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Contracts II Outline

Contracts II Outline

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CONTRACTS II OUTLINE

Defenses
A. Misrepresentation a. If a party commits a misrepresentation, the K is voidable i. Elements: 1. Assertion or statement 2. That s not true 3. Fact or term of K (not an opinion unless one of the exception applies Vokes) 4. Material 5. Causal connection a. But for 6. Reasonable reliance a. availability of information is relevant ii. Victim entered into the K b/c of (but for) 1. a statement (misrepresentation)/assertion 2. that is false (not in accord with the facts) 3. Of a material (fraudulent or material) 4. fact (usually not an opinion, unless ) 5. V s reliance was reasonable. 6. Then the K is voidable. iii. Test: Does the evidence tend to show that the aggrieved party would not have entered the contract unless the false statement had been made? b. Fraud in the inducement allows K to be voidable i. Fraudulent misrepresentation (assertion or statement) ii. Negligent misrepresentation (material) iii. Innocent misrepresentation (material) c. Fraud in the factum allows K to be void i. Ex. Signing one thing while thinking you are signing another ii. Third Party Rule: misrepresentation by a 3rd party (not a party to the K) makes the K NOT voidable by the victim if the other, innocent party to the K: 1. acted in good faith; 2. did not know or have reason to know of the misrepresentation; and either gave value or relied materially on the transaction/K. d. Lawrence S. C. Kang v. W. Dewey Harrington i. Issue: Whether duty to read both Ks was abrogated/overridden by fraud/misrepresentation. ii. Holding: Fraud outweighed duty to read

iii. Rule: When written documents do not match terms discussed in the oral K and a reasonable person would probably not have read the documents before signing, the fraud overrides the duty to read. e. Syfox Corporation v. The Boeing Company i. Issue: Whether misrepresentation of Boeing s commitment to Skyfox was overridden by duty to read. ii. Holding: Duty to disclose failed, the duty to read overrode the misrepresentation because both parties were sophisticated businesses with counsel and no fraudulent misrepresentation. iii. Rule: The misrepresented fact must be preexisting or a present fact, not a promise about future occurrences. f. Counterarguments: i. Duty to read: a party is held to the terms of a written K that they sign ii. Duty to investigate g. Audrey E. Vokes v. Arthur Murray, Inc. i. Holding: Misrepresentation of opinion does not qualify ii. Rule: misrepresentation of opinion does not qualify h. Do not have to wait until sued to use as a defense, can rescind or void. But if K is affirmed, then right to use as a defense is lost B. Failure to Disclose a. Silence or active concealment b. General rule: no duty to disclose c. Only a duty to disclose when: i. there is a fiduciary duty (not between a buyer and seller) ii. Joint venture iii. Duty imposed by statute iv. If you know the other is mistaken 1. Disclosure is necessary to correct something that has already been said that was a misrepresentation v. If you tell half the truth vi. Material facts not known to buyer and not readily discoverable vii. If asked, must correctly respond d. 4 instances where failure to disclose can be misrepresentation: i. where the party knows that disclosure is necessary to prevent a previous assertion from being a misrepresentation (fraudulent or material) ii. where the party knows that disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the K and nondisclosure is bad faith*; iii. where the party knows that disclosure would correct a mistake of the other party as to the contents or effect of a writing pertaining to the K; or iv. where the other person is entitled to know the fact because of a relation of trust and confidence between them, such as a fiduciary relationship.

Jones i. Felisha E. Makes the K voidable by the affected party unless he or she bears the risk of mistake ii. 7. then seller has a duty to disclose. f. Duty to disclose where the facts materially alter the value of the property. Ora G. Material effect 3. Assumption of the risk iii. iii. Hill v. Helen V. Holding: 2. which has a material effect on the agreed exchange of performances i. Co. Stambovsky v. K is usually not voidable unless: 1. Whether mutual mistake re: P s injuries allows P to void the release? c. Case of equity. Unilateral Mistake of Fact i. Hill and Gloria R. Not an opinion b. Holding: there was a duty to disclose ii. iii. An opinion is not a mistake 3. iv. wants more money from co. Oliver v. Todd A. with knowledge. Jeffrey M. K to pay injured person $500 for release of any and all claims vs. Mistake of Fact a. as to a basic assumption on which the K was made. so K was rescindable.e. Clark 1. Enforcement of the K would be unconscionable or . Rule: If buyer makes an inquiry. Warren G. Elements: 1. ii. Injured person argues that release is invalid b/c injuries weren t known at the time. Jones and Barbara R. Holding: Seller had duty to disclose and failed to do so. 6. Ackley and Ellis Realty i. 5. Injured person s condition worsened. including known and unknown injuries 4. argues that release is valid.mistake must concern and the contract is founded on it 2. Mutual Mistake of Fact i. Duty to disclose if there was a previous statement made that is false. a. driver. Rule: Duty to disclose overrides duty to inspect and investigate when buyer doesn t have the ability to discover and seller has created the situation. Rule: In order to set aside a release of liability for injury. Basic assumption . A mistake is a belief about a present or past fact which is not in accord with the facts at the time the K is made. not law C. P must produce evidence that parties were not aware of serious injuries at the time and that the K was only to minor injury.

