CALIFORNIA CONTRACTS ESSAY WORKSHOP PROFESSOR CHRISTOPHER IDE-DON UC DAVIS SCHOOL OF LAW

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1 CALIFORNIA CONTRACTS ESSAY WORKSHOP PROFESSOR CHRISTOPHER IDE-DON UC DAVIS SCHOOL OF LAW CHAPTER 1: ISSUES TESTED Editr's Nte 1: The Prfessr refers t specific page numbers thrughut this lecture. The cntent des nt always match these references due t frmatting changes. A. Summary f the Issues Tested 1. Applicable Law 2. Frmatin f Cntract a. Offer Unilateral/Bilateral Irrevcable Offers Terminatin f Offer Revcatin f Offer Rejectin by Offeree Cunter-Offer by Offeree Lapse f Time Death b. Acceptance Unilateral/Bilateral Manner f Acceptance Cunter-Offer & Mirrr Image Rule Mailbx Rule c. Cnsideratin Legal Detriment Adequacy f Cnsideratin Gifts Preexisting Duty Rule Past Cnsideratin Prmissry Estppel (Cnsideratin Substitute) Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

2 d. Defenses t Frmatin & Enfrcement 1) Frmatin Mistake Mutual & Unilateral Misrepresentatin Duress Capacity 2) Enfrcement Illegality Uncnscinability Statute f Frauds Exceptins 3. Terms f the Cntract Mdificatin UCC/CL Parl Evidence Rule Exceptins Ambiguity Cllateral Deal Cnditin Precedent 4. Perfrmance f the Cntract Cnditins Express/Implied Satisfactin Excuse f Cnditins Waiver Wrngful Interference Estppel Discharge f Duty t Perfrm Impracticability Impssibility Frustratin f Purpse 5. Breach f Cntract Anticipatry Breach/Repudiatin UCC Request Assurances Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

3 Material Breach Minr Breach UCC Perfect Tender 6. Remedies a. Legal Remedies Expectatin Damages Partial Perfrmance Cnsequential Damages Freseeability Causatin Certainty Incidental Damages Mitigating Damages Cst f Cver b. Equitable Remedies Reliance Damages Quasi-Cntract Restitutin Damages Specific Perfrmance Laches Unclean Hands B. Substantive Law Exam Tip 1: Always start by discussing the Applicable Law in the questin. Applicable Law The UCC gverns all cntracts invlving the sale f gds, and cmmn-law rules gvern cntracts invlving services. Mixed Cntract: When a cntract includes bth gds and services, whichever ne predminates will determine the gverning law. Exam Tip 2: Lk fr facts in the questin that invlve bth gds and services. Explain why the UCC and the Cmmn Law (CL) culd bth apply, then determine whether the gds r services are the main pint f the cntract Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

4 Merchants: In additin, special rules apply t merchants under the UCC. A merchant includes nt nly a persn wh regularly deals in the type f gds invlved in the transactin, but als any business persn when the transactin is f a cmmercial nature. Frmatin f Cntract Exam Tip 3: If the questin states that there is a valid written cntract, d nt spend time analyzing whether a cntract was frmed. Fcus n the ther Cntracts-related issues in the questin. A valid cntract requires ffer, acceptance, and cnsideratin. Offer Exam Tip 4: If the questin is testing frmatin f cntract, yu shuld discuss each ptential ffer in chrnlgical rder, until yu find the actual ffer. D nt mit the analysis f ptential ffers! An ffer requires a prmise, terms, and cmmunicatin t the fferee. Prmise: A prmise a statement indicating a present intent t enter int a cntract. Terms Under the CL, all essential terms must be prvided (parties, subject matter, price, quantity). Under the UCC, the essential terms are the parties, subject matter, and quantity. A curt will gap fill any ther missing terms. Cmmunicatin: The ffer must be cmmunicated t the fferee (s/he must knw f the ffer). Exam Tip 5: Advertisements are generally nt ffers, unless they are specific and limit wh may accept the ffer. If an ad is presented in the facts, yu must discuss it as a ptential ffer. Unilateral r Bilateral Offer [After yu find the actual ffer, discuss whether the ffer is fr a bilateral r unilateral cntract]. A bilateral cntract is ne in which parties exchange prmises. It can be accepted by a prmise OR by the beginning f perfrmance. A unilateral cntract is ne in which the fferr makes a prmise and the fferee must perfrm. It can nly be accepted by cmplete perfrmance. Exam Tip 6: Lk fr exam facts that indicate a unilateral cntract. The fferee must perfrm the cntract with the intent t accept the cntract, therwise there will nt be an acceptance. Fr example, if Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

