Exam 4 - Contracts Flashcards
Basic Requirements of a K
1) Agreement
2) Between Competent Parties
3) Genuineness of assent
4) Consideration
5) Legality
6) In proper legal form
Bilateral K
Promise for a promise
-Promises are not legally binding on their own, but can be consideration
-promise can be express (oral or written) or implied (based on conduct)
-Promise 1 given by A to B is an offer and consideration. Promise 2 given in return from B to A constitutes acceptance of A’s offer and consideration.
Agreement
Offer and Acceptance
Unilateral K
Promise in return for an act
A promises something to B. The nature of the promise is that B must complete some act in return.
The promise by A constitutes the offer and A’s consideration, while b’s acceptance and consideration come from completing the required act.
As a general rule, the act must be completed to create a unilateral K. Significant performance is the exception.
Quasi Contract
Non-contract doctrine enforced by the courts when one party is unjustly enriched. Measure of damages is the reasonable value of what was unjustly received by the party being sued.
-Defense to QC is volunteered work. If the receiver of the value did not know of or consent to receiving the value, they cannot be sued under QC
Quantum Meruit
The reasonable value of a service
Valid K
Good, binding contract meeting all requirements. Will be enforced by the courts.
Void K
NOT A K. There never was, is not, and never will be a contact. Most likely caused by illegality of the attempt at K. Will not be enforced
Voidable K
K that can either be ratified or disaffirmed by at least one of the parties.
Contracts Voidable for Fraud
Elements of Fraud:
1) Misrepresentation
2) Of a material fact
3) with knowledge or reckless indifference to the truth
4) Intent to deceive
5) reasonable reliance
6) Injury
With 1-5, the non-fraudulent party has access to the equitable remedy of recession, and the K is voidable at their behalf.
With 1-6, party also entitled to monetary damages.
Equitable Remedy of Recession
-Asking the court to return both parties to their original positions before the contract was made, and to cancel the contract.
-The right to disaffirm must be exercised within a reasonable time, otherwise, there is implied ratification of the contract.
Executory K
K not completed by either party
Executed K
K completed by both parties
Partially Executory/Executed K
K completed by one party, but not the other
Offer
Can be oral, written, or implied
Must consist of:
1) Present, Serious, Contractual Intent
2) Sufficiently definite subject matter (‘a job’ vs. ‘account’s payable specialist position group #41786’)
3) Communication to the offeree
Things that are not offers
1) A future offer (I will be willing to sell you my car for $15 in 2 years)
2) Offers made in jest (I’d pay a million dollars for that drinking straw)
3) Preliminary Negotiations
4) An invitation (to dinner, a party, etc.)
5) An invitation to offer (What’s your best offer for my pen?)
6) Inquiry (are there any known defects in this product?)
7) Answers to an inquiry (No, there are no known defects)
Offer outcomes
Offeror makes offer, offeree is the one receiving the offer
1) Acceptance (Offeree)
2) Rejection (Offeree - Terminates offer)
3) Revocation (Offeror - Terminates offer)
4) Termination (Accomplished by Rejection, Revocation, or otherwise)
Revocation
General Rule: an offer can be revoked at any time before it is accepted.
Exceptions: Irrevocable Offers
1) Option K - Sales or C/L K
2) Firm Offer - Sales ONLY
Option K
Contract for a specific offer to be kept open for a specific period of time. Made effective by the party receiving the option giving some additional consideration in exchange.
Firm Offer
Only in Sales Law
Consists of:
1) An offer
2) A promise to keep that offer open for three months or less
3) In writing
4) Made by a merchant
Firm offers do not require consideration to be given by the receiving party.
Merchant
An individual or firm whose usual business is trading in goods.
Sales Law
Governed by the uniform commercial code and title 13 of the ORC
-Governs Sales
-Sales: Present transfer of title to goods
–Title: ownership
– goods: Tangible personal property
Common Law of Contracts (C/L K)
Covers everything not covered by sales law
Maintained by the courts.
