Do NOT forget your commonsense; if someone breaches its most likely going to mean they will lose!! Contracts Checklist
1. 2. 3. I.
4. 5. 6. 7.
A pplicable Law (UCC sale of goods or common law) Formation (offer, acceptance, consideration or consideration substitute & no formation defense) Terms
Performance R emedies emedies for Unexcused nonperformance Excuse of Non performance
Beneficiaries Third Party Beneficiaries
Vocabulary A. Contract: a legally enforceable agreement
B. C. D.
Bilateral Contract: exchange of mutual promises Unilateral Contract: the offer expressly requires performance as the only method of acceptance (reward, prize, contest) Quasi Contract: where a contract fails, courts may impose a quasi-contract to prevent unjust enrichment (equitable remedy)
1. RULE: RULE: a. п conferred a benefit on Δ; b. п reasonably expected to be paid; & c. Δ is unjustly enriched by not compensating п (recovery is measured by the benefit conferred) II. Applicable Law A. UCC Article 2 – Sale of Goods pr operty 1. Good : moveable, tangible property Merchant:: one who regularly deals in goods of the kind (or) who hold themselves out as having special knowledge/skill 2. Merchant peculiar to those goods. The UCC has special rules governing transactions between merchants B. Common Law (real estate or services contracts) C. Hybrid Transaction Transactio n: predominant purpose III. Formation A. Offer: 1. Manifestation of intent to be bound; 2. In definite & certain terms (vague or ambiguous terms are illusory); a. An offer is NOT required to contain all of the material terms (missing terms to be supplied by the court) b. Common Law Exception: real estate transactions MUST contain price & description c. UCC Exception: Quantity term MUST be stated (missing terms to be supplied by the court) i. Requirement/Output Contracts: quantity pursuant to buyer’s needs or seller’s output (exclusively or nonexclusively); be wary of illusory contracts; increases allowed if 1) proportionate & 2) made in good-faith 3. Creati Creating ng power power of acce accepta ptance nce in in the offe offeree ree a. Advertisements, invitations to deal (or) preliminary negotiations are NOT offers b. Exception: a response to a very specific inquiry may be construed as an offer, as opposed to a mere price quote B. Termination of Offer: an offer may be accepted so long as it has NOT been terminated 1. Revocation (by offeror): unequivocal words/conduct evidencing the termination of an offer effective when received a. Irrevocable Irrevocab le Offers : an offer cannot be rev revoked oked is one of the following: follo wing: i. Option: 1) promise to keep an offer upon & 2) supported by consideration merchant,, 3) in a signed writing, 4) which by its terms gives assurance that it will ii. Firm Offer: 1) offer, 2) by a merchant be held open is 5) irrevocable for the time stated (or if no time is stated, for 3 months) iii. Detrimental Reliance: detrimental reliance (foreseeable) & enforcement is necessary to avoid injustice iv. Unilateral Contract/Beginning Performance: unilateral contract are irrevocable for a reasonable period of time for the offeree to complete performance ( exception: mere preparation) preparation ) 2. Rejection (by offeree) or Lapse of Time: effective when received a. Expr Expreess/D ss/Dir ireect b. Counteroffer (as opposed to mere bargaining): terminates the prior offer and creates a new offer c. Conditional Acceptance (as opposed to mere preferences): terminates the prior offer and creates a new offer d. Mirror Image (common law): acceptance adding “new” terms terminates the prior offer and creates a new offer
1
e.
C.
between merchants the new terms become part of the contract UNLESS 1) material Battle of the Forms (UCC): if between alteration (substantially (substantially effects a party’s risks or remedies), 2) the offer expressly limits acceptance to its terms (or) 3) offeror objects within a reasonable time 3. Op Oper erat atio ion n of Law Law a. Death or Incapacity i. Exception: option contract or part performance of offer to enter into a unilateral contract b. Destru Destructi ction on of subje subject ct matte matterr of the cont contrac ractt c. Supe Superv rven enin ing g ille illega gali lity ty Acceptance:
1. Manifestation of assent to the terms of the offer (common law mirror image; UCC battle of the forms supra); 2. By the person to whom the offer was made (offers are NOT assignable); 3.
D.
E.
