Download Section 1: Capacity to Contract: Infancy, Mental Incompetence

CHAPTER 2: THE BASES OF K LIABILITY
Section 4:
Formal requirements: the Statute of Frauds
A.
B.
General Scope and Effect
Within the Statute
1. the 1 year clause
North Shore Bottling v. Schmidt
p. 169
Issue: Is an oral agreement which entitled D to terminate its K arrangement with P within one
year of its making valid under the 1-year provision of the SOF?
Rule: if the agreement is CAPABLE of performance w/in 1 year it doesn’t have to be in
writing. The court looks to the terms upon formation.
2. K for the sale of goods
3. Interests in Realty
SOF covers any oral agreements to convey an interest in land
C.
Compliance with the Statute
Crabtree v Elizabeth Arden
p.177
Issue: May the length of the K be supplied by reference to the earlier unsigned office memo,
and if so, is the notation “2 years to make good” a sufficient designation of a period of
employment?
Rule: The court pemits the signed and unsigned writing to be read together, provided they
clearly refer to the same SM or transaction.
D.
Effect of Non-Compliance
An oral K which is within and doesn’t satisfy the SOF is “nto boid in the strict sense that no K
has come into being at all, but is merely unenforceable at the option of the party against whom
enforcement is sought”.
Sale of Goods- UCC 2-201(3)(b):
a K not satisfying the SOF but valid in other respects is
enforceable “if the party against whom enfvorcement is sought admits in his pleading, testimony,
or otherwise in courtr that a K for sale was made, but the K is not enforceable under this
provision beyond the quantity of goods admitted.”
DF Activities v Brown
p. 184
No additional discovery when D raises a SOF defense and denies an oral K
Chapter 5: Avoidance of Contracts
Ways parties can avoid legal obligations for promises that seem to satisfy the requirements for
contract (bargained for consideration).
Courts may refuse to enforce a K due to:
1) Impermissible parties
2) Impermissible defects in bargaining process
3) Impermissible terms in the agreement
These Rules are Mandatory or Immutable: contracting parties do not have the freedom to waive
these defenses
Section 1:
A.
Capacity to Contract:
Infancy, Mental Incompetence
Infancy
Status protection:
in general, minor’s Ks are VOIDABLE
R2 §14
“Unless a statute provides otherwise, a natural person has the capacity to incur
only voidable contractual duties until the beginning of the day before the person’s 18th birthday”
Regarding Ks made during minority, a minor has the right to affirm or disaffirm his K other than
those for “necessaries”. The other party, if an adult, is bound to the K with the minor reflecting
the risk of contracting with one underage.
Infants can sue to enforce, adults cannot sue to enforce.
Policy: discourages adults from entering K with minors
Damages:
Restitution: party gets the unjust value the minor received (RA value)
Restoration: party gets back what is left
In general, the minor, after disaffirming the K must return the value of the item that is then in
their hands.
When a minor make a K, then becomes an adult they have a “RA time to dissafirm the K after
they are 18, otherwise it is valid.
CA laws regarding minors
1. Emancipation of Minor’s Act”
Minors who are:
1) Married
2) In Active military duty
3) File for living independently
Can make a valid K
2. Minor makes a K for real property:
VOID neither party can enforce
3. “Minor’s entertainment K statute”
Superior court must approve the K, then the minor can be sued for breach.
Bowling v Sperry
p. 451
B.
Mental Incompetence
To prove incapacity, you must show:
(proven by she who is claiming the defense)
Standard:
Clear and Convincing Evidence
1) “Cognitive Incompetence” Incapable of Understanding the Nature and Consequence of the
transaction
OR
2) “Compulsion”/“Uncontrollable Impulse” Understood the Nature and consequences of the
transaction but couldn’t help yourself
K’s Partially/Fully Performed:
If the person, proven by Clear and Convincing Evidence is Incompetent, it still matters if the
other party has performed, partially performed.
1) It must be shown that the other contracting party knew or should have known of the
Incompetence.
2) Was the price of the K fair? If not, it may show they knew of the incompetence and were
taking advantage by charging too high a price.
If other party acted in:
1) “Good Faith” and
2) Was Unaware of the Incapacity
Incompetents can generally avoid the K
providing he can restore the other to pre-k position
If it is shown that the party didn’t know/had reason to know of the incompetence, and the price
was fair, the Incompetent can get out of the rest of the K(if only partially performed), but must
pay the other party the price for what they have completed. If the whole K is finished, the
Incompetent must pay the full K price.
If a Guardian has been appointed for the Incompetent, any K she makes is VOID.
If No Guardian appointed, the person wanting to claim Incompetence must prove by “clear and
convincing evidence” that she is Incompetent, to make the K VOIDABLE.
Heights Realty v Phillips
p.459 Broker had fully performed. With performance, whether or not the basis of incompetency
is Cognitive or Irresistable Impulse.
1) No real showing here that the price was unfair.
2) Broker testified that seller seemed perfectly normal, had no reason to know she
was incompetent. The court does not believe the broker.
CitiFinancial v Brown
p.464 Brown, incompetent who can’t read/write, goes to Citi with his Mom. Loan agreement
contained an arbitration clause. Brown files coa in state court claiming fraud and breach
of K. Citi tries to enforce arbitration clause.
K was fully performed by the bank:
1) No evidence it was unfair
2) Bank knew Brown was cognitively disabled
District C:
denies Citi’s petition
“the Ks of person non compos mentis are absolutely void, whether executed or executorymere nullities”
No clear guardian is shown, but Citi cannot enforce the arbitration clause.
Appeals:
should go to arbitration, where arbitrators should evaluate Brown’s competency.
Ervin v Hosanna Ministries
p.467 P went to rehab, suing D for negligently not keeping a safe premesis. P signed a General
Release, says she does not remember signing it, and was incompetent at the time she
signed. In any drug rehab situation, there will always be a Q of the validity of the release.
Courts, in general, do not favor releases.
D had reason to know, P may not understand what they are signing.
TEST:
of mental capacity to make a K
Whether at the time of execution of the instrument the maker possessed understanding sufficient
to comprehend the nature, extent and consequences of the transaction.
Evidence to Consider:
The mind of the alleged incompetent before, at, and after his K to ascertain her real
condition at the moment of entering into the agreement.
Section 2:
A.
Defects in Bargaining Process
Unilateral and Mutual Mistake
R2d §152
Mutual Mistake makes a K Voidable when:
1) where a mistake of both parties at the time a K was made as to a basic assumption on which the K
was made has a material effect on the agreed exchange of performances, the K is voidable by the
adversely affected party unless he bears the risk of the mistake.
R2d §153
Unlitateral Mistake Makes a K Voidable when:
Where a mistake of 1 partty at the time a K was made as to a basic assumption on which he made the K
has a material effect on the agreed exchange of performances that is adverse to him, the K is
voidable by him if he does notbear the risk of the mistake and
a) the effect of the mistake is such that enforcement of the K would be unconscionable, or
b) the other party had RA to know of the mistake or his fault caused the mistake.
Boise J.C. District v Mattefs Construction
p.472
Unilateral Mistake
Beachcomber Coins v Boskett
p.479 Mutual Mistake. Appellate allows Recission b/c both parties acted under the mistake of
fact and it had a material affect. Both bore the risk.
Negligence by one party does not preclude Recission. Both parties here were absolutely
convinced it was a real coin.
If both parties had been uncertain about the item, things would have been different and
recission would not have been available.
Sherwood v Walker
p.482 K for sale of a cow both thought was barren, to sell for $80. Before delivery, seller
realizes she is with calf and refuses to sell to Buyer. A breading cow is worth $750.
Buyer sues to recover the cow.
Hold: Mutual mistake, both believed cow was barren and worth $80. No meeting of the minds.
Seller does not have to sell.
Appellate Court focus:
Difference in Value v
Difference in Substance
No Recission
Recission is Possible
A mistake in the value is not the same as a mistake of the substance of an item, difference
in value does not allow Recission. A mistake must be one where both parties are certain
of material facts of substance (a type of cow: barren) before Recission of the K is
possible.
Lenawee County Board of Health v Messerly
p.484
Ayer v Western Union Telegraph
p.495 Telegraph message omitted “ten” in the statement of price of the laths. The Offeree had
power to accept the offer set forth in the telegram (“objective theory” if know/RA should
have known, couldn’t accept. Not the case here, would have felt empowered to accept).
Offeror chose the method of transmission, so should bear the risk for the method of
transmission.
1) As between buyer and seller, seller bears the risk of the mistake.
2) Seller was entitled to damages of the difference in market value.
Rule: Offeror can recover from Western Union the difference between the stated price and the
market price. The court ignores the disclaimer clause (may not have been clear to
consumer) and imposes strict liability on the merchant.
B.
Fraud and the Duty to Disclose
Laidlaw v Organ
p.498
Vokes v Arthur Murray, Inc
p.500
Hill v Jones
p.507
C.
Duress and Undue Influence
Rubenstein v Rubenstein
p.523
Austin Instrument v Loral
p.527
Machinery hauling v Steel of W. Virginia
p.530
D.
Unconscionability
1.
Consumer Transactions
Williams v Walker-Thomas
p.536
Fleet v United States Consumer Council
p.549
Ferguson v Countrywide Credit Industries
p.553
2.
Unconscionability in Commercial Transactions
Weaver v American Oil
p.561
Zapatha v Dairy Mart
p.565
Coursey v Caterpillar
p.569
Section 3:
Illegality- Agreement Unenforceable on Grounds of Public Policy
Sinnar v LeRoy
p.575
“Illegality of a serious nature need not be pleaded”, the D doesn’t have to raise it, a judge can raise it.
Rule: If the parties, as here, are in pari delicto (all knew what they were doing) the court should leave
the parties where it found them.
Homami v Iranzadi
p. 581
Rule: Because his agreement violated the law, and was made intending to hide income from the IRS, P
is not entitled to collect the money that was an unreported interest.
Data Management v Greene
p. 592
Approaches to covenants not to compete:
1) if they are overbroad they will not be enforceable
2) Blue Pencil Rule: if words in an overbroad covenant can be deleted in such a way to render it
enforceable the court may do so.
3) Rule of Reasonableness: if an overbroad covenant can be RA altered to make it enforceable, then
the court shall do so unless it determines the convenant was not drafted in good faith. COURT
ADOPTS
Watts v Watts
p.597
Wallis v Smith
p.608
CHAPTER 6:
Section 1:
PERFORMANCE
Determining Scope and Content of Obligation
A.
Integrated Writings and the Parol Evidence Rule
The PER depends upon the INTENTION of the parties.
Did they intend the writing to be “INTEGRATED”(Final) as to:
1. some of the terms “PARTIAL INTEGRATION” or
2. all terms of the agreement “TOTAL INTEGRATION”
Mitchell v Lath
p. 615
Issue: is the oral promise to remove an ice house from a separate property enforceable when P relied
and made a a written K to purchase based on the promise?
3 Conditions for an oral agreement to vary the written K:
1.
Collateral Agreement
2.
Must not contradict the written K’s express/implied provisions
3.
Must be a provision not expected to be in writing.
Rule: The fixed form of the deed makes it inappropriate to assert collateral agreements, even if closely
connected with the sale. Complaint dismissed.
Masterson v Sine
p. 619
used HUNT TEST for Inconsistency
CORBIN era
Alaska northern v Alyeska Pipeline used SNYDER TEST
p. 624
SNYDER TEST for Inconsistency: Can’t limit prior agreements giving unlimited discression.
1. What does the term mean literally express/implied?
2. What range of meanings can it have?
3. Is it consistent with prior agreements?
HUNT FOOD TEST for Inconsistency:
more narrow than Snyder
1. Look at the express terms only in the written K.
2. Is the prior agreement consistent? Easier to find consistency.
Luther Williams v Johnson
p.631
B.
Interpretation
PG&E v Thomas Drayage
p.638
Kemp Fisheries v. Castle & Cooke
p.640
Hierarchy of Interpretation:
Less General
(Parties individual will)
1. Look to the Language of the K Specific transaction involved.
Should 1 party known/should have known what the other party meant?
Was there agreement of the term in the K?
2. Extrinisic Evidence:
Course of Performance
Course of Dealings
Usage of Trade
Totality of transactions between the parties
3. “Implied Terms”
General Rules of K law
the surrounding circumstances.
4. Good faith, RA:
General Standards of RA
as to price (by extrinsic evidence), etc
5. Rules of Construction:
Corbin- they are guidelines R2d 202, 203, 206(when in doubt interpret the language against the
drafter of the K) 202(3) words are used in their ordinary meaning if no technical meaning
