Law of the United States
An Overview
von
Prof. Dr. Peter Hay
3. Auflage
Law of the United States – Hay
schnell und portofrei erhältlich bei beck-shop.de DIE FACHBUCHHANDLUNG
Thematische Gliederung:
Einzelne Länder
Verlag C.H. Beck München 2010
Verlag C.H. Beck im Internet:
www.beck.de
ISBN 978 3 406 60253 5
Inhaltsverzeichnis: Law of the United States – Hay
A. The Law of Contracts
139
rationale is that the written instrument incorporates (merges) the totality of the expression of the will of the parties: it is a (fully) ‘‘integrated’’ contract. As a consequence, additional oral agreements between
parties can become part of a contract, otherwise reduced to writing, in
only two ways: (1) a party may claim that the written instrument does
not represent a final expression of the will of the parties, or (2) additional agreements may be binding on parties in circumstances in which
it would be unusual that they would have been included in the original
contract. The latter, obviously, is very difficult to prove. The parol evidence rule, however, does not apply when a party claims and proves that
the written contract, as expressed in the writing, is a result of mistake
(see above) and must be disregarded or limited for that reason. It bears
emphasis, in conclusion, that the parol evidence rule, contrary to the
Statute of Frauds, has nothing to do with the effective conclusion of a
contract, but instead concerns the proper determination of its content.
2. UCC Art. 2: Sale of Goods65
a) Duties of the Parties
Art. 2 of the Uniform Commercial Code differentiates between the 315
seller’s obligation to perform and the connected problem of the costs of
delivery of the goods to the buyer according to the nature of the delivery
undertaken. In a contract to ship, the seller is only obligated (UCC § 2504) to deliver the goods (the proposed amendment replaces ‘‘goods’’
with ‘‘conforming goods’’ 66) to a carrier, to conclude a contract of carriage, and to inform the buyer of such delivery to the carrier. In contrast,
if the seller is to deliver directly to the buyer, the seller must do so at his
own risk and expense. The UCC presumes the former mode of seller obligation (see UCC §§ 2-308, 509), subject to modification by the parties.
For the interpretation of the contract, once again, commercial custom
and usages between the parties are important; specific agreements are,
of course, decisive. With respect to international customs, internationally accepted formulations such as FOB (free on board, either at the establishment of the seller or the seat of the buyer), FAS (free along side, at
the name of either the ship or the port), CIF (costs, insurance, freight),
and C&F (costs and freight) are of particular importance. All contracts,
with the exclusion of those FOB (seat of buyer’s business) fall under the
first delivery category mentioned above. 66a
65 The following text, absent explicit reference to the contrary, refers to the version
of Article 2 prior to the 2002 proposals for its amendment. See supra N. 1.
66 See proposed amendment to UCC § 2-504.
66a Since the definition of these terms under national law may differ from the definition in use internationally, the addition of a reference to ‘‘Incoterms’’ (perhaps also the
particular edition of them) is desirable when the international meaning is intended.
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b) The Passage of Risk
316
The seller’s duty to perform also determines when the risk of loss
passes to the buyer. As a basic rule, the parties’ agreement as to performance and passage of loss governs. Beyond that, the risk of loss is
assigned to the party that is in breach of contract at the time the loss
occurs, even when the loss is rather independent from the reasons constituting breach (UCC § 2-510). When goods are to be delivered by means
of a carrier, the risk of loss is determined as of the time of the seller’s
compliance with his contractual obligations (UCC § 2-509). If the contract called for performance FOB (seller’s seat of business), the risk of
loss passes with the conclusion of the contract of carriage, transfer of the
goods to the carrier, and information of same to the buyer (see UCC § 2504). When there is not an express party stipulation, a breach of contract,
or an agreement about delivery by a carrier, the passage of the risk of loss
depends on whether the seller is a merchant. 67 If he is, the risk of loss
passes with receipt of the goods by the buyer. If he is not, it passes with
tender of the goods according to the terms of the contract.
