Contracts II Outline
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Date Created: 04/06/14
Contracts ll Chapter 5 Determining the Parties Obligations under a K 3 Questions 1st Question What things will be considered part of the contract Ascertaining Parole Evidence Rule A doctrine used by courts as a matter of law to decide whether any extrinsicinforma evidence that allegedly occurred prior or contemporaneous to a written document may be allowed Mechanics Applies to writings only includes electronic docs Probusiness rule favors repeat player who routinely write certain Ks pp ca onz Substantive state K law applied byjudges at their own discretion NY 4corners approach Gianni Case Look at what s written w n the 4 corners of the K and if the agreement is clear Also to the plain meaning of the words to see ifthey are clear and unambiguous If so no extrinsic evidence allowed Cal Context ofAgreement Masterson v Sineook at writing but extrinsic evidence is always available to explain clarify and define as needed Applied when K is vague ambiguous or is merely a partial integration of parties true agreement Partial Integration Agreement may be silent on certain things and additional consistentterms may be added to make a complete integration of the true agreement PER Hurdles From PGampE v Drayage Judge s decision to release parole evidence to jury Jury s decision to consider it as important PurposelTheorv done to get an accurate picture of the parties true agreement The parties full intentions are presumed to be entirely contained in the written document so therefore if something is left out it is presumed that they must not have intended itto be a part of it in the first place In practice not exactly true BoInger Case Situation where the writing does match up to the parties agreement Parole Evidence allowed to make the agreement complete 3 PER Questions 1 Is there a writing R2d 209 Need a final expression of one or more terms of agreement in writing R2d 214 Things you can do R2d 215 Things you can t do 2 If yes is it partial or complete Complete R2d 210 the complete and exclusive statement of the terms of agreement as adopted by parties Partial R2d 21 6 additional terms consistent w agreement may be added Court adds them UCC 2202 K may be supplemented by course of dealing usage of trade or course of performance 3 Is there anything in the writing that needs clarification explanation or definition R2d 216 These three questions are to be decided as a matter of law reserved to the court s discretion Exceptions to PEI3 R2d 214 d ifthere are reasonable allegations of illegality fraud duress mistake or lack of consideration extrinsic evidence will be admitted R2d 217 If there is evidence of an oral condition upon which the entire contract and its express terms depend then it is always admissible as extrinsic evidence Hicks v Bush Vadue vAmbiduous vague Can be in reference to many shades of the same meaning Frigaliment Case ambiguous can mean one of 2 things What to do with vague or ambiduous terms Look at the Hierarchy of Authority to decide what things mean 1 Express Terms Including incorporation by reference into K this was what was done by the court in Frigaliment 2 Course of Performance These Parties This Deal look at how they behave once K has been made and executed 3 Course ofDealing These Parties Different Deal also how they behave when negotiating for a new deal 4 Usage of Trade This can be either talking about the things goods services themselves or the geographic scope of where the trade occurs Hurst v Lake Horsemeat scraps case Court looks at usage of trade to determine what less than 50 means Nanakuli Illustrates how the courts look at usage of trade course of performance and course of dealing Merger Clauses When a clause in the K indicates that it is the complete agreement of the parties Court does not have to recognize them necessarily as being true dispositive or accurate to the parties agreement Subsequentmodi cationsz Once K is formed PER disappears and modifications oral andor written are allowed Also by performance as if somebody accepts an alternative means of payment under a contract and it constitutes a waiver Note if they then wantto reinforce the original method of payment they need to give notice to other party within a reasonable time Parole Evidence in the Commercial Context UCC 1103 Nanakuli defines course of performance course of dealing and usage of trade UCC 2202 An agreement may not be contradicted by evidence of prior or contemporaneous agreement but may be supplemented or explained a by course of performance course of dealing usage of trade These provide evidence of consistent additional terms which may be used to supplementor explain it something is vague or ambiguous Difference between common law and UCC is in UCC extrinsic evidence is available to supplement even if the writing is complete while in common law cannot 2nd Question What do the terms that get in actually mean Reviewing Oftentimes involves disputes over individual words and their meanings Whose Meanina Prevails 2d 201 Court looks at who was in a better position to know what the disputed terms