knish review sheet

8/3/2019 Knish Review Sheet

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Formation

UCC OR COMMON LAW?

UCC governs transactions in goods. Goods are defined as movable tangible objects. Goods includes growing crops and the unborn young of animals. Hybrid contractcourts usually use a predominant factor test to determine if

UCC applies

IS THERE AN OFFER?

An offer is a clear expression of contractual intent addressed to a specific offeree,which confers upon the offeree the power to create a contract though acceptance.

An offer is distinguished from preliminary negotiations by the definiteness ofterms, language used, and the context of the relationship between the parties.

An advertisement can be an offer if the terms are clear, definite, explicit, andleave nothing open for negotiation.

WAS THE OFFER REQUIRED TO BE OPEN FOR A PERIOD OF TIME?

Options Contracts: Restatement 87

An offer is binding as an option contract if it is in writing signed by the offeror,and is supported by consideration.

Firm Offers UCC 2-205

An offer by a merchant to buy or sell goods in a signed writing that states theoffer will be held open, is binding as a firm offer for the time stated, or if not timeis stated, for a reasonable time, not to exceed three months.

Any such assurance on a form supplied by the offeree must be separately signedby the offeror.


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Unilateral contracts in which the invited performance has commenced

(implied option contract) Restatement 45

Where an offer invites acceptance by performance only, an option contract iscreated when the offeree begins the invited performance, or tenders a beginning

of it.

The offerors duty of performance under such an option contract is contingent onthe completion of the invited performance.

Reliance/Estoppel:

Elements of Promissory Estoppelo A promise was made.o Promisor should reasonably expect that the promise would induce action or

forbearance.o The promise did in fact induce the promissee's action or forbearance.o The enforcement of the promise is necessary to avoid an injustice.

WAS THE OFFER TERMINATED BEFORE ACCEPTANCE?

Lapse:

An offerees power of acceptance expires at the times specified in the offer, or, ifnot time is specified, after a reasonable time.

What is a reasonable time depends on the circumstances of the offer.Revocation:

An offerees power of acceptance terminates when the offeror manifests an intentnot to enter into the proposed contract.

An offerees power of acceptance terminates when the offeror takes definiteaction that is inconsistent with an intention to enter into the proposed contract,and the offeree acquires reliable information to that effect.

Death of offeror:

An offerees power of acceptance terminates upon the death or legal incapacity ofthe offeror.

Rejection


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Outright: the offerees power of acceptance is terminated by his rejection. Counteroffer: The offerees power of acceptance is terminated by a counter-offer,

unless a contrary intention is manifested by one of the parties.

ACCEPTANCE:

An acceptance is a definite expression of assent to the terms of the offer such thata binding contract is created.

Mutual Assent:

Objective standard; based on the outward manifestation of the parties asunderstood by a reasonable person.

Unilateral vs. Bilateral vs. Hybrid Contract Offers:

Unilateral Contract Offer: Acceptance by performance only; offeror becomesbound when offeree has begun to perform, and must give offeree reasonable timeto complete performance. However, offeree is not bound even thoughperformance has begun.

Bilateral Contract Offer: Acceptance by return promise; both parties bound uponacceptance. If offeree begins to perform without making a return promise, thismay be accepted by the offeror as an implied promise to perform, and both partiesare thereby bound.

Hybrid Contract Offer: Acceptance may be by return promise, or by performance.Both parties are bound by offerees commencement of performance, regardlesswhether offeror is aware that performance has begun.

Content of Acceptance:

Mirror Image Rule: The terms of the acceptance must match the terms of theoffer; a response is not an acceptance if the offeree imposes conditions or seeks tochange the terms of the offer.

UCC 2-207: Applies to the sale of goods when additional or different termsappear in a written acceptance or conformation.

Assuming there is a valid offer, establish whether there is a valid acceptance,and then analyze as to compliance with the mirror image rule.

If acceptance or confirmation does not conform to mirror image rule, is itdefinite, seasonable, and not expressly conditioned on the offerors


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agreement to the additional or different terms? If not, 2-207(3) applies. Ifthere is a valid acceptance, 2-207(2) applies.

2-207(2) provides that additional terms are proposals, and do not become partof the contract, unless both parties are merchants. Between merchants, theadditional terms do become part of the contract, unless:

o they materially alter the terms of the contract;o the offer expressly limits acceptance to the offerors terms; oro the offeror objects to the additional terms within a reasonable time.

2-207(2) does not apply to different terms. Different terms eithero a) cancel each other out and replaced by applicable gap fillers

(majority view); oro b) the different terms are treated the same as additional terms under

2-207(2) (leading minority view); oro

c) the different terms are dropped out entirely and offerors termsprevail.

2-207(3) provides that if the parties behave as if there was a contract, then thecontract consists of the terms to which both parties agree, plus applicable gapfillers provided by the Code.

Method of Acceptance:

As specified in the offer. If not specified, by any manner and medium reasonable under the circumstances. UCC 2-206 provides that an offer to buy goods for prompt shipment invites an

acceptance either by:o a prompt promise to ship the goods; oro a prompt shipment of conforming or non-conforming goods; but:o a shipment of non-conforming goods does not constitute acceptance if the

seller seasonably notifies the buyer that the shipment was sent as anaccommodation.

