Interpretation of Terms
Under the UCC and CL, what is the rule about modification after a contract has been formed?
UCC - no consideration needed if the modification was made in good faith
CL: the modification must be supported by consideration
What is a third-party beneficiary contract and what are the types of beneficiaries?
A third party contract results when parties to a contract intend that performance by one of the parties will benefit a third person who is not a party to the contract.
Intended beneficiary - contractual intent to benefit a third party (right to enforce the contract).
Incidental beneficiary - benefits from the contract even though there is no contractual intent to benefit that person (no rights to enforce the contract).
Creditor beneficiary - arises when a promisee strikes a seal with the promisor in order to repay some earlier debt to the third party (right to sue either the promisor or promisee to enforce the contract).
Donee beneficiary - if the pormisee entered into the contract to confer a gift on a third party (right to sue the promisor).
What are the types of conditions?
Express - are established/ created by the language in the contract (only if, on the condition that, provided that). These conditions must be strictly satisfied unless the condition is somehow excused (substantial performance will not suffice).
Implied - conditions that are deemed to be part of the contract (substantial performance is all that is required to satisfy an implied condition).
Implied in fact conditions - conditions because the nature of the agreement suggests that the parties truly intended the conditions but failed to expressly include them.
Implied in law conditions - constructive conditions are supplied by a court if reasonable under the circumstances (ex. duty of good faith and fair dealing).
What is the doctrine of frustration of purpose?
The doctrine of frustration of purpose applies when an unexpected event arises that destroys one party's purpose in entering into the contract, even if performance of the contract is not rendered impossible. The event that arises (1) must not be the fault of the frustrated party and (2) its non-occurrence must have been a basic assumption of the contract.
What is the CL substantial performance rule?
Substantial performance is the completion of all but the nonmaterial terms of a contract. A party who substantially performs in good faith can recover on the contract even though the party has not rendered full performance.
What is the PE rule?
Prior or contemporaneous statements are inadmissible to alter the terms of the writing if the parties have reduced their agreement to a writing and the writing is intended as a final integration.
Completely integrated - complete and exclusive statement of terms of agreement and discharges prior agreements within scope.
Partially integrated - not an expression of all terms only discharges prior agreements to the extent that the prior agreement is inconsistent with the written agreement.
When have an intended beneficiary's rights vested?
1. Materially changes position in justifiable reliance on the rights created;
2. Manifests assent to the contract at one party's request; or
3. Files a lawsuit to enforce the contract
Once the beneficiary's rights have vested, both original parties to the contract are bound to perform the contract. Any recission or modification must be agreed to by the third party.
What are the various timings of conditions?
Precedent - the condition precedes the obligation to perform.
Subsequent - the condition excuses the duty to perform after a particular event occurs.
Concurrent - each party's duty to perform is conditioned on the other party's duty to perform. These conditions effectively require each party to perform simultaneously.
What is novation?
Novation - the substitution of a new contract for an old one when the original obligor is released from his promises under the original contract.
How does a court determine whether a breach is material v. minor?
Material breach - the nonbreaching party does not receive the substantial benefit of its bargain. The nonbreaching party does not need to perform and can pursue remedies for the breach, including damages.
Minor breach - breaching party has substantially performed. If a breach is minor, the nonbreaching party may be able to recover damages, but that party still must perform under the contract.
Most jurisdictions use the five pronged test: (1) the degree to which the breach deprives the other party of the benefit she reasonably expected, (2) the extent to which that party can be compensated for that deprivation, (3) the extent to which the breaching party will suffer forfeiture, (4) the likelihood that the breaching party will cure the breach, and (5) the extent to which the breaching party has acted in good faith.
How does a court interpret the meaning of a word in a contract? What if it is ambiguous?
Evidence may be admitted to interpret or clarify an ambiguity in the agreement. This can include evidence of trade usage or a course of dealing or performance.
Plain meaning rule - the objective definitions of contract terms control the meaning of the contract.
Course of performance - sequence of conduct that is relevant to understanding an agreement between parties if the agreement involves repeated occasions for performance by a party and the party accepts performance without objection and with knowledge of the course of performance.
Course of dealing - sequence of conduct concerning previous transactions between the parties that can reasonably establish a common basis to interpret their conduct.
Trade usage - any practice or method of dealing in the particular business or industry that is used with such regularity as to justify an expectation that it will be used in the instant case.
Define assignment and delegation.
Assignment is the transfer of rights under a contract. Almost all contract benefits can be assigned, in whole or in part, unless material alter duty or risk or prohibited by law/contract.
Delegation is the transfer of duties and obligations under a contract. This is not permitted when a party to the contract has a substantial interest in having the delegating party perform or the delegation is prohibited by the contract.
What test do you apply to determine if a condition has been satisfied?
Usually an objective test - whether a reasonable person would be satisfied.
Contracts based on aesthetic taste use a subjective test - if the party is honestly dissatisfied, even if the dissatisfaction is unreasonable, the condition has not been met. The party's dissatisfaction must be in good faith.
What is recission and release?
Recission is the act of cancelling a contract and placing the parties as close as possible to their original positions before the contract was formed. Recission of a contract can occur by the mutual agreement of the parties.
Release is a writing that manifests intent to discharge another party from an existing duty. CL generally requires consideration and UCC no consideration is required.
What is the UCC risk of loss rule?
