Contracts Flashcards
1
Q
Governing Law
A
Uniform Commercial Code: governs sale of goods (tangible personal property). Common law principles apply unless displaced by UCC.
Common law: governs all other contracts
Mixed Contracts: if involves both goods and services, look at predominant purpose to determine which law governs.
2
Q
Elements of a Valid Contract
A
- offer
- acceptance
- consideration
3
Q
Mutual Assent
A
most common manifestation is offer and acceptance
4
Q
Valid Offer
A
manifestation of willingness to enter into a bargain where other party understands that invited to form a deal (OBJECTIVE THEORY).
Must be clear, definite, and explicit.
5
Q
Not a Valid Offer
A
- jokes
- invitations to make offer (like offers to large groups)
- offers that lack specificity (preliminary negotiations)
- advertisements, unless ad identifies a particular person or class of persons who may accept deal through performance
6
Q
Termination of Offer
A
- revocation
- lapse of time
- rejection
- counteroffer
- death or incapacity of offeree or offeror
7
Q
Revocation
A
offer may be revoked any time prior to acceptance, directly or indirectly
Effective when offeree receives RELIABLE NEWS of revocation.
Under UCC, also effective when notice delivered in REASONABLE FORM at place of business of contract or another location designated for receipt of such communications
8
Q
Irrevocable Offers -Types of Option Contracts
A
- valid consideration
- firm offers
- reasonable reliance
- unilateral contracts
9
Q
Irrevocable Offers: Valid Consideration
A
option contract (where offer irrevocable) is created when offeror promises to hold offer open for specified period of time in exchange for valid consideration
10
Q
Irrevocable Offers: Firm Offers
A
irrevocable for period stated or reasonable time (but never more than three months)
Requirements:
- MERCHANT makes offer to buy OR sell goods in a SIGNED WRITING
11
Q
Merchant: Definition
A
person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction
12
Q
Irrevocable Offers: Reasonable Reliance
A
option contract created if offeror reasonably expects offeree’s reliance on the offer
13
Q
Irrevocable Offers: Unilateral Contracts
A
option contract created if offer invites acceptance by performance only and offeree has begun performance
Offeree has a reasonable time to complete performance
14
Q
Revocation: Lapse of Time
A
offer terminates after time specified by offeror or after a reasonable period of time
15
Q
Revocation: Rejection
A
legally operative when received by offeror
16
Q
Revocation: Counteroffer
A
- rejects original offer
- makes a new offer to enter into a contract based on terms in counteroffer
CL: historically, mirror-image rule stated if different terms, counteroffer. Modern view is same as UCC (but some still follow this)
UCC: if include different terms, only counteroffer if acceptance dependent or conditioned on assent to those terms / changes
EXCEPTION FOR OPTION CONTRACTS: when offer remains open, counteroffer does not terminate power of acceptance.
17
Q
Revocation: Death or Incapacity
A
if offeror or offeree dies / becomes incapacitated, offer terminates UNLESS option contract in which case it will remain open for option period
18
Q
Valid Acceptance
A
objective manifestation of assent to specific terms in offer, in invited or required manner, with knowledge that offer was made.
- definite, unequivocal
19
Q
Valid Acceptance: No Method Specified
A
offeree can accept in any reasonable manner and by any reasonable communication method
20
Q
Valid Acceptance: Notice
A
bilateral: offeree must exercise reasonable diligence to notify offeror of acceptance
unilateral: no notification unless specifically requested or offeree has reason to know offeror will not learn of performance
21
Q
bilateral contracts v. unilateral contracts
A
bilateral: parties exchange performances
unilateral: exchange of promise for performance
22
Q
Valid Acceptance: Mailbox Rule
A
ACCEPTANCE made in correct manner and medium valid as soon as it leaves offeree’s possession.
REJECTIONS are legally operative when received.
23
Q
Valid Acceptance: Mailbox Rule - Exceptions
A
Mailbox rule does not apply to:
- option contracts
- offer states acceptance valid only when received
- offeree sends rejection and then an acceptance, in which case acceptance valid only if received first by offeror
24
Q
Valid Acceptance: Absence of Written Contract
A
Under UCC, if both parties engage in conduct that recognizes a contract exists for sale of goods, conduct sufficient to create even if written communications are not sufficient to establish mutual assent.
