long contracts outline - powers 2006

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CONTRACTS II

I. THE PAROL EVIDENCE RULE

DEFINITION When two parties have made a K and have and have express in a writing to which they have both assented as the complete and accurate integration of that K, evidence whether parol or otherwise of prior understandings or negotiations will not be admitted for the purpose of varying or contradicting the writing. Even if PER excludes evidence, may have a cause of action for fraud or other K

action that may make the writing worthless The person who is trying to exclude the evidence that is not in the writing will raise

the parol evidence rule, he then must prove that the writing was created with mutual intention to be final and complete

The judge will then evaluate all relevant evidence to establish the intent of the parties and see if they intended the writing to be final and whether the evidence should came in or notQuestions1. is the K written-

YES go to 2NO PRE does not apply

2. is the K final- YES go to 3 NO parol does not apply

3. does the outside agreement contradict the writingYES evidence outNO go to 4

4. is the K complete- see approachesYES evidence outNO evidence in

Contemporaneous Agreements -if another document is executed at the same time the formal document was signed then that document is treated as part of the K and will not be subject to the PER but if an oral agreement is made before or at the time the formal document is signed then the it must meet the elements of PRE in order to be admitted into evidence. Contemporaneous oral agreements are NEVER allowed in.

Approaches to decide whether a K is complete1. Four corners - look at the document in writing itself and see the intent f parties2. Traditiona l-MAJORITY—looks at the parties objective intent- what would parties

naturally do 3. Modern - MINORITY— subjective intent- more likely to allow evidence in4. UCC 2-202 -requires that the K be in writing, that it be final and that the evidence of

the prior agreement does not contradict the written K but only explain or supplement it by:

(a) by course of dealing /or usage of trade /or by course of performance(b) By evidence of consistent additional terms unless the K is complete- to

decide whether the K is complete the UCC looks at whether the parties would certainly put it on writing. This lets a lot of stuff in, b/c we must be CERTAIN that they people would have put it on writing

MERGER CLAUSES(A) DEFINITION- a clause stating that the writing constitutes the sole and final

agreement b/en the parties(B) Although merger clause may make the court more likely to say the K is final- or

totally integrated- if the court finds that there is a disparity of bargaining power or


2the clause was hidden, or if there was a condition* to the entire K the merger clause may not preclude the evidence from being admitted. *R2K §217- where parties agreed orally that te performance of the agreement is

subject to a condition the agreement is not final/integrated with respect to that condition UNLESS the oral evidence SPECIFICALLY contradicts the writing- Williams v. Johnson

WARRANTIESImplied warranties- to exclude or modify the implied warranty of merchantability the language must mention merchantability by using specific languageWarranties v Disclaimers- if k gives both disclaimer and warranty, then the disclaimer is invalid. This applies when the disclaimer is in writing or given orally BUT if the disclaimer in is in the K and the warranty is oral the warranty contradicts the K and the disclaimer stands b/c parol evidence bars the oral warranty

AMBIGUITIES1) Basic rule. If the agreement is ambiguous on its face, or becomes ambiguous in

performance parol evidence is admissible to clarify the parties’ intent. But, if the ambiguity is so fundamental that there is no way that the court could determine what the parties intended, there may be no enforceable contract at all.

2) Minority view the trend is to admit parol evidence more frequently. Even where the terms of a contract appear to have a plain meaning; parol evidence will still be admitted to interpret the terms if the language of the contract is reasonably susceptible to the interpretation offered by the party wishing to admit the parol evidence.

II. INTERPRETATION

If the plain meaning is of the contract is ambiguous then evidence can be admitted(1) Read K No ambiguity apply the plain meaning rule(2) Ambiguous admit extrinsic evidence to determine parties intent in order to interpret the K

Patent ambiguity apparent on the face of the contract Latent ambiguity cannot determine if the contract is ambiguous until parties begin performing

A. APROACHES TO INTERPRETATION

1. The Plain Meaning- (majority)— follow the plain meaning approach in which they only let the evidence in if the document is ambiguous, but if the meaning is clear they will not even let the evidence in

2. Reasonably Susceptible Test (minority)— the court will hear extrinsic evidence to determine if a party could have reasonably interpreted a terms as having a particular meaning. If the evidence shows that the K is reasonably susceptible to that interpretation the court will admit the evidence

3. UCC §2-202—the code encourages the use of extrinsic evidence by allowing trade usage, course of dealings and course of performance even if the K is totally integrated as long as the evidence does not contradict the written K- explain or supplement. The court in interpreting the K will consider: ( in order of importance)a. Express terms - that is the best evidence if it says middle of the month and then it

says the 15th of each month then terms are express, must follow ALWAYSb. course of performance- what have we done on this K, the even must have

happen more than once- you have received merchandise for 6 mth on the 20th c. course dealing - normal way of doing business b/en those two parties- assuming

that they have deal w/ each other before- on previous K it always meant the 5 middle days of the month

d. trade usage - what ever is the usage of that word in the trade


34. Restatement § 201(2)- Whose meaning Prevails

1. both parties understand the terms k- then the K is interpreted as is-Plain meaning2. If A knew, or had reason to know both meanings and B only knew one then B’s

interpretation will prevail. If A can show that B should have known through trade usage or common knowlegde then A can rebut presumption in favor of B

3. When neither party knows nor had reason to know what the other party meant then there is no K b/c there was never a meeting of the minds

R2K §202- Rules in Aid for Interpretation(1) The intent of the parties is giving great weight(2) Words and conduct are to be interpreted in light of all the circumstances- (course

dealings and course performance, trade usage.)(3) the K should be interpreted w/ PP in mind(4) a writing interpreted as a whole and all writing are interpreted together(5) unless a different intention is manifested

(a) words are interpreted w/in their prevailing meanings(b) technical words or words of art are given their technical meaning

(6) interpretation is usually against the drafter, b/c the drafter has more advantage(7) interpretation should favor specific over general terms

DECEPTIVE EXCLUSIONARY CLAUSES IN INSURANCE KGray Insurance Co. insurance policy- cover intentional sbi or not The court will interpret the k to mean what a reasonable buyer would expect it to mean,

and thus protect the weakest party’s expectations. We expect insurance to defend us against claims made against us

The court will not enforce exclusionary clauses in an insurance clause that are unclear basically if the insurer deals with the public upon a mass basis the notice of non coverage in a situation in which the public may reasonably expect coverage, must be conspicuous, plain and clear. (K of adhesion- b/c of unequal bargaining power)

Restatement §211(3)- surprise terms- we are only agree to the expectable terms UCC § 2-206 - if a consumer manifest assent to a standard form, a term contained in the

form which the consumer would not have reasonably expected is not part of the k unless the consumer expressly agrees to it

III. CONDITIONS

A. DEFINITIONS

Restatement- a condition is an event that is not certain to occurred but which must occur before the return performance is due unless it is excused

Condition Precedent- condition that must be satisfy b/f a duty comes into existence. Burden of proof- on the - to prove that the condition was fulfilled Most conditions are of this kind

Condition Subsequent- event that terminates a duty. Burden on the -condition not fulfilled. i.e.-insurance requires damage and notice b/f they pay, that is the condition precedent. If the policy holder after the notice don’t make a claim to be paid then at some point the duty to pay is terminated, that is the condition subsequent

Negative Conditions- things that must not occurred for the other party to perform, but there must also be a time frame. If it has not happen by the 10th then…

Conditions can also be express or implied1. Express condition- clearly explicit and stated in the K and are always strictly

enforced2. Implied Conditions – can be of two kinds

a. Condition implied in fact - is the real agreement of the parties, this conditions are treated like express conditions


4b. Condition implied in Law/Constructive is not on the K and is not

necessarily what the parties agreed on. The law will construe a condition, they are not very strictly enforced

B. CONDITION v. PROMESS

Distinction between conditions and promises: If the act is a condition on the other party’s duty, and the act fails to occur, the other party won’t have to perform. If the act is a promise, and it doesn’t occur, the other party can sue for damages.

1. Distinguishing: To determine whether a particular act is a condition, a promise, or both, the main factor is the intent of the parties. Words like “upon condition that” indicate an intent that the act be a condition; words like “I promise” or “I warrant” indicates a promise and failure to keep the promise will also generally constitute the failure of a constructive condition.)

2. The Court will treat condition as promises in order to avoid forfeiture where the default is grossly out of proportion to the forfeiture b/c where a condition has failed, the promisor has a defense and may be discharged from the contract without ANY obligation to compensate the promisee for part-performance

RULE- where two parties have freely fairly and voluntarily bargained for certain benefits in exchange for undertaking certain obligations, it would be unfair to imply a different result and to w/draw from one party benefits for which he has bargain and to which he is entitled- the right to control over repairs as they see fit

Restatement 227- helps decide whether a promise or a conditionStandards of performance with regard to conditions (1) In resolving doubts as to whether an event is made a condition of an obligor’s duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is within the obligee’s control or the circumstances indicate that he has assumed the risk(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether

1. a duty is imposed on an obligee that an event occur or;2. the event is made a condition of the obligor’s duty or;3. The event is made a condition of the obligor’s duty and a duty is imposed on

the obligee that the event occur.The first interpretation is preferred if the event is within the obligee’s control

Summary - when a particular event is under the control of the obligor, the court tends to interpret it to be a promise. However when the even is not in the control of either party the court will interpret as a condition. In any even the court will seek and interpretation that will not cause forfeiture

Hypo-If you mow the lawn by 5pm on Friday I’ll pay you, if he does not finish mowing by 5 and 5pm was a condition then no pay, if it is a promise then he will get pay but the other can sue for damages for not being finished

C. EXCUSE OF CONDITIONS

A party can excuse a condition in several different waysa. R2k 229 Disproportionate forfeiture- the courts look at ways to waiver provision of K

because the court deems that the provision is too harsh. The court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange

b. Estoppel waiver Whenever a party indicates that she is waiving a condition before it is to happen, or some performance before it is to be rendered, and the person addressed detrimentally relies upon such an indication, the courts will hold this to be an binding


5(estoppel) waiver. Note that the promise to waive a condition may be retracted at any time before the other party has changed his position to his determent.

c. Election waiver- When a condition or a duty of performance is broken, the beneficiary of the condition or duty has an election she may; (1) terminate her liability, or (2) continue under the contract. If she chooses to continue she will be deemed to have waived the condition or duty. This election waiver requires neither consideration nor estoppel.

d. Implied waiver - A waiver evidenced by a party’s decisive, unequivocal conduct reasonably inferring the intent to waive

e. Express waiver - a voluntary and intentional waives a known right Anti waiver clause - clause in the K to prevent waiver’s but can still be waived if the

waiver happens very often, and party does not cancel the K then the he has probably waived the right to cancel, b/c gave false sense of reliance

f. If the court finds circumstances that makes compliance with the condition impractical

WAIVERS Clark v WestWrite books for $2 and will pay $6 if abstained from drinking during kRULE- A waiver is a voluntary relinquishment of a known right. A party can waive a non-material part of a K any time during the executory portion of the K w/out consideration, if the part waived is a material part of the K there must be consideration and that is really a modification. A waiver given w/o consideration can be can reestablish as long as he gives fair

notice to the other party Equitable Estoppel- in this case party waive condition and refuses to pay party is

bound to waiver b/c of reliance Continuation of performance: If a promisor continues his own performance after

learning that a condition of duty has failed to occur, his conduct is likely to be found to operate as a waiver of the condition

DISPROPORTIONATE FORFEITURE- Murphy failed to timely notify issuance co. of a claim RULE- Under appropriate circumstances a party, despite his owns default may be

entitled to relief from the rigorous enforcement of K provisions that would otherwise deny him recovery. But for this rule to apply the moving party must prove: 1) unfairness if performance of the condition is executed 2) that the condition is not material so that it would not prejudice the other party

Disproportionate forfeiture- forfeiture is the denial of compensation, it is kind of the unconsionability concept but it focuses on the performance of the K as being unfair v the written k as is, the court also looks at the importance of the condition

Considerations- 1. Contract of adhesion- one party had little choice as to the

terms of the K- there was no bargaining process2. will lose insurance money even though he pays his premiums3. there was no prejudice to the insurance co. b/c of the late notice

notice is a condition, it is not a material part of the K

D. CONSTRUCTIVE CONDITIONS

A constructive condition is a condition which is not agreed upon by the parties, but which is supplied by the court for fairness. The principal use of constructive conditions is in bilateral contracts. Constructive conditions are normally satisfies by substantial performance while express conditions must be fully performed

Restatement §234(1) whenever performances may be rendered simultaneously they re to be performed

simultaneously unless the language or the circumstances indicate otherwise


6(2) except as to number (1) where the performance of only one party requires a period of

time his performance is due at an earlier time than that of the other party unless the language or circumstances indicate otherwise- so usually performance is due b/f pay, performance must be fully or substantially completed but there are some

exemptionsa. if the K is divisibleb. if the parties have agreed upon installment payments c. trade usage is to the contrary

Kingston v Preston Promise to work for 1 and 1/4 yrs if will then leave him his practice, the K said that the will have to be economically secured b/f he got the practice This K was a condition precedent- did not have to turn his practice until prove to

be economically secure This was an implied condition, implied as a matter of law or constructive condition Today most promises are conditional, one parties duty to perform is condition on the

other performing

E. ORDER OF PERFORMANCE

1. TIME - Where the performance of one party requires a period of time, and the other’s does not, the performance requiring time must ordinarily occur first, and its performance is a constructive condition to the other party’s performance.

2. SALE OF GOODS OR LAND - If each party’s promised performance can occur at the same time as the other’s, the court will normally require that the two occur simultaneously, in which case the two performances are “concurrent conditions.”

Tender of performance : Courts express this by saying that where the two performances are concurrent, each party must “tender” (i.e., conditionally offer) performance to the other. UCC §§2-507(1) and 2-511(1).

3. MODERN RULE- there is a presumption that mutual promises in a contract are dependent - performance by one party is conditioned upon performance of the other- and are to be so regarded whenever possible. This is done so that (1) to offer both parties maximum security against disappointment of their expectations by allowing each party to defer his own performance until he has been assured that the other will perform and (2) to reduce the burden of financing one party before the other has performed

IV. AVOIDING FORFEITURE

A. MATERIAL BREACH

R2K §237- if one party breached a material part of the k then the other side may cancel the k

R2K § 241- factors that help determine whether a breach is materiala. Deprivation of expected benefit: The more the non-breaching party is deprived of the

benefit which he reasonably expected, the more likely it is that the breach was material.b. Part performance: The greater the part of the performance which has been rendered, the

less likely it is that a breach will be deemed material. c. The extent to which the injured party can be adequately compensated for the part of that

benefit of which he will be deprivedd. 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 assurancese. 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

Palmer v Fox


7 Bought property promise to put gravel on the street did not, refused to pay the rest of the payments. Where the acts or promises of the parties are concurrent and to be done or performed at the

same time the K is dependent and neither party can maintained an action against the other without providing performance on his part

When there is a K that requires mutual concurrent conditional performance and one of them has breached a material part of then the condition is not met and the other may get out of the k and sue for total breach

A delay in performance is not a total breached unless time was of the essence

B. SUSTANTIAL PERFORMANCE

TEST- Ask Whether the K purpose has essentially been fulfilled Substantial performance does not apply to the sale of goods, the UCC uses the perfect

tender rule

Jacob v Kent Promise to build a house with pipes of a certain kind, did not use the special pipe, realized and he refused to pay. In the K there was a express condition that said that if did not get the certificate from the architect then no money, The requirement of using reading pipes is not a condition, but a promise b/c the payment

was not condition on the using the reading pipes, the only condition was that the house be build

RULE- if a party has completed substantial performance on his promise but has committed a minor omission due to inadvertence he should be able to recover the money due to him less the amount necessary to fully compensate the other party for the damages caused by the omission

How do we determine if the work is substantial?1. look at the k in comparison to the breach- hired to pay one room or to pain building 2. the party must performed but just a small mistake

since the breach his promises by not putting reading pipes, then the has to pay damages either by paying the cost of replacement OR the difference in values b/en the 2 pipes, normally the courts go with the difference in value b/c the other option is economically disproportionate where there is no gain from replacing

SUSTANTIAL PERFROMANCE v. MATERIAL BREACH

OW Grun Roofing v Cope Promise to install a roof, he did but the roof was not uniform in color. The court said that there is a material breached, b/c the way the house looks is very important, so the did not recover, and had to pay the house owner extra money so that she could replace her ugly roof. RULE- if the party has breached a material part of the K then they have not substantially perform, if the part that was breached was immaterial and the rest of the performance is complete then the other party has substantially performed and he may recover Substantial performance - the contractor must have in good faith intended to comply with

the K and should have substantially done so , in the sense that the defects are not pervasive nor do they constitute a deviation from the general plan contemplated and that the K and its purpose can not w/o difficulty be accomplish by remedying them-basically not material

Doctrine of Substantial Performance - A promissory who has substantially performed is entitle to recover although he has failed in some particular way to comply with his agreement

Restitution argument - the did not receive a benefit, b/c she is going to have to get a new roof

There are some factors that helps decide whether a parties performance amounts to substantial performance, they are:


81. what purpose does the performance serves2. the excuse for deviating from the K3. the cruelty of enforcing strict adherence or compelling the promisee to receive

less than what he bargained for4. the difference b/en the tendered performance and the performance of the

promisee5. restatement § 241 -whether the party performed in good faith and in accordance

with fair dealings p. 281 blue book

Material Breach and Substantial Performance UCCProblem p 685- valve tester that needs to be 95% accurate, machine not good only 93% is this substantial performance? This is controlled by the UCC- sale of goodsPerfect tendered rule §2-601- if the product does not conform to the K and it is not a perfect tendered then you may reject the product or keep it but the other has the choice. The difference b/en goods and performance is that the other party can keep the good and can sell to others, but you can take back a performance the good must not be perfect, it must only adhere to what you agreed to sell other

wise the buyer has the right to reject commercial unit- does not mean parts, it must be the whole unit- oven example the seller generally has the right to “cure” the defect

C. DIVISIBILITY AND RESTITUTION

1. Definition of Divisibility A K is divisible where by its terms a. performance of each party is divided into two or more partsb. the number of parts due from each party is the same- consideration for each partc. and the intent of the parties on whether they intended the k to be divisible- kitchen

remodeling, a lot of things for remodeling but you only wanted one job

2. Definition of Restitution a. a who has committed a material breach and has not substantially performed can

still recover the reasonable value of the work he has done up to the breach , b/c the has received a benefit

b. (benefit) – (damages caused by the breached) = RESTITUTIONc. the party in breach is never allowed to recover more than the K’s price and he will

always get pay the lowest amount possible d. if the person seeking restitution has breach a fiduciary duty- doctors, lawyers…etc.

then they have breach their right to fees

3. Rule a. Whether a k is divisible depends on the intent of the parties, and the intent can be

inferred by the ease with which the agreed consideration can be apportioned to separate performances

b. Restatement §240 - if the performance ca be exchanged can be apportioning into corresponding pairs so that the part of each pair are properly regarded as agreed equivalents, a parties performance of his part has the same effect on the other party to performed as it would have if only that pair of performance had been promised

c. UCC2-307- Unless otherwise agreed all sale of goods must be tendered in a single delivery and payment is due only on the goods tendered but where the circumstances gives one party the right to make or demand delivery in lots, the prize if it can be apportioned may be demanded for each lot

d. if the K is entire- meaning not divisible then the party who breached the k is not entitled to recovery unless he has substantially performed

e. the court will not find a K divisible if it would be unfair to the non breaching party


9f. Under both theories of restitution and divisibility the s award is always reduced by

the damages caused to the non-breaching party

Lowy this was a divisible K that had to parts 1)grade, 2) was to make improvement to the

streets, BUT in general construction K are not divisible

Britton RULE: employment k are normally divisible RULE: when a party has not substantially performed and has materially breach a k

he may still recover even if the k is not divisible as long as the other party has received a benefit – the court tries to prevent unjust enrichment and allows him t recover for the benefit he conferred

A hired laborer is entitled to compensation for his services though he does not continued to work for the entire duration of the K, b/c the other party is continuously receiving a benefit and the worker is working under the expectation that he will get pay, the contractor cannot refuse to receive what he has already received

Problem p. 700A promise to build a pool for B guarantee for 20 yrs, but he build one guarantee for 10 yrs. B breached and to decide the owner’s damages we could either look at the cost of replacement the whole pool or the difference in value. To figure how much should the pool guy recover— restitution. Some courts say nothing b/c he breached in bad faith, others say yes. The court applies to different theories(1) the reasonable value to the other party of what he receive in terms of what it would

have cost him to replicate the benefit from another person(2) the extend to which the other party’s property has been increased in value or his

other interest advancedThe will recover the lowest amount because they have breached

V. INPRACTICALITY AND FRUSTRATION OF PURPOSE

A. INPRACTICALITY This doctrine as well as frustration excuses performance but does not excuses a

condition, unless the conditions are really minor or just technical

1. EXISTING IMPRACTICALITY (during K formation)

Restatement § 266- where at the time a K is made, a parties performance under it is impracticable w/o his fault b/c of the fact of which he had no reason to know and the none existence of which is a basic assumption on which the K is made no duty to render that performance arises unless the language or circumstances indicate to the contrary- assumption of the risk.

UCC 2-615- Applies to both impracticalities and frustration- excuse for the seller(a) Delay in delivery or non delivery in whole or in part by a seller who complies with

paragraphs b and c is not a breach of his duty if performance as agreed has been made impracticable by the occurrence of the contingency the non occurrence of which was an assumption on which the K was made

(b) The buyer then has an option to receive the goods or not but they have no claim(c) Where the caused mentioned in paragraph a affects only a part of the seller’ capacity

to perform he must allocate production and delivery among his customers but may at his option include regular customers not then under k as well as his own requirements by further manufacture. He may also allocate in any manner which is fair and reasonableElements of existing impracticability


101. at time K is made performance is impracticable2. without the fault of the party seeking to be excused3. not foreseeable by the party seeking to be excuse4. event is the basic assumption of K5. UNLESS the party assumed the risk

Mineral v Howard A thing is impossible in legal contemplation when it is impractical and a thing is

impractical when it can only be done at an excessive and unreasonable cost Where performance depends upon the existence of a given thing and such existence

was assumed as the basis of the agreement performance is excuse to the extend that the thing ceases to exist or turns out to be non-existence. – cows being pasture

Normally increase in cost in performance is NOT an impracticable event UNLESS the cost was considerable increased due to the necessity of performing in a manner radically different from what was originally contemplated

ASSUMPTION OF THE RISK—Wegematic The try to used the UCC, to excuse non delivery b/c of impossibility to deliver but

the court said that when a party assumes a risk that they may not be able to perform, then they should be subject to the penalties

Follows restatement- (1) a party has no duty to render a performance, which was impracticable at the time of contracting, (2) if the parties did not know at the time that it was impracticable (3) Unless there was an assumption of the risk

2. SUPERVENING INPRACTICALITY ( after the parties have entered into the K)

Restatement § 262- if the existence of a particular person is necessary for the performance of a duty his death or such incapacity as makes performance impractical is an even the non occurrence of which was a basic assumption on which the K was made- is the person necessary for the duty?

The services involved must be personal. The best test for whether services are “personal” is whether they could be validly delegated to a third person.

Restatement § 263- if the existence of an specific thing is necessary for the performance of a duty, its failure to come into existence, destruction or deterioration that makes performance impracticable will discharge performance

UCC 2-613- Applies only when the goods are identifiable when the K is made, the seller has suffered a casualty w/o fault then he is excuse from performance. Whether the risk has pass is a factor- meaning who has possession and control of the goods id buyer then the risk has passed. The seller is excuse and free of liability the buyer then has the choice to either walk away from the K or stick to the K and he may then receive a reduce price caused by the casualtyUCC—Two possibilities

1. K does not identified source- it does not said where he is going to get the goods from, then we will examine how difficult it is to get them, but in general the court will not find impracticability b/c can get the goods from any where

2. if you have a specific source named in the K- then if impracticable to get from them you do not have to go find other sellers

ELEMENTS- R2K § 261must meet ALL 1-4 in order to be impractical Where after a K is made:(1) a parties performance is made impracticable- the performance must be

that exactly what is specified in the K, and it must be absolutely impossible to perform, if no source specific then seller can go to another source


11(2) W/o the s fault(3) by the occurrence of an event (4) the non occurrence of which was a basic assumption on which the k was

made-this goes to “foreseeability, which party should have foreseen the event and thus protect himself against it

(5) UNLESS the language or the circumstances indicate to the contrary.- Assumption of the risk

Restatement § 269-Temporary Impossibility. Impossibility, that is temporary merely, (i) Suspends (rather than discharges) the promisor’ s duty while the impossibility

continues. (ii) After the impossibility ceases, the duty reattaches, UNLESS(iii) it appears that performance thereafter would be materially more burdensome had

there been no impracticability or frustration.

Taylor v Caldwell- music hall If there is a reasonable alternative performance is then not impractical, if the had

another hall then he should provide with it but it depends on the intent of the parties and whether the K called for a specific thing then need not provide another

Canadian Alcohol v Dumbar Molasses A party may not by its own conduct create the event causing the impracticability of

performance, in fact he must make all reasonable efforts to avoid the impossibility and once the even occurs he must employ all possible efforts to fulfill the K even if it had originally been expected to meet it obligation in a particular way

The must show that there were circumstances outside of their control that did not allowed them to perform. must show that he intended to comply but was unable

B. FRUSTRATION OF PURPOSE

A. Definition Frustration- applied where the bargained for performance is still possible but the

purpose or value of the K has been totally destroy by some superseding event, such frustration will discharge the K. BUT normally where the seller’s cost has increased that will not be enough to frustrate the K.

UCC does not provide an specific code for frustration, it is with impracticability under § 615, and it always protect the seller. Buyers are said to always assume a risk when they order goods so, there is really no frustration of purpose for buyers.

The ability to perform is there, but there is no present consideration and the K has been frustrated, he cant get what he bargain for

Subjective- I can not do it Objective- It can be done- that is the only time frustration applies

B. Elements R2K265- where a party is made a party’s principal purpose is substantially frustrated w/o his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the K was made, his reminded duties to render performance are discharged unless the circumstances indicate the contrary

1. After the K was made,


122. Occurrence some superseding act or event occurred, the non-

occurrence of which was a basic assumption of the contract 3. The purpose of the contract is substantially frustrated due to this event4. The party seeking relief was not at fault in causing the event to occur5. The party seeking relief must not have born the risk of the event

occurring. (By language of contract or circumstances)

Paradine v. JaneOld Rule- there is an absolute duty to pay rent regardless of allege frustrating eventsModern- now lessees may be discharged but they are hardly ever granted To say I don’t have the money is not an excuse b/c you have assume he risk that you

may not have money Leases are seen as contractual obligation and one is not very likely to be excuse

Krell v Farms Follows R2K 265- to find frustration of purpose must ask three questions

1) Was the event or situation the foundation of the contract? Yes, the room was rented b/c of its position. Cab ride to the Derby race is different b/c the cab had no special qualification that led to its selection and that was not the foundation of the K

2) Was the purpose of the K frustrated? Yes coronation was canceled3) Was the event so severe that cannot reasonably have said to be in the

contemplation of the parties at the time of entering into the contract? Yes, the parties had no reason to believe that the coronation will get canceled

Goschie Farms Inc.Comment (a) R2K §265- frustration deals with the problem that arises when a change in circumstances makes ones parties’ performance virtually worthless to the other. Commentary estates that the frustration must be substantial and that it is not enough

that the transaction has become less profitable for the affected party or that he will sustain a lost. BUT where the value of the performance is totally or nearly totally destroy by superseding events the court may find frustration if other circumstances beside the money exist- in this case there was no reason to purchase the goods any more b/c they were outdated so useless

The frustration must be severe that it is not fair to be regarded as w/in the risk parties assumed under the K

Foreseeability of the event is a factor in determining if a party should be excused, but the mere fact that even was foreseeable does NOT compel the conclusion of frustration.

