Framework for analyzing contracts The following framework (or checklist) can be used when we go through contracts hypotheticals

to analyze the validity of a contract, its enforceability, and what kinds of remedies can be proscribed in the case of breach. 1. Which law applies: Common Law or UCC? a. If the contract is for a sale of goods as dened under Article 2 of the UCC, then the UCC applies. In some circumstances, the thing being contracted for is a hybrid of both a good and a service. In this case, conduct an analysis to gure out if the good is customized or whether it makes more sense to classify the thing as a service. b. Custom made goods are still considered goods: if something could be characterized more as a good then as a service (even if it was a custom-made good requiring extensive work), it is a good for purposes of the UCC. c. If the contract is not for a sale of goods as dened by Article 2 of the UCC (i.e. it is not a type of property that is movable (i.e. land, services, some kinds of realestate)), then the common law applies. d. Other exceptions of applying the UCC i. Leasing to buy: a lease to buy contract is a form of a real estate contract where a tenant/buyer choose the home and seeks a landlord/seller to serve as the investor for a given lease period after which time the buyer will have the option to purchase the land or property. e. If law does not say otherwise, apply the common law. Courts in Arizona have said (in Deloach v. Arizona) that in the absence of any clear precedent on a particular area of law, they would apply the restatements. 2. Does the statute of frauds apply? (A defense to enforcement) b. General requirement of writing: If the contract is for a value less than $500 in Arizona and the terms of the contract species that the contract is to be fullled within one year of formation, then the contract doesnt have to be in writing. ii. Custom made goods exception to this rule: In the case that a good is either a hybrid good or a custom-made good, the statute of frauds doesnt apply. (A.R.S. 47-2201) iii. Writing form? When it is specied that a contract must be in writing, there is no strict requirement on where exactly during the process of the contract the writing must enter into. The only requirement is that a reasonable amount of time would have passed between initial formation and the time the contract is put in writing and that the party receiving it knows of its contents. 2. Goods accepted or paid for exception to the statute of frauds: no writing is required for goods where payment has been made or where goods have been received and accepted. b. Example: Buyer orally orders three pairs of shoes from Seller for a total of $600. Buyer then sends a check for this amount in advance payment. Once Seller takes the check and deposits it in the bank, Seller loses his Statute of Frauds defense.

c. One-year performance: if a contract is not to be performed within one year of its formation, it MUST be in writing. d. Effect of the statute of frauds: the statute of frauds, if applicable, acts as a defense to enforcement of the contract. It could be invoked by either the offeror or the offeree. 3. Was a valid contract formed? a. Look at whether or not there was a valid offer, acceptance, and consideration involved. i. Offer: manifestation of a willingness to enter into a bargain. The offer creates the power of acceptance. The offer is important because it gets the whole ball rolling. It begins the bargaining process (which is required for there to be valid consideration). a. Terms must be reasonably certain: according to common law, even though there may be a manifestation of intention to make an offer, it cannot be accepted unless the terms of the contract are reasonably certain. b. Begins the bargaining process: the offeror must voice his intent to be presently and legally bounded by the contract. This means that the receiving party must be aware that he has the power to accept and that this power is not available to anyone else. c. Where there is no mutual assent (i.e. the offer was made in jest) then there is no contract: an offer which the offeree knows or should know is made in jest (i.e. jokingly) is not a valid offer. Thus, even if it is accepted no contract is created. There are two very general exceptions when an offer made in jest might be binding: 1) The party has to know that one is not joking. 2) What would a reasonable person think under similar circumstances?

d. UCC Transactions: if the offer involves the sale of goods, an offer to buy goods is irrevocable or rm if it is made (1) by a merchant; (2) in a signed writing; (3) gives explicit assurances that the offer will be held open. e. Exceptions: Advertisements: an advertisement is not an offer since it doesnt contain language that obligates selling. The only times when an advertisement could be considered an offer is when: (A) there are specic terms in the advertisement indicating commitment (example: 100 mens jackets at $26 / jacket, rst come rst served starting Saturday); and (B) there are words of commitment in the advertisement. Auctions: an auction is not usually considered an offer since it is a solicitation of offers. If, however, the sale is said to be without reserve, the auction may be considered to be an offer. 4. Counter-offer: the making of a counter-offer impliedly manifests a rejection of the offer and therefore terminates the offer. The signicant point is that

the making of a counter-offer ordinarily communicates to the offeror that the offeree does not wish to accept the offer. In this sense, a counter-offer is not necessarily a rejection of an offer, it is rather a termination of the power of acceptance in the offeree. c. Elements of a counteroffer: iii.Counter-offer is an offer made by an offeree to the offeror relating to the same matter as the original offer and proposing a substantial bargain different from that proposed by the original offer. iv.An offerees power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested contrary intention or unless the counter-offer manifests a contrary intention of the offeree. ii. Acceptance: manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. 1. Offeror has complete control over his offer: offeror may choose the method by which he receives his acceptance. a. Unilateral performance demanded: here, the offeror creates an offer that demands a return performance as opposed to a bilateral performance where a return promise is accepted. i. Example under the UCC - shipment of goods: if a buyer of goods places a purchase order that does not state how acceptance is to occur, the seller may accept by either promising to ship the goods or by in fact shipping the goods. 2. When offer becomes effective: in most courts, the acceptance is effective upon proper dispatch. a. Acceptance is king - mailbox rule: If the offeree mails an acceptance before the rejection, then a later mailing of a rejection will not affect the force of the acceptance even if the rejection reaches the offeror rst. Principle: acceptance overtakes rejection. If the offeree mails a rejection rst and then an acceptance, the acceptance will become effective when it is received by the offeror. b. Exceptions: 1. Offer provides otherwise: mailbox rule does not apply if the offer provides otherwise (i.e. there is a provision in the offer that specically states that acceptance of the offer will become effective when the offer is received in-hand) iii. Acceptance varying from offer 3. Common law mirror image rule: under the common law, the offerees response operates as an acceptance only if it is the precise mirror image of the offer. If the response conicts at all with the terms of the offer, or adds new terms, the purported acceptance is in fact a rejection and counteroffer. 4. UCC 2-207 - modication to the mirror image rule (battle of the forms): A denite and seasonable expression of acceptance or a written conrmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made

