Contracts Flashcards
Material Failure
Substantial Performance
When a party completes its contractual obligations with no uncured material failure. 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 (i.e., when the nonbreaching party fails to receive the substantial benefit of its bargain) allows the nonbreaching party to withhold any promised performance and to pursue remedies for the breach, including damages.
Divisible Contract
If the performances to be exchanged can be divided into corresponding pairs of part performances in such a way that a court will threat the elements of each pair as if the parties had agreed they were equivalents. Recovery is limited to the amount promised for the unit of the contract performed.
Restitution/Unjust Enrichment
A party is entitled to restitution for any benefit that he has conferred by way of part performance in excess of the loss that he has caused by his own breach.
Construction Contract Damages
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.
Consequential Damages
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.
Predominant Purpose
When a transaction involves both the sale of goods and the rendering of services, the “predominant purpose” test applies to determine whether the common law of contracts or Article 2 of the Uniform Commercial Code (“UCC”) applies to the entire transaction. If the sale-of-goods aspects of the transaction predominate, the UCC applies to the entire transaction, but it does not preclude the application of other law in appropriate circumstances to aspects of the transaction that do not relate to the sale of goods. But if the services aspects of the transaction predominate, only the provisions of the UCC that relate primarily to the sale-of-goods aspects of the transaction apply.
Parole Evidence Rule
The common law Parole Evidence Rule (“PER”) generally prevents the introduction of prior extrinsic evidence that contradicts the terms of the written contract. For the PER to apply, the parties’ writing must be integrated—i.e., the parties must intend it to be their final agreement. If the writing completely expresses all of the terms to which the parties’ agreed, then it is a total integration, and the parties cannot introduce any extrinsic evidence (oral or written) of prior or contemporaneous understandings or negotiations. On the other hand, if the writing sets forth the parties’ agreement about some terms, but not all terms, then it is a partial integration. The parties are then permitted to introduce supplementary extrinsic evidence of other terms as long as the evidence is consistent with the writing.
Under common law, a court was permitted to look only to the writing itself (within the “four corners” of the document) for evidence of the parties’ intent. If the written contract appeared to be detailed, then a court would likely conclude that it was totally integrated. A merger clause is strong evidence the parties intended the writing to be the final, complete integration.
Modification
At common law, modification of an existing contract must be supported by consideration. An agreement to modify a contract may still be enforced if there are new obligations on both sides.
UCC Contract Formation
Under the UCC, a contract is formed if both parties intend to enter into 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—e.g., time or place for delivery.
UCC SoF Requirement
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 (i.e., 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.
UCC Memorandum
The UCC requires a memorandum for a sale of goods for $500 or more to (i) indicate that a contract has been made, (ii) identify the parties, (iii) contain a quantity term, and (iv) be signed by the party to be charged. A “signature” is any authentication that identifies the party to be charged—e.g., 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.
A merchant is 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. In contracts between merchants for the sale of goods for $500 or more, if a memorandum sufficient 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, then the contract is enforceable against the receiving party even though he has not signed it.
UCC Open Offer
In general, an offer can be revoked by the offeror 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: (i) the offeror is a merchant, (ii) there is an assurance that the offer is to remain open, and (iii) 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.
Finally, it is still possible for an offer to be irrevocable if the offeree reasonably and detrimentally relies on the offeror’s promise 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
An offer is revoked when the offeror makes a manifestation of an intention not to enter into the 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 (i) it comes to that person’s attention, or (ii) it is duly delivered in a reasonable form at the offeree’s place of business.
