2013 outline
Thursday, November 14, 2013
11:03 AM
1. Concepts
a. Objective theory of contracts
i.
Assent
1. Balfour v Balfour: Presumption against intent to enter into binding
contracts in domestic situations. H promises W payments.
ii.
Meeting of the minds - defunct
b. Contractual intent
i.
Lucy v Zehmer: Establishes that assent is found by looking through the
perspective of an objective, reasonable person. Joke offer to sell farm.
ii.
Texaco v Pennzoil: factors a court will look at to determine mutual intent
1. Express reservation until writing
2. Partial performance
3. Essential terms agreed upon
4. Complexity of subsequent written contract (after oral agreement)
c. Meeting of the minds
i.
Subjective test; DEFUNCT
d. UCC
i.
When is it a UCC contract
1. BMC v Barth: predominate factor test.
2. Types of contracts
a. Unilateral
b. Bilateral
c. Express
d. Implied-in-fact
e. Implied-in-law
3. Offers - willingness to enter into bargain with another
a. Test of whether offer was made
i.
Objective reasonable belief
1. Leonard v PepsiCo: Under objective theory, ads are not offers but
solicitations for offers. Buyer is offeror. Reasonable person does not
expect that a merchant be bound by terms in an ad. Little smartass tries
to get jet from pepsi points ad.
2. Lefkowitz v Great Mpls: where the ad is very specific and leaves no
ambiguity, it becomes an offer that gives the power of acceptance.
Discount fur coats.
3. Lonergan v Scolnick: if offeree knows that offeror's statements are not a
manifestation of intent without further assent, it's not an offer. Back-andforth land transaction via mail, is the letter an offer?
ii.
Things that are not offers (R26)
1. Uncertain terms that indicate preliminary negotiation
2. Statements of future intention
3. Price quotes
a. Fairmount Glass Works: price quotes CAN be offers if they have
unusually specific terms. Glass company provides price quote with
terms of delivery.
4. Preliminary negotiations
a. not offers if reasonable person knows that further assent is
required
5. Catalogs/advertisements
b. Types of offers
i.
Unilateral
1. Offeror seeks actual performance
2. Brackenbury v Hodgkin: Mother asks daughter to come live with her in
exchange for her house. Acceptance was by coming to live, not by making
another promise
ii.
Bilateral
1. Offeror seeks promise to perform
iii.
Ambiguous
1. Either performance or promise sought
2. Horton v Daimler Chrysler: if an offer does not specify mode of
acceptance, anything manifesting acceptance is okay. Man settles debt
with car loan company but misses final payment; did he accept? Yes.
3. These are the most common. Look to whether the offeror's interests
would be protected by a uni or bi offer to overcome this presumption.
iv.
Reward
1. An offer open to lots of people
v.
Cross offer
1. In themselves do not make a contract; each can individually be accepted,
whichever one is accepted first
c. Power/right of acceptance
i.
Option contract
1. Implied unilateral option
2. Implied option based on substantial reliance
ii.
Merchant's firm offer
d. Offeror is master of the offer
4. Acceptance
a. Power of acceptance: exists?
i.
Objective theory of contracts
ii.
Would person in offeror's shoes think it's an acceptance
b. Who may accept
i.
Objective theory of contracts
1. A person whom it is reasonably apparent got the power of acceptance
ii.
Not transferable
1. Except options
iii.
Reward offers
1. First person to fulfill
2. Must actually know of offer
3. Equal publicity rule for revocation
4. Notice of intent to accept not required
a. Carbolic Smoke Ball
c. How can he accept
i.
Four methods
1. Promise
2. Actual performance
3. Beginning performance
a. Under unilateral offer, creates option
i.
No need to give notice until performance complete (Carbolic
Smoke Ball)
b. Under ambiguous, functions as offeree's promise
i.
If offeror has no reason to know of acceptance, notice must
be given
1. UCC: no notice, offer lapses before acceptance
2. Restatement: no notice, duties under contract
discharged
3. No notice, offeree not entitled to restitution
4. Silence. Only in:
a. Acceptance of services (unjust enrichment)
b. Offeror's direction that such acceptance is okay
c. Previous conduct
d. Acting as if you own offeror's property
5. UCC: prompt shipment
ii.
Ambiguous offers invite all, based on circumstances
iii.
Unilateral offer acceptance
1. Notice required if offeror has no means of knowing
d. When may he accept
i.
