Contracts Outline 11/1/ :09:00 AM APPLICABLE LAW & UCC IS THERE A CONTRACT? APPLICABLE LAW. Common law state Statutory law UCC

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1 Cntracts Outline 11/1/ :09:00 AM APPLICABLE LAW & UCC APPLICABLE LAW UCC Cmmn law state Statutry law Mst states have adpted the UCC as law Sale f Gds UCC Article : All things that are mveable persnal prperty Merchant ne wh deals in gds f the kind Article 2 either applies t the whle deal r it desn t apply t t any f it If the mst imprtant part f the deal is the sale f gds, then apply if it s just incidental t the real meat f the cntract, dn t apply Article 2 des nt gvern ptins cntracts Best effrts clause parties will use best effrts t sell/buy the prducts includes cntract t sell at a future date Express Cntract: verbal slely n ral and written wrds yu re able t find the deal slely frm wrds f parties Implied Cntract: based at least in part n cnduct IS THERE A CONTRACT? MANIFESTATION OF MUTUAL ASSENT: there must be an bjective manifestatin f mutual assent t a cntract; what a reasnable persn wuld understand the parties actins t mean. Meetings f the Minds OBJECTIVE TEST Subjective assent is irrelevant Objective manifestatins: what yu say, d, r sign yur name t If a reasnable persn wuldn t understand that yur assent is a jke, then yu re bund by yur actins Mutual assent at the TIME OF CONTRACT desn t matter what changes dwn the rad Mutual assent n ALL THE ESSENTIAL TERMS f the cntract VALID OFFER? Was there an ffer? Manifestatin f Cmmitment Wrds/cnduct; evidence f cmmitment Cntent f the Cntract Missing terms? Incmplete cmmunicatin? Cntract des nt have t cntain all the material terms, but the mre gaps, the harder t enfrce Missing price? COMMON LAW: In a sale, withut a price, nt an ffer UCC: Can be an ffer even when missing a term Ambiguus terms? Fair ; reasnable ; apprpriate

2 Curt will cnclude nt a manifestatin f cmmitment indicates parties have nt made a deal yet - NO OFFER Requirements Cntract Sale f gds in which the quantity is in terms f buyer s need VALID cntracts Exceptin t ambiguity UNREASONABLY DISPROPORTIONATE Be wary f a dramatic increase in buyer s demands What is buyer asking fr tday, and what did he previusly ask fr? Increase must be in prprtin t previus demands. Cntext f the Cntract Bargaining histry if there s a histry, adds t the argument that this is a manifestatin f cmmitment Advertisements nt an ffer invitatin t make an ffer POSSIBLE EXCEPTIONS: when the advertisement is specific abut hw many f the items are available and wh may accept, and perfrmance is definitely prmised Preliminary negtiatins, price qutes, and slicitatin bids are nt ffers acceptance f these usually is the ffer 3 Elements t ffer: Manifestatin f present cntractual intent Certain & definite terms, expressly stated r implied Cmmunicatin t such t the fferee Was the ffer terminated? Lapse in time? (easiest way t terminate) Situatin where nthing is said abut a timeline If n express time limit, curts will impse a reasnable time When was the ffer made? Hw lng was the gap after? If mre than a mnth, that shuld raise flags. Death when a persn dies, ffer dies with him. REVOCATION OF OFFER HOW: Wrds r cnduct f the fferr cmmunicated t the fferee. Change f mind is nt enugh fferee must be aware f the revcatin. WHEN: Must cme befre the acceptance. WHEN IT DOESN T HAPPEN: 1. Optin Cntract when there is a prmise nt t revke and sme cnsideratin fr that prmise. 2. UCC Rule Firm Offer Rule sale f gds, with a writing signed by a merchant that nt nly prmises t buy r sell, but has t expressly prmise that the ffer will nt be revked (3 mnth ceiling t keep pen.)

3 3. Where the ffer has been relied upn. General cntractr uses a subcntractr s ffer t make a bid relied n bid. Curts differ n this (Drennan Star, reliance makes irrevcable. James Baird, nt irrevcable.) 4. Start f perfrmance pursuant t an ffer which requires perfrmance t accept. Once perfrmance starts, t late t revke. REJECTION OF OFFER BY OFFEREE Cunter-Offer Kills the ffer in the cmmn law and UCC Cnditinal Acceptance Smething new has been added and insisted upn, s it s saying n and killing the ffer: I accept if Cnduct which includes the cnditin will be a manifestatin f mutual assent, and an illustratin f implied cntract. Additinal Terms Cmmn Law rule nly n express cntract kills deal Smething new has been added and it s mre f a suggestin r a prpsal: I accept, and.. Mirrr Image Rule Acceptance cannt add anything t ffer must be exactly what was ffered UCC DIFFERENT TREATMENT Battle f the Frms Intent is t preserve the agreement, despite material terms included in standard frms exchanged by merchants Sale f gds where the cmmunicatins d nt exactly match up, nt a deal breaker, unless the acceptance is abslutely cnditinal n new terms. What t d with new term? If either is nt a merchant, then the new term is a prpsal and nt part f the deal unless the ther party agrees t it If bth are merchants: 1. There is a deal. 2. The new term is part f the deal unless a party bjects. 3. Nt part f the deal if material change. If terms are cnflicting, the they are eliminated and filled with a UCC gap filler if necessary. Optin Cntract? Separate Cntract t keep negtiatin pen fferee may cunter-ffer and negtiate withut viding riginal ffer, and m ay accept riginal ffer at his ptin as defined by agreement

