Contracts and Sales

Evidence Outside the Scope of the Parol Evidence Rule: 1. Validity Issues - Formation defects, Conditions Precedent to Effectiveness (the parol evidence rule does not come into play until a binding contract exists). Parole evidence is inadmissible as to conditions precedent to performance i.e., an oral agreement that the party would not be obliged to perform until the happening of an event.

2. Collateral Agreements and Naturally Omitted Terms - evidence admissible if related to the subject matter but not part of the primary promise and does not conflict with it. Naturally Omitted Terms - allows evidence of terms that would normally be omitted from the written agreement. A term would naturally be omitted if it does not conflict with the written integration and it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.

Failure of Timely Performance - assuming that the defaulting party had a duty of immediate performance when his failure to perform occurred, then his failure to perform on time will always be a breach. Additional specific rules for determining the materiality of breach by failure of timely performance: 1. As Specified by Nature of Contract - unless the nature of the contract is such as to make performance on the exact day agreed upon of vital importance, or the contract by its terms provides that time is of the essence, failure by a promisor to perform at the stated time will not be material. 2. When Delay Occurs - delay at the onset of performance before the delaying party has rendered any part of his agreed-on performance is more likely to be considered material than delay where there has been part performance.

3. Mercantile Contracts - timely performance as agreed is important and unjustified delay is material. 4. Land Contracts - more delay in land contracts is required for materiality than in mercantile contracts. 5. Availability of Equitable Remedy - in equity, the courts generally are much more lenient in tolerating considerable delay. They will tend to find the breach immaterial and award compensation for the delay where possible.

Buyer's Responsibility for Goods after Rejection 1. Buyer Must Hold Goods with Reasonable Care 2. When seller gives no instructions on disposal of goods - buyer may reship goods to seller, store them for seller's account or resell them for the seller's account. The buyer has a security interest in rejected goods in her possession for any part of the price already paid and for expenses reasonably incurred in connection with handing them after rejection.

3. When buyer resells goods - buyer is entitled to have her expense of selling and any commission ordinarily paid in the trade or, if there is none, a reasonable commission not exceeding 10%.

Determining Materiality of Breach General rule - fact question. Cts. apply 6 criteria: 1. Amount of benefit received - look to the extent that the nonbreaching party will receive substantially the benefit she could have anticipated from full performance. 2. Adequacy of Damages - look to the extent to which the injured party may be adequately compensated in damages. 3. Extent of Part Performance - look to the extent the party failing to perform completely has already performed or made preparations to perform. The greater the extent, the less material the breach.

4. Hardship to Breaching Party - if great, less likely to find breach material. 5. Negligent or Willful Behavior by party failing to perform. 6. Likelihood of Full Performance by breaching party

3. Interpretation - if there is uncertainty or ambiguity in the written agreement's terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact-finder in reaching a correct interpretation of the agreement. If the meaning of the agreement is plain, parol evidence is inadmissible. 4. Showing of True Consideration - Parol evidence ok to show that true consideration was paid.

5. Reformation - if a party to a written agreement alleges facts (e.g., mistake) entitling him to reformation of the agreement, the parol evidence rule is inapplicable because the pltf. is asserting a cause of action that despite the apparently unambiguous terms of the written agreement, those terms do not in fact constitute the agreement between the parties.

Modification of Contract Terms Under general contract terms, a final contract cannot be modified unless the modification is supported by new consideration. Under the UCC, however, promises of new and different terms by the parties to a sales contract are valid without consideration, but good faith is required to make a modification enforceable.

A written contract can be modified orally. For sales of goods contracts, however, the modification must be in writing if the contract as modified falls within the Statue of Frauds. Thus, if the contract as modified is for $500 or more, it must be evidenced by a writing.

To Whom Do Warranties Extend? Article 2 provides alternative provisions for determining to whom warranty liability extends. Most states have adopted Alternative A, which provides that the seller's warranty liability extends to any natural person who is in the family or household of the buyer or who is a guest in the buyer's home if it is reasonable to expect that the person may use, consume, or be affected by the good and that person suffers personal injury because of a breach of warranty. The seller cannot escape the effects of this section by contract.

Alternative B extends a seller's express or implied warranty liability to any natural person reasonably expected to use, consume, or be affected by the goods and who suffers personal injury because of a breach of warranty. Alternative C extends warranty liability to any person reasonably expected to us, consume or be affected by the goods and who is injured be breach of the warranty (this includes property damages)

Failure of Condition vs. Breach of Contract - the failure of a contractual provision that is only a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the conditional promise never mature.

An unexcused failure to perform a promise is always a breach of contract and always gives rise to liability, however minimal. On the other hand, nonfulfillment of a condition is not a breach of contract and does not give rise to liability.

Except in contracts for real property, the failure to state the price does not prevent formation of a contract if the parties intended to form a contract without the price being settled.

Article 2 includes specific gap fillers for situations where certain terms are not included in a contract for the sale of goods. Under Art. 2, the price will be a reasonable price at the time of delivery if (1) nothing is said as to price; (2) the price is left to be agreed to by the parties and they fail to agree; or (3) the price is to be fixed by some external factor or third party and it is not so set.

Inapplicable Where Breach Material - Most courts will not apply the substantial performance doctrine if the breach was willful. Trivial defects, even if willful, will be ignored by the courts as de minimis.

Can deduct damages suffered due to incomplete performance

2. Delivery Terms and Risk of Loss - all contracts for the sale of goods require delivery of the goods. A contract's delivery terms are important because they determine when risk of loss passes from the seller to the buyer if the goods are damaged or destroyed. Noncarrier Case - parties did not intend that the goods would be moved by a common carrier. In such a case, if the seller is a merchant, risk of loss passes to the buyer only when she takes physical possession of the goods. If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery.

Carrier Cases - goods moved by carrier. 2 types of carrier cases: shipment contracts and destination contracts. Shipment Contract - if the contract authorizes or requires the seller to ship the goods by carrier but does not require him to deliver them at a particular destination - risk of loss passes to the buyer when the goods are delivered to the carrier. The UCC presumes a contract is a shipment contract in the absence of a contrary agreement.

Perfect Tender Rule - Sale of Goods Article 2 generally does not follow the common law substantial performance doctrine. Instead, it follows the perfect tender rule - if goods or their delivery fail to conform to the contract in any way, the buyer generally may reject all, accept all, or accept any commercial units and reject the rest.

Commercial Unit - One that by commercial usage is treated as a single whole for the purpose of sale, and division of which materially impairs its value. (e.g., place setting of dishes)

Bilateral Contracts Formed by Performance - recall that a contract may be formed by the parties' performance where the mirror image rule is not satisfied and under certain circumstances under Article 2's battle of the forms provision. In such cases, under Article 2, the contract includes all of the terms on which the writing of both parties agree. Any necessary missing terms are filled in by the supplemental terms provided for in Article 2.

Compare - Common Law Last Shot Rule - The rule is different in common law contracts. At common law, the contract will include the terms of the last communication sent to the party who performed.

7. Specific Situations a. Death or Physical Incapacity - death or the physical incapacity of a person necessary to effectuate the contract serves to discharge it. Most fact situations on this point involve personal service contracts. Check to see whether the services involved are "unique." If the services are the kind that could be delegated, the contract is not discharged by the incapacity of the person who was to perform them. b. Supervening Illegality c. Subsequent Destruction of Contract's Subject Matter or Means of Performance- destruction must not have been by the fault of either party.

Compare - Contracts to Build - a contractor's duty to construct a building is not discharged by destruction of the work in progress - construction is not rendered impossible; the contract can still rebuild. However, if the destruction was not caused by the contractor, most courts will excuse the contractor from meeting the original deadline. Specificity Required - destruction of the subject matter will render a contract impossible only if the very thing destroyed is necessary to fulfill the contract. If the thing destroyed is not actually necessary, impossibility is not a defense. Specificity of Source - destruction of a source for fulfilling the contract will render the contract impossible only if the source is the one source specified by the parties.