25
Valid Acceptance: Shipment Contracts
Under UCC, order to buy goods for prompt shipment invites acceptance either by a prompt promise to ship or by prompt shipment of conforming or nonconforming goods
26
Certainty of Terms
must be sufficiently definite to enable court to determine parties, whether agreement breached, and remedy.
CL: identify offeree, conduct offeree must perform, subject matter of contract, price or other definable obligations with reasonable certainty
UCC: identify subject matter and quantity unless output contract or requirements contract
27
Output Contract
purchase entire amount produced by seller
28
Requirements Contract
sell the buyer the amount the buyer needs
29
Consideration
must enter into bargained-for exchange (one party's performance / promise induced the other party's promise / performance).
Benefit to promisor and detriment to promisee are evidence of consideration
30
No Valid Consideration
- conditional gifts
- past/moral consideration
- preexisting legal duty
- large disparity in exchange
- illusory promises
31
No Valid Consideration: Conditional Gifts
in general, not valid consideration unless promisor's motive was to induce return promise
32
No Valid Consideration: Past / Moral Consideration
past services given gratuitously unless enforcing promise necessary to prevent injustice
33
No Valid Consideration: Preexisting Legal Duty
promises to act in a way that is the same as the promisor's then-existing legal obligation
34
No Valid Consideration: Large Disparity in Exchange
contracts in which exchange was not truly bargained for or a mere formality.
But generally courts do not inquire into adequacy of consideration
35
No Valid Consideration: Illusory Promises
promisor has retained choice to perform or not
36
Noncontractual Grounds for Enforcement of Promises
Even where no valid contract, can enforce where:
- promissory estoppel
- quasi-contract
37
Promissory Estoppel
Can recover damages even if contract not formed if:
- promisor should have reasonably expected to induce action / forbearance of promisee or 3P
- promise did induce such action or forbearance of promisee or 3P AND
- injustice can be avoided only by enforcement of promise
38
Quasi-Contract
can recover reasonable value of goods/services rendered even if no valid contract if:
- party seeking recovery provided a benefit to another party
- party seeking recovery had a reasonable expectation of compensation for the benefit conferred; AND
- it would be unjust for the other party to retain the benefit without paying for it
39
Defenses to Enforceability
- statute of frauds
- incapacity
- duress
- undue influence
- mutual mistake
- unilateral mistake
- misunderstanding
- misrepresentation
- illegality
- violation of public policy
- unconscionability
- adhesion contracts
40
Defenses to Enforceability: Statute of Frauds
need a writing signed by the party to be charged for:
- interests in land
- contracts that cannot be fully performed within a year
- promises by executors or administrators to personally pay debts
- suretyships
- contracts made in consideration of marriage
- sale of goods for $500 or more
41
Defenses to Enforceability: Statute of Frauds - Writing
must state:
- parties
- subject matter
- essential terms of contract
Under UCC, a writing that satisfies statute of frauds is not enforceable beyond quantity of goods shown in such writing
42
Defenses to Enforceability: Statute of Frauds - Signed
includes any symbol or express indication of party's name showing party intended to enter into agreement
CONFIRMATION MEMO EXCEPTION: signature not required if contract between two merchants, party seeking enforcement sent memo, and other party had reason to know of memo's contents and did not object within 10 days of receipt
43
Defenses to Enforceability: Statute of Frauds - Modifications
If a modified contracts falls under SoF, modification must be in writing and signed by party to be charged
44
Defenses to Enforceability: Statute of Frauds - Exceptions
following enforceable even if fall under SoF and no signed writing:
- party against whom enforcement sought admits contract exists
- party has partially performed the obligations under the contract
- elements of promissory estoppel are met
- contract is for specially manufactured goods
45
Defenses to Enforceability: Incapacity
can set aside for infancy, mental capacity, or intoxication
46
Defenses to Enforceability: Incapacity - Infancy
contract with minor voidable by minor unless:
- contract for necessaries OR
- minor ratifies upon reaching age of majority
47
Defenses to Enforceability: Incapacity - Mental Capacity
contract with mentally incompetent person voidable if person is:
- unable to understand nature and consequences of transaction OR
- unable to act in a reasonable manner and the other party has reason to know of incapacity
If there is a guardian appointed to handle that person's affairs, any contracts entered into by incompetent person is void
48
Defenses to Enforceability: Incapacity - Intoxication
contract voidable if, at time of formation,
- intoxicated person did not understand nature and consequences of transaction or could not act in reasonable manner AND
- other party had reason to know the other party was intoxicated
49
Defenses to Enforceability: Incapacity - Ratification
can be ratified when the incapacity cured where the person:
- fails to make a timely disaffirmance within a reasonable period of time after reaching adulthood or regaining competency
- partakes in conduct that indicates intent to be bound
- provides express oral or written ratification
50
Defenses to Enforceability: Duress
void if party enters into contract by physical threat to party or someone close to party.
