Contracts Flashcards
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Liquidated Damages
Liquidated damages are damages stipulated by the parties in the contract as a reasonable estimation of actual damages to be recovered in the event of a breach without proof of actual loss. When the contract contains a liquidated-damages clause, the party seeking to repudiate that clause must show that the agreed-to damage is so exorbitant as to be in the nature of a penalty. Even if the amount is large, if the the deposit ends up being exactly equal or almos the same as to the actual damage, it might be fine!
Is specific performance available as remedy for personal services K?
NO
Specific performance is an equitable remedy whereby a court orders a breaching party to perform a contractual duty when monetary damages would be inadequate—eg, breach of contract for the sale of land.
However, this remedy is not available to enforce a contractual duty to perform personal services because courts are unwilling to compel personal associations after a dispute.
Defense of Laches to K performance
To prevail on this defense, the breaching party must show that the enforcing party’s unreasonable delay in bringing the claim has resulted in prejudice—ie, substantially increased the cost or difficulty of performance.
Seller’s response to buyers offer UCC
Implied in Law K/Unjust Enrichment
When a plaintiff confers a benefit on a defendant and the plaintiff has a reasonable expectation of compensation, allowing the defendant to retain the benefit without compensating the plaintiff would be unjust. In this case, the court can permit the plaintiff to recover the value of the benefit to prevent the unjust enrichment. Although this type of action is often characterized as based on an implied-in-law contract or a quasi-contract, quantum meruit recovery does not depend on the existence of a contract.
A court may allow restitutionary recovery if:
i) The plaintiff has conferred a measurable benefit on the defendant;
ii) The plaintiff acted without gratuitous intent; and
iii) It would be unfair to let the defendant retain the benefit because either (i) the defendant had an opportunity to decline the benefit but knowingly accepted it, or (ii) the plaintiff had a reasonable excuse for not giving the defendant such opportunity (e.g., because of an emergency)
Assignment of Rights Under A K
Generally, contract rights are assignable unless the assignment materially increases the duty or risk of the obligor or materially reduces the obligor’s chance of obtaining performance. Here, because the right assigned is the right to receive payment and the painter has performed his obligation under the contract by painting the portrait, this right may be assigned and enforced by the charity through a breach of contract action.
Compensatory Damages
After establishing a breach-of-contract claim, the nonbreaching party is entitled to recover compensatory damages to compensate for actual economic losses. Compensatory damages include:
expectation damages – the lost value of the breaching party’s performance and
consequential damages – losses that arise from the nonbreaching party’s special circumstances (eg, an unrelated contract) that were reasonably foreseeable to the breaching party when his/her contract was formed.
Promissory Estoppel
Under the doctrine of promissory estoppel (ie, detrimental reliance), an offer is treated as an option contract and is therefore irrevocable for a reasonable period of time if:
the offeror reasonably expected to induce reliance on the offer before acceptance
the offereereasonably relied on the offer and
that reliance caused the offeree to suffer substantial detriment.
This is true even if no consideration (eg, money) was given to support the offer’s irrevocability
Basic Contract Rule
A binding K requires manifestation of mutual assent, consideration,
and lack of valid formation defenses
Offer
objective manifestation of a willingness by offeror to enter into agreement that creates
power of acceptance in offeree
Terms must be sufficiently certain and definite –> rules for this depend on UCC or CL
Terms required in an offer: UCC
o Only essential term is quantity
- Exception—requirements or output Ks (UCC implies “good faith”) - Dont req qty
-UCC “fills the gap” if other terms are missing
o K formed if both parties intend to K and reasonably certain basis for giving remedy
Terms required in an offer: CL
Essential terms (parties, subject matter, price, quantity) must be covered in K
o If the parties intended to create a K, the court may supply missing terms
Mixed K
Generally, apply predominant purpose
Exception - If K divides payment between the goods and the services, apply UCC to the sale of goods portion of the K and CL to the other
Are advertisements offers?
Generally, no
advertisements are only an invitation to receive offers (but may qualify
as an offer if sufficiently specific and limit who can accept or if associated with a stated
reward)
Offer
Objective manifestation of a present intent to contract and puts the power of acceptance in the offeree.
objective reasonableness standard~!
How can a offer be terminated?
Acts of parties:
1. revocation
- rejection
- Lapse of time - specified termination date or reasonable period of time if none stated
Operation of Law:
- death or insanity/incapacity of either party
- destruction of proposed K’s subject matter
- Supervening illegality
Termination of offer: death/incapacity of either party
General rule—offer terminates, even if offeree does not learn of offeror’s death until
after the offeree has sent what he believes is an acceptance
** Exception—offers for option Ks do not terminate because consideration was paid to
keep the offer open
Termination of offer by Revocation
Offer can be revoked any time prior to acceptance (even if it states it will be open for
specific amount of time)
Basic methods:
1. unambiguous statement by the offeror to the offeree prior to acceptance
2.Offerre becomes aware of offerror unambiguous conduct or statement indicating an unwillingness or inability to contract
Limitations on revocation
- Only effective upon receipt by offeree
- cannot be revoked once accepted
- unilater K - start of performance makes the offer irrevocable for a reasonable time to complete performance (start of perf .must go beyodn mere preparation)
Irrevocable offers
- Option K - promise to keep offer open - at CL consideration is required in exch for option
- UCC Firm offers - merchants offer made in a signed writing that assures offer will be held open is irrevocable for the time stated (no more than 3 months). No consideration is required, usually.
however, offeree can give consideration to validate it beyond the three-month period.
