Contracts Flashcards
Accord and satisfaction
An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some OTHER, DIFFERENT performance.
- NEW agreement between parties who are already under contract to each other
- SUSPENDS the obligations under the original contract UNTIL party satisfies accord/fails to satisfy
- If FAILS to satisfy, can sue either under original agreement or under the accord itself
SATISFACTION is the performance of the accord agreement.
- Discharges not only the ORIGINAL contract but also the ACCORD contract
- Generally may be accomplished by tender and acceptance of a CHECK marked “payment in full” where there is a bona fide dispute as to the amount owed
Accord and Satisfaction v. Modification
Accord and satisfaction is usually triggered by a dispute over AMOUNT DUE
- Party looking to discharge duty
If there is no dispute, consider modification
- Parties want the contract to continue
Additional term in acceptance materially alters the offer…
UCC, an ACCEPTANCE is valid even if it contains additional terms.
- Whether an additional term in an acceptance materially alters the offer affects whether the term will be INCLUDED in a contract between merchants; it does not affect whether a contract was FORMED
- C.f. common law mirror image rule, it’s a rejection + counteroffer and no contract is formed
- Also applies to Merchant’s Confirmatory Memo!
The contract will be formed WITH the additional terms if
- The contract is for the sale of goods
- The parties are BOTH merchants
- The offer did not limit acceptance to its terms
- The terms do not materially alter the contract
- The offeror did not object to the new terms within a reasonable time
If the parties are NOT both merchants, the offer is LIMITED to acceptance on its terms, the terms do MATERIALLY alter, or the offeror does OBJECT, A CONTRACT IS STILL FORMED! Just does not include the additional term
Assignment
Contract in which one of the parties transfers his rights to another. All contracts are assignable and delegable EXCEPT unique personal service contracts and long term requirement contracts.
- Once the assignment is EFFECTIVE, the assignee becomes the real party in interest, and he alone is entitled to performance under the contract. Can enforce DIRECTLY.
- Once the obligor has KNOWLEDGE of the assignment, he is bound to render performance to the assignee
- Can be oral/in writing
- Can be GRATUITOUS or for VALUE. If gratuitous, absent any RELIANCE, are revocable. Assigned for value, irrevocable.
- Assignor still responsible if there is a breach of contract
- As long as the defense is inherent in the contract, such as failure of a condition, it is always available against an assignee because it was in existence when the contract was made
- C.f. TPB…does not contemplate performance to a third party when the contract is made
- The assignee always takes subject to conditions in the original agreement between the obligor and the obligee
** Bilateral Contract
Unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract and may be ACCEPTED EITHER by a promise to perform or by the beginning of performance.
Breach of construction contract
Where a builder in a construction contract breaches during the construction, the nonbreaching party is entitled to the cost of completion plus compensation for any damages caused by the delay in completing the building.
- Most courts, however, will allow the builder to offset or recover for work performed to date to avoid the unjust enrichment of the owner. This restitutionary recovery is usually based on the benefit received by the unjustly enriched party.
- If substitute performance is readily obtainable, damages are measured by the unpaid contract price minus the cost of completion (up to the value of the benefit received by the defendant).
- Recovery measured by the claimant’s detriment (i.e., his reliance interest) is an appropriate alternative only where the standard “benefit” measure would achieve an unfair result; it is not applied where the party seeking restitutionary recovery was the breaching party
BREACH BY OWNER
- Before completion: expected profit + costs expended
- After completion: contract price
BREACH BY BUILDER
- Cost of completion + Damages for delay - Quasi-contract recovery for benefit conferred by builder
Consequential Damages
Losses beyond those covered by the standard measure that a reasonable person would have FORESEEN would occur as a result of the breach
- Did the breaching party know of the other party’s circumstances?
1. FORESEEABLE: MUST be foreseeable to be recoverable - Foreseeable if a reasonable person in the position of the breaching party would have known at the time of contracting that DAMAGES were LIKELY to occur as a result of BREACH
2. ASCERTAINABLE with reasonable certainty - Not SPECULATIVE!
- Traditionally, no damages for businesses not yet started.
