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