Contracts II Flashcards
(127 cards)
1
Q
Public policy
A
Balancing test:
(1) Importance of enforcing the contract
(2) Importance of furthering the public policy
2
Q
Partial enforceability (public policy)
A
3
Q
Severability (public policy)
A
Court may delete the offending term and enforce that party of the agreement that is not against public policy. Must consider whether the party whom enforcement benefits acted in good faith.
4
Q
Rescission and severability (public policy)
A
Court must decide whether the contract can be reformed or does it need to be voided. If reformed, contract is still effective.
Available if:
(1) Disproportionate forfeiture would occur absent restitution
(2) One party is excusably ignorant of the public policy
(3) One party was not equally in the wrong as the other party
(4) One party withdrew from performance before the improper purpose was achieved
If parties are at equal fault, there is no remedy for either party.
5
Q
Contracts that restrain trade (public policy)
A
(1) Reasonability factors
(A) Legitimate interest of the public
(B) Hardship to the promisor
(C) Injury to the public
(2) Extent of restraint
(3) Striking or modifying restraints
(4) Other factors
(A) Scope of activity
(B) Time
(C) Geography
6
Q
Mutual mistake
A
(1) Both parties
(2) At contract formation
(3) Basic assumption
(4) Material effect
(5) No risk bearing
7
Q
Unilateral mistake
A
(1) One party
(2) At contract formation
(3) Basic assumption
(4) Material effect
(5) No risk bearing
(6) Unconscionability
(7) Causation or knowledge
8
Q
Market conditions (mistake)
A
Changes in market conditions do not implicate mistake doctrine
9
Q
Material effect (mistake)
A
A severe imbalance in the agreed exchange that results in unfairness
10
Q
Risk bearing (mistake)
A
Either:
(1) Allocated by agreement
(2) Limited knowledge (and knew it)
(3) Reasonable (“as is”)
11
Q
Impossibility (changed circumstances)
A
(1) After contract formation
(2) Supervening event occurs without fault
(3) Impossibility of performance
(4) Basic assumption that the event would not occur
(5) Allocation of risk
12
Q
Impracticability
A
(1) After contract formation
(2) Supervening event occurs without fault
(3) Impracticability of performance
(4) Basic assumption that the event would not occur
(5) Allocation of risk
13
Q
Frustration of purpose
A
(1) After contract formation
(2) Supervening event occurs without fault
(3) Substantial frustration of performance
(4) Basic assumption that the event would not occur
(5) Allocation of risk
14
Q
Force majeure clauses (changed circumstances)
A
(1) External forces
(2) Not reasonably foreseeable
(3) That materially affect performance
15
Q
Parol evidence
A
(1) Oral or written
(2) Before contract formation
(3) Integration
(A) Totally integrated
(B) Partially integrated
16
Q
Determining integration; classic rule (parol evidence)
A
(1) Plain meaning
(2) Interpret ambiguous language
(3) Merger clause
17
Q
Determining integration; modern rule (parol evidence)
A
(1) Outside evidence
(2) Intent of parties
(3) Merger clause
(4) Other factors:
(A) Detail in writing
(B) Nature of writing
(C) Formalities in drafting
(D) Business practices
(E) Past dealings
(F) Nature of parol evidence
18
Q
Total integration (parol evidence)
A
Contradictory terms; not admissible
Consistent additional terms; not admissible
19
Q
Partial integration (parol evidence)
A
Contradictory terms; not admissible
Consistent additional terms; admissible
20
Q
Exceptions (parol evidence)
A
(1) Fraud
(2) Misrepresentation
(3) Mistake
(4) Duress
(5) Undue influence
21
Q
Oral condition precedent (parol evidence)
A
(1) Oral evidence of condition
(2) That never occurred
(3) Evidence admitted if credible
22
Q
Collateral contract (parol evidence)
A
(1) Negotiation premised on doing two jobs
(2) With separate consideration
(3) Parol evidence admissible
23
Q
Dispute (interpretation)
A
Disagreement over meaning of express term. Not disagreement over the express terms of the contract or over performance.
24
Q
Ambiguity (interpretation)
A
Ambiguity exists if meaning of term is uncertain or term is reasonably susceptible to more than one meaning.
25
Ambiguity; classic rule (interpretation)
Judge must find ambiguous language within the four corners of the contract without resorting to outside evidence. Only patent ambiguities.
26
Ambiguity; modern rule (interpretation)
Judge may consider outside evidence to determine whether a term is ambiguous. Both patent and latent ambiguities.