- Promissory estoppel/detrimental reliance by offeree - reliance must be reasonable
Promissory estoppel
When the offeree 1. reasonably and 2. detrimentally relies on the offeror’s promise prior to acceptance, the doctrine of promissory estoppel may make the offer irrevocable.
It must have been reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract.
The offeror is liable to the extent necessary to avoid injustice, which may result in holding the offeror to the offer, reimbursement of the costs incurred by the offeree, or restitution of the benefits conferred
Revocation of general offers to large number of ppl
Revocable only by notice given
at least same level of publicity as offer (effective even if potential offeree acts in reliance on
offer)
Termination of offer: Rejection
Effective upon receipt!
Methods:
1. express - effective when received
2. Counter offer
3. Conditional acceptance
4. Accpetance with additional terms - depends on CL or UCC
Counteroffer-
Terminates original offer and becomes a new offer; merely bargaining is not a counteroffer
Conditional Acceptance
Terminates original and becomes a new offer. look for words like “if, only if, so long as”
Acceptance with additional terms
Common law: mirror image rule. acceptance must mirror the offer. Therefore, acceptance with add’l terms creates a rejection and counter.
BUT, under UCC depends on whether parties are merchants.
Acceptance with add’l terms: UCC
Depends on whether both parites are merchants
- K involving non-merchant: K is still formed, but the terms of the offer will govern. add’l terms are considered mere proposals
- Both parties are merchants - add’l terms become part of K unless certain excpetions apply.
Under UCC, if both parties are merchants, what is the affect of an acceptance with Add’l terms?
If both are merchants, this is effective acceptance and a K is formed with the add’l terms, UNLESS:
- aDD’LTERMS MATERIALLy change offer
- offer expressly limits acceptance to offers terms
- Offeror objects within a reasoanble time
Acceptance
Arises upon offeree’s clear expression of intent to the terms of the offer
Offeror is master of the offer
-Unless the offeror specifically requires the offeree to accept in a particular manner or by using a particular means, the offeree can accept in any reasonable manner and by any reasonable means.
Mirror image rule - CL
Accpetance must mirror the offer and can dictate the manner by which the offer is accpeted
UCC Acceptance By Shipment
If buyer requests that goods be shipped, then seller may accept either by
1. PRomise to ship
OR
- Prompt Shipment of conforming
- Promptly shipping nonconforming goods - but other rules apply
Shipment of nonconforming goods as acceptance UCC
UCC Perfect Tender Rule
Seller’s performance must be perfect with respect to goods delivered and manner of delivery.
Buyers options upon seller’s imperfect tender
Buyer can either:
- Keep - retain goods and sue for damages
- Reject - reject some or all goods and sue for damages:
-BUT, buyer who rejects has some duties - see other card
what if buyer rejects nonconforming goods??
They reject some o all goods and sue for damages:
-BUT, buyer who rejects must:
a. notify seller of rejection in reasonable time
b. hold rejected goods using reasonable care
c. give seller reasonable time to arrange removal of goods
If seller gives no info regarding removal, buyer can return goods to seller, store goods, or resell them on seller’s behalf
Perfect tender rule: Installment K
Where delivery of goods occurs in separate lots
Rejection: buyer can only reject a deliver/installment if:
- defect substantially impairs the installment and
- Defect cannot be cured
Rejection ltd to the defective installment, not the entire K
–buyer can only cancel entire K if the defective installment subst. imparis entire K’s value
BUT - seller may be able to cure!
Buyers Acceptance of Goods
Buyer does not officially acept until goods are delivered and she has opp to inspect and/or notify seller
Methods:
1. Buyer confirms acceptances to seller
- Buyer is sielnt/fails to reject within reasonable period of time (usually no more than a month)
Cannot revoke once acceptance
unless buyer discovers substantial defect AND they either had reasonable belief
that defect would be cured or were excusably ignorant
Perfect Tender & Sellers Ability to Cure
If buyer has notified seller of imprfect tender, Seller may have opportunity to cure
Seller can cure if:
1. seller gives buyer notice of intent to cure and time for perf. not yet expired
OR
- Seller had reasonable grounds to believe nonconforming goods sent would be acceptable
Mailbox Rules
Offers = effective upon receipt
Acceptance = effective upon dispatch
BUT, if offer stipulates acceptance effective only once received, the offer controls - can opt of of mailbox rule
Revocation = effective upon receipt
Rejection sent, then acceptance = whiciher arrives first controls
Consideration
A bargained for exchange of legal value between parites.
benefit to promisor
or
detriment to promisee
Invalid Consideration
These things are NOT consideration:
- promise of gifts or conditional gifts
- Illusory promises - promiser where there is no actual obligation to perform:
–> “B promises to do job for C if he has time”
Promissory Estoppel
Consideration substitute
Courts may enforce promise if:
- Promisor reasonably expects that promise will induce reliance
- promisee acts in relaicne and
- injustice will occur w/o enforcement
How to distinguish gift form valid consideration
The test to distinguish a gift from valid consideration is whether the offeree could have reasonably believed that the intent of the offeror was to induce the action. If yes, there is consideration, and the promise is enforceable.