4 Binding if: In writing and signed by fferr Recited purprted cnsideratin fr making f ffer Prpses an exchange n fair terms within a reasnable time VALID ACCEPTANCE? Wh is accepting? Must be the persn t whm the ffer was made Offers are nt assignable; fferee r an agent may accept. Offeree must knw f the ffer at the time f acceptance Yu cannt purprt t accept an ffer which yu did nt knw abut at the time yu perfrmed. Mirrr Image Acceptance must be fr exactly what was ffered Hw are they accepting? The ffer may cntrl hw accepted stipulated in terms. Acceptance by Perfrmance Unilateral Cntract Prmise fr Perfrmance The start f perfrmance is generally viewed as a prmise t perfrm and generally cnstitutes acceptance f the deal, and mutual manifestatin f assent. Acceptance when fully perfrmed, but ffer held pen when perfrmance begins revcatin must be befre start f perfrmance. EXCEPTION: where the ffer requires ntificatin t perfrm. Ntice f Acceptance Bilateral Cntract Prmise fr a Prmise If it is ging t be acceptance by prmise, that acceptance has t be cmmunicated t the fferr. Where an ffer requires written acceptance and executin by specific parties, nt ther methd will be enfrced The nly case in which yu d nt have t ntify f perfrmance is where the fferr is reasnably aware f the perfrmance. Order frms are ffers, t be accepted by the seller. Mail-Bx Rule Offer is valid upn receipt by fferee. Acceptance is valid nce it is sent t fferr, unless fferr specifies therwise. Once mailed, neither party can revke withut breach. Revcatin must happen befre acceptance is mailed; if s, valid upn receipt. Acceptance under ptin cntract is valid upn receipt. Un-cmmunicated acceptance is nt acceptance. Acceptance by Cnduct r Silence Only valid when (a) a benefited party accepts services with an pprtunity t reject, and reasn t knw cmpensatin was expected, (b) fferr has

5 stated r given the fferee reasn t understand that silence is manifestatin f intent, (c) previus dealings between the tw, with a pattern f silent acceptance; acceptance unless there is affirmative rejectin f ffer Implied cntract can arise ut f regular curse f dealing between merchants. Valid when an fferee accepts gds and keeps them. Valid when fferee acts incnsistently with fferr s wnership, and must accept the ffered terms (unless manifestly unreasnable) nly acceptance is ratified by fferr Sale f Gds Buyer ffers t buy, and seller sends the wrng stuff. Cnsequences: 1. Creates a deal, and sending the wrng stuff is acceptance, but the receiver can nw sue fr breach. 2. Breaches the cntract it creates. UCC (b): Seller may accept by prmising t ship r by actually shipping. Partial shipment/part perfrmance is nt acceptance if the seller ntifies the buyer that the partial shipment is nly an accmmdatin (cnsider a cunter-ffer.) When an ad makes a clear/definite ffer with express terms fr acceptance by perfrmance, perfrmance is enugh t accept. Irrelevant that the ad wasn t the nly reasn fr perfrmance Requirements/Outputs cntracts Cntracts where seller agrees t sell r buyer agrees t buy as much as seller can prduce r buyer can buy Shrinkwrap/Clickwrap Acceptance Terms included with shipment f the prduct by its wn terms effective upn use Electrnic cntracting and signature valid under recent legislatin DESTRUCTION OF POWER OF ACCEPTANCE Restatement May be terminated by (a) a rejectin r cunter-ffer by the fferee (b) a lapse in time (c) revcatin by fferr (d) death/incapacity f either party Terminated by nn-ccurrence f any cnditin f acceptance under terms f ffer CONSIDERATION Bargain Requirement: assumptin that the individual bargainers will define their wants in a ratinal way and seek t satisfy them thrugh vluntary exchange Mdes f cnsideratin bargained-fr exchange 1. Detriment t the prmisee (gives up smething f value, r circumscribes his liberty) frbearance frm ding smething will be cnsideratin OR