27
Patent ambiguity (interpretation)
Language where the plain meaning of the language is either uncertain or reasonably susceptible to more than one meaning
28
Latent ambiguity (interpretation)
Requires additional outside evidence other than the plain meaning of the term in order to understand that the term is susceptible to more than one meaning
29
Primary rules of interpretation
(1) Language of express terms
(2) Course of performance
(3) Course of dealings
(4) Trade usage
30
Secondary rules of interpretation
(1) Preference of interpretation
(2) Conflicts between clauses
(3) Ejusdem generis
(4) Interpretation against the drafter
31
Types of implied terms
(1) Express
(2) Implied
32
Open price term; UCC (implied terms)
(1) No price
(2) Imply reasonable price
33
Good faith and fair dealings (implied terms)
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. Implied term that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.
34
Implied warranty of merchantability; UCC (implied terms)
(1) Merchant
(2) With respect to goods of that kind
(3) Warrant that goods must be merchantable
35
Express warranty; UCC (implied terms)
(1) Buyer shown a sample or model
(2) Part of basis of the bargain
(3) Goods must conform to the sample or model
36
Implied warranty of fitness for particular purpose; UCC (implied terms)
(1) At time of contract
(2) Seller had reason to know
(3) Particular purpose of goods required
37
Implied warranty of habitability (implied terms)
(1) At the beginning of lease
(2) Throughout duration of lease
(3) No latent defects in facilities and utilities vital to use of premises for residential purposes
38
Breach of contract
(1) Non-performance of duty
(2) No matter how small
(3) Gives rise to claim for damages
39
Levels of breach
(1) Partial
(2) Material
(3) Total
40
Determining materiality of breach (step one)
Factors:
(1) Amount of benefit not received by non-breaching party
(2) Adequacy of damages
(3) Forfeiture suffered by breaching party
(4) Likelihood of cure
(5) Lack of good faith and fair dealings
41
Determing type of breach (step two)
Partial breach
(1) Minor deviations
(2) Substantial performance
Rights of non-breaching party
(1) Non-breaching party's performance is not relieved under the contract
(2) Recover damages for breach
Material but not total breach
(1) Substantial deviations
(2) That might be cured
Rights of non-breaching party
(1) May suspend performance until the breach is either cured or breach becomes total
(2) Recover damages for breach
Total and material breach
(1) Substantial deviations
(2) That will not be cured
Rights of non-breaching party
(1) Non-breaching party may withhold performance
(2) Terminate contract
(3) Recover damages (or other remedy)
42
Time is of the essence (breach of contract)
“Time is of the essence” clause typically states that a party will be in total breach of the contract if the performance does not occur by a certain date at a certain time. Such a clause typically negates the right of the breaching party to cure.
43
Efficient breach (breach of contract)
(1) One party is better off
(2) Neither party is worse off
44
Seller's nonperformance; UCC (breach of contract)
(1) Non-delivery
(2) Fails to make proper tender
(3) Breach of warranty
(4) Anticipatory repudiation
45
Buyer's response to seller's nonperformance; UCC (breach of contract)
(1) Buyer rejects
(2) Buyer accepts
(3) Buyer revokes acceptance
(4) Seller cures
(5) Cancellation
46
Perfect tender rule (breach of contract)
Subject to the provisions of this Article and unless otherwise agreed under the sections on contractual limitations of remedy, if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may:
(1) Reject the whole
(2) Accept the whole
(3) Accepts any commercial unit or units and reject the rest
47
Buyer's nonperformance; UCC (breach of contract)
(1) Wrongful rejection of goods that are properly tendered
(2) Fails to make payment
(3) Anticipatory repudiation
48
Condition precedent
Condition precedent creates a duty or a right
49
Condition subsequent
Condition subsequent discharges a duty or terminates a right
50
Types of conditions
(1) Express
(2) Constructive (implied by law)
51
Excuses (conditions)
(1) Express waiver
(2) Estoppel
(3) Wrongful hindrance by party with duty to perform
(4) Avoidance of disproportionate forfeiture
52
Condition or promise
Whether condition exists depends on intent of parties. Look for trigger words in plain language (“if” “then” “contract is contingent” “provided that”) or acts that set up a condition precedent (“do this so that that can happen”). If condition, then go through condition analysis. If promise, then weigh materiality factors.
53
Condition analysis
(1) Did the parties intend to include an express condition in the contract?
(2) Has the condition occurred?
(3) If the condition has occurred, has the condition been excused?
