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- Evidence of unequal bargaining power = unconscionable. - Look for statute on-point making K contrary to public policy or illegal. - yes; Ct. will use statute against enforcing K and bar recovery generally. - no; Ct. reluctant to define new areas of illegality. - § 181 → Requires x2 elements of violation for K to be held unenforceable: - Regulatory purpose not revenue driven. - Enforcement is outweighed by public policy behind the regulation (public health/safety, consumer protection, etc.) A. Against Public Policy Hanks v. Power Ridge (injury while snow-tubing) - Exculpatory Clauses: - Minority Rule: Total release from L for N is contrary to public policy. - Majority Rule: Freedom to K exculpatory clauses, 'law & economics' view that customers benefit from lower prices in assumption of inherent risk. - Balance of public vs. interest of Δ. - Public interest in holding Δ L for N when Δ had control of safety. - Adhesion K's → presumption of unequal bargaining power. - Vagueness in K → presumption that the π lacked understanding of terms. Valley Medical Specialists v. Farber (Dr. gets out of NC covenant b/c because of public policy) - Non-Compete Covenants: 1) Protect only legitimate business interests (clients & goodwill). 2) Must be reasonable in scope (time and geography). 3) Balance the needs vs. hardship on K parties. 4) Ct. may make changes depending on jurisdiction. - Majority Rule: Blue pencil; elimination of severable unreasonable clauses. - Pro; allows K to stand even when part bad. - Con; could upset balance of parties. - New Rule: Reasonableness; Ct. rewrites (including new terms) K to be brought in-line w/ public policy. - Old Rule: All or nothing; if any part unconscionable then all unconscionable. * Severability clauses → Allow Ct. more freedom to modify the agreement to the extent necessary to K to align w/ public policy. - § 188 → NC's are invalid if (1) restraint it greater than needed or (2) needed to protect legitimate business interest outweighs hardship to restricted party and/or public. B. Unconscionability Williams v. Walker-Thomas Furniture Co. (rent-a-center sues to repo furniture and remanded to see if unconscionable under UCC § 2-302) 1) Unconscionability = absence of meaningful choice from unequal bargaining power or manner in which k was made. 2) Fact specific re: time K was made → look to fine print, deceptive sales practice, usage of trade, etc. → objective standard = what would avg. consumer understand - Types of unconscionability: Procedural (bargaining unfairness):
Impact of the provisions themselves . maze of confusing language.Are the terms/provisions fair .Lack of meaningful choice due to unequal bargaining power .s are reluctant to grant relief based on unilateral mistake → no duty to disclose/share info gained by effort/time w/ other party 1.. fine print. ) Structural (unfair or oppressive terms): .How the particular agreement in presented/written (intelligible terms vs. refuses to force not barren cow to be sold for barren cow price case) . etc.Easier to win than unilateral (b) Unilateral mistake: .Bower below which only requires substantive Bower v.People could easily change mind and claim mistaken re: value of the deal . Gateway (π ‘s claim arbitration clause is unconscionable and gets different arbitration location from Ct.) (2) Mistake must be mutual Barrenness = found to be part of the “essence” of a cow AND both parties are mistaken * Dissent says → barren ≠ “essence” of cow b/c still a cow and not mutual mistake b/c π never said “barren” and unilateral mistake ≠ enough to rescind (3) Unilateral ≠ enough to rescind b/c too subjective .Assessing Unconscionability Substantive & Procedural . person to understand. 1) → appears to refer to both procedural and substantive/ k’s of adhesion C. Mistake .) 1) Arbitration spot from K (in box w/ purchase) is unconscionable b/c makes π ‘s go to ICC in France or Chicago → Ct changes spot but otherwise upholds arbitration (rejects π ‘s claim that the arbitration clause shouldn’t come in under § 2-207 and rejects idea that it is K of adhesion b/c could have returned it in 30 days) 2) Only substantive unconscionability (cost of arbitration is way too high) UCC § 2-302 → unconscionability = matter of law (≠ for juries to decide) 3) Principle = prevention of oppression and unfair surprise (cmt. Walker (Ct.Williams above which talks about both Only Substantive (When Overwhelming) . Mutual Mistake Sherwood v.K may be rescinded/reformed based on either: (a) Mutual mistake (need this to rescind K) .Can rescind K (and keep cow) if (Sherwood test ≠ Rest test): (1) Mistake = substantial and goes to essence of the consideration (≠ mere value/quality/etc.Ct. hard for avg.Parties bear risk of own mistake generally Rest § 152: (1) Mutual mistake (2) At time of K formation (3) About basic assumption (4) Has material affect (on agreed exchange of perf) (5) Can make K voidable by adversely affected party (6) UNLESS party = bears risk under § 154 .