Most General
(Social Values)
Plain meaning rule: (Rejected by the UCC) unless a word is ambiguous or vague was the trier of fact
allowed to have evidence as to the meaning of the word.
UCC directs the court attention to 3 sources for determining the meaning of language in a K for sale of
goods: (to explain language)
1. custom
2. trade usage
3. course of dealing
Comment 1: rejects the plain meaning rule. Language is to be taken from commercial context
rather than plain or legal meaning. ( c)rejects the idea that the court must first find that the
language is ambiguous b/f taking evidence of what the language means.
Comment 2: the evidence is to be taken in to determine the true meaning of the parties, but the
parties true meaning is to be presumed to be what you would get by looking at prior
performance, trade usage, custom unless the parties carefully negate that meaning.
Frigaliment v BNS International
p.649 1. Does the K offer interpretation of the meaning of the word “chicken”?
Section 3:
A.
Allocation of Risk: Warranties and Conditions
Representation and Warranties of Quality
Ks contain language of promise and/or language of express condition. Warranties are language of
promise, as opposed to language of express condition. Breach of a warranty may lead to damages, an
may excuse the party not in breach to have to perform.
Warranties may result from what seems to be representations of fact.
“This car does not burn a drop of oil” is a promise, and may also be a warranty.
1.
Express Warranties
Representations are not promises, they are representations of existing fact.
2-313
An affirmation simply of value of the goods or a statement purporting merely the seller’s opinion or
commendation of the goods does not create a warranty.
Revision
Remedial promises have been added. After formation of K, “promise by the seller to repair or replace
the goods or to refund all or part of the price upon the happenidng of a specified event”.
Two new sections: if an express warranty is made to the public, they may be liable in damages to the
remote buyer of goods if they do not conform to the express warranty.
2.
Implied Warranties
a. Quality
CL and UCC continued them.
b. Merchantability
2-314 Fit for ordinary purposes for such goods.
6 part test in 2(c)
c. Fitness for a Particular Purpose
2-315 the seller knew the buyer wants to use the goods for a particular purpose
3.
Limitations of Warranties and Remedies
Warranties can be waived/disclaimed. The consumer/other party must know what they’re getting into.
The seller can’t be taking advantage of the buyer or not giving the buyer any choice but to accept the
disclaimer of warranties.
To Disclaim a warranty of Merchantability:
1. must state Conspicuously in the writing, if there is a writing.
To Disclaim a warranty of Fitness:
1. must be Conspicuous
2. the language must clearly disclaim the warranty in question.
2-316:
“as is”
can be enough to disclaim the warranty.
Revised 2-316(2) regarding IWM must have specific language.
Henningsen v Bloomfield Motors
p. 728 Wife of purchaser was entitled to recover for personal injury against both the dealer and
manufacturer. Chrysler’s attempted disclaimer of an implied warranty of merchantability is so
against the public good that it is considered invalid.
Issue: Was the manufacturer’s disclaimer of the Warranty, limited to replacement of parts,
unconscionable?
Trial: Found D liable for breach of Implied Warranty of Merchantability and Dismissed the Negligence
Claim.
Appeal: Affirmed Trial court. Found the Express warranty (limited to replacement of parts sent to the
factory)did not negate the Implied warranty of fitness given the inequality of bargaining power
between consumer and manufacturer. As all car manufacturers use the same form contracts. If
they imposed a duty to read, it might not lead to justice. The spirit of freedom on K is that
consumers who have no choice should not be stuck with limited warranties.
2-719 Disclaimer for personal injuries is prima facie unconscionable
Murray v. Holiday Rambler
p. 733 Sales agreement gave no express or implied warranties.
PROCEDURAL POSTURE: Appellant recreational vehicle manufacturer (RV
manufacturer) sought review of a judgment from the Circuit Court for Dunn
County (Wisconsin), which entered judgment for respondent RV purchasers
(purchasers) in their action to recover the purchase price of the RV and
damages.
OVERVIEW: Purchasers bought a RV that required substantial repairs
within the first few months of the purchase. The purchasers later revoked
the acceptance of the RV and filed suit for damages. The manufacturer
argued that the limited express warranty prevented the purchasers from
revoking acceptance of the RV. The court noted that the predelivery
agreement signed by the purchasers contained a warranty that the RV was
free of defects at the time of delivery and that it limited the purchasers'
remedies to repair or replacement of defective parts. The court found that
under Wis. Stat. § 402.608, the purchasers could have revoked acceptance
of the RV after they allowed the manufacturer a reasonable time to repair
the defects. The court found that the jury determined that the purchasers
had cause to revoke acceptance of the RV, and that special verdict questions
revealed that the RV was delivered defective, that the defects impaired the
value of the RV, and that the repairs were not made as required by the
limited warranty. The court found that the purchasers were not entitled to
loss of use damages because they failed to show how much use would have
been made of the RV if not for the defects.
OUTCOME: The court affirmed that part of the trial court's judgment that
found that the purchasers could revoke acceptance of the RV and disallowed
attorney's fees to the purchasers. The court modified that part of the
judgment that awarded loss of use damages to the purchasers. The court
instructed the purchasers that they could appeal the change in the loss of
use award by filing for a new trial on that issue only.
Effect of Breach of Promise: (Constructive condition not having been met)
Duty to perform is “Constructive Conditions” once the other party tenders substantial
performance or substantially performs.
Substantial breach: non-breaching party’s duty to perform is not activated and they can sue on
breach of K.
Minor breach:
duty to perform is activated and they can sue for damages.
B.
Express Conditions
Language of Condition. Law makes a distinction b/tween language of express condition v
Language of promise.
Language of Condition R2d 224
Conditions are:
1. Express or implied in fact and
2. Precedent, Concurrent or Subsequent
HYPO:
A ---------------Promise to pay $100k + Express Condition------------------- B
House “must have Redding pipe”.
A ----------- Promise to Build house
--------------------------- B
House is built to spec, but has Brand X pipe instead of Redding Pipe. Condition Precedent to
owner’s duty to pay.
If by Interpretation, the court determines that it is Language of Promise, is it a Material Breach? If it is a
Material Breach, the duty of A to pay is not activated. If Brand X is inferior A is entitled to
damages.
If a Minor Breach, A’s duty to pay is activated, but deducted by the difference in value between
Redding and Brand X pipe.
If by Interpretation, the court determines that it is If Language of Express Condition:
If the condition is not met exactly, A’s duty to pay is not activated. A cannot get damages.
If Both Language of Express Condition and Language of Promise:
Duty to pay is not activated, but A can get damages between the difference of the 2.
1.
2.
3.
Conditions (in Time):
Precedent
Event that has to happen b/f a duty becomes activated. Most common.
Concurrent Duty and event must occur simultaneously under the K.
(No difference in effect b/tween 1 and 2)
Subsequent Discharge of a duty. N3 p.742 Mainly in insurance Ks, deals w/bop. Ex:
Insurance policy “failure by insured to file a coa w/insurance w/in 1yr of the fire discharges the
insurance co of any duty to pay for the fire”. Modern View: Insurance’s duty is discharged by the
failure of the insured to file a coa. Bop shifts to insurance co to show the insured had not met the
condition(filed the coa w/in 1 yr) Excuse/Deactivate the duty to perform
R2d 225 Effect of Failure of Condition:
1. If conditions are not exactly met
a. As duty to pay is not activated
b. Unless disproportionate forefeiture or condition excused
c. A does not get damages for failure of condition
P has BOP to show D knew/ RA should have known what Ps intent was at the time of K formation.
Courts tend not to like Express Conditions!
HYPO p. 738
Uncle agrees to pay Nephew if he takes an elective course and get a grade of B or Better. Nephew takes
the course and earns a C+. What are the Nephew’s options?
Nephew BOP, must show: Interpretation problem on the intent of the parties.
R2d 201
Nephew’s Argument:
Language of Promise
Nephew has burden of proof to show that the Uncle knew or had RA to know, at the time of K
formation, Nephew intended that getting a grade of B or better was language of promise not language of
express condition. Nephew will argue taking the course and getting a C+ is Substantial performance.
Uncle may still be entitled to some damages.
Even if Nephew can show it was language of Promise, Uncle will say: There is a substantial
difference between a B and a C+, so his duty to pay the $500 is not activated b/c there was a
substantial breach by the nephew.
Uncle’s Argument:
Express Condition
The parties subjectively both intended it to be language of express condition. Nephew knew/should have
known Uncle intended it to be language of express condition.
If he wins (court finds Express Condition): if Nephew doesn’t get a B, Uncle’s duty to pay the
$500 is not activated.
If the court found:
Both
It was Language of Express Condition AND Promise: Uncle’s duty to pay is not activated, but Uncle
may be able to collect damages against Nephew.
4.
Nature and Effect
Dove v. Rose Acre Farm
Express Condition
p. 739 Facts: Bonus rules were well known to P when he agreed to the bonus contract. Employer stated
the purpose of the bonus program was to discourage tardiness and absenteeism and to promote
motivation and dependability. Employee missed work due to illness and so did not meet the
requirements for the bonus.
Issue: In terms of Interpretation of the Employment K, P must show (BOP): P must prove by
preponderance of ev that employer knew/should have known that employee intended that full
attendance was only language of promise. Did P know/had Ra to know that missing no work was
an express condition of getting the bonus? Yes, he was aware of the bonus program rules and
reasons.
Was full time attendance an Express Condition or Language of Promise? Court finds it is an
Express Condition. No exception had ever been made to the strict attendance provision, proof
that P should have known the seriousness and motivation of D.
P argues: D got what it bargained for. Best argument is that it was not language of express condition, it
was language of promise. If language of promise, employee will argue he substantially
performed, so D can collect for partial breach.
Posture: P employee appealed a judgment in favor of D employer. Affirmed.
Holding: Ds duty to pay the bonus was not activated, as the Express Condition was not fulfilled.
Wal-Noon v. Hill
Implied in Fact Condition Precedent (interpreted from the facts to the
intention of the parties) the effect is the same as an Express Condition
p. 743 Facts: Lease agreement for construction and occupancy of a building. P to use major portion for
a market and to sub-let the rest of the building. P (Lessee) made repairs to a leaky roof twice. P
got bids and began replacement of the roof, spent $8,000. Nothing about notice in the K. K states
that P must make repairs from improper use.
Trial: Found it was language of promise. P breached the K by failing to give notice, but were entitled to
Restitution b/c D had been unjustly enriched. Judgment against D for $5,867 plus interest. P
were not entitled to attny’s fees.
Holding: Court finds that Notice is an indispensable condition precedent to D’s duty to perform under
the covenant to repair. Only language of promise gives rise to a duty. Language of condition
does not give rise to a duty, it acts as a condition precedent to Ds duty to pay. Without notice, D
is deprived of their right to claim that Ps negligence caused the damage. It is implied that D have
a right to control the method and expense of repairs- taken from a Commercial Context. P lessee
cannot collect the $8,000 they paid for the repairs b/c notice was an implied in fact condition.
Hypo: Had the court found it was language of promise, was it a substantial breach not to give notice for
2 yrs. If a substantial breach- Ds duty would not be activated.
In Re Carter’s Claim
Language of Express Conditon
p. 747 Kardon negotiated for purchase of the Schoettle Co and 5 of its subsidiaries. Written K for Buyer
to purchase all the issued and outstanding capital stock. Buyer presented a claim against the
escrow fund for $69,998.42 as a “liability” of the seller under the agreement. Escrow account
opened. Financial condition of the company was not to decrease.
Issue: Were the provisions in the K regarding the financial condition of the company a warranty
(Language of Promise) or a (Language of Express Condition) Condition Precident?
Posture: An arbitrator awarded $3,182.88 to Buyer, judgment entered. Buyer appeals. Affirmed.