54
Anticipatory repudiation
(1) Before performance due
(2) Unequivocal and definite statement
(30 That results in total breach
55
Non-repudiating party's rights (anticipatory repudiation)
(1) Suspend performance
(2) Terminate the contract
(3) Sue for breach
56
Retracting a repudiation (anticipatory repudiation)
Right to retract until:
(1) Notified of termination
(2) Sued for breach
(3) Material change in reliance on repudiation
57
Not a repudiation (anticipatory repudiation)
(1) Requesting modification
(2) Expression of doubt
(3) Misgivings
58
Doctrine of adequate assurances (anticipatory repudiation)
(1) Good faith grounds for insecurity
(2) After demand for assurances
59
Three interests (remedies)
(1) Expectation
(2) Reliance
(3) Restitution
60
Expectation interest (remedies)
Expectation interest looks to the future and tries to value what might have happened, the reliance interest looks to the past and tries to correct the economic damage done
61
Reliance interest (remedies)
Reliance interest attempts to reimburse the plaintiff “for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made”
62
Restitution interest (remedies)
Courts normally award only one of the interests, but in some situations two or three are blended together to form a remedy
63
Measure of general damage (remedies)
Two measures:
(1) Replacement cost
(2) Difference in value
64
Replacement cost (remedies)
Cost to replace what was bargained for
65
Difference in value (remedies)
Difference in value of the performance tendered and the value of the performance received
66
Consequential damages (remedies)
Consequential damages can be recovered only if at the time of contract formation the defendant had reason to foresee the damages as a probable result of the breach. They often come down to whether someone has been put on notice (i.e., foreseeability of special circumstances).
67
Incidental damages (remedies)
Incidental damages are reasonable costs incurred in an effort, whether successful or not, to mitigate losses associated with the breach.
68
Measure of general damages; land sale (remedies)
Difference between contract price and fair market value at time of breach
69
Measure of general damages; employee breach (remedies)
Difference in cost to purchase same services
70
Measure of general damages; employer breach (remedies)
Salary due under contract less amount earned in other employment. See duty to mitigate.
71
Measure of general damages; contract breach (remedies)
Cost of completion or diminution in value
72
Measure of general damages; contracting party (owner) breach (remedies)
Costs expended up until breach plus profit
73
Adjustments and offsets (remedies)
The purpose of remedies is to compensate, not punish (e.g., prepayments, breach resulting in cost savings, breach resulting in gain for non-breaching party). Court may limit a damage award when there was disproportionate compensation.
74
Formula for calculating expectation damages (remedies)
General damages plus (+)
Consequential damages plus (+)
Incidental damages minus (-)
Mitigation equals (=)
Expectation damages
75
Four limits on damages
(1) Certainty
(2) Causation
(3) Foreseeability
(4) Mitigation
76
Certainty (limits on damages)
Damages must be established with reasonable certainty. While damages must be certain and not speculative, the amount need not be established with total accuracy. Mathematical precision is not required, and courts generally resolve doubts against the party who breached. For a new business lost profits caused by a breach may be established by building an economic model through expert witness testimony. Expert estimates taken at face value, as long as there is no competing expert. If expectation damages cannot be established with reasonable certainty, then a plaintiff may seek reliance damages as an alternative.
77
Causation (limits on damages)
In order for damages to be recoverable, the loss must have been proximately caused by the breach. If there is more than one potential cause of the damage, courts require the plaintiff to show that the breach was at minimum a substantial factor in causing the damage.
78
Foreseeability (limits on damages)
For damages to be foreseeable, loss must arise in the ordinary course of events or arise as a result of special circumstances that the breaching party had reason to know of. While foreseeability is a requirement for all types of damages, general damages are inherently foreseeable. The reason for this is because general damages occur in the ordinary course of events, therefore meeting the criteria for foreseeability. Damages may be too remote and speculative to have been contemplated by the parties at contract formation.
79
Mitigation (limits on damages)
The law will not allow recovery for damages that could have been reasonably mitigated.
80
Certainty and lost profits (limits on damages)
Evidence of past records of profits adds certainty. Look for official records, % decrease, collateral contracts, sales forecasts from similar businesses (McDonald’s)
81
Duty to mitigate
(1) Reasonable effort
(2) Prevent ongoing harm
(3) Unless:
(A) Undue risk
(B) Burden
(C) Humiliation
82
Costs (mitigation)
Buyer is not responsible for damages that seller could have reasonably avoided. Any reasonable costs expended by an injured party in mitigating damages may be recovered as incidental damages.
83
Burden of proof (mitigation)
Party who wants to prove a failure to mitigate (not party who failed to mitigate). One who claims a failure to mitigate damages must prove not only lack of diligence by the injured party, but also the amount by which damages were increased by such failure to mitigate.
84
Lost volume seller (mitigation)
(1) Seller would have entered into subsequent agreement even if contract had not been broken
(2) Second solicitation successful
(3) Seller could have performed both
Note: The injured party’s damages are then based on the net profit that he has lost as a result of the broken contract. Lost volume seller collects profit, not cost of product.
