1. is there an enforceable contract?
a. Was there true Mutual Assent? – (many times you can allege more then one of these)
i. Infant, minor can disaffirms a contract – but both parties have to give back what hasn’t been used and reimburse for what has been. (although traditional view is give back and no reimbursement)
-exceptions;
*after 18 reasonable time then, can’t disaffirm-implied ratification
*after 18 if ratified, can’t disaffirm
*For necessities can’t disaffirm
*if minor misrepresents age and is believable (depends on jurisdiction)
ii. mental infirmity- (lucy v. zehmer, low iq, etc.) this is why witnesses are required for wills.
Two tests; cognitive test (did they understand contract?)
Volitional test (could they stop themselves from agreeing to it)
Restatement §15 says either can be used, but where contract has fair terms and other party didn’t know, then court has discretion to grant relief as justice requires (or not).
iii. fraud, when Someone1. lies, 2.knowing other party will rely on it, 3. it is a material fact,4. other party is harmed by lie
only when you make positive misrepresentation
keeping mouth shut is never fraud except (see restatement of contracts second; §161 (page 211))
when confidential relationship presumption that contract is fraudulent and voidable
injured party can’t void if already taken benefit.
iv. undue influence; leaves a person without capacity to contract, even though not completely incapacitated. don’t need confidential relationship. Need high pressure or over persuasion.
Look for several of the following.
-dominant and subservient roles where dominant exerts influence
1. discussion at unusual or inappropriate time
2. consummation at unusual place
3. insistent demand that business be finished at once
4. extreme emphasis on untoward consequences of delay
5. multiple persuaders by dominant party against a single subservient party
6. absence of third party advisors
7. statements that there is no time to consult experts or others (financial advisor or attorney).
v. duress must be unlawful confinement of person’s or property
vi. economic duress, voidable contract
-party must show that wrongful acts (moral or illegal) by D, and no reasonable alternative for P.
vii. mutual mistake- contract voidable if mistake is mutual, at time of contract, and has material effect (and party seeking void, didn’t assume risk)
viii. unilateral mistake- no rescission, unless party B knows party A is making mistake and doesn’t mention/takes advantage. Courts of equity usually grant relief in mistaken bids, especially when caught right away and no harm to other party.
ix. unconscionability (usually fallback argument)- contract is unconscionable when there was no meaningful choice (procedural) on the part of one of the parties, and the contract terms are unreasonable[z1] (substantive). Courts must weigh both factors, but can be found on just substantive alone. If only procedural then go to fraud or duress.
x. misrepresentation- makes a contract voidable, must be material fact[z2] , and reasonable reliance by other party.
b. Is this contract one that a court will enforce?
i. Is this a type of contract covered by the Statute of Frauds? (if modified then check “new” contract again)
-executor out of own pocket
-promise to pay debts of another/suretyship (unless actual benefit to third party was primary reason to agree).
-consideration of marriage
-upon contract or sale of land. (but leases under 1 year usually ok)
-any agreement that can’t possibly be performed within one year.
a. if yes, then is there a writing that will “satisfy the statute”? a memorandum signed by party (want to enforce it against) and had general terms. (doesn’t have to still be in existence or formal contract-email, electronic signature OK). Courts differ on whether other documents count as part of contract (some ask express reference to them in memoranda, some say reference to same contract is enough)
If no memorandum, then exceptions;
Restitution (for benefit taken, time worked etc.)
Part performance (preparation for performance doesn’t count) (restate §129)usually courts ask for 2 of 3 elements and reasonable reliance.
1. delivery and assumption of actual and exclusive possession of land
2. payment or tender of consideration
3. permanent, substantial and valuable improvements.
Equitable estoppel; basically when someone misrepresents requirements for SOF.
Promissory estoppel; reasonable reliance, changed position etc. restate §139
b. if no, then move on.
ii. Is this a contract that the court will refuse to enforce because the agreement itself is illegal? if bargain violates statute or law, then many contracts are declared illegal and will not be enforced by courts. BUT courts will look at the reason behind the law[z3] (like negligence per se).
-covenants not to compete; ‘restraints of trade”
*Employment; courts usually find them ok or throw them out (if ancillary to employment contract) (don’t want to blue pencil, cause then would encourage employer to make as strict as could and worried about in terrorem effect). Courts look to see if reasonable or unreasonable. Usually weigh need for employer to safeguard investment/legitimate interest v. employee need to make living/undue hardship.
