Contract law

contract law 101

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Contract law by Mind Map: Contract law

1. A. Analysis of fact patterns

1.1. Formation - was there a traditional, enforceable contract? (MCDS)

1.1.1. 1. MUTUAL ASSENT between parties? Valid OFFER and ACCEPTANCE (i.e. "meeting of the minds") - Offeror MUST 1. Offeror must manifest an OBJECTIVE WILLINGNESS TO ENTER INTO THE AGREEMENT (The offer is governed by an objective test, which means that outward appearances of words and actions are determinative – not hidden intentions (e.g., a person makes an offer with his fingers crossed behind his back)). 2. Create a POWER OF ACCEPTANCE in the offeree (Can offeree simply say "I ACCEPT" and know that he has concluded the deal?) 3. Specify all NECESSARY TERMS OF THE AGREEMENT

1.1.2. 2. CONSIDERATION Consideration requires a transfer of legal value in a bargained-for exchange between the parties CONSIDERATION is present if: 1. The promisee incurs a legal detriment OR the promisor receives a legal benefit; AND 2. The promise induces the detriment AND the detriment induces the promise. (A BARGAINED-FOR EXCHANGE requires RECIPROCAL INDUCEMENT – that the promise induces the promisee to incur his legal detriment AND that the legal detriment induces the promisor to make his promise. INVALID CONSIDERATION 1. GIFT PROMISES are NOT consideration (E.g., A promises to give B his truck for free. Here, B incurs no legal detriment and A's promise to give B his truck is not induced by any action or forbearance from B. This is a gift promise, not bargained-for consideration). 2. CONDITIONAL GIFTS are NOT consideration (E.g., A promises to give B his truck if B will drive 30 minutes away to pick the truck up from A's house. Here, A's promise to give B his truck is not induced by B coming to pick the truck up. Thus, A is not bargaining for B to come. This is a conditional gift, not bargained-for consideration). 3. A PREEXISTING LEGAL DUTY is NOT consideration (E.g., A promises to pay B $100 if B refrains from smoking crack-cocaine for 6 months. Here, B already has a preexisting legal duty imposed by law to refrain from smoking crack-cocaine. Thus, B incurs no legal detriment, which means consideration is not present. NOTABLY, if A promised to pay B $100 if B refrained from smoking tobacco for 6 months, then consideration would be present (assuming B is 18 years of age or older and can legally smoke tobacco). Refraining from or promising to refrain from exercising a legal right which the party is otherwise entitled to exercise constitutes a legal detriment). 4. PAST CONSIDERATION is NOT consideration. (E.g., A's truck catches fire as A is demonstrating the truck’s safety features to B. After the fire erupts, B rushes over and extinguishes the flames saving A's life. Grateful, A promises to pay B $100 for the rescue. Here, A's promise to pay B is induced by an action that B already completed. This is past consideration, not bargained-for consideration). 5. A PRETENSE of consideration or SHAM consideration is NOT consideration (E.g., A and B are cousins. A wishes to give B his truck that is valued at $10,000 as a gift for B's birthday. Attempting to form an enforceable contract, A "sells" B his truck for $1 solely to meet the consideration requirement. Here, A is not induced to give B his truck for the $1. This is merely a pretense of consideration, not bargained-for consideration). 6. An ILLUSORY PROMISE is NOT consideration (An illusory promise occurs when the promisor fails to clearly commit to the deal. - E.g., A promises to buy B's truck if “he feels like it.” Here, A is not committing to the deal. This is an illusory promise, not bargained-for consideration). Does NOT include - promises to give gifts or transfers not induced by the other side's action or forbearance (However, promises which lack consideration may still be enforceable under alternative contract theory (PQM) CONTRACT MODIFICATION (UCC vs. common law) Under the COMMON LAW, a contract modification MUST BE SUPPORTED BY CONSIDERATION. The preexisting duty rule stipulates that a promise to do something of which the party is already legally obligated to do, by contract or otherwise, is not consideration. Under the UCC, a contract modification need NOT be supported by consideration. The UCC stipulates that a contract modification will be VALID IF THE PARTIES ENTER INTO THE MODIFICATION IN GOOD FAITH. COMMONLY-TESTED MODIFICATION FACT PATTERN A rents an apartment from B for one year at a rent of $2,000 per month. Nine months into the lease contract, A (running short on cash) and B both agree to modify the rent to $1,500 per month for the remainder of the lease. Subsequently, B crosses out the $2,000 price term on the original lease and writes in $1,500 as the new price term. Both A and B sign and initial the contract to approve the modification. At the end of the month, A pays B the agreed upon $1,500. B then sues A for $500 for breach of contract. Will B recover the $500? YES.. Here, the contract is governed by the COMMON LAW, because it involves a lease for REAL ESTATE. Under the common law, B can successfully sue A at the end of the month for $500, because the modification was NOT SUPPORTED BY CONSIDERATION. A had a preexisting legal duty to pay B the full $2,000. Thus, the $1,500 A paid B does NOT constitute additional or new consideration for the modification. Therefore, the original contract controls and A is in breach of contract having only paid $1,500 of the $2,000 owed to B.