conditional on assent to the additional or different terms. The UCC modication to the common-law mirror image rule basically changes the common law provision that the acceptance must mirror exactly the offer or else it is considered a counter-offer. c. Follow the steps listed below to analyze if the acceptance is valid under 2-207: d. Step 1: Determine if the offeree accepted the terms of the contract: 2-207(1) provides that any expression of acceptance or written conrmation will act as an acceptance even though it states terms that are additional to or different from those contained in the offer. e. Step 2: Determine if there are additional terms in the contract: 2-207(2) is where we turn to if we want to determine whether the added terms become part of the contract (but only if the contract is not made conditional on the new terms. If acceptance is made conditional on new terms, it is a counteroffer). f. Step 3: Determine if the acceptance is made conditional on acceptance of the additional terms: an expression of acceptance does not form a contact if it is expressly made conditional on assent to.... additional or different terms. So if the purported acceptance contains additional or different terms from the offer, and also states something like, This acceptance of your offer is effective only if you agree to all of the terms listed on the reverse side of this acceptance form. there is no contract formed by the exchange of documents because there hasnt been an effective acceptance by the offeree. Instead what we have is a counteroffer and the original offeror must accept these changes. ** We can stop here if the contract is not between two merchants. If at least one of the parties is a merchant, proceed to step 4. g. Step 4 (only to be used when there is a valid contract and acceptance of the additional terms is not a pre-condition to formation of the contract): where the offerees response contains an additional term, the consequences depend on whether both parties are merchants. iii. At least one party is not a merchant: if at least one party is not a merchant, the additional term does not prevent the offerees response from giving rise to a contract, but the additional term becomes part of the contract only if the offeror explicitly assents to the additional term. 1. Example: Consumer (offeror) sends a purchase order to Seller (Offeree) but does not mention how disputes are to be altered. Seller sends acknowledgement back to Consumer but adds the term that disputes are to be arbitrated. The additional term is not effective unless the consumer agrees to it. 2. If the offeror begins performance of the contract without agreeing to the additional terms, whether or not he is to be bound by the additional terms must be determined by evaluating his conduct.

iv. If both parties are merchants: the additional term automatically becomes part of the contract with three exceptions: 3. Materiality: if the additional term materially alters the contract, it shall not become an additional part of the contract. 4. Objection: if the offeror objects to the additional term submitted by the offeree, then it will not become part of the contract. 5. Original offer bars: If the original offer expressly states that the terms of the offer control and that no additional terms will be acceptable, then additional terms are not part of the contract. h. If the parties have not agreed in their writings, contract established by performance: where the writings of the parties do not establish a contract, a contract may result from the conduct of the parties. If additional terms were added to the contract upon acceptance, then they are valid only if the original offeror agreed to them or if the original offeror has acted such that he could be inferred to have agreed to the additional terms. 5. **General note on offer and acceptance: Offer and acceptance together equate to mutual assent which is required if a contract is to be legitimate (i.e. legally binding) 6. Consideration: this for that. It is the actual thing that the parties are contracting for (and no this thing is not usually the cold-hard cash!). Consideration usually confers a benet onto the party who the promisor is contracting with. There are a couple different kinds of consideration: i. Unilateral performance: when one party is expected to act in fullling their end of the bargain (i.e. one neighbor agrees to mow the others law in return for a payment. The one neighbor acting with the other waiting for his performance is unilateral performance). ii. Bilateral performance: here, both parties to a contract make promises. (i.e. A offers to pay B $1,000 on a specic date if he does something for him). d. Bargained for exchange: in order for there to be consideration, there must be something that each party bargains for; some kind of return performance: it is not enough that the promise induces the conduct of the promisee or that the conduct of the promisee induces the making of the promise; both elements must be present if there is to be a bargain. iii.The bargained-for exchange element: 3. Detriment: it is crucial to the concept of consideration that one party be incurring a detriment by entering into a contract. They are giving something up to receive something in return. The one party that is giving up something is the promisee. 4. Bargained-for-exchange: the agreement between two parties to a contract must be a this-for-that type of exchange. 5. Pre-existing duty rule: one cannot refrain from doing something they were already legally obligated to do. If one promises to do or does that which one was already legally obligated to do, this

action is not a legal detriment and is not sufcient to fulll the legal detriment requirement. b. Even if there was an offer, acceptance, and there was consideration, a contract could still be invalid by virtue of a defect. (See Point 5 below) c. Objective theory of contracts: just as in torts, there is an objective standard we can use to determine whether a contract has been formed. The objective theory of contract says that whether or not theres been an offer or acceptance is determined by how a reasonable person in the other partys shoes would interpret a partys intentions. (This goes to the issue of Point 5 above where the contract was made in jest.) 4. After considering whether the requisite steps of contract formation are satised, look at whether the parties had the legal capacity to enter into the contract. a. Capacity: In general, minors lack the legal capacity to enter into contracts. However, under Rest. 2nd of Contracts 14, minors can enter into voidable contracts up until the reach the age of majority. This means that the minor can disafrm the contract. i. Exception to disafrmance: if the contract is for a necessary good (i.e. food, shelter, clothing, medical attention), the minor doesnt have the power to disafrm the contract. ii. Other exceptions to a minor entering into a contract: a minor can still enter into a valid contract if any of the following are true: 1. The minor is a veteran entitled to benets 2. The minor is married to an adult. 3. Also, for public policy reasons, a minor may not be able to disafrm a contract they have entered into. 4. Also, where a minor has entered into a contract concerning negotiable instruments (i.e. student loans), they cannot disafrm the contract. b. Mental incapacity: if somebody lacks a particular state of intelligence to the point that they cannot understand the terms of a contract, we cannot expect a true meeting of the minds (mutual assent) that a valid and enforceable contract would require. The one requirement of this exception in order for it to be a defense to enforcing a contract by the concerned party is that the mental defect must be known to the other party. (Mental illness is covered by Rest. 2nd. 12(2)) 5. Check to see if the contract has any defects. If it does, the following are defenses that can be asserted. (enforceability) a. Misrepresentation i. Common law denition: A misrepresentation is an assertion that is not in accord with the facts. Misrepresentation affects assent. Representations of fact constitute an inducement to the receiving party for which the representing party is deemed responsible. Remedy: if the party that has fallen susceptible to misrepresentation can prove that they were harmed by the misrepresentation, they are entitled to damages. (What kinds of damages? Most likely expectational, reliance, and perhaps unjust enrichment)

