THE LAW OF CONTRACTS

COMMON LAW UCC

Services, Real Sales of Goods & Leases of Goods
Governing Law
Estate, Insurance, (Common Law subordinate to UCC; UCC
Employment, subordinate to terms specified in contract)
Other not governed by statute Elements of a Contract
AGREEMENT: OFFERS; ACCEPTANCE OR TERMINATION DETERMINATION OF TYPE OF CONTRACT & PARTIES
AGREEMENT Sale of Goods Lease of Goods
OFFER MADE Consumers
UCC Art. 2; CISG (Intl) UCC Art. 2A
Offer: Acceptance:
YES: Serious intent Unequivocal Timely (mailbox rule)
Offer is Detrimental Reliance: Clear & definite terms Silence: knowing accept. / prior dealing
Merchants either: (1) Deal Finance Lease: Consumer Lease req:
Irrevocable? - Promissory Estoppel Communicated to offeree Communication (if bilateral)
in type of goods involved in lessor buys from (1) Lessor who regularly
- Partial Performance transaction, (2) Represents supplier & leases to engages in leasing/
YES: CONSIDERATION CAPACITY self as knowledgeable, or lessee; obligations selling; (2) Personal/
Option & No (3) Employs a merchant as irrevocable for family lessee; (3) Total
RE Option Legally sufficient value Minors Intoxication a broker lessee payments < $25K
Contracts Offer Revoked Promise to do sth one has no prior Contract voidable Voidable if
commitment to do (disaffirmance) person could not
Offer Terminated by Law: Performance of an action one is not Except: marriage, comprehend
Death of Party / Destruction of Prop. AGREEMENT: OFFER, TERMS, ACCEPTANCE
obligated to undertake necessaries, age legal conseq.
Forbearance (refrain from an action that misrepresentation May disaffirm or
Offer Rejected ratify w/in reas. No
one has a legal right to do) May ratify upon
reach age of maj. time after sober Offer (formal or informal) Irrevocable?
Offer Terminated by Law:
Lapse of Time Bargained-for Exchange Mental Incompetence Offer Revoked
Must be an exchange, not a gift Results of Terms Left Open
Void if prev ruled incomp by court
Offer Terminated by Law: NO: past consid., illusory promises Voidable if incomp @ time formed Reasonable price fixed by
Price YES. UCC: merchants
Supervening Illegality Valid if comp @ time contract formed parties (or by court)
written & signed firm
Exceptions to Consideration Req.
Offer Accepted Detrimental reliance / P. Estop. Price (unfixed by Other pty. sets reasonable offer; CISG: any offer
LEGALITY
Prom. to pay debt barred by S of L fault of party) price, or voidable reasonably relied on.
Counter-offer
By unauthorized By authorized Charitable contribution Proper form required for formal contracts Due at time & place buyer
mirror-image Payment Terminated
rule applies means means recs goods by law
Consideration in Settlements Contrary to Statute Contrary to Pub. Pol.
Illegal: crimes, Torts, restraint of Pickup @ sellers business /
Accord & Satis. (if amt is disputed) Delivery/ Rejected
usury; trade, exculpatory, home; reasonable time
Release (contract to avoid a claim) timeframe
CONSIDERATION, LEGALITY, CAPACITY Restricted: unconscionable allocated for performance.
Covenant Not to Sue (substitutes a
FRAUD, CONSENT & MISTAKES contract for some other claim; does not gambling, licensing, (proced. / subst.), Until either party cancels
Requirements met for Sundays discriminatory Contract term Counter Offer
bar future collection if breached) w/ reasonable notification
No Consideration, Legality, Materially diff. or
and Capacity? Seller deterines conditional (no
Shipment
Categories of Contracts arrangements mirror-image rule)
Yes
Assortment of Buyer discretion
BILATERAL: EXPRESS: goods Offer Accepted
Legally Mistakes A promise for a promise Formed by words Usually impossible to
YES: any reasonable means
Prohibited YES: Bilateral of Material UNILATERAL: IMPLIED IN FACT: Quantity determine unless output or
Unilateral
Contracts Fact? A promise for an act; irrevocable once Formed at least in part by parties conduct requirements contract By shipment of
performance has begun non-conforming
Minors and goods
Intoxicated No FORMAL: Reqs for Implied in Fact:
Parties Requires special form P furnished property/service to D; By beginning With non-material changes;
By shipment of
(ex: Cs under seal; letters of credit) P expected payment & D knew or should performance no objection w/in 10 days
conforming goods
Fraud, Duress, INFORMAL: have known payment was expected;
Voidable contract is No special form D had opportunity to reject and did not
No Undue Influence, or
avoided by innocent party?
Unconscionability?
Enforceability CONSIDERATION, LEGALITY,
CAPACITY, FRAUD, CONSENT, See Common Law Processes
Yes Yes MISTAKES, E-TRANSACTIONS
No Valid Contracts Void Contracts

