantity of goods accepted or paid for. Thus, if only some of goods called for in oral k are accepted or paid for, k is only partially enforceable. If indivisible item is partially paid for, most courts hold that SOF is satisfied for whole item.

Front 131

Statute of Frauds-Goods Price at $500 or More-When Writing Not Required-Merchants Confirmatory Memo Rule

Back 131

In ks b/w merchants, if one party, w/i reasonable time after an oral ag has been made, sends to other party a written confirmation of understanding that is sufficient under SOF to bind sender, it will also bind recipient if: (i) he has reason to know of confirmation's contents; and (ii) he doesn't object to it in writing w/i 10 days of receipt.

Front 132

Statute of Frauds-Effect of Noncompliance w/ Statute

Back 132

Noncompliance w/ SOF renders k unenforceable at option of party to be charged (i.e., party being charged may raise lack of sufficient writing as an affirmative defense). If statute is not raised as defense, it's waived.

Front 133

Statute of Frauds-Situations in Which the Contract is Removed from Statute of Frauds-Performance-Land Sale Contracts

Back 133

If seller conveys to buyer (i.e., fully performs), he can enforce buyer's promise to pay. Likewise, buyer may seek to specifically enforce an oral land sale k under doctrine of part performance. Part performance that unequivocally indicates that parties have contracted for sale of land takes k out of SOF. Most jurisdictions require at least two of following: payment (in whole or part), possession, and/or valuable improvements.

Front 134

Statute of Frauds-Situations in Which the Contract is Removed from Statute of Frauds-Performance-Land Sale Contracts-Specific Performance Only

Back 134

Purchaser of interest in land may enforce oral k in this manner only in equity, not damages.

Front 135

Statute of Frauds-Situations in Which the Contract is Removed from Statute of Frauds-Performance-Sale of Goods Contracts

Back 135

Part performance takes sale of goods k out of SOF whenever (i) goods have been specially manufactured, or (ii) goods have been either paid for or accepted. If sales k is only partially paid for or accepted, k is enforceable only to extent of partial payment or acceptance.

Front 136

Statute of Frauds-Situations in Which the Contract is Removed from Statute of Frauds-Performance-Service Contracts

Back 136

Full performance required. Oral k that can't be completed w/i one year but has been fully performed by one party is enforceable.

Front 137

Statute of Frauds-Situations in Which the Contract is Removed from Statute of Frauds-Equitable and Promissory Estoppel

Back 137

Estoppel may be applied if it would be inequitable to allow Statute to defeat a meritorious claim (e.g., D falsely and intentionally tells P that k is not w/i statute, D induces P to change position in reliance on oral ag)

Front 138

Statute of Frauds-Situations in Which the Contract is Removed from Statute of Frauds-Judicial Admission

Back 138

If party admits in pleadings or testimony that there is an ag, it's treated same as tho party signed writing.

Front 139

Statute of Frauds-Remedies if Contract is Within Statute

Back 139

If k violates SOF, in almost all cases a party can sue for reasonable value of services or part performance rendered, OR restitution of any other benefit that has been conferred.

Front 140

Requirement that No Defenses Exist-Unconscionability

Back 140

Allows court to refuse to enforce a provision or entire k (or to modify k) to avoid "unfair" terms, usually due to some unfairness in bargaining process (i.e., procedural unconscionability). Unfair price alone is not ground for unconscionability.

Front 141

Unconscionability-Common Instances of Procedural Unconscionability-Inconspicuous Risk-Shifting Provisions

Back 141

Standardized printed form ks often contain a material provision that seeks to shift risk normally borne by 1 part or other. Typically, such clauses are found in fine print (boilerplate) in printed form ks. Courts have invalidated provisions b/c they are inconspicuous or incomprehensible to average person, even if brought to his actual attention.

Front 142

Unconcionability-Common Instances of Procedural Unconsionability-Contracts of Adhesion "Take It or Leave It"

Back 142

Courts will deem clause unconscionable and unenforceable if signer is unable to procure necessary goods, such as automobile, from any seller w/o agreeing to similar provision.

Front 143

Unconcionability-Common Instances of Procedural Unconsionability-Exculpatory Clauses

Back 143

Releases a k party from liability for his own intentional wrongful acts. Usually found to be unconscionable b/c such clause is against public policy in most states. Such clauses for negligent acts may be found to be unconscionable if they are inconspicuous, but commonly are upheld if they are in ks for activities that are known to be hazardous (e.g., a k releasing a ski hill operator for liability for negligence often will be upheld).

Front 144

Unconcionability-Common Instances of Procedural Unconsionability-Limitations on Remedies

Back 144

K clause limiting liability for damages to property generally will not be found to be unconscionable unless it is inconspicuous. However, if k limits party to certain remedy and that remedy fails of its essential purpose (e.g., k limits remedies to repair and item can't be repaired), a ct may find limitation unconscionable and ignore it.

Front 145

Unconscionability-Timing

Back 145

Determined by circumstances as they existed at time k was formed.

Front 146

Unconscionability-Effect if Court Finds Unconscionable Clause

Back 146

If court finds as matter of law that k or any clause of k was unconscionable when made, ct may (i) refuse to enforce k; (ii) enforce remainder of k w/o unconscionable clause; or (iii) limit application of any clause so as to avoid unconscionable result.

Front 147

Determining Terms of Contract-General Rules of Construction

Back 147

Applied by courts when interpreting ks. Frequently invoked include: 1. Ks will be construed as whole; specific clauses will be subordinated to k's general intent; 2. Courts will construe words according to ordinary meaning unless clearly shown meant to be used in technical sense; 3. If provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions; 4. Cts generally will try to reach determination that k is valid and enforceable; 5. Ambiguities in k are construed against party preparing k, absent evidence of intention of parties; 6. Parties' course of dealing (i.e., sequence of conduct concerning previous transactions b/w parties to particular transaction that may be regarded as establishing common basis of their understanding); 7. Usage of trade (i.e., practice or method of dealing, regularly observed in particular biz setting so as to justify expectation it will be follow in transaction in question); 8. Parties' course of performance (i.e., if k involves repeated occasions for performance by either party and other party has opportunity to object to such performance, any course of performance accepted or acquiesced to is relevant in determining meaning of k); 9. When rules conflict: (i) express terms are given greater weight than course of performances, course of dealing, and usage of trade; (ii) course of performance is given greater weight than course of dealing or using of trade; and (iii) course of dealing is given greater weight than usage of trade.

Front 148

Determining Terms of Contract-Parol Evidence Rule

Back 148

When parties to k express their agreement in a writing w/ intent that it embody final expression of their bargain, writing is an integration. Any other expressions--written or oral-made prior to writing, as well as any oral expressions contemporaneous w/ writing, are inadmissible to vary terms of writing.

Front 149

Parol Evidence Rule-Is Writing an Integration?

Back 149

If integration is complete, writing can't be contradicted or supplemented. If, however, integration is partial, writing may not be contradicted but may be supplemented by providing consistent add'l terms. UCC presumes all writings are partial integrations.

Front 150

Parol Evidence Rule-Effect of Merger Clause

Back 150

Recites that agreement is complete agreement b/w parties. Presence of merger clause is usually determinative in large commercial ks. For most ks, however, modern trend is to consider it as one factor in determining integration. Memo prepared by one party and not shown to other can never be an integration b/c parties could not have intended it to be final complete expression of their agreement.

Front 151

Parol Evidence Rule-Evidence Outside Scope of Rule

Back 151

B/c rule prohibits admissibility of only extrinsic ev that seeks to vary, contradict, or add to an integration, other forms of extrinsic ev may be admitted if they will not bring about this result, i.e., they will fall outside scope of PER.

Front 152

Parol Evidence Rule-Evidence Outside Scope of Rule-Validity Issues

Back 152

Party to written k can attack agreement's validity. Party acknowledges (concedes) that writing reflects ag but asserts, most frequently, that the ag never came into being b/c of any of following: 1) Formation defects (e.g., fraud, duress, mistake, illegality; may be shown by extrinsic ev); 2) Conditions Precedent to Effectiveness (if party asserts there was oral ag that written k wouldn't become effective until condition occurred, all ev of understanding may be offered and received)

Front 153

Parol Evidence Rule-Evidence Outside Scope of Rule-Collateral Agreements and Naturally Omitted Terms

Back 153

PE is often said to be admissible if alleged parol agreement is collateral to written obligation (i.e., related to subject matter but not part of primary promise) and doesn't conflict w/ it. Restatement of Ks include a similar concept w/ more definitive approach; naturally omitted terms doctrine. Allows evidence of terms that would naturally be omitted from written ag. Term would naturally be omitted if: (i) doesn't conflict w/ written integration; and (ii) it concerns subject that similarly situated parties would not ordinarily be expected to include in written instrument.

Front 154

Parol Evidence Rule-Evidence Outside Scope of Rule-Interpretation

Back 154

If uncertainty or ambiguity in written agreement's terms or a dispute as to meaning of those terms, PE can be received to aid fact finder in reaching a correct interpretation of ag. However, if meaning of ag is plain, PE inadmissible.

Front 155

Parol Evidence Rule-Evidence Outside Scope of Rule-Showing of True Consideration

Back 155

PER won't bar extrinsic evidence showing true consideration paid (e.g., ev that consideration stated in k was never paid).

Front 156

Parol Evidence Rule-Evidence Outside Scope of Rule-Reformation

Back 156

If party to written ag alleges facts (e.g., mistake) entitling him to reformation of ag, PER inapplicable.

Front 157

Parol Evidence Rule-Evidence Outside Scope of Rule-Subsequent Modification

Back 157

PE can be offered to show subsequent modifications of written k.

Front 158

Parol Evidence Rule-Evidence Outside Scope of Rule-Add'l Terms Under Art 2

Back 158

Art 2 generally follows other rules, providing that party can't contradict written k but may add consistent add'l terms unless: (i) there is merger clause, or (ii) courts find from all of circs that writing was intended as complete and exclusive statement of terms of ag. Art 2 also provides that written k's terms may be explained or supplemented by ev of course of performance, course of dealing, and usage of trade--regardless of whether or not writing appears to be ambiguous.

Front 159

Article 2 Provisions on Interpreting Contracts-Supplemental ("Gap-Filler") Terms

Back 159

Key to forming k for sale of goods is quantity term. If other terms are missing from ag, Art 2 has gap-filler provisions to fill in missing terms.

Front 160

Article 2 Provisions on Interpreting Contracts-Supplemental ("Gap-Filler") Terms-Price

Back 160

If: (i) nothing has been said as to price; (ii) price is left open to be agreed upon by parties and they fail to agree; or (iii) price is to be fixed in terms of some standard that is set by 3rd person or agency and it's not set, then the price is a reasonable price at time for delivery.

Front 161

Article 2 Provisions on Interpreting Contracts-Supplemental ("Gap-Filler") Terms-Place of Delivery

Back 161

If place of delivery isn't specified, place usually is seller's place of biz, if he has one; otherwise, seller's home.

Front 162

Article 2 Provisions on Interpreting Contracts-Supplemental ("Gap-Filler") Terms-Time for Shipment or Delivery

Back 162

If time for shipment or delivery is not specified, shipment/delivery is due in reasonable time.

Front 163

Article 2 Provisions on Interpreting Contracts-Supplemental ("Gap-Filler") Terms-Time for Payment

Back 163

If not specified, payment is due at time and place at which buyer is to receive goods.

