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I. What are the terms of the Contract? a. Parol Evidence Rule i. ii. iii. iv. UCC §2-202: Final Written Expression: Parol or Extrinsic Evidence, Rs(2d)§209: Integrated Agreements, §210: Completely & Partially Integrated Agreements, §211: Standardized Agreements, §213: Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule), §214: Evidence of prior or contemporaneous agreements in negotiations, §215: Contradiction of Integrated Terms, §216: Consistent Additional Terms Parol Evidence Rule: A mechanism for excluding outside evidence to supplement an agreement b/c the agreement supersedes any preliminary negotiations, written documents, conversations, and verbal agreements. The one who does not want the evidence admitted uses the rule. 1. The general purpose is to create a final agreement between the parties. If what's written is not a final agreement then you can bring in other evidence that shows what the final agreement is. However, if it is determined that the writing is a final agreement, then there is no need for any outside evidence and Parol Evidence bars the use of any outside evidence. Traditional trend is the 4-corner rule: If the instrument is complete on its face, the instrument is presumed to be a total integration. The court determines whether the writing is complete on its face solely by looking at the instrument. The modern trend is what we're supposed to use as the basic rule (Rs). (Judge decides whether or not the writing is an integration). Rs view: it's a two-step process. 1. Look at the intent of the parties to determine whether the agreement is a final expression §209(1) a. If no, then Parol doesn't apply, b. If yes, then its called an "integrated agreement" then go to 2 2. Is the integrated agreement a complete and exclusive statement of the terms of the agreement? §210 a. If no, then it's a partially integrated agreement, and you can use outside evidence to supplement the agreement, as long as the evidence does not contradict a term in the agreement. b. If yes, then it's a completely integrated agreement, and you can't supplement or contradict. (Not even allowed to admit evidence that would explain a term §216) v. vi. vii. viii. ix. x. xi. xii. xiii. xiv. Merger Clause: tells you that the writing is a completely integrated writing. Harder to defeat the agreement, but not impossible. One way is to argue that the merger clause is unconscionable. Even if the writing is a complete integration, parol evidence is admissible to show fraud, mistake, or duress in the inducement of the contract. Most cts hold that a merger clause should not be held a bar to actions for fraud. Also admissible to show that the agreement was never formed or even if formed is void or voidable or to show grounds for granting or denying rescission, reformation, or specific performance. Parol testimony is admissible to prove a condition precedent to the legal effectiveness of a written contract if the condition does not contradict the express terms of such a writing. Evidence of subsequent agreements will not be barred by the parol evidence rule. The rule only applies to agreements made prior to the final contract. Does not prevent the admittance of evidence that contradicts implied at law terms. UCC: A writing intended to be a final expression of an agreement may not be contradicted by evidence of a prior written or oral agreement or of a contemporaneous oral agreement. §2-202. 1. The writing may be explained or supplemented by course of dealing or trade usage even if it is a complete integration, unless the course of dealing or trade usage is carefully canceled by the contracts terms. §2-202(1). 2. The writing may be explained or supplemented by evidence of consistent additional terms unless the ct finds the writing to be complete and exclusive. §2-202(2). §209(2): Judge makes all Parol Evidence decisions. There is concern that juries would be more sympathetic to oral testimony and not realize that written evidence is more accurate. Gianni v. R. Russell & Co. (1924) (p.556): If the two agreements were so interrelated it would be logical for them to be executed in the same contract. Collateral Agreement Rule - An oral agreement that is supported by separate consideration may be demonstrated, even though it occurred prior to what seem to be a completely integrated writing. §216(2)(a) 1. If the term offered is dealt with at all in the writing, there is a total integration of both agreements. If the term offered relates to subject matter that is not covered by the writing, the writing is treated as a partial integration. Masterson v. Sine (1968) (p.560): "Contract among family members for a land sale". Since it's between family members it is likely that terms were not written down b/c they were understood. Family members are often inexperienced and may leave out terms. xv. xvi. xvii. xviii. xix. xx. xxi. §216(2)(b): Q whether the oral agreement would've naturally have been left out Bolinger v. Central Pennsylvania Quarry Stripping & Construction Co. (1967) (p.567): "waste would be buried, forgot to include it in the contract" Both parties believed that the waste would be buried, but the contract failed to show that. Since they both believed it, their intent was for it to be in the contract. WWW Associates, Inc. v. Gaincontieri (1990) (p.586): They were sophisticated businessmen and knew what they were doing. Plain Meaning Rule - extrinsic and Parol evidence cannot be used to create an ambiguity in a written agreement, which is complete and clear and unambiguous upon its face. (p.589). PG&E Co. v. GW Thomas Drayage & Rigging Co. (1968) (p.592): If the text is susceptible to two diff meanings then you can use extrinsic evidence to prove either meaning. The test is whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonable susceptible. Q's to ask when you have a fact pattern: 1. Is there a writing? a. If no, you probably have Statute of Frauds problems. 