MBE Contracts Flashcards
Formation > Objective Theory of Contracts
Whether a party intends to enter into a contract is judged by outward OBJECTIVE facts as interpreted by a reasonable person.
So a party’s mere subjective lack of intent is not sufficient to prevent the formation of a contract, UNLESS the other party KNEW or should have known that the party LACKED the INTENT to enter into a contract, then the contract is NOT FORMED
Formation > Offer
Definition: An offer is a maniffestation of intent to be bound to the offered terms that creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror.
1) INTENT
- Offer only if the person to whom it is communicated to could reasonably interpret it as an offer. Must express a present intent of a person to be legally bound to a contract
2) KNOWLEDGE by the offeree
- To have power to accept an offer, the offeree must have knowledge of it.
3) TERMS
- Terms of the contract must be certain and definite
a) ESSENTIAL TERMS
- Common law - Parties, subject, price, and quantity
- UCC - Quantity *
UCC Exceptions - No Specific Quantity Term
Requirements and Output Contracts
- Requirements K - when a buyer agrees to buy all of a good it will need from one seller
- Output K - a seller promises to sell to a certain buyer all of the goods the seller produces
Reasonable Range of Choices
- An offer allowing a person to specify an item within a reasonable range of choices may be sufficiently definite to result in a contract if accepted.
b) MISSING TERMS
- A court may supply a term that is reasonable under the circumstances if the parties have left gaps in an agreement that is otherwise enforceable
- Example: a plumbers website provides an hourly rate, this could provide the price term for the contract, if the parties failed to include specific price term.
Advertisements are invitations to deal - Not offers, UNLESS they are reward advertisements or are so specific that they leave nothing open to negotiation (including how to accept)
Formation > Offer > Termination >
1) Lapse
2) Death or Incapacity
3) Destruction or Illegality
4) Revocation
Effect of Termination
- Offeree’s power of acceptance is lost
1) Lapse
- An offer will terminate by lapse if it is not accepted by the time stated in the offer or, if no time is stated, within a reasonable time.
2) Death or mental incapacity
- even if the offeree does not learn of the offeror’s death or mental incapacity until after the offeree has dispatched what he believes is an acceptance.
- Exception – Option K’s
3) Destruction or Illegality
- If subject matter of offer is destroyed.
- an offer that becomes illegal is terminated.
4) Revocation
- Direct Revocation – Telling or notifying other party directly that the offer is revoked
- Indirect Revocation – If the Offeree learns that the offeror made a deal with somebody else.
Formation > Offer > Revocability (+Irrevocable Offers)
Offers are generally REVOCABLE, unless:
1) Firm Offers (Merchants ONLY)
- Merchant gives written and signed assuraance that offer will remain open
- Consideration NOT required
- Duration: Time stated or Reasonable time
- IN NO EVENT may such period exceed three months unless the offeree gives consideration to validate it beyond the three-month period.
2) Option K (Non-Merchants ONLY)
- Offeror promises to keep offer open in exchange for consideration
- Consideration REQUIRED
- Duration: Time stated or Reasonable time
3) Unilateral K + partial performance
- Offeror invites acceptance only by performance and oferee begins to perform
- Consideration REQUIRED
- Duration: Reasonable time for full performance
4) Detrimental Reliance (promissory estoppel)
- Offeror could reaosnably foresee reliance on offer and offeree reasonably rleies to their detriment
- Consideration NOT required
- Duration: Reasonable time
Formation > Offer > Irrevocable Offers > Option K
Option K – NON-MERCHANTS ONLY. ADDITIONAL CONSIDERATION NEEDED! *
A promise to keep a new offer open for a certain period of time. Irrevocable for the time stated, or if no time stated, for a reasonable amount of time, and then reverts back to a revocable offer.
if no additional consideration, offer remains revocable. Then becomes a question of who goes first
Formation > Offer > Irrevocable Offers > Firm Offer
Firm Offer – Merchants Only. MUST BE IN A SIGNED WRITING!
Elements:
* the offeror is a merchant
* there is an assurance that the offer is to remain open and
* the assurance is contained in a signed writing from the offeror
Rule: Irrevocable for the time stated, or if no time stated, for a reasonable time.
* IN NO EVENT may such period exceed three months unless the offeree gives consideration to validate it beyond the three-month period.
* After, goes back to being a revocable offer.
