Contracts - Breach, Remedies, and Third-party Rights & Duties Flashcards
The non monetary remedies for breach of contract are
(1) specific performance
(2) injunction
(3) reformation
(4) reclamation
(5) good faith purchaser in entrustment
Specific performance is available as a remedy for
(1) contracts for sale of real estate (rule: ALL LAND IS UNIQUE)
(2) contracts for sale of UNIQUE goods like antiques, art, custom made goods (or other appropriate circumstances)
Courts are generally reluctant to grant specific performance because SP is appropriate only if
the legal remedy (money damages) is inadequate (the adequacy test).
An injunction might be available as a contract remedy for ______ contracts.
services.**E.g. the Eagles could get an injunction preventing T.O. from playing for another team (but cannot get specific performance requiring T.O. to play for them).
Under reformation, ______ will change the contract.
the court. On the bar, reformation is usually the wrong answer.
Reformation might be an appropriate remedy where there is
(1) a mistake in writing the agreement, like a clerical error; or
(2) fraudulent misrepresentation as to what is in the agreement
“Reclamation” is the
right of an unpaid seller to get his or her goods back.
In order for an unpaid seller to recover her goods in reclamation, the
(1) buyer must have been insolvent at the time it received the goods
(2) seller demanded the return of the goods within 10 days of buyer’s receipt**
(3) buyer still has the goods at the time of demand
**If before delivery buyer makes an affirmative representation of solvency, the 10-day rule becomes a “reasonable time” rule.
The good faith purchaser in entrustment rule applies where
an owner leaves her goods with a person who sells goods of that kind and that person wrongfully sells the goods to a good faith purchaser, the good faith purchaser’s purchase cuts off the rights of the original owner.**This is like the bonafide purchaser rule in property law.
The types of money damages for breach of contract are
(1) expectation damages
(2) reliance damages
(3) restitution
Expectation damages are intended to
put the plaintiff in the same economic position as if the contract had been performed.
Reliance damages are intended to
put the plaintiff in the same economic position as if the contract had never happened (this often takes the form of reimbursement for expenses up to this point)
Reliance damages are often appropriate in circumstances where
expectation damages are too difficult to calculate or too speculative or too uncertain.
Restitution damages are intended to
put the DEFENDANT in the same position as if the contract had never happened to prevent unjust enrichment.
The relevant measure when determining restitution damages is
the amount to which the defendant has been unjustly enriched.
If the seller of goods breaches and the buyer keeps the goods, the measure of damages is
the FMV of the goods had they been perfect minus the FMV of the goods as delivered.
If the seller of goods breaches and the seller keeps the goods, the measure of damages is
(1) the market price at the time of discovery of the breach minus the contract price; OR
(2) if buyer “covers” by buying replacement goods in good faith without reasonable delay, the actual replacement price minus the contract price
If the buyer of goods breaches and the buyer has the goods, the measure of damages is
the contract price.
If the buyer of goods breaches and the seller has the goods, the measure of damages is
(1) the contract price minus the market price at time and place of delivery; OR
(2) if seller has resold the goods, the contract price minus the resale price
(3) in some situations, provable lost profits
If the buyer of goods breaches and the goods are part of seller’s regular inventory (“off the rack”), the measure of damages is
the seller’s lost profits. This is called the lost volume seller rule.
A seller’s lost profits are the acceptable measure of damages only if
the buyer of goods breaches and the goods are part of seller’s regular inventory (“off the rack”). This is called the “lost volume seller rule”.
Costs incurred in dealing with breach are _____ recoverable and __________.
always; in addition to expectation/reliance/restitution damages. These are called “incidental damages.”
Consequential damages must be _______ in order to be recoverable.
(1) reasonably foreseeable by the defendant at the time of contract formation (almost like a notice requirement);
(2) unavoidable through reasonable efforts; and
(3) provable by reasonable certainty
Incidental damages (are/are not) required to be foreseeable.
are not.
Incidental damages are costs
incurred in dealing with a breach, like advertising costs incurred in trying to find a replacement deal. They are always recoverable.
Under the duty to mitigate, there is no recovery for damages that could have been
avoided without undue burden on plaintiff.
In proving that damages could have been avoided, the burden is on
the defendant to plead and prove.
