Contracts

Question 1

What is a contract?

Answer 1

A legally enforceable agreement that contains the responsibilities and duties of the contracting parties

Question 2

What are the elements of a valid contract?

Answer 2

1) Mutual Assent (offer and acceptance);
2) Consideration; AND
3) No defenses to formation.

Priority: HIGH

Question 3

What law governs contracts for the Sale of Goods?

Answer 3

Article 2 of the Uniform Commercial Code.

Goods= all things movable

*Under the UCC, a contract may be made in any manner sufficient to show agreement (i.e. conduct showing parties recognize existence of a contract).

*For mixed contracts, the predominant purpose determines which law governs.

Priority: HIGH

Question 4

What are the elements of Mutual Assent?

Answer 4

1) Offer: A manifestation of intent to contract, with definite and reasonably certain terms, that is communicated to the offeree.

2) Acceptance: A manifestation of assent to the terms of the offer, which indicates a commitment to be bound.

Priority: HIGH

Question 5

When is an offer Terminated?

Answer 5

Offers may be terminated before acceptance by:
a) Rejection or Counter-offer by offeree;
b) Lapse of time;
c) Revocation by offeror; OR
d) Death / Incapacity of either party.

Priority: HIGH

Question 6

When may an offer be revoked, and which types of offers are not revocable?

Answer 6

An offer may be revoked at any time before acceptance through unambiguous words/conduct indicating an unwillingness/inability to contract (effective when received).

Irrevocable offers include: option contracts, a merchant’s firm offer, and offers that were relied on to the offeree’s detriment.

Priority: HIGH

Question 7

What is a Merchant’s Firm Offer?

Answer 7

1) An offer to buy or sell goods;
2) By a merchant;
3) In a signed writing;
4) stating offer will be held open with max time up to 3 months; AND
5) separately signed by the offeror.

*Enforceable WITHOUT consideration.

Priority: HIGH

Question 8

Acceptance Performance

Answer 8

Acceptance - a manifestation of assent to the terms of the offer

Performance may be adequate

Bilateral Contracts: start of performance manifests acceptance

Unilateral Contracts: start of performance only makes the offer irrevocable (acceptance only when completed)

Question 9

Rejection

Answer 9

Rejection: Manifestation of intent not to accept an offer.

Offer is terminated upon receipt by offeror

Offers CANNOT be accepted after they have been rejected.

Counteroffer: Both a rejection that terminates the original offer and a NEW offer.

Priority: HIGH

Question 10

Counteroffer

Answer 10

Counteroffer: Both a rejection that terminates the original offer and a NEW offer.

Priority: HIGH

Question 11

Timing of Acceptance/Revocation

Answer 11

Acceptance–> offer is accepted when sent or communicated

Revocation–> offer is revoked when received by the offeree. Cannot revoke an offer after its accepted.

Question 12

Mailbox Rule

Answer 12

Acceptance sent by mail is deemed to be accepted once plaiced in the mail ( doesn’t apply to option contract deadlines)

Revocation sent by mail is deemed effective when received by the offeree.

Question 13

Battle of the Forms

What is the Mirror Image Rule and UCC exception?

Answer 13

Mirror Image Rule (CL): acceptance MUST exactly mirror the offer; any variations constitute a counteroffer.

UCC Art. 2 Exception: The acceptance DOES NOT need to mirror the offer, and different/additional terms may be added.

Different/Additional terms are included only if:
1) Both parties are merchants;
2) The term is not a material change;
3) Offer doesn’t expressly limit acceptance to the exact offer; AND
4) No objection was made within a reasonable time.

*Material change= likely to cause hardship/surprise (i.e. disclaimer of warranties or arbitration clause)

Priority: Medium

Question 14

Implied-in-Fact Contracts

Answer 14

A contract is created by conduct if:

1) the conduct is intentional; AND
2) Each party knows (has reason to know) the other party will interpret the conduct as an agreement.

Question 15

When is an agreement deemed Indefinite?