Context: assessment of U is made in the light of the general commercial background and the commercial needs of the particular trade or case. Assuming the risk: i. entered into. Cross collateralization clause a. non-mistaken party had reason to know of the mistake (e. content. Holding: Bid could be rescinded b/c Church knew about the mistake before the K and to allow them to go through with the K would take advantage of the construction company 2. Is a balancing issue b. (This doctrine does not pertain to bad faith in the performance of a K. Even if mutual or unilateral mistake makes the K voidable. ct. was taking advantage of the mistaken party) or his fault caused the mistake ii. Agreeing with the other party to assume the risk of the mistake (as is sale or course of dealing) 2. Unconscionability a.e. Procedural U = unfair process of contract formation. Requires: i. Mistake in expression means the parties agreed.2. In order to find K unconscionable. Contracting with conscious doubt as to the fact). First Baptist Church of Moultrie v. after it s made. The court allocating the risk to him. Testing time: fairness is tested at the time the K is made. d. if reasonable (could be trade useage) e. If you quit paying on one thing. clauses unreasonably favorable to other party 1. D.. Pressure. it may be rescinded.) . it was obvious). but there was an error made in the written K ct will reform the K and enforce the agreement actually made. fear. but there are cases where only one kind is present of more of one than the other iv. The other. it is NOT voidable if the adversely affected party/the one seeking to avoid it has assumed the risk. v. imbalance of power ii. Substantive U = unfair K terms. Mistake made in transmission (or by intermediary): the message as transmitted is operative unless the other party knew or should have known of the mistake (i. can take back everything iii. Barber Contracting Company 1. Being aware at the time the K is made that he doesn t really know the truth but he proceeds anyway (ex. relationship.g. usually must find elements of both kinds. by: 1. AND 1. f. Rule: If K is not relied upon to the detriment of the mistaken party and the mistake is known before the K. or 3.

Norman D. The customs of the industry or trade (trade usage) iv. If K or any clause is unconscionable. Opposite of Brower h. 1. Rule: Even when one type of unconscionability is weak. Holding: Unconscionable because ICC was cumbersome and inaccessible and defending a suit against D would cost more than the computer. If K is found to be unconscionable. or limit the application of the K term to avoid any unconscionable result. can tip the scales and the K can be deemed unconscionable. A variety of sources c.c. The conduct of the parties (course of dealing. no substantive unconscionability mentioned by the court 1. Procedural unconscionability was weak. it is void d. g. The arrangement and function of the transactions iii. What if these terms violate the parties intentions? i. the K is unconscionable. Rule: Even when one type of unconscionability is weak. Implied terms: are unspoken understandings and expectations of the parties inferred from: i. or enforce it without the U term. Courts usually require some element of both procedural U and substantive U to find a K unconscionable: e. The United States K Interpretation A. Context e. Nez Perce Tribe of Indians v. Tony Brower v. At common law. if the other is strong enough. but substantive unconscionability is very strong ii. Weiner i. iii. Rafael Jimeniz i. Ryan v. then ct can refuse to enforce K. 2d 208: i. Local history and circumstances (community norms) b. if the other is strong enough. can tip the scales and the K can be deemed unconscionable. Gateway 2000 i. Robert W. course of performance) ii. In UCC 2-302 and Rest. Holding: K was unconscionable b/c D could not protect himself since he did not speak or write English fluently ii. Canon of interpretation d. Implied Terms Unspoken Understandings and Expectations a. Brooklyn Union Gas Company v. Rule: When one party is sophisticated and has an attorney and the other is not educated and has no representation. f. Procedural Unconscionability controlled here. these implied terms became part of the K .

past dealings included price protection 3. 219-223) gives these implied terms great weight in K interpretation and the UCC (Sections 1-205 and 2-208) explicitly includes these implied terms in the K: when it defines agreement as the bargain of the parties in fact as found in their language (the K terms) or by implication from other circumstances including course of dealing ( COD ) or usage of trade ( TU ) or course of performance ( COP ) . Inc. which showed clear intent to price protect 5. and TU is always admissible even if the express K is fully integrated. more specific controls the more general 2. Nanakuli Exception: COP. during this particular transaction v.UCC 1-201(3). COP is the conduct of the parties to the transaction. Nanakuli Paving and Rock Company v. The UCC governs K s subject to it. Ct. Rule: 4. Rock Paper Scissors: sets out rules of precedence: 1. vocation. g. but common law applies where the UCC is silent . COD sequence of previous conduct between the parties which establishes a common basis of understanding for interpreting their expressions and other conduct (UCC 1-205 (1)) iii. When implied terms conflict with express terms 6. a. and TU can form exceptions to Express Terms without actually conflicting with the ET. Congregation Bnai Yitzhok 1. 203. TU any practice or method of dealing having such regularity of observance in a place. Shell Oil Company. looked at the implied terms of the K when the K was formed. Good Faith. N relied heavily on price protection. No express terms in the K. and Other Regular Routines i. so as to justify an expectation that it will be observed (UCC 1-205 (2)) iv. COP controls COD and TU vi. COD. Community Norms. Fisher v. and Similar Communal Norms i.UCC 1-201(3) f. 2-208(2): Express terms control over COP. Issue: Whether the K should be price protected b/c of past dealings 2. Note that evidence of COP. Holding: reasonable for Nanakuli to rely on price protection b/c price protection was a custom in the industry.ii. 1. Trade Practices. or trade. COD. Every K has implied term of good faith in K performance ii. The Restatement (Sections 202. Best Efforts. express terms control both COD and TU and COD controls usage of trade (UCC 1-205(4)) a. but implied h. ii. Good Faith = in case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade .

v. Duty of good faith to sell imposed by UCC in exclusive dealings. 1. iv. Inc. On the buyer: requirement K i. If K is silent. Exclusive dealings exclusive agency a. Objective: what is commercially reasonable and fair dealing a. American Coal Trade. Rule: 4. Buyer promises to buy all that seller produces within certain time period b. to any normal or comp. 1. buyer cannot reduce quantity disproportionately following the plain meaning of the UCC 3. UCC implies a duty of GF to sell in these Ks 5. Subjective: Acting honestly and without an improper motive. Adopts the plain meaning of UCC . holds buyer to 2-306 even if operating in GF a. Reid v. v. In both. Inc. Holding: Even though acting in good faith. duty of GF is imposed to operate business so as to generate some output/requirements 2. without an ulterior motive unconnected with the K 2. UCC uses both tests In both outputs (buyer promises to buy all that seller produces within certain time period) and requirements (buyer promises to buy all that the buyer needs within certain time period) Ks. 2-306 (1): there is a duty of good faith to operate business in good faith so as to have outputs/requirements to avoid illusory nature a. Buyer promises to buy all that the buyer needs within certain time period c. 1. UCC imposes a duty of good faith to operate business so as to generate some output/requirements 1. didn t term relationship in the usual manner 2. Issue: Can buyer reduce its requirements in a requirements K disproportionately to the agreed upon estimate when it s acting in good faith (2-306)? 2. prior outputs/requirements. Inc.iii. An amount estimated in K or b. AND: contracting party can t use a quantity that is unreasonably disproportionate to: a. Rule: Simcala. Key Bank of Southern Maine. Holding: GF was breached because bank did not act in good faith when it prematurely cut off credit. Ct. On the seller: output k i. vi. exclusive agency Ks Paul Reid and Mary J.