Lloyd There must be substantial frustration – purpose frustrated and loss of total

commercial value the court held in this case that the land though it could not be used for what it was

rented it could still be used and taken advantage of. Some courts do this but it is not the norm

Designer Case She is going to design for model to wear to the Grammies awards, she has

appendicitis and can go to the awards, the buyer has assumed a risk, and we do not penalize the seller

Question: If a party has partially performed, and then the contract purpose has been found to have been frustrated, how do we compensate the party for their part performance?Answer: There are 2 possible ways to compensate the party for the performance:

(1) if the contract is divisible, use Doctrine of Divisibility


13(2) if not, use restitution to compensate the party

VI. RESPONSE TO BREACH

A. REPUDIATION

Definition- Breach of K- is the legal conclusion that a party has failed to perform, without

justification or excuse that which she was under an absolute duty to performEfficient breach- every one wins, the person breaches and pays damages for the breach,

but it must be efficient, person who breach must make more moneyRule- the repudiation must occurred before performance is due under the KRepudiations may be express or impliedExpress- is a clear, positive, unequivocal, refusal to performImplied- results from conduct where the promissor puts it out of his power to perform so

as to make substantial performance of his promise impossible

Effect of repudiationIf a party repudiates or appears unwilling or unable to perform, the other party may possibly (1) continue performance; (2) suspend or withhold performance; (3) change position or cancel the contract.

Restatement § 250- A repudiation isA CLEAR STATEMENT THAT PARTY WILL NOT PERFORM-may not perform is not good enough

(a) a stmt to the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach OR

(b) a voluntary affirmative act which makes performance impossible or apparently impossible-

(c) injured party must be ready willing and able to perform but for the repudiation

Restatement § 251- when a failure to give assurance may be treated as repudiationA. Where 1) reasonable grounds arise to believe that the obligor will commit a breach

that would in itself give the obligee a claim for damages for total breach. The obligee may 2) demand adequate assurance of due performance and may if reasonable suspend any performance for which he has not already receive the agreed exchange until he receives such assurance

B. the 4) obligee may treat as a repudiation the obligors failure to provide w/in a 3) reasonable time such assurance of due performance as it is 5) adequate under the circumstancesNOTE-under common law can demand assurance orally and no time limitations for reply

UCC and repudiation

UCC 2-610- Anticipatory RepudiationWhen either party repudiates the K w/ respect to a performance not yet due the loss of which will substantially impair the value of the K to the other, the injured party mayA. for a commercially reasonable time await performance by the repudiating party ORB. revert for any remedy for breach even though he has notified the repudiating party

that he would await performance and has urged retraction AND


14C. in either case suspend his own performance or proceed

UCC 2-609- Right to Adequate Assurance of PerformanceA. A K for sale imposes an obligation on each party that the other’s expectations of

receiving due performance will not be impaired. 1) When reasonable insecurities arise the other party 2) in writing may demand adequate assurance of due performance and until he receives such assurance he may if commercially reasonable 3) suspend any performance for which he has not already receive the agreed returned

B. B/en merchants the reasonableness of grounds for insecurities and the adequacy of any assurance should be determine according to commercial standards

C. Failure to provide w/in reasonable time- not more than 30 days such assurance is a repudiation of the K

UCC 2-711- Buyers Remedies in GeneralWhere the seller fails to make delivery or repudiates or the buyer rightfully rejects or revokes acceptance the buyer may cancel the K

RETRACTION OF REPUDIATION A repudiation may be retracted and a prospective unwilling or inability to perform can be cured unless the injured party:A. Has canceled the KB. Has materially change position or C. otherwise indicate the K is canceled- by getting another jobD. the K has reached performance time

UCC 2-611- follows the rule above and adds that the retraction reinstates the repudiating party’s rights under the K with due excuse and allowance to the aggrieved party of any delay occasioned by the repudiation

EFFECTS OF APERENT INSOLVENCY

Restatement § 252- Effects of Insolvency(3) where the obligors insolvency gives the obligee reasonable grounds to believe

that the obligor will commit a breach the obligee may suspend any performance form which he has not received the agreed exchanged until he receives assurance in the form of performance itself and offer of performance or adequate security

(4) a person is insolvent who either has ceased to pay his debt as they become due or is bankrupt

Restatement § 254- Effect on Subsequent Events on duty to pay Damages(1) a parties duty to pay damages for total breach for repudiation is discharged if it

appears after the breach that there would have been a total failure by the injured party t perform his return promise

(2) if the duty that he repudiated has been discharged by impracticability or frustration before any breach by non-performance

this applies to the UCC as well

UCC 2-702 - Sellers Remedy on Discovery of Buyer’s Insolvency- When the seller discovers the buyer’s insolvency he may refuse delivery except for cash only. The seller may reclaim goods already delivered on credit within 10 days after receipt.

De La Tour


15 If a party deliberately enter into a k to do an act in the future day and he wrongfully

renounces the other party need not wait till the day of performance arrives before seeking remedy that renunciation may be treated as a breach of the K

The court does not require the party to wait till the other party had a duty to perform the court says that repudiations are treated like a breach b/c 1) there is a K relationship that has been broken 2) ’s dilemma- should he wait or should he try to get another K

Taylor If the injured party does not cancel the K but disregards the repudiation and treats the

k as still in force and the repudiation is retreated prior to the time of performance then the repudiation is nullified and the injured party is left with his remedies, if any invocable at the time of performance

McDonald’s Corp. Before the buyer ask for assurance of performance he must have reasonable grounds

for insecurities that the other party is not going to be able to performed as bargained UCC written demand - the code is to be liberally construe and a court may waived the

requirement if both parties had a clear understanding that a party is suspending performance until adequate assurance of due performance is received

Plotnick - Installments KUCC 2-612- Breach of Installment K(1) An installment K is one which requires the delivery of goods in separate lots to be

separately accepted (2) the buyer may refuse any installment which is non conforming, if that non

conformity substantially impairs (so no perfect tender rule) the value of that installment AND the installment can not be cure- if the other party makes an offer to cure then the buyer must accept the installment

(3) if the non-conformity or default impairs the value of the whole K there is a breach of K, but if the injured party accepts a non performing installment w/o timely notification of cancellation or if he brings an action regarding ONLY past installments the injure party is said to have reinstated the K (waived his right)

The buyer refuses or neglects to pay for one or more installments it depends on the circumstances of each case whether the breach of K is so material that it would be justifiable for the injured party to cancel the K or whether the injure party only has a claim for damages

Circumstances to consider for the SELLER to find a breach of the whole K1. is it impossible or unreasonably burdensome from a financial point of

view to make the seller supply the future installments2. the fact that the buyer did not pay creates a reasonable apprehension on

the sellers mind that the buyer will not pay for the future installments either- if you are insecure then ask for assurance

if whole K is not impaired (from the point view of the buyer just being insecure that the rest of the shipments will also be bad is not a substantial impaired the value of the whole K) the party may request adequate assurance under § 2-609 and if not satisfy then cancel

to determine if breach to the BUYER is substantial to impaired the whole K- look at the size of the breach, look at whether the shipments are interrelated – brick wall

Person sues for breach on a K for a non-material there was also a material but he did not raised till later, has he waived? If depends whether the could had cure if had known

VII. GENERAL DAMAGES

A. COMMON LAW- restatement


16 K damages usually have limitations an a party hardly ever gets all its true damages paid Usually there are not attorney fees

Restatement § 344- Purpose of Remedies1) Expectation Interest - attempt to put the promisee in the position he would have been had

the promise been performed “benefit of the bargain” (though the best way to give a party the benefit of the bargain is to given them the actual bargain- actual performance is only granted if damages are not enough to make person whole)

2) Reliance Interest -puts the promise back in the position in which he would have been had the promise not been made- compensate for loses.- like in torts, but me in the position I was before I got hit by the truck

3) Restitution Interest - attempts to put the promisor back in the position in which he was before the promise was ever made- prevent unjust enrichment, promisee is restore any benefit that he conferred tot he other party

R2K § 347- EXPECTATION INTERESTExpectation damages are measured by(a) the lost in valued or expectations caused by the other party breach PLUS(b) any other lost, including incidental or consequential loss (foreseeable, certain, calculable)

caused by the breach LESS(c) any cost that he has avoided b/c of the breach

ED= (LOST VALUE(K price) + OTHER LOSS) – COST AVOIDED

R2K § 349 – RELIANCE INTERESTDefinition- damages, including the money expend in preparation for the performance or in the performance less any cost the party in breach can prove with reasonable certainty the injured party would have suffered had the K been performedRD= (money spend in performing the breached K) – money would had spend or lost had the K not been breached use if losing k You only have to prove what you spend and the other side will have to

prove that you would have lost money- shifting the burden of proof is good when you can prove that you were going to earn profits- business ventures does not give you profits, but does subtract any damages that the other party can prove

that you would have suffered had there not been a breach the burden is on the moving party so use when it is though to prove lost value-(lost profit)

R2K § 371- RESTITUTION INTERESTRestitution can be measure by either(a) The reasonable value to the other party of what he received in terms of what it would

have cost him to get it from someone else in the same position of the. if the NON-BREACHING party sues Good for loosing Ks also If you non-breaching party then give them the higher value

(b) The extend to which the others parties property has been increased in value or his other interest advanced if the BREACHING party sues remember 2 ways and always gets the lowest value

RED= benefit conferred or increased value of the property Most jurisdictions don’t let you recover for more than the (R2K) price but others do

Sullivan –Nose jobExpectationLV= (the nose she expected) – (the nose she had) {what she wanted}OL= she looks worst, operation #3, pain and suffering {what she got}CA= she has to pay the doctor Reliance- put her in the same position that she was b/f she entered the K


17Nose had- nose has)+ (the pain and suffering for all operations)+ the money she pay the doctorRestitution- she will get the doctor’s fee back breach of K b/c there was a guarantee- that you will get a better nose for a breach of K you usually get expectation damages, under this theory you only

recover for damages that are foreseeable form the breach expectation damages are used more often on commercial settings- though medicine is a

service the modern law considers it a commercial transaction the court did not have to chose from restitution and reliance, though they prefer reliance,

b/c the damages would have been the dame b/c of the waiver

B. DAMAGES FOR MENTAL DISTRESS

R2K § 352- emotional disturbance- you may get damages for mental distress if(1) the breached caused the bodily harm(2) the harm was especially foreseeable from the breach of the K

Allan v Jones when a K is of the kind that puts the on notice that a failure on their part will probably

produce mental suffering mental damages are allowed- foreseeable result of the breached there is no need to show physical consequences of the mental distress usually you don’t get damages for mental anguish or pain and suffering for a breach of K

b/c there is usually none, but you can get them when they are the direct result of the breach- like in the nose case

C. PUNITIVE DAMAGES

R2K § 355- punitive damages- not recoverable for the breach of K unless the conduct constituting the breach is also a tort for which punitive damages are recoverable

Cases Punitive damages To punish and deter If you can prove that the other party engaged in intentional wrongful acts- independent

tortuous act- fraud rolling back the odometer, not building good to save money…etc. punitive damages must bear a “reasonable relation to the amount of actual damages” –

the court will examine how malicious was the conduct, look to deter so that it is not profitable to do it again, and they look to punish so it will hurt particular (actual damages=$350, punitive=$12,500 the court said this was reasonable)

Duty of good faith- when a party refuses to pay or negotiate in bad faith you can get punitive, but applies more when insurance Co. refuses to pay or when the K involves fiduciary duties

D. SALE OF GOODS- UCC

A. BUYER’S REMEDIES

NOTES If the seller repudiates then we determine damages for the market price a

reasonable time after the repudiation Majority - 2-713- a commercially reasonable time after the repudiation for the buyer

to cover. If has not made cover after the reasonable time after the repudiation then your damages will be set. Most buyers will cover though

Perfect Tender Rule - remember that the perfect tender rule allows for some imperfections if they are accepted w/in the trait

Usually is better to accept the good if you need them and sue under 714


18(1) Hancock- money judgmentsthere is no such thing as anticipatory breaches- we can not

enforce judgments for future payments, we can only pay you for what the insurance co. owed you till before the trial, we can not pay you for the future money that the owes you, future installments should be paid as they fall due

this case is different than de la tour, because the had fully performed, so this holding only applies if has fully performed and there are in installments money payments that are due in the future

TX- here you will get all your future payments at once, when jurisdiction have this rule then the money judgment will reduce the total payment to present value and in a tort cause of action you may have to raise the value for inflation- so in those cases sometimes the courts just forget about adjustments, or they will just reduce the discount value

Lending money - if the loner does not want to let you borrow the money then you can go get another long and then the loner will pay damages for the difference b/en the interest rates, if no one else will lend you money then, if damages were foreseeable then you will get actual damages

American Mechanical- Real Estate Buyer breaches -the seller is entitled to the difference b/en the K price and the value

for which he sold. A fair result could also be obtained by applying expectation damages

Seller breaches the buyer is entitled to the difference b/en market value and K price In Ks the burden of proving that loses could have been avoided is on the breaching

party Leases -

1. Common Law-even thought lessee vacates and no pay rent you are still responsible to pay the rent for the K period and there is no duty to mitigate

2. Modern Law- now in most jurisdictions there is a duty to mitigate

CONSTRUCTION Ks

If the OWNER breaches Forster Unless the K is divisible or the contractor has substantially performed an action for

the agreed price for he job will not lie but Construction Ks are hardly ever divisible If the owner refuses to pay then the contractor is entitled to either 1 or 2

(1) K price + Other lost incurred— Cost avoided for not having to build

(2) The total cost the builder incurred in building the house+ The profits that he was going to make (could be negative, if a loosing K)— Whatever payments he has already received

If the CONTACTOR breaches Rivers and American Contractor materially breached the owner will get:

1. difference in value2. cost to replicate or replace- Safety, esthetic defects always get cost of

replace Contractor non-material breachedIf the constructor has substantially perform in

good faith and has not intentionally breached the K and only trivial defects exist— using the wrong pipe—then the owners damages may be measure by

(1) the difference b/en the value of the property as constructed minus the value if performance had been properly completed


19(2) the constructor will still recover b/c he has substantially perform he has

conferred a benefit

EMPLOYMENT Ks A person who is wrongfully discharged will recover the amount of salary agreed, for

the K period agreed upon, minus the amount the employer can affirmatively prove that the employee has earned or with reasonable efforts would have earned from other employment

The employee has to make a reasonable effort to mitigate the damages then, but he only needs to take those jobs that are comparable or substantially similar to the one she was deprived- she does not have to take another job, but if could of taken the jobthen they will not get damages for something to which they could have mitigated for

You don’t have to relocate There is no deduction from collateral sources such as unemployment benefits,

moonlighting, welfare, employee is usually not allow to recover punitive damages

VIII. CONSEQUENTIAL DAMAGESIn order to receive consequential damages a party must prove all three:

(1) Foreseeability - did the breacher have reason to know these damages would be caused by his breach at the time he contracted? PP- parties should be able to bargain fairly if more risk are foreseeable then they should charge more or get out of the bargain if they knew the possibility of a certain damageRestatement § 351 foreseeabitily

(1) damages are not recoverable for damages that the party in breached did not have reasons to foresee as a result f the breached when the K was made

(2) a loss may be foreseeable if it 1) follows from the natural source of events 20 as a result of special circumstances to which the party in breach had reasons to know

(3) a court may limit foreseeable loss by excluding for loss of profits if justice so requires in order to avoid disproportionate compensation

Spang Industries A party is liable for all direct damages, which both parties to the K would have

contemplated as flowing from the breach if at the time they entered in to the k they had bestowed proper attention upon the subject and have been fully informed of the facts. The damages must not follow just be likely to follow

(2) Avoidability - did the injured party reasonably mitigate his damages by cover or other methods available? If they make a reasonable attempt to mitigate and they fail they will still recover the cost incurred

(3) Certainty - is it certain that the breach caused the damages?A. There are two types

(1) Certainty as to the fact of loss - are we certain that the loss incurred was due to the breach? Must prove this with reasonable certainty. –Must show but for causation

(2) Certainty as to amount of loss- courts allow a little more leeway here. The certainty as to fact of loss has been proven, but now how much loss is there? Problems sometimes arise when trying to prove this; (new businesses have no track record)

B. Ne w Business Rule- new businesses cannot prove they would have had future profits b/c they have no proof; thus they can not recover for future loses. But, franchise restaurants may be an exception or the court some times lets experts testify


20C. Can also claim a loss of good will; (meaning lost of clients so lost of future profits)

but must still show foreseeability, certainty, and that it was not avoidable.D. Common law , attorneys fees were not awarded for breach of contract, so you must

place a clause in your contract that awards these for a breach. However, some states, like Texas have statutes that give a claim for attorneys fees in a contract case.

E. Primary Profit- you can get both as long as you can prove all three things. Texaco and stopping go, bad gas then no sales of the stopping go.

(4) UCC 2-715 BUYERS incidental and consequential damages-RULE: sellers do not get consequential damagesConsequential damages include any loss resulting from(1) general or particular requirements and needs of which the seller at the time of

contracting had reason to know- foreseeable- and which could not reasonably be prevented by cover or otherwise. –Avoidability AND

(2) Injury to person or property proximately resulting from any breach of warranty- certainty- (Proximately resulting is easier to prove than certainty, so it is easier to recover for these types of damages in a breach of contract)

Hydraform wanted to recover damages b/c seller deliver late and because of this his business

lost profits and then he had to sell for less the court held that the lost of profits were foreseeable but only to the extend of the

number he order and also b/c of uncertain to know how much he had lost that should not recover for diminish value of the sale of the profit because this was

not foreseeable, nor certain the court said that getting future profits was not allow because this will be double

recovery, and that had not provided certain evidence of how much he had lost

Problem: What if a injured party could have covered, but they do notFacts: Contract price of goods to be delivered = 100

Buyer has deal to resell the goods for 125 to another person, Seller breaches and not delivered, buyer could cover for 110, but buyer decides not to cover but sues seller for damages, what result?

Answer: if the buyer does not cover, and he could have, then he will only recover the difference from the contract price and the market price (110-100). If he would have covered for 110 and then sold the goods to the new buyer for 125, he would have recovered the difference $10 from the original seller for having to cover, and then made the 15 off the new buyer. So, he would have came out the same as he contracted for.

IX. DECEPTIVE TRADE PRACTICES CONSUMER PROTECTION ACT

A. Background info. This has change over the years now a little less protection now than before This provision is to be liberally construe to support the policies

B. Waiving the DTPA This is a consumer protection act that cannot be waived b/c it is against public policy Certain ways you can waive your DTPA rights:

(a) legal counsel present AND(b) writing AND (c) You must also not be in a bad bargaining position.(d) Waiver can not be conspicuous

C. Definitions § 17.45(1) Goods: tangible chattels, and real property or service purchased or leased for

use.—the statute allowed goods bought for resale to be cover


21(2) Services: work, labor, or service purchased or leased for use.(3) Person: individual, partnership, corporation, association, or other group

however organized with assets under $25 M.(a) A person who hires an attorney is a consumer(b) Patients are not consumers with respect to doctors and health care

providers, unless unconscionable activity such as false or misleading advertising

(c) Pharmacists are not exempt from DTPA(4) Consumer: a person who seeks or acquires goods or services (includes any

agency of the state, corporation or any large business limited if the business consumer has any assets greater than $25 million.

(5) Unconscionable action: means an act or practice which to a person's detriment:(a) Takes advantage of lack of knowledge, ability, experience, or capacity of a

person to a grossly unfair degree, or(b) Results in a gross disparity b/w the value received and consideration paid, in a

transaction involving the transfer of consideration.

D. What gives you a C.O.A. under the DTPA? § 17.50 Relief for consumers: Must show actual damages under the DTPA to filed a cause of action, can also recover

for mental anguish

(1) fit into the laundry list § 17.46: misrepresentation is "producing cause" (odometer change, advertising going out of business sale when actually not, pyramid schemes, price increase during disaster period)

(2) Breach of Warranty- we look outside the DTPA to see if there is a warranty, if a warranty has been disclaimed then there has been no warranty

(3) Any unconscionable act § 17.45 – grossly unfair… representing that the agreement confers rights which it does not

(4) Violation of Texas insurance code(5) False, misleading information known at the time to be false that mislead the

consumer. Misrepresenting quality, grade, model…etc. Representing that the goods have qualities that they do not have ( if misrepresents something then there is DTPA claim)

E. Different Causation Standard Producing Cause : to bring a suit under the DTPA you only need to show that the

damages were the proceeding cause of the misrepresentation. This is an easier causation standard to meet than foreseeable and proximate cause (foreseeability --- proximate cause --- producing cause)

HARDER-------------------------------- EASIER

F. Damages under the DTPA § 17.506

Before if the consumer want he was immediately entitle treble damages and attorney fees, but now only the first $1000 are triple unless you have a knowing or intentional violation(1) Innocent Act: Meaning that the seller innocently violated the deceptive act. Then

consumer may recover economic damages only Can never get mental anguish damages for innocent act Can never treble (triple) these damages

(2) Knowing Act (aware of falsity): the consumer can recover UP to trebled economic damages and mental anguish damages. (Only the economic damages are trebled)


22(3) Intentional Act: seller had specific intent that the consumer relied on misrepresentation.

Can recover trebled damages for both the economic damages and the mental anguish damages. So, the whole amount is trebled in this case.

EXAMPLES: economic damages = 10,000 & mental anguish = 20,000(1) Innocent act: 10,000 max.(2) Knowing act: 50,000 max. (Treble damages are discretionary)(3) Intentional act: 90,000 max.(treble damages are discretionary)

G. Attorney's Fees But, if consumer wins, consumer also gets attorney's fees, and court costs but if consumer

loses he does not get attorney's fees but he does not have to pay the sellers attorney fees unless he brought claim in bad faith

Contingency fees- awarding 1/3 of the fee is not fair, b/c statute only requires a reasonable attorney fee, so that is all the loser has to pay

H. Notice- consumer must give 60 days notice to the seller and state the amount sought, by including all attorney fees expended to date. This is to give seller an opportunity to settle. If seller offers to settle for the amount consumer wants, the consumer must accept.

I. Settlement Offers- If seller makes a settlement offer and the case still goes to trial and damages are not found to be much more than the offer, then consumer will recover either the amount of the settlement or the amount decided by the jury.

J. Exemptions- the DTPA does not apply to the following cases(1) Written Contract claim for more than $100,000 where the person had an

attorney and the contract was not residential.(2) No claim for more than $500,000 - unless it is your residence(3) If settlement offer is the amount that you say you are damaged, must accept(4) If the settlement amount was fair and you did not take it then you will not

recover attorney fees

Gormely v Stover Rule : You cannot bring a negligence claim for personal injury damages or death against a

health care provider under the DTPA unless the alleged DTPA claim is not based on the physician breaching the required standard of care of the medical profession— then it is the underlying nature of the action that determines whether the patient ca sue under the DTPA

This rule is only limited to negligence, this still leaves warranty In general the DTPA does not apply to te rendering of professional services the essence of

which is the providing of advice, judgment, opinion or so, unless there is a misrepresentation or failure to disclose, Unconscionability, breach of express warranty…etc.

Lawyers can be sued under the DTPA only for failure to disclose information or an express misrepresentation or express warranties. (must be a misrepresentation, not just something that requires judgment by the attorney)PREVENTION, COOPERATION AND THE DUTY OF GOOD FAITH

A. Prevention & Cooperation: all courts read all contracts as containing an implied condition that the parties will act in good faith and will not hinder or prevent the other party from performing. There must be a K in order for there to be a duty of good faith

B. Wrongfulness: the prevention or hindrance must be wrongful; however, this does not require a showing of bad faith or malice; just a showing that the other party would not have reasonably anticipated such conduct, whatever its motivation.

C. Must act in good faith when rejecting goods and satisfying conditions


23Nuemiller Farms was rejecting potatoes in bad faith b/c he found them at a better price from another dealer. The court requires expressions of dissatisfaction to be made in good faith Courts use an objective test to decide whether a reasonable person would have been

satisfied with the goods. They do this because there are set standard, and there is ma more utilitarian approach. The clarity of the parties as to subjectivity will also come in to show intent, when the parties explicitly make it a subjective test if both parties agree to it

Billman v Hensel Must also make a good faith effort to secure a loan when this is a condition precedent to a

party's performance. This applies to all conditions proceedings the party must make a reasonable and good faith effort to satisfy the condition

D. Some instances require subjective test: matters of personal taste or fancy. self portraits are an example; the other party must know it is a subjective decision based on personal taste. Although these contracts look like illusory the parties both have an obligation under the

K, he must at least look at the portrait and in good faith say he doesn't like it.

E. UCC: under the UCC, it is an objective test using "reasonable commercial standards" (UCC 2-103)- good faith of a merchant is honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade

F. Employment at will: in at will employment contracts a person could get fired for no reason at all, but the legislature has limited at will discharges by protecting employers form discrimination firings. Many states say that the resumption of at will contracts can be altered by stmt in employee handbooks or manuals, or by other K theories such as promissory estoppel, or implied covenant of good faith or policies established by the employerSeubert Although he did not meet the quotas it was the employee who prevented him from

performing thus his non-performance is excused He still could have a cause an action not for the termination but for the performance b/c

seller misrepresented that the items were good

G. Satisfying 3rd parties This happens often in construction k- engineers or architects The purpose of having a 3rd party decide is to get their subjective view on the decision.

So it is a subjective test; but, if there is evidence of bad faith, then we will bring in others, to see if it meets an objective standard.

H. Implicit agreement not to interfere with other party There is a duty to perform in good faith, that also means that one will exercise best efforts

to sell or try to perform- service stations across the street In all contracts there is an implicit agreement by each party to not interfere with the other

party's ability to perform the contract. A party can not intentionally and purposefully do any thing to prevent the other party

from performing, and he then may not recover damages for the breach This case was different b/c he did not know that when he bought from other party he was

diminishing the supply of the market that is why he could still recover, so they were not acting in good faith

I. Conduct that makes the other party's performance more difficult one parties makes performance more difficult by making other purchases that decreased

the supplied of those goods available A party's action that only makes the other party's performance more difficult will not

release the party that must perform from doing so, when the party causing the difficulty


24does so in good faith and does not intend to interfere then no release. If in bad faith, then this would amount to a breach due to interference

X. EQUITABLE REMEDIES

A. WHEN CAN A PARTY GET SP?(1) when the legal damages for the breach are inadequate This is discretionary by the trial judge, there is no jury, Burden to prove that deserve equitable damages is on the

B. WHEN ARE DAMAGES INADEQUATE?(1) when damages are unascertainable- tough to calculate w/ certainty(2) When the subject of the contract is unique

real property- there is a presumption real property is unique, this is for buyers mostly, the seller has a hard time proving but the law is nice and it allows either party to get SP, this is the mutuality argument, though in most jurisdictions this requirement has been defeated

Examples-Hope diamond, Marilyn Monroe dress, personalized property such as art, jewelry, antiques

C. INJUNCTIVE RELIEF

(1) Advantages: Outcome will protect the parties reliance interests b/c they will receive the benefit of the bargain.

