B-Law Chapter 10

Temporary Impossibility (1 of 2) (know this: The doctrine of commercial impracticability does not provide relief from such events as ordinary price increases or easily predictable changes in the weather.)

-An occurrence or event that makes performance temporarily impossible operates to suspend performance until the impossibility ceases. Once temporary pause ceases, contract must resume. Example 10.16: Mindy and Lyn contract to rent a sailboat from Key West Rentals for a month-long trip. The day before their trip is scheduled to begin, Hurricane Irma hits the coast where the boat is docked, causing damage. The hurricane makes performance temporarily impossible, and Mindy and Lyn postpone their trip. However, once repairs are made to the dock and the boat, Key West Rentals will be required to perform the contract as originally planned. Mindy and Lyn have a right to rent the boat for a month for the previously agreed-on price. Sometimes the lapse of time and the change in circumstances surrounding such a contract make it substantially more burdensome for the parties to perform the promised acts. In that situation, the contract may be discharged. Classic Case Example 10.17 Autry v. Republic Productions (1947): In 1942, actor Gene Autry was drafted into the U.S. Army. Being drafted rendered his contract with a Hollywood movie company temporarily impossible to perform, and it was suspended until the end of World War II in 1945. When Autry got out of the army, the purchasing power of the dollar had declined so much that performance of the contract would have been substantially burdensome to him. Therefore, the contract was discharged.-Commercial Impracticability: -anticipated performance must become (increase) extremely difficult or cost was unforeseeable when contract was formed.

Equitable Remedies (3 of 3)

-Case Example 10.23 Davis v. Harmony Development LLC 2020: Harmony Development agreed to sell seven acres of a planned subdivision to Jerry Davis for $1.5 million. The contract required Harmony to spend $1.85 million improving the property so that Davis could construct a health club on it. After Harmony made the improvements, Davis informed the company that the subdivision no longer "fit in harmony" with his plans and refused to complete the purchase. Harmony sued for breach of contract. The Wyoming Supreme Court granted specific performance, calling the remedy "a means of compelling [Davis] to do precisely what he should have done without being coerced by a court." Contracts for Personal Services: require one party to work personally for another party. Courts normally refuse to grant specific performance of personal-service contracts. One reason is that ordering parties to perform personal services against their will would amount to a type of involuntary servitude (violating the 13th amendment: Involuntary servitude, or slavery, is contrary to the public policy.) Courts do not want to monitor contracts for personal services, which usually require the exercise of personal judgment or talent. If a contract is not deemed personal, the remedy at law of monetary damages may be adequate if a substantially identical service (for instance, lawn mowing) is available from other persons.

Compensatory Damages (3 of 3)

-Construction Contracts: The measure of damages in a building or construction contract depends on which party breaches and when the breach occurs. 1.Breach by owner: The owner may breach at three different stages before performance has begun, during performance, or after performance has been completed. IF breach before performance has begun, the contractor can recover only the profits that would have been made on the contract. (Profits equal the total contract price less the cost of materials and labor.) IF breach during performance, the contractor can recover the profits plus the costs incurred in partially constructing the building. IF breach after construction has been completed, the contractor can recover the entire contract price, plus interest. 2.Breach by contractor: When the contractor breaches the contract—either by failing to begin construction or by stopping work partway through the project—the measure of damages is the cost of completion. The cost of completion includes reasonable compensation for any delay in performance. If the contractor finishes late, the measure of damages is the loss of use. 3.Breach by owner & contractor: When the performance of both parties—the construction contractor and the owner—falls short of what their contract required, the courts attempt to strike a fair balance in awarding damages.

Discharge By Agreement (3 of 3)

-Discharge by accord & satisfaction: An accord is a contract to perform some act to satisfy an existing contractual duty that has not yet been discharged. A satisfaction is the performance of the accord agreement. An accord and its satisfaction discharge the original contractual obligation. Once the accord has been made, the original obligation is merely suspended until the accord agreement is fully performed. If it is not performed, the party to whom performance is owed can bring an action on the original obligation or for breach of the accord. -Release: bars any further recovery beyond the terms stated in the release. A release is generally binding if it is made in good faith (honestly) and is accompanied by consideration. In many states, the release must also be signed.

Discharge by Agreement (The agreement can be contained in the original contract, or the parties can form a new contract for the express purpose of discharging the original contract.) (1 of 3)

-Discharge by mutual rescission: for this parties must make another agreement that also satisfies the legal requirements for a contract—there must be an offer, an acceptance, and consideration. Ordinarily, if parties agree to rescind the original contract, their promises not to perform the acts promised in the original contract will be legal consideration for the second contract (the recission). Generally can be done orally or written. Oral agreements to rescind most executory contracts are enforceable even if the original agreement was in writing. A writing (or electronic record) is required to rescind a contract for the sale of goods under the UCC when the contract requires a written rescission. Agreements to rescind contracts involving transfers of realty must be evidenced by a writing or record. When one party has fully performed, an agreement to rescind the original contract usually is not enforceable unless additional consideration or restitution is made. Because the performing party has received no consideration for the promise to call off the original bargain, additional consideration is necessary.-Discharge by settlement agreement: A compromise, or settlement agreement, that arises out of a genuine dispute over the obligations under an existing contract will be recognized at law. The agreement will be substituted as a new contract and will either expressly or impliedly revoke and discharge the obligations under the prior contract. In contrast to a novation, the substituted agreement does not involve a third party. Rather, the two original parties to the contract form a different agreement to substitute for the original one.