Reasonableness depends on:
- nature of K
- purpose + course of dealing
- trade usage
If not in writing, just a regular revocable offer. Then becomes a question of who goes first
Formation > Offer > Irrevocable Offers > Unilateral K
Unilateral K – Offer that can only be accepted by PERFORMANCE
- An offeree who accepts by beginning performance must notify the offeror within a reasonable time that performance has begun.
Once someone BEGINS PERFORMANCE, the offer becomes irrevocable.
Example: John offers 10k to Mike to paint John’s House. The moment Mike begins performing, John cannot revoke the offer. 10k not owed until Mike is finished performing.
presumption that offers are bilateral and could be accepted by return promise or performance. Be sure.
Formation > Acceptance > How to accept?
An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.
- The offeree must communicate the acceptance to the offeror to be effective.
How to Accept: Any reasonable manner that COMMUNICATES TO THE OFFEROR a manifestation of intent to be bound to the terms of an offer
- EXCEPTION: If the manner of acceptance has already been specified, then acceptance can only be made by that specified way.
Accepting a Bilateral Offer - PRESUMPTION
- An offer is presumed to be bilateral.
- Unless an offer specifies that it can only be accepted by performance, it can be accepted by return promise or beginning performance
Accepting a Unilateral Offer
- Unilateral offer is one that specifies that it can only be accepted by performance
- Acceptance of an offer for a unilateral contract requires COMPLETE performance.
- Once performance has begun, the offer is irrevocable for a reasonable period of time to allow for complete performance unless there is a manifestation of a contrary intent.
- An offeree who accepts by beginning performance must notify the offeror within a reasonable time that performance has begun.
Mailbox Rule
- An acceptance that is mailed within the allotted response time is effective upon dispatcht (not upon receipt), unless the offer provides otherwise. The mailing must be properly addressed and include correct postage. Does not apply to Option K or Firm Offers
Shipment of goods (UCC)
- If the buyer requests that the goods be shipped, then the buyer’s request will be construed as inviting acceptance by the seller either by a promise to ship or by prompt shipment of conforming or nonconforming goods.
Formation > Acceptance > Mailbox Rule
Mailbox Rule: does NOT apply to irrevocable offers (firm offer, option)
RULE: ACCEPTANCE by mail is generally effective upon DISPATCH
- Acceptance followed by rejection is generally acceptance Unless oferor recieves rejection first and detrimentally relies on it
REJECTION, then ACCEPTANCE
- whichever is recieved first prevails
Formation > Acceptance>
Implied-In-Fact Contracts v. Quasi Contracts (Implied-In-Law)
Implied-in-fact CONTRACT when a person’s assent to an offer is inferred solely from the person’s conduct CONDUCT, not words or writing.
- e.g., If a person sits in a barbers chair and the Barber cuts his hair, a contract has been formed by the parties conduct
Quasi-Contracts are not contracts at all. They are constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring in action in restitution to recover the amount of benefit conferred on the defendant.
- (i) the plaintiff has conferred a “measurable benefit” on the defendant;
- (ii) the plaintiff acted without gratuitous intent; and
- (iii) it would be unfair to let the defendant retain the benefit because either the defendant had an OPPORTUNITY to decline the benefit but knowingly accepted it, OR the plaintiff had a reasonable excuse for not giving the defendant such opportunity, usually because of an EMERGENCY.
Formation > Consideration
ELEMENTS OF CONSIDERATION
Basically, two elements are necessary to constitute consideration:
- (i) there must be a bargained-for exchange between the parties; and
- (ii) that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.
Consideration is evidenced by a bargained-for exchange in legal position between the parties. Most courts conclude that consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.
Florida Distinction: Consideration
- Florida provides that consideration can be satisfied by either a benefit, legal detriment, or both.
Promises Binding Without Consideration
A new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration.
- the courts will enforce a new promise if it is in writing or has been partially performed. (SOF)
- Court will enforce the contract ONLY to the extent of the new promise.
Promise to Pay Arising Out of Past Material Benefit—Material Benefit Rule
- Under a modern trend, some courts will enforce a promise if it is based
on a material benefit that was previously conferred by the promisee on the promisor and if the promisee did not intend to confer the benefit as a gift. This includes situations in which the promisee performed an act at the promisor’s request or performed an unrequested act during an emergency - the promise is unenforceable to the extent it is disproportionate to the benefit conferred
Formation > Consideration > Promises to Gift
A PROMISE to give a gift is NOT enforceable consideration
- The actual GIVING of the gift, however, is ENFORCEABLE, cannot get back.
promissory estoppel
- a party that reasonably and detrimentally relies on another party’s promise may recover reliance damages (costs of relying on that promise)—but NOT the value of the promise (the gift) itself.
