Contracts Flashcards
(117 cards)
1
Q
What is a contract?
A
Legally enforceable agreement
2
Q
What is a contract?
A
Legally enforceable agreement
3
Q
What is the difference from an express contract, implied in fact contract, and quasi contract?
A
Express - formed by language, oral or written
Implied in fact - formed by manifestation of assent by conduct (i.e. sitting in barber’s chair and getting hair cut; contract formed by party conduct)
Quasi - An equitable remedy to avoid unjust enrichment when there is no contract; not actually a contract
- The plaintiff brings an action for restitution to recover the amount of benefit conferred on defendant
4
Q
What should you look for to ensure you have a contract?
A
(1) offer, (2) termination of offer, (3) acceptance, and (4) consideration
Also ask: Was there mutual assent? Was there consideration? Are there any defenses?
5
Q
What distinguishes a bilateral contract from a unilateral contract?
A
Bilateral - Offer that is open as to the method of acceptance
Unilateral - Offer that expressly requires performance as the only possible method of acceptance
Assume bilateral unless (1) reward, prize, contest, or (2) offer expressly requires performance for acceptance
6
Q
How do you measure recovery?
A
Contract price is not the measure of recovery. Focus on value of benefit conferred. Contract price is the ceiling if P is in default
7
Q
When does Article 2 apply?
A
Sale of goods
Goods are all things movable; tangible, personal property, not real estate
Look at the subject matter of the transaction (services or real estate vs. sale of goods)
8
Q
When does good faith and fair dealing apply?
A
Article 2 imposes an obligation of good faith and fair dealing in all sales contracts
Defined as honesty in fact and the observance of reasonable commercial standards
Common law also imposes a duty of good faith and fair dealing
Breach of good faith and fair dealing is a question of fact
9
Q
What is the difference from void and voidable?
A
Void - contracting to do an illegal action
Voidable - one or both parties may elect to avoid by a defense (i.e. infancy, mental illness, etc.)
An unenforceable contract is valid but not enforceable due to defenses such as statute of limitations or statute of frauds
10
Q
What is an offer?
A
Manifestation of intent to contract; words or conduct showing commitment
The basic test is whether a reasonable person in the position of the offeree would believe that the offeror’s assent created a reasonable expectation to enter into a contract
If a reasonable person would determine the language was reasonably understood as made in jest, anger, or bragging, then no offer
11
Q
What questions should you ask to determine a valid offer?
A
Was there an expression of a promise, undertaking, or commitment to enter into a contract?
Was there certainty and definiteness in the terms?
Was there a communication of the above to the offeree?
12
Q
When is an advertisement an offer?
A
When the advertisement is so certain and definite and the offeree is clearly identified that a reasonable person would construe it as a promise (i.e. first come, first served)
Most advertisements are construed as invitations for offers
13
Q
What contractual terms are generally important?
A
Identity of the (1) offeree, (2) subject matter, and (3) price
Keyword: definiteness of terms
Ambiguity will result in no contract; courts will not rewrite ambiguous, vague, or uncertain terms. A court will rule the parties manifested an intent that cannot be determined
14
Q
What are the requirements for specific types of contracts?
A
Real estate - must identify the land and price
Sale of goods - must identify quantity
Employment/services - duration and the nature of the work
15
Q
What are requirements and output contracts?
A
Requirements - a buyer promises to buy all the goods from seller that the buyer requires
Output - A seller promises to sell all of the goods that the seller produces
These offers are sufficiently definite because the quantity is capable of being made certain
The quantity cannot be unreasonably disproportionate (i.e. a buyer cannot increase from 1,000 to 6,000 widgets in requirements)
16
Q
How do missing terms affect a contract?
A
If it appears the parties intended to make a contract, and there is a reasonable, certain basis for a remedy, then a court can supply reasonable terms, but the terms must be consistent with the parties’ intent
The more terms the parties leave open, the less likely they intended to enter into a binding contract
- I.e. for missing price, the court may imply the usual price of service or the normal price for service in the area
If a term is a material term, courts can be reluctant to fix the term and may rule the offer is too uncertain
17
Q
What is the Article 2 price gap filler?