Discharge By Agreement (2 of 3)

-Discharge by novation: Essentially, the parties to the original contract and one or more new parties get together and agree to the substitution. Can be expressed or implied. The parties involved may expressly state in the new contract that the old contract is now discharged. If the parties do not expressly discharge the old contract, it will be impliedly discharged if the new contract's terms are inconsistent with the old contract's terms. It is this immediate discharge of the prior contracts that distinguishes a novation from both an accord and satisfaction and an assignment of all rights. Requirements: 1.Previous valid obligation. 2.Agreement by all parties to a new contract. 3.Extinguishing of old obligation (discharge of prior party). 4.New, valid contract. Example 10.11 Union Corporation enters into a contract to sell its pharmaceutical division to British Pharmaceuticals, Ltd. Before the transfer is completed, Union, British Pharmaceuticals, and a third company, Otis Chemicals, execute a new agreement to transfer all of British Pharmaceuticals' rights and duties in the transaction to Otis Chemicals. As long as the new contract is supported by consideration, the novation will discharge the original contract (between Union and British Pharmaceuticals), and replace it with the new contract (between Union and Otis Chemicals).

Temporary Impossibility (2 of 2)

-Frustration of Purpose: -Involves a decrease in value of what party receives under contract. A contract will be discharged if supervening circumstances make it impossible to attain the purpose both parties had in mind when making the contract. The event must have been unforeseeable.

Performance to the Satisfaction of Another (2 of 6)

-Material Breach of Contract: breach is material when performance is not at least substantial. If material breach present, nonbreaching party is excused from the performance of contractual duties and can sue for damages caused by the breach & damages resulting from the breach. Minor Breach (Not material): nonbreaching party's duty to perform may sometimes be suspended until the breach is remedied, but the duty isn't entirely excused. When minor breach is cured (corrected), nonbreaching party must resume performance of the contractual obligations. Only a material breach discharges the nonbreaching party from the contract. The breach policy states contracts should go forward when only minor problems occur, but contracts should be terminated if major problems arise. Case Example 10.9 DBT Yuma LLC v. Yuma County Airport Authority, 2019: In Arizona, the Yuma County Airport Authority (YCAA) leased commercial space to Lux Air for the purpose of refuelling airplanes. On September 4, YCAA sent Lux Air a letter warning that certain outstanding debts must be covered by October 1 or YCAA would "exercise all of its remedies" under the lease agreement. Lux Air acknowledged receipt of the letter, but failed to pay rent on October 1, as required. Three weeks later, YCAA evicted Lux Air. Lux Air sued YCAA for breach of contract. In Arizona, a landlord may terminate a lease only if there has been a material breach by the tenant. Lux Air claimed that its breach wasn't material because YCAA, in the September 4 letter, did not clearly state the consequences of failure to pay rent. An Arizona appeals court rejected this excuse, finding that given the communications between the 2 companies and the inherent contractual importance of rent, Lux Air "knew or should have known" what steps were necessary to avoid the termination of its lease.

Discharge by Operation of Law

-Material alteration of the contract: to discourage alteration of written contracts, the law allows an innocent party to be discharged from a contract that has been materially altered. If one party alters a material term of the contract without the other party's knowledge, the party who was unaware of the alteration can treat the contract as discharged or terminated. -Statutes of limitations: Oral 2-3 years. Written 4-5 years. Lawsuits for breach of a contract for the sale of goods must be brought within 4 years after the cause of action has accrued. In their original contract, the parties can agree to reduce this four-year period to not less than one year. They can't, agree to extend it beyond 4 years. -Bankruptcy: Once the assets have been allocated, the debtor receives a discharge in bankruptcy. A discharge in bankruptcy ordinarily prevents the creditors from enforcing most of the debtor's contracts. Partial payment of a debt after discharge in bankruptcy will not revive the debt. -Impossibility of performance: The doctrine of impossibility of performance is applied only when the parties could not have reasonably foreseen, at the time the contract was formed, the event or events that rendered performance impossible. Objective impossibility (It can't be done). Subjective impossibility (I personally can't do it) example: having surgery that conflicts with a delivery of goods (doesn't excuse nonperforming party (they're still in breach of contract)

Conditions of Performance (1 of 2) (Picture is exhibit 10-3 Contract Discharge (aka termination)) The Restatement (Second) of Contracts, Section 224, defines a condition as "an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due."

-Most contracts, promises of performance are not expressly conditioned or qualified. Instead, they are absolute promises. They must be performed, or the parties promising the acts will be in breach of contract. Example 10.3: Paloma Enterprises contracts to sell a truckload of organic produce to Joel for $10,000. The parties' promises are unconditional: Paloma will deliver the produce to Joel, and he will pay $10,000 to Paloma. The payment does not have to be made if the produce is not delivered. -Under Condition: The occurrence or nonoccurrence of the event will trigger the performance of a legal obligation or terminate an existing obligation under a contract. If the condition is not satisfied, the obligations of the parties are discharged. 3 Types Of Conditions Possibly Present In A Contract: 1. Conditions Precedent: precedes the absolute duty to perform. (Example Life Insurance Contracts) Many contracts are conditioned on an independent appraisal of value. Example 10.4: Restoration Motors offers to buy Charlie's 1959 Thunderbird only if an expert appraiser estimates that it can be restored for less than a certain price. Thus, the parties' obligations are conditioned on the outcome of the appraisal. If the condition is not satisfied—that is, if the appraiser deems the cost to be significantly above the specified price—their obligations are discharged.

Performance to the Satisfaction of Another (6 of 6) Know this: The risks that prices will fluctuate and values will change are ordinary business risks for which the law does not provide relief.

-Repudiation may occur when market prices fluctuate: Quite often, an anticipatory repudiation occurs when performance of the contract would be extremely unfavorable to one of the parties because of a sharp fluctuation in market prices. Example 10.10 Mobile X enters into an e-contract to manufacture and sell 100,000 smartphones to Best Com, a global telecommunications company. Delivery is to be made two months from the date of the contract. One month later, three inventory suppliers raise their prices to Mobile X. Because of these higher prices, Mobile X stands to lose $500,000 if it sells the smartphones to Best Com at the contract price. Mobile X immediately sends an e-mail to Best Com, stating that it cannot deliver the 100,000 phones at the contract price. Even though you may sympathize with Mobile X, its e-mail is an anticipatory repudiation of the contract. Best Com can treat the repudiation as a material breach and immediately pursue remedies, even though the contract delivery date is still a month away. Time for Performance: If no time for performance is stated in a contract, a reasonable time is implied. If a specific time is stated, the parties must usually perform by that time. Unless time is expressly stated to be vital, though, a delay in performance will not destroy the performing party's right to payment. When time is expressly stated to be "of the essence," or vital, the parties normally must perform within the stated time period, because the time element becomes a condition. Even when the contract states that time is of the essence, however, a court may find that a party who fails to complain about the other party's delay has waived the breach of the time provision.

