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- Applicable Law
- Formation of contracts
- Terms of contract
- Remedies for unexcused nonperformance
- Excuse of nonperformance
- Third-party problems
- The UCC applies to sales of tangible personal property, goods.
- The CL applies to services and real property.
- If it’s a mixed deal, the law of the most important aspect applies, unless the contract separates out the prices for the goods from the prices for the services. Then the goods are handled under UCC 2, and the services are handled under the CL.
Formation - Offer
Manifestation of commitment
An offer is one person’s manifestation of intent to contract, judged from the perspective of a reasonable person: If a reasonable offeree would take from that manifestation that her assent would create a contract, then the offeror’s manifestation is an offer.
Formation - Offer
- CL - There must be price and description of real estate for there to be an offer
- UCC - Price is not required for there to be an offer (goods)
Offer - Vagueness
- For any contract, vague material terms in a communication do not make an offer.
- A communication to sell for a fair, reasonable, or appropriate price is vague and therefore not an offer.
- Exclusive (requirements and output) contracts are not vague in terms of quantity.
- A party can increase her order or production so long as it’s not unreasonably disproportionate with respect to the course of performance.
Offer - Advertisements
Advertisements are only offers if they specify quantity and expressly indicate who can accept
Offer - Termination
Offers terminate by lapse of time (stated or reasonable period), death of a party, revocation, or rejection
Offer - Revocation
- To revoke, the offeree must be aware.
- An offeror can revoke by an unambiguous statement to the offeree (“I revoke”) or by unambiguous conduct of which the offeree is aware (learns someone else bought the item).
- An offeree’s awareness of multiple offers is not revocation.
Offer - Irrevocable
- CL - An offer is irrevocable if there’s a bargained-for option. The offeree’s counteroffer does not kill the offer during the option period. Once that period expires, the offer becomes revocable. Reasonably foreseeable detrimental reliance also makes an offer irrevocable (GC relying on SC’s bid)
- UCC - Signed written promises from one merchant to another to keep an offer open for up to 3 months do not need consideration
Offer Termination - Unilateral K
- For a unilateral contract (that can only be accepted by performance), the offeree’s beginning performance (not just preparation) makes the offer irrevocable for a reasonable time for the offeree to complete performance.
- But the offeree does not accept the unilateral contract until he completes performance and therefore can stop performance without breach
- offeree counteroffer = rejection (“I will only pay…,” not just bargaining, “will you take…?), unless he bargained for an option, conditional acceptance, or additional material terms (CL, not UCC)
- CL - Conditional acceptance or acceptance with additional terms reject and replace the offer. They are treated as counteroffers
- UCC - Conditional acceptance rejects the offer and does not replace it. Additional terms constitute acceptance of the offer. The term is only part of the contract if the parties are merchants, the additional term is not material, and the offeror doesn’t object to it
Acceptance - Method
- offer can control the method of acceptance, the time that a distance acceptance iseffective, or whether the offeree must give notice that it has accepted by performance
- offeree starting performance is generally acceptance and is treated as an implied promise to perform - bilateral contract - but exception for unilateral contract (not acceptance but makes offer irrevocable)
- Mailbox rule: all comms other than acceptance are effective only when rec'd; acceptance is generally effective when mailed; if a rejection is mailed before an acceptance is mailed, then neither is effective until rec'd; can't used mailbox rule to meet an option deadline
- non-conforming goods: if seller sends w/out explanation, then accepted and breached K; but if he sends an explanation, it is not acceptance of the K and not a breach
Acceptance - Who
- an offer can be accepted only by (1) a person who knows about the offer at the time she accepts (2) who is the person to whom it was made
- offers cannot be assigned
- options can be assigned unless the option otherwise provides
Formation - Enforceability
Lack of Consideration or Consideration Substitute
- Steps: find prmise breaker; did he ask for something in return; whether person enforcing sustained legal detriment (VA distinction - consideration is defined as bargained for legal detriment or benefit)
- Contracts must have consideration or a consideration substitute (promissory estoppel, seal, written promise where there’s a defense).
- Consideration is bargained-for legal benefit or detriment.
- A promise to sell/buy is consideration for a promise to buy/sell.
- Illusory promises aren’t consideration.
- Past consideration isn’t consideration, unless the promisor expressly requested action knowing the promisee expected payment.
