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Flashcards in Contracts II Deck (97):

implied in fact

any term the court finds to be "implicit" in the parties words or conduct even though not literally expressed by them


rationale for implied terms

- to "save k"
- to make k "fair"
- implement "intent of the parties"


rationale for implied terms in exclusive marketing agreements

an exclusive marketing agreement for which the only compensation for the producer is a share of the profits generated by the marketer implies a duty of reasonable efforts by the marketer


situations in which the duty of good faith applies

1) to incl terms which weren't in written agreement (to implement parties intent)
2) to find a breach when no express term was violated (intent again)
3) to judge use of one side's contractually-granted power of discretion


implied obligation of good faith

duty of good faith & fair dealing is implied in every k


implied obligation of good faith re: express terms

may not be used to contradict an express term of the k (though sometimes it seems to be anyway)


implied obligation of good faith - requirement/output k
UCC § 2-306

buyers in requirement k cant demand more than actually required in good faith (aka buyers cant demand much more than stated estimate/past requirements, but can reduce order even to 0 in good faith). Sellers in output k can also reduce in good faith. Good faith in this context generally means change stems from something beyond party's control


implied obligation of good faith - standards
rest § 228

when k involves personal aesthetics/fancy: good faith standard
when k involves commercial quality or the like: reasonable person standard, unless k provides for a different result


definition of "good faith" re: implied obligation of good faith

honesty in fact in the conduct or transaction concerned


implied obligation of good faith -
at-will employment k

duty of good faith & fair dealing applied to k terms that exist beyond the at-will employment relationship (such as promise to provide an evaluation before making a termination decision), but employees cannot recover for termination per se


implied obligation of good faith -
when termination violates public policy

No cause of action exists for termination of an at-will employment relationship unless it violates public policy.
Employer cannot:
- require employee to commit a crime
- prevent employee from complying w/ statutorily imposed duty
- discharge employee when specially prohibited from doing so by statute


implied obligation of good faith -
public policy

Public policy is to be ascertained by reference to the laws & legal precedents & not from general considerations of supposed public interest.


implied obligation of good faith -
private employer & whistleblowing

private employer does not violate public policy by firing an employee for whistle-blowing, when the employee was under no legal duty to report the acts at issue


implied obligation of good faith -
how to defeat at-will presumption

est. employee gave employer additional consideration other than the services for which she was hired or
underwent a substantial hardship other than the services which she was hired to perform


Infancy (Majority Rule)

K of minors (“infants”) are voidable & subject to be disaffirmed by the minor either before or after attaining majority

Exception: necessities


Infancy (Minority Rule)

when minor hasn't been overreached in any way/no undue influence/k is fair & reasonable/ minor has actually paid $ on purchase price & taken & used item = minor shouldn't be able to get back amount actually paid w/o allowing the vendor reasonable compensation for use/depreciation & willful/negligent damage to item while in minors hands


Mental Incompetents

K entered into by mental incompetents are voidable but they must pay for their use/depreciation of property acquired under the k unless contracting partner knew/had reason to know if incompetence


Economic Duress Elements

1. "wrongful" threat (crim, tortious, or wrongful in moral sense ex: bad faith refusal to perform k obligation)
2. induces consent (causation)
3. lack of reasonable alt. or serious $$ hardship


Undue Influence

1. Unfair persuasion of a party
2. who is under the domination of the person exercising the persuasion or
3. who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent w/ his welfare.


