Contracts Outline

SCOPE: WHAT LAW APPLIES?
 
Statute Lawà Codes = systematic collections of statutes = Primary/Mandatory Authority
o        Uniform Commercial Code (UCC) à Domestic
§         Governs contracts for sales of goods;
§         Enacted in every state except Louisiana ~ 40 years
§         UCC 1-103: Where the UCC does not deal with it fully enough, the court must look to common law principles to supplement Code provisions unless displaced by them
o        UN Convention on International Sale of Goods (UN CISG) – International
§         Applies only if both parties are merchants.
o        Uniform Computer Information Transactions Act (UCITA) – law in MD and VA
 
Common Law
§         Restatement (Second) of Contracts, 1981 = “Restatement of common law” = 2°/Non-Binding Auth. à Prepared by American Law Institute (ALI) and adopted by states/independent legislatures
§         Doctrine of Precedent (STARE DECISIS): When a court opinion creates a generally applicable law that has a binding effect on everyone within the jurisdiction that must be followed in future cases involving other parties but substantially similar facts
 
UCC(9 Articles in all) à ARTICLE 2 – Sale of goods
v      To quality as a sale of goods for purposes of Art. 2, a K must involve 2 elements: (1) a sale and (2) goods.
v      Governs transactions of goods (UCC 2-102: “…this Article applies to the transactions in goods.…”) across and within states
o        Applies to transactions (sales) in goods equally between merchants and non-merchants (customers) (know for exam that customers are covered)
o        UCC 2-105(1): “goods” = “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale…” àmust be movable, doesn’t include services or leases
Ø       2-105(2): goods must be both existing and identified (good that doesn’t exist yet is a future good)
Ø       Electricity – a good? Not a good under UNCISG (Art. 2 (f)); Under UCC, maybe (MD says it isn’t under UCC; CA, NY say it is)
Ø       Goods =unborn young + Things that have tangible form and are movable
Ø       Goods ≠ Real property (land, building) or intangible property (shares in a corporation)
Ø       General Rule: Goods become identified to the contract as soon as they have been selected as the object of the sale.
v      Applies to K that are purely for the sale of goods, not to K purely for the rendition of services.
v      UCC 2-106(1): sale = “…the passing of title from the seller to the buyer for a price….”
o        “Title” under 2-401(2) = OWNERSHIP à “title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods” à Title of goods passes when the seller physically delivers them to the buyer
v      Art. 2 only applies to those sales in which the property sold qualifies as goods
v      COVERS SALES, NOT LEASES
v      Applies to ACTUAL transfers of goods
v      Under UCC, “Offers” are dealt with under the common law
 
UNCISG
v      Only applies in commercial transactions, in foreign countries that have accepted it (Applies in Canada, US, France, Italy, Germany [not in UK, Japan]) and if parties agree that it applies.
v      Applies to contracts of sale of goods between parties whose places of business are in different States
v      Applies to different states, when they are contracting states or when rules of private international law leads to application of the law of a contracting state (LOCATION)
v      Application depends on character of intended use of person receiving goods
 
 
 
 
 
 
 
 
 
 
 
 
IRAC: Scope
 
ISSUE: Is this case governed by UCC or R2d or CISG?
Ø       RULES:
o        Common Law (R2d, PPT, GT)
o        UCC § 2-102 or
o        CISG Article 1(1)a
Ø       ANALYSIS:
1.       International or Domestic?
2.       Goods, services, computer information, or a MIXTURE/HYBRID TRANSACTION?
o        If international and hybrid transaction, UCITA governs
o        If domestic and hybrid transaction: COMMON LAW (precedence = Predominant Purpose Test from 2004 Supreme Court case)
§         UCC Art. 2 covers goods, not services
§         COMMON LAW
PREDOMINANT PURPOSE TEST
o        Looks at transaction as a whole) to ask à Is the transaction more of SERVICES or of GOODS? 
§         If it’s predominantly a sale of goods, it falls under the UCC and Article 2 applies. 
§         If it’s predominantly a sale of services, it is outside the UCC and Article 2 doesn’t apply.  
o        4 Criteria:
1.       The language of the parties’ contract (terms describing the performance of and relationship between the parties)
2.       The main purpose/nature of the business of the supplier of the goods and services
3.       The reason the parties entered into the contract (i.e. whether the final product the purchaser bargained to receive may be described as a good or service)
4.       How costs are divided: $ for goods v. $ for services à Respective amounts charged for goods and services
GRAVAMEN TEST
v      Looks at portion of transaction upon which the complaint is based to determine if it involved goods or services
v      1)Sever contract into various parts; 2) label each as goods or non-goods; 3) apply different law to each separate part
v      Anthony Pools v. Sheehan: Homeowner was injured when he slipped off a diving board supplied with the pool that had just been installed at his home. He sued the contractor that built the pool and supplied and installed the diving board, claiming that the board was defective because it was not properly skid proof
o        Courtt split K into parts. In-ground pool not goods b/c not movable; however, diving board = good à\ covered under UCC
o        Goods supplied as part of the transaction retained their character as goods after completion of the performance, and if a defect in the goods causes monetary loss or personal injury, Article 2 should apply to the claim even though it doesn’t apply to the transaction as a whole.
Ø       CONCLUSION:
o        K (or predominant purpose of K) is…
o        Goods (international) = CISG applies
o        Goods (domestic) = UCC applies
o        Services or mixture/hybrid transaction = common law applies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
What is a “Contract”
 
