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CONTRACTS LAW RULES
Intent to Contract: a party’s intent to contract is deemed to be what a reasonable person
in the position of the other party would think that the first party’s objective manifestation
of intent meant.
Application of the UCC: Article 2 of the UCC applies to all contracts involving
transactions in goods (movable goods) in every state (except Louisiana).
Unilateral Contract: A contract where one party makes a promise in return for the other
party’s performance. There is no contract until the party accepts the offer by complete
performance of the act. However, if the offeror knows the offeree has begun
performance, the offer cannot be revoked until the offeree has had a reasonable time to
complete performance.
Bilateral Contract: A promise made in exchange for a promise given. A contract arises
when the return promise is made, either expressly or by implication.
FORMATION OF CONTRACT: A contract is formed when there is mutual assent
(offer and acceptance), good consideration, and no valid defenses.
Mutual Assent: Where the parties agree to the same terms at the same time through
the process of offer and acceptance.
Offer: A manifestation of contractual intent (measured by reasonable person
standard) that is communicated to an identified offeree, contains the essential terms of the
contract, and creates the power of acceptance in the offeree.
 Reasonable person standard – look at relationship between the parties,
course of previous performance or dealings, custom or usage of trade.
 Essential terms:
o Common Law: offer must specify the parties, subject matter,
quantity, price, and time for performance. Price may be
determined later if reasonably objective standard used. Time for
performance will be a reasonable time if not otherwise stated.
o UCC: offer must specify the parties and quantity and gap fillers
will supply additional terms.
o CL & UCC: Output/requirements Ks the quantity is considered to
be a party’s good faith requirements / reasonable quantity.
Termination of the Offer: An offer terminates:
1) Expiration or Lapse of Time – a specified time, occurrence of a particular
event, or lapse of reasonable time if no time stated
2) By Operations of Law – death or incapacity of a party, destruction of the
subject matter, subject matter made illegal (after offer made but prior to
acceptance)
3) By acts of the parties – revocation by offeror or rejection by offeree.
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4) Counter-offer – (common law): a change in terms communicated back to the
offeror by the offeree becomes a counter-offer and terminates the original offer
Acceptance: An unequivocable assent to the terms and conditions of the offer
communicated to the offeror by the identified offeree in an authorized manner.
Common Law: Mirror Image Rule: Acceptance requires unequivocal assent to
the terms of the offer; any deviation is a rejection and counter-offer. Statements of
clarification or implied terms are not rejections. An offer must be accepted within a
reasonable time, and can be implied by beginning performance if the offeror is knows / or
should know performance has begun.
UCC: 2-206: An offer invites acceptance in any reasonable manner, unless
otherwise specified. An offer to buy goods for prompt shipment may be accepted by
prompt shipment or a promise to ship. If non-conforming goods are shipped there is no
acceptance as long as the seller seasonably notifies the buyer that the shipment is an
accommodation only. If the beginning of requested performance is a reasonable mode of
acceptance, an offeror who is not notified of the performance within a reasonable time
may treat the offer as lapsed.
Additional Terms: Where one party is not a merchant, the additional term is
thrown out unless the offeror expressly assents to it. Between merchants, the additional
terms become part of the contract unless the offer is expressly limited to it’s own terms,
the offeror expressly objects to the new terms within a reasonable time, or the new term
materially alters the K (substantially changes the obligations of the parties).
Contradictory Terms: Majority – Knockout Rule: Differing term cancels out
the related term in the offer; missing terms supplied using “gap fillers”. Minority – UCC
Rule & First Shot Rule: The differing term of the acceptance drops out (is ignored), and
the related term of the offer remains, even if the term immaterial.
Offer Term not mentioned in Acceptance: the term becomes part of the K.
Additional / Contradictory Terms in Confirmations: Additional terms treated
same as they are treated in acceptance supra. Conflicting terms: Knockout Rule applies,
unless the confirmation contradicts the actual agreement of the parties in which case the
agreed upon terms will govern if proved.
Mailbox Rule: Acceptance is effective upon dispatch, provided it is done as
expressly authorized in the offer, and if not prescribed, it must be sent by the same or
similar manner, in a speedy fashion, postage prepaid.
 Offeror may waive the Mailbox Rule in the offer.
 Acceptance under an option contract is effective when received.
