Contracts Elements

Define an OFFER’s elements (OM-PCI-CD-C)

• An OUTWARD MANIFESTATION

• of PRESENT Contractual INTENT

• with CERTAIN and DEFINITE terms

• COMMUNICATED to the offeree

• Beware of PRELIMINARY NEGOTIATIONS vs PRESENT CONTRACTUAL INTENT - look to the RPT - Reasonable Person Test

When is an advertisement possibly considered an offer?

If the terms are so definite or certain on who and how to accept, and it leaves nothing further for negotiation.

An OFFER requires DEFINITENESS of TERMS under the MNEMONIC QTIPS. What does this stand for?

Quantity

Time for performance

Identity of parties

Price

Subject matter

May an OFFER be TERMINATED if it RECITES a PURPOTED or NOMINAL consideration which is in writing, even if only $1.00?

No, in this instance it is irrevocable.

In a UNILATERAL contract, may the offer be terminated? What if the offeror dies?

Only if performance has not begun - if it has begun the offer must be held open for a reasonable time. Death or INCAPACITY of the offeror will not terminate the offer.

An offer may be TERMINATED by OPERATION of LAW which includes FOUR CIRCUMSTANCES - what are they? (LOT-DDS-DIP-SI)

LAPSE OF TIME - as defined in contract - time starts when offer received

DEATH/DESTRUCTION OF SUBJECT MATTER - prior to acceptance-knowledge of death not required

DEATH/INSANITY OF EITHER PARTY: prior to acceptance - If a party who makes offer prior to acceptance and dies, offer terminates automatically even if offeree is unaware of the death. Does NOT terminate an option contract.

SUPERVENING ILLEGALITY: Prior to acceptance

An OFFER may be REVOKED BY THE OFFEROR via the FIVE following methods: (ER-M-PO-IR-A)

• EXPRESS REVOCATION prior to acceptance

• MAIL - Effective upon receipt even if offeree fails to read it

• PUBLIC OFFER

• INDIRECT REVOCATION (acts inconsistent with the contract)

• AGENT

An OFFER may be REJECTED by an OFFEREE under the THREE following methods: (C-M-CO)

• CONDUCT (express or implied)

• MAIL - effective upon receipt

• COUNTER OFFER - implied rejection (but counter made during option period doesn’t terminate power of acceptance)

Define an ACCEPTANCE of an offer and define a BILATERAL vs UNILATERAL acceptance:

• ACCEPTANCE is the UNEQUIVOCAL ASSENT to the TERMS of the offer.

• BILATERAL acceptance is the required return promise

• UNILATERAL acceptance is the completion of performance.

Under the METHODS OF ACCEPTANCE under Common Law, how were you to accept a contract in terms of communication method? How does Modern Law differ?

Under common law, the SAME MODE as the offer was made. MODERNLY, requires the SAME or a reasonable mode. Failure to use proper means acceptance only upon receipt.

Under METHODS OF ACCEPTANCE, define the MAILBOX majority rule: (AEUD)

What if the ACCEPTANCE is dispatched FIRST, and the REJECTION second?

What if the REJECTION is dispatched FIRST, and the ACCEPTANCE second, and the REJECTION received before the ACCEPTANCE?

What if REVOCATION sent FIRST, and ACCEPTANCE sent second, and REVOCATION received?

What if REVOCATION send FIRST, REVOCATION received, and ACCEPTANCE then dispatched?

• ACCEPTANCE EFFECTIVE UPON DISPATCH so long as properly addressed and mailed. Some states recognize emails and faxes.

What if the ACCEPTANCE is dispatched FIRST, and the REJECTION second?

There IS A CONTRACT unless rejection arrives first and offeror detrimentally relies on rejection

What if the REJECTION is dispatched FIRST, and the ACCEPTANCE second, and the REJECTION received before the ACCEPTANCE?

NO CONTRACT.

What if REVOCATION sent FIRST, and ACCEPTANCE sent second, and REVOCATION received?

THERE IS A CONTRACT.

What if REVOCATION send FIRST, REVOCATION received, and ACCEPTANCE then dispatched?

NO CONTRACT.

There are THREE CIRCUMSTANCES where the MAILBOX RULE does NOT APPLY. What are they? (O-U-EOR)

• Mailbox rule does not operate with the exercise of OPTIONS

• UNILATERAL CONTRACTS

• Acceptance EFFECTIVE on RECEIPT (offeror rules out)

In general, SILENCE by the OFFEREE does NOT constitute acceptance UNLESS one of the following FIVE EXCEPTIONS exist - what are they?

(WC-SCA-ID-S-L-IIF-UJE)

• WORDS OR CONDUCT leading offeror to believe silence is acceptance

• If OFFEROR has SAID that SILENCE constitutes acceptance and offeree remains silent

• Offeree IMPROPERLY exercises DOMINION over goods sent for approval, inspection etc.

