Contracts Outline General

1. General Vocab a. Bilateral vs. Unilateral b. Unilateral Contracts i. Contract in which only one party makes an express promise, or undertakes a performance without first securing a reciprocal agreement from the other party. In a unilateral, or one-sided, contract, one party, known as the offeror, makes a promise in exchange for an act (or abstention from acting) by another party, known as the offeree. ii. At-will-employment 1. Lakeland v. Columber a. Non-compete agreement added to employment terms b. Judges find consideration in case by framing at-will employment as series of unilateral contracts that are offered and accepted daily. c. Dissent - theres no ongoing Ks in at-will employment Ks c. Bilateral contracts i. Creates a duty which binds both sides of the contract d. Language of condition vs. language of promise e. Delegation vs. novation f. Money damages i. Expectation ii. Recission iii. Restitution g. Impossibility vs. frustration of purpose h. Statute of frauds vs. parole evidence rule i. Most tested part of contracts

Formation

1) Consideration
a) A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other i) it is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him. (a) on the promise. b) Restatement 71 - Exchange Requirement i) For consideration, a performance or return promise must be bargained for (1) Kirksey v. Kirksey (a) To be legally enforceable, an executory promise must be supported by sufficient, bargained-for consideration. Page | 1

ii) Bargained for = sought by promisor in exchange for his promise and given to promise iii) Performance may consist of: (1) Act other than a promise (2) Forbearance (3) Creation, modification, destruction of a legal relation c) Restatement 79 - Adequacy of Consideration i) if the requirement of consideration is met, theres no requirement of (1) gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promise (2) equivalence in the values exchanged (3) mutuality of obligation ii) Comment D - Pretended exchange. Disparity in value, with or without other circumstances, sometimes indicates that the purported consideration was not in fact bargained for but was a mere formality or pretense. Such a sham or nominal consideration does not satisfy the requirement of 71. d) UCC 2-204 - Formation in General i) A K for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a K ii) Moment of making of K can be undetermined iii) Doesnt fail for some indefiniteness (1) Allied v. Ford (a) Where the offeror merely suggests a permitted method of acceptance, other methods of acceptance are not precluded (b) Hankins, an employee of allied steel was injured during performance of allieds contract with ford before allied had formally accepted the contract as per terms of fords offer. e) Illusory Promises i) Strong v. Sheffield (1) Promissory note case (2) A purported promise is illusory and not consideration if by its terms the performance of the promise is entirely optional with the promisor (3) PL said he wouldnt demand payment on not immediately unless he wanted to demand payment ii) Mattei v. Hopper (1) An agreement made subject to the satisfaction of leases does not render a contract illusory or void it for lack of mutuality because of the requirement of good faith. f) Past Consideration i) Past services are not a valid consideration for a promise (1) Feinberg v. Pfeiffer (a) P was given a pension for life by D based upon her past service to D. D subsequently refused to pat the pension claiming lack of consideration for its promise to do so. (b) Cannot bargain with something you dont have. P gave D 40 years; she no longer has it and cannot use it as a bargaining chip. ii) A moral obligation is insufficient as consideration for a promise (1) Mills v. Wyman (a) P took care of Ds son and D refused to compensate P for her help but Ds son died and D refused to pay. The court didnt make him pay iii) A moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit. Page | 2

(1) Webb v. McGowin (a) P saved D by placing himself in grave danger and D promised to pay in return. D reneged on his promise and the court made him pay. (b) Moral obligation can constitute consideration if person obtains material benefit g) Consider ex ante perspective i) Wheat purchasing and lottery analogies ii) Because many contracts serve for risk allocation, finding out you got a bad later is not enforceable (1) Fiege v. Boehm (a) Pregnant ho vs. mistaken father (b) Forbearance to assert an invalid claim may serve as consideration for a return promise if the parties at the time of the settlement reasonably believed in good faith the claim was valid h) Gifts i) Usually not enforceable absent reliance ii) Ricketts v. Scothorn: grandfather offered $2,000 to granddaughter upon his death; she relied on this and quit her job granddaughter won on promissory estoppel i) Preliminary Binding Agreements i) Tribune Type I - more binding (1) Parties agree on all the points that require negotiation but agree to memorialize the agreement in a more formal document ii) Tribune Type II - less binding; more common (1) Agree on certain major terms, but leave other terms open for negotiation. Commit to negotiate in good faith. (2) Differs from Type I because does not obligate parties to an ultimate contractual objective

j) Reliance (Promissory Estoppel)

i) Elements: (1) A clear and unambiguous promise (2) A reasonable and foreseeable reliance by the party to whom the promise is made (3) Injury sustained by the party asserting the estoppel by reason of reliance ii) Restatement 90 - Reliance (1) (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. k) Hoffman v. Red Owl i) It is not necessary for the promise needed to sustain a cause of action to embrace all essential details of a proposed transaction between promisor and promisee so as to be the equivalent of an offer that would result in a binding K between the parties if the promisee were to accept the same. ii) P desired to buy a franchise from D and was assured that he had the necessary capital required. On the basis of the statements and conduct of D, P took certain steps including selling his bakery and moving to another city in order to acquire the franchise. Negotiations collapsed when it was clear D misrepresented the actual amount of capital required. iii) No promise to negotiate in good faith in this case Page | 3

l)

Cyberchron i) Tighter standard than Hoffman for reliance ii) Requires clear and unambiguous promise iii) Promissory estoppel has 3 elements: (1) Clear and unambiguous promise (2) Reasonable and foreseeable reliance by the party to whom the promise is made (3) Injury sustained by the party asserting the estoppel by reason of the reliance m) Why does misrepresentation vs. reliance matter? i) Damages would be the same ii) Shift focus to offending party iii) Easier to prove that a party misrepresented a fact (stringing along in Hoffman) iv) Channel Home Centers v. Grossman (1) A letter of intent to rent providing that the lessor will take the unit off the market is enforceable if the lessor uses the latter to help obtain financing v) Abstaining from a legal right is sufficient consideration (1) Hamer v. Sidway: no drinking, gambling, etc. n) D&G Stout v. Bacardi Imports i) Reliance found and upheld ii) When Bacardi, after promising to retain general liquors as its wholesale distributor in northern Indiana, withdrew its product line from genera, general was forced to sell itself at liquidation prices after which it sought to recover damages from Bacardi