Holding: The language was Language of Express Condition, Condition Precident. They are applying the
Modern Rule: There was no evidence to show anything different, no evidence that these words
“are susceptible” to some other meaning than that used in the K. It is clear that paragraph 9(a) is
a “condition” and not a warranty and once the buyer elected to accept this agreement the
provisions of 9(a) ceased to be operative and the buyer had no right to recover damages. P is not
entitled to Damages, when Express Condition is not Met. Ps had no duty to fulfill the K, he
waived his condition when he elected to go through with the deal.
Court prefer Language of Promise- can be met by substantial performance. Less harsh result.
Trade usage may be a source of interpreting language in a K.
PROBLEM: THE INSOLVENT OWNER
If you interpret the K to state a time, when S is paid by O, to pay P then this is not a condition.
Majority: Based on trade usage, Os payment is not an express condition, but is just a convenient time for
payment.
General would argue: The language is subject to an interpretation that it is a condition. Must show that
both parties understood at the time of the K that it was language of express condition.
Omni Group v Seattle First National Bank
p. 103 Promise to buy subject to an express condition precedent that the buyer be “satisfied”
P real estate developer appealed judgment in favor of D, in Omni’s action to enforce an
agreement to purchase realty owned by the Clarks. Reversed. Owners say that it was an illusory
promise b/c they had to be “satisfied”.
Holding: The condition precedent to Omni’s duty to buy requiring a “satisfactory” feasibility report does
not render Omnis’ promise to buy an illusory promise. Omni can cancel only if the feasibility
report isn’t satisfactory, must act in Good Faith.
HYPO: If the court had found the buyer’s promise was illusory, could the buyer waive the express
condition, to make the illusory promise no longer illusory? Had the language been “buyer’s duty
to buy the property is totally at the discression of the buyer”.
If a condition exists which makes a promise is illusory, a party cannot create an enforceable K by
waiving the condition that makes it illusory.
Waiver:
“The intentional relinquishment of a known right” R2d 84(1)(a)
Estoppel:
“the preclusion of a contestant to take some position of right when his word or action
have caused another to change his position” R2d 89 ( c) 84(2) UCC209(5)
Election:
“a choice shown by an overt act between two inconsistent rights, either of which may be
asserted at the will of the chooser alone”
5.
Excuse of Conditions, Constructive Conditions:
Excuse of Express Conditions
p.754-779
The law of conditions fosters a policy favoring freedom from K. If an express condition precedent has
failed, the promisor has a defense and may be discharged from the K without any obligation to
compensate the promisee for part-performance. But if the condition turns out to be immaterial to the
promisor and the promisee has relied or conferred a benefit on the promisor, discharging the promisor
may provide a severe test for the “freedom from” k policy.
Clark v West
p.754 K for P to write and prepare for publication a series of law books for D. K contained a clause that
read “P agrees to totally abstain from the use of intoxicating liquors during the continuance of
this K, and that the payment to him in accordance with the terms of this contract of any money in
excess of $2 per page is dependant on the faithful performance of this as well as the other
conditions of this contract.” No consideration for the modification. Without consideration, the
modification is unenforceable.
Holding: The language was Language of Express Condition, it can be avoided by: Estoppel, Waiver, or
Election. Waiver: intentional relinquishment of a known right. Waiver might be found if it goes
further. Using the ordinary meaning of the plain language, keeping sober is a condition, not the
consideration for the K.
Waiver was allowed when the condition precedent was not the consideration for the K. If the Express
Conditon is not the consideration for making the K, it should be waivable w/out consideration.
R2d 84: allows a modification by the agreement of the parties. If the condition is a material part of the
agreed exchange, the modification may require consideration.
R2d 89:
HYPO:
Difference between Waiver and Estoppel.
Duty of LL to pay electricity bill is expressly conditioned on T shutting off the lights at 4pm each day. T
leaves the lights on until 6pm each day. For 6mnths LL is ok with this.
T will argue:
Waiver
The LL can say he now intends to enforce the condition.
Estoppel 84(2)(b)
Ferguson v Phoenix Assurance Co of NY
p.760 Whether safe burglary loss is covered by the provisions of the policy. Dispute over $383.76
taken from the safe. There were no visible marks on the exterior of the outer door of the safe to
show the use of force or violence in gaining access through this door. Conditional language
versus exclusional language: Exclusion is a promise of the co to pay- Language of Promise,
doesn’t have to meet the requirement exactly.
Trial: held the provision was “an escape clause” and Allowed full recovery under the policy for the
money taken from the safe.
General Rule: Insurance policies are to be construed in favor of the insured and against the company.
Language of Condition. It would be against Public Policy to allow this condition and not to allow
the merchant to recover. Affirmed TC.
PROBLEM: CONDITION TO AVOID DISPROPORTIONATE FORFEITURE
Murphy did not give Chubb notice of the loss until 3-4yrs too late. K had a notice term to give notice “as
soon as practicable”, or “immediately” upon a lawsuit.
Murphy would argue: The notice requirement was to prevent harm, and no harm occurred in this case,
so the condition may be excused.
R2d 229: When there is a dis-proportionate forfeiture, not a material part of the agreed exchanged the
court may excuse the non-occurance of the condition if it is not a material part of the agreed exchange.
No breach of K if it is only language of Condition.
C.
Constructive Conditions of Exchange
1. Sequence of Performance: If the parties don’t state clearly who is to perform first, are there any
presumptions of who is to perform first.
2. Party who Has Performed: How much performance is needed by the party who has performed before
the other party’s duty to pay is activated.
3. The Effect of Less than Substantial Performance on the party not in breach: If there is a material
breach, what are the rights of the aggrieved party?
CL Prior to 1773 (Kingston):
Dependant v Independent Promises
Any exchange of promises were not conditioned upon performance of each other. K are formed by an
exchange of independent promises
1.
A: Promises to transfer business to B on 3/3 B
2.
A  Promise to pay $10,000 total, $5,000 on 3/1 : B
3.
On 3/1 B does not pay A $5,000
4.
After 3/3, when A does not transfer the business, B sues A
5.
At early CL, A had a duty to perform on 3/3 even though B was in material breach. A had
to transfer business to B and then sue for breach of Bs promise in separate legal action.
CL prior to 1773 Promises are “Independent”
A’s duty was Activated on 3/3, no matter whether B was in breach, or material breach on that
day.
Kingston v Preston
Begins the change in CL
Modern View (After Kingston)
Presumption that Any exchange of promises means the promises are Dependant. Bs substantial
performance of his duty is a “constructive condition precedent” to A’s duty to perform being active. R2d
237 comment A
1. If B’s breach of duty is material
a. A’s duty to perform is Excused (not activated) and,
b. A can sue B for total breach
2. If B’s breach is less than material
a. A’s duty to perform is not excused
b. A can sue for Partial Damages
If there is a preponderance of evidence that parties intended the promises to be independent,
presumption of dependence is overcome and:
a. B’s material breach does not excuse A’s duty to perform. A must perform on date
set for A’s performance and then can
b. Sue B for B’s breach
Modern View: Order of Performance of Dependant Promises R2d 234
Presumed sequences of Performance
Issue of interpretation –presumptions
1. If performance can be simultaneous CONCURRENT CONDITIONS, A must tender performance to put
B in breach
2. If B’s performance takes longer- assume B’s performance is CONSTRUCTIVE CONDITION
PRECIDENT to A’s duty
Language of Promise has constructive condition.
6.
Historical Development
Palmer v Fox
p.772 Land sale for payments on a lot that P was to improve. Recover the balance of the purchase price
due on a land K.
D: Failure to cinderize is a material breach of a dependant covenant
P: Failure to cinderize isn’t material, so whether its dependant or independent doesn’t matter.
General Rule: Promises are Dependant, unless a contrary intention is clear.
The promises were dependant. If it is a constructive condition, there must be substantial
performance b/f the buyer’s duty to pay kicks in. Here, the court found a material breach of P.
Buyer had no duty to pay the installments. Constructive condition was not met substantially so
the duty was not activated.
N5 p.778 Leases: Under what circumstances can a lessee terminate a lease upon a ‘material
Breach of a covenant of the lessor?
Modern: Duty to pay rent is a Dependant Promise, constructively conditioned upon LL meeting
the terms of the lease.
Historically: any promises between lessee and lessor were independent. There was a duty to pay
rent even if there was no heat.
Precedent:
a promise that is to be performed b/f a corresponding promise on the party of the
adversary party is to be performed
Subsequent: a corresponding promise that is not to be performed until the other party to the K
has performed a precedent covenant
Concurrent
PROBLEM: DEFAULTING PURCHASER
Order of Performance.
Buyer does not make a required monthly payment, can the seller recover the payment without tendering
the deed to the buyer?
If the monthly payments were a Condition Precedent (vendor will argue), Dependant Promises, then
vendor can sue for the payment without tendering the deed.
By Sept 1st the payment is a Condition Concurrent (at date seller is suppost to tender the deed), in order
for seller to recover the Sept 1st payment vendor would have to tender the deed.
2.
The Avoidance of Forfeiture
“Where a K is made to perform work and no agreement is made as to payment, the work must be
substantially performed b/f payment can be demanded”
Jacob & Youngs v Kent
Language of Promise, was there substantial performance or a material breach?
p. 780 P built a country residence for the D at the cost of $77,000 and now P contractor sues to recover
a balance of $3,483.46 remaining unpaid. To get completion of the K, they would have to tear
down many parts of the house to put in Redding pipe. K specs said all pipes must be of Redding
manufacture. P, contractor, used similar quality pipe manufactured by other companies, the
omission was not Fraudulent or Willful. Court didn’t allow evidence of the difference in quality
between Redding pipe and the brand used, it wasn’t seen as relevant(Substantial Performance is
not relevant). It was expressly conditioned in the agreement that contractors put in Redding pipe.
Appellate Court: After Interpretation, the court found the language to be Language of Promise. Promise
to pay is constructively conditioned upon building the house with Redding Pipe. So, owner’s
duty to pay depends upon whether contractor has Substantially Performed, this will relate to
duty to pay as well as amount of damage. Court finds there was substantial performance, so
Court gives Difference in Market Value, pretty much Zero.
Possible Damages:
1.Cost of Replacement (if a substantial breach, only if it were not “grossly and unfairly out of
proportion to the good to be attained”, those willfully in breach are more likely in material breach)
2.Difference in market value between a house with Redding pipe and a house with other pipe.
Interpretation: Contractor (P) must show that Kent (D) knew or should have known that the contractor
meant this to be language of promise and not express condition. Court favors finding language of
promise, thereby avoiding forfeiture that can occur.
Interpretation test:
P must prove by a preponderance of the evidence that D knew or should have known that the definition
they assert was what was intended.
Courts favor language of promise, to avoid possible forfeiture results of express condition.
R2d 241: Circumstances to determine if a breach is substantial or not
O.W. Grun Roofing and Contruction v Cope
p. 784 P K was D to put a new roof on her house, roof of uniform color. The roof had streaks. Court
finds there was a Material Breach, lack of Substantial Performance. The aesthetics were the
purpose of getting the new roof, a RA homeowner would want it to look right. If its just a
homeowner’s whimsy (not here), the aesthetics should not be considered highly. The root of the
K was not fulfilled. Homeowner not under a duty to pay.
Damages: gives the Cost of Replacement
Should contractor be able to recover in restitution? No.
Elements of Restitution:
1. Was there a measurable benefit conferred? NO, the homeowner didn’t want the kind of
roof installed.
2. Was there some acceptance of the Benefit? NO, homeowner complained from day 1.
Should a party in material breach be able to cover in Restitution? Yes, in general. If a party fails
to substantially perform?
Kent v Grun:
Payment:
Grun:






How are the Ks different?
Kent had payment installments,
installing the roof was a condition precedent to owner’s duty to pay.
Good faith:
“Honesty in Fact and RA commercial Standards.”
Implied in every K, language of promise.
Cannot K out of it.
Cannot conceal changes in Good Faith
A change (not exact performance) can be made in Good Faith
A breach of implied duty of Good Faith can be a material breach.
“Willful” does not mean bad faith and a material breach
N3 p. 789
Pipe Substitutions
 Intention to harm in using the other pipe BAD FAITH
 Concealing the switch of pipe
BAD FAITH

Honestly, but careless concluding it called for that “name or = brand” NOT BAD
FAITH, court doesn’t like to find material breach due to the forfeiture it can create.
N4 p. 789
Courts tend not to find language “time is of the essence” is enough to create such a condition.
What would LL have to say in the lease to make a 2 day late payment enough to terminate the
lease?
 Language of Promise: Make a material breach, by saying that its really important to the
LL
 Language of Express Condition: “express condition to this lease is that payments be
made on time b/c LL has to make bank payments”
PROBLEM:
READING PIPE AND WAIVER OF CONDITION
 An owner Can NOT modify an express condition (material) without consideration or reliance.
 An owner CAN modify an express condition without consideration if it is NOT material
 Modification of Language of Promise, does not need additional consideration.
 Estoppel, if contractor relies on an owners statement, can get damages through estoppel
 Presumption in construction that contractors can take multiple jobs
How can the owner more likely get Reading pipe, through language used in the K?
 Reading pipe is required b/c of a reason
 Reading pipe is an express condition precedent and a use of another pipe will justify
withholding payments

You can NOT have a BREACH of an Express Condition, NO damages.
A failure of a Condition --> Party’s duty to pay is not activated
R2d 229 is not all or nothing regarding Disproportionate Forfeitures
 If it results in a disproportionate forfeiture they may give damages.
 Can argue that Good Faith can provide language of promise

You can ONLY have a BREACH of a Language of Promise, YES damages.
 Minor Breach: Duty to pay activated, can get partial damages
 Material Breach: Duty to pay not activated
Assume, the K said Contractor must put in Reading Pipe, and that is interpreted to an Express
Condition Precedent to owner paying $100,000 (total price of the house):
 Contractor puts in a pipe of Inferior Quality
 General Rule:
O’s duty to pay $100,000 is not activated
 O may have to pay $100,000 due to disproportionate forfeiture
o Reading Pipe was not put in
o The Pipe used is of inferior Quality
 Contractor will argue: Disproportionate Forfeiture.
 O will argue: The pipe used was of inferior quality. Plumbing is a normal part of a
contractor’s duty. Is it a Contractor’s duty to put in plumbing of a RA type?
1. Good Faith: could find language of promise. Any RA Contractor would have put in a
better grade of pipe (could result in offsetting damages)
2. Disproportionate Forfeiture: Does R2d 229 mean all or nothing? Remedy other than
Damages, only excuse the owner’s duty to pay to the extent that justice requires. Ex: O’s
duty to pay is only 95% activated.
If the court had found language of express condition:
Reading pipe is not available, and the owner agrees to using Cahoes pipe. Can the owner then
say they required Reading pipe after the work is done with Cahoes?
 Waiver: owner cannot agree to modify a material condition w/out consideration.
Owner says contractor doesn’t need to install any pipe, or even construct the building and the
owner will pay anyway. Can the contractor hold the owner to this commitment?
 No. There can’t be modification of a material condition without consideration.
Language of Express condition as to Reading pipe, but contractor installs Cahoes pipe. Does
owner have to pay the price for the house?
 If an express condition has not occurred, owner does not have a duty to pay.
 There can’t be a material breach unless there is a promise about it
 Owner won’t have to pay for the house unless court finds an disproprotinate forfeiture
and the owner may have to pay the contractor.
Language of Express Condition to use Reading pipe. Owner, after the contractor has put in the
wrong pipe, aware of the substitute, says its OK and he will pay. Then he changes his mind.
Does he have to pay?
 Is Reading Pipe material? Can not be waived without consideration or reliance if it is
material. No consideration or reliance, its after the fact.
 Can the owner get damages for the difference between Reading Pipe and Cahoes pipe?
Owner could get damages if there was a breach of promise.
Language of Express Condition to use Reading pipe. Contractor installs no pipe. Owner says
they will pay. Can contractor collect?
 No valid waiver, no consideration
 Material Condition not to install ANY pipe
PROBLEM:
DEFICIENT VALVE TESTER
SALE OF GOODS
B manufacturer of valves, made K with S to supply valve testers with a minimum 95% accuracy rate.
The machine was 93-93% accurate.
 For Seller to collect at K price, he will argue:
o Language of Promise
o Substantially performed (only 1% off)
o Collect under K with discount for minor damages
 Buyer Claims
o Right to reject, testers were off the 95% accuracy
Language of Promise
2-601: CL “Perfect Tender Rule” if the goods don’t conform to the K:
1.
Buyer can accept the whole
2.
Buyer can reject the whole, no duty to pay
3.
…
Buyer can get damages for the failure of seller to get damages

