ENFORCEMENT DEFENSES 1. STATUTE OF FRAUDS - C/L: must be in writing if: a. Executor/Administrator b. Debt of another (suretyship) c. d.

e.

Marriage Real property

Over one year PTP - If any promise of either party cannot be fully performed w/in one year of the making of the agr., the entire K is w/in the statute, and it cannot be enforced against either party unless it is satisfied to that party. Begins date K is made, not when performance is promised; Exceptions: i. Lifetime employment because could die within a year; ii. Full performance on one side of the K (out of fairness). The writing must contain: a. Identity of contracting parties Description of subject matter in the contract c. Terms and Conditions of the agreement d. Recitals of Consideration (not needed if it's already been given) e. Signature of the party being charged (initials or seal or letterhead) B Under the UCC: a. PTP - A K for the sale of goods [2-205(1)] for the price of $500 or more must be in writing, otherwise it is unenforceable in its entirety. (UCC 2-201) b. Must be included in a signed writing: PTP - The required writing need not contain all the material terms of the K. All that is required is that the
b.

writing afford a basis for believing that the offered oral evidence rests on a real transaction. The only term which must appear is the quantity term which need not be accurately stated but recovery is limited to the amount stated. The price, time, and place of payment or delivery, the general quality of goods, or any particular warranty may all be omitted. 2-201, comment 1. i. Quantity of Goods - PTP - K is not enforceable beyone the quantity of goods in writing, but even if the writing understates the quantity, you can only recover the quantity stated. ii. Signature (exception - PTP - 2201(2) If K is between merchants, and a confirmation of the K arrives in reasonable time, and is recipient does not object to it w/in 10 days, then it suffices as a writing. ) iii. ID of parties PTP - Any authentication which ID's party sought to be charged is acceptable -- See Comment 1 iv. Omission of Terms OK PTP - A K under the UCC will not be found insufficient because of omission of terms of time or price (2-305) because UCC gap fillers may be used and the court may infer a reasonable time and a reasonable price. c. SOF Exceptions: i. buyer received and accepts all or part of goods. ii. Buyer gives partial payment iii. Specially manufactured goods iv. Between merchants and a written confirmation v. K is admitted CASES 1. Suretyship - Langman v. Alumni Ass. of UVA

(grant to UVA, grantee to assume mortgage) LAW: A grantee who accepts a deed becomes contractually bound by its provisions. A grantee who assumes an EXISTING mortgage is not a surety RATIONALE: B/c grantee received a direct benefit, this is an original undertaking, not merely acting as surety for grantors. 2. Multiple Documents Pieced Together to Satisfy Writing Requirement - Crabtree v. Elizabeth Arden (Court allowed P to piece together salary memo w/ payroll requirement) stubs to satisfy writing LAW: Can piece together documents to satisfy writing requirement of SOF: MUST HAVE a. Relationship w/ signed writing b. must refer to the same transaction as the signed writing. c. some courts require referral to signed writing. RATIONALE: People shouldn't be able to use SOF defense to get off on a technicality 3. The UCC Position - Harry Rubin & Sons v. Consolidated Pipe Co. (hula hoops) LAW: A writing in the confirmation of a K may Satisfy the SOF if it uses the term "order" in referring To the K RATIONALE: Even though the letters and purchase Orders referred to the oral Ks as orders, the circumstances reveal the true meaning 4. Mitigating Doctrines a. Monarcho v. Lo Greco (lead to R2d 139) (Christie gave up his life to work on ranch b/c he expected to inherit joint tenancy) LAW: Some courts will permit restitution or even reliance recovery for a person who is injured by relying on a promise which turns

out to be unenforceable under the SOF. RATIONALE: Courts will estop D's from using SOF defense when it would result in the unconscionable injury that would result from denying recovery. b. What is not part performance! Chevron U.S.A. Inc. v. Schirmer (Not 139) Admission not an exception under C/L LAW: Continuing negotioations do nto constitute part performance (R2d 139) sufficient to take an oral K outside SOF RATIONALE: Because P let its option expire, the option could not be modified except in wiritng, and continuing negotiations should not constitute partial performance. c. Estoppel applied in UCC case - Warder & Lee Elevator, Inc. (Farmer estopped from using SOF in backing out of an oral agreement to sell corn when prices rose) LAW: Court applied estoppel to SOF in UCC case RATIONALE: The UCC does not eliminate equitable and legal principles traditionally applicable in K actions. d. Signature required fulfilled by agent's signature - Halstead v. Murray. (Attorney bound client in real estate transaction w/out written authorization.) LAW: Where both parties negotiate through counsel, an attorney may bind a client without written authorization. RATIONALE: B/c Ds attorney clearly had authority to enter settlement negotiations, to apply SOF under these circumstances would allow D to escape the consequences of a bargain fairly made, not protect him from loss of property through the fraud of another.

ENFORCEMENT DEFENSES CAPACITY OF PARTIES Legal capacity of both parties is essential to formation of K. If parties lack capacity, they cannot give the required legally binding mutual assent. 1. K are voidable (may be enforced only by the favored party) if entered into by the following: a. Infants (not yet majority) b. Insane Persons c. Convicts deprived of their civil rights d. Intoxicated persons 2. Minors PTP - There is a bright line rule that the K's of a minor are voidable at the option of the minor, but a minor may nevertheless enforce the K against the adult. However, a minor is always liable for the reasonable value of necessaries furnished to him. (NOTE: that a minor can sue for any excess over the reasonable value of necessaries). But if the minor paid cash, he can't get it back. a. Right to restitution: The minor is expected to return what remains of anything that was received from the other party, but the minor is not accountable for any loss or depreciation. A minor who receives services is not accountable for anything. b. No exception for emancipated minors-Kiefer v. Fred Howe Motors, Inc. (emancipated minor contracted for a car) LAW: The K of a minor, other than for necessaries, is either void or voidable at his option. RATIONALE: That minor persons, possess certain legal disabilities. NOTE: In this case, it is arguable that the car purchased by the 20-year-old (married w/ child) was a necessity.

3.

Affirmation (ratification) PTP - If a person enters a K while still a minor, they may affirm or ratify the K upon maturity and it will become binding. A minor has a reasonable amount of time to disaffirm a K after reaching maturity. If he maintains silence, he may be held to have ratified. Actions, such as making car payments, may be construed as ratification. d. Real property -- PTP - A bona fide purchaser of real property is subject to disaffirmance by minors before them in the chain of title. Mental Infirmity -- PTP - There are two approaches to mental infirmity. a. Cognitive Test (trad.) -- Did the person understand the nature and consequences of what he was doing? (Makes it difficult to dissaffirm). R2d 15(1)(a). b. Non-Cognitive (modern) -- This is a limited volitional test. The K is voidable if the infirm party cannot act in a reasonable way toward the transaction and the other party has reason to know (or should have reason to know) of his condition. R2d 15(1)(b) Ct. said they were using this approach in Cundick v. Broadbent, but R questioned this. c. Exception: Power of Avoidance terminates to the extent that the K has been partially performed or that other circumstances have so changed that the avoidance would be unjust. R2d 15(2); See also Ortlere v. Teachers' Retirement Board d. Restitution - Party generally required to make full restitution to the extent of any restitution received. e. Weakness v. Incapactiy - Cundick v. Broadbent (Cundick agreed to sell land for way below value)
c.

4.

LAW: Mental capacity to contract depends upon whether the disabled person possessed sufficient reason to enable him to understand the nature and effect of the act in issue. (noncognitive approach) RATIONALE: Mental disability may not keep someone from being able to reasonably understand what his K entails. Intoxication. -- PTP - The inability to understand by reason of intoxication makes a K voidable only if the other party has reason to know of his inability, but the behavior of the intoxicated party will ordinarily satisfy the requirement. R2d 16 (At C/L had to completely drown reason, memory, and judgment in order to avoid K)

2.

3.

UNFAIRNESS: GOOD FAITH AND CONSID. 1. Good Faith a. R2d 205: every K imposes each party a duty of good faith and fair dealing in its performance and enforcement b. UCC 1-203: every K or duty within the UCC imposes an obligation of good faith in its performance or enforcement 2. Consideration a. Requirement of a bargain b. Legal detriment or benefit c. R2d 79 i. adequacy of consideration; mutuality of obligation d. UCC - does not require consideration for modification CASES 1. overreaching - McKinnon v. Benedict (people built trailer park on adjacent property) LAW: If there is evidence of overreaching by one party, the court may examine the adequacy of consideration

RATIONALE: the law does not favor restrictions on the use of land, and in this case the restrictions impose a significant burden on D's property while the potential damage to P's property is slight. Consideration is viewed at the time the K was made (prospectively) - Tuckwiller v. Tuckwiller (P gave up job to care for D in exchange for promise of farm; D died before could change will) LAW: A K to provide personal care in return for an inheritance is sufficiently fair and equitable and is supported by adequate consideration to permit specific performance. RATIONALE: P bargained for a detriment (giving up her job and moving to farm) in exchange for the promised inheritance. Public Policy re: "Excessive" Consideration Black Industries, Inc. v. Bush (middleman sold parts from P to government at a high mark-up) LAW: A K is not void as against public policy merely because one party's profits are excessive. R2d 178 - when a term is unenforceable b/c of public policy. RATIONALE: If profits are legitimate, the relative values of the consideration in a K where there is no fraud or deceit won't affect its validity.

ENFORCEMENT DEFENSES MISTAKE PTP - Current Affairs not Poor Predictions - The law of mistake deals only with the risk of error relating to the factual basis of agreement - the state of affairs at the time of the agreement. The party seeking relief must convince the court that a mistake and not a poor prediction is involved, the party must also convince the court that the mistake justifies relief. The law differs as to whether the mistake was "mutual" or "unilateral". PTP - R2d Analysis - The R2d allows for avoidance on the basis of mutual mistake when the adversely affected party shows (1) the mistake

goes to a basic assumption on which the K was made; (2) the mistake has a material effect on the agreed exchange of performances; and (3) the mistake is not one of which the party bears the risk. R2d 152 1. Mutual mistake - both parties made the same mistake. (courts are likely to void the K if there is mutual mistake) 2. Unilateral mistake - one party is mistaken (hard to win) 3. Mutual mistake (elements of defense R2d 152) a. both parties had some mistaken belief at the time the K was made b. mistake was as to a basic assumption c. mistake has a material effect i. must show more than a lost benefit ii. must have "but for" causation; material enough that you wouldn't have contracted iii. risk of mistake not allocated to the party seeking relief 4. when the mistake of both parties makes the K voidable; R2d 152 5. when party bears risk of mistake; R2d 154 a. risk allocated to him by agreement; or b. he had is aware that he has only limited knowledge when K was made, but didn't use "reasonable diligence" c. risk is allocated to him by the court on the ground that it si reasonable under the circumstances 6. Unilateral Mistake a. When the mistake of one party makes the K voidable; R2d 153 Where the mistake of one party at the time the K was made as to a basic assumption on which he made the K has a material effect on the agreed exchange of performances that is adverse to him, the K is voidable by him if he does not bear the risk of mistake under R2d 154 AND i. the effect of the mistake is such that enforcement of the K would be unconscionable; or

ii.

the other party had reason to know or should have known of the mistake.