Formation > Consideration > Past/Moral Consideration
RULE: Past/Moral consideration is UNENFORCEABLE
* Someone did a good act on their own.
* After the act, someone else offers to give them consideration.
* this consideration is Unenforceable
Ask yourself: Did the deal happen after the act or before the act?
Example 1: A stranger saves a drowning boy that gets caught in a riptide. After, the boy’s Mom tells the stranger to come to her house the next day so that she can give him $10,000. The next day, the stranger shows up to the mom’s house and she gives him $50 Dunkin gift card. Can the Mom do that? Yes. Her $10,000 offer is NOT enforceable.
vs.
Example 2: Mom offers $10,000 to whoever saves her drowning child. A stranger then saves the drowning boy that got caught in the riptide. Now, her $10,000 offer is ENFORCEABLE
Pre-Existing Duty
GENERAL RULE
- Promise to perform (or performance of) preexisting duty is not consideration
Exceptions – Common Law
1) New or Different Consideration Promised
- It is important to note that it is usually immaterial how slight the change is, because courts are anxious to avoid the preexisting duty rule.
2) New Promise on Existing Debts Barred by SOL
- UNDISPUTED and DUE debt – payment of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. However, if the consideration is in any way new or different (e.g., payment before maturity or to one other than the creditor; payment in a different medium, e.g., stock instead of cash; or payment of a debt that is subject to an honest dispute), then sufficient consideration may be found.
- Debt barred by SOL – no longer undisputed and due - A new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration. When the new promise is an express promise, most states require that the new promise be in writing and signed by the debtor.
3) Voidable Obligation
- A promise to perform a voidable obligation (i.e., ratification) is enforceable despite the absence of new consideration. Thus, an infant’s (i.e., minor’s) ratification of a contract upon reaching the age of majority is enforceable without new consider- ation, as is a defrauded person’s promise to go through with the tainted contract after learning of the fraud.
4) Preexisting Duty Owed to Third Party
5) Honest Dispute as to Duty
6) Unforeseen Circumstances
Exceptions – UCC
7) Modification of Contract for the Sale of Goods
- Modification sought in good faith—ie, honesty and observance of reasonable commercial standards of fair dealing
Florida Distinction (Exception):
There is an exception to the preexisting-duty rule when a third party’s promise is exchanged for the pre-existing promise to perform an act that the promisor is already contractually obligated to perform.
- Under the exception, the party’s promise to the third party is sufficient consideration.
Consideration > Accord and Satisfaction
(not to be confused with modification)
An ACCORD is an agreement in which one party to an existing contract agrees to accept different performance in lieu of the performance that they are supposed to receive from the other party to the existing contract.
New Consideration – An accord agreement must be supported by new consideration. If the new consideration is worth less than what was originally promised, then it is sufficient only if:
- There is a GOOD FAITH DISPUTE as to the money owed, or
- if the payment is of a different TYPE than called for under the original contract
Satisfaction is the performance of the accord agreement. Discharges not only the original contract but also the accord contract as well.
- If the accord is not performed, the other side can sue on either the original obligation or the new promise.
Consideration > Settlement of a legal claim
A promise to surrender a claim or defense constitutes consideration for a settlement agreement so long as
- (1) the claim or defense is valid or subject to a good-faith dispute or
- (2) the surrendering party honestly believes that the claim or defense may be valid.
Third Party Beneficiary >
Intended vs. Incidental Beneficiary/When do rights vest?
Original parties make a contract and someone else (third party) is claiming benefits.
1) Intended Beneficiary – Original parties had INTENT TO BENEFIT the third party.
An Intended Beneficiary may have rights (can sue) once their rights vest.
- Before their rights vest, original parties can still change their mind about benefiting them. Once the rights vest; Thats it.
Vesting of rights—occurs when the TPB either:
- Accepts benefits—accepts the benefits of the K in a manner requested by the parties to the K,
- Sues to enforce—brings suit to enforce the K, or
- Detrimental reliance—detrimentally relies on the K (i.e., materially changes position in justifiable reliance on the K)
Enforcing the K
- Promisor can assert any of his own defenses
- Promisee can sue promisor at law and in equity for specific performance
- Creditor beneficiary can sue promisee on existing obligation between them
- Donee beneficiary may only sue promisee if detrimental reliance exists
2) Incidental Beneficiary – Original parties never intended to benefit third party.
