Contracts Checklist

 

CONTRACTS CHECKLIST 

MISTAKE  ( R2d  R2d 151) Mistake is a belief not in accord w/ the facts. 1. Only applies to belief about an existing fact, not an erroneous belief about the future. MUTUAL MISTAKE (Ex. Peerless) (   R2d152) 1. If bot both h part partie iess have have the the sam samee mistaken belief. 2. Requires a. Basic assumption  b. Material ef effect c. Risk (See R2d154) UNILATERAL MISTAKE(   R2d153) 1. If onl only y one one part party y has has the the mis mista take ken n  belief. 2. Requires: a. Basic assumption  b. Material effect c. Risk (See R2d154) d. Unconsionablility or   “knew or had reason to know of the error” DEFENSES 1. Neg Neglig ligenc encee- wil willl ord ordina inaril rily y not not  prevent relief- i.e. didn’t read contract REMEDIES 1. Avo Avoida idance nce/Re /Reces cessio sion: n: the cou courts rts treat the contract as if it has never been made and attempts to return each party to the position he was in just before the contract was was signed. (Note: Recession Recession is not available when adversely affected  party assumes the risk of the mistake.—  Less likely to allow in unilateral mistake.) 2. Gen Genera erally lly,, rest restitu itutio tion n is is orde orderrwhere each party will return the benefits he has received from the other. 3. Rel Relian iancece- cou court rt may may awa award rd reli relianc ancee damages, especially where restitution/avoidance restitution/av oidance would not work   b/c one party has suffered losses but the other has not received benefits. REFORMATION (   R2d155) 1. If parties orally agree on a deal, deal, but mistakenly prepare and execute a document which incorrectly reflects the oral agreement, either party may obtain a court order fro reformation (re-writing of the document).

PAROL EVIDENCE AND INTERPRETATION  (R2D 214) Generally 1. The PER limits the extent to which a party may est. that discussion or writings prior to the signed written contract should be taken as part of the agreement. 2. In some circumstances, circumstances, the rule bars the fact-finder from considering any evidence of certain prelim agreements 1 of 9

that are not contained in the final writing, even though this evidence might show that the prel. Agreement did if fact take place and that the parties intedned it to remain part of their deal despite its i ts absence from the writing. EXCEPTIONS ( R2d  R2d 214) 1. Col Colla late tera rall agr agree eeme ment ntss w/ w/ consideration a. An oral agreement th that is supported by separate consideration may be demonstrated, even though

2.

3. 4. 5.

it occurred prior to what seems to  be a total integration. Modi Mo difi fica cati tion onss a. PER ne never ba bars evidence that after the signing of the writing in which parties agreed to modify or rescind the writing. Evid Ev iden ence ce to to show show no no agre agreem emen entt Evid Ev iden ence ce to to inte interp rpre rett term termss Condi Con diti tion onal al fo form rmat atio ion n a. If the parties orally agree on a condition to the enforcement of the contract, or to the duty of  one of them, but this condition is then not included in the writing,

courts generally allow proof of this condition despite the PER. 6. Ill Illega egalit lity, y, frau fraud, d, dure duress, ss, mi mista stake, ke, lack of consideration. a. If the contract contains a very specific statement that no representations of a particular sort have been made, some courts  prevent a party from showing that the disclaimer is false. INTEGRATION FULL I NTEGRATION: The final & exclusive statement of the terms of the agreement. Parties’ intended to include all details of the agreement. 1.

Indica Ind icator orf Se of full integr egrati ation: on: a.torssPe Per Sfull e Mer Mint erge gerrBest Be st

evidence that document is complete.  b.. Te  b Term rm Sp Spec ecif ific ic Me Merg rger er-agreement is a final expression of one or more terms of the agreement but  NOT others. RULE: When a document is fully integrated, no evidence of prior or  contemporaneous agreements or  negotiations may be admitted which would  either contradict or add to the writing. PARTIAL I NTEGRATION: Usually a document document that is intended to be final, but that in not intended to include all details of the parties’ agreement. RULE: When a writing is a partial  integration, no evidence of prior or 

contemporaneous agreements or  negotiations (oral or written) may be admitted if this evidence would contradict a term of the writing.

U NINTEGRATED: A writing that is neither neither the final nor exclusive expression of the parties’ agreement. RULE: All written and non-written evidence of the terms of the agreement are admissible. OVERALL RULE: The PER provides that evidence of a prior  agreement may never be admitted ton contradict an integrated writing, and may  furthermore not even supplement an integration which is intended to be complete.  Notes: 1. If an ancillary ancillary writing is signed signed at the same time a formal document is signed, the ancillary document is treated as part of the writing, and will not be subject to PER. 2. The PER rule never bards consideration of subsequent oral agreements, agreements, That is, a written contract may always be modified after its execution, by an oral agreement. a. However, if the written document contains a “no oral mod” clause, that clause will usually be enforced by the court, unless the court finds that the D waived the benefits of the clause. TESTS FOR  INTEGRATION   FOUR  CORNERS TEST: Judge decides whether  there is an integration, and whether it is total or partial, by looking solely at the document. COLLATERAL AGREEMENT DOCTRINE:

1. Natural Omission Omission Test- Assumes Assumes fully integrated, unless naturally omitted. omitted. Test is whether RP in the position of the contracting  parties would have naturally left out or not included the terms of the alleged oral or  separate agreement into the final writing. ( R2d  R2d 216) (2)- agreement is not completely integrated if the writing omits a consistent additional agreed term. CERTAIN INCLUSION TEST- UCC Test is whether the additional terms are such that, if agreed upon, they (the additional terms) would certainly have been included  by RP in the position of the contracting  parties. 1. Need plausible story that makes it reasonable that this term would have been left out. Allows more extrinsic extrinsic evidence to  be let in.