1.1.3. 3. (No) DEFENSES to formation or enforcement that could invalidate the otherwise valid contract? Even if mutual assent and consideration are present, the otherwise valid contract can be invalidated if any of the following defenses are successfully asserted: INCAPACITY - A party must have capacity to enter into a contract. Restatement (Second) of Contracts § 12. MISTAKE - A mistake is a BELIEF that is NOT IN ACCORD WITH THE FACTS. Restatement (Second) of Contracts § 151. A mistake can be MUTUAL or UNILATERAL: MISUNDERSTANDING - If the agreement includes a term that has multiple possible meanings, the result depends on the parties' knowledge of the misunderstanding: MISREPRESENTATION - A misrepresentation is an ASSERTION OF FACT THAT IS NOT TRUE (i.e., a "lie"). A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist when the party not disclosing the fact knows that: DURESS UNDUE INFLUENCE ILLEGALITY UNCONSCIONABILITY If a defense is successful, the contract will generally be void or voidable. 1. A VOID contract is treated as though it never existed (i.e., neither party can enforce the contract). 2. A VOIDABLE contract is enforceable until a party takes action to rescind the contract (i.e., the adversely affected party may be able to enforce the contract).

1.1.4. 4. STATUTE OF FRAUDS - does this agreement trigger the requirement? An otherwise valid contract is unenforceable if the contract: 1. Triggers the statute of frauds; AND 2. Fails to satisfy the statute of frauds. CONTRACTS THAT TRIGGER THE STATUTE OF FRAUDS The following contracts trigger the statute of frauds ("M.O.U.S.E.R.") (M) MARRIAGE - A contract made in consideration of marriage triggers the statute of frauds. However, the marriage contract itself (i.e., the promise between two people to marry each other) does NOT trigger the statute of frauds. (O) ONE-YEAR PROVISION o A contract that by its terms CANNOT be performed within one year from the day after its formation triggers the statute of frauds. o The one-year provision is interpreted very narrowly. There generally must be no possible way that the contract could be performed within one year from formation.  E.g., A hires B to give him contract law lessons for the rest of A's life. Since A could die within one year from formation, the statute of frauds is not triggered under the one-year provision.  E.g., A hires B to build a full-scale replica of the Egyptian pyramids. Here, even though it is unlikely, it is possible that B could build the replica within one year from formation. Therefore, the statute of frauds is not triggered under the one-year provision. (U) UCC GOODS CONTRACTS FOR $500 OR MORE o A contract for the purchase or sale of goods for $500 or more triggers the statute of frauds. (S) SURETYSHIP o A suretyship contract generally triggers the statute of frauds. A suretyship contract is a three-party agreement where the surety promises an obligee to pay the principal's debt if the principal fails to pay the obligee (usually a suretyship contract is in the context of one family member wishing to help another family member get approved for some type of loan). o MAIN PURPOSE EXCEPTION: However, If the surety's main purpose in agreeing to pay the principal's debt is for the surety's own economic benefit, then the statute of frauds is NOT triggered. (E) EXECUTOR/ADMINISTRATOR OF AN ESTATE o Creditors of the estate have priority to the assets of the estate over beneficiaries. The executor or administrator of a will is responsible to use the estate’s assets to pay off the estate’s debts to creditors before distributing any assets to beneficiaries. However, if an executor or administrator of an estate promises to personally pay a debt that the estate owes to a creditor, the statute of frauds is triggered. This is very similar to a suretyship contract. (R) REAL ESTATE CONTRACTS o Any agreement or promise to transfer, receive, or create an interest in real estate triggers the statute of frauds.  Notably, agreements to build structures on land (i.e., construction projects) do not transfer, receive, or create an interest in real estate. Therefore, these types of construction project contracts do not trigger the statute of frauds unless they fall under the one-year provision. SATISFACTION OF THE STATUTE OF FRAUDS Once it is determined that the statute of frauds is triggered, the next issue is whether the statute of frauds has been satisfied. There are two main ways to satisfy the statute of frauds: 1. By a signed writing; SATISFACTION BY A SIGNED WRITING A writing will satisfy the statute of frauds if the writing: AND/OR 2. By performance. SATISFACTION BY PERFORMANCE Performance of oral agreements can satisfy the statute of frauds under the following circumstances.