Answer 15

When the terms of the agreement are NOT certain (they cannot be ascertained to a reasonable degree of certainty), the contract is deemed indefinite and is UNENFORCEABLE.

*indefinite duration= contract is generally invalid

UCC (sale of goods) –> if both parties are merchants, the only essential term is quantity.
If no agreement on price, a reasonable price term will be supplied under the UCC

Priority: Medium

Question 16

What is Consideration?

Answer 16

A bargained for exchange of any act or forbearance that benefits the promisor or causes detriment to the promisee.

*Past or moral consideration is NOT sufficient to support a contract.
* Merchants firm offer may be enforced without consideration
* illusory Promises are invalid; occurs when one party has no obligation to perform.

Priority: HIGH

Question 17

When does Promissory Estoppel apply?

Answer 17

Applies when:
1) A party reasonably and foreseeably relied to his detriment on the promise of the other party;
2) The promisor should have reasonably expected a change in position in reliance of the promise; AND
3) Enforcement of the promise is necessary to avoid injustice.

Priority: HIGH

Question 18

Settlement of Legal Claims

Answer 18

The voluntary relinquishment of some known right or privilege.

*Constitutes valid consideration.

Priority: Medium

Question 19

What is the Common Law Pre-Existing Duty Rule?

What are the exceptions?

Answer 19

Past performance or performance of a pre-existing duty is NOT adequate consideration.

Exceptions:
a) If there is an addition or change in performance or promise (new consideration); OR
b) A fair and equitable modification is made due to unanticipated changed circumstance AND the contract is not yet fully performed by either party.

Priority: HIGH

Question 20

Is consideration required for a modification to a UCC Art. 2 sale of goods contract?

Answer 20

NO consideration is required for contract modifications made in good faith. BUT, the modification must be in writing if:
a) It falls within the Statute of Frauds; OR
b) The original contract states that modifications must be in writing.

Priority: HIGH

Question 21

Incapacity

Answer 21

Must have capacity in order to enter into a contract.

Lack of capacity: (a) minors - persons under 18yrs old; or (b) lack of mental capacity - person cant understand the meaning and effect of a contract.

BUT minors are bound for contracts for necessities (food, shelter, clothing).

*Contract is voidable by the person who lacked capacity.

Question 22

Duress

Physical Compulsion vs. Economic Duress

Answer 22

Two Types:

Physical Compulsion: contract is void. Occurs if a person physically compels another person to agree to a contract (i.e physically forcing someone to sign or by gunpoint)

Economic Duress: contract is voidable. Occurs when:
1) an improper threat is made;
2) that induces a party;
3) who has no reasonable alternative;
4) to enter into a contract

*A mere threat to breach a contract without more is generally insufficient

Priority: Medium

Question 23

Undue Influence occurs when?

Answer 23

There is:

1) Unfair persuasion of a person,

2) Who is either:
a. Under the domination of the person exercising the influence; OR
b. Justified in assuming the other person will act in their interest/welfare because of the relationship between them (i.e. family)

• contract is generally voidable by the victim

Priority: Medium

Question 24

Mutual Mistake vs. Unilateral Mistake

Answer 24

Mutual Mistake: Contract is voidable (may be rescinded/reformed)
Elements:
(1) both parties are mistaken as to a basic assumption on which contract was made; (2) the mistake is material to the contract, AND (3) the person asserting the mistake did not bear the risk of the mistake.

Unilateral Mistake: generally not a valid defense.
Elements:
(1) A mistake by one party;
(2) that is unknown to the other party;
(3) concerning a basic assumption;
(4) that has a material effect on the contract.

BUT a contract is voidable by the mistaken party if: (a) one party knew or had reason to believe of the mistake; OR (b) the mistake makes the contract unconscionable.
* a mistake as to price/value is NOT considered material

Priority: Medium

Question 25

Fraudulent Misrepresentation
vs.
Non-Fraudulent Misrepresentation

Answer 25

Misrepresentation makes the contract voidable by the injured party

Fraudulent Misrepresentation: Occurs when:
(1) D knowingly;
(2) made a false representation;
(3) of material fact; AND
(4) the other party reasonably relies on the misrepresentation to his detriment.

