|
Contracts Outline
Definition Goals of contract law To place a breached party in the position that he would have been had a contract been fulfilled To allow the economy to function, by encouraging and allowing people to make deals and contracts and further deals based on those deals. Early contract theory, or "subjective theory" based on the notion that a contract was a meeting of the minds (that would be enforced by law), and if there was not a complete meeting of the minds (such as a unilateral mistake) there would be said to be no contract? Modern contract law relies on what is stated, and what is implied based on what a "reasonable person" would belive if they had been a fly on the wall
General Definitions of a contract A contract is a promise or set of promises for the breach of which the law gives a remedy and the performance the law recognizes is a duty Modern contract law relies on what is stated, and what is implied based on what a "reasonable person" would believe if they had been a fly on the wall
It is an enforceable agreement Types of contracts Bilateral contracts (modern and common-law) Promise for a promise Service for money for example
Fully formed, but no duty Rights Right is to get money Duty is to wash car (v.v. for other person)
Unilateral contract Promise for an act One party must fully perform before contract is preformed "I promise to give you $1000 if you will shimmy up to the top of the flagpole." For a unilateral, it is a promise for an act, and one must fully perform before the contract is formed: Examples on tests -- Offers to the public (rewards) {extremely chancy} (e.g I promise to give you $10k if you do something) A unilateral contract requires an act E.g. I promise to give you $10k if you walk across the room and climb the wall The only way one can form the contract is to actually do it
States of Validity of a contracts Valid contract is a valid enforceable agreement Void contracts – NULL FROM THE BEGINNING Contract to do illegal things
Where one or both parties can elect to void the contract (voidable) Impediment to a formation Infancy, insanity
Can be affirmed or voided
Unenforceable Valid contract, unless it is plead that they are unenforceable Examples Violates statutes of frauds, or statute of limitations is over
Performance states of a contract Fully Performed (executed) Not yet performed (executory)
Ways a formed contract can be expressed Expressed From language – language of the contract Written or oral "I orally agree to X" do not have to have a writing some things under the statute of frauds do have to have a writing contracts without writings under statute of frauds are unenforceable unless in writing
Writing performs an evidentiary function This is why we call them a memorandum They render the problem of proof easier
implied comes from conduct performance and conduct implies contract
Constructed contracts (quasi) Not really a contract, but it is a remedy for a contract This is quasi-contractual relief. Constructive anythings are from the law For example discharge If something is discharged the law provides a mechanism for remedying the discharge (i.e. a singer having to give back money if he can’t sing)
Relevant contract law Common Law Contacts For real estate or services Structures to be removed are not real estate Sand and gravel, electricity, crops are codal
If we entered into a contract that involve real estate, or services
Uniform Commercial Code Goods Including movables
Don’t have choice Differences I.e. under code don’t need consideration to modify contract, but under common law one does
Common law does have some differences
Formation of contract Have to ask, "is there a contract"? Do we have contract? -- LACC Legality of object Must be legal Illegal objects include contracts for theft – including TRADE SECRETS! Something that a seller does that the buyer is using for an illegal purpose is VOIDABLE!
Agreement or ascent Offer Willingness to contract Commitment Can’t be preliminary Not just a solicitation A newspaper ad is a solicitation or a preliminary
Can’t "accept" offer Ad can be an offer if one limits the number of acceptances These offers must be revoked by the same or similar means Determination Look to language Must have DESCRIPTION of the good If one says "offer" without description it isn’t an offer Look to surrounding circumstances: Must be a serious offer (not jest or anger)
Minimal essential terms Real estate must have a PRICE AND A DESCRIPTION Doesn’t need a legal description – i.e. "my house’ is okay Specific price not "fair market price" Services Time Duration Task Probably a price to (in common law) Goods UCC says can leave out price and leave out price Can leave out anything except for Quantity! Quantity can be articulated as a number or as a "requirements for output" "Illusory" (not a quantity) is something like "I will buy all I wish or request, or similar."
Communicated (must be communication from offeror to offeree) Three levels of communication required Actual knowledge: offeree must know about offer – not just happened to have coincidentally performed. Not effective until it is known by the offeree Communicated (i.e. by mail – even if not received
Alive Offeror can "suicide" or revoke an offer Revocation of an offor can be direct, or indirect Direct revocation – "I offer you this watch. I revoke the offer" – if it is communicated (i.e. sent through mail), it is still a valid revocation Indirect revocation "I offer you this watch, I offer someone else this watch. When second person accepts, and first person knows (heard, or hears from reliable source) the offer is revoked Offoror can revoke, or offoree can reject Can be terminated by law Things that can’t be revoked Options (paid for contracts) Restatement 45 – unilateral, Can’t revoke an offer after the person starts to perform. Detrimental reliance – knowing that courterparty would rely to their detriment based on what people told them UCC (2-205) Firm merchants (in the subject matter) offer where they put the offer in writing and has a time in it of irrevocability. Needs signature – merchant, offer (writing), words of firmness, and a signature – MAKE IT BINDING LIKE AN OPTION FOR UP TO 3 MONTHS Terminated by the offeree Rejection upon communication or receipt (different levels) actual knowledge revocation and rejections are effective when received (not necessary read) Counteroffer: "No, but I will give you 8" – this terminates original offer, and makes a new offer for 8." If the 1st part refuses, there is nothing on the table. Note – it terminates the old offer "mere inquiry" – would you consider taking "8" – if the 1st par answers 10, and the second says "I offer 10" – acceptance law killing offer (terminates) death or insanity of either party kill the offer destruction of the subject matter kill the offer it has become illegal
acceptance (manifestation of assent) under UCC: can have acceptance either by doing or by promising, or by shipping can do it can ship it if the shipment is going to take a long time, must give notice
can promise to do it note special rule for acceptance can ship non-conforming goods – makes for a simultaneous good
only way to except a unilateral is to do it express acceptances can except via the original means or "any other reasonable way" must be as legal or as legally dependable optionally, it can be faster cannot accept orally, if the offer is by telegram
implied acceptances by conduct and offer is the master of his offer – can have a goofy acceptance cannot have silence as method of acceptance Under common law there was rule of acceptance of unsolicited goods – if you used it, it was an acceptance by conduct. It is out by virtue of federal law! FTC can do this Exceptions to acceptance by silence rule Note: if the parties if the parties agree to acceptance by silence, it is an acceptance Acceptance by silence is acceptable if by conduct, prior relationships have meant that there was a business relationship where a pattern of conduct was viewed as a means of conducting business If one knows someone who does something expects to get paid, there is an "affirmative duty to act"
Acceptance must be to and by proper party Can be offered to a "class" (anyone on this side of the road)
Assignment of offers Offers are not assignable Assignee of options can except Contract rights are acceptable – and options in themselves are contracts.