Mistake in Value Generally Not a Defense - if the parties to a contract make assumptions as to the value of the subject matter, mistakes in those assumptions will generally not be remedied - even though the value of the subject matter is generally a basic assumption and the mistake creates a material imbalance - because both parties usually assume the risk that their assumption as to the value is wrong. However, it is possible for the facts to show that the adversely affected party did not assume the risk in determining value.

Compare - Unilateral Mistake - if only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a contract. However, if the nonmistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party.

Election Waiver - When a condition does not occur or a duty of performance is broken, the beneficiary of the condition or duty must make an election; she may: (1) terminate her liability or (2) continue under the contract. If she chooses the latter course, she will be deemed to have waived the condition or duty. This election waiver requires neither consideration nor estoppel (although estoppel elements are often present). Note that, unlike an estoppel waiver, an election waiver cannot be withdrawn - even if the other party has not relied on it.

Conditions that May be Waived - If no consideration is given for the wavier, the condition must be ancillary or collateral to the main subject and purpose of the contract for the waiver to be effective. In other words, one cannot waive entitlement to the entire or substantially entire return performance. This would amount to a new undertaking that is really a gift in disguise of a waiver.

Constructive (Implied) Conditions Constructive Conditions of Performance - the most important and common implied condition is that the duty of each party to render performance is conditioned on the other party either rendering his performance or making a tender of his performance.

Constructive Conditions of Cooperation and Notice - Under a constructive condition of cooperation, the obligation of one party to render performance is impliedly conditioned on the other party's cooperation in that performance. Also, it is often a condition to one party's performance of a duty under a contract that the other party give him notice that the performance is due. A condition of notice is most commonly applied where a party could not reasonable be expected to know a fact that triggered the duty to perform unless such notice was given. Example: landlord promise to maintain premises - tenant must give notice to landlord of needed repairs and permit landlord to enter premises to make repairs.

Formalities - mutual rescission may be made orally. This is so even though the contract to be rescinded expressly states that it can be rescinded only by a written document. Several exceptions should be noted: 1. Subject matter within the Statute of Frauds - if the subject matter of the contract to be rescinded falls within the SOF, then the rescission should generally be in writing. Some courts, however, hold that even when the SOF comes into play, oral rescission will sill be enforceable if it is "executed" or promissory estoppel is present.

Contracts for the Sale of Goods - Article 2 requires a written rescission or modification if the original contract to be rescinded or modified expressly requires a written rescission. Contracts Involving Third Party Beneficiary Rights - if the rights of third-party beneficiaries have already vested, the contract may not be discharged by mutual rescission.

Checks Tendered as Payment in Full - if a monetary claim is uncertain or is subject to a bona fide dispute, an accord and satisfaction may be accomplished by a good faith tender and acceptance of a check when that check or an accompanying document conspicuously states that the check is tendered in full satisfaction of the debt.

Discharge by Account Stated - an account stated is a contract between parties whereby they agree to an amount as a final balance due from one to the other. This final balance encompasses a number of transactions between the parties and serves to merge all of these transactions by discharging all claims owed. For an agmt. to qualify as an account stated, the parties must have had more than one prior transaction between them. If is not necessary that the account stated be in writing unless one or more of the original transactions was subject to the SOF. It is also not required that an account stated be express - it may be implied.

Discharge by Novation - occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A novation will serve to discharge the old contract. Elements of a valid novation: 1. A previous valid contract 2. An agreement among all parties, including the new party, to the new contract 3. The immediate extinguishment of contractual duties as between the original contracting parties, and 4. A valid and enforceable new contract.

Discharge by Cancellation - the destruction or surrender of a written contract will not usually by itself discharge the contract. If, however, the parties manifest their intent to have these acts serve as a discharge, it will usually have this effect if consideration or one of its alternatives is present.

Seller's Partial Inability to Perform - seller must allocate deliveries among his customers and, at his option, may include in the allocation regular customers not then under contract. The seller must reasonably notify the buyers of any delay or reduction in deliveries because of unforeseen circumstances. A buyer who receives such a notification may refuse any particular delivery affected, and if the deficiency substantially impairs the whole contract, she may treat the contract as at an end.

Discharge by Frustration - frustration will exist if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge. If the purpose has been frustrated, a number of courts will discharge contractual duties even though performance of these duties is still possible. The elements necessary to establish frustration: 1. there is some supervening act or event leading to the frustration; 2. at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring; 3. The purpose of the contract has been completely or almost completely destroyed; and 4. the purpose of the contract was realized by both parties at the time of making the contract.

The promisor's duties to perform serve as a condition precedent to the other party's duty to perform. Hence, if these duties should be excused by impossibility, impracticability, or frustration, the other party's contractual duties will also be discharged.

Discharge by Impossibility: 1. Impossibility must be objective - duties could not be performed by anyone. 2. Timing of Impossibility - impossibility must arise after the contract has been entered into. 3. Effect of Impossibility - each party is excused from duties arising under the contract that are yet to be fulfilled. Either party may sue for rescission and receive restitution of any goods delivered, payments made, etc. 4. Partial Impossibility - duty discharged only to the extent of the partial impossibility. Remainder of the performance may be required according to the contractual terms even if there is added expense or difficulty. 5. Temporary Impossibility - duties suspended, not discharged. Duty can spring back into existence, but not if the burden on either party would be substantially increased or different from that originally contemplated. 6. Part Performance Prior to Impossibility - Quasi Contractual Recovery - if part performance has been rendered by either party prior to the existence of the facts leading to impossibility, the party will have a right to recover in quasi-contract at the contract rate or for the reasonable value of his performance if that is a more convenient mode of valuation.

If Risk of Loss Has Already Passed to Buyer - rules relating to discharge because of destruction of the subject matter will not apply if the risk of loss has already passed to the buyer. The usual situations involve contracts for the sale of goods under the UCC and contracts for the sale of land where equitable conversion has taken place. In such cases, the seller may enforce the contract and the buyer will have to pay.

Discharge by Impracticability - the test is that the party to perform has encountered: 1. Extreme and unreasonable difficulty and/or expense; and 2. Its nonoccurrence was a basic assumption of the parties. Subjective impossibility. The fact that something is more expensive, even much more expensive, is not impracticability.

Has the Absolute Duty to Performa Been Discharged? Once it is determined that a party is under an immediate duty to perform, the duty to perform must be discharged. Discharge by Performance - discharge a contractual duty by full and complete performance. Discharge by Tender of Performance - Good faith tender of performance made in accordance with contractual terms will also discharge contractual duties. Note that to tender performance the party must offer to perform and possess the present ability to perform; a mere promise of performance will not suffice.

Discharge by Occurrence of Condition Subsequent - the occurrence of a condition subsequent will serve to discharge contractual duties. Discharge by Illegality - if the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act, performance will be discharged = supervening illegality. If the illegality existed at the time the agreement was made, no contract was formed because of the illegality. Discharge by Impossibility, Impracticability or Frustration - the occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform or may frustrate the purpose of the contract. Where the nonoccurrence of the event was a basic assumption of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occurring, contractual duties may be discharged.

Distinguish Uses of Defense of Impossibility/Impracticability and Frustration A seller of land, goods, or services will raise impossibility or impracticability as a defense that discharges performance. By contrast, the party who is supposed to pay (usually the buyer) will raise frustration of purpose as a defense discharging performance. Paying money is never impracticable.

Discharge by Rescission - the contract may be discharged by an express agreement between the parties to rescind. The agreement to rescind is itself a binding contract supported by consideration, namely, the giving up by each party of her right to counterperformance from the other. The reason for entering into such an agreement are immaterial absent duress or fraud.

Discharges by Release - A release and/or contract not to sue will serve to discharge contractual duties. The release or contract not to sue usually must be in writing and supported by new consideration or promissory estoppel elements. Compare UCC governing sale of goods - requires authenticated writing but no new consideration.

Discharge by Substituted Contract - a contract may be discharged by a substituted contract. This occurs when the parties to a contract enter into a second contract that immediately revokes the first contract. Revocation may be express or implied. Intent governs - if an immediate discharge is intended, there is a substituted contract. If the parties intend the first contract to be discharged only after performance of the second contract, there is an executor accord rather than a substituted contract.

