contracts master check-off sheet

8/2/2019 Contracts Master Check-Off Sheet

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Framework for analyzing contractsThe following framework (or checklist) can be used when we go through contractshypotheticals to analyze the validity of a contract, its enforceability, and what kinds ofremedies can be proscribed in the case of breach.

1. Which law applies: Common Law or UCC?a. If the contract is for a sale of goods as defined under Article 2 of the UCC, thenthe UCC applies. In some circumstances, the thing being contracted for is a hybridof both a good and a service. In this case, conduct an analysis to figure out if thegood is customized or whether it makes more sense to classify the thing as aservice.

b. Custom made goods are still considered goods: if something could becharacterized more as a good then as a service (even if it was a custom-madegood requiring extensive work), it is a good for purposes of the UCC.

c. If the contract is not for a sale of goodsas defined by Article 2 of the UCC (i.e. itis not a type of property that is movable (i.e. land, services, some kinds of real-

estate)), then the common law applies.d. Other exceptions of applying the UCC

i. Leasing to buy: a lease to buy contract is a form of a real estate contractwhere a tenant/buyer choose the home and seeks a landlord/seller to serve asthe investor for a given lease period after which time the buyer will have theoption to purchase the land or property.

e. If law does not say otherwise, apply the common law. Courts in Arizona havesaid (in Deloach v. Arizona) that in the absence of any clear precedent on aparticular area of law, they would apply the restatements.

2. Does the statute of frauds apply? (A defense to enforcement)

b. General requirement of writing: If the contract is for a value less than $500 inArizona and the terms of the contract specifies that the contract is to be fulfilledwithin one year of formation, then the contract doesnt have to be in writing.ii. Custom made goods exception to this rule: In the case that a good is either a

hybrid good or a custom-made good, the statute of frauds doesnt apply.(A.R.S. 47-2201)

iii. Writing form? When it is specified that a contract must be in writing, there isno strict requirement on where exactly during the process of the contract thewriting must enter into. The only requirement is that a reasonable amount oftime would have passed between initial formation and the time the contract isput in writing and that the party receiving it knows of its contents.

2. Goods accepted or paid for exception to the statute of frauds: no writing isrequired for goods where payment has been madeor where goods havebeen received and accepted.b. Example:Buyer orally orders three pairs of shoes from Seller for a total

of $600. Buyer then sends a check for this amount in advance payment.Once Seller takes the check and deposits it in the bank, Seller loses hisStatute of Frauds defense.


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c. One-year performance: if a contract is not to be performed within one year of itsformation, it MUST be in writing.

d. Effect of the statute of frauds: the statute of frauds, if applicable, acts as adefense to enforcement of the contract. It could be invoked by either the offeror orthe offeree.

3. Was a valid contract formed?a. Look at whether or not there was a valid offer, acceptance, and consideration

involved.i. Offer: manifestation of a willingness to enter into a bargain. The offer creates

the power of acceptance. The offer is important because it gets the wholeball rolling. It begins the bargaining process (which is required for there tobe valid consideration).

a. Terms must be reasonably certain: according to common law, eventhough there may be a manifestation of intention to make an offer, itcannot be accepted unless the terms of the contract are reasonably

certain.b. Begins the bargaining process: the offeror must voice his intent to be

presently and legally bounded by the contract. This means that thereceiving party must be aware that he has the power to accept and thatthis power is not available to anyone else.

c. Where there is no mutual assent (i.e. the offer was made in jest)then there is no contract: an offer which the offeree knows or shouldknow is made in jest(i.e. jokingly) is not a valid offer. Thus, even if it isaccepted no contract is created.

There are two very general exceptions when an offer made in jest might

be binding:1) The party has to know that one is not joking.

2) What would a reasonable person think under similar circumstances?

d. UCC Transactions: if the offer involves the sale of goods, an offer tobuy goods is irrevocable or firm if it is made (1) by a merchant; (2) ina signed writing; (3) gives explicit assurances that the offer will beheld open.

e.Exceptions:Advertisements: an advertisement is not an offer since itdoesnt contain language that obligates selling. The only times when anadvertisement could be considered an offer is when: (A) there are specific

terms in the advertisement indicating commitment (example: 100 mensjackets at $26 / jacket, first come first served starting Saturday); and (B)there are words of commitment in the advertisement. Auctions: anauction is not usually considered an offer since it is a solicitation of offers.If, however, the sale is said to be without reserve, the auction may beconsidered to be an offer.

4. Counter-offer: the making of a counter-offer impliedly manifests a rejectionof the offer and therefore terminates the offer. The significant point is that


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the making of a counter-offer ordinarily communicates to the offeror that theofferee does not wish to accept the offer. In this sense, a counter-offer isnot necessarily a rejection of an offer, it is rather a termination of thepower of acceptance in the offeree.c. Elements of a counteroffer:

iii.Counter-offer is an offer made by an offeree to the offeror relating tothe same matter as the original offer and proposing a substantialbargain different from that proposed by the original offer.

iv.An offerees power of acceptance is terminated by his making of acounter-offer, unless the offeror has manifested contrary intention orunless the counter-offer manifests a contrary intention of the offeree.

ii. Acceptance: manifestation of assent to the terms thereof made by the offereein a manner invited or required by the offer.1. Offeror has complete control over his offer: offeror may choose the

method by which he receives his acceptance.a. Unilateral performance demanded: here, the offeror creates an offer

that demands a return performance as opposed to a bilateralperformance where a return promise is accepted.i. Example under the UCC - shipment of goods: if a buyer of goods

places a purchase order that does not state how acceptance is tooccur, the seller may accept by either promising to ship thegoods or by in fact shipping the goods.

2. When offer becomes effective: in most courts, the acceptance is effectiveupon proper dispatch.a. Acceptance is king - mailbox rule: If the offeree mails an acceptance

before the rejection, then a later mailing of a rejection will not affect theforce of the acceptance even ifthe rejection reaches the offeror first.

Principle: acceptance overtakes rejection. If the offeree mails arejection first and then an acceptance, the acceptance will becomeeffective when it is received by the offeror.

b. Exceptions:1. Offer provides otherwise: mailbox rule does not apply if the offerprovides otherwise (i.e. there is a provision in the offer that specificallystates that acceptance of the offer will become effective when the offeris received in-hand)

iii. Acceptance varying from offer3. Common law mirror image rule: under the common law, the offerees

response operates as an acceptance only if it is the precise mirror imageof

the offer. If the response conflicts at all with the terms of the offer, or addsnew terms, the purported acceptance is in fact a rejection and counter-offer.

