Accounting 324 Exam 1

Auctions

- if nothing is stated to the contrary in the terms of the auction, an auction is presumed to be with reserve, which means that the seller is merely expressing intent to receive offers - the auctioneer may withdraw the item from auction at any time before the hammer falls, signaling acceptance of the bid - bidder may also revoke the bed before that point - in auction w/o reserve, the seller is treated as making an offer to accept the highest bid and therefore must accept it

Specific Performance (specific enforcement)

-Order requiring breaching party to fulfill obligations under contract. -Usually awarded only when monetary damages inadequate, and subject matter of contract unique (Example: Contract for sale of real estate)

Generally, all the following contracts must be in writing except

contract for goods valued under $500

cancel the contract

-sometimes the sellers/lessors fails to deliver the goods, and thus are in breach. UCC sections 2-711 and 2A-508 allows buyers and lessees to cancel the contract and then seek remedies that give the benefit of the bargain. The buy subsequently sued for damages

Undue Influence

-special relationships in which one person takes advantage of a dominant position in a relationship to unfairly persuade the other 1. was the dominant party rushing the other party to consent 2. did dominant party gain under enrichment from agreement 3. was non dominant party isolated from other advisors at the time of agreement 4. is the contract unreasonable b/c it overwhelmingly benefits dominant party

Adequacy of consideration

-the court does not weigh whether you made a good bargain -if the court believed fraud or undue influence occurred, they may look at adequacy of consideration

quiz 24: A(n) ________blank damages clause in a contract is one that identifies a remedy before a breach occurs.

liquidated

quiz 24: Which type of damages are identified before the breach of contract occurs?

liquidated damages

quiz 15: Tate agrees that he owes a creditor $20,000, as the creditor claims. Tate explains to the creditor that he can only pay the bank $12,000 as full payment toward the money he owes. The creditor agrees to accept $12,000 from him. The following month, Tate receives a bill claiming that he still owes the creditor $8,000. Which of the following statements is true of this scenario?

If Tate does not agree to pay the remaining $8,000, the creditor may sue Tate for the balance it believes is owed.

example of novation

Jane doe signing lease for building before company is created, after established Jane doe will switch it over to be signed under the company name; therefor "Jane doe" as an individual has no more obligations

Quiz 14: Juan, Dwayne, and Sonia are co-workers. Juan overhears Dwayne's offer to sell an antique car to Sonia for $15,000. Under these circumstances,

Juan makes a new offer to Dwayne when he offers to buy the car for $15,000.

Quiz 14: Jorge offers to build Larry a garage for $20,000. The offer stated that acceptance in person was required. Within a reasonable time, Larry e-mailed Jorge his acceptance. Which of the following statements is true about this situation?

Larry has not accepted the offer as required by the offeror, and there is no contract

quiz 24: Under the UCC, which of the following statements regarding liquidated damages is accurate?

Liquidated damages must be identified before the breach occurs by the parties.

Nominal Damages

Monetary damages awarded to a plaintiff in a very small amount, typically $1 to $5, to signify that the plaintiff has been wronged by the defendant even though the plaintiff suffered no compensable harm

quiz 16: When a minor enters into a contract, the minor has which of the following rights?

The minor has the right to disaffirm the contract before or within a reasonable time of reaching the age of majority.

Quiz 14: Under the "mirror-image" rule, if the offeree's acceptance is with terms that are not identical to the offeror's terms, then which of the following is true?

The offeree's attempted acceptance is considered a counteroffer rather than an acceptance.

quiz 15: Wanda purchases a motorcycle from her friend, Leslie. She pays Leslie $8,000. Later, Wanda realizes that the motorcycle is worth less than $4,000. If Wanda plans to sue Leslie, which of the following statements applies?

Wanda cannot sue Leslie because the court seldom considers adequacy of consideration.

quiz 16: If someone suffering from dementia has been appointed a guardian, which of the following is true regarding that person's ability to enter into a contract?

When someone has been appointed a guardian, that person's contracts are considered void.

Contract Damages intended to put the nonbreaching party in the position they would have been had the breaching party performed are called ______ damages.

compensatory

quiz 20: ________blank performance occurs when all aspects of the parties' duties under the contract are carried out perfectly.

complete

quiz 20: Which type of damages are foreseeable damages that result from special facts and circumstances arising outside a contract itself?

consequential damages

The basic performance obligation

the obligations of seller/lessors and buyers/lessees are determined by (1) terms the parties outlined in agreements (2) customs, and (3) rules outlined by the Uniform Commercial Code (UCC)

Intent

the offeror must show intent to be bound by the offeree's acceptance - we interpret contracts using an objective standard, courts are concerned only w/ the part's outward manifestations of intent

Quiz 14: which of the following is not generally considered a material term in an offer

the time the offer is to remain open

Legality

to be enforceable, contracts must have legal subject matter and must be performed legally -contract overturned is declared void -agreement against generally accepted public policy are also illegal/unenforceable -contracts made for illegal purpose or cannot be carried out by legal means are made void for 2 reasons 1. making them void clearly indicates such agreements are not socially acceptable 2. doing so prevents the legal systems bring used to promote agreements that are harmful to society

Suretyship

An express contract in which a third party to a debtor-creditor relationship (the surety) promises to be primarily responsible for the debtor's obligation.

remedies available to buyers and lesses under the UCC

breach of contract by seller or lessor -sue for delivery under specific performance if good are unique -sue for consequential damages due to delay Buyer obtains cover: -sure for diff between cover and contracted for prices -sue for consequential and for liquidated damages

Which of the following terms is required to be stated in a UCC contract?

quantity

quiz 16: The term ________blank refers to the fact that the agreement in question is so unfair that it is void of conscience.

unconscionable

Remedies (things to consider before filing suit)

1. likelihood of success 2. the desire or need to maintain an ongoing relationship w/ the potential defendant 3. the possibility of getting a better/faster resolution through some form of alternate dispute resolution 4. the cost of litigation or some form of ADC as compared to the value of the likely remedy

Preliminary Negotiations

an invitation to negotiate or an expression of possible interest in an exchange is not an offer b/c it does not express any willingness to be bound by an acceptance

Three kinds of title

good title: acquired from someone who already owns the goods free and clear void title: not true title, someone who purchases stolen goods, unknowingly or knowingly, has void title voidable title: certain situations where the contract between the original parties would be void but the goods have already been sold to a third party

Contracts in writing

has no correlation to a contract being valid, void, or voidable, it only effects the enforceability

Quiz 14: Robert makes Vince an offer to sell him his Rolex if Vince paints Robert's house by Friday. Which of the following conditions would terminate Robert's offer, even if Vince does not know of the terminating event?

if Robert dies

Agreement to commit a crime or tort

if a legal contract is formed and it later becomes illegal, contract is discharged by law

quiz 15: for an unliquidated debt

once the debtor pays the amount agreed on by both the parties, the debt is fully discharged.

quiz 20: If a buyer decides to terminate a contract because the seller materially alters a written contract without the knowledge of the buyer, then the contract is discharged by

operation of law

quiz 15: the preexisting duty rule means that:

performance of a duty you are obligated to do under the law is not good consideration.