- CL - Preexisting duties are not consideration, unless there’s addition to/change in performance, a severe unforeseen difficulty excuses performance, or a third-party promises to pay the obliged person to discharge his preexisting duty to another person.
- UCC - The preexisting duty rule doesn’t apply. Contracts can be modified without new consideration
- **If debt is due and undisputed, part payment is not consideration for the release, and the release is unenforceable.
- **If debt is not yet due or disputed, early
- payment/part payment is consideration, and the release is enforceable
- In most states, seals are irrelevant as consideration substitutes. There’s some support for them in Va under very old case law.
- A written promise to satisfy an obligation for which there is a defense (like the SoL)is enforceable without consideration.
- Promissory estoppel is a consideration substitute requiring a promise that reasonable, foreseeable, and detrimental reliance, and enforcement of the promise is necessary to prevent injustice. Promissory estoppel is not established in Va.
Defense to Enforcement
- Who lacks? infant (under 18), mental incompents (don't understand), intoxicated person if other person has reason to know
- 1. Right to disaffirm by person without capacity
- 2. Implied affirmation by retaining benefits after gaining capacity (ratification)
- 3. Quasi-contract for necessaries - enforceable against the incapacitated party under quasi-K, no K law - incapacitated party will be made to pay FMV for the necessaries, not bargained-for
Defense to Enforcement
Statute of Frauds
- "within the Statute of Frauds" = have to deal with it -
- Statue of Frauds applies to:
- guarantees (promises to pay if someone else doesn’t), unless the main purpose is to benefit the guarantor (usu wrong);
- contracts not capable (with unlimited resources, tasks are not SoF) of being completed in 1-yr, unless it’s for a person’s lifetime;
- transfers of interest in real estate regardless of price, unless **it’s a 1-yr (or less) lease**;
- sale of goods for $500, and
- the lease of goods for $1000.
- The SoF is satisfied by performance. (6 scenarios)
- 1. If the transaction was for real estate, part performance satisfies the SoF - there must be two of improvements, possession, or payment.
- 2. Only full performance satisfies the SoF for a services contract.
- *3. Part performance of a services contract does not allow P to recover under contract law, but quasi-contract law.*
- 4. The seller’s part performance for a sale of goods contract satisfies the SoF only to the extent of the part performance. Seller can only sue for the goods delivered.
- 5. Buyer cannot sue for the undelivered goods.
- 6. If the goods are specially manufactured, seller satisfies the SoF as soon as he makes a substantial beginning. If D testifies or admits in a pleading that there was a contract, the SoF is satisfied.
- CL - Writings satisfy the SoF if they provide all material terms (who and what). Must be signed by D (P's signature is irrelevant).
- UCC - Writing must indicate there was a contract and
- provide for the quantity (material terms unncessary). If the parties are merchants, and the party receiving a signed contract doesn’t respond within 10 days of receiving the signed contract, his failure precludes him from asserting the SoF as a defense.
- Judicial Admission: D admits to agreement, then no SoF defense available
Defenses to Enforcement
Looking to SoF for other defenses
- For principal-agent issues, the authorization to enter contracts must be in writing for the agent to enter agreements to which the SoF applies. (equal dignity)
- Contracts can be modified without a writing if the change alleged would not be within the SoF, even if the contract being modified did (look at alleged change).
- CL: signed agreements that all modifications have to be in writing are ineffective
- UCC: signed agreements that all modifications have to be in writing are effective, unless waived, even if the modified contract would not otherwise fall in the SoF
Defenses to Enforcement
- Contracts with illegal SM are unenforceable.
- Contracts for an illegal purpose are enforceable only if the party didn’t know of the illegal purpose.
- Exculpatory agreements that exempt intentional or reckless behavior are unenforceable.
- CNCs unreasonable in limitations or not for a reasonable need are unenforceable.
- Misrepresentation is a false statement of fact (not opinion) by one of the parties that induced the other party to enter the
- contract. Misrepresentation generally makes a contract rescindable, even if the inducing party honestly believed the misrepresented fact.
- Concealment certainly makes it unenforceable.
- Non-disclosure, however, generally does not make a contract unenforceable. There must be a special relationship.