A
The reasonable price at the time of delivery
This occurs when nothing is said about price, or the price is left to be agreed upon but never is, or the price is to be fixed by an external factor but was never fixed
The party who is to fix the price (if a price is so fixed later after agreement) is to be fixed in good faith
18
Q
When can vagueness or uncertainty be cured?
A
Vagueness can be cured by part performance, such as when part performance clarifies the needed clarification of the terms
Uncertainty can be cured by acceptance, i.e. when the offeree is given a choice of alternatives and then the offeree communicates her choice (offered a choice of cars for $10K and the offeree chooses one car)
19
Q
How does termination affect an offer?
A
An offer cannot be accepted if it has terminated. The offer no longer exists.
20
Q
What are the methods of termination?
A
(1) lapse of time, (2) revocation by offeror, (3) rejection by offeree, (4) death or incapacity of a party prior to acceptance
21
Q
When is a contract terminated for lapse of time?
A
Time stated in offer expired or a reasonable time has passed as judged by a reasonable person
22
Q
When do words and conduct of the offeror constitute revocation of the offer?
A
Unambiguous statement by offeror to offeree of unwillingness or inability to contract, or
Unambiguous conduct by offeror indicating an unwillingness to contract that offeree is aware of
23
Q
When does revocation of an offer become effective?
A
When notice is received; if sent through mail then not effective until received
Receiving the revocation is effective, it need not be read
Revocation may be by indirect communication if the offeree receives (1) correct information, (2) from a reliable source, (3) of acts from the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
24
Q
When can an offer not be revoked?
A
Option Contract - If the offeror has (i) promised to keep the offer open and (ii) promise is supported by consideration
Merchant Firm Offer Rule - cannot be revoked for up to three months if (i) offer to buy or sell goods, (ii) signed, written promise (iii) to keep offer open, and (iv) offeror (usually seller) is a merchant
- The three month rule is that if time is not stated then the offer cannot be revoked for up to three months
Detrimental Reliance - an offer cannot be revoked if there has been detrimental reliance by offeree that was reasonably foreseeable
Unilateral contract - start of performance makes offer irrevocable
- Mere preparation does not constitute start of performance
25
When do words or conduct by the offeree constitute rejection?
**Counteroffer** - then becomes a new offer
* But bargaining does not terminate the offer (i.e. I accept, but will you take $300 vs. I accept for $300 when price was $400)
* The general test is **whether a reasonable person would believe that the original offer had been rejected**
**Conditional acceptance** (if, but provided, so long as, on condition that)
**Additional terms** in **common law (mirror image rule** - unequivocal acceptance of each and every term); acceptance that adds new terms is counteroffer
**UCC**: **seasonal expression of acceptance**
A rejection is **effective when received**
A **request for clarification does not constitute rejection**
26
What must you analyze for seasonal expression of acceptance?
An offer for **sale of goods** with a response for additional terms raises two questions:
* Is there a contract? A **response adding new terms is generally treated as a new contract** (this is a seasonal expression of acceptance)
* Are the additional terms part of the contract? If **both parties are merchants, the general rule is the additional terms are part of the contract.**
* **If one or more parties is not a merchant, the additional terms are merely a proposa**l that is to be separately accepted or rejected.
27
What are the exceptions to new terms in acceptance being part of the contract (seasonal expression of acceptance)?
The new terms **materially alter** the offer, or
The offer **expressly limits acceptance to terms of the offer**, or
The **offeror objects** to the change **within a reasonable time**
28
When does death or incapacity terminate an offer?
Death or incapacity of either party **after offer, but before acceptance**
If accepted and contract formed, death or incapacity does not void the contract
29
Who can accept an offer?
(1) A person who **knows about the offer,** and (2) the person **to whom it was made**
The offeree must **know of the offer to accept**
**Offers cannot be assigned**, but **options can** unless otherwise stated
30
Who controls the method of acceptance?
The offeror
31
Is notice of performance required to accept?
Turns on (1) what offer provides, and (2) whether offeree has reason to believe that offeror will not learn of the acceptance
32
When does start of performance constitute acceptance?