Fraud (tort) elements

π must prove by clear/convincing evidence that ∆:
1. intent or knowledge made 1 or more
2. false statement
3. that were material
4. & causation (enter into k)
5. damages


factors that may show undue influence

1. unusual time
2. unusual place
3. time urgency
4. numerical advantage (‘er)
5. no lawyers or other help present (‘ee)


damages available in fraud tort



fraud (misrepresentation- k defense)

if party's manifestation of assent is induced by fraud or material misrepresentation by the other party, upon which the recipient is justified in relying, the k is voidable by recipient. In order to get recession, the π must tender what she has received under the k.



exaggeration, putting things in the best possible light. cannot be an outright lie. sales pitch


Definition of "Opinion"

expresses only a belief, w/o certainty, re: existence of a fact or expresses only a judgement re: quality, value, authenticity, or the like


What an "Opinion" implies

when reasonable, recipient of opinion re: facts not disclosed/known to recipient, it's implied:
1. speaker really believes what they're saying. if they don't or know facts that show it to be false = false statement
2. speaker has sufficient knowledge to justify his opinion


when reliance on an opinion is justified

listener not justified in relying on it unless:
1. fiduciary relationship
2. listener reasonably believed speaker has special knowledge about what he's saying/that he's an expert
3. listener is vulnerable (old, child, sad, etc)

only 1 of these needs to be met


Misrepresentation - Liability for Opinions
(Classical Rule)

can't really sue for an opinion, not around anymore


Nondisclosure - Modern Rule

persons nondisclosure = assertion fact doesn't exist only when:
1. necessary to correct a prior statement
2. pertains to a basic assumption on which party is making k & good faith requires disclosure
3. to correct a mistake about k contents
4. fiduciary duty


When does good faith require disclosure?

- casually acquired = must disclose
- deliberately acquired = not recquired

though not rules, most courts follow this logic. seller more likely to have to disclose than buyer b/c seller in position of advantage



UCC §2-302; Rest §208

court may refuse to enforce k term if, in light of gen commercial background/commerical needs of particular trade/case, the clauses involved are so 1 sided as to be uncon. under the circumstances existing at the time k was made.

principle: prevention of oppression & unfair surprise. Not of disturbance of allocation of risk bc of superior bargaining power


Unconscionability -
procedural/substantive test

many courts require π show both to void k but the more you have of 1 the less needed of other
- procedural = consent
- substantive = unfair


Public Policy - covenants not to compete

disfavored & will not be enforced
1) if restraint is greater than necessary to protect employer's legit interest or
2) employer's interest is outweighed by the hardship to the employee & likely injury to the public


public policy- "blue pencil"

- to edit/strike out grammatically severable/unreasonable provisions
- where not evident from k, court cannot create new agreement for parties to uphold


ABA's position on restrictive covenants

prohibited between attorneys


when a statute is inconsistent/silent as to whether a k is enforceable

regulatory statute (designed to protect the public) = k's in violation are generally unenforceable
revenue raising statute = enforceable


A party bears the risk of a mistake when

a) k says so
b) knows s/he doesn't know at time k was made
c) court imposes


implied in law

made a part of agreement by operation of the rules of law rather than by the agreement of the parties themselves


frustration of purpose

after k is made, a party's principal purpose is substnatially frustrated w/o his fault bc of an event (the non occurrence of which was a basic assumption on which k was made) his duties to perform are discharged, unless the language or circumstances indicate the contrary

the exchange called for by the k had lost all value to ∆ because of a supervening changes in extrinsic circumstances



after k is made, a party’s performance is made impracticable w/o his fault by the occurrence of an event (non-occurrence of which was a basic assumption on which k was made) his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

sufficiently different from what the parties had both contemplated at the time of contracting 


impracticability & frustration as excuse of nonperformance for economic loss

Neither impracticability nor frustration of purpose will excuse performance just because the affected party will now sustain a loss.


what counts as a principal purpose for frustration of purpose doctrine?

the object must be so completely the basis of the k that, as both parties understand, w/o it the transaction would make little sense


how severe does the frustration of purpose have to be?

frustration must be very substantial. Not enough that the transaction has become less profitable for the affected party or even that he will sustain a loss. Must be so severe that it's not fairly to be regarded as w/in the risks that he assumed under the k


Express Conditions -
Condition Precent

- act or event, other than the lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises.
- may be express or implied


Modification under UCC

An agreement modifying a k w/in Article 2 needs no consideration to be binding.