- this type of beneficiary NEVER HAS RIGHTS (never can sue)
Assignment (rights) vs. Delegation (duty) >
1. General Rule and Exceptions
2. Breach by Assignee/Delegatee
3. Rights of Assignee/Delegatee
General Rule – One can freely assign their rights and delegate their duties to whomever, whenever they choose. Other party can’t stop that and must accept performance.
Exceptions:
1) When the nature of the agreement is UNIQUE/SPECIAL
- Unique skill or expertise, etc. is why you contracted.
- RULE: Can’t assign/delegate, even to someone with the same level of expertise.
2) Assignment materially
- increases duty or risk of obligor OR
- reduces obligor’s chance of obtaining performance
3) If ORIGINAL CONTRACT. . .
- i) VOIDS / INVALIDATES assignment OR delegation - Strictly Construed
- ii) Prohibits DELEGATION - Strictly Construed
Exception…
- If it Prohibits ASSIGNMENT. . . CAN STILL ASSIGN, BUT would owe damages for breaching promise.
What if the person delegated/assigned to breaches?
- Non-breaching party can sue EITHER or BOTH parties,
- UNLESS NOVATION between original parties, then non breaching party can only sue the assigned/delegated party. (new guy)
- Novation: total release of all obligations and liabilities
Rights of Assignee/Delegatee
- An assignee takes all of the rights of the assignor as the contract stands at the time of the assignment, but she takes subject to any defenses that could be raised against the assignor.
- Cannot unilaterally change terms of the original parties contract. They only gets the rights and duties from the OG contract.
unique/special exception: Contracted someone because they have special unique skill or expertise. That’s why I hired them.
Assignment > Revocability
Assignments for Value = Irrevocable
An assignment is for VALUE if it is:
- (i) done for consideration, or
- (ii) taken as security for or payment of a preexisting debt.
Assignor warrants that they:
- have right to assign
- are not subject to limitations/defenses unknown to assignee
- will not defeat/impair assigned rights
Gratuitous Assignments = REVOCABLE
UNLESS:
- obligor already performed
- document symbolizing assigned right delivered (eg, stock certificate)
- written & signed assignment delivered
- promissory estoppel applies
Methods of Revocation
- Death of the assignor;
- Bankruptcy of the assignor;
- Notice of revocation communicated by the assignor to either the assignee or the obligor;
- The assignor takes performance directly from the obligor; or
- Subsequent assignment of the same right by the assignor to another.
Statute of Frauds > Certain types of contracts need to be in writing…
Certain types of contracts need to be evidenced by:
- (i) writing (ii) signed by the parties, and (iii) contain all essential terms, or
- Partial performance (only some)
MY LEGS
1) Marriage
2) Year = Contracts that can’t possibly be performed in less than 1 year from when the agreement was made.
3) Land = Any conveyance of any interest of land. (& not leases less than a year)
Exception: Partial Performance (need at least 2)
- Partial payment (down payment, deposit)
- take possession of property or
- make improvements to the property
Florida distinction: part performance needs all 3 Elements Required and only applicable in
- in an equitable action as a relief from fraud (e.g., a quiet title action, ejectment action), but not in an action at law (e.g., an action seeking money damages).
4) Executor = Agreements making someone executor of an estate.
5) Goods $500 or more = sale of goods $500 or more.
- modifications must be in writing if the contract as modified falls within the Statute of Frauds
Exception = Partial Performance OR specially manufactured goods
- Partial payment or delivery of Goods.
- Goods specially manufactured for the buyer, not suitable for resale to others by the seller
6) Surety/Guarantor = Guaranteeing the debt of another to be paid, unless the main purpose in agreeing to pay the debt of another is for the surety’s own economic advantage
SoF is commonly used as a defense
Florida distinction:
In addition to the aforementioned contracts, Florida requires the following contracts to be in writing:
i) Executor contract (a type of suretyship contract)—A promise by an administrator of a will to pay any debt or damages from her own estate;
ii) Newspaper subscriptions—Subscriptions to newspapers, periodicals, other publications;
iii) Health care—A guarantee, warranty, or assurance as to the results of any medical, surgical, or diagnostic procedure performed by a licensed physician, osteopathic physician, chiropractor, podiatrist, or dentist; and
iv) Debt—A contract satisfying a debt or obligation for less than the full amount.
- Florida also prevents a debtor from enforcing a credit agreement (e.g., a loan) against a creditor unless the agreement is in writing and signed by both the debtor and the creditor.
