Business Law (ACCT:4300) - Midterm 1

Covenant not to sue

"Will not follow up on a claim with a lawsuit" Does not always bar further recovery An agreement not to sue on a present, valid claim

Good faith

"honesty in fact in the conduct or transaction concerned." In the context of merchants means "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade."

Mutual assent missing - No contract

Opinions, proposals, preliminary negotiations, invitations to bid, advertisements, jokes, auctions

Modifications to a Preexisting Contract - UCC modification

Parties can modify contract for sale of goods without new consideration provided they 1) intend to modify contract and 2) act in good faith. Doesn't matter if it is a merchant or not

2 exceptions under UCC §3-311 to prevent inadvertent accord and satisfaction.

Business sends a conspicuous statement to customers that communications concerning disputed debts including instruments tendered in full satisfaction of debts must be sent to a designated person, office or place; and the customer didn't send the check with the "paid in full" to the specified person, office, or place. Or (can't use both): If the business proves that within 90 days after payment of the instrument the business tendered repayment to the person against whom the claim is asserted.

Limitation of liability clauses in contracts

Damages are capped

Candy store damages example

Didn't get sugar on time and had to cover his position Compensatory damages - had to cover my position, so can recover the $0.10 differential that I would not have had to pay otherwise (but had to since I had to source the sugar from someone else) Incidental damages - cost if he had to do extra shipping to get the substitute sugar to his store Consequential damages - lost profits (net profits)

Frustration of Purpose doctrine

Duty to perform discharged if unforeseen circumstances have intervened after contract made which make it impossible to fulfill purpose of contract. E.g., King's coronation · Exception - party has assumed risk under contract.

Variant Acceptances are treated differently under Common Law and the UCC. *Under UCC

Examine intent of parties. UCC recognizes buyer and seller may have standard forms containing language favorable to them. Buyer makes offer using his standard form. Seller accepts offer using her standard form. Battle of the Forms UCC §2-207

Damages for Misrepresentation

Common remedy for misrepresentation is rescission or avoidance of the contract. May also be able to recover for damages or other remedy. Out-of-pocket rule may be recoverable under fraud, negligent misrepresentation or non-fraudulent misrepresentation depending on state law: damages = (what was represented - what was received) Benefit of the bargain rule may be recoverable under fraud or negligent misrepresentation depending on state law: damages = (what value was expressed in misrepresentation - what was received)

Exception to the one year rule

When one party has fully performed

§ 2-207. Battle of the Forms - Example 2 •Merchant buyer's offer includes arbitration term. •Merchant seller's acceptance does not address arbitration.

Yes there is arbitration b/c there's no conflict

Assume, I ask to borrow $6,000 from you and promise to pay it back over 6 years, you agree and loan me the money; and I fail to pay it back. Would a court enforce my oral promise to you to repay the $6,000?

Yes, the exception will come into play here b/c one party has fully performed (by loaning the money), so it would be unjust to not hold the other party to performance (force the other party to repay) Promissory estoppel

If you accept less than what is owed...

You are voluntarily relinquishing your right to go after the person for the rest of the money E.g., paying your rent late, but landlord accepts it

Common Law Rule in regard to transfer of title

You can transfer up to the title you have. Apply this if what is being sold is real property

Contractor builds house; Homeowner agrees to pay $350,000. No changes are made to specifications. House is partly finished. Contractor refuses to finish house unless Homeowner pays additional $25,000. Homeowner agrees, Contractor finishes house, and Homeowner then refuses to pay additional $25,000. Can the contractor successfully collect the additional $25,000?

Homeowner did not get any additional consideration (new changes to the house) in exchange for the $25,000, so no, the contractor cannot successfully collect the additional $25,000 If there was an additional agreed upon change / addition, then it would be an enforceable contract

Hammer v Sidway

If Story II had NOT had a legal right to engage in the behavior that he agreed to give up, a different conclusion would have been rendered

Settlement of a liquidated claim at CL

If you compromise and pay less than amount owed, payment is insufficient consideration to support a promise to discharge debt. Debtor had preexisting duty to pay entire amount owed. Debtor could pay part of money owed plus something else (e.g. pen); and debt would be discharged. -Must have consideration for the forgiveness of the indebtedness

Illusory promises

Impose no obligation Look for wish to buy, want, desire

Electronic signing

In some cases, electronic writing will be permitted—e.g. UETA and E-Sign

Novation

Involves a substitution of parties, not performance. Example: A agrees to buy, and B agrees to sell, B's house. A decides to repudiate the contract and finds B a substitute buyer C. A cannot unilaterally substitute C for A. A & B & C must all agree that C will be substituted for A under the contract.

Discharge By Breach

Non-breaching party has cause of action for damages against breaching party and may be able to recover damages. Non-breaching party may also have duty to mitigate damages.

Revocation

Offeror withdraws offer

Statutes of Limitations

Operate to limit period of time person can bring suit. Do not actually discharge obligations.

Nominal Damages

Small amount not indicative of loss

Tort exception to the intent to deceive

Statement that was made with grossly, willful, or reckless intent

Firm offer by merchant - Read and know UCC §2-205.

§ 2-205. Firm Offers. An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

Prenuptial agreement

•Requires writing. •Requires disclosure. •Not enforceable if not voluntary. •Must be signed by the party against whom enforcement is sought.

Unliquidated debt

Amount in dispute

Mutual Assent

An agreement between the parties, which by its nature requires Offer and Acceptance

Quasi Contracts

1. Aren't contracts but a remedy imposed in court to avoid injustice 2. Why would the law grant right of recovery? To avoid unjust enrichment.

Three requirements of an offer

1. Offeror must have serious intention 2. Offer must have definite terms 3. Offeror must communicate offer to offeree

Contract of adhesion

A form contract which has been unilaterally drafted by one party. The other party has virtually no power to negotiate terms. Offered on a take it or leave it basis. Insurance policy, apartment lease, etc.