CASES 1. Stees v. Leonard - Court enforced hard line rule of accepting risk, "if a man binds himself in a K, he must perform unless prevented by an act of God. 2. Dover Pool Club v. Brooking - court allowed avoidance on mutal mistake 3. Wood v. Boyton - diamond case, individual who brought stone to jeweler assumed the risk of not knowing it was a diamond. 4. Sherwood v. Walker - Court allowed avoidance on mistake as to the fertility of a heifer named Rose.

DURESS - PTP - Duress occurs when a party's manifestation of assent is induced by an improper threat by the other party that leaves the party no reasonable alternative. The K is then avoidable by the victim. The threat is serious enough to justify assent if the threat is one that leaves the particular victim with no reasonable alternative. The victim is entitled to restitution. 175 and 176; See also Austin v. Loral 1. Elements of duress: a. some kind of threat b. threat is improper c. threat is what induced the victim's assent to the K d. the threat was serious enough to justify assent 2. R2d 176 (When a threat is improper) A threat is improper if what is threatened is: a. a crime or tort; b. criminal prosecution; c. use of civil process made in bad faith; d. breach of duty of good faith and fair dealing under a K w/ the recipient; or e. if the resulting exchange is not on fair terms and:

threatened act would harm the recipient and would not really benefit threatening party (ii) effectiveness of threat in inducing manifestation of assent is sign. Increased by prior unfair dealing by party making the threat; or (iii) what is threatened is otherwise a use of power for illegitimate ends. 3. R2d 175 (When threat makes a K voidable) --If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, then the K is voidable by the victim. Duress may be raised as a defense to the K or brought as an action based on recission. The victim is barred, however, if the victim has been silent for a reasonable time or ratified the K. 4. Def'n of threat -- A threat is a manifestation of intent to inflict some harm or loss, which a reasonable person would believe, and the ability to carry it out. The threat is improper if what is threatened is a crime or tort, a breach of good faith and fair dealing, or criminal prosecution. 5. Remedies a. assert the defense to avoid performance of K b. if partial performance, seek recision and get restitution for benefit conferred CASE 1. Austin Instrument, Inc. v. Loral Corp. (radar components to gov't) LAW: A K modification executed under threat of economic duress is not enforceable RATIONALE: A K is voidable on the ground of duress when one party is forced to agree to the modification by means of a wrongful threat precluding the exercise of its free will. **Why the preexisting duty rule is not relevant in this case: Not a unilateral modification of 1st K b/c there is new consideration (performance of the 2nd K qualifies of consideration)

(i)

**UNDUE INFLUENCE - PTP - Undue influence is a defense which may be allowed to give victims relief from unfair transactions that were induced by improper persuasion. The effect is to make the K voidable at the IPs option and may serve as a basis of defense or restitution. R2d 177 1. Elements required - R2d 177 a. Special relationship b. unfair persuasion - assent of weaker party induced by stronger party. Was the result reached by seriously impairing the free and competent exercise of judgment; c. OR (instead of 2) B/C of relationship, fair to assume that IP will not act in a manner inconsistent w/ his welfare. ENFORCEMENT DEFENSES OVERREACHING - PTP - IF a K results from unfairness in the bargaining process, it is generally voidable. Ex: fraud, duress, and mistake I. PreExisting Duty Rule Ask: Is there consideration for the K modification? If yes, then it's not preexisting duty rule situation. a. C/L R2d 73 - "Performance of a legal duty owed to a promissor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain." See also Alaska Packers v. Domenico and Jockey Case. b. UCC 2-209(1) Consideration is not necessary for a unilateral sale of goods! PTP - UCC 2209(1) completely abrogates the PEDR as to K's for sale of goods -- "a K w/in this article needs no consideration to be binding. Note: The SOF must be met as to the modification. c. When PreExisting Duty Rule doesn't apply: i) a agrees to perform an act similar to, but different from, the action he was contractually obligated to perform. 73 (Could be a peppercorn) ii) A owes the preexisting contractual duty to someone other than B (But

d.

see Jockey Case). (inferred from R2d 73 - duty owed to a promissor) iii) A had a valid defense under the original K iv) Unanticipated circumstances arise that make modification of the terms of the first K fair and equitable. Watkins & Son v. Craig where the court allowed for an exception to the preexisting duty rule when parties agree that the original price should not control in order to make the K fair and equitable. (Applied R2d 89(a) re: modification of executory K) v) Recission: Both parties may agree to rescind the original K and form a new one, as long as neither party has fully performed. See Schwartzreich v. Bauman-Basch, Inc. (principle" freedom from K; freedom to K) But see Arzani v. People (where the court said the so-called recission was really a modification and held that because the general depends on the sub to form his bid, he should not be forced to pay the sub more without adequate consideration. PTP - The parties to a bilateral K that is at least partially underperformed on each side may agree to a discharge of all remaining duties. R2d 283 UCC Application of PreExisting Duty Rule PTP - UCC 2-209(1) completely abrogates the preexisting duty rule as to Ks for the sale of goods ("a K w/in this article needs no consideration to be binding"). The SOF must be met as to the modification. 1. Good faith standard for modification - PTP - Although the Code abandons the requirement of considertion, a modification must still meet the test of good faith, implied by the Code. Extortion of a modification w/o legitimate reasons is ineffective as a violation of the duty of good faith (UCC 2-209 cmt. 2) a. Good faith std. Does two things:

allows the victim to unravel the transaction by avoiding the modification and seeking restitution for performance rendered. (Austin Instruments v. Loral); (ii) gives the victim the rt. To recover damages if the other party's breach resulted in failure to arrive at a modification. 2. UCC 2-209 - Modification, Recission, and Waiver - An agreement modifying a K w/in this Article needs no consideration to be binding, but a signed agreement which excludes modification, or recission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. II. Accord and Satisfaction - PTP - An accord is a K btw a creditor and debtor ofr the settlement of the claim btw them by some performance other than that which was originally contracted for. Satisfaction occurs upon performance for the accord. C/L rule of Foakes v. Beer -- rigidly applied approach that payment of a sum less than the whole cannot be satisfied for the whole, and that consideration is needed for any discharge. This is regarding undisputed debts. a. Disputed (unliquidated) v. Undisputed (liquidated) Debts Where the claim is in dispute and the amount owed is uncertian, a compromise in which the creditor accepts a partial satisfaction of the amount claimed is sufficient to discharge the claim. (Creditor must be on notice that he is being offered a full settlement. See Kibler v. Frank L. Garrett & Sons, Inc.: and R2d, cmt. C; R2d 281 cmt. E) holding that fine print on a preprinted check may not serve as notice that an accord and satisfaction is offered, because

(i)

b.

c.

d.

there must be a meeting of the minds to have an accord and satisfaction. D has the burden of showing this.) UCC 1-207: Explicit reservation of rts (i.e. "w/o prejudice" or "under protest" does not apply to accord and satisfaction) UCC 3-311: Accord and Satisfaction by use of instrument (Instruments with conspicuous notice of full payment will suffice) (i) states that acceptance of a disputed debt, with notice, provides for discharge of debt (ii) this reflects C/L rule that notice must be conspicuous (iii) Subs. (c) says that the claimant may return the payment w/in 90 days and still sue for the whole and the claimant may require that the partial payment be made to a designated person, and if it is not then the debtor is not discharged. Fiduciary Relationship: Hudson v. Yonkers Fruit Co. (fiduciary relationship is not the same as a debtor)

ENFORCEABLE DEFENSES FRAUD/MISREPRESENTATIONS 1. Requirements of a fraud defense a. a false assertion b. assertion is fraudulent (i) must have scienter either consciously false or reckless disregard for the truth AND (ii) intent to deceive c. assertion is relied upon d. reliance is justified 2. Differences btw fraud and misrepresentation a. fraud is higher std b. action in tort, w/ greater damages available c. misrepresentation usually asks for recission or equity (to undo the deal)

Misrepresentation - PTP - Misrepresentation is typically said to go to the inducement of the K. The four elements of misrepresentation are (1) a false assertion is made (2) the misrepresentation is material or fraudulent (3) the assertion is relied upon, and (4) the reliance on the misrepresentation is justified. PTP - The effect of misrepresentation is that if the party's manifestation of assent is induced by a fraudulent or material misrepresentation by the other party, upon which the recipient isjustified in relying, the K is voidable by the recipient. (Recipient can disaffirm K and then assert misrepresentation as a defense to an action brought to enforce the K, or bring an action based on avoidance & get restitution (courts have allowed incidental or consequential damages as well (eg. Lost billable hours)) NOTE: If the party is negligent in relying, there is no relief. Misrepresentation of opinion (puffing) is not rescindable. 1. Elements of Misrepresentation a. False Assertion - A statement about present or past facts which is not true. (i) must be a fact at the time the assertion is made- can be spoken or written or half-truths w/o qualification to prevent false inference (See R2d 161) (ii) Concealment qualifies as a false assertion PTP - An affirmative act that is intended or known to keep another from learning a fact. (ex. Painting over a hole in the wall or reading aloud only a part of a K) NOTE: The burden of discovery and inquiry are on the buyer (caveat emptor) As long as no affirmative representations are made, the seller is not liable for failure to disclose material facts (bare non-disclosure)
3.

Bare disclosure does not count as a false assertion (Kanzmeir A/C case) unless - special relationship - need to correct - (if what was once true is no longer true) - mistake as to basic assumption - a party should disclose special knowledge not generally avoidable to those in his position. b. Assertion must be material or fraudulent (i) material - a material assertion must be sufficient (a substantial factor) to induce a reasonable person to make the K OR the particular maker of the misrepresentation knew it would make the particular recipient make the K) (ii) fraudulent - consciously false (scienter) and intended to mislead c. The assertion is relied upon in manifesting assent (substantial contribution to decision ok) d. The reliance on the misrepresentation is justified: R2d 164(1) (i) Reliance on assertions of law will often be justified b/c recipients are likely to rely on matters of law and not draw independent conclusions (ii) Not justified if misrepresentation was obviously false (iii) Mot justified if misrepresentation was pure opinion (R2d 169) unless party asserting was in a special relationship, had special knowledge (i.e. doctor, lawyer), or had special reason to know the recipient was particularly susceptible. CASES 1. Concealment - Swinton v. Whitinsville

(iii)

(concealment of termites from prospective buyer) LAW: A seller is not liable for bare nondisclosure of material facts affect the value of property sold. 2. Misrepresentation - Kannavos v. Annino (house sold as improperly zoned apartment building) LAW: When a seller makes a representation, he incurs a responsibility to disclose the entire truth about the matter represented. RATIONALE: D's representation created the confusion and D cannot take advantage of that confusion at the expense of P.