1. Not synonymous with fraud: misrepresentation can exist regardless of the guilty or innocence of the person who makes the misstatement. Misrepresentation can be either intentional or as a result of negligence. (Distinguish this from fraudulent misrepresentation) 2. No duty to disclose everything under common law unless....: law requires honesty not candor. Nondisclosure does not constitute misrepresentation unless there is some legal basis for imposing a duty to disclose. 3. Conduct as a misrepresentation: conduct that is designed to prevent, or likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist. 4. An injured party can also avoid: the injured party can avoid the contract but only if they notify the breaching party. ii. Elements of misrepresentation and proving misrepresentation: 5. Other partys state of mind: The plaintiff (or injured party) from a contract does not generally have to prove that the misrepresentation was intentionally made. A negligent or even innocent misrepresentation will usually be sufcient to avoid the contract if it is made as to a material fact. 6. There must have been justiable reliance by the party asserting misrepresentation. 7. Fact, not opinion: the misrepresentation must be one of fact rather than opinion. iii. Fraudulent misrepresentation: 162 of the restatements tells us that [a] misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker: A) Knows or believes that the assertion is not in accord with the facts B) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent or if the maker knows that it would be likely to induce the recipient to do so. Fraudulent misrepresentation contains two parts: the purpose of the promisor (the fraudulent part) and the intent. 5. Special remedy under fraudulent misrepresentation: 166 of the restatements provides a special remedy in the case of fraudulent misrepresentation - reformation. b. Mistake v. General denition: A mistake is a belief that is not in accord with the facts. vi. Unilateral mistake: where a mistake of one party at the time of a contract was made on a crucial point on which the contract was drafted and this has a bad impact on that party, the contract is voidable unless he is the one who made the mistake and a) effect of enforcing the contract would be absurd (unconscionable) b) the other party to the contract had reason to know of mistake or he caused it. vii. Bilateral mistake: mistake is made by both parties to a contract at time contract was made and has material effect on agreed exchange of performance. The mistake must meet the following three conditions in order for

it to be avoided or rescinded: 1) The mistake was made as to a basic assumption of the contract. 2) The mistake must have a material effect on the agreed exchange of performance. 3) The adversely-affected party who is seeking to avoid the contract must not be the one on whom the contract has imposed the risk of the mistake. Remedy: contract is voidable by the adversely affected party unless he bears brunt of responsibility. c. Duress i. General denition: available if a defendant can show that he was unfairly coerced by the plaintiff into entering into the contract, or into modifying it. Duress consists of any wrongful act or threat which overcomes the free will of a party. ii. Requirements for a nding of duress: nding duress requires: 1. an improper threat of sufcient gravity to induce the other party to manifest assent to an agreement and 2. assent must have in fact been induced by this threat. iii. Standard for determining if there is duress: although there are a number of ways in which a party can induce another through duress, the court has a subjective standard it uses to determine whether a partys free will has been overcome. Even though the will of a person of ordinary rmness might not have been overborne, if the defendant can show that he was unusually timid, and was in fact coerced, he may use the defense. 1. Lack of reasonable alternative: 175 of the restatements states that where a person is forced to enter into a contract, even though there is no physical threat, there could be no reasonable alternative. Where there is no reasonable alternative to entering into a contract, a party may be found to have entered into a contract by duress. iv. Remedy: where a partys manifestation of assent is achieved through duress, the party so induced can void the contract. d. Undue Inuence i. Generally: undue inuence is available as a defense where a person entered into an unfair agreement induced by improper persuasion. There are two ways in which assent to a contract can be gained by undue inuence: 1. Victim prevented from exercising his own free will because other party took advantage of his mental state. (Niche between incapacity and duress is lled; those who may be weak mentally are saved from predators) 2. There was a duciary relationship breach. e. Unconscionability v. Generally: in the absence of any one of the traditional defects impacting a partys ability go manifest consent (i.e. duress, misrepresentation, or mistake) a party may ask the court to nd the contract invalid simply because it is unfair vi. Unconscionable contracts or clauses: U.C.C. 2-302 provides the standard the court can use to determine whether a contract or clause is unconscionable and, if it is, what the court can do about it: FINISH

vii. Unconscionability and cases falling outside the scope of the U.C.C. The court may, at its discretion, rule that a contract is unconscionable even if it falls outside of the scope of the U.C.C. f. Public Policy Demands Enforcement or Lack of Enforcement: public policy can be used to compel the enforcement or non-enforcement of particular contracts based on a compelling public interest. 7. If some changes are made to the contract after it was formed, there might be some repercussions for the promisee if they are not careful to evaluate the modications. Furthermore, one of the parties may wish to bring terms into the contract that were discussed by the two parties in forming the contract but which were not actually written into the contract (parole evidence rule). a. Modication, rescission, and waiver i. 47-2209 of the A.R.S. invocation of the U.C.C. discusses that an agreement modifying a contract needs no consideration to be binding. However, it does require that there be mutual assent and the modication to a term must be in writing if appropriate under the U.C.C. - see below. 1. Defenses to contract modications: Although there is no requirement that modications to contracts need to be in writing (thereby removing the statute of frauds as a possible defense), a party who has manifested assent to the modication may be able to show that the assent was induced as a result of mistake, misrepresentation, undue inuence or duress. 2. Contract modication may need to be in writing however if... it it is a sale of goods and falls under the U.C.C. provision (i.e. the value of the goods is in excess of $500) ii. Compliance with common law and UCC: Under the common law, modications are permissible if the good is a specially manufactured good. The same compliance rule governs with the UCC: if the good is a specially manufactured good, then a modication is permissible. iii. Modication and requirements of writing - waived by the parties: where a writing requirement is party created and is imposed by the terms of contract, it is possible to nd that the parties agreed to waive the selfimposed writing requirement. iv. Modications of pre-existing duties: under the restatements, a pre-existing duty is one that a promisee was already legally obligated to do. If a party chooses to modify a pre-existing duty, there must be consideration if the modication is not fair and equitable. v. Settlement of claims: settlement of a contractual claim where a party agrees to take less in a settlement agreement is supported by consideration so long as the other party disputed in good faith the amount or validity of the claim. 1. Example: P, a painter, agrees to paint Os home for $5,000. The P does a bad job and O is not satised but proposes a lower price, $4,500, be paid to the painter. P accepts. The promise is binding because the painters promise is supported by consideration.