There is no duty to mitigate if the subsequent offer is
inferior and not substantially similar.
Damages must be proven with __________ in order to be recoverable.
reasonable certainty
Liquidated damages are valid if
(1) damages were difficult to forecast at the time of contract formation; and
(2) the provision is a reasonable forecast**
It cannot be too high, otherwise its invalid as a penalty clause.
Limitation of remedies clauses are clauses that
limit the amount (a cap) that can be recovered.
Limitation of remedies clauses are valid unless they are
too low to the point of being unconscionable.
Liquidated damages clauses are generally not valid if
they do not vary with the severity of the breach or are too high.
Excuses for nonperformance are
(1) the other party’s nonperformance
(2) failure of a performance condition
(3) anticipatory repudiation
(4) inability to perform
(5) rescission
(6) accord and satisfaction
(7) modification
(8) novation
(9) impossibility
(10) impracticability
(11) frustration of purpose
(12) subsequent law or regulation making performance illegal
In order for one party’s performance to be excused by the other party’s nonperformance,
the other party’s nonperformance must constitute a MATERIAL breach.
Whether a breach is material or minor is a question of
fact.
If the other party’s nonperformance is a minor breach, the first party must still
perform, but can sue for damages.
A material breach is one that
substantially undermines the benefit of the bargain. On the exam, if the breaching party performs less than half the required work, call that a breach.
A material breach ______ the other party’s performance.
excuses. The breaching party might still be able to recover for any benefit conferred on the non-breaching party under restitution.
Under the divisible contract exception, the material breach rule is applied
on a unit by unit basis. E.g. the contract pays a painter $1,000 per apartment instead of $10,000 to paint 10 apartments.
The doctrine of substantial performance states that
partial or substantially similar performance can stand in for the performance specified in the contract.
Substantial performance does not apply to
UCC Article 2 sales of goods. The perfect tender rule still applies to sales of goods.
A performance condition is
a mutually agreed upon promise modifier in the contract that limit other obligations already in the contract.
**Conditional acceptance is NOT conditional performance.
In order to distinguish between conditional acceptance and a performance condition, look to see
whether the condition must be met BEFORE the contract is formed versus the condition is included in the contract itself
A covenant/promise (is/is not) a condition.
is NOT.
Express conditions are typically accompanied by words like
if, provided that, so long as, subject tot, in the event that, unless, when, until, on donation that
**Most bar exam fact patterns do NOT have express conditions
The standard for satisfying express conditions is
strict compliance.
If an express condition is based on approval of one of the contracting parties, the condition will be treated as satisfied if a
reasonable person would approve it, unless the subject matter is art or another matter that is inherently discretionary.
Conditions on performance can be excused through
(1) estoppel
(2) waiver
Estoppel excuses the occurrence of a condition when
(1) the party protected by the condition makes a statement BEFORE the condition is to occur; AND
(2) the other party changes their position in reliance on that statement
Waiver excuses a condition when
the person protected by the statement makes a statement AFTER the conditioning event was to occur. Does not require the other party to change their position.
Anticipatory repudiation occurs when there is an
(1) unambiguous statement that the repudiating party will not perform
(2) made prior to the time that performance was due.
Anticipatory repudiation _______ the other party’s duty to ________.
excuses; perform
Anticipatory repudiation generally rives rise to an _______ claim for _________.
immediate; damages for breach
Anticipatory repudiation can be retracted so long as
there has not been a material change in position by the other party.
If a repudiation is retracted, the duty to perform is ______ but performance can be delayed until ________.
reimposed; adequate assurance from the repudiator is provided
“Inability to perform” only arises when consideration was
unique (e.g. instead of receiving money a painter is going to receive a signed photograph). This is like anticipatory repudiation by conduct.
Rescission is proper where
performance is still remaining** from each of the contract parties (executory contract) and the parties mutually agree to cancel the contract.
**BOTH parties must not have fully performed for a contract to be rescindable.
An “accord” is
an agreement by the parties to an already existing obligation to accept a DIFFERENT PERFORMANCE in satisfaction of the existing obligation.
“Satisfaction” is
the doing of the different performance agreed to in an “accord.”
An accord is not valid if one the parties is simply agreeing to do
less than what is already required. (e.g. paying less than an entire debt)
If an accord is not performed, then the other party can
sue on either the original obligation OR the accord. It is the aggrieved party’s choice, must make a choice.