5 the party des nt knw abut the ffer, r believe the ffer, her perfrmance will nt be an acceptance. Irrevcable Offers Offers are generally revcable. Hwever, an ffer can be irrevcable under certain circumstances. Cmmn Law, Optin Cntract: An ffer where the fferr prmises t hld the ffer pen fr a certain perid f time. The fferee must pay cnsideratin t the fferr t hld the ffer pen. UCC Firm Offer: An ffer in writing where the fferr prmises t tld the ffer pen fr a certain perid f time (maximum time is 90 days). N cnsideratin is required! Terminatin f Offer Revcatin f Offer Exam Tip 7: Offers can be terminated in varius ways; be sure t discuss all pssible theries (based n the facts) fr terminatin f the ffer. An ffer can be terminated if the fferr revkes the ffer prir t acceptance. Revcatin is effective when received (a mailed revcatin nt effective until received). Offers can be irrevcable in certain circumstances: Optin/Firm Offer (see abve) Unilateral Cntract: If the fferee has started t perfrm in a unilateral cntract, the fferr cannt revke the ffer (fferee must be given a chance t cmplete the perfrmance). Rejectin by Offeree: If the fferee rejects the ffer, it will be terminated. Cunter-Offer by Offeree: If the fferee cunter-ffers, the riginal ffer will be deemed t be terminated. Lapse f Time: If an ffer is nt accepted within a reasnable amunt f time, it will be deemed t be terminated. Death: If the fferr dies befre the ffer is accepted, the ffer will be terminated. Acceptance Acceptance is the bjective manifestatin by the fferee t be bund by the terms f the ffer. Bilateral r Unilateral K A bilateral cntract can be accepted by a prmise OR by the beginning f perfrmance. A unilateral cntract can nly be accepted by cmplete perfrmance. Manner f Acceptance Any reasnable means f acceptance is allwed; unless the ffer limits the means f acceptance Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

6 Silence is generally nt acceptance, unless the fferee has reasn t believe that acceptance will cnstitute an acceptance. Cunter-Offers and Mirrr Image Rule Mirrr Image Rule (Cmmn Law): The acceptance must mirrr the terms f the ffer; any changes/additins t the terms cnstitutes a rejectin f the riginal ffer and a cunter-ffer. UCC (n Mirrr Image Rule) If any party is a nn-merchant: An acceptance with changes/additins will be a valid acceptance. The cntract will nt include the changes/additins unless the fferr agrees t them. If bth parties are merchants: An acceptance with changes/additins will be a valid acceptance. The cntract will include the changes/additins unless they (1) materially alter the terms f the riginal ffer, (2) the riginal ffer limits acceptance t the terms f the ffer, r (3) the fferr has previusly bjected, r bjects t the changed/new terms. Mailbx Rule Under the mailbx rule, an acceptance is valid when placed in the mail. Exceptin: If there is an ptin cntract r firm ffer, the acceptance is valid when received and must be received befre the ffer expires. Exam Tip 8: A recent essay questin invlved facts where the acceptance was placed utside the hme n the drstep fr the mailpersn t pick up the next mrning. The answer required yu t discuss the arguments fr why the acceptance culd be viewed as mailed r nt mailed. Cnsideratin Cnsideratin requires a bargained-fr exchange f legal detriment (prmise r perfrmance) between parties. Bth parties must give cnsideratin (prmise/perfrmance). Legal Detriment: A legal detriment can take the frm f a prmise t d/nt d smething, r perfrmance/refraining frm perfrmance. Adequacy f Cnsideratin: A curt will nt lk at the adequacy f the cnsideratin (fr example, the mnetary value f the items being exchanged). Cnsideratin-Related Issues Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

7 Gift: A gift frm ne party is nt supprted by cnsideratin (the receiving party is nt suffering a legal detriment). Preexisting Duty Rule: A prmise t perfrm a preexisting legal duty will nt qualify as cnsideratin because the prmisr is already required t perfrm (n additinal legal detriment is being incurred) by the prmisr Example 1: Bb and Owen enter int a valid cntract fr Bb t build Owen s huse. Bb is required t perfrm a duty (build the huse). Owen is an anxius persn, and ne week later ffers t pay additinal mney t Bb t ensure that the huse is cmpleted n time and Bb agrees. There will nt be any cnsideratin n Bb s behalf because Bb has a preexisting duty t build the huse n time and he is nt suffering an additinal legal detriment. Past Cnsideratin: A legal detriment incurred in the past des nt cnstitute cnsideratin because it was nt bargained fr and it was nt in exchange fr a legal detriment in return. Example 2: Based n a past bar essay: Paul is a patient f Dctr Matt. Dctr Matt has treated Paul fr many years and nly charged him $1 per visit. Paul wins the lttery and prmises t pay Matt $1 millin dllars fr all f the medical services that Matt has prvided in the past. Matt s past medical services are past cnsideratin and wuld nt cnstitute cnsideratin. Prmissry Estppel (Cnsideratin Substitute): If a prmise is made by a party, but there is nt cnsideratin prvided by bth sides, the prmise will still be enfrceable if certain cnditins are met. The prmise will be binding if: 1) The prmisr shuld reasnably expect the prmise t induce actin r frbearance; 2) The prmise actually induces actin r frbearance; and 3) Injustice can be avided nly by enfrcement f the prmise. The damages awarded under Prmissry Estppel are usually limited t reliance damages (mney spent n reliance f the prmise). Example 3: Tm prmises t give Dave his car as a gift fr his birthday. In reliance n this, Dave builds a garage fr the car and sells his ld car. Tm decides t keep his car. Dave sues Tm fr the car, but Tm argues that there is n cnsideratin because he was making a gift f the car t Dave. Under Prmissry Estppel, even if there is n cnsideratin (the car was a gift), the curt will enfrce Tm s prmise Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