Advertisements as Offers

the courts will interpret the intent of the store as being to invite readers to make an offer -under limited circumstances an ad can be treated as an offer (specifies limited quantity and provides a specific means by which the offer can be accepted) -to prevent bait and switch advertising some states require advertisers to state in their ads either that the quantity is limited to the first x number of people or that rain checks will be available if the item sells out

Definite and Certain terms (Common Law)

under common law, the terms of the offer must be definite and certain (material terms included)

When a trusted dominant party exerts pressure on a non-dominant party to enter a contract that overwhelming benefits the dominant party, courts will likely find that _____ played a role in thereby making the contract ____.

undue influence, voidable

Tolling of statue of limitations

• Most states it's a 3-year (sometimes 4) statute of limitations; if you get your roof done, and decide not to pay after bill is sent, the company has 3 years to come after you to pay

Withhold delivery

-UCC section 7-703(a) and 2A-523(1)(c) allow sellers or lessors to withhold delivery of goods when the buyer or lessee Is in breach

legal remedies (monetary damages)

include compensatory, punitive, nominal, and liquidated damages -whenever possible courts award monetary rather than some form of equitable relief

quiz 16: Which term describes conditions that impair one party's understanding of a contract, as well as the integration of terms into a contract?

procedural unconscionability

quiz 15: If the parties dispute either the existence of a debt or the amount of a debt, that debt is called a(n) ________blank debt.

unliquidated

quiz 16: if an agreement is illegal, the contract is _____

void

quiz 16: when is a contract voidable

when the contract is entered into by a minor

quiz 20: Which damages are specified by the parties in advance and put in the contract?

liquidated

the sellers/lessors right to cure

-under UCC sections 2-508 and 2A-513, sellers and lessors have the right to cure or fix problems w/ nonconforming goods

quiz 24: If the parties have not negotiated the liquidated damages in the contract, the UCC allows a nonbreaching seller to claim against a breaching buyer ________blank or $500, whichever is less, as liquidated damages.

20% of purchase price

Legal Assent

A promise to buy or sell that the courts will require that the parties obey. -courts will see forms of assent as more genuine or real than others -w/o legal assent, contract may be voidable -voidable contract can be rescinded, or canceled, resulting in return of everything to owner Obstacles to legal assent: mistake, misrepresentation, undue influence, duress, and unconscionability

Courts must find an agreement, consideration, capacity, legal assent, and compliance w the statue to frauds to rule a contract is enforceable.

TRUE

quiz 24: If a nonbreaching buyer seeks the remedy of "cover," the buyer must establish all but which of the following?

The buyer must purchase goods identical to the goods specified in the contract.

quiz 20: To justify recovery based on a quasi-contract, a plaintiff must prove all but which of the following elements?

The defendant would be enriched by receiving the benefit that was the result of a unilateral mistake on behalf of the plaintiff.

Recover the goods

UCC sections 2-502 and 2A-522 allows buyers/lessees to recover the goods identified in the contract if the seller/lessor becomes insolvent within 10 days after receiving the first payment due under the agreement

Effect of Illegal Agreement

agreement deemed illegal = void "in pari delicto" = both parties equally responsible for illegal agreement (neither party can enforce agreement/neither entitled to recovery First exception: member of a protected class is party to an agreement that contradicts a statue intended to protect specific class (party allowed to sue) Second exception: when justifiable ignorance of facts leaves one party unaware of a provision to the agreement that would make it illegal -when one party is relatively innocent the court may give back any consideration that party gave or may require exchange for partial performance such that both parties can be returned to positions they were in before agreement -if one party is completely innocent and completed their part of contract, courts may enforce Third Exception: when on parties withdraw from illegal agreement (must withdraw before any illegality occurred)

quiz 24: When a buyer breaches a sales or lease contract before the seller has delivered the goods, Sections 2-703(a) and 2A-523(1)(c) of the Uniform Commercial Code:

allow sellers to withhold delivery of goods.

quiz 24: According to the Uniform Commercial Code (UCC), the remedy of last resort available to sellers and lessors in the case of breach of a sales contract is:

canceling the contract

quiz 14: Julio agrees to buy Sophia's computer for $1,000. However, Sophia tells Julio that she will only sell the computer to him if he pays $1,200. In this scenario, Sophia makes a(n):

counteroffer

Preexisting duty

performance of a duty you are obligated to do under the law is not good consideration; performance of an existing contractual duty is not good consideration exceptions: unforeseen circumstances, additional work, UCC article 2 (sale of goods)

quiz 16: When a court can void the illegal part of an agreement and enforce the rest if the terms represent the main purpose of the original agreement, it is a(n) ________blank contract.

severable

Quiz 14: Jonathan offers to sell Paulette six video poker machines. Before Paulette can accept or reject Jonathan's offer, the state legislature passes a statute that the purchase, sale, and possession of video poker machines is illegal. In this scenario, Jonathan's offer terminates due to which of the following rules?

subsequent illegality of the subject matter

quiz 20: ________blank performance occurs when nearly all of the terms of the agreement have been completed, the obligor has made a good faith effort to complete all of the terms of the agreement, and no "willful departure" from the terms of the agreement has occurred.

substantial

the concept of title

the UCC defines a sale as the passing of title from the seller to the buyer for a price; this does not indicate the relationship between passing title and ownership

Types of sale contracts

the UCC lays out essentially four broad factual scenarios for the sale of goods 1. Simple delivery contract: occurs when the purchased goods are transferred to the buyer from the seller at either the time of sale or some time later by the sellers delivery Under the UCC there are 3 distinct steps: (1) title transfers to the buyer on the grounds being identified to the contract, when the contract is executed (2) risk of loss transfers to the buyer when the buyer takes possession (3) insurable interest is created in the buyer when the goods are identifies to the contract (at the same time that title passes) - if seller is not a merchant, the risk of loss remains w/ the buyer under the rule of tender of delivery: moment the goods were available for the buyer to take 2. Common carrier delivery contract: occurs when goods are delivered to the buyer via a common carrier, such as a trucking line -what makes a common-carrier an independent contractor and not an agent of the seller, is that the carrier controls the primary aspects of performance, such as how goods are actually delivered UCC names 2 type of delivery contracts in this category: (1) shipment contracts: require that the seller ship the goods to buyer via common carrier, the seller is required to make proper shipment arrangements and deliver the goods into the common carriers hands, title passes to buyer at time/place of shipment, thus the buyer bears the risk of loss of goods in transit (2) destination contracts: require that the seller deliver the goods to the destination stipulated in the sales contract, this may be the buyers place of business or some other location, the seller bears the risk of loss until that time 3. Good-in-bailment contract: occurs when the purchased goods are in some kind of storage under the control of a third part, such as a warehouseman -the seller has one fo three documents indicating ownership of goods: - negotiable doc. (i.e. doc containing words "deliver to the order of seller"), both the title and risk of loss transfer from seller to buyer as soon as that negotiable instrument is endorsed over to the buyer - nonnegotiable doc., title passes w/ the instrument of title but the risk of loss doesn't pass to the buyer until the bailee (custodian of goods) is notified of the transfer or a reasonable time has elapsed - neither the title passes at the time the sales contract is executed but the risk does not pass to the buyer until the bailee is notifies of transaction and acknowledges such notification 4. Conditional and sales contract: occurs when the sale itself is contingent on approval - sale-on-approval if the seller allows the buyer to take possession fo the goods before deciding whether to complete the contract by making the purchase. title and risk of loss remain w/ the seller until the buyer notifies the seller about approval of contract - sale-or-return occurs when the seller and buyer agree that the buyer may return the goods at a later time, such contracts usually occur when the buyer is buying inventory to resell

Generally, courts will not enforce a contract, Common Law or UCC, that the Statue to Frauds required to be in writing that was not put into writing.

true

All of the following are types of contracts except

verified

Mutual Mistake

when both parties are mistaken concerning the identity or even the existence of the subject matter of the contract; rescission is fair b/c any agreement was an illusion: ambiguity prevented a true meeting of the minds For a mutual mistake to interfere w/ legal consent, all of the following must be present: 1. Basic assumption about the subject matter of the contract 2. Material effect on agreement 3. Adverse effect on party who did not agree to bear the risk of mistake at time of agreement Before a contract can be voided for mutual mistake you must answer yes to each: 1. is the mistake about a basic assumption that affects the subject matter of contract 2. does the mistake have a material effect on agreement 3. would enforcement have adverse effect on party who did not agree to bear the risk of mistake at time of agreement

Good faith

-UCC Section 1-203 requires good faith in the performance and enforcement of every contract, good faith means honesty in fact -when the parties are merchants, the UCC imposes a higher standard. between merchants, the UCC imposed not only honesty in fact also reasonable commercial standards of fair dealing. This second requirement is often called commercial reasonableness

stop delivery

-UCC sections 2-705 and 2A-526 allow a seller or lessor to stop delivery of goods that are in transit. In transit means that the seller/lessor has delivered the goods to a carrier or bailee but the carrier or bailee has not yet turned them over to the buyer