With With kno knowl wled edge ge of of the the off offer er;; & 4. UNLESS specifically limited by offeror, by any reasonable means: a. Later Conduct (by offeror) Implying a Contract notwithstanding an improper response by the offeree i. Battle of the Forms supra: new contract, inconsistent terms knock each other out, UCC fills the gaps b. Promise to Perform (by offeree): acceptance of bilateral contract only (acceptance upon completion of performance under a unilateral contract) i. An offer calling for the shipment of goods may be accepted by a promise to ship c. Starting to Perform (by offeree): acceptance of bilateral contract only (acceptance upon completion of performance under a unilateral contract) d. Complete Performance (by offeree): acceptance for both bilateral & unilateral contracts; notice may be required communication are effective when received e. Mailbox Rule: acceptance is generally effective when mailed; all other communication i. Exception: if rejection is sent before acceptance, neither is effective effective until received f. Nonconforming Tender: acceptance & breach UNLESS offeree is making a mere accommodation, then no breach & it operates as a counteroffer (noting that the offeror can either accept or reject the accommodation; should they reject, they will have no further remedy) Consideration: bargained for exchange of legal value ; courts generally do NOT inquire into the adequacy of consideration, however, if only one party is bound to perform the promise is illusory and is unenforceable for lack of consideration 1. Adeq Adequa uate te Cons Consid ider erat atio ion n a. Performance or Promise to Perform : a promise can be consideration for another promise UNLESS illusory b. Forbearance or Promise to Forbear : giving up something you have the legal right to do 2. Inad Inadeq equa uate te Con Consi side dera rati tion on a. Past Consideration/Moral Consideration: NOT consideration UNLESS i. Expressly requested & there is an expectation of payment b. Preexisting Duty Rule (MODIFCIATION): new/additional consideration is required UNLESS i. Unforeseen circumstances (or) third party promise to pay ii. No additional consideration is required, only good faith modification for the sale of goods c. Part Payment to Release Debt (MODIFICATION) : if debt is due & undisputed partial payment is NOT consideration for release of that debt, however , EARLY payment IS CONSIDERATION for release of debt 3. Consideration Substitutes: there is a legally enforceable agreement even though there is no new consideration a. Promissory Estoppel: 1) promise, 2) detrimental reliance (foreseeable) (foreseeable) & 3) enforcement is necessary to avoid injustice b. Promise to Pay Legal Obligation now Barred by SOL: 1) writing 2) enforceable as to those new terms Formation Defenses – “CSIMMMUD” 1. Lack of Capacity: person without capacity has the right to disaffirm the contract to avoid liability a. Minor i. Implied Implied affir affirmatio mation n (ratific (ratification ation)) upon reaching reaching the the age age of major majority ity b b.. Ment Mental ally ly inco incomp mpet eten entt c. Intoxi Intoxicat cated ed (if (if other other party party had had reaso reason n to know) know) d. Quasi-Contract liability to pay reasonable value for necessaries 2. Statute of Frauds: for certain agreements to be enforceable they must be 1) in writing & 2) signed by party against whom enforcement is sought (if a contract falls within the SOF but is satisfied, it is enforceable = no SOF defense; if a contract falls within the SOF but it NOT satisfied, it is unenforceable = SOF operates as a defense to contract formation) a. Agreements within the SOF
2
i.
3. 4. 5.
6.
7. 8.
Promise to Answer for the debts of another (exception: ( exception: “main purpose” of guarantor was to benefit themselves) themselves ) ii. Promise Promise by Executor Executor to pay pay Deceden Decedent’s t’s Debts Debts Personall Personally y iii. Promises Promises made made in consid considerat eration ion of Marri Marriage age iv. Promises that by its terms cannot be competed within (1) year (starting from the date of the agreement; lifetime contracts are not within the SOF nor are tasks) v. Transfers of an interest in real estate (exception: ( exception: leases for (1) year or less less)) vi. Sale of goods for $500+ b. b. Sati Satisf sfyi ying ng the the SOF SOF i. Writing (common law): 1) parties, 2) subject matter & 3) signed by the party against whom enforcement is sought (UCC): 1) quantity term & 2) signed by the party against whom enforcement is sought ( merchants exception:: if a writing in confirmation of an agreement is received w ithin a reasonable time, it satisfies the SOF exception UNLESS objected to in writing within 10 days. days . NOTE: the Equal Dignity Rule states that written authorization is required to