SBP Contracts

Sale of goods contracts

UCC Article 2 governs all sale of goods contracts. Good are things movable at the time of identification to the contract. A sale of goods contract may be made in any manner sufficient to show agreement.

UCC vs. Common Law

Common law applies to all other contracts besides sale of goods. For mixed contracts, the predominant purpose of the contract determines which law governs.

Requirements to form a valid contract

1) Mutual assent (offer and acceptance)
2) Consideration; and
3) No defenses to formation.

Mutual assent

Requires an offer by one party and acceptance of that other by another party

Offer

A manifestation of intent to enter into a contract, with definite or reasonably certain terms, communicated to an identified offeree

Termination of offers

Offers can be terminated before acceptance by
1) Rejection or counter-offer
2) Lapse of time
3) Revocation; or
4) Death/incapcity

Revocation of offers

An offer may be revoked at any time before acceptance through unambiguous words or conduct indicating an unwillingness of inability to contract.

Indirect revocation

When
1) Offeror takes definite action inconsistent with entering into a proposed contract; AND
2) Offeree acquires reliable info that effect

Irrevocable offers

1) Option contracts if consideration is given to keep the offer open.

2) Merchant's firm offer (offer by a merchant in a signed writing stating the offer will be held up with a max time up to three months)

3) Offer was relied on to the offeree's detriment

Timing of acceptance/revocation

Acceptance - offer is accepted when sent or communicated
Revocation - offer is revoked when received by the offeree. cannot revoke after acceptance.

Mailbox rule

Acceptance sent by mail is deemed to be accepted once placed in the mail (does not apply to option deadlines)
Revocation sent by mail is deemed effective when received by the offeree.

Acceptance

Manifestation of assent to the terms of the offer

Acceptance of bilateral contrcts

Start of performance manifests acceptance

Acceptance of unilateral contracts

Acceptance only when completed; performance only makes the offer irrevocable

Rejection

Manifestation of an intent not to accept an offer.

Timing of rejection

Offer is terminated upon receipt of rejection by offeror. Cannot accept an offer after it is rejected.

Counteroffers

Both a rejection and a new offer

Mirror image rule

Acceptance must exactly mirror the offer; any variation constitutes a counteroffer

UCC Battle of the Forms

Acceptance does not have to mirror the offer. But, different or additional terms are included only if:
1) Both parties are merchants;
2) The term is not a material change;
3) Offer does not expressly limit acceptance to the exact offer; and
4) No objection was made within a reasonable time

Material change

Likely to cause harship/surprise

Implied-in-fact contracts

A contract is created by conduct if:
1) The conduct is intentional; AND
2) Each party knows (has reason to know) the other party will interpret the conduct as an agreement

Indefiniteness/absence of terms

In terms of an agreement are not certain (cannot be ascertained to a reasonable degree of certainty), then it's NOT enforceable

Indefinite duration

Contract is generally invalid

Essential terms under UCC

If both parties are merchants, the only essential term is quantity. If there is no agreement on price, a reasonable price term will be supplied under the UCC.

Consideration

Bargained for exchange of any act or forbearance that benefits the promisor or causes detriment to the promisee

Past/moral consideration

Not sufficient

Merchant's firm offer

May be enforced without consideration

Illusory promise

Invalid; occurs when one party has no obligation to perform

UCC exception

No consideration is required for contract modification made in good faith. But must have a writing if it falls within SoF or the original contract states that modifications must be made in writing

Incapacity

Must have capacity to enter into a contract. Minors and people without mental capacity are able to void contracts that they enter into.

Minors are bound to contracts for the reasonable value of necessities.

Duress

Physical compulsion or economic duress

Economic duress

1) An improper threat is made
2) That induces a party
3) Who has no reasonable alternative
4) To enter into a contract

A mere threat to breach a contract (without more) is generally insufficient

Undue influence

1) Unfair persuasion of a person exercising influence; or
2) Justified in assuming the other person will act in their interest/welfare because of the relationship between them

Generally voidable by the victim

Mutual mistake

Contract is voidable

1) Both parties are mistaken as to a basic assumption
2) The mistake is material, and
3) The person asserting the mistake did not bear the risk of the mistake

Unilateral mistake

Generally not a valid defense

1) Mistake by one party
2) That is unknown to the other party
3) Concerning a basic assumption
4) That has a material effect

But a contract is voidable by the mistaken party if one party knew or had reason to believe of the mistake or the mistake makes the contract unconscionable

A mistake as to price/value is not considered material.

Misrepresentation

Contract is voidable by the injured party.

Fraudulent misrepresentation

occurs when
1) D knowingly
2) Made a false representation
3) Of material fact; and
4) The other party reasonably relies on the misrepresentation to his detriment

Non-fraudulent misrepresentation

Occurs when
1) A party/agent
2) Makes a statement of material fact
3) That is false (no wrongdoing required)
4) Inducing a contract; and
5) The other party reasonably relied on the misrepresentation to his detriment

Concealment

An affirmative acct intended to keep another person from learning a fact. Concealment is deemed a misrepresentation.