(2) Disadvantages: Supervision by the court - must make sure they do it

(3) Factors used in determining if specific performance should be granted(3) THRESHOLD Adequate: SP can only be obtained if the another remedy

cannot be obtained except at considerable expense, trouble or loss, which cannot be estimated in advance. Damages must be estimated with certainty and if the court cannot do that then they will grant SP. The R2K- says that adequacy is relative and that the modern approach is to compare remedies and decide which is more effective in serving the ends of justice.

(4) Mutuality: there is no requirement in the law that the parties be mutually entitled to the remedies of specific performance in order that one of them be given that remedy by the court, but there must be mutuality of performance, meaning that if the court ask on party to perform the other must also must be willing to perform too

(5) Supervision: the court may refuse to grant SP if that would require constant court supervision, but this is a discretionary rule that is frequently ignored specially when there a re public interest involved

(6) Certainty: the terms of the K must be so express that the court must determine with reasonable certainty what is the duty of each party and the condition under which performance is due.

(4) UCC—GoodsBuyer— 2-716—goods are unique or other circumstances: if the goods are necessary for buyer's business and cannot be obtained elsewhere or something like that. Output contracts are usually given SP when the K requires a particular available

sourceSeller— may get specific performance also if dealing with real estate b/c of the concept of mutuality; if we allow buyers to have this remedy, then we must also allow the seller to have this remedy.

Northern Indiana v Coal Mine


25 The mine wants the to keep buying from them, the court refused, damages

were adequate 3 rd party beneficiaries -are not allowed to claim SP b/c they are not parties of

the K, but this may be a factor that can be weight, the impact on others, on deciding whether or not to grant SP

We do not grant SP if the result is not right, unjust enrichment…or over recovering

Walgreens wants injunction to force no to lease to another pharmacy the court granted SP b/c damages hard to estimate, and no much court

supervision needed from the court to enforce the court also reviews the economic advantages and disadvantages in

deciding on whether to grant the SP the court also grants SP b/c this will force the parties to negotiate and settle

for a deal that would be beneficial to both parties, court will do this sometimes if negotiation is feasible, ideal, and not too expensive

(5) Temporary Injunctions: only granted if(1) irreparable harm AND(2) there must be a likelihood of success on the merits OR there are questions on the

merits and the balance of harm is in favor of the

(6) DEFENSES to Specific Performance(SP): Hard ship: SP will be refuse is the relief is too burdensome and unfair b/c the

exchange is grossly inadequate. This can be on the or on 3rd parties Clean hands: if a party seeks equitable relief then they must come in with clean

hands (act in good faith). They look at the appropriateness of the consideration…etc. Laches: If there was a delay in making the claim and whether such a delay caused

prejudice to the other party, then the court will evaluate whether b/c of the delay the has waived his right to specific performance

Damages are not collectable- if it is going to be very hard for the to collect damages

(7) Personal Services and Employment contracts:

Personal Services/ Employment K-the court NEVER grants specific performance when there is a personal service involved for 3 main reasons:

(1) It is undesirable to compel continuation of a personal relationship after a dispute- lose trust

(2) it amounts to involuntary servitude(3) It is hard to supervise the performance of the contract. (hard to enforce the

quality of their performance) SP is almost never granted for construction Ks

RULE-an injunction may be granted if Terms of the K have not expire the court can enjoin the performer from

performing elsewhere during the time of the contract 1) he was an employee providing unique services, 2) breaching party has some other reasonable means to make a living 3) the employer is exposed to irreparable injury— this boils down to economic pressure

Terms of the K have expired If the employment contract has terminated equitable relief is potentially available only to prevent injury from unfair competition or similar tortious behavior or to enforce an express and valid anticompetitive covenant

C. COVENANT NO TO COMPETEOccurs mostly on the sale of business, employment Ks


26(1) Courts will enforce these and grant injunction as long as they are not unreasonable in

terms of time and geographic location, or subject matter (2) If you get injunction you don’t get the injunction and vice versa unless there was

some competition b/f trial

XI. LIQUIDATED DAMAGES AND LIMITATION OF REMEDIES

A. Liquidated damages- clauses that specified the amount to be paid in case of a breach The party invoking the clause has the burden of proof that: (the test is one or two but

some jurisdictions examine 2 and 3)(1) The clause must be a reasonable forecast of the actual damages the reasonable

forecast is measured at the time the contract was made. The amount of liquidated damages must bear a reasonable proportion to the probable loss

(2) The damages have to be difficult to determine- the amount of actual could not or was very difficult to be determine by the parties at the time of the K was made.

(3) Intent- only some jurisdictions will focus on the intent of the parties(4) Clause was not intended as a penalty for breach- amount in the clause can not be

grossly disproportionate to the probable loss

B. Under the UCC: liquidated damages are allowed under the same conditions of the CL, but any limitation of damages when personal injury is involved is prima facie unconscionable. The UCC also allows you to limit the damages recoverable to return the goods or to replace or repair…etc. UCC looks also at either the reasonable forecast OR the actual lost.

NOTES No Damages- CLClaiming that there was no harm done by the breach will not excuse a

party from liquidated damages If the liquidation damages provided for too little, meaning way lower than the actual losses

were, then we look at whether the liquidation clause was unconscionable- unequal bargaining power

Rest. 2nd § 356: follows the CL BUT it takes the view that if the actual damages are zero the liquidation clause is not valid, they do this b/c there is no harm, some jurisdictions follow this but on deciding look at the control of the parties had. The R2K will look at either the forecast OR the actual lost

Alternative Performance: He can perform in two different ways, by choosing to performed what he promised or by paying the money agreed for not performing, this is not really a liquidation clause

Liquidated Damages as a limitation/cap on damages: (2-719)liquidated damages may serve as a cap to liability if the parties agreed to it and they are not unconscionable.

XII. ASSIGNMENT AND DELEGATION

A. ASSIGMENT OF RIGHTS

(1) Definitions and Rules a manifestation of a parties intention to transfer a right by virtue of which that parties right to

performance by the obligator is extinguished in whole and another party acquires a right to such performance

when ever there is an assignment all duties and rights are given up completely Govt. contracts can NEVER be assigned If a debtor wants a discharge from his debt he must get the discharge from the assignee, Original parties can not modify the K


27 DEFENSES- both the obligor and the assignee can bring any defense that was available to the

original parties under the K The assignee is said to “stand on the shoes of the assignor” so that is the assignor has no

rights (to the money) neither does the assignee WARRANTIES OF ASSIGMENTS- when an assignor assigns a right the is only warranting

that he has a right not that it is collectable, you are also warranty that you don’t do anything to interfere

RULE: As a matter of law, rights can be assigned, there is a presumption for assignability and there are two limitations that will make an assignment invalid:

(1) the assignment cannot change the K in any wayduties or rights or increase the risks or burdens on the other party

(2) the assignment cannot violate a statute or public policy- in some jurisdictions assignment of wages to pay debts is against PP

(3) if the K prohibits assignment— when a K contains clear and plain language limiting the freedom of alienation of rights and parties agree no to assign such stmts are valid a the parties can not assign their rights under the K- Allhusen

Fitzroy v Cave Took over the 's debt for some creditors in Ireland. The Ireland creditors assigned the right to

collect the debt. So, became the assignee. Argues this is maintenance, which is the buying and selling of legal actions, this is against PP

(professional litigators that take on other peoples suits) AND that ’s motive of was to drive into bankruptcy. This was not really a COA but a debt, the motive of the are irrelevant b/c it has nothing to do with whether the assignment is valid or not

Notice The rights vest at the time the notice is given A debtor is not affected by an assignment until he has CLEAR notice. If he pays to the assignor in ignorance of the assignment he is relieved form liability and he

may set up against the assignee any defense acquired prior to notice which he would have available against the assignor had there been no assignment.

After notice he is liable for paying to the assignor what is due to the assignee. The UCC also requires a notice. A party can set off- discount – money due to him when the other party owes him money but if

the second party assigns his rights then if the first party was given notice before the money was due then he can not set off that the 2nd party owes him

(2) Gratuitous AssignmentsThese can be made as long as the assignment is in writing or is accompanied by delivery of a something that is customarily accepted as a symbol or as evidence of the right assigned. (Any instrument that shows the assignee has the right to collect). But the person can always take the assignment back if not in writing

(3) Assignment of Future Rights(1) Can only be assigned if you have a job or a K and have not earned the money yet but

have a right to it. If you have no job or not contract you have nothing to assign(2) But, you could contract with the bank to give you money and then the first job you get

you will pay them back. This is different b/c you are NOT making an assignment, rather you are making a contract. You don’t have any thing, you don’t have any thing to assign. Assignment gives ownership, and it is a better right, contract does not.

UCC- allows you to assign although there is no K of any type as long as you have people who owes you money like accounts receivable, inventories... etc.

(4) UCC- §2-210- DELEGATION of Performance and ASSIGNMENTS of Rights


28 A party may perform his duty through a delegate unless otherwise agreed or unless the

other party has a substantial interest in having his original promisor perform or control the acts required by the contract. **NO delegation of performance relieves the delegator of any duty to perform or any liability for breach.

The UCC also requires that the K not be alter in a way that may change the duties of the parties or create burdens.

If an assignment that delegates performance creates reasonable grounds for insecurity, the obligee can request assurance under §2-609

*** UCC is different from CL in that you can NOT prohibit assignments of a right to future payments of money $

under UCC assignment really means that duties can not be delegated rather than rights can not be assigned

UCC 9-318: same as 2-210 it says that an "accounts general" is always assignable even if stated otherwise. This means payments under Ks. Also allows good faith modification of contracts once assignments have been made as long as they keep the corresponding rights of the assignees. You also have a right to ask for verification by documentation when notified about an assignment.

B. DELEGATION OF DUTIES

(1) R2K §318 - follows the UCC delegation language, delegation permissible unless substantial interest in having original person perform, and it does not release the assignor of any duties unless agreed by the parties that it will.

Personal services— A party can NEVER delegate a personal service contract Question: If a contract is assigned does this mean that both the rights under the contract

are assigned, and the duties under the contract are delegated? Yes; presumption that when a contract is assigned, both the rights and duties are transferred

Sally Beauty Case Rule: in general there is a presumption that duties can be delegated UNLESS there is a

reason why the non-assigning party would find performance by another substantially different from what he bargained for.

There was a conflict of interest b/c the delegatee is the competitor of the obligee. The obligor was under a contract to used their best efforts, and not the best efforts of some third party)

XIII. THIRD PARTY BENEFICIERIES

A. Two types of TPB: there are only two types of TPB the K must be made primarily for the 3rd persons benefit, otherwise she is only an incidental beneficiary and cannot enforce the K

(3) Donee- this is a gratuitous gift out of love and affection; as long as there is consideration in the original contract, then it is enforceable.

(4) Creditor- the person owes the TPB a debt

B. Elements of TPB rule:(1) The original k that the parties entered into has a valid consideration(2) In that K parties expressly or impliedly agree (intent)(3) At the time the K is made that(4) Performance will be rendered to a 3rd person


29(5) 3rd person has a right to enforce the commitment (6) The TPB is not a party to the original contract

C. When do the rights of the TPB vest? R2K § 311—Once the TPB rights have vested she can sue the promisor on the K and collect damages for any breach(1) When he consents to be a TPB OR(2) When TPB relies on the right - use an objective standard from the perspective of the

beneficiary; would the TPB reliance on the promise be reasonable and probable OR(3) When TPB brings suit to enforce the right OR(4) The parties agree that the right will vest immediately. The two original parties have a right to modify the TPB's rights up until the time that

these rights vest. After this, the TPB is not effected. The only way to avoid this from happening is to stipulate in the terms of the contract that

they have the right to modify the rights of the TPB even after the right has vested.

D. Determining the parties' intent: B/c the promisee (he is the one with the idea to benefit the 3rd party) is giving a benefit to the TPB that would not otherwise be due to him, the promisee's desire to confer the benefit must be apparent from the language of the K or its circumstances. Intent of promisee alone is not enough, the promisee must have communicated his intent to the promisor sufficiently for the promisor to have reasonably understood that she was assenting.

If you bargain for the performance to go directly to the 3rd party then the intent is very clearDutten v Pool Case

Son promise father that if he did not sell the land he will pay the daughter a 1000 pounds, the K is to benefit the daughter, she sues to enforce

He says I don’t have a K with you, so you can sue, the court said not to rule in her favor will be unjust, they did not looked at privity but the natural law and affection and that was enough to give her a cause of action

Johnson v Holmes Lincoln MercuryRule: The TPB does not have to be specifically named, if they can show that they are in the class of persons meant to be benefited by the contract. The agreed to insure owner of the car, was a guy who got injured by owner, the

insurance is supposed to cover injuries to 3rd parties so, was TPB The test is whether the terms of the K reflect an intent to benefit a 3rd person

Hale v Groce: under K law a TPB may sued an attorney for negligently drafting a will that was supposed to include him. was an intended TPB so he was allowed to sue for damages In most attorney-client cases a TPB cannot sue for malpractice (tort claim) b/c it would

create divided loyalties b/en the client and the third party but some courts make an exception when the malpractice claim was caused by a negligent grafting of a will.

Texas — TPB can not sue a lawyer for bad wills

E. Contractor and Sub-Contractor Ks: the owner of the building and the sub-contractor generally cannot sue one another b/c owners are not considered TPB. Also, if there are multiple Contractors hired by an owner, they cannot usually sue one another. But if the K expressly states than one contractor will be liable to the other if they do not perform correctly then there is a cause of action

F. Restatement 2nd § 310: the beneficiary surrenders no rights against the promisee by seeking enforcement of the benefit against the promisor.

G. Defenses—R2K 309 the promisor has any defenses against the TPB's enforcement that he would have against the promisee in the original contract. I.e. no consideration, frustration, impracticability or any other legal excuses, if so then TPB cannot enforce. But the parties can contractually agree that any defenses from the prior agreement will not excuse performance


30

H. Novation- Only way the delegator can be relieved is through a novation. This is when 2 people get together and form a new contract the new person is now liable for performance and breach.

1. When there is a novation there is always a TPB the TPB has a cause of action against both the original party and the new one unless the promisee was just assigning a gift

J. Citizen's claim as intended beneficiaries in Govt. contract (1) Generally: citizens are considered merely incidental beneficiaries of govt. contracts and

therefore cannot sue to enforce their rights.(1) Exception: citizens have the right of enforcement if right is clearly conferred by the

contract or authorizing statute, or the govt. has a specific legal obligation to provide performance to the citizen

(2) Restatement 2nd §313, when in doubt there is a presumption that govt. contracts do not make citizens intended beneficiaries.

Zigas The private party has no duty to the citizens unless a specific intention is manifested in

the K as interpreted in light of all circumstances surrounding formation that the promissor should compensate members of the public for any breach

The court held that in this case the K was intended to directly benefit the tenants and that they were the only ones that suffered a lost, therefor they should be paid back

I. Warranties and TPB:UCC 2-318: TPB of warranties; Express or ImpliedThis is a problem b/c under warranty there is suppose to be a privity b/en the parties in order to recover. But when can TPB recover?, there are three alternatives Alternative A : any natural person in family household or guest that could reasonably be

expected to use and then suffers personal injury . this section can not be change by the parties

Alternative B : any natural person that reasonably expected to use and then suffers personal injury- users or consumers

Alternative C : any person (corporations included) reasonably expected to use and then suffers personal or property injury. (most courts say economic damages alone will not suffice).- can change the property damages by K agreement, this alternative leads the most people in

Texas Rule : Texas has not adopted any of these 3, rather the legislature has said they will leave this decision up to the legislature to decide.

Garcia - Texas- TPB- an employee can be a TPB b/c warranties are suppose to cover employees so there is an implied intent to benefit and cover them.Economic lost- a warranty that says the good is cover extends to all the future purchasers


31

CONTRACTS II OUTLINEPOWERS / FALL 2000

I. PAROL EVIDENCE RULE

Where an agreement has been reduced to a writing which the parties intended to be a final and complete representation of their agreement, evidence of any earlier oral or written expression or contemporaneous oral expressions is not admissible to vary the terms of the writing.

Only works to exclude prior oral agreements and not oral agreements that were made after the written agreement was drafted.

A. Look at these two things initially to determine if parol evidence rule applies to the situation:

(1) Is there a writing?(2) Is the writing a final writing or contract? (partial or full integration)

B. If the above two answers are "yes", then look to these elements to determine the likelihood of the evidence being admitted:

(1) the agreement must be collateral in form; this means that it must not be so separate from the writing that it could stand on its own as an oral contract. (must be related to the writing) USUALLY NOT AN ISSUE!

(2) the oral evidence or agreement must not contradict express or implied provisions of the written agreement; if it contradicts = evidence is not admitted.

INCONSISTENT TERMS = A CONTRADICITON (OUT)CONSISTENT TERMS = NO CONTRADICITON


32(3) is the contract complete? This means that if the evidence is so closely connected to

the writing that a reasonable person would not have left it out, then it is not complete.

If it is complete = no oral evidence is admittedIf not complete = the oral evidence will be heard

C. Determining whether it is a final and complete expression

To determine this the court will have to decide if the contract is partially or fully integrated.

HOW TO DETERMINE IF INTEGRATED WRITING?

(1) MAJORITY APPROACH (WILLISTON TRADITIONAL TEST): A writing will be treated as fully integrated if taken as a whole and on its face it

appears to be complete. The court will ask what would reasonably situated parties naturally do. Is it natural to leave out the disputed term. (objective approach)

(2) RESTATEMENT 2D /CORBIN APPROACH : (Modern Approach) A writing is deemed to be an integration if the parties actually intended it to be fully

integrated. The court will consider any relevant evidence to determine whether the parties actually intended the writing as a final an complete expression of their agreement. (subjective approach)

Looks at any and all relevant evidence to determine the intentions of the parties, and then will decide if the evidence should be heard. Also looks at what kind of writing it was. A long detailed writing is more likely to have included all the parties intended to agree on.

(3) UCC APPROACH (2-202 ): parol evidence is admitted unless the matter covered in the alleged parol agreement would have certainly been put in the written agreement (objective test) POWERS SAYS, "IF ANYONE IN THEIR RIGHT MIND WOULD HAVE MADE THIS DEAL IT WOULD HAVE BEEN IN WRITING" THEN THE EVIDENCE IS OUT.

UCC 2-202: FINAL WRITTEN EXPRESSION: PAROL/EXTRINSIC EVIDENCE Terms with respect to which the confirmatory memoranda of the parties agree or

which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

(a) by a course of dealing, course of performance, or usage of trade, and (b) by evidence of consistent additional terms unless the court finds that the

writing was to be intended as a complete and exclusive statement of the terms of the agreement

D. Partially Integrated vs. Fully Integrated

If a K is fully integrated no additional terms may supplement the document. If a K is partially integrated, then additional terms can supplement the K but they cannot contradict the written agreement (REST. 2d 215) A partially integrated K can still be final and integrated on the terms it contains, it is just that it may not be complete with regard to the terms not yet admitted. (Masterson v Sine: the trustee wanted to exercise the option to re-purchase the land of the , and offered evidence that they had a prior oral agreement to keep the land in the family and the exercising of the option by the trustee would be a breach. Evidence was admitted to show this)


33

RESTATEMENT 2 ND 216: CONSISTENT ADDITIONAL TERMS (1) Evidence of a consistent additional term is to supplement an integrated agreement unless the

court finds that the agreement was completely integrated.(2) An agreement is not completely integrated if the writing omits a consistent additional agreed

term which is (a) agreed to for separate consideration, or(b) such a term that as in the circumstances might naturally be omitted from the writing.

E. MERGER CLAUSES: many contracts contain a clause indicating that the agreement is complete and final.(1) the merger clause is generally sufficient to prove the parties both intended the writing to

be complete by itself.(2) However, warranties can not be excluded just by claiming that the document is fully

integrated. They must be expressly waived in the document, and if there is injury a waiver is prima facie unconscionable.

PUT THIS SOMEWHERE ELSE WHEN WE GET TO IT!!!!!!!!!!!!!!!!!!F. Procedure of the Parol Evidence: the judge will first hear all the evidence and determine as

a matter of law if the evidence is admissible to the fact finder. If the judge determines the document is fully integrated then the parol evidence is not allowed to be heard unless some exception exists.

RESTATEMENT 2 ND 217: INTEGRATED AGREEMENT SUBJECT TO ORAL REQUIREMENT CONDITION Where the parties to a written agreement agree orally that performance of the agreement is

subject to the occurrence of a stated condition, the agreement is not integrated with respect to the oral condition.

REMEMBER: IF YOU NEVER HAD A CONTRACT OR DID NOT INTEND TO CONTRACT THEN THE PAROL EVIDENCE RULE DOES NOT APPLY.

II. INTERPRETATION When addressing this topic, the court is asking, what do the terms in the writing mean?

A. PLAIN MEANING (traditional/majority view on interpretation): A party had to show the contract language was Patently or Latently ambiguous

before extrinsic evidence could be used to aid interpretation.

(a) Patent Ambiguity- the term is ambiguous on its face… no need to establish this by looking outside the contract

(b) Latent Ambiguity- the term appears to be unambiguous on its face, but when applied to the case it is ambiguous. The court must then look outside the contract to determine meaning of the term.

B. Reasonably Susceptible Approach (minority view) Pacific Gas Case two step process by the court when applying this method:

(1) the court will hear all the extrinsic evidence first(2) then the court will determine if the term is "reasonably susceptible to the

interpretation" that is being offered by the parties.


34

C. General Notes on interpretation: If extrinsic evidence is admitted is can not contradict,detract from or vary the terms

in the written contract Contracts are interpreted against the draftsman if there is a dispute in interpretation

and two reasonable interpretations are available.(RESTATEMENT 206)

D. What to look for when interpreting the meaning of a contract: (Hierarchy of importance is as they are listed)(to determine what the parties intended)

(1) EXPRESS TERMS: what the actual terms in the contract say and mean; the literal meaning of the contract and definitions of terms stated therein

(2) COURSE OF PERFORMANCE: this refers to what the parties have done so far in this actual contract; (ex. Accepting goods for a certain amount of time and then objecting to them for some reason; must be more than one course of performance to determine the meaning of the contract)

(a) waiver- if a term of the contract is violated and the non-breaching party does not object, then they may waive their right; but, it must be a non-material part of the contractual exchange.

(3) COURSE OF DEALINGS: this refers to the past dealings and contracts b/w the two parties involved. This can tell the court what the parties were likely to have meant or expected from the contract. The prior course of dealings must be similar to the contract in question.

(4) USAGE OF TRADE: if the market has a well accepted custom or practice that explains language or supplements an omission in an agreement, this customary usage is of value in ascertaining the parties' intent. (Frigaliment Importing Co. Chicken Case)

(a) used in 2 situations to show the meaning of a contract:(1) when both parties are in the trade(2) if only one party is in the trade, the other party must show that the party

not in the trade actually knew of the trade practice or standard for it to apply

(3) if the practice is something that is so generally known in the community so that it can be inferred that it is common knowledge.

RESTATEMENT 2 ND 201: WHOSE MEANING PREVAILS (1) where the parties have attached the same meaning to a promise or agreement or a term thereof,

it is interpreted in accordance with that meaning.(2) Where the parties have attached different meanings to a promise or agreement or a term thereof,

it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made:

(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

(b) that party had reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

(3) Except as stated in this section, neither party is bound by the meaning attached by the other even though the result may be failure of mutual assent.

GENERAL NOTES ON 201: If both parties meant the same thing when using the term, that is what it means


35 If one party knows both of the potential meanings attached to the term and the other party only knows

of one, then the meaning given to the term will be the term that they both knew (in other words, the meaning attached by the party only knowing one meaning)

The court may also objectively charge one of the parties with the knowledge of the meaning of the term used. This means the court will say that the party should have known the meaning of the term, and therefore, that meaning will be used.

So, if each party only knows of one meaning for the term, the court will decide if one of the parties should have known of the other meaning. If neither party actually knew or should have known of the other meaning then there is no contract. Plain meaning courts will apply all the rules of interpretation before going outside the contract

to determine what the meaning of a term is.

RESTATEMENT 2 ND 202: RULES IN AID OF INTERPRETATION (1) words and other conduct are interpreted in the light of all the circumstances, and if the principal

purpose of the parties is ascertainable it is given great weight.(2) A writing is interpreted as a whole, and all writings that are part of the same transaction are

interpreted together.(3) Unless a different intention is manifested,

(a) where language has a generally prevailing meaning, it is interpreted in accordance with that meaning

(b) technical terms and words of art are given their technical meaning when used in a transaction within their technical field.

(4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquisced in without objection is given great weight in the interpretation of the agreement.

(5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.

GENERAL NOTES ON 202: Words mean what they generally, commonly mean Specific terms rule over general terms Writings are interpreted as a whole Courts will interpret with public policy in mind Interpretation is usually against the drafter (rest. 206 above)

RESTATEMENT 2 ND 211: STANDARDIZED AGREEMENTS (1) Except as otherwise stated in subsection (3), where a party to an agreement signs or otherwise

manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.

(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing

(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

Gray v Zurich Insurance The insurance company tried to use an "exclusionary clause" to get out of providing a defense for the

b/c they said they did not defend intentional acts such as an assault. The court held that a reasonable person would have expected protection for an allegation of intentional acts, and that it was unconscionable for the insurance agency to stick in this clause.

III. CONDITIONS

RESTATMENT 2 ND 224: CONDITION DEFINED


36 A condition is an event, not certain to occur, which must occur, unless its non-occurrence is

excused, before performance before performance under a contract becomes due. EX: uncle/nephew and law school. Nephew must take acertain course & a certain grade to get the $ the unlce promised. If ....Then. (Express Condition)

(1) condition precedent - this means that one party must do something before performance of the contract is due by the other party. (condition must be met first, and then the performance becomes due by the other party) "most common"

(2) condition subsequent - this means that a conditioned event will terminate the duty to perform by the other party. An example of this was the Mutual Fire Insurance case where all claims had to be brought within 12 months of the damage. This time limit is a condition subsequent to the insurance contract with the person.

A. EXPRESS CONDITIONS

A condition is an express condition if the language of the contract, on its face and without reference to extrinsic evidence, articulates the intent to make performance contingent on that event. The court will generally apply the condition strictly, even if results of this are sometimes harsh (see below case)

Dove v Rose Acre Farms: In this case the law student was working during the summer and he wanted to participate in the bonus program. He had to work ten weeks everyday and could not miss any day for any reason. This is a perfect example of a condition that must be met by him before his boss must perform the act of giving him his bonus. He did not meet the condition, so there was not contract. He did not get the 5,000 b/c he missed 2 days.