1.2. Alternate theories - If a traditional contract was NOT formed, alternative theories of recovery available to plaintiff to enforce agreement or promise? (PQM)

1.2.1. Promissory estoppel - Under PROMISSORY ESTOPPEL, a promise is binding and enforceable if: 1. The promisor should reasonably expect the promise to induce action or forbearance from the promisee; 2. The promise does induce such action or forbearance; AND 3. Injustice can be avoided only by enforcement of the promise. NOTE: Promissory estoppel often arises in fact patterns where giFT PROMISES THAT LACK CONSIDERATION are made to CHARITY ORGANIZATIONS. Notably, a CHARITABLE SUBSCRIPTION (i.e., a WRITTEN PROMISE) or a MARRIAGE SETTLEMENT is BINDING WITHOUT PROOF that the PROMISE INDUCED ACTION OR FORBEARANCE. Restatement (Second) of Contracts § 90(2). NOTE: The remedy granted for promissory estoppel MAY BE LIMITED AS JUSTICE REQUIRES. Restatement (Second) of Contracts § 90(1). Courts that follow the restatement approach usually LIMIT THE PLAINTIFF'S RECOVERY to the MONETARY VALUE OF THE LOSSES INCURRED in RELIANCE on the promisor's promise (i.e., RELIANCE DAMAGES).

