Contracts & Sales

Three parts of a contract

1. Offer 2. Acceptance 3. Consideration

UCC Statute of Frauds

A K for the sale of goods for a price of $500 or more is not enforceable unless there is a writing signed by the party against whom enforcement is sough that is sufficient to indicate that a K for the sale of goods has been made between the parties. The writing need not contain all terms of the K, but it is not enforceable beyond the QUANTITY of the goods shown. Exceptions: - the merchant confirmatory memo exception - part performance exception - specially manufactured goods exception - judicial admissions exception

Statute of Frauds Overview

A K is outside the UCC SOF to the extent that that good are recieved and accepted and to the extent that payment has been made. When the prices of goods is at least 500 the UCC requires that a memo of sale includes: 1) indication that a K has been made, 2) identification of parties 3) quantity terms, and 4) signed by party to be charged. A signature includes any authentication that identifies the partyy to be charged such as letterhead or symbol. A mistake in the memo or the omission of terms does not destroy its valditiyy. an ommitted term can be proven by parol evidence. however enforcmeant is limited to the quantity term actually stated in the memo.

Common Law Statute of Frauds

A K within the SOF satisfies the statute and is enforceable by a writing signed by the party to be charged which: 1) reasonably identified the subject matter of the K 2) is sufficient to indiciate that aK has been made 3) states with reasonable certainty the essential terms of the K. Contracts under common law that must be made within SOF: (MYLEGS): Marriage Ks Ks that cannot be performed in a Year Land sale Ks, Executor payment of a debt of estate Ks Sale of goods more than $500 Suretyship Ks

Rejection of goods v. Revocation of goods

A buyer can generally reject goods for any reason under the perfect tender rule (exceptions with installment Ks) Revocation of acceptance of goods: If a buyer accepts the goods, he can no longer reject them. However, in some cases, a buyer can revoke his acceptance of the goods. The buyer can do this when: the nonconformity substantially impairs the value to him; he accepted the goods because he had a reasonable belief that the nonconformity would be cured (and it wasn't), or he did not discover the nonconformity because the nonconformity was difficult to discover or because the seller's assurances; and he revokes within a reasonable time after he discovers or should have discovered the nonconformity; and he revokes before any substantial change in condition of the goods which is not caused by their own defect. A buyer who revokes acceptance of goods may recover the purchase price that has been paid.

Installment Ks

A dividible or installment K is one in which the varioous units of performance are divisible into distrinct parts. Recovery is limited to the amount promised for the segement of the K performed

Liquidates damages clause

A liquidated damages clause can be enforced so long as the damages are a reasoonable forecast of the injury resulting from the breach at the time of formation. A LDC is unenforceable if it is inequitable and the amount would become a penalty.

UCC 2-207

A merchant is a person who regularly deals in the type of goods involved in the transation or otherwise by his occupation and holds himself out as having knowledge or skill peculiar to the practice or goods involved in the transaction. In Ks of $500 or more between MERCHANTS, if a memo sufficient against 1 party is sent to the other party who has reason to know its contents and the receiving party does not object in writing within 10 days, then the K is enforceable against the recieving party even though he hasnt signed it. If at least one of the parties is not a merchant, an acceptance with new terms will be a valid acceptance but the new terms are not going to come in, but if BOTH parties are merchants, additional terms do come in with acceptance UNELSS those new terms are material changes, or the original doc preempts them, or if the offeror objects to them. This is in contrast with the CL Mirrio image rule for acceptance where a counteroffer is a rejection.

Offer

A person makes an offer when the person communicates to another a statement of willingness to enter into oa bargain so that the other understands that his assent to the bargain is invited and will conclude it. The terms of an offer need to be reasonably certain (i.e. as to parties, subject matter, price...etc) Promise to hold offer open: generally an offer may be revoked before acceptance. A promise to hold an offer open requires consideration unless the common law in order to be binding as an Option contract. Under the UCC, the firm offer exception applies. Under the UCC Firm offer Rule, an offer cannot be revoked for up to 3 months if it is an offer to buy/sell goods, is a signed written promise to keep the offer open, and the offeror is a merchant. Under the common law, a. statement is a counteroffer rather than an acceptance when the terms of the initial offer are changed. Under common law, a counteroffer is a rejection because an acceptance must be mirror-image.