Notification, Common Law:

If the offer invites acceptance by performance, then no notification is necessary,unless the offer requests it, however,

If the offeree who accepts by performance has reason to believe that the offerorhas no adequate means of learning of the performance, then the offeror is notbound unless:


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o The offeree exercises reasonable diligence to notify the offeror ofacceptance, or

o The offeror learns of the performance within a reasonable time oro The offer indicates that notification is not required.

If the offer invites acceptance by return promise, the offeree must exercisereasonable diligence in notifying the offeror of acceptance, or that the offerorreceive the acceptance seasonably.

Notification, Uniform Commercial Code:

The beginning of performance by the offeree is binding on the offeror, providedthat such acceptance is followed within a reasonable time by notice to the offeror.

Mailbox Rule:

Acceptance is effective upon dispatch, as long as expected medium is used.Rejection and revocation are effective upon receipt.

An acceptance that is dispatched before a rejection, but received after therejection is effective, unless the offeror acted in reliance of the rejection.

An acceptance that is dispatched and received after a rejection becomes a counter-offer.

Silence as Acceptance:

Silence cannot be construed as acceptance, unless:o The offeree takes the benefit of the services offered, or does any actinconsistent with the offerors ownership of the property offered, oro Because of previous dealings, it is reasonable that the offeree should

notify the offeror if he does not accept.

Consideration:

Consideration in General:

Consideration is a bargained-for exchange of performance, forbearance, or areturn promise.

The Bargained-For Exchange- To constitute consideration, a performance orreturn promise must be bargained for. It is bargained for if it is sought or given inexchange for a promise; that is, the consideration induces the making of thepromise, and the promise induces the furnishing of the consideration.


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Condition of Gifta condition imposed for the acceptance of a gift is notconsideration, unless there is more than an incidental burden attached to theacceptance (see King v. Trustees of Boston College 420 Mass. 52 (1995)

Employment AgreementAssent to enter into a non-competition agreement(promise), in exchange for the employer not terminating the promisor

(forbearance) was held to have been a bargained-for exchange. Employee HandbooksThere is a bargained-for exchange when an employee

accepts the terms given in an employee handbook and forgoes the right to quit thejob.

RewardsThere is no bargained-for exchange unless the offeree knew of theoffer at the time of performance (acceptance).

Promises as Consideration:

Conditional PromisesA promise is conditional if its performance will becomedue only if a particular event occurs. Example: insurance policies.

A conditional promise is not consideration if the condition could never occur. Illusory PromisesA promised that is bargained for is consideration if the

promised performance would also be consideration (R 75). Therefore, a promiseunder which the promisor does not have an obligation to do anything is notconsideration (since only the illusion of performance has been promised).

o Exceptions: Satisfaction Contracts, Exclusive Dealing Contracts, Requirements/Output Contracts.

Satisfaction Contracts fall into two categories:o Satisfaction as to technical, mechanical or commercial fitness

dissatisfaction must be objectively reasonable (or commerciallyreasonable).

o Satisfaction involving personal taste or judgmentDissatisfaction must bein good faith.

Output/Requirements Contracts are not illusory, because of an implied goodfaith requirement inherent in the agreement.

o When a contract measures quantity by the seller's output or the buyer'srequirements, this means the actual output or requirements that may occurin good faith. (Good faith is implied in the agreement.)


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Exclusive Dealing Contracts are not illusory, because of an implied good faithrequirement.

o Such an agreement implies an obligation by the seller to use best efforts tosupply the goods and by the buyer to use best efforts to promote their sale.

CONSIDERATION SUBSTITUTES:

Promissory Estoppel Elements:

o A promise was made.o Promisor should reasonably expect that the promise would induce action or

forbearance.o The promise did in fact induce the promissee's action or forbearance.o The enforcement of the promise is necessary to avoid an injustice.

Damages as appropriate to avoid injustice; expectancy or reliance.

Restitution for Unjust EnrichmentProvides for recovery in the absence of acontract; no agreement or consideration is necessary.

Elements :o The benefit is not conferred gratuitously upon recipient by a volunteer.o The benefit is not imposed upon the recipient by an officious intermeddler.o Exceptions:

Professional Services Emergency Services Services provided upon request Services provided upon acceptance of an offer

Measuring Enrichment:o Market Value:

Market Value of the goods provided (Quantum Valebant).Market Value of the service provided (Quantum Meruit).

o Recipients GainRecipients objective net gain Recipients subjective net gain


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PRE-CONTRACTUAL LIABILITY:

Promissory Estoppel Based on an Offer:

Sub-contractors bid implies a promise to hold the offer open for areasonable time.

Promissory Estoppel Based on Preliminary Negotiations:

A party that, to their detriment, alters their position in reliance ofpromises made during preliminary negotiations may seek relief underpromissory estoppel.

Contract Formed by Conduct, Performance, or Implied Acceptance:

Allied v Ford, UCC 2-207(3), 2-204Promise to Negotiate in Good Faith:

When the parties agree on certain major terms, but leave other terms openfor negotiation, there is a mutual commitment to negotiate in good faithin an effort to reach a final agreement.