6 2. Benefit t the prmisr 3. Bargained-fr exchange *When there is a legal benefit t the prmisr, there will always be a legal detriment t the prmisee, althugh it will nt always seem that the reverse is true fcus shuld be n detriment t prmisee. The fact that what is bargained fr des nt itself induce the making f the prmise des nt preclude it frm being cnsideratin. Sufficiency f Exchange Cnsideratin need nt be adequate, nly sufficient t cnstitute an bligatin that didn t exist befre the bargain. Nminal Cnsideratin cnsideratin in name nly, with extreme disparity in value, nt acceptable must be real cnsideratin, at least a peppercrn as lng as it s bargained fr Evidence f n real bargain, but nt cnclusive is prmisr made a gift instead f a bargain, then there is n cntract A gift prmise, even thugh written, signed, and cntaining language that the prmisr intends t assume a legal bligatin is nt enfrceable Nvelty nt required must be valuable t ther party at time f agreement, regardless f its real value Inadequacy f cnsideratin nt a bar t frmatin unless it s grss inadequacy, resulting in ne party having advantage f unequal bargaining pwer Prmise t withut a claim is sufficient if in gd faith INVALID if prmisr knws claim t be invalid Wrds f cnditin in a charitable dnatin is cnsideratin benefit t prmisr, as lng as des nt give the prmisr the alternative f canceling the bligatin INVALID: mral bligatins and illusry prmises (where the cntract can be terminated by ne party at will withut ntice) Pre-Existing Duty Rule Ding smething that yu are already legally bligated t d is nt cnsideratin fr a prmise t pay yu $ t d it Additinal cnsideratin needed fr mdificatin f cntract UCC Differs mdificatins t pre-existing cntracts can be made withut further cnsideratin NOT CONSIDERATION: Part Payment n a debt creditr s prmise t release the rest f the client part payment f a debt that is due and undisputed is nt cnsideratin fr a release Prmise t give reward/bnus t d what ne already cntracted t d

7 Agreement t render same services as already agreed, r bargain fr smething already dne EXCEPTION When cnditins change unexpectedly & mdificatin is made vluntarily (nn-mdifying party has ther alternatives t chse frm) Mutuality f Obligatin UCC (1): Cntract fr the sale f gds may be in any manner sufficient t shw agreement, including bth parties cnduct which recgnizes the existence f such a cntract UCC 2-306(2): can be implied that seller uses best effrts t supply and buyer uses best effrts t prmte the sale Implied prmise f gd faith is enugh Only enfrceable when bth parties are bund Mral Obligatin = Prmise + Antecedent Benefit If vluntarily perfrms withut expecting t get paid, cannt sue fr payment Bare prmise is unenfrceable gratuitus benefits unenfrceable Humanitarian act which leads t mral bligatin nt sufficient Illusry Prmises Appears t be a prmise, but it is an illusin and n prmise exists cannt serve as cnsideratin Free way ut f the cntract avidance f perfrmance Yu will pay me $20 and I will mw yur lawn if I feel like it. Implied prmises f Best Effrts and Gd Faith Dealing Subjective standard f cnduct Neither party will act in bad faith CON. ALTERNATIVES: QUASI-CONTRACT? PROMISSORY ESTOPPEL? Quasi-Cntract: EQUITABLE REMEDY - bligatin impsed by law because f cnduct f the parties r sme special relatinship between them r because ne f them wuld therwise be UNJUSTLY ENRICHED implied-in-law cntract that allws the plaintiff t recver fr benefit cnferred n defendant Elements Cnferred benefit t defendant Expected t be paid Nt a vlunteer Avid unjust enrichment t defendant NOT A Q-C: when the parties did nt intend t frm a cntract Prmissry Estppel: Prmise + Unbargained fr Reliance Nt based upn existence f bargain neither agreement nr cnsideratin necessary prmisr des smething prmissry in nature, then the ther persn acts in detrimental reliance n that prmise

8 Obligatin f he prmisr arises b/c f a freseeable change f psitin by the prmisee in reliance n the prmise Can be substituted fr bargained-fr cnsideratin if: Reliance is freseeable Reliance ccurs Reliance was reasnable Prmisee suffered detriment Enfrcement necessary t prevent injustice Reliance n illusry prmise enugh t frm PE claim Damages usually will nly get the amunt the reliance cst him: reliance and restitutin damages put him where he was befre Questins: What is the prmise? Wh s the prmisee/prmisr? What did the prmisee d after prmise was made? Was the actin/reactin induced/cause by the prmise? Shuld the prmisr have anticipated this actin? Freseeable? Des the actin in reliance n the prmise make it unjust NOT t enfrce? Equitable Estppel One takes a psitin and backs ff f it this is estpping that party frm backing ff the psitin they tk WHAT ARE THE TERMS OF THE CONTRACT? DO THE FACTS INVOLVE WARRANTIES? T disclaim a warranty: 1.) Must be in cnspicuus writing 2.) there has t be full examinatin (n implied warranty as t defects reasnably discverable upn examinatin) Express UCC 2-313: ways in which seller creates express warranty: 1.) affirmatin f fact r prmise which becmes basis f the bargain 2.) descriptin f the gds made part f basis f bargain 3.) sample r mdel f gds which becmes part f basis f bargain Representatins/affirmatins f fact create express warranties that thse are true; seller s affirmatin f value is nt a warranty Implied Implied warranty f merchantability: applies t DIGOTEKS gds must be sufficient fr rdinary purpses fr which they are used Implied warranty f fitness fr particular purpse: when seller has reasn t knw specific purpse gd is t be used fr and knws that buyer wuld be relying n pinin, and buyer relies n seller s judgment Warranty will be implied even when waived if therwise wuld be cntrary t public plicy. Limited Where limited warranty fails its essential purpse, limitatin will nt be enfrced. DOES THE CONTRACT INVOLVE MORE THAN TWO PARTIES?

