Contracts & Sales

Contract (definition + rule)

A legally enforceable agreement between two or more parties. Requires: Mutual assent (offer + acceptance), consideration, and no valid defenses.

Rule: A binding contract requires manifestation of mutual assent, consideration, and the absence of any valid defense to formation or enforcement.

GA: A contract may be made in any manner sufficient to show agreement, including the conduct of the parties.

Offer (definition + rule)

An objective manifestation of the offeror’s willingness to enter into an agreement that creates a power of acceptance in the offeree. Must include intent to be bound, knowledge by offeree, certain/definite terms, words of promise targeted to those who can accept.

Rule: A statement is an offer only if the person to whom it is communicated can reasonably interpret it as an offer AND it expresses the offeror’s present intent to be legally bound by the terms.

GA: The offeror is master of his offer - an offeree’s failure to comply with the precise terms of the offer is generally fatal to the existence of a valid contract.

Essential Terms (CL vs UCC)

Common Law: Parties, subject matter, price, and quantity must all be present

UCC: Only quantity is essential — UCC fills the gap on all other missing terms

Exception: requirements/output contracts — quantity implied by good faith

Rule: Under the CL, a contract fails for indefiniteness if essential terms (parties, subject matter, price, quantity) are missing. Under the UCC, only the quantity term is essential; all other terms may be gap-filled.

GA: To be enforceable, the terms of a contract must be sufficiently plain and explicit to convey what the parties agreed upon. Length of employment is an essential term of an employment contract.

Advertisement (def + rule)

An invitation to deal, not an offer. Does not create a power of acceptance in the viewer.

Rule: Advertisements are generally only an invitation to receive offers. An advertisement qualifies as an offer only if it is sufficiently specific, limits who can accept, or is associated with a stated reward.

Revocation (def + rule)

The offeror’s withdrawal of an offer before acceptance. Effective upon receipt by the offeree. Revocation by mail: effecticve when received, not when sent. An offeror may revoke even if the offer states it will remain open, unless the offer is irrevocable.

Rule: An offer can be revoked at any time before acceptance, even if it states it will be held open for a specific period. Revocation is not effective until communicated to the offeree.

Irrevocable Offer (Option Contract - CL)

An offer that cannot be revoked because the offeree paid consideration to keep it open. Consideration require. Does not terminate on offeror’s death (unlike ordinary offers)

Rule: Under the common law, an option contract makes an offer irrevocable for its stated duration when the offeree gives consideration to hold the offer open.

Irrevocable Offer - UCC Firm Offer

A merchant’s written, signed assurance that an offer will remain open. No consideration required, irrevocable for a stated time or reasonable time, offeror must be a merchant.

Rule: Under UCC, if a merchant gives a written and authenticated assurance that an offer will remain open, the offer is irrevocable for the stated period or a reasonable time, but no longer than three months, without any consideration.

GA: Merchant does not include any businessperson in a commercial transaction. If no time period is stated, a reasonable term is implied, but irrevocability cannot exceed three months.

Acceptance (def + rule)

An objective manifestation by the offeree to be bound by the terms of the offer. Offeree must know of the offer, unless specified offeree may accept in any reasonable manner. Silence is not acceptance (unless prior dealings or reason to believe otherwise)

Rule: Acceptance is an objective manifestation by the offeree of willingness to be bound. The offeree must have knowledge of the offer and must accept in the manner invited or in any reasonable manner if the offer does not specify.

Mailbox Rule (def + rule)

Acceptance is effective when sent, not when received. Applies only to acceptances in bilateral contracts. Reject sent first, first received controls. Revocations and option acceptances are effective upon receipt only.

Rule: Under the mailbox rule, an acceptance is effective upon dispatch, provided the offer does not state otherwise. If a rejection is sent before an acceptance, the mailbox rule does not apply and the first communication received by the offeror controls.

Mirror-Image Rule (CL def + rule)

Under CL, an acceptance must exactly mirror the terms of the offer. Any addition or change is a rejection of original offer + counteroffer. A conditional acceptance terminates the offer and acts as a new offer from the original offeree.