2. Example 2: if a promisor (A) makes a written promise to pay for past benets received but then reneges on this written promise and the promisee, B, agrees to forbear from suing A if A will agree to pay a smaller sum, the promise is binding and supported by consideration on As part because it was a settlement of Bs claims. 8. Enforceability Issues: Many of the things that affect the enforcement of a contract (including mistake, fraud, duress, capacity, and statute of frauds) have already been covered in this outline. The following are a couple more things to look out for as theories that prevent enforcement: a. Statute of Limitations - U.C.C. Provision: the U.C.C. 2-725 discusses statutes of limitation in contracts for sale. i. Four year rule: actions pertaining to contracts for a sale of goods must be commenced within 4 years after cause of action has accrued. 1. Cause of action accrues when contract is breached, breach of warranty occurs. b. Statute of Limitations - A.R.S. Provision: A.R.S. 12-501 discusses the statute of limitations and when an action accrues outside of a state. The action is considered to occur and action may be brought against that person when he returns to the state. Also for the purposes of the statute, the statute of limitations provided under the U.C.C. does not begin to run until person returns to the state. c. Public Policy / Illegality: If Enforceable contract is formed, what are its terms and conditions? 1. Parol Evidence Rule: the parol evidence rule can effectively be thought of as governing integrated written contracts. According to the common law, prior written and oral agreements are rendered inoperative where there is a later agreement between the parties. Where writings relating to the same subject matter are assented to as parts of one transaction, both form part of the integrated agreement. Where an agreement is partly oral and partly written, the writing is at most a partially integrated agreement. a. Use of Parol Evidence to Supplement Terms of a writing i. If extrinsic evidence contradicts the terms of the written agreement, they cannot be admitted. ii. There must be an integration clause in the contract in order for the parole evidence rule to apply as a defense. An integration clause is a clause in the contract that says that this is the nal version of the contract. 5. The purpose of integration clauses is to inuence parties to keep their nal written contracts clean and put everything that a party wants to put into writing. iii. If the written contract is found to be only a partial integration, extrinsic evidence will be admitted to supplement its terms to the extent that the supplement doesnt contradict the partial integration.

iv.If the written contract is found to be a total integration, the extrinsic agreement will not be permitted to be proven. The writing is a total integration, will be deemed the entire agreement between the parties. v. Evidence of course of performance, course of dealing and trade usage or custom will be admissible to supplement any integration, whether total or impartial. vi.Tests to determine whether a contract is a total or partial integration (1) What does the court use to determine the intents of the parties with respect to the thoroughness of the original agreement (was it total or complete?) (a) They look at the writing itself (the writing might be clear in its terms that it is the complete and exclusive statement of the terms or it might contain a clause which states that the writing is intended to be complete) (b) Face of the document test: court will look at the four corners of the document to make the decision on whether the document it total or partially integrated. (c) Restatement Standard - What would naturally be omitted: judge looks at the document and hears the terms of the extrinsic agreement sought to be introduced and circumstances surrounding creation of the document. If the judge decides that the parties did not intend to discharge the prior agreement when they executed the writing, this means that the writing, although nal as to what it contains, is not complete and is therefore only a partial integration. (d) The U.C.C. Standard: Section 2-202(b) permits evidence of consistent additional terms unless the court nds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. The meaning of complete and exclusive in this provision of the U.C.C. is answered by looking at the Restatement test above: the court determines if the additional terms would have been included in the written agreement. b. Exceptions to what can be considered extrinsic evidence v. Prior agreements: agreements made subsequent to the writing are extrinsic, but subsequent agreements never raise a parol evidence rule issue since they are modication issues. c. Interpretation of contract terms and what the parties wanted: when a court is interpreting the terms of a contract and deciding which ones are part of the nal contract and which discourse between the parties prior to signing the nal agreement should be consulted to give them meaning: **Note: all of the following apply to contracts for sales of goods and for contracts involving services. v. Course of Performance: a course of performance refers to the way parties have conducted themselves in performing the particular contract at hand. 5. example: a contract calls for repeated deliveries of highest grade oil. Evidence as to the quality of oil delivered and accepted in the rst installments would be admissible as a course of performance to help

determine whether oil delivered in a later installment met the contract standard. vi.Course of Dealing: a course of dealing refers to how the parties have acted with respect to past contracts. 5. example: look at the past contracts (unrelated to the particular contract that is in dispute) to see how the parties have done things in their other course of dealing. vii.Usage of Trade: a usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The meaning attached to a particular term in a certain region, or in a certain industry, would be admissible. 2. Absent Terms: there are certain terms that, although not directly written into the contract, are implied by law. These implied terms are usually referred to as constructive conditions of a contract. a. Implied and Constructive Conditions: Any term supplied by the court and not based upon the apparent intention of the parties is a constructive condition. i. Constructive condition: Where parties have omitted a condition from their contract but the court inserts an event which makes it a condition, this is a constructive condition. 1. Example: X promises to pick Y up at the airport at 12:00 noon for which Y promises to pay X $20. Although Xs act of meeting Y at the airport is not expressly stated in the contract, it is an obvious condition precedent of Ys obligation to perform. It is a constructive condition of the contract between X and Y. Has a Party Breached the Contract? Analyze each problem under this section to determine if one of the party has breached and, if so, what their rights might possibly be. 1. Uncured material failures a. Denition: uncured material failures refer to those portions of a contract that a party in breach has failed to perform. The restatements says that it is a condition of each partys remaining duties to render performance to be exchanged under an exchange of promises that there be no uncured material failure by the other party to be rendered at an earlier time. i. Material refers to the fact that they are major components or parts of the contract (ex. in a construction contract, a roof could be a material part of the contract). ii. Uncured refers to the fact that a party has failed to perform one major responsibility under the contract. Uncured could also mean defective performance. b. Substantial Compliance: I assume this is simply another way of referring to substantial performance so I will run with that denition. Substantial performance is a concept that is related to uncured material failures in that it relates to whether a party to the contract has fullled a major amount of his duties such that he

