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CONTRACTS
TABLE OF CONTENTS
I.
APPLICABLE LAW ……………..………….……………………………………….....1
A. CONTRACT INVOLVING SALE OF GOODS: UCC ………………….……..1
B. IF BOTH PARTIES ARE MERCHANTS: UCC ………………………….……1
C. CONTRACT INVOLVING SERVICES OR NON-SALE OF GOODS: ….….1
COMMON LAW ………………………………………………………………….1
D. PREDOMINANT PURPOSE TEST ……………………………………….……1
II.
IS THERE A VALID CONTRACT? …………………………………………………..1
A. FORMATION IS NOT AN ISSUE …………………………………………...….1
B. WHERE FORMATION IS AN ISSUE ……………………………………….....1
1. Offer …………………………………………………………………………..1
2. Termination of the Offer …………………………………………………….2
3. Acceptance ……………………………………………………………………4
4. Consideration …………………………………………………………..…….6
C. DEFENSES TO FORMATION …………………………………………...……..7
1. Absence of Mutual Assent ……………………………………………..…….7
D. DEFENSES TO ENFORCEMENT ………………………………………..…….9
1. Statute of Frauds ……………………………………………………………..9
2. Unconscionability ……………………………………………………...……10
3. Lack of Capacity ……………………………………………………………10
III.
MODIFICATION …………………………………………...…………………………11
A. NEW CONSIDERATION ………………………………...…………………….11
1. Common Law ……………………………………………….………………11
2. UCC …………………………………………………………………...……..11
B. ORAL MODIFICATIONS ………………………………………………..…….11
1. Statute of Frauds ……………………………………………………………11
C. BY OPERATION OF LAW ……………………………………………...……..12
1. Destruction or Injury to Identified Goods ……………………………..….12
2. Failure of Agreed-Upon Method of Transportation ………………..…….12
IV.
WHAT ARE THE TERMS OF THE CONTRACT? …………………………..……12
A. PAROL EVIDENCE RULE …………………………………………….………12
1. Admissibility of Prior or Contemporaneous Agreements ………………..12
B. AMBIGUITY …………………………………………………………………….13
V.
WARRANTIES: UCC SPECIFIC PROVISIONS ………………………..…………13
A. WARRANTIES ……………………………………………………….…………13
1. Warranty of Title ………………………………………………...…………13
2. Express Warranty ……………………………………………………..……14
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B
C.
D.
E.
3. Implied Warranty of Merchantability …………………………………….14
4. Implied Warranty of Fitness for a Particular Purpose …………………..15
OBLIGATIONS TO REMOTE PURCHASERS ……………………...………15
1. Packaged with a Record ……………………………………………………15
2. Communication to the Public ………………………………………...…….15
THIRD PARTIES …………………………………………………………...…..16
VOUCHING IN ……………………………………………………………….…16
FEDERAL CONSUMER PRODUCT WARRANTIES LAW ……………..…16
VI.
THIRD PARTY BENEFICIARY: ASSIGNMENT, DELEGATION & RIGHTS ..16
A. GENRALLY ……………………………………………………………..………16
B. THIRD PARTY BENEFICIARY ……………………………………………....16
1. Step 1: Intended vs. Incidental Beneficiary ……………………………….16
2. Step 2: Creditor vs. Donee Beneficiary ………………………………..…..16
3. Step 3: When does the Beneficiary Acquire Contract Rights ………...….17
4. Step 4: Who can sue Whom? …………………………………………..…..17
C. ASSIGNMENT OF CONTRACT RIGHTS …………………………….……..17
1. Assignment Limitations …………………………………………………….17
2. Non-assignment Provisions ………………………………………..……….17
3. Is the Assignment Revocable? ………………………………………...……18
4. Who can Sue Whom? ……………………………………………...………..18
5. Successive Assignments ………………………………………………….…19
D. DELEGATION OF CONTRACT DUTIES ……………………………...……19
1. Requirements …………………………………………………………..……19
2. Rights and Liabilities ………………………………………………….……19
E. UCC THIRD-PARTY RIGHTS ………………………………………………..19
1. Entrustment …………………………………………………………………19
2. Voidable Title ………………………………………………………….……20
3. Thief Cannot Pass Good Title …………………………………………...…20
VII.
HAVE THE TERMS OF THE CONTRACT BEEN PERFORMED? …………..…20
A. A PROMISE OR CONDITION ………………………………………………...20
1. Precedent ……………………………………………………………...……..20
2. Concurrent ……………………………………………………………….….20
3. Subsequent ………………………………………………………….……….21
4. Express Conditions …………………………………………………………21
5. Implied in Fact Conditions …………………………………………………21
6. Constructive Conditions ……………………………………………..……..21
B. HAVE THE CONDITIONS BEEN SATISFIED OR EXCUSED? ……..……21
1. Failure to Cooperate …………………………………………………..……21
2. Actual Breach ………………………………………………………….……21
3. Right to Demand Assurances …………………………………………..…..21
4. Anticipatory Repudiation …………………………………………………..21
5. Substantial Performance ……………………………………………..…….22
6. Disability of Contract …………………………………………………...…..22
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C.
VIII.
7. Waiver or Estoppel ………………………………………………………....22
8. Impossibility, Impracticability, or Frustration ……………………...……23
HAS THE DUTY TO PERFORM BEEN DISCHARGED? ………………….23
1. Performance or Tender of Performance ……………………………….….23
2. Condition Subsequent ……………………………………………………....23
3. Illegality ……………………………………………………………….……..23
4. Impossibility/Impracticability/Frustration …………………………..……23
5. Mutual Rescission ……………………………………………………….….24
6. Novation …………………………………………………………………..…24
7. Release/Covenant Not to Sue ……………………………………………....24
8. Accord and Satisfaction ……………………………………………….……24
BREACH AND REMEDIES ………………………………………………………….25
A. GENERAL ……………………………………………………………………….25
1. Breach ……………………………………………………………………….25
2. Damages ……………………………………………………………………..25
3. Restitution ………………………………………………………………...…26
4. Specific Performance …………………………………………………….…26
5. Defenses ………………………………………..…………………………….27
6. Rescission ……………………………………..……………………………..28
B. UCC REMEDIES ………………………………………………………………..28
1. UCC Risk of Loss in the Absence of Breach ……………...……………….28
2. UCC Risk of Loss upon Breach ……………………………………………28
3. Buyer's Remedies ………..………………………………………………….29
4. Buyer's Damages …………………………………………………………....30
5. Seller's Remedies ……………………………………………………...…….30
6. Seller's Damages ………………………………………………………….…30
7. Liquidated Damages ………………………………………………….…….31
8. Limitations on Damages ………………………………………………..…..31
9. Statute of Limitations …………………………………………………..…..32
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CONTRACTS
I. APPLICABLE LAW
A. CONTRACT INVOLVING SALE OF GOODS: UCC
The UCC applies to transactions in moveable goods.