ENFORCEMENT UNCONSCIONABILITY AND ADHESION Ks Unconscionability refers to a K w/ terms so one-sided as to be unfair or even oppressive. R2d 208 and UCC 2-302 allow a court to decline to enforce all or part of an unconscionable K. The K must be judged as of the time the K is made (UCC 2-302 cmt. 1) I. Two Step Test: There is a two step test the court will use to decide whether a K is unconscionable: A. Is there unfairness in the bargaining? (procedural unconscionability) B. Does this unfairness result in unfair or oppressive terms? (substantive unconscionability) (See R2d 208 and UCC 2-302) II. Rationale: Public Policy - There ought to be some limit to the power of parties in superior bargaining positions to dictate unfair terms. NOTE: in reaching decisions based on this doctrine the courts often allude to duress and fraud as well. III. C/L A. R2d 208 If unconscionable, the ct may 1. refuse to enforce the K

2. 3. B.

IV.
A.

B.

C.

D.

enforce the remainder of the k limit the application of any unconscionable term as to avoid any unconscionable result R2d 211 Standardized Agreements/ Boilerplates 1. Sub (1) speaks to the writings, stating that if you sign the agr. (standardized form), you must manifest assent to the writing 2. Sub (3) states an exception where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agr. (case of the lost wedding film) UCC 2-302: Court's Options - If a court as a matter of law find a K or clause therein to have been unconscionable at the time the K was made, it may: 1. refuse to enforce the K 2. enforce the remainder of the K w/out the unconscionable clause 3. limit the application of the unconscionable clause so as to avoid any unconscionable result. 2-316: Express Warranties -allows express warranty to replace implied warranty 20718: Fixed Damages for Breach -Any liquidated damages clause that fixes unreasonably large damages in the event of breach as a penalty is void 2-719: Limitation of Remedy -Parties by agr. may limit or exclude consequential damages unless such limitation or exclusion would be unconscionable. Also, the limitation of consequential damages for personal injury from consumer goods

is prima facie unconscionable. Henningsen v. Bloomfield V. Burden of Proof- under 2-302 unconscionability is a question of law to be determined by the ct. Ct may raise question, but party asserting it bears the burden of pleading and establishing it. THE STANDARD FORM OF THE Ks -Standard Form of Ks are often used because they are efficient, and they help control "irrational factor" in litigation, cut down on transactional costs, and help maintain predictability in law. I. Adhesion Ks - An adhesion K is one where the parties occupy substantially unequal bargaining positions and the inferior party, in order to obtain some essential item or service, is forced to "adhere" to the terms dictated by the superior party. Cts will often rule against such Ks on the basis of public policy, and will either (1) strictly construe the K against the oppressive party, or (2) require actual assent to the terms (R2d 211) A. Factors to determine if an adhesion K 1. bargaining power 2. amt of free choice 3. competition in the mkt place B. Standard form Ks (car dealerships) C. Tickets, passes, and stubs 1. Parcel Ticket Case -- Klar v. H& M Parcel Room, Inc. (Ct held that a person checking a parcel at $1000 and charged a fee of 10 cents was not responsible for not knowing that the stub contained fine print re: maximum $25 liability.) **Needed to be more conspicuous: but blanket limitations against liability (i.e. ski areas) are not effective for active negligence. 2. Carnival cruise Lines - forum selection clause Ok (Congress

overturned by prohibiting such clauses) D. Incorporation by reference CASES 1. Exculpatory Clause - O'Callaghan v. Walker & Beckwith Realty Co. (lessee injured in courtyard; lease contained exculpation clause) LAW: A lease clause exculpating the LL from negligence is enforceable RATIONALE: An exculpatory clause in a lease is enforceable unless against public policy and the LL/T relationship is a matter of concern NOTE: Most states now have statutes that make clauses exculpating a party from negligence unenforceable 2. Warranty disclaimers and limitations Henningsen v. Bloomfield Motors, Inc (explicity warranty in fine print on back negated implied warranties) LAW: A provision in the sales K exculpating D from liab. Under implied warranty will not be upheld RATIONALE: Although there is normally freedom from K btw parties, cts will declare void as against public policy any contractual provision that tends toward injury of the public. NOTE: Although UCC 2-316 allows express warranty to replace implied warranties, this warranty was too skeletal. Also UCC 2-719 says no limits allowed on personal injury. "Boilerplate Clause" - here in fine print; also, a lay person wouldn't understand its meaning. 3. Insurance Boilerplate Clauses - Darner Motor Sales v. Universal Underwriters (insurer's limit. Of liab. Clause knocked out) LAW: Insurance clauses always read in favor of insured. RATIONALE: Contra Profertum The affirmative representation was reasonably relied on. Insurer's reputation. R2d 211(3) NOTE: This is different from air force case where businessman should have read K and was expected to know the terms. Also, no affirmative representations were made.

4.

5.

6.

7.

Limitation of express warranty of merchantability - Wilson Trading Corp. v. David Fergusen Ltd. (yarn sold w/ provision disallowing claims for shading w/in 10 daysnot long enough to knit & wash) LAW: The notice (10 days) provision here was unreas in view of express warranty of merchantability RATIONALE: Ct applied 2-607 which allows buyer a "reas time" after delivery of goods to notify the seller of BOC. Also, Ct relied on 2-719(3), which says unconsionability is monitored wrt consequential damages. Repossession - Williams v. Walker Thomas Furniture Co -an example of a "dragnet" clause. (Welfare recip defaulted on furniture bought on credit) LAW: K provision which allowed repossession of all furniture bought on credit was found unconscionable. RATIONALE: D is in poor econ class where the inequal of bargaining position makes it easy to exploit D by K provision such as one here, which is unconscionable Excessive price - Jones v. Star Credit Corp. (Freezer worth $300 bought for $900) LAW: A Ct will refuse to enforce a K as unconscionable on basis that price is excessive compared to actual value. RATIONALE: UCC 2-302 allows the ct to reform a K, totally void the K, or void only the portion which is unconscionable. NOTE: Allowing the ct to substitute its J on price for that of the parties is potentially dangerous Hell or High Water Clauses - Merchant gives credit rts to bank, & bank will pay them immediately, leaving consumer resp to bank, & often w/out a way to redress BOC problems. Consumer may be required to cont pymts after it's realized that merchant gave defective goods. Consumer must then sue merchant. These are considered unconscionable. Exception- Btw merchants. (See UCC 9-206)

Forum Selection Clauses- Carnival Cruise Lines, Inc. v. Shute (Wash couple buy tickets from co. w/ HQ in Florida) LAW: A forum selection clause contained in a ticket for passage on a ship is enforceable. RATIONALE: The cruise line had a special interest in limiting the forum in which it could be sued. Ct. also arg. that the clause allowed for the lower ticket prices. Such clauses are now void for lack of mutual assent. 9. Franchises - The Shell case required that termination of a franchise must be for good cause. Why the higher std. For a franchise than emplymt at will? B/c (a) more reliance in a franchise, & (b) more objective measurement than in emplymt rel 10. Cooling off period - Buyer has 3 days to cancel any home - solicitation sale.
8.

ENFORCEMENT DEFENSES ILLEGALITY AND PUBLIC POLICY ILLEGALITY - Public pol is protecting us against such parties, as opposed to protecting them from each other 1. Subj Matter Illegality - there are three types: a. legal at time of offer, but before acceptance. (Offer terminates as a matter of law) b. legal at time of offer and acceptance (K is discharged under imposs of perf) c. at all times illegal 2. Effect of Illegality a. Illegal pt is severable. Only legal part enforced b. Culpability of parties - in pari delecto: D prevails when parties are equally guilty If the parties are in pari delecto, both are culpable, & the cts will usually leave them where they find them. This aids D who is defending the unenforceable K. However, this does not bar rest relief when claimant is less morally & legally responsible for the illegality (Goldberg) Illegal Ks are either

entirely void or can lead to recovery on a quantum meruit basis (restitu) - leaves the case as it finds it; - the law favors the party in possession (usually D) - Restitution is sometimes allowed (Goldberg v. Sanglier) - Can be overriden by public policy (Liebman v. Rosenthal) 3. R2d 178 - When a term is unforceable on the grounds of Public Policy a. In weighing interest in enforcement, look at parties justified expectations, any forfeiture that would result if enforcement were denied, and any special public interest in the particular term. b. In weighing public policy against enforcement, look at the strength of policy as manifested by leg or jud decisions, likelihood that refusal to enforce K will further that policy, the seriousness of any misconduct involved, & to what extent it was deliberate, & the connection btw the misconduct & the term. CASES 1. Commercial Bribery - Sirkin v. Fourteenth St. Store (bribe offered to place orders w/ P) LAW: D is relieved from paying b/c P bribed D's agent even though D has retained the benefit of the agr. (the goods). RATIONALE: The K viol penal code, & was therefore illegal & unenforceable. 2. Illegality in Performance of the K - McConnel v. Commonwealth Pictures Corp. (P bribed 3d party to obtain the K) LAW: A K that is legal on its face is unenforceable b/c of an illegality in perf RATIONALE: Where there is a direct connection btw the illegal transaction and the obligation sued upon, illegality in the perf of an otherwise legal transaction will deprive the doer of all rts. Modern cts view McConnel as too aggressive.

Comparative Guilt- Goldberg v. Sanglier (all parties deceived Ds finance co, including P & D) LAW: If the parties to a K are both guilty of some degree of fraud, but 1 party is guilty of more serious fraud than the other, the less guilty party may obtain judicial relief for the fraud committed by the more guilty party. RATIONALE: In pari delicto only provides that D prevails when the parties are of equal guilt. 4. Antitrust Violation as a Defense- X.L.O. Concrete Corp v Rivergate Corp (organized crime bid rigging) LAW: A P may have recourse to cts for nonpymt of a K that was awarded in violation of antitrust law. RATIONALE: Antitrust defenses in K aren't favored b/c they're too likely to enrich parties who benefit from K COVENANTS NOT TO COMPETE- In gen an emplyr may be protected against improper & unfair competition of frmr emplyee, but not against ordin competition. As stated in Hopper v. All Pet, a noncompete cov can only be enforced if it is: a. in writing b. part of K of employment c. based on consideration (C.A.B. v Ingram) d. reas in duration and geographical limitation e. not against public policy 1. Hopper v. All Pet Animal Clinic (vet agreed not to practice small animal medicine for 3 years) LAW: A cov not to compete is enforceable as long as it does not create an unreas restraint of trade. RATIONALE: An employer should be protected against improper & unfair competition of a former employee, but not against ordin. competition. Can be modified to be reas. 2. CAB v. Ingram (Ct modifies non-compete cov) LAW: Ct has authority to modify noncompete cov. which is otherwise unreas. broad.
3.