B. IMPLIED CONDITIONS

Although the parties do not expressly put these into the contract, the court holds that they are of such importance that once found, they will be treated as express conditions with regards to enforcement.

(1) Condition implied in law (constructive condition)- this is a condition that the court will find was implied in the contract b/c it will reach a favorable and just outcome. It reaches an appropraiate decision by saying that the implied condition is one that reasonable parties would have intended in a contract of this type.

(2) Condition implied in fact- this is a condition that we know the parties really intended to be a part of the contract (look at the contextual evidence to determine if one exists or not). Such as the notice that we know the parties intended to be given in the Wal-noon Case. We know this b/c no one would have written the contract without the notice, b/c it would not have made sense.

Wal-Noon Case: If notice of the damaged roof was found to be an implied condition then the contract would not make sense. How could the landlord inspect the roof to make sure no negligence existed on part of tenant if he was not made aware of damage before the roof was repaired. Therefore, he is not held to pay for the roof b/c the tenant did not meet the condition of giving the landlord notice, which was a condition of the duty of landlord to pay for the repairs. (notice was implied in fact condition)

RESTATEMENT 2 ND 227: STANDARDS OF PREFERENCE WITH REGARD TO CONDITIONS

(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.

(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether


37(a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or(c) the event is made a condition of the obligor's duty, and a duty is imposed on the obligee

that the event can occur. The first interpretation is preferred if the event is within the obligee's control.

GENERAL NOTES ON 227: if the event is in the person's control then we can presume that it is a promise a condition not met = no contract at all a promise not met = other party can sue for breach, but usually does not relieve them from their duty to

perform if the other party performs their duty (they performed, just not when the agreement said they would)

EXAMPLE: a painter agrees to start painting your house on Monday. He does not start until Tuesday. This is in his control so it is likely a promise. He still has a contract to paint your house, but you can sue for the damages caused by his starting one day late, which are likely to be none.

SO, IF EVENT IS IN PERSON'S CONTROL = USUALLY A PROMISEBUT, IF EVENT IS NOT IN THEIR CONTROL = USUALLY A CONDITIONC. EXCUSES OF CONDITIONS

Reasons for Excusing Conditions:(1) an agreement by both parties modifying the contract to discharge the condition(2) conduct , by the party that is benefiting from the condition, that waives the condition

(Clark v West: he represented waiver of drinking condition)(3) changed circumstances that make compliance by the promisee with the condition

impracticable(4) condition can be discharged by the court (5) foreiture; see restatement § 84 & Aetna Casualty Insurance case

D. DOCTRINE OF WAIVER A. Waiver - a relinquishment of a known right by one of the parties.

(1) EXPRESS WAIVER

RESTATEMENT 2 ND § 84 (1): states that a waiver is enforceable if it is given in exchange for separate consideration; If is enforceable without consideration if:

(1) the waived condition was not a material part of the agreed exchange,&(2) uncertainty of the occurrence of the condition was not an element of the risk

assumed by the party who gave the waiver(3) because there is not consideration for waivers they can be receded until the other

party relies on the waiver to their detriment then, the party making the waiver will be estopped from recission of the waiver.

(4) No waiver clauses can be waived

Clark v West: in this case the publisher wanted the writer not to drink while he was writing the books; he would be paid more for not drinking; the publisher knew the was drinking while writing the books and told him he would still get the extra money. This created an "express waiver" of the condition.

Acceptance is not necessarily an automatic waiver though; if there had been no extra money for not drinking but rather it was just part of the contract, and then the publisher accepted the books knowing the had been drinking, this type of acceptance would create a waiver. But since publisher represented waiver, it did not matter in this case.

If a person waives a condition before the condition has been met (if he says you don't have to meet the drinking condition before ever takes a drink) and then tries to raise the condition argument later, estoppel will step in and estop him for raising this issue, since he waived it.


38

RESTATEMENT 2 ND 229: Doctrine of Disproportionate Forfeiture To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a "material part of the agreed exchange".

Aetna Casualty Insurance Case(murphy & chubb): this case gave us a situation in which murphy did not give his insurance company adequate notice (this was the condition that he failed to meet). He would have suffered great loss by not being able to get his claim and this was considered disproportionate forfeiture. So, the court asks the question of whether or not the notice requirement was a "material part of the agreed exchange". It was not found to be a "material part", so murphy had a chance to show that his failing to meet the condition did not prejudice the insurance company. If he could prove this then he would get his claim and not suffer the disproportionate forfeiture; he does not meet his burden of proof though.

(2) IMPLIED (CONSTRUCTIVE) CONDITIONS ( continued from above )

3 POSSIBLE PROMISES IN A CONTRACT:

(1) Independent- only promises; a party must perform regardless of what the other party does.

(2) Dependent- (one performed before the other) these are promises that are conditioned on one another; what the other party does first

(3) Dependent- (concurrent) promises that are conditioned on what the other party will do at the same time as what you have said you will do.

Modern Rule: each parties' performance is dependent upon the other parties performance or tender of performance; court creates these to avoid injustice in which one party must perform before they can bring suit for breach against the other party. (so, the court will construe contract's to be concurrent if possible)

RESTATEMENT 2 ND § 238: This states the rule that in contract's that are to be performed simultaneously, it is a condition of each parties' duties to render such performance that the other party either render or offer performance (with present ability to do so).

Tender of performance: this refers to one of the parties being ready, willing, and able to perform their part of the agreement. If this can be shown, and the other party does not do the same, then the party that has tendered, may bring suit for breach of contract against the non-tendering party.

NOTE CASES:Palmer v Fox; the man did not do his share of the improvements on the land so he was considered to have breached. It was to be paid for in 5 yrs. And all the improvements done in this time. It was considered a material breach b/c the other party bargained for the land with the improvements, not just the land. The following restatement discusses material and immaterial breach of contract .

RESTATEMENT 2 ND 237: Effect on other party's duties of a failure to render performance


39Except as stated in section 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.

Notes on 237: This basically means that if one party does not render his performance then the other party is

discharged of his duties, at least temporarily. (so in the note case above, this is why the other party was able to quit paying for the land, b/c the other party did not make the agreed upon improvements.)

Goodison v Nunn: this was the case where the parties contract for the buy/sell of land and there was a 21lb. Penalty for backing out. One party backed out and the court said that since the other party did not tender the performance to the non-tendering party he could not bring suit. (must at least tender performance to bring a suit for breack of contract against other party)

IV. DOCTRINE OF SUBSTANTIAL PERFORMANCE

A. HOW DO WE DETERMINE IF A PARTY HAS SUBSTANTIALLY PERFORMED IN A CONTRACT?

(1) Look at the deviation in the contract; how much different was actual performance from what the contract called for in performance?

(2) Look at the excuse given for the deviation in performance

(3) How cruel would it be to the performer to say he has not performed enough and should not be compensated at all? If it would be very costly or harsh, it is likely he has substantially performed

B. HOW DO WE DETERMINE IF THE PERFORMANCE IN QUESTION WAS ACTUALLY A CONDITION IN THE CONTRACT?

(1) look at the contract to see if it explicitly stated in the contract that this exact performance had to be done or it would be a breach of contract. (such as non-compliance with this condition will result in non-payment or no return performance)

(2) the language in the contract must state this; the court will not supply this in the contract to make it a condition; so if you really want a certain performance, make it a condition in the contract.

RESTATEMENT 2 ND § 234: ORDER OF PERFORMANCES

(1) if there is a contract in which performances can be rendered simultaneously, they are to the extent due simultaneously, unless stated different in the contract

(2) If there is a contract for work to be performed (ie. Construction) for $, the work must be substantially performed before payment can be demanded. The duty that takes time to be performed or happens over time (ie. The work) is required to perform first. (SUBSTANTIAL PERFORMANCE EARNS THE PERFORMING PARTY THE RIGHT TO RETURN PERFORMANCE BY THE OTHER PARTY!)


40REMEMBER: Substantial performance is not perfect performance though; that is why the party must pay the performer for the substantial performance and then sue them for any damages caused by the breach of contract. So, the worker gets $ for the substantial performance, minus any amount assessed for damages caused to the other party. (ie wrong plumbing pipe)RULE: Damages are measured by the difference in what you were supposed to get and what you actually got. (difference in value)

Example: Jacob &Young v Kent case: (wrong plumbing pipe)Good pipe worth = $5,000 (pipe you wanted)Bad pipe worth = $4,000 (pipe you got)Damages worth = $1,000 (you get bad pipe + $1,000)

C. Material Breach: a breach is material if the failure or deficiency in performance is so central to the contract that it substantially impairs its value and deeply disappoints the reasonable expectations of the promisee.

RESTATEMENT 2 ND § 241: Circumstances significant in Determining whether a failure is material

(1) In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (court will weigh these factors)

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;

(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived

(c) the extent to which the party failing to performor to offer to perform will suffer forfeiture;

(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) 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.

Summary of above factors: (LAFCG)(1) (L): loss of benefit of bargain (2) (A): adequacy of compensation(3) (F): forfeiture(4) (C): cure (can worker fix problem)(5) (G): good faith

O.W. Grun Roofing Case: In this case the roofer failed to put in a good roof b/c it had streaks in it and you could see them; Was this a material breach? Yes. The court will look at all factors of each case when deciding if it was a material breach. If this was a warehouse, then maybe it would not have been material breach. (streaks may not matter on warehouse, but they do on a house) To construe substantial performance, the worker must have in good faith intended to comply with the contract, and must have performed without pervasive defects that go to the essence of the contract.

RULE: IF YOU HAVE A MATERIAL BREACH IN A CONTRACT, THEN YOU CAN NEVER HAVE SUBSTANTIAL PERFORMANCE. LIKEWISE, IF SUBSTANTIAL PERFORMANCE IS FOUND, A MATERIAL BREACH IS NOT PRESENT.

RULE: MUST LOOK AT THE WHOLE CONTRACT TO DETERMINE IF THERE WAS SUBSTANTIAL PERFORMANCE.


41Examples:

(1) contract for building an entire house and only the roof is defective = substantial performance is likely to be found if rest of house is performed correctly

(2) contract for roof replacement and the roof is defective = no substantial performance

RESTATEMENT 2 ND § 242:When failure discharges duty of other party In determining when 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 & § 238, the following circumstances are significant:

(1) whether the breach is material (look at factors in § 241)(2) extent to which it reasonably appears to the injured party that delay may prevent or

hinder him in making reasonable substitute arrangements(3) extent to which injured party stated in the actual contract that time was important

Time of the Essence Clause: look to circumstances to see if a violation of this is a material breach. In most cases it is just a promise, not a condition.

D. UCC and SUBSTANTIAL PERFORMANCE B/c of the perfect tender rule (2-601), there is no substantial performance in contracts for the

sale of goods.

PERFECT TENDER RULE OF UCC:

UCC 2-601: Buyer's Rights on Improper Delivery: subject to the provisions of this article on breach in installment contracts (2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (2-718,719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may

(a) reject the whole, or(b) accept the whole, or(c) accept any commercial unit or units and reject the rest.

NOTE ON 2-601: (1) a buyer that accepts a non-conforming tender is not penalized by the loss of any remedy otherwise

open to him. If accepting some and rejecting the rest it must be done in good faith. (2) Seller also has an opportunity to cure under 2-508: if time for performance has not yet expired, he

may seasonably notify the buyer of his intention to cure and may then within the contract time, make a conforming delivery.

V. DOCTRINE OF DIVISIBILITY If a contract is severable, the doctrine of substantial performance can be applied to a portion of it.

A contract is only divisible if it is expressly made so (ie stipulating a payment for each separate installment to be performed) or if a reasonable interpretation indicates that a failure to perform one installment would not constitute a failure of the basic consideration bargained for.

RESTATEMENT 2 ND § 240: Part Performance as Agreed Equivalents If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party's performance of his part of such a pair has the same effect on the other's duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised.


42

A. Look at 2 Main Factors when deciding if a contract is divisible:(1) does the contract easily break down into separate parts(2) did the parties intend for it to be separate parts or only one whole contract?

(THE ABOVE 2 ARE VERY DEPENDENT ON FACTS OF EACH CASE)

Payment plans are per se divisible

Lowy v US Pacific Insurance case: contract for (1) excavation & grading and (2) street improvements. There was not substantial performance b/c only one part of the contract was done. But, the contract can be seperated into two parts; so, the court says compensate breacher for the first part and then you can sue for damages caused by the breach of contract due to the material breach of only doing one part. (this seems to be a way to compensate a breacher for his work even if he does not substantially perform)

Compare the following two examples:(1) contract to build 50 houses @ $100,000 for each house built; builder only builds 35 houses and then

stops work = this is divisible and he will likely be paid for the 35 houses(2) contract to build 50 houses for a total of $5,000,000. Worker builds 35 and then stops work.

Divisible? Probably not due to the fact that the building of each house may not be worth the same amount, and therefore, the contract is not as easily divisible. (look at the intent of the parties)

B. RESTITUTION: recovering the amount due to you for a benefit given to another party; so, to prevent unjust enrichment, the person that performed the benefit should be compensated

Britton v Turner: (pg 691) a man contracted to work for another man for one year for 120 dollars; he worked for 9 1/2 months and then quit for no reason; court found even though he breached the contract he should be compensated under a restitution (quantum meruit) theory. But, from this compensation, one must subtract out any damages suffered by the injured party.

So, $95 for the work done for 9 1/2 months (pro-rate the 120/12 months)But, if employer suffered damage worth $20 b/c worker left early, then employer only owes the worker (breacher) $75.

C. How do we determine how to compensate a person for partial performance?

RESTATEMENT 2 ND § 371: Measure of Restitution Interest If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either

(a) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant's position, or ("cost of replication")

(b) the extent to which the other party's property has been increased in value or his other interests advanced. (increase in property due to the benefit received")

Practice Problem (pg 700)A was to build a pool for B for 15,000. A intentionally built used an inferior product in the construction of the pool so he would make more money. The pool he built was worth 10,000. This was considered a material breach, so no substantial performance doctrine applies here. How do we compensate builder under a restitution theory?

(1) some courts say no compensation due to bad faith(2) others would compensate as follows:

(a) cost to obtain the pool he got from another builder = 10,000(b) increase in value to his property due to adding the pool = 5,000

RULE: ALWAYS GIVE THE BREACHING PARTY THE LESSER VALUE OF THE ABOVE TWO WHEN DETERMINING RESTITUTION VALUE.


43

VI. IMPRACTICABILITY & FRUSTRATION OF PURPOSE

A. EXISTING IMPRACTICABILITY: this is something that makes the contract impracticable, and that existed at the time the contract was formed and the party had no reason to know of the event or condition.

RESTATEMENT 2 ND § 266: Existing Impracticability or Frustration (1) where, at the time a contract is made, a party's performance under it is impracticable without

his fault b/c of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary.

(2) Where, at the time a contract is made, a party's principal purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary.

Mineral Park Land case: the was to take a certain amount of gravel off the 's land under a contract. The took as much as possible above the water level and then did not take anymore; brought suit saying owed for the amount of dirt specified in the contract ; said it was impracticable to take gravel under water level b/c it was too costly; court held that even though it was not impossible, it was impracticable b/c of the xtra costs it would entail. Basic assumption was to take gravel by "ordinary means".

UCC 2-615: Excuse by Failure of Presupposed ConditionsExcept so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:(a) delay in delivery/non-delivery of goods by a seller who complies with paragraphs (b) and (c)

below is not in breach of his duty under a contract if:(1) performance as agreed has been made impracticable by the occurrence of a contingency

when the non-occurrence of this event was a basic assumption on which the contract was made, or

(2) performance was made impracticable by a good faith compliance with a governmental regulation or order whether or not it later proves to be invalid.

(b) Diminished number of goods due to some event or condition(1) allocation of goods: if (a) only affects part of the seller's capacity to perform (by reducing the

number of goods to ship) the seller must allocate production and delivery of the goods among all his customers.

(2) Guidelines for allocation of goods: (1) the seller does not have to allocate the goods only to customers with outstanding orders(2) seller can allocate goods to "regular customers" that do not have orders(3) he may also allocate some for his own requirements for further production (4) any method of allocation used must be fair and reasonable

(c) Notice to the buyer: (1) seller must seasonably notify the buyer of the delay or non-delivery(2) if the seller will be allocating goods, he must seasonably notify the buyer of the estimated

quantity he will be shipping.

B. SUPERVENING IMPRACTICABILITY

Elements of Supervening Impracticability : (if all these are met the party seeking relief is discharged of their contractual duty)

(1) Event or condition occurs after the contract was made

(2) Occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made


44(a) the event is unforeseen by the parties if they themselves did not contemplate

it as a real likelihood.(b) Unforeseen events external to contract :

1. War 3. Strike2. natural disaster 4. Change in law or govt. regulation

(c) Change in Market conditions:1. generally not regarded as an event beyond the contemplation of the

parties b/c the very purpose of setting a price or committing to a future delivery of goods or services is based on the possibility that prices or demand may change

2. it is possible that a constant market was assumed in a contract, or even if not, the market variation results from a disruption which causes changes way beyond reasonable expectations. This is particularly so if some unexpected calamity, such as a sudden war, embargo, or natural disaster is the cause of market changes.

(3) Event makes performance impracticable (unduly burdensome) (a) relief is only appropriate if the change is extreme or very burdensome. The

event must have such a severe impact on the performance that it cannot be rendered without great loss, risk, or other hardship.

(4) The party seeking relief must not be at fault in causing the event to occur(a) a party should not be able to take advantage of his own wrongful or

negligent act, and a party who disables himself from performing, or makes performance more difficult, cannot expect to be excused from liability.

(5) The party seeking the relief must not have born the risk of the event occurring(a) if the party adversely affected by the event had expressly or impliedly

assumed the risk of its occurrence, the non-performance cannot be excused even though all the other elements are satisfied.

1. Express Assumption: look at the contract itself to see if one of the parties assumed the riska. force majeure: a general provision allocating the risk of

disruptions and calamities.2. Implied Assumption: the contract may impliedly place the risk on

a party by means of a provision such as a warranty, an undertaking to obtain insurance, or some other commitment from which the assumption of the risk may be inferred. A term expressly allocating the risk of certain events to one party may give rise to the inference that the other assumed the risk of event not enumerated.

3. Contextual Assumption: if the contract terms do not settle the issue, its context, including normal commercial practices and expectations, must be examined by the court to decide where the risk should lie.

Taylor v Caldwell: the music hall was rented for the purpose of concert; it burned down and the sued the b/c they could not have the concert; this is an example of a supervening impracticability that will discharge the duty of party. (page 724)(SEE RESTATEMENT 2ND § 263: destruction, deterioration, or failure to come into existence of thing necessary for performance)

RESTATEMENT 2 ND § 262: Death/Incapacity of Person Necessary to Performance: this addresses the death or incapacity of a person that is necessary for the performance

of the contract. The contract must be one that is personal, and therefore, cannot be


45delegated to a third party. The test for this is if it requires personal experience, ability, and skill of that particular person.

C. TEMPORARY IMPRACTICABILITY

RESTATEMENT 2 ND § 269: TEMPORARY IMPRACTICABILITY This test applies a lesser standard to determining if the performance is impracticable.

The party only has to show that it is not "materially more burdensome" to perform the contract.

The event in this situation only suspends the duty of a party to perform while the impracticability exists, it does not discharge their duty totally; so, after the impracticability or frustration ceases, the duty reattaches.

But, all the performing party has to show is that his performance now is materially more burdensome than it was before the impracticability or frustration.

D. Casualty to Identified Goods:

UCC 2-613: Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without the fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale" term then

(a) if the loss is total the contract is avoided; and(b) if the loss is partial or the goods have so deteriorated as no longer to conform to

the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller.

Difference in this and UCC 2-615 is that the goods in 2-613 are identified and particular. In 2-615 they are generic goods such as widgets or contract books. The buyer says "I want some books like those, but not that particular set of 20. In 2-613, they might be a certain crop out of a field (see example on page 732; but crops can be classified as either)

What do we mean by identifiable goods? These are goods that we can actually put our hands on at the time the contract is

made. (ex. Sale of a used car = it is a good and we can place our hand on the exact item to be contract for)

Don't forget that the buyer can always accept a partial shipment of the goods (for lesser price than full contract) or he can reject b/c of not full shipment under the contract.

Problem #2 on page 733: boots were being shipped to New York for sale but the seller shipped them through San Francisco where they were ruined in a fire. What result?

Answer: the seller shipped the boots FOB (free on board) to NY, so he assumes the risk of damage until the boots arrive in NY. (see UCC 2-319) So, the seller has assumed the risk of shipping the boots and he will be liable to the buyer for any damages caused by the late shipping or non-delivery.

E. Relief for Impracticability: When impracticability fully defeats the feasibility of performance by a party, it is a complete defense to that parties failure to perform.

1. release of that party discharges the duties of the other party


462. if any performance had been rendered by either party under the contract prior to the

finding of impracticability, restitution is available.3. If impracticability does not go to the entire basis of the contract, the court has the

discretion to award relief short of excusing performance. It may be more appropriate to adjust the terms of the contract, to excuse a portion of the performance (with a reciprocal reduction in counter-performance), or simply to permit a delay if this would enable the difficulties to be overcome.

F. FRUSTRATION OF PURPOSE

This was designed to provide relief when an unexpected supervening event so destroyed the value of the transaction that the contracts underlying purpose was frustrated.

Use same elements as impracticability, except substitute frustration of purpose for impracticability:

1. After contract was made,2. occurrence of an event, the non-occurrence of which was a basic

assumption of the contract 3. *the purpose of the contract is substantially frustrated due to this event4. the party seeking relief was not at fault in causing the event to occur5. the party seeking relief must not have born the risk of the event

occurring. (by language of contract or circumstances)

NOTE CASES:

(1) Krell v Henry: rented an apartment on the street to watch the coronation in which the queen would be crowned. Queen got sick and the coronation was cancelled; sues to have him pay the remaining balance of the rental; It is not an impracticability question b/c could pay the the money; rather, the says he should not have to b/c the purpose of the contract has been frustrated and he should be discharged of his duty to perform. (queen being there is an implied condition on which the contract was formed)

Most courts look to see if there is any commercial value left to the contract for the party seeking the relief; no more value, then it is more likely to be found frustration of purpose.

Don't think this works in a lot of situations; it is very narrowly construed doctrine; foreseeability of the event is also a factor in determining if party should be excused.

RESTATEMENT 2 ND § 265: DISCHARGE BY SUPERVENING FRUSTRATION

Where, after a contract is made, a party's principle purpose is substantially frustrated without his fault b/c of a fact of which he has no reason to know and the non-existence of this fact is a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicated otherwise.

Washington Hop Producers case: in this case the is trying to be excused from a contract to buy the hop base so he can sell hops; it is not going to be required in 1986, so the purpose of them buying it for 1985 and 1986 is frustrated; they could just rent it for 1985 and they won't need it in 1986. The court held that there must be more than just loss of profit to find a contract purpose frustrated; since they didn't need it in 1986, this was enough to find the purpose frustrated.

Question: If a party has partially performed, and then the contract purpose has been found to have been frustrated, how do we compensate the party for their part performance?Answer: There are 2 possible ways to compensate the party for the performance:

(1) if the contract is divisible, use Doctrine of Divisibility


47(2) if not, use restitution to compensate the party

VI. RESPONSE TO BREACH : REPUDIATION (ANTICIPATORY BREACH)

A. Repudiation- an effective repudiation can be given in two ways:

REST. 2 ND § 250: When a statement or an act is a Repudiation (1) in a clear and unequivocal statement by the obligor to the obligee

indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages under § 243 for total breach, OR

(2) a voluntary affirmative act that makes performance impossible, or apparently impossible.

B. After Repudiation, has three options of what he can do:(1) wait it out and try to convince the breaching party to perform at the due date, and

see what the breacher does(remember: the breaching party can retract his repudiation during this time), or

(2) cancel the contract and bring suit for breach of contract against the party that gave the repudiation; once cancelled, the breaching party cannot retract the repudiation.

(3) act in reliance on the repudiation, which is basically an acceptance of the repudiation, making it impossible for the breacher to retract the repudiation. (breacher cannot retract)

If takes another job or something of this nature, his taking the job will be reliance on the repudiation and this will be his acceptance of the repudiation; but, the damages awarded to him will be mitigated due to his taking another job. (b/c he will be compensated at new job)

NOTE CASE FOR RETRACTION OF REPUDIATION: Taylor v Johnson: this is the horse stud case in which the breeder gave

repudiation by selling the horse and making performance impossible; he then retracted and said he would breed the mares; breeder gave them the runaround and so they thought it was a repudiation, but at this point performance was not impossible; they bred to another stud and then sued for breach; court said the runaround was not a repudiation b/c performance was still possible.

RESTATEMENT 2 ND § 256: Nullification of Repudiation or Basis for Repudiation

(1) the effect of a statement as constituting a repudiation under § 250 or the basis for a repudiation is nullified by a retraction of the statement if notification of retraction comes to the attention of the injured party before he materially changes his position in reliance of the repudiation or indicates to the other party that he considers the repudiation to be final.

(2) The effect of events other than a statement (ie. Voluntary, affirmative act) that constitutes a repudiation under § 250 or the basis for a repudiation under §251 is nullified if, to the knowledge of the injured party, those events ceased to exist before he materially changed his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final.

C. REPUDIATION WHEN DEALING WITH SALE OF GOODS

UCC 2-610: ANTICIPATORY REPUDIATION


48When either party repudiates the contract with respect to performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may,

(1) for a commercially reasonable time await performance by the repudiating party

(2) resort to any remedy for the breach, even if he said he would await the latter's performance & urged retraction

(3) in either case suspend his own performance or proceed in accordance with the provisions about seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods.

UCC 2-611: RETRACTION OF ANTICIPATORY REPUDIATION

1. Time for Retraction : repudiating party can retract if, (a) his next performance is not yet due, AND(b) the aggrieved party has not:

i. cancelled the contract, or ii. materially changed its position, oriii. otherwise indicated that it considers the repudiation final.

2. Request for Retraction: a valid retraction of a repudiation must,(a) clearly indicate to the aggrieved party that the repudiating party intends to

perform, AND(b) include any adequate assurance justifiably demanded (2-609)

3. Effect of Retraction: (a) the repudiating party's rights under the contract are reinstated, and (b) the aggrieved party is excused for any delay due to the repudiation.

D. DEMANDS FOR ADEQUATE ASSURANCE OF PERFORMANCE

If there is not yet a repudiation by a party, but you have reasonable grounds for insecurity you can ask for assurances and suspend your performance. If assurances are not given to you in a reasonable amount of time or the assurance is not adequate, it is considered a repudiation. (adequacy depends on the circumstances of each case)

RESTATEMENT 2 ND § 251: When a Failure to Give Assurance May Be Treated as a Repudiation

(1) Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach under § 243, the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.

(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.

AMF v McDonald's Corp.: this is case where the was to make cash registers for the . They did not give adequate assurance of performance so cancelled the contract. Court said this was ok, and held cannot recover for wrongful cancellation. The UCC governed this case b/c it was the sale of goods.

