Contracts Outline

1. Contract -

a. offer + acceptance + bargained for consideration = a contract.

i. Parties must also have mutual assent.

ii. Parties do not need to intend legal consequences, they will be presumed unless parties agree to not have legal consequences if there is a breach.

b. Types of contracts-

i. Express contract- when parties manifest their agreement through written or oral words.

ii. Implied in fact- agreement between parties manifests through the conduct of the parties.

iii. Implied in Law- not a contract but an obligation imposed by the law to do justice even though no promise was made or intended.

1. Ex. physician gives a child necessary medical care, the physician may recover from the parents, in quasi-contract, the value of the medical services.

iv. Bilateral Contract- a promise in exchange for another promise. Party is looking for a promise, not performance. It creates a duty on both sides.

1. Contract complete when promises are exchanged.

2. Must have mutuality of obligation- both parties bound.

3. 2-206- ambiguous offers

v. Unilateral Contract- a promise in exchange for performance.

1. Acceptance is done by performance.

2. Offeror can’t revoke offer once there is beginning of performance.

3. Once performance has begun, offeror must give offeree reasonable time to complete action.

a. Hypo- Climbing to the top of the Sears Tower.

4. Prevention in duty to cooperate- when one party interferes with the completion of the contract.

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a. Hypo- putting grease on the sears tower, making it impossible to climb.

b. #7 p.g. 26- Students asking questions delays the completion of the course.

vi. Reverse Unilateral Contract-

vii. Quasi Contract- not a contract

1. When one party benefits from another and there is unjust enrichment, the court will usually impose a remedy.

2. Does not apply to intermeddlers.

viii. Option Contract- offeror expresses a period of time offer will stay on the table before revocation. *Death does not terminate an option contract.

1. Consideration needed to keep option open.

2. Time limit of 3 months. If given more than 3 months, still think 3 months. UCC

3. When you pay for a option contract (consideration), a revocation or counter-offer does not necessarily terminate the offer.

a. Modern view is that rejection of an irrevocable offer does not necessarily terminate the power of acceptance because the offeree paid a consideration to keep the option open.

i. However, id the offeror injuriously relies on the rejection, the offeree should be estopped from accepting it later.

4. unless in extreme circumstances, actions would make it reasonable to change view. (rare situations).

a. Ex. Renter intends to buy apartment, but trashes apt and leaves. Owner could reasonably expect renter does not intent to purchase and terminate option.

5. Option contracts stay open-

a. Sub contractor/contractor

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b. Unilateral- part performance

ix. Layered contracts/ rolling contracts- ProCD-

1. Two approaches-

a. Pro cd- offeror can decide the mode of acceptance

i. Ucc- using 2-204

b. Gateway- find a contract at the time of payment and then use 2-207 to determine the terms.

- Problem #17- Motive does not play a part in the formation of a contract.

- Oral contracts are binding.

o Statute of frauds- excludes real estate sales.

2. Mutual Assent - of a contracting mind.

a. present intent to contract. Both parties have to be of a contracting mind, at the same time and on the same terms.

i. Mutual assent is necessary for an enforceable contract.

ii. Was there an offer to contract and has there been an acceptance of that offer.

iii. If the offeror has clearly manifested a willingness to enter into a contract in such a way that the offeree knows that assent is all that is necessary to cement a deal, and the offeree accepts, the contract is created.

iv. Assent under duress or threat/ torture is not assent. Assent has to be willing.

b. Objective Contract Theory - What a party says or does, rather than what a party intends, belives, or assumes.

i. A party’s intention will be held to be what a reasonable person in the position of the other party would conclude the manifestation to mean.

ii. Secret intent does not matter, it is the outward manifestations that would make a reasonable person believe there was an offer and acceptance.

1. Lucy v. Zehmer

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c. Subjective Assent- looks at if there was an actual “meeting of the minds”? Did both parties have the intent to contract?

d. The intent not to be bound by a contract need not be explicitly stated, it may be inferred.

i. Hypo- inviting someone to lunch and then not showing up.

1. Not actionable because no reasonable

e. Intending legal consequences before a final document

i. The parties can manifestly express their intent.

1. One or both parties object, no contract until final document.

2. Both agree, legal consequences can be imposed.

ii. When it is unclear because of a lack of expressly manifested intent.

1. Look at facts that influence the court

a. Restatement second- look at

i. The extent to which express agreement has been reached on all terms to be included.

ii. Whether this is the type of contract usually put in writing.

iii.Whether it needs a formal writing for its full expression.

iv. Few or many details.

v. Is there a standard form of contract widely used in similar transactions.

f. Indefiniteness- a limitation on freedom of contract.

i. Traditional rule- if an agreement is not reasonably certain as to its material terms there is a fatal indefiniteness and the agreement is void.

1. An agreement must be sufficiently definite before a court can determine if either party breached the contract.

2. Material terms- subject matter, price, quantity payment terms, quality, etc.

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3. Indefiniteness of non-material terms does not void the agreement.

4. If indefiniteness exists, it can be cured by an agreement to the indefinite aspects.

ii. Three types of indefiniteness-

1. Indefinite purported agreement-

a. Ex. A says to B “if you work for me for 1 year, I will pay you a fair share of the profits”.

i. This is to indefinite in its terms to be enforced.

ii. However B may recover the reasonable value of services rendered.

1. Quasi contract (implied in law).

2. Silence as to a material term-

a. When parties are silent as to a material term, there is a strong possibility that the term will be implied based on the surrounding circumstances or they use a gap filler.

b. Looking at surrounding circumstances.

i. Standard terms.

ii. Trade or local usage.

iii.Course of dealing.

iv. Couse of performance.

c. Gap fillers used for terms that would have been included if brought to the attention of the parties.

i. Four criteria-

1. Intention of the parties.

2. Nature and purpose of the contract.

3. Good faith and fair dealing.

4. Reasonableness.

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3. Duration problems-

iii.The agreement to agree on a material term prevent the formation of a contract-

1. Such an agreement leaves a material term to vague and indefinite.

2. It shows a lack of present agreement.

a. If it was an agreement to negotiate and use reasonable efforts to reach an agreement, the contract would be enforceable.

b. Many modern courts have held that an agreement to agree imposes a duty to negotiate in good faith.

3. Offer - a manifestation of willingness to enter into a bargain conditioned on the other party’s acceptance.

c. an offer is specific and unequivocal. An offer must have present intent to form a contract.

xii. It must be inviting acceptance.

d. The offeror is the master of the offer as long as that offer is clearly stated. Keep power by making sure offer has no ambiguity.

e. Problem #16 - Can’t accept an offer you are not aware of because there is no mutual assent.

f. As a general rule, offers can be revoked any time before acceptance.

i. Exceptions-

17. Option Contract- offeror expresses a period of time offer will stay on the table before revocation. Created with bargained for consideration. (2-205- firm offer by merchant).

j. *Death does not terminate an option contract. (unless dealing with a service that can’t be performed, estate could claim impossibility).

k. Time limit of 3 months. If given more than 3 months, still think 3 months.

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l. When you pay for a option contract (consideration), a revocation or counter-offer does not necessarily terminate the offer.

m. unless in extreme circumstances, actions would make it reasonable to change view.

iii.Ex. Renter intends to buy apartment, but trashes apt and leaves. Owner could reasonably expect renter does not intent to purchase and terminate option.

18. Promissory Estoppel- If an individual has detrimentally relied on an offer, it can no longer be revoked.

a. Hypo - sub- contractor using a bid to make his bid to a developer. Since sub-contractor reasonably relied on offer to make bid to developer, can no longer be revoked.

b. Rest . 87- optional contract created.

c. Rest . 45- unilateral contract.

d. Bilateral contract is the only way to hold the general contractor.

ii. Counter-offer- A response to an offer that doesn’t mirror the first offer. Interpretted as “my way or the highway”.

1. Implied rejection of first offer. Once rejected, can’t go back to original offer.

2. prior to acceptance of offer, original offeror can revoke offer.

g. Auctions-

i. Without reserve- auctioneer is the offeror and bidders are offerees.

1. Highest bidder is accepting and can’t revoke.

ii. With reserve- Auctioneer is the offeree and bidder is offeror. Bidder can withdraw bid.

1. Under UCC and rest 28, highest bidder can withdraw bid.

2. If highest bidder withdraws bid, must have a new auction. Next highest bid is cancelled.

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h. Looks like an offer, but is not-

i. Expresions of opinion of predictions-

1. These are not considered promises so therefore are not considered offers.

2. Important when dealing with doctor-patient relationships.

a. Must look at whether the doctor made a promise or merely stated an opinion or tried to bolster the patients spirits with words of confidence.

3. Test- whether a reasonable person in the position of the plaintiff would conclude that the defendant made a promise or merely stated an opinion.

ii. Intentions, hopes, and estimates- not generally considered offers.

1. Hypo- A says to B, “I will sell you my car for $450”, B replies “here it is, ill take it”.

a. No contract because a reasonable person would conclude that A was stating an intention and made no promise

iii. Inquiry of invitation to make an offer-

1. Asking if an individual would be willing to sell property, is not an offer.

iv. Advertisements- Ads are generally not offers.

1. the more specific an ad is, the more likely it is an offer.

a. If it states specific terms, quantity, price, terms of performance so that a reasonable person would look at it as inviting acceptance, it may be an offer.

2. If an ad is clear and unnequivical with no room for negotiation, it will be considered an offer.

a. Ex. Lefkowitz v. Greater Minneapolis Surplus Store.

3. Equal Publicity Rule - when revoking a public offer, revocation must be done in an equally public manner as was the offer.

