VIRGINIA CONTRACTS & SALES DISTINCTIONS PROFESSOR DAVID FRISCH UNIVERSITY OF RICHMOND SCHOOL OF LAW

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1 VIRGINIA CONTRACTS & SALES DISTINCTIONS PROFESSOR DAVID FRISCH UNIVERSITY OF RICHMOND SCHOOL OF LAW CHAPTER 1: CONTRACT FORMATION A. SOURCE OF LAW 1. Two Competing Sources a. Common Law of Contracts b. Article 2 of the UCC Applies to contracts for the sale of, which are tangible, items of personal property. c. Hybrid Contracts Goods component and non-goods component. Example 1: Go to beautician to have hair dyed. The hairstylist applies the hair dye to hair. The contract with the beautician is a mixed- contract. There s a sale of goods component with regard to the ; there s a service component with regard to. 2. Which Law Applies? o Virginia takes an all or approach to hybrid contracts; either the contract is governed by Article 2, or the entire contract is by the law of service contracts. Article 2 is -focused because of the implied warranty of. Example 2: The issue is not whether the beautician is careful or professional, what matters is the outcome and whether there was something wrong with the hair dye or with the application. If so, then the customer could recover through the implied warranty of merchantability. If the law of service contracts applies, that is -oriented, and as a general rule there is no unless you can show that the merchant was.

2 Example 3: The beautician selected an inferior brand of hair dye or applied the dye improperly. A plaintiff in this hypo would be better off in an regime than if common law of service contracts applies. o Virginia courts apply the test. B. MUTUAL ASSENT The court will determine what the predominant purpose of the contract was. If the predominant purpose was to (the hair dye), the entire contract is governed by Article 2. On the other hand, if the predominant purpose was to acquire the, then the entire contract, including the goods, would be by the common law of service contracts. Exam Tip 1: Take into account the relative cost of each component as well as the relative importance to the buyer. An enforceable contract requires for the promise or a consideration substitute as well as a of mutual assent. Mutual assent is manifested through the process of. 1. Offer o A manifestation of assent so made by the offeror that a offeree would think that all she must do in order to enter into a is assent. 2. Acceptance Example 4: Person wants to sell a table and says, I would like to sell my table, would you like to buy it? A reasonable person would think that saying yes is not enough and would consider the price of the table. Thus, the statement above would not be an. Example 5: Person says I m interested in selling my table, do you want to buy it for $100? Now a reasonable person would think that saying yes would create a. Saying yes would be the offeree s manifestation of and would create acceptance and a contract. o In Virginia, a contract to agree or an agreement to agree in the future is unenforceable. Example 6: If a person said, I m interested in selling my table, but I m too busy to talk about the details now, let s agree now, to agree to enter into a contract next week. This would not result in an enforceable contract today. Why? Themis Bar Review, LLC VA Contracts Distinctions

3 C. DURATION Example 7: If a person said, Let s agree today that I will sell the table and you are going to buy it, but we will agree on the price next week. That would not be in Virginia. Editor's Note 1: The contract would be enforceable in Virginia (as well as elsewhere) as a contract for the sale of goods. Because the parties have currently agreed to the sale, the UCC will supply the price term if they cannot agree on a price. o If Article 2 applies, the rule is different. Under Article 2, if the parties so intend to enter into a contract, even though they don t agree on certain terms, there would still be a. Article 2 contains gap fillers or default rules. a) If a price is not agreed to, Article 2 provides for a price. b) If a delivery date is not agreed to, Article 2 provides for a delivery date. In most contracts, if a duration term is not specified, the court will imply a duration term. Example 8: A manufacturer of shoes agrees to supply a shoe store owner with 20 pairs of shoes each and every month. But the contract does not specify duration. A court will imply a reasonable duration depending upon the, such as the type of goods or a prior relationship. In Virginia, if the contract is an employment contract, and it does not state a duration, it would be an contract, which means that the employer can dismiss the employee at any time for any reason or for no reason at all. Example 9: Employer hires a student to work and duration of employment is not discussed, the employer can the student whenever he chooses even if there is no issue with the quality of work. Note 1: In Virginia, even if the contract does state a duration, if it does not provide that the employee can be only under the circumstances specified in the contract, it is still a contract. Example 10: If two parties agree on a one-year contract but say nothing about dismissal, including when the employee may be dismissed, grounds for dismissal, then it would be a contract at will. VA Contracts Distinctions 2016 Themis Bar Review, LLC 3