FORMATION DEFENCES TO ENFORCEMENT INTERPRETATIONOffer

Acceptance

Consideration

Restatement 90

Statute of Frauds

Capacity

Duress

Undue Influence

Misrepresentation(PROCEDURAL defenses)

Unconscionability

Public Policy(SUBSTANTIVE Defenses)

Parol Evidence

Ambiguity

Implied Warranty

End of Formation Section

NEXT: Contracts B: DEFENSES TO ENFORCEMENT


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DEFENSES TO ENFORCEMENT

I. Statute of Frauds

To get out of the contract, you must get into the statute.

THREE KEY QUESTIONS:

1. Does the contract fall within the statute? Contract that cannot be performed within one year (one-year provision). Contract for the sale of an interest in land (land contract provision). Contract to answer for the duty of another (suretyship provision). Sale of goods for $500 or more (UCC 2-201)

2. Is there a sufficient writing to satisfy the statute?

TYPE:o Any writing (or electronic record) that meets the minimum

requirements for content.o Need not be a joint product of both parties.o May be an internal document.o Need not be a single document; may be series that all refer to the

same transaction.o Document may be lost or destroyed, but evidence that proves its

existence will satisfy the statute.

CONTENT:o Sufficient to show the existence of the contract.o Identifies the parties and the nature of the agreement, and most of

the material terms (R 2d 131).OR:

o Specifies the quantity of goods and indicates that a contract forsale has been made between the parties (UCC 2-201).

Under the UCC, the writing is not insufficientmerely because it omits a term besides thequantity, or incorrectly states a term.


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SIGNATURE:o Only need the signature of the party against whom enforcement is

soughto May be initials, logo, letterhead, or heading on an e-mail, if the

party intended the mark as an authentication of the writing.

o

In a series of documents, there need not be a signature on each, ifthey all refer to the same transaction.o UCC EXCEPTION BETWEEN MERCHANTS: 2-201 (2)

provides that a signature is not necessary when: Both parties are merchants; One party sends to the other a signed, written confirmation

of the contract within a reasonable amount of time; The recipient has reason to know of its contents; The recipient does not give objection within 10 days of

receipt.

3. Does an exception to the statute apply?

PART PERFORMANCE:

In general:o part performance may be reliable evidence that a contract was

made, but only if the performance is unequivocally referable tothe oral agreement.

o Court may require some degree of prejudice to have been sufferedin reliance of the oral agreement.

o May not apply to all contracts under the statute. Sale of real property:

o Contract for the sale of land may be enforced if the party seekingenforcement has so changed his position that injustice can beavoided only by specific enforcement (R 2d 129)

Sale of goods under the UCC 2-201 (3) provides an exception to thestatute when:

o The goods are specially manufactured and not suitable for sale toothers.

o The party against whom enforcement is sought admits that thecontract was made (judicial admission).

o Payment for the goods was made, or the goods were received andaccepted.

Reliance: (See R 2d 139)o More stringent standard then for R 2d 90, need to show

additional evidence of reasonable reliance SEE RESTATEMENT


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LEADING OBJECT or MAIN PURPOSE RULE

Provides an exception to the suretyship provision when:o

A third party is indebted;

o There is no novation;o The main purpose for which the surety makes the promise is to

secure an economic advantage for the surety, rather than to providea benefit for the principal.

PROMMISORY ESTOPPEL:

A promise which reasonable should induce action or forbearance isenforceable if injustice can be avoided only by enforcement of thepromise.

The remedy may be limited as justice requires. In determining whether injustice can be avoided only by enforcement of

the promise, the court will consider:o The availability of other remedies, particularly rescission and

restitution;o The definite and substantial character of the action or forbearance

in relation to the remedy sought.o The extent to which the action or forbearance proves the terms of

the promise (unless the terms are proven by other clear andconvincing evidence);

o The reasonableness of the action or forbearance.o The extent to which the action or forbearance was forseeable.

II. Incapacity

In order to enter into a valid contract, the parties must have sufficient judgment to bindthemselves to an enforceable promise. There are two main categories of incapacity:minority and mental infirmity.

Minority Contracts made by minor are voidable at the option of the minor. Rule is unaffected by minors emancipated status. Exceptions:

o Contracts for necessitieso Contracts that the minor ratifies after reaching majority


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Ratificationupon reaching majority, a minor may ratify the contract,thereby turning a voidable contract into a binding one. Ratification canoccur in three ways:

o Express ratificationthe former minor indicates in written or oralcommunication an intent to be bound by the contract.

o

Implied ratificationthe former minor acts in a manner thatmanifests an intent t be bound by the contracto Ratification by silenceif the former minor does nothing after

reaching majority, the contract is binding after a reasonable timepasses.

Restitution upon disaffirmancemost states provide for restitution of alleconomic benefit received by the non-minor party, except payment fornecessities.

Mental IncapacityA contract entered into by a person with mental incapacity is voidable, unless ratified.

If the person continues to be mentally incapacitated, the contract may bevoided or ratified only by a guardian.

If the person recovers from their mental incapacity, they may elect toeither void or ratify the contract.

In either event, avoidance/ratification occurs as with contracts entered intoby a minor (above).

Two tests for mental incapacity:o Cognitive test(traditional test) ability to understand the nature of

the transaction.o Affective testunable to act in a reasonable manner in relation to

the transaction, when the other party has reason to know of theincapacity.