act for someone else if the underlying contract is within the SOF ii. Judicial Admission: the party asserting the SOF defense admits to an agreement in a pleading, response to discovery (or) while giving testimony iii. Performance: 1) transfer of an interest in real estate (part performance by buyer if at least two of the following are satisfied: a) full/part payment, b) possession or c) improvements) 2) services contract (full performance by either party) (or) 3) UCC: UCC : part/full performance of specially manufactured goods Illegality: a. Ille Illega gall Subj Subjec ectt Matt Matter er:: void void b. Illegal Purpose: enforceable only by the party unaware of illegality (concealment): false assertion (or) concealing material facts that were reasonably relied upon Misrepresentation (concealment): Misunderstanding (ambiguity): interpretati ons; a. Material terms open to 2+ reasonable interpretations; b. Each party attaches a different meaning to those terms; & c. Neither party knows (or has reason to know) that the terms are capable of 2+ reasonable interpretations interpretations [ except where the non-mistaken party knew (or Mistake of Fact : a contract will NOT be avoided by unilateral mistake [except should have known) of the mistake], mistake ], however it may be avoided where: a. Both parties are mistaken as to the contractual terms (NOT what something is worth or the need to enter into a K); b. Materially affects their agreement; & c. Neither party bears the risk Unconscionability: all/part of an agreement may be unenforceable if the contract terms are incredibly one-sided Duress: a. Impr Improp oper er thre threat at;; & b. b. No rea reaso sona nabl blee alte altern rnat ativ ivee
IV. Terms A. Contractual Interpretation : 1. Contracts are construed as a whole according to the ordinary meaning of its words 2. Ambiguities are interpreted against the drafter 3. Courts may look at course of performance, course course of dealings or trade custom/usage custom/usage to determine the parties parties intent 4. Courts generally want to find a valid/enforceable agreement B. Parol Evidence Rule: evidence of prior/contemporaneous prior/contemporaneous written/oral statements are inadmissible to contradict, modify, or complete/final agreement vary the contractual terms where an agreement was intended by the parties as their complete/final 1. Exceptions (the following are admissible) a. Formation Defenses (“CSIMMMUD”) b. To explain/supplement with evidence of the parties course of performance, course of dealings or trade custom/usage i. Course of Performance: same parties/same contract ii. Course of Dealing: same parties/different but similar contract iii. Custom/Usage in the Industry: different but similar parties/different but similar contracts c. Subsequent Modifications C. Seller’s Delivery Obligations (common carrier) a. Shipment Contract: seller completes deliver upon 1) tendering the goods to the common carrier, 2) making reasonable accommodations for their shipment & 3) notifying the buyer b. Destination Contract: seller completes delivery when goods are delivered to buyer’s location
3
D.
Risk of Loss (conducted in the following order):
a. Agreement between parties controls b. Breach: breaching party will be liable for ANY uninsured loss c. Delivery via common carrier (see supra) d. Merchant Seller : risk of loss passes upon buyers actual receipt of goods or Non-Merchant Seller: risk of loss passes E.
upon tender of delivery to buyer Warranties basis-of-the-bargain 1. Express Warranty: must become part of the basis-of-the-bargain a. Affirmation of fact/promise; or b. Description of the goods; or c. Model/sample d. Exception: statements of puffery or mere opinion seller (deals in goods of the kind) it is implied 2. Implied Warranty of Merchantability : if goods are sold by a merchant seller (deals that they will be fit for their ordinary purpose 3. Implied Warranty of Fitness for a Particular Purpose : a. Buyer with a particular purpose; b. Relies on seller’s knowledge (& seller has reason to know of buyer’s reliance), it is c. Implied that such goods are fit for that particular purpose 4. Limitations on Warranties: a. Disclaimers i. Express Warranties CANNOT be disclaimed ii. Implied Warranties may be disclaimed if 1) conspicuous & 2) mentions the word “merchantability” or simply sold “as is” or “with all faults” b. Limiting Remedies i. Remedies for both express & implied warranties may be contractually limited if NOT unconscionable ii. Where a consumer suffers a personal injury, if is prima face unconscionable to enforce a remedial limitation
