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What is a contract?
A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.
Common Law vs. Article 2 of the UCC
Common law generally governs contracts.

UCC Article 2 governs the sale of goods.
Merchants vs. Nonmerchants
Article 2 defines "merchant" as one who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved.

Many rules in Article 2 depend on whether the seller and/or buyer are merchants. For provisions dealing with general business practices, almost anyone in business can be a merchant. Some are narrower, and require a person to be a merchant with respect to goods of the kind involved in the subject transaction.
Definition of "Goods"
Article 2 defines "goods" as all things movable at the time they are identified as the goods to be sold under the contract. Thus, Article 2 applies to sales of most tangible things (cars, horses, hamburgers) but does NOT apply to the sale of real estate, services (health club membership), or intangibles (a patent), or construction contracts.
Types of Contracts - As to Formation
Express Contracts: formed by language, oral or written

Implied in Fact Contracts: formed by manifestations of assent other than oral or written language (i.e., by conduct)

Quasi-Contracts (Contracts Implied in Law): these are NOT CONTRACTS. They are constructed by courts to avoid unjust enrichment by permitting P to bring an action in restitution to recover the amount of the benefit conferred on D.
3 Questions Concerning Formation of a Contract
Was there mutual assent?

Was there consideration or some substitute for consideration?

Are there any defenses to creation of the K?
Types of Contracts - As to Acceptance
Bilateral Contracts: Exchange of Mutual Promise--the traditional bilateral contract is one consisting of the exchange of mutual promises, i.e., a promise for a promise, in which each party is both a promisor and a promisee.

Unilateral Contracts: Acceptance by Performance--traditional unilateral contract is one in which the offeror requests performance rather than a promise. Here, the offeror-promisor promises to pay upon the completion of the requested act by the promisee. Once the act is completed, a contract is formed. In such contracts, there is one promisor and one promisee.

Modern View: Most contracts are bilateral. Unilateral contract occurs in only two situations: when the offeror clearly (unambiguously) indicates that completion of performance is the ONLY manner of acceptance, and where there is an offer to the public, such as a reward offer.
Types of Contracts - As to Validity
Void K: a K totally without any legal effect from the beginning. Cannot be enforced by either party.

Voidable K: a K that one or both parties may elect to avoid (i.e., by raising a defense that makes it voidable, such as infancy or mental illness)

Unenforceable K: an agreement that is otherwise valid but which may not be enforceable due to a defense extraneous to K formation, such as the statute of limitations or Statute of Frauds.
The Offer
An offer creates a power of acceptance in the offeree, and a corresponding liability on the part of the offeror.

To be an offer, must create a reasonable expectation in the offeree that the offeror is willing to enter into a K on the basis of the offered terms.

3 Qs:

1) Was there an expression of a promise, undertaking, or commitment to enter into a K?

2) Were there certainty and definiteness in the essential terms?

3) Was there communication of the above to the offeree?
Language of an Offer
-language cannot be merely an invitation to deal ("I am asking $30 for..." "I would consider selling for..." "I quote") The broader the communicating medium (advertisement on TV/in newspaper vs. one-on-one conversation or a personal letter), the more likely it is courts will view communication as a mere solicitation of an offer.

-offer must have definite and certain terms--enough essential terms that a K including them would be capable of being enforced

-offer must identify the offeree to the extent that it creates a power of acceptance

-an offer for services must include nature of work to be performed.

-offeree must have knowledge of offer (natch)
Language Requirements in an Offer for Real Estate
offer must identify the land and the price terms. Land must be identified with some particularity, but a deed description not necessary
Language Requirements in an Offer for Sale of Goods
in a K for sale of goods, the quantity being offered must be certain or capable of being made certain
Requirement Contracts and Output Contracts
Requirements Contract: where a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.

Output Contract: seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.

Parties must act in good faith: there may not be a tender of or demand for a quantity unreasonably disproportionate to any stated demand or (in the absence of a stated estimate) any normal or otherwise comparable prior output or requirements.
Missing Terms
if one or more terms are left open, that does NOT prevent the formation of a K if it appears that the parties intended to make a K and there is a reasonably certain basis for giving a remedy.

Majority of jurisdictions and Article 2 hold that the court can supply reasonable terms for those that are missing.

Except for real property, failure to state a price does not prevent K formation if the parties intended to form a K. Price term supplied will be a reasonable price at the time of delivery.
Vague Terms
Presumption that parties' intent was to include a reasonable term CANNOT be made if the parties have included a vague term (as opposed to a missing term), a term which makes K too vague to be enforced (e.g., an agreement to split profits on a "liberal basis").

Uncertainty can be cured by part performance that clarifies the vague term, or by acceptance of full performance.
Terms to be Agreed on Later
Often, an offer will state that some term is to be agreed upon at a future date. If the term is a material term, the offer is too uncertain.
Termination of Offer
-an offer cannot be accepted after it has been terminated
Termination of Offer - By Offeror
Revocation - retraction of an offer by the offeror. May revoke by directly communicating the revocation to offeree, or indirectly if offeree receives 1) correct information 2) from a reliable source 3) of acts of offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer

Revocation generally effective when received by offeree
Limitations on Revocation by Offeror
Option Contracts
Merchant's Firm Offer Under Article 2
Detrimental Reliance
Part Performance - True Unilateral Contract Offers
Part Performance - Offer Indifferent as to Manner of Acceptance
Limitations on Revocation - Option Contracts
-Option: an option is a distinct K in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer
Limitations on Revocation - Detrimental Reliance
when the offeror could reasonably expect that the offeree would rely to her detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option K for a reasonable length of time.

At the very least, offeree would be entitled to relief measured by the extent of her reliance.
Limitations on Revocation - Part Performance - True Unilateral Contract Offers
Implied Contract for Reasonable Time: Under 1st and 2nd Restatements and Article 2, an offer for a true unilateral K becomes irrevocable once performance has begun.

Offeror must give the offeree a reasonable time to complete performance.

NOTE: Offeree is not bound to complete performance--she may withdraw withdraw at any time prior to completion of performance and there is no acceptance until performance is complete.