Gambling

-agreements in which parties pay consideration for chance/opportunity to obtain an amount of money/property -illegal in most states, except NJ, Nevada, and Louisiana allow casino gambling - in California, betting on draw poker is illegal -exceptions: horse tracks, casinos on NA reservations, state-run lotteries

Punitive Damages

-designed to punish people and organizations so that others are deterred from committing the same wrongful act -primary objective of contract law is to ensure that parties exceptions are met, punitive, or exemplary, damages are rarely awarded - most jurisdiction awarded them only when the defendant has engaged in reprehensible conduct such as fraud - primary factor in determining amount of punitive damages is how much is necessary to "punish" the defendant; thus the amount depends on matters such as wealth and income of the defendant

reject non-conforming goods

-first UCC sections 2-601 and 2A-519 allow the buyer/lessee to reject the goods -the buyer/lessee may then obtain cover or cancel the contract

Mistake

-mistaken beliefs about subjective value of an item do not affect validity of the contract -only misunderstanding of facts can raise potential of recession in the US Mistake of Law: erroneous belief about the facts of the contract at the time the contract is concluded, legal assent is absent when a mistake of fact occurs -can be unilateral: result of error by one party about material fact (or mutual)

Illusory Promise

-not a promise at all (NO COMMITMENT) -ex: Shawn offers to sell Molly his skis for $300, Molly says "ill look at them in the morning and if I like them I will pay you"

UCC Accord and Satisfaction

-under UCC section 3-311 effective in 30 states, the rule has two exceptions: 1. businesses may notify debtors that any offer to settle a claim for less than amount owed must be sent somewhere particular 2. If business does inadvertently cash a "paid-in-full" check it has 90 days to offer the debtor repayment of same amount (once offer made no a+s exists)

elements of the offer (to have valid offer under common law)

1. serious intent by the offeror to be bound to an agreement 2. reasonably definite terms 3. communication to the offeree

Voidable title

Buyer only gets voidable title if: -the buyer has deceived the seller regarding their true identity -the buyer has written a bad check for the goods -the buyer has committed criminal fraud in securing the goods -the buyer and seller agreed that title would not pass until some later time -the buyer is a minor -the first four of these are articulated in Section 2-403 of Article 2 of the UCC the final one is from common law -if seller discovers any of these they have the right to cancel the contract and reclaim the goods, even if they have been delivered (hence voidable)

Smith took her moped to Gamecock Moped for repairs, A salesperson at Gamecock Moped sold Smith's moped to Byars. Byars paid fair value and did not know the moped was owned by Smith, not Gamecock Moped. Who has the best title of the moped?

Byars

Discharge by mutual agreement

Mutual Recession: -parties may agree that they simply wish to discharge each other from their mutual obligations and therefor rescind or cancel the contract Substituted contract: -instead of canceling the contract and terminating their relationship, parties wish to substitute a new agreement in place of original - immediately discharges old obligations, replaces them w/ new ones Accord and Satisfaction: -when on party wishes to substitute a diff performance for their original duty under the contract - promise to perform new duty is the accord, actual performance is satisfaction - party's duty is not discharged until new duty is performed, satisfaction that discharges the party Novation: -parties agreement want to replace one of the parties w/ a 3rd party - the substitution to the novation, the original duties remain the same - all parties must agree to the novation for it to be valid

remedies available to sellers and lessors under the UCC

Possible remedies for breach of contract by buyer or lessee After delivery of goods: -sue for price -sue to reclaim goods and then sure for difference between resale and contracted for prices Before delivery of goods: -cancel contract; stop delivery -sue for damages; difference between resale and contracted price or price if goods are not reliable

Two types of unconscionable agreements

Procedural: conditions that impair one party's understanding of contract/terms -usually arises in adhesion contracts: agreements on take it or leave it basis or as the only chance the party will have to enter it (legal but raise red flags) Substantive Unconscionability: agreement is overly harsh/lopsided (one party gaining vastly more than the other)

quiz 15: The ________blank is the agreement while payment is the ________blank in an unliquidated debt.

accord; satisfaction

quiz 15: When one party gives a promise as consideration and the other party gives a(n) ________blank in consideration, a unilateral contract will result.

act

quiz 15: Suppose that Brittany agrees to purchase Kathy's computer for $700. Brittany's payment of $700 is the ________blank that Kathy will receive for her computer.

consideration

quiz 16: When, after reaching the age of majority, the person states orally or in writing that he or she intends to be bound by the contract entered into as a minor, there is a(n) ________blank.

express ratification

quiz 20: ________blank occurs when a party to a contract unjustifiably fails to substantially perform his obligations under the contract.

material breach

quiz 14: Which rule says that the terms of an acceptance must reflect the terms of an offer?

mirror-image rule

quiz 20: If a plaintiff has no actual damages from a breach of contract but the plaintiff has been wronged by the defendant, the court may award

nominal damages

quiz 20: All but which of the following are situations in which a contract may be discharged by operation of law?

novation

Quiz 14: an offer is interpreted by the courts on a(n) ____ standard

objective

The equitable remedy under the common law of contracts requiring the seller to perform under the contract is called _____.

specific performance

qui 24: Which remedy usually requires that the seller or lessor deliver the particular goods identified in the contract?

specific performance

quiz 16: If a person who suffers from a mental illness or defect still understands the nature of the contract and his or her obligations under the contract, which of the following will result?

the contract will be considered valid

quiz 24: If a buyer breaches a sales contract and the seller decides to resell the goods, the seller can recover:

the difference between the resale price and the contract price, plus incidental damages and minus expenses saved.

Statue of Frauds: Contracts falling within (MY LEGS)

(1) Contracts whose terms prevent possible performance within one year: - begins the day after contract is created, not when it's scheduled to begin -doesn't consider likelihood of completing within one year, considers POSSIBILITY Legal Principle: if a contract can possibly be performed within a year, even if such performance is highly unlikely, then the contract does not need a writing to be enforceable (2) Promises made in consideration of marriage -mutual promises to marry do not fall within statue of frauds (neither is gaining) Perceptual agreement - agreement 2 parties enter before marriage that states the ownership rights each party enjoys in the other party's property -writing is required, but not sufficient to establish enforceability -although consideration is not legally required, courts privilege prenups that include it (shows non-bias) (3) contracts for one party to pay debt of another if initial party fails to pay -secondary obligations (secondary promise, collateral promises, suretyship promises) occurs when party outside of primary agreement promise to fulfill one of the OG party's obligations if the OG party fails to fulfill it -primary obligations are debts inclined in an initial contract (not within the statue of frauds, do not need writing) exception to secondary obligation being in writing: main-purpose rule -if main purpose of secondary obligation is to obtain personal benefit, the promise does not fall within the statue -assumption Is achieving person benefit, will not back out (4) contracts related to an interest in land -"land" encompasses the land, soil, tress, and buildings -contracts transferring other interests in land are also within statue of frauds (ex: mortgages/leases) Contracts for sale of goods more than $500 -only state the quantity sold: buyer, seller, price, and method of payment do not need to be included -terms other than quantity can be inexact/left out of writing as long as it doesn't contradict the parties agreement -contradict will be enforceable for stated quantity, both UCC and stature of frauds require that party against whom action is sought must have signed the document -other situations under the UCC that require writing is lease of goods, and sale of securities and personal property if price is >5000

Acceptance Common Law (manifestations of intent, mirror image rule, communication to the offeror)

