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Contracts > Rules > Flashcards

Rules Flashcards

1
Q

Economic Purpose of Contracts

A

Effect should be to make BOTH parties feel richer than before

Efficiency: people will naturally engage in trades up to point where it no longer produces further mutual advantage

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2
Q

Common Policy Rationales

A

(1) Retributive Justice – punish those who break promises
(2) Corrective justice – help those who detrimentally relied on another’s promise
(3) Economic efficiency – sometimes more efficient to break K (efficient breach)
(4) Distributive justice – redressing systemic inequalities and wealth/income/opps

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3
Q

Expectation Damages

A

put injured party in position they’d expect to be in had breacher performed

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4
Q

Reliance Damages

A

put injured party in position they were in IMMEDIATELY BEFORE entered K

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5
Q

Restitution Damages

A

make breacher return value of benefits they received (as if K never made)

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6
Q

Specific Performance

A

order parties to perform K

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7
Q

Buyer’s Right to Cover Rationale

A

(KGM)
unjust enrichment concern
efficient breach/econ efficiency considerations

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8
Q

Cardozo Rule on CoC v. DMV

A

Expectation Damages
Most cases, measure = CoC, UNLESS CoC = grossly disproportionate, THEN measure = DMV

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9
Q

Pros and Cons for CL + UCC preference for Fair Market Value

A

PRO: administrative ease
CON: if no replacement market, too unique, or too many markets

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10
Q

Foreseeability Rationale

A

(1) unfair to hold parties liable for unforeseeable damages
(2) downstream consequences (less people would enter Ks, deterrence concern)
(3) want fair and equitable results
(4) efficiency (objective standard – less lit/easier to evaluate/more consistent results)

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11
Q

Tacit Agreement Test

A

(Morrow)
D must be given notice of special circumstances and ASSENTED to bearing the risk of those damages

REJECTED by UCC + almost everywhere (hard to prove, not as effective)

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12
Q

Recovery for Certainty Limit

A

Ps may switch to RELIANCE theory of recovery

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13
Q

Ways to Establish Reasonable Certainty

A

(Chicago Coliseum)
(1) Profits made at similar events in the past
(2) If K included expected profits
(3) testimony/survey of industry “experts”
(4) discounted cash flow analysis
(5) market price as valuation basis (if readily ascertainable)

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14
Q

Rationale for Uncertainty as Limitation on Damages

A

(Winston Cigarette)
(1) Damages based on lost profits = uncertain/speculative; incapable of legal computation
(2) would disregard the just rights of parties
(3) harm to party in default if unlimited discretion given jury
(4) parties can specify otherwise if they disagree (ex: LDC)

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15
Q

Avoidability

A

can’t recover for losses that, with reasonable effort, injured party could’ve avoided after breach was known

*LEGAL OBLIGATION to take/be presumed to have taken reasonable steps to avoid waste and minimize cost of breach

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16
Q

Rationale for No Performance After Repudiation

A

(Luten Bridge)
liability, not economically efficient (waste of resources)

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17
Q

LDC Pros and Cons

A

PROS
- parties can figure out damages in advance, no litigation expense
- when hard to price damages, can establish one
- minimize risk exposure
- more efficient outcomes

CONS
- unequal bargaining power; someone might benefit disproportionately
- if current market price changes
- hard to distinguish punitive v. liquidated damages
- LDC might exceed actual damages
- unfair/coercive bargaining power
- deter breaches

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18
Q

Factors to determine whether LDC = reasonable

A

(1) apply to specific/overall breach?
(2) ease of calculating damages?
(3) anticipated/actual breach

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19
Q

Posner’s Preference for Penalty Clauses

A

(1) encourages performance
(2) would let promisor include more beneficial deals
(3) same deals at lower price

if bad econ market (increase risk of bankruptcies) – no need to micromanage risky business decisions

result in inefficient breaches/discourage efficient breaches – if parties known this could be consequence, can K accordingly

20
Q

Restitution

A

one person has, without intending as a gift, conferred a benefit onto another
- can be legal remedy (comp for damages) OR cause of action (legal claim)

21
Q

When Restitution is Available

A

when either:
(1) K “totally” breached/repudiated, OR
(2) No actual K, BUT P deserves some type of remedy/recovery (quasi-Ks)