Things that fall under C/L K:
1) K for the sale of real property
2) K for intangible property
3) K for services
4) K for the acquisition of a business
Is the K Sales or C/L K
Can be purely sales, purely C/L K, or take on elements of both. however, the K can only be governed by one set of laws at a time. If there are elements of both sale and service to the transaction, need to determine whether the actor exists primarily to provide the service or to sell the good.
Rejection of an Offer
Can come in multiple forms:
1) Flat out rejection (No, I don’t want any part of that)
2) Counter offer (I’ll do it if you pay me $1,000 more)
- Terminates the original offer and creates a new offer from the previous offeree to the previous offeror with the roles reversed
3) Qualified acceptance (I agree, if…)
- C/L K considers qualified acceptances to be counter-offers. Under strict reading of C/L K, the offer and acceptance must match exactly to be a valid agreement.
Termination of an Offer
Causes of Termination:
1) Rejection
2) Revocation
3) Lapse of time - (offer automatically terminates after a reasonable amount of time)
4) Condition Subsequent
5) Destruction of the subject matter
6) Impossibility
7) Subsequent Illegality
Offer Effective
On receipt by offeree
Revocation Effective
On receipt by offeree
Rejection Effective
On receipt by offeror
Acceptance Effective
When sent (posted, deposited, etc)
-Even if the notice of agreement is lost in the mail, the acceptance is still effective.
–The rebuttable assumption is that if it was sent, it was received.
Exceptions to Acceptance being effective when sent
1) The offer states otherwise in tits text
2) The implied agency rule (C/L K only)
- If the acceptance is sent by a method that is the same speed or father than the one used to deliver the offer, the acceptance is effective on send
-If a method slower than the one used to deliver the offer is used, the acceptance is effective upon receipt by the offeror.
3) Acceptance following a prior rejection
- In the case where events occur that there is, in sequence: an offer, followed by the sending of a rejection, followed by the sending of an acceptance, the response that arrives to the offeror first is effective.
– if the rejection gets there first, the offeree rejects the offer
– if the acceptance arrives first, the offeree accepts the offer
- Only applies in case of Offer -> Rejection Sent -> Acceptance sent
Consideration
A bargained for legal detriment
Doctrine of Consideration
A promise is not binding unless it is supported by consideration
Exceptions to the Doctrine of Consideration
1) Promissory Estoppel
- if a party relies on a promise to a substantial detrimental degree, the court will enforce that promise even though there is no consideration given. Not effective in all states.
2) Promise to make charitable contributions
3) Composition Agreement - avoids the pre-existing duty rule
- If a debtor with multiple creditors gets all creditors to agree to reduce their collectible amounts, no creditor can sue to recover remaining amount, even though no consideration is given by the debtor.
4) Promises made after the statute of limitations has run do not require new consideration to be enforceable.
5) Promises made after a discharge in bankruptcy
- per the Bankruptcy reform act, debts can be revived if all of the following are tre:
-a) Revival undertaken in court
-b) Revival undertaken in front of a judge
-c) the judge has advised the prospective debtor on their rights
-d) it is in the debtor’s best interest to revive the debt (rent, etc)
6) The unforeseeable difficulties rule: No consideration requirement to modify the contract if all the following are true:
-a) Construction contract
-b) an unforeseeable event ahs occurred (must be truly extraordinary)
-c) there is a promise to pay an additional amount
7) Modification of a sales K
- Both parties must be in agreement
- Only one party need give new consideration (I was going to wash your car, now, I’ll throw in a free a tire rotation)
Pre-Existing duty rule
A promise to do something you are already legally required to do does not constitute consideration
Past Consideration
Something that occurred in the past was not bargained for, and therefore cannot be consideration for a present contract
Illusory promise
A promise that doesn’t actually bind the promisor to do anything:
- I may do XYZ, etc.
