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A bargained for exchange for with the law provides a remedy if it is breached
- UCC for sale of goods/merchant
- Common law for all others
- Predominance test
Movable, tangible property
A merchant is one who deals in goods of the kind or holds himself out to have special knowledge or skills regarding the practices or goods involved in the contract
where a contract includes both goods and services, the predominance test determines if UCC or common law governs the contract
Elements of a Contract
These include offer and acceptance (also known as mutual assent) and consideration.
The requirement of an initial agreement between the parties to enter into a contractual relationship and is established if a valid offer has been made by one party with a valid acceptance having been given by the other prior to termination of the offer
A manifestation of present contractual intent and is comprised of a promise to carry out the terms of a proposed transaction which bargains for an act, a forbearance to act or a return promise to be given in exchange
The words or conduct of the offeror must demonstrate a present intent to enter into a contract. An objective reasonable person standard is used to analye
- A party's language may invite preliminary negotiations but lack present willingness to contract -
- Solicitation of bids
Definite and Certain Terms
the offer must contain definite and certain terms such that the content of the bargain can be determined and enforced. Generally need:
- Time of performance
- Identity of parties
An unequivocal assent to the terms of an offer. Normally has to mirror the offer to be considered an acceptance for C/L, not required for UCC
Manner of Acceptance
Must be accepted in the manner required by the offer. But if no method is specified, acceptance can be by any reasonable means
That which is bargained for and given in exchange for a promise. It may be an act, a forbearance to act, or a return promise on the part of the promise
This results from an offered promise that is accepted by giving a return promise.
This results from an offered promise that must be accepted by giving the performance specified. A mere promise to perform does not constitute acceptance in such a case.
Adams v. Lindsell / Mailbox Rule
The case of Adams v. Lindsell holds that an acceptance of an offer for a bilateral contract, dispatched by an authorized mode of communication is effective when posted.
- where offer provides otherwise
- Option contract effective upon receipt
- If both an acceptance and a rejection sent, the rule depends on which was dispatched first
Rejection dispatched first - the acceptance will only become effective if it is received first
Acceptance dispatched first is effective on dispatch in accordance with the normal rule
An agreement supported by consideration that involves a promise to hold an offer open for a specified length of time
An offer which is irrevocable either because an option has been paid for by one for the parties or because it was made by a merchant pursuant to UCC Section 2-205, the merchant having signed the offer in writing giving assurance that the offer will remain open for a certain or reasonable length of time, but it is irrevocable for 3 months
Caldwell v. Cline
This case holds that when an offer states that it will be open for a certain number of days the first day is considered to be the day the offeree receives the offer
Detrimental reliance and partial performance
An offer will be temporarily irrevocable if the offeree has made preparations to perforam in reasonable detrimental reliance on the offer
Unilateral Contract - once performance has begun the offer is temporarily irrevocable
Bilateral Contract - making preparations to perform may make the offer irrevocable if justice requires (i.e. subcontractor bids)
Lapse of Time
The offeror can set a time limit for acceptance, or if none is stated it remains open only for a reasonable time.
An oral offer usually expires at the end of the conversation
Death or incapacity of either party
If either offeror or offeree dies or loses the legal capacity to enter into a contract, the power to accept an outstanding offer is terminated
Common Law Mirror Image Rule
An acceptance must be a precise mirror image of the offer. If the response conflicts at all with the terms of the offer, or adds new terms, the purported acceptance is a rejection and counteroffer
UCC - Acceptance Rule
Any expression of acceptance or written confirmation will act as an acceptance eve if terms are additional to or different from those contained in the offer. The outcome here depends on if the terms are additional or conflicting to those in the offer.
