CONTRACTS FINAL PROF VER. Flashcards
(248 cards)
1
Q
implied in fact
A
term implicit in parties’ agreement
2
Q
implied by law
A
terms courts add by operation of law, regardless of the parties’ agreement
3
Q
four reasons why courts imply terms into contracts
A
a. probable intent of the parties
b. fairness
c. public policy
d. economic efficiency
4
Q
common law’s language of effort required?
A
reasonable effort by both parties to generate profits
5
Q
UCC’s language of effort required?
A
best efforts when there is an exclusive dealing agreement
6
Q
what does “instinct with an obligation imperfectly expressed” mean
A
even without an express promise, the nature of the contract indicates an implied obligation to use reasonable efforts
7
Q
does the UCC require a reasonable notice requirement before termination
A
yes
8
Q
what is reasonable notice requirement before termination
A
UCC gap filler provision
9
Q
would a contract allowing termination without notice enforceable?
A
under the UCC, likely not - reasonable notice is generally required even if not expressly stated
10
Q
reasonable notice factors
A
a. legnth of the relationship
b. investment made by the distributor
c. time needed to find alternatives
d. industry standards
11
Q
what does every contract have implied
A
an obligation of good faith
12
Q
what is a warranty
A
a contractual assurance that goods will meet certain standards of quality or title
13
Q
what are the two common categories of warranties
A
- warranty of title (UCC)
- warranty of quality (express or implied)
14
Q
express vs implied warranties
A
- express: created by seller’s words, descriptions, or models
- implied: created by statute or law, not by seller’s actions
15
Q
three ways to create an express warranty (UCC)
A
- affirmation of fact or promise
- description of the goods
- use of sample or model
16
Q
is buyer’s reliance required to create an express warranty
A
no, must simply form the basis of the bargain
17
Q
implied warranty of merchantability
A
a. goods must be fit for ordinary purposes
b. seller must be a merchant of the goods sold
18
Q
proving breach of merchantability by the buyer
A
- goods not merchantable
- injury occurred
- defect caused the injury
19
Q
implied warranty of fitness for a particular purpose
A
- buyer relies on seller’s skill/judgment for a specific purpose
- goods must fit that specific purpose, not just be generally merchantable
- seller must know of buyer’s specific purpose
20
Q
caveat emptor
A
- let the buyer beware
- not majority view
21
Q
implied warranty for new homes
A
- majority: courts generally recognize warranties of quality in sales of new homes to protect buyers
- these protections extend to subsequent buyers based on reasonableness and foreseeability
22
Q
implied warranty for commercial buildings
A
- no, courts more hesitant to imply warranties for commercial construction
23
Q
justifications for implied warranties in residential construction
A
- changes in social conditions
- complexity of modern homes
- disparity of expertise
- consumer protection public policy
24
Q
disclaiming express warranties
A
- oral: may be disclaimed
- written: very difficult to disclaim
25
disclaiming implied warranties
- must be conspicuous
- must mention "merchantability" for merchantability
- fitness for a particular purpose must be disclaimed in writing
- "as is" language generally sufficient or if buyer refuses to inspect good that has an obvious defect
26
when may a court refuse to enforce a contract?
