1. Breach - was there a breach?

1. Breach: If there is (1) failure to perform in accordance with contractual terms of the contract when the (2) absolute duty of performance (3) has not been discharged, then there is a breach of the contract

1. terms of the contract: may be found by (a) examining wording of the contract and (b) admissibility of parol evidence and (c) using the interpretation tools:

1. wording of the contract as follows:

• express: term expressed in the contract (Wood v. Fifth-third Union Trust Company: no promise was implied that the son was to be paid by mother for services)
• implied: can be fairly implied from the evidence of the parties' intention (Wood v. Lucy, Lady Duff-Gordon: implied in contract that proceeds were to be shared)

1. admissibility of parole evidence: Where the parties to a contract express their agreement in a writing with the intent that it embodies the full and final expression of their bargain, any other expressions - written or oral - made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing.

1. final expression: the more complete the agreement appears on its face, the more likely it is that it was intended as an integration
2. Integration: parole evidence can never be admitted to contradict an integrated writing, and may not even supplement an integration which is intended to be complete

• complete integration: if complete integration the contract may not be contradicted or supplemented
• partial integration: the contract cannot be contradicted, but may be supplemented by proving up consistent additional terms (Lee v. Joseph Seagram and Sons: oral promise to relocate sons was admissible)

1. plain meaning rule: the meaning of any writing which appears to be clear, complete, and not ambiguous on its face will be determined without resort to any extrinsic evidence at all

1. interpretation tools:

1. contracts will be construed as a whole
2. course of performance: the way the parties have conducted themselves in performing the particular contract at hand
3. course of dealing: how the parties have acted with respect to past contracts (custom)
4. usage of trade: any practice or method of dealing having such regularity in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question (Frigaliment Importing Co.: meaning of the word chicken)
5. words will be construed according to their ordinary meaning (unless it is shown they were to be used in the technical sense)
6. courts are inclined to construe provisions in such a way as to make them operative; there is a preference to construe contracts as valid and enforceable
7. ambiguities are construed against the party preparing the contract (Tahoe National Bank v. Phillips: bank was responsible for using the wrong form)

1. duty of performance: there is a duty of performance when a promise was made

1. promise: a promise is a commitment to do or refrain from doing something. (basic test is intent of the parties)

(Howard v. Federal Crop Insurance Corp: promised not to plow under the crops - this was not a condition which would have prevented his claim if not followed)

2. condition: an event which will create, limit or extinguish the duty to perform in the contracting party; a promise modifier. There can be no breach of a promise until the promisor is under an immediate duty to perform. The failure of a contractual provision that is only a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the conditional promise never mature.

1. condition precedent: must occur before a duty of immediate performance arises in the other party
2. conditions concurrent: those that are capable of occurring together, and the parties are bound to perform at the same time
3. condition subsequent: the occurrence of which cuts off an already existing duty of performance

1. distinguishing promises from conditions:

• intent of parties: may be indicated by choice of words
• courts prefer to interpret a clause as a promise, if fulfillment is within the obligee's control (if treated as a condition it could completely discharge performance)

1. performance may be excused by a failure of a condition: a duty of immediate performance with respect to a conditional promise does not become absolute until the conditions have been performed or excused

1. waiver: voluntary concession of a known right
2. anticipatory repudiation: when a promisor prior to the time set for performance of his promise indicates he will not perform when the time comes

• anticipatory repudiation will only apply if there is a bilateral contract
• the anticipatory repudiation stems from the words or conduct of the promisor unequivocally indicating that he cannot or will not perform when the time comes
• options if there is anticipatory repudiation:

• treat as total repudiation and sue immediately (Hochster v. De La Tour: was able to sue and recover damages because tour was cancelled)
• suspend performance and wait to sue until performance date
• treat the contract as discharged
• ignore the repudiation and urge the promisor to perform

1. inability or unwillingness to perform: when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance becomes due
2. modification: if the contract is later changed with the consent of both parties, the original conditions may be excused (Margolin v. Franklin: car dealer began to accept payments later in the month than originally contracted for)
3. substantial performance: condition of performance may be excused if the party has rendered substantial performance (see below)
4. divisibility of contract: when the party performs one of the units of a divisible contract, he is entitled to the agreed on equivalent for that rule even though he fails to perform the other units
5. excuse of condition because of impossibility: if it is impossible for the condition to occur the non-occurrence is excused

1. Materiality of Breach

1. material breach: if the obligee does not receive the substantial benefit of bargain as a result of failure to perform; can determine if breach is material by using section 241 restatement criteria (BAFCG)