2) Offer/Acceptance
a) UCC 2-206 - Offer and Acceptance i) Unless otherwise unambiguously indicated by the language or circumstances, (1) An offer to make a K shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances (2) An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods b) Offer i) Rest. 24 - Offer Defined (1) Offer is the manifestation of willingness to enter into a bargain so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it ii) Look at content of the communication (1) Fairmont Glass works v. Crunden Martin (a) Where prices are requested on an order and the vendor quotes those prices to the vendee, the vendor has offered to fill the order and is obligated to fill the order upon receipt within a reasonable time of vendees acceptance (b) Court will examine the meaning of communication between the parties to determine the intention of the parties (c) Defendant requested letter requesting price and terms for sale of Mason jars from defendant Plaintiff. Plaintiff sent response quoting price and discount for cash but also stating that quotation Page | 4

and contracts were subject to contingencies, delays or accidents beyond its control. Defendant sent order per the quoted price but Plaintiff responded that it was not possible to book order. iii) If a reasonable person would understand youre entering into a contract, you are. (1) Lucy v. Zehmer (a) Farm purchaser v. joking seller - doesnt matter that DEF was joking because a reasonable person would think his offer was serious iv) Certainty (i) 3 words to watch for to indicate vagueness that will create problems/disqualify offer because its not sufficiently specific. 1. Fair 2. Appropriate 3. Reasonable (ii) UCC 2-306 - Requirements contract can defeat vagueness 1. Term that measures the quantity by the output of the seller/reqs of the buyer means such actual output or requirements that may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output a. Eastern Air v. Gulf Oil i. A requirements K entered into in good faith is not void for want of mutuality ii. Gulf contracted with eastern to supply easterns fuel requirements 2. Obligation by the seller to use best efforts to supply the goods and by the buyer to use best goods to promote their sale a. Wood v. Lucy i. While and express promise may be lacking, the whole writing may be instinct with an obligation - an implied promise - imperfectly expressed so as to form a valid K ii. Wood, in a complicated agreement, received the exclusive right for one year, renewable on a year to year basis if not terminated by a 90 day notice, to endorse designs with Lucys name and market all her fashion designs for which she would receive one half the profits derived. Lucy broke the K by placing her endorsements on designs without Woods knowledge. (iii) 4 words to show requirements contract 1. Only - I will buy only from you 2. Solely 3. All 4. Require (b) UCC 2-305 - Open Price Term (i) Parties can conclude a K without a price. If so, its a reasonable price at the time of delivery if: 1. Nothing is said as to price, or 2. The price is left to be agreed by the parties and they fail to agree, or 3. The price is to be fixed in terms of some agreed market or other standard - Eastern (ii) Price to be fixed by a party means it must be fixed in good faith (iii) When a price fails to be fixed through the fault of a party, the other may treat the K as cancelled or fix a reasonable price (iv) If the parties agree not to be bound unless a price is fixed, there is no K (2) Whether the first communication is an offer depends on the content of the communication Page | 5

(a) Also must look at context of first communication (i) If it took place in a lawyers office, its more likely to end in commitment (ii) Long time general rule that advertisements are not offers 1. They are invitations to make offers (3) Battle of the forms (a) Ks with nonmerchant (i) If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees. (b) Last shot rule v) What happened after the offer was made (1) If either person dies, there is no contract (2) The person takes too long to respond (3) Revocation (a) Person who has made the offer unambiguously indicates shes changed her mind and communicates that to the other person (b) 2 things to look for (i) Offeror must unambiguously indicate that hes changed his mind (ii) Must be communicated to the offeree (c) 4 situations in which offers cannot be revoked vi) Options 1. Offer plus - a paid for promise not to revoke 2. I offer to sell you blackacre for 1k and if you pay me 10, I wont revoke for 30 days (ii) Firm Offer Rule - UCC Art. 2 only 1. Offer that cannot be revoked even if there was no payment to not revoke 2. Only applies where seller is a merchant and it is sale of goods and is signed in writing 3. E.g. you look at a car, the salesman says hell sell it for 20k held open for the next 3 days 4. UCC 2-205 - firm offers (Differs from common law) a. An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable for lack of consideration, during the time stated or it no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror (b) Common law rule offeror can terminate an ordinary offer at any time before acceptance (c) Option contracts Rest. 25, 87 (i) 87 offer is binding as an option contract if it is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time, or is made irrevocable by statute. (ii) 37 - power of acceptance under an option K is not terminated by rejection, counter-offer, revocation, or death or incapacity (iii) UCC 2-205 differs from Dickinson v. dodds (below) (iv) Dickinson v. Dodds 1. An offeree may not bind an offeror by accepting a revoked offer, even if the revocation had not been communicated to him prior to acceptance Page | 6

2. Dodds attempted to revoke an offer to sell land to Dickinson but Dickinson agreed to purchase prior to communication of the revocation to him (v) Exception for firm offer or option contract 1. Rest. 43 - indirect communication of revocation a. An offerees power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect 2. Expresses a fixed period within which the offeree must exercise the option 3. German exception irrevocable for reasonable amount of time after offer Reliance by the offeree (d) Elsinore Union v. Kastorff (i) Kastorff made a clerical error in figuring his bid on a project to make additions to elsinore union school buildings, but elsinore went ahead and accepted the bid with knowledge of the error kastorff had made and despite his request to withdraw his bid for that reason (ii) Relief from mistaken bids is consistently allowed where one party knows or has reason to know of the others error and the requirements for rescission are fulfilled (e) Communication of revocation (i) Rest. 43 indirect communication of revocation 1. Offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable info to that effect (ii) Rest. 46 Revocation of general offer 1. Public offers are terminated by public revocations (f) Death of the offeror (i) Rest. 48 1. Power of an offerees acceptance is terminated when the offeree or offeror dies (2) Rejection by the offeree (a) Terminates power of acceptance; offeree cannot thereafter accept the offer (b) Mirror Image Rule (i) Acceptance must be on the same terms as the offer no variation (ii) Any difference in accepted terms is treated as a counter-offer 1. UCC 2-206 rejects mirror image rule; still needs to be a definite acceptance. Just because there are additional terms doesnt make it a counteroffer (iii) Unilateral contract 1. Results from an offer that requires completion of performance as acceptance 2. Acceptance is only taken at completion 3. Person cannot revoke offer in unilateral contract if performance has already begun

vii)

Response

(1) Rest. 50 - Acceptance of Offer Defined (a) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer (b) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise (c) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise Page | 7

(2) UCC 2-208 - Course of Performance (a) Where the K for sale involves repeated occasions for performance by either party, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement (b) Express terms of the agreement and any such course of performance (3) Is that response an acceptance or rejection? (4) Need to look to offer before we look at response (a) When you make an offer, you can control how it can be accepted (b) Most offers dont specify how acceptance is supposed to be communicated (i) Usually its just whatever is reasonable on the facts

(5)

Acceptance

(a) Generally; (i) Restatement 30 1. Offer accepted by reasonable means unless otherwise specified (ii) Restatement 60 1. If an offer prescribes the place, time or manner of acceptance, its terms must be complied with. If it just suggests a method of acceptance, another method is not precluded. (iii) Restatement 61 1. Acceptance which requests a change to the terms of the offer is not invalid unless the acceptance is dependent on assent to the changed terms (iv) Restatement 50 - Acceptance by Performance 1. (1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. 2. (2) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. 3. (3) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise. (b) Failure to Reject (silence) (i) Silence is not generally an acceptance except when: 1. The offeree takes the benefit of the offerors services with a reasonable opportunity to reject them and with reason to know the offerors intention 2. The offeror has given the offeree reason to understand that acceptance may be communicated by silence, the offerees silence will operate as acceptance if he intends as such; and 3. Because of previous dealings or other circumsances, it is reasonable that the offeree should notify the offeror if he does not intend to accept, his silence will operate as acceptance (ii) ProCD v. Zeidenberg- silence was binding 1. A buyer accepts goods when after an opportunity to inspect, he fails to make an effective rejection 2. Zeidenberg (D) bought and then resold the data compiled on ProCds disk 3. This breached the software terms and conditions. (iii) Hill v. Gateway - silence was binding 1. Terms sent in the box with a product that state that they govern the sale unless the product is returned within 30 days are binding on a buyer who does not return the product Page | 8

(6) (7)

(8)

(9)

