Contracts II Notes
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Nicholas Ardito, 2L, GGU School of Law
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Date Created: 04/06/14
Contracts II Part I 1713 Chapter 5 Determining the Parties Obligations under the Contract critical in determining if there has been a breach and the extentsignificance of the breach The law of the contract figuring out what the specific contract means and the terms of it and how they relate to the parties 3 questions to address 1 What things will be considered part of the contract Definitely written but can also be oral agreements or stipulations 2 What do the terms that do get in actually mean Issues revolving around ambiguities 3 What to do about gaps or blanks something that falls within the realm of the agreement that is unaddressed and may be importantto figuring out whether or not a breach has occurred 1 Parole Evidence Rule A Deals with the 1st question and only applies to writings B excludes oral agreements but can also include emails etc 1 Deals with extrinsic or informal evidence outside of the writing notjust oral 2 Concerns with the type prior to or contemporaneous with the written agreement C Examples Car Dealers Dealer makes oral promises that are not in the written contract signed by the buyer butwhich the buyer s decision depended upon D Court prefers the written document over the oral promises made should encourage people to putthings in writing 1 This is a probusiness rule because it favors the company who is used to writing these sorts of contracts and therefore it becomes beneficial to the parties who repeatedly write certain K s and not the casual customer E PER Is NOT a rule of evidence 1 Is a substantive rule of state K law to be applied byjudges F If a court chooses to strictly applythe PER then anything not written in the K is not part of the K judges are often more flexible in their application Cases Gianni v R Russell amp Co Plaintiff has a convenience store and the building comes under new ownership and makes a new lease with new owner D says he can t sell tobacco but can sell every other item he was selling P says by oral promise he was granted exclusive right to sell soft drinks soda water etc but it wasn t written in the Contract P s lawyer said that the promise to allow him exclusive right to sell soft drinks was a separate oral contract aside from the one for the lease R2d 214 Can use Parole Evidence for these things because they work to undo the contract CAN T argue terms that contradict the writing Gianni Can t add things that weren t in the writing to begin with Argument that there is a separate agreement fails because there is no separate consideration Written contracts supersede any prior oral agreements and if there are oral fixes but not written many times still the written document will rule Masterson v Sine Masterson thinks he will go bankrupt and so he sells his ranch to his sister so that it is not taken from the family He didn t trust that his sister was going to sell the ranch back to him thus he putthe option in there that he could buythe ranch back and he then chose to exercise this option The option is written in the contract but the apparent option that the ranch was to be in the personal family was notwritten out Trial Court Uses the PER to exclude D s evidence that there was the personal clause to the option R2d 214 Positive Qualities can clarify interpret or define Appeal The parts that were left out and not integrated into the writing may be filled in by the Parole Evidence Rule R2d 209 Whether there is a writingz writing Partial or Complete R2d 21O as soon as yes you can do certain things under R2d 214 and can t do certain things under R2d 215 R2d 21 6 What can maybe be done under PER Only applies to partial integrations not complete documents 4 corners Rule Samuel Williston Decide whether the agreement is partial or complete by looking within the 4 corners of the document and if extrinsic evidence not included under most circumstances Modern Liberalization judge views the evidence and decides whether it should be part of the partial integration PER2 hurdles Judge looks at parole evidence and decides if it should get to jury or not Supplement Sections R2d 209218 UCC 2202 BoInger Construction Co doesn t perform according to their oral promise and use the excuse that there oral agreement wasn t in the writing Defense of MistakeReformation The writing doesn t match up to the deal which was agreed to They have evidence that the company promised to perform in a way which they did not Merger Clauses Court might look at agreement and be persuaded by an agreement in the contract to show that it is a complete K as in this is a complete contract Not always accurate clauses Court doesn t have to treat this clause as being necessarily true dispositive or accurate Subsequent Modifications Another form of extrinsic evidence Notgoverned by the PER Can be modified by writings or actions and notwithstanding what was in the written contract 1913 3 Big Picture Chapter 5 Questions 1 What stuff is considered part of the K 2 What does the stuff agreed to be in the K mean 3 How do we handle any gaps that are not addressed or missing under a certain subject of the K Theory of Parole Evidence Rule All of the negotiations beforehand is somehow funneled or distilled into written agreement so therefore anything not in it is therefore rejected However in truth this is not always the case so that is why we run into problems Only applies to extrinsic evidence before or contemporaneous to the written agreement 3 Parole Evidence Rules Questions A Is there a writing For purposes of this rule writing has to capture in some form at least partly the terms of the final expression of agreement between the parties B If yes is it partial or complete C Is there anything in the writing that needs clarification explanation or definition R2d 21O indicates ambiguity and a court may allow extrinsic evidence to clear up the picture These three questions are presumed to be a question of law for the court not the jury to decide judge acts as a gatekeeper to get to a jury Split in Application of PER California Rule Look at the language in the contract and if its not ambiguous no extrinsic evidence is admitted but if it is ambiguous extrinsic evidence that would appear to clear up the meaning of the agreement may be allowed NYPA Rule FourCorners Rule Only look at what s in the written agreement and nothing else Cases PGampE v Thomas Thomas to do work on PGampE s turbine and damages it is the process Thomas gets insurance in exchange to promise to indemnify PGampE from any damage done by them Lwhether Thomas promised to indemnify third parties and PGampE or onlythird parties Holding Now two hurdles to use the PER must pass the first ambiguity test and then be deemed by the judge to be allowed to have the jury review some extrinsic evidence NY Approach 4corners rule address questions AampB Plain Meaning Rule address question C Green eld amp Phies Records Inc Three Singers form a group and get signed by a record company that rips them off and gives them a bad deal gaining an exclusive ownership rightto their recordings and give them a cash advance but in the document don t give them royalties which are standard in the industry NYCourt Uses their method as described above judge decides there is a writing it is complete and there is a plain meaning Court decides that Ronettes get Royalties and Greenfield gets damages against Spector because the separate dispute was based upon divorce proceedings and agreements in California Trident v Connecticut Life Insurance Judge about PER doesn t like the California Rule but is bound to apply California law by the Erie Doctrine 11413 Svlvester Advice For purposes of outline can combine subsections 23and 4 of chapter 5 Review of PER The purpose is to exclude evidence that came after the writing or contemporaneous to the writing Main Exceptions Use Parole evidence to explain clarify or define what the writings mean AND add to the writing consistent additional terms ifthe writing is incomplete 1 Is there a writing 2 Is the writing partial or incomplete 3 Does anything in it need clarification definition or explanation Jurisdictional Split CaliforniaTraynor approach New YorkNortheast4corners rule plain meaning whether a term is clear or needs explanation look at the writing to decide this Frigaliment Importing case Question Whose meaning prevails The term chicken as used is vague the conversation up to the point between the Swiss importer and the American seller was in German except for the word chicken Plaintiff wants courts to interpret chicken as only meaning a broiler while defendant takes chicken to mean multiple things including broiler fowl stewing chicken etc Defendant wins broader meaning of chicken Helps that the P has the burden of persuasion Hierarchy of Authority to figure out what things mean 1 Express Terms Including incorporation by reference 2 Course of Performance How the parties behave once the contract has been made and executed and performed under the same contract 3 Course of Dealing How these same parties acted on previous deals with each other and during the negotiation process before a new deal is made 4 Usage of Trade 2 things that constitutes the use of trade 1 The trade of the things themselves 2 The geographic scope of where the trade occurs Horsemeat Scrap Case Question What does less than 50 mean Defendant argues that in the horsemeat industry less than 50 means 495 o protein orabove In various industry sectors close is good enough and then you need to define what is close Either specify or default to the usage of trade Nanakuli v Shell Oil Nanakuli buys asphalt from Shell Oil so they can do paving for the government and bids with a set price to buy asphalt from Shell for the job The custom in the industry was price protection granted by the seller shell at the time the contract was entered into Shell did not wantto honor the price protection trade usage for Nanakuli and hence the dispute Argument over definition of trade usage Shell just wants to include asphalt Nanakuli wants to include asphalt crushed rock and asphalt paving Shell Course of Performance is what is done under the deal but a waiver is on a few occasions a gift or a lenient gesture by the seller which is what Shell was arguing for 4 issues go all against Shell including the violation of the UCC requirement of good faith by raising the price drastically without sufficient notice Qualification Usually means a hedging ortrimming of something Columbia Nitrogen v Royster Co Court need to consider Parole Evidence AmfUCC UCC 1303 Defines Course of Performance Course of Dealing and Usage of Trade 1205 same as 1303 except an older version by a year used in some states but not others 11613 Reading Notes pg431 Implication Process of the court ascertaining and interpreting the parties agreement and needing to supply a term to resolve the dispute Resolution by implication Process of Implication has 2 bases 1 Actual Expectations of the Parties 2 Project what the parties would have made ifthey had agreed Bentham Fair and Reasonable Man Penalty Default Rule R2d 204 Class Notes Supplement pg 250 UCC 2202 Final Written Expression Parol or Extrinsic Evidence The writing may not be contradicted by evidence of prior or contemporaneous agreement BUT may be supplemented or explained by a course of dealing or usage of trade Nanakuli or by course of performance b 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 Only difference between the UCC and common law is the word suppemented you can add to a partial or complete integration under the UCC Parole Evidence is used interchangeably with extrinsic evidence Parole Evidence Rule is limited to barring the introduction of prior or contemporaneous extrinsic evidence Raffes v Viichehaus Issue Does a mistake in the nature of the shipping method and timing serve as the basis for recission in a contract Declaration Complaint Plea Response Holding Judgement for the defendant Because the two parties said the same thing but meant different things different ships and therefore there was a mutual misunderstanding which didn t overlap with what the other party had in mind Supplement pg 90 R2d 201 Court always considers who was in the better position to know the mean that the other party attached to the term So the party with less knowledge will always be preferred if the other guy knew or should have known As lawyers when you include one thing it is presumed to be an exhaustive list unless the language indicates otherwise Contra Proferentem means against the one who proffers introduces etc the ambiguity Doesn t have to be introduced deliberately but may be inadvertent R2d 20 Oswald v Allen Issue If two parties interpret an ambivalent term in different ways and are not aware of the different meanings of the others is there still a valid contract Facts The lady Mrs Allen wants to back out of a deal to sell her coins and probably only meantto sell her Swiss Coin collection and not all the Swiss coins including ones in the rarity collection Colfax Envelope Corp Case Judge Posner is in the position of deciding who was in the best position to decide the ambiuguity and know what was actually meant But this is up to the arbitrator Colfax shouldn t have assumed their meaning was the correct one De nmons UCC 1201 b3 agreement means more than what s in contract course of performance course of dealing usage of trade b12 the total legal obligation that results from the parties agreement as determined by the UCC Contract overlaps agreements You interpret the agreement you construe the entirety of the contract Contract includes the agreement as well as legal obligations and what laws apply to the certain agreement R2d 204 Court provides reasonable terms in circumstances where the parties have not agreed to a term deemed to be essential to the contract UCC 2305 2306 2307 2308 GAP FILLER Provisions Unless Otherwise Agreed indicates default provisions Henningsen v Bloomfield Motors Inc UCC 2314 Implied Warranty of Merchantabilityz Fitness of Purpose UCC 2315 Implied Warranty Fitness for a Particular Purpose People buy new car steering mechanism fails and the people get injured The disclaimer agreement wasn t clear and the writing was small and the people had no other choice butto sign it or not get the car disparity in bargaining power This agreement operated not as a contract but almost as an ordinance not right 12313 InClass Review Session The term contract is broaderthan agreement based upon UCC 1201 12 pg 221 supplement Ascertaining 1 What gets in the contract 1 Reviewing 2 Whatdo the terms mean 5 overlap between 1amp2 in 234 Supplementing 3 What about gaps or blanks 6 Question 1 1 is embodied by the PER operates when applicable in response to writings operates to bar the introduction of prior or contemporaneous negotiations agreements concessions etc UCC 2202 R2d 209217 Theory behind PER Everything that was discussed before agreement was finalized should be in the writing Latin phrase meaning that to include some is to exclude others so therefore everything that s written in the K should have the presumption of being everything that was agreed to PER doesn t apply to subsequent modifications Parole Evidence and Extrinsic Evidence can almost be considered the same in terms of them being info outside the written agreement Procedurally PER is a hurdle that parties need to overcome and the decision of terms are decided by a jury but the JUDGE decides whether or not the jury gets to review the parole evidence PER Questions 1 Is there a writing R2d 209 R2d 214 Things you can do R2d 215 Things you can t do 2 Is the writing partial or complete R2d 210 R2d 216 can add consistent additional terms 3 Does the writing need clarification Northeast 4corners approach v California approach this distinction speaks to how judges handle the 3 PER questions In Regards to Questions 1amp2 Northeast Courts apply 4corners rule In Regards to Question 3 Northeast Courts apply Plain Meaning Rule