Contracts 1 Applicable Law • CL (real estate, services) • UCC (sale of goods) • Mixed Deal= whichever is predominant. All or Nothing Rule unless K divides payment. Offers • = manifestation of an intention to contract. • Content: not required to contain all material terms (Real Estate= price and description req’d. Goods= no price required) o Vague & Ambiguous Material Terms in offernever an offer (must be material terms) o Requirements Contracts/Output Contracts “All” “Only” ok. May be an increase if in line with prior demands. • Context: (Advertisements ≠ offers, except (1) in nature of reward or (2) advertisement is specific as to quantity and expressly indicates who can accept.” Offers That Can’t be Revoked • Option (promise and consideration) • Firm Offer (goods, signed written promise, merchant, max 3 months) • Detrimental Reliance (reasonably foreseeable) • Start of performance (unilateral-reasonable time to complete) Termination of an Offer • Lapse (time stated or reasonable time) • Revocation (Words to or conduct that offeree is aware of; effective when received) • Rejection • Counteroffer (not Bargaining=?) • Conditional Acceptance= counteroffer • Additional Terms (CL=mirror image rule, UCC= if 1 merchant, proposal to be separately considered; UCC= if both merchants, becomes part of K, unless (1) materially alters or (2) rejection) Acceptance • Offeree fully performs (notice issue) • Offeree starts to perform (bilateral=acceptance, Unilateral= not acceptance) • Offeree promises to perform • Mailbox Rule (acceptance when sent, unless rejection sent first) • Seller of Goods sends wrong goods (Goods, Acceptance & Breach unless Accommodation=counteroffer) • Silence (Gen Rule= not acceptance. Excptn= if offeree agrees by words or conduct that it is) Legal Reasons For Not Enforcing a Contract • Lack of Consideration (Bargained for Legal Detriment) (promise, performance, forbearance) o Past consideration= no, unless expressly requested and expected payment o Modification (CL= not allowed unless 1-addition or change in performance 2-unforeseen difficulty so severe 3-3rd party promises to pay) (UCC-ok, good faith test*) o Consideration Substitute= 1) written promise to pay a debt barred by SoL or other defense; 2) promissory estoppel (promise, reasonable reliance, enforcement necessary to avoid justice. Contracts 2 • Lack of Capacity (Infant, Mental Incomp., Intoxicated) (Necessity & Retain Benefit exceptions) • Statute of Frauds o Falls w/in: (Performance more than 1 year, Sale of Goods $500 or more, Services over 1 year, guarantee to pay 3rd party debt, executor promise to pay estate debt with own funds, promise in consideration of marriage) o Satisfies S/F: Writing: Non-Goods= material terms test (material terms & signature); Goods=Quantity & Signature (unlss both merchants & no response in 10 days) Performance: Service=full; Property=2 of 3 (payment, possession, imprvmnts); Goods (Ordinary= partial to extent of part; Specially manufactured=substantial beginning) Judicial Admission: ∆ admits in pleadings, testimony or discovery o Modification: if new deal falls within, must satisfy S/F. If new deal doesn’t, need not. o K provisions requiring all Modifications be in writing (CL=ignored; UCC=effective) • Illegality (Subject matter=illegal, K void; Purpose=illegal, voidable) • Misrepresentation (False assertion, concealment of facts) • Duress (Physical, Economic-improper threat, no reasonable alternative) • Unconscionability (unfair surprise, oppressive terms) tested at time K is made. • Ambiguity in words (No K if material term open to 2 reasonable interpretations; each party attaches different meanings; neither party knows or has reason to know term is open) • Mistake as to Material Facts (both parties are mistaken; subject matter mistake; not price) Parol Evidence • PE= oral or written terms at time or before integration (written final deal). • Changing the deal (no PE allowed, Excptn= mistake in integration (words left out) • Defense Exception (PE allowed to determine misrepresentation, fraud, duress) • Explanation Exception (PE allowed to resolve ambiguities • Adding to Integration-consistent addt’l terms (If complete integration= PE not allowed. If partial= PE allowed) Source of K terms-explaining words or gaps in Ks • Course of Performance (same people, same K-what they’ve already done)-crt looks at first • Course of Dealing (same people, different K)-crt looks at next • Custom, Usage (different people, different K) Delivery Obligations of Seller of Goods • No place of delivery agreed uponseller’s place of business or place where goods are • Shipment by Common Carrier: (shipmentwhen seller gets goods to common carrier, makes reasonable arrangements for delivery, notifies buyer. Destinationwhen goods arrive) Risk of Loss • =After K is formed but before buyer receives goods and goods damaged and no one is at fault • Agreement= agreement controls • Delivery by common carrier= shifts to buyer when seller completes delivery obligations • Unrelated Breach= breaching party liable • No agreement, common carrier, or unrelated breach: (If seller=merchant, RoL shifts when buyer receives goods. If seller ≠ merchant, when seller “tenders” goods (i.e. tells buyer how to get them) Contracts 3 Warranties of Quality • Express Warranty= words of promise. “all steel”= warranty “top quality” ≠warranty • Implied Warranty of Merchantability (implied; goods fit for ordinary purpose. *must be from merchant) • Implied Warranty of Fitness for Particular Purpose (Buyer has particular purpose that seller knows, then implied