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

CONTRACTS II OUTLINE

PROFESSOR EBONI NELSON –Spring 2011

I. Duty of Good Faith

A. Implied into every contract.

B. Conduct + Motivation (Heart of the Issue: Intent)

C. How does the issue come up?

i. Look at the conduct of one party.

ii. The other party is not happy with that conduct.

iii. Party engaging in the conduct is going to say that there is no express term prohibiting that conduct and “they are well within their rights.

D. Cases: Minimum rent + % of Gross Receipts

i. Goldberg v. Levy: Court implied because tenant deliberately diverted customers to avoid paying “extra” rent.

1. Best Efforts (Lucy v. Lady-Duff Gordon): Court says that lessee must use best efforts to generate gross receipts.

ii. Mutual Life v. Tailored Woman (Fur Coat Case): Moved fur sales to another floor; No breach.

iii. Stop & Shop v. Ganem

E. Policy: Freedom of contract; Freedom not to contract

F. Goal of the Good Faith Doctrine: Expectancy

II. Implied Warranties

A. Implied Warranty of Merchantability (UCC 2-314): Every transaction comes with an IWM unless disclaimed.

i. Rule: A merchant seller warrants that goods are fit for their ordinary purpose.

1. Must be a merchant seller

a. UCC 2-104: A merchant seller is anyone in the business of selling goods of that kind.

2. What are you warranting?

a. Goods will pass in the trade without objection

b. Fit for their ordinary purpose

ii. Defense to the IWM: If you are using something outside of the ordinary purpose and are injured in some way, there has not been a breach of warranty.

iii. IWM almost works as a strict liability type of warranty.

B. Implied Warranty of Fitness for a Particular Purpose (UCC 2-315)

i. Requirements:

1. Seller knows or has reason to know the buyer’s particular purpose.

2. Buyer relies on seller’s skill and judgment.

3. Seller knows or has reason to know reliance.

ii. Any seller of goods can make the IWFPP (does not have to be a merchant).

iii. Particular Purpose:

1. Something that is out of the ordinary.

2. Most people define as anything that is within your needs.

C. Damages for breach of warranty (UCC 2-714)

i. Value Received – Value Promised

ii. Can also recover for incidental and consequential damages.

D. Policy (behind warranties): Expectancy

III. Express Warranties (UCC 2-313)

A. Seller has to affirmatively create.

B. Elements:

i. Any affirmation of fact, description, sample or model

ii. Has to relate to the goods in question

iii. Must become part of the “basis of the bargain”

1. Basis of the Bargain: Part of the reason why I decided to contract.

a. Fact that the seller made a statement of fact is enough to prove “basis of the bargain.”

2. Reliance: The fact that you relied on the affirmations led to creation of the warranty.

C. Argument against “express warranties”: Seller was just stating his opinion.

i. Example: “This car is brand new and is in great condition.”

1. Car being brand new may be an express warranty.

2. Car is in great condition would most likely be viewed as an opinion (mere puffery).

ii. Policy argument against: Cuts against the expectancy policy.

D. Cases:

i. Royal Business Machines, Inc. v. Lorraine Corp.

ii. CBS,

et, no one has breached.

C. “Promissory” Condition:

i. Someone has taken on the respon. of making a condition happen.

ii. Implied in every single exchange.

iii. Effect if not met:

1. Party is not required to perform.

a. Not performing ¹ Breach

2. Obligor (person making promise) is liable for breach.

iv. Overall Effect: When the condition is not met, someone has breached.

D. “Promise” or “Condition”?

i. General Rule: When it is unclear whether a term is a promise or condition, then the presumption is that it is a promise.

ii. How to distinguish:

1. Look at the express language of the contract:

a. Condition

i. “On condition that…”

ii. “Provided that…”

iii. “If…”

iv. “Subject to…”

v. “When…”

vi. “After…”

vii. “As soon as…”

b. Promise

i. “I will…”

ii. “I promise…”

iii. “I agree…”

iv. “I warrant…”

2. No express language

a. Look at what the contract is all about.

b. Court will look at the circumstances of the transaction itself to determine whether it makes sense for the parties to take on liability.

E. How a condition issue comes up: Someone is not performing and the other party is saying that the non-performance amounts to a breach.

F. Policy: Assent Policy and Expectancy Policy