- Modern trend, allow recovery if there is sufficient evidence to determine profits with reasonable certainty
Custom
One of the general rules of contract construction, including contracts for goods under the UCC, is that courts will look to see what custom and usage are in the particular business and in the particular locale where the contract is either made or to be performed
- Can be offered regardless of the completeness of the written agreement
* A written contract’s terms may be explained or supplemented by evidence of course of performance, course of dealing, and usage of trade-regardless of whether the writing appears to be ambiguous.
Damages calculation for construction contracts
If the builder has ALREADY begun his performance, the builder gets
1. Any PROFIT he would have derived from the contract
&
2. Any COSTS he has incurred to date.
Damages for breach
BREACHING party does not get paid!
- EXPECTATION: standard measure of damages; buy a SUBSTITUTE performance / PROFIT would have made.
- RELIANCE: cost of his performance, i.e., his expenditures in performing his duties under the contract.
- COMPENSATORY: expectation and reliance
Damages for breach of employment contract
When there is a breach of an employment contract by the employer, the standard measure of the employee’s damages is based on the full contract price.
- A non-breaching party cannot recover damages that could have been AVOIDED with reasonable effort. Reduced by the wages the plaintiff would have received in that comparable job
- Must comparable job in the same locale. Must be of the same type, similar pay
BREACH BY EMPLOYEE: Costs of replacing employee - Amounts owed to employee for work done
BREACH BY EMPLOYER: Contract Price - Amount employee would have made by taking similar position (employer must prove position available)
Damages for keeping non-conforming tender
Under the UCC, when a buyer ACCEPTS goods that turn out to be defective, he may recover as damages any “loss resulting in the normal course of events from the breach,” which includes the difference between the value of the goods ACCEPTED and the value they would have had if they had been as warranted (goods ORDERD), plus INCIDENTAL and CONSEQUENTIAL damages.
- Incidental damages: expenses reasonably incurred in inspection, receipt, and transportation, care, and custody of goods rightfully rejected.
- Consequential damages: any loss resulting from general or particular requirements and needs of which -
1. The SELLER at the time of contracting HAD REASON TO KNOW and
2. Which could not reasonably be PREVENTED by cover or otherwise, and
3. Injury to person or property proximately resulting from any breach of warranty (foreseeable) - Was the seller was told of any particular requirements and needs at the time of contracting/would the seller have reason to know ?
Delegation
Delegating duty to PERFORM.
- Where a delegate’s promise to perform the delegated duty is supported by CONSIDERATION, there results a third-party beneficiary situation, so that the nondelegating party to the contract can compel performance or bring suit for nonperformance
* When a duty is delegated to a delegate, the delegator remains liable should the delegate fail to perform
** Does a contractor have any obligation to award a subcontract to a particular subcontractor?
A contractor has no obligation to award a subcontract to a particular subcontractor unless there was a separate agreement that it would do so, such as the case here where the general contractor gave the carpenter a conditional promise that it would award the carpenter the subcontract if his bid was the lowest and if the general contractor was awarded the general contract.
** Effect of a clause prohibiting assignment
A contract clause prohibiting the assignment of the contract will be construed as barring only the delegation of the assignor’s duties.
- E.g., assign its right to payment would be permissible
- Nonassignment provisions will be enforced, but absent circumstances suggesting otherwise, a clause prohibiting the assignment of the contract will be construed as barring only the DELEGATION of the assignor’s DUTIES
Expectation Damages
Intended to put the injured party in the SAME POSITION as if the contract had been performed. Measured either through -
- Cost of RESTORATION
- Especially appropriate in case of willful breach and where restoration is the only means to allow the non-breaching party to use their land for its intended purposes - Difference in VALUE
- Often used where cost to restore is many times greater than the value of the property
Frustration
Frustration will exist where the purpose of the contract has become VALUELESS by virtue of some SUPERVENING EVENT not the fault of the party seeking discharge.
- Look for facts showing that a person has rented a venue for a specific purpose known to the owner of the venue and a subsequent event that was not reasonably foreseeable renders the purpose of renting the place moot
Must show:
1. There is some SUPERVENING act or event leading to the frustration;
2. At the time of entering into the contract, the parties did not reasonably FORESEE the act or event occurring;
3. The PURPOSE of the contract has been completely or almost completely DESTROYED by this act or event; and 4. The PURPOSE of the contract was REALIZED by both parties at the time of making the contract.