If one party is not a merchant, the terms are a proposal
If both parties are merchants, terms automatically be added to contract unless
- Offer expressly limits acceptance to it's terms
- Material alteration with added terms
- Objection by offeror within a reasonable time
UCC Conflicting terms
Conflicting Terms cancel each other out and neither enters the contract. The contract then consists of the agreed to terms and the court will supply the missing items
UCC Gap Fillers
- The UCC allows the court to find the following gap fillers if they are missing:
- Price = reasonable price at the time of delivery
- Place of delivery = buyer must pick up at sellers
- Time of shipment = reasonable time
- Time for payment = Payment is due upon receipt of goods. No credit is extended.
Acceptance by Shipping goods
- Unless otherwise stated, an offer to buy goods can be accepted by shipping conforming or non-conforming goods
- Shipping conforming goods is an acceptance
- Shipping nonconforming goods depends on whether the seller acknowledges the nonconformity of the shipment
Shipment w/out acknowledgment is acceptance and breach
Shipmen w/ acknowledgement is accomodation and counteroffer
- this results from the canceling, annulling, or otherwise voiding of an offer.
- Can be direct or Indirect
- Must be unambiguous in words or conduct
- of which the offeree is aware
Revocation Effective Upon receipt by Offeree
A revocation is deemed to be effective upon its receipt by the offeree. A minority view holds that the revocation becomes effective when sent by the offeror.
Revocation of Offer Rule
The offerer in a unilateral contract may not revoke the offer for the time stated in the offer or if no time is stated in the offer, then for a reasonable length of time if the offeree begins performance
A manifestation by the offeree that he or she does not intend to accept the offer or give it further consideration
Rejection Effective when Received
A rejection becomes effective upon receipt by the offeror.
An offer by the original offeree regarding the same transaction but containing terms that differ from those proposed in the original offer made by the offeror.
Counteroffer as an Implied Rejection
A counteroffer is an implied rejection of the original offer. It is, in effect a new offer available for acceptance
Inquiring about the possibility of another deal will not serve as a counteroffer and rejection
An expression, which resembles promissory terms, but in actuality imposes no obligation upon the party making it.
This provides a substitute for the element of consideration under certain circumstances involving foreseeable detrimental reliance upon a gratuitous promise, where a remedy against the non-performing promisor may be necessary in order to avoid injustice in the particular case.
Recovery limited to reliance damages
Moral Obligation Rule
This applies where the promisor has received something from the promise of value in the form of money or other material benefits under such circumstances as to create a moral obligation to pay for what they have received, and a later promise to do so, resulting in a finding of consideration for such a promise
A promise to do something that one is not legally required to do or to refrain from doing something that one is legally privileged to do
Failure of Consideration
This occurs when one of the parties to a contract fails to perform as required by the terms of the contract or the subject matter of the consideration ceases to exist or becomes worthless even though valid consideration was present when the parties first contracted.
Want of Consideration
This refers to the parties failure to make a contract because there was no consideration present from the beginning of the transaction
Sufficiency of Consideration
Generally, courts do not require that the consideration benefit the offeree, or that it be of any substantial value, as long as it serves as an inducement for the promise of the other party. However, some courts have held that nominal consideration may not constitute a valid contract if the promisor’s promises are valued at considerably higher than those of the promisee.
This is a contract that has been fully performed by all of the parties to the contract.
A contract that remains to be completed in the future by at least one of the contracting parties.
Meeting of the Minds
Most jurisdictions hold that a contract is not formed until there has been a “meeting of the minds” according to the intentions of the parties
Outward Manifestation Theory
A theory stating that contracts are formed according to outward manifestations in accordance with the understanding of the supposed “reasonable man.”
Merit Music v. Sonneborn
In this case, the court held that in the absence of fraud duress or material mistake, a party to a contract with the capacity to understand a written document will be bound by his or her signature whether or not they read the document
A contract that is manifested by words either in written or oral form in which all terms are stated or expressed
Implied in Fact Contract
A contract that is inferred by the law because the acts or conduct of the parties and the surrounding circumstances make it reasonable to assume that a contract exists between them even though the contract is never manifested by words
Implied in Law Contract (Quasi Contract)
A contract that is imposed by operation of law to do justice even though it is clear that no promise was ever manifested by words or ever intended. The creation of such a contract will occur where one party accepts or retains benefits that have been conferred upon him by another party who expected to be paid and who was not a volunteer.