voidable if pressure takes form of unlawful threat that leaves party thinking the party had no reasonable alternative but to enter into the contract
No reasonable alternative = no feasible way to produce substitute performance
51
When Economic Duress Does Not Exist
- parties agree to modification in good faith based on market conditions OR
- party is in vulnerable economic position and enters into a deal that strongly favors the other party
52
Defenses to Enforceability: Undue Influence
voidable: victim enters into transaction induced by unfair persuasion which occurs if:
- party, due to age, infirmity, or mental or emotional condition is unduly susceptible to persuasion AND
- other party uses excessive pressure or over-persuasion to induce assent
53
Defenses to Enforceability: Mutual Mistake
may be voidable by disadvantaged party if:
- mistake concerns basic assumption (relates to material fact) on which contract formed
- mistake will have material impact on parties' performance (significantly affects anticipated cost of performance or value of benefit received) AND
- disadvantaged party did not bear risk of mistake (i.e., did not have greater knowledge of relevant facts or did not realize it did not have such knowledge but still proceeded)
54
Defenses to Enforceability: Unilateral Mistake
voidable by mistaken party if:
- mistake concerns a basic assumption on which contract formed
- mistake will have material impact on parties' performance AND
- advantaged party either caused the mistake or knew or had reason to know of mistake or the mistake makes the contract unconscionable
55
Defenses to Enforceability: Misunderstanding
no manifestation of mutual assent occurs if:
- material term of agreement is ambiguous
- parties attach different meanings to term AND
- neither party knows or has reason to know of the meaning attached by the other party or both parties or have reason to know of the meaning attached by the other party
56
Defenses to Enforceability: Misrepresentation
voidable if party justifiably relied on
- fraudulent or material misrepresentation OR
- concealed or nondisclosed fact
57
Fraudulent Misrepresentation
made with the intent to induce the other party's assent and the party making the assertion:
- knew or believed the assertion was untrue;
- stated or implied party was confident assertion was true, knowing such confidence was unfounded; or
- knew that there was no proper basis to make the assertion
58
Material Misrepresentation
innocent misrepresentation can allow avoidance of contract if
- would induce reasonable person to assent OR
- party making assertion knew that it was likely to induce the other party's assent
59
Concealment
voidable if party takes action with purpose or knowledge that action likely to prevent the other party from learning a material fact
60
Nondisclosure
failure to inform the other party of a relevant fact may be deemed equivalent to a misrepresentation when disclosure:
- would prevent a prior statement from being a misrepresentation or fraud
- would correct the other party's mistake about a basic assumption of the contract
- would correct a mistake about the contents of a writing that forms part of the contract OR
- required because of the relationship of trust and confidence
61
Defenses to Enforceability: Illegality
contract to perform acts prohibited by statute is void unless:
- one of the parties is among the class of persons the law was enacted to protected (in which case they can enforce) OR
- one of the parties is significantly less morally culpable than the other party (and the less culpable party can enforce)
62
Defenses to Enforceability: Violation of Public Policy
contracts contrary to policies articulated by Constitution, statutes, or judicial opinions generally deemed void
63
Noncompetition Covenants
restrict business activities of person or entity.
