Contracts

Question 1

Merchants Definition

Answer 1

A merchant includes not only a person who regularly deals in the type of goods involved in the transaction or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction, but also in some instances
any businessperson when the transaction is of a commercial nature.

Question 2

Offer

Answer 2

There must be intent to enter into a contract plus 
specific terms (e.g., price, quantity, and identity of the 
parties). And, it must be communicated to the offeree

An offer requires a promise, terms, and communication to the offeree.

 Promise: A promise a statement indicating a present intent to enter into a contract.

Terms

• CL—all essential terms must be provided (parties, subject matter, price, quantity)
• UCC—the essential terms are the parties, subject matter, and quantity; a court will “gap fill” any other missing terms.

 Communication: The offer must be communicated to the offeree (i.e., he must know of
the offer).

Question 3

Advertisements

Answer 3

Advertisements are generally not offers, unless they are specific and limit who may accept the offer. If an ad is presented in the facts, you must discuss it as a potential offer.

Question 4

Revocation

Answer 4

• An offer can be terminated if the offeror revokes the offer prior to acceptance.
• Revocation is effective when received (a mailed revocation is not effective until received)

Question 5

How to terminate Offer, just list (4)

Answer 5

1) Lapse of time
2) Rejection
3) Revocation of offer
4) Death of incapacity of offeror

Question 6

How to create irrevocable offer

Answer 6

(A) Firm offer by a merchant in a signed writing under the UCC. This offer can be held open for a maximum of three months.

(B)Option contract: a promise to hold open the offer plus consideration for that promise.

(C)Unilateral contract: if the offeree begins performance on a unilateral contract, the offer is held open for a reasonable time.

(D) Reasonably foreseeable substantial reliance on the offer

Question 7

Acceptance rule statement

Answer 7

Acceptance is the objective manifestation by the offeree to be bound by the terms of the offer.

Question 8

Mirror Image Rule Common Law

Answer 8

1) Mirror Image Rule (Common Law)
• The acceptance must mirror the terms of the offer; any changes/additions to the terms constitute a rejection of the original offer and a counter-offer.

Note 1: Recall that a “mere suggestion” or a “mere inquiry” is not a counteroffer and will not terminate the original offer.

Question 9

Mirror Image Rule UCC

Answer 9

• UCC: An acceptance does not need to mirror the offer and may have additional or different terms.

Between merchants, an additional term will be a part of the contract unless

1. it materially alters terms of original offer,
2. the offeror objects within a reasonable time, or
3. the offer limits acceptance to the terms of the offer.

Under the majority rule, a different term is knocked out and replaced with gap fillers.

If any party is a non-merchant:
o An acceptance from the offeree with changes or additions will be a valid acceptance.
o However, the contract will not include the changes or additions unless the offeror agrees to them.

Question 10

Mailbox rule, exception to it

Answer 10

 Exception: If there is an option contract or firm offer, the acceptance is valid when received and must be received before the offer expires.

Question 11

Another way to accept offer under Article 2, and what happens if ship nonconforming/defective goods?

Answer 11

An offer for the sale of goods is accepted by
promising to ship or shipping the goods.

if the seller ships defective goods with an accommodation letter, that constitutes a counteroffer.

If there is no letter, it is an acceptance and a breach.

Question 12

What is consideration, and detriments?

Answer 12

Consideration requires a bargained-for change in the legal position between parties.

Most courts find consideration if there is a detriment to the promisee, regardless of the benefit to the promisor.

A minority of courts look to either a detriment or a benefit, not requiring both.

o Legal Detriment: A legal detriment can take the form of a promise to do/not do something, or performance/refraining from performance.

o Adequacy of Consideration: A court will not look at the adequacy of the consideration (e.g., the monetary value of the items being exchanged).

Question 13

Preexisting Duty Rule

Answer 13

A promise to perform a preexisting legal duty will not qualify as consideration because the promisor is already required to perform (no additional legal detriment is being incurred) by the promisor

Question 14

Past Consideration, common law and modern trend

Answer 14

 Under the common law, a legal detriment incurred in the past does not constitute consideration because it was not bargained for and it was not in exchange for a legal
detriment in return.

 Moral Consideration (modern trend): A promise not supported by consideration may be enforceable if it is made in recognition of a significant benefit previously received by the promisor from the promisee.

