Contracts II

COMMON LAW Implied Terms (3)

1. Good faith

2. Supplying an omitted essential term

3. Seller’s performance subject to buyer’s satisfaction

Implied term of Good Faith under common law

when 1 party has discretionary power over rights of another, discretion must be exercised in good faith and fair dealing

• Idea: the parties must enter into the contract with the idea that you will agree to the terms in the contract with the other party.

• This is the heart of every implied term.

Implied term of Supplying an omitted essential term under common law RULE

a term that is reasonable in circumstances will be supplied by the court

• fact trigger: missing/ not agreed on term that is critical to the determination of the rights and duties from contractual provision.

Implied term of Seller’s performance subject to buyer’s satisfaction under common law RULE

good faith applies when personal taste/ fancy is involved.

• fact trigger: 1 party’s (buyer) duty to perform depends on whether they’re satisfied with the other party’s (painter’s) performance

implied terms in UCC (4)

1. good faith

2. Best efforts in exclusive dealings

3. implied notice of termination

4. requirement and output contracts

Implied term of Good Faith under the UCC RULE

Subjective standard of honesty in fact

• this evaluates if they had ill or improper motive

+
Objective standard of reasonableness based off commercial standard of fair dealing

• courts use industry custom use and trade to evaluate this

NOTE: GF CANNOT be the sole basis of a claim!

Implied term of best efforts in exclusive dealings under the UCC RULE

parties are obligated to use best efforts for:

• Seller to supply the goods AND

• the buyer to promote the sale of the exclusive goods

UNLESS they agreed on something differently

fact trigger: 1 party agrees to buy or sell goods to/from ONLY ONE PARTY, giving them the exclusive right to distribute, supply, or purchase certain goods within a defined market or territory.

issue spot: someone trying to get away with something and secretly taking the better deal.

Implied term of Implied notice of termination/ when there is no time provision under the UCC RULE

if no time provision: Implied reasonable shipment/ delivery time

indefinite contracts: Valid for reasonable time AND can be terminated at anytime UNLESS stated otherwise.

• TERMINATION REQUIRES REASONABLE NOTICE!

Implied terms of requirements and output contracts under the UCC RULE

Contracts are enforceable as long as the requirements or outputs are made in Good Faith.

• Neither party can demand or tender a quantity that is unreasonably disproportionate to any state estimate or prior practice

Implied Warranties under COMMON LAW (2):

1. implied warranty of habitability

2. Implied warranty of workman like construction

Implied warranty of habitability under common law RULE

states vary, but the landlord must make repairs

• clean safe, plumbing, etc.

Implied warranty of workmanlike construction under common law RULE

requires building to be constructed “in a reasonably good” and workmanlike manner and be reasonably fit for intended purpose.

Implied Warranties under the UCC (2)

1. implied warranty of merchantability

2. Implied warranty of fitness for a particular purpose

Implied warrant of merchantability under the UCC RULE

the warranty implied to the buyer of goods are of good quality (marketable/ fit for particular purpose)

• applies to merchants who regularly sell goods

Implied warranty of fitness for particular purpose under the UCC RULE

1. buyer relies on sellers skill to select suitable goods

2. seller has reason to know of buyer’s reliance

Exceptions for Implied warranty of fitness for particular purpose (4)

1. there’s no reliance by the buyer.

   1. no reliance = no warranty

2. seller had no reason to know of buyer’s particular purpose

3. buyer misused product

4. As is clause

Express warranty under the UCC (1)

Express warranty on consumer product

Express warranty on consumer product RULE

warranty created when any factual affirmation or promises made by the seller to buyer which relates to goods

• no intent to create is required

Disclaimers under the UCC (3)

1. disclaiming express warranty

2. disclaiming implied warranty of merchantability

3. disclaiming consumer protections

Disclaiming Expressed warranty under the UCC RULE

seller may modify or disclaim express warranties, BUT they CANNOT CONTRADICT express contract terms!

Disclaiming Implied warranty of merchantability under the UCC

disclaim must be INCONSPICUOUS and in WRITING.

Disclaiming implied warranty of consumer protections

under federal statute written warranty CANNOT disclaim implied warranties!

3 reasons for avoiding the enforcement of a contract

1. person/ party’s status

2. process in creating the contract

3. Substance of a contract

2 status reasons for avoiding enforcement of a contract

1. They’re a minor

2. They’re mentally incapacitated

General Rule if they’re a minor

contract is VOIDABLE. Once a minor reaches the age of 18, they have reasonable time to affirm or disaffirm the contract.

Remedy for Minor when it is a necessity item

Minor gets fair contract price no matter what (no matter how much the item decreased in value)

Split of interpretation in contracts with minors when not a necessity

Traditional approach and modern approach

Traditional approach RULE in contracts with minors when the item is not a necessity

If the contract is disaffirmed at the age of majority, minor is subject to full recovery of purchase price

• example: 16 y/o bought boat for $20k, depreciated in value to$5k, at age of 18 disaffirms the contract, the 18 year old is now entitled to full $20k

Modern approach RULE in contract with minors when the item is not a necessity

the seller can deduct the minor’s use or depreciation to the item.

2 disorder shat makes the party mentally incapacitated

1. cognitive disorder

2. mental disorder

Cognitive disorder RULE

VOID if:

1. mental disorder AND

2. person had reason to know of mental disorder

Cognitive Test

person is incapable of understanding

Mental Disorder RULE

VOIDABLE if:

1. mental disorder AND

2. person had reason to know of mental condition

Volitional test (when a person acts with mental disorder)

a person acts with a mental incapacity if they are:

1. unable to act in a reasonable manner in relation to transaction AND

2. other party has reason to know of his condition

2 ways to avoid enforcement of a contract because of the PROCESS in creating a contract

1. Duress

2. Undue Influence

2 types of duress

1. duress by physical compulsion

2. duress by threat

duress by physical compulsion RULE

Contract is VOID if party is forced by actual force to agree

Duress by threat RULE

contract is VOIDABLE if

1. wrongful threat,

2. a lack of reasonable alternatives

3. threat induced the plaintiff to enter into the agreement

Undue influence RULE

VOIDABLE when a party unfairly persuades another who is either dominated by them or had a relationship that lead them to trust that the persuader will act in their best interest.

3rd party rule on undue influence

A contract influenced by a 3rd party’s undue influence is still voidable UNLESS the other party acted in good faith, ha no knowledge of the influence, and gave value pr relied heavily on the deal.

7 over persuasive factors in undue influence

1. inappropriate timing

2. unusual location

3. sense of urgency

4. emphasis on dire consequences if delay

5. multiple persuaders on dominant side,

6. absence of advisors

7. lack of time to consult attorneys/ financial advisors

2 ways to avoid enforcement of a contract because of the SUBSTANCE of the contract

1. Misrepresentation

2. Unconscionability

When a misrepresentation is VOID

if party misrepresents the contract itself

when a misrepresentation of a contract is VOIDABLE

if party or non party induces misrepresentation

Rule for misrepresentation

Contract is VOIDABLE if:

1. a misrepresentation of an existing fact that was

2. fraudulent or material

3. induced a recipient to enter the contract, AND

4. the recipient’s reliance was justified

3 different mental states an individual can have in misrepresentation

1. innocent

2. negligent

3. with “scienter”

   1. with intent to deceive, manipulate, or with reckless disregard of truth

4 scenarios where non disclosure is a misrepresentation

1. would have prevented an assertion from mis-representing facts

2. correct s mistaken assumption

3. correct mistake in contents or affect of writing

4. parties have relationship of