Pre-existing Duty Rule
At common law, a promise to perform a preexisting legal duty does not qualify as consideration because the promisor is already bound to perform (i.e., there is no legal detriment). But variance in duty or giving something in addition. even if super small, will be ok
Exception: Third party situations
when a third party’s promise is exchanged for the promise to perform an act that the promisor is already contractually obligated to perform.
Quasi-Contract - Implied in Law - Emergency Services
In the absence of any contractual relationship between the parties, courts have the power to construct an implied-in-law (“quasi”) contract to prevent unjust enrichment when:
- the plaintiff has conferred a measurable benefit (eg, medical services) on the defendant
- the plaintiff acted without gratuitous intentand
- it would be unfair to let the defendant retain the benefit without compensating the plaintiff.
Unfair retention of a benefit arises when (1) the defendant had an opportunity to decline the benefit but knowingly accepted it or (2) the plaintiff had a reasonable excuse for not giving the defendant such opportunity—often because of an emergency. This allows the plaintiff in a quasi-contract action to recover restitutionary damages equal to the reasonable value of the benefit conferred.
Infant Disaffirming a contract
When a contract is made by an infant, it is voidable by the infant but not by the other party. This means that the infant may either disaffirm (void) the contract and avoid any liability under it or choose to hold the adult party to the contract. The disaffirmance must be effectuated either before the infant reaches the age of majority or within a reasonable time thereafter.
UCC - Was a contract formed?
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 Merchant
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.
Sufficiency of UCC Writing for Sale of Goods of $500+ SoF
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 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.
Exceptions to SoF for UCC $500S and +
Exceptions—writing not required under UCC for:
o Specially manufactured goods,
o Part payment,
o Receipt and acceptance,
o Judicial admission, or
o Failure to object to memo within 10 days of receipt (when both parties are
merchants)
General Writing Req for SoF Ks
Contracts that fall within the Statute of Frauds are unenforceable unless evidenced by a writing. The writing must:
i) Be signed by the party against whom enforcement is sought; and
ii) Contain the essential elements of the deal.
UCC Firm Offer
(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.
UCC Firm Offer - when offeree prepares form
A firm offer in a form prepared by the offeree, however, must be separately authenticated by the offeror to protect against inadvertent signing.
When is an offer irrevocable due to promissory estoppel?
If offeree reasonably, and detrimentally relies on offer it may
become irrevocable. Must be foreseeable by offeror!!
must be foreseeable that it would induce action or forbearance
When aesthetic taste of party determines whether the other party’s performance is satisfied.
When the aesthetic taste of a party determines whether the other party’s performance is satisfactory (e.g., creating a sculpture), satisfaction is determined under a subjective standard. Under this standard, if the party is honestly dissatisfied, even if the dissatisfaction is unreasonable, the condition has not been met. However, the party’s dissatisfaction must be in good faith, or a claim of dissatisfaction can be a breach, such as when a party is asserting dissatisfaction merely to avoid its own contractual obligation.
Assignment of K
Most contracts can be assigned. Even if the contract by its terms prohibits assignment, a party retains the power to assign, although an assignment operates as a breach of the contract
If the contract invalidates assignments, then the assignment is void and the
assignee cannot enforce the assignment or recover.
When misrepresentation of fact is cured
Fraudulent misrepresentation requires proof of the following: (i) the misrepresentation is made knowingly and with intent to mislead the other party (i.e., it is fraudulent), (ii) the misrepresentation induced assent to the contract, and (iii) the adversely affected party justifiably relied on the misrepresentation. A fraudulent misrepresentation need not be material, and may make the contract voidable at the adversely affected party’s option.
The contract is no longer voidable, however, if, following a misrepresentation but before the deceived party has avoided the contract, the facts are cured so as to be in accord with the facts that were previously misrepresented.
Misrepresentation –voidable and can be rescinded
Misrepresentation is an untrue assertion of fact often made in an affirmative statement. It can also be asserted through conduct—ie, an act of concealment intended to prevent discovery of facts or nondisclosure.
When either form of misrepresentation occurs, a contract is voidable and can be rescinded by the adversely affected party if:
-the misrepresentation was fraudulent (ie, made knowingly or recklessly with intent to induce the other party’s assent to the contract)
OR material (ie, likely to induce a reasonable person’s assent);
-the misrepresentation induced assent to the contract and
-the adversely affected party justifiably relied* on the misrepresentation.
If the misrepresentation was fraudulent, then the adversely affected party must seek to avoid the contract within a reasonable time after learning of the misrepresentation. Otherwise, the power to avoid the contract is lost.
Exceptions to Parol Evidence Rule