Output K
A K for all the product X can produce. Not illusory, as even though the amount is indefinite, X is still giving up their coal output
Requirement K
A K for X to provide Y with all the product Y will need. Again, indefinite in quantity, but not illusory
Forbearance
A promise to not do something that one otherwise has the legal right to do.
- Can be consideration
Analyzing Contract Cases
1) Identify the court (almost always state trial court -> Ohio)
2) Identify the parties in privity of contract
3) Identify the consideration given by each party
4) Determine whether the K is governed by Sales or C/L K
5) Identify plaintiff and defendant
6) identify issues
Liquidated Debt
A debt whose amount is known by both parties
- The full amount is always collectible, unless otherwise settled
Unliquidated Debt
A debt whose amount is genuinely disputed by the creditor and debtor.
-If the creditor accepts and cashes a check marked with “paid in full” and directed towards an unliquidated debt without disputing the “paid in full” nature of the payment, the creditor loses the right to collect the remainder of what they claim is owed.
Genuineness of Assent
Both parties actually meant to enter into the contract as it is written
Defenses to Genuineness of Assent
1) Mistake
2) Misrepresentation
3) Concealment
4) Fraud
5) Duress
6) Undue Influence
7) Unconscionability
Mistake
Unilateral Mistakes: Made by one Party
Bilateral Mistakes: Made by both parties
May be Mistakes of:
1) Fact (Not opinion or value)
2) Law
3) Expectation
Mistake of Fact (U/B)
Unilateral:
-General Rule: No effect on the contract (Caveat Emptor; Buyer beware)
-Exception: IF the other party knew of the mistake and did nothing to rectify it, the contract is voidable for the party who made the mistake.
–Must return items and disaffirm in reasonable time, or implied ratification.
Bilateral:
-Contract is voidable on behalf of both parties
Mistake of Law (U/B)
Unilateral:
-No effect on the contract. Ignorance of the law is no excuse
Bilateral:
-No effect on the contract. Ignorance of the law is no excuse
Mistake of Expectation (U/B)
Unilateral:
-No effect on the K
Bilateral:
- No effect on K
Misrepresentation (Genuineness of Assent)
Refers to innocent misrepresentation, without the elements to constitute fraud.
Contract is voidable for the party to whom information was misrepresented.
Concealment
General Rule: There is no duty for one party to disclose information regarding a contract to the other party
Exceptions:
1) Confidential relationship:
- In Attorney-Client, Doctor-Patient, and Parent-Child relationships, there is additional duty to disclose do to the nature of the relationship
2) By statute requiring disclosures
3) The other party knows that the person is walking into a trap
- K is voidable
- Selling a car you know will breakdown in the next three months, etc.
Fraud (Genuineness of Assent)
Elements:
1) Misrepresentation (Act of concealment)
2) Of a material fact
3) With knowledge or reckless indifference to the truth
4) Intent to deceive
5) Reasonable Reliance
6) Injury
With 1-5, recession is available.
With 1-6, recession and damages.
Duress
1) Extreme Duress: (gun to head) K is void
2) Mild Duress: (Threat of criminal prosecution) K is voidable on the behalf of the coerced party
Things that aren’t duress:
1) Threat of civil suit
2) Economic duress
Undue Influence
K is voidable on the part of the influenced if:
1) Confidential Relationship:
- Attorney Client
-Doctor Patient
-Parent Chile
2) Person in the dominant position takes advantage of the person in the inferior position
3) There was unequal bargaining power
Unconscionability
Does not fall under any other rule, but is considered by the court to be “fundamentally unfair”
-Usually involves unequal bargaining power
-“Shocks the conscious of the court”
-Usually results in a void K
–Rarely the K will be voidable.
Situations giving rise to lack of capacity
1) Person entering into the contract is a minor
2) Person is insane
3) Person is too intoxicated
Minor entering into a contract
1) <7: total incapacity -> Contract is void
2) 7<age<18: Contract is voidable at the minor’s discretion
-Can disaffirm any contract until they turn 18
–once 18, the minor has a reasonable time to disaffirm any contract made as a minor, before those contracts receive implied ratification
– continuing to carry out the contract is implied ratification.
