DeVeaux K definitions

Question 1

Common Law

Answer 1

The present dispute does not involve a transaction in goods. Thus, the matter is governed exclusively by common law, not the Uniform Commercial Code.

Question 2

Standing

Answer 2

Courts generally require privity between the plaintiff and the defendant as a prerequisite to standing to pursue a claim arising under a contract. But exceptions exist which afford standing to individuals not parties to a contract to pursue claims premised upon that contract. X is not a party to the Y-Z contract. The court must determine whether X falls within such an exception.

Question 3

Enforcement of 3rd Party K.

Answer 3

A contract, made expressly for the benefit of a third person, may be enforced by him.

Question 4

The question to ask if 3rd Party K.

Answer 4

The primary question in a third-party beneficiary case is whether the contract
manifests an intent to benefit a third party. A third party who incidentally benefits from the contract of another, no matter how significantly, lacks standing to pursue claims premised upon that contract. But an intended beneficiary possesses standing to pursue such claims.

Question 5

Test for intended beneficiary

Answer 5

One qualifies as an intended beneficiary if the promised performance will be of pecuniary benefit to the third party and the contract is so expressed as to give the promisor reason to know that such benefit is contemplated by the promisee as one of the motivating causes of his making the contract.

Question 6

Creditor and Donee Beneficiaries

Answer 6

Courts refer to beneficiaries who are designated so that the promisee may satisfy an obligation to pay money to the beneficiary as “creditor beneficiaries.” Conversely, beneficiaries to whom the promisee simply intends to make a gift are referred to as “donee beneficiaries.”

Question 7

Assignment of Rights

Answer 7

Ordinary rights are freely assignable unless the assignment would materially change the duty of the obligor, materially increase the burden or risk imposed upon the obligor by his contract, impair the obligor’s chance of obtaining return performance or materially reduce the value of the return performance to the obligor, and unless the law restricts the assignability of the specific right involved.

Question 8

Definition of Assignment

Answer 8

An assignment is an act or manifestation by the owner of a right (the assignor) indicating his intent to transfer that right to another person (the assignee). For an
3
assignment to be valid and enforceable against the assignor’s debtor, the obligor, the assignor must make clear his intent to relinquish the right to the assignee and must not retain any control over the right assigned or any power of revocation. This is so because to be valid an assignment must at once create in the assignee a new right, while at the same time extinguishing the corresponding right previously held by the assignor.

Question 9

Ripeness Definition

Answer 9

A cause of action for breach of contract does not accrue before the time of breach. Thus, ordinarily there can be no actual breach of a contract until the time specified therein for performance has arrived.

Question 10

How an Anticipatory Repudiation occurs

Answer 10

if a party to a contract expressly repudiates the contract before the time for his or her performance has arrived, an anticipatory breach is said to have occurred. The courts have coined such a breach
4
anticipatory repudiation.

Question 11

Requirements of Anticipatory Repudiation

Answer 11

Anticipatory repudiation requires a clear manifestation of an intent not to perform
the contract on the date of performance. That intention must be a definite and unequivocal manifestation that he will not render the promised performance when the time fixed for it in the contract arrives. Doubtful and indefinite statements that performance may or may not take place are not enough.

Question 12

Expectation Damages

Answer 12

The preferred measure of contract damages seeks to protect an injured party’s expectation interest. Courts normally seek to award sufficient damages to give the non-breaching party the “benefit of her bargain” — to make the party whole by restoring that party, so far as can be done by a monetary award, to the same position that she would have occupied if the contract had been performed.

Question 13

Formula for Damages

Answer 13

For breach of a contractual obligation, the measure of damages is the amount which will compensate the non-breaching party for any loss directly caused thereby (so called “general” damages), plus any consequential damages which in the ordinary course of things would be likely to result there from, less any avoided costs and/or losses.