c) Express and Implied Warranties
Art. 2 of the Uniform Commercial Code provides for express and im317
plied warranties for the sale of goods. They are part of the contract, unless the seller has excluded them by valid stipulation, not limited by consumer-protective legislation. 68 When the seller transfers title to a thing,
this includes the implied warranty that he was entitled to do so and that
the thing was free of rights of third parties and of other encumbrances
(UCC § 2-312, warranty of title). Any additional assurances of the seller
concerning particular characteristics of the object of the sale that were
part of the contract negotiations is a warranty with respect to that characteristic (UCC § 2-313 (1)(a), express warranty). In addition, any description of the object of the sale may trigger an express warranty with
respect to that characteristic (UCC § 2-313 (1)(b)). If the seller utilizes a
model during the course of the contract negotiations, it is presumed that
all goods will correspond to it in terms of quality (UCC § 2-313 (1)(c)).
318
The implied warranty of merchantability is a merchant’s implied warranty that the object of the contract conforms to the requirements
(quality, performance, and the like) generally expected of articles of this
kind (UCC § 2-314). The focus is on the particular kind and species of
the goods in question. They must conform to average standards of
quality and be adequate for the intended purpose.
67 ‘‘Merchant,’’ within the meaning of UCC § 2-104, is defined far more broadly
than in European law. See supra No. 290.
68 Similar provisions, with minor differences, are found in UCC Art. 2A concerning equipment leases.
A. The Law of Contracts
141
In particular cases, there may also be a presumption of an implied 319
warranty that the goods will satisfy the particular requirements of the
buyer (‘‘implied warranty for fitness for the particular purpose’’). Prerequisites for this warranty are: (1) that the buyer had a particular purpose
in mind and relied upon the expertise of the seller, and (2) that the seller
was aware of both of these facts (UCC § 2-315). In contrast to the warranty mentioned previously, it is not necessary that the seller be a merchant.
It may be possible, by stipulation, to opt out of the warranties pre- 320
sumed by UCC Art. 2, but the extent to which this is permissible will depend upon the particular circumstances as well as the warranty involved.
It will be difficult to say that an express warranty has been negated as a
result of contrary conduct or inconsistent statements and declarations,
but express warranties will not be enforced, for instance, when they impose unreasonable burdens upon the buyer (UCC § 2-316 (1)). The implied warranty of merchantability will be considered effectively excluded if the word ‘‘merchantability’’ is used expressly and the exclusion,
in the case of a written contract, has been highlighted in some way
(UCC § 2-316 (2)). The proposed amendment changes this slightly by
eliminating the requirement of the word ‘‘merchantability,’’ instead allowing for the exclusion by use of ‘‘as is,’’ ‘‘with all faults,’’ or similar language,69 which directs the buyer’s particular attention to the circumstance that the seller does not intend to be bound by warranties beyond
those expressly given (UCC 2-316 (3)). The proposed amendments, in
general, allow for more instances in which the exclusion may apply. 70
In addition, if there are no express warranties, the seller may limit 321
its liability to specified defects or damages or to the amount of damages
(UCC §§ 2-718, 719). The good faith standard does set limits on any attempts to limit liability by contractual stipulation (UCC § 2-719 (3)). According to this principle, for instance, damage limitations for injuries
caused by consumer products are generally unenforceable (ineffective,
void).
3. Conditions
In American law, as in other legal systems, a ‘‘condition’’ is an event, 322
the occurrence (or non-occurrence) of which is a prerequisite for a contractual obligation to arise or to terminate. A condition may be an express or an implied term of a contract. True conditions lie beyond the
powers of the parties in control. As in other legal systems, American law
distinguishes between conditions that extinguish and those that suspend
69
70
See proposed amendment to UCC § 2-316.
Id.
