Contracts Outline: Prof. D. Snyder, Fall 2006
Contracts Outline
Keyed to Prof. David Snyder
Visiting Professor
American University
Washington College of Law
Last updated Dec. 9, 2006
The author expressly disclaims all warranties, express or implied, including but not
limited to fitness for a general or particular purpose, and makes no representations that
the materials that follow will help you in any way at all. However, he notes in passing
that this outline helped him quite a bit, and he hopes you might find it an interesting basis
for comparison with your own outline and your own work.
Contents:
Quick Summary sheet:
p.2
Outline
p.3
Appendix A: Selections from the Restatement (Second) of Contracts
p.20
Appendix B: Selections from the Uniform Commercial Code
p.42
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Contracts Outline: Prof. D. Snyder, Fall 2006
Contracts Outline
Quick Summary Sheet Last updated Dec. 9, 2006
K = Mutual assent + [Consideration OR alternate basis for
enforcement] - Defenses
Mutual Assent:
Offer + Acceptance
Consideration:
1) Bargain theory
2) Benefit / detriment
Offer
Acceptance
Mailbox rule
Mirror image rule
(nixed by UCC §2-207)
To prevent last shot rule
Knockout rule
Defenses:
1) Statute of Frauds
2) Assent obtained by improper means
3) Changed circumstances
4) Against public policy / unconscionable
5) Lack of contractual capacity
2
Alt. Basis:
1) Promissory Estoppel
2) Formalities:
a. Seal (uncommon)
b. Recital
c. Firm offer
Contracts Outline: Prof. D. Snyder, Fall 2006
Contracts Outline
Amer. Univ. Wash. Coll. Law
Fall 2006
(1) Mutual assent
a. Offer: manifestation of willingness to enter a bargain justifying
reasonable person in thinking assent is invited and will complete the deal
i. Powerful yet also fragile bc it can be withdrawn before offered.
Dickinson v. Dods.
ii. Option contracts: irrevocable offer.
1. = a K not to w/draw the offer requires mutual assent &
consideration
a. Ex: if I buy from you the right to buy from you
MSFT stock at a certain price for the next 2 weeks
and you say “I accept” an I pay you money, then we
have offer acceptance and consideration.
b. But if we don’t have that it’s just nudum pactum
iii. Exceptions: when an offer cannot be revoked
1. Promissory estoppel: when there is detrimental reliance
2. Unilateral Ks §451 when the offer invites acceptance by
performance and performance has started
3. Recitals & personal formalities and fair options under §872
if: In writing, signed by offeror, recites a purported
consideration for making of the offer & proposes exchange
on fair terms w/in reasonable time.
4. Firm offers for sales of goods (§2-205) is not revocable for
a lack of consideration when it’s:
a. Signed writing by merchant which assures it will be
held open during time stated & no more than 3
months
iv. Is it an offer at all?
1. Many cases are concerned with drawing this line.
2. An offer or just prelim negotiations?
a. Nebraska seed co v harsh gave some factors
b. Leanard
c. Imrpo
v. Intent to K:
1. A K can exist even if they intend to make a more formal
memorial of their K later
a. Texaco v. Penzoil
i. Factors for deciding whether the parties
intended to be bound
1
2
§45: Option Contract Created by Part Performance or Tender
§87: Option Contract
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Contracts Outline: Prof. D. Snyder, Fall 2006
ii. Or if instead they’re really not bound and
they’re at the pre-K stage
b. Acceptance: Has to be unequivocal. The mirror image rule.
i. Cannot alter or bury the terms of the offer
1. Bc if it did, how would we know what the K was?
2. Common law: where the purported acceptance adds or
changes something, it’s not an acceptance but a rejection
and counter offer.
3. This rule not as strict but still around
a. Ardente v. Horan
i. Issue: is this an alteration of the K or a mere
request, just incidental? Does it get to the
heart of the k?
ii. When is acceptance effective?
1. Mailbox rule. Gen rule. (Though not universal)
a. We do NOT use the mailbox rule for most other
things. Only for acceptance.
b. For perf. you actually have to get the check to them.
c. For option K, you actually have to get the K to them
d. Mailbox rule only for acceptance of regular offers.
iii. Acceptance by silence
1. Exceptional cases
a. Massosoit whip co
b. Shrinkwrap , browsewrap
iv. Acceptance by performance
1. That’s what a unilateral K is
a. Is this permissible? It depends on interpreting the
offer.
i. Carlill v. carbolic smoke ball: figure out the
appropriate mode of acceptance by looking
at the offer.
b. The courts will look to see if it’s really perf or just
preparation
i. White
2. Under restatement view, we may decide that an Option K is
started once perf is started (§45)
a. Even so, as a reaction to petterson v patberg we
require performance to have started
b. Under §45, mere preparation is not acceptance.
i. I can’t revoke once you start walking across
the bridge
ii. But I can if you’re just tying you shoes in
preparation for the walk.
v. What are the terms of that K? What did the parties mean?
1. Weinberg
2. Frigaliment
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Contracts Outline: Prof. D. Snyder, Fall 2006
a. The approach courts use (in both cases) to interpret
the parties’ agreement:
i. Courts look to objective meaning, unless
there is evidence of subjective meaning
b. Factors to determine intent:
i. Course of performance
ii. Usage of trade
iii. Dictionary definitions of relevant terms
iv. tools of construction: construe terms
together
v. Compare diff parts of K
vi. Saying one thing excludes another thing
vii. Construe against the drafter when in doubt
(contra proferentum)
3. Rest §2013: the good guy / bad guy rule: in general we use
the objective theory but not if we have subjective
agreement or if one party knows / has reason to know the
other party’s subjective meaning
a. Logical, since k liability based on assent
b. Subjective & true agreemnt btw the parties = best
case regardless of what the rsnbl person would think
c. We can’t generally use the subjective theory
i. This leads to problems.
ii. But, if you know or have reason to know
I’m joking, you can’t rely.
d. If we have no subjective agreement and the
objective meaning is ambiguous, no assent y no K.
i. Raffles v. winchelhouse.
4. Parties can’t provide everything, so courts fill gaps in
assent
a. Espec when we know a K was intended
b. Gaps not fatal to assent, but more gaps = less likely
a K was intended
c. As with agreements to agree.
i. In that case maybe they’re at the Pre-K state
ii. Or maybe we know they intend to K but the
gaps are such that the court doesn’t have
reasonable certainty and can’t fix a breach
1. So then no legally enforceable
promise, no remedy, no K
a. Sun printing
d. The UCC can fulfill almost any term using a
reasonableness standard
i. Such as price
ii. But it can’t set quantity.
3
Rest. §201: Whose Meaning Prevails
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Contracts Outline: Prof. D. Snyder, Fall 2006
iii. Except in output & requirements K, you
CAN be vague about quantity. §2-3064
1. In which case you use good faith and
stated estimates or comparable or
prior arrangements to det qnty
2. Eastern v. Gulf
e. Cure by concession or allow least level of benefit.
f. Another interpretation issue: When there’s a
writing. Parol evidence rule governs prior written
and oral agreements & contemp. oral agreements.
Doesn’t apply to subsequent agreements.
g. Bc Parties always free to modify by a new K.
i. Courts ask: is the agreement integrated?
Have they intended to merge their entire
agreement into this writing?
ii. Thompson v libbey: unless the writing
appears on its face to be incomplete or
ambig., we will conclusively presume it is
the complete and exclusive agreement. This
is the four corners rule.
iii. Contrast with restatement: court looks at
parties’ intent. Judge w out jury tries to
determine if the parties intended any
integration at all.
1. If this isnt’ intended to be final
statement, then we’ll allow in
everything.
2. judge asks if integration was
intended:
a. Partial or complete
integration.
3. if it’s complete integration, no parol
evidence
4. If it’s partial, we allow consistent
additional terms about another part
of the agreement but not
contradictory terms.
5. If fully integrated, no additional
terms whatsoever.
iv. Exception to parol evidence rule: Failure of
consideration, ambiguity or any invalidating
factor
1. Ambiguity:
4
UCC §2-306: Output, Requirements and Exclusive Dealings
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Contracts Outline: Prof. D. Snyder, Fall 2006
a. Approach 1: plain meaning.
Parol evidence cannot make
unamngibnuous ambiguous
b. Approach 2: Latent
ambiguity. PG&E.
2. once you decide there is ambiguity,
then you have to take parol evidence
because the writing cannot resolve
the issue since it’s reasonably
susceptible to more than one
meaning.
3. Restatement §212
4. UCC §
(2) Assent Problems.
a. § 2-207. Offer and acceptance / contract formation / interpretation
b. Mirror image rule when applies to battle of forms leads to the last shot
rule, an artificial result.
c. So, §2-207(1) says that something that purports to be an acceptance IS one
even if it has add;l or diff terms
i. This nixes the mirror image rule
ii. Unless the writing is expressly conditional on it’s terms
d. But most courts say that the new terms are not accepted simply by the
other side performing
i. Otherwise we’re just back at the mirror image rule.
e. So, what are the terms of the K?
i. If the purported acceptance states add’l or diff terms, what to do?
1. If it IS an acceptance under 2-207(1), then the add’l terms
are treated as proposals for addition
a. Between merchants, they automatically become part
of the K unless
i. The offer expressly limits acceptance to the
terms of the offer
ii. They materially alter it
iii. Notification of objection to them has already
been given or is given within a reasonable
time after notice of them has been received.
2. Different terms will be knocked out: if one form says X and
the other says Not-X, then courts will propose the terms are
objecting to each other.
ii. If NOT between merchants, these proposals for addition to K
wither and die if they’re not accepted.
1. If they are accepted, they become part of the K
iii. But there can be some gaps, which is OK bc we can fill gaps using
the default rules in the UCC.
1. The q is always what the terms of the K are. We’re not
asking whether there’s a K.
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Contracts Outline: Prof. D. Snyder, Fall 2006
a. Although K formation matters because the way it’s
formed can have an effect on what the terms are.
b. Ex: if writings do not form a K, but the conduct
does, then 2-207(3) says we use the terms they
agree to PLUS the gap fillers
c. But before we get to 2-207(3), we have to make
sure there’s no K otherwise.
f. Clickwrap, shrink-wrap, browserap?
i. No special rules. We use the same rules for K formation.
ii. The usual rules for clickrwap:
1. you click OK, that works perfectly under the mirror image
rule.
a. Unequivocal manifestation of acceptance without
add’l or diff terms of offer: Caspby
iii. Shrink-wrap: The idea of terms on the box.
iv. Suppose you’re in the store and a reasonable person would see the
terms on the box before buying it.
1. There we say you know what you’re getting so by buying it
we have acceptance and a binding K.
2. That’s the idea of true shrink-wrap: something you can see
thru and read thru
3. Shrink-wrap terms you see on the box before you pay.
v. But what about terms that come AFTER payment?
1. proCD and hill
2. When there is notice beforehand there would be terms
coming later, the buyer knows the terms will be coming
later.
3. Store analogy: like a box saying “there are terms inside you
will have to accept.”
4. Both proCD and hill are premised on that. It would be
interesting if buyers contended the buyers didn’t’ know
there would be terms coming later.
5. 7th cct applies §2-2045, saying parties can make a K
however they want to. Here seller says K is formed only
after B sees terms after payment and keeps goods for 30
days. They can do that if they want, thus the terms are
binding under proCD and hIll.
a. So far, there is not nec anything wrong with this.
b. However, other courts have objected to his claim
that §2-207 doesn’t apply bc there’s only one form.6
i. Klocheck and virtually all K professors
criticize this
5
6
UCC 2-204. Formation in General.
I think this is an incorrect interpretation, for what that’s worth.
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Contracts Outline: Prof. D. Snyder, Fall 2006
ii. Klockeck and stepsaver point out that §2207 applies to purported acceptances AND
also to confirmations of Ks already made
1. §2-207 doesn’t require more than
one form.
2. So they apply §2-207. See the terms
in the box as a confirmation or as an
acceptance.
3. Stepsaver: ct says these later terms
are a material alteration. Even
between merchants they don’t
become part of the K.
4. Klockeck even easier since B wasn’t
a merchant. Add’l terms were
proposals for add’n to K, so they just
wither and die.
iii. To come to the same result as Easterbrook,
we could say that by keeping the comp for
30 days the consumer has agreed to these
terms for addition to the K.
1. But this is of course a q for the court.
2. Has it been accepted?
a. If so, the terms in box are
binding.
vi. Browsewrap
1. If a reasonable person doesn’t know about these terms, you
have to scroll around AND if this person here doesn’t know
about them, then there’s no k.
a. Netscape
2. However, if a reasonable person would know about the
browserwap terms, then they may be assented to
a. By downloading
b. Or some other manifestation
c. Or silence:7
i. If you take the benefit of something
knowing the other party expects
consideration, then you are accepting.
d. Ticketmaster: if this other website knew about the
terms, then we have to hold a trial. We don’t know
for sure the terms are binding, but they might be.
(3) Consideration: A gives B something real to induce B to bind himself
a. A promise or a performance. Consideration must flow both ways: mutual
inducement. A bargained-for exchange
i. Ex: your promise to pay me money is what’s inducing me to
promise you to deliver the goods. But that’s only half of it:
7
See also acceptance by silence
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Contracts Outline: Prof. D. Snyder, Fall 2006
b.
c.
d.
e.
f.
g.
ii. We also have to be able to say that my promise of the book is
what’s inducing you to promise you the ten bucks.
In unilateral Ks, consideration = performance instead of a return promise.
Promises don’t always have to be completed: you can have promise to
pay.
i. Consideration can later fail, but we still have a K.
ii. remedies:
1. rescind for FAILURE of consideration
2. or: sue for breach of K.