If an offeree sends a rejection but then an acceptance
Whichever received first controls
Impractiability
Where the nonoccurrence of an event was a basic assumption of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occurring, contractual duties may be discharged.
The test for a finding of impracticability is that the party to perform has encountered
- Extreme and unreasonable difficulty and/or expense; and
- Its nonoccurrence was a basic assumption of the parties.
Modern courts recognize that impracticability due to EXCESSIVE and UNREASONABLE DIFFICULTY or EXPENSE is a defense to breach of contract for nonperformance.
- Lack of profits does not make a contract impracticable; requires extraordinary unforeseen event
*REMEDY: discharged from performance
Merchant’s confirmatory memo
In contracts made between merchants, if one party, within a REASONABLE time after an oral agreement is made, sends the other party a written confirmation of the agreement that is sufficient under the SOF to bind the sender, it will also bind the RECIPIENT if -
- he has reason to know of the confirmation’s contents
- He does not object to it in writing within 10 days of receipt
** BOTH parties must be merchants
** REASONABLE time…30 days-ish
- Merchant can use its own confirmation to satisfy SOF against another merchant
Merchant’s firm offer
Not revocable during the time stated. Offer must be -
- in WRITING
- SIGNED BY MERCHANT
- By its terms gives assurance that it will be held open for stated period
- No time stated, reasonable time; court won’t enforce past 90 days.
- If the stated period extends beyond three months, the firm offer will stand, but it will only last for the three-month maximum
- If there is CONSIDERATION, it’s actually an option contract and can be held open for however long!
Modification
- COMMON LAW: to modify, need NEW CONSIDERATION to support modification because of pre-existing duty rule.
- Obligations of both parties are varied.
- It is usually immaterial how slight the change is - MODERN: a modification is enforceable without consideration if the modification is FAIR AND EQUITABLE in view of the unanticipated circumstances, and need for modification was UNFORESEEABLE at the time of entering into the contract.
- This is the MBE approach - UCC: Does not require new consideration, as long as modification is in GOOD FAITH
Novation
A novation occurs where a NEW contract substitutes a NEW party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract.
- A novation discharges the old contract
- Will be found when there is
1. A previous valid contract
2. An AGREEMENT among the PARTIES, including the new party to the new contract
3. The immediate extinguishment of contractual duties as between the original contracting parties, and
4. A valid and enforceable new contract
Oral Contract for Specially made and manufactured goods that is supposed to be in writing under the SOF
. Note that the boat builder might also be bound under another exception to the Statute-for specially manufactured goods if the sails were made specially for the yacht and were not suitable for sale to others
Parol evidence rule
Where the parties to a contract express their agreement in a WRITING with the INTENT that it embody the FINAL expression of their bargain, any expression made PRIOR to the writing and any oral expression CONTEMPORANEOUS with the writing is inadmissible to vary the terms of the writing.
- C.f., modifications, AFTER the writing. The parol evidence rule does not prohibit evidence of a subsequent modification of a written contract
- A memo prepared by one party and NOT SHOWN to the other can never be fully integrated because the parties could not have intended it to be the final writing if one never saw it
- Although the parol evidence rule prohibits CONTRADICTING the writing, the terms of the writing may be EXPLAINED or SUPPLEMENTED by consistent additional terms, unless the court finds from all the circumstances that the writing was intended as a complete and exclusive statement of the parties’ agreement.
- To determine whether the parties intended the writing to be the complete and exclusive statement of their agreement, it must be determined whether parties situated as were the parties to this contract would naturally and normally include the extrinsic matter in the writing.
- Under the UCC, which applies here because a sale of goods is involved, a writing is presumed not to be the complete and exclusive integration of all of the terms of the agreement. While the presumption may be overcome if the parties actually intended a total integration or it is certain that similarly situated parties would have included that term.