III. Duress and/or Undue Influence

Duress by threat: a contract is voidable if a partys assent to its terms is inducedby an improper threat that leaves the party with no reasonable alternative.

1. Improper threats include:o A threat to commit a crime or a tort;o A threat of criminal prosecution;o A threat of bad faith civil process;o A threat to breach a duty of good faith or fair dealing under an

existing contract.


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Elements of Duress:

1. Improper threat2. No reasonable alternative3. Induces the manifestation of assent

Economic Duress:

Modification of an Existing Contract: Under the pre-existing duty rule, amodification will be upheld if it was fairly bargained for, but will be avoidable ifonepartys assent to the modification was induced by an improper threat towithhold the performance already promised.

2. Thus, modification was avoidable inAlaska Packers when the workersthreatened to not work unless modification was agree to, because:

o The modification was induced by a threat of a breach of good faithunder an existing contract; and,

oThe employer had no reasonable alternative other than agreeing tothe modification.

3. The modification inAustin Instrumentwas avoidable when Loralthreatened to breach an existing contract, for the same reasons as above.

4. The modification in Watkins was upheld when the parties agreed to amodification when rock was found in the excavation, because:

o The modification was fairly bargained for between the parties; and,o The property owner was not without reasonable alternatives to the

modification.

Undue Influence

Undue influence is the unfair persuasion of a party who is under the dominationof the other party, or, because of their relationship, is justified in assuming thatthe other party is acting in a manner consistent with his best interest.

Elements:1. Special relationship:

o Dominativeo Fiduciary

2. Improper persuasion:o Serious impairment of victims free will


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Indicia of Undue Influence:

Discussion at an unusual or inappropriate time; Agreement in an unusual place; Pressure to conclude the agreement at once; Use of multiple persuaders against single party; Exclusion of third-party advisors to the subservient party.

Thus in Odorizzi, a resignation was voidable when the school superintendent wentto plaintiffs home and pressured him into resigning immediately, whilepurporting to act in the plaintiffs best interest.

IV. Misrepresentation

A contract may be voidable for misrepresentation when one party makes anassertion not in accord with the facts, and the misrepresentation induces the otherparty to enter the contract.

Elements:1. Concealment, nondisclosure, or an assertion not in accord with the facts.2. The misrepresentation was either material or fraudulent.3. The misrepresentation was relied upon by the other party4. Such reliance was reasonable First element: misrepresentation of FACT:

o Distinguish fact from opinion - if the assertion cannot be proven false, it isprobably opinion (as with puffing).

A fact-based opinion may be misrepresentation, if the partyknows that the opinion is not supported by the facts, orrecklessly states the opinion without knowledge of the facts.

A contract may be voidable for misrepresentation of anopinion if there is a fiduciary relationship between the parties,or if the parties do not deal at arms length, or if one party has agreater opportunity to learn the truth of the opinion beingasserted.

o Distinguish fact from prediction of future eventsan assertion is merely aprediction if it refers to events that are beyond the control of the speaker.

o Distinguish fact from intentionif the party has no intention of carryingout the promise, there is misrepresentation; if the party intended in goodfaith to perform, its merely a breach.


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o Nondisclosure (silence) is misrepresentation if: The part has taken affirmative action to conceal a fact; The party knows that disclosure is necessary to correct a previous

assertion;

The party knows that disclosure is necessary to correct the otherpartys mistake as to a basic assumption of the contract (if non-disclosure would violate good faith and fair dealing); or,

There is a relationship of trust between the parties.

o Duty to disclosethere is a requirement of disclosure if:1. The other party is unaware of the fact; and,2. The knowledge is reasonably likely to influence the other partys

decision to enter the contract; and,

3.

The information is not readily available through diligent inquiry;and,4. There is no proprietary interest in the information, as it was not

acquired by special efforts or study.

Second element: the misrepresentation must be either material or fraudulent.o The misrepresentation is material if would make a difference to a

reasonable person in deciding whether or not to enter the contract.o A misrepresentation is fraudulent if the party knows that the assertion is

not true, or knows that there is no foundation for the assertion.

Third element: the misrepresentation must induce reliance:o The innocent party must show a change in position made in reliance to the

misrepresentation.o Entering the contract is sufficient as a change of position, if motivated in

part by the misrepresentation.

Fourth element: The reliance must be reasonable. The court will generallyfind the reliance reasonable, unless there was a breach of good faith.

Misrepresentation and the Parol Evidence Rule:

Parol evidence rule will not exclude evidence of misrepresentationscontained within the writing of the contract.

Parol evidence rule will not exclude evidence of fraudulent oralmisrepresentations made in conjunction with the written contract.


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Unconscionability:

Under the common law, a court may refuse to enforce a contract, or any partthereof, that is unconscionable.

Unconscionability is not defined, but the court considers such factors asgross disparity in the exchange or gross inequality in the bargainingprocess.

Under the UCC, the court may refuse to enforce any contract found to beunconscionable.

When one party claims unconscionability, the court will hear evidenceregarding the commercial setting, purpose, and effect of the contract inmaking its determination.

Unconscionability has two aspects:1. Procedural unconscionability- absence of meaningful choice in the

bargaining process due to:

Oppression due to unequal bargaining power between parties; Surprise in unconscionable terms hidden in the writing of the

agreement2. Substantive unconscionabilityterms that are unreasonably favorable to

one party.