4. UCC 2-207 - modification to the mirror image rule (battle of theforms): A definite and seasonable expression of acceptance or awritten confirmation which is sent within a reasonable time operates asan acceptance even though it states terms additional to or different fromthose offered or agreed upon, unless acceptance is expressly made


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conditional on assent to the additional or different terms. The UCCmodification to the common-law mirror image rule basically changes thecommon law provision that the acceptance must mirror exactlythe offer orelse it is considered a counter-offer.c. Follow the steps listed below to analyze if the acceptance is valid under

2-207:d. Step 1: Determine if the offeree accepted the terms of the contract:2-207(1) provides that any expression of acceptance or writtenconfirmation will act as an acceptance even though it states termsthat are additional to or different from those contained in the offer.

e. Step 2: Determine if there are additional terms in the contract: 2-207(2)is where we turn to if we want to determine whether the added termsbecome part of the contract (but only if the contract is not madeconditional on the new terms. If acceptance is made conditional on newterms, it is a counteroffer).

f. Step 3: Determine if the acceptance is made conditional on acceptance

of the additional terms: an expression of acceptance does notform acontact if it is expressly made conditional on assent to.... additional ordifferent terms. So if the purported acceptance contains additional ordifferent terms from the offer, and also states something like, Thisacceptance of your offer is effective only if you agree to all of the termslisted on the reverse side of this acceptance form. there is no contract formed by the exchange of documents because there hasnt been aneffective acceptance by the offeree. Instead what we have is a counter-offer and the original offeror must accept these changes.

** We can stop here if the contract is not between two merchants. If at

least one of the parties is a merchant, proceed to step 4.

g. Step 4 (only to be used when there is a valid contract and acceptanceof the additional terms is not a pre-condition to formation of thecontract): where the offerees response contains an additional term,the consequences depend on whether both parties are merchants.iii. At least one party is not a merchant: if at least one party is not a

merchant, the additional term does not prevent the offereesresponse from giving rise to a contract, but the additional termbecomes part of the contract only if the offeror explicitlyassents tothe additional term.

1. Example: Consumer (offeror) sends a purchase order to Seller(Offeree) but does not mention how disputes are to be altered.Seller sends acknowledgement back to Consumer but adds theterm that disputes are to be arbitrated. The additional term isnot effective unlessthe consumer agrees to it.

2. If the offeror begins performance of the contract without agreeingto the additional terms, whether or not he is to be bound by theadditional terms must be determined by evaluating his conduct.


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iv.If both parties are merchants: the additional term automaticallybecomes part of the contract with three exceptions:3. Materiality: if the additional term materially alters the contract, it

shall not become an additional part of the contract.4. Objection: if the offeror objects to the additional term submitted

by the offeree, then it will not become part of the contract.5. Original offer bars: If the original offer expressly states that theterms of the offer control and that no additional terms will beacceptable, then additional terms are not part of the contract.

h. If the parties have not agreed in their writings, contract establishedby performance: where the writings of the parties do not establish acontract, a contract may result from the conduct of the parties. Ifadditional terms were added to the contract upon acceptance, then theyare valid only if the original offeror agreed to them or if the originalofferor has acted such that he could be inferred to have agreed to theadditional terms.

5. **General note on offer and acceptance: Offer and acceptance togetherequate to mutual assentwhich is required if a contract is to be legitimate(i.e. legally binding)

6. Consideration: this for that. It is the actual thing that the parties arecontracting for (and no this thing is not usually the cold-hard cash!).Consideration usually confers a benefit onto the party who the promisor iscontracting with. There are a couple different kinds of consideration:

i. Unilateral performance: when one party is expected to act in fulfillingtheir end of the bargain (i.e. one neighbor agrees to mow the otherslaw in return for a payment. The one neighbor acting with the otherwaiting for his performance is unilateral performance).

ii. Bilateral performance: here, both parties to a contract makepromises. (i.e. A offers to pay B $1,000 on a specific date if he doessomething for him).

d. Bargained for exchange: in order for there to be consideration, theremust be something that each party bargains for; some kind of returnperformance: it is not enough that the promise induces the conduct ofthe promisee or that the conduct of the promisee induces the making ofthe promise; both elements must be present if there is to be abargain.iii.The bargained-for exchange element:

3. Detriment: it is crucial to the concept of consideration that one

party be incurring a detriment by entering into a contract. Theyare giving something up to receive something in return. The oneparty that is giving up something is the promisee.

4. Bargained-for-exchange: the agreement between two parties toa contract must be a this-for-that type of exchange.

5. Pre-existing duty rule: one cannot refrain from doing somethingthey were already legally obligated to do. If one promises to do ordoes that which one was already legally obligated to do, this


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action is not a legal detriment and is not sufficient to fulfill thelegal detriment requirement.

b. Even if there was an offer, acceptance, and there was consideration, a contractcould still be invalid by virtue of a defect. (See Point 5 below)

c. Objective theory of contracts: just as in torts, there is an objective standard we

can use to determine whether a contract has been formed. The objective theory ofcontract says that whether or not theres been an offer or acceptance isdetermined by how a reasonable person in the other partys shoes would interpreta partys intentions. (This goes to the issue of Point 5 above where the contractwas made in jest.)

4. After considering whether the requisite steps of contract formation aresatisfied, look at whether the parties had the legal capacity to enter into thecontract.a. Capacity:In general, minors lack the legal capacity to enter into contracts.

However, under Rest. 2nd of Contracts 14, minors can enter into voidable

contracts up until the reach the age of majority. This means that the minor candisaffirm the contract.i. Exception to disaffirmance: if the contract is for a necessary good (i.e. food,

shelter, clothing, medical attention), the minor doesnt have the power todisaffirm the contract.

ii. Other exceptions to a minor entering into a contract: a minor can stillenter into a valid contract if any of the following are true:1. The minor is a veteran entitled to benefits2. The minor is married to an adult.3. Also, for public policy reasons, a minor may not be able to disaffirm a

contract they have entered into.