9 When peple wh did nt make the cntract have rights under it. Assignment: transfers rights t anther party tw peple make a deal, and ne transfers benefits t smene else Mtives f assignee are irrelevant Cntract will nt be enfrced if assigned in face f express language t the cntrary, unless the assignee has already fully perfrmance r the right t sue fr damages has been assigned (can always be assigned) When there is payment f cnsideratin fr assignment, cannt be revked. Gratuitus assignment Can be revked by 1.) death f assignr 2.) revcatin by assignr 3.) subsequent assignment by assignr Once payer receives ntice f assignment f debt, payer will be liable fr payments subsequently paid t debtr (creditr beneficiary situatin) Yu cannt make an assignment that substantially changes the duties f the bligr. Delegatin: transfers duties t anther party get smene else t d wrk UCC 2-210: A party may perfrm his duty thrugh a delegate unless therwise specified r unless the party has a substantial interest in having the riginal prmisr perfrm/cntrl the acts required by cntract. N delegatin relieves riginal party fr breach. Delegatin may nt be made t a cmpetitr withut express agreement Cntracts which call fr perfrmance f special skills are nrmally nt delegable cnstructin cntracts usually are. If party never agreed t substitutin, may sue the breaching party. Third Party Beneficiary Cntract between tw peple, bth f whm intended that a third party wuld benefit (ex, life insurance cntract) Member f a class fr whse benefit cntract was made can enfrce the cntract while it remains unrescinded. BUT where ne party prmises fr cnsideratin t pay a 3 rd party, law autmatically establishes a privity b/w party and the 3 rd party regardless f 3 rd party s knwledge r acceptance f the benefit prmisr cannt rescind the cntract w/ 3 rd party s cnsent riginal party s pwer t mdify/discharge terminates when 3 rd party s rights vest (changes psitin in reliance, brings suit, manifests assent t cntract) Intended 3 rd party beneficiary can sue fr breach f prmise t perfrm prfessinal services that wuld have made him beneficiary Creditr beneficiary can sue the prmisee n riginal debt Incidental beneficiary cannt sue. CAN THE CONTRACT BE ENFORCED? STATUTE OF FRAUDS ( SOF ) APPLICABLE?

10 N general rule that there must be a writing t be enfrceable, BUT there are certain cntracts Within the Statute f Frauds nn cmpliance makes the cntract vidable, but nt vid 1.) Sale f gds with purchase price $500+ UCC Article applies regardless f $ 2.) Persnal services cntracts nly thse that are nt capable f being perfrmed within a year deals in which there is n way it culd be perfrmed within a year time specific, nt task specific If any pssibility f perfrmance within a year, then nt within SOF has t expressly state that time is ver a year 3.) Real Estate transfers f interest in real estate, regardless f $ amunt term r duratin f mre than a year 4.) Signature Electrnic cntracting and signature is valid under recent legislatin MYLEGS marriage, year, land, estate, guarantee, surety Multiple writings if each refer t the same agreement, can be admitted Writing des nt have t be a cntract just smething that is signed and refers t the deal Satisfactin By a Writing 1. What des the questin tell yu abut cntents? Anything BUT sale f gds: in rder fr the writing t satisfy the SOF, all materials must be in writing Wh the cntracting parties are What they ve each agreed t d Sale f gds fr $500+, writing just has t say the quantity terms desn t have t have parties r price 2. Wh signed the writing? When NOT sale f gds, the rule is that t satisfy the SOF, it has t be signed by the DEFENDANT the persn AGAINST WHOM the agreement is being enfrced UCC Exceptins t the SOF Rule: When buyer receives and accepts gds Partial payment has been made (cntract enfrced as t what has been partially paid fr Specially manufactured gds which the seller has begun making Dealings between merchants (dealers in gds f the kind) withut written bjectin Admissin t the frmatin f a cntract Perfrmance Exceptins

11 When ne party has fully perfrmed n the ral agreement When GOODS are specially manufactured fr a buyer and cannt be resld, SOF nt required When admissin by the parties f a cntract When payment has already been made and accepted ANY REASON VOID OR VOIDABLE? (Defenses t Frmatin) Capacity a prpsed cntract with ne party that is legally incapacitated is vid r vidable legally capacitated is bund, incapacitated is nt If capacity cnditin changes, then n lnger vidable Incapacitated are always liable fr the reasnable value f necessaries (fd, shelter, etc.) r peple wuld never sell t them Quasi-cntract Infancy (Minrs) (usually less than 18): Vidable at the ptin f the minr; minr can enfrce a cntract against an adult Minr can rescind cntract any time befre adulthd; des nt have t return the ther party t status qu Mental Incmpetence Unable t understand the nature and cnsequences f a cntract; ther persn must have reasn t knw f the cnditin Cntract vidable by the mentally ill persn Where cntract made n fair terms and ther party had nt knwledge f mental cnditin, pwer f avidance terminates t the extent the cntract has been perfrmed and avidance wuld be unjust Presumptin f cmpetency must be vercme by clear and cnvincing evidence (prir/subsequent cnditin, physical cnditin, prvidency f transactin, relatins f trust between parties) Lucid intervals are enfrced Intxicatin Culd nt understand the agreement Duress Wrngful act r threat by ne party which cmpels r induces ther thrugh fear t enter int the cntract against will vidable due t duress Physical duress, ecnmic duress, threats; mdificatins in cntracts, imprper threats, changing the deal Other part left with n reasnable alternative deprived f free will Threat t discntinue future business is NOT sufficient t shw ecnmic duress Undue Influence Unfair persuasin under dminatin f ther party prblem with hw the deal was dne Victim (defendant) weaker s that yu can actually say was under the dminatin f plaintiff Illegality/Cntrary t Public Plicy