B. IF BOTH PARTIES ARE MERCHANTS: UCC
Additionally, a number of article 2 provisions differentiate between merchants and nonmerchants. A merchant is defined as one who regularly deals in goods of the kind sold, or
who otherwise by her profession holds herself out as having a special knowledge or skill as
to the practices or goods sold.
C. CONTRACT INVOLVING SERVICES OR NON-SALE OF GOODS: COMMON
LAW
The common law governs contracts for services.
D. PREDOMINANT PURPOSE TEST
If the transaction involves goods and services, determine the predominant purpose of the
contract and apply the appropriate law.
II. IS THERE A VALID CONTRACT?
A. FORMATION IS NOT AN ISSUE
In your essay, provide an introductory paragraph such as: "There appears to be a valid
contract. The terms are sufficiently certain and definite. Parties - Monica and Rachel; price 1$ per widget; subject matter - 100 widgets per month; time for performance - every
Monday. There was acceptance - Rachel agreed to all the terms of the offer and
consideration was supplied by the bargained for exchange of widgets for money.
B. WHERE FORMATION IS AN ISSUE
In order for there to be a valid contract there must be mutual assent of the parties1,
consideration or a substitute to support the contract, and there must be no valid defenses to
formation.
1.
Offer
To be valid, an offer must: (1) be an expression of promise, undertaking, or
commitment to enter into the contract; (2) contain definite and certain terms; and (3) be
communicated to the Offeree.
a.
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Manifestation of Present Intent
In other words: offer and acceptance.
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The test for intent is objective, what a reasonable person would understand from
the words or conduct of the Offeror in the given circumstances. The intent must be
to enter a contract and not merely to negotiate. Statements reasonably understood to
be in jest, anger or the result of duress or intoxication cannot be offers.
b. Definite and Certain Terms
Enough of the essential terms of a contract must be provided to make it capable of
being enforced and make performance relatively certain: (1) identification of the
parties; (2) subject matter; (3) time for Performance; and (4) price.
(1) Requirement/Output Contracts
Offers that designate quantity by requirement or output2 are certain since these
quantity terms can be objectively determined. However, if it is not an output
contract, quantity must be included to create a sales contract.
(2) UCC Sale of Goods
Agreements for the sale of goods controlled by the UCC will not fail due to
the omission of an essential term if: (1) the parties make a contract; (2) there is
a reasonably certain basis for remedy in the event of breach; and (3) parties
exercise good faith3.
Exception: The quantity term will not be implied by the UCC.
c.
2.
Communication Requirement
The offer must be communicated to the Offeree.
Termination of the Offer
An offer may be accepted only as long as it has not been terminated. It may be
terminated by: (1) an act of either party; or (2) operation of law.
a.
Termination by Act of Parties
The Offeror terminates an offer if she: (1) directly communicated the revocation; or
(2) acts inconsistent with continued willingness to maintain the offer; or (3) the
Offeree receives correct information of this from a reliable source. Offers made by
publication may be terminated only by use of comparable means of publication.
(1) Effective When Received
Revocation is effective when received by the Offeree, but publication of
revocation only when published.
(2) Offeror's Power to Revoke
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See: UCC 2306.
That is: honest in fact in the conduct of the transaction.
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Offers not supported by consideration or detrimental reliance can be revoked at
will by the Offeror, even if she has promised not to revoke for a certain period
of time.
(a) Limitations
The Offeror's power to revoke is limited if:
1) Common Law
There is an option contract supported by consideration.
2) U.C.C. Firm Offer
A written offer signed by a merchant giving assurances that is will be
held open will be irrevocable, without consideration, for the stated
period of time of for a reasonable period of time if no period is
expressly stated. The period of irrevocability may not exceed three
months.
3) Detrimental Reliance
The Offeror has detrimentally relied on the offer and the Offeror
could reasonable expect such reliance; or
4) Unilateral Contracts
In the case of unilateral contract, the Offeree has embarked on
performance4.
b. Termination by the Offeree
(1) Rejection
An Offeree may reject an offer: (1) expressly; or (2) by making a
counteroffer5.
(a) Effective When Received
A rejection is effective when received. Once an offer has been rejected,
the original offer is not valid. However, if the Offeror restates the offer
after it has been rejected, the Offeree has the power to accept the new
offer.
(b) Rejection of Option
Rejection of an option does not terminate the offer. The Offeree is still
free to accept the offer within the option period unless the Offeror has
detrimentally relied on the Offeree's rejection.
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This is usually construed as an option contract giving the Offeree reasonable time to complete performance.
As distinguished from mere inquiry. It serves as a rejection and a new offer.
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(2) Lapse of Time
An offer may be terminated by the Offeree's failure to accept within the time
specified by the offer or within a reasonable period if no deadline was
specified.
c.
Termination by Operation of Law
The following events will terminate the offer:
(1) Death or insanity of either party.
(2) Destruction of the contracts proposed subject matter.
(3) Supervening illegality.
3.
Acceptance
Valid acceptance of a bilateral contract requires: (1) an Offeree with the power of
acceptance; (2) unequivocal terms of acceptance; and (3) communication of acceptance.
a.
Who May Accept
The person to whom the offer was addressed has the power of acceptance, as does a
member of the class to whom the offer was addressed.
b. Acceptance must be Unequivocal
(1) Common Law
Acceptance must mirror the offer's terms, neither omitting nor adding terms.
Otherwise, it may be a counter offer.
(2) U.C.C
At common law for an acceptance to be effective it must conform to the offer,
otherwise it will serve as a counter offer. Under the UCC, however, an
acceptance will be effective even if additional or different terms are contained
therein.
(a) Additional Terms
Additional terms are construed as proposed additions to the contract and
must be separately accepted to modify the original offer.
1) Between Merchants
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If both parties to the contract qualify as merchants, the new terms do
become part of the contract unless: (1) the original offers objected in
advance to the addition of terms; (2) if the original Offeror objects to
the new terms within a reasonable time after notice of them is
received; (3) if the new terms would materially alter the original
terms6.
(b) Different Terms
An acceptance form that contains different terms than the offer is
considered an acceptance and a contract will be formed unless the Offeror
specifically limits the acceptance to the terms of the offer 7. There is a split
of authority, however, over whether different terms become part of the
contract.
1) California Law
Under California law terms in offer prevail over different terms in
acceptance if materially different.
2) Majority Law
Under majority law conflicting terms in the offer and acceptance are
knocked out of the contract and are replaced by UCC gap-filler
provisions. If it concerns a major provision no contract is formed.
3) Minority Law
Discrepant terms in the acceptance are ignored.
(c) Open Terms
The fact that one or more terms are left open8 does not prevent the
formation of a contract if the parties intended such and there is a
reasonable basis for giving a remedy. The court can supply reasonable
terms for those that are missing.
(d) Performance
If the parties have exchanged non-matching forms and begin to perform, a
contract has been created. The contract will consist of the terms on which
the parties agree, plus supplementary terms on which the parties agree,
plus supplementary terms supplied by the UCC where the parties are
silent.
c.