**Bilateral contract** - **beginning of performance**
* Generally, **acceptance must be communicated** (but offeror can waive communication of acceptance)
* **Grumbling acceptance is effective** as long as it stops short of actual dissent
**Unilateral contract** - **performance must be completed** for acceptance
* **Beginning** of performance **need not be communicated**
33
Can offers be accepted by a promise to perform?
**Generally yes, for bilateral contracts**. But method of acceptance is controlled by offeror, so the offer may require start or completion of performance depending on terms
34
What is the mailbox rule?
If an offeree is invited to accept by mail, then **acceptance is effective at the moment of dispatch** (but mail **must be properly addressed and stamped**)
* But the offer can stipulate that acceptance is not effective until received
If **offeree** sends **rejection then acceptance**, mailbox rule **does not apply**
If **offeree** sends **acceptance then rejection**, then **mailbox rule applies** b/c contract created the moment of dispatch
If the **offeree dispatches acceptance before receiving revocation**, then **contract is formed**
35
What happens if the seller of goods sends the wrong goods (**shipment of nonconforming goods**)?
It constitutes **acceptance then breach**
But if there is an **accommodation** (i.e. B orders blue widgets and S sends red widgets with note "out of blue, can you accept red?") then it is a **counteroffer and no breach**
36
What is consideration?
**Bargained-for legal detriment**
* Bargained-for means asked by the promisor in exchange for the promisee's promise
* Generally, there should be legal detriment to the promisee and a legal benefit to the promisor
To analyze consideration, look at each promise separately. Identify promisor and ask what did he bargain for. Identify promisee and ask what detriment did she incur
37
What constitutes consideration?
**Performance** (doing something not legally obligated to do)
**Forbearance** (not doings something legally entitled to do)
**Promise to perform** or a promise to forbear
**Adequacy of consideration is not relevant**; even a peppercorn will suffice
There must be **valuable consideration on both sides**
38
Is consideration required in Article 2?
[No but fill in details]
39
What is the past consideration rule?
Past consideration is not consideration
But the exception is when a party expressly requested an expectation of payment
40
What is the pre-existing duty rule?
Doing what you are already legally obligated to do is **not consideration** for a promise to pay you more to merely do the same thing. You **need new consideration to modify a contract governed by common law**
41
What are the exceptions to the pre-existing duty rule?
An **addition or change to performance** (new or different consideration promised)
* The exception is a voidable obligation, such as ratification (i.e. a minor's ratification of a contract when he reaches a majority age)
**Unforeseen circumstances**
* The modification due to unforeseen circumstances **must be fair and equitable** in light of the unanticipated new circumstances
**Pre-existing duty owed to third party** (i.e Sam contracts to perform but then threatens to cancel. A third-party offers to pay additional for Sam's performance. This is enforceable because **the third-party did not have a pre-existing promise to pay**).
42
Is there a pre-existing duty rule in Article 2?
**No**; the rule is "**good faith**"; the test for changes to an existing sale of goods contract
A contract **modification done in good faith is enforceable**
43
What is the rule for part payment as consideration for release, such as forgiveness of debt?
Key is **whether debt is due and undisputed.** If so, then part payment is not consideration for release
A **written promise to satisfy an obligation** (i.e. a debt) for which there is a legal defense is **enforceable without consideration**
44
Are conditional promises enforceable?
**Generally, yes** (i.e. I promise to deliver the goods only if my son comes into business. Then my son comes into business. Valuable consideration)
But also **analyze adequate offer and acceptance** for a conditional promise
45
What is promissory estoppel and what are the elements?
Promissory estoppel is **detrimental reliance**, a substitute to consideration
Elements are (1) **promise**, (2) **reliance that is reasonable, detrimental, and foreseeable**, and (3) **enforcement necessary to avoid injustice**
46
What is an illusory contract?
If **only one party is bound to perform**, then the contract is illusory and unenforceable
**Gratuitous suretyship contracts are enforceable**
If the contract **lacks consideration**, then **no contract** exists. It's illusory
47
What is meant by mutual mistake?