8 CHAPTER 2: SUBSTANTIVE LAW CONTINUED Defenses t Frmatin Mistake Exam Tip 9: When a party asserts a Defense t Frmatin f Cntract, she is asking the curt t find that n Cntract was frmed between the tw parties at all. Yu shuld discuss all relevant Defenses t Frmatin, based n the facts in the questin. Mutual: If bth parties are mistaken as t an essential element f the cntract, the cntract is vidable. Refrmatin: The parties can ask a curt t refrm the cntract and rewrite it t reflect the crrect element(s) f the cntract. Unilateral: When ne party is mistaken as t an essential element f the cntract the mistaken party can vid the cntract if: The mistake wuld make enfrcement f the cntract uncnscinable, r Nn-mistaken party failed t disclse the mistake r caused the mistake. Als, there must nt be serius prejudice t the nn-mistaken party if the cntract is Misrepresentatin vided. Fraudulent: An intentinal misrepresentatin f a fact that the inncent party justifiably relies n. The misrepresentatin can be affirmative (a lie) r thrugh nn-disclsure (missin). Nn-Fraudulent: An unintentinal (inncent r negligent) misrepresentatin f a material fact that the inncent party justifiably relies n and induces the inncent party s agreement t the cntract. Undue Influence: Occurs when a party unfairly persuades the ther party t assent t a cntract. This can ccur in certain relatinships where the inncent party is susceptible t persuasin. Exam Tip 10: Undue Influence requires yu t analyze the facts f the questin and argue/cunter-argue why the specific facts indicate unfair persuasin r nt. Duress: When a party is imprperly threatened and has n meaningful chice but t agree t the cntract. This is a subjective test, s the defendant must actually feel like s/he has n chice but t agree Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

9 Capacity: Certain parties are cnsidered t be incmpetent t enter int a cntract, including minrs, mentally ill, and intxicated peple. Minrs are still liable fr necessities that they cntract fr (such as husing, fd). Defenses t Enfrcement Exam Tip 11: When a party asserts a Defense t Enfrcement f Cntract, she is NOT arguing that a cntract was nt frmed. Instead, she is asking the curt t find that the alleged cntract is unenfrceable between the tw parties. Yu shuld discuss all relevant Defenses t Enfrcement, based n the facts in the questin. Illegality: A curt will nt enfrce a cntract that has invlves illegal cnsideratin r perfrmance. Uncnscinability: A curt will nt enfrce a cntract that is s unfair, n reasnable persn wuld agree t it. If a curt finds uncnscinability, it can refuse t enfrce the entire cntract, r strike the uncnscinable prtin f the cntract, r limit the uncnscinable terms. Prcedural Uncnscinability ccurs when the bargaining prcess leading t the frmatin f the cntract is unfair; fr example, if a party is in a superir psitin and takes advantage f this psitin. Substantive Uncnscinability ccurs when the actual terms f the cntract are unfair; there must be a significant shwing f unfairness in the cntract t find this. Statute f Frauds Exam Tip 12: Statute f Frauds (SOF) is a frequently tested issue n the essay prtin f the exam. Apprach t SOF: Determine whether the SOF applies t the cntract. If the SOF applies, determine whether the requirements (written, signed by party t be charged) are met. If requirements are nt met, discuss exceptins (part/full perfrmance, estppel). Types f Cntracts: The SOF applies t cntracts invlving marriage, suretyship, cntracts (usually fr services) that cannt be perfrmed within ne year f making, sale f gds (UCC) fr $500 r mre, and real prperty Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

10 Requirements: There must be a writing signed by the persn t be charged (the persn against whm enfrcement is sught) that cntains the essential terms f the deal. The writing des nt have t be a frmal cntract (it can be in the frm f letters r receipts) and multiple writings can be put tgether t meet the requirements, as lng as they reference each ther. Imprtant: The writing des nt have t exist at the time f the prmise. It can be created after the prmises are made and still meet the SOF. Exceptins: If the SOF is nt met, a curt will still enfrce the cntract in limited situatins. Exam Tip 13: Discuss all ptential exceptins t the SOF that are relevant based n the facts. Cntracts (usually fr services) that cannt be perfrmed within ne year f making Full perfrmance has ccurred by the party seeking t enfrce the cntract. UCC Sale f Gds fr $500 r mre nly Full perfrmance has ccurred by the party seeking t enfrce the cntract; the gds have been received and accepted. Part perfrmance: When part f the purchase price has been paid, the cntract will be enfrceable t the extent that the mney has been paid. N writing required if the cntract invlves specially manufactured gds fr the buyer. Cnfirmatry mem: bth parties are merchants, ne party sends a cnfirmatry mem t the ther party wh knwingly receives the mem and des nt respnd within 10 days; the cntract is enfrceable against the receiving party, even if it did nt sign the mem. Sale f Land Part Perfrmance: If the cntract invlves the sale f land, the cntract will be enfrced if the purchaser pays part r all f the purchase price; the purchaser takes pssessin f the land; r the purchaser substantially imprves the prperty. Estppel (applies t all cntract types): If a party reasnably and detrimentally relies n a prmise made by the party t be charged, a curt may enfrce the cntract, despite the failure t meet the SOF requirement Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

