Contracts Legal Sheet Cheat Sheet 2 68350

I.

GENERAL DEFENSES: IS THERE A K? Mutual mistake §152 1. Mistake is about a basic assumption, has a material effect, party seeking avoidance did not assume the risk 2. Risk(§154) – risk allocated to a party by K, was on party in a better position to know the risk? (Contractor v. homeowner), were parties consciously aware of their ignorance? Must be a mistake not mere uncertainty. 3. If a collectable turns out to be more valuable, courts generally allocated risk to owner/seller they had opportunity to ascertain true value. 4. Mistake in value generally not a defense. B. Misunderstanding 1. Neither party aware of ambiguity – NO CONTRACT, unless both parties intended same meaning 2. Both parties aware of ambiguity – NO CONTRACT, unless both parties in fact intended same meaning 3. One party aware of ambiguity – CONTRACT, K< will be enforced according to intention of party unaware of the ambiguity. C. Misrepresentation (§159-164) 1. If P can show misrepresentation was made prior to g can use to (1) defense in a BoK action, (2) use at grounds for rescission or damages if P. 2. Elements of Proof: a. Other party’s state of mind: doesn’t have to be intentional, can be a negligent, or even innocent misrepresentation if it is a material fact. b. Party must show that he justifiably relied upon the misstatement. c. Misrepresentation must be one of fact not opinion. (this is a reliable car vs. this car gets 30 mpg in city) 3. Can be inferred from conduct; i.e. concealment or non-disclosure may be considered misrepresentation. 4. Fraudulent misrepresentation – K is voidable by innocent party if the fraud was justifiably relied upon. 5. Non-disclosure – generally not justify rescission: a. Non-disclosure w/o concealment usually not a misrep. However, if nondiscloure is material or fraudulent K is void. b. Half-truths; positive concealment; failure to correct past statements; fiduciary relationship; failure to correct mistake 6. Nonfraudulent Misrepresentation a. K is voidable if innocent party justifiably relied on the misrepresentation and it was material. i. Material if: (1)it would induce a reasonable person to agree, or ii. (2) the maker knows for some special reason it is likely to induce that particular recipient to agree, even if a RPP would not. 7. Promissory Fraud – making a promise knowing you can’t keep it, is it mere puffery? Or fraudulent misrepresentation?(Speakers of sport v. proserve) a. Consideration not necessary if facts indicate promisor should be estopped; enforceable if (1) promisor reasonably expected to induce action or forbearance, (2) such action or forbearance is induced b. Remedy – may be limited as justice requires – may only get reliance damages not expectation 8. Remedies – Rescission, and all remedies for breach. Period to bring action for fraud does not run until party knew or should have known of fraud. II. DETERMINATION OF CONTRACTUAL A. General Rules and Maxims of Contract Interpretation 1. Party’s state different meanings(§201, 227) 2. Aiding Interpretation(§202) – 3. §204 1-303(g) – term omitted? Go to supplemental section 4. Course of Performance, course of dealing, usage of trade. (§202(4)228, 1303(d) 13) 5. If “primary purpose” can be found, given great weight 6. interpreted to have reasonably, lawful, effective meaning 7. §206 interpreted against the draftsman 8. Negotiated weighed over ‘standard ’ B. Parole Evidence and Interpretation 1. General and a. Evidence of a prior agreement, written and oral, may never be itted to contradict an integrated writing, and may not add to a fully integrated K. (can still be explained by course of performance, course of dealing, or trade usage, 1-303 13) TU defined §222; CoD defined §223 i. Even with a merger clause CoP, CoD and TU are still issible unless explicitly precluded ii. If promisor knows the promisee doesn’t know a TU term and doesn’t put it in to take advantage. He’s still subject to good faith.1-304 b. Integration(§209) – document is an integration if parties intended it to be the ‘final expression’ c. Partial(§210) – intended to be final but not intended to include all detail. (no evidence that would contradict a term of the K) d. Fully(§210) – intended to be final and all details. (no evidence that would contradict or add to K) e. Ancillary writing – writings at the same time of K are treated as part of K, not subject to Parol. f. Subsequent writings not barred, freedom of K. 2. Determining integration of a term: a. Judges not jury determine integration, two test: b. (1)Four corners – most strict, judge looks at ‘four corners’ of K to determine how complete it is. c. (2)Restatement – you can’t always look just at K. i. If term is a type of thing that would naturally be left out, court may include it ii. Merger clause excluding, collateral agreement? iii. (§214 235) 5 times when evidence is issible + #4 iv. §217 (236) Integrated agreements may be subject to an oral condition v. Trade usage interpretation §220 - TU supplementation §221 3. Explaining a term: up to judge a. New York says: K language means something, its clear enough, don’t need parol evidence A.