• SOLICITATION of offer by offeree

• LATE acceptance

• IMPLIED-IN-FACT contracts

• UNJUST ENRICHMENT

Define CONSIDERATION: (BM-E-LD)

CONSIDERATION is a BARGAIN MADE in EXCHANGE for a LEGAL DETRIMENT

• PROMISE MUST INDUCE DETRIMENT + DETRIMENT MUST INDUCE THE PROMISE

  • LEGAL DETRIMENT requires one who is NOT legally obligated to do or forebear from doing that which one is legally privileged to do.

Define a “BAGAIN-FOR-EXCHANGE” (EP-PP-PO-PP) as it relates to consideration and the FOUR types of BARGAINS that are NOT Consideration:

D-P-M-N

• A BARGAIN is an EXCHANGE in which EACH PARTY views his promise/performance as the PRICE of the OTHER’s promise/performance.

NOT consideration:

• DONATIVE PROMISES to make a gift b/c bargained-for exchange missing

• PAST CONSIDERATION - conscious exchange must happen AT the TIME promise is given

• MORAL CONSIDERATION - unless promise debt discharged by bankruptcy, promise to perform avoidable obligation, new promise to pay past debt

• NOMINAL CONSIDERATION - bargain in form but not in substance i.e. 100 acres for $1.00 - donative promise disguised. UNLESS it is an option contract/guarantee

Define a LEGAL DETRIMENT:

• When EACH PARTY to an EXCHANGE

• MUST change HIS or HER legal rights or LIABILITIES

• by PROMISE, ACT, or FORBEARANCE

Under LEGAL DETRIMENT, PAYMENT of a LESSER AMOUNT as DISCHARGE of a DEBTOR’s full obligation for LIQUIDATED DEBT (amount owed is certain) is generally NOT CONSIDERATION unless one of the following THREE EXCEPTIONS apply: (DP-DMP-HD)

• DIFFERENT PERFORMANCE

• DIFFERENT METHOD OF PAYMENT

• HONEST DISPUTE as to whether lesser amount owed

Under LEGAL DETRIMENT, PAYMENT of a LESSER AMOUNT as DISCHARGE of a DEBTOR’s full obligation for UN-LIQUIDATED DEBT (meaning the amount owed is uncertain) IS considered CONSIDERATION. What is the rule in one sentence:

A debtors payment is consideration even if the debtor pays no more than she admittedly owes, but, if debtor owes creditor one liquidated and one unliquidated, payment of the liquidated debt will not serve as consideration to discharge unliquidated obligation.

Under LEGAL DETRIMENT, UNLIQUIDATED OBLIGATIONS (amount owed uncertain), debtors must agree not to file for bankruptcy, creditors must agree to accept lesser sums, there must be a written release by the creditor, AND regarding FULL PAYMENT CHECK ISSUES, the common law and UCC differ in what way:?

COMMON LAW - Cashing a FULL PAYMENT CHECK constituted an accord and satisfaction discharging an entire debt

UCC - Cashing a FULL PAYMENT CHECK will discharge the creditor’s entire claim IF

• either a bone fide dispute exists as to the amount owed or the claim is unliquidated, the check is tendered in good faith, or the check or an accompanying writing contains a conspicuous statement concerning full payment.

Under LEGAL DETRIMENT, define an ACCORD and SATISFACTION:

• An ACCORD is an EXECUTORY AGREEMENT intended to compromise an EXISTING OBLIGATION. ACCORD requires NEW consideration.

• A SATISFACTION is the PERFORMANCE of the ACCORD.

If breached, may sue for original obligation OR the ACCORD.

Under LEGAL DETRIMENT, what is the “PRE-EXISTING DUTY RULE?” And what are the THREE exceptions?

• NEITHER a promise to perform a preexisting contractual duty

• NOR the performance of the duty is consideration

Exceptions:

1) Promise of DIFFERENT performance

2) If the preexisting duty is owed to a third party and makes a new promise

3) If there is a valid defense to perform under original contract, a new promise is sufficient consideration

Under LEGAL DETRIMENT, what does a valid MODIFICATION to a contract entail?

• MUTUAL CONSENT

• NEW consideration unless there are unanticipated circumstances

• Under common law, modifications are not required to be in writing even if contract language says so long as its enforceable

Under LEGAL DETRIMENT, define an ILLUSORY promise:

• Resemblance of bilateral promissory terms, but actually imposes no obligation to perform

Under LEGAL DETRIMENT, define PROMISSORY ESTOPPEL

• A SUBSTITUTE for consideration when there has been a FORESEEABLE, DETRIMENTAL RELIANCE upon a GRATUITOUS PROMISE.

  • Common law - Foreseeable, reasonable reliance resulting in substantial economic loss - court enforces promise to full extent

  • Modern law - Reasonable and justifiable expectation of reliance - damages limited to extent of reliance.

Under LEGAL DETRIMENT, define a PRE-EXISTING MORAL OBLIGATION

• PROMISOR received something of value from the PROMISEE

• Under circumstances to create MORAL OBLIGATION to pay

• AND

  • Later promise to pay

  • Acknowledgement of the debt

  • Part payment of the debt

What is the Acronym for DEFENSES to FORMATION?