11 CHAPTER 3: SUBSTANTIVE LAW CONTINUED Terms f the Cntract Mdificatin: After a valid cntract has been frmed, any change t the terms f the cntract is a mdificatin. Bth parties must agree t the mdificatin. Cmmn Law: Under the CL, a mdificatin must be supprted by cnsideratin. Cautin: Watch ut fr exam facts where a party ffers t pay mre mney t the ther party t guarantee cmpletin f the cntract n time. Under the Preexisting Duty Rule, there is n additinal cnsideratin here because the ther party already has a duty t perfrm the cntract n time. The mdificatin (additinal mney) will nt be enfrceable. UCC: A mdificatin des nt require additinal cnsideratin, as lng as the mdificatin is entered int in gd faith by bth parties. A prvisin prhibiting ral mdificatins t a sales cntract is valid under the UCC. Statute f Frauds: If the mdified cntract falls within the statute f frauds, it must be in writing (unless an exceptin applies, see abve fr exceptins t SOF). Accrd and Satisfactin: In limited situatins, when there is a dispute ver the validity f the cntract r the amunt wed, a party can agree t accept a different perfrmance than what was agreed upn in the cntract. The Accrd is the new agreement where a party agrees t accept a different perfrmance than what was agreed upn. The Satisfactin ccurs when the different perfrmance is cmpleted by the ther party, which discharges the riginal cntract duties and the accrd agreement duties. Cnsideratin is fund t supprt this type f agreement as fllws: The party perfrming the different perfrmance is incurring a legal detriment. The party that is agreeing t accept the different perfrmance is giving up the right t dispute the riginal cntract and sue fr breach. Parl Evidence Rule: Under the Parl Evidence Rule (PER), extrinsic evidence f ral r written cmmunicatins prir t the written cntract are generally inadmissible fr cntradicting the terms f the cntract. Exam Tip 14: Lk fr facts invlving a party that is seeking t intrduce evidence f prir negtiatins r discussins that ccurred befre a valid written cntract was frmed. If a valid written cntract exists, the PER will generally bar any evidence f the prir negtiatins r discussins Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

12 Integratin: First a curt will ask if the writing in questin was intended t be the final agreement (des it integrate) the terms f the cntract. If the cntract is nt an integratin (nt a final agreement), the PER des nt apply. Ttal Integratin: If the writing cntains all f the terms f the agreement, it is a ttal integratin and n Parl Evidence is admissible. Partial Integratin: If the writing cntains sme f the terms f the agreement, it is a partial integratin and Parl Evidence is admissible, as lng as it is cnsistent with the writing (des nt cntradict any f the terms. Determining Ttal r Partial Integratin: The curt will lk at the wrds in the cntract t determine if the parties intended fr it t be a ttal/partial integratin. Merger clause: If the cntract has a merger clause stating that the cntract is the final and cmplete understanding f the parties, it is likely t be a ttal integratin. Exceptins Parl Evidence will be admissible in limited situatins: Remember: the Parl Evidence Rule des nt prhibit evidence f mdificatins r statements made AFTER the cntract was written. Ambiguity and Interpretatin: Evidence is admissible fr purpses f interpreting r clarifying an ambiguity in the cntract. Cllateral Deal: Evidence f a separate deal between the parties is admissible, if the deal is nt part f the written cntract. UCC: Evidence f usual perfrmance and dealing between parties is admissible. Cnditin Precedent: Evidence f a cnditin precedent t the existence f the cntract is admissible. Perfrmance f the Cntract Exam Tip 15: A recent bar exam questin invlved a party claiming that a cnditin precedent was agreed upn in the discussins prir t the writing f the cntract. Evidence f this cnditin precedent was admissible as an exceptin t the PER. After determining the existence f a cntract and the terms f the cntract, the next issue is the perfrmance f the cntract. Prmise r Cnditin: When discussing the perfrmance f the cntract, determine whether the cntract invlves prmise(s) and/r cnditin(s). When a cntract is unclear, a curt will usually find a statement t be a prmise. Exam Tip 16: Mst Cntracts essays invlve prmises between parties. Cnditins are created by wrds such as n cnditin that Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

