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Flashcards in Contracts rules Deck (73):
1

Subject Acrostic - Forty Drunk Pirates Drank Beer Then Ran

Common Law & UCC Sales


FORMATION
DEFENSES to contract formation

PERFORMANCE
DISCHARGE of duty to perform

BREACH - effects
material - recover foreseeable damages or rescind/mitigate;
minor - perform & recover damages for immaterial breach
THIRD PARTY BEFEFICIARIES, Assignment & Delegation
REMEDIES for breach

2

Common Law - Essential Contract Terms - Q-TIPS

QUANTITY
TIME of performance

IDENTIFICATION of parties

PRICE
SUBJECT matter

3

Applicability of Statute of Frauds - MOR GAS 

needs to go in the car

MARRIAGE
ONE year or longer
REAL estate
GOODS over $500 or intangibles over $5000 ADMINISTRATOR / executor of estate promising to cover costs
SURETY agreements (guarantees on behalf of another, unless purpose is self-serving)

4

Exceptions to Statute of Frauds - No writing necessary if the deal is made in a SWAMP.

SPECIALLY manufactured goods (production must have begun)
WAIVER
ADMISSION that contract is valid from judge

MERCHANT MEMO - UCC.
- Add'l terms are part of deal unless acceptance materially alters terms of offer
- objected to in writing within 10 days from receipt - offer expressly restricted acceptance on terms

PARTIAL performance (goods already delivered, payment already received/accepted)

5

Elements of Legal Relationship - a TACO has all the ingredients to make a contract.

TERMS – must be definite, can be express or implied
ACCEPTANCE of terms
CONSIDERATION - bargained for legal detriment and/or benefit flowing
OFFER inviting acceptance

6

Termination of Offer - Don't offer IDLE CIDER that's expired.

INCAPACITY of offeror
DEATH of offeror
LAPSE of time
EXPRESS rejection (or implied)

COUNTEROFFER
Intervening ILLEGALITY
DESTRUCTION of contract’s subject matter

EFFECTIVE termination under mailbox rule

REVOCATION communicated to offeror before acceptance effective

7

Termination of Options - Three ways options can DIE.

DESTRUCTION of subject matter of option INTERVENING illegality
EXPIRATION of stated option time

8

Defenses to Formation - IF (I) C SCUM, this contract never happened.

ILLEGALITY
FRAUD - in inducement or execution
(I) love contracts
COERCION - lack of consent or duress
STATUTE of frauds
CAPACITY - minors, mental
UNCONSCIONABLE k - gross disparity, against public policy
MISTAKE - generally only allowed with mutually grave error while contract is still executory

9

Parol Evidence Rule - DECAF Includes parol evidence but a FOAM LID keeps the contract from forming.

DECAF I - elements of parol evidence rule


FOAM LID - parol evidence that will serve as a defense to formation


reveal DEFENSE to contract formation
EXISTENCE of a condition
CONTRADICTS, varies or adds to integrated writing clarify ADDITIONAL terms (UCC)
FINAL writing intended but not accomplished INTRODUCE consistent collateral subordinate agreement that would not normally be included in an integrated writing

FRAUD
ORAL condition precedent

AMBIGUITY
MISTAKE
LACK of consideration

ILLEGALITY
DURESS

10

Discharge of Duty to Perform - IF A NIMROD is discharged of his duty to perform, so are you.

 

IMPRACTICABILITY

FRUSTRATION of purpose
ACCORD and satisfaction
NOVATION
IMPOSSIBILITY
MODIFICATION
RESCISSION (mutual)
OCCURRENCE of condition subsequent

DEFENSE to formation

11

Excuse of Conditions & Discharge of Duty to Perform - WIVES PAD their pockets with excuses to get out of contracts.

WAIVER (knowingly accepted defective performance)
IMPOSSIBILITY (objective - nobody could perform) VOLUNTARY disablement (implied repudiation) ESTOPPEL (other party says don't perform) SUBSEQUENT agreement of parties (mutual rescission, modification, novation, substitution)

PREVENTION of performance (intentional or negligent hindrance)
ANTICIPATORY repudiation (present, absolute, unequivocal renunciation of obligation)

DIVISIBILITY of contract duties

12

Formation by Quasi-Contract - I painted your CURB so you owe me.

CONTRACT implied in FACT or at LAW
UNJUST enrichment if defendant allowed to keep benefit without legal detriment
REASONABLE expectation of being compensated BENEFIT conferred upon defendant by express request or implied permission

13

UCC Article 2 - Material Alteration of Offer - A merchant that WARPS my offer with his reply memo makes me Just Livid.