- PE vocab:
- integration: written agreement that court finds is the final agreement, triggers the PER
- partial integration: written and final, but not complete (usu wrong)
- complete integration: written and final and complete (usu wrong)
- merger clause: K clause such as "this is not the complete and final agreement"; persuasive but not conclusive
- PE: words of party, before integration, oral or written
- reformation: equitable action to modify written K to reflect actual agreement
- PE is admissible to correct a mistake in integration (clerical error), to establish a defense, or to interpret a term.
- PE is only admissible to supplement if the agreement was partially integrated (written and final, but not complete).
- PE is never admissible to contradict the written agreement.
Conduct as Source of Terms
- When admitting evidence, courts consider
- 1. the course or performance,
- 2. the course of dealing, and
- 3. trade customs
- in that order
UCC for Terms in Sales of Goods Ks (default terms)
Delivery Obligations of Seller of Goods if Delivery by Common Carrier
- Shipment Ks: seller completes its delivery obligation when it 1) gets the goods to a common carrier, and 2) makes reasonable arrangements for delivery and 3) notifies the buyer (seller completes its delivery obligation before delivery is completed)
- Destination Ks: seller does not complete its delivery obligation until the goods arrive where the buyer is
- Shipment/Destination: most are shipment, but watch for FOB -
Risk of Loss
- Party agreement is controlling for risk of loss rules.
- If there’s no agreement, the breaching party is liable for all losses even though they may be unrelated to the breach.
- If there’s no agreement for risk, no party breached, but goods were delivered by a common carrier, the default rule under the UCC is that the seller meets his delivery obligations under a shipment contract by delivering the goods to the common carrier, making reasonable arrangements for delivery, and notifying the buyer that he did so.
- The goods don’t have to leave the common carrier’s place of business.
- “FOB, seller’s city” means the contract is a shipment contract, and seller completes delivery before delivery is complete.
- For destination contracts, seller bears therisk of loss until the goods arrive to the buyer.
- “FOB, buyer’s city” means the contract is a destination contract.
- If there’s no agreement, no breach, and no common carrier, but the seller’s a merchant, the risk of loss shifts to the buyer on the buyer’s receipt of the goods.
- If the seller’s a non-merchant, the risk of loss shifts to the buyer once the seller tenders the goods (they’re on my porch waiting for you).
- Express warranties are words of promise, descriptions of fact (not opinion/sales talk), or models/samples.
- If the sale is made from a dealer who deals in the kind of goods sold, there’s an implied warranty of merchantability, that the good is fit for ordinary purposes.
- If the seller knows that the buyer is relying on him to select suitable goods for a particular purpose, there’s an implied warranty of fitness for a particular purpose.
- Contractual Limitations on Warranty Liability:
- Express warranties generally cannot be disclaimed.
- Implied warranties can be disclaimed through conspicuous disclaimer or as-is/with all faults, which doesn’t have to be conspicuous.
- Limiting remedies for breach of warranty does not eliminate the warranty, and the limitation will be upheld so long as it’s not unconscionable. If the good sold causes personal injury, there’s a PFC of unconscionabilty.
Article 2A - Lease of Goods
- 1. SoF: applies if the total amount of payments exceeds $1,000; need a writing indicating there's a lease, length of lease, the thing to be leased
- 2. Risk of loss: bad thing happens after lessee receives goods; lessor bears the unallocated risk of loss unless it's a finance lease
- UCC requires perfect tender: perfect goods, perfect delivery.
- Otherwise, the buyer can reject, and the seller breached.
- A seller can cure imperfect tender if he had reasonable grounds to believe the buyer would accept non-conforming goods or if the delivery date has not yet expired.
- If there’s an installment contract (multiple deliveries and multiple acceptances), there must be substantial performance for B to reject the goods without being in breach.
- *If the buyer accepts the goods (payment is not always acceptance), he may not later reject, but he may revoke his acceptance if 1) the nonconformity substantially impairs the goods’ value, 2) his ignorance at acceptance of grounds for rejection was excusable, and 3) he revokes within a reasonable time after discovering the nonconformity.*
- For services, the CL requires substantial performance
Nonmonetary Remedies (In Rem)
- If non-performance is unexcused, the aggrieved party can seek specific performance (SP is usu wrong).
- SP’s originated in equity and is available only if money damages are inadequate, and the relief requested doesn’t pose enforcement problems (judicial administration).
