Contracts (Kaplan)

Question 1

Are reward offers considered real offers?

Answer 1

Yes, b/c they are communications that promise $ in exchange for performance of specific tasks.

Question 2

Are commercial ads considered offers?

Answer 2

Under the American rule, ads, catalogs, price lists are INVITATIONS FOR OFFERS, since responses may exceed available supply of good/services.

Question 3

Elements of an Offer

Answer 3

(1) Outward Manifestation (oral, written or via conduct); and

(2) Signal that ACCEPTANCE WILL CONCLUDE THE DEAL (power of acceptance).

Question 4

Four Ways to Terminate the Power of Acceptance

Answer 4

1) Lapse of Time

2) Death / incapacity of either party

3) Revocation by offeror

4) Rejection by the offeree

Question 5

Terminating the Power of Acceptance: Lapse of Time

Answer 5

This occurs

1) after time stated in offer expires; OR

2) after a REASONABLE TIME.

–Reasonable time is determined by (A) subject matter/market conditions; and (B) the degree of urgency and means of transmission.

Question 6

Revocation of Offer by Offeror

Answer 6

Offeror may revoke at any time, for any reason

HOWEVER, the offer must be revoked BEFORE acceptance and THE revocation must be COMMUNICATED.

(can be done directly or indirectly)

Question 7

What are the requirements for Indirect Revocation of an Offer?

Answer 7

1) Offeror takes action that is INCONSISTENT w/ the intent to go through w/ offer; and

2) Offeree LEARNS of such action from a RELIABLE SOURCE.

Question 8

If an offeror gives an offeree a specific amount of time to accept, can the offeror revoke this offer?

Answer 8

Yes, the offeror can revoke even if he gave a specific time to accept (absent consideration to keep offer open).

–HOWEVER, note that courts will consider offers open when the offeree has DETRIMENTALLY RELIED on them, such as when general contractors rely on subcontractor’s bids in forming their own bids on a project.

Question 9

What are the elements of an Option Contract?

Answer 9

1) Offer;

2) Separate promise to keep the offer open; and

3) A valid mechanism for enforcing the subsidiary promise (consideration is most common way).

Question 10

Firm Offer under UCC

Answer 10

Irrevocable offer by merchant to buy/sell goods WITHOUT consideration.

Requirements:

1) Offer made BY A MERCHANT;

2) In a writing signed BY THE MERCHANT OFFEROR;

3) Expressly stating that it will be held open.

–Irrevocable for time stated or reasonable time, BUT NO LONGER THAN 3 MONTHS EVEN IF STATED OTHERWISE.

Question 11

Termination. by Offeree’s Rejection

Answer 11

1) Outright rejection;

2) Rejection via counteroffer (counteroffer = rejection + new offer)

–EXCEPTION: Offeree can test the waters by making a MERE INQUIRY.

3) Rejection via non-conforming acceptance.

–MIRROR IMAGE RULE: Acceptance must mirror the terms, and any variation is a counteroffer (and rejection of the initial offer).

Question 12

Counteroffer

Answer 12

A counteroffer = rejection + new offer.

Question 13

Mirror Image Rule

Answer 13

Under common law, acceptance must mirror the terms, and any variation is a counteroffer (and rejection of the initial offer).

Question 14

What is a bilateral contract?

Answer 14

Offer seeking acceptance by a promise.

A promise for a promise is being exchanged. Once promises are exchanged, both parties are bound.

Question 15

What is a unilateral contract?

Answer 15

Offer seeking performance in return (I.e., reward offers).

Offeror not bound until offeree completes performance, and offeree is NEVER bound.

Question 16

Revocation of Offer - Unilateral Contract

Answer 16

Once offeree BEGINS PERFORMANCE, an option K is created and offeror may NOT REVOKE.

MERE PREPARATIONS DO NOT CREATE AN OPTION K, ONLY BEGINNING PERFORMANCE.

Question 17

What are the terms of acceptance under common law?

Answer 17

Acceptance must MIRROR the terms of the offer and be COMMUNICATED TO THE OFFEROR.

Two exceptions:

1) Unilateral Ks

2) Acceptance by Mail

Question 18

Acceptance: Unilateral Ks

Answer 18

Acceptance is only effective by completing performance, no communication is required unless offer provides otherwise.

Question 19

Acceptance by Mail

Answer 19

Acceptance by mail is effective UPON DISPATCH if properly posted.