Divisible K: Parties who do not substantially perform, can recover at K price for what they have
actually performed a particular division of the K, even if they are in material breach of the entire
K.
Lowy v United Pacific Insurance Co.
p. 790 P owners of subdivision. D Cross complaint for damages against P for breach of an excavation
and grading contract. D performed a substantial part of Exhibit A, which had a separate price
$73,000, 98% of the excavation and grading. There was dispute over the $7,000 additional work
they performed.
Issue: Is the K divisible, should substantial performance apply?
Holding: The K was divisible, parties intended it to be. Because D substantially performed Exhibit A
work, they should be paid at K price for the divisible part of the K. Ps failure to pay them,
prevented and delayed D from doing the rest of the job- a breach of Ps duty- so they can’t collect
damages for Exhibit B.
R2d 240:
Divisible Ks
Whether “performance to be exchanged under an exchange of promises can be apportioned into
corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed
equivalents”
 If the evidence isn’t clear, the court will presume that it is severable
 If the parties clearly indicate a contrary intent, it is not severable.
PROBLEMS:
DIVISIBLE OR ENTIRE K?
1. O and C enter a K to remodel a home.
C performs through rough carpentry and demands the 3rd installment payment $15,000. O refuses. C
sues for $15,000. C offered no evidence of Actual Damages. O claims C is entitled only to actual loss.
 Divisible K?
i. If YES- C will argue they have substantially performed the first 3 parts and should be
paid at K price, $15,000, for those parts
ii. O will argue NOT divisible K- then O may be in breach, but would only have to pay
loss of profits
 Strong argument that the installments are just a convenient way to pay the whole amount, not
a divisible K. Not easily broken down into so much work for so much money.
2. P agree to thresh grain for Farmer. P threshed 50% of the crop and then quit. Should P be able to
recover at K price for the part of the crop that he threshed?
 Did the parties intend it to be divisible? If no evidence, the court will see if they can divide it.
Here, the K was for the entire crop, it was NOT divisible.
 Thresher could get Restitution:
Measure Restitution damages by the measure of the Benefit
Conferred on the Farmer. The Benefit to Farmer could be more than the K price, especially b/c
this was a losing K for the Thresher. Unjust Enrichment, price will be reduced by any damages
the farmer suffered by not having the K completed.
 Defaulting P should not do better in restitution then he would have done under the K. K price is a
cap on Restitution for a defaulting P.
3. Y & T agree to cooperate on a bid for a Resort investment. Y to put up $50,000 at the first stage:
$25,000 2/2, and then $25,000 as needed. T promises to assume liability for the first $25,000. Y pays
$25,000, put refuses to make the 2nd payment. T spends $32,000 to continue the bid, which is
rejected. Y sues T for $25,000 on Ts promise to assume liability.
 K is found to be Divisible
 K is silent to whether bid had to be successful
 T has a set-off in damages: Whatever he lost on the entire deal, can be offset as damages.

T will argue: He shouldn’t have to pay the $25,000 back b/c Y is in a material breach of
the K so his obligation to pay the $25,000 is not activated

Y will argue: Both parites intended the K be divisible. He substantially performed his
division of paying the $25,000. Consideration: he paid the money in exchange for Ts
promise to pay it back.
Britton v Turner
p.795 Modern Rule: R2d 374(1) P in material Breach of K CAN get a Remedy in Restitution for the
part of the K they have performed.
P was suppose to work for D for 1 year for $120. 9 ½ months in Employee quits and sues for
$100 for work done.
P has Substantially and Materially Breached the K. Should he be able to recover in Quantum
Meruit?
Holding: Recovery is allowed, Compensation (Restitution) should be given to the Defaulting P b/c
(policy) otherwise a party who attempts performance may be placed in a worse position than he
who wholly disregards his K. The Remedy the Court gives is based on a K Implied in FACT,
employer accepted the benefits.
Is K divisible?
NO, parties intended the K to be whole. Performance of the whole K is a
Constructive Condition Precedent to Employer’s Duty to Pay being Activated.
Has P performed substantially a divisible part and so recover for the part performed? NO
 Legislation requires employees be paid at Regular Intervals. Regulated by Statute.
 Restitution for Defaulting P is reduced by the damage they cause the other party on the
remaining material part of the K.
 Restitution Rules:
Breaching P
o Should not Get a better deal in Restitution than they get at K price (would be an incentive
to breach)
o Breaching P May get Restitution 374 comment B, a Pro Rata Portion of the total K price
will be a cap where such can be determined.
o Restitution is an Equitable remedy “As Justice Requires”
 Intentional may not matter, but court will look at the justice of the situation
 What amount of money will be given
PROBLEM: RESTITUTIONARY RELIEF AND THE WRONGDOER
A contracts to build a swimming pool on Bs land for $15,000, pool is to be guaranteed to last for 20yrs.
A, to save money, intentionally puts in a system guaranteed only for 10 yrs. B refuses to pay for the
pool. A sues for K price or Restitution.
 Is the K divisible?
No
 Bs duty to pay K price: Constructive Condition Precedent is Substantial Performance by
Contractor. Is this 10 yr pool substantial performance? If NO- Bs duty to pay is never activated,
A is in material Breach.
 If a Material Breach, may A prevail in Restitution?
o What was material/measurable benefit conferred to the homeowner? He has a pool.
o Possible measurable benefits to the homeowner:
 Cost to tear out and put in a new pool $20,000
 RA value of the pool installed to the buyer (what would another Contractor have
charged to build the 10yr pool) $12,000
 Difference in value of Bs land with the pool put in versus the land without the
pool (value of land has increased $5,000) **A should Recover $5,000**

B will argue: A should not get Restitution (equitable remedy: Unjust Enrichment) b/c A breached
the K to make extra money, and so the court should not reward A for this kind of breach.
B will argue they did not Accept the Benefit, they didn’t have much choice- the pool is installed.

A should Recover the $5,000, the difference in value of Bs land with the pool installed versus
without the pool 371(b), 375 comment B. Don’t want defaulting contractor to do better by
breaching than he would have done with the completed K.
B orders medial equipment from S for $500,000, and paid $300,000 at time of contracting. B refuses to
accept the machine when finished. “Lost Volume Seller”: Seller is able to re-sell this equipment. UCC if
you can show you are a lost volume seller, they can get their lost profit as damages. S has damages of
$80,000. B wants his down payment back $300,000. What can B recover under UCC 2-718(2-4)?
Buyer should get $220,000. The down payment minus the lost profits.
Restitution involving Down Payments:
Seller can keep 20% of K value of $500, whichever is smaller.
Seller should get damages of more than $500 if seller would be entitled to damages under any other
section of the UCC.
Lost volume sellers should recover lost profits.
Liquidated Damage Provisions: Clause that says ”if either party breaches the K, the non-breaching party
can retain damages in the amount of $ X”, these damages should be a valid estimate of the damages or
the clause will not be upheld. No liquidated Damage clause here.
Historical Development (skip Kingston and Goodison)
Avoidance of Forefeiture p. 779-802
Section 4:
CHANGED CIRCUMSTANCES, IMPRACTICABILITY AND FRUSTRATION
OF PURPOSE
 Who should bear the Risk? Essential Q
Either from the circumstances or the language of the K, can we determine who should bear the risk
of the event happening.
 A device to prevent a person’s duty from having to be performed.
 Historical Development
o No excuse for supervening events
o Device of Conditions to excuse people from having to perform. Condition that
performance not become impracticable
o Modern view: similar to mistake, which party should bear the risk? (what has happened,
or situations the parties didn’t know about when making the k)
CL: Pacta sunt servanda. “Agreements must be observed no matter what” Commitments are absolute.
Independence of promises.
Paradine v Jane
1647
Frustration of Purpose
Person leased land to farm the land. An occupying army came in an took over the land. Tenant
said he shouldn’t have to pay rent. Court said too bad., (CL view) you made an agreement so you
have to carry it out.
UCC & R2d Both allow excuse of performance due to a Supervening Event.
R2d goes further than the UCC, allows the defense of impracticability to be raised regarding a matter
that was in existence at the time the K was formed, but was not known, or knowable to the parties. (266)
R2d allows an excuse for something less than impracticability, “frustration of purpose” if one of the
party’s purpose in making the K is substantially frustrated by a supervening event or a fact in existence
at the time of the K about which the parties did not know, or have RA to know- they may not have to
perform. (265)
R2d §261
Changed circumstances defense. Discharge of one’s duty due to a supervening
impracticability. After formation of K, performance becomes impracticable due to an unexpected event.
Vague Standards:
may have unpredictable consequences.
UCC 2-615 Similar to 261 Requires the occurance of some contingency, the non-occurance of that
contingency was a basic assumption of the K when it was made. Performance has become impracticable
as a result.
Transatlantic Financing v U.S.
1966
July 21, 1956 Egypt nationalized the Suez Canal. Oct 2, 1956 U.S. govt chartered a boat to transport
wheat from Galveston to Gulf of Arden for a fixed price delivery on a certain date. Oct 27, 1956
Charterer set sail from Galveston. Oct 29 Egypt-Israel war broke out. Nov 2 Egypt began sinking ships
in the Canal to block it. Nov 3 Charterer called Dept of Ag rep, to inform that the Canal was closed.
Offered to take goods around the Cape of Good Hope for an extra $100,000 and a two week delivery
delay. Charterer turned back to Galveston. Govt sues Charterer for total breach of K. Charterer claims
their performance to deliver the wheat was excused by the supervening event.
Court Held: The Charterer bore the risk: it was likely that something would happen and they bore the
risk. They also thought it wasn’t impossible to deliver, it would have been a little more expensive and
they would have been a little later, but the court thought the event didn’t make performance impossible
only more difficult.
Modern Approach:
Who bore the risk of the Suez Canal closing at the time they made the K (both or neither of them)?
1. Was the event existing at the time of the K?
No- Supervening Impracticability: if the event is not physically being able to get through the canal, that
occurred later.
Yes- Existing Impracticability: the whole conflict was already in progress at the time they made the K.
2. If the event is the Physical Blocking of the Canal, did the parties have RA to know that the event was
likely to occur?
If Contractor knew it was likely the Canal would be blocked, they could have contracted to allow for
blockage, if they had RA to know this event was likely to occur, they may bear the risk.
3. Does this totally frustrate the purpose of the Charterer, now that they would lose money to have to
complete the delivery?
4. Should relief be all or nothing, or should there be some partial remedy? Should the court make a
price adjustment, (change the terms of the parties)?
Hypo:
Had the Dept of Ag employee agreed to the modification, would it be enforceable?
Modern View: No consideration, don’t need consideration for a modification of a promise.
For a modification you must show a fair modification Good Faith. If a court decides it was a fair
modification it may be allowed. If it is found to be duress, it may not be allowed.