Revocable offer, until:
1. Rejection or counter-offer
a. Counter-offer eliminates power of acceptance
2. Lapse of time
a. Reasonable time
i.
Usually end of negotiation period
ii.
By letter, same or next day
1. If offeree knows it's delayed when he gets it, the time
of acceptance does not extend
iii.
By email, same day depending on circumstance
3. Revocation
a. Unilateral: may be revoked any time before performance
b. Petterson v pattberg: mortgagor may revoke offer of debt
restructuring any time before mortgagee tenders payment, even by
a few seconds. Creditor won't open door for debtor.
c. Offeree must receive notice of revocation
i.
Except if offeror makes an act inconsistent with entering the
deal, and
ii.
offeree hears from a reliable source
4. Death or incapacity of offeror
a. Smigel: Only if the offeree Is aware of offeror's incompetence, the
offer is revoked. Exception to restatement rule.
5. Death or incapacity of offeree
6. Death or destruction of person or item essential to contract
7. Supervening illegality of contract
8. Non-occurrence of express condition of acceptance
ii.
Irrevocable offer,
1. Types
a. Option contract
i.
A separate contract giving the underlying offeree the right of
acceptance for the underlying for a fixed period of time.
ii.
Generally requires own offer/acceptance/consideration
1. Consideration need only be purported if the option is
1. Fair
2. In writing
3. And signed by offeror of underlying contract
b. Merchant's firm offer
i.
Must be in writing + signed
ii.
Give assurance it will be held open
iii.
Only lasts 3 months
c. Unilateral option contract
i.
Beginning or tendering performance gives offeree option
lasting for the amount of time it takes to finish
d. Equitable option contract
2. When irrevocable offer is terminated:
a. Expiration of time
i.
Reasonable time
ii.
Time specified in option contract
iii.
UCC merchant's firm offer: 3 months
b. Death or destruction of essential thing
c. Supervening illegality
d. Non-occurrence of express condition
e. Rejection by offeree and then reliance by offeror
e. Special problems
i.
Mailbox rule
1. Acceptance is effective on dispatch
a. Does offeror have reason to know of any delay in mailing?
b. If revocation is sent after acceptance and overtakes acceptance, the
acceptance is revoked only if the offeror relies on the revocation
2. Offer, rejection, revocation, effective on receipt
ii.
When acceptance is different than offer
1. Mirror image rule (common law)
a. If not identical, it's a counter-offer
2. 2-207
a. Steps
i.
Do parties have a contract, based on intent?
1. Yes: Is offeree's form an effective acceptance?
1. Yes: Are parties merchants?
1. No: additional terms are proposals for
changes
2. Yes: additional terms are automatic
changes, unless
1. Offer expressly limits acceptance to
terms of offer
2. Changes materially alter the deal
1. Surprises or causes hardship
3. Objection to changes has already
been made
3. Yes, different terms are dealt with one of
three ways
1. Treat it as an additional term, do the
analysis
Use this approach on the
multiple choice part of exam
2. Offeror's term prevails
3. Both terms knock-out
2. No: Is there a contract by conduct?
a. Yes: use knock-out rule
b. No: no contract
2. Terms-in-the-box/shrinkwrap/clickwrap
a. Depends greatly on who is offeror and who is the offeree know both approaches
i.
Manufacturer is the seller (no inventory problem):
acceptance doesn't take place until after buyer receives
the goods
5. Indefiniteness
a. Types
i.
Missing term
ii.
Ambiguous term
iii.
"agree-to-agree" agreements
1. If agreement is never reached, trend is to insert a term
2. Joseph Martin Deli v Schumacher: agree-to-agree agreements that are
vague and only speak to the possibility of a new contract will not have
terms stuck into them by the courts. There has to actually be a contract
struck for a court to "save" it by using R204. Deli wants to renew lease,
disagreement over rent.
b. Common Law approach
i.
Essential terms
1. Subject matter
2. Quantity
3. Price
4. Time
5. Place
6. Payment terms
ii.
Today, courts have broad powers in interpreting and inserting these terms. Will
look to circumstances surrounding formation, but if they can't figure it out.