Compensatory Damages (2 of 3)

-Sale of Goods (contract price v. market price): amount is the difference between the contract price & the market price at the time & place at which the goods were to be delivered or tendered. Sometimes, buyer breaches when seller hasn't yet produced the goods. In that case, compensatory damages normally equal the seller's lost profits on the sale, not the difference between the contract price & the market price.-Sale of Land: Ordinarily, because each parcel of land is unique, the remedy for a seller's breach of a contract for a sale of real estate is specific performance, in which the buyer is awarded the bargained-for parcel of property. Majority of states follow this rule. Minority of states apply a different rule when the seller breaches a land-sale contract unintentionally (for instance, when the seller cannot deliver good title to the land for an unforeseeable reason). In these states, a prospective buyer is limited to a refund of any down payment made plus any expenses incurred (such as fees for title searches, attorneys, and escrows). Thus, the minority rule effectively returns purchasers to the positions they occupied prior to the sale, rather than giving them the benefit of the bargain. When the buyer is the party in breach, the measure of damages is typically the difference between the contract price and the market price of the land. The same measure is used when specific performance is not available (because the seller has sold the property to someone else, for instance).

When Performance Is Impossible (Three basic types of situations may qualify as grounds for the discharge of contractual obligations based on impossibility of performance)

1.Essential party dies or becomes incapacitated: Example 10.13 Frederic, a famous dancer, contracts with Ethereal Dancing Guild to play a leading role in its new ballet. Before the ballet can be performed, Frederic becomes ill and dies. His personal performance was essential to the completion of the contract. Thus, his death discharges the contract and his estate's liability for his nonperformance. 2.Specific subject matter destroyed: Example 10.14 A-1 Farm Equipment agrees to sell Gunther the green tractor on its lot, and promises to have the tractor ready for Gunther to pick up on Saturday. On Friday night, however, a truck veers off the nearby highway and smashes into the tractor, destroying it beyond repair. Because the contract was for this specific tractor, A-1's performance is rendered impossible owing to the accident. 3.Change in law renders performance illegal: Example 10.15 Hopper contracts with Playlist, Inc., to create a website through which users can post and share movies, music, and other forms of digital entertainment. Hopper commences the work. However, before the site is operational, Congress passes the No Online Piracy in Entertainment (NOPE) Act. The NOPE Act makes it illegal to operate a website on which copyrighted works are posted without the copyright owners' consent. In this situation, the contract is discharged by operation of law. The purpose of the contract has been rendered illegal, and contract performance is objectively impossible.

Rights that Cannot be Assigned

1.When a statute expressly prohibits assignment 2.When a contract is personal in nature 3.When an assignment significantly changes obliger's risk or duties 4.When contract prohibits assignment

Conditions of Performance (2 of 2) Restatement (Second) of Contracts, Section 224. Note that a plaintiff must prove a condition precedent, whereas the defendant normally proves a condition subsequent.

3 Types Of Conditions Possibly Present In A Contract Continued: 2. Conditions Subsequent: condition follows, or is subsequent to, the absolute duty to perform. If the condition occurs, the party need not perform any further. Example 10.5: A law firm hires Julia, a recent law school graduate. Their contract provides that the firm's obligation to continue employing Julia is discharged if she fails to pass the bar exam by her second attempt. This is a condition subsequent because a failure to pass the exam—and thus to obtain a license to practice law—will discharge a duty (employment) that has already arisen. Generally, conditions precedent are common, and conditions subsequent are rare. 3. Concurrent Conditions: These exist only when the parties expressly or impliedly are to perform their respective duties simultaneously. Example 10.6: If Janet promises to pay for goods when HP, Inc., delivers them, the parties' promises to perform are mutually dependent. Janet's duty to pay for the goods does not become absolute until HP either delivers or tenders the goods. Likewise, HP's duty to deliver the goods does not become absolute until Janet tenders or actually makes payment. Therefore, neither can recover from the other for breach without first tendering performance.

Performance to the Satisfaction of Another (3 of 6)

Anticipatory Repudiation of a Contract: -Repudiation is a material breach: When anticipatory repudiation occurs, its treated as a material breach of the contract, and the nonbreaching party is permitted to bring an action for damages immediately. Nonbreaching party can file suit even though the scheduled time for performance under the contract may still be in the future. Until the nonbreaching party treats this early repudiation as a breach, however, the breaching party can retract the anticipatory repudiation by proper notice and restore the parties to their original obligations. An anticipatory repudiation is treated as a present, material breach for two reasons. 1st, the nonbreaching party should not be required to remain ready and willing to perform when the other party has already repudiated the contract. 2nd, the nonbreaching party should have the opportunity to seek a similar contract elsewhere. Indeed, that party may have the duty to do so to minimize loss. (See Case 10.1 Chalk Supply LLC v. Ribbe Real Estate LLC (2020) for example)

Performance to the Satisfaction of Another (5 of 6)

Case 10.1 Chalk Supply LLC v. Ribbe Real Estate LLC (2020) continued: Reason: Anticipatory repudiation occurs when a party states an intention not to perform a duty owed under a contract except on a condition that goes beyond the contract. RRE and Chalk Supply executed a lease for a warehouse, and the tenant paid a substantial amount of the rent in advance. In their contract, the parties agreed that the landlord would pay the cost for a fire suppression system if required, and the tenant would repay that amount over eighty-four months. Under a local ordinance, a fire suppression system was required. RRE later refused to pay for the system unless the tenant agreed to negotiate a new, longer term for the lease. "This was, then, an anticipatory repudiation of the lease: . . . RRE would not perform a duty under the contract (pay for fire suppression if required) unless Chalk Supply extended the lease (a condition that went beyond the contract)." RRE argued that its refusal to perform was not an anticipatory repudiation because it "was not unequivocal and was conditioned on the requirement of fire suppression." The court found this argument to be "meritless. . . . Saying that RRE would not pay for fire suppression if it was required was disavowing the very thing that RRE agreed to do."