warranty. • Contractual limitations on Warranty: o (1) Disclaimer-can’t disclaim express warranties; can disclaim implied warranties o (2) Limitation on Remedies: can limit remedies (test is Unconscionability) Performance-where performance is not what was expected • CL= see if parties did what they promised to do. If not, breach. • UCC o Perfect Tender: seller obligated to deliver perfect goods o Rejection of Goods: must be before acceptance. If goods less than perfect, buyer can reject. (Exception-Cure & Installment Sale K) o Cure: seller can cure before time has expired; if expired, must have reasonable grounds for believing cure will be acceptable o Installment Sales Ks: can only reject if substantial impairment. o Acceptance of Goods: if accept, can’t then reject. Must have opportunity to inspect; implied acceptanceretains goods after opportunity for acceptance. o Revocation of Acceptance: can revoke if (1) nonconformity substantially impairs value of goods; (2) excusable ignorance or reasonable reliance on seller’s assurances; (3) revocation w/in a reasonable time after discovery of nonconformity. Remedies • Specific Performance (Ks for Real Estate and Unique Goods only) (no right for services) • Reformation (changing K, if mistake or misrepresentation) • Reclamation (right of unpaid seller to get its goods back-10 Day Rule-10 days to demand good back) • Entrustment-(right of good faith purchaser. Owner intentionally leaves goods with seller of that kind who sells them to 3rd party. Original owner can’t reclaim.) • Expectation Damages (put π in same position as if K had been performed) o +Incidental Damages (costs incurred in dealing with breach; always recoverable) o +Foreseeable Consequential Damages (damages arising from π’s special circumstances) o -Avoidable Damages (no recovery for damages that could have been avoided w/out undue burden. Must have some alternative comparable situation. • Certainty Limitation (damages must be established with reasonable certainty • Reliance Interest (put π in same position as if no K) • Restitution Interest (put ∆ in position as if no K-unjust enrichment) • Liquidated Damages (must be a reasonable forecast. Concern is penalty is too high) • Limitation of Remedies (establishes ceiling. If unconscionable-not allowed. Concern is penalty is too low) • Damages Rules for Sale of Goods (UCC) o Seller breaches/Buyer has goods-FMV(if perfect) – FMV (as delivered) o Seller breaches/Seller has goods-Replacement Price (or Mkt price@breach) – K Price o Buyer breaches/Buyer has goods-K Price Contracts 4 o Buyer breaches/Seller has goods-K Price – Resale Price (or Mkt price@delivery) **if lost volume seller, damages= lost profits Excuse for Non-Performance • Material Breach: if one party materially breaches, other party is excused (exception= divisible K-then do unit by unit basis) (if not perfect tender, buyer can reject) • Performance Condition: strict compliance with express condition (unless based on approval, than objective standard, unless unless subject is Artinherently discretionary.) o Excusing Express Condition: Estoppel (before event occurs) and Waiver (after) • Anticipatory Repudiation: unambiguous statement that repudiating party will not perform made prior to when performance is due. (can be retracted if timely and no material change in position by other party) • Later K: o Recission (later agreement to cancel the K), o Accord/Satisfaction (agreement to accept a different performance in satisfaction of existing obligation).—if not performed, party can sue on either. Only if new agreement is actually doen will it replace the old one. o Modification (replaces old agreement with new agreement, CL-consideration req’d)— can only sue on new agreement. o Novation: (agreement between both parties to substitution of new party. New party is excused.) different from delegation which does not excuse. • Unforeseen Event (unforeseen event after K formation but before completion that makes it impossible, impracticable, or frustrates purpose of performance). o Damage or Destruction of Subject Matter of K-(later occurrence, unforeseen, impossible—excuses. Risk of Loss rules.) o Death (if dead party is “special”excused; if dead party not “special”unexcused, if dead party not in K, than if it is still possibleunexcused.) o Subsequent Law or Regulation (law makes performance illegalexcused by impossibility) (law makes mutually understood purpose illegalexcused by frustration of purpose.) 3rd Party Contracts • 3rd Party Beneficiary (Only intended beneficiary has K rights; K cannot be cancelled w/out 3rd party’s approval if 3rd party knows of and has relied on or assented, unless K says otherwise) o (3rd Party can sue Promisor and if creditor beneficiary, can sue promisee/if Donee Beneficiary, cannot sue Promisee). Promisor can assert any defense as they would against Promisee. • Assignment (transfer of rights under K. K provisions can prohibit or invalidate assignments. CL bars assignment that changes duties of the obligor (not payment). Consideration not required. Must be present tense. “I assign”. o (Assignee can sue obligor. Same defenses) o (Multiple Assignments: Gratuitous Assignment-last assignee wins. Assignment for Consideration-first assignee wins) • Delegation (party to K transfers work/duty to 3rd party. Permitted unless contract prohibits delegations OR assignments, or K calls for special skills of delegator, or K calls for delegator with special reputation. o Delegator remains liable if assignee does not perform. o Delegatee is liable if she receives consideration from delegator.