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- A: Applicable law.
- F: Formation.
- T: Terms of Contract.
- P: Performance
- R: Remedies for unexcused non-performance
- E: Excuse of non-performance
- T: Third-party problems
Unilateral v. Bilateral
- Unilateral: Results from an offer that expressly requires performance as only possible method of accept.Bilateral: All other contracts (aside from quasi contracts -- created by court as an equitable remedy).
- >> Bilateral K unless (1) reward, prize, contest, OR (2) offer expressly requires performance for acceptance.
Applicable Law in Mixed Deal Ks
- GEN: based it off the more important part of the contract, unless the contract divides payment.
- >> In the latter case, apply UCC to sale of goods and CL to the rest.
Formation: Offers (Gen)
- Key: manifestation of commitment -- intent to contract.
- >> Offer need NOT contain all material terms, just needs to be reasonably certain.
- >>>> Price: In some cases, may be omitted.
- >>>>>> BUT: WRT real estate, price+description required.
- >>>> Such cases are questions of fact.
- >>>>>> In such cases, watch out for ambiguous material terms (ie. appropriate, fair, reasonable) which are not an offer.
- REQ/OUTPUT Ks: look for "all, only, exclusively, solely" language.
- Requirements: B offers to buy "all" of its particular goods from S for a certain period.
- >> Note: if increase in requirements by buyer, ok so long as reasonable -- not disproportionate.
- Output: S offers to sell B all of a particular product it produces for a set period.
Formation: Offers (Termination)
- (1) Lapse of Time: time stated or reasonable time.
- (2) Death of Either Party Prior to Acceptance
- >> Exception: irrevocable offers.
- (3) Words/Conduct of Revocation to Offeror
- >> Unambig. statement by offeror to offeree of unwillingness/inability to contract; OR
- >> Uambig. conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.
- >> Revocation Through Mail: such revocations not revoked until received; offer ≠ accepted after revoked.
- (4) Words or Conduct of the Offeree
- >> Indirect Rejection:
- >>>> Counteroffer: terminates offer, creates a counteroffer.
- >>>> Conditional Acceptance: terminates offer, creates counteroffer (if, provided, so long as, ect.)
- >>>> Additional Terms (CL -- only non-goods): new terms kills the offer, creates a counteroffer.
Formation: Offers (Irrevocable Offers)
- Irrevocable Offers:
- (1) Options: a promise not to revoke that is supported by consideration is not revocable for the designated period.
- (2) UCC Firm Offer: Offer cannot be revoked for up to three months IF (i) offer to buy/sell goods; (ii) signed, written promise to keep it open; AND (iii) party who signed is a merchant.
- (3) Detrimental Reliance: (i) reliance that is; (ii) reasonably foreseeable; AND (iii) in fact detrimental.
- (4) Unilateral Contracts -- Start of Performance: once started, offer irrevocable for a reasonable time to complete performance.
- >> NOTE: Mere preparation not sufficient.
UC Firm Offer (Not Revocable)
- (2) UCC Firm Offer: Offer cannot be revoked for up to three months IF
- (i) merchant offer to buy/sell goods;
- (ii) signed, written promise by merchant to keep it open; AND
- (iii) party who signed is a merchant.
NOTE: No consideration required.
NOTE: If firm offer states that it will be open for more than three months, it is nonetheless subject to termination for more than three months.
Five Most Common Irrevocable Offers
- S: Sub-K makes a bid to general contractor -- cannot be revoked for a reas. period.
- P: Promissory estoppel and detrimental reliance.
- O: Offer for unilaterial K and one party begins to perform.
- O: Option Ks
- F: Firm Offers
Formation: Offers (Additional Terms -- 2-207)
- (1) Is there a contract?
- >> If response w/ new terms is not a "conditional acceptance," it is generally treated as an acceptance. Otherwise, it's a counteroffer.
- >> Note: At this point, it doesn't matter if the parties are merchants.
- (2) Is the additional term part of the new contract?
- >> Merchant Analysis: If at least one party is NOT a merchant -- additional term is merely a proposal that is to be separately accepted/rejected.
- >> Merchant Analysis: If both parties are merchants -- additional term is a part of the contract.
- >>>> Exceptions: add'l term ≠ part of the contract if (i) it materially changes the offer, OR (ii) the offeror clearly objects to the change.
- >>>>>> NOTE: Agmt is otherwise valid.
Formation: Acceptance (Key Fact Patterns)
- DIFF MBE FACT PATTERNS:
- (1) Improper verbal response to an offer then later conduct indicating a contract.
- >> CL: Conditional (improper) acceptance treated as a counteroffer and the later conduct is treated as acceptance of that counteroffer.
- >> UCC: Contract based solely on the conduct. Terms of conditional acceptance not part of the K.
- (2) Offeree Fully Performs: verbal offer, no verbal acceptance, but perfomance.
- >> Whether K Valid: depends on (i) what the offer requires (limited form of acceptance?); OR (ii) whether offeree has reason to believe that offeror will not learn of the acceptance.
- >> IE. Situation where A makes B an offer to paint house in other state; no response; B performs; A hires C to paint same house. No obligation to pay B here.
- (3) Offeree Starts to Perform: verbal offer, no verbal response, start of performance.
