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WHAT CONSTITUTES A CONTRACT Can be verbal or written Must willingly and knowingly enter into a contact Each party must be receiving something An enforceable promise or agreement Legal definition a promise or set of promises for the breach of which the law gives a remedy Not every promise is a contract If a party wants to dishonor the contract does the law require them to complete the contract as set forth No but it does require a remedy Generally the law in enforcing promises does not actually require you to live up to your promise Sometimes it is required of the person to pay for pain of the breach or to put the person in the same position they would have been had the contract been completed 1 WHAT LAW GOVERNS There is a specific body of statutory law that governs contracts It depends on whether the contract regulates the sale of goods vs the sale of services or some kind of property Uniform commercial code governs contracts for the sale of goods in the US UCC is a statute which most states have enacted But each state can have a different version and make amendments to their version of the UCC If not goods then it is largely governed by the common law The restatement of law is not binding legal authority Judges often look to it so it s very in uential It is a restatement of the common law Common Law is judgment law it is the law that emerges from cases Tort is a creature of the common law judge made law Statutory is law made by legislature like congress If it is about goods then the UCC governs If it s not about goods then the UCC needs a supplement in which case they use the common law 2 DO WE HAVE THE ELEMENTS OF A CONTRACT 1 There must be offer and acceptance in general 0 Only what is offered can be accepted This means that the offer must be accepted exactly as offered without conditions If any new terms are suggested this is regarded as a counter offer which can be accepted or rejected 2 There must be considerationor an alternative to consideration 3 You may need to have compliance with the statute of frauds 4 Determine defenses to contract formations like capacity 3 MEANING OF THE TERMS In order to hold someone to a contract they must understand the terms 4 WAS THERE A BREACH The court will only have opportunity to look at the case once someone is suing for breach of contract 5 Defenses to breach the law will excuse a party at times Maybe impossible to perform or a reason for not doing it 6 If you can establish breach what is the remedy The jury is in charge of applying the law not making the law Jury instruction is important to determine the framework of the case and apply facts What is a good According to Uniform Commercial Code it is anything moveable Not land or services ENFORCEABLE PROMISES Hawkins v McGee hairy hand case plaintiff was entitled to expectancy damages the difference between what he was promised a perfect hand and what he received a hairy hand The doctor s promise that he would make the hand 100 perfect was a contractual obligation The language of the guarantee and the fact that the doctor was soliciting an experimental operations makes this a contract Anglin v Kleeman spongy knee case Different outcome than Hawkins v Mcgee because the language was not as strong and the doctor did not actually request to do the surgery McGee had used his words to be able to perform the surgery McGee was actually trying to get something from the plaintiff This shows that even though some cases are similar the minute differences in the facts When determining a contract what could we consider Enforceable strong language 100 perhaps consider the situations of both the promisor and the promisee The intention of the doctor in Hawkins v Mcgee in order to solicit their permission What makes a statement a promise within contract law It is a manifestation of intention external or objective standard to act or refrain from acting in a specified way so made as to justify a promise in understanding that a commitment has been made This means that we don t focus on what the promisor objectively meant by his words but on what those words should be understood to mean when considered by someone else objectively Section 2 of the restatement In order to make a promise according to the restatement you don t have to say the words I promise You just must understand the intention of a promise objectively A promise may be stated in words either oral or written or may be inferred wholly or partly from conduct You can have a promise just from actions Section 4 of restatement 0 Intent to pay that a normal person would understand ex a builder calls up the lumber yard and says send me 100 2by4 s There is an implication that the person would pay for it EXPRESS WARRANTIES Under UCC 2313 1 an express warranty may be created in any of three ways 1 An affirmation of fact or promise made by the seller with respect to the goods creates a warranty that they will conform to that affirmation or promise 2 A description of the goods creates a warranty that they will conform to the description and 3 A sample or model of the goods creates a warranty that the whole of the goods will conform to the sample or model However an affirmation merely of the value of the goods or a statement purporting to be merely the seller s opinion or commendation of the goods does not create a warranty This is the puf ng exception or the sales talk exception UCC 2316 l try to construe words or conduct creating an express warranty and words or conduct limiting warranty as consistent with each other whenever you can But when you can t negation or limitation is inoperative to the extent that such construction is unreasonable Ex you can t give an express warranty and then say that it does not apply The obligation of good faith is said to be a mandatory term of a contract Implied warranties are only available for the sale of goods under the U C C Express warranties can be asserted for any type of contract Bayliner Marine Corp v Crow was there an express warranty made by Bayliner to crow NO The prop matrixes looked at by Crow were for a different boat so Crow could not assume that there was an express warranty about the capabilities of his particular boat Also Bayliner s sales brochure is simply the manufacturer s opinion and not a warranty of boat s performance 0 UCC thinks that companies cannot always be held in an express warranty for a depiction of their product An advertisement is a descriptionmodelopinion Value and opinions are not express warranties 0 UCC 2314 If you are a merchant you are treated as making the promise that your goods conform to certain standards They are of the quality that one would expect them to be It is implied that your product will do what it is supposed to boats must oat IMPLIED WARRANTY OF MERCHANTIBILITY As a matter of federal law consumer good warranties have to comply with the Magnus and Moss warranty act Trumps state warranty laws The effect of the act is to state that a supplier of consumer goods can t disclaim implied warranties if they have their own written warranties Basically even if a company claims they disclaim other implied warranties they are still held to Magnus and Moss WHY DO WE ENFORCE CONTRACTS Your theory can affect your doctrine and what remedies you think are available for breach of contract Reliance we need to be able to rely on the promises of others System of justice Right thing to do morality notion to keep word Govern what society deems important Economic reasons promote efficiency We are promoting social welfare when people negotiate and make contracts amongst themselves If we do not enforce contracts then people will probably cease to make them Libertvautonomv want to encourage people to live their lives the way they want to If we honor contracts we encourage this The Contract as promise thesis holds that law is justified in enforcing a promise when an individual intentionally invokes a convention whose function is to give grounds moral grounds for another to expect the promised performance Consent Theory grounds enforcement of contracts in consensual undertakings that reveal an intention to create a legally enforceable obligation REMEDIES AND DAMAGES Restatement 344 judicial remedies serve to protect one or more interests of a promise 1 Expectation interest put the nonbreaching party in the position they would have been in had the contract been performed Looks forward 0 On average expectation damages are normally higher than reliance and restitution Reliance could be better if the plaintiff would have lost money had the contract been performed 2 Reliance interest intended to put the nonbreaching party in the position they would have been in had the contract never been made Looks back 3 Restitution interest the nonbreaching party has restored to him any benefit that he had conferred on the other party like money You get back what you had given Very small amount of damages for the plaintiff Sometimes seen as unjust enrichment UNSI v Charter Comm Berkeley D sold books before they were supposed to taking money away from the hardbook sales that UNSI would have made Court argued that when there is uncertainty as to exactly how much profit would have been made from the book sales they should usually rule in the injured party s favor It is obvious UNSI lost book sales even though there isn t a specific number of book sales 0 Lower court issues punitive damages against defendant which were reversed because punitive damages are not a part of contract law Compensatory damages to compensate the loss realized by the nonbreaching party The law is concerned with the relief of the aggrieved party and not with the punishment of the breaching party Speci c Performance is used sparingly and only in cases where monetary compensation is inadequate Sullivan v O Connor Sullivan a professional entertainer entered into a contract with O Connor for plastic surgery to enhance her beauty and improve her nose After the surgery her appearance was worsened She was supposed to have 2 surgeries but ended up having 3 She paid 62265 for hospital expenses and O Connor s fee O Sullivan is entitled to damages for the worsening of her condition and pain and suffering from the additional third surgery only Could have been expectancy or reliance damages court didn t have to decide 0 Reliance Damages loss in value of appearance hospital fees pain amp suffering 0 Expectation Damages cost for 3rd operation value if nose was enhanced loss in value due to disfigurement and hospital fee for 3rd operation 0 Restitution Damages Doctor s fee very small amount of damages Ef ciency breach hypothesis is a voluntary breach of contract and payment of damages by a party who concludes that they would incur greater economic loss by actually performing the contract The promisor breaks off their end of the promise enjoying a gain without leaving the promisee any worse off Transactions that make no one worse off while making someone else better off are called Paretoimproving CONSIDERATION You can have a promise but if the promise is not backed up by consideration then it is not enforceable If it s not enforceable then it is not possible to give remedies according to the law Consideration may consist of a promise to perform a desired act or a promise to refrain from doing something one is legally entitled to do The performance is consideration for the promise while the promise is consideration for the performance UCC 71 To constitute consideration a performance or a return promise must be bargained for A performance consists of an act other than a promise a forbearance or the creation modification or destruction of a legal relation The court usually does not look into the adequacy of consideration Bargained for mutual assent it is enough that one party manifests intention to induce the other parties response and to be induced by it and that the other responds in accordance with the inducement The court is not concerned with motive but with outward expression Uncle was trying to induce his nephew to behave differently This constitutes bargaining Usually a promise to make a gift in the future is unenforceable because there is no consideration However in Hamer v Sidway there is a bargain not just a promise for a future gift Consideration means not so much that one party is profiting as that the other party abandons a legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first 0 It is enough that something is promised done or suffered by the party to whom the promise is made as consideration for the promise made to him Story stopped drinking tobacco etc whenever he had a natural right to do so because of the promise his uncle made to him 0 If the nephew had already made the decision to abstain from that behavior in the hopes of wooing a woman would there still be consideration YES the fact that the promise does not of itself induce a performance does not prevent the performance from being 6 consideration for the promise UCC 81 Actual motive does not govern intent it is just the external manifestation The fact that you can see the nephew s external performance of the promise is more important than the nephew s intention in performing the promise Assignee A contract right is often a property right that can be conveyed to another Dyer v National ByProducts Inc Dyer claims that the reason he did not litigate his lost foot claim for personal injury was because of an oral contract with his company D promising him lifetime employment When he got fired he brought this suit Can forbearance from asserting an unfounded legal claim act as valuable consideration to create an enforceable contract YES 0 Claim of doubtful validity founded on the person who believes they have the claim There must generally be reasonable grounds for a belief in order for the court to be convinced that the belief was honestly entertained by the person who asserted it There is potentially a thing of value if there is a possibility of success 0 Also the plaintiff has to make the claim in good faith He cannot just be making it to bother the company waste time or be a nuisance The claim must be made in good fait and the belief must be honestly entertained by the person who made it 0 Broader policy concern as a matter of policy the law favors compromise and such policy would be defeated if a party could second guess his settlement and litigate the validity of compromise With settlement the plaintiff would at least get something and it would avoid a lot of litigation costs and expense The court wants to save costs for everyone Strike Suits lawsuits with a sufficiently low chance of prevailing at trial that they would not have been brought but for the prospect of settlement UNILATERAL V BILATERAL In an offer to enter a unilateral contract the promisor uncle seeks a performance not a return promise An enforceable contract will exist only when the promisee provides the actual performance There is not an actual contract when uncle and nephew agree because it was an invitation to enter into a unilateral contract and it hadn t been performed yet Unilateral Contracts when promisor has sought performance in exchange for a promise The contract is made when the performance actually occurs It helps to create an order of obligation if it is not clear Also can use reward as context lost dog reward have to complete performance before payment This is riskier if performance isn t done Bilateral Contracts when both parties make promises The contract is formed when the promises are exchanged Bilateral contracts are commonly used in business transactions a sale of goods is a type of bilateral contract It allows parties to plan better Are more common 0 Each promisor doesn t have to perform right then There is often an order of performance They are conditional upon each other If you paint my house I ll give you 1000 The person paints the house first and then the other pays him 1000 GRATUITOUS PROMISE Kirksey v Kirksey D offered P a home on his property and she accepted moving 60 miles to relocate She lived there with her children for two years and then he demanded she leave P sued for breach on the grounds that her costs in relocating to the D s property was sufficient consideration to enforce his promise 0 Is a gratuitous promise enforceable where a party has reasonably relied on that promise and has suffered loss and inconvenience NO 0 The court holds that D s gratuitous promise is not enforceable because there was a lack of consideration and no bargained for exchange only acceptance EMPLOYMENT AGREEMENTS ALTERNATIVE CONSIDERATION Atwill employment the employee can be terminated at any time there is no contract Lake Land Emp Group of Akron v Columber D used to work for P and signed a non competition agreement P sued for damages after D violated the agreement by starting his own 8 business similar to plaintiffs Is subsequent employment alone sufficient consideration to support a covenant not to compete with an atwill employee entered into after employment has already begun YES 0 The atwill employee has no expectation to continue employment Mutual promises to employ and be employed is consideration the promise of one serves as consideration for the promise of the other 0 The employer D had imposed a new requirement for employment and it was accepted by P when he signed it and didn t terminate his employment PROMISES AS ALTERNATIVE CONSIDERATION ILLUSORY amp SATISFACTION Conditional promises if its performance will become due only if a particular event known as a condition occurs This does not mean that the promise is not binding until the event occurs but only that the event must occur before the promisor must perform Constructive Condition of Exchange one party s duty to perform is not triggered until the other party has performed For example where promises are not typically performed at the same time as in personal service contracts UCC 75 A promise is consideration if the promise pursuant to is consideration UCC 77 a promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances If language of promise by the promisor makes things optional then there is no consideration 0 Strong v She ield Strong creditor promised not to collect the note demand his money until he decided to demand the money This promise is illusory because one pary s performance is entirely at the option of that party When the promise is illusory the agreement is not enforceable against either party An enforceable contract must be supported by consideration and forbearance for a little or some time is not sufficient valid consideration Satisfaction with a contract can be satisfied either through the reasonable person standard or the obligation of determining satisfaction is in good faith Also the person must be dissatisfied with 9 performance not just the contract itself keeps people of weaseling out of contracts because they just don t like it 0 Mattei v Hopper Mattei could buy the land IF he obtained the proper leases Plaintiff s performance was dependent on his satisfaction with the leases to be obtained by him in the contract An agreement made subject to the satisfaction of leases does not render a contract illusory or void it for lack of mutuality because of the requirement of good faith Two types of satisfaction cases mentioned bv courts 1 Commercial Standard Satisfaction is determined by a reasonable person standard because a standard governs the plaintiff couldn t just get off if they wanted not illusory 2 Fancy taste or judgment Where the buyer of the good or service can claim dissatisfaction with the good or service purely on the basis on their own judgment is subjective This is not illusory because there is an implied obligation of determining satisfaction in good faith 0 However if the satisfaction clause of the agreement leaves the plaintiff free to perform or to withdraw from the agreement at the plaintiff s own unrestricted pleasure the promise it illusory and provides no consideration The Illusory Promise Doctrine I promise not to demand payment for the note unless I decide to demand payment for the note This does not constitute a real promise REQUIREMENT amp OUTPUT CONTRACTS Requirement Contract the seller produces however much is required by the buyer If the buyer had agreed to buy everything the seller made then it would be an output contract This is a contract for goods governed by UCC article 2306 A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements may occur in good faith Exceptions if the contract states an estimate for what is required output then the actual quantity cannot be unreasonably disproportionate to the stated estimate Or in the absence of a stated estimate then they can use any normal or comparable prior output SPG ltd v Zoltek D promised to manufacture and sell all of P s requirements for a certain time Two orders were placed by P that were never filled This was a requirements contract Contract not illusory even though P had the option to purchase from others because D was allowed to 10 price match Also there was mutuality of obligation unless both parties to a contract are bound to perform neither party is bound What happens if output seller deems it unprofitable to keep selling Is the prospect that seller could lose money enough to allow him out of the contract Probably not Trying to curtail losses is not enough to get out of a contract We have seen satisfaction cases Mattei V Hooper output and requirement contracts SP V Zoltek and exclusive agencydealing contracts Wood V Lucy Can a contract provide a termination clause for said contract without making the contract illusory It depends Ex a party enters into an agreement to buy all the red potatoes they need Contract says that red potato farmer can terminate the contract at any time at will and regardless of any other duties imposed by the contract Is this contract enforceable No because it is illusory UCC 23093 termination is allowed if there is reasonable notification received by the party but would be invalid if its actions were unconscionable You cannot dispense with the requirement to act in good faith IMPLIED PROMISES Wood 12 Lucy Wood entered into an exclusive agreement with Lucy allowing him to place her endorsements and her designs for sale Wood was supposed to retain half the profits Nothing in the document expressly stated what Wood promised to do Wood claims that Lucy placed her endorsements on fabrics dresses and millinery without his knowledge and withheld profits 0 The contract does not lack mutuality of obligation even though it does not expressly bindrequire Wood to market Lucy s designs Mutuality or Return Promise may be IMPLIED from the circumstances surrounding the contract and nature of the whole thing 0 UCC 2306 2 a lawful agreement by either the seller of the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale 0 Best efforts is similar to good faith theory So Wood must have used reasonable effort and due diligence in the promotion of the product Good Faith means honesty in fact and the observance of reasonable commercial standards of fair dealing This is both objective and subjective IMPLIED CONTRACTS Comam v Wisdom Man was in an accident and thrown from a street car which rendered him unconscious Wisdom a doctor was summoned and performed a difficult operation to save the man s life The man was never present after his head struck the pavement so he could not 11 expressly or implied assent to the action of the doctor He was without knowledge or will power 0 Since there was no meeting of the minds to create a real contract a contract implied by law rests upon no evidence and has no actual existence 0 Unlike the Lucy case nothing was bargained for and the man was unconscious He was not required to do anything Here the implied promise is just fiction It encourages contractual remedies which protect the restitutionary interests of individuals even when there is no contract Options for measuring damages that lie in restitution 1 The reasonable value to the defendant of what he received in terms of what it would have cost him to obtain it from a person in the claimant s position 2 The extent to which the defendant s property has increased in value or his other interests advanced QUASICONTRACTS Quasicontract appliedinfact contract is a fictional contract created by the court for equitable not contractual purposes It is a way of articulating a theory of restitution in order to remedy uniust enrichment Mental consent of the parties does not matter 0 Callano v Oakwood Park Homes Corp Callanos delivered and planted shrubbery under contract with potential homeowner Before the house was complete he died without paying Oakwood didn t know that he hadn t paid Callano contends that Oakwood Homes was unjustly enriched and that an agreement to pay for the shrubbery is implied in the law 0 Is Oakwood obligated to pay P s the reasonable value of the shrubbery on the theory of quasicontractual liability NO To recover the plaintiffs must prove that the defendant was enriched received a benefit and that retention of that benefit without payment therefor would be unjust 0 Under these circumstances the court believes the P should be pursuing the potential home owner s estate instead The