If **both parties** entering a contract are **mistaken about existing facts**, the contract **may be voidable by the adversely affected party**
* The mistake **must concern a basic assumption** to which the contract was made (i.e. think they are contracting for a sale of a diamond but the stone is actually a cubic zirconia)
* It **must have a material effect** on the agreed-upon exchange, and
* The **party seeking avoidance did not assume the risk** of the mistake
Mutual mistake is **not a defense if the party asserting mistake bore the risk** that the assumption was made
48
What are the rules for ambiguities in a contract?
**Neither party aware** - **no contract unless** both parties **intended the same meaning**
**Both parties aware** - **no contract unless** both parties **intended the same meaning**
**One party aware** - **binding contract based on what the ignorant party reasonably believed** to be the meaning of the ambiguous word
Ambiguity means there are a**t least two possible meanings;** differs from vague or uncertain terms, which means one cannot decipher the meaning
**Subjective intent will be taken into account** for ambiguities
49
What occurs when fraudulent misrepresentation exists?
If a party **induces another** to enter into a contract by **fraudulently misrepresenting** information, the contract is **voidable by the induced party** if she **justifiably relied on the misrepresentation**
Fraudulent misrepresentation is synonymous with fraud in the inducement
50
When is a misrepresentation material?
(1) It would **induce a reasonable person to agree**, or (2) the **maker knows that it is likely to induce the particular person to agree**, even if a reasonable person would not agree.
**Whether or not** a misrepresentation is **fraudulent**, the **contract is voidable** if the innocent party **justifiably relied** on the misrepresentation and the **misrepresentation was material**
51
When do minors have a legal incapacity to enter into a contract?
When they are under the age of 18
An infant may choose to disaffirm the contract but the counterparty remains bound to the contract
An infant may affirm the contract upon reaching the age of majority
52
What is the rule for duress and undue influence?
Contracts induced by duress or undue influence are **voidable** and may be rescinded as long as not affirmed
**Duress** - assent is **procured by an improper threat**
**Undue influence** - (1) if the party **threatens to commit a wrongful ac**t that would **seriously threaten** the other contracting party's **property or finances**, and (2) there are **no adequate means available** to prevent the threatened loss.
* Must **also show** (1) **undue susceptibility** to pressure by one party, and (2) **excessive pressure** by the other party
53
What is the general rule for the statute of frauds?
A enforceable contract must be evidenced by a writing **signed by the party sought to be charged**
54
What is the meaning of MY LEGS?
Marriage
Year (within one year)
Land
Executor (or Administrator)
Goods (for $500 or more)
Surety
55
When must a promise creating an interest in land be evidenced by a writing?
Sale of real property
Leases for more than one year
Easements of more than a year
Mortgages and other security interests
Fixtures, and
Minerals
56
When can a land interest contract be enforceable despite not satisfying the statute of frauds?
**Full performance** by the seller will take the contract out of the statute of frauds
* I.e. if the seller conveys to the buyer, seller can demand payment from the buyer
**Part performance** by the buyer may also remove the contract from the statute of frauds
57
When does a sale of goods take the contract out of the statute of frauds?
When (1) the goods have been **specifically manufactured**, or (2) the goods have been **either paid for or accepted**
If a sales contract is **only partially paid** for or accepted, the contract is **enforceable only to the extent of the partial payment** or acceptance
58
What is the confirmatory memo rule?
In contracts **between merchants**, if one party, within a reasonable time after an oral contract has been made, sends the other party a **written confirmation** of the understanding, it will bind the recipient if:
* (1) the recipient **has reason to know** of the confirmation's contents, and
* (2) he **does not object** **in writing** within **10 days of receipt**
59
What is the meaning of unconscionability?
Unconscionability allows a court to refuse to enforce a provision or an entire contract (or to modify the contract) to avoid unfair terms, usually due to some unfairness in the bargaining process (procedural unconscionability)
* Look for **great differences in bargaining power**
Contracts that are **inconspicuous or incomprehensible** to the **average person** are often found unconscionable
Unconscionability is **determined by circumstances as they existed at the time the contract was formed**
60
What are some general rules of contract construction?