4. Also, where a minor has entered into a contract concerning negotiableinstruments (i.e. student loans), they cannot disaffirm the contract.

b. Mental incapacity: if somebody lacks a particular state of intelligence to the pointthat they cannot understand the terms of a contract, we cannot expect a truemeeting of the minds (mutual assent) that a valid and enforceable contract wouldrequire. The one requirement of this exception in order for it to be a defense toenforcing a contract by the concerned party is that the mental defect must beknown to the other party. (Mental illness is covered by Rest. 2nd. 12(2))

5. Check to see if the contract has anydefects. If it does, the following aredefenses that can be asserted. (enforceability)

a. Misrepresentationi. Common law definition: A misrepresentation is an assertionthat is not in

accord with the facts. Misrepresentation affects assent. Representations offact constitute an inducement to the receiving party for which therepresenting party is deemed responsible. Remedy: if the party that has fallensusceptible to misrepresentation can prove that they were harmed by themisrepresentation, they are entitled to damages. (What kinds of damages?Most likely expectational, reliance, and perhaps unjust enrichment)


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1. Not synonymous with fraud: misrepresentation can exist regardless of theguilty or innocence of the person who makes the misstatement.Misrepresentation can be either intentional or as a result of negligence.(Distinguish this from fraudulent misrepresentation)

2. No duty to disclose everything under common law unless....: law requires

honesty not candor. Nondisclosure does not constitute misrepresentationunless there is some legal basis for imposing a duty to disclose.3. Conduct as a misrepresentation: conduct that is designed to prevent, or

likely to prevent another from learning a fact is equivalent to an assertionthat the fact does not exist.

4. An injured party can also avoid: the injured party can avoid the contract butonly if they notify the breaching party.

ii. Elements of misrepresentation and proving misrepresentation:5. Other partys state of mind: The plaintiff (or injured party) from a contract

does not generally have to prove that the misrepresentation wasintentionally made. A negligent or even innocent misrepresentation will

usually be sufficient to avoid the contract if it is made as to a material fact.6. There must have been justifiable reliance by the party asserting

misrepresentation.7. Fact, not opinion: the misrepresentation must be one of fact rather than

opinion.iii. Fraudulent misrepresentation: 162 of the restatements tells us that [a]

misrepresentation is fraudulent if the maker intends his assertion to induce aparty to manifest his assent and the maker:A) Knows or believes that the assertion is not in accord with the factsB) A misrepresentation is material if it would be likely to induce a reasonableperson to manifest his assent or if the maker knows that it would be likely to

induce the recipient to do so.

Fraudulent misrepresentation contains two parts: the purpose of the promisor(the fraudulent part) and the intent.5. Special remedy under fraudulent misrepresentation: 166 of the

restatements provides a special remedy in the case of fraudulentmisrepresentation - reformation.

b. Mistakev. General definition: A mistake is a beliefthat is not in accord with the facts.vi. Unilateral mistake: where a mistake of one party at the time of a contract was

made on a crucial point on which the contract was drafted and this has a bad

impact on that party, the contract is voidable unlesshe is the one who madethe mistake and

a)effect of enforcing the contract would be absurd (unconscionable)b)the other party to the contract had reason to know of mistake or he

caused it.vii. Bilateral mistake: mistake is made by both parties to a contract at time

contract was made and has material effect on agreed exchange ofperformance. The mistake must meet the following three conditions in order for


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it to be avoided or rescinded:1) The mistake was made as to a basic assumption of the contract.2) The mistake must have a material effect on the agreed exchange ofperformance.3) The adversely-affected party who is seeking to avoid the contract must not

be the one on whom the contract has imposed the risk of the mistake.Remedy: contract is voidable by the adversely affected party unless he bearsbrunt of responsibility.

c. Duressi. General definition: available if a defendant can show that he was unfairly

coerced by the plaintiffinto entering into the contract, or into modifying it.Duress consists of any wrongful act or threat which overcomes the free willofa party.

ii. Requirements for a finding of duress: finding duress requires:1. an improper threat of sufficient gravity to induce the other party tomanifest assent to an agreement and

2.assent must have in fact been induced by this threat.iii. Standard for determining if there is duress: although there are a number of

ways in which a party can induce another through duress, the court has asubjective standard it uses to determine whether a partys free will has beenovercome. Even though the will of a person of ordinary firmness might nothave been overborne, if the defendant can show that he was unusually timid,and was in fact coerced, he may use the defense.1. Lack of reasonable alternative: 175 of the restatements states that

where a person is forced to enter into a contract, even though there is nophysical threat, there could be no reasonable alternative. Where there is noreasonable alternative to entering into a contract, a party may be found to

have entered into a contract by duress.iv.Remedy: where a partys manifestation of assent is achieved through duress,

the party so induced can void the contract.d. Undue Influence

i. Generally: undue influence is available as a defense where a person enteredinto an unfair agreement induced by improper persuasion. There are twoways in which assent to a contract can be gained by undue influence:1. Victim prevented from exercising his own free will because other party

took advantage of his mental state. (Niche between incapacity andduress is filled; those who may be weak mentally are saved from predators)

2. There was a fiduciary relationship breach.

e. Unconscionabilityv. Generally: in the absence of any one of the traditional defects impacting a

partys ability go manifest consent (i.e. duress, misrepresentation, or mistake)a party may ask the court to find the contract invalid simply because it is unfair

vi.Unconscionable contracts or clauses: U.C.C. 2-302 provides thestandard the court can use to determine whether a contract or clause isunconscionable and, if it is, what the court can do about it: FINISH


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vii.Unconscionability and cases falling outside the scope of the U.C.C. Thecourt may, at its discretion, rule that a contract is unconscionable even ifit fallsoutside of the scope of the U.C.C.

f. Public Policy Demands Enforcement or Lack of Enforcement: public policycan be used to compel the enforcement or non-enforcement of particular contracts

based on a compelling public interest.

7. If some changes are made to the contract after it was formed, there might besome repercussions for the promisee if they are not careful to evaluate themodifications. Furthermore, one of the parties may wish to bring terms into thecontract that were discussed by the two parties in forming the contract but which werenot actually written into the contract (parole evidence rule).a. Modification, rescission, and waiver

i. 47-2209 of the A.R.S. invocation of the U.C.C. discusses that an agreementmodifying a contract needs no consideration to be binding. However, itdoes require that there be mutual assent and the modification to a term must

be in writing if appropriate under the U.C.C. - see below.1. Defenses to contract modifications: Although there is no requirement thatmodifications to contracts need to be in writing (thereby removing thestatute of frauds as a possible defense), a party who has manifestedassent to the modification may be able to show that the assent wasinduced as a result of mistake, misrepresentation, undue influence orduress.