triggers the occurrence of a condition (usually the other parties responsibility to perform). i. Example: a contractor completes a home and B refuses to pay the remaining balance arguing that there are uncured material failures. If the breach is an uncured material failure on the part of the contractor, then the contractor is not entitled to the remaining balance. However if the breach is not material and the contractor substantially performed, contractor has a claim against B for the remaining balance and B has a claim against contractor for the defects. ii. Damages only appropriate if there are material failures. iii. Undue Economic Waste Exception: where a builder has substantially performed and there are no uncured material failures, builder may still have to x defects. If the value of the defects to the owner is less than the cost of xing the defects, however, then the injured party does not recover the cost for the replacement. c. Material and Immaterial Breach: In determining whether a failure to render or to offer performance is material, the following circumstances are signicant: i. Deprivation of benet that injured party reasonably expected ii. Degree of compensation that injured party can get for the deprived benet iii. Extent to which party failing to perform will suffer forfeiture iv. Possibility of breaching party curing his failure v. Extent to which breaching party conformed to good faith 2. Buyers Rights under the U.C.C. a. Right to reject non-conforming tender: if the buyer nds that, upon delivery of the goods, a single unit or the entire lot does not conform to the terms of the contract, the buyer can (1) accept the whole, (2) reject the whole, or (3) accept any commercial unit or units and reject the rest. Warranties, Damages, and Quasi-Contracts 1. Verify if the promisor made any warranties because if the promisor breaches the warranties in any way, the promisee is probably entitled to damages for relying on the warranty. Think of warranties as essentially mini contracts that are made in addition to the main contract. a. Denition: a warranty is a promise within a contract. To warrant is to promise. b. Express vs. Implied Warranties: if the agreement is something that is clear (i.e. written description, or something on the product itself) then it is an express warranty. An implied warranty isnt something that is clearly stated; it is assumed to apply. v. Express warranties requirements: 1. Dont need to be in writing. 2. Created when there is an afrmation of facts which relates to the goods and becomes part of the basis of the bargain. 3. The giver of a warranty does not have to use the literal words warranty in creating one. However, the sellers opinion does not create a warranty. c. Warranty of merchantability: implied warranty of merchantability is a type of implied warranty. Unless excluded or modied, a warranty that the goods shall be

merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. When a good is merchantable, it usually means that the goods must be t for the ordinary purposes for which such goods are used. v. Note: implied warranty of merchantability will always apply when the seller of a good is a merchant of that good. d. Warranty of tness for a particular purpose: This warranty applies to sellers that have special expertise. This is triggered if the seller at any time ascertains that the buyer is relying on the sellers judgment to select or furnish goods. e. Damages for breached warranties: the measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted. So when we are looking at the kinds of damages one can expect in the case that there is a breach of warranty, rely on the contract theory of "expectational damages" f. Waiver of Warranties: federal law does not allow a merchant to waive Implied warranties can be excluded but only if they are: 1. In writing; and 2. Conspicuous. 3. HOWEVER, there cannot be a waiver if there is a written warranty and if the customer enters into a service contract within 90 days of written sale. 2. If a contract was breached in any way, we should consider remedies (or damages), the good stuff! a. Expectation damages: these damages can be collected by an injured party and amount to the losses as a result of the consequences of breach. These damages are classied as expectational because they aim to put the plaintiff in the position he would have been in had the breach of contract not occurred. Expectation damages really go to the goal of an injured party getting something out of the bargain that they expected to get when they entered into it originally. b. Reliance damages: measure of compensation given to a person who suffered an economic harm for acting in reliance on a party who failed to fulll their obligation. c. Incidental Damages: awarded where there has been a breached contract and where the plaintiff has incurred some commercially reasonable expenses. Think of these damages as those that the party incurred in connection (or incidental) to the breach. d. Consequential damages: these are damages that an injured party incurs as a result (or consequence) of a breached contract. The damages can only be recovered if the injured party can prove that the damages that would be incurred as a result of the breached contract could be foreseen. e. Liquidated Damages: parties to a contract may negotiate contract terms providing for specic damages to be paid in the event of breach. Where this is done, these stipulated damages become the only damages that parties to the contract can recover. There are three general requirements for a liquidated damages clause:

i. They must be reasonably forecasted per the probable loss due to a breach ii. The harm that results from the breach must be difcult to calculate. iii. Parties must tailor the clause to the contracts circumstances (which means that the damages clause cannot be a penalty). 1. For this reason, many liquidated damages clauses must be very specic as to the timeline that damages may be collected and the sum of damages, depending on the underlying subject-matter of the contract. a. Example: Bob contracts to build a house for Charles and the contract provides that if the house is not completed within the time xed in the contract, Bob will pay Charles $30,000 as damages for the delay. This is an invalid liquidated damages clause because it is not an honest effort to estimate damages (it provides a xed sum). iv. Under Arizona law, liquidated damages in landlord/tenant contracts cannot exceed 150% of 1 months rent. v. Unconscionability of liquidated damages: where a liquidated damages clause is unreasonably low or unconscionable because they fail to account for much of the damage that an injured endured. RETURN f. Unjust enrichment: non-contract theory, but it can be applied to contracts where one party benets to the detriment of the other. One party gains a benet to the detriment of another; in the context of a breached contract, this benet was gained because the contract was breached. i. Unjust enrichment in general: in cases where the court cannot found that an enforceable contract has been made, it will allow relief under unjust enrichment, a form of restitutionary relief. ii. Requirements of unjust enrichment g. Specic Performance: this is a remedy sought by an injured party in a breached contract for the breaching party to perform. It is only available where the remedy at law is inadequate. In other words, specic performance can be obtained only if the money damage remedies discussed above will not sufce to provide a sufcient remedy for the victim of a contract breach. Specic performance is only available in instances where the subject matter of the contract is land or unique goods. It is not appropriate for services since there are many different alternatives when it comes to services. v. Exceptions 5. 367 - a promise to render personal service will not be specically enforced. 6. A party suing for specic performance cannot have a breaching party perform something they were already legally obligated to do (example: X is contractually obligated to construct a building for Y for $200,000. X requests or demands additional money for this work, and Y agrees to pay $210,000. X would be seeking to enforce Ys promise to pay the additional $10,000, thus identifying Y as the promisor. X, the promisee of that promise, incurred no detriment in doing or promising to do that which X was already legally obligated to do (building the house for Y), thus there was no consideration to make Ys promise to pay the additional sum enforceable.

3. Remedies for Buyers of goods provided by the U.C.C. e. Non-conforming tender of goods: there is a basic right under the U.C.C. for a buyer to reject goods delivered to them if there is a non-conforming tender. v. General Rule: when a shipment is non-conforming (i.e. it is not perfect tender), the aggrieved party has the option of rejecting: a) the entire shipment, b) accepting the non-conforming shipment and suing for damages, or c) accepting any commercially reasonable part of the shipment and rejecting the non-conforming parts of the shipment. vi. Rejection must be made within a reasonable period of time: When a time period for performance has not yet expired and there has been a nonconforming shipment, the seller has the automatic right to cure. There is also a right to cure in each of the following situations: 1. The seller reasonably believed that shipment of the non-conforming goods would be acceptable to the buyer 2. Time to cure may extend past the time of the original delivery date specied in the contract so long as it is within a reasonable amount of time and time is not of the essence. f. If buyer fails to cure a non-conforming tender of goods: a buyer may revoke acceptance of the goods if seller fails to cure or if assurances from seller induced the buyer to accept. g. Limitation of Damages Recoverable by Buyer: this concept is related to liquidated damages and, in fact, appears in the same section of the U.C.C. as the liquidated damages clause does. v. Buyers entitled to receiving any funds given to seller in excess of amount to which seller is entitled to. This is limited by: 1. Extent to which buyer has some other means to recovery (perhaps unjust enrichment.) 2. Amount of benets that buyer has received as a result of the contract. 4. Okay, okay. So there was no clear contract formed. Are we out of luck if we thought that we should be getting something for something we did? If yes, then a promise was made. Broken promises are entitled to some kind of relief, thankfully, but in very particular circumstances. a. 90 - promissory estoppel, quasi contract i. Denition: if a promisor makes a promise and should reasonably expect that the promisee would engage in some kind of action or forbearance, the promise is binding and enforceable if it would be an injustice for their to be otherwise. Remedy: may be granted as justice requires. ii. Hamer v. Sidway: stands for the proposition that forbearance of conduct must be conduct that is otherwise legal. This is also the proposition supported by common law. iii. Note about 90 and the statute of frauds: in the case that the statute of frauds does apply and a party is barred from recovering any damages traditionally, they can use 90 because the statute of frauds and 90 dont work together. 5. The Idea of Impossibility; Impracticability to Enforce a Contract

e. Key Provision of the Common Law and background rationale: Restatement 261 talks about the occurrence of an event upon which an assumption of the contract is based. If the party assumes that the building is there and wont burn down for example, then the mutual consent is kind of ruined if the building does in fact burn down. The Court, based on an English case from the 19th century (an opera that was going to be staged in London and before the opera could be performed, the building burned down. The opera singer wanted to be compensated anyways. The performer won and the Court sided with them since the parties had agreed on a particular performance). f. Key elements of impossibility / impracticability: 1. The thing happens after the contract has been written. 2. An event occurs, the non-occurrence of which was a basic assumption of the parties. 3. The event occurred through no part of the party seeking to avoid the contract 4. No language in the contract or circumstances suggest that performance would nonetheless be required. g. Damages: A common provision in contracts is a force mejeure clause. This allocates the risk should an unexpected occurrence even make performance impossible. What is a force mejeure? A force mejeure clause (often called the act of God clause). A force majeure clause is common in contracts and it essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs. 6. Third Party Beneciaries 1. In General: rights and duties under a contract can be delegated to another party so long as such a delegation is not unconscionable. 2. Delegator has continuing liability if he delegated his duties: when performance of a duty is delegated, the delegator remains liable. 1. Example: owner contracts with contractor for contractor to paint Owners house for $10,000. Contractor delegates his duties to Painter. If Painter fails to perform in the manner required by the original Owner-Contractor contract, Owner may sue Contractor for breach. 3. Delegable vs. Non-Delegable Duties: 1. Non-Delegable duties: a duty or performance is delegable unless the obligee has a substantial interest in having the delegator perform. a. Particular skills of promisor: contracts which call for the promisors use of his own particular skills are normally not delegable. (Examples: lawyers and doctors). b. Construction and repair contracts: construction, repair. 7. Conditions 1. Express conditions: an express condition is one that is written directly into the contract. Express conditions cannot be satised merely by substantial performance.