If an accord is properly performed, the original contract obligation is
excused due to accord and satisfaction.
“Modification” is
an agreement by the parties to an existing obligation to accept a DIFFERENT AGREEMENT in satisfaction of the existing obligation.
“Novation” is
an agreement between BOTh parties to an existing contract for the substitution of a new party (i.e. same performance, different party)
Novation excuses the contracted for _______ of the party who __________.
performance; substituted for or replaced
The theoretical way to tell the difference between modification and accord and satisfaction is that
in modification, the parties like and trust each other, so getting rid of the old agreement for a new agreement is fine.
In accord and satisfaction, the parties don’t like and trust each other, so the old agreement is only wiped out if the accord is performed.
Practically speaking, look for “if…then” on the bar exam.
Delegation is different from novation in that
delegation does not require both parties to agree, it is where one party delegates some duties under the contract to another party. The first party remains liable.
Impossibility, impracticability, and frustration of purpose all entail the following three things:
(1) something happens after contract formation but before the completion of contract performance
(2) that was unforeseen
Differences between impossibility and impracticability are
(1) impossibility is objective, impracticability is subjective
(2) impossible means it CAN’T be done, impracticable means it can only be done with extreme and unreasonable difficulty or expense.
Destruction of building projects are generally do not give rise to
impossibility concerns.
If the subject matter of a contract is destroyed and the risk of loss has transferred to the buyer, the buyer’s performance obligations _____ excused.
are NOT. It is never impossible to pay money.
If the subject matter of a contract is destroyed and the risk of loss is still on the seller, the seller’s performance obligations _____ excused if _________.
are; the subject matter was specific or unique, otherwise the seller must obtain replacement items (my 1973 Cadillac versus 100 widgets)
Death excuses a contract only if the person who died was
(1) a party to the contract who is (2) a “special” person.
A “special” person is usually someone who is
specifically identified, famous, someone you waited for, etc.
The death of a person who is not a party to a contract (does/does not) excuse performance.
does not
The death of a person who IS a party to the contract but is not a “special” person (does/does not) excuse performance
does not
If a law or regulation is passed that makes performance of the contract illegal, performance is
excuses performance due to impossibility.
If a law or regulation or other event that occurs AFTER contract formation makes the mutually understood purpose of the contract illegal, performance is
excused due to frustration of purpose.
The three third party problems are
(1) third party beneficiaries
(2) assignments of contract rights
(3) delegation of contract duties
A third party beneficiary is someone for whom
two other parties contract for her benefit.
A third party beneficiary problem arises when
two parties contract for the benefit of a third party.
Third party beneficiaries (are/are not) able to enforce contracts that others have made for their benefit.
are
Under third party beneficiary law, the promisor is
the person who is making the promise that benefits the third party.
Under third party beneficiary law, the promisee is
the person who obtains the promise that benefits the third party.
In order to enforce a contract as a third party beneficiary, the third party must be
INTENDED, not incidental.
When considering efforts to cancel or modify a contract for which there is a third party beneficiary, the third party must assent if to the change if her rights have “vested.” Her rights vest at the time she
(i) manifests assent to the promise in a manner invited or requested by the parties; or
(ii) brings suit to enforce the promise; or
(iii) materially changes position in justifiable reliance on the promise
On the bar exam, a third party beneficiary is usually intended if the party’s name is
in the contract itself.
Intended beneficiaries are either donees or creditors, but on the bar exam assume
that the party is a donee unless told that the party was a creditor of the promisee.
If a third party knows of and has relied on or assented as requested to a contract, the contract
can no longer be modified without her consent unless the contract otherwise provides.
Under third party beneficiary rules, a beneficiary can sue _____ directly.
promisor
Under third party beneficiary rules, the promisee can sue ______ directly.
promisor
Under third party beneficiary rules, a ______ beneficiary cannot sue a promisEE but a ______ beneficiary can sue a promisEE.
donee; creditor
If the third party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the
promisee directly.
An assignment is
a transfer of rights under a K in two separate steps: (1) contract between two parties and (2) one of the parties later transfers rights under that contract to a third-party
The assigner is the party
to the contract who later transfers rights under the contract to another.
