contracts Flashcards
- Substantial Performance (2616)
The doctrine of substantial performance provides that a party who substantially performs can recover on the contract even though full performance has not been tendered. However, there is no substantial performance if the incomplete performance was a material breach of contract. Under the common law, a material breach of contract (ie. when the nonbreaching party fails to receive the substantial benefit of its bargain) allows the nonbreaching party to withhold any promise performance and to pursue remedies the breach, including damages. Substantial performance is less likely to be found when a party intentionally furnishes services that are materially different from what he promised. Such a breach is more likely to be treated as a material breach for which contract damages are recoverable.
Installment/Divisible Contract (2616)
A divisible or installment contract is one in which the parties’ obligations are divisible into distinct units of performance. Recovery is limited to the amount promised for the unit of the contract performed.
Condition Precedent (2616)
When parties expressly agree to a condition precedent (or concurrent condition), they are generally held strictly to that condition, and a party must fully comply with that condition before the other party’s performance is due.
Unjust Enrichment/Quantum Meruit
When a plaintiff confers a measurable benefit on a defendant and the plaintiff has a reasonable expectation of compensation, it would be unfair to permit the defendant to receive the benefit without compensating the plaintiff. In this case, the court can permit the plaintiff to recover the value of the benefit to prevent this unjust enrichment. Although this type of action is often characterized as based on an implied-in-law contract or quasi contract, quantum meruit does not depend on the existence of a contract.
Substantial Performance (5321)
Under common law, if the breach is minor (ie. 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.
Predominant Purpose Test (5321)
First, it must be established whether the common law or UCC applies to the kitchen contract in order to determine if the contractor appropriately performed and is entitled to recover on the contract. The common law applies 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 principles remain applicable to the extent they are not displaced by the UCC.
Material Breach (5321)
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 damages, but may be able to recover through restitution. However, most courts hold that recovery 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 Contracts/Economic Waste (5321)
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.
Expectation Damages (5318)
Compensatory damages are meant to compensate the nonbreaching party for actual economic losses. Expectation damages are intended to put the nonbreaching party in the same position as if the contract had been performed. Expectation damages must be calculated with reasonable certainty. In construction contracts, the general measure of damages for a contractor’s failure to begin or to complete a building project is the difference between the contract price and the cost of construction by another builder, plus any progress payments to the breaching builder and compensation for the delay in completing the construction.
Consequential Damages (5318)
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 part’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 the natural and probable consequences 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 to do not concern the value of the lost performance due to breach, but there must be causal link between the breach and the consequential damages for them to be recoverable. The plaintiff must prove the dollar amount of consequential damages with reasonable certainty, not speculatively.
Mitigating Damages/Preventing Loss (5318)
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 nonbreaching party is held to a standard of reasonable conduct in preventing loss. The nonbreaching party’s failure to mitigate does not give the breaching party a right to sue the nonbreaching party for such failure. It only reduces the nonbreaching party’s damages recovery.
UCC Contract Requirements (2245)
The UCC Article 2 governs transactions involving the sale of goods. Under the UCC, a contract is formed if both parties intend to enter a contract and there is a reasonably certain basis for giving a remedy. Other than the identity of the parties and subject matter of the agreement, the quantity is the only term essential to forming the contract. As long as the parties intend to create a contract, the UCC fills the gap if other terms are missing, such as time, place, or delivery.
Statute of Frauds (2245)
An oral contract for the sale of goods is valid and enforceable unless the contract is for the sale of goods for $500 or more. In that case, the contract must be in writing and signed by the party to be charged. (ie. the one against whom enforcement is sought) in order to satisfy the SOF and be enforceable. The writing need only be sufficient to indicate that the parties intended to enter into a contract. A contract for the sale of goods is outside the UCC Statute of Frauds to the extent that goods are received and accepted, and to the extent that payment has been made and accepted.
SOF Requirements (2245)
The UCC requires a memorandum for a sale of goods for $500 or more to: (1) indicate that a contract has been made, (2) identify the parties, (3) contain a quantity term, and (4) be signed by the parties to be charged. A signature is any authentication that identifies the party to be charged, such as a letterhead on the memorandum. A mistake in the memorandum or the omission of other terms does not destroy the memorandum’s validity. An omitted term can be proved by parol evidence. However, Enforcement of the agreement is limited to the quantity term actually stated in the memorandum.
