Contracts rule statements Flashcards
Compensatory damages
Compensatory damages are meant to compensate the non breaching party for actual economic losses.
Expectation damages
Expectation damages are intended to put the nonbreaching party in the same position as if the contract had been performed. Expectation damages must be calculated with reasonable certainty
Measure of damages for a contractor’s failure to begin/complete a building project
In construction contracts, the measure of damages for a contractor’s failure to begin or to complete a building project is the difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for the delay in completing the construction.
Consequential damages
Consequential damages are a direct result of the breach but need not be the usual result of breaching party’s conduct. Instead, consequential damages need only be a reasonably foreseeable result of the breach given the parties specific circumstances.
Foreseeability of consequential damages
The breaching party must have reasonably foreseen the consequential damages for them to be recoverable. Damages are foreseeable if they were a natural and probable consequence of breach, if they were in the contemplation of the parties at the time the contract was made, or they were otherwise foreseable
Mitigating damages
Contracts
A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or invoncenience.
Standard non-breaching parties are held to for preventing loss
A non breaching party is held to a standard of reasonable conduct in preventing loss.
Nonbreaching party’s failure to mitigate
The non breaching party’s failure to mitigate does not give the breaching party a right to sue the non breaching party for such a failure – it only reduces the non breaching party’s damages recovery
Doctrine of substantial performance
The doctrine of substantial performance provides that a party who substantially performs can recover on the contract even though full performance has not ben tendered.
Substantial performance in light of material breach
There is no substantial performance if incomplete performance was a material breach of the contract.
Effect of a material breach of contract
Under common law, a material breach of contract (i.e., when the nonbreaching party fails to receive the substantial benefit of its bargain) allows the nonbreaching party to withhold any promised performance and to pursue remedies for breach
Hybrid goods and services K
When a transaction involves both the sale of goods and the rendering of services, the predominant purpose test applies to determine whether the common law of contracts or article 2 of the UCC applies to the entire transaction.
What if the sale of goods aspects predominates?
If the sale of goods aspects predominates, the UCC applies to the entire transaction, but it does not preclude the application of other law in appropriate circumstances to aspects of the transaction that do not relate to the sale of goods
What if the services aspect predominates?
If the services aspect predominates, only the provisions of the UCC that relate primarily to the sale of goods aspects transactions apply.
and the common law will govern
Parol evidence rule
The common law parol evidence rule prevents the introduction of prior extrinsic evidence that contradicts the terms of the written contract.
Prereq. for the PER to apply
For the PER to apply, there must be a determination as to whether the parties’ writing is integrated – i.e., whether they intended for it to be their entire agreement.
What if a writing completely expresses all the terms of a parties’ agrement?
If a writing completely expresses all of the terms of a parties’ agreement, then it is a total integration, and the parties cannot introduce any extrinsic evidence of prior or contemporaneous understandings or negotiatins.
What if a writing does not set forth the parties’ agreement on all terms
If the writing sets forth the parties’ agreement about some terms, but not all, then it is a partial integration. The parties are then permitted to introduce supplementary extrinsic evidence of other terms as long as it is consistent with the writing.
What do courts look to to determine intent re: integration
CL
Under the common law, a court was permitted to look only to the writing itself (the four corners of the document) for evidence of the parties’ intent.
Modifying a K at CL
At common law, modification of an existing contract must be supported by consideration. An agreement to modify a contract may be enforced if there are new obligations on both sides
Intentionally furnishing different services than what was promised
Substantial performance is less likely to be found when a party intentionally furnishes services that are materially different from what he promised. Such a breach is more likely to be treated as a material breach, for which damages are recoverable
Divisible/installment contracts
A divisible or installment contract is one in which the parties’ obligations are divisible into discrete units of performance
recovery for breach of divisible/installment K
Recovery is limited to the amount promised for the unit of the contract performed
Complying with a condition before performance
When parties expressly agree to a condition precedent, they are generally held strictly to that condition, and a party must fully comply with that condition before the other party’s performance is due
fairness when P confers benefit to D and expects compensation
When a plaintiff confers a measurable benefit on a defendant, and the plaintiff has a reasonable expectation of compensation, it would be unfair to permit the defendant to receive the benefit without compensating the plaintiff. In these cases, the court can permit the plaintiff to recover the value of the benefit to prevent unjust enrichment
Quantum meruit and existence of an underlying K
Although restitution actions are often characterized as based on an implied in law contract or a quasi contract, quantum meruit does not depend on the existence of a contract
Bodies of law that apply to Ks
The common law applies to contracts for services or real estate, and Article 2 of the UCC applies to contracts for the sale of goods
minor breach and performance
Under the common law, if the breach is minor (i.e., the breaching party has substantially performed), the nonbreaching party must still perform under the contract. This allows a party who substantially performs to recover even though they have not rendered full performance.