-Minor can return any non-necessary good regardless of “reasonable time” constraint until they turn 18
–must return what they are able (this can be nothing) to in order to receive money back.
—whether that be the bike, or the scrap heap the back become after it was totaled, the minor gets full refund
–can be sued under quasi-contract for the reasonable value of any necessary good.
-If minor lied about age:
–kid can disaffirm as a minor
–seller can disaffirm for fraud
— 1/3 of states: the kid can still disaffirm, even though there was fraud, and the adult cannot
— 1/3 of states: the fraud means that only the adult can disaffirm
— 1/3 states (Ohio): the minor can disaffirm, but they are only entitled to restitution
Necessary item
Basic Food, Basic clothing, basic shelter. everything else is a non-necessary.
Duty of restoration
Return what you are able, receive full refund (minor)
Duty of Restitution
Return what you are able, receive the reasonable value of what is returned. This reduction in value is the punishment for lying about age.
Insane person entering into K
Declared Insane: (adjudicated/judged)
-A guardian has been appointed to handle all legal affairs
-K made by the declared insane individual is void
Insane, but not formally declared:
-Same rules as for a minor, except:
–the insane person must return something to receive their consideration back.
– no age restriction
Power of attorney
An individual granted the power to make legal decisions on one’s behalf when they are themselves unable to do so.
Entering into K when too intoxicated
No such thing as complete incapacity from intoxication (that would be death)
Partial incapacity (K is voidable) - drunk to the point that you do not know what you are doing
-Must disaffirm within reasonable time
-No age limit
-Duty of restitution
Legality
If a contract is in some way illegal, it is almost always void, rarely voidable
Mechanisms of Contract Legality
1) Violation of a statute
2) Gambling Contract
3) Usury
4) Contracts in restraint of trade
5) Partial illegality
6) Licenses
7) Exculpatory Clauses
Violation of a statute (legality)
If the contract by its text is to commit acts against the law (murder, etc.) the K is void
Gambling Contracts (Legality)
Something is a gambling contract if:
1) There is a prize
2) Consideration is provided in exchange for the chance to win the prize
3) Whether or not the prize is one is primarily based on chance
-If chance -> gambling
-If skill -> not gambling, acceptable
Usury (Legality)
Usury: charging too much interest
-OH: 10% is the usury rate
-Exceptions:
–1) installment payments: UR -> 30%
–2) Small loan associations: UR -> 30%
Contracts in restraint of trade
Generally illegal:
Exception:
1) Covenants to not compete are legal if:
–a)They are ancillary (part of a larger contract)
–b)Consideration is provided in exchange for the non-competition
–c)The agreement is reasonably bound in time and space
—-(2 years max, usually less than the whole state)
–The time limit starts running at the end of employment
Partial Illegality (Legality)
Severable and Divisible:
If S&D, only the illegal portion of the contract is void, and the rest of the contract, if it can stand on its own, will be enforced
Non-Severable and Non-Divisible
If NS&ND, the whole contract will be void if any portion of it is illegal
Licenses (legality)
The effect of the lack of license on a contract depends on the purpose of the license:
Primarily for revenue raising: No effect on K (hunting license)
Primarily to protect the public: K is void (electrician)
- if services are provided, the unlicensed individual can sue under Quasi contract, with the measure of damages being the reasonable value of the service, whether that be higher or lower than the void K’s stipulated price.
Exculpatory Clauses (Legality)
-Clauses intended to limit the ability of the other party to sue.