1. extent to which the injured party will be deprived of the benefit which he reasonably expected
2. extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
3. extent to which the party failing to perform or offer to perform will suffer forfeiture (hardship to breaching party);
4. the likelihood that the party failing to perform or to offer to perform will cure his failure, taking into account of all the circumstances including any reasonable assurances;
5. extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing

1. substantial performance: if one party fails to substantially perform, the other party's remaining duties do not fall due

• often the question of substantial performance arises at the end of a construction contract (Jacob & Young v. Kent: wrong type of pipe used, but there was substantial performance; Plant v. Jacobs: diminished value rule: difference between value of contract as completed and the value of the contract if it had been completed in strict accordance)

1. performance discharged (defenses to duty of performance): performance is discharged when:

1. discharge by actual performance: if there has been full and complete performance, duty is discharged
2. discharge by occurrence of condition subsequent: occurrence of a condition subsequent will discharge contractual duties
3. discharge by illegality: if the subject matter of the contract has become illegal performance is discharged
4. discharge by impossibility: impracticality or frustration

1. impossibility:

• impossibility must be objective (could not be performed by anyone)
• impossibility must arise after the contract has been entered into
• if the contract is discharged due to impossibility, each party is excused from duties arising under the contract that are yet to be fulfilled
• if performance is rendered only partially impossible , the duty may be discharged only to that extent
• if impossibility only temporarily suspends contractual duties, it does not discharge them
• if there has been part performance prior to impossibility, the party has a right to recover for that performance
• if person dies or is physically unable to perform they are discharged

1. impracticability:

• the tests for impracticability are that the party to perform has encountered (a) extreme and unreasonable difficulty and/or expense and (b) this difficulty was not anticipated
• these rules are equally applicable to temporary and partial impracticability (Handicapped Children's Educ. Board)

1. frustration:

• supervening act or event
• parties could not reasonably foresee the act or event occurring
• purpose has been completely or almost completely destroyed by this act or event
• the purpose of the contract was realized by both parties at the time of making the contract

1. partial discharge by modification of the contract: if the contract is subsequently modified by the parties, this will serve to discharge those terms of the original contract that are the subject of the modification; it will not discharge the entire contract

• the modification must be agreed to by both parties

1. discharge by operation of law: when one party obtains a judgement against another for breach of contract, the contractual duty of performance is merged in the judgement thereby discharging it

1. Compensatory Damages: purpose is to give compensation for the breach; to put the nonbreaching party in the position it would have been in had the promise been performed (Thorn v. White: could only recover for natural consequence of breach of not finishing roofing job)

1. expectation damages - "the standard measure of damages" based on sufficient damages to buy substitute performance (expectation measure)

1. limits on expectation damage recovery

1. duty to mitigate (avoidable damages): an injured party cannot collect those damages it might have avoided by reasonable action on its part after it knew of the breach (Parker v. 20th Century Fox: same type of employment was not available, so turning down a role in an alternate movie was not a case of not mitigating)
2. reasonable certainty: plaintiff may only recover for losses which he establishes with "reasonable certainty." A plaintiff who claims that he would have made profits had the defendant not breached must show not only that there would have been profits, but also the likely amount of those profits.
3. foreseeability: the court will not award consequential damages for breach unless the damages fall into one of two classes:

1. the damages were foreseeable by any reasonable person, regardless of whether the defendant actually foresaw them; or
2. remote and unusual consequences: the damages were remote or unusual, but only if the defendant had actual notice possibility of these consequences.

1. substantial performance: a party who substantially performs may sue for ordinary (expectation) damages for breach of contract, if the other party fails to perform

• if the contract is divisible into separate pairs of "agreed equivalents" a party who has substantially performed one of the parts may recover on the contract for that part.

1. types of expectation damages:

1. consequential damages:

1. breaching party is liable for any further losses resulting from the breach that any reasonable person would have foreseen would occur from a breach at the time of entry into the contract (Hadley v. Baxendale: replacing mill shaft)
2. plaintiff must prove that both parties were aware of the special circumstances that existed at the time of contract formation (circumstances that the parties would have realized would involve a substantial amount of risk and resulting damage)

1. general damages: damages which normally occur (expectation damages - see above)
2. nominal damages: a small sum may be awarded where a breach is shown but there is no actual loss

1. damages that do not fit standard: these can only be used if expectation damages do not apply

1. reliance damages: damages needed to put the plaintiff in the position he would have been in had the contract never been made. These damages usually equal the amount the plaintiff has spent in performing or in preparing to perform (Anglia Television v. Reed: were able to collect damages for amount spent in preparation for film)
2. restitution: interest injured party has in having restored to him any benefit that he has conferred on the other party; plaintiff's restitution interest is defined as the value to the defendant of the plaintiff's performance