No duty to disclose exception

1) A fiduciary relationship exists
2) It's necessary to correct an earlier mistake
3) An active concealment occurs; OR
4) A seller of real property knows material facts that affect the value of the property (that buyer is unaware of and cannot reasonably discover)

Ilelgality and public policy

Courts will not enforce contracts that are illegal or contrary to public policy. Contract is void if the illegality existed at the time of contract formation. Peformance is discharged if the contract subsequently became illegal. A contract with an illegal purpose is voidable by the party who did not know the illegal purpose.

Unconscionability

Occurs when the contract/term shocks the conscience

Procedural unconscionability

One party has a superior bargaining position over the other party and uses that power to their advantage.

Substantive unconscionability

Contract contains terms that are obviously unfair and one-sided in favor of the party with the superior bargaining power

Remedy for unconscionability

Court may:
1) Enforce the contract without the unconscionable term; OR
2) Limit the application of the term

Statute of Frauds

Contract is not valid unless in a writing signed by the party to be charged.

Marriage
Year (cannot be performed <1 yr)
Land sale
Executor's promise
Goods >$500
Suretyship

Writing requirement of SoF

Writing must be
1) Signed by the party to be charged
2) Reaosnably identify the subject matter
3) Indicate a contract was made, and
4) State the essential terms

Exceptions to SoF

1) Merchant's confirmatory memorandum (a contract between two merchants with a writing signed only by the party seeking enforcement and other party did not object promptly)
2) Goods accepted paid for (applies only to those goods, not the whole contract)
3) Custom made goods (seller made a substantial start and the goods are not suitable for sale in the ordinary course of businesss)
4) Admission during a judicial proceeding

Parol evidence rule

A party cannot introduce a prior or contemporaneous agreement (oral or written) that contradicts a later written contract

Parol evidence exceptions

1) To correct a clerical error or typo
2) To establish a defense against formation
3) to interpret vague or ambiguous terms (but courts will interpret using the Plain Meaning Rule)
4) To supplement a partially integrated writing

Partially integrated writing

The writing does not contain a complete statement of all the terms. Proof is allowed if it does not contradict the writing.

Fully integrated writing

A complete and exclsuive statement of terms; discharges prior agreements

Merger claues

Evidence that the writing is complete on its face and fully integrated

Subsequent agreements

Parol evidence rule does not apply

Condition precedent

Makes performance conditional upon the completion of the condition. BUT, the condition is excused when:
1) the protected party fails to make a good faith effort to satisfy the condition; OR
2) Waiver (voluntarily giving up protection) but can retracted the waiver if the other party has not relied on it

Obligation of good faith and fair dealing

Every contract contains a implied obligation of good faith and fair dealing to act honestly and fairly

Impossibility

Peformance is discharged when its objectively impossible to perform because of
1) Death or incapacity of a person necessary to effectuate the contract
2) Unanticipated destruction of the subject matter of the contract; OR
3) A new, unanticipated law/regulation making performance extremely and unreaosnably difficult/expensive

Impracticability

Performance is discharged when:
1) An event occurs after contract formation
2) That is unanticipated by both parties
2) Making performance extremely and unreasonably difficult/expensive

Frustration of purpose

Discharges performance when the purpose of the contract no longer exists. Occurs when:
1) A party's principal purpose is substantially frustrated
2) By an unforeseeable superseding event outside their control, and
3) Both parties knew the purpose at the time of formation

Material breach (common law)

Occurs when a party does not render substantial performance. A material breach excuses the non-breaching party's performance.

Determining whether the breach is material

Courts analyze the following factors:
1) Extent of performance
2) Adequacy of compensation for loss to non-breaching party
3) Hardship
4) Likelihood

Minor breach

Does not excuse performance. The non-breaching party may bring a separate action for damages resulting from the breach.

Divisible performance

Treated as multiple contracts. Performance of each part entitles a party to payment for that part.

Perfect tender rule

Seller must deliver confirming goods. Even the smallest non-conformity is a breach, and the buyer may reject all or a portion of the goods. A rejection must be made within a reasonable time.

Right to cure

A seller has a right to cure when:
1) Time for performance has not yet expired; OR
2) The seller will have further reasonable time to cure if the seller had reasonable grounds that substitute goods would be accepted

Installment contracts

May be cancelled when in an installment is so defective that it substantially impairs the value of the entire contract. Buyer can reject an installment only if the non-conformity substantially impairs that installment and the time to cure has passed.

Acceptance of goods

Occurs when:
1) After a reasonable opportunity to inspect, buyer signifies to seller that goods are confirming OR that it will retain a non-conformity
2) Fails to reject the goods are a reasonable opportunity to inspect; OR
3) Does any act inconsistent with seller's ownership of the goods.

