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CONTRACTS Formation of Contracts What is a contract?
It is: A promise or set of promises, the breach ofwhich results in a remedy at law, and the performance of which
the law recognizessomehow as a duty. NOTE: Traditional contracts, express and implied,
require an offer, acceptance,consideration, legal subject matter, andcapacity
of the parties (COALL).
Formation
of Contracts What standard is applied to determine whether an agreement is definite
enough to be enforced as a contract at common law?
Whether or not there is a reasonably
certain basison which an appropriate remedy could begranted. NOTE: Under
the UCC, in contracts between merchants, the rule of definiteness is much more
liberal -if terms in a contract between merchants are vague or missing, the
court canlook to the subsequent acts of the parties, theirpast dealings, and
general trade usage, todetermine the terms of the contract.
Formation
of Contracts
Does Article 2 of the UCC specifically cover service contracts?
No -the UCC deals with transactions in
goods only. Thus, it does not cover services, real property, or intangibles
(e.g., stocks).
However, the UCC is liberally interpreted, and frequently applied
by analogy to service contracts.
What is an "offer"?
Basically -it's a promise to do something
in exchange for something else. Specifically, it is a communication by the
offeror; creating a reasonable expectation in the offeree; that offeror is
willing to enterinto a contract; on specified terms; such that offeree need
only accept in order to form a contract.
NOTE: The offeror must manifest an intent to be presently
bound.  It is important to distinguish an
offer from a negotiation or offer tonegotiate. The offer must have the language
of a promise, definiteness as to essen-tial terms, and be communicated to
offeree.
FACTORS: In determining if there has been an offer, look to see it the
communication Is a promise. Consider language, circumstances, prior prac-tices
and relations of parties, method of communication,and industry custom. Language
like "*I offer," "for immediate acceptance" or "I
promise" is typical; words like "*I quote:' "I'm asking:'
"I want," and "I'd consider" are typically words inviting
negotiation (although they don't have to be).
What are the four essential terms of an offer at common law?

