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Contracts II - Cross

I. Generally
A. CISG
a. Article 1(1a): Applies to the contracts of sale of goods
between parties whose places of business are in different
countries (states) and both are parties to the CISG
i. 1(1b): If the contract says that the contract is to be
governed by the law of a contracting State, CISG
applies because it is a treaty and trumps state laws
b. Article 6: parties can opt out of the CISG
c. Article 10: If a party has more than one place of business,
the place of business is the one that has the closest
relationship to the contract and its performance—taking
into consideration what the parties knew at the time of the
contract
i. If a party doesn’t have a place of business, then you
look to the parties habitual residence.
d. NOT CISG: Many foreign companies set up US subsidiaries
and a contract between a US subsidiary of a Chinese
company and a US company would not be subject to the
CISG
e. UCC vs CISG: UCC applies to the sales of goods to
consumers and the CISG excludes consumer transactions
(goods for personal, family, or household use)
i. Ex: buy a car in another country for personal use,
does not fall in the CISG
B. Restatements-Common Law
C. UCC- Article 2: Sale of goods
a. 2-105-Goods Defined
i. Includes all moveable items other than money
(crops, livestock, unborn young of animals)
ii. Not covered: service agreements, real
estate/property
iii. Goods have to be identified and existing or else they
are future goods and not covered—that is a contract
to sell and a contract to sell is not included in the
UCC
iv. There can be a sale in a part interest of goods
v. Money is included if it is being treated as a
commodity
D. Princess Cruises v. GE
Facts: Princess hired GE to do some work on a boat; it
was to fix things but included a large order of parts. GE says that
UCC doesn’t apply bc it was a contract mainly for services and
not goods Held: UCC does not apply
General Rule:

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Bone Break/predominant purpose test: To decide if a contract is
for services or goods you must look at (1) the language of the
contract (2) the nature of the business of the supplier and (3)
intrinsic worth of the materials
a. Gravamen Test: Under this test the court does not try to
classify the contract as a whole one way or the other but
applies Article 2 UCC if the controversy in question relates
to the sale component and plies common law is the issue
arises out of the services component.
E. Asante Technologies v. PMC-Sierra
Facts: P is a Delaware Corporation with primary place if
business in Cali. Plaintiff purchased equipment from D. D says
his place of office and work space is in Canada but sells
everything in Cali. P says forms opt out of CISG and that bc one
company that distributes D’s products is in Cali, the UCC should
apply. Held: CISG applies, place of business is in Canada bc
postage was sent from Canada, goods manufactured there, and P
had knowledge that this was happening all in Canada
a. Opt out didn’t work in this contract bc it just said they
wanted California law to apply and under California Law the
CISG would apply
b. D wanted this in federal court and the CISG always goes to
federal court
c. Doctrines such as unconscionability, duress, etc are not
governed by the CISG
F. Hypo on Slide:
HYPO: A has a computer store and has a contract with Lenovo
(foreign
company) computers to purchase 100
computers. Delivery is
scheduled for
September 1. A agrees to make a payment for
the computers. September 1 comes and the computers don’t
arrive. A wants to bring a breach of contract
against Lenovo.
Clause said that Illinois law
would govern the contract. What
would the
court look to to determine if there is a contract and
if there is a breach and so on?
ANSWER: The court would look to the CISG because as a
treaty, it
pre-empts Illinois law

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II. Remedies: Measuring Expectations Restatement
Approach
A. Three kinds of damages contract damages: (can only claim
1)(Fuller and Purdue)
1. Restitution Interest (Exception): defendant must pay for
the benefit received
2. Reliance Interest (Exception): plaintiff relies on a promise
and must be put back to their original position—similar to
promissory estoppel, there does not have to be a benefit
received; usually out of pocket costs
a. The key is as good a position as they were before the
contract, not if the contract were fully performed
3. **(Focus of this section) Expectation Interest (RULE):
put the plaintiff in the position he would have been had the
defendant made good on his promise (specific performance or
money damages) Give P the benefit of his bargain
a. Profit is awarded—give the plaintiff the benefit of her
bargain
b. Contract law does not take into account non-economic
damages
c. If contract does not qualify for specific performance and
there are no economic losses, then there is usually no
liability.
4. Justifications for expectation damages rule:
a. Plaintiff has relied substantially, insubstantially,
psychologically on a contract and has been deprived of
something (attitude of expectancy)
b. Will theory – views contracting parties as exercising
“legislative power”, making basic rules regarding their
agreement which should be upheld.
c. Barnes theory – damages should be measured by the
net expectation interest of the injured party.
d. Bargain principle – both fairness and efficiency are
served by full enforcement of the defendant’s promise
rather than mere restitutionary award to plaintiff.
A. If unconscionability, fraud, duress, undue
influence, knowingly taking advantage of others
ignorance may justify only partial enforcement
or no enforcement
B. 3 policies identified may justify full bargain
enforcement:
III. Surrogate-Cost theory: Assured
protection of the full cost of reliance
IV. Facilitation of planning (by deterring
breach)

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c. Ex: injured party pays a fee to a broker to obtain a substitute. even If the attempt is unsuccessful 1. Look at the actual loss in value to the injured party and not a hypothetical reasonable person on the market ii. The next two only apply to total breach. Ex: services furnished to the injured party are defective and cause damage to the party’s property ***The first two components apply to partial and total breach. Protection of risk-allocation (contract to control price changes in future) B. Incidental Damages: additional costs incurred after the breach in a reasonable attempt to avoid loss. that expense is recoverable ii. Consequential Damages: items such as injury to person or property caused by the breach 1. Restatement Approach Defined: put the injured party in as good of a position as he would have been in had the contract been performed General Measure = Loss in value + other loss – cost avoided – loss avoided a. Loss in Value (partial and total breach): difference between the value to the injured party of the performance that should have been received and the value to that party of what was actually received i. Ex: injured party is a builder that stops work after terminating a construction contract bc of the owner’s breach. save the injured party further expenditure that would have otherwise been incurred i. subject to limitations such as that of unforeseeability i. Cost Avoided (total breach only): Injured party terminates and results in a total breach.V. additional expenses the builder saves is cost avoided d. Exception-Partial Breach: seller delivered the wrong goods. Other Loss (partial and Total breach): loss other than loss in value. Loss Avoided (total breach only): injured party salvages or reuses some or all of the resources that would have been devoted to the performance of the contract 4 . that would be a partial breach and injured party would be awarded the difference between the actual goods they wanted b.

E. Hamilton Facts: D contracted to buy Crabby’s restaurant. cost to maintain property) – loss/cost avoided (235k market value) General Rule: damages for breach of a sale of land is the difference between the contract price and the fair market value of the property at the time of the breach (date the sale should have been completed and one year is not too long to determine fair market value) a. amount of damages cannot be speculative) c.e.i.5 months later. Crabby’s Inc v. things that you would normally pay regardless) D. Fair Market Value: the price property will bring when it is offered for sale by an owner who is willing but under no compulsion to sell and is bought by a buyer who is willing to purchase but is not compelled to do so.5 months was reasonable to establish fair market value Restatement approach applied: Loss in value (290k contract price) + other loss (40k. Ex: builder sells some of the material on his next job C. Recovery only for loss that would not have occurred but for the breach—if it still would have occurred doesn’t count e. cant have fair market value as of 11. July 30 everything is set and buyer backs out and buys another property. Held: Damages to seller based on the price they sold at 11. loan commitment had to be given within 30 days and had to use reasonable diligence. putting utilities in their name. Damages must be reasonably foreseeable (i. Duty to mitigate damages (i. and it was a distress sale. Defined: injured party could and would have entered into the subsequent contract even if the one in question wasn’t broken and could have had the benefit of both. Lost Volume Seller: a. Buyer says there was no contract bc it was supposed to expire if they didn’t give the loan commitment within 30 days. interest. Harm must be measured with reasonable certainty (i. etc. damages cannot be recovered to the extent that they could have been avoided or minimized by reasonable efforts) d. Fixed costs/overhead are not included in damages (electricity bills.e. buyer made other arrangements like pushing back closing date.5 months later being fair market value. 11. 5 . Limitations of the restatement approach: a. Seller cant sell again until May of next year.e breaching party had reason to foresee the harm as a probable result at the time of the contract) b. R347 illustration 15 f.

English Rule: where the seller is in breach. After the owner’s breach the builder is able to resell $10. Can be found by real estate appraisers.000) – (loss avoided = $10. others who are qualified by education. ANSWER: (loss in value = $100.000) – (loss avoided=$45.$70. c.000 c.000) = $35. Market value is $600 Buyer breaches.000 for work done. Finally. Buyer has paid the money but the seller hasn’t given her the computer. Six months after the employee starts work. At the time of termination the owner has paid the builder $70.i. Employer hired employee under a two-year employment contract for a salary of $50. The seller has breached. Seller agrees to sell computer for $450.000. Three months later she obtains a job (similar to the one from which she was fired) paying $45. the employer wrongfully discharges her.000 = $85. Hypos a. The employee looks for other work for three months. Nobody has paid anything yet.000 per year. Seller breaches. Damages? She would get the market value of the computer--$600 ii. or experience b.000 a year i.000. but is unable to find a job. she hires an employment agency. What are the seller’s damages? $450 i. Cost of construction is $180. ANSWER: (loss in value = $200. and the builder has spent a total of $95.000-$25. payable in installments at the end of each month. The owner breaches by terminating the contract when the work is partly done. training.$95. Owner hires builder to construct a building for $200k.000 .000= $75.000 of materials purchased for the project i.000 .000 for labor and materials. 6 . American Rule: awards expectation damages for any unexcused failure to convey regardless of the good faith or bad faith of the seller F.000) = $31. But the seller says that she isn’t going to deliver the computer.000) + (other loss = $1.000.000) + (other loss = $0) – (cost avoided = $180. courts restricted (only allowed) the plaintiff purchaser to restitution of any payments made on the purchase price unless the defendant seller acted in bad faith. paying it a fee of $1.000 = $130. Damages to buyer? Difference between the market price (loss in value) and the contract price--$150 b.

Idiosyncratic value attached to performance (value that cant be reflected in the market value of the property) e. C. D can’t have breached the contract intentionally and must show substantial performance made in good faith **General Rule for damages is cost to complete but in some cases the difference in market value is awarded when there is unreasonable economic waste. D does not do this.III. Restatement Rule: if loss in value to the injured party is not proved with sufficient certainty. Economic Waste: courts will rarely award cost of completion where the defect is minor and completion would involve economic waste (have to destroy whats already done) D. Measuring Loss in Value: Construction Contracts A. 2) Diminution in value: difference in value that would have been if the contract had been performed. Garland Coal and Mining Co Facts: P owns a farm and D wants to mine coal from the property. Jacobs and Youngs: built mansion with the wrong pipes. E. and completion would be disproportionately costly. Disproportionate difference between amounts of damages under the two measures d. damages can be measured by (a) diminution in market value or (2) reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him B. Economic waste c. The value of the farm is only $300 less than if the $29k work is done. and it would cost $29k. Held: damages to compensate for builder’s use of comparable pipe should be measured by the difference in market value. good faith. Whether the breach is incidental to the main purpose of the contract (Peevyhouse) f. the pipes were still sufficient. Nature of breach (good faith v bad faith)—purposely breach to avoid costs then court will be less likely to award diminution in value b. The lease states that D must put the property back to its original condition after they are done mining. breach is of a covenant which is only incidental to the main purpose of the contract. Held: plaintiff’s are only 7 . innocent oversight. Two ways to measure loss in value 1) Cost to Complete: reference to cost in removing the green paint and painting it blue ($300 or more). Factors to decide Diminution in Value or Cost to Complete: a. Peevyhouse v.

The contract was not substantially performed General Rule: diminution in value test is only applicable when the defects are irremediable or may not be repaired without substantial tearing down (substantial performance is already done) however. 8 . ($30k work to increase the property by $20k is not unreasonable and they would be awarded the $30k) F. Schectman Facts: P contracted to sell D equipment and buildings on his property if D promised to excavate the property. The issue in this case is how to measure the value of Lukaszewski’s services—should it be what they were paying her or what it would cost for a substitute? The court ruled that it should be the cost for a substitute because otherwise the school wouldn’t be getting what it bargained for. Lukaszewski Facts: Luk hired at the school but found another job closer to home at Wee Care. Handicapped Children’s Education Board v. they lost the benefit of their bargain. G. American Standard v. school wouldn’t let her out of her contract.awarded $300 bc the provision requiring the additional work was remedial to the main purpose of the contract and the economic benefit from full performance would be grossly disproportionate to the cost of performing the work. only expected to pay a certain price and took reasonable efforts to find a replacement and there was only one applicant. D did not do so and argues measure of damages should be the diminution in property value without the excavation which was only $3k Held: P gets $90k. General Rule: damages for breach of an employment contract include the cost of obtaining other services equivalent to that promised but not performed. courts have applied the diminution of value even with no tearing down if the breach is only incidental to the main purpose of the contract and completion would be disproportionately costly. she resigned from the job and the only replacement they could find had more teaching experience than Luk and cost $1000 more. Board wants the additional compensation to find a replacement Held: Damages to the school board. a. cost to complete. plus any foreseeable consequential damages. General Rule: if the cost is clearly disproportionate to the probable loss in value to the plaintiffs then the court should not award the cost of remedying the defects just the change in value or the economic benefit should be awarded.

plus incidental and consequential damages. Defined: a buyer is allowed to cover by making in good faith and without reasonable delay. Remedies: Measuring Expectations UCC Approach A.e. less expenses saved bc of the breach 1. It is immaterial that hindsight may later prove that the method of cover used was not the cheapest or the most effective. delivering too few or too many. She got a Mac instead of a Dell. any reasonable purchase or contract to purchase goods in substitute and recover the difference between the cover price and the contract price.II. c. Cover Formula: 2-712 i. less expenses saved bc of the breach iii. just commercially reasonable substitutes 2. Defined: Damages would be the difference of the market price at the time the buyer learned of the breach and the contract price plus incidental and consequential damages. or in cases of rejection after arrival 9 . or failing to deliver at all) b. Market Formula: 2-713 i. deliver goods that fail to conform to the contract in some way (quality of goods) OR 2. fail to make proper tender of goods (failing to deliver on time. It was fancier and she spent more money on it. Ex: B bought a different type of computer than the one that A contracted to sell her. Market Price: should be determined by the place of tender (delivery). Buyer’s Remedies a. Buyer has the option of the cover rule or market value rule ii. This only applies when the buyer decides not to buy substitute goods i. Can be more than one contract or sale. This rule applies to merchants and non merchants iii. Can she still recover the difference between the c ontract price and the substitute price? ANSWER: Depends on if her purchase was done in good faith and without unreasonable delay. Ex: price of substitute was $650. Buyer is entitled to $200 iv. contract price was $450. 3. Buyer doesn’t have to buy identical goods. Two ways a seller can commit a breach: 1. the buyer has decided not to cover ii.