1.2.2. Quasi contract QUASI-CONTRACT ("IMPLIED-IN-LAW" CONTRACTS) - Even if a traditional, enforceable contract does not exist between the parties, a plaintiff may still be entitled to relief under the alternative theory of quasi-contract. Under a quasi-contract theory, restitution may be available to the plaintiff if: 1. The plaintiff conferred a measurable benefit to the defendant; o The benefit conferred must have calculable economic value (e.g., goods/services). 2. The plaintiff conferred the benefit with the reasonable expectation of being compensated for its value; AND o A party cannot recover restitution under a quasi-contract theory for conferring a gift to another party because there is no expectation of compensation when giving gifts. 3. The defendant would be UNJUSTLY ENRICHED if he were allowed to retain the benefit without compensating the plaintiff, because either: o The defendant knew or had reason to know of the plaintiff's expectation to be compensated; OR  "Officious intermeddlers" who supply unnecessary services to unwilling recipients cannot recover restitution under a quasi-contract theory. o The plaintiff had a reasonable excuse for conferring the benefit without the defendant's knowledge (i.e., emergency situations).  In Cotnam v. Wisdom, the court permitted the physician-plaintiff to recover RESTITUTION under a quasi-contract theory for rendering emergency medical services to an unconscious patient who could not have known that the plaintiff had an expectation of compensation. Cotnam v. Wisdom, 104 S.W. 164 (Ark. 1907). NOTE: Under a QUASI-CONTRACT THEORY, the PLAINTIFF'S RECOVERY IS LIMITED TO RESTITUTION (i.e., an amount equal to the ECONOMIC BENEFIT THAT THE PLAINTIFF CONFERRED ON THE DEFENDANT). "IMPLIED-IN-FACT" CONTRACTS An IMPLIED-IN-FACT CONTRACT is a contract that is INFERRED FROM THE ACTS or CONDUCT OF THE PARTIES (e.g., a customer telling a barber how they would like their hair cut and willingly accepting the haircut implies mutual assent between the parties even though the offer and acceptance were never expressly communicated). UNLIKE QUASI-CONTRACT, an IMPLIED-IN-FACT CONTRACT IS TREATED LIKE A TRADITIONAL, ENFORCEABLE CONTRACT (i.e., the plaintiff can recover expectation damages for breach of an implied-in-fact contract). Similar to quasi-contract, an implied-in-fact contract exists if: 1. The plaintiff conferred a measurable benefit to the defendant; 2. The plaintiff conferred the benefit with the reasonable expectation of being compensated for its value; AND 3. The defendant knew or had reason to know of the plaintiff's expectation to be compensated. NOTE: However, the main DISTINCTION BETWEEN AN IMPLIED-IN-FACT CONTRACT and a QUASI-CONTRACT is that ALL OF THE ELEMENTS OF A TRADITIONAL, ENFORCEABLE CONTRACT (MUTUAL ASSENT AND CONSIDERATION) must be shown by the parties' acts and conduct in order to establish an implied-in-fact contract. Notably, a quasi-contract need NOT BE SUPPORTED BY MUTUAL ASSENT (Cotnam court permitted recovery under a quasi-contract theory when one party to the transaction was unconscious and clearly unable to assent to the deal).

1.2.3. MORAL OBLIGATIONS WITH SUBSEQUENT PROMISES Even if a traditional, enforceable CONTRACT DOES NOT EXIST between the parties due to lack of consideration, a PLAINTIFF MAY STILL be ENTITLED TO RELIEF UNDER A MORAL OBLIGATION While PAST CONSIDERATION IS NOT CONSIDERATION, some courts may nonetheless ENFORCE A PROMISE SUPPORTED BY PAST CONSIDERATION if there is a STRONG MORAL OBLIGATION AND JUSTICE SO REQUIRES. 1. In the early 19th century case of MILLS V. WYMAN, Mills provided medical care for Wyman's adult son who became ill while away from home. Grateful, Wyman later promised to pay Mills for helping his son recover from the illness. When Wyman reneged on his promise, Mills sued for breach of contract. The court held that promises made in recognition of past benefits are not enforceable (i.e., past consideration). The court reasoned that Wyman may have had a moral duty to uphold his promise to Mills, but not a legal one. Mills v. Wyman, 20 Mass. (3 Pick. 207 (1825)). 2. However, 110 years later in Webb v. McGowin, the court reaches the opposite result. Webb, an employee of McGowin, sustained permanent injuries acting in a heroic effort to prevent a 75 lb pine block from striking McGowin, likely saving McGowin's life. Grateful, McGowin later promised to pay Webb a biweekly sum of money for the rest of Webb's life. McGowin upheld this promise paying Webb the promised sum for 8 years until McGowin died. Upon McGowin's death, McGowin's estate refused to continue paying Webb, and Webb sued. The court held that the moral obligation that motivated McGowin's promise justified enforcing the promise. Webb v. McGowin, 168 So. 196 (Ala. Ct. App. 1935). NOTE: Today, some courts may enforce a promise supported by past consideration if there is a strong moral obligation and justice so requires under Webb. However, other courts are more aligned with the Mills decision and refuse to enforce a promise that lacks consideration on the basis of a moral obligation.