 Vacillating offeree:
o Acceptance sent 1st, rejection 2nd: acceptance rules unless offeror
receives rejection first and changes position in reliance of it.
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o Rejection sent 1st, acceptance sent 2nd, whatever arrives first is
binding.
Rejection: Offer terminates upon offeree’s rejection; rejection terminates offeree’s
power to accept. UCC: rejection must be made within a reasonable time and delivery of
tender
Revocation: Offeror is free to revoke at any time before it is accepted. Majority:
effective if received by the offeree before the offeree has accepted. Minority: effective
upon dispatch. A revocation may occur expressly or by conduct. By words: must be
communicated directly to the offeree (written or oral) unless a public offer in which case
revocation must be by the same or similar medium in which the offer was made. By
conduct: conduct by the offeror that is inconsistent with an intent to contract is a
revocation when the offeree learns about that conduct.
Counter Offer: UCC: an express accommodation is a counter offer. Common
Law: A counter offer (terms that vary from original offer) serves as a rejection,
terminates the original offer, and becomes a new offer.
Irrevocable Offers: Generally, offers are revocable at will and at anytime before
acceptance has occurred, except for option contracts, merchant’s firm offers, offers
supported by detrimental reliance.
Option Contract: Where an offeror promises to hold the offer open for a stated
period of time the offer is irrevocable for the stated period if supported by consideration,
even if the offeror recites payment of consideration and the consideration was never
actually paid.
 The option does not terminate with death of either party because
consideration has been paid to keep the offer open during the option period.
 Counter-offers during the option period generally do not terminate the power
of acceptance
Merchant’s Firm Offer: UCC 2-205 Offers in a signed writing by a merchant
are irrevocable despite a lack of consideration for the time stated and if no time stated
than for a reasonable time not to exceed 3 months. Firm offers in a form supplied by the
offeree must be separately signed by the offeror.
Merchant: A person who deals in goods of the kind, has knowledge or skill of
those who deal in the goods, or has hired someone who has the knowledge or skill.
Offer Supported by Detrimental Reliance [equitable option]: where an offer
is made and is foreseeably and detrimentally relied upon by the offeree, the offer is
irrevocable for a reasonable period of time.
Unilateral Contract: where performance has begun, the offer is irrevocable for
a reasonable period of time to allow offeree to complete performance.
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CONSIDERATION: the bargained for exchange that induces current performance,
offers detriment, and is binding.
 Bargained for Exchange: a change in legal position must occur –perform
something one is not obligated to do, or forbear from performing an act that
one is legally entitled to do. Adequacy of the consideration not relevant.
 Detriment: each party must incur some legal liability / benefit (i.e. economic
value, personal gratification, peace of mind, forbearance from smoking /
drinking)
 Induce current performance: excludes promises to make gifts, and moral or
past consideration.
Forbearance to Sue: An honest and reasonable belief that a party has a legal claim
against another party creates valid consideration if the party surrenders or forbears from
asserting that legal claim.
Pre-existing Duty Rule: A promise lacks detriment and is not valid consideration
where it promises to do something one is already legally obligated to do, or promises
to forbear to do something one is legally not entitled to do. Exceptions: there are
many!
Illusory Promise: Violates the mutuality of obligation rule (both parties must be
bound by legal detriment or neither is bound); an illusory promise is a statement that does
not commit the promissor to do anything (i.e. termination of an obligation without any
notice, or promising to perform “if I feel like it”) and is not supported by consideration.
Exceptions: output/requirement K’s, exclusive dealings K’s, alternative promises
Moral Obligation: Promises based on moral obligations lack consideration and are
unenforceable unless a party detrimentally relies and changes position based on the
promise.
Promissory Estoppel: A consideration substitute available to prevent injustice. A
promise on which the promissor should reasonably expect the promisee will to
detrimentally, reasonably and foreseeably and which will induce action or forbearance by
the promisee or third person and is enforceable even if the promise was made without
consideration.
Modifications: Common Law: modifications to a K require new consideration.
UCC: No new consideration required.
DEFENSES TO ENFORCEMENT:
Capacity to Contract: Contracts between adults and minors are voidable at the
minor’s option but are enforced against the adults. A minor who voids a K is obligated to
restore to the other party goods “as they are” currently in the minor’s possession. If the
goods are necessaries, minor may be liable for market value of necessaries that can’t be
returned in “as received” condition. Contracts made with a person with a mental
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incapacity are voidable. Where the incapacity is removed (minor becomes an adult, or
mental impairment diminishes) the K becomes enforceable if the party affirms or fails to
repudiate the K within a time period determined by statute. Contracts made with an
intoxicated person are voidable if the other person knew or should have known of the
intoxication.
