Contracts: Unconscionability and Warranties

• These flashcards cover topics including unconscionability, warranties of goods, third-party beneficiaries, the Statute of Frauds (SOF), Parole Evidence Rule (PER), and lease agreements.

Unconscionability

• When claimed, parties must be given a reasonable opportunity to present evidence.
• Procedural unconscionability concerns the fairness of the negotiation process, such as fine print or legal jargon.
• Substantive unconscionability involves oppressive or grossly unfair contract terms, like exorbitant prices or remedy limitations.
• With leases, unconscionability is determined at the time the agreement was made.

Warranties of Goods

• An implied fitness of purpose warranty must be in writing and clear to be valid.
• Breach of warranty requires reasonable notice to the warrantor.
• Conflicts between warranty terms and limitations typically result in the warranty being upheld.
• Course of dealing can modify or exclude warranties.
• For consumer goods used personally, consequential damage limitations are often deemed unreasonable.
• For businesses, limiting consequential damages is not automatically unconscionable.
• No implied warranty exists for discoverable defects, unless concealed when asked about.

Third-Party Warranties

• Horizontal privity defines who can sue for breach of warranty as a third party.
  • Broad: Includes intended beneficiaries, family, household members, and guests of the buyer.
  • Limited (Delaware): Confined to family or household members.
  • Restricted: Only the direct buyer and those reasonably expected to use the goods.
• "Vouching in" allows a buyer and seller who settle to seek contribution or indemnification from the manufacturer or a prior seller.

Finance Leases

• Definition:
  • The lessor does not select or supply the goods.
  • The lessor acquires the right to possession and use.
  • The lessee receives clear, specific information about the leased goods.
• Requirements:
  • Lessee must receive a copy of how the lessor acquired goods before the contract was signed and must approve.
  • Lessee must receive notice of lessor and supplier warranties.
  • If not a consumer lease, it must be in writing: Identify of supplier, right to communicate to supplier
• Other needs
  • Inspection is needed before payment.
  • Rejection must be timely.
  • Promises are irrevocable if not a consumer lease, therefore no implied warranty is needed.

Third-Party Beneficiary

• Intent is not needed.
• Government entities have no liability to the public as third-party beneficiaries.
• A creditor beneficiary's rights vest the moment the promisor agrees to fulfill the promisee's duty to the beneficiary.
• A donee beneficiary's gift is conditional until delivered.

Statute of Frauds (SOF)

• Exceptions to non-compliance include specially manufactured goods, admission in court, and performance.
• In battle of the forms, additional terms are considered acceptance unless:
  • The offer expressly limits acceptance to the original terms.
  • The additional terms materially alter the original contract.
  • The offeror objects in a timely manner.

Parole Evidence Rule (PER)

• Keeps out evidence of prior or contemporaneous agreements that contradicts a later written contract, EXCEPT:
  • To correct a clerical error.
  • To establish a defense against formation.
  • To interpret a vague/ambiguous term (but cannot contradict plain meaning).
  • To supplement/add to a partially-integrated writing.

Interpreting Ambiguous Terms

• The order of priority for interpreting ambiguous terms is:
  • Express terms.
  • Course of performance.
  • Course of dealing.
  • Trade usage and these can be used to show even unambiguous terms.

True Lease

• Characteristics:
  • The property remains the lessor's.
  • The lessee can terminate at any time.
  • The lessor has a significant interest in the goods after the lease.

Bright-Line Test

• Used to determine if a lease is actually a disguised sale:
  • The lease covers the full term of the asset's value.
  • The lessee is required to purchase or renew the lease.
  • Renewal occurs with no new consideration.
  • The lessee has an option to purchase for a nominal amount.