b.

California: words do not have fixed meaning, if term is reasonably susceptible to alternative meaning parol evidence is allowed. 4. Evidence outside scope of rule a. Validity issues: P its writing reflects agreement, but it never happened: i. Formation defects(fraud, duress, mistake, and illegality may be shown by extrinsic evidence), ii. Condition Precedent to effectiveness: P asserts there was oral agreement that the K would not become effective until a condition occurred, all evidence of the understanding may be offered and received.(cannot be itted if it contradicts express language in K) iii. Condition Precedent to Performance: An oral agreement that the party would not be obliged to perform until the happening of event. iv. Collateral Agreements: cannot conflict with written integration, (2) concerns subject that a RPP would not ordinarily be expected to include. b. Interpretation: uncertainty, ambiguity, in written or disagreement c. True consideration: K states $10 been paid, can show sum has not C. Omitted supplied by court generally(supplementation) 1. Courts supply a missing term if apparent parties wanted to bind themselves, and reasonable way to formulate the missing term EX: a. Normally supply “duty of good faith”, duty to continue business(excludes requirement and output), cannot arbitrarily terminate franchise or dealership arrangement, minority include prohibition of bad faith termination in at will employment contracts. 2. Implication – process which court supplies term to resolve dispute (2 basis) a. First basis of Implication (1)inference as to actual expectation of parties i. If the court is persuaded that the parties shared a common expectation the court will give effect to that expectation even though the parties did not reduce it to words(implied in fact ) a) Two factors court uses to determine parties expectation: (1)must prove that it would be better, or more sensible, to include the covenant; (2) Prove the particular unexpressed promise sought to be enforced is in fact implicit in the agreement viewed as a whole b. Second basis of implication –How would two reasonable men resolve dispute? “Penalty default rule” designed to give at least one party to the contract an incentive to contract around the default rule and therefore to choose affirmatively the contract provision they prefer. D. Article 2 Provisions for Interpreting Contracts 1. Gap Filler Supplied by UCC for Sale of Goods pg 42 a. “Off rack default ” - Price(2-305), place of delivery(2-308), time of shipment/delivery(2-309), time for payment(2-310), assortment of goods(mixture of blouses+shirts 2-311 43) b. Delivery and Risk of Loss 2-509 pg 68 i. NonCarrier Cases: (1) IF S is merchant, risk of loss es to B only when she takes physical possession of goods; (2) IF S NOT a merchant, risk es to buyer upon tender of delivery.(When S has goods ready at agreed time, if B late something happens B’s loss) ii. Carrier Cases: a) Shipment Contract: K authorizes S to ship, but not required to send to certain destination, risk es to B when goods delivered to carrier b) Destination K: K authorized to deliver at particular destination, can’t just say address, risk -> B when goods tendered to B at destination. c. Common : C.I.F. & C.F.(Cost, ins, freight included in goods) These are always shipment contracts.(2-319-322) pg 52 i. F.A.S. “boat” (free alongside) Risk ->B when goods delivered to Dock ii. F.O.B. (free on board) – FOB always followed by location R->B at named location. Can be either shipment or destination K, depending on place named; S in NY B in GA; FOB NY or FOB “seller’s yard” risk of shipment born by buyer. Same facts but; FOB GA or FOB “buyer’s warehouse” Seller bears risk. 2. Gap filling with Respect to Product Quality(Warranties) a. Caveat Emptor- if K silent to product quality no imposed minimum stand. b. Implied Warranty of Merchantability(2-314 47)applies if S is merchant i. EX: using knife, handle jiggles, you cut yourself. D claimed P ass. risk. a) One court states ass. risk is tort concept and can’t be used, another says even under warranty law, if he sees risk he’s assumed risk (most say assumption of risk can be used as defense. b) Contributorily Negligent: Most courts say D cannot use as defense. c) All courts agree if you misused good, outside its ordinary purpose, then P can’t sue under IWoM 1. Therefore, D say 9/10 P misused property, P says good should be fit for foreseeable uses (standing on chair to change lightbulb) ii. Ordinary purpose: don’t have to show how glass got in pizza, only that pizza is unfit for ordinary purpose c. Implied Warranty of Fitness (2-315 48) applies to ANY SELLER i. Burden is on the buyer not the seller to distinguish the particular purpose. Seller does not have to ask. ii. I ask for floor tile, they sell me wall tile, I slip and fall. IWoF iii. Elements: (1) Does seller have ‘reason to know’ of the use for which goods are purchased; and (2)buyer relies on S’s expertise.