Duress and Undue Influence - Contracts induced by duress or undue influence are voidable and may be rescinded as long as not affirmed. There are 2 types of duress. In the first, a party is physically forced to sign against her will = contract void. Second type, party's assent to a contract is induced by an improper threat by the other party that leaves the victim no reasonable alternative = contract voidable by the victim.

Economic Duress is Generally Not a Defense. Economic defense may be a defense if they party threatens to commit a wrongful act that would seriously threaten the other contracting party's property or finances and there are no adequate means available to prevent the threatened loss.

Satisfaction - the performance of the accord agreement. Its effect is to discharge both the original contract and the accord contract.

Effect of Breach of Accord Agreement before Satisfaction If the breach is by the debtor, the creditor may sue either on the original undischarged contract OR for breach of the accord agmt. If the accord agmt. is breached by the creditor, i.e., he sues on the original contract, the debtor has 2 courses of action available - She may raise the accord agmt. as an equitable defense and ask that the contract action be dismissed. As an alternative, she may wait until she is damaged i.e., the creditor is successful in his action on the original contract, and they bring an action at law for damages for breach of the accord contract.

What Conduct Will Suffice - any conduct may suffice - reasonable person std. is applied.

Effect of Prospective Failure - allows the innocent party to suspend further performance on her side until she receives adequate assurances that performance will be forthcoming. If she fails to obtain adequate assurances, she may be excused from her own performance and may treat the failure to provide assurances as repudiation.

Discharge by Lapse - where the duty of each party is a condition concurrent to the other's duty, it is possible that on the day set for performance, neither party is in breach and their contractual obligations lapse. If the contract states that time is of the essence, the lapse will occur immediately; otherwise the contract will lapse after a reasonable time.

Effect of Running of Statute of Limitations - if SOL has run, it is generally held that an action for breach of contract may be barred. Note, however, that only judicial remedies are barred; the running of the SOL does not discharge the duties. Hence, if the party who has the advantage of the SOL subsequently agrees to perform, new consideration will not be required.

Implied Warranty of Merchantability When Given - implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable. The serving of food or drink for consumption on the premises is the sale of goods subject to the warranty of merchantability.

Elements of warrant of merchantability - To be merchantable, goods must at least: 1. Pass without objection in the trade under the contract description; 2. In the case of fungible goods, be of fair average quality within the description; 3. Be fit for the ordinary purpose for which such goods are used. 4. Be, within the variations permitted by the agreement, of even kind, quality, and quantity within each unit and among all units involved. 5. Be adequately contained, packaged, or labeled according to the contract; and 6. Conform to any promises or affirmations of fact made on the label. Other warranties of merchantability may arise from the course of dealing or usage of trade.

Excuse of Condition by Waiver or Estoppel One having the benefit of a condition under a contract may indicate by words or conduct that she will not insist on that condition's being met. Consideration is not required for a valid waiver of condition.

Estoppel Waiver - whenever a party indicates that she is "waiving" a condition before it is to happen, or she is "waiving" some performance before it is to be rendered, and the person addressed detrimentally relies on the wavier, the courts will hold this to be a binding estoppel waiver. Note, however, that the promise to waive a condition may be retracted at any time before the other party has changed his position to his detriment.

Contract for the Sale of Goods - if performance has become impossible or commercially impracticable, the seller will be discharged to the extent of the impossibility or impracticability. Allocation of Risk - generally the seller assumes the risk of the occurrence of such unforeseen events and must continue to perform. However, if it is fair to say that the parties would not have placed on the seller the risk of the extraordinary occurrence, the seller will be discharged.

Events Sufficient for Discharge - shortage of raw materials or the inability to convert them into the seller's products because of contingencies such as war, strike, embargo, or unforeseen shutdown of a major supplier. Catastrophic local crop failure (as opposed to a mere shortage) also is sufficient for discharge. However, mere increases in costs are rarely sufficient for discharge unless they change the nature of the contract.

Exception - Obtaining Surety is Condition Precedent - if the contract between the debtor and the creditor makes obtaining a surety a condition precedent to the creditor's performance, so that the creditor would be justified in refusing to perform the contract until a surety is obtained, the surety's promise is binding if the creditor performs in reliance on the surety's promise.

Exception - Additional Consideration - as with other contracts, if the creditor gives additional consideration in exchange for the surety's promise, the surety will be bound.

Past or Moral Consideration - General Rule - Not Sufficient Consideration. If something was already given or performed before the promise was made, it will not satisfy the "bargain" requirements. The courts reason that it was not given in exchange for the promise when made.

Exceptions - there is substantial disagreement with the general rule. Thus, the courts have sought to avoid its application by creating exceptions. Debt Barred by a Technical Defense - If a past obligation would be enforceable except for the fact that a technical defense to enforcement stands in the way (e.g., statute of limitations), the courts will enforce a new promise if it is in writing or has been partially performed. However, the court will enforce the contract only to the extent of the new promise. Promise to Pay Arising Out of Past Material Benefits - Material Benefit Rule - Under a modern trend, some cts. will enforce a promise if its is based on a material benefit that was previously conferred by the promissee on the promisor and if the promise did not intend to confer the benefits of the gift.

Excuse of Condition by Actual Breach - an actual breach of the contract when performance is due will excuse the duty of counterperformance. Note, however, that counterperformance will be excused at common law only if the breach is material. A minor breach may suspend this duty, but it will not excuse it.

Excuse of Condition by Anticipatory Repudiation - occurs if a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes. Anticipatory repudiation will serve to excuse conditions if: 1. Anticipatory repudiation applies only if there is a bilateral contract with executor (unperformed) duties on both sides. 2. Anticipatory repudiation must be unequivocal - stmt. must be positive. Mere expression of doubt or fear will not suffice.

Have the Conditions Been Excused? A duty of immediate performance with respect to a conditional promise does not become absolute until the conditions (1) have been performed or (2) have been legally excused. Thus, in analyzing a question, if the facts do not reveal performance of the applicable condition precedent or concurrent, look to see whether the condition has been excused.

Excuse of Condition by Hindrance or Failure to Cooperate - if a party having a duty of performance that is subject to a condition (she is the party protected by the condition) prevents the condition from occurring, the condition will be excused if such prevention is wrongful. Note - it is not necessary to prove bad faith or malice. It appears fairly well settled today that a condition will be excused not only by active noncooperation but by passive noncooperation as well.

Common Delivery Terms CIF - Cost, Insurance, Freight C&F - Cost and Freight These terms mean that the price in the contract includes the price of the goods, the cost of shipping them to the buyer and in CIF contracts, the cost of purchasing insurance for the benefit of the buyer in case the goods are destroyed in transit. These contracts are always shipment contracts (risk passes to buyer as soon as goods are turned over the carrier).

FAS - Free alongside - used when goods are to be shipped by boat. The risk of loss passes to the buyer once the goods are delivered to the dock. FOB - Free on Board - FOB is always followed by a location and the risk of loss passes to the buyer at the named location. The seller bears the risk and expense of getting the goods to the named location. These contracts can be either shipment contracts or destination contracts depending on the location named.

Mutual and Illusory Promises - The Requirement of Mutuality - Consideration must exist on both sides of the contract; that is, promises must be mutually obligatory. There are many agreements in which one party has become bound but the other party has not. Such agreements lack mutuality ie, at least one of the promises is illusory. If so, consideration fails.

However, the requisite mutuality will be found to exist in certain situations even though the promisor has some choice or discretion: 1. Requirements and Output Contracts 2. Conditional Promises 3. Right to Cancel or Withdraw 4. Exclusivity Agreements - Best Efforts Implied 5. Voidable Promises 6. Unilateral/Option Contracts 7. Suretyship Promises 8. Right to Choose Among Alternative Courses

A person may successfully seek relief if he was not as culpable as the other party. - casual bettor may recover from experienced bookie.

If a contract is illegal solely because a party does not have a required license: 1. Licensing is for revenue raising - contract enforceable 2. License for protection of public - contract not enforceable.

Disclaimer of Warranties Warranty of Title - can be disclaimed or modified only by specific language or by circumstances which give the buyer notice that the seller does not claim title or that he is selling only such rights as he or a third party may have.