less expenses saved bc of the breach 1. iv. Ex: Market value at the time buyer learns of breach is $600. then usually u want specific perf. B. 10 . contract price is $450. Cover Formula: 2-706(1) i. Buyer is entitled to $150. then the measure of damages is the profit which the seller would have made from full performance plus incidental damages. When market price is difficult to prove. 2-714 damages for accepted goods: amount owed is the difference between what was accepted and the value they would have been or should have been. Resale must be made in good faith and in a commercially reasonable manner ii. Lost Profits: (alternative to market value) If damages based on this formula are inadequate to put the seller in as good a position as performance would have done. v. Public sale: give buyer reasonable notice of the time and place of the resale except in the case of goods which are perishable or may quickly decline in value 3. you can show comparable market price 3.or revocation of acceptance. as of the place of arrival. Resale must be in good faith and in a commercially reasonable manner b. Private sale: give buyer reasonable notification of intention to resell b. 1. Seller’s Remedies a. less expenses saved bc of the breach ii. Defined: Seller resells the goods after buyer breaches and can recover the difference between the resale price and the contract price plus incidental damages. If you cant show market price bc the scarcity of these goods on the market. give buyer proper notice of resale a. Price of goods of the same kind and in the same branch of trade 2. Defined: Damages is the different between the market price at the time and place for tender and the unpaid contract price plus incidental damages. Market Formula: 2-708(1) i. identify the goods being resold as the same ones under the contract that was breached 2. 3 steps seller must take to recover damages: 1.

the market value of the laptop at time of tender is $300. Lost Volume Seller: 2. Jobber: (middle person who purchases goods for resale) buyer from a jobber breaches before the jobber has acquired the goods iv. Three cases that should apply lost profits: 1. Seller gets $150. Goods are damaged after the risk of loss has passed to the buyer 3. 11 .iii. Seller is unable to resell the goods with reasonable effort v. When seller can recover the price of goods for damages: 1. Ex: contract price that was not paid is $450. Buyer has accepted the goods then the seller may recover the price 2. Seller who is in the process of assembling a product for sale when the buyer breaches (personalized items) 3.

A court can decide to limit the damages for foreseeable loss by excluding recovery of loss of profits. Injury to person or property caused by goods that fail to comply with contractual warranties 3. iv. Limitations of Expectation Damages A. Consequential/Special Damages: damages flowing from special circumstances communicated at the time the contract was formed. 1. not the way that it occurs 5. Recoverability of consequential damages depends on whether they were in contemplation of the parties at the time the contract was made 4. Can use objective analysis: if they had reason to know b. that the party in breach had reason to know (party had actual notice) i. Two types of damages that can be awarded: i. Restatement Approach: Can’t recover for damages that the breaching party didn’t have reason to foresee as a probable result of the breach when the contract was made. then that will be taken into acct for damages c. Type of loss must be foreseeable. General Damages: Damages that arise naturally from the breach of contract—don’t need to make a special showing to recover these 1. Special Situations under the second rule (actual knowledge) 12 . Loss is foreseeable when it follows from the breach (a) in the ordinary course of events (reasonable person should have foreseen) or (b) as a result of special/unusual circumstances. Ex: difference between contract price and market price ii. If there are several contributing factors to the loss the party would have had to foresee all of them. Foreseeability a. by allowing recovery only for loss incurred in reliance or to avoid disproportionate compensation ii. Objective test iii.IV. Loss profits arising from collateral contracts (note: lost profit on the actual contract that was breached would be general damages) 2. If it is foreseeable that one party will not be able to cover or get substitute goods. beyond the ordinary course of events.

Epstein Rule: (default rule):When the contract is silent on the matter of damages the court should award the damages that the parties would most likely have agreed on had they considered the issue of damages Eisenberg Rule: Allows recovery of all losses that are proximately caused by a breach. subject to contractual allocation of risk and principles of fair disclosure of contractual limitations on liability (essentially a tort standard) CISG: Damages for breach may not exceed the loss that the party of the breach as a possible consequence of the breach (even broader) Hadley v. Contract to Lend money: if the contract is for D to lend money to P.d. Liability to third parties: third party liability had to be foreseeable at the time of the making of the contract —breacher is responsible for reasonable litigation expenses and settlement the non breaching party has to pay Parties can allocate their own risks i. f. h. P gives notice to D about the special circumstances (part 2 of Hadley rule) ii. courts presume money is an available commodity that can be obtained elsewhere —borrower can only recover the difference between the market rate of interest and the interest amount in the contract even if borrower cant borrow elsewhere (if lender was aware borrower cant borrow elsewhere then other damages can be awarded ii. hired D to transport a new shaft and D said it would take a day but took longer which made P lose profits for those days Held: for D. they didn’t know that P did not have another shaft and it would cause P to stop business General Rule: (1) Non breaching party is entitled to damages that arise naturally from the breach itself (Direct/general Damages) or (2) those from special circumstances that were communicated or known by the parties when the contract was entered into 13 . g. i. Baxendale Facts: P had a mill that stopped operating bc the crank broke. i. Parties can say D will not be liable for reasonably foreseeable circumstances Tacit Agreement Test: (for recovery of consequential damages): Injured party has to show special circumstances were brought to the attention of the breaching party and the breaching party consciously assumed the liability in question. e.

Profits from a new business: usually too speculative. Boston Symphony Actress could recover consequential damages for loss of professional opportunities (different than harm to reputation) bc the symphony cancelled her appearance bc of political statements she made. Florafax had one year. Fact: It is established that there was some damage (even if exact amount isn’t established) and jury is given large leeway as to how much they can award— only need a general idea of the actual amount once its proven there were damages ii. certainty: i. Have to be able to show what the actual cost of completion is or else you wont be able to offset what your damages should be b. Amount of Damages i. Other orchestras cancelled her appearances and it is reasonably certain it was from Boston Symphony’s actions. then month by 14 . Redgrave v. Foreseeability has to do with whether the possibility of the damages was sufficiently likely at the time the contract was made ii.(Special/Consequential Damages) (Have to know about the special circumstances to be liable for damages) B. Fact of Damages v. f. Foreseeability vs. GTE Facts: Florafax hired GTE to answer calls from flower orders. Certainty/Causation a. profits and the amount of those profits) i. Amount: the actual amount of damages that were suffered c. Reputation: US courts are unwilling to award damages for loss of reputation even if it can be established with reasonable certainty d. Restatement Rule (352): can only recover damages which are established with reasonable certainty (also have to show amount of losses with reasonable certainty. Certainty relates to how clear it is at the time of suit that the alleged losses in fact occurred and were caused by D’s breach e. Have to show that you had losses but also amount of losses ii. GTE knew that Bellerose was one of its main clients. Florafax International Inc v. courts will allow it if plaintiff can show that he ran a similar business in the past and show those profits iii.

without instructions 15 . Can only recover net profits and not gross profits C. damage reputation.month contract w Bellerose but could be terminated by either w 60 day notice. Lost Volume Seller: If the seller would have entered into both contracts and received benefits from both. Personal Service/Employment Contracts: Courts wont make someone take a position that is at all different than the one before—must be completely comparable (Shirley McClain) D. UCC 2-715(2): party has to cover when it is possible to do so and if they do not where it was possible they cant recover those damages i. buyer doesn’t get goods at all or gets defective goods. break other contracts ii. Duty to Mitigate under UCC a. disorganize business. they have to follow any reasonable instructions form the seller concerning how to get rid of the goods. Restatement Approach (350): Damages aren’t recoverable for loss that could have been avoided without undue risk. GTE argues no lost profits from third party contract and loss of Bellerose profits were not in contemplation at the time of the contract Held: Damages to Florafax.e. Has to be able to have entered into both contracts b. UCC Lost Volume Seller—2-708(2): If measure of damages is inadequate to put the seller in as good a position as performance would have. Only need to make reasonable efforts—not expected to incur considerable expense or inconvenience. the one is not a substitute for the other. iii. Duty to Mitigate a. burden or humiliation i. Not precluded from recovery if the injured party made reasonable but unsuccessful efforts 1. GTE knew/it was reasonably certain the consequences of breach and don’t have to be limited to 60 day period bc it is reasonably certain that their contract with Bellerose would have continued longer General Rule: Lost profits are recoverable as long as they are (1) foreseeable when the contract was made (2) they directly or proximately result from the breach and (3) they are capable of accurate estimation (certainty) i. once buyer rejects the goods. buyer has to try to purchase substitute goods from another supplier ii. then damages is the profit (including overhead) that the seller would have made from full performance i. i.

the other party cannot continue on with the contract and expect damages for full performance i. Employee needs to mitigate with comparable work: Parker v. Luten Bridge Co Facts: County hired Luten to build a bridge. and employee failed to use reasonable diligence to obtain such alternate employment. selling drugs out of the company building. Sometimes seller can hold onto the goods and sue for the contract price—only allowed where seller is unable after reasonable effort to resell the goods at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. Resell the goods and can recover contract/resale difference or ii.buyer must make reasonable efforts to sell them if they are perishable or threaten to decline in value c. P built himself a new house and did not seek other employment. What seller can do: i. The second 16 . county repudiated and Luten continued to build the bridge Held: Luten only gets damages from the time of the breach. should have stopped working General Rule: once a party breaches or repudiates a contract. and failure to mitigate damages doesn’t preclude damages completely General Rule: defendant has the burden of proving that there was suitable alternative employment available. says non compete agreement should be void. just a different way to calculate it) e. Seller can choose to not resell the goods and get the difference between the contract price and the market price at the time and place for tender iii. Approach: damages to injured builder = expenses incurred + expected profit (same result as R347 approach. they fired him for not fulfilling his duties bc the son/nephew of D told employees not to listen to him. so P just stayed in his office more and more. iv. verbally abused him. Collins Facts: P sold business to D w agreement that he would be manager for 3 years. 20th century Fox Case: D promised P (Shirley McClaine) to be in a major musical motion picture then took her out but offered her a non musical motion picture for the same pay. D claims he had to mitigate Held: Damages to P. i. Rockingham County v. Lost profits if none of the others work d. employment is comparable. Maness v. there was no evidence at trial that there was comparable work out there for P.

Salina pulled Jetz machines out and put their own and says jetz failed to mitigate and should only be awarded cost to move the equipment Held: jetz is a lost volume seller. Jetz Service v. Fired 6 months after beginning but she was paid for 6 months. It would not have been if they were previously harassed on the job and there was a hostile work environment 2. She looks for a job for six months and then finds a job at Marquette law school at $45. (2) it would have been profitable to make an additional sale and (3) it probable would have made an additional sale absent the buyer’s breach i. Variable costs: can get damages g. To be a lost volume seller you must prove that (1) possess the capacity to make an additional sale. Salina Properties Facts: Jetz supplies coin operated laundry machines. 17 .What if she doesn’t find another law school job but gets one at the wee-care day care center. 6 yr lease with Salina. Would not have been if when compensation and duties were difference and employee would report to his replacement f.000 a year. Hypo: Professor is hired by JMLS under 2 year contract to teach contracts at $50. Red Lion: Employee fired and then offered job back and she said no bc she had apprehensions about working there again. Fair v. had enough machines to rent out more General Rule: duty to mitigate does not apply to lost volume sellers. has a warehouse with 1500 machines.000/year. Fixed costs: cant get damages ii. This is a failure to mitigate 1. She incurs $1.000 in expenses in looking for a new job. Damages? h.is not comparable to the first bc it is a different motion picture and different directors. etc ii.

not for nervousness or emotional distress vi. contracts dealing with carriage or disposition of dead bodies. ED from miscarriage when Dr didn't return call iv. P is entitled to punitive damages since D’s conduct—fraud—is a tort. loss of relationship with child (custody battle) iii. Can recover punitive damages if the conduct constituting a breach is also a tort for which punitive damages would be appropriate i. Two types of breach (Professor Dodge): punitive may apply. ii. Contracts of carriers and innkeepers with passengers and guests. D set back the odometer from 33. i. ii. Non-Recoverable Damages A. ii. R355: When punitive damages are recoverable: a. Ex: D a car dealer sells a used car to P.000 miles. Does not include the loss of money c. Breach of contract also causes bodily harm: i. Efficient Breach – occurs when breaching party seeks to engage in another transaction more profitable (incentive to negotiate for release from 18 . Sullivan v. Opportunistic breach– involves an attempt by the breaching party to gain at the expense of the nonbreaching party. ED not recoverable when: i. anxiety over death. (to prevent opportunistic breach bc don’t increase social wealth.V. d states the car Is nearly new with only 3000 miles on it. doesn't matter if given notice that person is "delicate B. has to get another operation. R353: When damages for emotional distress can be recovered a. O’Connor: Dr. contract for delivery of messages concerning death. did nose job on patient and promised it to look a certain way and it came out bad. P discovers D’s misconduct a few months after the purchase and sues. damages can include emotional distress of having to undergo additional operation b. In a tort an injured party can recover punitive damages when the conduct is outrageous. construction delays/departure v. Emotional distress is a particularly likely consequence of breach: i. b. birth of a crippled unwanted child. loss of money unless left destitute ii.

Standard – must show absence of reasonable basis for refusal to pay policy or reckless/unreasonable reason for non-payment. Factors: for insurance co breach: a. example is if someone breached voluntarily to make a better deal somewhere else. Allowing punitive damages for other actions would end in a windfall for the plaintiff and goes against the expectations principle—would put plaintiff in a much greater position 19 . d. Only limited to insurance contracts (get punitive damages) 3. Then both compensatory and punitive damages 5. Exceptions: i.contract and improve efficiency and less transaction costs) c. Insurance is protection against calamity b. Claimant especially vulnerable economic position d. Can claim bad faith for all breaches of contracts. Co can refuse/fail. Damage for a fire (first party claim) 2. If insured party makes valid claim and they refuse to pay = bad faith. Unequal bargaining position c. without justification. Usually cases that involve fraud or breach of fiduciary duty ii. 4. Rationale – to encourage fair treatment and penalize corrupt practices by insurers. ii. e. not just insurance contracts. punitive damages can be recovered if the defendant’s conduct goes beyond bad faith to amount to an independent tort for which punitive damages are recoverable i. Whole purpose of insurance is defeated if Ins. Bad Faith Breach of Insurance Contracts: bad faith refusal to honor claims brought by third parties against their insured parties and also first party claims 1. Note: although punitive damages for bad faith breach of a noninsurance contract is unlikely. to pay a valid claim.