Front 164

Article 2 Provisions on Interpreting Contracts-Supplemental ("Gap-Filler") Terms-Assortment

Back 164

If k provides that assortment of goods is to be delivered (e.g., blouses in various colors and sizes) and doesn't specify which party is to choose, assortment is at buyer's option. If party who has right to specify assortment doesn't do so seasonably, other party is excused from any resulting delay and may either proceed in any reasonable manner (e.g., choose reasonable assortment) or treat failure as breach.

Front 165

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss

Back 165

All ks for sale of goods require delivery of goods. A k's delivery terms are important b/c they determine when risk of loss passes from seller to buyer if goods are damaged or destroyed.

Front 166

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Noncarrier Case

Back 166

Sale in which it appears that parties didn't intend that goods would be moved by common carrier (e.g., when you buy groceries). In such case, if seller is merchant, risk of loss passes to buyer only when she takes physical possession of goods. If seller isn't merchant, risk of loss passes to buyer upon tender of delivery.

Front 167

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Carrier Case

Back 167

Sale in which it appears that parties intended goods to be moved by carrier (e.g., when you order book from Internet website). Two types of carrier cases-shipment ks and destination ks.

Front 168

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Carrier Case-Shipment Contract

Back 168

If k authorizes or requires seller to ship goods by carrier but doesn't require him to deliver them at particular destination, it is shipment k and risk of loss passes to buyer when goods are delivered to carrier. In absence of contrary ag, Art 2 presumes a k is shipment k.

Front 169

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Carrier Case-Destination Contracts

Back 169

If k requires seller to deliver goods at a particular destination, risk of loss passes to buyer when goods are tendered to buyer at destination.

Front 170

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Carrier Case-Common Delivery Terms-FOB

Back 170

Stands for "free on board." Letters FOB are always followed by a location, and risk of loss passes to buyer at named location. Seller bears risk and expense of getting goods to named location. these ks can be either shipment ks or destination ks, depending on location named.

Front 171

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Carrier Case-Common Delivery Terms-FAS

Back 171

Stands for "free alongside." Term is generally used only when goods are to be shipped by boat. Risk of loss passes to buyer once goods are delivered to dock.

Front 172

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Effect of Breach on Risk of Loss-Defective Goods

Back 172

If buyer has right to reject goods, risk of loss doesn't pass to buyer until defects are cured or she accepts goods in spite of their defects. Note that buyer generally has right to reject for any defect.

Front 173

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Effect of Breach on Risk of Loss-Revocation of Acceptance

Back 173

If buyer rightfully revokes acceptance, risk of loss is treated as having rested on seller from beginning to extent of any deficiency in buyer's insurance coverage.

Front 174

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Risk in Sale or Return Contracts

Back 174

For purpose of determining risk of loss, sale or return k (e.g., buyer takes goods for resale but may return them if she is unable to resell them) is treated as an ordinary sale and above rules apply. If goods are returned to seller, risk remains on buyer while goods are in transit.

Front 175

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Risk in Sale on Approval Contracts

Back 175

In a sale on approval (i.e., buyer takes goods for use but may return them even if they conform to k), risk of loss doesn't pass to buyer until accepts.

Front 176

Article 2 Provisions on Interpreting Contracts-Delivery Terms and Risk of Loss-Goods Destroyed Before Risk of Loss Passes

Back 176

If goods were identified when k was made are destroyed (i) w/o fault by either party and (ii) before risk of loss passes to buyer, k is avoided (i.e., seller's performance is excused). If goods weren't identified until after k was made, seller in this situation would have to prove impracticability to be discharged.

Front 177

Article 2 Provisions on Interpreting Contracts-Insurable Interest and Identification

Back 177

Buyer often bears risk of loss before receiving goods purchased. In order to aid buyers in this situation (and a few others), Art. 2 gives buyers a special property interest in goods as soon as they are identified as ones that will be used to satisfy k (e.g., as soon as seller sets them aside for buyer). This special property interest is insurable.

Front 178

Article 2 Provisions on Interpreting Contracts-Bilateral Contracts Formed by Performance

Back 178

K may be formed by parties' performance where mirror image rule not satisfied and under certain circumstances, under Art. 2's battle of forms provision. In such cases, under Art. 2, k includes all of terms on which writings of both parties agree. Any necessary missing terms are filled in by supplement terms provided for in Art. 2.

Front 179

Article 2 Provisions on Interpreting Contracts-Common Law Lost Shot Rule

Back 179

Rule is diff in CL ks. At CL, k includes terms of last communication sent to party who performed.

Front 180

Article 2 Provisions on Interpreting Contracts-Warranties

Back 180

Ks for sale of goods automatically include warranty of title (in most cases). They also may include certain implied and express warranties.

Front 181

Article 2 Provisions on Interpreting Contracts-Warranties-Warranty of Title

Back 181

Any seller of goods warrants that title transferred is good, that transfer is rightful, and that there are no liens or encumbrances against title of which buyer is unaware at time of contracting. This warranty arises automatically and need not be mentioned in k.

Front 182

Article 2 Provisions on Interpreting Contracts-Warranties-Warranty Against Infringement

Back 182

A merchant seller regularly dealing in goods of kind sold also automatically warrants that goods are delivered free of any patent, trademark, copyright, or similar claims. But buyer who furnishes specifications for goods to seller must hold seller harmless against such claims.

Front 183

Article 2 Provisions on Interpreting Contracts-Warranties-Implied Warranty of Merchantability

Back 183

Implied in every k for sale by merchant who deals in goods of kind sold, there is warranty that goods are merchantable. To be merchantable, goods must at least be "fit for ordinary purpose for which goods are used."

Front 184

Article 2 Provisions on Interpreting Contracts-Warranties-Implied Warrant of Merchantability-Seller's Knowledge of Defect Not Relevant

Back 184

As in all implied warranty cases, it makes no diff that seller himself didn't know of defect or that he couldn't have discovered it. Implied warranties aren't based on negligence but rather on absolute liability that imposed on certain sellers.

Front 185

Article 2 Provisions on Interpreting Contracts-Warranties-Implied Warranty of Fitness for a Particular Purpose

Back 185

A warranty will also be implied in k for sale of goods whenever (i) any seller, merchant or not, has reason to know the particular purpose for which goods are to be used and that buyer is relying on seller's skill and judgment to select suitable goods; and (ii) buyer in fact relies on seller's skill or judgment.

Front 186

Article 2 Provisions on Interpreting Contracts-Warranties-Express Warranties

Back 186

Any affirmation of fact/promise made by seller to buyer, any description of goods, and any sample or model creates express warranty if statement, description, sample, or model is part of basis of bargain. For these to be part of basis of bargain, it need only come at such time that buyer could have relied on it when she entered into k. Buyer doesn't need to prove she actually relied, although seller may negate warranty by proving that buyer as a matter of fact didn't rely. Unnecessary that seller intended affirmation of fact, description, model, or sample to create warranty.

Front 187

Article 2 Provisions on Interpreting Contracts-Warranties-Statements of Value or Opinion

Back 187

Statement relating merely to value of goods, or statement purporting to be only seller's opinion or commendation of goods, doesn't create express warranty.

Front 188

Article 2 Provisions on Interpreting Contracts-Warranties-Disclaimer of Warranties-Warranty of Title

Back 188

Title warranty can be disclaimed or modified only by specific language or by circumstances that give buyer notice that seller doesn't claim title or that he is selling only such rights as he or a 3rd party may have (e.g., sheriff's sale).

Front 189

Article 2 Provisions on Interpreting Contracts-Warranties-Disclaimer of Warranties-Implied Warranties

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Implied warranties of merchantability and fitness for particular purpose can be disclaimed by either specific disclaimers or general methods of disclaimer.

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Warranties-Disclaimer of Warranties-Disclaimer of Warranty of Merchantability

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Warranty of merchantability can be specifically disclaimed or modified only by mentioning merchantability. If sales k is in writing, disclaimer must be conspicuous.

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Warranties-Disclaimer of Warranties-Disclaimer of Warranty of Fitness for a Particular Purpose

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Can be specifically disclaimed only by a conspicuous writing. Written disclaimer, according to statute, is sufficient if it says, e.g., "there are no warranties which extend beyond description on face hereof."

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Warranties-Disclaimer of Warranties-Disclaimer of Warranty of Fitness for a Particular Purpose-Conspicuousness Defined

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Term is conspicuous when it is "so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it. Language in body of writing is conspicuous if: (i) it is in larger type than surrounding text; (ii) it is in contrasting type, font, or color; or (iii) it is set off from text by marks that call attention to it. Court, not jury, decides any fact question as to conspicuousness.

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Warranties-Disclaimer of Warranties-General Disclaimer Methods

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UCC also provides several general methods for disclaiming implied warranties.

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Warranties-Disclaimer of Warranties Methods-By General Disclaimer Language

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Unless circumstances indicate otherwise, implied warranties of merchantability and fitness can be disclaimed by expressions such as is, with all faults, or other expressions that in common understanding call the buyer's attention to fact that there are no implied warranties.

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Warranties-Disclaimer of Warranties Methods-By Examination or Refusal to Examine

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If buyer, before entering into k, has examined goods or sample or model as fully as she desires or has refused to examine, there is no warranty as to defects that reasonable examination would have revealed to her.

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Warranties-Disclaimer of Warranties Methods-By Course of Dealing, Etc.

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Implied Warranties may also be disclaimed by course of dealing, course of performance, or usage of trade.

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Warranties-Disclaimer of Warranties-Express Warranties

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UCC provides that words or conduct relevant to creation of express warranties and words or conduct tending to negate such warranties shall wherever possible be construed as consistent w/ each other, but negation or limitation is inoperative to extent that such construction is unreasonable. I.e., once an express warranty is made, very difficult to disclaim.

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Warranties-Disclaimer of Warranties-Limitations on Damages

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Parties may include in their k a clause limiting damages available in case of breach of warranty (e.g., remedy for breach of warranty is limited to repair or replacement of defective goods). However, such limitation will not be upheld if unconscionable (e.g., causes remedy to fail of its essential purpose, limits personal injury damages for consumer goods). Moreover, warranty disclaimers that limit damage for personal injury caused by breach of warranty on consumer goods are prima facie unconscionable.

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Warranties-Disclaimer of Warranties-Timing

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To be effective, disclaimer of warranty or limitation on remedies must be agreed to during bargaining process. Although few courts hold otherwise, most hold that warranty disclaimer or limitation on remedy included inside packaging of goods isn't effective against buyer.

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Warranties-Disclaimer of Warranties-Clickwrap

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Comp software often comes w/ terms that appear on user's comp screen during installation process, and purchaser must click to agree to terms before installing. Such limitations and disclaimers typically are upheld on rationale that purchaser can return software if he disagrees w/ conditions.

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Warranties-Disclaimer of Warranties-Unconscionability and Warranty Disclaimers

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Some courts will, in addition to determining whether disclaimers have met formal requirements, test warranty disclaimers by unconscionability standards.

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Warranties-Damages for Breach of Warranty-In General

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Generally, measure of damages for breach of any warranty is diff b/w value of goods accepted and value of goods as warranted, measured at time and place of acceptance. If there are special circumstances, damages may be measured diff to account for those circumstances.

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Warranties-Damages for Breach of Warranty-Breach of Warranty of Title

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If breached, goods are reclaimed by true owner or lien holder, thus dispossessing buyer. Buyer may then rescind k, revoke acceptance of goods, or sue for damages. Value of goods accepted is deemed to be nothing; so damages are value of goods as warranted. Often, but not always, that is same as purchase price.

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Warranties-Damages for Breach of Warranty-Special Circumstances

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If there are special circumstances, value of goods is measured at time of dispossession rather than at time of acceptance. A great appreciation (e.g., art) or depreciation (e.g., car) in value of goods from time of delivery until dispossession is usually considered a special circumstance.