–Applies only to acceptances and not to any other communication (I.e., not revocations or rejections)

–Default Rule: It applies UNLESS the offer provides otherwise.

Question 20

The Mailbox Rule and Option Ks

Answer 20

Restatement/Maj. Rule: FOR OPTION CONTRACTS, the mailbox rule is NOT applicable and acceptance is only effective UPON RECEIPT.

Question 21

What happens when an offeree dispatches 2 responses to an offer, the 1st purporting to reject the offer and the 2nd purporting to accept it?

Answer 21

Mailbox rule does NOT govern if rejection is mailed before acceptance, and whichever arrives first will be effective.

Question 22

UCC - Acceptance by Seller’s Shipment of Nonconforming Goods

Answer 22

Seller can accept Buyer’s offer to purchase goods for prompt or current shipment in 3 ways:

1) Promise to ship the goods;

2) Shipping conforming goods; or

3) Shipping non-conforming goods, UNLESS the seller sends the shipment as an ACCOMMODATION. (I.e., counteroffer)

–Accommodation = counteroffer

Question 23

UCC Rejection of the Mirror Image Rule

Answer 23

An offeree’s nonconforming acceptance or confirmation (w/ additional terms) will operate as an effective acceptance, thus forming a contract (NOT a counteroffer).

Question 24

UCC Battle of Forms: Effect of Additional or Different Terms

Answer 24

BETWEEN MERCHANTS, the “ADDITIONAL” terms in offeree’s acceptance or confirmation become PART OF THE K, EXCEPT in 3 circumstances:

1) The offer expressly limits acceptance to its own terms;

2) If offeror objects to the additional terms within a reasonable time;

3) If the additional terms would materially alter the K.

–“Material alteration” = terms that would result in “surprise or hardship if incorporated w/o the express awareness of the other party. (e.g., warranty disclaimers, clauses that materially shorten the deadline for raising complaints, clauses that change usages of trade or past courses of dealing.

–Note: “Different” terms in the two writings dealing w/ the same topic will KNOCK EACH OTHER OUT.

Question 25

UCC Battle of Forms: What are considered “material alterations” of the K?

Answer 25

“Material alteration” = terms that would result in “surprise or hardship if incorporated w/o the express awareness of the other party.

For example:

1) warranty disclaimers;

2) clauses that materially shorten the deadline for raising complaints;

3) clauses that change usages of trade or past courses of dealing.

Question 26

What is the Knockout Rule?

Answer 26

“Different” terms in the two writings dealing w/ the same topic will KNOCK EACH OTHER OUT.

Question 27

Conditional Acceptance

Answer 27

If the offeree’s acceptance is specifically conditioned on offeror first agreeing to the additional terms in the acceptance before offeree will proceed, this nonconforming, conditional acceptance will NOT be effective to form a K (I.e., it’s a counteroffer)

–No K is formed by the writings until the offeror EXPRESSLY ASSENTS to the additional terms.

Question 28

Contracts Formed by Conduct

Answer 28

The UCC provides that parties’ conduct in recognizing the existence of a K is sufficient to establish a K even though their writings do not otherwise establish a K.

The terms of the K will be:

1) terms on which the writings of the parties agree; and

2) default terms provided by the UCC.

–Note: Express terms in the parties’ communications which do not match or agree are omitted.

Question 29

Bargain Theory

Answer 29

Promise is supported by consideration if based on a BARGAINED FOR EXCHANGE.

–There was something (goods or services) that was promised, and the promise must have been made in order to obtain something else of value. (quid pro quo)

Question 30

Benefit/Detriment Test

Answer 30

Test to determine whether there is a benefit to the promisor and/or detriment to the promisee.

Look to see whether promisee is:

1) doing something he had a legal right NOT to do; or

–NOTE: WATCH OUT FOR PRE-EXISTING DUTIES (e.g., already have legally duty not to do something illegal)

2) forgoing some activity he HAD a legal right to do.

Question 31

Illusory Promises

Answer 31

Promises of performance that leaves performance to the UNLIMITED DISCRETION of the promising party do NOT constitute consideration.

Question 32

Gratuitous Promises

Answer 32

Promises to make a gift are generally unenforceable due to insufficient consideration.

–Exception: Gratuitous transfer are legally binding. (once you actually give the item there’s no revoking it)

Question 33

Past or Moral Consideration

Answer 33

A promise in exchange for something already given or performed is NOT supported by consideration.