Non-fraudulent Misrepresentation

A material misrepresentation made without knowledge of its falsity

Definition of a Buyer in the Ordinary Course of Business (UCC §1-201(9))

A person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind

From the Restatement (Second) of Contracts §90

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise

Variant Acceptances are treated differently under Common Law and the UCC. *CL Mirror Image Rule

Acceptances must be positive and unequivocal. Should not change offer and should be mirror image of offer. If not, counteroffer. Counteroffer acts as both a rejection of the original offer and a new offer

Liquidated debt

Agreed upon

Liquidated Damages

Agreed upon in contract—very common in business. What is my probable loss if there is a breach? Here's how to be able to describe liquidated damages--liquidated damages are enforceable by courts if the liquidated damages are a reasonable forecast of probable loss at the time the contract was entered into. Note, use a prospective approach to calculate liquidated damages (i.e. consider at time contract was entered into, not when the dispute arises). If no relationship to probable loss then unenforceable as a penalty

Accord and Satisfaction

Use to settle claim where debt is disputed in "good faith" so debt is unliquidated. Agreement where debtor offers payment and creditor accepts less than amount claimed owed. Agreement is accord. Satisfaction is performance of accord. New contract is substituted for old contract.

Terms of offer must be definite (CL vs UCC)

CL - Names of parties, subject matter of contract, consideration, time of delivery UCC - Quantity -Two exceptions: Requirements contract, Output contract

Impossibility

CL: Persons only excused from performance of duties under contract due to objective impossibility—no one could render performance. · Bottom line: "Destruction of the subject matter or of the agreed upon means of performance of a contract, without the fault of the promisor is excusable impossibility." E.g. House, which was sold, burns down. Person to perform signing act dies. · Subjective impossibility did not generally excuse performance. · Duties of contract can't be fulfilled

Modifications to a Preexisting Contract

CL: must be supported by mutual consideration or not enforceable. This rule is very harsh. Replace with Restatement's position.

Bankruptcy

Can discharge duties (e.g. debts) under contract.

Two themes that are seen all through the UCC

Good faith and commercial reasonableness

Voidable contracts. Who can avoid the contract?

The victim of undue influence or misrepresentation. Not the perpetrator.

Unconscionable Contract or Clause

UCC 2-302(1) provides that if court finds as a matter of law that a contract or any clause of a contract is unconscionable at the time it was made, court has 3 remedies: 1. It may refuse to enforce contract; or 2. It may enforce remainder of contract without unconscionable clause; or 3. It may limit application of unconscionable clause to avoid unconscionable result.

Commercial Impracticability

Under Restatement of Contracts and UCC, performance of contractual duties need not be impossible, simply commercially impracticable. Be able to define (went over in class so should be in your notes). Need unforeseen circumstances · Excessive cost generally doesn't count.

Release

"Waiving claims" Contract where party fofeits right to pursue legal claim against other party (e.g. creditor releases debtor from debts). Party waiving right cannot then pursue claim under right. Requires good faith and consideration. Often release required to be in signed writing. Often contains covenant not to sue.

§ 2-403. Power to Transfer; Good Faith Purchase of Goods; "Entrusting".

(1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though (a) the transferor was deceived as to the identity of the purchaser, or (b) the delivery was in exchange for a check which is later dishonored, or (c) it was agreed that the transaction was to be a "cash sale", or (d) the delivery was procured through fraud punishable as larcenous under the criminal law.

§ 2-201. Formal Requirements; Statute of Frauds.

(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. (2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable: (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller'sbusiness and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606)

Equitable remedies

-Rescission (cancel or undo contract) -Reformation (court may reform or rewrite contract to reflect intentions of party at time contract made) -Restitution (unjustly enriched party must return goods, property, or money) -Specific performance (unique personal property or land, a court will not require a person to perform personal services) -Injunction (person ordered to refrain from doing something, non-compete)

Destination contracts

1. Seller is required to tender delivery of conforming goods at a specified destination. 2. Tender occurs (and title passes hands) by delivery at specified destination when: a. Seller puts goods at Buyer's disposal and. b. Seller notifies Buyer and. c. Seller tenders any necessary documents.

Duress (2 types)

1) Physical Compulsion - renders agreement void. E.g. you sign the contract because you are threatened with serious bodily harm if you do not. 1) Economic or social coercion - renders contract voidable at option of victim · Test for duress is subjective · Economic Duress - note: excessive costs / hard bargaining alone will not constitute economic duress. · Requires unequal bargaining power of parties · Defendant cause of plaintiff's financial difficulties. · Plaintiff had no choice but to agree to defendant's terms.

Incompetent Persons - Adjudicated and Not Adjudicated

1. Adjudicated incompetent (court order has declared person to be incompetent) - Void 2. Not adjudicated incompetent but nevertheless incompetent - Voidable 3. Incompetent persons whose contracts are voidable, including minors, can ratify contracts after incompetency cured through words or actions - e.g. While competent, they sell property they previously contracted for while incompetent.

Three Modifications to the UCC Perfect Tender Rule

1. Agreement by parties limiting buyer's right to reject nonconforming goods. 2. UCC also recognizes 2 situations where seller may cure: a. If time for performance has not expired, Seller may: (i) notify the Buyer of the intention to cure, and (ii) within the contract time make a conforming delivery. Seller has to first give the buyer reasonable notice of his intention to cure the defect. b. Where Buyer rejects a nonconforming tender which Seller reasonably believed would be acceptable to the Buyer, Seller may: (i) notify Buyer of the intention to cure, and (ii) have further reasonable time to substitute a conforming tender.