Procedural unconscionability focuses on the bargaining process, especially whenthere is a disparity of bargaining power.

A lack of legally sufficient consideration may be indicative of proceduralunconscionability;

o thus inMcKinnon it was held that the plaintiffs loan of $5000 thatenabled defendant to purchase fish camp was notsufficient .consideration for the 25 year forbearance on makingimprovements, and was therefore unconscionable.

o Nevertheless, in Tuckwiller, it was held that an agreement toprovide lifetime care for the plaintiffs decent was fairwhen thecontract was made, even though decedent died soon thereafter.

Substantive unconscionability focuses on the terms of the agreement, such asexcessive prices, excessive interest rates, waiver of legal protection or claims,unreasonable forum selection clauses, etc.

In Walker-Thomas Furniture, the court held that a clause that allowed forthe repossession of all items rented was unconscionable.

InJones v. Star Credit, the court held that a contract was unconscionablefor putting charging an excessive price for a freezer.

InArmendariz, the court held an arbitration clause unconscionablebecause it mandated arbitration for one party, but not the other (also,


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because of a procedural issue: as a contract for employment, it was acontract of adhesion).

In Scott v. Cingular, the court held that waiver of class action wasunconscionable as oppressive to the vindication of statutory rights.

Contracts of adhesion are often an indication of unequal bargaining power. Ingeneral, a contract of adhesion will be enforceable if:

It meets the reasonable expectations of the adhering party. It is not substantively oppressive.

Two sides to unconscionability: Pro: the doctrine is appropriate in policing both the bargaining process(procedure) and the terms of the contract (substance), since unfair

surprises undermine the element of mutual assent, and oppressive termsundermine the element of a bargained-for exchange.

Con: use of the doctrine to enforce substantive fairness undermines theparties freedom of contract, while also undercutting the predictability ofperformance that contracts are meant to avoid.

Public Policy:

Contracts that violate public policy fall into two general categories:1. Contracts that violate specific laws; illegal contracts, including:a. Contracts for the inducement of a public official;

b. Contracts to commit illegal acts;c. Contracts that contemplate collusive bidding on public contracts.

2. Contracts that are in violation of policies derived from related legislation, orsocietal norms.


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Interpretation

1. Parol Evidence Rule

When interpreting the contract, the introduction of extrinsic evidence is limited by theParol Evidence Rule:

If the writing is partially integrated, no evidence of an extrinsic term may beadmitted that contradicts the writing; evidence of extrinsic terms consistent withthe writing may be admitted.

Consistent with the writinga term may be found ot be consistent twiththe writing if it s one that might naturally have been omitted from thewriting, that is, a term that might have been presumed in the contract,because both parties agreed to it,

If the writing is completely integrated, no evidence of extrinsic terms may beadmitted.

Trade usage, course of performance and course of dealing is always admissible tosupplement the writing, but not to contradict.

Exceptions: Fraud, accident, or mistake. Agreements made after the contract was formed. Evidence showing that no contract was formed. Evidence of a condition precedent. Evidence of failure to pay consideration. Other evidence establishing that the contract is voidable.


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2. Ambiguity

Analysis:

IS there an ambiguity? NY court uses the plain meaning rule:

If the writing is unambiguous on its face, then no other evidence is needed. If the writing is ambiguous, then extrinsic evidence may be allowed to resolve

the ambiguity CA court allows extrinsic evidence to determine whether there is ambiguity in the

writing:

In both courts, evidence of course of performance, course of dealing, andtrade usage is admissible to interpret ambigious terms.

If the parties each attach different meaning to a term, and there is no rationalbasis for resolving the ambiguity, then there is no contract; recission isappropriate.

3. Implication

Statutes and courts provide gap fillers for the major omitted terms Filling Common Contractual Gaps by Statute

The UCC provides many instances of gap fillers for the sale of goods; among them:

tender gap 2-308 price gap 2-305

oBases for implication

1. Subjectiveaccording to the expectation of the parties.2. ObjectiveReasonable under the circumstances (R 204)


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Express warranty

UCC 2-313 provides for express warranties when:1. There is an affirmation or promise made by the seller in relation to the goods,

which becomes part of the basis for the bargain; such affirmations create an

express warranty that the goods will conform to the affirmation or promise;2. There is a description of the goods that becomes a basis of the bargain; such

description creates an express warranty that the goods will conform to thedescription;

3. A sample or model is provided by the seller; thus creating an express warrantythat the whole of the goods will conform to the sample or model.

Implied Warranties

Article 2 of the UCC provides for several implied warranties, among them:1. Implied warranty of merchantability, 2-3142. Implied warranty for fitness for a particular purpose 2-3153. Implied warranty of title 2-312

For each Article 2 implied warranty, there are three questions:1.

Under what circumstances does the implied warranty become part of thecontract?

2. What is the content of the warranty?3. May the parties exclude the implied warranty by agreement?

According to Knish, the analysis is:a) Does the warranty apply?b) Was the warranty disclaimed?c) Was the warranty breached?

IMPLIED WARRANTY

:M

ERCHANTABILITY(UCC

2-214)

Analysis:1. Does the warranty apply?

Applies when:a) There is a sale of goodsb) Seller must be a merchant with respect to the goods of that kind.


