I. Unenforceability - Elements of K are present, but Ct. does not enforce due to (1) public policy or (2) illegality.

- Evidence of unequal bargaining power = unconscionable. - Look for statute on-point making K contrary to public policy or illegal. - yes; Ct. will use statute against enforcing K and bar recovery generally. - no; Ct. reluctant to define new areas of illegality. - 181 Requires x2 elements of violation for K to be held unenforceable: - Regulatory purpose not revenue driven. - Enforcement is outweighed by public policy behind the regulation (public health/safety, consumer protection, etc.) A. Against Public Policy Hanks v. Power Ridge (injury while snow-tubing) - Exculpatory Clauses: - Minority Rule: Total release from L for N is contrary to public policy. - Majority Rule: Freedom to K exculpatory clauses, 'law & economics' view that customers benefit from lower prices in assumption of inherent risk. - Balance of public vs. interest of . - Public interest in holding L for N when had control of safety. - Adhesion K's presumption of unequal bargaining power. - Vagueness in K presumption that the lacked understanding of terms. Valley Medical Specialists v. Farber (Dr. gets out of NC covenant b/c because of public policy) - Non-Compete Covenants: 1) Protect only legitimate business interests (clients & goodwill). 2) Must be reasonable in scope (time and geography). 3) Balance the needs vs. hardship on K parties. 4) Ct. may make changes depending on jurisdiction. - Majority Rule: Blue pencil; elimination of severable unreasonable clauses. - Pro; allows K to stand even when part bad. - Con; could upset balance of parties. - New Rule: Reasonableness; Ct. rewrites (including new terms) K to be brought in-line w/ public policy. - Old Rule: All or nothing; if any part unconscionable then all unconscionable. * Severability clauses Allow Ct. more freedom to modify the agreement to the extent necessary to K to align w/ public policy. - 188 NC's are invalid if (1) restraint it greater than needed or (2) needed to protect legitimate business interest outweighs hardship to restricted party and/or public. B. Unconscionability Williams v. Walker-Thomas Furniture Co. (rent-a-center sues to repo furniture and remanded to see if unconscionable under UCC 2-302) 1) Unconscionability = absence of meaningful choice from unequal bargaining power or manner in which k was made. 2) Fact specific re: time K was made look to fine print, deceptive sales practice, usage of trade, etc. objective standard = what would avg. consumer understand - Types of unconscionability: Procedural (bargaining unfairness):

- Lack of meaningful choice due to unequal bargaining power - How the particular agreement in presented/written (intelligible terms vs. maze of confusing language, fine print, hard for avg. person to understand, etc. ) Structural (unfair or oppressive terms): - Are the terms/provisions fair - Impact of the provisions themselves - Assessing Unconscionability Substantive & Procedural - Williams above which talks about both Only Substantive (When Overwhelming) - Bower below which only requires substantive Bower v. Gateway ( s claim arbitration clause is unconscionable and gets different arbitration location from Ct.) 1) Arbitration spot from K (in box w/ purchase) is unconscionable b/c makes s go to ICC in France or Chicago Ct changes spot but otherwise upholds arbitration (rejects s claim that the arbitration clause shouldnt come in under 2-207 and rejects idea that it is K of adhesion b/c could have returned it in 30 days) 2) Only substantive unconscionability (cost of arbitration is way too high) UCC 2-302 unconscionability = matter of law ( for juries to decide) 3) Principle = prevention of oppression and unfair surprise (cmt. 1) appears to refer to both procedural and substantive/ ks of adhesion C. Mistake - K may be rescinded/reformed based on either: (a) Mutual mistake (need this to rescind K) - Easier to win than unilateral (b) Unilateral mistake: - Ct.s are reluctant to grant relief based on unilateral mistake no duty to disclose/share info gained by effort/time w/ other party 1. Mutual Mistake Sherwood v. Walker (Ct. refuses to force not barren cow to be sold for barren cow price case) - Can rescind K (and keep cow) if (Sherwood test Rest test): (1) Mistake = substantial and goes to essence of the consideration ( mere value/quality/etc.) (2) Mistake must be mutual Barrenness = found to be part of the essence of a cow AND both parties are mistaken * Dissent says barren essence of cow b/c still a cow and not mutual mistake b/c never said barren and unilateral mistake enough to rescind (3) Unilateral enough to rescind b/c too subjective - People could easily change mind and claim mistaken re: value of the deal - Parties bear risk of own mistake generally Rest 152: (1) Mutual mistake (2) At time of K formation (3) About basic assumption (4) Has material affect (on agreed exchange of perf) (5) Can make K voidable by adversely affected party (6) UNLESS party = bears risk under 154