Implied Warranties - can be disclaimed by either specific disclaimers or general methods of disclaimer. The warranty of merchantability can be specifically disclaimed or modified only by mentioning merchantability. If the sales contract is in writing, the disclaimer must be conspicuous.

Disclaimer of Warranty of Fitness for a Particular Purpose - can be specifically disclaimed only by a conspicuous writing.

Implied warranties may also be disclaimed by the course of dealing, course of performance, or usage of trade.

Express Conditions - normally refers to an explicit contractual provision. It is an express stmt. in the contract providing that either (1) a party doe snot have a duty to perform unless some event occurs or fails to occur or (2) if some event occurs or fails to occur, the obligation of a party to perform one or more of his duties under the contract is suspended or terminated. Conditions of satisfaction are common express conditions.

In contracts involving mechanical failure, utility or marketability, a condition of satisfaction is fulfilled by a performance that would satisfy a reasonable person. If the contract involves personal taste or personal judgment, a condition of satisfaction is fulfilled only if the promisor is personally satisfied - lack of satisfaction must be honest and in good faith.

Express Warranties - any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the stmt., description, sample or model is part of the basis of the bargain. For the stmt., description, sample or model to be a party of the basis of the bargain, it need only come at such a time that the buyer could have relied on it when she entered into the contract.

It is not necessary that the seller intended the affirmation of fact, description, model or sample to create a warranty. Distinguish - Stmts. of Value or Opinion A stmt. relating merely to the value of the goods, or a stmt. purporting to be only the seller's opinion or commendation of the goods, does not create an express warranty.

Minor Breach with Anticipatory Repudiation - nonbreaching party may treat it as a material breach. The aggrieved party must not continue on, because to do so would be a failure to mitigate damages. The UCC modifies this to permit a party to complete the manufacture of goods to avoid having to sell unfinished goods at the lower salvage value.

Material Breach of Divisible Contract - recovery is available for substantial performance of a divisible part even though there has been a material breach of the entire contract.

Right to Reject Cut Off by Acceptance A buyer's right to reject under the perfect tender doctrine generally is cut off by acceptance. Under Article 2, a buyer accepts when: 1. after a reasonable opportunity to inspect the goods, she indicates to the seller that they conform to requirements or that she will keep them even though they fail to conform; 2. She fails to reject within a reasonable time after tender or delivery of the goods or fails to seasonably notify the seller of her rejection; or 3. she does any act inconsistent with the seller's ownership.

Notice - if in connection with rejection the buyer fails to state that the goods have a particular defect that is ascertainable by reasonable inspection, she cannot rely on that defect to justify rejection or to show seller's breach if: 1.the seller could have cured the defect if he had been told about it; or 2. between merchants when the seller has, after rejection, made a request in writing for a full and final written stmt. of all defects upon which the buyer proposes to rely.

Breach If it is found that (1) the promisor is under an absolute duty to perform and (2) this absolute duty of performance has not been discharged, then this failure to perform in accordance with the contract terms will amount to a breach of the contract. The nonbreaching party who sues for breach of contract must how that she is willing and able to perform but for the breacknig party's failure to perform.

Once you have determined that there is a breach of contract, the next determination to be made in a common law contract situation is whether that breach is material or minor. A breach of contract is minor if the oblige gains the substantial benefit of her bargain despite the obligor's defective performance. The effect of a minor (immaterial) breach is to provide a remedy for the immaterial breach to the aggrieved party. The aggrieved party is not relived of her duty of performance under the contract. If the oblige does not receive the substantial benefit of her bargain as a result of failure to perform or defective performance, the breach is considered material. If the breach is material, the consequences are more severe. The nonbreaching party (1) may treat the contract as at an end, i.e., any duty of counterperformance owed by her will be discharged' and (2) will have an immediate right to all remedies for breach of the entire contract, including total damages.

Order of Performance - courts will also imply conditions relating to the time for performing under the contract Simultaneous Performance Possible - Conditions Concurrent - if both performances can be rendered at the same time, they are constructively concurrent; thus, each is a condition precedent to the other. Hence, absent excuse, each party must first tender his own performance if he wishes to put the other under a duty of immediate performance resulting in the breach if he fails to perform.

One Performance Takes Time - Conditions Precedent If one performance will take a period of time to complete while the other can be rendered in an instant, completion of the longer performance is a constructive condition precedent to the execution of the shorter performance.

Unilateral Rescission - the party desiring rescission must have adequate legal grounds if the other party wants performance.

Partial Discharge by Modification of Contact - If a contract is subsequently modified by the parties, this will serve to discharge those terms of the original contract that are the subject of modification. It will not serve to discharge the entire contract. To have such a partial discharge, the following requirements must be met: 1. Mutual Assent - the modifying agreement must have been mutually assented to. 2. Consideration - generally, consideration is necessary to modify a contract. However, the cts. usually find consideration to be present because each party has limited his right to enforce the original contract as is. Check to see if the modification benefits only one of the parties - if so, may be unenforceable without consideration. No consideration is necessary where the effect of the modification is merely to correct an error in the original contract. No consideration is needed for the modification of a contract for the sale of goods under Article 2 as long as the modification is sought in good faith.

Contract Must be Executory - for a contract to be effectively discharged by rescission, the duties must be executor on both sides. For an effective rescission in a unilateral contract situation where the offeree has already performed, the rescission promise must be supported by one of the following: 1. an offer of new consideration by the nonperforming party; 2. elements of promissory estoppel i.e., detrimental reliance; or 3. manifestation of an intent by the original offeree to make a give of the obligated owed her.

Partially Performed Bilateral Contracts - a mutual agreement to rescind will usually be enforced when a bilateral contract has been partially performed. Whether the party who has partially performed will be entitled to compensation will depend on the terms of the rescission agreement. The party seeking such compensation must affirmatively prove his right to the compensation in order to recover.

Conditions - Has the Duty to Perform Become Absolute? Distinction between Promise and Condition - A person is bound if there has been an offer, an acceptance, and an exchange of consideration. However, the contract may provide (impliedly or explicitly) that a party who is bound does not come under a duty to perform unless or until some specified condition occurs. In looking at the terms of a contract, a distinction had to be drawn between an absolute promise on the one hand and a condition on the other.

Promise - a commitment to do or refrain from doing something. If a promise is unconditional, the failure to perform according to its terms is a breach of contract. Condition - normally means either (1) an event or state of the world that must occur or fail to occur before a party has a duty to perform under a contract; or (2) an event or state of the world the occurrence or nonoccurrence of which releases a party from its duty to perform under a contract. A condition is a "promise modifier." There is no breach of promise until the promisor is under a duty to perform.

Excuse of Condition by Prospective Inability or Unwillingness to Perform - prospective failure of a condition occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. ie., one party goes into bankruptcy.

Prospective inability or unwillingness to perform is not anticipatory repudiation because such a repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform.

Waiver - if the parties attempt to orally modify a contract that requires written modification, it is technically ineffective as a modification, but can operate as a waiver. Such a waiver will be found whenever the other party has changed position in reliance on the oral modification.

Retraction of Waiver - party who makes a waiver affecting an executor (not yet performed) portion of the contract may retract the waiver if she notifies the other party that strict performance of the waived terms is required. The waiver may not be retracted, however, if the other party detrimentally relied on it.

Effect of Breach on Risk of Loss Defective Goods - If the buyer has a right to reject the goods, the risk of loss does not pass to the buyer until the defects are cured or she accepts the goods in spite of their defects. A buyer generally has the right to reject for any defect.

Revocation of Acceptance - if the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer's insurance coverage, the risk of loss at issue being that between the time of acceptance and the time of revocation of acceptance. However, revocation of acceptance is rightful only if it occurs before any substantial change in condition of the goods which is not caused by their own defects.

Waiver in Installment Contracts - if a waiver in is not supported by consideration, the beneficiary of the waived condition can insist on strict compliance with the terms of the contract for future installments (so long as there has been no detrimental reliance on the waiver) by giving notice that he is revoking the waiver.

Right to Damages for Failure of Condition - it is important to note that a waiver severs only the right to treat the failure of the condition as a total breach excusing counterperformance. However, the waiving party does not thereby waiver her right to damages.