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Warranties-Damages for Breach of Warranty-To Whom Do Warranties Extend?

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UCC sec. 2-318 provides alternative provisions for determining to whom warranty liability extends. Most states have adopted narrowest provision. Alternative A, which provides that seller's warranty liability extends to any natural who is in family or household of buyer or who is a guest in buyer's home if it is reasonable to expect that person may use, consume, or be affected by goods and that person suffers personal injury b/c of breach of warranty.

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Modification of Contract Terms-Consideration

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Under general k law, a k can't be modified unless modification is supported by new consideration. Modern view, however, permits modification w/o consideration if: (i) modification is due to circumstances that were unanticipated by parties when k was made and (ii) it is fair and equitable. UCC is even more liberal-GF promises of new and diff terms by parties to sales k are valid w/o consideration.

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Modification of Contract Terms-Writing

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Written k can be modified orally. For sales of goods ks, however, modification must be in writing if k as modified falls w/i SOF. If k as modified is for $500 or more, it must be evidenced by writing; if k as modified is for less than $500, no writing is necessary.

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Modification of Contract Terms-Writing-Common Law

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CL rule is that even if written k expressly provides that it may be modified only by writing, parties can orally modify k.

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Modification of Contract Terms-Writing-UCC

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Under UCC, if k explicitly provides that it may not be modified or rescinded except by signed writing, that provision is given effect. If K is b/w a merchant and non merchant, however, this provision requires non merchant's separate sig.

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Modification of Contract Terms-Writing-Waiver

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If parties attempt to orally modify a k that requires written modification (either b/c of k clause or SOF), it is technically ineffective as modification, but it can operate as waiver. Such waiver will be found whenever other party has changed position in reliance on oral modification. However, party who makes waiver affecting an executory (not yet performed) portion of k may retract waiver if she notifies other party that strict performance of waived terms is required. Waiver may not be retracted if other party detrimentally relied on it.

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Modification of Contract Terms-Parol Evidence Rule Does Not Apply

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PE admissible to show subsequent oral modifications of written k.

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Performance and Excuse of Nonperformance-Performance at Common Law

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Party's basic duty at CL is to substantially perform all that is called for in k.

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Performance and Excuse of Nonperformance-Performance Under Art. 2

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Generally requires perfect tender delivery and condition of goods must be exactly as promised in k.

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Performance and Excuse of Nonperformance-Performance Under Art. 2-Obligation of Good Faith

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Requires all parties to act in gf, which is defined as "honesty in fact and observance of reasonable comm'l standards of fair dealing." This obligation can't be waived by parties.

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Performance and Excuse of Nonperformance-Performance Under Art. 2-Seller's Obligation of Perfect Tender and Deliver-Noncarrier Cases

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Nonrcarrier case is sale in which it appears parties didn't intend goods to be moved by carrier.

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Performance Under Art. 2-Seller's Obligation of Perfect Tender and Deliver-Noncarrier Cases-Tender of Delivery

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In proper tender of delivery, seller must put and hold conforming goods at buyer's disposition for time sufficient for buyer to take possession. Seller must give buyer notice reasonably necessary to enable her to take possession of goods. Tender must be at reasonable hour.

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Performance Under Art. 2-Seller's Obligation of Perfect Tender and Deliver-Noncarrier Cases-Place of Delivery

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In absence of agreement otherwise, place of delivery generally is seller's place of biz, or if he has none, his residence.

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Performance Under Art. 2-Seller's Obligation of Perfect Tender and Deliver-Carrier Cases

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Carrier case is sale in which, due either to circumstances or to express terms of ag, it appears that parties intended that carrier be used to move goods.

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Performance Under Art. 2-Seller's Obligation of Perfect Tender and Deliver-Carrier Cases-Shipment Contracts (Where Seller Hasn't Agreed to Tender at Particular Destination)

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In absence of an agreement otherwise, seller need not see that goods reach buyer, but need only: (a) Put goods into hands of reasonable carrier and make reasonable k for their transportation to buyer; (b) Obtain and promptly tender any docs required by k or usage of trade or otherwise necessary to enable buyer to take possession; and (c) Promptly notify buyer of shipment.

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Performance Under Art. 2-Seller's Obligation of Perfect Tender and Deliver-Carrier Cases-Destination Contracts (Where Seller has Agreed to Tender at Particular Destination)

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If k requires seller to tender delivery of goods at particular destination (e.g., F.O.B. buyer's warehouse), seller must, at destination, put and hold conforming goods at buyer's disposition.

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Performance Under Article 2-Buyer's Obligation to Pay-Delivery and Payment Concurrent Conditions

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In noncarrier cases, unless k provides otherwise, sale is for cash and price is due concurrently w/ tender of delivery. However, unless otherwise agreed, when goods are shipped by carrier, price is due only at time and place at which buyer receives goods. Therefore, in shipment case, the price is due when goods are put in hands of carrier, and in destination k price is due when goods reach named destination.

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Performance Under Article 2-Buyer's Obligation to Pay-Payment by Check

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Sufficient unless seller demands cash and gives buyer time to get it. If check is given, buyer's duty to pay is suspended until check is either paid or dishonored. If check is paid, buyer's duty to pay is discharged. If check is dishonored, seller may sue for price or recover goods.

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Performance Under Article 2-Buyer's Obligation to Pay-Installment Contracts

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Seller may demand payment for each installment if price be so apportioned, unless contrary intent appears.

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Performance Under Article 2-Buyer's Obligation to Pay-Buyer's Right of Inspection

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Buyer has right to inspect goods before she pays unless k provides for payment C.O.D. or otherwise indicates that buyer has promised to pay w/o inspecting goods.

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Performance and Excuse of Nonperformance-Conditions

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K may provide that party doesn't have duty to perform unless some condition is fulfilled. In that case, party's failure to perform is justified if condition wasn't fulfilled.

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Conditions-Distinction b/w Promise and Condition

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Difference b/w whether party is bound under k and whether party who is bound has come under duty to perform. A person is bound if there has been an offer, an acceptance, and exchange of consideration. However, k may provide (impliedly or explicitly) that party who is bound does not come under duty to perform unless or until some specified condition occurs. In looking at terms of k, distinction must be drawn b/w absolute promise on one hand an condition on other.

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Conditions-Definition of Promise

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Commitment to do or refrain from doing something. If promise is unconditional, failure to perform according to its terms is breach of k.

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Conditions-Definition of Condition

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Normally means either: (i) an event or state of world that must occur or fail to occur before party has duty to perform; (ii) an even or state of world, the occurrence of which releases a party from his duty to perform. Condition is "promise modifier." Can be no breach of promise until promisor is under immediate duty to perform.

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Conditions-Definition of Condition-Failure of Condition v. Breach of Contract

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Failure of contractual provision that is only condition is not a breach of k, but it discharges liability of promisor whose obligations on conditional promise never mature.

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Conditions-Interpretation of Provision as Promise or Condition

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What determines whether k provision is a promise or condition is "intent of parties." Courts will look at words and phrases used by parties, their prior practices, custom in biz community w/ respect to provision, and whether performance is needed from third party (if performance is to be rendered by third party, it is more likely to be condition than absolute promise). In doubtful situation, most courts will hold that provision in question is promise.

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Conditions-Classifications-Condition Precedent

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One that must occur before an absolute duty of immediate performance arises in other party.

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Conditions-Classifications-Conditions Concurrent

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Those that are capable of occurring together, and that the parties are bound to perform at same time (e.g., tender deed for cash). Thus, in effect, each is a condition precedent to the other.

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Conditions-Classifications-Conditions Subsequent

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One that, when it occurs, cuts off already existing absolute duty of performance.

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Conditions-Express Conditions

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Normally refers to an explicit contractual provision. An express statement in k providing that either (i) a party doesn't have duty to perform unless some event occurs or fails to occur; or (ii) if some event occurs or fails to occur, the obligation of party to perform one or more of his duties under k is suspended or terminated. Conditions of satisfaction are common express conditions.

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Conditions-Express Conditions-Promisor's Satisfaction as Condition Precedent

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Many ks include an express condition that party will pay only if "satisfied" w/ other's party performance. B/c it is condition, promisor is under no duty to pay unless she is satisfied.

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Conditions-Express Conditions-Promisor's Satisfaction as Condition Precedent-Mechanical Fitness, Utility, or Marketability

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In ks involving mechanical fitness, utility, or marketability (e.g., construction or manufacturing ks), a condition of satisfaction is fulfilled by performance that would satisfy reasonable person. It is therefore immaterial that promisor was not personally satisfied if reasonable person would have accepted and approved performance tendered.

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Conditions-Express Conditions-Promisor's Satisfaction as Condition Precedent-Personal Taste or Judgment

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If K involves personal taste or personal judgment (e.g., portraits, dental work), a condition of satisfaction is fulfilled only if promisor is personally satisfied. But note: Even if condition requires personal satisfaction, a promisor's lack of satisfaction must be honest and in good faith. Thus, if promisor refuses to examine promisee's performance, or otherwise rejects the performance in bad faith, the condition of satisfaction will be excused.

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Conditions-Express Conditions-Satisfaction of Third Person as Condition

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Construction ks often include a condition requiring satisfaction of owner's architect or engineer. When satisfaction of third person is condition, most courts require the actual personal satisfaction of that person. However, condition will be excused if third person's dissatisfaction is not honest and in good faith.

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Conditions-Constructive Conditions-Constructive Conditions of Performance

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Most important and common implied condition is that duty of each party to render performance is conditioned on other party either rendering his performance or making tender of performance.

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Conditions-Constructive Conditions-Constructive Conditions of Cooperation and Notice

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Common. Under constructive condition of cooperation, obligation of one party to render performance is impliedly conditioned on other party's cooperation in that performance. Also, it's often condition to one party's performance that other party give him notice that performance is due. A condition of notice is most commonly applied where party couldn't reasonably be expected to know a fact (e.g., need for repair) that triggered duty to perform unless such notice is given.

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Conditions-Constructive Conditions-Order of Performance

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Courts will sometimes imply constructive conditions relating to time for performing under k.

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Conditions-Constructive Conditions-Order of Performance-Simultaneous Performance Possible Conditions Concurrent

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If both performances can be rendered at same time, they are constructively concurrent; thus, each is condition precedent to other. Hence, absent excuse, each party must first tender his own performance if he wishes to put other under duty of immediate performance resulting in breach if he fails to perform.

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Conditions-Constructive Conditions-Order of Performance-One Performance Takes Time Condition Precedent

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If one performance will take period of time to complete while other can be rendered in an instant, completion of longer performance is consecutive condition precedent to execution of shorter performance.

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Conditions-Effect of Condition (Equitable Remedy)

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If k isn't enforceable due to failure or occurrence of condition, and one of parties has fully or partially performed, he can usually recover under unjust enrichment theories, although measure in that case may be less advantageous than k price.

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Conditions-Have Conditions Been Excused?

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A duty of immediate performance w/ respect to conditional promise doesn't become absolute until conditions (i) have been performed, or (ii) have been legally excused. Thus, in analyzing question, if facts don't reveal performance of applicable condition precedent or concurrent, look to see whether condition has been excused. Excuse of conditions can arise in variety of ways.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Hindrance or Failure to Cooperate

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If party having duty of performance that is subject to condition (i.e., she is party protected by condition) prevents wrongful condition from occurring, condition will be excused if the prevention is wrongful (i.e., other party wouldn't have been reasonably contemplated or assumed risk of this type of conduct).