The reasonable value deserved for one’s labor.
A reasonable value that is deserved as payments for goods
A contract to supply all of a certain type of goods or merchandise that a particular party may have a need for over a certain period of time
A contract to supply all of a certain type of goods or merchandise that a particular party may produce
A contract wherein the promisor for consideration agrees to make a certain offer irrevocable.
A contract that cannot be enforced by either of the parties
A contract that can be disaffirmed by one or more of the parties for reasons related to immaturity or mental incapacity
Power of Disaffirmance
A legally immature or mentally incapacitated person has the power to disaffirm a contract but for all other purposes the contract is valid until it is disaffirmed. The disaffirmance occurs when the legally immature or mentally incapacitated person manifests to the other party an unwillingness to continue to be bound by the contract
A provision in a contract that is intended to remove the liability from one or more of the contracting parties that may result from certain acts or events
Contract of Adhesion
A contract wherein the provisions have been drafted giving one party an unequal bargaining power
A contract with a provision that no fair and honest person would make and no person in his or her right mind would accept. Such contracts are usually agreed to through oppression in that the promisee knows that he or she is giving up his or her rights but is forced to if he or she wishes to purchase the subject product. Or, he or she is not aware of the rights that are being given up but through “unfair surprise” (such as small print or vagueness in terms) signs the contract anyway
An act or event, other than a lapse of time, which affects a duty to render a promised performance. A condition may be a condition precedent, a condition concurrent, or a condition subsequent.
This is related to an event which must occur before a duty on the part of the defendant will arise. It may arise out of an express or implied term of the contract, or by operation of law under the doctrine of constructive conditions
This is a type of condition which exists when the parties to a contract are bound to render performance at the same time
An event which, by the agreement of the parties, operates to terminate a duty of performance after it has arisen
Conditions that arise out of a stated provision in the contract.
Implied in Fact Conditions
Conditions which are necessary to the performance of the contract between the parties and therefore are deemed to have been intended by the parties, but are not expressly stated.
Conditions that the law will imply even though the parties did not and possibly would not have included them in the contract. Such conditions will be implied by the law to promote justice
Doctrine of Constructive Conditions
A doctrine that holds the fulfillment of a promise in a bilateral contract can be construed to be a condition of the other party’s performance even in the absence of an express provision to that effect
A doctrine that holds a plaintiff who has failed to perform a constructive condition in some minor or immaterial respect may nevertheless recover on the contract.
Implied Condition of Cooperation
This is implied in a contract whenever the cooperation of the promisee is necessary for the performance of the promise
Waiver of Condition
This results when a party to a contract voluntarily relinquishes his or her known right to assert the non-performance of a condition. Such waivers can be given by express agreement or through the conduct of a party.
Excuse of Conditions
This occurs when one party’s failure to perform a condition occurred because said party was reacting to a material default on the part of the other party. Accordingly, the other party is barred from asserting the failure of a condition or conditions as a defense against the first party
A transfer of a contractual right. The transfer is only of the rights of the contract, not the obligations. The assignee steps into the shoes of the assignor and receives the benefit of the contract
Divisible (or Severable) Contracts
A bilateral contract wherein the performance is divided into two or more separate units, either as to subject matter or time, and performance of each by one party is the agreed to exchange for a corresponding part by the other party
Lawrence v. Fox
The landmark case that held a third party beneficiary has the right to enforce the contract which will confer a benefit upon said third party
Delegation and Assumption of Duties
This involves a situation in which the assignor transfers his or her duty of performance to another. The person transferring the duty of performance is known as the delegator and the person who assumes the duty is known as the delegate.