- >> KEY: Distinguish between unilateral and bilateral contracts -- diff. results.
- >> GEN: Start of performance is acceptance. Treated an an implied promise to perform and the creation of a bilateral contract.
- >> RESULT: Performing party contractually obligated to fully perform.
- >> EXCEPTION: Unilateral contracts -- where performance is the only form of acceptance. Here, completion of performance is the only method of acceptance.
- (4) Offeree Promises to Perform: words but no performance.
- >> GEN: If accept by making a promise to perform, can be liable for damages if you breach.
- (5) Mailbox Rule:
- >> (i) All communication other than acceptance effective when received.
- >> (ii) Acceptance generally effective when mailed.
- >>>> Valid even if doesn't arrive -- just makes it harder to prove in court.
- >> (iii) If rejection mailed before an acceptance is mailed, then NEITHER effective until received.
- >> (iv) Mailbox rule cannot be used to meet an option deadline -- most likely to be on bar!
- (6) Seller Sends the Wrong Goods:
- >> GEN: If send the wrong goods, you accept the contract and then breach it.
- >> Accommodation Exception (must provide an explanation): Counteroffer and no breach.>>>> Non-confirming goods must be sent with a note of accommodation; if accepted, new K.
FORMATION: Non-conforming goods
- GEN: Seller accepts K, then breaches. Buyer can either --
- (1) Reject
- (2) Accept (accept counteroffer)
- (3) Reject some, accept others.
- BUT: If seller ships inconsistent goods with an accommodation notice, no K and no breach.
- >> Accommodation treated as a counteroffer. If accepted, new contract.
Formation: Acceptance (Who Can Accept?)
- GEN: Only the person who (1) knows about the offer; AND (2) is the person to whom it was made.
- >> Offers cannot be assigned.
- >> Option contracts CAN BE ASSIGNED unless the option states otherwise.
Formation: Lack of Consideration
- (1) Performance; (2) Forebearance; (3) Promise to Perform; OR (4) Promise to Forebear.
- OTHER ISSUES:
- Adequacy of consideration NOT relevant in contract law.
- Past consideration is generally NOT consideration.
- >> Exception: Action expressly requested by the promisor AND expectation of payment by the promisee.
- Payment as consideration for release
- >> If questions about whether debt is due and/or the amount is disputed, then part payment IS consideration. If no disagreement about the debt and its due date, no consideration.
- "Preexisting contractual or statutory duty rule":
- >> CL (GEN): Doing what you're already legally obligated to do is NOT new consideration for a new promise to pay you more to do that. New consideration required for a contract modification.
- >>>> EXCEPTIONS:
- >>>>>> (i) Addition to or change in performance.
- >>>>>> (ii) Unforeseen difficulty so severe as to excuse performance -- but for more money, agree to perform.
- >>>>>> (iii) Third party promise to pay: additional party agrees to pay the one performing add'l money. ok!
- >> UCC: Good faith is the test for determining if a modification is enforceable. >>>> New promises to pay legally enforcement if requests for more money made in GF.
- (1) Identify promise breaker.
- (2) Ask whether that person asked for something in return for her promise (bargained-for exchange).
- (3) Look to person trying to enforce the promise and ask: what's the requested legal detriment that person sustained?
Formation: Consideration -- Pre-existing Legal Duty Rule
- COMMON LAW
- CL (GEN): Doing what you're already legally obligated to do is NOT new consideration for a new promise to pay you more to do that.
- >> New consideration required for a contract modification.
- (1) Addition to or change in performance (ie. better paint, quicker completion date).
- (2) Unforeseen difficulty so severe as to excuse performance -- but for more money, agree to perform.
- (3) Third party promise to pay: additional party agrees to pay the one performing add'l money.
- GEN: No PEDR.
- RATHER: Good faith is the test for determining if a modification is enforceable.
- >> New promises to pay legally enforceable IF request for more money made in GF.
Formation: Consideration Substitutes
- (1) Seals -- majority rule is that seals NO LONGER consideration sub.
- (2) Written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration.
- >> IE. debt discharged, but debtee acknowledges debt and promises to pay it. while no consideration for the new promise, it is legally enforceable.
- (3) Promissory Estoppel (Detrimental Reliance):
- >> (i) Promise
- >> (ii) Reliance that is reasonable, detrimental, and foreseeable; AND
- >> (ii) Enforcement necessary to avoid injustice.
- Lack capacity if:
- (1) under 18;
- (2) mental imcompetent -- inability to understand agmt; OR
- (3) intoxicated -- and the other party has a reason to know.
- RESULT: K voidable if person w/o capacity.
- >> BUT: Under quasi-contract liability, responsible for necessities -- food, clothing, medical care, ect.
IF GAIN CAPACITY: Implied affirmation by retaining benefits after gaining capacity (ie. turning 18).
Statute of Frauds (Applicable Contracts)
If failure to satisfy SoF when the promise is w/in SoF, then contract is UNENFORCEABLE.
- (i) Promises to Answer for the Debts of Another (Guarantor, Suretyship)
- >> EXCEPT: Main Purpose Exception -- If main purpose of the obligation was to benefit the guarantor, then not even that guarantee is w/in the SoF. In other words, SoF not a defense.
- (ii) Promises by Executor to answer for personally the debts of the decendent.