Risk in Sale or Return and Sale on Approved Contracts Sale or Return - for the purpose of determining the risk of loss, a sale or return contract (e.g., the buyer takes goods for resale but may return them if she is unable to resell them) is treated as an ordinary sale and the above rules apply. If the goods are returned to the seller, the risk remains on the buyer while the goods are in transit.

Sale on Approval - in a sale on approval (the buyer takes the goods for use but may return them even if they conform to the contract), the risk of loss does not pass to the buyer until she accepts. If the buyer decides not to take the goods, return is at the seller's risk.

If the contract by its own terms is expressly indivisible, the court may not construe it as otherwise.

Sales of Goods - Installment Contracts Like the common law, Article 2 assumes that a contract is not divisible unless it authorizes deliveries in several lots, in which case the contract is called an installment contract. In installment contracts, the price, if it can be apportioned, may be demanded for each lot unless a contrary intent appears.

Implied Warranty of Fitness for a Particular Purpose - a warranty will also be implied in a contract for the sale of goods whenever (1) any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller's skill and judgment to select suitable goods and (2) the buyer in fact relies on the seller's skill or judgment.

Section 1-304 provides that every contract or duty within the UCC imposes an obligation of good faith in its performance or enforcement.

The most important test is "fit for the ordinary purposes for which such goods are used," and a failure to live up to this test is the usual claim in a merchantability suit.

Seller's knowledge of defect is not relevant. Implied warranties are based on absolute liability.

Excuse of Condition by Substantial Performance Generally, the condition of complete performance may be excused if the party has rendered substantial performance. In this case, the other party's duty of counterperformance becomes absolute. However, cts. generally apply this doctrine only where a constructive (implied in law) condition is involved. They will not apply it where there is an express condition for fear this would defeat the express intent of the parties

Substantial Performance Arises if Breach is Minor - rule for determining substantiality of performance are the same as those for determining materiality of breach. In other words, the test is whether the breach of contract by the performing party is material or minor. If it is material, then performance has not been substantial; if it is minor, performance has been substantial.

Performance and Excuse of Nonperformance A party's basic duty at common law is to substantially perform all that is called for in the contract. Article 2 generally requires a perfect tender - the delivery and condition of the goods must be exactly as promised in the contract. Note the following: Article 2 requires all parties to actin good faith, which is defined as honesty in fact and the observance of reasonable commercial standards of fair dealing.

Tender of delivery - the seller must give the buyer notice reasonably necessary to enable her to take possession of the goods. The tender must be at a reasonable hour.

Discharge by Accord and Satisfaction - Accord - an agmt. in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance. In general, an accord must be supported by consideration. Where the consideration is of a lesser value than the originally bargained-for consideration in the prior contract, it will be sufficient if the new consideration is of a different type or if the claims it to be paid to a third party. Partial Payment of Original Debt -The majority view is that this will suffice for an accord and satisfaction if there is a bona fide dispute as to the claim or there is otherwise some alteration, even if slight, in the debtor's consideration.

The accord, taken alone, will not discharge the prior contract. It merely suspends the right to enforce it in accordance with the terms of the accord contract.

Excuse of Condition by Divisibility of Contract - if a party performs one of the unites of a divisible contract, he is entitled to the agreed-on equivalent for that unit even if he fails to perform the other units.

Three test to find that contract is divisible: 1. The performance of each party is divided into two or more parts under the contract; 2. The number of parts due from each party is the same; and 3. The performance of each part by one party is agreed on as the equivalent of the corresponding party from the other party, i.e., each performance is the quid pro quo of the other.

Express Warranties - any affirmation of fact or promise, description of the goods, model, or sample will create an express warranty. If there are also words or conduct negating the express warranty, problems of interpretation will arise. The UCC provides that words or conduct relevant to the creation of express warranties and words or conduct tending to negate such warranties shall wherever possible be construed as consistent with each other, but negation or limitation is inoperative to the extent that such construction is unreasonable.

To be effective, a disclaimer of warranty or limitation on remedies must be agreed to during the bargaining process. Compare - Clickwrap - computer software often comes with terms that appear on the user's computer screen during the installation process - typically upheld on the rationale that the purchaser can return the software if he disagrees with the conditions.

Provisions Prohibiting Oral Modification Not Effective at Common Law The common law rule is that even if a written contract expressly provides that it may be modified only by a writing, the parties can orally modify the contract.

UCC Recognizes No-Modification Clauses - under the UCC, even if a contract is not within the Statute of Frauds, if it explicitly provides that it may not be modified or rescinded except by a signed writing, that provision will be given effect. If a contract is between a merchant and a nonmerchant and the provision requiring written modification is on the merchant's form, the provision will not be given effect unless it is separately signed by the nonmerchant.

As to Acceptance Bilateral Contracts - Exchange by Mutual Promises The traditional bilateral contract is one consisting of the exchange of mutual promises, i.e., a promise for a promise, in which each party is both a promisor and a promise. Example: Sydney promises to sell Blackacre to Bertram for $6k and Bertram promises to buy Blackacre at that price

Unilateral Contracts - Acceptance by Performance - The traditional unilateral contract is one in which the offeror requests performance rather than a promise. Here, the offeror-promisor promises to pay upon the completion of the requested act by the promise. Example: Susan promises to pay Charles $5 if he will deliver a textbook to Rick. Charles is not obligated to deliver the book, but if he does in fact deliver it, Susan is obligated to pay him the $5.

Buyer's Obligation to Pay - Right to Inspect In noncarrier cases, unless the contract provides otherwise, a sale is for cash and the price is due concurrently with the tender of delivery. When goods are shipped by carrier, the price is due only at the time and place at which the buyer receives the goods. Therefore, in a shipment case, the price is due when the goods are put in the hands of the carrier, and in a destination contract, the price is due when the goods reach the named destination.

Unless the contract provides otherwise, the buyer has a right to inspect the goods before she pays.

In the case of Anticipatory Repudiation, the nonrepudiating party has four alternatives: 1. Treat the anticipatory repudiation as a total repudiation and sue immediately. 2. Suspend his own performance and wait to sue until the performance date 3. Treat the repudiation as an offer to rescind and treat the contract as discharged or 4. Ignore the repudiation and urge the promisor to perform - this is not waiver of repudiation - can still sue for breach and still excused from performing unless promisor retracts the repudiation.

Valid under Article 2, also.

Warranties - Contracts for the sale of goods automatically include a warranty of title (in most cases). They also may include certain implied warranties and express warranties. Warrant of Title - Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. The warranty arises automatically and need not be mentioned in the contract.

Warranty against Infringement - A merchant seller regularly dealing in goods of the kind sold automatically warrants that such goods are delivered free of any patent, trademark, copyright, or similar claims. But, a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims.

Definite and Certain Terms Offer must be definite and certain terms. The basic inquiry is whether enough of the essential terms have been provided so that a contract including them would be capable of being enforced. The principle is that the parties make their own contract, the courts do not make it for them.

What is essential for the requisite certainty in an offer depends on the kind of contract contemplated. Typically, the following are important: (1) the identity of the offeree; (2) the subject matter, and (3) the price to be paid. However, a promise generally will be enforceable even if it does not spell out every material term, as long as it contains some objective std. for the court to use to supply the missing terms.

Buyer's Right to Revoke Acceptance - once goods are accepted, the buyer's power to reject the goods generally is terminated and the buyer is obligated to pay the price less any damages resulting from the seller's breach. However, under limited situations, a buyer may revoke an acceptance already made. A proper revocation of acceptance has the effect of a rejection.

When acceptance may be revoked: Buyer may revoke if the goods have a defect that substantially impairs their value to her and: 1. She accepted them on the reasonable belief that the defect would be cured and it has not been; or 2. she accepted them because of the difficulty of discovering defects or because of the seller's assurance that the goods conformed to the contract.

Intent of the Parties determines if a contractual provision is a promise or a condition Courts look at: Words of Agreement Prior Practices Custom Third-Party Performance Courts Prefer Promise in Doubtful Situations

When the occurrence of a condition is within the benefiting party's control, that party impliedly promises to act in good faith and use reasonable effort to cause the condition to occur.