4 D. CONSIDERATION 1. Consideration requires a bargain. o In Virginia, the promisor must bargain either for a to himself or a to the promisee. o In most cases, the promisor will be bargaining for by making the promise in order to receive a benefit and require a detriment on the part of the promisee by making the promisee to do something that she is not to do or to refrain from doing something that she is legally allowed to do. Example 11: A person promises to pay $5,000 to a person to paint her house. This is a bargain for a benefit of having the house painted, and also a bargain for detriment on the part of the painter in the form of the commitment to paint the house. o In Virginia, although there is typically both benefit to the promisor and detriment to promisee, there need not be because one is consideration. Example 12: A person promises to pay $5,000 if your Uncle Harry paints my house. This is a bargain for a benefit of having the house painted. Here the bargain isn t for any on the part of the promisee, because it s Uncle Harry who is going to suffer the detriment. Here, consideration would exist because of the benefit to the promisor. o In Virginia, past consideration or a moral consideration is not sufficient. Example 13: Suppose a person owns a bull, which escapes. You find the bull, feed the bull, and take the bull to the vet who cures the bull. Finally, the person tracks down his bull, and is so grateful that he promises to pay you $5,000. In some states, that promise would be even though when the promise is made nothing is being bargained for. In Virginia, because the consideration is in the and the detriment is in the past, this promise would be. 2. Promissory estoppel o A consideration that operates when the promisor makes her promise and at the time it is that the promisee will rely on the promise. In most jurisdictions, the promisee s reliance would make the promise Themis Bar Review, LLC VA Contracts Distinctions

5 In Virginia, promissory estoppel is recognized as a consideration substitute. would not make the promise. E. DEFENSES TO FORMATION 1. Infancy o As a general rule, a contract entered into by an infant is, which means the infant can the contract and would not have to pay. Exception: If an infant enters into a contract for, such as food, shelter, clothing, education; even if the infant disaffirms or voids the contract, the other party can still not on the contract, but off the contract in quantum meruit for the of the benefit transferred to the infant. o In Virginia, the age of majority is years. o When a court is called upon to decide whether a contract for a necessity, a two-step approach is required: 1) Whether what was purchased by the falls into the of necessities generally (e.g., food, clothing, shelter, education); 2) If yes, then the court must decide whether the contract was necessary for this. Example 14: A 17-year-old purchases clothing. Clothing falls into the category of a necessity. But if this 17-year-old has an extensive wardrobe, then the clothes be necessary for this infant. 2. Unconscionability o An unconscionable term or contract is unenforceable. o When the issue of unconscionability is determined by the court, the focus is on the situation as it when the contract was. o The Virginia Supreme Court has defined an unconscionable as one that no man in his senses and not under a would make, on the one hand, and as no would accept, on the other. o This is more than an unfair contract. It must be unfair; the inequality must be so gross as to shock the conscience. VA Contracts Distinctions 2016 Themis Bar Review, LLC 5

6 CHAPTER 2: WARRANTIES, STATUTE OF FRAUDS, AND PAROL EVIDENCE A. WARRANTIES UNDER THE UCC 1. Express Warranty o Can be created in a number of ways: a. Promise. Example 15: These tiles will last for six years. b. of fact. Example 16: This table is twenty years old. c. Description of the. Example 17: This car is a 2010 Ford Focus. d. With a sample. Example 18: Let me show you a sample from the barrel of apples. e. By a. Example 19: I don t have the boat here, but I do have this model which is a smaller version of the boat. o The warranty must be part of the of the, such that a reasonable buyer would consider the statement when purchasing the goods. It can t be sales talk or puffing. Example 20: A salesman says, This is the best car in the world. No reasonable buyer would take that statement seriously and factor that type of statement into his decision to buy the car. o The seller s of the value or commendation of the value of the goods does not give rise to a. In Virginia, a statement that this item is of does not constitute a and would not be part of the basis of the. It is considered to be sales puff. 2. Implied Warranty a. Implied Warranty of Merchantability Unless properly disclaimed, an implied warranty of merchantability is part of the if the seller is a who is in the business of selling the item Themis Bar Review, LLC VA Contracts Distinctions