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4. a bait and switch ad is a solicitation for the sale of a product that the seller does not really plan to sell. They are used to get customers into the store.

v. Preliminary negotiations-

1. Consider this when determining an offer-

a. An answer to an inquiry is more likely to be considered an offer.

b. Are the words used, generally associated with a promise or are they noncommittal.

c. Are there specific quantity and quality terms.

d. Surrounding circumstances.

e. Relationship of parties.

f. Usage of trade, prior practice of the parties, “course of dealing”.

i. Have the parties done business before.

4. Acceptance -

a. an offer creates the power of acceptance in the offeree. Acceptance is a voluntary act of the offeree whereby the offeree accepts the offer and a contract is created.

i. Once a offeree accepts, the power of revocation of the offer is terminated.

ii. Restatement second- unless the language or circumstances makes clear the means of acceptance, the offeree may choose any reasonable mode of acceptance. If beginning performance is reasponable, then parties will be bound. Notice of beginning performance will ordinarily be required.

iii.mirror image rule- acceptance must look exactly like the offer. Must not try to change it in any way. If new terms are added, it is not acceptance, it is a counter offer. U.C.C. 2-207 changes this.

b. The offeree must know of the offer in order to accept.

i. Ex. A offers a reward to find lost dog. B finds dog without realizing reward existed.

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1. Under traditional view B does not get the reward because he did not know about the offer when he “accepted” through performance.

a. Not a good idea not policy reasons.

c. The offeree must manifest an intent to accept.

d. Acceptance of unilateral contract-

i. The offeror is looking for performance, the offeree need not give notice of an intent to perform.

ii. The contract is created upon completion of performance.

1. Power of revocation is not available upon beginning of performance.

e. Acceptance of a bilateral contract-

i. The offeror is looking for a promise.

ii. General rule is that the contract is formed when the offeree’s promise is communicated to the offeror.

f. Acceptance by silence- As a general rule silence is not acceptance-

i. Usually silence does not give rise to acceptance of an offer or a counter-offer.

ii. Exceptions-

1. When a contract is implied in fact, silence at times can serve as acceptance to an offer. (assent manifested by conduct).

2. Trade Practice-

a. Ex. buyer has history of retention of goods on prior shipments from seller.

3. Prior course of dealings make silence as acceptance reasonable.

4. If there is a duty to speak and individual remains silent.

a. Ex. Wall being built and person says nothing. If opportunity to notify of rejection and says nothing, that is acceptance.

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o. “Mailbox” rule-

i. Acceptance valid when sent, IF,

1. Acceptance is sent before revocation is received.

2. When out of possession of the oferee in a reasonable medium (mail, etc.).

a. Qualification that offer must be seasonably dispatched within a normal timeframe.

3. When an offer specifies a period to reply (ex. w/in one week), period starts when offer is received.

ii. Exceptions-

1. Offer stipulates acceptance not effective until received.

2. Option contract- acceptance received before option expires.

5. Termination of the power of acceptance - a revocable offer creates a power of acceptance. That power may be terminated in a variety of ways, prior to acceptance.

a. General rule- when parties are talking face to face and an offer is not accepted, the offer lapses.

i. Same rule applies with telephone conversations, if no acceptance when parties hang up, offer lapses.

b. Lapse of time-

i. Some offers contain language indicating when the offer ends.

ii. If no specific language, power of acceptance stays open for a reasonable amount of time.

iii. If there is late acceptance, it can be viewed as an offer that can be accepted only by a communicated offer.

iv. Another view is that if acceptance is sent within a reasonable time the original offeror has the burden to reply accepting or rejecting. If he does

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not reply it will be considered acceptance by silence and a contract will exist.

c. Death or lack of capacity of the offeror or offeree-

i. It is the majority view that death of an offeror terminates the offer.

1. If B accepts before A dies, a contract is created. A’s estate may have the defense of impossibility of performance.

ii. Death of offeror for a unilateral contract revokes the offer unless, the offer became irrevocable from partial performance.

iii.Death of the offeree will prevent the offeree’s representative from accepting the offer because only an offeree may accept.

d. Revocation-

i. An offeror has the power to revoke an offer at any time before acceptance.

ii. General rule is that revocation is effective when received.

iii.The offeror needs to give notice of revocation.

iv. Indirect revocation-

1. Dickinson v. Dodd's- offeree found out that offeror made another offer to someone else. The offer was revoked when the plaintiff received reliable information that that the offeror accepted the other offer. Plaintiff could no longer accept.

2. If the attempted revocation comes to the attention of the offeree, this will amount to revocation the moment the offeree is aware of it.

e. Rejection- Counter-offer

i. A rejection terminates the offerss’s power of acceptance

ii. A counter-offer is an implied rejection; it also terminates the power of acceptance.

iii.There is a difference between a counter-offer and a counter-inquiry.

1. Counter inquiries or requests for modifications do not terminate the power of acceptance as long as the offeree is of the mind set to accept.

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f. “Mail Box” Rule-

i. When acceptance to an offer is mailed, it becomes valid when sent.

1. Valid if acceptance is sent before revocation is received.

2.

6. Consideration - Something that is bargained for. Usually money, but can be other things.

a. Intro- consideration is what makes a promise legally binding. It is the glue that holds the contract together. three things are required.

i. Promisee must suffer a legal detriment (or a benefit to the promisor).

1. Do or promise to do something they are not legally required to do or refrain or promise to refrain from doing something they have a legal right to do.

ii. The promise must actually induce the promisee to act or not act.

iii. It must be a bargained for exchange.

b. Mutual Promise-

i. BOTH parties must be bound otherwise neither is bound.

c. Adequacy of consideration-

i. Courts do not like to interfere with the freedom of contract so they do not tend to review the adequacy of consideration.

ii. As long as the benefit/detriment is bargained for, the adequacy will not be reviewed in determining the contract.

iii.Only concern is that courts will look at, is if consideration is enough so its not just a disguised gift.

d. Mutuality of consideration-

i. Each party must get something of legal value to make the bargain enforceable.

ii. Distinguishes a contract from a gift.

e. Disguised gift-

i. A promise to make a gift is not enforceable.

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1. An unenforceable conditional promise to make a gift.

ii. Detriment is so minimal that the parties were not of the contracting mind but of the mind of donative intent.

f. Illusory Promise- (lacks mutuality of obligation).

i. A promise cloaked in promissory terms, but the promisor is not committed to any act or forbearance. (want of consideration)

ii. If the promise by one or both parties is illusory of indefinite, it does not constitute consideration.

iii.Wood v. Lucy- a promise may be lacking but courts gets around to impose quasi contractual.

g. Sham/nominal-

i. Usually when parties realize that a gratuitous promise is unenforceable, they cloak it with the form of a bargain.

ii. Usually the promise does not induce the detriment and any exchange is more of formality rather than an intended bargain.

h. Pre-existing duty rule-

i. Once a contract has been made, it cannot be modified without fresh consideration.

ii. This exists to protect the promisor from modifying contracts under duress or fraud.

1. Ex. A contracts B to do yard work for $500 a month for one year. B cannot go to A in six months and demand more money for doing the same work. There must be fresh consideration.

a. Say B’s job is to mow the lawn, fresh consideration would exist if A gave B a raise but had B also start trimming the hedges. This new duty would be considered fresh consideration.

2. Ex. Between 3 parties- Ski competition example.

a. If A contracts with B for B to win a ski competition and then B contracts with C for the same thing, this is ok because they are two separate contracts.

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3. Can get around pre-existing duty rule with 2-209

i. Executory Accord -

i. One party suspends a claim to sue on the underlying claim and makes a new agreement that if it is breached, the injured party can sue on that accord or the original underlying claim.

ii. Substitute contract -

1. Same thing except if there is a breach, party will not be able to sue on the underlying claim, only on the new agreement.

j. Past consideration-

i. General rule is that past consideration is not consideration.

ii. Exception- Moral Consideration.

k. Substitutes for consideration-

i. Promissory Estoppel-

1. Substitute consideration for a gratutitious promise

2. Reliance may make a donative promise enforceable

3. Elements-

a. A promise is necessary

b. Promisor should reasonably anticipate that the promise to act or to forbear from acting.

c. Promise is enforceable to the extent of reliance to avoid injustice.

4. Rest. 83 § 2- Subcontractor/ contractor- option contract created when there is detrimental reliance.

ii. Moral obligation-

1. Generally, a prior moral obligation is not recognized as consideration so as to make a promise enforceable.

2. Exceptions may come from specific kinds of promises in highly specialized situations.

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l. Promise to pay pre-existing debt-

i. Most modern authorities take the position that if past debt is still existing an enforceable, a promise to pay that debt is enforceable provided that the amount does not exceed the amount of the pre-existing debt.

7. Breach - failure to perform a contractual duty.

a. Breach - in both common law and U.C.C.- aim is to put the non-breaching party in the situation they would be in if there were no breach.

i. Goal is not to punish but to put the non breaching party in the position they would have been in had the contract not been breached. Give the non breaching party the benefit of the bargain.

b. Constructed performance precedent - when neither party performs, who is in breach?

i. The person who has the greater task performs first.

ii. Non-material breach - If task has been substantially performed, but not completes, the breach is not material.

1. Partial breach - still must perform contract, but can then sue for damages.

iii.Material breach - failure of substantial performance, breach is material and can be treated as a total or partial breach.

1. Total - can get out of performance and sue for damages.

a. First must give a reasonable opportunity to cure.

8. Remedies -

a. When dealing with a losing contract, expectation and reliance damages are not recoverable.

i. Can recoup losses.

b. If plaintiff is the one who breaches, the court will likely cap recovery at the contract price.

i. This deters plaintiffs from breaching on losing contracts.

c. Cost avoidance-

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d. Net enrichment- quasi-contract relief prevents this when it is unjust.

i. Quantum Meruit- value of services rendered to another.

ii. Quantum Valebant- the value of property delivered to another.

e. Non-breaching party has duty to mitigate damages as much as possible.

i. Concept of Mitigation- any ability to avoid excessive damages should be done. An individual cannot let damages accrue and then sue for excessive damages that could have been avoided.