WARRANTY negation such as merchantability or fitness
ARBITRATION requirement added (unless

customary practice in trade)

RISK of loss shifted, adjusted or altered
PAYMENT terms and amount changed

SHORTENING Statute of Limitations to sue for non- conforming goods
JURISDICTION clause bestowing or changing laws covering K
LIABILITY waiver or limitation (in tort or contract)

14

UCC Article 2 - Implied Terms in Sales Contracts - I CITE the UCC to prove implied terms.

INSPECTION (Buyer usually has a right to inspect tendered goods before acceptance.)
CREDIT (Seller is not obligated to extend credit to buyer.)

INSURANCE (Risk of loss falls on party in best position to bear loss (usually the one who protected goods by insuring them)

TENDER of delivery is implied at Seller's place of business.
EXCHANGE of performance is usually concurrent. UNIFORM COMMERCIAL CODE

15

UCC Article 2 - Seller's Remedies for Buyer's Breach - When the buyer is a K LAPSER, seller has remedies.

KEEP deposit if under $500
LOST profit (sue for lost profit if "unlimited supply" available)
ASSURANCES (demand ASSURANCES if insolvency/incapability is evident)
PRICE (sue for entire contract PRICE)
STOP goods in transit
EXERCISE right to reclaim goods delivered to insolvent buyer
RESELL goods to another buyer

16

Buyers Remedies for Seller's Breach - A buyer Can Revoke Security or WAIT when seller breaches.

CANCEL the contract, purchase from another, recover damages.
REVOKE contract if substantial breach where acceptance induced by reasonable expectation of prompt cure or latent (undetectable) defect

SECURITY (withhold non-conforming goods as SECURITY for damages.)
WITHHOLD amount equal to damages (notice to seller required)
ACCEPT non-conforming goods at k price, recover consequential & incidental damages
$ INADEQUATE (if money damages are INADEQUATE, buyer can demand goods)

TENDER balance due & claim goods if buyer has partially paid

17

UCC Article 2Warranties - Warranties are Fully TEAMED with goods sold.

FITNESS for a particular purpose

TITLE (seller's warranty of TITLE)

ENCUMBRANCES (warranty against ENCUMBRANCES)
AFFIRMATIONS of fact or promise made by seller relating to goods (written or oral)

MERCHANTABILITY
EXPRESS warranties written into contract

DESCRIPTION of goods in advertisement, brochure or catalog

18

UCC Article 2 - Defenses to Breach of Warranty - GRAMPA can't be liable for breach of warranty.

GOVERNMENT military & surplus contracts

RUNNING of statute of limitations

ABSENSE of privity of contract
MISUSE (unforeseen MISUSE of a product) PREEMPTION (federal)
ASSUMPTION of risk

19

 

PREDOMINANT FACTOR TEST

 

If the subject matter of the contract is mixed, including both goods and non-goods, such as services, the court will apply the predominant factor test in order to determine whether the common law or UCC applies.

In order to determine the body of law that governs the contract, the court will look to the predominant objective of the buyer. If the buyer is predominantly seeking to acquire goods and the non-goods are merely incidental to that objective, then the court will apply the Uniform Commercial Code. If the buyer is predominantly seeking to acquire non-goods and the goods are merely incidental to that objective, then the court will apply the common law

EXCEPTION: If the K divides payment, then apply UCC to sale of goods part and common law to the rest. 

20

 

CONTRACT

 

Legally enforceable agreement. Requires mutual assent and valid consideration.

Express Contract: Created by the parties’ words, either oral or written.

Implied Contract: Created by the parties’ conduct.

21

 

QUASI-CONTRACT

 

An equitable remedy that applies whenever the application of contract law yields an unfair or inequitable result.  Not limited by contract rules; governed by equity.  Protects against unjust enrichment.

 

22

 

 


BILATERAL CONTRACT
 

 

There is an offer that can be accepted by any reasonable way (promise, performance, etc.)

23

 

UNILATERAL CONTRACT

 

There is an offer that can be accepted only by performance (complete performance).

24

 

MUTUAL ASSENT

 

For an agreement to constitute a legally enforceable contract, there must be mutual assent. That is, one party must accept the other’s offer. There must be a ‘meeting of the minds’. Whether mutual assent is present will be determined by an objective standard.

 

25

 

OFFER

 

Valid Offer: 
1. A manifestation of a present intention to enter into a contract (promise, undertaking, commitment);
2. Definite and certain in its terms; and
3. Communicated to the offeree.

