Contracts and Sales Flashcards
Applicable Law (UCC or Common Law)
The common law of contracts applies to all contracts except sales of goods, which UCC applies.
OG: The common law of contracts applies to all contracts other than the sale of goods, to which the UCC applies.
Sale under UCC
A sale is a contract in which title to goods passes from the seller to the buyer for a price.
Goods under UCC
UCC defines goods as all things movable at the time they are identified as goods to be sold under the contract.
Merchants under UCC
One who regularly deals in goods of the kind sold or, by his occupation, holds himself out as having knowledge or skill peculiar to the practices or goods involved. Merchant must be acting in his mercantile capacity, i.e., he must be acting in his business than personal capacity.
Unliateral Contracts
contracts formed from acceptance only by full performance
rare: only public rewards or accept by sending goods
Bilateral Contract
unless indicated otherwise by language or circumtances, all offers are indifferent offers and thus be accepted by promising or start of performance
every written agreement and most oral agreements
Valid Contracts
A valid contract requires an offer, acceptance, and consideration
Offer
A promise, undertaking, or commitment to enter into a contract (i.e, intent to enter into contract) with the essential terms certain and definite which are communicated to the offeree.
An advertisement is an invitation to make an offer, not an offer.
Essential terms
Common law
Essential terms requires the offeree’s identity and the subject matter, the price, the quantity, the time of performance or payment, and the nature of the work to be performed.
Vague terms manifested an intent that cannot be determined
Essential terms
UCC
Essential terms requires the offeree’s identity and the subject matter, the price, the quantity, the time of performance or payment, and the nature of the work to be performed. Reasonable price and reasonable time will be supplied if none are stated. In a sale of goods contract, the quantity must be certain or capable of being made certain.
Continuing Offer
Some offers are offers for a series of contracts and are revocable at will unless made irrevocable by statute or by payment of consideration.
Revocation
Revocation occurs when offeror retracts an offer, terminating the offeree’s power of acceptance if it is communicated to her before she accepts.
easier to understand but longer:
Revocation occurs when the offeror retracts an offer and communicates the revocation to offeree before offeree can accepts. Revocation would terminate the offeree’s power of acceptance.
Communicate Revocation
Offeree received communication of the offeror’s revocation if either: (1) offeree received it directly; or (2) the offeree received it indirectly if he received correct information from a reliable source of the offeror’s acts that would indicate to a reasonable person that the offeror no longer wishes to make the offer.
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Offeree received it directly;
Offeree received it indirectly if he:
1. receives correct information
2. from a reliable source
3. of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
UCC - reasonable time not to exceed 3 months
after 3 months, revocable at will until acceptance –> note offeree may argue for detrimental reliance
Communication of Revocation - Timing
UCC - approach for merchant’s firm offer
not rule - see merchant’s firm offer
UCC merchant firm offer: if no time stated or exceeds three months, it will be held open for a reasonable time not to exceed 3 months.
But after 3 months, revocable at will until acceptance –> note offeree may argue for detrimental reliance
when merchant give firm offer to offeree
Revocation at will
Offer not supported by consideration can be revoked at will.
Limiting Power to Terminate/Revoke Offer
The power to terminate an offer is limited where:
- Option Contract - The offeree gives consideration for an offeror’s promise not to revoke;
- Merchant’s firm offer - Under the UCC, a merchant executes an offer in writing that, by its terms, gives assurance it will be held open. (if no time is stated or exceed three months, it will be held open for a reasonable time not to exceed 3 months); or
- Detrimental reliance - Promisee exercises detrimental reliance.
e.g., Contract 2
Revocation Not Permitted
same as limiting termination
not a rule?
Revocation will not be permitted where:
1. consideration was given by the offeree
2. merchant’s firm offer up to 3 months
3. promisee exercises detrimental reliance
Acceptance under Common Law
At common law, an acceptance is an unqualified assent to the terms of an offer. The acceptance must be communicated to the offeror. An offer may be accepted by any medium reasonable under the circumstances, [except that if an offer limits the form of acceptance, the acceptance must comply with the offer’s limitation.]
Mirror Image
Mailbox Rule
subrule for acceptance
Acceptance by mail creates a contract at the moment of dispatch.