85
Failure to mitigate
(1) Lost profits minus
(2) Amount that could have been saved
86
Real estate contract (remedies)
Difference between the contract price and fair market value of the property at the time of the breach. Cannot recover general damages if, after breach, non-breaching party is in better economic position. If breach results in gain for non-breaching party, any damages are offset by the gain.
87
Employment contract (remedies)
Courts disfavor giving an employer lost profits when an employee breaches. However, lost profits might be awarded if: employee's skills are unique and cannot be replaced.
88
Front pay (remedies)
Front pay is that amount of salary that the employee would have earned after the judgment. Normally limited to a reasonable time and cannot be speculative.
89
Back pay (remedies)
Back pay is the salary lost from the breach to the time of judgment
90
Employment contract (mitigation)
In mitigating the employer breach of an employment contract, the employee need not accept employment that is no substantially similar to position lost. If the injured party accepts any employment—even if inferior—then the wages earned are set off from the damages from the breached contract. Must exercise “ordinary diligence” to procure other employment. Generally cannot turn down work or limit job search unless:
(1) Line of business
(2) Lower status
(3) Geographic area
(4) Potential humiliation
(5) Embarrassment or physical danger
(6) Different job/salary
91
Construction contract (remedies)
The measure of damage for a contractor breach is the reasonable additional cost to complete and/or repair the construction. However, diminution in value is awarded if the cost of repair is grossly disproportionate to the results to be obtained. Diminution in value is only appropriate when a contractor's breach results in defects that cannot be remedied without reconstruction of, or material injury to, a substantial portion of the building. Look for whether substantial performance was in good faith and workmanlike manner.
92
UCC remedies
To cover damages, a buyer must make the replacement purchase without unreasonable delay. Buyer may recover so much of the price as has been paid. Seller can recover the entire purchase price when buyer accepted the goods without paying for them, buyer damages the goods without paying for them, or the goods cannot be resold.
93
Framework for UCC remedies
(1) Buyer's remedies
(A) General
(i) Receover any price paid
(ii) Cover damages
(iii) Market damages
(iv) Warranty damages
(B) Consequential
(i) Same time as C/L
(C) Incidental
94
Market damages (UCC remedies)
Market price minus contract price. Market price is determined at the time and place for tender.
95
Warranty damages (UCC remedies)
Measure is the difference between the value of the goods accepted and the value they would have had if they had been as warranted. A common mistake is to calculate the measure as the difference between the value of the goods accepted and the contract price.
96
Implied warranty of merchantability (UCC remedies)
Entitled to (1) warranty damages, (2) consequential damages, and (3) incidental damages.
97
Consequential damages (UCC remedies)
Any loss which could not reasonably be prevented by cover or otherwise. Consequential damages are available to buyers provided that they could not have reasonably prevented the loss by cover or otherwise. Burden to prove extent of loss is on the buyer.
98
Lost profits (UCC remedies)
Lost profits would potentially include not only lost primary profits but also loss of good will to the extent that it could be proven with sufficient certainty.
99
Collateral contracts (UCC remedies)
Consequential damages less expenses saved in consequence of the seller’s breach.
100
Resale damages (UCC remedies)
If a buyer breaches, then the seller is entitled to resale damages (not cover damages, not consequential damages). When a buyer wrongfully revokes acceptance, the seller may resell the “goods” at a private sale. He must give the buyer reasonable notification of his intention to resell. After resale, the seller may sue for damages, which are determined by the difference between the resale and the contract price. The seller may also recover any incidental damages less expenses saved in consequence of the buyer’s breach. Assumes resale is made in good faith and in a commercially reasonable manner.
101
Cover damages (UCC remedies)
Difference between the cost of cover and the contract price. Only available if “reasonable substitute” for contracted goods.