  1. Parties;

  2. Subject matter;

  3. Time of performance; and

  4. Price.


 
Mnemonic: TOPPS (Time; Parties; Price; Subject)
Note: If a term is missing, it can be reasonably
implied by the court -except quantity, which must be supplied. Note also that
the contract itself can cure ambiguities in the offer, as through part
performance.
NOTE: For public offers, language of promise and quantity
are required. Bythe nature of the offer, the offeree can't be identified.
*UCC VIEW: The UCC is even more liberal, providing only that the
parties manifest their intent to be bound, and there is a reasonably certain
basis on which to apply a remedy. UCC SS2-204(3). The only absolutelyessential
term is quantity.
N.B.. The more terms that are left open, the less
likely it is the partiesintended to form a contract.
Is a subjective
standard used to determine whether an offer has been made?
No, an objective standard is used. It is:
Would a reasonable person assume that the power ofacceptance had been created
in him? Thus, anoffer could exist whether or not the offeree intended that
it exist. COMPARE: Acceptances. The necessity ofactual,
subjective intent to accept depends on thekind of offer involved. An offer for
a bilateral contract is governed by the objective standard, sono intent is
required. An offer for a unilateral contract, on the other hand,
requires offeree'sintent to accept.
What is an
"option"?
It is an offer made irrevocable by
consideration -i.e., offeree pays offeror to keep the offer open for some
period of time.  It creates a property
right in offeree, which means, without a provision otherwise, that the offeree
can sell or transfer this power of acceptance to someone else, enabling him to
accept the original offer. NOTE: Unlike an offer, the death or insanity
of either party doesn't necessarily terminate an option contract. UCC VIEW: Under §
2-205, an offer can be irrevocable in the absence of consideration -it's called
a "firm offer" -as long as the offeror is a merchant, the transaction
concerns the sale of goods, and the assurance not to revoke is embodied in a
"signed writing." (The maximum length of a "firm offer" is
three months; it the parties state a longer period, it's only valid to three
months.) NOTE: When the optionexpires, the offer isn't automatically
revoked; instead, the offeror gets back the right to revoke the offer.
Can offers made in jest ever be the basis of a contract?
Yes, as long as a reasonable person would understand the offer to create
a power of acceptance in him. If this objective standard is not met, the joking
offer is not valid.
Does an offer continue until it is
expressly revoked?
No.
Although the offeror can set any time limit he likes, in the absence thereof,
the offer expires at the end of a reasonable time.  "Reasonable time" varies according
to circumstances, including trade customs, nature and subject matter of the
contract.  The means of communication is
also relevant: an oral offer made in a face-to-face meeting normally lapses
when the meeting ends; a phone offer lapses when the conversation ends. An
offer can also terminate throughdeath or insanity of either party, intervening
illegality, rejection or counter-offer, and destruction of the subject matter, NOTE: If an
offer gives an offeree a set time, say, seven days -in which to accept an
offer, the time period begins when the offereereceives the offer, unless the
offeror specifically provides otherwise(or the offeree should know the offer
had been unusually delayed).
Must the
offeror expressly revoke his offer to offeree in order for the revocation to be
valid?
No. Any act which is inconsistent with the
offer is sufficient to revoke, as long (and as soon) as offeree knows about it
(e.g., selling a house to another buyer).
May an offeror revoke his offer under a unilateral contract once offeree
has begun to perform, under the modern view?
No. Under the modern view, an offer to
enter into a unilateral contract becomes irrevocable once offeree begins to
perform.  Second Restatement, Section 45. OLDER VIEW: The
offeror could revoke until performance was completed. Older courts based this
on the fact that offeree could revoke anytime, even after he began to perform,
so in the name of mutuality, offeror could revoke anytime also.
Traditionally, does an offer for a bilateral contract request
performance in return rather than another promise?
No. A traditional bilateral contract
consists of exchangingmutual promises; the situation given involves a
unilateralcontract -a promise requesting performance, not a return promise. Note that almost all contracts -barring
offers of rewards or offers in which the offeror expressly demands only
performance in return -can be construed as bilateral contracts. NOTE: The
Restatement (2d) of Contracts doesn'trecognize the unilateral/bilateral
distinction per se, but instead categorizes offers which request a
promissoryacceptance (i.e., bilateral), and those that don't (i.e.,unilateral).
Must a statement sufficiently identify the
offeree to constitute an offer?
Yes, because it must create in offeree an
immediate power of acceptance. Although the offeree is normally one person, it
can be a class of persons and even the general public, as long as the terms are
sufficiently definite and the offeree clearly identified.  Note, however, that the broader the
"class" of ostensible offerees, the more likely a court is to find
that an "offer" (e.g., an advertisement) is actually only an
invitation for offers.
Does a missing quantity term invalidate a
contract?
Yes, because without a quantity term there
is noreasonably certain basis on which to give anappropriate remedy, This is
true at common lawAND under the UCC. N.B.: A
quantity term need not be an expressquantity in the contract itself, as long as
it can bedefinitely ascertained. Thus, requirementscontracts ("We will buy
all the flanges we neednext year from you") or output contracts ("We
willbuy all the sunshine salad you produce nextyear") are valid.
What are the six ways in which an offer
may be terminated (except through acceptance)?