Parties can allocate the Unknown Risks, and they commonly do in the K
Force Majeure/ Act of God Clause: certain events will relieve the parties from having to perform
their K.
If a Risk gets greater than the parties though, a modification may be a fair one it may be allowed
and not considered Duress.
A.
Existing Impracticability: at time of K formation there was something that neither party knew
about, that upon discovery makes the K impracticable to perform. 266(1).
Promisor bears the risk of any factors that exist at the time of the K. Usually, performance is not excused
simply b/c it becomes more expensive or more difficult to perform UCC 2-615. Occasionally, courts
will look at Extreme Un-profitability in connect with highly abnormal and unexpected factors, courts
will say its unRA to assume Promisor assumed this particular risk of this thing happening.
Mineral Park Land Co v Howard
1916
p. 805 D agreed to take all the gravel they needed from Ps land to build a bridge. It would have cost up
to 12 X the estimated cost to remove the additional gravel. Courts RA for excusing Ds
performance: performance is not merely more expensive than expected, but in legal
contemplation, the specific gravel did not exist b/c in view of the circumstances it was
impracticable to remove. (Mix Impossibility, w/Impracticability: the Legal Fiction that the
Gravel did not exist)
I:
D took 50,131 yards of earth and gravel
II:
Damages for D’s failure to take from Ps land any more than 50,131 yards.
Holding: Since D couldn’t take it by ordinary means, the price is too high (Extreme Un-profitability)
and D is excused.
R1:
Existing Impossibility: if facts exist which neither party knows about make performance
impossible, the performance is excused. Strict impossibility and impracticability.
R1 406 Impossibility: performance of duty never arises if the existence of the thing is impossible.
R2 263: Impracticability (equivalent of R1 406)
Modern Law:
Which party ought to Bear the Risk?
Restatement 2nd distinguishes Existing and Supervening Impracability.
Existing Impracticability
R2d §266(1) RA to know of an existing fact.
No duty to render that performance arises. If a court determines there is existing impracticability there
was basically no K to begin with. When you have a situation that may give rise to a defense of existing
impracticability, you may also have a Mutual Mistake R2d152.
Hypo: Contractor agrees to build a pool in owner’s yard. Digs down 1ft and hits granite, it will be 20X
more expensive to build the pool. Existing Impracticability. Who should bear the risk? Normally
Builder, they’re in a better position as they RA should have known, could have found out the rock was
there.
Contractor’s Defenses: two are available
1. Existing Impracticability
2. Mutual Mistake R2d 152
Supervening Impracticability
R2d §261
RA to expect a future event.
Assumes a K was formed, but performance is discharged. Could not argue Mutual Mistake.
Supervening Impracticability: An unexpected event happens that make the K impracticable.
UCC 2-615, 261, 264
Frustration of Purpose: not in UCC. Parties contract (either due to existing or supervening
event) the prupose that one of the parties had is reduced to zero. Should that let the party out.
U.S. v Wegematic Corp
p. 808 Govt stressed early delivery. Liquidated damages for late delivery.
Trial C: Awards damages
D argues: their engineering difficulties made it impracticable, would have cost $2m to develop it
and perform the K, therefore it was Commercially Impracticable.
Appeals: They shouldn’t be let off on impracticability. The manufacturer bore the risk of producing the
product and delivering it on time.
Public Policy: to keep manufacturers honest and promise to supply only the products they are able to
deliver.
Manufacturer was in better position to know, bear the risk of knowing what would be possible to
deliver. If Seller doesn’t want to bear this risk, they should have contracted in language to excuse
themselves if the technology doesn’t work out. Possibly a Force Majeaur Clause.
Judge used the 2-615 Test in Wegematic: Risk was on Contractor. Court wouldn’t have to consider
whether performance as agreed was impracticable. If you take the risk, impracticability may not matter.
Risk bearing in Govt Ks: If one party knew or should have known of the existence of something, if
another part of the Govt should have known of the risk, (Govt agencies don’t communicate with
eachother).
Subsurface Conditions: usually a contractor bears the risk with a private person, sometimes with the
govt unless there is a failure to disclose a certain factor.
812 skip problems
B.
Supervening Impracticability
Taylor v Caldwell
1863
Historical position: movement away from CL pacta sun servanda toward
Supervening Impracticability idea. “Pious Fiction”
p. 813 K to let P have use of Gardens and Music Hall on four days. Music Hall burned down prior to
those days. P spent money to advertise and prepair for the events. No fault of either party –
Music Hall is destroyed. P want D to be responsible for the loss they suffered b/c of it.
Issue: Should the loss that P sustained fall on D? NO. The Court determines that the concerts could
not have been given without that particular concert hall. Impossibility. When the subject matter
of the K no longer exists (at fault of neither party) there is no longer a way to perform.
(Paridigm Rule) CL Rule: Positive K to do a thing, when the thing is perished you still have to perform.
This court compares it to cases where the thing is person to get around the CL rule. Even under
Pacta Sun Servanda, if the K was limited by conditions you don’t have to perform. This rule
should not apply where it is subject to express or implied conditions. Here, no Express
Condition. Implied Condition that the music Hall would continue to be here. Beginning of
Supervening impracticability idea, and parties should be excused when the Music Hall does not
exist. Court doesn’t deal with what the parties thought: say that this must have been what the
parties really intended.
The Basis for the Conclusion of this case: Implied Condition that performance not become
impracticable or it excuses performance. Use Conditions to avoid an adjust result “Pious Fiction”, the
parties never thought about this, pious- pays homage to the idea that the only way you can excuse the
party’s duty is that the party’s duties never having being met.
R2d moves away from the Implied Condition theory: it looks at it from the point of Risk Allocation.
What risks did the parties allocate upon creation?
R2d 261-2:
Party wishing excuse must prove:
1. Performance is impracticable
2. Became impracticable w/out fault of party seeking to be excused.
3. Party seeking to be excused has the initial BOP that the non-occurrence of the event was a basic
assumption of the K.
Presumption shifts when (if these things have occurred then a basic assumption underlying the K has
occurred, party to be excused doesn’t have the burden):
1. Death/incapacity of a person necessary to perform the K.
2. Destruction/deterioration/failure to come into existence of a thing needed by the K.
3. Presumption that the law will not change.
Canadian Industrial Alcohol Co. v Dunbar Molasses
Objective Impracticability: When it’s the
party’s own fault that they are unable to perform, no excuse of performance.
P. 818 Buyer sues seller for breach of an executory K of purchase and sale for 1,500,000 gallons of
molasses. Seller was to be supplied by National Sugar Refinery, which did not produce as many
gallons as Buyer required. Seller delivered 344,083 gallons.
D argues:
the duty to deliver was conditioned, by an implied term in the K, upon the
production of the Sugar Refinery sufficient to fill Ps order.
Court Disagrees:
The K read in light of the circumstances upon formation, does not keep Ds
duty within such narrow bounds.
Court Holds: for Buyer. Seller was at fault, didn’t K with the Refinery, or try to find it from
another source..
N1:
A party at Fault for the Impracticability cannot use it as a Defense, if you have the ability to
avoid the impracticability.
N2:
Had there been an Exculpatory Clause, would Seller have been excused? No. Exculpatory
clauses are still based on lack of fault. Here, Seller made no efforts to gain the molasses from other
sources.
N3:
UCC 2-615 (not an All-or-nothing approach) if the parties specify in a K that a particular
source will be used, and it fails- it may excuse the seller if:
1. Both parties assumed the mentioned source was the Exclusive source
2. Seller employed “all due measures” to ensure the source Would not Fail
3. Seller will sell over to Buyer any rights Seller might have against their Supplier.
Hypo: Seller and buyer Assume Seller will get the Goods from a particular source, that particular source
delivers less than Seller expected. Under UCC 2-615 Seller would not be excused completely.
When the Seller’s capacity is only party affected:
1. Seller must ALLOCATE quotas amongst their regular customers, but they may include regular
customers not already under K and may allocate in any manner that is Fair and RA.
2. Seller must give NOTICE to customers of what their allocation will be.
 If Seller wants, they can sell on the spot market by including regular customers not already
under K into those who allocated part of their capacity.
Dills v Town of Enfield
Language of Performance
p. 821 P (Dills) sues Enfield to recover a $100,000 deposit that he had paid under the option and K for
sale. Language of K: P had to submit acceptable plans, or pay liquidate damages of the down
payment. If P submitted the plans, and then was unable to get financing- he would have gotten
the deposit back. If P knew the financing wouldn’t happen he still is not excused from producing
the plans. P wants to be excused from producing the Construction Plans, and still be allowed to
recover the deposit.
If the language in the K indicates who bears the risk, the court will not usually change the K
language. The Terms of the K set up a sequence for performance. They foresaw the risk of not
getting financing. The risk of not getting financing did not excuse P from submitting the plans
(unconditional element). The acquisition of financing was not a basic assumption for making the
promise to submit the plans.
TC: Judgment for D(Enfield)
Holding: Affirm, P not excused for not having followed the Sequence laid out in the K. No Error.
N2
Under what Circumstances would the judge Grant Excuse: If all conditions of R2d 261 were met.