50/bushel to keep the contract with third person. iv. c. Could the farmer 20 . A agrees to sell corn to B for $2/bushel for corn. just bc the contract wanted performed doesn’t mean that one party didn’t rely on the contract to make other arrangement—so most contracts are not purely executory b. want to award a full measure. Hypos i. With good faith and without unreasonable delay-he can recover the price differential which is the difference between the cover price and the contract price. Justification for the Expectation Damage Rule a. There is a fear of under-compensating. ii. The market price at the time of the breach went up to $4/bushel.VI. 3. Ex Doctor: you cancel an apt and they still charge you bc they could have seen another patient at that time. Deter the decision to breach. What if C releases B from the obligation to perform under the contract? B now wouldn’t have an obligation anymore. Efficient Breach A. Why do we always pay the injured party his expected profit? i. Rely on the institution of contracts. Encourages reliance on contracts. B is planning to resell the corn to C for $3/bushel. UCC Cover Formula Variation: B went out and spent $4. he has an expectancy once he enters into the contract 1. Policy for Efficient Breach: If makes one person better off without making anyone else worse off then it is 1) socially beneficial 2) efficient breach B. Suppose A has better opportunities and sells the corn to another person 1. Executory Contract: Contract that has been neither performed nor relied on i. Psychological Argument: the injured party has a property like interest in that performance and the better approach is to not limit the injured party to out of pocket expenses. iii. UCC Market Formula: B’s damages are the difference between the market price and the contract price 2. However. May compensate for less tangible elements of reliance that don’t always get calculated in damages.

make an argument that damages should be limited to less than $2/bushel? 4. Doesn’t take into account the emotional distress and other damages that aren’t usually compensated for. Arguments against the theory: i. then it is efficient i. The value of contractual relationships-there is an intangible value of the contract. Holmes: breaching a contract is amoral. Rules of contract remedies are good from a policy perspective. he would have only been getting $1/bushel because that was what the expectation was under the contract. You take a risk when you contract! C. hires D for $75 a week or 21 . doesn’t take into account the transaction costs to litigate and to actually get the damages ii.when you breach a contract you either pay damages or you honor your contract-there is no morality involved iii. Posner: breaching a contract is good if its efficientEconomic Insight 1. Doesn’t capture idiosyncratic value-the value the plaintiff has attached to the contract. It isn’t fair. then he should be entitled to the market price. If it shifts in one’s favor. c. b. iii. Perato Superior: Some parties are better off without some party being worse off ii. Theory of Efficient Breach a. 5. Sometimes better for a party to breach a contract because he gets a better deal out of it 2. iv. v. ARGUMENT AGAINST THIS: Recognize that one function of contracts is that it is a mechanism by which parties allocate risk. because breach of contract might not be considered a socially bad thing 3. Speck Facts: P owns hair salon. ARGUMENT: At the end of the contract. Basic Idea: efficient breach is that no one is worse off but some are better off. The injured party is under compensated and stressed out. Note: Make sure to argue the Lukaszweski approach and the Roth approach d. Rule: If breaching would be more profitable or efficient for the breaching party. Roth v.

Policy Argument Against this Approach: the jobs could have been different. Exception: This case is an exception to the rule in Lukaszewski. P tried to hire two other people but he was making no profit. Justification for granting plaintiff’s windfall ii. Held: couldn’t measure against D’s replacement bc D was irreplaceable so used the difference between what D was actually worth ($100 being paid at new job) and the difference of salary at P’s salon ($75) General Rule: Value of an employee’s services may be an appropriate measure of damages resulting from breach of an employment contract so long as these damage can accurately be proven. However. Those involving appropriation of some “property or quasi-property” interest rightly belonging to plaintiff b. Importance of duty he breached iii. requires employee to give up earnings they got at the new job 1.5 months. in Lukaszewski the two jobs could have been different. (Had to use this approach bc there was no replacement) i. Reprehensibility of defendant’s conduct ii. S/B used in 2 types of cases: a.50% of commissions. D stops working after 6. it punishes the breaching party and provides a disincentive for an efficient breach iii. Those in which “deterrence” is a major factor i. Extent of defendant’s contribution iv. court justifies it bc it was the only way to make the injured party whole. Disgorgement Principle: recovering beyond damages and also getting the profits that the breaching party incurred from the breach 1. why would anyone go to another job if you would have to pay the extra money that you are making at your new job. whichever is greater. Policy Argument : this approach to measuring damages overly deters the choice to breach. Breaching Party bares the burden of showing the mitigation of damages iv. 22 .

NOTE: the breaching party is allowed to try and offset the damage award by proving loss that the injured party would have suffered had the contract been full performed.e. 2nd gives the court discretion to limit the remedy as justice requires 1. Plaintiff is a buyer under a land contract and seller does not want to convey the property f. Promise made 2. Limitations on Reliance Damages 23 . Situations Reliance Damages would be sought: a. 1st required that the promise be of definite and substantial character ii. Old Rule: Uncle promises nephew $1000 to buy a car and nephew relied by purchasing a $500 car. Injustice can only be avoided by enforcement of the promise a. No legally enforceable contract e. Does induce action or forbearance 4. New Rule: Nephew would only get $500 bc that is all justice requires e. Under reliance damages P can get compensated for expenses in preparing to perform and those made in actually making part performance d. Elements 1. R90 Promissory Estoppel a.e. Nephew is still entitled to the $1000 2. Employment contract setting (i. C. lost profits cant be proven or other damages cant be proven (then can go to out of pocket with reliance) i. reliance on an offer of at will employment) c. Remedy can be limited as justice requires b. Where expectation damages cannot be proven with reasonable certainty i. Changes between 1st and 2nd restatement versions i. Pre contractual reliance scenario (Walser) b. P would be able to recover what she has paid on the purchase price plus expenses that she reasonably incurred in connection with the transaction (however P can get the benefit of his bargain if seller did so in bad faith or it was fraud in refusing the conveyance) g. Promissory Estoppel: if plaintiff actually sues on promissory estoppel they can’t get damages but can get reliance damages B. Promisee should reasonable expect to induce action or forbearance 3. Reliance Damages A.VII.

expenses in preparing E. for a franchise to sell radios. Toyota Motor Sale USA Facts: P applied to open and run a Toyota dealership.a. P spends $1150 in preparing for the business but doesn’t receive the franchise or radios. compensation for what they actually lost. make 24 . sell house. a. a radio distributor. P sues on promissory estoppel. damages may be limited to what justice requires and that can just be to the extent that the plaintiff relied based on what is reasonable for the promise made i. i. Courts will sometimes award reliance damages instead c. If D proves that P would have actually lose money on the contract. Most courts also refuse to allow reliance damages to exceed expectation damages but place the burden of proof on the defendant to show what the plaintiff’s loss would have been. that lost profit will be subtracted from the reliance damages PG 314 Emanuels –reliance is compensation for the harm and reliance on the promise D.e. week into employment you are let go: if the contract is an at will contract can’t recover expectation damages. Hypo: P applies to D. If expectation damages can’t be proved with reasonable certainty: lease agreement to open a book store. In mean time P bought land for dealership and then found out they weren’t getting it. get apartment in NY. that P can proceed to employ salespeople and solicit orders and that an initial shipment of thirty radios will be made. Awarded out of pocket expenses but P claim they should also be awarded lost profits and the limit of out of pocket expenses shouldn’t just be the difference of the market value and contract price. At will employment: offered a job by law firm in NYC. district manager told P that they were their dealer and the letter of intent was formally approved. Cant get lost profits but can get reliance damages i. Can limit damages less than full expectation damages to go only as far as justice requires—think pre contractual reliance b. Walser v. Cant be more than the contract price b. they should also get all their other investment expenses which is more than $1 million Held: only gave them difference between the value of the land now and what they bought it for bc that was reasonable reliance based on the promise General Rule: damages from a promissory estoppel claim may properly be limited to out of pocket expenses.e. D erroneously tells P that the franchise has been approved.

furniture shelves inventory.some out of pocket investments. then landlord breaches and says you can’t rent. bc it’s a new business can’t show lost profits with any degree of certainty so maybe you can recover out of pocket damages i. RULE: where expectation damages can’t be proved with reasonable certainty the court will go to out of pocket expenses 25 .

Damages award is the lesser of i. Exception: Can’t claim restitution if the contract is complete and all that is left to be done is a sum of money paid—then have to claim expectation theory and just get contract price plus interest C. Restitution as a remedy for breach of contract a. Contractor will normally be permitted to recover restitution damages. Ex: Contractor does part of the work and the owner breaches. Usually where expectation damages can’t be calculated with reasonable certainty c. Goal: To prevent unjust enrichment c. the other party can rescind and recover in restitution. b. contractor may be unable to show what his cost of completion would have been. Trying to award the value rendered to the defendant regardless of how much the cost to the plaintiff and how much the plaintiff was injured by the defendant’s breach. If the performance has no value to the defendant then it has no restitution damages (regardless of how much it cost P) B. Generally: a. iii. Restitution when the other party is in breach: a. Restatement 371: Measure of Restitution: a. Restitution Damages A. Non Performance: Must be a total breach and can’t be a partial breach (i.VIII. you accept performance w knowledge of defects then you can’t claim total breach) b. calculated as the market value of the partially completed performance. the injured party can get restitution for any benefit that he has conferred on the other party by part performance or reliance i. If one party commits a material breach. The increase in property value or how much the breaching party’s interest has advanced. b. Defined: restitution interest is the value to the defendant of the plaintiff’s performance. want to give damages to plaintiff for however much the defendant was enriched. The reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from P or someone exactly like P (essentially the benefit D received—usually calculated by market price) OR ii. 26 .e. R373: When there is either a breach by non performance that gives rise to damages for total breach OR a breach by repudiation. Limitation: Not limited to contract price D. d.

Thomas Facts: P bought D’s business and D agreed that he would make an addition or else the rent would go down. Lancellotti v. Restitution is not limited to the contract price a. Note: if a party purposely gives services that are different than what was promised that person acted officiously and will be denied recovery H.E. Restitution for the breaching party a. Contract is rescinded on grounds of impracticability— even if the house has been destroyed he did confer a benefit and would be entitled to damages measured by the value of the benefit conferred. P can sue if it is based on non performance or repudiation i. Losing Contracts a. painted half the house. Work done by P prior to D’s breach has already enriched D in an amount greater than the contract price F. R374: Breaching party is entitled to restitution for any benefit that he has conferred in excess of the loss that he has caused by his own breach i. Defined: if a party would lose money under the contract if it were completed. P has fully performed (and D owes only money) most courts don’t allow P to recover restitutionary damages—must go to expectation damages b. then that would be the expectation damages and can’t get restitution damages I. they bring equipment. the party can’t get restitution if the value of the performance as liquidated damages is reasonable in the light of anticipated or actual loss caused by the breach ii. G. and then the house is destroyed by fire. P made $25k down payment and only operated the business for one 27 . they can still sue under restitution and get the reasonable value of their work regardless. If the contract explicitly says that performance should continue if there is a breach. Party in breach is only liable to the extent that he has been benefitted from the injured parties performance—similar work done c. Ex: hire someone to paint house. Restitution not available where P has fully performed a. If at time of D’s breach. If all is left is the to pay a certain sum. b. Impracticability: you can recover under restitution if the contract is rescinded on grounds of impracticability a. J. If the breach is based on non performance it has to amount to a total breach and not just damages for a partial breach in order to be able to get restitution damages.

Algernon Blair Inc Facts: Blair had contract w US to construct a naval hospital and subcontracted Coastal for steel work.5 months and sued in quantum meruit for labor performed K. if not actual damages it would be a windfall General Rule: a breaching party is entitled to restitution in excess of the loss caused by the breach (r374) a. Coastal started working and Blair wouldn’t pay for the crane rental after 28% of the work was done. Laborer quit at 9.e. Injured party can choose to sue under restitution or expectation theory or reliance b. it is expectation damages i. cant measure by the value of the benefit to defendant L. not married but acted as husband and wife. Coastal brought action for labor and equipment and claims quantum meruit (reasonable value of services). US ex rel. business boomed largely bc of her. in quantum meruit it only matters that there was a benefit received General Rule: For a restitution claim the damages are measured by the reasonable value of the services so long as there was an actual benefit received by the defendant. physical operation Held: it has to be determined if $25k is actually what D lost and if they should keep that money. Costal Steel Erectors v. a party can recover in quantum meruit regardless of whether they would have lost money on the contract and not been entitled to recover for a suit on the contract a. good will. If there is complete performance then it is not a restitution claim. Britton v. General Rule: When recovering under restitution. Maglica v.summer. Turner: laborer agreed to work for 12 months on employer’s farm for $120 to be paid at the end. Breaching party can’t sue under expectation theory b. worked at husbands company and both built it up and it is worth hundreds of millions when they split. D claims P shouldn’t get reasonable value of services bc P would have actually lost money on the contract Held: can recover quantam meruit (reasonable value of services) bc under restitution damages are the reasonable value of the performance and not diminished by loss if there was complete perf. Held: only can be awarded reasonable value of her services bc otherwise it would give her ownership in the company and that was not bargained for. contract price 28 . P wants his $25k back and D wants $52k for the rent for the summer and compensation for damages to business. Maglica Facts: Couple lived together for 20 years. Coastal stopped working and Blair hired another.

i. c. If it’s the breaching party seeking restitution you should use the lesser of the two measures 29 . d. P claimed reasonable value of services was $69k. Can he do this? ANSWER: No because he bargained for it. Total estimated costs for Corey are $360 so it is a losing contract.c. b. If there is a contract. but his work is defective. Constantino: P had to clean 33 grain storage tanks for $30k to be paid by D. since Corey is the breaching party we have to subtract the damages suffered by the breach which was the $100 I paid Daniel. Minority Approach: Constantino: sometimes can get a prorated portion M. A and B enter into a contract. Corey paints house for me and I pay him $300. Majority Approach: Algernon: in a losing contract the party can choose either restitution or expectation theory f. Held: Damages are 24/33 x $30k so about $22k. A agrees to pay B $300 if he paints the house. spending $250 on labor and materials. Corey completes the work. B sues in restitution and the reasonable value is $500. Costs incurred at time of breach are $120. So corey gets $100. Restitution is not to put the injured party in the position it would have been but to give the party the value of the benefit conferred—damages are the reasonable value of services determined by what those same services could be purchased form one in the plaintiff’s position at the time and place services were rendered. he can’t bring a cause of action for restitution. for something the parties have already agreed to. After he paints the house. Pro rata: use contract price to determine the damages e. Used contract price to figure out how much i. Corey’s work increased the value of my house by $200 ANSWER: the reasonable value of Corey’s services to me are $200. He can only get the value under the contract. D breached and P had cleaned 24 of the 33 tanks. Hypos a. ANSWER: he wouldn’t want to sue under expectation damage bc it’s a losing contract and the costs are higher than the contract price—he wants to sue under a restitution theory bc the reasonable value of the services rendered would be more than $120. Corey paints my house and charges me $300. Costs me $100 to hire Daniel to fix the defects. The market value is $500.