Mirror image/deviant acceptance (under the common law) Must be same as offer
Under UCC (2:207.1) Must have intention to be bound There is a contract if one says "we will have a contract if the reasonable and prudent person had indicated to him that there is an intention to be bound" It is an additional term or a changed term, yet a contract is formed! "except, but only on the condition that" – is not an acceptance because it is not an intention to be bound
If it a non material alteration and they are both merchants it is an acceptance, unless in the offer it excludes expectances, or it is rejected If there is an intention to be bound, there is a contract
If it is a material alteration and there is a change in warranties we use the offered terms If the parties are not both merchants they use the offered terms Merchants use modified terms in general Non-merchants use offered terms
Mailbox rule of acceptance: " – only mailbox rule also for telegrams, and bikes must prepay the postage correct address has to be right address operative upon dispatch (level 3) doesn’t have to get there
a merchant can opt out of rule of acceptance exceptions to mailbox rule exercise of options must be received
common-sense exceptions if one received the rejection first, than acceptance isn’t valid crossing of offers
auctions – exception auction is offer can pull back bids until gavel UCC additions (to goods auctions)
Not just bidding – other types of auctions Silent auctions Wink and twitch method
Close cases Common law – jury Code – auctioneer decision
Consideration Promise must induce a current exchange of promises (the bargain for element0 Consideration doesn't have to be the only thing bargained for -- but should play some role Consideration permantly obligates the promisor (as opposed to a uniltateral contract) Not a reward or a gift
Promisor must offer some determinant (or promise not to do something that he has a legal right to do) If there is a gift that requires a determinant it is bargained for Must be a bargain for there to be consideration
One needs consideration to modify the contract If one is under a pre-existing duty to do something, one needs contract
Exceptions to pre-existing legal duty an determinant If there is modification of deal on BOTH SIDES Honest dispute as to what the duty was Could be entitled to additional compensation
UCC: 2.209 (1) – consideration in UCC is unnecessary! Don’t need consideration to modify contract under code Can be modification of contract after sale, and it is binding
Other exceptions in restatements to pre-existing legal duties Preexisting legal duty to third party Additional compensation for doing something one can collect
Unforeseen circumstances (Only in two fact patterns) I.e. quicksand, needing more money (in the restatements) – in majority one couldn’t get the money E.g. bedrock. needing more money (in the restatements) i.e. one couldn’t get any money
Must be mutually binding and not illusory, (mutual) It is illusory if it is an "I will feel like it" type unrestricted discretion thing If there is some restriction, it is mutual
Requirement or output, is not illusory Satisfaction case is not illusory Exclusive agency goes with and best efforts (binding) It is illusory to say ‘either side can have out if one side says they want out It is not illusory if either side can have out by giving 10 days notice
Notification requirement that becomes the consideration Code does away with consideration in a number of respects Some jurisdictions include "seal" as doctrine
Promissory estopple – detrimental reliance If it would cause a reliance not to enforce something Can be estopped from denying promise on the basis of new consideration Estopped from amending consideration Even though you are not getting anything, you are getting what you would call consideration Detrimental reliance – others relied on you to their detriment
Can be either substitute for consideration Detrimental reliance Seals Codal under UCC
Capable Parties Incapacitated party has voidable contract When an infant becomes a teen he can ratify or affirm Incapacitated party is bound for necessities of life
Intoxication
What are its terms? Sometimes express, sometimes implied
Has there been performance ? have the parties done what they supposed to do have their been discharged has their been a breach what are the remedies for the breach The nonbreaching party often has a choice of remedies as a result of the breach. Specific Performances (equity) Rescission and restitution Quasi-Contract Tort action Election of Remedies (as opposed to expectancy damages)
Defenses to formation Possible that the series of promises in a contract can be lied about (in common law England) Explains what has to be in writing Statute of frauds Some promises within the statute of frauds require a writing Six promises that require a writing (MYLEGS) Marriage Mutual promises to marry can be oral (if you will marry me, I will marry you) If you will marry me I will do something for you THESE REQUIRE A WRITING Court cannot order one to marry him
Year (cannot be performed within a year A promise which cannot be performed within a year Lifetime can be oral b/c the wording of the statue of frauds cannot be performed within a year Promise that only last two minutes and requires a writing if the person uses the date of the contract until when the contract begins executing We use the date of the contact, not the date on which performance begins
Land Leases are unenforceable for statute of frauds purposes
Executors promise to pay estates debt Promises to pay estates desk to pay own desk from one’s own purse (the executor’s promise) If she makes a promise to pay the estate’s debt from the estates funds, that can be oral
Goods of $500 or more $500 – as modified! So, a written thing can be enforceable if it is modified down to $500 telegram trick if something was oral and unenforceable – but a cancellation mentioned the deal, the contract is now in writing! I.e. – must have had the full details to show that there was a deal
Suretyship Debt of another must be in writing.
Exceptiosn to the statute of frauds SWAP (what you can swap for the writing) Specially manufactured goods are enforceable if they are oral Written Merchants Confirmation – if they are both merchants, and one sends the confirm - -it is a sufficent memo to satisfy the stateute of fraud… can reneg or contest in ten days! Admissions – admissions make a deal enforcable Only can (in KY) take the "privildge of self-incrimination" There is no privildge of statute of frauds
Performance To the extent that one has performed, it is removed from the statute of frauds There was a deal if one paid for them!