1. Haines v New York: Court will use default terms, like "for a reasonable
time" regarding duration of contract, to fill in some missing terms, but
will also look to intent and circumstances of formation of contract. NYC
pays for upstate town's sewer system.
c. UCC approach:
i.
gap fillers
1. Price of goods
a. Reasonable price
2. Mode of delivery
a. Single lot
3. Place of delivery
a. Seller's place of business
4. Time of delivery
a. Reasonable time
5. Time and place of payment
a. Time and place of delivery
6. NO GAP FILLERS for
a. Subject matter
b. Quantity
ii.
Only used if
1. Contract is otherwise enforceable
2. For agree-to-agree
Different than common law
3. If parties have not agreed to a different term
d. Past performance (one-off event), course of performance (sequence of events), usage
of trade, course of dealing
i. Can remove uncertainty
f. Consideration
i.
When is there consideration
i.
Promises are bargained for in exchange for each other
ii.
Sometimes combine with legal detriment suffered by promisee [minority view;
disfavored; do not use except as gravy]
ii.
What can be consideration
i.
Act
ii.
Forbearance
iii.
Creating, destroying, altering a legal relationship
iv.
Bilateral contract: return promises are consideration for each other if
a. They were sought and given in exchange for each other and
b. They would be valid consideration if performed as acts
v.
Promise or performance to a third party
iii.
What can't be consideration
i.
Gratuitous or gift promises
ii.
"past" consideration or moral obligation
a. Only if past benefit was a gift, and
b. Only if value is disproportionate
Otherwise, can be enforced
a. Webb v McGowin: P saves D's life (not a gift) and is injured. D
promises to make lifetime payments; promise enforced.
c. Unsolicited action
d. Illusory promise
i.
Except personal satisfaction clauses
i.
Good faith is required in these
ii.
Except output and requirements deals
i.
Where there's an estimate given, some authorities find an implied
"floor" and it can't go to zero, but majority allows to go to zero in
good faith
iii.
Except exclusive deals
i.
Common law: requires good faith efforts on part with exclusivity
ii.
UCC: requires best efforts (read as reasonable)
iv.
Except promise to pay dead debt
i.
Acknowledgements; promises to "make good". Some states, must
be in writing
v.
Except fair notice for terminable-at-will deals
e. Pre-existing duty
f. Sham consideration
i.
Fake consideration just to pay lip service to consideration requirement
g. Purported consideration
g. Promissory estoppel
i.
A promise is binding if
i.
Promisor can reasonably expect some kind of reliance
ii.
Promise does induce action or forbearance
iii.
The only just option is to enforce
ii.
Works on
i.
Gift promise
ii.
Land conveyance
iii.
Charitable subscription
iv.
Offers that induce foreseeable reliance
v.
Reliance of promises made in preliminary negotiations
h. Modifications
i.
UCC 2-209
i.
No consideration required
ii.
"no modification except in writing" clause is enforceable
iii.
Must satisfy statute of frauds
iv.
Oral modifications are okay, unless precluded under (ii) or (iii), then they are a
waiver
a. Different interpretations of how evidence of these conversations may be
admitted
a. Easterbrook: any evidence of these is allowed, as long as there is
good faith
b. Posner: requires a showing of reliance to allow the evidence
b. If evidence admitted, if jury believes there is a waiver, the waiver is
retractable unless there is reliance
ii.
Restatements / common law
i.
Requires good faith and consideration
ii.
"no modification in writing" clause is waivable
iii.
Exceptions needing no consideration
a. New circumstances or facts
b. Statute
i.
c. Reliance (estoppel)
iv.
Statute of frauds
Defenses to contracts
i.
Capacity
i.
Minors
a. Absolute rule; underage = incapacity
b. Voidable by minor's option until 18, ratification
a. Express
b. Implied-in-fact
c. By silence
c. Restitution given in some state
a. Except to credit sales
b. Some states, only to necessities
d. If minor affirmatively misrepresents age, there is always restitution and
sometimes the contract is binding
ii.
Incompetents
a. Test to determine
a. Cognition test: unable to understand transaction
i.
Voidable regardless of other party's knowledge
b. Acts test: unable to act in reasonable manner
i.
Voidable only if other party has reason to know of condition
b. Can be ratified if incompetency ends
c. If other party did not know of incompetency and the terms are fair,
contract may not be voidable
iii.
Under guardianship
a. Guardian may void or affirm contract
iv.
The drunks
a. Restatement rule
a. Voidable only if
i.
Other party has reason to know
ii.