2. P brought suit against D after purchasing a mail order computer. D moved to compel arbitration. The request was denied and D appealed. (iv) Klocek v. Gateway- silence was not binding 1. This case stands for the proposition that the vendor is not necessarily the master of the offer and that a consumer should not be held to a vendors level of knowledge when entering into a contract 2. The underlying facts are similar to those in Hill v. Gateway. Herein, the Plaintiffs, Klocek and others (Plaintiffs), were given five (5) days to return their computer or submit to an arbitration clause, to which they disagreed. (c) Mailbox rule (i) 3 characteristics of mailbox rule fact pattern 1. 2 people are trying to make a deal at a distance 2. Technologically challenged; they use methods of communication that involve delays 3. Communications are inconsistent, so it becomes important to know when a particular communication became legally effective (ii) Most communications are legally effective only when they are received (iii) Acceptances are effective when they are sent, regardless of when they arrive Acceptance can be shown by starting to perform Indirect Rejections (a) Counter offer (i) Operate as rejections of original offer (ii) Cannot counter and then go back and accept original offer (b) Conditional acceptance (i) I accept on the condition that (ii) Ends up being rejection and counter offer 1. Phrasing: a. I accept provided b. So long as c. On the condition that (c) Mirror Image Rule (i) In common law contracts only (ii) In order for a response to be an acceptance, it must be exactly like the offer (iii) Often happens when response to offer adds or changes anything 1. Serves as counter offer UCC 2-207 Additional Terms in Acceptance or Confirmation (usually applies to conflicting forms / battle of the forms) (a) Subject to Section 2-202, if (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract are: (i) (a) terms that appear in the records of both parties; (ii) (b) terms, whether in a record or not, to which both parties agree; and (iii) (c) terms supplied or incorporated under any provisions of this Act. (b) Cannot condition acceptance on additional term UCC 2-202 - Final Written Expression Page | 9

(a) Integrated agreements may not be contradicted by evidence of any prior agreement but may be explained or supplemented by: (i) Course of dealing or usage of trade or by course of performance (ii) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement (10)Lapse of the offer (a) If none specified, lapses after reasonable time (i) Reasonableness is case-specific 1. If price fluctuates frequently, shorter lapse period 2. Face to face offers are usually only good for the period of that conversation Akers v. Sedberry viii) Counter (1) Essentially a rejection of the original offer and an extension of a new offer. Terminates original offerees power to accept original offer (2) Restatement 39 (a) (1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. (b) (2) An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree. c) Effective time i) Mailbox Rule (1) Offeror can no longer revoke when offeree places acceptance into mail and relinquishes right to terminate/reject (2) Probably less significant in future because of e-correspondence ii) Restatement 63 (1) As soon as acceptance leaves offerees possession, there is mutual assent 3) Modification of an existing K a) When a court wants to affirm a K, it will demonstrate the fairness ex ante, when it refuses to enforce, it will examine ex post. b) UCC 2-209(1) - modification, rescission, and waiver i) An agreement modifying a K within this article needs no consideration to be binding (1) Comments state the test of good faith between merchants or as against merchants includes observance of reasonable commercial standards of fair dealing in the trade, and that test of good faith between merchants or as against merchants may in some situations require an objectively demonstrable reason for seeking a modification. c) Rest. 89 - Modification of an executory K i) A promise modifying a duty under a K not fully performed on either side is binding ii) If the modification is fair and equitable in view of circumstances not anticipated by the parties when the K was made or (1) To the extent provided by statute (2) Or to the extent that justice requires enforcement in view of material change of position in reliance iii) The reason for modification must rest in circumstances not "anticipated" as part of the context in which the contract was made. . . . When such a reason is present, the relative financial strength of the parties, the Page | 10

formality with which the modification is made, the extent to which it is performed or relied on and other circumstances may be relevant to show or negate imposition or unfair surprise d) One way to get around existing duty problem is to add another term to the contract. i) Differs from UCC contracts where modifications presumptively do not need additional consideration 4) Assent (QUASI CONTRACT) a) Absence of a formal contract i) Absent expressed intent that no contract shall exists, mutual assent between the parties, even though oral or informal, to exchange acts or promises is sufficient to create a binding contract ii) To avoid the obligation of a binding contract, at least one of the parties must express an intention not to be bound until a writing is executed iii) Winston factors (1) Whether there has been an express reservation of the right not to be bound in the absence of writing (2) Whether there has been partial performance of the contract (3) Whether all of the terms of the alleged contract have been agreed upon (4) Whether the agreement at issue is the type of contract that is usually committed 5) Pre Contractual Liability - LoI and such a) No need to negotiate in good faith under common law absent an agreement to do so b) Pre Contract agreements: i) Tribune (1) Unless otherwise mandated by law, a contract is a private ordering in which a party binds himself to do, or not to do, a particular thing. . . This liberty is no right at all if it is not accompanied by a freedom not to contract. The corollary is that, before one may secure redress in our courts because another has failed to honor a promise, it must appear that the promisee assented to the obligation in question. (2) Tribune Type I (a) Parties agree on all the points that require negotiation but agree to memorialize the agreement in a more formal document (3) Tribune Type II (a) Agree on certain major terms, but leave other terms open for negotiation. Commit to negotiate in good faith. (b) Differs from Type I because does not obligate parties to an ultimate contractual objective ii) LoI breaches (1) Cant enforce benefit of K if K was never made; cant force K on parties (2) Should have breakup clause written into LoI to account for breaches (3) Recover $$ lost from breach of LoI c) Channel Home v. Grossman i) A letter of intent to rent providing that the lessor will take the unit off the market is enforceable if the lessor uses the latter to help obtain financing ii) Grossman used a letter of intent to rent, executed by channel home to obtain financing, but then rented to a competitor. iii) Standards for good faith agreement: (1) Intent to be bound (a) (proven by: diligence, proceeding towards the closing etc. enough to remand for jury) (2) Agreement is definite enough (a) Agreed not to negotiate with other parties Page | 11

(3) Consideration (a) Mutual promises: Channel Home commitment allowed Grossman to obtain financing.

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Interpretation & Performance

1. Interpretation
a. General i. UCC 1-201(b) 1. 3) "Agreement" means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this Act. Whether an agreement has legal consequences is determined by the provisions of this Act, if applicable; otherwise by the law of contracts 2. (11) "Contract" means the total legal obligation which results from the parties' agreement as affected by this Act and any other applicable rules of law.

