Contracts Practice MEE Rule Statements Flashcards
(17 cards)
Substantial Performance
The doctrine of substantial performance provides that a party who substantially performs can recover on the contract even though full performance has not been tendered. However, there is no substantial performance if the incomplete performance was a material breach of contract. Under the common law, a material breach of contract (i.e., when the nonbreaching party fails to receive the substantial benefit of its bargain) allows the nonbreaching party to withhold any promised performance and to pursue remedies for the breach, including damages.
Substantial performance is less likely to be found when a party intentionally furnishes services that are materially different from what he promised. Such a breach is more likely to be treated as a material breach for which contract damages are recoverable.
Installment/divisible contracts and recovery
A divisible or installment contract is one in which the parties’ obligations are divisible into distinct units of performance. Recovery is limited to the amount promised for the unit of the contract performed.
Restitutionary relief
When a plaintiff confers a measurable benefit on a defendant and the plaintiff has a reasonable expectation of compensation, it would be unfair to permit the defendant to receive the benefit without compensating the plaintiff (unjust enrichment). In this case, the court can permit the plaintiff to recover the value of the benefit to prevent this unjust enrichment. Recovery is quantum meruit: money damages equal to the fair value of the benefit (less the other party’s damages breach, if applicable where both parties breached). Although this type of action is often characterized as based on an implied-in-law contract or a quasi-contract, quantum meruit does not depend on the existence of a contract.
Quantum Meruit (hint: “as much as is deserved”)
The remedy in restitutionary relief. Amounts to money damages equal to the fair value of the benefit (less the other party’s damages breach, if applicable where both parties breached).
Suretyship
A promise to assume a duty incurred by another (oftentimes the payment of a debt). (See: statute of frauds, and the main-purpose rule)
Implied Warranty of Merchantability
The implied warranty of merchantability warrants that the product being sold is generally acceptable and reasonably fit for the ordinary purposes for which it is being sold. Any product that fails to live up to this warranty constitutes a breach, regardless of any fault by the defendant.
Substantial performance/material breach
Under common law, if the breach is minor (i.e., the breaching party has substantially performed), then the non-breaching party must still perform under the contract. This allows a party who substantially performs to recover on the contract even though that party has not rendered full performance. Generally, the substantially performing party can recover the contract price minus the cost to the other party of obtaining the promised full performance.
By contrast, a material breach of contract occurs when the non-breaching party does not receive the substantial benefit of the bargain. The material breach allows the non-breaching party to withhold any promised performance and to pursue remedies for the breach, including damages. The breaching party who failed to substantially perform generally cannot recover contract damages, but may be able to recover through restitution. However, most courts hold that recovery in restitution is only available if the breach was not willful. Consequently, a party who intentionally furnishes services that are materially different from what was promised cannot recover anything in restitution unless the non-breaching party has accepted or agreed to accept the substitute performance.
UCC or Common Law?
The common law applies to contracts for services or real estate and Article 2 of the UCC applies to contracts for the sale of goods. If a transaction includes both goods and services, the predominant purpose test is applied to resolve whether the common law or the UCC applies to the entire transaction.
Construction contracts: general measure of damages, economic waste
In construction contracts, the general measure of damages for a contractor’s failure is the difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for delay in completion of the construction. When a breach results in a defective or unfinished construction, if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may instead award damages equal to the diminution in the market price caused by the breach. Economic waste occurs when the cost to fix or complete the construction is clearly disproportional to any economic benefit or utility gained as a result.
Expectation damages in construction contracts
Note: In this essay, I mistook expectation damages in a construction contract for incidental damages.
Compensatory damages are meant to compensate the non-breaching party for actual economic losses. Expectation damages are intended to put the non-breaching party in the same position as if the contract had been performed. Expectation damages must be calculated with reasonable certainty. In construction contracts, the general measure of damages for a contractor’s failure to begin or to complete a building project is the difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for the delay in completing the construction.
Consequential damages; foreseeability of damages (3)
Note: in this essay, I jumped straight to “lost profits are consequential damages” and did not analyze at all whether they were foreseeable.
Actual damages can be either direct or consequential. Consequential damages are a direct result of the breach but need not be the usual result of the breaching party’s conduct. Instead, consequential damages need only be a reasonably foreseeable result of the breach given the parties’ specific circumstances. The breaching party must have reasonably foreseen the consequential damages for them to be recoverable. Damages are foreseeable if they were a natural and probable consequence of breach, if they were “in the contemplation of the parties at the time the contract was made,” or if they were otherwise foreseeable. Consequential damages do not concern the value of the lost performance due to breach, but there must be a causal link between the breach and the consequential damages for them to be recoverable. And the plaintiff must prove the dollar amount of consequential damages with reasonable certainty not speculatively.
Duty to mitigate
A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience. A non-breaching party is held to a standard of reasonable conduct in preventing loss. The non-breaching party’s failure to mitigate does not give the breaching party a right to sue the non-breaching party for such failure; it only reduces the non-breaching party’s damages recovery.
Assignment of contracts
A party to a contract may validly assign his or her interest in the benefits of that contract as long as that assignment does not increase the other party to the contract’s obligations excessively. To be a valid assignment, the assignment must state a present intent to assign (“I assign to you the right…”; not “I promise to assign … “). An assignment need not be in writing, unless there is a Statute of Frauds issue (e.g., the contract is for services that cannot be completed within one year). The consent of the other party to the contract is not necessary for a valid assignment.
Third party beneficiaries (intended vs incidental)
An intended beneficiary may sue for breach of contract on a contract to which they are a beneficiary under certain conditions (he knows about the contract and assets; he learns about the contract and sues; he learns about the contract and relies). An intended beneficiary is one who was an individual the parties to the contract wanted to provide with some sort of benefit, and is often written into the contract. An incidental beneficiary is one who just happens, through no purposeful intent of the parties, to benefit under a contract. An incidental beneficiary may not sue for breach of contract.
Liability for the breach of a contract by an assignee (the person to whom a contract was assigned)
The common law rule is that an assignee who paid consideration for the assignment is liable to the obligor (the original party to the contract whose performance was contracted for) for a breach of duty. Also, the assignor (the original party under the contract who assigned their duty) may be liable under these circumstances because he or she is remains in privity of contract with the obligor: he or she was not completely discharged from the contract as he or she would be if a novation had occurred.
Assignment of contracts (again) and three exceptions prohibiting an assignment
The general rule is that parties to a contract are permitted to assign the performance they would receive under the contract to a thirdparty. This is true even when the contract prohibits assignments (although the assignor may be liable for breach). There are three main exceptions to this rule: if the
performance is personal to the obliger, if the assignment would materially alter the obligee’s burden under the contract, or if the assignment is against public policy. Once
Simple rule for third party beneficiaries
third-party beneficiaries are sometimes permitted to recover under contracts to which they are not a party, this type of action depends on whether the contracting parties intended to benefit the third party. If they intended to benefit the third party, then the third party can sue under the
contract. If the third party is merely an incidental beneficiary, however, the third party cannot recover.