Upon Rejection, buyer must... Merchant vs. Non-merchant

1. Buyer = non-merchant, Buyer has no additional obligation toward rejected goods and may cover himself by purchasing substitute goods elsewhere. 2. Buyer = merchant. a. Buyer must follow reasonable instructions of the Seller about disposition if Seller has neither agent nor business at place of rejection. b. If no instructions are received within a reasonable time after notification of rejection is given, and goods are either perishable or subject to rapid decline in value, Buyer is obligated to make reasonable effort to sell them for Seller's account. i. If goods are not perishable nor subject to a rapid decline in value, Buyer may: (a) store the goods, (b) ship the goods to the Seller, or (c)sell the goods on behalf of the Seller - and keep reasonable expenses and up to a 10% commission.(Such actions do not constitute acceptance.)

Contractual Capacity - Minors have choice about most contracts when they reach age of majority in state.

1. Can disaffirm or ratify contract. 2. Contracts are voidable at minor's option although some state statutes may make exceptions for necessaries or student loans. 3. Party who is not minor cannot avoid contract based on minority status of minor. 4. Minors can disaffirm any time before reaching age of majority and generally within a reasonable time after reaching age of majority as long as they have not ratified contract (must disaffirm entire contract and show an intent not to be bound). a. Exception: Contracts for the sale of land cannot be disaffirmed until after the minor has reached the age of majority. Student loans is another example b. Analyze whether a reasonable period of time has passed by first looking to see if a state statute applied and if not, by looking at the circumstances of each case

Statute of Frauds

1. Certain contracts must be in writing to be enforceable (agreement falls within statute of frauds). 2. No specific form of writing required. Can group writings together to show agreement existed. See if general rule of law applies first, then look to see if an exception applies

Consideration

1. Consideration is what you give in exchange for a promise. You must have consideration for a contract to exist and be enforceable. a. If you don't have consideration, generally you have an unenforceable promise or a gift. b. Past consideration is no consideration (e.g., got car for free). Must be a bargained-for exchange

2 elements to consideration

1. Consideration must be something of value or have legal sufficiency. a. Court generally will not evaluate whether the price paid was the right price (unless contract defense like fraud or undue influence may be present). 2. Consideration must be bargained for.

Example of predominant purpose test

1. Example: You purchase carpet for your home and the carpet store will sell you the carpet and install it for you. In a state that uses the predominant purpose test, the UCC would be applied to this transaction in the event of a dispute because your primary purpose in purchasing carpet was to purchase a good, not a service—that is, the service was incidental to the sale of a good. 2. Example: In the Pass v. Shelby case (TN), a servicer of aircraft replaced some parts on a private plane. The plane crashed and the decedents' estate sued the servicer based on a breach of warranty claim under the UCC. The servicer argued that the UCC shouldn't apply and prevailed. The court determined that the primary purpose of the transaction had been to service the plane, not sell the parts.

Exceptions to the Parol Evidence Rule

1. Subsequent modification 2. Evidence showing contract void/voidable 3. Evidence of incomplete contract 4. Prior dealings 5. Orally agreed to condition 6. Gross clerical error 7. Ambiguous terms

Plaintiff-Purchaser George alleges that Defendant-Seller Jones agreed to sell, and George agreed to purchase, 320 acres of land, known as Jones Farms for $3,000 per acre. Although there was no written agreement, George claims that under the oral agreement George was to pay $24,000 in earnest money up front and $936,000 when Jones delivered possession of the land to George. George claimed that he made the initial payment of $24,000; however, Jones then breached their agreement by agreeing to sell the property to a third party.George now wants the court to order Jones, who still has possession of the land, to turn over possession of the land to George.

1. George fails the partial performance doctrine b/c he does not have possession of the land 2. He has not paid the majority of the purchase price Jones had to return the $24,000 though, as an adequate remedy of law

Effective Moment of Acceptance

1. If contract addresses when acceptance occurs, contract controls. 2. Authorized means - Acceptance can be made in any manner reasonable under circumstances if contract does not specify. 3. Mailbox Rule - Acceptance is effective on dispatch (when it leaves my hand and is put into official post office box). This is so unless specified otherwise in the contract. 4. Acceptance following a prior rejection (when parties use mail) - If offeree mails rejection, then changes mind and mails acceptance, acceptance may be effective if acceptance is received by offeror prior to receipt of rejection. Use common sense! Consider reliance of offeror. 5. Email - Uniformed Electronic Transactions Act (UETA) says you can form contracts electronically

Parol Evidence Rule (know rule and exceptions)

1. If written agreement considered integrated or final, parol evidence rule applies and covers when parties may introduce evidence in court in addition to written contract. 2. Agreements made before contract merge into written contract which stands for parties' agreement. Then written agreement cannot be changed absent evidence of fraud, duress, mistake, etc. 3. Does allow evidence into lawsuit which is not inconsistent with written agreement and which serves to clear up ambiguities. 4. Would not allow prior oral or contemporaneous evidence or written negotiations or agreements as evidence into lawsuit which modify written agreement

Discharge by Operation of Law

1. Impossibility 2. Subsequent illegality 3. Frustration of Purpose doctrine 4. Commercial impracticability 5. Bankruptcy 6. Statutes of Limitations 7. Material alteration of contract

2 types of Non-fraudulent Misrepresentation

1. Innocent misrepresentations are false representations made without knowledge of their falsity and made with due care. 2. Negligent misrepresentation are false representations made without knowledge of their falsity and made without due care.

Elements of a contract

1. Mutual Assent (offer and acceptance) 2. Consideration 3. Contractual Capacity (e.g., you must be mentally competent to contract) 4. Legality (e.g., you can't use the courts to enforce a contract to import illegal goods or to sell a baby or to enter into a murder for hire contract) 5. Sometimes a contract required to be in writing (e.g., contracts to transfer an interest in real property must be in writing to be enforceable). Such contracts are said to be within the statute of frauds.