Keeps out evidence that may contradict the writing of an agreement if the writing is meant to be complete 3. additional terms are admissible 1. Integration a. Issue: 2. Jeffrey Poole et al v. Concludes that Simcala has violated the UCC by ordering disproportionately less than the estimate vii. Intent was to be final but not complete 1. Parol Evidence Rule 1. Knowledge that terms agreed on were left out iii. Only applies when a K is in writing. Peter Dalton v. If they agree that it s consistent. Prior or contemporaneous. 2. United Airlines. Consistent. conflicting terms are inadmissible iv. v. Interpreting Express Terms a. B. Express: written or oral term of K that is explicit b. deeds ii. 3. PER: Purpose is to carry out the apparent intention of the parties and facilitate judicial interpretation by having a single.i. Interpretive Presumptions and Implied Terms i. Express terms overrode duty of good faith i. they summarily dismissed it. Issue: Whether obligation to consider should be exercised with good faith? 2. Rule: 4. dba Saucy Sisters Catering 1. Educational Testing Service 1. Partial i. But it operates to preclude admissibility of evidence. clean source of proof on the term of the bargain. This a substantive rule of K law. Good Taste. Inc. Inc. Rule: viii. Holding: Good faith was not breached b/c K allows termination at will 3. If term is one that parties would naturally omit from a written K AND 2. Intent for the writing to be final and complete ii. Prior or contemporaneous terms regarding the transaction are inadmissible b. then can make conclusion that K is partially integrated and allow into evidence . Holding: ETS didn t consider his info in good faith. City of Waterbury et al.. Ex. Full i. not a rule of evidence.

then meaning can be determined from the four corners of the instrument without admitting extrinsic evidence c. PER not applicable to subsequent oral or written Ks. b. Evidence about consideration is admissible 2. *Merger clause is evidence of intent* ii. 4 corners rule: a. Ambiguity most courts require before it will be admitted b. v. Jewel Food Stores 4. Presumably the writing contains all that the parties intended to say c. then evidence of it is excluded 1. Cessna Aircraft Co. If K is not integrated at all: i. decides what is consistent and contemporaneous vi. The Interpretation of Terms in an Integrated Writing i. Exceptions a. Defenses to formation and enforcement are always admissible d. Wigmore aid test: if an oral term is mentioned in the written K. COD are always admissible in UCC Ks to explain or supplement a term c. TU. If writing appears to be plain and unambiguous on its face. Integration should be decided on the written K alone AKA plain meaning rule b. Separate or collateral agreements are admissible both oral and written g. Ct. Holding: The cover letter is a consistent. Then all evidence of outside arguments. objective meaning . Formal and Contextual Interpretation 1. a. Inc. Issue: Whether cover letter should be admissible. or terms = admissible d. Objective theory of K interpretation: cts. including modifications f.v. PER can be applied broadly or narrowly depending on the circumstances e. Oral conditions precedent are admissible h. Betaco. Formal approach/plain meaning rule: words have specific. additional term and is thus admissible c. Merk v. consider extrinsic evidence to determine the parties intent and use a reasonable person standard 2. Rule: 3. Parol Evidence Rule and the Exclusion of Evidence 1. COP.

Admits extrinsic evidence to show parties intent and the meaning of particular terms ii. Issue: Does the pollution exclusion clause include or exclude carbon monoxide poisoning? b. 2. G. Pacific Gas and Electric Company v. certain situations and contexts require that extrinsic evidence be admitted to determine. Thomas Drayage and Rigging Company a.W. No extrinsic evidence admissible if meaning of the K term is plain from its face 3. with no ability to negotiate terms (offered on a take it or leave it basis). i. Somebody new to the trade is bound by TU unless it s not generally known in the industry d. Blanket Assent: when there is a form K. Policy issue: insured pays premiums and expects to get coverage e. Rule: Even if a term is unambiguous.a. Holding: c. Contextual approach: words have meaning based on the context in which they are used. Frigaliment Importing Co. Connecticut General Life Insurance Company a. Issue: b. Contextual approach vs. plain meaning approach c. Issue: Whether K should be read as its plain meaning or should extrinsic evidence be admitted to prove alternate meaning? b. The Reasonable Expectation Doctrine and Blanket Assent Interpretation of Standard Form Contracts i. to review these Ks and determine what a reasonable policy holder would have thought ii. BNS International Sales Corp. . Trident Center v. v. Reasonable Expectation Doctrine only applies to insurance Ks 1. Rule: Even if term isn t ambiguous on its face. more subjective a. Can result in an interpretation that differs from the plain meaning d. The Ambiguity Rule and the Ambiguity of Language 1. Rule: Upholds ROL in Pacific Gas 3. Allows the ct. Holding: Extrinsic evidence should be admitted c. Holding: An ordinary person would not understand the policy to include carbon monoxide under the K exclusion i. with boilerplate terms there is still a K. a. insurance K will be interpreted according to the reasonable expectations of an ordinary policy holder.