Article 2 Provisions on Interpreting Contracts 1. Supplemental (Gap Filler Terms) - key to forming contract for sale of goods is the quantity term. If other terms are missing, Article 2 has gap-filler provisions to fill in the missing term.

a. Price - reasonable price at the time for delivery b. Place of Delivery - Seller's place of business if he has one. Otherwise, seller's home. If goods identified and they are at some other place, then delivery is at that place. c. Time for Shipment or Delivery - due in a reasonable time. d. Time for Payment - due at the time and place at which the buyer is to receive the goods. e. Assortment - if contract provides that an assortment of goods is to be delivered and does not specify which party is to choose, the assortment is to be at the buyer's option.

Damages for Breach of Warranty Generally, the measure of damages for breach of any warranty is the difference between the value of the goods accepted and the value of the goods as warranted, measured at the time and place of acceptance. When, however, there are special circumstances that show proximate damages of a different amount, that amount is the proper measure.

special Circumstances - Appreciation and Depreciation - a great appreciation or depreciation in value from the time of delivery until the purchaser is disposed of the property is a special circumstance and the ct. will consider it.

6. Goods Priced at $500 or More - a writing is sufficient even though it omits or incorrectly states a term, but the contract is not enforceable beyond the quantity of goods shown in the writing. When writing not required - there are three situations in the UCC in which contracts are enforceable without the writing describe above: 1. Specially manufactured goods - enforceable if seller made a substantial beginning in the their manufacture or commitments for their purchase before notice of repudiation is received.

2. Admissions in Pleadings or Court - if party admits that contract existed in court pleadings, testimony or otherwise. 3. Payment or Delivery of Goods - not enforceable beyond the quantity of goods accepted and paid for. If an indivisible item is partially paid for, most courts will hold that the SOF is satisfied for the whole item. Merchants - confirmatory memo rule - in contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends the other party a written confirmation of the understanding that is sufficient under the SOF to bind the sender, it will also bind the recipient if (1) he has reason to know of the confirmation's contents and (2) he does not object to it in writing within 10 days of receipt.

Defenses Based on Lack of Capacity Legal Incapacity to Contract - Individuals in certain protected classes are legally incapable of incurring binding contractual obligations. Timely assertion of this defense by a promisor makes the contract voidable at his election.

A contract entered into between an infant and an adult is voidable by the infant but binding on the adult. An infant may choose to disaffirm a contract any time before (or shortly after) reaching the age of majority. If a minor chooses to disaffirm, she must return anything that she received under the contract that still remains at the time of disaffirmance. However, there is no obligation to return any party of the consideration that has been squandered, wasted or negligently destroyed.

Nonfraudulent Misrepresentation - Contract Voidable if Material - even if a misrepresentation is not fraudulent, the contract is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material.

A misrepresentation is material if (1) it would induce a reasonable person to agree or (2) the maker knows that for some special reason it is likely to induce the particular recipient to agree, even if a reasonable person would not.

Situations in Which the Contract is Removed from the SOF 1. Performance - land sale contracts - if seller conveys to buyer, he can enforce buyer's promise to pay. Buyer can enforce if part performance: at least 2 of the following: a. payment in whole or in part b. possession and/or c. valuable improvements.

A purchaser of an interest in land may enforce an oral contract in this manner only in equity - may sue only for specific performance, not damages. 2. Sales of Good Contracts - part performance takes it out of SOF when specially manufactured or goods either paid for or accepted. If only partially paid for, contract enforceable on for amount paid for. 3. Equitable and Promissory Estoppel 4. Judicial Admission

Termination by Offeree 1. Rejection - express rejection, counteroffer as rejection - serve as rejection of initial offer as well as a new offer. Distinguish - Mere Inquiry -will not terminate offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration. The test is whether a reasonable person would believe that the original offer had been rejected.

A rejection is effective when received by the offeror. Rejection of Option - because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option does not constitute a termination of the offer. The offeree is still free to accept the original offer within the option period unless the offerror has detrimentally relied on the offeree's rejection.

A void contract is one that is totally without any legal effect from the beginning (e.g., an agreement to commit a crime). It cannot be enforced by either party.

A voidable contract is one that one or both parties may elect to avoid (e.g., by raising a defense that makes it voidable, such as infancy or mental illness) An unenforceable contract is an agreement that is otherwise valid but which may not be enforceable due to various defenses extraneous to contract formation, such as the statute of limitations or Statute of Frauds.

Offers to Buy Goods for Current or Prompt Shipment - Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods.

Acceptance must be unequivocal - Traditional contract law insisted on an absolute and unequivocal acceptance of each and every term of the offer (the mirror image rule). At common law, any different or additional terms in the acceptance make the response a rejection and counteroffer. Distinguish - Stmts. that make implicit terms explicit - Stmts. made by the offeree that make implicit terms explicit do not prevent acceptance. ie., I accept provided you convey marketable title.

The broader the communicating media (e.g., publications), the more likely it is that the courts will view the communication as merely the solicitation of an offer. There is an exception for reward offers.

Advertisements, catalogs, circular letters and the like containing price quotations are usually construed as mere invitations for offers.

Is the Writing an Integration? The question of whether a writing is an integration of all agreements between the parties can be broken down into two further subquestions: 1. Is the writing intended as a final expression? 2. Is the writing a complete or partial integration? Any relevant information is admissible to show that the parties did not intend the writing to be final. Note that the more complete the agreement appears to be on its face, the more likely it is that it was intended as an integration.

After establishing that the writing was final, one should determine if the integration as complete or only partial. Complete - writing may not be contradicted or supplemented. Partial - cannot be contradicted, but may be supplemented by proving up consistent additional terms. The UCC presumes all writings are partial integrations unless there is evidence that the parties intended a writing to be the complete agreement.

Detrimental Reliance Where the offeror could reasonably expect that the offeree would rely to her detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.

Beginning Performance in Response to True Unilateral Contract Offer - An offer for a true unilateral contract becomes irrevocable once performance has begun. Note that the unilateral contract will not be formed until the total act is complete. However, once the offeree begins to perform, she is given a reasonable time to complete performance, during which time the offer is irrevocable. Note also that the offeree is not bound to complete performance - she may withdraw an any time prior to completion of performance.

Contracts Involving a Nonmerchant - Terms of Offer Govern - if any party to the contract is nonmerchant, the additional or different terms are considered to be mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees.

Contracts Between Merchants - Additional Terms Usually Included - if both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless: (1) They materially alter the original terms of the offer (they change a party's risk or the remedies available); (2) the offer expressly limits acceptance to the terms of the offer; or (3) the offerer has already objected to the particular terms or objects within a reasonable time after notice of them is received.

Termination by Operation of Law 1. Termination by Death or Insanity of Parties 2. Termination by Destruction of Subject Matter 3. Termination by Supervening Legal Prohibition of Proposed Contract

Death or adjudication of insanity need not be communicated to the other party. Compare: supervening mental incapacity of the offeror without an adjudication of incapacity will terminate an offer only if the offeree is aware of the incapacity. However, the offer will not terminate in this fashion if the rules limiting an offeror's power to terminate are applicable (e.g, an option contract)

Concealment and Nondisclosure - an action intended to prevent another from learning a fact is the equivalent of asserting that a fact does not exist. Similarly, if a party frustrates an investigation by the other party or falsely denies knowledge of a fact, it can be considered a misrepresentation. Note, however, that nondisclosure without concealment usually is not a misrepresentation. A party is not required to tell everything he knows to the other party, but if nondisclosure is either material or fraudulent, the contract is voidable for misrepresentation.

Distinguish - Fraud in the Factum - if one of the parties was tricked into giving assent to the agreement under circumstances that prevented her from appreciating the significance of her action, the agreement cannot be enforced; it is void.

Bargained-For Exchange Gift - if either of the parties intended to make a gift, he was not bargaining for consideration, and this requirement will not be met. Act or Forbearance by Promissee Must be of Benefit to Promisor - it is not enough that the promissee incurs detriment; the detriment must be the price of the exchange, and not merely fulfillment of certain conditions for making the gift. If the promisor's motive was to induce the detriment, if will be treated as consideration; if the motive was no more than to state a condition of a promise to make a gift, there is no consideration.