1. no true assent
2. assent was improperly induced
3. party lacked legal capacity
27
void vs voidable
- void: no contract exists
- voidable: valid unless the aggrieved party chooses to rescind
28
two main capacity requirements for contracting
- adult
- mental capacity
29
minor incapacity rule
- voidable at the minor's option
30
Majority rule for minors
- return what is still in their possession
- no liability for depreciation or use
31
three exceptions where a minor may owe restitution
1. necessaries
2. misrepresentation
3. tortious conduct
32
modern / minority view for minors
tries to balance the rights of minors and innocent merchants, sometimes must compensate for depreciation
33
how can a minor disaffirm or ratify a contract
- disaffirm: express or implied refusal
- ratify: express words, conduct, or failure to disaffirm timely
34
what are the two restitution rules for minors
1. majority: return what remains in posssession only
2. minority: compensate for use, depreciation, or loss
35
what are necessaries and why are they an exception
- items essential to life, minors must pay a reasonable value even if they disaffirm
36
what happens if a person with mental incapacity enters into a contract
voidable unless the person has been adjudicated incompetent (then void)
37
what two tests are used for mental incapacity
1. cognitive: cannot understand the contract's nature/consequences
2. volitional: cannot act reasonably and other party knows of condition
38
how does intoxication affect contract enforceability
if intoxicated to the point of not understanding the transaction, contract is voidable upon sobriety
39
when is a contract void, voidable, or valid due to mental incapacity
1. valid: court adjudicated incompetence
2. voidable: no adjudication but incapacity existed at formation
3. valid: lucid interval at time of contract
40
what is the requirement of consent in contracts
- consent must be voluntary
- parties cannot be forced, tricked, or coerced
41
in what situations might real consent be missing
1. fraud
2. mutual mistake
3. duress
4. undue influence
42
what is duress
wrongful act or threat compelling someone through fear to enter a contract against their will
43
two types of duress
1. physical: contract is void
2. duress by threat (including economic duress): contract is voidable
44
what factors suggest duress may exist
a. no legitimate business purpose
b. great bargaining power disparity
c. unnaturally large gain for one party
d. financial distress
e. immediate timing pressure
45
what must a party prove to establish duress
1. wrongful/improper threat or act
2. no reasonable alternative
3. threat induced the agreement
46
must the threat be illegal to constitute duress
no, even lawful acts may be improper if unfairly coercive
47
what alternatives could negate a claim of economic duress
a. legal action
b. seeking other contractual arrangements
c. negotiating further
48
how do courts determine if a threat induced assent
1. timing
2. pressure
3. absence of negotiation or free choice
49
what competing intersts must courts balance in economic duress
protecting freedom of contract vs. preventing abusive coercion
50
what is undue influence
improper persuasion by someone in a special relationship to unfairly induce a contract
51
what must be proven to establish undue influence
1. special relationship of trust/domination
2. improper or unfair persuasion
52
factors that identify undue influence
1. discussion at unusual time
2. transaction in an unsual place
3. insistent demand to finish quickly
4. emphasis on consequences of delay
5. use of multiple persuaders
6. absence of independent advice
7. statements that no time to consult advisors
53
is bad faith required to prove undue influence
no, can occur without bad faith
54
what areas of law address misrepresentation
- contracts
- torts
55
what is misrepresentation
an assertion not in accord with the facts, made by words or conduct
56
what must be proven for misrepresentation
1. misrepresentation occurred
2. it was fraudulent or material
3. it induced the contract
4. reliance was reasonable
57
fraudulent vs material misrep
- fraudulent: made knowingly and intentionally false (tort claim)
- material: innocently false but important to agreement (contract rescission)
58
how is puffery different form actionable misrep
- mere puffery or opinion is not enough to be actionable
59
when can an opinion amount to misrepresentation
1. special relationship (fiduciary)
2. speaker has special skill/judgment
3. listener is particularly susceptible
60
must reliance on a misrep be reaosnable
yes, must be reasonable under the circumstances
61
when does nondisclosure amount to misrep
when there is a duty to disclose material facts
62
according to restatement second, when must a party disclose
1. to prevent previous misrep
2. to correct the other's mistake if good faith requires
3. to fix a misunderstanding of a writing
4. when a relationship of trust exists
63
what is concealment
knowingly preventing another party from learning a material fact
64
traditional vs modern view on nondisclosure
- traditional: no duty to disclose
- modern: duty exists in specific situations (real estate)
65
what law generally governs disclosure obligations in real estate
modern common law principles, not the UCC
66
why do courts recognize unconscionability
to provide a defense against fundamentally unfair contracts that shock the conscience when no other traditional defense applies
67
what is unconsionability
a contract that is manifestly unfair or oppressive, tested at the time of formation
68
what are the two components of unconsionability
1. procedural: defects in the bargaining process (no meaningful choice, hidden terms)
2. substantive: unfair or on-sided contracts
69
majority view requires what type of unconscionability
both procedural and substantive
70
what factors show procedural unconscionability
1. unequal bargaining power
2. hidden or unintelligble terms
3. non-negotiable terms
4. lack of opportunity to study the contract
71
what factors show substnative unconscionability
1. one-sided terms
2. unreaosnably limited remedies
3. gross imbalance in obligations or benefits
72
when is unconscionability evaluated
at the time the contract was formed
73
who determines whether a contract is unconscionable
judge, as a mtter of law
74
what does UCC say about unconscionability
courts can...