b. Common Law Approaches

i. Parol Evidence Rule 1. Does PER apply? a. Is the agreement a final expression of one or more terms of the agreement? i. Fully lawyered asset purchase agreement (yes) ii. Emails back and forth that conclude sale of onions (no) iii. Purchase order forms passing back and forth (probably not) b. If YES, then its an integrated agreement and PER applies. c. If no, then PER does not apply 2. Factors in allowing Parole Evidence a. The degree to which the overall agreement is detailed and integrated into writing, b. The extent to which the agreement talks about the specific issue of the proposed parole term, then the LESS likely you are to be able to argue that the parole terms should be included in the agreement. c. The importance of the term to the agreement as a whole d. Presence of an integration clause (NOM) 3. What is the PER? a. Elements: i. Prohibits admissibility only of extrinsic evidence that seeks to vary, contradict, or add to an integration ii. Other forms of extrinsic evidence may be admitted where they fall outside the scope of the parol evidence rule 1. A party to a written K can attack the agreements validity. Party concedes that the writing reflects the agreement but asserts, most frequently that the agreement never came into being because of: a. Formation defects i. Fraud, duress, mistake, illegality b. Conditions Precedent i. Clause will not become effective until a condition occurred Page | 14

c. NOT conditions subsequent i. Inadmissible as to conditions subsequent ii. i.e. oral agreement that the party would not be obliged to perform until the happening of an event. ii. NY Rule 1. Look at 4 corners of K 2. is it plain on its face? a. Yes - done b. No - look at extrinsic evidence, cannot contradict the clause iii. California Rule 1. Judge gets to decide where parol evidence applies iv. Nanakuli Paving & Rock Co v. Shell Oil 1. Trade usage and course of performance will be read into Ks where such are so prevalent the parties would have to have meant to incorporate them in the terms of the K 2. D contended it was not obligate to price protect P and its conduct in the past did not constitute a course of conduct governing the K v. Pacific Gas & Electric v. Thomas Drayage 1. The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face but whether the offered evidence is relevant to prove a meaning to which the language of the instrument reasonably susceptible vi. Trident Center v. Connecticut general life insurance 1. Parol evidence is admissible to raise an ambiguity in a K even where the writing itself contains no ambiguity vii. Frigaliment Importing Co v. BNS Intl 1. The party who seeks to interpret the terms of the K in a sense narrower than their everyday use bears the burden of persuasion to so show, and if that party fails to support its burden, it faces dismissal of its complaint 2. Chicken case 3. P ordered a large quantity of chicken from D, intending to buy young chicken suitable for broiling and frying, but D believed, in considering the weights ordered at the prices fixed by the parties, that the order could be filled with older chicken suitable for stewing only and termed fowl by P. viii. One should determine if the integration was complete or only partial. 1. Complete - may not be contradicted or supplemented 2. Partial - may not be contradicted but can be supplemented by proving up consistent additional terms

ix. UCC Approaches

1. UCC Gap Fillers a. Price i. If: (i) nothing has been said as to price; (ii) the price is left open to be agreed upon by the parties and they fail to agree; or (iii) the price is to be fixed in terms of some standard that is set by a third person or Page | 15

agency and it is not set, then the price is a reasonable price at the time for delivery. [U.C.C. 2305] b. b. Place of Delivery i. If the place of delivery is not specified, the place is the sellers place of business, if he has one; otherwise, it is the sellers home. However, if the goods have been identified as the ones to satisfy the contract and the parties know that they are in some other place, then that is the place of delivery. [U.C.C. 2308] c. c. Time for Shipment or Delivery i. If the time for shipment or delivery is not specified, shipment/delivery is due in a reasonable time. [U.C.C. 2309] d. d. Time for Payment i. If the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods. [U.C.C. 2310] e. e. Assortment i. If a contract provides that an assortment of goods is to be delivered (e.g., blouses in various colors and sizes) and does not specify which party is to choose, the assortment is to be at the buyers option. If the party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (e.g., choose a reasonable assortment) or treat the failure as a breach. [U.C.C. 2311] 2. K between merchant and nonmerchant a. If a K is between a merchant and nonmerchant, and the provision requiring written modification is on the merchants form, it will not be given effect unless it is separately signed by the nonmerchant 3. UCC 2-313 - Express Warranties a. 1) Express warranties by the seller are created as follows: i. (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. ii. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. iii. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. b. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. 4. Implied Warranties a. UCC 2-314 - Implied Warranty of Merchantability

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i. 1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. ii. (2) Goods to be merchantable must be at least such as: 1. (a) pass without objection in the trade under the contract description; and 2. (b) in the case of fungible goods, are of fair average quality within the description; and 3. (c) are fit for the ordinary purposes for which such goods of that description are used; and 4. (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and 5. (e) are adequately contained, packaged, and labeled as the agreement may require; and 6. (f) conform to the promise or affirmations of fact made on the container or label if any. iii. (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade. iv. Koken v. Black & Veatch 1. A breach of the implied warranty of merchantability claim brought under the UCC will not be sustained where the P has not adduced sufficient objective evidence that goods are not fit for the ordinary purposes for which they are used 2. P contended that a fire blanket used to protect a welding area was unfit for its ordinary purpose because it failed to protect against fire during a torch-cutting operation and therefore the implied warranty of merchantability was breached b. UCC 2-315 - Implied warranty: fitness for particular purpose i. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the sellers skill or judgment to select or furnish suitable goods, there is unless excluded or modified under 316 an implied warranty that the goods shall be fit for such purpose 1. Lewis v. Mobil Oil a. Under the UCC, an implied warranty of fitness for a particular use will be found to exist where there is evidence that the seller of the goods has reason to know any particular purpose for which the goods are required and that the buyer is relying on the sellers skill or judgment to select or furnish suitable goods for that particular purpose Page | 17

b. D contended that there was no implied warranty of fitness for a particular use when it supplied oil for Ps hydraulic equipment, even though P had indicated that he needed the lubricant for a hydraulic system for his sawmill operations and that he himself did not know the appropriate type of oil, and after problems arose, P requested that D ascertain that the oil was the correct type for his operations c. UCC 2-316 - exclusion or modification of warranties i. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this article on parol or extrinsic evidence (202) negation or limitation is inoperative to the extent that such construction is unreasonable ii. Subject to subsection 3, to exclude or modify the implied warranty or merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous language excluding all implied warranties of fitness is sufficient if it sates that there are no warranties which extend beyond the description on the face hereof iii. Notwithstanding subsection 2, 1. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like as is, with all faults, or other language which in common understanding calls the buyers attention to the exclusion of warranties 2. When the buyer before entering into the K has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him 3. An implied warranty can also be excluded or modified by course of dealing or course of performances or usage of trade d. Henningsen v. Bloomfield Motors i. An attempt by an automobile dealer to disclaim an otherwise implied warranty of merchantability will be declared void as against public policy. ii. Ps wife was injured by a steering failure in a new car purchased from D under a K in which D purported to disclaim all implied warranties of merchantability i.

Conditions
1. Condition vs. duty a. Duty: A is obligated to do X. If A fails to do X, then A is liable in damages to B. Page | 18

i. Ex: Ship undertakes to sail at next wind. ii. If Ship fails to sail at next wind, Ship is liable for damages to Cargo in the amount lost be delay. b. Condition: If A does X, then B must do Y. i. Ex: If Ship sails at next wind, Cargo will pay a 10% premium on shipping rate. 2. Promissory Condition a. Establishes a duty for A to do X and a duty for B to do Y if A does X. i. Ex: Ship undertakes to sail at next wind and Cargo will pay 10% premium if Ship sails at next wind. 3. Express vs. Constructive Condition a. Express = a's performance is conditioned on b's performance and written into K b. Constructive= K never says actions are dependent, but it is implied 4. Condition Precedent vs. Condition subsequent a. Precedent = X must occur prior to Y occurring i. Luttinger v. Rosen 1. A condition precedent is a fact or event which the parties intend must exist or take place before there is a right to performance, and if the condition precedent is not fulfilled the K is not enforceable. 2. P signed a K to buy Ds premises and put down a deposit subject to and conditional upon their obtaining mortgage financing ii. Peacock Construction v. Modern Air Conditioning 1. Ambiguous provisions in subKs which do not expressly shift the risk of payment failure by the owner to the subK will be interpreted as constituting absolute promises to pay and not as setting payment by owner as a condition precedent to payment 2. P subkd to do work for D under a K calling for final payment of the subK within 30 days after the completion of the work and full payment therefore by the owner 3. Need to write in condition precedent explicitly iii. Gibson v. Cranage 1. Where 2 parties agree that one of them must be personally satisfied before liability will arise, that part may insist on his right to personal satisfaction 2. Ds liability to P was conditioned on Ds personal satisfaction with a portrait iv. Kingston v. Preston 1. The presentation of a good security by one party is a condition precedent to the other partys obligation to perform 2. The presentation of a good security by one party is a condition precedent to the other partys obligation to perform b. Subsequent = event or state of affairs that brings an end to something else. A condition subsequent is often used in a legal context as a marker bringing an end to one's legal rights or duties. A condition subsequent may be either an event or a state of affairs that must either (1) occur or (2) fail to continue to occur. Page | 19