Communication of Acceptance
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For example: a disclaimer of warranties, not an arbitration clause.
If so, it is treated as a counter offer.
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Including price.
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Acceptance is judged by an objective reasonable person standard. The Offeree's
subjective state of mind is irrelevant. The modern rule and the UCC permit
acceptance by any reasonable means unless the Offeror unambiguously limits
acceptance to particular means.
(1) Mailbox Rule
Under the mailbox rule, if the acceptance is by mail or similar means and it is
properly addressed and stamped, it is effective at the moment of dispatch. If it
is improperly sent, it will be effective on receipt.
(a) Limitations
The rule does not apply if: (1) the offer states that acceptance is not
effective until received; (2) if an option contract is involved9; (3) Offeree
sends rejection and then sends an acceptance whichever arrives first is
effective; (4) the acceptance is sent first then a rejection, the acceptance is
effective unless the rejection is received first and the Offeror detrimentally
relies on it.
(2) Acceptance without Communication
Acceptance without consideration, in a bilateral contract, may occur where: (1)
there is an express waiver of communication in the offer; (2) the offer requires
an act as acceptance; (3) the Offeree silently takes the offered benefits.
(3) Unilateral Contract
If the offer requires performance of the bargained for duties by the Offeree, it
contemplates a unilateral contract.
(a) Notice
Notice of performance is required to complete acceptance when: (1) the
Offeror requires it; or (2) the Offeror has no other way of learning that
performance has occurred, and the Offeree knows, or should know of this.
4.
Consideration
Courts will enforce a bilateral or unilateral contract only if it is supported by
consideration or a substitute for consideration. The parties must exchange something. In
the case of a bilateral contract, they exchange promises; thus each party incurs a
detriment and a benefit. In the case of a unilateral contract, they exchange a promise for
an act.
a.
Insufficient Consideration
(1) Gift
There is no bargain involved when one party gives a gift to another.
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Effective on receipt.
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(2) Past Consideration
A bargained for exchange cannot occur if one party is induced by a benefit
conferred by the other party prior to their present negotiation.
(3) Moral Consideration
A bargain does not occur if one party is induced to offer a promise or an act
due to a sense of moral obligation.
(4) Economic Adequacy
If there is evidence of fraud, undue influence or duress. If the promise is
clearly worthless or a token indicating the transaction is a disguised gift.
(5) Pre-Existing Duty
A promise or act is not adequate consideration of the party is already obligated
to perform it. The necessary detriment can exist if the party tenders some
additional performance or if unforeseen and substantial hardship has occurred
which will add to the burden of performance.
(6) Illusory Promise
A promise is not adequate consideration if the Promisor has retained unlimited
freedom to determine whether to perform or not. There is no legal detriment.
b. Substitute for Consideration
(1) Promissory Estoppel or Detrimental Reliance
Promissory estoppel is a sufficient substitute for consideration. The following
elements must be present: (1) the promisor should reasonably expect her
promise to induce action or forbearance; (2) of a definite and substantial
character; and (3) such action of forbearance is in fact induced.
(2) Specific Circumstances
An obligation discharged by law10 can be revived by a gratuitous promise
made in writing. A promise to perform an existing voidable duty is enforceable
without consideration.
C. DEFENSES TO FORMATION
1.
Absence of Mutual Assent
a.
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Mutual Mistake
For example: statute of limitations.
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A mistake by both parties is a defense if: (1) the mistake concerns a basis
assumption on which the contract was made: (2) the mistake has a material adverse
effect on the agreed-upon exchange; and (3) the adversely affected party did not
assume the risk of the mistake.
(1) Assumption of Risk
When the parties know their assumption is doubtful, the parties will be deemed
to have assumed the risk that their assumption was wrong.
b. Unilateral Mistake
Whether it be of identity, subject matter, or computation, a mistake by one party is
generally insufficient to made a contract voidable. However, if the non-mistaken
party knew or should have known of the mistake, the contract is voidable by the
mistaken party.
(1) Mistake by Intermediary
Where there is a mistake by intermediary, the mistake will usually be operative
as transmitted unless the party receiving the message should have been aware
of the mistake.
c.
Misrepresentation
If a party induces another to enter into a contract using fraudulent
misrepresentation11 or by using non-fraudulent material misrepresentation12 the
contract is voidable by the innocent party if she justifiably relied on the
misrepresentation.
(1) Fraud in Execution
If there is fraud in the execution, the contract is void rather than voidable.
d. No Consideration
See Supra.
e.
Illegality of Contract
If the consideration or subject matter of the contract is illegal, the contract is void.
(1) Exceptions
Exceptions include instances where: (1) the plaintiff is unaware of illegality
while the defendant knows; (2) the parties are not in pari delicto; (3) the
illegality is failure to obtain a license when the license is for revenue raising
purposes rather than protecting the public.
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12
That is: acts known to be untrue.
Asserting facts not known to be untrue that would induce a reasonable person to enter into a contract.
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If the only purpose behind the contract is illegal, the contract is voidable by a
party who is: (1) unaware of the purpose; or (2) aware but did not facilitate the
purpose and does not involve serious moral turpitude.
Remember an illegal purpose does not necessarily include illegal
acts.
D. DEFENSES TO ENFORCEMENT
1.
Statute of Frauds
A law in every state that requires certain types of documents to be in writing and signed
by the party to be charged (usually, the defendant in a lawsuit).
These agreements are promises: (1) in consideration of marriage; (2) that by their terms
cannot be performed within one year; (3) creating an interest in land; (4) by executors to
pay estates' debts out of their own pockets; (5) for the sale of goods for $500 or; (6)
acting as a surety for another party's debts13.
a.
Memorandum Requirements
The Statute is satisfied if the writing contains the following: (1) identity of the
parties; (2) contracts subject matter; (3) terms and conditions; (4) a recital of
consideration; (5) the signature of the party to be charged.
b. Removing the Contract from the Statute of Frauds
(1) Part Performance
Part performance of an oral land sale contract will permit equitable
enforcement of the contract.
(2) Detrimental Reliance
An oral contract is enforceable if Promisor represented that a writing would be
made, and the other party detrimentally relied on the representation.
(3) Full Performance
Full performance by one party of a multi-year oral contract in less than one
year makes the contract enforceable.
(4) Sale of Goods
Oral contracts for the sale of goods will be enforced under the UCC when the
merchant sends a written confirmation:
(a) Merchant Confirmatory Memos
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Mnemonic: mylegs.
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A written confirmation binds both parties if: (1) between merchants; (2) a
writing in confirmation of the contract and sufficient against the sender is
received14; (3) the party receiving it has reason to know of its contents;
and (4) the recipient does not object to it within 10 days of receipt, it will
bind recipient.
(5) Writing Not Required in the Following Situation
(a) Specially Manufactured Goods
Production of special goods has started and are not suitable for sale to
others in the ordinary course of business.
(b) Delivered Goods
Goods have been actually received and accepted, the contract is
enforceable, but not beyond the quantity accepted or paid for.