Acceptance & Rejection

An acceptance is a manifestation of assent to the terms of an offer made in a manner invited by the offer. It is effective upon dispatch (the mailbox rule). A rejection is a manifestation of intent to not accept the offer. It terminates the offeree's power to accept an offer. It is effective when received by the offeror. NOTE: If a rejection is sent and then an acceptance is sent, whichever the recipient receives first is effective (acceptance is no longer subject to the mailbox rule)

Anticipatory Repudiation vs. Prospective inability to perform

Anticipatory Repudiation occurs when there is an unequivocal manifestation by one party to the other that the party CANNOT OR WILL NOT perform its oblgations under the K (a mere existence of doubt is not enough) and this statement is made BFORE the repudiating party's perfomance is due. The other party may wait for a reasonable time for performance or resort to any remedy for breach of K. Prospective inability to perform occurs when a party has reasonable grounds for insecurity that the other party is unable or unwilling to perform. This is merely a doubt and does not rise to the level of anticipatory repudiation. Under the UCC the party may then, in writing, DEMAND adequate assurance of performance and until she recieves such assurance, may suspend her perfroamnce. If such a assurnace is not given within a reasonable time (not. more than 30 days after written request) the other party may treat it a a repudiation. Retracting a Repudiation: The party who has repudiated can retract his repudiation unless the other party cancelled the K, materially changed his position in reliance on the repudiation, or indiciated that she considers the repudiatin final.

Uniform Commercial Code (UCC) Article 2

Article 2 of the UCC applies to transactions in goods. Goods are "things moveable" at the time of identification to the K. A contract under Article 2 may be made in anyy manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a K.

Consideration

Consideration is a legal detriment or bargained for exchange. A promise to make a gift does not constitute consideration. Preexisting Duty Rule: Under common law, promising to perform a legal duty already owed to a promisor is not valid consideration. Exceptions include if the duty is changed or unforeseen circumstances that warrant more consideration. Material Benefit: some states recognize an exception to past consideration limitations in which a promise is made after receipt of a significant benefit (usually the promise arises after a benefit received in an emergency situation) Under the UCC, only good faith is needed to modify a contract (not extra consideration) Promissory estoppel is a substitute for consideration. If there is a promise, reliance that is foreseeable and justifiable and enforcement is necessary to avoid injustice, the promise will be enforced.

Expectation Damages

Default form of damages in K breach. (New K price - Original K price) + cost to replace what was lost + consequential/incidental damages - savings resulting from breach. Not contracted for additional cost in new K does not count as New K price.

Contractual Defenses

Duress: A K is voidable when it is established that a party's manifestation of assent is induced by an improper threat that leaves the party no reasonble alternative Breach of Express Warranty: Under UCC 2, affirmations of fact relating to the goods that are party of the basis of the bargain create express warranties that the goods will conform to those affirmations and descriptions. This warranty is breached if they do not conform.

personal satisfaction contract

Generally, failure to satisfy an express condition discharges perfromance, however when the condition is one of personal satisfaction from one of the parties, and the K involves personal judgment, the party whose satisfaction is required must act honestly and in good faith. If the they are truly in good faith not satisfied then performance is discharged. Substantial performance will not satisfy as k performance where an express condition precedent has not been met.

Accomdation shipment

If a seller accepts by shipment of noconforming goods with a note of accomodation, the buyer can chosoe to accept the accommodation shipment which is NOT considered an official acceptance by the seller but rather a counter offer of the goods that have shipped as they are. if the buyer does accept the accomodation shipment, a K for the goods as they are will be formed. if the buyer chooses to reject accommodation shipment, no K will be found to have formed at all and buyer maynot sue for breach.