Rest 154: party bears risk when: (1) Agreement allocated risk to a party OR (2) Party is a. aware at time that K is made that b. he/she has limited knowledge of facts but c. treats that limited knowledge as sufficient OR (3) Ct. allocates risk b/c it is reasonable to do so in the circumstances (4) Estate of Nelson v. Rice (estate sells a painting for $110 but it is worth over $1 mil and tries to rescind case) (1) Ct decides that it makes sense to allocate risk to estate under 154(c) (2) Trial ct also finds that this meets 154(b) estate know of appraisers limited knowledge of fine art but treated that as sufficient see cmt c re: conscious ignorance See also Rest 157 (mistaken partys fault in failing to know facts before making K bar to rescission or reformation unless it good faith or reasonable 2. Unilateral Mistake: - Rest 153: (1-6 same as 152 for mutual but for unilateral need the addition of either unconscionability or fault/knowledge of the other party) (1) Unilateral mistake (2) Made at time of k formation (3) Goes to basic assumption (4) Has material affect (5) Adverse to that party (6) Can be voidable if party risk bearer (see 154) AND (a) Enforcement would be unconscionable OR (b) The other party knew/had reason to know of the mistake or other party fault caused the mistake Grenall v. United Omaha Life Insurance (estate sues to get out of annuity bought only months before death and ct says k sticks) - wants to rescind due to unilateral mistake but Ct finds that bore the risk of mistake - policy reasons due to nature of agreement for life insurance/annuity it makes sense for to bear risk of early death since insurance bears risk of long life. Mispriced Jaguar in ad case = better example (buyer sues when seller refuses to sell a mistake price) - Seller made unilateral mistake at time of (wanted) K formation (re: ad) that went to a basic assumption, was material, seller didnt bear the risk (unless ct. decides to make it so) and effect would be unconscionable - Buyer didnt know/have reason to know that price was wrong so mutual mistake - But maybe he did b/c was shopping around for jags and drove to dealer right away w/ newspaper in hand and was a lawyer. II. Terms of the Deal - Cases could be avoided by better drafting, but often strategic reason to not include all contingencies in K: - Clients might avoid terms that would make deal fall through - Clients might prefer uncertain terms over no K at all

A. Trade Usage/Customs Threadgill v. Peabody Coal Co. (probing holes goes awry, probe is lost and is stuck with trade usage that says , as driller, pays but may get out on remand if can prove N) (1) If trade usage/custom is sufficiently common, the parties are assumed to have Kd w/ reference to it. (2) Actual knowledge required should have known (3) Usage must be sufficiently common universal and notorious (4) Cant K away N, so if probe is lost due to s N, then L. (5) * Policy: Looking to trade usage/custom and not requiring actual knowledge = if you are in an industry you should acquaint yourself w/ business standards prevalent in the field Rest 222: (1) usage = regularly observed in place/vocation/trade so that it justifies expectation that it will be included in K and can be system of rules that changes from time to time (2) trade usage is question of fact, written trade code = evidence (interpretation of written code = question of law) (3) unless otherwise Kd around, the usage: gives meaning, supplements OR qualifies *Note: Finding usage of trade = very fact heavy analysis in most situations, even w/out reference in written K, trade usage ends up in the K. B. The Parole Evidence Rule: - rule of evidence but = substantive law. - Generally limits the fact of prior agreements rather than the evidence of those agreements. x2 Major Questions of Every K: (1) What level of integration? (completely integrates vs. partially integrated vs. not integrated at all) (2) How does the prior agreement effect the written K? (contradict, supplement or interpret) (3) Nelson v. Elway ( sues to enforce side deal but ct finds that merger clause means completely integrated K) - x5 agreements total 2 dealership's and each has a buy-sell K and a RE K, plus side K that is trying to enforce. - Ct finds that merger clause in buy-sell (which mentions RE K w/in) makes all the Ks = completely integrated = bar to parole evidence re: unsigned side deal. OLD RULE/MINORITY RULE (Four Corners): mere presence of merger clause = bar to parole evidence

Dissent = MODERN TREND/MAJORITY RULE (Plain Meaning): merger clause complete bar but creates rebuttable presumption of complete integration that can be overcome by other evidence. - Fact that there is dispute of # of Ks (4 vs. 5) and merger clause = only in the 2 buy-sells enough to create issue of fact re: integration.