And drunk person fails acts or cognition test
b. Majority rule
a. Voidable if person fails conduct test, regardless of whether
intoxication was voluntary and regardless of other party's
knowledge
ii.
Mistake and misunderstanding
contracts entered into by mistake is voidable
i.
Mutual mistake
both parties are under the same erroneous belief
a. This is voidable by adversely affected party
b. Must
a. Be about a basic assumption
b. Have a material effect
c. The party seeking to void must not bear risk of mistake
i.
The risk was allocated to that party by express agreement
ii.
Party is aware of own ignorance but treats it as sufficient
knowledge
iii.
Court finds it reasonable to place risk on one party
ii.
iii.
iv.
Unilateral mistake
same elements as mutual mistake, plus also either
a. Use the unconscionability test below
b. Or the non-mistaken party had reason to know or caused the mistake
iii.
Misunderstanding
when parties agree to a term but assign different meanings to that term
a. If neither party has reason to know the other party's understanding of a
term, no contract is formed
b. If both parties know the other interprets a term differently, no contract is
formed.
c. If one party knows that the other has a misunderstanding, that
misunderstood interpretation controls. Misunderstanding party can
rescind.
a. Raffles v Wichelhaus: Sale of tea from India to UK. Two ships named
Peerless; both parties thought it was the other ship. Neither party
had reason to know of the other's misunderstanding, there is no
contract.
Misrepresentation
i.
Types
a. Innocent
b. Negligent
c. Fraudulent
a. Conscious lie
b. Awareness of ignorance
c. Reckless disregard for the truth
d. Fraud in the factum
a. Misrepresenting the very document that someone is signing
b. Always void
ii.
In order to void, victim must show
a. A misrepresentation of fact by other party
a. Not mere opinion, unless speaker is lying about own opinion
b. Not predictions of the future
c. Not statement of future intention (essentially just breaching the
contract somehow, later)
d. Not puffery or trade talk
b. Misrepresentation was either fraudulent or material
c. Victim actually relied upon misrepresentation
d. The reliance was reasonable
Duress
no free choice or decision-making ability
i.
By physical compulsion
a. Void.
ii.
By improper threat
a. Voidable
b. When deal seems fair
a. Criminal or tortious threat
b. Threat of criminal prosecution
c. Threat of bad faith civil action
x.
d. Threat is a breach of good faith / fair dealing regarding an existing
contract
i.
Threatening not to finish a contract unless terms are changed
or new contract signed
c. When deal seems unfair
a. All of above
b. Threatened act harms recipient without direct benefit to threatmaker
c. Prior dealing increases effectiveness of threat
d. Use of power for illegitimate ends
v.
Illegality
Void.
i.
Agreements for criminal acts
ii.
Gambling contracts (depending on state)
iii.
Contracts by bribery
iv.
Release from intentional tort liability
v.
Contracts with unlicensed professionals
vi.
When seller knows of buyer's illegal purpose
If illegal contract is at least partially performed
a. Courts leave parties as they are
i.
Exceptions:
i.
In pari delicto: party is entitled to restitution if he can show
a. He was not guilty of moral turpitude
b. Other party is more blameworthy
ii.
Locus poenitentiae: party is entitled to restitution
a. If he goes back on the deal before anything bad is done
b. Only if it's not a deal for serious moral turpitude
f. Unconscionability
Requires a balance between
i.
Procedural unconscionability
a.
Superior bargaining power
b.
Parties on equal footing
c.
Party has a meaningful choice
ii.
Substantive unconscionability
a.
Objective fairness
iii.
Remedy
court may
a.
Not enforce entire contract
b.
Enforce remainder without unconscionable clause
c.
Modify application of any clause to avoid unjust result
Parol evidence
a.
Is the contract integrated?
i.
Test:
a. Williston: four corner test
b. Restatement: argue integration in front of judge with evidence
ii.
Completely
a. Parol evidence inadmissible
iii.
b.
Partially
is the parol term
a. Contradictory
a. Parol evidence inadmissible
b. Consistent additional term
is it something that might naturally have been omitted from the writing
a. Parol evidence admissible
Integration clauses are persuasive but not dispositive
2014 outline
Monday, March 17, 2014
10:15 AM
1. Statute of Frauds
a. Certain things must be in writing
i.
Transfer of interest in land
ii.