means and therefore who could have avoided the confusion The risk falls on this person and therefore the writing is usually construed in favor of the more vulnerable party usually the nondrafter Raffes v Vlichehaus Court always considers who was in the better position to know the meaning that the other party attached to the term Contra Proferentum Against the person who introduces the ambiguity whether intentionally or not Oswald v Aen there can be a valid K even when two parties interpret an ambivalent term differently if one party is actually aware or should be aware of the meaning attached by the other party R2d 2011 If the parties attached materially different meanings to one or more terms and a neither party knows or has reason to know the meaning attached by the other or b each party knows or has reason to know the meanings attached are materially different Then the result is that there s been no mutual assent and no valid K created 3rd Question What to do about gaps or blanks Supplementing Characterized as something which falls within the realm of the agreement but is unaddressed and may be important to figuring outwhether there has been a breach Ways to supplement 1 Court needs to supply term by implication 2 bases 1 Actual Expectations of the Parties If the court is persuaded the parties shared a common expectation with respect to a certain term the court will supply that term 2 R2d 204 Project what the parties would have put ifthey had agreed Court will supply a term reasonable under the circumstances when the missing term is essential to performance of K Fair amp Reasonable Man Penalty Default Rule 2 UCC Gap Filler Provisions 2305 About setting the price The default if the price was not settled is that of a reasonable price at the time of delivery 2306 OutputsReqs Contracts 2307 About delivery is one lot or several 2308 About figuring out place of delivery 3 Doctrine of Good Faith Chapter 6 Qmits on Bargain amp Its Performance Look at the SubstanceContent of Agreement to assess these things 1Unfairness McKinnon v Benedict Court enforces the K because the consideration is valid and was arrived at by way of mutual exchange but refuses to grant injunctive relief based on R2d 364 which allows the court to do so at its discretion Tuckwier v Tuckwier The determination of whether an agreement is fair is made prospectively at the time the agreement was entered into even if the results don t turn outthat way Black v Bush An example of the freedom to contract Can t void a Kjust because the profits are too high for one party when there is nothing illegal aboutthe K itself 2 Standard form amp adhesion Ks When these two come together there can be a serious problem Form K Where one party drafts a contract which is used repeatedly by them to the benefit of the drafter Adhesion KA K whether Form or not which presents the terms as a takeitorleave it situation Either the other party agrees to these terms or there is no deal Graham v ScissorTrai Need 2 things together for adhesion K to be unenforceable 1 K does not meet the reasonable expectations of the weaker or adhering party 2 K is unduly oppressive or unconscionable O Caaghan Exculpatorv Clause Absolves party of damages Example being a landlord including this clause in lease agreement to its renters Enforceable unless a it would be against settled public policy of the State to do so b there is something in social relationship of the parties which goes against upholding of agreement Boilerplate When the terms of the contract are such that there is no opportunity to amend them The classic language of a form K and applies to things such as parking stubs event tickets etc R2d 21 1 1 If you sign a form K you are responsible for its contents 2 Court will interpret the standardized form the same for everyone who signs it without considering their knowledge or understanding of the terms 3 Where the profferor of K knew or should have known the other party wouldn t have signed the agreement if that party had understood a particular provision of the K then that term is not part of the agreement 3 Unconscionability Deals with a situation where nothing is illegal about the K or the process by how it was arrived at but the overall circumstances surrounding the K or the result is so unfair that it becomes unconscionable and the court wants to either amend or nullify the contract Treated as a question of law forjudge to decide need both elements to be found unconscionable 1 Procedural Unconscionabilitv Some sort of unfair surprise in the formation process of the K matches up with adhesion K 2 Substantive Unconsionabilitv unfairnessoppressive in the terms of the K and results in an unconscionable outcome CC 2302 Options for court if it finds the K or any of its terms to be unconscionable at the time it was made 1 Refuse to enforce the K 2 Enforce the remainder of the K but get rid of the unconscionable part 3Adjust the unconscionable part and enforce the rest of the K as agreed Parties are entitled a reasonable opportunity to present evidence to the court R2d 208 Same thing for CL a K in which no sane man would offer and no honest and fair man would