Duress: Where physical force, threats of force, or wrongful acts are employed in an
attempt to overcome the free will of a party and induce consent, the K is unenforceable to
prevent unjust enrichment (measured subjectively). Economic duress is not a defense
unless the victim can prove the opposing party trying to enforce the K is the direct cause
(he created the situation causing loss or actively intermeddled in it to make it worse) of
his economic loss (measured objectively).
Undue Influence: Where one party has the opportunity (is in a fiduciary or
confidential/special relationship with the other party) to use over-persuasive pressure on a
susceptibly weaker party, (i.e. mental/physical weakness; psychological dependency), and
is unjustly benefited from the transaction, the K is unenforceable if still executory, or
may be rescinded if fully performed. The party who is unduly influencing must be the
initiator.
Misrepresentation / Fraud:
Misrepresenpntation is where one party knowingly makes a false representation of
a material fact with intent to deceive, causing the other party to justifiably rely
resulting in injury. The K is voidable by the innocent party and the remedy is
rescission or damages.
Fraud can be: fraud in the factum (real fraud) – where one party uses deceptive
means to create a contract and the other party is unaware a contract has been created
(i.e. where a person thinks they are signing their autograph on a blank piece of paper
but it turns out to be a contract to sell her land). The K is void. Fraud in the
inducement – where the injured party is aware a contract is being contemplated and
consent is induced through lies / half-truths. Contract is voidable by injured party.
Fraud in the execution – Where one party signs the agreement without reading it but
believing it to be a true expression of a previous oral agreement. Jurisdictions differ
on remedy.
Unilateral Mistake: A mistake of material fact (mechanical errors, not errors in
judgment) by one party is a valid defense if the other party knew or should have known
about the mistake. Contract is void due to lack of contractual intent.
Mistransmission: when an intermediary makes a mistake in conveying information on
the contract, it is a defense if the other party knew or should have known of the mistake.
Mutual Mistake: Where both parties make a false common assumption about a
material issue in the K, the K is voidable by either party because there was no contractual
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intent. If the mutual mistake is of only minor consequence and does not violate a
fundamental assumption of both parties, the K is binding.
Mistranscription: an oral agreement reduced to writing which does not correctly state
the terms of the oral agreement may be reformed to reflect the oral agreement only by
clear and convincing evidence.
Unconscionability: Generally involve adhesion K’s where the parties have unequal
bargaining power or are told to take it or leave it, the K is grossly one-sided, or where
hidden clauses and fine print prevail. K may be unenforceable or certain objectionable
clauses may be “blue penciled” and the balance of the K enforced.
Illegality: Where an intervening illegality of the subject matter occurs 1) before the
acceptance of an offer, the offer is revoked; or 2) after formation but prior to
performance, the K is discharged under impossibility of performance.
Where the illegality is malum in se (subject matter is evil) courts will leave the parties
as they find them (no jurisdictional involvement). Where the illegality is malum
prohibitum (illegal but not evil) and one party is not “in pari delicto” or is a member of a
protected class, he may recover in quasi-contract for the market value of any
consideration paid.
Statute of Frauds: Under the common law, certain Ks cannot be enforced unless
supported by a writing.
Marriage: contracts made in consideration of marriage must be in writing, but the
promise to marry does not. Ex: prenuptial agreements, agreement by parent to give
money to Ashley upon Ashley’s promise to marry Adam.
One-Year Provision: A contract which, by its own terms, cannot be performed
within one year of its formation must be in writing. Any possibility that the K may be
performed in one year, no matter how likely, takes the K out of the statute. Lifetime K’s
need not be in writing as either party could die within a year of formation. A year is
measured from the time of formation to completion of performance.
Contracts Covered: MY LEGS; Employment Ks, Ks not to compete, bequests
by wills. Easier to answer what’s not covered: Ks of indefinite duration, Insurance Ks,
Warranties.
Full Performance Exception: Majority: full performance by one party renders
a K within the one year provision enforceable even if there is no writing; some
jurisdictions also require that performance must have taken place within one year of K
formation.
