Contracts Flashcards
UCC Anticipatory Repudiation
Article 2 of the Uniform Commercial Code (UCC) applies to a contract for the sale of goods (e.g., to a boat, as seen here). Parties to a contract are entitled to expect due performance of contractual obligations and are permitted to take steps to protect that expectation. Anticipatory repudiation occurs before the time of performance is due when a party either unequivocally refuses to perform, or creates reasonable grounds for insecurity about his ability or willingness to perform. When this occurs, the repudiating party must provide adequate assurance of performance within a reasonable time after a demand for such assurance, or the other party may treat it as a repudiation. Under the UCC, the demand for assurance must be made in writing and a reasonable time in which to give adequate assurance is limited to 30 days.
Retracting a repudiation under the UCC
Until the repudiating party’s next performance is due, he may retract the repudiation so long as the nonrepudiating party has not yet (i) accepted the repudiation, (ii) acted in reliance on the repudiation, or (iii) sued the repudiating party for breach. The retraction is effective only if it includes assurances of performance that the other party has justifiably demanded from the repudiating party. A properly made retraction reinstates the repudiating party’s contract rights.
Predominant purpose test
The common law applies to contracts for services or real estate and Article 2 of the UCC applies to contracts for the sale of goods. If a transaction includes both goods and services, the predominant purpose test is applied to resolve whether the common law or the UCC applies to the entire transaction.
Common-law minor breach
Under common law, if the breach is minor (i.e., the breaching party has substantially performed), then the non-breaching party must still perform under the contract. This allows a party who substantially performs to recover on the contract even though that party has not rendered full performance. Generally, the substantially performing party can recover the contract price minus the cost to the other party of obtaining the promised full performance.
Common-law material breach (& remedies)
By contrast, a material breach of contract occurs when the non-breaching party does not receive the substantial benefit of the bargain. The material breach allows the non-breaching party to withhold any promised performance and to pursue remedies for the breach, including damages. The breaching party who failed to substantially perform generally cannot recover contract damages, but may be able to recover through restitution. However, most courts hold that recovery in restitution is only available if the breach was not willful. Consequently, a party who intentionally furnishes services that are materially different from what was promised cannot recover anything in restitution unless the non-breaching party has accepted or agreed to accept the substitute performance.
Construction contract breach remedies & economic waste doctrine
In construction contracts, the general measure of damages for a contractor’s failure is the difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for delay in completion of the construction. When a breach results in a defective or unfinished construction, if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may instead award damages equal to the diminution in the market price caused by the breach. Economic waste occurs when the cost to fix or complete the construction is clearly disproportional to any economic benefit or utility gained as a result.
Compensatory damages defined
Compensatory damages are meant to compensate the non-breaching party for actual economic losses.
Expectancy damages defined
Expectation damages are intended to put the non-breaching party in the same position as if the contract had been performed. Expectation damages must be calculated with reasonable certainty.
Consequential damages defined (& nuances)
Actual damages can be either direct or consequential. Consequential damages are a direct result of the breach but need not be the usual result of the breaching party’s conduct. Instead, consequential damages need only be a reasonably foreseeable result of the breach given the parties’ specific circumstances. The breaching party must have reasonably foreseen the consequential damages for them to be recoverable. Damages are foreseeable if they were a natural and probable consequence of breach, if they were “in the contemplation of the parties at the time the contract was made,” or if they were otherwise foreseeable. Consequential damages do not concern the value of the lost performance due to breach, but there must be a causal link between the breach and the consequential damages for them to be recoverable. And the plaintiff must prove the dollar amount of consequential damages with reasonable certainty not speculatively.
Non-breaching party duty to mitigate
A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience. A non-breaching party is held to a standard of reasonable conduct in preventing loss. The non-breaching party’s failure to mitigate does not give the breaching party a right to sue the non-breaching party for such failure; it only reduces the non-breaching party’s damages recovery.