Trident Rule: See bellow (Contextual) Rest. 213: Parole Evidence rule: - Binding integrated agreement discharges inconsistent prior agreements - If partially integrated, then parole evidence cant contradict - BUT can supplement the written agreement - Completely integrated agreement discharges all prior agreements w/in its scope - If completely integrated, then parole evidence cant contradict or supplement - BUT can be brought in to help interpret the writing (see 214 below) - The writing is exclusive Rest. 214: evidence of prior or contemporaneous agreements/negotiations are allowed: - Level of integration of the K - Meaning of writing/terms - Illegality, fraud, duress, lack of consideration, or other invalidating cause - Grounds for granting remedy (rescission, reformation, spec. perf., etc.) Rest. 210: Completely vs. Partially Integrated: Completely integrated = complete and exclusive statement of the deal as adopted by the parties Partially integrated=everything else Rogers v. Jackson (ME promissory note is only partially integrated case) - No merger clause ct finds prom notes partially integrated and can introduce evidence of oral K and prom note as part of larger real estate deal - 216 consistent addl terms can supplement partial - 217 oral agreement re: perf is subject to stated condition integrated - only survives sum jmnt not clear how he will fair in trial Dissent (Saufley) language of prom note ambiguous and even if only partially integrated the term Ill pay when I can would be in direct contradiction supllement Simmons Foods, Inc. V. Hills Pet Nutritions (poultry ash for pet food Ks go awry case) - Fax w/ three year plan and potential 3 year agreement responds w/ 2 pos for specific quantities for 1 yr ( requirement or output Ks like some of the previous ks btw the parties) - would like to get in evidence of prior course of dealings/perf to show long term agreement Ct denies - Ct doesnt specify level of integration but bars oral/extrinsic evidence that contradicts the ks w/ specific quantities/time sum j for U.C.C. 2-202 slightly different than restatement (more theoretical than practical difference) cant be contradicted by evidence of prior agreements or contemporaneous oral agreements but can be interpreted/supplemented by: (1) Course of perf. course of dealing, usage of trade can supplement (Rest wouldnt allow this in completely integrated ks) AND (2) Consistent addl terms UNLESS ct finds writing complete and exclusive statement of agreement - Cmt 2 all under a) comes in UNLESS carefully negated practically this implies that usage/course of perf etc. will only be used to interpret supplement

General hierarchy of both Rest and U.C.C. (a) Express terms (given most weight) (b) Course of perf - Look to repeated acts btw parties (c) Course of dealing - Look at previous deals btw parties (d) Usage of trade C. Extrinsic Evidence (parole and other) Defining the Terms Random House v. Rosetta Books (e-books rights case ambiguous K language) - Issue did license/copyright give rights to e-books when it licensed rights to reproduce in book form - No ambiguity at time of drafting b/c e-books in existence ct find ks language = ambiguous now re: e-books Plain meaning approach to determine ambiguity - Ct looks to extrinsic evidence s own definition of book; usage of trade w/in publishing industry; what else is in agreement (if they had specified each type of book allowed, then maybe e-book not included but they didnt exist at time of agreement) - could have used broad language to get e-books right to publish in any format now known and any format yet to be developed x3 Approaches to Determining Ambiguity: (1) Strict 4 corners approach: - Dont look outside language of K itself - Very discretionary to judges to determine what is ambiguous w/in K (2) Plain meaning approach (Contextual): - Look beyond text itself and look at context to see if there is ambiguity UCC 1-303. Course of Performance, Course of Dealings, Usage of Trade Frigalment Importing Co. v. BNS International Sales Corp (Chicken Case)in order to bring light to the term chicken, the court 1st looks to the express terms of the contract. Then, the court looks to language used in negotiations for interpretation. Finally, the court looks to trade usage. Restatement 212. Interpretation of Integrated Agreement. (1) The interpretation of an integrated agreement is directed to the meaning of the terms of the writing or writings in the light of the circumstances, in accordance with the rules stated in this chapter. (2) A question of interpretation of an integrated agreement is to be determined by the trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence. Otherwise a question of interpretation of an integrated agreement is to be determined as a question of law. See. Random House v. Rosetta Booksplain meaning rulecontract just said books, not ebooks so it took the plain meaning and applied it to today. Trident Center v. Conn. General Life Ins Co. (Loan repayment case w/ extrinsic evidence allowed w/out ambiguous language) - Two hurdles for show that there is ambiguity then get extrinsic evidence in to show what k provision actually means - wants to repay at lower interest (prom note, prob at least partially integrated) - Ct looks at text of note no ambiguity w/in K itself has option to change payment if default but not K fairly susceptible to s interpretation - Ct follows Pacific Gas K interpretation will always need extrinsic evidence ( strict 4 c

orners) b/c K = what parties intended (subjective approach) Rest 212 rejects 4 corners rule b/c cant know if language is ambiguous w/out extrinsic evidence/context. RULES: even in completely integrated Ks evidence can be introduced to help interpret K if language is ambiguous. - Courts use different standards to determine ambiguity (some allow extrinsic and some ban it) - Ambiguity = question of law and prelim determination of ct - 3 modes of determining ambiguity: - 4 corners rule OLD RULE = strict and dont look outside k (no extrinsic) - Traditional plain meaning rule Random House (no ambiguity found) look - to meaning of K language itself and context to see if there is ambiguity - More relaxed plain meaning rule (REST) Trident look at all evidence offered to see if ambiguity/ K language is reasonably susceptible to another interpretation. - If ambiguity exists interpretation of K = also matter of law and goes to fact-finder ONLY if credibility issues or choice of inference Rules and Maxims of Interpretation and Special Interpretive Rules for Ks of adhesion: - Most important: - Rule for interpreting K against/less favorable to the drafter - Used especially in ks of adhesion - Sears problem p. 500 use interpretation that makes k valid over one that doesnt and handwriting/typed terms are preferred over printed (infer change that parties intended) BUT clerk might not have power to auth changes and original card-holder agreement might trump changes to credit card slip. Meyer v. State Farm (fire insurance appraisal clause upheld case) - s 2 arguments to get out of appraisal clause: - didnt read policy/know of clause convincing - K of adhesion had no opportunity to negotiate (Ct looks at this) - Even though K of adhesion, Ct still finds for b/c not invalid merely b/c k of adhesion and but do look w/ care and not ambiguous or unconsionable - RULES for interpretation of K of adhesion: - Look w/ special care - Unconscionability - Construe ambiguity against drafter Lauvetz v. National Car Rental (drunk driving damage under collision damage waiver (cdw) case) - (natl car) sues for comp and p/ds after s drive drunk and crash van. - s argue that they didnt know what cdw was but expected insurance to cover dams even if at fault. - s argue it is unreasonable to think that no L for drunk driving - Ct looks to reasonable assumptions rest 211 in standard form ks valid will stay in even if unread but will be invalid if unreasonable (if one party has reason to know that the other wouldnt sign if they knew the meaning of the term the term is out) - On remand issue f what reasonable purchaser would have thought of cdw (objective standard)