Rest § 153: (1-6 same as § 152 for mutual but for unilateral need the addition of either unconscionability or fault/knowledge of the other party) (1) Unilateral mistake (2) Made at time of k formation (3) Goes to basic assumption (4) Has material affect (5) Adverse to that party (6) Can be voidable if party ≠ risk bearer (see § 154) AND (a) Enforcement would be unconscionable OR (b) The other party knew/had reason to know of the mistake or other party fault caused the mistake Grenall v. Terms of the Deal .policy reasons→ due to nature of agreement for life insurance/annuity it makes sense for π to bear risk of early death since insurance bears risk of long life. allocates risk b/c it is reasonable to do so in the circumstances (4) Estate of Nelson v.But maybe he did b/c was shopping around for jags and drove to dealer right away w/ newspaper in hand and was a lawyer. he/she has limited knowledge of facts but c.Clients might avoid terms that would make deal fall through . United Omaha Life Insurance (estate sues to get out of annuity bought only months before death and ct says k sticks) . but often strategic reason to not include all contingencies in K: . aware at time that K is made that b. II. decides to make it so) and effect would be unconscionable . Mispriced Jaguar in ad case = better example (buyer sues when seller refuses to sell a mistake price) . seller didn’t bear the risk (unless ct.Clients might prefer uncertain terms over no K at all . Rice (estate sells a painting for $110 but it is worth over $1 mil and tries to rescind case) (1) Ct decides that it makes sense to allocate risk to estate under § 154(c) (2) Trial ct also finds that this meets § 154(b) → estate know of appraiser’s limited knowledge of fine art but treated that as sufficient→ see cmt c re: “conscious ignorance” – See also Rest § 157 (mistaken party’s fault in failing to know facts before making K ≠ bar to rescission or reformation unless it ≠ good faith or ≠ reasonable – 2.Seller made unilateral mistake at time of (wanted) K formation (re: ad) that went to a basic assumption. treats that limited knowledge as sufficient OR (3) Ct.Cases could be avoided by better drafting. Unilateral Mistake: .π wants to rescind due to unilateral mistake but Ct finds that π bore the risk of mistake . was material.Rest § 154: party bears risk when: (1) Agreement allocated risk to a party OR (2) Party is a.Buyer didn’t know/have reason to know that price was wrong so ≠ mutual mistake .
supplements OR qualifies *Note: Finding usage of trade = very fact heavy analysis → in most situations.≠ rule of evidence but = substantive law. pays but may get out on remand if can prove π N) (1) If trade usage/custom is sufficiently common. probe is lost and Δ is stuck with trade usage that says Δ.Fact that there is dispute of # of K’s (4 vs. written trade code = evidence (interpretation of written code = question of law) (3) unless otherwise K’d around. Peabody Coal Co.x5 agreements total→ 2 dealership's and each has a “buy-sell” K and a RE K. . . even w/out reference in written K. (5) * Policy: Looking to trade usage/custom and not requiring actual knowledge = if you are in an industry you should acquaint yourself w/ business standards prevalent in the field Rest § 222: (1) usage = regularly observed in place/vocation/trade so that it justifies expectation that it will be included in K and can be system of rules that changes from time to time (2) trade usage is question of fact.Ct finds that merger clause in “buy-sell” (which mentions RE K w/in) makes all the K’s = completely integrated = bar to parole evidence re: unsigned side deal. . not integrated at all) (2) How does the prior agreement effect the written K? (contradict. the usage: gives meaning. x2 Major Questions of Every K: (1) What level of integration? (completely integrates vs. supplement or interpret) (3) Nelson v. as driller. (probing holes goes awry. Trade Usage/Customs Threadgill v. plus side K that π is trying to enforce. (2) Actual knowledge ≠ required → Δ should have known (3) Usage must be sufficiently common ≠ universal and notorious (4) Can’t K away N. OLD RULE/MINORITY RULE (Four Corners): mere presence of merger clause = bar to parole evidence Dissent = MODERN TREND/MAJORITY RULE (Plain Meaning): merger clause ≠ complete bar but creates rebuttable presumption of complete integration that can be overcome by other evidence. partially integrated vs. . B. so if probe is lost due to π ‘s N. the parties are assumed to have K’d w/ reference to it. trade usage ends up in the K. The Parole Evidence Rule: .Generally limits the fact of prior agreements rather than the evidence of those agreements. then Δ ≠ L. 5) and merger clause = only in the 2 “buy-sell’s” → enough to create issue of fact re: integration.A. Elway (π sues to enforce side deal but ct finds that merger clause means completely integrated K) .
or other invalidating cause .§ 217 → oral agreement re: perf is subject to stated condition ≠ integrated .Meaning of writing/terms .Trident Rule: See bellow (Contextual) Rest. Inc.Ct doesn’t specify level of integration but bars oral/extrinsic evidence that contradicts the k’s w/ specific quantities/time → sum j for Δ U.Cmt 2 → all under a) comes in UNLESS carefully negated → practically this implies that usage/course of perf etc. spec.Grounds for granting remedy (rescission.BUT can be brought in to help interpret the writing (see § 214 below) . perf.Illegality. etc. V. § 213: Parole Evidence rule: . § 214: evidence of prior or contemporaneous agreements/negotiations are allowed: .C. § 2-202 → slightly different than restatement (more theoretical than practical difference) → can’t be contradicted by evidence of prior agreements or contemporaneous oral agreements but can be interpreted/supplemented by: (1) Course of perf. § 210: Completely vs.BUT can supplement the written agreement .Binding integrated agreement discharges inconsistent prior agreements .Level of integration of the K . reformation. Hill’s Pet Nutritions (poultry ash for pet food K’s go awry case) .C. then parole evidence can’t contradict or supplement . then parole evidence can’t contradict .) Rest. Partially Integrated: Completely integrated = complete and exclusive statement of the deal as adopted by the parties Partially integrated=everything else Rogers v. will only be used to interpret ≠ supplement . lack of consideration.π would like to get in evidence of prior course of dealings/perf to show long term agreement → Ct denies .Δ only survives sum jmnt → not clear how he will fair in trial – Dissent (Saufley) → language of prom note ≠ ambiguous and even if only partially integrated the term “I’ll pay when I can” would be in direct contradiction ≠ supllement – Simmons Foods.. course of dealing. duress.If partially integrated.No merger clause → ct finds prom notes partially integrated and Δ can introduce evidence of oral K and prom note as part of larger real estate deal .Completely integrated agreement discharges all prior agreements w/in its scope . Jackson (ME promissory note is only partially integrated case) . usage of trade can supplement (Rest wouldn’t allow this in completely integrated k’s) AND (2) Consistent add’l terms UNLESS ct finds writing complete and exclusive statement of agreement .§ 216 → consistent add’l terms can supplement partial .The writing is exclusive Rest. fraud.Fax w/ three year plan and potential 3 year agreement → Δ responds w/ 2 po’s for specific quantities for 1 yr (≠ requirement or output K’s like some of the previous k’s btw the parties) .If completely integrated.