Divisible Contracts
divisible contracts
- (i) The performance of each party is divided into two or more parts under the contract;
- (ii) The number of parts due from each party is the same; and
- (iii) The performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party, i.e., each performance is the quid pro quo of the other.
If a party performs one of the units of a divisible contract, he is entitled to the agreed-on equivalent for that unit even if he fails to perform the other units. It is not a condition precedent to the other party’s liability that the whole contract be performed. However, the other party has a cause of action for failure to perform the other units and may withhold his counterperformance for those units.
Parol Evidence (Common Law)
Parol Evidence: After a contract is formed, one party tries to admit evidence to explain or supplement the terms of a written contract.
- The parol evidence rule applies to agreements reached before or contemporaneous with the writing. does not apply to agreements entered into after the writing was executed
Intent of the parties determines whether there is total, partial, or no integration
Look for Intent of the Parties - to DETERMINE whether there is total, partial, or no integration.
Common Law - “Four Corners” or Merger Clause for evidence of intent
- Modern Approach: An extrinsic term can be introduced if it does not contradict the writing and if it would “naturally be left out” from a writing
UCC - essentially presumes partial integration
- allows any additional consistent terms
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FINAL INTEGRATION – Contract has language stating that it is the final/complete agreement or it has a merger clause.
- NOT ADMISSABLE UNLESS used to clear up an ambiguity in the contract
PARTIAL INTEGRATION – Contract has NO language stating that it is the final/complete agreement. (and UCC K)
- ADMISSABLE UNLESS it CONDTRADICTS material terms of the contract.
ALWAYS ADMISSIBLE:
- to show K formation defenses (misrepresentation/duress/mistake)
- to show condition precedent
- to show how parties have always done business (custom) and to show the business/industry practice overall (trade usage)
Florida Distinction (Rule):
1) a phrase is considered ambiguous when it may be fairly understood more than one way.
2) For extrinsic evidence to be admissible, the ambiguity must exist:
- on the face of the contract and
- must be latent
Parol Evidence (UCC)
The UCC universe is more forgiving and presumes that a writing is, at most, only a PARTIAL INTEGRATION (Admissable UNLESS it contradicts material terms of the contract.
- The UCC permits express terms to be explained or supplemented by evidence of the following:
Heirarchy:
1) Express Terms
express terms of a written contract for the sale of goods CANNOT be contradicted by evidence of prior or contemporaneous agreements. However, the UCC permits express terms to be explained or supplemented by evidence of the following:
2) Course of performance (current transaction)
evidence of a sequence of conduct relevant to understanding the CURRENT transaction between the parties if:
- (1) the agreement involves repeated occasions for performance by a party and
- (2) the other party accepts performance without objection
3) Course of dealing (previous transactions)
- evidence of sequence of conduct concerning PREVIOUS transactions between the parties that establishes a common basis of understanding for interpreting their conduct
4) Trade usage – any practice or method of dealing in the parties’ business or industry that is practiced with enough regularity to justify an expectation that it will be practiced in the instant case
Implied Warranties
A warranty is a promise regarding a contract
UCC Ks have default implied warranties, which can be disclaimed
Express warranty—promise about the quality or feature of a product
- E.g., manufacturer claims cell phone is water proof to 20 feet
- Breached if the product falls short of seller’s promise or description
- *Cannot disclaim express warranties *
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Implied warranty of merchantability—MERCHANTS ONLY – warranty that goods are fit for the ordinary purposes for which such goods are used; or conform to sellers representations
METHODS OF DISCLAIMER (waiver of warranty)
- SPECIFIC: ORAL or CONSPICUOUS written statement SPECIFICALLY disclaiming “merchantability”
- GENERAL: expressions like “as is” or “with all faults”
- buyers inspection of goods or refusal to do so, but only for defects that inspection would reveal
- course of dealing, course of performance, trade usage
Implied warranty of fitness for a particular purpose—ANY SELLER (whether or not a merchant) warrants that goods are fit for buyer’s purpose if:
- Buyer has a particular purpose;
- Buyer relies on seller to select suitable goods; and
- Seller has reason to know of buyer’s purpose and reliance on seller
METHODS OF DISCLAIMER (waiver of warranty)
- SPECIFIC: CONSPICUOUS written statement - (“there are no implied warranties which extend beyond the description on the face hereof.”)