Meyer approach v. Lauvetz approach: - Meyer: enforces K as written: - Standard K will be enforced unless finding of unconscionability, fraud, etc. (likes public policy behind provision) - More concerned w/ freedom of K - Requires (assumes) parties have read K - Lauvetz: looks to effect on public: - Wont enforce standard k if unread and unreasonable - Rest 211 look to reasonable persons expectations of k and 3) term isnt valid if one party knows the other wouldnt accept it if it had known. D. Terms added by the Courts/Legislatures - What does the court do when the K is silent on an issue/term? - Imply a reasonable term under rest 204 - Go to UCC gap fillers Wood v. Lucy, Lady Duff-Gordon (Ct implies a promise to use reasonable efforts) - and have K where they split profits and finds endorsements (exclusively) argues K lacks consideration and is illusory promise. - Ct saves k w/ implied promise to use reasonable efforts looks to language/terms of K and assumption that one party would not be completely at mercy of other subjective intent but what would reasonable person agree to - No parole evidence issue b/c K is silent re: this issue not interpreting K term or supplementing/contradicting. Rest 205:every K imposes duty of good faith dealings UCC 2-306 on exclusive dealing (2) best efforts are implied unless you K around it General Ct concerns re: gap-filling: (1) Dont over-reach (2) Dont be too specific (3) Dont save K w/ too many holes. Implied Covenant of Good faith and Fair Dealing: Rest 205 ever K has it Billman v. Hensel (subject to financing clause used to dodge house purchase case and breach found) - s selling house and k w/ s subject to finding financing. - s try one place, come up short, s offer to make up the difference, refuses and convo w/ parents suggests they have changed mind re: house - Ct finds s didnt make reasonable good faith efforts to get loan (dont specify how many applications would be enough but only one) if they had applied more places then other motives would be irrelevant. Courts can also imply terms for public policy: - Even if K silent on a term, might need to effectuate it in a certain way

Locke v. Warner Bros. (Clint Eastwoods ex is blacklisted case and possible breach) - argues that development deal is sham and that had not intention of working with her did get paid under K but had no ability to advance career and has testimony evidence that studio did not plan to accept any of her ideas - Trial ct finds for (cant 2nd guess creative decisions) and this ct revs and remands re: issue o f material fact re: good faith ( cant just categorically refuse ideas but must use good faith in honest evaluation and has evidence that decisions motivated by creative considerations) - Subjective standard have to determine on remand how made decisions (categorical due to Clint or honest eval dont look at what other studios would have done except as evidence re: legit denial) - On remand must show that had subjective valid reasons and looked at ideas properly (evidence of objective reasonableness might help but not dispositive) and cant say would have rejected either way b/c still breach at time issue of how many projects (what number) you have to read before you assume all are bad (maybe if you always stop after 10 terrible scripts then ok) Dalton v. Educational Testing Service (2nd SAT score cancelled and breach found) - sues to get score re-instated and claims didnt actually consider the addl info submitted (re: illness at 1st test and classes taken) = breach of implied duty of good faith - Ct finds that did not follow own procedures and had duty to under 205 Hobin v. Coldwell banker Residential (franchise owner sues over encroaching other franchises but no breach case) - Express term of K = non-exclusive franchise and has right to use discretion re: others in area - Express terms overcome implied covenant of good faith obvious favoritism based in profit motive (to top earners) is ok b/c is allowed to use discretion per K - If motive = drive out of business then ok Terms added by legislatures: Gap-fillers: - UCC is voted on by legislature to promote business across state lines (certainty promotes commerce) and to fill in Ks when it is clear that parties intended to K but not enforceable b/c they forgot term. - Problems p 535 - #1 definite agreement to sell is enough w/out price, place or time 2-305 = reasonable price and 2-308 = place of delivery and 2-309 = reasonable time - #3 P order computer over phone w/out date of delivery and then e-mail ups price and sets 3 week delivery time b/c p merchant the e-mail is proposal for addl terms and issue will be if 3-weeks = reasonable under 2-309 E. Warranties: - ALWAYS check if sale of goods if note, the no UCC and no warranty issues 1. Express Warranties Daughtrey v. Ashe (express warranty created by sellers affirmative statement case) - Appraisal for insurance purposes only states diamond quality and buyer doesnt rely but aff statement = still basis of bargain under UCC 2=213(1)(b) - RULE reliance important re: whether statement is part of basis of bargain - Cmt 3 affirmations of fact are part of general description of goods and no reliance need be shown