Finally. the court 1st looks to the express terms of the contract. Otherwise a question of interpretation of an integrated agreement is to be determined as a question of law.General hierarchy of both Rest and U.π could have used broad language to get e-books → “right to publish in any format now known and any format yet to be developed” x3 Approaches to Determining Ambiguity: (1) Strict 4 corners approach: . Extrinsic Evidence (parole and other) Defining the Terms Random House v.Ct looks to extrinsic evidence → π ‘s own definition of “book”.C. BNS International Sales Corp (Chicken Case)—in order to bring light to the term chicken. Conn.Look at previous deals btw parties (d) Usage of trade C.Two hurdles for π → show that there is ambiguity → then get extrinsic evidence in to show what k provision actually means .Look beyond text itself and look at context to see if there is ambiguity UCC §1-303. prob at least partially integrated) .Issue → did license/copyright give rights to e-books when it licensed rights to reproduce in “book form” . Restatement §212. (2) A question of interpretation of an integrated agreement is to be determined by the trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence. → (a) Express terms (given most weight) (b) Course of perf .Very discretionary to judges to determine what is ambiguous w/in K (2) Plain meaning approach (Contextual): .C. (Loan repayment case w/ extrinsic evidence allowed w/out ambiguous language) . Random House v. See. the court looks to language used in negotiations for interpretation. Rosetta Books (e-books rights case → ambiguous K language) . Rosetta Books—plain meaning rule—contract just said books.π wants to repay at lower interest (prom note. Course of Dealings. Interpretation of Integrated Agreement. usage of trade w/in publishing industry. what else is in agreement (if they had specified each type of book allowed. Trident Center v. the court looks to trade usage. Then. Usage of Trade Frigalment Importing Co. then maybe “e-book” not included→ but they didn’t exist at time of agreement) . (1) The interpretation of an integrated agreement is directed to the meaning of the terms of the writing or writings in the light of the circumstances.Ct looks at text of note→ no ambiguity w/in K itself → Δ has option to change payment if default but not π → K ≠ “fairly susceptible” to π ‘s interpretation .No ambiguity at time of drafting b/c e-books ≠ in existence → ct find k’s language = ambiguous now re: e-books → Plain meaning approach to determine ambiguity . Course of Performance. General Life Ins Co. not ebooks so it took the plain meaning and applied it to today.Ct follows Pacific Gas → K interpretation will always need extrinsic evidence (≠ strict 4 c . v.Don’t look outside language of K itself . in accordance with the rules stated in this chapter.Look to repeated acts btw parties (c) Course of dealing .
3 modes of determining ambiguity: .Ct looks to reasonable assumptions → rest § 211 → in standard form k’s valid will stay in even if unread but will be invalid if unreasonable (if one party has reason to know that the other wouldn’t sign if they knew the meaning of the term→ the term is out) . State Farm (fire insurance appraisal clause upheld case) . .More relaxed plain meaning rule (REST) → Trident → look at all evidence offered to see if ambiguity/ K language is reasonably susceptible to another interpretation.K of adhesion → had no opportunity to negotiate (Ct looks at this) .Look w/ special care .π (nat’l car) sues Δ for comp and p/d’s after Δ s drive drunk and crash van. Meyer v. National Car Rental (drunk driving damage under collision damage waiver (cdw) case) . 500 → use interpretation that makes k valid over one that doesn’t and handwriting/typed terms are preferred over printed (infer change that parties intended) → BUT clerk might not have power to auth changes and original card-holder agreement might trump changes to credit card slip. .to meaning of K language itself and context to see if there is ambiguity .Most important: .RULES for interpretation of K of adhesion: .Δ’s argue that they didn’t know what cdw was but expected insurance to cover dams even if at fault.On remand → issue f what reasonable purchaser would have thought of cdw (objective standard) .Sears problem p.Traditional plain meaning rule → Random House (no ambiguity found) → look .Rule for interpreting K against/less favorable to the drafter . .Construe ambiguity against drafter Lauvetz v.4 corners rule → OLD RULE = strict and don’t look outside k (no extrinsic) . RULES: even in completely integrated K’s → evidence can be introduced to help interpret K if language is ambiguous.Ambiguity = question of law and prelim determination of ct .π ‘s argue it is unreasonable to think that no L for drunk driving . Ct still finds for Δ b/c not invalid merely b/c k of adhesion and but do look w/ care and not ambiguous or unconsionable .Unconscionability .If ambiguity exists → interpretation of K = also matter of law and goes to fact-finder ONLY if credibility issues or choice of inference Rules and Maxims of Interpretation and Special Interpretive Rules for K’s of adhesion: .didn’t read policy/know of clause ≠ convincing .Used especially in k’s of adhesion . .Courts use different standards to determine ambiguity (some allow extrinsic and some ban it) .Even though K of adhesion.π ‘s 2 arguments to get out of appraisal clause: .orners) b/c K = what parties intended (subjective approach) Rest § 212 → rejects 4 corners rule b/c can’t know if language is ambiguous w/out extrinsic evidence/context.