- requirements for a valid acceptance parallel those for valid offer Manifestations of Intent to be bound to the contract: - two ways an offeree can manifest intent to enter into the contract: by performance or by a return promise -offeror has right to revoke offer at any time before accepted -slightly modified w/ respect to unilateral offers so that if one party has begun performance, the offeror must give the offeree a reasonable time to complete - in a bilateral contract, what the offeror wants is not performance but, rather, a return promise -silence as form of acceptance: as a general rule silence cannot be used to form a contract; silence is acceptance with long standing relationship, implied-in-fact, and parties agree Acceptance of definite and certain terms (Mirror Image Rule): -the mirror image rule states terms of acceptance must mirror terms of the offer - if not no contract is formed, instead, the attempted acceptance is a counteroffer Communication to the offeror: -offeror has the power to control means of acceptance communication, so if the offeror specifics only a certain means of communication will be accepted, then only the acceptance by that means forms a valid contract -if not specified any means is generally accepted

Compensatory damages

-Damages designed to put the plaintiff in the position he or she would have been in had the contract been fully performed (compensate the plaintiff for his loss of the benefit of the bargain) - only recover for those provable losses that were foreseeable at the time the contract was entered 1. contracts for sale of goods governed by the UVV, damaged calculated as diff between contract and market price on day goods were supposed to be delivered plus incidental damages from the breach - occasionally, buyer may have no damages b/c the market price of goods is lower than the parties had anticipates it would be at date of delivery so buyer can purchase goods at lower price than the contract price - if buyer breaches before accepting the goods, the seller would be able to resell goods and recover as compensatory damages the diff between price he sold the goods for and the contract price, plus any incidental expenses associated w/ the sale - if seller cannot resell, they are entitled to contract prices as damages - if buyer breaches before goods are manufactured, damages would be based on profits that would have been made from the sale 2. In construction contracts, damages are calculated differently depending on who the breaching party is and what stage the construction is in when breach occurs - if contract is breached by owner before construction begins, damages are simple last profits (subtract the projected cost of construction from the contract price)

Entrustment

-If an owner entrusts the possession of goods to a merchant who deals in goods of that kind, the merchant can transfer all rights in the goods to a buyer in the ordinary course of business -example case: owner entrusted well-known artist w/ possession of paintings, if they sell the paintings to a buyer, then that buyer gets a good title -only recourse is for the original owner to bring suit against the merchant -rationale behind this is the facilitation of commercial activity regarding good-faith purchasers in the marketplace -parties are always free to create a contract that lays out and defines such issues as when title passes and when risk of loss passes. The UCC's rules are essentially the default rules for contracts that do not clearly spell out such provisions

Substantial impairment

-UCC section 2-608 indicates that the buyer who had accepted good may later revoke the acceptance only if the buyer can. show that the defects substantially impair the value of the goods -UCC section 2-612(a) and 2A-510(1) indicate if a buyer/lessee rejects an installment of a particular item, that buyer/lessee may do so only if the defects substantially impair the value of the goods and cannot be cured

Commercial Impracticability

-UCC section 2-615(a) and 2A-405(a) state that a delivery or non-delivery, in while or in part, is not a breach in circumstances in which performances has been made impracticable b/c a contingency has occurred that was not contemplated when the parties reached an agreement

revoke acceptance of nonconforming goods

-UCC sections 2-608 and 2A-517 sometimes allow the buyer or lessee to revoke acceptance of nonconforming goods. For instance, a buyer may reject acceptance of the non-conforming foods if the buyer had made a reasonable assumption that the nonconforming goods would be cured but the nonconforming was not cured within a reasonable amount of time

cancel the contract

-UCC sections 2-703(f) and 2A-523(1)(a) allow a seller or lessor to cancel the contract if the buyer/lessee is in breach. The UCC requires that sellers/lessors notify buyers?lessees of the cancellation. Then the seller or lessor pursues remedies available under the UCC. Remembers, these remedies give the seller/lessor the benefit of the bargain, and nothing more Legal principle: canceling the contract is the remedy or last resort from the UCC's perspective. Remember: the UCC wants to maintain commercial transactions and provides remedies to keep the contract in force, even when one party has breahced

Obtain specific performance

-UCC sections 2-716 and 2A-521 allow buyers/lessees to seek the remedy of specific performance when either (1) the goods are unique, or (2) a remedy at law is inadequate Specific performance: usually requires that the seller or lessor deliver the particular goods identified in the contract

destroyed goods

-Under UCC sections 2-613 and 2A-221, if goods are identified at the time parties enter into contract and these good are destroyed thru no fault of the parties before risk passes to the buyer or lessees parties are excused from performance, if goods are only partially destroyed, the buyer can inspect the goods and decide whether to (1) treat the contract as void or (2) ask the seller for a reduction of the contract price and then accept the damaged goods

obtain the cover

-Under UCC sections 2-712 and 2A-518, buyers and lessees are allowed to cover, or substitute goods for those due under the sale of lease agreement Buyer must (1) demonstrate good faith in obtaining substitute goods, (2) pay a reasonable amount for substitute goods, (3) act w/o unreasonable delay in purchasing goods, and (4) purchase goods that are reasonable substitues

Negligent Misrepresentation

-a false statement of material fact made by a party who thinks it is true but who would have known the truth about the fact had he or she used reasonable care to discover or reveal it -even though he had no intent to deceive, the party is treated as if he did -courts find negligent misrepresentation only when the party should have known the truth using skills required of person in their position/profession

The Mailbox Rule

-acceptance is valid when the offeree places it in the mailbox, whereas revocation is effective only when the offeree receives it -not applicable w/ instantaneous communication (phone/in-person) The effect of an acceptance after a rejection: -sometimes a rejection is dispatched but, before received, acceptance is communicated to the offeror. In this case, a valid contract has been formed b/c rejection is not effective until received

Injunction

-an order either forcing a person to do something or prohibiting a person from doing something, most commonly, injunctions are prohibited against actions reformation -contract doesn't reflect agreement or there are inconsistencies in the contract, such as the price being listed as "200,000 (twenty thousand)", in this case a written document may be rewritten to reflect agreement

discharge by material breach

-breach occurs when a party fails to performs obligations under the contract - if minor, it may entitle the non breaching party to damages but it does not discharge the nonconforming party from the contract material breach- discharges the non breaching party from his obligations under the contract -occurs when a party unjustifiably fails to substantially perform obligations under the contract often difficult to know when the court is going to determine that a breach is material Anticipatory Repudiation: -sometimes contracting party may decide not to complete the contract before the actual time of performance - often arises when market conditions change and one party realizes that it will not be profitable to carry out the terms -breaching party may convey anticipatory breach to the non breaching party either by making an express indication of her intent to no longer perform or by taking an action that would be inconsistent with her ability to carry out contract when performance was due -once contract has been anticipatory repudiated, the non breaching party is discharged from his obligations under the contract - free to go ahead and sure for breach, as well as find another similar contract elsewhere - he may decide to give the party who repudiated the opportunity to change her mind and still perform

Sue to recover damages

-buyers/lessees entitles to incidental/consequential damages. Consequential damages include damages for lost profits as long as these damages are not too speculative. These monetary damages give the injured buyer or lessee the benefit of the bargain

Fraudulent Mispresentation

-consciously false representation of a material fact intended to mislead other party (intentional) 3 elements: 1. false statement about a past or existing fact that is material to the contract concealment: active hiding of the truth about material fact nondisclosure: failure to provide pertinent info about projected contract (passive form) -courts will find nondisclosure as having same legal affect as actual false assertion under conditions: (1) relationship of trust exists between parties (2) failure to correct assertions of fact that are no longer true (3) statue requires the disclosure (4) nondisclosure involves a dangerous defect 2. intent to deceive -occurs when party making false stmts claims to have or implies having personal knowledge of its accuracy. any resulting assent is not legal b/c its injured party was not allowed to join the mind of deceiving party, the party w/ scienter or intent wanted to fulfill contract on basis of falsehood 3. justifiable reliance on the false statement by the innocent party -the injured party has no justifiable claim of fraud after relying on assertions whose falsity should have been obvious -parties cannot successfully claim they justifiably relied on a false assertion when its falsity would have been clear to anyone who inspected the item (duty to inspect is decreasing in modern contract) -is damages are sought, the defrauded party must have been injured by the misrepresentation -if mistake is innocent the victim can only seek recession