P s cannot use the legal fiction of the quasicontract to substitute on promise or debtor for another The P s cannot succeed here because they already have a remedy bringing an action against the decedent s estate 12 TWO ALTERNATIVES TO CONSIDERATION 1 Reliance someone acted or refrained from acting justifiably upon a promise made to them in circumstances where that action or forbearance would not necessarily constitute consideration Reliance may not be bargained for or intended by the other party to induce the action If we have reliance we are still proceeding with contractual remedies 0 F einberg v Pfei er plaintiff had an alleged contract where D agreed to pay the plaintiff 200 per month for the rest of her life upon retirement New president of the company claimed this was a gratuitous gift Can the plaintiff prove that she has a right to recover from D 200 per month based on a legally binding contract YES 0 A promise to make a gift is not binding unless it is supported by consideration Past services do not constitute consideration 0 This case is an alternative to consideration There was no bargain for but P gave up her job because she was relying on the money She gave up the opportunity to continue to work based on the 200 stipend She did this because of her reliance on the defendant s promise A promise to provide a prospective employee a pension is generally enforceable 2 RBStitlltiOIl is not a contractual doctrine per say Providing a remedy to someone when there is no real contract Theory of recovery independent of contracts Underlying principle is that gains produced through another s loss are unjust and should be restored 0 EX You benefit someone and if it would be unjust for them to not compensate you then restitution allows you to recover Look for restitution when other contract laws do not apple eX statute of limitations runs out no writing under state of frauds mistake of fact sufficient for contact avoidance etc 0 Equity of Pais a right arising from acts admissions or conduct which have induced a change of position in accordance with the real or apparent intention of the party against whom they are alleged 0 Equitable estoppel context someone makes a representation of fact The other party continues about business and the party who made the representation of fact claims that the facts are now different That party is not allowed to claim the original representation of fact are now different because the other party relied on those facts They cannot assert contrary facts in a dispute because it wouldn t be fair when parties already relied on existing facts A legal principle that bars a party from denying or alleging a certain fact owing to that party s previous conduct allegation or denial Helps prevent injustice owing to inconsistency or fraud 13 0 Ricketts v Scothorn Scothorn s grandfather wrote her a promissory note for 2000 which he would give her if she quit her job He didn t think she should work as none of his other grand children did She quit and without a job for over a year She later acquired another job with his help and his blessing He did not pay the balance before his death His executor would not pay Scothorn because he viewed the promise as gratuitous 0 There is no consideration in this case but Equitable Estoppel was used to be fair and give Scothorn a remedy This case is not actually grounded in equitable estoppel their logic is now known as promissory estoppel 0 Promissory estoppel the doctrine that provides that if a party changes his or her position substantially either by acting or forbearing from acting in reliance upon a gratuitous promise then that party can enforce the promise although the essential elements of a contract are not present You are stopped from backing out of a promise that was previously made UCC Section 90 Promise Reasonable Inducing Action of Forbearance 0 Promise 0 Reasonable expectation requires that the action was reasonably expected to happen because of the promise of the promisee It must be a reasonable action Limits promises courts didn t want to take out consideration altogether 0 Actual inducement 0 There is no substantial or definite amount of action that has to happen but the courts would still weigh it in their decision and be reasonable 0 No requirement of intent 0 There is only a remedy if injustice can only be avoided by enforcement of the promise The remedy can be limited as justice requires RESTITUTION BASED ON UNJUST ENRICHMENT 14 Pyeatte v Pyeatte Married couple agreed to put one another through graduate school one at a time while the other worked Wife put husband through law school and afterwards he told her he wanted a divorce She had not yet started grad school Is restitution based on unjust enrichment appropriate in the context of the marital relationship Yes 0 Where both spouses perform the usual and incidental activities of the marital relationship there can be no restitution However because Margrethe showed extraordinary or unilateral effort which benefited only one spouse at the time of dissolution the court finds the remedy to be appropriate 0 There was a lack of a definite promise with terms spelled out but there was a promise In general courts do not like to enforce promises between married couples They generally look to promises made in a marriage as gratuitous something you do but aren t required to do You do the daytoday marriage services out of love not contractual obligation INTENTION TO CREATE A CONTRACT What kind of intent is necessary to bind a party There is a subjective and objective viewpoint Objectivity the idea of what a reasonable man would infer from the actionswords of the parties Learned Hand Judgment It is all about the manifestations of assent Subjectivity depends on the person s internal intent and the understanding of the other person s intention The objectivity standard largely won out in the field of contracts 0 First look at objective manifestation of intent If that s not enough then look to the subjectivity of the other party whether or not he knew that the offer was unreasonable If people could get out of contracts because they had a secret intent or didn t mean to then people would be hesitant to enter into contracts in the first place It is hard for the courts to regulate and there would be no standard By looking at objective evidence the court can be more predictable Lucy 12 Zehmer Zehmer claimed the contract he made with Lucy to sell his farm was a joke In the making of a binding contract must both parties have the same intention and must there be a meeting of the minds NO 15 0 In the field of contracts one must look to the outward expression of a person to find his intention rather than to his secret and uneXpressed intention Even though Zehmer claims that the contract was just a joke he behaved in such a way that Lucy considered it a serious business transaction From physical actions there appeared to be a good faith offer made by Lucy and a good faith acceptance made by Zehmer followed by the writing and delivery of a contract 0 The mental assent meeting of the minds is not a requirement for the formation of a contract As long as Zehmer s actions and words were reasonable then his secret intention doesn t matter OFFERS An offer is an act whereby one person offeror confers upon another offeree the power to create contractual relations between them It must be an act that leads the offeree reasonably to believe that a power to create a contract is conferred upon him objective Offeror sets up original terms but then the power is upon the offeree to accept or decline Invitations to deal are not offers 0 Offer restatement 24 manifestation of willingness to enter into a bargain so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it Offer and Acceptance are the form and consideration is a requirement in contract law If objective facts indicate that an offer has been made and if a reasonable person would see that the offer and circumstance was correct and it is was accepted then you could form a contract So why is the subjectivity of the offeree Lucy important Because he has to believe it is a reasonable offer He cannot know the offer was a joke or unreasonable 16 Owen v Tunison Owen wrote Tunison a letter offering him 6000 for property Tunison responded that it would not be possible for him to sell it unless he was to receive 16000 cash Owen then write accepting his offer to sell for 16000 But was later notified that Tunison didn t wish to sell the property 0 Must there be an offer or proposal of sale to constitute a valid contract YES Tunison did not make an offer to sell but just used general language His language was not such that he would be bound if accepted If there is no offer or proposal of sale then there can be no meeting of the minds and no contract Hypos pg 143 amp 147 Fairmount Glass Works v CrundenMartin Woodenware C0 in normal cases a quotation of prices is not an offer to sell in the sense that a completed contract will arise out of the giving of an order for merchandise in accordance with the proposed terms In this case however the language for immediate acceptance of the mason jars makes the appellant s answer not simply a price quote but a definite offer to sell on the terms indicated The general rule is that an advertisement is not an offer but rather an invitation by the seller to the buyer to make an offer to purchase A reasonable customer should know that the store might run out of their advertised product In these cases the buyer is the offeror What if the store decided to change the price from what the advertisement said The advertiser can modify the offer only before acceptance by the consumer Consumer protection laws Adv as not offers is only a general rule but can be broken 0 Lefkowitz v Great Minneapolis Surplus Store Company not allowed to employ their women only house rule because no such restriction were contained in the advertisement 0 Test of a binding obligation whether the facts show that some performance was promised in positive terms in return for something requested Because the advertisement was clear definite and explicit and left nothing open for negotiation it constitutes an offer of which acceptance will complete the contract However think of a lost dog reward advertisement only one person can get the reward Not the same as a store s advertisement The reasonable expectation is that you will be paid if you find the dog and bring it to them BiddingAuctioning if there is a minimum bid of 200 is the auction an offer to sell to whoever offers at least 200 No because with reserve the auctioneer reserves the right not to 17 sell He is not bound to accept anything He has the power the offeree The offeror in this case are the bidders If the auction is without reserve the bidders are the offerees Cases of Mistake Elsinore Union Elementary School District v Kastor contractor received a bunch of bids for a building job and then submitted those to the school district However he failed to include anything for plumbing He notifies the school district promptly of his mistake The school district contacts their lawyer and claims that he still has to do the work The school felt constrained by state law to accept the lowest bid they were concerned about their own fiduciary liability Court held that contractor could rescind the offer He was relying on all the subcontractors bids Is the mistake the result of negligence No just a math mistake Contractor would need to show that enforcement is unconscionable And could the school district be in the same place they would have been in had the contract been completed Yes Judgment errors v math errors judgment errors are not grounds for getting out of a contract Mathematical mistakes are not negligent and can happen to anybody What if the offeree knows or has reason to know that there has been a mistake made by the offeror Then the offeror should not be bound by the terms of the contract What if the offer is considerably lower than other offers and the offeror wants to get out of it Claim that the offeree should have known something was wrong and is grounds for rescinding the offer A similar case was ruled that the contractor s bid was enforceable because of the nature of the business Heifetz v Kiewet Sometimes if they want a job really bad they ll underscore the price in order to maybe get more jobs from that company in the future A lower bid doesn t always mean that something is wrong ACCEPTANCE Acceptance is a voluntary act of the offeree whereby he exercises the power conferred upon him by the offer and thereby creates the set of legal relations called a contract Once the contract is formed the offeror is no longer free to changes its mind and withdraw from the relationship without incurring liability Restatement 501 def manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer The terms of the offer controls the mode of acceptance Can acceptance take the form of a promise Yes In promise notice is required 18 Can acceptance take the form of performance Yes When Only when the offer invites such acceptance by performance Rest 531 No notification is necessary International Filter Co v Conroe Gin proposal stated that if accepted it was to become a contract if approved by an executive officer of the Int l Filter Co There was acceptance by Conroe Gin and approval by Int l Filter but no notice was sent to Conroe Gin that the contract had been approved Conroe Gin wanted to cancel or reverse the contract but int l filer insisted upon completion of the contract 0 Was Int l filter required to give notice to Conroe Gin of the contract s approval No Int l Filter changed the default rule requiring notification in a bilateral contract through specifying in their own contract Offeror gets to choose the rules that apply The necessity of giving notice is less obvious if the offer proposes a unilateral contract inviting acceptance by means of performance and not a promise eX Carlill v Smoke Ball Co p 166 You were supposed to use the smoke ball so many time and a certain way and if you got sick then they would pay you 100 The woman found out about this from an advertisement However advertisements aren t offers But it does constitute a contract because of specific language and directions Terms were very precise The company claims that she had failed to notify them of her acceptance But the court claims that since it s a unilateral contract her performance did not require notification to be given What if an offeree just sits on the offer and does nothing silence Silence is not usually considered acceptance It is only acceptance only when UCC 691a c when they take benefit of services have reason to understand silence manifests assent or previous dealings that led to an understanding Restatement 62 common law If an offer can be accepted by either promise or performance then the beginning or tendering of the performance is allowed to complete to contract If the offer can only be accepted by a promise then it can only form a contract with a return promise not performance Restatement 45 when the offer invites performance and not promissory acceptance an option contract is created when the offeree tenders or begins the invited performance It doesn t have to be completed to become a contract Allied Steel 12 Ford Motors Indemnity provision in contract which made Allied responsible for all their employees and the negligence of all Ford employees in connection with the work An allied employee was injured by a Ford employee Is Allied liable under the indemnity provision YES 0 Allied claims they never acknowledged acceptance by not sending back the form but the court claimed that if a form of acceptance is plainly worded in suggestive language then the offeree may accept in another manner such as commencement or performance and then be bound by the offer s stated terms 19 0 Performance constituted acceptance If the contract does not set out an exclusive means of acceptance then it can be accepted in multiple ways ACCEPTANCE IN UCC UCC 2206 sale of goods an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances This is much broader than the restatement Allowed to respond in any reasonable way like performance or a return promise It can be accepted any way unless otherwise unambiguously indicated by the language or circumstances Under UCC 2206 an order for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt of current shipment of conforming or nonconforming goods Nonconforming goods sent as accommodation and explained as such can constitute a counteroffer not acceptance If there is no notification by the seller that they were being accommodating they are actually breaching the contract because there was acceptance Ex buying Britney Spears CD and being sent a Miley Cyrus CD Corinthian Pharmaceutical Systems 12 Lederle Laboratories Lederle had a price increase on one of their vaccines P received prior knowledge and ordered 1000 vials Since Lederle notified Corinthian that the remaining part of their order would be subject to the price increase and that Corinthian could cancel their order if they wanted Lederle was nonconforming 0 Also since Lederle told Corinthian with the first delivery that they were making an exception it was accommodation It was just a favor to the buyer Lederle had no obligation to send the first 50 vials at the lower price 0 The original order was never accepted because the tracking number the buyer got was just from an automated machine HOW TO TERMINATE AN OFFER After an offer has been made conferring the power of acceptance on the offeree that power can be terminated by 1 Lapse of an offer rest 41 if a period of time is not set out in the offer then it lapses after a reasonable time depending on the circumstances Objective the reasonable person test is in the position of the offeree looking at the offer of the offeror Subjective it also involves the intent of the offeror in some cases If the offer has lapsed then whatever communicated coming from the offeree would not be acceptance because they no longer have the power to form the contract It would then be a counteroffer and original offeror would now be the offeree 20 a EX an offer made to another in a face to face conversation is deemed to continue only to the close of the conversation and cannot be accepted afterwards 2 Revocation by the offeror manifestation of nullification in a way that it is acceptable to take it back The basic rule is that an offeror can terminaterevoke an ordinary offer at any time before it has been accepted EX if the offeror could not take back his offer to buy offeree s gold and the price of the goes way down then the offeree would be able to take advantage of the offeror To revoke an offer offeree must receive some kind of notice 0 Direct Communication Restatement 42 offeror revokes when they directly communication from the offeree their intention not to enter into the previously proposed contract 0 Indirect Communication Restatement 43 offeror revokes when they take definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect 0 Revocation of General Offer Restatement 46 offeror revokes a general notification to the public or a number of persons unknown to the offeror when notice of termination is given publicly by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available Limitation on the power to revoke An exception to 2 is a firm offerontjon contra ct these are offers that are not subject to revocability They are irrevocable There is a fixed period during which the offer stays open Even if you promise to keep an offer open until a certain time you can still revoke it because there is no consideration and no complete acceptance 0 Dickinson v Dodds Dodds sent a letter to Dickinson in which he offered to sell some land the offer to remain open until Friday at 9 Dickinson met Dodds on the railway handing him a duplicate of the notice of acceptance but Dodds said that it was too late because he has already sold the property Dodds promise to keep the offer open until 9 on Friday was not a binding contract because there was no consideration and acceptance to make it a binding agreement It was just a promise O nudum pactum bare or naked promise a contract or promise with no consideration In the absence of consideration an offer with restrictions time limits could still be revoked 3 The offeror s death or incapacity offeree s power of acceptance is terminated by the offeror s death or supervening incapacity 4 The offeree s rejection or counteroffer when offeree rejects the offer there is no contract A rejection of the offer by the offeree terminates the offeree s power to accept If the offeree then wants to accept the offer it is considered a counteroffer and he is the 21 offeror Exception restatement 37 power of acceptance is not terminated by rejection counteroffer revocation or death or incapacity because you ve paid for the time to keep the offer open Revocation a manifestation of intent to revoke the offer which should be known to the offeree through a reasonableness test objective Would a reasonable person have understood that the offer was revocable The language of revocation can be more ambiguous than the language required to make an offer Because the language to make an offer requires much more clarity this protects the offeror from entering into a contract they don t really want to get into A mere rumor that the offeror is selling to someone else is not revocation of the offer through indirect communication 43 Depends on if the offeree was reasonable in his belief The offeree should not necessarily conclude that he no longer has the power to accept because the offeror is negotiating with other people Even if the offeror enters into a sales contract with someone else it doesn t necessarily mean the offer has been revoked The sales contract could be conditioned upon the initial offeree s rejection of the offer OPTION CONTRACTS FIRM OFFER Options Contracts Rest 87 a contract that limits offeror s power to revoke for a given time Gives the offeree more power because now they can decide for the given period of time whether to accept or not An offer is binding if it is in writing and signed by the offeror recites a purported consideration for the making of the offer and proposes an exchange on fair terms within a reasonable time There are four ways to create an option contract limitations on power to revoke 1 Consideration by Offeree offeree pays for the right in some way to have the option kept open 22 a EX 1 I promise to sell you blah if you promise to buy blah and I promise to keep it open for 10 days This does not work there has to be additional consideration to keep the offer open consideration for the option contract The law looks at this as involving two contracts In the absence of consideration an offer with restrictions time limits could still be revoked b EX 2 I will sell you blah if you promise to buy blah and I will throw in my golden bowling bowl There is consideration in this case 2 UCC Firm Offers UCC 2205 an offer by merchants not specific to merchants who specialize in dealing certain goods a merchant can be any business man who is dealing for their business to sell or buy in signed writing which by its terms gives assurance that it will be held open is not revocable for lack of consideration during the time stated or if no time is stated then for a reasonable time as long as it s not more than 3 months 3 Partial Performance under Unilateral Contracts Rest 45 where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance an option contract is created when the offeree tenders or begins the invited performance or the beginning of it Once the invited performance has been started the offeror cannot revoke a Ex I will pay you 10000 to paint my house The offeror doesn t have to perform pay until the performance of the offeree is finished with the painting job There isn t the offeree s acceptance of the contract until they have completed performance There is an implied promise of the offeree but that doesn t mean he has accepted the original contract 4 Reliance by Offeree in limited circumstances The general rule is that the offeror can revoke at any time before acceptance Bilateral contract where the offeree relies on the contract Drennan 12 Star Paving C0 b Revocability and Reliance Drennan 12 Star Paving C0 there was a mistake in the defendant s bid for a contracting job P relied on the bid of D when putting together his own bid for the school district Does the P s reliance on the D s offer make the D s offer irrevocable YES i Restatement 90 a promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise The defendant had reason to know that its bid if proven the lowest would be accepted by the contractor ii Reliance has to be reasonable for Restatement 872 to apply offeror should reasonably expect to induce action or forbearance of a substantial 23 character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice iii Traditional Approach Subcontractor should have been able to revoke his offer because there was no consideration The offer is conditional and could be revoked before acceptance usually Then contractor could not have claimed promissory estoppel because it s inapplicable But the plaintiff s reliance makes the