RATIONALE: Cts should enforce whatever is reas under circum to ensure that emplyrs are prot. From former emplyees taking advan of the know. & contacts gained from their emplymt BREACH - STEP 1 DETERMINE THE LAW OF THE K A. The parol evidence rule - Where an agr has been reduced to writing that the parties intend as the final and complete expression of their agr, evid of any earlier oral or written expressions is not admissible to vary the terms of the writing B. RATIONALE: The law favors written Ks (as more reliable). Works as a rule of E (what I may be admitted), and as a rule of K law (indicating what constitutes the K btw the parties) C. OVERVIEW: The PE Rule creates a means for people to est. a final, authoritative agr by placing limitations on what prior or contempoaneous agrs become pt of the K. It can preclude prior oral & written agrs. If the ct decides that the K is the complete agr, it will conclusively presume it is complete w/ respect to anything of the same subj matter & will not hear any other evid, no matter how good the evid is. Even if a party admits a prior agr, the PER trumps. The PER does NOT block E of fraud, duress, or formation disputes (can still arg. No K) Note: A good way to try to get around the PER is to arg than the E is a separate K, rather than a supplement to the present K. This will only work if the E is not the same subj matter as the present K; it must be something you would contract separately for. Parol evidence overview a. Determine the nature of the agr? i. integrated of not? R2d 209

if so, completely or partially? R2d 210 b. Determine nature of the evid sought to be intro i. contradictory ii. supplementary iii. explanatory (interpreting) c. Apply the PER analysis i. completely integrated agrs can explain (interpret) R2d 214(3) cannot supplement R2d 216 cannot contradict R2d 215 ii. Partially integrated agrs Can explain (interpret) R2d 214(3) Can supplement R2d 216 Cannot contradict R2d 215 PER ESSAY A. Is the K integrated? This depends on whether the parties intended the writing as a final expression of the terms it contains, even if the writing wasn't intended as a complete & exclusive statement of all terms on which the agr was reached. Always check to see if there is a merger clause! Note that the document is an integrated document (agr). Such clauses prot the K from being attacked by prior oral agrs (PE). These clauses are gen enforceable 1. How to determine integration? Test Used (only used where the parties intended the writing as a full expression of their agr) a. 4 CORNERS TEST (Face of the agr test) (Gianni) If the written agr appeared to be a complete & final written expression of the parties' intent, then no PE could be admitted

ii.

1.

TRAYNOR TEST (Reas Susceptibility) from Pacific Gas Read the writing and look at the E i. Would these parties have naturally included the term ii. If there is good reas they would have, then the PE is barred B. Is the K completely or partially integrated? The answer depends on whether the parties intended the writing as a complete & exclusive of all terms, as distinguished form merely a final expression of the terms that it contains. Integrated v partially integrated - A K that expresses the full & complete intent of the parties is an integrated K. Parties are therefore prohibited from varying or supplementing the contractual terms through PE 1. Full Integration; R2d 210 (a): Writing is complete & final wrt all aspects of the deal (bars E of consistent add'l terms & conflicting terms) 2. Partial Integration; R2d 210(b): Writing is complete & final wrt terms in the writing, but there is not an intent for the writing to be complete (bars E of conflicting terms but not add'l consistent terms) Ques to consider when making this determination 1. R2d 216(2)(b) - naturally omit? If the parties would naturally omit the term then the agr is partially integrated 2. UCC - Certain Inclusion (2-202 cmt 3) Would the certainly have been included in the writing? If the answer is no, than the K is partially integrated Is there a collateral agr? Separate consideration is not mandatory to find a collateral agr, it is enough if the agr is one in which might be naturally omitted from the writing. C. R2d 214 - Evid of Prior Contemporaneous Agrs & negotiations - Agrs & negotiations prior to
b.

D.

E.

F.

G.

or contemporaneous w/ the adoption of a writing are admissible in evid to est 1. that the writing is or is not an integrated agr 2. that the integrated agr, if any, is completely or partially integrated 3. the meaning of the writing 4. illegality, fraud, duress, mistake, lack of consideration, ground for denying recission, reformation or specific perf Effect of Prior Agrs; R2d 213 1. Discharges prior agrs to the extent they are inconsistent w/ the writing 2. Completely integrated binding K discharges to the extent it is w/in scope Voidable integrated agr does not discharge prior agrs (but a term may still be rendered inoperative) Nature of the Evid to be admitted (or not) 1. Always admitted - terms that give meaning or define; R2d 214. Admissible whether or not the writing is integrated 2. Sometimes admitted - consider add'l terms; R2d 216: Admissible unless the ct finds that the agr was completely integrated 3. Never admitted - conflicting terms; R2d 215; 213: Not admissible if the K is completely or partially integrated Merger Clauses - note that the document is an integrated document (agr). Such clauses prot the K from being attacked by prior oral agrs. These clauses are generally enforceable. When the term sought to be admitted in parol evid is omitted from the writing - both tests are favorable to admission. 1. R2d 216(2)(b) - asks whether the term is such as "might naturally by omitted" from the writing. 2. UCC 2-202 Cmt 3 - asks whether the term "certainly would have been included in the document" UCC 2-202 - Final Written Expression: Parol or Extrinsic Evid 1. E of a previous agr or a contemporaneous oral agr may not contradict the terms on which confirmatory memoranda of the

parties agree. However, the terms may be explained or supplemented by E of: a. course of dealing (how parties dealt w/ like Ks) b. usage of trade or (objective test) c. course of perf (how parties acted in this K) and i. noncontradictory add'l terms unless the ct finds that the writing was intended as a complete, exclusive statement of the terms of agr ii. integrated ques: ct looks to E of previous agr or representation or of a contemporaneous oral agr or representation TEST: i. would the parties have certainly included it in the writing? ii. E is only barred if it would have certainly been included in the writing 2. UCC 2-202 (cmt 3) - excludes PE in fewer instances - Consistent add'l terms not reduced to writing may be proved unless the ct finds that the parties intended the writing to be a complete & exclusive statement of their agr 3. UCC 2-209 - Prevents oral modifications of Ks that exclude oral modifications H. Exceptions to PER - Also apply to UCC through 1-103 1. Fraud - R2d 214(d) 2. Illegality - R2d 214(d) 3. Duress - R2d 214(d) 4. Accident 5. Mutual Mistake - R2d 214 (d) - (See Bollinger v. Centeral Penn. Quarry) - (A clause to bury topsoil after dumping was left out an agr. The parties performed the K as agreed to & then one day Central Penn stopped burying the topsoil & said that burying was not in the K) holding that mutual mistake has a heavy

I.

burden of proof which Bollinger met with partial perf. This evid was admitted despite the PER 6. No oral modification clause - not necessarily an exception but rather a different situation a. C/L - PER does not exclude testimony relating to agrs after writing. In the event the aprties include a clause not allowing "oral modifications" of the existing K, it is usually not enforced for public pol reas (freedom to K). Any prior agr, including the no-oral modification clause, can be modified by a mater agr. b. UCC 2-209 - states that such clauses are effective, however, a modification may still occur under the guise of a waiver of rts & is binding in the event that one party has detrimentally relied on such waiver. 7. Evid attacking the validity of the agr - R2d 214(d) a. Evid showing lack of consideration 8. Collateral Agrs - Seagram's Case Collateral agrs are often set forth in separate agrs. Advisedly an exception, the ct will check to determine if the parties would have ordinarily included the agr in the writing. The ways to prove an agr is collateral is w/ separate considertion & separate subj matter. Upon, est that agr is collateral, there is a burden of proof issue & potential SOF problems PER CASES 1. Prior Oral Agr - Gianni v. Russel & Co. (Gianni claimed he had a verbal agr of exclusive rt to sell soft drinks - Dsaid not in the writing) LAW: P is not allowed recovery on an oral agr when no mention of the oral agr is made in the subsequent written agr RATIONALE: P could not reform the written K, which was an integrated agr. The only time PE does not apply in such

2.

3.

4.

situations is when there is fraud, accident, or mistake Partially Integrated Agr - Masterson v. Sine (transferred prop w/ rt to purchase) LAW: If a term is such that it must be included in the agr, then the K is not integrated wrt that term RATIONALE: PE should be admitted to explain the meaning of terms not clear on the face of the K. The K was only partially integrated because the terms meaning was contested by the parties & was unclear. Contemporaneous Oral Agrs - Lee v. Joseph E. Seagram & Sons, Inc. (sale of business w/ oral promise to relocate) LAW: A contemporaneous oral agr, not integrated into the K, may be enforced if it is separate, independent, and complete. (COLLATERAL - based on separate consideration) RATIONALE: The ct must look to see whether the oral agr was one that the parties would ordinarily be expected that relocation would be part of the sales K Fraud, Duress, or Mistake - (PE may be admitted to show fraud duress, or mistake in the formation of the K) Bollinger v. Central Penn. Quarry (sandwich procedure for burying trach on land) LAW: Act of equity may reform a written K when provision is excluded by mutual mistake RATIONALE: Evid of previous performance indicates that th eprovision was initially intended to be included. The fact that one of the parties changed his mind after the mistake is made is immaterial to Ps rt to reformation SUBSEQUENT MODIFICATION ISSUES Not governed by the PER. Viewed the same as forming a new K. A. Modification of Executory K: R2d 89; A promise modifying a duty under a

B.

C.

D.

E.

K is not fully perf on either side is binding if: 1. the modification is fair and equitable (broader than mere reliance) in view of unforeseen circumstances at the time of K formation 2. if provided by statute 3. if justice requires enforcement due to material change of position in reliance on the promise SOF and Subsequent Oral Modifications 1. Does the K as modified fall under the SOF? a. Yes - modification is under SOF b. No - oral modification is enough Consideration and Modifications 1. Ususally modern cts do not require separate consideration if the parties relied upon the modification No Oral Modification Clauses 1. Under UCC needs to be in writing 2. C/L - need consideration to trump. (some cts require reliance) UCC 2-209 Modification, Recission, and Waiver 1. An agr modifying a sales K needs no consideration 2. Signed agr w/ no-oral mod. Clause cannot be modified otherwise 3. Requirements of SOF must be met as to modification 4. An attempt at a modification may represent a waiver of rts under the K & the party relying on such a waiver may enforce it as binding

5.

If you have waived your rts, you may retract the waiver if you notify the other party before he/she relies.

K INTERPRETATION AND GAP FILLING ISSUES (PE Rule does not apply to the admissibility of extrinsic E for interpretation) Traditionally, cts applied the plain meaning rule to bar the use of any extrinsic E to interpret the K if it is clear on its face. This rule was rejected by J. Traynor, in Masterson, & is no longer typically used. Traynow said that explanatory E should be included to enable the ct to understand that the parties' intent was. Often the K will leave gaps in determining the rts & duties of parties. Terms may be supplied by the ct (implied in law) or supplied through interpretation of the parties' wds or conduct (implied in fact). 1. The Test of Admissibility - Is the offered E relevant to prove a meaning to which the lang of the instrument is reas susceptible? If yes, then you can bring in E a. See Hurst, where ct held that b/c there was no plain meaning for term in K, & looked to trade usage b. But, see Stewart v. McChesney, where ct applied the plain meaning rule to K which was clear on its face 2. ID the Three Common Problems: There are three common problems needing interp: vagueness, ambiguous terms, & ambiguous syntax a. vague terms - usually focuses on application of part. Term according to trade usage (eg. Hurst v. Lake - vagueness of one term "50% & extrinsic E is let in to look at trade usage) b. ambiguous terms - ambiguity issues arise where the parties' expressions are susceptible to more than one interp & thus there is uncertainty as to the meaning of the espressions

3.

4.