- (iii) Promises in Consideration of Marriage
- >> Not merely promises to marry but rather a promise to do/refrain from something for marriage.
- (iv) Service Contracts Not "Capable" of One-Year Performance.
- >> If specific time period of more than one year, SoF applies.
- >> If a specific time more than ayear from the K date, SoF applies.
- (v) Contracts for Life: SoF does not apply.
- >> NOTE: NOT w/in SoF because you can die within a year.
- (vi) Transfers of Interest in Real Estate (real property, easements, ect.).
- >> Exception: Leases of a year or less.
- >>>> In PA: Leases only subject to SoF if more than three years.
- (vii) Sale of Goods for $500 or more.
- >> NOTE: Here as for the sale of goods, SoF may not apply, but UCC does.
- (viii) Leases of Goods for $1000 or more.
Statute of Frauds (Modifications)
- MODIFICATIONS: Where a contract is modified, consider the contract as modified.
- >> IE. If a 3-yr lease contract is changed to 11 months, no writing is required b/c K, as modified, is less than a year.
- >> IE. K for goods changed from $600 to $650. Modification requires a writing b/c K, as modified, is more than $500.
- NOTE: If contract provides that all modifications have to be in writing --
- (1) UCC: Clause effective unless waived (see past practices).
- (2) CL: Clause not enforced.
NOTE: WRT modifications, courts often find that the original writing may satisfy the SoF requirement as to the modified agreement as long as no essential terms were modified.If the modification agreement is unenforceable b/c of the SoF, then the original contract stands unmodified.
Statute of Frauds (Satisfying the Statute -- UCC)
- SALE OF GOODS
- (1) Content of the Writing: (i) quantity (including "all" for reqs/output Ks); (ii) indication that K sale has been made between the parties; AND (iii) signed by the charged defendant.
- (2) Merchant to Merchant Unilateral Case: a delay (10 days) or failure to respond by one merchant to another merchant's letter asserting the existence of a contract will result in the loss of the SoF defense.
- >> ELEMENTS: (i) both parties merchants; (ii) writing claims there's a contract; (iii) writing signed and states quantity; and (iv) failure to object in writing w/in 10 days of receipt.
- (3) Part Performance of Goods Contract: part performance satisfies SoF to the extent of the performance.
- (4) Specifically-manufactured Goods: if goods not suitable for sale to others, contract enforceable once substantial beginnings of manufacturing start.
- (5) Judicial Admissions: SoF defense lost if party admits to K at trial.
Statute of Frauds (Satisfying the Statute -- UCC)
** Merchant to Merchant Exception **
- Merchant to Merchant Unilateral Case: a delay (10 days) or total failure to respond by one merchant to another merchant's letter asserting the existence of a contract will result in the loss of the SoF defense.
- >> Contract formed!
Statute of Frauds (Satisfying the Statute -- CL)
- CONTRACTS OTHER THAN SALE OF GOODS
- (1) Content of the Writing: (i) ID parties; (ii) ID subject matter; (iii) contain all essential terms; AND (iv) signed by the charged defendant.
- >> Satisfied only as to the party who signes the writing.
- (2) Part Performance of Oral Agmt to Buy Real Estate: Part performance can be used to satisfy SoF.
- >> Part Performance: (i) pay + improve; (ii) pay + possession, or (iii) improve + possession.
- (3) Part Performance of an Oral K that Cannot Be Performed in a Year:
- >> Part performance ≠ satisfy SoF, but court can still recognize a quasi-contract for work done.
- >> Can enforce if P fully performs in one year.
- (4) Estoppel to Plead SoF: Estoppel likely applied if reliance, reliance was reasonable, and damages were suffered. Courts also likely to recognize K where there was a promise to put K in writing, especially if there's a difference in sophistication between the parties.
Flaws in Bargaining: Mutual Mistake -- Ambiguity
- GEN: No contract if --
- (1) Parties use a material term open to at least two reasonable interpretations;
- (2) Each party attaches a different meaning to the term; AND
- (3) Neither party knows or has reason to know the meaning attached by the other.
BUT: Where there is a latent ambiguity
and one party is aware of it, K will be formed according to the intent of the unaware party.
Flaws in Bargaining: Mutual Mistake -- Material Fact
- GEN: No contract if -- both parties mistaken about a basic assumption of fact that materially affects the agreed echange, and it's not a risk that either party bears.
- KEY: mistake must be about subject matter, NOT price.
Flaws in Bargaining: Unilateral Mistake
GEN: Courts reluctant to allow a party to avoid K for a mistake not shared by other party.
- (1) Obvious Mistakes -- if other party knows or should have known of the mistake, and takes advantage of it.
- (2) Avoidance b/f Significant Reliance -- narrow bid exception for contractors.
- Latent Ambiguity: where one party is aware of the ambiguity and the other party is not at the time of contracting, a contract will be enforced according to the intent of the party who was unaware of the ambiguity.
Flaws in Bargaining: Duress
- GEN: One party left with no reasonable alternative but to enter into a contract.
- >> Personal duress and economic duress (pre-existing duty often accompanies latter).
- >>>> NOTE: Pre-existing duty rule doesn't help you get your money back; duress does.
RESULT: Duress makes K voidable.