In order to get an injunction three things must be met: i. Performance would not create undue hardship to defendants B. Seller refuses to convey can award specific performance even buyer has already contracted to resell ii. In employment contracts: courts will not force the person to work for their employer but will prohibit them from working for a competitor b. Rights and obligations of the parties be specified with greater definiteness than if it were for just money damages to allow the court to frame an adequate order 2. Land bc its unique i. Unique Skills: employer has to show employee’s services are unique or extraordinary (either she has a 30 .VIX. Contract is sufficiently definite a. Specific Performance A. may involve matters of taste or sentiment i. contract to sell a work of art which has sentimental value to the purchaser b. Enforcement would not require excessive court supervision a. Personal service contracts—almost never award specific performance for this (Goes for both sides of the contract —if employer or employee repudiates) 4. d. also evidence P cant find another supplier to enter into a long term contract c. Speculative or hard to calculate damages. There is no substitute available. P wins specific performance bc we cant predict the future of P finding propane bc of the unpredictable world supply. sale of a business. If the seller has already conveyed then damages can be awarded—difference in market value. Construction contracts usually require this—difficult to judge complex work and judge the results b. Forbearance: damages usually no adequate when someone says they will not compete f. Ex is P having contract with D for propane for subdivision and D repudiates. Factors of Specific Performance: 1. Money damages would be inadequate or they would be impracticable a. Injunctions a. Sale of business: unlikely to find a comparable business 3. Patents and copyrights. forbearance (not to compete) e.e. If the buyer breaches specific performance will be awarded to seller iii.

f. Even if the goods were not unique. Can they get specific performance?—Courts will not affirmatively issue an injunction for a personal services contract. Dramatic shift in market for steel. Ex: Contract to sell a shipment of steel. 2-716: Specific performance can be awarded when the goods are unique (in terms of the total situation which characterizes the contract) i. e. UCC Approach a. Monetary damages should be awarded as opposed to specific performance. Louis Cardinals. but its probable that the employee will choose to just perform the contract. Piece of art. Employer’s willingness to perform: if there are other ways to make a living. Seem that it wouldn’t be able to find it on the market. Just bc the price of an item has risen doesn’t mean anything c. Can buyer seek specific performance for the contract?—Doesn’t seem like steel isn’t available. Ex: Contract to sell 1933 renovated unique automobile. $500 a ton to $1200 a ton. the employer should be prepared to continue employment in good faith so that the personal relations where the enforced continuance is undesirable. Ex: Contract is between the star pitcher for the Cubs for the 2009 season and he is going to break the contract to play for the St. Other way to make a living: injunction wont be granted if it will likely leave the employee without other reasonable means of making a living—cant satisfy this if the only alternative is for the employee to perform the contract iii. if the party can show they were not able to cover or find substitute goods within a reasonable amount of time then they can get specific performance. C. Suppose that there are 2 or 3 on the market for sale—Monetary damages over specific performance would be awarded. Rare. Ex: Contract to sell a corporate jet. g. Liquidated Damages: Generally has to be a reasonable amount 31 . 5 tons of steel for $500 a ton. D.special skill or has acquired special knowledge of the employer’s business)—usually found for athletes or stars ii. family heirloom b. sentimental value ii.Could be seen as a unique good. d.

D also says it would cause hardship bc they would get sears in that spot otherwise and that would make them more money and they can only have 3 dept. (1) Amount is reasonable to the extent that it approximates the actual loss that has resulted from the particular breach (even though it doesn’t anticipate losses from other types of breach). there can still be specific performance a. ii. D is the one who agreed to only have 3 dept. Large damages that act as a penalty are not enforceable bc of public policy. according to the anticipated amount at the time of contracting. City Stores Co. or something similar. (2) the greater the difficulty in proving the loss has occurred or of establishing its amount with certainty. easier it is to show the amount fixed is reasonable. v. How to decide if liquidated damages are a penalty: i.a. etc: If damages are calculated by P’s lost gross revenues. D argues the it is not an option contract bc it is not sufficiently definite in the terms. If there is no loss at all then there a liquidated damages clause will not be enforced. c. Damages computed by gross revenues. courts will view it as a poor estimate of actual losses and deem it unenforceable if it greatly deviates from actual losses i. needs P’s help to write a letter to convince the board for rezoning. Held: P gets the option contract bc there are other stores in the mall already so that can be used for the terms of this contract General Rule: Even if a contract contains some terms that are subject to further negotiations. Examples pg 340-341 supplement E. lost gross profits. letter proves there was an agreement that if P helped get the rezoning approved P would get a spot in the mall on terms at least equal to those granted to other major tenants. stores in the mall so P shouldn’t be punished for that 32 . stores in the mall—majority says it would not ruin them so it is not hardship. ii. If there turns out to be no actual loss then the liquidated damages clause will not be enforced b. iii. Ammermanspecific performance Facts: D wants to open strip mall. In order for a liquidated damages clause to be enforceable it must be (1) reasonable in light of the anticipated or actual loss from the breach AND (2) must be reasonable in light of the difficulties of proof of loss (has to be uncertain or difficult to calculate accurately) i.

Barrie Approach: Assessing the liquidated damages clause should be done at the time of the conclusion of the contract and not later. Barrie School v. a. D wants down payment back and wont pay remainder of tuition. Kramer . only has to be valid at that time (different than restatement bc R says you can use the actual losses and how that effects the clause) b. Employee fired with 21 months remaining and then found a job within 3 months. Panos: employee had 3 year agreement with employer and liquidated damages clause stated if employer breaches. no reason to find actual damages bc it is a valid liquidated damages clause therefore not requiring us to consider mitigating damages. Lumley v. Hypos 33 . Court supervision: the fact that there is no other adequate remedy bc this is a unique piece of property trumps the notion that there might have to be a lot of court supervision of the verdict.can’t apply specific performance Facts: Reier paid Kramer (head coach of MSU) for exclusive rights to broadcast MSU athletics. D’s must pay the tuition General Rule: A liquidated damages clause means that the non breaching party does not have the duty to mitigate damages.b. Held: cant enjoin Kramer from performing services w another company bc then it is essentially forcing them to give the services to Reir bc they wont have another option. If she chose to since at Lumley’s instead that was not his fault G. liquidated damages clause said if they didn’t ask for a refund before May 31 they had to pay full tuition. a. F. D says school had to mitigate by finding another student Held: liquidated damages is reasonable bc there was no way to find actual damages and it was not so large to be a penalty. he will still pay the entire financial obligation. Didn’t ask for a refund in time. Clause was upheld. Wagner: Agreed to sing only at Lumley’s opera for a specified time and then went against that and sang at another. just want to make them not give the rights to anyone else. Patch – liquidated damages Facts: D enrolled daughter at school. Kramer then gave the rights to another company. Judge said that he could tell her not to sing at the one but could not tell her to sing at Lumley’s. Wassenaar v.Reier Broadcasting Co v. taking into consideration harm to reputation and emotional distress H. Reier says this is a negative covenant—don’t want to make them give the rights to Reier. Assess liquidated damages from barrie approach and R approach c.

34 . Paul makes a down payment and then decides not to buy— can the seller keep the $10k down payment? Paul is the breaching party but will argue restitution to prevent unjust enrichment on Sally.a. she would argue they agreed to liquidated damages—court would say that retaining the $10k would be unreasonable.

a term which is reasonable is supplied by the court i. Could have been deliberately obscure c. iv.X. Interpretation of Terms and Misunderstanding A. Defined: What a reasonable person would have interpreted the contract to mean. b. that meaning prevails d. If parties share the same meaning.Policy: a. Whose meaning controls the interpretation of the contract? ii. Usually the courts have to add in “in good faith” C. Omitted Terms supplemented by the court a. Likely to have had a reason to know if uncertainties iii. A party that knows or has reason to know of the other party’s meaning is held to that meaning e. What was that party’s meaning? iii. Policy Reasons: i. Look to whether they were separately negotiated rather than standardized terms 35 . No longer use subjective approach – Peerless case (what parties meant) or objective approach (words and conduct interpreted by reasonable person standard) c. B. Usually try to give a reasonable. lawful meaning to the interpretation of terms e. Contra Preferendum: ambiguity in contract terms must be construed most strongly against the party that drafted the contract b. sometimes neither party intended the reasonable result. there may be a failure of mutual assent if the misunderstanding is material to the contract. Repeated course of performance is given great weight. Restatement approach R201: Objective Approach a. Corbin based this on premise that it was absurd for a court to give a contract a meaning that neither of the parties intended. Drafter is more likely to have provided for the protection of his own interests ii. If there is no sensible basis for choosing between the parties’ conflicting meanings. Modified Objective Approach – court should answer two questions: MUTUAL ASSENT i. d. Restatement Approach R204: when the parties have made it clear they intend to be bound by a contract but haven’t agreed to a term that is essential to determine their rights and duties.

w roads. Held: Remanded to decide whether one or both knew about the others meaning General Rule: the rule that an agreement should be construed most strongly against the party who drafted the contract applies to contract construction but not contract interpretation (no indication here who wrote or chose the language of the contract) (Contra preferendum not applicable) a. BAC at time of accident was . Peter is entitled to a discount if a given shipment is analyzed at less than 50% protein. suitable for stewing. BAC at time of death was below .Frigaliment Importing Co v. trade usage. Policy excluded benefits if the loss (of life) occurred while the covered person’s BAC was . Joyner thinks it means the lots must have complete buildings and Adams thinks it means lots must be ready for construction—graded. Bc the word chicken is ambiguous on its face. Shipment was 49. BNS thought they meant any type of chicken. Difference in meaning of develop and divide the lots.10%. The property was to be subdivided and the rent would increase over the term of the lease. negotiations. Burgess v. Evidence considered: express contract terms. the court allows in evidence of negotiations between the parties b. Peter gets the shipment and pays Steven the discounted price and Steven sues for the difference.5% 36 .D. and sewer lines installed. BNS International Sale Corps Facts: P (in Switzerland) ordered chickens from NY and thought they would be broiling and frying chickens but they were fowls. Hurst v Lake: Steven sells horsemeat to Peter for $50 a ton. course of performance (parties’ conduct under the contract at issue) Held: BNS bc Frigaliment did not meet its burden of showing that trade usage indicates chicken mean broiling ones General Rule: The party that asserts that there is a trade usage of a term undefined in the contract has the burden of proving that the party in the trade had actual knowledge of the usage or that the usage is so generally known in the community that his actual individual knowledge of it may be inferred. Adams would get discounted rent as long as he developed and divides the property into lot leases. water. Court ruled in favor of beneficiaries bc JCP wrote the clause and they should have written it better. JC Penney Life Insurance Co: Burgess bought a $100k life insurance policy from JCP. Joyner v.12%. a. Adams Facts: P leased property to Brown. Course of performance c.10% or higher. E.

Can Steven bring in trade usage evidence that 49. I think my home in Wisconsin and he thinks my home in IL: Corey would prevail because I know that I have two homes and that I should specify which one. I know I have two homes but he only knows that I have one. I ask Corey to paint my house. Hypos: a. F.5% should be rounded up to 50%? Trade usage is objective evidence. 37 .protein.

Parol Evidence Rule Exceptions a. Used to show that the writing is or isn’t integrated— this is allowed (completely or partially) b. Defined: bars the fact finder from considering evidence of preliminary agreements that are not contained in the final writing B. Ex: Pg 173 supplement vi. Partially Integrated: document is not intended by the parties to include all details of their agreement 1. Interpretation of ambiguous terms—if a term is found to be ambiguous (capable of more than one meaning). Completely Integrated: document is intended by the parties to include all the details of their agreement 1. Post-contract modifications (statements made after contract is concluded) 38 . Agreed to for separate consideration OR 2. iii. integrated). Generally a.e. C. Parol Evidence Rule A. you have to decide if it is partially or completely integrated i. You can’t supplement the writing at all. R216: Completely or partially integrated i. You can’t supplement if it contradicts the terms of the agreement ii. completely integrated: Once you decide that a document is a final expression of the agreement (i. If you want to supplement a term. first considers all the evidence leading up to the agreement iv. you would argue that it is ambiguous and needs additional evidence. Partially integrated v. Policy: the final writing should be given greater weigh since the parties negotiated and came to a final decision c. Judge decides whether it is partially or completely integrated. Ex: Pg 184 Supplement ii. v. Defined: b. An agreement is not completely integrated if the writing leaves out a consistent additional agreed term which is 1. evidence is allowed to clarify. or just to allow the court to interpret an ambiguous term and not supplement i.XI. That type of term in the circumstances would naturally be omitted from the writing. Integration a.

Morrison i. but signed the contract anyway because work had already been started and D threatened not to compensate P for the work that had already been performed. Exception: Fraud. fraud. PER will not prevent buyer from showing seller made fraudulent misrepresentations. you can show proof of this even if the contract is completely integrated i. Collateral agreements g. P claims D said he would be paid more. Rule: Even if a contract is completely integrated. Contract defenses (mistake. lack of consideration or any other fact would make the contract void or voidable i. etc—cant prevent a party from trying to prove that there is not a valid contract at all) e. c.e. Oral conditions precedent (parties premise their agreement on something occurring—financing condition like in Crabby’s) d.000 cubic yards. Mistake or Other Voidability a. They orally agree that B may keep the car in A’s garage for the next year at a rent of $50 a month. Sherrod v. Job based on that number then P discovered that the job would involve more than 25. **PER Doesn’t apply to statements made after the written agreement D. i. Later Buyer finds out seller lied about the profitability of the building. Facts: Sherodd was a subcontractor and D (general Contractor) stated that the job would involve excavating 25. Even if there is a merger clause. duress.000 cubic yards. Collateral agreement supported by separate consideration: if there is an oral agreement that is collateral to the main agreement and is supported by separate consideration. fraud. Ex: A and B.c. promise that A will sell a car to B. Can show evidence of this oral agreement despite parol evidence rule bc it has the $50 a month separate consideration in there. (Doesn’t matter there was a merger clause) b. parol evidence rule doesn’t bar evidence that would show no valid contract exists. Ex: Buyer buys apartment from Seller and contract has a merger clause. mistake. The contract included 39 . Equitable reformation f. can still show fraud ii. in an integrated writing. a party can always introduce evidence of earlier oral agreements to show illegality.