3. Remedy generally expectancy damages.
4. BC delivering the good was a constructive condition on the
performance, and failure to deliver was a material breach.
5. Material breach discharges P from having to perform.
OLD Theory of Consideration: still in use by some courts
i. Benefit to promisor OR detriment to promisee.
Once the law sees a bargained-for exchange, the courts will not inquire as
to the adequacy of consideration
i. Of course, they will see through a sham
ii. But otherwise they don’t care if consideration is low or high
Illusory promises: if the promise isn’t real, then the party isn’t being
induced by anything
i. Thus there’s no K.
ii. Rule: unless both parties are bound, neither will be.
iii. Alternatively, some courts have cured illusory K’s by implying a
best efforts provision or a good faith performance.
1. Wood v. Lucy, lady duff-Gordon.
There are many situations in the lack of consideration.
i. Ex: Gifts. Something going one way
ii. Gifts generally unenforceable until performed. Once you make the
gift it’s effective under property law and you don’t need a K
iii. Uncle wanted Willie to refrain from vices and the uncle was
obligated. Hamer v. Sidway
1. Court held: that really is consideration: bargained=for
exchange.
2. But in many cases it’s hard to distinguish a conditional gift
and a bargained-for exchange.
3. So a court may look at benefit + detriment to decide
whether there really is a bargain or if it’s just a gift with
some strings attached.
iv. Other lackings of consideration: Past consideration.
1. A promisor cannot want or being induced by something she
already has
2. Preexisting duty rule: If an employer already bargained for
and received employees promise for services, then it
already has what it wants and cannot be induced for a
promise of the same thing.
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Contracts Outline: Prof. D. Snyder, Fall 2006
3. Thus there’s no consideration for demand for new wages.
a. Alaska Packers
4. However, we might allow a modification if there’s new
consideration.
5. Sometimes there’s an exception : Bryan construction, §898,
where they promise to do all work necessary.
v. Preexisting duty rule doesn’t work all the time.
1. Good: Sometimes it prevents coerced modification from
becoming effective
a. but sometimes we have consideration for a coerced
modification
2. BAD: And, sometimes this rule might invalidate a goodfaith UN-coerced renegotiation
3. So in §2-209(1)9, UCC threw out the preexisting duty rule.
4. Instead, look at whether modification in good faith,
whether there was a a legit commercial reason or some
objectively demonstrable reason for changing K.
vi. Moral consideration:
1. No promise or performance. Not actually bargained-for.
a. Ex: Love
2. Also, in many cases moral consideration is past
consideration anyway, and thus invalid
3. But, in the interest of justice the courts sometimes make
exceptions:
a. §8610 Mill v Wyman
b. And web v McGowan
4. Still, moral consideration not good enough except in some
exceptional circumstances.
vii. Nominal consideration
1. not real consideration
viii. Recitals of consideration
1. Not real consideration
2. Except in options contracts, since it’s a formality.
(4) Alternative basis for enforcement:
a. Promissory estoppel: Foreseeable detrimental reliance can be an
alternative to consideration if necessary to prevent injustice.
i. Occasionally, rarely, p.estp. stands in for problems other than
consideration problems: for the whole breach of K action
ii. Goodman v dicker
iii. Hoffman v red owl.
iv. Rest. 2d. §9011
b. Formalities as an alternative basis for enforcement:
Rest. 2d §89. Modification of Executory Contract.
UCC §2-209. Modification, Rescission and Waiver
10
Rest. 2d §86. Promise for Benefit [Already] Received
11
Rest. 2d §90. Promise Reasonably Inducing Action or Forebearance
8
9
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Contracts Outline: Prof. D. Snyder, Fall 2006
i. In the old days, the seal.
1. But this isn’t used so much today
ii. Recital under §8712 as long as there are add’l measures of
formality
iii. Or firm writings under §2-20513, requiring a signed writing by a
merchant.
(5) Performance:
a. Once we have mutual assent and consideration
i. Or some other basis for enforcement
b. What performance is required?
c. Good faith performance:
i. Honesty in fact: subjective standards
ii. For merchants, an objective standards. Reasonable standards of fair
dealing.
1. And under revisd article 1, EVERYONE (not just
merchants) are held to the objective standard
iii. What does it mean?
1. First, think about the clause in question. Why is it in the K?
2. Second, is the clause being invoked consistently with that
purpose, or is it just a dishonest ploy
a. Mutual life insurance
b. Stop and shop
3. Is the term being used honestly or dishonestly as part of
some trick?
4. Similar issues in Franchise cases
a. Cookie
iv. NO DUTY TO NEGOTIATE in good faith, just PERFORM
1. Unless the parties contract to negotiate in good faith
2. Except in union negotiations under fed statutes
v. Exception: At will doctrine. No duty of good faith performance in
employment contracts.
d. Warranties.
i. Govern a lot of what is required.
ii. Implied warranty of merchantability: goods fit for their ordinary
purpose if sold by merchant w respect to goods of the kind
iii. Implied warranty of fitness for particular purpose: when seller
has reason to know B is relying on S’s judgment , and B does rely
iv. Express warranties
1. In goods, about goods
2. Or outside of goods
a. Cbs v. Ziff-davis
b. Or in Dr. McGee: I warrant you a 100% good hand.
v. Warranties, like K’s in general, are a way of allocating risks.
1. Dr Mcgee took the risk and had to pay if it didn’t work out.
12
13
Rest. 2d. §87. Option Contract
UCC §2-205. Firm Offers.
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Contracts Outline: Prof. D. Snyder, Fall 2006
vi. Flipside of warranties: Disclaimers.
1. Rules for disclaiming implied warranties
2. Consumer protection statutes
3. Schneider v miller
4. Morris v max used cars
vii. For there to be a warranty, it has to be relied on, has to go to basis
of bargain.
1. CBS v Ziff-davis
2. Royal business machines
viii. Where you CANNOT have reasonable reliance: where buyer
should form it’s own opinion:
1. Puffing, and opinions.
e. Conditions
i. Govern whether a performance is due or not.
ii. Express conditions: Must be strictly complied with
1. Inman
iii. Harshness from this is sometimes tempered by courts by:
1. Finding there’s no condition at all
2. The condition has been waived
3. the beneficiary of the condition is estopped from asserting
that condition
a. Clark v. West
4. Straight-out excusing the condition to prevent a flat-out
forfeiture
iv. Compare conditions with the very different effects of a promise.
v. How to tell?
1. Howard v fed crop insurance.
2. Uses same rules of interpretation in Weinberg v Edelstein,
or frigaliment
3. Also, courts want to avoid a forfeiture
a. Reasonable people don’t want to go into a K where
there’s a high risk of forfeiture
i. Espec one not stated expressly
ii. In howard, i.e.
4. Failure of a condition: there is no duty to perform. No
instant duty arises unless a condition precedent occurs.
a. Ex: Your insurer has no duty to pay you unless your
house burns down.
5. A duty is discharged by a condition subsequent
a. Ex: if B fails to give notice within a certain time,
seller’s duty is discharged
6. Failure to perform a promise, on the other hand, means
liability for damages.
7. The same is NOT true for failure of a condition
a. You don’t have to pay the insurance CO if you
house ISNT burned down
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Contracts Outline: Prof. D. Snyder, Fall 2006
8. If you promise, you are liable for damages for its breach.
9. Ask is the K at an end?
a. Unless it’s a material breach or unless the failure
goes to a constructive condition, then the other
party still has to perform, they just have a right to
damages.
b. Jacob & yong v kent.
c. If building agrees to put in redding pipe and it’s a
condition, buyer has no duty to pay if breach
d. But if it’s a promise, builder is liable for any
damages caused by a breach but bc it wasn’t a
condition the owner still has to pay.
e. ALSO, if Builder has substantially performed,
although the builder is liable for damages, if it can’t
be practically fixed we grant market value
differential instead of cost of completion
i. These are both expectancy14
10. Promissory conditions:
a. Are both promises and conditions.
b. Substantial performance is often a constructive
condition.
c. EX: if I don’t deliver the book to you, you can get
damages AND you don’t have to pay me.
d. In a sale, delivery and payment are concurrent
constructive conditions upon one another.
e. Thus, courts will imply constructive conditions in
cases of substantial performance.
f. Substantial perf = a constructive condition on the
other part’s duty to perform.
g. First performer is sometimes a condition precedent
on the other party’s duty to perform
i. Kingston v preston
ii. Martin v lamb
(6) Breach
a. Since Hcoskter v de la tour, anticipatory repudiation is a present breach.
b. Anticipatory repudiation must be definite. If it’s not clear, then modern
law gives the aggrieved party the tool of seeking adequate assurance of
performance.
c. There are breaches and then there are breaches.
d. Usually must be material breach to allow cancellation of K.
e. §24115 lists useful factors for determining if it’s material breach
f. Total breach easy to see; partial breach? Not so clear.
g. If breach is not material, parties must go fwd with contract but there can
be damages.
14
15
See also expectancy.
Rest. 2d §241. Circumstances Significant in Determining Whether a Failure is Material
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Contracts Outline: Prof. D. Snyder, Fall 2006
h. Other side of material breach is substantial performance. Where there is
substantial perf, must go fwd
i. In substantial perf, measure of damages is market differential and not cost
of completion of K.
j. In some cases, there’s the perfect tender rule which says any breach is
material
i. UCC has tempered this rule in installment Ks, allowing sellers of
goods to cure.
(7) Remedies:
a. Generally, expectancy damages. Hawkins v McGee: use money to put
promisee where it would be if K had been performed
i. Includes lost profits
ii. But damages are NOT for punishing the breaching party, so
expectancy is also the cap on damages.
b. Reliance puts promisee where it would be had promise not been made
i. Alternative to expectancy, when expectancy cannot be awarded,
for example, bc of uncertainty
ii. But expectancy is the cap on damages §34916 Rest. 2d.
iii. Also, mistletoe
iv. Reliance granted for promissory estoppel
c. Restitution: put promisor disgorge the benefits.
i. Promisee can recover in restitution when he has a right to rescind
the K
1. For example: Material breach, failure of consideration, or
an invalidating factor such as duress, fraud, etc…
ii. Even the breaching party is allowed restitution under quantum
meruit in order to prevent unjust enrichment
1. Britton v turner. When you can’t sue ON the K, you can
sue OFF the K for the reasonable value to the promisor of
the breaching party’s performance.
2. We don’t look at what it cost the promisee to perform
3. Allow damages caused by breach
4. And it is capped by expectancy in this case. Because the D
who is not in breach can plead the express K in defense to
the restitution claim
a. Diff if the D itself were in breach.
iii. Also allow restitution even w out a K to prevent unjust enrichment
1. Ex: Cotnam v wisdom where there’s no mutual assent.
iv. But no recovery to volunteers or vicious intermeddlers.
v. HOWEVER, in emergencies, we can allow a quasi-contractual
recovery.
d. Equitable relief
i. Specific performance
1. Limited to unique items: land, artwork, heirlooms
16
Rest. 2d §349. Damages Based on Reliance Interest
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Contracts Outline: Prof. D. Snyder, Fall 2006
e.
f.
g.
h.
i.
2. modified by §2-71617. Sometimes there’s “functional
uniqueness” when you can’t cover (§2-71218)
3. limitations: courts won’t require specific performance on
personal services contracts,
a. but they may enjoin inconsistent actions through a
negative injunction
4. Or based on administrability
Damages have to be reasonably foreseeable and not too remote
i. Hadley v. Baxendale
Generally no agreement to be liable for consequential damages necessary;
you’re liable if they are foreseeable
i. Except in minority courts where courts apply the tacit agreement
tests,
1. But UCC abolishes tacit agreements test.
Contracting Around Damages
i. As long as it is conscionable,
ii. Parties may liquidate damages.
Certainty limit on damages.
i. Impt for Ks dealing with entertainment or new business
ii. That’s why parties need to liquidate damages, since courts rarely
look to similar ventures to find damages.
iii. NO PUNITIVE DAMAGES, NO PENALTIES
iv. So courts will see if liquidated damages are reasonable forecast in
light of difficulty of proving damages and foreseeability of
damages. Some courts look at actual damages, too.
Mitigation limitation: to encourage people not to pile up damages.
(8) Defenses to K
a. Statute of Frauds Rest. §11019 : A defense to K. Ways:
i. For goods $500 or more
ii. Land Ks except leases a year or less
iii. Where perf takes more than a year from making of K
1. with exception for 1 year leases
iv. Marriage
v. Suretyship
vi. Promises by executors or administrators
vii. EXCEPTIONS to statute of frauds:
viii. §13920 restatement: promissory estoppel exception
1. much more doubt than next two. Not all courts allow this.
ix. Special manufacture exception
x. Part performance exception
UCC §2-716. Buyer’s Right to Specific Performance or Replevin
UCC § 2-712. “Cover”; Buyer’s Procurement of Substitute Goods
19
Rest. 2d. §110. Classes of Contracts Covered [by the Statute of Frauds]
20
Rest. 2d §139. Enforcement by Virtue of Action in Reliance [When Consideration is Lacking]
17
18
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Contracts Outline: Prof. D. Snyder, Fall 2006
xi. A K within the statute requires a writing to be enforceable:
1. A signed writing indicated a K has been made
2. UCC generally requires a quantity.
3. Outside of goods cases, §13121 of restatement says subject
matter of K be stated with reasonable certainty of the
essential unperformed terms.
a. Or a communicated offer can be enough under
restatement.
xii. Under statute of frauds there is a K even if not in writing; however,
the statute says it’s enforcement can be defeated
1. Voidable at option of aggrieved party
a. Restitution made to each party for any benefits
conferred by other.
2. Exception: duress by force: not a voidable but a VOID
contract.
