K II Flashcards
When is the K governed by the UCC? Common Law?
Common Law — Land, employment, services, IP
UCC — Goods (moveable items at time of K)
What are Mixed Contracts? How do you go about solving a mixed K problem?
K involving both goods and services. use “predominant factor” test. look at likely purpose of the K, language, amount of value of each part
Buy carpet; pay extra for installation — UCC
Go to beauty parlor; pay for hair dye — CL
Goal of K Damages?
put the victim where they would have been economically if there had been no breach
- what would be in the victims bank account if the K was fully performed
Expectancy Damages = ?
Direct Damages + Consequential Damages
Formula for “Recoverable” Lost Profits
Recoverable Lost Profits = Lost Revenue - Cost Avoided
- Fixed Costs: costs that would incur with or without the breach, do not subtract
Damage formula for a Buyer when Builder breaches
Damages for Buyer = New K - Old K
- K for $100k home, builder repudiates before work starts. NewBuilder K for $115k. will get $15k in damages
Damage Formula for Builders when Buyer breaches
K Price - Cost Avoided
- K for $100k home. Normally, the labor and supplies would cost $80k. Builder avoided having to put $80k into the K. Profits would be $20k.
— $100k K price - $80k avoided in costs = $20k recoverable profit
What are Direct Damages? How do you calculate what the direct damages are?
- harm caused directly by the breach.
- compare the value of the task promised to the task performed
what kind of Consequential damages is a victim entitled to?
- Reasonably Foreseeable (natural or contemplated)
- Unavoidable (Duty to Mitigate)
- Reasonably Certain (as to the amount)
what are Consequential Damages?
Damages that “Flows from the Breach”
- I.e, the lost profits. (out of business for a month, machine for work is broken, etc)
Who raises the issue of a P’s duty to mitigate? Reason for doing so?
- D raises this defense
- P only gets “Unavoidable” consequential damages, this lowers the amount the D would owe the P if he didnt reasonably mitigate
How does the victim show lost profits?
- Past profits you have earned at the store
- Past profit you have earned at other stores at different location
- past profits earned by SAME TYPE of store at SAME LOCATION run by former owner
why does the P have a Duty to Mitigate?
P entitled to only those damages which he could not avoid by reasonable effort
- Victim only recovers CONSEQUENTIAL DAMAGES that could not be avoided
How does a court assess the P’s actions regarding his Duty to Mitigate? who has the BoP on the P’s duty to mitigation?
- victim need not choose best way to mitigate, just needs to be reasonable
—court does not engage in a “hypercritical evaluation” of victim’s choices - BoP on breacher to show victim was not reasonable
New Business Rule and its exception
New businesses cannot recover lost profits
- Exception — unless they track record elsewhere, or have taken over from an identical business
- should add a LD clause
Goal of Reliance Damages? What do Reliance Damages award?
- Put the injured party in the same economic position as if the K had never been formed
- give the victim the amount of victim’s expenditures Reasonably made bc of the Breacher’s promise
When are Reliance Damages Used? Limitations?
- Alternative to Expectancy Damages: used, if at all, when unable to recover consequential damages
- do not recover for Unreasonable Reliance
—-Expenditure AFTER Repudiation
—-Cannot spend money and recover it for a K that has not yet been formed
UCC Buyer’s remedies bc of a Seller’s non-delivery? what kind of Consequential Damages would a buyer get?
- if non-delivery, 2 choices:
—- Buyer can Cover for the breach and get damages for Cover Good [Cover Price - K Price]
—- When the victim self covers or if victim does not cover, and market price rises from time of K [Market Price - K Price] - can get Unavoidable Consequential Damages and can get incidental damages (e.g., advertising for a new car)
UCC Seller’s Remedies for Buyer Breach by not accepting conforming goods
- Can Resell - if commercially reasonable resale of goods, damages are how much less the seller gets (K price - Resale Price)
- If Victim seller does not resell [assume Mkt price went down] Mkt Price - K Price
— can still get their incidental damages (e.g., storing the car pending resale)
what is a Lost Volume Seller? What are their damages?