Performance to the Satisfaction of Another (4 of 6)

Case 10.1 Chalk Supply LLC v. Ribbe Real Estate LLC (2020): Facts: Chalk Supply LLC buys paints and other products, which it repackages and sells to consumers. Chalk Supply agreed to lease a warehouse from Ribbe Real Estate LLC (RRE) for eighteen months. Chalk Supply prepaid twelve and a half months' rent. At Chalk Supply's request, the lease provided that a fire suppression system would be installed if required, with the cost to be "divided by 84 months (7 years) of which Tenant will pay in like equal installments during the term of the lease." A local ordinance required a fire suppression system. On receiving an estimate of the cost, however, RRE e-mailed Chalk Supply, before the tenant had moved onto the property, that RRE was not willing to pay for the system without a longer lease term. Chalk Supply filed a suit in a Michigan state court against RRE, claiming breach of contract. The court ruled in Chalk Supply's favor and ordered RRE to return the money the tenant had paid in advance of the lease term. The landlord appealed. Issue: Was RRE's e-mail an anticipatory repudiation of the parties' lease entitling Chalk Supply to bring an action for breach of contract? Decision: Yes. A state intermediate appellate court affirmed the judgment of the trial court. RRE was in material breach of the parties' contract, and Chalk Supply could recover the money that it had paid in advance.

Compensatory Damages ("meant to make the person whole") are those that compensate the nonbreaching party for the loss of the bargain. compensate the injured party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract. Courts will not award damages in an amount that leaves the nonbreaching party in a better position than the party would have been in if the contract had not been breached. (1 of 3)

Case Example 10.18 Baird v. Owens Community College (2016): Owens Community College lost its accreditation from the National League for Nursing Accreditation Commission (NLNAC) in July. The college did not inform its nursing students of this development until after classes had started in the fall. Carianne Baird and sixty-one other students from the program filed a breach of contract suit against Owens. An Ohio appeals court determined that a contract existed in which the students paid their fees in exchange for a degree from an NLNAC-accredited institution. By losing that accreditation, Owens breached the contract. The court also recognized the probability that this breach would harm the plaintiffs' career prospects. Therefore, compensatory damages could be determined by measuring the difference between their future earnings capacity as graduates of an NLNAC-accredited nursing college and their future earnings capacity as graduates of now-unaccredited Owens. -Standard Measure (varies by type of contract):The standard measure of compensatory damages is the difference between the value of the breaching party's promised performance under the contract and the value of that party's actual performance. This amount is reduced by any loss that the injured party has avoided. Expenses that are directly incurred because of a breach of contract—such as those incurred to obtain performance from another source—are called incidental damages.

Reformation (2 of 2)

Case Example 10.26 Emerick v. Cardiac Study Center, Inc. 2015: Cardiac Study Center, Inc., a medical practice group, hired Dr. Robert Emerick. Later, Emerick became a shareholder of Cardiac and signed an agreement that included a covenant not to compete. The covenant stated that a physician who left the group promised not to practice competitively in the surrounding area for a period of five years. After Cardiac began receiving complaints from patients and other physicians about Emerick, it terminated his employment. Emerick sued Cardiac, claiming that the covenant not to compete that he had signed was unreasonable and should be declared illegal. Ultimately, a state appellate court reformed the geographic and temporal restraints, and held that the covenant as reformed was both reasonable and enforceable. Cardiac had a legitimate interest in protecting its existing client base and prohibiting Emerick from taking its clients.

Performance to the Satisfaction of Another (1 of 6)

Contracts often state that completed work must personally satisfy one of the parties or a third person. When the subject matter of the contract is personal, the obligation is conditional, and performance must actually satisfy the party specified in the contract. (example contracts for portraits or art/tailoring considered personal for they involve individual tastes) So only the personal satisfaction of the party fulfills the condition—unless a court finds that the party is expressing dissatisfaction simply to avoid payment or otherwise is not acting in good faith. Most other contracts need to be performed only to the satisfaction of a reasonable person unless expressly state otherwise. Contract's subject matter is mechanical, courts are more likely to find that the performing party has performed satisfactorily if a reasonable person would be satisfied with what was done. Example 10.8 Mason signs a contract with Jen to mount a new heat pump on a concrete platform to her satisfaction. Such a contract normally need only be performed to the satisfaction of a reasonable person.

Liquidated Damages versus Penalties: Liquidated Damages: provision in a contract specifies that a certain dollar amount is to be paid in the event of a future default or breach of contract. (Liquidated means determined, settled, or fixed.) Meant to make the innocent party whole. normally are enforceable. In contrast, if a court finds that a provision calls for a penalty, the agreement as to the amount will not be enforced, and recovery will be limited to actual damages. Penalties: specifies a certain amount to be paid in the event of a default or breach of contract, it is designed to penalize the breaching party.