V. Performance A. Sale of Goods Concepts (UCC) 1. Perfect Tender : seller’s performance must be perfect, otherwise breach & buyer may accept all, reject all or accept any commercial unit and reject the rest 2. Rejection (of goods): if nonconforming goods, buyer has the option to: a. Accept all & sue for damages; b. Reject all & sue for damages; or c. Accept any commercial unit & reject the rest & sue for damages 3. Cure: a seller that fails to deliver conforming goods may cure if: i. Reasonable grounds (based on past dealings) to believe improper tender was acceptable with an allowance (or) ii. Time for performance has not yet expired 4. Installment Sales Contracts: requires delivery in separate lots to be separately accepted; buyer may reject an installment ONLY if there has been a SUBSTANTIAL IMPAIRMENT & the installment cannot be cured 5. Acceptance (of goods): once goods are accepted, they can no longer be rejected a. Payment without an opportunity to inspect the goods is NOT acceptance b. Retention of the goods after having a reasonable opportunity to inspect (or) using goods in a manner inconsistent with seller’s ownership is deemed acceptance of those goods 6. Revocation (of the acceptance of goods): 1) nonconformity substantially substantially impairs the value of the goods to him/her & 2) made within a reasonable time after discovery of the nonconformity
VI. Remedi Remedies es (for
Unexcused Nonperformance) Nonperforman ce) [See also infra infra]]
A. Legal 1. Damages a. Compensatory (certainty rule) i. Expectation: “In California, money damage rules for breach of contract are based on protecting the expectation interest. That means, a person making a contract will expect it to be performed without being breached. More specifically, money damages are based on how much it would take to put п in the same financial position they would have been if the contract has been performed without breach.” [1) causation, 2) foreseeability, 3) certainty & 4) unavoidability]
4
con tract had never happened ha ppened ii. Reliance : put п in the same position as if the contract resu lt of the breach (i.e. storage fees or cost cos t of covering) iii. Incidental : costs incurred as a result iv. Consequential Consequ ential : 1) related damages & 2) foreseeable fore seeable at the time of contract con tract formation formatio n
b. Nominal: awarded where п has suffered no actual injury; awarded to establish/vindicate establish/vindicate п’s right Liquidat ed: the parties may fix damages damag es where it would woul d be 1) difficult to ascertain ascert ain & 2) reasonable in light li ght of the c. Liquidated
B.
circumstances (a non-breaching party may recover either liquidated damages (or) if not available, actual damages, but NEVER both) d. Damages relating to the Sale of Goods i. Seller Breach: Buyer keeps = FMV (conforming) (conforming) – Value as delivered ii. Seller Breach: Seller keeps = Mkt. Price – Contract Price (or) Replacement (cover) price – Contract Price iii. Buyer Breach: Buyer keeps = Contract Price iv. Buyer Breach: Seller keeps = Contract Price – Mkt. Price at time/place of delivery (or) Contract Price – Resale (cover) Price Restitutionary 1. Legal Damages/Quasi-Contract: п recovering the value of the benefit conferred on Δ a. Restitutionary Damages/Quasi-Contract: b. Replevin i. Entrustment (right of a BFP): the original owner’s rights are cutoff if the following is satisfied 1) True owner leaves their goods, 2) with a merchant (who deals in goods of the kind); & 3) who wrongfully sells the goods to a BFP c. Ejectment 2. Equitable a. Cons Constr truc ucti tive ve Trus Trustt b. Equi Equittable able Lien ien
C. Equitable 1. Specific Performance – “CCIMFD” : generally a. Cont Contra ract ctua uall Vali Validi dity ty b. b. Cond Condit itio ions ns of п sati satisf sfie ied d c. Inadequate Legal defense d. Mu Mutu tual alit ity y of Rem Remed edie iess e. Feas Feasib ibil ilit ity y of of Enfo Enforc rcem emen entt f. Defenses misrepresentation or 3) mistake i. Legal: 1) SOF, 2) misrepresentation ii. Equitable Equitable:: 1) unclean unclean hands, hands, 2) 2) laches laches or 3) uncons unconsciona cionabilit bility y 2. Rescission – “GD” 3. Reformation – “VGD” 4. Reclamation: seller’s ability to get back unpaid for goods for goods purchased on credit a. Buyer is insolvent when the goods were received; b. Seller demands return within 10 days (or within a reasonable time if buyer expressly stated they were solvent at the time of contracting); & c. Buyer still possesses the goods at the time of demand d. NOTE: successfully reclaiming the goods excludes all other remedies VII. Excuse for Nonperformance A. Improper Improper Performan Performance ce (by another another party) party) 1. Breach non-breachi ng party is excused excus ed from performing performin g and may sue for breach a. Material : non-breaching i. Where there has been substantial performance by the breaching party (non-breaching party obtained a substantial benefit) there cannot be a material breach & the non-breaching party may NOT be excused from performing, although they may still sue for damages b. Nonmaterial Nonmate rial (minor): non-breaching non-breac hing may sue for breach but they are NOT excused from performing B. Nonocc Nonoccurr urrenc encee of of a Condi Conditio tion n 1. Conditions: mutually agreed upon contractual language limiting the parties’ obligations. Good-faith & fair-dealing are implied conditions in all contracts. If a condition does NOT occur, contractual performance is excused, in other words