1. Hypo - Pavement crew sent home after homeowner told them to stop work.

a. Paving company can sue for breach of contract.

b. If they continued work, they can’t sue for any damages after they were told to stop work.

f. When a breach occurs, the issue becomes one of determining the appropriate remedy. The goal is to put the non-breaching party in as good of a situation as if the contract were performed (benefit of the bargain).

g. Monetary Damages-

i. Compensatory damages -

1. Reliance loss- the cost the promisee incurred in reasonable reliance on the promisor’s performing of the contract.

a. Designed to put the P in the position they would be in had the contract been performed.

2. Expectation loss - loss of the anticipated profit of the contractor.

a. Many times damages are based on the P being able to obtain substituted performance.

3. Consequential damages - ripple effects on the promiee’s business from the breach.

a. Available for foreseeable losses by a reasonable person.

b. Special damages- many times deal with third parties.

4. Incidental damages - in contracts for the sale of goods.

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a. May include expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected.

b. Available to both buyers and sellers.

ii. Restitution - to the promisee of the promisor’s profits from the breach.

1. Used to deter individuals from breaching when a breach seems opportunistic.

2. Available when contract was made but is not enforceable.

3. Party can recover in a quasi-contract action.

a. Can recover if;

i. P conferred a benefit on the D by rendering services or expending properties,

ii. P conferred a benefit with the reasonable expectation of being compensated,

iii.The D knew or had reason to know of the P’s expectation, AND

iv. The D was unjustly enriched.

iii.Liquidated damages - damages actually specified in the contract as the money remedy for a breach.

iv. Punitive damages - a money penalty specified in the contract.

1. Not generally given in contract suits unless there is an independent egregious tort.

2. Not generally given because contract law does not aim to punish but to put party in situation they would be in if contract were completed.

v. Nominal Damages -

1. Usually awarded where a breach is shown but no actual loss is proven.

a. Ex $1, proves breach.

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h. Nonmonetary Damages- (equitable remedy)

i. Specific performance - ordering the promisor to perform on penalty of being found in contempt of court. If the legal remedy is inadequate, this is an equitable option.

1. Only available if

a. The goods are unique (or rare).

b. Cover is not available; a legal remedy will not suffice.

i. Efficient breach-

i. Ex. A and B contract for the sale of goods. B finds out that C will pay more for the same goods. B breaches w A and pays A damages and then sells to C. After paying damages B still makes money on the deal.

j. equity- synonym for “fairness”.

i. Courts of equity limited the relief they would grant to cases in which money damages would not make the parties whole. “the remedy at law is inadequate”. Plaintiff requested something more than the payment of money from the defendant.

ii. Writ of mandamus-

iii.Writ of injunction- party is forbidden to do something.

iv. Writ of specific performance- a party is ordered to perform the contract.

v. Laches - this is a defense to equitable remedies. When a party delays in bringing an equitable acton and that delay predjudices the D.

1. Ex. the delay has substantially increased the cost or difficulty of performance.

a. Mere delay itself is not a ground for this defense.

vi. Unclean hands defense - arises when the party seeking specific performance is guilty of some wrongdoing in the transaction being sued upon. The wrongdoing must be related to the transaction being sued upon.

9. The Statute of Frauds - For certain transaction, a signed writing is needed to make the contract enforceable. “within the statute of frauds” means that transaction needs a writing or some kind of written record. (common law, $500 or more does not matter).

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a. Suretyship Contracts- a promise to pay the debt of another requires a signed writing.

i. The promise is between the surety and the creditor, secondary promise.

1. Always ask if the agreement was oral or written.

ii. Surety (guarantor) promises to pay the debt of another and CREDITOR KNOWS ABOUT IT.

iii.Must be a secondary promise.

iv. Exceptions-

1. Main Purpose (Leading Object)-

a. If the driving force is for the benefit of the surety, no signed writing needed.

b. If they are already receiving a benefit, it’s likely that this contract actually existed.

2. Primary or original promise-

3. Novation-

a. When a surety has a creditor release a debtor in exchange for the surety paying the debt to the creditor directly.

b. No need for a signed writing because there is no other party.

i. Should be in writing (to be safe), but depends on jurisdiction.

c. All three parties must agree to this.

b. One year provision-

i. Don’t need a signed writing if contract can be fully performed within a year of its formation.

ii. Within the statute if full performance is not possible within one year of the contracts formation.

iii.Question to ask- WHAT CONSTITUTES PERFORMANCE?

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1. Look at the terms.

2. In modern times- possible to perform fully in one year.

iv. We look at a modification separately from the original contract.

1. Just because a contract is within the statute of frauds does not mean that the modification will be.

v. Exceptions-

1. Full performance on one side.

c. Integration of Documents-

i. If multiple documents deal with the same subject matter, they can be combined to show that there was a signed writing.

1. Courts are liberal if it is shown that there was an intent to sign or authorize the agreement, it can satisfy the statute.

ii. If either party can show that one or more essential terms were omitted, the statute will not be satisfied.

iii.A signed check may be a sufficient signed writing.

d. UCC 2-201-

i. Requires a writing for sale of goods for $500 or more.

ii. Quantity must be stated.

iii.As long as 2-201 is satisfied, we don’t need to independently satisfy the common law.

e. Exceptions-

i. Part performance to exempt an agreement from the statute of frauds-

1. Part payment

2. Possession

3. Improvement

4. Should have all of these but having 2 out of three could suffice.

ii. Admission in testimony -

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1. If there is no signed writing but party admits that there was an agreement between the parties.

iii.Equitable estoppel - Most jurisdictions recognize that if the elements of equitable estoppel are present, the party to be charged will not be permitted to raise the defense of the statute of frauds.

1. Requires that one party justifiably relies on the other as to a factual representation or conduct and they are injured because of that reliance.

10. Parol Evidence Rule -

a. Parol Evidence refers to oral or written negotiations or agreement that are prior to or contemporaneous with the writing that is intended to be final and complete.

b. General-

i. The parol evidence rule comes into play when you have a final and complete writing and one party wants to bring in evidence of additional terms that are not in the writing to explain or expand a term in the writing.

1. The purpose is to protect either party from bringing in certain parol evidence that was not in the writing.

2. The rule only applies to prior contemporaneous events.

a. Does not apply to events that occurred after the contract was formed.

3. The rule bars evidence from being admitted to the FINAL WRITING.

a. There are exceptions to the rule.

ii. Parol evidence is evidence extrinsic to the parties’ agreement, outside of the oral or written agreement.

1. Ex. a letter, or document that contains duties to be performed, but not in the final contract.

iii.There are multiple standards of the rule (UCC, Williston, Corbin, Restatement, “four corners”, etc.) and courts will often decide which standard to apply by looking at each specific case and deciding which standard will enforce good policy and justice.

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iv. Two questions to ask -

1. Is the contract integrated?

2. If so, is the integration partial or total?

a. Often treated as a question of law.

v. Total integration-

1. A writing that is final and complete.

2. A total integration can neither be contradicted nor can it be supplemented by additional consistent terms.

vi. Partial Integration-

1. A writing that is final but it does not completely express the parties contract.

2. Additional consistent terms may be added as long as they don’t contradict the writing.

c. Tests for a Total Integreation-

i. “ Four Corners ” Rule -

1. The judge determines if the document appears complete on its face.

2. Looks at the writing (only) to determine this.

3. In decline.

ii. “ collateral contract concept -

1. This concept allowed collateral agreement (those made outside of the writing) to be introduced as long as they did not contradict the writing.

2. Under this approach, all writings were looked at as “partial integrations”.

iii. Williston ’ s Rules - suggests a new “reasonable person” test. (Majority)

1. If the writing contains a merger clause = presumption of a total integration.

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a. This can be rebutted by showing that the document was incomplete, or

b. The merger was included as a result of a mistake

2. In the absence of a merger clause, determination is made by looking at the writing.

a. If it is obviously incomplete, consistent additional terms may be added.

3. Where the writing is complete, terms that would have “naturally” been included in the writing, and weren’t will likely not be admissible. (more restrictive than UCC).

iv. Corbin -

1. Instead of using the term “contemporaneous”, this approach looks at if terms are entered into prior or subsequent to the writing.

2. Approach looks at what the parties actually intented. (court decides).

a. Did the parties intend for a total integration.

b. This includes considering intent for prior negotiations.

v. UCC - See later code section.

vi. Restatement (second) - (PRETTY MUCH CONTRADICTS ITSELF)

1. Similar to Corbin’s rule in that it looks largely at intent of the parties.

2. Pretty much makes it impossible to have a total integration because even if a total integration is found, consistent additional terms will still be allowed to be added.

3. Rest. §216- consistent Additional Terms-

a. Evidence of a consistent additional term is admissable to supplement unless the court finds the agreement was completely integrated.

i. Court makes it difficult (near impossible) to have a complete integration.

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d. Exceptions-

i. Collateral Evidence Exception- allowing in evidence of side agreements as long as there is a reasonable explanation as to why they were not included in the writing.

1. Refers to subject matter that is related to but not part of the primary promise.

2. Difficult to apply this doctrine because it is conclusory.

ii. Naturally (common law) and certaintly (UCC) trests are used to determine integration.

1. Cannot disclaim and express warranty BUT can exclude it by not including it in the it in the final writing.

2. Betaco v. Cessna Aircraft.

e. Interpretation-

1. There has been a movement away from the four corners approach to an approach that looks at the circumstances surrounding the formation of the contract in order to determine the level of integration.