Buyer's obligation

Buyer is obligated to pay for goods once accepted unless revocation of acceptance is allowed

Revocation of acceptance

After acceptance, a buyer may later revoke that acceptance of goods only if:
1) The non-conformity substantially impairs the value of the goods; and
2) Either the defect was latent, acceptance was reasonably induced by the seller's assurances, or the buyer had a reasonable assumption that the defect would be cured

Revocation of acceptance of goods

Must occur within a reasonable time after the buyer discovers or should have discovered the non-conformity. Not effective until buyer notifies seller and must occur before there is any substantial change in the goods.

Anticipatory repudation

Occurs when a party unequivocally communicates that they are unable or unwilling to perform under the contract

Actions the non-breaching party may take after anticipatory repudiation

1) Treat the contract as repudiated and sue for damages before the time of performance is due
2) Treat the contract as discharged
3) Wait until performance is due and then sue; OR
4) Urge the other party to perform

Retraction of repudation

The breaching party may restore the contract unless the non-breaching party has:
1) Cancelled
2) Materially changed its position; OR
3) Indicated that they consider the repudation final

Demand for adequate assurances

If there are reasonable grounds for being insecure about performance, a party may take a written request for adequate assurances from the other party that it will perform. If the other party does NOT give assurances after asked to do so, the requesting party may treat the

Accord

An executory contract between the parties promising the relieve a party of their contractual obligations in return for a specific act

Satisfaction

Upon satisfaction of the accord (the new act), the party is excused from further performance under the original contract

Failure to satisfy the accord

The other party may sue either under the original contract or the accord terms

Express warranty

Seller is liable or breach of an express warranty. Cannot be disclaimed by the seller

Creation of an express warranty

An express warranty is created when:
1) Seller makes an affirmation of a fact, promise, description, or provides a sample
2) Relating to the goods; and
3) That becomes part of the basis of the bargain

Implied warranty of merchantability

All goods sold by a merchant dealing in goods of the kind must be fit for their ordinary purpose

Disclaimer of the implied warranty of merchantability

Must do expressly in a conspicuous writing ("as is" or "with all faults")

Implied warranty of fitness for a particular purpose

Applies when:
1) Seller knows or has reaosnt o knwo of the buyer's particular purpose for which the goods are required; and
2) Buyer relies on the seller's skill or judgement to select or furnish suitable goods

Disclaimer of the implied warranty of fitness for a particular purpose

1) Conspicuous writing
2) "As is" language
3) Waiver by the buyer if defects can be discovered by a reasonable inspection; or
4) By course of dealing, performance, or usage of trade

Third-party beneficiaries

Generally, a party who is not in privity of contract with another party cannot assert a claim for breach of contract. However, a third-party beneficiary has the same rights as those in privity, and can sue for breach of contract.

Intended third party beneficiary

Nota party to the contract but has rights because the contracting parties' performance was intended to benefit the identified third party

Incidental third-party beneficiary

Someone who just happens to benefit from the contract but has no legal rights

Enforcement of third prty rights

A third party beneficiary may enforce rights under a contract ONLY if the rights have vested.

Vesting occurs when the third pat
1) Manifests assent to the promise in the contract
2) Detrimentally relied; or
3) Sues to enforce

Once vested, the contract CANNOT be changed or modified without consent of the third-party

Assignment of rights

Rights and benefits may be transferred to a third party if:
1) Assignor manifests his intent to transfer; AND
2) Assignee assents to the assignment

Consideration for an assignment

Consideration is NOT required for an assignment. If consideration is given, the assignment is irrevocable. Gratuitous assignments may be revoked.

Limitations on assignment

An assignment is valid UNLESS
1) It materially alters what is expected
2) It is prohibited by law or public policy
3) it is precluded by contract

Rights of assignee and assignor

1) Assignee may sue obligor for non-performance
2) Any defense against assignor may be used against assignee
3) Assignee may sue assignor for wrongful revocation of an assignment or for breach of an implied warranty

Delegation of duties

All contract duties are delegable unless:
1) The contract prohibits delegation or assignment
2) Delegation is against public policy
3) Its a personal service contract the calls for exercise of personal skills/discretion; or
4) The delegation materially alters the expectancy of the obligee

Expectation damages

Arise directly from the breach and are meant to put the non-breaching party in the same position it would have been in but for the breach

Consequential damages

Arise indirectly from the breach (i.e. lost profits)

Punitive damages

Meant to punish a wrongdoing party. May be awarded for breach of contract involving fraud or tort claims.

Specific performance

Equitable remedy; only available if monetary damages are inadequate to compensate an injured party

Lost volume seller

Can recover lost profits on a sale if the seller regularly sells the goods at issue and has unlimited inventory

Incidental damages

Commercially reasonable costs incurred as a result of the breach

Waste doctrine

When an award for cost of completion is wasteful, a court may award damages for diminution in value (difference in value of property/land)

Restitution

Awarded to prevent unjust enrichment when one party confers a a benefit

Damages = value of benefit conferred