Contract is void TIME OF IDENTIFICATION OF GOODS

Enforceable Voidable
Valid, Unenforceable ID at time shipped,
(all required (optionally avoidable Unenforceable Other Future goods
Voidable contract is Enforceable (legal defense) marked, or designated
Yes elements) by a party) (no contract)
avoided by innocent party? Contract
ID at time of conception Animals
Statute of Frauds (must be in/evidenced by writing or else unenforceable):
Interests in Land: RE transactions, options, leases, mortgages, things permanently attached ID at time planted; if 12+ months, time crops begin to grow Crops
APPLICABLE LAW FOR ELECTRONIC Electronic One Year Rule: Performance is objectively impossible, or not contemplated by the parties, to ID at time of separation &
Non-fungible Goods part of
TRANSACTIONS: UETA (1999) E-SIGN ACT (2000) transaction? be completed within one year of the day after contract signing designation a larger mass
Collateral/Secondary Promises: exception if primary purpose is for benefit of guarantor Fungible
Yes State has enacted unmodified UETA? Yes Marriage: voluntary promises of marriage, pre/post-nups (usually consideration is required) Goods are in
UCC: Under UCC, sales contracts $500+ / leases $1000+ must state at least the quantity ID on contract formation
existence
Mods consistent E-SIGN rules term. UCC exceptions: specially-manufactured goods; admissions; partial performance. Goods Identified
No No No
w/ E-SIGN? govern
Yes Interpretation
E-contract follows state law PASSAGE OF TITLE / LEASEHOLD;
Other Rules (when meaning in the document isnt clear) TRANSFER OF RISK Sellers title
Plain Meaning Rule Seller holds title? Yes was properly
Contract is interpreted as a whole
Contract is enforced No
Negotiated terms > standardized terms obtained?
PERFORMANCE & DISCHARGE according to what it says
Specific language > general W ritten terms > pre-printed Good faith purchaser? No
Conditions precedent/ (face of the instrument)
Contract is canceled No Ambiguity punishes author Trade usage/prior dealing
subsequent are met?
Title (or leasehold) can
Third Party Rights Void title
pass to buyer (or lessor)
Yes
Dmgs for diff. b/t Substantial Shipment
Complete
actual & contracted Performance or Yes Rights can be assigned unless: Duties can be delegated unless: contract (default)
Performance
performance minor breach Prohib. by statute or (generally) the contract Personal services / special trust involved
Personal services Assignment significantly Performance will vary materially Title documentation No movement Destination
Mutual rescission
Novation changes risks/duties of obligor Prohibited by contract required? of goods contract
Title passes
Substitute Accord & upon delivery
Agreement Satisfaction Intended Beneficiaries have enforceable legal rights upon vesting. Vesting occurs (unless
Discharge by No Yes Title passes unless otherwise
Operation of Law contract specifies otherwise) when (1) 3rd party changes position in justifiable reliance; (2) 3 rd agreed
when seller
party sues on the promise made; (3) 3rd party gives consent on the promise. tenders
Incidental Beneficiaries do not have enforceable legal rights. Title passes on ID Title passes
goods at
of goods (or on upon delivery
BREACH & REMEDIES designated Risk transfer on
Material Breach occurs contract formation) of documents
Mistakes & Fraud location delivery to carrier