Question 14

Consequential Damages

Answer 14

Consequential damages are damages that do not arise naturally or ordinarily from a breach of contract, but which arise because of the intervention of special circumstances. such damages are recoverable, if, and only if, the special circumstances were communicated to or known by both parties to the contract at the time they entered the contract. Hadley v. Baxendale. This limitation on available damages serves to encourage contractual relations by enabling parties to estimate in advance the financial risks of their contract.

Question 15

Attorney Fees

Answer 15

California follows the “American rule,” under which each party to a lawsuit ordinarily must pay his or her own attorney fees. But exceptions to this rule exist. Because a principal policy of contract law is to enforce the reasonable expectations created by the contract, where the contract at issue expressly provides for an award of attorney fees to the prevailing party in a dispute, courts enforce that promise.

Question 16

Covenant of Good Faith and Fair Dealing

Answer 16

The covenant of good faith and fair dealing is contained in all contracts and mandates that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. Contrary to popular misconception, the covenant of good faith does not support an independent cause of action for failure to perform or enforce in good faith. Rather, the covenant means that a failure to perform or enforce, in good faith, a specific duty or obligation under the contract constitutes a breach of that contract.

Question 17

Classical Common Law to Covenant of Good Faith

Answer 17

The development of the covenant of good faith represents a dramatic departure from classical common law which permitted parties to exploit semantic lapses in a contract to undermine the purpose of a contract. The doctrine prevents parties from exploiting loopholes to deprive the other party of its bargained-for benefit. As then- Judge Cardozo explained: “The law has outgrown its primitive stage of formalism when
9
the precise word was the sovereign talisman, and every slip was fatal.”

Question 18

Limitations of Good Faith

Answer 18

The concept of good faith does not have — and indeed cannot have — a single definition of its own. Ultimately, good faith, or the lack thereof, must be judged in the
context from which the claim arose.

Question 19

Exercise of Discretion

Answer 19

Where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing. A party breaches the covenant if it exercises its discretion in a manner calculated to undermine the other party’s basic expectations for entering the contract.

Question 20

Adherence to Commercially Reasonable Standards

Answer 20

Courts have concluded that the covenant of good faith requires parties transacting in a particular trade to observe reasonable commercial standards of fair dealing in that trade. Thus, the covenant acts to protect the reasonable expectations of contracting parties in light of the background practices and customs in which the agreement arose.

Question 21

Adherence to the “Spirit” as Well as the “Letter” of a Contract

Answer 21

One of the hallmarks of good faith is the notion that courts will examine a party’s performance in light of the “spirit” of the contract, not merely the “letter.” A party acts in bad faith when he makes a calculated effort to conform his conduct to the precise “letter” of the contract but nonetheless undermines the “spirit” of the contract — either by enabling that party to realize gains that in making the contract he had implicitly agreed to surrender, or by unfairly denying to the other party the fruits of the contract that she reasonable expected to receive.

Question 22

Volksgeist Policy

Answer 22

In this sense, the obligation of good faith can be viewed as a device for protecting the bargain that the parties have made against later attempts by one side to undermine it. To this end courts have recognized that in every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. To determine what is considered a good-faith performance, the Court must consider the expectations of the parties and the purposes for which the contract was made.

Question 23

Good Faith Cannot Override an Express Contractual Term

Answer 23

Good Faith Cannot Override an Express Contractual Term.

Question 24

Contract Theory from Covenant of Good Faith

Answer 24

When two parties make a contract, they agree upon the rules and regulations which will govern their relationship; the risks inherent in the agreement and the likelihood of its breach. The parties to the contract in essence create a mini-universe for themselves, in which each voluntarily chooses his contracting partner, each trusts the other’s willingness to keep his word and honor his commitments, and in which they define their respective obligations, rewards and risks.

Question 25

Illusory Promise

Answer 25

If one of the promises leaves a party free to perform or to withdraw from the agreement at his own unrestricted pleasure, the promise is deemed illusory and it provides no consideration.

Question 26

Illusory Promises and Satisfaction Clauses

Answer 26

A clause conditioning a

party’s contractual obligations on another’s “satisfaction” does not render the contract illusory.