California approach to the question is more organic in that it allows initial review of the parole evidence before deciding whether or not to answer the 3 questions or to allow a jury to review it Modernly the Northeast approach sticks because it is much more efficient than the California approach and lends itselfto judicial discretion Even courts in California don t always review the Parole Evidence ifthere is some but judge is free to decide not to if he chooses Bollinger Can t contradict the terms of the agreement in your writing Subsequent Modification Is usually an issue with regards to lack of writing SOF or the preexisting duty rule R2d 89 UCC 2209 1 kills the preexisting duty rule if parties agree to modify the contract do not need consideration to be enforceable 2 If there is a provision in the Kthat says the K can only be modified or rescinded by a signed writing then it can t be modified orally or by performance except between merchants can be modified in a separate signed writing 4 Inconsistent behavior to that written in the contract will not act to modify the contract due to section 2 but each time the inconsistent behavior is practice it operates as a waiver of the rights afforded in the contract 5 However ifthe parties wantto stop the inconsistent behavior and return to how itwas written in the contract they may choose to do so with reasonable notice Unless they are estopped from doing so due to reasonable reliance on the inconsistent behavior Section 2 Question 2 Meaning of the terms In cases like Frigalimentjust needs to decide between 2 meanings that the argued term could mean in order to determine whose meaning prevails Tools to Figure out what the terms mean A R2d 201 1 Where parties have attached same meaning 2 Prefer the meaning that the less knowledgeable party has or look at who was the party that was in the better position to avoid the misunderstanding that took place and court will rule against that party ContraProfferendum Against the party that offers the termscontract 3 Oswald v Allen Peerless fthere s no basis for preferring one party s meaning over another maybe there s not contract B R2d 214 Can use Parole Evidence to explain clarify or define But it is up to the judge to determine whether either or these 3 things are necessary C Hierarchy of Terms 1 Express Terms Necessarily at top because this is what is trying to be defined Includes any terms or facts incorporated by reference 2 Course of Performance Same parties on this deal look at past deals course of performance that predates the K 3 Course of Dealing Contracts going on besides this deal that are in operation at the same time 4 Usage of Trade Nanakuli Substantive definition of the trade broad More specific community of business all engaged in same trade Geographic definition of trade UCC 1303 explanation of hierarchy of authority terms Section 6 Question 3 What to do about gaps R2d 204 If there is an agreement that is definite enough to be enforceable than the court has the rightto be able to fill in the gaps in order to make it clear and actionable For example time amp place of delivery UCC 300 s Gap Filler Provisions default provisions that cover common situations in K law but it is importantfor consistency s sake to use them Reasonable Expectations Good faith amp other behavioral conventions that need to be obeyed by business using the marketplace Case Review 1 Gianni v Russell What to takeaway is that lawyer argued that the soft drink agreement was separate because there was no consideration should have said writing was partial and this agreement should have been added because it wasn t inconsistent with the writing but additional to it 2 Bollinger Made argument Gianni should have that the writing was inconsistent and impartial to their agreementthat the debris should have been buried and not merely dumped 3 Masterson v SinePGampE vThomasDelta Dynamics v Alioto These three cases were the trilogy of changing the PER in California Justice Traynor 4 Greenfield v Philles NY case where they apply both the Northeast rule and the California approach to 1st hurdle in PE due to the divorce proceedings 5 Trident Case Judge Kozinski CA is an example of CA court rejecting parole evidence 6 FrigalimentHorseMeat Scrap case Do certain terms mean something special within the trade that should be known by both parties 7 Nanakuli CaseColumbia Nirtogen Touches on a lot of good points talks about supplementing contract battle of parties who want the words in the K to be interpreted in a certain way to benefitthemselves 8 Colfax EnvelopeOswaldPeerless R2d 201 Colfax There is a K and the term about which there is a dispute is not enough for us to conclude no deal and we don t want to have one party take advantage of situation so it goes to the arbitrator 12813 Chapter6 Starting premise for contracting in US Freedom of contract ppl should be free to agree to what they want to it whatever way they want to carry it out Of course there are inherently limitations 1 Chap 4 1 Status of Parties 2 Chap 4 2 Process PreExisting Duty Rule Unduenfuence Mistake etc 3 Chap 6 SubstanceContent 1Unfairness 2 Standard form amp adhesion Ks 3 Unconscionability 4 Performing in good faith About how you carry out what the K obligates you to do Easy If K requires you as part of yourjob to exercise skill expertise and discretion flexible standard but needs to perform these obligations in good faith 5 Public Policy A lllegality B Judicially created public policy activity not technically illegal by law by severely frowned upon McKinnon v Benedict Consideration McKinnon gives to Benedict 5000 loan and a promise to help B s business by bringing customers and to remove Mrs Behr from the premises Benedict promises to repay loan and to not make improvements on the land any closer to McK s house than they existing structure already was Court Valued the loan at 145 dollars and was secured by McK through a portion of the land which was soldprofits B gave up a 25 year restrictive covenant not to develop their land thereby denying the free use and enjoyment of the property they bought McK asks for injunctive relief but the court decides that this is not a fair deal It would not really negatively affect McK but would affect the B s greatly R2d 79 Point of Restatement Rules is to get out of the way of the market and let that mechanism determine the consideration furnished A companion to freedom of K is that everything except a few things should be up for sale Restraints on alienation not being able to selltransfer are heavily disfavored in the law Freedom of K vs Restraints on use Court Doesn t say there is no enforceable K it is valid the way it was done but the court has free discretion to grant equitable relief at their leisure and therefore when there is an unfair situation that plays out they are free to deny injunction relief even in relation to the terms of the valid K Were able to do this because they deemed it to be grossly onesided Goes back to the distinction between Courts of Law and Courts of Equ y Court here uses the discretion that is displayed from the Chancellor in the old Courts of Chancery amp uses this leeway to deny the injunction Question Is the K sufficiently equitable to sustain an equitable remedy Here no R2d 364 Unfairness Court s ability to withhold an equitable remedy when it finds the K to be inequitable Tuckwier v Tuckwier Mrs Morrison makes an exchange with Mrs Tuckwillerto care for her in return for ownership of the farm to her and her husband when Mrs Morrison dies She dies shortly thereafter and does not have a chance to change her will to reflect this contract PrincipeA valid contract will trump a will Davidson College Argues this is not fair because Ruby only cared for Morrison for 4 days Again because the executor asked for specific performance which is an equitable remedy the court has discretion to grant it or not Court If you stand in the shoes of Mrs Morrison this was not an unfair exchange due to the nature of Parkinson s disease This determination is made prospectively looking at the time of the agreement Aleatory One person s scope is of Black v Bush Bush produces products for HooverStandby but goes through Black and intermediarymiddleman to get the contract The products will eventually be sold to the US government Black is getting most of the product profits without really doing anything butfinding a buyer Court None of the bad business practices that would make the K void do not apply here so therefore they cannot deny the K Can t void a K because the profits are too high Bush argument this increased cost is passed on to the US gov t during wartime and is unscrupulous Court doesn t matter though Standard Form K K made in advance were the specifics are filled in the blanks In a consumer transaction Only one party is likelyto have the incentive to have a form K the repeat player works against the traditional specific individualized K Adhesion K Oneside has the power to make the other side takeitorleave it O Caaghan Slips and falls on a paved courtyard area maintained by the landlord and contains an exculpatory clause in the lease releasing them from liability 13013 Review McKinnon case Court said The consideration isn t good enough Contrary to what Sylvestertold us in semester 1 aboutthere being no questions about sufficiency of consideration But because this was an action in a Court of Equity the court can approach this matter in a different way than in a Court at Law and therefore can probe into questions judging whether the exchange of agreement is grossly unfair in order to decide equities and injunctions etc If it is grossly unfair they deny the injunction Tuckwiller Look at the burden which will be undertaken prospectively at the time the agreement was exchanged for Don t consider what unfolds after agreement is made Black v Bush Back to money damages and the fact that there is consideration or their isn t In a Court of Law this is handled in the traditional way in which we learned Standard Form and Adhesion Ks In a standard Form K one party generally makes the Contract it is drafted to benefit drafter and is used over and over Usually this follows by oneside having the power to tell the other to takeitoreave it thus making the other party adhere to their terms only Dangers of these 2 types of Ks are where they exist together What classes get the carve outs of freedom to contract against abusive Ks Leases employment agreementshandbooks Ask lawyers to put in things which are not enforceable because these provisions cut down on a lot of litigation Called the in terrorem effect object is to scare the vulnerable party in the K Boilerplate In the old days a metal plate on a boiler that you would put a paper over it and having the letters raised into the paper The words don t change from the metal plate and are unchangeable Nowadays just that you have no opportunity to amend or change the terms Parking ticket example Unenforceable provisions should be Unilateral assertion of a merger clause language thatjust says this is our entire agreement Ones that exculpate tort claims negligence intentional torts vicarious liability etc Graham v ScissorTai Promoter P specializes in event especially concert promotion and promotes Leon Russell One of his concerts didn t do so well and Graham brings up issue in K over argument between profit and loss sharing and specifically in regards to an arbitration clause which was objected to arbitration cuts down litigation cost Quicker and cheaper than court but there are no appeals Problem here ScissorTail will choose somebody from the music board to run the arbitration and there may be some collusion here as to who the actual arbitrator will be and if they will favor one party over another This Kwas a form K Rule Adhesion Ks are not automatically unenforceable butdo trigger heightened scrutiny and when a court view these under this light K needs to pass 2 tests in order to be deemed enforceable 1 Reasonable Expectations of the weaker or adhering party must be present and K must meet these expectations 2 If a K is unduly oppressive or unconscionable then itwill not be enforced These terms are not very easy to define Note These exceptions always start out in general terms and then once it becomes welldeveloped it gets subrules and branches out into new rules Carnival Cruise Lines Argument over whether the forum selection clause was reasonable or unreasonable Subject to did it meet Reasonable Expectations of P amp is the clause unduly oppressive or unconscionable Doe v Great Expectations Dating Services Law You can only charge up to 25 if you allow a buetinboard service as opposed to a referral service where the customer is promised to be set up with contacts People using dating services are probably not as vulnerable as some other classes of people who are taken advantage of by oppressive business practices Lending services Funeral home customers etc 2413 Review R2d 211 along with Scissor Tail Standardized Agreements 1 If you sign something you are responsible for the contents 2 We will interpret the standardized form the same as everyone who signs it Everyone who signs the same thing should be treated the same 3 If the other party woudn t agree to sign the document ifthey had understood a particular provision in the agreement that term is not part of the agreement The profferor of the contract either knew or should have known The whole point of the doctrine of Unconscionability is to deal with a situation where the rules have been followed but the overall circumstances or result was so unfair that the court wants to do away with the K or amend it Unfortunatelythere is no standard to judge unconscionability by it is taken on a casebycase basis UCC 2302 Normally would be an issue of fact but is declared statutorily to be a question of law forthe judge to decide Thought that you would get a more consistent result if given to the court to decide than to a jury If a K is deemed unconscionable the courts have great latitude to 1 Throw of out the whole K 2 Excise the unconscionable part and enforce the rest 3 Adjust the unconscionable part and enforce the rest R2d 208 R2d 364 Williams Case D has program that allows customers to buy furniture that they can t quite afford at the time Layaway Paying for the thing in advance and then get it RentToOwn Allows customer to finance the item PMSI and eventually own it but it is secured by In the law it s a sale masquerading as a lease If you look at the interest on the lease and it s very high there is a good chance it is unconscionable P sues and trialappellate courts side with them Leff Rule It is perceived that you need 1 Procedural Unconscionabilityz Adhesion K 2 Substantive Unconscionabilityz Substance of the terms are unconsionable When Court says that you need both elements they have to be there to prove that somebody was tricked into the K because if they understood it they wouldn t have gotten into it Jones v Star Credit Corp Similarto Williams Comments directly on freedom to set price Court says this is predatory this is unconscionable and should be stopped Picks 600 only because that is what was already paid and was plausible There is no formula they apply to get this BusinesstoBusiness Relationships FranchisorFranchisee relationships Arbitration Clauses Freedom of contract v Constitutional Right to Go to Court When the latter is given up without knowing it it is a big deal Armendariz Case They are ok and not considered suspect by the law the statutory law in statefed is proarbitration Decisions can only be thrown out ifthe decision is really Need to have a moderate amount of impartiality within the contract Unconscionable v Severable Trial Court Yes Yes AppeateYes Yes Supreme Court Yes No Scott v Cingular Wireless Plaintiffs were misbilled and filed an action against Cingular but due to arbitration clause sends it to the arbitrator Supreme Court now they re are class action arbitration provisions 261 3 Review Good Faith amp Fair Dealing R2d 205 amp UCC 1304 Dalton Case Guytakes the SAT when itwas on a 1600 scale and improves by 410 points from 