Contracts that cannot be performed within a year
1. Unless K is terminable within a year (minority)
2. Unless one party completes performance
iii.
Ks in consideration of marriage
iv.
A promise to be liable for the debt of another
v.
Sale of goods more than $500 (UCC)
1. Writing must have quantity; evidence of sale; signature
a. Cannot use parol evidence for a greater quantity; written quantity
always enforced
2. A confirmation memo sent by a merchant to a merchant counts
3. Exceptions:
a. Specially made goods
b. Admissions
c. Performance
i.
Part performance is valid for that part of contract
d. Actual reliance
b. Is a defense making contract the voidable
c. Requires
i.
A writing
ii.
Signed
iii.
With subject matter
iv.
May be in separate documents (merger)
2. Impossibility/Impracticability/Frustration
a. Impossibility
i.
Unexpected event
1. The non-occurrence of which was a condition of the contract
a. Death of person necessary for performance
b. Destruction of thing necessary for performance
c. Illegality after contract is formed
ii.
Making performance objectively impossible
1. No one could do it
Seller is without fault
Seller did not assume risk of non-occurrence
Partial impossibility (UCC only)
1. Remaining quantity must be offered prorated to buyer
b. Impracticability
i.
Event making performance commercially impracticable
1. Usually found to be 5 to 6 times the cost
ii.
Non-occurrence condition of the contract
iii.
Not seller's fault
iv.
Seller did not assume of risk
1. The more foreseeable the risk, the more likely seller assumed the risk
impliedly
c. Frustration
i.
Event substantially frustrates principal purpose of buyer
1. Buyer must receive absolutely no benefit
ii.
Non-occurrence of which was a condition of the contract
iii.
Not buyer's fault
iv.
Buyer did not assume risk
d. If any of these are temporary, duties are only suspended
e. Force majeure clauses specify what makes impossibility, ahead of time
3. Interpretation
a. Interpreting the intention of the parties with regard to meanings of terms
b. Terms agreed to by both parties are interpreted accordingly, priority over dictionary
definitions
c. When there is disagreement:
i.
If one party knew, at the time contract was made, that other party had a
different meaning in mind, that meaning controls.
ii.
Maxims:
1. Reasonable interpretations preferred over those which give clauses no
effect
2. With conflict, specific clause acts as exception to general clause
3. Negotiated terms given greater weight than standardized
4. Ambiguous terms resolved against drafter
5. Expression of one thing is exclusion of another
iii.
If there are inconsistencies:
1. With generally accepted definition
2. Course of performance
3. Course of dealing
4. Usage of trade
iv.
How are terms inconsistent with each other? Parties' arguments? Course of
trade/performance/dealing differences? Pg 303 d.
Courts will try to "reasonably reconcile" inconsistent terms by, for example,
trying to define one definition as a subset of the group defined by the other
v.
Extrinsic evidence
1. Old williston view: only allowed for terms that are on their face ambiguous
2. Corbin / restatement view: is the term reasonable susceptible to the
meaning argued by one party?
iii.
iv.
v.
4. Conditions
a. Forms
i.
Express
1. Personal satisfaction clauses are always these
a. Must be in good faith
b. The more commercial the contract, the more objectively these are
judged
ii.
Implied-in-fact
1. Evidenced by conduct
iii.
Constructive/Implied
either
1. Parties would have agreed to conditions if asked
2. Public policy requires
3. Regulating tender of performance
4. Regulating order of performance
5. To deal with consequences of breach
b. Types
i.
Condition precedent
1. An event which must occur before performance is enforceable.
2. The duty exists from formation but is unenforceable.
3. Non-occurrence does not discharge duty until occurrence is impossible.
4. Cannot be shown through parol evidence
5. Benefitted party has burden to show that condition happened giving rise
to duty of other party
ii.
Condition subsequent
aka event terminating a duty
1. An event which terminates a party's duty to perform.
2. Occurrence cannot be the result of a party's bad faith
3. Duty is enforceable until occurrence; there is still a valid contract after
4. Burden is on party with duty to show that duty is discharged by event
5. Can be shown via parol evidence
c. Are strictly construed; all-or-nothing.
d. When duties are discharged or unenforceable, there need not be a suit for breach; the
party with the duty can just walk away.
e. When in doubt whether it's a duty or a condition, the preferred interpretation is as a
duty.
f. Tender
i.