7 Example 21: If a person goes to Wal-Mart to buy a toaster-oven, part of the contract with Wal-Mart is the implied warranty of because Wal-Mart is a merchant in the business of selling toaster-ovens. The toaster-oven must be one that would pass without in the trade and be fit for the ordinary for which it is used. In Virginia, the implied warranty of merchantability applies both to goods and to. Whether the item is merchantable might depend upon whether it is new or used. How the item is described is important. Example 22: If the item is described as a used car and there is a slight rumble in the engine, it still may be merchantable since it is used. Example 23: If a car is described as a brand new Mercedes, that same rumble in the engine may mean that the car is not merchantable because a brand new Mercedes with a rumble wouldn t pass without objection. In Virginia, a contract for the purchase and sale of a new does not contain an implied warranty of. Reason: A home is not. Exam Tip 2: This is another example of why it is important to get the source of law issue correct. If the contract involves goods, do not discuss the common law. Disclaimer The implied warranty of merchantability may be. Example 24: A seller is in the business of selling a particular item, but does not want to be responsible if there is a quality defect with the item. The implied warranty of merchantability may be removed from the contract or in. If the contract is disclaimed in writing, the language must be such that a reasonable buyer would notice it. b. Implied Warranty of Fitness for a Particular Purpose This warranty arises if the buyer has a special for the goods and is relying on the seller s or judgment to the appropriate goods and the seller that the buyer is relying on her skill or knowledge. Example 25: A person wants to climb Mount Everest and needs a pair of climbing boots that will protect his feet from temperatures below -10 degrees VA Contracts Distinctions 2016 Themis Bar Review, LLC 7

8 Fahrenheit. He goes to the sporting goods store and tells the clerk that he needs this special pair of shoes. The salesperson presents a pair of shoes indicating that they will accommodate. Here, there is an implied warranty of fitness that the boots the person buys are fit for the purpose he intends to use them (climbing Mount Everest). A seller may or remove from the the implied warranty of fitness for a particular purpose. To do that, the disclaimer must be and must be. In Virginia, a disclaimer in the of a contract printed in the same size, style, and color as most of the other provisions is not and therefore ineffective. B. STATUTE OF FRAUDS If a contract is covered by the Statute of Frauds, it is unless there is a that satisfies the requirements of that particular Statute of Frauds. Not all Statutes of Frauds have the same writing requirements. o The Statute of Frauds in Article 2 of the UCC applies to contracts when the price is $ or more. o A goods contract for $499 would not be covered by the statute and an contract would be as as a written contract. 1. Requirements o Under Art. 2, the writing must be: 1) to indicate that a contract for sale was made; 2) Signed by the party to be, usually meaning the buyer; 3) The only term required is. Example 26: Two parties are in a restaurant negotiating the purchase and sale of tables and one party writes on a napkin, Sold to Harry, 100 tables and signs his name. That napkin would satisfy Art. 2 s Statute of Frauds. 2. Applicability o Most states require the following contracts to be in writing: 1) A contract made upon consideration of ; 2) A contract A contract to answer for the of another; Themis Bar Review, LLC VA Contracts Distinctions

9 3) A contract that cannot be performed within of its making; Example 27: If you agree to be a person s butler for the rest of your life, that contract would not be covered by the one-year Statute of Frauds because it s possible that you may die within the one-year period. A contract to be someone s butler for one year and a day, would be covered by the Statute of Frauds. 4) A contract for the sale of goods for or more; and 5) property contracts. 3. Virginia: o In Virginia, the following types of contracts must also be in writing: 1) A promise to pay a incurred during infancy or ratification of a contract made during. 2) A promise by the of an estate to pay a debt of the estate with the executor s own. 3) A real estate contract. 4) A promise to lend money or extend credit in the amount of or more. C. PAROL EVIDENCE RULE As a general rule, prior or evidence of terms that either contradicts the terms contained in a writing or adds to terms contained in a writing is unless the parties did not intend for that writing to be an writing. Always ask what the parties intended with regard to the writing. Three possible labels can be attached to the writing: 1. Complete Integration o Intended to be a complete integration, or to be. The parties intended for the writing to be the word with regard to all of the contract. o This contract be supplemented. Additional terms cannot be added by looking to sources of evidence that that writing or that came into at the time that writing was created. o Whether it is fully integrated depends upon the of the parties. VA Contracts Distinctions 2016 Themis Bar Review, LLC 9