• This rule does not apply if the promisee conferred the benefit as a gift to the promisor.
• The court may also reduce the amount of money owed under the promise if it is disproportionate to the benefit conferred by the promisee

Question 15

A Consideration Substitute, and elements of it

Answer 15

Promissory Estoppel:

If a promise is made by a party, but there is not consideration provided by both sides, the promise will still be enforceable if certain conditions are met.

Promise binding if:
• The promisor should reasonably expect the promise to induce action or forbearance;

• The promise actually induces action or forbearance; and
• Injustice can be avoided only by enforcement of the promise.

 The damages awarded under promissory estoppel are usually limited to reliance damages (money spent on reliance of the promise)

Question 16

Defense to formation of K, Mistake Mutual, and the 2 remedies

Answer 16

Mutual: If both parties are mistaken as to an essential element of the contract, the contract may be voidable by the adversely affected party.

1) Reformation: The parties can ask a court to reform the contract and rewrite it to reflect the correct element(s) of the contract.

Reformation is available if:
• There was a prior agreement (either oral or written) between the parties;

• There was an agreement by the parties to put that agreement into writing; and
• As a result of a mistake, there is a difference between the prior agreement and the writing.

2) Rescission: If reformation is available to cure the mutual mistake, neither party can void (rescind) the contract.
If reformation is not available, the contract may be voidable if:
• A mistake of fact existing at the time the contract was formed;
• The mistake relates to a basic assumption of the contract;
• The mistake has a material impact on the transaction; and
• The adversely affected party did not assume the risk of the mistake.

Question 17

Defense to formation of K, Unilateral Mistake, and remedy

Answer 17

if a party knew or had reason to know of the other party’s mistake, the contract is voidable.

1) Rescission: The mistaken party can void (rescind) the contract if:

• The mistake would make enforcement of the contract unconscionable; or
• Non-mistaken party failed to disclose the mistake or caused the mistake.
• Also, there must not be serious prejudice to the non-mistaken party if the contract is voided.

Question 18

Defense to Formation: Fraudulent Misrepresentation, and remedy

Answer 18

o An intentional misrepresentation of a fact that the innocent party justifiably relies on. The misrepresentation can be affirmative (a lie) or through non-disclosure (omission).

o If a fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction, no contract is formed, and the apparent contract is void.

o If a fraudulent misrepresentation is used to induce another to enter into a contract, the contract is voidable by the adversely affected party if she justifiably relied on the
misrepresentation in entering into the agreement.

o Remedies (reformation or rescission): When one party misrepresents the content or legal effect of a writing to another party, the other party may elect to avoid (rescind) the contract or to reform it to express what had been represented.

Question 19

Contract Formation Defenses, Undue Influence

Answer 19

unfair persuasion where a person in a position of trust, confidence, or dominance uses that position to convince another to enter into a contract that is not in that
party’s best interest

o Occurs when a party unfairly persuades the other party to assent to a contract

o This can occur in certain relationships where the innocent party is susceptible to persuasion.

o If party can show that it was the victim of undue influence, it can void the contract

Undue Influence requires you to analyze the facts of the question and argue/counter-argue why the specific facts indicate unfair persuasion or not.

Question 20

Contract Formation Defense: Duress

Answer 20

When a party threatens to commit a wrongful act that would threaten the other party’s finances, property, well-being, or life.

o When a party is improperly threatened and has no meaningful choice but to agree to the contract. This is a subjective test, so the defendant must actually feel like she has no choice but to agree.

o When a party’s agreement to enter into a contract is physically compelled by duress, such as the threat to inflict physical harm, the contract is void.

o When a party is induced to enter into a contract due to other duress, such as the threat of pursuing a civil action in bad faith, the contract is voidable.

Note 2: Generally, a threat to breach a contract is not improper for purposes of duress. However, if the breach would violate the duty of good faith and dealing, it would constitute an improper threat

Question 21

Contract Formation Defense: Incapacity

Answer 21

for minors, mentally incompetent, or intoxicated persons. However, they may be liable for “necessities.”

o Minors are still liable for necessities that they contract for (e.g., housing or food)

Question 22

Statute of Frauds - What kinds of K’s need it

Answer 22

Which contracts fall into the SOF? (MYLEGS)

1. contracts made in consideration of marriage,
2. contracts that cannot be performed within a year,
3. contracts for the sale of land,
4. promises made by an executor to pay a debt from his own estate,
5. contracts for the sale of goods over $500, and
6. surety contracts

Question 23

What is required in a SOF contract

Answer 23

There must be a writing signed by the person to be charged (the person against whom enforcement is sought) that contains the essential terms of the deal.