Enforceability: To determine whether a particular provision is for liquidated damages or a penalty, the court must answer two questions: 1.When the contract was formed, it is apparent that damages would be difficult to estimate in the event of a breach. 2.The amount set as damages is reasonable and not excessive. If the answers to both questions are yes, the provision normally will be enforced. If either answer is no, the provision usually will not be enforced. Common Uses of Liquidated Damages Provisions: •Construction contracts-a provision requiring a construction contractor to pay $300 for every day the contractor is late in completing the project is a liquidated damages provision. •Sale of goods-Such provisions are also common. •Loan contracts •Contracts with entertainers and professional athletes

Kent State University v. Ford 2015 (1 of 2)

Facts: Gene Ford signed a five-year contract with Kent State University in Ohio to work as the head coach for the men's basketball team. The contract provided that if Ford quit before the end of the contract term, he would pay to the school liquidated damages in an amount equal to his salary ($300,000), multiplied by the number of years remaining on the contract. Laing Kennedy, Kent State's athletic director, told Ford that the contract would be renegotiated within a few years. Four years before the contract expired, however, Ford left Kent State and began to coach for Bradley University at an annual salary of $700,000. Kent State filed a suit in an Ohio state court against Ford, alleging breach of contract. The court enforced the liquidated damages clause and awarded the university $1.2 million. Ford appealed, arguing that the liquidated damages clause in his employment contract was an unenforceable penalty. Issue: Was the liquidated damages clause in Ford's contract enforceable? Decision: Yes. A state intermediate appellate court affirmed the lower court's award. The clause was not a penalty. "There was justification for seeking liquidated damages to compensate for Kent State's losses" on Ford's breach.

HDAV Outdoor, LLC v. Red Square Holdings, LLC 2019 (1 of 2)

Facts: HDAV Outdoor, LLC, contracted with Red Square Holdings, LLC, to customize an Isuzu Diesel Eco Max box truck with LED light displays that would allow Red Square to use the truck for mobile advertising. HDAV Outdoor agreed to complete the customization within eight weeks after Red Square delivered the truck. HDAV Outdoor did not finish the job, however, until four and a half months after the eight-week completion date. Red Square filed a suit in a Nevada state district court against HDAV Outdoor, alleging breach of contract and seeking damages. Mohamood Razack, Red Square's sales manager, testified that, based on the company's record of past profits, it had lost $12,000 per month in profits because of HDAV's "untimely" work. The district court ruled in Red Square's favor and awarded damages in the amount of $45,000 in lost profits for the delay. HDAV Outdoor appealed, challenging the award. Issue: Did the district court abuse its discretion by awarding Red Square $45,000 in lost profits? Decision: No. The Nevada Court of Appeals affirmed the lower court's ruling and award. "HDAV Outdoor's challenge to the award of lost profits fails."

Reformation is an equitable remedy used when the parties have imperfectly expressed their agreement in writing. Allows a court to rewrite the contract to reflect the parties' true intentions. (1 of 2)

Fraud or Mutual Mistake: Courts order reformation most often when fraud or mutual mistake (for example, a clerical error) is present. Example 10.25: If Carson contracts to buy a forklift from Yoshie but the written contract refers to a crane, a mutual mistake has occurred. Accordingly, a court could reform the contract so that the writing conforms to the parties' original intention as to which piece of equipment is being sold. Incorrect Written Statement of the Parties' Oral Agreement: Court will also reform a contract when two parties enter into a binding oral contract but later make an error when they attempt to put the terms into writing. Usually, the court will allow into evidence the correct terms of the oral contract, thereby reforming the written contract. Covenants Not to Compete (restrictive covenants): Often included in contracts for the sale of ongoing businesses and in employment contracts. The agreements restrict the area and time in which one party can directly compete with the other party. If it's for a valid and legitimate purpose, but the area or time restraints are unreasonable, some courts will reform the restraints by making them reasonable and will then enforce the entire contract as reformed. Other courts will throw out the entire restrictive covenant as illegal. Thus, when businesspersons create restrictive covenants, they must make sure that the restrictions imposed are reasonable.

Third Party Rights: Assignments (Exceptions to Privity Of Contract)

Privity of contract (under it a 3rd one who is not a direct party to a particular contract—normally does not have rights under that contract.) Assignment (transfer of contractual rights to a 3rd party & occurs after the original contract was made.) The transferor is called the assignor & the transferee is the assignee. Delegation (transfer of contractual duties to a 3rd party & occurs after the original contract was made.) When rights under a contract are assigned unconditionally, the rights of the assignor are extinguished. The assignee has a right to demand performance from the other original party to the contract, the obligor. The assignee takes only those rights that the assignor originally had. Example 10.1 Brenda is obligated by contract to pay Alex $1,000. Brenda is the obligor because she owes an obligation, or duty, to Alex. Alex is the obligee, the one to whom the obligation is owed. If Alex then assigns his right to receive the $1,000 to Charles, Alex is the assignor and Charles is the assignee. Charles now becomes the obligee because Brenda owes Charles the $1,000. Here, a valid assignment of a debt exists. Charles (the assignee-obligee) is entitled to enforce payment in court if Brenda (the obligor) does not pay him the $1,000. (Alex is no longer entitled to enforce payment because the assignment extinguished his original contract rights.) Under a bilateral contract: obligator (has the duty to perform some task/action) & the obligatee (has a right to require performance of some task/action)

Consequential Damages aka Special Damages-Foreseeable damages that result from a party's breach of contract but are caused by special circumstances beyond the contract itself. When a seller fails to deliver goods, knowing that the buyer is planning to use or resell those goods immediately, a court may award consequential damages for the loss of profits from the planned resale. For the nonbreaching party to recover consequential damages, the breaching party must know (or have reason to know) that special circumstances will cause the nonbreaching party to suffer an additional loss.

Punitive Damages: generally are not awarded in lawsuits for breach of contract. are designed to punish the wrongdoer and set an example to deter similar conduct in the future, they have no legitimate place in contract law. few situations, when a person's actions cause both a breach of contract and a tort, punitive damages may be available. Nominal Damages: When no actual damage or financial loss results from a breach of contract and only a technical injury is involved, the court may award these to innocent party. are often small, such as one dollar, but they do establish that the defendant acted wrongfully. Most lawsuits for nominal damages are brought as a matter of principle under the theory that a breach has occurred and some damages must be imposed regardless of actual loss. Mitigation of Damages: most situations, when a breach of contract occurs, the injured party is held to a duty to mitigate, or reduce, the damages suffered. the required action depends on the nature of the situation. Rental Agreements - landlord is responsible to take reasonable action. some states require a landlord to use reasonable means to find a new tenant if a tenant abandons the premises and fails to pay rent. If an acceptable tenant becomes available, the landlord is required to lease the premises to this tenant to mitigate the damages recoverable from the former tenant. former tenant is still liable for the difference between the amount of the rent under the original lease and the rent received from the new tenant. If the landlord has not taken reasonable steps to find a new tenant, a court will likely reduce any award by the amount of rent the landlord could have received had this step been taken.