2. Meanings can often vary with textual context, user, time, locality, etc.

ii. Admissibility of evidence of surrounding circumstances and intent-

1. Rest. §212-

a. The interpretation of an integrated document is directed to the meaning of the terms of the writing in light of the circumstances.

b. A question of interpretation of an integrated agreement is to be determined by the trial of fact and it depends on the credibility of the extrinsic evidence- otherwise it is to be determined as a question of law.

2. Course of Performance -

a. Repeated occasions for performance by either party.

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b. In most situations this occurs after the formation of the contract but may still be admissible.

i. Ex. payment is to be made on the first of each month. Buyer continues to make payments on the 10th of each month, seller has the opportunity to object but does not.

1. This has become course of performance for that contract.

3. Trade Usage -

a. Refers to a practice or method of dealing.

b. More objective because you can look at the custom of the trade and regularly observed practices on a particular business setting.

c. NOTE: is usually only binding on members of the trade or individuals who know or should know about the trade usage.

4. Course of Dealing -

a. May be used to explain a contract.

b. This refers to conduct concerning previous transactions between the parties to a particular transaction. It may be regarded as establishing a common basis of their understanding.

iii.Rules of Interpretation-

1. Rest. § 202: Rules in Aid of Interpretation

a. Words or other conduct interpreted in light of ALL the circumstances; principle purpose of the parties is given great weight.

b. Writing is interpreted as a whole.

2. Rest. § 203: Standards of Preference in Interpretation

a. Reasonable, lawful, and effective meaning to all the terms is preferred.

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b. Express terms > course of performance, course of dealing, trade usage; course of performance > course of dealing, trade usage.

c. Specific terms > general terms.

d. Seperately negotiated terms > standard terms.

3. Rest. §206: Interpretation Against the Draftsman

a. The meaning which is generally preferred is the one which operates against the party who supplies the words or from whom a writing otherwise proceeds.

4. Rest. §207: Interpretation Favoring the Public

a. In choosing among the reasonable meanings of a promise or agreement or term, a meaning that serves the best interest of the public is generally preferred.

11. Avoidance of the Contract -

a. Intro- Events before or at contract formation may permit parties to escape the bargain. Contract could be rescinded or reformed by the court.

b. Void- absolutely unenforceable.

c. Voidable- not totally unenforceable, party’s can choose to enforce the K.

d. Mistake-

i. Misunderstanding- refers to their being misunderstanding during the bargaining process.

1. A contract should be held nonexistent under this section ONLY when the misunderstanding goes to conflicting and irreconcilable meaning as to a MATERIAL term that could have either but not both meanings.

2. Rest. §20- effect of misunderstanding-

a. No manifestation of mutual assent to an exchange if the parties attach materially different meaning to their manifestation and

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i. Neither party knows or has reason to know the meaning attached by the other; or

1. (peerless, no fault).

ii. Each party knows or has reason to know the meaning attached by the other.

1. No mutual assent but both at fault.

b. The manifestations of the parties are operative in accordance with the meaning attached to themif

i. The party doesn’t know of any different meaning and the other party knows the meaning attached by the first party.

3. “ Peerless ” ship case - two ships named peerless, arriving at different times. Both parties were not on the same page as to which boat they were contracting to use.

a. This was a misunderstanding as to a material fact.

b. If parties were subjectively thinking of the same boat, then there would be a contract (even though there was a possibility of a misunderstanding).

i. Exception to objective theory of contract formation.

ii. Mutual Mistake-

1. If both parties are mistaken as to a fact/s that are a fundamental basis of the contract.

a. Parties can elect to rescind the contract (contract cancelled).

2. Elements-

a. At the time of contracting the parties shared an erroneous belief concerning a fact.

b. The erroneous fact was a basic assumption on which the contract was made.

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i. The mistaken fact must be so fundamental to the shared intent and purpose of both parties that it is reasonable to conclude that they would not have made the K if they had known the truth.

c. The mistake must have a material effect on the agreed exchange of performances (impact the balance of the exchange).

d. The adversely affected party must not have assumed the risk of the mistake.

3. Wood v. Boyton- stone sold to jewler, neither knew it was a valuable diamond.

a. There was a mutual mistake but because the seller chose to sell without further investigation and the buyer bought it in good faith thinking it was not valuable. They were consciously unaware of the value, they assumed the risk.

4. Cow case- bargained for a sterile cow, cow ended up being fertile.

a. Party could rescind because this cow that was delivered was not what was actually bargained for.

iii.Unilateral Mistake-

1. Courts usually deny relief to the erroneous party to teach them a lesson, even though culpability is not necessarily supposed to be considered in contract law.

2. Typically no relief for a unilateral mistake.

3. Elements-

a. The error concerns a fact.

b. The fact is a basic assumption on which the mistaken party made the contract.

c. The mistake had a material effect on the exchange, adverse to the mistaken party.

d. The mistaken party must not have assumed the risk of the mistake.

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4. Sometimes relief is granted for unilateral mistakes-

a. When the mistake is of such consequence that enforcement would be unconscionable.

b. The mistake must relate to the substance of the consideration.

c. Must have occurred regardless of the exercise of ordinary care.

d. Must be possible to place the other party in status quo.

5. Courts will look at the character of the mistake, the damages to the affected party, and the damages to the other party (benefit of the mistake).

6. Non-mistaken party cannot take advantage of the otehrt party’s mistake.

7. A party cannot get out of a BAD BARGAIN by claiming mistake.

iv. Reformation-

1. This is an equitable action where the court is asked to rewrite the contract so that it represents the “true” agreement of the parties.

a. The problem is not with the parties intended agreement, the problem is with how that agreement was reduced to writing.

2. Mistake must be one of fact, the proof clear and convincing, that a mistake was made and the mistake was mutual/common to both parties.

a. Pretty much that the parties intended one thing but said another.

3. If a clause is unreasonable, court can decide to rewrite it.

a. Options-

i. Strike whole clause.

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ii. “blue pencil”- if a clause is such that you can draw a line through a word or phrase and still have it mean the same thing.

iii.Modern Rest. View- re-write or re-draft the clause.

Most Serious Least Serious

Fraud Duress Undue influence innocent misrepresentation unconscionable

hhh. Fraud-

i. Party knows or believes what they are saying is untrue.

1. The intention is to deceive.

a. Damages = rescission.

ii. Deliberate misrepresentation, dishonest intent. Person making this must know it is false and has the intent to induce the other party to enter the contract.

iii.The other party must have justifiably relied on the misrepresentation and suffered damage because of it.

iv. Ex of fraud include active concealment, etc.

iii. Duress-

1. When one party induces another to contract through unjus acts or threats.

a. Ex. “sign this contract, or I’ll break your legs”.

b. Voidable, not enforceable.

2. Similar to coercion.

3. Overpersuassion is not enough, party must be in a weak state/condition.

a. Signing a release of liability while in a hospital bed.

ii. Economic duress-

1. When one party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property and

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finances, or there are no adequeate means available to prevent the threatened loss.

2. Victim had no choice but to agree with other party or suffer serious financial hardship.

a. Accepts because of lack of other choices.

iii.Undue Influence-

1. When one party has a particularly strong influence over the other and they abused their position of dominance to persuade the other party to enter into a disadvantageous contract.

2. Even without a relationship of trust and confidence there can be undue influence.

a. Dominant and serviant relationships.

b. Ex. employers and employees.

iv. Contract of Adhesion-

1. Pre-printed, take it or leave it contract. Often favors one side, unfairly.

v. Over persuasion-

1. Persusion is acceptable and often expected in sales, however if a number of the following elements are present, the persuasion may be considered excessive.

a. Discussions of transaction at an unusual time or unusual place.

b. Insistent demand by one party that business must be finished at once.

c. Saying there is no time to consult an attorney or financial advisor.

d. Continually stressing consequences of delay.

e. The use of multiple persuaders on the dominant side against a single serviant party.

jjj. Illegality-

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i. If either the consideration or the subject matter of a contract is illegal, the K will be unenforceable.

1. Ex. gambling K’s, consideration is illegal substances such as drugs, etc.

ii. Purpose is to promote fair dealing.

iii.Non-competition agreements are generally unlawful: 2 exceptions!

1. Employer/employee agreement.

a. Restricting the employee upon termination.

2. Purchase and sale of a business.

a. Can’t sell a deli, only to set up a new one right down the road (or next door) and take all of your customers.

iv. Licenses-

1. What is the purpose of regulation?

a. Regulatory purpose.

i. Contract is generally enforceable if the license is for something such as revenue raising.

1. Ex. all city food vendors must pay a yearly fee.

b. Public policy.

i. If a license is required to protect the public (license to practice law, medicine, etc.) and there is no license, contract is void.

kkk. Incapacity-

i. Minors-

1. Those below the age of majority (below 18) are responsible for their torts or crimes but are allowed to dissafirm contracts.

a. Contract nullified, as if it never existed.

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2. If they disaffirm, they must return any part of the consideration that they still have. They ARE NOT however responsible for that that has been wasted, spent, etc.

a. Can dissafirm even if they commit fraud (ex. intentional misrepresentation of age), however they will be liable in tort.

b. Can disaffirm if a parent has signed contract, but parent will be liable to pay.

c. Majority of courts say that a minor should reimburse for any benefit they received.

3. Can disaffirm K’s for necessary items but not for necessities.

a. Necessary’s- those items such as food, clothing, shelter that are required to survive.

b. Necessities- those items that are “necessary” to maintain the standard of living they are used to.

i. Subjective- Donald Trump’s necessities are much different than mine.

c. Child does not have a contractual responsibility for necessary items but there may be a quasi responsibility for the reasonable value of services rendered.

4. Sword and Shield - (minority of cases)

a. Sword- cash transaction when the child wants to avoid the K and wants the money back. Acts as P.

b. Shield- credit cases where the child acts as a D claiming to disaffirm the K because they are just a child.

ii. Mental infirmity-

1. Contracts signed by those declared legally incompetent ARE ABSOLUTELY VOID.

a. Majority of states.