UCC 2-609: RIGHT TO ADEQUATE ASSURANCE OF PERFORMANCE(1) A contract for sale creates an obligation of each party to maintain the other party's

expectations of due performance.(2) A party will be excused from performing any contractual obligation if:


49(a) the party had reasonable grounds for insecurity as to whether the other party

will perform according to the contract, AND(b) the party sends a written notice to the other party demanding adequate

assurance of due performance, AND(c) the other party did not yet respond to the demand, AND(d) it is commercially reasonable to suspend such performance, AND(e) the party did not receive payment (or other return) for the obligations it plans

to suspend.(3) Standards: reasonable grounds for insecurity and the adequacy of assurance will both be

determined by commercial standards.(4) Installments: an aggrieved party is not precluded from demanding adequate assurance

of future performance even if he has already accepted an improper delivery or payment of earlier obligations.

(5) Time before Repudiation is assumed: A party who fails to provide adequate assurance under the circumstances of the contract (demand must be justified) within a reasonable time (NEVER MORE THAN 30 DAYS) will have repudiated the contract.

E. FINANCIAL INABILITY TO PERFORM (pg 833 problem 1)

RESTATEMENT 2 ND § 252: EFFECT OF INSOLVENCY (1) Where the obligor's insolvency gives the obligee reasonable grounds to believe

the obligor will commit a breach under rule in §251, the obligee may suspend any performance for which he has not yet received the agreed exchange until he:

(a) receives assurance in the form of the performance itself(b) receives an offer of performance(c) or adequate security

(2) A person is insolvent is he ceases to pay his debts in business, cannot pay his debts as they come due, or is insolvent within the meaning of federal bankruptcy law.

UCC 2-702: Buyer's Insolvency; Reclamation Rights(1) Where the seller discovers the buyer to be insolvent before delivery he may:

(a) refuse to continue delivery except when the buyer promises to:i. pay C.O.D. , and ii. pay for all shipments already delivered under the contract

(b) or the seller can stop delivery

(2) Where the seller discovers that the buyer has received goods on credit while insolvent, the seller may reclaim the goods:

Reclamation Requirements:(a) 10-day time limit: in order to reclaim goods seller must:

i. demand payment or reclamation of the goodsii. make demand within 10 days after the buyer receives the

goods(b) Exception: the 10-day time limit does not apply if the buyer made a

written misrepresentation within 3 months before delivery.(c) The seller may not base a right to reclaim goods on the buyer's

fraudulent or innocent misrepresentation of solvency or of intent to pay.

(3) Limitations on Seller's rights to reclaim goods(a) the seller's rights to reclaim goods are subject to the rights of:i (i) a buyer in the ordinary course of business

(ii) any other good faith purchaser


50(b) Successful reclamation of goods excludes all other remedies (with

respect to reclaimed goods)

RESTATEMENT 2 ND § 254: Effect of Subsequent Events on Duty to Pay Damages (1) A party's duty to pay damages for total breach by repudiation is discharged if it appears

after the breach that there would have been a total failure by the injured party to perform his promise (tender perf.)

So if a party repudiates a contract and the injured party was not ready, willing, and able to perform, the breacher will not have to pay damages when the injured party sues for breach of contract

(2) A party's duty to pay damages for total breach by repudiation is discharged if it appears after the breach that the duty that he repudiated would have been discharged by impracticability or frustration before any breach by non-performance.

So if a party repudiates and the breacher says that it was impracticable to perform, he will not have to pay damages if the court finds that it was a case for impracticability. (even if he repudiated)

F. INSTALLMENT CONTRACTSNOTE CASE: Plotnick v Pennsylvania Smelting: "delivery of battery lead case"

UCC 2-612: Installment Contracts; Breach(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) A buyer may reject a non-conforming installment only if the non-conformity substantially impairs the value of that particular installment or it cannot be cured. (or if the non-conformity is a defect in the required documents)

If one of these do not apply and the seller gives adequate assurance of its cure of the non-conformity, then the buyer must accept the installment.

(3) The buyer may cancel the whole contract and sue for breach if one or more installments substantially impairs the value of the whole contract.

(4) WAIVER: But, the injured party may re-instate the contract if he:(a) accepts the non-conforming and does not seasonably notify the seller of

cancellation(b) brings an action with respect only to past installments(c) demands performance as to future installments

Notes on UCC 2-612: this applies to both the seller and the buyer you can't cancel for anything; it must be a substantial impairment to the whole contract (must

be found to be a material breach, not a minor breach as in the Plotnick case. A party cannot just decide they will cancel; be safe and go thru the process of demanding

adequate assurance; if no response, then that is a repudiation and you can cancel and sue for breach legally.

If a party has made two breaches, one minor and one material and the injured party does not raise the issue of the major breach, thereby waiving his right to cancel; he cannot come back and try to cancel using this material breach as reason if he never made the reason known to the breaching party.

VII. DAMAGES

A. Purpose of damages: to "protect the benefit of the bargain"; thereby giving the injured party what he would have gotten out of the contract had there not been a breach.


51B. Why not specific performance?

(1) b/c "efficient breach" of contract makes sure that resources are used for there most efficient purpose; encourages an efficient society

(2) if a person has an adequate remedy at law, then they should get it, and not the equitable remedy of specific performance. (common law said that if damages (legal remedy) would work, then that is what should be given)

C. 3 TYPES OF CONTRACT DAMAGES :

(1) EXPECTATION : these damages attempt to place the P in the position he would have been in had he received the benefit of the bargain. (what he would have gotten from the contract)

(2) RELIANCE : these damages seek to put the P back in the place he was before he entered into the contract. (similar to tort damages)

(3) RESTITUTION : these damages seek to take back from the D any benefit given to him by the P. (such as payment of fees, etc…)

WORK VALUE(1) cost to replace(2) increase in value the benefit caused

RESTATEMENT 2 ND § 347: MEASURE OF DAMAGES IN GENERAL The expectation interests is measured by:

(1) the loss in value to the injured party of the other party's performance caused by its failure or deficiency, plus

(2) any other loss, including incidental or consequential loss, caused by the breach, less(3) any cost or other loss that the injured party has avoided by not having to perform.

RESTATEMENT 2 ND § 349: DAMAGES BASED ON RELIANCE INTEREST As an alternative to the measure of damages stated 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 the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.

Sullivan v O'connor: "nose job gone bad case" Doctor guaranteed the girl a certain result (normally doctors cannot be sued under contract theory, but

we don't want them making promises to get patients in the office, so they hold doctor in this case accountable.

(1) EXPECTANCY DAMAGES: "loss in value": would be the difference b/w the value of the nose she had before operation, and the

value of the nose she expected to get from the surgery. "consequential or incidental loss":She is worse off now than when she began, so add in the

consequential or incidental damage caused by the new nose. (difference in the value of the nose she had from the one she ended up with due to the breach)

"cost avoided": you subtract any cost that the injured party avoided by the breacher's breach of contract. So it would be any Dr.'s bills she has not paid yet.

So, the formula looks like this:Nose expected - nose she had

+ nose she had - nose she has now (worse nose than the original) + 3rd operation (other losses/ pain and suffering)

- any unpaid doctor's bills= damages


52 (2) RELIANCE DAMAGES

Nose she had - nose she has now (this puts her back where she was)+ pain & suffering for all 3 operations (b/c if you put her back to where she was before then she would not have to go thru any surgery.+ any dr. bills she paid up to this point= damages

(3) RESTITUTION DAMAGES only gives her back any dr. bills she has paid up to date.

NOTE: in this case it seems that reliance may be better b/c it gives her pain and suffering for all three operations. Usually expectancy is best result though.

D. EMOTIONAL LOSS: usually in funerals and handling of corpse, insurance, some jurisdictions will allow it in

wedding contracts (distressed newlyweds case: their band did not show up), and in medical contract

Allen v. Jones: this is the case where the funeral home sent the urn without the ashes in it. This is a type of contract in which they know a breach will cause some emotional damage (it is foreseeable) Don't have to show physical manifestations to get these damages.

RESTATEMENT 2 ND § 353: Loss due to Emotional Disturbance Recovery for emotional disturbance will be excluded unless the breach also caused

bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.

E. BUYER'S REMEDIES FOR A BREACH BY SELLER

UCC 2-711: Buyer's remedies in general; buyer's security interest in rejected goods

Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract, the buyer may:

(1) cancel the contract and recover the price he has already paid(2) cover and have damages under UCC 2-712 as to all the goods affected whether

or not they have been identified or not formula: (cover price - contract price + incidental/consequential

damages) - (any incidental/consequential damages avoided) must be a good faith purchase w/out unreasonable delay failure of buyer to cover does not bar him from other remedies

(3) recover damages for non-delivery as provided in UCC 2-713 which is the market measure

(Market price - contract price + incidental/consequential damages) - (incidental/consequential damages avoided)

market price is determined at place of tender, but in cases of rejection after arrival, it is determined at place of arrival.

(4) "specific performance" under UCC 2-716: buyer may be able to recover via replevin if cover is not available after a reasonable effort and the goods are unique.

Where goods are unique or in other proper circumstances Buyer has a right of replevin to goods identified in a contract if after

reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unvailing.


53UCC 2-714: Buyer's damages for breach in regard to accepted goods"breach of warranty on the goods"

(1) The goods delivered are not as they were warranted to be. So the buyer keeps the goods and can recover the difference in the value of the goods as they were delivered, and the value of the goods as they were supposed to be under the warranty, unless circumstances show proximate damages of a different amount. (different amount example = Bisko problem 912)

(2) The buyer may also recover any incidental or consequential damages in a proper case.

UCC 2-715: Buyer's incidental and consequential damages(1) Incidental damages include expenses reasonably incurred in inspection, receipt, transportation

and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

(2) Consequential damages include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise.

(3) Injury to person or property proximately resulting from any breach of warranty.

F. PUNITIVE DAMAGES IN CONTRACTS

RESTATEMENT 2 ND § 355: PUNITIVE DAMAGES Punitive damages are not recoverable for a breach of contract unless the conduct

constituting the breach is also a tort for which punitive damages are recoverable.

NOTES: Generally punitive damages are not given in contract cases, because they place a person

in a better position than they would have been if contract had been performed. (overcompensation)

Look for an independent tort in the contract breach to determine if punitive damages will be awarded.

Boise Dodge v. Clark: this case the dealership rolled back the mileage on the vehicle. It was done in bad faith with

the intent to defraud the consumer. The independent tort is fraud. Punitive damages must be "reasonably related" to the actual damages suffered by the In this case the punitives were 12,500 and the actual damage was 350. The court said these

were ok b/c of policy of consumer protection. 4 THINGS TO LOOK AT TO DETERMINE IF THE AMOUNT OF PUNITIVE

DAMAGES IS OK:(1) must look to see if the amount will be enough to deter the from doing the act

again. (takes more $ to deter big corp. like McDonald's)(2) look to see if D's conduct was calculated; did he plan or have a scheme to do

the act. (as in the Dodge case)(3) look at the motives behind the D's conduct(4) extent of D's disregard of the rights of others

Some areas where punitive damages are awarded in contract cases:(a) breach of fiduciary duty(b) bad faith failure to pay by an insurance company(c) contract cases involving an independent tort (see above)

Trials are usually bifurcated to separate the punitive damages from liability. There are 2 ways to bifurcate a trial:

i. allow the worth of in at beginning stage of punitive damage questionii. only allow the worth of D after the jury has decided if punitive damages are

proper in the case


54

John Hancock Insurance case: this is the case in which the insurance company refused to pay the last five years of the installment. Do we give the the amount of the installments like we would in a normal anticipatory breach case? What do we give them?

RESTATEMENT 2 ND § 243(3): Damages based on anticipatory breach of installment payments:

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.

Note: not adopted in Texas; if damages are immediately due, they are discounted to present value by subtracting interest the breaching party would have earned off the money.

Question: Why do we make an exception for an anticipatory breach (no total breach) when someone fully performs his part and then the other says they will not perform? (can't bring suit right away like normal)Answer: b/c if you have already fully performed, then you are not waiting around trying to decide if you should perform; you are not missing other opportunities b/c you already performed.

Accelleration Clause: this is a clause placed in a contract that says that if a person quits payment on an installment plan, the injured party can sue for the entire amount.

Page 870 Note (7): if a lender defaults on his loan to you and you have to get a loan somewhere else at a worse % rate, then you will recover the difference in money in the two interest rates. So, if it is 1% then the defaulting lender will pay the 1%.

G. REMEDIES FOR THE SELLER IF BUYER BREACHES

UCC 2-703: SELLER'S REMEDIES IN GENERALWhere the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or whole, then with respect to any goods directly affected and, if the breach is of the whole contract (2-612), then also with respect to the whole undelivered balance, the aggrieved seller may

(a) withhold delivery of such goods;(b) stop delivery by any bailee as hereafter provided (2-705)(c) proceed under the next section respecting goods still unidentified to the contract;(d) resell and recover damages as hereafter provided (2-706)(e) recover damages for non-acceptance (2-708) or in a proper case recover damages for the

price (2-709) (f) cancel the contract.

FURTHER EXPLANATION OF ABOVE REMEDIES:

(1) UCC 2-709: ACTION FOR THE PRICE 1. When the buyer fails to pay the price as it becomes due the seller may recover, together

with any incidental damages under the next section, the price(a) of goods accepted or of conforming goods lost or damaged within a

commercially reasonable time after risk of their loss has passed to the buyer; and


55(b) of goods identified to the contract if the seller is unable after reasonable effort

to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unvailing.

2. Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold.

3. After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated under 2-610, a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.

(2) UCC 2-706: RESALE OF GOODS BY SELLER 1. The seller may resell the goods concerned or the undelivered balance. Where the resale is in

good faith and in a commercially reasonable manner, the seller may recover the difference b/w the resale price and the contract price together with any incidental damages allowed under the provisions of 2-710, but less any expenses saved (such as transporation to buyer) due to the buyer's breach.

Sell can be public or private Can be in parcels of the goods or in one unit All aspects must be commercially reasonable (time, place, manner) Goods do not necessarily have to be identified before breach In private sale, the seller must give the breaching buyer reasonable notice of his

intention to sell. In public sale

i. only identified goods can be sold, unless recognized market for public sale of futures in goods of the kind

ii. must be made at usual place or market or public sale if one is reasonably available; seller must give buyer reasonable notice of the sale unless he is selling goods that are perishable or decline in value speedily.

iii. If the goods are not in view of new buyers, the notification of the sale must state the place where the goods are located and provide for their reasonable inspection by bidders.

A person buying the goods at resale takes them free of any rights of the original buyer even though the seller fails to comply with any of the above requirements.

The seller is not accountable to the buyer for any profit made on any resale.

(3) UCC 2-708: Seller's damages for non-acceptance or repudiation

1. the measure of damages for non-acceptance or repudiation by the buyer is the difference b/w the market price at the time and place for the tender and the unpaid contract price together with any incidental damages provided by 2-710, but less any expenses saved in consequence of buyer's breach.

Example: $60 contract price-$25 market value of goods=$35 difference- $4 cost avoided for not having to transport the goods= $31 actual damage recovery

Note: if the market value is actually higher than what is stated at court, the should bring in evidence to show this so the damage award will not be as much. (the difference in prices won't be as much)


56(4) UCC 2-710: SELLER'S INCIDENTAL DAMAGES

Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care or custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach.

NOTE CASES:

American Mech. Corp. v. Union: this case showed us that the contract price for real estate is evidence of the fair market value when trying to figure what damages the injured seller has suffered. A forced sale does not give the court an accurate value of the real estate. So take the contract price and subtract the forced sale price and you have the amount of damages suffered by the seller.

(5) Mitigation and Leases: Does a landlord have any duty to mitigate his damages by leasing to someone else after a breach?

In the past the answer has been no, b/c it has not been considered a contract, but rather a interest in land (you actually own the right to be on the land you are leasing; ownership for the lease term)

But, recently they have been treated like contracts, so we may see a shift in the law going toward a rule that they do have a duty to mitigate.

New Era Homes case (page 875): this is case about the contract to make improvements to a person's home, and the homeowner does not pay for the work. Use Rest. § 347 to figure damages (see above).

EXPECTATION DAMAGES: TWO WAYS TO FIGURE:(1) Cost of building = $80,000 / profit = $20,000

Contract =$100,000-Cost avoided =$40,000 (1/2 way done, so saved the other 40,000 costs)

= $60,000 expectation damages

(2) cost of building = $80,000 / profit = $20,000 the result of cost incurred = $40,000 damages comesprofit = $20,000 out the same!

= $60,000 expectation damages *also remember to subtract out any payments made on the job from the damage recovery of the contractor. These are subtracted like the cost avoided.

A. What if the contractor will suffer a loss after complete performance? if the breacher can show that the would have suffered a loss by full performance, the will not be

able to recover anything.

B. What if the contractor has lost more by half performance of the contract and then the owner breaches the contract? Example:

CONTRACT PRICE =$100,000TOTAL COST = $120,000COST AVOIDED DUE TO 1/2 PERFORMANCE =$60,000(it cost $60,000 for 1/2 performance b/c the cost weremore than contract price estimated) damages due to the contractor =$40,000

You can also get this by doing the cost incurred = $60,000 less the lost profit you would have suffered which was $20,000, so your damages are =$40,000.


57RELIANCE DAMAGES: see above outline under damages heading for Rest. § 349

In reliance you show what expenses you incurred, and in expectancy you must show what you would have gotten out of the bargain.

3-sided wall problem on page 885: (1) EXPECTANCY DAMAGES:Contract price = $30,000 (lost value)cost avoided = -25,000

=damages of $5,000

(2) RELIANCE DAMAGES:cost to complete = $50,000 cost incurred so far=$25,000

k price = $30,000 -expected loss =$20,000 expected loss =$20,000 reliance damages = $5,000

(3) RESTITUTION DAMAGES: (using problem off of page 885)(1) If the breaching party sues for restitution, he cannot get more than the contract price(2) If the injured party sues for restitution, he may get more than the contract price, if his work was

worth more than the contract price.(3) Two possible measurement of damages under restitution theory:

i. cost to replicate the work in the market = $20,000ii. increase in the value to the property = $5,000

*always determine which of the above two to use by figuring against the breacher. So, the first measure is the highest number for the non-breaching party. So, use #1.

C. Options Seller has when Buyer Repudiates before the goods are finished being produced:

UCC 2-704: Seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished goods

(1) an aggrieved seller may:(a) go forward and complete manufacture of goods and then sue for damages after

identifying the goods to the contract.(b) Cease production at that moment and sue for profit you would have made from the

contract along with any costs and incidental damages.(use profit measure from 2-708(2))

THE SELLER MUST DO WHICH EVER OF THE ABOVE TWO WOULD MINIMIZE HIS DAMAGES.

UNDER SUBSET (b), IF HE STOPS NOW AND SELLS THE GOODS AS SCRAP, HERE IS THE DAMAGES: The equation for these damages looks like this:

Profit to be expected from contract = 1200+ reasonable overhead +2000

=3200 (so far)Must also add/subtract the following from above amount:

Add any incidental damages (2-710) = none hereAdd any costs incurred + 6000 total Subtract proceeds from resale - 3500Add labor incurred (total labor-labor saved) + 400 TOTAL DAMAGES = $6100


58UNDER SUBSET (a), IF THE SELLER FINISHED THE GOODS AND THEN RESELLS THEM, THIS WILL BE DAMAGES:

Contract price = 12,000-resale price = 7,000difference in value = 5,000subtract any expenses saved by the breach = 800 (transportation cost saved)

*DAMAGES = 4,200 (SO THE SELLER MUST DO THIS B/C IT MINIMIZES HIS DAMAGES. UCC 2-704 REQUIRES SELLER TO MINIMIZE HIS DAMAGES, SO AS LONG AS THE SELLER ACTS REASONABLY IN TRYING TO MINIMIZE HIS DAMAGES HE WILL BE OK.

D. LOST VOLUME PRINCIPLE: A loss of profit caused by a buyer’s breach is recoverable b/c the seller would have made the profit off the one he was selling to the breacher, plus the one he sold to the subsequent purchaser. But, it must be a good that is easily attainable on the market (such as a jukebox; see Locks v Wade)

Market measure is insufficient here b/c it would result in zero b/c the seller sold the product to another purchaserUCC 2-708(2) gets you the loss of profit.

(1) 3 things must be present to use the “loss of volume doctrine”(a) must show seller would have solicited the subsequent buyer even if there had been

no breach of contract by first purchaser(b) this solicitation would have been successful(c) the seller could have actually made the additional sell without the breach by the first

purchaser; in other words, the good cannot be one that is a one of a kind.

RULE: IF YOU ARE DEALING WITH THE LOSS OF VOLUME PRINCIPLE, AND TRYING TO FIGURE DAMAGES, DO NOT ADD IN COSTS INCURRED AND PROCEEDS OF RESALE INTO THE EQUATION. ONLY USE PROFIT LOST + REASONABLE OVERHEAD. E. Measuring Market Value when dealing with Installment Contracts

RULE: When dealing with installment contracts, the time and place for each separate tender is used to determine the market value of a good. So, theoretically it could be a different value when each installment comes due.

F. Measuring Market Value of a good when a repudiation has been given and the trial occurs before the time for delivery is due

RULE: The market price of the good at the time of repudiation is used if the trial occurs before the due date for delivery. This rule is discussed under UCC 2-723 (1).

G. EMPLOYMENT CONTRACTS

Most of these contracts are “at will” so we usually don’t have to deal with the damages resulting from a breach due to firing an employee.But, if there is a breach of contract, damages are figured as follows:Contract salary = 100,000- any new job salary =50,000

damages suffered =50,000

RULE: AN EMPLOYEE MUST MITIGATE HIS DAMAGES BY GETTING ANOTHER JOB, IF POSSIBLE. IF HE DOES NOT REASONABLY TRY TO MITIGATE HIS


59DAMAGES, THEN HE WILL NOT RECEIVE DAMAGES FOR THE AMOUNT HE COULD HAVE MITIGATED THE DAMAGES.

Law professor does not have to take a job at McDonald’s, or relocate to another city or town. The new job must be similar to old job.The employee cannot be sued for failure to mitigate, but if employer meets his burden of showing the employee could have mitigated, then the employee will not get the amount of damages that he could have mitigated

RULE: THE EMPLOYER HAS THE BURDEN OF SHOWING THAT THE EMPLOYEE HAS NOT MITIGATED HIS DAMAGES.

H. BREACHES BY THE PERFORMER (SELLER)

QUESTION: When a seller repudiates the contract before the delivery is due, how do we determine when to measure the market value of the good for purposes of the market measure of damages? (see Reliance v Treat p. 896)ANSWER: ( Under UCC 2-713, it comes in 3 parts)(1) if the buyer accepts the repudiation immediately, then we use the market value of the good at this

time. (you would then take difference in market and k value)(2) If the buyer does not accept the repudiation, then he can wait a commercially reasonable time for

the seller to perform. If seller still has not retracted his repudiation, then the market value of the good is taken at this commercially reasonable time. (whatever it may be is decided by the court)

(3) If the seller just outright breaches at the time of delivery, then we use the time of delivery to measure the market value of the good.

I. How do we know if the buyer has accepted goods delivered by seller?

UCC 2-606: What Constitutes Acceptance(1) Acceptance of goods occurs when a buyer:

(a) after a reasonable time to inspect goods signifies to the seller that they are conforming or that he will accept them as non-conforming, OR

(b) fails to make an effective rejection, but this does not occur until the buyer has had a reasonable time to inspect the goods, OR

(c) does any act inconsistent with the seller’s ownership; but if the buyer does anything wrongful against the seller, it only constitutes an acceptance if the seller ratifies it.

(d) Acceptance of part of a commercial unit is acceptance of that entire unit.

J. Does a Seller have a right to correct a non-conforming shipment of goods?

UCC 2-508: Seller’s Right to Cure(1) when buyer rejects the goods before the time for delivery is due (such as an early shipment)

then the seller has until the due date of performance to cure the non-conformity. However, the seller must seasonably notify the buyer that he intends to cure the non-conformity.

(2) When the buyer rejects the goods and the time for delivery is due, there are two instances when the seller will still have a reasonable time to cure defect:

i. if the seller had reasonable grounds to believe the goods would be accepted by the buyer, OR

ii. the seller, in good faith, thought he had delivered conforming goods

K. Once the buyer accepts the goods, does he have a remedy if he discovers a defect?

Once the buyer has had reasonable time to inspect, and he accepts, he can no longer reject the goods. But, he can revoke acceptance. See 2-608.

UCC 2-608: Revocation of Acceptance in Whole or in Part(1) the buyer may revoke his acceptance of a non-conforming shipment if:


60(a) the non-conformity substantially impairs the value of the goods, and

i. the goods were accepted on the reasonable assumption that the non-conformity would be cured, and it has not been, OR

ii. the buyer did not discover the non-conformity due to difficulty of discovery or b/c of the seller’s assurances.

(2) Revocation must occur within a reasonable time after buyer discovers the defect. Not valid until the buyer notifies the seller.

(3) Buyer revoking acceptance has the same rights as a buyer that has rejected goods.

L. Is there any restitution remedy for the buyer to get back a downpayment or monies already paid on goods after the buyer repudiates the contract?

UCC 2-718: Liquidation or limitation of damages; deposits(1) parties in a contract can put a clause in their contract that fixes the amount of damages that

a breacher will owe in the contract (this is liquidated damages). But, they must be reasonable amount considering circumstances like actual harm caused by breach, difficulties of proof of loss, and inadequacy of another remedy. Unreasonably large liquidated damages are void b/c they are a penalty.

(2) Where the seller justifiably withholds goods from a buyer b/c of the buyer's breach, the buyer is entitled to any amount by which the amount he has paid exceeds,

(a) the amount to which the seller is entitled by the terms of liquidated damages (so, if down payment = 15,000 and the liquidated damages in contract are 10,000 - buyer gets 5,000 back)

(b) in the absence of liquidated terms, the buyer gets whichever of the following two is the smaller amount:

i. 20% of the value of the total performance for which the buyer is obligated under the contract, or

ii. $500

(3) The buyer's right to recover restitution may be lessened in any amount that the seller can show he was damaged as a result of the breach, and any benefits the buyer may have received from the contract.

M. TWO TYPES OF DAMAGE RECOVERY THEORIES IN CONSTRUCTION CONTRACTS: (see Rivers v Deane, 902 & American Standard v Schechtman, 905)

(1) Cost of Completion: this is the general rule for construction contracts; this means you take the market value of the cost to repair the faulty construction; this is when the use of the structure is effected and you don't have to tear down work to fix it.

(2) Dimunition in value: this is used when the cost of completion will result in "economic waste"; this is measured by the difference in the market value of the structure as it was supposed to be under the contract, and the market value of the structure as it exists.

Recovering damages for breach of warranty by showing special circumstances:Bisko problem, page 912: this problem discusses the opportunity for the buyer to recover under 2-714 warranty theory; it shows us that when using this we normally take the difference in the value of goods as warranted and the value of the goods as received and this will be the damage award; but, if the buyer can show special circumstances, then he may be able to recover the "cost of repair" which was more in this example.

N. CONSEQUENTIAL DAMAGES & FORESEEABILITY

UCC 2-715: Buyer's incidental and consequential damages


61(4) Incidental damages include expenses reasonably incurred in inspection, receipt, transportation

and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

(5) Consequential damages include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise.