2. Contract modification may need to be in writing however if... it it is a sale ofgoods and falls under the U.C.C. provision (i.e. the value of the goods is inexcess of $500)

ii. Compliance with common law and UCC: Under the common law,

modifications are permissible ifthe good is a specially manufactured good.The same compliance rule governs with the UCC: if the good is a speciallymanufactured good, then a modification is permissible.

iii. Modification and requirements of writing - waived by the parties: where awriting requirement is party created and is imposed by the terms ofcontract, it is possible to find that the parties agreed to waive the self-imposed writing requirement.

iv. Modifications of pre-existing duties: under the restatements, a pre-existingdutyis one that a promisee was already legally obligated to do. If a partychooses to modify a pre-existing duty, there must be consideration if themodification is not fairand equitable.

v. Settlement of claims: settlement of a contractual claim where a party agreesto take less in a settlement agreement is supported by consideration solong as the other party disputed in good faith the amount or validity of theclaim.1. Example: P, a painter, agrees to paint Os home for $5,000. The P does a

bad job and O is not satisfied but proposes a lower price, $4,500, be paidto the painter. P accepts. The promise is binding because the painterspromise is supported by consideration.


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2. Example 2: if a promisor (A) makes a written promise to pay for pastbenefits received but then reneges on this written promise and thepromisee, B, agrees to forbear from suing A if A will agree to pay a smallersum, the promise is binding and supported by consideration on Aspart because it was a settlement of Bs claims.

8. Enforceability Issues: Many of the things that affect the enforcement of a contract(including mistake, fraud, duress, capacity, and statute of frauds) have already beencovered in this outline. The following are a couple more things to look out for astheories that prevent enforcement:a. Statute of Limitations - U.C.C. Provision: the U.C.C. 2-725 discusses statutes

of limitation in contracts for sale.i. Four year rule: actions pertaining to contracts for a sale of goods must be

commenced within 4 years after cause of action has accrued.1. Cause of action accrues when contract is breached, breach of warranty

occurs.

b. Statute of Limitations - A.R.S. Provision: A.R.S. 12-501 discusses the statuteof limitations and when an action accrues outside of a state. The action isconsidered to occur and action may be brought against that person when hereturns to the state. Also for the purposes of the statute, the statute of limitationsprovided under the U.C.C. does not begin to run until person returns to thestate.

c. Public Policy / Illegality:

If Enforceable contract is formed, what are its terms and conditions?1. Parol Evidence Rule: the parol evidence rule can effectively be thought of as

governing integrated writtencontracts. According to the common law, prior written

and oral agreements are rendered inoperative where there is a later agreementbetween the parties. Where writings relating to the same subject matter are assentedto as parts of one transaction, both form part of the integrated agreement. Where anagreement is partly oral and partly written, the writing is at most a partially integratedagreement.a. Use of Parol Evidence to Supplement Terms of a writing

i. If extrinsic evidence contradicts the terms of the written agreement, theycannot be admitted.

ii. There must be an integration clause in the contract in order for the paroleevidence rule to apply as a defense. An integration clause is a clause in thecontract that says that this is the final version of the contract.

5. The purpose of integration clauses is to influence parties to keep their finalwritten contracts clean and put everything that a party wants to put intowriting.

iii. If the written contract is found to be only a partial integration, extrinsicevidence will beadmitted to supplement its terms to the extent that thesupplement doesnt contradict the partial integration.


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iv.If the written contract is found to be a total integration, the extrinsic agreementwill not be permittedto be proven. The writing is a total integration, will bedeemed the entire agreement between the parties.

v. Evidence of course of performance, course of dealing and trade usage orcustom will be admissible to supplement any integration, whether total or

impartial.vi.Tests to determine whether a contract is a total or partial integration(1)What does the court use to determine the intents of the parties with

respect to the thoroughness of the original agreement (was it total orcomplete?)(a) They look at the writing itself (the writing might be clear in its terms that

it is the complete and exclusive statement of the terms or it mightcontain a clause which states that the writing is intended to becomplete)

(b)Face of the document test:court will look at the four corners of thedocument to make the decision on whether the document it total or

partially integrated.(c)Restatement Standard - What would naturally be omitted:judge looksat the document and hears the terms of the extrinsic agreement soughtto be introduced and circumstances surrounding creation of thedocument. If the judge decides that the parties did not intend todischarge the prior agreement when they executed the writing, thismeans that the writing, although final as to what it contains, is notcomplete and is therefore only a partial integration.

(d)The U.C.C. Standard:Section 2-202(b) permits evidence of consistentadditional terms unless the court finds the writing to have been intendedalso as a complete and exclusive statement of the terms of the

agreement. The meaning of complete and exclusive in this provisionof the U.C.C. is answered by looking at the Restatement test above: thecourt determines if the additional terms would have been included in thewritten agreement.

b. Exceptions to what can be considered extrinsic evidencev. Prior agreements: agreements made subsequent to the writing are extrinsic,

but subsequent agreements never raise a parol evidence rule issue sincethey are modification issues.

c. Interpretation of contract terms and what the parties wanted: when a court isinterpreting the terms of a contract and deciding which ones are part of the finalcontract and which discourse between the parties prior to signing the final

agreement should be consulted to give them meaning:**Note: all of the following apply to contracts for sales of goods and for contractsinvolving services.v. Course of Performance: a course of performance refers to the way parties

have conducted themselves in performing the particular contract at hand.5. example: a contract calls for repeated deliveries of highest grade oil.

Evidence as to the quality of oil delivered and accepted in the firstinstallments would be admissible as a course of performance to help


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determine whether oil delivered in a later installment met the contractstandard.

vi.Course of Dealing: a course of dealing refers to how the parties have actedwith respect to past contracts.5. example: look at the past contracts (unrelated to the particular contract that

is in dispute) to see how the parties have done things in their other courseof dealing.vii.Usage of Trade: a usage of trade is any practice or method of dealing

having such regularity of observance in a place, vocation, or trade as to justifyan expectation that it will be observed with respect to the transaction inquestion. The meaning attached to a particular term in a certain region, or in acertain industry, would be admissible.

2. Absent Terms: there are certain terms that, although not directly written into thecontract, are implied by law. These implied terms are usually referred to asconstructive conditions of a contract.a. Implied and Constructive Conditions: Any term supplied by the court and not

based upon the apparent intention of the parties is a constructive condition.i. Constructive condition: Where parties have omitted a condition from their

contract but the court inserts an event which makes it a condition, this is aconstructive condition.1. Example: X promises to pick Y up at the airport at 12:00 noon for which Y

promises to pay X $20. Although Xs act of meeting Y at the airport is notexpressly stated in the contract, it is an obvious condition precedent of Ysobligation to perform. It is a constructive condition of the contract betweenX and Y.