- Seller with a near inexhaustible supply of inventory and would have made 2 sales but for the breach
- Damages are their Lost Profit (often the sale price minus the price victim paid for the goods, individually (if bought in bulk))
Can a lost volume seller mitigate damages? Why?
- Cannot “mitigate”
—- A resale would not mitigate the damages, they would have made 2 sales but for the breach
Who has the BoP to show they are a Lost Volume Seller
BoP is on the Victim to show they were a Lost Volume Seller
Damages for an Ee when their Er breaches their employment K?
- Can sue for lost wages
- Note - Ee can have a second job during his time he would have worked for Er, and if he proves he is a lost volume seller can get full recovery of damages (i.e., job denied was a day shift and job worked during breach was a night shift job)
Rules for Ee Mitigation
- do not recover damages they could have avoided through mitigation
— does not req Ee to take a job unless it is “Substantially Similar” to the one denied
Who has the BoP to show that an Ee Could Have Found a Similar Job? What needs to be proved? Result if the Burden is met?
- ## Breaching Er has BoP that Ee could have found a similar job and what the wages would have been
Construction Damages: What are they awarded and what is the Victim is entitled to [in terms of what is the costs limited to]?
Victim can get the cost to repair
- Reading Pipe Case - “owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be obtained”
—- Purple brick hypo - “good to be obtained” was brick color, courts won’t deprive victim of the “benefit of the bargain.” diff from the Pipe case bc they 2 diff pipes were identical
Rule for Class regarding Punitive Damages
Rule For Class - no punitive damages for mere breach [even if breach deliberate]
What is a Liquidated Damages Clause? What do they provide?
– Clause in a K that establishes the monetary remedy in case of a breach.
– Provides the amount to be paid to compensate for injuries in the event of a breach
What is the Courts Issue with Liquidated Damages Clauses?
Some LD Clauses are unenforceable penalty clauses
Elements to have an enforceable LD clause? what makes it unenforceable?
LD Clause can ONLY be enforced if:
- at the time of Kr, damages flowing from the breach were “Difficult to Ascertain”; AND
- the amount of LD’s was a Reasonable Estimate of the harm that could be expected if there was a breach
— will not enforce a LD Clause if it will lead to a “windfall” for the seller
What does the LD Clause need to factor in to be a Reasonable Estimate of the Harm?
– Must include the Cost Avoided by The Victim
—-Not enforced if LD Clause does not include cost avoided by Victim
– Formula for K price is Flexible, aka, accounts for big harm and little harm
—- not all breaches are of the same gravity, will not enforce LD Clause that is Invariant to the Gravity of the Breach
LD Clause: What is the “Second Look”?
States are split on dealing with LD clauses in CL where there is No Actual Damages
LD Clause: What are the 2 Differing actions Courts take regarding the “Second Look”? and what do they do in response?
- Some Cts. do not take a “second look” at the Actual Damages
—- will award the LD Clause if it is a reasonable estimate - Some Cts. say the LD Clause will lead to unjust enrichment and refuse to enforce a LD Clause absent of damages.
— will say P needs to show actual harm or damages for the LD to be Triggered
UCC and the “Second Look” at the LD Clause
- ALL UCC cases look to see if there was “actual damages” as well
— when assessing the reasonableness of the LD Clause, Cts. must consider BOTH “anticipated and actual harm”
What is Restitution? What is the Victim trying to get and how do they go about doing so?
– Alternative to Expectancy Damages
– “Restore to me the value I gave to you” or “How much did breacher receive from victim”
- treat the K as rescinded and may recover upon a Quantum Merit (restitution) so far as he has performed
- Victim will get the full value of the services rendered
How does a victim go about recovering by Restitution?
- treat the K as RESCINDED and may recover upon a Quantum Merit (Restitution) so far as he has performed
What are the limitations on the recovery of Restitution?