void against public policy unless restraint is reasonable in its duration, geographic scope, and restricted activities
64
Defenses to Enforceability: Unconscionability
unconscionable in whole or in part if, at time of formation, there was both procedural and substantive unconscionability. (sliding scale approach - less evidence of one is okay where more evidence of the other)
procedural: bargaining power unequal, terms hard to understand, deceptive business practice, take it or leave it situation (something wrong with how it was made)
substantive: terms so unfair or one-sided that reasonable person would not agree
65
Adhesion Contracts
drafted by one side without realistic opportunity for negotiations. Generally enforceable UNLESS:
- lacks mutual assent
- violates public policy
- unconscionable
66
CL Modification of Contract Terms
requires mutual assent, certainty, and new or different consideration unless:
- modification fair and equitable in the view of circumstances not anticipated by the parties OR
- enforcement is justified due to a material change of position in reliance on the modification
67
UCC Modification of Contract Terms
requires good faith by both parties. No new consideration needed
68
Parol Evidence Rule
when parties have final written agreement that is completely integrated, courts may not consider other terms reflected in prior or contemporaneous discussions or writings to determine what terms govern.
if partially integrated, integrated portion supersedes inconsistent terms of prior / contemporaneous agreements but courts will still consider evidence of consistent additional terms
69
Parol Evidence Rule: Integration
complete: parties intend written agreement to be a complete and exclusive treatment of contract's terms
partial: parties intend written agreement to be a final expression of some, but not all, terms of the parties' agreement
70
Parol Evidence Rule: Merger Clauses
generally signal complete integration unless
- obviously incomplete
- induced by fraud or mistake
- some other reason the agreement is voidable
71
Parol Evidence Rule: Exceptions
does not apply to subsequent oral or written communications or if evidence introduced to:
- ascertain the meaning of an ambiguous term
- as evidence of defense to contract formation
- regarding subject matter not addressed in integrated agreement (like separate agreement)
- to show integrated agreement subject to condition precedent
- to explain and supplement terms (ONLY APPLIES TO UCC CONTRACTS and course of performance, course of dealing, or usage of trade evidence).
72
Additional or Different Terms
if one or both parties are non-merchants, additional / different terms not part of contract unless agreed upon as modification.
Battle of the Forms: for UCC, if both parties are merchants, additional term becomes part of contract unless:
- offer expressly limits acceptance to terms of offer
- additional term materially alters contract
- other party already objected to that term or objects to additional term within reasonable time after receiving notice of it
Knockout Rule: for UCC, if both parties are merchants, conflicting terms knocked out and use UCC gap filler
73
Plain Meaning Rule
if term clear and unambiguous on its face, plain meaning will be applied as written without admission of extrinsic evidence
74
Ambiguous Terms: Resolving Inconsistencies
when multiple definitions possible, courts generally assign weight to the definitions in the following order:
- specifically defined terms
- course of performance
- course of dealing
- trade usage
75
Omitted and Implied Terms
if agreement does not include term necessary to allocate rights and responsibilities, court may supply a reasonable term or term it concludes was intended.
76
Gap Fillers
common gap fillers include reasonable price (at time of delivery for UCC contracts).
Goods must be delivered within a reasonable time.
Payment must be made at the time and place of the delivery
77
Express Warranties
created if seller:
-makes a promise or statement of fact about the quality of goods
- describes certain attributes of the goods or
- displays a sample or model representing the attribute and quality of goods being sold
Puffery does not create express warranty
Express warranties cannot be disclaimed using general disclaimers
78
Implied Warranty of Merchantability
goods fit contract's description; are of fair, average quality; and are fit for ordinary purpose of goods.
Under UCC, created if:
- seller is a merchant and
- warranty is not disclaimed in a writing (i.e., "as is")
79
Implied Warranty of Fitness for a Particular Purpose
arises where seller:
- has reason to know that a buyer has a particular purpose for which the goods will be used;
- has reason to know that the buyer is relying on the seller's judgment or skill to recommend or select suitable goods; and
- recommends or selects such goods for the buyer
80
Implied Warranty of Title
warrants that:
- seller has conveyed valid title
- transfer of title is rightful and
- goods are free of any known encumbrances
Can be excluded or modified by specific contract language (general disclaimer not sufficient).