Lady Duff-Gordon (Ct implies a promise to use reasonable efforts) .Go to UCC gap fillers Wood v.Meyer approach v. come up short. Terms added by the Courts/Legislatures .π and Δ have K where they split profits and π finds endorsements (exclusively)→ Δ argues K lacks consideration and is illusory promise.Ct finds Δ ‘s didn’t make reasonable good faith efforts to get loan (don’t specify how many applications would be enough but ≠ only one) → if they had applied more places then other motives would be irrelevant.Δ ‘s try one place.Requires (assumes) parties have read K .Even if K ≠ silent on a term. (likes public policy behind provision) . Rest § 205:every K imposes duty of good faith dealings UCC § 2-306 on exclusive dealing→ (2) best efforts are implied unless you K around it General Ct concerns re: gap-filling: (1) Don’t over-reach (2) Don’t be too specific (3) Don’t save K w/ too many holes.π ‘s selling house and k w/ Δ ‘s subject to finding financing. Lucy.Imply a reasonable term under rest § 204 . Hensel (subject to financing clause used to dodge house purchase case and breach found) .Ct saves k w/ implied promise to use reasonable efforts → looks to language/terms of K and assumption that one party would not be completely at mercy of other → ≠ subjective intent but what would reasonable person agree to .Won’t enforce standard k if unread and unreasonable . Implied Covenant of Good faith and Fair Dealing: Rest § 205 → ever K has it Billman v. π ‘s offer to make up the difference. might need to effectuate it in a certain way . D.More concerned w/ freedom of K .Rest § 211 → look to reasonable persons expectations of k and 3) term isn’t valid if one party knows the other wouldn’t accept it if it had known.No parole evidence issue b/c K is silent re: this issue → not interpreting K term or supplementing/contradicting.Meyer: enforces K as written: .What does the court do when the K is silent on an issue/term? . .Standard K will be enforced unless finding of unconscionability. fraud. Courts can also imply terms for public policy: . Lauvetz approach: . Δ refuses and convo w/ parents suggests they have changed mind re: house . .Lauvetz: looks to effect on public: . etc.
#3 → P order computer over phone w/out date of delivery and then e-mail ups price and sets 3 week delivery time → b/c p ≠ merchant the e-mail is proposal for add’l terms and issue will be if 3-weeks = reasonable under § 2-309 E.Appraisal for insurance purposes only states diamond quality and buyer doesn’t rely but aff statement = still “basis of bargain” under UCC § 2=213(1)(b) .#1 → definite agreement to sell is enough w/out price.Trial ct finds for Δ (can’t 2nd guess creative decisions) and this ct rev’s and remands re: issue o f material fact re: good faith (Δ can’t just categorically refuse ideas but must use good faith in honest evaluation and π has evidence that decisions ≠ motivated by creative considerations) .Ct finds that Δ did not follow own procedures and had duty to under § 205 Hobin v.If motive = drive π out of business then ≠ ok Terms added by legislatures: Gap-fillers: .Cmt 3 → affirmations of fact are part of general description of goods and no reliance need be shown . Ashe (express warranty created by seller’s affirmative statement case) .π sues to get score re-instated and claims Δ didn’t actually consider the add’l info submitted (re: illness at 1st test and classes taken) = breach of implied duty of good faith . Coldwell banker Residential (franchise owner sues over encroaching other franchises but no breach case) . . Warranties: . Warner Bros.RULE → reliance ≠ important re: whether statement is part of basis of bargain .Locke v. Express Warranties Daughtrey v.ALWAYS check if sale of goods → if note.Subjective standard → have to determine on remand how Δ made decisions (categorical due to Clint or honest eval→ don’t look at what other studios would have done except as evidence re: legit denial) .Express terms overcome implied covenant of good faith → obvious favoritism based in profit motive (to top earners) is ok b/c Δ is allowed to use discretion per K .π argues that development deal is sham and that Δ had not intention of working with her → π did get paid under K but had no ability to advance career and has testimony evidence that studio did not plan to accept any of her ideas .UCC is voted on by legislature to promote business across state lines (certainty promotes commerce) and to fill in K’s when it is clear that parties intended to K but not enforceable b/c they forgot term. place or time → § 2-305 = reasonable price and § 2-308 = place of delivery and § 2-309 = reasonable time . Educational Testing Service (2nd SAT score cancelled and breach found) .Express term of K = non-exclusive franchise and Δ has right to use discretion re: others in area . (Clint Eastwood’s ex is blacklisted case and possible breach) . the no UCC and no warranty issues 1.On remand → Δ must show that had subjective valid reasons and looked at ideas properly (evidence of objective reasonableness → might help but not dispositive) and can’t say would have rejected either way b/c still breach at time→ issue of how many projects (what number) you have to read before you assume all are bad (maybe if you always stop after 10 terrible scripts then ok) Dalton v.Problems p 535 .