Parole Evidence Rule

PER prohibits the introduction of evidence that contradicts terms of a written agreement. Applies to both completely integrated agreements and partially intergratted agreements. A completely intergrated agreement is a written agreement that purports to include all relevant terms and is intended to represent the ENTIRETY OF THE AGREEMENT. Courts looks to the existence of a merger clause to evidence parties' intent that the written agreement be final and complete representation of the agreement. BUT PER will still not bar evidence seeking to clarify an ambiguity in a fully intergrated agreement. A partially intergated agreement is one that does not include the agreement in its entirety and may have missing terms. PER bars evidence that directly conflicts with terms of a partially or fully integrated agreement. BUT PER doe NOT APPLY when evidence presented SUPPLEMENTS A PARTIALLY INTERGRATED AGREEMENT THAT IS SILENT ON A TERM. If a writing is fully integrated, evidence that clarifies an ambiguity may still be introduced under PER.

Repudiation of contract

Parties to a K are entitled to expect due performance of contractual obligation and are permitted to take steps to PROTECT that expectation. Anticipartoy repudiation occurs when there has been an UNEQUIVOCAL refusal of the buyer or sellar to perform, or when a party creating reasonable ground for insecuirty FAILS to provide adequate assurances within 30 days of wriiten demand for such assurances. Repudiation allows the non-repudiating party to resort to any remedy given the K or code. But until the repudiating party's next performance is due, he may retract the repudiation UNLESS The aggrieved party has since accepted the repudiatuin, acted in reliance on the repudiation, or sued for breach. Retraction of repudiation must include any assurances of perfroamnce that the other party has justifiable demanded about whetehr the retracting party will perform. A proper retraction reintates the repudiating party's K rights..

Damages

The baseline damages in breach of contract suits are expectancy damages which are intended to put the injured party in the same position as he would have been had the K been performed. If the non breaching party avoids specific costs because a breach has occured, those are substracted from damage awards. K damages are recoverable only if they were in the cintemplation of the parties at the time of K formation or were otherwise foreseeable. courts may refuse to enforce an award that is economically wasteful where the cost of restoration greatly exceeds any diminution in value. If a court finds that restoration will be wasteful, then the measure of damages may be the difference in value. Courts may refuse to use the diminution in value measure of damages when the breach appears to be willful, and only completion of the K will enable the nonbreaching party to use the land for its intended purpose. K damages are recoverable ONLY IF they can be proven with reasonable certainty. SO, courts are hesitant to award damages for lost profits, especially in cases of new bsuiness because profits are often speculative. A nonbreaching party has the obligtaion to mitigate damages by taking steps that do no result in undue risk, expense, or burden. THe amount of damages that the nonbreaching party coud have mitigated, but failed to mitigate shold be offset against the total damage awar.

Substantial Performance

The doctrine of substantial perfomance provides that a party who substantially performs can recover on the K even though full performance has not been tendered. Substantial performance is negated if the incomplete performance amounted to a MATERIAL breach of contract. If the failure of a constructive condition of exchange is MINOR it will NOT negate substantial performance.

Damages for Breach of Contract

The normal measure of damages for breach of K is expectation damages , which aim to give the nonbreaching party the benefit of his bargain. Expectation damages must be forseeable and proved with reasonable certainty. This is similar to the UCC rule which puts the aggrieved party in as good as a position as if the other party had fully performed. Punitive damages are not geenrally recoverbale in a breach of K action unless the conduct constituting the breach is also a tort for which punitive damages can be recovered. Restitution damages, also called unjust enrichment and quantum meruit, are where a party may be able to recover restitution for any benefit conferred by way of party performance in excess of the loss that he caused by his own breach. Mitigation: a party MUST mitigate damages when possible.

Revesting Title

UCC states that rejection or other refusal by the buyer to recieve or retain the goods, whether or not justified, or a justified revocation of acceptance REVESTS TITLE to the goods in the seller. Such revesting occurs by operation of law and is not a sale. So after rejection, any exercise of owenership by the buyer with resepect to it is wrongful as against the seller.

performance obligation

Under common law, a party must substantially perform its contractual obligations in order to demand performance (usually payment) form the other party. Courts will look at several factors to determine whether performance was substantial. NOTE this is different from UCC 2 which requires PERFECT TENDER for ONE SHOT deals. Exception: Divisible Contracts: A contract is divisible so long as it is apportionable and the parties would have contracted for each part separately. A party that performs one or more parts of the contract may collect payment for those parts even if he does not substantially complete performance of his duties.