Has a Party Breached the Contract?

Analyze each problem under this section to determine if one of the party has breachedand, if so, what their rights might possibly be.1. Uncured material failures

a. Definition: uncured material failures refer to those portions of a contract that aparty in breach has failed to perform. The restatements says that it is a conditionof each partys remaining duties to render performance to be exchanged under anexchange of promises that there be no uncured material failure by the other partyto be rendered at an earlier time.i. Material refers to the fact that they are major components or parts of the

contract (ex. in a construction contract, a roof could be a material part of thecontract).

ii. Uncured refers to the fact that a party has failed to perform one majorresponsibility under the contract. Uncured could also mean defectiveperformance.

b. Substantial Compliance: I assume this is simply another way of referring tosubstantial performance so I will run with that definition. Substantial performanceis a concept that is related to uncured material failures in that it relates to whethera party to the contract has fulfilled a major amount of his duties such that he


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triggers the occurrence of a condition (usually the other parties responsibility toperform).i. Example: a contractor completes a home and B refuses to pay the remaining

balance arguing that there are uncured material failures. If the breach is anuncured material failureon the part of the contractor, then the contractor is not

entitled to the remaining balance. However if the breach is not material and thecontractor substantially performed, contractor has a claim against B for theremaining balance and B has a claim against contractor for the defects.

ii. Damages only appropriate if there are material failures.iii.Undue Economic Waste Exception: where a builder has substantially

performed and there are no uncured material failures, builder may still have tofix defects. If thevalueof the defects to the owner is less than the cost offixing the defects, however, then the injured party does not recover the costfor the replacement.

c. Material and Immaterial Breach: In determining whether a failure to render or tooffer performance is material, the following circumstances are significant:

i. Deprivation of benefit that injured party reasonably expectedii. Degree of compensation that injured party can get for the deprived benefitiii. Extent to which party failing to perform will suffer forfeitureiv. Possibility of breaching party curing his failurev. Extent to which breaching party conformed togood faith

2. Buyers Rights under the U.C.C.a. Right to reject non-conforming tender: if the buyer finds that, upon delivery of

the goods, a single unit or the entire lot does not conform to the terms of thecontract, the buyer can (1) accept the whole, (2) reject the whole, or (3) acceptany commercial unit or units and reject the rest.

Warranties, Damages, and Quasi-Contracts1. Verify if the promisor made any warranties because if the promisor breaches the

warranties in any way, the promisee is probably entitled to damages for relying on thewarranty. Think of warranties as essentially mini contracts that are made in additionto the main contract.a. Definition: a warranty is a promise within a contract. To warrant is to promise.b. Express vs. Implied Warranties: if the agreement is something that is clear (i.e.

written description, or something on the product itself) then it is an expresswarranty. An implied warranty isnt something that is clearly stated; it is assumedto apply.

v. Express warranties requirements: 1.Dont need to be in writing. 2. Created when there is an affirmation of facts which relates to the goods and becomes part of the basis of the bargain. 3. The giver of a warranty does not have to use the literal words warranty in creating one. However, the sellers opinion does not create a warranty.

c. Warranty of merchantability: implied warranty of merchantability is a type ofimplied warranty. Unless excluded or modified, a warranty that the goods shall be


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merchantable is implied in a contract for their sale if the seller is a merchant withrespect to goods of that kind. When a good is merchantable, it usually meansthat the goods must be fit for the ordinary purposes for which such goods areused.v. Note: implied warranty of merchantability will alwaysapply when the seller of

a good is a merchant of that good.d. Warranty of fitness for a particular purpose: This warranty applies to sellers thathave special expertise. This is triggered if the seller at any time ascertains that thebuyer is relying on the sellers judgment to select or furnish goods.

e. Damages for breached warranties: the measure of damages for breach ofwarranty is the difference at the time and place of acceptance between the valueof the goods accepted and the value they would have had if they had been aswarranted.

So when we are looking at the kinds of damages one can expect in the case thatthere is a breach of warranty, rely on the contract theory of "expectational

damages"f. Waiver of Warranties: federal law does not allow a merchant to waive Implied

warranties can be excluded but only if they are:1. In writing; and2. Conspicuous.3. HOWEVER, there cannot be a waiver if there is a written warranty and if the

customer enters into a service contract within 90 days of written sale.2. If a contract was breached in any way, we should consider remedies (or damages),

the good stuff!a. Expectation damages: these damages can be collected by an injured party and

amount to the losses as a result of the consequences of breach. These damages

are classified as expectational because they aim to put the plaintiff in theposition he would have been in had the breach of contract not occurred.Expectation damages really go to the goal of an injured party getting somethingout of the bargain that they expected to get when they entered into it originally.

b. Reliance damages: measure of compensation given to a person who suffered aneconomic harm for acting in reliance on a party who failed to fulfill theirobligation.

c. Incidental Damages: awarded where there has been a breached contract andwhere the plaintiff has incurred some commercially reasonable expenses. Think ofthese damages as those that the party incurred in connection (or incidental) tothe breach.

d. Consequential damages: these are damages that an injured party incurs as aresult (or consequence) of a breached contract. The damages can only berecovered if the injured party can prove that the damages that would be incurredas a result of the breached contract could be foreseen.

e. Liquidated Damages: parties to a contract may negotiate contract terms providingfor specific damages to be paid in the event of breach. Where this is done, thesestipulated damagesbecome the only damages that parties to the contract canrecover. There are three general requirements for a liquidated damages clause:


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i. They must be reasonably forecasted per the probable loss due to a breachii. The harm that results from the breach must be difficult to calculate.iii. Parties must tailor the clause to the contracts circumstances (which means

that the damages clause cannot be a penalty).1. For this reason, many liquidated damages clauses must be very specificas

to the timeline that damages may be collected and the sum of damages,depending on the underlying subject-matter of the contract.a. Example: Bob contracts to build a house for Charles and the contract

provides that if the house is not completed within the time fixed in thecontract, Bob will pay Charles $30,000 as damages for the delay. Thisis an invalid liquidated damages clause because it is not an honesteffort to estimate damages (it provides a fixed sum).

iv. Under Arizona law, liquidated damages in landlord/tenant contractscannotexceed 150% of 1 months rent.