Exception to Delegation
Cannot delegate duties of skill or judgment
Additionally, delegator remains liable
One who receives the benefit of a contract in satisfaction of an actual or supposed debt or obligation that existed between the third party beneficiary and the promisee to the contract
Third Party Beneficiary Contract
A contract wherein performance by one party, the promisor, will confer a benefit upon third party beneficiary, that is, a person or entity other than the promisee.
One who receives the benefit of a contract wherein the promisee has expressed intent to bestow a gift upon said beneficiary
One in whom the creation of an obligation in his or her favor was contemplated by the original parties to the contract. A third party must be an intended beneficiary in order to have a “Standing to Sue” when attempting to enforce the provisions of the contract.
One who may receive the benefit of the performance of the contractual provisions only incidentally and was neither intended to receive the performance as a gift nor in satisfaction of a debt. An incidental beneficiary does not have standing to sue for purposes of attempting to enforce the contract
Distinguishing between Donee and Creditor
Originally the difference was between a Donee and a Creditor Beneficiary was when the rights vest. The donee’s rights vest upon creating of the contract, whereas the creditor’s rights vest when he brings suit or changes position in reliance of the contract. This has changed for the majority rule in that both donee’s and creditor’s rights vest upon learning of the contract and manifesting assent thereto. Until this point occurs, the original parties retain power to defeat or alter the beneficiary’s rights
A person for whose benefit property is held in trust, a person to whom another is in a fiduciary relation, or a person who is initially entitled to enforce a promise.
Rights Against the Promisee
A third party “donee” beneficiary has no rights against the promisee by reason of the promisor’s failure to perform the contract. The “creditor” beneficiary, however, can sue the promisee on the original obligation since it remains unaffected by the third party beneficiary contract
A promise to answer for the debt, default, or miscarriage of another
Statute of Frauds
This doctrine requires certain contracts to be in writing to guard against fraud and perjury in contracts. Contracts that normally fall under this requirement are contracts for sales of goods in excess of a certain value, for sales of real estate, for consideration of marriage, for debts of another, and where performance cannot be performed within one year of the signing
- Includes contracts for:
- Marriage - expectation of except mutual promises to marry
- Real Property
- Promise to Pay the Debt of Another unless the main purpose is the promisor's own economic interest
- Contracts not capable of being performed in a year, unless full performance has occurred
- Sales of goods of $500 or more, unless specially manufactured or goods are accepted or paid for
SOF writing requirements exceptions
The merchant's confirming memo can be held against both where it is between 2 merchants, one party receives a signed confirmation, both parties will be bound unless one party objects within 10 days of receipt
Promissory Estoppel where a party detrimentally relied on the agreement
Parol Evidence Rule
This provides that where the parties have entered into an agreement where the written contract is considered to be a final and complete expression of the contract, no evidence of any prior or contemporaneous agreement can be used to change the terms of that contract.
Exceptions to PER
- Subsequent communications
- Contract Formation Defects
- Conditions precedent to the contract's effectiveness
- Ambiguous Terms - course of performance/course of dealing/Usage of Trade
Course of Performance
Refers to the evidence of the conduct of those parties regarding the contract at hand
Course of Dealing
Refers to evidence of the conduct of these parties regarding past contracts between them
Usage of Trade
Refers to evidence of the meaning others in the same trade/industry or locality would attach to the term
A subsequent agreement entered into for consideration for purposes of modifying the prior contract
Oral contract modifications
- Are generally allowed
- Under SoF - if the contract falls under SoF, it must be in writing. If ithe modification isn't in writing, it is not enforceable
Contract Modification Requirements
C/L - mutual assent and consideration is required
UCC - mutual assent and good faith is required but consideration is not required
The Collateral Agreement Doctrine
Additional terms included in a separate agreement and which were, in fact intended by the parties even though they were not included in the original written contracted may be enforced if this agreement is one which does not contradict any express conditions of the main agreement and might naturally be made as a separate agreement.
Termination by Accord and Satisfaction
An agreement to compromise an existing obligation which has become the subject of a good faith dispute and the acceptance by one party to a contract of the agreed compromise.