5
there is no breach for nonperformance. On the other hand, promises are unconditional & failure to perform according to its terms constitutes a breach. NOTE: it’s not starting on time that’s crucial but finishing on time “time is of the essence” a. Anticipatory Repudiation: unequivocal words/conduct evidencing the party is no longer going to perform made before performance is due i. The The non non-r -rep epud udia iati ting ng part party y may may:: ⇒ Assert breach & sue ⇒
Suspend performance & wait to sue
⇒
Treat the repudiation as an offer to rescind
Ignore & encourage performance ii. The repudiating party may retract their repudiation so long the non-repudiating party does NOT materially rely on the repudiation iii. Demanding Adequate Assurance: if a party has reasonable grounds for insecurity they may demand adequate assurance, and if commercially reasonable, suspend their performance until such assurance is forthcoming. NOTE: expressions of doubt does NOT constitute an anticipatory repudiation 2. Excusi Excusing ng NonNon-Occ Occurr urrenc encee of a Condit Condition ion a. Good-F Good-Fait aith/A h/Avoi voidanc dancee of Forfei Forfeitur turee b. Waiver: by the person benefiting from condition/protected condition/protected by a condition c. Estoppel: a person is estopped from asserting a condition after waiving it Later Contract : 1. Rescission (see also supra): both parties may agree to rescind if performance is still executory, thereafter, discharging all contractual duties (cancelling the contract) 2. Accord & Satisfaction : new agreement (accord) is performed (satisfaction) performance of the original obligation is excused; however, if the new agreement (accord) is NOT performed (satisfied) the other party may sue on either the original obligation (or) on the new agreement (accord), BUT never both a. Accords must be supported by new consideration UNLESS the original obligation was for the sale of goods (goodfaith only) b. A valid accord accord does NOT NOT discharge discharge the origina originall obligation, obligation, rather rather it suspend suspendss it until the the new agreement agreement is performed (satisfied) or not performed. c. NOTE: if an accord agreement is breached by a creditor by suing on the original obligation the debtor may seek to have the action enjoined by raising the accord agreement as an equitable defense 3. Modification (substituted agreement): agreement): agreement by the parties to an existing obligation to impose an alternative agreement a. New consideration required UNLESS the original obligation was for the sale of goods (good-faith only ) 4. Novation (substituted party): agreement by all parties to an existing obligation to substitute a new party; same performance/different performance/different party Later unforeseen Event : 1. Impossibility (objective): cannot be done a. Death, Sickness or Incapacity i. Unique Unique personal personal service service contract contract:: excuse from from performin performing g if too sick/inju sick/injured red & they will will NOT be liable for for damages UNLESS the contract provides otherwise creati on of law making performance of the contract contr act illegal b. Illegality : the subsequent creation c. Destruction of subject matter 2. Impracticability (subjective): extreme & unreasonable 3. Frustration of purpose : a. Supervenin Supervening g act/event act/event not not foreseea foreseeable ble at the the time time of contrac contractt formation formation;; & b. Destro Destroyed yed the contra contractu ctual al purpos purposee ⇒
C.
D.
VIII. A.
Third Party Rights/Duties Third Party Beneficiaries: 1. Vocabulary a. Third party beneficiary: able to enforce an agreement because the contracting parties entered into it for their benefit b. Promisor: Promisor: person person making making the promi promise se that that benefits benefits the the third third party party c. Promisee: Promisee: person person who obtains obtains the the promise promise that that benefit benefitss the third third party party
d. Intended/Incidental: Intended/Incidental: only intended beneficiaries have contractual rights e. Donee/Creditor: intended beneficiaries are either donee’s or creditors 6
2. Vesting of Third Party Rights RULE:: an agreement to cancel or modify a contract affecting a third party beneficiary is valid so long as third party a. RULE
B.