. Holtvogt (horse bought to breed but is lame and is breach of implied warranty) .Hat hypo→ 4% have allergic reaction to dye → is that enough to be un-merchantable? Hard to tell where to draw the line . if not integrated then vvs in and express warranty RULE: Can lose possible express warranty to parole evidence rule.Seller was like teacher → more knowledgable re: horses → reason to know buyer would rely .Hypo→ if they had convo before sale re: vvs and then wrote up sale k w/out it →does vvs come in ? → if integrated/merger clause then no.Look to how warranty is created AND how it is breached! a.Merchants = better able to absorb L UCC § 2-314 (2)(a)-(f) = description of what “merchantable means” → Need ALL of them b/c connected w/ ands .Monetary value may change but diamond quality won’t . Kramer w/ coffee under shirt → needs to be for usual purpose and can’t be known risk inherent in product (even though coffee being hot is known.This only comes up b/c resto is merchant of soup RULE → implied warranty of merchantability only applies to merchants .Merchant have superior knowledge .Buyers expect less form private sellers . Implied Warranty of Merchantability Webster v.Ct looks to history of chowder → often has bones . Blue Ship Tea Room (fish bone is chowder ≠ breach case) .Ct finds that fish chowder w/ bone = merchantable b/c is expected foreign substance (≠ random like finger or rock) . Mere opinion/sales puffery ≠ basis for warranty under § 2-213(2) Merchant status ≠ important re: express warranties (will be for implied) 2. this was beyond hot) b. will come in under modification → see cmt 7 2-213 Can’t use parole evidence rule b/c was part of transaction ≠ before transaction .McD’s v. Implied Warranties .Not dependent on sellers statements → are in whether seller wants it or not . Implied Warranty of Fitness for a Particular Purpose Leal v.§ 2-213(2) → opinion and affirmation of value ≠ create warranty .Seller’s burden to show why affirmative statement ≠ part of bargain .§ 2-207/209 → if statement is made after deal.3 req’s : (1) Seller must know of buyer’s particular purpose (2) Seller must have reason to know buyer is relying (objective standard ≠ actual knowledge (3) Buyer must rely on that knowledge .
v.(3)(b) → buyer disclaims all implied warranties re: defects that examination would reveal when he examines goods (or refuses to) (1) → hard to wiggle out of express warranties III.Singer v. it will be effective if other party knew of it Hypo → if followed Majority Rule: (need conspicuous) and found no disclaimer → would this be breach of implied warranty of merchantability: . (π gets injunction for lease due to economic cost/benefit analysis) .MINORITY RULE: even though disclaimer ≠ conspicuous.Money dams= traditional way of dealing with breach .Distinction btw owner’s rights and lease holder’s rights . Remedies .No → average state of technology at time (pass w/out objection. Du Pont (paint is faulty case →conflicts of warranties case breach found) .Implied and express will be construed as consistent if possible 3.Goal = put non-breaching party in position they would have been in w/out breach A. Specific Performance Van Wagner v.K disclaims all warranties except 90 day express (is software even a good → most cts say yes) .Ct looks at uniqueness of property and ability to get reliable/certain estimate for money dams .Implied warranty for fitness for a particular purpose ≠ negated by express warranty . fair average quality. Basic Four (disclaimer is ok even if not conspicuous b/c buyer had actual knowledge case→ MINORITY RULE) .Equitable relief (specific perf and injunctions) = when money dams aren’t appropriate → mostly real estate . etc. Sara Creek Property Co.Yes→ lots of problems and only 50%/75% up to expectations .UCC § 2-315 (implied FPP) and UCC 2-317 (conflicts) apply UCC § 2-317 (C) → express displaces all inconsistent implied warranties EXCEPT implied warranty FPP .§ 2-316 (3)(a) → “as is” disclaims all implied warranties . S&M Enterprises (π denied specific perf for K breach re: billboard lease on building) . Disclaimers of Warranties Office Supply v.Balance cost/benefit of injunction: . .Unstated rationale= advertising/commercial rented space = less “unique” than individual interest in property (homes/land) Walgreen Co.) UCC § 2-316 → exclusions of warranties .Express will always trump implied warranty of merchantability .