1.3. PERFORMANCE - If a traditional, enforceable contract was formed, did the parties perform their contractual obligations under the contact? (SPWCEA)

1.3.1. 1. SUBSTANTIAL PERFORMANCE VS. PERFECT TENDER? If a TRADITIONAL, ENFORCEABLE CONTRACT IS FORMED, and either party FAILS TO PERFORM THEIR CONTRACTUAL DUTIES WITHOUT A VALID EXCUSE for nonperformance, then the breaching party may be HELD LIABLE FOR BREACH OF CONTRACT. PERFORMANCE UNDER COMMON LAW: Under the common law, SUBSTANTIAL PERFORMANCE is required, which means that performance will be satisfied so long as there is NOT a MATERIAL BREACH of the contract. If there is a MATERIAL BREACH, the NON-BREACHING PARTY'S PERFORMANCE IS DISCHARGED. If the breach is NOT MATERIAL, the non-breaching party's performance is NOT DISCHARGED. PERFORMANCE UNDER ARTICLE 2 OF THE UNIFORM COMMERCIAL CODE Under the UCC, PERFECT TENDER is required, which means that a SELLER MUST DELIVER conforming goods in ACCORDANCE WITH THE TERMS of the contract (i.e., “perfect goods” + “perfect delivery”). The SMALLEST NONCONFORMITY is considered a breach that allows the buyer to REJECT ALL OR A PORTION OF THE GOODS. However, there are THREE MAIN EXCEPTIONS: 1. The PARTIES CAN CONTRACTUALLY CHANGE the default rules to include discussion of SUBSTANTIAL PERFORMANCE INSTEAD OF PERFECT TENDER; 2. INSTALLMENT CONTRACTS (agreement for delivery in separate lots) do NOT have to satisfy perfect tender – the buyer can REJECT A SPECIFIC INSTALLMENT DELIVERY when there is a substantial impairment in the installment that cannot be cured; 3. If the seller fails to tender perfect goods, the buyer MUST give the seller a CHANCE TO CURE THE NONCONFORMITY if: o The TIME FOR PERFORMANCE under the contract has NOT yet EXPIRED; OR o The SELLER HAS REASONABLE GROUNDS to believe that the buyer would ACCEPT A REPLACEMENT for the nonconformity. REVOCATION OF ACCEPTANCE (under UCC). If a buyer FAILS TO REJECT nonconforming goods after having had a REASONABLE OPPORTUNITY to inspect the goods, the buyer is DEEMED TO HAVE ACCEPTED the goods. The buyer MAY REVOKE his acceptance if: 1. The NONCONFORMITY SUBSTANTIALLY IMPAIRS the value of the goods; 2. The revocation occurs WITHIN A REASONABLE TIME after the buyer discovers or should have discovered the GROUND FOR NONCONFORMITY and before any substantial change in condition of the goods which was NOT CAUSED BY THEIR OWN DEFECTS; AND 3. The buyer accepted the goods: o On the REASONABLE ASSUMPTION that the nonconformity would be CURED and it HAS NOT BEEN seasonably cured; OR o Without DISCOVERY OF SUCH NONCONFORMITY if his acceptance was REASONABLY INDUCED either by the DIFFICULTY OF DISCOVERY before acceptance or by the seller’s assurances.