Non-Fraudulent Misrepresentation: Occurs when:
(1) a party/agent;
(2) makes a statement of material fact;
(3) that is false (no wrongdoing required);
(4) inducing a contract; AND
(5) the other party reasonably relied on the misrepresentation to his detriment.

Concealment= an affirmative act intended to keep another person from learning a fact. Concealment is deemed a misrepresentation.

BUT, there is no duty to disclose unless:
a) a fiduciary relationship exists;
b) its necessary to correct an earlier mistake;
c) active concealment occurs; OR
d) a seller of real property knows material facts that affect the value of the property (that buyer is unaware of and cant reasonably discover)

Priority: Medium

Question 26

Illegality & Public Policy

Answer 26

Courts will NOT enforce contracts that are illegal or contrary to public policy.

• Contract is void if the illegality existed at the time of contract formation.
• performance is discharged if the contract subsequently became illegal
• a contract with an illegal purpose is voidable by the party who did not know of the illegal purpose

Question 27

Unconscionability

Answer 27

Unconscionability occurs when the contract/term shocks the conscious of the court.

Usually need BOTH: Procedural unconscionability and substantive unconscionability.

Procedural unconscionability: one party has a superior bargaining position over the other, and uses that power to their advantage.

Substantive unconscionability: contract contains terms that are obviously unfair and one-sided in favor of the party with the superior bargaining power.

If unconscionable, the court may:
a) enforce the contract without the unconscionable term; OR
b) limit the application of the term

Priority: Medium

Question 28

What satisfies the writing requirement under the Statute of Frauds?

Answer 28

Statute of Frauds: Certain contracts are not valid unless in a writing signed by the party to be charged.

The writing MUST:
1) Be signed by the party to be charged;
2) reasonably identify the subject matter of the contract;
3) Indicate a contract was made; AND
4) State the essential terms.

*An agreement DOES NOT need to be in one writing, it may consist of several writings.

Priority: HIGH

Question 29

Under the Statute of Frauds, which types of contracts require a signed writing to be valid?

Answer 29

MY LEGS

1) Marriage- when marriage is consideration for promise (ie. if you marry my son, i will buy you a car)
2) Year- promises that cant be performed within one year from date of contract
3) Land- sale of real property or creating interests in land (ie. lease, easements, fixtures, mineral rights, mortgages)
4) Executors and administrators- promises to pay an estate’s debts from the personal funds of the Executor/Administrator
5) Goods- contracts for the sale of goods for $500 or more ( contract must contain the parties, quantity, and nature of goods).
exceptions: specifically manufactured goods, goods accepted or paid for
6) Suretyship- promise to answer for debt of another
main purpose exception: no writing is required if the main purpose was to benefit the surety himself

Priority: HIGH

Question 30

Contracts for the sale of goods for $500 or more MUST be in writing.

What are the four exceptions to this rule?

Answer 30

1) Merchant’s Confirmatory Memorandum- contract between two merchants, writing signed only by the party enforcing it, and other party did not object within 10 days.
2) Goods Accepted or Paid For- but only applies for those goods, not the whole contract
3) Specially Manufactured Goods- seller made substantial start AND the goods are not suitable for sale in the ordinary course of seller’s business.
4) Admission during judicial proceeding.

Priority: HIGH

Question 31

Parol Evidence Rule

Answer 31

A party CANNOT introduce a prior or contemporaneous agreement (oral/written) that contradicts a later written contract.

*The parol evidence rule DOES NOT apply to subsequent agreements.

Question 32

What are the exceptions to the Parol Evidence rule?

Answer 32

1) To correct a clerical error or typo.
2) To establish a defense against formation.
3) To interpret vague or ambiguous terms (but courts will interpret using the Plain Meaning Rule)
4) To supplement a partially integrated writing.