- Certain forms of extrinsic evidence are deemed to fall outside the scope of the parol evidence rule
1. Oral agreement that the written contract would not become effective until the occurrence of a condition
If the writing is only a partial integration, and not a complete embodiment of the parties’ intentions, under the parol evidence rule, it cannot be contradicted, but it may be supplemented by proving up consistent additional terms
Part Performance
Part performance is sufficient to take a contract for the SALE OF GOODS out of the SOF if -
- The goods have been specially manufactured
- The goods have either been paid for or accepted
- If a sales contract is only partially paid for / accepted contract is only enforceable to the extent paid/accepted
Part performance for a oral sale of land
Part performance that unequivocally indicates that the parties have contracted for the sale of land takes the contract out of the SOF. Requires at least two of
- Payment
- Possession
- Improvements
INSTALLMENT contracts: In the absence of other facts, e.g., large down payment, possession + payment does not unequivocally indicate a contract for a sale of land
- Also consistent with a lease
Perfect tender
Perfect tender is required under the UCC, which governs contracts for the sale of goods. If a delivery or goods do not conform to the contract in ANY way there is a breach, and the buyer may ACCEPT all, REJECT all, or ACCEPT SOME commercial units and reject the rest
- Includes not enough being sent
- The buyer always has the option to reject all of the goods if they or the delivery do not conform to the contract exactly
Reformation
If there is an agreement between the parties, the agreement is put into writing, and there is a variance between the original agreement and the writing, the writing can be reformed to reflect the intent of the parties. A plaintiff who wants to obtain reformation of a contract must show that there was an antecedent agreement that is not correctly reflected in the writing (e.g., by mistake).
Under the doctrine of reformation, either of the parties to the contract may ask a court in equity to modify the terms of the contract where the writing, through mistake or misrepresentation, does not incorporate the terms orally agreed upon.
** Reformation for Unilateral Mistake
Typically, reformation is not available for unilateral mistake. However, if the writing is inaccurate because of a misrepresentation by the person who created the writing, the innocent party can seek reformation of the contract to reflect the original expressed intent of the parties.
** A party’s failure to read a contract will not necessarily preclude him from obtaining reformation of a contract based on a misrepresentation.
Third party beneficiary
If a CONTRACT between two parties CONTEMPLATES performance to a third party, that third party may have rights to enforce the contract.
- To do so, the third party must be an INTENDED beneficiary at the time the contract was made (e.g., designated in the contract). Must be
1. Specifically ID’d in the contract
2. Receives performance directly from the promisor or
3. In some relationship with the promisee that indicates an intent to benefit - C.f. assignment, does not contemplate performance to a third party when the contract is made. One party LATER transfers his rights to another
- C.f. INCIDENTAL beneficiary, just so happens to benefit from the contract
A TPB has RIGHTS under the contract as soon as she does something to VEST her rights:
- Manifests ASSENT to the promise
- Not merely learning about promise - Brings SUIT to enforce the promise
- The act of bringing the suit = vesting - Materially changes position by justifiably RELYING on the promise
* Once the third-party beneficiary’s rights have VESTED, the original contracting parties may not MODIFY the contract without the assent of the third-party beneficiary
* Third-party beneficiary is subject to any DEFENSES that the promisor could have used against the original promisee
Time to cure defects UCC
- Under the UCC, if a buyer has rejected goods because of defects, the seller may, within the time ORIGINALLY provided for performance, “cure” the defective tender by giving reasonable NOTICE of its intention to do so and making NEW tender of conforming goods, which the buyer MUST then ACCEPT.
- When the buyer rejects a tender that the seller reasonably believed would be acceptable, the seller, on reasonable notification to the buyer, has a further reasonable time BEYOND the original contract time within which to make a conforming tender
UCC Statute of Frauds
Sale of goods more than $500 must be in writing.
- SIGNED writing (by the party against whom enforcement will be sought)
- “Any mark made with the intent to authenticate the writing”
- Construed liberally
- Need not be handwritten
- Initials, letterhead - Indication that a contract has been MADE
- QUANTITY
Unilateral contract
Can only be accepted by performance
- Mere preparation is not enough to begin performance for purposes or revocability
- Does not terminate just because offeror DIES.