(hydraulic) d. Warranty of Title(2-312) – no quality warranty, but not stolen free title e. Express Warranties – (2-313 45) affirmation, description, formal not nec. i. Usually express warranties sueing manufacturer not seller, swing from Cotsco(they deal in goods of kind IWoM), they go out of business, can still sue manufacturer under IWoM and Express warranty ii. Can be given by any seller. f. Exclusion or modification of warranties i. 2-316 49 – writing and conspicuous, exclusions listed; examine good? ii. 2-719pg103 – we’d rather fix it than give money back. iii. 2-318 - third party beneficiaries extends to household a) If suing seller no problem, if going after manufacturer, they argue we didn’t sell it to you there is no IWoM.(That only works if there is no express warranty). May not be able to get them under implied warranty, but can under torts product liability.

III.

LIMITATIONS ON BARGAIN AND PERFORMANCE 3. Courts reluctant to reward breaching party, but if divisible can recover, if can’t ADHESION CONTRACTS AND UNCONSCIONABILITY under K ->restitution->quantum meruit 1. 1-304 15 and 1-201(19) Duty to operate in good faith.++++ D. Separate Contracts – failure of one doesn’t mean I can breach others a. Honesty in fact and observance of reasonable commercial standards. 1. However can seek adequate assurances §2-609 80 b. Each party is required to behave in a way consistent with other party’s E. Repudiation/Anticipatory Repudiation-party says cannot or will not perform reasonable expectations on how the K will work. 1. Non repudiator can suspend his own performance c. Can’t sue someone for breach of good faith. Floor % sales lease example. 2. When statement/act is repudiation §250 250 and §251 2. §211 pg 233 standardized agreements; and (1) does not fall within the a. Vague doubts not enough, need clear indication of intention/or conduct reasonable expectations of the weaker or "adhering" party will not be 3. 2-609 80 - If just whining/feels insecure can seek adequate assurance enforced against him; “should only be bound by negotiated and reasonable 4. IF party insists on performance it does not waive right to get damages ”; (2) even if consistent with the reasonable expectations of the parties, 5. Generally can sue before repudiator’s time for performance has arrived will be denied enforcement if, considered in its context, it is unduly oppressive a. Cannot wait just to increase damages, must be reasonable time/cover or "unconscionable." b. If painter fully performs has to wait for payment time to , if he has only 3. Additional steps to avoid: (1) show K was an adhesion K; (2) K, or clause, substantly performed and payer repudiates can stop performance and sue. violates reasonable expectations or is unconscionable Unless, Acceleration clause, installment loans, immediately due/nonpay a. Reasonable expectations: RPP in P’s position burden 6. 2-611 83 – if no reliance/final act can retract repudiation 4. Tickets and Psuedo-Contracts: is it conspicuous? §1-201(10) pg 5 a. Final acts – 1. Sues for breach;2. Reliance; 3. Stating repudiation is final a. Refusal to enforce especially likely where non-draftor doesn’t realize he’s 7. 2-713 99 Buyers Damages for Repudiation or non-delivery by seller entering into a K, sporting, drycleaner etc F. Impracticability – when not impossible but different K b/c impracticable b. Enforced if: (1) purchaser signs or shows consent to of ticket, (2) 1. Need a contingency; before go through analysis did K deal with the problem? person had reason to believe such tickets regularly used to contain those 2. If parties expressly allocated risk it controls not imposs,imprac, or frust. contractual . a. can be express or implied in the agreement or custom c. If found enforceable courts generally strike unreasonable . b. For sale of goods and who has risk look delivery supra d. But, if it is something to be reasonably expected: its enforceable 3. Cost alone doesn’t render impos/impract; exceptions 2-615 pg 87 5. Unconscionability; sale of goods only (2-302 36) 4. §261 255 §266 – was the impracticability/imposs reasonably foreseeable a. Generally based on (1) flaw in the process and(2) gross unfair term 5. 