  1. Revocation;

  2. Death or insanity
    (of either party);

  3. Intervening
    illegality;

  4. Rejection/counter-offer;

  5. Lapse of
    reasonable time (depends oncircumstances);

  6. Destruction of
    subject matter.
  MNEMONIC: RED TIRED (Revocation;Destruction; Time; illegality; Rejection;
Death)
There are three means of acceptance under the UCC. What are they?
According to UCC § 2-606,
buyer can:
  1. After a reasonable opportunity to inspect, manifest to
    seller that goods conform OR are acceptable in spite of non-conformance;
  2. Fail to reject within a reasonable time,
Act
inconsistently with seller's ownership
If posted properly, by acceptable means, when is an acceptance
effective?
The moment it is posted. This is the
"mailbox" rule, and it holds even if the acceptance never actually
reaches the offeror, a valid acceptance occurs once a properly addressed
mailing is posted. NOTE: The
offeror can insulate himself from the mailbox rule by providing acceptance
won't be valid until it's received. The same rule applies to telegrams. Unless
the offeror specifically provides otherwise, the offeree can use telegrams
instead of the mail, and still have the "mailbox" rule apply.  NOTE: This does not apply to option
contracts, for which acceptance is valid only when received. UCC VIEW: An offer can be accepted by any reasonable means; if
unreasonable means are chosen, the acceptance is still valid when dispatched as
long as offeror receives it no later than he would have via reasonable means.
UCC § 1-201(38).
Is a subjective standard used to determine whether there has been a
valid acceptance?
It depends on the nature of the offer. If it's
an offer for a bilateral contract (i.e., it requests a promise in return), the
offeree's intent is not required -his acceptance is judged objectively.  If it's an offer for a unilateral contract,
on the other hand (requesting performance in return), intent to accept is
required, meaning it's judged subjectively. When in doubt, it is a
bilateral contract.
How is a unilateral contract accepted?
Through performance. Compare this to a bilateral contract which
requires a return promise, not performance. Note that in a unilateral contract, only
the offeree is bound to perform! NOTE; With a unilateral contract,
offeree need not notify offeror of acceptance -he need only begin to perform.
NOTE: Acceptance of a unilateral contract offer is judged subjectively
that is, the offeree must intend to accept. (Acceptance of a bilateral
contract is judgedobjectively.) N.B.: There
are very few situations where an offer clearly seeks performanceinstead of a
return promise. One clear case is the offer of a reward; anotheris where
offeror specifically limits the acceptance to performance.  Most other offers could be construed as
desiring a promise in return. UCC VIEW: Under UCC § 2-206(l)(a), an offeree can accept a
bilateral or unilateral contract by any reasonable means, unless the offer
expressly andunambiguously states otherwise.
Under common law, in accepting an offer, may an offeree request
additional terms?
No. This was the
"mirror image" rule -the acceptance had to be a "mirror
image" ofthe offer to constitute a valid acceptance;otherwise, it was
considered a rejection andcounter-offer. UCC VIEW: For transactions in goods, theUCC is more
liberal in treating new terms,where the con-tract is between merchants. UCC §
2-207.
Is a revocation effective when dispatched
under the "mailbox" rule?
No. The "mailbox"
rule concerns only acceptances, not revocations. Revocations (and rejections)
are only effective upon receipt. NOTE: "Receipt" does not mean the communication must be
read; if delivered reasonably to addressee's control, it's valid when it
arrives.
What are the two basic elements of valid consideration for a bilateral
contract?
  1. 1.  Legal value
    (detriment to promisee or benefit to promisor); and
  2. 2.  Bargained-for
    exchange.
  NOTE: The bargain element is the key to consideration. Bargained­for-exchange
means the detriment must induce the promise, and the promise must induce the
detriment (the detriment being either a promise, or an act, in the case of a
unilateral contract) -thus, each party's promise is the consideration for the
other party's promise.  If one party's
detriment occurs in reliance on the other's promise, but there is no
bargained-for exchange, the promise is enforceable due to "promissory
estoppel" (in spite of the lack of consideration.) NOTE:
Although there need only be, in theory, detriment or benefit, inpractice most
courts require both.
What is an "unconscionable contract"?
According to the UCC definition (which
most statesfollow), a contract is “unconscionable” if the clauses involved are
so one-sided as to be “unconscionable,” (UCC § 2-302), meaning that the terms
are oppressive and grossly unfair. Unconscionable contracts are veryrare,
because courts normally won’t look into theadequacy of consideration. However,
they occasionallyappear in the consumer credit context – when this happens, the
court is free to void the entire contract, applyall but the offending clause,
or limit application of theclause to eliminate the unconscionable effect.
What is an "aleatory contract"?
It is one where the duty to perform is
conditional upon an occurrence which is uncertain. Accident insurance is one
example. Aleatory contracts are enforceable – the conditional obligation to pay
is adequate consideration for the insured’s promise to pay premiums.
What's the difference between fraud and
duress?
Fraud involves misrepresentation; duress requires coercion (i.e., the deprivation
of free will). EXAMPLE: Sparkle Plenty, a jeweler,misrepresents a worthless