So Unless Al Is Mistaken, I Missed Aerobics Fitness During P. E.

What does the Acronym for DEFENSES to FORMATION stand for? SUAIMIMAFDPE

Statute Of Frauds

Unconscionability

Adhesion Contract

Incapacity

Mistake

Illegality

Misrepresentation

Ambiguity

Fraud

Duress

Parol Evidence Rule

The STATUTE of FRAUDS FORMATION DEFENSE applies to TEN different types of contracts via WHAT MNEMONIC? (Dog)

MR. Dog Should Poop More Frequently Religiously

The STATUTE of FRAUDS FORMATION DEFENSE applies to TEN different types of contracts via MNEMONIC MR. Dog Should Poop More Frequently Religiously. What are the TEN contracts/writings?

• MARRIAGE

• REAL PROPERTY

• DEBT OF ANOTHER

• ONE YEAR contracts (not capable of being performed in 1 year)

• GOODS

• SUFFICIENT MEMORANDUM

• PART PERFORMANCE DOCTRINE

• MAIN PURPOSE DOCTRINE

• FULL PURPOSE DOCTRINE

• RECEIPT OF GOODS OR PAYMENT OF PURCHASE PRICE

Under DEFENSE OF FORMATION, what is the UNCONSCIONABILITY defense defined?

• CONTRACT with PROVISION that

• NO FAIR and HONEST PERSON would make

• Usually from oppression or unfair surprise (i.e. small print/vagueness)

Under DEFENSE OF FORMATION, what is the ADHESION CONTRACT defined?

• Agreement where parties have

• Unequal bargaining positions

• One party forced to adhere (take it or leave it basis)

Under DEFENSE OF FORMATION, what is the INCAPACITY definition - LEGAL vs. MENTAL

• LEGAL: Minors - voidable by the juvenile while still a minor, or within reasonable time when reaching majority. Ratification after majority results in liability

• MENTAL: Only invokable by mentally impaired party - INABILITY to COMPREHEND NATURE and CONSEQUENCES of a transaction. Still liable for necessities.

Under DEFENSE OF FORMATION, what is the MISTAKE defense definition?

• MATERIAL MISREPRESENTATION of PAST or PRESENT FACTS, which goes to the essence of the contract.

Under DEFENSE OF FORMATION MISTAKE defense, define MUTUAL mistake vs UNILATERAL mistake:

• MUTUAL mistake - Mistake on basic assumption upon which contract made, has major effect on fairness, mistaken party did not bear the risk of mistake.

• UNILATERAL mistake - Mistake made by only ONE party to the contract.

  • If non-mistaken party knew/should have known of other party’s mistake, no contract exists

  • If non-mistaken party neither knew nor had reason to know of other party’s unilateral mistake, contract exists. Modernly, if mistaken party notifies other party of unilateral mistake before non-mistaken party has changed position on reliance, mistaken party can rescind contract.

Under DEFENSE OF FORMATION MISTAKE, define MISTRANSRIPTION

• Oral agreement

• Written but incorrectly represents oral agreement

• Aggrieved party entitled to equitable remedy of reformation of contract

Under DEFENSE OF FORMATION, define MISTAKE IN TRANSMISSION BY INTERMEDIARY

• Intermediary makes mistake in transmitting communication

  • If offeree knew/should have known of mistake, no contract

  • If offeree neither knows/nor should know if mistake, under MAJORITY, contract formed on terms of intermediary. MINORITY - no contract results.

Under DEFENSE OF FORMATION, define ILLEGALITY:

• Consideration or subject matter which is illegal

• Making contract unenforceable

Under DEFENSE OF FORMATION, define MISREPRESENTATION

• Misrepresentation that is MATERIAL

• MATERIAL if likely to induce reasonable person to assent

  • GENERALLY, party proposing contract has NO obligation to disclose facts concerning subject matter of contract. HOWEVER, if there is a fiduciary OR relationship of trust/confidence OR one party is in a special position to know something difficult for another to know, DISCLOSURE IS REQUIRED.

Under DEFENSE OF FORMATION, define AMBIGUITY

• MISUNDERSTANDING where EXPRESSION susceptible to TWO different but EQUALLY REASONABLE interpretations &

• EACH party’s SUBJECTIVE intention of the expression differs from the other party.

  • if BOTH parties had reason to know of ambiguity, no contract

  • if NEITHER party had reason to know of ambiguity, no contract unless same interpretation

  • if ONE party had reason to know of ambiguity, law will FAVOR an interpretation for innocent party

Under DEFENSE OF FORMATION, define FRAUD

• If either party defrauded another into a contract, there is no consent and therefore voidable by innocent party.