Tip: the “party to be charged” generally means the defendant.

1) Writing
• The writing does not have to be a formal contract (it can be in the form of letters or receipts) and multiple writings can be put together to meet the requirements, as long as they reference each other.

• UCC sale of goods for $500 or more: The writing need not contain all the terms of the contract, but the contract is not enforceable against the party beyond the
quantity of the goods shown in writing.

2) Signature: A document on company letterhead may be enough to constitute a signed writing as long as the party to be charged intended to authenticate the writing as that of the signer to adopt the document.

Note 3: The writing does not have to exist at the time of the promise. It can be created after the promises are made and still meet the SOF.

Question 24

Exceptions to SOF for Land Sale

Answer 24

Sale of Land—Part Performance

If the contract involves the sale of land, the contract
will be enforced if at least two of the following three acts have occurred:

• The purchaser pays part or all of the purchase price;
• The purchaser takes possession of the land; or
• The purchaser substantially improves the property.

Question 25

Exception to SOF Contracts SALE of GOODS

Answer 25

Sale of goods: the four exceptions are a) If full performance has occurred by the party seeking to enforce the contract (the goods have been full delivered or fully paid for), the contract will be fully enforceable. b) If part performance has occurred (part of the purchase price has been paid), the contract will be enforceable to the extent that the money has been paid. c) No writing required if the contract involves specially manufactured goods for the buyer. (2) when the seller has made a substantial beginning in manufacture or commitments for specially manufactured goods not suitable for sale to others in the seller’s ordinary course of business (3) judicial admissions (one admits in his pleadings, testimony, or in court that there is a contract—it is enforceable up to the quantity admitted) d) Letter or Memorandum of Confirmation If both parties are merchants and a party sends a confirmatory letter/memo that meets the SOF to the other party and the other party knowingly receives the memo and does not object in writing within 10 days, the contract is enforceable against the receiving party, even though the receiving party did not sign the memo

Question 26

Exceptions for SOF Surety

Answer 26

a promise to pay the debt of another if the other does not pay falls within the SOF unless the main purpose of the surety promise is to serve a pecuniary interest of the person making the promise.

Question 27

Exceptions for SOF for Full Year Ks

Answer 27

full performance on one side will serve as a substitute for a signed writing, like benefit was given and all that

Question 28

Estoppel enforcement on SOF Ks

Answer 28

Estoppel (applies to all contract types): If a party reasonably and detrimentally relies on a promise made by the party to be charged, a court may enforce the contract, despite the failure to meet the SOF requirement.

Question 29

Defense to K enforcement Illegality

Answer 29

illegal subject matter (e.g., selling drugs): The contract is void. If it is for an illegal purpose (e.g., leasing a car to transport drugs), it is voidable by the party who didn’t have the illegal purpose (e.g., the car owner) if he didn’t know the purpose or he knew of the purpose but didn’t facilitate it and it doesn’t involve “serious moral turpitude.”

Question 30

Defense to K enforcement, Unconscionability

Answer 30

A court will not enforce a contract that is so unfair, no reasonable person would agree to it. If a court finds unconscionability, it can refuse to enforce the entire contract, or strike the unconscionable portion of the contract, or limit the unconscionable terms. There are two necessary elements: 1. procedural unconscionability (an unfair bargaining process—e.g., hidden or incomprehensible terms, if a party is in a superior position and takes advantage of this position) and 2. substantive unconscionability (grossly unfair terms). This is voidable.

Question 31

Mutual misunderstanding

Answer 31

there is no contract if both parties have a different understanding of a material term that is open to at least two reasonable interpretations and neither party has any reason to know of the meaning attached by the other.