Manifestation of Intent Considerations:

1. Prior relationship of the parties;
2. Words used: “I offer,” “I promise”
3. Surrounding Circumstances: Was it made in jest, anger, excitement, an extravagant proposal (i.e. what did the offeree believe)?
4. Method of Communication: The broader the communicating media (i.e., an ad), the less likely it is an offer.

Definiteness and Certainty of Terms: Vague or ambiguous terms, like “reasonable” or “fair” or “appropriate” =  no offer.

Termination of an Offer: An offeror may terminate an offer before acceptance. An offer cannot be accepted if it is terminated.

26

 

MISSING PRICE TERM

 

Common law: Party, subject matter, time and price required!
 

NOTE: Sale of real property—there is no offer unless:
(1) There is a property description and
(2) A price.

UCC Article 2: Sale of goods—there is an offer if the parties so intend.  No price is necessary. 
o A vague price term:  (e.g.,“Reasonable/Fair/Appropriate”) is not an offer under either common law or UCC. 
o A missing price term under UCC is still a valid offer. However, under UCC in K’s for the sale of goods, must have a QUANTITY that is capable of being made certain.
 

27

 

TERMINATION OF AN OFFER BY ACTION OF EITHER PARTY

 

Lapse of Time: Offer cannot be accepted after specified date.  If no date given, after a reasonable period. A month or more will likely qualify.
 

Offeror’s Revocation: Only offeror can revoke the offer. Only effective if received by the offeree before acceptance (offeree awareness).
o Direct Revocation: A statement by the offeror directly to the offeree indicating unambiguously that the offeror changed his mind.
o Indirect Revocation: Conduct by the offeror unambiguously indicating a change of mind that the offeree is aware of.
o Offers made by publication may be terminated: Only by use of a comparable means of communication.
o Multiple Offers are NOT revocation
o When revocation is SENT THROUGH MAIL: Revocation of an offer is not effective until:
• Received by the offeree, and
• An offer cannot be revoked after it has been accepted
 

Offeree’s Rejection: Counteroffer operates as a rejection ending the original offer 

28

 

TERMINATION OF OFFER BY MODIFICATION/ADDITIONAL OR DIFFERENT TERMS

 

Depends on applicable law—(Battle of the Forms)
Common Law: Acceptance must mirror the offer (Mirror image rule—different term is a rejection).
 

UCC Article 2: Acceptance need not mirror the offer.  Additional terms become part of contract, only:
1. If both parties are merchants (merchant = person in business);
2. If the term is not a material change (likely to cause hardship or surprise to offeror); and
3. If the offeror does not object within a reasonable time. 

29

 


TERMINATION OF OFFER BY OPERATION OF LAW

 

 Death or Insanity of Either Party: Death or insanity by either party terminates an offer, and the death or insanity need not be communicated to the other party. (NOTE: If the offer is of the kind that is irrevocable, than this rule does not apply);
Destruction of the proposed contract’s subject matter
Supervening Illegality

30

 

IRREVOCABLE OFFER

 

Generally, offers not supported by consideration or detrimental reliance can be revoked at any time before acceptance, except:

Option under Common Law: A promise to keep the offer open (any duration) that is paid for (consideration required).  No time limit, whatever you pay for.

Detrimental reliance: Irrevocable if offeree reasonably and foreseeably relies to his detriment.

Part performance:

1. For unilateral contract, if offeree begins performance, offeror cannot revoke (not mere preparation).
2. For a bilateral contract, start performance is acceptance (cannot revoke).
 

"Firm offer” under Article 2: A signed, written promise by a merchant to keep an offer open. 
1. No payment needed. 
2. No time specified but 3-month cap (reasonable time).
3. Express Promise to keep the offer open needed, not just an offer to sell

31

 

ACCEPTANCE

 

A VALID ACCEPTANCE OF A BILATERAL CONTRACT REQUIRES:
1. An offeree with the power of acceptance;
2. Unequivocal terms of acceptance; and
3. Communication of acceptance.

WHO MAY ACCEPT: The person to whom the offer was addressed, one who knows about the offer, or a member of the class to whom the offer was addressed

UNEQUIVOCAL ACCEPTANCE:
a. Common Law: Acceptance MUST mirror the offeror’s terms, neither omitting nor adding terms; otherwise, it may be a counteroffer (see above).
b. UCC: In contracts involving the sale of goods, an acceptance does NOT have to mirror the offeror’s terms. An acceptance that deviates from the offer is NOT necessarily a rejection or counteroffer. (See Battle of the Forms to determine if terms become part of the contract.)