13 Prmises: In a cntract, parties may exchange prmises which require them t act r refrain frm acting. Standard f Perfrmance: Under the Cmmn Law, a party has a duty t substantially perfrm his part f the cntract. Hwever, under the UCC, there must be perfect tender f the gds. Breach f Cntract: If a party fails t meet the standard f perfrmance, it will be in breach f cntract. (See belw fr Breach f Cntract sectin). Cnditins A cnditin is an event that must ccur befre a party s cntractual rights r bligatins are created, destryed, r enlarged. (In ther wrds, if a cnditin is nt met, there may be n cntract at all). Cnditins can be express r implied: Express: Cnditins expressed (written) in the cntract itself. Lk fr wrds such as n cnditin that. Implied: Nt written in the cntract, but a curt may find that an implied cnditin exists. Fr example, a curt may imply that a builder has t substantially perfrm befre the wner has duty t pay. Timing f Cnditins Cnditin Precedent the cnditin must ccur befre the ther party has an bligatin t perfrm. Cnditin Subsequent if the cnditin ccurs, the duty t perfrm will then be excused. Standard f Perfrmance Express cnditins must be met fully. Implied cnditins require substantial perfrmance. Failure f Cnditin: If a cnditin is nt met, the ther party s duty t perfrm is excused cmpletely. Excuse f Cnditins Waiver: A party can waive a cnditin by wrds r cnduct, as lng as the cnditin is nt material t the cntract. The waiving party wuld then have a duty t perfrm, because it waived the cnditin. Wrngful Interference: If a party hinders the ther party s perfrmance and interferes with the ccurrence f the cnditin, the cnditin will be excused, and the wrngful party will have duty t perfrm. Estppel: If a party indicates that it will nt enfrce a cnditin, and the ther party reasnably relies n this, the party will be estpped frm later enfrcing the cnditin Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

14 Example f Prmise versus Cnditin Example 4: (Prmise): Harld Hmewner asks Bb t build a huse. Bb prmises t install bamb wd flring. If Bb fails t use bamb flring, but uses a similar wd, he has substantially perfrmed the cntract and is entitled t payment frm Harld. Example 5: (Cnditin): Harld Hmewner asks Bb t build a huse. Harld expressly cnditins payment fr the huse n the installatin f bamb wd flring. If Bb fails t use bamb flring, the cnditin has nt been met and Harld s duty t pay Bb fr huse has nt been triggered. Nte 1: The result f a failed cnditin can be harsh (as seen in this hyp), s curts are hesitant t find a cnditin if the cntract is unclear. Discharge f Duty t Perfrm In certain circumstances, a prmisr party s duty t perfrm will be discharged, regardless f whether there is a prmise r cnditin invlved. All relevant theries fr discharging a prmisr party s duty t perfrm shuld be discussed. Impracticability: An unfreseeable event ccurs (such as a natural disaster) making the perfrmance f the cntract extremely difficult; the nnccurrence f the event was a basic assumptin at the time f the cntract; and the party seeking discharge was nt at fault. Nte: Nn-extrardinary increases in the cst f perfrmance are nt a sufficient basis fr this defense. Impssibility: An unfreseeable event ccurs, making it bjectively impssible fr the party t perfrm. Frustratin f Purpse: If an unexpected event arises that destry the party s purpse fr entering the cntract, the party will be entitled t rescind the cntract, even if the perfrmance is still pssible. Similar t Impracticability, the nnccurrence f the event must have been a basic assumptin at the time f the cntract and the party seeking discharge was nt at fault. Example 6: Frustratin f Purpse: Gina agrees t rent an apartment in San Francisc fr ne day, s she can watch the Giants victry parade after winning the Wrld Series. On the day f the parade, an earthquake ccurs and the parade is canceled. Gina s perfrmance may be excused (paying rent) because the purpse f renting the apartment has been frustrated, even thugh she culd still pay the rent Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

15 CHAPTER 4: SUBSTANTIVE LAW CONTINUED Breach f the Cntract If a duty t perfrm des exist and has nt been discharged, a party s nn-perfrmance is a breach. If a party indicates prir t the time f perfrmance that it intends t breach; this is an anticipatry breach/repudiatin. Otherwise, when a party fails t perfrm n the date f perfrmance, it will be in breach f cntract. Anticipatry Breach/Repudiatin: Anticipatry breach r repudiatin ccurs when a prmisr party indicates that it will nt perfrm prir t the date that perfrmance is due. Cmmn Law The prmisr party clearly and unequivcally indicates thrugh wrds/acts that it will nt perfrm. The nn-breaching party can: Treat the repudiatin as a breach f cntract and sue immediately, r Suspend its wn perfrmance and demand perfrmance frm the prmisr, r Cancel the cntract, r Wait fr the breach t ccur, and then sue fr breach. Retractin: The prmisr party can retract its repudiatin f the cntract until/unless the ther party acts in reliance n the repudiatin, accepts the repudiatin, r has already filed an actin fr breach f cntract. UCC A buyer/seller unequivcally refuses t perfrm, r fails t prvide adequate assurances within a reasnable time (must nt exceed 30 days) f the ther party demanding them. Requesting Assurances Either party can demand assurances if it has reasnable grunds t be insecure abut the ther party s ability t perfrm and may suspend perfrmance until it receives assurances. A failure t prvide reasnable assurances within a reasnable time (must nt exceed 30 days), can be treated as a repudiatin. The nn-breaching party can: Treat the repudiatin as a breach f cntract and sue immediately, r Suspend its wn perfrmance and demand perfrmance frm the prmisr, r Cancel the cntract, r Wait fr the breach t ccur, and then sue fr breach Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