International Ks. Sample 5. you would not agree) 1.1 doesn t apply iii. Article 8. . Can be oral. United Nation Sales Convention on the international sale of goods i. description. K is silent 2. NA v. Generally on a take it or leave it basis ii. To avoid enforcement: must prove that it was an adhesion K AND that it violates reasonable expectations. General disclaimer ineffective 11. Opinion not a W 8. Generally used by sellers to save time b. sample 6. Timing not material 12. Description 4. Detriment to the seller to imbalance bargaining power iii. Affirmation 2.3: all extrinsic evidence is admissible to determine objective meaning g. No reliance required 9. Paul Fire and Marine Insurance Company e. False statement? Try fraud/misrep ii. 2-313 by affirmation or promise. Implied: 1. in writing or in K b. 2-312 Title 3. UCC Warranties ( W s ): i. or exceptionally favorable to the drafter i. Q of fact 10. Merchantability UCC 2-314: All K s for the sale of goods have an implied W of merchantability and fitness for the ordinary purposes & that goods will conform to the promises made on label. Adhesion K: imprecise term used to describe a document containing non-bargained clauses that are in fine print. Express: 1. Promise 3. ST.1: subjective meaning used first if the other knew that there was an ambiguity ii. or is unconscionable f. Article 8.but the unreasonable terms are thrown out (those that if you knew they were there.2: use objective meaning when 8. Article 8. complicated. Blanket assent is assumed minus the indecent terms (those that don t violate the reasonable expectations of the signer/consumer) 2. No formal words required a. Regional Bank of Colorado. Boilerplate: includes: ready-made language that will fit in a variety of documents AND fixed or standardized contractual language that relatively non-negotiable a. No intent to make Express W req d 7.

d. Extent of non-conformity: Most promises (although not all) are subject to the doctrine of substantial performance. Disclaiming Implied W s: can be excluded or modified . A commitment to do or not to do something ii. a. 2. Promise i. Legal consequences: 1. 4. at the time the goods are sold. express or implied. Disclaiming UCC warranties 1. Chapter 8 Understanding Contractual Obligations: Liability A. if seller is a merchant b. to disclaim the implied W of fitness for PP. d. and COP can also exclude implied W s. and the inspection would have revealed the defects to buyer. If promise is not fulfilled.UCC 2-316: a. b. c. there is always a breach of K iii. the other has to perform iv. disclaiming all W s. seller has reason to know any particular purpose for which the goods are required and c. This doctrine provides that . it s enough to say there are no W s which extend beyond the description on the face hereof as long as it s in writing and conspicuous. Effect of non-occurrence: if a promise is not performed.a. AS IS: However. 3. to disclaim the implied W of merchantability. There is an implied W that the goods will be fit for a particular purpose if. terms as is or with all faults or the like disclaim all implied W s. unless excluded or modified iii. Fitness for Particular Purpose UCC 2-315: 5. COD and TU can create implied W s as well. the disclaimer must mention merchantability and be conspicuous. 4 types of K terms: a. Duty to inspect: No W s if buyer inspected a sample or model or failed to do so. 4. then the promissory is liable for breach of K and may be required to pay damages or be subject to an order of specific performance 2. An express warranty cannot be disclaimed through a blanket disclaimer a. COD. Independent promises: if one party breaches. b. that the buyer is relying on seller s skill or judgment to select suitable goods for that purpose. 3d party rights see UCC 2-318. TU.

Legal Consequences: 1. a promise can be modified only by mutual agreement. Extent of non-conformity permitted: Generally. or excused by the court d. c. then the obligation it qualifies does not become due. Modification or Excuse: Conditions can be unilaterally waived by the party whose performance is conditioned. both a promise and a condition of another obligation ii. must be strictly fulfilled 3. Effect of non-occurrence: If a condition is not fulfilled. Modification or Excuse: In general. Waiver does not require mutual agreement nor consideration. Legal consequences: 1. request. Extent of non-conformity: The doctrine of conditions requires that conditions must be strictly fulfilled. then the promissory is liable for breach of contract and may be required to pay damages and the obligation qualified by the promissory condition does not become due. Legal Consequences: . and the modification must satisfy the consideration requirement or some exception to it. and Restatement 2d of Contracts §89. Effect of non. 2. unless excused. If a condition does not occur in precisely the way indicated by the contract term. 3. This does not result in liability for either party 2. as a condition. b. Condition i. which allows enforcement of a modification without consideration made in response to an unanticipated change in the circumstances of the contract. promissory conditions can be unilaterally waived. or notation that has no legal significance ii. a mere suggestion. a condition can be excused by the court in order to avoid extreme or unjust loss to a party.relatively trivial. Modification or Excuse: Generally. The exceptions include UCC § 2209. which allows enforcement of a good faith modification without consideration in a contract for sale of goods. modified by mutual agreement.occurrence: If a promissory condition is not performed. Promissory Condition i. then the conditioned performance does not become due. that must occur. not certain to occur. an event. In addition. Insignificant term i. unintended deviations from a required performance will not preclude a performer s right to payment or other return promise 3. before performance of a contractual obligation becomes due ii. a promissory condition.