–Exceptions:

1) A WRITTEN promise to pay a debt barred by limitations. (e.g., look for waiver of statute of limitations)

2) A WRITTEN promise to pay a debt discharged by bankruptcy.

Question 34

Promissory Estoppel

Answer 34

Promisee that reasonably relies to his detriment on gratuitous promise may be able to enforce that promise even w/o consideration.

4 Requirements:

1) A promise;

2) Foreseeable reliance;

3) Actual reliance (must be induced by the parties);

4) Injustice w/o enforcement.

Question 35

Statute of Frauds (Categories)

Answer 35

6 categories governed by the SOF = MYLEGS

M - MARRIAGE

Y - YEAR (LESS THAN 1)

L - LAND

E - EXECUTOR (or administrator to answer for a duty of a decedent)

G - GUARANTEE (or suretyship)

S - SALE OF GOODS ($500 or more)

Question 36

Florida Rules: Statute of Frauds

Answer 36

1) FL states that leases of real property for less than 1 year are NOT subject to SOF.

2) Subscriptions for newspapers, periodicals, etc. must be in writing to be enforceable.

3) A writing is required to charge any health care provider upon any guarantee, warranty or assurance as to the results of any medical procedure (including physicians, dentists, etc)

4) Home solicitation sales must be evidenced by a writing. (must have certain buyer’s right to cancel language included and buyer must sign and date)

5) Home-improvement Ks (includes all labor, materials, services to be furnished when all or part of K is paid in installment over a period of time greater than 90 days)

6) Credit Agreements.

Question 37

Contracts Not to be Performed within a Year

Answer 37

Measured from date of K made, NOT date performance begins.

ASK: At point of formation, is it all possible (even if not probable) to complete required performance within 1 year?

FREQUENTLY TESTED SITUATIONS:

1) K that can be breached or excused within a year of formation

–Irrelevant. This is potentially true of any K and so would swallow the 1 year rule.

–What matters is not whether the K can breached within 1 year, but rather can the K be performed in full by its terms within 1 year of its formation.

2) A lifetime or permanent K of employment is NOT governed by the 1-year rule b/c employee’s death is possible within 1 year.

Question 38

Guaranty / Suretyship Agreements

Answer 38

Although guaranty Ks (secondary obligation) are generally within SOF, a primary exception is the MAIN PURPOSE DOCTRINE.

That is, where the main purpose of the guarantor is to protect his own economic interests, then the guaranty is NOT governed by SOF and can be oral.

Question 39

Writing Requirement for SOF

Answer 39

All that is necessary is that the writing be a memorandum of the agreement which can be prepared before, during, or after formation.

Following terms are required:

1) Identity of the parties to the transaction;

2) The nature and subject matter of K;

3) The essential terms of the agreement, such as price and date of performance.

Question 40

SOF: Part Performance

Answer 40

Statute of frauds may be satisfied w/ respect to some categories of governed Ks via part performance, in an action for specific performance.

1) Land Sale Ks (requires any combo of the 3)
–(a) payment of all or part of purchase price;
–(b) taking possession of land;
–(c) making substantial improvements to property.

2) 1-Yr Ks
–If fully performed = enforceable despite SOF
–If partially performed = unenforceable

Question 41

UCC Statute of Frauds

Answer 41

Ks for sale of goods worth $500+ are under UCC SOF.

5 ways to satisfy:

1) Signed Writing (must state quantity + be signed by party against whom enforcement is sought)

2) Merchant’s Confirmation

3) Judicial Admission (party admits K formation in a pleading, testimony, etc.)

4) Partial performance

5) Specially manufactured goods

Question 42

What is a Merchant’s Confirmation?

Answer 42

This is an exception to UCC SOF.

2 merchants enter oral agreement, one sends the other written confirmation of agreement.

SOF satisfied against the recipient merchant if:

1) Both sender and recipient are MERCHANTS;

2) Writing is in confirmation of the K and contains a QUANTITY; and

3) Recipient does NOT send written objection within 10 days.

Question 43

UCC SOF: Partial Performance

Answer 43

Despite absence of a writing, an otherwise valid K is enforceable for:

1) goods for which payment made/accepted; or

2) goods which have been received/accepted.

Question 44

UCC SOF: Specially Manufactured Goods

Answer 44

SOF satisfied against buyer who orders CUSTOM GOODS from a manufacturer if:

1) manufacturer detrimentally relied by beginning performance before buyer’s withdrawal; and

2) manufacturer can’t resell the goods in the ordinary course of business.