Exceptions: does not apply if
- buyer has reason to know seller does not claim to have title or
- seller is purporting to sell only such right or title that they or a 3P may have
81
Performance: Conditions
if party's performance conditioned on event that does not occur, no performance due and nonperforming party cannot be held liable for breach unless excuse or waiver applies.
82
Types of Conditions
- condition precedent: event must occur before duty arises
- condition subsequent: discharges a duty that already exists
- concurrent conditions: exist when each party's performance is conditioned upon the other party's performance
83
Creation of Condition
only arise if
- expressed in parties' agreement OR
- implied by law
84
Excuses for Nonoccurrence of Condition
excused if
- unjust to insist on occurrence OR
- party wrongfully prevented condition from occurring
85
Waiver of Condition
can be waived via election waivers or estoppel waivers
86
election waiver
voluntary relinquishment of a known right. only applies to immaterial terms
87
estoppel waiver
one party manifests willingness to perform even though condition has not yet occurred.
applies to all terms and can be retracted if other party has not detrimentally relied on it.
88
Satisfaction of Condition
usually adjudged by reasonable person standard UNLESS condition upon the party's satisfaction with a matter of personal aesthetics (dissatisfaction must be in good faith).
if party who must be "satisfied" is corporation, will use objective standard instead.
If party who must be satisfied is an independent person who is a not a party to the contract, subjective standard
89
breach
to prevail on breach of contract claim, nonbreaching party must show it was ready, willing, and able to perform
90
CL Material Breach
failure to substantially perform obligations will discharge nonbreaching party's obligation to continue performance. Factors:
- extent to which injured party deprived of reasonably expected benefit
- extent to which injured party can be adequately compensated for the deprived benefit
- extent to which the breaching party will suffer hardship
- likelihood the breaching party will cure the failure
- extent to which the breaching party's conduct constitutes good faith and fair dealing
91
divisible contracts
if contractual performance can be divided into multiple jobs and each job must be paid for when completed, one party's performance of a particular job triggers other party's duty to pay for that job, even if the performing party breaches another part of the contract
92
delay in performance
if delay constitutes material breach, to determine whether injured party's duty to perform is discharged, courts consider:
- whether the delay prevented or hindered any suitable arrangements AND
- whether timely performance was important (time is of the essence clause)
93
CL Partial Breach
if breach immaterial, nonbreaching party required to fulfill its remaining duties but may sue to recover damages
94
UCC Perfect Tender Rule
requires that the goods and tender match all contract specifications
95
UCC Perfect Tender Rule: Seller's Breach
if goods or delivery do not conform to the contract, buyer may:
- reject all goods
- accept some goods and reject the rest OR
- accept all goods and sue for the deficiency
96
UCC Perfect Tender Rule: Inspection
buyer has right to inspect goods at a reasonable time, place, and manner; buyer bears the expense of inspection unless the goods are nonconforming and rejected
97
UCC Perfect Tender Rule: Cure
if the time for performance has not yet expired, then the seller may notify the buyer of the seller's intent to cure and may cure within the time for performance under the contract. if the contractual performance time has expired, seller has right to cure if seller:
- had reasonable grounds to believe that the tender would be accepted
- notifies the buyer of the intent to cure the defect and
- provides a cure within a reasonable time
98
UCC Perfect Tender Rule: Termination of Right to Reject
acceptance extinguishes the buyer's right to reject nonconforming goods and occurs if the buyer:
- tells the seller that the goods conform
- fails to reject the goods after having a reasonable time to inspect them OR
- acts in a way inconsistent with the seller's continued ownership of the goods
99
UCC Perfect Tender Rule: Revocation of Acceptance
buyer can revoke acceptance if:
- acceptance based on reasonable assumption that nonconformity would be cured within a reasonable time
- nonconformity would have been difficult to detect before acceptance, or
- seller made assurances that there was no nonconformity
TIMING: buyer must notify seller of revocation within a reasonable time after buyer discovers the nonconformity and before any substantial change to condition of the goods
100
UCC Perfect Tender Rule: Installment Contracts
perfect tender rule does not apply to contracts that are divisible, where there are separate deliveries to be separately accepted, often occurring over a period of weeks
A buyer can reject a single installment if nonconformity substantially impairs the value of that installment and cannot be cured
buyer cannot cancel WHOLE contract unless (1) nonconformity in installment substantially impairs value of entire contract and (2) buyer notifies the seller of the cancellation
101
Anticipatory Repudiation
If one party unequivocally communicates that it does not intend to perform, the nonbreaching party is excused from future performance and can immediately sue for damages or ignore repudiation and urge performance.
communication must be absolute, definite, and involve the entire performance.