2. Performance and Breach

a. Generally i. Non material (substantial performance) 1. Treat as partial breach--you continue to perform but reserve the right to claim damages ii. Material 1. Either: Await curea. Suspend counter- performance and await cure b. If cured then you return to partial breach. 2. Or: Treat as total and terminate the contracta. Suspends counter performance and allows suit for damages for breach of the entire contract. iii. But: Premature termination is itself deemed breach! b. Constructive Conditions of exchange i. Constructive conditions 1. Mutual and independent - either party can recover damages from the other for the injury he received due to breach 2. Conditions and dependent - performance of one depends on the prior performance of another 3. Mutual conditions to be performed simultaneously - neither is obliged to do the first act c. Partial Breach i. Rest. 237 - Effect on other partys duties of a failure to render performance 1. Except as stated in 240, it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. ii. UCC 2-612 - Installment K Breach 1. (1) An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent. 2. (2) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the nonconformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. 3. (3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments. iii. UCC 2-601 Buyers Rights on Improper Delivery 1. Subject to the provisions of this Article on breach in installment contracts (Section 2612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may Page | 20

a. (a) reject the whole; or b. (b) accept the whole; or c. (c) accept any commercial unit or units and reject the rest. iv. UCC 2-602 Manner and effect of rightful rejection 1. (1)Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. 2. (2) Subject to the provisions of the two following sections on rejected goods a. (a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; v. UCC 2-508 - Cure by seller of improper tender or delivery; replacement 1. (1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. 2. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. vi. UCC Perfect Tender Rule 1. The delivery and condition of the goods must be exactly as promised in the K d. Material breach i. Walker & Co v. Harrison 1. A party attempting to repudiate a K must convince the court that the other party has materially breached the K 2. D rented a neon sign and sought to repudiate the rental agreement when P delayed in repairing the sign. ii. Rest. 242 - determining material breach 1. In determining the time after which a party's uncured material failure to render or to offer performance discharges the other party's remaining duties to render performance under the rules stated in 237 and 238, the following circumstances are significant: a. (a) those stated in 241; b. (b) the extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements; c. (c) the extent to which the agreement provides for performance without delay, but a material failure to perform or to offer to perform on a stated day does not of itself discharge the other party's remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important. iii. Rest 241 1. In determining whether a failure to render or to offer performance is material, the following circumstances are significant: a. (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; b. (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; Page | 21

c. (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; d. (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; e. (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. iv. Rest. 243 Effect Of A Breach By Non-Performance As Giving Rise To A Claim For Damages For Total Breach 1. (1) With respect to performances to be exchanged under an exchange of promises, a breach by non-performance gives rise to a claim for damages for total breach only if it discharges the injured party's remaining duties to render such performance, other than a duty to render an agreed equivalent under 240. 2. (2) Except as stated in Subsection (3), a breach by non-performance accompanied or followed by a repudiation gives rise to a claim for damages for total breach. 3. (3) Where at the time of the breach the only remaining duties of performance are those of the party in breach and are for the payment of money in installments not related to one another, his breach by non-performance as to less than the whole, whether or not accompanied or followed by a repudiation, does not give rise to a claim for damages for total breach. 4. (4) In any case other than those stated in the preceding subsections, a breach by nonperformance gives rise to a claim for total breach only if it so substantially impairs the value of the contract to the injured party at the time of the breach that it is just in the circumstances to allow him to recover damages based on all his remaining rights to performance. e. Mitigating Doctrines

i. Substantial performance
1. Only applies to constructive and not express conditions 2. Willful breach precludes a defense of substantial performance a. Restatement 241 departs from use of willful to accommodate builders who cannot follow plans literally; they use the standard of comports with standards of good faith and fair dealing 3. Jacob & Youngs v. Kent a. Subcontractor building home used wrong pipe; homeowner refuses to make final payment for 3800 on 77k home. b. Cardozo uses substantial performance for using wrong brand of pipe to mitigate forfeiture. This usually only applies to constructive conditions. 4. Has performance met the essential purpose of the K? 5. Plante v. Jacobs a. There can be no recovery on a contract as distinguished from quantum meruit unless there is substantial performance which is defined as there the performance meets the essential purpose of the K b. Builder failed to finish an alleged 26 portions of a house and misplaced a wall. Page | 22

6. Can apply to UCC in certain instances a. Installment Ks

ii. Perfect Tender Rule

1. Allowed the buyer an easy out 2. Not contested until middle of the 20th century. 3. UCC 2-601 - Buyers Rights on improper delivery a. Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may i. (a) reject the whole; or ii. (b) accept the whole; or iii. (c) Accept any commercial unit or units and reject the rest. b. (Buyer should not need to guess at his peril whether a breach is material) 4. UCC 2-602 - Manner and Effect of Rightful Rejection a. (1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. b. (2) Subject to the provisions of the two following sections on rejected goods (Sections 2-603 and 2-604), i. (a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and ii. (b) if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection (3) of Section 2-711), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but iii. (c) The buyer has no further obligations with regard to goods rightfully rejected. c. (3) The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this Article on Seller's remedies in general (Section 2-703). 5. UCC 2-508 - Cure by Seller of Improper Tender of Delivery; Replacement a. (1) Where any tender or delivery by the seller is rejected because nonconforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. b. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. c. (Seller can cure a defective tender if the time for performance has not yet expired) 6. UCC 2-608 - Revocation of Acceptance in whole or in Part a. (1) The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it Page | 23

i. (a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or ii. b) Without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances. b. (2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. c. (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

iii. Divisibility
1. Gill v. Johnstown Lumber a. When consideration for work done is apportionable or apportioned in the contract, that contract will be interpreted as divisible in case of partial performance iv. Restitution 1. The modern trend is to call this area of law unjust enrichment which is not without its problems since it begs the question of what we mean by either unjust or enrichment. 2. Britton v. Turner a. A defaulting party, although unable to recover on his contract, may recover under a quasi-contractual theory the reasonable value of his services less any damages to the other party rising out of the default. 3. Kirkland v. Archbold a. Where a builder has supplied work and labor for the erection or repair of a house under a lump sum contract but has departed from the terms of the contract, he is entitled to recover for his services and materials unless the work that he has done has been of no benefit to the owner, the work he has done is entirely different from the work which he has contracted to do, or he has abandoned the work and left it unfinished