Sale of Goods: UCC 2-201 covers sale of goods
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Contracts Covered: Sale of goods over $500. Special Order Goods – where an
oral K is for goods made at the order of the buyer and not suitable for resale, the B’s oral
promise to pay is enforceable once seller has made a substantial beginning in their
manufacture or commitments for their procurement.
Special Rules for Merchants: Where the parties are both merchants, a written
confirmation of the terms sent by one party and received by the other who knows, or has
reason to know, of its contents satisfies the statute as to both sender and recipient unless
written notice of objections is given within 10 days.
Other Exceptions: 2-201(3)(c) [Part Performance Doctrine] Where S has
tendered goods and B has accepted them, B’s oral promise to pay is enforceable. Where S
orally promises to ship and B has submitted payment and S has retained it, S’s promise to
ship is enforceable.
Suretyship: Promises made directly to a creditor to answer for the debt of another
must be in writing.
Contracts Covered: Promise must pertain to a K that existed prior to the
surety’s promise (the promise must be collateral, not original).
Main Purpose Doctrine: If the promisors’ main purpose in acting as a surety is
to secure a benefit to himself either personal or pecuniary, the promise is taken out of the
statute. There must be consideration for promisor’s promise, and the consideration must
be beneficial to the promisor.
Real Property: Contracts involving the transfer of land or buildings must be in
writing.
Contracts Covered: Sale, purchase, mortgage, easements, leases over 1 year.
Part Performance Doctrine: where a party has possession of the land and
either makes a payment to purchase or makes improvements upon the land, the K is taken
out of the SOF and the oral agreement is enforceable.
Sufficient Memo: A writing can be any signed note, including cancellation notices,
memos, letters, telegrams, or a combination of these, and must state 1) identify of the
parties; 2) the subject matter; 3) terms and conditions; 4) consideration; and 5) be signed
by the party to be charged. A signature can be a mark, initials, company logo and can be
handwritten, typed, or printed
Modification: Where the parties change their duties under the original K with a new
agreement, this will discharge some or all duties under the original K.
Requirements of Valid Modification:
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Common Law: Modifications require new consideration, and if the K as modified
falls under the SOF, a writing is required. Parities may voluntarily modify a K. A promise
may modify an original K if 1) it was made before the K was fully performed on either
side; 2) the underlying circumstances which prompted the modification were
unanticipated by the parties, in which case no new consideration is required; and 3) the
modification is fair and equitable.
K’s not fully performed may be modified to the extent justice requires in view of a
material change of position in reliance on the promise, even if oral.
UCC: Modifications are enforceable without new consideration as long as it is
made in good faith. If the K as modified is covered by the SOF, the SOF must be satisfied
(there must be a writing) for the modification to be enforceable.
Accord and Satisfaction: Requires a good faith dispute between the parties, a
promise by one party to render a substitute performance, and a promise by the other party
to accept the substitute in discharge of the existing, disputed duty. Where an accord is not
satisfied 1) the original claim may still be asserted; 2) the original claim may be
extinguished; or 3) the original claim is suspended, and an election to sue on the accord
or the original claim is retained.
Parol Evidence Rule: [parol = unwritten; oral] The principle that a writing intended by
the parties to be a final embodiment of their agreement cannot be modified by evidence
of prior or contemporaneous agreements that adds to, varies, or contradicts the writing.
Integrated Writing: An integrated writing is one that the parties intend to be the final
expression or embodiment of their agreement. A writing that is not the final agreement is
only a partial integration and allows for other terms to be included from prior
negotiations.
Tests to determine whether partial or full Integration?
1. WILLISTON (MAJORITY) Merger / Integration Clause: if the parties say it’s a
final written agreement, it is, unless it is clearly incomplete on it’s face. If no merger
clause, look to the writing: consistent additional terms may be admitted if the writing is a
partial integration. Reasonable person standard: if reasonable people similarly situated
would have naturally left the terms out, the writing is a partial integration and other terms
can be used to supplement. If reasonable people would not have left the terms out if they
were meant to be included, the writing is a complete integration and no other evidence is
admissible.
2. CORBIN (MINORITY) looks to the subjective or actual intent of the parties. All
relevant evidence considered, including evidence of prior negotiations.
3. UCC 2-202(a) relates to Williston’s Rule of the reasonable person standard as a
course of dealing, usage of trade, and course of performance, all of which would
reasonably and naturally be left out of a writing between the parties.