- GENERAL: expressions like “as is” or “with all faults”
- buyers inspection of goods or refusal to do so, but only for defects that inspection would reveal
- course of dealing, course of performance, trade usage
Remedy limitation—limits recovery upon breach of warranty
- Generally valid for all warranties
Damages for breach—generally damages amount to the difference between current value and value as warranted by seller
Conditions > Types and Timing of Conditions (+Waiver of Conditions)
Conditions: An event, of which the occurence or nonocurrance will make someone perform or discharge from performing.
Types of Conditions
1) EXPRESS CONDITIONS - Substantial performance will NOT suffice
expressed in the contract - “on the condition that” or “provided that”
- Express conditions must be complied with fully unless excused; substantial performance will not suffice.
“Satisfaction” Conditions
- In contracts based upon aesthetic taste, the party’s dissatisfaction must be in GOOD FAITH, and not just to get out of their obligations
2) IMPLIED CONDITIONS - Substantial performance will suffice
“implied in fact” conditions – Nature of the agreement suggests that the parties truly intended the condition but failed to expressly include it
“constructive” or “implied in law” conditions– which are supplied by a court if reasonable under the circumstances.
- “constructive conditions of exchange” (construction and employment contracts) A court will imply that the builder or employee must perform first (at least “substantially”) before the other side’s performance (the payment of money) becomes due.
- UCC duty of Cooperation - In addition to good faith, the UCC implies a duty of cooperation on the parties when performance of one party is dependent upon the cooperation of the other party. If a party fails to cooperate, the other party may suspend her own performance without being in breach.
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Timing of Conditions
Precedent: condition that must occur before a duty of performance arises in the other party.
Subsequent: A condition that occurs after performance, the occurrence of which cuts off the duty of performance.
Concurrent: Conditions that are capable of occurring together, and that the parties are bound to perform at the same time.
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When Non-Occurance of a Condition is EXCUSED
i) WAIVER of Conditions
- Only the party benefiting from condition can waive, by words or conduct.
- A material condition may be reinstated.
- A non-material condition may be reinstated if (i) The waiving party communicates a retraction of the waiver before the condition is due to occur; and (ii) The other party has not already detrimentally relied
ii) Wrongful Interferance
- Condition will be waived if party wrongfully prevents or interferes with condition’s occurrence
iii) Estoppel
- Party indicates condition will not be enforced AND
- Other party reasonably & detrimentally relies on belief that condition has been waived
iv) Disproportionate Forfeiture
- Party substantially performed & will be significantly harmed if condition is enforced
Anticipatory Repudiation
(+ Retraction, Assurances)
1) Anticipatory Repudiation – Applicable PRIOR TO K performance date, one party UNEQUIVICALLY and ABSOLUTELY refuses to perform
- The non-repudiating party can sue immediately the repudiating party for Total breach, or
- can wait until K performance date to see if they perform, and if they dont, sue.
Exception (Partial Breach) - Contracts Calling for Installment Payments
- If a contract calls for payments in installments and a payment is not made, there is only a partial breach. The aggrieved party is limited to recovering only the missed payment(s), NOT the entire contract price.
- However, the contract may include an acceleration clause making the entire amount due on any late payment, in which case the aggrieved party may recover the entire amount.
2) Retraction: The repudiating party may retract their repudiation UNTIL the non repudiating party has:
- sued for breach,
- change their position in material reliance on the repudiation, or
- stated that they are treating the repudiation as final
3) Assurances: One party’s prospective inability to perform under the contract gives the other party:
- the right to demand assurance of performance and suspend its own performance until assurance is provided.(UCC demand must be in writing)
- Failure to provide assurance within a reasonable time (not to exceed 30 days under the UCC) constitutes a repudiation and a breach.
- Repudiating party can retract repudiation until next performance is due, unless other party has sued for breach, relied on repudiation, or indicated that they consider the repudiation final)
Notes
- Cannot demand assurances If there is no reason to be nervous
Florida Distinction - Point of Law: Anticipatory Repudiation
- a party’s comments or actions demonstrate a probable failure to perform. A refusal to perform that is “distinct, unequivocal, and absolute” is repudiation permitting the other party to seek assurance of performance, to seek damages, or to mitigate damages.
Defenses to Formation > Misrepresentation, Non-Disclosure, Fraudulent misrepresentation
1) Misrepresentation a misrepresentation (innocent or negligent) can still render a contract voidable by the adversely affected party if:
- The misrepresentation is material (i.e., information that would cause a reasonable person to agree or that the person making the misrepresentation knows would cause this particular person to agree);
- The misrepresentation induced assent to the contract; and
- The adversely affected party justifiably relied on the misrepresentation.