32

 

COMMUNICATION OF ACCEPTANCE

 

Offeree must communicate the acceptance to the offeror.  (Objective Standard)
UCC: Permits acceptance by any reasonable means unless the offeror unambiguously limits acceptance to particular means.
Silence as Acceptance: An offeror cannot assume an offeree’s silence into acceptance.
Mailbox rule: Acceptance is effective when mailed/post-marked.

Exceptions:
1. If the offer provides otherwise: Offer specifies a receive date, must be in-hand on that date.
2. Irrevocable offer (option): Acceptance must be received before the end date of the irrevocable period. 
3. Acceptance, then rejection: Applies to the acceptance.  Acceptance will be valid, unless the rejection is received first and the offeror relies on the rejection.
4. Rejection, then acceptance: If rejection is sent first, the mailbox rule does not apply to the subsequent acceptance.  Order of receipt by offeror will control.
 

Acceptance Without Communication: An executory bilateral contract may be formed without communication of acceptance where:
1. There is an express waiver of communication in the offer,
2. The offer requires an act as acceptance, or
3. The offeree silently takes the offered benefits

33

 

CONSIDERATION

 

A bargained-for exchange of legal detriment and/or benefit “Bargained For”: Parties must exchange something. In case of bilateral K, an exchange of promises is necessary; unilateral K’s are promises for an act.
 

Detriment/Benefit”:
o Promise: One party’s promise can be consideration for another party’s promise.
Exception: Illusory Promise (promise that is not possible/likely)* almost always the wrong answer, almost never an illusory promise on the bar)
o Gift: There is no bargain involved (and thus no consideration) when one party gives a gift to another.
Forbearance: Refraining from a legal right in exchange for a promise
Past Consideration: A promise given in exchange for something already done does not satisfy the bargain requirement.
o EXCEPTION: Where a past obligation is unenforceable because of a technical defense (SOL), that obligation will be enforceable if a new promise is made in writing or is partially performed. Also, under the modern trend, if a past act was performed by the promisor’s request, a new promise to pay for that act will be enforceable.

34

 

CONSIDERATION:
PRE-EXISITING DUTY RULE

 

Applies to modifications to an existing contract. 

Generally, where you are doing what you are already obligated to do, no new consideration is needed. Problem arises when there is a modification to a pre-existing contract.

Exceptions (Areas where new consideration IS needed):
1. Common Law Contracts
2. Addition to or Change in Performance
3. Unforeseen Circumstances: If unforeseen difficulty in performing is such that the performance is rendered impracticable, the duty to perform may be discharged (majority view).
4. Third Party Promise to Pay: Where there is a preexisting duty owed to a third party. 
5. Promises Regarding Existing Debts: Paying a smaller amount than owed to a creditor will not be sufficient to discharge original consideration.
6. Forbearance to Sue: A promise to refrain from suing on a claim may constitute consideration if the claim is valid or the claimant believed in good faith the claim was valid.
7. Surety Contracts: must be supported by consideration. 

35

 

CONSIDERATION SUBSTITUTE:
PROMISSORY ESTOPPEL

 

Requires a promise and foreseeable, detrimental reliance on the promise, AND enforcement necessary to avoid injustice.

 

36

 

DEFENSE: INCAPACITY

 

Minors: In most jurisdictions, persons under age 18 lack capacity to contract.  Thus, a contract between an infant and an adult is voidable by the infant, but binding on the adult. However, upon reaching majority, the infant may affirm her contractual obligation.  
o Exception --Necessaries: A person who does not have capacity is legally obligated to pay for necessaries (food, shelter, clothing, or medical care), but ONLY on a quasi-contract basis. (Not liable for contract price, but liable for the reasonable value of benefit).

Insane persons: Lack capacity (but may contract during sane moments).

Intoxicated persons: May lack capacity if the other party has reason to know of the intoxication.

Makes a contract voidable
 

37

 

DEFENSE TO FORMATION: DURESS

 

Defendant can use physical harm and economic duress to avoid the contract.

Physical Harm: Cannot threaten physical harm or inflict physical harm when contracting.

Economic Duress: Cannot threaten economic harm.  Occurs when:

o Someone threatens to breach an existing contract unless he gets a better deal,
o The buyer only makes the new agreement because he desperately needs to get the first deal done, and
o There is no alternative source of supply.

Makes a contract voidable.
 

38

 

 

DEFENSE TO FORMATION: MISREPRESENTATION

 

 

If a party induces another to enter into a contract by using fraudulent (knowing) misrepresentation or non-fraudulent material misrepresentation, the contract is voidable by the innocent party if she justifiably relied on the misrepresentation.