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Actual Breach

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Actual breach of k when performance is due will excuse duty of counter-performance. Note, however, that counter-performance will be excused at CL only if breach is material. A minor breach may suspend this duty, but will not excuse it.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Anticipatory Repudiation

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Occurs if promisor, prior to time set for performance of his promise, indicates that he will not perform when time comes. If requirements are met, anticipatory repudiation will serve to excuse conditions: 1) executory bilateral k requirement; 2) anticipatory repudiation be unequivocal.

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Conditions-Have Conditions Been Excused?-Anticipatory Repudiation-Executory Bilateral Contract Requirement

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Applies only if there is bilateral k w/ executory (unperformed) duties on both sides.

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Conditions-Have Conditions Been Excused?-Anticipatory Repudiation-Requirement that Anticipatory Repudiation be Unequivocal

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Stems from words or conduct of promisor unequivocally indicating that he can't or won't perform when time comes.

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Conditions-Have Conditions Been Excused?-Anticipatory Repudiation-Effect of Anticipatory Repudiation

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Nonrepudiating party has four alternatives: a) Treat anticipatory repudiation as total repudiation and sue immediately; b) Suspend his own performance and wait to sue until performance date; c) Treat repudiation as offer to rescind and treat k as discharged; d) Ignore repudiation and urge promisor to perform (but note that by urging promisor to perform, nonrepudiating party is not waiving repudiation-she can still sue breach and is excused from performing unless promisor retracts the repudiation).

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Conditions-Have Conditions Been Excused?-Anticipatory Repudiation-Retraction of Repudiation

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Repudiating party may at any time before his next performance is due withdraw his repudiation unless other party has canceled, materially changed her position in reliance on repudiation, or otherwise indicated that she considers repudiation final. Withdrawal of repudiation may be in any manner that clearly indicates intention to perform, but must include any assurances justifiably demanded.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Prospective Inability or Unwillingness to Perform

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Occurs when party has reasonable grounds to believe that other party will be unable or unwilling to perform when performance is due.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Prospective Inability or Unwillingness to Perform-Distinguish from Actual and Anticipatory Repudiation

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Not an anticipatory repudiation b/c such a repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that party will perform.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Prospective Inability or Unwillingness to Perform-Effect of Prospective Failure

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Effect of prospective failure is to allow innocent party to suspend further performance on her side until she receives adequate assurances that performance will be forthcoming. If other party fails to provide adequate assurances, innocent party may be excused from her own performance and may treat failure to provide assurances as repudiation.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Prospective Inability or Unwillingness to Perform-Retraction of Repudiation

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Retraction is possible if defaulting party regains his ability or willingness to perform. However, this fact must be communicated to innocent party in order to be effective.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Substantial Performance

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Generally, condition of complete performance may be excused if party has rendered substantial performance. In this case, other party's duty of counter performance becomes absolute. It should be noted, however, that courts generally apply this doctrine only if a constructive (implied in law) condition is involved. They won't apply it when there is an express condition for fear this would defeat express intent of parties.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Substantial Performance-Substantial Performance Arises If Breach is Minor

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Rules for determining substantiality of performance are same as those for determining materiality of breach.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Substantial Performance-Inapplicable Where Breach "Willful"

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Most courts won't apply substantial performance if breach was willful.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Substantial Performance-Damages Offset

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Even though party who has substantially performed is able to enforce k, the other party will be able to mitigate by deducting damages suffered due to first party's incomplete performance.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Substantial Performance-Generally Inapplicable to Contracts for Sale of Goods

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Doctrine of substantial performance generally n/a in ks for sale of goods.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by "Divisibility" of Contract

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If k is divisible and party performs one of units of k, he is entitled to agreed-on equivalent for unit even if he fails to perform other units. It's not condition precedent to other party's liability that whole k be performed. However, other party has cause of action for failure to perform other units and may withhold his counter performance for those units.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by "Divisibility of Contract"-What is a Divisible Contract?

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3 part test must be concurrently satisfied to make k divisible: a) performance of each party is divided into 2 or more parts under k; b) number of parts due from each party is same; c) performance of each part by one party is agreed on as equivalent of corresponding part from other party, i.e., each performance is quid pro quo of other

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Conditions-Have Conditions Been Excused?-Excuse of Condition by "Divisibility of Contract"-Sale of Goods (Installment Contracts)

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Like CL, Art 2 assumes that k isn't divisible unless it authorizes deliveries in several lots, in which case k is called an installment k. In installment ks, price, if it can be apportioned, may be demanded for each lot unless a contrary intent appears.

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Conditions-Have Conditions Been Excused?-Execution of Condition by Waiver or Estoppel

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One having benefit of condition under k may indicate by words or conduct that she won't insist on condition's being met. Consideration not required for valid waiver of condition.

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Conditions-Have Conditions Been Excused?-Execution of Condition by Waiver or Estoppel-Estoppel Waiver

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Whenever party indicates that she is waiving a condition before it is to happen, or she is waiving some performance before it is to be rendered, and person addressed detrimentally relies on waiver, courts will hold this to be binding (estoppel) waiver. Note, however, that promise to waive a condition may be retracted at any time before other party has changed his position to his detriment.

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Conditions-Have Conditions Been Excused?-Execution of Condition by Waiver or Estoppel-Election Waiver

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When condition doesn't occur or duty of performance is broken, beneficiary of condition or duty must make an election; she may: (i) terminate her liability, or (ii) continue under k. If she chooses to continue, she will be deemed to have waived condition or duty. Election waiver requires neither consideration nor estoppel (although estoppel elements are often present). Note that an election waiver cannot be withdrawn-even if party hasn't relied on it.

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Conditions-Have Conditions Been Excused?-Execution of Condition by Waiver or Estoppel-Conditions that May be Waived

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If no consideration is given for waiver, condition must be ancillary or collateral to main subject and purpose of k for waiver to be effective. I.e., one can't waive entitlement to entire or substantially entire return performance.

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Conditions-Have Conditions Been Excused?-Execution of Condition by Waiver or Estoppel-Waiver in Installment Contracts

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In an installment k, if waiver isn't supported by consideration, beneficiary of waived condition can insist on strict compliance w/ terms of k for future installments (so long as there has been no detrimental reliance on waiver) by giving notice that he is revoking the waiver.

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Conditions-Have Conditions Been Excused?-Execution of Condition by Waiver or Estoppel-Right to Damages for Failure of Condition

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Waiver severs only right to treat failure of condition as total breach excusing counter performance. However, waiving party does not thereby waive her right to damages.

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Conditions-Have Conditions Been Excused?-Excuse of Condition by Impossibility, Impracticability, or Frustration

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Conditions may be excused by one of these.

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Has Absolute Duty to Perform been Discharged?-Discharge by Performance or Tender of Performance

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Most obvious way to discharge a k duty. Good faith tender of performance made in accordance w/ k terms will also discharge k duties.

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Has Absolute Duty to Perform been Discharged?-Discharge by Occurrence of Condition Subsequent

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Occurrence of condition subsequent will serve to discharge k duties.

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Has Absolute Duty to Perform been Discharged?-Discharge by Illegality

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If subject matter of k has become illegal due to subsequently enacted law or other gov act, performance will be discharged. Often referred to as "supervening illegality."

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Has Absolute Duty to Perform been Discharged?-Discharge by Impossibility, Impracticability, or Frustration

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Occurrence of an unanticipated or extraordinary event may make k duties impossible or impracticable to perform or may frustrate purpose or k. Where nonoccurrence of even was basic assumption of parties in making k and neither party has expressly or impliedly assumed risk of event occurring.

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Discharge by Impossibility

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K duties will be discharged if it has become impossible to perform them.

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Discharge by Impossibility-Impossibility Must be "Objective"

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I.e., duties could not be performed by anyone. Subjective impossibility will not suffice, i.e., where duties could be performed by someone but not promisor.

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Discharge by Impossibility-Timing of Impossibility

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Impossibility must arise after k has been entered into. If facts giving rise to impossibility already existed when k was formed, question is not one of "discharge of k duties." Rather, it is "k formation" problem, namely, whether k is voidable b/c of mistake.

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Discharge by Impossibility-Effect of Impossibility

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If k is discharged b/c of impossibility, each party is excused from duties arising under k that are yet to be fulfilled. Either party may sue for rescission and receive restitution of any goods delivered, payments made, etc.

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Discharge by Impossibility-Partial Impossibility

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If performance to be rendered under k becomes only partially impossible, duty may be discharged only to that extent. Remainder of performance may be required according to k terms. This is so even tho this remaining performance might involve added expense or difficulty.

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Discharge by Impossibility-Temporary Impossibility

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Suspends k duties. Doesn't discharge them. When performance once more becomes possible, duty "springs back" into existence unless burden on either party to k would be substantially increased or different from that originally contemplated.

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Discharge by Impossibility-Part Performance Prior to Impossibility (Quasi-Contractual Recovery)

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If party partially performed before impossibility arose, party will have right to recover in quasi-k at k rate or for reasonable value of his performance if that is a more convenient mode of valuation.

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Discharge by Impossibility-Specific Situations-Death or Physical Incapacity

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Death/physical incapacity of person necessary to effectuate k serves to discharge it.

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Discharge by Impossibility-Specific Situations-Supervening Illegality

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May swerve to discharge k. Many courts treat such supervening illegality as form of impossibility.

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Discharge by Impossibility-Specific Situations-Subsequent Destruction of Contract's Subject Matter or Means of Performance

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If k's subject matter is destroyed or designated means for performing k are destroyed, k duties will be discharged.

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Discharge by Impossibility-Specific Situations-Subsequent Destruction of Contract's Subject Matter or Means of Performance-Contracts to Build

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Contractor's duty to construct building is not discharged by destruction of work in progress. Rationale: Construction is not rendered impossible; contractor can still rebuild. However, if destruction wasn't caused by contractor, most courts will excuse contractor from meeting original deadline.

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Discharge by Impossibility-Specific Situations-Subsequent Destruction of Contract's Subject Matter or Means of Performance-Specificity Required-Subject Matter

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Destruction of subject matter will render k impossible only if very thing destroyed is necessary to fulfill k. If thing destroyed isn't actually necessary, impossibility not defense.

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Discharge by Impossibility-Specific Situations-Subsequent Destruction of Contract's Subject Matter or Means of Performance-Specificity of Source

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As w/ destruction of subject matter, destruction of source for fulfilling k will render k impossible only if source is one source specified by parties.

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Discharge by Impossibility-Specific Situations-Subsequent Destruction of Contract's Subject Matter or Means of Performance-If Risk of Loss Has Already Passed to Buyer

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Rules relating to discharge b/c of destruction of subject matter will not apply if risk of loss has already passed to buyer.

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Discharge by Impracticability

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Modern courts will discharge k duties where performance has become impracticable.

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Discharge by Impracticability-Test

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The party to perform has encountered: (a) Extreme and unreasonable difficulty and/or expense AND (b) Its nonoccurrence was basic assumption of parties.

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Discharge by Impracticability-Contracts for Sale of Goods

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Art 2 generally follows regular test for impossibility and impracticability. If performance has become impossible or commercially impracticable, seller will be discharged to extent of impossibility or impracticability.

Front 293

Discharge by Impracticability-Contracts for Sale of Goods-Allocation of Risk

Back 293

Generally, seller assumes risk of occurrence of such unforeseen events and must continue to perform. However, if it's fair to say that parties would not have placed on seller risk of extraordinary occurrence, seller will be discharged.