1. refuse to enforce the contract
2. enforce the remainder without the unconscionable term
3. limit the clause to avoid an unfair result
75
restatement second rule on unsconscionable contracts
courts can...
1. refuse enforcement
2. modify terms to avoid an unconsionable result
76
why is unconsionability important in mandatory arbitration disputes
provides a way to challenge oppressive arbitatration clauses, especially in adhesion contracts
77
what is an infinite arbitration clasue
arbitration clause that never expires and applies to all dspites indefinitely, often seen as oppressive
78
public policy defense
courts can refuse to enforce a contract if it violates established public policy, even if formation was otherwise proper
79
difference between an illegal contract and one against public policyu
- illegal: violates statute or law (unenforceable)
- public policy: no violation of statute, but enforcement would harm societal interests (requires balancing)
80
non-competes and the courts views
courts should only refuse enforcement of non-competes if clearly against established public policy, considering reasonableness in time, geography, and scope
81
when are non-competes generally enforceable
1. reasonably necessary to protect the employer
2. reasonable in duration (1-2 years)
3. reasonable geographic area
4. reasonable in scope of activity
82
are non-competes treated the same in all professions
- medical profession: strict scrutinty but allowed
- legal profession: generally per se invalid
83
when might a contract be unenforceable for violating public policy
when it promotes...
1. immorality
2. undesirable consequences
3. harms the public interest
84
examples of illegal contracts
1. criminal contracts
2. contracts for illegal substances
3. gambling contracts
4. usurious loan contracts
5. unlicensed professional services
85
how does licensing affect contract enforceability
- protect public: contract by unlicensed person unenforceable
- raise revenue only: contract generally enforceable
86
what is an exculpatory clause
- contract provision that releases or excuses one party from liability from certain condcut - usually neglignce
- pre-agreement not to sue if something goes wrong
87
when are exceulpatory clauses unenforceable
1. release for gross negligence or intentional misconduct
2. activity involves public interest or essential servies
3. unequal bargaining power
4. language not clear and conspicuous
88
what factors are weighed in public policy defense cases
1. scope of restriction
2. hardship on promisor
3. effect on public interest
89
what types of agreements are likely to be against public policy
1. blackmail
2. prostitution
3. fee-splitting between attorneys and non-attorneys
90
can a legal assistant posing as an attorney sue for unpaid services
no, practicing law without a license violates public policy, contract unenforceable
91
dotrine of mistake in contract
allows a party to avoid a contract when an erroneous assumption about facts at the time of contracting materially affects the agreement
92
two types of mistake
1. mutual
2. unilateral
93
remedies for mistake
- primary: recsission
- secondary: reformation (in some cases)
94
what are the elements needed to prove mutual mistake
1. facts existing at the time of contract
2. material effect on excchange
3. basic assumption about facts
4. aggrieved party did not bear risk
95
what does an "as is" clause and conscious ignorance do to mistake
shifts the risk, making rescission unavailable even when mutual mistake is present
96
how does restatement govern mutual mistake
voidable unless the mistaken party bears the risk by agreement, conscious ignorance, or court allocation
97
what must be proven for unilateral mistake to allow rescission
1. facts existing at the time of contract
2. material effect on excchange
3. basic assumption about facts
4. aggrieved party did not bear risk
5. other party knew or caused the mistake OR
6. enforcement would be unconscionable
98
what does restatement require for uniltaeral mistake rescission
mistake materially affects performance AND enforcement would be unconsionable OR other party caused OR knew of the mistake
99
key themes in applying mistake doctrine
1. mistake must relate to existing facts
2. mistake must materally affect the bargain
3. party must not bear risk of mistake
4. harder to rescind for unilateral mistakes
100
what types of mistakes usually not excused
- bad judgment
- market prediction errors
- mistake of value
- conscious uncertainty
101