A party’s Negligence with regard to learning about the falsity of the misrepresentation is not sufficient to prevent them from avoiding the contract unless it constitutes a failure to act in good faith and fair dealing
2) Non-Disclosure
i) Affirmative conduct to conceal a fact is equivalent to an assertion that the fact does not exist.
ii) In addition, mere nondisclosure of a known fact is considered an assertion that the fact does not exist, if the party not disclosing the fact knows that:
- Disclosure is necessary to prevent a previous assertion from being a misrepresentation or fraudulent or material;
- Disclosure would correct a mistake of the other party as to a basic assumption, and the failure to disclose would constitute lack of good faith and fair dealing;
- Disclosure would correct a mistake of the other party as to the contents or effect of a writing evidencing their agreement; or
- The other party is entitled to know the fact because of a confidential or fiduciary relationship.
3) Fraudulent misrepresentation
Fraudulent misrepresentation requires proof of the following:
- The misrepresentation is fraudulent; (i.e.,A false assertion of fact made knowingly, or recklessly without knowledge of its truth; and With intent to mislead the other party;
- The misrepresentation induced assent to the contract; and
- The adversely affected party justifiably relied on the misrepresentation.
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EFFECT
a) Fraud in the factum (or fraud in the execution) – When a fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction.
- Contract is void (i.e., not enforceable against either party), unless reasonable diligence would have revealed the true terms of the contract.
b) Fraud in the inducement - When a fraudulent misrepresentation is used to induce another to enter into a contract.
- Contract is voidable by the adversely affected party if she justifiably relied on the misrepresentation in entering into the agreement.
Florida Distinction: Fraudulent Misrepresentation
In Florida, relief for a fraudulent misrepresentation is granted when
- (1) a person makes a false statement concerning a material fact,
- (2) that person knows that the representation is false,
- (3) the representation was made with the intent of inducing another to act on it, and
- (4) relying party was consequently injured
Remedies: Breach of Contract > Damages:
Compensatory Damages
(L.I.C.E)
MONETARY REMEDY – DAMAGES
1) COMPENSATORY DAMAGES - The purpose of contract damages is to give compensation for the breach—i.e., to put the nonbreaching party in the position she would have been in had the promise been performed so far as money can do this.
- The most common measure of this is the value of the breaching party’s performance that was lost (expectation damages), plus incidental and consequential damages, less any loss or cost saved by not having to perform.
- (expectation + consequential + incidental - mitigated damages)
Non-Breaching Party’s Duty to Mitigate
- 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. The nonbreaching party is held to a standard of reasonable conduct in preventing loss.
a) Expectation — Calculation: the difference between the value of performance without the breach (what was promised) and with the breach (what was received)
- This is also known as “benefit of the bargain” damages.
- Sufficient damages for them to buy a substitute performance
- GOODS: Usually difference between K price and market price cost to cover/resell
- REAL ESTATE: difference between K price and market value of property. (reminder: they havent actually paid anything yet)
- late delivery of property: fair market rental value of the property for the time that the buyer was denied possession.
ALTERNATIVE - RELIANCE
- Used if expectation damages will be too speculative to measure (e.g., the plaintiff cannot show with sufficient certainty the profits she would have made under the K)
b) Consequential — Special Damages. Losses over and above standard Expectation damages. Includes losses resulting from the nonbreaching party’s particular circumstances that:
- (1) were reasonably FORESEEABLE to the breaching party at the time of contracting and
- (2) could not reasonably be prevented by cover or otherwise (Usually Lost Profits)
Foreseeability
- Plaintiff must show that the breaching party knew or had reason to know of the special circumstances giving rise to the damages.
- UCC sale of goods: only a buyer may recover consequential damages.
c) Incidental (UCC Sale of Goods)— Not necessarily foreseeable (above) but Commercially REASONABLE Expenses incurred by effecting cover
- Buyer: Inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach and
- Seller: Storing, shipping, returning, and reselling the goods as a result of the buyer’s breach.
Bonus
Certainty Rule — The plaintiff must prove that the losses suffered were certain in their nature and not speculative.
* New Businesses – Traditionally, if the breaching party prevented the nonbreaching party from setting up a new business, courts would not award lost profits from the prospective business as damages, because they were too speculative.
* However, modern courts may allow lost profits as damages if they can be made more certain by observing similar businesses in the area or other businesses previously owned by the same party.
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2) PUNITIVE DAMAGES — rarely available in contract actions. Some states allow punitive damages to punish fraud, for violation of a fiduciary duty, for acts of bad faith, or for deterrence.