Mistake Uniltaal mistake is not a defence We don’t allow "snap-ups" Knew, or should have know that something was a mistake, it is not an offer
We just don’t don’t allow the non-mitaken party to snap it up Bilateral mistake or ambiguity than it is not a contract! Both sides have a mistaken impression of what the good it – it isn’t a contract! Ambiguity -- Peerless case where both are thinking different things
Fraud Fraud is factum Switched documents
Voidable – knew what one was doing, but you did it because of the fraud Misrepresentation of the material fact!
Durress Void durress: gun to one’s head Voidable: sign the contract or I will make things unpleasant… blackmail
Unconscionable Question of law for the court (doesn’t go to the jury) Court that finds a contract unconscionable can bluepencile, or throw it away It is unconscionable at the time that the contract begins, not how it turns out! Examples Inconspicuous risk shifter Subtley shifts all risk division onto one party without everyone else understanding
Contract of adhesion Take it or leave it 90 clausses – where there was no bargaining position
Unreasonable covance not to compete Every single profession except for law permits convance not to compete
Is it possible for someone who is not a contracting party to have contractual duties Third party beneficiaries A contact where a 3rd party benefits – the payment goes to someone else Types of 3rd-party beneficiaries Creditors 3rd-party creditors
3rd-party donee beneficiary insurance
incidental, unnamed (no rights) ie: unnamed people who benefit from commerce
six rules involving 3rd-party beneficiary law intended promisees can hold the promissor only the party that is making the promice to benefit the third party is making the promice – only that party is the promisor 3rd party beneficiaries and donees can make the promices
promisor can use any defence he has can claim breach
if you were a creditor beneficiary, you can also sue the promisee on the debt! Donees can’t sue
Unnamed, incidental beneficiaries have no contract rights Modication possible (without 3rd party beneficiary’s consent) until rights VEST now it is impossible to change something without their permission vests when the third party knows and act thereon
promisee can also enforce it against the promisor
assignment of rights and delegation of duties is it possible for two contracting parties – A &B to have a contract, and then, subsequently, assign their rights to Ms. C or delegate duties to C can assign rights with three exceptions prohibited in contract by law national security
substantial change (unique personal service) contract to paint portrait production quantity assigned to radically different type of consumer
when a right is assigned the obligor is bound the assignee owns the right the assignor does not
successive assignments where there is successive assignments of the same contract right the first irrevocable assignee prevails the first guy who gave consideration substitutes for consideration are assignments in writing that are delivered – a completed gift assignee relies on it, and changes his position assignee gets indicia of ownership (like a check)
exceptions where a subsequent assignee (who didn’t know) will prevail -- 4 horsemen of assignments already paid – got money and spent judgment indicia of ownership novation (substituted party)
assignment of duties prohibited by and large, delegation of duty is exactly the same prohinited by law unique personal service
delegable and doesn’t need to be in writing obligee must except and the delegator remains liable technically the obligor become a surety delegator remains liable the one who does the delegating, I refer to as the delegator delegate the duty to Joan delegator, remains liable
this is different than a novation a novation is way of discharging a novation for a substituted contract accepted on both sides
Performance – Conditions – terms UCC’s methodology for determining the contract terms Expressed Implied If they had an installment contract, what were the previous contracts (installments) Have the parties entered into prior agreements? What if there were no prior dealings? Is there a trade usage Codeal presumption If the contract did not say said $1k, and "we don’t care about prior dealings, etc." then we don’t’ look at prior performance Trade usage
Constructed contracts (quasi)
Rules of contract construction Risk of loss rules (guidance for the court) writing Handwriting is the best manifestation of intent Typewriting is 2nd best
Print is 3rd Words over figures
Construe contracts against the maker (?) Code risk of loss rule is dealing with non-carrier cases If the seller is a merchant it passes on possession If the seller is not a merchant it passes on tender Ie: if it is a new building that is destroyed, it is on the builder, if it is an old bulding, it is on the owner
Parole evidence rule If there is an integrated memorandum – nothing in the way or writing or oral comes into an integrated contract Sometimes when parties have a writing, whether they are required to or not, we do not care, in either case, if they want a memorial of their agreement, want the writing to be the only evidence of their agreement When parties intend their writing to embody their entire agreement When the parities intend that the contract be the only evidence of their agreement, then the court may not admit evidence outside the writing about the terms of the agreement
Can amend an integrated memorandum Won’t prevent frauds or defects Can also show course of performance, use of dealings, etc. etc. We do put in formation defects, fraud can be shown, etc. etc.