Recovery Based on Quasi Contracts: (1 of 2) Quasi Contracts Used When: -allows courts to act as if there's a valid contract when no actual contract exists, a court may step in to prevent one party from being unjustly enriched at the expense of another party. Therefore, if the parties have entered into a contract concerning the matter in controversy, a court normally will not impose a quasi contract. A court can also use the doctrine when the parties entered into a contract that is unenforceable for some reason.

Quasi-contractual recovery is often granted when one party has partially performed under a contract that is unenforceable. Case Example 10.27 Ericson contracts to build two oil derricks for Petro Industries. The derricks are to be built over a period of three years, but the parties do not create a written contract. Therefore, the writing requirement will bar the enforcement of the contract. (Contracts that by their terms cannot be performed within one year from the day after the date of contract formation must be in writing to be enforceable under the Statute of Frauds.) After Ericson completes one derrick, Petro Industries informs him that it will not pay for the derrick. Ericson can sue Petro Industries under the theory of quasi contract. The Requirements of Quasi Contractual: 1.The party conferred a benefit on the other party. 2.The party conferred the benefit with the reasonable expectation of being paid. 3.The party did not act as a volunteer in conferring the benefit. 4.The party receiving the benefit would be unjustly enriched if allowed to retain the benefit without paying for it.

Kent State University v. Ford 2015 (2 of 2)

Reason: At the time the contract was entered into, determining the damages that would result from a breach was "difficult, if not impossible." The resignation of a head coach from a university's basketball team may cause a loss in ticket sales and a drop in community and alumni support for the team. The university's ability to recruit players may also be affected. Of course, a search for a new coach and coaching staff will be required. These effects are not easy to measure before they happen, especially considering that such results may be different at different times in a coach's tenure. Kennedy's statement that the contract would be renegotiated indicated that Kent State was interested in the stability of these factors. And in this case, "based on the record, . . . the damages were reasonable." The salary that Bradley was willing to pay Ford showed the cost to Kent State of finding a new coach with his skill and experience. "There was also an asserted decrease in ticket sales, costs associated with the trip for the coaching search, and additional potential sums that may be expended."

HDAV Outdoor, LLC v. Red Square Holdings, LLC 2019 (2 of 2)

Reason: The appellate court acknowledged that damages resulting from a breach of contract must be reasonably foreseeable at the time of the contract. The court recognized that those damages could include an award of lost profits that result from "an inability to timely use equipment as long as the delay is attributable to the breaching party." In this case, HDAV Outdoor did not deliver the truck by the promised delivery date. Red Square claimed that its inability to use the truck until it was delivered resulted in lost profits. The appellant argued that Red Square had not provided evidence of its costs to offset against the sought-after lost profits. The appellate court explained, however, that an award of delay damages does not require the consideration of such an offset. "Obviously, Red Square was not incurring any costs specifically related to operating the truck because it did not have the truck to operate." Finally, the court pointed out, "Red Square specifically notified HDAV Outdoor that it intended to commence advertising with the truck, and thus it was reasonably foreseeable that any delay in delivering the truck would adversely affect Red Square's profitability."

Equitable Remedies include rescission and restitution, specific performance, and reformation. (Used when damages are inadequate remedy for breach of contract) (1 of 3)

Rescission & Restitution: •Party seeking rescission must show that the contracting parties can be restored to the status quo. Rescission: an action to undo, or cancel, a contract—to return nonbreaching parties to the positions that they occupied prior to the transaction. Available when fraud, mistake, duress, undue influence, lack of capacity, or failure of consideration is present. May also be available by statute. The failure of one party to perform under a contract entitles the other party to rescind the contract. The rescinding party must give prompt notice to the breaching party. Restitution: Essentially, restitution involves the recapture of a benefit conferred on a defendant who has been unjustly enriched by that benefit. May be required when a contract is rescinded, but the right to restitution is not limited to rescission cases. Because an award of restitution basically returns something to its rightful owner, a party can seek restitution in actions for breach of contract, tort actions, and other types of actions. Generally, to rescind a contract, both parties generally must make restitution to each other by returning goods, property, or funds previously conveyed. If property/goods can be returned, they must be, if consumed restitution must be made in an equivalent dollar amount. •Example 10.22:Katie contracts with Mikhail to design a house for her. Katie pays Mikhail $9,000 and agrees to make two more payments of $9,000 (for a total of $27,000) as the design progresses. The next day, Mikhail calls Katie and tells her that he has taken a position with a large architectural firm in another state and cannot design the house. Katie decides to hire another architect that afternoon. Katie can obtain restitution of the $9,000.

Equitable Remedies (2 of 3)

Specific Performance: calls for the performance of the act promised in the contract. Is attractive to a nonbreaching party because it provides the exact bargain promised in the contract. Also avoids some of the problems inherent in a suit for monetary damages, such as collecting a judgment and arranging another contract. The actual performance may be more valuable (to the promisee) than the monetary damages. Normally, not granted unless the party's legal remedy (monetary damages) is inadequate. This reason, contracts for the sale of goods rarely qualify for this. Monetary damages ordinarily are adequate in sales contracts because substantially identical goods can be bought or sold in the market. Only if the goods are unique will a court grant specific performance. •Party's legal remedy (monetary damages) must be adequate. Sale of land: Court may grant specific performance to a buyer in an action for a breach of contract involving the sale of land. In this case, the legal remedy of monetary damages may not compensate the buyer adequately because every parcel of land is unique. The same land in the same location obviously can't be obtained elsewhere. Only when specific performance is unavailable (such as when the seller has sold the property to someone else) will damages be awarded instead.