1st to 2nd try and then ETS the testing service finds this disparity to be suspicious reviews his filed and decides to invalidate it because of a disparity in the handwriting that led them to believe that Dalton did not actuallytake the test Dalton objects to this and chooses from his 5 options in the test contract Dalton wins at trial affirmed on appeal goes to court of appeals Trial court says give him the score appellate courts affirms Court of Appeals says Dalton is entitled to specific performance Result however is that Court of Appeals says yes he is entitled to specific performance but due the contract it has to go to the ETS arbitrator and internal team to make a goodfaith review for good and then decide what happens to his score Issues What was ETS s breach of contract breach of good faith or both only the obligation of good faith that adds to the contractual provision that Dalton may send in additional material that ETS must actually review that information and make an honest evaluation of what that means for the decision at hand This is what ETS failed to do In administrative and agency law the courts give much deference to these organizations they trust that they will get the result right as represented by sending the case back to ETS Eastern Airlines v GufPart Deux Eastern has a reqs Contract with Gulf and they routinely freight fuel so they carry extra on board even more than they need to fill the tank at the time to avoid having to pay more expensive prices at more expensive stations They were filling up at some nongulf stations when there wasn t one at the places the planes would stop sometimes and often these stations were cheaper and Eastern would fuel freight with these cheaper stations sometimes Return to UCC 1303 Court cites course of performance course of dealing and usage of trade to explain that Gulf did not object to these standard airline business practices and that they were carried on for years without objection so Gulf has nothing to complain about Again what s really going on is that Gulf and all the oil companies have fallen on hard times with the Arab Oil Embargo and they are trying anything to get out of the deal Court says no Eastern didn t violate the UCC req ofgood faith what itdid is industry custom and ok pg 244 supplement UCC 2103b good faith as applies to merchant means not only that they were honest in fact but additionally that their behavior is consistent with reasonable commercial standards of fair dealing in the trade Since 2001 this standard which used to only apply to merchants now applies to everyone found under UCC 1201 20 However this proponent has not adopted this unitary standard in every state but has been adopted by CA Market StreetAssociates v Frey JC Penney signs a sale and leaseback contract with a pension trust company in order to finance some projects and if the appreciation in value of the trust goes over 6 then they can buyback the property In order to trigger this though the two parties must fail to negotiate the buyback The successor to JC Penney tries to get financing from the pension trust and when the pension trust refuses they move to buy back the property in accordance with the agreement Court Posner says that OrensteinMarket Street might have set up Erbpension trust by not mentioning clause 34 in order to trigger the option to buy back the property at a discounted price If this was sharp dealing and done in bad faith then they can t do this but if Orenstein thoughtthat Erb knew aboutthe provision then it isjust advantageous business Depends on intentions Good Faith does not mean candor volunteering information more than just being honestand reasonable Issue Is there an obligation to point out a clause to a business cooperation of a clause which can turn out to materially alter the contract when the other party by due diligence has sufficient opportunity to find that information out for themselves and should know What does good faith mean when you are in a deal Boor v Fastaff Brewing Corp Institutes the requirements of best efforts which goes above amp beyond the requirement of good faith GF usually meansjust notdoing anything bad Best Efforts means actually taking the initiative to take a good crack at it and get out and try to achieve a positive result P claims that D failed to meet the Best Efforts req and thus breached this clause and because of this was entitled to trigger the Liquidated Damages clause achieved by failing to sell Ballantine anymore However the latter clause is not subject to best efforts but rather good faith but the P doesn t agree with this Kalmanovitz has to treat Ballantine evenhandedly with your own brands but don t have to let them bring you to bankruptcy so your business fails so it is a tough choice Rule A corporation can look at for itself so they stay in business and don t have to try at the expense of your own profitability or survival Just have to treat the other parties interest evenhandedly with your own Lockewill If a contract states how it will ends thats how it ends ex 30 days notice any reasonable termination provision will be enforced When a K is silentto how K will be terminated Rule is the K is terminable at will by either party Caveat Butthe req of good faith may be interpreted by the court as to require notice before termination Court can then adjust the notice period to make the resultfair Lockewill If one party has made an investment in the deal this may mean time to recoup their investment and make a reasonable return on it Court will calculate the time that is necessary to do this Contracts 21113 Bovard VAmerican Horse Enterprise Time it entered into K conduct was not illegal Performance of K which involves a criminal act or tortious act then it is illegal for purposes of K not being enforceable But here talking about contract that is only in a secondary way associated with illegal activity the K itself is not based on illegal conduct like which would make itvoid Judgement call of whether something is sufficiently related to illegal activity Countervailing considerations court should not be the pay master to the thieves In Pari Delicto Doctrine 0 With regard to contractual dispute both parties should be left where the court found them In circumstances of equal fault the position of the D is the more compelling Reasoning behind this is normally both parties in a suit are not seen as equally blameworthy but if both parties to a K are in a dirty business courts generally will leave the parties where the court found them 0 Situations of equal fault favor the D not bc courts actually favor D but in application it means K is not likely to get enforcement and means P is likely out of luck and in this indirect sense since P is out of luck D is actually favored Nexus between the illegal activity and the conduct of selling weed paraphernalia is close enough to where court does not wantto get involved it is immaterial that the business conducted was not expressly prohibited by law because parties are well aware that the products produced would be used primarily for purposes which are expressly illegal Court rules in no enforcement Page 549 XLO Concrete corp Subject matter of the K itself Neither activity of the substance is illegal but way it was entered into that was corrupt Not that this subject matter is illegal or always leads to illegal activity its the way they got to this K that made it bad But this one worse or better situation then bulgard case Licensing Laws Pg 554 if requirementfor license is intended to protect the public welfare like general contractor for buildings ifyou do that work withoutthe proper licensee then the law wont help you aka the court wont help you recover for servicesproperty sold if obtained without such required license But if its a regulatory thing or provision like if you don t have proper permitto sell on street the fact that you don t have the proper permit wont stop the court from helping you collect if a purchaser stiffs you RS 178 A promise is unenforceable based don public policy if RS 197 Restitution generaly page 79 in supplement Rs179 Really don t like restraints on trade and impairment on on family relations We like freedom of K O O I O Hopper page 557 non compete covenant Large and small animals distinction is itforvet post employment non convent is controversial because puts in conflict 2 things held dear Balance freedom of K vs restraints on alienation and since what most people have to sell in the economy is there labor then they need the job So are they enforceable o Depends Illegal to bring trade secret and recipes to new job is fine butjust the idea that you cant work in your trade in a certain geographic radius over certain time span is presumptively invalid in CA but other states using a balancing test Balancing rule most states apply 1 consideration 2 reasonable to A duration and B geographic scope and C range of prohibited activities So what if using these 3 reasonable factors the non compete covenant over reaches 2 schools of thought on what should do 1 school of thought court should adjust it so it is reasonable So court takes position that unconscionable Thought is that this encourages unreasonable provisions and then court cuts it back so we will always get as much as court is willing to give but idea that incentive is to overreach Court finds provision unconscionable excise adjust or throw out whole thing 2 if unfair throw it out Idea is that not to encourage overreaching by these non compete agreements by throwing them out all together This is the preferred approach of the two 0 0 0 I000 0 Notes 21313 R2d 197 if both parties are up to no good court is just going to stay out of the dispute R2d 178 Factors for enforcement weighed against factors against enforcement Sheets v Teddy s Frosted Foods Plaintiff claims he was fired because he was doing a good job as quality control director and operations and caught his company not performing up to its standards in their packaging of foods He writes a letter to them about it and they fire him a few months later pg 564 Just Cause vs what the P seeks in damages from employers Most of the employees in USA are atwi protection Traditionally fired at anytime for no reason and for any reason at all Today there are a few exceptions to this rule nowadays Higher Standard Employees would be fired forjust cause Specified reasons to meet this requirement usually centered around job performance 1st Argument To say that he is allowed to be fired for acting in the public s best interest is against public policy 2nd Argument Malicious Discharge To use to power to fire in an abusive way 3rd Argument Violation of an implied contract of employment Trial Court Grants a motion to strike the entire complaint it is granted without amendment Supreme Court The trial court shouldn t have granted the motion to strike Rule to Takeaway When an employee is fired in conflict with a public policy in state statute the employee may sue and win for wrongful termination Balla v Gambro Inc Balla discovers kidney dialysis machines are not up to FDA standards and tells boss and his boss ignores him He says he will stop the sale and they fire him Hobson s Choice A choice between two undesirable alternatives Court You have no choice you are bound as an officer of the court to abide by the law at all means Whenever you can prevent some grievous bodily harm a lawyer is bound to disclose this information and that s what Balla did So you did the right thing but Gambro was had a rightto fire you Rule An inhouse counsel cannot sue for retaliatory discharge The State of California has not adopted this rule In such an extreme situation where lives are on the line because of an illegal business practice attorney shouldn t have to bear the burden of losing hisjob and not being able to recover from his boss which broke the law Simeone v Simeone Why is the matter of a prenup between an exhusband or wife subject to an argument of public policy Because of the concern of women being mistreated and being almost coerced into signing the agreement in an atmosphere of undue influence and almost duress Public Policy against prenuptials because marriages are important in terms of public policy and prenups may tend to undermine the sacrament of marriage by planning for what happens when it ends BabyM Case Trial court upheld the surrogacy K but Supreme Court doesn t uphold it because it violates several reasons Statutory problems money is not supposed to change hands for adoptions just for transfer and other care Custody Court is supposed to decide what s in the best interests of the child as vested in it by state statutes After birth of child mother should be given the rightto keep child or to go ahead with the plan to give it up K review Freedom to K is the underlying principle with 3 restraints 1 Capacity Chapter 4 1 2 Process Chapter 4 2 3 Substance Chapter 6 Unconscionability due to substance Chapter 6 3 unconscionability 4 Good Faith about what to do with contract provisions K interpretation thing could go in Chapter 5 or 8 also Dalton v ETS Testing Services A lot of sections in Chap 6 have imprecise rules reminder thatjudges get to exercise judgement and have the chance to establish public policy These policies change unexpectedly sometimes without statutory law having a chance to catch yet Test Need to form a reasoned opinion ifthere isn t a clear conclusion 1 pg McKinnon v Benedict R2d 364 Resort camp by lake couple signs restrictive covenant not to expand or develop camp didn t get much in return didn t get business help offered McKinnon fails to get injunction because the initial exchange was grossly disproportional an is an equitable remedy given without ruling on the validity of the K In fall semester don t talk about sufficiency of value of consideration However here asking whether the K is sufficiently equitable to support an equitable remedy Court It was not Scale of good to evil unfair unconscionable more evil in the zone between unfair and unconscionable court has discretion to deny equitable remedy but if really evil then K unenforceable Tuckwiller v Tuckwiller adds to above based on R2d 364 we make this assessment prospectively Stand in the shoes of the parties at the time the agreement was made Not a retrospective view Aleatory Contract At least one side s obligation is of uncertain length or obligation Unitary Merger of Courts of Law amp Courts of Equity 1950 s Black Industries v Bush Here to remind us when there is no equitable remedy in play and the activity is not illegal and there is no secondguessing of the deal we are talking about money damages And therefore K is enforceable 2 Standard Form K K someone has standardized because they do the same deals overandover Adhesion K One party is in a strong enough bargaining position to say take itor leave it When both types are together in the same scenario many parties will take advantage of their power to take advantage of and press the adhering party to its terms and these may be unenforceable in its terms but not necessarily so The potential for abuse triggers heightened scrutiny by the courts O Caaghan Freedom of K idea you signed it you are responsible for it Tenant slips in common area maintained by landlord Tenant didn t have a chance to negotiate terms of lease K but Court said it s your fault you should have found another place to stay which was safer Market will address this situation through lower rent Changes should be made by egisature Have since been adopted for residential real estate law Dissent Why this reasoning doesn t make sense Graham v ScissorTai R2d 21 1 Standardized Forms 3 When drafter or profferor of form knew or should have known adhering party wouldn t have signed if they knew what term in K meant then that term doesn t apply Controversial things have to be inconspicuous so that people know what they are getting into If there is something in Kthat is 1 Unreasonably Surprising 2 or Unduly oppressive or both then it s out Carnival Cruise Lines v Schute Choice of Forum Provision in K Yes a party can force a consumer to litigate the lawsuit in a specified