 

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INTERPRETATION  Most courts today allow parties to introduce extrinsic evidence to aid in the interpretati interpretation on of a contract, even if the writing is integrated. However, courts vary vary on the details of how and when extrinsic evidence is allowed in connection w/ a question of  interpretation. 1. Most all courts courts agree that if a term if  found to than be ambiguous (meaning there could  be more one interpretat interpretation), ion), extrinsic evidence must be allowed. APPROACHES: 1. Four Corners Rule: Judges decides whether the term is ambiguous, the judge may not consult any extrinsic evidence whatsoever. The existence existence of ambiguity ambiguity is to be determined solely by looking w/in the 4 corners of the contract itself. (Followed  by very few courts). 2. Plain Meaning Regime: The court court will not hear evidence about the parties’  preliminary negotiations. However, the court will hear evidence about the circumstances surrounding the making of  the agreement. 3. Contextual: Begins with with the assumption that the purpose of interpretation is to determine what the parties subjectively intended at the time time of the contract. contract. Largely rejects the theory that ambiguity in the meaning of the contract language must exist  before evidence of the surrounding circumstances is admissible. Once the court finds that the parties lacked the same subjective intent about the meaning of a term in their agreement, there is no agreement for the court to enforce. enforce. Look at totality. MAXIMS OF INTERPRETATION 1. If the the pri prima mary ry pur purpo pose se of the the  parties in making the contract can be ascertained, that purpose is given great weight. 2. All ter terms ms wil willl be int inter erpre preted ted,, were were  possible, so that they will have a reasonable, lawful, and effective meaning. 3. An am ambi bigu guou ouss ter term m wil willl be be construed against the person who drafted the contract. 4. A term term tha thatt has has been been neg negot otia iate ted d  b/w the parties will control over one that is part of a standardized portion of  the agreement. (fine print, boilerplate). 5. Ha Hand ndwr writ itte ten n ter terms ms co cont ntro roll typewritten or printed, and typewritten controls printed. 2 of 9

UCC APPROACH 1. Tak Takes es on con contex textua tualis listt vie view. w. Eve Even n fully integrated agreements may be explained or supplemented by: a. Course of performance i. The way the  parties have conducted themselves in performing the particular  contract at hand.

receive the expected benefits from the deal. c. If a contract makes one  party’s duty to perform expressly conditional on that party’s being satisfied w/ the other’s  performance, the court will usually  presume that an objective standard of “reasonable” satisfaction was meant. i. However, intent of the parties parties controls. controls. If the

b. Course of Dealings i. How the parties have acted w/ respect to past contracts. c. Usage of trade i. Any practice or   method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed w/ respect to the transaction in question. 2. Can bring just about anything in as long as it doesn’t contradict. ( UCC 1303(e)) However, if these customs can

 parties clearly intend that one  party’s subjective satisfaction should control, the court will honor  that intent as long as there is good faith. d. If the duty of performance is expressly conditioned on the satisfaction of some independent 3rd  party, the 3rd party’s subjective  judgment usually controls, but again must be made in good faith. 3. Implied- The happening of an event is made a condition of a duty b/c a court so determines. determines. (Implied in law) (Default)

 be reasonably be harmonized w/ the writing, then the customs may be shown and may become part of the contract. 3. If more than one of these types of  customs is present, the most specific  patterns control. control. Should be treated treated in this order: (UCC 1-303(e)(1)-(3)) a. Express te term  b.. Co  b Cour urse se of Pe Perf rfor orma manc ncee c. Co Cour urse se of De Deal alin ing g d. Usage of of Tr Trade

a. Each party’s substantial  performance of his promise is generally a constructive condition to the performance of any subsequent duties by the other party.  b. Alternate PerformancesEach party’s obligation to perform his duty is constructively conditioned on the other’s having performed the  prior duty. i. It’s therefore important to decide who was the first to fail to substantially  perform since that failure of  substantial performance is the

CONDITIONS  An event which must occur before a  particular performance is due. ( R2d  224 ) TYPES: 1. Concurrent- A particular kind of  condition precedent which exists only when the parties to a contract are to exchange performance at the same time. a. Frequently found in sales of goods and land contracts. 2. Express- Parties explicitly agree that a duty is conditional upon the happening of some event. a. Strict compliance required.  b. Courts try to avoid applying strict compliance is forfeiture would result. result. May excuse condition here. i. Forfeiture occurs when one party has relied on the  bargain and insistence on strict compliance with the condition would cause him to fail to

non-occurrence an implied condition of the of other party’s subsequent duty. c. No order of performance agreed upon: i. Where the  performance of one party req. a  period of time, and the other’s does not, the performance requiring time must ordinarily occur first, and its performance is a implied condition to the other   party’s performance. (Applies to to services). ii. If each party’s  promised performance can occur  at the same time as the other’s, the court will normally require that the two occur  simultaneously, in which the two  performances are “concurrent

 

CONTRACTS CHECKLIST 

conditions.” (Usually applies to sales of goods and land). d. In a bilateral contract, the court will presume that the promises are in exchange exchange for each other. That is, the court will treat the promises as  being mutually dependent, so that each party’s duty is implicitly conditioned upon the other’s substantial performance of all duties. i. Note that sometimes the court will not apply implied conditions when circumstances indicated that the  promises are intended to be independent of each other. 4. Precedent- A necessary condition to trigger the duty of performance 5. Subsequent- A sufficient condition to extinguish a duty to make compensation for breach after it has occurred. CONDITION V. PROMISE 1. To det determ ermine ine whe whethe therr a par partic ticula ular  r  at is a condition, condition, a promise or both, the main factor is the intent of the

 parties. Words like like “upon “upon condition that” indicate an intent that the act be a condition; words like “I promise” or “I warrant” indicate a promise. 2. If the action is a condition on the other party’s duty, & the act fails to occur, the other party won’t have to  perform 3. If the act is a promise, and it doesn’t occur, the other party can sue for damages.  damages. 

i. When a party party continues his own  performance after breach, or otherwise waives a condition, he has not necessarily lost his right to recover damages for breach of the condition.