Subsequent Agreements: a written contract can be modified afterwards by an oral agreement. This conclusively establishes that it is completely integrated. then the writing as a whole should be examined: 1. parol evidence rule does not apply to this situation F. on the other hand. How to decide whether a contract is partially or completely integrated: Classical vs. the writing is a lease with no mention of price or only expresses the duty of one person. Classical: four corners approach—only look at the document and decide if it is ambiguous—if a reasonable person would have put the other terms in or would have left them out. If. it should be a total integration. Whether a contract is completely integrated: i. unless the document is obviously incomplete or it was included bc of fraud or mistake ii. (Thompson) 40 . ii. Holding: Written contract governs iii. Contemporaneous and Subsequent Expressions a. Two documents/Ancillary: If two documents are signed at the same time they are said to just make one document c. (different than regular approach) d. for example.a provision that it could not be modified by a verbal agreement. b. Conditions: If the parties make a condition to performance or the existence of the contract and then don’t put it in the written contract. courts will allow proof of the condition despite the PER E. it will be treated as partial integration—the consistent additional terms can be added through oral evidence 2. If an oral agreement occurs at the same time as the writing is signed it proves that the writing was not intended to be a total integration and would allow evidence of the oral agreement to supplement (not contradict) the writing. b. it seems to be a complete expression of the rights and duties of both parties. Modern Approach to PER a. Sherrod Approach: Fraud exception WILL NOT APPLY if it pertains to a major term of the contract— the statement the plaintiff is trying to introduce is completely contradicting the agreement. If there is no merger clause. Merger Clause: a clause indicating the writing constitutes the sole agreement between the parties i. If.

HOWEVER. written or oral or by any writing that was signed at the same time as the writing (must show that it supplements and doesn’t contradict) c. Merchant Good Faith: honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.ii. and course of performance (applies to completely and partially integrated contracts) and ii. UCC Parol Evidence Approach a. Classical: Plain meaning rule: exclude evidence unless the contract is ambiguous on its face (court will not hear evidence about parties’ preliminary negotiations) ii. The other party.) d. iii. Terms: i. Merchant: a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction. trade usage. 41 . ii. Good Faith for non merchant: Honesty in fact b. Modern—Restatement approach: All extrinsic evidence is relevant to decide if the parties intended the document to replace oral agreements c. a final agreement can be explained or supplemented by: i. with knowledge of the nature of the performance and opportunity for objection to it. The agreement of the parties with respect to the transaction involves repeated occasion of performance by a party AND ii. By evidence of consistent additional terms unless the court concludes that the writing was intended not only as a final statement but also as a complete and exclusive statement of the terms of the agreement (can only do this if its partially integrated and not completely integrated. Modern: admit evidence unless it contradicts the express terms (admissible to reveal if there is a latent ambiguity) (Taylor)—first have to look at the evidence they want admitted and if it shows something is ambiguous and if it contradicts G. Defined: A final agreement (Integrated) can never be contradicted by prior agreements. Evidence of course of dealing. Course of Performance: a sequence of conduct between the parties to a transaction that exists if : i. Contract Interpretation: i.

1. Shell Oil i. Court of performance prevails over course of dealing and usage of trade iii. ii. h. or trade as to justify an expectation that it will be observed with respect to the transaction in question. Meaning attached to a particular term in a certain region or in a certain industry would be admissible. i. evidence as to the quality of oil delivered and accepted in the first installments would be admissible as a course of performance to help determine whether the oil delivered in a later installment met the contract’s standard iv. iii. f. Express terms  course of performance  course of dealing  usage of trade When those things are barred i. Facts: Nanakuli contracts to buy asphalt from Shell under a long term contract. Policy: Parties best know what they meant by their words Course of Dealing: a pattern of performance between the two parties to the contract with respect to past contracts i. vocation. If a contract specifically bars introducing evidence of the three things above then they cannot be admitted i.e. Nanakuli v. Express terms prevail of course of performance. Only applies to conduct before the agreement. g. Course of dealing prevails over usage of trade iv.e. course of dealing and usage of trade ii. after or under the agreement is course of performance Usage of Trade: any practice or method of dealing having such regularity of observance in a place. Existence and scope of usage must be proved as facts They cannot contradict each other i. Ex: if the contract calls for repeated deliveries of highest grade oil. i. Defined: refers to the way the parties have conducted themselves in performing the particular contract at hand—helps to supply evidence as to what they intended the contract terms to mean. accepts the performance or acquiesces in it without objection. Written contract says the price will be “Seller’s posted price at time of delivery.” Years later Shell increases its price by 75% and refuses price protection (locking in prices for 42 . specifically say you need 1000 of something regardless of what trade usage says.

ii. This is a completely integrated contract—we only look at the 4 corners at the writing—it looks like it covers everything. any practices which the parties have established between themselves.orders already placed) Shell has given price protection on prior occasions. Also cant just say that course of performance etc wont apply. General Rule: CISG rejects the parol evidence rule and extrinsic evidence will always be permissible. Libby(Classical Approach) Facts: P owns logs and D contracted to buy the logs. Holding: considers the evidence iii. Holding: the trade usage was enough evidence to only supplement the express term and not swallow it entirely. etc will still be allowed in. due consideration is to be given to all relevant circumstances of the case including the negotiations. D says that there was an oral warranty as to the qualities of the logs and is trying to introduce evidence to show that there was an oral warranty and says its not against the parol evidence rule bc it is collateral to the contract. Nanakuli says trade usage granting price protections should be part of the contract. usages and any subsequent conduct of the parties. (no gaps) 43 . Facts: MCC is a US buyer and D’Agostino is an Italian Seller. only way to allow parol evidence rule is to opt out of the CISG. If it would have tried to set the exact price then the express term would have prevailed) iii. b. this case is about supplementing and not contradicting. (Merger clause still wouldn’t have made a difference bc that is an aspect of the PER) I. MCC says they had no intention of being bound by the terms on the back of the contract and want to introduce evidence of oral agreement and D’Agostino’s reps who can give testimony of this. Article 8(3): in determining the intent of a party. CISG Parol Evidence Approach a. MCC-Marble v. ii. Policy: a standard merger clause is not enough bc course of performance. or trade usage will not apply (In Nanakuli had to explicitly say price protection didn’t apply) H. have to specifically say which course of performance. D’Agostino: i. Thompson v. Good Faith Requirement: Shell was bound by the observance of reasonable commercial standards of fair dealing in the trade (did not give Nanakuli advance notice of no price protection) j.

P says the release relinquished D from contractual rights and P is bringing a bad faith suit and that should be allowed. Sally sells her apartment to Paul for $100k. So is the verbal promise enforceable? They wrote out and signed the contract so it is a final agreement. just bc there is a merger clause doesn’t mean a court will always say that its completely integrated (when the parties are not at equal bargaining power or there are gaps in the document and it is clearly not integrated) J. As they are talking. Hypos: a. K. Would the language of the stereo agreement contradict the contract? i. Holding: court used the modern view and decided.Held: parol evidence cannot be admitted to prove there was an oral warranty bc this is a completely integrated contract a. Plaintiff received a judgment against him in excess of his policy limits. General Rule: Used modern view: to determine the intent of the parties’ and the extent of integration in the written document and looks at all extrinsic evidence. and the extrinsic evidence was allowed for reasons of interpretation. Defendant is Plaintiff’s automobile insurance provider. i. Paul notices a stereo system built in to the wall and asks if that comes with the apartment. then the court applies the parol evidence rule to exclude any extrinsic evidence that varies or contradicts the written document. If the contract said no fixtures are included in the contract of sale then it would directly contradict the contract if the stereo is a type of fixture 44 . In writing the verbal promise isn’t in there. b. State Farm (Modern approach) a. Merger Clause: language in the contract that states this is the entire agreement between the parties w respect to the subject matter of the contract and trumps anything that may have come before it—agreement that it is a completely integrated contract. BUT. Facts: This claim arises from a three-car accident involving Plaintiff. Sally makes verbal promise to throw in the stereo system within the sale. Taylor v. Defendant argues that the claim is barred by a release Plaintiff signed. Thompson Approach: Classical view: only look to the four corners of the writing to distinguish if it is completely integrated—if there are not gaps and it all makes sense then its completely integrated.

3. Non Merchants: Held to a standard of honesty in fact b. Either party may terminate employment for any reason or no reason at all unless: 45 . then the courts will decide it based on whether a reasonable person would be satisfied 1. B has no claim bc it is not practicable to apply an objective test d. operative fitness. A occasionally objects when B is absent and a guitar is substituted for B’s string bass. even though it is unreasonable if he is honestly not satisfied that’s ok 2. ii. Person is held to a duty of good faith and honesty 1. Restatement Approach a. Ex: hire a band to play at your inn. c. A says he is dissatisfied. Good Faith: Every contract imposes a good faith requirement and satisfaction must be in good faith. Subjective Test: When the good faith standard applies: when the contract involves personal aesthetics or fancy i. Help to decide when an employer may terminate an employment agreement. Objective Test: When reasonable person standard applies: when the contract involves commercial quality. ii. Fraud. Employment Contracts i. If satisfaction depends on a third party. like an architect. or mechanical utility which other knowledgeable persons can judge. the court will usually take that opinion as controlling. then we should interpret it by deciding whether a reasonable person in the position of the obligor would be satisfied i. bad faith will excuse the condition. At will employment: most employment is at will. the party’s dissatisfaction must be in good faith.XII. and we are able to determine whether a reasonable person in the position of the obligor would be satisfied. Good Faith: Even under this test. Implied Terms A. Rule: if it’s a condition that the obligor has to be satisfied with the obligee’s performance. Ex: to Paint a painting 2. without a contract specifying length of employment and does not contain a good faith requirement 1.

Also applies to exclusive dealings contracts iv. What if the market goes up and now they want to order a whole lot more than they normally order in an output or requirements contract? Can demand any quantity that is unreasonably disproportionate to prior contracts that are similar. UCC Approach a. There’s an express statement in the as to termination or duration ( which wouldn’t make it at will anymore) e. Holding: Morin prevails and gets paid. vi. Output or Requirements Contracts: limits contract to such actual output or requirements as may occur in good faith i. hired someone else and didn’t pay Morin ii. Baystone Construction Inc i. then “personal aesthetic” isn’t applicable.a. Facts: Baystone subcontracted Morin to erect aluminum walls and the contract said what is customary in erecting other buildings does not matter. Best Efforts: An agreement for exclusive dealing imposes. Can someone 46 . B. approval regarding quality and type of work done lies within GM. unless otherwise agreed. photo. prior dealings become the benchmark. ii. UCC/R2d c. iii. removed them. General Rule: If common product. Good Faith: Every contract imposes good faith requirement. b. Merchant: Subject to honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. Output and requirements contracts automatically instill a good faith and best efforts standard. an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote the sale 1. reasonable person standard applies bc it was not an aesthetic issue—contract was ambiguous and didn’t suggest approval was subject to aesthetic approval. etc). This prohibits a party from doing things to try and escape the contract v. iii. specific type of marble. only if “specialized or specific” product (art. Buyer cannot buy from another seller while under the contract. What if the market shifts so that they don’t want to produce what they normally produce. Morin v. GM rejected the walls.

American Bakeries (Requirements Contract) i. d. iii. General Rule: U. put stamps on things. she would get half of all profits and contract would last one year. f. D decided not to purchase any units at all.C. look to what was done in the past. 1. Going out of business: i. A buyer may request less than what was originally contracted for. ii. 2-306(1) only prevents a buyer from requesting an unreasonably disproportionate amount more than was originally contracted for. Holding: There is a contract bc P promised to pay D half of profits and revenues and to give monthly accounts and this was a promise to use reasonable efforts to bring profits and revenues into existence and also the court implied Plaintiff’s good faith. Usually applies to situations like this: a shut down for lack of orders might be permissible but a shut down to curtail losses probably wont be—have to look at the good faith. P sued D for the estimated cost of the purchase price of the units. Wood v. or even none at all. Holding: $3 mil to empire gas. Facts: D entered into a requirements contracts to purchase their requirements of gas conversion units from empire. General Rule: mutuality or a return promise may be implied from the circumstance surrounding the contract and the nature of the whole writing 47 . shifting the quantity for no good reason was bad faith because D failed to give the Court any reason at all why they decided not to purchase any units. ii. the more likely it was done in good faith. Lucy Reasonable Efforts i. Facts: D has a reputation in the fashion industry and made a contract with P to be her manager and sell out her designs. Severity of Loss: usually the more severe the financial hardship leading to the shut down. Empire Gas v. Lack of profit or small financial loss is not enough e. P says D put her endorsement on things without telling him so he is suing for his part of the profits] ii. so long as the buyer’s change in requirements is not done in bad faith.make their output zero? Depends on if its done in good faith.C. reasonable efforts to promote D’s fashion designs iii.