Illegal Bargains or those Prohibited by Public Policy - Non-competes

1. Non-Compete Agreements - Party that wants to impose non-compete agreement must be protecting legitimate business interests (e.g., keeping trade secrets secret) and be reasonable as to time and geography. a. Agreements not to compete arising out of the Sale of Business. i. Must be reasonable as to time and geography. ii. Must not impose an undue hardship on the person selling business and public. iii. In general, these agreements are enforceable since the parties are assumed to have equal bargaining power. b. Covenants not to compete in Employment Contracts. i. Courts may scrutinize these agreements between an employer and employee more carefully than agreements between a buyer and seller of a business. Employer generally has more power than employee. While these agreements are generally enforceable, they may not be in, for example California. California will not enforce a covenant not to compete between an employer and employee but may enforce a similar agreement between a partnership and a partner. ii. Must be reasonable as to time and territory. iii. Employer must show restriction necessary to protect legitimate business interests—e.g. protect trade secrets or customer lists. iv. Courts will balance the employer's right to protect interests against employee's right to work. c. Courts may reform the agreement rather than refuse to enforce it completely Non-competes need to be supported by consideration to be enforceable

Discharge By Performance Or Tender

1. Objective versus subjective standards for performance. 2. If other party rejects my tender of performance (e.g. I've offered to perform and I'm ready, willing, and able to perform), I may treat rejection as repudiation which excuses me from further performing under contract.

Offers can be terminated by action of the parties

1. Offeror can revoke offer (but some offers are irrevocable) 2. Offeree can reject offer 3. Counteroffer - operates as a rejection and as a new offer. Note, at common law, the acceptance is supposed to mirror the offer. If not, you may have an offer followed by a rejection and a new offer. This is different than the UCC — see "battle of the forms"

Condition-satisfaction clause

1. Performance must be personally satisfactory to one of the parties as a condition precedent—subjective standard. 2. Satisfaction is judged by a reasonable person standard 3. Satisfaction is judged by third party—often based on reasonable person standard. Can be subjective or objective (metrics can be written in contract terms)

Some promises will be enforced despite the absence of consideration.

1. Promissory estoppel 2. New promise following expiration of statute of limitations. E.g., Jack owes Bob $15,000. Bob can no longer sue Jack for the money because the statute of limitations has expired. Jack now promises to pay Bob $10,000. Is this enforceable? Yes, up to the amount of the new promise, which is $10,000. 3. Charitable subscriptions

Shipment Contracts

1. Seller is required or authorized to send goods to buyer and contract does not require him to deliver them at particular destination. 2. Tender occurs (and title passes hands) at point of shipment as long as: a. Seller delivers goods to a common carrier; and. b. Seller makes a contract with carrier which is reasonable as to the goods; and c. Seller delivers or tenders any documents relevant to buyer's interest; and d. Seller promptly notifies buyer of shipment. e. Seller's failure to notify Buyer of shipment is a ground for rejection only if material delay or loss ensues

Offers can also be terminated by operation of law

1. Time period expires (e.g. offer was good for 24 hours and the 24 hours has passed). 2. Subject matter is destroyed (e.g., you offer to sell your house and your house burns down). 3. Offeror or offeree has died. a. Exception. Options supported by consideration are not terminated by the death of the offeror or offeree. 4. You offer to do something that later becomes illegal.

Illegal Bargains or those Prohibited by Public Policy

1. Usury - establishes maximum rate of interest that can be charged. 2. Gambling - varies by state 3. Licenses a. Regulatory licenses protect public from unqualified practitioners. If not licensed, courts unlikely to enforce contracts to pay for services. b. Revenue licenses don't have primary purpose of protecting public from unqualified practitioners and instead are designed to generate taxable revenues for state. Courts would probably allow reasonable payment for services under a quasi-contract theory. 4. Unconscionable Contracts - know the difference between substantive (actual terms grossly unfair) and procedural unconscionability (important terms buried in fine print, bargaining power of parties unequal). 5. Exculpatory Clauses (relieves one party of liability if damages are caused during the execution of the contract) 6. Illegal discriminatory contracts

Statute of Frauds - Writing must:

1. Writing must: a. Identify parties. b. Specify subject matter with reasonable certainty. c. Be signed by party against whom it is to be enforced

4 elements of fraudulent misrepresentation

1. false representation or omission of 2. a material fact (facts must actually exist—not statement of opinion unless rendered by expert; also not statements of law, puffery, or predictions of future value) · material - would the fact induce a reasonable person to manifest assent? 3. scienter - made with knowledge of the fact's falsity and the intention to deceive; and 4. justifiable reliance Plaintiff suffered damages

Fraud - 2 types for our purposes

1. fraud in the execution - Misrepresentation as to character or essential terms of contract that deceives other person—having a person sign document that has another document's contract's terms above it. Renders agreement void. 2. fraud in the inducement or fraudulent misrepresentation. Renders agreement voidable.

Facts supporting formation of contract in Lucy v Zehmer

Appearance of contract Discussed agreement for 40 minutes Mrs. Zehmer also signed Provision for examination of title Lucy took possession of agreement and Zehmer did not ask for it back

Example: In consideration of $3,000, Able [note, the answer to this problem will not depend on whether Able is a merchant or non-merchant] gave Baker a written option to purchase his 40 acre farm on or before March 1. Is this enforceable? [Hint, in order to determine whether common or Article 2 of the UCC applies, examine what is being sold.] Explain the rule of law.

Apply the common law (b/c real property) The option has to be supported by consideration and it is in writing under the statute of frauds He is required to keep it open until March 1st then

Formation of a sales contract

At CL, contract terms must be definite and complete. UCC has modified this and provides that even though a contract omits one or more terms, it does not necessarily fail.

Destination contract example Company A (buyer) in Chicago orders 100 computers from Company B (seller) in Iowa, F.O.B. Company A in Chicago. What kind of contract is this—shipment or destination?