The Party Seeking Excuse must prove that the event, the non-occurrence of which was a basic
assumption at the time the K was made- so neither party bore the risk and they argue they should
then been let out of the K.
UCC 262-264:
Shifts these burdens for: Death/Destruction/Change of Law
3 Risk Bearing Tests
N3:
Basic Assumption Test:
Risk Bearing
Must show the non-occurance of the event/fact was a basic assumption upon which the K was made.
UCC 2-615
R2d 261
N4:
The Forseeability Test:
Risk Bearing Parties bear the Risk of what is EXPECTED
The parties accept the risk of foreseeable events, but not unforeseeable events. Means probability or
likely expectedness. Unexpected, rather than unforeseeable- makes it easier for people to use the
Defense of Impracticability.
Unexpected Risk:
Triggers excuse
N5:
Posner’s Test:
Risk Bearing
The party in the better position to INSURE AGAINST the risk should bear the risk. The most efficient
bearer/risk spreader should bear it. Whether there really is insurance shouldn’t have anything to do with
Liability. (Deep pocket Idea)
U.S. v Winstar
p. 827 Federal Government (FHLLB) contracted with Winstar who agreed to take on failing S &Ls if
they were given Favorable Regulatory treatment. FHLLB did not promise that laws would not change
during the K. The parties didn’t expressly state who would bear the risk of any change in U.S. law.
Favorable accounting treatment was undone by Congress (OTS), the change was devastating to S &Ls.
P sues government for the losses they suffered due to the changes in law.
P Argues:
Non-occurance of the changes to the regulations were a basic assumption of the K when
made. Its impossible for them to fulfill their duties.
Issue: Does the govt have a defense that the non-occurance of the regulation change was a basic
assumption of the K, which should excuse performance.
Holding:
Govt accepted the risk that the laws might change, and in effect promised to pay P
damages if the law did change. Court applies “Ordinary K law” to this govt K. R2d 261 should apply: if
the govt uses the impossibility defense, then the US has the burden to show that the non-occurance of a
change in law was a basic assumption at the time the K was made. The parties assume all foreseeable
risks, there were many changes in the past, so they assumed all foreseeable risks.
N1:
When a change in law/regulation should make performance impossible. A person claiming
excuse does not have the BOP that the law not changing was a basic assumption at the time of the K.
Presumption shifts that it is assumed by the parties that the law will not change to make their K
impossible/impracticable.
Did the court, in Winstar, apply the right law (261) or should it have applied something else?
264 would be a better rule: the party claiming the excuse does not have the burden. The case, under 264,
would come out differently- but it may not have been a just result to put the burden on the S & Ls and
let the govt off.
 Winstar is an unusual case, with the US Govt you may not be just to apply Section 264. The US
Govt as a whole is the one responsible for the change in law.

Who Should Bear the Risk?
Of something happening that the parties didn’t forsee at the time of K
R2d 261
vs.
R2d 264
261: Party claiming excuse must show the non-occurrence of the event in question was a basic
assumption at the time of making the case.

264: Rebuttable presumption- Change of law is an unexpected event, does not have to be
proven. The other party (ex: S & Ls) may put on evidence that the change in law was an
expected event, the govt took that risk- and should be liable.

UCC 2-615 bypasses the “Basic Assumption” test and provides relief is granted “if
performance as agreed has been made impracticable by… compliance in good faith with any
applicable foreign or domestic govt regulation or order whether or not it later proves to be
invalid.”
Bolin Farms v American Cotton Shippers Ass’n
p. 833 Forward K for sale of cotton, at a set price. The cotton market went up greatly. Seller doesn’t
want to sell at the low price, farmers want declaratory relief. The court says that both sides took their
risks and should have to stick to the K they made. The parties assumed the risk that the prices might
fluctuate.
The purpose of a K is to assign risk, so parties shouldn’t be able to escape the risks they take on.
Seller: risks that prices might skyrocket by the time of K performance
Buyer: risks that prices may go down by the time of K performance.
Generally, parties are not excused for dramatic market price change, this is exactly the type of risk
contracted for.
Courts may allow excuse (commercial impracticability) when there is an “especially severe and unRA
loss” the courts may look for some event that is beyond what the parties assumed as a risk of having
occurred.
ALCOA v Essex
Balancing Equities & Existing Impracticability & Mutual Mistake
p. 834 The parties made a Mutual Mistake about the appropriateness of the formula they used, based on
that mistake the court grants reformation to correct the mistake (equitable remedy to re-write the K).
Existing impracticability allows the argument of Mutual Mistake. Court is trying to work out the
situation in an equitable manner. They set up a price formula on the general wholesale price index. They
project profits from .07 to .01 per pound. The energy crisis changes things completely, electricity didn’t
change the wholesale price index much and the formula doesn’t work. There would have been a $75
million loss for ALCOA, and Essex would make a windfall profit.
TC: reforms the K so ALOCA can make .01 per pound profit
Most courts would have made ALCOA bear the risk.
Westinghouse
Uranium contract (UCC 2-605: price change alone shouldn’t be enough) Westinghouse might have a
$2billion loss. TC held no excuse.
Kaiser-Francis Oil Co v Producer’s Gas Co.
p. 836
PROCEDURAL POSTURE: Appellee seller brought an action against
appellant buyer seeking to enforce the provisions of two gas purchase
contracts between the parties. The United States District Court for the
Northern District of Oklahoma granted the seller's motion for summary
judgment on the issue of liability and rejected all of the buyer's defenses.
The buyer appealed.
OVERVIEW: Under the contracts between the parties, the buyer was
required to take or pay for certain minimum quantities of gas from wells in
which the seller had a percentage interest. When the resale price for natural
gas declined, the buyer refused to pay for gas and also refused to pay for
the minimum contract quantities of the gas which were not taken. The buyer
argued that the force majeure provision in the contracts extended to a
partial lack of demand caused by market forces thereby providing relief from
the take-or-pay obligation contained in each contract. The buyer argued that
a force majeure event occurred because the demand for gas sharply
decreased, with a corresponding decrease in the resale price of gas that the
buyer was obligated to take or pay for under the contracts. The buyer
argued that there was an issue of fact concerning the extent of the failure of
demand for gas. The court disagreed and determined that the issues could
be resolved as a matter of law. The court held that neither a decline in
demand, nor an inability to sell gas at or above the contract price,
constituted a force majeure event.
OUTCOME: The court affirmed the summary judgment in favor of the seller.
Changed Circumstances
p. 802-844
Chapter 7:
Breach of K and Permissible Remedial Responses
See Chart- Breach of K:
Cure, breaching party has a right to cure b/f the other party’s duties
are totally deactivated.
Perfect Tender Rule 2-601:
Taylor v Johnson
p. 868
AMF v McDonald’s
p. 876 AMF wants damages from cancellation of order for cash registers. McD’s is suing AMF for the
cost of the prototype and failure of the equipment. Feb-Jun 1969, then changed to July. Mar 18 the
parties met to discuss standards of performance, but can’t agree. July 29th McD’s cancels the Ks. AMF
sues for wrongful cancellation. Before agreed upon K performance date, someone has done something
TC:
Appeal:
For McDs
Court thinks there was a proper request for assurances, even though it was not in writing.
McDs had RA grounds for insecurity and so were entitled to demand assurances. There
was a clear understanding, so the court liberally construes 2-609. AMF did not provide
RA assurances, so there can be a proper cancellation under 610(b) and there can be a
remedy under 2-711(1).
Issue:
UCC 2-609 Did they make a Request for Assurances? (Statute req’s Writing)
Whether at the meeting it was RA for McD to ask for assurances, and whether it did ask for assurances




From where does a court get a right to say there is no writing requirement?
What kind of conduct should give RA grounds for insecurity?
How should a proper request be made, even when its in writing?
What should amount to an adequate assurance?
o Mere Words?
o Additional security?
Plotnick v. Pennsylvania Smelting & Refining Co.
p. 882
Decided under Uniform Sales Act, not UCC.
Canadian co selling lead to a PA co.
 Installment K: (standard for breach in sale of goods normally 2-601: before acceptance of goods,
a buyer can reject unless there is a “Perfect Tender”)where part of the price is due on acceptance,
some due within 4 weeks, and some due upon delivery.
 Payment is $.081 per pound. PA will pay 63% of the price shortly after shipment.
Oct 27 1947:
K formation to deliver lead by Dec 25
Mar 12 1948:
deliveries had not been made. Meet and discuss
Mar 28 1948:
Delivery of 43 lbs of lead, Buyer doesn’t pay.
Market price of lead has gone up substantially.
Apr 7 1948:
Buyer notified seller if they didn’t deliver in 30 days they would hold them in
breach for the difference between market price and K price.
Apr 10 1948:
Seller refuses to ship unless the last delivery is paid for in full for Mar 23rd
shipment.
May 12
Buyer Threatens suit
May 22
Seller says they consider the K “cancelled”
Issue: Did Ds failure to pay for the Mar 23rd shipment (was it a material breach of the whole K) and so
gave the seller the right to cancel the K? Installment K: standard is material breach.
Court held: Ds conduct was a breach, but not a material breach that would justify cancellation of the
entire K, does not allow seller to claim their duties are discharged and sue for material breach. Breach on
installment would be a breach on the whole when: PA sales act you look case-by-case, and look from
sellers point of view, or if they fear they will never get paid.