*
iii. Impossibility-change after contract made, that makes performance impossible, or extremely difficult and this specific change was not contemplated by parties when contract formed. In other words, was the assumption that the thing would not change an implied condition of the contract? if yes, then impossibility. Restatement §261
-exceptions;
*if one party has reasonable control [z4] over a condition (then not impossibility).
*if one of the parties knowingly assumed the risk of this change
*change in market price, almost never found by courts to be impossibility
-frustration of purpose: can perform, but reason for performance is gone/mostly gone.
*was the purpose of the contract an implied/express condition
iv. commercial frustration- when performance is possible, but the purpose of the contract is frustrated. Rarely allowed.
A. elements
1. an event that frustrates both of the parties’ purpose for making the contract.
2. that purpose is completely frustrated
3. the party asserting this defense hasn’t assumed this risk or at fault in anyway for the circumstances.
2. What is the enforceable contract? (or what were the parties duties to perform?)
a. what does the language of the contract say?
If it is not plain[z5] , then;
b. What does the extrinsic evidence of the parties intent say?
-is parol evidence allowed here? Evidence outside contract is not allowed if made before the writing of the contract or during are inadmissible to contradict/vary terms of the writing of a fully integrated[z6] contract. ( evidence showing that contract never made, admissible).
Even if plain, then;
-course of dealing(how parties behaved in past) or usage in trade and course of performance(how parties behaved in this contract) to date can be used. ( I think this might only apply to UCC cases, not sure?)
3. Was there a breach?
a. Were there any caveats to performance*?;
i. Was the caveat a promise or a condition?
A. Did the parties mean to make this caveat material to the contract?
-If written expressly into contract, then YES. (Express; this condition is material to contract/of essence)
-condition of personal satisfaction, OK if reason for it (art, personal service etc.)
-otherwise condition will be construed to mean objective satisfaction.
-Do the circumstances around the contract clearly show that the parties intended this to be a material? Was it an event foreseeable? Then, YES.(Implied in fact)
RULES; *general legal policy against forfeitures.
*Insurance policies generally construed against insurer.
*When doubtful if promise or condition precedent, construe as promise.
* what did the parties actions show about their intent.
- Is this a case were there equitable factors will lead the court to “construct” a condition that really wasn’t there. Then YES. (Constructive condition /implied in law)
-amorous greek case; implied in employment contracts, respectable behavior
-implied condition of good faith and fair dealing
B. was this condition material to the contract?
Use especially for construction contract and time of essence. There must be material, not just parties saying it is material.
C. what is the order of performance? When are the parties’ duties triggered? (decide which one it is from the evident sense and meaning of parties and order of time in which the intent of transaction requires their performance. the default order to consumer contracts is: buyer has to show ready and willing to pay, then triggers duty to delivery goods and then buyer’s duty to pay is triggered.
-restat. §240; pairs of performance in larger contract (then performance of one part of pair, triggers performance of other part)
-if mutual and independent, parties duties are triggered when contract formed.
-if conditions are dependent upon performance of another then only triggered when other performs. If performance is one that will take a period of time and other is not then the duty to perform is triggered when the longer one is done.
-if conditions are mutual and meant to be performed at the same time, then the one who is ready to perform may maintain an action of default of the other.
D. If YES, then was the condition supposed to happen to trigger performance or did it discharge duties?
-condition precedent- (I will pay if…) contingency must happen before duty to perform is triggered.(also for burden of proof-at trial presumption that contingency didn’t happen)
- condition subsequent- (I will pay unless..)contingency discharges performance. So NO breach. (for burden of proof at trial, presumption is that contingency didn’t happen)
E. If NO, then it was a promise.
-when it is doubtful if promise or condition, construe as promise.
ii. Did the parties asserting condition as defense cause the breach? Then can’t use as defense.
iii. Did the parties waive this condition based on their actions? Then can’t use as defense.
b. given the answer to #3, did the parties substantially perform?
i. Was breach material?
A. was effect of default out of proportion to burden of forfeiture? if yes, then not material and did substantially perform.
B.
ii. Did breaching party perform in good faith/not at fault?
iii.
4. If the parties breached a valid contract, what are parties entitled to by way of enforcement?
a. was there a promise or condition?
See 3.a.i.A.
b. how does that condition affect the duties of the parties?
i. promise; parties can receive monetary damages, but aren’t discharged of their duty to perform.
ii. condition;
A. Subsequent- if contingency happens, then performance is discharged. So no breach.
B. precedent- contingency must happen for performance of parties to be due. So, no breach if contingency doesn’t happen.
c. objective to use in interpreting? In determining what specific enforcement to use, courts try to put injured party into position they would have been had the contract been performed.
d. Excuses;
i. Did the other party fail to perform too? (if duties were triggered, see 3.a.1.B.)Then ok
ii. for implied conditions, was there substantial performance? see 2. b then just damages, not forfeiture.
iii. Waiver
A. Did suing party waive it’s right to enforcement (constantly accepting late payments, waives right to enforce payments on time-unless notice of change in policy).