Rule: Under the CL mirror-image rule, an acceptance that adds to or alters the terms of the offer operates as a rejection of the original offer and a counteroffer.

GA: Generally, acceptance must mirror the offer’s terms, but if an offer contains alternative propositions, the offeree may elect between them.

Battle of Forms (UCC - def)

Under the UCC, an acceptance with additional or different terms is generally still an acceptance.

• ≥1 nonmerchant: new terms are proposed additions; original offer terms control unless separately accepted

• Both merchants: additional terms AUTO-included unless they materially alter, offer limits acceptance, or

offeror objects timely

• Different terms: knock-out rule — cancel each other; UCC gap-fills

Battle of Forms (UCC - Rule)

Under UCC § 2-207, a definite and seasonable expression of acceptance operates as acceptance even if it contains additional or different terms. Between merchants, additional terms become part of the contract unless they materially alter it, the offer expressly limits acceptance to its own terms, or the offeror timely objects.

Bilateral Contract (def + rule)

A contract formed by the exchange of mutual promises. Both promises are enforceable from the moment of exchange. Commencing performance is an implied promise to complete performance.

Rule: A bilateral contract is created when one party’s promise is exchanged for the other party’s promise, rendering both promises enforceable immediately upon exchange.

Unilateral Contract (def + rule)

A contract in which one party promises to do something in return for an act (not a promise) by the other party. Only complete performance is acceptance

Beginning performance makes the offer irrevocable for a reasonable time to complete. Offeree must know of the offer before acting.

Rule: A unilateral contract arises when an offeror promises to perform in exchange for the offeree's act. Acceptance requires complete performance, but once the offeree begins performance, the offeror may not revoke for a reasonable time needed to complete it.

Consideration (def)

A bargained-for legal detriment to the promisee. The promise must induce the detriment. The detriment must induce the promise. Can be: return promise, act, or forbearance from a legal right

Consideration (rule)

RULE: Consideration exists where there is a legal detriment to the promisee that is bargained for by the promisor. The promise must induce the detriment, and the detriment must induce the promise.

GA: Consideration = bargained-for exchange + detriment to promisee OR benefit to promisor (minority approach). Contracts under seal raise a rebuttable presumption of consideration.

Preexisting Duty Rule (def)

A promise to do what one is already legally obligated to do is not valid consideration.

Exception: promisor gives something additional or varies the preexisting duty

Exception: promise to a third party to perform an act already owed to another is sufficient consideration

Preexisting Duty Rule (rule)

RULE: Under the preexisting duty rule, a promise to perform an act that the promisor is already legally obligated to perform does not constitute valid consideration for a new promise.

GA: Past consideration is NOT adequate to create a contract.

Modification (def)

A change to an existing contract's terms.

CL: requires new consideration (unless unanticipated difficulties arise + modification is fair/equitable, or new obligations on both sides)

UCC: requires only good faith — no consideration needed

Modification (rule)

Under the common law, a contract modification must be supported by new consideration to be enforceable.

Under the UCC, a modification requires only good faith, and no consideration is necessary.

Accord and Satisfaction (def)

Accord: an agreement to accept different performance to satisfy an existing duty.

Satisfaction: performance of the accord, which discharges both the original contract and the accord.

Original contract is NOT discharged until satisfaction is complete

An unliquidated/disputed claim may be discharged by a 'payment in full' check

Accord and Satisfaction (rule)

An accord is an agreement to accept a substituted performance in satisfaction of an existing duty. Satisfaction — performance of the accord — discharges both the original obligation and the accord contract. The original contract is not discharged until satisfaction is complete.

GA: Execution of a new agreement may itself be satisfaction if the parties expressly agree it is so, or if the new promise is founded on new consideration.

Illusory Promise (def)

A promise that is not legally binding because it is vague or because the promisor retains an unfettered choice whether to perform. An illusory promise cannot serve as consideration.

Illusory Promise (rule)

An illusory promise — one that pledges nothing because it is too vague or leaves performance entirely to the promisor's discretion — is not legally binding and does not constitute valid consideration.