Question 32

Nondisclosure Defense

Answer 32

Affirmative conduct to conceal a fact is equivalent to an assertion that the fact does not exist. In addition, mere nondisclosure of a known fact is tantamount to an assertion that the fact does not exist, if the party not disclosing the fact knows that: i) Disclosure is necessary to prevent a previous assertion from being a misrepresentation or fraudulent or material; ii) Disclosure would correct a mistake of the other party as to a basic assumption, and the failure to disclose would constitute lack of good faith and fair dealing; iii) Disclosure would correct a mistake of the other party as to the contents or effect of a writing evidencing their agreement; or iv) The other party is entitled to know the fact because of a confidential or fiduciary relationship.

Question 33

Contract Defense Public Policy

Answer 33

Even if a contract is neither illegal nor unconscionable, it may be unenforceable if it violates a significant public policy, such as a contract in restraint of marriage, a contract for the commission of a tort, or a contract that unreasonably restrains trade. These contracts may be enforceable when exceptions similar to those discussed at §I.F.1.b., Exceptions, are applicable

Question 34

Modifying a K under Common Law, preexisting duty rule and SOF interactions with modification

Answer 34

1. Common Law: Under the common law, a modification must be supported by consideration. a. Pre-existing Duty Rule  Watch out for exam facts where a party offers to pay more money to the other party to guarantee completion of the contract on time. Under the Preexisting Duty Rule, there is no additional consideration here because the other party already has a duty to perform the contract on time. The modification (additional money) will not be enforceable. Unless falls under exception: (e.g., unforeseen difficulty, a good faith settlement of a lawsuit, a good faith payment in full of a due and disputed debt, a written promise to pay a time-barred debt, or if the duty was owed to a third person).  If a party agrees to pay more money in exchange for earlier performance of the contract, there will be consideration. The parties are changing their duties. b. Statute of Frauds: If the modified contract falls within the Statute of Frauds, it must be in writing (unless an exception applies, see the exceptions to the SOF, above). Note 4: Under the common law, a provision requiring a modification to be in writing even though the modification would not otherwise fall within the Statute of Frauds is not enforceable.

Question 35

UCC K modification

Answer 35

Only good faith is needed to modify a contract. o A modification does not require additional consideration, as long as the modification is entered into in good faith by both parties. o Statute of Frauds: If the modified contract falls within the Statute of Frauds, it must be in writing (unless an exception applies, see the exceptions to the SOF, above). Note 5: A provision prohibiting oral modifications to a sales contract even though the modification would not otherwise fall within the SOF is valid under the UCC

Question 36

What is accord and satisfaction? How is it enforceable regarding consideration?

Answer 36

When there is a dispute over the validity of the contract or the amount owed, a party can agree to accept a different performance from what was agreed upon in the contract. • Accord—the new agreement where a party agrees to accept a different performance than what was agreed upon. * Satisfaction—occurs when the different performance is completed by the other party, which discharges the original contract duties and the accord agreement duties. * Consideration is found to support this type of agreement as follows: o The party performing the different performance is incurring a legal detriment. o The party that is agreeing to accept the different performance is giving up the right to dispute the original contract and sue for breach.

Question 37

Parol Evidence Rule

Answer 37

The PER applies when a party wants to add a term from preliminary negotiations to a final written agreement. • If there is a complete integration, no terms will be admitted into evidence. • If there is a partial integration, consistent additional terms are admitted.

Question 38

What is a partial Integration regarding the Parol Evidence Rule

Answer 38

Partial Integration: If the writing contains some of the terms of the agreement, it is a partial integration, parol evidence is admissible and the writing may be supplemented by additional terms, as long as they are consistent with the writing (and do not contradict any of the terms).

Question 39

When is the parol Evidence not admissible?

Answer 39

The PER does not apply to (FICCL): formation defenses, interpretation of a term, failure of a condition precedent, a clerical error, or a later modification. Collateral Deal: Evidence of a separate deal between the parties is admissible, if the deal is not part of the written contract. UCC: Evidence of usual performance and dealing between parties is admissible. Timing: The Parol Evidence Rule does not prohibit evidence of modifications or statements made after the contract was written.

Question 40

Performance of K under Common la

Answer 40

one has to substantially perform one’s duties in order for the other party’s duty to arise. • Exception: Express condition (e.g., “I will buy it if I like it” or “I will buy it if I can get a 10% interest rate”). These must be complied with exactly. Tip: courts find that most conditions are “constructive” and substantial performance is enough. A party who has not substantially performed generally cannot recover damages based on the contract, but she may be able to recover through restitution. • A party who fails to substantially perform is in material breach (see “Breach of Contract,” below).