*The parol evidence rule DOES NOT apply to subsequent agreements.

Question 33

Partially Integrated Writing vs. Fully Integrated Writing

Answer 33

Partially Integrated Writing: the writing does not contain a complete statement of all the terms.
- proof is allowed if it does not contradict the writing

Fully Integrated Writing: a complete and exclusive statement of terms; discharges prior agreements.
-merger clause (states agreement is complete on its face) is evidence of full integration

Question 34

Condition Precedent

Answer 34

makes performance conditional upon the completion of the condition.

Question 35

What are the two instances where a Condition Precedent may be excused?

Answer 35

1) the protected party fails to make a good faith effort to satisfy the condition; OR
2) Waiver (voluntarily giving up protection)
- but can retract the waiver if the other party has not relied on it

Priority: Medium

Question 36

Obligation of Good Faith & Fair Dealing

Answer 36

Every contract contains an implied obligation of good faith and fair dealing.

UCC requires:
1) Honesty in fact; AND
2) observance of reasonable commercial standards of fair dealing.

Priority: Medium

Question 37

Impossibility

Answer 37

Performance is discharged when it is objectively impossible to perform because of:
(a) death/incapacity of a person necessary to effectuate the contract; (b) unanticipated destruction of the subject matter of the contract; OR
(c) a new law/regulation makes performance extremely and unreasonably difficult/expensive.

Priority: Medium

Question 38

Impracticability

Answer 38

Performance is discharged when:
1) an event occurs after contract formation;
2) that is unanticipated by both parties;
3) making performance extremely and unreasonably difficult/expensive

Priority: Medium

Question 39

Frustration of Purpose

Answer 39

Discharges perforamnce when the purpose of the contract no longer exists.

Occurs when:
1) A party’s principal purpose is substantially frustrated;
2) By an unforeseeable supervening event out of their control; AND
3) Both parties knew the purpose at the time of formation.

Priority: Medium

Question 40

Material Breach

Answer 40

Occurs when a party DOES NOT render substantial performance.
- a material breach excuses the non-breaching party’s performance.

Factors to determine if material breach:
1) extent of performance;
2) adequacy of compensation for loss to the non-breaching party;
3) hardship;
4) likelihood the breaching party will cure; and
5) whether the breach was intentional.

Priority: HIGH

Question 41

Minor Breach

Answer 41

DOES NOT excuse performance.
-But, the non-breaching party may bring a separate action for damages resulting from the breach.

Question 42

Divisible Performance

When is a contract divisible?

Answer 42

Treated as multiple contracts.
- Performance of each party entitles a party to payment for that part.

When:
1) The performances to be exchanged can be divided into corresponding pairs of part performances,
2) In way that the elements of each pair will be treated as if the parties had agreed they were equivalents.

*Both elements MUST be satisfied.

Priority: Medium

Question 43

UCC Perfect Tender Rule

Answer 43

Seller must deliver conforming goods.
-the smallest non-conformity is a breach, and buyer may reject all or a portion of the goods.
-a rejection of goods must be made within a reasonable time.

Question 44

UCC Perfect Tender Rule exceptions

Answer 44

Two Exceptions:

Right to Cure- a seller has a right to cure when:
1) time for performance has not yet expired; OR
2) seller will have further reasonable time to cure if. seller had reasonable grounds that substitute goods would eb accepted (i.e. same type of non-conforming goods has been accepted by the buyer in the past)

Installment Contract
-may only be cancelled if the installment is so defective that it substantially impairs the value of the entire contract.
-buyer can reject an installment only if the non-conformity substantially impairs that installment and the time to cure has past.

Priority: Medium

Question 45

UCC Acceptance of Goods

Answer 45

Occurs when:
a) After reasonable opportunity to inspect, buyer
signifies to seller that goods are conforming
or that it will retain them despite a nonconformity;
b) Fails to reject the goods after reasonable
opportunity to inspect; OR
c) Does any act inconsistent with seller’s
ownership of the goods.