Consequential damages

-contract law requires greater certainty in the proof of damages than does tort law -damages are no recoverable for breach of contract unless they can be proves w/ high degree of certainty -consequential damages are foreseeable damages that result from special facts and circumstances arising outside the contract itself - damages must be within the contemplation of the parties at the time the breach occurs

Liquidated damages

-damages identified before the breach occurs. Parties are free to negotiate as part of the contract, a liquidated damage clause in which the parties agree in advance what the damages will be for each party. Should a breach occur. Generally a court will enforce a liquidated damage clause as long as it is not so far out of reasonable range as to be punitive in nature -liquidated damage clauses that are deemed to be punitive in nature are not enforceable -UCC section 2-718 pertains to liquidated-damages and allows the substantially seller to claim against the breaching buyer 20% of the purchase price or $500, whichever is less as liquidated damages

Liquidated Damages

-damages specified as a term of the contract, before a breach of contract occurs -parties will specify in advance to prevent court battles -wills specify these damages in what is called a liquidated or stipulated - damage clause in the contract (may be specified as either a fixed amount or formula for determining how much money is due) -courts generally enforce these clauses as long as they appear to bear a reasonable relationship to what actual costs will be; if unreasonable the courts declare the clause a penalty clause and do not enforce it

Unilateral Mistake

-doesn't generally void a contract b/c courts are hesitant to interfere when one party has correct understanding Conditions that would permit a court to invalidate a contract on grounds of unilateral mistake: 1. one party made mistake about material fact, other party knew/had reason to know about mistake 2. mistake was caused by clerical error that was accidental and did not result in gross negligence 3. mistake was so serious that contract is unconscionable; that is, so unconscionable that it is outrageous

Equitable remedies

-equitable remedies grew out of the English courts authority to fashion remedies when the existing laws did not provide any adequate ones -these remedies were typically unique solutions specifically crafter to the demands of the situations - most common equitable remedies include recession, restitution, orders for specific performance, and injunctions A party seeking equitable relief must meet five requirements (1) there is no adequate legal remedy available (2) irreparable harm to the plaintiff may result if the equitable remedy is not granted (3) the contract is legally void (except when seeking relief in quasi-contract) (4) contract terms are clear an unambiguous (5) the plaintiff has "clean hands" that is, has not don't anything in breach of contract

Past Consideration (lion king example)

-for a court to enforce a promise, both sides must offer consideration -for a promise to be enforceable, there must be a bargaining and an exchange -a promise cannot be based on consideration provided before the promise was made -past consideration is no consideration at all ex: boss promises 5% of stock of company for great work, 6 months later you still haven't receive it, since work was already performed you have nothing in exchange exception: restatement (second) of contracts (a persuasive authority) promises on past consideration may be enforceable to the extent necessary to avoid injustice

mentally incapacitated persons

-if person suffers from mental problems, yet understands nature of contract the person may be able to enter a binding contract -if person suffers from illness that prevent them from understanding nature of contract they have limited capacity to enter contract -a contract for necessaries by person suffering mental deficiency can be enforced for the reasonable value of the necessary -if a person has been named insane and has guardian appointed that person has no capacity to enter contracts

Lack of consideration

-in a bilateral contract (promise for promise), the consideration for each promise is a return promise -in a unilateral contract (promise for an act), one party's consideration is the promise and the other party's consideration is the act Exception to consideration is promissory estoppel, which occurs when 3 conditions are met: 1. one party makes a promise and either knows or should know that the other party will reasonable rely on the promise 2. the other party does reasonably rely on the promise 3. the only way to avoid injustice is to enforce the promise Exception to consideration is a contract under seal: -contracts used to be sealed w/ wax, now the word seal or letters L.S. are at the end -10 states will allow a contract w/o consideration to be enforced if it is under seal (certain states no longer require seal)

Reclaim the goods

-in some circumstances, the UCC allows the seller or lessee to reclaim the goods. UCC 2-702 allows a seller to reclaim goods when it discovers the buyers insolvent -UCC 2A-525 allows a lessor to reclaim goods when the lessee fails to make payments according to the lease terms

Sue to get the benefit of the bargain

-in trying to give the seller or lessor the benefit of the bargain, and nothing more, courts often grant damages to recover the purchase price or lease payments due. In some cases, even lost profit will be awarded, especially if the goods cannot be resold in the usual course of business

Exceptions to the perfect tender rule

-is not as inflexible as it appears, although the rule itself demands perfection, both courts and UCC drafters have created exceptions that reduce rules rigidity -these exceptions limit the sellers obligations to deliver conforming good and/or limit the buyers power to reject goods that do not conform 6 exceptions allow sellers/lessors and buyers/lesses to ask questions such as: -what norms in the particular industry and/or what past dealings have the parties had w/ one another? -what does the parties agreement say? -is it possible for the seller/lessor to cure or correct the problem -what if the goods have been destroyed -what if non-conformity substantially impairs the value of the goods -what if unforeseen circumstances make contract performance commercially impracticable

Sabbath Laws

-limit the types of business activities in which parties can legally engage on Sundays -colonial times prohibited all work on "lords day" -most prohibit alcohol sales, some sabbath laws makes it illegal to enter a contract, however, an executed contract created on Sunday cannot be rescinded -NO EXCEPTIONS, laws typically don't apply to contracts for necessities

Minors

-may only enter into voidable contracts -given full capacity to enter into contracts when they become emancipated Disaffirmance of the contract: -no formalities required to disaffirm (only words/actions), they must void entire contract not only portion -most states simply require minor to notify the competent part and return any consideration received, regardless of condition, if consideration had been damaged the other part had no recourse against minor exceptions to minors right to disaffirm the contract: - cannot disaffirm for life insurance, health insurance, psychological counseling, stock/bond transfers, education loans, child support, marriage, and enlistment - minors misrepresentation of age doesn't affect the minors right to disaffirm, some states hold that when a minor who appears to be of age of majority misrepresents his/her age and a competent party relies on that misrepresentation in good faith, the minor gives up right to disaffirm the agreement and can be treated as an adult (any minor who misrepresents age doesn't need protection disaffirmance is designed to provide liability of minors for necessaries: -minors can disaffirm contracts for necessaries (food, water) but they will still be held liable for the reasonable value of the necessary -some courts define necessaries as what a minor needs to maintain standard of living but this can lead to upper/lower income parents discrepancy in minors way of life ratification: -once person reaches age of majority, he/she may ratify or legally affirm contracts express ratification: person states orally/in writing that they intend to be bound by contract implied: when former minor take some action after reaching the age of majority consistent w intent to ratify Parent liability for their children, contract, necessaries, and torts: -general rule, parents are not liable for contracts entered into by their minor children merchants are reluctant to enter into contracts w minors unless someone is willing to cosign -may be held liable in some states for the reasonable value of necessaries for which their children enter contracts -in most states, minors are liable for personal torts, in many states the parents may be liable when a child causes harm if it can be proved they lacked supervision

duress

-more visible and active interference w/ free will than is undue influence -occurs when one party is forced into the agreement by wrongful act of another -one party threatens physical harm or extortion to gain consent -one party threatens to file criminal lawsuit unless consent is given to the terms of the contract -one party threatens the others economic interests (person refuses to perform according to a contract unless the other person either signs another contract w/ the one making the threat or pays that person a higher price than specified in o.g. agreement

Acquiring good title

-most obvious way is acquiring it from someone who had a good title, the person who owns it free and clear w/o any qualification -someone who had come into possession of stolen goods never has good title and can never pass good title, they have void title -good faith is irrelevant when passing a void title. If a person has a void title, no matter how honorable the intentions of the seller are, that good-faith seller cannot pass anything to the buyer but another void title Legal principle: void title always begets a void title