Stipulated damages: umbrella term for whenever parties put in a term/provision that defines how parties will calculate dams in case of breach . parties can calculate value of injunction btw themselves . cost to 3rd parties (customers who don’t get cheaper drugs in that mall) . Note: Ct's.BUT → Parties could still negotiate around money dams (research shows that this happens more often) Hypo: K w/ singer to perform at Merrill and singer wants to breach to sing at Met →Ct might not issue injunction and force singer to perf at Merrill.Two types: (1) Liquidated damages: generally enforceable: mimics actual losses (2) Penalties: Generally unenforceable..Test for unenforceability of stipulated dams provision: (1) If actual dams are susceptible to definite measurement OR (2) Stipulated dams are grossly excessive re: actual dams (3) ALWAYS look to time of breach and actual dams (4) Breaching party has burden of proof *Note: Don’t try to reconcile the two tests → they don’t match Rest § 356 → can look to anticipated (time of formation) or actual (time of breach) losses to see if stipulated are reasonable AND look to difficulties of proof of loss . are unlikely to use equitable relief to force parties that are arguing to work together → in order to get negative injunction you need to prove the person is unique (well-known performer/sport stars/etc) AND no reliable way to calculate money dams.Pros (Posner) and cons of efficient breach → could cultivate mistrust but could make sense in commercial deals → Holmes view: no moral/value judgment re: breach so that efficient/nonefficient are treated the same.Trial ct errs looking to previous income . Murray (baklava case where π can get l/d or lost profits under UCC) . . B. Liquidated Damages/Agreed Remedies .Test for validity/enforceability of l/d clause: (1) If actual dams contemplated at time of agreement = uncertain/difficult to ascertain AND (2) Amount fixed ≠ out of proportion w/ probable actually losses (3) ALWAYS look to time of K formation ≠ time of breach and actual dams ≠ relevant . Langley (π doesn’t have to pay liquidated dams w/out opp to prove they are unreasonable re: pulling kid out of private school) .Benefit = ct doesn’t have to calculate money dams .If you look to actual anyways → what is point of stipulated damages? → burden shifts to breaching party Kvassay v. punishment for not performing O’Brian v. but might do negative injunction and prevent singer from perf at Met.Trial ct refuses to compel Δ discovery re: actual dams (π decided not to enroll kid in school after cut-off date and liq dams = whole year tuition) and grants sum j for Δ .Costs = ct has to supervise injunction (not concern here b/c negative injunction= forcing a party to NOT do something).
≠ like spec perf → π could use money for something else .Δ arges that they should only have to pay to fix defects OR the value difference btw perfect roof and defective roof → π can’t recover if the cost is clearly disproportional to the probable loss in value (Rest § 348 cmt c) .π gets cost of replacing roof from trial ct (expectation dams) and Δ challenges as too much .29) → could be penalty (void as penalty if unreasonably large (§ 2-718(1)) – Use stipulated dams for new business b/c no past k’s/business to look to prove actual harm in case of breach – Enforceable/unenforceable = matter of law for judge to decide .Burden shift → breaching party (Δ ) has burden to show that π ‘s amt/method of computing dams in inappropriate re: actual loss .Puts non-breaching party where they would have been had breach not occurred (2) Reliance: .. McGee (burned and hairy hand case) . lost opportunities.Dams should be difference btw what was promised (perfect hand) and what resulted (burned and hairy hand)= expectation dams ≠ diff btw pre and poet surgery hand (included w/in expectation dams anyways) . Golden Rule Roofing (breach of roofing K case where π gets cost of replacing roof ) .Puts non-breaching party in position they would have been in had the K never been made (3) Restitution: .Tends to be smallest amount Expectation Damages under Common Law Panorama Village Homeowner’s Ass’n v.Why no malpractice → maybe met standard of care just experimental surgery or maybe SOL is different for breach of K Purposes/methods for determining dams at common law in Rest § 344: (1) Expectation: usual way to determine dams .If l/d is unenforceable. . limiting buyer remedies to repair or return of goods) C.Issue on remand → is $5 amt set for dams per case reasonable if anticipated dams at time of K formation = less than $5 ($3. Judicial Determination of Money Damages Hawkins v. etc.UCC § 2-718 (1) : 3 elements re: reasonable l/d’s: (1) Amt is reasonable in light of anticipated dams or actual harm from breach (2) Difficulties of proof of loss (3) Inconvenience or non-feasibility of otherwise obtaining an adequate remedy . will allow argument that l/d’s are either too high (actual are less → this is most -common) or too low (actual dams are more) .Traditionally the party seeking dams has burden to prove what they are owed→ Δ has .55 or $4.Most Ct's.Compensate party that changed position in reliance on k → Ex: perf prep. then ct will calculate dams as if stipulated dams provision never existed § 2-719 → governs limitation of damages (ex.Restore to non-breaching party any benefits that were given to breacher .No pain and suffering dams b/c would have had that with surgery anyways .