What can a substantially performing party recover
Generally, the substantially performing party can recover the contract price minus the cost to the other party of obtaining promised full performance
When does a material breach occur
A material breach occurs when the nonbreaching party does not receive the substantial benefit of the bargain
Effect of material breach
Material breach allows the nonbreaching party to withold any promised performance and pursue remedies for the breach, including damages.
What can a breaching party who fails to substantially perform recover
The breaching party who fails to substantially perform generally cannot recover contract damages, but may be able to recover through restitution. However, many courts hold that recovery in restitution is only available if the breach is not willful
Party who intentionally furnishes different services, and what they can recover
A party who intentionally furnishes services that are materially different from what was promised cannot recover anything in resititution unless the nonbreaching party has accepted or agreed to accept the substitute performance
When construction damages would result in waste, what is the appropriate measure of damages
When a breach results in defective or unfinished construction, if damages based on the cost to fix or complete construction would result in economic waste, then a court may instead award damages equal to the dimunition in the market price caused by the breach.
When does economic waste occur
Economic waste occurs when the cost to fix or complete construction is clearly disproportional to any economic benefit or utility gained as a result
Consequential damages
Consequential damages are a direct result of the breach but need not be the usual result of the breaching party’s conduct.
foreseeability of consequential damages
Consequential damage must be a reasonably foreseeable result of the breach given the parties’ specific circumstances
who has to foresee consequential damages
The breaching party must have reasonably foreseen the consequential damages for them to be recoverable
When are consequential damages forseeable
Damages are foreseeable if they are a natural and probable consequence of breach, if they were in the contemplation of the parties at the time the K was made, or they were otherwise foreseeable
link between breach and consequential damages
Consequential damages do not concern the value of the lost performance due to breach, but there must be a causal link between the breach and the consequential damages for them to be recoverable.
Certainty of consequential damages
The plaintiff must prove the dollar amount of consequential damages with reasonable certainty, not speculatively
Duty to mitigate damages
A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience
nonbreaching party’s failure to mitigate
the non breaching party’s failure to mitigate does not give the breaching party a right to sue the nonbreaching party for such failure; it only reduces the nonbreaching party’s damages recovery
When is a K formed under the UCC?
Under the UCC, a K is formed if both parties intend to enter into a contract and there is a reasonably certain basis for giving a remedy
required terms for UCC k
Other than the identity of the parties and subject matter of the agreement, the quantity is the only term essential to forming the contract
UCC gap filling
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.
SOF and UCC sale of goods
An oral contract for the sale of goods is valid and enforceable unless the contract is for the sale of goods worth $500 or more.
Sale of goods worth 500 or more
When the contract is for the sale of good for $500 or more, the contract must be in writing and signed by the party to be charged in order to satisfy the SOF and be enforceable.
Sufficiency of writing for UCC SOF
The writing need only be sufficient to indicate that the parties intended to enter into a contract.
UCC SOF acception for goods that have been received and accepted
A contract for the sale of goods is outside the UCC SOF to the extent that the goods are received and accepted, and to the extent that payment has been made and accepted.
UCC writing requirement
The UCC requires a writing for the 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.
What counts as a signature for UCC
A signature is any authentication that identifies the party to be charged – e.g., a letterhead on memorandum.
Mistake in UCC memorandum
A mistake in the memorandum or the omission of other terms does not destroy a memorandum’s validity. An omitted term can be proved by parol evidence.
Enforceability of quantity term in memorandum
Enforcement of the agreement is limited to the quantity term actually stated in the memorandum
Merchant for UCC purposes
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.
Memorandum between merchants
In contracts between merchants for the sale of goods for $500 or more, if a memorandum sufficient against one party (signed) is sent to the other, who has reason to know of its contents, and the receiving party does not object in writing within 10 days, the contract is enforceable against the receiving party even if he has not signed it
When can an offer be revoked
In general, an offer can be revoked by the offeror at any time prior to acceptance
UCC firm offer rule
Under the UCC firm offer rule, an offer to buy or sell goods is irrevocable if (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.