B. Did suing party waive right, by electing to continue anyway.
C. only party for whose benefit condition is, can waive.
e. remedies
i. damages; standard measure is A, if can’t award, then try B, if can’t then try C.
A. expectation interest- what party expected to get from fully performed contract. (1. profit= what party would get-what party would expend 2. incidental-like reliance- and 3. consequential-consequences that flow from breach)
Cost of performance
Building and construction usually use.
Exception; used when proportion between harm and burden is great (only some courts use- good faith may matter). Diminuation in value (value lost because D didn’t perform)
B. reliance interest- out of pocket money (pretty much can be always awarded.
Disagreement as to whether out of pocket in reliance on d’s performance or out of pocket spent after contract signed (movie star case).
C. restitution interest; if in reliance on contract p gave money/value to d
ii. must have certainty (as to amount and that d caused it) to get restitution and expectation damages. If can’t show action in reliance, limited to nominal damages.
A. lost profits (expectation damages) can be awarded to new business venture if can offer reasonable reliable proof of prospective profits
iii. foreseeability
A. remoteness of damage from D’s act.
B. damages measured by what was fair and reasonably considered/foreseeable at the time contract entered into. (expressly communicated between parties or assumed)
C. most courts comes down to what is fair.
vi. liquidated damages (set by parties ahead of time)
ok if damages would be hard to prove, amount set is close to actual damages (reasonable estimate) and not for penalty.
If was reasonable at time and not now, can argue for more [restate 356 “amount reasonable in light of anticipated or actual loss”](if number was less then damages) but can’t really argue for less (if number was higher then damages).
vii. avoidability
usually P not justified in continuing performance after clear breach. And so will get damages only for time until anticipatory repuditation(theory; p should have stopped performance once knew d intended to breach).
Depends on what is commercially reasonable for victim to do.
viii. mitigations
P not breaching only has to mitigate if job/opportunity to mitigate is similar to contract (not if substitute is dangerous, inferior, demeaning, different locale etc. ). Also not duty, doesn’t have to mitigate, but if doesn’t damage award goes down.
Employment contracts; subsequent job taken by P can’t be used to mitigate if she could have worked it and her old job (example teacher fired, takes night waitress job, can’t –her wages from damage award, because she technically would have been able to work at it and her teaching job at same time.)
ix. recovery for emotional loss
pretty much never. Restate; never unless breach or contract is one in which it is particularly likely that emotional harm will result (funeral home losing body example).
x. specific performance;
courts have wide discretion, P never entitled to it
courts take into account the difficulty of ordering and supervising and enforcing specific performance.
must be unique and difficult to measure in money
xi. punitive damages;
not unless conduct is also a tort for which punitive damages are recoverable.(whenever elements of fraud, malice, gross negligence or orppression mingle in controversy” hibschman
5. If there was no contract, does the P’s story still argue for some compensation? (quasi contract)
a. YES
i. was there unjust enrichment? Then court can order payment anyway, but equitable relief. Factors; unclean hands.
Theory of restitution. (can be used also if contract unenforceable);
Quantum meruit- value of services (two ways to measure)
1. value of P’s work (salary)
Lawyer value of work, capped at contract price, does not accrue until client recovers.
2. value of work to D (profit)
Most courts limit restitution at contract price, some courts refuse to.
Quantum valebant- value of property delivered to another
Money had and received by person belonging to another.
(basically restitution)
[z1]Based on the circumstances when contract was made.
[z2]Not opinion, which is the defense dance school used, but it didn’t work there, because experts.
[z3]Has to have regulatory purpose (rather then fundraising) and interest in enforcement clearly outweighed by public policy.
[z4]That is either had something to do with change or didn’t take reasonable steps to prevent it.
[z5]Two ways to decide;
1. Four corner test; is the language clear by itself. Then plain and other evidence can’t be considered.
2. corbins test; not if language is clear, but rather if intent of the parties is clear through the language.
[z6]Meant by parties to be only expression of their agreement. Defined by parties intent, custom in contracts like these.
Contracts that are related to but separate (collateral) are not integrated.
Evidence regarding conditions are ok, if contract mentions a condition, but condition can’t be shown purely from extrinsic evidence.