Economic Benefits Not Required - the benefit to the promisor need not have economic value. Peace of mind or the gratification of influencing the mind of another party may be sufficient to establish bargained-for consideration, provided that the promissee is not already legally obligated to perform the requested act.

Public Policy Defenses - Illegality If either the consideration or the subject matter of a contract is illegal, this will serve as a defense to enforcement. Contracts may be illegal because they are inconsistent with the Constitution, violate a statue, or are against public policy as declared by the courts.

Effects of Illegality - generally contract is void. Court may sever illegal party of contract and enforce the rest. If illegality exited at time of offer = no valid offer. If existed after offer = offer revoked. If illegal after contract formed = discharge the contract.

Unilateral Mistake May be Canceled in Equity - there is authority in a number of cases that contracts with errors, such as mistakes in computation, may be canceled in equity, assuming that the nonmistaken party has not relied on the contract. There is also modern authority indicating that a unilateral mistake that is so extreme that it outweighs the other party's expectations under the agreement will be a ground for cancellation of the contract.

Error in Judgment by one of the parties as to the value or quality of work done or goods contracted for will not prevent formation of a contract, even if the nonmistaken party knows or has reason to know of the mistake made by the other party.

Exception - honest dispute as to duty - If the scope of the legal duty owed is the subject of honest dispute, then a modifying agreement relating to it will ordinarily be given effect. The compromise by each party is a detriment. Exception - Unforeseen Circumstances - mere unforeseen circumstances in performing is not a substitute for consideration. But if the unforeseen difficulty rises to the level of impracticability, such that the duty of performance would be discharged, most states will hold that the unforeseen difficulty is an exception to the preexisting legal duty rule.

Exception - Modification of Contract for the Sale of Goods - At common law, a contract modification generally is unenforceable unless it is supported by new consideration. Article 2 does not follow this rule. Under Article 2, contract modifications sought in good faith are binding without consideration. Modifications extorted from the other party are in bad faith and are unenforceable.

Preexisting Legal Duty Not Consideration - Traditionally, the promise to perform, or the performance of, an existing legal duty is not consideration. Exception - New or Different Consideration Promised - immaterial how slight the change is because courts are anxious to avoid the preexisting duty rule

Exception - Voidable Obligation - a promise to perform a voidable obligation (ratification) is enforceable despite the absence of new consideration. Thus, an minor's ratification of a contract upon reach the age of majority is enforceable without new consideration Exception - Preexisting Duty Owed to Third Party - new promise constitutes consideration

Acceptance under Article 2 The shipment of nonconforming goods is an acceptance creating bilateral contract as well as a breach of the contract unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation. The buyer is not required to accept accommodation goods and may reject them. If he does, the shipper is not in breach and may reclaims the accommodation goods because her tender does not constitute an acceptance of the buyer's original offer.

If seller promises to sell 1500 blue widgets, then ships 1500 red widgets, buyer can sue because there was a promise and this is not the case of acceptance by shipment.

Promissory Estoppel or Detrimental Reliance - Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if necessary to prevent injustice if: 1. The promisor should reasonably expect to induce action or forbearance; 2. And such action or forbearance is in fact induced.

If the elements for promissory estoppel are present, some jurisdictions will award expectation damages (ie, what was promised under the contract), but the Second Restatement provides that the remedy may be limited as justice requires -usually reliance damages.

Merchant's Firm Offer under Article 2 Under Article 2, there are circumstances in which a promise to keep an offer open is enforceable even if no consideration has been paid to keep the offer open. Under Article 2: (1) if a merchant; (2) offers to buy or sell goods in a signed writing; and (3) the writing gives assurances that it will be held open; (4) the offer is not revocable for lack of consideration during the time stated, or if not time is stated, for a reasonable time (but in no event may such period exceed three months).

If the term assuring that the offer will be held open is on a form supplied by the offeree, it must be separately signed by the offeror.

Agreements Covered by the Statute of Frauds: 1. Executor or Administrator Promises Personally to Pay Estate Debts 2. Promises to Pay Debt of Another (Suretyship Promises) - main purpose must not be pecuniary interest of promisor. 3. Promises in Consideration of Marriage 4. Interest in Land - agreements for the sale of land, leases for more than a year, easements of more than one year, fixtures and minerals or structures if they are to be severed by the buyer. If severed by the seller, they are goods, not an interest in land.

If timber, crops or other things attached to realty is capably of being severed without material harm to the realty, it is a contract for the sale of goods. Contract to build house is not an interest in land. Full performance by the seller will take the contract out of the SOF. Part performance by the buyer may also remove the contract from the SOF. 5. Performance Not Within One Year - cannot be performed within one year. Part performance does not satisfy the SOF. Date runs from date of agreement, not date of performance.

The Offer - creates a power of acceptance in the offeree and a corresponding liability on the party of the offeror. For a communication to be an offer, it must create a reasonable expectation in the offereee that the offeror is willing to enter into a contract on the basis of the offered terms. In deciding whether a communication creates this reasonable expectation, you should ask the following 3 questions:

In deciding whether a communication creates this reasonable expectation, you should ask the following 3 questions: (1) Was there an expression of a promise, undertaking, or commitment to enter into a contract; (2) Was there certainty and definiteness in the essential terms? (3) Was there communication of the above to the offeree?

Justified Reliance - a party's reliance on a misrepresentation must be justified for the contract to be voidable i.e., he is not entitled to relief if the reliance was unreasonable under the circumstances.

Innocent Party May Rescind Agreement - the innocent party need not wait until she is sued on the contract, but may take affirmative action in equity to rescind the agreement. No right to rescind if party so induced, affirms the contract.

Mental Incapacity - contract is voidable. Mentally incompetent persons are liable in quasi-contract for necessaries furnished to them

Intoxicated Persons - Voidable promise if other party had reason to know of the intoxication. The intoxicated person may affirm the contract upon recovery. There may be quasi-contractual recovery for necessaries furnished during the period of incapacity.

In a contract for the sale of goods, the quantity being offered must be certain or capable of being made certain. Requirements and Output Contracts - Quantity is capable of being made certain by referring to objective, extrinsic facts (i.e, the buyer's actual requirements or the seller's actual output)

It is assumed that the parties will act in good faith; hence, there may not be a tender of or a demand for a quantity unreasonably disproportionate to (1) any stated estimate or in the absence of a stated estimate (2) any normal or otherwise comparable prior output or requirements.

"I quote you...for immediate acceptance" will probably be construed as an offer. By coupling words of invitation with words of offer, the offeror has at least created an ambiguity, which will be construed in favor of the offeree.

No legal effect if stmt. made in jest, anger, or by way of bragging, and the stmt. is reasonably understood in that context. However, if stmt. is subjectively intended to be in jest, but reasonably understood by the hearer to have been made seriously, the stmt. is an offer because it is interpreted objectively (according to a reasonable person's stds.)

Legal Detriment and Benefit Legal Detriment to Promissee will result if the promissee does something he is under no legal obligation to do or refrains from doing something that he has a legal right to do. It is important to remember that the detriment to the promisee need not involve any actual loss to the promisee or benefit to the promisor. Note: Remember that the promisor must have sought to induce the detrimental act by his promise.

Legal Benefit to Promisor - a forbearance or performance of an act by the promissee which the promisor was not legally entitled to expect or demand, but which confers a benefit on the promisor.

Contracts not within the SOF - possibility of completion within one year even if actual performance may extend beyond the one-year period. Right to terminate within one year - if a contract that cannot be performed within 1 year allows both parties the right to terminate within a year, there is a split of authority as to whether the right to terminate takes the contract out of the SOF. Marjory view - till within SOF.

Lifetime Contracts - not within SOF ie, promise to employ until I die = capable of performance within one year. Performance by One Party - even if a contract cannot be performed within one year, if it has been fully performed on one side, most courts will find that it is enforceable even though it is oral. Even if ct found it unenforceable, performing party could sue for restitution for reasonable value of the benefit conferred.

Acceptance of Offer for Bilateral Contract Generally, acceptance to an offer to enter into a bilateral contract must be communicated to the offeror - exception - waiver in offer (offer provides that acceptance need not be communicated).