what types of unilateral mistakes may be excused
- clerical errors
- mathematical errors
102
three doctrines addressing changed circumstances
1. impossibility
2. impracticability
3. frustration of purpose
103
what is impossibility
performacne is excused when objectively impossible
104
what is impracticability
performance is excused when an extreme and unforeseeable event makes performance unreasonably difficult or expensive
105
what is frustration of purpose
performance is excused when an unexpected event substantially frustrates a party's principal purpose for entering the contract
106
what must a party prove to claim impracticability
1. extreme change in performance nature
2. basic assumption was wrong
3. no fault of the party
4. party did not assume risk
107
what must party prove to claim frustration of purpose
1. principal purpose substantially frustrated
2. basic assumption was wrong
3. no fault of the party
4. party did not assume risk
108
restatement on impossibility
performacne is excused if a necessary person, thing, or government action makes performance impossible
109
UCC on impracticability
seller is excused from performance if a contingency makes delivery impracticable or governmental regulations intervene
110
how important is foreseeability under modern law
foreseeability alone does not bar relief, courts assess whether the event was a basic assumption underlying the contract
111
112
what is a force majeure clause
a contractual provision that excuses performance due to extraordinary events like natural disasters, war, or government actions
113
what is a contract modification
a change to an existing executory contract, altering terms like price, delivery, or obligations
114
under common law, when is a contract modification enforceable
only if supported by new consideration (pre-existing duty rule)
115
what does the pre-existing duty rule state
a promise to do something already legally obligated to do is not valid consideration for a contract modification
116
when is modification enforceable without new consideration at common law
1. rescission and new contract
2. detrimental reliance
3. unforeseen circumstances
4. statutory authorization
117
when is a modification binding under restatement
if fair and equitable in view of unanticipated circumstances, authorized by statute, or supported by reliance
118
how does the UCC treat modification
no new consideration is required for a modification for the sale of goods
119
what is required for a modification under the UCC to be valid
modification must be made in good faith; bad faith modifications are unenforceable
120
what must be shown to establish economic duress in modification
1. wrongful or improper threat
2. no reasonable alternative
3. inducement to agree to modification
121
What is an express condition in contract law?
An event, not certain to occur, that must occur before a performance becomes due, unless excused.
122
Why do express conditions matter?
They allocate risk and structure when contractual performance becomes due; strict compliance is generally required.
123
What is the difference between a promise and a condition?
- Promise: Breach results in damages, but duty remains.
- Condition: Failure discharges duty, no damages for nonperformance.
124
What is a promissory condition?
Both a condition and a promise—failure discharges performance and allows for breach damages.
125
What is required for enforcement of an express condition?
Strict compliance; substantial performance is not enough to satisfy an express condition.
126
What are ways courts excuse non-occurrence of a condition?
Waiver
Modification
Prevention
Forfeiture
127
What is a waiver of a condition?
Voluntary relinquishment of a known right, allowing performance despite the non-occurrence of the condition.
128
How can prevention excuse a condition?
If a party wrongfully hinders the occurrence of the condition, the duty to perform is not discharged.
129
How does forfeiture affect enforcement of express conditions?
Courts may excuse non-occurrence if enforcing the condition causes disproportionate forfeiture, unless the condition was material.
130
How does Restatement § 224 define a condition?
An event that must occur, unless excused, before performance under a contract becomes due.
131
What does Restatement § 229 provide regarding forfeiture?
Courts may excuse non-occurrence of a condition to avoid disproportionate forfeiture unless the event was material.
132
What is the Restatement § 227 preference for interpreting conditions?