Flaws in Bargaining: Undue Influence
GEN: Person uses a position of trust and confidence, or a position of dominance, to convince the other to enter into a rransaction that is not in that other party's best interest.
RESULT: K voidable.
Flaws in Bargaining: Fraud and Misrepresentation
- Fraud in the inducement: lie about subject matter / terms.
- Fraud in the factum: deception about nature of document signing.
- Innocent Misrepresentation:
- >> If reasonable reliable and material, you can void the contract.
- >> If not material, can't avoid the contract, but you may be able to sue for damages (loss).
- >> GEN: No duty to disclose facts that would tend to discourage the other party from entering into the K.
- >> EXCEPTIONS:
- (i) Statutory disclosure rules,
- (ii) active concealment,
- (iii) partial disclosure is misleading,
- (iv) changed circumstances cause a previously-true assertion to be false,
- (v) party becomes aware that the other party is operating under a mistake as to a vital fact,
- (vi) there is a confidential/fiduciary relationship.
Flaws in Bargaining: Unconscionable
Unfair surprise / oppression.
Success rate rare.
CAN REFER TO: Custom and usage, past dealings b/wn parties, UCC (for sale of goods)
Parol Evidence Rule
- RULE: Where parties have agreed to a written contract as the final expression of their agreement, a prior written or oral agreement, OR a contemporaneous oral agreement, cannot be used to vary the terms of the agreement.
- NOTE: Only applies to items made BEFORE final agreement, NOT to modifications.
- JUDGE Qs:
- (1) Partial Integration: Did parties intend that the written agmt, while not complete, is final as to the terms in that agmt?
- >> Effect: if PI, terms in the agmt are final -- even if not everything is included.
- (2) Complete Integration: Did the parties intend the written agmt to be not only final as to the terms in the agmt, but it also be their complete agmt?
- >> Merger and Integration Clause = strong evidence of compelte integration (for biz ppl).
- EXCEPTIONS TO PER:
- (1) Use of earlier agmt to explain the final writing.
- (2) Use of earlier agmt to establish a defense (fraud, ect.).
- (3) Use of the earlier agmt to show that the written K would not become effective until a condition occurred.
- (4) For Partial Integrations: Use of the earlier agmt to ADD to the final writing IF the court concludes that the final writing was not intended as the complete agmt.
- (5) Oral agreements AFTER the final writing.
- COLLATERAL AGMTS: admissible.
- >> Collateral if: agreed for separate consideration OR agmt that would naturally and normally be included in a separate writing.
- >>>> IE. if A contracts with B to paint B's house for $1,000, B can introduce extrinsic evidence to show that A also contracted to paint B's storage shed for $100. The agreement to paint the shed would logically be in a separate document from the agreement to paint the house.
Delivery Obligations of Seller of Goods
GEN: Most contracts are shipment contracts.
- Destination Contracts: Ex Ship ______ or FOB _____
- >> If terms followed by a city other than where the seller and/or goods are located.
- >> Seller's delivery obligations not complete until the goods are tendered to the buyer.
- Shipment Contracts: All others (CIF, C&F, ect.)
- >> KEY: If contractual language is unclear -- presumption is that the transaction is a SHIPMENT K.
Risk of Loss
- RISK OF LOSS: When goods lost/damaged w/o fault of the buyer/seller ...
- (1) Risk of loss on buyer: he has to pay the full K price for the lost damaged goods.
- (2) Risk of loss on seller: no obligation on buyer AND possible liability on seller for non-delivery (unless commercial impracticability).
- (1) Agmt b/wn the parties: controls.
- (2) Breach:
- (3) No agmt, no breach, and delivery by common carrier other than seller:
- >> GEN: Risk of loss shifts from seller to buyer at the time that the seller completes its delivery.
- >>>> ASK: Shipment or Destination K?
- (4) No agmt, no breach, and no delivery by common carrier:
- >> KEY: Whether seller is a merchant.
- >>>> Merchant-Seller: Risk of loss shifts from a merchant-seller on a buyer's receipt of the goods.
- >>>> Non-Merchant-Seller: Risk shifts from a non-merchant seller when the seller tenders the goods (holding the goods for the buyer and lets buyer know they're available).
- (5) Sale on Approval
- >> Risk of loss remains on the seller -- until buyer accepts the goods.
Warranties of Quality (General)
- GEN: Breach of Warranty -- SOL is 4 years from the tender of delivery
- >> BUT: If warranty explicitly extends to the future performance of goods (ie. __ yr. warranty), SoL begins wehn breach is or should have been discovered.
- Express Warranties:
- (1) Words with a natural tendancy to induce reliance (promise, description, ect.)
- >> If in writing, more likely to be a warranty, especially if it is specific.
- >> Note: puffery ≠ warranty.
- (2) Conduct: non-verba; express warranty that goods will conform (ie. use of sample/model).
- Implied Warranties:
- (1) Merchantability: Goods will be fit for the ordinary purposes for which such goods are used (foreseeable).
- >> Triggering fact: Seller is a merchant dealing in goods of the kind.
- (2) Fitness: Goods fit for a particular purpose.
- >> Trigger: Buyer has particular purpose and is relying on seller to select suitable goods (knowl/reliance).