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71
an obligation. A‘‘condition coupled with a covenant’’describes a condition that the party or parties undertake, in good faith, to bring about. In
these cases, it is necessary to show that the party at least attempted to
bring about the condition; if it did not, it has breached the contract. A
modification of the contract can, of course, eliminate a condition; the
party favored by it can also waive it. Changed circumstances may make a
condition ineffective or inapplicable for reasons of impracticability. In
rare cases, a court may use its equity-based corrective function to adjust
a condition. 72
323
The performance, or offer of performance, by the other party of its
contractual duties ^ unless a different order of performance has been stipulated expressly ^ also serves as a condition for the performance of
one’s own duty: even without express stipulation, the tender or rendition
of the counter-performance is a ‘‘constructive condition’’ of exchange.
The other party’s duty to perform (and the satisfaction of the condition
resting on the plaintiff) arise with the plaintiff’s rendition of ‘‘substantial
performance’’ (see immediately following) or the offer of full performance.
IV. The Satisfaction of a Party’s Contractual Duties:
Performance
1. Common Law
324
Full performance can be an extraordinarily strict requirement; it has
been softened in practice by the introduction of the doctrine of ‘‘substantial performance.’’ 73 The doctrine permits a party to demand counterperformance (subject to a deduction for provable damages) despite the
fact that his own performance fell short in some respects (that it was not
‘‘full,’’ but was only ‘‘substantial’’ performance of the obligation undertaken). 74
2. Uniform Commercial Code
325
The basic principle of UCC Art. 2 is the perfect tender rule : the seller
must supply goods free of any defect. The smallest deviation from the stipulated performance represents a breach of contract and entitles the
buyer to demand damages. In principle, belated correct performance is
not possible, yet under certain circumstances, the seller will have an op71
See Murray, Contracts § 99 (d).
Murphy/Speidel/Ayres, Studies in Contract Law 695-696.
73 See Avery v. Willson, 81 N.Y. 341 (1880). Later, the case law generally adopted
the ‘‘substantial performance’’ principle. See the leading decision of Jacob & Young, Inc.
v. Kent, 230 N.Y. 239, 129 N.E. 889 (1921), reargument denied 230 N.Y. 656, 130 N.E.
933 (1921).
74 Restatement (Second) of Contracts § 35 et seq.
72
A. The Law of Contracts
143
portunity to cure the defect (UCC § 2-508). However, the law distinguishes between cases in which the time for performance of the contract
has already expired and those in which it has not. In the latter case the
seller, after informing the buyer, has the chance to effect a second performance, conforming to contractual requirements (UCC § 2-508 (1)). If
the time of performance has expired, new (substitute) performance is
possible only in the exceptional case that the seller could reasonably believe that the buyer would accept the belated delivery. Prior dealing between the parties may be important for the determination of whether
these criteria have been met.
3. Rejection of Delivery
Under certain circumstances, the buyer may refuse acceptance of de- 326
livery, without incurring the danger of being in breach of contract. There
is a formal requirement that the buyer must inform the seller without
delay of the rejection, giving concrete reasons for such rejection (UCC
§ 2-602 (1)). To take advantage of this possibility, however, the buyer
must not have accepted the goods by conduct or otherwise. The ‘‘perfect
tender rule’’ (supra No. 326) entitles the buyer to reject tender of any performance that departs from the contract. There is an exception for installment contracts. In these cases, rejection is only justified with respect
to defects in the performance of the present installment and, if the rejection is to extend to future installments, upon a showing that the present
defect impacts the value of any future installments in a serious way.