Unilateral mistake
Where only one of the parties is mistaken about facts relating to the agreement, the mistake usually will not prevent formation of the contract. Will not prevent contract formation UNLESS non-mistaken party KNOWS/has reason to know of other party’s mistake
- Cannot take advantage of mistaken party
- E.g., huge discrepancy in price
- Must be a mistake of fact going to a point that is material to the transaction / basic assumption for the contract
- The fact that one of the parties to the contract has superior knowledge about the subject matter of the contract does not by itself justify rescission
* REMEDY: the mistaken party will have the right to RESCIND the agreement
- Must establish that the mistake creates a material imbalance in the exchange and that he did not assume the risk of that mistake
What happens if an oral contract for goods was supposed to be written under the SOF, but party receives and accepts the goods anyway?
“Goods received and accepted” exception to SOF; bound despite the Statute!
What if a building under construction is destroyed?
The contractor is still obligated to build and is NOT entitled to anything other than the contract price
What if, in a contract to repair or remodel a building, the building is destroyed?
A building that is destroyed after work has begun is discharged and to the extent that the contractor has already performed, entitled to recover RESTITUTION of the value of the work done prior to the destruction
What is the remedy when a seller refuses to deliver goods?
Under the UCC, the buyer’s basic remedy where the seller breaches by refusing to deliver is the difference between the CONTRACT price and either
- The MARKET price
- COVER: the cost of buying replacement goods
- Buyer must make a reasonable contract for substitute goods in good faith and without unreasonable delay
When are merchants bound by a confirmatory memo?
- Binds the SENDING merchant IMMEDIATELY
- Binds the RECIPIENT merchant if he does not object within TEN DAYS
When is a writing signed by the party against whom enforcement will be sought NOT required?
“SWAP”
- Specially made goods
- Written confirmation by a merchant
- Admission in court
- Performance
Take the contract out of the SOF
Acceptance
Assent to the terms of an offer
- Must be communicated to the offeror
- Must be unequivocal
Generally, an offeree must accept the offer before relying on it.
Acceptance of an offer calling for the shipment of goods
May be accepted by -
- Prompt shipment with notice
- Promise to ship
Accepting a unilateral offer
The offeree, like all offerees, must KNOW of the offer. Acting unilaterally and later learning about the offer is insufficient.
Accepting goods
Acceptance usually occurs when the buyer takes POSSESSION of the goods.
- Once a buyer has ACCEPTED goods, his right to reject for nonconformity generally lapses and his only remedy is a suit for DAMAGES (not a full refund)
- In some cases, the buyer can REVOKE acceptance, but the breach must be SUBSTANTIAL and the buyer must have a GOOD REASON for ACCEPTING the goods (i.e., something more than not taking the time to carefully inspect)
Accommodation Shipment Rule
A shipment of nonconforming goods is both acceptance and breach unless the seller notifies the buyer that a shipment of nonconforming goods is offered only as an ACCOMMODATION
- The shipment is a COUNTEROFFER, which the buyer may accept or reject
- The buyer is not required to accept the goods, but if the buyer rejects, the shipper is not in breach and may reclaim the goods because the tender of the goods ≠ acceptance of the offer
- Only applies when shipment is used as a form of acceptance! Does not apply to PROMISE to ship.
Anticipatory Repudiation
Occurs when a promisor, prior to the time set for performance of his promise, indicates that he WILL NOT PERFORM when the time comes.
- Must be CLEAR statement of intent not to perform. DOUBT is inadequate.
- If not clear, non breaching party can seek ASSURANCES or WAIT for time called for by contract
May either treat the anticipatory repudiation as
- A TOTAL BREACH and pursue his breach of contract remedies immediately
- Suspend his performance and AWAIT the seller’s performance for a commercially reasonable time.
Anticipatory repudiation of a buyer’s offer to purchase goods
When a buyer breaches by repudiating his offer, as the wholesaler did here, the seller has a right to recover his INCIDENTAL damages PLUS EITHER -
- The difference between the contract price and the MARKET price or
- The difference between the contract price and the RESALE price of the goods
Minus any expenses SAVED as a result of the breach