DISTINGUISH Preparations to Perform: substantial preparations to perform (as opposed to the beginning of performance) do not make the offer irrevocable BUT may constitute detrimental reliance sufficient to make the offeror's promise binding to the extent of the detrimental reliance
Limitations on Revocation - Part Performance - Offer Indifferent as to Manner of Acceptance
Bilateral K may be formed upon the start of performance by the offeree.

Therefore, once the offeree begins performance, K is complete and revocation becomes impossible. (Notification of the start of performance may be necessary.)
Limitations on Revocation - Merchant's Firm Offer Under Article 2
1) a merchant
2) offers to sell goods in a signed writing
3) and the writing gives assurances that it will be held open ("this offer will be held open for 10 days")...

the offer is NOT revocable for lack of consideration during the time stated, or for a reasonable time if no time stated
Termination of Offer - By Offeree
Lapse of Time
Termination of Offer - By Offeree - Rejection
Express Rejection: statement by the offeree that he does not intend to accept the offer. Such a rejection will terminate the offer. A rejection is effective when received by the offeror.

Counteroffer as Rejection: a counteroffer is an offer made by the offeree that contains the same subject matter as the original offer, but differs in its terms. It is BOTH a rejection AND a new offer, and it TERMINATES the original offer.

(DISTINGUISH mere inquiry: an inquiry as to terms will not terminate original offer. Test is whether a reasonable person would believe that the original offer had been rejected.)

Rejection of Option: Because an option is a K to keep an offer open, a rejection of or a counteroffer to an option does NOT constitute a termination of the offer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree's rejection.
Termination of Offer - By Offeree - Lapse of Time
offer may be terminated by the offeree's failure to accept within the time specified by the offer or, if no deadline was specified, within a reasonable period.
Termination of Offer - By Operation of Law
The following events will terminate an offer by operation of law:

1) Death or insanity of either party--unless the offer is of a kind the offeror could not terminate, such as an option supported by consideration. Death or insanity need not be communicated to other party.

2) Destruction of the proposed K's subject matter

3) Supervening illegality.
The Acceptance
Generally, only the person to whom an offer is addressed may accept.

Offeree must know of offer: if, for example, A and B send each other offers which cross in the mail (so they were each unaware of the other offer), no K is created, even if the offers contain identical terms.

Traditional K law insists on an absolute and unequivocal acceptance of each and every term of the offer (the "mirror image" rule).

Bilateral Ks not formed by parties' communications may be formed by parties beginning to perform as if they formed a K.
Acceptance of Offer - Unilateral Contract
Most courts hold that an offer to form a unilateral K is not accepted until performance is completed.

While the beginning of performance may create an option, making the offer irrevocable, the offeree is not obligated to complete performance merely because he has begun performance.

Like all offerees, offeree of a unilateral contract must know of the offer. (Someone who finds a watch and returns it without knowledge of a reward has no contractual rights to the reward.)

Generally, no notice is required that performance has begun.
Acceptance of Offer - Bilateral Contract
Bilateral Ks may be accepted either by a promise to perform or by the beginning of performance.

Unless otherwise provided, an offer is construed as inviting acceptance in any reasonable manner, so any objective manifestation of the offeree's counterpromise is usually sufficient.
-Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance EITHER by a promise to ship, or by current or prompt shipment of conforming or nonconforming goods.
Shipment of Nonconforming Goods
shipment of nonconforming goods is an acceptance creating a bilateral K, as well as a breach of the K unless seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation.

Buyer is not required to accept accommodation goods, and may reject them. If he does, shipper is not in breach and may reclaim the accommodation goods, because her tender does not constitute an acceptance of the buyer's original offer.

WATCH OUT: This only holds when shipping is used as a form of acceptance. If there's a K, and the shipper just doesn't have conforming goods so he ships nonconforming, that's not an accommodation, that's just a breach.
Battle of the Forms
Article 2 has abandoned the mirror image rule, providing instead that the proposal of additional or different terms by the offeree is EFFECTIVE as an acceptance, UNLESS the acceptance is expressly made conditional on assent to the additional or different terms.

Whether the additional or different terms become part of the K depends on whether or not both parties are merchants.
Mailbox Rule
acceptance by mail or similar means creates a K at the moment of dispatch, unless:

1) offer stipulates that acceptance is not effective until received
2) an option K is involved
3) offeree send a rejection and then sends an acceptance--whichever arrives first is effective
4) if offeree sends an acceptance and then a rejection, acceptance is effective unless the rejection arrives first AND the offeror detrimentally relies on it
Auction Contracts
A sale by auction is complete when the auctioneer so announces by the fall of the hammer or other customary manner.

An auction sale is with reserve unless goods are explicitly put up without reserve. ("with reserve" means the auctioneer may withdraw the goods at any time until he announces completion of the sale)
Consideration (definition and elements)
Basically, two elements necessary:
1) bargained-for exchange
2) that which is bargained for must be considered of legal value (constitute a benefit to the promisor or a detriment to the promisee)
Consideration - Bargained-For Exchange
promise must induce the detriment AND the detriment induce the promise

there is no bargain involved (and therefore no consideration) when one party gives a gift to another

an act or forbearance by the promisee (or a promise to act or forbear) is sufficient consideration to form K if it benefits the promisor. Benefit need not be economic.