Buyer is obligated to pay for goods once accepted
UNLESS Revocation of Acceptance is allowed.

Question 46

Revocation of Acceptance of UCC Goods

Answer 46

After acceptance, a buyer may later revoke that acceptance of goods ONLY IF:
1) the non-conformity substantially impairs the
value of the goods; AND
2) either (a) the defect was difficult to discover
(a latent defect), (b) acceptance was
reasonably induced by seller’s assurances, or
(c) the buyer had a reasonable assumption the defect would be cured.

Revocation of acceptance MUST occur within a
reasonable time after the buyer discovers or should
have discovered the nonconformity.
− Not effective until buyer notifies the seller.
− Must occur before there is any substantial
change in the goods (not caused by their own
defects).

Priority: HIGH

Question 47

When does an Anticipatory Repudiation occur?

Answer 47

When a party unequivocally communicates that he is unable or unwilling to perform under the contract.

Priority: HIGH

Question 48

When an Anticipatory Repudiation occurs, what may a non-breaching party do?

Answer 48

a) Treat the contract as repudiated and sue for damages before the time of performance is due;
b) Treat the contract as discharged;
c) Wait until performance is due and sue; OR
d) Urge the other party to perform.

A party can retract its repudiation and restore the
contract UNLESS the non-breaching party has:
a) Cancelled;
b) Materially changed its position; OR
c) Indicated that they consider the repudiation final.

Demand for Adequate Assurances

HIGH

Question 49

Demand for Adequate Assurances

Answer 49

If there are reasonable grounds for being insecure about
performance, a party may make a written request for
adequate assurances from the other party that it will
perform.
− If the other party DOES NOT give assurances
after asked to do so, the requesting party may
treat that as an anticipatory repudiation.

Question 50

What is an Accord and Satisfaction?

Answer 50

Accord – An executory contract between the parties
promising to relieve a party of their contractual
obligations in return for a specific act.

Satisfaction – Upon satisfaction of the accord (the new
act), the party is excused from further performance
under the original contract.
If the party fails to satisfy the accord, the other party may
sue either under:
a) the original contract; OR
b) the accord terms.

Priority: Medium

Question 51

Express Warranty

Answer 51

Seller is liable for breach of an
express warranty.
− CANNOT be disclaimed by seller.

An express warranty is created when:
1) Seller makes an affirmation of fact, promise,
description, or provides a sample,
2) Relating to the goods, AND
3) That becomes part of the basis of the bargain.

No intent is needed to create an express warranty, or
that seller use the words “warranty” or “guarantee”.
− An opinion DOES NOT create an express
warranty.

Priority: Medium

Question 52

What is the Implied Warranty of Merchantability?

Answer 52

All goods sold by a merchant (dealing in goods of the kind) must be fit for their ordinary purpose.

− Disclaimer of Warranty → Must do so expressly
in a conspicuous writing (i.e. “as is” or “with all
faults”).

Priority: Medium

Question 53

Implied Warranty of Fitness for a Particular Purpose

Answer 53

Applies when:
1) Seller knows (or has reason to know) of the
buyer’s particular purpose for which the goods
are required; AND
2) Buyer relies on the seller’s skill or judgment to
select or furnish suitable goods.

May be Disclaimed by:
a) a conspicuous writing;
b) conspicuous “as is” type language;
c) waiver by the buyer – if defects can be
discovered by a reasonable inspection; OR
d) by course of dealing, performance, or usage of
trade.

Question 54

The Warranty of Title

Answer 54

Warrants that title:
1) shall be good/rightful;
AND
2) is free from any security interests, liens or encumbrances

• May be expressly disclaimed by specific language or circumstances.

Priority: HIGH

Question 55

Limiting Damages for Breach of Warranty

Answer 55

is ALLOWED, so long as not unconscionable at the time
the contract was formed.
− Exception #1 → Limiting a buyer’s remedy for
personal injuries for consumer goods is
presumed to be unconscionable.
− Exception #2 → The limited remedy fails of its
essential purpose.