Constructive condition fulfilled by party's offer of performance and manifest
present ability to perform.
ii.
Tender is a condition precedent to the kick-off of performance
iii.
UCC
1. Seller's tender
a. Set aside goods
b. Give notice
c. Make goods available or offer to deliver
2. Buyer's tender
a. Can be any commercially acceptable form. Check is always okay
unless seller demands cash.
g. Order of performance
i.
If performances can be done simultaneously, once one party tenders, both
parties must perform simultaneously
ii.
If one performance takes longer, complete performance of that duty is a
condition of the other party's duty.
h. Excuse of conditions
i.
Wrongful prevention, hindrance, non-cooperation
1. Duty of good faith
2. Affirmative wrongful prevention
3. Inaction
4. Breach of duty of noncooperation
ii.
Disproportionate forfeiture caused by enforcement of condition
1. Only if condition is not material to the bargain
iii.
Waiver
1. One party excusing the occurrence/non-occurrence of the condition.
2. Retractable if
a. Executory duty remaining
b. Bilateral contract
c. Notice given
d. No reliance
iv.
Election
1. Waiver after performance is due
2. Non-retractable
v.
Divisibility
1. Courts may divide up a contract, effectively excusing the condition that
upon a total/material breach one party may terminate/suspend all
performance (and turning it into an immaterial breach of the rest).
5. Breach
a. Types
i.
Immaterial
1. Anything minor; anything not material or total
2. Innocent party's duties not suspended, but may still sue
3. Substantial performance doctrine:
As long as duties have been substantially performed, any deficiency is
immaterial
Factors:
1. How much benefit already received by victim
2. Forfeiture by breaching party
3. Damages can compensate victim
4. Bad faith?
5. Actually fixing the breach would result in economic waste
2. Material
a. Factors
i. Victim is deprived of benefit of bargain
ii. Can V be adequately compensated for loss of benefit
iii. Will bad guy suffer forfeiture
iv. How likely will bad guy fix his failure; cure
v. Violated good faith & fair dealing
b. Victim's duties are suspended
i. But if it turns out breach was immaterial, a suspension of duties is in
itself a material breach
3. Total
a. An uncured material breach, after a reasonable amount of time
i. Or instantly in time is of the essence contracts
ii. When further delay will remove victim's other options
b. Duties are terminated.
4. UCC
a. Perfect Tender
seller's failure to conform in any way in a single lot contract to the contract
is a material breach
i. Buyer may
1. Reject in whole
2. Accept in whole
3. Accept commercial units and reject the rest
ii. Exceptions
1. Seller's right to cure
a. Only before the deadline
b. After deadline if:
i.
Seller reasonably believes buyer would accept
ii.
Buyer is not inconvenienced
iii.
Within reasonable time
c. By
i.
Repair
ii.
Replacement
iii.
Refund
2. Installment contacts
3. Specially made or complex machinery
4. Buyer cannot revoke acceptance
b. Installment contracts
buyer may reject particular shipment only in case of non-conforming
tender
i. If deformity substantially impairs value to buyer
ii. And no cure
iii. Can reject entire contract only if deformity impairs value of whole
contract
2. Anticipatory repudiation
a. Elements
i.
Bilateral contract with unexecuted duties
ii.
Actual failure to perform would be a total breach
OR UCC: would substantially impair value of contract
iii.
Repudiation is definite and unequivocal
1. Can be by words or by conduct
b. Failure to provide adequate assurance (UCC only)
i.
One party has reasonable grounds for insecurity
1. Reliable source
2. Must be after contract formation
ii.
Other party must respond with reassurance
1. Receiving party decides what form this takes
2. Must indicate ability and willingness to perform
3. Demanding party may suspend duties while waiting
4. UCC deadline is 30 days
5. Failure to respond adequately = anticipatory repudiation
c. Effect of repudiations
i.
Treat as total breach
1. Innocent party may sue immediately
2. Remaining duties are discharged
a. After intent of termination is shown
i.
By notice
ii.
By lawsuit
iii.
By material change in position
d. Retraction of repudiation
i.
Allowed up to time performance is due before other party terminates.
ii.
Suspended duties are forgiven, innocent party gets reasonable
e. Installment payments
i.
Repudiation of an entire balance is treated only as a repudiation of the
particular installment payment due
3. Divisibility
a. A court may find that some duties are still enforceable even when there has
been a material breach in others.