defendant s offer irrevocable under restatement section 90 What is the remedy if there was a valid option contract that was breached Often specific performance THE MAILBOX RULE Mailbox Rule dispatch of the acceptance not its receipt arrival is the moment of acceptance and therefore the moment at which the contract is made after which the offeror s power to revoke is terminated the offeree s power to reject is ended and the risk of transmission are on the offeror This governs the timing of acceptance not rejection or revocation The mailbox rule doesn t apply to revocation Intended to protect the offeree they can count on their offer being accepted 24 The mailbox rule is applicable only if the acceptance is made in a manner and by a medium invited by the offer It would not ordinarily apply to acceptance by mail of an offer made by telegram and such an acceptance would be effective only on receipt ONLY Exception restatement 63b an acceptance under an option contract is not operative until received by the offeror if it s received within the option period then it s okay The offeree is already protected by the options contract so he doesn t need the additional protection of the mailbox rule Restatement 40 regarding rejection rejection doesn t terminate the offer until it is received by the offeror If acceptance is received first before a rejection then there is a contract If the rejection reaches the offeror first and he relies on it and then receives the acceptance there is no contract If rejection is sent first then there is no mailbox rule United States Life Insurance 12 Wilson Decedent had a life insurance policy he let expire He had until August 14th to be reinstated On July 27th he electronically directed payment to be reinstated The electronic check was delivered on July 301 However on July 27th he was killed in a bicycling accident Was the life insurance policy in effect at the time of his death YES 0 Acceptance of an offer is completed when the paymentletter is sent Insert Mailbox Rule Handout Here COUNTEROFFERS Mirror image rule acceptance has to be on exact terms provided by the offeror This is a common law rule Offeror is master of the offer so if you re going to accept you have to follow 25 the exact terms of the offer The offeree doesn t have to be explicitly saying no but can express concern over the terms which could be construed as a deviation and not acceptance 0 However a mere inquiry regarding the possibility of different terms a request for a better offer or a comment upon the terms of the offer is ordinarily not a counteroffer ex like commenting that you will buy the house as long as the owner doesn t take down the garage door Also there would be no counteroffer if you simply asked the owner if they d be willing to throw in a big screen TV 0 If there is any definite and unequivocal variation then the purported acceptance operates as a rejection and at the same time constitutes a counteroffer Under the mirror image rule it is advantageous to have fired the last shot This is right up until performance each party can send back and forth forms and counteroffers intending to dictate different terms Changing the terms makes you the offeror making you the master of the offer Transactions of this sort are referred to as involving a battle of the forms and arise most often when parties use standardized forms to express offers and acceptances Once performance occurs whoever had the last say before it happened is the offeror and those are the contract terms Assent to the contract can be explicit or implied by both parties ADDITIONAL TERMS The UCC does not follow the mirror image rule they use 2207 Under UCC you can have a contract where the acceptance differs from the terms of the offer not an accepted counteroffer These variations are considered as additional to or different from those offered or agreed upon If they go along with the contract then it is binding Unless acceptance is expressly made conditional on assent to the additional or different terms 0 Exception However between merchants these additional terms do not become part of the contract if 1 the offer expressly limits acceptance to the original terms 2 they materially alter the original offer or 3 notification of objection to the new terms has already been give or is given within a reasonable time after notice of them is received 0 If this exception doesn t apply because both are not merchants then what is the effect of the additional terms under UCC We still have a contract but the additional terms are not included The additional terms are considered to be like proposals but the contract is only for what was agreed upon Itoh 12 Jordan seller s acceptance was expressly conditional on buyer s assent to the additional or different terms and conditions set forth If the terms were not acceptable buyer was to notify 26 seller at once One of the provisions added was an arbitration clause which had no counterpart in Itoh s buyers purchase order 0 The added arbitration clause was not deemed to be part of the contract because the plaintiff did not assent to the additional terms D shipped the goods and A accepted but under UCC 22073 the terms of the particular contract consist of those terms on which the writings of the parties agree together with any supplementary terms incorporated under any other provisions of the act 0 Since the parties did not agree on the arbitration clause the clause cannot fall under the supplementary material provision Disputed additional terms cannot be brought back into the contract under the guise of supplementary terms What happens if neither party assents but goes through with it anyways conduct Then there is a contract and the additional or different terms are incorporated under UCC 2207 3 0 Northrup Corp v Litronic Industries D s offer contained a 90 day warranty while P s return invoice contained an unlimited in duration warranty There is a contract because there was an expression of acceptance even if there were different terms The presence of these different terms in the acceptance suggests that the offeree didn t really accede to the offeror s terms yet both parties contractedacted 0 How does the court deal with terms that are different but not additional There are 3 UCC approaches to the different terms under UCC 2207 1 The discrepant terms in both the offer and acceptance drop out and default terms are found elsewhere in the Code to fill the gap majority rule a The Knockout Rule when the difference between the sellers terms and the buyers are material the two terms cancel each other out and the contested term is to be supplied by a code gapfiller 2 Offeree s discrepant terms drop out and the offeror s become part of the contract drop out rule leading minority rule 3 Equate different with additional and make the outcome depend on whether the new terms in the acceptance are materially different from the terms in the offer in which case they d operate as proposals Apply 22072 and read additional as different PRECONTRACTUAL REMEDIES 27 General approach to precontractual remedies usually parties seeking recovery when there was only negotiation do not win If there is a benefit conferred upon one party then sometimes there can be restitution claims and damages If there is a misrepresentation during negotiation then the party may be able to recover damages and reliance interests In negotiating under the common law there is no duty of good fait Reliance can be used as a substitute for consideration contractor relying on the subcontractor s bid for his own bid and essentially creates an option contract Subcontractor can t just back out Ho nan 12 Red Owl Stores There is not a contract for which damages are available If Hoffman did all these things in preparation of getting a store then they would make him an offer Representation promissory in nature on future undisclosed terms It is a promise to make an offer in the future Usually the offeror is free to revoke at any time and the offeree cannot rely on the terms of the offer Yet on the facts of this case giving Hoffman reliance damages seems like the right thing to do There was a constant stream of activity in which he relied on their promise and changed his life Promissory Estoppel served as a substitute for consideration 0 Court employs Promissory Estoppel In the law of contracts the doctrine that provides that if a party changes his or her position substantially either by acting or forbearing from acting in reliance upon a gratuitous promise then that party can enforce the promise although the essential elements of a contract are not present 0 When damages are awarded in a promissory estoppel action a promise need not be enforced but the party should be placed back into the position he would have been in had there not been a contract reliance costsdamages Channel v Grossman property owner unequivocally promised a prospective tenant to withdraw the lease from the market during the negotiation and then broke their promise Does the unequivocal promise bind the property owner for a reasonable period of time if the prospective tenant has spent a significant amount of time and money on the lease negotiations and preparations YES 0 By contract you can agree to negotiate in good faith even though good faith is not required under common law This is not a contract to contract it is a contract to negotiate in good faith for a future contract 28 STATUTE OF FRAUDS Restatement Statute of frauds according to the restatement and UCC have different rules Generally contracts do not have to be in writing to be enforceable Statute of Frauds restatement Requires that a contract be in writing to be enforceable not to exist in the first place Generally if a contract falls within the statute of frauds but is not in writing it could be unenforceable Therefore a plaintiff trying to obtain damages generally cannot 0 If there is not writing but the oral contract has been partially performed and falls under the statute of frauds there is still no enforcement and no damages But you could raise the contract as a defense for something else Restatement 131 the writing must be signed by or on behalf of the party to be charged doesn t have to be both parties The writing by itself does not have to be the total contract it can be separate from and just evidence the contract For example definitions of a writing is very broad and can include receipts minutes of a board meeting or an informal letter If a contract falls within the statute of frauds then it must be set forth in signed writing to be enforceable For a writing to satisfy the general statute of frauds it must do 4 things with reasonable certainty Types 1 Identify the parties to the contract 2 Show that those parties made a contract 3 Set forth the nature of the contract including some indication of what the parties contracted about and 4 State the essential terms of the contract 4 main things to consider when dealing with statute of frauds 1 When is there a required writing a Transfers of interest in real property land b Contracts in which performance will take more than a year one year provision c Suretv Agreements they agree to be on the hook for the debts of some other primary debtor d Sale of goods for more than or equal to 500 2 Does an exception apply 3 What is a sufficient writing if the writing is required 29 4 When is reliance sufficient to deprive a party of the statute of frauds defense The most important provisions of the statute of frauds Oneyear provision an agreement that cannot be performed within the year following its making is unenforceable unless circumstances persuade a court otherwise The year runs from the time of contracting to the time for completed performance not from the time of contracting to the time of a dispute as to the terms of the contract The performance need not take more than one solid year to complete Court looks at the terms of the contract and IF it is possible that it can be performed within a year then it would not fall within the statute of frauds Examples 0 2 yearemployment contract would be within the statute because it cannot be completed within a year 0 Employment agreement for life would not fall within the statute because you could die within one year If it cannot be completed within the year then it must be in writing If the contract is not in writing but there is full performance under the contract then she is entitled to the benefit of the contract and it will be enforced If there was partperformance she would be entitled to restitution 0 Land contract provision encompasses contracts to transfer to any person any interest in Land restatement 1251 Generally leases have to be in writing and be signed If the lease is for less for a year than it usually doesn t have to be in writing Exception if the lease is less than a year but there is part performance like improvements to the property then courts will often enforce the contract when it s not written 0 Real Property Exception partperformance ex the seller lets the buyer start improving the property under the contract before the title has passed which can create a problem if the seller thinks better of the idea This exception applies only when the breached against party seeks specific performance of the contract 0 Suretyship provision Where one party takes on someone else s obligation and becomes liable for it they agree to be on the hook for the debts of some other primary debtor There is a bargained for exchange here even though the promisor doesn t receive the benefit or have consideration directly In order to be bound by that promise you have to have a signed writing This may allow the promisor to reconsider her wellmeaning but reckless promise Is 30 the promise to back up the primary debtor enforceable Yes if there is writing by the promisor otherwise opportunities to commit fraud are too great Examples to Suretyship 0 If you promise to pay and someone else receives the car Then you are the sole debtor Then there is no writing needed In this case you re not the surety 0 There is a creditor selling the car to the debtor Then the surety goes to the creditor and says if you will release the debtor from his obligation then I will make the payments on the notes to the car Novation when the surety becomes the debtor It is the substitution of one debt for another Writing is required a Exception to the Suretyship Provision if the surety s primary purpose in making the promise is to secure his own benefit then a writing is not required under the statute of frauds to make the contract enforceable The bank could come after the surety in this case Originally meant for the surety not to be able to get out of their promise if the contract ends up not benefitting them STATUTE OF FRAUDS UCC 2201 General rule is there a writing required when you have a sale of a good Yes if it is a sale of goods for 500 or more 0 What are the requirements under the UCC 0 Must be signed by the party against whom enforcement is sought very broad can be a symbol a lot goes on electronically now 0 Content of the signed writing must include a quantity of good must indicate that a contract for sale has in fact been made between the parties There are no other essential terms that must be stated this is different than the statute UCC will supply missing terms like price but not quantity 0 The general rule applies to both merchants and normal people 0 Ex if quantity of goods outlined in the contract is less than what was discussed orally you always go by the quantity in the written contract STATUTORY EXCEPTIONS TO STATUTE OF FRAUDS There are 4 statutory exceptions to UCC 2201 31 1 Merchant exception UCC 2201g2 If merchant 1 supplies a signed writing in confirmation of the contract within a reasonable time and it is received by merchant 2 with reason to know its contents M2 cannot raise statute of frauds as a defense So M1 can sue M2 and M2 cannot claim that they can t be sued because they didn t sign the contract Person who receives the writing and does not object need not have signed it to have a contract enforced against them 0 If M2 does not agree to the confirmation then they must give written notice of their objection to its content within 10 days after it is received 0 In common law M2 could raise statute of frauds as a defense by saying that they didn t sign the contract 2 Sale of Goods Exception under UCC 22013a and 3c Contract is enforceable if 0 The goods are to be specially manufactured for the buyer customized 0 The goods cannot be sold to other in the ordinary course of the seller s business and 0 The seller has substantially begun making the goods or making commitments to get the goods If the seller hasn t started making it or incurred expenses starting it then they are not under this exception 3 Exception 3 if the party against whom enforcement is sought admits in his pleading testimony or otherwise in court that a contract for sale was made 4 Full Performanceish Exception 4 If BOTH parties have made and accepted payment or the goods have been received and accepted RELIANCE BASED EXCEPTIONS TO THE STATUTE OF FRAUDS Exceptions to the statute of frauds limits their effects These reliance based exceptions have in common that the breached against party has in some way relied upon a contract unenforceable because it is not set forth in a signed writing that satisfies the statute of frauds These exceptions are usually caused by two types of reliance 1 Reliance by performing the contract in full or in part on the belief that it was enforceable a The breached against party has performed and the other party has presumably derived some benefit from that performance Involves restitution 32 2 The breaching party is estopped to deny that it has made a contract if the other party has in some manner relied on the statements of the breaching party 0 Monarco v L0 Greco a promise was made to one son so that in exchange for his working at home and giving up further education the land would pass to him However the father ended up leaving his half of the joint property to his grandson instead Can the son rely on the statute of frauds NO Because the passing of property must be in writing 0 However the absence of a writing does not keep the son from winning because they use the concept of reliance and unjust enrichment The justice allows for reliance as a bar to raise the statute of frauds notwithstanding that the promise itself had nothing to do with a writing It did not require that the promise relate to the writing in some way which was the norm A party is estopped from asserting the statute of frauds to prevent the enforcement of an oral contract where 1 A party has so substantially changed his position in reliance upon the contract that he would suffer an unconscionable iniurv if the contract were not enforced OR 2 The party seeking to assert the statute of frauds will be uniustlv enriched if he is permitted to escape the obligations of the contract Difference between reliance in section 90 and reliance in 139 notwithstanding the statute of frauds 139 provides you with a list of circumstances that are significant to consider in determining if injustice can only avoided by enforcement of the promise It s harder to show reliance under 139 than restatement 90 Reliance is highly contextual and determinative on the situation and circumstances When reliance is used as an estoppel to the statute of frauds as a defense it is not as broad and easily applied UCC does not bar reliance as a defense to statute of frauds You are allowed to use reliance POLICING THE BARGAIN There are three basic types of policing concerns 1 The W of the party seeking relief from a promise 2 The behavior of parties during the bargaining process 3 The substance of the resulting bargain 33 Why can t just anyone enter into a contractWe are concerned with fairness and iustice One reason we may not honor contracts between certain parties is because we do not trust the process itself as fair There may be differences in knowledge and information smart savvy business man and Susie homemaker However the courts wants to promote people being able to make their own correct contracts not let others manipulate them into making bad contracts There are two types of incapacity to make a contract 1 Mental Infirmity 2 Minority Infancv Doctrine claims that contracts entered into by minors are voidable Law assumes that minors do not have capacity and judgment to enter into a binding contract protecting minors from themselves and exploitation from others i ii iii Exception unless it is for the minor s necessities like food board apparel medical aid or teaching instruction Then the contract is binding In some cases the necessaries exceptions is small EX If a parent is able and willing to provide housing then what was seen as necessary under common law is not seen as necessary now Then the minor could get out of the contract with the lessor Necessities can be seen as a relative concept in some cases the term necessity is a relative term and depends on the social position and situation in life of the minor as well as upon his own fortune and that of his parents EX a laptop can be seen as a necessity for a 17 year old kid who needs it for school from a middle class family General Rule contracts with minors are voidable Before they turn 18 the minor can walk away and disaffirm the contract For a reasonable time after they turn 18 they can decide whether or not they want to ratify the contract meaning that both parties are now able to enforce the contract The minor can always get out of the deal up until disaffirming or ratifying the contract once they re 18 i ii Ratification of contract once a minor is 18 does not have to be verbal You can ratify by continuing action and it can be immediate Traditional Rule Restitution for Minors if the contract is disaffirmed then the minor gets back what they paid and the other party gets back what they gave like a laptop However it does not matter that the laptop is the worse for the wear or has viruses 34 iii Section 33 Rule the party giving performance or services is entitled to compensation for the unjust enrichment of the minor ex gymnastic lessons that can t just be given back 0 Minor does not have voidability of the contract if the parent consented to the contract for them Court relies on the parent s judgment EX Brooke Shield s mother consented to a contract to sell her daughter s nude photos from when she was 10 years old 0 Douglass v P ueger general rule does not apply 16 and 17 year olds who don t miss school because of work and have a work certificate should be bound by the terms of the contract because they are seen as capable and competent for gainful employment Court reaches the conclusion that 16 and 17 year olds can work and should be bound by work contracts These restatements can all have different consequences and a variety of approaches I Restatement 12 Capacity to contract I Restatement 14 Infants Unless a statute provides otherwise a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person s 18th birthday I Restatement 15 Mental illness or defect A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness of defect a He is unable to understand in a reasonable manner the nature and consequences of the transaction or b He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition I Restatement 16 Intoxicated persons A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication a He is unable to understand in a reasonable manner the nature and consequences of the transaction or b He is unable to act in a reasonable manner in relation to the transaction FAILURES OF THE BARGAINING PROCESS How can a party get out of a deal on the basis that there were deficiencies in the bargaining process 35 0 Grounds for avoiding contract that relate to these aws contracting under duresscoercion undue in uence mutual mistakes and fraudmisrepresentation Duress can be a physical or nonphysical improper threat Under modern law other party does not have to prove that they tried to resist the threat Can include threats to one s business or financial wellbeing can sometimes amount to duress I Is there duress if the party threatens to do something legal Generally not but maybe if it is an unjust or unequitable threat Ex firing an employee at will unless they agree to certain things I Restatement 175 when duress by threat makes a contract voidable O 1 If a party s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative then the contract is voidable by the victim I No reasonable alternative is objective inducement is subjective O 2 If a party s manifestation of assent is induced by one who is not a party to the transaction the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction I Even if one party threatens to physically harm another but the resulting exchange is on fair terms and the harm did not rise to a tort then there is not an improper threat Duress compared to the Pre existing Duty Rule 0 Alaska Packers Ass n v Domenico fishermen demand increased wages for the salmon season However they were already under contact to perform the same duties as before theory no consideration They were just trying to coerce another 50 out of the company for no additional work 0 Preexisting duty rule