Contracts are **construed as a whole within the four corners of the contract**; specific clauses will be subordinated to t**he contract's general intent**
**Courts will construe words according to their ordinary meaning** **unless** it is clearly shown that they were **meant to be used in a technical sense**
Written or typed provisions will prevail over printed provisions
**Ambiguities are construed against the party drafting the contract**
61
What are the meanings of course of performance, course of dealing, and usage of trade?
**Course of performance** - a contract that involves **repeated occasions** for performance by **either party** and the **other party has the opportunity to object** to such performance
**Course of dealing** - the **sequence of conduct concerning previous transactions** between the parties to a particular transaction that has **established a common basis of their understanding**
**Usage of trade** - a practice or method of dealing **regularly observed in a particular industry**
62
What is the hierarchy of contract construction?
Express terms are given greater weight than course of performance, course of dealing, or usage of trade
Course of performance is given greater weight than course of dealing or usage of trade
Course of dealing is given greater weight than usage of trade
63
What is the parol evidence rule?
When parties express their agreement **in writing** with an **intent** that it embody the **final expression** of their bargain, the writing is an **integration**. Any **other expressions**, written or oral, made **prior to the writing**, as well as any oral expressions **contemporaneous with the writing**, are **inadmissible** to vary the terms of the writing
64
What is the difference from a complete integration and partial integration?
If an **integration is complete**, the writing **cannot be contradicted or supplemented**
If the integration is **partial**, the writing **may not be contradicted but may be supplemented** by proving **consistent additional terms**
The **UCC presumes all writings are partial integrations**
65
When is extrinsic evidence admissible?
To show **formation defects** (fraud, duress, mistake, illegality)
To show **consideration was never paid**
To show **subsequent modifications** of a written contract
If a party asserts that there was an **oral agreement** that the written agreement would **not become effective until a condition occurred**, all evidence of the understanding may be offered and received
66
What are the rules for uncertainty and ambiguity?
If there is **uncertainty or ambiguity** in the written agreement's terms or a dispute as to the meaning of those terms, parol evidence is admissible to aid the fact finder in **reaching a correct interpretation** of the agreement
**If** the meaning of the agreement **can be determined by its plain meaning**, then parol evidence is **inadmissible**
67
What are the rules for additional terms under Article 2?
A party **cannot contradict a written contract** but **may add consistent additional terms** *unless*:
* (1) there is a **merger clause**, or (2) the writing was **intended as a complete and exclusive statement** of the terms of the agreement
**Terms may be explained or supplemented** by evidence of **course of performance, course of dealing, or usage of trade**, regardless whether the writing appears to be ambiguous
68
What are the Article 2 gap fillers?
The key to forming a contract for the sale of goods is the quantity terms
Article 2 gap-filler provisions cover:
* Price
* Place of delivery
* Time for shipment or delivery
* Time for payment
* Assortment
69
What is the gap-filler rule for price?
The price is left open to be agreed upon by the parties and they fail to agree, or the price is to be fixed in terms of some standard set by a third person and is not set, then it is a **reasonable price at the time for delivery**
70
What is the gap-filler rule for place of delivery?
The **seller's place of business** or the seller's **home**
71
What is the gap-filler for time for shipment or delivery?
Shipment or delivery is **due in a reasonable time**
72
What is the gap-filler for time for payment?
Payment is **due at the time and place** at which the **buyer is to receive** the goods
73
What is the gap-filler for assortments (e.g. blouses in various colors and sizes)?
The assortment is at the **buyer's option**
74
What is the substantial performance doctrine?
If the **obligor substantially performs** her duty under the contract, then **no material breach**
If the **obligee does not receive the substantial benefit of her bargain**, the **breach is material**
The **nonbreaching party** (1) may treat the **contract as at an end,** i.e. any duty of counterperformance is discharged, **and** (2) will have an **immediate right to all remedies** for breach, including total damages
75
When is a breach considered minor?
When the **obligee gains the substantial benefit of her bargain** despite the obligor's defective performance
A **minor breach does not relieve the aggrieved party of her duty** to perform; it merely gives her a right to damages (setoff) for the minor breach
76
What is the perfect tender rule?