Accord is the agreement where one party promises to render substitute performance and the other agrees to accept the substitute. It does not discharge the agreement until performance is completed
Satisfaction is completion of the agreed upon performance
Termination by Novation
A new contract is created that discharges one of the parties of the original contract with another who will perform the same or acceptable similar duty to the other original party. The discharged party is no longer a part of the contract and owes no duty nor gains any benefit of the contract.
Termination by Release
A complete discharge of the existing contractual obligations given by one party to the contract to the other in a written document under seal. The discharge is generally valid if supported by consideration
This is when one contract supersedes or incorporates another contract
Termination by Mutual Recision
An agreement by the parties to an existing executory contract to consider their contract null and void. This is a contract in itself that requires mutual assent and consideration.
Breach of Contract
When one party to a contract fails to perform pursuant to the terms of the contract.
Material Breach under C/L
a contract breach is material where there was not substantial performance on the contract
- Party did not receive substantial bargain of benefit
- Extent of any part of performance
- Willfulness of breach
- time is not of the essence unless stated
Materiel Breach under UCC - Perfect Tender Rule
- Applies to contracts for a single delivery and provides that if the goods tendered fail to conform to the contract in an respect, the buyer has 3 choices:
- Reject the whole within a reasonable time or
- Accept the whole or
- Accept any commercial unit and reject the rest
Exception - installment contracts. The perfect tender rule does not apply to installment contracts
Seller's right to cure
The seller has the right to cure rejected nonconforming goods up to the time performance is due.
- The seller must give notice to the buyer and
- the seller must make new tender within the time allowed for performance if the seller has a reasonable belief this would be acceptable to the buyer
Termination by Impossibility of Performance
A party to a contract will be released from an obligation to perform pursuant to the terms of a contract when neither from his or her act nor from his or her neglect and prior to being in default, it has become impossible for said party to perform.
An unequivocal repudiation of the contract before performance has become due. The promisee may elect to sue immediately for damages or may wait until after performance has become due to then file suit
Right to Demand Adequate Assurances
where the conduct of the party is not unequivocal enough to rise to the level of an anticipatory repudiation but does cause reasonable grounds for insecurity about the forthcoming performance, the insecure party can demand adequate assurances of due performance. this must be done in writing and he may suspend his own performance until receiving reassurances
Material vis-a-vis Minor Breach
- A material breach
- allows the non-breaching party to end the entire transaction and sue for
- damages. A minor breach only allows for
- a cause of action for damages caused by the breach, however the contract
- remains in effect
Termination by Economic or Commercial Impracticability
A party to a contract will be freed from an obligation to perform even in situations where performance has not become totally impossible, yet unanticipated difficulties have made the performance vastly different than intended by the parties.
Prospective Failure of Condition
This occurs when an anticipatory breach is present and will excuse the non-breaching party from his or her performance.
Termination by Frustration of Purpose
A party to a contract will be freed from an obligation to perform in situations where the performance is possible but because of unexpected events which have occurred after the formation of the contract, the main purpose fo the parties has become so frustrated to make it such that the benefit to be received by one party from the other party is not totally destroyed or materially impaired
Those damages that are agreed to in a contract in advance of any breach of contract and will be enforced by the courts if deemed reasonable
Damages that are awarded to the non-breaching party to place that party back into the same position that he or she would have been in had the contract been performed as agreed to.
Damages that are awarded to the non-breaching party to compensate for foreseeable damages. Normally, this is limited to injuries that can reasonably be foreseen by the defendant as a probable result of his or her breach
Damages that are given by the court to a non-breaching party who has suffered no damages or who has been unable to prove such damages at the trial, but who nevertheless have been wronged and is entitled to a judgment for technical breach of contract.