SUBSTANTIAL PERFORMANCE  1. If one party fails to substantially perform, the other party's remaining duties do not fall due. 2. If a party fails fails to substantially substantially perform,  but the defects could be fairly easily cured, the other party's duty to give a return  performance is merely suspended; the defaulter then has a chance to cure his defective performance. performance. If, on the other  hand, the defect is so substantial that it cannot be cured within a reasonable time, or  if the default fails to take advantage of a chance to cure, the other party is then completely discharged, and may also sue for   breach. MATERIAL BREACH OR NOT? 1. The more the the non-breaching party is deprived of the benefit which he reasonably expected, the more likely it is that the breach was material. 2. The greater the part part of the performance performance

c. accept any commercial unit or units and reject the rest. 2. There are loopholes loopholes in this "perfect "perfect tender" rule. Courts usually usually only allow  buyers to reject the seller's delivery if the defect is a substantial substantial one. Also, the buyer  must follow strict procedures for rejecting the delivery, and the seller generally has the right to "cure" the defect. 3. The buyer may may "reject" any nonconforming delivery from the seller. However, the buyer must: a. reject within within a "reasonable "reasonable time" after the goods goods are delivered. delivered. The buyer  must give prompt notice to the seller  that buyer is rejecting. rejecting. (UCC 2-602(1)) b. The buyer can only reject if he has has not previously previously "accepted" the the goods. He will be deemed to have "accepted" them if  either: i. after a reasonable reasonable opportunity opportunity to inspect, buyer has indicated to the seller that the goods are conforming or that he will keep them despite non-conformity; ii. buyer fails to make a timely rejection (through this cannot happen until  buyer has had a reasonable inspection

1. Hindrance: Where one party's party's duty duty is is

which has been rendered, the less likely it is that a breach will will be deemed material. material. Thus, a breach occurring at the very beginning of  the contract is more likely to be deemed material than the same "size" breach coming near the end. 3. If the breaching breaching party seems likely likely to be able and willing to cure, the breach is less likely to be material than where cure seems impossible. 4. A willful (intentional) (intentional) breach is more likely to be regarded as material than a  breach caused by negligence or other  factors. 5. A delay, even a substantial substantial one, will not

opportunity); iii. buyer does "any act inconsistent with the seller's ownership" (UCC 2-606(1)) 4. Even if the buyer has "accepted" "accepted" the goods, if he then discovers a defect he may  be able to revoke revoke his acceptance. acceptance. If he revokes, the result is the same as if he had never accepted-- he can throw the goods  back on the seller and refuse to pay. a. The buyer who wants to revoke revoke an acceptance must make a stronger showing of  non-conformity than the buyer who rejects--- the revoker must show that the non-conformity "substantially impairs" the

conditional on an event, and that same  party's wrongful conduct prevents the occurrence of the condition, and the nonoccurrence is excused, and the party must  perform despite the non-occurrence. 2. Waiver: A party who owes a conditional conditional duty may indicate that he will not insist upon the occurrence of the condition of   performing. A court will often take the  party at his word, and enforce that party's willingness to forego the benefit of the condition. a. The court is more likely to find that the condition is waived if it is a minor one, such as a procedural or technical one.

necessarily constitute a lack of substantial  performance. The presumption is is that time is not "of the essence" unless the contract so states, or other circumstances make the need for promptness apparent. i. Even if the contract contract does contain contain a "time of the essence' clause, a short delay will not be deemed "material" unless the circumstances show that the delay seriously damaged the other   party. UCC & SUBSTANTIAL PERFORMANCE 1. Perfect tender rule (UCC 2-601) As long as the contract does not involve installments, unless otherwise agreed... if the

b. If a promisor prom isorlearning continues hisa own  performance after that condition of duty has failed to occur, his conduct is likely to be found to operate as a waiver of  the condition.

goods tender oftodelivery fail inthe anybuyer  respectand to conform the contract, may: a. reject the whole;  b. accept the whole;

value of the goods, whereas the rejecter  must merely show that the goods fail to conform "in any respect." respect." On the other  other  hand, a buyer probably gets more time to revoke than to reject. 5. CURE: Both the buyer's rights rights to to reject reject and his right to revoke an acceptance are subject to the seller's right to cure the nonconformity. (UCC 2-508(1)) 6. Installment Contracts: More lenient lenient to sellers with IC than in single delivery contracts. In the case case of installment installment contract, the buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured... (UCC 2-612(2)) So a slight nonconformity in one installment doe snot allow the buyer to reject it, as he could in a singledelivery.

EXCUSE OF CONDITIONS/WAIVER  

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CONTRACTS CHECKLIST 

i. The buyer has the right to cancel cancel the entire installment contract if the defect is grave enough: cancellation of the whole is allowed if the defective installment "substantially impairs the value of the whole contract." (UCC 2-612(3))

ANTICIPATORY R EPUDIATION EPUDIATION  1. If A makes makes it clear, clear, even befor beforee A's  performance is due, that A cannot or will not  perform, A is said to have anticipatorily repudiated the contract, and B can sue. 2. Occurs whenever a party party clearly indicates indicates that he cannot or will not perform his contractual duty. i. Can be in the form of a statement by the  promisor that he intends not to perform. perform. If  the promisor states vague doubts about his willingness or ability to perform, thi si not enough. ii. Can also occure tthrough hrough an act by the the  promisor that makes his performance impossible. 3. Insolvency is not dispositive dispositive of AR-may not be able to sue right away. 4. A repudiation may may normally be re retracted tracted until some event occurs to make the repudiation final. i. In most courts, tthe he repudiator's tim timee to retract ends as soon as the other party: 1. sues for for breach; breach; 2. changes her position mate materially rially in reliance on the repudiation; 3. states that she regards the repudiation as final. final. (UCC 2611(1)). 5. Mitigation required: After a repudiation occurs, the repudiatee may not simply ignore the repudiation and continue the contract, if this would aggravate her  damages. a. The repudiatee repudiatee may "for a commercially reasonable time await  performance by the repudiating party." (UCC 2-610(a)). 6. Most courts hold hold that the rep repudiatee udiatee may insist on performance, at least for a while, rather than canceling the contract. Then, if  the repudiator fails to retract the repudiation, the repudiatee may sue w/o being held to have waived any rights. 7. Unilateral obligation: If the rrepudiatee epudiatee does not owe any performance at the time of  the repudiation, he is generally not permitted to bring an immediate suit for anticipatory repudiation; Instead, he must wa wait it until the time for the other party's performance is due. The reason that is that the or ordinary dinary rule allowing immediate suit is designed give the innocent party a chance to aovid to having to render his own performance where the innocent party a chance to avoid having to render his won performance; where the 4 of 9