the performance of a preexisting duty is not consideration for the other parties promise to pay more or provide more services Makes sure parties are acting in good faith and not contracting under duress 0 If you re going to modify a contract then you have to have consideration AVOIDING PREEXISTING DUTY RULE Recission and Modi cation Rescission when an existing contract is voluntarily terminated by consent of both parties and a new one executed in its place and stead both parties agree to terminate the contract You can get 36 around the preexisting duty rule if you both rescind the first contract and then recontract under the new terms and provisions you want A sure fire way to get around the preexisting duty rule is to provide consideration Is recission supported by consideration Yes whenever the first contract is rescinded by an agreement of both parties then it counts as consideration There is a bargained for element and both agree to forego the rights of the first contract The twostep process of rescission and modification avoids the preexisting duty rule as long as the contract is partlyexecutory that is not fully performed on either side Restatement 89 modification of executory contract a promise modifying a duty under a contract not fully performed on either side is binding if 0 a Modification and new contract is binding if it s fair and equitable in circumstances not anticipated b to the extent provided by the statute UCC c if justice requires enforcement in view of material change of position in reliance on the promise O Watkins amp Sons v Carrig P agreed to excavate cellar for a stated price They found solid rock held a meeting and orally agreed that the P should remove the rock for about nine times the stated price Was the original contract rescinded and a new one with a different price formed in its place YES D relinquished rights in regards to the 1st contract by making the new agreement 0 The voluntary nature of the agreement goes to the issue of fairness It was fair for the defendant to pay the company more for the excavating of the unexpected solid rock Also the plaintiff relied on the modified terms in the second contract and continued with the excavating process UCC 2209 agreement modifying a contract needs no consideration to be binding MISREPRESENTATION Misrepresentation if you are misrepresenting then you are changing what has been bargained for It is usually unfair to hold someone to the bargain when they ve been misled or it is economically inefficient because the misleading party cannot be trusted General Rule party does not have to tell the counterparty ALL the detailed information that the first party knows about the subject matter of the contract Even though the information is relevant as long as the party does not lie about the state of the product then they do not have to tell 37 0 There is always going to be a deficiency of information in a deal you can t say everything It would be inefficient at the judicial level to provide every piece of conceivably relevant information 0 Court also attempts to protect individuals who have invested in information and resources to maximize their command of what things are really worth like dealers in antiques and people who research companies to find out what they re worth Should they be required to just give away their hardworked for or expensive information No Swinton v Whitinsville Sav Bank seller fails to disclose termites which the buyer could not have readily observed Seller is not liable for failure to reveal termites because he didn t lie and say there weren t any This was a tort action not contract recission 0 Some courts start with the idea that a seller of a home should disclose to the buyer a socalled latent defect a deleterious condition known to the seller which is not otherwise readily observable Kannavos v Armino halftruths and partial omissions can count as whole lies While the party is not required to reveal everything if he does speak about it then he must speak honestly and divulge information Defendant claimed apartment could be used for rentals when it really could not Because she spoke with reference to a given point of information then she was bound to divulge the truth and was held liable 0 Even though Kannavos could have found out through a lawyer that there were zoning restrictions it doesn t matter Because the seller misled and Kannavos relied on the contract he wasn t required to find the information on his own Vokes 12 Arthur Murray Inc generally when a tradesman engages in trade puffing to promote its services it is not actionable as fraud In this case however it became fraudulent when she was caused to make expenditures in reliance on nonexistent abilities PAROL EVIDENCE RULE Parol Evidence Rule may prevent a determination that an agreement made prior to or contemporaneouslv with the writing but not re ected in the writing is part of the contract It is not an actual rule of evidence but is rather a rule of substantive law that when it applies prevents the inclusion of any proof that the terms of the contract are other than expressed in the writing Can also prevent any previously or contemporaneously written agreements as well as oral made before the final contract Parol evidence rule deals with whether the court can look outside the writing to determine with the terms actually are Tries to determine what the terms are 0 Support for this Rule The supporting rationale for this rule is that since the contracting parties have reduced their agreement to a single and final writing extrinsic evidence of past agreements or terms should not be considered when interpreting that writing as the 38 parties had decided to ultimately leave them out of the contract Prevents fraud In the absence of fraud or mistake a written agreement is the only evidence of the agreement between two parties 0 Ex one party claims that there was an oral agreement about something that was not included in the written contract Are these other oral terms also part of the written contract According to Gianni v R Russell amp C0 no All preliminary negotiations conversations and verbal agreements are merged in and superseded by the subsequent written contract Follows parol evidence rule 0 This rule is applied exibly by modern courts Judges just treat it how they want to Restatements 209 and 210 in determining whether a written agreement can be supplemented by terms not in that written agreement you need to know the status of the written contract This affects the courts ability to consider other terms 0 An integrated agreement is a writing constituting a final expression of one or more terms of an agreement 0 A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement Everything has been said about this contract and nothing else can be said of relevance to the terms 0 Partially integrated any kind of agreement that isn t completely integrated Some but not all terms are stated In this case the terms that are not intended to be final expression are terms which the court can look to outside evidence The terms that are finalized cannot look to outside evidence 0 If a writing discusses terms but is not intended to be a final expression of the agreement is an unintegrated contract Judge Traylor says that to determine how the contract is integrated one must look to the intent of the parties Status of Written Contract Effect on Court s What evidence can the court k consideration of other terms use to decide Unintegrated Contract Look at contract and Any previous negotiations or determine what would extrinsic evidence naturally be included there if it s the same subjectissue Gianni R Russell amp C0 Partially Integrated Can use parol evidence rule or Can look to collateral 39 Contract not if the previous agreement agreementextrinsic evidence is natural to not be included in to determine the intention of the written contract the parties Masterson v Sine Terms that supplement the writing are admissible Completely Integrated Must follow the Parol Any Evidence whether parties Contract Evidence Rule Evidence wanted contract to be the only contradicting the writing is representation of the terms excluded intent The evidence you would use to determine whether or not to apply the parol evidence rule is first used to determine whether a contract is unintegrated partially or completely integrated Would you expect the written contract to cover every single aspect of the agreement When does the oral agreement come into the field embraced by the written law Look at if the contract would naturally include that subject materialissue If it integrally relates to the same subject matter that both would be executed at the same time the scope of the subsidiary contract must be taken to be covered by the writing Masterson v S ine Test for partial v complete integration whether the parties intended their writing to serve as the exclusive embodiment of their agreement Any collateral agreement must be examined to determine whether the parties iTyntended the subjects of negotiation it deals with to be included in excluded in or otherwise affected from the writing When only part of the agreement is integrated parol evidence may be used to prove elements of the agreement that were not in the writing Exceptions to Completely Integrated Contracts and the Parol Evidence Rule if the contract was never intended to be a real agreement then you can use parol evidence to prove that If there was fraud then parol evidence can be used to prove fraud Bollinger 12 Central Penn Quarry Plaintiff wants reformation of the contract rewriting the terms of the contract to say something other than what it currently says and the court grants because there was a mutual mistake They omitted the term that they had agreed upon They court knows it is a mutual mistake because they used parol evidence Course of performance is part of the evidentiary trail that the company performed the act in the history of their dealings with the plaintiff 40 PAROL EVIDENCE RULE IN UCC Parol Evidence according to UCC 2202 Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein referring to integrated agreement may not be contradicted by eVidence of any prior agreement or of a contemporaneous oral agreement but may be explained 0139 supplemented 0 Can permit parol eVidence rule to permit extrinsic eVidence a by course of dealing history of dealing together or usage of trade Section 1205 or by course of performance contract with multiple stages of performance Section 2208 and 0 b By eVidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement cannot use parol eVidence for a completely integrated contract words outside the contract BUT you can use sub a in completely integrated contracts If it is written in the agreement that this contract cannot be modified except by signed writing is this true in both common law and UCC 0 In common law the written contract says that oral modification is not allowed later and can only be done in writing Is this true No because the latest contract has precedence 0 In the UCC that is controlling 22092 says that a signed agreement which excludes modification or recission except by signed writing cannot be otherwise modified or rescinded Although an attempt at modification or recission does not satisfy the requirements of 2 or 3 it can operate as a waiver PLAIN MEANING RULE Plain Meaning Rule deals with the extent to which the court can consider eVidence extrinsic to the contract itself to determine the meaning of terms in the contract Not trying to add terms to a contract that aren t there like parol eVidence rule but attempts to interpret terms already in the contract A court cannot permit eVidence of a contracts meaning if the contract is unambiguous If the contract has a plain meaning a court must not allow external eVidence as to the meaning of the contract Step 1 determine if the contract or contract term is ambiguous and Step 2 use extrinsic eVidence to determine meaning if and only if the contract is ambiguous 0 There are two camps that people fall into in regarding step 1 how to determine if the contract is ambiguous 41 1 California Camp These courts reject the idea that courts should only look to contracts themselves to determine if contracts are ambiguous Words don t have an absolute meaning and can change in regards to context They want to look at extrinsic evidence in step 1 to determine if contract is ambiguous and then use the same extrinsic evidence in step 2 All about the intention of the parties Judge Traynor does not believe in perfect verbalwritten expression You cannot just look at language of an agreement and know for certain that you are understanding the agreement like the parties understood it to mean Words do not have absolute and fixed meanings Pacific Gas amp Elec Co v GW Drayage amp Rigging held that extrinsic evidence is admissible to explain the meaning of a written instrument if that evidence is relevant to prove a meaning to which the language is reasonably susceptible Trident Center v Conn General Life Ins follows Pac Gas and allows admission of extrinsic evidence in a seemingly unambiguous contract Court berates the rule because it is a delay for litigants and clogs up already burdened courts 2 New York Camp Court cannot look at extrinsic evidence only the contractinstrument Silence does not constitute ambiguity Greenfield v Philles Records Inc Since there was no ambiguity in the terms of the contract the court believes that the Ds are entitled to exercise complete ownership rights over the recordings of the songs Thus a written agreement that is complete clear and unambiguous on its face must be enforced according to the plain meaning of its terms Court cannot alter a contract of one reasonable meaning to re ect its own personal notions of fairness and equity EXTRINSIC EVIDENCE FROM COMMERIAL CONTEXT F rigaliment Importing Co v BNS International Sales Corp what is the definition of a chicken a young chicken or an older chicken They all know what a chicken is but are arguing about a narrower term The contract is first seen as ambiguous because when looked up in a dictionary it gives two different definitions The plaintiff bears the burden of proving the narrower term which they cannot do Court leans towards more objective evidence not intention Court uses New York camp plain meaning rule 0 Intent What if both parties had thought that chickens meant pigs What should chicken be interpreted to mean Restatement 2011 where the parties have attached the same meaning to a promise or agreement or a term thereof it if interpreted in accordance with 42 that meaning Restatement supports parties intent not objective wording as long as the two parties agree 0 Restatement 2012 where the parties have attached different meanings to a promise or agreement or a term thereof it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made a That party did not know of any different meanings attached by the other and the other knew the meaning attached by the first party or b That party had no reason to know of any different meaning attached by the other and the other had reason to know the meaning attached by the first party If a or b does not apply then 3 neither party is bound by the meaning attached by the other Restatement 201b the manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if a same or b same MAXIMS Courts many times look to purpose parties can help with this Some court look to advancing public interest Some use particular canons or maxims in order to make people more diligent Maxim Principles of the same kind the expression of one thing is the exclusion of another it is known from associates 43 0 A lease provides that a tenant can keep sheep cows pigs and other animals on a farm and you want to argue that a tiger is not included Use of the same kind They were relying on the catch all phrase 0 A lease provides that a tenant can keep sheep cows and pigs on a farm and you want to argue that a wild boar is not included You have expressed pigs so you cannot use expression of one is the exclusion of the other Use it is known from its associates because the first 3 are farm animals 0 A leave provides that a tenant can keep cats and dogs in an apartment and you want to argue that a gerbil is not included Use the expression of one thing is the exclusion of another By saying you can have two things you are implying you cannot have the other EXTRINSIC EVIDENCE TO SUPPLEMENT OR QUALIFY AGREEMENT UCC 1303 The following can determine the meaning of the party s agreement give particular meaning to specific terms or may supplement or qualify the terms of the agreement 44 0 a Course of performance deals with past conduct of the parties everything as to their current contract This deals with acts done after you have entered the contract Why can this supplement written terms Because how the parties act represent what the contract means what they do or accept from the other party 0 1b Course of dealing is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct How parties have conducted themselves in previous contracts in the past not just regarding their current transaction 39 c Usage of trade is any practice or method of dealing having such regularity of observance in a place vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question The existence and scope of such a usageterm must be proved as facts If it is established that such a usage is embodied in a trade code or a similar record the interpretation of the record is a question of law 0 In UCC can you introduce evidence of usage of trade to supplement a completely integrated contract Yes as long as there s no unfair surprise to the other party 1303 g Conduct including UOT can be brought in to explain or supplement 2202 a UCC 1303d provides that a course of dealing usage of trade or course of performance in which the parties are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the terms of an agreement and may also supplement or qualifv those terms UCC 1303e The express terms of an agreement and any applicable COP COD or UOT must be construed whenever reasonable as consistent with each other If it is unreasonableinconsistent then there is an order of importance 1 Express Terms prevail over COP COD and UOT 2 Course of Performance controls COD and UOT I Because COP involves conduct as to this particular contract whereas COD involves conduct in all previous contracts 3 Course of Dealing controls Usage of Trade I Because COD involves these particular parties where UOT deals with a much bigger audience Hurst V W Lake amp C0 example of how usage of trade can give meaning to contract language Evidence of custom should not be excluded UCC 1303 Nanakuli Paving amp Rock Co v Shell Oil Co court uses trade usage and course of dealing in order to modifysupplement the express terms of the written contract Price protection was not 45 included in the contract but Shell should have known of the practice of price protection in the plaintiff s industry UOT and Shell had previously offered price protection for the plaintiff twice COP 0 1 prior act is not enough to constitute course of performance but 2 acts are enough 0 Court supplemented the contract adding to the terms Columbia Nitrogen Corp v Royster Co seller claims that amount to be bought was a minimum while buyer claims it was merely a projection Court looks to usage of trade and course of dealing 6 year business interactions had allowed deviations from the minimum before even though there was a merger clause which if expressly stated usually keeps out extrinsic evidence 0 UCC 2202 expressly allows evidence of course of dealing or usage of trade to explain or supplement terms intended by the parties as a final expression of their agreement 0 A writing does not have to be ambiguous in order for extrinsic evidence to be admitted into evidence to interpret the writing 0 The contract is silent about adjusting prices and quantities to re ect a declining market This neutrality provides a fitting occasion for recourse to supplement the contract and explain its terms 0 The test of admissibility is not whether the contract appears on its face to be complete in every detail but whether the proffered evidence can be construed as consistent with the express terms of the agreement OBJECTIVE INTERPRETATION 46 Objective interpretation it makes not the least difference whether a promisor actually intend that meaning which the law will impose upon his words Section 201 and Section 20 apply to objectivity In both of these cases the parties didn t know what the other meant 0 Ra les v Wichelhaus Since there were two ships called the Peerless the contract contains a latent ambiguity Parol evidence will be admissible for determining the actual meaning that each party assigned to that ambiguity From the evidence presented each party attached a different meaning to that ambiguity If different meanings were intended on a material term of a contract there is no mutual assent and there is no contract Section 20a All market loss shifted to seller 0 Oswald 12 Allen they understood the meaning of the Swiss coin collection differently You could understand it either way and because they understood it differently there is no contract Section 20a Section 20 there is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and a Neither party knows or has reason to know the meaning by the other or b Each party knows or each party has reason to know the meaning attached by the other Section 2013 expect as otherwise stated in this section neither party is bound by the meaning attached by the other even though the result may be a failure of mutual assent 0 If they both know the meaning attached by the other or have reason to know the meaning attached by the other then there is no contract Because there is still no assent 0 If they both are totally clueless and have no idea about the intention of the other then there is no contract 0 You only have a contract when you fall in the middle If only one party does not know of any different meaning attached by the other and the other knows the meaning attached by the first party then there is a contract 2012a Colfax Envelope Corp 12 Local No 4583M court determines that Colfax gambled for a favorable interpretation and lost When parties agree to terms that reasonably appear unambiguous but aren t called latent ambiguity then the possibility of rescission on grounds of mutual misunderstanding arises like in Ra les v Wichelhaus But when parties agree to a patently ambiguous terms like in this case they submit to have any dispute over it resolved by interpretation A term that on its face is ambiguous is patent ambiguity 47 In this case Colfax knew that the term was patently ambiguous The union also had reason to know that the term was ambiguous and that Colfax could have a different interpretation Restatement 20lb if both parties know or have reason to know the reason attached by the other then there is no manifestation of mutual assentno contract In general if neither party can be assigned the greater blame for the misunderstanding there is no nonarbitrary basis for deciding which party s understanding to enforce so the parties are allowed to abandon the contract without liability Posner s Interpretations 0 However Judge Posner concludes that there is a contract in Colfax So how does he interpret the restatement He does not believe the restatement applies here because the ambiguity it patent He thinks that you go to section 20 only when ambiguity is latent So since the term 4C 60 Press is ambiguous on its face it doesn t fall under section 20 Furthermore section 20 applies only when the different meanings attached by the parties are equally reasonable If one meaning is more reasonable that the other then don t use section 20 Posner s understanding of Ra les case the contract made failed to exist if there is no sensible way to choose between the two different meanings assigned by the parties If neither party is to blame or both are equally blameworthy then that is consistent with section 20 of the restatement Ra les and Oswald are cases in which one party s term is not more reasonable than another 48 IMPLICATION We can t plausibly expect parties to include every single relevant term in a contract It would be inefficient take too much time and money What happens when a dispute arises about which there has been no agreement between the parties either implicit or explicit The court may need to supply a contract term to resolve the dispute This is called implication Implication may have one of two bases 1 If the court is persuaded that the parties shared a common expectation with respect to the omitted case the court will give effect to that expectation even though the parties did not reduce it to words a Wood 12 Lucy Ex contract didn t say he had to specifically market her line but she has to market exclusively through him Cardozo says there was an implied promise and him marketing it had to be the promise otherwise she wouldn t have been exclusive to him A court will claim although the agreement doesn t say so it implicitly includes a certain term 2 Court could implement the bargain the parties would have made had they considered the matter thus remedying the shortsightedness