paste diamond to ZsaZsa as the real thing. Zsa Zsa buys it, relying on this
representation, for $5,000. Fraud. Say, instead, that Sparkle Plenty holds a gun atZsa Zsa's head and
forces her to buy the paste diamond. Duress. NOTE: The same remedy applies to both fraudand duress
-the contract is voidable.
If one of the
parties to a contract lacks the "capacity" to contract, is the
contract void?
No. Contracts of
incapacitated people (includingminors, insane persons, and those drunk or
inshock), are voidable at their option (but not that of the other party to the
contract, to whom theagreement is binding). The exception to this is aperson
adjudged insane, whose contracts AREvoid. Note: One lacks the
capacity to contract if hedoes not fully understand his rights, as well as
thenature, purpose, and effect of the contract he isundertaking.
Can minors refuse to uphold any contract
they enter into?
No. Although contracts of minors are generally voidable by them
due to lack of capacity to contract, public policy requires that some contracts
by minors are enforceable, such as contracts concerning military enlistment,
insurance contracts, and contracts for necessaries.
Since mutual
mistake is a ground for rescinding a contract, is unilateral mistake a ground
for rescission also?
No. If the other party reasonably did not
know ofthe mistake, the mistaken party must perform(although some states only
demand performanceto the extent of the non-mistaken party's actualcosts of
detrimen-tal reliance). The mistake can be one of identity (the other party's),
mistake bythe intermediary chosen to deliver an offer,mistake as to subject
matter or calculation ofcosts under the contract, among others.
NOTE: If the other party knew or should haveknown of the mistake,
it will excuse the mistakenparty's performance.
What's the difference between a contract
implied in fact and one implied in law?
A contract
implied-in-fact is one where the conduct of the parties andsurrounding
circumstances indicate they intended to enter a mutually binding agreement; A
contract implied-in law, or "quasi-contract:' isn't a contract per se, but
alegal means of avoiding unjust enrichment where one party bestows a benefit on
another under a reasonable expectation of being compensated. Under
implied-in-law contracts, a promise to pay is implied even though no
such promise was made or even intended. N.B.: The lack of an enforceable
contract is a prerequisite to quasi­-contractual recovery. EXAMPLE: Mr.
Bill visits Dr. Spot for a physical. Price isn't mentioned. However, there is
an implied-in-fact contract, since the circumstancessug-gest that Mr. Bill
anticipated he'd have to pay, and the doctor expected payment. Say instead that
Mr. Bill is run over by a steamroller, and Dr. Spot, walking by, stops to
render emergency assistance. This would be an implied-in-law contract, since a
promise to pay couldn't be implied from thesefacts (since Mr. Bill was
unconscious), and Dr. Spot rendered assistanceanticipating payment.
Does the UCC
make offers binding without consideration?
No -except under certain conditions.  Under UCC § 2-205, an offer can be
irrevocable in the absence of consideration -a "firm offer" -as long
as the offeror is a merchant, the transaction concerns the sale of goods, and
the assurancenot to revoke is embodied in a "signed writing."(The
maximum length of a "firm offer" is threemonths; if the offer states
a longer period, itcannot be revoked for a reasonable time not to exceed three months.)
NOTE: A merchant is one experienced in dealing with the type of
goodsinvolved in the transaction.
Under the UCC, can a non-merchant make an offer irrevocable in the
absence of consideration?
No. The
UCC, § 2-205, allows irrevocable offers without consideration, or "firm
offers," only wherethe offeror is a merchant and the offer of
irrevocability is made in a "signed writing" (and,naturally, the
offer must involve the sale ofgoods). Also, the time period of the "firm
offer" islimited to three months. Therefore, under theUCC a non-merchant
cannot make an irrevocable offer. COMMON LAW RULE: Consideration is requiredto create an "option," which
is the common lawequivalent of an irrevocable offer.
What is the consideration in a unilateral contract?
The promisee's continued performance
constitutes consideration in a unilateral contract. Note that, in a
unilateral contract, there is no obligation on offeree to perform; but if he
does, offeror is obligated to perform.
As a general rule, does a promise to perform a "preexisting
duty" -something one is already obliged to do -constitute valid
consideration at common law?
Generally
not. Consideration
requires bargained-for exchange andeither detriment to the promisee or
benefit to the promisor.  Where the
promise is to perform an act one is already obligated to perform, there is not
detriment and as such no consideration. NOTE: There are exceptions to this rule,
including promises to pay unenforceable debts (those discharged through
bankruptcy or barred by the Statute of Limitations), which are enforceable. UCC
VIEW: The UCC does not recognize the preexisting duty rule, For transactions in
goods, the UCC allows binding modifications without consideration, as long as
they are made in good faith. UCC § 2-209(1), RELATED ISSUE: Keep in mind that settlements to
avoid litigationare valid even though they theoretically violate the
preexisting duty rule. The rationale is the public policy of discouraging
litigation.
Does a moral
obligation constitute consideration?
No, as a
general rule -however, under Restatement (2d) of Contracts section 86(1), such