Question 45

UCC Default Provisions

Answer 45

Used to fill in the gaps when K doesn’t address the matter, but parties are free to set default rules aside by contracting otherwise.

Question 46

Implied Warranties

Answer 46

1) Warranty of Title

2) Warranty of Merchantability

3) Warranty of Fitness for a Particular Purpose

Question 47

Warranty of Title

Answer 47

For the sale of all goods, there in an implied warranty of:

1) good title to the goods;

2) rightful transfer of the goods; and

3) no liens or security interests are attached to the goods.

Question 48

Warranty of Merchantability

Answer 48

Goods fit for ORDINARY PURPOSES for which those goods would be used.

ONLY applies if seller is a merchant.

Displaced by:
1) specific use of the word “merchantability” and conspicuousness if in writing; or

2) any other language or circumstances that would reasonably be understood by a buyer to exclude the warranty (“as is” or patent defects).

Question 49

Warranty of Fitness for a Particular Purpose

Answer 49

Goods being sold are fit for the PARTICULAR PURPOSE buyer intends to use them for.

ONLY applies when, at time of contracting, seller has reason to know:

1) the particular purpose for which the goods are required; and

2) the buyer is relying on seller’s expertise to select reasonable goods.

–Warranty negated when: (1) disclaimer is written, clear, and conspicuous; or (2) goods have patent defects which were easily detectible.

Question 50

Missing Terms (under the UCC)

Answer 50

Under the UCC, where there are pertinent missing terms, the following default rules will fill in those missing terms:

1) Price term = reasonable price at time established by the K for delivery.

2) Time term = reasonable time

3) Place of delivery term = seller’s place of business (I.e., FOB Seller)

Question 51

Missing Terms (under the Common Law)

Answer 51

If one party performs services at the request of another, but no price is discussed in advance, then the CL default rule applies = reasonable value for services rendered.

Question 52

UCC / CL Obligation of Good Faith and Fair Dealing

Answer 52

Another source of gap-filling = obligation of good faith and fair dealing in the performance and enforcement of Ks

–Good faith = honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade

–Good faith obligation where terms of K leave critical term, such as price, satisfaction, or quantity open to the determination of one party.

Question 53

Open Price Terms

Answer 53

If K leaves price to be fixed by one of the parties, then that party must fix the price in good faith.

Question 54

Satisfaction Terms

Answer 54

If K contains a satisfaction clause or similar term, then the determination as to whether a party’s performance obligation must be satisfied in good faith.

Question 55

Open Quantity Terms Ks

Answer 55

1) Output Ks: Buyer agrees to purchase all or a percentage of seller’s output for a particular good

2) Requirements K: Seller agrees to supply the buyer w/ all or a % of buyer’s requirements for a particular good.

–Under UCC, the party entitled to determine the particular quantity of goods to be sold (either the buyer demanding delivery of his requirements or the seller demanding purchase of her output) must make that determination in good faith.

–UCC also prohibits any unreasonably disproportionate demand or tender, if there was either:

(a) a stated estimate; or

(b) a past course of dealing.

Question 56

Trade Usage, Course of Dealing, Course of Performance

Answer 56

Extrinsic evidence that can be used to fill gaps and resolve ambiguities in Ks.

1) Usage of Trade - what all members of the trade do

2) Course of Dealing - what parties did in their PREVIOUS contracts

3) Course of Performance - how the parties acted under their CURRENT performance. (occurs if K involves repeated occasions for performance by a party)

–NOTE: These may NOT be used to contradict express terms of K.

–In conflict, course of performance prevails over course of dealing and usage of trade, and course of dealing prevails over usage of trade.

Question 57

Parol Evidence Rule

Answer 57

The parol evidence rule precludes the admissibility of extrinsic “verbal agreements [evidence] between the parties to a written contract which are made BEFORE or AT THE TIME of execution of the contract.”

In FL, Parol Evidence is inadmissible to contradict, vary, or modify terms which are unambiguously contained within a written agreement.

Question 58

Partial Integration

Answer 58

Partial integration is when the contract contains only some of the terms agreed upon by both parties. In contract disputes, parol evidence is admissible to clear up ambiguities on agreement terms that are not fully integrated.