10 Example 28: You are interested in buying a car. You go to the dealership and are walking around the car lot with a salesperson. You ask the salesperson how many miles to the gallon the car gets, and the salesperson responds, 50 miles to the gallon. This sounds like an express ; an affirmation of fact and not puffing; a basis for the bargain; and a reasonable buyer would take the salesperson seriously factoring this into his decision. So you buy the car, but the car does not get 50 miles to the gallon. You bring the car back, and the salesperson pulls out the contract you signed pointing to a term that is a. A merger clause says that this contract was intended to be a fully document. This term could not be introduced into. If you can convince the court that you did not intend a full integration notwithstanding the merger clause, then you could get into evidence the warranty provision. 2. Partial Integration o The writing was intended by the parties to be a integrated document. o If it is partially integrated, then additional terms can be introduced into evidence. You can t bring in any or contemporaneous sources of evidence that what is in the writing. 3. No Integration o The writing was not to be integrated at all. o The parties never intended for the writing to be the final word with regard to any of the terms contained therein. Example 29: During contract negotiations you receive a letter, which contains terms. You look at the letter, and disagreeing with the terms, you throw it away. It would not be a full or partial integration with regard to the terms, it s just of the terms and is treated the same as other terms. The rule would not apply. 4. Virginia: o In Virginia, extrinsic evidence is admissible to give meaning to or explain ambiguous, vague, or indefinite terms; if the contract is facially incomplete then extrinsic evidence may be introduced in order to add or supplement with additional consistent terms Themis Bar Review, LLC VA Contracts Distinctions

11 CHAPTER 3: ANTICIPATORY REPUDIATION AND REMEDIES A. ANTICIPATORY REPUDIATION Repudiation is an manifestation of unwillingness to when the time for performance becomes due. It is a statement made or an action taken by one party to the contract, before that party has to perform, that sends a to the other party that she has no intention of when she is supposed to. Example 30: Two parties enter into a contract for the purchase and sale of a Picasso painting. The seller is supposed to deliver the painting on May 15, and the buyer is supposed to pay the purchase price on May 15. On April 30, the buyer tells the seller that there is absolutely no way that she can pay for the painting. This is a of an unwillingness to perform before May 15; this is a repudiation. In response to anticipatory repudiation, the non-breaching party can treat it as a breach or can and urge the other party to perform. In either case, the non-repudiating party does not have to perform. Example 31: Suppose part of the deal involved putting the painting in a specific frame. The non-repudiating party does not have to take any steps to complete this. In Virginia, once there has been a repudiation, the non-repudiating party can treat it as a and bring right now instead of waiting for the repudiating party s performance to arrive. One consequence of the repudiation is that it the constructive condition of exchange. Example 32: If the buyer of the painting had not repudiated, in order to be in breach, it would have been necessary for the seller to the painting on May 15. The tender was a condition of the duty to pay the purchase price. Because the buyer repudiated, the seller may without first tendering the painting. B. SPECIFIC PERFORMANCE When legal remedies are, the aggrieved party may seek the historically equitable remedy of and have the court order the party to perform. o Damages may be inadequate if they are difficult or to measure. o Damages may be inadequate if the aggrieved party cannot purchase performance. VA Contracts Distinctions 2016 Themis Bar Review, LLC 11