(c) Full Payment Received
Payment has been received by the Seller. Not enforceable beyond quantity
paid for.
(d) Admission
Admission of the contract's existence by the parties.
(e) Estoppel
Party has caused the other party to detrimentally rely on the oral promise
so that to deny enforcement would cause unconscionable injury or loss.
2.
Unconscionability
If a contract was unconscionable when made, the court may refuse to enforce it or limit
it to avoid unconscionable results. The test for unconscionability is whether, at the time
of execution, the contract or one of its provisions could result in unfair surprise and was
oppressive to a disadvantaged party.
3.
Lack of Capacity
a.
Minors
Contracts made by a minor can be disaffirmed or ratified upon reaching majority by
acts manifesting such intent. However, a minor can be bound by necessaries or
service contracts to the extent of reasonable value.
b. Mental Incompetence
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Signed by the party to be charged.
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Contract is void if entered into after adjudication of incompetence, and voidable if
entered prior to adjudication. However, if the person regains competence, can be
ratified or disaffirmed.
c.
Intoxication
Extreme intoxication places party in position or mentally incompetent.
III. MODIFICATION
A. NEW CONSIDERATION
1.
Common Law
For modifications to be valid, they need to be supported by additional consideration.
2.
UCC
Contract modifications sought in good faith are binding without consideration.
Contract modifications must meet the statute of frauds requirements if the contract as
modified is within the statute.
B. ORAL MODIFICATIONS
1.
Statute of Frauds
a.
Modification of a Written Contract
Modifications bringing the subject within the purview of the Statute of Frauds must
be in writing. Goods over $500 require modification to be in writing.
(1) Part-performance
Takes contract out of statute of frauds.
(2) Full Performance
Oral agreements that are fully performed by both parties need not be in
writing.
b. Writing Prohibiting Oral Modification
A provision that a written contract cannot be modified or rescinded except by a
writing is valid and binding. Where the no oral modification provision is provided
by a merchant to a consumer, it must be signed by the consumer.
c.
Waiver of the Writing Requirement
An invalid oral modification may serve as a waiver of a party's rights to enforce the
contract as written if one of the parties relied to her detriment on the modification.
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d. Written Confirmation UCC
Where there is an oral modification that is then followed by a written confirmation,
this will satisfy the Statute of Frauds under UCC 2201.
e.
Waiver of Condition
One having the benefit of a condition under a contract may indicate by words or
conduct that she will waive that condition and no consideration is required.
(1) Installment Contract
A waiver in an installment contract must be supported by consideration. If not,
the waiver can be revoked.
C. BY OPERATION OF LAW
1.
Destruction or Injury to Identified Goods
If goods are destroyed without fault of either party, before the risk of loss passes to the
buyer, the contract is avoided. For damaged goods, the buyer may elect to take goods
with a reduction in price. If the goods are destroyed or damaged after the risk of loss has
passed to the buyer, the buyer will bear the loss.
2.
Failure of Agreed-Upon Method of Transportation
If the agreed-upon delivery facilities become unavailable or commercially
impracticable, any commercially reasonable transportation must be tendered and must
be accepted.
IV. WHAT ARE THE TERMS OF THE CONTRACT?
A. PAROL EVIDENCE RULE
1.
Admissibility of Prior or Contemporaneous Agreements
Are not admissible to contradict, or modify a written agreement which was intended as
a full and final expression of the parties' bargain.
a.
Is the Writing Intended as a Final Expression?
Intent is a question of fact determined by:
(1) Face of the Agreement - Integration.
(2) All relevant evidence; or
(3) Existence of a merger clause.
b. Is the Writing a Complete or Partial Integration?
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After establishing that the writing was "final", determine if the integration was
complete or partial.
(1) If there is complete integration, it may not be contradicted or supplemented.
(2) If there is partial integration, it may be supplemented by proving consistent
additional terms.
(3) Test
Would parties similarly situated as were these parties to this contract naturally
and normally include the extrinsic matter in the writing?
(a) If yes, evidence of extrinsic matter not admitted
Exceptions
The terms of the agreement may be explained or supplemented by: (1)
consistent additional terms; (2) course of dealings; (3) usage of the trade
or business; (4) course of performance.
(b) If No, evidence of extrinsic matter admitted.
B. AMBIGUITY
If the contract includes an ambiguous term, the result depends on the parties' awareness of
the ambiguity. If neither or both parties aware the no contract unless both parties intended
the same meaning. If one party is aware a binding contract based on what the ignorant party
reasonably believed to be the meaning of ambiguous words, generally construed against
drafter.
V. WARRANTIES: UCC SPECIFIC PROVISIONS
A. WARRANTIES
Under the UCC there are four types of warranties: (1) warranty of title and against
infringement; (2) implied warranty of merchantability; (3) implied warranty of fitness for a
particular purpose; (4) express warranties.
1.
Warranty of Title
In a contract of sale, the seller warrants that she is conveying good title that is free of
liens.
a.
Modification or Exclusion
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A warranty of title may only be modified or excluded by: (1) specific language in
the contract; or (2) circumstances which give the buyer reason to know that the
seller does not claim title in herself or that the seller is only purporting to sell the
rights which she or a third person may have in the goods.
2.
Express Warranty
An affirmation of fact or promise made by the seller to the buyer in the course of
negotiations that relates to the goods and is part of the basis for the bargain creates
an express warranty that the goods will conform to the affirmation or promise.
a.
Statement of Fact or Promise
Description of the goods, samples and models may be sufficient to create an
express warranty.
b. Basis of the Bargain
The statement must have been part of the deal, the sort of thing that played some
part in the buyer's decision to buy. All statements become part of the basis of the
bargain unless good reason is shown to the contrary.
c.
Post-Contractual Affirmation
Post-contractual affirmations in fact become part of the basis of the bargain. It can
be deemed a modification of the contract, and will be effective without new
consideration.
d. Disclaimer
Words relevant to the creation of an express warranty and words negating or
limiting a warranty shall be construed as consistent whenever possible. Where that
is not possible, limitations of warranty will be ineffective.
If parol evidence is admitted, any disclaimer will be ineffective. If
parol evidence is not admitted, disclaimers will be effective.
3.
Implied Warranty of Merchantability
In every mercantile contract of sale where it is not expressly disclaimed, the law implies
a warranty that the goods shall be of merchantable quality. The UCC imposes the
implied warranty of merchantability only upon a seller who is a merchant with respect
to goods of that kind. There is an obligation of good faith in every sale transaction, so
that even a non-merchant seller may be held liable for failure to disclose a known
defect. Merchantability is defined as goods which would: (1) pass without objection in
the trade; (2) be of fair average quality; (3) fit for the ordinary purpose which goods are
used.
a.
Buyer's Specifications
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Where goods are conformed to the buyer's specifications the implied warranty is
waived.
b. Disclaimer
To exclude an implied warranty of merchantability, the language must mention
merchantability and be conspicuous if in writing.