Question 59

Purposes for Which Parol Evidence is Introduced

Answer 59

Purpose #1- To explain or interpret terms of written K

–Parol evidence is ALWAYS admissible for this

Purpose #2 - To supplement terms of written K

–Parol evidence is admissible for this UNLESS K is completely integrated (I.e., has a merger clause)

–UCC Distinction: trade usage, course of dealing, and course of performance can supplement a completely integrated agreement

Purpose #3 - To contradict terms of written K

–Parol evidence is NOT admissible for this purpose (if K is fully integrated)

–UCC Distinction: course of dealing, and course of performance may be admissible in sale of goods cases to “qualify” the meaning of an integrated term

Question 60

When Parole Evidence Rule Will Not Apply

Answer 60

3 circumstances:

1) Subsequent agreements

2) Collateral agreements (PE rule will not affect agreements between parties that are entirely distinct from the written agreement of the K at issue)

3) Attacking the validity of the written K (PE rule ONLY applies if there’s a valid agreement to begin with)

Question 61

Reformation

Answer 61

This is attacks the validity of a written agreement.

For P to obtain reformation, it must be shown that:

1) There was an antecedent valid agreement;

2) That this antecedent agreement is incorrectly reflected in the writing b/c of mistake or fraud; and

3) That proof is established by clear/convincing evidence.

Question 62

Non-Carrier Cases: Who bears the risk of loss?

Answer 62

If seller is NOT a merchant: as soon as goods are made available to him (tendered)

If seller IS a merchant: once goods are physically in buyer’s possession

Question 63

Shipment Contract

Answer 63

ROL passes to buyer when goods are DELIVERED TO THE CARRIER.

–Identified as “FOB Seller” or K is silent (default rule).

–Buyer bears ROL if goods are damaged in transit.

Question 64

Destination Contract

Answer 64

ROL passes to buyer when goods are TENDERED AT THE DESTINATION point specified in the K.

–Identified as “FOB Buyer”

–Seller bears ROL if goods are damaged in transit

Question 65

Modification: Preexisting Duty Rule

Answer 65

A promise to increase compensation for duties ALREADY OWED is unenforceable b/c there is no consideration for the modification.

–NOTE: However, be aware that in FL, a slight change in the terms of the contract will suffice as consideration to support modification.

–Also, FL will find consideration for a preexisting duty if it’s for the benefit of a new intended third beneficiary.

Question 66

Preexisting Duty Rule: Unforeseen Circumstances

Answer 66

Preexisting duty rule not applicable if increased compensation is given in exchange for a promised performance that has been rendered substantially more burdensome than reasonably anticipated when K formed.

Question 67

UCC: Modification

Answer 67

An agreement modifying an existing K needs NO CONSIDERATION to be enforceable as long as made in GOOD FAITH.

Question 68

Unilateral Mistake

Answer 68

1 party’s mistake about present material facts is NOT excused UNLESS the other party knew / had reason to know of the party’s mistake.

Question 69

Mutual Mistake

Answer 69

Voidable by disadvantaged party when all 3 met:

1) Mistaken assumption relates to material facts (not just value);

2) Mistake made by both parties; and

3) Disadvantaged party did not bear risk of mistake under the K.

Question 70

Impracticability

Answer 70

FL will determine a contract to be impracticable when circumstances have made performance VITALLY DIFFERENT from what was anticipated when the parties entered the K.

Question 71

Frustration of Purpose

Answer 71

Where a contingency occurs that DRAMATICALLY REDUCES the value of performance to the receiving party.

Test (3 Elements):

1) Principal purpose in entering K is SUBSTANTIALLY frustrated;

2) Frustration was SUBSTANTIAL in nature;

3) Non-occurrence of the event that caused frustration was a basic assumption of the K.

Question 72

Rescission

Answer 72

Is permissible where both parties to a K have remaining performance due.

–Consideration is provided by each party’s discharge of the other’s duties.

Question 73

Anticipatory Repudiation

Answer 73

AR may be established by:

1) party’s definitive statement that it will breach; or

2) party’s voluntary act that renders party unable to perform its contractual obligations.

NOTE: If AR cannot be established but there are REASONABLE GROUNDS FOR INSECURITY, the insecure party may make a demand for ADEQUATE ASSURANCE OF PERFORMANCE. (failure to respond w/ reasonable assurances = AR. Must respond within reasonable time (30 days under UCC))

–In FL, the non-breaching must be able to show that he was able to perform any conditions precedent to performance in order to be able to claim damages under AR.