- (3) Title: Seller warrants that it has good title and theat there are no undisclosed security interests, liens, ect.
Warranties of Quality (Disclaimers: Limitations on Warranties)
- GEN: Eliminate warranties, and may include the warranties of merchantability and fitness.
- REQS: conspicuous (ie. As-is), must mention mechantability (or have more general language).
- >> Warranties may be excluded/modified through course of dealing/performance.
- >> Where seller demands that buyer examine goods fully, no implied warranties WRT observable defects.
- NOTE: Cannot disclaim express warranties.
- Special Case: Implied Warranty of Title
- GEN: Can only be excluded/modified by specific language (or clear circumstance -- sale by sheriff, ect.) which gives the buyer a reason to know that the seller does not claim title in himself, or is selling an unknown or limited right.
- >> "As is" NOT sufficient.
Warranties of Quality (Limitations on Remedies)
- Limitation of Remedies Clause: limits/controls recovery for a breach of warranty, but doesn't eliminate the actual warranty.
- KEY: Okay if not unconsciounable -- does not fail of its essential purpose.
- GEN: Promise modifier. If coupled with a covenant, promiser has a legal obligation to use reasonable GF efforts to cause the event to occur.
- LANG: "subject to," "in the event that," "unless," ect.
- STANDARD: Strict compliance.
- >> Objective -- reasonable person standard.
- >> Subjective -- if "satisfied" clause and the work concerns personal taste/judgment, then subjective GF stnd.
Condition Precedent, Concurrent, Subsequent
- Precedent: Must occur BEFORE an absolute duty of immediate performance arises in the other party.
- Concurrent: obligations occurring at the same time.
- Subsequent: occurrence cuts off an already-existing duty to perform.
Constructive and Implied-by-Law Conditions
- GEN: Read into a K by the court.
- >> A party's "substantial performance" of the K is said to be a "constructive condition" of the other party's obligation to pay.
- STANDARD: Substantial performance is the general standard for satisfying a condition.
- >> If substantially perform, even if you don't meet all the terms of the agmt, the other party has to pay. Paying party can then sue for damages.
- >>>> IE. Promise to paint house, put two coats ont he shutters. End up putting only one coat on the shutters.
NOTE: W/ service contracts, usually service before payment.
Excuse of Conditions (Estoppel/Waiver)
- Estoppel (before): statement/conduct by person protected by a condition BEFORE the conditioning event was to occur and requires a change of position.
- Waiver (after): Statement/conduct by person protected by a condition AFTER the conditioning event was to occur and DOESN'T requires a change of position.
Performance -- Sale of Goods (Perfect Tender & Cure)
PT RULE: If goods fail in any way to conform to the contract, buyer can reject the whole, accept the whole, or accept any commercial unit(s) and reject the rest.
- CURE: Only available to seller in some cases.
- >> Contractual Right to Cure -- repair/replacement clause.
- >> Time for Performance ≠ Expired -- statutory right to cure.
- >> Time for Performance = Expired -- right to cure IF reasonable grounds for believing the improper tender would be acceptable, perhaps w/ a money allowance (look at prior dealings).
- NOTE: If damages result from a delay, buyer can pursue its case for damages.
Performance -- Sale of Goods (Rejection)
- NOTICE: If wish to reject, buyer must timely notify the seller AND take affirmative action to avoid acceptance.
- >> If fail to state reasons for rejection: buyer cannot rely on unstated defects to justify a rejection or establish a breach if (1) the sellet could have cured defect if told about it; OR (2) between merchants, when the seller has, after rejection, made a request in writing for a full/final written statement of all defects uon which buyer proposes to rely.
- PERMISSIBLE CIRCUMS:
- (1) If goods less than perfect.
- >> Exception: installment sales contracts -- can only be rejected where there's a substantial impairment in that installment that cannot be cured. Can only reject entire contract where breach impairs the entire contract.
- >>>> Where NO substantial impairment, cannot reject goods, but can sue for damages.
- (2) Rejection must occur before acceptance.
Performance -- Sale of Goods (Acceptance)
- GEN: Occurs --
- (1) After B has a reasonable opp to inspect -- indicates to S that goods conform to reqs or that he'll keep them although they fail to conform;
- >> Note: sometimes payment required before inspection.
- (2) B fails to make an effective rejection; OR
- (3) B does any act inconsistent w/ seller's ownership.
- >> IE. Reject product, but then use it. Courts are sympathetic, however if you have no choice (undue hrdsp)
EFFECT: Once accepted, cannot later reject them.
Performance -- Sale of Goods (Revocation of Acceptance)
- (1) Noncomfority of goods substantially impairs value of goods to the buyer;
- (2) Excusable ignorance of grounds for revocation or reasonable reliance on seller's assurances of satisf; AND
- (3) Revocation w/in a reasonable time after discovery of non-conformity AND b/f substantial change in condition of goods not caused by their own defects.
- >> Normal wear/tear okay.
NOTE: If reject acceptance properly, must still hold goods for seller using reasonable care. Merchant buyers must follow reasonable instructions from seller if seller has no agent or place of business at the market of rejection/revocation.
Performance -- Sale of Goods (Buyer's Payment Obligations)
- GEN: If no agmt for credit, B must pay cash.