Exception:
1. when the offer stipulates that acceptance is not effective until received or otherwise controls the form of acceptance, or
2. an option contract is involved, where acceptance is effective only on receipt
Conditional Acceptance
Not an acceptance but a rejection
Counteroffer
Under common law, Counteroffer operates both as a rejection of the original offer and a new offer.
Acceptance under UCC
Under UCC, an accceptance that varies the terms is still a valid acceptance.
Battle of the forms - UCC 2-207
UCC 2-207 Battle of the forms
Approach - Not analysis
- Determine whether the proposals are additonal or different terms
- Different terms
a. majority: knock-out rule
b. minority: treat them like additional terms if between merchants - Additional terms (if between merchants)
This is analysis approach
Battle of the Forms (UCC 2-207)
The offeree’s proposal of additional or different terms in a definite and timely acceptance does not constitute a rejection and counteroffer, but as acceptance, unless
1. the offer expressly limits acceptance to the terms of the offer,
2. materially alter the offer, or
3. notification of objection to the additional or different terms is given within a reasonable time after notice is received.
Battle of Forms: Different terms
Majority rule - Knockout rule
The conflicting terms are both knocked out of the contract, and then replaced by:
1. UCC gap fillers
2. Course of performance
3. Usage of trade
Minority rule - it will construe different terms as proposals for additional terms. (between merchants, analyzed the same way as additional terms)
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1. Majority rule - knock out rule
The conflict terms are both knocked out of the contract and replaced by the UCC gap fillers, course of performance or usage of trade.
2. minority rule - like additional terms if between merchants
Battle of Forms: Additional terms
Additional terms between merchants become part of the contract unless:
1. the offer expressly limits acceptance to the terms of the offer;
2. they materially alter the offer; or
3. notification of objection to the additional or different terms is given within a reasonable time after notice is received
if both not merchants, then the proposal would not be effective unless the other party did something to accept the proposals
Consideration
It requires a bargained-for exhange - a detriment to the promisor and a benefit to the promisee. A contract requires consideration on both sides. One promise can be consideration for another promise.
barbri included
Issue against consideration is whether the facts involve past or moral consideration as opposed to current detriment to the promisor (would they have done what was promised anyway?)
Promissory Estoppel
A promise without consideration is enforceable only if necessary to prevent injustice when the promisor should reasonably expect to induce definite or substantial action, or forbearance; and such action or forbearance is in fact induced.
Tip:
* the facts involve past or moral consideration as opposed to current detriment to the promisor
Promisee gets reliance damages for promissory estoppel despite the contract fails for lack of consideration or similiar flaw.
Under UCC, consideration is not required for a good faith written modification of K, and for firm offers in writing by merchants.
Option Contract
Option contract is when an offer has a separate promise to keep the offer open and a valid mechanism for enforcing the subsidiary promise. If an offeree gives consideration for the promise to hold the offer open, the offer is irrevocable for the period stated. Without consideration, the offer is revocable at will.
UCC - Consideration Not Required
Under UCC, consideration is not required for:
1. a good faith written modification of K, and
2. for firm offers in writing by merchants.
Merchant Firm Offer
Under the UCC, a merchant executes an offer in writing that, by its terms, gives assurances it will be held open. If no time is stated in the merchant’s firm offer, or if the time exceeds three months, it will be held open for a reasonable time, but never to exceed three months, after which it can be revoked. But the firm offer remains open until it is revoked.
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The merchant’s firm offer is the offer was made by a merchant, the writing signed by merchant, and offer expressly states it will be held open. The offer is not revocable for lack consideration for time state or reasonable time, but no more than 3 months.
Firm Offer Still Irrevocable as Option Contract
If merchant firm offer is beyond 3 months or fails in general
a firm offer is irrevocable as an option contract if the offeror could reasonably expect that the offeree would rely to its detriment on the offer and the offeree does so rely.
Defenses to Formation
Exist at the time of contract*
1. mistake
2. fraud
3. illegality
4. capacity
Defenses to formation arise if the main issue is remedies, not K
Not usually on contract essay
Mutual Mistake
A mutual mistake occurs when both parties are incorrect as to a basic assumption (of the material fact) and of the contract prior to or during the formation of the contract. The mistake must be as the nature or identity of the subject matter of the contract. If the party who wants to rescind the contract does not bear the risk of the mistake, then the contract is voidable.
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Mutual mistake must be as to a material fact - one that goes to the basis of the bargain. Thus, the mistake must be as the nature or identity of the subject matter of the contract - not its quality.