Under DEFENSE OF FORMATION, define DURESS (two types of threat P-E)

A deprivation of free will:

• THREAT of PHYSICAL harm to person or close relative forcing him to enter into a bargain

• THREAT of ECONOMICAL duress to WITHHOLD goods, services, or payment

Under DEFENSE OF FORMATION, define the PAROL EVIDENCE RULE

• 1. written agreement intended to be final and complete

• 2. cannot be changed by prior or contemporaneous agreements

• (Look for fully integrated contract/merger clause or Partial Integration)

Under DEFENSE OF FORMATION, PAROL EVIDENCE RULE, what are the SEVEN EXCEPTIONS to the PAROL EVIDENCE RULE (DF-C-S-S-NO-CP-C)

• All DEFENSES TO FORMATION

• COLLATERAL agreements

• SUBSEQUENT agreements (modification)

• SEPARATE consideration

• NATURALLY OMITTED terms

• CONDITION PRECEDENT

• COURSE of performance, dealing, and usage

When is there a BREACH in a contract?

If there Is An Unjustified Failure To Perform An Absolute Duty

What is the difference between a MAJOR BREACH, MINOR BREACH, and ANTICIPATORY BREACH?

MAJOR - Breaches essence of the bargain

MINOR - Minor deviation - continued performance required

ANTICIPATORY BREACH - Unequivocal repudiation before performance due.

What are the SIX REMEDIES available for contract breach under the MNEMONIC : DID RONALD REAGAN READ SPORTS ILLUSTRATED?

DAMAGES

RECISSION

RESTITUTION

REFORMATION

SPECIFIC PERFORMANCE

INJUNCTION

Under the SIX CONTRACT REMEDIES under DAMAGES, there are SIX type of damages (G-S-L-R-A-Q) What are they and define them?

• GENERAL Damages - Direct, natural or probable losses

• SPECIAL Damages - Damages unique to an individual case, specially pleaded and proved, AND defendant knew or should have foresaw loss at time of creation of contract

• LIQUIDATED Damages - Provision in contract setting amount of damages in advance of breach - must be reasonable forecast of damages required

• RELIANCE Damages - What the defendant spent in reliance on the contract if expectancy cannot be calculated.

• AVOIDABLE CONSEQUENCES - P must take reasonable efforts to mitigate or recovery could be barred.

• QUASI-CONTRACT RECOVERY - Remedy to prevent unjust enrichment when no contract exists.

Under the SIX CONTRACT REMEDIES under RECISSION, RECISSION applies to both LAW and EQUITY. What is a RECISSION’s purpose?

• Purpose of RECISSION is to undo a contract when there is a serious FORMATION problem such as FRAUD in inducement, UNDUE influence, DURESS, MISTAKE, or MAJOR BREACH.

Under the SIX CONTRACT REMEDIES under RESTITUTION, what is RESTITUTIONS purpose?

• Put the parties in position they would have been if contract never formed requiring D to return to P benefit received to prevent unjust enrichment.

  • Usually occurs WITH recission, mistake, breach, or unenforceable contracts

Under the SIX CONTRACT REMEDIES under REFORMATION, what is REFORMATION’s purpose?

• REFORMATION is an EQUITABLE remedy only, meaning it REFORMS the contract to confirm to parties actual intent.

Under the SIX CONTRACT REMEDIES under SPECIFIC PERFORMANCE, what is SPECIFIC PERFORMANCE’s purpose?

• SPECIFIC PERFORMANCE is an EQUITABLE remedy only, and creates injunction requiring D to perform - USUALLY for UNIQUE or IRREPLACEABLE goods such as land sale or unique chattels.

• When financial damages are not adequate

Under the SIX CONTRACT REMEDIES under INJUNCTION, what is an INJUNCTION’s purpose?

• INJUNCTION’s are EQUITABLE remedies, where court issues an order commanding a certain action.

When types of transactions does the UCC apply?

• SALE OR TRANSACTION of GOODS

Under the UCC, define GOODS:

• All TANGIBLE CHATTELS which are MOVEABLE and IDENTIFIED in the contract

• When GOODS are COUPLES with SERVICES, courts may separate them and apply UCC to the GOODS potion if integral part of contract concerns furnishing goods for consideration.

Under the UCC, define GOOD FAITH and the difference between MERCHANT and NON MERCHANT DUTY:

• DUTY of HONESTY and OBSERVANCE of reasonable commercial standards of fair dealing.

• MERCHANT duty - one who REGULARLY deals in goods of the kind involved in the transaction, or who has special knowledge or skill as to the practices or goods involved in the transaction has a duty of honesty and observing reasonable commercial standards of fair dealing

• NON-MERCHANT duty - Implied obligation of good faith.

Under the UCC, define an OFFER by briefly discussing the requirements of the following points:

• FORMATION

• GAP FILLERS

• MISSING TERMS

  • Course of performance

  • Course of dealing

  • Usage of trade

• FIRM OFFERS

• FORMATION - Sale of goods may be made in any manner sufficient to indicate a contract has been made.

• GAP FILLERS - UCC will imply all open terms EXCEPT quantity

• MISSING TERMS

  • Course of Performance: Pattern of previous conduct under current or more than 1 performance under previous contract, at least one performance has been completed without objection

  • Course of Dealing: Pattern of previous conduct under prior contracts establishing bases for interpretation of current actions

  • Usage of Trade: Customarily observed practice within trade, vocation or locale

• FIRM OFFERS - One party has PAID for an option, OR MERCHANT signed offer stating it would remain open but in NO event longer than THREE months.