102
Incidental damages (UCC remedies)
Include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach
103
Buyer’s rights on improper delivery (UCC remedies)
Buyer may:
(1) Accept goods in whole or part or
(2) Reject goods in whole or part
(3) Buyer must pay for accepted goods minus any damages
(4) Seller must cure breach by tendering goods if time remains to perform
104
Buyer's duties regarding rightfully rejected goods (UCC remedies)
Buyer who rightfully rejects nonconforming goods must:
(1) Take reasonable care of goods in its possession until seller has had sufficient time to retrieve them and
(2) Not exercise ownership over rejected good (e.g., by selling them)
105
Seller's actions for contract price of goods (UCC remedies)
When buyer fails to pay for goods, seller can recover contract price of goods if:
(1) Buyer accepted goods;
(2) Good were lost/damaged within commercially reasonable time after risk of loss passed to buyer; or
(3) Buyer returned or rejected goods and seller was unable after reasonable efforts to resell them
106
Seller's damages if market-price differential is inadequate (UCC remedies)
Expected profit plus (+) costs reasonably incurred minus (-) proceedings from resale
107
Breaching buyer's recovery of advance payment (UCC remedies)
Buyers who made advance payment before breach can recover amount paid minus seller’s:
(1) Liquidated damages
(2) Statutory damages
(3) Actual damages
108
Damages for seller's breach when buyer covers (UCC remedies)
(1) Cost of cover: Differences between contract price and cost of purchasing substitute goods
(2) Incidental damages: Reasonable expenses incurred in inspection, receipt, transportation, and care of goods rightfully rejected; commercially reasonable charges, expenses, or commissions incurred in connection with effecting cover; other reasonable expenses incident to delay/breach.
(3) Consequential damages: Losses resulting from buyer’s particular circumstances that seller had reason to know at time of contracting or could not reasonably be prevented; injury to person/property proximately resulting from breach of warranty
109
Seller's damages from buyer's nonacceptance or repudiation (UCC remedies)
Default rule: contract price minus (-) market or resale price plus (+) incidental damages
Lost volume seller: lost profit plus (+) incidental damages
110
Effect of repair cost on buyer's recovery (UCC remedies)
(1) Seller breaches by damaging goods
(2) Either:
(A) Restores goods to warranted value and paid repair costs; or
(B) Does not restore goods to warranted value and paid repair costs plus (+) (warranted minus (-) post-repair value)
111
Punitive damages
Must be accompanied by tort. Look for elements of fraud, malice, gross negligence, oppression, bad faith insurance claims, or termination of employment made in bad faith.
112
Emotional disturbance damages
(1) Bodily harm
(2) Type of contract where emotional disturbance is likely result
Note: Preexisting conditions and secondary side effects do not count. Damages for mental distress are allowed are that they are very personal in nature and that they are almost always service contracts.
113
American rule (attorney's fees)
Under the American rule, each party is responsible for paying its own attorney's fees
114
Exception to American rule (attorney's fees)
(1) Granted by statute
(2) Provided by court rules
(3) Provided by agreement
(4) Collateral litigation
(5) Bad faith
115
Liquidated damages
From the date that damages accrued (i.e., the point in time when the breach caused the damages) to the date of judgment provided that the damages are liquidated at the time that they occurred. Damages are liquidated when a party knows with certainty the dollar amount of damage that occurred. Make sure liquidated damages clause is not operating as a penalty. Operates to prevent breach rather than compensate for damages (against public policy).
116
Nominal damages
If the breach caused no loss or if the amount of the loss is not proved, a small sum fixed without regard to the amount of loss will be awarded as nominal damages
117
Specific performance
(1) Money damages inadequate
(2) Certain and definite
(3) Feasible
118
When money damages are inadequate (specific performance)
Money damages are difficult to prove with reasonable certainty. Although damages might be proven with certainty, it is difficult to procure a suitable substitute with money. It is unlikely that damages can be collected from the defendant.
119
Negative injunction (specific performance)
(1) Unique services
(2) Money damages inadequate
(3) Certain and definite
120
Reliance damages
As an alternative to expectation damages, a party may recover expenses that were made in reasonable reliance on the contract that was breached. However, if the breaching party can prove with reasonable certainty that the non-breaching party would have had a loss had the contract been fully performed, then damages will be reduced by the amount of that loss.
121
Incidental reliance damages
Costs incurred that are related to collateral contracts entered into in reasonable reliance on the contract that was breached.
122
Specific restitution
Restoration of the actual benefit that the non-breaching party conferred — i.e., the thing that was transferred. The “thing” could be a piece of real property or personal property.
123
Market value restitution
Measured by either: The cost to the party who conferred the benefit plus a reasonable profit; or the market price of a substitute transaction.
124
Intentional breach (restitution)
A breaching party may recover in restitution for any benefit received which is greater than the damages caused by their breach. This is so even if a party intentionally breaches.
125
Services rendered in emergency or life-saving scenario (restitution)
In the case of services rendered in an emergency or to save life, however, restitution based on addition to wealth will greatly exceed that based on expense saved and recovery is invariably limited to the smaller amount. Choose the smaller amount. Not the “value of patient’s life.”
126
Lump sum payment (restitution)
Restitution is not available if the breaching party’s only duty is to pay a fixed sum of money.
127
Full performance (restitution)
Restitution is not available if the non-breaching party has fully performed.