1.3.2. 2. PAROL EVIDENCE RULE - When the parties to a contract express their agreement in a WRITING with the intent that it embody the FINAL EXPRESSION of their bargain, the writing is an INTEGRATION. If the writing is not an integration (e.g., non-final expressions such as TENTATIVE DRAFTS), the parol evidence rule does NOT apply. Otherwise, an integration may be COMPLETE or PARTIAL 1. COMPLETE INTEGRATION. If the writing completely expresses ALL of the terms of the parties’ agreement, then it is a complete integration. Absent an exception, all other expressions or statements, written or oral, made prior to the writing, as well as any oral expressions made contemporaneously with the writing, are INADMISSIBLE. o A MERGER CLAUSE recites that the agreement is the complete agreement between the parties. This is usually strong evidence that the writing is a complete integration. 2. PARTIAL INTEGRATION. If the writing sets forth the parties’ agreement about SOME terms, but not all the terms, then it is a partial integration. Other expressions or statements, written or oral, made prior to the writing, as well as any oral expressions made contemporaneously with the writing, are admissible to SUPPLEMENT the writing so long as the evidence does NOT contradict the terms of the writing. 3. Parole evidence rule DOES NOT APPLY to: a. FORMATION DEFECTS. Extrinsic evidence may be offered to establish a defense to the formation or enforcement of a contract (e.g., incapacity, mistake, duress, lack of consideration, etc.). b. CONDITION PRECEDENTS. Extrinsic evidence may be offered if a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred. c. AMBIGUITY AND INTERPRETATION. Extrinsic evidence may be offered for the purpose of interpreting or clarifying an ambiguity in the agreement. d. SEPARATE DEALS. Extrinsic evidence may be offered if it represents a distinct and separate contract. NOTE. The parol evidence rule does NOT apply to agreements made between the parties AFTER the the execution of the writing. Agreements made after the execution of the writing would be analyzed as contract modifications, and do NOT trigger the parol evidence rule.

1.3.3. 3. WARRANTIES EXPRESS CREATION - Under UCC § 2-313(1), express warranties by the seller are created as follows: DISCLAIMER - "WORDS OR CONDUCT relevant to the CREATION OF AN EXPRESS WARRANTY and words or conduct tending to NEGATE OR LIMIT WARRANTY shall be construed wherever reasonable as consistent with each other; but . . . negation or limitation is inoperative to the extent that such construction is unreasonable." UCC § 2-316(1). I.e., it is VERY DIFFICULT TO DISCLAIM AN EXPRESS WARRANTY. IMPLIED MERCHANTABILITY FITNESS FOR A PARTICULAR PURPOSE

1.3.4. 4. CONDITIONS To understand conditions, we must distinguish them from promises: 1. A PROMISE is an expression of an intention to act or refrain from acting in a specified way such that it justifies another person in understanding that a commitment has been made (e.g., "I promise to pay you $200,000 for your house."). o EFFECT: A promise creates a legal duty. The nonperformance of a promise results in BREACH OF CONTRACT. 2. A CONDITION is an event, which is uncertain to occur, upon which a duty of one of the parties depends. In other words, a condition is a term that limits or qualifies a promise (e.g., "I promise to pay you $200,000 for your house on the condition that I get approved for a loan."). o EFFECT: A condition limits or qualifies a legal duty. The nonoccurence of a condition results in Performance Discharge. An EXPRESS CONDITION is one that is stated in the terms of the agreement. Look for conditional language to indicate an express condition: • "X only if Y . . ." • "X provided that Y . . ." • "X on the condition that Y . . ." • "X in the event that Y . . ." • "X subject to Y . . ." A CONSTRUCTIVE CONDITION is not expressly stated in the terms of the agreement, but is implied by the nature of the agreement. The most common constructive condition is the CONSTRUCTIVE CONDITION OF EXCHANGE. For example, suppose I agree to sell my niece an ice cream bar for $5. Here, I am promising to deliver my niece the ice cream bar and she is promising to pay me $5. Although our contract does not contain any language that expressly makes our respective duties conditional on the performance of the other, the law construes our promises as dependent on one another. Thus, my delivery of the ice cream bar is a constructive condition of my niece's duty to pay $5, and my niece's payment of $5 is a constructive condition of my duty to deliver the ice cream bar. If the law construes reciprocal promises under a contract as dependent on one another, WHICH PARTY IS REQUIRED TO PERFORM FIRST? a. Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary. Restatement (Second) Contracts § 234(1). b. Where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary. Restatement (Second) Contracts § 234(2). To avoid performance discharge, a condition must be SATISFIED unless the condition is excused. • Contracts may make a duty conditional on one party's personal satisfaction or approval of the other party's performance. a. Under the traditional approach, the satisfaction of a condition based on personal satisfaction is determined purely by the party's SUBJECTIVE SATISFACTION with the performance rendered by the other party, limited only by the obligation of good faith. b. Under the modern approach, the satisfaction of a condition based on personal satisfaction depends on whether a REASONABLE PERSON in the position of the party would have been satisfied with the performance rendered by the other party.