Promissory Estoppel (def)

A consideration substitute that makes a promise binding when the promisee detrimentally relies on it.

Elements: Promisor should reasonably expect promise to induce action; Promise does induce such action; Injustice can only be avoided by enforcement

Promissory Estoppel (rule) (CONSIDERATION)

Under promissory estoppel (detrimental reliance), a promise is binding without consideration if the promisor reasonably should expect it to induce action by the promisee, the promise does induce that action, and injustice can only be avoided by enforcement of the promise.

GA: A charitable institution need NOT prove reliance on a promise to recover under promissory estoppel.

Requirements & Output Contracts (def)

Requirements contract: buyer agrees to buy all that it requires from the seller.

Output contract: seller agrees to sell all that it produces to the buyer.

Valid consideration: the promisor suffers a legal detriment.

Quantities may not be unreasonably disproportionate to estimates.

UCC implies a good faith quantity obligation.

Requirements & Output Contracts (rule)

Requirements and output contracts are supported by valid consideration because the promisor suffers a legal detriment. Under the UCC, quantities must be bought or sold in good faith and cannot be unreasonably disproportionate to any estimated amount.

Mutual Mistake (def)

Both parties are mistaken about an essential element of the contract at the time of formation.

Contract is voidable by the adversely affected party if ALL of:

• Mistake existed at formation

• Relates to a basic assumption of the contract

• Material impact on the agreed exchange

• Adversely affected party did not assume the risk

• Reformation is not available to cure the mistake

Mutual Mistake (rule)

A mutual mistake makes a contract voidable by the adversely affected party if the mistake existed at formation, concerned a basic assumption, had a material impact, and the adversely affected party did not assume the risk of the mistake.

GA: A contract cannot be enforced if it was executed based on a mutual mistake of law or fact.

Unilateral Mistake (def)

Only one party is mistaken about an essential element of the contract.

Either party may generally enforce the contract on its terms.

Contract is voidable by the mistaken party ONLY if:

Mistaken party did not bear the risk of the mistake, AND

Enforcement would be unconscionable, OR other party caused/knew of the mistake

Unilateral Mistake (rule)

A unilateral mistake generally does not render a contract voidable. The mistaken party may avoid the contract only if the party did not bear the risk of the mistake and either enforcement would be unconscionable or the other party caused or knew of the mistake.

GA: A unilateral mistake resulting from the defendant's own negligence does NOT justify the defendant's failure to perform.

Fraudulent Misrepresentation (def)

A knowing or reckless false assertion of fact, made with intent to mislead, that induces assent.

Elements:

• Misrepresentation was fraudulent (knowing/reckless + intent to mislead)

• Adversely affected party justifiably relied on it

• Misrepresentation induced assent to the contract

Fraud in factum, VOID

Fraud in inducement, VOIDABLE

Fraudulent Misrepresentation (rule)

Fraudulent misrepresentation requires: (1) a knowing or reckless false assertion of fact made with intent to mislead, (2) justifiable reliance by the adversely affected party, and (3) the misrepresentation induced assent. Fraud in the factum voids the contract; fraud in the inducement makes it voidable.

GA: Fraud renders the contract voidable at the election of the injured party (actual fraud, constructive fraud, or concealment). The injured party must promptly restore or offer to restore whatever was received under the contract.

Duress (def)

An improper threat that deprives a party of meaningful choice.

Improper threats include:

• Threats of criminal prosecution

• Threats of civil action made in bad faith

• Threats to breach a contract in violation of good faith

Physical compulsion, VOID

All other duress, VOIDABLE

Duress (rule)

Duress is an improper threat that deprives a party of meaningful choice such that there is no reasonable alternative and the threat induces assent. Physical compulsion renders the contract void; all other duress renders it voidable.

GA: Duress must be such that it overcomes the mind and will of a person of ordinary firmness.

Undue Influence (def)

The unfair persuasion of a party to assent to a contract.