Partial Payment of a debt

-partial payment of a debt may/may not be a valid consideration -in liquidated debt there is no dispute that money is owed or how much (ex: nat saying she can only pay 200 of the 300 credit bill, company agrees but she still owes the 100) -in unliquidated debt, the parties either disagree about whether money is owed or dispute the amount; they can settle for less if they enter into an accord and satisfaction, which must meet 3 requirements: 1. the debt is unliquidated 2. the creditor agrees to accept as full payment less than in claims is owed 3. the debtor pays the amount they have agreed on -under these, debt is fully discharged, the accord is the new agreement to pay less than claimed, the satisfaction is the debtors payment of the reduced amount -debtors can attempt to create a+s by sending creditor a check with "paid in full" on it, under common law this created a+s, and if cashed they were bound to accept the lesser amount as full

Discharge by Performance

-parties discharge their obligations by doing what they respectively agreed to do under the terms of the contract -tender: an offer by a contracting party to perform, along with being ready, willing, and able to perform, a duty outlined in the contract Complete Performance: occurs when all aspects of the parties duties under the contract are carried out perfectly (hard, if not impossible, to attain, courts today usually require only substation performance) Substantial performance: occurs when the following conditions have been met (1) completion of nearly all the terms of the agreement (2) honest effort to complete all terms (3) no willful departure from the terms of the agreement Performance subject to satisfaction of a contracting party: -party is not discharged from the contract until other party is satisfied -satisfaction is an express condition that must be met before the other party's obligation to pay for the performance arises -when the judgement involved is a matter of personal taste, such as when as women is having a dress custom made for her, the courts apply a subjective satisfaction standard - as long as the person, in good faith, is not satisfied, the other pert is deemed to have no met the condition -if the performance is one related to a mechanical or utility standard, the objective satisfaction standard applies - if the contract does not clearly specify that the satisfaction is to be personal the objective standard applies - when an objective standard is used, courts ask whether a reasonable person would be satisfied w the performance -sometimes contract is conditioned on satisfaction of a third party - usually arise in construction contracts specifying before a buyer accepts a building, an architect must provide a certificate stating that the building was constructed according to plans and specifications

Modification or limitations to remedies otherwise provided by the UCC

-parties to sales and lease contracts are allowed to modify/limit remedies under UCC sections 2-719 and 2A-503, parties are allowed to create agreements that make it clear the remedies outlines in the agreement are exclusive remedies. courts uphold modifications or limitations to remedies unless the remedies fail in their essential purpose

Third party purchases and good title

-problems develop when a buyer w/ a voidable title sells. the goods to a third party purchaser. If that third-party purchaser made a good faith purchase for value (as opposed to receiving goods as a gift), they get a good title not void or voidable Statues of title under the UCC: good, bad, voidable Betty buyer purchases a bike from seller Steve; Betty then resells to Terry, the buyer, who purchases it in good faith for reasonable price -Good title: if Steve has good title, then he passes good title to Betty who passes good title to terry -Bad title: Steve stole bike, Steve, Betty, and Terry all get bad title -voidable title: Steve has good title --> passes voidable title to Betty; if Terry is a good faith purchaser, then Terry gets good title

Usury

-prohibited in almost every state -occurs when a party gives a loan at an interest rate exceeding legal max few exceptions: - facilitate business transactions and keep economy healthy if not exception allows a usurious loan, legal outcome varies -few states declare them void, meaning lender is not entities to recover either interest or principle from the borrower -large # of states allow lenders to recover the principle but not interest -states most favorable toward lenders allow recovery of principle as well as interest up tp but not exceeding the statutory max

sufficiency of the writing

-required elements: identification of the parties to the contract, the subject matter, the consideration, and any pertinent terms -contract must be signed (even if just mark as long as its an intended signature) -only party against whom action is sought needs to sign -some states, oral testimony regarding invoice of products sold is enough required elements of writing can be contained in a memorandum, documents or a compilation of several documents

Innocent Misrepresentation

-results from a false statement about a fact material to an agreement that the person making it believed to be true -person had no knowledge, he/she lacked scienter ("knowledge") -permit the misled party to rescind the contract, however b/c other party had no intent to mislead, the aggrieved party cannot sue for damages

Resell or dispose of the goods

-sellers or lessors are allowed to sell the good to another buyer or dispose of the goods when the buyer is in breach and the goods have not yet been delivered. The sellers lessor then holds the buyer/lessee liable for any loss. UCC section 2-706 allows the seller to recover the difference between the resale price/contract price plus incidental damages minus expenses saved. Although the buyer is liable for these damages, the seller gets to keep any profits it makes on the resale. UCC section 2A-527(2) outlines a similar rule for lease agreements. The lessor is allowed to lease the goods to another party and recover unpaid lease pmts and any deficiency between the lease payments due under the original lease contract and those due under the new contract. Lessor can also seek incidental damages

exceptions outlined in the parties agreement

-sometimes language in the parties agreement limits the rigidity of the perfect tender rule (ex: parties agree the seller must have opportunity to repair/replace non-conforming good within particular time -parties may agree w/ a level of performance that is less than perfect, they could indicate by agreement, the exception regarding performance

Rescission and Restitution

-sometimes parties want to have contract terminated and have transferred property returned to original owner -rescission: termination; restitution: return of propert -frequently awarded where there is a lack of genuine assent -when a party enters into a contract b/c of fraud, duress, undue influence, or a bilateral mistake, contract is voidable and the party who wants out may seek to avoid the contract (rescission/restitution)

norms in the industry and past dealings between the parties

-sometimes, norms for a particular trade do not permit a buyer to reject goods w/ minor flaws -UCC section 1-205 (2) defines usage of trade as any practice that members of an industry expect to be part of their dealings -UCC requires courts consider ideas of course of dealing and course of performance -UCC 1-205(1) defines course of dealing as previous commercial transactions between the same parties -UCC 208(1) course of performance - history of dealings between parties in particular contract at issue -this rule states when a contract for sale involves repeated occasions for performance be either party w/ the others knowledge of the nature of the performance and opportunity for obligation to it, any course of performance acceptant acquired to w/o objection is relevant to determine what the parties agreement means

Parol evidence rule

-states oral evidence of agreement made prior to or contemporaneously w/ a written agreement is inadmissible when the parties intend to have the written agreement be the complete and final version of their agreement -parties can take initiative and in a merger clause, signal to judges written contract is final -merger clause seeks to blend other agreements either into the final agreement or into something explicitly identified as being outside the final agreement

the goal of contract remedies

-the obligations of sellers/lessors and buyers/lessees are determined by (1) terms the parties outline in agreements (2) customs, and (3) rules outlined by the UCC -the UCC adopts several common law principles, including principles that underlie remedies available under the UCC -the UCC creates a statue of limitations for bringing a lawsuit arising under a breach of contract for the sale of goods. UCC section 2-725(1) states that four years is the time frame for a plaintiff to file suit once a Course of action accrues

capacity

-third element of a legally binding contract -incapacity/incompetence can prevent a person from being able to enter into a legally binding contract -a person many either have no capacity (complete inability to enter contracts or limited capacity (ability to enter voidable) -married woman used to be considered lacking contractual capacity but have been removed (certain states limitations still exist)

accept the non-conforming goods and seek damages

-under UCC sections 2-607, 2-714, and 2A-519, buyers or lessees are allowed to accept nonconforming goods and then seek monetary damages to give them the benefit of the bargain. The buyer/lessee must give the seller/lessor reasonable notice of the defect

Misrepresentation

-untruthful assertion by one of the parties about a material fact: prevent parties from having mental agreement necessary for a legal contract -they only "appeared" to agree, so contract lacked legal assent -might rescind a contract even though the person making the false assertion was entirely innocent of any intentional deception -Marketers/advertisers must be careful w/ packaging b/c misrepresentation can lead to legal action

Consideration

-what a person will receive in return for performing a contract obligation - a benefit to the promisee: promise to stay in a job until a particular project is complete (benefit to employer) -a detriment to the promisor: promise to football coach to refrain from riding motorcycle during season -a promise to do something: promise to cook roommate dinner for next 6 months -a promise to refrain from doing something: promise to not stay out late during exam week