of individuals by doing for them what they would have done for themselves if their imagination had anticipated the march of nature The Jeremy Bentham View a However the generally adopted rule by the restatement 204 is to let the disembodied spirits of the parties rest in peace and leave the contract in the hands of the fair and reasonable man Penalty default rule designed to give at least one party to contract an incentive to contract around the default rule and therefore to choose affirmatively the contract provision they prefer In the absence of actual agreement course of dealing or usage of trade the drafters of the UCC article 2 provided gap fillers to resolve this issue as a matter of law This is what the court thinks the missing term should be Gap fillers in UCC 0 If the contract is silent where must the goods be delivered The seller s place of business 0 If the contract is silent what is the time of performance Reasonable time 0 If the contract is silent as to when payment is due The time and place at which the buyer is to receive the goods 0 What if no price is stated Fair market valuereasonable price 49 O uantit is the only part of a contract that cannot be supplied by UCC However an output or requirement contract does not state quantity specifically but should be determinative 0 Can the parties deviate from what the UCC states as a gapfiller Yes if both parties agree to alter the default rule 1302a Must be made in good faith diligence reasonableness and care Gap Fillers According to Restatement 204 When you have a bargain that is a contract but the parties disagree with respect to a term that is essential then the courts not the jury will supply a reasonable term for the circumstances Caveat EmptorBuyer Beware if the agreement is silent as to product Quality the contract does not impose any minimum standard If the buyer wished to contract only for goods that meet a particular standard he or she must contract for that result IMPLIED WARRANTIES Implied Warranties in General You would expect it to increase the quality of goods favors the plaintiff creates a more equal bargaining field seller has more power to inspect goods buyer can shop on basis of price and not so much on quality can create competition Whether or not there is an implied warranty the seller can usually contract out of it Implied Warranty of Merchantability UCC 2314 a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of the kind This is a special rule for a merchant of that particular good not just a merchant Definition of Merchant UCC 2104 2 Goods to be merchantable must be at least such as a Pass without objection in the trade under contract description trade customs are relevant b In the case of fungible goods a commodity which is capable of mutual substitution are of fair average quality within description c Are fit for the ordinary purpose for which goods are used and 50 d Run within the variations permitted by the agreement of even kind quality and quantity within each unit and among all units involved Other implied warranties may arise from course of dealing or usage of trade as well Koken 12 Black amp Veatch Construction Inc used a fire blanket to protect machinery from sparks from welding Not clear whether this was the blanket s ordinary purpose since there is no evidence for or against using the blanket in such a way But found that the blanket was unfit for its purpose because the blanket melted Centers on reasonable consumer expectations 0 How do we know if a use is ordinary Standard there has to be evidence that it is appropriate for such use 0 How do we know if a product is fit Standard whether it performed as expected The court uses reasonable expectations of an ordinary user to determine fitness This is an objective test Implied Warranty of Fitness for Particular Purpose UCC 2315 where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller s skill or judgment to select or furnish suitable goods there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose This applies to any seller not specifically a merchant 0 Basically seller has to have reason to know the particular purpose of the buyer and has to have reason to know that buyer is relying on seller s skill and judgment 0 Lewis v Mobil Oil Corporation implied warranty of fitness granted because the seller had reason to know the use for which the goods were purchased and the buyer relied on the seller s expertise in supplying the proper product Can a seller disclaim implied warranties for merchantability Yes 23162 23162 Merchantability Particular Purpose Disclaims Orally or Conduct Has to be done in writing and 39 l Mention the word conSplcuous y merchantability with Ex there are no warranties exception in sub3 b which extend beyond the description on the face Writin must be cons icuous g p 39 hereof Does not have to mention fitnesspurpose 51 Doesn t Disclaim Orally Additional circumstance UCC 23163b when a buyer has inspected goods before entering into a contract there are no implied warranties with respect to defects that ought to have been revealed by inspection Exclusions While implied warranties may be considered a type of default rule UCC 2316 provides that it takes more than a simple agreement to the contrary to prevent them from becoming part of the contract 0 South Carolina Electric and Gas Co v Combustion Engineering Inc contract included a disclaimer clause excluding all other warranties whether express or implied The O disclaimer cannot disclaim merchantability or particular purpose because it is not conspicuous UCC 23162 requires both a reference to merchantability and conspicuousness if in writing When sub3 says notwithstanding sub2 the following language is enough The language set forth in sub3 is an exception to the language requirement of sub2 So you don t have to say merchantability but should still be conspicuous But according to this court the language doesn t have to be conspicuous You can read the statute either way 0 If you do not limit its sub3a scope somehow you could read any kind of general disclaimer of implied warranties to trump the content of sub2 Test the court uses to limit sub3a because the disclaimer language was bargained for and expected they are not held to 23162 Also both corporations are equally sophisticated and have equal bargaining strength Henningsen v Bloom eld Motors Inc plaintiff sued for breach of implied warranty of merchantability But the defendant had disclaimed the implied warranty and relied on their own claiming the only thing they were liable for were defective parts However this case involves a personal injury caused when the steering went out Court rules that the defendant s warranty does not govern because this is an issue of public policy The automobile industry has unequal bargaining power with the public People have no other options because all dealerships use the same basic contract Also dealer did not call attention to the warranty and small type itself tends to promote a lack of attention Typical car buyer would also not know that dealerships warranty excluded personal injury 52 REASONS WHY COURTS MAY NOT ENFORCE CONTRACTS ALTHOUGH PARTIES HAVE AGREED Fraud duress lack of consideration capacity mental and age But in these cases the court does look into adequacy of consideration McKinnon v Benedict P loaned D 5000 to purchase a camp In return D promised P they would cut no trees between the camp and his property and make no improvements closer to his property D broke their promise and started construction P is suing to stop construction wants specific performance 0 Was there consideration for the D s deprivation of use of the land NO Equity will not enforce an oppressive contract and restrictions on the use of land are not favored in the law Even though there was no sharp practice dishonesty or overreaching on the part of McKinnon the court still thinks that the contract was unfair Without the McKinnon s loan Benedict would not have been able to purchase the land 0 What about the argument that parties are autonomous and free agents Why should the Benedicts be able to get out of the contract Court looks to fairness Now the court starts interpreting oppressiveness and fair dealing 0 Why does the court deem this contract unconscionable 1 Inadequacy of consideration 2 the benefit to the McKinnons is minimal while 3 the oppressive condition on the Benedicts is large there is a notion of reverse elitism that poor people cannot think for themselves and must be rescued from bad deals by the courts 53 CONTRACT FORMS Standard Form Contracts the industrydrafted contracts with which we are all familiar 0 Advantage Always the same encourages efficiency because you don t have to bargain for every term every time you make an agreement you just sign the contract as is Isn t negotiated for Can be easier for courts to rule the same way on standard form contract cases Tends to be uniform and builds a body of law unto themselves 0 Disadvantage one party has the power and if the buyer doesn t like the terms then it is take it or leave it If there is a monopoly then the buyer doesn t have any other options Unequal bargaining power Doctrine of reasonable expectations if insurance is sold in circumstances that discourage detailed inquiries the reasonable expectations of the buyer should be honored even though the policy terms do not support them What the reasonable buyer of insurance should expect Adhesion Contracts whose terms are not only offered on a takeitorleaveit basis but are often oppressively onesided A type of standard form contract graham v scissortail 0 Definition The term signifies a standardized contract which imposed and drafted by the party of superior bargaining strength relegates to the subscribing party only the opportunity to adhere to the contract or reject it O Callaghan v Waller amp Beckwith Realty C0 There was a provision in the lease that absolved the defendant of any liability for any acts or neglect which causes personal injury Test the court decides to use an exculpatory clause is generally enforced unless I it would be against the settled public policy of the State to do so or 2 there is something in the social relationship of the parties militating against upholding the agreement 0 Court says this test does not apply to invalidate the clause because there are plenty of landlords the plaintiff could have chosen from She didn t even attempt to negotiate and 54 housing shortages come and go The state legislature had also already imposed rent control to try and solve the problem of the housing shortage so this court doesn t have to worry about anything else 0 Dissent public is dependent upon finding somewhere to live If she didn t sign the lease then landlord would not have rented her the apartment Many people are affected by this Public Welfare depends on these kinds of companies planes trains and communication so the exculpatory phrases as applied would hurt the public at large ENFORCABILITY OF ADHESION CONTRACTS Graham 12 ScissorTail Inc contract includes arbitration clause saying that if there s a dispute it will be arbitrated by the union s national executive board Promoter V Musicians Promoter is aware of this clause but the court deems the arbitration clause unconscionable because the status of the arbitrator was presumptively in favor of the defendant This contract is adhesive because if Graham wanted to do any work with the musicians he was required by the realities of the business to sign the contract 0 A contract of adhesion is generallv fullv enforceable according to its terms unless other factors operate to invalidate it Limits on contracts of adhesion 0 Limitation 1 if the contract term does not fall within the reasonable expectations of the weaker or adhering party then contract is not enforceable 0 Limitation 2 if the contract term is unduly oppressive or unconscionable then it will not be enforced If either limitation is present then the court will not enforce the contract 0 Graham does not fall under 1 because of his course of dealing with the defendant He was aware of the provision and had threatened to use it before He falls under 2 because of the biased nature of the arbitrator works for the music company Restatement 211 Standardized Agreements in general the standard form contracts are binding on the parties creating an integrated contract meant to be a final expression of terms of agreement Sub 2 Interpret the contract without regard to the party s knowledge or understanding 0 It is binding unless it falls under the exception in sub3 where the other party imposer of the adhesive contract has reason to believe objective test that the party manifesting such assent adhering party would not do so if he knew that the writing contained a particular term the term is not part of the agreement 55 0 So technically it pays to be ignorant and not know every aspect of the contract A customer signing a contract for phone service usually doesn t look at the whole contract or even understand it It is much more efficient for the law to assume that people will not read the terms of agreement and the courts only intervene when the contract is really really unfair 0 Even if 2113 does not apply to you the court can still limit the enforcement of an adhesion contract because it is unduly oppressive or unconscionable General Matter If you do not read a contract are you usually bound by it Yes Illiteracy is generally not an excuse The person who cannot read should find someone who can read it to them An individual s inability to understand a contract is not a sufficient basis for concluding a contract is unenforceable When you sign the contract you are agreeing to be bound by it Plain Language Statutes ensures terms are not only visible but intelligible as well Contract says read me You are still describing complex legal concepts in the contract just in easier words In general plain language statutes don t really help consumers DOCTRINE OF UNCONSCIONABILITY Doctrine of Unconscionability denies enforcement of a contract or to a particular term within a contract if it is found to be oppressive This section authorizes a court to refuse enforcement or to limit the application of a contract or clause that it determines to have been unconscionable Doctrine of Unconscionability potentially applies to ALL contracts merchant to consumer and merchant to merchant Determination is made in light of the setting purpose and effect Looks at both procedural and substantive unconscionability 0 UCC 2302 this is not a question for the jury If the judge finds the contract or any clause of the contract unconscionable at the time it was made the court can 1 Refuse to enforce the contract or 2 May strike the unconscionable clause and enforce the rest of the contract or 3 May so limit the application of any unconscionable clause as to avoid any unconscionable result 0 Does the restatement recognize unconscionability as a defense Yes under Restatement 208 If a contract term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract or may enforce the remainder of the contract without the unconscionable term or may so limit the application of any unconscionable term as to avoid any unconscionable result This is a question for the judge as well 56 0 Factors that can contribute to finding of unconscionability in the bargaining process procedural defect aspects in the notes belief by the stronger party that there is no reasonable probability that the weaker party will fully perform the contract knowledge of the stronger party that the weaker party will be unable to receive substantial benefits from the contract and knowledge of the stronger party that the weaker party is unable reasonably to protect his interests by reason of physical or mental infirmities ignorance illiteracy or inability to understand the language of the agreement or similar factors Differing Theoretical Approaches to UnconscionabilitV Each believes unconscionability has some role in contracts but disagree as to which role the doctrine should have 1 Procedural Aspects of Unconscionability something wrong in the process that we re not going to trust Fault or unfairness in the bargaining process Go with what the parties agreed to unless the process is tainted Epstein opinion For example duress lack of capacity or other doctrinal defects 0 You look at procedural unconscionability before you look at substantive unconscionability 2 Substantive Unconscionability terms are just too good for one party and too bad for another Fault of unfairness in the bargaining outcome Eisenberg opinion Williams v WalkerThomas Furniture Co if plaintiffs defaulted on payment for their item stereo then defendant could repossess all items regardless of how much had actually been paid off Plaintiffs could not pay cash or get credit because they were too poor If there is an absence of a meaningful choice then the court looks at substance Court mainly looked at these 2 factors 1 Absence of meaningful choice 0 In determining the absence of a meaningful choice the court looks at all the circumstances the inequality of bargaining power and the manner of entering into the contract the reasonable opportunity to understand the contract 2 Contract unreasonably favorable to one party 0 Considering the plaintiff s financial situation and the buyer s knowledge of her position Also the P lacked bargaining power Jones v Star Credit Co defendants price of fridge was 123480 when the maximum retail value was 300 Why is this unconscionable 57 O The seller knew of the buyer s situation on welfare so they did not have much bargaining power They did not have opportunity to shop elsewhere looking for more favorable terms 0 UCC also applies to the price term of the contract buyers paying so much more than it was worth 0 Court also mentions public policy unconscionability provides for a moral sense in commercial transactions 0 When the court changes the terms of the contract it is called reformation 0 Court determines that what the Jones paid for the freezer over 600 was enough and amply compensated the defendant STANDARDS FOR SPECIFIC PERFORMANCE Specific Performance according to UCC 2716 1 Specific performance may be decreed where the goods are unique or in other proper circumstances 2 The decree for specific performance may include such terms and conditions as to payment of the price damages or other relief as the court may deem just 3 Buyer has a right of replevin recovery of goods for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered In case of goods bought for personal family or household purposes the buyer s right of replevin vests upon acquisition of a special property even if the seller had not then repudiated or failed to deliver Substitutionary money relief is more often granted than Specific Performance equitable remedy Normally courts don t make people follow the contract but give money damages instead Expectation damages are most favorable for plaintiffs putting the plaintiff in the position they would be in had the contract been performed Damages are compensatory not punitive in nature 0 EquitySpecific Performance is only used if an award of damages at law is inadequate A second limit on equitable relief grows from the belief that it is discretionary 58 0 The inadequacy of money damages is sometimes grounded in the belief that money offers no substitute for the promised performance as when breach leads to the deprivation of a loved one s companionship or the loss of a firm s goodwill Campbell Soup Co v Wentz Campbell contracted with Wentz to buy all their Chantenay carrots output contract being of a special color shape and texture for their soup They can be processed a certain way Market price of carrots skyrocketed so Wentz sold some of them to someone else against contract Campbell wants specific performance to stop Wentz from selling carrots to others and to make them comply with the contract 0 Court rules specific performance is allowed because they are goods of a special type Also they are already contracted for and now virtually impossible to obtain Also Campbell has a built up reputation for uniform appearance of products 0 Court also rules for specific performance because since this is an output contract all the carrots they grow we don t really know the quantity to calculate damages Specific performance can be easier in cases like this Klein 12 PepsiCo Inc Klein wanted PepsiCo s jet agreeing on 46 million But the PepsiCo refused to negotiate further claiming they had not reached an agreement Is Klein able to get specific performance No there were other planes available so it is not a unique product The fact that the other planes cost more doesn t require specific performance but can be adequately remedied by money damages of however much more he paid Allocatively Ef cient Outcome means that resources end up in the hands of those who value them the most PepsiCo Jet example The Coase Theorem if you assume no transaction costs or sufficiently small and legal entitlements are welldefined parties will bargain to an allocatively efficient outcome under any remedy That is bargaining between the parties will result in the goods going to the party who values them the most irrespective of the remedy provided by the court Morris 12 Sparrow true value of a horse cannot be put into money damages Sparrow made the horse a roping horse when it before was a green unbroken pony The horse now has peculiar and unique value caused by Sparrow What about specific performance in regards to work Personal chef doctor any kind of specialist that tailors their work No even though someone may be the only one who can do it the way you want it done personal services cannot be specifically enforced Laclede Gas Co v Amoco Oil Co entered into contract where Amoco is to supply propane and Laclede will pay them a variable price term determine by posted price Amoco then backs out of the deal and Laclede sues for an injunction that will make Amoco comply with the contract 59 0 Specific performance is appropriate when 1 the terms of the contract are express so that the court can determine what specific performance should be 2 the contract has a definite end and 3 remedy at law is inadequate 0 Since this contract is longtem the court doesn t think there are alternatives available to the plaintiff Damages would be inadequate because they could probably not find another long term supplier Inability to cover themselves suggests that specific performance is needed Output and Requirement Contracts not a specific quantity listed When these contracts involve a particular source of market or peculiarly available source they are the typical commercial specific performance situation Choice between specific performances and damages Walgreen Co v Sara Creek Property C0 D told Walgreen they would be the only pharmacy Then D was going to breach the contract and bring in a new pharmacy Walgreens sought an injunction to keep the other pharmacy out so there would be no competition 0 For Damage injunctions are only granted when damages are inadequate Damages can be readily estimated Damages remedy avoids the cost of continuing supervision and thirdparty effects Also avoids the cost of bilateral monopoly parties only able to deal with each other Walgreens is the only possible seller of the right to sell drugs exclusively in the mall and the mall is the sole potential buyer of the right Costs that Walgreens would have lost are determined by the court 0 For Injunction damages would be very inaccurate and costly in resources Walgreens would have had to project sales revenue and costs over 10 years and then project impact from the other pharmacy Costs that Walgreens would have lost are determined by the parties shifts burden away from the court and is more accurate MEASURING EXPECTATION DAMAGES The usual remedy for breach of contract is an award of damages typically based on the expectation interest An award of expectation damages is a sum of money that will to the extent that money can put the promisee in the position he would have been in had the promise been performed There are two ways to measure expectation damages in regards to incomplete or defective performance 60 1 The market value measure courts can look to the difference in market value between that which was contracted for and that which was received as a useful approximation of the expectation ideal and 2 The cost of completion measure In pursuit of the cost of completion measure Restatement 347 suggests three broad factors for measuring a party s expectation interest a The loss in the value to him of the other party s performance caused by its failure or deficiency plus b Any other loss including incidental or consequential loss caused by the breach less c Any cost or other loss that he has avoided by not having to perform So Damages a loss in value b other loss c cost and loss avoided Common Law Formula 0 Loss of value the difference between the value of what you would receive if the contract had been performed and the value of the performance you actually got 0 Other 1088 incur expenses selling to someone else anything that causes further loss like an attempt to salvage the transaction after the breach Incidental and consequential damages anything that