Interpret terms to reduce the risk of forfeiture, favoring interpretations that impose duties rather than strict conditions.
133
What main question does breach analysis answer?
When does one party’s failure to perform justify the other party in refusing to perform?
134
What is the effect of a material or total breach?
Material Breach: Injured party can suspend performance, await cure, and sue for damages.
Total Breach: Injured party may terminate the contract and sue for full damages.
135
What happens if a party substantially performs but breaches slightly?
The non-breaching party must still perform but can sue for damages caused by the minor breach.
136
What are constructive conditions?
Judicially created conditions that link one party’s performance obligation to substantial performance by the other.
137
What five factors determine whether a breach is material?
Deprivation of expected benefit
Ability to compensate for the loss
Forfeiture suffered by breaching party
Likelihood of cure
Good faith and fair dealing by breaching party
138
What determines when a material breach becomes a total breach?
Likelihood delay will prevent reasonable substitute arrangements
Importance of prompt performance under the agreement
139
How can a breaching party avoid total breach consequences?
Cure: Correct the defect before performance deadline.
Divisible Contract: Recovery allowed for parts performed.
140
What are the key definitions of breach?
Breach: Nonperformance when due.
Material Breach: Serious enough to suspend or excuse performance.
Total Breach: Justifies full termination and full damages.
Immaterial Breach: Allows only for partial damages.
141
Does the UCC follow substantial performance doctrine?
No. The UCC applies the Perfect Tender Rule for sales of goods, requiring complete conformity unless limited by good faith, right to cure, or installment rules.
142
What remedy is available for a non-material (minor) breach?
Money damages, but not suspension of performance.
143
What is anticipatory repudiation?
A definite and unequivocal indication, before performance is due, that a party will not perform their contract duties.
144
What is the effect of anticipatory repudiation?
It is a total breach, allowing the aggrieved party to suspend performance, sue immediately, and seek alternative arrangements.
145
How clear must the repudiation be to be treated as anticipatory repudiation?
It must be definite and unequivocal; mere doubts or uncertainty are insufficient.
146
When can a repudiation be retracted?
Before the aggrieved party materially changes position, cancels, or treats repudiation as final.
147
What forms can anticipatory repudiation take?
Express words
Conduct that renders performance impossible or apparently impossible
148
What type of conduct amounts to repudiation?
Conduct must render the obligor unable or apparently unable to perform (Restatement §250(b)).
149
Does financial difficulty alone constitute anticipatory repudiation?
No; financial distress alone is not enough unless it clearly indicates inability to perform.
150
What does UCC § 2-610 allow the aggrieved party to do?
Await performance for a commercially reasonable time
Resort to remedies immediately
Suspend their own performance
151
What should a party do if they have reasonable grounds for insecurity?
Demand adequate assurances of performance under UCC § 2-609 or Restatement § 251.
152
What is required for a demand of adequate assurance?
UCC: Demand must be in writing, reasonable grounds needed, 30-day window to respond.
Common Law: No writing required, no strict 30-day limit.
153
What happens if a party fails to provide adequate assurance?
Failure to provide assurance within a reasonable time may itself be treated as a repudiation.
154
What is the primary goal of contract remedies?
To compensate the injured party, not punish the breaching party.
155
What are the three types of contract interests?
Expectation Interest (benefit of the bargain)
Reliance Interest (costs incurred)
Restitution Interest (restore conferred benefit)
156
What is the expectation interest?
The value the injured party expected to receive if the contract had been fully performed.
157
What are direct (general) damages?
Damages that flow directly from the breach, securing the benefit of the bargain.
157
What is the formula for calculating expectation damages?
Loss in Value + Other Loss – Cost Avoided – Loss Avoided = Net Expectation Damages.
158
What are special or consequential damages?
Damages from the injured party’s unique situation; must be foreseeable and certain.
159
What are incidental damages?
Minor costs incurred when dealing with the breach (e.g., storing or reselling goods).
160
When are reliance damages used?