Question 27

Satisfaction Clauses and Good Faith

Answer 27

The party who must be satisfied is always bound, at minimum, to act in good faith regardless of any implied requirement of reasonableness.

Question 28

Two ways to evaulate satisfaction

Answer 28

Courts divide “satisfaction” clauses into two categories. In one category, the party’s “satisfaction” is governed by an objective “reasonable person” standard. In the second category, the party’s “satisfaction” is governed by a subjective “good faith” standard. The ultimate touchstone of decision concerning which standard applies must be the intent of the parties to the contract. Thus, the court must consider the actual language they used.

Question 29

Satisfaction, Reasonable Person Standard

Answer 29

Contracts that call for satisfaction concerning matters of “commercial value or quality, operative fitness, or mechanical utility” are interpreted under a reasonable person standard. This is so because commercial value or quality, operative fitness, or mechanical utility are objective features which others are qualified to judge.

Question 30

Good Faith Standard for Satisfaction

Answer 30

Contracts with satisfaction clauses that involve judgment concerning matters of “fancy, taste, or judgment” are analyzed under a good faith standard. because juries, even a jury of connisouers, are ill-fit to make aesthetic judgments.

Question 31

Mitigation

Answer 31

One who alleges wrongful discharge of an employment or personal-services contract has a general duty to mitigate damages. This requires that the plaintiff to make a good faith effort to find suitable alternative employment.

Question 32

Emotional Damages in K

Answer 32

As a general rule, the law limits recovery for emotional disturbance to claims sounding in
5
tort. The distinction between tort and contract recognize that divergent objectives underlie the remedies created in the two areas. Whereas contract actions are created to enforce the intentions of the parties to the agreement, tort law is primarily designed to vindicate social policy.

Question 33

Emotional Disturbance Damages and Foreseeability

Answer 33

Courts treat emotional disturbance as a class of injury that is not within the contemplation of the parties as a matter of law. Even where, as here, one party is aware that the other party’s emotional stamina is weak, the law regards potential emotional injuries stemming from breach as generally beyond the parties’ contemplation at the time they made the contract. Thus, damages for emotional injuries are generally unrecoverable because such injury cannot satisfy Hadley’s foreseeability litmus test.

Question 34

Execptions to Emotional Disturbance Damages

Answer 34

The law permits the recovery of consequential damages for emotional disturbance in cases:

(1) where the breach also caused bodily harm; or
(2) where the contract is of such a kind that serious emotional disturbances are particularly likely. such as the carriage or disposition of dead bodies or the delivery of messages concerning death.

Question 35

USS Governing Law

Answer 35

The disputed transaction involves the sale of an all-terrain vehicle. The Uniform Commercial Code governs transactions for goods. “Goods” encompass “all things . . . which are movable at the time of identification to the contract. . . .” Because the vehicle was movable at the time of the transaction, it constituted a good. Thus, the U.C.C. governs the parties’ dispute.

Question 36

Express warranties

Answer 36

Section 2-313 of the U.C.C. dictates that express warranties by the seller are created as follows:

(a) Any Affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made a part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

Question 37

Affirmations of Fact

Answer 37

The issue whether a particular affirmation of fact made by the seller constitutes an express warranty is generally a question of fact.

Question 38

Simple Puffery

Answer 38

Simple puffery by the seller — a statement purporting to be merely the seller’s opinion or commendation of the goods — does not create a warranty.

Question 39

Essential Ingredient of an express warranty

Answer 39

The essential ingredient of an express warranty is that there must be an affirmation of fact by the seller with reference to the thing sold.

Question 40

Seller’s false affirmations

Answer 40

The Code dictates that a false affirmation regarding a good’s quality will only render a seller liable for breach if the affirmation is part of the “basis of the bargain.”
California courts have held that a warranty statement made by a seller is presumptively part of the basis of the bargain and the burden is on the seller to prove that the resulting bargain does not rest at all on the representation.