- SP is available for the sale of land, unless the seller has sold the land to a BFP.
- It’s available for goods if they are unique - antiques, art, custom-made items.
- If the contract is for services, the court will not grant specific performance, but it may grant injunctive relief, enjoining D from performing the service to others.
Nonmonetary Remedies (In Rem)
- If the buyer is insolvent, the seller can sue for reclamation (to get his goods back) if buyer was insolvent 1 at the time he received them, 2 seller demands the goods back within 10 days of receipt, and 3 buyer still has the goods at the time of the demand.
- If the buyer sells the goods, the seller may not seek reclamation.
- Damages are aimed at compensating P, not punishing D for breach.
- The amount awarded is aimed at protecting the expectation interest that the other party will not breach.
- Therefore, 1) determine dollar value of performance w/out breach, 2) then determine dollar value of performance with breach, and 3) compare the two to determine the amount of damages.
- Damages include provable lost profits, the replacement price, and any incidental damages as a result of dealing with the breach.
- Consequential damages are available for a loss special to P when D knew of the special circumstances.
- P has no duty to reduce damages/take similar opportunities, but he cannot recover damages that could have been avoided without undue burden.
- P must prove damages with certainty (new business activity).
- If it was a new venture and P’s damages are uncertain, P can get reliance damages - what he spent to engage in the new activity.
- Liquidated damages that are fixed by contract in event of breach are valid if they are not penal - 1) damages were difficult to forecast at the time of contracting, and 2) the provision is a reasonable forecast.
- Reasonable forecasts should be a range or formula, not a set amount, which suggests penalty.
Excuse of Nonperformance
Look for information re 1) nonperformance of K and 2) something happening after K
Other Party NonPerforms
A party is excused if the other party doesn’t perform
- A party is excused if the other party performs improperly
- Material Breach
- A breach is material if the party has not substantially performed (can only seek $ under quasi-K for performance completed).
- If the party substantially performs, his breach is not material.
- The other party still has to perform and can seek damages for the nonperformance or nonconforming performance.
- If the contract is divisible, it’s as if it has several performances which are evaluated separately as to whether they were substantial (eg, $1k/apartment)
Non-Occurrence of Express Condition
- A party is excused if an express condition ("if", "only if", "provided that", "so long as", "subject to", "in the event that", "unless", "when", "until", and "on condition that") in the contract does not occur. “O’s payment for B’s work is conditioned on B’s using copper pipe.”
- An express condition is different from a conditional acceptance.
- Express conditions occur once a contract is made.
- Express conditions require strict compliance.
- There’s no substantial performance for an express condition. Any other kind of pipe absolves O’s duty to pay B.
- Express conditions can be waived by the party it protects, unless the protected party prevents/hinders the express condition from occurring. Then the condition’s eliminated, and the protected party is not excused from performing
- Anticipatory repudiation excuses the other party if the repudiating party makes an unambiguous statement before performance is due indicating that he will not perform.
- There’s an immediate claim for breach if the claimant has not finished performance.
- If she has finished performance, she must wait until performance is due to bring a claim for breach.
- The repudiating party can retract the repudiation if the other party has not materially changed her position. Then the other party is no longer excused.
In sales of goods - If a party has reasonable grounds to believe that the other will not be able to perform, she can ask for adequate assurances in writing. She can suspend performance until she receives those assurances if it is commercially reasonable to do so
Excuse by Reason of a Later Contract
- The parties can rescind the contract by mutual agreement if neither has completed the work. If they agree, but one party has completed the work, the rescission is invalid.
- Accord and satisfaction occurs when the parties agree that if one party performs something different then he will be excused from what he originally promised to perform.
- The new agreement is the accord.
- Ex) If you deliver 10 widgets, then your debt from the note is excused. Delivery of the widgets excuses payment of the debt. But if there’s no satisfaction of the accord, then the aggrieved party can recover either on the old contract (debt) or the accord (widgets).
- Modification occurs when the parties agree to accept a different agreement in satisfaction of an existing obligation. Ex) You owe me 1000. We agree that you will paint my house instead of paying me the money. The substituted agreement replaces the original obligation at the time of contract. If there’s breach, the aggrieved party can recover only on the new contract. If you don’t paint, I can’t collect on the 1000 debt; I can only collect for breach of not paying my house.