v      R2d, § 1: “A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty”
v      5 elements à Is there a K? If all exist, there is a K
1.       Mutual Assent (ch 3-8) – Is there mutual assent?
o        Offer + Acceptance
2.       Enforceability – Is K enforceable?
o        Consideration (ch 9) and
o        Promissory estoppel (ch. 10)
o        Option K, Firm Offers, Unjust Enrichment, etc. (ch 11-12)
3.       Issues of Performance and Breach (ch 18-19)
v      Did each party live up to their part of the contract?
4.       Absence of Defenses (ch 13-17)
v      Valid defense à negates K
5.       Damages or Remedies (ch 20)
v      Recognizable damages = measure of extent to which you were injured
 
Cohen v. Cowles Media Co.
v      HOLDING: No K à A reporter’s promise of anonymity is not an enforceable contract, and thus, is not bound by a legal obligation but by an ethical or moral obligation.
v      The law does not consider every promise-exchange legally binding. There’s a distinction between a promise that is bound by moral and ethical obligation and a promise that is bound by legal obligation. A moral obligation alone does not substantiate a K; a K cannot be created where the parties did not intend to enter into one. 
v      Court doesn’t deny that there’s a promise because there IS a promise; but, it is unenforceable. Promises like this (and similar classes of promises) are social agreements, not legally binding
 
Keltner v. Washington Co.,
v      Holding: No K àA plaintiff in an action for breach of K cannot recover damages for purely mental distress b/c of a lack of precedence in the common law that allows for recovery for purely emotional damages in a breach of a confidentiality contract
v      Rule:There is NO recovery for mental suffering for breach of contract, unless a physical manifestation of the distress arises (Source of rule: common law, not statute)
                                                                Cohen                    Keltner
Agreement                                           Yes                         Yes
Enforceability                                    No                           Assumed                              
Performance Breach                        Yes                         Assumed claim of plaintiff were true
Absence of Defenses                          Yes                         Assumed
Recognizable damages                     Yes                         No (no recovery for “mental” damages)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
POSSIBLE REMEDIES FOR Enforcement of BREACH OF Contract
 
1.       EXPECTATION DAMAGES/Cover Damages (MOST COMMON; more common than Specific Performance)
v      Difference between substitute transaction and price set in K à places Π in same financial position it would have been in if the Δ performed the K or if the K was not breached
§         Direct damagesà what is actually lost under K itself; a sum of $ equivalent to the difference of what the victim got out of the transaction and what she reasonably expected to get.
§         Consequential damagesà recoupment of losses beyond the K resulting from breach
§         Incidental damagesà expenses from dealing with effects of breach
v      E.g. Kabil Developments Corp. v. Mignot
2.       SPECIFIC PERFORMANCE to complete K
v      Court order compelling the defendant to perform K
v      E.g. Lucy v. Zehmer – order to transfer land
v      Done only in limited circumstances. Damages preferred b/c difficulty of enforcing an order for Specific Performance, efficiency (defendants may be reluctant to obey order for SP); order of SP comes too close to involuntary servitude
3.       Declaratory judgment of parties’ rights (no damages award)
a.       A binding judgment that asks court to decide what the legal relationship of the parties are w/o providing for or ordering enforcement; have to prove litigation is pending
b.       Often sought by insurance companies in determining whether policy covers a given insured or peril, e.g. Leonard v. Pepsico: Pepsi brought initial suit in