Elements:

Dominant-dependent relationship (lack of expertise, experience, or diminished capacity)

Persuasion seriously impairs the other party's free and competent judgment

Effect: contract is VOIDABLE; victim may recover restitution

Undue Influence (rule)

Undue influence occurs when one party uses unfair persuasion arising from a dominant-dependent relationship to induce another party's assent, seriously impairing the other party's free and competent judgment. The contract is voidable and restitution is available.

Capacity - Infancy (def)

Persons under the age of 18 generally lack capacity to contract.

• Contract is VOIDABLE by the minor, not the adult

• Exception: a minor is bound for the reasonable value of necessaries

Capacity - Infancy (rule)

A contract made by a minor (under 18) is voidable at the minor's election, not the adult's. The minor may disaffirm at any time before reaching majority or within a reasonable time thereafter. However, a minor is liable for the reasonable value of necessaries.

GA: Individuals under 18 do not have capacity to contract. A minor engaged in a trade or business is bound for all contracts regarding that trade or business.

Capacity - Mental Illness & Intoxication (def)

Mental illness (adjudicated incompetent): contract is VOID

Mental illness (not adjudicated): contract is VOIDABLE

Guardianship: contract is VOID (except necessaries)

Intoxication: contract is VOIDABLE if the party was unable to understand nature/consequences AND the other party knew of the intoxication

Capacity - Mental Illness & Intoxication (rule)

A contract made by a person adjudicated mentally incompetent is void. If there has been no adjudication, the contract is merely voidable. A contract made during intoxication is voidable if the intoxicated party could not understand the nature or consequences and the other party knew of the intoxication.

GA: If not adjudicated, the contract is voidable unless made during a lucid interval. A contract entered into during intoxication may be ratified expressly or through conduct inconsistent with rescission.

Unconscionability (def + rule)

A contract (or clause) so unfair to one party that no reasonable person in the parties' position would agree to it. Examples: hidden or complex boilerplate, contracts of adhesion, grossly one-sided terms

RULE: A contract is unconscionable when it is so unfair to one party that no reasonable person in the position of the contracting parties would agree to it. Courts may refuse to enforce the contract, enforce it without the unconscionable clause, or limit the clause's application.

Illegality (def)

If consideration or performance is illegal: contract is unenforceable.

If a contract contemplates illegal conduct at formation: contract is VOID.

If contract becomes illegal after formation: duty to perform is discharged.

Key exceptions: ignorance of illegality, lack of illegal purpose, divisible contracts, restitution if not in pari

delicto

Illegality (rule)

A contract is void if it contemplates illegal conduct at formation, and unenforceable if the consideration or\ performance is illegal. If a contract becomes illegal after it is formed, the duty to perform is discharged.

GA: Although an illegal or immoral contract is void, once it has been performed, GA permits it to stand.

Statute of Frauds Mr. SOUR (def)

Contracts that must be evidenced by a signed writing to be enforceable:

M — Marriage: any agreement in consideration of marriage

S — Suretyship: promise to answer for another's debt

O — One year: contract that cannot be performed within 1 year from making

U — UCC: sale of goods for $500 or more

R — Real property: any contract to transfer an interest in land

Statute of Frauds Mr. SOUR (rule)

Under the Statute of Frauds, a contract falling within the MR. SOUR categories is unenforceable unless evidenced by a writing signed by the party to be charged that contains the essential terms of the agreement.

GA requires additional writings for: (1) executor/administrator promise to pay from own estate; (2) promise to revive a debt barred by the SoL; (3) any commitment to lend money; (4) any agreement to modify/cancel/rescind those contracts. GA uses 'record' instead of 'writing' for UCC contracts.

UCC Statute of Frauds (def)

Sale of goods ≥ $500 must be evidenced by a writing/record that:

• Indicates a contract was made

• Identifies the parties

• Contains a quantity term

• Is signed by the party to be charged

Exceptions (no writing needed): specially manufactured goods, part payment, receipt and acceptance, judicial admission, merchants' failure to object within 10 days

UCC Statute of Frauds (rule)

Under UCC § 2-201, a contract for the sale of goods for $500 or more is unenforceable unless there is a sufficient writing indicating a contract was made, identifying the parties, containing a quantity term, and signed by the party to be charged, subject to several exceptions.