Question 74

Quantum Meruit

Answer 74

Where a party failed to fulfill an express condition OR is in material breach, breaching party may still recover in quantum meruit.

Quantum meruit is a legal doctrine created to impose liability WITHOUT an enforceable contract. More specifically, quantum meruit allows a plaintiff to recover the reasonable value of services rendered. Quantum meruit actions result from implied contracts, or contracts implied in fact by courts to bring about justice and equity.

Question 75

Failure of Condition under UCC

Answer 75

Under the perfect tender rule, terms of a K for sale of goods are enforced exactly, every K term treated as an express condition.

If seller fails to make perfect tender, buyer has 3 courses of action available:

1) Reject the goods;
–Must reject within reasonable time + notify seller

2) Accept the goods;
–Note: Buyer make seek damages for any non-conformity if seller has been seasonably notified

–Buyer can revoke acceptance if non-conformity SUBSTANTIALLY impairs value of the goods and if: (1) buyer accepted b/c unaware of non-conformity, or (2) seller assured cure but failed to cure.

3) Accept part and reject part.
– Buyer can only do so in terms of commercial units of that good.

Question 76

UCC: Work-Arounds for Breaching Sellers

Answer 76

1) If seller makes non-conforming tender but time for performance has not passed, then the seller may substitute conforming goods. (must give reasonable notice of intent to cure and deliver by K deadline)

2) Right to cure when there were reasonable grounds to believe delivery was acceptable (after K deadline)
(seller must give reasonable notice of intent to cure and deliver by K deadline)

–Belief must be based on buyer’s express assurances, trade usage, course of dealing, or course of performance.

Question 77

Imperfect Tender in Installment Ks

Answer 77

Under UCC, installment Ks are contracts that contemplate delivery of goods in separate lots to be separately accepted by buyer.

–Perfect Tender Rule does NOT apply.

–Buyer must generally give the seller an opportunity to cure any defects in the installment deliveries, unless seller “substantially impairs” the value of the entire K.

Question 78

Defenses: Infancy/Minors Rule for Ks

Answer 78

Minors under (18) may enter into a K, but it is VOIDABLE AT MINOR’S OPTION.

–Power of avoidance:
1) minor is obligated to return any goods received but NOT LIABLE for any damages or reasonable value for use of any goods or services (Note that mentally incompetent person would be liable)

Ratification: Once minor turns 18, they
may expressly or impliedly ratify K
(compare: mentally incompetent person can ratify if becomes competent later on)

Necessaries Exception: K for necessaries (food, clothing, shelter, medical care) is VOIDABLE but merchant has quasi K to recover reasonable value of goods/services

Question 79

Defenses: Fraudulent Misrepresentation

Answer 79

1) A MATERIAL misrepresentation;

2) with the intent to mislead (need scienter = knowing or purposeful)

3) reasonable reliance on misrepresentation

–Note: Non-fraudulent Misrepresentation = negligent misrepresentation and innoncent misrepresentation

–Negligent Misrepresentation = D would have known the assertion was false had he exercised reasonable care

–Innocent Misrepresentation = D made an assertion not in accord w/ existing facts

Question 80

Defenses: Fraudulent Non-Disclosure

Answer 80

Fraud consists of D’s silence when duty to disclose.

Elements:

1) nondisclosure was MATERIAL to K;

2) reasonable reliance on non-disclosure;

3) a duty of disclosure and failure to fulfill it

Question 81

Defenses: Duress

Answer 81

1) A threat

2) wrongful in nature
–(I.e., a crime/tort, criminal prosecution or bad faith civil process, or threatened bad faith breach of K (economic duress))

3) no reasonable choice but to succumb to threat
(for economic duress, look for no adequate substitutes, threatened breach could cause aggrieved party to breach his own Ks, or alternative to acquiescence and suing for damages is inadequate to address harm caused)

Question 82

Defenses: Public Policy

Answer 82

1) Subject of K itself is specifically prohibited by law

2) K formed for purpose of committing a crime or tort

3) K performance would violate certain values/freedoms designated by the state

Note: Look for covenants not to compete or use trademarks (won’t be enforced if (1) contrary to public health, safety, welfare, (2) the injunction enforces an unreasonable covenant not to compete; and (3) there is no showing of irreparable injury.

Question 83

Expectation Damages

Answer 83

The general rule for a breach of contract. This should be the starting point for EVERY analysis - this is the default award.