Past Consideration: doesn't satisfy the bargain requirement--no K formed if "In consideration of your having done X, I promise you $1,000"
--Exceptions: when a past obligation is unenforceable because of a technical defense (e.g., statute of limitations), that obligation will be enforceable if a new promise is made in writing or is partially performed. Also, modern trend is: if a past act was in response to promisor's request or an emergency, a subsequent promise to pay for that act will be enforceable.
Consideration - Legal Value Element
in general, courts do not inquire into the adequacy or fairness of consideration...but if something is entirely devoid of value, it is insufficient. Sham consideration (in the K, but not actually paid) may also be insufficient.

party must incur detriment (defined as doing something he is not legally obligated to do or by refraining from doing something he has a legal right to do)
--traditionally, performing or promising to perform an existing legal duty is insufficient consideration
----Exceptions: if new or different consideration is promised
-------------: the promise is to ratify a voidable obligation
-------------: preexisting duty is owed to a third party rather than to the promisor
-------------: there is an honest dispute as to the duty
-------------: there are unforeseen circumstances sufficient to discharge a party
Mutual and Illusory Promises
consideration must exist on both sides of a contract

if only one party is bound to perform, the promise is illusory and will not be enforced

Examples of Ks which satisfy the mutuality requirement:
-requirements and output Ks
-conditional promises, unless the condition is entirely within promisor's control
-Ks where a party has a right to cancel, if that right is somehow restricted (e.g., party must give 60 days' notice)
-exclusivity agreements
-voidable promises
-unilateral and option Ks
-gratuitous suretyship promises made before or at the same time that consideration flows to the principal debtor
Promissory Estoppel or Detrimental Reliance
consideration is NOT NECESSARY if the facts indicate that the promisor should be estopped from not performing

promise is enforceable to prevent injustice if:
1) promisor should reasonably expect to induce action or forbearance
2) of a definite and substantial character
3) and such action or forbearance is in fact induced
Requirement That No Defenses Exist
even if an agreement is supported by consideration or a recognized substitute, K rights may be unenforceable because of a defense to the formation of the K, a defect in capacity, or a defense to enforcement of certain terms
Defenses to Formation
Absence of Mutual Assent
Absence of Consideration
Public Policy Defenses to Contract Formation
Defenses to Formation - Absence of Mutual Assent
Mutual Mistake: if both parties are mistaken about existing facts (not future happenings), K may be voidable by adversely affected party if 1) mistake concerns a basic assumption on which the K is made, 2) the mistake has a material effect on the agreed-upon exchange, and 3) party seeking avoidance did not assume the risk of the mistake.

Assumption of the Risk: Mutual mistake not a defense when the adversely affected party bore the risk--commonly occurs when one party is better positioned to know the risks (contractor-homeowner).

Mistake in value generally NOT a defense

COMPARE Unilateral Mistake: if only one party is mistaken, contract formation not prevented--but if the nonmistaken party knew or had reason to know of the mistake, K is voidable by mistaken party.

Mistake by the Intermediary: message as transmitted is operative unless the other party knew or should have known of the mistake
Ambiguous Contract Language
Resolution of an ambiguous term depends on the parties' awareness:

-neither party aware: no K unless both intended same meaning
-both parties aware: no K unless both intended same meaning
-one party aware: binding K based on what the ignorant party reasonably believed to be the meaning
Fraudulent Misrepresentation - Contract Voidable
-if a party induces another to enter into a K by using fraudulent misrepresentation, K is voidable by innocent party if she justifiably relied on the misrepresentation

Nonfraudulent Misrepresentation - Contract Voidable if Material
-misrepresentation is material if either 1) the information asserted would make a reasonable person agree, or 2) the maker of the assertion knew that the information would make a particular person agree.

innocent party need not wait until she is sued on the K, but may take affirmative action to rescind the agreement
Defenses to Formation - Absence of Consideration
if the promises exchanged at the formation stage lack the elements of bargain or legal detriment, no K exists. One of the promises is always illusory.
Defenses to Formation - Public Policy Defenses to Contract Formation
if the consideration or or subject matter of a K is illegal, K is void
Defenses to Contract - Lack of Capacity
All of the following may be liable for necessities furnished during the period of incapacity...

Persons under the age of 18 generally lack capacity to enter into a K binding on themselves--but contractual promises by an adult made to a minor will be binding on the adult.
-an infant (>18) may disaffirm a K any time before (or shortly after)reaching the age of majority.
-an infant may affirm (choose to be bound by) a K upon reaching majority--may do so either expressly or by conduct

Mental Incapacity: if mental capacity is so deficient that one is incapable of understand the nature and significance of a K may disaffirm when lucid or upon recovery--in other words, K is voidable.

Intoxicated Persons: one who is so intoxicated that he does not understand the nature and significance of his promise may be held to have made only a voidable promise
Defenses to Contract - Duress/Coercion
voidable; may be rescinded as long as not affirmed

generally, economic loss (or threat thereof) not enough to constitute duress
Defenses to Enforcement - Statute of Frauds
in most instances, an oral K is valid. However, certain agreements must be evidenced by a writing signed by the parties to be bound
Statute of Frauds - Requirements
Writing Requirement: not that the K must be in writing, necessarily, just that there must be one or more writings signed by the person sought to be held liable on the K that reflect the material terms of the K. An email will satisfy.

Signature Requirement: liberally construed (can be initials, letterhead, etc.) and does not need BOTH parties' signature, just the party to be charged (person to be sued)

Performance Not Within One Year: a promise that BY ITS TERMS cannot be performed in one year is subject to the Statute of Frauds. Effective date runs from the date of the agreement, not of performance. Lifetime Ks okay, because we could all die tomorrow, couldn't we?

Goods Priced at $500 or More: K not enforceable beyond the quantity of goods shown in the writing

Effect of Noncompliance: renders K unenforceable at the option of the party being charged

Remedies: sue for reasonable value of services or part performance rendered, or restitution of any other conferred benefit--if part performance takes K out of the Statute of Frauds, performing part can choose to sue on the K for expectation damages
Statute of Frauds - Agreements Covered

M: Marriage - when the consideration for a promise is marriage

Y: (not within 1) Year

L: Land -not just sale of land, but leases/easements longer than 1 year, fixtures, minerals or structures, mortgages

E: Executor (or Administrator) - promise to pay debts of an estate out of executor's pockets

G: Goods (for $500 or more)

S: Surety - promises to pay the debt of another
Defenses to Enforcement - Unconscionability
to avoid unfair terms, usually due to some unfairness in the bargaining process, courts can refuse to enforce part or all of a K, or to modify

-Inconspicuous Risk-Shifting Provisions--even if brought to the attention of the party to whom risk was shifted
-Contracts of Adhesion ("take it or leave it")
-Exculpatory Clauses (for intentional wrongful acts)
-Limitations on remedies

NOT a defense for an ordinary bad K! Must have unequal bargaining position (average person vs. big corporation)
General Rules of Contract Construction
1) Ks will be construed as a whole--specific clauses will be subordinated to K's general intent

2) Courts will construe words according to their "ordinary" meaning unless it is clearly shown they were meant to be used in a technical sense

3) If provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions

4) Courts will generally look to see what custom and usage is in the particular business and in the particular locale where the K is either made or to be performed

5) Courts will generally try to reach a determination that a K is valid and enforceable

6) Ambiguities in a K are construed against the party preparing the K, absent evidence of the intention of the parties
Parol Evidence Rule
when parties express their agreement in a writing with the intent that it embody the full and final expression of their bargain (i.e., the writing is an "integration"), any other expressions--written or oral--made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing
Parol Evidence Rule - Determining if a Writing is an Integration
1) Is the writing intended as a final expression? The more complete the agreement appears to be on its face, the more likely it is that it was intended as an integration.