1. Express conditions and material breaches: If a condition is express and a party fails to fulll the condition, then this is considered an uncured material failure. 2. Implied condition: these are harder than express conditions because the court must look to nd them 3. Constructive conditions: these are conditions that are not agreed to by the parties but which is supplied by the court for fairness. 1. No-uncured material failures: must be substantial performance and no material breach. 2. Duty of Good Faith and Fair Dealing: a condition but one which allows parties to obtain 8. Repudiation 1. In general: if a party makes it clear, even before his performance is due, that he cannot or will not perform, he is said to have anticipatorily repudiated the contract. A victim of anticipatory repudiation to sue before the repudiators time for performance has arrived. 2. What constitutes repudiation: an anticipatory 3. Insolvency: insolvency by itself is not enough for a party to sue for repudiation. Instead, the insolvent party is required to give reasonable security. If a party fails to provide adequate security, then they have repudiated the contract. Addendum to Contracts I Outline - Damages I. Remedies A. General Notes on Remedies 1.Public Policy reasons for allowing remedies: contract remedies are directed at bringing to promisees the opportunity to redress breach. The question that is to be answered is how people can be encouraged to deal with those who make promises. 2. Breach not strictly forbidden: contract law does not compel both parties to fulll their end of the bargain through penalties like other areas of law might. Instead, remedies in contracts serve to promote the efcient distribution of resources. 3. Breach must be material to merit remedy: the rst question that must always be asked in guring out if remedies are appropriate is whether the breach of the contract giving rise to a request for remedies was major or minor. In contract law, there must be a major breach of the contract before remedies become possible. (Another way to phrase it is that a breach of the contract must be material before damages can be recovered.) B. Types of Remedies Available 1. Equitable Relief a) Equitable relief in general: in order for a court to grant equitable relief, a few things must be true: (1) Regular damages must be inadequate to protect the injured party (a) In order to nd whether damages would be inadequate under the UCC such that equitable relief was justied, the modern approach is

to compare money damages with equitable relief in order to determine which of remedy best serves the ends of justice. (2) Contract terms must be denite enough for the court to frame an adequate order (3) Courts will not grant equitable relief unless the terms of the equitable order can be easily enforced and supervised. (a) The requirement of enforcement and supervision illustrates one draw-back of equitable relief: it requires judicial supervision and enforcement, which may be costly and burdensome. (b) Another weakness of equitable relief is that the bargaining process between the parties in working out an agreement could break down and result in an impasse. b) Specic Performance: a decree for specic performance order the promisor to render the promised performance. (1) At common law and under the UCC, specic performance is usually granted only if the contract involves unique property. (a) example: A contracts to sell a plot of land to B on a stated date for a stated price. A then wrongfully refuses to make the sale. A court will force A to sell the land at the specied price. (2) Exceptions to contracts available for specic performance relief: (a) Service contracts: the restatements forbid service contracts from remedy of specic performance. c) Injunction: an injunction directs a party to refrain from doing a particular act. This remedy is especially common in cases where the defendant is sued by his former employer and charged with breaching an employment contract by working for a competitor. C. Various Damage Measures: there are three distinct kinds of interests which a disappointed or injured party may have which can be protected by courts: 1. Expectation: in most breached contract cases, the plaintiff will seek and receive protection for his expectation interest. Here, the courts attempts to put the plaintiff in the position he would have been in had the contract been performed. In other words, the plaintiff is given the benet of his bargain. 2. Reliance: with this type of damage, the court is protect a persons reliance interest. The court puts the plaintiff in as good a position as he was in before the contract was made. To put the plaintiff in this position, the court usually awards out-of-pocket costs that were incurred during the performance he has already rendered. If a plaintiffs reliance is protected, the plaintiff does not recover any part of the prots he would have made on the contract had it been completed. a) Reliance damages available when expectation damages hard to calculate: the reason why a plaintiff might seek reliance damages as opposed to expectation damages is that their expectation might be very difcult to calculate (i.e. prots from a new business in a dynamic area). b) Available in cases of promissory estoppel 3. Restitution: in this kind of damage award, the court forces the defendant to pay the plaintiff an amount equal to the benet which the defendant has received

from the plaintiffs performance. Restitution is designed to prevent unjust enrichment. D. Expectation Damages: 1. Expectation Damages Generally a) Benet of the bargain damages: the basic remedy of contract involved awarding money damages to compensate the aggrieved party for the loss of the benets which that party would have received had the contract been properly performed. Expectation damages, in other words, bring the injured party the benet of their bargain. b) Rationale behind expectation damages: the rationale for allowing expectation damages to be recovered is that these damages put the injured party in as good of a position as they would have been in. c) Calculating expectation damages: the formulation that a plaintiff is entitled to receive the benet of his bargain (or, alternatively, to be placed in as good of a position as he would have been in had the contract not been breached) is to receive damages equal to: (1) The value he has lost by reason of the other partys default, plus (2) The expenditures he has made (if any) in carrying out his own obligations under the contract, minus (3) Whatever benets P has received from not having to complete his own performance. 2. The UCC and Expectation Damages: the UCC applies the same damage rule to the purchase and sale of marketable goods. a) UCC Expectation Damages in General: (1) Buyers remedies in cases of a sellers breach: if a seller agrees to deliver certain merchandise to a buyer at a price of $1 a unit but fails to make delivery, the seller would be obligated to pay buyer whatever it costs buyer to cover the original contracted-for merchandise by making a purchase of substitute goods. So if buyer had to pay someone else $1.50 for the same goods he had contracted with seller to buy, buyers damages are 0.50. (2) Sellers remedies in cases of a buyers breach: if a buyer breaches a contract by repudiating or refusing to accept goods, Seller may resell those goods to other buyers in a commercially reasonable manner and (under 2-706) claim damages equal to the difference between the contract price and the resale price. In this sense, the seller is placed in as good a position as he would have been in if the buyer had accepted the goods and paid the price on the original contract. (a) Exception in cases of volume sellers to mitigate damages: if the standard measure of damages (different between the contract price and resale price) is inadequate to put the seller in as good a position as performance would have done because the buyer breached because the breach represented prot from a lost sale, the prot (including reasonable overhead) which the seller would have made from full performance by the buyer becomes the appropriate calculation of damages.