- BUT: Buyer can pay by check. If seller refuses check + demands cash, B must have reasonable time to get it.
Performance -- Sale of Goods (Effect of Breach on Risk of Loss)
- (1) Goods so defective that B has right to reject them: RoL on seller until defects cured or B accepts goods.
- (2) Goods are defective and B rightfully revokes acceptance: risk of loss on S to extent of any deficiency in B's insurance coverage.
- (3) Where goods conform and B repudiates/breaches b/f risk has passed to her, tisk of loss falls on B to the extent of any deficiency in seller's insurance coverage.
- >> NOTE: In such a case, need not get goods to the carrier to transfer risk of loss. Risk of loss (beyond S insurance) passes to B after goods IDed for delivery.
Excuse of Non-Performance
- (1) Failure to tender perfectly: B can reject goods and withhold payment -- B excused from paying.
- (2) Material Breaches: A material breach is a failure to substantially perform.
- >> Always a question of fact.
- (3) Minor Breaches: Do NOT excuse performance of another party to the contract.
- >> In such "minor" or "partial" breach situations -- can't get out of contract, but you can collect damages.
- (4) Divisible Contracts:
- >> If both sides can be broken into clear, distinct segments, THEN: if material breach of one part of K, the other party is excused from from fulfilling its obligations for that part.
- (5) Express Conditions: require strict compliance -- substantial performance insuff.
- >> Note: failure to strictly comply may only be excused where disproportionate forfeiture would result if the condition were not excused.
- >> And even where not excused, injured party can always seek recovery through quasi-contract (unjust enr).
NOTE: Mere expression of doubt/unwillingness ≠ constitute a repudiation.
- GEN: Unequivocal manifestation by one party to the other that --
- (1) the repudiating party cannot or will not perform its obligations under the contract;
- (2) made prior to the time that the repudiating party's performance is due.
- EFFECT: antic. repudiation excuses the duty to perform of the other party AND gives an immediate claim to damages for the breach.
- >> EXCEPTION: Where non-repudiating party has already finished performance. In that case, no immediate claim to damages; must wait 30 days.
BREACH: If one party has substantially performed and the other party repudiates b/c he erroneously believ es that P has materially breached the contract, THEN: repudiating party responsible for the breach
RETRACTION: May retract a repudiation so long as it hasn't cause the other party detrimental reliance.
Excuse b/c Agreement: Modification
- GEN: Agmt (BFE, consideration, offer, acceptance) changing the duties under the contract.
- EFFECT: Discharge of original agmt occurs as soon as the new agmt is entered into.
- NOTE: Watch for potential SoF problems.
Excuse b/c Agreement: Accord & Satisfaction
- GEN: New agmt substituting performance in future satisfaction of a contractual duty.
- >> Accord: New agmt. Making of accord suspends orig. oblig. -- but not discharged until sat.
- >> Satisfaction: peformance fo the new agmt.
- EFFECT: When performed, knocks out old obligation
- BREACH: If breach of accord, injured party can either (1) sue on original, undischarged debt, OR (2) breach of accord agmt.
Excuse b/c Agreement: Recission
- GEN: Contract parties mutually agree -- written or oral -- to rescind.
- NOTE: Only applies if some performance remains to be done on each side of the contract.
- SOF: Generally accepts oral recissions, even if writing usually required.
- >> EXCEPTIONS: Transfers of interest in land and sales of goods!
Excuse b/c Agreement: Novation (and Delegation)
- GEN: Substitution of a party -- requires agmt of both parties to orig. contract AND new party.
- RESULT: Discharge of old (original) party's obligations.
- DELEGATION: Delegating party remains liable.
- >> Okay if obligee still receives a substantial benefit, unless the performance is for personal services requiring special skill. In that case, may be void unless obligee consents.
- (1) post-contract occurrence;
- (2) not reasonably foreseeable at the time of K and was not a risk assumed by a party to the K;
- (3) renders performance impossible (commercially impracticalbe); AND
- (4) not the fault of the party seeking to be excused.
RECOVERY: Where work partially performed before event of impossibility, party who performed can seek compensation for his work in quasi-contract
(K rate or reasonable value).
- NOTE: In cases of impossibilty, need NOT pay for substitute employee (if needed).
- NOTE: Where physical illness causes impossibility, it does not matter if illness is D's fault. Can still be excusable.
- Destruction of Suject Matter of K or Means of Performance
- >> CL: Excused.
- >>>> NOTE: Builder's duty to construct building gen NOT discharged by destruction of work in progress.
- >> UCC: Usually excused.
- >>>> Consider: Did buyer have RoL at time of destruction, AND how is destruction of some goods handled?
- >>>>>> Non-merchant sellers: risk of loss on buyer shifts on TENDER (making goods reasonably available).
- >>>>>> Merchant sellers: risk of loss shifts of RECEIPT.
S not liable for breach, but B not required to take partial delivery.
Excuse: Temporary Impossibility
GEN: Suspends contractual duties, but does not discharge them. Duty springs back when performance becomes possibility UNLESS burden on either party substantially increased or different from original burden.
Non-Excuse: Increased Cost of Performance
GEN: Not excused b/c increased cost, alone, is an assumed risk.