Recovery Based on Quasi Contract

-when an enforceable contract does not exists, courts may impose a contract-like obligation on a party to prevent injustice -often sought when a party thought a valid contract existed and thus gave up something of value in relying on existence of the contract To justify recover under a theory of quasi-contract (contract in quantum meruit), a plaintiff must prove: 1. the plaintiff conferred a benefit on the defendant 2. the plaintiff had reasonably expected to be compensated for the benefit conferred on the defendant 3. the defendant would be unjustly enriched from receiving the benefit w/o compensating the plaintiff for it

Mitigation of Damages

-when contract is breached, the non breaching party is often angry at the other and may want to make the breaching party "pay through the note" - the courts do not allow a non breaching party to intentionally increase his damages -in fact, to recover damages in breach-of-contract case, the plaintiff must demonstrate that he used reasonable efforts to minimize the damage resulting from the breach, this is referred to as the duty to mitigate ones damages

integrated contracts

-written contracts intended to be complete and final presentation of the parties agreement -when contract deemed integrated, parol evidence is inadmissible -one way to indicate desire to create integrated contract is through a merger clause -most states allow merger clause to constitute stated intent of parties unless one party offers proof of a personal defense against the contract -some states consider merger clauses to be recommendations not bindingq

Statue of frauds: 3 Purposes

1. attempts to ease contractual negotiations by requiring sufficiently reliable evidence to prove existence /terms of contract 2. prevent unreliable oral evidence from interfering w/ a contractual relationship 3. prevent parties from entering into contracts w/ which they do not agree, statue works to prevent hasty, improperly considered contracts

Agreements in Contradiction to Public Policy

1. contracts in restraint of trade -restrain trade (anticompetitive agreements) are viewed as against public policy -covenants not to compete (restrictive covenants) - agreement to not compete against a party for a set period of time within a designated geographic area -first enforceable type of restrictive covenant is one made in conjunction w/ sale of an ongoing business (involves fairness of sales) -if covenant not to compete is integral part of main agreement, it is typically unenforceable/void b/c it goes against public policy by creating unreasonable restraints on trade. when covenant is subordinate the specific non competition clause can be removed and agreement can go forward -second category of permissible restraints on trade is covenant not to compete in employment contracts: employee is agreeing in event of her leaving not to compete w/ her boss for designated time in certain area -varies state to state, California does not allow any covenants not to compete, Texas requires employee gain benefit beyond employment before its courts will enforce 2. unconscionable contracts or clauses -contract where one party has so much more bargaining power than the other party, eliminates free will (VOID) rules against unconscionable contracts: (1) if courts as matter of law, finds contracts to be unconscionable at time it was made, they made refuse to enforce or enforce remainder w/o clause or it may limit the application of any unconscionable clauses to avoid unconscionable result (2) when it appears unconscionable parties shall be offered opportunity to present evidence as to its commercial setting, purpose and affect to and court determination 3. exculpatory clauses -clause that frees one party from all liability arising out of performance of contract -based on factors of consumer ignorance or great deal of fine print that serve to deprive less powerful party at a meaningful choice -a lot in rental properties so landlords can't get away w/ not fixing issues of safety in house -courts believe it is against public interest to allow business engaging in work in the public interest not to be held accountable to the public they are serving -party seeking enforcement must be private business or individual not important to public interest (lack of bargaining power, courts assume they enter a contract on relatively equal terms)

licensing statues: 3 main purposes

1. give the government control over which people , and how many people can perform certain jobs 2. charging for licenses the gov can obtain revenue 3. protection of public health, safety, and welfare is related to public interest, some states "no license, no contract", these states will not enforce any agreement w/ an unlawfully unlicensed professional In other states come courts consider purpose of licensing -if it is to provide gov. control over the professional/generate revenue most states allow enforcement -although unlicensed professional is acting in violation, no grave reasons to stop contract -if licensing statue is intended to protect the public the agreement is typically deemed illegal/unenforceable

Exceptions to the stature of frauds

Admission: -stmt made in court, under oath, or at some stage during legal proceeding in which a party against whom charges have been brought admits that an oral contract existed, even though contract was required to be in writing -all states allow except Louisiana and California -the UCC make exception when parties admit to existence of oral contract, provides that contract required to be in writing but admitted to in court will be enforceable only for quantity admitted Partial: -if buyer in an alleged contract for land had paid any portion of sale price, has begun to permanently improve land, or has taken possession, the courts will consider contract partially performed (amount to proof of the contract) Promissory Estoppel: -legal enforcement of an otherwise unenforceable contract due to party's detrimental reliance on the contract -party's reliance must be to her own detriment -reliance should have been reasonably foreseeable, the party who did not rely on the contract should have known the other party was going to rely on it Exceptions under the UCC: -oral contracts between merchants need not to be in writing to be enforceable, if one merchant agrees to sell good to another, contract is enforceable even if not in writing -oral contracts for customized goods are enforceable even if they would normally have to be in writing (party that did not back out of agreement probably incurred unreasonable costs under the contract)

discharge by operation of law

Alteration of the contract: -courts want to uphold sanity of contracts, if party materially alters the contract w/o knowledge from other party, courts have held that alteration allows the innocent party to be discharged -seller changing price of contract w/o buyer knowing Bankruptcy: -when party files bankruptcy, court allocates the assets of the bankrupt among the bankrupts creditors then issues the part a discharge in bankruptcy - once assets are distributed, all of bankrupts debts are discharged Tolling the statue of limitations: -doesn't technically discharge a party's obligations under a contract -once SOL has tolled, neither party can any longer sue the other for breach, so, for all practical purposes parties are no longer bound to perform Impossibility of performance: -unforeseen events occur that make it physically/legally impossible to carry out - objective impossibility: it is in face not possible to lawfully carry out obligations - subjective impossibility: very difficult to carry out *only objective discharges obligations Commercial impracticability: -used when performance is objectively possible but would be extraordinarily injurious or expensive to a party According to the restatement (second) of contracts, section 261 (1981), discharge by any reason of impracticability requires the party claiming discharge proves: 1) an event occurred whose nonoccurence was basic assumption of the contract 2) there is commercial impracticability of continued performance 3) the party claiming discharge did not expressly or impliedly agree to performance in spite of impracticability that would otherwise justify non-performance frustration of purpose: -if, due to factors beyond control of the parties, the even doesn't occur, and neither party had assumed the risk of the event's nonoccurence, the contract may be discharged

Conditions

Conditional contracts: contracts containing conditions affecting the performance obligations of the party -may be implied by law or expressly inserted into the contract by the parties condition precedent: particular event that must occur in order for a party's duty to arise condition subsequent: future event that terminates the obligations of the parties when it occurs concurrent conditions: occur when each party's performance is conditioned on the performance of the other -occur only when parties perform simultaneously (paying for delivered goods) express conditions: explicitly stated in the contract and are usually preceded by words such as conditioned on, if, provided that, or when implied conditions: those not explicitly stated but are inferred from the nature and language of the contract

Exceptions to the Parol Evidence Rule

Contracts have been subsequently modified -evidence regarding contracts subsequent modification is admissible, modification must have been made after the writing, and the evidence must clearly indicate this later modification -oral evidence of a subsequent written agreement is admissible, if a contracts terms require that modification be in writing, oral modifications are inadmissible and unenforceable Contracts conditioned on orally agreed-on terms -parol evidence rule doesn't prevent parties from introducing evidence proving the written agreement was conditioned on terms agreed to orally, reason is that the evidence being elicited does not substantially modify written agreement -at issue is enforceability of the contract as written condition precedent: entire contracts conditioned on something else occurring first that is the first event Non finalized, partially written and partially oral contracts -when contracts consist of both, judges tend to treat it as nonfinalized -oral evidence related to the contract is admissible b/c the written document is not complete/final representation of the agreement Contracts containing ambiguous terms -courts allow evidence (even oral) for sole purpose of clarifying ambiguous contractual terms, since it is to clarify it is admissible Incomplete contracts -when contract is fundamentally flawed b/c it is missing critical info, typically related to essential terms, courts allow parol evidenced to fill in missing parts while not altering written agreement Contracts w/ obvious typographical errors -parol evidence is admissible to demonstrate that it was a typo and set fourth proper term Void/Voidable contracts -allow parol evidence to demonstrate conditions that make a valid contract void/voidable -doesn't alter contract, addresses enforceability Evidence of prior dealings or usage of trade (UCC) -parol evidence is admissible for the sake of clarification if it addresses prior dealings between the parties or usages of trade in the business they are in -if a term is missing or ambiguous, courts rely on evidence of what the parties did in the past to gauge what they intended to do in contract in question