is an extension causing harm to person or property or profits lost 0 Costs and other loss avoidedWhatever costs you avoided by not going through with the contract Formula Examples Contractor contracted to build a home for 1 million It costs him 900000 to build His expected profit is 100000 Immediately after entering into the contract the prospective homeowner backs out of the deal Contractor s expectation interest was 100000 So a 1000000 c 900000 100000 expectation damages If the breach wasn t immediate but happened after the contractor had already paid 500000 So a 1000000 c 400000 600000 expectation damages Cost of expectation damages increases the longer you have performed the contract If contractor already spent 900000 So a 1000000 0 no cost avoided 1000000 expectation damages 61 US v Algernon Blair A plaintiff has the option of recovering damages for a breach of contract which is a losing proposition here since completion of performance would have resulted in a loss or in quantum meruit what one has earned or the reasonable value of services for the value of the performance already completed Vitex Manufacturing Corp v Caribtex Corp plaintiff made necessary preparation to perform their end of a contract but D did not send them the goods Indirect costs are called Overhead Can be variable overhead like electricity not used all the time or fixed overhead cost of the building itself which causes annual depreciation costs There was fixed overhead in this case costs they had sunk into the facility Loss of Value 31000 Cost Avoided 10000 Fixed Overhead 0 Court concluded that fixed overhead is not included in cost avoided So the damages are greater Fixed Costs the costs associated with fixed inputs These costs must be borne before any goods can be produced Lost Profits are simply the profits that a firm would have earned had the breach not occurred Lost profits are an excellent approximation of the expectation interest BUYER S REMEDIES Buyer s remedies assumes the seller has not delivered the goods to the buyer Laredo Hides Co v H ampH Meat Products Co plaintiff had to purchase hides on the open market as a substitute after the defendant breached the contract Buver has 3 potential remedies under UCC 2711 Option 1 buyer can cover to buy substitute goods somewhere else Option 2 recover damages for nondelivery UCC 2713 measure of damages difference between market price and contract price determined when the buyer learned of the breach 0 Buyer will have no damages if the market price is less than contract price unless the accidentalconsequential damages make it higher Option 3 Specific Performance they have to give the buyer those particular hides This case uses Option 1 Rationale for cover is to prevent buyers from being lazy and not searching for substitute goods Attempts to create a more efficient business transaction 62 How does the buyer cover Under UCC 2712 they in good faith requires honesty in fact and commercially reasonable actions and without unreasonable delay make a reasonable purchase of goods in substitution for those due from the seller Reasonable price does not have to mean the cheapest price Damages Cost of cover contract price incidentalconsequential damages expenses saved UCC Formula HYPO Market price is high contract price is low and you cover in the middle How do you calculate damages If you choose to cover you have to use the cover price not the higher market price HYPO What if comparable quality lower priced hides are available but Laredo Hides chooses to buy the best more expensive bull hides That would not be considered cover Yet the buyer would still be able to find a remedy They would just use market price of comparable goods under UCC 2711 instead of cover HYPO What if substitute goods are available but Laredo Hides doesn t buy them They would use the market price not cover 0 Would HampH be liable to Laredo Hides for causing them to incidentally or consequentially breach their contract with the Mexican tannery causing consequential damages Even if HampH seller breaches consequential damages are not available if they could have been prevented by cover UCC 2715 HYPO What if Laredo Hides were to buy goods on the market that were less expensive than the contract price Then they would still be limited to the cover remedy plus any additional incidental damages If there are NO additional incidental damages then you are not entitled to recover because there is no economic harm HYPO What if Laredo Hides buys a higher quality good because the lower quality good is not available It s the closest thing they can do to a substitute so court would consider this cover but probably make an adjustment as to the they are entitled to UCC 2714 What if the seller sends defective goods and the buyer accepts them Damages are the difference between value of goods accepted by the buyer and the value they would have had if the goods were as warranted SELLER S REMEDIES UCC 2703 seller s remedies in general the seller can a withhold delivery of such goods d resell and recover damages e recover damages for nonacceptance f cancel 63 UCC 2706 permits a seller to recover damages equal to the contract price minus the resale price plus any incidental damages where the resale is made in good fait and in a commercially reasonable manner 0 This is analogous to cover just the opposite way reselling instead of buying substitute 0 The buyer gets consequential damages under UCC but the seller does not The seller gets incidental damages less expenses saved 0 If the seller cannot resell reasonable or at all then 2708 applies What is the difference between 2706 and 2708 as to when you determine the measure of damages 2 706 determine damages when goods are resold applies when it is done in a commercially reasonable manner 2708 At the time and place of tender not when seller learns of the breach UCC 2708 measure of damages for nonacceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages but less expenses saved in the consequence of the buyer s breach 0 Applies when the seller does not resell or when the seller resells but fails the tests required like adequate notice to buyer in 2706 You can use 2708 if the seller resells in an unreasonable manner as well 0 2 708 2 can be used only if the measure of damages provided in 1 is inadequate to put the seller in as good a position had the performance been done LOST VOLUME SELLER Sale of services Ex you enter into a K to work for a law firm for 1000 a week The firm fires you but you find another job for 900 a week Expectation damages would be 100 You aren t entitled to 1000 because you would be unjustly enriched This second job is a substitute for that which was contracted for the 1st job Not a lost volume seller Changed facts you are a big time contractor hired to do a job for 10000 Property owner breaches contract so you move onto the next job for 8000 Whether he is entitled to the full 10000 or just the 2000 difference depends upon whether he could have done the two jobs at once For contractors usually the courts seem to assume that they could take on more than one job and therefore would be entitled to the full contract price 10000 This works as long as you assume unlimited volume potential 64 The ordinary measure of damages fails to put the lost volume seller in as good a position as the lost volume seller would have been had the breaching buyer fully performed The lost volume seller would have had the profit from two sales if the first buyer had performed instead of the profit from only one sale as a result of the first buyer s breach Lost volume sellers tend to be those whose capacity to sell or to produce or acquire the subject goods in sufficiently large to meet the demands of all customers who seek to buy those goods For a lost volume seller the failure to make one sale ie due to the buyer39s breach reduces the seller39s profits by the amount of profit that would accrue from that sale RE Davis Chemical Corp v Diasonics Inc seller was able to resell machine for the same price it would have sold it to the plaintiff if the plaintiff had not breached Diasonics wants to recover its lost profits they would have made on the original contract because they claim to be a lost volume seller they could have sold machinery to both companies So Davis would not get their full deposit refund Down payment lost profit would go back to plaintiff 1St step analyze whether Diasonics is a lost volume seller Diasonics court defines a lost volume seller as having a predictable and finite number of customers Diasonics must establish that they had the capacity to produce the breached unit in addition to the unit resold and also that it would have been profitable for it to have produced and sold both Diasonics also has to prove that they probably would have made the second sale in the absence of breach as well 0 At some point a company does not have the capacity to make one more sale that is also profitable Who has the burden of proving that the seller is a lost volume seller The Seller Some case law says that it is the buyer s burden to prove that the seller is not a lost volume seller 2nd step determine what a lost volume seller actually receives Trial court claimed that 2708 applied only if 2706 could not apply The appellate court disagreed and allowed Diasonics to reject 2706 and choose to proceed under 2708 2706 would award Diasonics no damages because they resold the machinery for the same price Trial court tried to limit damages to 2706 once Diasonics resold However Diasonics claimed that as a lost volume seller they should be entitled to the money they lost from Plaintiff breaching their contract under 27082 Under 27082 proceeds from resale can take away from the profits that the seller would have received Just under the language it would seem that a lost profits seller would rarely get anything The court determines that this only really applies to cases of 65 scrap sales like when a buyer breaches before goods are completed and are then just sold for scrap 0 27082 if the measure of damages is inadequate to put Diasonics in the place they would have been in if the contract had been performed then Diasonics can only be made whole by awarding them damages in the amount of its lost profits Enables a lost volume seller to get their lost profit not the entire contract price because Diasonics would still keep the machine HYPO Should a seller who is actually a lost volume seller but resells the goods at a lower price receive expectation damages under 2706 as well as damages under 27082 They would have made a profit of 2000 from contract But by reselling made a profit of 1000 2706 remedy is 1000 damages whereas 27082 remedy is 2000 There is authority that you cannot recover both However lost volume sellers can choose between 2706 and 2708 If it s not a lost volume seller context then they go first to 2706 remedies and cannot choose 2708 1 damages Tsesoro Case 547 S2d 1012 ruled that 2206 must be used if it applies otherwise the seller could get an unfair windfall COST OF COMPLETION Jacob amp Y oungs 12 Kent constructor put the wrong pipes in the D s house by accident 0 The general rule is that a person is entitled to damages that will permit him to complete that which he contracted for as he intended it to be completed expectation damages Generally the cost of replacement is the measure of damages 66 0 However where the cost of completion is grossly and unfairly disproportionate to the good to be attained the measure of damages is the difference in value 0 Fairness dictates that one who unintentionally commits a trivial wrong will not be condemned to a punishment so out of proportion with the transgression O In this case the difference of value is nothing because both types of pipes cost the same look the same and are of the same quality 0 If the court gave replacement cost there is no guarantee that the homeowner would use that for reading pipe He might use it for something else Not only would this be unfair for the builder but it would be unfair to give the homeowner a windfall Also award of replacement cost is not efficient because the pipes do exactly the same thing 0 HYPO If the cost of the house with reading pipe was 10000 more than with the alternate pipe and the cost of replacement was only 11000 Then the court would probably award the replacement cost because it is not grossly disproportionate LIMITATIONS ON DAMAGES 1 Avoidability 67 Limitation on Expectation an aggrieved promisee person to whom promise is made is not allowed to recover loss that it could reasonably have avoided The defendant had no responsibility to mitigate damages The injured party is precluded from recovering for loss that it could reasonably have avoided Restatement 350 l damages are not recoverable for loss that the injured party could have avoided without undue risk burden or humiliation 2 The injured party is not precluded from recovery by the rule sub 1 to the extent that he has made reasonable but unsuccessful efforts to avoid loss 0 This is to promote efficiency and fairness You don t want a contracting party to make a situation worse or be lazy in order to receive more damages After you calculate damages ask these question to determine limitations 1 Could the damages have been avoided to any extent by the plaintiff 2 Were the damages reasonably foreseeable by the breaching party 3 Have the damages been proved with a reasonable degree of certainty Rockingham County v Luten Bridge Co County board notified the bridge builder to stop construction They refused to stop building the bridge and completed it instead incurring more damages Issue Should the bridge builder be able to recover full damages the full contract price for the completion of the bridge No Once the plaintiff received the notice to stop they were under a duty to do nothing to increase the damages already incurred from the county s breach of contract Instead the bridge builder receives the costs incurred to date when they were told to stop and the lost profit Good reason for efficiency neither the plaintiff nor defendant benefited from the completion of the bridge UCC 2704 2 where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease to manufacture and resell for scrap or salvage value or proceed in any other reasonable manner UCC provides for completion because the goods can be resold whereas the bridge will not be wanted by anyone 2 Mitigation and Contracts for the Sale of Goods 68 0 The promisor nonbreaching party must compensate the injured party costs associated with reasonable mitigation efforts and attempts whether or not mitigation occurs Doctrine of Constructive Service ex clerk that was dismissed in the middle of a quarter was allowed to recover damages as if he had worked the whole quarter Encourages idleness and gives compensation to men who fold their arms and decline service equal to those who perform with willing hands their stipulated amount of labor Parker 12 Twentieth Century Fox Film Corp Defendant offered a second movie to the actress in order to mitigate damages for scrapping the musical she was supposed to be in If an employer who breached against you offered you another job would you really be required to take it No 0 Before the court accepts the mitigation claim of Fox they have to prove that the substitute work was comparable or substantially similar to the employ which the actress was deprived Burden on the defendantbreaching party 0 If the second movie is not a valid substitute the court doesn t even look at whether the actress was reasonable in declining it Court rules that the second movie was inferior to the first and not a valid substitute Whenever you mitigate it tends to reduce your damages as long as its substitute employment Court will reduce your damages by the new earning that you make 69 BUYER S CONSEQUENTIAL DAMAGES AND MITIGATION UCC 2715 2 Consequential damages resulting from the seller s breach include a Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise b Injury to person or property proximately resulting from any breach of warranty EX If Laredo hides was planning on reselling the hides but are not able to procure an alternate supply how are they damaged by HampH s failure to supply the hides Consequential Damages Would lost profits be included under 2a Yes That would be generally the kind of loss contemplated In order for them to be compensated what must be true The seller at the time of contracting has to have reason to know of such possible loss Restatement language the loss must be foreseeable by the seller Under the UCC if the buyer is going to get consequential damages lost profits in Laredo case then it has to be the case that Laredo Hides could not prevent consequential loss through cover or otherwise If Laredo Hides had not covered and instead had relied on damages under UCC2713 would Laredo hides be entitled to lost profits consequential as well as the difference between contract price and market price No 2713 tells us to go to 2715 and apply that for consequential damages Still requires Laredo Hides to cover if they can If they choose not to cover lost profits will not be given as consequential damages They can choose to get market damages with no consequential damages or can get consequential damages if they attempt to cover FORESEEABILITY Hadley v Baxendale Carrier of the broken shaft was neglectful and the delivery was delayed causing the mill needing the shaft to be closed for an additional 5 days Mill P wants lost profits and damages There is a causal connection between neglect of D and the lost profits of P However it was not a foreseeable damage 0 Rule regarding damages 1 Damages must arise natural y from the breach In this case not delivering a shaft immediately does not usually cause P to lose 5 days profits 2 Damages also must have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it Do the parties know or have reason to know that the loss is a probable result of the breach of the contract 70 0 In this case while the breach by D was the actual cause of the lost profits it cannot be said that under ordinary circumstances such loss arises naturally from this type of breach Defendants had no way of knowing that their breach would cause a longer shutdown of the mill resulting in lost profits The carrier was not in a position to have a clue that if they delayed it would cause the extent of these losses What does the restatement have to say as to the matter of foreseeability 351 Objective Standard Restatement intends this contract standard to be more restrictive and have more severe a limitation than the standard of proximate cause in a tort case 1 Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made 2 Loss may be foreseeable as a probable result of breach because it follows from the breach a In the ordinm course of events sounds like arising naturally or b As a result of special circumstances beyond the ordinary course of events that the party in breach had reason to know 3 The court can limit damages even for loss that s foreseeable in some cases For example lost profits or limiting it to reliance costs in order to avoid disproportionate compensation CONSEQUNTIAL DAMAGES V EXPECTATION INTEREST What is the difference between consequential damages and the expectation interest Receiving consequential damages more fully compensates the damaged party in their expectation interest Consequential versus Incidental Damages Seller s do not get consequential damages but can get incidental damages this doesn t mean they can t get lost profits Sellers can compensate for lost profits with respect to the particular transaction in question This is not consequential it is direct lost profits In regards to the mill owner it is not direct because lost profits are arising from other transactions that would have been made Delchi Carrier Spa 12 Rotorex Corp P sues for the lost profits that they would have made if they were able to timely sell the product they bought from D P was allowed to recover because the damages were foreseeable Sounds like UCC because it s subjective and objective because they had reason to know 0 Foreseeability requires probable result of damage under the restatement but possible result under the treaty Foreseeability under the treaty is much broader The court 71 doesn t apply this standard It should be foreseeable that if the buyer doesn t meet the specs then the seller will lose profits This isn t like the carrier from Hadley EMOTIONAL DAMAGES Sentimental Value The court has realized that value to the owner encompasses a subjective element the rule has been established that compensation for any unusual sentimental or fanciful values will not be allowed Courts have been reluctant to allow damages for emotional distress resulting from breach of contract Even if emotional damages are foreseeable the damages are often particularly difficult to establish and to measure Restatement 353 recovery for emotional disturbances will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result EX like a oating casket As a general rule damages for mental anguish are not recoverable in a contract action 0 However where the contract is personal in nature and the obligation is so couple with matters of mental concern or sensibilities that a breach of duty will necessarily or reasonably result in mental anguish or suffering and it should be known to the parties from the nature of the contract that such suffering will result from its breach compensatory damages may be recoverable CERTAINTY Damages for breach of contract must be shown by clear and satisfactory evidence to have been actually sustained and be shown with certainty and not left to speculation or conjecture Contemporary formulas require reasonable certainty rather than certainty itself You do not have to be able to prove with 100 accuracy how much you were harmed in regard to damages 72 Restatement 352 Damages are not recoverable for loss beyond an amount that evidence permits to be established with reasonable certainty F era 12 Village Plaza Inc P sues for lost profits for D s breach of a tenyear lease They recovered for lost book sales because the jury determined that there was enough evidence even though they had not started the business yet P gave expert testimony evidence which convinced the jury The court cannot invade the finding of fact by the jury unless there is no testimony to support the jury s finding 0 There is no rule against awarding lost profits to a new businesses but courts usually do not because it is hard to prove and speculative because there is no historical basis for the profits of the business What is the nature of a good will business The good will of a business is the value of a business beyond its tangible assets that give the business an advantage in the market place like an established customers or supplier base If someone were to buy the business from you they would pay more than just the market value of tangible assets More and more states are recognizing damages for goodwill businesses LIQUIDATED DAMAGES AND PENALTIES EX a fine for each day the contractor overruns the specified contract time is a penalty Encourages completion of contract work in time If it is not done on schedule then the contractor has to pay a fine for everyday it goes over Should courts lend their aid to the enforcement of such penalties where the parties have bargained for and agreed to them Restatement 356 Liquidated damages clause is a predetermined sum that a contracting party agrees to pay if he breaches said sum being a good faith estimate of the actual damages in case there s a breach Liquidated clauses are intended to contractually compensate damages They are determined by the parties themselves 0 The courts will not enforce a liquidated damages clause if they think it operates as a penalty The liquidated damages clause must be a valid way of calculating damages 0 Substance over Form If there is a breach and the contract is not performed then for each day between breach and the original contract term there will be a penalty of per day 0 EX structure contract price is 10 million dollars but for each day the construction completion is delayed there will be liquidated damages of 10000 per day 0 Is there some way to make the price for delay not sound like a penalty For every day they finish before the contract time they are rewarded If they finish on J an1 year 4 the contractor gets 6350000 But if they can finish it on Jan 1 year 3 then the contractor receives 10 million this is a 10000 bonus per day 73 O A court will look to the substance of the agreement not merely the form which can disguise a penalty If a liquidated damages clause is property viewed as a penalty you cannot change that result simply by changing the form to look like a benefit 0 Benefits of liquidated damages clauses encourages people to stick to the contract you avoid the costs and uncertainty associated with litigation allows parties to fashion a remedy consistent with economic efficiency in a competitive market Also if the parties assume that the liquidated damages clause is enforceable it could affect how they price things in the contract Then if the court doesn t enforce liquidate damages the breaching party could have a wind fall 0 