Excuse: Frustration of Purpose
- (1) Post-contract occurrence;
- (2) Not reasonably foreseeable at the time K entered into;
- (3) Totally or nearlly totally destroys the purpose or value of K; AND
- (4) Purpose of K was known to both parties at time of K.
Breach: Liquidated Damages
- GEN: No penlaties allowed, but method of fixing damages okay IF --
- (1) At time of contract damages difficult to estimate; AND
- (2) At time of contract, provision reasonable forecast of possible damages.
KEY: LDCs are okay even if there is no actual loss
. Simply must meet above test -- diff to estimate and reasbl.
Breach: Punitive Damages
- GEN: Not generally recoverable.
- RATHER: P shoulf allege an independent tort to access punitive damages.
Breach: Damages Rules
- KEY: Put injured party where he would have been BUT FOR the breach.
- >> Damages CANNOT, however, be speculative. Must have reasonable certainty.
- (1) Ordinary Breach: FMV - K(price) = damages.
- (2) Land Contracts:
- >> If S breaches and K(price) less than FMV: FMV - K(price) = damages.
- >> If B breachers and K(price) more than FMV: K(price) - FMV = damages.
- (3) Construction Contracts:
- >> Purchaser breaches: construction costs + anticipated profits.
- >> Purchaser breaches b/f start of construction: diff. in price between new sale and old sale.
- (4) Employment Contracts:
- >> If employee breaches: difference between employee's K price and cost of replacement AND recruiting costs.
- >> If employer breaches: full K price, but employee must make an effort to get new employment.
Breach: Incidental Damages
GEN: Costs incurred in a reasonable effort to avoid loss resulting from breach are recoverable.
Breach: Consequential Damages
- GEN: Foreseeable injuries to a person or property and lost profits resulting from the breach.
- >> BUT: Damages that could have reasonably been avoided not recoverable. Must make effort to mitigate.
Breach: Suing for Cover
- GEN: If two parties and one fails to deliver goods, other can seek replacement goods and sue the breaching party for the amount of cover.
- FORMULA: Original K(price) - Replacement(price)
Breach: Reliance Damages
GEN: When expectation damages too speculative (no reasonable certainty), use reliance damages.
Breach: Damage Rules for Sale of Goods
LOST VOLUME SELLER RULE:
- (1) Seller breaches, buyer keeps goods: FMV(perfect goods) - FMV(as delivered).
- (2) Seller breaches, seller keeps goods: FMV(discovery of breach) - K(price); OR Replacement(price) - K(prc)
- (3) Buyer breaches, buyer has goods: Contract price.
- (4) Buyer breaches, seller has the goods: Contract(prc) - FMV(time/place for tender); OR K(prc) - Resale(prc)
If lose volume (supply exceeds demand), can recover expected profits (and poss. incidentals).
- Equitable defenses:
- (1) clean hands
- (2) Balance of hardships
- (3) Impossibility
- (4) Latches
(1) unique goods.
- Equitable Recission
- Available where performance durt is excused because of imposs/imprac or frustration of purpose. Also used where K void or voidable.
: agmt incorrectly recorded.
Quasi-Contracts: UCC Remedies
** Anticipatory Breach and Adequate Assurance **
- Reasonable grounds for insecurity, adequate assurance of performance:
- GEN: When there's reasonable grounds for insecurity about another party's performance (anticipatory breach), a party may in writing demand adequate assurance of performance and may, if commercially reasonable, suspend performance until it receives such an assurance.
EFFECT: If assurance is not received w/in a reasonable time not exceeding 30 days
, it can be treated as a repudiation of the contrac
t AND sue for damanges.
- PROBLEM: Difficult to establish reasonable grounds for insecurity.
- >> If no reasonable grounds, and you made demand + stop perform, can be liable for breach.
- >> Also: can't demand too much -- all you get is a "reasonable assurance."
- NOTE: If one party EXPRESSLY indicates that hes not going to perform (even before a request for adequate assurance), can sue for damages IMMEDIATELY.
Quasi-Contracts: UCC Remedies (Right of Reclamation)
- Right of Reclamation
- GEN: Unpaid seller has no special rights in goods it has delivered to the buyer even though it
- has not yet been paid for the goods.
- BUT: Seller can obtain special rights by obtaining an Art. 9 security interest or meeting reqs of 2-207:
- >> 2-207: Unpaid seller has right to reclaim goods IF:
- (1) it is a credit sale;
- (2) buyer is insolvent when it receives the goods; AND
- (3) demand for return is made w/in 10 days of buyer's receipt of the goods OR w/in a reasonable time IF buyer made false reps of solvency.
Third Party Beneficiaries (General)
- TPB: Not a party to the contract but able to enforce it if made for her benefit.
- >> Intended: named in the contract -- only intended beneficiaries have K rights.
- >>>> Creditor: creditor of the promisee. Can only sue promisor.
- >>>> Donee: non-creditors. (usually donee). Can sue promisor OR promisee.
- >> Incidental: if not named, incidental, no K rights.
- Promisor: Person making the promise that benefits the TPB.
- Promisee: Person obtaining the promise benefiting the TPB.
Third Party Beneficiaries (Cancellation/Modification)
- KEY: Whether TPB knows of and has reasonable relied on or assented as requested.
- >> IF YES: Rights have vested, K cannot be canceled/modified w/o her consent UNLESS otherwise provided by the contract.