12 Legislatin says a term f agreement is unenfrceable neither party may enfrce unless they did nt knw f illegality and detrimentally relied upn cntract Curt will nt knwingly aid an illegal cntract; will leave parties where fund them curt will nt aid parties trying t circumvent federal law Evidence as t illegality is admissible, even when desn t lk illegal If drafted in gd faith, curt may reasnably alter cntract t make legal and enfrceable Nn-Cmpete Clauses Cannt be verly brad Only be enfrced when are necessary t safeguard emplyer s trade secrets r custmer list Fraud r Misrepresentatin Misrepresentatin: material misrepresentatin f fact that was relied upn assertin nt in accrdance with the facts Fraud: intentinal material misrepresentatin f fact that was relied upn t detriment f disadvantaged party Elements f Prf: 1. Desn t have t be an intentinal misrepresentatin 2. Must be material fact 3. Justifiable reliance n the misrepresentatin n undue influence withut shwing reliance N duty t infrm when access t inf is equally available t bth parties failure t disclse generally des nt serve as misrepresentatin Duty t disclse material facts if: 1.) necessary t prevent a previus assertin frm being fraudulent r a misrepresentatin 2.) wuld crrect a mistake as t a basic assumptin f the cntract, and failure t disclse wuld be failure t act in gd faith/fair dealing 3.) crrect mistake f a writing 4.) entitled t knw because f relatinship f trust (fiduciary duty) Mistake Parties d nt fully understand surrunding facts (barren cw case) Mutual mistake: bth make mistake abut material fact deal UNENFORCEABLE Mistake must be basic and material nature f what it is Questin r misunderstanding abut what smething is wrth is never a grund fr nn-enfrcement Unilateral mistake: ne party is mistaken; mistaken party must als shw that enfrcement f the cntract wuld be therwise uncnscinable, r that the ther party had reasn t knw f the mistake r ther party s fault caused the mistake If ne party assumes the risk f mistake: enfrceable. Uncnscinability Surce

13 UCC Cmmn Law Prcedural Uncnscinability: ne party induced the ther t enter int the cntract withut meaningful chice Disparity f bargaining pwer (absence) When taken advantage f with cmmercially unreasnable terms with absence f meaningful chice t disadvantaged party Against public plicy Whether the terms were hidden r clearly expressed Bargaining prcess in all its flaws Substantive Uncnscinability: the clause r cntract itself is unfair (excessive price, remedy waiver, waiver f warranty) What the bargain says Oppressive terms Always decided by a judge Enfrced fr cnsumers cncern that cnsumers and sellers have unequal bargaining pwer that sellers can take advantage f Adhesin Cntracts Usually preprinted dcument cntaining nn-bargained fr clauses disguised in fine print favrable t drafter and ffered n take-it-rleave-it basis Party using cntract has respnsibility t make terms very clear burden n D t shw P had knwledge, understanding and meeting f the minds when P has less bargaining pwer Waiver f Remedy: must be clear and explicit in cntract t be enfrceable Cntract will be enfrced when ther party didn t read the cntract and s didn t knw f the clause In cmmercial transactins, uncnscinability will nt be fund when party had pprtunity t understand terms but chse nt t Grss inadequacy f Cnsideratin As seen in excessive price situatin uncnscinable term which curts can refuse t enfrce, and set value based n FMV ARE THE OBLIGATIONS UNDER THE CONTRACT SUBJECT TO CONDITIONS? Prmisr bund t perfrm nly after cntingency ccurs r nly until a cntingency ccurs when there is a cnditinal duty t perfrmance. Express Intent f cntracting parties and language used in cntract Curt will uphld express cnditins if ne party fails t fulfill cnditin precedent, ther party has n duty t perfrm Curt may find a cnditin excused where extreme frfeiture wuld ccur and damage t ther party s expectatins frm nn-ccurrence is minr Curt can find a substantially perfrmed cnditin t be a minr breach may award diminutin in value