accept Williams Example of a renttoown agreement being unconscionable and the element of unfair surprise Vulnerable party needs to show they were tricked into the K because they didn t understand the terms Jones v Star Credit Corp a gross imbalance of the consideration exchanged price may be sufficient on its own to make a K unconscionable Arbitration Clauses They are ok as long as they re not completely onesided There needs to be a moderate amount of impartiality within the K Benefits the repeat player 4 Performing in good faith this obligation attaches once there is a K About how you carry outwhat the K obligates you to do the law cares because of its impact on economic activity stemming from the performance of Ks and we don t want anything to hinder this Easy If K requires you as part of yourjob to exercise skill expertise and discretion flexible standard but needs to perform these obligations in good faith 2d 205 Every K imposes upon each party the implied duty of good faith and fair dealing in its performance and enforcement CC 1304 Every K or duty w n the UCC imposes an obligation of good faith in its performance and enforcement Dalton v ETS Provision that if ETS disqualifies a persons score they can look at extra info submitted to challenge this and they must review and consider this information in good faith Here they did not Eastern Airlines v Gulf Part2 ex where fuel freighting was not done in bad faith and was consistentwith industry custom Takeaway is that you look at the 4 sources of the Hierarchy of Authority to figure out what good faith requires Market StreetAssociates Duty of good faith does not require one to volunteer information just to be honest in your dealings how one performs in action Boor v Fastafi Best efforts is a higher standard than good faith UCC 2306 When parties have an agreement for exclusive dealing with respect to certain goods it carries with it an obligation to use best efforts Need some action to show this was attempted treat the other party s interests evenhandedly with your own Lockewill Default Rule A K that is silent on termination is terminable at will by either party However ifthe abrupt exercise of this termination right creates an undue hardship on party Court give terminated party a period of notice of which to recoup investment and a reasonable profit on a quantum meruitbasis 5 Public Policy A lllegality lllecial Subiect Matter Offends our collective sensibilities to make a Kfor something illegal or used for an illegal activity Bovard Case Lecial but performed in an illeqal manner Ma a Concrete Case f K is legal on its face and doesn t require unlawful conduct to be performed it is not voidable because it resulted from corruption antitrust conspiracy here R2d 178 1 Term is unenforceable on grounds of public policy if legislation provides for it to be or the enforcement of it is clearly outweighed by public policy cutting against enforcement Court s View When weighing enforcement interest Look at a parties expectations b forfeiture which might result c special public interest behind enforcement When countering public policy against enforcement Look at a legislation or cases supporting policy b refusing to enforce will further that policy c equities and clean hands of parties d equities and it s relation to disputed term B Judicially created public policy activity not technically illegal by law by severely frowned upon Activities that the statutory law has not caught up with yet Ex is Baby M Case about surrogate mothers Simeone v Simeone Prenups Another good example and one which is decided to be enforced on the grounds of public policy on a casebycase basis Use R2d 178 factors 2d 197 If both parties are up to no good the court will stay out of the dispute and no restitution will be made available unless the forfeiture is disproportionate EmpovmentActions Teddy s Frosted Foods When an employee s termination conflicts with public policy the employee may sue and recover for wrongful termination Chapter 7 Remedies for Breach PreNotes 2 assumptions from 1st semester 1 Not interested in punishing breaching party but making breach victim whole 2 put promisee in position itwould have been if promise had been performed Add 1 more assumption Remedv fora breach is presumptiveV comnensatorv Because it s easier to award money damages than for court to oversee specific performance Northern Deaware PreReq to getting equitable relief No adequate remedy available from a court of law can t fix this UCC provisions Buver s Remedies 2711 Remedies in General 2712 Cover Money damages based on buyer having done an actual substitute transaction 2713 KMarket Differential Money damages based on a hypothetically constructed substitute transaction Fallback if there is no actual substitute transaction 2716 Specific Performance Historical Requirementthat money won t fix it Seer s Remedies 2703 In General 2706 Resale If seller sells for less money he is injured and buyer has to pay difference than what he got on an actual substitute transaction 2 708 KMarket Differential same as for buyer difference between market rate of hypothetical transaction and what the