Best efforts as opposed to good faith means not doing anything to deprive the other party of reasonable expectations under the contract —implied into output and requirements contracts. h. Seller assumes the risk of a change in the buyer’s business that makes continuation of the contract unduly costly ii. Sold to Falstaf in exchange for agreement to pay $4mil plus royalties (5 cents for every beer sold) and a best efforts obligation to promote the beer. Exclusive Dealings) i. 48 . Reasoning: there was a breach in the implied term of using best efforts—they were not acting in a manor of the efforts of an average comprisable brewery and the court found the obligation had been violated. output contract of bread crumbs for a certain price. Bloor v. Find out they would make more money by selling the loaves of bread to a dog food company. Facts: Ballantine Beer was well known in 60’s and went out of business in late 70’s.1. Falstaff (Best Efforts Standard. Hypo: Bakery enters into 6 mo. Buyer assumes the risk of less urgent change in his circumstances i. After 5 years they changed advertising budget and prices dropped significantly ii. Policy Considerations: i. g. If the only reason it shifted its production was to increase its profit then it is done in bad faith.

unless its nonoccurrence is excused. before performance under a contract becomes due a. i. Have to give an opportunity to cure. Total Breach: breach that has continued to remain uncured for a sufficient amount of time which would justify termination of the contract—this is an UNCURED MATERIAL BREACH B. Oppenheimer v. On February 25. then must follow what the language says but if the language is unclear the court is likely to say the language is a constructive condition rather than a express condition C. which must occur. Made by agreement of the parties and must be strictly satisfied—substantial performance does not come into play with express conditions b. Automatically suspends the other party’s obligation under the contract and they may sue immediately for damages based on the entire contract c. Language of express condition: subject to. Condition: a condition is an event. XYZ shall be a condition to. provided that. c. On February 26. unless and until. b. Performance and Breach A. If language is clear. Partial Breach: breach which entitles one to damages but does not give the other party the right to suspend performance of the contract i. The landlord’s written consent was not received until March 20. 1987. on condition that.XIII. Dixon Co Express Condition i. Still can immediately sue for damages from the partial breach. P informed D’s attorney by telephone that the landlord consented to the tenant work. if. The agreement contained a condition stating no contract unless and until notice is timely delivered to OAD This written consent was to be received by February 25. D informed P that the sublease agreement was invalid because the 49 . 1987. Oppenheim. Material Breach: a breach that is sufficiently severe to authorize withholding fulfillment of the promise. Express Conditions a. not certain to occur. look to the parties’ intent first d. Facts: Oppenheimer (obligee) was subleasing space to OAD (obligor). Types of Breaches a. contingent upon. Intent: if it seems express but they clearly did not want it to be then you cant enforce that.

ii. ii. Chelsea attempts to exercise option. paragraph 58 option to renew for 10 years to Palermo. he is entitled to equitable relief where the default has not prejudiced the landlord and it is a result of an honest mistake. but included in the contract the condition that if real estate taxes were found to be above $3500 they would have the right to cancel the contract upon written notice to the seller within 3 days. Holding: complaint dismissed bc this was an express condition so we don’t have to look at whether there was substantial performance iii. November 1973: JNA informs Chelsea that lease will soon expire. How much forfeiture is there 2. Facts: D contracted on August 3 to buy a house. Facts: Jan 1964: 10 year lease. General Rule: Where a tenant would suffer a forfeiture. General Rule: The doctrine of substantial performance is not available to excuse the failure to perform an express condition precedent as required by contract. 50 . Maxton Builders v. e. Cross Bay Chelsea i. Whether the party was innocent in failing to give notice (did they do it on purpose or was it really just a negligent accident) iii. Holding: new trial to decide what kind of harm JNA would suffer iv. Lo Galbo i. Balance that against the harm JNA is going to suffer if they’re required to renew the lease 3.condition requiring written consent was not met. JNA Realty Corp v. March 1968: Palermo sells restaurant to Chelsea and paragraph 58 modified to extend option from 10 to 24 years. June 1973 Deadline for notice to exercise option. Three factors that affect the decision to invoke equity to enforce the contract: balance of equities 1. f. Holding: the notice was ineffective bc that was an express condition and it didn’t arrive on time. August 4 buyer realized it would be more than $3500 and buyer’s attorney called and said D were exercising option to cancel but the letter didn’t get there until August 9. P brought suit arguing that it had substantially performed the required conditions. ii.

would occur when one party has relied on the bargain (either by preparing to perform or by actually making part performance) and insistence on strict compliance would cause him to fail to receive the expected benefits a. Can paul argue forfeiture that he should be excuse of the non occurrence of the condition? There isn’t the same kind of reliance interest in this situation as in the JNA case. A court may excuse the non occurrence unless its occurrence was a material part of the agreed exchange. Then Cross goes bankrupt and never ends up paying Andrew Answer: this is not an express condition bc the language is not precise. unless the event is within the obligee’s control or the circumstances indicate that he has assumed the risk. No harm to the landlord vii. Andrew hires Corey as a sub contractor to paint the interior units. h. interpretation is preferred that will reduce obligee’s risk of forfeiture. etc (court tries to reduce the risk of forfeiture D. c. Forfeiture would happen (improvements to building. Delay in giving notice was due to an honest mistake. If a party states that they are dissatisfied not bc they actually are but just to get out of the contract. R227 (1): In resolving doubts as to whether an event is a condition. or it would cause disproportionate forfeiture. g. Hypo: Cross is the owner. Contracts has provision saying Corey has to be paid within 30 days of payment by Cross. b. When there is doubt to whether an objective or subjective standard will apply. it is not valid under either test (subjective or objective) i. money spent for goodwill of business) vi. Forfeiture: courts avoid applying the strict compliance rule where a forfeiture would result. the court has to construe it to reduce the risk to the obligee (Corey. courts presume an objective standard of reasonable satisfaction. Hypo: Sally gives Paul the option to purchase her apartment. Paul is 3 days late with written notice. provided that Paul provides written notice by May 1 of his intent to exercise the option. Balancing Test: 51 . Satisfaction Agreements: (same as in implied terms) i. Court would not allow the forfeiture argument to prevail.v. ii. if. this also just sets a time frame and doesn’t set a condition—doesn’t say unless. since there is doubt whether it is an express condition. Andrew is the general contractor to build a building.

may be slightly different than what the contract states. if the person waited 6 months to notify and destroys the damaged goods. Excuse of Condition: a court may also find that fulfillment of the condition is excused where extreme forfeiture would occur i. Was it an honest mistake? iii. Made by a term supplied by the court and can be satisfied if only substantially performed (don’t need to be strictly satisfied) i. Ex: denial of payment that would result to the subcontractor bc of the non occurrence of performance e. each party’s substantial performance of his promise is generally 52 . b. The damage done to the other party (hardship they would suffer from the forfeiture)? d. you give oral notice in ten days written notice 25 days later. R229: if non occurrence of a condition would cause extreme forfeiture. What is the extent of the non compliance’s forfeiture? ii. Obligee: the person who is attempting to enforce the performance and who has to meet the condition for the other to perform d.e. ii. forfeiture would result) i. the court will not excuse it bc it would cause material prejudice to the insurance co’s interest E. Court will say the condition is met by substantial performance bc otherwise extreme hardship will result to the other party (i. iii. Each party’s performance conditional on other’s: where each party makes a promise to the other. a court can excuse the non occurrence unless its occurrence was a material part of the agreed exchange. Obligor: the party whose duty is subject to the express condition (they put the language in the contract to protect their own interest. Court will excuse the condition because you let them know. Ex: Usually insurance liability cases: says that you won’t be covered unless you file written notice in ten days. However.i. but party 2 benefits from it. Constructive Conditions (based on substantial performance) a. c. Defective/Substantial Performance: Usually happens when party 1 performs partly. Once it is substantially performed then the other parties obligation becomes due.

No order of performance agreed upon: Applies to contracts when someone has to perform services —a party who has to perform work is obligated to substantially complete that work before he may receive payments. insurer has failed to substantially perform its promise and employer’s obligation to pay does not come due. each parties duty is conditioned on the others having performed the prior duty. i. Ex: paint house. B’s duty to pay never arises. Insurer’s fulfillment of the promise (i. (unless there is an express or implied agreement) 1. Order of Performance: i. ii. Employer refuses to pay the premium.e. to make payment on claims) is a constructive condition of employer’s duty to pay the premiums. If A substantially performs. SO. e. Substantial Performance: it is a constructive condition of a party’s duty of performance that the other party have 53 . Periodic payments or alternative performance: usually when payments are in installments. do half want money. parties agree A must complete the job before B pays the cost. f. becomes important who was the first to fail 1. employer promises to pay premium on Feb 15 but during the first 6 weeks of coverage insurer rejects 90% of claims filed by employees without justification. Substantial performance is about mitigating forfeiture and there are other waits to do this: interpreting ambiguous language in a way that factors obligee. 1/10 paid each month. the constructive condition is satisfied and B would have to pay but would have an action for breach with respect to the deviation.a constructive condition to the performance of any subsequent duties by the other party. unless there is an agreement about when payment is due then it is due at the completion of the project. doctrine of prevention. Ex: A agrees to paint B’s house. A’s completion of the job is a constructive condition to B’s duty to pay. but his performance deviates slightly from the agreement. Ex: pg 212 supplement: contract to build home for owner. If A fails to substantially perform the job. and doctrine of waiver g. ii. Ex: Insurer has agreement with employer covering employer’s employees for a year.

made a substantial performance i. the other party is then completely discharged from any duty to perform and may sue for breach. discharge of duty: CURE i. Overall: the more the breach defeats the entire purpose of the contract and the expectations of the non breaching party ii. v. Important to decide if a breach is material bc if it is the other party can recover damages but also may suspend or be discharged from his own obligations under the contract. Material Breach: (Substantial Performance a. if one party fails to substantially perform the other party’s obligations are not due. Essentially the same thing as asking if there is substantial performance ii.e. Potential of Forefeiture 54 . If a party fails to substantially perform but the defects in the performance could be fairly easily cured. Extent that damages will make injured party whole: whether damages may be adequately calculated. The defaulting party then has a chance to cure his defective performance. Extent of harm caused by breach: extent non breaching party is deprived of the benefit she reasonably expected iii. b. Defined: When one party fails to substantially perform their duty (have to be careful when you are deciding this bc if you pull out and they haven’t materially breached then you could be liable) i. less likely the breach is material 1. if trying to decide if they should keep the non breaching party in the contract and just get damages. F. the other party’s duty to give a return performance is merely suspended. Factors to decide if a breach is material: i. Part performance: greater the part performance which has been done by breaching party. c. If the defect is so substantial that it cannot be cured within a reasonable time or if the defaulter fails to take advantage of a chance to cure it. Breach that occurs at beginning is likely to be material even though its trivial bc breaching party will suffer no forfeiture in the beginning. Suspension of duty vs. if its hard to decide what damages would be then they would just be discharged from their duty iv.

deliberately substitutes inferior materials. Willfullness of breach/Good faith: willful breach is more likely to be material (cases where the breaching party abandons the contract. or acts in bad faith) 1. Kent i. Ex: actress gets sick. Holding: P to be awarded the difference in value of the house iii. time is important d. 1. even if it is a trivial breach (but intentional) courts will usually overlook it if there has been substantial performance. Jacob and Youngs v. Delay in Performance: delay in performance is a material breach only if it operates to significantly deprive the other party of the benefit of the contract. To redo the work would have to tear apart the house ii.vi. If there is a slight time delay it wont make it a material breach unless the contract expressly says it has to be done by a certain time. if you wait to long then you will be said to have not mitigated damages. then the breach is material and I am discharged from the contract ix. 2. Substitute arrangements: if delay is likely to hinder the non breaching party from making a substitute arrangements the delay is more likely to be considered material a. General Rule: where a contract has been substantially performed and the cost of replacement would be grossly out of proportion to the difference in value. IF you are reasonably in thinking it was necessary to hire a second actress to replace. Facts: Wrong pipes put into the house bc of an oversight but the pipers are essentially the same besides a different name stamped on them. Time: if you are the non breaching party and you decide to take the non occurrence as a breach to early then you will breach. viii. vii. 55 . Likelihood of cure of breach: if breaching party seems likely to be able and willing to find a cure and complete the rest of the contract. breach is less likely to be material. Ex: Jacobs and Youngs. the correct measure of damages is the difference in value. hire another bc your scared your play will be ruined.

On October 5. P told D he was now “ready. Holding: It was a total and material breach.1. if the goods or the tender of delivery fail in any respect to conform to the contract the buyer may: (a) reject the whole or (b) accept the whole or (c) accept some and reject the rest. Spindler i. course of dealing. As long as a contract doesn’t involve installments (i. 56 . General Rule: Repudiation of a contract is justified only where the breaching party’s breach constituted a total or material breach. Evidence of non-performance: broken promises to pay. D gave P until Sept 29 (opportunity to cure).e.e. ii. court may decide the seller cured or was not given the opportunity to cure. Sackett v. What the court looks at: 1. bounced check payments. e. Gives buyer the right to reject goods that are defective in any respect no matter how immaterial i. so P got his money and costs iii. Did the buyer follow the code procedures for rejecting a tender 3. Seller has the right to cure the defect. The contract said P was to make three payments due on specified dates. ii. buyer has the right to cancel the contract and refuse to pay if the goods deviate from the contract terms in any respect—courts don’t strictly apply it: must be a substantial defect iii. multiple deliveries). Material Breach under UCC: Perfect Tender Rule: i. P failed to make the payment on time. etc then okay to repudiate. Oct 4. and course of performance to determine whether tender was actually defective 2. Check for the third had insufficient funds. D wrote a letter to P saying he was not to complete the transaction due to the D’s delay in performing the contract. not merely a partial breach. Facts: Sackett contracted to buy stock from Spindler. unless otherwise agreed. f. P made the first payment on time and the second payment a few days after it was due. Trade usage. eager and willing” to complete the transaction. Trivial or immaterial deviations from the contractual provisions do not amount to failure of a condition to the other party’s duty to perform.

Accepted goods without discovering their nonconformity and acceptance was reasonably induced by either the difficulty of discover before acceptance or by seller’s assurances. Cant accept first: if buyer accepts the goods cant reject later (acceptance is when reasonable time has passed. Installment contracts: 1. OR the buyer would be satisfied with a money allowance. buyer can revoke acceptance.iv. viii. buyer doesn’t reject. the seller gets additional time toe cure after the time under the contract has passed. but payment to be made after all 10 installments have been made. Seller makes satisfactory delivery on 5 installments but then delivers a badly defective installment. Hypo: Seller contracts to buy 1000 bushels of corn. must show defect and also that the defect is significant to the particular use vi. **only can revoke if the nonconformity substantially impairs the value of the goods to him. Revoking: once buyer accepts but realizes there is a defect. Buyers obligation: has an obligation to hold the items and make sure nothing happens to them—obey instructions by seller and if no instructions then make reasonable efforts to sell it. Buyer has in turn contracted to sell each installment to X.e. Time: must be within a reasonable time and buyer must reasonably notify seller 2. Accepted bc he thought it would be cured and it hasn’t been cured b. vii. buyer does an act inconsistent with seller’s ownership of the goods) 3. Cure: seller must be given the opportunity to cure— if seller reasonably thought the goods would be accepted by the buyer. For a non installment contract if they are slightly defective v. c. More strict under an installment contract 2. in two situations: a. Mechanics of Rejection: 1. and C cancels his contract with 57 . delivery to be made in 10 equal installments. i. Non conformity bust substantially impair the value of the installment and CANNOT be cured 3.

Ex: T agrees to buy a tract of land for $160k if he can obtain a zoning variance to use the property for industrial use. Doctrine of Prevention: if a party wrongfully prevents a condition the non occurrence of the condition could be excused and the parties are still liable i. 1. no fault of P. He doesn’t have to accept any more installments and he doesn’t have to make payment on the contract for the first five installments. he may treat the entire contract as being breached. the condition will not be excused. D tries to not perform but he has to bc P didn’t do it on purpose 58 . Buyer cant walk away bc he didn’t get the variance bc he in bad faith didn’t even try to get the variance and has prevented the condition from occurring ii. P goes and buys a bunch from D’s supplier making it more expensive for D to get it. and care for him until he dies. including that it will go up bc of purchases made by the other party 1. Since the defective installment has “substantially impaired the value of the whole contract for buyer. the court will err on the side of construing it as constructive to eliminate the risk of forfeiture. iv. P can still recover on the contract bc D’s wrongful conduct. Ex above: P knew D was an abusive drunk.buyer when he finds out about the defective installments. G. Ex: D agrees to supple P with 2600 tons of iron. P assumed the risk and the non occurrence is not excused. Excuse of Conditions: a. b. Intent of parties: if one party assumed the risk that the other might act in such a way. his uncle. iii. Seller would have to sue to get those payments for the first 5 installments. Risk that other party will buy all supplies: party agrees to sell commodities bears the risk that the market price will go up. Contract signed and buyer does nothing---doesn’t apply for zoning variance. Ex: P agrees to live with D. caused the condition not to occur. While P is there D is always drunk and made it impossible for P to continue living with him. Interpret the contract as being a constructive condition: if the contract is ambiguous.