000 on or before July 1 is a condition precedent of Annette s obligation to produce the film. commit. (2) effect of characterization (forward looking). Not reasonable for P to rely on condition b/c he knew that the shares weren t owned . Motors. cannot enforce the K (strict fulfillment) iv. and (6) overall purpose or function of K. . tender of deed for cash) j. must argue promissory estoppel 1. or ii. If Beto fails to pay 4. if Beto pays her 4. Condition Precedent: an event that must occur before the obligation becomes due i. promise. Therefore. (4) preference for promise due to flexibility of substantial performance doctrine. and in the event that suggest condition. Gary Ensminger. Constructive l. (example: Annette promises to produce a training film for Beto s Fabric Company. based on the actual satisfaction of one party to the K. (5) words & behavior.000 on or before July 1. Such terms are called conditions of satisfaction. therefore no K iii. Rule: When the plain meaning includes conditions in K and conditions aren t met. Holding: K condition was illusory. Conditions a. Express or Implied Conditions: Like promises. B. (example: notice requirement in an insurance policy) h. observing that almost all conditions function as conditions precedent and the distinction causes unnecessary confusion i.1. Effect of non-occurrence: If an insignificant term is not fulfilled. A subjective standard. subject to.000 on or before July 1. Annette is not obligated to produce the film. Issue: Whether there was a breach of K when employer did not fulfill promise to offer stock options to P.) g. unless the condition is excused. James Johnson.Beto s paying 4. ii. Inc. An objective satisfaction. and Fairbanks Nissan. there is no effect on the parties rights and obligations. When there is no K. Inc. i. meaning the condition is met if a reasonable person would be satisfied (Rest. True vs. Conditions of Satisfaction: Sometimes contracts specify that one person s performance should be of sufficient quality to satisfy the other party. Implied and Express conditions fall under True Conditions b. These are interpreted either as: i. Troy Jarvis v. there is no significance to deviation from an insignificant term or to modification of an insignificant term e. using a reasonableness standard. 228). (3) trade practices in the industry. The Restatement 2d rejects this distinction.. agree suggest promise. and that the parties are bound to perform at the same time (ex. Words such as shall. HOW TO DETERMINE WHAT A TERM IS? Courts look at: (1) parties intentions (backwards looking). Condition Subsequent: an event that terminates an obligation that is presently due i. f. Conditions Concurrent: conditions concurrent are those that are capable of occurring together. words such as provided that. conditions can be Express or Implied k.

McCann et al. the condition is gone. They should always be read with dependent promises iii. Substantial Performance Doctrine allows promissor to get paid even if they don t fulfill the entire promise: i. Court can split a single K into two or more separate Ks and treat them as independent Ks ii. and the Rule of Perfect Tender a. Doreen A. C. not wilful or intentional 4. buyer can rescind/cancel K v. Rule: If the condition is only for the benefit of one party and it is waived. Purpose to be served to install pipe of a certain quality = met! 2. and able. Holding: Seller must perform since the conditions in the K benefited the buyer and the buyer waived those conditions iii. Constructive Conditions are not implied conditions: i. Rule of Perfect Tender i. K is in breach b. Use if 1. Kent) iii. Seller has right to cure defects before due date and within reasonable time after 1. willing. Test: 1. UCC s version of substantial performance ii. even minor breach before acceptance iv. Constructive Conditions. buyer can only reject goods (and revoke acceptance) for a material breach (substantial impairment) d. If seller does not cure. Issue: ii. 2-703 iii. The performance of each party is divided into two or more parts under the K 2. Excuse for deviation from ltr of K unintentional & trivial. Thompson v. If a party is not ready. James J. Divisible Ks i. Material breach = breach = other party s performance is excused and damages are due from breaching party ii. Minor breach = substantial performance = other party s performance is not excused but they have a remedy = cost of completion from breaching party (unless circumstances warrant diminution in value Jacob & Youngs v. Substantial Performance. Breacher can get paid for the Ks he or she has performed. 2-601. Cruelty of enforced adherence expense of replacing all the pipes = HUGE/DISPROP to the value of doing so c. Buyer can reject goods for any reason. They are a fiction ii. After acceptance. even if he or she breached the other Ks iii.c. The number of parts due from each party is the same . The desire to be gratified to have pipe of a certain quality met! 3. i.

Retraction/reaffirmation: An express or implied repudiation can be retracted by a reaffirmation of the K. Since time hadn t run out.B. sue for real breach. Rule: iv. Wait until the time set for performance in the K and sue for real breach c. Wait options: (a) suspend performance and see if performance happens on the due date and if not. Rule: Rule of Perfect Tender D. g. P can sue for Implied or Express Anticipatory breach OR b. Implied repudiation occurs when a party puts it out of his power to perform the K. Cost to remove pipes installed and replace with pipes specified in K would be disproportionate to the value of doing so v. Holding: P did not have any legal rights at the time he mitigated damages because the time on the K had not expired 1. Anticipatory Breach and Related Doctrines a. Holding: iii. Issue: ii. or frustrates the K purpose.3. Issue: ii. express or implied repudiation of a contract before the time set for full performance. H. (2) treat K as revoked. Holding: iii. d. Changed Circumstances: i. Result: AB may be treated as an immediate breach of contract. v. This rule is triggered when: 1. The K does not state that it is expressly indivisible 5. George Edward Kent i. or (b) perform and sue for real breach on the due date. i. The performance of each part by one party is the agreed on quid pro quo of the other AND 4. the non-breaching party is excused from performance and has a choice to: (1) sue now for AB. or (3) wait until time for performance and sue for real breach: f. Ernest Ramirez and Adele Ramirez v. I will not perform our K! e. Autosport i. Incorporated v. Elizabeth and Ellwood Johnston i. Then. Inc. Excuse for deviation was unintentional and trivial. the K goes forward and there is no AB. K had not been breached ii. . an unanticipated or extraordinary event occurs. not willful or intentional f. Court won t use this doctrine if distinct terms aren t spelled out for distinct parts of the K e. P argued that there was an anticipatory breach j. that makes the contractual duties impossible or impracticable. AMF. Taylor v. Jacob & Youngs. McDonald s Corporation k. Definition: AB = an unequivocal. 2. h.