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Effect of Parole Evidence Rule: limits the extent to which any writings or
discussions prior to the signing of the K should be part of the K.
Exceptions to Parol Evidence Rule: PE may be used to present evidence to defend
against enforcement of the K or explain ambiguities. DAM FOIL: duress, ambiguities,
mistake, fraud, oral condition precedent, illegality, or lack of consideration. PE may be
used to show negotiations subsequent to the written agreement, even if they vary and
contradict the original terms.
Performance of Contract: All conditions to a K must be excused or satisfied, creating
an absolute duty to perform.
Conditions: A condition is a fact or event whose occurrence / nonoccurrence will
either create or extinguish an absolute duty to perform. Failure to satisfy a condition
discharges the liability of the promisor and is not a breach of K. Conditions precedent are
events, other than a lapse of time, that must occur before a performance becomes due.
Condition concurrent is a condition that must be satisfied at the time that performance is
due; simultaneously with the performance. A condition subsequent is an event that must
occur after the performance is due and, if the event doesn’t occur, the performance will
be discharged.
Express Condition: A condition explicitly stated in a K and one in which no duty
to perform arises if the condition is not met; must be strictly complied with; can be oral
or written. Complete performance / satisfaction of the condition required.
Implied Condition: a condition implied in fact and inferred by express conditions.
These conditions are tested by a reasonable person standard of belief that the duties
would not become absolute unless certain circumstances that are required for
performance existed. Complete performance / satisfaction of the condition required. (i.e.
I’ll buy you’re your house if I can get a loan - implied promise to use good faith efforts to
secure a loan to purchase a house; if the moon comes out I’ll sell you my laptop – moon
must come out).
Constructive Condition: Imposed by law to do justice and sometimes called
“implied in law” conditions; they are not expressly stated, but are a part of every K and
based on performances (i.e. the cooperation of the parties to a K is a constructive
condition). Created by operation of law to fix the time or order of performance and are
classified as precedent or concurrent. Have the same legal effect as express or implied
conditions. Substantial performance (satisfaction) of the condition enough.
Conditions of Satisfaction:
Satisfaction of Contracting Party: if the condition is contingent on the
personal satisfaction of a contracting party, satisfaction requires a good faith implied
promise, whether reasonable or not, for subject matters that are considered to be personal.
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If the subject matter is not personal, the condition of personal satisfaction is satisfied by
the reasonable person standard.
Satisfaction of Third Party: If the condition is contingent on the satisfaction of
a third party (i.e. architect, mechanic, etc.), a requirement of good faith is implied even if
it is unreasonable (satisfaction measured by the subjective good faith judgment of the 3rd
party).
Excuse for Failed Condition:
Wrongful Prevention: where one party fails to cooperate or acts to prevent the
occurrence of a condition, the condition is excused and an absolute duty to perform
arises.
Waiver and Estoppel: When a party entitled to a condition voluntarily waives
it, the waiver excuses the occurrence of the condition and an absolute duty to perform
arises. The waiver may be withdrawn or retracted provided the waiving party
communicated the withdrawal at any time before the time specified for occurrence of the
condition and the other party has not already relied to their detriment on the waiver. Once
there has been reliance on the waiver, the party entitled to the condition is estopped from
reinstating it.
Relief from Forfeiture: A failed condition may be excused where the excuse
prevents extreme forfeiture and the condition is not an essential part of the bargain.
Anticipatory Repudiation: Words or conduct by one party that clearly indicate
that they will not perform is a breach by anticipatory repudiation. All conditions to the
repudiating party’s performance are then excused and the repudiating party has an
absolute duty to perform or they are in breach. The non-breaching party may suspend
their own performance. Where a party’s conduct or statements suggest performance is
doubtful or unlikely, the other party may request adequate assurances of performance.
Lack of assurances will then be a breach by anticipatory repudiation.
Voluntary Disablement: (repudiation implied by conduct) A voluntary act by a
party that precludes that party from being able to perform will excuses all conditions, and
make performance absolute or breach results.
Substantial Performance: Constructive conditions are satisfied by substantial
performance as determined by whether the breach is minor or material.
Divisibility: A K is divisible if made so by an express agreement. A K is also
divisible if each installment gives the promisee a complete and proportional part of his
bargain. If the K is divisible, the promisor may recover a pro-rata portion of the K price
less any counterclaims for damages for breach. A willful breach is not considered, nor is
substantial performance of the total K.