The volume seller exception can also apply to non-U.C.C. contracts like builders and contractors. i) Lost-volume seller exception does not apply to service or employment contracts. In the latter, a wrongfully discharged employee cannot claim to be able to ll two jobs simultaneously. In the former, it would be hard to argue that a person could have performed a personal service simultaneously with someone else. In such cases, the injured party is obligated to mitigate damages. (b) If a buyer is not a volume seller, b) Buyers and Sellers Rights under the U.C.C. (1) Buyers Rights: the following are buyers rights under the U.C.C. (a) Rejection of non-conforming goods: Reject non-conforming goods if they are not what the buyer expected to receive under the contract. If a buyer accepts the goods but then nds that they are defective, they can revoke so long as it is revoked in a reasonable amount of time. (b) Cover: if a buyer suffers a breach from the seller, he can also cover (meaning he substitutes goods from another source) and recover the difference between the substitute and the contractedfor price. THere are two conditions: i) The substitute must be reasonable. ii) Good faith without delay. (c) Consequential and incidental damages recoverable by a buyer covering: a buyer who has been injured by a breach can also recover consequential and incidental damages (d) Contract market/differential: here, the damages are the difference between contract price and the market price at the time of the breach. (2) Sellers Rights: the following are sellers rights provided by the U.C.C. (a) With-hold delivery (b) Cancel Delivery if already made (c) Wait it out (d) Re-sell the product and re-cover damages (e) Recover damages for non-acceptance (f) Cancel (g) Re-Sell Goods: an injured seller (buyer has breached) can recover the difference between the re-sale price and contract price with incidental damages (shipping and storing). (h) Contract/Market differential: a seller may recover the difference between the market price and the unpaid contract price if the seller is unable to re-sell the goods. (i) Lost Volume Seller: a lost volume seller must meet three requirements:

i) Must have a big enough supply that he could have made both the contracted for sale and re-sale. ii) Could have made re-sale as well as original sale had there been no breach. iii) Would have made prots on both sales. 3. Calculation of expectation damages: A plaintiffs expectation damages are equal to the following: (1) Value of the defendants performance (i.e. the contract price) (2) PLUS any sort of expenditures the plaintiff might have made in fullling his side of the bargain (3) MINUS whatever benets the plaintiff has received from not having to complete his performance b) Overhead: overhead are considered xed costs that a rm is obligated to pay as long as business continues. A question often arises whether overhead costs should be included in the cost avoided amount that is subtracted as damages a plaintiff could be entitled to for not having to perform. Overhead is not considered part of those costs that a seller is obligated to mitigate. The court in Vitex v. Caribtex Corp. ruled that overhead bore no direct relationship to any particular transaction and would have remained the same whether or not Vitex entered into a contract with Caribtex and whether or not it did the work required under the contract. c) Cost of completion or decrease in value: where a defendant has defectively performed, plaintiff normally can recover the cost of remedying defendants defective performance. But if the cost of remedying defects is clearly disproportionate to the loss in market value from the defective performance, plaintiff will only recover the loss in market value. (1) Economic waste: the principle is often applied where the defect is minor, and remedying it would involve economic waste such as the destruction of what has already been done. (2) The jist of the rule is this: where a breach would not cost that much to remedy but where the market value would be excessively large when compared to the cost to x the mistake, the injured party is entitled to the amount of money it would cost to x the mistake and not to the disproportionately large amount for the difference in market value. 4. Duty to mitigate damages a) Duty to mitigate in general: an injured promisee cannot recover damages for losses that, with reasonable effort, he could have avoided after the promisors breach became known. An injured party is legally obligated to take reasonable steps to avoid waste and minimize the cost of breach (1) Lost prots: an injured party must minimize their lost-prot claim by making reasonable efforts to substitute other arrangements for those provided in the contract.

(2) Reliance: an injured party, having learned of the breach, must do what they can to minimize their own claims; there are no claims based on reliance on further terms of an already breached contract. b) General test for mitigating damages: a person cannot recover the value of lost benets if and to the extent that there are opportunities to mitigate the loss by doing similar worthwhile things with his time and resources. (1) The Luten Rule: the victim of a breach has a duty to avoid actions that increase the other partys damages. c) Duty to nd substitutes: in general, an injured party must mitigate their damages by nding a close substitute to the good or service of the original breached contract. (1) In employment contract cases, an employee is not obligated to take any job in the economic universe; rather, the other employment must merely be comparable and not of inferior kind. (a) In general, a court will not nd that discharged employees who refuse to take positions that are demeaning or beneath their dignity have failed to mitigate. Instead, a court will consider the geographic location of the new position, danger posed by the nature of the employment, competence required, impact upon future employment and careers, etc. (2) In general, courts will evaluate the circumstances surrounding the subject matter and formulation of the original contract in ascertaining whether a substitute has been sought in good-faith in order to mitigate contract damages. d) Diminshed value vs. Cost of Replacement: the diminished value rule measures damages as the difference between the value of a thing as it stands with all of its faults and the value of that thing if it had been completed according to specications. Courts can compare the loss in value with the cost to repair the deciencies with the diminished value being used in cases where the cost of completion is really high. (The Economic Waste Doctrine) (1) Lack of substantial performance: where a breaching party has committed an uncured material failure, then the higher cost of completion might be used if the material failures must be cured. E. Construction Contracts and Damages 1. Lines of analysis to measuring direct damages for breach of contract: a) Substantiality of Performance: courts have adopted this measure of damages in cases where a breach has resulted in damages to a structure. If defects are repairable, the measure of the owners damages is the cost of repair if the defect is repairable. If the work results in a structure having a greater market value than the structure if constructed according to the original plan, the contractor is entitled to an offset in the amount of such enhancement. b) Repairability Analysis: c) Economic-Waste Analysis: where a builder has substantially performed and there are no uncured material failures, builder may still have to x defects. If

the value of the defects to the owner is less than the cost of xing the defects, however, then the injured party does not recover the cost for the replacement. (1) EXCEPTION: there is a major exception in cases where a party has not substantially performed (there are uncured material failures). In that case, the proper standard to use is the decline in market value, even if it is far less than the cost of replacement. ** Consequential and incidental damages are considered part of expectation damages. However, incidental damages misplace restitution and reliance damages.