Frustration of Purpose i. must arise after the K is entered into. impossibility is determined by an objective standard. Main Rule: If performance of one s contractual duties under a contract becomes impossible or impracticable. Frustration of purpose K can be performed but performance is meaningless. due to the supervening event. and Agreed Modifications a. not whether the particular contracting party/promisor can do it. ii. then one s duties under the contract may be discharged -. 4. of the event occurring. the more likely ct is to excuse performance. in certain situations) (this is related to (4)). Performance is still possible. and 7. neither party has assumed the risk. Impossibility K can t be performed iii. 5. Special Rules: ii. 6. but foreseeability is not the test Specialty Tires case). Impracticability it s too costly to perform the K iv. it is better analyzed under the doctrine of mistake. Elements: (1) supervening act or event arising after the K is made (2) not reasonably foreseen by the parties at the time they made the K . Sections 261-269). Frustration excusing K performance exists if the purpose of the K has become valueless due to a supervening event not the fault of the party seeking discharge. but it is meaningless.meaning both parties duties are excused under the K and either may sue for rescission of the K and restitution/UE (see Cazares case) for any part performance or benefits rendered to date (see Rest. whether anyone could perform the duties. either explicitly (by K language) or implicitly (by circumstances or TU). neither party is at fault in causing or bringing about the event (or failing to guard or insure against event. If it exists at the time of K formation. now b.3. Chapter 9 Changes after Formation: Frustration. etc. Example: Scotty s birthday cake fictional excerpt in the casebook. Impracticability. the impossibility. the nonoccurrence of the event is a basic assumption of the parties in making the K (the less foreseeable. or if the entire purpose of the contract is frustrated although performance is still technically feasible. Impossibility of Performance/Frustration of Purpose: i.

and Veronna Kay Lovell i. iii. Quigley. Ltd. to seller. uphold if mod is fair & equitable and there are changed circumstances iii. Portland Section of the Council of Jewish Women v.(3) the purpose of the K is completely or almost completely destroyed as a result (4) the purpose of the K was realized by BOTH parties at the time K was made UCC 2-615 applies in these situations. Issue: whether allied modified K by COP to allow the return of parts ii. Event was a 3d P s refusal to deliver goods owned by seller. so that seller could fulfill their obligations under a K for purchase and sale of those goods iii. Domenico et al. Inc. Farm Equipment i. Agreed Modifications and the Pre-Existing Duty Rule a. Brenner v. K to provide hospital bed 2. includes failure to come into existence or deterioration: ii. Phil Saenz 1. Pre-Existing Duty Rule/Modifications i. if it is not the fault of the promisor (e. c. Frustration of Purpose: as lawyer was appointed judge B. UCC does NOT require C for mod to be valid b. Supervening governmental order making performance impracticable qualifies. COP was that Allied had accepted return of parts in past . Modern trend to require less C for mod s to be valid. ROL for waiver (different from modification) d. c. 2. Hospital should have anticipated rise in costs. 2. Impossibility (or Impracticability) of Performance i. Alaska Packers Ass n v. K was excused 2. it was impracticable for D/seller to perform. v. death or physical incapacity of a person necessary to effectuate the K qualifies (see Cazares case. Specialty Tires of America. Jr. for example). Holding: Allied did NOT modify K by COP 1. Lester L. Little Red School House. too. destruction of the contract s subject matter or means of performance. C/L all mod s require C ii. so K was unenforceable. Sisters of Charity of Providence in Oregon 1. Impossibility Examples and Specific Rules: 1. The CIT Group 1. in K s for sale of goods. Roy Cazares and Thomas Tosdal v. so K was not excused iv. supervening illegality: discharges duties under a contract.g. house burns down). if the performance becomes illegal after the contract was entered into. 3..

and it s morally neutral. Damages only make the wronged party whole ii. ii.. (b) difficulty of obtaining suitable substitute performance with a monetary award. Will only be ordered if: 1. Punitive Damages (rare) v. land iii.g. The subject matter of the contract is unique and has no established market value. and 5. Makes the D do what they contracted to do. therefore 3. The acts required of the defendant were clear (the K terms are sufficiently certain). Certainty. Performance will not be unfairly difficult for the defendant. No damages if breach of K leaves wronged party better off 1. Party s actions don t waive the K Chapter 10 Remedies A. B. 6. 4. e. Defenses: (1) unclean hands. Formula for calculating them iii. Performance will not have any negative impact on the public. 2. 3. Money damages would not adequately compensate the P's loss [consider several factors like (a) difficulty of proving damages with reasonable certainty. Liquidated Damages Clause in K? vii. Pain & suffering (rare) iv. You can breach your contracts as long as you re willing to pay the price. COP will not count iv. Ex: lease for 12 months. & (c) likelihood that a monetary damage award is uncollectible. Specific Performance (rare?) i. Limited Liability Clause in K c. Holmes Bad Man Theory: a. Foreseeability. Expectancy (C/L) Damages: i. (2) laches. 2 clauses in K served different purposes.2. b. No oral modification clause 1. Available when: there is no adequate remedy at law ($ damages). Limitations: Causation. Benefit of the Bargain: Specific Performance a. COP concerning one clause did not affect the other iii. breach at 9. Non waiver clause 1. The loss in value to P of the D s contractual performance: . Monetary Damages i. (3) sale to 3dPBFP b. Modifications must be in writing a. Mitigation vi. under the K.

Employee may have right to quasi-K recovery for work done to date (under UE). Out of pocket losses and expenses resulting from D s breach (recall Hoffman case) ii. Measure of Damages for Specific Situations: i. Cost of completion = $90. Employee has duty to use reasonable care in finding similar new job (i. Burden is on employer to show jobs were available. a. i. i. 2. cases 4. Includes pain & suffering. Breach by employer: a. Alt: Diminution in value between work as promised and work as delivered = $3. specific performance may be a better and attainable measure of damages. in approp. Restitutionary Damages iii. Breach by employee: a. b.000 3.. Breach by owner: i.1.e. Minus any costs or other losses avoided by not having to perform d. Before construction started: 1. . Halliburton) e. Construction Ks: a. Employment Ks 1. Plus incidental or consequential damages. ii. though ii. Difference between cost to get a new employee to do the work and the cost of the old employee to do the work.000 a. Reliance Damages: i. Formulae: 2. Standard measure is full K price (irrespective of when breach occurs). FMV of the benefit rendered by P (recall Dews v. Alternatively. K for sale of land: 1. Unintentional: standard measure is same as intentional (see above). mitigate damages). Standard measure is difference between K price and fair market value of land 2. 3. Intentional: standard measure is cost to replace employee. Modern view: employee may offset this against any money due to employee for work done (under UE concept). b. Builder is entitled to profits he would have derived from K.