2) Is the writing a complete or partial integration? If the agreement contains a merger clause reciting that the agreement is complete on its face, this clause strengthens the presumption that all negotiations were merged into the written document.

Judge usually decides, usually with the Corbin test:
-specific circumstances of the transaction involved (are the parties related or strangers, was it a large transaction, etc.)
-asks whether parties like these, situated as they are, would naturally and normally include in their writing the extrinsic matter that is sought to be introduced.
Parol Evidence Rule - Extrinsic Evidence Outside Scope of Rule
a party to the K can attack the agreement's validity, and use extrinsic evidence to do so, usually by asserting the agreement never came into being because of:

-formation defects: fraud, duress, mistake, illegality

-interpretation: uncertainty or ambiguity

-showing of "true consideration: (e.g., showing consideration never actually paid)

-reformation: if facts (e.g., mistake) are alleged entitling a party to reformation of the agreement, parol evidence rule is inapplicable
Parol Evidence Rule - Collateral Agreements and Naturally Omitted Terms
evidence is admissible if the parol agreement is collateral to the written obligation (not part of the primary promise) and does not conflict with it

Restatement allows evidence of terms which would normally be omitted (similarly situated parties would not be expected to include terms in written agreement)
Parol Evidence Rule - Subsequent Modifications
parol evidence can be offered to show subsequent modifications of a written agreement
Parol Evidence Rule - Article 2 Rule
generally follows standard parol evidence rule

provides that a party cannot contradict a written K but can add consistent additional terms unless 1) there was a merger clause or 2) the court finds from the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement. Article 2 also allows for the following to be admitted, regardless of ambiguity:

1) parties' course of dealing
2) usage of trade
Article 2 Contract Interpretation - Battle of the Forms
K involving a nonmerchant--terms of offer govern

K between merchants--additional terms in acceptance usually included, unless:
-they materially alter the original terms of the offer
-offer expressly limits acceptance to the terms of the offer
-offeror has already objected to the particular terms or objects within a reasonable time after notice of them is received

K between merchants--different terms in acceptance may or may not be included
-split in authority
-"knockout rule" each party is assumed to object to the inclusion of the different terms
Article 2 Contract Interpretation - Supplemental ("Gap-Filler") Terms
Price: if 1) nothing has been said as to price, 2) the price is left open to be agreed upon by the parties and they fail to agree, or 3) the price is to be fixed in terms of some standard that is set by a third person or agency and it is not set...then the price is a reasonable price at the time for delivery.

Place: if the place of delivery is not set, the place usually is SELLER'S place of business, if he has one; otherwise, seller's home.

time for shipment or delivery not specified: payment is due at the time and place at which the buyer is to receive the goods

if a K provides that an assortment of goods is to be delivered and does not specify which party is to choose, the assortment is to be at the buyer's option
Article 2 Contract Interpretation - Delivery Terms and Risk of Loss
All Ks for sale of goods require delivery of the goods

Noncarrier case--if no intent for the goods to be moved by a common carrier: if seller is a merchant, risk of loss passes to buyer only when she takes physical possession of goods. if seller is NOT a merchant, risk of loss passes to buyer upon tender of delivery.

Carrier case: 2 kinds, shipment K and destination K

Shipment Contract: if K authorizes or requires seller to ship goods by carrier but does not require him to deliver them at a particular destination, it is a shipment K and risk of loss passes to buyer when good are delivered to the CARRIER.

Destination Contract: if K requires seller to deliver goods at a particular destination, risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.
Article 2 Contract Interpretation - Insurable Interest and Identification
Article 2 gives buyers a property interest in in goods as soon as they are identified as the ones that will be used to satisfy the K.

This special property interest is insurable.
Article 2 Contract Interpretation - Bilateral Contracts Formed by Performance
Under Article 2, K includes all of the terms on which the writings of both parties agree. Any necessary missing terms are filled in by the supplemental terms provided for in Article 2.

COMPARE COMMON LAW RULE: K will include the terms of the last communication sent to the party who performed ("Last Shot Rule")
Article 2 Contract Interpretation - Warranties
Warranty of Title: any seller of goods warrants that the title transferred is good, and there are no liens or encumbrances against the title of which the buyer is unaware

Warranty Against Infringement: a merchant seller regularly dealing in goods of the kind sold warrants that goods are delivered free of any patent, trademark, copyright, or similar claims

Implied Warranty of Merchantability: for every K for sale by a merchant, who deals in goods of the kind sold, warranty that the goods are merchantable--fit for the ordinary purposes for which such goods are used. Seller liable even if defect unknown.

Implied Warranty of Fitness for a Particular Purpose: when ANY seller has reason to know the particular purpose for which goods are to be used and that the buyer is relying on the seller's skill and judgment to select suitable goods, and the buyer in fact relies.

Express Warranties: any affirmation of fact or promise made by the seller to the buyer is part of the basis of the bargain. (statements of value or opinion do not create a warranty)
Common Delivery Terms
C.I.F.=Cost, Insurance, and Freight (shipment K, price includes those 3 items)

C. & F.=Cost and Freight (shipment K, price includes those two items)

F.A.S.=free alongside (generally used only when shipping by boat; risk of loss passes to buyer when goods delivered to dock)

F.O.B.=free on board (always followed by a location; risk of loss passes to buyer at that location; can be either shipment or destination Ks, depending on the location named)
Effect of Breach on Risk of Loss
If goods are so defective the buyer has the right to reject them, risk of loss does not pass to buyer until defects are cured or she accepts the goods in spite of their defects
Disclaimer of Warranties
Title: disclaimed or modified only by specific language or by circumstances that give buyer notice that seller does not claim title.