Under **Article 2**, if goods or their **delivery fail to conform** to the contract in any way, the **buyer may** either (1) **reject all**, (2) **accept all**, or (3) **accept any commercial units and reject the rest**
77
What is specific performance?
If the **legal remedy is inadequate**, the nonbreaching party may seek an order from the court for the breaching party to perform or face contempt
78
What are a buyer's nonmonetary remedies under Article 2?
**Cancellation** - if a buyer rightfully rejects goods because they do not conform to the contract, one option is to cancel the contract
**Buyer's right to replevy identified goods**
* If a buyer has made at least **part payment** (usually prepayment) of the purchase price and the seller **has not delivered,** the buyer may replevy the goods if (1) the seller **becomes insolvent within 10 days after receiving the buyer's first payment, or** (2) the **goods were purchased for personal, family, or household purposes**
* The **buyer still must tender any unpaid price** to the seller
* If **after reasonable effort** the buyer is **unable to secure adequate substitute goods**, the buyer **may replevy identified, undelivered goods**
**Specific performance** - if the goods are **unique**, the court may order specific performance **even if the goods have not yet been identified**
79
What are a seller's nonmonetary remedies under Article 2?
**Right to withhold goods** - upon buyer's failure to make a payment on or before delivery, or if the goods are on credit and the seller discovers the buyer is insolvent
**Right to recover goods** - if the buyer has received delivery of goods on credit and the seller learns the buyer is insolvent
* Must make a **demand within 10 days of delivery** of goods to buyer
**Right to demand assurances** - if there are **reasonable ground for insecurity**, a party may demand in writing that assurances be made
* **Performance may be suspended** until the requesting party receives adequate assurances
80
What are the equitable defenses?
**Laches** - a claim that a plaintiff has **delayed bringing the action** and that the **delay has prejudiced the defendant**
**Unclean hands** - the party seeking specific performance/equitable relief is **guilty of wrongdoing** in the transaction being sued upon
**Sale to a bona fide purchaser** - the subject matter has been sold to a person who purchased for value and in good faith
81
What are the general rules for a covenant not to compete?
Most courts will grant an order of specific performance to enforce a contract not to compete if (1) the services to be performed are **unique** (thus rendering money damages inadequate) and (2) **the covenant is reasonable**
* To be reasonable, the covenant must be **reasonably necessary to protect a legitimate interest** of the employer and **must be reasonable in its geographic scope and duration**
82
What are the types of monetary damages?
**Compensatory damages** - to **put the nonbreaching party in the position she would have been** in had the promise been performed
**Liquidated damages** - damages **stipulated in contract** to be paid in event of breach. They **must be reasonable** in view of the actual or anticipated harm caused by the breach
83
What are the types of compensatory damages?
**Expectation damages** - "**standard measure**" of damages based on damages to buy **substitute performance**
**Reliance damages** - damages suffered based on **reasonable reliance** on the contract
* Used to **put the plaintiff in the position she would have been** in had the contract never been performed
* Usually applied when expectation damages are too speculative to measure
**Consequential damages** - May be recovered **only if,** at the time the contract was made, **a reasonable person would have foreseen** as a probable result of breach
* The **breaching party must know or have reason to know** of the special circumstances giving rise to the damages
* In a **contract for the sale of goods**, only the **buyer** can recover consequential damages
**Incidental damages** - **expenses reasonably incurred** by a buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected
* Usually only available for sale of goods
84
What is the certainty rule?
The plaintiff must prove that the losses suffered **were certain** in their nature and **not speculative**
85
What are the requirements for enforcement of liquidated damages?
Damages for contractual breach must have been **difficult to estimate or ascertain** at the time the contract was formed, and
The **amount agreed upon** must have been **a reasonable forecast** of the compensatory damages in the case of breach
86
What is the standard measure of damages for sale of goods when the seller does not deliver or the buyer rejects goods or revokes acceptance?
The **difference between the contract price and either** 1) the **market price**, or (2) the **cost of buying replacement goods (cover)** **plus** incidental and consequential damages
87
What are the damages if the seller delivers nonconforming goods that the buyer accepts?