Question 56

Third Party Beneficiaries & Enforcement Rights

Answer 56

Generally, a party who is not in privity of contract with
another party CANNOT assert a claim for breach of
contract.
− HOWEVER, a third-party beneficiary has the
same rights as those in privity, and can sue for
breach of contract if the right has vested.

Question 57

Intended Third-Party Beneficiary
vs.
Incidental Beneficiary

Answer 57

Intended: Not a party to the contract, but has rights because the contracting parties’ performances were intended to benefit an identified third-party.

Incidental: Someone who just happens to benefit from the contract, but has NO legal rights.

Priority: Medium

Question 58

When does an Intended Third-Party Beneficiary’s rights vest?

Answer 58

A third-party beneficiary may enforce rights under a contract ONLY IF the rights have vested.
− Vesting occurs when the third-party:
(a) manifests assent to the promise in the contract;
(b) detrimentally relied; OR
(c) sues to enforce.

− Once vested, the contract CANNOT be changed
or modified without consent of the third-party.
Priority: Medium

Question 59

Assignment of Rights

Answer 59

Rights and benefits may be
transferred to a third-party if:
1) Assignor manifests his intent to transfer; AND
2) Assignee assents to the assignment.

Consideration is NOT required for an assignment.
− If consideration is given, the assignment is
irrevocable.
− Gratuitous assignments may be revoked.

Question 60

When is an Assignment NOT valid?

Answer 60

An assignment is valid UNLESS:
a) It materially alters what is expected → (i)
changes the duty of obligor, (ii) increases the
burden/risk imposed on obligor, (iii) materially
impairs obligor’s chance of obtaining return
performance, or (iv) materially reduces the value
of return performance;
b) It’s prohibited by law or public policy; OR
c) It’s precluded by contract – (i) prohibitions –
assignment is valid & assignor is liable for
damages; (ii) invalidations – assignment is void.

Priority: Medium

Question 61

Assignments

Prohibitions vs. Invalidations

Answer 61

Prohibitions: Terms in a contract that prohibit the transfer of rights. If the rights are assigned, the assignor is liable for damages but the assignment is still valid and enforceable by the assignee.

Invalidations: Terms in a contract that void all assignments. If the rights are assigned anyway, the assignment is void.

Priority: Medium

Question 62

Rights of Assignee & Assignor

Answer 62

− Assignee may sue obligor for non-performance.
− Any defense against assignor may be used
against assignee.
− Assignee may sue assignor for wrongful
revocation of an assignment or for breach of an
implied warranty.

Question 63

Multiple Assignments

Answer 63

If Gratuitous Assignment → Last assignee prevails.

If for Consideration → First assignee prevails UNLESS
the later assignee (1) has no notice, and (2) is the first to
obtain payment/indicia of ownership.

Question 64

When are contract duties not delegable?

Answer 64

All contract duties are delegable UNLESS:
a) the contract prohibits delegation or assignment;
b) delegation is against public policy;
c) it’s a personal service contract that calls for
exercise of personal skill/discretion; OR
d) the delegation materially alters the expectancy
of the obligee.

*An assignment generally includes a delegation of the
unperformed duties.
The delegating/assigning party remains liable for nonperformance
UNLESS a novation occurs.

Priority: Medium

Question 65

What are Expectation Damages?

When are they recoverable?

Answer 65

Arise directly from the breach, and are meant to put the non-breaching party in the same position it would have been in but for the breach.

To recover, damages must be:
(1) caused by D (actual cause);
(2) foreseeable (proximate cause);
(3) certain (not speculative); AND
(4) unavoidable (reasonable steps were taken to
mitigate damages).

Priority: HIGH

Question 66

What are Consequential Damages?

When are they recoverable?

Answer 66

They arise indirectly from the breach (i.e. lost profits)

To recover, the damages must be:
1) Reasonably foreseeable at the time of contract formation;
2) Arise from the plaintiff’s special circumstances that the defendant knew or had reason to know of; AND
3) Reasonably certain (not speculative).