22
Q

Repudiation of K defined

A

when breaching party has specifically stated intent to breach
(Luten Bridge, Dempsey)

23
Q

Rescission defined

A

never had K in first place; RESCIND K, have to undo what’s been done for K so far (situational)

24
Q

2 Grounds for Restitution

A

(1) ONCE WAS VALID K
- material breach
- non-breacher prefers calling off K v. enforcing it

(2) K NEVER VALID
- misreps, duress, infancy, etc
- K never should’ve been enforced
- payments made = unjust

25
Q

When Restitution is Available for Quasi-Ks

A

(1) P conferred measurable benefit to D
(2) P conferred benefit w reas. expectation of being comped for value, AND
(3) D would be unjustly enriched if allowed to retain benefit w/o comping P bc:
- D knew/had reason to know of P’s expectation of comp, OR
- P had reas. excuse for conferring benefit w/o D’s knowledge

26
Q

Bilateral K

A

promise for promise

27
Q

Unilateral K

A

promise for ONLY performance

28
Q

Objective Theory of Assent

A

(some subjective elements)
K requires mutual assent of parties

29
Q

Embry Test

A

(1) would a REASONABLE person, looking at counterparty’s conduct, think he INTENDED to make K? (obj), AND
(2) did person assenting there was a K ACTUALLY THINK SO? (subjective – only offeree’s)

30
Q

Preliminary Negotiations Important Considerations

A

(Lefkowitz) “clear, definite, and explicit, and leaves nothing open for negotiation”
- definiteness (courts can sometimes fill gaps)

ADS generally NOT offers

31
Q

2 Ways to View “Agreements to Agree” and Preliminary Agreements

A

(1) Parties made binding K that obligates them to work out their issues and write a final K
(2) Parties have no binding K until they write final K

32
Q

Option Ks defined

A

promise that takes away offeror’s ability to revoke offer
- if 1 party alone can make K AND counterparty can’t revoke

33
Q

Firm Offers defined

A

(subcategories of Option Ks)
limits ability to revoke K w/in pd of time (not more than 3 months)
- only for merchants

34
Q

Pros of Firm Offers v. Option Ks

A

more flexible
more options
more efficient compared to regular option Ks

35
Q

Mailbox Rule and Defaults

A

acceptance by correspondence

acceptance = effective upon dispatch (not receipt)
offers, revocation, and rejections = effective upon receipt

36
Q

Battle of the Forms defined

A

UCC: refers to problem arising in ID’ing terms agreed upon as a result of conflicting writings

37
Q

Battle of the Forms

A

(1) party makes OFFER subject to its standard Ts & Cs
(2) other party ACCEPTS offer, BUT according to its OWN Ts & Cs

38
Q

Last Shot Rule

A

CL: party who fires the “last shot” (makes last offer) has THEIR terms applied to K (not highly regarded; can be unfair)

39
Q

SOF goals

A

prevent fraud, deter false claims

40
Q

SOF issues

A

OVERENFORCEMENT
erroneous enforcement of alleged exercise of assent that in fact never occurred
- improve evidence quality
- allows legitimate claims to still go through

UNENFORCEMENT
failure of legal system to enforce legitimate exercise of assent

41
Q

4 Essential Elements to K

A

(Schwedes)
(1) legally capable parties
(2) consent
(3) lawful object
(4) consideration

42
Q

Form Ks

A

Ks w standardized terms (ex: terms and conditions)

43
Q

Advantages of Form Ks

A
  • reduce transaction costs in creating K
  • bc reused, makes individual terms more efficient
  • makes record-keeping easier
  • can be tailored to reduce costs of employee training/agency costs
44
Q

Disadvantages of Form Ks

A
  • can increase transaction costs/enshrine inefficient terms bc hard to change
  • people don’t read them
  • people may not understand them
  • lets drafters put in unfair terms and make them 1-sided
45
Q

Consideration: Historically v. Now

A

HISTORICALLY: benefit/detriment to promisee

NOW: bargained-for exchange

46
Q

Why Require Consideration?

A

(1) consent
(2) justice
(3) cautionary
(4) evidentiary
(5) communicative

47
Q

START WITH ADEQUACY OF CONSIDERATION

A

Contracts (3 decks)

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