(gravel removal K breached and cost to finish perf = more than value of prop case) . .π wants cost to complete perf ($25K) but Δ argues that diminution to value of land = only $300 → trial ct goes middle ground ($5000) and both appeal . some say get diff btw K and market (§ 2-713) b/c seller who breaches shouldn’t benefit from buyer’s connections and should protect buyer expectation KGM Harvesting Co. Groves → in that case.π appeals → argues this is inappropriate b/c Δ had “cost-plus” K’s with other purchasers and only lost a little due to breach → passed most on to other buyers and to give more to Δ would be windfall .C. (mining co doesn’t do restoration work in K and dams are diff in value of land) .burden to challenge this Groves v. v.Seller’s Remedies: § 2-706: resale dams → diff btw.C. John under Co.S Ct Minnesota rev’s → don’t favor willful breaching party and give π value of perf not received . K price and alternate buyers price § 2-708(1) : market price → diff btw market price and K price § 2-709 K price → seller is entitled to the k price***** ****these are exceptional remedies (ice sculpture example for § 2-709 → hard to resell and perishable) Problem 4 p. 735 → if buyer covers for less than the K price and the market price → Jdx split → some say no recovery b/c buyer came out ahead.Opposite of Groves → π gets $300 (diff in value of land) . Fresh Network (lettuce sale goes awry case) .also.π is breaching party but is suing b/c Δ didn’t pay for previous order → Δ counter sues for breach → Trial ct finds for Δ and gives Δ diff btw K price and price paid (cover dams § 2-712) minus money owed on previous k .Ct dist. Garland Coal & Mining Co.OK S Ct holds that dams should be cost of perf UNLESS they = economic waste . the appropriate measure of dams = cost of completed perf ≠ diff in value of land Peeveyhouse v. the restoration work was central to K and here it is only ancillary (dissent think this distinction is wrong) RULE → use cost of perf UNLESS there is econ waste/unreasonable/grossly disproportionate → then use diff in market value Money Damages under the U.this ct affm’s→ good/bad faith is irrelevant and object of dams is to give non-breaching party the benefit of bargain/perf (fn 7 → one party always gets windfall) .weird for ct to focus on intent of breach → normally not important .π appeals b/c trial ct granted diff btw FMV of land now and what was promised → $15k but cost to finish perf is $60k (K was made in 1927 and case is brought after great depression so might be why such a big diff btw cost and value to land) .Buyer’s remedies: § 2-712 “cover” dams → diff btw market price and substitute goods § 2-713 market price dams → measured by diff btw K price and market price § 2-716: specific relief → specific perf or replevin **** . looks like efficient breach which Posner would like RULE (more the majority)→ for K’s involving building/altering land.
π wants cost of perf estimates used w/out overhead → lost profits MINUS only cost of perf .π is not required to take different OR inferior employment opportunity to mitigate .However. maintenance costs.π was supposed to remove weeds from large plots per K → Δ gives large lot to another (who was supposed to get small lots) . general admin costs.Consistent w/ UCC § 2-708 → can include reasonable overhead that seller would have made from full perf Avoided Losses: . make π pay them twice RULE : Don’t include overhead in dams computation→ if you subtract overhead costs to get lost profit and π would have paid overhead anyways → then π pays twice . . City of Mandan (weed removal K breach case) .No actual “duty” to mitigate → non-breaching party has no L for failure to mitigate . financing costs. salaries. rent.Failure to mitigate breaks chain of causation from breach/injury to dams .Can’t recover avoidable loss .S Ct remands for new trial re dams → don’t include overhead b/c would have payed it either way → also.8 million so $250k ≠ penalty .trial ct comes up w/ own middle approach → “modified net profit”→ looks at π old IRS forms and finds that profit is normally 20% so gives π 20% of K value ($368) . 20th Century Fox (π not required to take employment that ≠ “substantially similar” case) . K provisions giving director/screenplay approval rights. even if Δ ≠ lost volume → liquidated dams are still reasonable D./c of “lost volume”) . Limitations on Money Damages Avoided Costs: Leingang v. Learjet (cancelled K for the fancy plane still results in dams even though resold b. used nonmeasurable resources to get deal) OR don’t make breaching party give buyer windfall/pay for dams that didn’t occur Rodriguez v.RULE (reworded in current usage): π must make reasonable effort to mitigate and accept “substantially similar” employment . non-breaching party cannot recover dams it could have avoided → just a limit on recovery Rest § 305: .Ct looks to other cases as well.Location. type of film = all different in 2nd movie offer .π sues for breach and Δ admits error → parties only disagree over dams .Ct finds that Learjet = lost volume seller → lost profit is $1.Δ wants overhead included in dams computation → π only gets lost profits MINUS the general overhead and specific cost of perf .Overhead = insurance.Not barred if injured party made reasonable but unsuccessful effort to avoid loss Parker v.K has l/d provision → keep deposit of $ 250k if K is terminated or payments ≠ on time . etc.Hypo → change the facts and buyer covers at lower price than market → JDX-al split re: whether breaching party can benefit from buyers good deal (buyer may have called in favors.No extraordinary effort required .Ct looks to Kvassay (baklava case) and § 2-718 re: if l/d provision is reasonable .
§ 2-715(2) defines cons → lost profits.This is mirrored in Rest § 351: (1) → dams ≠ recoverable for loss that party in breach has no reason to foresee (2)→ loss may be foreseeable as probable result of breach if .Ct finds evidence is sufficient ( seems based on small amt of money at stake. etc. Inc v. no issue re: breach → Δ admits breach and just claiming that π could have mitigated . Heim (x-ray machine breached k results in dams over value of machine case) . etc that are naturally flowing and foreseeable Seller’s dams inc: .Delivery co had no reason to foresee that mill would lose profits (no way to know that mill had no replacement shaft) .Complete mill stoppage ≠ naturally flowing from breach and = spec circ that Δ/breaching party did not have reason to know . so ok if small amt of evidence) Incidental v.Follows in ordinary course of events (flows naturally) OR .π is not barred if failed to mitigate b/c lulled into inaction by assurances that all will be well ≠ not the case here .. Office of the Commissioner of Baseball (ESPN breaks K but gets out of paying dams b/c not certain case) .§ 2-715 (1) defines inc→ reasonable expenditures incurred from transportation. .π buys x-ray machine from Δ and it isn’t 100/100 as k-ed for → only 100/60 and only works on children and thin people .π ‘s failure to mitigate breaks chain of causation and Δ ≠ L for losses under Macy’s K Foreseeability: Hadley v.Again.Δ challenges dams → shouldn’t be resp for uncertain lost profit dams since only π’s evidence is his own testimony . Baxendale (mill shaft delayed delivery causes lost profit to π but not recoverable b/c Δ did not know and ≠ foreseeable) .Dissent: “mere difference” is too broad and π should be required to take if substantially similar Donnelly v. Vanguard (π can’t recover for lost profits for failed delivery of brochures b/c refused to reasonably mitigate) . Consequential Dams under UCC: Buyer’s dams inc and cons: .§ 2-710 → only gets inc dams * Why is seller limited to inc dams under UCC → Seller is in better position to cover Also can better foresee losses and structure accordingly Sellers will often claim they are seeking only inc dams and try to sneak in cons → creates controversy over categories ESPN.As a result of special circumstances that the breaching party had reason to know Certainty: Manouchehri v. custody.