6. Remedies
a. Money damages
i.
Expectation Interest
Amount that would place the non-breaching party in as good a position as had
the contract been performed.
1. Lost value + incidentals + consequentials - cost avoided - losses avoided
2. Limitations
a. Be reasonably certain
i.
Lost profits are inherently difficult to prove
ii.
Any reasonable basis will probably be okay
b. Reasonably foreseeable
c. Reasonably unavoidable
i.
Requirement (not duty) of trying to mitigate
ii.
Reliance Damages
Amount to put non-breaching in position he was in before the contract
1. Be reasonably certain
a. Courts are charitable
2. Covers only out-of-pocket costs
a. Including labor, including own labor
3. If injured party would have lost money on the deal, that amount is
subtracted
4. Materials must be salvaged if possible and deducted
iii.
UCC
1. Prioritizes expectation damages
2. Consequential damages only available to buyer
3. Buyer's remedies
a. Cover
rejecting; buying substitute goods
i.
Must be in good faith and without undue delay
ii.
Measure of damage equals difference in cover and contract
b. Market differential
rejecting; not buying substitute goods
i.
Market price minus contract price
ii.
At time of breach and place of planned tender
c. Warranty (after acceptance)
i.
Value of goods as warranted minus value of good received
d. Specific performance
i.
Only when goods are very unique
ii.
Or when cover is unreasonably burdensome
4. Seller's remedies
a. Resale or cover
i.
Difference in contract price and resale
ii.
Usually don't have to give notice
b. Market differential (choosing not to sell)
i.
Time and place of tender
c. Lost profit
only when:
i.
Lost volume
1. Lost profit from a sale that cannot be replaced
ii.
Partially completed goods
1. Profit minus salvageable materials
d. Specific performance
When one of following happens
1. Buyer accepts
2. Goods are lost or destroyed before acceptance after delivery
3. Seller is unable to cover
4. Seller doesn't cover because it would be futile
4. Restitution
Benefit actually received by other party
a. When available
i. Total breach
ii. Contract is avoided
iii. Contract is discharged through impossibility
iv. Quasi-contracts
1. Always cost avoided
b. How to calculate
i. Cost avoided
1. How much would it cost for someone else to provide that same
benefit?
ii. Net benefit
1. How much did other party's property or interest increase in
value?
iii. If non breacher seeking restitution, get most generous calculation
iv. If breacher seeking restitution, he gets least generous calc
c. Limitations
i. Mutual restitution
ii. Only available if party can sue for total, not partial, breach
iii. Not available if only performance remaining is payment
iv. Willful breacher gets no restitution
v. Not available if there is no actual benefit to other party
vi. Breacher cannot get restitution above contract price, when he is
ordered into specific performance, or above liquidated damages.
5. Types of damages
a. Direct Damages
i. Loss in value of bargain itself
b. Consequential
damage suffered as a consequence of breach
i. Direct
1. Foreseeable; damages following in natural course of events
ii. Indirect
1. Not foreseeable; not recoverable unless breacher had specific
knowledge
c. Incidental damages
i. Out-of-pocket mitigation costs
ii. "lost time" in mitigation usually not recoverable
d. Liquidated damages
i. Term in a contract that preemptively sets or limits damages in advance
ii. To enforce:
1. Must be reasonable in light of anticipated harm
2. Proving actual loss will be difficult
3. Cannot be punitive
iii. Disfavored by courts, except in employment cases
iv. UCC: enforced unless
1. Remedy fails in essential purpose
2. It's unconscionable
e. Emotional damages
i. Only if bodily harm
ii. Or emotional harm likely to occur
f. Punitive damages
i. Rarely, except occasionally in bad faith breaches and it has to be really
bad
2. Specific performance
harder to get
a. Money damages would be inadequate
i.
Difficulty in proving
ii.
Difficulty in getting substitute performance
iii.
Broke-ass D
b. No practical limitations
i.
Uncertain contract terms
ii.
Burden to court of enforcement
iii.
Personal service contracts
c. Order would not be itself unfair
i.
Against public policy
ii.
Burdensome
iii.
Contract formation was unfair
d. Prohibitory injunctions
i.
Can be used to get an order to prevent someone from taking a particular
new contract; can't be used as a general non-compete order
7. Third party deals
a. Third party beneficiary
i.
At formation of contract, promisor promises to promisee to benefit third party
beneficiary
ii.