3. But generally, lack of K capacity:
a. Infancy
b. Intoxication
b. Improper means to obtain assent
i. Fraud = Misrepresentation. See §15922
ii. Or innocent misrepresentation
1. if material. Termite case
2. If representation of opinion but goes to opinion, ..
iii. Duress, where there’s no reasonable alternative but assent. §§ 17417623
1. Duress by force: void K.
2. Improper threat also results in void K.
3. A K is voidable where there was a threat of crime, tort, bad
faith lawsuit, or breach of K’s good faith fair dealing
a. A plain old breach of K is not a good enough threat
to void a K under duress
4. For Unfair K, voidable where there’s an act that would
harm victim and not help perpetrator
5. Usually economic duress. But no special rules.
a. Is there no reasonable alterative?
b. IS there an improper threat?
c. Under UCC: Good faith, legit commercial reason or
objectively demonstrable reason
d. Outside UCC: whether there is real coercion and no
alternative reasonable
iv. Undue influence (§17724)
Rest. 2d §131. General Requisites of a Memorandum [to Comply with the Statute of Frauds]
Rest. 2d. § 159. Misrepresentation Defined
23
Rest. 2d. § 175. When Duress by Threat Makes a Contact Voidable. § 176. When a Threat is Improper.
24
Rest. 2d. § 177. When Undue Influence Makes a Contract Voidable.
21
22
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3.
1. One party dominated by other
a. Time pressure
b. In appropriate place and time for K
v. Unconscionability
1. Substantive
2. Procedural
3. Some courts allow just one but most require both
4. Factors:
a. Many.
b. Example: Whether K is a K of adhesion
c. BUT just bc it’s a K of adhesion doesn’t mean it’s
nec invalid
i. Carnival.
vi. Mistake
1. Def: A belief that is not in accord with the facts (§151)
2. Distinguish, first, reformation. It doesn’t avoid he K, it
fixes the wiring.
a. We have a fine K that simply got written down
wrong.
i. Baily v. Traveler’s insurance
b. Usually a heightened burden of proof in order to
protect the parol evidence rule
i. Such as “clear and convincing”
Mistake cases are about mistake of present fact
4. Generally there has to be be mutual mistake that goes to the
essence or a basic assumption and that it will have a
material affect of the agreed exchange.
a. There we may allow a defense to the K unless the
risk has been allocated to one of the parties
b. Ex: if in Lenawee one party has assumed the K
c. Or if a party knew it was operating on limited
knowledge but went forward anyway
d. Or if there’s a good way to assign it: least cost
avoider
c. Changed Circumstances
i. Impracticability
ii. If the event rends the performance impracticable (§261), extreme
hardship, then there can be a defense
1. Acts of god, war, hurricane, gov reg
2. This is on seller’s side
iii. Frustration (§265)
1. For buyers.
2. But there are base questions about risk. Is the S really
taking the risk that the B’s purpose will be frustrated?
a. Nipsco, sometimes courts don’t follow
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3. Further, many courts hold if it was reasonably foreseeable,
you should have provided for the risk
4. BUT other courts say that even foreseeable things may not
be planned for
a. Maybe bc parties are too busy
5. Chander v Webster: letting things fall where they are (now
bad law)
6. Parties used force majeur clauses to deal with these
situations
d. Public policy defenses (§ 178)
i. Unconscionability
1. §143. If the party knew of or caused the mistake.
2. Policies against fraud and concealment
ii. Against Basic Public Policy:
1. Usually they want either ra statute or a well-established line
of judicial decisions in order to prove a public policy that
invalidates a K.
a. Ex: Family values: children, marriage
b. Anti-trust
c. Commission of crimes
d. Against waiving or releasing intention or reckless
torts
More public policies:
Policy of contractual freedom
Reliability
Certainty of K terms
K enables planning and credit and are basis of capitalism
Protect parties who cannot protect themselves
Liberty
Freedom FROM K
Policies against coercion
Against forfeitures
In favor of commercial flexibility
Use of land
Practically-oriented policies
Judicial administrability
In favor of settlement
Discouraging policy
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Appendix A: Restatement (Second) of Contracts
§ 1. Contract Defined.
A contract is a promise or a set of promises for the breach of which the law gives a
remedy, or a performance of which the law in some way recognizes as a duty.
§ 7. Voidable Contracts.
A voidable contract is one where one or more parties have the power, by a manifestation
of election to do so, to avoid the legal relations created by the contract, or by ratification
of the contract to extinguish the power of avoidance.
§ 8. Unenforceable Contracts
An unenforceable contract is one for the breach of which neither the remedy of damages
nor the remedy of specific performance is available, but which is recognized in some
other way as creating a duty of performance, though there has been no ratification.
§ 12. Capacity to Contract.
(1) No one can be bound by contract who has not legal capacity to incur at least
voidable contractual duties. Capacity to contract may be partial and its existence
in respect to a particular transaction may depend on the nature of the transaction
or upon other circumstances.
(2) A natural person25 who manifests assent to a transaction has full legal capacity to
incur contractual duties thereby unless he is
a. Under guardianship, or
b. An infant, or [infant until 18th birthday, see § 14]
c. Mentally ill or defective, or
d. Intoxicated [as long as the other party has reason to know he is
incapacitated, see § 16]
§ 17. Requirements of a Bargain.
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in
which there is a manifestation of mutual assent to the exchange and a consideration
(2) Whether or not there is a bargain a contract may be formed under special rules
applicable to formal contracts or under the rules stated in §§82-94
c. “Meeting of the Minds.” The element of agreement is sometimes referred to as a
“meeting of the minds.” The parties to most contracts give actual as well as apparent
assent, but it is clear that a mental reservation of a party to a bargain does not impair the
25
A natural person? As opposed to the unnatural kind?
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obligation he purports to undertake. The phrase used here, therefore, is “manifestation of
mutual assent,” as in the definition of “agreement” in §3.
§ 18. Manifestation of Mutual Assent.
Manifestation of mutual assent to an exchange requires that each party either make a
promise or begin to render a performance.
§ 19. Conduct as Manifestation of Assent.
(1) The manifestation of assent may be made wholly or partly by written or spoken
words or by other acts or by failure to act.
(2) The conduct of a party is not effective as a manifestation of his assent unless he
intends to engage in the conduct and knows or has reason to know that the other
party may infer from his conduct that he assents.
(3) The conduct of a party may manifest assent even though he does not in fact
assent. In such cases a resulting contact may be voidable because of fraud,
duress,26 mistake, or other invalidating cause.
§ 22. Mode of Assent: Offer and Acceptance.
(1) The manifestation of mutual assent to an exchange ordinarily takes the form of an
offer or proposal by one party followed by an acceptance by the other party or
parties.
(2) A manifestation of mutual assent may be made even though neither offer nor
acceptance can be identified and even though the moment of formation cannot be
determined.
§ 24. Offer Defined.
An offer is the manifestation of willingness to enter into a bargain, so made as to justify
another person in understanding that his assent to that bargain is invited and will
conclude it.
§ 25. [Definition of] Option Contracts.
An option contract is a promise which meets the requirements for the formation of a
contract and limits the promisor’s power to revoke an offer.
§ 26. Preliminary Negotiations.
Duress: Strictly, the physical confinement of a person or the detention of a contracting party’s property.
In the field of torts, duress is considered a species of fraud in which compulsion takes the place of deceit in
causing injury.
26
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A manifestation of willingness to enter into a bargain is not an offer if the person to
whom it is addressed knows or has reason to know that the person making it does not
intend to conclude a bargain until he has made further manifestations of assent.
§ 29. To Whom An Offer Is Addressed.
(1) The manifested intention of the offeror determines the person or persons in whom
is created a power of acceptance.
(2) An offer may create a power of acceptance in a specified person or in one or more
of a specified group or class of persons, acting separately or together, or in anyone
or everyone who makes a specified promise or renders a specified performance.
§ 33. Certainty.
(1) Even though a manifestation of intention is intended to be understood as an offer,
it cannot be accepted so as to form a contract unless the terms of the contract are
reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for
determining the existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain
may show that a manifestation of intention is not intended to be understood as an
offer or as an acceptance.
§ 36. Methods of Termination of the Power of Acceptance.
(1) An offeree’s power of acceptance may be terminated by
a. Rejection or counter-offer by the offeree, or
b. Lapse of time, or
c. Revocation by the offeror, or
d. Death or incapacity of the offeror or offeree.
(2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence
of any condition of acceptance under the terms of the offer.
§ 45. Option Contract Created by Part Performance or Tender
(1) When an offer invites an offeree to accept by rendering a performance and does
not invite a promissory acceptance, an option contract is created when the offeree
tenders or begins the invited performance or tenders a beginning of it
(2) The offeror’s duty of performance under any option contract so created is
conditional on completion or tender of the invited performance in accordance
with the terms of the offer.
§ 58. Necessity of Acceptance Complying With Terms of Offer.
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An acceptance must comply with the requirements of the offer as to the promise to be
made or the performance to be rendered. [the “mirror image rule”]
§ 59. Purported Acceptance Which Adds Qualifications.
A reply to an offer which purports to accept it but is conditional on the offeror’s assent to
terms additional to or different from those offered is not an acceptance but is a [rejection
and] counter-offer.
Comment a: “…The effect of the qualification or condition is to deprive the purported
acceptance of effect. But a definite and seasonable expression of acceptance is operative
despite the statement of additional or different terms if the acceptance is not made to
depend on assent to the additional or different terms. See § 61; Uniform Commercial
Code § 2-207(2). Such proposals may sometimes be accepted by the silence of the
original offeror. See § 69…”
§ 61. Acceptance Which Requests Change of Terms
An acceptance which requests a change or addition to the terms of the offer is not thereby
invalidated unless the acceptance is made to depend on an assent to the changed or added
terms.
§ 69. Acceptance by Silence or Exercise of Dominion
(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an
acceptance in the following cases only:
a. Where an offeree takes the benefit of offered services with reasonable
opportunity to reject them and reason to know that they were offered with
the expectation of compensation.
b. Where the offeror has stated or given the offeree reason to understand that
assent may be manifested by silence or inaction, and the offeree in
remaining silent and inactive intends to accept the offer.
c. Where because of previous dealings or otherwise, it is reasonable that the
offeree should notify the offeror if he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror’s ownership of offered
property is bound in accordance with the offered terms unless they are manifestly
unreasonable. But if the act is wrongful as against the offeror it is an acceptance
only if ratified by him.
§ 71. Requirement of Exchange; Types of Exchange [in Consideration]
(1) To constitute consideration, a performance or a return promise must be bargained
for.
(2) A performance or return promise is bargained for if it is sought by the promisor in
exchange for his promise and is given by the promisee in exchange for that
promise.
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(3) The performance may consist of
a. An act other than a promise, or
b. A forbearance, or
c. The creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other
person it may be given by the promisee or by some other person.
§ 73. Performance of Legal Duty [The Preexisting Duty Rule]
Performance of a legal duty owed to a promisor which is neither doubtful nor the subject
of honest dispute is not consideration; but a similar performance is consideration if it
differs from what was required by the duty in a way which reflects more than a pretense
of bargain.
[Note the UCC rejects the preexisting duty rule for modifying contracts if the change is
made in good faith and is commercially reasonable.]
§ 77. Illusory and Alternative Promises
(1) A promise or apparent promise is not consideration if by its terms the promisor or
purported promisor reserves a choice of alternative performances unless
a. Each of the alternative performances would have been consideration if it
alone had been bargained for; or
b. One of the alternative performances would have been consideration and
there is or appears to the party to be a substantial possibility that before the
promisor exercises his choice events may eliminate the alternatives which
would not have been consideration.
§ 79. Adequacy of Consideration; Mutuality of Obligation
If the requirement of consideration is met [§71, I think], there is no additional
requirement of
a. a gain, advantage, or benefit to the promisor or a loss, disadvantage, or
detriment to the promisee; or
b. equivalence in the values exchanged; or
c. “mutuality of obligation.”
§ 86. Promise for Benefit Received [Rule re Past Consideration]
(1) A promise made in recognition of a benefit previously received by the promisor
from the promisee is binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1)
a. If the promisee conferred the benefit as a gift or for other reasons the
promisor has not been unjustly enriched; or
b. To the extent that its value is disproportionate to the benefits.
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§ 87. Option Contract.
(1) An offer is binding as an option contract if it
a. Is in writing and signed by the offeror, recites a purported consideration
for the making of the offer, and proposes an exchange on fair terms within
a reasonable time; or
b. Is made irrevocable by statute
(2) An offer which the offeror should reasonably expect to induce action or
forbearance of a substantial character on the part of the offeree before acceptance
and which does induce such action or forbearance is binding as an option contract
to the extent necessary to avoid injustice.
§ 89. Modification of Executory Contract.
A promise modifying a duty under a contract not fully performed on either side is
binding
(a) if the modification is fair and equitable in view of circumstances not
anticipated by the parties when the contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change
of position in reliance on that promise.
§ 90. Promise Reasonably Inducing Action or Forbearance [Promissory Estoppel]
(1) A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce
such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted for breaching may be limited as
justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1)
without proof that the promise induced action or forbearance.
§110. Classes of Contracts Covered [by the Statute of Frauds]
(1) The following classes of contracts are subject to a statute, commonly called the
Statute of Frauds, forbidding enforcement unless there is a written memorandum
or an applicable exception:
a. A contract of an executor or administrator to answer for a duty of his
decedent (the executor-administrator provision);
b. A contract to answer for the duty of another (the suretyship position);
c. A contract made upon consideration of marriage (the marriage provision);
d. A contract for the sale of an interest in land (the land contract provision);
e. A contract that is not to be performed within one year from the making
thereof (the one-year provision)
(2) [omitted]
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(3) [omitted] ---[perhaps the $500 requirement?]