Unliaterial Mistake
Unilateral mistake occurs where one party is mistaken as to a basic assumption of the contract prior to or during the formation.
The established rule is that a unliateral mistake will only be grounds for recission if that nonmistaken party knows or should know of the mistake.
The modern trend grants recission when the mistake is basic and the mistaken party’s hardships outweighs the detriment to the nonmistaken party’s expectations under the contract.
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A unilateral mistake must be as to a material fact.
The established rule is that a unliateral mistake will only be grounds for recission if that nonmistaken party knows or should know of the mistake.
The modern trend grants recission when the mistake is basic and the mistaken party’s hardships outweighs the detriment to the nonmistaken party’s expectations under the contract.
Party bear risk of mistake
Mutual or Unilateral Mistake
A party bears the risk: (1) when it is allocated in the contract, (2) they entered into contract with conscious ignorance and uncertainty about the facts relating to the mistake, or (3) a court believes that is it reasonable to allocate the risk.
(MB 2 Contract, Q16).
Fraudulent misrepresentation
A fraudulent misrepresentation requires that, at the time the statement was made, the defendant knew the statement was false and intended to induce the other party to enter into the agreement. Fraudulent misrepresentation is grounds for equitable estoppel.
barbri
Intentional, negligent, innocent Misrepresentation
Misrepresentation requires: the false representation of material fact or omission of a material fact; that the defendant knew was false (intentional); should have known was false (negligently); or innocently made (innocent); and, reasonably relied upon by plaintiff to his or her detriment.
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Misrepresentation means a false represtation intentionally, negligently, or innocently made with the intent to induce defendant into relying on the representation which defendant in fact relies upon to their detriment.
any misrepresentations is grounds for recissions
fraudulent and negligent misrepresentation allow for damages as a remedy
Defenses to Enforcement
not definition
- statute of frauds
- unconscionable contract
Statute of Frauds
Contract must be in writing and signed by the party to be charged (the party against whom it is enforced ) if it involves:
1. A promise to pay the debt of another;
2. creation or conveyance of any interest in land - deeds, leases, easements, deeds of trust
3. contract cannot be performed within 1 year - performance date more than 1 year out
4. sale of goods of $500 or more ($5000 under revised UCC)
—
Tip:
* a contract may satisfy the SOF if the party to be charged – the party against whom it is enforced – executes a writing referencing the terms that implicates the SOF.
Sufficiency of Writing
There must be one or more writings signed by the party to be bound. The writing must evidence that there is a contract and state the essential terms with reasonable certainty.
barbri
CL Essential Terms
Sufficiency of Writing
Which terms are essential depends on the circumstances, including the nature of the dispute between the parties. If the writing does not include the essential terms, it does not satisfy the Statute of Frauds and extrinsic evidence cannot be submitted to supply the missing terms.
UCC essential terms
Sufficiency of Writing
The UCC requires only a signed writing indicating that a contract has been made and specifying the quantity.
Essential Terms - Land Sale K
sufficiency of writing
In the case of a land sale contract, a description of the land, the parties, and price are required.
Exception to SOF
If K is within SOF, K is not enforceable unless:
1. admission - evidentiary or judicial
2. full performance if the contract is the sale of the goods/ service
3. if contracts for real property, any two of the three:
a. peformance by payment (whole or part), b. possession, and c. making of valuable improvements
- Detrimental reliance/promissory estoppel (promisor is estoppped from asserting SOF, and K is valid and enforceable)
Analysis of SOF
Analysis
not rule
- Is the contract verbal?
- IF CONTRACT IS VERBAL, is the contract the kind that is subject to the SOF?
a) A promise to pay the debt of another
b) Any interest in Land – deeds, leases, easements, deeds of trust
c) Contract cannot be performed within 1 year – performance date more than 1 year out
d) Sale of goods of $500 or more ($5,000 under the revised UCC) - IS THERE A WRITING signed by the party asserting the SOF that references the terms that bring the contract within the SOF?