Firm offers prepared by the offeree
A firm offer in a form prepared by the offeree must be separately authenticated by the offeror to protect against inadvertent signing.
irrevocability of offers because of detrimental reliance
It is possible for an offer to be irrevocable if the offeree reasonably and detrimentally relies on the offeror’s promise prior to acceptance. It must have been reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract
When is an offer revoked
An offer is revoked when the offeror makes a manifestation of an intention not to enter into a proposed contract before the offeree accepts. A revocation may be made in any reasonable manner and by any reasonable means, and is not effective until it is communicated
When does a person receive notice of revocation under UCC
Under the UCC, a person receives notice of a revocation when (i) it comes to that person’s attention or (ii) the revocation is duly delivered in a reasonable form at the offeree’s place of business
What if it’s a UCC contract but no UCC provision applies
Where no UCC rule applies, the common law governs that part of the contract
Offer definition
An offer is an objective manifestation of willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree.
When can an offer be accepted
An offer can only be accepted while it remains open
Rejection as terminating an offer
One way that an offer terminates is by the offeree’s rejection of the offer.
Option contract
An enforceable option will render an offer irrevocable. An option is an independent promise to keep an offer open for a specified period of time.
How an option K limits the offeror’s power
An option promise limits the offeror’s power to revoke the offer until after the period has expired, while also preserving the offeree’s power to accept.
consideration requirement for options
Under the common law, if the option is a promise not to revoke an offer to enter into a new contract, the offeree must generally give separate consideration for the option to be enforceable.
UCC firm offer consideration
Unlike the common law, no separate consideration is required to keep the offer open under the UCC firm offer rule.
Merchants under the firm offer rule
Under the firm offer rule, a merchant includes not only a person who regularly deals in the type of goods involved, but also any business person when the transaction is of a commercial nature.
Constructive revocation
If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked. This is called constructive revocation
Key term in UCC contracts
The key term that typically must be specified is quantity, and so long as the parties intended to create a contract, the UCC will fill the gaps left by any missing items.
Gap fillers for delivery, when contract is silent
When a contract is silent as to delivery, the UCC provides that the place for delivery is the seller’s place of business
course of dealing
Terms of an agreement may be supplemented by the parties’ course of dealing. Course of dealing is a sequence of conduct concerning previous transactions between the parties that can reasonably establish a common basis of understanding for interpreting their conduct
strict performance requirement for ucc
Under the UCC, a party must strictly perform all obligations under the contract, and failure to do so results in breach
calculation of expectation damages
these damages are calculated as the difference in value of performance with and without the breach
Types of conditions in a K
A condition may precede the obligation to perform (condition precedent), or a condition may discharge the duty to perform after a particular event occurs (condition subsequent)
Duty of good faith and fair dealing in all Ks
A duty of good faith and fair dealing is imposed on each party in the performance and enforcement of any contractual obligation
certainty of expectation damages
the nonbreaching party must be able to prove these damages with reasonable certainty, and the damages must be foreseeable
when are damages forseeable
damages are foreseeable if they were contemplated by the parties at the time the contract was made
punitive damages in K actions
punitive damages are rarely available in contract actions and are not typically recoverable unless the conduct constituting the breach is also a tort for which punitive damages are available.
when some states will impose punitive damages
Some statutes will apply punitive damages for the purpose of punishing fraud, violation of a fiduciary duty, acts of bad faith, and deterrence
How can a K be made under UCC Art 2
Under Art 2 of the UCC, a contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
UCC SOF
Contracts that fall within the statute of frauds are unenforceable unless evidenced in writing and signed by the party to be charged. A contract for the sale of goods for a price of $500 or more is subject to the statute of frauds
requirements for UCC SOF writing
The UCC requires a contract for the sale of goods for $500 or more to be evidenced by a writing that identifies the subject matter of the agreement, identifies the parties, contains a quantity term, and is signed by the party against whom enforcement is sought
what constitutes a signature for UCC K
A signature includes any authentication that identifies tha party to be charged (not just a handwritten signature), such as letterhead on a memorandum
UCC confirmatory memo exception
Under the UCC, an exception to the SOF applies when (1) both parties are merchants (2) a memorandum sufficient against one party is sent to the other party who has reason to know of its contents and (3) the receiving party does not object in writing within 10 days of receipt of the memorandum. Then, the contract is enforceable against the receiving party, even though they have not signed it
Who is a merchant
A merchant includes not only a person who regularly deals in the type of goods involved in the transaction, but also any businessperson when the transaction is of a commercial nature