-Heavily frowned upon by the courts; almost always illegal
-Limitation of liability clauses. Legal if:
1) Language is clear and unequivocal
2) Consideration is provided for giving up the right to sue
3) There is equal bargaining power between the contracts
–Not present in adhesion agreements
In proper legal Form
Some contracts must be in writing, or be evidenced by writing in order to be enforceable, pursuant to the Statute of Frauds
Statute of Frauds
Certain oral contracts must be evidenced by writing
- Does not mean that there needs to be a written contract
- Must only be able to convince the court that the parties did indeed enter into an oral contract (memorandum, letter of confirmation, signed check, etc)
Contracts governed by the Statute of Frauds (6)
1) Contracts for the Sale of Land or an interest therein
2) Contracts that cannot be completed within one year
3) Promise to pay the debts or default of another
4) Promise made in consideration of marriage
5) Promises made by an executor(trix) or administrator(trix) to pay the debts of an estate out of their own pocket
6) Sale of good $500 or more
Contracts for the Sale of Land or an interest therein
Governed by the C/L k. any sale of land, easements, etc.
Dower: An interest in 1/3 of the property passes to the spouse at the time of marriage. This interest vests at the time of the owner’s death, and is superior to all other claims
Contracts that cannot be completed within one year
If a contract, by its terms cannot be completed within one year, it will fall under the SoF. (employment for two years)
If there is any possibility that the contract can be completed within the year, the SoF does not apply (employment for the rest of your life; life could end within the year -> no SoF)
Promise to pay the debts or default of another
SoF applies if:
1) There is an oral promise
2) to the creditor
3) The promise is secondary
Primary vs. Secondary Promise
Primary promises are unconditional: The debt will be paid
Secondary promises are conditional: The debt will be paid by me if the debtor fails to pay
Surety, Guarantor, and Comaker
All are co-signors
Co-Makers: Joint and severable liability for the debt
- the creditor can collect from the CM immediately for the whole value of the debt
-If A defaults on debt to C and B was a comaker, C can sue B for full amount. B can turn around and sue A for contribution (half of the amount owed.
-Post default, acceleration clause goes into effect, and creditor can demand payment of the full debt
Surety: B is not liable until A defaults on their debt
- if C collects from B after A defaulted, B can sue A for the full amount.
Guarantor: B is not liable until A defaults and C is unable to collect from A.
- if C collects from B, B can sue A for full amount
DO NOT CONSIGN ANYTHING
Exceptions to SoF requirement for written evidence
1) Sale of Land/Interest therein: 1 exception
2) K cannot be completed within 1 year: No exception
3) Promise to pay the debt or default of another: 1 exception
4) Promises made in the consideration of marriage: No exception
5) Promises by executor/admin to pay out of pocket: No exception
6) Sale of goods $500+: 4 exceptions
Promises made in the consideration of marriage
SoF applies when the consideration of ONE party is marriage
Promise by executor/administrator to pay expenses of estate out of own pocket
If one dies with a will: They died Testate -> the appointed executor handles the estate
If one dies without a will: They died Intestate -> Administrator appointed by the court to handle the estate
If either an executor or administrator pay a bill of the estate out of their own pocket, they can recover the expense from the estate.
-A contract of an E/A to do so must be evidenced in writing to be enforceable under the SoF
Sale of Goods $500+
If the total value of the transaction is greater than $500, the oral contract must be evidenced in writing to be satisfied under the SoF
Exception to written evidence requirement: Sale of land/ Interest therein
Part Performance Doctrine (Majority View):
No written evidence required if:
1) the buyer makes a down payment / earnest money / security deposit
2) The buyer takes possession of the property
3) The buyer makes substantial improvements
Unequivocally referable rule (Minority View, Ohio):
No written evidence required if:
-Upon looking at the behavior, it is clearly the behavior the behavior of people in contract.
-Contract will be enforced
Exception to written evidence requirement: Promise to pay the debt or default of another
Primary purpose rule:
1) If the primary purpose of the promise to pay the debt/default is to help the debtor, there is no exception
2) If the primary purpose of the promise is to benefit the promisor, the courts will not need further evidence of an oral contract to enforce.