2. Cognitive test- did the individual understand?

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3. Volitional Test- could the individual do otherwise?

iii.Intoxication-

1. Courts give little empathy to those who contract while they are voluntarily intoxicated.

2. In order to try and get out of K, drunk party MUST try and get out as soon as they sober up.

a. It is the court’s decisions on if they will enforce the K, depends on how strictly they apply the time lag between being drunk and sober.

b. Courts also like to see that the other party took advantage of the drunk party by knowing they were not aware of what they were doing.

lll. Unconscionability-

i. Some contracts are too unfair to be enforced. Unfair at the time of contracting.

ii. Contracts containing harsh and unnegotiated terms that are presented to the other side on a take it or leave it basis = adhesion contract.

iii.Courts will usually want both procedural and substantive.

1. Procedural- unfair in the bargaining process.

2. Substantive- harsh/unfair terms.

iv. The concept of unconscionability can interfere with the freedom of contract.

1. If parties want to enter into an unfair contract, they should be allowed to.

2. The idea is to help those who cannot help themselves.

v. Exculpatory clause- A contract provision that relieves one party of liability if damages are caused during the execution of the contract.

1. Venues that print releases on the backs of tickets, often not enforced if they are against public policy.

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vi. Hold harmless clause- A hold harmless clause is a contractual provision in which on party agrees not to hold the other party responsible for any specified or unspecified liability or harm that the other party might incur. This clause simply indemnifies the other party from any losses.

mmm. Impossibility- (looked at objectively)

i. Where the party has an excuse because performance of the contract is impossible.

1. If one party is excused, both are excused.

ii. Deals with things that happen after the contract is formed.

1. Unforeseen circumstances.

iii. It will be looked at OBJECTIVELY by the court.

1. Foreseeability, fault, and assumption of any risk will all be looked at in determining if parties are excused.

iv. Examples-

1. Desctruction of the subject matter.

a. Ex. theatre burns down

b. This is only an excuse where the failure is ESSENTIAL to performance.

2. Death or Incapacity.

v. Impossibility is applied very conservatively.

1. BETTER OFF TO JUST GET INSURRANCE.

nnn. Impracticability- (looked at subjectively)

i. Not impossible but some event make performance so burdensome that courts may often excuse performance.

ii. Often referred to as “subjective impossibility”.

1. “don’t make me do this under these burdensome circumstances”.

iii.Again foreseeability and assumption of the risk will be looked at.

iv. Difficult to get this.

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ooo. Frustration of Purpose-

i. When performance that a party has bargained for has deteriorated so much in value that it is no longer beneficial to one party.

ii. The thing that is frustrated must have been a principal purpose of the contract and the frustration must be substantial.

ppp. “Force Majeure” clause-

i. Clause in the contract which states what events would constitute a contract.

qqq. Reasonable control- must include both. (nisshou v. occidental)

i. No excuse if party had “reasonable control” to prevent incident-

1. A party may not affirmatively cause the event that prevents performance.

2. Could the party have taken reasonable steps to prevent the event?

a. Could the party have done more?

12. Conditions and Promises -

a. Promise vs Condition-

i. Promise (covenant)- a promise is a commitment to do or refrain from doing something. Failure to perform according to the terms is a breach of the contract. (only need substantial performance).

ii. Condition - fact, the occurence or nonoccurrence of which determines when and IF a party must perform.

1. If the condition is not met, there is release of the duty to perform. Does not mean there is a breach.

iii.To determine if there is a promise or a condition the basic test is to look at the “intent of the parties”.

1. Court will look at the words of the agreement.

a. Condition- “provided”, “if”, “when”, etc.

b. Promise- “promise” or “agree” etc.

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iv. When it is unclear courts will presume a PROMISE.

1. If you want a condition, SPELL IT OUT!!!

b. Express Conditions-

i. Refer to conditions that have been discussed/negotiated and it is made clear that the obligation of performance is dependent on the conditions being met.

ii. When there is an express condition, the standard for performance is EXACT COMPLIANCE.

iii. If something is very important in the contract, make it an express condition.

c. Constructive Conditions-

i. Those conditions that have not been negotiated.

ii. Usually are used by the courts when intent of the parties is unclear.

1. Used to fill in the blanks as to time of performance.

2. When two independent promises become dependent.

a. Case with the post hole digging.

i. P promises to keep the ground wet, D promises to dig.

ii. It was not expressed promises but D’s performance is dependent upon P’s performance.

iii.The standard of performance is SUBSTANTIAL PERFORMANCE.

iv. Court will look at performance to determine if there is a total or partial breach.

v. Constructive performance precedent- person with greater task performs first.

d. Implied-in-Fact Conditions-

i. Usually arise from promises and are part of express conditions

ii. Generally treated the same way as express conditions (exact compliance).

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1. They just haven’t been expressly talked about.

e. Types of Conditions-

i. Condition Precedent -

1. This is a condition that must be met before the party has a duty to perform.

2. Burden is on promisor.

3. There is a contract, but the duty to perform may cease or be suspended if condition is not met.

4. NOTE: condition precedent to the formation of the contract-

a. In this situation, if the condition is not met, the contract is not formed.

ii. Condition Subsequent -

1. There is a present duty to perform but that duty may extinguished if the condition is not met/met.

2. Burden on the promisee.

iii.Concurrent Condition -

1. Refers to transactions capable of simultaneous performance.

2. One party would have to begin/attempt to perform before they could hold the other party in breach.

iv. Condition of Satisfaction -

1. Protects the promisor. Is the promisee satisfied with performance? Can they refuse to perform if they are not?

2. Functionality- tested objectively.

a. “redding pipe case”.

3. Aesthetics- tested subjectively.

a. Ex. “roof stain” case.

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4. The two parties can agree to leave this up to a third party, they are assuming the risk that the third party will make a decision in good faith.

a. When third party decides, it is a subjective test.

f. Has there been substantial performance (in regards to constructive conditions)?

i. A breaching party who has substantially performed can recover.

1. They are limited to the contract price.

2. If breach was intentional, many courts will deny recovery all together.

ii. Party must have intended with good faith to comply with the contract.

iii.Defects must not be pervasive.

g. Entire vs Divisible contracts-

i. Entire- contract looked at as a whole.

ii. Divisible- takes away the harshness of substantial performance.

1. Allows recovery for breaching parties.

2. Can sue on divisible portions of the contact to get the value of the performance.

3. Ex. 3 trucks of bricks are to be delivered. Only one truck is delivered.

a. Even though this is not substantial performance, the breaching party under this theory can recover for the value of the services they rendered.

h. Excuse-

i. Prevention and Cooperation-

1. Parties cannot prevent the other party from performing their obligations under the K.

a. Cooperation and good faith are impleid in all contracts.

2. If party is prevented from performing, the other party may/will be excused from performance.

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a. Ex. contracting to walk across Brooklyn Bridge. Other party oils bridge and sets up road blocks.

3. When there is an implied duty to cooperate (sword), look to see if there is prevention (shield).

ii. Forfeiture-

1. Courts DO NOT apply this liberally.

2. Used when enforcement of the condition would result in an unfair, disproportionate, and harsh deviation of the rights of the party who expects performance and a windfall or unfair benefit to the party whose performance is subject to the condition.

3. Balances the relative hardships between the parties.

4. Burden on the party who would suffer the harm.

iii.Waiver-

1. Voluntarily or inadvertently giving up a non-material right.

iv. Estoppel-

1. If a party induces another to reasonably believe and rely that they are waiving a condition and that party does rely, the party will be estopped from later trying to enforce the condition.

v. Election-

1. The non-breaching party makes an election when a condition is not met.

a. May choose to either

i. Terminate liability to perform, or

ii. Continue under the contract.

1. If she chooses to continue, she has waived that condition.

2. Once election is made, you can’t go back.

13. ANTICIPATORY BREACH/ REPUDIATION - (ASSURANCES)

a. Repudiation-

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i. Prior to the date set for performance, one party makes reasonably clear that they will not perform and breach will occur.

1. Either they say it, or

2. There isn’t an exact repudiation but there is a general inability/unwillingness to perform.

ii. The non-breaching party can repudiate the K, discharging their responsibilities and also sue for damages.

1. This applies even if the non-breaching party was to perform first.

iii.HOWEVER, if you suspend your performance, YOU BETTER BE SURE other party is not going to perform!!!

iv. You do not need to wait until the date of performance to sue, can sue for breach before date, as soon as repudiation occurs.

v. The non-breaching party will want to show that but for the breach, they were ready, willing, and able to perform.

vi. Party can’t demand stuff outside of the K and suspend performance until it is received.

1. Breach.

2. Seems like blackmail.

vii. When dealing with a unilateral K and one side has fully performed, anticipatory repudiation is not available.

viii. Demand or request assurances to be safe, so you don’t turn into the breaching party.

1. Bbe careful not to threaten to not perform, could make you the breaching party.

ix. Under UCC- demands for assurances must be in writing and must be provided within 30 days.

1. Failure to do so is a breach.

x. Common law- does not need to be in writing and there is no 30 day requirement.

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xi. MASS.- reluctant when it comes to anticipatory repudiation but they have adopted UCC 2-610.

xii. Ex. A and B enter into contract. B delegates to C.

1. Depends on if it is a contract for services or for goods

- Acceleration Clause- a clause in debtor/creditor situations, where if you are late on one payment, all future payments will be due.

14. THIRD PARTY BENEFICIARIES -

aaaa. FIRST STEP - always identify the parties!

ccix. Promisor- the one making the promise the promisee.

ccx. Promisee- party who is extracting the promise from the promisor.

ccxi. Third Party Beneficiary- the one who is benefiting from the completion of the promise.