selling price of the seller s K was 2709 Seer s SP Seer s Action for the Price the specific price under the original K 1 Specific Relief 3573591 2716 PreReq to getting equitable relief No adequate remedy available from a court of law can t fix this Two ways to get specific performance 1 ItemsGoods are unique 2 Land is unique Uniqueness not the only way to get SP but the easiest to get it Shows that the subjectmatter is irreplaceable pg 592 Note on Automobile cases root of under other proper circumstances mentioned in 2716 Morris v Sparrow Example where subjectmatter was arguably unique but also Sparrow put much time and energy into training horse so under proper circumstances fits this scenario Northern Deaware Case Example of denial of equitable relief because a remedy at law is adequate to compensate for the losses Also would be way to time consuming and costly for court to oversee the SP Campbe s Soup v WentzArgument over uniqueness of carrots factors of brand image and consistency of product can make a difference Klein v PepsiCo Denied equitable relief because the subjectmatter is not unique and Klein didn t come before the court with Clean Hands Lacede When the elements for determining damages cannot be figured out compensatory relief may be inadequate yielding to equitable relief Walgreen Co v Sara Creek Court can issue an injunction in order forthe parties to figure out money damages themselves 2 Measuring expectation 347 2703 2711 Pg 607 some discussion about general formula for calculating money damages Loss in value other loss costs or other loss avoided Vitex v Caribtex Overhead costs When fixed don t save these costs from a breach When calculating formula only consider costs that were actually saved not fixed costs Seer s Damages 2706 amp 27081 2706 have an actual substitute transaction Cover Laredo Hides Direct damages of difference between cost in substitute and under original K 2708 Hypothetical substitute transaction KMkt Diff 27082 Lost Volume Seller Davis v Diasonics Kfor making an MRI machine If you can sell the machine to another person for the same price not considered injured if damages are viewed in that way Seer s burden to show that no this was a substitute because Icould have sold more units if this K wasn t breached AND I would have made a profit Losinq Contracts In rare cases court may award restitution in quantum meruit to the breach victim even though this party would have sustained a loss if the K had been performed United States v Algernon Bair 3 Limitations on Damages 1 Avoidability Rule from Luten Bridcle R2d S350 Damages are not recoverable for losses which the injured party could have avoided through reasonable efforts Reasonable In this context wout undue risk burden or humiliation Exception When the injured party s reasonable efforts are unsuccessful in avoiding further damages UCC S2704 When breach victim is seller may proceed in whatever manner is reasonable to avoid loss Includes completing unfinished goods in orderto resell or selling parts for scrap or salvage Underlvind Premise K law doesn t like to give windfalls but if one can t be avoided it should be given to the breach victim Tongish v Thomas Avoidabilitv in loss of employment Parker v Twentieth Century Fox Old Rule person fired had to remain ready willing amp able to begin working again until K date of completion Modern Rule Burden on employer to show that employee did not use reasonable efforts to find different employmentwhich not inferior or different in nature different line of workindustry If employer can t meet this burden then they owe P the rest of the money due under the Kfor the term R2d 3482bThe standard remedy in construction contracts is the costs of repair replacement or completion Except where breach is minor amp not willful embedded construction defect cost of remedying defects is grossly disproportionate to the loss in value to owner Then enters R2d 3482a damages measured by the diminution in the market value of property Policy Done to avoid economic waste and windfalls This is still up to the discretion of the iudqe If the K was willfully breached the more forgiving remedy may be denied even if cost of remedying was grossly disproportionate to diminution in value Groves v John Wunder However the judge doesn t have to abide by this as in Peevyhouse It s all what is valued more avoiding economic waste or encouraging parties to perform as agreed ll Foreseeability R2d 351 UCC2715 R2d 8351 Rule of Hadev Damages resulting from a breach are recoverable if they are foreseeable Direct damages are always presumed foreseeable amp thus recoverable UCC S2715 Conseguential Damages Are recoverable only if contemplated by the breaching party at the time of contracting They knew or should of known they d result as a probable consequence of the breach The ripple effect of other losses that flow from the direct damages UCC S2715 Incidental Damages Costs spent in arranging for performance or finding an alternate transaction Policy This Rule is designed to limit damages based on foreseeability as opposed to expanding them like in Torts TacitAgreement Test The one applied here is NOT part