Makes a contract voidable.
 

39

 

DEFENSE TO FORMATION: MISTAKE OF FACT

 

Mutual Mistake of Material Existing Fact: Both parties are under mistaken belief regarding a material aspect of the agreement and the adversely affected party did not assume the risk of the mistake. The contract is unenforceable.

o Market Value: A mistake as to market value (price) is not considered material.

Unilateral Mistake of Material Existing Fact: Whether it is of identity, subject matter or computation, a mistake by one party is generally insufficient to make a contract voidable. However, if the non-mistaken party knew or should have known of the mistake, the contract is voidable by the mistaken party.
 

40

 

DEFENSE TO FORMATION: LACK OF CONSIDERATION

 

If the promises exchanged at the formation stage lack elements of bargain or legal detriment, no contract exists.

41

 

DEFENSE TO FORMATION: ILLEGALITY

 

A contract is unenforceable (void) if the subject matter of the contract is illegal (i.e., sale of drugs or murder).

Exceptions:
o The plaintiff is unaware of the illegality while he defendant knows of the illegality;
o The parties are not pari delicto (one party is not as culpable as the other); and
o The illegality is the failure to obtain a license for revenue raising purposes rather than for protection of the public.
 

42

 

DEFENSE TO FORMATION: PUBLIC POLICY

 

Covenant not to compete: Must be (1) reasonable time period and (2) reasonable geography
o With employment contract, must also be a (3) business need for protection (e.g., against chef, but not busboy).

Exculpatory Clause: Clause eliminating contract liability—can contract away liability for negligence in appropriate circumstances, but not for intentional torts or gross negligence.
 

43

 

DEFENSE TO FORMATION: UNCONSCIONABILITY

 

Oppressive terms or unfair surprise at the time of agreement. The fact that the terms were harsh later on is irrelevant.  Used to be only UCC but now applies to all contracts. Empowers a court to refuse to enforce all / part of an agreement.

 

 

 

44

 

DEFENSE TO FORMATION: AMBIGUITY

 

There will be no contract if:
o Parties use a material term that is open to at least two reasonable interpretations;
o Each party attaches different meaning to the term; and
o Neither party knows or has reason to know the term is open to at least two reasonable interpretations

45

 

STATUTE OF FRAUDS:
CONTRACTS AFFECTED

 

1. REAL ESTATE: Transfer of an interest in real estate lasting for more than one year requires writing
2. SERVICE CONTRACT: Incapable of being fully performed within one year from the date of the agreement.
3. DEBT OF ANOTHER: Promise to “answer for” the debt of another (limited to guarantees
4. OWN FUNDS BY AN ESTATE REPRESENTATIVE: Promise by an estate representative to use her own funds to pay estate expenses.
5. PROMISE IN CONSIDERATION OF MARRIAGE: Writing is required for prenuptials and postnuptial (agreement to renounce all claims to the other’s assets if they get married).  No writing required for mere promise to marry
6. SALE OF GOODS for $500 or more (UCC Article 2)

 

46

 

SATISFYING SOF: SALE OF GOODS

 

Writing must contain:
1. Identity of the parties;
2. Identification of the subject matter;
3. The quantity; (Note: No price is required.)
4. Recital of the consideration; and
5. Signed by the party asserting the SOF defense (the defendant, i.e. “the party to be charged”). 

Exception: Merchant to Merchant—plaintiff’s signed writing can satisfy the SOF if
o Both parties are merchants;
o The writing signed by the plaintiff confirms a prior agreement and contains a quantity term; and
o There is no response from the other merchant (defendant).

47

 

SATISFYING SOF WITHOUT WRITING: CL

 

SERVICE CONTRACTS:
Full performance of service contracts: There is an exception to the writing requirement when full performance is done on a service contract.  SOF is satisfied by full performance, even though there is no writing.
Part performance of a service contract does not satisfy the SOF.

PART PERFORMANCE: Part performance in contracts for the transfer of an interest in real estate: For partial performance in a transfer of real estate to satisfy the SOF without a writing, two out of three things required:
(1) Partial payment; and/or
(2) Buyer’s improvement of real estate; and/or
(3) Buyer’s possession.
 

48

 

SATISFYING SOF WITHOUT WRITING: UCC

 

Sale of goods: Generally, for $500+ of goods, a writing is required. 