The assignee is the party
who is not a party to the contract that receives the contract rights.
The obligor is the
other party to the contract.
An assignee is able to _________ the contract.
enforce
Assignments of contract rights can be limited by
(1) prohibition clauses in the K
(2) invalidation clauses in the K
(3) common law if assignment substantially changes duties and obligations of obligor
An assignment prohibition clause has the result of
taking away the right to assign but not the power. Thus, an assignment
(1) assignor is liable for breach of K
(2) but assignee can still enforce the assignment if assignee did not know of the prohibition clause
An assignment invalidation clause has the result of
taking away both the right AND power. Thus, an assignment
(1) assignor is liable for breach of K
(2) assignee has NO rights
Even if a contract does not limit the right to assign, common law bars an assignment that
substantially changes the duties of the obligor.
The two main types of assignments are
(1) assignment of the right to payment
(2) assignments of other performance rights.
Generally, assignments of the right to payment _______ change the duties of the obligor.
do not substantially
Assignments of performance rights ______ change the duties of the obligor.
can substantially
The requirements for an effective assignment are
(1) language of present assignment (“I assign”, a promise to assign is not enough)
(2) consideration is NOT required
Under a proper assignment, the assignee has the right to
sue the obligor.
The obligor has the same defenses against the assignee that it would have against the
assignor.
The obligor’s continued payment to the assignor is effective until
the obligor learn/knows of the assignment.
If there are multiple gratuitous assignments, the general rule is that
the last assignee in time wins.
A gratuitous assignment can be ________ revoked.
freely
Revocation of a gratuitous assignment can be accomplished by
(1) making of another assignment (hence the rule)
(2) bankruptcy
(3) death
(4) assignor taking performance directly from the obligor
If there are multiple assignments for consideration or a mix with gratuitous assignment, the general rule is that
the first assignee in time wins.
A subsequent assignment for consideration takes priority over an earlier assignment for consideration only if
(1) the later assignee does not know of the earlier assignment; and
(2) the later assignee is the first to obtain payment, a judgment, a novation, or indicia of ownership**
**Being the first to notify is not sufficient.
Multiple assignments for consideration are a breach of ______. The assignor warrants that the rights assigned are ____________.
warranty; assignable and enforceable.
Delegation occurs when a party to a contract
transfers work under that contract to a third party.
The delegating party is the party who
delegates the work.
The delegatee is the party who
takes the work from the delegating party.
The obligee in a delegation is the party who
is the other party to the K.
Generally, contractual duties are delegable unless
(1) the contract prohibits delegations OR assignments; or
(2) the contract calls for VERY SPECIAL skills; or
(3) the person to perform under the contract has a VERY SPECIAL reputation
On the bar exam, the term assignment is often used to mean both
assignments AND delegations.
The delegatee (person to whom the work was delegated) _______ sue the obligee.
cannot.
If a party delegates in the face of a contract provision prohibiting delegation or assignments, the party _______ recover under the contract.
cannot. But might be able to under restitution.
A contractual provision prohibiting assignments also prohibits _______.
delegations.
If the third party delegatee does not perform, then
(1) the delegating party always remains liable to the obligee; and
(2) the delegatee is liable to either party only if she receives consideration from the delegating party (i.e. the delegating party pays the delegatee to do the work)
Any time there is a delegation for consideration, it always creates
a third party beneficiary.
Under the UCC, the four different different measures of damages when a buyer defaults after putting down a deposit on a good are
(1) liquidated damages if present in the contract and reasonable
(2) 20% of the contract price or $500, whichever is less
(3) resale price minus contract price (only works if resale price was lower than the contract price)
(4) if seller is a volume merchant w/r/t to the good, lost profit
Generally, under the UCC the right to receive goods under a requirements/output contract ______ assignable, unless
is not; the assignee acts in good faith not to alter the terms of the contract.
In contracts not involving the sale of goods, the condition of complete performance may be excused if the party has rendered
substantial performance.
The rules for determining whether performance is substantial are the same as those for determining whether
a breach is minor or material. If the breach is minor, performance is substantial. If the breach is major, performance is not substantial.
To determine whether a breach is material, the court looks at:
the amount of benefit received, the adequacy of damages, extent of performance, hardship to the breaching party, and whether the breach was negligent or willful.