innocent party does not owe any  performance, the rationale does not apply. i. This exception means that an anticipatory repudiation of an unconditional unilateral obligation to pay money at a fixed time does not give rise to a claim for breach utnil that time has arrived. 8. UCC DAMAGES for re repudiation: pudiation: a. The measure of damages for... repudiation by the seller is the difference  b/w the market price at the time when the  buyer learned of the breach and the contract

Ex. K for $30K. K says that after after A has has done half work, A shall receive $15K. A does half the work, and demands payment. B refuses wrongfully. A would have to spend $10K more to complete the house. A's damages are equal to K price $30, minus what would have been cost of completion $10K. Thus, A will will recover $20K. i. The P's cost of completion does not include any part of his overhead. ii. Where D has defectively performed, P normally can recover the cost

 price, together w/ any incidental and consequential damages. (UCC 2-713(1))

of remedying D's defective performance. If  cost of remedying defects if clearly disproportionate to the loss in market value from the defective performance, P will only recover the loss in market value.

EMEDIES  R EMEDIES

EQUITABLE REMEDIES: 1. Special performance- orders the  promisor the render the promised  performance. a. common in land-sale cont contracts. racts. b. common in sale of goods, especially iin n output and requirements contracts. c. almost ne never ver in pers personal onal services. 2. Injunctions- directs a party to refrain from doing a particular particular act. It is espe especially cially common in cases where the D is sued by his former employer and charged w/ breaching an employment contract by working for a competitor. a. common in employment ccontracts ontracts 3. Equitable relief relief will not be gra granted nted unless damages are not adequate to protect the injured party. Damages may not be adequate when: i. the injury cannot be eestimated stimated w/ sufficient certainty; ii. money can cannot not purchase a substitute for the contracted-for  -performance. 4. The court will not give equitable relief  unless the contract's terms are definite enough to enable the court to frame an adequate order. 5. Will not grant ER where there ar aree likely to be significant difficulties in enforcing and supervising the order. EXPECTATION DAMAGES 1. Attempts to put the P in the position he would have been in had the contract been performed. P is given the "benefit of the  bargain" 2. P should end up with a sum equal to the  profit he would have made had the contract

 been completed. 3. P's ED are equal to the the value of D's  promised performance (generally the contract price), minus whatever benefits P has received from not having to complete his own performance.

4. P may only recover recover for losses which which he establishes w/ "reasonable certainty". certainty". P who claims that he would have made profits had the D not breached must show not only that there would have been profits, but also the likely amt. of those profits. i. Courts reluctant to to award lost profits profits from a new business. ii. P must be able able to show what cost of  completion would be. 5. Substantial PerformancePerformance- Party Party who substantially performs performs may sue for ED. RELIANCE DAMAGES 1. Attempts to put put P in the position position he would have been in had the contract never   been made. 2. Damages usually equal equal the amount the the P has spent in performing or in preparing to  perform. 3. Used when there is a K but expectation expectation damages cannot be accurately calculated, or  where there is no K but some relief is  justifiable. a. calculated When expectation expec tation dam damages ages cannot  be b/c P's lost profits are too speculative or uncertain.  b. Where P is the vendee under under a land contract, and the D fails to convey. c. Where P successfully successfully brings brings an action based on promissory estoppel. 4. P's reliance damages are sometimes limited to a sum smaller than the actual expenditures: a. D's only obligation obligation under the the K  is to pay $, reliance damages will probably  be limited to K price.  b. Most court do not allow allow reliance damages to exceed expectation damages. c. P will not normally be permitted to recover as reliance damages expenditures made before the K was signed-- b/c not really made in reliance on K. RESTITUTION

 

CONTRACTS CHECKLIST 

1. Th Thee val value ue to th thee D of th thee P's P's  performance. 2. Goa Goall to to prev prevent ent unj unjust ust enr enrich ichmen ment. t. 3. When us used: a. non-breaching P who has  partly performance before the D  breached may bring suit on the K, & not be limited by the K price (as she would in ED and RD.)  b. A breaching P who has not substantially performed may  bring a quasi-contract suit and

$500, whichever is smaller--- the  balance must be refunded to the  breaching buyer. where the D has breached but the P is not entitled to damages on the K. 1. Al Almo most st nev never er awa award rd ED ED in qua quasi si-contract. AVOIDABLE DAMAGES 1. DUTY TO MITIGATE: P might have avoided a particular item of damage by reasonable effort, he may not recover for  that item if he fails to make such an effort.