iv. plus costs he has incurred to date. 2. K calling for installment payments. Late performance (completes. Aggrieved party can recover only missed payment. During construction: 1. Unless K contains an acceleration clause. plus interest on it. f. Builder is entitled to profit he would have derived from K. Mitigation: builder has no duty to avoid owner s breach. Kent. but is late): 1. like rental income. which then allows aggrieved party to recover full K price. owner can recover only interest on the value of the building (as a capital investment). Sokoloff . iii. Builder entitled to full K price. that makes the entire amount due upon one missed payment.ii. Breach by builder: i. During construction (after partial performance): 1. where payment is not made: 1. American Standard). 2. Owner entitled to cost of completion plus reasonable compensation for any delay 2. Note: K price minus cost of performance gives same result. 2. After construction completed: 1. plus reasonable compensation for delay. b. measure is the diminution in value: difference between value of what would have been received if K fully performed and what was actually received (ex: Jacob & Youngs v. But if damages are not easily determined. Measure of damages is cost of completion = what it will cost above the K price to get work completed. Owner has right to damages for any loss incurred b/c of the delay. If completion would involve undue economic waste. iii. iv. Before construction started: 1. but does have duty to not continue work after breach. Completion is allowed if it decreases damages. ii.

James H. did not allow SP in employment (viol 13th Am) ii. American Standard. v. and Anita Baker i. e. Band no-showed for wedding reception. Carla Deitsch et al. thought this would be too much b/c the reception was not a complete loss ii. Out of pocket c. Expectation. and loss in value of the reception plus out of pocket loss of deposit . which was a breach of K. (2) where the contractual duty is so coupled with matters of mental concern or solicitude. calculated on basis of stress. Harold Schectman and United States Fire Insurance Company a. Substantial performance factors not met ii. and Restitution Interests i. Ct. Issue = damages i. b. Non-Pecuniary Loss 1. Court awarded cost of completion here ($90K plus int and costs). Reliance. P could not enjoin D or its competitor (Warner) from employing D. Inc. had to ask for $ damages C. Warner Communications. Usual measure of damages in a construction contract breach case is ? d. P argued for entire cost of reception 1. Pecuniary vs. Alice Sullivan v. O Connor b. D argues dimunition in value was nominal b. The Risk of Windfall: The Choice between Cost of Completion and Diminution in Value 1. versus diminution in value ($3K). Persistent Issues in the Measurement of Expectation Damages i. but in California. Apply Lumley Rule: usually can enjoin the D from working elsewhere. and Westinghouse Air Brake Co. The Music Company a. v. Monetary Damages for Breach of Contract a. Inc. that a breach of the duty will necessarily or reasonably result in mental anguish or suffering 2. D failed to demolish to one foot below grade c. Ct awards somewhere in between i. D argued for deposit only 1. Inc. Pain & Suffering/Mental Anguish a. or with the feelings of the party to whom the duty is owed. (1) mental anguish is foreseeable from the breach of the K and ii. Damages for mental anguish are available in K s where i. inconvenience. Beverly Glen Music. v.g.

LOST VOLUME SELLER EXCEPTION c. BUYER s Alternatives: i. less expenses saved as a result of Buyer s breach 1. Resale. Inc. UCC Remedies Buyer a. Epperson a. Plus: incidental and consequential damages less expenses saved 2. get difference between K price and market price at time and place of tender. Usually awarded when there are emotional connections to the breach of the K 3. Keep goods & sue for breach of W. The UCC Remedies Provisions: Market. Darniece B. or feelings iii. Apply to CL AND UCC Cases ii. SELLER S Alternatives: i. Epperson and Fred R. Cover make substitute purchases and recover the difference between cost of cover and K price. then can get lost profit on the sale. iv. Three Limitations on Damages: Certainty. iv. Issue: whether buyer was entitled to P&S damages? b. v. Rule: Damages for mental anguish can be awarded where the K is coupled with matters of mental concern or solicitude. if above is inadequate. Specific performance if goods = unique or cover is not otherwise possible. i. Cover. Causation are they too remote? . iii. Foreseeability. Causation and Reasonable Certainty 1. Liberty Homes. Plus incidental damages. Get p&s damages in this case b/c of the inconvenience and immediate loss caused by the breach (of the type of K entered into). resell goods and get difference between K price and sales price. ii. get difference btw goods as warranted and goods as delivered. Incidental: small damages that are from the ripple effect v. ii. and Other Measures of Damages 1. and Mitigation i.d. iii. UCC Remedies Seller a. v. Hypothetical cover recover difference between K price and market price at time Buyer learned of the breach.

Ct agrees and reverses for new trial. Modern trend: knew or should have known (Foreseeability) iv. Michael E. Taylor and Son. 4. then entered into K with D to do work on property to remove oil tank. Shirley MacLaine Parker v. b. Mitigation 1. K for pneumatic cement pumping system UCC case. She has a duty to mitigate. Inc. d. Damages are those resulting from breach + those reasonably contemplated at the time of K formation b. Ct says D s breach did not cause Seller s damages of $132K. Lost profits! c. P wasn t in the containerized cargo business already. Eastern Cement Corporation a. Sets a price on damages recovered in a breach a. Consequential damages a. ct says this is too remote. Seller entered into K to sell property to Buyer by 3/31/97. this is breach of implied W of M and FPP. v. et al. Hadley v. Overall loss 2. . P asks for lost profits while the mill is shut down. Nail that lost the kingdom iii. reputation. Geraldine Lipshie v. b. genre. c. Albert Murray. the roles weren t the same. Contract Terms Regarding Remedies i. b. Halliburton Co. d/b/a Kvassay Exotic Foods v. SM is entitled to reject the second movie b/c it was not equal to the first movie. seller breaches by not delivering properly working product. Use UCC 2-718 for test to determine validity 2. she fulfilled her duty to mitigate. D failed to do work properly = BREACH. Twentieth Century-Fox Film Corp.2. location. she was not required to take the alternative employment because it was not equivalent in quality to what she lost under the breached contract. Liquidated Damages Clause 1. Seller sold property for $132K less. Kvassay. so that the P does not receive the damages. George M. Buyer and Seller did not go through with sale. Certainty are the damages too speculative? Not proved? 3. Foreseeability 1. d. D says the damages awarded to the P are too remote. The money you would have made b. Damages: P wants $24M. ROL: Damages have to be foreseeable by breaching party at time of K formation to be awarded. a. a. Baxendale a.