The difference between the **value of goods as delivered** and the **value they would have brought** if they had been according to contract, plus incidental and consequential damages
* Also known as "warranty" damages
The **buyer must** within a **reasonable time** after discovering the defect, **notify the seller**
88
What are the damages if the seller anticipatorily breaches the contract?
The difference between the **market price at the time the buyer learned of the breach and the contract price**
89
What are the seller's damages where buyer repudiates or refuses to accept conforming goods?
**Recover** the difference between the **market price and the contract price**, or
**Resell** the goods and recover the difference between the **contract price and the resale price, or**
If the other two are inadequate, **recover under a "lost profit" measure** to the seller
90
What are the seller's damages when the buyer has not paid, or the goods were lost of damage after risk of loss shifted to the buyer?
Recover the **full contract price**
91
What is the standard measure of damages for contracts of the sale of land?
The difference between the **contract price and the fair market value** of the land
92
What is the standard for mitigation of damages?
The **nonbreaching party** cannot recover that **could have been avoided** with reasonable effort
The nonbreaching party **may recover the expenses of mitigation**
93
What is restitution?
A concept based on **unjust enrichment** when one has conferred a benefit on another without gratuitous intent
It is an action in quasi-contract or an action for quantum meruit
Generally the measure of damages is the **value of benefit conferred**
94
What is the quasi-contract remedy when no contract is involved?
The plaintiff **conferred a benefit** on the defendant with **reasonable expectation of being compensated**, and the d**efendant knew or had reason to know** of the expectation
This standard shows that the **defendant would be unjustly enriched if allowed to retain the benefit** without compensating the plaintiff
95
What are the grounds for rescission of a contract?
The grounds must have occurred **either before or at the time** the contract was entered into
**Mutual mistake** of a material fact
**Unilateral mistake** if the other party **knew** or should have known of the mistake
**Unilateral mistake** if the **hardship** by the mistaken party is **so extreme** it **outweighs the other party's expectation** under the contract
**Misrepresentation** of fact or law
Duress, undue influence, illegality, lack of capacity, and failure of consideration
96
What are the grounds for reformation of the contract?
**Mistake** - (1) an agreement between the parties, (2) an agreement to put the agreement in writing, and (3) a variance between the original agreement and the writing
**Misrepresentation** - if a writing is inaccurate because of a misrepresentation, the plaintiff can choose between reformation and avoidance
97
What is the statute of limitations for sale of goods?
**Four years,** but can be shortened **by agreement to be no less than one year**
**Cannot lengthen** the period by agreement
98
When does a third-party beneficiary situation arise?
When A (the promisee) contracts with B (the promisor) that B will render some performance to C (the third-party beneficiary).
99
What is the difference between an intended and incidental beneficiary?
Only **intended beneficiaries** have **contractual rights**, not incidental beneficiaries
To determine whether a beneficiary is intended, consider whether the beneficiary: (1) is **identified** in the contract, (2) **receives performance directly** from the promisor, or (3) has **some relationship with the promisee** to indicate intent to benefit
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What are the two types of intended beneficiaries?
**Creditor** beneficiary - one to whom **a debt is owed** by the promisee
**Donee** beneficiary - a person to whom the promisee intends to benefit **gratuitously**
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When do the rights of a beneficiary vest?
The beneficiary **knows of his rights**, **and**
* (1) **manifests assent** to a promise,
* (2) **brings a suit** to enforce the promise, or
* (3) materially changes his position in **justifiable reliance** on the promise
**Prior to vesting**, the promisee and promisor are **free to modify or rescind** the beneficiary's rights under the contract
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What is an assignment?
X (the obligor) contracts with Y (the assignor), and Y assigns his rights to X's performance to Z (the assignee)
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When is an assignment effective?
The assignor must **manifest an intent to immediately and completely transfer** her rights
* A writing is usually not required
* A gratuitous assignment is effective; consideration is not required
The effect of an assignment is to **establish privity of contract between the obligor and the assignee** while extinguishing privity between the obligor and the assignor
* Once an assignment is revoked, the privity between the assignor and the obligor is restored
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When is an assignment irrevocable or revocable?