LIQUIDATED DAMAGES 1. Placed in the the K, specifying specifying consequences of breach. 2. Will enforce enforce but only if satisfied satisfied that the  provision is not a penalty. penalty. Has to be satisfied that the clause really is an attempt to estimate actual damages, rather than  penalize the party fro breach by awarding "damages" that are far in excess of the ones actually suffered. 3. Usually need to be 2 reqs.: a. Amt. fixed must be reasonable relative relative

RECOVERY NOT POSSIBLE/ALLOWED- but P may be

("duty" only in sense that if P fails to do it, P loses the right to collect damages, not in the sense that P has breached some obligation.) 2. Only requires that P to make reasonable reasonable efforts to mitigate mitigate damages. P does not have to incur substantial expense or  inconvenience, damage his reputation, or   breach any other Ks. 3. UCC- If the seller either fails to deliver, or delivers defective goods which the buyer  rejects, the buyer must "cover" for the goods if he can reasonably do so--- may no recover  fro those damages (i.e. lost profits) which could have been prevented had he covered.

to the anticipated or actual loss for breach; i as of the time time of contracting or  or  ii. reasonable in light light of the actual actual damages which have occurred.  b. Usually harmed caused by breach must  be uncertain or incalculable, even after the fact. 4. Restatement does does not enforce enforce LD clause if not actual damage has been sustained. 5. UCC- party seeking seeking enforcement enforcement of LD clause will succeed if the sum is reasonable viewed either as of the time of the K is made or viewed in light of the actual breach and actual damages. (UCC 2-718(1))

allowed to recover in quasi-contract. Situations where there was no attempt even to form a K, but the P deserves some measure of recovery anyway; a. Ex. P supplies emergency services to D. When there was an attempt to form a K, but the K is unenforceable b/c impossibility, illegality; etc. a. May re recover re restitution or   reliance damages. where there is an enforceable K,  but the P has materially breached, and therefore may not recover on the K 

(UCC 2-715(2)(a))-- defines "consequential damages" to include only those losses "which could not reasonably be prevented  by cover or otherwise..." a. Even if buyer doe not cover when he could have done so, he will still be entitled to the difference b/w the market $ at the time of the breach and the K price, but will lose the ability to collect consequential damages.) b. Seller has much less less of a duty to to mitigate, when it is the buyer who breaches  by wrongfully rejecting the goods or  repudiating b/f b/f delivery. Seller can choose choose  b/w reselling the goods (and collecting

DAMAGES UNDER UCC 1. In the buyer has not accepted the goods, goods, UCC gives well-defined rights to injured  party: a. Buyer's rights: i. Right to cover- to buy the goods from another seller and recover the difference b/w the K price and the cover  $ from the seller. seller. (UCC 2-712(2))  Note that the buyer's purchase of the substitute goods must be "reasonable" and must be made "in good faith and w/o unreasonable delay" (UCC 2712(1)) ii. If buyer does not cover -- can

difference b/w resale and Kthe price), or  not reselling them (& price recovering difference b/w market price and unpaid K   price); seller may also be able to recover lost  profits. 4. If the aggrieved aggrieved party tries to mitigate his damages, & incurs losses or expenses in doing so, he may recover damages for these losses or expenses. expenses. As long as P acted acted reasonably in trying to mitigate, it does not matter whether his attempt was sucessful.

recover theb/w K/market differential--difference the K price and the market price "at the time when the  buyer learned of the breach" ( UCC 2-

recover the value that she has conferred upon the D. 4. Value is usually the sum which the D would have to pay to acquire the P's  performance, not the subjective value to the D. 5. Not available available when D breaches, breaches, and P has already fully performed K ( and D only owes $). 6. May be awarded awarded where P has partly  performed and would have lost $ had the contract been completed.

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a. May recover restitution interest, less the D's damages for   breach--- QUANTUM MERUIT ("as much as he deserves")  b. Common in construction cases. Ex. builder gets gets to recover recover the value to the owner of the work done, even where the work does not constitute substantial performance of  the K. c. Recovery almost always limited to the prorata contract price, less the D's damages for breach. d. If willful, then probably no recovery. e. UC give arestitution breaching w/  buyer a right toCpartial respec to any deposit made to the seller before the buyer breached. (UCC 2-718(2)), the seller can only keep 20% of the total K price or  5 of 9

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 NOMINAL DAMAGES 1. Breach exists, but no harm has been done or is provable, P may get a judgment for  nominal damage. PUNITIVE DAMAGES 1. Rarely used in Ks unless unless attached to tort action.

713(1))

iii. Usually, buyer "learns of the  breach" at the time the breach in fact occurs. However, if the breach takes the form of a repudiation in advance of  the time for performance, most courts hold that the market $ is to be measured as of the time the buyer learns of the repudiation. iv. Notes that if the market-price market-price increases times the quantity is greater  than the profit margin on the buyer's resale K, giving the buyer the contract/market differential differential will put the  buyer in a better position than she would have been in had the K been fulfilled.

 

CONTRACTS CHECKLIST 

B/c of this, a few courts limit the buyer to the profits the  buyer would have made under  the resale agreement. Most courts hold that the  buyer is entitled to the full K/market differential even where this would put here in a better   position than had the K been fulfilled, b/c limiting damages to the buyer's lost profits would incentivize the seller to breach. v. Buyer, regardless of whether covers, covers, may recover for "incidental" (i.e. exp. for  transportation, storage, small stuff) and "consequential" damages (i.e. profits which the buyer could have made by reselling the contracted-for goods had they been delivered. Remember that these these profits must must  be proved w/ appropriate certainty, and must  be shown to have been reasonably foreseeable at the time of the K. vi. Rejection- the buyer who receives receives non-conforming goods can also exercise the self-help remedy of rejecting the goods.  b. Seller's rights: rights: When When buyer who  breaches, by wrongfully refusing to accept

i. If buyer has accepted accepted goods, the seller  seller  may recover full full K price. (but Buyer may counterclaim for breach of warranty.) ii. If the buyer buyer has accepted accepted the goods and they turn out to be defective, buyer's can sue for breach of warranty (either express or  implied) or for non-warranty damages. Measure of damages for breach of  warranty is the difference at the time and place of acceptance b/w the value of the goods accepted and the value they would have had if 

the goods ( or by repudiating the K before shipment) i. Can resell the goods to a 3rd party. As long as in made in good faith and in a "commercially reasonable manner"- seller  may recover the difference b/w the resale  price and the K price, along w/ incidentals. ii. If seller does not resell the goods, he may recover the difference b/w the market  price at the time and place for delivery, and the unpaid K price, along w/ incidentals. (UCC 2-708(1)) iii. K/resale differential differential and and the K/market price differential may not make the seller whole. When this is the case, 2-