Under Article 2, "no oral modification" clauses are enforceable (though must be separately signed if on a form between merchants). But they may be orally waived.


Express Conditions

must be literally performed & aren't subject to doctrine of substantial performance, as constructive conditions are. (§237) (But perhaps only if the condition is material)


Modification- CL Preexisting Duty Rule & Exceptions

a promise to perform a preexisting duty doesn't count as consideration

1. unanticipated conditions
2. provision by statute
3. reliance


Express Conditions -
Ambiguous Language

will be interpreted as a promise rather than an express condition (§ 227)


Express Conditions -
performance of a duty subject to a condition

cannot become due unless the condition occurs or its non-occurrence is excused. Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur. Non-occurrence of a condition isn't a breach by a party unless he's under a duty that the condition occur (§225)


express conditions - ways it can be excused in nonoccurrence of a condition

1. waiver (waiver of material condition requires consideration or reliance. none required for unimportant condition)
2. prevention
3. breach
4. if it would cause a disproportionate forfeiture

rest § 229


Material Breach - Substantial Performance

Except as stated in (divisible performances), it is a condition of each party’s remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time.
Rest § 237.


Material Breach - Divisible Performances

If the performances to be exchanged under an exchange of promises 1) can be apportioned into corresponding pairs of part performances 2) so that the parts of each pair are properly regarded as agreed equivalents, a party’s performance of his part of such a pair has the same effect on the other’s duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised


What is a material breach?

an unjustified failure to perform all or any part of what is promised in a k


A breach is more likely to be material to the extent...
(multi-factor test)

- injured party will be deprived of the benefit she reasonably expected;
- injured party cannot be adequately compensated for the part of the benefit of which she will be deprived
- party failing to perform will not suffer a forfeiture
- party failing to perform is not likely to cure the breach
- behavior of party failing to perform fails to comply w/ good faith
Rest. § 241


Total Breach (more likely to be considered total to the extent...)

- it's material;
- delay reasonably appears likely to hinder injured party in making substitute arrangements
- agreement provides for performance w/o delay
(Rest §242)


Material Breach - how total & partial breach relieves parties

Total: relieves nonbreaching party from his duties under k
Partial: does not discharge nonbreaching party, who must continue to perform his obligations under k


Material Breach - Damages

Victim of total breach: actual & future damages

victim of a partial breach: only actual damages


Anticipatory Repudiation -
What is a repudiation?

a definite & unequivocal statement by the obligor to the obligee indicating the obligor will commit a breach that would've itself given the obligee a claim for damages for total breach, or
a voluntary affirmative act which renders the obligor unable or apparently unable to perform w/o such a breach. Statement or action must amount to a statement of intention not to perform except on conditions which go beyond the k


Anticipatory Repudiation
- Right to Adequate Assurance of Performance Requirements

1. When reasonable grounds for insecurity arise w/ respect to the performance of either party,
2. the other may in writing [not strictly enforced] demand adequate assurance of due performance &
3. until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
4. After receipt of a justified demand, failure to provide w/in a reasonable time not exceeding 30 days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the k


Anticipatory Repudiation - How is it nullified?

retraction of the statement if notification comes to the attention of injured party before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final.
The effect of events other than a statement is nullified if, to the knowledge of the injured party, those events have ceased to exist before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final


Computing the Value of Plaintiff’s Expectation - Expectation Damages

usual measure of k damages. The amount of $ required to put injured party in position he would've been in had k been performed.
(rest formula):
injured party has right to damages based on his expectation interest as measured by
(a) loss in value to him of the other party’s performance caused by its failure or deficiency, +
(b) any other loss, incl incidental or consequential loss, caused by the breach, -
(c) any cost or other loss that he has avoided by not having to perform


Anticipatory Repudiation

Where an obligor repudiates a duty before he has committed a breach by non-performance & before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.