v. Unconscionability of liquidated damages: where a liquidated damages clauseis unreasonably low or unconscionable because they fail to account for

much of the damage that an injured endured. RETURNf. Unjust enrichment: non-contract theory, but it can be applied to contracts where

one party benefits to the detriment of the other. One party gains a benefit to thedetriment of another; in the context of a breached contract, this benefit wasgained because the contract was breached.i. Unjust enrichment in general: in cases where the court cannot found that an

enforceable contract has been made, it will allow relief under unjustenrichment, a form of restitutionary relief.

ii. Requirements of unjust enrichment

g. Specific Performance: this is a remedy sought by an injured party in a breached

contract for the breaching party to perform. It is only available where the remedyat law is inadequate. In other words, specific performance can be obtained onlyif the money damage remedies discussed above will not suffice to provide asufficient remedy for the victim of a contract breach. Specific performance isonly available in instances where the subject matter of the contract is landor unique goods. It is not appropriate for services since there are manydifferent alternatives when it comes to services.v. Exceptions

5. 367 - a promise to render personal service will not be specificallyenforced.

6. A party suing for specific performance cannot have a breaching party

perform something they were already legally obligated to do (example: X iscontractually obligated to construct a building for Y for $200,000. Xrequests or demands additional money for this work, and Y agrees to pay$210,000. X would be seeking to enforce Ys promise to pay the additional$10,000, thus identifying Y as the promisor. X, the promisee of thatpromise, incurred no detriment in doing or promising to do that which X wasalready legally obligated to do (building the house for Y), thus there was noconsideration to make Ys promise to pay the additional sum enforceable.


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3. Remedies for Buyers of goods provided by the U.C.C.e. Non-conforming tender of goods: there is a basic right under the U.C.C. for a

buyer to reject goods delivered to them if there is a non-conforming tender.v. General Rule: when a shipment is non-conforming (i.e. it is not perfect

tender), the aggrieved party has the option of rejecting: a) the entire shipment,

b) accepting the non-conforming shipment and suing for damages, or c)accepting any commercially reasonable part of the shipment and rejecting thenon-conforming parts of the shipment.

vi.Rejection must be made within a reasonable period of time: When a timeperiod for performance has not yet expired and there has been a non-conforming shipment, the seller has the automatic right to cure. There is alsoa right to cure in each of the following situations:1. The seller reasonably believed that shipment of the non-conforming goodswould be acceptable to the buyer2. Time to cure may extend past the time of the original delivery date specifiedin the contract so long as it is within a reasonable amount of time and time

is not of the essence.f. If buyer fails to cure a non-conforming tender of goods: a buyer may revoke

acceptance of the goods if seller fails to cure or if assurances from seller inducedthe buyer to accept.

g. Limitation of Damages Recoverable by Buyer: this concept is related to liquidateddamages and, in fact, appears in the same section of the U.C.C. as the liquidateddamages clause does.v. Buyers entitled to receiving any funds given to seller in excess of

amount to which seller is entitled to. This is limited by:1. Extent to which buyer has some other means to recovery (perhaps unjust

enrichment.)

2. Amount of benefits that buyer has received as a result of the contract.4. Okay, okay. So there was no clear contract formed. Are we out of luck if we thought

that we should be getting something for something we did? If yes, then a promisewas made. Broken promises are entitled to some kind of relief, thankfully, but in veryparticular circumstances.a. 90 - promissory estoppel, quasi contract

i. Definition: if a promisor makes a promise and should reasonably expect thatthe promisee would engage in some kind of action or forbearance, the promiseis binding and enforceable if it would be an injustice for their to be otherwise.Remedy: may be granted as justice requires.

ii. Hamer v. Sidway:stands for the proposition that forbearance of conduct must

be conduct that is otherwise legal. This is also the proposition supported bycommon law.

iii. Note about 90 and the statute of frauds: in the case that the statute offrauds does apply and a party is barred from recovering any damagestraditionally, they can use 90 because the statute of frauds and 90 dontwork together.

5. The Idea of Impossibility; Impracticability to Enforce a Contract


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e. Key Provision of the Common Law and background rationale: Restatement 261talks about the occurrence of an event upon which an assumption of the contractis based. If the party assumes that the building is there and won t burn down forexample, then the mutual consent is kind of ruined if the building does in factburn down. The Court, based on an English case from the 19th century (an opera

that was going to be staged in London and before the opera could be performed,the building burned down. The opera singer wanted to be compensated anyways.The performer won and the Court sided with them since the parties had agreed ona particular performance).

f. Key elements of impossibility / impracticability:1. The thing happens after the contract has been written.2. An event occurs, the non-occurrence of which was a basic assumption of the

parties.3. The event occurred through no part of the party seeking to avoid the contract4. No language in the contract or circumstances suggest that performance would

nonetheless be required.

g. Damages: A common provision in contracts is a force mejeure clause. Thisallocates the risk should an unexpected occurrence even make performanceimpossible. What is a force mejeure? A force mejeure clause (often called the actof God clause). A force majeure clause is common in contracts and it essentiallyfrees both parties from liability or obligation when an extraordinary event orcircumstance beyond the control of the parties occurs.

6. Third Party Beneficiaries1. In General: rights and duties under a contract can be delegated to another party

so long as such a delegation is not unconscionable.2. Delegator has continuing liability if he delegated his duties: when performance of

a duty is delegated, the delegator remains liable.1. Example: owner contracts with contractor for contractor to paint Owners

house for $10,000. Contractor delegates his duties to Painter. If Painter fails toperform in the manner required by the original Owner-Contractor contract,Owner may sue Contractor for breach.

3. Delegable vs. Non-Delegable Duties:1. Non-Delegable duties: a duty or performance is delegable unless the obligee

has a substantial interest in having the delegator perform.a. Particular skills of promisor: contracts which call for the promisor s use of

his own particular skills are normally not delegable. (Examples: lawyersand doctors).

b. Construction and repair contracts: construction, repair.

7. Conditions1. Express conditions: an express condition is one that is written directly into the

contract. Express conditions cannotbe satisfied merely by substantialperformance.


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1. Express conditions and material breaches: If a condition is express and aparty fails to fulfill the condition, then this is considered an uncuredmaterial failure.