Question 41

Performance of the K under UCC, Perfect Tender

Answer 41

Under the UCC, there must be “perfect” tender of the goods. o The buyer has a right to inspect the goods, and once he accepts them, he has an obligation to pay. o If a buyer rejects goods as nonconforming and time still remains to perform under a contract, the seller has a right to cure and tender conforming goods.

Question 42

Installment K's definition

Answer 42

Under the UCC, an installment contract is defined as one in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer. o Parties cannot vary or contract out of this definition. o Payment by the buyer is due upon each delivery, unless the price cannot be apportioned.

Question 43

Effect of nonconforming Installment K

Answer 43

i) installment k dont have perfect tender rule Nonconforming shipment (also known as a “segment”) If the seller makes a nonconforming tender or tenders nonconforming goods under one segment of an installment contract, the buyer can reject only if the nonconformity substantially impairs the value of that shipment to the buyer and cannot be cured. If the seller makes adequate assurances that he can cure the nonconformity, then the buyer must accept the shipment. ii) Remaining segments (shipments) When there is a nonconforming tender or a tender of nonconforming goods under one segment of an installment contract, the buyer may cancel the entire contract only if the nonconformity substantially impairs the value of the entire contract to the buyer

Question 44

What are conditions in K, and the 2 types

Answer 44

A condition is an event that must occur before a party’s contractual rights or obligations are created, destroyed, or enlarged. Editor's Note 6: While a condition affects a party’s contractual rights or obligations, it does not affect the “degree of performance” a party must render. a. Express or Implied  Express: Conditions expressed in the contract itself. Look for words such as “on condition that.”  Implied: A condition not written in the contract or otherwise specifically agreed to by the parties, but which a court may find exists. Example 4: A court may imply that a builder has to substantially perform before the owner has duty to pay.

Question 45

Satisfaction of conditions, the 2 kinds of timing of conditions, and the standards of performance for the 2 types of conditions

Answer 45

1) Timing of Conditions • Condition Precedent—the condition must occur before the other party has an obligation to perform • Condition Subsequent—if the condition occurs, the duty to perform will then be excused 2) Standard of Performance • Express conditions—must be met perfectly • Implied conditions—require substantial performance

Question 46

3 Things that excuse conditions

Answer 46

1) Waiver: A party can waive a condition by words or conduct, as long as the condition is not material to the contract. The waiving party would then have a duty to perform, because it waived the condition. 2) Wrongful Interference: If a party hinders the other party’s performance and interferes with the occurrence of the condition, the condition will be excused, and the wrongful party will have duty to perform. 3) Estoppel: If a party indicates that it will not enforce a condition, and the other party reasonably relies on this, the party will be estopped from later enforcing the condition.

Question 47

Discharge of duty to perform - Impracticability

Answer 47

 An unforeseeable event occurs (such as a natural disaster) making the performance of the contract extremely difficult;  The nonoccurrence of the event was a basic assumption at the time of the contract; and  The party seeking discharge was not at fault. Note 7: Non-extraordinary increases in the cost of performance are not a sufficient basis for this defense.

Question 48

Discharge of duty to perform - Impossibility

Answer 48

Unforeseeable event occurs, making it objectively impossible for the party to perform

Question 49

Discharge of duty to perform - Frustration of Purpose

Answer 49

the primary purpose of the contract known by both parties at the time of contracting is substantially frustrated by an unforeseeable event that occurred after the contract was entered into.  If an unexpected event arises that destroy the party’s purpose for entering the contract, the party will be entitled to rescind the contract, even if the performance is still possible.  Similar to impracticability, the nonoccurrence of the event must have been a basic assumption at the time of the contract and the party seeking discharge was not at fault

Question 50

Discharge of duty to perform - by agreements (examples)

Answer 50

examples include novation (a new party steps into the shoes of an existing party), modification, release, accord and satisfaction (the parties agree to new or different consideration), and rescission (the contract is undone).

Question 51

UCC, Once a buyer accepts goods are they stuck with them?