16 Retractin: The prmisr party can retract its repudiatin f the cntract until/unless the ther party has cancelled the cntract r materially changed psitin n the basis f the repudiatin. Breach f Cntract Cmmn Law Material Breach: A material breach ccurs when the nn-breaching party des nt receive the substantial benefit f the bargain. The nn-breaching party can withhld any prmised perfrmance and pursue remedies fr breach. Minr Breach: A minr breach ccurs when the breaching party has substantially perfrmed, but nt fully perfrmed. The nn-breaching party is entitled t pursue remedies fr the minr breach, but it still must perfrm under the cntract. Exam Tip 17: If the facts are nt clear n whether a material r minr breach ccurred, yu shuld discuss bth issues/rules and present the arguments that the parties wuld make fr bth theries. Remember, yu are nt being scred n yur cnclusins, but rather yur analysis! UCC Perfect Tender Rule: Under the UCC, the parties (including the seller) must strictly perfrm all duties under the cntract, r they will be in breach. Remedies Remedies cmpensate the nn-breaching party fr actual ecnmic lsses. Exam Tip 18: Discuss all relevant remedies, based n the facts presented in the questin. Expectatin Damages: Expectatin damages are damages directly resulting frm the breach f the cntract. They are intended t put the injured party in the same psitin as if the cntract was perfrmed. Expectatin damages must be freseeable and the nn-breaching party must be able t prve the amunt f damages with reasnable certainty. Amunt: Calculating the amunt f damages depends n the facts. Generally, the amunt f damages will be based n the cntract price fr perfrmance and the fair market value f perfrmance Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

17 Example 7: B builds a huse fr O. O refuses t pay. B is entitled t the amunt agreed upn in the cntract. Example 8: B cntracts with O t build O a huse fr $200,000, which is belw the market value fr a new huse. B breaches and des nt build the huse. O finds anther builder and pays $300,000 (fair market value) fr a huse t be built. O is entitled t $100,000 frm B. Exam Tip 19: When discussing expectatin damages, yu shuld use the specific dllar amunts prvided in the facts and shw the calculatins that lead t the ultimate amunt f damages awarded. The calculatins are the same as analysis and they earn yu pints n the exam. Cnsequential Damages Cnsequential damages are reasnably freseeable damages ther than expectatin damages that are related t the breach f the cntract (example, lss f prfit). Example 9: Cnsequential Damages, based n a past CA bar exam questin: Restaurant enters a cntract with Fisherman fr the delivery f 1,000 punds f crab fr $10 per pund every week. Fisherman catches the crab but decides t sell it t anther buyer instead. After a ne-mnth delay, Restaurant is able t find anther surce fr the crab fr $12 per pund. Restaurant seeks expectatin damages fr the increased cst f the crab $2 per pund and cnsequential damages fr lst business prfits during the ne mnth when it did nt have crab n the menu. In rder t recver cnsequential damages, three elements must be met: Freseeability: The damages must be natural and prbable cnsequences f the breach r cntemplated by the parties at the time the cntract was frmed. Causatin: Plaintiff must shw that the damages were caused by the defendant s breach; if the damages wuld have ccurred withut defendant s breach, there can be n recvery. Certainty: Plaintiff must prve the dllar amunt with reasnable certainty. When the amunt f mney is t speculative (example: a new business), the curt will nt award cnsequential damages. Reliance Damages: Damages that nn-breaching party incurs in reasnable reliance upn the prmise that the ther party wuld perfrm. Nte: a party cannt recver reliance and expectatin damages; it must chse between reliance r expectatin damages. [Yu shuld discuss bth items f damages n the exam] Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

18 Example 10: Reliance Damages, based n a past CA bar exam questin: Tm enters int a cntract t buy Dave s antique car. In reliance n the cntract, pays an entry fee t enter the car int a car cntest. Dave sells the car t anther buyer. Tm can seek reliance damages fr the entry fee. Incidental Damages: Damages that arise when the nn-breaching party is trying t remedy the breach. Fr example, in a cmmercial cntract, the cst f finding a replacement seller f gds. Mitigating Damages The nn-breaching party has duty t avid r mitigate its damages, t the extent pssible, by seeking replacements/substitutes fr gds and/r services. The nn-breaching party will be held t a standard f reasnable cnduct. A failure t mitigate damages will reduce the damages recvered by the nn-breaching party. Example 11: Duty t Mitigate Damages, based n a past CA bar exam questin: Betty enters a cntract t buy a freezer frm Sally, with delivery f the freezer due April 1. On March 15, Sally infrms Betty that she will nt be able t deliver the freezer n April 1 (anticipatry breach/repudiatin). On March 31, Betty rders a freezer frm Adam, which included a $500 fee fr ne-day delivery n April 1. Sally then sues Betty fr the nn-delivery f the freezer and seeks damages including the $500 delivery fee. Betty wuld have a strng argument that Sally did nt mitigate her damages because she waited until 1 day befre she needed the freezer t purchase it. Restitutin Restitutin allws nn-breaching and breaching parties t recver damages under an unjust enrichment thery (nt based n the cntract). Nn-Breaching Party Restitutin usually arises when the nn-breaching party has partially perfrmed the cntract and ther party then breaches. The nn-breaching party will then seek restitutin damages fr the benefit cnferred t the breaching party. If the breaching party des nt pay restitutin damages, it will have been unjustly enriched by the nn-breaching party s perfrmance. Imprtant: A nn-breaching party cannt seek restitutin if it has perfrmed all f its duties and the nly perfrmance due frm the ther party is the payment under the cntract. The nnbreaching party must seek expectatin damages instead Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