Under the UCC, what are the HIERARCHY of terms - where the highest term prevails when conflicting? (W-O-P-D-T-G)

• EXPRESS WRITTEN

• EXPRESS ORAL

• COURSE OF PERFORMANCE

• COURSE OF DEALINGS

• USAGE OF TRADE

• GAP FILLERS

ACCEPTANCE: Under the UCC, unless unambiguously indicated by language or circumstances, an OFFER to make a contract shall be construed as inviting acceptance in any manner and by any medium ____________ under the circumstances.

Reasonable

Under ACCEPTANCE under the UCC, discuss OFFER FOR PROMPT SHIPMENT

• ORDER to buy goods for prompt or current shipment is construed as inviting acceptance by prompt promise to ship or act of shipment.

• A shipment of nonconforming goods can either be an acceptance and a breach or a counter offer:

  • I.E. - Shipment of nonconforming goods accompanied by notice that goods are accommodation, no contract forms and is a counter offer.

  • I.E. - If nonconforming goods are merely shipped, it is both an acceptance and a breach.

Under ACCEPTANCE under the UCC, discuss DIFFERENT or ADDITIONAL terms in acceptance by covering:

• DEALINGS BETWEEN MERCHANTS (Battle of the Forms)

• SPLIT OF AUTHORITY (Master of Offer vs Knockout Rule)

• Dealings BETWEEN NON-MERCHANTS

• CONTRACT BY CONDUCT

• DEALINGS BETWEEN MERCHANTS: If BOTH parties are merchants, MAJORITY says additional or different terms automatically become part of the contract unless:

  • Offer expressly limits acceptance to terms of the offer

  • Additional or different terms are a material alteration

  • Original offeror notifies offeree that he objects to additional/different terms within reasonable period of time

• SPLIT OF AUTHORITY:

  • MASTER OF OFFER: DIFFERENT terms NEVER become part of the contract UNLESS expressly assents

  • KNOCKOUT RULE: Different terms do not become part of contract and KNOCKOUT and UCC implied terms replace.

• Dealings Between NON-MERCHANTS: If EITHER or BOTH parties are non-merchants, additional or different terms NEVER becomes part of contract UNLESS offeror consents expressly.

• CONTRACT BY CONDUCT: Conduct which recognizes existence of contract for sale even if writings do not establish a contract.

Under the UCC, discuss CONSIDERATION as it relates to the following three items:

• MODIFICATION

• MERCHANTS FIRM OFFER

• ILLUSORY PROBLEMS

• MODIFICATION - Consideration NOT required as long as parties act in GOOD FAITH. Oral modification effective unless falls within Statute of Frauds.

• MERCHANTS FIRM OFFER: One party has PAID for an option, OR MERCHANT signed offer stating it would remain open but in NO event longer than THREE months.

• ILLUSORY PROBLEMS: Court will imply good faith in dealing for seller and buyer.

Under the UCC, the STATUTE of FRAUDS applies to WHAT items and WHAT dollar amount or more and requires a SUFFICIENT _____ which is defined as:?

• GOODS $500 or MORE

• Requires SUFFICIENT MEMORANDUM which contains THREE ELEMENTS:

  • IDENTIFY SUBJECT MATTER of contract

  • SHOW a CONTRACT was MADE

  • STATE essential terms with REASONABLE CERTAINTY signed in writing by party to be charged.

• The writing can be any form and doesn't need to be a formal contract, but it must contain enough information for the court to understand the agreement's core aspects without relying heavily on oral evidence. 

Per the STATUTE OF FRAUDS, under the UCC, a contract for the sale of goods totaling $500 or more must be in writing to be enforceable. HOWEVER, there are FIVE EXCEPTIONS (PP-PP-SG-PTA-EST) what are they?

• PARTIAL PERFORMANCE - If not in writing but partially performed, accepted potion is enforceable

• PARTIAL PAYMENT - If not in writing but party has accepted payment, enforceable to extend of the payment

• SPECIALLY MANUFACTURED GOODS - Custom made goods not suitable for resale, and maker begins creation/procurement before buyers repudiation

• PLEADING AND TESTIMONIAL ADMISSIONS - If someone admits that there was a contract, either in their formal court documents or in their spoken testimony, that contract can be enforced against them limited to the quantity admitted

• ESTOPPEL - Detrimental reliance & enforcement to prevent injustice.

Under the UCC, defenses include the STATUTE of FRAUDS, UNCONSCIONABILITY, and the PAROL EVIDENCE RULE. The SOF as a defense under the UCC is discussed on flashcard 63. Discuss UNCONSCIONABILITY and the PAROL EVIDENCE RULE within the UCC.