of the law amp adds on to Hadley Notjust that the breaching party knew or should have known the damage was likely to occur but also that they agreed to be responsible ifthey did in factoccur Can be viewed under R2d 351 3 cut back damages in order to serve justice and avoid disproportionate compensation Emotional disturbance R2d 353 Damages for this usually not given in K situations except when breach causes bodily injury or in types of cases where it would be likely to cause emotional disturbance Mishandling of deceased loved ones Ill Certainty 352 comments Damages which cannot be established with reasonable certainty are not recoverable Don t need mathematical precision just a reasonable basis for jury to assign a value to your loss Q Lost profits is the most common to sue for but also some of the mostdifficultto prove how much Fera case New businesses have the toughest time proving lost profits with certainty 4 Liquidated Damages 256 2718 Equivalent of a prenup what happens ifthis doesn t work out Involves forecasting what the damages would be when making these clauses Courts Like Them Because it enhances freedom of contract and theoretically keeps people out of court In reality it rarely keeps people out of court argue about breach amp the clause itself Window of Reasonableness Easier it is to forecast the smaller the window Harder it is to forecast the bigger the window of what s reasonable Wasserman s Case Liquidated Damages Clauses are enforceable unless the figure is too high as to constitute a penalty or too low as to be unconscionable to injured party 2d 356 Old Rule Clauses are valid if a reasonable and good faith forecast Modernly The amount agreed to must turn outto be reasonably accurate in light of the actual damages incurred If it is not then actual damages awarded Chapter 8 Performance amp Breach Theoretical Differences 1 Express Conditions A Effects of Conditions Definition R2d224 A condition is an event not certain to occur which must occur unless it is excused in order for performance under the contract to become due Luitinger v Rosen Generally express conditions in a contract are strictly construed The party to receive protection from the condition is the one who may excuse it 2d 230 Remember a party must operate in good faith amp fair dealing to attempt to meet a condition If they did not other party can argue prevention lnternatioRotterdam A condition is more onerous than a duty g If breached breach victim entitled to damages but must still perform underthe K Condition If not met the the obligee may freely cancel if their performance does not depend upon it it never even triggers their own duty F 2d 225 1 2d 225 Effects of the nonoccurrence of a condition 2 Unless already excused if condition can no longer occur duty is discharged 3 Nonoccurrence is not a breach unless it is part of his duty that the condition occur 2d 227 When in doubt if an event constitutes a duty or is made a condition upon which the obigor s duty depends courts will prefer to see it as a duty B Problems of Interpretation Peacock Construction v Modern Air Clauses which indicate a condition is a matter of law and to avoid forfeiture a Court may interpret them as not giving rise to a condition in the first place 2d 229 Court may excuse the nonoccurrence of a condition to avoid forfeiture unless it was a material part of the exchange Gibson v Cranage Satisfaction Clauses two types Subiective Based upon whim taste and fancy ifthe agreement is valid violates no public policy and is absent illegality fraud duress etc it s enforceable based upon the judgement of the obligee Obiective R2dS228 When obigor s duty is conditioned upon satisfaction with obigee s performance it is proper to view this satisfaction as that which a reasonable person in the position of an obligor would feel C Mitigating Doctrines to Express Conditions To soften the harsh effect of forfeiture if condition is not met 1 Prevention When the occurrence of a condition is prevented by one party the court can deem that duty triggered and hold them in breach Can be intentional prevention or by failing to meetduty ofgood faith amp fair dealing F2d 205 2 Waiver Election amp Estoppel When parties through oral modification or through performance act in a different manner than what s written the party who has the right to enforce the term may be deemed to have waived this condition elected to perform in a different manner and may be estopped from reenforcing the written condition if the other party has relied on this waiver for some time 3 Interpretation Peacock Exception to express conditions being strictly construed 1 Not interpreting the language as giving rise to a condition 2 By excusing as a matter of law to avoid forfeiture R2d 229 2 Constructive Conditions of Exchange Doctrine of Constructive Conditions DOCC In a bilateral K doctrine deems the parties obligations to be mutually amp reciprocally conditional upon each other s rendering of performances 3 ways to analyze who goes first 1 Parties expressly agree who goes first absent this Court prefersR2d 234 Order of Performances 2 Simultaneous exchange of performances when this can