f. Suspending Performance and Terminating the Contract

i. Material Breach 1. It is a breach of a duty of performance that was to be exchanged under an exchange of promises 2. If there is a material breach, there are 2 options a. Continue performance and treat as a partial breach and sue for damages b. Stop performing and treat the breach as a total breach ii. Partial Breach 1. Must continue performance 2. Can sue for damages 3. Stopping performance on a non-material breach is a material breach in itself iii. Termination - Ks without duration or termination date 1. Lockewill v. Us Shoe Page | 24

a. Where an agreement to an exclusive distributorship is silent on duration or termination, then the agreement is terminable at the will of either party - in this case, reasonable time had passed for Williams to recoup his investment [and a reasonable profit] and he received actual notice of the intended course of conduct of U.S. Shoe. iv. After-Acquired Evidence 1. Elements a. Party terminates K without justification but discovers that they would have been justified in doing so b. Party can use those facts even though it was ignorant of them at the time of termination. 2. Walker & Co v. Harrison a. A party attempting to repudiate a contract must convince the court that the other party has materially breached the contract b. If the breach is not material, the other partys performance is not excused. i. No simple test for materiality ii. Often considered: 1. To what extent has the K been performed prior to the breach? 2. Was the breach willful 3. Was the breach quantitatively serious? 4. What will be the consequences of the determination g. Prospective Nonperformance i. Anticipatory Repudiation 1. UCC 2-610 Anticipatory Repudiation a. When either party repudiates the K with respect to a performance not yet due the loss of which will substantially impair the value of the K to the other, the aggrieved party may i. For a commercially reasonable time await performance by the repudiating party 2. UCC 2-609 Right to Adequate Assurance of Performance a. (1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. i. Pittsburgh-desmoines steel co v. brookhaven manor water co 1. UCC 2-609 allows a party to cease performance due to the repudiation of the other only where the repudiating party fails, upon demand, to give adequate assurance of payment 2. P contended that Drepudiated the K by failing to meet a demand for a personal guarantee of payment prior to performance of the K Page | 25

b. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. c. (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. 3. Repudiation when it is not accompanied by a breach by nonperformance

ii. Repudiation
iii. 1. Partys language must be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform 5 major questions 1. Is the recipient of a repudiation free to make other arrangements 2. Can the recipient of a repudiation go to court immediately even before the time for performance has arrived 3. Can the recipient of a repudiation ignore the repudiation and await performance 4. What are the consequences if the recipient of a repudiation urges retraction of the repudiation 5. Can a party that has repudiated withdraw the repudiation Hochster v. De La Tour 1. If two parties enter into a contract to be performed at a designated time in the future, and one party refuses to perform the contract before the designated time the parties agreed to perform, the other party may sue before the contract was to be performed. That party need not wait until the time for performance has passed. 2. D was going to follow P around the world and carry his shit; P cancelled the K; D made other plans; P sought to enforce the K Kanavos v. Hancock Bank 1. A partys ability to recover for breach of a contract giving a right of first refusal depends on his having had the financial resources to exercise the option. 2. When performance under a contract is concurrent, one party cannot put another in default unless he is able to perform his obligation 3. PL had to prove that he had the ability to pay McCloskey v. Minweld 1. In order to give rise to a renunciation amounting to a breach of contract, there must be an absolute and unequivocal refusal to perform or distinct and positive statement of an inability to do so. Cosden Oil v. Karl 1. Damages for a sellers anticipatory repudiation are measured at a commercially reasonable time after repudiation 2. If an aggrieved party awaits performance beyond a commercially reasonable time he cannot recover resulting damages which he should have avoided.

iv.

v.

vi.

vii.

h. Adequate Assurances
i. Rest. 251 - when failure to give assurance can be repudiation Page | 26

1. Reasonable grounds arise to believe that the obligor will commit a breach by nonperformance that would of itself give the oblige a claim for damages from total breach 2. (2) The obligee may treat as a repudiation the obligor's failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case ii. Norcon Power v. Niagra Mohawk 1. At common law in New York, as in the Uniform Commercial Code (UCC), where reasonable grounds arise to believe a party will breach a contract, the other party may demand adequate assurances of performance. 2. Electricity sales case

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Remedies
1. Generally a. Damages = loss in value + other loss - (costs avoided + loss avoided) b. Rest. 344 - Purpose of remedies i. Judicial remedies under the rules stated in this restatement serve to protect one or more of the following interests of a promisee 1. (a) his expectation interest, which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, 2. (b) his reliance interest, which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or 3. (c) his restitution interest, which is his interest in having restored to him any benefit that he has conferred on the other party c. Rest. 359 - effect of adequacy of damages i. Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party ii. The adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific performance or injunction as to the K as a whole iii. Specific performance or an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion. d. Rest. 360 - factors affecting adequacy of damages i. Following circumstances are significant 1. Difficulty of proving damages with reasonable certainty 2. Difficulty of procuring a suitable substitute performances by means of money awarded as damages 3. The likelihood that an award of damages could not be collected e. Benefit of the bargain is subject to 3 things: i. Duty to mitigate/avoidability ii. Foreseeability - only damages that are reasonably foreseeable are going to be counted iii. certainty

2. Monetary Damages
a. Never punitive damages in first year K questions b. Liquidated damages i. Fact pattern in which K states monetary damages for breach ii. Is it too high? 1. K provisions designed to punish are invalidated c. Purpose of money damages is to protect PLs monetary expectations i. Expectation interest = $ consequences to PL with no breach ii. 3 steps 1. People expect no breach 2. $ consequences with no breach Page | 28

3. $ consequences because of the breach and compare the two iii. Consequential Damages 1. Special damages - 2 factors a. The exam hypo must tell you something special about the PL b. The other person must know about this special info at the time of the K 2. Recoverable only if foreseeable a. Damages arising because of the breach 3. Rest. 351 - Foreseeability a. Hadley v. Baxendale b. iv. Avoidable damages 1. Cannot recover for damages that could have been avoided 2. Bridge to nowhere case a. Easy; simply stopping work 3. Harder avoidable damages questions a. Turned down other work b. With respect to taking a replacement job, it has to be substantially similar d. General measure of damages i. UCC 2-711 - buyers remedies in general; buyers security interest in rejected goods 1. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects acceptance and the breach goes to the whole K, the buyer may cancel and whether he has done so may in addition to recovering so much of the price as has been paid a. Cover and have damages under t2-712 b. Recover under 2-713 2. Where the seller fails to deliver or repudiates the buyer may also a. Recover the goods or b. In a proper case get specific performance as provided in 2-716 ii. UCC Cover transactions UCC 2-712 1. After a breach the buyer may cover by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due by the seller 2. Buyer may recover from the seller the difference between the cost of cover and the K price together with any incidental or consequential damages as defined in 2-715 but less expenses saved in consequence of the sellers breach 3. Failure of the buyer to effect cover within this section does not bar him from any other remedy 4. Laredo Hides v. H&H Meat Products a. When a seller wrongfully repudiates a K or fails to make delivery of the goods thereunder, the buyer may cover by obtaining such goods elsewhere and sue the seller for the difference between the cost of cover and the K price plus any incidental or consequential damages. iii. UCC 2-713 - Buyers damages for non-delivery or repudiation 1. Measure of damages for non-delivery by the seller is the difference between the market price at the time when the buyer learned of the breach and the K price together Page | 29