- Novation occurs when the parties to the original agreement agree to substitute a third party. Novation excuses the substituted party. Delegation is different than novation. It doesn’t require the agreement of both parties and does not excuse the delegating party. If the delegated party doesn’t perform, the other party can still recover against the delegating party
Excuse by Reason of a Later, Unforseen Event
- Usu don't matter.
- Unforeseen events can excuse performance if they make performance legally or physically impossible or commercially impossible. The event must affect the ability to perform, not just the cost of performance.
- Determine which party is arguing excused performance, what that performance is, and whether post-contract occurrence affected ability to perform and not just the cost of performance.
- If there’s a sale of goods, and the risk is on the buyer, destruction of the goods does not excuse the buyer from having to pay.
- If the risk is still on the seller, the seller must still perform so long as the goods aren’t unique.
- The seller must sell bags of grits but not a 1973 Cadillac.
- If a party dies after the contract, the other party can recover from his estate. Death excuses performance only if the party to perform was unique.
- Later law makes performance of contract illegal - excuse by impossibility.
- Later law makes mutually understood purpose of contract illegal - excuse by frustration of purpose.
- If both parties knew that the contract was for a special purpose, and circumstances make that purpose impossible, performance is excused by the doctrine of frustration of mutually understood purpose.
- not a party to the K
- able to enforce the K others made for her benefit
look for person who is making the promise that benefits the third party
look for person who obtains the promise that benefits the third party
- only intended beneficiaries have K law rights
- intent of parties to K determines whether intended or incidental
- intended beneficiaries are either donees or creditors
- usually donees
- look at whether beneficiary was a creditor of the promisee
Efforts to Cancel or Modify
- whether the 3d party knows of and has relied on or assented as requested
- if so, her rights have vested and the K can't be canceled or modified w/out her consent unless the K otherwise provides
who sues whom?
- beneficiary can recover from promisor
- *promisee can recover from promisor (but not if beneficiary has)
- *beneficiary generally cannot recover from promisee
- but, creditor can recover from promisee only on pre-existing debt
If 3d party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee
What an Assignment Is
Transfer of rights under a K, involves two steops: 1) K b/t only two parties and 2) one of the parties later transfers rights under that K to a 3d party
party ot the K who later transfers rights under the K to another
- not a party to the K
- able to enforce the K b/c of assignment
other party to the K
Limitations on Assignment
- If the contract prohibits assignment (rights are not assignable), the assignee can still recover from the obligor as long as he didn’t know about the prohibition. (prohibition is far more likely than invalidation)
- But if the contract invalidates assignments (all assignments are null/void), the assignee can never recover from the obligor.
- CL bars assignments that substantially change the obligor’s duties.
- Assignments of the right to payment are not substantial changes, but nearly everything else is.
Requirements for Assignment
General rule is that consideration is not req'd but gratuitous assignments (an only gratuitous assignments) can be revoked.
Right of Assignee
- Assignee can recover from the obligor.
- *Assignor for consideration cannot recover from obligor.
- Obligor has same defenses against assignee as it would have against assignor.
- Payment by obligor to assignor is effective until obligor knows of assignment. Similarly, modification agreements b/t obligor and assignor are effective if the obligor did not know of the assignment.
- Assignments have implied warranties 1) the right assigned actually exists, 2) the right is not subject to any then-existing defenses by the obligor, and 3) the assignor won’t impair the value of the assignment. But the assignor does not warrant with respect to what the obligor will and won’t do after the assignment.
- for gratuitous assignments, last assignee generally wins
- for assignments for consideration, first assignee for consideration wins
- Exception - a subsequent assignee takes priority over an earlier assignee for value only if he both (i) does not know of the earlier assignment and (ii) is the first to obtain (a) payment, (b) a judgment, (c) a novation, or (d) indicia of ownership.
DELEGATION OF DUTIES
- Delegation is the "bad" thing, the performance (duty). Delegation doesn't always go with assignment.
- Duties are delegable, so long as they don’t require 1) a person with unique skills or 2) the contract forbids delegation.
- If the contract forbids it, but a party delegates any way, the breach is material, and the other party is excused.
- The delegating party will always be liable to the other party, and the delegatee is liable to the delegator only if he received consideration.
- The delegatee is liable to the other party under third party beneficiary law.