- Then, if K is within the S/F, do any of the following exceptions apply?
a) Admission – evidentiary or judicial
b) Full Performance if the contract is for the sale of goods/service
c) If contracts for real property, any 2 of 3
(1) performance by payment (whole or part),
(2) possession, and
(3) making of valuable improvements
d) Detrimental reliance/promissory estoppel—
(1) promisor is estopped from asserting SOF, and contract is thus valid and enforceable
Unconscionable Contracts
The K is unconscionable when K is one-sided at the time it was formed and there was unequal bargaining power between parties
Third-Party Beneficiaries Right to Enforce K
Third-party has right to enforce contract when:
1. the promisor intended K to benefit the beneficiary
2. the beneficiary is either creditor or donee
3. the beneficiary’s rights is vested.
Defenses—any defenses the promisor could have raised against the promisee is also available to third party
Intended Beneficiary
A third party is the intended beneficiary if:
1. they are expressly designated or identifiable at the time of performance;
2. performance is to be made directly to them;
3. they have rights under contracts; and,
4. the relationship between the third party and the promisee suggests the promisor wishes the beneficiary to be benefitted.
if creditor: when promisor failed, 3rd party can sued promisee
if donee: when promisor failed, 3rd party can’t sued promisee unless detrimental reliance
Vesting of Third-Party Rights
The third party beneficiary can only enforce a promise if their rights have vested. Rights vest when the beneficiary:
- Manifests assent in a manner requested by the parties;
- Brings suit to enforce the promise;
- Materially changes position in justifiable reliance on the promise.
when Promisor fails to perform - TPB sued Promisor
If the promisor fails to perform, any third-party beneficiary may always sue the promisor on the contract. A promisor may raise any defenses against the third-party beneficiary that they could have raised against the promisee.
When Promisor Fails - TPB sues Promisee
If the promisor fails to perform, a donee third-party beneficiary cannot sue the promisee unless the third-party beneficiary can claim detrimental reliance on the promise, but a creditor beneficiary can always sue the promisee on the underlying obligation that the promisor’s performance was supposed to discharge.
Defenses of Third Party Beneficiaries
Any defenses the promisor could have raised agains the promisee
Assignment of Rights
All rights may be assigned except those that change an obligor’s duty.
The transfer of rights under a K. The right being assigned must be adequately described in the manifestation of the assignment, and the assignor must indicate an intent to completely and immediately assign the interest to the assignee. Consideration is not required.
Assignment doesn’t have to be in writing except for interests in land, wage assignments, security interests, choses in action more than $5,000.
bad
3 Issues of Assignment of Rights
- what rights may be assigned?
- what is required for an assignment?
- when is an assignment irrevocable?
No writing is required except interests in land, wage assignments, security interests, choses in action > $5,000
What rights Can be Assigned - Assignment
All contractual rights may be assigned except:
1. the major contracts of personal services contracts,
2. requirements and output contracts (although assignment may be okay under UCC), and
3. assignments that substantially alter obligor’s risk (e.g., asssignment of insurance contracts if the nature of the covered property would change).
Requirement of Assignment
An assignment does not require a writing except wage assignments, interests in land, choses in action more than $5000, and security interests.
The assigned right must be adequately described in the manifestation of assignment, and the assignor must indicate an intent to completely and immediately assign the interest to the assignee. Consideration is not required.
When Assignment is Irrevocable
The assignment is irrevocable when it vests. Otherwise, assignment is revocable except:
1. If given for consideration;
2. obligor has already performed;
3. delivery of tangible claim (such as stock certificates or a passbook);
4. assignment of chose in action in writing;
5. by estoppel - forseeable detrimental reliance
Defense to Assignment
Obligor can assert any defenses against the assignee it had against the assignor, except personal defenses (e.g., defamation, other torts) that arose after the obligor had notice of the assignment.
examples?
Delegation (of Duties)
Delegation is a transfer of duties. All duties may be delegated except:
* duties involving personal judgment and skill;
* there is special trust in delegator (like attorney or physician);
* delegation would create a change in the obligee’s expectancy; or,
* there is a contractual restriction.
—
Delegation of duties, rather than assignment of entire contract. Party CANNOT delegate duties involving personal skill/judgment. Delegator is always liable.
Delegatee is liable to non-delegating only if:
1. delegatee attempts to perform OR
2. delegatee promises to perform and promise is supported by consideration
Delegator and Delegate Liabilities and Performance
The delegator remains liable even if delegate expressly assumes the duties. The non-delegating party cannot compel the delegate to perform, unless:
- the delegate attempts to perform; OR,
- delegate promises to perform and promise is supported by consideration
—
the delegate promises to perform the duty, and their promise is supported by consideration (such as payment between delegator and delegate). In that case, or if the delegate in fact performs or attempts to perform, the delegate is liable to non-delegating party.