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Discharge of Duty: where an obligation has become an absolute duty (conditions
have been excused or satisfied), that obligation may be discharged and a party not liable
for performance if some supervening event or change in circumstances outside the
control of the parties arises after formation of the K.
Impossibility: A supervening physical or legal event which occurs outside the
control of either party and is reasonably unforeseeable will make the K impossible to
perform provided neither party assumed the risk. Judged by an objective standard.
Subjective impossibility (meaning D can’t do it but someone else could) does not
discharge the duty. If the impossibility is temporary, duties are suspended and any
subsequent delays on resumption are not a breach of K. Events include destruction or
death of the subject matter, or supervening illegality of the subject matter. UCC 2-613:
casualty of identified goods.
Impracticability: Where a party’s performance is made impracticable by the
occurrence of an event, the non-occurrence of which was a basic assumption of the K,
and where neither party assumed the risk of it’s non-occurrence, then performance
becomes impracticable and the duty to perform is discharged. Impracticability can be
temporary.
Frustration: Where an unforeseen and uncontrollable circumstance arises that
frustrates the purpose for the K and prevents a party from performing / obtaining the
benefit of the bargain, the contractual duties will be discharged.
Breach: The failure to perform an absolute duty constitutes a breach of contract. The
consequences of the breach will depend on the timing and magnitude of the breach.
Anticipatory Breach and Options: Words or conduct (prior to the time set for
performance), by one party that clearly indicate that they will not perform is a material
breach by anticipatory repudiation. The non-breaching party may suspend their own
performance and sue for damages, or continue to perform but urge the repudiating party
to retract, and wait until the time for performance has passed (assuming no retraction)
and then sue. Where a party’s conduct or statements suggest performance is doubtful or
unlikely, the other party may request adequate assurances of performance. Lack of
assurances (within 30 days) will then be a breach by repudiation.
Minor Breach: A minor breach gives rise to an immediate cause of action for
damages caused by the breach, but does not excuse the performance of the non-breaching
party or accelerate performance of the breaching party. A breach is minor if the breaching
party has substantially performed, the hardship suffered by the non-breaching party is
minimal, or the non-breaching party’s injuries can be adequately compensated with
damages.
Material Breach: A material breach gives rise to an immediate cause of action on
the entire K. The non-breaching party may suspend their performance and sue for
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damages / appropriate remedies. A breach is material when it substantially deprives the
non-breaching party of the expected benefit of the bargain. A willful breach is a material
breach. UCC Perfect Tender Rule: Where the goods or the tender of delivery fail in any
respect to conform to the K a material breach occurs; the buyer may reject the whole,
accept the whole, or accept any commercial unit or units and reject the rest. Installment
Breach: If a non-conformity of one or more installments substantially impairs the value
of the entire installment K, there is a breach of the entire K.
Remedies:
Damages: The purpose of compensatory damages is to put the non-breaching party
in as good a position as he would have been in if the K had been performed.
Liquidated Damages: Agreed upon damages stipulated in the K should a party
breach.
Requirement for Valid Clause: to be enforceable, actual damages in the
event of a breach must be uncertain or difficult to ascertain at the time the K was formed,
and the amount agreed upon must be a reasonable estimate of what the losses would be in
the event of breach. UCC: allows for reasonable liquidation clause; if no clause included
and buyer breaches, seller may retain the smaller of $500 or 20% of the K price.
Effect: A valid liquidated damages clause allows the non-breaching party to
collect the amount specified from the breaching party without further proof of damages.
However, liquidated damages that amount to a penalty are unenforceable. It would be
deemed a penalty where the consequences of the breach are so excessive it compels a
party to perform rather than incur horrendous penalties.
Employment Contracts: There is no specific performance for employment K’s.
Where an employee breaches, damages are the cost of obtaining services equivalent to
those promised, plus consequential damages. P must mitigate losses (avoidable
consequences rule). Where an employer breaches, employee may recover the amount or
earnings promised for full performance of the K, less the amount the employee earned or
could have reasonably earned performing similar services during that period of time. May
also recover consequential damages and expenses for reasonable attempts to seek other
employment.
Sale of Goods: Standard Measure of Recovery = difference between market
price and K price.