- Sellers burden to show why affirmative statement part of bargain - 2-213(2) opinion and affirmation of value create warranty - Monetary value may change but diamond quality wont - 2-207/209 if statement is made after deal, will come in under modification see cmt 7 2-213 Cant use parole evidence rule b/c was part of transaction before transaction - Hypo if they had convo before sale re: vvs and then wrote up sale k w/out it does vvs come in ? if integrated/merger clause then no, if not integrated then vvs in and express warranty RULE: Can lose possible express warranty to parole evidence rule. Mere opinion/sales puffery basis for warranty under 2-213(2) Merchant status important re: express warranties (will be for implied) 2. Implied Warranties - Not dependent on sellers statements are in whether seller wants it or not - Look to how warranty is created AND how it is breached! a. Implied Warranty of Merchantability Webster v. Blue Ship Tea Room (fish bone is chowder breach case) - Ct finds that fish chowder w/ bone = merchantable b/c is expected foreign substance ( random like finger or rock) - Ct looks to history of chowder often has bones - This only comes up b/c resto is merchant of soup RULE implied warranty of merchantability only applies to merchants - Merchant have superior knowledge - Buyers expect less form private sellers - Merchants = better able to absorb L UCC 2-314 (2)(a)-(f) = description of what merchantable means Need ALL of them b/c connected w/ ands - Hat hypo 4% have allergic reaction to dye is that enough to be un-merchantable? Hard to tell where to draw the line - McDs v. Kramer w/ coffee under shirt needs to be for usual purpose and cant be known risk inherent in product (even though coffee being hot is known, this was beyond hot) b. Implied Warranty of Fitness for a Particular Purpose Leal v. Holtvogt (horse bought to breed but is lame and is breach of implied warranty) - 3 reqs : (1) Seller must know of buyers particular purpose (2) Seller must have reason to know buyer is relying (objective standard actual knowledge (3) Buyer must rely on that knowledge - Seller was like teacher more knowledgable re: horses reason to know buyer would rely

Singer v. Du Pont (paint is faulty case conflicts of warranties case breach found) - Implied warranty for fitness for a particular purpose negated by express warranty - UCC 2-315 (implied FPP) and UCC 2-317 (conflicts) apply UCC 2-317 (C) express displaces all inconsistent implied warranties EXCEPT implied warranty FPP . - Express will always trump implied warranty of merchantability - Implied and express will be construed as consistent if possible

3. Disclaimers of Warranties Office Supply v. Basic Four (disclaimer is ok even if not conspicuous b/c buyer had actual knowledge case MINORITY RULE) - K disclaims all warranties except 90 day express (is software even a good most cts say yes) - MINORITY RULE: even though disclaimer conspicuous, it will be effective if other party knew of it Hypo if followed Majority Rule: (need conspicuous) and found no disclaimer would this be breach of implied warranty of merchantability: - Yes lots of problems and only 50%/75% up to expectations - No average state of technology at time (pass w/out objection; fair average quality, etc.) UCC 2-316 exclusions of warranties - 2-316 (3)(a) as is disclaims all implied warranties - (3)(b) buyer disclaims all implied warranties re: defects that examination would reveal when he examines goods (or refuses to) (1) hard to wiggle out of express warranties III. Remedies - Money dams= traditional way of dealing with breach - Equitable relief (specific perf and injunctions) = when money dams arent appropriate mostly real estate - Goal = put non-breaching party in position they would have been in w/out breach A. Specific Performance Van Wagner v. S&M Enterprises ( denied specific perf for K breach re: billboard lease on building) - Ct looks at uniqueness of property and ability to get reliable/certain estimate for money dams - Distinction btw owners rights and lease holders rights - Unstated rationale= advertising/commercial rented space = less unique than individual interest in property (homes/land) Walgreen Co. v. Sara Creek Property Co. ( gets injunction for lease due to economic cost/benefit analysis) - Balance cost/benefit of injunction:

- Benefit = ct doesnt have to calculate money dams , parties can calculate value of injunction btw themselves - Costs = ct has to supervise injunction (not concern here b/c negative injunction= forcing a party to NOT do something); cost to 3rd parties (customers who dont get cheaper drugs in that mall) - BUT Parties could still negotiate around money dams (research shows that this happens more often) Hypo: K w/ singer to perform at Merrill and singer wants to breach to sing at Met Ct might not issue injunction and force singer to perf at Merrill, but might do negative injunction and prevent singer from perf at Met. - Pros (Posner) and cons of efficient breach could cultivate mistrust but could make sense in commercial deals Holmes view: no moral/value judgment re: breach so that efficient/nonefficient are treated the same. Note: Ct's. are unlikely to use equitable relief to force parties that are arguing to work together in order to get negative injunction you need to prove the person is unique (well-known performer/sport stars/etc) AND no reliable way to calculate money dams. B. Liquidated Damages/Agreed Remedies - Stipulated damages: umbrella term for whenever parties put in a term/provision that defines how parties will calculate dams in case of breach - Two types: (1) Liquidated damages: generally enforceable: mimics actual losses (2) Penalties: Generally unenforceable, punishment for not performing OBrian v. Langley ( doesnt have to pay liquidated dams w/out opp to prove they are unreasonable re: pulling kid out of private school) - Trial ct refuses to compel discovery re: actual dams ( decided not to enroll kid in school after cut-off date and liq dams = whole year tuition) and grants sum j for - Test for validity/enforceability of l/d clause: (1) If actual dams contemplated at time of agreement = uncertain/difficult to ascertain AND (2) Amount fixed out of proportion w/ probable actually losses (3) ALWAYS look to time of K formation time of breach and actual dams relevant - Test for unenforceability of stipulated dams provision: (1) If actual dams are susceptible to definite measurement OR (2) Stipulated dams are grossly excessive re: actual dams (3) ALWAYS look to time of breach and actual dams (4) Breaching party has burden of proof *Note: Dont try to reconcile the two tests they dont match Rest 356 can look to anticipated (time of formation) or actual (time of breach) losses to see if stipulated are reasonable AND look to difficulties of proof of loss - If you look to actual anyways what is point of stipulated damages? burden shifts to breaching party Kvassay v. Murray (baklava case where can get l/d or lost profits under UCC) - Trial ct errs looking to previous income

- UCC 2-718 (1) : 3 elements re: reasonable l/ds: (1) Amt is reasonable in light of anticipated dams or actual harm from breach (2) Difficulties of proof of loss (3) Inconvenience or non-feasibility of otherwise obtaining an adequate remedy - Issue on remand is $5 amt set for dams per case reasonable if anticipated dams at time of K formation = less than $5 ($3.55 or $4.29) could be penalty (void as penalty if unreasonably large ( 2-718(1)) Use stipulated dams for new business b/c no past ks/business to look to prove actual harm in case of breach Enforceable/unenforceable = matter of law for judge to decide - Most Ct's. will allow argument that l/ds are either too high (actual are less this is most -common) or too low (actual dams are more) - If l/d is unenforceable, then ct will calculate dams as if stipulated dams provision never existed 2-719 governs limitation of damages (ex. limiting buyer remedies to repair or return of goods) C. Judicial Determination of Money Damages Hawkins v. McGee (burned and hairy hand case) - Dams should be difference btw what was promised (perfect hand) and what resulted (burned and hairy hand)= expectation dams diff btw pre and poet surgery hand (included w/in expectation dams anyways) - No pain and suffering dams b/c would have had that with surgery anyways - Why no malpractice maybe met standard of care just experimental surgery or maybe SOL is different for breach of K Purposes/methods for determining dams at common law in Rest 344: (1) Expectation: usual way to determine dams - Puts non-breaching party where they would have been had breach not occurred (2) Reliance: - Compensate party that changed position in reliance on k Ex: perf prep, lost opportunities, etc. - Puts non-breaching party in position they would have been in had the K never been made (3) Restitution: - Restore to non-breaching party any benefits that were given to breacher - Tends to be smallest amount Expectation Damages under Common Law Panorama Village Homeowners Assn v. Golden Rule Roofing (breach of roofing K case where gets cost of replacing roof ) - gets cost of replacing roof from trial ct (expectation dams) and challenges as too much - like spec perf could use money for something else - arges that they should only have to pay to fix defects OR the value difference btw perfect roof and defective roof cant recover if the cost is clearly disproportional to the probable loss in value (Rest 348 cmt c) - Burden shift breaching party ( ) has burden to show that s amt/method of computing dams in inappropriate re: actual loss - Traditionally the party seeking dams has burden to prove what they are owed has