Parol Evidence Rule
Where the parties express their agreement in writing signed by both parties, with the intent that it embody the full and final expression of their bargain, any other written or oral expressions made prior to the writing, and any oral expressions made contemporaneous with the writing, are inadmissible to vary the terms of the writing.
Construction of K
fully intergrated - prior contemporarneous expression that vary the terms are barred, as are supplemental terms. Indicator - merger clause
partially intergrated - supplemental terms are okay
PER - intergration complete v. partial
If the parties intended the writing to be the complete and final expression of their agreement, the integration is complete, and the writing may not be contradicted or supplemented.
If the parties intended the writing to cover only a portion of the agreement, the integration is partial and may be supplemented with consistent additional terms.
All relevant evidence is admissible to determine the parties’ intent.
A merger clause, which states that the writing represents the complete agreement of the parties, is evidence of intent.
PER Exception:
Expression Outside the Scope of Evidence
Expression that are outside the scope of evidence under PER are:
1. Formation defects (fraud, duress, mistake, illegality)
2. Condition precedent to effectiveness;
3. Showing of true consideration; and,
4. Interpretation of an ambiguity.
Parol Evidence Rule Analysis
- is the writing intended as a final expression? is it a complete or partial integration?
- are there any prior or contemporaneous expressions that vary the terms?
- Exception: Are the expression outside the scope of the rule
a. formation defects (fraud, duress, mistake and illegality)
b. a condition precedent to effectiveness,
c. showing of true consideration, and
d. interpretation of an ambiguity
Note: PER issue arises when there is a written contract, but one party claims there are different or additional terms not in writing (usually from a contemporaneous or prior discussion) and where an integrated writing signed by BOTH PARTIES.
Rule to admit Ambiguity in PER
If there is uncertainty or ambiguity in a written agreement’s terms or a dispute as to the meaning of those terms, parol evidence is admissible. However, if the
meaning of the agreement is plain, parol evidence is inadmissible
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To allow in evidence of an ambiguity, there must first in fact be an ambiguity in the language, and then the ambiguity must appear on the face of writing, not oral conversation.
Under UCC, consistent additonal terms are admissible unless there is a merger clause or the Court finds the parties intended the writing as a complete and exclusive statement of the terms of the agreement.
Modification
Modification is the subsequent expression or agreement that varies terms.
Modification - common law v. UCC
Under common law, modification requires additional consideration.
Under UCC, no consideration is required if modification was made in good faith.
“No oral modification clauses” is enforceable under UCC but not common law.
Look whether modification is under SOF
Condition v. Promise
Promise is a commitment to do or refrain from doing something.
Condition is an event, other than the passage of time, which will extinguish, modify, limit or create a duty to perform. A condition modifies a promise.
Conditions that occur leads to duty of other party to perform, and failure to perform is a breach.
Express conditions
Express conditions are expressed in the contract.
Implied Conditions
Implied conditions are fairly inferred from the parties’ conduct.
Constructive conditions
Constructive conditions are read into the contract by the court, irrespective of the parties’ conditions.
Although not explicit, it is implied the condition had to ocurred before the other party perform.
(e.g., A can’t demand payment for a book w/out delivering the book.)
–
ex., B agrees to buy all its gasoline from S, and S agrees to place all its ads with B’s wife’s ad agency. B’s purchase of all its gas from S is a constructive condition to S’s obligation to place its ads with wife’s agency
Condition Precendent to Effectiveness
Condition must arise before contract is effective at all
Condition Precedent to Performance
Condition must arise before particuar duty to perform arises
Condition Subsequent
Condition occur cuts off duty to perform
Party With Condition Blocked Event that Would Trigger the Condition
If a party whose performance is subject to a condition prevents the condition from occurring, the condition may be excused. To invoke this rule, the prevention must be wrongful, meaning that the other party would not have reasonably contemplated or assumed the risk of this type of conduct.
Breach
A breach occurs when a promisor has a duty and fails to perform it. A material breach is one where the nonbreaching party does not gain the substantial benefit of the promise and has the right to all the remedies.
Minor Breach
One where the obligee gains the substantial benefit of the promise and their duty is not discharged.
Material Breach
A material breach is one where the nonbreaching party does not gain the substantial benefit of the promise and has the right to all the remedies.