GA: Uses 'record' instead of 'writing.'

Statute of Frauds — Exceptions (def)

Two main exceptions that remove the writing requirement:

1. Promissory estoppel (detrimental reliance): party detrimentally relied on the oral contract

2. Judicial admission: party admits contract exists through discovery or trial testimony

Real property additional exception: part performance (any 2 of 3: possession, payment, improvements)

Statute of Frauds — Exceptions (rule)

A contract otherwise within the Statute of Frauds may be enforceable without a writing under promissory estoppel (when a party detrimentally relies) or judicial admission (when a party admits the contract's existence in legal proceedings).

Parole Evidence Rule (def)

Prevents a party from introducing prior or contemporaneous extrinsic evidence that contradicts the terms of a written, integrated contract.

• Total integration: bars evidence that supplements OR contradicts

• Partial integration: bars evidence that contradicts; allows consistent supplementary terms

Parol Evidence Rule (rule)

The parol evidence rule bars the introduction of prior or contemporaneous extrinsic evidence to contradict the terms of a written contract that the parties intended as their final agreement (integration). A total integration bars all extrinsic evidence; a partial integration bars only contradictory evidence.

GA: Parol evidence is generally inadmissible to contradict a valid written instrument. Proof of unwritten portions is allowed when consistent with the writing and the writing does not purport to contain all stipulations.

Parol Evidence Rule — Exceptions (def)

P/E rule does NOT apply when a party is:

• Raising a defense to formation or enforcement (fraud, duress, mistake, etc.)

• Proving a condition precedent to the existence of the contract

• Interpreting or clarifying an ambiguity in the contract

• Introducing communications made AFTER contract execution

• Under UCC: explaining terms with trade usage, course of dealing, or course of performance

Parol Evidence Rule — Exceptions (rule)

The parol evidence rule does not bar extrinsic evidence offered to establish a defense to formation or enforcement, prove a condition precedent, clarify an ambiguity, or introduced after the contract's execution.

Under the UCC, trade usage, course of dealing, and course of performance may supplement even apparently unambiguous terms.

Substantial Performance (CL) (def)

A party who has substantially (but not perfectly) performed an implied or constructive condition has triggered the other party's obligation to perform.

• Applies to implied/constructive conditions only — NOT express conditions and NOT sale-of-goods contracts

• Damages: contract price minus cost to obtain complete performance

• Willful breach makes substantial performance less likely to be found

Substantial Performance (CL) (rule)

Under the common law, substantial performance of an implied or constructive condition precedent triggers the other party's duty to perform. The nonbreaching party's damages equal the contract price minus the cost to obtain the promised performance. Substantial performance does not apply to express conditions or UCC goods contracts.

Perfect Tender Rule (UCC)

Under the UCC, a seller must tender goods that perfectly conform to the contract, any nonconformity is a breach.

• Buyer may: accept all / reject all / accept any commercial unit(s)

• Exception: installment contracts use a 'substantial conformity' standard

• Do NOT discuss substantial performance or material breach in a UCC sale-of-goods context

RULE: Under UCC, if goods or tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole, accept the whole, or accept any commercial unit(s). This is the perfect tender rule.

Seller's Right to Cure (UCC)

A seller who tenders nonconforming goods has the right to cure if:

• The time for performance under the contract has not yet elapsed, OR

• The seller had reasonable grounds to believe the buyer would accept the nonconforming goods (e.g.,

based on prior dealings)

RULE: Under UCC, a seller may cure a defective tender if the time for performance has not expired, or if the seller had reasonable grounds to believe the buyer would accept despite the nonconformity, provided the seller seasonably notifies the buyer and makes a conforming tender.

UCC Installment Contracts (def)

A contract requiring delivery of goods in multiple separate shipments, each to be separately accepted.

