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Contracts 2 Outline Weiskopf Spring 2004 GENERAL PRINCIPLES OF CONTRACTS COURTS WANT TO VALIDATE CONTRACTS AND ALLOW THEM TO GO THROUGH. Sequencing performance: - Duties/covenants of a contract are seen today as dependent. o One party’s duty to perform is dependent on the other party’s performance. - Unless otherwise agreed, duties are concurrent - both parties are to render performance at the same time. This is so neither party is put at undue risk. o In performance contracts, there is no way for performance to occur at the same time, so it’s implied that performing party will perform first and paying party will pay at the completion of performance. - Commercial Percentage Lease – a lease whereby the lessee agrees to give to the lessor a percentage of its gross receipts as payment of its lease rent. o the percentage can vary o can give lessor advantage of getting more than market value if percentage is good o gives lessee less pressure to come up with a high rent even in times where business is poor o whether the lessee implied owes a duty of good faith or best efforts depends on whether there is a base monthly rent provided in the contract The higher the base monthly rent, the more likely the court is to say that the lessor assumed the risk. So the court is less likely to require the lessee to conduct the business on a best efforts basis because the lessor’s rights are not completely frustrated in such a situation. Best efforts is implied when the entire rent depends on gross receipts (no minimum rent included) . Good faith is implied when portion of rent depends on gross receipts (some minimum rent included) . This good faith covenant is implied even where the business is not profitable for the lessee. Losing some money is not enough to excuse party’s duty, rather must drive business close to bankruptcy. o This concept is self-sacrificing This is also consistent with other relationships where individuals combine interest for the benefit of the business. Examples: fiduciary relationships joint ventures and partnerships Superior Risk Bearer - When repairs are being made to an existing structure, owner of structure bears the risk (he can have insurance). - When new structure is being built, builder bears the risk (because he can have worksite insurance). Requirements contracts – in a volatile market, you would want to create a requirements contract rather than a contract for a set quantity so as to avoid assuming the risk or price fluctuations, etc. 1
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Contracts 2 Outline Weiskopf Spring 2004 DAMAGES Generally, money damages are preferred over specific performance because damages are more efficient. - Courts like to minimize economic waste . Economic Waste Doctrine:
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