Mitigation of Damages
The efforts of the non-breaching party to mitigate or limit his or her damages that could occur from the other party’s non-performance. This is required by law
Punitive or Exemplary Damages
Damages that are granted to a plaintiff in a lawsuit for purposes of punishing the defendant for malicious or wanton or willful conduct and are awarded to make an “example” of the defendant’s conduct, so that such conduct will not be repeated again. These damages are traditionally not allowable in cases related to causes of action for breach of contract.
Defense of Misrepresentation
May serve as a defense where one party makes a misrepresentation prior to the other signing the contract -
State of Mind does not have to be intentional, can be negligently or innocently
Must pertain to a material fact
Justifiable and actual reliance
Two types -
- Mutual Mistake
- Unilateral Mistake
- The contract is voidable by one or both parties if
- the mistake is to a basic assumption
- the mistake has a material effect on the deal
- the risk of mistake is not on the party seeking to void the contract
One made by only one party in the deal. the mistake must show it was a basic assumption, there is a material effect on the contract, and the voiding party is not the one liable for the risk plus:
the other party knew of the mistake or should have known
the enforcement of the contract would be unconscionable
Types of Warranties
- Implied Warranty of Merchantability
- Warranty of fitness for a particular purpose
- Implied covenant of good faith and fair dealing
An explicit warranty
Implied warranty of merchantability
warrants that the goods will be fit for the ordinary purpose for which such goods are used
Warranty of fitness for a particular purpose
Only applies when the buyer relies on the sellers judgment to select appropriate goods for a stated purpose
Defenses to enforcement
- Defenses discharge the duty to perform and include:
- No mutual assent
- lack of consideration
- No writing where req by SoF
- Misprepresentation, Fraud, or Duress
- Undue influence
- Lack of capacity
- Illegality of contract
- Condition Precedent not met
- Legal Restitution
- Equitable Restitution
- Specific Performance
Measure of Damages
Damages may be limited by reasonably foreseeable, there's duty to mitigate losses and certainty (must be calculatable and not speculative)
Expectation damages compensate for the benefit of the bargain and put P in the position he would be in if the contract was performed
- UCC - expectation damages
- Buyer's damages - either difference between contract price and cost to replace with similar product OR difference between contract and market price. In addition can get consequential and incidental damages
Seller's damages - Either difference between contract price and sales price to second buyer, or difference between contract price and market price or if volume seller, the profit lost. Plus any incidental damages
Seller in breach for non-conforming goods - buyer can get the difference between perfect goods and the value tendered
Compensate for damages that are direct and foreseeable consequence of the contract non-performance and are unique to each plaintiff
Put a plaintiff in the position he would have been in had the contract never been made. mostly used when expectation damages are too uncertain to calculate
These are stipulated in the contract when actual damages are hard to calculate and must be a reasonable approximation of the anticipated loss. Punitive damages are not allowed
Legal restitutionary remedies
Quasi-contract - Implied in law contract where ther was no attempt to contract, there was an unenforceable contract or P was in material breach but D received a benefit. Used when D received a benefit from P and it would be unfair to allow D to keep the benefit
Relevin - return of personal property
Ejectment - return of real property
Equitable Restitutionary Remedies
Reformation rewrites the contract to accurately reflect the agreement where the writing was in erro
Rescission - permits a party to undo a bargain
Grounds for rescission or reformation - allowed were a contract has resulted from fraud, misrepresentation, duress or mistake
Where the court orders a party to perform the promised performance in the contract Rquires
Conditions imposed on P must be satisfied
- Inadequate legal remedy - money not sufficient due to:
- Certainty - damages are either too speculative, defendant is insolvent, or there are a multiplicity of lawsuits due to an ongoing problem
- Property in question is unique - either Real Property or special personal property
Mutuality of performance - both parties must be eligible to have there performance under the contract ordered by the court
Feasibility of Enforcement - the court must be able to enforce with no jurisdictional issues or require court supervision. Additionally no personal services contracts, multiple series of events or acts requiring skill, taste or judgment
No applicable defenses - laches/unclean hands, failure of contract (sale to a BFP)