(4) [omitted]
(5) In many states other classes of contracts are subject to a requirement of a writing.
§131. General Requisites of a Memorandum [to Comply with the Statute of Frauds]
Unless additional requirements are prescribed by the particular statute, a contract within
the Statute of Frauds is enforceable if it is evidenced by any writing, singed by or on
behalf of the party to be charged, which
a. reasonably identifies the subject matter of the contract
b. is sufficient to indicate that a contract with respect thereto has been made between
the parties or offered by the signer to the other party, and
c. states with reasonable certainty the essential terms of the unperformed promises
in the contract.
§ 132. Several Writings
The memorandum may consist of several writings if one of the wirings is signed and the
writings in the circumstances clearly indicate that they relate to the same transaction.
§ 133. Memorandum Not Made As Such
Except in the case of a writing evidencing a contract upon consideration of marriage, the
Statute [of Frauds] may be satisfied by a signed writing not made as a memorandum of a
contract.
§ 135. Who Must Sign
Where a memorandum of a contract within the Statute [of Frauds] is signed by fewer than
all parties to the contract and the Statute is not otherwise satisfied, the contract is
enforceable against the signers but not against the others.
§ 139. Enforcement by Virtue of Action in Reliance [Notwithstanding Statute of
Frauds]
(1) A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce
the action or forbearance is enforceable notwithstanding the Statute of Frauds if
injustice can be avoided only by enforcement of the promise. The remedy granted
for breach is to be limited as justice requires.
(2) In determining whether injustice can be avoided only by enforcement of the
promise, the following circumstances are significant:
a. The availability and adequacy of other remedies, particularly cancellation
and restitution;
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b. The definite and substantial character of the action or forebearance in
relation to the remedy sought;
c. The extent to which the action or forbearance corroborates evidence of the
making and terms of the promise, or the making and terms are otherwise
established by clear and convincing evidence;
d. The reasonableness of the action or forbearance;
e. The extent to which the action or forbearance was foreseeable by the
promisor.
MISTAKE
§ 151. Mistake Defined
A mistake is a belief that is not in accord with the facts.
§ 152. When Mistake of Both Parties Makes a Contract Voidable
(1) Where a mistake of both parties at the same time a contract was made as to a
basic assumption on which the contract was made has a material effect on the
agreed exchange of performances, the contract is voidable by the adversely
affected party unless he bears the risk of the mistake under the rule stated in §
154.
(2) In determining whether the mistake has a material effect on the agreed exchange
of performances, account is taken of any relief by way of reformation, restitution
or otherwise.
Comment b: “Basic assumption. A mistake of both parties does not make the contract
voidable unless it is one as to a basic assumption on which both parties made the
contract. The term “basic assumption” has the same meaning here as it does
in…connection with impracticability (§§ 261, 266(1)) and frustration (§§ 265,
266(2)). See Uniform Commercial Code § 2-615(a).”
§ 153. When Mistake of One party Makes a Contract Voidable.
Where a mistake of one party at the time a contract was made as to a basic assumption on
which he made the contract has a material effect on the agreed exchange of performances
that is adverse to him, the contract is voidable by him if he does not bear the risk of the
mistake under the rule stated in § 154, and
a.
the effect of the mistake is such that enforcement of the contract would be
unconscionable, or
b.
the other party had reason to know of the mistake or his fault caused the
mistake.
§ 154. When a Party Bears the Risk of a Mistake.
A party bears the risk of a mistake when
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a. the risk is allocated to him by agreement of the parties, or
b. he is aware, at the time the contract is made, that he has only limited knowledge
with respect to the facts to which the mistake relates but treats his limited
knowledge as sufficient, or
c. the risk is allocated to him by the court that it is reasonable in the circumstances
to do so.
MISREPRESENTATION, DURESS AND UNDUE INFLUENCE
§ 159. Misrepresentation Defined.
A misrepresentation is an assertion that is not in accord with the facts.
§ 161. When Non-disclosure Is Equivalent to an Assertion
A person’s non-disclosure of a fact known to him is equivalent to an assertion that the
fact does not exist in the following cases only:
a. Where he knows that disclosure of the fact is necessary to prevent some previous
assertion from being a misrepresentation or from being fraudulent or material
b. Where he knows that disclosure of the fact would correct a mistake of the other
party as to a basic assumption on which that party is making the contract and if
non-disclosure of the fact amounts to a failure to act in good faith and in
accordance with reasonable standards of fair dealing.
c. Where he knows that disclosure of the fact would correct a mistake of the other
arty as to the contents or effect of a writing, evidencing or embodying an
agreement in whole or in part.
d. Where the other person is entitled to know the fact because of a relation of trust
and confidence between them.
§ 162. When a Misrepresentation is Fraudulent or Material
(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a
party to manifest his assent and the maker
a. Knows or believes that the assertion is not in accord with the facts, or
b. Does not have the confidence that he states or implies in the truth of the
assertion, or
c. Knows that he does not have the basis that he states or implies for the
assertion.
(2) A misrepresentation is material if it would be likely to induce a reasonable person
to manifest his assent, or if the maker knows that it would be likely to induce the
recipient to do so.27
§ 163. When a Misrepresentation Prevents Formation of a Contract
27
This means that a good faith material misrepresentation has the same effect as a fraudulent one.
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If a misrepresentation as to the character or essential terms of a proposed contract induces
conduct that appears to be a manifestation of assent by one who neither knows nor has
reasonable opportunity to know of the character or essential terms of the proposed
contract, his conduct is not effective as a manifestation of assent.
§ 164. When a Misrepresentation Makes a Contract Voidable
(1) If a party’s manifestation of assent is induced by either a fraudulent or a material
misrepresentation by the other party upon which the recipient is justified in
relying, the contract is voidable by the recipient.
(2) If a party’s manifestation of assent is induced by either a fraudulent or a material
misrepresentation who is not a party to the transaction upon which the recipient is
justified in relying, the contract is voidable by the recipient, unless the other party
to the transaction in good faith and without reason to know of the
misrepresentation either gives value or relies materially on the transaction.
§ 168. Reliance on Assertions of Opinion
(1) An assertion is one of opinion if it expresses only a belief, without certainty, as to
the existence of a fact or expresses only a judgment as to quality, value,
authenticity, or similar matters.
(2) If it is reasonable to do so, the recipient of an assertion of a person’s opinion as to
facts not disclosed and not otherwise known by the recipient may properly
interpret it as an assertion
a. That the facts known to that person are not incompatible with his opinion,
or
b. That he knows facts sufficient to justify him in forming it.
§169. When Reliance on an Assertion of Opinion Is Not Justified
To the extent that an assertion is one of opinion only, the recipient is not justified in
relying on it unless the recipient
a. Stands in such a relation of trust and confidence to the person whose
opinion is asserted that the recipient is reasonable in relying on it, or
whose opinion is asserted that the recipient is reasonable in relying on it,
or
b. Reasonably believes that, as compared with himself, the person whose
opinion is asserted has special skill, judgment or objectivity with respect
to the subject matter, or
c. Is for some other special reason particularly susceptible to a
misrepresentation of the type involved.
§ 174. When Duress by Physical Compulsion Prevents Formation of a Contract
If conduct that appears to be a manifestation of assent by a party who does not intend to
engage in that conduct is physically compelled by duress, the conduct is not effective as a
manifestation of assent.
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§ 175. When Duress by Threat Makes a Contract Voidable
(1) If a party’s manifestation of assent is induced by an improper threat made
by the other party that leaves the victim no reasonable alternative, the
contract is voidable by the victim.
(2) If a party’s manifestation of assent is induced by one who is not a party to
the transaction, the contract is voidable by the victim unless the other
party to the transaction in good faith and without reason to know of the
duress either gives value or relies materially on the transaction.
§ 176. When a Threat is Improper.
(1) A threat is improper if
a. What is threatened is a crime or a tort, or the threat itself would be a crime
or a tort if it resulted in obtaining property.
b. What is threatened is a criminal prosecution,
c. What is threatened is the use of civil process and the threat is made in bad
faith, or
d. The threat is a breach of the duty of good faith and fair dealing under a
contract with the recipient.
(2) A threat is improper if the resulting exchange is not on fair terms, and
a. The threatened act would harm the recipient and would not significantly
benefit the party making the threat
b. The effectiveness of the threat inducing the manifestation of assent is
significantly increased by prior unfair dealing by the party making the
threat, or
c. What is threatened is otherwise a use of power for illegitimate ends.
§ 177. When Undue Influence Makes a Contract Voidable
(1) Undue influence is unfair persuasion of a party who is under the domination of
the person exercising the persuasion or who by virtue of the relation between
them is justified in assuming that the person will not act in a manner inconsistent
with his welfare.
(2) If a party’s manifestation of assent is induced by undue influence by the other
party, the contract is voidable by the victim.
(3) If a party’s manifestation of assent is induced by one who is not a party to the
transaction, the contract is voidable by the victim unless the other party to the
transaction in good faith and without reason to know of the undue influence either
gives value or relies materially on the transaction.
UNENFORCEABILITY ON GROUNDS OF PUBLIC POLICY
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§ 178. When a Term Is Unenforceable on Grounds of Public Policy28
(1) A promise or other term of an agreement is unenforceable on grounds of public
policy if legislation proves that it is unenforceable or the interest in its
enforcement is clearly outweighed in the circumstances by a public policy against
the enforcement of such terms.
(2) In weighing the interest in the enforcement of a term, account is taken of
a. The strength of that policy as manifested by legislation or judicial
decisions
b. The likelihood that a refusal to enforce the term will further that policy
c. The seriousness of any misconduct and the extent to which it was
deliberate and
d. The directness of the connection between that misconduct and the term.
§ 179. Bases of Public Policies Against Enforcement
(1) A public policy against the enforcement of promises or other terms may be
derived by the court from
a. Legislation relevant to such a policy, or
b. The need to protect some aspect of the public welfare, as is the case for the
judicial polices against, for example,
i. Restraint of trade (§§ 186-188)
ii. Impairment of family relations (§§ 189-191), and
iii. Interference with other protected interests (§§ 192-196, 356).
THE SCOPE OF CONTRACTUAL OBLIGATIONS
§ 201. Whose Meaning Prevails
(1) Where the parties have attached the same meaning to a promise or agreement or a
term thereof, it is interpreted in accordance with that meaning.
(2) Where the parties have attached different meanings to a promise or agreement or
a term thereof, it is interpreted in accordance with the meaning attached by one of
them if at the time the agreement was made
I thought you might find the following excerpt interesting in light of our
conversation regarding contracts or provisions of contracts being found invalid
on grounds of public policy. The following is a quotation from the Restatement
(Second) of Contract, published by the American Law Institute, a highly
prestigious association of judges, lawyers and law professors. The restatement
is not statute but some states have enacted parts of it as statute; many courts
have explicitly or implicitly adopted the rules it promulgates and thus while it
is sometimes but not always mandatory authority, it is always persuasive
authority.
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a. That party did not know of any different meaning attached by the other,
and the other knew the meaning attached by the first party; or
b. That party had no reason to know of any different meaning attached by the
other, and the other had no reason to know the meaning attached by the
first party
(3) Except as stated in this section, neither party is bound by the meaning attached by
the other, even though the result may be a failure of mutual assent.
§ 204. Supplying an Omitted Essential Term
When the parties to a bargain sufficiently defined to be a contract have not agreed with
respect to a term which is essential to a determination of their rights and duties, a term
which is reasonable in the circumstances is supplied by the court.
§ 205. Duty of Good Faith and Fair Dealing
Every contract imposes upon each party a duty of good faith and fair dealing in its
performance and its enforcement.
§ 206. Interpreting Against the Draftsman
In choosing among the reasonable meanings of a promise or agreement or a term thereof,
that meaning is generally preferred which operates against the party who supplies the
words or from whom a writing otherwise proceeds.
§ 208. Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time the contract is made a court
may refuse to enforce the contract, or may enforce the remainder of the contract without
the unconscionable term, or may so limit the application of any unconscionable term as to
avoid any unconscionable result.
PAROL EVIDENCE
§ 209 Integrated Agreements
(1) An integrated agreement is a writing or writings constituting a final expression of
one or more terms of an agreement.
(2) Whether there is an integrated agreement is to be determined by the court as a
question preliminary to determination of a question of interpretation or to
application of the parol evidence rule.
(3) Where the parties reduce an agreement to a writing which in view of its
completeness and specificity reasonably appears to be a complete agreement, it is
taken to be an integrated agreement unless it is established by other evidence that
the writing did not constitute a final expression.
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§211. Standardized Agreements
…
(3) Where the other party has reason to believe that the party manifesting such assent
would not do so if he knew that the writing contained a particular term, the term is not
part of the agreement.
§ 212 Interpretation of Integrated Agreement
(1) The interpretation of an integrated agreement is directed to the meaning of the
terms of the writing or writings in the light of the circumstances, in accordance
with the rules stated in this Chapter.
(2) A question of interpretation of an integrated agreement is to be determined by the
trier of fact if it depends on the credibility of extrinsic evidence or on a choice
among reasonable inferences to be drawn from extrinsic evidence. Otherwise a
question of interpretation of an integrated agreement is to be determined as a
question of law.
§ 213. Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)
(1) A binding integrated agreement discharges prior agreements to the extent that it is
inconsistent with them.
(2) A binding completely integrated agreement discharges prior agreements to the
extent that they are within its scope
(3) An integrated agreement that is not binding or that is voidable and avoided does
not discharge a prior agreement. But an integrated agreement, even though not
binding, may be effective to render inoperative a term which would have been
part of th e agreement h if it had not been integrated.