C.
beneficiaries rights have NOT vested. Vesting occurs when the third party beneficiary either 1) knows & assents, 2) detrimentally relies or 3) sues on the contract b. Once the third party beneficiary’s rights have vested, the contract cannot be canceled or modified without their consent. NOTE: the parties may, by agreement, determine whether/when a third party beneficiary’s rights vest (life insurance polices or employee benefit plans) 3. Bri Bringing Su Suit a. Beneficiary may sue Promisor b. Promisee may sue Promisor c. Donee beneficiary CANNOT sue Promisee d. Creditor beneficiary may sue Promisee but ONLY on a preexisting debt 4. Defenses a. If a Promisor is sued by a third party beneficiary, they may assert any defense they would have had against the Promisee Assignments: transfer of contractual rights/benefits to a third party; may be oral; no consideration is required; only gratuitous assignments are revocable ( unless obligor has already performed or detrimentally relied ) 1. Vocabulary rights/benefits under the contract to a third party a. Assignor: party to the contract who later transfer their rights/benefits b. Assignee: not a party to the original contract; able to enforce the contract pursuant to a valid assignment c. Obligo Obligor: r: other other party party to the contra contract ct 2. Assi Assig gnee nee Righ Rightts a. Assignee can sue the obligor b. Assignor Assignor for considera consideration tion CANNOT recover recover from obligor obligor c. Obligor has same defenses against assignee as against assignor (they may directly offset damages against assignee) d. Payment Payment by Obligor Obligor to assig assignor nor is effect effective ive until until obligor obligor knows knows of assignme assignment nt e. Implied Implied warrant warranties ies of assigno assignorr in an assignm assignment ent for value value;; assignor assignor warrant warrantss that i. The The righ rightt assi assign gned ed act actua uall lly y exis exists ts,, ii. Not subj subject ect to to any defen defenses ses by by the obli obligor gor;; & iii. Assignor Assignor will do do nothing nothing to impair impair the value value of the assignme assignment nt 3. Mult Multip iple le Ass Assig ignm nmen ents ts a. Gratuitous Gratuito us: last in time prevails; a gratuitous assignment assign ment followed by another anothe r revokes the previous previou s one (considerat ion): first in time prevails b. For value (consideration): 4. Limitations On Assignment: absent an agreement, all contracts are assignable except long term contracts or unique personal services contracts . Generally, the right to receive goods under a requirements contract is NOT assignable because the obligor’s duties could change significantly (except where there has been a good-faith limitation) limitation ) a. Prohibition: contractual language prohibiting the RIGHT to assign but NOT the POWER to assign. Thus, assignor is liable for breach of contract but an assignee who doesn’t know of the prohibition can still enforce the assignment b. Invalidation Invalidat ion: contractual language langu age invalidating invalidat ing any assignment, assignment , meaning there is neither a right nor a power to assign. Thus, the assignor is in breach and the assignee has no right to enforce the assignment i. Ex: “all “all assi assignm gnment entss pursua pursuant nt to the the terms terms her herein ein are are void void Delegation of Duties: transfer of contractual duties/burdens to a third party 1. Vocabulary a. Delegatin Delegating g Party: party party to the contra contract ct who transfer transferss their contrac contractual tual duties/b duties/burden urdenss b. Delegatee Delegatee:: third party party now responsible responsible to oblige oblige for performi performing ng the delegating delegating parties parties duties/b duties/burden urdenss c. Oblige Obligee: e: the the one to whom whom contr contract actual ual dutie dutiess are owed owed w ary of transfers involving 2. Relationship of Assignment & Delegation: a contract creates both rights & duties, thus be wary one or the other, or both 3. Failure Failure of Third Third Part Party y Perf Perform ormanc ancee a. Delega Delegatin ting g Party Party always always remain remainss liabl liablee b. Delegatee for consideration is liable 4. Limitations on Delegation: absent an agreement, all contracts are delegable except long term contracts, unique personal services contracts or delegation would change the obligee’s obligations
7
Remedies Approaching a remedies question 1) Determine the substantive area of law involved (torts, contracts or property) 2) Make sure the п has a case (tort committed or contract breached) 3) Determine what potential remedies warrant a discussion (legal, restitutionary or equitable) Contract Remedies Issue Checklist
Legal Remedies Damages Compensatory Expectation Reliance Incidental Consequential Nominal
8
Liquidated Restitutionary Legal Restitutionary Damages/Quasi-Contrac Damages/Quasi-Contractt Replevin Ejectment Equitable (inadequate legal remedies) Constructive Trust Equitable Lien Equitable Specific Performance – “CCIMFD” Contractual Validity Conditions of п Satisfied Inadequate Legal Remedy Mutuality of Remedies Feasibility of Enforcement Defenses Legal SOF Misrepresentation Mistake Equitable Unclean Hands Laches Unconscionability Rescission – “GD” Reformation – “VGD”
Personal Property
Real Property/Land Sale
Construction Contract
Personal Service/Employment K
Com Compen pensat satory ory Dam Damage ages Restitution Specific Performance Rescission Reformation
Com Compens pensat ator ory y Dam Damage ages Restitution Specific Performance Rescission Reformation
Com Compen pensat satory ory Dam Damage ages Restitution Specific Performance (limited)
Com Compens pensat ator ory y Dama Damage gess Restitution Specific Performance
A. Legal remedies 1. Damages a. Compensatory i. Expectation: putting п in the position they would have been in had the contract been performed without breach: 1) causation, 2) forseeability (tested at time of formation), 3) certainty & 4) unavoidability (mitigation; the burden is on Δ to allege no/less recovery for avoidable damages) ii. Reliance iii. iii. Inci Incide dent ntal al ***CONSEQUENTIAL CONSEQUENTIAL DAMAGES: 1) related & 2) foreseeable at the time of formation iv. *** b. Nominal: awarded where п has no actual injury; to establish/vindicate п’s rights damages: 1) damages are very difficult to ascertain at time of contract formation & 2) reasonable in c. Liquidated damages: light of the circumstances (a non-breaching party may recover either liquidated damages (or) if not available, actual damages, but NEVER both) d. Punitive Damages: to punish & deter (not available in a vacuum): NOT allowed, however if Δ’s conduct is willful, their actions may be classified as a tort & recovery would be allowed under a tort theory.