ASSIGNMENT V. DELEGATION 

708(2) lets the seller recover his lost profits instead of using either of these differentials. Lost volume-- seller may recover  the profit he has lost by reason of  the breach. breach. Usually applies applies when seller who had a big enough supply that he could have made both the contracted for sale and the resale; or where would have made the resale anyway as the original sale had there been no breach; or would have made a profit on both sales. iv. A few situations situations UCC allows seller to sue for entire K price: If buyer has accepted goods

e. At common law, law, an assignment assignment of K  rights does not have to be in writing. However, my states have statutes req. certain types of assignments to be in writing. i. UCC- where a party party assigns to a 3rd person his right to received payment, in a financing-type transaction covered by Article 9 of the UCC, the assignment is not enforceable agst. either the assignor or the obligor unless the assignor has signed a document called a "security interest" ( UCC  9-203) f. "gratuitous assignment"assignment"- like like a gift, one in which is the assignor receives nothing of value in return. Generally enforceable, enforceable,

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Risk of loss - goods lost in transit Unresaleable goods c. If the buyer has has accepted the goods (and has not rightfully revoked this acceptance), then the remedies given to buyer and seller  are different: 

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they had been as warranted, un less special circumstances show  proximate damages of a diff. amt. (UCC 2-714(2)) 

 Non-warranty damages: damages resulting from seller's delay in shipping the goods, or his breach of  an express promise to repair  defective goods, may be recovered on top of or instead of breach-of  warranty damages.

 

assignee or the obligor that the assignment has been revoked. ii. Irrevocable when when K right being being assigned is evidenced by a document that commonly symbolizes the rights, and that document is delivered delivered to the assignee. assignee. Also if assignor puts assignment in writing, if the assignee relies to his detriment, and if the obligor gives the assignee the payment or   performance. g. WHAT RIGHTS ARE ASSIGNABLE? i. All K rights are are assignable unless unless they fall w/i small # of exceptions: If the obligor's duty would be materially changed by the assignment. Common in personal o services K. If assignment will materially vary the risk assumed by the obligor. Common in insurance o  policies. If it would materially impair the obligor's chances of obtaining return performance. h. If a K contains a clause prohibiting prohibiting assignment, the courts will enforce the clause, with certain exceptions: i. Restatement Assigned is allowed if the assignor had already fully  performed. The right to sue for damages for breach may always be assigned. If the K says the K may not be assigned (rather than "rights under K may not be assigned"), then the K will be interpreted to bar only delegation and not assignment. Damages-- an assignment made in violation of a clause generally does not render the assignment ineffective. All it does is to give the obligor a right to damages agst. the assignor for breach. If the parties clearly manifest a different intent, that intent will  be honored. ii. UCC: When a party assigns assigns his his right to payment, an anti-assignment clause is automatically invalid. That's because the UCC has 2 special provision 2-210 and 9406 that have this effect, whether the underlying K give rise to payment was for  the sale of goods or not. i. THE ASSIGNEE STANDS IN THE SHOES OF HIS ASSIGNOR. SUBJECT TO ALL DEFENSES, SET-OFFS AND COUNTERCLAIMS WHICH THE 

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1. Assignment: When a party to to an existing contract transfers to a 3rd party her rights under the contract. a. Thus, a promise to transfer one's right right in the future is not an assignment, even though it may be a contract. b. No consideration consideration req. req. c. Three-party transaction- "assignor" assigns the "assignee" the performance due the assignor from the "obligor." d. UCC rules- if a party party assigns his rights to receive payment under a K as security financing. Article 9 applies applies to terms of  assignment.

like ones given for value. i. However, unlike ones given for  value, are automatically revoked if the assignor: 1) dies; 2) makes makes a subsequent assignment of the same right to a different  person; or 3) gives notice to either the

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CONTRACTS CHECKLIST 

OBLIGOR COULD HAVE ASSERTED AGST. THE ASSIGNOR. 2. Delegation: When an existing party appoints a 3rd person to perform her duties under the contract, she has made a delegation. a. When the performance of a duty is delegated, the delegator remains liable. i. But the obligee obligee may expressly agree to accept the delegatee's performance in place of that of that delegator. delegator. If he does so, he has given what is called a novation.  b. A duty or performance performance is delegable, unless the obligee has a substantial interest in having the delegator perform. i. May not be be able to delegate where K's call for promisor's use of own  particular skills. skills. (i.e. artistic performance,  professional services.) ii. Constructions K, and K for  repair of buildings and machinery are normally delegable. iii. Parties have have freedom to determine whether duties may be delegated. c. Delegatee's liability: Usually in one of  2 forms: 1) the delegator may simply give give the delegatee the option to perform, w/ the delegatee making no promise that she will  perform (not liable to delegator or obligee); 2) the delegatee may promise that she will  perform. (may not be liable to the obligee). i. If the delegatee delegatee is held to have undertaken liabiliy to the obligee as well as to the delegator, he is said to have assumed the delegator's liabiliyt. ii. If a party purports purports to assign the the K to the 3rd person, this language will normally  be interpreted to constitute a promise by the assignee to perform, and the obligee will normally be interpreted to be an intended  beneficiary of this promise. An assignment of the K made by a 

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vendee under a lnadthis K will not  be found to follwo rule.usually (assignee under a land sale K usually does not incur laibility to the original seller). UCC 2-210(4) follows the common-law rule: An assignment of the K or of all of my rights under the K is an assignment of the rights and unless the languages or circumstances indicate the contrary--- it is a delegation of   performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to  perform hose duties. This promise is enforceable by either the assignor or the

other party toFrequently, the originalan K.existing 3. Combination:  party will both assign assign and delegate. delegate. That is, she will both transfer her rights to a 3rd  person, and appoint the latter to perform her  duties. 7 of 9