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Content of warranty: goods are suitable for the ordinary purpose intended.

1. Was the warranty disclaimed?2.

Was the warranty breached?

A recurring question under 2-314 is whether the buyers use of the goods wasordinary, as mentioned in subsection (c).

Implied Warranty: Fitness for Particular Purpose (UCC 2-315)

UCC 2-215 provides that, unless otherwise agreed or excluded, that:1. Where a seller has reason to know of any particular purpose for which the goods

are sought; and

2.

Where the buyer is relying on the sellers skill or judgment to provide suitablegoods,there is an implied warranty that the goods shall be fit for such a purpose.

Analysis:

Does the warranty apply?

Applies when:a) There is a sale of goods (no merchant requirement).b) Buyer has a particular purpose for the goodsc) Seller is aware of the particular purposed) The buyer relies on sellers knowledge

Content of warranty: goods are fit for that particular purpose

Excluding Implied Warranties from the Contract

Under certain conditions, the parties may exclude implied warranties from the contract.

UCC 2-316 (1) incorporates the parol evidence rule into the analysis of whether there isa warranty [NEED TO DISCUSS THIS FURTHER, WILL APPEAR ON EXAM]

UCC 2-316 (2) provides that the parties may exclude an implied warranty ofmerchantability if:

1. The language of the agreement that excludes the implied warranty specificallymentions merchantability, and

2. Any writing that excludes the implied warranty of merchantability is conspicuous.


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UCC 2-316 (2) provides that the parties may exclude the implied warranty offitness if:1. He exclusion is made in writing, and2. The writing is conspicuous.

UCC 2-316 (2) provides that the parties may exclude all implied warranties with such

language as There are no warranties which extend beyond the description containedherein.

UCC 2-316 (3) provides that, unless the circumstances indicate otherwise, all impliedwarranties may be excluded if:

a) The agreement excludes implied warranties with expressions like as is, with allfaults, or other language that makes plain that there is no implied warranty.

b) The buyer examines or inspects the goods, or refuses to examine the goods, insuch case there is no implied warranty in respect to a defect that should have beenrevealed in such an examination,

c) Implied warranties can be modified or excluded by course of dealing, course ofperformance, or usage of trade.

Question: does 2-316 (3) (a) obviate the need for writing when excluding a warranty forfitness?

Limits on Excluding implied Warranties

Courts and legislatures have limited the ability of sellers to exclude implied warranties,when such an exclusion is inconsistent with public policy.

Performance and Breach

Breach Analysis

1. Is there a duty under the contract?(no switch)

2. Is the duty conditional?(open switch)

3. Was the condition satisfied, excused, or did the condition fail? Satisfied (closed switch)

o Express Conditionsatisfied by strict compliance only.


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o Constructive Conditionmay be satisfied by substantialperformance.

Excused (bypassed switch)o Waiver/Estoppelwords or conduct that lead the other party to

reasonably believe that the condition will not be enforced.

o

Preventionconduct that hinders the fulfillment of the condition. Fails (grounded switch)

4. Was the duty breached?5. Was the breach material? (R 2d 241)

If not material, only option is to sue later for loss suffered under thebreach.

If material but curable, party has the option of suspending performanceand waiting for cure.

If material and total, party may withhold performance, terminate contract,and claim full expectation damages.

6. How did the aggrieved party elect to proceed?The aggrieved party may elect to terminate, suspend, or continue:

A material breach may be treated as immaterial, in which case anycondition associated with the breached performance is excused.

A party that terminates or suspends for a breach that is found to beimmaterial may be themselves in breach.

DEFENSES TO PERFORMANCE

Defenses to enforcement are defenses that exist at the time of formation, defenses toperformance pertain to facts that did not exist, or were not known, at the time offormation.

Anticipatory Repudiation

A clear, unequivocal, and voluntary repudiation of the contract by one of theparties is recognized as the equivalent of a material and total breach, providedthat:

o The threatened action or inaction would be a material and total breach if itoccurred at the time due for performance; and,

o Both parties have outstanding duties under the contract.Elements of repudiation:


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1. The prospective action or inaction threatened must qualify as a material and total

breach (for materiality, see R 2d 241).

2. The promisors words or conduct must indicate to a reasonable person that thepromisor intends to breach when the performance becomes due.a. Objective standard

b. Unless the expression of repudiation is clear and unequivocal, courts willusually find no repudiation, especially in regards to conduct.

3. The repudiating words or conduct must be deliberate and purposeful, rather thaninadvertent or beyond the control of the promisor (see Pittsburgh-Des MoinesSteel Co., p.795).

4. (Under the UCC only) substantially impairs the value of the contract.

Response to Repudiation

After a party repudiates, the promisee has two options:

Accept the repudiation, and treat it as a material and total breach.o The risk: the other party may deny repudiating, thus putting the blame for

the breach on the promisee.

Delay response, and wait for the repudiator to repent.o May take affirmative steps to encourage retraction of the repudiation.o

May set deadline for retraction, and may accept repudiation anytimebefore the deadline.o The risk: court may find that the promisee aggravated the damages by not

accepting repudiation sooner (issue of assessing damages: see Cosden Oil,p.783).

o See UCC 2-713, 2-712, 2-610, and 2-611.Retraction of Repudiation

The promisor may retract the repudiation, until such time as:

The promisee treats the repudiation as final; or,

The promisee acts in reliance of the repudiation; or, The promisee notifies the promisor that the repudiation has been accepted (but the

promisor in repudiation is not entitled to notice of acceptance).