Discharge by Performance (3 of 3)

Substantial Performance Continued:-Measure of damages: Because substantial performance is not perfect, the other party is entitled to damages to compensate for the failure to comply with the contract. The measure of the damages is the cost to bring the object of the contract into compliance with its terms, if that cost is reasonable under the circumstances. If the cost is unreasonable, the measure of damages is the difference in value between the performance that was rendered and the performance that would have been rendered if the contract had been performed completely.

Discharge by Performance (2 of 3)

Substantial performance Example: Case Example 10.7 Magic Carpet Ride LLC v. Rugger Investment Group, L.L.C. (2019): Magic Carpet Ride (MCR) purchased a used airplane from Rugger Investment Group. The sales contract required the airplane to be free from liens, or legal claims against it. In fact, though, the airplane was burdened with a lien at the time of the sale. MCR and Rugger amended their contract, giving Rugger an additional ninety days to remove the lien or pay MCR a $90,000 penalty. Rugger obtained the lien release eight days too late. MCR sued for breach of contract to recover the $90,000 penalty. A California appeals court found that (1) Rugger had tried in good faith to meet the ninety-day deadline, and that (2) MCR had received all bargained-for benefits. Because it would be unfair for MCR to get the airplane and an additional $90,000, the court decided that the eight-day delay did not bar Rugger from claiming substantial performance under the terms of the amended contract. -Effect on duty to perform: If one party's performance is substantial, the other party's duty to perform(example: to pay)—remains absolute. In other words, the parties must continue performing under the contract (example: to pay the party who substantially performed). In contrast, if performance is not substantial, there's a material breach, and the nonbreaching party is excused from further performance.

Discharge by Performance (1 of 3)

Tender: Once performance has been tendered, the party making the tender has done everything possible to carry out the terms of the contract. If other party then refuses to perform, the party making the tender can consider the duty discharged & sue for breach of contract. Complete performance: When a party performs exactly as agreed, there's no question of contract's performance. When a party's performance is perfect, its deemed complete. Normally, conditions expressly stated in a contract must fully occur in all aspects for complete performance (strict performance) of the contract to take place. Any deviation breaches the contract & discharges the other party's obligations to perform. Substantial performance: 1.Performed in Good faith, Intentional failure to comply is a breach. 2.Must not vary greatly from promise (omission, variance, defect is minor if it can easily be remedied by compensation (monetary damages).) 3.Create substantially same benefits as originally promised. Courts decide this on a case-by-case basis, examining all of the facts of the particular situation.

Arby's Restaurant Group, Inc.

The restaurant chain Arby's was the target of third-party hackers who breached its credit card point-of-sale machines and stole the personal information of hundreds of thousands of customers. A group of these customers sued the company. The plaintiffs claimed that, despite being aware of other high-profile data breaches in the business world, Arby's failed to make meaningful improvements to the security of its point-of-sale network. The plaintiffs contended that any modern business transaction involves an implied contract in which, in return for a consumer's patronage, the retailer promises to take sufficient measures to protect the consumer's private information. Arby's countered that the plaintiffs could not unilaterally impose a contractual obligation to safeguard credit card data. The company insisted that its only responsibility was to provide food in return for payment for the food. Rejecting these arguments, a federal court in Georgia ruled that a reasonable jury could find that an implied contract existed between Arby's and the plaintiffs. When customers use a credit card, the court concluded, they intend to share their financial information only with the merchant. If the customers had known that this information was at risk of being stolen, they likely would have taken their business elsewhere. (In Re Arby's Restaurant Group Litigation 2018) Suppose a court rules that Arby's weak point-of-sale security system does constitute a breach of contract. What might be some of the compensatory damages due to customers whose credit card information was stolen by hackers?

Damages

Types of Damages 1. Compensatory (to cover direct losses and costs). 2. Consequential (to cover indirect and foreseeable losses). 3. Punitive (to punish and deter wrongdoing). 4. Nominal (to recognize wrongdoing when no monetary loss is shown).

Recovery Based on Quasi Contracts: (2 of 2) What's A Quasi Contract?: a legal theory under which an obligation is imposed in the absence of an agreement. Additional Facts On Quasi Contracts: The legal obligation arises because the law considers that the party accepting the benefits has made an implied promise to pay for them. Generally, when one party has conferred a benefit on another party, justice requires that the party receiving the benefit pay the reasonable value for it. The party conferring the benefit can recover in quantum meruit, which means "as much as one deserves."

What Does A Quasi Contract Provide?: an alternative to suing for damages and allow the party to recover the reasonable value of the partial performance. Depending on the case, the amount of the recovery may be measured either by the benefit received or by the detriment suffered. KNOW THIS: The function of a quasi contract is to impose a legal obligation on a party who made no actual promise. Elaboration On Example 10.27: Ericson can sue in quasi contract because all of the conditions for quasi-contractual recovery have been fulfilled. Ericson conferred a benefit on Petro Industries by building the oil derrick. Ericson built the derrick with the reasonable expectation of being paid. He did not intend to act as a volunteer. Petro Industries would be unjustly enriched if it was allowed to keep the derrick without paying Ericson for the work. Therefore, Ericson should be able to recover in quantum meruit the reasonable value of the oil derrick that was built, which is ordinarily equal to the fair market value.

Chapt 10 Vocab (1 of 3) Terms 1-11

accord and satisfaction-An agreement between two parties to accept performance that is different from what was promised in the original contract. After the performance has been completed, the obligation is discharged. anticipatory repudiation-An assertion or action by a party indicating that the party will not perform a contractual obligation. assignment-The transfer of a contractual right to a third party. breach of contract-The failure, without legal excuse, of a promisor to perform the obligations of a contract. commercial impracticability-A doctrine that may excuse the duty to perform a contract when performance becomes much more difficult or costly due to forces that neither party could have controlled or foreseen at the time the contract was formed. concurrent conditions-Conditions that must occur or be performed at the same time—they are mutually dependent. No obligations arise until these conditions are simultaneously performed. condition-A qualification, provision, or clause in a contractual agreement, the occurrence or nonoccurrence of which creates, suspends, or terminates the obligations of the contracting parties. condition precedent-A condition in a contract that must be met before a party's promise becomes absolute. condition subsequent-A condition in a contract that, if it occurs, operates to terminate a party's absolute promise to perform. consequential damages-Foreseeable damages that result from a party's breach of contract but are caused by special circumstances beyond the contract itself. delegation-The transfer of a contractual duty to a third party.