Disadvantages of liquidated damages potential of being inaccurate may facilitate the exploitation of a weaker party by a party with superior bargaining power some people think remedies should inherently be determined by the court By contrast a penalty clause is a predetermined sum that a contracting party agrees to pay if he breaches said sum being a fixed amount not meant to be an estimate of actual damages but rather a punishment intended to prevent breach Wasserman s Inc 12 Township ofMiddletown the party challenging the liquidated damages clause has the burden of proving that it is unreasonable this is normally the breaching party If the court thinks the clause is unreasonably low then the court should go to the doctrine of unconscionability 0 Is it a question of law or fact as to whether the clause is unreasonable Law decided by the judge 0 When determining whether the clause is enforceable the question is one of reasonableness It has to be a reasonable forecast of the harm from the breach Restatement 356 looks at reasonableness in regard to 1 anticipated 0139 actual loss caused by breach and in 2 difficulty of proof of loss When do you look at reasonableness at the time of formation or the time of breach Both If there is breach and it is very hard to prove loss then you can look at the liquidated damages clause in its anticipatory function and in hindsight of the lossbreach It is not necessarily the case that the clause is reasonable even if it was fine when anticipated You have to look at reasonableness as a whole which is helped through hindsight Foreseeable loss at time of contracting and actual Loss at time of breach Both affected by difficulty of proof of loss The party s intent is not significant You instead look to effect and whether it is compensatory or punitive 74 UCC 2718 is very similar to the restatement Adds the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy Some courts require the nonbreaching party to mitigate but some do not What about unforeseen damages If the liquidated damages clause referred to actual loss it does not matter whether or not it was foreseenanticipated You can avoid these types of ambiguities by trying to make losses foreseeable in the contract CONDITIONS According to Restatement 224 a condition is an event not certain to occur which must occur unless nonoccurrence is excused before performance under a contract becomes due A condition is an event which must occur before performance on a contract become due An event can be the occurrence or nonoccurrence of something or a circumstance that neither one or both parties have control over If we have a contract that makes one party s performance hinge on the occurrence of an event and unless that event occurs that party s performance is not due then that event is a condition A condition does not necessarily have the same effect on each contracting party Maybe only one party s performance is subject to the condition then that party s performance is not due until the condition occurs Two TVDes of Conditions 1 Express provided by the words or terms of the contract itself Conditions expressed by words either written or spoken Satisfaction clause is an express condition if the lessor did not find satisfactory lessees then the lessor was not under contract to lease Mattei v Hooper 0 There may be a duty but performance is not yet due because a condition has not yet occurred 2 ConstructiveImplied Services must be performed before payment So if service isn t performed there is no payment The constructive condition is a true condition where payment is subject to completion of services like painting of the house But the fact that she has to paint the house first is not an express condition it s implied This matters because constructive conditions do not have to be performed perfectly only substantially causing the other party to have to perform as well payment 75 0 Contract under which A promises B 3000 to paint his house They both have a duty to paint and to pay But what if B becomes too busy and decides not to paint the house Is A entitled to damages Yes Does B have a right to the 3000 No because there was an implied condition that A s duty to pay was not mature and didn t have to be performed until B performed painted the house A s promise is dependent on B s performance There are different legal consequences for Express and Implied Conditions Express Condition Expounded Risk Shifting shifts the risk to the party whose performance is subject to the condition 0 Ex there is a contract for the sale of a house for 500000 Buyer makes an offer for 475000 but imposes this condition my obligation to transfer the 475 000 is subject to the following conditions that upon inspection of the house there is no termite infestation Who would bear the risk of there being some hidden termite infestation before the clause was inserted The buyer After the clause is inserted who bears the risk The seller New condition seller had 30 days to inspect for termites Seller never hears from buyer Buyer has to make some effort to ensure the event occurs If the buyer doesn t do that then he can t rely on the condition if it s under his control Conditions are efficient because the deal can stop right there if the performance subject to the condition does not occur The parties do not have to go to court or hire lawyers A remedy at law damages might not completely compensate the party whereas conditions would Luttinger v Rosen the express condition was that the plaintiffs would attempt to find certain mortgage financing When they were not able to the D offered to make up the difference for the mortgage P said no and demanded their 8500 deposit back which the D refused P was entitled to get their deposit back because they met the condition they exercised due diligence in attempting to find the financing The condition had nothing to do with D s later additional offer What P did was sufficient in the circumstances If the P hadn t gone to any banks then the condition would be excused and the D could sue the buyer Restatement 227 Standards of preference with regard to condition in resolving doubts as to whether an event is made a condition an interpretation is preferred that will reduce one party s risk of losing everything they ve already put in Except if the event is within their control or he has assumed the risk 76 0 Courts prefer to interpret a contract as not imposing a condition They prefer to interpret a duty which infers damages It s not always condition V duty Sometimes the question is do we have a condition or do we have something bearing upon manner or time of performance Ex service contract where one party has to begin performance before it is determined if there is a condition If the event is deemed to be a condition then everything the party has put in up until that point is forfeited However if the event is under their control or he assumed the risk then the court is more likely to find the event is a condition Court generally try to construe language as not imposing a condition because it is harsh on one party Peacock Construction Co 12 Modern Air Conditioning Inc The contract stated Peacock would pay his subcontractors within 30 days after completion of the work and includes full payment by the owner But the owner did not pay Peacock so Peacock did not pay his subcontractors There are two ways to read the contract 1 general contractor doesn t have to pay the sub because the owner did not pay or 2 it is a timing clause that within 30 days after each of these events has occurred the contractor has to pay If this is just a timing clause even if there s not full payment by the owner then the subcontractor still has to be paid within a reasonable time 0 Court interprets it as 2 Full payment by the owner is not a condition precedent to Peacock s duty to pay the subcontractors but why 0 Obligee in this case is the subcontractor Obligor is Peacock If there was a condition then obligee would get paid for nothing With the condition the obligee bears the risk Small subcontractors must be paid for their work in order to remain in business and will not ordinarily assume the risk of the owner s failure to pay The general contractor obligor is better able to assume the risk The general contractor can protect themselves contractually because they deal directly with the owners and are bigger 0 This contract interpretation is a matter of law Usually when you have an ambiguous contract courts usually look to circumstances But with this type of case you don t look to circumstances or specific facts at all You look to industry custom and practice 0 The agreement must unambiguously express the intention if the general contractor wants to impose the condition of paidifpaid Gibson 12 Cranage Photographer agreed to make a picture of the deceased child of D The photographer said D only had to pay if he was satisfied There was no risk on dad whatsoever 77 under the terms of this condition The defendant was the only person who had the right to decide if he was satisfied Because of the terms of the contract P had no recourse against D 0 Why is D s agreement not illusory The subjective nature of art there was an obligation to look at it and then determine if he liked it also satisfaction clauses are usually not illusory There is an implied duty of good faith which D fulfills 0 Did P presumably have some expenses in reliance on the contract Yes Since he can t recover for expectation damages should he be entitled to recover reliance damages No he did not fulfill the condition that the father must be satisfied before the father has to pay He should not relied on the father s promise to pay when the father s payment was dependent on his satisfaction 0 What about restitution as a recovery independent of contract You are entitled to restitution in the amount of the benefit you confer upon the other party Which in this case would be the painting ie nothing REMEDIES FOR BREACHED CONDITIONS A has a duty to paint B s house If A does not then B can sue If A has a duty to paint to procure the paint and painting is a condition of B paying her A paints the house but doesn t use the special paint Then what B doesn t have to pay because payment was conditional upon the special paint A could then sue for restitution damages If the house gets painted late which fails to meet a condition then she gets no contract damages However restitution is still available If A just agrees to paint the house by Wednesday and doesn t do it until Saturday not expressed as a condition only a promise then what Then it is like the Pipe case The substantial performance doctrine comes into play INDEPENDENT V DEPENDANT COVENANTS What does it mean for a contract to have independent covenants They are not conditional upon performance on one another Failure to perform one s duties under the contract does not mean the other party is allowed to not perform They are independent regardless of what the other one does Mutual covenants are independent unless expressed to be otherwise 78 With dependent covenants one party s failure to perform excuses the other party s performance Commitments exchanged by the parties are dependent covenants 0 Dependent is a condition and independent is a promise 0 A promises to transfer the title and B promises to pay for the house If A does not transfer the title then B does not have to pay if the contract covenants were dependent TIME FOR PERFORMANCE Holdup Problem when the party who performs first sinks in costs which the other party may hold hostage by demanding greater compensation in exchange for its own performance The party wanting more money knows that the exploited party probably won t sue because it s expensive and time consuming 0 The holdup problem is lessened when the parties agree to a time of performance 0 Under common law rule for services you perform the service first and then the buyer pays for it You can always contract around the rule though like paying for tuition before the teacher has taught all their lessons How do we deal with the holdup problem when one party is obligated to perform first like a service provider If you provide services you would have a contract remedy but would still have to sue and take that time to do it The UCC solution to the holdup problem 0 UCC 2507 1 and UCC 2511 Buyer is required to tender payment and seller is required to tender and complete delivery of goods at the same time Mutual tender standard 0 What is tender You are offering to perform and ready to do it whether you are the buyer or the seller You do this before you are obligated to perform 25112 What is the general standard for tender of payment Current and ordinary course of business Unless the seller wants payment a certain way like all cash and gives the other party a reasonable extension of time to get it If the contract is silent as to the time of performance default rules may fix the times for performance One of the most common is that when the performance of a contract consists in doing on one side and in giving on the other side the doing must take place before the giving Mutual Conditions are to be done at the same time Order of performance is critically important Before the business owner had to transfer the business to the apprentice the apprentice had to 79 tender adequate security If the apprentice did not then the business owner had no obligation Kingston v Preston SUBSTANTIAL PERFORMANCE What is the standard of performance for express conditions They must do exactly what was set forth in the express condition Standard of compliance is perfection If it s not perfect then the standard was not met and party does not have to pay no contract damages What is the standard of performance for constructive conditions If A promises to paint the house then I promise to pay Substantial performance 0 If A substantially performs their part of the contract then B is still required to pay even if it wasn t a perfect job But because of the partial breach by A B has a cause of action for damages 0 If A doesn t even substantially perform then she would have materially breached the contract and B s performance payment is excused Substantial performance allows a court to imply a term that allows a partial or substantially similar performance to stand in for the performance specified in the contract Jacob amp Y oungs 12 Kent the builder s use of a different pipe was allowed to stand in for the reading pipe specified by the homeowner 0 What does the court claim substantial performance is all about If the omission is both triVial and innocent then it will sometimes be atoned for by allowance of the resulting damage and will not always be in breach of a condition to be followed by forfeiture 0 Builder s performance was substantial and they should still be paid by Kent The significance of default in this case would be grievously out of proportion to the oppression of the forfeiture 0 What effect does substantial performance have on dependent promises It can change them to independent promise Kent should still pay independent of perfect performance 0 This was not an express condition but a duty So it does not follow that your right to pay ceases if the wrong pipe was put in However the homeowner could incorporate an express condition into the contract if they had chosen to 80 What does the court look to to see if there was substantial performance on the part of the constructor who put in the wrong pipes Cardozo opinion 0 The court looks to the purpose to be served the purpose of the contract Would the main point of the contract be satisfied even though the wrong pipes were put in O The desire to be gratified ie the court will weigh the homeowners desire for certain pipes 0 The excuse of deviation from the letter of the contract looks to intent 0 How important is the nonwillfulness in this case The willful transgressor must bear the penalty of his transgression If the contractor had willfully put in the wrong pipe he would not be excused even if it was substantial O The cruelty of enforced adherence cruelty towards the breaching party Restatement 241 circumstances significant in determining whether a failure is material 0 e The standard is not willfulness but is good faith and fair dealing So you could install the wrong pipe willfully and not be punished for it in certain circumstances 0 Another difference between Cardozo and restatement e in Cardozo s view if there is willfulness they cannot rely on substantial performance doctrine it s all or nothing But in the restatement approach willfulness is just a factor THE PERFECT TENDER RULE The requirement of perfection covered the quantity of goods quality of goods and the details of the shipment HYPO You contract with a seller for an acebrand crowbar The seller provides a nearly identical crowbar but is home depot brand If we were to apply substantial performance Cardozo s approach then everything would be fine buyer would still have to pay because seller did not breach a condition However under current statutory law UCC 2601 the buyer would not have to accept the non conforming crowbar Entitles you to reject a perfectly good good If the goods or the tender of the delivery fail in any respect to conform to the contract the buyer may do three things 1 Reject the whole of the goods or 2 Accept the whole or 3 Accept any commercial unit or units and reject the rest 81 The UCC does try to lessen the harshness of the perfect tender rule for the seller Ex seller ships 10000 crowbars of the wrong brand to Alaska The contract requires delivery on Dec 1 They are delivered on Nov 23 The seller is allowed to w the defect to actually comply with the perfect tender rule contractually and then would not be held to a breach of contract WRONGFUL amp INEFFECTIVE REJECTIONS For a buyer to reject the goods they must be justified substantively proper 1 The buyer must not have accepted the goods because acceptance precludes rejection 2 The goods or their tender must not conform to the contract 3 The seller must either have no cure right or must not have exercised it effectively and rightfully Even if these three elements are all met the buyer must still reject the goods in a procedurally proper way complying with UCC 2602 What must a buyer do to reject nonconforming goods Rejection must be within a reasonable time after delivery or tender and the buyer must seasonably notify the seller of the rejection and buyer must not have accepted the goods Must the rejection occur before the buyer accepts the goods Yes 2607 g2 2 acceptance of the goods by the buyer precludes rejection When can the buyer revoke his acceptance m limited exception to revocation when the nonconformance of the good substantially impairs the value to the buyer who has accepted the goods He can revoke acceptance if he reasonably assumed that the nonconformity would be cured and it has not been seasonably cured Also buyer can revoke acceptance if it was hard to discover nonconformity or the seller told you before you accepted that the goods were going to conform acceptance was induced by the seller However revocation still must be made within a reasonable time after discovery of nonconformity or before the goods start to perish and buyer must give notice to the seller It is hard for a buyer to revoke his acceptance This makes sense because the seller needs prompt notice so it can cure if there is a cure right 0 2508 11 for seller to cure there must be seasonable notice to the buyer time for performance must not have expired already there has to be performance by the seller within the original contract delivery date 0 If any of these are not satisfied the seller cannot cure But there is an exception if the seller had reasonable grounds for believing the nonconforming tender would 82 be accepted by the buyer and notifies the buyer they may have a further reasonable time to substitute a conforming tender How can a buyer accept goods 2606 1 after a reasonable opportunity to inspect the goods and the buyer signifies to the seller that the goods are conforming or that he will take and retain them even if they re nonconforming 2 If the buyer fails to make an effective rejection under 2 602 then he has accepted if the buyer does nothing and a reasonable time has passed he is deemed as having accepted the goods You can have eXDress acceptance 1 or implied acceptance 2 Once the buyer has accepted the goods he cannot later reject the goods There are four possibilities for rejections either the rejection is substantively proper or not and either it is procedurally proper or not Acceptance does not mean that you have no remedy Even if you accepted the wrong goods you can still get damages 2714 Consequences of Rejections to the Buyer Effect of wrongful v rightful and ineffective v effective Substantiver Rightful goods really didn t conform Substantiver Wrongful goods did conform buyer wrong on the merits Procedurally Effective Rejection is proper buyer is not liable for failure to accept the goods Buyer can sue the seller for damages Rejection is proper it ends the buyer s obligation to pay As it is wrongful though the buyer will be in breach and can be sued by the seller for damages Procedurally Ineffective Purported rejection is not a rejection at all it is Rejection is not a rejection at all buyer will have accepted 83 ineffective buyer will be the goods and will be liable for deemed to have accepted the the price If you have not goods UCC 2602 effectively rejected then you h t d Buyer can sue for damages ave accep e under 2714 because goods are Because the goods did actually not conforming conform the buyer cannot sue for damages under 2714 DIVISBILITY Special rules for installment contracts 2612 the perfect tender rule is not the same for installment contracts If the seller gives you the first installment and its nonconforming the rest of the installments are not rejected It is more lenient that the perfect tender rule 0 Gill v Johnstown Lumber Co a contract is severable if one party s performance consists of several distinct items and the price to be paid is apportioned to each item to be performed The failing of one partinstallment of the contract does not breach the whole contract Therefore the other party must still honor the other installments and cannot cancel the whole agreement 0 If contract is divisible party can get payment for what they already performed How to tell if a contract is divisible Consideration paid in steps rather than one whole lump sum and the party s performance consists of several distinct items 0 Restatement 240 if performances to be exchanged delivery amp payment can be apportioned into corresponding pairs of part performances so that the paired items are equivalents then the contract is divisible Each log is paired with an amount of consideration SUSPENDING PERFORMANCE amp TERMINATING THE CONTRACT Questions you ask when determining what to do because of the actions of the other party breach 1 Is there an uncured breach by the other party 2 Is the breach of a duty of performance that was part of an exchange of promises res 2312 0 I promise to pay you in exchange for your promise to paint my house Painter says she also has lots of experience as a dog walker She promises to walk the dogs while the owners are out HomeDog owners say they want a trial period for the dogwalkerpainter 84 They agree But walker does not show up the first two days So the homeowner says she breached Homeowner says he will not pay her to walk the dogs and that he doesn t want her to paint the house either BUT parties are not allowed to treat as breaches of one contract dog walking breaches of other contracts house painting Dog walking was not part of but was separate from the exchange of promises 3 Whose performance is due first Restatement 237 if you think that someone has breached duty but you haven t paid for the service then you can t hold them liable Because the first material breach may excuse any later breaches by the other party If we assume that breaching party had a duty to perform first then we get to the key question 4 Did the other party materially breach the contract How do we know the other party materially breached O Restatement 241 extent to which injured party will be deprived of the benefit which he reasonably expected extent to which injured party can be adequately compensated for the part of that benefit of which he will be deprived the extent to which the party failing to perform or to offer to perform will suffer forfeiture the likelihood that the party failing to perform or to offer to perform will cure his failure taking account of all the circumstances including any reasonable assurances and the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing If no there was no material breach then the aggrieved party has to continue performance and the breach is considered partial breach This gives rise to a right to any damages incurred to that point but does not give the aggrieved party the right to terminate or suspend the contract or stop performance If yes there was a material breach then the aggrieved party has a choice either continue performance and treat the breach as a partial OR stop suspend performance and treat the breach as a total breach If you treat the