§ 214. Evidence of Prior or Contemporaneous Agreements and Negotiations.
Agreements and negotiations prior to or contemporaneous with the adoption of a writing
are admissible in evidence to establish:
(a)
(b)
(c)
(d)
that the writing is or is not an integrated agreement;
that the integrated agreement, if any, is completely or partially integrated;
the meaning of the writing, whether or not integrated;
illegality, fraud, duress, mistake, lack of consideration, or other invalidating
cause’
(e) ground for granting or denying rescission, reformation, specific performance, or
other remedy.
§ 215. Contradiction of Integrated Terms
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Except as stated in the preceding Section, where there is a binding agreement, either
completely or partially integrated, evidence of prior or contemporaneous agreements or
negotiations is not admissible in evidence to contradict a term of the writing.
§ 216. Consistent Additional Terms:
(1) Evidence of a consistent additional term is admissible to supplement an integrated
agreement unless the court finds that the agreement was completely integrated.
(2) An agreement is not completely integrated if the writing omits a consistent
additional term which is
a. Agreed to for separate consideration, or
b. Such a term as in the circumstances might naturally be omitted from the
writing.
§ 219. Usage.
Usage is habitual or customary practice.
§ 221. Usage Supplementing an Agreement.
An agreement is supplemented or qualified by a reasonable usage with respect to
agreements of the same type if each party knows or has reason to know of the usage and
neither party knows or has reason to know that the other party has an intention
inconsistent with the usage.
§ 222. Usage of Trade.
(1) A usage of trade is a usage having such regularity of observance in a place,
vocation, or trade as to justify an expectation that it will be observed with respect
to a particular agreement. It may include a system of rules regularly observed
even though particular rules are changed from time to time.
(2) The existence and scope of a usage of trade are to be determined as questions of
fact. If a usage is embodied in a written trade code or similar writing the
interpretation of the writing is to be determined by the court as a question of law.
(3) Unless otherwise agreed, a usage of trade in the vocation or trade in which the
parties are engaged or a usage of trade of which they know or have reason to
know gives meaning to or supplements or qualifies their agreement.
§ 223. Course of Dealing.
(1) A course of dealing is a sequence of previous conduct between the parties to an
agreement which is fairly to be regarded as establishing a common basis of
understanding for interpreting their expressions and other conduct.
(2) Unless otherwise agreed, a course of dealing between the parties gives meaning to
or supplements or qualifies their agreement.
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§ 224. Condition Defined.
A condition is an event, not certain to occur, which must occur, unless its non-occurrence
is excused, before performance under a contract becomes due.
§ 229. Excuse as a Condition to Avoid Forfeiture.
To the extent that the non-occurrence of a condition would cause disproportionate
forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence
was a material part of the agreed exchange.
§ 237. Effect on Other Party’s Duties of a Failure to Render Performance
Except as stated in § 240, it is a condition of each party’s remaining duties to render
performances to be exchanged under an exchange of promises that there be no uncured
material failure by the other party to render any such performance due at an earlier time.
§240. Part Performances as Agreed Equivalents.
If the performances to be exchanged under an exchange of promises can be apportioned
into corresponding pairs of part performances so that the parts of each pair are properly
regarded as agreed equivalents, a party’s performance of his part of such a pair has the
same effect on the other’s duties to render performance of the agreed equivalent as it
would have if only that pair of performances had been promised.
§ 241. Circumstances Significant in Determining Whether a Failure [to Perform] is
Material.
In determining whether a failure to render or to offer performance is material, the
following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he
reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part
of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer
forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his
failure, taking account of all the circumstances including any reasonable
assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to
perform comports with standards of good faith and fair dealing.
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§ 250. When a Statement or an Act Is a Repudiation.
A repudiation is
a. a statement by the obligor to the oblige indicating that the obligor will commit a
breach that would of itself give the oblige a claim for damages for total breach
under § 243, or
b. a voluntary affirmative act which renders the obligor unable or apparently unable
to perform without such a breach.
§ 251. When a Failure to Give Assurance May Be Treated as a Repudiation
(1) Where reasonable grounds arise to believe that the obligor will commit a breach
by non-performance that would of itself give the oblige a claim for damages for
total breach under §243, the oblige may demand adequate assurance of due
performance and may, if reasonable, suspend performance for which he has not
already received the agreed exchange until he receives such assurance.
(2) The obligee may treat as a repudiation the obligor’s failure to provide within a
reasonable time such assurance of due performance as is adequate in the
circumstances of the particular case.
§ 253. Effect of a Repudiation as a Breach and on Other Party’s Duties
(1) Where an obligor repudiates a duty before he has committed a breach by nonperformance and before he has received all of the agreed exchange for it, his
repudiation alone gives rise to a claim for damages for total breach.
(2) Where performances are to be exchanged under an exchange of promises, one
party’s repudiation of a duty to render performance discharges the other party’s
remaining duties to render performances.
CHAPTER 11. IMPRACTICABILITY OF PERFORMANCE AND
FRUSTRATION OF PURPOSE
§ 261. Discharge by Supervening Impracticability
Where, after a contract is made, a party’s performance is made impracticable without his
fault by the occurrence of an event the non-occurrence of which was a basic assumption
on which the contract was made, his duty to render that performance is discharged, unless
the language or the circumstances indicate the contrary.
§ 262. Death or Incapacity of Person Necessary for Performance.
If the existence of a particular person is necessary for the performance of a duty, his
death or such incapacity as makes performance impracticable is an event the nonoccurrence of which was a basic assumption on which the contract was made.
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§ 263. Destruction, Deterioration or Failure to Come Into Existence of Thing
Necessary for Performance
If the existence of a specific thing is necessary for the performance of a duty, its failure to
come into existence, destruction , or such deterioration as makes performance
impracticable is an event the non-occurrence of which was a basic assumption on which
the contract was made.
§ 264. Prevention by Governmental Regulation or Order.
If the performance of a duty is made impracticable by having to comply with a domestic
of foreign governmental regulation or order, that regulation or order is an event the nonoccurrence of which was a basic assumption on which the contract was made.
§ 265. Discharge by Supervening Frustration.
Where, after a contract is made, a party’s principal purpose is substantially frustrated
without his fault by the occurrence of any event the non-occurrence of which was a basic
assumption on which the contract was made, his remaining duties to render performance
are discharged, unless the language or the circumstances indicate the contrary.
§ 266. Existing Impracticability or Frustration.
(1)
Where, at the time a contract is made, a party’s performance under it is
impracticable without his fault because of a fact of which he had no reason to
known and the non-existence of which is a basic assumption upon which the
contract is made, no duty to render that performance arises, unless the language or
circumstances indicate the contrary.
(2)
Where, at the time a contract is made, a party’s principal purpose is
substantially frustrated without his fault by a fact of which he has no reason to
know and the non-existence of which is a basic assumption on which the contract
is made, no duty of that party to render performance arises, unless the language or
circumstances indicate the contrary.
§ 272 Relief Including Restitution
(1)
(2)
In any case governed by the rules stated in this Chapter, either party may
have a claim for relief including restitution under the rules stated in §§ 240
and 377.
In any case governed by the rules stated in this Chapter, if those rules
together with the rules stated in Chapter 16 [Remedies] will not avoid
injustice, the court may grant relief on such terms as justice requires
including protection of the parties’ reliance interests.
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CHAPTER 12. DISCHARGE BY ASSENT OR ALTERATION
§ 278. Substituted Performance.
(1) If an oblige accepts in satisfaction of the obligor’s duty a performance offered by
the obligor that differs from what is due, the duty is discharged.
(2) If an oblige accepts in satisfaction of the obligor’s duty a performance offered by
a third person, the duty is discharge, but an obligor who has not previously
assented to the performance for his benefit may in a reasonable time after learning
of it render the discharge inoperative from the beginning by disclaimer.
§ 279. Substituted Contract.
(1) A substituted contract is a a contract that is itself accepted by the oblige in
satisfaction of the obligor’s existing duty.
(2) The substituted contract discharges the original duty and breach of the substituted
contract by the obligor does not give the obligee
§ 280. Novation.
A novation is a substituted contract that includes as a party one who was neither the
obligor nor the obligee of the original duty.
CHAPTER 16. REMEDIES
§ 344. Purposes of Remedies
Judicial remedies under the rules stated in this Restatement serve to protect one or more
of the following interests of a promisee:
a. his “expectation interest,” which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had
the contract been performed,
b. his “reliance interest,” which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as he
would have been in had the contract not been made, or
c. his “restitution interest,” which is his interest in having restored to him
any benefit that he has conferred on the other party.
§ 345 Judicial Remedies Available.
The judicial remedies available for the protection of the interests stated in § 344 include a
judgment or order
a. awarding a sum of money due under the contract or as damages,
b. requiring specific performance of a contract or enjoining its nonperformance,
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c.
d.
e.
f.
requiring restoration of a specific thing to prevent unjust enrichment,
awarding a sum of money to prevent unjust enrichment,
declaring the rights of the parties, and
enforcing an arbitration award.
§ 346 Availability of Damages
(1) The injured party has a right to damages for any breach by a party against whom
the contract is enforceable unless the claim for damages has been suspended or
discharged.
(2) If the breach caused no loss or if the amount of the loss is not proved under the
rules stated in this Chapter, a small sum fixed without regard to the amount of loss
will be awarded as nominal damages.
§ 347. Measuring Damages in General.
Subject to the limitations stated in §§ 350-53, the injured party has a right to damages
based on his expectation interest as measured by
(a) the loss in the value to him of the other party’s performance caused by its failure
or deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the breach,
less
(c) any cost or other loss that he has avoided by not having to perform.
§ 349. Damages Based on Reliance Interest
As an alternative to the measure of damages stated in § 347, the injured party has a right
to damages based on his reliance interest, including expenditures made in preparation for
performance or in performance, less any loss that the party in breach can prove with
reasonable certainty the injured party would have suffered had the contract been
performed.
§ 350. Avoidability as a Limitation on Damages
(1) Except as stated in Subsection (2), damages are not recovery for loss that the
injured party could have avoided without undue risk, burden or humiliation.
(2) The injured party is not precluded from recovery by the rule stated in Subsection
(1) to the extent that he has made reasonable but unsuccessful efforts to avoid
loss.
§ 351. Unforeseeability and Related Limitations on Damages
(1) Damages are not recoverable for loss that the party in breach did not have reason
to foresee as a probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from
the breach
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a. In the ordinary course of events, or
b. As a result of special circumstances, beyond the ordinary course of events,
that the party in breach had reason to know.
(3) A court may limit damages for foreseeable loss by excluding recovery for loss of
profits, by allowing recovery only for loss incurred in reliance, or otherwise if it
concludes that in the circumstances justice so requires in order to avoid
disproportionate compensation.
§ 352. Uncertainty as a Limitation on Damages
Damages are not recoverable for loss beyond an amount that the evidence permits to be
established with reasonable certainty.
§ 353. Loss Due to Emotional Disturbance
Recovery for emotional disturbance will be excluded unless the breach also caused bodily
harm or the contract or the breach is of such a kind that serious emotional disturbance
was a particularly likely result.
§ 355. Punitive Damages
Punitive damages are not recoverable for a breach of contract unless the conduct
constituting the breach is also a tort for which punitive damages are recoverable.
§ 356. Liquidated Damages and Penalties
(3) Damages for breach by either party may be liquidated in the agreement but only at
an amount that is reasonable in the light of the anticipated or actual loss caused by
the breach and the difficulties of proof of loss. A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public policy as a penalty.
(4) A term in a bond providing for an amount of money as a penalty for nonoccurrence of the condition of the bond is unenforceable on grounds of public
policy to the extent that the amount exceeds the loss caused by such nonoccurrence.
§ 377. Restitution in Cases of Impracticability, Frustration, Non-occurrence of
Condition or Disclaimer by Beneficiary.
A party whose duty of performance does not arise or is discharged as a result of
impracticability of performance, frustration of purpose, non-occurrence of a condition or
disclaimer by a beneficiary is entitled to restitution for any benefit that he has conferred
on the other party by way of pert performance or reliance.
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§ 766. Intentional Interference with Performance of Contract by Third Person
(Restatement (second) of Tortsi
One who intentionally and improperly interferes with the performance of a
contract (except a contract to marry) between another and a third person by inducing or
otherwise causing the third person not to perform the contract, is subject to liability to the
other for the pecuniary29 loss resulting to the other from the failure of the third person to
perform the contract.30
29
30
Pecuniary: of or relating to money
This seems to limit damages to reliance or expectation, but not consequential damages. Or does it?
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Appendix B:
Uniform Commercial Code – Sales of Goods
§1-201. General Definitions.
(19) “Good faith” means honesty in fact in the conduct or transaction concerned.
§ 1-203. Obligation of Good Faith.
Every contract or duty within this Act imposes an obligation of good faith in its
performance or enforcement.
§ 1-205. (§ 1-303.) Course of Dealing and Usage of Trade
(a)
A "course of performance" is a sequence of conduct between the parties to
a particular transaction that exists if: (1) the agreement of the parties with respect
to the transaction involves repeated occasions for performance by a party; and (2)
the other party, with knowledge of the nature of the performance and opportunity
for objection to it, accepts the performance or acquiesces in it without objection.
(b)
A "course of dealing" is a sequence of conduct concerning previous
transactions between the parties to a particular transaction that is fairly to be
regarded as establishing a common basis of understanding for interpreting their
expressions and other conduct.
(c)
A "usage of trade" is any practice or method of dealing having such
regularity of observance in a place, vocation, or trade as to justify an expectation
that it will be observed with respect to the transaction in question. The existence
and scope of such a usage must be proved as facts. If it is established that such a
usage is embodied in a trade code or similar record, the interpretation of the
record is a question of law.