1.3.5. 5. EXCUSES DOCTRINE OF IMPRACTICABILITY/IMPOSSIBILITY A party's duty to perform under a contract is discharged if: 1. An UNFORESEEABLE EVENT occurs that makes performance extremely and unreasonably difficult or impossible; 2. The NONOCCURENCE of the event was a BASIC ASSUMPTION of the contract; AND 3. The party seeking discharge was NOT at fault. Restatement (Second) Contracts § 261. DOCTRINE OF FRUSTRATION OF PURPOSE A party's duty to perform under a contract is discharged if: 1. An UNFORESEEABLE EVENT occurs that destroys one party's principal purpose for entering into the contract (even if performance is not rendered impossible); 2. The NONOCCURENCE of the event was a BASIC ASSUMPTION of the contract; AND 3. 'The party seeking discharge was NOT at fault. Restatement (Second) Contracts § 265.

1.3.6. 6. ANTICIPATORY REPUDIATION ANTICIPATORY REPUDIATION Under the common law, anticipatory repudiation occurs when a promisor UNEQUIVOCALLY REPUDIATES a promise before the time for performance is due (by words or conduct). Under the UCC, anticipatory repudiation occurs when: a. When a buyer or seller UNEQUIVOCALLY repudiates a promise before the time for performance is due (by words or conduct); OR b. REASONABLE GROUNDS FOR INSECURITY ARISE regarding either party's ability or willingness to perform, and the repudiating party FAILS TO PROVIDE ADEQUATE ASSURANCES within a reasonable amount of time (not to exceed 30 days) upon the non-repudiating party's demand for adequate assurances. WHEN AN ANTICIPATORY REPUDIATION OCCURS, the non-repudiating party may:

1.4. Remedies - If a traditional, enforceable contract was formed and one party failed to perform their contractual obligations under the contract, what remedies are available to P? (MEM)

1.4.1. 1. MONETARY DAMAGES The default or normal remedy available to the plaintiff for breach of contract is money damages: (Money damages are designed primarily to compensate the injured party for the harm it suffered as a result of the breach. As such, the PLAINTIFF CANNOT RECOVER BOTH EXPECTATION DAMAGES AND RELIANCE DAMAGES. 1. His "EXPECTATION INTEREST," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the CONTRACT BEEN PERFORMED; The most common type of remedy available for breach of contract is an award for money damages based on the PLAINTIFF'S LOST EXPECTATIONS. Courts use the following formula to calculate the monetary value available to the plaintiff for expectation damages: EXPECTATION DAMAGES = (LOSS IN VALUE) + (OTHER LOSS) - (COST AVOIDED) - (LOSS AVOIDED) 2. His "RELIANCE INTEREST," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the CONTRACT NOT BEEN MADE; OR As an alternative to expectation damages, the plaintiff may recover reliance damages, which includes EXPENDITURES MADE IN PREPARATION FOR PERFORMANCE OR IN PERFORMANCE, LESS ANY LOSS THAT THE BREACHING PARTY CAN PROVE WITH REASONABLE CERTAINTY the plaintiff would have suffered had the contract been performed. Restatement (Second) Contracts § 349. In other words, reliance damages usually consist of nothing more than the EXPENSES THAT THE PLAINTIFF INCURRED IN RELIANCE ON THE CONTRACT. Generally, a plaintiff seeks reliance damages when CALCULATING EXPECTATION DAMAGES IS TOO SPECULATIVE (e.g., lost profits of an unproven business venture is often too speculative). Problem 2: A wishes to sell his truck for $10,000. In an effort to sell his truck, A enters into a contract with B, a local television station, to air a 30-second advertisement for his truck. After the contract is formed, A pays an ad agency $1,000 to produce a video ad for B to air on their network. However, B refuses to air the ad resulting in breach of contract. Is A entitled to money damages? Here, A probably could not recover expectation damages for the potential sale price of the truck, because it is too speculative as to whether the ad would have resulted in the sale of his truck. However, A could recover the $1,000 he spent in reliance on his contract with B. 3. His "RESTITUTION INTEREST," which is his interest in having RESTORED TO HIM ANY BENEFIT THAT HE HAS CONFERRED ON THE OTHER PARTY. RESTITUTION The goal of restitution is to PREVENT UNJUST ENRICHMENT. Damages in restitution award the plaintiff an amount EQUAL TO THE ECONOMIC BENEFIT THAT THE PLAINTIFF HAS CONFERRED ON THE DEFENDANT. In contract law, restitution may be available: Unlike reliance damages, to be entitled to restitution, the plaintiff must have CONFERRED A BENEFIT ON THE DEFENDANT. In Problem 2 (above), A could not recover $1,000 in restitution, because A did not confer an economic benefit to B. If A had paid $2,500 to B for the advertising time slot, then A would be entitled to recover $2,500 in restitution for the economic benefit conferred. Restatement (Second) Contracts § 344