Buyer's city Destination contract - B/c we are sending the goods to the buyer Buyer has title and risk of loss at the destination

§ 2-207. Battle of the Forms - Example

Buyer's form provides for arbitration; Seller's acknowledgement states no arbitration. Seller ships goods, buyer accepts, parties dispute quality. Majority view - terms cancel each other out. Minority view - seller's term deleted. In this example, since conflicting terms, throw them both out.

§ 2-207. Additional Terms in Acceptance or Confirmation. BATTLE OF THE FORMS

Can be used to decide whether contract exists or where parties agree there is contract and disagree about terms. Acceptance is ok even if on a different form unless offer is conditional on agreeing to exact terms. [Note: This is different than CL mirror image rule.] Majority agree that conflicting terms generally do not become part of the contract unless specifically accepted. § 2-207. Additional Terms in Acceptance or Confirmation. (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: · (a) the offer expressly limits acceptance to the terms of the offer; · (b) they materially alter it; or · (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (3)Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

Settlement of a Liquidated Claim using Restatement

Compromise of a debt disputed in good faith must be supported by adequate consideration under Restatement. You must pay money owed plus pay something else that approximates money owed. If they are in the process of compromising, then it is an unliquidated debt E.g., If they settle on $750, then Able is giving away the right to collect the full $1000 (b/c they compromised and agreed) Do not have to provide consideration (to make up for the additional amount owed) if you are compromising on a debt in good faith

Engagement ring dilemma

Conditional gift theory (most states) -E.g., "defendant [Her] intended to terminate the engagement when she ordered plaintiff [Him] to leave her home, clearly the condition attached to the gift of the engagement ring was not fulfilled." Fault-based - depends who broke off engagement

Performance, and Discharge

Conditions Precedent, Subsequent, and Concurrent Express (stated in terms) or Implied (part of agreement, but not stated expressly) Conditions

GFPV example

Example: Bill sells John his car; and John writes a personal check to Bill for the purchase price. The check is returned for insufficient funds (i.e., John doesn't have enough money in the bank to cover the amount of the check). John then sells the car to Jody, a good faith purchaser for value. John received voidable title because he paid for the car with a check that later bounced. John has transferred good title to Jody. Bill has a cause of action against John but cannot recover the car from Jody under §2-403.

Liquidated debt with inadvertent accord and satisfaction

Example: Custom admits he owes $24,000 yet sends a check for $12,000 marked "paid in full." Business depositing check does not operate as accord and satisfaction because debt is liquidated.

Partial Performance Doctrine

Exception to the Rule: Partial Performance Doctrine where the plaintiff must prove that he or she 1. has possession of land; 2. either has made substantial improvements or paid of most of purchase price in reliance on that possession of land; and 3. only explanation for parties' performance is the existence of a contract; or plaintiff relied on oral contract and would suffer severe hardship.

Undue Influence

Exists where party in dominant position unfairly persuades or influences another. Requires confidential relationship (e.g. parent/child; trustee/beneficiary; physician/patient). Look for weak victim in fact pattern To analyze look at 1) whether there was confidential relationship, 2) whether one party dominated weaker party's mind or emotions, and 3) how weak was the alleged victim. For example, elderly person's paid caregiver isolates patient from family, tells her that her family doesn't love her anymore and her children are only after her money (not true). Patient deeds home to caregiver for far less than fair market value. E.g., Getting weak party to transfer goods at a price that is far below FMV

Shipment contract example

Fact pattern: FOB (free on board) Des Moines (city) Figure out if that's the buyer's or the seller's city If all the seller has to do is put the goods with a common carrier at the seller's city - shipment contract

Monetary Damages

For losses which are 1) foreseeable, 2) established with reasonable certainty, and 3) not avoidable. For example, plaintiff should not be able to recover lost profits, a type of consequential damages unless the lost profits are foreseeable. Damages must be capable of being calculated with reasonable amount of certainty The purpose of contract damages is to protect the expectation interest (had contract been performed), the reliance interest (prior position), and the restitution interest (restore benefit).

Consequential aka special Damages

Foreseeable damages that result from breach of contract (e.g. lost profits and injury to person or property Caused by other than breach of contract (indirect)

Some offers are irrevocable

General Rule: Option contract must be supported by consideration at common law to be enforceable An option contract at common law must be supported by consideration to be enforceable (use for real property).

Unilateral mistake

Granting of relief is rare but may be granted. Most common example involves subcontractor whose bid is so low that contractor knows subcontractor made a unilateral mistake and it would be unconscionable to enforce bid (then voidable contract) Unilateral mistake exception does not apply if the receiving party did not / should not have known that it was an error in the bid

Unilateral offer

May be accepted by performance

Subsequent illegality

If legal performance subsequently becomes illegal, duty to perform discharged.

Material Breach

If material breach, non-breaching party may be excused from performing and may be able to get out of the contract. If breach not material, non-breaching party may be able to recover monetary damages but is unlikely to be able to get out of contract

Substituted Performance

If neither party at fault and agreed manner of delivery becomes commercially impracticable (e.g., failure of loading or unloading facilities, unavailability of agreed-upon carrier) a substituted performance, if commercially reasonable, must be tendered by Seller and accepted by Buyer. Neither Seller nor Buyer is excused under doctrine of impossibility of performance if practical alternative exists.

Implied warrant of habitability

Implied condition Want all the utilities in working ability, want it to be clean, locks should work, should be no one else living there

Accord & Satisfaction additional details

Involves two parties (e.g. debtor and creditor) coming to an agreement about how to resolve a disputed claim, which includes providing different performance. Sometimes an accord and satisfaction is created by accident. General common law rule is that customer with good faith dispute about what is owed (unliquidated amount) may remit check with "paid in full" in memo line and business taking check waives right to collect further amounts if business deposits in account and receives payment on check. This is one way to create an inadvertent accord and satisfaction. The UCC provides some help to businesses in Article 3 to help combat this problem. 2 choices under common law—return check or cash check as full payment (latter creates argument that payee has waived right to collect full amount at common law).