Exceptions:
Part performance (for goods delivered by seller or paid for by buyer):
o Delivered goods: Goods that are delivered by seller to buyer on oral promise (where writing would have been required) satisfy the SOF.  No writing required—Seller loses the SOF defense.
o Undelivered goods: No exception to the writing requirement exists for goods that are not yet delivered.  Seller can still raise SOF defense to undelivered goods.
o Paid for goods: If buyer pays for the goods, the seller loses its SOF defense. (K enforceable for $ amount of partial payment). Full payment for goods satisfies the SOF—no writing is required.
Specially manufactured goods
Judicial admission: Under UCC Article 2 SOF, if the party admits (pleading, in testimony, or in response to discovery) there is a contract, thus no writing required.
Written Authority to sign for another (Equal Dignities Rule): An agent is sent on behalf of the contracting party.

49

 

PAROL EVIDENCE RULE

 

The Parol Evidence Rule keeps out evidence of what the parties said and wrote (that contradict the writing) before they reduced the terms of their agreement to writing or concurrently.  Must have a written agreement for the rule to apply (a later written version is more reliable than anything that came before it).

 

50

 

EXCEPTIONS TO PAROL EVIDENCE RULE

 

To correct a clerical error (e.g., a typo, transposing numbers, etc.; mistake in integration).
To establish a defense to the enforceability of an argument
o Trying to get rescission;
o Show it is void or voidable;
o To prove fraud, duress, undue influence; or
o To show there was a condition, or to explain the meaning of a clause in a contract.

To explain the written contract (show what a term means). Can explain or supplement terms of K with evidence based on:

o Course of dealing,
o TRADE USAGE, or
o Course of performance.

To supplement a “partially-integrated” writing: Can supplement the terms in the writing with evidence of consistent additional terms.

Changing an agreement after it has been reduced to writing (modification): Can introduce evidence that occurred after the writing.  Recall, any modification must have consideration (except UCC).

51

 

PERFORMANCE OF CONTRACT: CONDITION

 

Conditions arise because of promises. A condition is an act or event other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise arises.

Conditions are divided into three categories in temporal relation as to promise completion:

o Condition Precedent: One that must occur before an absolute duty of performance arises (i.e., an express condition precedent must occur before performance starts).
o Condition Concurrent: Those capable of occurring together, as where property is tendered for cash.
o Condition Subsequent: One that cuts off an already existing duty of performance (i.e., already started performing, but will cut off any further performance).

Conditions are then further divided into three more categories based upon their creation:

o Express (in the K);
o Implied in fact (those to be inferred from evidence of the parties intention); or
o Constructive (those read into a contract by the court without regard to the parties intention in order to ensure the parties receive what they bargained for).

52

 

PERFORMANCE OF CONTRACT: EXCUSING CONDITIONS

 

1. Excuse by Failure to Cooperate
2. Excuse by Hindrance / Prevention
3. Excuse by Actual Breach
4. Waivers
5. Excuse by Estoppel
6. Election
7. Excuse by Anticipatory Repudiation
8. Excuse of Condition by Substantial Performance
9. Excuse by Forfeiture:

53

 

DUTY TO PERFORM DISCHARGED: IMPOSSIBILITY


 

 

Measured by an objective standard: Nobody could perform according to the terms of the contract

Must arise after the contract was entered into

54

 

DUTY TO PERFORM DISCHARGED: IMPRACTICABILITY

 

A party must encounter:
o Extreme and unreasonable difficulty; or
o Expense that was not anticipated.

Commercial impracticability: Seller’s duty to perform discharged where it is impracticable includes embargo, crop failure, war, labor strike, or unforeseen cost increase.

Subjective test

55

 

DUTY TO PERFORM DISCHARGED: FRUSTRATION OF PURPOSE

 

Requires:
o A supervening event;
o That was not reasonably foreseeable at the time of entering into the contract;
o Which completely or almost completely destroys the purpose of the contract; and
o Both parties understood the purpose.

56

 

DUTY TO PERFORM DISCHARGED: RESCISSION

 

Mutual: Where both parties expressly agree to it. Rescission before performance excuses performance.

Cancellation after performance does not cancel the contract. For rescission to be effective, EACH party must have some performance remaining
 

57

 

DUTY TO PERFORM DISCHARGED: NOVATION

 

A duty may be discharged by novation (a new contract substituting a new party for one of the parties to the original contract). 

4 Elements:
o A previous valid contract;
o An agreement among all the parties, including the new party;
o Immediate extinguishment of contractual duties between the original contracting parties; and
o A valid new contract.