• restitution is based on the value to the defendant, regardless of how much the conferring of that value costs the plaintiff and regardless of how much the plaintiff was injured by the defendant's breach (Watson v. Wood: able to collect damages for lower commission, when he had been promised a higher commission)

1. liquidated damages: specify the consequences of a breach; must have been agreed to by both parties at the time of the contract, and that are not punitive, are enforceable

• must be a reasonable forecast of the anticipated or actual loss (Lake River: was not a reasonable forecast)

1. punitive damages: generally not awarded in commercial contract cases; on limited circumstances they may be awarded in noncommercial type contract

• if the breach of the contract also consists of a tort, punitive damages are recoverable; bad faith is viewed as tort (White v. Benkowski: recovery allowed for tort, shutting off water supply intermittently was not a tort) (possibly bad faith if an injured party breaches voluntarily in order to find a better deal elsewhere).

1. Equitable Remedies

1. injunction: directs a party to refrain from doing a particular act
2. specific performance: orders the promisor to render the promised performance
3. limitations on equitable remedies:

1. equitable relief will not be granted unless damages are not adequate to protect the injured party
2. court will not give equitable relief unless the contract's terms are definite enough to enable the court to frame an adequate order
3. court will not grant equitable relief where there are likely to be significant difficulties in enforcing and supervising the order

1. Commitment, and Consideration or Reliance: What kinds of promises are enforceable?

1. Commitment: there must be mutual assent during the creation of the contract; it must be determined if there is an expression of a promise, undertaking, or commitment.

• Must distinguish between statements of future intent or preliminary negotiations on the one hand and statements of promise, undertaking or commitment on the other
• commitment cannot be illusory: must be viewed as serious by a reasonable person

1. was there a promise?
2. was there a serious promise: as opposed to a promise made in jest

• offer made in jest: an offer which the offeree knows or should know is made in jest is not a valid offer, and even if is purportedly "accepted" no contract is created

1. was the promise illusory: an agreement in which one party has become bound and the other party has not; lacks mutuality - at least one of the promises is illusory
2. interpretation of offers:

1. language used: can show if offer was or was not intended
2. surrounding circumstances: will be considered by courts in determining if an offer exists
3. prior practice and relationship of the parties: also used for interpretation
4. advertisements: most advertisements are not offers to sell because they do not contain sufficient words of commitment to sell

1. Consideration: the price for enforceability in the courts; a legally enforceable contract must contain a bargained for change in legal position between the parties

1. elements of consideration: there must be a bargained for exchange between the parties and that which is bargained for must be considered of legal value (some benefit to the promisor or detriment to the promisee)

1. bargained for exchange: requires that the promise induce the detriment and the detriment introduce the promise (Maughs v. Porter: was an act)
2. gift: if either parties intended to make a gift, he was not bargaining for consideration, and this requirement will not be met

1. if the promisor's motive was to induce the detriment, it will be treated as consideration; if the motive was no more than to state a condition of promise to make a gift, there is no consideration

1. adequacy of consideration: courts will generally not question this; however courts of equity may inquire into the relative values and deny an equitable remedy where the find a contract to be unconscionable

1. token consideration: where consideration is entirely devoid of value (a token) it will usually not be legally sufficient
2. sham consideration: evidence may be introduced to show that the consideration was not paid and no other consideration given in its stead
3. courts may find there to be no consideration when the bargain is unconscionable - need to balance with freedom of contract
4. possibility of value: adequacy of consideration will be found even though the value never comes into existence if there is a possibility of value in the bargained for act
5. majority view: detriment to the promisee in performing an act or making a promise is the exclusive test of consideration. The fact that this act or promise may confer a legal benefit on the other party, taken alone, is not sufficient consideration

1. past consideration: a kind of situation in which the bargain is missing is that in which the promise is made in return for detriment previously suffered by the promisee; a misnomer since it is not consideration at all

1. usual situation is one in which benefits were previously received but not requested
2. a promise to pay for services received in the past is usually held not to be supported by consideration (Mills v. Wyman: no obligation to pay person for taking care of son, because it was never requested)
3. however certain types of promises to pay for past services or benefits received may be binding without consideration (if the recipient has incurred a substantial benefit from the services)

----------------------------

REMEDIES

1. Damages

1. expectation damages

1. limits on expectation damage recovery

1. duty to mitigate
2. certainty
3. foreseeability

1. types of expectation damages:

1. consequential damages
2. nominal damages

1. damages that do not fit standard:

1. reliance damages
2. restitution

1. liquidated damages
2. punitive damages

1. Equitable Remedies

1. injunction
2. specific performance