Question 41

Impracticability

Answer 41

Impracticability is an affirmative defense. Pursuant to this doctrine, a party may be relieved of his contractual obligations, if that party can prove the following elements:
(1) After a contract is made, the party’s performance is made impracticable;
(2) without his fault;
(3) by the occurrence of an event the non-occurrence of which was a
basic assumption on which the contract was made; and
(4) the language or circumstances of the contract do not indicate that the
party should not be relieved of its obligations.

Question 42

What Impracticability Isn’t

Answer 42

A mere lack of profit — or even a loss — stemming from a contract is insufficient to render that contract “impracticable.” Impracticability means more than “impracticality.” A mere change in the degree of difficulty or expense due to changed market conditions, even a dramatic change in market conditions does not amount to impracticability since it is this sort of risk that a long-term contract is intended to cover.

Question 43

Rules of Mitigation

Answer 43

A non-breaching party cannot recover damages for losses which she could have mitigated. One injured by another’s breach of contract is under a duty to exercise reasonable care to avoid loss or to mitigate the resulting damage. The injured party is bound to protect herself if she can do so with reasonable effort and can recover from the delinquent party only such losses as she could not, with reasonable effort have avoided.

Question 44

Burden of Proof for Wrongful Termination of Employment Mitigation

Answer 44

When an employer is claiming that the employee did not properly attempt to mitigate damages, the burden of proof is on the employer to show such failure. This requires that the employer show both that suitable work existed and that the employee did not make reasonable efforts to obtain it. Suitable employment is that which is substantially equivalent to the position lost and suitable to a person’s background and experience.

Question 45

Mitigating v. Additional Empolyment Contracts

Answer 45

The general rule is that where a an employer wrongfully terminates an employee and the employee later finds new employment, the employee’s measure of damages is the difference between the compensation the employee was to receive from the breached contract and the compensation he received from his subsequent employment. But this rule only applies when the subsequent employment contract constitutes a “mitigating” contract rather than an “additional” one.

Question 46

How to classify a “mitigating employment K”

Answer 46

A “mitigating” contract is one that the plaintiff was able to perform only because the defendant’s breach freed the plaintiff from the obligation to perform the original contract.

Question 47

How to classify an “Added employment K”

Answer 47

If the plaintiff would have been able and willing to perform the subsequent contracts regardless of the defendant’s breach, then those subsequent contracts will be regarded as “additional” ones. If a second contract was “additional,” the plaintiff is entitled to the profit from both contracts and the defendant will not have the benefit of any deduction from its damage liability. The proceeds of the subsequent contract cannot constitute avoided losses because the plaintiff would have realized the profits of that transaction whether the defendant breached his contract or not.

Question 48

Added v. Mitigating

Answer 48

Turns on lost volume.

Question 49

Function of the Parol Evidence Rule

Answer 49

The parol-evidence rule dictates that evidence of prior or contemporaneous agreements or negotiations may not be introduced to contradict the terms of a partially or fully integrated writing.

Question 50

Fully Integrated

Answer 50

A writing is deemed fully integrated if the parties intend it to be the expression of their entire agreement.

Question 51

Partially Integrated

Answer 51

When the parties intend the writing to be the final expression of the terms it contains but not a complete expression of all the terms agreed upon — some terms remaining unwritten — the agreement is termed partially integrated.

Question 52

When a writing is partially integrated

Answer 52

If a writing is only partially integrated, evidence of prior or
contemporaneous agreements is admissible to supplement its terms though not to contradict it.

Question 53

When a writing is fully integrated

Answer 53

If an agreement is fully integrated, however, not even evidence of a “consistent additional term” may be introduced to elucidate the writing.

Question 54

Fraud exception to the PE rule

Answer 54

Even in the case of fully integrated written contracts, the courts generally recognize a fraud exception, allowing the consideration of extrinsic evidence showing fraud in the inducement–misrepresentations of fact to induce the other party to enter into the contract.