Third Party Beneficiaries (Vesting Rights and Suing to Recover)
- GEN: To enforce a contract against original parties, the rights of the third party must first vest (take effect). The rights vest when --
- (1) Third party manifests assent to K (at request of a party);
- (2) Third party materially knows of his position and detrimentally relies on his rights; OR
- (3) Third party files a lawsuit to enforce contract.
- PRE-VESTING: Original parties can modify or rescind it -- or portions of it -- without the knowledge of the third party.
- POST-VESTING: Any effort by the promisor or the promisee to rescind or modify the contract at that point are void.
- (1) Intended TPB
- >> Donee: can recover from the promisor.
- >> Creditor: can recover from the promisor OR promisee.
- (2) Promisee can recover from the promisor.
- (3) Beneficiary cannot recover from the promisee.
- >> Exception: Creditor-beneficiary can recover from Promisee BUT ONLY on pre-existing debt.
Third Party Beneficiaries (Defenses)
GEN: TPB sues Promisor -- Promisor can then assert any defense that he would have had if sued by Promisee.
- GEN: Transfer of rights under a contract in two separate steps:
- (1) Contract b/wn two parties; AND
- (2) One of the parties later transfers rights under that contract to a third party.
REQS: No consideration needed, but gratuitous assignments can be REVOKED.
- (1) Assignee can recover from obligor.
- (2) Assignor CANNOT recover from obligor.
- (2) Obligor has same defenses against assignee as against assignor.
- (3) Payment by obligor to assignor is okay until obligor knows of the assignment.
- >> Modifications effective b/wn obligor/assignor if former doesn't know about the assign.
Assignments (Irrevocable Assignments/Gifts)
- (1) Gift assignment in writing AND delivered to assignee.
- (2) Where a party already performed -- gift given.
- (3) Reasonable detrimental reliance by intended assignee.
Assignments (Limitations & Warranties)
- (1) Prohibition: If prohibit, assignor liable for a breach of contract but an asignee who does not know of the prohibition can still enforce the assignment.
- >> IE. "Rights are not assignable."
- (2) Invalidation: takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.
- >> IE. "All assignments of rights under K are void."
- (3) CL: If assignment substantially changes the duties of the obligor (even if K does not limit assignment), assignment barred.
- >> The assignment of the right to payment ≠ substantial change.
- >> Assignment of right to contract performance other than to payment = substantial change.
- WARRANTIES -- ASSIGNMENTS FOR VALUE
- Assignor warrants --
- (1) right assigned actually exists;
- (2) right assigned not subject to any defenses by the obligor; AND
- (3) assignor will do nothing to impair the value of the assignment.
- BUT: Assignor DOESN'T warrant waht the obligor will do.
- >> IE. Obligor files for bankruptcy and refuses to pay royalties. Assignor has no liability in this instance to asignee.
Assignments (Multiple Assignments)
- GRATUITOUS ASSIGNMENTS
- GEN RULE: Last assignee generally wins.
- EXCEPTION: Gratuitous assignment is not revocable (and takes priority) if --
- (1) It is the subject matter of a writing delivered to the assignee;
- (2) The assignee has received some sort of indicia of ownership; OR
- (3) The assignee has relied on the assignment in a way that is reasonable, foreseeable and detrimental.
- ASSIGNMENTS FOR CONSIDERATION
- GEN RULE: FIrst assignee for consideration wins.
- EXCEPTION (limited): A subsequent assignee takes priority over an earlier assignee for value only if he
- (1) does not know of the earlier assignmentl AND
- (2) is the first to obtain payment, a judgment, a novation OR indicia of ownership.
- GEN: Party to a contrat transferring work under that contract to a third party.
- >> Whereas assignment is the transfer of rights/benefits, delegation is the transfer of duties/burdens.
- >> USUALLY: contracting party makes BOTH an assignment and a delegation, even though it calls it merely an "assignment."
- NOTE: Delegations permitted unless either --
- (1) K prohibits delegations or prohibits assignments; OR
- >> "No assignments" also means "no delegations."
- (2) Contract calls for very special skills; OR
- (3) Contract calls for a person to peform with a special reputation.
Delegation for Consideration:
- NON-PERFORMANCE BY DELEGATEE:
- (1) Delegating party always remains liable.
- (2) Delegatee liable only if she receives consideration from delegating party (assignment).
One party delegates the burdens to a non-party and promises to pay that non-party directly for his performance.
Assignment is the
Promise of Gifts
- GEN: Promises enforceable if promissory estoppel or detrimental reliance.
- ALWAYS ENFORC: Promise of a gift to a charity in writing even where no consideration.
Time of the Essence Clause
- KEY: Any delay, reasonable or not, slight or not, becomes a material breach of the contract.
- >> If late, can back out -- even where a day late.
- >> NOTE: Merely including a date for completion is not suff. Must explicitly have a TIOTE clause.
- EXAMPLE: An example of this would be in the case of the sale or purchase of perishable property or property that fluctuates rapidly in value.
- NOTE: If a contract states that time is of the essence, but it obviously is not, some courts will ignore this clause.
NOTE: Even if contract obligations end for one party, the performing party may still be able to get restitution to prevent unjust enrichment.
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