4. Acceptance of Goods and Subsequent Return
Acceptance of the proffered performance may occur in several ways. 327
It may be express, but it will also be presumed when the buyer, upon examination, retains the goods. Payment for goods, without prior opportunity for inspection, is not deemed tantamount to acceptance. When
have goods been accepted? The answer depends on the circumstances
under which the buyer could legally, or did factually, reject them without
thereby committing a breach of contract himself. There are only a few
cases in which a buyer may revoke his acceptance and consequently return the goods, refusing to pay the purchase price. The defects claimed
must affect the essential value of the goods, or the buyer must cite other
compelling reasons for the rejection of the goods, including reliance on
express assurances on the part of the seller concerning the particular defects now claimed to exist, and rejection must occur within a reasonable
time after discovery of the particular defects (§ 2-608 (1), (2)).
When the buyer refuses to accept and in cases of an effective revoca- 328
tion of acceptance, the buyer must give the seller timely notice. Until the
seller arranges to take possession of the goods, the buyer must retain
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Chapter 5. Private Law
them by observing the same standard of care as for his own. 75 If the
buyer is a merchant, he may have to observe all of the seller’s instructions, appropriate under the circumstances, concerning the return or
the sale of the goods or, absent such instructions, to endeavor to resell
them himself. 76 The seller may claim compensation for these additional
services. 77 An effective refusal to accept delivery or a revocation of delivery that has already occurred means that the buyer has incurred no
obligation to pay (UCC § 2-607 (1)).
V. Termination of the Contractual Obligation
1. Breach by the Other Party
329
According to the common law, a party’s performance becomes due
at the time stipulated or upon the other party’s performance or substantial performance. Defects that are not essential do not justify a party to
withhold his own performance. The determination of what constitutes
an essential defect depends on the individual case. UCC Art. 2 adopts
the principle ^ for the sale of goods ^ of the ‘‘perfect tender rule’’ (see
supra No. 326) for the seller’s performance of his duties in accordance
with the contract. Every defect or departure, in this view, entitles the
buyer to reject the goods and to retain the purchase price. Payment of
the latter requires tender of goods free from defects. Both the common
law and the UCC, however, permit a party to withhold performance because of an ‘‘anticipatory repudiation’’ by the other party and to claim damages. 78 This will be the case when one party indicates unmistakably,
before its own performance is due, that it will not render the stipulated
performance.
2. Stipulations Subsequent to Contract Formation: Modification
330
Contract duties can terminate as a result of subsequent stipulations
between the parties. According to the common law, the termination of
an ongoing contract or a change in its terms required additional consideration to be binding: a party needed to receive consideration for an
agreement to give up or to change that to which he was entitled to receive under the original contract. State law today often permits changes
to be effective, so long as they are in writing. In addition, the parties
might agree that a different kind of performance shall satisfy the perfor75
See UCC § 2-602 (2) in connection with § 2-608 (3).
See UCC § 2-603 (1) in connection with § 2-608 (3).
77 See UCC § 2-603 (2) in connection with § 2-608 (3).
78 See Murray, Contracts § 109. The classic early decision is Hochster v. De La Tour,
118 Eng.Rep. 922 (1853). For more recent decisions, see Breuer-Harrison, Inc. v. Combe,
799 P.2d 716 (Utah 1990); Minidoka Irrigation Dist. V. DOI, 154 F.3d 924 (9th Cir.
1998).
76
A. The Law of Contracts
145
mance-requirement of the original contract. Such a stipulation is known
as an ‘‘accord’’; its actual performance is the ‘‘satisfaction’’of the entire contractual obligation between the parties. Performance of the accord must
occur within the time stipulated, or else within reasonable time. Thereafter, the contract creditor has the choice to sue on the original obligation or instead on the modification, until such time that one of them has
been satisfied. 79
The parties may also extinguish their contractual duties to each other 331
by an agreement that another party shall take the place of one of them
( novation). When novation occurs, the contractual duty of the original
debtor ends, and the creditor may demand performance only from the
new contracting party. This case must be strictly differentiated from the
situation in which one party fulfils its obligation by means of an agent,
employee, or other third party. Such a person does not succeed to the
contractual obligations of the original party, releasing such party, so that
the creditor can continue to require performance by the original party.