Fraudulent Misrepresentation Undue Influence Seller / lessor is a Risk transfer

Misrepresentation of material fact Clear & convincing evidence that the Risk transfer on tender
merchant? on delivery of
Damages Waiver of Breach Equitable Remedies Intent to deceive transaction induced domination of a at specified loc.
documents
Justifiable reliance by other party weaker party
Compensatory If injury is proven, damages = represented Presumed in relationships of trust &
Construction Yes Risk transfer on receipt
value less price paid (+ punitive damages) confidence & must be rebutted
Owner Breach
Duress Mistakes: Contract remains enforceable No Risk transfer on tender of deliv.
Sale of Sale of Threatened by wrongful/illegal act unless mistake is Bilateral (both parties
Land Goods Economic duress if party exacting the made mistake) & mistake of material fact;
Before During price also created the need OR gross/obvious math error.
construction UCC RIGHTS & DUTIES
Buyer construction
begins
Breach Unconscionability (often: fine print or adhesion contracts): Parties have substantially unequal Duties & Rights of Seller / Lessor Duties & Rights of
Specific bargaining positions, and enforcement of the term would be manifestly unfair/oppressive. Buyer / Lessee
Profits + costs Conforming Goods Tender of Deliv.
performance; if Profits Payment at
incurred Shipment Contract: Facilitate deliv. with carrier; provide
land is already Lost Discharge from Contractual Duties buyer nec. docs to get possession; notification of designated time/
sold, diff. btw. profits shipment. place of delivery
contract price & Contract price After Performance according to contract terms.
Discharge by Operation of Law: Destination Contracts: Deliver at designated location; Right to Inspect
market value Seller + interest completion reasonable notice; necessary documents. goods and reject
Alteration: innocent party discharged when
Breach Rescission: requires formation of a new Perfect Tender unless (1) parties agree otherwise , (2) if non-conforming
other materially alters terms w/o consent.
Contractor Breach contract w/ consideration. May be oral cure w/in contract timeframe, (3) substitution of carrier; (4) Acceptance: (1)
Consequential Statute of Lims: on suing for breach (UCC
unless RE or reqd in writing (UCC). in installment contract, substantial impairment of entire indication; (2)
contracts on goods: 4 yrs reducible to 1 yr)
Novation: substitution of a 3rd party for an contract; (5) unforeseeable commercial impract. (6) presumed if
Diff. btw. Bankruptcy Frustration of Purpose
Punitive (rare in original party. Requires: (1) prev. valid destruction of identified goods; (7) reasonable grounds to reasonable time
contract Before Before Impossibility: objective, unforeseeable,
contract law) obligation; (2) agmt by all parties; (3) believe non-conforming goods acceptable; (8) buyer elapsed; OR (3)
price & construction construction supervening event: (1) party dies, (2)
market begins completed
discharge of prior party; (4) new, valid
subject matter destroyed, OR (3) change doesnt specify reason for refusing goods. acts inconsistent
Nominal value contract with consideration. Warranties (UCC defaults): Title (good title, no liens, no w/ sellers
in law makes performance illegal.
Substitute Agreement. infringement); Express, Implied, Merchantability, Fitness ownership.
Commercial impracticability: unforeseen
Costs incurred by Accord & Satisfaction: suspends original for a Particular Purpose.
Liquidated and signif. increase in difficulty of
owner to complete agmt until new accord is complete. Obligor Product Liability: Breach of Warranty; Negligence Duties of
(fixed) Cost above performance causing extreme burden.
work can discharge via orig. contract or accord. (failure to exercise reasonable care; misrepresentation parties met?
contract price
(tort)); Strict Liability (unreasonable danger; product
Types of Damages defects; design defects; inadequate warnings.)
Known in advance that
Amount is a reasonable
damages would be difficult Yes Compensatory: Direct losses & costs Consequential (special): Foreseeable
estimate & not excessive? Discharge by Op. of Law Yes No
to estimate? sustained + incidental dmgs (costs incurred to damages resulting from consequences of a
recv alt. performance), less losses avoided. breach, possibly including lost profits on Other agreement, Complete
Fixed price schedule items intended for resale. mutual rescission, etc. Performance
Yes
set by contract Punitive (exemplary): Extremely rare in
contract law; typically only if a breach also Nominal: Establish technical injury or
A party constitutes a tort, and in limited instances of
Rescission & wrongdoing where no actual loss sustained.
Return of goods possesses bad faith insurance settlements. BREACH &
Restitution Seller Breach Buyer Breach
contracted goods Liquidated (fixed) Damages: Contractually REMEDIES
Mitigation of Damages: Innocent party is agreed-upon amounts to be paid in
Goods have
Market value of required to mitigate damage suffered to the compensation (not penalty) for breach if Seller Refuses to Deliver Goods in Sellers Possession
been Reformation
goods is substituted extent possible. actual dmgs would be difficult to estimate. Cancel & dmgs Withhold delivery
consumed/sold
& dmgs (diff. btw. contract & resale)
Equitable Remedies Cover & dmgs
Contractual duties Land, unique Specific Rescind & dmgs
must be carried out goods Performance Replevy & dmgs
Rescission & Restitution: Contract is Specific Performance: Court orders a Goods In Transit
Quasi Contract terminated and the parties are returned to party to complete contractual obligation. Specific
Only monetary dmgs Most contracts Stop delivery: damages as above
Recovery their original pre-contract state; goods (or Often RE and unique goods contracts; perf. (unique goods)
are available & personal svcs
equal value) and money returned. never personal services contracts. Complete delivery: damages as below
Nonconforming Goods
Quasi Contract Recovery: Requires: (1) A Reject & dmgs Goods In Buyers Possession
The Law of Contracts by Jeremy Modjeska (http://j.modjeska.us). Reformation: Court reforms contract to
party has conferred a benefit, (2) with a Sue for purch. price & incidental dmgs
Source material: CLARKSON ET AL., BUSINESS LAW: TEXT AND CASES, conform to parties original intent, remedy a Revoc. of accept & dmgs
reasonable expectation payment, (3) in a
11TH ED. (Cengage, 2008); American Law Institute & National mistake/fraud, or remove/revise an overly
non-volunteer capacity, & (4) w/o recovery,
Conference of Commissioners on Uniform State Laws, Uniform strict noncompete covenant. Resell & dmgs Goods: reclaim Lease: reclaim
the other party would be unjustly enriched. (merchant buyers) w/in 10 days property
Commercial Code (U.C.C.) (2005).