Front 294

Discharge by Impracticability-Contracts for Sale of Goods-Events Sufficient for Discharge

Back 294

Events sufficient to excuse performance include shortage of raw materials or inability to convert them into seller's product b/c of contingencies such as war, strike, embargo, or unforeseen shutdown of major supplier. Also catastrophic local crop failure but not mere shortage. However, mere increases in costs are rarely insufficient for discharge unless they change nature of k. Note: No bright line test for determining when rise in price changes nature of k, but increase in costs of more than 50% has been held to be insufficient.

Front 295

Discharge by Impracticability-Contracts for Sale of Goods-Seller's Partial Inability to Perform

Back 295

If seller's inability to perform as result of unforeseen circumstance is only partial, he must allocate deliveries among his customers and, at his option, may include in allocation regular customer not then under k.

Front 296

Discharge by Frustration

Back 296

Frustration exists if purpose of k has become valueless by virtue of some supervening event not fault of party seeking discharge. If purpose frustrated, number of courts will discharge k duties even tho performance of these duties is still possible. Elements necessary to establish frustration: Some supervening act or event leading to frustration; at time of entering into k parties didn't reasonably foresee act or event occurring; purpose of k has been completely or almost completely destroyed by this act or event; purpose of k was realized by both parties at time of making k.

Front 297

Distinguish Uses of Defenses of Impossibility/Impracticability and Frustration

Back 297

Seller of land, goods, or services will raise impossibility or impracticability as defense that discharges performance. By contrast, party who is supposed to pay (usually buyer) will raise frustration of purpose as defense discharging performance. Paying money is never impracticable.

Front 298

Discharge by Rescission

Back 298

Rescission will serve to discharge k duties. May be either mutual or unilateral.

Front 299

Discharge by Rescission-Mutual Rescission

Back 299

K may be discharged by express agreement b/w parties to rescind. Ag to rescind is itself binding k supported by consideration, namely, giving up by each party of her right to counter performance from other.

Front 300

Discharge by Rescission-Mutual Rescission-Contract Must be Executory

Back 300

For k to be effectively discharged by rescission, duties must be executory on both sides.

Front 301

Discharge by Rescission-Mutual Rescission-Contract Must be Executory-Unilateral Contracts

Back 301

If k is unilateral (i.e., only one party owes an absolute duty), a k to mutually rescind where one party still has duty to perform will be ineffective. For effective rescission in unilateral k situation where offeree has already performed, rescission promise must be supported by one of following: (a) Offer of new consideration by nonperforming party; (b) Elements of promissory estoppel, i.e., detrimental reliance; or (c) Manifestation of intent by original offeree to make gift of obligation owed her.

Front 302

Discharge by Rescission-Mutual Rescission-Contract Must be Executory-Partially Performed Bilateral Contracts

Back 302

Mutual Agreement to rescind will usually be enforced when bilateral k has been partially performed. Whether party who has partially performed will be entitled to compensation depends on terms of rescission ag.

Front 303

Discharge by Rescission-Mutual Rescission-Formalities

Back 303

Mutual rescission may be made orally. This is so even though k to be rescinded expressly states that it can be rescinded only by written doc, unless subject matter of k to be rescinded fails w/i SOF or k is for sale of goods (Art 2 requires written rescission or modification if original k to be rescinded or modified express requires written rescission).

Front 304

Discharge by Rescission-Unilateral Rescission

Back 304

Results when 1 of parties to k desires to rescind it but other party desires that k be performed according to its terms. For unilateral rescission to be granted, party desiring rescission must have adequate legal grounds. Most common among these are mistake, misrepresentation, duress, and failure of consideration. If non assenting party refuses to voluntarily grants rescission, other party may file action in equity to obtain it.

Front 305

Partial Discharge by Modification of Contract

Back 305

If k is subsequently modified by parties, this will serve to discharge those terms of original k that are subject of modification. It won't serve to discharge entire k. To have such partial discharge, must be mutual assent, consideration (besides for sale of goods).

Front 306

Partial Discharge by Modification of Contract-Mutual Assent

Back 306

Modifying agreement must have been mutually assented to. Note, however, under doctrine of reformation, either of parties to k may bring an equity action to have k's terms modified if writing, though mistake or misrepresentation, doesn't incorporate terms orally agreed on.

Front 307

Partial Discharge by Modification of Contract-Consideration

Back 307

Generally, consideration is necessary to modify k. However, courts usually find consideration to be present b/c each party has limited his right to enforce original k as is. No consideration is necessary if effect of modification is merely to correct an error in original k.

Front 308

Partial Discharge by Modification of Contract-Consideration-Contracts for Sale of Goods

Back 308

No consideration needed, as long as sought in good faith.

Front 309

Discharge by Novation

Back 309

Novation occurs when new k substitutes new party to receive benefits and assume duties that had originally belonged to one of original parties under terms of old k. Novation will serve to discharge old k. Elements for valid novation are: (i) previous valid k; (ii) ag among parties, including new party (or parties) to new k; (iii) immediate extinguishment of k duties as b/w original parties; and (iv) a valid and enforceable new k.

Front 310

Discharge by Cancellation

Back 310

Destruction or surrender of written k will not usually, by itself, discharge k. If, however, parties manifest their intent to have these acts serve as discharge, it will usually have this effect if consideration or one of its alternatives is present.

Front 311

Discharge by Release

Back 311

A release and/or k not to sue will serve to discharge k duties. Release or k not to sue usually must be in writing and supported by new consideration or promissory estoppel elements.

Front 312

Discharge by Substituted Contract

Back 312

K may be discharged by this. Occurs when parties to k enter into 2nd k that immediately revokes 1st k expressly or impliedly.

Front 313

Discharge by Substituted Contract-Contract Governs

Back 313

Whether 2nd k will constitute a substituted k depends on whether parties intend immediate discharge or discharge only after performance of 2nd k. If immediate discharge is intended, there is substituted k. If parties intend 1st k to be discharged only after performance of 2nd k, there is executory accord rather than substituted k.

Front 314

Discharge by Accord and Satisfaction-Accord

Back 314

Accord is an ag in which 1 party to an existing k agrees to accept, in lieu of performance that she is supposed to receive from other party to existing k, some other, diff performance.

Front 315

Discharge by Accord and Satisfaction-Accord-Requirement of Consideration

Back 315

In general, an accord must be supported by consideration. When consideration is of lesser value than originally bargained-for consideration in prior k, it will be sufficient if new consideration is of diff type or if claim is to be paid to 3rd party.

Front 316

Discharge by Accord and Satisfaction-Accord-Requirement of Consideration-Partial Payment of Original Debt

Back 316

One often-encountered problem involves offer of smaller amount than the amount due under an existing obligation in satisfaction of claim, i.e., partial payment of original debt. Majority view is that this will suffice for an accord and satisfaction if there is a bona fide dispute as to claim or there is otherwise some alteration, even if slight, in debtor's consideration.

Front 317

Discharge by Accord and Satisfaction-Accord-Effect of Accord

Back 317

Accord, taken alone, won't discharge prior k. Merely suspends right to enforce it in accordance w/ terms of accord k.

Front 318

Discharge by Accord and Satisfaction-Satisfaction

Back 318

Satisfaction is performance of accord ag. Its effect is to charge not only original k, but also accord k as well.

Front 319

Discharge by Accord and Satisfaction-Effect of Breach of Accord Agreement Before Satisfaction-Breach by Debtor

Back 319

If debtor breaches an accord agreement, creditor may sue either on original undischarged k or for breach of accord ag.

Front 320

Discharge by Accord and Satisfaction-Effect of Breach of Accord Agreement Before Satisfaction-Breach by Creditor

Back 320

If creditor breaches an accord ag (i.e., he sues on original k), debtor has two courses of action available: (i) raise accord ag as an equitable defense and ask that k action be dismissed; or (ii) wait until she is damaged (i.e., creditor is successful in his action on original k) and then bring action at law for damages for breach of accord k.

Front 321

Discharge by Accord and Satisfaction-Checks Tendered as "Payment in Full"

Back 321

If monetary claim is uncertain or is subject to bona fide dispute, accord and satisfaction may be accomplished by good faith tender and acceptance of check when that check (or an accompanying doc) conspicuously states that check is tendered in full satisfaction of debt.

Front 322

Discharge by Account Stated

Back 322

K b/w parties whereby they agree to an amount as final balance due from one to other. Final balance encompasses a number of transactions b/w parties and serves to merge all these transactions by discharging all claims owed.

Front 323

Discharge by Lapse

Back 323

If duty of each party is condition concurrent to other's duty, it is possible that on day set of performance, neither party is in breach and their k obligations lapse. If k states that time is of essence, lapse will occur immediately; otherwise k will lapse after reasonable time.

Front 324

Discharge-Effect of Running Statute of Limitations

Back 324

If statute of limitations on action has run, it is generally held that action for breach of k may be barred. Note, however, that only judicial remedies are barred; the running of statute doesn't discharge duties. (Hence, if party who has advantage of statute of limitations subsequently agrees to perform, new consideration will not be required.)

Front 325

Breach-When Does Breach Occur?

Back 325

If it is found that (i) 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 w/ k terms will amount to breach of k. Nonbreaching party who sues for breach of k must show that she is willing and able to perform but for breaching party's failure to perform.

Front 326

Breach-Material or Minor Breach (Common Law Contracts)-Minor Breach

Back 326

Breach of k is minor if obligee gains substantial benefit of her bargain despite obligor's defective performance. Minor breach does not relieve aggrieved party of her duty of performance under k; it merely gives her right to damages (setoff) for minor breach.

Front 327

Breach-Material or Minor Breach (Common Law Contracts)-Material Breach

Back 327

If obligee doesn't receive substantial benefit of her bargain, breach is considered material. If breach is material, non breaching party (i) may treat k as at an end, i.e., any duty of counter performance owed by her will be discharged, and (ii) will have an immediate right to all remedies for breach of entire k, including total damages.

Front 328

Breach-Material or Minor Breach (Common Law Contracts)-Minor Breach Coupled w/ Anticipatory Repudiation

Back 328

Non breaching party may treat it as material breach; i.e., she may sue immediately for total damages and is permanently discharged from any duty of further performance. Courts hold that aggrieved party must not continue on, b/c to do so would be failure to mitigate damages. UCC modifies this to permit party to complete manufacture of goods to avoid having to sell unfinished goods at lower salvage value.

Front 329

Breach-Material or Minor Breach (Common Law Contracts)-Material Breach of Divisible Contract

Back 329

In divisible k, recovery is available for substantial performance of divisible part even tho there has been material breach of entire k. However, must still perform under k.

Front 330

Breach-Material or Minor Breach (Common Law Contracts)-Determining Materiality of Breach

Back 330

Courts look at: 1) Amt of benefit received by non breaching party; 2) Adequacy of compensation for damages to injured party; 3) Extent of part performance by breaching party; 4) Hardship to breaching party; 5) Negligent or willful behavior of breaching party; and 6) Likelihood that breaching party will perform remainder of k. Nonbreaching party must show he was both willing and able perform.

Front 331

Breach-Material or Minor Breach (Common Law Contracts)-Timeliness of Performance

Back 331

Failure to perform by time stated in k is generally not material breach if performance is rendered w/i reasonable time. However, nature of k makes timely performance essential, or if k expressly provides that time is of essence, then failure to perform on time is usually material breach. Merely including date for performance doesn't make time of essence. While traditionally any delay in performance of k w/ time of essence provision was material breach, modern cts look to all circs to determine whether performance on specified date was vitally important and whether parties truly intended it to be so.

Front 332

Perfect Tender Rule-Sale of Goods

Back 332

Art 2 generally does not follow CL substantial performance doc. Instead, follows perfect tender rule-if goods or their delivery fail to conform to k in any way, buyer generally may reject all, accept all, or accept any comm'l units and reject rest.