• Perfect tender rule does NOT apply

• Buyer may REJECT a shipment if nonconformity substantially impairs its value to buyer AND cannot be cured

• Buyer may CANCEL entire contract if nonconformity substantially impairs value of the ENTIRE contract

UCC Installment Contracts (rule)

Under the UCC, an installment contract is governed by a substantial conformity standard, not the perfect tender rule. A buyer may reject a nonconforming installment only if the nonconformity substantially impairs the value of that installment and cannot be cured. The buyer may cancel the whole contract only if the breach substantially impairs the value of the entire contract.

Implied Warranty of Merchantability (def)

Implied in every sale by a merchant who deals in goods of the kind sold.

• Goods must be fit for their ordinary purpose

• Disclaimer: oral or written using the word 'merchantability'; if written, must be conspicuous

Implied Warranty of Merchantability (rule)

The implied warranty of merchantability arises automatically in every sale by a merchant dealing in goods of the kind sold. It warrants that the goods are fit for their ordinary purpose and pass without objection in the trade. It may be disclaimed by a conspicuous writing using the word 'merchantability.'

GA: Cause of action for breach of warranty is limited to the buyer against their immediate seller, and the buyer's immediate family and household guests.

Implied Warranty of Fitness for Particular Purpose (def)

Arises when the seller has reason to know (from any source) that:

• The buyer has a particular purpose for the goods, AND

• The buyer is relying on the seller's skill or judgment to select suitable goods

• Disclaimer: general language in a conspicuous writing

Implied Warranty of Fitness for Particular Purpose

The implied warranty of fitness for a particular purpose arises when the seller has reason to know the buyer's particular purpose and that the buyer is relying on the seller's skill or judgment to select suitable goods. It may be disclaimed by general language in a conspicuous writing.

Risk of Loss — Shipment vs. Destination Contracts (def)

Shipment contract (FOB seller's place): risk passes when seller delivers goods to the CARRIER

Destination contract (FOB buyer's place): risk passes when seller TENDERS goods at the named destination

No carrier / merchant seller: risk passes when buyer takes PHYSICAL POSSESSION

No carrier / non-merchant seller: risk passes on TENDER of delivery

Seller breaches (nonconforming goods): risk stays with SELLER until buyer accepts or seller cures

Buyer breaches after goods identified: risk immediately shifts to BUYER

Risk of Loss — Shipment vs. Destination Contracts (rule)

Risk of loss depends on the contract type. In a shipment contract, risk passes to the buyer when the seller delivers to the carrier. In a destination contract, risk passes on tender at the destination. When no carrier is involved and the seller is a merchant, risk passes on the buyer's receipt of the goods.

Material Breach vs. Minor Breach (def)

Material breach: nonbreaching party is deprived of the substantial benefit of the bargain.

• Nonbreaching party may withhold all performance AND sue for all damages

Minor breach: breaching party has substantially performed.

• Nonbreaching party must still perform but may sue for partial damages

UCC: seller must strictly perform, the material breach doctrine only applies to installment contracts or by party stipulation

Material Breach vs. Minor Breach (rule)

A material breach deprives the nonbreaching party of the substantial benefit of the bargain, entitling that party to withhold performance and pursue all remedies. A minor breach entitles the non-breaching party to damages but requires that party to continue performing.

Anticipatory Repudiation (def)

A clear and unequivocal repudiation of a bilateral contract before performance is due.

Nonbreaching party may:

• Treat repudiation as an immediate breach and sue now

• Ignore repudiation and demand performance (but must suspend own performance if continuing would

increase promisor's damages)

• Wait for actual breach if only remaining performance is payment

Retraction allowed UNLESS other party has cancelled or materially changed position

Anticipatory Repudiation (rule)

Anticipatory repudiation arises when a promisor clearly and unequivocally repudiates a duty before the time for performance. The nonbreaching promisee may treat the repudiation as an immediate breach, suspend performance and demand performance, or await the time for performance.

GA: UCC: A party may demand written assurances when there are reasonable grounds for insecurity. Failure to provide adequate assurances within 30 days = repudiation.

Expectation Damages (def)

Goal: put the nonbreaching party in the same position as if the contract had been performed.