Merchant to Merchant (B2B) Transaction (SOF Exception) (2245)
There is an exception to the writing requirement under the UCC known as the merchant’s confirmatory memo. This requires: (1) that both parties be merchants, (2) there to be a writing that accurately reflects the agreement between the parties, and (3) requires that the writer sign the memo. Additionally, the memo can be enforced against the recipient if the recipient received the memo and did not object to the terms within 10 days of receipt. A merchant is someone who deals in the kind of goods that are the subject matter of the contract.
UCC Merchant Firm Offer Rule
In general, an offer can be revoked by the offer at any time prior to acceptance. A promise to hold an offer open is governed by statute. Here, the UCC applies to the offer to sell tomatoes. Under the UCC firm offer rule, an offer to buy or sell goods is irrevocable if: (1) the offeror is a merchant, (2) there is an assurance that the offer is to remain open, and (3) the assurance is contained in a signed writing from the offeror. A firm offer in a form prepared by the offeree, however, must be separately authenticated by the offeror to protect against inadvertent signing.
Detrimental Reliance/Irrevocability (4281)
It is still possible for an offer to be irrevocable if the offeree reasonably and detrimentally relies on the offeror’s promise to prior to acceptance. It must have been reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract.
Revocation of Offer (4281)
An offer is revoked when the offeror makes a manifestation of an intention not to enter into a proposed contract before the offeree accepts. A revocation may be made in any reasonable manner and by any reasonable means, and it is not effective until communicated. Under the UCC, a person receives notice of revocation when: (1) it comes to that person’s attention, or (2) it is duly delivered in a reasonable form at the offeree’s place of business.
UCC Merchant Firm Offer Rule (4944)
The contract involves the sale of a good, so the UCC firm offer rule might apply. The UCC provides an alternative to the common law option rules if 3 requirements are met. Under the UCC, an offer to buy or sell goods is irrevocable if: (1) the offeror is a merchant, (2) there is assurance that the offer is to remain open, and (3) the assurance is contained in a signed writing from the offeror. Unlike the common law, no separate consideration is required to keep the offer open under the UCC offer rule. A merchant is generally described as a person who regularly deals in the type of goods involved in the transaction. Under the firm offer rule, a merchant includes not only a person who regularly deals in the type of goods involved in the transaction, but also any businessperson when the transaction is of a commercial nature.
Revocation of Offer (4944)
An offer can only be accepted while it is still outstanding. An offer can be terminated in multiple ways, including revocation. In general, an offeror may revoke his offer at any time prior to acceptance. An offer is revoked when the offeror makes a manifestation of an intention not to enter into the proposed contract. A revocation may be made in any reasonable manner and by any reasonable means and is not effective until communicated. Alternatively, if the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked. This is called constructive revocation.
Offer (4944)
An offer is an objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree. An offer can only be accepted while it remains open. One way that an offer terminates is by the offeree’s rejection of the offer.
Option Contract/Common Law Firm Offer Rule (4944)
In general, an offer can be revoked by the offeror at any time prior to acceptance. However, an enforceable option will render the offer irrevocable. An option is an independent promise to keep an offer open for a specified period of time. Such a promise limits the offeror’s power to revoke the offer until after the period has expired, while also preserving the offeree’s power to accept. Under the common law, if the option is a promise not to revoke an offer to enter a new contract, the offeree must generally give separate consideration for the option to be enforceable.
UCC Contract Requirements (5711)
Transactions for goods are governed by the UCC. Under the UCC, a contract is formed if both parties intend to contract and there is a reasonably certain basis for giving a remedy. The key term that typically must be specified is quantity, and so long as the parties intend to create a contract, the UCC will fill gaps left by any missing terms. Under the UCC, contracts for the sale of goods of $500 or more must be reduced to a writing signed by the party to be charged. An exception to this writing requirement exists if the contract is between merchants and a memorandum against one party is sent to the other party, who has reason to know its contents and the receiving party does not object in writing within 10 days of receipt of the memorandum. Merchants are those who deal in goods of the kind.
Course of Dealing (5711)
When a contract governed by the UCC is silent as to a term, the UCC will fill the gap and supply a reasonable term. When a contract is silent as to delivery, the UCC provides that the place for delivery is the seller’s place of business. However, the terms of an agreement may be supplemented by the parties’ course of dealing. A course of dealing is a sequence of conduct concerning previous transactions between the parties that can reasonably establish a common basis of understanding for interpreting their conduct.