Front 333

Perfect Tender Rule-Sale of Goods-Right to Cut Off by Acceptance

Back 333

Buyer's right to reject under perfect tender doc generally is cut off by acceptance. Under Art 2, buyer accepts when: a) After reasonable opportunity to inspect goods, she indicates to seller that they fail to conform to requirements or that she will keep them even if they fail to conform; b) She fails to reject w/i reasonable time after tender or delivery of goods or fails to seasonably notify seller of her rejection; or c) She does any act inconsistent w/ seller's ownership.

Front 334

Perfect Tender Rule-Sale of Goods-Buyer's Responsibility for Goods After Rejection

Back 334

After rejecting goods in her physical possession, buyer has obligation to hold them w/ reasonable care at seller's disposition and to obey any reasonable instructions as to rejected goods (e.g., arrange to reship goods). If seller gives no instructions no instructions w/i reasonable time, buyer may reship goods to seller, store them for seller's account, or resell them for seller's account. If buyer resells, she is entitled to recover her expenses and reasonable commission.

Front 335

Perfect Tender Rule-Sale of Goods-Buyer's Right to Revoke Acceptance

Back 335

Once goods are accepted, buyer's power to reject goods generally is terminated and buyer is obligated to pay price less any damages resulting from seller's breach. However, under limited situations, buyer make revoke an acceptance already made. Proper revocation of acceptance has effect of rejection.

Front 336

Perfect Tender Rule-Sale of Goods-Buyer's Right to Revoke Acceptance-When Acceptance May be Revoked

Back 336

Buyer my revoke her acceptance if goods have defect that substantially impairs their value to her AND EITHER: (i) she accepted them on reasonable belief that defect would be cured and it hasn't been; OR (ii) she accepted them b/c of difficulty of discovering defects or b/c of seller's assurance that goods conformed to k.

Revocation must occur: (i) w/i reasonable time after buyer discovers or should have discovered defects; and (ii) before any substantial change in goods occurs that isn't caused by defect present at time seller relinquished possession.

Front 337

Perfect Tender Rule-Sale of Goods-Exceptions-Installment Contracts

Back 337

Right to reject when k is an installment contract is much more limited. Installment can be rejected only if nonconformity substantially impairs value of installment and cannot be cured. In addition, whole k is breached only if nonconformity substantially impairs value of entire k.

Front 338

Perfect Tender Rule-Sale of Goods-Exceptions-Seller's Right to Cure-Single Delivery Contracts

Back 338

Seller can cure by notice and new tender w/i time for performance if buyer has rejected goods b/c of defects. Seller must give reasonable notice of her intention to do so and make new tender of conforming goods that buyer must then accept.

Front 339

Perfect Tender Rule-Sale of Goods-Exceptions-Seller's Right to Cure-Seller's Right to Cure Beyond Original Contract Time

Back 339

Ordinarily, seller has no right to cure beyond original k time. But if buyer rejects tender of nonconforming goods that seller reasonably believed would be acceptable w/ or w/o money allowance, the seller, upon reasonable notice to buyer, has further reasonable time beyond original k time w/i which to make a conforming tender. Seller will probably be found to have had reasonable cause to believe tender would be acceptable if seller can show that (i) trade practices or prior dealings w/ buyer led seller to believe that goods would be acceptable, OR (ii) seller couldn't have known of defect despite proper biz conduct.

Front 340

Breach-Anticipatory Repudiation

Back 340

Can be treated as immediate breach of k.

Front 341

Breach of Warranty

Back 341

Sellers give warranties as to condition of goods that apply even after acceptance. Failure to live up to these warranties constitute breach of warranty, for which remedy is available.

Front 342

Remedies-Nonmonetary Remedies

Back 342

Primary nonmonetary remedy on exam: specific performance.

Front 343

Nonmonetary Remedies-Specific Performance

Back 343

If legal remedy is inadequate, non breaching party may seek specific performance, which is an order from court to breaching party to perform or face contempt of court charges. Always available for land sale ks. Also available for goods that are rare or unique at time p performance is due. Not available for breach of k to provide services. Court can use injunction power to enjoin breaching employee from working for competitor throughout duration of k if services contracted for are rare or unique.

Front 344

Nonmonetary Remedies-Covenant Not to Compete

Back 344

Most courts will grant if: (i) services to be performed are unique and (ii) covenant is reasonable. To be reasonable, 1) covenant must be reasonably necessary to protect legit interest of person benefited by covenant; 2) must be reasonable in geographic scope and duration (can't be broader than benefited person's customer base and typically can't be >2 years); 3) Must not harm public.

Front 345

Nonmonetary Remedies-Equitable Defenses Available

Back 345

Laches-claim that P has delayed bringing action and delay has prejudiced D

Unclean Hands-Party seeking specific performance is guilty of wrongdoing in transaction being sued upon

Sale to BFP-Claim that subject matter has a been sold to person who purchased for value and in good faith

Front 346

Nonmonetary Remedies-Art 2-Buyer's Nonmonetary Remedies-Cancellation

Back 346

If buyer rightfully rejects goods b/c they don't conform to k, one of her options is simply to cancel.

Front 347

Nonmonetary Remedies-Art 2-Buyer's Nonmonetary Remedies-Buyer's Right to Replevy Identified Goods On Buyer's Prepayment

Back 347

If buyer has made at least part payment of purchase price of goods that have been identified under k and sell hasn't delivered goods, buyer may replevy goods from seller in two circumstances: (i) seller becomes insolvent w/i 10 days after receiving buyer's first payment; or (ii) goods were purchased for personal, family, or household purposes.

In either case, buyer must tender any unpaid portion of purchase price to seller.

Front 348

Nonmonetary Remedies-Art 2-Buyer's Nonmonetary Remedies-Buyer's Right to Replevy Identified Goods On Buyer's Inability to Cover

Back 348

Buyer may replevy undelivered, identified goods from seller if buyer, after reasonable effort, is unable to secure adequate substituted goods (i.e., cover).

Front 349

Nonmonetary Remedies-Art 2-Buyer's Nonmonetary Remedies-Buyer's Right to Specific Performance

Back 349

"Where goods are unique or in other proper circumstances." Court may order specific performance even where goods have not yet been identified to k by seller.

Front 350

Nonmonetary Remedies-Art 2-Seller's Nonmonetary Remedies-Seller's Right to Withhold Goods

Back 350

If buyer fails to make payment due on or before delivery, seller may withhold delivery of goods. Seller may also withhold goods when goods are sold on credit and, before goods are delivered, seller discovers that buyer is insolvent. However, in such case, seller must deliver goods if buyer tenders cash for their payment.

Front 351

Nonmonetary Remedies-Art 2-Seller's Nonmonetary Remedies-Seller's Right to Recover from Buyer on Buyer's Insolvency

Back 351

If seller learns that buyer has received delivery of goods on credit while insolvent, seller may reclaim goods upon demand made w/i 10 days after buyer's receipt of goods. However, 10 day limitation doesn't apply if misrepresentation of solvency has been made in writing to particular seller w/i 3 months before delivery.

Front 352

Nonmonetary Remedies-Art 2-Seller's Nonmonetary Remedies-Seller's Right to Recover Shipped or Stored Goods from Bailee on Buyer's Insolvency

Back 352

Seller may stop delivery of goods in possession of carrier or other bailee if he discovers that buyer is insolvent. Of course, seller must deliver goods if buyer tenders cash for their payment.

Front 353

Nonmonetary Remedies-Art 2-Seller's Nonmonetary Remedies-Seller's Right to Recover Shipped or Store Goods from Bailee-On Buyer's Breach

Back 353

Seller may stop delivery of carload, truckload, planeload, or larger shipments of goods if buyer breaches k or seller has right ti withhold performance pending receipt of assurances.

Front 354

Nonmonetary Remedies-Art 2-Seller's Nonmonetary Remedies-Seller's Right to Recover Shipped or Stored Goods from Bailee-Seller's Ability to Force Goods on Buyer Limited

Back 354

Limited to action for price when seller is unable to resell goods to others at reasonable price.

Front 355

Nonmonetary Remedies-Art 2-Right to Demand Assurances

Back 355

Actions/circs that + risk of nonperformance by party to k but don't clearly indicate that performance won't be forthcoming may not be treated immediately as an anticipatory repudiation. Instead, if there are reasonable grounds for insecurity w/ respect to party's performance, other party may demand in writing assurances that performance will be forthcoming at proper time. Until he receives adequate assurances, he may suspend his own performance. If proper assurances aren't given w/i reasonable time (i.e., w/i 30 days after justified demand for assurances), he may then treat k as repudiated. What constitutes adequate assurance depends on facts of case.

Front 356

Remedies-Damages-Types of Damages-Compensatory Damages

Back 356

Usual goal of damages for breach of k to put non breaching party in position she would've been in had promise been performed, so far as money can do this.

Front 357

Remedies-Damages-Types of Damages-Compensatory Damages-Expectation Damages

Back 357

Standard measure of damages. In most cases, P's standard measure of damages will be based on an expectation measure, i.e., sufficient damages for her to buy substitute performance. AKA benefit of the bargain damages.

Front 358

Remedies-Damages-Types of Damages-Compensatory Damages-Reliance Damage Measure

Back 358

If P's expectation damages are too speculative to measure (e.g., P can't show w/ sufficient certainty the profits she would have made if D had performed K), P may elect to recover damages based on reliance measure, rather than expectation measure. Reliance damages award P cost of her performance; i.e., they are designed to put P in position she would have been in had k never been formed.

Front 359

Remedies-Damages-Types of Damages-Compensatpry Damages-Consequential Damages

Back 359

Special damages and reflect losses over and above standard expectation damages. They arise b/c of non breaching party's particular circumstances, and most often they consist of lost profits. Damages may be recovered only if: (i) at time of k was made, a reasonable person would have foreseen damages as probable result of breach, (ii) damages couldn't have been avoided through reasonable efforts, and (iii) damages can be proved w/ reasonable certainty. Whether damages were avoidable and whether they are certain are issues w/ respect to any recovery. Foreseeability is key issue for consequential damages. To recover, breaching party must have known or had reason to know of special circumstances giving rise to damages. In ks for sale of goods, only buyer may recover consequential damages.

Front 360

Remedies-Damages-Types of Damages-Punitive Damages

Back 360

Generally not awarded in k cases.

Front 361

Remedies-Damages-Types of Damages-Nominal Damages

Back 361

May be awarded when breach is shown but no actual loss is proven.

Front 362

Remedies-Damages-Types of Damages-Liquidated Damages

Back 362

Parties to k may stipulate what damages are to be paid in event of a breach. These liquidated damages must be in an amount that is reasonable in view of actual or anticipated harm caused by breach.

Front 363

Remedies-Damages-Types of Damages-Liquidated Damages-Requirements for Enforcement

Back 363

Liquidated damage clauses will be enforceable if following two requirements are met: Damages for k breach must have been difficult to estimate or ascertain at time k was formed; AND Amount agreed on must have been a reasonable estimate of compensatory damages in case of breach. Test for reasonableness is comparison b/w amount of damages prospectively probable at time of k formation and liquidated damages figure. If liquidated damages amount is unreasonable, courts will construe this as penalty and won't enforce provision.

Front 364

Remedies-Damages-Types of Damages-Liquidated Damages-Recoverable Even if No Actual Damages

Back 364

If requirements met, P will receive liquidated damages amount. Most courts hold this so even if no actual money or pecuniary damages have been suffered.