Formula: Loss in Value + Other Loss − Costs Avoided − Loss Avoided

• Must be calculated with reasonable certainty

• Construction: cost to correct defect

• Sale of goods: value as warranted minus actual value of nonconforming goods

• Real estate (failure to perform): contract price minus market value

Expectation Damages (rule)

Expectation damages are designed to give the nonbreaching party the benefit of the bargain by placing that party in the same economic position as if the contract had been fully performed. The measure is: loss in value plus other loss, minus costs avoided and loss avoided.

GA: A party is entitled to recover damages that flow naturally from the breach and those the parties contemplated, when the contract was made, as the probable result of its breach.

Consequential Damages (def)

Damages that arise from special circumstances unique to the parties — not the usual result of a breach.

To be recoverable, must be:

• Reasonably foreseeable at the time of contracting

• Caused by the breach

• Proven with reasonable certainty

UCC: only BUYERS may recover consequential damages (sellers use CL or statute)

Consequential Damages (rule)

Consequential damages are recoverable for breach of contract if they were the natural and probable consequences of the breach, were contemplated by the parties at formation, or were otherwise reasonably foreseeable, and their amount is proven with reasonable certainty.

GA: Consequential damages are generally NOT recoverable unless they can be traced solely to the breach or are capable of exact computation.

Liquidated Damages (def)

A damages clause agreed to in advance as a reasonable estimate of actual damages in the event of breach.

Enforceable if ALL THREE:

• Parties intended to agree in advance on damages

• Stipulated amount was reasonable at the time of contracting

• Actual damages were uncertain in amount and difficult to prove

Liquidated Damages (rule)

A liquidated damages clause is enforceable if: (1) the parties intended to fix damages in advance, (2) the stipulated amount bore a reasonable relation to anticipated or actual damages at the time of contracting, and (3) actual damages would be uncertain or difficult to prove.

GA: Both parties are bound by a liquidated damages agreement — the nonbreaching party CANNOT elect to recover actual damages instead. Courts look to: difficulty of estimation, intent (damages vs. penalty), and reasonableness of the pre-estimate.

Mitigation of Damages (def)

The nonbreaching party must take reasonable steps to avoid or minimize its losses.

• Standard: reasonable conduct under the circumstances

• Services contract: need not accept any type of employment, only the same type as contracted

• Failure to mitigate REDUCES recoverable damages

Mitigation of Damages (rule)

A nonbreaching party has a duty to mitigate damages by taking reasonable steps that do not involve undue risk, expense, or inconvenience. Failure to mitigate reduces the damages that the nonbreaching party may recover.

GA: A landlord has NO duty to mitigate when a tenant breaches a lease. Litigation expenses are generally not recoverable but may be allowed if the defendant acted in bad faith or was stubbornly litigious.

Specific Performance (def)

An equitable remedy that compels a party to perform — available only when damages are inadequate.

Factors: difficulty proving damages, hardship to defendant, balance of equities, mutuality, practicality of enforcement

• Real property: almost always granted (every parcel is unique)

• UCC: available to buyer when goods are rare or unique

• Equitable defenses: laches (prejudicial delay) or unclean hands (wrongdoing in the transaction)

Specific Performance (rule)

Specific performance is an equitable remedy available when monetary damages are inadequate to compensate the nonbreaching party. Courts will grant specific performance for real property contracts (unique parcels) and under the UCC for rare or unique goods.

GA: To recover specific performance on a contract for sale of land, the purchaser must show payment or tender of the purchase price.

Restitution (def)

A remedy that restores to the plaintiff the benefit conferred on the defendant.

• Measured by: reasonable value of the benefit conferred OR the increase in defendant's wealth

• Available to nonbreaching party for any benefit conferred through part performance

• Also available to a breaching party (minus defendant's damages for breach), unless breach was willful

Restitution (rule)

Restitutionary recovery restores to the plaintiff the value of a benefit conferred on the defendant. A nonbreaching party may recover restitution for any benefit conferred through part performance. A breaching party may recover restitution for benefits conferred, reduced by the defendant's damages for the breach, unless the breach was willful.