If seller has accepted late payments before, a late payment may not be a material breach.
For a late payment to be a Repudiation, it must be such that is a material breach of the K.
Cancel is a better term than Rescission (usually means a K formed because of fraud or mistake).
Today, 2-612 would be the section used for this case. For Cancellation, should the court look to the
motivation of the party who wants to cancel the K? Good faith should be considered.
Plotnick IS consistent with 2-612(3) test is if buyers failure of 1 installment substantially impairs the
value of the whole K.
Seller’s ability to cancel due to Buyer’s failure to pay 1 installment is limited by two factors:
1. (failure to pay 1 installment) Must have been a material part of the whole K
2. Failure must be to make a payment due on or before delivery.
Assume the failure of the buyer to make an installment payment WAS a material breach of the whole K,
but under 2-703 seller cannot cancel, the Remedy left for Plotnick would be: not much. 2-609 can claim
it is enough to cause you to be insecure.
Cure can occur:
1. Before the agreed upon performance date of the K. Party in breach has a right to cure until the K
date, and possibly even after the K date( within a RA time)
1-306 Waiver by an Authenticating writing
2-508(1)(2) Right to Cure: Buyers right to reject is subject to the Seller’s right to Cure.
2-601 Perfect Tender Rule: before acceptance of goods, a buyer can reject unless there is a “perfect
tender”, not at all late – not an hr, minute, anything. Parties can agree that
the perfect tender rule does not apply.
2-612 Exception to Perfect Tender Rule: exception for Installment Ks (must be a material breach for
buyer to have the right to cancel).
(1) Defines an installment K ”requires or authorizes the delivery of goods in separate lots
to be separately accepted”
(3) “Cancellation” default on one installment does not allow cancellation unless it
“substantially impairs the value of the whole K”.
2-709(1a) Would allow seller to recover K price if there is a material breach of the whole K, but seller
cannot cancel.
2-703(f) allows a cancellation if the buyer fails to make a payment due on or before delivery, which
substantially impairs the whole K. (literal reading would mean seller cannot cancel if the payment was
not due until after delivery)
Proposed Revised 2-703(1) will change this “Breach of K by buyer includes… failure to make a
payment WHEN DUE under the K” doesn’t distinguish a payment made on or before with a payment
due after delivery. If it is material seller will be allowed to cancel and sue for damages.
Comment:
Post-Breach conduct affecting the Cancellation Remedy
p. 887
WAIVER:
“Intentional relinquishment of a known right”
Can a seller who has the right to cancel 612(3) waive their right to cancel by inaction?
Ex: If they have received late payments without complaint have they waived their right to timely
payments in the future?
Can the Buyer claim defense of Waiver to pay on-time? If a Buyer
has relied on the waiver, and so had a material change in position, it cannot be retracted.
A waiver, with no consideration, can be retracted at any time.
Can be a written renunciation, or waiver by authenticating writing.
Problems p. 888
1. A repudiates whole K (Anticipatory repudiation) but A retracts before buyer cancels or materially
changes her position, or before buyer has accepted the repudiation
2-611(1) & R2d 256
The Revocation CAN BE retracted, unless it is accepted or acted upon in
some way.
2. Seller tenders goods to the Buyer Oct 1. Buyer inspects the goods and finds a non-conformity. Nov 1
Buyer notifies seller they are Rejecting the goods and Canceling the K.
Perfect Tender Rule
Buyer’s right to reject good prior to accepting goods
What are Buyer’s rights after accepting the goods (regarding revoking and cancellation)
Hypo: Seller is to deliver 500 tables on day 1. Seller delivers and they substantially conform to the
description in the K, but 1 or 2 are scratched.
Is Seller entitled to K price for the Tables he has delivered, less the cost of cleaning the scratches? No.
buyer must reject the goods, Perfect Tender Rule excuses buyer from further performance even though
buyer could be adequately compensated and has not materially breached.
Buyer Can: 1) Reject all of them 2) Accept all of them 3) Accept some and reject the rest.
Exceptions to Perfect Tender Rule:
1) parties can waive by agreement
2) 2-612 (2) if this is an installment K, perfect tender rule would not apply, it would need to be
a material breach for buyer
3. ii
4. ii
Section 2.
Compensatory Damages
John Hancock Mutual Life Insurance v. Cohen
p. 890
PROCEDURAL POSTURE: Defendant insurance company appealed a
judgment of the United States district court, which held in favor of plaintiff
beneficiary that defendant breached its contract to provide life insurance to
plaintiff's husband. Plaintiff cross-appealed the portion of the district court's
judgment that refused to award damages for breach of an alleged warranty
against having to employ any firm or persons to collect on the contract.
OVERVIEW: Plaintiff beneficiary filed an action against defendant insurance
company for breach of a contract to provide life insurance to plaintiff's
husband and breach of warranty against having to employ anyone to collect
on the contract. The district court held in favor of plaintiff regarding breach
of contract, but not breach of warranty. The court remanded the decision
with directions to award plaintiff an amount equal to payments due to the
date of judgment plus interest and to decree that future installments were
to be paid when they fell due. The court held that the alleged prior
agreement was not controlling over the erroneous terms embodied in the
subsequent policy because no agreement was reached until the final policy
was written. The court found that there was a unilateral mistake of
defendant and that plaintiff's husband neither knew or reasonably should
have known of the mistake. The court held that defendant had a duty to
read the policy. The court held that the contract was a "payment certain"
insurance contract and an unconditional unilateral contract for the payment
of money in future installments. The court held that the doctrine of
anticipatory breach did not apply.
OUTCOME: The court remanded the district court's judgment that held in
favor of plaintiff beneficiary that defendant insurance company breached a
contract to provide life insurance to plaintiff's husband. The court held that
defendant breached its contract, but that anticipatory breach was not
applicable because the contract involved the payment of future installments.
The court found no warranty against having to employ anyone to collect on
the contract.
American Mechanical Corp. v. Union Machine Co. of Lynn
p. 897
PROCEDURAL POSTURE: Plaintiff seller appealed a judgment of the Essex
Superior Court Department (Massachusetts), awarding only nominal
damages to the seller on its breach of contract claim against defendants, a
prospective purchaser and its president, and dismissing the seller's claim of
unfair and deceptive practices in violation of Mass. Gen. Laws ch. 93A, § 2.
OVERVIEW: The seller of commercial real estate, machinery, and
equipment sought damages from a prospective purchaser after the sale fell
through. The seller alleged breach of contract and violation of Mass. Gen.
Laws ch. 93A. The trial judge concluded that, although there was a breach
of contract, the right to recover damages beyond nominal damages had not
been proved, and that, in the absence of proof of a demand letter, ch. 93A
recovery could only be had under Mass. Gen. Laws ch. 93A, § 11, which had
not been pleaded. The court vacated the trial court's judgment and held that
the correct measure of damages was the full amount of the actual loss,
which was the contract price less the amount received for the property at a
foreclosure sale of the real estate, machinery, and equipment. The court
held that the purchaser did not meet its burden of proving that losses could
have been avoided by reasonable effort and that there was no basis for
reducing the damages. The court held that dismissal of the ch. 93A claim
was improper. The court found evidence that warranted a finding of unfair
and deceptive practices and held that recovery was not conditioned upon the
sending of a demand letter.
OUTCOME: The court vacated the trial court's judgment and directed that a
judgment should be entered for the seller for its actual losses on the breach
of contract claim. The court remanded for findings of fact, conclusions of
law, and entry of judgment on the claim of unfair and deceptive practices.
New Era Homes Corp v. Forster
p. 901
PROCEDURAL POSTURE: Appellant homeowners challenged a judgment of
the Appellate Division of the Supreme Court (New York), which unanimously
affirmed a judgment in favor of appellee builder entered upon a verdict. The
builder had filed suit claiming breach of contract when the homeowners
refused to pay the builder the third installment on a building contract.
OVERVIEW: The court held that the total price was the single consideration
for the whole of the work and that separately listed payments in the
contract were not allocated absolutely to certain parts of the undertaking
but were scheduled part payments, mutually convenient to the builder and
the homeowners. The contract did not state that separate items of work
would be done for separate amounts of money but that the whole alteration
project, including material and labor, was to be supplied for the price.
Nothing in the record suggested that the parties had intended to group
several separate engagements, each with its own separate consideration.
The builder, on the homeowner's default, could collect either in quantum
meruit for what had been finished or in contract for the value of what the
builder had lost -- that is, the contract price, less payments made and less
the cost of completion.
OUTCOME: The court reversed the judgments and granted a new trial.
PROBLEM:
SELLER’S RESALE REMEDY UNDER UCC
2-706 With Resale: K price – Resale Price – Expense saved
1. S and B K for ovens t $60 ea. If S re-sells the product, for $28, what if anything can he recover from
the buyer for those ovens, if the new B will pick up?
$32 less cost of transportation $4 = $28 per oven
2. S is entitled to Incidental damages 2-710
3. 2-708(1) K price – Market price(at the time and place –Bs place- of tender) – Any expenses saved.
(Historic Remedy)
S does not re-sell the ovens, what can S recover from B? $31 damages
4. I
5. Judgment: 2-708(1) K price - Mkt price, gets damages, then seller sells for $10 ea. Does seller have
to pay buyer back for the $10?
If suing for Price: 2-709(2) if S sues for price must hold goods for B, and if he sells prior
to judgment must give a set-off. After judgment no set-off.
If sale is pre-judgment: should seller need to give B $10? 2-708(1 & 2) will depend on if
seller is a “lost volume seller”. If LVS- S has lot the profit on that particular sale, but is
able to resell the ovens, so S will not have to give a set-off. B must prove S is NOT a
LVS.
UCC: P should not recover for damages they in fact avoided, or RA could have avoided. Unless they
are a Lost Volume Dealer.
AMC v. Union Machine
P. 896 K for real estate $100K and equipment $25 k. D repudiates the K. Forclosure of property and
equipment is sold for $35, $50k for real property.
P sues for breach:
K price – Actual Resale price
D argues:
P should have mitigated.
Court holds:
Mkt price is generally awarded in Real Estate. Issue of avoidance of damages,
BOP is on D “Aff duty” to show. K applies general K theory of damages: S gets losses up to the value of
K price. Forseeable to D when they defalted that this would go to a foreclosure sale. If both parties knew
there would be a substantial loss on breach, and there is, this applies.
P cannot collect for damages that they could RA avoid.
N3 p.900
Modern:
Avoidance in a Lease
LL has duty to re-let to avoid damages. 2A
N4
Similar to oven problem. S has possession of goods when B breaches. Under UCC S has
options:
Avoidable damages, give only actual damage to S.
1) Resell to 3rd and collect damages
2) Not re-sell and sue under 2-708(1) K price – Resale
New Era Homes Corp. V. Forster
p.901 D hires New Era to make home alterations. Set up in “installments”. D pays first 2 installments,
but refuses to pay 3rd.
Jury award: $1,500 (3rd installment)
Appellate:
Affirmed
CA Supreme: Is this a divisible K? No.
Figuring out Ps damages:
where substantially performed K and completely performed 3 parts
Give Expectation; lost profit plus reimbursement for expenses
1) Quantum Meruit “Restitution”
2) Value of work done + payments – lost profit.
3) K price – payments to P – cost to complete
The price is one consideration split for convenience purposes. P is entitled to full K price.
Dissent:
A Divisible K. Remedy: P would get the $1,500 for the 3rd part plus any damages for the
remaining work, lost profit as to the remaining work.
Comments: Breach of Construction K and the “Components” Approach
p.904 Expectation Damages
Kprice
$3075
Payments by D
2000
Cost avoided
425 (costs P avoided: cost to complete performance – cost of
625 performance to date)
Comment: Reliance Damages or Restitution in Losing Ks
p. 905 Reliance Damages
(Numbers are changed)
Kprice
$50,000
Payments (at breach)
0
(Repudiated the K)
Cost avoided
40,000
(It would cost contractor $60,000 to do the whole job. He has
10,000
spent 20,000 already. Saving him $40,000 total).
So Contractor is out of pocket $10,000. Expectation doesn’t work well when there is a breach b/f P has
completed the K but cost of performance is much higher than he anticipated.
Contractor could not go for Reliance Damages b/c he could only get up to the value of K price. Reduce
reliance by the money he would have lost on the K.
Restitution Damages (unjust enrichment) he could get damages for work done. To what extend has the
value of the home increased due to the work that Contractor has done. R2 371 gives ways to evaluate
restitution.

Presumption that Contractors don’t have to take off money from the next job as avoidance
damages. Contractors are always LVDs. They take more jobs than they can do.