Front 365

Remedies-Damages-Contracts for Sale of Goods-Buyer's Damages-Seller Does Not Deliver or Buyer Rejects Goods or Revokes Acceptance

Back 365

If buyer's basic damages where seller doesn't deliver, or buyer properly rejects or revokes her acceptance of tendered goods, consist of difference b/w k price and either (i) market price or (ii) cost of buying replacement goods, PLUS incidental and consequential damages, if any, LESS expenses saved as result of seller's breach.

Front 366

Seller Does Not Deliver or Buyer Rejects Goods or Revokes Acceptance-Difference b/w Contract Price and Market Price

Back 366

If buyer measures damages by diff b/w k price and market price, market price usually is determined as of time buyer learns of breach and at place of tender.

Front 367

Seller Does Not Deliver or Buyer Rejects Goods or Revokes Acceptance-Difference b/w Contract Price and Cost of Replacement Goods

Back 367

Cover damages. If buyer chooses cover measure (i.e., diff b/w k price and cost of buying replacement goods), buyer must make a reasonable k for substitute goods in good faith and w/o unreasonable delay.

Front 368

Remedies-Damages-Contracts for Sale of Goods-Buyer's Damages-Seller Delivers Nonconforming Goods that Buyer Accepts-Warranty Damages

Back 368

If buyer accepts goods that breach one of seller's warranties, buyer may recover damages lost resulting in normal course of events from breach. Basic measure of damages in such case is diff b/w value of goods as delivered and value they would have had if they had been according to k, plus incidental and consequential damages.

Front 369

Remedies-Damages-Contracts for Sale of Goods-Buyer's Damages-Seller Delivers Nonconforming Goods that Buyer Accepts-Notice Requirement

Back 369

To recover damages for any defect as to accepted goods, buyer must, w/i reasonable time after she discovers or should have discovered defect, notify seller of defect. If she doesn't, she loses her right to sue. Reasonable time is flexible standard.

Front 370

Remedies-Damages-Contracts for Sale of Goods-Buyer's Damages-Seller Anticipatorily Breaches Contract

Back 370

Measure of damages when seller anticipatorily breaches k is diff b/w market price at time buyer learned of breach and k price.

Front 371

Remedies-Damages-Contracts for Sale of Goods-Buyer's Damages-Consequential Damages

Back 371

Particular needs must be made known to seller, but general requirements usually need not be.

Front 372

Remedies-Damages-Contracts for Sale of Goods-Buyer's Damages-Consequential Damages-Goods for Resale

Back 372

If buyer is in business of reselling goods, seller is deemed to have knowledge of resale.

Front 373

Remedies-Damages-Contracts for Sale of Goods-Buyer's Damages-Consequential Damages-Goods Necessary for Manufacturing

Back 373

If seller knows that goods he provides are to be used in manufacturing process, he should know that his breach would cause disruption in production leading to loss of profits.

Front 374

Remedies-Damages-Contracts for Sale of Goods-Seller's Damages-Where Buyer Repudiates or Refuses to Accept Conforming Goods

Back 374

3 measures for damages for when buyer wrongfully repudiates or refuses to accept conforming goods. In addition to incidental damages (e.g., costs of storing, shipping, reselling) seller can: 1) recover diff b/w market price (measured as of time and at place of delivery and k price); 2) Resell goods and recover diff b/w k price and resale price; or 3) If above measures are inadequate b/c seller could have made additional sale, recover under lost profits measure diff b/w k price and cost to seller.

Front 375

Remedies-Damages-Contracts for Sale of Goods-Seller's Damages-Where Buyer Accepted Goods

Back 375

Action for price. If buyer has accepted goods and hasn't paid, or hasn't accepted goods, and seller is unable to resell them at any reasonable price, or if goods have been lost or damaged at time risk of loss was on buyer, seller may maintain action against buyer for full k price.

Front 376

Remedies-Damages-Contracts for Sale of Land

Back 376

Standard measure of damages for breach of land sale ks is diff b/w k price and FMV of land.

Front 377

Remedies-Damages-Employment Contracts-Breach by Employer

Back 377

Irrespective of when breach occurs (i.e., before performance, after part performance, or after full performance), standard measure of employee's damages is full k price, although such damages may be reduced if employee fails to mitigate)

Front 378

Remedies-Damages-Employment Contracts-Breach by Employee

Back 378

If employee materially breaches an employment k, employer is entitled to recover cost of replacing employee (i.e., wages employer must pay to a replacement employee minus breaching employee's wages). Breaching employee may offset money owed for work done to date.

Front 379

Remedies-Damages-Construction Contracts

Back 379

If breached by owner, builder entitled to profits that would've resulted from k plus any costs expended. If k breached after construction completed, measure is full k price plus interest. If k is breached by builder, owner is entitled to cost of completion plus reasonable compensation for delay. Most courts allow builder to offset or recover for work performed to date to avoid unjust enrichment of owner. If breach is only late performance, owner is entitled to damages incurred b/c of late performance.

Front 380

Remedies-Damages-Construction Contracts-Restoration and Economic Waste

Back 380

Usually, when building k isn't properly performed, owner is entitled to cost of fixing defect. However, unless there is special significance attached to use of particular item (e.g., owner is CEO of particular brand of copper pipe specified) and that significance is communicated to builder, a court won't order a remedy that results in undue economic waste. Courts are split on result when party contracts to restore property and willfully refuses to do so b/c it's much more costly than any diminution in value of property.

Front 381

Remedies-Damages-Contracts Calling for Installment Payments

Back 381

If k calls for payments in installments and payment is not made, there is only a partial breach. Aggrieved party is limited to recovering only missed payment, not entire k price. However, k may include an acceleration clause making entire amount due on any late payment, in which case aggrieved party may recover entire amount.

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Remedies-Damages-Avoidable Damages (Mitigation)

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Under CL, non breaching party can't recover damages that could've been avoided w/ reasonable effort. Thus, she must refrain from piling up losses after she receives notice of breach; she mustn't incur further expenditures or costs, and she must make reasonable efforts to cut down her losses by procuring substitute performance at fair price. Should she not do so, she will not be allowed to recover those damages that might have been avoided by such mitigation after breach. Generally, party may recover expenses of mitigation.

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Remedies-Damages-Avoidable Damages (Mitigation)-Employment Contracts

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If breaching employer can prove that comparable job in same locale was available, then k damages against breaching employer for lost wages will be reduced by wages that P would have received from that comparable job.

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Remedies-Damages-Avoidable Damages (Mitigation)-Manufacturing Contracts

Back 384

Generally, in a k to manufacture goods, if person for whom goods are being manufactured breaches, manufacturer is under duty to mitigate by not continuing work after breach. However, if facts are such that completion of manufacturing project will decrease rather than increase damages, manufacture has right to continue.

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Remedies-Damages-Avoidable Damages (Mitigation)-Construction Contracts

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Builder doesn't owe duty to avoid consequences of owner's breach, e.g., by securing other work, but does have duty to mitigate by not continuing work after breach. Again, however, if completion will decrease damages, it will be allowed.

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Remedies-Damages-Avoidable Damages (Mitigation)-Contracts for Sale of Goods

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Under Art 2, rule of mitigation general n/a. An injured buyer isn't required to cover, and injured seller isn't required to resell. Market damages are always available if buyer doesn't cover or seller doesn't resell. However, seller generally can't bring action against buyer for full k price unless goods can't be resold at reasonable price or were damaged or lost when risk of loss was on buyer.

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Remedies-Restitution

Back 387

May be available in k-type situation as alternative to other k damages. Based on preventing unjust enrichment when one has conferred benefit on another w/o gratuitous intent. Can provide a remedy not only when a k exists and has been breached, but also when a k is unenforceable, and in some cases when no k relationship exists at all b/w parties.

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Restitution-Terminology

Back 388

When k is unenforceable or no k b/w parties exists, an action to recover restitutionary damages often is referred to as an action for an implied in law k, an action in quasi-k, or an action for quantum meruit.

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Restitution-Measure of Damages

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Generally value of benefit conferred. Usually based on benefit received by D, but recovery may also be measured by detriment suffered by P (e.g., reasonable value of work performed or services rendered) if benefits are difficult to measure or benefit measure would achieve unfair result.

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Restitution-Specific Applications-When Contract is Breached

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When k has been breached and non breaching party hasn't fully performed, he may choose to cancel k and sue for restitution to prevent unjust enrichment. If P has fully performed, he is limited to his damages under k. This may be less than he would have received in restitutionary action, b/c restitutionary remedy isn't limited to k price.

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Restitution-Specific Applications-When Contract is Breached-"Losing" Contracts

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Restitutionary remedy often desirable in this case (i.e., k in which actual value of services or goods to be provided under k is higher than k price), b/c normal k expectation damages or reliance damages would be for lesser amount.

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Restitution-Specific Applications-When Contract is Breached-Breach by Plaintiff

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Under some circumstances, P may seek restitution even though P is party who breached. If breach was intentional, some courts won't grant breaching party restitution; modern courts, however, will permit restitutionary recovery but limit it to k price less damages incurred as result of breach.

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Restitution-Specific Applications-When Contract is Breached-Breach by Plaintiff-Restitution of Advance Payments or Deposit if Buyer of Goods Breaches

Back 393

If buyer has paid part of purchase price in advance and then breaches k, he can usually recover some of payments. Unless seller can prove greater damages, he may keep advance payments totaling 20% of purchase price or $500, whichever is less. Balance must be returned to buyer. If there is valid liquidated damages clause, seller need refund only excess of buyer's payments over amount of liquidated damages.

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Restitution-Specific Applications-When Contract Unenforceable

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Quasi-k remedy. Occurs when k was made but is unenforceable and unjust enrichment otherwise would result.

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Restitution-Specific Applications-When No Contract Involved

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Quasi-k remedy. When there is no contractual relation b/w parties if: 1) P has conferred benefit on D by rendering services or expending properties; 2) P conferred benefit w/ reasonable expectation of being compensated for its value; 3) D knew or had reason to know of P's expectation; and 4) D would be unjustly enriched if he were allowed to retain benefit w/o compensating P.

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Remedies-Rescission

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Remedy whereby original k is considered voidable and rescinded. Parties are left as though k had never been made. Grounds must have occurred before or at time k was entered into.

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Rescission-Grounds

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1) Mutual mistake of material fact; 2) Unilateral mistake if other party knew or should have known of mistake; 3) Unilateral mistake if hardship by mistaken party is so extreme it outweighs other party's expectations under k; 4) Misrepresentation of fact or law by either party as to material factor in negotiations that was relied upon; 5) Other grounds, such as duress, undue influence, illegality, lack of capacity, and failure of consideration

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Rescission-Defenses

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Generally, all equitable defenses (e.g., laches, unclean hands) are available in rescission action. P's negligence is not a defense.

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Rescission-Additional Relief

Back 399

If P has paid money to D, she is entitled to restitution in addition to rescission.

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Remedies-Reformation

Back 400

Remedy whereby writing set forth in ag b/w parties is changed so that it conforms to original intent of parties.

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Reformation-Grounds-Mistake

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To reform k b/c of mistake, there must be: (i) ag b/w parties, (ii) ag to put ag in writing, and (iii) variance b/w ag and writing.

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Reformation-Grounds-Misrepresentation

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If writing is inaccurate b/c of a misrepresentation, P can choose b/w reformation and avoidance. to qualify for reformation, misrepresentation must relate to content or legal effect of record. Misrepresentations as to subject matter of ag aren't grounds for reformation; rescission and damages are proper remedy for that.