Exception to written evidence requirement: Sale of goods $500+
1) The goods are received and accepted by the buyer
2) Money received and accepted by the seller
3) The good(s) in question were specially manufactured for the buyer
4) Admission in court pleadings to the existence of the oral contract
- enforceable only up to the dollar amount admitted to.
If any are true, written evidence is unnecessary
T/F: The SoF requires a written Contract
False: there need only be written evidence of a K
- Memorandum, Letter of confirmation, check etc.
T/F: The SoF requires both parties to sign
False: only the defendant needs to have signed for the contract to be enforceable
Exception: if the plaintiff signs and sends a Letter of Confirmation, and both parties are merchants, the contract will be enforced anyway if the non-signing party foes not object within 10 days of receiving the letter of confirmation.
Effect on Contract if SoF is not satified
Contract is unenforceable: can be resurrected, but the court currently refuses to enforce the K
SoF Procedure
1) Determine if the SoF applies
2) If yes, look for written evidence
3) If none, look for exceptions to SoF case
If written evidence is available or an exception applies, SoF is satisfied and K is enforceable. If neither written evidence or exception are valid: K is unenforceable
Third Party Contracts
Where a party not in privity of contract sues for breach of contract. Two cases:
1) Third party intended beneficiary
2) Assignment
Third party intended beneficiary
Present if:
“It was in the contemplation of both parties at the time the contract was entered into or executed to directly benefit the third party.
If yes, the third party can sue for Breach of Contract
Incidental Beneficiary
Third party whose benefit from the contract is not direct. Cannot sue. “Directness” of the benefit is a question of fact.
Assignment
Transfer of Legal Rights
K between A and B, A assigns rights to C
A: Obligee, Assignor
B: Obligor
C: Assignee
C now has the legal right to whatever A had the legal right to
Both Assignee and Assignor can sue B if B fails to perform
-C is placed in the exact same legal position as A, including all defenses to contract and outside tort claims related to A.
Delegation
Transfer of Legal Duties
K between A and B, A delegates duties to C
A: Obligor, Delegator
b) Obligee
C) Delegatee
C now has the legal duty to perform whatever A was originally contracted for.
A is NOT discharged by delegation. B can sue both A and C if C fails to perform
Preventing Assignment
General Rule: The Obligor cannot prevent the assignment of rights.
Exceptions:
1) Assignment is prohibited in the text of the K
2) Personal K - (The obligor has a personal reason to want the specific person they contracted with to perform the K)
3) A substantial change in performance (Shipping from Chicago to Cleveland vs. Chicago to Hong Kong)
The right to receive money can always be assigned, unless prohibited in the K.
Reasons the Assignee is in the weak legal position
1) Subject to all contract defenses available to the obligor against the obligee
2)the assignee’s collection of assigned rights is subject to the obligor’s counter claims for torts committed by the obligee prior to notification of the assignment
3)If the assignee fails to provide notice of assignment, B is discharged by a payment in full to the obligee.
Multiple assignments of the same right
Majority view: The first to be assigned the right is the only valid assignee, once they have notified the obligor.
Minority View: the first to notify the obligor of assignment is the valid assignee.
Discharge
The means of getting out of a K
1) Discharge by Performance
2) Discharge by Agreement
3) Discharge by Conditions
4) Discharge by Implied Condition Subsequent
Discharge by Performance
General Rule: Must totally perform to be discharged (For services, must do a “reasonable job”, rather than perfection)
Exception: Substantial performance:
- if a party fails to totally perform, they are in breach of contract, and cannot sue for breach of contract themselves.
However, if their breach is
1) relatively trivial (<3% of contract value) and
2) unintentional,
The party can sue under substantial performance, and Party 1 can sue Party 2 for Breach of K, subject to Party 2’s counter claim for the cost to rectify Party 1’s breach.
If less than substantial Performance: Total breach of K.
-Cannot sue for breach of K while breaching yourself
-> sue for unjust enrichment under quasi-contract doctrine.