- If K Fully Performed, victim cannot get Restitution
- If K Not Fully Performed, victim can get Restitution
When is Specific Performance rewarded? What can victim show to make the Award of SP more likely?
Only award SP if damage remedy at law is inadequate:
- when money damages cannot buy a replacement. no SP if damages readily measurable
- Victim more likely to get SP if they prove a “special relationship” between the parties. a new party would not be adequate (e.g., ads prepared specifically for breacher)
When is SP Not Awarded?
- No SP if damages are readily measurable
- Won’t award if item or service is “fungible” (readily replaceable)
- SP won’t be decreed unless the Ct. can determine w/ R-Certainty what is the duty of each party
How does a court go about Specific Performance for Land for a Buyer? For a Seller? Mutuality of Remedy?
- Land is presumed to be unique. Buyers often get SP. Sellers of land usually cannot get SP [money can make them whole]
- no need for “mutuality of remedy” [it is OK if only one party could get SP in event of breach]
Why are there “Equitable Defenses”
- Cts. of Equity have higher standard than Cts. of law do for determining if K exists and awarding $ damages. More reach in Ct. of Equity
What are Equitable Defenses used for?
Equitable defenses can be used to defeat a request for SP
What must a party come into court with to secure the desired relief of SP?
- “Clean Hands Doctrine”
— to secure the desired relief for SP, the party is rqd to come into Ct. with “clean hands”
What does the Court of Equity Req to Decree SP? what do they consider?
- the K provisions to be enforced must be just and equitable
- The consequences of SP, likewise, need to be just and equitable
—result of the K cannot be harsh or oppressive, or result in an unconscionable advantage to the P.
— An “Accounting” should be done to take into consideration all things that occur between the breach and the litigation.
—– “What does each side gain and lose during that time?”
How can an Er get SP? what can undermine this?
- Only get injunction to keep Ee from working if Ee is “special, unique, unusual, or extraordinary”
— Seek to enforce the Es’s implied promise to NOT work for others.
— If Ee is Avg. just hire another one
What must the goal of a Covenant Not to Compete be to be enforceable? What can it not be?
Goal must be to prevent unfair competition. Not to coerce performance or prevent all competition
What makes a Covenant not to Compete “Reasonable”?
Covenants not to compete MUST be reasonable, which is measured by the 3 Criteria:
- Geography
—where cant Ee work? Only where competition would steal clients, would be unfair
- Duration
— How long cant Ee work? only until Ee is not getting an unfair edge in competition
- Scope
—what cant Ee do? only activities very similar to what they did with Er (oral surgery is not dentistry)
What do Cts. do when a covenant not to compete is “unreasonable”?
- Some Cts. edit to make the covenants not to compete reasonable. to protect legitimate interest of the Er
-Other Cts. refuse to edit and simply won’t enforce. deters Er from writing “overly broad” covenants not to compete
How does a court go about Interpreting K Language?
(1) Literal Understanding
— Dictionary and Grammar
— Rules of grammar are a good starting point, but are often violated by so many that they can sometimes be unreliable to use
(2) Context
— If the contextual meaning is diff from the literal K. Context evidence must be strong enough to alter literal understanding.
— Look at rest of the written K, likely intent/purpose, presume parties intend reasonable meaning, Gov’t regulations, negotiations. course of performance, course of dealings, trade usage [these 3 in this order]
What do Courts avoid when interpreting a K? further explain what it is
A K will not be interpreted to lead to an absurd result
– Absurd = unlikely to be sought by rational businessperson. contradicts the likely purpose of the parties
How does a Party make a K that is “absurd” but yet enforceable?
Can only make a K for preposterous terms only if the K language is Crystal Clear
– “The stranger the desire, the clearer the language must be”
what is Parol Evidence?
Evidence of an agreement outside of the written document
What are 2 things in every Parol Evidence Question?
- A writing
- Evidence of an agreement outside of the writing
When do you Include Parol Evidence?