3) LIQUIDATED DAMAGES — agreed-upon K provisions that stipulate specified damages upon the occurrence of a breach
Requirements—liquidated damages provisions are valid only if:
- Damages are difficult to project at time of K formation; and
- The provision is a reasonable estimate of actual damages (not a penalty)
Money Damages > Construction K
If construction contracts are involved, check to see whether the owner or the builder is breaching.
1) Breach by Owner (did not pay)
a) Breach Before Construction Started
- Lost profits plus cost incurred, OR
- K price minus cost of completion (benefit conferred)
b) Breach During Construction
- Lost profits plus cost incurred, OR
- K price minus cost of completion (benefit conferred)
c) Breach After Construction Completed
- Builder is entitled to the full contract price plus interest thereon
2) Breach by Builder (owner paid)
a) Breach Before Construction Started
- Owner entitled to cost of completion.
b) Breach During Construction
- cost of completion/correction if no undue economic waste OR
- value of promised construction minus nonconforming construction
c) Breach by Late Performance
- If the builder completes performance, but it is late, the owner has a right to damages for any loss incurred by not being able to use the property when performance was due, e.g., loss of reasonable rental value when property could have been leased.
- However, if damages for this “lost use” are not easily determined or were not foreseeable at the time the contract was entered into, the owner can recover only the interest on the value of the building as a capital investment.
3) Restoration and Economic Waste
- Usually, when a building contract is not properly performed, the owner is entitled to the cost of fixing the defect.
- if no undue economic waste
Some Major Differences between Common Law and UCC
1) Offers
2) Acceptance
3) Performance
1) OFFERS – Essential Terms
Common law - Parties, Subject, Price, and Quantity
UCC (goods) - Quantity
UCC gap fillers:
a) Price
- reasonable price at the time for delivery
b) Place of Delivery
- seller’s place of business, if they have one, otherwise the sellers home.
- if parties know the goods are in some other place, then that is the place of delivery.
c) Time for Shipment or Delivery
- shipment/delivery is due in a reasonable time.
d) Time for Payment
- Payment is due at the time and place at which the buyer is to receive the goods.
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2) ACCEPTANCE
Common Law –Mirror Image Rule
- Acceptance must be an absolute and unequivocal acceptance of each and every term of the offer.
- Any different or additional terms in the acceptance make the response a rejection and counteroffer.
UCC—2 issues often arise: 1) Battle of the Forms 2) Acceptance by Shipment
1) Acceptance with ADDITIONAL TERMS—if BOTH parties are MERCHANTS, K is formed WITH the additional terms UNLESS either:
- a) Additional terms materially change the offer,
- b) Offer expressly limits acceptance to the offer’s terms, or
- c) Offeror objects within a reasonable time
- if ONE party is not a merchant, K is formed WITHOUT additional terms and treated as new proposal
2) Acceptance by shipment—a merchant may accept an offer to buy goods by either (i) Providing a promise to ship goods (usually by written confirmation), or (ii) Promptly shipping conforming goods
- Shipment of nonconforming goods—acts as an acceptance, but may give rise to breach.
- If, however, the seller “seasonably” notifies the buyer that the nonconforming goods are tendered as an accommodation, then no acceptance has occurred, and no contract is formed. The accommodation is deemed a counteroffer, and the buyer may then either accept (thereby forming a contract) or reject (no contract formed).
UCC Gap-Filler Terms
Recall that the key to forming a contract for the sale of goods is the quantity term. If other terms are missing from the agreement, Article 2 has gap-filler provisions to fill in the missing term(s).
1) Price
- If: (i) nothing has been said as to price; (ii) the price is left open to be agreed upon by the parties and they fail to agree; or (iii) the price is to be fixed in terms of some standard that is set by a third person or agency and it is not set, then the price is a reasonable price at the time for delivery
2) Place of Delivery
- If the place of delivery is not specified, the place is the seller’s place of business, if he has one; otherwise, it is the seller’s home. However, if the goods have been identified as the ones to satisfy the contract and the parties know that they are in some other place, then that is the place of delivery.
3) Time for Shipment or Delivery
- If the time for shipment or delivery is not specified, shipment/delivery is due in a reasonable time.
4) Time for Payment
- If the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods.
5) Assortment
- If a contract provides that an assortment of goods is to be delivered (e.g., blouses in various colors and sizes) and does not specify which party is to choose, the assortment is to be at the buyer’s option.
- If the party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (e.g., choose a reasonable assortment) or treat the failure as a breach.