Anticipatory Repudiation
The party to contract clearly informs the other party before the due date of the performance that he/she does not intend to perform.
The other party is entitled to treat the anticipatory repudiation as a breach of the contract, and immediately sue.
timnig issue of breach
Breach and Anticipatory Repudation
shortcut rule for remedy
The party to the contract has clearly informed the other party before the due date of the performance that they unequivocally do not intend to perform.
The other party is entitled to treat the anticipatory repudiation as a breach of the contract, and immediately sue. A breach occurs when a promisor has a duty as the result of either a promise or condition, and fails to perform it.
Demand for Assurance - UCC
If the circumstances give rise to reasonable grounds for insecurity with respect to the other party’s performance, a party may demand assurances in writing that performance will be timely forthcoming.
Until assurances are received, the party may suspend its own performance. If the proper assurances are not given within a reasonable time, the party may treat the contract as repudiated.
Red flag:
a) the circumstances that increase the risk that the other party may not perform.
b) the party did not clearly indicate that performance will not be made.
Implied Covenant of Good Faith and Fair Dealing
Rule: Implied covenant of good faith and fair dealing exists in every contract. The clause requires that both parties do nothing to prevent performance by the other party.
breach =/=ICFGFD
ICFGFD - tort and breach of K
e.g., Employment contracts - breached by termination for refusal to do illegal act
e.g., insurance contracts - bad faith denial of coverage
Excuse or Discharge (From Duty to Perform)
Not rule
- Impossibility
- Impractiability
- Frustration of Purpose
Rules before Impracticable and Impossibility
If (i) the nonoccurrence of an event was a basic assumption of the parties and (ii) neither party expressly assumed the risk, (iii) contractual duties may be discharged if performance becomes impossible or impracticable.
Impossibility
An obligor under a contract may be excused from performance if the contract is objectively impossible to perform. An impossibility must be objective (the duties could not be performed by anyone), and must arise after the contract has been entered into.
the only issue for impossibility is whether SUP’s performance of the contract is objectively impossible
protecting eocnomic profit is not a reason for impossibility
Impracticability
An obligor under a contract may be excused from performance if the contract is commercially impracticable. Impracticability requires that the party to perform has encountered extreme and unreasonable difficulty or expense, and the difficulty was not anticipated.
Frustration of Purpose
An obligor under a contract may be excused from performance if the purpose of the contract becomes valueless by supervening act that was not the obligor’s fault. This requires
that the parties did not reasonably foresee the supervening act at the time of the contract. This act has almost completely or completely destroyed the purpose of the contract, which both parties realized the purpose when making the contract.
The exception is if the parties shift the risk of loss to the buyer by indicating FOB Shipper.
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This requires:
(1) the supervening act;
(2) at the time of the contract, the parties did not reasonably foresee the supervening act;
(3) the purpose of the contract has been completely or almost completely destroyed by the act; and
(4) both parties realized the purpose when making the contract
FOB shipper risk of loss transfer from seller to buyer when buyer received and accept shipment
Definitions of Discharge by Accord and Satisfaction
An accord is an agreement where one party to an existing contract agrees to accept, in lieu of the agreed-upon performance, some other, different performance. An accord must be supported by consideration, such as partial payment of the originial agreed-upon price and forbearance to sue.
Satisfaction is the performance of the accord agreement, and discharges the original contract and the terms of the accord.
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Accord and satisfaction refers to the agreement (accord) between two contracting parties to accept alternate performance to discharge a pre-existing duty between them and the subsequent performance (satisfaction) of that agreement. The new performance is called the accord. The excusal of the initial performance obligation is called satisfaction. (Cornell)
definitions but not elements
Discharge by Accord and Satisfaction
- Agreemnt to accept something different
- requires consideration
- performance of accord => satisfaction
get rid of the old K and use the new K
raised this when parties had a disagreement but was resolve and argue to forbear/not sue –> consideration
Waiver
The party benefited by a condition waive it
Legal Damages
contract damaegs
The purpose of contract damages is to put the nonbreaching party in the economic position he would have been in had the promise been performed, i.e., had there been no breach. That is usually calculated as expectation damages, plus consequential damages, less any loss or cost saved by not performing.
barbri
Expectancy (Benefit of the Bargain)
(Common law and UCC)
Expectation damage is the benefit of the bargain damages. Expectancy or out-of-pocket damages.