Answer 51

Note on revocation: If the buyer accepts goods, he may not reject them. However, he may later revoke his acceptance. Revocation is a higher standard than rejection as it requires showing that the defect substantially impairs the value of the goods to him, among other things

Question 52

Delivery obligations for Carrier Cases, Risk of Loss Allocation

Answer 52

Most contracts are shipment contracts (e.g., the contract is silent or has shipping terms such as “FOB Seller’s Place of Business,” “CIF,” “C&F,” or “FAS”). The seller only has to get the goods to the shipper and the risk of loss (ROL) passes to the buyer at that point. For destination contracts (e.g., contracts that state, “FOB Buyer’s Place of Business” or “Ex-Ship”), the seller has to get the goods to the destination.

Question 53

Delivery Obligations for non-carrier cases, when does the Risk Allocation Pass

Answer 53

If the seller is a merchant, the seller must actually deliver the goods to the buyer for the ROL to pass. If the seller is not a merchant, the seller must tender delivery (make the goods available) for the ROL to pass.

Question 54

Delivery Obligations for a Breach

Answer 54

if the seller is in breach, the ROL is on the seller until the defective goods are cured by the seller or accepted by the buyer.

Question 55

What K rights can be assigned and when is an assignment not allowed?

Answer 55

o Almost all contract rights can be assigned. Partial assignments are permissible, as is the assignment of future or unearned rights. o Assignments are not allowed when they materially increase the duty or risk of the obligor or materially reduce the obligor’s chance of obtaining performance.

Question 56

Are there formalities and is consideration needed for an assignment of rights under a K

Answer 56

o No formalities are needed for an assignment, but there must be a present intent to transfer the right immediately. No consideration is needed. An assignment may not be revoked if there was consideration given or if it is payment for a preexisting debt

Question 57

When is an assignment considered revoked?

Answer 57

An assignment is revoked if the assignor takes performance directly or makes a subsequent assignment to a different party.

Question 58

What rights does an assignee have under the K

Answer 58

o An assignee takes all of the rights of the assignor as the contract stands at the time of the assignment, but she takes subject to any defenses that could be raised against the assignor.

Question 59

When is a delegation not allowed?

Answer 59

Generally, one may delegate duties under a contract unless the contract prohibits it or if the contract involves substantial interest in having the delegating individual perform like by special skill, judgment, or trust.

Question 60

Liability of delegator, and does consenting to a delegation create a novation?

Answer 60

When obligations are delegated, the delegator is not released from liability, and recovery can be had against the delegator if the delegatee does not perform, unless the other party to the contract agrees to release that party and substitute a new one (a novation). Merely consenting to a delegation does not create a novation

Question 61

Factors to determine if a TPB is intended:

Answer 61

(1) Is the TPB expressly designated in the contract? (2) Is performance directly to the TPB? (3) Does the TPB have any rights? (4) What is the relationship between the TPB and the promisee?

Question 62

Intended vs Incidental Third Party Beneficiaries, and when do intended TPB rights vest

Answer 62

• Intended TPBs have rights under a contract once their rights vest. Rights vest when there is assent, reliance, or when the third party brings a lawsuit. • Incidental TPBs do not have rights under a contract.

Question 63

Express Warranties under K

Answer 63

Express warranties are affirmations of fact about the goods or a sample of the goods. These cannot be disclaimed. Mere “puffery” does not create an express warranty

Question 64

Implied Warranty of Merchantability

Answer 64

The implied warranty of merchantability is made by a merchant and warrants that goods are fit for their ordinary purpose. This warranty can be disclaimed (e.g., by express language such as a conspicuous “as is” clause or through conduct) Can be disclaimed orally.

Question 65

The implied warranty of fitness for a particular purpose

Answer 65

The implied warranty of fitness for a particular purpose can be made by any seller who knows of the buyer’s specific purpose and the buyer relies on the seller. It can be disclaimed. Tip: the seller does not have to be a merchant

Question 66

A limitation of remedies clause

Answer 66

A limitation of remedies clause is a contractual provision that limits or controls the remedies. It is enforceable unless it is unconscionable or it “fails of its essential purpose.” The clause is unconscionable if it attempts to limit or avoid paying consequential damages for a personal injury due to a consumer product.

Question 67

Anticipatory repudiation common law

Answer 67

a. Common Law  The promisor party clearly and unequivocally indicates through words or acts that it will not perform.  The nonbreaching party can: * Treat the repudiation as a breach of contract and sue immediately; * Suspend its own performance and demand performance from the promisor; * Cancel the contract; or * Wait for the date of performance, and then sue for breach.