14 Express satisfactin cnditin: satisfactin must be generally judged bjectively and with gd faith if acceptance is cnditin n buyer s satisfactin, buyer liable fr damages if claims dissatisfactin in bad faith and rejects the seller s tender Implied/Cnstructive Cnditins (usually bilateral cntracts) Implied-in-fact: parties wuld have agreed t had they thught abut it Implied-in-law: implied by the curts in interest f fairness Substantial Perfrmance: where cmplete perfrmance is a cnstructive cnditin t the ther s cunter perfrmance, cnditin may be excused if party has rendered substantial perfrmance, and ther party still has duty t perfrm (& deduct damages fr breach.) Each party s substantial perfrmance is generally a cnstructive cnditin t the ther s. Must be gd faith intentin t cmply, and defects must be unintentinal that d nt harm essence f cntract One wh has substantially perfrmed is entitled t payment fr perfrmance minus detriment t ther party UCC 2-601: Perfect Tender Rule n delay r deviatin frm specificatins in cntract are permitted; substantial perfrmance nt allwed (unless cntract invlves installments, then divisible) Cnditinal and dependent prmises failure t perfrm precedent cnditin relieves ther f duty t perfrm Perfrmance that takes time is precedent cnditin t ther s perfrmance Cvenants DEPENDENT unless therwise specified Divisible Cntracts: ne in which parties have divided up perfrmance int units/installments in such a way that each part s perfrmance is rughly equal t cmpensatin fr crrespnding perfrmance f ther party Divisible if expressly made s, r if reasnable interpretatin indicates a failure t perfrm ne part wuld cnstitute failure f basic cnsideratin bargained fr Cnditins satisfied/excused? Grunds fr excuse: 1.) agreement by bth parties 2.) cnduct by ne benefited by the cnditin which waives the cnditin 3.) changed circumstance that makes cmpliance impracticable 4.) discharge by curt IS THE AGREEMENT INCOMPLETE/DEFERRED? Agreement t agree unenfrceable If cntract can be rendered certain and cmplete by reference t smething certain, curt will fill in the gaps UCC bjective methd Parties must have intended t make cntract Must be a reasnably certain basis fr giving an apprpriate remedy Agreement t negtiate in gd faith is DIFFERENT frm agreement t agree Price Term given INTENT t cntract, curt will fill in price with a reasnable price unless the parties did nt intend t be bund unless there was a fixed price (UCC?)

15 PERFORMANCE MODIFICATION Elements Mutual assent Cnsideratin UCC Article 2: n need fr cnsideratin, but need fr gd faith Prmissry estppel enfrcement despite absence f cnsideratin When justice requires enfrcement in view f material change f psitin in reliance n prmise Statute did it have t be in writing? Original cntract require mdificatins t be in writing? Gd Faith Mdificatin Was the mdificatin a result f imprper threat, vilatin f bligatin f gd faith and fair dealing? IS A PARTY DISCHARGED FROM DUTY TO PERFORM? If a party is discharged fr any f the fllwing reasns, he is nt liable fr breach, as ln as n ne allcated the risk. Impssibility/Impracticability 1.) Destructin f the subject matter (which is essential t purpse) 2.) failure f the agreed-upn means f perfrmance 3.) Death/incapacity f a party Existing Impracticability Subject still exists, but in fact it des at an excessive and unreasnable cst t ne party which neither had bargained fr nr reasnably expected cst must be an extreme differed fr duties t be discharged Supervening Impracticability (smething happens after frmatin which makes perfrmance impracticable) Implied cnditin that subject matter exists when ceases t exists thrugh n fault f parties invlved, duties are discharged Music hall burning dwn If ne party culd have reasnably freseen and cntrlled the risk, curt will assign t that party (even if 3 rd party s fault) T claim impracticability, must shw: 1.) event made perfrmance impracticable 2.) nnccurrence f event was basic assumptin f cntract frmatin 3.) ccurrence f even was thrugh n fault f parties invlved 4.) n party assumed the risk UCC 2-615a (fllwing cmmn law): seller s nn-delivery will be excused if perfrmance has been made impracticable by the ccurrence f an event which nnccurrence was basic assumptin f cntract Assuming Risk: party will alne shulder burden f impracticability Unanticipated Hardship Increase in price NOT IMPOSSIBILITY

16 Unfreseen circumstance may cnstitute cmmercial impssibility Perfrmance mre expensive NOT impssibility Frustratin f Purpse (changed circumstances) Fundamental purpse f cntract destryed by supervening events; mst curts will discharge perfrmance issue nt inability t perfrm, but that it makes n sense because party will nt get the bargained-fr valuable cnsideratin. Elements: Supervening act r event Unfreseeable act r event at time f cntract frmatin Avwed purpse recgnized by bth parties at time f cntract Smething happens after the deal that des nt affect the ability t perfrm, but the REASON fr perfrmance DUTY OF GOOD FAITH Implied duty f gd faith and fair dealing in all cntracts Implied duty f gd faith nt t intervene with ther party s ability t perfrm the cntract SELLER S WARRANTIES Warranty f Title and Against Infringement Rightful transfer Gd title Express Warranty Descriptin, affirmatin, r sample that becme basis f bargain Implied Warranty f Merchantability Gd faith and fair dealing in trade gds will pass withut bjectin in the trade and fit fr purpse f use Implied Warranty f Fitness fr a Particular Purpse CONTRACT INTERPRETATION Curts first lk at the subjective intent f the parties, then it lks at the bjective intentins f the parties frm their cmmunicatins with ne anther. The curt lks at custm. Parle Evidence Rule: evidence f a prir agreement may never be admitted t cntradict an integrated writing, and may nt even supplement when writing intended t be cmplete. Parle evidence used when ne party is attempting t influence the legal effect f a written dcument by ffering evidence utside the dcument itself t supplement the meaning. If claims an incnsistency, will nt be admitted Integrated Agreement: written and final intended as parties last wrd Parl evidence cannt cntradict, but may be used t explain ambiguus terms Partial Integratin: written and final as t what it cvers, but may nt be the full deal Terms may be added Merger Clause: cntract prvisin that says this is the cmplete deal Types:

17 1. Curse f Perfrmance (mst persuasive): abut what the parties have previusly dne under this deal extrinsic evidence abut what the deal means 2. Curse f Dealing (less persuasive): what parties have previusly dne under earlier, similar deals 3. Custm in Usage (lease persuasive): what different peple have dne under different but similar deals Parl evidence cncerning the validity f the cntract (mistake, duress, illegality) will always be admissible UCC 202: Terms may nt be cntradicted by any evidence f prir r cntempraneus agreement, but curse f perfrmance, curse f dealing, and custm in usage may be used t supplement r explain. Gap Fillers Cmmn law recgnizes as a gap filler that there is an implied duty f gd faith and bligatin t use reasnable effrts t achieve UCC Sale f gds, rich surces f terms t fill the gap (Art. 2) Implied bligatin f gd faith Implied warranty f merchantability Obligatin n the seller that the gds must be fit fr rdinary purpses Adhesin Cntracts Drafted by ne party and reduced t frm presented n a take-it-r-leave-it basis Nt per se bjectinable N realistic pprtunity t negtiate Curts will interpret them s as t enfrce nly thse principles that are reasnable and that a cntracting party wuld anticipate HAS THERE BEEN A BREACH? Has smene nt dne what they agreed t d? If yes, wh? HAS THE CONTRACT BEEN DISCHARGED? Have the cnditins been satisfied r excused? HAS ONE PARTY MATERIALLY OR PARTIALLY BREACHED? Failure t pay amunts t a material breach if 1.) nnpayment makes it difficult fr the seller t perfrm; r 2.) failure creates such a large risk that the seller shuld have t perfrm ANTICIPATORY REPUDIATION If Prspective breach, either a refusal t perfrm in the future (anticipatry repudiatin), r prspective inability t perfrm, P can wait until date set fr perfrmance r can sue immediately if waits, risks chance cntract will be reinstated Inability t perfrm: when present, the party can suspend perfrmance and cancel cntract; when unclear, can nly suspend and wait Retractin f repudiatin: can ccur until aggrieved party has sued fr breach r changed psitin materially in reliance n repudiatin

18 Repudiatee may nt be able t recver if shwn that wuld have been unable t perfrm his part f bargain; wes a duty t MITIGATE DAMAGES arising frm repudiatin with gd faith effrt; if fails t d s, will nt be entitled t full damages if injured party treats cntract as still in frce after repudiatin, waives the repudiatin and can nly sue when actually breached UCC 2-609: either party has a right t demand adequate assurances f perfrmance frm the ther if reasnable grunds exist fr believe the ther party s perfrmance may nt be tendered; unless such assurance can be prvided, the asking party can suspend perfrmance fr which has nt already received the agreed return (McD s case) EFFICIENT BREACH Efficient Breach: when perfrmance is INEFFICIENT Inefficient breach: where the value derived when the breaching party reemplys resurces cmmitted t the cntract is equaled r exceeded by the lss t the prmisee Efficient breach is psitive, if there are expectatin damages available fr the nn-breaching party when the breaching party is able t pay the expectatin damages t nn-breaching party and still end up better than wuld have if the cntract had been perfrmed Rewards risk-taking in market transactins AVAILABLE REMEDIES? MITIGATING DAMAGES One cannt recver fr damages that culd have been avided with the party s reasnable effrt (and withut unreasnable risk f hardship) One has a duty t reasnably prtect interests and prevent further damages frm ccurring LIQUIDATED DAMAGES CLAUSE? Cntract prvisin that attempts t fix, r set the way f fixing, damages Valid as a general rule gd faith effrt by parties t estimate actual damages that wuld prbably ensue in case f breach Requirements: 1.) At time f cntract, actual damages in event f breach wuld be impracticable r almst impssible t ascertain 2.) Amunt agreed upn must be a reasnable frecast at time f cntract f fair cmpensatin fr harm frm breach Cmmn Law: must be reasnable at time f frmatin; desn t matter if actual damages result r nt UCC 2-718: liquidated damages prvisins d nt have t bbe freseeable at time cntract was frmed, but may be enfrceable after breach if they prve reasnable related t actual damages