Implied Warranty of Merchantability: disclaimed only by mentioning merchantability. If in writing, disclaimer must be conspicuous. ("conspicuous"--so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it")

Implied Warranty of Fitness for a Particular Purpose: disclaimed only by a conspicuous writing.

General Disclaimer Methods:
-by general disclaimer language ("as is" "with all faults")
-by inspection or refusal to inspect
-by course of dealing/usage of trade
-must be agreed to during bargaining (exception: software "clickwrap")

Express Warranties: very difficult to disclaim

Limitations on Damages: upheld unless the limitation is unconscionable.
Modification of Contract Terms
Consideration - under general K law, modification must be supported by new consideration. UCC, however, allows promises of new and different terms by the parties to a sales K without consideration

written Ks can be modified orally; however, for sales of goods, if the modification falls within the Statute of Frauds, there must be a writing

K law - clauses preventing oral modification are ineffective
UCC - clauses preventing oral modification are efective

Parol Evidence Rule DOES NOT APPLY
Performance of Contract - Common Law
a party's basic duty is to substantially perform all that is called for in the contract
Performance of Contract - Article 2
Article 2 generally requires perfect tender--the delivery and condition of the goods must be exactly as promised in the K. Note:

-all parties must act in good faith
-Seller's Obligations in Noncarrier Case: seller must put and hold conforming goods at the buyer's disposition for a time sufficient to for the buyer to take possession; must give buyer notice; must be at a reasonable hour; generally, must be either seller's place of business, or alternatively seller's home.
-Seller's Obligation in Carrier Case: Shipment Ks--seller must put the goods in the hands of a reasonable carrier and make a reasonable K for their transportation; must tender any necessary documents for buyer to take possession; must promptly notify buyer of shipment
-Buyer's Obligation to Pay: right to inspect before payment
Conditions - Conditions on a Contract
If a K provides that a party has no duty to perform unless some condition is met, and the condition is not met, the party's failure to perform is justified.

Failure of a condition is NOT a breach of K, but it discharges the liability of the promisor whose obligations on the conditional promise never mature.

Promise: indicated by words such as "promise" and "agree"
Condition: indicated by "provided" "if" "when"
Conditions - Classification of Conditions
Condition Precedent: one that must occur before an absolute duty of immediate performance arises in the other party.

Conditions Concurrent: those that are capable of occurring together and that the parties are bound to perform at the same time (e.g., tender of deed for cash). In effect, each is a condition "precedent" to each other.

Condition Subsequent: one the occurrence of which cuts off an already existing absolute duty of performance
Conditions - Express Conditions
express statement in the K providing either:
1) a party does not have a duty to perform unless some event occurs or fails to occur
2) if some event occurs or fails to occur, a party's obligation to perform is suspended or terminated

Promisor's Satisfaction as Condition Precedent
-mechanical fitness, utility, or marketability: if reasonable person woud be satisfied, condition fulfilled
-personal taste or judgment: only if promisor is personally satisfied (e.g., portrait)
-construction Ks: often require third-party satisfaction (e.g., architect)
Conditions - Constructive (Implied) Conditions
most common:

-duty of each party to perform is conditioned on the other party performing
-duties to cooperate or give notice when one party knows a fact which triggers performance that the other party could not reasonably be expected to know
Conditions - Effect of Condition
if a K is not enforceable due to the failure or occurrence of a condition, and one of the parties has fully or partially performed, that party can recover under unjust enrichment
Conditions - Excuse of Conditions
a duty of immediate performance with respect to a conditional promise does not become absolute until the conditions:
1) have been performed, or
2) have been legally excused
Conditions - Excuse of Conditions - Excuse of Condition by Hindrance of Failure to Cooperate
if a party having a duty of performance subject to a condition (i.e., this party is the one protected by the condition) prevents the condition from occurring, the condition will be excused if the prevention is wrongful
Conditions - Excuse of Conditions - Actual Breach
actual breach will excuse the duty of counterperformance
Conditions - Excuse of Conditions - Anticipatory Repudiation
when a promisor, prior to the time set for performance of his promise, indicates he will not perform when the time comes.

-applies only if there's a bilateral K with executory (unperformed) duties on both sides
-must be unequivocal
-Effect--nonrepudiating party can:
--treat anticipatory repudiation as total repudiation and sue immediately
--suspend own performance and wait until performance date to sue
--treat repudiation as offer to rescind and treat the K as discharged
--ignore and urge promisor to perform

retraction of repudiation: repudiation may be withdrawn at any time before performance unless the other party has canceled, materially changed her position in reliance on the repudiation, or otherwise indicated that she considers the repudiation final
Conditions - Excuse of Conditions - Prospective Inability or Unwillingness to Perform
arises when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due

-effect is to allow innocent party to suspend until she receives adequate assurances that performance will be forthcoming
Conditions - Excuse of Conditions - Substantial Performance
generally, the condition of complete performance may be excused if the party has rendered substantial performance

-only used with constructive conditions, not express conditions

-generally inapplicable to Ks for the sale of goods
Conditions - Excuse of Conditions - Divisibility of Contract
if a K is divisible and a party performs on one unit of the K, he is entitled to the agreed-on equivalent for that unit even if he fails to perform the other units

three tests to determine divisible K--must be concurrently satisfied:
1) performance of each party is divided into two or more parts under the K
2) number of parts due from each party is the same
3) performance of each part is agreed on as the equivalent of the corresponding part from the other party

Sale of Goods - Installment Ks--Article 2 assumes a K is not divisible, but the price in an installment K (if it can be apportioned) may be demanded for each lot
Conditions - Excuse of Conditions - Waiver or Estoppel
one having the benefit of a condition may indicate by words or conduct that she will not insist on that condition's being met. Consideration for this waiver not required.