Latent Ambiguity; Raffles (2 peerless ships): The terms appear certain, but b/c of extrinsic facts, more than one interp is possible ii. Patent Ambiguity: the uncertainty is obvious. Ex. A agrees to sell "my prop" to B. (No K b/c too uncertain) iii. If one party knows or has reas to know that wds used are ambiguous, but other party does not know, then there is a binding K according to interp of innocent party. c. ambiguity of syntax - grammatical problems: commas, subordinate clauses, etc. making the meaning unclear interpretation of the K is the first step in process. The ct will only supply a term after it has been dtermined that the lang in K does not cover case at hand. a. Factors considered i. lang of the K ii. amt of detail in K iii. forseeability of issue (the more foreseeable, less likely ct is to supply a term) (But see R2d 261 cmt c stating that practical difficulty of reaching agr on complex issue may excuse a failure to deal w/ foreseeable situations) Whose Meaning Prevails; R2d 201: a. Elements (i) objective (minority) or subjective (majority) (ii) party w/ actual knowledge 202(2) or reason to know 201 loses (iii) if know actual knowledge or reason to know - no mutual assent & no binding K or a gap to be filled At this point, you can have either (a) no mutual assent & no K or (b) a fight over whose interp to use - continue analysis
i.

5.

If not - P must prove Ds actual knowledge or universal usage b. Standards of Preference in Interp - UCC or C/L - R2d 203; UCC 1-205; (i) Express K terms (ii) Course of perf - look at the parties' conduct in same K. Repeated occasions (at least 2x) (iii) Course of dealing - conduct btw same parties to K; sequence of conduct (at least 2x) (iv) Usages of trade - applicacble if parties are in trade or know of trade; must show knowledge or constructive knowledge (should have known (by being in the trade) c. Course of Perf or Practical Construc; UCC 2-208 (i) can poss supplement agr (ii) hierarchy (iii) waiver of modification If c of perf contradicts w/ an express term = modification, so it may wipe out express term or serve as waiver, rather than as a basis for interp. This prevents express term from trumping d. Modif, Recission, and Waiver; UCC 2-209 (i) If no oral modification is allowed, then no oral modification (ii) Can argue that c of perf operates as waiver of no oral modif clause C/L - IF there is a hole in the K left by the omission of an essential term, ct will fill it w/ reas gap fillers. R2d 204 UCC - Under the UCC, evid regarding course of perf, course of dealing, usage of trade can be used to explain a fully or partially integrated K. (However, if there's a merger clause, you can bring in usage of trade b/c its not PE, but it may be blocked if it's use is to supplement the K. a. Gap filling terms

(iv)

(i)

(ii)

(iii)
(iv)

Duty of good faith - C/L requires contradicting parties to exercise "good faith" (R2d 205) and the UCC provides that every K governed by it imposes an obligation of "good faith" on its perf. (UCC 1-203) This duty arises only when the K is in existence & therefore doesn't cover negotiations. (Market Street Ass. v. Fry) Terms imposing a duty of best efforts - such a duty requires a party to make such efforts as are reas in light of the parties ability. (Wood v. Lady Duff-Gordon) See also UCC 2-306 there is an implied duty of best efforts in a requirements K, unless otherwise agreed to different terms. See Eastern Airlines v. Gulf Oil. Implied warranties - UCC 2-314; 2-315 Terms of Providing for the Termination of the Agr - A party that seeks to terminate an agr that is silent wrt termination/ duration will arg that since nothing is said, the agr is terminable at will, but the other party will claim that the silence on the issue means no termination. Franchise - trad., the rule of termination at will is applied to a franchise w/ the added requirement of reas notice. (UCC 2-309(3); Baka-lum) The length of notice is often tailored to give the franchisee enough time to seek substitute arrangement. (UCC 2-309 cmt 8)) Why different std than empmt @ will - b/c the

franchise relies more on the K - bigger investment Empmt @ will - there is no good faith std in termination of empmt @ will (See Sheets v. Teddy's Frosted) If gap is so big, then there is no mutual assent & no K INTERPRETATION CASES 1. Subj Meaning of K Term - Frigaliment Importing Co. v. B.N.S. Internat'l Sales Corp. (chicken soup) LAW: To enforce a particular meaning of common term used in K, P must prove either Ds actual knowledge of particular meaning or a widespread, universal usage in the particular manner asserted. RATIONALE: What the parties say, & not what they mean, is essence of K 2. Latent Ambiguity - Raffles v. Wichelhaus (Two "Peerless" ships) LAW: Where K is subj to 2 equally poss interp & parties contradicted w/ different interp in mind (neither knowing of other's interp, nor having reas to know thereof), there is no mutual assent RATIONALE: When term used to express an agr is ambivalent & parties understand differently, & neither is aware of other's understanding, there can be no K. Ct here used objective test (what a reas person in position of each of the respective parties would have been led to believe by wds or conduct of other party.) 3. Oswald v. Allen (fails for lack of mutual assent) Used subj approach of R2d 201(2), there can be no K when parties understand term's meaning differently, & nether party knew of other's understanding. ct is leaving parties where it finds them, as in Raffles. 4. Extrinsic Aids (mod. Liberal view) - Pacific Gas v. Thomas Dravage & Rigging (liab insurance on steam turbine for 3d party prop) LAW: A D may offer PE to show meaning of terms of K where lang of K is susceptible to more than one meaning RATIONALE: Extrinsic E should be admitted if lang of K is reas susceptible to meaning

argued for by the E. TRAYNOR TEST DIFFERS FRIM 4 CORNERS/ PLAIN MEANING RULE 5. Refusal to Consider PE Despite Unfairness Steuart v. McChesney (rt of 1st refusal) LAW: A ct must apply plain meaning of lang in K even if it results in unfairness to 1 party RATIONALE: When the wds of a written K are clear an unambiguous, the parties' intent is to be discovered only from the express lang of the K. In such a case, there needs no basis for inquiring into the possibility of silent intent. 6. Custom or Usage- Hurst v. W.J. Lake Co. (horsemeat case w/ dispute over protein %s) LAW: Trade usage may be used to interp the meaning of K terms RATIONALE: In dealing btw tradesmen, the meanings of terms of trade should take precedence. Parol evid is admissible in order to explain trade meanings. OMITTED CASES 1. Failure to Object - Eastern Air Lines, Inc. v. Gulf Oil Corp. (prices tied to std & others went sky high) LAW: An est course of perf & dealing btw the parties, which is also an est usage of the trade, becomes part of terms of K when not objected to RATIONALE: The practical interp D gave to K during perf before the dispute arose is best indication of the intent of parties. The ct found that Eastern didn't deviate from implied good faith std. 2. Minimum Lease Pymts and Lessee's Duty Dickey v. Philadelphia Minit-Man Corp. (car washing lease w/o forfeiture clause) LAW: there is no implied obligation for lessee to cont. to conduct a business specified in lease if its failure to do so results in less rental payable to lessor RATIONALE: B/C there's a min rental amt here, the lessor does have some prot. 3. Duty to Remind Other Party of a K Term - Mkt St Assn v. Frey (lease w/ option to buy; pension fund lessor)

4.

5.

6.

7.

LAW: There is no good faith requirement for a party to alert the other party to a K of any terms of the K that might be unfav to the other party RATIONALE: The duty of good faith doesn't require complete candor "Best Efforts" Clause - Bloor v. Falstaff Brewing Corp (Brewery, D to use "best efforts" to promote sales) LAW: In a suit for BOC of a "best efforts" clause, the performing party must show that there was nothing sig it could have done to perf that would not have been financially disastrous RATIONALE: Once P shows D didn't care about his volume & let it fall, D bears the burden of proof to show that it couldn't have done anything that wouldn't have been financially disastrous. Publishers Obligation to Author - Zilg v. Prentice-Hall, Inc. (failure to promote book) LAW: A contractual agr to publish a book, reserving the rt to the publisher to exercise its discretion, doesn't include an implied obligation to aggressively promote the book (best efforts). RATIONALE: P didn't meet his burden of proof to show that D didn't exercise good faith in promoting book. Exclusive Dealership - Bak-a-lum v. Alcoa (exclusive dealership - others added; reas notice?) LAW: A party to a K has an implied duty not to do anything which will have the effect to destroying rt of other party to receive fruits of K RATIONALE: The implied cov of good faith & fair dealing required D to notify P of the future termination if D knew that P was to incur add'l expenses in reliance on the existing agr (Ct held that it would be reas for P to have ample opportunity to recoup his investment) Reas Time for Exclusivity Agr - Lockewill, Inc. v. US Shoe Corp (Pappagallo shoes) LAW: Where the term on an exclusivity agr is not spelled out, the cts may infer a reas time RATIONALE: The parties in exclusivity agrs must have a sufficient opportunity to recoup the initial investment, which P had here

Public Policy Limitations on At-Will Emplmt (emplyee fired b/c talked about illegality of packaging) LAW: The empyr may not discharge empee for calling emplyr's att'n to poss crim viol RATIONALE: Public pol places some limits on an emplyr's rt to terminate an @will emplyee 9. Implied Duty to Act in Accordance w/ Trade Usage - Nanakuli Paving & Rock Co v. Shell Oil Co (asphalt paving in Hawaii; price prot) LAW: A K term that specifically provides for a price to be est as of the date of delivery may be modified by the trade usage & course of perf of the parties RATIONALE: Under the UCC, the parties' agr may be more than the written wds; it may include other circum such as course of perf & usage of trade. The latter aren't binding only if they cannot be reasonably reconciled w/ the express K terms. a. Express terms b. Course of dealing; course of perf c. Usage of trade 10. Usage of Trade - Columbia Nitrogen Corp v. Royster Co (buying phosphate) LAW: Evid of usage of trade & course dealing may be admitted to show that a specific K price wasn't to be binding on the parties. RATIONALE: The test of admissibility of interpretive extrinsic E is not completeness of the K but whether the E can reasonably be construed as consistent. BREACH - STEP TWO A. If perf, no breach. Consider quasi K B. If non-perf, go to step three BREACH - STEP THREE A. Doctrine of Conditions Analysis 1. Are the cov dependent upon each other? Is there lang in K, which may or may not be a condition? 2. What is applicable std of compliance? If it is a condition, has it been satisfied? -- If the condition is not met, the result is that the contractual duty is discharged & they have no obligation to...pay, purchase, paint,
8.