3. Impossibility and Frustration of Contract
a) Overview
American law, like other legal systems, recognizes that contractual 332
duties may terminate as a result of impossibility or frustration. The most
common terminology includes ‘‘impossibility,’’ ‘‘impracticability,’’ and
‘‘frustration of purpose’’ ^ concepts with less precise meaning than in
the civil law and therefore much more difficult to delineate from one another. They have in common that an event occurred, unforeseen and unforeseeable at the time the contract was made, that either renders performance of the contract impossible or severely diminishes its value to the
other party. As in most legal systems, American law differentiates between objective facts interfering with the contract’s performance (impossibility), and a party’s subjective difficulties (impracticability).
b) Impossibility
A contractual obligation terminates when the destruction of the ob- 333
ject of the contract makes its performance impossible. 80 UCC § 2-613 is
more specific; it requires that the goods in question had already been
identified as being for the buyer, but that the risk of loss had not yet
passed to him. Other reasons for objective impossibility may be problems having to do with suppliers, strike by employees, death or sickness
79 In re Kellet Aircraft Corp., 77 F.Supp. 959, 962 (D. Pa. 1948), aff’d 173 F.2d 689
(3d Cir. 1949).
80 Murray, Contracts § 113 (c). In contrast, see the strict position of the old common
law illustrated by the decision in Paradine v. Jane, 82 Eng. Rep. 897 (1647).
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Chapter 5. Private Law
in the case of personal services, or statutory prohibitions. 81 In contrast,
subjective impossibility (impracticability) usually does not result in the
termination of the contractual obligation.
c) Frustration of Purpose
334
The occurrence of an unforeseen event may not make performance
of the contract impossible, but it may make it meaningless, in economic
terms, to one party. Even when that party’s purpose for concluding the
contract was known to the other party at the time of the contract’s conclusion, courts will excuse a party from its contractual duties only in exceptional cases. 82 When relief is granted, the case law does so on the assumption of an implied term in the contract (concerning the occurrence
or non-occurrence of the event in question) that leads to the termination
of a contract or entitles the burdened party to revoke it ex nunc. In these
cases, American courts will not decree that a contract should be maintained, but will adjust it to the changed circumstances, since in AngloAmerican law courts do not make contracts for the parties. The UCC,
which embraces a general presumption of ‘‘good faith,’’ contains a
number of provisions related to impossibility. 83 These sections are
phrased so generally that frustration-of-purpose cases could easily be encompassed. The case law, however, has not utilized these provisions to
provide far-reaching remedies for frustration of purpose.
VI. Remedies for Breach
1. Damages
335
If a party does not perform its contractual obligation, the other may
claim damages for breach of contract . This claim will lie for non-performance, defective performance, or in cases of anticipatory repudiation
(supra No. 329). The goal is to put the injured party in the position he or
she would have been in if the contract had been performed according to
its terms. 84 ‘‘Damages’’ encompass the actual damages suffered as a consequence of the breach of contract (general damages) as well further damages resulting from that breach to the extent that these were foreseeable at the time the contract was concluded (special or consequential
damages). 85 Until recently, the award of punitive damages was confined
Murray, Contracts § 113.
See the classic decision in England in Krell v. Henry, 2 K.B. 740 (1903).
83 UCC §§ 2-613 to 2-616.
84 See Murray, Contracts § 117 (a).
85 The leading English decision is Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep.
145 (1854). This decision greatly influenced American law: see, for instance, Kerr S.S.
Co. v. Radio Corp. Of America, 245 N.Y. 284, 157 N.E. 140 (1927), cert. denied 275 U.S.
557, 48 S.Ct. 118, 72 L.Ed. 424 (1927); Kenford Co. v. County of Erie, 73 N.Y.2d 312
(1989); MLK, Inc. v. University of Kansas, 23 Kan. App. 2d 876, 940 P.2d 1158 (1997).
81
82