Doctrine of Waiver: party can choose to waive the non occurrence of the condition i. Ex: P gives notice to insurance co of loss but is late so doesn’t satisfy condition in 59 . After non occurrence occurs: after condition has failed to occur the party may choose to ignore the non occurrence and continue with his performance (doesn’t need consideration or detrimental reliance) a. then it is binding without consideration. there are some instances consideration was not required: a. Side note: Retraction of waiver: no consideration given and party has not detrimentally relied. Continuation of performance by the person who would have been benefitted by the condition a. Before or at same time as contract is executed: standard form and parties orally agree during negotiations a condition will not be enforced a. If it is impossible then the person is excused. Promissory estoppel: induces other party to change his position in reliance on the waiver. Can’t be retracted. retraction of the waiver can reinstate the condition. Condition was not a material part of the bargain: if its not material the waive is binding without consideration b. Can occur in three different time settings: 1. 3. but if it makes it so impracticable then it is also excused.2. After the contract is executed. More difficult by not impossible: make it more difficult and not impossible then it is not excused a. Implied Waiver: two situations can happen 1. c. but before non occurrence occurs: Consideration is usually required bc it modified the contract. Most courts permit proof that a party has orally agreed not to insist upon a certain condition if the other party can show he changed his position in reliance of the promise (don’t apply parol evidence rule) 2. Result is different if the buyer knew he was exhausting seller’s sole source of supply 3. ii. c.

b. 60 . Damages: Just because you waive a condition doesn’t mean you cant sue for breach. D starts making the claim and then tries to cancel. terminate the contract and sue for total breach.contract. Acceptance of benefits under the contract by that person a. Cant cancel bc prior acts waived the condition. Ex: page 234 bottom of page iii. NOTE: only implied waiver if the party voluntarily continues to perform with knowledge that such performance is not required (mere fact that the party has refrained from cancelling the contract and is waiting for the other party to attempt to satisfy the condition will not give rise to waiver) 2. you can sue later of the non occurrence is a breach or you can not waive the condition.

What constitutes a repudiation: 61 . Good: Facilitates mitigation (earlier search of employment) b. Cancellation v. Reasoning was that immediate suit had to take place so plaintiff didn’t have to cancel the contract himself or give up his own rights. iv. ix. Defined: a party indicated that he will later refuse to perform or does not intend to perform. Hochster v. finds out T is going bankrupt and probably won’t be able to pay. contract to start June 1. not merely suspend. Artist can stop painting. Courts want to try the matter promptly while memories are fresh and witnesses are available. Suspension: 1. May 22 employee brought action for breach. De La Tour: vii. Facts: service contract between employer and employee. Policy Arguments a.XIV. If the party does not cancel then the repudiator has the right to retract his repudiation. if he indicates that he would like to perform but will be unable to. Constructive Condition: it is technically a constructive condition of each party’s duty of performance that the other party not manifest a prospective inability or unwillingness to perform. c. Aggrieved party needs to know right way if there was a repudiation: they can then either continue to perform or make substitute arrangements. 3. 2. viii. on May 11 employer said he would not perform. vi. but the other party can still choose to not perform. d. Ex: artist is painting a painting for T. 2. Party can cancel. Allows the non breaching party to treat it as a total breach. that is not an anticipatory repudiation. A party can bring a suit for breach before the repudiator’s time for performance has arrived b. Anticipatory Repudiation a. Insolvency or financial inability: this is an anticipatory repudiation and the other party can stop performance v. View Now: Courts do allow plaintiff to sue before the time of performance has arrived 1. Bad: Gives her more than she k'ed for (b/c it has not even happened yet) e. Holding: This suit was allowed.

x. Action by the promisor making his performance under the contract impossible 3. Statement: statement must appear that the promisor is quite unlikely to perform either bc he doesn’t want to or bc he cant. Any statement which is reasonably interpreted by the obligee to mean that the obligor will not or cannot perform his duty 1. Further. D rejected this offer. The D moved for summary judgment. Truman Flatt v. D contended that P’s failure to waive the zoning requirement and to elect to proceed under the contract when the rezoning was denied. D never indicated to P that it was treating the contract as rescinded until after the Plaintiff revoked its repudiation. Statement by the promisor that he intend not to perform 2. he successfully retracted it bc repudiation is timely retracted if it is retracted prior to the aggrieved party’s changing position in reliance on the repudiation or if it is retracted before the aggrieved party indicates to the 62 . xiii.000. Indication by the promisor or via some other means that the promisor will be unable to perform. which was granted on the ground that the P effectively repudiated the contract. P asked D if he would be willing to sell the property for a reduced amount. nor did it even discuss selling the property to another party) Also. since P believed the property was worth less as it was currently zoned. P sent a letter to D stating he was withdrawing his zoning request bc it seemed clear that the City Counsel would not approve it. Facts: Flatt entered into a land contract with Schupf to purchase a parcel of land at a price of $160. the court reasoned that even if P had repudiated the contract. The contract provided that it was contingent upon the buyer obtaining permission from the City Counsel to construct and operate an asphalt plant. Schupf xii. along with the Plaintiff’s modified offer was a repudiation The P filed suit seeking specific performance. Holding: D didn’t change position (did not sell the property to another party. xi. P responded that it planned to proceed with the purchase in accordance with the original terms of the contract. f. although he desires to perform.

Ex: vendor in a land contract can be held to have repudiated where he expressed uncertainty about whether he was willing to perform and also solicited offers from other potential vendees. Promisee: the repudiation has to be made to the promisee and not some third party. xvii. g. the other party has the right to demand assurances from the other party—if that party fails to provide the assurances it is seen as a repudiation and the other party may cancel. xiv. a. h. Between merchants the reasonableness of grounds for insecurity and adequacy of assurance shall be determined according to commercial standards.MATERIAL Breach: if a party cant perform it would have to amount to a material breach and not just a partial breach in order to be an anticipatory repudiation. Propose new terms: request for greater performance that that provided for in the contract is repudiation when under a fair reading it amounts to a statement of intention to not perform except on conditions which go beyond the contract. UCC 2-609 Assurances: when it is not clear whether it is a repudiation. courts will say it is an anticipatory repudiation. The act must be voluntary and must make it impossible. Conduct: Sometimes language coupled with conduct is enough to show unwillingness to perform xv. 63 . not just more difficult. b. l. j. General Rule: Repudiation must be clear and unequivocal. to demand adequate assurance of due performance and until he receives such assurance he may suspend his performance.repudiating party that it is considers the repudiation to be final. Not enough to explain vague doubts about willingness or ability to perform. upon reasonable grounds for insecurity. A party may retract their repudiation unless the other party materially changed position in reliance on this repudiation or the other party indicates that he considers the repudiation to be final. Prospective inability to perform: if it appears the promisor cant perform but he desires to. i. m. Voluntary acts which make performance impossible: if promisor commits an act which renders performance impossible the vendee can immediately sue for breach. k. H. Promisee may suspend performance and also sue for breach. Rule: authorizes one party. if the inability to perform is obvious. xvi.

g. Ask for an insane type of assurance and indicate that you will not perform unless that happens. deliveries or payments. even though the items for which she owes are part of contracts completely separate form the one in question ii. What you are allowed to do when you have insecurities: i. even though there is no default in orders. i.c. Suspend performance ii. f. New Facts: a party who is demanding assurances has to find something out that is the basis for the insecurity. What is adequate Assurance: i. can treat the contract as cancelled. iv. h. NOTE: courts are liberal in enforcing the writing requirement. Buyer fell behind in payment to seller. cant just do it based on second thoughts he’s been having the whole time. If not met. Seller under a contract for precision parts makes defective deliveries of the same kinds of parts to other customers and buyer finds out about these defective shipments. but breaches by selling through other dealers in other isolated situations. i. After asking for assurances other party has 30 days to provide them e. Situations where its applicable: Examples that give reasonable grounds for insecurities i. Ask for assurances iii. iii. then that is a repudiation on your part. iii. Refusal to give assurances: if person doesn’t provide assurances then the contract is said to be repudiated. Acceptance of improper delivery or payment doesn’t prejudice the aggrieved party to demand for assurances later. Manufacturer gives a dealer an exclusive franchise for the sale of his product. Have 30 days to give assurances j. d. Can also ask for assurances after performance has begun. Buyer under a contract for sale of real estate learns the seller does not have present title to the property and there is no indication that the seller has a reasonable prospect of gaining title by the closing date. To be determined according to commercial standards (at least where it is between merchants) ii. 64 .

iv. Acceptance of any improper delivery or payment
does not prejudice the aggrieved party's right to
demand adequate assurance of future performance.
v. Ex: Where buyer can make use of a defective
delivery, a mere promise by a seller of good repute
that he is giving the matter his attention and that the
defect will not be repeated, is normally sufficient.
Under the same circumstances, however, a similar
statement by a known corner-cutter might well be
considered insufficient without the posting of a
guaranty or, if so demanded by the buyer, a speedy
replacement of the delivery involved
vi. Ex: By the same token where a delivery has defects,
even though easily curable, which interfere with easy
use by the buyer, no verbal assurance can be
deemed adequate which is not accompanied by
replacement, repair, money-allowance, or other
commercially reasonable cure.
k. Rule: a justified demand + silence = repudiation
i. Protects the interest of buyer (Peter)
ii. The essential purpose of a contract between
commercial men is actual performance and they do
not bargain merely for a promise, or for a promise
plus the right to win a lawsuit
l. Hornell Brewing v. Spry
i. Facts: Hornell granted Spry an exclusive right to
distribute P’s iced tea beverages in Canada. D kept
giving payments late. P asked D to show him a line of
credit as assurance. Kept paying late, then made one
payment and asked for over $300k in merchandise.
Meanwhile, P learned D’s company was essentially a
sham. P informed D he would not ship any more
goods until they received a letter confirming the
existence of D’s line of credit. D did not respond, nor
did it send P a copy of its credit agreement. P
brought action, seeking a declaratory judgment
terminating all contractual obligations.
ii. Holding: By not providing assurances, Spry
repudiated
iii. Reasonable grounds for insecurities: past defaults of
payment and inability to perform, rumors that
operation was a sham, asked for excessive amounts
of goods, history of defaults
iv. General Rule: One party may demand assurances
from another when there are reasonable grounds for

65

insecurity and the demanding party may suspend
their performance until they receive such assurances
1. **Note: if there is just a rumor and nothing
else, there are no grounds for demand for
assurances.

66

XV. Impossibility, Impracticability, Frustration
A. Generally:
a. Defined: When something renders performance
impossible, the persons are not liable and it is not a breach
b. The parties can contract and say even if it becomes
impracticable the other person is still liable for breach—
have to look whether the person expressly or impliedly
assumed an absolute duty
c. Doesn’t include mere market shifts or financial inability
d. Impracticability Elements:
i. Performance is made impracticable
ii. By the occurrence of an event, the non occurrence of
which was a basic assumption of the contract
iii. Not related to the fault of either party
iv. Party seeking excuse does not bear the risk of the
event
v. (Essentially saying: event occurred after contract was
made, event was a basic assumption when contract
was made, event was not the fault of the party
seeking discharge, language don’t dictate discharge
should be denied)
e. Where this usually applies:
i. Destruction of a specific thing necessary to
performance
1. If it is not the main part of the contract then it
will only be partially discharged.
ii. Death or incapacity of a person necessary for
performance
1. Make sure the contract is dependent on that
particular person performing—usually has to be
personal service (to pay money usually)
2. Threat of illness or death: can be
discharged if you reasonable think you are
getting ill or going to die
iii. Prohibition or prevention by law
1. IF performance at time of contract is illegal,
neither party is required to perform
2. Also applies if the law changes after the
contract is made
3. Court order or injunction resulting from fault of
the party is not an excuse
iv. Usually acts of god or acts of third parties.
B. Bring in Lukaszewski: whether the high blood pressure was
really an impediment to her performing or was it an excuse for
her to get out of the contract.
C. Transatlantic Case:
67

nothing said they had to use that canal so it all suggests the risk was allocated to Trans D. b. Subjective: “I cannot do it” i. UCC Approach a. and contracts for the sale of goods. contract with Trans to take the wheat from texas to Iran. Facts: Contract between Trans (carrier of shipping vessel) and the US. Contracts to build things a. Must ask: was it a basic assumption of the contract that Trans had to take that particular canal or that remain open? Who should bear the risk of this event? c. not discharged c. building repair cases. Objective Impracticability a. The parties contracted when they knew there was a risk of war. NOTE: have to look at what the parties contemplated. Party’s employees go on strike b. if property which the performing party expected to use is destroyed. war erupted between Egypt and Israel and Egypt closed the canal that was customary to transport wheat to Iran. GOOD General Rule: In construction cases. Party goes bankrupt and is not excused iii. Delay in delivery or non delivery is not a breach of sellers duty under a contract for sale if performance has been made impracticable by the occurrence of a contingency the non occurrence of which was a basic assumption on which the contract was made b. Sell shipment of wheat to buyer in Iran. that party is discharged only if the destroyed property was specifically referred to in the contract or at least understood by both parties to be the property that would be used (not enough that the party just intended to use it) b. Trans said it was impracticable to complete the contract but they should still be paid bc they made the trip over there. After contract was concluded while Trans was making its way to Iran. Building Renovation: burns down when just renovating then discharged F. only applies to seller and not buyer 68 . Trans would get paid over $300k to transport the wheat.a. Usually can’t use the defense for this ii. US paid a higher price than would have been the going rate. Subjective vs. Objective: “the thing cannot be done” E. usually have to build it again. Contract to build structure from scratch: almost done and it falls down.