226. This benefit may be direct or incidental.

227. The question is if this beneficiary can sue to enforce the promise if the promise is not kept.

bbbb. Types-

i. Intended Beneficiary-

1. These individuals will have the right to recover under the contract.

2. Ask whether performance was to run directly in favor of benefitting the third party?

pppppp. This is persuasive, not conclusive but it is likely that when a promise is intended to directly benefit a third party, that third party will have rights under contract.

3. Rest. Uses the “intent to benefit” test.

4. TWO TYPES OF INTENDED - (the distinction is based on the promisee’s purpose in extracting the promise from the promisor).

a. Donee Beneficiary -

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xxvii. If the promisee’s purpose in extracting the promise was to convey a gift on the third party, the third party is a donee beneficiary.

b. Creditor Beneficiary -

i. If the promisee’s purpose is to discharge an obligation owed to a third party, the third party is a creditor beneficiary.

ii. Incidental Beneficiary-

1. These individuals DO NOT have rights under contract.

2. When a promise first runs to a promisee and then there is benefit to a third party, this is likely only an incidental beneficiary and there will be no right to recovery.

iii.Derivative Beneficiary-

1. The rights a third party has are joined with the rights of a promisee.

2. Third party only has right to recovery if promisee has a right to recovery.

a. Third party only has as much rights as the promisee.

3. Ex. If the promisor has a defense against the promisee, could have the same defense against the third party.

iv. Potential (unidentified) Beneficiary-

1. Can have an intended third party beneficiary that is unidentified, as long as the party is identified at the time of performance.

2. Rights do not vest until the party is identified.

3. Ex. case with the two school boards.

a. Only one would be the beneficiary at the time of performance.

b. The second had no right to bring suit because they were never identified.

cccc. Rights of parties-

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i. Promisors defenses-

1. Third party beneficiary’s rights are derivitave from those of the promisor.

2. Third party gets no better rights against the promisor than the promisee would have.

3. Promisor can raise all defenses arising from the original contract.

ii. Vesting of rights-

1. An intended beneficiary can only enforce their rights under contract once those rights have “vested”.

2. Rights vest when the beneficiary manifests assent to the promise in a manner invited by or requested by the parties;

a. When they bring suit to enforce the promise; or

b. When they materially change their position in justifiable reliance on the promise.

3. Once rights have vested, they cannot be taken away.

iii.Mortgages-

1. Assumption of the Mortgage-

a. Bank = creditor 3rd party, Buyer = promisor, Seller = promisee.

b. Buyer of the property undertakes a personal liability to make payments.

c. In the event of foreclosure, buyer would lose property and owe the debt.

2. Subject to the Mortgage-

a. If the buyer is unable to make the payments, the bank will foreclose and take the property, but the debt is owed by the original mortgagor.

b. Buyer enters into a unilateral contract- he is hoping to make all payments, but avoiding any promissory liability guaranteeing their continuance.

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dddd. Payment Bonds-

i. Public-

1. When the government is the promisee, extracting the promise to benefit the third party (often the public), the third party does not have rights under contract.

ii. Private-

1.

eeee. Novation- when all parties agree that a debtor will be released from his obligation to pay and replaced by a third party.

i. This isn’t really third party material because the third party and the creditor enter into a new agreement.

ffff.Shareholders are technically third party beneficiaries; however their rights are usually very limited.

15. ASSIGNMENT AND DELEGATION -

a. Contract rights are assigned and contract duties are delegated.

i. In an assignment- the person making the assignment is the assignor (obligator), the person to whom the assignment is made is the assignee (obligee).

1. The original contracting party whose obligation is assigned is the obligator.

ii. In a delegation- the parties are known as the delegator, the delegatee, and the obligator.

1. Duties under a contract to provide personal services may never be delegated.

2. When you see a delegation of duty, think of intended beneficiary. Third party beneficiary.

3. You can have a delegation without a promise to enforce. (clear this up)

b. Deletus personae- choice of a particular person. If a K involves this assignment and delegation is not possible.

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c. Restatement : Performance or offer of performance by a person delegated has the same effect as performance or offer of by the person named in the K, UNLESS; the performance delegated varies or would vary materially from performance by person named AND there has been no assent to the delegation.

d. With delegations with an obligation to be performed, look out for third party intended beneficiary, must be an implied promise or there is an express promise for the obligator to

i. Promisor, promisee, third party beneficiary e. If you are the assignor then you are also the obligee and if are the assignee you

are also the obligor. f. Macke Co v. Pizza- Macke not only getting the duties but also getting the rights.

This does not always happen but it can. g. Assignment of rights is usually not a problem, it is the delegation of duties that is

a problem. Parties usually do not care who they pay however, they may often have a problem with a different person performing some duties.

h. Holder in due course (Super assignee)- these people pay more for the not because as a holder in due course you don’t take subject to a lot of defense, such as failure of consideration etc. If they are not a holder in due course, they stand in the shoes of the assignor. Obligor can bring suit against them for anything they could have brought against the assignor.

i. With respect to consumers, no holder in due course.

U.C.C.-

- 2-104- defines a merchant.

- 2-105- Definition of goods-

o Money is not considered a good unless it is being treated as a commodity.

• Ex. Rare collector coin.

Section 2- Deals with the sale of goods. (PREDOMINANT PURPOSE TEST- when a hybrid contract involves goods and services).

Contract Formation- 2-201, 2-202, 2-204, 2-205, 2-206

- 2-201- Statute of Frauds- (used when you need a writing and don’t have one)

o 1) a contract for the sale of goods for the price of $500 or more is not enforceable unless there is a writing.

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• The writing MUST;

• Be signed by the party against whom enforcement is sought.

• Be sufficient to indicate that a contract for sale has been made between the parties.

• Must contain a quantity term.

o Exceptions- out put or requirement contract.

o 2) Between merchants Exception- if within a reasonable time a writing, in confirmation of the contract and sufficient against the sender, is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party, unless written notice of objection to its contents is given within 10 days after it is received.

o 3) a contract which does not satisfy the writing requirement but is enforceable if;

• a) if goods are specially manufactured for buyer and are not suitable for sale to others in the ordinary course of the sellers business, before notice of repudiation is received, seller has made either substantial beginning of their manufacture or commitments for their procurement; or

• Admission - if the party against whom enforcement is sought admits a contract for sale was made,

• but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

• Goods for which payment has been made and accepted or which have been received and accepted (2-206).

• Part payment.

• Part performance.

• Promisorry Estoppel (1-103).

- 2-202- Parole Evidence Rule- when you have a final and complete writing and one party wants to bring in evidence. “If you have a final and written writing, contradictory terms will not be admitted”.

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o 1) Partial integration- consistent and additional terms may be explained or supplemented by

• Course of dealing

• Usage of trade

• Course of performance

• TERMS ADMISSABLE AS LONG AS THEY DON’T CONTRADICT WRITING.

o 2) Total integration- intention for doors to be closed, nothing can be added.

• (course of dealing, usage of trade, course of performance, may be used to supply a consistent additional term).

• Test for if it is a total integration

• Look for a merger clause

• U.C.C. 2-203 comment 3-

o If it is something that would have been CERTAINTLY included, it won’t be added. (common law test uses naturally, less liberal and more restrictive).

o If it is something that wouldn’t have been added, it will be added as long as it is consistent with the terms.

o Big difference between partial and total-

• Total will not admit consistent additional terms.

o Can’t disclaim express warranties under 2-316, but can exclude it from evidence with 2-202.

o ESCAPE THIS RULE by showing there was never a final writing.

• Try to show that a condition precedent was not met or that there was fraud, duress, etc.

- 2-204- Formation in General- (liberal interpretation- was there intent to contract?)

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o 1) A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognize the existence of a contract. (Parties intent to contract).

o 2) An agreement sufficient to constitute a contract may be found even though the moment of its making is undetermined.

o 3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

- 2-205- Firm Offers-

o 1) An offer by a merchant to buy or sell goods in a signed writing which in its terms assures that it will be held open is not revocable for lack of consideration, during the time stated or if no time is stated for a reasonable time.

• a) General Rule- offers stay open for three months on unilateral contracts.

• Ex. If individual gives you six months to accept by beginning performance, still think three months.

• b) *This is only applicable when there is no consideration.

- 2-206- Offer and Acceptance in Formation of Contract-

o 1) Unless otherwise unambiguously indicated by the language or circumstances

• a) An offer to make a contract shall be construed as inviting acceptance in any manner (unilateral or bilateral/ performance or promise) and by any medium reasonable in the circumstances.

• b) An order or other offer to buy goods for promt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of nonconforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

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- 2) Where the beginning of requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

o The offeror is the master of the offer. Keep power by making sure offer is clearly stated and has no ambiguity.

o If non-conforming goods are sent. Still a contract, but there would be a breach of this contract.

o This changes the common law.

o Accomodation- counter offer. Done to not be held in breach of no-conforming goods.

o Counter-offer- response to an offer. Interpret as “my way or the highway”.

o General rule- counter-offers are in fact rejections. Once a counter –offer is made, cannot go back to original offer.

o *In the case of ambiguity leeway is given to the offeree.

Battle of the Forms-

- 2-207- “Battle of the Forms”- Eliminates the common law mirror image rule. Just because terms are different does not necessarily mean there is not contract.

o Subsection 1 - Determines if there is a contract.

• A definite and seasonable expression of acceptance or a written confirmation, sent within reasonable time, operates as acceptance. Even if there are additional or different terms.

• This is so, unless acceptance is expressely made conditional on assent to the different terms.

• (After subsection 1, if no written contract go to subsection 3).

• (If there is a written form, but with different terms, go to subsection 2).

o Subsection 2 - The additional terms are to be construed as proposals for addition to the contract.

• First question is, is deal between merchants?