burden to challenge this Groves v. John under Co. (gravel removal K breached and cost to finish perf = more than value of prop case) - appeals b/c trial ct granted diff btw FMV of land now and what was promised $15k but cost to finish perf is $60k (K was made in 1927 and case is brought after great depression so might be why such a big diff btw cost and value to land) - S Ct Minnesota revs dont favor willful breaching party and give value of perf not received - weird for ct to focus on intent of breach normally not important - also, looks like efficient breach which Posner would like RULE (more the majority) for Ks involving building/altering land, the appropriate measure of dams = cost of completed perf diff in value of land Peeveyhouse v. Garland Coal & Mining Co. (mining co doesnt do restoration work in K and dams are diff in value of land) - wants cost to complete perf ($25K) but argues that diminution to value of land = only $300 trial ct goes middle ground ($5000) and both appeal - OK S Ct holds that dams should be cost of perf UNLESS they = economic waste - Opposite of Groves gets $300 (diff in value of land) - Ct dist. Groves in that case, the restoration work was central to K and here it is only ancillary (dissent think this distinction is wrong) RULE use cost of perf UNLESS there is econ waste/unreasonable/grossly disproportionate then use diff in market value Money Damages under the U.C.C. - Buyers remedies: 2-712 cover dams diff btw market price and substitute goods 2-713 market price dams measured by diff btw K price and market price 2-716: specific relief specific perf or replevin **** - Sellers Remedies: 2-706: resale dams diff btw. K price and alternate buyers price 2-708(1) : market price diff btw market price and K price 2-709 K price seller is entitled to the k price***** ****these are exceptional remedies (ice sculpture example for 2-709 hard to resell and perishable) Problem 4 p. 735 if buyer covers for less than the K price and the market price Jdx split some say no recovery b/c buyer came out ahead, some say get diff btw K and market ( 2-713) b/c seller who breaches shouldnt benefit from buyers connections and should protect buyer expectation KGM Harvesting Co. v. Fresh Network (lettuce sale goes awry case) - is breaching party but is suing b/c didnt pay for previous order counter sues for breach Trial ct finds for and gives diff btw K price and price paid (cover dams 2-712) minus money owed on previous k - appeals argues this is inappropriate b/c had cost-plus Ks with other purchasers and only lost a little due to breach passed most on to other buyers and to give more to would be windfall - this ct affms good/bad faith is irrelevant and object of dams is to give non-breaching party the benefit of bargain/perf (fn 7 one party always gets windfall)

Hypo change the facts and buyer covers at lower price than market JDX-al split re: whether breaching party can benefit from buyers good deal (buyer may have called in favors, used nonmeasurable resources to get deal) OR dont make breaching party give buyer windfall/pay for dams that didnt occur Rodriguez v. Learjet (cancelled K for the fancy plane still results in dams even though resold b./c of lost volume) - K has l/d provision keep deposit of $ 250k if K is terminated or payments on time - Ct looks to Kvassay (baklava case) and 2-718 re: if l/d provision is reasonable - Ct finds that Learjet = lost volume seller lost profit is $1.8 million so $250k penalty - Ct looks to other cases as well, even if lost volume liquidated dams are still reasonable D. Limitations on Money Damages Avoided Costs: Leingang v. City of Mandan (weed removal K breach case) - was supposed to remove weeds from large plots per K gives large lot to another (who was supposed to get small lots) - sues for breach and admits error parties only disagree over dams - wants overhead included in dams computation only gets lost profits MINUS the general overhead and specific cost of perf - Overhead = insurance, rent, financing costs, maintenance costs, general admin costs, salaries, etc. - wants cost of perf estimates used w/out overhead lost profits MINUS only cost of perf - trial ct comes up w/ own middle approach modified net profit looks at old IRS forms and finds that profit is normally 20% so gives 20% of K value ($368) - S Ct remands for new trial re dams dont include overhead b/c would have payed it either way also, make pay them twice RULE : Dont include overhead in dams computation if you subtract overhead costs to get lost profit and would have paid overhead anyways then pays twice - Consistent w/ UCC 2-708 can include reasonable overhead that seller would have made from full perf Avoided Losses: - No actual duty to mitigate non-breaching party has no L for failure to mitigate - However, non-breaching party cannot recover dams it could have avoided just a limit on recovery Rest 305: - Cant recover avoidable loss - Not barred if injured party made reasonable but unsuccessful effort to avoid loss Parker v. 20th Century Fox ( not required to take employment that substantially similar case) - is not required to take different OR inferior employment opportunity to mitigate - RULE (reworded in current usage): must make reasonable effort to mitigate and accept substantially similar employment - No extraordinary effort required - Failure to mitigate breaks chain of causation from breach/injury to dams - Location, K provisions giving director/screenplay approval rights, type of film = all different in 2nd movie offer

- Dissent: mere difference is too broad and should be required to take if substantially similar Donnelly v. Vanguard ( cant recover for lost profits for failed delivery of brochures b/c refused to reasonably mitigate) - Again, no issue re: breach admits breach and just claiming that could have mitigated - is not barred if failed to mitigate b/c lulled into inaction by assurances that all will be well not the case here - s failure to mitigate breaks chain of causation and L for losses under Macys K