etc..B/c the condition precedent is not met a. Is there a statisfaction clause? (i) objective (ii) subjective b. Is there strict compliance? c. Is there subs perf? 3. Are there mitigating doctrines that apply? a. Is there subs perf? (i) if yes, there is no material breach condition is satisfied (ii) if no, then there is a material breach condition is not satisfied b. Divisibility? c. Waiver? d. Undue burden? DOCTRINE OF CONDITIONS ANALYSIS def'n of condition Condition - A condition is a duty-creating event, which must occur before perf under a K is due. R2d 224. If the condition fails to occur, then the duty is discharged, and non-perf may be justified. R2d 225 Effects of non-occurrence of a condition; R2d 225 A. perf of a duty subj to a condition cannot become due unless its occurrence occurs or its non-occurrence is excused B. unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur C. non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occurs Types of Conditions Express conditions - an express condition is one explicity found stated by the parties in the K A. strict construction - Luttinger v. Rosen (restitution case) party must obtain financing, as specified, or if this is not satisfied...the buyer may opt to not purchase the home. B. Example of legal impact of failure to satisfy condition precedent - Internatio-Rotterdam, Inc

v. River Brand Rice - Notice that was required was not met 1. Issue - Is the time of the essence? If so, the ct reads the ct strictly interp the K. Similar to Luttinger v. Rosen. 2. Rule - failure to meet condition is not breach, seller can walk away, no K C. Two Step Test 1. Is there a condition precedent? yes 2. Is the condition met? Implied conditions - gap fillers A. in fact- inferred from intention of the parties, strict compliance required B. in law - subs compliance is required, gen we intend to make our cov conditional. Where each party makes one or more promises to the other, each party's subs perf of his promise is gen a constructive condition to the performance of any subsequent duties by the other party. C. Example - Peacock Construction v. Modern Air Conditioning - Here, full pymt by the owner was the event. 1. issue - Is an event in the K, a condition precedent? 2. Rule - The ct determined that b/c interp is a matter of law, it should mot go to the jury & in this case the ct ruled that practice in the trade ruled the subcontractor does not norm assume the risk that the owner pay the gen. This condition contradicts trade practice & must be EXPLICIT if the ct is being asked to recognize it. In this case, it was not explicit enough. The ct filled in w/ implied condition of reas time. Are the promises independent or dependent cov? If independent, non-perf is not justified. If dependent, cont analysis. Independent v. dependent covenants A. Dependent - Kingston Doctrine - In the normal bilateral K, the ct will presume that the promises are in exchange for each other. The ct will therefore treat promises as mutually dependent & will make each party's duty of

perf constructively conditional upon the others substantial perf of all previous duties. One promise under a bilateral K is "dependent" on a return promise in the sense of being conditional on the return performance, & in such cases nonperf of the return promise , in addition to being actionable as breach, is an excuse for the nonperf of the first promise. If there are no express terms indicating otherwise, the ct will presume that the covenants are dependent. B. Independent - One promise under a bilateral K is "independent" of a return promise, in the sense of its not being conditional on the performance of the return promise. In such cases nonperformance of the return promise was no excuse for nonperformance of the first promise (ex: RE Ks, insurance policies, and leases) C. If there is not perf of a material condition, then the other party does not have to perf. What is the applicable standard of compliance? Enforcement of conditions - B/C the present condition is (express/implied in law) the ct will (strictly enforce/ require substantial compliance or perf) If Sales of Goods, UCC Approach - Perfect Tender Rule - The requirement of perfection covers not only the quantity & quality of goods, but also the details of shipment. A. Substantial perf does not apply to sale of goods (Moulton Cavity) B. UCC 2-601 - perfect tender rule: the buyer may reject "if goods or tender of delivery fail in any respect to conform to the K" C. UCC 2-609: K for sale imposes obligation that others expectation will not be impaired. D. UCC 2-610: Anticipatory Breach - gives injured party remedy for breach & discharges further duty E. UCC 2-508: Softening of the perfect tender rule. If seller delivers defective goods before date due, he may cure such defects before time expires. F. UCC 2-608: If buyer accepts goods & then discovers they are defective, he may revoke

w/in a reas time if defects subs impair the value of goods to him. G. UCC 2-611 H. UCC 1-103 Express Conditions: Is there strict compliance or a satisfaction clause? A. Satisfaction Clauses - subjective or objective 1. Subjective Test - K is to please the tastes or convenience of a person. If the subj matter of K is personal, cts hold that personal satisfaction is required even though it may not be stated. a. Portraits, artistic perf, interior decoration b. The condition doen't occur if the person is honestly, even unreas, dissatisfied c. Good faith std applies Architects' Certificates: Laurel Race Course, Inc v. Regal Contruction Co. - widespread use is made of such terms in construction Ks, where the owner's duty to pay the contractor is often conditional on satisfaction of the architect. So long as no fraud or bad faith occurs. Personal Satisfaction: Gibson v. Crannage Subjective approach to satisfaction clause portrait under the K required that the buyer be "satisfied" Rule -Ct ruled that the std was purely subj. Example of personal std. Good Faith Satisfaction: Doubleday & Co. v. Curtis - K included a satisfaction clause for a manuscript. The publisher refused the manuscript & D sought a reasonable std. Rule - The ct maintained that b/c of the personal nature of K, subj (subject to good faith) was the std 2. Objective Test - satisfaction of the reas man in position of obligor a. Reasonable Std - R2d 228 Satisfaction of the Obligor as a Condition - When it is a condition of an obligor's duty to be satisfied wrt the obligee's perf or wrt something else, & it is practicable to determine

whether a reas person in the position of the obligor would be satisfied, an interp is preferred under which the condition occurs if such a reas person in the position of the obligor would be satisfied. b. May often relate to the mechanical fitness, utility, or marketability of something - NOTE - Mattei v. Hopper (R2d 265) - Condition precedent applied to both parties, giving buyer/seller satisfactory clauses. In this case, ct chose the good faith std over the reas person std. B. Forfeiture - anything falling short of an express condition is breach - Forfeiture is the loss of a rt b/c of a neglected duty (for not strictly complying w/ and express condition). Forfeiture party loses expectation & reliance interests. If ct finds forfeiture, the forfeiting party can recover in quasi K (Holiday Inn v. Knight - ct allowed forfeiture). 1. R2d 229 - Excuse of a Condition to Avoid Forfeiture - Excuse the condition if it is not material to contract 2. Courts do not like forfeitures b/c of harsh consequences & will try to construe K terms so as to avoid them a. Construe so that condition has been satisfied - EX: use the obj test for a satisfaction clause instead of a subj test, or impose good faith std c. Say that it was not really a cond precedent, but an uncond duty d. Excuse the non-occurrence of a cond by finding that there was an implied waiver e. Excuse the non-occurrence of a cond b/c of prior breach or non-perf on your part - (a) cts will excuse b/c of something the individual asserting it did (b) EX - owner locked gate, & this is why the painter could not work f. Divisibility

3.

Constructive Conditions (Implied at Law, Kingston v. Preston Doctrine) - Substantial Perf - If one party's perf is a constructive cond of the other party's duty, only subs perf is required of the 1st party before that party can recover under the K (Jacob & Youngs v. Kent). As long as the other party has subs perf, you cannot term your duties. (R2d 237) a. Does not apply to UCC sale of goods (Moulton Cavity) b. EX: If a builder can meet the test of subs perf, the perf, the builder can recover on the K the full price, less any damages to which the owner is entitled b/c of the breach c. Was the breach material or nonmaterial? - Fact - specific determination. The answer depends on the circum, the R2d, looks to the injured party & asks to what extent that party will be deprived of the benefit it reas expected. (R2d 241) (i) Material Breach - According to R2d 237, the injured party may only suspend perf if the breach is material. The breach must be significant enough to amt to the nonoccurrence of a constructive cond of exchange & is always measured against the perf of the Ks (R2d 241). Cts also encourage parties to keep the deal together by allowing the injured party to terminate the K only after an appropriate time has passed, the owner can treat the perf is "fraught w/ peril" b/c if a ct later determines this action to be choose to cont perf & claim damages for partial breach. (Walker v. Harrison)

(ii)

(iii)

(iv)

(v)

Immaterial Breach - If the breach is immaterial, the injured party has no choice but to treat it as a partial breach and cont to perf. The only remedy available is to claim damages for partial breach. The fraught w/ peril doctrine allows that not every trivial non-perf is a breach. If there is not subs perf, then material breach exists Material breach justifies the termination of duties. Jacob & Youngs v. Kent - Bldg K called for Reading Pipe which was not installed. Even though express cond called for Reading Pipe, breach is insig to the whole & ct found subs perf If there is subs perf, then no material breach exists Non-material breach does not justify termination of duties Plante v. Jacobs - Builder made lots of little mistakes & misplaced a wall. Owner refused to pay. Ct held that there was subs perf & buyer must pay but can sue for damages Reas. Time for Cure: Total Breach= Material Breach (no subs perf) + reas amt of time Even though a breach is serious enough to justify the injured party's suspending perf, the party in breach often

(vi)

can "cure the breach" by correcting the deficiency in perf. If the party in breach does cure w/in that period, the injurde party is not justified in further suspension of its perf. UCC Approach to Cure - The Code allows cure in two situations. When the time for perf has not yet expired or when the seller had reas grounds to believe the goods would be accepted. UCC 2-508(1). Softening of the Perfect Tender Rule Exception to Breach by NonPerf - If, at the time of the breach, the injured party has totally perf & the oly remaining duty of perf of the party in breach is to pay money in installments, the failure to pay one or more installments does not amt to a total breach that will accelerate the time for pymt of the balance of the debt

ANTICIPATORY REPUDIATION Roger's Anticipatory Breakdown: A. Was there an anticipatory repudiation? McCloskey B. Is the injured party discharged? C. Can the injured party treat the K as broken & sue immediately? Hochster D. Can the injured party ignore the anticipatory repudiation & await perf? E. Can the repudiator repent & retract? F. When is the time for measurement of damages regarding the anticipatory repudiation? Cosden

General - A constructive cond exists that the parties have a duty of good faith to perf & should not create uncertainty to the other party, if a party announces they are not going to perf, this duty of good faith is breached. Definition - Anticipatory repudiation discharges any remaining duties of perf of the injured party. Once there has been a repudiation, the injured party is no longer expected to hold itself ready to perf & is freely to make substitute arrangements. (Hochster v. De La Tour - holding that the courier should be "at liberty to consider himself absolved from any future perf") What constitutes a repudiation? A. C/L: If either party to an executory (not fully perf, on either side) bilateral K in advance of the time set for perf repudiates the K by wds manifesting his apparent intent not to perf as he has promised, the other party may treat such an anticipatory repudiation as a present, material BOC & bring an immediate action for the entire value of the promised perf. B. UCC 2-610: repudiation as to a perf...the loss of which will subs impair the value of the K of another C. R2d 250 - a statement...indicating that the obligor will commit a breach that would itself give the obligee a claim for damages for total breach. D. Repudiation by Conduct - A promisor's voluntary affirmative act that renders the promisor unable to perf w/o breach is a repudiation E. Repudiation by Wds - Usually a repudiation consists of a statement that the repudiating party will not or cannot perform. A party's expression of doubt as to its ability to perf will not constitute a repudiation (McCloskey v. Minweld) Responses to Repudiation - If a party repudiates before the time for its perf has arrived, the injured party might respond several ways, (1) the injured party might treat the K as terminated & claim damages; (2) the injured party might attempt to save the deal by insisting that the other

party perf by urging it to retract; (3) the injured party may ignore the repudiation & await perf A. Treat K as Terminated 1. The injured party is entitled to treat its remaining duties to render perf as discharged & bring suit immediately for damages for total breach. But to recover damages, the injured party must show that, had there been no repudiation, that party could have perf as required in the K. See Kanavos v. Hancock Bank. This is frought with peril. He should instead urge retraction & seek adequate assurance. B. Urge Retraction 1. The injured party may prefer to save the deal rather than to treat the K as terminated. The injured party may then insist or urge the repudiating party to retract. If the repudiating party fails to retract, the injured party can still treat the K as terminated & claim damages. The injured party is not precluded from reconsidering at any time before retraction & consid the K as terminated. UCC 2-610 (b); R2d 257 2. UCC 2-610 (b) - injured party may resort to any remedy for breach...even though he has notified the repudiating party that he would await the latter's perf & has urged retraction. 3. R2d 257 - injured party does not change the effect of a repudiation by urging the repudiator to perform...or to retract his repudiation C. Ignore Repudiation - An injured party that ignores the repudiation & awaits the time for the return perf remains in a state of vulnerability. The repudiating party can at any time retract the repudiation on deciding that it is in its best interest to do so. If the repudiation is not retracted before the time for perf comes, a failure to perf at that time will amt to a breach by nonperf.