Contract Formation Overview

Under the UCC, a K is formed if both parties intend to K and there is a reasonablyy certain basis for giving a remedy. the only essential term is quantity, and as long as the parties intend to create a K, the UCC fills the gap if other terms are missing, such as the time or place for deliveryy. At common law ALL essential terms must be covred in the agreemnt including PARTIES< SUBJECT< PRICE<QUANTITY Under UCC, both requireemnts and output contracts are considered specific enough even though the ydont have a specific quantity term. For acceptance, geenrally any reasonable method will be allowed but silence is only allowed if expressly provided in the K. Geenerally, an offer can be revoked by the offeror at any timee prior to acceptance. A promise to hold an offer open is governed by statute. In creating a legal offer, there is an objective task: ask whether the offeror displays an objectively serious intent to be bound. It is possible for an offer to be irrvocable if the offeree reasonably and detrimentally relies on the offerorr's promise prior to acceptance. In must have been a reasonably forseeable that such detrmintal reliance wuodl occur in order to imply the existence of an option K. An offer is an objectuve manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree. An offer can only be accepted while it remaind open, it can terminate by offeree's rejection. An offer is revoked when the offeror makes a manifestation of an intention not to enter into the proposed K before the offeree accepts. a recovcation may be made in any reasonable manner and by any resonable means and it is NOT effective until COOMMUNICATED. Under the UCC< a person recieves notice of recovation when 1)it comes to the person's attention or 2) it is duly delievered in a reasonable form at the offeree's place of business. generally, an offer can be revoked at any time prior to acceptance. But an enforceable option K will render the offer irrevocable (up to 3 months but not more). An option is an independent promise to keep an offer open for a specified period of time. Such a promise limits the offeror's power to revoke the offer until after the period has expired, while also preserving the offeree's power to accept. Under the common law, if the there is an option K the offeree must give separate consideration for the option k to be enforceable. The UCC Option K rule have 3 requirements. Under UCC an offer to buy or sell goods is irrevocable if: 1) the offeror is a merchant 2) there is an assurance that the offer will remain open 3) and the assurance is in a signed agreement from the offeror. Unlike common law option Ks, no separate consideration is requried to keep the offer open unde the UCC FIRM OFFER RULE. Generally a merchance is a person who regualry deals in the type of good involved in the transaction. Under the FIRM OFFER Rule, a merchant includes not only a person who regularly deals in the type of goods in the transaction but also any business person when the transctaino is commercial in naturre.

Unjust Enrichment (Quantum Meruit)

When a Pl confers a benefit on a Df and the Pl has a reasonable expectation of compenstation allowing the Df to recieve the benefit without compenstaing the Pl would be unjust. although this type of actioon is often characterized as based on an implied-in law K or a quasi-K, QUANTUM MERUIT DOES NOT DEPEND ON THE EXISTENCE OF A K.

Requirements for Rejection of Shipment of Nonconforming Goods

When rejecting a shipment of nonconforming goods, buyer is under a duty to notify seller and to hold the goods with reasonable at the seller's disposition for a time sufficient to permit the seller to remove them. Does not need to actually return them himself or ship them back.

Unilateral Contract Offer

Where an offer is for a unilateral K (an offer that seeks only performance and does not seek a return promise) and the offeree BEGINS invited performance, the offeror may NOT revoke the promise. This rule is intended to protect the substantial reliance of the offeree that results when accepting an offer for a unilateral K by performance over a period of time.

Constructive Condition

While strict compliance with express conditions is required, constructive conditions will only require substantial compliance to be satisfeid. The most common type of constructive condition is when each party's perfromance is CONDITIONED ON THE OTHER'S PERFORMANCE. this arises with issue of cooperation or notice, where one party's obligation to perfrom is impliedly conditioned on the other's party's cooperation or notice that the performance is due. When a party fails to seasonable make the specification or fails to cooperate in a way that is necessary for the other party to perform AND that notice/cooperation would MATERIALLY AFFECT the other party's performance, the injured party may be excused for any resulting delay, proceed to perform in any reasonable manner, or after the time for a material party of his performance treat the failure as a breach.