Conditions "an event, other than passage of time, that creates or limits an obligation" can come in by conduct, law, or implied they are promice modifier example for the $10 one will wash a car IF the temp is about 60 contract with insurance company for instance – with promise to keep list of properties there are promices for promices one will collect the full 100k if there are minor immaterial diffreences if there is an "IF" clause, there will be no payment
where you have conditions, unless they occurr, or they are excused, there is no obligation to perform differentiate by types (all conditions are entirely draftable) by drafting can be excuse language by drafting from the law "this contract is subject to the law of Illonois"
conduct (implied) by the law by timing (from conduct) where one parties performace preceeds the other, the first is a contract proceedant to the 2nd this is simple a condition that must occur a duty arrises Plaintiff has burden of proof of this condition happening I will do X before you do Y
Conditions subsequent Cut off existing duty I will pay you X so long as you are in law school The burden of proof is on the defendant to show his duty was cut off
conditions concurrent I will wash your car tomorrow if the temperature is above 80 Preceedant starts it, subsequent cuts it off If you have a condition, unless that condition occurs or is excuded, you don’t have to perform
where one parties performace takes longer, the longer is implied to the shorter
was the duty discharged (excused) for excuse of conditions total satisfaction for expressed terms substantail satisfiaction for implied conditions
type of excuse prevention I will pay you X if I am satisfied and won’t look at it – PREVENTING THE CONDITION FROM OCCURING If one agrees to buy a house IF oen does something
anticipatory breach/repudiation (note: performance is still possible) one is to wait – the other is to sue immeadiately There is also a tort called conversion which the damages are are the fair market value of the property on the day of the conversion There is a conflict in the law about deciding exactly when a breach has occurred – under classical contract law one could decide the point at which they see a breach (from notification of it, up unto the expected date of delivery.) This would mean that Acme (the breached party wouild not be allowed to go and cover -- under common law, the date of breach is the date of delivery. Under the UCC, one has the choice of waiting from the date of repudiation to cover or collect. Note: a repudiation can be withdrawn after a notification until a cover. Also, if the other party cancels the contrct after a repudiation , it cannot be withdrawn If you don't cover -- the buyer may not recover any costs saved because he covered! (2-712) covering does not preclude other remedies All courts seem to measure the cover price from the date of repudiation -- even it it is calculted from the date of delivery Classical contract law Classical contract law was what develped in the 2nd half of the 20th century in G and K Classical contract law is ammoral and it doesn’t care about moral quality of the breach idea behind classical contract law is that things should be simple and clear under classical contract law, it would be measured from the date of cover it doesn’t do anyone any good to encourage people to be that way, if you rescue them from their own passivness – was trying not to shift risk when the parties have not done it themselves Neo-classical contract law stance Instead of calling it a breach, they called it an anticipatory repudiation once a party gives notice, breached party is free to go out and "cover" Acme is free to go out and buy wheat from the moment two sale rule of UCC: the seller, Under UCC can resell the goods, (esp. Unique goods), however, since it is assumed that the seller would have made the profits from BOTH of the sales, then reasonable expenses in reselling (including overhead) can be deducted from the a breach two sale rule the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages (costs incurred by the non-breaching party, after the breach, in an attempt to avoid increased loss to the breaching party) provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. And the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. A seller can avail themselves of self-help remedies by reselling the goods. Damages are fixed at the difference between the "cover" and the cotnract price. This has to be done in a commercially reasonable manner According to Curtis v. Smith, goods that are unique, but made in the process of executing a contract – and the contract is breached, their resale value (especially if greatly diminished by the eclectic nature of the final product) is not covered. Hence, it seems that seller could not get Contract(good)-Market(eclectic) – of course would get value of labor to make the goods eclectic In the case of a seller can use (7-216) Specific performance may be decreed where the goods are unique or in other proper circumstances. This is the sellers's version of 708 Damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. Or the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. Both ways that the mesure of damages is based on the performace date -- seemed to be what is "commerically" acceptable time between becach and poling. (note that under common law, the date of breach was the date that performace should have taken palce, and no earlier.) eg. Can treat its obligations as terminated
sort of like preventing things from occurring one can excuse conditions by anticipatory breach
voluntary disablement repudiation by conduct by filing bankrupcy, it will excuse the condition precedent
estopple before the event is to occur, one says "I don’t care if it happens"
waiver after the event occurs says "I don’t’ care and I will do it anyway." Pattern of excusing is called waiver! Anticipatory breach is repudiation by words
Voluntary
Note: in Real Estate there are two possible rules American rule: full amount of his or her expecation damges English Rule : recover reliance damages -- no benefit of the bargain damges are permitted
Warranties Constructive warranties (from the law) Whenever any seller sells good, they warrant that they own the goods Anybody who sells anything warrants that they own it Constructive warranties Warranty against infringement There is a related warranty only made by a merchant seller Any merchant seller warrants against copyright, trademark, patent infringement
Warranty of merchantability (only a merchant makes it) Warrants that they are fit for ordinary purposes Merchantability means fit for ordinary purposes Breached when any merchant sells one goods that are not fit for ordinary purposes There might not be strict liability, but the warranty of merchatability means that that a good will work for an ordinary purpose
Warranty of fitness for particular purpose (anyone can make them.) Go to ace lumber Buy some lumber which is termite-infested They have not breached fitness for a particular purpose "be chatty’ – tell them that you might use it for anything
Jacobson has a different take on this: it is not reasonable to think that for a $1 bolt one gets insurance in case a space station breaks Insurance costs a great deal, and various merchant might insure or prepare for different purpses In most cases the allocation of risk is unexpressed The definding cases (Hadley v. Baxendale, etc) were at the beginning of the "Classical Contract Law period" where "it is not enough that the millers servant tells the carriers clerk that the mill is stopped" -- we want REAL EVIDENCE THAT A CARRIER (or whoever) knows what the expectancy risks are it doesn’t do anyone any good to encourage people to be that way, if you rescue them from their own passivness – was trying not to shift risk when the parties have not done it themselves
neo-classical perspective on contract law comes later Tacet agreement in Hadley is the real test 0-- but it might not be enough to see if the carrier is aware of the risks -- the burden to "pipe up" is not on the hardware store owner or the carrier