4.
Implied Warranty of Fitness for a Particular Purpose
If a seller has reason to know of the particular use of the goods contemplated by the
buyer and is also aware that the buyer is relying on the seller's judgment to select
suitable goods, then an implied warranty of fitness for a particular purpose arises.
a.
Reason to Know
Apply an objective test.
b.
Particular Purpose
Will do something different from their ordinary purpose.
c.
Buyer's Reliance Essential
The buyer must in fact rely on the seller's superior skill or judgment as part of the
transaction for the warranty of fitness for a particular purpose to apply.
d. Disclaimer
To exclude an implied warranty of fitness for a particular purpose, the exclusion
must be in writing and must be conspicuous. To exclude all implied warranties,
language must be clear. All implied warranties may be excluded by the use of
language which calls the buyer's attention to the exclusion of warranties and makes
it clear that there are no implied warranties.
e.
Buyer Inspection
If the buyer inspects the goods or a sample model before entering the contract or
refuses to examine the goods, there is no implied warranty of fitness.
B. OBLIGATIONS TO REMOTE PURCHASERS
15
1.
Packaged With a Record
A seller has an obligation to a remote purchaser15 that new goods sold or leased that are
packaged with a record making an affirmation of fact or remedial promise relating to
the goods, will conform thereto. Knowledge by a buyer is presumed when the goods are
packaged regardless of whether it is actually read.
2.
Communication to the public
But not an immediate buyer.
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With regards to new goods, if an advertisement to the public provides an affirmation of
fact or promise relating to the goods and the remote purchaser enters into a transaction
with knowledge of and with the expectation that the goods will conform thereto, the
seller has an obligation to make the goods conform unless a reasonable person would
not believe the affirmation or remedial promise. The burden if on the remote buyer to
establish knowledge.
C. THIRD PARTIES
In most states, the seller's warranty extends to any natural person who is in the family or
household of the buyer or who is a guest in her home if it is reasonable that such a person
may use, consume, or be affected by the goods, and she suffers personal injury because of
the breach of warranty.
D. VOUCHING IN
If a reseller is sued for indemnity, breach of warranty etc., the reseller can give the seller or
other party notice of the suit. If that party does not come and defend, the party will be bound
by whatever determination of fact is made that is common to the litigants.
E. FEDERAL CONSUMER PRODUCT WARRANTIES LAW
If a consumer product manufacturer issues a full warranty, implied warranties cannot be
disclaimed. If a limited warrant is issued, implied warranties cannot be disclaimed or
modified, but they can be limited in duration to the length of the limited warranty.
VI. THIRD PARTY BENEFICIARY:
ASSIGNMENT, DELEGATION, RIGHTS
A. GENERALLY
Following the valid formation of a contract, strangers to the agreement may be found to
have rights or obligations traceable to the contract. Third Party beneficiary rights arise at the
formation of the contract. Assignment of rights and delegation of duties occur due to actions
taken after formation.
B. THIRD PARTY BENEFICIARY
A contract between two parties in which performance is to be rendered to a third person, for
whose benefit the contract was made.
1.
Step 1: Intended vs. Incidental Beneficiary
Only intended beneficiaries have contractual rights, not incidental beneficiaries. In
determining whether a beneficiary is intended, the court will consider whether the
beneficiary: (1) is identified in the contract; (2) receives performance directly; or (3) has
some relationship with the promise to indicate intent to benefit.
2.
Step 2: Creditor vs. Donee Beneficiary
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There are two types of intended beneficiaries: (1) a creditor16; and (2) a donee17.
3.
Step 3: When does the Beneficiary Acquire Contract Rights?
A third party can enforce a contract only when her rights have vested. This occurs when
she: (1) manifests assent to a promise in the manner requested by the parties; (2) brings
a suit to enforce the promise; or (3) materially changes position in justifiable reliance on
the promise.
4.
Step 4: Who Can Sue Whom?
a.
Third-Party Beneficiary vs. Promisor
The third-party beneficiary has the same rights of enforcement for breach against
promisor as does promisee. The third-party beneficiary is subject to the same
defenses the promisor has against the promisee.
(1) Restitution
The third-party beneficiary has no right of restitution from Promisor since the
benefit conferred was from the promisee.
b. Third-Party Beneficiary vs. Promisee
A creditor beneficiary can sue the promisee on the existing obligation between
them. She may also sue the promisor, but may obtain only one satisfaction.
c.
Promisee vs. Promisor
A promisee may sue the promisor both at law and in equity for specific
performance if the promisor is not performing for the third person.
C. ASSIGNMENT OF CONTRACT RIGHTS
For an assignment to be effective, the assignor must manifest the intent to immediately and
complete transfer her rights. A writing is usually required to have an effective assignment.
The right being assigned must be adequately described. It is not necessary to use the word
"assign"; any accepted words of transfer will suffice and consideration is not required.
1.
Assignment Limitations
Generally, all contract rights are assignable. However, an assignment may not occur if:
(1) it would substantially change the obligor's duty or risk; (2) an assignment of future
rights to arise from future contracts; (3) an assignment is prohibited by law.
2.
Non-assignment Provisions
a.
16
17
Non-assignment Clauses
That is: a person to whom a debt is owed by the promise.
That is: a person who the promise intends to benefit gratuitously.
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Non-assignment clauses eliminate the right, but not the power, to assign. The
Obligor must bring suit to set aside the assignment.
b. Void Assignments
Assignment if void clauses eliminate both the power and right to assign. Any
attempt to assign creates no rights in the assignment.
c.
Obligor's Option to Void
Contract is void if assigned clause only makes the assignment voidable at the
obligor's option.
d. UCC Contracts
If the original contract is governed by the UCC, no assignment can be barred by
contractual language.
3.
Is the Assignment Revocable?
An assignment for consideration is irrevocable. An assignment not for consideration is
generally revocable.
a.
Exceptions
A gratuitous assignment is irrevocable if: (1) the obligor has already performed; (2)
a token chose is delivered; (3) an assignment of a simple chose is put in writing; (4)
the assignee can show detrimental reliance on the assignment.
b. Termination
Termination of a revocable gratuitous assignment may be terminated by: (1) death
or bankruptcy of the assignor; (2) notice of revocation by the assignor to the
assignee or the obligor; (3) the assignor taking performance directly from the
obligor; (4) subsequent assignment of the same right by the assignor to another.
4.
Who Can Sue Whom?
a.
Assignee v. Obligor
The assignee can enforce all of the rights of assignor. The obligor can assert all
defenses it could have done against the assignor pre and post assignment.
b. Assignee v. Assignor
The assignee can sue the assignor for wrongfully exercising the power to revoke
in an irrevocable assignment situation. An action by the assignee against the
assignor may also lie where the obligor successfully asserts a defense against the
assignor in an action brought by the assignee against the obligor to enforce the
obligation.
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The assignor will not be liable to the assignee if the obligor is incapable of
performing. If assignment is revocable, assignee has no remedial rights against
assignor.