B.
Restitutionary remedies:
9
1. Legal restitutionary remedies (п cannot get both compensatory & restitutionary damages, pick the higher amount) a. Restitutionary damages: Quasi-K : reimbursing п with the value of the benefit conferred on Δ; 1) п conferred a
2.
benefit on Δ, 2) п reasonably expected payment & 3) Δ realizes an unjust enrichment by not having to compensate п b. Replevin: п recovers possession of specific personal property i. 1) п has the right to possession & 2) Δ is wrongfully withholding ii. Entrustment: п’s rights are cutoff if sold to a BFP (pays for value & takes title w/out notice of wrongdoing) c. Ejectment: п recovers possession of specific real property i. 1) п has the right to possession & 2) Δ is wrongfully withholding Equitable restitutionary remedies (inadequate legal remedy) a. Constructive trusts : imposed on improperly acquired property to which Δ has title; court treats it as if held in trust with the duty to return the property to п b. Equitable liens: imposed on improperly acquired property to which Δ has title; immediate court directed sale i. Two Fact Patterns → (1) K unenforceable, (2) K breached Unenforceable:: lack of capacity, SO F, illegality, misrepresentation, Unenforceable misrepresentation, misunderstanding or mistake of fact i. п can get restitutionary restitutionary for property/money given or services rendered to Δ in the value of the benefit conferred; п can also get the property back if unique ii. K is breached by п: Traditional Rule: Rule: No recovery; Modern Trend: Trend : Recovery allowed but it cannot be greater than K price
C. Equitable remedies 1. Specific performance: defendant is required to perform the contract – “CCIMFD” Validity : п must show the k terms were certain & definite a. Contractual Validity: b. Contract Conditions of п Satisfied: Satisfied : – watch out for land sale contracts i. Deficiencies – Seller cannot deliver the agreed upon consideration – about quantity of land ∗
If S = п they can enforce if the defect is minor ⇒
∗
If B is п they can enforce even if defect is major (UNLESS very major) ⇒
ii.
BUT cannot enforce if major UNLESS they can cure before date of closing Abatement of the Purchase price : lower the purchase price (abatement) to reflect that amount of land actually getting
Time is of the essence (buyer does not meet contract condition of timely performance) ∗
There will be a land sale contract, the k will contain an express time of the essence clause which will contain a forfeiture provision (forfeiture of all performance rendered to date if performance is not timely), there will have been some partial performance by п which is now potentially subject to forfeiture (triggering the time of the essence clause and its forfeiture provision). Seller will want to keep both the land and any performance rendered to date. Thus, buyer will bring a lawsuit for specific performance, result? ⇒
Equitable maxim: “Equity abhors forfeitures ” (thus SP will almost always be rewarded) a. How to to avoid avoid forf forfeit eiture ure (fac (facts ts to cons conside ider) r) i. Loss Loss to sell seller er is smal smalll ii. ii. Tard Tardin ines esss is is de de min minim imis is iii. Waiver (seller has accepted late payments in the past) iv. Buyer Buyer would would suffer suffer undu unduee hardsh hardship ip
NOTE: if contractual performance is still executory, the time is of the essence clause will be strictly enforced; the modern trend is to give restitutionary relief if SP is not granted Inadequate legal remedy alternative : ∗
c.