3RD PARTY BENEFICIARIES  1. A 3rd party beneficiary beneficiary is a person person whom the promisee in a K intends to benefit. 2. When may the the 3rd party B sue the  promisor on the K? Intended beneficiaries beneficiaries may sue, but incidental beneficiaries beneficiaries may not sue 3. Intended beneficaires: 1. Credit beneficiary: A person is an intended beneficiary if the performance of the promise will satisfy an obligation of  the promisee to pay money to the  beneficiary. 2. Donee beneficiary: If the circumstances indicate that the promise intends to give the beneficiary the benefit of  the promise performance. 3. Intent: Most courts hold that that a  person will be an intended beneficiary if the  promisee intended to benefit the beneficiary. But a minority hold that the person is an intended beneficiary only if both promisee and the promisor intend to benefit her. 4. Incidental beneficiaries: Everything else falls into this category. 5. The modern view is that the original original  parties' power to modify the K terminates if  the beneficiary, before he receives notification of the discharge or modification, does any of the 3 things: 1) materially changes his potion in  justifiable reliance on the promise; 2) brings suit on it; 3) manifests assent to it at the request of either the original parties.  Note that the original parties may themselves agree at the time of contracting that no subsequent mod may occur w/o the  beneficiary's consent. 6. The promisor-D may assert agst. the  beneficiary any defenses which he could have asserted had he been sued by the

was originally expected (impracticable). If a party is discharged from performing for  such a reason, he is not liable for breach of  the K. 1. These doctrines doctrines apply only where the  parties themselves did not allocated the risk  of the events which have rendered  performance impossible, impracticable or  frustrated. IMPOSSIBILITY

1. If a court concludes concludes that performance performance of  ht ek has been rendered, the court will discharge both parties. 2. 3 classes: a. destruction of the subject matter; b. failure of the agreed-upon means of  performance; c. death or incapacity of a party. 3. Destruction of the subject matter: matter: If   performance involves particular goods, a  particular building, or some other tangible item, which through the fault of neither   party is detroyed or otherwise made unavailable, the K is discharged. discharged. The discharge will occur only where the  particular subject matter is ESSENTIAL to the performance of the K. i. If a building contractor contracts contracts to construct a building from scratch on a  particular land, & the building is destroyed  by fire when it is partially completed, most courts hold that the contractor may NOT use the defense of impossibility. ii. If party contacts contacts to repair an existing  building, she usually will be discharged if  the building is destroyed. iii. Sale of goods: May or may not be discharged when destruction of the subject matter of the K. General Rule: Rule: UCC 2-615(a), 2-615(a), 

 promisee. 7. When beneficiary beneficiary sues the promisor, the  beneficiary does not waive his right to later  sue the promisee. 8. Most courts allow allow the promisee to to bring her own suit agst. the promisor for benefit of  the 3rd party beneficiary, if the promisor   breaches.

IMPOSSIBILITY, IMPRACTICABILITY & FRUSTRATION  The parties may be discharged from  performing the K if: a. Pe Perf rfor orma manc ncee is is imp impos ossi sibl blee  b.. b/  b b/cc of of new new ev even ents ts,, teh teh fundamental purpose of th  parties has been frustrated; c. per erffor orm man ance ce is is not not impossible but is much more burdensome than

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which provides that unless otherwise agreed, "delay in delivery or non-delivery... is no a  breach of seller's duty under a K for  sale is performance as agreed has  been made impracticable by the occurrence of a contingency the non-occurrence of which was a  basic assumption on which the K  was made... If a K calls for delivery of a  particular identified unique good, and that good is destroyed before the "risk of loss" has passed to the  buyer, the K will be discharged. Usually, sale Kthe calls for goods to  be taken from seller's general inventory, not for particular  identified goods. When such unidentified goods are to be shipped by seller, and are destroyed

 

CONTRACTS CHECKLIST 

in transit, the result depend on whether the K is a "shipment" K or  a destination K. In shipping K, where the o seller's only obligation is to deliver the goods to the carrier, the risk of loss  passes to the buyer as soon as the seller delivers the goods to the carrier. carrier. If  carrier losses the goods, the buyer bears the loss

2. The person seeking seeking discharge is not claiming that he cannot perform, rather is claiming that it makes no sense for her to  perform, b/c what she will get in return does not have the value she expected at the time she entered into the K. 3. Factors court court will examine: a. Foreseeability: The less less foreseeable foreseeable the event which thwarts the promisor's purpose, the more likely the court is to allow the frustration defense. b. Totality: The more more totally totally frustrated

qualities. See (UCC 2-313(1)(a)): "Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise." a. A description of the the goods can be an express warranty. b. If the buyer is shown a sample or  model, this will normally amt. to an express warranty that the rest of the goods conform to the sample or model.

and must pay the purchase eprice, and sue the carrier. o In destination K, the risk  of loss does not pass to the  buyer until the carrier  actually delivers; here the seller cannot use the impossibility defense if  the goods are destroyed while in transit. 4. If an essential essential but intangible aspect of the K becomes impossible, the K may be discharged, just as where the "subject matter" is destroyed. 5. If non-essential non-essential aspects of the K--- such

the party is, the more likely he is to be allowed to use the defense. RESTITUTION AND RELIANCE WHERE THE PARTIES ARE DISCHARGED Where the K is discharged b/c of  impossibility, impracticability impracticability or frustration, the courts generally try to adjust the equities of the situation by allowing either party to recover the value he has rendered to the other, and sometime even the expenditures made in preparation. 1. Courts generally allow allow one who has been been discharged by impossibility or frustration to recover in quasi-K for restitution, i.e. for the

c. If the seller is "puffing" or expressing expressing an op. he will not usually usually be held to have have made a warranty. IMPLIED WARRANTIES 1. UCC 2-314(1)  provides: Unless excluded or modified: modified: a warranty that that goods shall be merchantable is implied in a K for their sale if the seller is a merchant w/ respect to goods of that kind. 2. There is no no precise definition definition of  merchantable.. The most important merchantable important meaning meaning is that the goods must be "fir for the ordinary purpose for which such goods are used." 2-314(2)(c).  3. The implied warranty warranty of merchantability merchantability

as ones dealing w/ means of delivery or the means of the payment--- become impossible, usually the K will not be discharged. Instead, a commercial commercially ly reasonable substitute must be used. 6. If a K specifically specifically provides that that the  performance shall be made by a particular   perosn, that person's death or incapacity will discharge both parties.