102
Anticipatory Repudiation: Assurances
if one party has reasonable grounds to believe the other will fail to perform, it has the right to temporarily suspend performance and request assurances that the other party will perform.
must make request in writing
failure to provide adequate assurances = repudiation
103
Anticipatory Repudiation: Retraction
before performance due, a repudiating party may retract repudiation unless other party has:
- materially changed its position or
- indicated it considered the repudiation final
104
Implied Duty of Good Faith and Fair Dealing
exists in every contract and requires parties act and speak honestly regarding transaction or in observance of reasonable commercial standards (UCC). Duty does not apply to negotiations
105
Risk of Loss Generally
refers to which party will bear cost of paying for damages that arise during execution of contract and are related to the subject matter of the contract.
If risk of loss specified, terms govern.
if not specified, responsibility will be determined by either common law or UCC principles
106
Risk of Loss: Common Law
in real estate transactions where property seriously damaged between execution and closing, majority rule places risk on buyer (equitable conversion) and minority rule places risk on seller (because the seller is property owner)
107
Risk of Loss: UCC - Shipment Contracts
- if sales contract provides that goods will be delivered by 3P carrier but not to specific place, then risk of loss shifts to buyer when goods delivered to carrier
- if sales contract provides that goods will be delivered by 3P carrier to a specific place, then risk shifts to buyer when goods delivered to buyer at specified place
108
Risk of Loss: UCC - effect of breach on risk of loss
when seller breaches by nonconforming goods that buyer has right to reject, risk remains on seller until cure or acceptance.
if buyer accepted and then rightfully revokes, buyer can treat risk as having been on seller only to the extent of a deficiency in buyer's insurance
when buyer breaches before risk passed to buyer, seller may treat risk as resting on buyer for commercially reasonable time to extent there's a deficiency in seller's insurance
109
Risk of Loss: UCC - Nonshipment Contracts
if seller is merchant, risk remains on seller until buyer receives goods.
if seller not a merchant, risk passes to buyer when seller makes goods available to buyer to take delivery
110
Discharge of Duties
- impossibility
- impracticability
- frustration of purpose
- accord and satisfaction
- novation
- release
- mutual recission
111
Impossibility
- subject of a contract is destroyed or performance becomes objectively impossible (not merely more difficult or more expensive) through
- unforeseeable event that happens after contract was entered into, then the party's obligation to perform is discharged unless
- party bore the risk of the occurrence of the event
112
Impracticability
- if performance becomes objectively and commercially impracticable (extremely difficult) through
- an unforeseeable event that happens after the contract was entered into, then the party's obligation to perform is discharged unless
- the party bore the risk of the occurrence of the event
113
Frustration of Purpose
- if the primary purpose of the contract is eliminated through no fault of the parties, then the duties under the contract may be discharged UNLESS
- parties foresaw the risk or party raising defense bore the risk of the event's occurrence
114
Accord and Satisfaction
accord = executory agreement, supported by consideration, to forgive a prior obligation in exchange for new obligation.