• may be limited or excluded by agreement unless its unconscionable.

Priority: HIGH

Question 67

Punitive Damages

Answer 67

Meant to punish a wrongdoing party.

− NOT usually available for breach of contract.
− May be awarded for breach of contract involving
fraud or tort claims.

Question 68

Specific Performance

Answer 68

Is an equitable remedy; is only available if monetary damages are inadequate to compensate an injured party.

− NOT awarded for personal service contracts, but
injunctive relief may be awarded.

Question 69

UCC Seller’s Remedies & Damages

Under the UCC, what remedies does a seller have if a buyer breaches a contract for the sale of goods?

Answer 69

When a buyer breaches, a seller may recover/do any of the following:
a) Withhold Delivery of goods;
b) Cancel the contract;
c) Cover Damages – difference between the
resale price and the contract price (used when
seller resold in good faith);
d) Market Damages – difference between market
price and contract price;
e) Lost Volume Seller – can recover lost profits on
a sale if the seller regularly sells the goods at
issue and has unlimited inventory;
f) Stop Delivery of goods (if buyer is insolvent and
goods are in possession of carrier/bailee); OR
g) Replevy identified goods from an insolvent
buyer (in certain instances).

*Seller is also entitled to incidental damages – the
commercially reasonable costs as a result of the breach.

Priority: HIGH

Question 70

Seller’s Right to Replevy Identified Goods

Answer 70

A seller is allowed to replevy goods when:
1) Buyer was insolvent when it received the goods; AND
2) Seller makes a demand within 10 days of buyer
receiving the goods.

*A buyer’s misrepresentation of solvency in writing
within 3 months prior to the delivery of goods REMOVES
the 10-day limitation above.

Question 71

UCC Buyer’s Remedies & Damages

Answer 71

A buyer who never received the goods, rightfully
rejected, or justifiably revoked acceptance MAY:
1) Cancel the contract;
2) Recover any amount paid (refund) – even if
buyer doesn’t cancel;
3) Recover Incidental & Consequential
damages; AND/OR
4) Recover either:
a. Cover Damages – difference between
contract price and price of substitute
goods (if purchased in good faith).
b. Market Damages – difference between
market price and contract price (if not in
good faith or no cover at all).

If buyer keeps the non-conforming goods, then buyer is
entitled to Loss-in-Value Damages – difference
between the value as promised and the value of the nonconforming
goods.

Question 72

Waste Doctrine

Answer 72

When an award for cost of completion is wasteful, a court may award damages for diminution in value (the difference in value of the property/land).
− This may be awarded instead of expectation
damages.

Waste doctrine applies if:
1) Contractor performs in good faith, but defects
exist; AND
2) Remedying the defects would entail economic waste (the cost of completion greatly exceeds the value of the completed work).

*Normally seen in the construction contract context.

Priority: HIGH

Question 73

Restitution (Unjust Enrichment)

Answer 73

It is awarded to prevent unjust enrichment when one party confers a benefit to another party.

Damages = value of the benefit conferred.

*A party cannot recover both restitution and expectation damages

Priority: HIGH

Question 74

Rescission

Answer 74

Treats the original contract as cancelled.

*It is available if there was a problem with contract formation (defense to formation, fraud, misrepresentation).

Priority: Medium

Question 75

When will a contract NOT be rescinded?

Answer 75

A contract will NOT be rescinded if:
a) there is a valid equitable defense; OR
b) plaintiff sued for damages under the contract in
a prior action

*A party may sue for both damages and rescission at the
same time.

Priority: Medium

Question 76

Mitigation of Damages

Answer 76

A party MUST take reasonable steps to mitigate losses.

If a party fails to do so, the court will reduce the
total damages by the amount that could have
been avoided.

*Affirmative steps to avoid loss are NOT required if they
involve undue risk, burden, or humiliation.