a promise, recognizing a benefit already received by the promiseefrom the
promisor, is binding to the extent necessary to avoid injustice (e.g.,promisee
permanently injured himself while saving promisor's life). As an example of the general rule, say Clark saves Livingstone's
life by finding him lost in the jungle and leading him back into
civilization.Livingstone says, " Boy, do I owe you one. I'll leave you my
house in my will."There's no consideration, because this is merely a moral
obligation. There's no detriment created by Livingstone's promise, because
Clark didn't act in response to Livingstone's promise -he saved Livingstone's
life before the promise was made. Furthermore, it wouldn't be unjust to refuse
to uphold thepromise, since Clark suffered no harm. NOTE: If a
prior debt is unenforceable due to operation of law (e.g.,discharged through
bankruptcy or barred by the Statute of Limitations), and the promisor
subsequently promises to pay the debt anyway, the moral obligation will be
enforceable (although most jurisdictions require that thesubsequent promise be
in writing).
Are oral
contract modifications, without consideration, valid under the UCC?
Yes, under UCC § 2-209.  However, protections against fraud in these
instances are also found in the Section including, among others,
  1.  Clauses
    requiring that modifications be written are valid, and
  2. If the modified contract falls within the Statute of
    Frauds, a writing is required.
What is a "condition"?
A "condition" is the occurrence
or non-occurrence of an event (not merely the passage of time) that triggers,
limits, or extinguishes an absolute duty to perform in one party to a contract.
It modifies a promise.
How can you
tell the difference between a condition and a promise?
It's
tough, but it's important, due to the nature of relief granted foreach. Breach
of promise involves positive relief, while failure of a condition merely
excuses the other party's performance. 
The Restatement of Contracts 260 provides this guideline for
distinguishing conditions and promises. 
If the contractual provision purports to be the words of the party of
whom performance is required, the provision is a promise; if it's supposed to
be the words of the other party, it's a condition. CRITERIA: Courts look at: 1. Language used (how parties characterize it); 2. Situations of parties, 3. Subject matter of the contract.   PREFERENCE: In ambiguous situations, courts prefer promises
overconditions.
There are three
types of conditions classified in accordance with their time of performance.
What are they?
Conditions precedent, concurrent, and subsequent. COMPARE:
The other way to classify conditions is in relation to how the condition came
about: These are express and implied/constructive conditions.
What is a
"condition precedent"?
A condition precedent is an act or event
which must occurin order to trigger a party's absolute duty of performance.As a
result, until the condition occurs, there's noenforceable duty owed. Thus, if,
say, Huck is to paintBecky's fence for $50, Huck's performance -painting the
fence -is a condition precedent to Becky's duty to perform -paying the $50. NOTE: In the
Huck-Becky example, the conditionprecedent is implied/constructive, since it's
not mentionedin the agreement. Note that it would be considered a condition
precedent, not a concurrent condition, becauseof this rule: When one party's
performance takes a periodof time, and the other party's performance only takes
amoment, the longer performance will be considered acondition precedent of the
shorter performance.
What is a
"concurrent condition"?
A “concurrent condition”
provides that the parties exchange performance simultaneously, each party’s
duty to perform is dependent on the other’s. It is implied under the following
circumstances:
  1. 1.  Simultaneous
    performance is possible, and no time is set for either performance;
  2. 2.  Time is set for
    one performance, but not the other, and they’recapable of simultaneous
    performance.
  EXAMPLE: Sam agrees to sell his “Slugs of the World”
calendar to Dave for $5. Sam’s tendering the calendar is a condition to Dave’s
duty to pay; and Dave’s tendering the $5 is a condition to Sam’s duty to hand
over the calendar.  The same rule would
apply if, say, Sam agreed to sell the calendar on December 15, and no date was
set for Dave’s performance; since they can be performed simultaneously, their
performances will be considered concurrent conditions (to occur on December
15).
What is a
"condition subsequent"?
It is an event which,
pursuant to the agreement ofthe parties, discharges a duty to perform that hadbecome
absolute. It is typically indicated bylanguage like, “The contract will be void
if…” SIGNIFICANCE: Although conditions precedentand subsequent are
substantively similar,procedurally they differ in that the party to
whomperformance is owed must prove the occurrenceof conditions precedent; the
party of whomperformance is required must prove theoccurrence of conditions
subsequent.
What is a
"constructive" (or "implied") condition?
It is one not spelled out by the parties,
but is applied by the court to help in determining the order in which
contractual performances are or will be due. SIGNIFICANCE: The only
important distinction in types of conditions is determining if the condition is
express -if it is, courts require strict compliance with its terms; if it's
implied/constructive, substantial compliance will do.
Is substantial performance sufficient to
satisfy an express condition?
NO; an express condition calls for strict
compliance. Substantial, or less-than-complete, compliance with anexpress
condition both:

  1. Excuses the
    party's performance which wasconditioned on the event, and

  2. May pave the way
    for damages due to breach. COMPARE: Constructive/implied conditions only
    require
  substantial performance, since the aim
ofcon-structive/implied conditions is to promote fairness.
To what six
criteria should you turn to determine whether "substantial
performance" has been rendered?
The Restatement of Contracts sec. 275
looks to these six, to be takentogether (paying particular attention to the
factors most critical to each case):
  1. To what extent has the injured party received
    benefits?
  2. Can the injured party be adequately compensated in
    damages?
  3. Is the breaching party "close" to full
    performance?
  4. Will the breaching party face great hardship if
    termination is permitted?
  5. How willful is the breach?
  6. How great is the certainty of completion?
  MNEMONIC:
REACH CurFeW (Received benefits-, Adequately compensated; Hardship; Certainty
of completion; Full performance; Willful). N.B.: Regardless of these criteria,
if the breach is considered willful (knowing or In bad faith), most
courts would decide there is no substantial performance!However, it the
willfulness concerns a trivial condition, courts will ignore it.
What is
"anticipatory repudiation"?
A party's unequivocal repudiation of his duty to perform, before performance is due. SIGNIFICANCE:
The promise’s can sue for breachimmediately, without having to wait for the
timeperformance is due. However, the promisee must also immediately try to
mitigate his damages. EXCEPTION: One party has performed -the other
hasn't.  Where one party has performed
and the other repudiates, the duedate of the second party's performance must
arrive beforethe aggrieved party can sue. UCC VIEW: UCC § 2-610 has a similar rule on anticipatory
repudiation, as well as an option to negotiatefor retraction of the
repudiation.
What are the
elements of promissory estoppel?
Basically, promissory estoppel is a
substitute for consideration, to avoid injustice. It is triggered by a
gratuitous promise that is likely to, and does, induce promisee's detrimental
reliance. Technically, under Restatement of Contracts section 90, promissory
estoppel exists when: There is a promise; Which the promisor should reasonably
expect
; To induce action or forbearance; The promiseehas in fact justifiably
relied
on the promise to his detriment to induceaction, and injustice can
be avoided only by enforcement of thepromise. NOTE: Promissory estoppel replaces
consideration where promisee'sdetriment was not bargained for (as long as the
above elements are present); this is what distinguishes it from consideration.
Thus, a prerequisite for promissory estoppel is the lack of
consideration -if an enforceable contract exists, promissory estoppel doesn't
apply.
What's the
difference between promissory estoppel and consideration?
The bargain element. In promissory estoppel, there has been no
request from promisor that promisee perform; in consideration, on the other
hand, pro-misee'sdetriment is bargained for. EXAMPLE: Jethro tells Miss
Hathaway "I promise to give you my car, next month." She signs a
garage lease agreement to begin next month. Jethro backs out of the promise and
doesn't hand over the car.  Since Jethro
didn't request performance, no con-sideration exists.  However, since his promise was likely to, and
did, induce detrimental reliance, promissory estoppel will make the contract
enforceable (if nothing else, to the amount Miss Hathaway has to pay on the
lease). Say, instead, Jethro says: "I'll
give you my car in return for $1,000.”She agrees. There's consideration -each
promise is the induce-ment for the other party's action, and it was bargained
for.
Does the UCC
implied requirement of "good faith" apply only to merchants?
No. The "good faith" requirement of UCC § 1-203 is
imposed on any purchaser or seller of goods, not just merchants.
What's the
difference between "anticipatory repudiation" and a "prospective
inability to perform"?
In anticipatory repudiation, a party
refuses to perform regardless of the ability to do so. In prospective
inability, on the other hand, regardless of his intent to perform, a party is
no longer able to do so, due to his own actions.
There are three
general ways to treat a prospective inability to perform. What are they?
MAJORITY VIEW: Absolute breach, on which
the aggrieved party is excused from performing and can sue for damages
immediately, as long as inability to perform exists and the aggrieved party
suffers damages due to detrimental reliance. RESTATEMENT OF CONTRACTS VIEW: Since party's own acts resulted in
his inability to perform, he may regain the ability before performance is due
and hold the other party to the contract (as long as the other
party has not detrimentally relied on the prospective inability). UCC VIEW: Other party can
demand assurances of performance, under UCC § 2-609; if he does not receive
them, he has immediate grounds to sue. Other party has grounds to demand assurances when a
reasonable merchant has facts that lead him to believe performance may not be
forthcoming.
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