58

 

DUTY TO PERFORM DISCHARGED:
ACCORD & SATISFACTION

 

 

Accord: An agreement in which one party to a contract agrees to accept performance different from that originally promised.

o Requires consideration: can be less than that of the original K if it is of a different type or is to be paid to a valid third party.

o NOTE: An accord does NOT discharge a contractual duty but rather defers the other party’s right to enforce it.

o Partial payment of an original debt: payment of a small amount than is due on a claim is valid consideration if it is made in good faith and there is a bona fide dispute as to the claim. This is often accomplished by tendering a check conspicuously marked “payment in full.”

Satisfaction: Performance of the accord discharges both the accord and the original debt.

59

 

MATERIAL BREACH

 

A breach is material, if, as a result of the breach, the non-breaching party does not receive the substantial benefit of her bargain.

If the breach is material, the non-breaching party may:
o Treat the contract as terminated (any duty of counter-performance is discharged); and
o Have an immediate right to all remedies for breach of the entire contract, including total damages.

60

 


MINOR BREACH: SUBSTANTIAL PEFORMANCE

 

If you substantially perform the contract than you have not committed a material breach, only a minor breach.
o Substantial performance will not excuse the non-breaching party from performance (paying the breaching party for the full contract). 
o Non-breaching party can offset damages from the breach.

Any breach of contract (material or not) gives rise to a cause of action for damages.

61

 

EXPECTATION DAMAGES

 

Put the plaintiff in as good a position as s/he would have been after full performance.  Benefit of the bargain damages.  Subtract what the owner was supposed to pay from what the owner actually paid.

UCC Article 2: “Cover” (purchase substitute goods)
o Buyer: When seller breaches, buyer can get difference between original K and the cover K. Alternatively, if buyer does not/cannot cover, B gets difference between K and market price. (Note: Buyer is also always entitled to recover his deposit, whether or not K is canceled).
o Sellers: When buyer breaches on sale of good (one of a kind / only one), seller can get difference between the original K and the cover K.  If price is the same, then no damages.
o Exception: Lost volume sellers
 

62

 

INCIDENTAL DAMAGES

 

Either (1) the cost of arranging a replacement deal, or (2) expenses the buyer incurs taking care of non-conforming goods.  Incidental damages are always recoverable.

63

 

CONSEQUENTIAL DAMAGES

 

Special damages which are reasonably foreseeable at the time of the contract. Consequential damages mean that as a result of the breach, something else happened to cause the non-breaching party to lose money.  Recovery depends on whether this kind of damage was reasonably foreseeable to the breaching party at the time of contract.

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EQUITABLE DAMAGES

 

Specific Performance: Compelling a party to do what he agreed to do.  An equitable remedy is available only if monetary damages are inadequate.  Plaintiff usually not entitled unless there is a compelling reason.

Replevin: Get goods if (1) unable to cover despite effort, and (2) goods identified in the contract (set aside). 

Restitution: Prevents unjust enrichment by providing a remedy where a contract exists and has been breached, but is unenforceable (in some cases, where no contract exists at all).

 

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MITIGATION OF DAMAGES

 

Party cannot recover for damages that you could have avoided with reasonable effort.  Non-breaching party has the duty to mitigate his or her damages.

o Employment/Comparable employment: The same kind of work in the same city.  Do not have to actually take the job, but cannot recover the damages she could have reduced by reasonable cover.
o Burden:  Because this is a defense, burden is on the defendant to show plaintiff could have mitigated.

o Construction contract:
o Breach by owner: builder can get the profits that would have gotten from contract + any costs (if breach occurs after full performance, builder can get the full contract price + interest). 
o Breach by builder: owner can get cost of completion + reasonable compensation for the delay. Most courts will allow the builder to recover for work performed to date to avoid unjust enrichment.

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UCC: NON-CARRIER V. CARRIER CONTRACTS

     ------------------           Non-carrier Contract
Place of Delivery
-       Seller’s place of business
 

Time for Payment         Upon tender of delivery
 

When does the risk                                                                   of loss shift from the                                                                     seller to the buyer? If the seller is a merchant: When the -                                    buyer takes possession

                                     If the seller is not a merchant: When   -                                    the seller tenders delivery

-----------------------------------Carrier Contract

Place of Delivery      must deliver to the shipper.
                                      Destination Contract: Seller must                                          -                                    tender delivery of goods to the buyer        -                                    at the destination

Time for Payment              When buyer receives the -            -                                              goods

When does the risk                                                                        of loss shift from the                                                                     seller to the buyer?            Shipment Contract: When           -                                                goods are delivered to the ---   -                                                shipper.