This might not go so far as to compensate breechees for "lucrative future contracts" -- but normal profits are okay Court could use equity to limit damages (esp. if there was no mittigation) -- note: equity does not carry across states as it is not a judgment -- Equitable Consideration -- most often enforced in real estate Only used if award of contract damages is inadequate to put the non-breaching party in the position that the party would have been in had the contract been performed If there is difficulty proving damages with reasonable certainty Land is always unique Difficulty of procuring a suitable substitute performance upon an awarded of monetary damages The likelihood that an award of damages could not be collected Equity relief can only be granted on the basis of practical limitations Courts won't order specific performance if too hard Terms of the contract must be certain enough to provide a basis for appropriate court order There is a fine line between a contract that is so indefinite that it can't be enforced, and one that is define enough to be enforced, but too indefinite to support an award of equitable relief Nature and magnitude of the performance promised in the contract would impose a supervisory burden on the court that is disproportion to the advantages to be gained from specific enforcement and to the harm to be suffered from its denial Shouldn't be too burdensome on the court Whether the contract calls for persona services There are contracts that can be done by others Whether such an order would be unjust as causing unreasonable hardship or loss to the breaching party Whether there is sufficient security to believe the non-0beaching party will perform their side of the contact Courts won't grant equity if it violates public policy If specific enforcement would be an unfair biz practice If the breaching party's assent to the contract was induct by unfair practices Whether it would cause unreasonable hardship to the breaching party Whether the court is satisfied that specific enforcement of the contract would not result in the non-performance of a substantial part of the agreed exchange Interests "vendor's lien": Payment is secured by a "vendor's lien" on a property that full payment has not been made on yet Buyers Interest: equitable ownership: buyer has a contract right to a conveyance condition upon the performance of his contractual duty to pay the price stipulated in the agreement. His ability to specifically enforce the seller's correlative duty to convey creates the equity in the land. Constructive trust theory (equitable conversion) Seller under an executory land sales contract holds title to the land in constructive trust for the purchaser until the seller receives full payment In the interim the purchaser holds equitable title, although the seller retails legal title Type of equitable remedies Performance Court orders a party to perform the very duty that he or she promised to perform Not appropriate for person service contract Courts can force covenants not to compete -- will do in a limited venue Injunction Court order a party to refrain from doing something that would interfere with his or her ability to carry out the performance promised under the contract Unilateral restriction Court order the contract terminated and the parties to return all benefits receive d under the contract up until that point Contract declared null and void Because of misrepresentation or mistake Reformation Court orders a contract rewritten to reflect the parties true intention
Implied warranties (from conduct) Express warranties Statements of historical significance Could be innocent One has still breached the warranty
When it comes to damages, is that breach of warranty damages – they are coming from a different perspective What is the pen worth? What would it have been worth, had the warranty not been breached Expert witness When you are dealing with breach of contract, it is not contract vs. what it is worth, it is what was the contract vs. what was promiced (what would it have been worth.) Should be noted, that it is possible to figure in market value at the only place that market value can be obtained. Possible ways of valuation Buy the hay at haymarket in addition to transportation and bailing Sell the hay at haymarket Minus transportation and bailing Actual value of the hay Cost to produce new hay Insurance policy
Evaluating lost profits -- in contracts, you take your victim as you bargain him to be According to Leingang, one would evaluate lost profits by dividing the fixed cost and the variable costs What the breacher should have to pay is the difference in marginal profit (as by contract) The breacher should have to pay the reduction the amount of profit per contract have to add the additional lost profits from a lost contract Aka the share of fixed overhead that the breacher’s contract would have had allocated to its contract Aka the amount by which the price the breach made the contract more expensive in each contract In some cases, it has been held that the brecher is liable for some fixed costs (Security Stove) if the fixed costs are such things such as a president's salary (whose time might be unique -- it had to be used exclusively)that they substracted from profits of the company… this is quite dubiusJanuary 29, 1999.doc (might have to show how lost time was unfungible) nautral conclusion of this seems to be that the later a breach occurs, the more unique a comodity (such as an actor a boxer becomes) one can become eligible for pre-contract expenses The court characterizes the damages as Cost of expenditures prior to breach + lost profits General Formula for expectation damages = Expectation Damges = Lost Value (LV) + Incidental Loss (I) + Consequential Loss (C) - Cost Avoided (CA) - Loss Avoided (LA) Incidental damages is defined as as damages reasonablly incideent to (ie transporation) Consequential damges is defined as damages resulting as a consequence of the injury On the UCC it is Buyer's Recovery = [(Cost of substitute good from another seller) - (Contract price of good from the breaching seller)] + Incidental damages + Consequential Damages] -- from UCC 2-712 and 2-713 On the UCC, it is Seller's recovery = [(Contrct price from the breaching buyer) - Price to be realized upon reasonable sale of goods to another + Incidental Damages)] Buyer's cover damges = [(Cost of Vover) - (Contract Price)] + Incidental damges + Consequential Damges - Costs Avoided as a Consequence of the Breach. Seller's cover daamges = [(contrct price-resale price) - (resale price for goods0] + incidental damges This is somewhat different for lost volume seller == two sale rule K = P + E K = P + Eb P is K – E (contract price minus total expenditures) Court awards = K-E + Eb E= Eb + Ea court awards K – Eb –Ea + Eb court really awards K-Ea which is the same as P + Eb in a losing contract note: party will usually seek a restitution recovery or reliance recovery if you were going to do P+Eb and there was a negative P, than P matters if you give K-Ea than P doesn’t matter – so there is no negative profits taken into account In K-Ea They can differ since their estimates of E were too low. The only way that these formulas can be equivalent if the estimates are off by the same proportion for Ea and Eb so if all the error was off in one side of E or the other than it makes a difference between using K-Ea or K-Eb two-sale theory – there is a reduction in damages if party breached party finds a new client -- This does not apply to businesses that require the personal attention of the boss (infinite marginal costs)
alternative (how much money it would take to put the non-breaching pary in the position he he would have been in) five factors Lost value - the valu eof the performace not rendered to a party. Dollar amount for full perforamce, and subtracting the amount of the value actaully received Incidental damages -- 2nd type o fharm recoverable yb the injured party as part o fhis or her expectation damage recovery is the incidental damges suffered by the party as a result of the breach Consequentail loss -- consequentakl damages suffered by the injured party Costs avoided - costs avoided due to the breach Loss avoided -- when a breaching party can make substitute arrangements for something
note: once we do something different than expectancy, anything goes (no need to subtract from relianec recover)
Has the parties duty been discharged (performance) -- its over.. can’t be sued for breach Interests to be protected in breach Reliance interest (backward looking) Parties interest in receiving losses suffered by virtue of reliance on the contract, whether or not their was a corresponding gain to the opposite party Could be that the promise did not, in fact, was not set up to enrich the promisor in the first place In some cases, the court can look towards the Reliance damages, if they have no way of knowing the value of the expectancy interst. -- In some cases, Plaintiff’s have been awarded reliance damages for botched operations Reliance damages for botched operations can provide a middle-ground Only for additional pain and suffering other than normal
This is the so-called collateral estopple they are called collateral estopple. The promisee did something to their determent in reliance on the promise, and the court, orders the breacher to compensate them based on what the breachee did on reliance on the promise..