Third-Party Beneficiary — Intended vs. Incidental (def)

Intended beneficiary: one whom the promisee specifically intends to benefit through the contract.

• Has standing to enforce the contract against either party

• Rights vest when: (1) detrimentally relies, (2) manifests assent at party's request, or (3) files suit

Incidental beneficiary: one who benefits coincidentally, and has NO right to enforce

Third-Party Beneficiary — Intended vs. Incidental (rule)

An intended third-party beneficiary has the right to enforce a contract if the contracting parties clearly intended to benefit that party. An incidental beneficiary, who benefits only as a byproduct of the contract, has no enforcement rights.

GA: For a third-party beneficiary to have standing, it must clearly appear that BOTH parties intended the third party to be a beneficiary. GA follows the Second Restatement.

Assignment of Rights (def)

The transfer of contractual rights from the assignor to the assignee.

Generally allowed UNLESS: materially increases obligor's duty/risk, reduces chance of performance, or contract prohibits

• Assignee takes all of assignor's rights, subject to any defenses against the assignor

• With consideration, irrevocable; without consideration, revocable

Assignment of Rights (rule)

An assignment is a transfer of contractual rights. The assignee stands in the shoes of the assignor and takes subject to any defenses that could be raised against the assignor. An assignment for consideration is irrevocable; one without consideration may be revoked.

GA: Once a party fully performs its obligations, its right to enforce the contract may be assigned without the other party's consent, even if there is a nonassignment clause (unless personal services or special skills are required).

Delegation of Duties (def)

The transfer of contractual duties from the delegator to the delegatee.

NOT allowed when the other party has a substantial interest in having the original party perform (personal services, special skill)

• Delegator remains LIABLE unless there is a novation

• 'Assignment of contract' language = both assignment of rights AND delegation of duties

Delegation of Duties (rule)

A delegation is a transfer of contractual duties. Delegation is impermissible when the other party has a substantial interest in the specific individual's performance. The delegator remains secondarily liable unless the obligee agrees to a novation, substituting the delegatee as the new obligor.

Impracticability (def)

A defense that excuses performance when an unforeseeable event makes performance impracticable.

Replaces the CL doctrine of impossibility.

Elements:

• Unforeseeable event occurred after contract formation

• Non-occurrence was a basic assumption on which the contract was made

• Party seeking discharge was not at fault

Not available if party assumed the risk of the event

Impracticability (rule)

The defense of impracticability excuses performance when an unforeseeable event, whose non-occurrence was a basic assumption of the contract, makes performance impracticable, provided the party seeking discharge was not at fault and did not assume the risk.

GA: A party cannot excuse itself from a contract by pleading impracticability absent a statutory provision or contract provision for that contingency. An act of God renders nonperformance excusable only if performance was truly impossible and the impossibility could not have been avoided by proper prudence.

Frustration of Purpose (def)

A defense that excuses performance when an unexpected event destroys one party's principal purpose for entering the contract, even though performance is still technically possible.

• Frustrated party may cancel the contract without paying damages

• Event need not be completely unforeseeable, but frustration must be severe

• Must fall outside the assumed risks of the contract

Frustration of Purpose (rule)

The frustration of purpose doctrine excuses a party from performance when an unforeseen event, not within the assumed risks of the contract, wholly destroys the value of the contract to that party. The frustrated party may rescind without liability for damages.

Mutual Rescission (def)

The cancellation of a contract by agreement of both parties, restoring them to their pre-contract positions.

• Each party's surrender of rights = consideration for the rescission

• Cannot rescind after third-party beneficiary rights have vested without the beneficiary's consent

Mutual Rescission (rule)

Mutual rescission is a discharge of a contract by agreement of both parties. Each party's surrender of rights under the original contract serves as consideration for the rescission agreement. Contracts with third-party beneficiaries cannot be mutually rescinded once the beneficiaries' rights have vested.

GA: Parties may seek to rescind for fraud (must restore whatever received) or nonperformance (when both parties can be restored to their pre-contract condition).