.π appeals → Ct App remands b/c π could seek restitution dams for benefit conferred ≠ whole value of K → remand to determine FMV of perf already rendered Restitution = disgorging benefit already received Rest § 371 → ways to measure restitution: . v.based on plan to sell outtakes for tv pilot . Gabor (π has no expectation of profits but can still get expenses paid in reliance) .π k’ed for whole year → leaves after 9 months → then sues for dams for work done .π wants lost profits b/c Δ pulls out of deal (breach) → trial ct grants $100k to π .Δ could argue that π is owed nothing at all → maybe just price of the tickets refunded b/c w ould have lost more money if K had gone through → ct’s don’t love this type of argument and don’t like to assume that previously unprofitable K means no profit in future . v. Algernon Blair (prime K breaches w/ sub-k and tries to not pay dams b/c sub-k ≠ profitable) .Baseball got full payment under K but wants cons dams re: lost nat’l exposure. Turner (restitution dams in emp K where breaching party is seeking the dams) . loss of future value of baseball packages/sponsorships .Δ appeals and argues that $100k = speculative → π never made profit before and part of loss is .Don’t need mathematical precision but need more than pulling numbers out of thin air → baseball lawyers should have tried to produce some facts and numbers re: ad revenue per game broadcast.D Ct finds that Δ (gen) breached by not paying but π would have lost money on the K → π gets nada . lost prestige.π wins then Δ appeals → no dams under K b/c K was breached → Δ k-ed for full year/full perf and K was breached so nothing owed “under” k .Reasonable value of services rendered .Sub-k/π is suing under U.Ct holds that baseball dams ≠ certain and it can only get nominal dams .Potential restitution dams argument → Δ got publicity from π → should pay π back (see Rest § 344(c)) § 349 → injured party gets reliance dams LESS any loss they would have suffered if k had been performed Restitution Damages: U.RULE → non-breaching party has burden of proof re: dams and they cannot be merely speculative .S → gen-k refused to pay the sub and then sub stopped working (disagreement re: who was supposed to pay for crane rental under K) .Ct finds that π should get dams for benefits conferred (minus any dams from the breach but Δ .Increase in prop value Britton v.Baseball could have gone for injunction as well → money dams ≠ adequate or certain Rest § 352 → need “reasonable certainty” E. how much each broadcast contributes to ad rate.S. Reliance and Restitution Damages (when Courts depart from expectation dams): Reliance Damages: Hollywood Fantasy Corp. come up with number that broadcast adds to value .
(gen K tries to get out of paying sub by claiming that owner paying gen is express condition that ≠ fulfilled) .π sues to get deposit back and wins → Δ appeals and argues no due diligence to meet condition .First 2 are done but owner goes bankrupt → Δ doesn’t pay sub . Rosen (k perf is excused b/c can’t get mortgage terms that are express condition) .didn’t show any) .Employee cannot recover beyond value of K → if FMV for 9 months is more than k for whole year IV. seller can’t refuse (see § 244 → “unless non.Δ offer ≠ from bank so doesn’t meet k express condition . Inc.π looks to only one bank but it is only one that would give that type of mortgage → don’t get interest rate req under k .Ct finds that this ≠ express condition but is just fixing reasonable time for payment . intent of parties (as a matter of law) ≠ express condition for payment b/c this would unreasonably place all risk of owner non-payment on sub . Conditions Rest § 224→ definition of a condition→ can be express or implied but we only look at express Luttinger v.Gen can K away this normal rule → but has to be unambiguously express conditional language that is explicitly that trade usage is being overturned → should make sub initial it to make clear they know about it .Δ offers partial financing to make up the difference → π refuses .Condition is placed on buyer so only affects buyer’s duty to perform and only buyer can excuse non-perf → if buyer offered cash.Rule of ambiguous K interpretation in favor of sub .Employee gets nothing if value of services was less than what Δ had to pay to cover . Modern Air Conditioning.occurrence is excused” applies to party that is bound by condition) Conditional language and Seinfeld hypo: → “if and only if” or “subject to and conditional upon” add this to get Newman off the hook for buying AND George off the hook for paying Peacock v.Peacock/Δ claims that there are 3 express conditions for payment and one is that the owner make full payment to Δ .Majority RULE→ in this type of K.
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