5.
Successive Assignments
If the first assignment is revocable, a subsequent assignment revokes it. If it is
revocable, the first assignment will usually prevail over a subsequent assignment.
a.
Exceptions
If the second assignee has paid value and taken without notice of the first
assignment, the successive assignee gets: (1) the first judgment against the obligor;
(2) the first payment of a claim from the obligor; (3) delivery of token chose; (4) is
the party to a novation releasing the assignee; (5) can proceed against the first
assignee on an estoppel theory18.
D. DELEGATION OF CONTRACT DUTIES
Delegation is the transfer of the primary obligation to perform contract duties from one of
the parties to a third person. Generally, all duties may be delegated.
1.
Requirements
The delegor must manifest a present intention to make a delegation. There are no
special formalities to be complied with to have a valid delegation. It may be written or
oral.
a.
2.
Limitations
The following may not be delegated: (1) the duty involves personal judgment and
skill; (2) delegation would change the obligee's expectancy19; (3) a special trust was
reposed in the delegor by the other party to the contract; (4) there is a contractual
restriction delegation.
Rights and Liabilities
The obligee must accept performance from the delegate of all duties that may be
delegated. The delegator remains liable on the contract. Thus, the obligee may sue the
delegor for non-performance by the delegate, and sue the delegate if there has been an
assumption20. The promise creates a contract between the delegor and the delegate in
which the obligee is a third-party beneficiary.
E. UCC THIRD-PARTY RIGHTS
1.
Entrustment
18
Also can be used against the subsequent assignee.
For example: requirements and output contracts.
20
That is: promise to perform supported by consideration.
19
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Entrusting goods to a merchant who deals in goods of that kind gives her power to
transfer all rights of the entruster to a buyer in the ordinary course of business21.
2.
Voidable Title
If a sale is induced by fraud, the seller can rescind the sale and recover the goods22.
Except the defrauded seller may not recover the goods from a good faith purchaser for
value even where:
a.
The seller was deceived as to the identity of the buyer.
b. The delivery was in exchange for a check later dishonored.
c.
The sale was a cash sale, or
d. The fraudulent conduct of the buyer is punishable as larceny.
3.
Thief Cannot Pass Good Title
If a thief steals goods from a true owner and then sells them, the thief is unable to pass
good title to the buyer because the title is void. Therefore, the true owner can recover
the stolen goods from the buyer, even if the buyer is a good faith purchaser for value.
Exceptions
The thief can pass good title if: (1) the goods are money; (2) the goods are negotiable
instruments; (3) the buyer has made accessions23 to the goods; (4) the true owner is
estopped from asserting title.
VII. HAVE THE TERMS OF THE CONTRACT BEEN PERFORMED?
A. A PROMISE OR CONDITION
A promise is a commitment to do or refrain from doing something. It may be conditional or
unconditional. A condition is an event the occurrence of nonoccurrence of which will create,
limit, or extinguish the absolute duty to perform. It is not always clear whether a contract
provision is a promise of a condition. The court will look to the "intent of the parties."
21
1.
Precedent
A precedent contingency must occur, or be executed, before a party's own duty to
perform matures.
2.
Concurrent
A concurrent contingency must occur simultaneously with a party's performance.
For example: if you drop a watch off for repair, it can be sold and you have to recover damages from the jeweler.
That is: voidable title.
23
That is: valuable improvements.
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3.
Subsequent
Is a contingency that, by occurring, extinguishes an already matured duty to perform24.
4.
Express Conditions
Are those expressed in the contract.
5.
Implied in Fact Conditions
Are those inferred from evidence of the parties' intention and must occur or be present
before a party's duty to perform matures.
6.
Constructive Conditions
Are those read into a contract by a court without regard to the parties' intention in order
to ensure that the parties receive what they bargained for. Constructive conditions may
relate to the time of performance25.
B. HAVE THE CONDITIONS BEEN SATISFIED OR EXCUSED?
A duty of performance becomes absolute when conditions are either performed or excused.
Conditions may be excused by:
1.
Failure to Cooperate
A party who wrongfully prevents a condition from occurring will no longer be given the
benefit.
2.
Actual Breach
An actual, material breach by one party excuses the other's duty of counter
performance26.
3.
Right to Demand Assurances
If reasonable grounds for insecurity arise with respect to performance of either party,
the other may in writing demand adequate assurance of due performance. Until she
receives adequate reassurance, the party may suspend her performance. If proper
assurances are not given within a reasonable time 27, the party seeking performance can
treat the contract as repudiated.
4.
Anticipatory Repudiation
In cases where the other party's words, actions, or circumstances make it clear that she
is unwilling or unable to perform, the aggrieved party may:
24
This can be viewed like discharge.
In other words: which party performs first.
26
A minor breach might suspend the duty, but will not excuse it.
27
Not over 30 days for receipt of the demand.
25
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a.
Ignore the repudiation and urge performance28
b. Resort to any remedy for the breach, or
c.
Suspend her own performance
(1) Retraction of Repudiation
A repudiating party may, at any time before her next performance becomes
due, withdraw her repudiation unless the other party has cancelled, materially
changed position in reliance on the repudiation, or otherwise indicated that she
considers the repudiation final.
5.
Substantial Performance
Where a party has almost completely performed her duties, but she has also breached in
some minor way, the rule of substantial performance avoids forfeiture of return
performance.
6.
Divisibility of Contract
Where a party performs one of the units of a divisible contract, she is entitled to the
agreed equivalent for that unit even though she fails to perform the other units.
a.
Requirements
To find a contract divisible:
(1) The performance of each party is divided into two or more parts under the
contract.
(2) The number of parts due from each party is the same; and
(3) The performance of each part by one party is the agreed equivalent of the
corresponding part by the other party.
b. UCC - Installment Contracts
Under the UCC, a contract that authorizes or requires delivery in separate lots is an
installment contract. The buyer may declare a total breach only if defects in any
installment are such as to substantially impair the value of the entire contract.
7.
Waiver or Estoppel
a.
28
Estoppel Waiver
Does not constitute a waiver.
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A party may waive a condition by indicating that she will not insist on it. However,
such a waiver may be retracted at any time unless the other party relies on the
waiver and changes her position to her detriment. Upon such detrimental reliance,
the waiving party is estopped from asserting the condition.
b. Election Waiver
If a condition is broken, the party who was to have its benefit may either terminate
her liability or continue under the contract. If she chooses the latter, she is deemed
to have waived the condition.
c.
8.
No Consideration
If no consideration is given for the waiver, it is not enforceable.
Impossibility, Impracticability, or Frustration
See Infra.
C. HAS THE DUTY TO PERFORM BEEN DISCHARGED?
Once it has been established that there is an immediate duty to perform, that duty must be
discharged by:
1.
Performance or Tender of Performance
The duty may be discharged by complete performance or tender of performance,
assuming the tendering party possesses the present ability to perform.
2.
Condition Subsequent
The duty may be discharged by a condition subsequent.