IRAC Method

Issue - phrase as an interrogatory or question -isolate the question or questions before you and/or the court (or in a problem) Rule(s) of Law Analysis/Application of rule(s) to facts Conclusion

Consideration doesn't have to flow directly to promisor (example)

Joan promises in writing to pay a debt due by her daughter, Sally, to Susan, on Susan's agreement to extend Sally's payment time six months. Is this enforceable? Yes.

Implied covenant of quiet enjoyment

Landlord is not supposed to interfere with tenant's possession.

Ambiguous terms examples

Latent ambiguity - Raffles (ship) case Patent or Intrinsic ambiguity - A contract for the sale of real estate contains a legal description of the real estate which is in conflict with the street address (which is also listed in the contract).

Mutual Assent must be shown (Objective Theory of Contracts)

Law applies objective standard (not subjective standard) to determine whether conduct manifested by parties rises to level of mutual assent. What would reasonable person assume parties meant by their conduct? Would reasonable person assume that party intended to make an offer or intended to assent? The court doesn't read minds. In Leonard v. Pepsico, a reasonable person would assume that Pepsico did not intend to make an offer which could be accepted (i.e., a joke is not an offer). Also Lucy v Zehmer.

Necessaries

May be food, clothing, shelter, cars needed to get to work, etc. Incompetent persons, minors may still be liable for reasonable value (FMV) of necessaries under a quasi-contract theory. Note: what is a necessary for one person may not be for another

Definition of a merchant

Merchant is defined as a person 1) who is a dealer in a given type of goods, or 2) who by his occupation holds himself out as having knowledge or skill particular to the goods or practices involved, or 3) who employs an agent or broker whom he holds out as having such knowledge or skill. Read UCC 2-104(1). Look for "retailer, wholesaler, manufacturer, dealer, seller of goods"

How to decide whether a misrepresentation is material?

Misrepresentation can be material or minor •How easy is the fact to determine? •What is the gravity of harm? •Are there any public policy issues involved? •Would plaintiff have made other decision?

Punitive Damages aka Exemplary Damages

Monetary damages in addition to compensatory damages, intended to punish wrongdoer. Not generally awarded in contract cases; however, court may award punitive damages if the breach of contract claim is accompanied by fraud (tort) or, in the case of an insurance company's refusal to pay a claim under the insurance contract, by bad faith E.g., Helicopter case with bad clutch; low ceilings case

Is an oral contract to employ a person for life required to be in writing to be enforceable?

No, an oral contract to employ a person for life is not required to be in writing to be enforceable at common law B/c it is possible (unlikely though) that the person could die within one year

Does the UCC apply to the sale of coal where the buyer will separate the coal from the land?

No, b/c it's the buyer so it's a part of the land Yes if it was the seller

Baker did not act on the option on or before March 1 to purchase the land but instead Baker asked for and received an oral extension from Able to purchase the land. Able granted the extension until on or before March 15? Is this extension enforceable?

No, the second option (the extension) is not enforceable (does not satisfy the statute of frauds b/c it was not in writing) and there would also need to be additional consideration for the extension

John promises to employ Jill for 1 year for $30,000 (promise #1 by John). Jill promises to stay at John's place of employment for 1 year. Six months into the year, John promises Jill an additional $5,000 if Jill stays for the entire 1st year (promise #2 by John). Is John's Promise #2 enforceable?

Not enforceable, she already has a preexisting duty to stay the year No additional consideration to support John's second promise

Breach not Material/Substantial Performance (under CL - real property or service contracts)

Performance came close enough to contract terms that overall purpose wasn't defeated. Breach minor, not material. Construction contract cases. Breaching party may be required to comply with contract terms or pay damages. Look to see if compliance would result in economic waste. See discussion in text. See also Jacob & Youngs .v Kent (reading pipe) If the cost to bring contract into compliance is economically wasteful, then measure of damages is difference in value between promised performance and performance rendered Exam: "Conferring most of the same benefits", state the facts, look at good faith, then drop down to damages (economically reasonable or not) At CL, performance should be at least substantial (just look at the facts)

Assumption of Risk doctrine

Person who assumes a business risk cannot avoid contract even though there is a mistake

UCC "gap fillers"

Price term - Article 2, 2-305, contracts for the sale of goods may leave a price term open. If so, price is reasonable price at time of delivery if (a) nothing was said about price or (b) price is left to be agreed to by parties and they fail to agree; or (c) price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded. *Price must be set in good faith though Place for Tender - If not specified, tender occurs at Seller's place of business, or, if Seller has none, Seller's residence. If both parties know goods found at third party location, third party location is the place for tender.

Bilateral offer

Promise for a promise Offer requires offeree to communicate acceptance to offeror

Irrevocable (promissory estoppel)

Promissory Estoppel/Detrimental Reliance (Promise may be enforced despite absence of consideration.) Sometimes law will enforce non-contractual promises upon which others have detrimentally relied under a theory known as promissory estoppel.

Collateral promises

Provisions where one party promises to perform if another party doesn't 1. Must be in writing to be enforceable. 2. You have three parties—creditor, principal debtor, and guarantor; and three promises Guarantor promises creditor to pay creditor if principal debtor doesn't—creates collateral contract. (Creditor should first try to collect from principal debtor before trying to collect from guarantor. What constitutes default may be defined by the contract between the creditor and debtor.)

Modifications to a Preexisting Contract - Restatement position regarding modification

Recognizes CL rule modification ordinarily requires consideration to be enforceable; however, provides exception: modification of executory contract is enforceable without new consideration if modification fair & equitable and considering surrounding facts that the parties had not anticipated when the contract was made (unforeseen). Use Restatement's position for modification issues not involving goods (e.g. services, real estate).

Output and Requirements Contracts

Requirements contract - buyer will purchase from seller all of goods buyer needs or requires. Output contract - buyer will purchase from seller all the seller produces. Not illusory. Buyer or seller of the goods not buying or selling as many goods as wanted or desired but as many goods as are needed. UCC imposes good faith limitation on quantity of goods bought or sold under output and requirements contracts.