Under UCC UNCONSCIONABILITY, there would be NO reasonable commercial purpose to enforce oppressive terms and a court may refuse to enforce all or part of the contract

Under the UCC PAROL EVIDENCE RULE, the UCC rejects assumption that a writing by itself is final and instead the COURT must FIND that the parties INTENDED the writing to be the complete statement of the terms of their agreement BEFORE parol evidence may exclude extrinsic evidence.

• Contract may be explained or suplemented by parol evidence for COURSE OF DEALING, COURSE OF PERFORMANCE, or TRADE USAGE

Under the UCC, discuss the two types of warranties including merchantability and fitness

• EXPRESS WARRANTY

  • When seller represents to purchaser about the product involved and buyer relied on the representation. Privity has been eliminated modernly

  • Damages include personal, property, and ECONOMIC LOSS. Puffing is a defense.

• IMPLIED WARRANTY

  • Warranty IMPLIED in LAW from Seller to Buyer - privity required against the manufacturer but NOT the retailer unless product is inherently dangerous or is food.

  • MODERNLY manufacturer is liable even to a bystander if within FORESEEABLE SCOPE of use.

  • IMPLIED WARRANTY OF MERCHANTABILIY - unless excluded or modified, is a warranty that goods shall be merchantable if seller is a MERCHANT in goods of that kind

    • MERCHANTABILITY means to be of FAIR AVERAGE QUALITY, FIT FOR ORDINARY PURPOSE, ADEQUATELY CONTAINED, CONFORM TO ANY PROMISE MADE ON CONTAINER, and RUN WITHIN PERMITTED VARIATIONS.

  • IMPLIED WARRANTY OF FITNESS FOR BUYERS INTENDED USE

    • Unless excluded or modified, exists if SELLER has REASON to know buyers special purpose for goods AND reason to know buyer is RELYING on SELLER to select or furnish suitable goods for special purpose.

Under the UCC, may all warranties be disclaimed (excluded) by stating “as is” or “with all faults”?

Yes

Under the UCC, must a disclaimer of an IMPLIED warranty of fitness for intended use be in writing and conspicuous?

Yes

Under the UCC, must a disclaimer of implied warranty and merchantability use the word “merchantability” and be conspicuous if in writing?

Yes

T/F : Under the UCC under BREACH OF WARRANTY actions, after goods are accepted, buyer must notify seller of any breach discovered within a reasonable time after discovered or SHOULD have discovered or else he will be barred from remedy.

True

Under the UCC under WARRANTIES of TITLE, does a seller automatically warrant that he has good/rightful title (unless buyer is aware)?

YES - disclaimer must be conspicuously and specifically expressed

Under the UCC, does a MERCHANT SELLER automatically warrant that goods are free of third party claims of patent or trademark infringement?

YES - disclaimer must be conspicuously and specifically expressed

Under UCC BREACH, what is the PERFECT TENDER RULE?

• IF GOODS or TENDER of DELIVERY FAIL in ANY RESPECT to CONFORM to the contract,

• BUYER MAY REJECT THE WHOLE, ACCEPT THE WHOLE, or ACCEPT ANY COMERCIAL UNIT(S) and REJECT the REST.

Under UCC BREACH, under BUYERS REJECTION, discuss:

• TIME for REJECTION

• BUYER DUTIES AFTER REJECTION merchant vs non merchant buyer

• SELLERS CURE RIGHT

• INSTALLMENT CONTRACTS

TIME FOR REJECTION: Rejection must occur within reasonable time after delivery

BUYER DUTIES AFTER REJECTION:

• NONMERCHANT buyer - After rightful rejection, buyer in possession must hold with reasonable care for time sufficient to permit seller to remove them

• MERCHANT buyer - After rightful rejection, buyer in possession must follow reasonable instructions received from the seller with respect to the goods. Without instruction, buyer must make reasonable effort to sell goods if they are perishable of decline in value quickly.

SELERS CURE RIGHT:

• IF time for performance as NOT expired, and SELLER promptly notifies intent to cure, buyers remedies are suspended until law date

• IF time for performance HAS expired, seller may give reasonable time to cure if seller had reasonable grounds, and must promptly notify intent to cure. Buyer’s remedies suspended until reasonable time to cure passes.

INSTALLMENT CONTRACTS:

• PERFECT TENDER RULE does NOT apply to installment contracts, and therefore buyer usually may not cancel entire installment contract because one or more are nonconforming.

  • HOWEVER, if nonconformity in one or more installments substantially impairs value of the entire contract, may be major breach and may cancel the whole contract

Under the UCC, WHAT ARE THE BUYERS REMEDIES PRIOR TO ACCEPTANCE?

(C-R-SP-GW-HG)

• CANCEL

• RECOVER damages based on difference between contract price and market price

• Bring action for SPECIFIC PERFORMANCE(Replevin) for UNIQUE CHATTEL

• If GOODS WARRANTED, damages are difference between value as accepted and warranted value

• May HOLD nonconforming GOODS as security for damages.

Under the UCC, what are the BUYERS REMEDIES AFTER ACCEPTANCE?