12 Example 33: Suppose the contract is for a specific table. If the seller doesn t perform, the buyer can go out into the marketplace and purchase almost the same, or an identical table from some other seller. If it costs more for the buyer to do that, then the buyer can the difference from the seller. Example 34: If the contract is for the purchase and sale of a Van Gogh painting, and the seller has the only copy of this painting in the world, it is to purchase substitute performance. In this situation, specific performance would be an remedy. o Traditionally, a buyer of real estate was entitled to specific performance. Example 35: If the contract is for 401 Main Street in Virginia, there is only one 401 Main Street in Virginia in the world. A buyer can usually obtain a for specific performance. o In Virginia, doubts about the adequacy of damages should be resolved in of granting specific performance. So the aggrieved party, if there is any doubt, gets the of the doubt. o Even if damages are inadequate, typically a court will not award a judgment for specific performance if the contract involves. Example 36: A person is hired as a butler, and the employee breaches. Even if the employee is the best butler in the world, and there is no substitute performance, a court is unlikely to award specific performance. o A court may enjoin a party from working for another if the contract contains a clause. Example 37: A court may enjoin the employee from being someone else s butler if the contract provides that the employee cannot, upon termination or breach, enter into a contract to be a butler for someone else. o For this non-compete clause to be enforceable, it must be, geographically reasonable, and not against. Example 38: A person is hired as a salesperson with a company that sells to people in Richmond and does not compete with sellers from outside of Virginia. A non-compete clause that would preclude the employee from working for a similar firm in California would be. o A provision that prevents a person from working for someone else in the same capacity for the would probably be unreasonable Themis Bar Review, LLC VA Contracts Distinctions

13 o If a person has a particular skill that is important to the and is in short supply, prohibiting that person from working for someone else may be against. Exam Tip 3: If you see a non-compete clause and the issue is whether it is enforceable, think in terms of reasonableness. C. REMEDIES UNDER THE UCC 1. Buyer s Remedy of Rejection a. Perfect Tender Under the UCC, when the contract is a one-shot contract (not an installment contract), if the seller s tender fails to to the contract in any respect, (e.g., is a day late, the item isn t merchantable) the buyer has the right to the item and refuse to pay. This is known as the rule. It doesn t require that the seller tender perfect, it only requires that the tender conform to the terms of the contract. b. Requirements To be effective, the buyer must reject within a time, and what is reasonable depends upon the. The buyer is entitled to the goods. Buyer must notify the seller of the rejection. If the tender fails to conform to the contract, the buyer is not to reject. The other option is to the goods. If the buyer accepts the goods, the buyer cannot the goods and must pay the price. The seller s breach is not excused, and the buyer may from the purchase price obligation any caused by the breach. c. Acceptance occurs: If the buyer that he is accepting the goods. By making a statement that indicates acceptance. Through any act with the seller s of the goods. If the buyer fails to make an rejection by waiting too long to reject. VA Contracts Distinctions 2016 Themis Bar Review, LLC 13

14 d. Virginia If the buyer makes and effective, yet rejection, it would prevent the buyer from having to pay the purchase price, but would put the buyer in. The damages that the seller would be entitled to are the same damages measured the same way as if the buyer had repudiated. 2. Revocation of Acceptance o Once there has been an acceptance, it is possible for the buyer to revoke the acceptance. If the buyer revokes acceptance, the buyer is no longer to pay the price. a. Requirements o There are some that must be met before a buyer is permitted to revoke acceptance: Revocation must be within a reasonable of the seller s ; Revocation must be within a reasonable time of when the buyer of the breach or should have the breach; The buyer must the seller that she is revoking; The buyer must satisfy one of the grounds or excuses for not having rejected in the first place: The non-conformity is a defect and not readily visible; The seller s. Example 39: The seller says to the buyer we just tested these goods and they work perfectly. As a consequence, the buyer is less than careful when inspecting the goods. o If the seller offers to, but then does not cure, the buyer may have the right to revoke. b. Revocation vs. Rejection The biggest difference between revocation and rejection is that requires that the non-conformity impair the of the goods to the buyer. Rejection merely requires a Themis Bar Review, LLC VA Contracts Distinctions

15 c. Virginia In Virginia, the remedy of revocation is only available against the buyer s. Even though the seller/retailer breaches and substantially impairs the value of the goods to the buyer, it is not a remedy against the. [END OF HANDOUT] VA Contracts Distinctions 2016 Themis Bar Review, LLC 15

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