place Here FL Clause is enforceable balancing premarket forces in favor of business v convenience for consumer involved Dating Services Case Opinion explaining how presumption of freedom of K has an exception when it comes to dating services 3 Unconsionability On old people and in arbitration arbitration heavily litigated because it involves giving up a constitutional right to go to court People need to have confidence in arbitrator to make a fair ruling Where line should be drawn on what type of business practices can be used on vulnerable parties Mentally handicapped mental incapacity Walker Case Rentto own business practice Widely recognized in law is sale masquerading as a lease Done to circumvent consumer protection laws need to make rent payments and then when lsay CrossCollateralization Not only do you owe me for what you want to buy but everything else you boughtfrom me until you have payed every last penny of what is owed Jones v Star Credit Speaks right to the heart of the space which is supposed to be left for the market to decide Market price of items Court fiddles around with this market price Freezer worth 300 bucks and charging 1500 for it in a payment plan After 600 paid Court says that is enough Decision of unconscionability is a matter of law for the court to decide In the common law orthe UCC Court has 3 options 1 Excise the unconscionable part of K and enforce the rest 2 Refuse to enforce entire K 3 Make the unconscionable i conscionable by adjustment Hard to make a formula to decide what is an ok business practice and what is not 2 Arbitration Cases Discussion of arbitration from the lens of public policy When you deal with an imbalance of power and the arbitration provision is in a K of adhesion it becomes problematic Armendariz Case We should have at least a modicum of biateraity Doesn t mean everything has to be symmetrical just can t be grossly onesided State specific heavily litigated Scott v Cingular Repeat player wants to prohibit class actions one way is to force people into arbitration Cost of abitrating cases is much less than in court When Cingluar precludes people from being into court and avoiding class actions this will preclude many suits because Washington State You can t preclude class action in arbitration Supreme Court since Yes you can UCC 2302 R2d 208 4 Good Faith Needed attaches once there is a K Limits are looser than with unconscionability Once req attaches we care because of the economic activity which flows from the enforcementof certain Kdeals What constitutes good faith or what is bad faith Dalton v ETS If we throw out your score we can look at extra info inherent in this is to look at it and consider in goodfaith they breach this req R2d 205 UCC 1304 Eastern Airlines v Gulf Oil Part Deux Fuel Freighting is not bad faith is industry practice to do this Sources to look to figure outwhat good faith requires Hierarchy of Authority 4 Market Street Associates Orenstein amp Erb Orenstein knew his clientwould have option to buyback if Erb s client failed to negotiate Did orenstein intentionally ask for a lot less than described by Kto trigger this buyback provision Once you are in the K you are supposed to take the steps to make the case work Good Faith is not a duty of candor being forthcoming volunteering information as opposed to just being honest Bloorv Falstaff Parties are doing something together and they think their interest are aligned but one company who principally runs the business wants to cut out the interests of the other party If your interest injures my interest do I have to look out for yours at all Seller of Ballantine Use best efforts to sell a high volume of Ballantine Beer Best Efforts is a higher standard than good faith What does this require If several of Fastaff s beer lines are failing and the business is at risk and a line needs to be cut Kalmanovitz decides to not put much effort in Ballantine Beer Have to treat other guys interests evenhandedy with your own If you have a good faith effort and other guy gets inadvertently injured its ok but have to make this effort Lockewill Case 2things Rule A k that is silent on termination is terminable at will by either party qualification to Rule If abrupt exercise of the rightto terminate will work an undue hardship on party Court can require a period of notice in order for party being terminated to recoup a little bit of their investment and a reasonable profit Here the reasonable time had already passed 5 Public Policy Loosest organized in Chapter other sections are chunks of public policy Both parties in K taking advantage of the other people not in K our collective sensibilities are offended by the sale of something controversial llleqal Contracts Mislabeled because not about illegal performance but rather a bongs and roachclips closely associated with smoking weed so that is illegal b Legal K procured by illegal means Highway construction Both parties participated in the corruption in NY and courtenforced the K anyway Reread this K R2d 178 pg 78 Supplement Factors Give words and phrases to infuse into argument Prenub and Babv M case Practicality of what somebody is doing has outrun the statutory law Public Policy goes to decide whether to enforce these Ks or not since legislature has not addressed it Chapter 7 Remedies for Breach Notes 22013 1 Specific Relief Injunctions ordering party to do what they were contracted to specific performance or to undo something they did orto refrain from doing something Specific performance is the only remedy that gives the injured party their benefit of the bargain and is the easiest to understand conceptually 2 Measuring Expectation About how to measurecalculate money damages 3 Limitations on Damages a Avoidability b Foreseeability unforeseeable from those which the injured party anticipated c Certainty 4 Liquidated Damages and Penalties favored on the theory that they would keep people out of court Sometimes they do just this oftentimes not Review to beginning of 1st semester Two assumptions 1 Not interested in punishing the breaching party but in making the breach victim whole 2 primary purpose of a remedy is to putthe promisee in the position it would have been once the promise has been performed One more assumption now Chapter 7 pg583 The remedy for breach of K is presumptively compensatory or substitutional relief It is easier for a court to award money damages then to oversee specific performance You don tget a jury trial if your dispute is one traditionally recognized in a court of equity as opposed to a court of law One prerequisite to getting relief from a court of equity was that there was no remedy available from a court of law Modernly one of the requirements of getting an equitable remedy also Money can t fix this Ways to show this there is no adequate remedy at law 1 Subject Matter of the Contract is unique money damages won t work here because with money damages it is presumed that if you get the value back of what you were cheated out of you replace the subjectmatter but here no Campbell Soup Co v Wentz Output contract by Campbell Soup with farmers selling all the carrots they produce for 30 a ton Farmers break K with Campbell after claiming the new price is 90 per ton Campbell sues for breach of K and wants specific performance UCC 2716 Argument over the uniqueness of the carrots Campbell the carrots are easier to process are bright in color and is important for their brand image and consistency of product This K ends up being unenforceable due to other issues but the 3rd Circuit courts disagrees with the trial courts finding on uniqueness Klein v PepsiCo Inc Two Questions Is there an enforceable K What kind of remedy should there be Under the right circumstances a third party can sue to enforce a K that they weren t an original party to R2d 27 Formal K contemplated just because K not memorialized in writing yet doesn t mean it s not enforceable 2nd Question Is specific performance the correct remedy here cite UCC 2716 as adopted by the state of Virginia No specific performance is not appropriate because the plane is not unique There are at least a few hundred other Gll aircraft Also Klein does not have Clean Hands He intends to resell the jet for a profit and is asking for an equitable remedy when his intentions are not purely to keep jet If he ultimately wants money that is what the court will give him UCC provisions Buver s Remedies 2711 Remedies in General 2712 Cover Money damages based on buyer having done an actual substitute transaction 2713 KMarket Differential Money damages based on a hypothetically constructed substitute transaction Fallback if there is no actual substitute transaction 2716 Specific Performance Historical Requirementthat money won t fix it Seer s Remedies 2703 In General 2706 Resale If seller sells for less money he is injured and buyer has to pay difference than what he got on an actual substitute transaction 2 708 KMarket Differential same as for buyer difference between market rate of hypothetical transaction and what the selling price of the seller s K was 2709 Seer s SP Seer s Action for the Price the specific price under the original K Half are expectancy based damages and the other half are compensatory damages pg 592 Automobile Cases People buying cars and sellers were not delivering on their end of bargains Later these cases were determined to be wrongly decided gives rise to under proper circumstances in UCC 2716 Morris v Sparrow Archie Sparrow works on ranch At the end of fixed term of K was to get a horse he had trained from a pony to a firstclass roping horse Keno Morris won t turn Keno over to Archie Sparrow Was Specific Performance the correct remedy here ls Keno unique Probably yes but also under proper circumstances Sparrow put a lot of invested energy and time into training Keno and Morris would be unjustly enriched and benefit from Sparrow s work The breaching party would benefit from the victim s effort Court says yes Sparrow gets KEno Lacede Gas Co v Amoco Oil Co Makes gas distribution systems and gets its propane from Amoco who tries to back out of deal because of sharp increases in energy prices because of Arab Oil Embargo K stipulated that Laclede could terminate K but not Amoco and claimed they didn t know this This is a requirements K and itturns out to be enforceable Specific Performance Amoco contends 4 requirements for SP have not been met 1 no mutuality of remedy in contract Not clear this ever was a req but if itwas it has long been out of use If you can get SP I can get SP too 2 remedy of SP would be difficult for court to supervise due to much efforton Court s part Yeah butthis is for us the Court to decide not you The most important thing is that ppl get their heat 3 K is indefinite and uncertain K is not indefinite because everything will transfer to natural gas system in 10 years K will end then 4 The remedy at law available to Laclede is adequate Court It is not adequate Main elements of formula for damages quantity duration price Each element is not ascertainable at the time meaning that we can t figure out how much money would fix the problem so therefore money damages are inadequate Outcome Specific Performance Northern Delaware Industrial Development Corp Company paying for project on 60 acres of land wants court to order SP in order to get construction companyto continue building hospital Judge says no not enforceable to give SP because you are just losing money and we can compensate you for that Further itwould be too much of a burden for us to supervise this process of SP ifwe were to do it Walgreen Co v Sara Creek Property Co K for real estate D makes a deal with pharmacy to move in to mail and later backs out and lets another pharmacy come in and lease the space Walgreen sues for SP to have D perform under the original K and let them lease the space Restraint of Exclusivity is against free marketability and competition but it is able to be freely contracted for and itwas Court orders SP but also contemplates that Sara Creek will not obey the order of exclusivity But makes injunction in order to parties to calculate money damages Class Notes Review of Assumptions of K law 1 Look at breach victim 2 Look to give expectancy to breach victim 3 Prefer to give money damages for historical and practical reasons Formula for Remedies is very useful if you already know where you are headed Because the terms loss in value other loss and costand loss avoided give us no insight into what these terms represent and how to figure them out in certain cases Professor prefers benefit of the bargain because we enter with assumption that ppl only enter into deal to which they will be better off and then when there is a breach we want to give that benefit This formula just says that it is a net benefit of the bargain that will be given Start with the benefit of the bargain minus any costs avoidedsaved and issue over whether some of the overhead cost may be deducted as well Vitex case Sues for breach of contract They have a K to showerproof wool clothing items in the Virgin Islands getting product from Caribtex and working on itto reduce their tariff rate or get it imported to US dutyfree Trial Court Caribtex breached you owe Vitex 21114 Appellate Court 31 000 Cost of doing work by Vitex 10000 Saved cost of not spraying chemicals 21000 However Caribtex also wants to deduct cost of overhead cost associated with running a business salaries electric etc from the amount owed to Vitex for damages Fixed Overhead Each transaction can be broken down into units and each unit attaches a little bit of overhead to it to account for those costs so seller can calculate exactly how much money they made and not forgetting overhead costs Court Caribtex not entitled to deduct overhead cost either because Vitex still incurred the overhead costs either way and it needs to be spread to other transactons now and each unit bears a higher overhead cost now Laredo Hides case Laredo buys cow steer bull and heifer hides from HampH and then sells them tanneries to be finished They have contract with HampH and on their second order the check from Laredo is delayed in the mail and HampH says they will breach the K because they didn t get their money on time Price of hides was favorable to Laredo and then the prices soar and they breach the K Laredo wants specific performance or in alternative damages of 1 00000 Shows evidence of buying replacement hides and increased transportation costs Tex 2712 Cost of Cover provision in this output K pay the difference between what they would have paid for the hides under the K price and the higher cover price to replace those hides Cover when cost of substitute goods exceeds contract price Buyer s Remedies 271 1 Generally 2712 Cover Actual Transactions 2713 KMkt differential Hypothetical Transactions 2716 SP Seer s Remedies 2703 Generally 2706 Resale for less money Actual Transaction 27081 KMkt differential Hypothetical Transactions 2709 Price Davis v Diasonics Davis was going to buy a piece of medical equipment MRI machine and have two doctors run the facility Diasonics resells the machine to somebody else for the same price so Davis argues they weren t injured In Appellate court sorry but we want out 300000 dollars back minus 500 UCC 27082 Lost Volume Seller Diasonics in this case resale doesn t make me whole because I could have sold two in the time that you breached and I only sold one Although the sale was subsequent it wasn t substitute lsold one fewer unit and you Davis should pay for it Court Seller has the burden to show that they did incur a loss and they had the capacity to produce another machine and would have made a profit from it Needs to show subsequent sale would have gone on anyway without breach and that both sales would have been profitable Losinq Contracts US v Algernon Bair Inc SubC hasjoined a losing contract made by GC The GC breaches and therefore subc sues and wants to get out of the K and the court rules it is entitled to compensation in quantum meruitso that the GC who breached the K is not unjustly enriched This Rule only applies in