BL-BN-I-RA

• BUYER LIABLE for contract price less damages for defective goods

• BUYER must NOTIFY seller of any deduction in contract price. Damages is difference between value of goods accepted and value they would have had if they conformed plus incidental damages, less expenses saved in consequence of seller’s breach

• If a BUYER has already PAID for some or all of their goods, they can get those specific items back from the INSOLVENT seller if all of the following are true: 

  • The exact goods for their contract have been set aside or marked.

  • The buyer pays the seller any remaining amount owed for the goods.

  • The seller became unable to pay their debts (insolvent) within 10 days of receiving the buyer's first payment. 

• REVOCATION of ACCEPTANCE - buyer may revoke acceptance of goods if nonconformity substantially impairs their value if buyer had reasonable expectation of prompt cure or defects were latent. Notice must occur within reasonable time after discovery of defect.

Under the UCC, what are the SELLER’s REMEDIES PRIOR TO ACCEPTANCE

CC-WD-SG-RGRD-RDN-SfP-UGI

• CANCEL the CONTRACT

• WITHHOLD DELIVERY

• STOP GOODS IN TRANSIT

• RESELL GOODS AND RECOVER DAMAGES BASED ON DIFFERENCE BETWEEN RESALE AND CONTRACT PRICE PLUS INCIDENTAL DAMAGES - must be good faith

• RECOVER DAMAGES for NONPERFORMANCE based on difference between contract and market price + incidental damages.

• SUE for PRICE where resale not possible

• If UNFINISHED GOODS INVOLVED, may FINISH, RESELL, or STOP manufacturing and sell materials as scrap

Under the UCC, what are the SELLER’s REMEDIES AFTER ACCEPTANCE

• ACTION for PRICE PLUS incidental damages for goods accepted by buyer

• RECLAMATION of goods when BUYER is INSOLVENT

  • Seller may refuse or stop delivery and reclaim goods upon 10 day demand, or immediately reclaim if insolvent upon delivery. Right to reclaim is lost if not demanded within 10 days if buyer goes into Bankruptcy

Under the UCC, may a seller retain a buyers deposit?

Yes, in the sum of the enforceable liquidated damages OR the lesser of 20% of purchase price or $500

T/F: Under the UCC, LIQUIDATED DAMAGES are the FAIR APPROXIMATION of the anticipated HARM caused by the breach or if inconvenient to obtain a remedy

True

Under the UCC - what is the STATUTE of LIMITATIONS for ORAL and WRITTEN CONTRACTS for when a claim can be brought after the breach occurs?

FOUR YEARS

HAVING FOUND A CONTRACT, you must ask if it raises RIGHTS in a THIRD PARTYY. What is the MNEMONIC for THIRD PARTY BENEFICIARY?

DOES PUBLIC INTERCOURSE CAUSE V.D.

HAVING FOUND A CONTRACT, you must ask if it raises RIGHTS in a THIRD PARTYY. What does the MNEMONIC for THIRD PARTY BENEFICIARY DPICVD stand for?

Define

Privity

Intent to Benefit

Classification

Vesting

Defenses

In a contract, define in one sentence what a THIRD PARTY BENEFICIARY is?

Third party beneficiary is one who performance by the promisor will benefit a third party AND his status arises at the formation of the contract

In a contract in the context of a THIRD PARTY BENEFICIARY, define in one sentence what PRIVITY means

Third party contractual relationship required to have standing to sue. (Exception to promise to repay a debtor’s obligation to a creditor in consideration for a sum of money received from the debtor)

In a contract in the context of a THIRD PARTY BENEFICIARY, INTENT OF PROMISEE TO BENEFIT means what?

• Identification of the intended beneficiary

• The promisee’s intent undertaken to benefit the beneficiary

• What facts support intent?

In a contract in the context of a THIRD PARTY BENEFICIARY, what does it mean ti “Classify the Beneficiary?”

• To ask WHAT was the INTENT of the promisee at the time he made agreement with promisor?

  • (Intended beneficiary) A creditor relationship? (Promise to discharge a debt)

  • (Intended beneficiary) Donee relationship? (Donee = intent to make gift to beneficiary)

  • Incidental beneficiary? (Third party who stands to benefit from performance but is neither a donee or a creditor)

  • Restatement classifies creditors AND donee’s as incidental beneficiaries

In a contract in the context of a THIRD PARTY BENEFICIARY, what does it VESTING mean AND for the FOUR types of beneficiaries (CREDITOR-DONEE-INTENDED-INCIDENTAL) what are

• Vesting = when the beneficiary assents to the promise, materially relies on it, or brings a lawsuit to enforce it. Once vested, the original parties can no longer modify or cancel the contract without the beneficiary's consent. However, jurisdictions vary on when third party rights VEST as defined below:

• For CREDITORS

  • MAJORITY: Notice & Assent

  • MINORITY: In reliance or files suit

• For DONEE

  • MAJORITY: Notice & Assent

  • MINORITY 1: Materially changes in reliance

  • MINORITY 2: Upon formation of contract

• For INTENDED

  • Assents, brings law suit to enforce, or reliance

• For INCIDENTAL

  • No rights

In a contract in the context of THIRD PARTY BENEFICIARIES, what are the two defenses a PROMISOR can assert in a BENEFICIARY v. PROMISOR situation?

