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Contracts II
University of South Carolina School of Law
Nelson, Eboni S.

Contracts II Master Outline

Eboni Nelson, Spring 2011

I. Implied Duty of Good Faith (1-3)

A. Rule

1. Every contract imposes upon each party a duty of good faith and fair dealings in it performance and enforcement

2. Good faith in the case of a merchant means honesty in fact and the observation of reasonable standards of fair dealing in the trade

3. Acting unreasonably is not necessarily acting in bad faith—look to the intent or motivation of the action, not the action taken itself (very facts and circumstances driven)

4. Lessee implied duty to get profits when nominal rent

II. UCC Warranties (goods transactions) (4-8)

A. Implied Warranty of Merchantability

1. Creation

a. Must be a Merchant Seller (2-104)

i. Person who deals in good of the kind, either buying or selling

ii. Person who holds themselves out as having knowledge and skill in the capacity of their profession

b. Warrants that goods are merchantable

i. Fit for ordinary purpose

ii. Pass in trade without objections

iii. Fair average quality

iv. Within variations according to agreement

2. Breach

a. Goods must suffer some defect or experience some problems such that they are not fit for their ordinary use

3. Disclaimer (§ 2-316)

a. Need not be in writing, but if in writing it must be conspicuous

b. Must mention the word “merchantability” unless one of three exceptions (applied as long as not unconscionable)

i. No implied warranty if saying “as is” “with all faults” or “as they stand” (or other common language said to imply the same thing)

ii. If buyer examines or refuses to examine goods, no implied warranty with regard to defects that an examination ought to have revealed

iii. Warranty can be excluded or modified by course of dealing, course of performance, or usage of trade

4. Damages for implied warranty are expectancy

5. Policy

a. Encourage trade

b. Meets legitimate expectations of buyer

B. Implied Warranty of Fitness for a Particular Purpose

1. Creation

a. Seller has reason to know of a particular purpose for which buyer is purchasing the product

i. Buyer’s use beyond ordinary purpose of good (ex. mudding with a car)

ii. Something that is particular to the buyer’s business or particular need (ex. hiking shoes)

b. Seller has reason to know buyer is relying on his skill or judgment

c. Buyer must in fact rely on judgment

i. Reliance would probably have to be reasonable though nothing about this in comment

ii. Probably not relying if insisting on a popular brand unless recommended or advocated by salesperson (comment 5)

d. Need not be a merchant seller

2. Breach

a. Particular or peculiar purpose not satisfied.

3. Disclaimer

a. Must be in writing and conspicuous

b. Need not say “fitness for a particular purpose”

c. “There are no warranties which extend beyond the description on the face hereof” is sufficient to disclaim

d. Exceptions (applied as long as not unconscionable)

i. No implied warranty if saying “as is” “with all faults” or “as they stand” (or other common language said to imply the same thing)

ii. If buyer examines or refuses to examine goods, no implied warranty with regard to defects that an examination ought to have revealed

iii. Warranty can be excluded or modified by course of dealing, course of performance, or usage of trade

4. Damages for implied breach are expectancy

C. Express Warranty

1. Creation (2-313)

a. Affirmation of fact or promise made by seller, description, sample, or model

i. Need not say guarantee or promise

ii. Need not intend to create warranty (can do it by mistake)

iii. Distinguish from sales puffery and opinions

b. Related to the Goods

i. Relates to quality, standard, or performance of goods

ii. Delivery time does not suffice (this would lead to a breach of contract)

iii. Replacement parts are not related to the good itself

c. Fact or promise becomes basis of the bargain

i. Need not be sole basis, just some basis

ii. Need not show that you relied on affirmation, but that you relied on the fact that the statement was in the contract (reliance established where expressed warranties are bargained for terms) (6)

iii. But Δ can raise lack of reliance as an affirmative defense such that it did not become basis of the bargain

d. Warranty versus expression of opinion (p820)

i. Seller must assert a fact of which buyer is ignorant (warranty) ii. States an opinion or judgment on a matter of which the seller has no special knowledge and may be expected to also have an opinion and to exercise his judgment (just opinion)

2. Breach

a. Not as promised or stated

3. Disclaimer

a. Nearly impossible to disclaim but exception through parole evidence—if no mention of express warranty

i. If not fulfilling the promise, you are in breach of the contract such that you are subject to damages

ii. But other side is still required to perform

2. Condition

a. Uncertain event on which performance by the other side is contingent or dependent

b. “Provided that” ; “If” ; “On condition that”

c. Question whether a stipulation in a contract constitutes a condition is one of construction dependent on the intent of the parties to be gathered from the words they have employed and, in case of ambiguity, after resort to the other permissible aids to interpretation

d. Effect (no liability + no performance)

i. If not meeting the condition, no liability for any breach (because no promise made)

ii. Other side is not required to perform their end of the deal (but can perform and waive condition)

3. Promissory Condition

a. Contract identifies a condition and it includes a promise that the condition will be met

b. Effect (liability + no performance)

i. Party can sue promisor for breach of promise

ii. Party has no duty to perform because condition was not met

c. Exampleàwhere a party sets a condition but still may want to go through with K if condition is not met, they make a party promise to meet a condition such that non-breaching can sue on promise and still have K by waiving condition

d. Constructive Condition has same effect (liability + no performance) (double-edged constructive conditions of exchange are implied) (not tested, just obvious)

E. Avoiding Express Conditions (12-13)

1. Waiver

a. Voluntary abandonment of a contractual right where beneficiary of condition agrees to perform even though condition has not been met

b. It is unilateral where buyer is the only beneficiary—made effective by one party deciding

c. Only the party on whom the condition is imposed may waive it

d. Effect

i. Condition goes away and parties go through with performing K as if condition were not there