In noncarrier cases, if the seller is a merchant, the risk of loss stays with the seller until the buyer receives the goods. If the seller is not a merchant, the risk of loss moves to the buyer when the seller tenders the goods.
If it was a shipment contract, then the risk of loss during delivery rests with the buyer.
If it was a destination contract, then the risk of loss during delivery rests with the seller.
Define the types of warranties in sale-of-good contracts.
Express warranty - Any promise, affirmation, description, or sample that is part of the basis of the bargain unless it is merely the seller's opinion or commendation of the value of the goods.
Implied warranty of merchantability - implied whenever the seller is a merchant. To be merchantable, goods must be fit for their ordinary purpose and pass without objection in the trade under the contract description.
Implied warranty of fitness for a particular purpose - implied whenever the seller has reason to know that: the buyer has a particular use for the goods and the buyer is relying on the seller's skill to select the goods.
What is the difference between a contract that prohibits assignments and one that invalidates assignments?
Prohibits assignments - the assigning party has breached when he makes the assignment, but the third party can still recover from the guarantor.
Invalidates assignments - the third party cannot recover because there is no power or right to assign.
What is an example of excuse for not satisfying conditions because of violation?
Wrongful interference - If a party whose duty is subject to the condition wrongfully prevents or interferes with the occurrence of that condition, then under the doctrine of prevention, the condition is excused, and the party wrongfully interfering has an absolute duty to perform.
What is accord and satisfaction?
Accord and satisfaction are the tender and acceptance of an alternative performance that discharges a contractual obligation.
Under an accord agreement, a party to a contract agrees to accept a performance from the other party that differs from the performance promised in the existing contract.
A satisfaction is the performance of the accord agreement; it will discharge both the original contract and the accord contract. If a party promising a different performance breaches an accord, the other party can sue either on the original contract or under the accord agreement.
What is the UCC perfect tender rule? Discuss the nuances and potential exceptions.
The UCC requires perfect tender (goods must conform in all respects with the contract or with the UCC), and substantial performance will not suffice, except for installment contracts or when the parties agree that it applies. Perfect tender includes time, manner, place, and method of tender.
Installment contracts - one in which the goods are to be delivered in multiple shipments and the buyer is to accept each shipment separately. If the seller makes a nonconforming tender under one segment, the buyer can reject only if the nonconformity substantially impairs the value of that shipment to the buyer and cannot be cured.
If the seller fails to tender perfect goods and time is left on the contract or the seller had reasonable grounds to believe that the buyer would accept a replacement, then the buyer must give the seller a chance to cure.
How/ when can a seller disclaim the above mentioned warranties?
Express - disclaimer clauses that grossly conflict with express warranties are ignored.
Implied warranty of merchantability - use of the term merchantability (if in writing, the disclaimer language must be conspicuous), use of "as is" language, buyer's inspection of goods, course of dealing/trade usage.
Implied warranty of fitness for a particular purpose - general language disclaimer in writing and conspicuous, use of "as is" language, buyer's inspection of goods, course of dealing/trade usage.
After a delegation, what are the rights & responsibilities of the delegator?
When obligations are delegated, the delegator is not released from liability. Recovery can be had against the delegator if the delegatee does not perform, unless the other party to the contract agrees to release that party and substitute a new one (novation).
What are examples of excuse for not satisfying conditions because of waiver?
Waiver - A party can waive the condition by either words or conduct.
Election - A party who continues with a contract after a condition is not met effectively elects to waive that condition as justification for the party's own nonperformance of a contractual duty, although the party may be able to seek damages resulting from the non-occurrence of the condition.
Estoppel - A party who indicates that a condition will not be enforced may be estopped from using that condition as a defense if the other party reasonably relied on the party's words or conduct indicating that the condition had been waived.
Forfeiture - To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the condition unless its occurrence was a material part of the agreed exchange.
What is the defense of impossibility and impracticability? And when is it available?
Impossibility occurs when performance is objectively impossible.
A party's duty to perform can be dismissed by impracticability. Impracticability requires (1) an unforeseen event has occurred, (2) non-occurrence of the event was a basic assumption on which the contract was made, and (3) the party seeking discharge is not at fault.
The defense of impracticability is available if: (1) performance becomes illegal after the contract is made; (2) the specific subject matter of the contract is destroyed; (3) in a personal services contract, the performing party to the contract dies or becomes incapacitated; or (4) performance becomes impracticable.
If a party assumes the risk of an event that makes performance impracticable, then the defense of impracticability will not apply.
What is anticipatory repudiation? What are the options for the non-repudiating party? Can a party seek/demand assurances if they are worried about repudiation?
Anticipatory repudiation refers to words or actions that clearly, voluntarily, and unequivocally indicate a contracting party's intention not to perform or to materially breach the contract before the time for performance arises or elapses.
Repudiation may be retracted until such time as the promisee: acts in reliance on the repudiation, signifies acceptance of the repudiation, or commences an action for breach of contract.
Nonbreaching party's options: (1) treat the repudiation as a breach and sue the promisor immediately; or (2) ignore the repudiation and demand performance. However, when the date of performance has not passed and the promisee has fully performed, the promisee must wait until the promisor's performance is due to file suit (ex. payment of money).
A party can demand assurance of performance if there are reasonable grounds for insecurity about the other party's ability or willingness to perform. Failure to give adequate assurances within a reasonable time can be treated as repudiation (UCC- demand in writing, reasonable time for assurance limited to 30 days).