Buyer breaches: Seller may recover difference between the unpaid K price and
the market price at the time and place of tender, plus incidental expenses, less
expenses saved as a consequence of the breach. Alternatively, the S may resell the
goods in a commercially reasonable manner and recover as damages the diff
between the K price and the resale price. S must give B notice before resale unless
the goods will perish or decline in value speedily. If unable to resell, S recovers full
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K price. Loss of Volume: Where the standard measure of recovery is inadequate to
place S in as good a position as performance, the S may recover the profit the S
would have made from full performance of the K (plus incidentals and costs
incurred, less any amount obtained on resale.)
Seller breaches: B recovers diff between market price at the time the buyer
learned of the breach and the K price, plus incidental / consequential damages, less
expenses saved due to the breach. Alternatively, the B may cover: reasonably
purchase or K to purchase substitute goods within a reasonable time and in good
faith; entitled to recover the difference between amount paid for the cover (even if
more than market price) and the K price, plus incidental expenses. If goods
delivered are defective, B may elect to recover the difference between the value of
the goods as warranted (express or implied) plus personal injury recovery less
value of the goods delivered / remaining in the buyer’s possession.
Sale of Realty: Buyer breaches: Seller may recover the difference between the
K price and the market price at the time of breach plus consequential damages. S has duty
to mitigate. If remedy at law is inadequate, S may get specific performance. S may also
elect rescission or restitution (but must restore partial payments less damages sustained to
B). Seller Breaches: Majority: standard measure of damages is the difference between
market price and K price. Minority: recovery limited to reliance damages – the amount
actually expended in reliance of the K. If breach by seller is willful, B may get standard
measure of damages. If remedy at law inadequate, B may get specific performance.
Construction Contracts: Owner breaches: Lost profit to builder if breach
occurs before performance begins. Where builder has fully performed, entitled to K price.
Where builder has substantially performed, builder must cease work immediately upon
learning of breach and may recover expected profits plus costs expended on the
construction up to the time of breach. Builder breaches: owner may recover the difference
between the actual cost to complete the construction and the contract price, plus
consequential and incidental damages, less mitigated damages. Restitution for Builder’s
breach: Restatement and majority hold a builder is not entitled to restitution if breach is
willful. Minority and modern view: builder may be entitled to restitution recovery in
quasi-contract to recover for the value of the benefit conferred less any damages caused
by the breach.
Consequential Damages: damages designed to make the non-breaching party
whole by compensating for the reduction of his expectation interest – the benefit he
expected to obtain from the agreement. Consequential damages are damages that are
reasonably foreseeable at the time of contracting, can be measured with certainty, were
clearly caused by the breach, and could not be avoided (mitigated) by the non-breaching
party
Reliance: Reliance damages are the costs expended by the injured party in
performing or preparing to perform prior to the time of breach and are designed to put the
injured party back to the economic position he would have been in had the K never been
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made. Where expectation damages fail, the injured party is entitled to recover costs
incurred in reliance on the K, provided they do no exceed expectancy damages.
Restitution: Where a K has been avoided but a benefit has been conferred,
restitution puts the parties in the position they were prior to contracting to prevent unjust
enrichment. Where the basis of recovery is breach, the breaching party returns to the nonbreaching party the value of any benefit the non-breaching party conferred upon the
breach (recovery in quasi-contract or quantum meruit).
Quasi-Contract: (Implied-in-law contracts.) Quasi-contract recovery occurs
when there is no contract or the contract has been avoided but a benefit has been
conferred and a party is unjustly enriched. The law imposes a duty to repay for benefits
obtained unjustly.
Measure of Recovery: Where a benefit has been conferred, recovery is the
value of the benefit conferred. Where no benefit has been conferred but the injured party
has incurred some cost, the measure is the cost incurred.
Equitable Remedies: Rescission, Restitution, Reformation, and Specific
Performance. Subject to the following defenses: legal remedies are inadequate, laches
(unreasonable delay in asserting legal rights; may be shorter than statute of limitations),
unclean hands (P responsible for part of the problem causing the breach), hardship (on
breaching party), and conveyance of subject matter to a bona fide purchaser for value
Specific Performance: To be available, the remedy at law must be inadequate,
the K must be definite and certain, all conditions precedent must be met, enforcement
must operate equitably, and the enforcement must be feasible. Minority holds specific
performance must be mutual and available to both parties to the K. Available where the
subject matter is unique (real estate, certain chattel); injunction in lieu of specific
performance in the case of personal services.