When expectation damages are too uncertain; puts plaintiff in position as if no contract existed.
161
When is restitution awarded?
To prevent unjust enrichment, especially in voidable contracts or quasi-contract cases.
162
What do "cost avoided" and "loss avoided" mean?
Cost Avoided: Expenses saved by nonperformance.
Loss Avoided: Benefits gained by reallocating resources elsewhere.
163
How does the UCC measure seller’s damages for buyer’s breach?
Market price minus contract price, plus incidental damages, less expenses saved.
164
How does the UCC measure buyer’s damages for seller’s breach?
Market price at time of breach minus contract price, plus incidental and consequential damages.
165
When is prejudgment or postjudgment interest awarded?
Postjudgment: Almost always awarded.
Prejudgment: Awarded when damages are certain and easily calculable.
166
What four limitations apply to "other loss" in expectation damages?
Foreseeability
Certainty
Causation
Mitigation
167
What is the rule of foreseeability in contract damages?
Damages must be reasonably foreseeable at the time of contract formation to be recoverable.
168
What is the difference between general and consequential damages?
General Damages: Naturally arise from the breach.
Consequential Damages: Arise from special circumstances communicated to and foreseeable by the breaching party.
169
Does the specific manner of loss need to be foreseeable?
No, only the general type of harm must have been foreseeable at the time of contracting.
170
What is the certainty limitation on contract damages?
Damages must be proven with reasonable certainty, not speculative.
171
What is the causation requirement for contract damages?
Loss must be directly and proximately caused by the breach.
172
What does Restatement §351 say about unforeseeable damages?
Damages not foreseeable at the time of contracting are not recoverable; foreseeability includes ordinary course or known special circumstances.
173
How does the UCC define consequential damages?
Loss resulting from requirements the seller knew about and losses from personal or property injury due to breach of warranty.
174
How can a contracting party limit liability for consequential damages?
Include express clauses limiting or excluding consequential damages in the contract.
175
What happens if consequential damages greatly exceed contract price?
Courts may limit damages to prevent disproportionate awards under Restatement §351(3).
176
What is the basic rule of mitigation in contract damages?
A plaintiff must take reasonable steps to avoid unnecessary damages after a breach.
177
What are other names for the mitigation principle?
Avoidability Doctrine
Minimization of Damages
Doctrine of Avoidable Consequences
178
How does mitigation fit into the expectation damages formula?
Cost avoided and loss avoided are subtracted from damages to calculate net expectation recovery.
179
What are the limits on the plaintiff’s duty to mitigate?
Plaintiff need only take reasonable steps; no requirement to accept undue risk, burden, or humiliation.
180
Who bears the burden to prove failure to mitigate?
The defendant (breaching party) bears the burden to show the plaintiff failed to mitigate.
181
What does Restatement (Second) §350 state about avoidability?
Damages are not recoverable for loss that could have been avoided without undue risk, burden, or humiliation.
182
How does the UCC address mitigation?
The UCC encourages liberal remedies but requires minimizing damages where possible.
183
How is mitigation handled in employment contract breaches?
Wrongfully terminated employees must use reasonable efforts to find comparable employment.
184
Must a wrongfully terminated employee accept reemployment from the same employer?
Not necessarily; employee may refuse if reemployment would involve humiliation, undue risk, or inferior conditions.
185
How does taking an inferior job affect damages?
Damages are reduced by the amount actually earned from substitute employment, even if it is inferior.
186
Why is the duty to mitigate required?
To prevent unnecessary economic waste and encourage efficient responses to breaches.
187
What damages are generally not awarded in contract law?
Attorney Fees
Mental Distress
Punitive Damages
188
What is the American Rule on attorney fees?
Each party pays their own attorney fees unless a statute, court rule, or contract provides otherwise.
189
What are three common exceptions to the American Rule?
Statutes
Court rules (for bad faith litigation)
Contractual fee-shifting provisions
190
Are damages for emotional distress recoverable for breach of contract?
Generally no, unless breach causes bodily harm or serious emotional disturbance was particularly likely.