3.
Illegality
The duty may be discharged by supervening illegality of the subject matter.
4.
Impossibility/Impracticability/Frustration
a.
Impossibility
The duty may be discharged by impossibility of performance measured by an
objective standard where nobody could perform according to the terms of the
contract. The impossibility must arise after the contract was entered into29.
b. Impracticability
29
For example: death or physical incapacity; subsequent enacted law rendering the subject matter illegal; destruction
of the subject matter or means of performance.
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Courts will also discharge a duty because of impracticability where a party would
encounter extreme and unreasonable difficulty or expense that was not anticipated.
A mere change in the difficulty or expense due to normal risks that could have been
anticipated30 will not warrant discharge by impracticability.
c.
Frustration of Purpose
A duty may also be discharged by frustration of purpose. This requires: (12) a
supervening event; (2) that was not reasonably foreseeable at the time of entering
into the contract; (3) which completely or almost completely destroys the purpose
of the contract; and (4) the purpose was understood by both parties.
5.
Mutual Rescission
Duties may be discharged by mutual rescission where both parties expressly agree to it.
In a bilateral contract rescission can only occur where the contract has been partially
performed. In a unilateral contract, it cannot be rescinded where only one party is left to
perform. Mutual rescission can be made orally unless the subject matter is within the
statute of frauds or unless the contract requires a writing.
6.
Novation
A duty may be discharged by novation, where a new contract substitutes a new party for
one of the parties to the original contract. There must be: (1) a previous valid contract;
(2) an agreement among all parties, including the new party; (3) immediate
extinguishment of contractual duties as between the original contracting parties; and (4)
a valid new contract.
7.
Release/Covenant Not to Sue
The release must be in writing and supported by consideration or promissory estoppel.
8.
Accord and Satisfaction
a.
Accord
An accord is an agreement in which one party to a contract agrees to accept
performance different from that originally promised. Generally, an accord requires
consideration, which can be less than the original promised.
(1) Partial Payment of Original Debt
Payment of a smaller amount than is due on a claim is valid consideration if it
is made in good faith and there is a bona fide dispute as to the claim31.
b. Satisfaction
Satisfaction is the performance of the accord. It discharges both the accord and the
original debt.
30
31
For example: increase in price or raw materials or too many buyers.
For example: marking a check "payment in full".
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VIII. BREACH AND REMEDIES
A. GENERAL
1.
Breach
If the promisor is under an absolute duty of performance and this duty has not been
discharged, then this failure to perform in accordance with the contract terms may be
held to be breach of contract.
a.
Is the Breach Minor or Material?
A minor breach may allow the aggrieved party to recover damages, but she still
must perform under the contract. If the breach is a material one, the aggrieved party
need not perform and recover damages.
(1) Test
Whether a breach is minor or material is a factual issue resolved by a
reasonable person test. A material breach occurs when a promise, which goes
to the heart of the contract, is not fully performed.
(2) Minor Breach
For a minor breach, the remedy is an award of damages in an amount to
compensate for the defective performance. Because the other party must still
tender performance, this remedy is represented by an offset to that
performance. But the contract is still in force and enforceable.
(3) Material Breach
In the event of a material breach, the non-breaching party's duties are
discharged but she must still take affirmative actions. In order to mitigate the
effects of breach the non-breaching party must seek a replacement contract and
notify the Obligor of the defective performance. Failure to mitigate results in a
reduction of recoverable damages.
2.
Damages
a.
Compensatory
Compensatory damages are awards of money to confer on plaintiff the benefit of
the contract had it been fully performed, this is known as the expectation interest.
As with tort cases, damages must be causal, foreseeable, certain, and unavoidable.
(1) Causal
To recover compensatory damages, the plaintiff's harm must have been caused
by the defendant's breach.
(2) Foreseeable
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The damage caused must have been foreseeable at the time the contract was
entered into.
(3) Certain
Future profits of a new business are difficult to recover because they are
uncertain.
(4) Unavoidable
The plaintiff cannot recover damages that she could have reasonably avoided.
b. Liquidated Damages
A liquidated damages clause may limit the damages that are recoverable. Such
provisions are valid provided it is shown that, at the time of contracting, actual
damages would have been extremely difficult to ascertain and the amount
stipulated was a reasonable forecast of the actual harm. Otherwise, the clause is a
penalty and proven actual damages will govern.
3.
c.
Punitive Damages
Punitive damages are not available in contract actions.
d.
Interest and Attorney's Fees
Prejudgment interest awards in contract are statutory and granted only as to
liquidated sums. Attorney's fees are recoverable if provided for by statute of
contract.
Restitution
The law imposes an obligation to pay for unjust gains received pursuant to an
unenforceable contract.
a.
Where Contracts Materially Breached
The non-breaching party can recover the value of her performance, even in excess
of the contract rate. The breaching party can recover the value of the benefit
conferred in excess of the other party's damages.
b. Unenforceable Contract
The recovery depends on the nature of the benefit conferred. Specific restitution is
available for recovery of tangible property. Where the benefit takes the form of
goods or services, the plaintiff is entitled to the value thereof even in excess of the
contract.
4.
Specific Performance
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Specific performance is a mandatory decree or injunction that orders a contracting party
to perform that which she has promised to perform under the contract. The court may
order specific performance where: (1) a contract exists; (2) all of the conditions of the
contract have been satisfied; (3) the legal remedy is inadequate; (4) the terms are
definite and certain; (5) the decree must be feasible to enforce; (6) there must be
mutuality of performance.
a.
Contract Exists
There must be a valid contract between the parties. For an option contract, it must
be supported by consideration, or else it is revocable.
b. All Conditions are satisfied
The party seeking specific performance must have satisfied all of her obligations
under the contract. Specific performance may be granted where failure to satisfy all
terms is partial or immaterial.
c.
Inadequate Legal Remedy
Even a valid liquidated damages clause does not preclude the grant of specific
performance.
d. Definite and Certain Terms
The parties must have entered into a contract that is sufficiently definite and certain
so that the court can determine what it must order each party to do.
5.
e.
Feasible to Enforce
Enforcement issues usually arise only in construction, personal service, and land
sale contracts.
f.
Mutuality of Performance
The court must be satisfied that it can secure the plaintiff's counter-performance
under the contract32.
Defenses
a.
Laches
Laches is an unreasonable delay by the plaintiff in initiating her equitable claim
that results in prejudice to the defendant. The period of delay is key, and can never
be longer than the statute of limitations, but can be shortened.
b. Unclean Hands
The party seeking equitable relief must not be guilty of any "unfair dealing" with
respect to the transaction sued upon.
32
This is not an issue where the plaintiff has already performed.
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c.
Hardship
Inadequacy of consideration that is either: (1) grossly inadequate consideration; or
(2) coupled with an unconscionable contract or sharp practices is a good defense.