Compensatory Damages

Restore party to position he would have been in if other party had performed under contract = •Defendant's promised performance •Less the value of defendant's actual performance •Plus incidental expenses (e.g., the costs to get performance elsewhere) •Less any expenses plaintiff avoided •Plus Consequential damages

Defining sale vs. lease contract

Sale - transfer goods from seller to buyer for consideration. Article 2. Lease - transfer right of possession and use for term in exchange for consideration. Look at substance of agreement, not what agreement is called to determine whether you have a lease or a sale.

When buying a house...

Seller is expected to disclose latent (hidden) details; buyers are still expected to do their due diligence

UCC §2-207 Example 3 •You offer in writing to sell your TV to Bob for $200. •Bob replies in writing, "I accept and also include your remote control for $200."

So the remote would not technically be included B/c additional terms are just proposals

Irrevocable (unilateral offer example)

Unilateral offers where offeree has started to perform and expended time and effort (Example: I'll give you $100 if you climb this flagpole; and you start to climb).

Main Purpose Doctrine

Statute of Frauds requirement that collateral promise must be in writing to be enforceable (general rule) does not apply to situations under "main purpose" doctrine (exception) where guarantor's expectation is to obtain primary economic benefit for himself that he did not already have and guarantor primarily benefits self. Then need not be in writing to be enforceable Not a Main Purpose Doctrine Exception when someone dies and the estate has to guarantee the loan

If your company fires you, is your non-compete still valid?

Still enforceable if your company says it would still relate to a legitimate business interest. They do not have to tell you why you were fired and can at any time (at will), so then they would just argue that it was a legitimate business interest. If you were fired because you couldn't produce any business, then maybe there would not be a legitimate business interest (and therefore the non-compete may not be enforceable).

Able signs promissory note due in 1 year in favor of bank. 6 months into note's due date, Able disappears. Bank gets Able's parents to sign a guarantee that they will repay Able's loan on due date if Able doesn't pay. At note's due date, Able doesn't pay so bank tries to collect from parents. Is there a problem with consideration? What advice do you have for the bank?

The consideration is the loan, in exchange for a promise to repay the loan The second contract is the parent's guarantee, but the parents didn't receive anything So legally, it is not enforceable; it is an unenforceable promise from the parents If the parents had signed the original loan document in the beginning with Able, then it would have been enforceable

Courts' role in contract pricing

The courts do not dictate pricing b/c we do not want people to come back in and argue over prices (pure economics and efficiency), it could also make them lose sight of the rule of law. But, courts will examine pricing if there is concern for duress

John's General Store orders 200 watches from Watch Manufacturer priced at $2.00 per watch. The next day, John's manager calls the manufacturer and changes the order to 500 watches priced at $1.50 per watch. The manufacturer sends 200 watches.

The first agreement does not have to be in writing to be enforceable (<$400), but the modification needed to be in writing to be enforceable b/c >$500 (so that brings it into the statute of frauds) Oral contract can be enforceable up to the amount admitted The 200 watches were sent and accepted This contract is enforceable up to the number of watches sent (200)

Non-happening of Presupposed Conditions

UCC will excuse performance based on doctrine of commercial impracticability such as the Non-happening of Presupposed Conditions - Requires unforeseen supervening event not within contemplation of contract. If occurrence of condition is basic assumption of contract, and both parties were aware of this at the time of making contract, nonoccurrence of condition is an excuse for nonperformance. If the nonoccurrence affects only part of Seller's capacity to perform, Seller must allocate delivery and production among his or her customers.

Conduct Invalidating Assent (Some defenses to enforcement of a contract) How can contracts be avoided?

Under circumstances where agreement not voluntary or knowing including duress, undue influence, fraud in the inducement, non-fraudulent misrepresentation, & mistake

Options contracts

Under options generally, offer is irrevocable for specific period of time; however, options must meet essential elements of contract including consideration. Under UCC, "firm offer by merchant" is irrevocable without consideration for a stated period of time, not to exceed three months. Merchant must make offer to buy or sell goods in a signed writing. Key to analyzing whether consideration is a requirement for option—is the sale of goods involved, and is the option by a merchant.If so, no considerationmaybe needed under the UCC. Generally Offers may be withdrawn prior to acceptance; and notice revoking offer must reach offeree before he has accepted.

When the UCC is applicable to a mixed transaction

Use predominant purpose (aka predominant factor) test. Determine whether transaction's predominate purpose is either sale of services with goods incidentally involved or sale of goods with labor incidentally involved? Examine situation of parties and circumstances surrounding transaction. Look at contract language. Consider whether final product is best characterized as a good or service. Examine costs—are you paying more for goods or services? No one factor is controlling.

Reliance Damages

Usually sought when can't establish compensatory damages with certainty—e.g., don't know what profits would have been. 1. Persons can seek damages for foreseeable losses caused by reliance on the contract. 2. May include: a. Expenses incurred in preparing to perform; b. Expenses incurred in actually performing; and/or c. Opportunity costs of not entering into other contracts. Purpose - place injured party in position he would have been in if contract had not been made.

Excuses For Nonperformance Casualty to Identified Goods UCC §2-613

When goods are destroyed after a sales contract was formed, and 1. goods were identified when the contract was made, and 2. goods were totally lost or damaged without the fault of either party, and 3. risk of loss has not passed from Seller to Buyer, then 4. the contract is avoided. Seller is no longer obligated to tender goods and buyer is no longer obligated to pay contract price. If only partially destroyed - Buyer may avoid contract or accept the goods with due allowance or deduction from contract price for deterioration or deficiency in quantity. If destruction or casualty, whether total or partial, occurs after the risk of loss has passed from Seller to Buyer, then Buyer is obligated to pay the entire contract price.