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Reformation-Negligence Does Not Bar Reformation

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Failure to read record of ag doesn't preclude party from obtaining reformation. In nearly every case in which record doesn't reflect ag, either one or both parties have failed to read it.

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Reformation-Clear and Convincing Evidence Standard

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Variance b/w antecedent ag and writing must be established by this BOP.

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Reformation-Parol Evidence Rule and Statute of Frauds

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PER n/a in reformation actions. Likewise, majority rule is that SOF n/a. But many courts will deny reformation if it would add land to k w/o complying w/ SOF.

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Reformation-Defenses

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In addition to general equitable defenses, existence of BFP for value is also defense to reformation. Reformation isn't permitted if rights to third parties will be unfairly affected.

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Remedies-Statute of Limitations Under UCC

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For sales ks, UCC provides for 4 year SOL. parties may shorten period by ag to no less than 1 yr, but they may not lengthen period.

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Statute of Limitations Under UCC-Accrual of Action

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Statutory period begins to run when party can bring suit-i.e., when breach occurs. Period begins to run regardless of whether aggrieved party knows a/b breach.

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Statute of Limitations Under UCC-Breach of Warranty Actions

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Breach occurs and limitations period begins to run upon delivery of goods. This is true even if buyer doesn't discover breach until much later.

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Statute of Limitations Under UCC-Breach of Warranty Actions-Warranty Extends to Future Performance

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If there is express warranty that explicitly extends to future performance of goods, 4 year period doesn't begin to run until buyer should've discovered breach.

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Statute of Limitations Under UCC-Breach of Warranty Actions-Implied Warranties

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B/c implied warranties can't explicitly extend to future performance, they are breached, if at all, upon delivery.

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Rights and Duties of Third Parties to Contract-Third-Party Beneficiaries

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In typical third-party situation, A (promisee) ks with B (promisor) that B will render some performance to C (third-party beneficiary).

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Rights and Duties of Third Parties to Contract-Third-Party Beneficiaries-Intended v. Incidental Beneficiary

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Only intended beneficiaries have k rights, no incidental beneficiaries. In determining if beneficiary is intended, consider whether beneficiary (i) is identified in k, (ii) receives performance directly from promisor, or (iii) has some relationship w/ promisee to indicate intent to benefit.

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Rights and Duties of Third Parties to Contract-Third-Party Beneficiaries-Creditor v. Donee Beneficiary

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2 types of intended beneficiaries: (i) creditor beneficiary-person to whom debt is owed by promisee, and (ii) donee beneficiary-person whom promisee intends to benefit gratuitously.

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Rights and Duties of Third Parties to Contract-Third-Party Beneficiaries-When Do Rights of Beneficiary Vest?

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3rd party can enforce k only if his rights have vested. This occurs when he: (i) manifests assent to a promise in manner requested by parties; (ii) brings suit to enforce promise; or (iii) materially changes position in justifiable reliance on promise. Prior to vesting, promisee and promisor are free to modify or rescind beneficiary's rights under k.

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Third-Party Beneficiaries-When Do Rights of Beneficiary Vest?-Significance of Vesting

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Before intended 3rd party beneficiary's rights vest, promisor and promisee are free to modify their k-including removing third party beneficiary altogether-w/o consulting 3rd party. Once 3rd party's rights vest, promisor and promisee can't vary his rights w/o his consent.

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Third-Party Beneficiaries-What Are the Rights of the Third-Party Beneficiary and Promisee?-Third Party Beneficiary v. Promisor

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A beneficiary may sue promisor on k. Promisor may raise against 3rd party beneficiary any defense that promisor has against promisee. Whether promisor may use defenses promisee would have against 3rd party beneficiary depends on whether promisor made absolute promise to pay or only promise to pay what promisee owes beneficiary. If promise is absolute, promisor can't assert promisee's defenses; if promise isn't absolute, promisor can assert promisee's defenses.

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Third-Party Beneficiaries-What Are the Rights of the Third-Party Beneficiary and Promisee?-Third Party Beneficiary v. Promisee

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Creditor beneficiary can sue promisee on existing obligation b/w them. She may also sue promisor, but may obtain only one satisfaction. A donee beneficiary has no right to sue promisee unless grounds for detrimental reliance remedy exist.

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Third-Party Beneficiaries-What Are the Rights of the Third-Party Beneficiary and Promisee?-Promisee v. Promisor

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Promisee may sue promisor both at law and in equity for specific performance if promisor isn't performing for 3rd person.

Front 420

Rights and Duties of Third Parties to Contract-Assignment of Rights and Delegation of Duties-Assignment

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In typical assignment situation, X (obligor) ks w/ Y (assignor). Y assigns his rights to X's performance to Z (assignee).

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Assignment-What Rights May be Assigned?

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Generally, all k rights may be assigned. Exceptions: (i) Assignment that would substantially change obligor's duty or risk (e.g., personal service ks where service is unique); (ii) an assignment of future rights to arise from future ks (not future rights in already existing ks); and (iii) assignment prohibited by law (e.g., wage assignments)

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Assignment-What Rights May be Assigned?-Express Contractual Provision Against Assignment

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Clause prohibiting assignment of assignment of "the k" will be construed as barring only delegation of assignor's duties. Clause prohibiting assignment of "k rights" generally doesn't bar assignment, but rather merely gives obligor right to sue for damages. However, if k provides that attempts to assign "will be void," parties can bar assignment. Also, if assignee has notice of nonassignment clause, an assignment will be ineffective.

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Assignment-Effect of Assignment

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Effect is to establish privity of k b/w obligor and assignee while extinguishing privity b/w obligor and assignor.

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Assignment-What is Necessary for Effective Assignment?

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Assignor must manifest intent to immediately and completely transfer her rights. Writing is usually not required to have effective assignment. Right being assigned must be adequately described. Unnecessary to use word "assign"; any accepted words of transfer will suffice. Gratuitous assignment effective; consideration isn't required.

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Assignment-Is Assignment Revocable or Irrevocable?

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Assignments are divided into 2 categories: assignments for value and gratuitous assignments.

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Assignment-Is assignment Revocable or Irrevocable?-Assignments for Value

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Assignment is for value if it is: (i) done for consideration, or (ii) taken as security for payment of preexisting debt. Assignments for value can't be revoked.

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Assignment-Is assignment Revocable or Irrevocable?-Gratuitous Assignments

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Assignment not for value generally revocable.

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Assignment-Is assignment Revocable or Irrevocable?-Gratuitous Assignments-Exceptions to Revocability

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Gratuitious assignment is irrevocable if: (i) obligor has already performed; (ii) token chose (i.e., tangible claim, such as stock certificate) is delivered; (iii) assignment of simple chose (i.e., intangible claim, such as k right) is put in writing; or (iv) assignee can show detrimental reliance on gratuitous assignment (i.e., estoppel).

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Assignment-Is assignment Revocable or Irrevocable?-Gratuitous Assignments-Methods of Revocation

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Revocable gratuitous assignment may be terminated by: (i) death or bankruptcy of assignor; (ii) notice of revocation by assignor to assignee or obligor; (iii) assignor taking performance directly from obligor; or (iv) subsequent assignment of same right by assignor to another.

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Assignment-Is assignment Revocable or Irrevocable?-Gratuitous Assignments-Effect of Revocation

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Once assignment is revoked, privity b/w assignor and obligor is restored, and assignor is once again real party in interest.

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Assignment-What Are Rights and Liabilities of the Various Parties?-Assignee v. Obligor

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Assignee can sue obligor, as assignee is real party in interest; i.e., assignee-not assignor-is entitled to performance under k. Obligor has a defense against assignee any defense inherent in k, e.g., failure of consideration and other defenses that came into existence before obligor had knowledge of assignment. Obligor can't raise by way of defense any defenses assignor might have against assignee.

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Assignment-What Are Rights and Liabilities of the Various Parties?-Assignee v. Assignor

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In every assignment for value, assignor warrants that: (i) he hasn't made prior assignment of same right; (ii) right exists and isn't subject to any undisclosed defenses; and (iii) he will do nothing to interfere w/ assigned right. Assignee may sue assignor for breach of any of these warranties. However, assignor won't be liable to assignee if obligor is incapable of performing.

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Assignment-What Problems Exist If There Have Been Successive Assignments of Same Rights?

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If 1st assign is revocable, subsequent assign revokes it. If irrevocable, 1st assign will usually prevail over subsequent assign. Exceptions exist (if 2nd assignee has paid value and taken w/o notice of 1st assignment): (i) Subs assignee gets 1st judgment against obligor; (ii) subs assignee gets 1st payment of claim from obligor; (iii) subs assignee gets deliver of a token chose; (iv) subs assignee is party to novation releasing assignor; or (v) subs assignee can proceed against 1st assignee on an estoppel theory (could operate against subsequent assignee as well).

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Assignment of Rights and Delegation of Duties-Delegation

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In typical delegation situation, Y (obligor/delegator) promises to perform for X (obligee) Y delegates her duty to Z (delegate).

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Delegation-What Duties May be Delegated?

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Generally, all duties may be delegated. Exceptions: (i) duties involve personal judgment and skill; (ii) delegation would change obligee's expectancy (e.g., requirements and outputs ks); (iii) a special trust was reposed in delegator by other party to k; and (iv) there is a k restriction on delegation.

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Delegation-What is Necessary for Effective Delegation?

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Delegator must manifest present intention to make delegation. There are no special formalities to be complied w/ to have valid delegation. May be written or oral.

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Delegation-What are Rights and Liabilities of the Parties?

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Obligee must accept performance from delegatee of all duties that may be delegated. Delegator remains liable on k; thus, obligee may sue delegator for nonperformance by delegatee. Obligee may require delegatee to perform only if there has been an assumption (i.e., delegatee expressly or impliedly promises he will perform duty delegated and this promise is supported by consideration or its equivalent). This promise creates k b/w delegator and delegatee in which obligee is a third-party beneficiary.

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Delegation-Terminology

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Today, words assigning "the k" or "all of my rights under k" are usually construed as including assumption of duties by assignee, unless contrary intention appears.

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Rights and Duties of Third Parties to Contract-Novation Distinguished

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Novation substitutes new party for original party to k. Requires assent of all parties and completely releases original party.

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Rights and Duties of Third Parties to Contract-Power of Person Other Than Owner to Transfer Title to Purchaser-Entrusting

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Entrusting goods to merchant who deals w/ goods of that kind gives him power (but not right) to transfer all rights entrusted to buyer in ordinary course of biz. Entrusting includes both delivering goods to merchant and leaving purchased goods w/ merchant for later pickup or delivery. Buyer in ordinary course of biz means buying in gf from person who deals in goods of kind w/o knowledge sale is in violation of ownership rights of 3rd parties. Requirements are VERY specific.

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Power of Person Other Than Owner to Transfer Title to Purchaser-Voidable Title Concept

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Generally, if sale is induced by fraud, seller can rescind the sale and recover goods from fraudulent buyer (i.e., it is a voidable title). However, defrauded seller may not recover goods from a gf purchaser for value who bought from fraudulent buyer. Rights of defrauded seller are cut off both by buyer and by person who takes security interest in goods.

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Power of Person Other Than Owner to Transfer Title to Purchaser-Thieves

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Generally cannot pass title. If thief steals goods from true owner and then sells them to buyer, thief is unable to pass title to buyer (b/c his title is void). Rationale: Seller can transfer only title he has or power to transfer. Therefore, even gf purchaser for value generally can't cut off rights of true owner if seller's title was void. Exception may apply, however, if buyer has made accessions (i.e., valuable improvements) to goods or true owner is estopped from asserting title (e.g., if true owner expressly or impliedly represented that thief had title).