- Outside evidence allowed only if writing is Ambiguous
– Ambiguity means that the K is susceptible to more than one reasonable meaning. no matter if it is partially or totally integrated
How can you tell if a K is Partially or Totally Integrated?
Presume the K is Partially Integrated
- Need evidence that parties intended total integration [best evidence is integration clause. e.g., “This K contains entire agreement]
How to go about a Parol Evidence Question?
(1) Is the K Ambiguous?
– If K is ambiguous, then include Parol Evidence to explain terms (for totally and partially integrated)
– If Clear and Unambiguous, decide if the K is totally or partially integrated
(2) Is the K Partially or Totally integrated?
– If completely integrated, exclude Parol Evidence
– If Partially integrated, include Parol Evidence as long as it does not Contradict
What ways can you decide if the writing is “Ambiguous”? what if it is ambiguous?
4-Corners Rule – Judge decides by reading the K
Extrinsic Ambiguity – Lawyer explains why language is ambiguous
ALWAYS allow PE if the writing is ambiguous
What are the competing definitions of “Consistent” pertaining to PE
Cannot “Totally Negate” OR term is “Reasonably Harmonious”
- HYPO: Writing: A will sell 500 ton of bricks. PE: quantity was understood to be “Up to 500 ton”
— Totally Negate - PE allowed. PE does not totally negate writing. deliver 500ton satisfies PE and writing. PE creates an exception to the express term but does not swallow it entirely
— Reasonably Harmonious - PE not allowed. unconditional promise of exactly 500 ton is not consistent with a promise that can vary down to 0ton
How does the UCC go about the inclusion of Parol Evidence? what do they look at when deciding to include or not?
Can add terms into a Totally Integrated K if consistent
Under the UCC, even a completely integrated agreement can be supplemented BUT NOT CONTRADICTED by
(1) Course of Performance
(2) Course of Dealings, OR
(3) Usage of trade
For PE how do you decide if the writing is ambiguous? (2 ways)
— 4-corners rule: judge decides by reading the K (4 corners of the written agreement)
— Extrinsic Ambiguity: lawyer explains why the K is ambiguous
What is a Duty v a Condition
— Duty: a promise
— Condition: an event, which must occur before a K performance becomes due.
What can a Condition NOT be?
A condition that is sure to occur (usually time passing) is not a condition. If Non occurrence of a condition is excused, performance is still due
Harsh Audette Rule on conditions
— Duty is not owed unless the condition is 100% met.
—HYPO: A will pay B $10 if they arrive by 12. B arrives at 12:01, nothing owed
Condition on a Ks existence vs Condition on performance of the terms
— Condition on the Ks existence: when parties have made an event a condition of their agreement. No K will arise “unless and until the condition occurs”
— Condition on Performance: when a K exists but there is no performance due until a condition.
How can you tell the difference between a condition on K existence and a condition on K performance? why do Courts care?
- Words in the K will speak to this, like “this agreement has no further effect,” meaning the K was in effect before
- Courts care about which bc they will ALWAYS allow PE to prove a Condition on a Ks Existence.
What is an Express Conditions? How can you tell there is an Express Condition?
No K arises unless and until the condition occurs.
- Contains conditional language
Why would a party use Express Conditions?
- it sets a rqmt of strict compliance in a K, it protects the party who has taken the caution to make it expressly conditional
- There is no mitigating standard for express conditions
How does a Court go about the Conditions on a GenKr’s payment of a SubKr? when should the GenKr pay the SubKr? How can a GenKr avoid the Courts assumptions?
- GenKr assumes risk of Owner insolvency, if they want to avoid this assumption GenKr NEED to make it a clear condition in the K
- GenKr has to pay SubKr a reasonable time after they finish work, even if owner has yet to pay GenKr
What is a Constructive Condition?
— BOTH A CONDITION AND A DUTY
— lacks conditional language of an express condition. But most of the time, courts presume the parties meant for the promises to be truly independent from each other