1.4.2. 2. EQUITABLE RELIEF When MONETARY DAMAGES ARE INADEQUATE, a plaintiff may pursue EQUITABLE RELIEF. If successful, the court will generally COMPEL THE BREACHING PARTY TO TAKE AN ACTION OR REFRAIN FROM TAKING AN ACTION. In determining whether monetary damages are adequate, courts consider: 1. The DIFFICULTY OF PROVING DAMAGES WITH REASONABLE CERTAINTY (i.e., calculation is too speculative); 2. HARDSHIP TO THE DEFENDANT; 3. Balance of EQUITIES; 4. PRACTICALITY OF ENFORCEMENT; AND 5. MUTUALITY OF THE AGREEMENT. SPECIFIC PERFORMANCE In contract law, specific performance COMPELS A DEFENDANT TO PERFORM THEIR LEGAL DUTIES UNDER THE CONTRACT through the THREAT OF IMPRISONMENT FOR CONTEMPT. Specific performance is commonly available when UNIQUE/RARE GOODS or TRANSFERS OF REAL ESTATE are involved in the breach of contract action. RIGHT OF RECLAMATION (REPLEVIN) Under UCC § 2-702, a seller may reclaim the goods she sent to the buyer if either of the following circumstances apply: 1. When an INSOLVENT BUYER receives GOODS ON CREDIT, and the seller LEARNS THAT THE BUYER IS INSOLVENT, the seller may RECLAIM THE GOODS if a demand is made WITHIN 10 DAYS after the buyer's receipt of the goods. However, the 10-day limitation does NOT apply if the buyer misrepresented his solvency to the seller in writing within 3 months before delivery. 2. If the buyer pays with a CHECK THAT IS SUBSEQUENTLY DISHONORED, then the SELLER MAY RECLAIM THE GOODS following a demand made within a REASONABLE AMOUNT OF TIME.

1.4.3. 3. MITIGATION OF DAMAGES MITIGATION OF DAMAGES The PLAINTIFF has a duty to take REASONABLE STEPS TO MITIGATE HIS LOSSES. If the plaintiff FAILS to do so, the court will REDUCE THE TOTAL DAMAGES by the AMOUNT THAT COULD HAVE BEEN AVOIDED had the plaintiff taken reasonable steps to mitigate his losses.

2. B. Applicable authority - Common law or UCC Art. 2

2.1. UCC Article 2

2.1.1. "Goods" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107). U.C.C. § 2-105.

2.2. Common law

2.2.1. Services or real estate

2.3. Mixed contracts

2.3.1. All-or-nothing - UCC and CL cannot govern one contract simultaneously, rather they must be governed solely by one or the other Limited exception for divisible contracts that divide goods and services into separate "sub" contracts

2.3.2. Predominant purpose - does goods or service play a bigger role? (goods = UCC / services = CL)