Common law: contract - market price = difference
UCC: difference between the contract price and either the market price (benefit of the bargain) or the cost of replacement (cover), measured at the time buyer learns of the breach (e.g., at the time of the anticipatory repudiation).
if there is expectancy, don’t discuss future damages and reliance
Avoidable Damage
A nonbreaching party cannot recover damages that could have been (or were) avoided. The nonbreaching party should try to cut down losses by procuring substitute performance at a
fair price.
Consequential/Future
Additional expenses or costs that are foreseeable at the time of the contract includes lost profits
Legal Remedies (Contract damages)
Analysis
- Casual (“but for”)
- Foreseeable (at formation)
- Certain
- Unavoidable - reasonable duty to mitigate
Contract damages must be causal (“but for”), foreseeable at the time of formation, certain, and unavoidable.
Note: this issue of the 4 requirements for damages comes up most often where you consider consequential or speculative damages, as opposed to compensatory damages
Certainty
subrule for legal remedies
Certainty w/regard to established businesses can be determined using a profit history.
Certainty is an issue w/new businesses, since future profits are often speculative.
Relevant factors in determining certainty are availability of the evidence, certainty of actual loss, and culpability of the defendant.
Unavoidability
sub-rule for legal remedies
Unavoidability refers to mitigation.
A plaintiff must take reasonable steps to mitigate his or her loss
Nominal Damages
legal remedies
No real harm
Reliance
Where other damages difficult to calculate, it can be recovered even if no contract is completed (enforcement of promise - promissory estoppel or detrimental reliance)
Liquidated Damages
(What’s reasonable amount for liquidated damages?)
Reasonable forecast and proportional
1. 10% down
2. secured K - profit up to 50%
Damages under UCC
(List)
- Perfect Tender Rule
- Remedies - benefit of the bargain/ cover/ warranty
Replevin under UCC
Delivery of Goods
Type 1: Buyer paid but Seller refuses to deliver; Seller insolvent OR goods for family/household purposes
Type 2: A rare good identified that can’t be recovered; Good identifed to the contract; buyer unable to cover
Special Performance
Specific performance is an equitable remedy in which a court orders a breaching party to perform that which he has promised to perform under the contract. A party is entitled to specific performance when:
1. valid and enforceable contract
2. all conditions are met by plaintiff, or conditions excused (by defendant’s breach)
3. inadequate legal remedy (goods are unique)
4. feasible court supervision, and
5. defendant must not have a defense.
—
Personal services contracts are NOT feasible to specially enforce
barbri
Specific Performance - Personal Service K
Personal services contracts are NOT feasible to specially enforce
Provisional Remedies in Aid of Specific Performance/Replevin
Analysis
- TRO/Preliminary Injuction:
a. a reasonable likelihood of success on the merits,
b. a threat of irreparable harm if the injuction is not granted.
c. a balancing of the hardships in plaintiff’s favor. - Additional element for TRO: there is a special showing required of immediate irreparable harm if the TRO is not granted right away.
Discuss Only if essay asks for provisional remedies
- Discuss TRO
- Discuss preliminary injuction
Type of Equitable Remedies
- Recission
- Reformation
grounds by mistakes
Recission
Recission is the undoing of a contract. It is a restitutionary remedy. The plaintiff effects a cancellation of the K by prompt notice of the recission and tender back of the consideration, or by a lawsuit in which the plaintiff seeks recission and offers to tender back the consideration.
The grounds for recission must have existed at the time of the making of the contract, making it voidable.
Recission applies to mistake and misrepresntation.
Reformation
Reformation is the remedy by which the court alters or modifies a written instrument, such as a contract or deed, to make it conform to the parties’ previous understanding. It requires a valid prior agreement in the first place.
The grounds include mutual mistake, unilaterial mistake, mistake of law and fraud.
Perfect Tender Rule
- accept all goods
- reject all goods
- accept some, reject some
if accept, buyer can sue for damage = goods as is - goods under warrranty on K
if reject, send rejection to seller within reasonable time
Quasi-Contract
for PE and reliance damages, or party received benefit despite unenforceable K or wrongful act
Despite the contract is unenforceable because of the Statute of Frauds, incapacity, fraud, duress, or illegality, a defendant who has received the benefit under the unenforceable contract may be forced to make some form of restitution to avoid defendant’s unjust enrichment.