RETRACTION Definition - The injured party can prevent the injured party from treating the K as terminated by retracting teh repudiation before the injured party has acted in response to it. The injured party does not have to "accept" the repudiation or notify the repudiating party that the K is terminated, as soon as the injured party has materially changed its position in reliance on the repudiation it is too late to retract. (U.S. v. Seacoast Gas Co; UCC 2-611 (1); R2d 256). 1. UCC 2-611(1) - power of retraction cut off if the injured party has "cancelled or materially changed his position or otherwise indicated indicated to the other party that he considers the repudiation final. Locus poenitentiae - the point at which it is too late to change your legal position. 2. R2d 256 - power of retraction cut if injued party "materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation final. Effect of Retraction - According to R2d 256(1), a retraction nullifies a repudiation, however the Code provides that a retraction reinstates the repudiating party'a rts under the K in light of any delay caused by the repudiation. UCC 2-611 (3). ARE THERE ANY MITIGATING DOCTRINES THAT APPLY? IS NON-PERF JUSTIFIED? Election: Decision after K is made. The non breaching paryt can elect to (a) treat the failure as a partial breach & cont the K - seeking damages later; (b) treat it as a material breach & terminate the K, or (c) waive the cond altogether. A. The concept of election arises when a party elects to waive a cond & the time for occurrence has expired, the party can take advantage of the condition & treat the duty as discharged or can disregard the non occurrence & treat the duty as uncond. The party is bound by the decision to treat the occurrence as uncond. R2d 84 B. Election of Partial or Total Breach - Problem arise when an injured party indicates that he will treat a breach as partial, rather that total,

& then reconsiders & seeks to treat it as total. The injured can choose both to terminate the K & claim damages for total breach, or not to terminate the K & claim damages for partial breach. This choice, or "election", is binding. (K&G Construction v. Harris). Waiver A. Waiver - A common ground for excuse of a cond is that the obligor promised to perf despite the nonoccurrence of the cond or a delay in its occurrence. Such a promise is called a waiver. B. Modification v. Waiver - By characterizing conduct as a waiver rather than a modification, a ct may avoid the requirement of assent, the requirement of a writing under the statute of frauds, &the requirement of consideration or detrimental reliance. C. Retraction of Waiver - A requirement that a cond occur may be eliminated by agr btw parties, but a party that w/o consid has waived a cond that is w/in the other party's control before the time for occurrence of the cond can retract the waiver & reinstate the requirement that the cond occur unless the other party has relied to such an extent that a retracdtion would be unjust. R2d 84(2); UCC 2-209(5). After the time for occurrence, waiver cannot be retracted. But see reliance. D. R2d 84 - promise to Perf a Duty in Spite of non occurrence of a cond - A promise to perf a cond duty in spite of non occurrence of the cond is binding, whether the promise is made before or after the time for the cond to occur, unless 1. occurrence of the cond was a material part of the agreed exchange & the promise was under no duty that it occur, OR 2. uncertainty of the occurrence of the cond was an element of the risk assumed by the promisor. Power to Suspend Perf & to Terminate the K: See, material breach v. partial breach, fraught w/ peril & election abaove Estoppel

Divisibility: Test - If the consid can be apportioned to each item. (ex: $55 a log). It's not the pymts that are divisible, it's the object of the K that's divisible. A. If a party's perf falls short of that required by the doctrine of subs perf, a ct can avoid forfeiture & allow recovery by holding that the K is divisible. A K is said to be divisible if the perf to be exchanged can be divided into corresponding pairs of part perf. (Gill v. Johnstown Lumber, R2d 240). B. R2d 240 - Part perf as Agreed Equivalents The R2d lays down 2 requirements: it must be possible to apportion the parties' perf into corresponding pairs of part perf; & it must be proper to regard the parts of each as agreed equivalents C. Gill v. Johnstown Lumber Co - The fundamental ques is whether the part perf are of roughly equivalent value to the injured party when viewed against the background of that party's expectations as to the whole agr. The ct determined that the K for lumber could be apportioned by lumber received. Restitution as means of avoiding forfeiture: A. Minority of cts have tended to grant restitution to the party in breach. A party that is precluded from recovering on K b/c of not having perf subs can at least recover for any benefit conferred, less damages for which that party is liable b/c of breach. (Britton v. Turner, R2d 374). This is the leading case for the rt of recovery. B. A - [ B + C ] = plaintiff's recovery 1. A= reas value of service 2. B = pymt received by P 3. C = cost of completion C. RS - in these cases you are not suing on the K b/c you breached, the suit relies on quantum meruit not any amt in the K D. Kirkland v. Archbold - a defaulting contractor who has by his labor & materials materially enriched the estate of another party should be afforded relief to reas value of his work done, less whatever damages the other party has suffered.

ADEQUATE ASSSURANCES UCC Approach A. Elements: 1. reas grounds for insecurity 2. demand in writing 3. commercially reas to suspend perf 4. 30 day waiting period after assurance B. UCC 2-609 - (1) When reas grounds for insecurity arise wrt the perf of either party the other may in writing demand adequate assurance of due perf & until he receives such assurance may, if commercially reas, suspend perf. (4) After receipt of a justified demand, failure to provide assurance w/in 30 days, is a repudiation of the K. C/L Approach A. Elements: 1. reas grounds to believe 2. breach that would justify nonperf 3. may demand perf & suspend B. R2d 251 - When a Failure to Give Assurance May Be Treated as a Repudiation 1. Where reas grounds arise to believe that the obligor will commit breach by nonperf, that would justify a total breach under 243, the obligee may demand adequate assurance of due perf & may suspend any perf 2. The obligee may treat as a repudiation the obligor's failure to provide w/in a reas time such assurance of due perf as is adequate in the circum of the part case. Reasonable Grounds for Insecurity A. You can look to everything for insecurity 1. even at the other party's dealings w/ 3d parties 2. fact-specific inquiry, case by case 3. rumors don't have to be true, just so long as a reas person would believe them B. Grounds must arise after the K is made

Cts tend to give the insecure party the benefit of the doubt to encourage such assurances Effects of Not Having Reas Grounds By Mistake. A. If you suspend your perf you may be repudiating B. If you actually suspend, you may be in breach C. RS: Play it safe, keep perf & sue for partial breach
C.

IMPOSSIBILITY Impracticality/Impossibility - C/L allowed no excuse for impossibility & doctrine of impracticability evolved from exceptions to impossibility. A. Three C/L exceptions to strict approach that K must be perf & impossibility is no excuse. 1. Illegality - Supervening illegality or gov't action 2. Death or Disability - If a particular person's existence is necessary for perf of a duty, & perf is prevented by that person's death or disability, the duty is discharged 3. Destruction of a Thing - If the existence of a particular thing is necessary for a party's erf, the party is excused if the destruction or deterioration of that thing prevents perf. (Taylor v. Caldwell) B. UCC 2-613 Casualty to Identified Goods Where the K requires for its perf goods identified when the K is made, & the goods suffer casualty w/o fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale then... 1. If the loss is total the K is avoided; and 2. If the loss is partial or the goods have so deteriorated as no longer to conform to the K the buyer may nevertheless demand inspection & at his option either treat the K as avoided or accept the goods w/ due allowance from the K price for the deterioration or deficiency in qty but w/o further rt against the seller. C. Roger's Interp to 2-613 - What happens when the goods are lost?

If the goods are not identifiable the seller must provide more widgets. 2. If the goods are identifiable, the seller has an excuse. When a ct excuses a party on the ground of impossibility, it is supplying a term to deal w/ an omitted case, to fill a gap. The excuse is rationalized on the grounds of impossibility by saying that it is an "implied condition" of the duty that perf remain poss. (Caldwell v. Taylor). The doctrine of impracticability is based on the events occurring after the formation of the K. The implied cond creates an excuse from perf, therefore there is not breach. D. Modern Approach under UCC 1. UCC 2-615 - Excuse by Failure of Presupposed Cond 2. UCC 2-613 - Casualty to Identified Goods 3. UCC 2-614 - Substituted Perf 4. UCC 2-616 - Procedure on Notice Claiming Excuse IMPRACTICABILITY R2d 261 - UCC 2-615 - Approach - Under the R2d/Code approach, the party that claims that a supervening event or "contingency" prevented must meet four requirements. A. Contingency Occurred - the event must have made "perf as agreed...impracticable" B. Basic Assumption of K - The non-occurrence of the event must have been a "basic assumption on which the K was made" 1. Trad excused categories according to basic assumption a. parties normally assume that the gov't will not directly intervene & prevent perf b. they assume that a person who is necessary for perf will neither die nor be deprived of the necessary capacity before the time for perf c. they assume that a thing that is necessary for perf will remain in existence & in such cond that perf can take place

1.

No fault of party seeking excuse - The impracticability must have resulted w/o the fault of the party seeking to be excused. 1. Ex: a seller that is unable to deliver goods b/c they have been destroyed due to the seller's negligence is not excused neither is a party excused if unable to perf personal services b/c of a disability. D. No assumption of risk (note foreseeability - if an event is foreseeable, a party makes an unqualified promise to perf assumes an obligation to perf). - That party must not have assumed a greater obligation that the law imposes. If a party expressly undertakes to perf, even though perf becomes impracticable, impracticability will not be an excuse, & the party will ne liab for damages for nonperf. Furthermore, whe surrounding circumstances will sometimes justify an inference that a party assumed the risk of impracticability. Transatlantic v. US Approach/Wright's 3 Part Test ct refused to find "that the parties contemplated or agreed that the Suez passage was to be the exclusive method of perf." J Wright articulated a three-step test to determine impracticability. Although the UCC was not applicable, it was persuasive. A. Was the supervening event unexpected? - A surprise to both parties beyond basic assumptions B. Was the risk of the occurrence allocated to the party seeking to be excused? - Not necessary to show that risk was allocated to the other party, just not to you. Trade usage or course of dealing may come in. C. Was the perf rendered commercially impracticable? - This means the perf must be imposs or poss only at excessive & unreas cost. (in Seuz, 15% cost increase not enough)
C.

supervening events, in addition the marty must show that it neither knew nor had reas to know of the facts that made perf impracticable. Impracticability/Frustration v. Mistake - A party claiming excuse on the ground of existing impracticability or frustration may also claim excuse on the ground of mistake. A party that relies on the ground of impracticability or frustration must show that it was impracticable for the party to perf, or that the party's purpose was subs frustrated. By contrast, a party that relies on the ground of mistake need only show that there was a mistake as to an existing fact, not merely a poor prediction of the future. Furthermore, it is more likely that a party will be regarded as having borne the risk in the case of mistake than in the case of impracticability or frustration.