19 A nn-breaching party can seek damages based n the value f the benefit cnferred n the ther party. The amunt is measured by the reasnable value f what it wuld cst the breaching party t btain the benefit frm anther surce, r the increase in the breaching party s wealth (example increase in value f land) frm having received the benefit. Breaching Party If a party has nt substantially perfrmed, it will be in breach f cntract, and cannt recver under the cntract. Hwever, if the nn-breaching party has benefited frm the breaching party s perfrmance, the breaching party can recver fr the benefit cnferred minus the damages the nn-breaching party is entitled t. Quasi-Cntract (Implied in Law Cntract) In certain situatins, where there is n enfrceable cntract, r a cntract des nt exist at all, a curt will award restitutin damages n the basis f quasi-cntract. The elements are: The plaintiff must cnfer a measurable benefit n the defendant; The plaintiff acted withut gratuitus intent (s/he intended t be paid); and It wuld be unfair t let the defendant retain the benefit because the defendant had an pprtunity t decline the benefit but did nt d s, r the plaintiff had a reasnable excuse fr nt giving the defendant such an pprtunity (example, an emergency arse and plaintiff culd nt cnsult with defendant). Specific Perfrmance Exam Tip 20: Specific Perfrmance is a frequently tested remedy n the exam; yu shuld discuss all elements f the rule t earn full credit. Under the remedy f Specific Perfrmance, the nn-breaching party can ask a curt t rder the breaching party t perfrm the cntract. The fllwing elements must be met: There must be a valid cntract. This requires yu t discuss whether a valid cntract (ffer, acceptance, cnsideratin) exists. The terms f the cntract must be certain/clear enugh t allw a curt t make an rder. The nn-breaching party has satisfied any cnditins precedent (r the cnditin has been excused), s the breaching party s perfrmance is nw due. Mney damages are inadequate (this usually means the item(s) invlved in the cntract are unique Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

20 Examples f situatins where mney damages are inadequate: Land, pieces f art, antique cars. It is feasible fr the curt t enfrce and supervise the breaching party s perfrmance. Curts will nt grant specific perfrmance if it will be required t supervise the perfrmance fr a lng perid f time, r if it will be difficult t enfrce. Specifically, curts will nt require peple t perfrm service cntracts (fr example, emplyment) because it is nt feasible t enfrce/supervise a persn s service and frcing a persn t wrk can rise t the level f indentured servitude under the 13th Amendment. N defenses exist: A curt will nt grant specific perfrmance if the breaching party can assert defenses f Laches r Unclean Hands. Laches: If the nn-breaching party waited an unreasnably lng time t seek specific perfrmance and the delay prejudiced the breaching party, the curt may deny specific perfrmance. Unclean Hands: If the nn-breaching party itself engaged in unethical r immral acts relating t the cntract, the curt may deny specific perfrmance. Equitable Relief Replevin allws a plaintiff t recver the specific gds r items in dispute Arises in cntext f unique gds until the curt can determine the rights f the parties Injunctin rders a breaching party t stp ding smething r nt d smething Immediate and irreparable harm will ccur withut the injunctin There is n adequate remedy at law (unique) Likelihd f success n the merits Balance the equities N defenses (laches, unclean hands) Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

21 CHAPTER 5: JULY 2008, QUESTION 3 On May 1, Owner asked Builder t give her an estimate fr the cst f building a wden fence arund her backyard. Builder gave Owner signed written estimates f $4,000, cnsisting f $2,500 fr labr and $1,500 fr materials fr a cedar fence, and f $7,000, cnsisting f $2,500 fr labr and $4,500 fr materials fr a redwd fence. He said, hwever, that he wuld have t verify that the redwd was available. Owner said she liked the idea f a redwd fence but wanted t think abut it befre making a decisin. In any case, she said she wanted the fence cmpleted by June 1 because she was planning an imprtant event in her back yard fr a lcal charity. Builder said he wuld check with redwd suppliers and get back t her within tw days. On May 2, Builder telephned Owner. Owner s phne was answered by her vice-message machine, which infrmed callers that she had been called away until abut May 25 but wuld be checking her messages daily and wuld return calls as sn as she culd. Builder left a message stating, I ve fund the redwd, and I can build the redwd fence fr $7,000, as we agreed. Please give me a call, as I will therwise buy the redwd, which is in shrt supply, and start the wrk within a few days. Owner heard the message, but because the charity event she had planned had been cancelled and there was n lnger any urgency abut getting the fence erected, she decided t wait until she returned t speak t Builder. By May 14, Builder had still nt heard frm Owner. He was cncerned that the supply f redwd might nt hld and that if he did nt start wrk immediately he wuld nt be able t finish by June 1. Thus, he bught the redwd and cmpleted cnstructin f the fence n May 24. When Owner returned n May 25, she saw the cmpleted fence and sent Builder a letter stating, Yu did a great jb, but I never agreed t g ahead with the fence, and I certainly hadn t decided n redwd. Besides, the charity event that I had planned gt cancelled. Yu shuld have waited until I gt back. But, t avid a dispute with yu, I ll ffer t split the difference I ll pay yu $5,500. Builder received the letter n May 26. He telephned Owner and said, When I first read yur letter, I was ging t get a lawyer and sue yu, but I decided t let it g and I d accept yur ffer f $5,500. Owner replied, Well, yu re t late. I ve changed my mind. I dn t think I we yu anything. May Builder recver all r any part f $7,000 frm Owner n a cntractual r ther basis? Discuss. State Bar f Califrnia. Reprinted with permissin Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