Limits on the Recovery of Expectation Damages: Duty to Mitigate Damages

Damages aren't recoverable for loss that the injured party could've avoided w/o undue risk, burden or humiliation, except to the extent that she has made reasonable but unsuccessful efforts to avoid loss

1. lost volume seller
2. employee need not take dissimilar job


Restrictions on the Recovery of Expectation Damages: Mitigation of Damages - Employment

An employee who has been wrongfully terminated has a duty to mitigate damages through reasonable efforts to achieve other employment. Employer bears burden of proving that comparable, or substantially similar employment, was available to employee


Restrictions on the Recovery of Expectation Damages: Mitigation of Damages - Lost Volume

Mere fact that an injured party can make arrangements for the disposition of the goods or services that she was to supply under k doesn't necessarily mean that by doing so she will avoid loss. If she would have entered into both transactions but for the breach, she has “lost volume” as a result of the breach. In that case, the 2nd transaction is not a “substitute” for the 1st


Restrictions on the Recovery of Expectation Damages - for breach of k

recoverable only if the damages either arise naturally from the breach or are the result of special circumstances communicated to the breaching party at the time k was formed


Restrictions on the Recovery of Expectation Damages - Lost profits are recoverable if the loss...

1) is w/in the contemplation of the parties at the time k was made
2) flows directly or proximately from the breach; &
3) is capable of reasonably accurate measurement or estimate


Nonrecoverable Damages: Items Commonly Excluded from Plaintiff’s Damages for Breach of Contract - Tortious Breach

Outside the insurance context, a tortious breach of k may be found when:
1. breach is accompanied by a traditional CL tort such as fraud or conversion;
2. means used to breach k are tortious, involving deceit or undue coercion or;
3. one party intentionally breaches k intending or knowing that such a breach will cause severe unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages.


Nonrecoverable Damages: Items Commonly Excluded from Plaintiff’s Damages for Breach of Contract - American Rule for Attorneys Fees & Exceptions

Attorneys fees are not ordinarily recoverable for breach of k actions.
A. Contractual Provisions
B. Statutes
C. Court Rules
D. Collateral Litigation


Reliance Damages

As an alternative to expectancy, the injured party has a right to damages based on his reliance interest, incl. expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the k been performed.


Restitutionary Damages
& Exception

On a breach by non-performance that gives rise to a claim for damages for total breach on a repudiation, the injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance.
Exception: unless his duties have already been fully performed and the breaching party’s only remaining duty is the payment of money. (limited to expectation damages)


Restitutionary Damages - Market Value Restitution

Restitution for the value of services provided to ∆ is available even if the injured party would have lost money on the k
(Rest. § 373)


Restitutionary Damages -
(What breaching party may recover)

breaching party may recover in restitution the value of any benefit conferred, minus any damages caused by the breach


Restitutionary Damages available when...

a. cause of action of restitution (incl total breach of k at the injured party’s election)
b. k void due to some defense such as fraud, duress, mistake, incapacity, impossibility
c. breaching party (minus any damages caused by breach)


Specific Performance

Specific relief is available only when the remedy at law is inadequate. Often this is the case bc k is for sale of an interest in land, subject of the k is unique, or a damage award would be uncollectible


Specific Performance

Specific performance will not be granted unless the terms of the k are sufficiently certain to provide a basis for an appropriate order. But specific relief will not be denied merely because the parties have left some matters out of their agreement, or left some issues to be agreed on in the future, so long as all material terms have been agreed on.