-estoppel: if other party detrimentally relies on this waiver, it's valid
-election: when a condition is broken, and the party affected elects to continue, condition is deemed waived
-if no consideration given, the condition waived must be merely collateral to the main subject and purpose of the K
-installment K: if waiver not supported by consideration, the beneficiary of the waived condition can insist on strict compliance with the terms of the K for future installments
-waiving party does NOT waive her right to damages
Conditions - Excuse of Conditions - Impossibility, Impracticability, Frustration
conditions may be excused by impossibility, impracticability, or frustration
Discharge of Duty to Perform - by Performance
obviously, full and complete performance of the K discharges one's duty to perform the K.
Discharge of Duty to Perform - by Tender of Performance
good faith tender of performance (if in accordance with K terms) will discharge K duties
Discharge of Duty to Perform - by Occurrence of Condition Subsequent
occurrence of a condition subsequent will serve to discharge K duties.
Discharge of Duty to Perform - by Illegality
if subject matter of the K has become illegal due to a subsequently enacted law or other governmental act, performance is discharged

-referred to as "supervening illegality"
Discharge of Duty to Perform - by Impossibility
impossibility must be objective (can't be performed by anybody, not just impossible for the promisor)
-timing: impossibility must arise after K has been entered into
-effect: each party excused from duties yet to be performed
-Partial Impossibility: if performance is only partially impossible, the duty to perform is discharged only to that extent (parties have right to recover for duties performed)
-Temporary Impossibility: suspends duty, does not discharge
-death or physical incapacity discharges
-supervening illegality discharges
Discharge of Duty to Perform - by Impracticability
test: party to perform must have encountered 1) extreme and unreasonable difficulty and/or expense and 2) its nonoccurrence was a basic assumption of the parties

-Article 2 generally follows these rules for impossibility/impracticability. Seller will be discharged to the extent of the impossibility/impracticability.
--allocation of risk: generally, on the seller
Discharge of Duty to Perform - by Frustration
occurs when the purpose of K has become valueless by virtue of a some supervening event not the fault of the party seeking discharge
1) some supervening act or event leading to the frustration
2) at the time of entering into the K, parties did not reasonably foresee the act or event occurring
3) purpose of K has been completely or almost completely destroyed by this act or event
4) purpose of K was realized by both parties at the time of making the K
Discharge of Duty to Perform - by Rescission
may be either mutual or unilateral

mutual rescission: K may be discharged by an express agreement between the parties to rescind
-duties must be executory on both sides

unilateral rescission: in order to be granted, party desiring rescission must have adequate legal grounds (e.g., mistake, misrepresentation, duress, failure of consideration)

unilateral Ks: a K to mutually rescind when one party still has a duty to perform will be ineffective unless supported by one of the following:
1) offer of new consideration by nonperforming party
2) elements of promissory estoppel
3) manifestation of intent by the original offeree to make a gift of the obligation owed her
Discharge of Duty to Perform - Partial Discharge by Modification of Contract
if K is modified, this will serve to discharge those terms of the original K that are the subject of those modifications--does NOT discharge the entire K

following requirements must usually be met
-mutual assent: must agree to the modification
-consideration: generally, consideration necessary to modify a K
Discharge of Duty to Perform - by Novation
occurs when a new K substitutes a new party to receive benefits and assume duties

elements for a valid novation are:
1) a previous vald K
2) an agreement among all the parties, including the new party to the K
3) the immediate extinguishment of K duties between original parties
4) valid and enforceable new K
Discharge of Duty to Perform - by Cancellation
destruction or surrender of a written K will not usually, by itself, discharge the K. However, if the parties manifest their intent to have these acts serve as discharge, it will usually have this effect.
Discharge of Duty to Perform - by Release
a release and/or K not to sue will serve to discharge the K

must be in writing and be supported by new consideration or promissory estoppel
Discharge of Duty to Perform - by Substituted Contract
when parties to a K enter into a second K which immediately revokes the first K expressly or impliedly (whether it does that will be decided by looking at intent of the parties)
Discharge of Duty to Perform - by Accord and Satisfaction
Accord: an agreement in which one party to an existing K agrees to accept, in lieu of the original performance, some other, different performance.
-consideration required
-DOES NOT discharge prior K, merely suspends the right to enforce it

Satisfaction: performance of the accord agreement. Serves to discharge both the original K and the accord K as well.
Discharge of Duty to Perform - by Account Stated
when the parties agree to an amount as a final balance due from one to the other.
Discharge of Duty to Perform - by Lapse
if the duty of each party is a condition concurrent to the other's duty, it is possible that on the day set for performance, neither party is in breach and their duties under K lapse
Discharge of Duty to Perform - Effect of Running of Statute of Limitations
if statute of limitations has run, generally held that action for breach may be barred

-this does NOT discharge the duties under the K. If the party decides to perform, no new consideration is needed.
Breach - Definition
failure to perform when:
1) promisor is under an absolute duty to perform
2) duty has not been discharged
3) failure to perform

when nonbreaching party sues for breach, must show that she is willing and able to perform but for breaching party's failure to perform
Material vs. Minor Breach (Common Law)
To determine:
1) amount of benefit received by nonbreaching party
2) adequacy of compensation for damages to the injured party
3) extent of part performance by the breaching party
4) hardship to the breaching party
5) negligent or willful behavior of the breaching party
6) likelihood breaching party will perform remainder of K

Minor: obligee gains the substantial benefit of her bargain despite breach. Does not relieve aggrieved party of duty of performance

Minor + Anticipatory Repudiation: aggrieved party must not continue performance, because that would be a failure to mitigate damages

Material: does not receive the substantial benefit. Nonbreaching party:
1) may treat K as at an end
2) will have immediate right to all remedies

Material Breach of Divisible K: recovery available for substantial performance of a part despite material breach of entire contract

Timeliness of Performance: Unless timeliness is essential, failure to perform by time stipulated in K is generally not a material breach.
Perfect Tender Rule (Article 2)
if goods or their delivery fail to conform to the K in any way, the buyer may reject all, accept all, or accept any commercial units and reject the rest
Perfect Tender Rule (Article 2) - Right to Reject Cut Off by Acceptance
a buyer's right to reject under the perfect tender rule is generally cut off by acceptance