this rare class of cases where the breach victim has made an irrational economic decision pg 19 Return to Sullivan v O Connor Scale Nose as promised nose at SQA and Nose as Resulted Pain amp Suffering Operations 1 3 Expense Cost 300 Doctor s Fee 100 hospital fee Using formula from pg 608 If we want to give her the benefit of the bargain with money damages Damages a loss in value 30000 b other loss 3100 c cost and loss avoided 6000 300 Section 3 AAvoidabiity BForeseeabiity CCertainty a avoidability Bockingham County v Luten Bridge The person performing under a unilateralK orthe plaintiff must to the extent that he doesn t cause loss to himself mitigate the damages caused by the defendant s wrongful act Butthere is no penalty for not mitigating damages you get the same remedy either way but if you cause further damage to yourself that s on you Once Luten Bridge Co has already done 1900 worth of work Rockingham County tells them they didn t want the bridge anymore and tells them to stop Luten doesn t stop and sues for 18300 dollars Calculation of Damages K price minus expenses saved from the Breach Rule The plaintiff does not have a dutv to mitigate but anv damages in furtherance of those caused bv the defendant will not be compensated for That risk falls on the plaintiff himself Should have stopped the bleedincl earlier pg 181 R2d350 1 DamaCles Clenerallv are not recoverable for losses that iniured party could have avoided without undue risk burden or humiliation 2 However if iniured partv makes reasonable but unsuccessful efforts to avoid loss he is not precluded from recoverv UCCS2704 Talking about breach victim seller makincl ClOOdS where there would be more loss to stopping in the middle of makincl something and resale value would be lost If seller finishes the product they can sell it somebody else ifthe nature of the item allows it A bridge doesn t allow for resale Law giver seller considerable discretionoptions to figure out what makes sense under the circumstances Tongish v Thomas Tongish has a Kto sell sunflower seeds to Coop and then the market price goes way up and Tongish sells them to Thomas instead Coop sues recovers 455 dollars and then appeals and Court of Appeals reverses based upon UCC 2713 for KMarket Differential Tongish appeals asserting that under UCC 1106 the original amount recovered was correct Problem What Coop expected to make wasn t tied to market price but rather it was tied to a handling fee so therefore it didn t make sense to use 2713 to provide a remedy This is a nonprofit Coop not seeking to maximize their own benefit this is why remedy doesn t work here If expectancy remedy was given Coop would get 455 but if the KMarket differential was given itwould be about 5150 At the time of this case they were going by old Art1 version it is now UCC 1 305 that they were referencing here Dilemma in the law We don t like when somebodv benefits from breakincl their Dromise to somebodv else So K law doesn t like to dive windfalls but if it makes sense to give one it should be in favor of the breach victim Parker v Twentieth Century Fox Shirley MacLaine was contracted to do a movie in a lead role Bloomer Girl for 750000 butthen itwas cancelled and instead offered to employ herfor a new movie Big Country Big Man in which she was not the lead role but still the lead actress The old English Rule the person fired from a K had to remain ready willing and able to begin working again and therefore idling for the period of the K that was breached Wrongful Termination American Rule If you are wrongfully terminated the employer owes you the rest of the money due under the contract for the term but they can subtract the amount of money you could have gotten with substitute performance during that time if you sat around and did nothing Don t have to accept employment which is inferior or different It is the employer s burden to prove that with reasonable effort they could have found different employmentwhich was not inferior or different What constitutes as different Generally different line of workdifferent industry MacLaine s argument under first K it offered her more control a different ocationpresumaby more preferable to her and a different genre of movie musical versus western drama Supreme Court of California The issue should have gone to a jury Jacob amp Youngs v Kent Plaintiff is the breaching party Had to redo a job because the plaintiff used the wrong type of pipe in the house s plumbing Owner explicitly said he wanted Reading pipe and no other P argued itwould cause him much more than just replacing pipe to redo job and therefore sued defendantfor the money that was owed to him The Cost of Replacement Repair and Completion This problem arises a lot embedded construction defects it s a pain in the ass to tear everything down just to fix a small part Embedded defects can cost more to correct that building the original thing R2d 348 2a An alternative to the CRRC If a breach results in defective or unfinished construction and the loss in value to the iniured part is not proved with sufficient certaintv he mav recover damages based on la the diminution in the market price of the propertv caused bv the breach Notes 3413 Chapter 7 Section 3 Limitations on Damages a Avoidability b Foreseeability topic of today s class c Certainty Review of Jacobs amp Young v Kent In construction contracts the general rule is that the P is entitled to the costs necessary to repair replace and complete the construction Exception Diminished Value Rule measure damages by the difference between the value of the thing as promised and the value of the thing as delivered Owner held back 3400 dollars builder sues to get this money P no I am withholding the money and i m suing for damages because you put in the wrong pipe Even though the owner was clear aboutthe specs for the job the court refused to enforce the traditional rule because it would have amounted to economic waste to ruin a new house that was otherwise well done Breach was minor not willful and the diminished value was qrosslv disproportionate to what was needed to fix the breach they use the diminished value rule pg 179 R2d 348 explanation of the diminished value rule comment c Again want to avoid economic waste and want to avoid windfalls Avoidability is mainlythe duty for the breach victim to mitigate their damages Not a legal duty but one that carries an expectation of reasonable efforts and if you don t you just can t recover for the extra damages that could have been avoided What can courts do in selecting a remedyto avoid waste This is what the first two cases of the Foreseeability section seek to answer Groves v John Wunder Co Facts Seven year lease to excavate the property and remove sand and gravel to keep a uniform grade so that Groves could build his plant Cost of repair replace and completion 60000 diminished value of land about 12000 plus interest Problem is value you would have gained by spending 60000 would only be 12000 Breaching party wants the more forgiving measure of damages Court Not appropriate in this case because it was willfully breached and doesn t want to reward the faithless contract Want people to agree to do contracts which they will carry through with It is up to the court s discretion to choose to give the more forgiving option and this court would not give it to the willfully breaching contract So in orderto get more forgiving remedy must have been Peevyhouses contract with a strip mining company to use their land to strip mine coal and specify that when the mining company is done they were to remove the mounds of dirt from the premises that would have cost 29000 dollars The economic gain from removing the dirt was only 300 Court This would amount to unreasonable and grossly disproportionate economic waste and therefore the D s are entitled to the more beneficial remedy for them the value rule b Foreseeability Hadley v Baxendale The P s were running a mill and the crankshaft to the steam engine which enabled the mill to run broke and sent one of their agents to the D s to carry the broken crankshaft to the makers of the part in Greenwich to fashion a new shaft based upon the specifications of the old one The D s didn t deliver the shaft the next day after it was given to them as promised but rather a few days later and the P s ost300 pounds for lost production and salaries to employees Court said since the carriers didn t know the special circumstances of failing to carry the shaft ittime that the operation of the plant depended upon it that the D s shouldn t be liable for the lost work and profits that the P s suffered R2d 351 Rule of Hadley v Baxendale Foreseeable Damades stemming from a breach are recoverable Direct Damades are presumed foreseeable and therefore recoverable Those that happen as a result of the breach without regard to the identity and circumstances of the breach victim Conseduential damages are recoverable only if in the contemplation of the Darties at the time of contractincl This ripple effect of the breach is combined with what the breach victim had planned to do with the good and services which are the subject matter of the breach This depends upon if these damades were contemplated knew or should have known about them not an obiective standard So it depends upon if the breachina Dartv knew or should have known about the conseduential damages to decide if thev are discoverable bv the breach victim Policy Rule in K s is designed to limit liability as opposed to the expanded liability in tort law Incidental Damages in this context are a third category Usually trivial relative to the consequential damages those needed to arrange another satisfactory transaction UCC 2715 deals with consequential and incidental damages Dechi Note the case is here to tell us specifically aboutthe UN convention on Contracts for the International Sale of Goods CISG The affirmatively governing law if your client is a foreign purchaser Most lawyers don t know about it so it should be studied if you deal in international contracts pg 337 Supplement CISG pg 335 READ WHEN YOU GET THE CHANCE Review 2 hemispheres of K law in US R2d amp UCC Art 2 UniDroit Principles European Organization CISG about 50 60 countries have signed it These are trying to bridge the divide between the civil law countries and the common law countries Kenford Co v County of Erie NY Issues Whether the anticipated the appreciation of the peripheral lands can be counted as consequential damages and were foreseeable to the County who breached the contract Both knew of this impact to the peripheral lands Court Buttheir is no indication that the parties reasonably contemplated at the time the K was made that the risk was to be assumed either wholly or partially by a particular party Adds on to the Hadley Rule Because based off that rule yes both parties knew foreseeable damages would occur court reinterprets Hadley and adds requirement Tacit Aqreement Test not only does the breaching party have to see that this damage is likely to occur but needs to agree to be responsible for these damages if they do occur R2d 351 Hadley rule is the outer limit on damages but part 3 of the rule allows court at it s discretion to cut back damages in a few ways in order to be just and avoid disproportionate compensation Quick Chapter 7 Outline 1 Specific Performance 357 2716 2 Measuring Expectation 347 2703 2711 et seq 3 Limitations on Damages A Avoidability 350 348a B Foreseeability 351 2715 Emotional Distress C Certainty 352 4 Liquidated Damages 356 2718 Review of Hadley Rule Damages are recoverable if they are foreseeable Theory behind this is people should know what they are getting themselves into before they sign the K and before they agree to a price Objective determination Emotional Distress Usual rule do not recover damages for emotional distress that results from a breach of contract action because people do not usually get that worked up about contracts Also difficult to prove emotional distress with certainty R2d 353 Recovery will be excluded unless breach also caused bodily harm or the contract or breach is of such a kind that serious emotional disturbance was a particularly likely result What kind of K s give rise to successful claims under this section One area where there is a high rate of success is the mishandling of the deceased bodies of loved ones 100 Certainty R2d 352 Uncertainty as a Limitation of Damages Damages which cannot be established with reasonable certainty are not recoverable Do not need mathematical precision the finder of factjust needs a reasonable basis for providing a dollar amount for your remedy Fera v Viage Plaza Inc 1976 New businesses have a tough time proving with certainty damages for lost profits so plaintiffs have a tough time There are many ways still to show how much money is lost but with the exception of franchises new businesses have a tough time doing this because you never know There is no blanket prohibition against new businesses recovering lost profits just when they can not be proved with certainty but if they meet this threshold they are allowed Distinction in this area between new business and interrupted business 4 Liquidated Damages Wasserman s Inc v Township of Middletown NJ In general a liquidatedstipulated damages provision where parties agree in advance what the consequences will be as a result of a breach This clause doesn t have to end in payment of money but usually does Good for freedom of K assuming there was a bargain Theory that this will keep parties out of court In practice no because parties will dispute about who breached or if there was one And then will challenge the provision anyway But court doesn t want people stepping on each other s toes so wind up deciding what to do with the provisions The part of the provision here is the payment of 25 of the average yearly gross receipts for Wasserman s if the Township cancelled the lease which is what happened Challenged by Township as being too speculative In a LD clause we wantto give the breach victim the benefit of the bargain substitutionally and if the parties can forecast this benefit of future profits great and is enforceable unless it is too high to constitute a penalty or unless it is too low as to be unconscionable Kev is to establish a window of reasonableness the easier it is to forecast damages the smaller the window the harder it is the larger the window Court 25 would be too much because this could easily overestimate what there actual profits might be so we don t want to overreward Wasserman s pg 682 Excellent Essay on Liquidated Damages Dave Gustafson amp Co v State SD One of the situations where there would have been a bigger window to calculating the liquidated damages making it easierto establish what would have been damages especially because it is so hard for the opposing party to show they were unreasonable Affirmed R2d 356 Used to be just a reasonable and good faith forecast Modern Trend this amount which was previously agreed to must be reasonable in light of the actual damages caused by the breach If the forecast is not reasonably accurate they will just award actual damages Silly rule Bonuses are ok penalties are not Big Country Big Man Youtube RB Craswell Notes 31813 Review of Chapter 7 1 Specific Performance 3573591 2716 Two ways to get specific performance 1 ItemsGoods are unique 2 Land is unique Uniqueness not the only way to get SP but the easiest to get it pg 592 Note on Automobile cases root of under other proper circumstances mentioned in 2716 Northern Deaware Case Owner wants contractor to put an extra shift and make up progress which was falling behind Court decides it isjust too much work to supervise this process not necessary Wait until the project is done figure out how late it is done and calculate money damages based on loss per each day late Any equitable remedy is extraordinary because it is not the normal remedy of money damages Contracts for personal services are not specifically enforced This does not apply to construction contracts because you are getting the structure as your benefit of the bargain 