Successfully suing for Breach of K as a plaintiff
1) Totally perform, or
2) Substantially perform, or
3) Tender Performance
Tender
An unconditional offer
Tender of Payment: an unconditional offer to pay
- Checks are not tender of payment, as checks can bounce.
- Endorse all checks as (“without Recourse - Name)
Discharge by Agreement
5 Types of Discharge Agreements
1) Mutual Recession
2) Substituted Agreement
3) Novation
4) Waiver
5) Accord and Satisfaction
Mutual Recession
Both parties agree, outside of court, to cancel the contract. Not the same thing as the equitable remedy of Recession.
Substituted Agreement
A and B were in privity of K on K1, both agree to move to privity of K on K2, both A and B are discharged on K1.
Novation
1) K between A and B
2) A, B, and C agree that C will replace A in its relationship with B.
3) A separate K is formed between C and B, and A is discharged from the original K.
Differences from Assignment/Delegation
1) Novation results in a new K, assignment/Delegation does not
2) All three parties must agree for novation to be in effect. B would not generally be able to prevent assignment/delegation
3) Novation results in discharge for A. Assignment/Delegation does not result in a discharge.
Waiver
The voluntary relinquishment of one’s rights
-under C/L K, if party A wishes to waive one of their rights (forbearance) party B must provide some consideration for the waiver to be valid
-Under Sales K, no consideration on the part of B is necessary if A wishes to waive a right
-It is easier to modify a sales K than a C/L K
Accord and Satisfaction
A substitution of performance
A and B have an agreement for A to do task X in exchange for B providing payment.
Accord: A and B agree that A can do task Y instead for the same payment.
Satisfaction: A’s completion of task Y
Once the accord has been made, and A has carried out the substituted performance, A is discharged from his duty to perform task X.
Discharge By Conditions
Conditions Precedent: trigger an obligation (Upon the death of the policy holder, life insurance ahs an obligation to pay the policy to the beneficiary )
Conditions Subsequent: Terminate an Obligation (if the river floods, I will no longer be required to wash you car)
Conditions Concurrent: Conditions that must exists at the same time ( If the buyer pays, the buyer gets title. If the buyer gets title, the buyer must pay)
Discharge By Implied Conditions Subsequent
The court reading into the K conditions that were not explicitly written or agreed to.
Two forms:
1) Impossibility (Sales, C/L K)
2) Impracticability (Sales, Seeping into C/L K)
Impossibility
The object of the K is impossible to carry out - If this is the case, there is discharge
Possible Applications:
1) Usually involves destruction of the subject matter (can’t paint a house that has burned down)
2) Subsequent illegality: A provision that was legal at the time of the writing of the K was later made illegal. Not common
3) The K is impossible to perform
- Only applies if the impossibility manifests after the K is formed.
– K to sell horse.
–If horse dies between the time of K formation and delivery, courts will read into the K implied condition that the horse be alive -> impossibility
– If the horse dies before the K is formed, and neither party is aware, there is a mutual mistake of fact -> K is voidable for both parties
- This means literally impossible. Not that it is extremely difficult or impossible, that is literally cannot be done.
–Extremely harsh doctrine
Impracticability
Response to the harshness of Impossibility
Discharge if:
1) A K is in place
2) an unforeseeable event occurs
3) The unforeseeable event raises the cost to perform by at least ten times the amount it was ex ante the event.
Remedies
1) Legal Remedy -> Damages, ordinary remedy
2) Equitable Remedies -> Everything else, extraordinary Remedies
Types of Damages
1) Compensatory Damages:
–Measure: The actual out of pocket loss suffered due to the breach
2) Consequential Damages:
– Reasonably foreseeable damages caused by breach
— additional cost to receive same service elsewhere
— loss of use, counted from when performance should have occurred under the breached K.
3) Nominal Damages
– $1 awarded to signify that the party has won, but that there was no actual loss suffered.
4) Punitive Damages (Exemplary Damages)
–The court is so disgusted with the defendant that they award damages above and beyond Compensatory + Consequential