Reformation: Where the parties have written the K incorrectly, a court may
modify the written K to correctly reflect the agreement of the parties.
Rescission: terminates all responsibilities between the parties in an executory K
and restores them to their precontractual positions.
Third Party Problems:
Third Party Beneficiaries: Where a contract is formed in which at least one of the
promises runs to the benefit of an outsider to the contract, the contract is a third party
beneficiary contract. The contract can have more than one third party beneficiary.
Intended Beneficiary: Has rights under the contract. The beneficiary must be
identified in the promise, the performance must run directly to the beneficiary, and there
must be an intention to benefit the beneficiary.
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Incidental Beneficiary: Parties the contracting parties don’t intend to benefit, but
will benefit as a result of the contract anyway. Incidental beneficiaries have no rights
under the contract.
Creditor Beneficiary: A TPB who is owed a debt that is to be satisfied by
performance of a contract between two parties. Can sue both parties, the promisor and the
promisee, to the contract if the promise isn’t fulfilled. The promisee under the contract is
generally the party who owes the debt to the creditor beneficiary and is using the promise
and it’s performance to satisfy some or all of its obligation.
Donee Beneficiary: A TPB who is intended to receive the benefit of the contract’s
performance as a gift from the promisee. Can enforce the contract against the promisor
who fails to perform when rights are vested, but not against the promisee.
Vesting: Beneficiary has no rights under the contract until their rights are vested.
When Rights Vest: Vesting occurs when 1) the TPB learns about the benefit and
agrees to or assents to it; or 2) the TPB changes position or detrimentally relied on the
promise; or 3) the TPB files suit to enforce their rights; once they file, they are vested.
Effect: Once rights are vested, beneficiary can enforce their rights as they existed
at the time of vesting. Once rights are vested, the contracting parties can no longer
modify their agreement to cut out the beneficiary.
Assignments: A manifestation of intent by one of the parties to the contract to transfer
rights to third party (assignee.)
Elements of Assignment: To be a valid assignment, there must be a description of
the right assigned and words of present transfer. Cannot assign rights in the future, but
must be assigned presently.
Effect: Assignor makes a warranty promising the assignee that the right is
assignable and enforceable. Assignee can sue assignor for breach of the warranty of the
assignment. Assignee stands in the shoes of the assignor and can sue the obligor for
performance of the rights. Until the obligor has notice of the assignment, any changes in
the right assigned are effective against the assignee. Assignee subject to all rights, offsets,
counterclaims obligor may assert against assignor.
Limitations on Assignments: Rights may be freely assigned unless: 1) the K itself
prohibits the assignment, in which case the right to assign is prohibited, but the power to
assign is not. If assignment occurs, the assignor will be held in breach and be liable for
damages, but the assignment is still valid. 2) The law prohibits the assignment. 3) The
assignment would materially change the performance under the K, vary the risk assumed
by the obligor, or impair the obligor’s ability to obtain return performance. 4) The rights
are too personal to assign.
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Revocability: Oral, gratuitous assignments are revocable: by notice to assignee or
obligor, by creating a subsequent assignment to another assignee, where assignor accepts
obligor’s performance, by bankruptcy or death of assignor. Gratuitous assignments are
irrevocable: where they are in writing, where the subject matter is intangible [token
chose], where assignee detrimentally relies on the assignment [estoppel], where assignee
obtains performance from obligor. Assignments made for consideration are irrevocable.
Delegations: If the K or the law doesn’t prohibit it, duties are delegable.
Elements of Delegation: A delegation of duties requires a K be in place at the time
of delegation and present words of transfer between the delegator and the delegatee.
Effect: Obligee must accept performance of the delegatee if the duty is delegated.
Failure to do so is a breach of the K. Delegator remains a surety for the delegatee’s
performance. An attempt to delegate duties that are not delegatable by the delegator is not
a breach as he is still liable as a surety. If the delegation is gratuitous, obligee cannot
force the delegatee to perform. If consideration is given, an obligee who is aware of the
delegation may require the delegatee to perform.
Limitation on Delegations: Delegation of duties is prohibited if the K says so, if
performance of the duties is personal, if it is illegal to do so, or if the delegation results in
a material alteration of the performance due.
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