To discharge for less payment, need:
- bona fide dispute over amount that is due and
- agreement that the amount to be given is a final settlement
OG contract not extinguished until accord performed. If breach of accord, can sue under accord or original contract
115
Novation
new contract that immediately extinguishes all obligations under original contract.
novation if:
- discharges prior contractual duty
- creates a new contractual obligation or
- adds a new party
116
Release
if release of a contractual obligation is not supported by consideration, it must be in writing
117
Mutual Recission
occurs when all parties to an agreement agree to surrender their rights and terminate contractual obligations
must be supported by consideration
where no one has performed, each party's surrender of rights under the agreement constitutes consideration
if one has already performed, agreement cannot be mutually rescinded
agreement to rescind does not need to be in writing to be enforceable unless required by statute, even if original contract included such a requirement
118
Remedies
- liquidated damages
- specific performance
- expectation damages
- reliance damages
- restitution damages
- nominal damages
- reformation
- recission
- consequential damages
- incidental damages
- punitive damages
- attorney fees
119
Liquidated Damages
clause with specific amount or formula for damages enforced if reasonable. Factors:
- difficulty of estimating or proving harm caused by breach
- whether liquidated damages clause is reasonable forecast of that harm
- whether liquidated damages clause is a penalty
120
Specific Performance
- monetary damages inadequate to compensate nonbreaching party and
- award of specific performance is equitable
121
Expectation Damages
put nonbreaching party in economic position it would have enjoyed if contract had been performed (losses in value caused by breach + gains prevented by breach - savings from not performing)
122
Expectation Damages: Construction Contracts
can recover damages for defective / unfinished construction based on diminution in property's market price OR cost to complete performance or remedy defects
123
Waste
if cost to complete is clearly disproportionate to loss in value caused by the breach, then to avoid waste, the remedy will be limited to diminution in property's market price caused by breach
124
Expectation Damages: UCC Damages
default measure of expectation damages is market damages but damages differ for sellers and buyers
125
Expectation Damages: UCC Damages - Market Damages (Buyers)
difference between the market price of goods and contract price at the time the buyer received notice of the seller's breach
126
Expectation Damages: UCC Damages - Market Damages (Sellers)
difference between contract price of goods and market price at time seller tendered the goods
127
Expectation Damages: UCC Damages - Cover (Buyers)
if buyer purchases substitute goods in good faith, damages are difference between what the buyer paid for the substitute goods and contract price
128
Expectation Damages: UCC Damages - Resale (Sellers)
if seller resells goods in good faith, damages are difference between OG contract price and resale price
129
Expectation Damages: UCC Damages - Lost-Volume Sellers
if seller carries sufficient volume of a good where seller can make the resale to the second buyer and sale to the first buyer, then damages are different between contract price and the seller's costs in acquiring or producing the goods
130
Reliance Damages
represent amount that would put nonbreaching party in the position that party was in before entering contract
only awarded to extent they are reasonable
131
Restitution Damages
requires defending party to give up any gains enjoyed and is available only to a party who had a reasonable expectation of compensation for the benefit conferred on the other party
Available to breaching party who prevails in a claim for unjust enrichment, though recovery will be reduced to extent there are damages caused by breach
132
Nominal Damages
minimal awards granted when there is no compensable harm caused by breach
133
Reformation
if clear and convincing evidence that written document does not conform to the actual agreement, can rewrite.
will not be granted if it would adversely affect the rights of a bona fide purchaser
134
Recission
can seek unilateral recission of contract at law or in equity.
rescinding party effectuates recission by:
- tendering contractual benefits to other party
- bringing action for restitution
can be used where contract not supported by mutual assent because of fraud, fraudulent misrepresentation, misrepresentation of a material fact, mutual mistake, or unilateral mistake
135
Recission at Law
promptly after discovering grounds for recission and prior to filing suit, plaintiff must notify defendant and completely and unequivocally return benefits received unless:
- property worthless when received or has been destroyed or lost by the other party or because of property's own defects
- property used or disposed of without knowledge of grounds for recission
- amount received under contract is less than amount due the parking seeking to rescind
136
Equitable Recission
courts invalidates the contract upon a showing by the plaintiff of the grounds for recission. Plaintiff must return benefit to defendant (but tender does not need to take place pre-suit). Appropriate where remedy at law is inadequate
137
Recission - Acquiescence
in any recission for fraud, defrauded party deemed to have acquiesced to transaction and waived right to rescind if:
- defrauded party does anything to recognize the transaction or that is inconsistent with transaction's repudiation or
- defrauded party delays such that other party acts to that party's detriment in reliance on contract
138
Consequential Damages
special damages caused by breach of contract but do not directly flow from breach.