Question 68

Common law retraction of repudiation

Answer 68

Retraction: The promisor party can retract its repudiation of the contract until/unless the other party acts in reliance on the repudiation, accepts the repudiation, or has already filed an action for breach of contract.

Question 69

UCC retraction of repudiation

Answer 69

Retraction: The promisor party can retract its repudiation of the contract until/unless the other party has cancelled the contract, materially changed position on the basis of the repudiation, or otherwise indicated that he considers the repudiation to be final.

Question 70

Anticipatory repudiation for UCC

Answer 70

A buyer/seller unequivocally refuses to perform, or fails to provide adequate assurances within a reasonable time (must not exceed 30 days) of the other party demanding them.

Question 71

Requesting Assurances

Answer 71

Requesting Assurances • Either party can demand assurances if it has reasonable grounds to be insecure about the other party’s ability to perform and may suspend performance until it receives assurances. A failure to provide reasonable assurances within a reasonable time (must not exceed 30 days), can be treated as a repudiation.

Question 72

UCC what can the non-breaching party do

Answer 72

The nonbreaching party can: o Treat the repudiation as a breach of contract and sue immediately; o Suspend its own performance and demand performance from the promisor; o Cancel the contract; or o Wait for the date of performance, and then sue for breach.

Question 73

What is a material breach, and what can the non-breaching party do

Answer 73

o A material breach occurs when the nonbreaching party does not receive the substantial benefit of the bargain. o The nonbreaching party can withhold any promised performance and pursue remedies for breach.

Question 74

Minor/nonmaterial breach

Answer 74

o A minor breach occurs when the breaching party has substantially performed, but not fully performed. o The nonbreaching party is entitled to pursue remedies for the minor breach, but it still must perform under the contract. Exam Tip 13 :If the facts are not clear on whether a material or minor breach occurred, you should discuss both issues/rules and present the arguments that the parties would make for both theories. Remember, you are not being scored on your conclusions, but rather your analysis!

Question 75

Expectation Remedies, what it is and calculating the amount

Answer 75

 Expectation damages are damages directly resulting from the breach of the contract. They are intended to put the injured party in the same position as if the contract was performed.  Expectation damages must be foreseeable and the nonbreaching party must be able to prove the amount of damages with reasonable certainty.  Amount: Calculating the amount of damages depends on the facts. Generally, the amount of damages will be based on the contract price for performance and the fair market value of performance

Question 76

Expectation Remedies and diminution in value (economic waste)

Answer 76

* If the award of expectation damages would result in economic waste, then courts may instead award damages equal to diminution in value. * Economic waste occurs when the amount of damages owed is disproportional toany economic benefit or utility gained as a result of the award.

Question 77

General damages calculation

Answer 77

General rule: The damaged party recovers expectation damages. This is the loss of value of the breaching party’s performance plus incidental damages plus consequential damages minus any expenses saved as a result of the breach. Mitigation of damages is required.

Question 78

Consequential damages, and the 3 elements to meet

Answer 78

Consequential damages are reasonably foreseeable damages other than expectation damages that are related to the breach of the contract (e.g., loss of profit). In order to recover consequential damages, three elements must be met: • Foreseeability: The damages must be natural and probable consequences of the breach or contemplated by the parties at the time the contract was formed. • Causation: The plaintiff must show that the damages were caused by the defendant’s breach; if the damages would have occurred without the defendant’s breach, there can be no recovery. • Certainty: The plaintiff must prove the dollar amount with reasonable certainty. When the amount of money is too speculative (e.g., a new business), the court will not award consequential damages

Question 79

Reliance Damages

Answer 79

Damages that the nonbreaching party incurs in reasonable reliance upon the promise that the other party would perform A party cannot recover reliance and expectation damages; it must choose between reliance or expectation damages. You should discuss bothitems of damages on the exam.

Question 80

Incidental Damages

Answer 80

 Damages that arise when the nonbreaching party is trying to remedy the breach (e.g., in a commercial contract, the cost of finding a replacement seller of goods, or storing them)

Question 81

Mitigating damages, what it is, standard of conduct

Answer 81

The nonbreaching party has duty to avoid or mitigate its damages, to the extent possible, by seeking replacements/substitutes for goods and/or services.  The nonbreaching party will be held to a standard of reasonable conduct.  A failure to mitigate damages will reduce the damages recovered by the nonbreaching party

Question 82

UCC Damage formulas Seller breaches and buyer has goods

Answer 82

buyer gets the value of the goods as contracted for | minus the value of the goods as delivered plus incidental and consequential damages.