Specific performance will generally not be granted if enforcement of the contract
will cause hardship to the defendant or public that greatly outweighs the hard that
the plaintiff would suffer if specific performance were not granted. In such
situations the court will award damages in lieu of specific performance.
d. Mistake and Misrepresentation
Of a type that results in hardship or that constitutes a basis for rescission is a
defense.
6.
Rescission
Where the agreement was induced by fraud, the aggrieved party can rescind the
agreement and recover their consideration33. Except a defrauded seller may not recover
the goods from a good faith purchaser.
B. UCC REMEDIES
1.
UCC Risk of Loss in the Absence of Breach
a.
Non-Carrier Cases
If the seller is a merchant, risk of loss passes to the buyer only upon buyer taking
physical possession of the goods. If the seller is not a merchant, risk of loss passes
to the buyer upon tender of delivery: the seller has the goods ready for the buyer to
pick up at the time and place specified in the contract.
b. Carrier Cases
In a shipment contract, risk of loss passes to the buyer when the goods are duly
delivered to the carrier. In a destination contract, the risk of loss passes to the
buyer when the goods are tendered to the buyer at the destination.
c.
2.
Sale or Return and Sale on Approval Contracts
Sale or Return, risk of loss on seller until acceptance. Sale on Approval, risk of loss
on buyer and buyer must pay for return.
UCC Risk of Loss Upon Breach
a.
Buyer has right of rejection
Risk of loss on seller until cure or acceptance.
b. Buyer Rightfully Revokes Acceptance
33
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Risk of loss on seller subject to buyer's insurance.
c.
3.
Buyer in Breach
Where seller is in possession, risk of loss on buyer subject to seller's insurance.
Buyer's Remedies
The buyer's remedies depend on whether she rejects the goods prior to acceptance or
revokes acceptance she has already given.
a.
Acceptance
Acceptance of goods occurs when:
(1) The buyer, after reasonable opportunity to inspect them, indicates to the seller
that they conform or that she will keep them in spite of their non-conformance;
(2) The buyer fails to reject them within a reasonable time after tender or delivery
of the goods or fails to reasonably notify the seller of her rejection; or
(3) The buyer does anything inconsistent with the seller's ownership.
b. Rejection
When goods that do not conform to the contract are rendered to the buyer, the
buyer may both keep them and sue for damages, or under some circumstances,
reject the goods and either cancel the contract or sue.
(1) Single Delivery
In single delivery contracts, if the goods or the tender fail to conform, the
buyer may reject all, accept all, or accept any commercial units and reject the
rest. Failure to notify buyer of shipment is a ground for rejection only if
material loss or delay results.
(2) Installment Contracts
The buyer can reject an installment only if the nonconformity substantially
impairs the value of that installment and cannot be cured. The whole contract
is breached if the nonconformity substantially impairs the value of the entire
contract.
c.
Revocation of Acceptance
The buyer may revoke acceptance of the goods if the defect substantially impairs
their value to her and: (1) she accepted them on the reasonable belief that the defect
would be cured and it has not been; (2) she accepted them because of the difficulty
of discovering defects or because of the seller's assurance that the goods conformed
to the contract.
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Revocation of acceptance must occur within a reasonable time after
the buyer discovers or should have discovered the defect and before any substantial
change in the goods not caused by their own defects.
(1) Seller's Right to Cure
Where a buyer has rejected the goods because of defects, the seller may within
a reasonable time originally provided for performance cure by: (1) giving
reasonable notice of the intention to cure; and (2) make a new tender of
conforming goods, which the buyer must than accept.
4.
Buyer's Damages
a.
For Non-Delivery or Upon Rejection or Revocation of Acceptance
The buyer's remedy is the difference between the contract price and either the
market price or the cost of buying replacement goods plus incidental and
consequential damages less expenses saved.
b. For Accepted Goods
The difference between the value of goods delivered and the value they would have
had if they had conformed to the contract plus incidentals and consequential
damages. To recover the buyer must notify the seller within a reasonable time after
she discovers the breach.
c.
5.
Specific Performance
See supra.
Seller's Remedies
a.
Right to Withhold Goods
If the buyer fails to make a payment due on or before delivery, the seller may
withhold delivery of goods.
b. Seller's Right to Recover Goods
(1) From Buyer on Buyer's Insolvency
When a seller learns that a buyer has received delivery of goods on credit
while insolvent, she may reclaim the goods upon demand made within 10 days
after the buyer's receipt of goods.
(2) From Bailee
The seller may stop delivery of goods in possession of a carrier when she
discovers the buyer is insolvent.
6.
Seller's Damages
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When the buyer wrongfully repudiates or refuses to accept conforming goods, the seller
can:
a.
Recover the difference between the market price and the contract price.
b. Resell the goods and recover the difference between the market price and the
contract price.
c.
Recover under lost profits measure, the difference between the list price and the
cost to the seller.
d. Incidental damages including the expense of storing, shopping, reselling the goods
as a result of the buyer's breach.
7.
Liquidated Damages
As provided by the contract are valid if they are reasonable in amount when measured
in light or: (1) the anticipated or actual harm caused by the breach; (2) the difficulties in
proof of loss; (3) the inconvenience or non feasibility of otherwise obtaining an
adequate remedy.
8.
Limitations on Damages
Parties may limit or alter the measure of damages otherwise recoverable under the
code34.
a.
Essay Approach
Is the remedy exclusive? Does it fail of its essential purpose? Is it unconscionable?
(1) Exclusive Remedy
If the contract provides for its own remedies in the event of a breach, resorting
to those remedies is optional unless the contract declares such remedies to be
exclusive.
(2) Failure of Its Essential Purpose
If circumstances cause an exclusive or limited remedy to fail of its essential
purpose35, then the aggrieved party may resort to the usual UCC remedies.
(3) Consequential Damages
Consequential damages may be limited or excluded unless the limitation or
exclusion is unconscionable. Where consumer goods are involved, and the
goods cause personal injuries, there is a presumption that the limitation is
unconscionable and therefore inoperative 36.
34
For example: restricting a buyer to repair and replace, or return and refund.
For example: it deprives a party of the substantial value of the bargain, it takes too long to repair/replace.
36
Does not apply to non-consumer goods.
35
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9.
Statute of Limitations
Accrual statute of limitations is 4 years. Discovery if should have discovered statute of
limitations is 1 year. Maximum total period of statute of limitations is 5 years from
accrual.
When Does Accrual Occur?
a.
Breach of Warranty
On delivery of goods, even if the party did not have knowledge of the breach.
b. Repudiation
When a party treats it as a repudiation.
c.
Warranty of Title
When the aggrieved party discovers or should have discovered the breach.
d. Remote Purchaser
When the plaintiff remote purchaser receives the goods.
e.
Explicitly Extends to the Future
When a party discovers or should have discovered the breach. Implied warranties
do not extend to future performance, only express warranties do.
f.
Remote Purchaser
When the party receives the goods, regardless of when the manufacturer delivered
them to dealer.
g.
Third Party Beneficiaries
Are not treated as remote purchasers. Rather they step into the shoes of the dealer.
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End of Contracts.
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