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• If it is between merchants, additional terms become part of contract; unless

o The offer expressely limits acceptance to the terms of the offer.

o They materially alter the contract

o Notification of objection has already been given or is given within a reasonable time after notice of them is received.

o Knock out rule- used for different or additional terms that materially alter the contract (dicker terms).

• If it is not between merchants, additional terms must be unequivocally accepted.

• The additional terms are to be construed as proposals for addition to the contract.

o Subsection 3 - Conduct by both parties which recognize the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract.

• If it is found a contract exists, use knockout rule to eliminate different and additional terms. Use gap filler in U.C.C. 2-300s.

o Boiler plate terms- preprinted terms, general to all deals.

o Dicker terms- specific to each offer. Ex. Price.

- 2-209- Modification, Rescission, and Waiver

o § 1- an agreement modifying a contract needs no consideration to be binding.

• (rejects common law “pre-existing duty” rule.

o § 2- A signed agreement that states modification can only be done in writing.

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o § 3- The requirements of the statute of frauds (2-201) must be satisfied if the contract as modified is within its provisions.

o §4- Waiver- waiving §2 and §3 if they at issue. Could also argue estoppel.

- 2-302- Unconscionable Contract or Clause-

o If a court finds as a matter of law a contract or any clause to have bee unconscionable at the time it was made, a court may find,

• Refuse to enforce entire K.

• Refuse to enforce on unconscionable portions of K.

• Limit application of any unconscionable clause.

o Court may look at

• Commercial setting, purpose, effect to determine unconscionability.

o Parties have a reasonable time to prove that it is not unconscionable.

- 2-306- Output, Requirements, and Exclusive Dealing Contracts-

o Output K- meausres the contract by the seller’s output. (“total production” contract). Don’t need quantity.

o Requirement K- measures quantity requirement of the buyer. (“total needs” contract).

o Good faith requirement- estimations must be made in good faith.

o Agreement of exclusive dealings creates the “best efforts” test.

• Seller- best effort to supply goods.

• Buyer- best efforts to promote the sale of goods.

- 2-309- Absence of specified time provisions-

o The time for shipment or delivery shall be in a reasonable time unless otherwise stated.

o A party terminating the K must offer other party a reasonable notification of termination (must actually be received for it to be effective).

Warranties-

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- 2-313- Express Warranties by Affirmation-

o Express warranty created when- Basis of the Bargain- Affirmation of fact- If the seller (doesn’t have to be a merchant, but can be) states a fact about the good which causes the person to buy it, it is presumed that this was the basis of the bargain. The “buy” is the “basis of the bargain”.

• Description or model, or promise, or affirmation of fact all create this implied warranty

• No Need for reliance.

• Some jurisdictions (MASS) do require a showing of fault.

o Puffing and exaggeration- are within reason for the seller. These are not breaches of warranty. So ambiguous that a reasonable buyer would not rely.

- 2-314- Implied Warranty of Merchantability-

o Must be a merchant who deals with specific goods of the subject matter of the purchase.

• Ex. Car salesman.

o Goods fit for ordinary purposes.

• Applies to food and/or drink sold and consumed on or off location.

• Implied warranty- not written or stated, but implied.

• Ex. bought gun and it does not fire.

o “super merchant” warranties arise- main one- The goods are fit for ordinary purposes.

• *just have to be a merchant who sells things.

- 2-315- Implied Warranty- Fitness for a Particular Purpose- (doesn’t have to be a merchant but can be).

o There is an implied warranty that the goods sold shall be fit for a particular purpose, if

• Buyer is looking for a good for a particular purpose.

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• Seller knows this and knows buyer is relying on his knowledge and buyer actually relies on seller to make the right decision for them.

• Hypo - Hunting elephant and seller sells hunter a .22.

o while the gun will shoot (sufficing 2-314), it will not kill an elephant.

- 2-316- Disclaiming Warranties-

o 1) Seller can’t disclaim expressed warranties. (can exclude them from evidence under 2-202).

• Expess warranty- stated and definite in its terms.

• Ex. Bought gun and it does not kill elephant.

o 2) Seller can disclaim implied warranties of merchantability by written or oral.

• Can also be excluded or modified by course of performance, course of dealing, or usage of trade.

• Can disclaim implied warranties using informal language.

• If the buyer inspects and doesn’t find anything wrong with goods, no implied warranty.

• Language such as “as is” or “with all faults” means the buyer should know that there are no implied warranties.

- 2-318- Horizontal Privity- third part benefit of warranties. If someone is not the purchaser of a product, can they step into the purchasers shoes and have access to warranties afforded to the purchaser. Must show a causal connection between cause of action and injury.

o Alternative A- express or implied warranties by the seller extend to any natural person who is in the family household or who is a guest if it is reasonable that person to come into contact with the good that injured them.

o Alternative B- express or implied warranties by the seller extend to any natural person who may be reasonably expected to use, consume, or be affected by the goods and who is injured.

o Alternative C- express or implied warranties extend to any person who may be reasonably expected to use the product and is injured by it. This extends to cover damage to property also.

o Vertical Privity - The chain of distribution between the manufacturer, the distributor, and the buyer.

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• Can the buyer skip a step and sue the manufacturer directly for breach of non-conforming good, even though there is no contractual obligation.

- 2-719- Limitation of Remedies- remedies available to buyer in the event of a suit.

• Ex. Replacing non-working goods.

o § 1- a) parties can agree to limit remedies.

• B) Use of remedy is optional unless expressly agreed to.

o § 2- limitation seemed reasonable at the time but has become unreasonable.

• Buyer can get consequential damagaes if seller breaches.

• Buyer can get incidental damages if goods remedy fails in its essential purpose.

• Hypo - motorcycle repair.

o § 3- Consequential damages may be limited (can disclaim) or excluded unless

• Independent view- must show that the disclaimer was unconscionable, in order to disregard.

• Dependent view- if failure of remedy is failure in its essential purpose, buyer can go after all available remedies

• Can disregard disclaimer of consequential damages.

- 2-707- Shopping List of Remedies-

o 2) a person in the position of the seller may withhold or stop delivery (2-705) and recover incidental damages (2-710).

Buyers Right to Reject-

- 2-601- Perfect Tender Rule- When goods or tender of delivery fail in any respect to conform to the contract, buyer has the right to reject. Buyer may

o a) reject the whole

o b) accept the whole

o c) accept any commercial unit or units and reject the rest

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• The standard on the seller is perfection. Can reject if goods are anything less than perfect.

• Burden on seller to prove perfection.

• *as a buyer, you want to be at the rejection stage in 2-601 because;

o burden of proof on seller.

o seller’s standard is “perfection”.

- 2-509- Risk of Loss in Absence of a Breach- Risk always begins with seller, determines what point if any, it shift to the buyer.

o § 1- in this sections when Seller is required or authorized to use an independent shipping company.

• Shipment Contract-

• Shipment Contract- If using an independent carrier, the risk of loss shifts to the buyer once the goods are duly delivered (2-504).

• Destination Contract- Goods are in a warehouse-

• Destination Contract- risk of loss shifts once the goods are tendered.

o § 2- In this section when good are being bailed and not shipped.

• When Risk of loss shifts when the bailee acknowledges the buyers rights to come and possess the goods.

o § 3- “left over clause”

• Risk of loss shifts, when the seller is a merchant, when actual possession occurs.

• Otherwise the risk passes to the buyer on tender of delivery.

o § 4- The parties can otherwise agree. They can decide what the terms for the risk of loss will be.

- 2-510- Risk of loss - where there is a breach

o Seller’s Breach-

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• § 1- If buyer has the right to reject under 2-601(perfect tender rule), risk of loss is on seller until Cure (2-508) or acceptance of goods.

• Installment contract

• § 2- Buyer rightfully revokes under 2-608, risk of loss is on seller. Seller responsible for gap in insurance coverage.

• Rightful revocation.

o Buyer’s Breach-

• § 3- Buyer absorbed risk- liable for whole casualty.

• Time issue- whether buyer breaches before or after risk of loss shifts.

- 2-503- Making goods readily available- Tender

o This is the point of tender in a destination contract.

o 1) Tender of delivery requires that the seller put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery.

• a) tender must be at a reasonable hour and must be kept available for the period reasonably necessary to enable the buyer to take possession.

• b) unless otherwise agree, the buyer must furnish facilities reasonably suited to the receipt of the goods.

o 4) where goods are in possession of a bailee and are delivered without being moved

• a) tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer’s right to possession of the goods; but

• b) risk of loss remains on the seller until buyer has actual possession.

o Comment 5- makes a shipment contract the normal contract and a destination contract the variant form.

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- 2-504- Due Delivery-

o Seller must comply to shift risk of loss to buyer.

• Deliver goods to carrier.

• Must promptly deliver the necessary forms for buyer to pick up purchandise.

• Must promptly notify the buyer that the goods have been shipped. So buyer can get insurance.

- 2-507- Effect of Seller ’ s Tender/ Delivery on Condition - o Tender of delivery is a condition to the buyer’s duty to accept the goods

and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the K.

o Where payment is due and demanded on the delivery to the buyer of goods or document of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.

o Simultaneous execution- goods and money exchanged at the same time, if not there is a breach.

Exceptions to 2-601 Perfect Tender Rule- (6 exceptions)

- 2-718- Parties decide on liquidated damages.

o

- 2-719- Limitation of remedy- (minimum adequate remedy)

o §2) circumstances cause an exclusive or limited remedy to fail of its essential purpose

o §3)

- 2-508- Cure- if goods are delivered early and they are non-conforming, seller has until the date they were supposed to be delivered to fix the problem, before buyer can reject.

o Seller must notify buyer of intent to cure.

o If seller thinks goods are conforming but they are not- buyer has to give a reasonable opportunity to cure. (decided on good faith).