Chapt 10 Vocab (2 of 3) Terms 12-20

discharge-The termination of an obligation. In contract law, discharge occurs when the parties have fully performed their contractual obligations or when events, conduct of the parties, or operation of law releases the parties from performance. In bankruptcy proceedings law, the termination of a debtor's obligation to pay their debts. frustration of purpose-A court-created doctrine under which a party to a contract will be relieved of their duty to perform when the objective purpose for performance no longer exists due to reasons beyond that party's control. impossibility of performance-A doctrine under which a party to a contract is relieved of the duty to perform when performance becomes objectively impossible or totally impracticable. intended beneficiary-A third party for whose benefit a contract is formed. an intended beneficiary can sue the promisor if the contract is breached. liquidated damages-An amount, stipulated in a contract, that the parties to the contract believe to be a reasonable estimation of the damages that will occur in the event of a breach. mitigation of damages-The requirement that a plaintiff do whatever is reasonable to minimize the damages caused by the defendant's breach of contract. mutual rescission-An agreement between the parties to cancel their contract, releasing them from further contractual obligations. The object is to restore the parties to the positions they would have occupied had no contract ever been formed. novation-The substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated. penalty-A sum specified in a contract not as a measure of compensation for its breach but rather as a punishment for a default. The agreement as to the amount will not be enforced, and recovery will be limited to the actual damages.

Chapt 10 Vocab (3 of 3) Terms 21-29

performance-In contract law, the fulfillment of duties arising under a contract with another; the normal way of discharging contractual obligations. privity of contract-The relationship that exists between the promisor and the promisee of a contract. release-An agreement in which one party gives up the right to pursue a legal claim against another party. reformation-A court-ordered correction of a written contract so that it reflects the true intentions of the parties. restitution-An equitable remedy under which persons are restored to their original position prior to loss or injury, or placed in a position they would have been in had the breach not occurred. specific performance-An equitable remedy in which a court orders the parties to perform as promised in the contract. This remedy normally is granted only when the legal remedy (monetary damages) is inadequate. tender-An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so. third party beneficiary-One for whose benefit a promise is made in a contract but who is not a party to the contract. waiver-An intentional, knowing relinquishment of a legal right.

Third Party Beneficiaries (Exceptions to Privity Of Contract)

•Intended beneficiary (a 3rd party beneficiary contract—a contract in which the parties to the contract intend that the contract benefit a 3rd party. When the original parties to the contract agree that the contract performance should be rendered to or directly benefit a third person, the third person becomes an intended third party beneficiary of the contract. As the intended beneficiary of the contract, the third party has legal rights and can sue the promisor directly for breach of the contract.) •Party who made promise to benefit third party is the promisor •Classic Case example 10.2 Lawrence v. Fox, 20 N.Y. 268 (1859). The classic case that gave third party beneficiaries the right to bring a suit directly against a promisor was decided in 1859. The case involved three parties—Holly, Lawrence, and Fox. Holly had borrowed $300 from Lawrence. Shortly thereafter, Holly loaned $300 to Fox, who in return promised Holly that he would pay Holly's debt to Lawrence on the following day. When Lawrence failed to obtain the $300 from Fox, he sued Fox to recover the funds. The court had to decide whether Lawrence could sue Fox directly (rather than suing Holly). The court held that when "a promise [is] made for the benefit of another, he for whose benefit it is made may bring an action for its breach." Differences between Intended & Incidental Beneficiaries Exhibit 10-2: Incidental Beneficiary-is a third person who receives a benefit from a contract even though that person's benefit is not the reason the contract was made. Because the benefit is unintentional, an incidental beneficiary cannot sue to enforce the contract.

Delegations (of duties) (Exceptions to Privity Of Contract)

•Parties can transfer delegated duties (party delegating the duties is the delegator & party to whom the duties are delegated is the delegatee.) For it to occur: As long as the delegator expresses an intention to make the delegation, it is effective. The delegator need not even use the word delegate. some duties cannot be delegated: 1.Performance depends on personal skill or talents of obligor. 2.Special trust has been placed in the obligor. 3.Performance by third party will vary materially from obligee's expectations. 4.Contract expressly prohibits delegation. If a delegation of duties is enforceable, the obligee must accept performance from the delegatee. A valid delegation of duties does not relieve the delegator of obligations under the contract. Although there are many exceptions, the general rule is that the obligee can sue both the delegatee and the delegator if the duties are not performed. "Assignment of All Rights" •Implying both an assignment of rights and a delegation of any duties of performance. This wording may create both an assignment of rights and a delegation of duties. Typically, this situation occurs when general words are used, such as "I assign the contract" or "I assign all my rights under the contract." A court normally will construe such words as implying both an assignment of rights and a delegation of any duties of performance. Thus, the assignor remains liable if the assignee fails to perform the contractual obligations.

Waiver of Breach: Businesspersons often waive breaches of contract to obtain whatever benefit is still possible out of a contract. the party waiving the breach cannot take any later action on it. the waiver of breach extends only to the matter waived and not to the whole contract.

•Waiver erases the past breach •Contract continues as if the breach had never occurred Contract Provisions Limiting Remedies: Some contract provisions state damages will be limited to a maximum amount. That one party can seek injunctive relief if the other party breaches the contract. Exculpatory clauses: Provisions stating that no damages can be recovered. Limitation-of-liability clauses: Provisions that affect the availability of certain remedies.