2 Measuring expectation 347 2703 2711 Pg 607 some discussion about general formula for calculating damages Overhead costs When fixed don t saved these costs from a breach When calculating formula only consider costs that were actually saved not fixed costs Seer s Damages 2706 amp 27081 2706 have an actual substitute transaction Cover Direct damages of difference between cost in substitute and underoriginal K 2708 Hypothetical substitute transaction 27082 Lost Volume Seer Davis v Diasonics Kfor making an MRI machine If you can sell the machine to another person for the same price not considered injured if damages are viewed in that way Seller needs to show that no this was a substitute because lcould have sold more units ifthis K wasn t breached AND lwould have made a profit 3 Limitations on Damages Avoidability 35O Diminished Value Rule 3482a Luten Bridge Breach victim can t run up the damages cost once the breach has already been committed Parker v Twentieth Century Fox imposes on Shirley MacLaine the obligation to go out and find anotherjob of a satisfactory nature Don t have to accept a lesser position or move to another profession however The employer needs to show that the employee did not use reasonable efforts to find anotherjob The standard remedy is construction contracts is the costs of repair replacement or completion Exception Where error is minor or imbedded R2d 3482a If difference between job as expected and the job with the mistake is very little then the standard remedy doesn t apply Doesn t wantto encourage economic waste Cost of Replace repair and completion would be grossly disproportionate to dimuntion in value Groves v Wunder Peevyhouse In both cases breach was willful but in Groves the dimunition was greater and in Peevyhouse the intent was much worse Foreseeability R2d 351 UCC2715 Rule In order to be recoverable it must have been foreseeable that at the time of the contracting the damages could have occurred by the party in breach Zone of Foreseeability is greater in torts because the law is anti torts but Contracts is procontracts and wants to encourage co ntracti ng Direct damages are always considered foreseeable Consequential damages are what s at issue The ripple effect of other losses that flow from the direct damages Kenford Co v County of Erie TacitAgreement Test The one applied here is NOT part of the law The Hadley test is the law Justabout breaching party foresee the type of damages at issue when the party contracted Emotional disturbance 353 Damages for this usually notgiven in K situations but given whenever there is an accompanying tort along with it Bodily injury or in types of cases where itwould be likely to cause emotional disturbance when there is a breach Area where these cases are successful Mishandling of deceased loved ones Certainty 352 comments You need it How much Certainty Don t have to prove your damages with mathematical precision the breach victim will usually get the benefit of the doubt But must give finder of fact some reasonable basis from which to assign a dollar amount to your claim Q Lost profits is the most common to sue for but also some of the mostdifficultto prove how much Fera case 4 Liquidated Damages 256 2718 Equivalent of a prenup what happens if this doesn t work out Not only permissible but encouraged because the Courts like when people wantto agree to this Problem is often people don t agree with these Also an idea that this keeps people out of court but in practice it doesn t really avoid litigation either People wind up going to court arguing over both breach and the parameters of the liquidated damages clause itself Involves forecasting what the damages would be when making these clauses Harder it is to forecast more lenient court is with clause the easier it is the less lenient Modern Trend Make the determination whether the liquidated damages forecasting was reasonable by looking back at actual damages incurred Wasserman s Case Essay on liquidated damages pg 682 Chapter 8 Performance amp Breach First 3 Sections More theoretical differences Section 1Conditions Applies to Express Conditions put specifically into the contract by the parties A Effects of Conditions B C Mitigating Doctrines Has nothing to do with mitigating damages Here what is being mitigated is some undesirable effects of the new doctrines which have been adopted by courts Section 2 Applies to Constructive Conditions which are the product of how the court looks at things Section 3 Same title as part C of section 1 but different because this is about mitigating of the constructive doctrines in section 2 Practical Applications Section 4 Breach during the course of performance or when performance is due Section 5 Things that can go wrong before performance is due pg691 Section 1PartA Little Roadmap of how the chapter will run R2d 224 Basically a condition is the if part of an ifthen statement Luttinger v Rosen Plaintiffs contract to purchase land from defendant using a mortgage loan to buythe house The terms specified that the buver s dutv to purchase was dependent on obtaining this loan meetinq certain criteria If the criteria was not met and notified seller within a certain time P s could get their deposit back without further obligation P s attorney could not find a loan that met the specifications required in the contract and therefore buyer could not meet his duty as required by the condition in the contract that of obtaining a satisfactory loan The seller can excuse the nonoccurrence of the condition since he is the one receiving protection from the condition P tells D that he could not obtain the specified mortgage and so notifies seller and asks for his deposit back Seller refuses they go to court Court says the buyer did his due diligence operated in good faith and couldn t meet the condition so he was entitled to terminate the contract The law does not require the performance of a futile act The seller also offered to make up the difference in the 25 interest difference through a funding arrangement but Court says this offer can be freely rejected by the plaintiffs Takeaway As a General Rule express conditions in a contract are strictly construed In K law conditions now are just conditions No distinctions now between condition antecedent gives rise to a duty and Condition subsequent extinguishes a duty InternatioRotterdam Inc v River Brand Rice Mills Inc Buyer contracts with seller to ship about 100000 bags of rice 50000 of which get delivered to Lake Charles LA and the other hadn t been shipped yet Condition in Contract specifies that the price was to be 825 per bag delivered in December with 2 weeks notice from buyer to seller The first half of the shipmentwas delivered with proper notice but the second half to go to Houston was sentwithout enough advanced notice to be received properly by buyer in December Court It is more than just a duty for the seller to provide two weeks notice by the 17th of December it is a condition which if not met entitles buyer to cancel the part of the shipment which the seller didn t meet The seller could have waived the nonoccurrence of the two weeks notice UCC 2311 1 Particulars of performance may be left open to be specified by one of the parties 3b K can be breached by failure to specify or cooperate within a specified time Breach a duty victim entitled to damages Fail to Meet a condition party who does not have to meet condition may freely cancel R2d 242 commentd pg 129 This circumstance meets this criteria Duty An unconditional obligation to do something But a condition can trump a duty because if the condition does not occur it can serve to not even trigger obligation Problem Look at the cargo owner versus the ship owner example Peacock Construction Co V Modern Air Conditioning Inc Two separate lawsuits but one legal issue GC hires subc s and there is a provision in K that GC would pay subc s within 30 days of completion of the work in subc written acceptance by architect and full payment by the Owner Subc s complete work and GC refuses to pay says he has not been paid in full by the owner yet And the above clause was a condition which wasn t met so therefore he doesn t have to pay subc yet Trial Court We consider this to be an absolute promise to pay the subc s and not as a condition The majority of jxns feel this way Appellate Court Agrees Supreme Court of FL The interpretation of this clause is a matter of law not fact and it is not fair to shift the risk of nonpayment to the subc s Courts have broad latitude to interpret the meaning of a provision in the contract that might contain a condition The court may excuse a condition Gibson v Cranage There is a satisfaction clause in the K where the P is to deliver to the D a painted portrait of his deceased daughter Clause in there where the D has benefit of a condition where it has to be satisfactory to him in order to accept the P s work and pay him for it The portraitwasn t satisfactory to D P is SOL And i don t mean statute of limitations 100 Mitigating Doctrines The harsh effect of forfeiture of benefit if condition is not met Prevention When the occurrence of a condition is prevented by other party or through bad faith the court can trigger the duty anyway Waiver Estoppel Election Where one party makes a habit of accepting an alternative form of performance than that written in K Term is waived and carries an implied promise that this behaviorwill continued to be accepted in future the party receiving benefit may be estopped from enforcing the original method Interpretation and Avoidance Peacock v Modern Air Express conditions are strictly construed but in some instances not so in 2 ways 1 By not interpreting the language as giving rise to a condition 2 By excusing the condition as a matter of law Hicks v Bush Can have a K dependent upon an oral condition that enables the Kto run Supplement Pg 98 R2d 217 Class Notes 32513 On Wednesday end at pg 761 and start again on section pg 765 As of now Saturday April 27th is our exam Structure 3 hours Tenatively 20 mc 2 points a piece Fact pattern 2 or 3 questions stemming from the same prompt Friday April 26th 845am 1145 am Room 2203 is a QampA session Review R2d 224 Conditions The lf part ofan ifthen statement The condition may be excused Luttinger v Rosen Buyer s duty is conditional upon finding an appropriate mortgage Who can excuse the condition The party who is protected by the condition or the Court Peacock case And the Seller s duty is dependent upon the buyer s performance Doctrine of Conditions triggered and mitigated by the Doctrine of Substantial Performance International Rotterdam Seer s duty to ship rice is dependent upon buyer telling where the rice is to be shipped Examples of Express Conditions Starting Point Express Conditions are strictly construed by courts because they are agreed to by both parties Of course there are exceptions Equitable override available to courts C of Section 1Chp 8 Courts have way of mitigating consequences of the nonoccurrence of express conditions 1 Prevention If you preventthe condition from occurring it cannot be enforced 2 WEE election Person benefitting from condition is given a choice Enforce your right under the contract or choose an alternative and elect to waiver If you elect an alternative do you waive your right to reassert the right underthe original contract Does this operate to mean that you waive your rights the rest of the K to proceed in the alternative manner In Insurance usually construe an election as also meaning a waiver of one s rights in this manner McKinnon v Vernon For construction contracts common to provide scheduled progress payments and a condition under this payment that the work is consistent with the specified plans as confirmed by an architect or owner By not making sure the progress work was certified they had waived the right not to pay 3 Interpretation Peacock Court decides that the clause is not enforceable because they didn t call this a condition at all but rather setting a time of payment and too ambiguous to be a condition Courts have broad latitude Kingston v Preston Preston is a silk merchant Kingston is his apprentice At a specified time in the future Kingston is supposed to take over the business in exchange for security money paid to Preston Kingston sued because Preston didn t turn over the business to him and Preston argues well you didn tgive the security to me Kingston says so what and they go to court Before Kingston On the one hand one promise is dependent upon the other and vice versa because of the requirement of consideration Once those conditions are met they do not depend upon each other anymore and operate independen y 1 Doctrine of Constructive Condition Court construes these obligations as being mutually and reciprocally dependentconditional upon each other The rebuttable presumption that in a bilateral contract each side s obligation is conditional upon the other side s performance Problem no side performs and we reach a stalemate The Law prefers a simultaneous transaction If this isn t possible 2 wavs to decide performance 1 Parties can agree who goes first The first party absorbs the risk of the other side not performing 2 Stewart v NewburyConstruction job both parties stop performing and are blaming each other One side they abandoned the job other side they prevented me from finishing and didn t pay Need to figure out who breached and ifthat breach was material Issue Whether Progress Payments are Part of Contract Court No if not specified they are not part of the contract Nowadays according to usage of trade Parole Evidence phone conversation it may be shown that this is common in construction K s If not specified work must be substantially R2d 234 pg 111 supplement pg 718 Faciendo ante Dando Doing before receiving Principle based upon reliability of classes of people where workers work before employers pay Still the presumption today unless replaced by contract language Q suppose that the person performing service does the vast majority but doesn t finish the job and expends much time effort and money in doing so then the person receiving service doesn t have to pay if the service is a condition if the service is a duty however the breaching party would owe damages but only proportional to the breach and still get paid for the rest Miticlatincl Doctrines 1 Doctrine of Substantial Performance Obligation is triggered by substantial performance even if not complete Substantial When the purpose of what was contracted for has been performed What is done or delivered meets the general purpose of the K Assess the breach If the breach is big enough andor bad enough to be a major or material breach then definitionally the performance is NOT substantial If the breach is minor or immaterial the performance is substantial Material Breach Factors to determine this R2d 241 List of things to look at and consider Have a good idea of how these things fit together and come up with a way to determine a material breach Diminished Value Rule In order to get to this measure of damages one of the requirements was that the breach be a minor one insignificant Jacobs amp Young v Kent Starting Point of Analysis under the Doctrine of Constructive Conditions 1st Who committed the first material breach Once you know this you know the other guy was justified is stopping his performance because their duty had not been triggered Parole Evidence Comes in to figure out exactly what the parties were supposed to do Then compare it to what was done and look at the difference to determine if it was a major or minor breach R2d 237238 237 Adds to the doctrine of Constructive Conditions the Doctrine of Substantial Performance Can only be let off the hook if the breach was cured and immaterial if not the other side s duty will not have been triggered Pante v Jacobs Issues 1 Has performance been substantial To figure out whether the owners obligation to pay has been triggered SC of Wisc Yes there was substantial performance And now we figured that out we can figure out that the seller failed to pay which will be offset by damages of the breach