Assignments **for value are irrevocable**; a **gratuitous** assignment (i.e. not for value) is **revocable**
An assignment is **for value if** it is (1) done for **consideration**, or (2) taken as **security** for or **payment of a preexisting debt**
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What are the exceptions to revocability?
A **gratuitous assignment** is **irrevocable** if (1) the **obligor has already performed**, (2) a **token chose** (i.e. a tangible claim, such as a stock certificate) is delivered, (3) an **assignment of a simple chose** (i.e. an intangible claim, such as a contract right) is put in writing, or (4) the assignee can show **detrimental reliance** on the gratuitous assignment (i.e. estoppel)
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What are the methods of revocation of a gratuitous assignment?
**Death or bankruptcy** of the assignor
**Notice of revocation** by the assignor to the assignee or the obligor
The **assignor taking performance directly** from the obligor
**Subsequent assignment of the same right** by the assignor to another
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What are the rights between the assignee vs. obligor?
The **assignee can sue the obligor** because the assignee is entitled to performance under the contract
The **obligor has a defense** against the assignee **of any defense** inherent in the contract (i.e. failure of consideration and other defenses that came into existence before the obligor had knowledge of the assignment)
The **obligor cannot raise any defenses the assignor might have against the assignee**
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What are the rights between the assignee vs. assignor?
In every assignment **for value**, the **assignor warrants** (1) he has **not made a prior assignment** of the same right, (2) the right exists and is **not subject to any undisclosed defenses**, and (3) he will do **nothing to interfere** with the assigned right
* The assignee **may sue the assignor for breach** of any of these warranties
The **assignor will not be liable to the assignee** if the **obligor is incapable** of performing
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What problems exist if there have been successive assignments of the same rights?
If the first assignment is **revocable**, a **subsequent assignment revokes the first assignment**
If **irrevocable**, the **first assignment will usually prevail**
* However, **if the second assignment paid value and took without notice**, then the **subsequent assignee gets**:
* (1) the first judgment against the obligor,
* (2) the first payment of a claim from the obligor,
* (3) delivery of a token chose,
* (4) is the party to a novation releasing the assignor, or
* (5) can proceed against the first assignee on an estoppel theory (estoppel could also operate against the second assignee by the first assignee)
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What is a delegation?
Y (the obligor/delegator) promises to perform for X (the obligee). Y delegates her duty to Z (the delegate)
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What duties may not be delegated?
Duties involving **personal judgment or skill**
Delegations that would **change the obligee's expectancy** (e.g. requirements and output contracts)
A **special trust** has arisen between the original parties to the contract (e.g. attorney/client relationship)
A **contractual restriction** on delegation
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What is required to make a delegation?
The **delegator** must **manifest a present intention** to make a delegation
**No special formalities** are required, **no consideration** required
It may be **written or oral**
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What are the rights and duties of the parties to a delegation?
The **obligee must accept performance from the delegate** of all duties that may be delegated
The **delegator remains liable** on the contract
* The **obligee may sue the delegator for nonperformance** of the delegate
The obligee may require the delegate to perform only if there has been an assumption (i.e. the delegate expressly or impliedly promises he will perform the duty delegated and this promise is supported by consideration)
The promise **creates a contract between the delegator and the delegate** in which **the obligee is a third-party beneficiary**
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What is a novation?
It **substitutes a new party** for an original party to the contract
A novation **discharges any rights and duties** under the old contract
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What are the elements for novation?
(1) A **previous valid contract**
(2) An **agreement among all the parties**, including the new party (or parties) to the new contract
(3) The **immediate extinguishment** of contractual duties as between the original contracting parties, and
(4) **A valid and enforceable new contract**
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What does entrusting do?
Entrusting goods **to a merchant** who deals in **goods of that kind** gives the merchant the power (but not the right) to transfer all rights of the entruster to a **buyer in the ordinary course of business**
* Buying in the ordinary course of business buying in good faith and without knowledge that the sale is in violation of the owner's rights
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What is the voidable title concept?
If a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer
However, a defrauded seller may not recover from **a good faith purchaser** for value who bought from the fraudulent buyer
The rights of a defrauded seller are cut off both by a buyer and by a person **who takes a security interest** in the goods
A **thief** is unable to pass title; title is void.