breach as partial you can get limited damages to that point If you suspend performance you first have to wait and see if the other party candoes cure you have to give them the opportunity to 0 If the nonaggrieved party cures then the aggrieved party has to resume performance and can sue for damages up to that point they can treat the cured actions as partial breach 0 If there is no cure then the aggrieved party can terminate the contract no further obligation to perform and get damages for total breach BUT you have to give 85 the breaching party time to cure How much time Look at 242 Waiting creates more risk for the injured party I Restatement 237 if there is no cure of the material breach then the other party does not have to render performance 236 If the other party breaches then you have a right to stop performance and sue for damages based on all the injured party s remaining rights to performance terminate contract BUT 39 Restatement 242 looks at circumstances significant in determining When your remaining duties are discharged When the nonaggrieved party breaches Look to 241 Look to the extent to Which is reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements Also look to the reasonable extent of delaymust be performed in a timely manner AFTER ACQUIRED EVIDENCE Can the injured party Who alleges material breach and attempts to establish that there had been a material breach in subsequent litigation bring up evidence that they found after the alleged date of the material breach YES AfterAcquired Evidence if a party terminates a contract Without justification but later discovers facts that would have justified termination that party can use those facts to avoid liability even though the party was ignorant of them at the time of termination REPUDIATION Repudiate announcing that you are stopping performance In order to constitute a repudiation a party s language must be sufficiently positive to be reasonably interpreted to mean that the party Will not or cannot perform Repudiation does not need to be in words But if it is in actions then the announcement of an intention not to perform must have been positive and unequivocal 86 Restatement 250 a repudiation is a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under 243 OR a voluntary affirmative act which renders obligor unable or apparently unable to perform without such a breach Ex if it would be impossible for the painter of a house to paint your house and someone else s house at the same time Walker amp Co 12 Harrison may a party repudiate an agreement for any breach of that agreement by the other party No it must be a material breach of contract Harrison tried to repudiate the contract because the sign company did not conduct maintenance on the sign Sign Company then claimed that Harrison materially breached and sued him for all three years of rent 0 Who committed the rst material breach Harrison the dry cleanerrenter the court claims that the sign company did not materially breach so Harrison stopping payment constitutes the first material breach 0 In the event that the breach is not material the party who repudiated the agreement will be found to have materially breached the agreement and will be required to pay damages for that breach So the repudiating party should proceed with caution 0 If you re wrong if Sign Company didn t materially breach then you are in breach when you repudiate Restatement 242 in general failure to perform on time is usually not a material breach It is a breach but not a material breach 242c failure to perform on a stated day does not discharge the other party s remaining duties unless the circumstances including the language or agreement indicate that performance or an offer to perform by that day is important Restatement 245 a breach of nonperformance contributes materially to the nonoccurrence of a condition of one of his duties the nonoccurrence is excused ANTICIPATORY REPUDIATION Consequence of repudiation restatement 2531 Applies where there is repudiation of a duty before a repudiator has received all the agreed upon exchange Called anticipatory repudiation Repudiation alone gives rise to total breach 0 Anticipatory Repudiation whenever repudiation is not accompanied by a breach by nonperformance This occurs before the time for performance has arrived Whenever repudiation is not accompanied by breach of nonperformance it gives rise to a claim for damages for total breach Five questions relating to the consequences of an anticipatory repudiation 1 Is the recipient of a repudiation free to make other arrangements 87 2 Can the recipient of a repudiation go to court immediately even before the time for performance has arrived 3 Can the recipient of a repudiation ignore the repudiation and await performance 4 What are the consequences if the recipient of a repudiation urges retraction of the repudiation 5 Can a party that has repudiated withdraw the repudiation UCC 2610 Anticipatory Repudiation when either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other the aggrieved party may a For a commercially reasonable time await performance by the repudiating party or b Resort to any remedy for breach 2703 and 2711 and c In either case suspend his own performance or proceed on the seller s right to identify goods to the contract notwithstanding breach or to salvage unfinished goods Under UCC 2610 what can the seller do if the buyer just calls up the seller and says they don t want to pay for the goods anymore Wait for the buyer to hold up their end resorting to remedy for breach ADEQUATE ASSURANCE What if the buyer has given seller some reason to believe there will not be performance UCC 2609gives requesting party the right to in writing demand adequate assurance and until the assurance is given can suspend performance if commercially reasonable There must be reasonable grounds for insecurity with respect to the other side s performance 0 Sub4 if other side receives a justified demand for assurance they have got a reasonable time not to exceed 30 days to provide assurance of due performance If they do not provide assurance then they are considered to have repudiated the contract which then triggers the other side s rights in regards to repudiation 0 You cannot rewrite the contract you are just asking for assurance for performance for the contract that already exists 0 Normal breach and breach of assurance demanded end the same way both breaches result in the same UCC remedies 88 0 Does it require any particular form of assurance NO standard of reasonableness and adequateness Perhaps look to commercial standards The predominant factor test is the rendition of a service with goods incidentally involved ex contract with artist for painting or is a transaction of sale with labor incidentally involved ex installation of a water heater in a bathroom DEFENSES TO BREACH OF CONTRACT MISTAKES What is a K defense Grounds for avoiding a contract that has already been formed 0 Note In addition to enabling a party to avoid contractual obligations a court may order other appropriate relief when the party successfully raises a defense e g rescission restitution etc What is a mistake A mistake is a belief that is not in accord with the facts Restatement 151 Must the mistake relate to an eventthingcircumstance as of the date of contracting YES 151 comment a A party39s prediction or judgment as to events to occur in the future even if erroneous is not a quotmistakequot as that word is defined here Does a mistake of law come within this definition YES potentially See RSZd K 151 cmt b A party39s erroneous belief with respect to the law as found in statute regulation judicial decision or elsewhere or with respect to the legal consequences of his acts may come within these rules What two types of mistake must be analyzed Unilateral mistake and mutual mistake 1 Unilateral Mistake restatement 153 Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in 154 m a the effect of the mistake is such that enforcement of the contract would be unconscionable g b the other party had reason to know of the mistake or his fault caused the mistake On suba the mistaken party who bears the burden of showing that enforcement of the contract would be unconscionable Rest 153 cmt c 0 Can you explain why this rule is necessary when we already have special rules governing unconscionability under RSZd K 208 Answer Unlike the situation 89 governed by section 208 unconscionability in the current context need not exist as of the time of intro into the contract Under RS2d K 154 A party bears the risk of a mistake when a the risk is allocated to him by agreement of the parties or b he is aware at the time the contract is made that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient or c the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so As a matter of practice heed comment a to rest 153 Because mistakes are the exception rather than the rule the trier of the facts should examine the evidence with particular care when a party attempts to avoid liability by proving mistake The most common sorts of these mistakes occur in bids on construction contracts and result from clerical errors in the computation of the price or in the omission of component items 153 cmt b Sumerel v Goodyear Tire amp Rubber Co p 842 Facts A lawyer for A Goodyear exchanged correspondence with a lawyer for Us following a trial court s award of damages to Us concerning a defective hose manufactured by Goodyear The parties were trying to enter a compromise on accrual dates used to calculate prejudgment interest Although they agreed to the accrual dates their calculations of prejudgment interest did not match Goodyear s lawyer then sent a chart of his calculations to be reviewed by Hs lawyers with a request to discuss his numbers Hs lawyers soon discovered why their numbers did not match Goodyear s counsel s calculations assigned too much liability for certain costs to his own client thereby overstating Goodyear s damages by more than 550000 But Hs lawyers did not disclose the error to Goodyear s counsel Instead they soon informed one of Goodyear s counsel that their clients accepted Goodyear s offer A Goodyear attorney then prepared a satisfaction of judgment noted as a draft but soon thereafter caught the mistake and sent a revised form One of the lawyers for the Hs then demanded that Goodyear honor the original agreement Goodyear refused and Hs sued to enforce the settlement terms that they alleged constituted the agreement of the parties 0 The lower court held in favor of Hs Holdings 1 The appellate court first held that the correspondence containing the calculation errors was not an offer As a review of prior material from this course you may want to read the court s analysis on page 845 I will not focus on this part of the opinion 90 2 The appellate court then held in the alternative that even if the correspondence constituted an offer giving rise to an agreement it would be unenforceable o The court cited Corbin for the proposition that if the material mistake of one party was known by the other or was of such character and accompanied by such circumstances that the other had reason to know of it the mistaken party has the power to avoid the contract 0 The court cited Corbin for the proposition that unilateral mistake will enable a party to avoid performance under a contract even in the absence of knowledge ofreason to know of the mistake if enforcement of the contract would be oppressive to the mistaken party and relief from the contract would impose no substantial hardship on the other 0 After citing RSZd K 153 amp 154 the court readily concluded that the agreement even if formed would be voidable by Goodyear for the following reasons 0 Hs knew or should have known of the calculation error 0 The purported agreement would be oppressive and unconscionable and relief from it would impose no substantial hardship on Us instead HS would reap a windfall if the agreement were enforced for they would receive well in excess of what the jury had awarded them 0 The risk of mistake did not rest with Goodyear Good year acted in good faith Under the RSZd K it would be unusual for Goodyear to bear the risk of loss when the other party had reason to know of the mistake Goodyear s counsel did not proceed in conscious ignorance What did the court say plaintiffs counsel should have done They should have called A s lawyer and pointed out the mistake What is a policy reason in favor of letting parties off the hook for these clerical errors or mental blunders They simply can t be prevented 2 Mutual Mistake Overview under RSZd K 152 1 Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154 as reproduced above 91 2 In determining whether the mistake has a material effect on the agreed exchange of performances account is taken of any relief by way of reformation restitution or otherwise 0 As in the case of avoiding a contract on the basis of unilateral mistakes mutual mistakes are the exception rather than the rule RS2d K 152 cmt a o What is a basic assumption on which the contract is made See RS2d K 152 cmt b which states as follows The term basic assumption has the same meaning here as it does in Chapter 11 in connection with impracticability 261 2661 and frustration 265 2662 See Uniform Commercial Code 2 615a What does it mean to require that the mistake have had a material e ect on the agreed exchange of performances According to RS2d K 152 cmt c o It is not enough for him to prove that he would not have made the contract had it not been for the mistake He must show that the resulting imbalance in the agreed exchange is so severe that he cannot fairly be required to carry it out Ordinarily he will be able to do this by showing that the exchange is not only less desirable to him but is also more advantageous to the other party Renner v Kehl p 853 Facts A Sellers own leases of Yuma Arizona land H Buyers Renner amp his associates contracted to pay for the leases in order to raise Jojoba HA HO BA a shrub that produces commercially valuable oil Everyone thought the land had sufficient water resources to raise the shrub but once the Buyers made a down payment and ran tests it was clear that there was not sufficient water Buyers sought to rescind the contract 0 Lower courts held in favor of the Buyers Holding The court held that 1 Buyers were entitled to rescind the contract but 2 Buyers were not entitled to recover the costs of developing the land in the form of consequential ie reliance damages However 3 Buyers may also receive as restitution both their down payment and the enhanced value of the land due to the Buyers development efforts Nonetheless the Buyers 4 must pay the Sellers the fair rental value of the tenancy during the time they possessed the leases o The court states that when a party rescinds a K on the ground of mutual mistake the party is entitled to restitution of any benefit that he has conferred on the other by way of part performance or reliance See RS2d K 376 Why did the court find mutual mistake justified rescission of the K The requirements of section 152 of RS2d K were satisfied 0 Both parties assumed adequate water and theirs was a basic assumption on which the K was based 92 o The mistake had a material effect on the exchange within the meaning of RS2d K What facts may have led to no mutual mistake o If Buyers would have bought the property anyway even if they had known the land was arid 0 Had Sellers not known why Buyer was buying 0 Had Sellers known that the land was arid When is mutual mistake as a defense appropriate rather than invoking mistake to prevent contract formation as in Raf es The latter is appropriate only if the mistake undermines the assent completely Consider the Boynton and Walker cases at 856 What are the facts of diamond case Boynton A seller sells a rough stone for 1 to a buyer neither knowing exactly what it was but each thinking it might be a topaz It turned out to be a diamond worth 700 No mutual mistake was found What are the facts of cow case Walker A cow thought to be infertile was sold for 80 The cow turns up pregnant so the cow was worth 7501000 The seller then refused to deliver the cow to the buyer who sued Mutual mistake was found and therefore the defendant seller prevailed on appeal What is the difference between the two cases 0 The price of the cow was not thought to involve assuming a risk whereas both parties were cognitive of a potential risk in regards to the rough stone What is the mistake doctrine of the UCC UCC 1103 the doctrine of mistake continues to apply to supplement the UCC DEFENSES TO BREACH OF CONTRACT Impossibility and Frustration of Purpose 1 ImpossibilityImpracticability Sometimes the defense is called impracticability rather than impossibility Transatlantic Financing Corp v US p 871 Facts The United States hired Transatlantic Financing Corporation Transatlantic to carry wheat by ship from Texas to Iran The Suez Canal became impassable during an international political crisis in 1956 Transatlantic adjusted its ship s route so as to sail around the Cape of 93 Good Hope and incurred additional expenses Transatlantic received its contract price but then sued for the additional costs of the voyage caused by the new route based on restitution In other words Transatlantic is not suing for contract damages in this action Rather it seeks restitution attributable to the added costs required to perform the contract under the theory that the performance of the contract as originally entered into became impossible Statement of the content of impossibility The court states at p 872 that a thing is impossible in legal contemplation when it is not practicable and a thing is impracticable when it can only be done at an excessive and unreasonable cost What is the policy justification for excusing performance based on impossibility As stated at p 872 the community s interest in having contracts enforced according to their terms is outweighed by the commercial senselessness of requiring performance rooted in efficiency What does impracticability have to do with conditions According to language at p 872 the court is asked to construct a condition of performance based on changed circumstances when the condition is not met a party is excused from performing the contract 0 Normally the doctrine arises when a party wants to be excused from performing the contract In this case the H is invoking the doctrine to argue that because the contract could not be performed according to its terms it should be entitled to restitution for its costs incurred in going above and beyond the contract What does the court set forth as the elements of the defense See p 872 1 A contingency something unexpected must occur 2 The risk of unexpected occurences must not have been allocated either by agreement or by custom AND 3 Occurrence of the contingency must have rendered performance commercially impractical Let us examine each element as it applies to the case Element 1 39 Did something unexpected occur here YES the usual and customary route for shipping to Iran was through the Suez Canal and it was blocked Where no route is mentioned in the contract it is reasonable to assume that the parties expected performance by the usual and customary route at the time of contracting Does this resolve impracticability issue NO this fact just raises the issue of impracticability 94 Note I at p 876 indicates that the first prong is more likely to be established by showing the unexpected cause of an increase in the cost of performance rather than merely the fact that the cost of performance increased Element 2 How does a court determine if risk has been allocated 0 Express terms of the agreement here silence Implied terms of agreementhere none OR Surrounding conditions including customs and trade usage 0 Numerous cases require performance of shipment contracts around the Cape when the Suez is closed so the expectation in the present case that transport would occur through the Suez is no reason to find that the US had assumed the risk of the canal s closure 0 That the closure of the canal was foreseeable by the ship owner and that it could even have accounted for the risk of closure in its freight rates is not enough to conclude that it had assumed the risk of closure Foreseeability of the risk is a factor in determining whether the party has allocated the risk foreseeability is not decisive of the issue however Element 3 Was performance of the contract commercially impracticable NO 0 The goods were not harmed by the longer warmer route 0 The vessel and crew were fit for the alternative route 0 Transatlantic could have bought insurance to cover the risk of deviation 0 The variation between the expected transport cost and actual cost was not sufficient at least not here where the promisor could be expected to have accepted some degree of abnormal risk and where nothing but cost is cited as a basis of impracticability How should impracticability be determined objectively by whether the promise can reasonably be performed or subjectively according to the capacity of the actual promisor Objectively unless both parties know of the promisor s limited capabilities See footnote 13 at p 875 So can Transatlantic recover it extra costs of transport NO What if the contract had been impossible should Transatlantic receive both its contract price and the added costs of transport around the Cape NO See p 876 0 Had the contract been impossible to perform it would have been a nullity 95 Thus H would not have been entitled to receive the contract price 0 In other words Transatlantic s theory of the case was inconsistent with its requested recovery 0 Had the contract really been impossible to perform H would have been entitled to receive only restitution the benefit conferred on A United States attributable to the entire trip UCC Rules A few provisions of the UCC address circumstances involving impossibility or analogues Three sections are particularly relevant UCC 2613a Where the contract requires for its performance goods identified when the contract is made and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer then if the loss is total the contract is voided UCC 26141 Where without fault of either party the agreed berthing loading or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available such substitute performance must be tendered and accepted UCC 2615 This is the heart of the UCC impracticabilitv defense Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance 3 Delay in delivery or nondelivery in whole or in part by a seller who complies with paragraphs b and c see below is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid 0 Comment 1 states that the defense applies when the seller s performance has become commercially impracticable because of unforeseen supervening circumstances that were not within the contemplation of the parties at the time of contracting 0 Under Comment 4 Increased costs alone is not enough to trigger the defense Neither is a rise or collapse in the market alone enough 96 Examples of contingencies that do trigger the defense include a severe shortage of raw materials or supplies due to war embargo or local crop failure when they result in a marked increase in cost or the inability of a seller to secure necessary supplies 0 Comment 8 states that the UCC rules governing the defense are subject to assumption of greater liability by agreement Such agreement may arise from express contractual terms as well as the circumstances surrounding the contracting in trade usage and the like b Where the causes mentioned in paragraph a affect only a part of the seller39s capacity to perform he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture He may so allocate in any manner which is fair and reasonable c The seller must notify the buyer seasonably that there will be delay or nondelivery and when allocation is required under paragraph b of the estimated quota thus made available for the buyer 2 Frustration of Purpose The defense of frustration of purpose is discussed in Krell v Henry p 899 in which the A Henry paid a deposit for a 2day rental of H Krell s at and then refused to pay the balance A s purpose in leasing the at was to watch the procession accompanying the coronation of Edward II which was delayed because of his appendicitis The court excused the A from further performance of the contract because the use of the rooms was let and taken for the purpose of seeing the Royal procession 0 Says the court at p 899 You first have to ascertain what is the substance of the contract and then ask whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things 0 This lease was entered into for a particular purpose and none other p 900 o The processions were regarded by both contracting parties as the foundation of the contract p 900 Try to explain how the doctrines of impossibility and frustration of purpose promote e iciency See Note 2 at p 901 People should not have to receive and pay for something they have no use for or cannot use Also when value and cost of performance significantly changes before performance is rendered a seller should be able to sell to the highest bidding party 97 98
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