by the builder 2 What remedy is appropriate Cost of Repair Replacement and Completion Diminished Value Rule Court There really wasn t a difference in the market price of the house as completed and the house as specified so there really is no diminished value here With both methods take the components of damages and offsetting them against the payment of the contract price This payment triggered because breach was not material pg 731732 In UCC don t have Doctrine of Substantial Performance Starting Point Perfect Tender Rule When goods are delivered they need to be exactly as specified but the tender the time method of payment etc has to be perfectly compliant with contract or there is a breach Much less latitude than underthe common law UCC 2601 2nd Mitigating Doctrine 2 Doctrine of Divisibility Gill v Johnstown Lumber Co Logdriving Plaintiff wants to sue for the logs successfully delivered R2d 240 If the performances on the two sides can be divided into increments and these divisions can be formed into pairs we can recognize mincontracts and treat each one separately lfone subdivided matched pair is breached can recoverforthe other pairs which aren t breached Doctrine of Substantial Performance applies to each divided part Notes 32713 Review Doctrine of Constructive Conditions Not obligated to perform unless the other party performs Timing of Performance Simultaneous This is the default Parties can contract who performs first When there is a situation where one party s performance will take some time and the other party s is instantaneous the party who needs time goes first Faciendo ante dando Characterizing performance as a condition is harsher than to call it a duty Mitigating Doctrines 1 Substantial Performance qualifies constructive conditions it is sufficient to trigger obligation to pay for instance by painting the house in its substantial part UCC Perfect Tender Rule 2601 2 Contract is Divisible Contract can be subdivided into equal parts and the doctrine of substantial performance and constructive conditions applies to each part Construction contracts are generally not divisible pg 735 Contract looks divisible but is not Army example 3 Restitution If a party has material breach the K is notdivisible the final fall back is restitution When someone who has been unjustly enriched is made to disgorge that benefit back to the other party Britton v Turner Guy has a contract for a year s worth of work Works 95 of the months and breaches the other 25 Was supposed to get 120 Under the Doctrine of Constructive Conditions must do work to trigger duty to pay and court felt it wasn t substantial performance Rule R2d 374 The party who benefitted should be made to disgorge that benefit in lieu of paying for contract because the latter duty was not triggered Result is as if the K never happened Court applies the net enrichment or costs avoided rule Disgorge the net enrichment by the party in breach or the cost avoided by the breach victim Kirkand vArchbod netenrichmentor cost avoided Wakeramp Co v Harrison Drycleaner rents a neon sign lease is for 36 months keep it is first class advertising condition Harrison gets to keep the sign after the 3 years A renttoown agreement Again a sale masquerading as a lease R2d 211 Problem here is vagueness to determine if there was a failure of obligation to maintain sign If so was it a major or minor breach If it s not a breach or a material breach to not clean the sign and then not paying is what is specified in the contract as to the result Liduidated damades provision Not so low that itwould be unconscionable and not so high as to constitute a penalty This provision says that lessor can repossess the sign AND collect all the rest of the outstanding payments at the time of repossession This clearly is in violation of the rule for liquidated damages Takeaway Not entitled to breach and stop performance on your side unless the other party has breached and their breach was a material one Breach MinorImmaterial Breach Nonbreaching party continue performance but can get damages Maior Breach Nonbreaching party can treat it as a 1total breach means they stop performance altogether and sue in court 2 partial breach in which case you continue to perform and are still entitled to damages 3 Suspend performance and await cure KampG Construction Co v Harris Dealing with the damages of cover for a substitute performance which was needed to be found as a result of the breach SubC knocks down a wall which is a breach GC stops paying Sub continues to work for a while and then stops because not getting paid pg 754 When the sub treats suspension of payments as a total breach they have breached a second time because GC was perfectlyjustified in suspending payment after the Subc s first material breach Insurance company didn t think they were responsible to pay at all just wrong Iron Trade Products Plaintiff had K to buy iron rails from defendant Defendantfails to deliver and the P had to find them somewhere else at a higher price D argues that P was contracting with other rail suppliers as well and made the supply go down which made the price of the rails go up and so D said P induced them to breach But there was no evidence that P did this intentionally that they knew of the rail shortage and there was no agreement to prevent P from buying from other suppliers Doctrine of Prevention Available to mitigate the harsh effects which would result even from a constructive condition Prevention argumentworks in Patterson v Meyerhofer because 4812 Chapter 8 Section 5 Prospective Nonperformance Review ConditionAn event not certain to occur which must occur unless it is excused by the other party in order for performance on the contract to become due Section 1 Mitigating Doctrines apply to express and constructive conditions Section 2 Doctrine of Constructive Conditions Bilateral K Assume obligations are mutually and reciprocally conditional Characterizing something as a duty as opposed to a conditions is actually less onerous in terms of the remedy provided for the breach victim A duty results in a partial breach and lower damages while a condition means that the damages against the breaching party are sever Of course there s exceptions to the condition situation Section 3 Mitigating Doctrines for the Doctrine of Constructive Conditions Substantial Performance Most important doctrine want to figure out who committed the first material breach most important step drives analysis of the rest of the problem Read pg 746 which explains this Breach victim has the option to treat the breach even if material as total or partial Total Breach victim stops performance and sues for damages Partial Breach victim tries to work things out with the other party and work with them to get whatever they were working on done Suspend Performance Breach victim can pause performance and try to work things out with the other party and then decide if they want to go to court or finish performance with an amended agreement The uncertain factor is that the breach victim will not know how the court will treat the actions of the other party if it is a breach at all so when in doubt they should probablytreat it as partial not total Section 5 Part A Anticipatory Repudiation pg 766 5 questions UCC Provisions 2610 comment pg 765 R2d Provisions 250a let the other guy know you will repudiate by words or b by voluntary affirmative acts b This has to actually be an act and not for instance failing to prepare to act 2433 EXceptionif the K is unilateral and the only thing left to complete it is the payment of money in installments then the announcement of intent not to pay is not grounds to treat it as an anticipatory repudiation This is what s left of the previous rule Can get around this with an acceleration provision pg 766 Hochster v De La Tour D was supposed to hire P to be a courier for him to startJune1st On May 11th D said he wouldn t need P s help anymore Issue Can there be a breach before the date when the K is to start Court Yes there can be Balance the unfairness of the breach victim relying upon the employer s word versus the assumption that the parties be ready willing and able to perform on the contract date Don twantthe parties to do anything on the runup to performing which will affect the parties performing on law date Rule If two parties enter into a contract to perform at a future date and one of the parties makes an anticipatory repudiation the victim may treat the repudiation as a present breach and sue immediately or may wait until law date and sue for damages Constraint If you wait until law day need to be careful because you have a duty to mitigate damages upon reasonable efforts and can t recover for these extra damages pg 771 Kanavos v Hancock Bankamp Trust Co Hochster under these circumstances don t have to tender your performance if there Here the P has a right of first refusal ifthe D decides to sell it the P gets the first shot at buying it D Kanavos didn t have the money to buythe building Issue Would Kanavos have been able to perform and if so whose burden is itto show that he could or could not Court It is Kanavos s responsibility to show that he would have boughtthe building if the seller had not breached the responsibility to give right of first refusal McCoskey amp Co v Minweld Steel Co This case is here to decide whether or not there was an anticipatory repudiation This is during the Korean War where steel was at a premium The language that McCoskey treated as an anticipatory repudiation the Court disagreed with pg 779 Higher standard for a statement being a repudiation McCoskey was in breach for treating it as such In essay if you have time always want to trace the development of the law in order to add depth to essay pg 780 Maddox Rule was the K actually breached by Coalfield biweekly Does it mean every two weeks or two times every week Chapter 5 issue We now know that an anticipatory repudiation may be treated as a material breach so we need to figure this out so we can figure out who committed the first material breach Maddox contends it was Coalfield by their voluntary affirmative act Court says no itwas Maddox who was in breach because he didn t sign the agreementwhich was written down after the oral K had been created It was Maddox s actions which justified Coafied s stoppage of work Court also points outwhere Maddox repudiated 1 pg 765 Language that under a fair reading amounts to a statement of intention not to perform except on conditions which go beyond the contract constitutes a repudiation 2 RollingAccumulating Repudiation based upon conduct that leads the victim to fear a daunting outcome the court may treat this as a repudiation also Notes 41013 Chapter 8 Section 5 con t ForApri 17th Read pg 815 830836 Review of Anticipatory Repudiation Def pg 134 Supp R2d 250 Can anticipatorily repudiate by statement indicating the obligorwill breach a or a voluntary affirmative act which makes it not possible for obligor to perform without breach b Hochster Rule R2d 253 When someone anticipatorily repudiates the repudiatee has the option to treat it as a breach now without having to wait until law day Want to be careful about waiting until law day because of the doctrines of mitigation whereby breach victim won t recover any damages which heshe could have avoided This Rules doesn t apply if the repudiated contract is unilateral and the only remaining obligation is the payment of money in installments R2d 2433 Not really an exception it s what is left of the preHochster Rule Maddox Additions pg 765 Quote from a comment in the UCC that adds to our definition of a repudiation For a language which reasonably viewed amounts to a statement not to perform except on conditions which go beyond those in the K UCC 2610what happens when there is a repudiation Also when one party Maddox does so much stalling and bad behavior that the Court believes itwill not perform can be held to have made a repudiation Cosden v Helm Helm looks at the petrochemical market a predicts it is going to explode so they eneter into a K to buy large amount of polystyrene Cosden runs into trouble with their plants and can t produce enough product to fill Hem s orders Helm doesn t pay Cosden for what they did send him and Helm countersues for damages flowing from Cosden s repudiation Problem is at what stage does the court measure the KMarket Differential If it is sooner when the repudiation occurs it benefits Cosden and later at law day it benefits Helm Review to damage provisions in code General remedies 2703seer 271 1 Buyer Cover 2706 seller 2712 buyer KMkt Diff 27081seer 2713 buyer There is a difference in the language describing the KMkt Diff for sellers and for buyers because the drafters didn t contemplate that the buyer would learn of a breach by an anticipatory repudiation as opposed to after law day Court decides that in a situation of an anticipatory repudiation a commercially reasonable time after the repudiation is when the KMkt Diff will be measured This allows for the buyer to be able to cover under a reasonable amount of time as well as falls in line with the doctrines of mitigation Butfirst It allows the seller time to retract the repudiation ifthe buyer is willing to accept this retraction Then after the time for retraction has expired the period for cover runs Then if no substitute is obtained the KMkt Diff is calculated To determine the nature of cover need to know what the company plans to do with the product p 783 Theory that one way of thinking about an anticipatory repudiation is that is merely an offer of a breach So the repudiatee can choose to accept it and sue for damages or choose not to accept it and the repudiator may retract the repudiation US v Seacoast Gas Seacoast is under contract to supply gas for a federal housing project and writes a letter to gov t saying they breached and says they are canceling the contract Gov t writes back if you don t retract your repudiation within 3 days we are going with another bid and you will be responsible for cover damages The same guy Zell is the President of both Seacoast and the competitor Seacoast s argument we sent a letter retracting our breach before the K was signed UCC 2611 R2d 256 Issue How long does a repudiator have to retract the repudiation The repudiator has as long as the repudiatee gives them to retract it s the locus poenitentiae It makes sense because the repudiatee may treat the repudiation as a promise to breach which they reasonably rely upon Look at pg 794 Jarbeau s Case Part B of Section 5 Assurance of Due Performance As in McCoskey v Minwell when you are McCoskey on the receiving end of a repudiation for performance which you are counting on you mightwant an assurance of due performance Failure for due diligence is a good example of this ex Once in the contract start to see a few things which makes one fear performance will not become due UCC 2609 R2d 251 Assurance of Due Performance PittsburghDes Moines Steel Co v Brookhaven Water Co Steel company is contracted to build a tank Steel company wants the President of the water companyto personally guarantee the loan President of Brookhaven does not Procedure forAssurance of Due Performance If something happens which does not amount to an anticipatory repudiation but gives rise to reasonable insecurity of nonperformance this procedure gives you a right to demand an adequate assurance and if this is not given you may treat this as if it is an anticipatory repudiation pg 289 official comment to 2609 Norcon In the book to show that the R2d has a provision for assurance of due performance too and that modernly electricity is considered goods Perfect Tender Rule Comes up on the bar a lot Code and Common law are different need to know these Review of Chapter 8 Performance and Breach Sections 1 Conditions generally 224 Express put into K by parties Luttigerv Rosen International v Rotterdam Gibson v Cranage Constructive Those that the court construes to be so as the law requires it court puts into K Mitigating Doctrines Interpretation Who can excuse a condition Court Given broad latitude and