Question 83

UCC Damage formulas: Seller breaches and seller has goods

Answer 83

buyer gets the difference between the market price (or replacement price) and contract price plus incidental and consequential damages minus expenses saved.

Question 84

UCC Damage formulas: Buyer breaches and buyer has good

Answer 84

seller gets the contract price

Question 85

UCC Damage formulas: Buyer breaches and seller has goods

Answer 85

seller gets the difference between the contract price | and market price (or resale price) plus incidental damages minus expenses saved.

Question 86

UCC Damage formulas: Lost volume seller

Answer 86

The seller gets lost profits plus incidentals. Tip: A seller is a lost volume seller when there is an unlimited amount of the product available.

Question 87

Equitable Remedies: Restitution Based on Nonbreaching Party, if there is full performance

Answer 87

Restitution allows nonbreaching and breaching parties to recover damages under an unjust enrichment theory (i.e., not based on the contract). 1) Nonbreaching Party • Restitution usually arises when the nonbreaching party has partially performed the contract and other party then breaches. The nonbreaching party will then seek restitution damages for the benefit conferred to the breaching party. If the breaching party does not pay restitution damages, it will have been unjustly enriched by the nonbreaching party’s performance. • A nonbreaching party cannot seek restitution if it has performed all of its duties and the only performance due from the other party is the payment under the contract. The nonbreaching party must seek expectation damages instead. • A nonbreaching party can seek damages based on the value of the benefit conferred on the other party.

Question 88

Damages calc under restitution for nonbreaching party

Answer 88

The amount is measured by the reasonable value of what it would cost the breaching party to obtain the benefit from another source, or the increase in the breaching party’s wealth (example increase in value of land) from having received the benefit

Question 89

Restitution for Breaching Party, and value received under it

Answer 89

• If a party has not substantially performed, it will be in breach of contract, and cannot recover under the contract. • However, if the nonbreaching party has benefited from the breaching party’s performance, the breaching party can recover for the benefit conferred minus the damages the nonbreaching party is entitled to.

Question 90

What is a quasi-contract and the elements required for it

Answer 90

Quasi-Contract (Implied-in-Law Contract)  In certain situations, where there is no enforceable contract, or a contract does not exist at all, a court will award restitution damages on the basis of quasi-contract.  The elements are: * The plaintiff must confer a measurable benefit on the defendant; * The plaintiff acted without gratuitous intent (i.e., he intended to be paid); and * It would be unfair to let the defendant retain the benefit because the defendant had an opportunity to decline the benefit but did not do so, or the plaintiff had a reasonable excuse for not giving the defendant such an opportunity (e.g., an emergency arose and the plaintiff could not consult with the defendant).

Question 91

Can a court order the specific performance of a service K

Answer 91

• Specifically, courts will not require people to perform service contracts (e.g., employment) because it is not feasible to enforce/supervise a person’s service and forcing a person to work can rise to the level of indentured servitude under the Thirteenth Amendment

Question 92

Elements of Specific Performance

Answer 92

The following elements must be met  There must be a valid contract: This requires you to discuss whether a valid contract (offer, acceptance, consideration) exists.  The terms of the contract must be certain/clear enough to allow a court to make an order.  The nonbreaching party has satisfied any conditions precedent (or the condition has been excused), so the breaching party’s performance is now due.  Money damages are inadequate (this usually means the item(s) involved in the contract are unique.  It is feasible for the court to enforce and supervise the breaching party’s performance. It is feasible for the court to enforce and supervise the breaching party’s performance

Question 93

Defense against specific performance (there are 2)

Answer 93

: A court will not grant specific performance if the breaching party can assert defenses of laches or unclean hands. * Laches: If the nonbreaching party waited an unreasonably long time to seek specific performance and the delay prejudiced the breaching party, the court may deny specific performance. * Unclean Hands: If the nonbreaching party itself engaged in unethical or immoral acts relating to the contract, the court may deny specific performance.