(6) Injury to person or property proximately resulting from any breach of warranty. (proximately resulting is easier to prove than foreseeable, so it is easier to recover for these types of damages in a breach of contract)

Hadley v Baxendale: this is the landmark case on foreseeability of consequential damages; it involved the carrier that was shipping the crank shaft to get fixed for the mill; they negligently took to long and the mill sued for lost profits; court held that the breacher must have reasonably foreseen the losses would result from his breach at the time of contract for the injured party to recover. = no recovery.

RESTATEMENT 2 ND § 351: Unforeseeability and related limitations on damages (1) damages are not recoverable for loss that a breacher did not have reason to foresee as a probable

result of his breach when he made the contract (2) Loss may be foreseeable as a probable result of a breach b/c it follows from the breach

(a) in the ordinary course of events, or(b) as a result of special circumstances, beyond the ordinary course of events,

that the breacher had reason to know about.

(4) a court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for the loss incurred in reliance if it concludes that justice requires this type of recovery to avoid disproportionate compensation.

Spang Case: this case gave us the basic 3 things to look at when deciding if court will award consequential damages:

3 THINGS TO LOOK AT TO DETERMINE IF CONSEQUENTIAL WILL BE AWARDED TO AN INJURED PARTY:

(1) Foreseeability- did the breacher have reason to know these damages would be caused by his breach at the time he contracted?

(2) Certainty- is it certain that the breach caused the damages?(3) Avoidability- Did the injured party reasonably mitigate his damages by cover or

other methods available?

Problem: What if a injured party could have covered, but they do not? See example:Facts: Contract price of goods to be delivered = 100

Buyer has deal to resell the goods for 125 to another personSeller breaches and not delivered, but buyer could cover for 110Buyer decides not to cover but sues seller for damages, what result?

Answer: if the buyer does not cover, and he could have, then he will only recover the difference from the contract price and the market price (110-100). If he would have covered for 110 and then sold the goods to the new buyer for 125, he would have recovered the difference $10 from the original seller for having to cover, and then made the 15 off the new buyer. So, he would have came out the same as he contracted for.

(3) CERTAINTY (further discussion)A. Two Types:


62(1) Certainty as to the fact of loss - are we certain that the loss incurred was due to the breach?

Must prove this with reasonable certainty. (includes causation)(2) Certainty as to amount of loss- courts allow a little more leeway here. The certainty as to fact

of loss has been proven, but now how much loss is there? Problems sometimes arise when trying to prove this; (new businesses have no track record)

B. New Business Rule- new businesses cannot prove they would have had future profits b/c they have no proof; but, franchise restaurants may be an exception

C. Can also claim a loss of good will; but must still show foreseeability, certainty, and that is was not avoidable.

D. ***At common law, attorneys fees were not awarded for breach of contract , so you must place a clause in your contract that awards these for a breach.

E. However, some states, like Texas have statutes that give a claim for attorneys fees in a contract case.

VIII. DTPA

This is a consumer protection act that cannot be waived b/c it is against public policy Certain ways you can waive your DTPA rights:

(1) legal counsel present & (2) writing & (3) you must also not be in a bad bargaining position.

A. Different Causation Standard(1) Producing Cause : this is an easier causation standard to meet than foreseeable and proximate

cause (foreseeability --- proximate cause --- producing cause) harder----------------------------------easier

B. Definitions § 17.45(1) Goods: tangible chattels or service purchased or leased for use.(2) Services: work, labor, or service purchased or leased for use.(3) Person: individual, partnership, corporation, association, or other group however organized with

assets under $25 M.(a) A person who hires an attorney is a consumer(b) Patients are not consumers with respect to doctors and health care providers,

unless unconscionable activity such as false or misleading advertising(c) Pharmacists are not exempt from DTPA

(5) Consumer: a person who seeks or acquires goods or services (includes any agency of the state.(6) Unconscionable action: means an act or practice which to a person's detriment:

(a) takes advantage of lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree, or

(b) results in a gross disparity b/w the value received and consideration paid, in a transaction involving the transfer of condsideration.

C. What gives you a C.O.A. under the DTPA? § 17.50 Relief for consumers: Must show actual damages under the DTPA and you can do that by:

(1) fit into the laundry list § 17.46: misrepresentation is "producing cause" (odometer change, advertising going out of business sale when actually not, pyramid schemes, price increase during disaster period)

(2) Breach of Warranty (3) Any unconscionable act § 17.45 (5)(4) Violation of Texas insurance code(5) False, misleading action ( if misrepresents something then there is DTPA claim)

D. Damages under the DTPA § 17.506


63

(1) Innocent Act: consumer may recover economic damages, which are the amount of money the is out or lost from the injury caused by the . Actual $ lost.

Can never get mental anguish damages for innocent act Can never treble (triple) these damages

(2) Knowing Act (aware of falsity): the can recover trebled economic damages and mental anguish damages. (only the economic damages are trebled)

(3) Intentional Act: can recover trebled damages for both the economic damages and the mental anguish damages. So, the whole amount is trebled in this case.

EXAMPLES: economic damages = 10,000 & mental anguish = 20,000

(1) innocent act: 10,000 max.(2) knowing act: 50,000 max. (treble damages are discretionary)(3) intentional act: 90,000 max.(treble damages are discretionary)

E. Attorney's Fees If consumer loses, does not get attorney's fees from consumer (unless bad faith claim by was

brought) But, if consumer wins, consumer also gets attorney's fees, court costs from

F. Rule: You cannot bring a negligence claim for personal injury damages or death against a health care provider under the DTPA (See Gormely v Stover, supp.)

G. Lawyers can be sued under the DTPA for failure to disclose information or an express misrepresentation. (must be a misrepresentation, not just something that requires judgment by the attorney)

H. Notice: consumer must give 60 days notice to the seller and state the amount sought by including all attorney's fees expended to date. This is to give seller an opportunity to settle. If seller offers to settle for the amount the brings the claim for, the consumer must accept.

I. Rule : If seller makes a settlement offer and the case still goes to trial and damages are not found to be much more than the offer, the may be held to the amount of the settlement or the amount asked for in the claim. (seller can pay either)

J. EXEMPTIONS:(1) Contract claim for more than $100,000 where the person had an attorney and the contract was not

residential.(2) No claim for more than $500,000 - unless it is your residence(3) If offers amount that you say you are damaged, must accept (kills your claim)

IX. PREVENTION, COOPERATION, & DUTY OF GOOD FAITH

A. Prevention & Cooperation: all courts read all contracts as containing an implied condition that the parties will act in good faith and will not hinder or prevent the other party from performing

B. Wrongfulness: the prevention or hindrance must be wrongful; however, this does not require a showing of bad faith or malice; just a showing that the other party would not have reasonably anticipated such conduct, whatever its motivation.

C. Must act in good faith when rejecting goods: (See Nuemiller Farms (p. 775) was rejecting potatoes in bad faith b/c he found them at a better price from another dealer. Courts use an


64objective test to decide whether a reasonable person would have been satisfied with the goods. (however, the parties can explicitly make it a subjective test if both parties agree to it)

Must also make a good faith effort to secure a loan when this is a condition precedent to a party's performance. See Billman v Hensel

D. Some instances require subjective test: self portraits are an example; the other party must know it is a subjective decision based on personal taste. But, he must at least look at the portrait and in good faith say he doesn't like it.

E. Merchants: under the UCC, it is an objective test using "reasonable commercial standards" (UCC 2-103)

F. What about satisfying 3rd parties? The purpose of having a 3rd party decide is to get their subjective view on the decision. So, in that since it is a subjective test; but, if evidence of bad faith, we will bring in other, say architects to look at the job and see if it meets an objective standard.

G. Implicit agreement not to interfere with other party: in all contracts there is an implicit agreement by each party to not interfere with the other party's ability to perform the contract. A party that causes or sanctions a breach of contract is not entitled to recover damages for the breach and may not use the breach as a defense in an action in contract. See Patterson v. Meyerhoff p.940

H. Conduct that makes the other party's performance more difficult: a party's action that only makes the other party's performance more difficult will not release the party that must perform from doing so, when the party causing the difficulty is in good faith and does not intend to interfere. If in bad faith, then this would amount to a breach due to interference.

X. EQUITABLE REMEDIES

A. When can a party get specific performance of a contract?(1) when the legal remedy for the breach is inadequate

B. When are the legal remedies inadequate?(1) when damages are unascertainable(2) when the subject of the contract is unique (ie real property)

(a) hope diamond, marilyn monroe dress(b) personalized property such as art, jewelry, antiques

Rule: Specific performance may be granted in a contract for goods if the goods are necessary for buyer's business and cannot be obtained elsewhere.

Rule: Typically, sellers may get specific performance also if dealing with real estate b/c of the concept of mutuality; if we allow buyers to have this remedy, then we must also allow the seller to have this remedy.

Rule: Third parties may not seek specific performance

C. INJUNCTIVE RELIEF

(1) Advantages:(a) burden of determining cost falls on the parties(b) outcome will protect the parties reliance interests b/c they will receive the benefit of

the bargain.

(2) Disadvantages:


65(a) Supervision by the court (the court will have to make sure they do it)

(3) Factors used in determining if specific performance should be granted(a) Mutuality: if one party has the remedy for specific performance then the other party

should have it. This is no longer the general rule except in real estate contract (NO REQUIREMENT BY LAW THAT BOTH PARTIES HAVE THE SAME REMEDIES)

(b) Supervision: the performance may require judicial monitoring to ensure that the does not provide a grudging performance that falls short of the reasonable standards required under the contract

(c) Certainty: performance will not be decreed unless the contract is definite enough to form the basis of a clear order.

i. Rest 2 nd § 362: terms must be known and specific for the court to grant an order for specific performance b/c the court must know exactly what the party is to do.

ii. Court will not order specific performance against the seller if the buyer's performance is not secured to the satisfaction of the court.

(4) Adequacy of damages: to get SP, the party must plead and prove that legal remedies are inadequate.

To get legal damages, the damages must be proved with reasonable certainty To get specific performance, the court must know exactly what the party was supposed to do

under the contract Don't want to punish a party with specific performance (Northern Indiana v Carbon County page

965.

(5) Temporary Injunctions: only granted in cases of irreparable harm to

(6) Defenses to Specific Performance:(a) hard ship: must be a especially burdensome remedy(b) clean hands: if a party seeks equitable relief then they must have clean hands (be in

good faith). Courts look to the last culpable party if both have unclean hands.(c) Latches: equitable defense of an omission to assert a right for an unreasonable and

unexpected length of time under the circumstances and would be prejudicial to the adverse party.

(7) Specific Performance and Employment contracts: If a contract involves a personal service (comedian, singer, etc…) then the court will

not order someone to perform for 3 main reasons:(1) the personal relationship (pissed off at each other)(2) it amounts to involuntary servitude(3) and it is also hard to supervise the performance of the contract. (how

do you enforce the quality of their performance) the court can enjoin the performer from performing elsewhere though b/c this would

compete with the business he had a contract with. This will only last for the time of the contract in cases of personal employment.

Covenants not to compete:(a) courts will enforce these in certain situations as long as they are not over broad in

terms of time and location of the promise not to compete. If it is over broad the court will either:

i. strike the clauseii.blue pencil (strike unreasonable terms)iii. modify it to make it enforceable and then

enforce the covenant.


66XI. LIQUIDATED DAMAGES

A. Liquidated damages:(1) must be a good faith reasonable forecast of the harm(2) the harm must be difficult to determine(3) may not be intended as a penalty for breach

B. Reasonable Forecast: the reasonable forecast is measured at the time the contract was made. If actual damages can be reasonably calculated at the time of the contract, the liquidated damages clause will be unenforceable. The party invoking the clause has the burden of proof that it is reasonable.

C. Effect of no harm: (1) claiming that there was no harm done by the breach will not excuse a party from

liquidated damages.(2) Rest. 2nd § 356: 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 the grounds of public policy to the extent the amount exceeds the loss caused by such non-occurrence.

D. Alternative to Performance: liquidated damages may serve as an alternative to performance.

E. Liquidated Damages as a cap: liquidated damages may serve as a cap to liability but if they are too low they may be unconscionable.

F. Under the UCC: any limitation of damages when personal injury is involved is prima facie unconscionable.

XII. ASSIGNMENTS AND DELEGATIONSA. DEFINITIONS

Rights are assigned by an assignor (received by assignee) Duties are delegated by a delegator (given to a delegatee) One that is owed a duty or has a right is an obligee One that owes a duty to someone is an obligor

B. Example to explain how these work:(1) Sam's produce sells bananas to Betty's grocery

So, Betty has a right to receive the bananas (obligee) and a duty to pay for them (obligor)

Sam's has a right to receive money (obligee) and a duty to deliver the bananas (obligor).

(2) What happens when Betty wants to sell her store to Bob?(a) Assignments in this case: Betty assigns her rights to receive bananas to Bob.

So, Sam's is the obligor and Betty is the obligee and assignor Bob is the assignee

(b) Duties delegated in this case: Betty delegates her duty to pay Sam's for the bananas to Bob. Bob is a delegatee, and Betty is a delegator.

1. ASSIGNMENT OF RIGHTS

Fitzroy v Cave: took over the 's debt for some creditors in Ireland. The Ireland creditors assigned the the right to collect the debt. So, became the assignee. argues this is maintenance, which is taking on someone elses litigation that is not yours (professional litigators that take on other peoples suits) and that motive of was to drive into bankruptcy.

Held: As a matter of law, rights can be assigned, and there are two limitations that will make an assignment invalid:


67i. the assignment cannot change the duties or rights or increase

the risks or burdens on the other partyii. the assignment cannot violate a statute or public policy

Restatement 2 nd § 317: Assignment of a Right (1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of

which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance.

(2) A contractual right can be assigned unless(a) the substitution of a right of the assignee for the right of the assignor would materially

change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, OR

(b) the assignment is forbidden by stature or is against public policy, OR(c) the assignment is validly precluded by the terms of the contract

C. Gratuitous Assignments(1) these can be made if the assignment is in writing or is accompanied by delivery of a

writing of a type customarily accepted as a symbol or as evidence of the right assigned. (any instrument that shows the assignee has the right to collect).

(2) If no signed writing with a gratuitous assignment, (a) it is revocable (b) it will be terminated upon death/incapacity of assignor(c) terminated by a subsequent assignment(d) terminated by notice given by assignor or obligor

(3) It is no longer revocable when the assignee obtains, (a) payment of the obligation, or(b) a judgment against the obligor, or(c) a new contract of the obligor by novation, or(d) detrimental reliance: it is necessary to avoid injustice where the assignor

should reasonably expect the assignment to induce action or forbearance by the assignee and the assignment does induce such action or forbearance.

D. Future Assignments (future rights)(1) can be assigned if: you have a job or a contract but have not earned the money on the job

or contract yet.(2) Can not be assigned if: you have no job or contract, b/c you have nothing to assign.(3) But, you could contract with the bank to give you money and then the first job you get

you will pay them the money. This is different b/c you are not making an assignment, rather you are making a contract. Assignment gives ownership, contract does not.

E. Can parties place Anti-assignment clauses in the contract? Yes, see Allhusen(1) the language must be very clear in the contract or court will not enforce(2) some courts hold the assignment valid and only make the party pay for the breach of the

contract (usually nominal damages)

Restatement 2 nd § 322: Contractual Prohibition of Assignment (1) Unless the circumstances indicate otherwise, a term prohibiting assignment of the contract only

bars the delegation of the performance or condition to an assignee.(2) A contract term prohibiting assignment of rights under the contract, unless a different intention

is manifested,(a) does not forbid assignment of a right to damages for breach of the whole

contract or a right arising out of the assignor's due performance of his entire obligation.

(b) Gives the obligor a right to damages for breach of the terms forbidding assignment but does not render the assignment ineffective,


68(c) Is for the benefit of the obligor, and does not prevent the assignee from

acquiring rights against the assignor or the obligor from discharging his duty as if there were no such prohibition.

F. UCC 2-210: Delegation of performance; Assignment of Rights A party may perform his duty through a delegate unless otherwise agreed or unless

the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the delegator of any duty to perform or any liability for breach.

If you are merely assigning a right to payment, then the contract cannot prohibit this.

G. Novation- Only way the delegator can be relieved is through a novation. This is when the parties get together and decide that a new contract is formed with the new person now liable for performance and breach.

1. Standby Liability- when the assignor retains liability after delegating his duties to someone else. He can only get rid of this liability by a novation. If no novation, then the delegator retains liability for breach.

H. Govt. contracts cannot be assigned

I. Notice Requirement (See Continental Purchasing, page 1053) The obligor must be given notice by the assignor or the assignee that the rights of the

obligee/assignor have been assigned to the assignee. Once the notice has been given, the obligor is liable for any damages caused by him paying the wrong person. Once notice is given, the rights vest in the assignee.

J. The assignee stands in the shoes of the assignor and therefore, has the same rights under the contract that the assignor had.

K. UCC 9-318: same as 2-210 but it applies for all services "accounts general". Also allows good faith modification of contracts once assignments have been made as long as they keep the corresponding rights of the assignees. You also have a right to ask for verification by documentation when notified about an assignment.

Rule: The right to assign payment on an account fully earned is assignable, no matter what the contract says.

2. DELEGATION OF DUTIESA. Defintions:

Obligor is the person who owes the duty to someone; they delegate this duty to someone making them a delegator, and the person assuming the duty becomes the delegatee.

B. Rule: Generally, duties can be delegated. There must be a reason to make an exception to this general rule, and not allow a duty to be delegated. (See Sally Beauty Case, page 1058: there was a conflict of interest b/c the delegatee is in competition with the obligee. The obligor was under a contract to used their best efforts, and not the best efforts of some third party)

C. Rule: A party cannot delegate a personal service contract, such as Bagwell trying to get Professor Powers to take over his duties and contract for Astros.


69D. Question: If a contract is assigned, does this mean that both the rights under the contract are

assigned, and the duties under the contract are delegated? Yes; presumption that when a contract is assigned, both the rights and duties are transferred to new party.

XIII. THIRD-PARTY BENEFICIARIES A contract can create rights in a 3rd party when the parties to the contract expressly or

impliedly agree, at the time of making it, that the performance of one of them will be rendered to or for the benefit of a person who is not a party to the contract, and that the non-party will have the right to enforce that commitment

Two types of TPB:(1) donee- this is a gratuitous gift out of love and affection; as long as there is

consideration in the original contract, then it is enforceable.(2) creditor- the person owes the TPB a debt

A. Three parties involved in TPB contract (1) promisor = the party that promises to render performance to the TPB(2) promisee = the contracting party whose right to performance has been conferred to the

beneficiary(3) TPB = the party that is not part of the contract, but will receive the benefit

B. Elements of TPB rule:(3) parties expressly or impliedly agree(4) at the time of formation of the contract (5) performance will be rendered and(6) a right to enforce the commitment given to TPB (7) the TPB is not a party to the original contract

C. When do the rights of the TPB vest, and become irrevocable?(1) When he consents to be a TPB(2) relies on the right(3) brings suit to enforce the right(4) The parties may also agree that the right will vest immediately.

The two original parties have a right to modify the TPB's rights up until the time that these rights vest. After this, the TPB is not effected.

The only way to avoid this from happening is to stipulate in the terms of the contract that they have the right to modify the rights of the TPB even after the right has vested.

D. Restatement § 304: Creation of duty to beneficiary: a promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.

E. Two Kinds of TPB:(4) Intended Beneficiary- this is when the contract is made with the intent to benefit a 3rd

party. This kind can bring suit to recover the benefit under the contract .(5) Incidental Beneficiary- this is when the 3rd party would have benefited from the

performance of the contract, but it was not intended to benefit them when the contract was formed. Cannot bring suit to recover benefit

F. Determining the parties' intent: use an objective standard from the perspective of the beneficiary; would the TPB reliance on the promise be reasonable and probable? B/c the promisee is giving a benefit to the TPB that would not otherwise be due to him, the promisee's desire to confer the benefit must be apparent from the language of the contract or its circumstances.


70G. Intent of promisee alone is not enough: the promisee must have communicated this intent to

the promisor sufficiently for the promisor to have reasonably understood that she was assenting to it.

H. Rule: The TPB does not have to be specifically named, if they can show that they are in the class of persons meant to be benefited by the contract.(See Johnson v Holmes Lincoln Mercury, page 1064: this case the was a person hit by another person that bought a car from the . The was under contract with the driver to get them insurance, but he didn't. So, the proved they were a person meant to be benefited by the contract)

The TPB may be a person that is identifiable when the time for performance is due; this may be the case in a situation where the promisee intended to create rights in favor of the TPB, despite a lack of specific identification at the time of contracting.

I. If the performance runs directly to the promisee, then the 3rd party is usually an incidental beneficiary. (b/c they were not likely meant to be benefited by the contract) If the performance runs to a 3rd party, then they are likely to be a intended beneficiary, b/c they were meant to get this benefit.

J. Hale v Groce : this was a case in which the sued the attorney that negligently drafted another's will that was supposed to include the in it. He sued b/c he was an intended TPB and suffered damage b/c the attorney did not include him. The court held the could sue under contract for these b/c he was a TPB.

K. Rule of Owner, Contractor, and Sub-Contractor: an owner and sub-contractor generally cannot sue one another b/c they are not considered TPB. Also, if there are multiple Contractors hired by an owner, they cannot usually sue one another.

L. Restatement 2nd § 310: the beneficiary surrenders no rights against the promisee by seeking enforcement of the benefit against the promisor.

M. Defenses: (1) the promisor has any defenses against the TPB's enforcement that he would have

against the promisee in the original contract. So, if no consideration in the original contract, then TPB cannot enforce.

(2) A promisor may also use any legal excuse that he could have used in the original contract with the promisee.

N. Citizen's claim as intended beneficiaries in Govt. contract (1) Generally: citizens are considered merely incidental beneficiaries of govt. contracts and

therefore cannot sue to enforce their rifhts.(2) Exception: a private right of enforcement is clearly conferred by the contract or

authorizing statute, or the govt. has a specific legal obligation to provide performance to the citizen (creditor beneficiary)

(3) According to Restatement 2nd §313, when in doubt there is a presumption that govt. contracts do not make citizens intended beneficiaries.

O. Warranties and TPB:UCC 2-318: TPB of warranties; Express or ImpliedAlternative A: any natural person in family or household that could reasonably be expected to use and then suffers personal injury Alternative B: any natural person that reasonably expected to use and then suffers personal injuryAlternative C: any person (corporations included) reasonably expected to use and then suffers personal or property injury. (most courts say economic damages alone will not suffice).


71 Texas Rule: Texas has not adopted any of these 3, rather the legislature has said

they will leave this decision up to the courts to decide.

P. Attorneys: (3) In most attorney-client cases a third party cannot sue for malpractice b/c it would create

divided loyalties b/w the client and the third party.(3) If the is an attorney that has negligently drafted a will, then the beneficiaries can sue the

attorney for malpractice b/c they were a intended beneficiary (See Hale v Groce, page 1068)Texas does not follow this rule.

CHAPTER 5: PERFORMANCE OF THE CONTRACT

DETERMINING THE SCOPE AND CONTENT OF OBLIGATION Integrated Writings and the Parole Evidence Rule Mitchill v. Lath:

The Parole Evidence Rule: “When two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence (either parole or otherwise) of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing.” Parole evidence keeps out prior and contemporaneous agreements. Written or oral negotiations prior to the contract are not admitted because everything should have been integrated in the final contract. This applied to all evidence, not just to oral agreements. The purpose of this to provide a cutoff point to stop evidence which could be fraudulent.

Parole Evidence Test: An oral agreement is permitted to vary a written contract only if (1) it is collateral in form (tied to a contact, but stands apart) (2) it does not contradict express or implied conditions of the written contract AND (3) consists of terms which the parties could not have reasonably been expected to include in the original writing.

Checklist: What To Look For Before Using the Test: (1) Is there a written contract (2) is the agreement final or integrated

Masterson v. SineAlaska Northern Development, Inc v. Alyeska Pipeline Service CompanyLuther Williams, Jr. Inc. v. Johnson Comment: Warranties, Disclaimers and the parole evidence rule Problem: The Case of the Unexpected Spouse InterpretationComment: Formal Aspects of Rules of Interpretation Pacific Gas and Electric Company v. GW Thomas Drawyage & Rigging CompanyA. Kemp Fisheries, Inc. v. Castle & Cooke, Inc. Comment: Judge Traynor v. Judge Kozinski: A Return to the “Plain Meaning” Rule? Frigaliment Importing Company v. BNS International Sales Corporation Gray v. Zurich Insurance Company Problem: The Case of the Missing Fertilizer

ALLOCATION OF RISK: CONDITIONS AND WARRANTIES


72CONDITIONS: AN EVENT, NOT CERTAIN TO OCCUR, WHICH MUST OCCUR UNLESS ITS NON-OCCURRENCE

IS EXCUSED BEFORE PERFORMANCE UNDER A CONTRACT BECOMES DUE. IF THE “CONDITION” IS NOT CLEAR, THIS BECOMES AN INTERPRETATION ISSUE AND PREFERS TO INTERPRET AS A PROMISE. WORDS LIKE “IF” AND “WHEN” USUALLY INDICATE A CONDITION RATHER THAN A COVENANT.

HYPOTHETICAL: AN UNCLE WANTS NEPHEW TO TAKE A PARTICULAR LAW SCHOOL COURSE IN EXCHANGE FOR $500. THE TAKING OF THE COURSE IS A CONDITION OF RECEIVING THE $500. IT IS NOT CERTAIN TO OCCUR THAT HE WILL TAKE THE COURSE, BUT IT HAS TO OCCUR IN ORDER TO GET THE MONEY FROM THE UNCLE. PASSAGE OF TIME IS NEVER A CONDITION. THE UNCLE COULD NOT SAY THAT HE WILL PAY $500 AFTER THE SEMESTER IS OVER.

Cumulative Condition : A cumulative condition says that you have to do all things stated before the condition is met and the return performance is due. In this case, the uncle wants the nephew to get a B. The nephew will have to take the course AND get a B. If he fails to do EITHER of these things, he will not receive the money. This is an expressed condition, one that is clearly set out and stated.

Alternative Condition : An alternative condition says that you can do one of a number of things in order to satisfy a condition and get a return promise

Negative Condition : A negative condition tells the person that something will happen unless something occurs. For example, “I’ll pay you to mow the lawn, unless it rains.”

EXPRESS CONDITIONS: Set forth in the contract. Normally enforces literally by the courts. (Includes conditions implied in fact.)

Nature and Effect

Dove v. Rose Acre Farms: The plaintiff wanted a bonus for working 10 weeks, 5 days a week and for finishing a construction job that he said was substantially performed. The plaintiff was under the condition that he was not to be late or absent. In the final week, the plaintiff became sick and missed the final 2 days. The plaintiff failed to meet the conditions, so he was not to receive the bonus. The court did not try to get around this because it was a bonus and it would have undermined the defendant. RULE: A party is bound to perform all the conditions knowingly accepted under a contract, and unless such conditions are met, performance by the other party is not required.