Beneficiary may be a creditor or donee
iii.
Rights of beneficiary
1. Against promisee
a. No add'l rights gained from third-party deal
b. If a creditor, may sue promisee over original debt
2. Against promisor
a. Can sue to enforce third party deal
b. Any defense against promisee may be used against TPB
3. Against modifications
a. May not be made after
i.
Restatement: reliance after learning of deal
ii.
Minority 1: contract formation
iii.
Minority 2: mere knowledge
iv.
Rights of promisee
1. Only may sue promisor for specific performance
v.
Identity of TPB need not be known at formation
vi.
TPB need not manifest acceptance
1. But may disclaim rights after giving notice within a reasonable time
b. Assignment
i.
Transfer of the right to receive performance - think of as an intellectual property
right
1. After transfer, obligor has no further duty to assignor
ii.
May be gratuitous or consideration
1. Gratuitous may be modified without assignee's consent except
a. When in writing
b. When accompanied by symbol or token
c. After reliance or part performance
iii.
Elements
1. Assignor must manifest a present intention to transfer existing right
without further action
2. Assignment is permissible
a. Public policy
i.
Cannot assign future salary or wages
b. Material or adverse effect to obligor
c. Anti-assignment clause
i.
Rarely upheld
3. Assignee must manifest acceptance
iv.
Obligor need not be notified of assignment; but may perform to assignor if has
no awareness.
v.
Obligor may use any defense against assignor against assignee
vi.
Assignee-for-value may sue assignor under a warranty claim that the assigned
rights exist
1. Not that obligor is solvent or able to perform
c. Delegation
i.
Transfer of a right to perform a duty
ii.
Elements
1. Delegating party manifests intent to delegate
2. Must be permissible delegation
a. Public policy (rare)
b. Obligee has a substantial interest in performance by original party
i.
Presumed when a person is mentioned by name, but not when
a corporation is named
ii.
Payment of money is never non-delegable
c. Non-delegation clause
i.
Courts usually enforce these
iii.
Obligee need not assent or be aware
iv.
Duty of delegator not discharged until performance complete
v.
Obligee can be considered a third-party beneficiary of an express contract
between delegating party and delegate (when delegation is for value)
vi.
Delegate not obligated beyond his right to perform unless there has been a
novation with obligee (when delegation is not for value)
8. Discharge
a. Substitute performance
i.
Satisfying a duty by making a different performance
ii.
Consideration being the modification of existing legal relationship
b. Substitute contract
i.
Satisfying a duty by promising a different performance
ii.
The original duty is immediately discharged
iii.
Novation
1. If different performance is to be by a third party
iv.
Accord
1. New contract is conditional; original duty not discharged until completion
of new duty
2. Can sue for breach of either duty
c. Rescission
i.
Both parties agree mutually to discharge all remaining duties.
ii.
Is its own contract with O/A/C
1. Rescission in writing needs no consideration
d. Release
i.
One party agrees to release other's remaining unperformed duties
1. Under common law, needs consideration; today this rule is overridden by
statute
9. Warranties
a. Express warranties
i.
Sale of goods
ii.
Seller
1. Affirms a fact related to goods
2. Describes goods
3. Provides a sample or model of good
iii.
Representations become part of bargain
either
1. Reliance unnecessary
2. Reliance necessary
a. Seller can defend if it can show that buyer did not actually rely on
the representations (CA only)
iv.
Goods fail to conform to representation
v.
Failure causes damage
vi.
Buyer provides notice and particulars to seller
b. Implied warranties
i.
Warranty of merchantability
1. Sale of goods
2. Seller is merchant in that good
3. Goods do not live up to one of these standards
a. Pass without objection in trade
b. Fair/average quality
c. Fit ordinary purpose of good
d. Within standard of agreement
e. Adequately packaged and labeled
f. Within standard on label
4. Failure to conform
5. Failure causes damage
6. Notice to seller
ii.
Warranty of fitness
1. Sale of goods
2. Seller had reason to know, at time of sale, of particular purpose for which
goods are required
3. Seller had knowledge buyer is relying on seller's skill or judgment in
selection of good
4. Buyer actually relies
iii.
Damages:
1. Difference in value of good received and as warranted, plus consequentials
c. Modification
i.
Must use specific language from UCC 2-316 that makes it very clear the warranty
is being disclaimed