(d)
A course of performance or course of dealing between the parties or usage
of trade in the vocation or trade in which they are engaged or of which they are or
should be aware is relevant in ascertaining the meaning of the parties' agreement,
may give particular meaning to specific terms of the agreement, and may
supplement or qualify the terms of the agreement. A usage of trade applicable in
the place in which part of the performance under the agreement is to occur may be
so utilized as to that part of the performance.
(e)
Except as otherwise provided in subsection (f), the express terms of an
agreement and any applicable course of performance, course of dealing, or usage
of trade must be construed whenever reasonable as consistent with each other. If
such a construction is unreasonable: (1) express terms prevail over course of
performance, course of dealing, and usage of trade; (2) course of performance
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prevails over course of dealing and usage of trade; and (3) course of dealing
prevails over usage of trade.
(f)
Subject to Section 2-209, a course of performance is relevant to show a
waiver or modification of any term inconsistent with the course of performance.
(g)
Evidence of a relevant usage of trade offered by one party is not
admissible unless that party has given the other party notice that the court finds
sufficient to prevent unfair surprise to the other party.
§ 2-102. Scope: Certain Security and Other Transactions Excluded From This
Article.
Unless the context otherwise requires, this Article applies to transactions in goods; it does
not apply to any transaction which although in the form of an unconditional contract to
sell or present sale is intended to operate only as a security transaction nor does this
Article impair or repeal any statue regulating sales to consumers, farmers or other
specified classes of buyers.
§ 2-103. Definition and Index of Definitions.
(1) In this article unless the context otherwise requires:
(a) “Buyer” means a person who buys or contracts to buy goods.
(b) “Good faith” in the case of a merchant means honesty in fact and the
observance of reasonable commercial standards of fair dealing in the trade.
(c) “Receipt” of goods means taking physical possession of them.
(d) “Seller” means a person who sells or contracts to sell goods.
§ 2-104. Definitions: "Merchant"; "Between Merchants"; "Financing Agency".
(1) “Merchant” means a person who deals in goods of the kind or otherwise by his
occupation holds himself out as having knowledge or skill peculiar to the
practices or goods involved in the transaction or to whom such knowledge or skill
may be attributed by his employment of an agent or broker or other intermediary
who by his occupation holds himself out as having such knowledge or skill.
(2) “Financing agency” means a bank, finance company or other person who in the
ordinary course of business makes advances against goods or documents of title
or who by arrangement with either the seller or the buyer intervenes in ordinary
course to make or collect payment due or claimed under the contract for sale, as
by purchasing or paying the seller's draft or making advances against it or by
merely taking it for collection whether or not documents of title accompany the
draft. “Financing agency” includes also a bank or other person who similarly
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intervenes between persons who are in the position of seller and buyer in respect
to the goods (Section 2-707).
(3) “Between Merchants” means in any transaction with respect to which both parties
are chargeable with the knowledge or skill of merchants.
§ 2-105. Definitions: Transferability; "Goods"; "Future" Goods; "Lot";
"Commercial Unit".
(1) "Goods" means all things (including specially manufactured goods) which are
movable at the time of identification to the contract for sale other than the money
in which the price is to be paid, investment securities (Article 8) and things in
action. “Goods” also includes the unborn young of animals and growing crops
and other identified things attached to realty as described in the section on goods
to be severed from realty (Section 2-107).
(2) Goods must be both existing and identified before any interest in them can pass.
Goods which are not both existing and identified are “future” goods. A purported
present sale of future goods or of any interest therein operates as a contract to sell.
§ 2-106. Definitions: "Contract"; "Agreement"; "Contract for sale"; "Sale";
"Present sale"; "Conforming" to Contract; "Termination"; "Cancellation".
(1) In this Article unless the context otherwise requires "contract" and "agreement"
are limited to those relating to the present or future sale of goods. "Contract for
sale" includes both a present sale of goods and a contract to sell goods at a future
time. A "sale" consists in the passing of title from the seller to the buyer for a
price (Section 2-401). A "present sale" means a sale which is accomplished by
the making of the contract.
(2) Goods or conduct including any part of a performance are "conforming" or
conform to the contract when they are in accordance with the obligations under
the contract.
(3) "Termination" occurs when either party pursuant to a power created by agreement
or law puts an end to the contract otherwise than for its breach. On "termination"
all obligations which are still executory on both sides are discharged but any right
based on prior breach or performance survives.
(4) "Cancellation" occurs when either party puts an end to the contract for breach by
the other and its effect is the same as that of "termination" except that the
cancelling party also retains any remedy for breach of the whole contract or any
unperformed balance.
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§ 2-201. Formal Requirements; Statute of Frauds.
(1) Except as otherwise provided in this section a contract for the sale of goods for
the price of $500 or more is not enforceable by way of action or defense unless
there is some writing sufficient to indicate that a contract for sale has been made
between the parties and signed by the party against whom enforcement is sought
or by his authorized agent or broker. A writing is not insufficient because it omits
or incorrectly states a term agreed upon but the contract is not enforceable under
this paragraph beyond the quantity of goods shown in such writing.
(2) Between merchants if within a reasonable time a writing in confirmation of the
contract and sufficient against the sender is received and the party receiving it has
reason to know its contents, it satisfies the requirements of subsection (1) against
such party unless written notice of objection to its contents is given within 10
days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) but which is
valid in other respects is enforceable
(a) if the goods are to be specially manufactured for the buyer and are not
suitable for sale to others in the ordinary course of the seller's business and
the seller, before notice of repudiation is received and under circumstances
which reasonably indicate that the goods are for the buyer, has made either
a substantial beginning of their manufacture or commitments for their
procurement; or
(b) if the party against whom enforcement is sought admits in his pleading,
testimony or otherwise in court that a contract for sale was made, but the
contract is not enforceable under this provision beyond the quantity of
goods admitted; or
(c) with respect to goods for which payment has been made and accepted or
which have been received and accepted (Sec. 2-606).
§ 2-202. Final Written Expression: Parol or Extrinsic Evidence.
Terms with respect to which the confirmatory memoranda of the parties agree or which
are otherwise set forth in a writing intended by the parties as a final expression of their
agreement with respect to such terms as are included therein may not be contradicted by
evidence of any prior agreement or of a contemporaneous oral agreement but may be
explained or supplemented
(d) by course of performance, course of dealing, or usage of trade (Section 1303); and
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(e) by evidence of consistent additional terms unless the court finds the
writing to have been intended also as a complete and exclusive statement
of the terms of the agreement .
§ 2-203. Seals Inoperative.
The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell
goods does not constitute the writing a sealed instrument and the law with respect to
sealed instruments does not apply to such a contract or offer.
§ 2-204. Formation in General.
(1) A contract for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of
such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even
though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a
reasonably certain basis for giving an appropriate remedy.
§ 2-205. Firm Offers.
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives
assurance that it will be held open is not revocable, for lack of consideration, during the
time stated or if not time is stated for a reasonable time, but in no event may such period
of irrevocability exceed three months; but any such term of assurance on a form supplied
by the offeree must be separately signed by the offeror.
§ 2-206. Offer and Acceptance in Formation of Contract.
(1) Unless otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a contract shall be construed as inviting acceptance in
any manner and by any medium reasonable in the circumstances;
(b) an order or other offer to buy goods for prompt or current shipment shall
be construed as inviting acceptance either by a prompt promise to ship or
by the prompt or current shipment of conforming or non-conforming
goods, but such a shipment of non-conforming goods does not constitute
an acceptance if the seller seasonably notifies the buyer that the shipment
is offered only as an accommodation to the buyer.
(2) Where the beginning of a requested performance is a reasonable mode of
acceptance an offeror who is not notified of acceptance within a reasonable time
may treat the offer as having lapsed before acceptance.
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§ 2-207. Additional Terms in Acceptance or Confirmation.
(1) A definite and seasonable expression of acceptance or a written confirmation
which is sent within a reasonable time operates as an acceptance even though it
states terms additional to or different from those offered or agreed upon, unless
acceptance is expressly made conditional on assent to the additional or different
terms.
(2) The additional terms are to be construed as proposals for addition to the contract.
Between merchants such terms become part of the contract unless:
a. The offer expressly limits acceptance to the terms of the offer
b. They materially alter it; or
c. Notification of objection to them has already been given or is given within
a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient
to establish a contract for sale although the writings of the parties do not
otherwise establish a contract. In such case the terms of the particular contract
consist of those terms on which the writings of the parties agree, together with
any supplementary terms incorporated under any other provisions of this Act.
§ 2-209. Modification, Rescission and Waiver
(1) An agreement modifying a contract within this Article needs no consideration to
be binding.
(2) A signed agreement which excludes modification or rescission except by a signed
writing cannot be otherwise modified or rescinded, but except as between
merchants such a requirement on a form supplied by the merchant must be
separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (section 2-201)
must be satisfied if the contract as modified is within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the
requirements of subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may
retract the waiver by reasonable notification received by the other party that strict
performance will be required of any term waived, unless the retraction would be
unjust in view of a material change of position in reliance on the waiver.
§ 2-302. Unconscionable contract or Clause.
(1) If the court as a matter of law finds the contract or any clause of the contract to
have been unconscionable at the time it was made the court may refuse to enforce
the contract, or it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of any unconscionable
clause as to avoid any unconscionable result.
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(2) When it is claimed or appears to the court that the contract or any clause thereof
may be unconscionable the parties shall be afforded a reasonable opportunity to
present evidence as to its commercial setting, purpose and effect to aid the court
in making the determination.
§ 2-305. Open Price Term.
(1) The parties if they so intend can conclude a contract for sale even though the price
is not settled. In such a case the price is a reasonable price at the time for delivery
if
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as
set or recorded by a third person or agency and it is not so set or recorded.
(3) A price to be fixed by the seller or by the buyer means a price for him to fix in
good faith.
(4) When a price left to be fixed otherwise than by agreement of the parties fails to be
fixed through fault of one party the other may at his option treat the contract as
cancelled or himself fix a reasonable price.
(5) Where, however, the parties intend not to be bound unless the price be fixed or
agreed and it is not fixed or agreed there is no contract. In such a case the buyer
must return any goods already received or if unable so to do must pay their
reasonable value at the time of delivery and the seller must return any portion of
the price paid on account.
§ 2-306. Output, Requirements and Exclusive Dealings
(1) A term which measures the quantity by the output of the seller or the requirements
of the buyer means such actual output or requirements as may occur in good
faith, except that no quantity unreasonably disproportionate to any stated estimate
or in the absence of a stated estimate to any normal or otherwise comparable prior
output or requirements may be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the
kind of goods concerned imposes unless otherwise agreed an obligation by the
seller to use best efforts to supply the goods and by the buyer to use best efforts to
promote their sale.
§ 2-313. Express Warranties by Affirmation, Promise, Description, Sample.
(1) Express warranties by the seller are created as follows:
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(a) Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the affirmation or
promise.
(b) Any description of the goods which is made part of the basis of the
bargain creates an express warranty that the goods shall conform to the
description.
(c) Any sample or model which is made part of the basis of the bargain
creates an express warranty that the whole of the goods shall conform to
the sample or model.
(2) It is not necessary to the creation of an express warranty that the seller use formal
words such as "warrant" or "guarantee" or that he have a specific intention to
make a warranty, but an affirmation merely of the value of the goods or a
statement purporting to be merely the seller's opinion or commendation of the
goods does not create a warranty.
§ 2-314. Implied Warranty: Merchantability; Usage of Trade.
(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a merchant with
respect to goods of that kind. Under this section the serving for value of food or
drink to be consumed either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
(d) pass without objection in the trade under the contract description; and
(e) in the case of fungible goods, are of fair average quality within the
description; and
(f) are fit for the ordinary purposes for which such goods are used; and
(g) run, within the variations permitted by the agreement, of even kind,
quality and quantity within each unit and among all units involved; and
(h) are adequately contained, packaged, and labeled as the agreement may
require; and
(i) conform to the promise or affirmations of fact made on the container or
label if any.
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(3) Unless excluded or modified (Section 2-316) other implied warranties may arise
from course of dealing or usage of trade.
§ 2-315. Implied Warranty: Fitness for Particular Purpose.
Where the seller at the time of contracting has reason to know any particular purpose for
which the goods are required and that the buyer is relying on the seller's skill or judgment
to select or furnish suitable goods, there is unless excluded or modified under the next
section an implied warranty that the goods shall be fit for such purpose.
§ 2-316. Exclusion or Modification of Warranties.
(1) Words or conduct relevant to the creation of an express warranty and words or
conduct tending to negate or limit warranty shall be construed wherever
reasonable as consistent with each other; but subject to the provisions of this
Article on parol or extrinsic evidence (Section 2-202) negation or limitation is
inoperative to the extent that such construction is unreasonable.
(2) Subject to subsection (3), to exclude or modify the implied warranty of
merchantability or any part of it the language must mention merchantability and
in case of a writing must be conspicuous, and to exclude or modify any implied
warranty of fitness the exclusion must be by a writing and conspicuous.
Language to exclude all implied warranties of fitness is sufficient if it states, for
example, that "There are no warranties which extend beyond the description on
the face hereof."
(3) Notwithstanding subsection (2)
(j) unless the circumstances indicate otherwise, all implied warranties are
excluded by expressions like "as is", "with all faults" or other language
which in common understanding calls the buyer's attention to the
exclusion of warranties and makes plain that there is no implied warranty;
and
(k) when the buyer before entering into the contract has examined the goods
or the sample or model as fully as he desired or has refused to examine the
goods there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to him; and
(l) an implied warranty can also be excluded or modified by course of dealing
or course of performance or usage of trade.