- 2-612- Installment Contract-

o §1- delivery of goods in separate lots must be separately accepted.

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o §2- Can reject any installment that substantially impairs the value of the installment and cannot be cured. Material breach. (LOOKED AT OBJECTIVELY)

- 2-504- Shipment contract-

o Can only reject if there is a material delay or loss.

• Must have a material delay or loss to be an exception to 2-601.

- Common law- de minimis rule- such a small issue, court won’t entertain suit.

- 2-606- Acceptance of Goods-

o 1) acceptance occurs when the buyer

• a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will retain them in spite of their non-conformity.

• b) buyer fails to make an effective rejection, such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them

o 2) acceptance of a part of any part of any commercial unit is acceptance of that entire unit.

o once goods are accepted, these are the last three options.

• Can no longer reject.

• Can revoke acceptance under 2-608.

• Need substantial impairment.

• Very difficult to do this.

• Can sue for damages under 2-714 § 2.

- 2-602- Rejection of Goods-

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o §1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.

o §2) (b) if buyer has physical possession of goods when he rejects them, he has a duty to hold them with reasonable care for a sufficient time to permit the seller to remove them.

- 2-608- Revocation of Acceptance-

o §1) buyer may revoke acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it

• On the reasonable assumption that non-conformity would be cured and it has not been seasonably cured, or

• Without discovery of the non-conformity if his acceptance was induced by the difficulty of discovery of the seller’s assurances.

• If buyer makes a MODIFICATION = can no longer revoke.

• Substantial impairment defined.

• Evaluated subjectively.

• Latent defect.

• Assured there would be cure.

• Substantial change traced to the defect.

- 2-612- Installment contract breach-

o §1) One which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause “each delivery is a separate contract” or its equivalent.

o §2) Buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of the installment and cannot be cured or if the non-conformity is a defect in the required documents.

• Buyer must accept if non-conformity does not fall within this section and the seller assures cure.

o §3) non-conformity to one or more installments while impairs the value of the whole contract is a breach of the whole contract.

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• Aggrieved party reinstates the contract if he accepts the non-conforming good and fails to notify seller of cancellation, or

• Brings an action with respect to only past installments or demands performance as to future installments.

- 2-319- F.O.B.- Free on Board-

o §1 (a) – FOB place of shipment

o (b) – FOB place of destination

Remedies for Breach-

1. Buyer ’ s Breach -

a. 2-703 (2-711)- shopping list for potentially available remedies for sellers.

b. 2-706 (2-712)- Seller ’ s resale of goods - if buyer refuses goods, seller can resell.

i. The seller may recover the difference between the resale price and the contract price, together with any incidental damages.

c. 2-708 (2-713)- Seller ’ s damages for non-acceptance of repudiation -

i. §1- damages for non-acceptance or repudiation- if no sale, seller gets difference between market price and contract price, plus incidental damages.

1. Direct damage value.

ii. §2 (2-715)- loss of profits-

1. If measure of damages is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit which the seller would have made have made from full performance by the buyer, together with incidental damages.

a. Seller gets what they would of made on the sale, plus incidental damages. (bought bike for $15,000, would of sold it for $20,000. Buyer owes seller $5,000 + incidental).

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b. Ex. Motorcycle from “sons of anarchy”- could of sold two, only sold one.

d. 2-709 (2-716)- Action for the Price-

i. 1) When buyer fail to pay, the seller may recover the price

1. Of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer.

ii. 2) When seller sues, if he is able to resell the goods he may do so at any time prior to the collection of his judgment.

iii.Narrow circumstances.

e. 2-710- Seller ’ s incidental damages

i. Include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care, and custody of goods after the buyer’s breach, in connection with return or resale of the goods or otherwise resulting from the breach.

1. Ex. storing the goods.

2. Seller ’ s Breach -

a. 2-711 (2-703) - remedies for buyers because of seller ’ s breach -

i. Used when seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes.

b. 2-712 (2-706)- cover-

i. The buyer can choose to “cover” by making in good faith and without unreasonable delay any reasonable purchase.

ii. Buyer may recover from selleras damages the difference between the cost of cover and the contract price together with any incidental or consequential damages.

1. Only buyers get consequential damages (loss of profit because of defective goods).

c. 2-713 (2-708)- Damages for non-delivery or repudiation

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i. Buyer gets the difference between the higher market price and the contract price.

1. Also incidental and consequential damages.

d. 2-714- Buyer ’ s damages for breach in regard to accepted goods -

i. 1) buyer accepts and gives notice under 2-607, he may recover for any non-conformity of tender the loss resulting in the ordinary course of events from the seller’s breach

ii. 2) measure of damages- the difference between the value of the goods accepted and what the value of the goods would have been conforming.

iii.3) incidental and consequential damages may also be recovered under 2-715.

e. 2-715 (2-708 §2)- Buyer ’ s incidental and consequential damages

i. §1- incidental damages

1. Include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected.

ii. §2- consequential damages-

1. Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover

2. Injury to person or property proximately resulting from any breach of warranty.

a. If could have covered and didn’t, damages not available.

f. 2-716 (2-709)- specific performance-

i. 1) may be used where the goods are unique.

ii. 2) may include such terms of conditions as to payment of the price, damages, or other relief as the court may deem just.

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iii.3) buyer has a right to replevin if after reasonable effort he is unable to effect cover for such goods.

- 2-609- Right to Adequate Performance-

o §1- When reasonable grounds for insecurity arise with respect to performance of either party, the other may in writing demand adequate assurance of due performance and until he receive such assurance may suspend any performance if commercially reasonable.

o §2- between merchants the reasonableness of grounds for insecurity shall be determined according to commercial standards.

o §4- after recieveing a justified demand, failure to provide assurance within a reasonable time not exceeding 30 days, is a repudiation of the contract.

- 2-612- Installment Contract Breach-

o §2- the buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value and cannot be cured or if the non-conformity is a defect in the required documents. If the non-confromity does not fall within §3 and the seller gives adequate assurance of its cure the buyer must accept that installment.

- 2-210- Delegation of Performance; Assignment of Rights-

o Party can delegate duties/assign rights to another party unless otherwise stated.

o §6- The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without predjudice to his rights demand assurances from the assignee.

• Two parties enter into contract to provide a service.

• One party delegates to another to provide that service.

• Other party can demand adequate assurance.

- 2-610- Anticipatory Repudiation-

o Breach prior to the date set for performance, aggrevied party may,

o A) await performance for a commercially reasonable time,

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• Issue with mitigation of damages

• Issue with commercially reasonable time

• Flux market

• Steady market

o B) resort to remedies under 2-703 or 2-711.

- 2-611- Retraction of Anticipatory Repudiation-

o §1- Until the repudiating party’s next performance is dues, he can retract his repudiation unless the aggrieved party has since cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.

o §2- Retraction may be done by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform.

o §3- Retraction reinstates the repudiating party’s rights under the contract. - 2-713- Buyer ’ s Damages for Non-delivery or Repudiation-

o The measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time the buyer learned of the breach and the contract price, together with any incidental damages.

o Market price is to be determined as of the place for tender, or in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

- 2-607- § 4- The burden of proof is on the buyer to establish any breach with respect to goods accepted.

- 2-609- Right to Adequate Assurance of Performance- o §1- When reasonable grounds for insecurity arise with respect to the

performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.

o §4- after receiving a justified demand for assurance, the party must provide, within a reasonable time not exceeding 30 days, that assurance of due performance. Failure to do so results in repudiation of the contract.

- 2-612- §2- If the non-conformity does not fall within subsection 3 and the seller gives adequate assurance of its cure, the buyer must accept that installment.

- 2-210- Delegation of Performance; Assignment of Rights- o §6- the other party may treat any assignment which delegates performance

as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor, demand assurances from the assignee.

- 2-610- Anticipatory repudiation- o When either party repudiates the contract with respect to performance not

yet due and the loss of which will substantially impair the value of the contract, the aggrieved party may

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• A) For a commercially reasonable time await performance by the repudiating party.

• Can go straight to breach remedies. - 2-611- Retraction of Anticipatory Repudiation-

o §1- until the repudiating party’s next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation, cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.

o §2- Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but also must include any assurance justifiably demanded.

o §3- Retraction reinstates the repudiating party’s rights under contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

- 2-713- Buyer ’ s Damages for non-delivery or Repudiation- o §1- With respect to proof of market price, the measure of damages for

non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price, together with any incidental and consequential damages, BUT less expenses saved in consequence of the seller’s breach.

o §2- Market price is determined as of the place of tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

- 2-615- Excuse by Failure of Predisposed Conditions- o Comment 4- increased cost alone does not excuse performance, unless the

rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. (rise or collapse in market is not enough).

• A severe shortage of raw materials or of supplies due to something such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply... if this prevents the seller from securing necessary supplies for his performance, it will be in the contemplation of this section.

o Comment 5- if a particular source of supply is exclusive under the agreement and fails through casualty. The same is true where a particular source of supply is shown by the circumstances to have been contemplated by the parties at the time of contracting. There is NO EXCUSE, unless the seller has employed all due measures to assure himself that his source will not fail.

- 2-511- Tender of Payment by Buyer/ Payment by Check- o Unless otherwise agreed tender of payment is a condition to the seller’s

duty to tender and complete any delivery. o Tender of payment is sufficient when made by any means or in a manner

current in the ordinary course of business, unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.

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o Payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.

- 2-307- Delivery in Single Lots or Several Lots- o Unless otherwise agreed, all goods called for by a contract for sale must be

tendered in a single delivery and payment is due only on such tender, but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

EXAM TIPS- - Write in paragraphs with headings. - EXPLAIN- assume Prof knows nothing about the subject but is reasonably

intelligent enough to understand it once it is explained.

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