Assurance of Performance

A party having reasonable grounds to believe that another party will commit a materialand total breach may demand adequate assurance of due performance.


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The obligee may suspend any performance for which the agreed-upon exchangehas not been received, if reasonable (R 2d 251), or under the UCC, commerciallyreasonable (2-609).

Failure to provide adequate assurance within a reasonable time may be regardedas repudiation (see Pittsburgh-Des Moines Steel Co., p.795).

Analysis of repudiation

1. Is there an anticipatory repudiation?a. See elements of repudiation

2. What are the options for the aggrieved party?a. Suspend performance AND either:

i. Wait for (under UCC, commercially) reasonable time; or:ii. Treat as total, incurable breach.

Applicable Statutes

2-209 Modification, rescission, and waiver:

An agreement modifying a contract under article 2 UCC needs no consideration tobe binding

SoF applies to all modifications ot contracts that are within the statute2-508 sellers right to cure (1) A seller may cure a tender or delivery rejected for non-conformity if:

The time for performance has not expired; and, The seller seasonably notifies the buyer of his intention to cure; and, The seller makes a conforming delivery within the time the performance is due.

(2) surprise rejectionif the buyer rejects a non-conforming shipment that the seller hadreasonable grounds to believe the buyer would accept, the seller may, upon seasonablenotice to buyer, have further time to substitute a conforming shipment.

Reasonable grounds to believe non-conforming shipment would be acceptedinclude

o Course of dealing,o Course of performance,o Usage of trade,o The particular circumstances surrounding the making of the contract.

2-601 Improper delivery (perfect tender rule). If the goods or tender fail to conformto the contract in any respect, the buyer may:

Reject the whole; or Accept the whole; or Accept any commercial unit and reject the rest. (see sellers right to cure, 2-508)


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2-602 Rejection of Goods must be in a reasonable time after delivery or tender.

2-605 (1) Waiver by failure to specify objection: A buyers failure to specify thereason for rejection precludes him from relying on the unstated defect to justify rejection

or establish breach where: The seller could have cured the defect if notified; or Between merchants the seller has requested a written statement of all defects upon

which the buyer proposes to rely.

2-606 Acceptance of goods. (1) Acceptance of the goods occurs when the buyer

After a reasonable opportunity to inspect the goods, signifies to the seller thatthe goods are conforming, or that he will take them despite their non-conformity; or

Fails to make an effective rejection per 2-602 (but only after buyer has anopportunity to inspect he goods).

2-607 (1) (2) (3) (a) (b)Effect of Acceptance

The buyer must pay the contract rate for any goods accepted Acceptance of the goods made with the knowledge of non-conformity cannot be

revoked because of the non-conformity unless the acceptance was made on thereasonable assumption that the non-conformity would be seasonably cured.

Where a tender has been accepted the buyer must notify the seller of any breachwithin a reasonable time, or be barred from remedy.

2-608 Revocation of acceptance The buyer may revoke acceptance of goods whose non-conformity substantially

impairs its value to him, if he has accepted ito On the reasonable assumption that the non-conformity would be cured; oro If his acceptance was induced by either difficulty of discovery before

acceptance or by the sellers assurances.

Revocation must occur within a reasonable time after discovery of non-conformity, and before any change in condition of the goods which is not causedby their own defects.

(Make sure to distinguish between acceptance of the offer (2-206) and acceptance of the

goods (2-600 series).

2-609 Right to Assurance of Performance

1. Reasonable grounds for insecurity2. Demand in writing for assurance3. If commercially reasonable, suspension of performance until assurance is given4. Failure to provide assurance within reasonable time operates as repudiation.

Also see: R 2d 251common law right of assurance.


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2-610 Anticipatory Repudiation

When either party repudiates a performance due under the contract which willsubstantially impair the value of the contract to the other, the aggrieved party may

o Suspend performance; AND eithero

Await performance for a commercially reasonable time; or

o Resort to any remedy for breach.2-611 Retraction of Repudiation

Until the performance is due, the repudiating party may retract their repudiation,unless the aggrieved party has cancelled, changed his position, or otherwiseindicated that he considers the repudiation final

Retraction may be by any method which clearly indicates that the repudiatingparty intends to perform, but must include any assurance justifiably demandedunder 2-609

2-612 installment contracts and breach; substantial performance; (exception toperfect tender rule)An installment contract is one that requires or allows the delivery ofgoods in separate lots to be separately accepted.

The buyer may reject any installment which is non-conforming, if the non-conformity cannot be cured; but

o If the non-comformity does not constitute a total breach, and the sellergives assurances of a cure, buyer must accept the installment.

Non-conformity of one or more installments that substantially impairs the valueof the whole contract is a breach of the whole; but the buyer reinstates thecontract if he accepts a non-conforming installment without seasonablenotification of cancllation; or

o Brings an action in respect to previos installments only; oro Demands performance as to future installments

2-616 Impracticability; Sellers failure to deliver is not a breach of his duty ifperformance has been made impracticable by either:

The occurrence of events, the non-occurrence of which was a basic assumption ofthe contract; or,

The sellers good faith compliance with any applicable governmental regulation.2-716 Buyers Right to Specific Performance or Replevin.