Acceptance occurs when:
1) after a reasonable opportunity to inspect the goods, buyer indicates to seller that they conform to requirements, or that buyer will keep them though they fail to conform
2) fails to reject within a reasonable time after tender or delivery of goods or fails to seasonably notify seller of rejection
3) buyer does any act inconsistent with seller's ownership
Perfect Tender Rule (Article 2) - Buyer's Responsibility for Goods After Rejection
buyer must hold them with reasonable care at the seller's disposition and obey any reasonable instructions as to the rejected goods. if not instructions within a reasonable time, buyer may reship goods to seller, store goods for seller, or resell them for seller's account (if reselling, buyer may recover expenses and a reasonable commission).
Perfect Tender Rule (Article 2) - Buyer's Right to Revoke Acceptance
acceptance may be revoked when the the goods have a defect that substantially impairs their value to her and:

1) she accepted them on the reasonable belief that the defect would be cured and it has not been, or
2) she accepted them because of the difficulty of discovering defects or because of the seller's assurance that the goods conformed

Revocation must occur 1) within a reasonable time after buyer discovers or should have discovered the defects and 2) before any substantial change in the goods occurs that is not caused by a defect present at time seller relinquishes possession
Perfect Tender Rule (Article 2) - Exceptions
Exceptions to the Perfect Tender Rule:

Installment Ks: much more limited right to installment can be rejected only in the nonconformity substantially impairs the value of that installment AND cannot be cured. In addition, the whole K is breached only if the nonconformity substantially impairs the value of the entire K

Seller's Right to Cure - single delivery K: seller can cure by notice and new tender of conforming goods within time for performance. BEYOND time for performance: ordinarily no right to cure, but if buyer rejected goods the seller reasonably believed would be acceptable, the seller has further reasonable time beyond original K time to make conforming tender

Seller's Right to Cure - Installment K: Article 2 provides that a defective installment cannot be rejected if the defect can be cured
Anticipatory Repudiation
may be treated as an immediate breach of K
Nonmonetary Remedies - Specific Performance
if the legal remedy is inadequate, nonbreaching party may seek specific performance--an order from the court to the breaching party to perform or face contempt of court charges

available for land or rare or unique goods

equitable defenses to specific performance:
-laches: claim that P has delayed bringing the action and that the delay has prejudiced D
-unclean hands: claim that party seeking specific performance is guilty of wrongdoing in the transaction being sued upon
-sale to a bona fide purchaser: claim that the subject matter has been sold to a person who purchased for value and in good faith
Nonmonetary Article 2 Remedies - Buyer
Cancellation: if buyer rightfully rejects, one option is simply to cancel the K

Specific Performance - Buyer may seek specific performance if goods are rare or unique

Right to Replevy Identified Goods
-on Buyer's Prepayment: buyer may replevy the goods when 1) seller becomes insolvent within 10 days after receiving buyer's 1st payment, or 2) goods were purchased for personal, family, or household purposes
-on Buyer's Inability to Cover: buyer may replevy undelivered, identified goods from seller if buyer is unable to secure adequate substitute goods
Nonmonetary Article 2 Remedies - Seller
Seller's Right to Withhold: if buyer fails to make payment due on or before delivery, seller may withhold delivery

Seller's Right to Recover: if buyer receives goods on credit and then seller learns buyer is insolvent, may reclaim goods on demand made within 10 days after buyer's receipt of goods

Seller's Ability to Force Goods on Buyer: limited to an action for price when seller is unable to resell the goods to others at a reasonable price

Seller's Right to Demand Assurances: if party reasonably fears other party will not perform, he may demand assurances that the performances that performance is forthcoming
Damages - Types of Damages
Compensatory Damages

Punitive Damages

Nominal Damages

Liquidated Damages
Damages - Compensatory Damages - Expectation Damages
Usual goal of damages for breach of K is to put the nonbreaching party where she would have been had the promise been performed

Expectation damages is the standard measure of damages
Damages - Compensatory Damages - Reliance Damages
if expectation damages are too speculative to measure, P may elect to recover reliance damages

reliance damages are designed to put P in the position she would hav been in if the K had never been formed.
Damages - Compensatory Damages - Consequential Damages
consist of losses resulting from the breach which any reasonable person would have foreseen would occur from a breach at the time of entry into K.

in Ks for sale of goods, only a buyer may recover consequential damages
Damages - Compensatory Damages - Incidental Damages
in Ks for sale of goods, expenses reasonably incurred by:

-buyer: in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach

-seller: in storing, shipping, returning, and reselling the goods as a result of the buyer's breach
Damages - Punitive Damages
generally NOT awarded in K cases
Damages - Nominal Damages
may be awarded when breach is shown but no actual loss is proven
Damages - Liquidated Damages
parties to a K may stipulate what damages are to be paid in event of breach

will be enforced if following requirements met:
1) damages for K breach must have been difficult to estimate or ascertain at time K was formed
2) amount agreed upon must have been a reasonable forecast of compensatory damages in the case of breach

liquidated damages are recoverable even if no actual damages
Damages in Contracts for Sale of Goods - Buyer's Damages
when seller does not deliver or buyer rejects goods or revokes acceptance: damages consist of the difference between the K price and EITHER
1) market price ("benefit of the bargain" damages) determined as of the time buyer learns of the breach, at the place of tender
2) cost of buying replacement goods (cover) PLUS incidental and consequential damages, LESS expenses saved as a result of seller's breach (cover: buyer must make a reasonable K for substitute goods in good faith and without unreasonable delay)

when seller delivers nonconforming goods that buyer accepts:
-warranty damages: difference between value of goods as delivered and value they would have had if they had been conforming, plus incidental and consequential
-seller anticipatorily breaches: difference between market price when buyer learned of breach and K price
Damages in Contracts for Sale of Goods - Seller's Damages
when buyer repudiates or refuses to accept conforming goods:
-difference between market price and K price
-resell goods and get difference between K price and resale price
-recover under "lost profits" the difference between K price and cost to the seller
--lost profits may only be used when other measures won't put seller in as good a position as he would have been in if buyer hadn't breached

where buyer accepted goods (and refused to pay)--action for full K price
Damages - Contracts for Sale of Land
difference between K price and fair market value of land
Damages - Employment Contracts
Breach by Employer - employee's damages: full K price