22 A. ISSUES CHECKLIST 1. Applicable Law 2. Cntract Frmatin a. Offer 1) May 1st Estimates 2) May 2nd Message b. Acceptance by Silence c. Cnsideratin 3. Remedies a. Expectatin Damages b. Quasi-Cntract 4. Accrd and Satisfactin 5. Revcatin Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

23 B. Sample Answer Applicable Law Cntracts fr the sale f gds are gverned by Article 2 f the Unifrm Cmmercial Cde. All ther cntracts are gverned by general cmmn-law cntract principles. The cntract at issue, assuming there is ne, invlves building a fence. This makes it a cntract fr persnal services. Althugh Builder (B) may supply materials such as the wd fr the fence, that des nt cnvert it int a cntract fr the sale f gds because the materials are cllateral t the primary purpse f the agreement, which is t prvide the service f fence building. This cntract will be gverned by general cmmn law cntract principles. Cntract Frmatin A binding cntract is created thrugh the prcess f mutual assent and cnsideratin, when n valid defenses t cntract exist. Mutual assent ccurs upn acceptance f a valid ffer t cntract. In this case, there is n enfrceable cntract between the parties because they never had a meeting f the minds. Offer An ffer is an bjective manifestatin f a willingness by the fferr t enter int an agreement that creates the pwer f acceptance in the fferee. In ther wrds, it is a cmmunicatin that gives pwer t the recipient t cnclude a cntract by acceptance. May 1st Estimates B may argue that the estimates he prvided n May 1st were an ffer. The estimate fr the redwd fence was nt an ffer, hwever, because B did nt bjectively manifest an intent t be bund if Owner (O) accepted right there. B expressly said that he wuld have t verify that redwd was available. This suggests that he did nt intend t be bund t the terms f these estimates until he verified the supply f the redwd. B stated that he wuld quickly ascertain the availability f the redwd and get back t O. The estimate fr the cedar fence was nt similarly cnditined, and s it may be cnstrued as an ffer, but this is als unlikely since the qute prvided by B came in respnse t a request frm O. May 2nd Message B will als argue that the vic he left fr O n May 2 nd was an ffer. In the message, B referred t the earlier discussin and said that he wuld be willing t build the redwd fence fr $7,000. Furthermre, B expressly granted O the pwer t accept by calling him back, and he said that he wuld start the wrk in a few days if he did nt hear frm her. The May 2nd vic message frm B des qualify as an ffer t build the redwd fence fr $7,000 since B created pwer f acceptance in O. Offers have n effect, hwever, unless actually cmmunicated t the identified fferee. B reasnably expected that his message wuld be heard by O since they had previusly decided that B wuld call O Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp

24 with the availability f the redwd and since O s message said that she wuld be checking her messages daily. O did in fact hear the message. Once she heard the message, the ffer was effective. Acceptance by Silence An acceptance is an bjective manifestatin by the fferee t be bund by the terms f the ffer. Generally, silence des nt perate as an acceptance f an ffer, even if the ffer states that silence qualifies as acceptance, unless: (i) the fferee has reasn t believe that the ffer culd be accepted by silence, was silent, and intended t accept the ffer by silence; r (ii) because f previus dealings r pattern f behavir, it is reasnable t believe that the fferee must ntify the fferr if the fferee intends nt t accept. In this case, there is n indicatin that B and have any such histry. B will argue that, under the circumstances, O s silence shuld be cnstrued as assent. O had already tld B that she needed the fence t be cmpleted by June 1 st in rder t be finished in time fr a charity event she was hsting. She had nt infrmed him that the charity event scheduled fr June 1st had been canceled. B was under the impressin that O needed the fence dne n time. Furthermre, her message said that she wuld be checking her messages daily and wuld return calls as sn as she culd. Given this, and the fact that B waited twelve days fr O s respnse, B was reasnable in believing that O heard the message but was t busy t respnd. Since he tld her that he wuld start in a few days unless he heard back frm her, it may have been bjectively reasnable t believe that her silence meant that she wanted him t start but was t busy t respnd. On the ther hand, O will argue that it wuld be unfair t hld her t an agreement that she had nt assented t. After all, at the time, there were tw utstanding ffers: ne fr a cedar fence and anther fr a redwd fence. Mrever, n their last cmmunicatin, O had tld B that she liked the idea f a redwd fence but wanted t think abut it befre making a decisin. Given that she culd have decided n either, r nne, O will state it was nt bjectively reasnable t interpret her silence as assent t the building f the redwd fence. O has the better argument here, particularly because curts are lathe t enfrce an agreement when ne party has nt affirmatively manifested assent. Thus, there was n acceptance here and O is nt bund t the cntract by her silence. *** [END OF HANDOUT] Themis Bar Review, LLC Califrnia Cntracts Essay Wrkshp