Specific Relief
(personal service k)

Specific performance is not available for personal service k. Courts may be willing to enjoin the defendant from performing services for another person, but not if the probable result of the injunction would be to compel a performance involving personal relations the enforced continuance of which is undesirable or will be to leave the employee without other reasonable means of making a living. (Rest. § 367)


Agreed Remedies

Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
Rest § 356; UCC 2-718


Nondisclosure - Classical Rule

Silence cannot count as a lie


Bilateral Mistake

1. Where a mistake of both parties at the time a k was made
2. as to a basic assumption on which the k was made has a material effect on the agreed exchange of performances,
3. the k is voidable by the adversely affected party unless he bears the risk of the mistake under §154


Unilateral Mistake

Where a mistake of one party at time of k was made as to a basic assumption on which he made the k has a material effect on the agreed exchange of performances that is adverse to him, the k is voidable by him if he doesn't bear the risk under §154 &
a) effect of the mistake is such that enforcement of the k would be unconscionable (cause a substantial loss) OR
b) other party had reason to know of or caused the mistake


Foreseeability Re: Frustration of Purpose

The non-occurrence of the frustrating event must have been a basic assumption on which the contract was made. Foreseeability is a factor in that determination, but the mere fact that the event was foreseeable does not compel the conclusion that its non-occurrence was not such a basic assumption.


Frustration of Purpose Re: Governmental Action

Courts are generally more willing to grant relief under frustration of purpose when the event on which the claim of frustration rests is some form of supervening governmental action rather than cases in which the event is war, natural disaster, or market change.


Some reasons courts give for refusing to grant specific relief include:

- K is insufficiently definite
- burdens on the court of supervising the order outweigh the order’s benefit to the parties
-the order would cause harm to the breaching party that outweighs the order’s benefit to the breach’s victim
-the order would cause harm to third parties that outweighs the order’s benefit to the breach’s victim


Nonrecoverable Damages: Items Commonly Excluded from Plaintiff’s Damages for Breach of Contract - Punitive Damages

Punitive damages are not generally available for ordinary breach of k. They are available in tort for conduct that is outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others.
Rest Torts § 908(2)


Nonrecoverable Damages: Items Commonly Excluded from Plaintiff’s Damages for Breach of Contract - Emotional Distress

Recovery for emo disturbance will be excluded in an action for breach of an ordinary commercial k unless breach also caused bodily harm or k or breach is of such a kind that serious emo disturbance was a particularly likely result.


Public Policy - Statutes

Statute may prohibit certain k, in which case such k are void. Courts will not invalidate k on basis of public policy unless that public policy comes from a statute or a long-standing CL rule.


Relationships/transactions that may include an ancillary covenant include:

1. Promise by the seller of a business not to compete w/ buyer
2. Promise by employee not to compete w/ employer
3. Promise by partner not to compete w/ partnership


Conditions - A k term may be a:

Condition: nonoccurrence = not a breach but excuses conditioned duty.
Promise: nonoccurrence = breach but doesn't excuse any reciprocal duty unless its a total breach.
Both: nonoccurrence = breach & excuses conditioned duty.
Neither: nonoccurrence isn't a breach & has no effect on any contractual duty. (generally timing clauses.)


Anticipatory Repudiation- Effect

triggers a right to sue for past and future damages and permits the injured party to cancel his/her reciprocal performance


when Reliance Damages are available

1. Expectation damages not reasonably calculable
2. Promissory estoppel cause of action where court believes equity calls for less than full expectation damages (limits damages as justice requires)
3. Rare restitution cause of action cases


Limits on Expectation Damages: Consequential Damages (Hadley rule)

consequential damages are only recoverable if they were reasonably w/in contemplation of parties at time of k formation.


Incidental damages are

Costs incurred in a reasonable effort to avoid or mitigate damages caused by the other party's breach


Consequential damages incl

Reasonable foreseeable injuries to a person, business, or property caused by breaching party's failure to perform, to fully perform or properly perform.

When consequential damages are available, injured party has duty to mitigate.


3 approaches to agreed remedies

traditional: just reasonable (time of k) don't care if you were right or not
rest: reasonable or right will be enforceable
rest: reasonable and right to be enforceable


Definition of "promise"

Manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made



1. minority
2. mental incapacity
3. undue influence
4. economic duress
5. misrepresentation
6. nondisclosure
7. unconscionaility
8. mistake
9. impossibility, impracticability, frustration of purpose
10. modification