Damages are the dollar value of whtever costs were incurre dby the oinnocent party up to the time of the breach in RELIANCE on the breaching party's performace
Limitations on reliance damages Must have reasonable certainty (2d restatement) If the breaching party can prove that it was a losing contract in the first place, the loss must be subtractacted Courts, as in Armstrong Rubber seem to want to avoid making the the breacher the insurer of the breechee's venture
Any salvageable materials from the first contract must be substracted Any damages claimed must not have been aoidable by the non-breaching party without undeue burdn, risk, or hmiliation
Restitution interest Dollar amount that one pary has unjustly enriched another party at the time of the breach Based on the valyue of the enrichment actually received by the benefited party, and not on the valu eo fthe efforts undertaken by the aggrieved party. Based on the value of the enrichment actually received by the benefited party, and not ont the value of the effots undertaken by the aggreived party Restituion is potentially available as a remedy for both the breaching and the non-breaching parties Can be valued by "cost avoided and" "net benefit methods" Benifts received by the benefitted party should be valued as the dollar amount it would have cost the benefited party to obtain those benefits from another -- to hire someone else to do it Net benefit -- hold that the benefit to the enriched party should be valued as the dollar amount of the extent to which the benefited party's propery has incresed in value
Interest of a party in recovering values conferring on the other party through efforts to perform a contract Goal in protecting is the prevention of gain by a breaching party. Typically the dollar amount of whatever oyut of pocket costs (including labor) were incurred by the non-breching party up to the time of the breaech in reliance on the breaching party's performance. Damages are awarded not for "recapturing enrichment" by the promisee but to reimburse the victim for his change in position. Mutral restitution Requirement -- the agrreived party must offer to return whatever benefits they got Limitions Restitution is only availabl if the injured party would be able to sue the breaching party for the total, as opposed to the partyal breach and a party unjured by the other's breach is not entiled to restitution if he or she performed all of their dutues under the contract
Expectancy interest -- this is what the law usually accommodates for, and it encourages "efficient breaches" aka "Benefit of the Bargain" Interest (forward looking) "So long as a breaching party is willing to pay for any damages caused by the breach, he or she should breach if the end result, after the beacher pays contract damages, is that the breacher will be economically better off." To calculate the true value of the breach, it is necessary to know the "full value" of the hypothetical economic intersest" == expectatoin, reliance and restitution are basically different valuation methods of what a breach is worth Coase’s theorem Idea that economically wasteful situations will never transpire is a very powerful idea that has a name – RONALD COASE – the COASE THEOREM. If there are no transaction costs, the legal rule will not effect the allocation of factors of production in the economy, it will only effect the distrobution of wealth Victim cannot claim that he should get the super-profits made by the breachers Only time the victim can do that is when the victim is a beneficiary of a fiduciary relationship
Interest of a party in realizing the value of the expectancy that was created by the other’s promise Business definition of Benefit of the Bargain Difference between the value received and the value of what the fraudulent party said they would get.) The difference between what was promised and the amount actually received. The difference between what was actually received and what the defrauded party was told they would get.
Might be that the contract, if fully enacted would not have enriched the Plaintiff in the first place However, it seems like the law encourages reliance on future business promises. Claim for expectancy damages may be excessive, as they could become exorbitant, as, when a contract is made, without a specific warranty it is impossible to tell what the results of the contract being performed would represent to the promise in terms of future earnings. To calculate expectation damages, they are awarded as a result of a breaching party's interfere with the injured pary's expectation interest. Expectation damages are subject to limitations Certainty In close case will probably be resolved against breaching party Reuqirement of certainty is less trictly applied when the breach is deliberate So long as the injured party has a reasonable bas for his or her damges, those calculations are likely to be accepted s sufficient under the reasonable certainty test Can limit recover in collateral transactions
Forseeability from the point of view of the injured Avoidability -- couldn't have been avoidable without undue risk
Where the builder breaches after substantial performace, the courts ordinary apply the cost of completion valuation, except where it would lead to substantial economic waste Substantial economic waste Where remedying the defect would require the destruction of what has already been done "So long as a breaching party is willing to pay for any damages (according to market value) caused by the breach, he or she should breach, if the end result, after the breacher pays contract damages, is that the breacher will be economically better off." Exception: "ugly fountain" , pure speculation Where the breach is willful, the breaching party may not sue on the contract for damages to limit, nor invoke the benefit of the doctrine of substantial performance 2nd Restatement of contracts looks not to "willful" but to "good faith and fair dealing"
Where the only breach is late performance, the owner can recover damages for loss of use of the property. Note: perhaps Nursing home case
(benefit of the bargain damages) Measured by loss of sale value if the property was built for sale
Other damages that are associated any type of interest Consequential damages aka special damages What a reasonable person, present at the time of the contrct, would nto foresee occurring as a natural result of the breach
Direct damges -- aka General Damages They might be fairly and reaspnable be considered as arising naturally froma breach of contract as viewed by a resonable person at the time of contract formation. They are the kind of damages the injured party can recover without having to to show the foreseeability for consequential dmages.