with any incidental and consequential damages but less expenses saved in consequence of the sellers breach 2. Mkt price is to be determined as of the place for tender or in cases of rejection after arrival or revocation of acceptance as of the place of arrival iv. Tongish v. Thomas 1. When a seller breaches, market damages should be awarded even though in excess of the buyers actual loss 2. After the coop association (P) lost money on a resale K due to Tongish (D)s breach, it contended that the market price measure of damages should be used instead of its actual loss 3. This is a way to encourage parties to honor Ks

v. Cost of Completion vs. Diminution in value

1. Rest. 348 - Alternative to loss in value of performance a. If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property b. If a breach is based on incomplete or defective construction the injured party can recover: i. The diminution in the market price of the property caused by the breach ii. Reasonable cost of completing performance or of remedying the defects 2. Jacobs & Youngs v. Kent a. An omission, both trivial and innocent, will sometimes be atoned for by allowance of the remitting damage and will not always be the breach of a condition to be followed by forfeiture. For damages in construction contracts, the owner is entitled merely to the difference between the value of the structure if built to specifications and the value it has as constructed b. Contractor didnt use all reading pipe in house 3. Peevyhouse v. Garland a. Where a K provision breached is merely incidental to the main purpose, and where the economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which lessor may recover are limited to the diminution in value resulting to the premises because of the nonperformance b. D promised it would perform restorative work on Ps farm at the end of the lease period, but then argued that the cost of the repair work would far exceed the total value of the farm 4. Groves v. John Wunder a. Value of the land as distinguished from the value of the intended product of the K, which ordinarily will be equivalent to its reasonable cost, is no proper part of any measure of damages for willful breach of a building K b. D surrendered the gravel pit it leased from P. It was found to have deliberately breached the K by removing the best and richest gravel without having restored the land to its existing grade Page | 30

c. Differs from Peevyhouse because it forced the D to complete performance even though the cost was greater than the value of the land i. D willfully breached the K, so this plays into it ii. This prevents landowners falling victim to unethical contractors vi. Lost Volume Seller 1. Because although he is able to resell the goods for the same or similar price as in the initial contract, he loses volume of business: But for the buyers breach, the seller would have made two sales instead of one. Generally, lost profit is measured by the contract price with the breaching buyer minus cost to the seller. 2. If you have a K to buy something and you breach and the seller sells what youre going to buy to another, you are still in breach if had the ability to sell that independent of your breach 3. e. Incidental/reliance damage i. Rest. 349 - Reliance Damages 1. As an alternative to the measure of damages in 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the K been performed f. Emotional Disturbance i. Rest. 353 - Loss due to emo disturbance 1. Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the K or the breach is of such a kind that serious emotional disturbance was a particularly likely result

3. Liquidated Damages
a. Rest. 356 - Liquidated Damages and penalties i. Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy. 1. Wasserman v. Township of Middleton a. Provisions for liquidated damages are enforceable only if they are a reasonable forecast of just compensation for the harm caused by the breach. b. A lease between P and D contained a stipulated damages provision based on Ps gross receipts ii. A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence.

4. Limitations on damages
a. Avoidability (duty to mitigate) i. Breaching party bears burden of proof on avoidability ii. Act in commercially reasonable manner iii. Rest. 350 - Avoidability as a limit on damages Page | 31

1. Damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation a. The injured party is not precluded from recovery if he has made reasonable but unsuccessful efforts to avoid the loss iv. Parker v. 20th century fox 1. The general measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment 2. P, an actress, was to have the lead role in a movie but D decided not to make the movie and offered her the leading role in another film. v. In UCC will often be expected to engage in a cover transaction b. Foreseeability i. In the ordinary course ii. As a result of special knowledge iii. Between merchants - assume that both of them know industry standards and customs iv. Rest. 351 - unforeseeability and related limitations on damages 1. Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the K was made a. Kenford Co v. County of Erie i. In order to impose damages on a breaching party, such damages must have been brought within the contemplation of the parties as the probable result of a breach at or prior to the time of K ii. P sued Erie(D) for loss of anticipated increase in value of peripheral lands as a result of Ds breach of a building K for a stadium iii. Anything more than natural and probable consequences of a breach must be within the reasonable contemplation of the parties 2. Loss may be foreseeable as a probable result of a breach because it follows from a breach a. In the ordinary course of events b. As a result of special circumstances beyond the ordinary course of events, that the party in breach had reason to know 3. A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation v. Hadley v. Baxendale - FORESEEABILITY CASE 1. The injured party may recover those damages as may reasonably be considered arising naturally from the breach itself and may recover those damages as may reasonably be supposed to have been in contemplation of the parties at the time the made the K as a probable result of the breach of it. 2. P, a mill operator in Gloucester, arranged to have Ds company ship his broken mill shaft to the engineer in Greenwich for a copy to be made. P suffered a loss when D unreasonably delayed shipping the shaft, causing the mill to shut for longer than anticipated c. Certainty Page | 32

i. Rest. 352 - Uncertainty as a limitation on damages 1. Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty ii. Fera v. Village Plaza 1. A new business may recover lost profit damages for breach of a lease if the profits are not excessively speculative. 2. D leased Ps retail space to another after losing Ps lease. P was unable to start its new business and sued for lost profits

5. Specific Performance (Equitable Remedies)

a. Alternative remedy; rarely available in exam questions i. Used in 1. Real estate 2. Unique goods 3. Never get them in service Ks ii. S agrees to sell blackacre to B; S breaches; S instead sells to T, who is a bona fide purchaser; Ts equities are just as strong as Bs; no specific performance b. Specific Performance i. UCC 2-716 - Right to special performance or replevin 1. Specific performance may be decreed where the goods are unique or in other proper circumstances 2. The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just 3. Buyer has a right of replevin for goods identified to the K if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interests in them has been made or tendered ii. Campbells v. Wentz 1. Specific perf. Granted for special carrots for Campbells soup iii. Klein Pepsi 1. No specific perf. For gulfstream jet iv. Laclede Gas v. Amoco Oil 1. Specific performance is available as a remedy for breach of a long-term supply K 2. After Amoco (d) breached a long term propane supply K, Laclede (P) sought specific performance 3. When a litigant can show that damages will not make him whole, and that no policy considerations militate against specific perf, it shall be granted

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Defenses/Excuses
2. Incapacity a. Mental i. Otelere v. Teachers Retirement Board - EX POST 1. A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect a. He is unable to understand in a reasonable manner the nature and consequences of the transaction, or b. He is unable to act in a reasonable manner in relation to the transaction, and the other party has reason to know of his condition 2. A deceased schoolteacher on leave for mental illness after having suffered a breakdown; had a reserve of 70k in the retirement system; borrowed the max amt from the system and made irrevocable election for max benefits during her lifetime, overriding previous family oriented plan. She didnt tell her husband, P, of this change and he sued to undo this transaction after she died shortly after. b. Age i. Kiefer v. Fred Howe Motors 1. One may rescind or disaffirm Ks made while a minor 2. P sought to rescind a motor vehicle purchase he made while still a minor ii. Ratification 1. This defense is lost and the K is ratified if a party, upon reaching the age of 18, makes a manifestation to the other party of an intention to be bound by the original K 3. Unconscionability - Recognized by Williams v. Walker-Thomas a. Procedural Based i. Degree of unequal bargaining power ii. Degree to which there is an opportunity to negotiate b. Substantive i. Factors to consider 1. Adhesion/Form K 2. Degree the item is seen as necessity 3. Degree to which other meaningful options exist 4. Degree of unequal bargaining power 5. Degree to which there is an opportunity to negotiate 6. Degree to which you are giving up fundamental and/or Constitutional rights. 7. Degree to which term is facially one sided (e.g. only one side is bound to arbitration) 8. Degree of forthrightness and clarity regarding challenged provision 9. Degree to which other governmental bodies regulate this area 10. Sliding scale between procedural and substantive uncon. 11. More likely in consumer than in commercial contracts a. Jones v. Star Credit ii. UCC 2-302 - Unconscionable K or clause 1. If the court as a matter of law finds the K or any clause to have been unconscionable at the time it was made the court may refuse to enforce the K or it may enforce the remainder without the unconscionable clause Page | 34

2. Parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting purpose and effect to aid decisionmaking iii. McKinnon v. Benedict - EX POST 1. Ks which are oppressive, that is, fail to meet the test of reasonableness will not be enforced in equity 2. D borrowed money from P who promised to help D attract tourists if D didnt cut the trees or improve the land between the resort and Ps property for 25 years. When the resort didnt prosper and D began to add a trailer park and tent camp, P sought an injunction iv. Tuckwiller v. Tuckwiller - EX ANTE 1. Whenever a K concerning real property is in its nature and incidents entirely unobjectionable, it is as much a matter of course for a court of equity to decree specific performance of it as it is for a court of law to give damages for the breach 2. Caretaker was promised real estate in will; owner died before will could be changed; caretaker sues estate, caretaker gets land. v. Soctt v. Cingular Wireless 1. A class action waiver within an arbitration clause that s embedded in a consumer K of adhesion is substantively unconscionable as violating consumer protection laws vi. See Hennison v. Bloomfield motors under implied warranties c. Adhesion Ks i. Courts will deem a clause unconscionable and unenforceable if the signer is unable to procure necessary goods, such as an automobile, from any seller without agreeing to a similar provision. The buyer has no choice. ii. 4 Factors 1. Necessity 2. Lack of bargaining power 3. Lack of alternatives 4. Degree of clarity/disclosure iii. OCallaghan v. Waller & Beckwith 1. A lease clause exculpating a landlord from liability for his own negligence should be upheld and is not void as against public policy 2. P was injured by her landlords negligence under a lease which exculpated the landlord from liability for negligence 4. Duress a. When one party of a K has begun performance and the other party hasnt, the one who begun performance has a holdup power over the one who has not yet performed i. This can be considered duress. b. Alaska Packers Ass'n i. A promise to pay a man for doing that which he is already under K to do is without consideration ii. Packers go from SF to AK to catch salmon iii. When they get there, they realize they will not catch as many fish and want to renegotiate for more money iv. This is essentially a holdup and void of consideration c. Watkins v. Carig Page | 35

i. A modification made to meet the reasonable needs of standard and ethical practices of men in their business dealings with each other operates as a partial rescission of a prior K and is thus enforceable since supported by consideration ii. After P encountered solid rock in the course of excavation, D agreed to raise the price of the original K iii. Differs from Alaska Packers because the homeowner had the option to still try to enforce the K and the homeowner had other options for contractors to dig a cellar. The homeowner was not under the same time constraints as the Alaskan salmon season. d. Austin v. Loral i. A K modification is voidable on the ground of duress when the party claiming duress establishes that its agreement to the modification was obtained by means of a wrongful threat from the other party which precluded the first partys exercise of free will ii. P threatened to withhold delivery of precision parts unless D would raise the K price 5. Misrepresentation a. Elements i. Assertion not in accord with the facts ii. Assertion must be fraudulent AND material iii. Assertion must be relied upon by the recipient iv. Reliance must be justified 1. Degree of diligence by the party receiving the info is an open issue. v. Statement could be related to product; not just product itself b. Easy Cases i. You cannot lie outright ii. You cannot actively conceal (i.e. tarp on the roof) iii. You cannot feign ignorance to a question (Is there termite damage, I dont know?) iv. You cannot prevent the information form being disclosed c. Harder Cases i. In general, no duty to disclose, however: 1. The more you talk (or write) the more full disclosure is required. 2. If you advertise or trade on certain features, you will be held to have stated them and they must be truthful. (Kannavos) 3. If you relate some information which you later find out to be untrue you must correct it. 4. If you are in a fiduciary relationship you have higher disclosure requirements. (But this begs the question of when a such a relationship is found. d. Swinton v. Whitinsville Bank i. Where both parties to a K of sale are dealing at arms length, mere nondisclosure of latent defects in the goods will not render one party liable to the other party ii. D knowingly sold a termite-infested house to P, but didnt tell P of its condition iii. Where there is no false statement uttered and no attempt by the concealor to affirmatively prevent the concealee from acquiring the true facts, and no peculiar duty to speak based on a relationship between the parties, bare nondisclosure of truth will not render one party liable to another. e. Kannavos v. Annino i. Where one party to a K of sale goes beyond bare nondisclosure and knowingly misrepresents material facts by telling half-truths, the other party may rescind the K even though he could have ascertained the whole truth by checking public records Page | 36

ii. D sold a dwelling to P without telling him that the use of the house as a multifamily dwelling was illegal. f. Vokes v. Arthur Murray i. Where one party has superior knowledge, statement made within the area of such knowledge may be treated as statements of fact. ii. P was continually cajoled into purchasing thousands of hours of dancing lessons from D iii. Statement of opinion in cases where the knowledge is unequal can be taken as a statement of fact. 6. Impossibility a. Excuses both parties from their obligations under a K if the performance has been rendered impossible by events occurring after the K was formed b. Application of this doctrine requires: i. Performance be objectively impossible 1. Objective impossibility = performance under the K becomes literally impossible because of circumstance beyond the control of the parties 2. Subjective impossibility = no excuse ii. The occurrence of the contingency not be known to the parties at the time of contracting 1. Supervening contingency, where performance was possible at the time of K but afterward a contingency occurs that renders the performance impossible 2. Existing contingency, where a contingency existed at the time of K but was unknown to the parties until after the K was formed iii. EXCEPTIONS: 1. Wont apply where the parties have allocated the risk of the contingency and provided remedial measures in the event of its occurrence 2. If events render performance only temporarily impossible, then this will typically only suspend the obligations of the parties until impossibility ends c. 3 categories of impossibility: i. Destruction of the subject matter of the K ii. Death or incapacity 1. Only if existence of a particular person is necessary for completion of the K iii. Illegality d. Temporary Impossibility i. Temporary impossibility suspends contractual duties; it does not discharge them. When performance once more becomes possible, the duty springs back into existence. Note, however, that a duty will not spring back into existence if the burden on either party to the contract would be substantially increased or different from that originally contemplated. 7. Frustration of Purpose a. Where a contingency occurs that dramatically reduces the value of performance to the receiving party, the doctrine of frustration of purpose may be available to excuse the receiving party from its contractual obligations. b. TEST i. Discharges a partys K obligations when the following 3 conditions are met 1. Partys principal purpose in entering K is frustrated a. Incidental or non-material purposes doesnt qualify 2. Substantial frustration Page | 37

3. Non-occurrence of the event precipitating frustration was a basic assumption of the K c. If the parties contract for and account for the risk of the event, this doctrine is unavailable d. Followed under common law e. Available to supplement the UCC

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