Aggrieved party will be entitled to amount that will restore him in the position he would’ve been in had the K not been fully performed.

Formula: (Loss of value of the breaching party’s performance + any incidental / consequential costs generated by breach) - (any payments receied from breaching party) - (any costs saved as a result of breach)

Question 84

Limitations on Right to Recover Expectation Damages

Answer 84

Aggrieved party may not be able to recover the full amount in the following situations:

1) Expectation damages can’t be calculated w/ reasonable certainty;
–E.g., a business w/ no profit history

2) Damages are UNFORESEEABLE;

3) Where damages can be mitigated. (can’t recover for losses you could avoid)

IF EXPECTATION DAMAGES ARE NOT AVAILABLE THEN GIVE RELIANCE DAMAGES.

Question 85

Reliance Damages

Answer 85

Designed to restore the aggrieved party to the position he was in prior to K.

Aggrieved party’s reliance is measured by:

1) Any expenditures made in preparation or performance or in actually performing; LESS

2) any loss suffered which the breaching party can prove the aggrieved party would have suffered even if K had been fully performed.

NOTE: Reliance damages may be available where expectation damages are not available, such as when they are too uncertain or speculative.

Question 86

Restitutionary Damages

Answer 86

The value of benefits conferred upon other party in the transaction. (aka the market value of the services already rendered) This is in lieu of Expectation Damages.

Calculation:

1) reasonable value or cost of benefits conferred; or

2) extent to which the other party’s property has increased in value b/c of the performance rendered.

NOTE: Aggrieved party is likely to elect to recover restitutionary damages when it would exceed the amount recoverable based on his expectation interest, and this is most likely to arise in the context of a “losing” K.

IMPORTANT LIMITATION: Available if aggrieved party has PARTIALLY PERFORMED but NOT if the party has fully performed.

Question 87

Post-Employment Relief

Answer 87

K provision that prohibits post-employment competition.

1) Is there a SIGNIFICANT BUSINESS JUSTIFICATION for enforcing the restraint?

2) Is the scope of the non-compete clause REASONABLE IN DURATION and GEOGRAPHICAL REACH?

3) Is there an express provision? (court won’t imply one)

Question 88

Mid-term relief

Answer 88

When employee under K for a specific period of time and breaches by departing before the end of that period, a negative injunction will be available, even absent a K prohibition, to prevent competing if employee’s services are UNIQUE AND EXTRAORDINARY. (pro athletes and entertainers)

Question 89

Incidental Damages

Answer 89

Buyer or seller can recover incidental damages which are the expenses incurred in either the seller dealing w/ the goods after buyer’s breach (e.g., storing them) or buyer arranging for cover (e.g., transportation costs).

–These are damages recovered under UCC

Question 90

Consequential Damages

Answer 90

Under the UCC, the BUYER can additionally recover consequential damages that were reasonably foreseeable to the seller at the time the contract was entered into.

Question 91

Intended Beneficiaries

Answer 91

One whom the contracting parties intended to benefit (often named in the K).

–Could be creditor beneficiary or donee beneficiary.

–Intended beneficiaries can sue the promisors who directly promised to provide the benefit, but can’t sue the promisees based on the K, although they can still sue on any prior obligation (if any).

–COMPARE: Incidental beneficiaries are third parties who will benefit from a promisor’s performance as a practical matter, but are not intended beneficiaries (no standing sue).

Question 92

Vesting of 3rd Party Rights to Sue

Answer 92

Parties to a K are free to modify or rescind by mutual consent, and they may modify or rescind a third party beneficiary provision w/o consent UNLESS beneficiary’s rights under the K have vested.

With intended beneficiaries, vesting occurs when:

1) Beneficiary brings suit on the matter.

2) Beneficiary changes position in justifiable reliance on K.

3) Beneficiary manifests assent to K at the request of promisor or promisee.

4) Rights of beneficiary have vested under express K terms.

Question 93

Assignment and Delegation

Answer 93

Assignment = a transfer of a right to receive a contract performance

Delegation = Occurs when a third party agrees to satisfy a performance obligation owed by one of the parties to a K.

–Absent a novation, a delegation does not relieve the delegator from his obligations under K.

–Personal services are not delegable.

–If delegation was for consideration, delegator has breach of K action against delegatee for non-performance.

NOTE: Absent a delegation, an assignment does NOT transfer the obligations of the assignor under the K to the assignee.