Gray v. Gardner: This was a case for the sale of sperm oil for two notes. One note was unconditional and the other contained a condition that was to be void under certain circumstances. It would be voided if more oil arrives in port this year over last year. This looks like it was a subsequent condition (this is also a negative condition) because the note would be voided and would terminate the duty. There was never a duty on this note because you cannot collect on it before you know how must oil and it is only payable if the amount of oil does not arrive. The court said it was a subsequent condition and it looks like it on its face, but it is really a condition precedent because it was never a payable note unless certain circumstances lined up accordingly


73 CONDITION PRECEDENT: MUST BE SATISFIED BEFORE A

CONTRACTUAL DUTY TO RENDER PERFORMANCE COMES INTO EXISTENCE (THE PLAINTIFF HAS BURDEN OF PERSUASION). YOU ARE TO ASSUME THAT THE CONDITION IS PRECEDENT (BETWEEN SUBSEQUENT AND PRECEDENT) IF YOU CANNOT TELL FOR SURE. MOST CONDITIONS ARE CONDITIONS PRECEDENT.

CONDITION SUBSEQUENT: THE OCCURRENCE OF A CONDITION DISCHARGES A CONTRACTUAL DUTY (THE DEFENDANT HAS AN AFFIRMATIVE DEFENSE AND BURDEN OF PERSUASION). THIS MAKES THE DUTY GO AWAY (TERMINATION).

Wal-Noon Corp. v. Hill: The plaintiff had leased property from the defendant. When the roof began to leak, the plaintiff repaired and replaced it without notifying the defendant as the contract had provided for. The notice for the repairs was the condition in this case. The plaintiff demanded that the defendant reimburse him for the repair. Nothing in the contract expressly gave the condition of notice, but this one was implied. Implied conditions can be implied in fact or implied in law. This condition was implied in fact because it was their intention all along and they had to have meant the condition of notice because the defendant would not know of the need for repairs without the plaintiff giving them notice.

Implied Conditions : There are two types of implied conditions. The courts allow more leeway in enforcement of implied conditions v. express conditions.

Implied in law : Condition implied by the court. Constructive conditions.

Implied in fact : Condition implied via the agreement of the parties. You treat this as an express condition—this was the parties’ intention all along. Ask would a reasonable person feel that the parties had contracted with the understanding, even though not expressly states that certain facts exist?

In re Carter: The plaintiff bought a business from the defendant. The plaintiff alleged a breach of a warranty provision, but the seller stated that the provision was a condition precedent and that the plaintiff’s only remedy was to refuse consummation of the sale. There was no breach because there was no promise to keep the company at the same financial spot. The condition was at the closing, so there was an option that if you did not like the financial outlook of the company, you did not have to buy it.

Conditions v. Warranties : An express condition precedent to a party’s performance of a contract may not be treated as a warranty.

Restatement 227: Standards of Preference with Regard to Conditions (this helps to decide whether statements are conditions or warranties

The Case of the Insolvent Owner: S is in a contract with P on O’s land. O became insolvent and broke the contract with P. S was still owed money. The contract was really that S would get paid on certain days if O paid P.

Excuse of Conditions


74 Clark v. West : The defendant only paid the plaintiff $2 per page for

writing a legal treatise and the plaintiff demanded the $6 per page that had been promised if he refrained from drinking. The plaintiff claimed that the defendant did not object when he continued to drink. In this case, the payment of $2 is not a waiver. The defendant knew that plaintiff was drinking, but he continued to dangle the carrot in front of him, which indicates a waiver of the “no drinking” condition. Since the change was made without consideration, the condition can be unwaived.

The Excuse of Conditions by Waiver : A condition in a contract may be waived (a voluntary relinquishment of a known right), but no waiver is implied by mere acceptance of the proffered performance. You can expressly or impliedly waive a condition.

Restatement 84 : Since a condition is a term of the contract, it can be deleted or modified by an agreement between the parties. If the condition is “a material part of the agreed exchange” the agreement must satisfy the usual requirements for an enforceable modification, which includes consideration.

Waiving a Condition : A condition can be waived before or after the failure of the condition. If it is waived before the condition failed you are estopped from relying on it. If it is waived after the condition failed there is election and the party can decide what to do.

Non-Waiver Clause : You can put a non-waiver clause into the contract, which will not allow a condition to be waived.

Reinstating Conditions : A condition may be reinstated, but adequate notice must be giving regarding the reinstatement.

UCC 2-10 :

Aetna Casualty and Surety Co. v. Murphy : The defendant left the building in which he leased in a less than acceptable condition. Although the defendant was served he delayed notifying his insurance company. The defendant’s insurer became a third party defendant. The insurer claimed that the defendant has inexcusably and unreasonably delayed in complying with the notice provision in the insurance contract and obtained summary judgment. The court held that an insured who belatedly gives notice of an insurance claim may nonetheless recover on the insurance contract by rebutting the presumption that the delay prejudiced the insurer.

Restatement 229: Disproportionate Forfeiture : “To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.”

Determination of Disproportionate Forfeiture : In determining whether the forfeiture is disproportionate, the court must weigh the extent of the forfeiture against the importance of the


75condition. Basically the restatement is saying that if the circumstances are so severe, the courts will not enforce in a certain way despite the fact that the agreement is clear. In this case, the notice provision was not that important that it could not be waived. The provision must be extremely harsh on the other party. The condition can be excused if there is a disproportionate forfeiture unless the condition is a material part of the contract and cannot be waived.

CONSTRUCTIVE CONDITIONS OF EXCHANGE: There is a constructive condition that a party tender performance before bringing a suit for breach of contract. Where one party to a bilateral contract promises to perform at a date prior to that on which the other party promises to perform, the first party’s performance is an implied in law condition precedent to the other’s duty to perform. 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 material breach (Restatement 237).

Historical Development

Kingston v. Preston : The defendant agreed to sell his business to the plaintiff and the plaintiff agreed to give sufficient security for his payments. The plaintiff’s personal worth was negligible. The plaintiff failed to provide sufficient security and the defendant refused to sell. The plaintiff sued for breach of contract. The court held that breach of a covenant by one party to a contract relieves the other party’s obligation to perform another covenant, which is dependent thereon, the performance of the first covenant being an implied condition precedent to the duty to perform the second covenant.

Implied in Law Conditions : Until the mid-1700’s, the exchange of promises, although mutual, was presumed to be independent rather than dependent on one another. If one defaulted or backed out, the other still had to perform. This case is implied in law (rather than expressed or implied in fact) and is a constructive condition, which is a condition that is read into the contract.

Classification of Promises: There are three ways to interpret a promise (1) Mutual and Independent Promises (2) Condition Precedent (3) Condition Concurrent

Mutual and Independent Promises : These are unconditional promises in which there is a promise to pay with no attached condition. For example, I have to perform even if you do not, then I have to sue you to get whatever back. All the second party has is a cause of action.

Promises v. Conditions: If the contract expressly says it is a condition, it is a condition. If it does not say this, then it is a promise. If there is no condition, you are in breach if you do not perform the promise. Today, almost all promises are read to be conditional and very few promises are said to be independent.

Goodison v. Nunn : The plaintiff agreed to convey his estate to the defendant in exchange for 210 pounds. The defendant refused to complete the contract and the plaintiff never tendered the property to the defendant. The plaintiff sued for the amount specified in the contract as liquidated damages in the event of a breach of contract. The court held that a plaintiff must tender his own performance


76before the defendant’s failure to perform his reciprocal duties will be considered a breach. The defendant’s duty to pay did not arise until the plaintiff had tendered the property and counter-performance was not yet due.

Concurrent Conditions : The conditions must be concurrent where both parties have to perform at the same time to be fair to both parties. This may be the best way to protect everyone involved in the contract and puts nobody at risk.

Tender Performance : You have to tender your own performance and offer it concurrently first. If the other party does not perform, then you can sue for breach of contract. If nobody does anything about a contract, then it would be mutually rescinded. You tender performance when you appear ready, willing, and able to perform. This is how you can say that the other party breached if you have not performed either. This is the only way you can sue for breach without performing yourself.

UCC and Concurrent Conditions : There are provisions in the UCC that addresses concurrent conditions. 2-511, (tender of performance) 2-507 (tender of delivery). If you have not agreed otherwise, these things must occur concurrently.

Palmer v. Fox : The plaintiff sold the defendant an unimproved lot as an investment and the plaintiff promised to make improvements in the subdivision. The land sale contract was to run for five years, after which the defendant would have paid for the land. The defendant stopped payment when the streets were not graveled. The plaintiff sued for the rest of the money owed by the defendant. The defendant’s defense was that the plaintiff had not kept up with his end of the bargain. Did the improvements have to be made before the payment was due? The court says these were concurrent conditions. The court found that where conditions are concurrent and dependent, the failure of one party to perform exercises the other party’s counter-performance.

Material Breach : The court had to ask if there was a material breach when the plaintiff did not do his job. The court decides that the breach was material because it is part of the consideration and was a major problem. The defendant wanted it as an investment, so it was important that the streets be paved. It is implied as a matter of law in every contract that it is a condition of return performance that there are no material breaches.

Restatement 237: Effect on Other Party’s Duties of a Failure to Render Performance. 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.

The Avoidance of Forfeiture

Jacob & Youngs v. Kent : The plaintiff built a home for the defendant and sued for the amount that remained unpaid. The defendant discovered that not all pipe in the home was of a particular manufacture as specified in the contract. The architect does not get the certificate of


77completion, which is to indicate when the work has been completed. Thus, the owner sues for non-payment because the defendant refused to pay the balance of the construction cost still due. The argument may be that the conditions were not fulfilled and so the defendant did not have to make the final payment. There was a condition to the payment, which is the certificate of completion (the decision does not tell us why this happened).

Substantial Performance Test : This case introduces the concept of substantial performance. For example, say you have someone come and paint your house. You cannot complain and refuse to pay for the house painting if there is one small bubble. If you paint the house the wrong color, then there is no substantial performance.

In this case, if you order Reading pipe and they send you a different pipe this is substantial performance in relation to the size of the contract because the same quality pipe was used and there was no problem with it. However, you will still make the party pay damages.

Excuse by Substantial Performance : The breach of the contract must be trivial and not material. You must look at whether the purpose of the contract has been served and look at the breach compared to what the person was supposed to do.

Measure of Damages Under Substantial Performance : If the builder has substantially performed but there are defects in the building there is still a breach. If you have a breach, then you can sue for damages. Under substantial performance damages are measured (1) by the cost of completion or replacement where this can be done without economic waste OR (2) the amount by which the deficiency lessens the value (a diminution in value). We then decide which of these is appropriate to the situation.

In this case, the cost to replace will be a substantial amount of money and because the intention was not willful and the quality of pipe was similar, then it is less expensive to pay the second type of damages. The defendant will have to pay a nominal reduction.

NOTE: Even if there is not substantial performance, recovery may be allowed to the extent of the reasonable value of the benefits conferred less any damages arising out of the breach. Note that if substantial performance is made and the breach is menial then the damages will be nominal.

O.W. Grun Roofing and Construction Company v. Cope: The defendant agreed to install a new roof on the plaintiff’s house at a cost of $648. The dispute was that the roof was not uniformed in color and some of the shingles used by the defendant were yellow and appeared streaky. The defendant removed some of the shingles but the roof did not appear uniformed. The plaintiff refused to pay the defendant and sued for damages to set aside a mechanic’s lien, which the defendant had filed.


78The plaintiff recovered $122 (difference between the price of having a proper roof installed and the contract price) and the lien removed.

The question is if there is a material breach of contract and if there is the defendant has not substantially performed. There is a breach in that the plaintiff contracted to have a specific color of roof, but is it material? There is no problem with the “use” of the roof in that it worked fine. According to the court there was a breach of contract and there was no substantial performance because the appearance of the roof means a lot to the value of the house, thus the plaintiff did not have to pay. In this case, we do not just have a condition we also have a promise and when promises are breached we have a right to damages.

Arguments Made by Defendant: (1) Restitution Argument: The defendant brings up the argument of unjust enrichment. In this case, the promise was also breached because the roofer did not put on the proper color roof. The roof has no value even though it is in good condition, because they are going to take it down anyway. The restitution argument might have been made if only half the roof had to be replaced. (2) Waiver Argument: The defendant brings up the argument that the plaintiff made a waiver. This does not work because she lives in the house already and would have had to move out to express her non-acceptance.

What to Show for Substantial Performance: In order to establish that he has substantially performed a contract, a party must show that he intended, in good faith, to comply with his obligations and that any omissions or deviations which did occur were unintentional and comparatively insignificant. Remember, if you have a material breach then you have not substantially performed. If there is substantial performance, then there is no material breach.

Questions to Ask: In the last two cases, we have looked at the following questions. (1) Has the contract been performed? In Jacobs the answer was yes and in OW Grun the answer was no (2) is there a breach? If there is a breach, we have a right to damages.

Restatement 241: Circumstances Significant in Determining Whether a Failure is Material: In determining whether a failure to render or to offer performance is material or immaterial, the following factors are significant. (1) The extent to which the injured party will be deprived of the benefit, which he reasonably expected. (2) The extend to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived. (3) The extent to which the party failing to perform or to offer to perform will suffer forfeiture. (4) 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. (5) 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.

Foundation Development Company v. Loehmann’s: When we say that “time is of the essence” a provision like this is trying to tell us that time is material within a contract. Therefore, if you are late, you will be in breach. If you do not have this provision, the fact that performance is late will not constitute a breach. In this case, the court brushed the time of the essence clause away and did not hold that there was a breach.

Problem: The Case of the Deficient Valve Tester: B makes valves for cars. He would enter into a contract

with S to make a valve-testing machine to make 95% accuracy. S makes a machine that is 93-94% accurate. B does not want to pay and claims a material breach of the contract. This case looks at the perfect tender rule under the UCC.

Restatement 2-601: Buyer’s Rights on Improper Delivery: Under the UCC substantial performance is NOT the test. The UCC test is the “perfect tender rule” and says that upon improper delivery in which there is a failure to conform to any respect of the contract, a buyer has the right to (1) reject the whole, (2) accept the whole, or (3) accept a portion and rejects the rest.


79

What Constitutes Perfect?: The goods do not have to be perfect under this rule, but the TENDER has to be perfect. For example, if you are selling a used car, the buyer should not expect to receive a perfect good, but should expect to receive a perfect tender of that car, which is to delivery what you said that you would delivery in a specific condition. You have to perfectly provide what the contract requires.

Common Law v. UCC’s Perfect Tender Rule: The difference between the perfect tender rule and the common law rule of substantial performance is that we ask not if the performance was “good enough” under common law, but “did it exactly meet the requirements of the contract?” Remember that goods fall under the perfect tender rule and services fall under the substantial performance rule.

NOTE: UCC 2-508 backs off from the perfect tender rule and allows for a reasonable time to substitute (see damages section).

Lowy v. United Pacific Insurance Company: The plaintiff entered into a contract with the defendant, a contractor, to have him perform certain excavation and grading work on lots and streets. The contract also required him to perform street improvement work. He did not substantially perform the entire contract because he refused to perform the street improvements, but he had already performed 98% of the excavation work. The court says this is a divisible contract.

Usually construction work is an entire contract because it is the whole finished unit and even if things are priced separately, they cannot always be divided. In this case, the contract is divisible because there are two separate parts and the first part is almost complete, while the second part remains unfinished. The costs should be divided and the plaintiff should pay for the service that was performed. The defendant will have to pay for any damage that he caused. The court allows the defendant to get payment on the contract, but they subtract out any damages from the non-performance of the second part. A contractor may recover for work actually performed under a construction contract if he has substantially performed.

Doctrine of Divisibility: A contract is divisible when it is (1) expressly made so (Ex: by stipulating compensation for each separate installment as performed) or (2) if a reasonable interpretation indicates that a failure to perform one installment would not constitute a failure of the basic consideration bargained for.

Divisible v. Entire Contracts: You can tell the difference between divisible and entire contracts by looking at the parts of the contracts. If the part performance agreements correspond to individual performances, such as payment for work. You cannot call a contract divisible if payment is in a lump sum and you cannot tell what portions of the contract would be worth, thus it is an entire contract and it cannot be taken apart.

Restatement 240: The question is whether the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents.

The process of apportionment is one of calculation and the rule is only applicable when calculation is feasible.

Contracts are not divisible unless it is proper to regard the parts of each pair as agreed equivalents. Often, the parties cannot be said to have any actual intention on the point.


80The court’s decision (motivated to avoid forfeiture) will usually depend on considerations of fairness, such

as the receipt by the aggrieved party of a part performance worth roughly the same fraction of what full performance would be worth.

UCC 2-307: Unless otherwise agreed, all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender. But, where the circumstances give either party the right to make or demand delivery in lots, the price if it can be apportioned may be demanded for each lot.

Problems: Divisible or Entire Contracts?

The Case of the Unpaid Contractor: The contractor and owner entered into a contract for home remodeling. There was to be a total amount of $30,000 to be paid as follows: $1500 on the signing, $10,000 on deliver, $15,000 on completion of carpentry and $3,500 on completion. The contractor, on completion of the rough work demanded the third payment and then sued for $15,000. Can he collect the $15,000 dollars and under what theory? It is not a divisible contract because these were just installments on the entire contract. These were more of progress payments to ensure that neither party is at risk for losing money or construction, but they were not really payments for certain performances. They were to make the cash flow even, but were not intended to exactly match. This is why construction contracts are not normally divisible contracts.

The Case of the Defaulting Thresher: The plaintiffs owned a threshing outfit and agreed to thresh the defendant’s grains at the following rates: wheat $1 per bushel, oats $.60 per bushel, flax $1.50 per bushel. After threshing about 50% of the crop, the plaintiff moved its equipment to another location because they were losing money. Defendants had to finish the crop through others at a higher price. The court said this contract was not divisible.

The Case of the Failed Resort Bid: Two people agreed to invest in a proposed resort project and were make a bid to the state. A was to pay $50,000 for the first stage, $25,000 for the next stage and $25,000 as needed. B was to assume liability for the first $25,000. A made the first payment, but refused to make the second. B spent $32,000 in furtherance of the bid. A sued B to recover the first $25,000 and B counterclaimed to recover $25,000 of the expenses incurred after A refused to make the second payment. Due to the fact that each person was to pay $25,000 this was not a divisible contract.

Britton v. Turner: The plaintiff was under contract to labor for the defendant for one year and was to be paid $120 for the work. The plaintiff left the defendant’s employ after 9 months, thus breaching the contract. The plaintiff then sought to recover the reasonable value of his labor. Did the plaintiff substantially perform? No, because he did not perform the contract. It is a material breach to not be there for 2 ½ months. He could not recover under substantial performance, but what about divisibility? The court did not use the doctrine of divisibility because it was not that developed at that time. So what are we going to use? The defendant is going to use a restitution argument that the employer is unjustly enriched if he does not get paid. The defendant is awarded $95 for the work that he has done.

Restitution: Traditionally, the breaching party had no claim and could not recover. This case was a major decision in changing this rule. A defaulting party, although unable to recover on the contract, may be able to recover under a restitution theory the reasonable value of his services, less any damages to the other party arising out of the default. We are going to have to come up with the value of the benefit conferred, which is outside of the contract, because if the employer does not pay you he will be unjustly enriched. You cannot recover more than the contract amount.

Recovery in Quantum Meruit: A defaulting party, although unable to recover on a contract, may recover under a quasi-contractual theory the reasonable value of his services less any damages to the other party arising out of the default.


81Constructive Condition Dilemma: The constructive condition dilemma faced here was solved in many areas

by legislation. The employer must pay the employee’s wages at regular intervals regardless of substantial performance.

Damages: If you cause damages, it will be deducted from your pay. The non-breaching party can be damaged because benefit conferred may not be what it was supposed to be because it may end up costing him more money to pay someone else to finish the job. To get net enrichment you subtract out the damages. Today, wage earners must be paid regularly so this kind of thing will not happen.

Hypothetical: There was a deed for real property for $1,500 and $1,000 has been paid so far. The person stops payment and sues for his money back. The seller then sells the property to someone else for $1,300. The court agrees to give restitution, but only for $800 because the seller lost $200 selling to someone else. The damages for breach of contract were $200 ($1,500-1,300) and you subtract $200 from $1,000 (what has been paid) to come up with the restitution ($800).

Comment: Recovery in Restitution by a Plaintiff in Default:

Problems: Restitutionary Relief and the Wrongdoer:

The Inferior Pool System: The plaintiff put a pool in the defendant’s house. The defendant specified a 20-year pool for $15,000. The plaintiff wanted to save money so he put in 10-year pool, which was a material breach. The defendant does not pay. The plaintiff has materially breached and did not substantially perform. The plaintiff gets paid on the contract, but he did receive options for damages. The pool did increase the value of the property, even with the inferior pool, by $5,000.

Restitution: The following are out options for determining restitution value. (1) We could argue breach of good faith. Normally, when we look to the benefit conferred we look at the cost to replicate it, but in this case the plaintiff did not act in good faith by breaching the contract (2) The plaintiff conferred a benefit on the property in a “balance sheet sense” that increased the value of the property. For example, the plaintiff would get $5,000 not for the contract, but for the increase in property value. (3) For the contractor to replicate and replace the pool would be $12,000. When you resolve a conflict, you always give the breaching party the less generous party benefit conferred. Thus, the court is only going to award the $5,000 for the value of the benefit conferred.

Restatement 371: Measure of Restitution Interest: If a sum of money is awarded to protect a party’s restitution interest, it may as justice requires be required by either (1) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position (cost to replicate) OR (2) the extent to which the other party’s property had been increased in value or his other interests advanced

Attorney and Client: This is a contingent fee contract.

CHANGED CIRCUMSTANCES: IMPRACTICABILITY

Hypothetical: There is a contract in which S enters with C to ship goods to B for S. S will pay $50,000. While shipping the goods from Galveston, the Suez Canal was closed and the trip to go around the canal would increase the price by $100,000 and the shipper would lose time and money if he performs. S refuses to let C out of the contract or pay him more. C breaches and raises the defense of impracticability.


82EXISTING IMPRACTICABILITY

Mineral Park Land Company v. Howard: This is a requirements contract. The defendant agreed to obtain its gravel requirements for building a bridge from the plaintiff’s land and to pay for it at 5 cents per yard. It hauled away all the gravel above the water level but refused to go below that because to do so would cost 10 to 12 times the usual cost of hauling gravel. The plaintiff sued the defendant to perform fully.

Restatement 266: Existing Impracticability or Frustration: (1) Where, at the time a contract is made, a party’s performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary (2) Where, at the time a contract is made, a party’s principal purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary.

The Test For Duty Under Impracticability: (1) At the time of the contract (2) performance is impracticable (3) without fault (4) existing fault, no reason to know or foreseeability (5) basic assumption.

If this test is met then there is no duty to perform and you will not have to pay damages for the contract UNLESS the facts or circumstances indicate otherwise because an allocation of risk was obviously on one party.

NOTE: that the impracticability has to be extreme and almost impossible to perform, but if you made this happen or knew/had reason to know of this then you will not have an excuse.

Impracticability v. Mistake: Impracticability under Restatement 266 sounds like Mistake under Restatement 152. The difference is that mistake allows a party to void the contract (get a recession of the entire contract) and impracticability excuses the party’s performance.

Impracticability v. Impossibility: You may often here the doctrine of impracticability referred to as impossibility. The doctrine of impracticability is more modern and includes everything that will be covered under impossibility but also extends to include things beyond those that are impossible.

Restatement 456: Existing Impossibility: Unless a contrary intention is shown then a promise imposes no duty if the performance is impossible because of facts existing when the promise is made of which the promisor neither knows or has reason to know. Impossible is defined as strict impossibility and impracticability because of extreme or unreasonable difficulty.

Restatement 460: Where the existence of a specific thing is, either by terms of a bargain or in contemplation of parties necessary for performance, a duty to perform the promise never arises if at the time of the bargain is made the existence of the thing within the time for seasonable performance is impossible.

United States v. Wegematic Corporation: The defendant entered into a bidding contract for a computer system, representing that it could deliver the system even though it was not designed yet. There was a deadline set for delivery with penalties for each day late. The defendant could not produce it property and does not perform. The defendant says that at the time the contract was made it could not be produced, but that they were not aware of this. The plaintiff eventually replaced the defendant’s system through another company and then sued the defendant. The court found for the plaintiff and ordered the defendant to pay damages. The defendant says that he should get out of the deal with no damages because of the excessive cost associated with repairing the system. The defendant assumed the risk when they guaranteed that they could perform the contract. He assumed the risk of an underdeveloped product, but he marketed it as though it was already developed. RULE: With the production of new products, where the manufacturer has contended


83that compliance under existing technology is impossible, the contractor has assumed the risk that production was possible.

UCC 2-615: Excuse by Failure of Presupposed Conditions: Except so far as a seller may have assumed a greater obligation and subject to the proceeding section on substituted performance (1) delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs b and c is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid (2) Where the causes mentioned in (1) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under the contract as well as his own requirements for further manufacturer. He may so allocate in any manner which is fair and reasonable (3) The seller must notify the buyer seasonably that there will be a delay or non-delivery and when allocation is required under (2) of the estimated quota thus made available for the buyer.

Finish this NOTE 6: (723) Judge Posener and the Superior Risk Bearer Test: This is an economic argument that says when you are entering onto an agreement, one party is in the better position to insure against loss (more money, better avoidance, ability to detect loss).

SUPERVENING IMPRACIABILITY

Here we are talking about something that happened AFTER the contract was made without the fault of the parties

Taylor v. Caldwell: This is a classic case of impossibility where the doctrine of impracticability is beginning to develop. By written agreement, the defendant agreed to let the Surrey Gardens and Musical Hall at Newington, Surrey for four days for giving for “Grand Concerts” and “Day and Night Fetes.” The plaintiff was to pay 100 pounds at the end of each day. Before any concerts were held, the hall was completely destroyed by fire without any fault of either of the parties. The plaintiff alleged that the fire and destruction of the hall was a breach and that it resulted in his losing large sums in preparation and advertising for the concerts and fetes. In contracts where the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse performance. There was a legal implication that the hall would still be there and it is a constructive condition created by the courts. The defendant should have put in the contract the fact that he was not to be liable if the hall burned down in order to receive an excuse.

Restatement 261: Discharge by Supervening Impracticability: Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. This deals with all things that happen after the contract was entered into.

Restatement 262: Death or Incapacity of Person Necessary for Performance: If the existence of a particular person is necessary for the performance of a duty, his death or incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made. If someone promises to perform a personal situation, the person dies before performance, then they are excused and the estate is not to be charged.

Restatement 263: Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for Performance: If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance


84impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

For example, if there is a contract to paint a portrait and the painter dies then he will be excused. But, if the customer dies then he or his estate still will have to pay because this rule applied only when that person can perform.

Canadian Industrial Alcohol Company v. Dunbar Molasses Company: At the end of 1927, the plaintiff contracted to buy from the defendant about 1,500,000 wine gallons of refined blackstrap molasses, about 60% sugar, of the usual run from the National Sugar Refinery, Yonkers, NY. Delivery was to begin April 1, 1928 “to be spread out during the warn weather.” The refinery that year produced far less than its capacity, less than a half-million gallons. The defendant shipped its entire allotment. 344,083 gallons, to the plaintiff. The plaintiff sued for damages, but the defendant contended that its duty was conditioned by an implied term, the refinery producing enough molasses to fill the plaintiff’s order. The defendant had no contract with the refinery. If the promisor is in some way responsible for the event, which makes performance of the promise impossible, justice does not dictate that he be excused. In this case, the defendant did not contract with its supplier to ensure usual production and he must pay damages.