269 256 – temporary imprac/imposs a person contracted to act then drafted. b. Hard to enforce, raised a lot like insanity defense, usually unsuccessful G. Impossibility – both parties are discharged 3 Main Types c. Two types: procedural, unfair process; substantive, unfair outcome(price) 1. First ask; problem foreseen, did it render perf. Imposs, N E party assum risk i. Procedural most common; substantive rarely based on price 2. Destruction of subject matter – particular tangible thing, building, goods, etc. alone(courts don’t look at adequacy of consideration) a. Part. Subj. matt. must be essential to performance/specifically referred to ii. Man buys boat for 18k, sees another 7k. says deal was procedurally b. Building new home, burns down, doesn’t count/repairing old one does unconscionable; right to assume price would be competitive and c. Sale of goods – General Rule 2-615(a), basic assump. Those part. Goods dealer made an implied misrepresentation. d. 2-613 85 Identified goods– if destroyed before risk ed to buyer, its IV. CONDITIONS, PERFORMANCE, AND BREACH discharged. A. Condition(promise modifier) – event must occur before performance is due. e. Unidentified – if general inventory can’t use imposs, result depends on if a 1. Sailor might have a duty to sail on next wind, or make it a condition for 10% mo shipment or destination contract. 2. Implied conditions I’ll paint your house if you pay me 10k. Courts imply if you 3. Non-essential mode of perf – means of delivery or payment method, will not don’t paint my house I don’t pay. be discharged, a commercially reasonable substitute will be used. a. IF you substantially perform I have to pay, unless material breach. 4. Death or Illness – Does performance require that specific person? 3. Express conditions: condition precedent(I’ll buy house if I get financing); H. Frustration of Purpose – think renting house for masters then gets canceled concurrent condition(Cash on delivery);condition subsequent(once you 1. Not saying can’t perform(imposs/imprac), but it makes no sense to perform perform I’ll pay; financing condition(there to protect B, S can’t use to get out) 2. Factors: Foreseeability and totality of the frustration a. If condition is satisfaction, objective is presumed unless otherwise stated 3. NOTIFICATION OF DELAY – 2-616 89 4. Strict compliance for express, substantial compliance for implied. V. REMEDIES 5. Satisfaction clause - When you have a satisfaction clause is it subjective to A. Equitable Remedies; Specific performance and Injunction the person, or whether a reasonable person would be satisfied. They apply an 1. Specific performance – court makes them; Injunction – court stops them objective test when it is dealing with commercial value, quality, operative 2. Limitations on equitable relief (generally doesn’t apply to service K) fitness, or mechanical ability it is the RPP test. If it involves fancy, taste, or a. Inadequacy of damages - $damages inadequate to protect injured party judgment then the courts supply the subjective test. i. Reasons: injury cannot be estimated with sufficient certain; or money 6. Waiver and excuse of conditions(does not require reliance) cannot purchase a substitute for the contracted performance a. Hindrance – party’s duty conditioned on event and their wrongful conduct ii. Cotton crisis – make an insolvent seller deliver instead of $ remedy prevents condition, non-occ. of conditioned is excused. Still must perform. b. Definiteness – K’s must be definite enough to create adequate order b. Causality/constructive waiver– IF p failed using reasonable efforts to c. Difficulty of enforcement – do not want to enforce or supervise the order cause condition to be satisfied, condition won’t be excused unless P failure B. Expectation Damages –put P same position as if K had been performed. to make effort substantially contributed to non-occurrence of condition. 1. Generally - §347 280 – More supply? Lost volume c. Waiver – P can waive a condition, court likely to find if minor condition. 2. Limits: Avoidability §350282 and 2-70491; i. P continues own performance after learning of failed duty, likely to Foreseeability §351, Uncertainty §352; Cover 2be considered a waiver of the failed duty. 71298; Emotional Distress §352 ii. Waiver of a similar condition generally will not waive all of later 3. May get Incidental When Seller 2-706 or Buyer 2-715 conditions, unless P accepts several similarly defective performances 4. May get Consequential if really upset or you knew I needed it, §2-715100 without objection. a. Some courts say if 1/30chance winning contest get 1/30 damages iii. Can be retracted up until other P has not detrimentally relied on it. 5. Liquidation §2-718102 - buyer breach wants money back, or supply>demand B. Performance and Breach 6. Diminution in value §348 281 – Do you get cost of repair or loss of value? 