be accomplished 3 Faciendo ante dando Doing before receiving when the performance of one party takes some timemore time then that party goes first 3 Mitigating Doctrines for Constructive Conditions COMMON LAW APPROACH 1 Substantial Performance If the party to go first has substantially performed even if not completely other party s duty is triggered 2d 237 Introduces this concept substantiayperformed If what is done or delivered meets the general purpose of the K In other words a minor mmaterial breach gives rise to the other party s duty while a majormaterial breach does not To determine what is a material breach Look to R2d 241 Factors a The expect to which breach victim will be deprived of benefit of bargain b the extent to which breach victim can be adequately compensated for this deprivation c extentto which breaching party will suffer forfeiture d If breaching party will cure his breach adequate assurances included to show this e behavior of breaching party in terms of good faith amp fair deaHng UCC APPROACH Perfect Tender Rule 2601 For buyer if the goods or tender of delivery fail to conform in any respect to the contract he may a reject the whole b accept the whole c accept conforming units and reject the rest 2 Divisibility 2d 240 If the performances under an exchange can be divided into separate sets of pairs can treat each pair as it s own minicontract Doctrine of Substantial Performance applies to each pair and breach is assessed individually Result is that the breaching party avoids risks of forfeiture of whole K has to pay for the parts which he failed to substantially perform Construction contracts are generally not divisible 3 Restitution If the breach is held to be material and K is not divisible fall back is restitution 2d 374 nonbreaching party is made to disgorge the benefit conferred upon him to avoid unjust enrichment amp forfeiture KirkandCourt decides how much restitution is appropriate by calculating the net enrichment of the party in breach or the cost avoided by the breach victim 4 Suspending Performance amp Terminating the K Options If Breach is MinorImmaterial Nonbreaching party s duty to continued performance has not been extinguished finish and then sue for damages If Breach is MaiorMaterial Nonbreaching party can treat this as 1 Partial continue to perform as if it s a minor breach sue for 2 Total Stop performance altogether and sue in court immediately or wait until law day 3 Suspend Performance amp await cure Ex For construction keep on building amp deal with the breach later after project is finished KG Construction Co v Harris Note 1 pg 761 Rare case where the Doctrine of Prevention can be applied to Constructive Condition Usually reserved for Express Condmons 5 Prospective NonPerformance A Anticipatory Repudiation Definition R2d 25O or UCC 2610 250 a Statement by obligor indicating that he will breach the K b voluntary affirmative act which makes obligor unable or apparently unable to perform 261 0 Options for when either party repudiates 5 Questions to Be Answered 1 Is repudiatee free to make other arrangements 2 Can repudiatee go to court immediately even if it s before aw day 3 Can the repudiatee ignore the repudiation and waitfor performance 4 What happens if repudiatee urges retraction of repudiation 5 Can repudiator retract the repudiation Hochster Rule R2d 253 If one party anticipatorily repudiates the other party may choose to treat it as a present breach and sue immediately or wait until law day to sue Caution If party waits until law day they have to remember to use reasonable efforts to mitigate further damages not caused by breach Kanavos Repudiatee needs to show that they would have been able to perform K ifother party had not repudiated Maddox v Coalfield When one party says they will only perform on conditions beyond what the K calls for it is deemed as a repuditation Additionally when one party behaves badly enough and delays the Court may believe itwill not perform and treat them as being in repudiation Cosden v Helm In case of anticipatory repudiation by seller KMkt Diff 2713 is calculated after 1 UCC 2610a Buyer gives seller a commercially reasonable time to retract the repudiation optional AND 2 UCC 2610b Buyerthen has a commercially reasonable time to arrange a cover Once both of these have run then the KMkt Diff will be calculated Retraction of Repudiation If repudiator notifies repudiatee before he materially relies on it or before accepting it as final Both R2d 256 and UCC 2611 It s always the repudiatee s choice B Assurance of Due Performance McCloskey v Minwell UCC 2609 amp R2d 251 Q When reasonable grounds for insecurity arises which makes one party fear repudiation may demand assurances Has to be in writing Party has 30 days max to give assurances If no response or inadequate response it s a breach Common Law When reasonable grounds for insecurity arises may also demand adequate assurances but no writing requirement no set time limit reasonable time based on facts amp circumstances Maytreat no response or inadequate response as a repudiation and therefore breach
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