2. Implied condition: these are harder than express conditions because the courtmust look to find them

3. Constructive conditions: these are conditions that are not agreed to by the partiesbut which is supplied by the court for fairness.1. No-uncured material failures: must be substantial performance and no

material breach.2. Duty of Good Faith and Fair Dealing: a condition but one which allows parties

to obtain

8. Repudiation1. In general: if a party makes it clear, even before his performance is due, that he

cannot or will not perform, he is said to have anticipatorily repudiatedthecontract. A victim of anticipatory repudiation to sue before the repudiator s time

for performance has arrived.2. What constitutes repudiation: an anticipatory3. Insolvency: insolvency by itselfis not enough for a party to sue for repudiation.

Instead, the insolvent party is required to give reasonable security. If a party failsto provide adequate security, then they have repudiated the contract.

Addendum to Contracts I Outline - Damages

I. RemediesA. General Notes on Remedies

1.Public Policy reasons for allowing remedies: contract remedies are directed at

bringing to promisees the opportunity to redress breach. The question that is tobe answered is how people can be encouraged to deal with those who makepromises.

2. Breach not strictly forbidden: contract law does not compel both parties to fulfilltheir end of the bargain through penalties like other areas of law might. Instead,remedies in contracts serve to promote the efficient distribution of resources.

3. Breach must be material to merit remedy: the first question that must alwaysbe asked in figuring out if remedies are appropriate is whether the breach of thecontract giving rise to a request for remedies was major or minor. In contractlaw, there must be a major breach of the contract before remedies becomepossible. (Another way to phrase it is that a breach of the contract must be

materialbefore damages can be recovered.)B. Types of Remedies Available

1. Equitable Reliefa) Equitable relief in general: in order for a court to grant equitable relief, a

few things must be true:(1)Regular damages must be inadequateto protect the injured party

(a) In order to find whether damages would be inadequate under theUCC such that equitable relief was justified, the modern approach is


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to comparemoney damages with equitable relief in order todetermine which of remedy best serves the ends of justice.

(2)Contract terms must be definite enoughfor the court to frame anadequate order

(3) Courts will not grant equitable relief unless the terms of the equitable

order can be easily enforced and supervised.(a) The requirement of enforcement and supervision illustrates onedraw-back of equitable relief: it requires judicial supervision andenforcement, which may be costly and burdensome.

(b) Another weakness of equitable relief is that the bargaining processbetween the parties in working out an agreement could break downand result in an impasse.

b) Specific Performance: a decree for specific performance order thepromisor to render the promised performance.

(1) At common law and under the UCC, specific performance is usuallygranted only if the contract involves unique property.

(a)example:A contracts to sell a plot of land to B on a stated date fora stated price. A then wrongfully refuses to make the sale. A courtwill force A to sell the land at the specified price.

(2) Exceptions to contracts available for specific performance relief:(a) Service contracts: the restatements forbid service contracts from

remedy of specific performance.c) Injunction: an injunction directs a party to refrain from doing a particular

act. This remedy is especially common in cases where the defendant issued by his former employer and charged with breaching an employmentcontract by working for a competitor.

C. Various Damage Measures: there are three distinct kinds of interests which a

disappointed or injured party may have which can be protected by courts:1. Expectation: in most breached contract cases, the plaintiff will seek and

receive protection for his expectation interest. Here, the courts attempts to putthe plaintiff in the position he would have been in had the contract beenperformed. In other words, the plaintiff is given the benefit of his bargain.

2. Reliance: with this type of damage, the court is protect a persons relianceinterest. The court puts the plaintiff in as good a position as he was in beforethe contract was made. To put the plaintiff in this position, the court usuallyawards out-of-pocket costs that were incurred during the performance he hasalready rendered. If a plaintiffs reliance is protected, the plaintiff does notrecover any part of the profits he would have made on the contract had it been

completed.a) Reliance damages available when expectation damages hard to calculate:

the reason why a plaintiff might seek reliance damages as opposed toexpectation damages is that their expectation might be very difficult tocalculate(i.e. profits from a new business in a dynamic area).

b) Available in cases of promissory estoppel3. Restitution: in this kind of damage award, the court forces the defendant to pay

the plaintiff an amount equal to the benefit which the defendant has received


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from the plaintiffs performance. Restitution is designed to prevent unjustenrichment.

D. Expectation Damages:1. Expectation Damages Generally

a) Benefit of the bargain damages: the basic remedy of contract involved

awarding money damages to compensate the aggrieved party for the loss ofthe benefits which that party would have received had the contract beenproperly performed. Expectation damages, in other words, bring the injuredparty the benefit of their bargain.

b) Rationale behind expectation damages: the rationale for allowingexpectation damages to be recovered is that these damages put the injuredparty in as good of a position as they would have been in.

c) Calculating expectation damages: the formulation that a plaintiff is entitledto receive the benefit of his bargain (or, alternatively, to be placed in as goodof a position as he would have been in had the contract not been breached)is to receive damages equal to:

(1) The value he has lost by reason of the other partys default, plus

(2) The expenditures he has made (if any) in carrying out his ownobligations under the contract, minus

(3) Whatever benefits P has received from not having to completehis ownperformance.

2. The UCC and Expectation Damages: the UCC applies the same damage ruleto the purchase and sale of marketable goods.

a) UCC Expectation Damages in General:(1) Buyers remedies in cases of a sellers breach: if a seller agrees to

deliver certain merchandise to a buyer at a price of $1 a unit but fails tomake delivery, the seller would be obligated to pay buyer whatever it

costs buyer to cover the original contracted-for merchandise by makinga purchase of substitute goods. So if buyer had to pay someone else$1.50 for the same goods he had contracted with seller to buy, buyersdamages are 0.50.

(2) Sellers remedies in cases of a buyers breach: if a buyer breaches acontract by repudiating or refusing to accept goods, Seller may resellthose goods to other buyers in a commercially reasonable mannerand(under 2-706) claim damages equal to the difference between thecontract price and the resale price. In this sense, the seller is placed inas good a position as he would have been in if the buyer had acceptedthe goods and paid the price on the original contract.

(a)Exception in cases of volume sellers to mitigate damages: ifthe standard measure of damages (different between the contractprice and resale price) is inadequate to put the seller in as good aposition as performance would have done because the buyerbreached because the breach represented profit from a lost sale,the profit (including reasonable overhead) which the seller wouldhave made from full performance by the buyer becomes theappropriate calculation of damages.