(4) Remedies for breach of warranty can be limited in accordance with the provisions
of this Article on liquidation or limitation of damages and on contractual
modification of remedy (Sections 2-718 and 2-719).
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§ 2-318. Third Party Beneficiaries of Warranties Express or Implied.
[Note: If this Act is introduced in the Congress of the United States this section should be
omitted. (States to select one alternative.)]
Alternative A
A seller's warranty whether express or implied extends to any natural person who is in the
family or household of his buyer or who is a guest in his home if it is reasonable to
expect that such person may use, consume or be affected by the goods and who is injured
in person by breach of the warranty. A seller may not exclude or limit the operation of
this section.
Alternative B
A seller's warranty whether express or implied extends to any natural person who may
reasonably be expected to use, consume or be affected by the goods and who is injured in
person by breach of the warranty. A seller may not exclude or limit the operation of this
section.
Alternative C
A seller's warranty whether express or implied extends to any person who may
reasonably be expected to use, consume or be affected by the goods and who is injured
by breach of the warranty. A seller may not exclude or limit the operation of this section
with respect to injury to the person of an individual to whom the warranty extends.
§ 2-501. Insurable Interest in Goods; Manner of Identification of Goods.
(1) The buyer obtains a special property and an insurable interest in goods by
identification of existing goods as goods to which the contract refers even though
the goods so identified are non-conforming and he has an option to return or reject
them. Such identification can be made at any time and in any manner explicitly
agreed to by the parties. In the absence of explicit agreement identification occurs
a. When the contract is made if it is for the sale of goods already existing
when identified;
b. If the contract is for the sale of future goods other than those described in
paragraph (c), when goods are shipped, marked or otherwise designated by
the seller as goods to which the contract refers
c. When the crops are planted or otherwise become growing crops or the
young are conceived if the contract is for the sale of unborn young to be
born within 12 months after contracting or for the sale of crops to be
harvested within 12 months or the next normal harvest season after
contracting whichever is longer.
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(2) The seller retains an insurable interest in goods so long as title to or any security
interest in the goods remains in him and where the identification is by the seller
alone he may until default or insolvency or notification to the buyer that the
identification is final substitute other goods for those identified.
(3) Nothing in this section impairs any insurable interest recognized under any other
statute or rule of law.
§ 2-502. Buyer’s Right to Goods on Seller’s Repudiation, Failure to Deliver, or
Insolvency
(1) Subject to subsections (2) and (3) and even though the goods have not been
shipped a buyer who has paid a part or all of the price of goods in which he has a
special property under the provisions of the immediately preceding section may
on making and keeping good a tender of any unpaid portion of their price recover
them from the seller if:
a. In the case of goods bought for personal, family, or household purposes,
the seller repudiates or fails to deliver as required by the contract; or
b. In all cases, the seller becomes insolvent within ten days after receipt of
the first installment on their price.
(2) The buyer’s right to recover the goods under section (1)(a) vests upon acquisition
of a special property, even if the seller had not then repudiated or failed to deliver.
(3) If the identification creating his special property has been made by the buyer he
acquires the right to recover the goods only if they conform to the contract for
sale.
§ 2-513. Buyer's Right to Inspection of Goods.
(1) Unless otherwise agreed and subject to subsection (3), where goods are tendered
or delivered or identified to the contract for sale, the buyer has a right before
payment or acceptance to inspect them at any reasonable place and time and in
any reasonable manner. When the seller is required or authorized to send the
goods to the buyer, the inspection may be after their arrival.
(2) Expenses of inspection must be borne by the buyer but may be recovered from the
seller if the goods do not conform and are rejected.
(3) Unless otherwise agreed and subject to the provisions of this Article on C.I.F.
contracts (subsection (3) of Section 2-321), the buyer is not entitled to inspect the
goods before payment of the price when the contract provides
(a)
for delivery "C.O.D." or on other like terms; or
(b)
for payment against documents of title, except where such payment
is due only after the goods are to become available for inspection.
(4) A place or method of inspection fixed by the parties is presumed to be exclusive
but unless otherwise expressly agreed it does not postpone identification or shift
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the place for delivery or for passing the risk of loss. If compliance becomes
impossible, inspection shall be as provided in this section unless the place or
method fixed was clearly intended as an indispensable condition failure of which
avoids the contract.
§ 2-601. Buyer's Rights on Improper Delivery.
Subject to the provisions of this Article on breach in installment contracts (Section 2-612)
and unless otherwise agreed under the sections on contractual limitations of remedy
(Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to
conform to the contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.
§ 2-602. Manner and Effect of Rightful Rejection.
(1) Rejection of goods must be within a reasonable time after their delivery or tender.
It is ineffective unless the buyer seasonably notifies the seller.
(2) Subject to the provisions of the two following sections on rejected goods
(Sections 2-603 and 2-604),
(a) after rejection any exercise of ownership by the buyer with respect to any
commercial unit is wrongful as against the seller; and
(b) if the buyer has before rejection taken physical possession of goods in
which he does not have a security interest under the provisions of this
Article (subsection (3) of Section 2-711), he is under a duty after rejection
to hold them with reasonable care at the seller's disposition for a time
sufficient to permit the seller to remove them; but
(c) the buyer has no further obligations with regard to goods rightfully
rejected.
(3) The seller's rights with respect to goods wrongfully rejected are governed by the
provisions of this Article on seller's remedies in general (Section 2-703).
§ 2-603. Merchant Buyer's Duties as to Rightfully Rejected Goods.
(1) Subject to any security interest in the buyer (subsection (3) of Section 2-711),
when the seller has no agent or place of business at the market of rejection a
merchant buyer is under a duty after rejection of goods in his possession or
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control to follow any reasonable instructions received from the seller with respect
to the goods and in the absence of such instructions to make reasonable efforts to
sell them for the seller's account if they are perishable or threaten to decline in
value speedily. Instructions are not reasonable if on demand indemnity for
expenses is not forthcoming.
(2) When the buyer sells goods under subsection (1), he is entitled to reimbursement
from the seller or out of the proceeds for reasonable expenses of caring for and
selling them, and if the expenses include no selling commission then to such
commission as is usual in the trade or if there is none to a reasonable sum not
exceeding ten per cent on the gross proceeds.
(3) In complying with this section the buyer is held only to good faith and good faith
conduct hereunder is neither acceptance nor conversion nor the basis of an action
for damages.
§ 2-604. Buyer's Options as to Salvage of Rightfully Rejected Goods.
Subject to the provisions of the immediately preceding section on perishables if the seller
gives no instructions within a reasonable time after notification of rejection the buyer
may store the rejected goods for the seller's account or reship them to him or resell them
for the seller's account with reimbursement as provided in the preceding section. Such
action is not acceptance or conversion.
§ 2-606. What Constitutes Acceptance of Goods.
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller
that the goods are conforming or that he will take or retain them in spite of
their non-conformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602), but
such acceptance does not occur until the buyer has had a reasonable
opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act is
wrongful as against the seller it is an acceptance only if ratified by him.
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
§ 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach
After Acceptance; Notice of Claim or Litigation to Person Answerable Over.
(1) The buyer must pay at the contract rate for any goods accepted.
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(2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if
made with knowledge of a non-conformity cannot be revoked because of it unless
the acceptance was on the reasonable assumption that the non-conformity would
be seasonably cured but acceptance does not of itself impair any other remedy
provided by this Article for non-conformity.
(3) Where a tender has been accepted
(d) the buyer must within a reasonable time after he discovers or should have
discovered any breach notify the seller of breach or be barred from any
remedy; and
(e) if the claim is one for infringement or the like (subsection (3) of Section 2312) and the buyer is sued as a result of such a breach he must so notify
the seller within a reasonable time after he receives notice of the litigation
or be barred from any remedy over for liability established by the
litigation.
(4) The burden is on the buyer to establish any breach with respect to the goods
accepted.
(5) Where the buyer is sued for breach of a warranty or other obligation for which his
seller is answerable over
(a) he may give his seller written notice of the litigation. If the notice states
that the seller may come in and defend and that if the seller does not do so
he will be bound in any action against him by his buyer by any
determination of fact common to the two litigations, then unless the seller
after seasonable receipt of the notice does come in and defend he is so
bound.
(b) if the claim is one for infringement or the like (subsection (3) of Section 2312) the original seller may demand in writing that his buyer turn over to
him control of the litigation including settlement or else be barred from
any remedy over and if he also agrees to bear all expense and to satisfy
any adverse judgment, then unless the buyer after seasonable receipt of the
demand does turn over control the buyer is so barred.
(6) The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to
hold the seller harmless against infringement or the like (subsection (3) of Section
2-312).
§ 2-608. Revocation of Acceptance in Whole or in Part.
(1) The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it
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(a) on the reasonable assumption that its non-conformity would be cured and
it has not been seasonably cured; or
(b) without discovery of such non-conformity if his acceptance was
reasonably induced either by the difficulty of discovery before acceptance
or by the seller's assurances.
(2) Revocation of acceptance must occur within a reasonable time after the buyer
discovers or should have discovered the ground for it and before any substantial
change in condition of the goods which is not caused by their own defects. It is
not effective until the buyer notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard to the goods
involved as if he had rejected them.
§ 2-609. Right to Adequate Assurance of Performance.
(1) A contract for sale imposes an obligation on each party that the other's
expectation of receiving due performance will not be impaired. When reasonable
grounds for insecurity arise with respect to the performance of either party the
other may in writing demand adequate assurance of due performance and until he
receives such assurance may if commercially reasonable suspend any
performance for which he has not already received the agreed return.
(2) Between merchants the reasonableness of grounds for insecurity and the adequacy
of any assurance offered shall be determined according to commercial standards.
(3) Acceptance of any improper delivery or payment does not prejudice the aggrieved
party's right to demand adequate assurance of future performance.
(4) After receipt of a justified demand failure to provide within a reasonable time not
exceeding thirty days such assurance of due performance as is adequate under the
circumstances of the particular case is a repudiation of the contract.
§ 2-610. Anticipatory Repudiation.
When either party repudiates the contract with respect to a performance not yet due the
loss of which will substantially impair the value of the contract to the other, the aggrieved
party may
(c) for a commercially reasonable time await performance by the repudiating
party; or
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(d) resort to any remedy for breach (Section 2-703 or Section 2-711), even
though he has notified the repudiating party that he would await the latter's
performance and has urged retraction; and
(e) in either case suspend his own performance or proceed in accordance with
the provisions of this Article on the seller's right to identify goods to the
contract notwithstanding breach or to salvage unfinished goods (Section 2704).
§ 2-611. Retraction of Anticipatory Repudiation.
(1) Until the repudiating party's next performance is due he can retract his repudiation
unless the aggrieved party has since the repudiation cancelled or materially
changed his position or otherwise indicated that he considers the repudiation final.
(2) Retraction may be by any method which clearly indicates to the aggrieved party
that the repudiating party intends to perform, but must include any assurance
justifiably demanded under the provisions of this Article (Section 2-609).
(3) Retraction reinstates the repudiating party's rights under the contract with due
excuse and allowance to the aggrieved party for any delay occasioned by the
repudiation.
§ 2-612. “Installment Contract:’ Breach.
(1) An “installment contract” is one which requires or authorizes the delivery of
goods in separate lots to be separately accepted, even though the contract contains
a clause “each delivery is a separate contract” or its equivalent.
(2) The buyer may reject any installment which is non-conforming if the nonconformity substantially impairs the value of that installment and cannot be cured
or if the non-conformity is a defect in the required documents; but if the nonconformity does not fall within subsection (3) and the seller gives adequate
assurance of its cure the buyer must accept that installment.
(3) Whenever non-conformity or default with respect to one or more installments
substantially impairs the value of the whole contract there is a breach of the
whole. But the aggrieved party reinstates the contract if he accepts a nonconforming installment without seasonably notifying of cancellation or if he
brings an action with respect only to past installments or demands performance as
to future installments.
§ 2-613. Casualty to Identified Goods.
Where the contract requires for its performance goods identified when the contract is
made, and the goods suffer casualty without fault of either party before the risk of loss
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passes to the buyer, or in a proper case under a "no arrival, no sale" term (Section 2-324)
then
(a) if the loss is total the contract is avoided; and
(b) if the loss is partial or the goods have so deteriorated as no longer to
conform to the contract the buyer may nevertheless demand inspection and
at his option either treat the contract as avoided or accept the goods with
due allowance from the contract price for the deterioration or the
deficiency in quantity but without further right against the seller.
§2-615. Excuse by Failure of Presupposed Conditions.
Except so far as a seller may have assumed a greater obligation and subject to the
preceding section on substituted performance:
a. delay in delivery or in non-delivery in whole or in part by a seller who
complies with paragraphs (b) and (c) is not in breach of his duty under a
contract for sale if performance as agreed has been made impracticable by
the occurrence of a contingency the non-occurrence of which was a basic
assumption on which the contract was made or by compliance in good
faith with any applicable foreign or domestic governmental regulation or
order whether or not it later proves to be invalid.
b. Where the causes mentioned in paragraph (a) affect only a part of the
seller’s capacity to perform, he must allocate production and deliveries
among his customers but may at his option include regular customers not
then under contract as well as his own requirements for further
manufacture. He may so allocate in any manner which is fair and
reasonable.
c. The seller must notify the buyer seasonably that there will be a delay or
non-delivery and, when allocation is required under paragraph (b), the
estimated quota thus made available for the buyer.
§ 2-703. Seller’s Remedies in General.
Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a
payment due on or before delivery or repudiates with respect to a part or the whole, then
with respect to any goods directly affected and, if the breach is of the whole contract
(Section 2-612), then also with respect to the whole undelivered balance, the aggrieved
seller may
d. withhold delivery of such goods;
e. stop delivery by any bailee as hereafter provided (Section 2-705);
f. proceed under the next section respecting goods still unidentified to the
contract;
g. resell and recover damages as hereafter provided (Section 2-706);
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h. recover damages for non-acceptance (Section 2-708) or in a proper case
the price (Section 2-709)
i. cancel.
§ 2-706. Seller’s Resale Including Contract for Resale.
(1) Under the conditions stated in Section 2-703 on seller’s remedies, the seller may
resell the goods concerned or the undelivered balance thereof. Where the resale is
made in good faith and in a commercially reasonable manner the seller may
recover the difference between the resale price and the contract price together
with any incidental damages allowed under the provisions of this Article (Section
2-710), but less expenses saved in consequence of the buyer’s breach.
(2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale
may be at public or private sale including sale by way of one or more contracts to
sell or of identification to an existing contract of the seller. Sale may be as a unit
or in parcels and at any time and place and on any terms but every aspect of the
sale including the method, manner, time, place and terms must be commercially
reasonable. The resale must be reasonably identified as referring to the broken
contract, but it is not necessary that the goods be in existence or that any or all of
them have been identified to the contract before the breach.
(3) Where the resale is at private sale the seller must give the buyer reasonable
notification of his intention to resell.
(4) Where the resale is at public sale
a. Only identified goods can be sold except where there is a recognized
market for a public sale of futures in goods of the kind; and
b. It must be made at a usual place or market for public sale if one is
reasonably available and except in the case of goods which are perishable
or threaten to decline in value speedily the seller must give the buyer
reasonable notice of the time and place of the resale; and
c. If the goods are not to be within the view of those attending the sale the
notification of sale must state the place where the goods are located and
provide for their reasonable inspection by prospective bidders; and
d. The seller may buy.
(5) A purchaser who buys in good faith at a resale takes the goods free of any rights
of the original buyer even though the seller fails to comply with one or more of
the requirements of this section.
(6) The seller is not accountable to the buyer for any profit made on any resale. A
person in the position of a seller (Section 2-707) or a buyer who has rightfully
rejected or justifiably revoked acceptance must account for any excess over the
amount of his security interest, as hereinafter defined (subsection (3) of Section 2711).
§ 2-707. “Person in the Position of a Seller”.
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(1) A “person in the position of a seller” includes as against a principal an agent who
has paid or becomes responsible for the price of goods on behalf of his principal
or anyone who otherwise holds a security interest or other right in goods similar
to that of a seller.
(2) A person in the position of a seller may as provided in this Article withhold or
stop delivery (Section 2-705) and resell (Section 2-706) and recover incidental
damages (Section 2-710).
§ 2-708. Seller’s Damage for Non-acceptance or Repudiation.
(1) Subject to subsection (2) and to the provisions of this Article with respect to proof
of market price (Section 2-723), the measure of damages for non-acceptance or
repudiation by the buyer is the difference between the market price at the time and
place for tender and the unpaid contract price together with any incidental
damages provided in this Article (Section 2-710), but less expenses saved in
consequence of the buyer’s breach.
(2) If the measure of damages provided in subsection (1) is inadequate to put the
seller in as good a position as performance would have done then the measure of
damages is the profit (including reasonable overhead) which the seller would have
made from full performance by the buyer, together with any incidental damages
provided in this Article (Section 2-710), due allowance for costs reasonably
incurred and due credit for payments or proceeds of resale.
§ 2-709. Action for the Price.
(1) When the buyer fails to pay the price as it becomes due the seller may recover,
together with any incidental damages under the next section, the price
a. Of goods accepted or of conforming goods lost or damaged within a
commercially reasonable time after risk of their loss had passed to the
buyer; and
b. Of goods identified to the contract if the seller is unable after reasonable
effort to resell them at a reasonable price or the circumstances reasonably
indicate that such effort will be unavailing.
(2) Where the seller sues for the price he must hold for the buyer any goods which
have been identified to the contract and are still in his control except that if resale
becomes possible he may resell hem at any time prior to the collection of the
judgment. The net proceeds of any such resale must be credited to the buyer and
payment of the judgment entitles him to any goods not resold.
(3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has
failed to make a payment due or has repudiated (Section 2-610), a seller who is
held not entitled to the price under this section shall nevertheless be awarded
damages for non-acceptance under the preceding section.
§ 2-710. Seller’s Incidental Damages.
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Incidental damages to an aggrieved seller include any commercially reasonable charges,
expenses or commissions incurred in stopping delivery, in the transportation, care and
custody of goods after the buyer’s breach, in connection with return or resale of goods or
otherwise resulting from the breach.
§ 2-711. Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods.
(1) Where the seller fails to make delivery or repudiates31 or the buyer rightfully
rejects or justifiably revokes acceptance then with respect to any goods involved,
and with respect to the whole if the breach goes to the whole contract (Section 2612), the buyer may cancel and whether or not he has done so may in addition to
recovering so much of the price as has been paid
a. “cover”32 and have damages under the next section as to all the goods
affected whether or not they have been identified to the contract; or
b. Recover damages for non-delivery as provided in this Article (Section 2713).
(2) Where the seller fails to deliver or repudiates the buyer may also
a. If the goods have been identified recover them as provided in this article
(Section 2-502); or
b. In a proper case obtain specific performance or replevy33 the goods as
provided in this article (Section 2-716).
c. On rightful rejection or justifiable revocation of acceptance a buyer has a
security interest34 in goods in his possession or control for any payments
made on their price and any expenses reasonably incurred in their
inspection, receipt, transportation, care and custody and may hold such
goods and resell them in like manner as an aggrieved seller35 (Section 2706).
§ 2-712. “Cover”; Buyer’s Procurement of Substitute Goods.
(1) After a breach within the preceding section the buyer may “cover” by making in
good faith and without unreasonable delay any reasonable purchase of or contract
to purchase goods in substitution for those due from the seller.
(2) The buyer may recover from the seller as damages the difference between the cost
of cover and the contract price together with any incidental or consequential
damages as herein defined (Section 2-715), but less expenses saved in
consequence of the seller’s breach.
(3) Failure of the buyer to effect cover within this section does not bar him from any
other remedy.
31
Repudiate: to reject or renounce a debt or obligation, especially to indicate an intention not to perform a
contract.
32
Cover: Purchase on the open market, by the buyer in a breach of contract dispute, of goods to substitute
for those promised but never delivered by seller.
33
Replevy: a writ for the recovery of goods.
34
Security interest: The interest held I by a property owner together with all appurtenant (belonging) rights,
such as the stockholder’s right to vote the shares.
35
Aggrieved seller: a seller whose rights are adversely affected.
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§ 2-713. Buyer’s Damages for Non-delivery or Repudiation.
(1) Subject to the provisions of this Article with respect to proof of market price
(Section 2-723), the measure of damages for non-delivery or repudiation by the
seller is the difference between the market price at the time when the buyer
learned of the breach and the contract price together with any incidental and
consequential damages provided in this Article (section 2-715), but less expenses
saved in consequence of the seller’s breach.
(2) Market price is to be determined as of the place for tender or, in cases of rejection
after arrival or revocation of acceptance, as the place of arrival.
§ 2-714. Buyer's Damages for Breach in Regard to Accepted Goods.
(1) Where the buyer has accepted goods and given notification (subsection (3) of
Section 2-607) he may recover as damages for any non-conformity of tender the
loss resulting in the ordinary course of events from the seller's breach as
determined in any manner which is reasonable.
(2) The measure of damages for breach of warranty is the difference at the time and
place of acceptance between the value of the goods accepted and the value they
would have had if they had been as warranted, unless special circumstances show
proximate damages of a different amount.
(3) In a proper case any incidental and consequential damages under the next section
may also be recovered.
§ 2-715. Buyer's Incidental and Consequential Damages.
(1) Incidental damages resulting from the seller's breach include expenses reasonably
incurred in inspection, receipt, transportation and care and custody of goods
rightfully rejected, any commercially reasonable charges, expenses or
commissions in connection with effecting cover and any other reasonable expense
incident to the delay or other breach.
(2) Consequential damages resulting from the seller's breach include
(a)
any loss resulting from general or particular requirements and
needs of which the seller at the time of contracting had reason to know and
which could not reasonably be prevented by cover or otherwise; and
(b)
injury to person or property proximately resulting from any breach
of warranty.
§ 2-716. Buyer’s Right to Specific Performance or Replevin.
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(1) Specific performance may be decreed where the goods are unique or in other
proper circumstances.
(2) The decree for specific performance may include such terms and conditions as to
payment of the price, damages, or other relief as the court may deem just.
(3) The buyer has a right of replevin for goods identified to the contract if after
reasonable effort he is unable to effect cover for such goods or the circumstances
reasonably indicate that such effort will be unavailing or if the goods have been
shipped under reservation and satisfaction of the security interest in them has been
made or tendered. In the case of goods bought for personal, family, or household
purposes, the buyer’s right of replevin vests upon acquisition of a special
property,36 even if the seller had not then repudiated or failed to deliver.
§ 2-717. Deduction of Damages From the Price.
The buyer on notifying the seller of his intention to do so may deduct all or any part of
the damages resulting from any breach of the contract from any part of the price still due
under the same contract.
§ 2-718. Liquidation or Limitation of Damages; Deposits.
(1) Damages for breach by either party may be liquidated in the agreement but only at
an amount which is reasonable in the light of the anticipated or actual harm
caused by the breach, the difficulties of proof of loss, and the inconvenience or
nonfeasibility of otherwise obtaining an adequate remedy. A term fixing
unreasonably large liquidated damages is void as a penalty.
(2) Where the seller justifiably withholds delivery of goods because of the buyer's
breach, the buyer is entitled to restitution of any amount by which the sum of his
payments exceeds
(a) the amount to which the seller is entitled by virtue of terms liquidating the
seller's damages in accordance with subsection (1), or
(b) in the absence of such terms, twenty per cent of the value of the total
performance for which the buyer is obligated under the contract or $500,
whichever is smaller.
(3) The buyer's right to restitution under subsection (2) is subject to offset to the
extent that the seller establishes
(a) a right to recover damages under the provisions of this Article other than
subsection (1), and
36
Special property: property that the holder has only a qualified, temporary or limited interest in, such as
(from a bailee’s standpoint) bailed property.
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(b) the amount or value of any benefits received by the buyer directly or
indirectly by reason of the contract.
(4) Where a seller has received payment in goods their reasonable value or the
proceeds of their resale shall be treated as payments for the purposes of
subsection (2); but if the seller has notice of the buyer's breach before reselling
goods received in part performance, his resale is subject to the conditions laid
down in this Article on resale by an aggrieved seller (Section 2-706).
§ 2-719. Contractual Modification or Limitation of Remedy.
(1) Subject to the provisions of subsections (2) and (3) of this section and of the
preceding section on liquidation and limitation of damages,
(a) the agreement may provide for remedies in addition to or in substitution
for those provided in this Article and may limit or alter the measure of
damages recoverable under this Article, as by limiting the buyer's
remedies to return of the goods and repayment of the price or to repair and
replacement of non-conforming goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is expressly
agreed to be exclusive, in which case it is the sole remedy.
(2) Where circumstances cause an exclusive or limited remedy to fail of its essential
purpose, remedy may be had as provided in this Act.
(3) Consequential damages may be limited or excluded unless the limitation or
exclusion is unconscionable. Limitation of consequential damages for injury to
the person in the case of consumer goods is prima facie unconscionable but
limitation of damages where the loss is commercial is not.
§ 2-723. Proof of Market Price: Time and Place.
(1) If an action based on anticipatory repudiation comes to trial before the time for
performance with respect to some or all of the goods, any damages based on
market price (Section 2-708 or Section 2-713) shall be determined according to
the price of such goods prevailing at the time when the aggrieved party learned of
the repudiation.
(2) If evidence of a price prevailing at the times or places described in this Article is
not readily available the price prevailing within any reasonable time before or
after the time described or at any other place which in commercial judgment or
under usage of trade would serve as a reasonable substitute for the one described
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may be used, making any proper allowance for the cost of transporting the goods
to or from such other place.
(3) Evidence of a relevant price prevailing at a time or place other than the one
described in this Article offered by one party is not admissible unless and until he
has given the other party such notice as the court finds sufficient to prevent unfair
surprise.
§ 2-724. Admissibility of Market Quotations.
Whenever the prevailing price or value of any goods regularly bought and sold in any
established commodity market is in issue, reports in official publications or trade journals
or in newspapers or periodicals of general circulation published as the reports of such
market shall be admissible in evidence. The circumstances of the preparation of such a
report may be shown to affect its weight but not its admissibility.
§ 2-725. Statute of Limitations in Contracts for Sale.
(1) An action for breach of any contract for sale must be commenced within four
years after the cause of action has accrued. By the original agreement the parties
may reduce the period of limitation to not less than one year but may not extend
it.
(2) A cause of action accrues when the breach occurs, regardless of the aggrieved
party's lack of knowledge of the breach. A breach of warranty occurs when
tender of delivery is made, except that where a warranty explicitly extends to
future performance of the goods and discovery of the breach must await the time
of such performance the cause of action accrues when the breach is or should
have been discovered.
(3) Where an action commenced within the time limited by subsection (1) is so
terminated as to leave available a remedy by another action for the same breach
such other action may be commenced after the expiration of the time limited and
within six months after the termination of the first action unless the termination
resulted from voluntary discontinuance or from dismissal for failure or neglect to
prosecute.
(4) This section does not alter the law on tolling of the statute of limitations nor does
it apply to causes of action which have accrued before this Act becomes effective.
i
Source for Restatement (second) of Torts 766: curiously, in the Barnett contracts book p. 260
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