PROMISOR can assert:

• TERMINATION OF CONTRACT via mutual mistake, fraud etc

• LACK OF FORMATION via consideration etc

In a contract in the context of THIRD PARTY BENEFICIARIES, BENEFICIARY v. PROMISEE what rights do DONEE’s have versus CREDITORS?

• DONEE’s have NO RIGHTS and promisee under NO obligation to perform to the beneficiary

• CREDITOR only has rights to ORIGINAL OBLIGATION - 3rd party contract does not give creditor new rights against promisee.

In a contract in the context of THIRD PARTY BENEFICIARIES, PROMISEE v. PROMISOR, if the promisor fails to perform, what rights does a CREDITOR beneficiary have versus a DONEE beneficiary?

• Creditor beneficiary contract - Since promisee is injured, debt still exists - majority says promisee and beneficiary have cause of action against promisor.

• Donee beneficiary contract - Since promisee not subject to pecuniary damage, can still sue for specific performance to prevent unjust enrichment.

In a contract, ASSIGNMENT (rights) involves an Assignee and a Delegee. MATCH the below definitions with the type of PARTY

Obligor, Obligee

Delegor, Delegee,

Assignor, Assignee,

Party transferring rights =

Designated recipient =

Party transferring duties =

Party performing duties =

If one's performance is subject of assignment =

If one's right is to receive performance of delegation =

Party transferring rights = Assignor

Designated recipient = Assignee

Party transferring duties = Delegor

Party performing duties = Delegee

If one's performance is subject of assignment = Obligor

If one's right is to receive performance of delegation = Obligee

In a CONTRACT the concept of ASSIGNMENT has a useful MNEMONIC to remember its parts. What is the MNEMONIC and what does it stand for?

DPRAVED

Define

Privity

Right Assignable

Effect of valid assignment

Defenses

In a CONTRACT the concept of ASSIGNMENT uses the MNEMONIC DPRAVED with the D standing for “Defined.” DEFINE “ASSIGNMENT”

• To assign contract rights, assignor must sufficiently describe those rights and indicate a present intention to DIVEST himself completely and set them up EXCLUSIVELY to the assignee. Must not be supported by consideration.

In a CONTRACT the concept of ASSIGNMENT uses the MNEMONIC DPRAVED with the P standing for “Privity.” Is PRIVITY required for ASSIGNMENT?

No, privity is not required for ASSIGNMENT.

In a CONTRACT the concept of ASSIGNMENT uses the MNEMONIC DPRAVED with the “RA” standing for “Is the RIGHT ASSIGNABLE? What is the general rule regarding rights assignable?

Generally, law FAVORS free assignability of contractual rights.

However, assignment DENIED IF it would MATERIALLY vary the risk or duty of the oligor such as in a personal service contract (unique/personal skill/service) OR if prohibited by contract or by statute.

In a CONTRACT the concept of ASSIGNMENT uses the MNEMONIC DPRAVED with the “V” standing for “Valid present assignment? What does this mean?

• Courts require a PRESENT INTENT to transfer an existing contractual right.

  • Note - At COMMON law, PARTIAL ASSIGNMENTS are VOID but at MODERN law, VALID.

In a CONTRACT the concept of ASSIGNMENT uses the MNEMONIC DPRAVED with the “E” standing for EFFECT of VALID ASSIGNMENT. What is the meaning of this?

• This simply means that ASSIGNEE has the SAME RIGHTS as the ASSIGNOR under contract.

In a CONTRACT the concept of ASSIGNMENT uses the MNEMONIC DPRAVED with the “D” standing for DEFENSES to an assignment. What is the GENERAL RULE regarding defenses in ASSIGNMNENT in OBLIGOR vs ASSIGNEE?

• GENERAL RULE: OBLIGOR may ASSERT all defenses which would have been available against the assignor if there had been no assignment, so long as defenses are based on FACTS which AROSE PRIOR to time OBLIGOR acquired the notice of assignment.

In a CONTRACT the concept of ASSIGNMENT, what is a Sub-Assignment?

• The TRANSFER by one who is himself ASSIGNEE of the RIGHT to ANOTHER.

  • Assignee steps into shoes or original assignor.

In a CONTRACT the concept of ASSIGNMENT, the RIGHTS of SUCCESSIVE ASSIGNEES means that a subsequent assignee for consideration will prevail over an oral gratuitous assignment for valuable consideration. An assignor assigns the same right to multiple assignees. The primary test is to determine if the assignees have equal equity. What happens if all parties have equal equities?

• First in time prevails

• Minority (CA) - First to give notice to obligor

• Note - if present assignment irrevocable and no consideration was given, it make be revoked by will of assignor or is revoked by death or assignor or subsequent assignment of same right for consideration or notice of revocation, bankruptcy, or full performance by obligor to assignor. These are known as “Conduct manifesting revocability)