                                                  Destination Contract: When -     -                                                seller tenders delivery of    -----                                                goods to the buyer at the -------                                                destination.

 

 

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UCC: PERFECT TENDER RULE

 

The standard by which a seller’s performance is measured.  Seller must deliver perfect goods in the right place at the right time.  If not, buyer has right to reject non-conforming goods


 

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UCC: SELLER’S REMEDIES

 

UCC Provides for three measures of damages when a BUYER wrongfully repudiates or refuses to accept conforming goods:
o Recover the difference between the contract price and the market price;
o Resell the goods and recover the contract price – resale price; or
o If applicable, recover the lost profits (Lost Volume Seller)* Difference between the list price and the cost to the seller + INCIDENTALS.

When seller can claim damages:
o If buyer fails to make a payment due on or before delivery, seller can withhold the delivery.
o If seller learns buyer is insolvent, he may reclaim the goods upon demand within 10 days after the buyer’s receipt of goods.
o The seller may stop the delivery of the goods in the possession of a carrier or other bailee when he discovers the buyer is insolvent.
o Seller may be able to force the goods on a buyer who has not accepted only if the seller:  (1) is unable to resell at a reasonable price, or (2) goods are lost or damaged within a reasonable time after risk has passed to buyer.
 

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UCC REMEDIES TO BOTH BUYER & SELLER

ASSURANCES: If reasonable grounds for insecurity arise with respect to the performance due from either party, the other may, in writing, demand adequate assurance of due performance. Until s/he receives adequate assurances, s/he may suspend his own performance. If proper assurances are not given within 30 days, the party seeking assurances can treat the K as repudiated.

ANTICIPATORY REPUDIATION: Occurs where the other party’s words, actions, or circumstances make it clear that he is unwilling or unable to perform. 

Options for the other party include:
o For a commercially reasonable time, await performance
o Resort to any remedy for breach; or
o Suspend his own performance.

RETRACTION OF REPUDIATION:  The repudiating party can withdraw his repudiation at any time prior to his next required act.
o Exception: if the other party has canceled, materially changed his position in reliance on the repudiation, or indicated the repudiation is considered final by him.

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THIRD PARTY: DELEGEATION OF DUTIES

 

Contractual duties may be delegated without the obligee’s consent.

Exceptions:
o Contract prohibits delegation:  If the contract prohibits delegation, you cannot delegate.
o Contract prohibits assignment: If the contract says no assignment, then there is no delegation either.
o Special Skill/Personality: Party cannot delegate where the contract involves special skills or party with special reputation.

Consequences if delegate does not perform: The delegating party remains liable.  (Contrast with a novation (i.e., consent to substitute) where the original party does not remain liable.)

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THIRD PARTIES: ASSIGNMENT OF RIGHTS

 

Two people make a contract; later, one person transfers his rights under the contract to a third party.  

Two step process: (1) contract and (2) assignment.

Parties involved:
o The assignor is the person who later transfers rights (i.e. payment for service) under a contract.
o The assignee is the person to whom rights are transferred (assignee will now get payment).
o The obligor is the person who owes performance under the contract (i.e. make the payment).
 

Requirements for making an assignment:
o Consideration is not required for a valid assignment.  Gratuitous assignments are valid.
o Writing: If the amount being assigned is more than $5,000, the assignment must be in writing.
o A promise to assign is invalid: Must have language of PRESENT assignment/transfer of rights.  “I assign” or “I hereby assign”
 

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THIRD-PARTY BENEFICARY LAW

 

Contract with intention to benefit someone-else

Third-party beneficiary: A person who did not make a contract, but still has rights under it, because the contract was intended to benefit him.
o Intended/incidental beneficiary: If the third party is named in the contract, the third party is an intended beneficiary.  Only an intended beneficiary has legal rights. 
o If not named in the contact, the third party is an incidental beneficiary (with no rights).

Creditor/donee beneficiary: If the third party is a creditor of the promisee, the third party is a creditor beneficiary (promisee owed the third party beforehand). 

o If no prior obligation, the third party is a donee beneficiary.
Promisor: Person who promises to do something for the third party.
Promisee: The other contracting party
 

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COVENANT NOT TO COMPETE

 

A covenant not to compete (CNC) occurs when one party (usually an employee) agrees to not pursue a similar profession or trade in competition against another party (usually the employer).

Most jurisdictions have deemed CNCs to be legally binding so long as:
o The clause contains reasonable limitations as to the geographical area; and
o A time period in which an employee of a company may not compete is written.