Chemtron Corporation v. McLouth Steel Corporation: “A party may not, but its own conduct, create the event causing the impracticability of performance. In fact it must make all reasonable efforts to avoid the ‘impossibility’ and once the event occurs, it must employ any practicable means of fulfilling the contract, even if it has originally expected to meet its obligation in a particular way.”

UCC 2-615(a): If the parties specify a particular source of supply in the contact and that source fails, the seller will be excused if (1) both parties assumed that the source was exclusive (2) the seller employer all due measures to assure that the source would perform and (3) the seller turned over to the buyer any rights against the supplier corresponding to the seller’s claim of excuse.

Force Majeure Clause: On the other hand, if excuse is predicated upon a force majeure clause in the contract for sale rather than UCC 2-615(a), the seller need not turn over its rights against the supplier to the buyer.

Problem: A Builder in the Quagmire of Impracticability: A homeowner contracted with a builder to build a $300,000 home. A whole host of problems began.

(1) A massive rock under the surface costing $100,000 extra to the homeowner. The defendant performed no tests. He is arguing a case of impracticability in that the builder cannot perform as he wished. The circumstances indicate the risk is on the builder because he has reason to know the conditions of building could change. If the homeowner insists that the builder use his plans, then the homeowner would assume the risk because he is not relying on the builder’s expertise.

(2) Construction starts and then the city passes an ordinance that puts a damper on the plans for 6 months. By the time the homeowner is ready for the builder to continue, the builder is busy and costs have gone up 10%. Is this the kind of event that would warrant an excuse? Yes, this is an excuse for delay, but not non-performance. Compliance with government orders is specifically mentioned in the Restatement and the UCC as being examples of excuses. This is only temporary and after it passes then you have to decide if the parties are back into a contract or if the contract has gone away. This can go either way based on what has happened in the meantime and if it has become more difficult to perform the contract, for example, price factors or allocation of resources.

(3) If the builder completes 60% and then the house burns down, is there an excuse? He can still build the house, even though it is going to be more expensive, because it is not outrageously expensive. If you cannot tell fault, look to who is controlling the site. Assuming that the builder is not at fault, he is still in the better position to insure. If he does not have insurance, then the courts are not going to help him out. If the house burns down, is the roofer responsible for finishing the roof?


85Who bears the responsibility, the owner, builder, or roofer? The roofer can clam restitution for the amount of work completed because there has been some performance.

(5) When the house was 60% complete, the builder died of a heart attack, the builder had been paid $50,000 up to that time. H contracted with C to complete the work for $300,000 and, when the work was done, sued the builder’s executor for $50,000—damages for “breach” of contract. You may assume that the builder’s executor had, upon H’s request, refused to complete performance after F’s death. Is the homeowner going to get damages in this case? He cannot perform the contract, but it is not a personal service and someone else could perform. The estate could pay the money to have another perform what the builder could not. The builder is not excused and is responsible for any losses suffered that may have occurred because of the breach.

Subjective v. Objective Impracticability: Subjective impracticability says the “if I cannot do it, but someone else can do it, then you are excused. Objective impracticability says the “no one else can perform the contract and then you are responsible”

Rules of Law Under the Restatement and the UCC:

Restatement 269: Temporary Impracticability or Frustration: Impracticability of performance or frustration of purpose that is only temporary suspends the obligor’s duty to perform while the impracticability or frustration exists but does not discharge his duty or prevent it from arising unless his performance after the causation of the impracticability or frustration would be materially more burdensome than had there been no impracticability or frustration.

Restatement 264: Prevention by Governmental Discharge or Order: If performance is made impracticable by complying with governmental order, the order is an event the non-occurrence of which was a basic assumption of the contract.

Problems: Casualty to Identified Goods Under the UCC

Problem 1: A farmer has 100 acres of bottomland in which he regularly plants corn. In May, the farmer contracted to sell 20,000 bushels of #1 yellow corn to a grain dealer for $2.40 per bushel. Delivery was expected after harvest. At the time of contracting, 50% of the land had been planted and the balance was completed within 10 days. In early July, a severe drought began and it intensified until after the usual harvest date. The crop was so bad that the farmer ground it up for fodder. At that time, #1 yellow corn was selling at $5 per bushel. The grain dealer demanded delivery of 20,000 bushels and the farmer refused, claiming excuse under UCC 2-613 through 2-616. The grain dealer claims damages of $2.60 per bushel. The market price has gone up, reflecting the amount of damages the grain dealer is seeking. We are looking at if it fits under the excuse. The UCC reads like the Restatement provision, although it does not specifically mention fault—which goes along with the idea of good faith in the UCC precluding fault. If there is a limited amount of corn to distribute through the market under similar contracts, you will allocate the amount among the buyers, but you have to give them notice of what happened and give them the option to opt out. (You can do this under UCC 2-615(b). Say you have another customer E, whom you sell to every year—you can include regular customers in the allocation and you can allocate to yourself if you regularly keep some corn for yourself (These are both under UCC).

UCC 2-615: Excuse by Failure of Presupposed Conditions: Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance: (1) Delay in delivery or non-delivery in whole or in part by a seller who complied with

UCC 2-613: Casualty to Identified Goods: This is a more specific provision and says that where the contract for its performance goods identified when the contract is made and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer or in a proper case under a “no arrival, no sale” term then (1) if the loss is total the contract is avoided AND (2) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer


86may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller. If goods were identified in the contract at the time the contract was made and there is casualty without fault of either party before the risk passes to the buyer, then we will have an excuse.

Identified Goods v. Identified Source:

Problem 2: A person contracted to sell 11,000 combat boots of a state quality to a country in Africa. The price was $158,000. Only July 1, the seller contracted with S to procure those boots from a Korean manufacturer for $95,000, with delivery no later than November 1. S immediately placed the order with the manufacturer and the boots arrived in San Francisco on October 15. The boots conformed to the contract requirements, but contained no markings identifying their origin. S immediately shipped the boots to the seller in New York by rail under the shipment term “FOB point of Destination.” The goods were totally destroyed by fire while in the carrier’s possession and S was unable to obtain substitutes in time to meet the November 1 delivery date. The seller then canceled the contract for breach and sued S for damages. S claims that performance was excused under UCC 2-613 through 2-616, but these do not really answer this question.

UCC 501: Manner of Identification of Goods: The buyer has a special interest if he identifies the goods before the sale. Parties can identify goods at any time and in any manner expressly agreed to by the parties. In absence of explicit identification, then identification will occur (1) when the contract is made for the sale of goods already existing or identified (2) if the contract is for goods already shipped or marked or somehow identified by the seller as the buyer’s (3) if crops, when they are planted, are to be harvested within the year.

UCC 2-319: F.O.B and F.A.S Terms: (1) Unless otherwise agreed, the term FOB (free on board) at a named place, even though used only in connection with the stated price, is a delivery term under which (A) when the term is FOB the place of d

Are There Excuses for Price Increases in Market Values?: You assume the risk of price increase when you enter into a contract. The buyer is not excused from the contract because there was a change in the market value price.

FRUSTRATION OF PURPOSE

Paradine v. Jane: The defendant, Jane argued that he should not have to pay rent on land that he leased from the plaintiff because he had been deprived of the land’s used when it was occupied by an invading army. When a party, by his own contract, creates a duty upon himself, he is bound to make it good notwithstanding any frustration because he might have provided against it in the contract. THIS IS A STRICT INTERPRETATION and an example of the strict English rule that impossibility is not an excuse for nonperformance. This is not an impossibility of performance because the defendant could have simply performed by paying the rent. The defendant is using the argument of frustration of purpose by asking why he has to pay.

Krell v. Henry: This is where the doctrine further develops. The defendant paid a deposit to the plaintiff for the use of the plaintiff’s flat for the purpose of a viewing site for a royal coronation. A delay in the coronation led to the defendant’s refusal to pay the balance. Where the object of one of the parties is the basis upon which both parties contract, the duties of performance are constructively conditioned upon the attainment of that object. The court in this case found an excuse for the defendant. They cite Taylor v. Caldwell (the music hall case) because they are saying there is an implied condition in the contract (the fact that the parties assumed certain things that did not turn out that way). Evidence says that the contract said nothing about the purpose of the rental and


87extrinsic evidence for purpose was present because there was advertising of the flat for viewing the coronation. This is too old to be a Restatement case, but it shows its early beginnings.

Frustration of Purpose Doctrine: The court develops the new doctrine for the frustration of purpose with a three-part test. (1) Determine the foundation of the contract and ask if the contract performance was substantially frustrated after the contract was made? (2) Was the performance of the contract prevented and therefore frustrated? (3) Was the event that prevented performance so unreasonable that it could not be foreseen or contemplated at the time the contact was made?

Restatement 265: Discharge by Supervening Frustration: The Frustration of Purpose Doctrine became part of the Restatement. Where, after a contract is make, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

How to Be Excused: If after the contract is made the performance was substantially frustrated without the fault of the party wanting to be excused and the frustration was substantial, and the non-occurrence was a basic assumption of the parties, then the contract is excused, unless the party wanting to be excused assumed the risk.

Washington State Hop Producers, Inc. v. Goschie Farms, Inc.:

This is the End of Chapter Five

CHAPTER 8: ANTICIPATORY REPUDIATION

I. Right to Suspend Performance or Cancel Upon Prospective Inability or Breach

a. Hochster v. De La Tour : In April, the plaintiff contracted to serve as the defendant’s employee beginning on June 1. On May 11, the defendant wrote to the plaintiff that he had changed his mind and declined the plaintiff’s services. On May 22, the plaintiff brought this action for breach of contract.

When the time for performance has not arrived, but one party nevertheless indicates his intention not to perform, must the other party wait until the performance should have occurred before bringing action for breach of contract? NO.

A party to a contract who renounces his intention to perform may not complaint if the other party instead of waiting until performance is due, elects to sue immediately for breach of contract.

Restatement 250: Breach by Anticipatory Repudiation : When can breach of anticipatory repudiation be used? When it is clear that the party intends not to perform. This happens when: (1) There is a clear and unequivocal statement of intent not to perform (expressed); that the defendant will not perform the contract before the plaintiff can sue OR (2) there is a voluntary, affirmative act which makes it impossible to perform.

Repudiation Can Be Retracted : You cannot retract the repudiation (1) once you have been sued or a suit is filed regarding repudiation (2) once repudiation was relied upon (3) once the party accepts the repudiation—expressly accepted cancellation of a contract. Once it is retracted the contract is back in force for both parties.


88

b. Taylor v. Johnson : The plaintiff entered into a contract to breed his mares with the defendant’s stallion. The defendant’s later sold their stallion, and the horse was never bread with the plaintiff’s mares.

Should a party be deemed to have anticipatorily breached a contract if he has caused the other party to believe that he will not perform the agreement?

Anticipatory breach occurs only when one of the parties to a contract has expressly or impliedly repudiated the agreement.

Restatement 251: When a Failure to Give Assurance May be Treated as Repudiation: (1) Where reasonable grounds arise to believe that the obligor will commit a breach by performance that would of itself give the obligee a claim for damages for a total breach under section 243, the obligee may demand adequate assurance of due performance and may, if reasonable suspend any performance for which he has not already received the agreed exchange until he receives such assurance (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.

Restatement 254: Effect of Subsequent Events on Duty to Pay Damages : (1) A party’s duty to pay damages for total breach by repudiation is discharged if it appears after the breach that there would have been a total failure by the injured party to perform his return promise (2) A party’s duty to pay damages for total breach by repudiation is discharged if it appears after the breach that the duty that he repudiated would have been discharged by impracticability or frustration before any breach of non performance.

Restatement 254: Effect of Subsequent Events an Duty to Pay Damages : A party’s duty to pay damages for breach by repudiation is discharged if it appears after the breach that there would have been (1) a total failure by injured party to perform his return promise OR (2) the duty that he repudiated would be discharged by impracticability.

c. AMF, Inc. v. McDonald’s Corporation : The plaintiff contracted to sell computerized cash registers to the defendant and some of its licensees but was unable to manufacture enough workable cash registers to fill the order.

May a party cancel a contract if there is no satisfactory response to his proper and reasonable demand that the other party provide adequate assurance of performance?

Where reasonable grounds for insecurity exist, a party to a contract may demand adequate assurance of performance, and if such assurance is not forthcoming, that party may cancel the contract with impunity and this is repudiation.

UCC 2-609: The Right to Adequate Assurances : [In addition to 251, the UCC adds the provisions in bold print—(1) in writing and (2) 30 days] (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 and until he received such assurance may, if commercially reasonable, suspend any performance for which he has not already received the agreed return (2) Between merchants the reasonableness of grounds for insecurity and the


89adequacy of any assurance offered shall be determined according to commercial standards (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance (4) After receipt of a justified demand, failure to provide within a reasonable time not exceeding 30 days of such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

UCC 2-610: Anticipatory Repudiation :

d. Problem: Financial Inability to Perform :

Problem 1 : S and B entered a contract for sale under which S was to manufacture and deliver “on or before” a certain date 10,000 fiber cartons for B to pay $20,000 in two installments. B found out that S was in financial trouble. S’s response to B’s concern was in effect “not to worry, the cartons will be delivered on time.” The first installment is due. The market price has increased 5% since the time of contracting and because of problems obtaining raw materials and other manufacturers are experiencing delays in delivery. B wants out of the contract NOW and comes to you for advice, what would you recommend?

Issue 1: Demand in Writing : There has been no breach and it does not look like there has been repudiation yet. A lawyer should recommend the assurance process of 2-609 and if S does not provide assurance, then B can cancel the contract. If you make the demand in writing, the performance can be suspended until assurances are received because no money has been paid yet. If money has been paid, then performance cannot be suspended because some return has already been received.

Issue 2: Reasonable Time of 30 Days : Is 30 days reasonable or is it too short of a period of time? B wants to cancel the contract because the market price is going up (he does not want to wait to purchase for another) and he does not want to pay the money to S. It is not reasonable under these circumstances to make B wait 30 days and thus the reasonable period of time should be shorter.

Problem 2 : M is a manufacturer of goods and sells on credit to his buyers because if he dealt in cash he would lose 30% of his customers.

UCC 1-208: Is this necessary?

UCC 2-702: Seller’s Remedies on Discovery of Buyer’s Insolvency : (1) Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract and stop delivery under this article (2) Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within 10 days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within 3 months before delivery the ten day limitation does not apply. Except as provided in this subsection the seller may not base a right to reclaim goods on the buyer’s fraudulent or innocent misrepresentation of solvency or of intent to pay (3) The seller’s right to reclaim under subsection is subject to the rights of a buyer in ordinary course or other good faith purchaser


90under this article. Successful reclamation of goods excludes all other remedies with respect to them.

Restatement 252: Effect of Insolvency : (1) Where the obligor’s insolvency gives the obligee reasonable grounds to believe that the obligor will commit a breach under the rule stated in Restatement 251, the obligee may suspend any performance for which he has not already received the agreed exchange until he received assurance in the form of performance itself, an offer of performance, or adequate security (2) A person is insolvent who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due or is insolvent within the meaning of the federal bankruptcy law.

Problem 3 : Suppose in the above example, S agreed to manufacture and deliver to B 10,000 fiber cartons at a fixed price of $20,000. Due to unanticipated bad weather and government embargo, the cost to S to obtain the raw fiber increased 500%. S knew the total performance of the contract would be $50,000. S asked B to pay $40,000 or S may not be able to deliver. B sent S a written demand for adequate assurance of due performance, but S did not respond. B cancelled the contract and sued S for breach of contract.

It looks like repudiation, but it depends on whether S’s nonperformance would be a breach of contract. If S did not perform would they be in breach of contract?

Impracticability Argument : Impracticability is an argument because of the price increase, which is normally not a defense. But in this case it is dramatic and due to the events, so it might be an impracticability excuse, which cancels the contract and there would be no repudiation.

Restatement 254:

e. Plotnick v. Pennsylvania Smelting and Refining Company : This is an installment contract in which the plaintiff refused to make further shipments of lead after the defendant failed to make an installment payment pursuant to a contract for that lead. This was held not to be a substantial impairment in order to get out of the whole contract it only deals with insecurities in which a demand for assurances should be made. Up to this point we have been dealing with buyers, but this case discusses sellers.

Is the seller of goods in an installment contract automatically excused from the duty to complete performance by the buyer’s failure to make an installment contract?

The failure of a buyer to make a payment on a severable installment contract will constitute a material breach of contract, excusing the seller from any further duty to perform, only where it is shown that such failure has either (1) made such performance unreasonably economically burdensome for the seller or (2) made such performance an unreasonable economic risk for the seller to take.

UCC 2-612: Installment Contract Breach : (1) [Defines installment contract] 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) [States when the buyer, but not the seller may reject a nonconforming installment] The buyer may reject any installment which is non-conforming if the nonconformity substantially impairs the value of that installment and cannot be cured or it the nonconformity is a defect in the required


91documents, BUT if the nonconformity does not fall within subsection 3 and the seller gives adequate assurance of its cure the buyer must accept that installment. (3) [Whenever nonconformity 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 nonconforming 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.

UCC 2-612 In Relation to Sellers : This can be used in relation to sellers, though some parts only work for buyers. Under the Code, a seller may cancel where the buyer “fails to make a payment due on or before delivery…if the breach (substantial impairment) is of the value of the whole contract, and not just the installment. In this case, the court says there is not a substantial impairment or that big of a breach.

f. Comment: Post-Breach Conduct Affecting the Cancellation Remedy : Discusses when you waive your right to cancellation.

Problem 3 : When the material breach occurs the other party has a right for performance and a right to cancel based on the material breach. If you do not cancel then you waive the right to cancel and the contract remains in place. What if you do cancel the contract, but instead of indicating that you are canceling for the material breach, you indicate there is another reason? Is it too late for the material breach or is it okay because you did cancel? It depends on whether or not it makes any difference. If it did not make a difference then it would not be too late to cancel based on material breach

For example, if someone is printing brochures and they were not to the satisfaction of the company and they were re-printed. The court said that it was too late to raise the problems the second time because the right to reject was waived after they were not mentioned in the first instance.

II. Compensatory Damages

a. Basic Policies

Why Do We Have Remedies At All? The enforcement of contract law developed in the Industrial Revolution and security was needed to ensure that an enterprise they embarked upon would be fruitful. Is it a body of law that considers a breach of contract a bad thing or a moral wrong to prevent from happening? There are no criminal damages and the law allows you to breach a contract and may encourage it because there is no criminal penalty. A breach is not immoral and sometimes it is good or efficient to do so because damages are paid and then the resources move on.

Goal of Damages and Benefit of the Bargain: If we are going to enforce contracts, the goal of damages is to give the wrong party the benefit of the bargain, which means the party will get what they were supposed to and thought that they would get, not just damages for the losses.

Specific Performance As Best Method: You want to give them the benefit of the bargain and the best way to do this is through specific performance where you make the breaching party do what they agreed to do. This is not a favored method or the remedy of choice and it not often given because it is only given when the legal remedy is inadequate. The reason this is only given when a legal remedy is not good enough is because it goes against the idea of efficient breach. Historically, we do not go directly to specific performance as the best


92remedy. Specific performance will not be awarded unless you can prove that the damages are not adequate, the usual remedy is damages.

Efficient Breaches: Watch out for thinking something is an efficient breach when it is not. For example, say you want to sell a car worth $2,000 for $1,500, but you find someone willing to pay $2,000 and think the breach would be efficient. It is not efficient because you will have to pay the difference of $500 in damages to the party to which the car was not sold.

Sullivan v. O’Connor : The defendant doctor, promised to improve the plaintiff’s appearance by cosmetic surgery. In fact, the defendant’s efforts left the plaintiff with more of a disfigurement than previously. The plaintiff sues in contract and in tort. Her tort cause of action failed because there was no negligence.

If a doctor contracts to achieve a particular result for a patient is the patient’s recovery for breach limited to the amount of his out-of-pocket expenses?

A physician who breached his contractual obligation to effect a particular result is liable to his patient for the cost of any measures or treatment necessitated by the physician’s breach and for any pain and suffering resulting there from.

The Remedy of Expectation : This remedy is designed to give the benefit of the bargain and move the plaintiff in the direction they would have been were there no breach of the contract. This usually results in monetary damages. For most cases, this is going to be the best remedy because it is giving the benefit of the bargain to the party for the breach.

Restatement 347: Measure of Damages in General : Subject to limitations in sections 350-353, the injured party has a right to damages based on his expectation interest as measured by: (1) the loss in value (of the gain expected) to him of the other party’s performance caused by its failure or deficiency, PLUS (2) any other loss, including incidental or consequential loss, caused by the breach, LESS (3) any cost or other loss that he has avoided by not having to perform. In summary, you have the following:

Expectancy = Loss in value + any other loss showed by breach – any cost of loss avoided

Sullivan v. O’Connor and the Expectation Restatement : The expectancy damages that would be received in this case include the following: (1) Loss in value: The difference between the nose she expected – the nose she had (2) Other losses: (A) The nose she had to the disfigured nose [this was a loss in value that must be compensated for] (B) Cost associated with the third surgery (C) Pain, suffering and mental anguish [normally not given in contract cases] that accompanied the third operation only, she is not compensated for the first two because she bargained for the first two and we give the benefit of the bargain (3) Costs of loss avoided: There are not any of these because cannot get fees back if she


93has already paid for the operation she was going to have anyway

The Remedy of Reliance : This remedy puts you back where you were before the contract began and focuses on the plaintiff. This covers losses based on the contract.

Restatement 349: Alternative to Expectation : Damages are based on reliance and include any expenditures made in preparation for or in performance less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered if no breach.

Restatement 351: Unforeseeability and Related Limitations on Damages: Damages are not recoverable if they are not foreseeable as a probable result of the breach. Foreseeable results follow from the usual course of events, or as a result of special circumstances that breaching party had reason to know. The court can limit foreseeable loss (only allow for loss incurred in reliance, excluding profits).

Sullivan v. O’Connor and the Reliance Restatement : In this case, the plaintiff would receive reliance difference in the following formula: The nose she had – the nose she has now + pain and suffering for all three surgeries [we want to put her back where she would be without surgery] + any fees paid to the doctor for surgery.

The Remedy of Restitution : This gives back the money given to the breaching party and is used only when you cannot get any better damages. This focuses on the defendant and tells him that you have to disgorge any benefits that you received from the plaintiff under the contract.

Restatement 370 and 371 : A party gets restitution if conferred a benefit to another party by way of part performance or reliance. This is measured by either (1) the reasonable value to the other party [what it would have cost him to obtain] OR (2) the extent to which the other person’s property has increased in value [or other interests advanced].

Sullivan v. O’Connor and the Restitution Restatements : The plaintiff would only get a refund for what she paid the doctor. This is the remedy that the doctor would want to be enforced.

Problem: The Case of the Recalcitrant Manufacturer : The plaintiff invented a new type of bread and needed a new oven and they ordered one for $30,000 with 90 days credit. The oven was late and the defendant said that unless the plaintiff paid up front, they would not deliver. The plaintiff bought his oven from someone else. In this case there is a statutory remedy. There is a breach by the seller, so we go to the buyer’s remedies.

UCC 2-711: The Buyer’s Remedy for the Seller’s Breach . There are several options open to the buyer. The buyer can: (1) cancel the contact OR (2) get the money back.

This is what the court wants to award the plaintiff because they do not want to put a value on the expected performance and they were already amiss whether to look at this claim in the first place because the doctor was not negligent.

The court says in this case that this would not be a large enough award of damages to the plaintiff.


94 UCC 2-712: Buyer’s Procurement of Substitute Goods; “COVER

MEASURE”: After a 2-711 breach, a seller can “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined, but less expenses saved in consequences of the seller’s breach (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. You cannot cover custom goods.

UCC 2-713: Buyer’s Damages for Non-Delivery or Repudiation; “MARKET MEASURE”: (1) Subject to the provisions of this article with respect to proof of market price, the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this article, but less expenses saved in consequence of the seller’s breach. (2) Market 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.

In this case the market price is $29,500 and consequential damages are also given for any losses that he may have.

UCC 2-715: Consequential Losses and Damages : Damages must be proven with the following: (1) certainty (2) foreseeability (3) avoidability (was not avoidable)

In this case, the plaintiff could have paid $30,000 today and received the oven. The courts would be reluctant to make the plaintiff buy from the defendant because it ends up giving the breaching party what they wanted.

UCC 2-716: Buyer’s Right to Specific Performance or Replevin : (1) Specific performance can 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) The buyer has a right of replevin for goods identified to the contract 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 interest in them has been made or tendered.

In this case, the plaintiff could sue for specific performance, even if the plaintiff paid up from he can still sue for damages, for example the loss of money for 90 days.

Allen v. Jones : The trial court held that the plaintiff failed to make a cause of action in his suit against the defendant for mental anguish suffered as a result of the defendant’s negligence in performing a contract to cremate the defendant’s brother’s remains.

May damages for mental distress be recovered in a breach of contract action?


95Damages for mental distress may be recovered for breach of a contract, which so affects the vital concerns of the individual that severe mental distress is a foreseeable result of a breach.

Foreseeable Mental Anguish Situations : (1) Bodily injury (2) Type of contract where it is likely to have emotional distress, for example dead bodies or insurance contracts.

Restatement 353: Recovery for Emotional Disturbance : Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or its breach would normally cause serious emotional disturbance.

Problem: The Case of the Distressed Newlyweds : An engaged couple hired a band to perform at their wedding. The couple paid $300 down and agreed to pay $700 more after the reception. The band never showed up and the couple paid the groom’s brother $75 do play DJ. The couple claims that the quality of music was inferior to that promised by the band and that the couple suffered extreme anxiety and distress resulting from the breach.

How much, if anything, should the couple recover from the band? If the band offered $375 to settle the case, would you recommend that the couple accept?

F.D. Borkholder Company v. Sandock Boise Dodge, Inc. v. Clark Comment: The Rise and Fall of Punitive Damages for Breach of Non-

Insurance Contracts in California Comment: Enforcement of Money Judgments Problem: Remedies for Bad Faith Breach of Contract to By Money

b. Breach or Repudiation by Payor John Hancock Mutual Life Insurance Company v. Cohen Problem: Seller’s Resale Remedy Under the UCC American Mechanical Corporation v. Union Machine Company of Lynn, Inc. Lowy v. United Pacific Insurance Company New Era Homes Corporation v. Forester Comment: Breach of Construction Contract and the “Components” Approach Comment: Reliance Damages or Restitution as Alternatives to Expectation

Damages Problem: Restitution as a Remedy for Breach Problem: Seller’s Remedies Under the UCC—UCC 2-708(2) Locks v. Wade Comment: The Lost Volume Seller Under UCC Article 2 Problem: The Scope of UCC 2-708(1) Comment: Employee’s Remedies for Breach of Employment Contract

c. Breach or Repudiation By Performer

long contracts outline - powers 2006

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