191
When may emotional distress damages be awarded in contract law?
Contracts involving personal matters (e.g., funerals, marriages)
Breach causes bodily harm
192
Are punitive damages awarded for breach of contract?
No, unless the breach also constitutes a tort for which punitive damages are recoverable.
193
What does Restatement (Second) § 355 state about punitive damages?
Punitive damages are not recoverable for breach of contract unless the breach also involves an actionable tort.
194
Why are punitive damages not allowed in contract law?
Contract law focuses on compensation, not punishment.
Contract law is strict liability, not fault-based.
Punitive damages could discourage efficient breaches.
195
When may punitive damages be awarded in pure contract cases?
In bad faith insurance breach claims.
196
What are reliance damages?
Damages that reimburse the injured party for expenses or losses incurred in reliance on the contract.
197
What do reliance damages seek to achieve?
To restore the plaintiff to the position they would have been in had the contract never been made.
198
When are reliance damages awarded instead of expectation damages?
Expectation damages are uncertain or unforeseeable
Promissory estoppel basis
Contract would have been a losing deal
199
What is the difference between essential and incidental reliance?
Essential reliance: Expenses necessary to prepare or perform.
Incidental reliance: Additional, nonessential expenses (may not be recoverable).
200
What limits apply to reliance damages?
Foreseeability
Certainty
Causation
Mitigation
Also cannot recover expenses exceeding the contract price (generally).
201
What is the Losing Contract Defense?
Defendant may prove the plaintiff would have lost money even if the contract was performed, reducing recovery.
202
Can a party recover pre-contract reliance expenses?
Generally no—only expenses incurred after contract formation are recoverable.
203
What does Restatement (Second) §349 say about reliance damages?
Reliance damages include expenditures made in preparation or performance, minus any loss the breaching party can prove would have occurred.
204
How do damages work in a promissory estoppel case?
Reliance damages are the default; courts focus on preventing injustice, not guaranteeing full expectation recovery.
205
What damages are awarded when a subcontractor breaches a bid?
Reliance damages: costs incurred in reliance on the subcontractor’s bid.
206
What are restitution damages?
Restitution seeks to recover the benefit conferred on the defendant to prevent unjust enrichment, not to compensate the plaintiff for losses.
207
What are the three contract interests protected by remedies?
Expectation Interest (benefit of the bargain)
Reliance Interest (costs incurred)
Restitution Interest (benefit conferred on defendant)
208
When is restitution awarded in contracts?
Party elects restitution after breach
Breaching party seeks limited recovery
Contract becomes unenforceable (e.g., statute of frauds, mistake)
209
What is market value restitution?
Recovery based on the reasonable value of the services or goods provided, not necessarily the contract price.
210
What does Restatement §373 say about restitution?
An injured party can recover the benefit conferred unless they fully performed and are only owed a monetary payment.
211
What does Restatement §374 say about restitution for breaching parties?
A breaching party may recover the benefit conferred, minus losses caused by the breach, unless reasonable liquidated damages are agreed.
212
What limits apply to restitution recovery by breaching parties?
Cannot recover more than benefit conferred
Deduct losses caused by breach
Liquidated damages clauses may preclude recovery
213
Can a willful breacher recover restitution?
Generally yes, but intentional deviation from contract terms may bar recovery.
214
How is restitution typically measured?
Reasonable value of services rendered
Benefit unjustly retained by the defendant
215
What is specific performance?
An equitable remedy ordering a party to perform their contract duties rather than pay damages.
216
Why is specific performance an exceptional remedy?
Common law favored money damages for expediency and practicality; specific performance was reserved for extraordinary cases.
217
What are the three major limits on specific performance?
Money damages must be inadequate.
Terms must be sufficiently certain.
Relief must not impose undue hardship or supervision burdens.
218
In what types of contracts is money damages presumed inadequate?
Contracts for the sale of land
Contracts involving truly unique goods
219
What is the traditional rule for construction contracts?
Specific performance is generally disfavored because of supervision difficulties.
