Contracts II
Eboni Nelson
Spring 2010
Contracts Study Guide
ISSUE
HOW CREATED
RULE
Implied Duty of Good Faith
Someone doing something or not doing something that is not explicitly addressed in the contract but arguably thwarts the intended purpose of the contract
Every contract includes the implied duty of good faith
Failure to contract and/or act in good faith results in breach of contract
Implied Warranty of Merchantability
Goods not working as they ordinarily should
Created: (1) merchant seller: person in the biz of selling goods of that kind and (2) warranting that goods are fit for ordinary purpose
Breached: goods not working as they ordinarily should
Disclaimer: (1) oral or in writing, (2) in either case must use word “merchantability,” (3) if in writing, must be conspicuous
As Is/With All Faults Exception
Remedy: VP – VR + I + C
Implied Warranty of Fitness for a Particular Purpose
Goods not meeting the particular purpose for which they were bought
Created: (1) merchant/non-merchant seller, (2) seller has reason to know buyer’s particular purpose, (3) buyer relies on seller’s skill/judgment in selecting goods, (4) seller knows buyer is relying
Breached: goods not meeting particular purpose
Disclaimer: (1) must be in writing, (2) writing must be conspicuous, (3) doesn’t have to include specific words
As Is/With All Faults Exception
Remedy: VP – VR + I + C
Express Warranties
Goods not conforming to the representations made by the seller (oral, written, sample, description, model)
Created: (1) merchant/non-merchant seller, (2) affirmation of fact, sample, model or description by seller, (3) affirmative of fact relates to goods in question, (4) becomes a basis of the bargain
Mere puffery doesn’t create it
No formal words like “warrant” or “guarantee” is need
Breached: goods not confirm to affirmation of fact
Disclaimer: generally cannot disclaim after created but if creation of EW language is consistent with disclaimer language may be disclaimed
Remedy: VP – VR + I + C
Creating Conditions
Someone trying to walk away from the contract without being in breach + arguing condition wasn’t met
· Condition – an event (not certain to occur) and parties agree that performance is contingent on the occurrence of the event
· Promise – manifestation of willingness to do something or not to do something so made as to justify other side into thinking promise made
· Promissory Condition: is event not certain to occur that must occur before performance due. One party takes obligation of making sure that that condition comes about
· Created: (1) expressly stated in K, (2) implied in fact by looking at evidence and inferring intent, and (3) constructive condition which is created by courts based on inferred intent
· Presumption is promise over condition because breached condition means duty discharged, whereas promise duty must be kept
· BREACHED
o Effect of Condition Not Being Met
§ Condition – neither party has assured other party that condition will happen
§ A’s duty of performance never arises or is discharged
§ B is not liable for damages
o Effect of Promise Not Being Met
§ Promise – promise to do something
§ A’s duty of performance still arises or is not discharged
§ B is liable for damages for breach of promise
o Effect of Promissory Condition Not Being Met
§ Promissory Condition – one party has assured that condition will happen
§ A’s duty of performance never arises or is discharged
§ B is liable for damages for breach of promise
§ Courts wary to imply conditions, so material breach preferred in absence of clear indication that term is to be considered a condition
Avoiding Conditions
Someone trying to have the contract enforced despite the failure of the condition
Waiver – a voluntary abandonment of a contractual right
Created unilaterally by benefiter of condition
No rel
e
(4) After receipt of a justified demand for adequate assurance, if receiving party fails to provide within a reasonable time (max 30 days) such assurance of performance as is adequate under circumstances this failure will be treated as a repudiation of the K
Scott v. Crown (wheat case) – seller stops delivery before K2 finished; cannot use reasonable demand for assurances as a way to force contract modification
Material Breach
In common law situation, someone trying to walk away from K without being in breach + arguing breach material
Rule: in absence of expressed or constructive condition to contrary, only if a breach is material does it relive the nonbreaching party of its duty of performance under the K
Created: (1) expressly make it a condition; (2) make it clear in writing that’s intended to be material element; (3) any nonconformity amounts to breach of K
Breach: non-breaching party can walk away, other party liable (used when court won’t imply promissory condition)
OR, whether breaching parties’ actions are so important to heart of transaction that has impaired aggrieved party’s faith in future performance
Is breach material? Look at 5 factors
To what extent has the contract been performed
Was the failure a result of innocent action, negligent or willful action
How much money would the breach cause in relation to how much money is still owed
Degree of hardship on aggrieved party
Adequacy in which aggrieved party may be paid for damages
B&B case: employment K not stock option K, so defective performance = material breach so don’t have to give stock options
Counter: substantial performance