Restatement

241 Determining whether breach is material; the following circumstances aresignificant:

The extent to which the injured party will be deprived of the reasonably expectedbenefit;

The extent to which the injured party can be compensated for the breach; The extent to which the party in breach will suffer forfeiture;


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The likelihood that the party in breach will cure the breach; The extent to which the party in breach acted in good faith.

89 Modification of Executory Contract359 Effect of Adequacy of Damages

MISTAKE AND IMPRACTICABILITY

Mistake almost always applies to facts that exist at the time of formation; Impracticability applies to facts that arise after formation In both cases, the errant facts affect the basic assumptions upon which the

contract was made.

ELEMENTS OF MUTUAL MISTAKE:

1. The parties must share an erroneous belief in the facts in existence at the time offormation.

2. The erroneous belief is fundamental to the intent and purpose that form a basicassumption of the parties to the contract.3. The mistake has a material effect upon the party seeking relief.4. The adversely affected party was not obligated to bear the risk of the mistake.

UNILATERAL MISTAKEsame elements as above, and

The effect of the mistake is such that enforcement would be unconscionable; or The other party had reason to know of the mistake, or the partys own fault

causes the mistake.

ELEMENTS OF IMPRACTICABILITY:

1. There is an unforeseen event that affects the basic assumptions upon which thecontract is made.

2. The event renders a partys performance unduly burdensome (an extremehardship). sq

3. The party seeking relief was not obligated to bear the risk of the eventsoccurrence.

4. The party seeking relief did not wrongfully cause the event to occur.5. [Knish] Foreseeability (the more foreseeable the event, the less protection for the

party seeking to avoid performance).

Elements of Frustration of Purpose:

1. There is an unforeseen event that affects the basic assumptions upon which thecontract is made.

2. The event destroys the purpose or value of the contract.3. The party seeking relief was not obligated to bear the risk of the events

occurrence.


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4. The party seeking relief did not wrongfully cause the event to occur.5. [Knish] Foreseeability (the more foreseeable the event, the less protection for the

party seeking to avoid performance).

Remedies

Common Law Remedies:

344 Purpose of Remedies

expectation (347)o the loss in value of the other partys performanceo

plus incidental and consequential damageso minus any costs avoided as a result of the breach

Alternatives to loss of value (:o

reliance (349)o

restitution (371- 374)359 Specific performance criteria:

Adequacy of Money Damages (360) Uncertainty of Terms (362) Fairness (364) Difficulty of enforcement (366) Issue of servitude (Personal service contracts) (367)

Buyers remedies under the UCC:

UCC 2-711 provides that where a seller:

fails to make delivery or repudiates; or where the buyer rightfully rejects or justifiably revokes acceptance;

the buyer may cancel & recover price for undelivered goods and:

Cover with substitute goods (2-712)o Cover pricecontract priceo Must be without unreasonable delayo Must be reasonable purchase, made in good faitho Damages = the difference between the cover price and the contract price,

less any expenses saved as a result of the sellers breach.

Seek Damages for Non-Delivery or Repudiation (2-713)


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o Market pricecontract priceIf the buyer elects not to cover, he may seek damages for the breach:

o Damages = market valuecontract price, plus incidental/consequentialdamages

Seek Specific Performance (2 -716)Specific performance may be appropriate where the goods are unique, or in other propercircumstances (see common law criteria for other proper circumstances).

Breach of Warranty/ non-conformity (2-714)

2-714 provides that where a buyer has accepted goods, but given notice of non-conformity under 2-607, he may recover damages for any non-conformity or breach ofwarranty:

Damages = value of goods as promised or warranted, minus the valueof goods delivered; plus

incidental/consequential damages (2-715).

Sellers Remedies Under the UCC

UCC 2-703 provides that where a buyer:

wrongfully rejects or revokes acceptance for goods; or fails to make a payment due on or before delivery; or repudiates;

The aggrieved seller may withhold delivery of the goods and:

Resell the goods and recover damages (2-706)o Resale must be made in good faith and in a commercially reasonable

mannero Damages = the difference between the resale price and the contract

price, plus incidental damages under 2-710, minus expenses saved asa result of the buyers breach.

Recover damages for buyers breach (2-708)o Damages may be either:

The difference between market price and the contract price,plus incidental damages, minus expenses saved as a result of

the breach; or The profit the seller would have made from full performance of

the buyer, plus incidental damages.Note: see discussion on lost volume seller.

Seek specific performance (2-709)Under proper circumstances, the seller may recover the price of:


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o Goods accepted, or conforming goods lost or damaged after risk ofloss has passed to the buyer; and

o Goods identified to the contract that the seller is unable to resell at areasonable price.

Where the seller sues for specific performance, he must hold for the buyer any goods still

in his control, or credit the buyer with the proceeds of any subsequent resale.

Lost volume seller: define, discuss,

Limitation on Damages

Avoidability

Applies to all damagesForseeability

Usually applies to consequential damagesCertainty

Applies to remedies that are speculative (such as lost profits for a newbusiness)

knish review sheet

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