i. Damages are too speculative, ii. Δ is insolvent, iii. Multiple suits are necessary, (or) iv. UNIQUENESS [real property is always unique]; every parcel of land is deemed unique ∗
Seller’s Rule: S can get SP for land even though they are only getting money ⇒
∗
Personal property (generally not unique and damages are adequate), exceptions: one of a kind/rarity, personal significance to buyer [sentimental value] or circumstances which make the chattel unique at the time of LITIGATION (K for the purchase of oil, after K formation, price of gas goes up 10x)
NOTE: Liquidated damage clauses does not make money damages adequate; SP is still available UNLESS clause provides that liquidated damage is only/exclusive remedy, then no SP
10
d. Mutuality of remedy from B. B refuses to convey. B says “I i. Common Fact Pattern: A is a minor & enters into K to buy land from couldn’t enforce against A so he cannot enforce against me.” ∗
First : Determine and discuss dis cuss that there is a mutuality mutual ity fact pattern
∗
Second : Ct will reject the mutuality mutualit y argument if i f it feels secure the P can & will perform
Third : Grant SP: also, a lso, have a decree provided prov ided for simultaneous performance Feasibility of enforcement: in order to grant specific performance, the court must be able to enforce the K & supervise problems that may arise Defenses: a party guilty of misconduct will be barred form obtaining specific performance i. *** ***SOF SOF (generally involves an oral land sale contract ∗
e. f.
∗
the 3) RULE for Part Performance : satisfies SOF if (2 of the a. Paym Paymen ent, t, in part part or in whol wholee b. Possession c. Improvements
ii. iii. iv. v. vi. g.
h.
Misrepresentation Misrepresentation (concealment): false assertion or concealing a material fact that was reasonably relied upon Mistake: Unclean Hands: п’s alleged improper conduct is related to the lawsuit Laches: unreasonable delay by п which unduly prejudices Δ Unconsionability: all/part all/part of the agreement may be unenforceable if K terms are incredibly one-sided Spec Specif ific ic prob proble lems ms with with SP i. Equitable conversion – involves land sale contract for the period of time between K signing & closing Determine if the land sale contract in your question is valid enforceable contract ∗ a. YES. Equitable conversion occurs upon execution where the property interest of buyer and seller are regarded as switched. Thus, B will be regarded as having the real property interest (SP right to land) & the S will be regarded as having the personal property interest (SP right to $) Specific Performance Fact Patterns ***Death Death i. *** ii. Damage/Destruction a. Risk Risk on buye buyerr – maj major orit ity y b. b. Risk Risk on sell seller er – mod moder ern n c. Right to insura insurance nce proceed proceedss is whoeve whoeverr has the risk risk of loss gets it it iii. Employment/Services contracts ∗
RULE: generally NO SP, however covenants not to compete are SP if 1) legitimate interest, 2) unique RULE: services & 3) reasonable in geographical & durational scope
2.
Rescission (“GD”): both parties agree to cancel the contract when performance is still executory, thereby, discharging all contractual duties a. Grounds for rescission i. Failure of consideration, lack of capacity, illegality, misrepresentation, misunderstanding, mistake, unconscionability or duress ii. Mistake of Fact: a contract will NOT be avoided by unilateral mistake ( exception: if the non-mistaken party knew of should have known of the mistake). mistake ). However, mutual mistake will avoid a contract where material both parties are mistaken as to the contractual terms, it materially affects their agreement and neither party bears the risk (exception: (exception: if collateral facts (quality, desirability, or fitness of property for a particular purpose) rescission denied) denied ) b. Defenses i. Unclean hands ii. Laches NOTE: Negligence is NOT a good defense; п must elect between damages & rescission; cannot get both
3.
Reformation: changes a written agreement to conform with the parties’ original understanding – “VGD” i. Cont Contra racctual ual Vali Validi ditty ii. Grou Ground ndss for for refo reform rmat atio ion n ∗ ∗
Misrepresentation Misrepresentation – granted Mutual mistake – granted
11
Unilateral mistake – denied ( exception: unless the non-mistaken party knew) knew ) ∗ iii. Defenses * Unclean hands * Laches * Invalid Defenses -Negligence -SOF -Parol Evidence Rule interference, 4) inducing NOTE: tortious interference with contract : 1) valid contract, 2) Δ’s knowledge of contract, 3) intentional interference, breach & 5) damages
12