Foreseeability: Hadley v. Baxendale (mill shaft delayed delivery causes lost profit to but not recoverable b/c did not know and foreseeable) - Delivery co had no reason to foresee that mill would lose profits (no way to know that mill had no replacement shaft) - Complete mill stoppage naturally flowing from breach and = spec circ that /breaching party did not have reason to know - This is mirrored in Rest 351: (1) dams recoverable for loss that party in breach has no reason to foresee (2) loss may be foreseeable as probable result of breach if - Follows in ordinary course of events (flows naturally) OR - As a result of special circumstances that the breaching party had reason to know Certainty: Manouchehri v. Heim (x-ray machine breached k results in dams over value of machine case) - buys x-ray machine from and it isnt 100/100 as k-ed for only 100/60 and only works on children and thin people - challenges dams shouldnt be resp for uncertain lost profit dams since only s evidence is his own testimony - Ct finds evidence is sufficient ( seems based on small amt of money at stake, so ok if small amt of evidence) Incidental v. Consequential Dams under UCC: Buyers dams inc and cons: - 2-715 (1) defines inc reasonable expenditures incurred from transportation, custody, etc. - 2-715(2) defines cons lost profits. etc that are naturally flowing and foreseeable Sellers dams inc: - 2-710 only gets inc dams * Why is seller limited to inc dams under UCC Seller is in better position to cover Also can better foresee losses and structure accordingly Sellers will often claim they are seeking only inc dams and try to sneak in cons creates controversy over categories ESPN, Inc v. Office of the Commissioner of Baseball (ESPN breaks K but gets out of paying dams b/c not certain case)

- Baseball got full payment under K but wants cons dams re: lost natl exposure, lost prestige, loss of future value of baseball packages/sponsorships - Ct holds that baseball dams certain and it can only get nominal dams - RULE non-breaching party has burden of proof re: dams and they cannot be merely speculative - Dont need mathematical precision but need more than pulling numbers out of thin air baseball lawyers should have tried to produce some facts and numbers re: ad revenue per game broadcast, how much each broadcast contributes to ad rate, come up with number that broadcast adds to value - Baseball could have gone for injunction as well money dams adequate or certain Rest 352 need reasonable certainty E. Reliance and Restitution Damages (when Courts depart from expectation dams): Reliance Damages: Hollywood Fantasy Corp. v. Gabor ( has no expectation of profits but can still get expenses paid in reliance) - wants lost profits b/c pulls out of deal (breach) trial ct grants $100k to - appeals and argues that $100k = speculative never made profit before and part of loss is - based on plan to sell outtakes for tv pilot - could argue that is owed nothing at all maybe just price of the tickets refunded b/c w ould have lost more money if K had gone through cts dont love this type of argument and dont like to assume that previously unprofitable K means no profit in future - Potential restitution dams argument got publicity from should pay back (see Rest 344(c)) 349 injured party gets reliance dams LESS any loss they would have suffered if k had been performed Restitution Damages: U.S. v. Algernon Blair (prime K breaches w/ sub-k and tries to not pay dams b/c sub-k profitable) - Sub-k/ is suing under U.S gen-k refused to pay the sub and then sub stopped working (disagreement re: who was supposed to pay for crane rental under K) - D Ct finds that (gen) breached by not paying but would have lost money on the K gets nada - appeals Ct App remands b/c could seek restitution dams for benefit conferred whole value of K remand to determine FMV of perf already rendered Restitution = disgorging benefit already received Rest 371 ways to measure restitution: - Reasonable value of services rendered - Increase in prop value Britton v. Turner (restitution dams in emp K where breaching party is seeking the dams) - ked for whole year leaves after 9 months then sues for dams for work done - wins then appeals no dams under K b/c K was breached k-ed for full year/full perf and K was breached so nothing owed under k - Ct finds that should get dams for benefits conferred (minus any dams from the breach but

didnt show any) - Employee gets nothing if value of services was less than what had to pay to cover - Employee cannot recover beyond value of K if FMV for 9 months is more than k for whole year IV. Conditions Rest 224 definition of a condition can be express or implied but we only look at express Luttinger v. Rosen (k perf is excused b/c cant get mortgage terms that are express condition) - looks to only one bank but it is only one that would give that type of mortgage dont get interest rate req under k - offers partial financing to make up the difference refuses - sues to get deposit back and wins appeals and argues no due diligence to meet condition - offer from bank so doesnt meet k express condition - Condition is placed on buyer so only affects buyers duty to perform and only buyer can excuse non-perf if buyer offered cash, seller cant refuse (see 244 unless non- occurrence is excused applies to party that is bound by condition) Conditional language and Seinfeld hypo: if and only if or subject to and conditional upon add this to get Newman off the hook for buying AND George off the hook for paying Peacock v. Modern Air Conditioning, Inc. (gen K tries to get out of paying sub by claiming that owner paying gen is express condition that fulfilled) - Peacock/ claims that there are 3 express conditions for payment and one is that the owner make full payment to - First 2 are done but owner goes bankrupt doesnt pay sub - Ct finds that this express condition but is just fixing reasonable time for payment - Majority RULE in this type of K, intent of parties (as a matter of law) express condition for payment b/c this would unreasonably place all risk of owner non-payment on sub - Rule of ambiguous K interpretation in favor of sub - Gen can K away this normal rule but has to be unambiguously express conditional language that is explicitly that trade usage is being overturned should make sub initial it to make clear they know about it