Method of Acceptance - unless otherwise provided, an offer is construed as inviting acceptance in any reasonable manner and by any medium reasonable under the circumstances. The offeror is the master of her offer and may require an act to signify acceptance.

Acceptance of Offer for Unilateral Contract - if an offer provides that it may be accepted only by performance (i.e., an offer for a unilateral contract), note the following particular rules: 1. Completion of Performance - no acceptance until performance is completed. The beginning of performance may create an option so that the offer is irrevocable. Offeree not obligated to complete performance after begun. 2. Notice - Offeree generally not required to give offeror notice that he has begun the requested performance, but is required to notify the offeror within a reasonable time after performance has been completed.

No notice required if the offeror waived notice or the offeree's performance would normally come to the offeror's attention within a reasonable time. Compare - Article 2 - provides that when a contract is accepted by the beginning of performance, if the offeree fails to notify the offeror of the acceptance (i.e., the beginning of performance rather than the completion of performance) within a reasonable time, the offeror may treat the offer as having lapsed before acceptance (i.e., no contract was ever formed, as opposed to the Restatement view that contract was formed but performance is excused by failure of a condition)

When Effective - The Mailbox Rule Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless: (1) the offer stipulates that acceptance is not effective until received; or (2) an option contract is involved (an acceptance under an option contract is effective only upon receipt).

Note: Because in most states a revocation is effective only upon receipt, under the mailbox rule if the offeree dispatches an acceptance before he receives a revocation sent by the offeror, a contract is formed. This is true even though acceptance is dispatched after the revocation is dispatched and received after the revocation is received.

Effective when Received - a revocation is generally effective when received by the offeree Where revocation is by publication, it is effective when published.

Offers can be revoked at will by the offeror, even if he has promised not to revoke for a certain period, except under certain situations where the offeror's power to terminate the offer is limited. Options - a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. - must be kept open for time stated if consideration paid to keep offer open.

Parol Evidence Rule - Supplementing, Explaining, or Contradicting Terms Where the parties to a contract express their agreement in writing with the intent that it embody the final expression of their bargain, the writing is an integration. Any other expression - written or oral - made prior to the writing as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing.

Parole Evidence Rule is a rule of substantive contract law, not a rule of evidence.

Types of contracts - express, implied, quasi Express contracts are formed by language, oral or written Implied in Fact contracts are formed by manifestations of assent other than oral or written language i.e., by conduct (if a person sits in a barber's chair and the barber cuts his hair, a contract has been formed by the parties' conduct)

Quasi- Contract or Implied in Law Contract - Quasi-contracts are not contracts at all. They are construed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant.

Right to Choose Among Alternative Courses - A promise to choose one of several alternatives means of performance is illusory unless every alternative involves some legal detriment to the promisor. However, if the power to choose rests with the promissee or some third party not under the control of the promisor, the promise is enforceable as long as at least one alternative involves some legal detriment.

Selection of Valuable Alternative Cures Illusory Promise - even if a promisor retains the power to select an alternative without legal detriment, his actual selection of an alternative involving legal detriment would cure the illusory promise.

If a writing does not contain the essential terms of the agreement, it does not satisfy the SOF and the contract cannot be enforced. There must be enough in the writing to enable a court to enforce the contract. For the sale of goods, the UCC requires only some signed writing indicating that a contract has been made and specifying the quantity term.

Signature Requirement - liberally construed, it need not be handwritten; it can be printed or typed. Under the UCC, even a party's initials or letterhead may be sufficient. Electronic signature = ok

Suretyship Promises - involves a promise to pay the debt of another. A suretyship contract is not enforceable unless it is supported by consideration. If a surety is compensated, the requirement of consideration is not much of an issue because the compensation will serve as consideration for the surety's promise. If, however, the surety is gratuitous, the consideration requirement may cause problems. The timing becomes important in determining whether adequate consideration is present in a gratuitous suretyship situation.

Surety Makes Promise before (or at the same time as) Creditor Performs or Promises to Perform - Consideration Present - creditor's promise or performance will serve as consideration for the surety's promise because the creditor has incurred a detriment in exchange for the surety's promise. Surety Makes Promise after Creditor Performs or Promises to Perform - Generally No Consideration to Support Surety's Promise - no consideration because of preexisting duty rule.

Termination of Offer - The power of acceptance created by an offer ends when the offer is terminated. The mutual assent requirement obviously cannot be met where the termination occurs before acceptance is effective. Thus, you must establish whether the offer has been terminated, and if so, in what fashion.

Termination by Offeror - Revocation A revocation is the retraction of an offer by the offeror. A revocation terminates the offeree's power of acceptance if it is communicated to her before she accepts.

Distinguish - Vague Terms Court cannot presume that parties intended to include a reasonable term when they included vague terms. Vagueness can be cured by part performance.

Terms to be Agreed on Later Often, an offer will state that some term is to be agreed on at a future date. If the terms is a material terms, the offer is too uncertain.

Statute of Frauds In most instances, an oral contract is valid. However, certain agreements, by statute, must be evidenced by a writing signed by the part sought to be bound. The SOF does not require a formal written contract.

The SOF requires only on or more writings, signed by the party to be charged that (1) reasonably identifies the subject matter of the contract, (2) indicates that a contract has been made between the parties; and (3) states with reasonable certainty the essential terms of the unperformed promises. The writing requirement may be satisfied by email.

Ambiguous Contract Language - contract language with at least two possible meanings leads to different results depending on the awareness of the parties 1. Neither Party Aware of Ambiguity = No Contract unless both parties intended the same meaning 2. Both Parties Aware of Ambiguity = No Contract unless both parties in fact intended the same meaning 3. One Party Aware of Ambiguity - Contract enforced according to the intention of the party who was unaware of the ambiguity.

The Subjective Intention of the Parties Controls

Promise, Undertaking, or Commitment For a communication to be an offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than a mere invitation to begin preliminary negotiations, i.e., there must be an intent to enter into a contract.

The criteria used to determine whether a communication is an offer include the following: 1. Language 2. Surrounding circumstances 3. Prior Practice and Relationship of the Parties 4. Method of Communication 5. Industry Custom

The Acceptance - a manifestation of assent to the terms of an offer. Through this manifestation of assent, the offeree exercises the power given her by the offeror to create a contract. Offeree's power of acceptance cannot be assigned - exception - option contracts because power to accept is itself a contract right in these contracts, and contract rights are generally assignable.

The offeree must know of the offer in order to accept, and this is true whether the offer is for a bilateral or a unilateral contract.

Absence of Mutual Assent Mutual Mistake as to Existing Facts - When both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adversely affected party if: 1. The mistake concerns a basic assumption on which the contract is made (e.g., the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia); 2. The mistake has a material effect on the agreed-upon exchange (e.g., the cubic zirconia is worth only a hundredth of what a diamond is worth); AND 3. The party seeking avoidance did not assume the risk of the mistake.

To be a defense, it must be a mistake, not a mere uncertainty.

Legal Value Adequacy of Consideration - Cts. of law normally will not inquire into the adequacy of consideration (i.e., the relative values exchanged). If a party wishes to contract to sell an item of high market value for a relatively low price, so be it. However, courts of equity may inquire into the relative values and deny an equitable remedy (such as an order for specific performance) if they find a contract to be unconscionable.

Token Consideration - if the consideration is only token (ie, something entirely devoid of value), it will usually not be legally sufficient - indicates gift rather than bargained-for exchange. Sham Consideration - Parties to a written agreement often recite that it was made in consideration of $1 or some other insignificant sum. Frequently, this recited sum was not in fact paid, and indeed, it was never intended to be paid. Most courts hold that evidence may be introduced to show that the consideration as not paid and no other consideration was given in is stead. Possibility of Value - Where there is a possibility of value in the bargained-for exchange, adequacy of consideration will be found even though the value never comes into existence.

Unconscionability - allows a court to refuse to enforce a provision or an entire contract (or to modify the contract) to avoid unfair terms - Contracts of Adhesion (take it or leave it), boilerplate language in standardized printed forms, exculpatory clauses (party released for his own intentional wrongful acts), limitation on remedies - not unsonscionable unless inconspicuous.

Unconscionability is determined by the circumstances as they exited at the time the contract was formed.