if promisee (A) ends up paying the beneficiary. Types: i. Can be explicitly intended in K or implicitly intended (if arguing for implicit. --donee bene can sue the promisor (B). Parties intentions? 3. purpose of K. Jimmie Elsken. compared last years income to damages in the case ii. and if it s a promise to pay $. What evidence is available to prove actual damages? c. unless sued in reliance/P. ROL: use the UCC b. -. then promisee can sue promisor (B). and .E. no rights. Interlocking Rights: i. Network Multi-family Security Corporation Chapter 11 Third Party Interests A. -. Intended Beneficiaries 1. When trying to categorize such a clause. iii. iv.. -. Trial ct.creditor beneficiary (C) can sue both promisor (B) and promisee (A). But is subject to all defenses that are good against the promisee (A) ii. promisor (B) if promisor hasn t paid beneficiary v. vii. Sets an upper limit on damages if breached a. no privity iii. Is the amount reasonable when compared to actual damages? b. Test for distinguishing an intended 3d P beneficiary from an incidental 3d P beneficiary 1. Incidental Beneficiaries 1.a. Donee 3d P Bene s: vi.Scarpitti) b. Third Party Beneficiaries a. look to intention of parties. no other alternative recourse . need to know: a. Against public policy if it entirely disclaims liability for fraud or willful injury 2. The clause might be invalid if it extended to gross negligence c. Are valid as long as they limit damages for just ordinary negligence (Elsken) b. Limitation of Liability Clauses 1. C can sue promisor (B) to enforce K 3. C cannot sue promisor (B) to enforce K. Administrator of the Estate of Patricia Ann Elsken v. --donee bene cannot sue the promisee (A). Creditor 3d P Beneficiary: ii.promisee (A) can ask for specific performance vs. Can be Donee or Creditor Type 2.

And: requirements & outputs K not assignable under common law (but are probably assignable under UCC) iii. that materially increase the burden or risk imposed on the obligor by the K 4. Norman D. ii. that materially impair the obligor s chance of obtaining return performance 5. Assignee (C) is subject to any defenses obligor (B) can raise against assignor (A) arising before assignment. or impair materially the obligor s chance of obtaining return performance (Evening News v. 3. Peterson. --promisee (A) can still sue the promisor (B). citing Rest. or (2) the assignment would vary materially the duty of the obligor. v. c. Validity: Non delegable duties 1. Some state and federal laws limit assignment of wages by employees and rights to government payments. Ward Parkway Shopping Center d. that materially change the duty of the obligor 3. Validity: Rights are usually Assignable 1. William Weborg e. A delegation is not valid if it will change the quality or character of the performance: . The Chicago Housing Authority f. Consequences: Interlocking rights upon assignment 1. unless obligor (B) waived right to assert defenses against subsequent assignees in the A-B contract (Equico) 3. Assignee (C) can sue obligor (B) for performance of the K 2. Assignment of Rights and Delegation of Duties (and Assignment of a Contract ) a. L. Henry Horner Mothers Guild v.C. Note: closely connected doctrine is an exception (Equico) iv. Validity: Assignment of Rights that are unenforceable 1. that are forbidden by statute or public policy 7. Brock B. that materially reduce the value of the K to the obligor 6. Note: such waivers prohibited in consumer transactions by FTC and state consumer protection statutes 4. UCC encourages assignment of rights. to receive unique personal services based on a relationship of confidence 2. Unless: (1) the express terms of the K prohibits assignment.viii. Alvin Stangland and Bruce Kintschi v. that are validly precluded by K 8. Sect. 152) 2. increase materially the burden of the risk imposed by the K. William Scarpitti v.A. Assignment of Rights i.

Inc. Obligee (B) must accept C s performance if the duty is delegable vi. b. Delegation of Duties. and 2. ii. Evening News Association v. v. B can sue C if she fails to perform as a 3d P intended beneficiary of the A/C K 2. Including Assignment of a Contract i. Nexxus Products Company. Inc. duties where a special trust has been reposed in A by B. Obligor/delegor (A) can sue delegee (C) on the A-C K 3. Consequences: Interlocking rights upon delegation 1. Moneim Ramadan b. d. Consequences: Novation Rights 1. where performance by another person would not be the same or comparable. Hunter Tract Improvement Company v..H. duties involving personal judgment and skills of A. S. Peterson viii. exclusive distributorships Sally Beauty) e. Equico Lessors. v. Inc. (ex: requirements and outputs K s. services) of A. even if C is just as good as or better than A. increase materially the risk or burden imposed on B by the K. i. meaning B agreed to release A from liability 4. Note: C is NOT a 3d P beneficiary of the A/B K! vii. duties where performance by C would materially change B s expectancy under the K. . unique and personal (e. Obligee (B) can sue delegee (C) or obligor/delegor (A) for performance of the A-B K 2. Time Oil Co. Obligee (B) is a 3d P intended beneficiary of the A-C K 4. Stone et al iii. when the express terms of the A/B K prohibit delegations of duties v. A can sue C on the A/C K if she fails to perform 3.a. Sally Beauty Company. A. Geyen v. or impair materially B s chance of obtaining return performance (UCC 2-210(2)).g. B can sue A on the A/B K unless there has been a complete novation. c.

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