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The volume seller exception can also apply to non-U.C.C.contracts like builders and contractors.

i) Lost-volume seller exception does not apply to service oremployment contracts. In the latter, a wrongfully discharged

employee cannot claim to be able to fill two jobs simultaneously.In the former, it would be hard to argue that a person couldhave performed a personal service simultaneously withsomeone else. In such cases, the injured party is obligated tomitigate damages.

(b) If a buyer is not a volume seller,b) Buyers and Sellers Rights under the U.C.C.

(1) Buyers Rights: the following are buyers rights under the U.C.C.(a) Rejection of non-conforming goods: Reject non-conforming

goods if they are not what the buyer expected to receive under thecontract. If a buyer accepts the goods but then finds that they are

defective, they can revoke so long as it is revoked in areasonable amount of time.

(b) Cover: if a buyer suffers a breach from the seller, he can alsocover (meaning he substitutes goods from another source) andrecover the difference between the substitute and the contracted-for price. THere are two conditions:

i) The substitute must be reasonable.ii)Good faith without delay.

(c) Consequential and incidental damages recoverable by a buyercovering: a buyer who has been injured by a breach can alsorecover consequential and incidental damages

(d) Contract market/differential: here, the damages are the differencebetween contract price and the market price at the time of thebreach.

(2) Sellers Rights: the following are sellers rights provided by the U.C.C.(a) With-hold delivery(b) Cancel Delivery if already made(c) Wait it out(d) Re-sell the product and re-cover damages(e) Recover damages for non-acceptance(f) Cancel(g) Re-Sell Goods: an injured seller (buyer has breached) can recover

the difference between the re-sale price and contract price withincidental damages (shipping and storing).

(h) Contract/Market differential: a seller may recover the differencebetween the market price and the unpaid contract price if theseller is unable to re-sell the goods.

(i) Lost Volume Seller: a lost volume seller must meet threerequirements:


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i) Must have a big enough supply that he could have madeboth the contracted for sale and re-sale.

ii) Could have made re-sale as well as original sale had therebeen no breach.

iii) Would have made profits on both sales.

3. Calculation of expectation damages: A plaintiffs expectation damages areequal to the following:

(1) Value of the defendants performance (i.e. the contract price)(2)PLUS any sort of expenditures the plaintiff might have made in fulfilling

his side of the bargain(3)MINUS whatever benefits the plaintiff has received from not having to

complete his performanceb) Overhead: overhead are considered fixed costs that a firm is obligated to

pay as long as business continues. A question often arises whetheroverhead costs should be included in the cost avoided amount that issubtracted as damages a plaintiff could be entitled to for not having to

perform.

Overhead is not considered part of those costs that a seller isobligated to mitigate. The court in Vitex v. Caribtex Corp. ruled thatoverhead bore no direct relationship to any particular transaction and wouldhave remained the same whether or not Vitex entered into a contract withCaribtex and whether or not it did the work required under the contract.

c) Cost of completion or decrease in value: where a defendant has defectivelyperformed, plaintiff normally can recover the cost of remedying defendantsdefective performance. But if the cost of remedying defects is clearlydisproportionate to the loss in market valuefrom the defective

performance, plaintiff will only recover the loss in market value.(1) Economic waste: the principle is often applied where the defect is

minor, and remedying it would involve economic waste such as thedestruction of what has already been done.

(2) The jist of the rule is this: where a breach would not cost that much toremedy but where the market value would be excessively large whencompared to the cost to fix the mistake, the injured party is entitled to theamount of money it would cost to fix the mistake and not to thedisproportionately large amount for the difference in market value.

4. Duty to mitigate damagesa) Duty to mitigate in general: an injured promisee cannot recover damages

for losses that, with reasonable effort, he could have avoided after thepromisors breach became known. An injured party is legally obligated totake reasonable steps to avoid waste and minimize the cost of breach

(1) Lost profits: an injured party must minimize their lost-profit claim bymaking reasonable efforts to substitute other arrangements for thoseprovided in the contract.


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(2) Reliance: an injured party, having learned of the breach, must do whatthey can to minimize their own claims; there are no claims based onreliance on further terms of an already breached contract.

b) General test for mitigating damages: a person cannot recover the value oflost benefits if and to the extent that there are opportunities to mitigate the

loss by doing similar worthwhile things with his time and resources.(1)The Luten Rule: the victim of a breach has a duty to avoid actions thatincrease the other partys damages.

c) Duty to find substitutes: in general, an injured party must mitigate theirdamages by finding a close substitute to the good or service of the originalbreached contract.

(1) In employment contract cases, an employee is not obligated to takeany job in the economic universe; rather, the other employment mustmerely be comparable and not of inferior kind.

(a) In general, a court will not find that discharged employees whorefuse to take positions that are demeaning or beneath their dignity

have failed to mitigate. Instead, a court will consider the geographiclocation of the new position, danger posed by the nature of theemployment, competence required, impact upon future employmentand careers, etc.

(2) In general, courts will evaluate the circumstances surrounding thesubject matter and formulation of the original contract in ascertainingwhether a substitute has been sought in good-faith in order to mitigatecontract damages.

d) Diminshed value vs. Cost of Replacement: the diminished value rulemeasures damages as the difference between the value of a thing as itstands with all of its faults and the value of that thing if it had been

completed according to specifications. Courts can compare the loss in valuewith the cost to repair the deficiencies with the diminished value being usedin cases where the cost of completion is really high. (The Economic WasteDoctrine)

(1) Lack of substantial performance: where a breaching party hascommitted an uncured material failure, then the higher cost ofcompletion might be used if the material failures must be cured.

E. Construction Contracts and Damages1. Lines of analysis to measuring direct damages for breach of contract:

a) Substantiality of Performance: courts have adopted this measure ofdamages in cases where a breach has resulted in damagesto a structure. If

defects are repairable, the measure of the owners damages is the cost ofrepairif the defect is repairable. If the work results in a structure having agreater market valuethan the structure if constructed according to theoriginal plan, the contractor is entitled to an offset in the amount of suchenhancement.

b) Repairability Analysis:c) Economic-Waste Analysis: where a builder has substantially performed and

there are no uncured material failures, builder may still have to fix defects. If


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thevalueof the defects to the owner is less than the cost of fixing thedefects, however, then the injured party does not recover the cost forthe replacement.

(1)EXCEPTION: there is a major exception in cases where a party hasnot substantially performed (there are uncured material failures). In that

case, the proper standard to use is the decline in market value, even if itis far less than the cost of replacement.

** Consequential and incidental damages are considered part of expectation damages.However, incidental damages misplace restitution and reliance damages.

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