Where the risk of loss has not passed: if casualty occurs before the risk of loss passes to the buyer. failure of production by that source is excused (if seller is excused bc of the failure of his source. the contract is avoided if the loss is total ii. Failure of Production: if parties contemplate that seller will produce goods herself and her means of doing so are destroyed by factors beyond her control. Rise or collapse in the market itself (unless it’s a shortage due to war. Destruction of identified goods (without fault to either party) i.c. Contract may call for the sale of particular identifiable goods which are destroyed after the contract was made iii. Contract may not refer to specific. seller may give the buyer only a portion of the goods as long as he is allocating the goods among his various customers in a reasonable manner. Failure of source of supply: if contract makes it clear the parties agreed the goods would be procured by the seller from a specific source. g. i. she is discharged. Where risk of loss has passed to the buyer: if casualty occurs after risk of lass has passed the 69 . Key: Look to whether one party assumed the risk of the supplier. but instead call for any conforming goods that the seller wishes to take out of his inventory (loss may occur before they are shipped. Increased cost alone is not enough unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. crop failure shutdown of major supply which causess increase in cost or prevents seller from securing supplies altogether) f. h. Partial Failure: only effects part of the capacity to perform. If the contract specifically says it will come from another supplier then they did not assume the risk. during shipment or after delivery) e. ALSO not a breach if breaches by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid d. Seller means of obtaining or producing goods may be destroyed or unavailable ii. if they didn’t they are not excused. unique goods. Ways Subject matter can be destroyed: i. buyer has right to sue supplier) i. ii. Things that aren’t a justification: i.

Impracticability: a. Depends on whether peter’s contract with Petco specifically stated he would sell them 100 crates of Steven’s dog food. Stevens factory is destroyed by fire. in impracticability it is extremely costly. Defined: after a contract is made and a party’s principal purpose in entering into the contract is substantially frustrated without his fault by the non occurrence of an event that was a basic assumption of the contract. Where you have a sale of goods contract that refers to specific goods and where those goods have been destroyed due to no fault of the seller.buyer must suffer the full effect of the loss i. Foreseeability: the more foreseeable the risk. the less likely it is that the parties intended the buyer of the goods or services would bear the risk of a large cost increase i. H. the contract can be rescinded—goods have to be rescinded at the time of contract and have to be destroyed before delivery. Impossibility is when the performance is literally not possible. his 70 . G. after the contract is concluded there is a drought and his tomato crop dies. Partial Loss: if goods are only partially lost and risk of loss hasn’t passed to the buyer. Ex: Franks enter in a contract with Grocery store to sell them his annual output of tomatoes as of Sept 1. the buyer can inspect the goods and has a choice between either cancelling or accepting the goods with a discount for the bad parts. not just tomatoes k. Does that excuse Peter’s obligation with his contract under petco. iii. Ex: Steven agrees to sell his monthly output of dog food to peter and peter makes an agreement with a store to sell 100 crates of dog food per month to Petco. j. liable to seller for full contract price iii. Frustration of Purpose: a. (extreme impracticability is impossibility usually) b. Cost Increase: It must be EXTREME c. i. Look to the same UCC factors ii. time consuming or otherwise impracticable. Fixed price contract: parties agree on a fixed price in a contract but the rise in market price was foreseeable then the court will say the implicitly allocated the risk of the price rise on the party agreeing to supply the good or service. Has to be a specific good to apply.e. i.

remaining duties are discharged unless the language or circumstances indicate contrary. Was the event foreseeable when the contract was made--the less foreseeable the event the more likely the court is to excuse performance under this doctrine ii. Factors to consider: i. D’s performance is excused bc even though the parties knew Mass had the right under the contract with D to cancel part of the project. ii. a citizens group sues Mass to stop the replacement of grass median strips with concrete medians. d. Was either party at fault? iv. Was it a basic assumption of the parties at the time of contracting? iii.e. Frustration must be substantial—must be so severe it is not fairly to be regarded as within the risks he assumed under the contract. Restatement focuses on the allocation of risks—have to look at what the parties intended and how the intended to allocate risk of a particular event i. Has the principal purpose of the contract been substantially frustrated? ii. Questions to ask: i. Mass settles by agreeing to not install additional concrete barriers. P sues D for its lost profits on the remaining barriers under contract. there was evidence that the parties did not contemplate the cancellation of a major portion of the project and did not allocate the risk of that situation. Partway through. P has produced half of the barriers before stopping production and has been paid by D for all barriers produced to date. Does it allocate the risk i. the more likely the court is to excuse 71 . Did the parties allocate the risk to the promisor—if the parties implicitly allocated the risk. does it say who should bear the burden of the risk? c. Would make the transaction make little or no sense b. Ex: D a contractor contracts with Mass to resurface some roads. And didn’t allocate the risk to D. i. P subcontracts with D tp supple concrete medians. the court will not excuse performance iii. Whether the event deprived of all (as opposed to just some) of his anticipated benefit from the contract— the more complete the benefit was thwarted.

Michigan—agreement had condition for termination upon occurrence of certain condition. Whether the party seeking discharge was at fault in bringing about the event—major fault will not discharge e. Di-Chem Co  Facts: Di chem is a chemical distributor and leased facility from Mel Frank. International Harvester Facts: Wendt was to be the exclusive dealer of IH goods in Marlette. Mel Frank Tool v. Fire chief told Di they didn’t comply with hazardous waste ordinances and had to remove in 7 days. General Rule: Mere economic loss is not sufficient to excuse performance on grounds of impracticability or frustration of purpose. P waives a lease restriction allowing D to use the premises for anything he wants. IH negotiated to sell farm equipment to Case and Case did not offer Wendt a franchise anymore.Karl     iv. Ex: D rents apartment for two days to watch the coronation of the king. Ex: D leases property from P to run a car dealership and gas station. D is excused from performance bc his purpose was to just see the coronation Wendt v. IH says the contract is impracticable bc they suffered tremendous losses bc of the downfall in the farm equipment market Majority: IH should bear the risk of this event bc they are a fortune 500 company and they would be able to better protect against a downturn in the market. Contract said Di chem had to comply with all city ordinances.  For Frustration duty is discharged if three things are met: 72 . He could still sell cars just had to be limited and he could use the premises for any other business. Cannot claim frustration bc it was foreseeable the US might enter war at that time. in comparison with wendt who is a small company. f. o Neither party was at fault o Neither assumed that the market would take a fall Frustration of Purpose: The downturn in the market didn’t frustrate the primary purpose of the agreement—still possible to fulfill. King gets sick so its cancelled. Right after US enters World War II and government restricts sale of new cars. Evidence shows the ordinance was changed after the lease agreement. D declines alternative use of the property and tries to claim frustration. Di tried to break the contract bc they didn’t want to fix the stuff.

most force majeure clauses do not excuse a party's non-performance entirely. volcanic eruption." Ace cant get sign done on time b/c metal worker is in hospital. earthquake. such as a war. acts of God. earthquakes. o Mike enters into Ace Sign to get sign completed by April 1st. war or other events beyond Ace's control. o A contract may only be avoided under the idea of frustration of purpose when an obligee’s entire purpose for entering into the contract is frustrated. crime. but only suspends it for the duration of the force majeure. o There was a force majeur clause but it only related to fire. prevents one or both parties from fulfilling their obligations under the contract. they make other products so there is no frustration of purpose General Rule: Tenant is not relieved from his obligation to pay rent if there is a serviceable use still available that is constituent with the use provision in the lease—just bc its less valuable or profitable or even unprofitable doesn’t mean that the tenant’s use has been substantially frustrated. In practice. Force Mejeur Clause: frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties. Month later statute was passed saying cant store rags in that building. Can Mike sue for damages when he has to go out to get another group to do the sign. metal and rag business. strike. They had other purposes like metal and iron. or an event described by the legal term act of God (such as hurricane. floods. etc. fires.). Include a Force Majeure Clause: performance excused in event of "strikes. So this was not frustration This case: DC doesn’t just store hazardous waste.    o Purpose that is frustrated is the principal purpose of the party making the contract o Frustration must be substantial o Nonoccurrence of the event must have been a basic assumption on which the contract was made Conklin case: lease said they would use premises for iron. o Would this event fall w/in the language of this clause? No b/c not type of event in clause o Would UCC-2-613 qualify (No b/c destruction of goods) 73 . flooding. riot.

If he meets this test he must fall into one of the next categories: i. Factors to determine who is an intended beneficiary: Ask yourself whether the promisee intended that the third party have the benefit of the contract i. If the performance is to run from the promisor to promisee. To whom performance runs: if performance is to run directly form the promisor to the third party. Ex: B contracts with A to buy a new car manufactured by C. If she is an incidental beneficiary she may not sue a. C is an incidental beneficiary even though the promise can only be performed if money is paid to C. he is probably incidental. (3rd party is a donee beneficiary) b. iv. iii. Reliance: if the beneficiary would be reasonable in relying on the contract as having been intended to confer a right on her ii. Carrying out parties’ intentions: a beneficiary may be an intended one even if helping the beneficiary was not the primary intent of the parties. and the third party’s benefit will only be indirect. c. C is incidental. Intended Beneficiary: giving him the right to sue would be appropriate to effectuate the intentions of the parties. C’s adjoining land would be enhanced in value by the performance of the contract. Intended Benefit: the circumstances indicate the promisee intends to give the beneficiary the benefit of the promised performance. Restatement: allows a third party to recover if she falls into the class of intended beneficiaries. But if Bank gives the loan and pays C directly. Ex: Bank promises to give borrower a loan so he can pay back his creditor C. Incidental Beneficiary: a person that is not allowed to sue i. Ex: B contracts with A to erect an expensive building on A’s land. C is an incidental beneficiary ii. Third Party Rights A. the third party is usually an intended beneficiary.XVI. C is intended. Banks performance is directly to borrower. Payment of Money: either the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary (3rd party is a creditor beneficiary) Or ii. 74 .

 General Rule: Third party beneficiary can recover damages when a party in breach has reason to know that the beneficiary will be harmed by their negligence  Hypo: Engineer was negligent in putting in sewage disposal system o Test under Vogan: must show that the engineer knew or had reason to know the developer intended to benefit Vogan. C did not keep that promise and A sued C for the amount of the promised payment. B. it was foreseeable that by giving inaccurate reports would cause more money to be put into the project.  Would fail because engineer doesn’t intent to benefit ogans  This test does pass above hypo bc it would be hard to argue that they didn’t both know that L would benefit. their address.as long as giving him these benefits was a part of the parties’ overall objective.  Identity of third party wasn’t even known at this point o Stricter Dual Intent Test: Would have to show both parties intended to benefit the third party. gave Hayes reason to know was to provide Vogans with some protection for the money they invested  Conclusion: The vogans are third party beneficiaries. o SO the Vogan’s recovery does not violate the Hadley rule.  Majority: contract gave Hayes reason to know that the benefit was contemplated by mid America as motivation the contract— said names of vogans. the bad reporting of the projects completion (90%) caused the bank to disperse more funds that would have been retained if the report was accurate o SO the faulty reports were the cause of injury  Hadley rule is limit damages to what is reasonably foreseeable. Hayes Appraisal  Facts: Vogans got loan from Mid America to build a house. Fox: A loaned money to B and B later made a similar loan to C who promised B that he would make repayment to A. Lawrence v.  Even though the other funds ($170k) had already been dispersed. 75 . Made inaccurate appraisals and dispersed money to the contractor and then had to pay more money to finish the house. Vogan v. This was allowed. hayes was supposed to appraise the work being done and decide when the money would be dispersed to the contractor. Court let the cause of action lie.

 Hypo: Will Drafting o Hired attorney to prepare will to bequest niece Lauren $50k o If use vogan test must prove attorney knew or had reason to know intended to benefit niece o Does performance run directly to the beneficiary? No not directly to the niece. (3rd party) o Majority of courts have allowed standing on public policy: if don’t allow standing executor would be only one in position to enforce the contract (risk of under enforcement) o Policy argument for strict enforcement: prevents open ended liability for promisor. but promise is to write a will not to leave a bequest so performance does not run directly to benefit the niece. 76 .

iii. Unless otherwise agreed. Two concepts a. The assignment is forbidden by statute 6. R2d defined: manifestation of assignors intention to transfer his right to performance. Cant make a future assignment . that would just be a contract iv. Like passing on a cold.XVII: Assignment and Delegation A. Increase the burden or risk imposed on the other party a. After the contract is made so its different than third party beneficiaries ii. Delegation of Duties: an existing party to the contract appoints a third person to perform his duties under the contract this is a delegation i. a contract requires performance by a particular person only if the 77 . Once assignor assigns their interest they no longer have rights under the contract. Can be assigned unless: 1. Inoperative on grounds of public policy 7. Is always allowed if its just assigning the right of payment 3. It would change the duties of the obligor a. Freely assignable unless has a material adverse affect on obligor or public policy is contradicted ii. Materially reduce its value to him 5. Assignment is validly precluded by the contract iii. When you delegate you still have the obligation. iv. Like passing a football 2. his right is extinguished and passes to assignee. Rule: a duty can be delegated unless the delegation is contrary to public policy or the terms of the contract 1. if delegatee fails to perform the original party must do it. Assignments don’t have to be in writing b. Assignment of Rights: a party to an existing contract transfers their rights under the contract this is an assignment i. Impair his chance of obtaining return performance 4. Usually when there is a special relationship between the original parties 2. 1. v. Can happen even if the risk is different 3.

or enforcement of a security interest in the seller’s interest under a contract is not a transfer that materially changes anything. Sally Beauty v. sally is owned by Alberto Culver who is also a distributor and competitor of Nexxus. NOTE: creation. Best was then merged into Sally. Usually if the person owes money its always allowed. b. Assignment: All rights can be assigned unless: i. The assignment would materially change the duty of the other party ii. Clause prohibiting assignability: usually allowed with a few exceptions: 1. Materially impair his chance of obtaining return performance iv.obligee has a substantial interest in having that person perform the duty c. Facts: Best made agreement with Nexxus for a distribution agreement. Nexxus: This was a contract for personal services based on a relationship of personal trust and confidence between the families of the two companies—the company could not be assigned to Sally without Nexxus consent. C. UCC Approach a. History: law favors free assignability of contract rights bc it greases a wheel of commerce B. Even then the enforcement will remain effective and seller is liable for damages caused by the delegation to the extent that the damages could not reasonable be prevented by the buyer. Majority: the UCC governs and the assignment of the contract by best to sally is barred by the UCC rules on delegation and performance  Doesn’t make any sense that we would rely on Sally to make their “best efforts” when they are owned by the main competitor of Nexxus  That would not preserve the bargain that NExxus made 78 . c. If a party has a claim for total breach they can assign this claim even if the contract prohibits it 2. Unless enforcement actually results in a delegation of material performance of the seller. attachment. Nexxus Products a. Materially increase the burden or risk imposed on him by his contract iii. v. vi. Nexxus told Sally they cant sell their products anymore.

Grocery stores duties are opposite this. He has a right to payment and a duty to deliver tomatoes. 79 . General Rule: A contract is assignable except when there is some reason why the non-assigning party would find performance by the other party unsatisfactory.d. D. Hypo: Frank has a contractor to sell tomatoes and the store is going to buy them.