Stipulated or liquidated damages - Liquidated damages are to mimic expectancy damages -- No "neo-punative" penalties
Liquidated damages clauses are not always valid In general, respected by courts Loss of bargain (ability to cover) is to be respected unless it is impossible. The parties have no business trying to oust a loss of bargain Should not be to penalize the other for failure or refusing to perform One use for an LDC would be in a "whereas clause" would explain the full value of the losses in advance LDCs and Economic breach and efficiency The rule against penalty clauses might be based on the assumption that the contract and the penalties were not bargained for… sort of an assumption of fraud, duress and mistake. There are other ways to deal with defects in the agreement process Rules against penalty clauses could discourage efficient breaches But it could be possible to renegotiate, in view of the efficiency gains The penalty clause is based on purely monetary compensation. It might force the promisee to buy protection against idiosyncratic losses from third parties
Can’t have penalty clauses in contracts (even construction contracts) – but can have differential pricing In the case of a "non-willful breach" a LDC is less likely to be respected LDCs do not limit tort damges -- and an LDC CAN place contractual limitations on duties. A contract for price can reflect an awareness of liability, though it is impossible to contarct away liability.
In order to enforce a liquidated damages clause – aggrieved party must prove: Under the Uniform Commercial Code Must be reasonable in light of anticipated or actual loss Actual damages must be difficult to prove Sounds just like expectancy damages: Or that the amount is reasonable in light of the actual harm suffered by the injured party and that there will be some reason to believe that there will be some difficult in proving the actual loss with precision An enforceable Liquidated Damages Clause does the following
Put value on damages that are hard to determine (qualitative judgments) Liquidated Damges Clauses States reasonable value of anticipated losses (which must be approximately correct in view of eventual breach)
Common law Common law test: the amount of a liquidated damages had to be a reasonable estimate of the anticipated harm anyway
Consequential damages and special circumstances §2-710 Nominal Damages -- if the act is bad, but not serious, but there should be punishment Punative damages/Exemplar Damages Just like in tort law -- awarded for same breaches
Hypo: A&B make contract A peforms perfectly, B sues anyway Who wins Before 1938, FRCP said that complaint must include a cause of action
There are other ways to be excused from breach Refusal is a method of discharge Methods of discharge Performance Complete perfect performance for express duties or UCC Substantial performance for implied duties
Tender of performance New agreements Modification Where the parties agree to change the duties Discharge obligation of the previous
Recision Cancellation Release Parties agree to call it off If a party seeks recision he cannot seek damages for breachJanuary 12, 1999.doc Can say "I am sticking with the contract, and I want damages for beach" or "I want out" No such thing as ‘double recovery’
Must chose a theory of recovery Recions would be unlikely as it is hard to figure out how to unwind Once something is unwound, something would look like tort damages
Accord and satisfaction Settlement of a dispute in accord Accord is an executory agreement Satisfaction is the discharge of agreement and pervious contract Need both accord and satisfaction
Novation Form of new agreement where substituting new party for an old party Have to be consented to by all parties If it were a delegable duty to teach, it wouldn’t require consent
Impossibility No one could do it (illness in a personal service contract) death UCC Death Failure of presupposed conditions (formerly common-law possibility Ie embargo
transportation failure
Impracticability Event that interferes with performance This is an event which occurred and interferes with performance
Frustration Destroys the stated purpose of the agreement
Conditions subsequent One had a contract to pay money IF something else was happening
remedies four of them (beginning with P) Position damages From Llewelyn – we should put the parties in the position that they should be had the other party properly performed Money can’t right all breaches Ie: tresspass Damages could be forseeable damages Could be agreed to Could be nominal But no punative dmages in private contract law
If we are going to put the agreived party in the position that he should be (UCC) Most of the time, the breached party has an affirmative duty to mittigate, however, Recent trends in common law, put the duty on the breached party to cooperate with the breacher in "curing" the breach Curing of the breach, in the case of unique items can involve attempt to settle amicably with the parties involve in future transactions involving the unique goods.. No duty to mitigate if it the alternatives offered by the breacher are inferior, or involve relocation, etc.
If someone didn’t get goods, (and the seller breached), the seller can COVER The damages are the differnce between the cover and the cotract Now, failure to cover at the cover price will make it his duty to prove the differnce between the cotnract price and market value of the goods at the time and palce when the defaulting seller should have performed. (UCC 2-713, 2-723) and 2-717
In Groves the promisee can, in certain situations get the cost of completion
In most cases, diminution in value is the preferred route to making the claimant whole aka adjustment Rule In some situation, instead of dimunation of market value, will give cost of completion -- mostly construction cases It is bizarre that they mention that "defendant’s breach of contract was willful."
Don’t cover, but get damages based upon the difference between the fair market value and the contract price But they are based on the difference in prices in the final comodities -- not in an intermediate product (ie: a book publisher isn't liable for the costs of the books, but for the profits -- which might, in themselves be speculative -- all that is baragained for is what matters. Might be able to award specific performace (equity) -- doesn't carry across states
Exception: efficient breach There are cases where breaching would allow the parties to bargain for the true value – if the market value of the completed project is below the cost of completion There is an efficient breach when conditions have changed such that the gains from breach exceed the gains from performance. Since some products are fungible it does not matter the form they are delviered in
We have to be confident that there is REAL speculation before delivering the services – which might seem irrational at the time Economic Effiiency Pareto: came up with the idea that the govnemrent should intervene if the govnermnt can interverne if it can make someone better off and no one worse off Kaldor and Hicks: Kaldor-Hicks efficiency is that the govnerment should intervene if they can make at least one person better off and that person who is better-off could compensate those who are made worse off
If the victim breaching parties have a fiduciary relationshp, than it is said that there are no provisios made for efficient breach
If the seller sends non-conforming goods Can take Can reject
Could be bad buyer – b/c price went up Can be wrongful rejection Can sell to someone else (the opposite of cover) difference between fmv and contract We are not allowed to get specific performance In some states, there are courts of equity which can order specific performace or recision -- equity doesn't carry across states
Could give one nominal damages (at common law)
Foreseeable damages are added on Can collect damages if one delays Have to be foreseeable damages If there are no calculable damages (ie sales) contract becomes speculative. It doesn't really matter what physical products were involved in the contract, it matters, however, what the agreement was for. -- ie: all the is bargained for is what can be compensated
Hard for sellers to get consequential damages We had a contract to sell the tie for ten bucks For the breach of the $10 tie, can one get $62billion consequential Very hard for seller to get – would have to show intents In some cases, courts have awarded reliance damages
Incidental damages Incidental damages are the beer and the consequential Deductions due to mitigation damages Most of the time, the breached party has an affirmative duty to mittigate, however, Recent trends in common law, put the duty on the breached party to cooperate with the breacher in "curing" the breach.