flexibility here as a practical matter because there needs to be a safety value Equitable Overrides Estoppel etc Party to be protected Peacock case Court doesn t think it s fair to shift the risk from GC to subC They interpret the language as not making a condition What they really did was excuse the condition Prevention When one party prevents the occurrence of a condmon Waiver Election Estoppel If someone has the contractual rightto enforce something but if one party gets in the habit of letting something slide there is a reliance upon the election to waive the right of enforcement then the party may be estopped from trying to reenforce 2 Doctrine of Const Cond DOCC 237 238 Only one part of hemisphere of conditions put into K by Court Performance by parties is conditional upon performance by the other Duties are mutually reciprocally created Decide who goes first 1 If the parties stipulate 2 Simultaneous exchange Preferred within the law Informal or Formal like escrow 3 Faciendo Ante Dando Rebuttable presumption that whoever s performance will take some time must go first 3 Mitigating the DOCC Comes right after section 2 because it comes after the DOCC Trying to mitigate the harsh effect of forfeiture because construing performance as a condition is more onerous than a duty would be substantial perf 241 butsee 2601 There to mitigate the DOCC a little as the first option ifthe breach was minor Sufficient to meet the essential purpose of the contract 241ls not a checklist butjust some things to consider in arguing whether performance has been substantial 2601 Perfect Tender Rule If the goods or tender of delivery fail in any respect to conform to the K ittriggers the buyer s options to reject the whole accept the whole accept any commercial units and reject the rest A lot more demanding than R2d substantial performance UCC softens 2601 however 2508 The seller gets an opportunity to cure a defective tender if the time for performance is still forthcoming If buyer accepts the goods by communicating it paying for the goods or do acts inconsistent with seer s continued ownership 2608 Acts inconsistent with ownership or exercises dominion the perfect tender rule goes away Then if buyer wants to revoke the acceptance of goods must show it substantially impair the value of the goods to buyer Installment Divided temporally K which will be performed over some time In this type of K the perfect tender rule doesn t apply but the same in 2608 does from outset Often parties will look to getout of the K and so don t want to give them the option of the perfect tender rule to help them do this because the law doesn t like it Divisibility 220 2612 Applies the doc of substantial performance is applied to each equally divided section of the K as if itwere the entire K Construction Ks are not always divisible Note 2 pg 735 The wartime government K example Restitution 374 Restore or give back when there has been unjust enrichment Just assign a value to that which has been conveyed Two ways to calculate Cost Avoidance Net Enrichment 4 Breach During Performance 236243 CB p 746 When something goes wrong after time for performance has arisen Breach Major or Minor Majormateria treat as partial continue perf bu get Treated as total sue for breach and Suspend Perf amp Await Cure from court As a practical matter should communicate this to the other party although not a legal necessity Minorimmateria Continue Perf but get Tomato Case Gets in more trouble for overreacting KG Constr Whoever commits the first material breach always has an uphill battle and here that party commits a second one as well 5 PrePerformance What if something goes wrong before in section 4 Antic Rep 250 2610 250 defines antic repud b by voluntary and affirmative action Leaves out even willful failure to get ready to perform a by statement 1 Generallythere is a trend for the broader application of it statement indicating obligor won t perform pg 765 By statement can repudiate if that indicates you will perform but only on different terms Maddox v Coalfield case 2610 What happens when there is one not really a def R2d 253 Hochster v DeLaTour Can treat it as a breach now and sue or wait until law day and sue be careful about waiting Accelerates the breach to the present BUT Doesn t work in contracts where only oneside is still left to perform and it s to pay money in installments R2d 2433 The residue of the pre Hochster Rule Hochster is really an exception because the general rule is there is not a breach until there s a breach and one party is damaged Kanavos reminds us of that that I have to do my part in order to trigger your duty to perform and if not it can t be a breach Helm Case Where the seller breaches by antic repud and the buyer will recoup by cover when do we calculate MktK diff By a reasonable time thereafter Done by 2 of these puttogether First To allow the seller to retract the antic repud Second To allow the buyer to cover calculate reasonable damages based on market price But it s up to the buyer to allow the seller time to retract If he doesn t clock for cover starts running right away R2d 256 261 1 The repudiator promises not to perform then the repudiatee relies on this and announces that they accept repudiation it can t be undone Assurances 251 2609 Pg 289291 supplement If something falls short of a repudiation abut constitutes reasonable grounds for insecurity when can party request adequate assurances and when can they treat this as a repudiation Code Request needs to be in writing wait 30 days for the assurances if there is no response or inadequate it is a repudiation R2d No writing no time limit no or inadequate assurance may be a repudiation Ripens insecurity into repudiation Contracts Last review QampA Friday April 26th at 900am 101713 Last Day of Contracts Notes Chapter9 Mutual Mistake 151152 154 Impracticability of Perf 261 2615 comments 48 Frustration of Purpose These three are excuse doctrines and if applicable will let someone of the hook potentially If you are the first material breacher may be excused for your non performance Order of Talking about K Exam Issue 5 What did the parties K for Who breached first 6 Limits on the bargain 8 Did the parties perform agreement and if not what was the nature of the shortfall 7 The appropriate remedy Excuse Chapter 9 fits in between 8 and 7 When parties enter in to K they have certain beliefs and assumptions These are based upon facts at the time of the contract and then beliefs about what will happen and the initial time of contracting Basic assumptions about what the future holds things not discussed because it is normal to expect them the way they exist However IF THESE turn outto be wrong they are likely to be the subject of Mutual Mistake Supervening events beyond what was expected are likely to be the subjects of Impracticability and Frustration of Purpose Mutual Mistake Can be claimed by either P naturally Impracticability Usually brought by seller Frustration Usually brought by buyer pg 808 Stees Case Starting Point Builder contracted to build buiding turns outto be on quicksand so the 2 attempts result in the building collapsing Purchaser sues and wins The law atthis time 1874 was that unless it is literally and absolutely impossible one is bound to do what they promised Latin Phrase Pacta SuntServanda Agreements are or should be served or observed You should do what you contracted to do Enter Excuse doctrines 1 Mutual Mistake R2d 1 51 A mistake is a belief that is not in accord with the facts R2d 152 When this applies it makes the contract not void but voidable at the option of the adversely affected party Mistake must be to a basic assumption Mistake must have a material effect of the exchange of performances R2d 154 3 ways in which the risk may be allocated to one party exception to 152 a ifthe contract allocates the risk to you as is provision if available or not barred by statute b conscious ignorance if one is aware that his knowledge of facts is limited but proceeds thinking that knowledge is sufficient to perform than he assumes the risk of mistake c the court can decide for various reasons pg 815 Cow of good lineage is contracted to be sold Both buyer and seller thoughtthe cow was barren butthen it is discovered it is pregnant and seller wants to get out of contract Seller is successful because it is a basic mistake and it is clear that a barren cow and one who can have offspring are materially different Based on 152 it was a mistake to a basic assumption has a material effect on exchange so voidable to seller because he is adversely affected pg 815 Rough Diamond case Different from cow case because delivery had already happened Could be classified as conscious ignorance on the part of the lady selling but problem is the buyer didn t know what it was either The Mistake is not to the value put on the goods or the money The Value is fair game for speculation by the parties and price setting Underlying what something is worth is facts aboutwhat something is and this is what mistake is based upon 2 Impracticability of Performance Again starting point is if you committed to doing something you have to do it Another Latin Phrase Rebus Sic Stantibus As matters still stand assuming they will remain how they are Doctrine of Changed Circumstances The premise that you should do what you say is mitigated by this pg 825 Taylor v Caldwell Place is contracted for to hold event the place burns to the ground before law day comes The vendor of the space is off the hook lmpracticabilityis the modern reincarnation of the old doctrine of impossibility It is broader than the old doctrine and Tayloris exemplary of this lmpracticabiity Practicable means something that can be put into practice with the means that are available and impracticable is the oppos e pg 830836 Transatlantic Financing Corp v United States Factors for Impracticability 1 Contingency something unexpected occurs 2 The risk of the unexpected occurrence happening must not have been allocated by agreement or by custom or by court 3 The contingency unexpected occurrence must have rendered performance impracticable Facts Shipping company sues US because they had to reroute their ship from going through the Suez Canal to get to Iran to having to go all the way around Africa and then back up The issue is that the shipper is not trying to excuse performance but are trying to get money back for the extra costs of making the prolonged journey Not a good use of the rule pg 831 Loosening the old rule of impossibility lmpracticable when it can only be done at an excessive and unreasonable cost The test summarized that the nature of the obligation has to change not merely in degree but in kind it becomes a different obligation not an extended one R2d 261 UCC 2615 4 Increased cost alone doesn t excuse performance unless it is due to some unforeseen circumstance which alters the essential nature of performance 3 pg 848 Eastern Air Lines v Gulf The real basis for Guf s argument was the OPEC Arab Oil Embargo It sochanged the market for oil production that we shouldn t be held to perform underthis pg 851 Gulf suffered no hardship stop complaining 3 Frustration of Purpose Krell v Henry Guy pays for hotel room overlooking square and overpays for it because from there he can view the King getting coronated The King gets sick and the ceremony doesn t happen Need a new doctrine here because it s not a mistake and not impracticable Problem here for the court allocate a cost to one of the parties where both parties really are blameless R2d 265 R2d 272 Court is given broad latitude to address this dilemma Chapter 10 Topics 1 Third Party Beneficiaries A Definition amp Types R2d 302 E The word third is not the important part of the term only intended to show we are talking about somebody not a party to the K but will nonetheless benefit from the performance of the K Types IncidentalIndirect When someone incidentally gets affected by the performance conferred upon somebody else because of their proximity to the party IntendedDirect When a party contracts with the other party to confer something upon somebody else intended to receive the benefit Why would party confer a benefit upon a thirdparty A Because it s a gift third party considered a donee B Because party does this to pay off a debt owed to the beneficiary and the third party is a creditor Statutorv Definition Prohibits members of the public from suing parties to government contracts B Rightto Sue R2d 304 307 Traditionally no even if an intended beneficiary because there was no consideration given by 3rd party and no privity of contract as well as assent Problem arises under insurance law When one party dies the beneficiary to their life insurance party needs to be able to sue to recover the payout guaranteed to them Modern Basic Rule Direct amp Intended 3rd Party Beneficiaries have a rightto sue It is necessary to ensure performance as intended by the parties R2d 304 As between a donee and a creditor it is actually the donee who is favored in their right to sue as a 3rd party beneficiary This is because the creditor always has a right to sue on the underlying debt they are owed without reaching to the other contract while the donee does not Balances out the power of the parties C When do Rights Vest R2d 311 Means that a party s right are confirmed to them and can t be taken away Generally the rights a 3rd party has in a K can be modified or extinguished at any time 3 ways to 1 3rd party beneficiary reasonably relies upon their status as a beneficiary 2 Relevant Statute Community Property states 3 If the parties to actual K ask for and receive some sort of acceptance by the 3rd party K ex Holding physical copy of insurance policy D Defenses 309 To being sued by 3rd Party Beneficiary Real Defenses Can assert any defenses that party has against the other one who is not suing that has to deal with the K Personal Defenses Party can t assert these because they are against the party not suing and are personal to those 2 people and don t include the 3rd party 2 Assignment amp Delegation Deal only with the transfer of the rights and duties of a K R2d 317 322 318 Definition of Terms Assignment Matches up with rights The transfer of the right you have under the contract to receive something Delegation The transfer of a duty to another to do something Assignment There is a presumption you can subject to 3 limitations The presumption is there because of the organization of our economy which is marketbased that you can assign unless it is listed that you can t I2d 317 Unless 2 a ifthe assignmentwould materially change the burden on the obligor the party conferring the right b if it will increase the risk that the other party to the contract will not receive his return performance c if the assignment is forbidden by statute Because of powerful presumption of alienability market freedom F 2d 322 If the contract says it can t be assigned that means it s ok to delegate the duties but doesn t affect the assignment of rights under the contract So ifthe language is used recklessly court needs to interpret it Even ifthere is a valid amp enforceable provision against assigning rights and this clause is breached the rights as assigned are still valid as to the assignee in which they will vest The resultwould be that the original obligorwould sue the obligee and the 3rd party wouldn t be involved Delegation is ok unless the other party to the K holds a reasonable expectation that the party looking to delegate is the only person to perform the contract It is a question of fact to be decided by the jury Parties can however contract to avoid delegation by saying I only want you to do this and it s enforceable ex painting a house not reasonable to expect same person versus painting a portrait reasonable to expect it d be the painter you contracted with Common issues arise with doctors and lawvers With lawyers If you hire one and another shows might not be ok With doctors If you expect one person to do an operation and another shows may be able to sue for damages
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