****EXISTING IMPRACTICABILITY & FRUSTRATION Elements of Existing Impracticability & Frustration In order to be excused on the ground of existing impracticability or frustration, a party must meet the four requirements that are imposed in cases of

FRUSTRATION OF PURPOSE Frustration of Purpose - The doctrine of frustration of purpose operates to the advantage of parties that are to pay money in return for perf Wright's 3 Part Test as applied to Frustration of Purpose A. Was the supervening event unexpected? - A surprise to both parties beyond the basic assumptions. B. Was the risk of the occurrence allocated to the party seeking to be excused? - Not necessary to show that risk was allocated to the other party, just not to you. Trade usage or course of dealing may come in. C. Was the perf rendered commercially valueless? This means the perf has little or no value. (See Krell v. Henry), where renting the flat would have no value since coronation wasn't going to happen.) 1. Krell v. Henry - Henry contracted a for a window in Krell's flat to view the coronation. The coronation was

postponed due to an operation on the King, & Henry refused to pay the K. a. Issue - Is the K enforceable? b. Rule - No. "the coronation procession was the foundation of this K, & the object of the K was frustrated by the non-happening of the coronation & its procession on the day proclaimed. Cancellation of the procession did not make the perf of either party impracticable, rather its effect was to deprive one party entirely of the benefit he expected from the other's perf. R2d 265 Approach A. The party that claims that a supervening event frustrated its prupose must meet four requirements 1. the event must have "subs frustrated" that party's principle interest 2. it must have been "a basic assumption on which the K was made" 3. the frustration must have resulted w/o the fault of the party seeking to be excused 4. that party must not have assumed a greater obligation than the law imposes The frustration must be subs - Cts have raised two obstacles to a party est the frustration was subs. A. They have viewed the affected party's principle purpose in broad terms. The mere fact that some exceptional event has prevented a party from taking advantage of the transaction in the particular way expected may not suffice to satisfy the requirement of subs frustration if the party can turn the bargain to its advantage in some other way. B. Cts have insisted that the frustration be total. The fact that what was expected to be a profitable transaction has turned out to be a losing one is not enough. Foreseeability - Sometimes a ct concludes that a party assumed the risk of the occurrence of the frustrating event merely b/c the event was foreseeable. Swift Canadian v. Banet - An American buyer of lamb pelts that were to be delivered in Toronto by

a Canadian seller unsuccessfully urged frustration as an excuse when his planned importation of the pelts into the US was prevented by the issuance of stricter import regulations. Issue - Is the K voidable? Rule - No. The ct said "the rest of the world was free to the buyer, so far as we know, as destination for the shipment." Chase Precast Corp. v. John J. Paonessa - Th Ct excused a general contractor under K w/ subcontractor that was to provide median barriers when highway dpt decided not to install barriers. EFFECTS OF IMPRACTICABILITY & FRUSTRATION Excused party A. Effect of Supervening Impracticability or frustration on the excused party - usually a discharge of that party's remaining duties of perf. B. Effect of Existing impracticability or frustration on the excused party - usually prevents any duty of perf on that party's side from arising Effect on the Other Party - The excused party's failure to perf b/c of impracticability or frustration affects the other party's duties of perf in teh same way as if the excused party has broken the K. If the failure is material, the other party can suspend perf. If an appropriate time for the excused party to cure has passed, the other party can terminate the K. Termination by Excused Party - The temporarily excused party will be permanently excused if that party can show that perf at the later time would be materially more burdensome than the perf to which party originally agreed. Divisibility - If the K is divisible, the return perf will be apportioned, & the excused party will recover accordingly. Restitution - If excused party has rendered part of its own perf before remainder has become impracticable, & K is not divisible, excused party is entitled to restitution of any benefit that it has conferred. The other party is also entitled to

restitution for any benefit conferred upon the excused party, by pymt or otherwise.

REMEDIES Q: 4: GIVEN A BREACH OF K, WHAT REMEDIES ARE AVAILABLE? Remedies - REMEMBER, IP CAN CHOOSE THE TYPE OF REMEDY! I. Specific Perf - Ct order to perf the obligation A. Not the usual remedy. Must make a special showing that damages won't make whole/ are inadequate - that promise is unique. 1. Real Estate K (land is unique) 2. Hope diamond 3. Where damages are too uncertain or unsuitable 4. Where damages are uncollectable - other party is insolvent B. UCC 2-716 Buyer's Right to Specific Perf or Replevin 1. Usually, the UCC calls for damage to be measured by cover or mkt price at the time of the breach, but specific perf may be issued to the injured buyer when the goods are unique. 2. Sellers don't get specific perf Damages - Pay a sum of $$ to the injured party. Can be expectation, restitution, or reliance. A. Expectation Damages - P expectation interest. Puts P where he would have been if the K had been perf. 1. Normally awarded for BOC 2. Formula A - Loss in Value - Cost Avoided + Other Loss a. (cost avoided = the amt of $ not pd to breaching party/ or in perf of the K) b. overhead costs are notincluded in costs avoided. See Laredo Hides. 3. Formula B - Cost of Reliance (on the K) + Profit + other loss a. (Cost of reliance = the part perf that the injured party undertook) b. Formula B is most helpful when the injured party is the supplier of goods c. UCC Roadmap Under Formula B [difference btw cover & K price + incidental damages (other losses)] (i) 2-712 Cover (ii) 2-713 Mkt Price - K price

4.

5.

6.

2-706 Resale Provision (Seller's version of cover) Cover & Resale are substitute transactions, & are Code's preference for measurement of damages, b/c damages are very accurate. The burden of proof is on the seller (for cover)/ buyer (for resale) to show that cover/ resale was not reas. (ex. Undue delay) Lost Volume Seller (Diasonies Case); UCC 2-718(2)(b) a. If a buyer breaches the K & the seller sells the item to a 3d party. The following criteria must be met to be consid a LVS: (i) The seller has the capacity to produce 2 instead of 1 (ii) The seller would have produced both at a reas profit b. There is still a lost sale (b/c seller could have sold 2 instead of 1). LVS can recover from the breaching party the profit lost on the 2d unit. c. Roadmap (i) 2-706 (K price - Resale) (ii) 2-708(1) (K - mkt) (iii) 2-708 (2) (profit) Cost to Complete a. Jacobs & Young v. Kent (reading pipe) Where econ waste is involved, the ct will award the injured party dimunition in value, rather than cost to complete. b. Groves v. John Wunder Co. (gravel replacement) Where there is a (1) willful breach, (2) that does not involve econ waste, then the ct may award cost of completion rather than dimunition in value. R-S This sounds a lot like punitive damages, w/ the focus on willful breach! Duty to Mitigate Damages
(iii)

There is an implied duty for an injured party to make reas efforts to mitigate his damages. But see Parker v. 20th Century Fox, where P was not requierd to mitigate by taking a substanially different offer of employment from the breaching party - the ct here, however, should have included the fact that P had an affirmative obligation to mitigate her damages. b. There is no duty for contractors & subs to mitigate, however, b/c it is assumed that they have the resources to do more than one job at a time. c. A party cannot recover for a loss it could have avoided. See Rockingham, where the P was building a bridge when D breached & cancelled the job. P continued bldg - failing to mitigate its damages. See Formulas. Under A, IP's required to maximize cost avoided, & under B, IP's required to minimize the cost of reliance. d. UCC 2-704 If the buyer breaches, the seller can either (a) complete manufacture & sell the goods, or (b) sell the goods as scraps. This is different than the Rockingham Rule, b/c it doesn't do any good to complete the bridge. 7. Limitations on Expectancy Recovery. a. Foreseeability. (See Hadley v. Baxendale, where the ct held that special circum flowing from BOC can't be recovered if they weren't communicated before the breach - b/c foreseeable.) Typically foreseeability is a problem w/ any type of middleman transaction. b. Avoidability (See Rockingham) c. Mitigation B. Restitution 1. Focus on the D & protection of society's interest
a.

Make D who breached give up what he received & put him back where he was before K was formed 3. Disgorgment of benefits received by D. Not limited to the benefits conferred by P. 4. Cts will allow P to choose restitution based recovery in a BOC action. See US v. Algernon Blair (where P would have lost money on the K had he completed the perf) Some cts would place a ceiling at the K price. 5. Breaching Party's Right to Restitution See 2-708(2)(b) a. This is the Code's version of Britton v. Turner C. Reliance Damages Parties can seek damages to the extent they reas relied on the K.

2.

MULTIPLE CHOICE K QUESTIONS 1. Forum selection clause: The Smiths live in Vermont, purchase tickets w/ a forum selection clause which ties them to trial a suit in Washington state. a. against public policy b. unconscionable c. lack of notice/ no assent d. concealment ANSWER: C (1) Why not A? SC stated forum selection clause is not void against public policy in Carnival Cruise (2) Why not B? Not overreaching, according to Carnival, rt to limit where they are sued. (3) Why not D? This includes covering something up, like the termites' case. Relates to misrepresentation in the bargaining process.
2.

relief from franchisee termination at will clause? a. unconscionability b. breach of good faith c. promissory estoppel d. lack of consid e. statute of frauds ANSWER: D. no consid necessary for such illusory agrs, just like employment at will.
5.

Parol Evidence Rule: Which is generally not true about the parole evidence rule? a. prohibits supplementary evidence to completely integrated Ks b. prohibits contradictory evidence to completely integrated Ks c. prohibits supplementary evidence to partially integrated Ks d. prohibits contradictory evidence to partially integrated Ks

Satisfaction Clause: (Mattei v. Hopper): If M tells H "not satisfied w/ leases & the next day changes his mind & tells H that leases are alright..." a. Ks not enforceable b/c refection terminates power of acceptance b. Ks enforceable b/c rejection of offer in option Ks does not terminate power of acceptance c. Ks not enforceable b/c H's duty is discharged by initial communication d. Ks enforceable, H's duty not discharged unless he can show detrimental reliance.

ANSWER: D
6.

3.

ANSWER: C Parol Evidence Rule: Parole evidence rule does not apply to... a. merger clauses b. collateral agrs c. integrated agrs d. Ks supported by consid

Anticipatory Repudiation: Which of the following is not true regarding retraction? a. injured party must give notice to terminate power to retract b. a material change in position by injured party terminates power to retract c. definite action by injured party indicating he considers retraction to be final terminates power to retract d. filing suit by injured party terminates power to retract

ANSWER: B ANSWER: A
4.

Omitted Term Cases: Which of the following categories would not afford