Hard to get non-quantifyables such as emotional damages Perhaps it is possible to make an argument that one agreed to spend a certain amount of emotional energy and was changed the wrong amount There is an exception when the contract has elements of personality The only way to compensate for non-quantiyable damages is, ovbiously, not by the market value of the breach, but by the "what will make one happy."
Pre-contract damages If a contract is dated "as of" -- damages can be awarded for expenses that occur before the signing It follows, that if there is a standing offer (ie another unilateral offer from a common carrier that it might be possible for a breechee to recover damages)?
Consequentials Deduct what could be mitigation or saved Most of the time, the breached party has an affirmative duty to mittigate, however, Recent trends in common law, put the duty on the breached party to cooperate with the breacher in "curing" the breach.
Quasi-contractual relief Begins with no contract or contract that got discharged A benefit is conferred To avoid an unjust enrichment, will give the value of the benefit as damages Will allow you to recover the value of the benefits received
Recision is the equitable remedy where the cotnarct was voidable Infant, duressee can rescind the contract Calling it off where it is voidable Restitution is where we have a rescinded contract, and you have to give money (costs) to restore them to party that incurred them) as contract remedy, restitution is limited to the value of damages rendered by the injured party
Reformation Where the parties wrote a cotnract incorrectly Judge can "blue-pencil it"
Specific performace When the subject matter is unique All land is unique If one is buying a house, and the other party breaches can get specific performace because all land is unique Seller wants money because all land is unique Will not give specific performace for personal service contracts They can, however, enjoin him from singing anywhere else!
Stipulated or liquidated damages Damages that are agreed to in advance Might have to be contractually indicated Put in "whereas contracts"
Parties can agree about what will be the damages – a liquidated damages clause
By and large, the parties can provide is fhter eis a breach by either one if there is a breach in advance. This is stipulated sum or liquidated damages The courts will not enforce a penalty – even if agreed to in advance
3rd-party rights a buyer gets title of the seller if you buy something from someone who is a theif, you do not acquire title! A title never gets better – there is no such thing as a bonefide purchaser Exceptions – buyer may "ACHEVE" better title in 6 scenarios Accession Added value to personal property Steel a railroad tie and sell it to someone who carves it into a sculpture He is a coverter – could recover the railroad tie (torts)
from federal law – cash theif does not have proper title a theif does not have good title to cash, but he can convey good title
holder in due course doctrine (UCC #3) commercial paper checks stocks and paper documents of title warehouse receipt
in these cases we use the analogy to cash these things are negotiable instruments – and is properly transferred and gets to a "holder in due course" is a bonefide purchaser the buyer gets title from a seller, who is a thief the finder wouldn’t be a holder in due course bottom line, is that one treats, under the holder in due course rule, negotiable instruments similar to cash
entrustment doctrine an owner the owner entrusts to a merchant this is a balement (must be legitimate owner baling to the merchant)
who sells to a buyer in the ordinary course – gets title note: this does not apply to a casual sale note: A levying creditor is not a buyer in the ordinary course
need all elements for an entrustment! A casual seller is not a merchant There must be an entrustment to a merchant
Voidable title (intentional sale with a fraud) Capable of being voided This is where there is a fraud in the sales transaction
Bonefide purchaser will prevail if there was a vOIDABLE (not a void) Only if the fraud is just a part the contract formation Ie; if there was a bad check (voidable title) then the next BFP has good title
Void never gets better!
Estopple -- Legal bar Since one had the opportunity to stop a voidable (or void) transaction one is estopped from claiming ownership of something
Stupidity, determent, (i.e. clothing someone with indicia of ownership) estopp people from claiming ownership or voiding another’s contract
LEGALNUT.COM NOTICES AND DISCLAIMERS:
Copyright Property. This outline is © copyrighted 2006 by Legalnut.com (Site). This outline, in whole or in part, may not be reproduced or redistributed without the written permission of Site. A limited license for personal academic use is permitted, as described below or in Site’s Terms and Conditions of Usage page on this site. This outline may not be posted on any other website without permission. Site reserves the exclusive right to distribute, change or modify this outline in whole or in part.
This Outlines does not constitute legal advice and is not a replacement for obtaining legal counsel.
No Warranties as to Accuracy. Site has made efforts to provide the best possible outlines, but, Site MAKES NO WARRANTIES AS TO THE ACCURACY OF THE INFORMATION CONTAINED IN THIS OUTLINE. THIS OUTLINE IS PROVIDED TO YOU ON AN AS-IS BASIS. USE IT AT YOUR OWN RISK, AND DO NOT RELY ON IT FOR LEGAL ADVICE. IF YOU NEED LEGAL HELP, PLEASE CONTACT A LICENSED AND QUALIFIED ATTORNEY IN YOUR JURISDICTION. AS THIS OUTLINE HAS BEEN WRITTEN BY A LAW STUDENT, IT MAY CONTAIN INACCURATE INFORMATION.
Students Can Not Claim This Outline As Their Own. Furthermore, some law schools have policies which permit law students to bring their self prepared course outlines into final exams. If your law school has such a policy, you are expressly prohibited from claiming this outline as your own or from representing that any of the other outlines contained on this Site are your own unless you are the author of this outline. If you are not sure of your law school's policy, you should contact the appropriate staff at your school.
Notices and Procedures for Making Claims of Copyright Infringement. If you have a claim of copyright infringement against this outline or any other content of this Site, then please see this Site’s Terms & Conditions of Use page for procedures of notifying Site of any alleged infringement.
|
FREE Law School Outlines 