Shipping terms specifying requirements for delivery

FOB (free on board): the selling price includes transportation costs, and the seller carries the risk of loss to either the shipment or place of destination FAS (free alongside): the seller, at sellers expense, delivers goods, alongside the ship before the risk passes to the buyer CIF or C+F (cost, insurance, and freight; cost and freight): seller puts the goods in possession of a carrier before the risk passes to the buyer, contracts are usually shipment contracts rather then destination Delivery ex-ship (delivery from the carrying vessel): risk of loss passes to the buyer when the goods leave the ship

specific obligations of buyers and lessees

The basic obligation: inspection, payment, acceptance -Under UCC sections 2-301 and 2A-516(1), buyers and lessees are obligated to accept and pay for conforming goos in accordance w/ the contract. Before paying/accepting the goods, buyers/lessees ordinarily inspect the goods to make sure they conform to the specifications in parties' agreement Problems on inspection: -if all goes well in a transaction over the sale/lease of goods the buyer of lessee inspects the goods and then pays by any means the parties have agreed on, including payment by cash, check or credit card -unless the parties have agreed otherwise, the buyer or lessee typically inspects the goods before paying. Under UCC sections 2-513(1) and 2A-515(1), the seller or lessor must provide an opportunity for inspection before enforcing payment -the concept of reasonableness governs the inspection process (ex: inspection must take place at a reasonable time and place, in a reasonable way, once the buyer/lessee inspects the goods, they decide whether to accept the goods. Sometimes, on inspection, the buyer/lessee decides not to accept the goods Problems with acceptance: -when all goes well, UCC sections 2-606(1) and 2A-515(1b)(a) indicate that the buyer or lessee, after inspecting, signifies agreement to the seller or lessor that the goods are either (1) conforming or (2) acceptable even though they are non-conforming. UCC sections 2-602(1), 2-606(1), and 2A-515(1)(b) allow the seller or lessor to presume acceptance if the buyer or lessee fails to reject the goods within a reasonable period of time. Sometimes there is confusion about whether the buyer or lessee accepted the goods -UCC Sections 2-601(c) and 2A-509(1) allows the buyer or lessee to make a partial acceptance when the goods and non-conforming and the seller/lessor has failed to cure the defects. When goods are non-conforming, the buyer/lessors is allowed to revoke or withdraw acceptance of goods. The previous section on specific obligations of sellers/lessors discussed this concept under the topic of substantial impairment. From the buyer/lessees perspective, the buyer/lessee may revoke acceptance if the non-conformity substantially impairs the value of goods but obey if they had a legitimate reason for the initial acceptance

Specific obligations of sellers and lessors

The perfect tender rule: -the UCC requires that sellers and lessors tender conforming goods to the buyer or lessee. UCC sections 2-503(1) and 2A-508(1) state that tender of delivery requires that the seller/lessor have and hold conforming goods at the disposal of the buyer/lessee and give the buyer/lessee reasonable notification to enable him or her to take delivery Conforming goods: good that conform to contract specifications UCC rule or perfect tender rule required that the seller deliver goods in conformity w/ the terms of the contract, right down to the last detail -UCC sections 2A-509 and 2-601 embrace the perfect tender rule -common law will accept substantial performance in completion of contractual obligations while the UCC requires perfect tender -UCC sections indicate that if goods or tender of delivery fall in any respect to conform to the contract, the buyer/lessee has the right to accept the goods, reject the entire shipment, or accept part and reject part. Common law usually substitutes perfect tender w/ the doctrine of substantial performance Substantial Performance - occurs when all the material elements of a contract are satisfied even if some nonmaterial requirements may not be satisfied the perfect tender rule would not recognize the distinction between material and immaterial contractual requirements

Risk o loss during a breach of contract

When the seller is in breach: -failure to deliver goods is most common way a sales contract is breached, if seller doesn't provoke goods describes in contract the buyer may (1) accept the nonconforming goods as is or (2) reject the goods subject to the sellers curing the deficiency in goods -if a cure is not possible or if the seller has failed to cure the deficiency w/ reasonable time, the buyer has the option to revoke the contract When the buyer is in breach: -most buyer breachers occur when a buyer refuses to accept conforming goods from the seller and then the goods are subsequently lost or damaged

quiz 20: What has occurred if the original parties to a contract and a third party all agree that the third party will replace one of the original parties and that the original party will then be discharged from his or her obligations under the contract?

a novation

quiz 16: An agreement presented on a take-it-or-leave it basis is referred to as a(n) ________blank contract.

adhesion

Severable contracts (divisible contracts)

contain multiple parts that can each be performed separately and for which separate consideration is offered -contracts w/ both illegal and legal portions can void only illegal parts but must remain similar to original agreement indivisible: complete performance from by both parties (even w/ multiple parts) -must be enforced / rejected entirely

equal dignity rule

contracts that would normally fall under the statute and need a writing if negotiated by the principal must be in writing even if negotiated by an agent

Quiz 14: which of the following conditions must be present for an offer to have a legal effect

definite and certain terms

Courts require complete performance for a party to be discharged from further contract obligations.

false

UCC and Common law of contracts are laws that govern contract with the same subject matter

false

Intoxicated persons

generally contracts are voidable -the intoxication just causes the person to exercise poor judgement, the contract is not voidable unless other party unfairly capitalized on the impaired judgement -when the intoxicated person becomes sober the contract can be ratified/disaffirmed; however the courts will fairly liberally interpret behavior that seems like ratifying the contract once the intoxicated person becomes sober

quiz 24: The UCC allows a seller or lessor to stop delivery of the goods if the goods are ________blank.

in transit

quiz 15: When parties agree that a debt is owed and the amount of that debt, then that debt is considered to be:

liquidated

quiz 15: When there is no dispute over the amount of debt or existence of debt, it is referred to as a:

liquidated debt

Contracts in writing

no federal legislation entitled "statue of frauds" rather statue exists as legislation at state level (almost every state created own version of 1677 English act) -exception: Louisiana w/ no legislation and New Mexico/Maryland which follow statue of frauds created by judicial decision not legislature

Termination of the offer:

revocation by the offeror, rejection or counteroffer by the offeree, death/incapacity of the offeror, destruction or subsequent illegality of the subject matter of the offer, lapse of time or failure of other conditions stated in the offer Revocation by the offeror: The offeror is said to be the master of his offer and, as such, can revoke it at any time, even if he says he will hold the offer open for a stated period of time. exceptions to the revocability of the offer - an offeree who wishes to ensure that an offer will in fact be held open for a set period of time may do so by entering into an option contract w/ the offeror. In an option contract, the offeree gives the offeror a piece of consideration in exchange for holding the offer open for a specified period of time. In reliance on the offer, the courts may use the doctrine of promissory estoppel to estop or prevent the offeror from revoking his offer Rejection or Counteroffer by the Offeree: -once the offeree rejects the offer, it is terminated counteroffer: offer made to an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain diff. from that proposed by the original offer death or incapacity of the offeror: - the offer terminates immediately if the offeror dies or loses the legal capacity to enter into the contract, even if the offeree does not know of the terminating event - if parties entered into an option contract to hold the offer open for a set period of time, however, the administrator of the offeror estate or the guardian of the offeror must hold the offer open until it expires in accordance w/ the option contract destruction or subsequent illegality of the subject matter: - if the subject matter of the offer is destroyed or becomes illegal, the offer immediately terminates lapse of time or failure of another condition specified in the offer: - offer terminates at said time, if not time is stated it terminates after reasonable amount of time