only available when party seeks expectancy damages
139
Incidental Damages
other reasonable expenses incurred as a result of the breach, often to mitigate harm caused or to protect claimant's or other party's interests
140
Punitive Damages
not awarded in breach-of-contract actions unless defendant engaged in breach of fiduciary duty, fraud/misrepresentation, or another tort
141
Attorney Fees
not recoverable by prevailing party unless the contract or applicable statute provides for their recovery
142
Limitations on Recovery
- expenses saved (expectation damages, reliance damages)
- duty to mitigate
- certainty
- foreseeability
143
Limitations on Recovery - Expenses Saved
Expectation damages: court will reduce nonbreaching party's recovery for any expenses avoided because of breach
Reliance damages: court will reduce nonbreaching party's recovery if party would have lost money had the contract been performed because party should not receive reliance damages in excess of what would have been recovered as expectation damages
144
Limitations on Recovery - Duty to Mitigate
if nonbreaching party fails to take reasonable actions to avoid unnecessary losses, court will decline to award damages that could have been avoided
145
Limitations on Recovery - Certainty
parties only awarded damages that are proven with reasonable certainty
146
Limitations on Recovery - Foreseeability
damages suffered must be reasonably foreseeable at the time the contract was made
147
Third-Party Beneficiary Rights
intended beneficiaries can enforce obligations under contract if:
- intended beneficiary's rights vested before parties modified contract and
- enforcement is against promisor
148
Intended Beneficiaries
parties whom contracting parties explicitly intended to benefit
149
Incidental Beneficiaries
no rights to enforce agreement (i.e., third parties who benefit but parties did not intend the benefit)
150
When Intended Beneficiary's Rights Vest
- intended beneficiary sues to enforce rights under contract
- principles of promissory estoppel are met
- party to the contract requests the intended beneficiary to assent to the contract OR
- contract includes explicit provision stating intended beneficiary's rights will immediately vest upon execution of contract
151
Intended Beneficiary: Effect of Vesting
once rights vest, intended beneficiary may sue promisor but nont promisee unless intended beneficiary is creditor beneficiary. if so, creditor beneficiary may sue promisee for non-fulfillment of underlying legal obligation
152
Third-Party Beneficiary Defenses
promisor can raise any defense or excuse to nonperformance that could have been raised by promisee unless intended beneficiary is a creditor beneficiary
153
Assignment
contractual rights freely assignable unless:
- assignment would materially change the obligor's duty
- assignment would materially increase the burden or risk on the obligor
- assignment would materially impair the obligor's chance of obtaining return performance
- assignment would materially decrease the value of the returned performance to the obligor or
- contract provides otherwise (but such provisions are strictly construed)
154
Assignment Creation
may be made orally or in writing unless original contract required assignment to be in writing.
if governed by UCC, assignment must be in writing if assignment greater than 5k.
155
Assignment Revocable
- informs assignee of revocation
- received performance from obligor
- made subsequent assignment of the same rights
- dies
- declares bankruptcy
156
Assignment Irrevocable
assignor's rights extinguished when assignment has become irrevocable. Irrevocable if:
- assignment made in exchange for consideration
- obligor has already provided performance to assignee
- assignment was made to assignee in writing
- assignee has reasonably relied on the assignment to the assignee's detriment
157
Assignment Defenses
assignee may enforce rights against obligor but obligor may raise any defenses or excuses it could raise against assignor unless there has been a novation
158
Delegation
delegator transfers a contractual duty to the delegatee (3P) who makes an enforceable promise to perform it for valid consideration.
Delegation does not extinguish the delegator's duty to perform if the delegatee fails to do so
159
Delegation: Creation
delegation may be made orally or in writing unless the OG contract requires it to be in writing
160
Delegation Exceptions
duties that cannot be delegated include:
- services for artistic abilities or other unique skills
- duties where law or public policy restrict or prohibit delegation or
- where contract prohibits delegation
161
Delegation Enforcement
delegator or obligee can sue delegatee for nonperformance or deficient performance unless novation
162
Delegation Defenses
claims subject to same defenses or excuses that could be raised in a breach of contract action against the OG parties