Mutual (bilateral) mistakes

Where both parties are mistaken about the same facts can make contract voidable assuming mutual mistake is about basic assumption relied upon when entering into contract and doesn't involve ordinary risk of doing business. See Raffles case (wrong ship) Mistake of fact - contract can be rescinded by either party (no meeting of the minds). Look to see if it is a difference in character. Mistake of value - Parties cannot rescind contract

Cognitive Ability Test

Whether the person is unable to understand the subject of the contract, its nature and probable consequences. If incompetent, then it is voidable (and sometimes void) at their option

Is an oral contract to employ a person for 14 months required to be in writing to be enforceable?

Yes, an oral contract to employ a person for 14 months must be in writing to be enforceable at common law B/c can't perform a contract for 14 months in one year

Contractor builds house; Homeowner agrees to pay $350,000. No changes are made to specifications. House is finished. Homeowner refuses to make final payment unless Contractor accepts less money. Is the Homeowner required to pay the agreed upon amount?

Yes, she had a preexisting legal duty to pay the amount.

5 types of contracts required to be in writing under the Statute of Frauds

a. Agreements in consideration of marriage. (Note: prenuptial agreements must be supported by consideration and must be entered into voluntarily.) b. Agreements which transfer interests in real property. i. Exception under partial performance doctrine—see slides or your own notes.) ii. Also, short term leases of less than one year generally don't need to be in writing under state law. c. Agreements incapable of being performed within 1 year. i. Is it possible, not likely or expected, that agreement can be performed within one year from date contract was formed, not from when performance begins. ii. Look at contract terms, not probabilities or actual events to determine if performance is possible within year. d. Promises by administrator or executor to answer personally with regard to decedent's funds being administered. e. Collateral promises. Exception under main purpose doctrine MY LEGS (Marriage, more than one Year, Land, Executor, Goods ($500+), Surety)

Perfect Tender rule under UCC

a. Applies to sales transactions. Seller has obligation to tender goods exactly to contract terms. If not, buyer has 3 options: i. reject goods (buyer is excused from performance). ii. accept goods, or iii. accept some units and reject the rest (buyer owes some amount of performance). Note: Exceptions have eaten away at the rule

Ratification

a. If minor ratifies contract after reaching majority age, ratification makes contract good from beginning. Ratification must be applied to whole contract, not just part minor likes. b. Cannot ratify contract while still a minor (e.g., Kobe depositing a check once he was an adult).

Implied Warranties

a. Implied warranty of merchantability under UCC (made by merchant seller) - Goods reasonably fit for ordinary purpose for which manufactured & sold. For example, a lawnmower bought from a merchant seller is reasonably fit to mow the law. There is no implied warranty of merchantability if you use the lawnmower to trim a hedge by holding the lawnmower in the air. b. Implied warranty of fitness for a particular purpose (any seller) - applies when seller knows the particular purpose for which the goods are being bought; and knows buyer is relying on seller's expertise to select goods.

Preexisting Obligations or Contractual Duties

a. Is there consideration when you promise to perform an obligation that you already have? No. Example: Local police officer cannot collect reward for apprehending local bank robber because officer already had a duty to do this

Warranty of Title - (Seller has good title and no liens)

a. Merchant sellers also warrant that delivered goods are free of copyright, trademark, or patent claims of third persons. b. Can't disclaim title warranty with "as is." Example: B steals A's car in middle of night.B then sells the car to C, who is a good faith purchaser for value.Police recover the car and return it to A. C's remedy is to sue B for breach of the warranty of good title.

Discharge By Agreement Of The Parties

a. Mutual Rescission -Separate agreement (needs all 4 elements of a contract) -Exception: If one party has fully performed b. Substituted Contracts (agreement to rescind original contract, consideration for the rescission is each party agreeing to give up rights under the original contract) c. Accord and Satisfaction i. Under an accord, recipient of promise or obligee promises to accept another type of performance in satisfaction of promisor's existing duty. d. Novations occur when third party C makes a promise which is substituted for original promise of A e. Settlement agreement - Can agree to compromise when have genuine dispute (e.g., unliquidated debt, one party agrees will take less than owed and other party agrees to pay more).

Anticipatory Repudiation (Breach before performance due)

a. Party announces before the due date for performance that performance will not occur. b. Non-repudiating party can sue immediately. c. Alternatively, non-repudiating party can wait until time of performance to see if repudiator changes his or her mind and performs: i. If performance, there is discharge of former repudiator's contractual duties by performance. ii. If no performance, there is material breach

To analyze quasi contracts, look at 3 elements:

a. Show benefit flowed from one person to another. E.g., ambulance took unconscious person to the hospital. b. Show person who received benefit had knowledge of it or received benefit under emergency circumstances. E.g. unconscious person needed to go to the hospital quickly to be treated. Show inequitable for person who received benefit to keep it without compensating party who gave it to him or her. Newly recovered patient should pay for treatment received (note, owe reasonable value of services under quasi-contract theory, not amount charged—may or may not be the same). Recovery is in quantum meruit ("as much as deserved")

Transfer of Title & Risk of Loss

i. If the goods are to be physically moved, title passes when the seller completes his performance of delivery. The seller's completion of delivery depends on whether the contract is a shipment or destination contract. a. Shipment contract - Title passes to buyer at time and place seller delivers the goods to the carrier for shipment to the buyer. b. Destination contract- Title passes to buyer on tender of goods at destination.

What UCC Article 2 Does Not Apply To

•Employment/services contracts •Insurance policies •Contracts for real property •Contracts for the sale of intangibles such as stocks, bond, copyrights and patents, and service contracts.

Merchant vs non-merchant risk of loss

•Merchant seller - risk of loss is transferred to buyer when buyer receives goods. •Non-merchant seller - risk of loss is transferred to buyer when seller tenders goods to buyer. We hold merchant sellers to a higher level of conduct