value of the benefit conferred on the other   party. a. Usually, benefit is measured measured just  before the even causing the discharge. 2. Where the performance performance has has been partly made, recovery will normally be limited to the pro-rata K price, if such a pro-rating can  be sensibly done. But if the the reasonable value to the other party is less than the prorata K price, the lesser value will be awarded. 3. If one party has made a down payment payment to the other prior to discharge, he will generally be allowed to recover this down  payment.

is always given by a merchant seller, unless it is expressly excluded by a disclaimer that meets stringent formal req. imposed by the Code. WARRANTY OF FITNESS FOR  PARTICULAR PURPOSE 1. A seller may be found to have impliedly impliedly warranted that the goods are fit for a  particular purpose. UCC 2-315 provides that "where the seller at the time of the contracting has reason to know any  particular purpose for which the goods are required and that the buyer is relying on the seller's judgment to select or furnish suitable goods, there is... an implied warranty that

occurrence of which was a basic assumption on which the K was made... a. Ex. cutoff of supplies because because of war, crop failur edue to drought, stirek, etc. will often be found to be covered by 2-615, thus relieving the seller. 2. Most impracticability impracticability cases relate relate to extreme cost increases suffered by sellers who have signed fixed-price Ks. Here, sellers generally lose. Reason: the sellers are generally found to have implicitly assumed the risk of cost increases, when they signed a fixed-price fixed-price K. This is ture  both in service K and in sales Ks governed  by UCC.

4. Occasionally, if restitution notReliance: "avoid injustice" the court will protectwill the parties' reliance reliance interests instead. instead. This might allow a party to recover his expenditures made in preparation for   performance.

FRUSTRATION OF PURPOSE 1. Where a party's purpose purpose in entering entering into the K is destroyed by supervening events, most court will discharge him from  performing.

action for breach of warranty, which can be viewed as a special type of breach-of-K  action. EXPRESS WARRANTIES 1. Is an explicit promise promise or guarantee guarantee by the seller that the goods will have certain

the goods shallfor be breach fiteach for such purpose. 2. To recover br of this implied implied warranty, buyer must prove that: a. the seller has reason to know the  buyer's purpose; b. that the seller seller had reason to know know that the buyer was relying on the seller's ksill or   judgment to furnish suitable goods; c. that the buyer did did in fact rely rely on the seller's skill or judgment.  Note that if the buyer insists on a particular   brand of goods, he is not relying on the seller's skill or judgment, so no implied warranty of fitness for a particular purpose arises. DISCLAIMERS The UCC limits the extent to which a seller  may disclaim warranties. 1. Express warranties: The seller is  basically free to disclaim express warranties, as long as he does so in a clear and

IMPRACTICABILITY 1. UCC 2-615(a) 2-615(a) provides that the seller's non-delivery is excuse "if performance as agreed has been made impracticab impracticable le by the occurrence of a contingency the non-

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WARRANTIES  TYPES: 1. An ex expr pres esss war warra rant nty y 2. Im Impl plie ied d war warra rant nty y of  of  merchantability 3. war warran ranty ty of of fitn fitness ess for a parti particul cular  ar   purpose If the seller breaches any of these warranties, the buyer may bring a damage

 

CONTRACTS CHECKLIST 

reasonable way. However, this rarely happen--- since nothing forces the seller to make an express warranty in the first place, he will usually have no reason to disclaim it in the first place. 2. Disclaimers for merchantiability merchantiability and fitness for a particular purpose. a. A disclaimer for warranty warranty of  merchantability must mention the word "merchantability." UCC 2-316(2). This disclaimer does not have to be in writing,  but if it is in writing, it must be "conspicuous"--- disclaimer can't be buried in fine print of the K.  b. A disclaimer of the warranty of fitness for a particular purpose must be in writing, and must also be conspicuous-- but does not need to use any particular words.) 2. There are several several ways in in which the implied warranties may be implicitly limited or disclaimed: a. The language of the the sale may implicitly implicitly disclaim the warranty. warranty. If the sale is made "as is" this will implicitly exclude all implied warranties. b. If the buyer is asked to examine examine a sample or model, or the goods themselves, there is no implied warranty w/ regard to defects which an examination ought to have revealed. UCC 2-316(3)(b). c. An implied warranty can be excluded or modified by course of dealing, course of   performance, and usage of trade.

ACCORD AND SATISFACTION  1. An executory accord is an an agreement by the parties to a K under which one promise to render a substitute performance in the future, and the other promises to accept that substitute in discharge of the existing duty. 2. Executory are enforceable. However, an accord does not discharge the previous contractual duty as soon as the accord is made; instead, not discharge occurs until the terms of the accord accord are performed. performed. Once the terms of the accord are performed, there is said to have been an "accord and satisfaction." a. If a party fails fails to perform perform under the terms of the executory accord, the other   party may sue for breach of the original agreement, or breach of the accord, at her  option. (If the amt. and obligation are undisputed, the presumption will be that there is an executory accord and not a substitute  performance.)

NOVATION  1. A novation occurs where the obligee under an original K (the person to whom the duty is owed) agrees to relieve the obligor or  all liability after the duty is delegated to some 3rd party. A novation thus substitutes substitutes 9 of 9

for the original obligor a stranger to the original contract, the delegatee. consent to the novation. novation. 2. The obligee must consent But the obligor, who is being discharged, need not consent.