1. Timing – performance requiring time must generally occur first, Service K. a. To show loss – get construction experts, cost of repair easier to show than a. §2-507 66 – concurrent timing delivery and payment, 2-508 seller’s cure value, hard to show with reasonable certainty, clearly disproportionate? for improper delivery or tender b. Applied when – defect is minor and remedy would involve ‘economic 2. Substantial performance – (means no material breaches §241 246) waste’ i.e. destroying something already done, tearing down a wall etc. 3. Breach of conditions - §225 239; possible forfeiture exception They give cost on little things but diminution on big things. If enough little §229 things may add up to just cost of repair..hard to know value lost. a. Substantial performance means no material breach; i.e. if they don’t i. One side says, it was important he did it willfully, other side says, completely follow specs can get damages not forfeit K. If can’t get K ->b wasn’t on purpose, doesn’t affect value, its windfall, award loss of valu. b. Confer a benefit? Expect to get paid? Unjustly enriched? Recov. restitution c. Exception to application – P says it was personal vestment and a matter c. §242 248 – Discharge of remaining duties. of personal taste. Don’t’ want to live in a house with wrong tile, or sinks. 4. Breach under UCC “Perfect Tender Rule” 2-601 72 Gen. have right to cure d. Arguments – For; if damage doesn’t affect value, can breach say sorry, but a. Tender still has to conform with TU, industry custom, if 3% breakage is you can’t get cost of repair just loss of value: Against – contractors can be allowed and it is inside 3% still perfect tender. precluded from using diminution by express conditions in K b. PTR subject to diminimus rule – the failure must be ‘substantial’ “T scratch 7. Reasonable certainty is required especially with profits, has to show likely c. 2-612 83 more lenient to installment contracts sub. Impaired not cure amount. Generally won’t award to new businesses, need history. Has to 5. Mechanics of acceptance/rejection, time, inspection, accepted accurately show cost of completion a. If buyer rejects §2-602 73 gives manner and timing of rejection C. Reliance Damages §349 – what P spent in performing or preparing to b. Acceptance? 2-606 reasonable time to inspect goods (sleeping bag 1. Used when expectation cannot be calculated, or when no K but need relief bought in summer) a. Mainly: expectation can’t be computed because P’s lost profits too spec, or c. 2-608 - limited exceptions you can revoke your acceptance(pizza oven) b. When P successfully brings promissory estoppel action d. Revoke acceptance if breach of warranty 2-318 51 (crane on terrain) 2. Limits – usually smaller than actual expenditures; limited by: e. §248 248 – when insufficient reason for rejection is excusable a. K price, cannot exceed expectation damages(burden on D), no 6. Merchant buyer’s duties with rejected goods. 2-603 74 ship back pay cost expenditures prior to g the K. C. Performance on Divisible Contracts – if not the whole, did perform in part? 3. Computation – use cost to P, not value to D 1. Divisible when both parties divided performance into units where each part is D. Restitution §371 – value to D for P’s performance, prevents unjust enrichment compensated for the corresponding part. If performance on parts, then 1. When: (1)non-breach P partly performs then D breaches;(2)breaching P who breach, can still get paid for parts performed. has not substantially performed may bring quasi-K suit recover unjust 2. Must show agreed equivalents, installment contracts are not necessarily enrichment. (not limited by K price like relian.& expec.) can’t use if P fully perf. divisible. Have to pay workers etc. However, if consideration is paid in one sum 2. Based on market value. How much would D have to pay to get that service? K is held to be entire, although K may be itemized into wholly distinct category A.

3. Losing Contracts: if you sue in expectation, tough to show how much you would have made; if reliance – get paid for what you’ve spent, but have to deduct what you would have lost; if restitution