Breach by Employee - employer's damages: damages computed according to what it costs to replace the employee, i.e., difference between the cost incurred to get a second employee to do the work and the cost to the employer had the first (breaching) employee done the work
Damages - Construction Contracts
if breached by owner: builder entitled to profits that would have resulted from K plus any costs expended

if breached by builder: owner entitled to cost of completion plus reasonable compensation for the delay
Damages - Contracts Calling for Installment Payments
aggrieved party limited to recovery of only the missed payment, not the entire K price

K may include an acceleration clause, making the entire amount due on any late payment--then, of course, aggrieved party may recover full amount
Damages - Certainty Rule
P must prove damages were certain, not speculative
Damages - Avoidable Damages (Mitigation)
nonbreaching party cannot recover avoidable damages

employment Ks: if employer breaches, employee under a duty to use reasonable care in finding a position of the same kind, rank, and grade in the same locale (burden on employer to show that such jobs were available)

Ks for sale of goods: if buyer in breach, seller generally cannot bring action for full K price unless the goods cannot be resold at a reasonable price or were damaged when risk of loss was on buyer

manufacturing Ks: if person for whom goods were being manufactured breaches, manufacturer must mitigate by not continuing work after breach

construction Ks: duty to mitigate by not continuing work after the breach
Restitution - Definition
not really part of K law; based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent; can also be used when a K is unenforceable or no K exists

often referred to as an action for an implied in law K, or an action in quasi-K
Restitution - Measure of Damages
measure is generally value of the benefit conferred (on the D)

may also be measured by the "detriment" suffered by the P if benefits to D are too difficult to ascertain
Restitution - Specific Applications
when K breached: when K breached and nonbreaching party has not fully performed, party may choose to rescind the K and sue for restitution to prevent unjust enrichment
-may be preferable in a "losing" K--where value of goods or services is higher than the K price

when K unenforceable: restitution may be available in a quasi-K action when a K was made but is unenforceable and unjust enrichment would otherwise result

when no K involved: restitution may be available in a quasi-K action when there is no K relationship between the parties if:
1) P has conferred a benefit on D by rendering services or expending properties
2) P conferred benefit with the reasonable expectation of being compensated for its value
3) D knew or had reason to know of P's expectation
4) D would be unjustly enriched if he were allowed to retain benefits without compensating P
a remedy whereby the original K is considered voidable and rescinded--parties left as though a K had never been made

grounds for rescission (must have occurred either before or at the time K was entered into):
-mutual mistake of material fact
-unilateral mistake if the other party knew or should have known of mistake
- unilateral mistake if hardship by the mistaken party is so extreme it outweighs the other party's expectations under the K
-misrepresentation of fact or law by either party as to a material factor in the negotiations that was relied upon
-other grounds, such as duress, undue influence, illegality, lack of capacity, failure of consideration

defenses include all equitable defenses (laches, unclean hands, etc.)
remedy in which the writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties.

usually based on mutual mistake

-variance between antecedent agreement and writing must be established by clear and convincing evidence
-parol evidence rule and statute of frauds do not apply
-defenses include general equitable defenses (laches, unclean hands, e.g.) AND the existence of a bona fide purchaser for value--reformation not permitted if the rights of 3rd parties will be unfairly affected
Statute of Limitations under UCC
for sales K, UCC provides for a 4 year statute of limitations; parties may agree to shorten the period to no less than 1 year; period may not be lengthened

statutory period begins to run when a party can bring suit--when breach occurs
Third-Party Beneficiaries
arise when A contracts with B to render some performance to C

only intended beneficiaries have K rights, not incidental beneficiaries
-identified in K
-receives performance directly from promisor, OR
-has some relationship with promisee to indicate intent to benefit

Creditor vs. Donee Beneficiary
-creditor beneficiary: person to whom promisee owes a debt
-donee beneficiary: person whom the promisee intends to benefit gratuitously

third-party beneficiaries' rights vest when he:
1) manifests assent to a promise in the manner requested by the parties
2) brings a suit to enforce the promise
3) materially changes position in justifiable reliance on the promise

once rights vested, parties cannot modify K without third-party beneficiary's consent
Third-Party Beneficiaries and the Promisee
Third-Party Beneficiary vs. Promisor: beneficiary may sue the promisor on a K. Promisor may assert against beneficiary any defense promisor has against promisee.

Third-Party Beneficiary vs. Promisee: creditor beneficiary may sue promisee on the existing obligation between them. Donee beneficiary has no right to sue promisee unless there has been detrimental reliance.

Promisee vs. Promisor: Promisee may sue promisor for specific performance if promisor is not performing for third party.
Third-Party Beneficiaries -Assignment of Rights and Delegation of Duties
generally, all K rights may be assigned
--assignment that would substantially change obligor's duty or risk
--assignment of future rights to arise from future Ks
--assignment prohibited by law (e.g., wage assignments)

generally, all duties may be delegated
--duties involve personal judgment and skill
--delegation would change the obligee's expectancy (e.g., requirement K)
--special trust was reposed in the delegator by other party in the K
--K has a restriction on delegation

for both assignments and delegations, must manifest intent to transfer rights/duties
Third-Party Beneficiaries - Power of Person Other Than Owner to Transfer Good Title to a Purchaser
Entrusting: entrusting goods to a merchant who deals in goods of that kind gives merchant power (but not right) to transfer all rights of the entruster to a buyer in the ordinary course of business

Voidable Title Concept: if sale is induced by fraud, seller can rescind the sale and recover goods from fraudulent buyer. However, defrauded seller may not recover goods from a good faith purchaser for value who bought from the fraudulent buyer.

Thief Generally Cannot Pass Title: even to a good faith purchaser for value
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