19 Agreed Damages: where the agreed limited remedy fails its essential purpse the UCC remedies may be applied even if the limited remedy agreed t wuld exclude them ( 2-719) EXCEPTION: Parties cannt by agreement set ut amunt f damages that will really be a PENALTY (pecuniary threat t prevent breach) Nt valid if clause is disguise fr indirect penalty Nt a penalty clause when ne side puts up a lt up frnt, and liquidated damages reflect large amunt f cntract price SALE OF GOODS? UCC 2-713: Measure f damages fr repudiatin by seller is difference between the market price at time f breach and cntract price, EXCEPT when gds are made uniquely fr buyer EQUITABLE REMEDIES AVAILABLE? Specific Perfrmance Curt rdering smene t d what they agreed t d Emplyed nly when legal remedies viewed inadequate Alternative: legal remedy f mney damages Requirements: Cntract definite and certain Inadequacy f mnetary damages Injury cannt be estimated with substantial certainty, r mney cannt substitute fr cntracted perfrmance Enfrcement des nt cause great hardship Enfrcement is feasible Mutuality f remedy n lnger required Real Estate Reasnable remedy, as real estate pieces are unique Sale f Gds Usually NOT a reasnable remedy If gds are UNIQUE, then SP will be pssible remedy Art, antiques, custm-made gds UCC 2-716: SP may be decreed where gds are unique r in ther prper circumstances mney damages usually adequate; nn-breaching party must prve he was ttally unable t cver the breach Enfrced when gds unavailable n market and buyer s business depends n gds Service Cntracts NEVER Injunctive Relief Negative Specific Perfrmance Keeping persn frm wrking fr yur cmpetitr, even if yu can t get them t wrk fr yu

20 EXPECTATION DAMAGES? General Standard fr damages make the wrld as it wuld have been if cntract had been prperly perfrmed awarding mney damages t cmpensate the nn-breaching party fr the lss f benefits that party wuld have received if the cntract had been perfrmed Lk t the pen market t determine damages Limitatins: 1.) Avidable Damages Nt recverable Fact Patterns: 1.) agreement fllwed by a breach fllwed by cntinued perfrmance by nn-breaching party. (Was the breach clear and unambiguus? Did cntinuing perfrmance actually decrease damages?) 2.) Emplyment Cntract plaintiff culd have gtten a cmparable jb and didn t d s. 2.) Cnsequential Damages (anticipated prfits) Recverable ONLY IF FORESEEABLE by bth parties and in cntemplatin f bth at time f cntract P saying because yu breached, smething else BAD happened Special damages that d nt arise in every situatin 3.) Ecnmic Waste Example, cntracts invlving wrk dne n land, and when wrk is dne, wrker agrees t restre the land plaintiff wants cst f ding what the cntract said wuld be dne, even thugh it will cst mre t restre the land than the land is wrth Yu can get bth expectatin damages and cnsequential damages tgether RELIANCE DAMAGES? Curt putting nn-breaching party in as gd a psitin as befre the cntract was made Includes ut-f-pcket csts, etc. Used when t difficult t figure ut expectatin damages r in prmissry estppel claims RESTITUTION DAMAGES? Defendant had t pay Plaintiff back fr the value f any perfrmance that he has benefited frm by P s perfrmance when restitutin is greater than cntract price PUNITIVE DAMAGES? NEVER fr breach f cntract, nt under cmmn law r UCC Only awarded when there is additinal trtuus cnduct (fraud, misrepresentatin, willful deceit) Public Plicy Reasns Apprpriate t award as lng as prprtinate t actual damage Evidence f D s wealth is a factr Emtinal Distress

21 Available if perfrmance f cntract is f such nature that breach wuld freseeably cause emtinal damage CONSEQUENTIAL DAMAGES Damages that ccur as a cnsequence f special facts and circumstances relating t the specific transactin May nt be within cntemplatin f breaching party May be recvered nly if it is established that they were freseeable t the breaching party at time f cntract BUYERS VS. SELLERS REMEDIES (UCC) Seller s right t cure: When an seller has made a nncnfrming tender that was rejected by the buyer, the UCC prvides the seller with the pprtunity t crrect the nn-cnfrmity 1.) if the cntract time has nt elapsed, seller may d this if ntifies buyer f intentin t d s, r 2.) within a reasnable time after the cntract perid if the seller believes the tender wuld be accepted Sellers remedies fr breach: 1.) if the buyer breaches befre the gds have been accepted, seller may resell t a third party, an may recver the different between the cntract price and the subsequent sale, plus incidental expenses, less thse that culd be avided 2.) If the buyer has accepted the gds r they were destryed after the seller n nce had the risk, the seller may maintain actin fr the price r the cntract price Resale f gds, damages fr buyer s nn-accepting r repudiatin, damages fr lst prfits, cntract price Buyer s remedies fr breach: if the seller breaches, the buyer may make a reasnable purchase f substitute gds in gd faith withut reasnable delay, and recver the difference between the cst f the gds and the cntract price, and incidental and cnsequential damages less any expenses saved Recvery f price paid, cver, damages fr nn-delivery r repudiatins, specific perfrmance, damages resulting frm acceptance f nncnfrming gds, resale and ffset, deductin f damages frm payment due ATTORNEY FEES American Rule: everyne pays their wn VOIDABLE CONTRACT REMEDIES Refrmatin Restitutin INSOLVENCY Buyer may btain gds themselves if under certain circumstances where the buyer has made part payment and the seller becmes inslvent (unable t pay debt)