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When will courts grant specific performance according to Restatement?
Only when damages are inadequate to protect the expectation interest.
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What is the difference between negative and affirmative specific performance?
Affirmative: Court orders party to perform (mandatory injunction).
Negative: Court orders party not to do something (prohibitory injunction).
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Are personal service contracts specifically enforced?
No; courts refuse affirmative enforcement due to involuntary servitude concerns.
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When can a buyer under UCC demand specific performance?
When the goods are unique or in other proper circumstances.
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Why are courts cautious about granting specific performance?
Courts avoid excessive supervision and impractical enforcement tasks.
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What are agreed remedies in contract law?
Provisions that parties insert into a contract specifying remedies or damages in case of a future breach, especially liquidated damages.
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Why does timing matter for agreed remedies?
After breach: Settlements are generally enforceable.
Before breach: Courts closely scrutinize liquidated damages clauses to ensure they aren't penalties.
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What are liquidated damages?
A specific sum agreed upon at contract formation to compensate for breach, provided it is not a penalty.
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What are the two main requirements for enforcing a liquidated damages clause?
Loss must have been difficult to estimate at contract formation.
The amount set must be reasonable (not punitive).
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What distinguishes an enforceable liquidated damages clause from an unenforceable penalty?
If the clause primarily punishes the breacher rather than compensates the non-breacher, it is a penalty and unenforceable.
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At what point do courts evaluate reasonableness of liquidated damages?
Traditional: At the time of contract formation.
Modern Trend: At formation and at breach.
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Must actual loss occur to enforce a liquidated damages clause?
No; enforceability depends on reasonableness at the time of contracting, even if no actual loss occurred.
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Is there a duty to mitigate when liquidated damages are stipulated?
Majority view: No duty to mitigate once parties agree to liquidated damages.
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What standard does UCC §2-718 set for liquidated damages?
Liquidated damages must be reasonable considering anticipated or actual harm, difficulty of proof, and inconvenience of other remedies.
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What does Restatement §356 state about liquidated damages?
Damages may be liquidated if reasonable relative to anticipated or actual loss; unreasonably large amounts are unenforceable as penalties.
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How are liquidated damages treated in common contract types?
Construction contracts: Usually enforced if delay-based.
Employment contracts: Rarely enforced.
Real estate: Majority rule often protects earnest money deposits.
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Can third parties enforce a contract they are not part of?
Yes, if they are intended beneficiaries; incidental beneficiaries cannot enforce the contract.
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What is the general rule about privity and third parties?
Only parties in privity can enforce a contract, except intended third-party beneficiaries.
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What are the two types of third-party beneficiaries?
Intended Beneficiaries: Have enforcement rights.
Incidental Beneficiaries: No enforcement rights.
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What is the difference between a creditor beneficiary and a donee beneficiary?
Creditor: Contract satisfies an existing obligation.
Donee: Contract is intended to gift a benefit.
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What are the three tests courts use to determine intent to benefit a third party?
Intent of promisee (majority view)
Joint intent of both parties
Primary purpose of contract
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How do courts determine if there was intent to benefit a third party?
Explicit contract language
Circumstantial evidence
Foreseeability of benefit
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When do a third party’s rights vest?
Material reliance on the promise
Manifestation of assent
Filing a lawsuit to enforce the right
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What defenses can a promisor raise against a third-party beneficiary?
Same defenses they could raise against the original promisee (e.g., fraud, lack of consideration).
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Can attorneys be liable to non-clients (e.g., will beneficiaries)?
Some courts recognize duties to foreseeable third-party beneficiaries in will drafting.
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What is an example of an incidental beneficiary?
Neighbor benefits from a mall development contract but cannot enforce it because parties did not intend to benefit him.
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How does the Restatement (Second) define intended and incidental beneficiaries?
Intended if performance satisfies a duty or makes a gift; otherwise incidental and no rights.
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What is the difference between assignment and delegation?
Assignment: Transfer of rights.
Delegation: Transfer of duties.
(Often occur together.)