2. Is there evidence of prior or contemporaneous negotiation to prove something? a. Is it being offered to contradict the writing? i. If yes, then discuss if the writing is integrated. b. Is this evidence being offered to add to the writing i. The issue raised here is if it's a partial or complete integration? Parol Evidence Issues 1. Offered to contradict the writing 2. Offered to add to the writing 3. Maybe we're trying to reform the writing. Then the parol evidence rule does not bar the evidence, but you have to make sure that the writing was intended to be in there. 4. Maybe we want to admit this evidence to prove some basis for invalidating the contract. a. Since Parol Evidence assumes already that there is a valid contract there is no reason to bar the evidence. 5. Maybe we're bringing in the evidence to interpret the writing Does the evidence interpret the writing? (the Plain Meaning Rule) 1. If so, it is allowed 2. If not, as long as it doesn't attempt to contradict the writing its allowed. 3 ways to combat misunderstanding: xxii. 1. Get it in writing 2. Good writing is always important 3. If you have certain terms that you get over and over have a section that defines them. Common rules that help with interpretation: 1. Contract has to be interpreted against the person who drafted it. 2. Trade usage, course of dealing, and course of performance apply. a. Trade usage: what is common to the industry b. Course of dealing: what is common between the two parties in question. How have they contracted in the past? c. Course of performance: One deal, done in installments, what is common practice within that contract. b. Ambiguous Language i. Vague: A word is vague when its applicability in marginal situations is uncertain ii. Ambiguous: A word is ambiguous when it has two entirely different connotations so that it may be at the same time both appropriate and inappropriate. 1. Ambiguities of term: ambiguity in the meaning of the terms 2. Ambiguities of syntax: an ambiguity of grammatical structure iii. Rules in Aid of Interpretation 1. The statutory analogy: there is an obvious similarity between the interpretation of contracts and that of statutes 2. Purpose Interpretation a. Words and conduct are interpreted in light of all the surrounding circumstances. The principal purpose of the contract is given great weight if it is ascertainable in light of all the circumstances (§202(1)) b. Heydon's case gave steps: i. Examination of the law before enactment of the statute ii. Ascertainment of the "mischief or defect" for which the law did no provide iii. Analysis of the remedy provided by the legislature to "cure the disease" iv. Determination of the "true reason of the remedy" v. Application of the statute so as to "suppress the mischief, and advance the remedy" 3. 4. 5. 6. iv. v. vi. vii. c. Cts have frequently repeated Lord Escher's 3 rules: i. If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. ii. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail iii. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred. Public Interest: See whether it is in the public's interest to interpret the provision broadly or strictly. Maxims a. Ejsudem generis: of the same kind b. Expressio unius est exclusio alterius: the expression of one thing is the exclusion of another. c. Noscitur a sociis: it is known from its associates d. Contra proferentem: against its author or profferer Specific terms and separately negotiated terms are given greater weight than general language and standardized terms, respectively (§203(c-d)) Interpret terms with the aid of any relevant course of performance, course of dealing and usage of trade. (§202(5) & §1-205, §2-208) §201: 1. Where all parties have attached the same meaning to an agreement or a term, it is interpreted in accordance with that meaning 2. Where the parties have attached diff meanings to an agreement, it is interpreted in accordance with the meaning attached by one of them if at the time of the agreement was made that party did not know or have reason to know of any diff meaning attached by the other and the other knew or had reason to know the meaning attached by the first party. UCC §2-202: Should the buyer be bound to the trade usage if he doesn't know about it? Typically yes if he is in the trade. If you're outside the trade you're bound if you should have known about it. Hurst v. WJ Lake & Co. (1932) (p.601): "horsemeat" Trade usage case. Need to use the industry-adopted definition for terms. Raffles v. Wichelhaus (1864) (p.582): "2 ships named Peerless" If there are two meanings attached to a latent ambiguity then neither party is bound for lack of mutual assent. If one party has knowledge, then that party, if best situated to clear the misunderstanding takes the brunt. In this case, neither was in the best position. Rs(2d)§201 viii. Oswald v. Allen (1969) (p.584): "coin collection" Both understood the coins to be from diff collections. No mutual assent. When a term is ambiguous and the parties understand the contract in diff ways there can be no binding contract. ix. Frigaliment Importing Co. v. BNS International Sales Corp (1960) (p.574): "chicken case" Rs(2d)§201(3): One party is not bound by the other parties definition of a word. Even if the result is a failure of mutual assent. The party that seeks to have a contract term interpreted in a narrow sense that is more favorable to him bears a substantial burden of proof. c. Gap Fillers i. UCC§1-203, §1-205, §2-208, §2-305, §2-306 ii. When the parties to a bargain have sufficiently defined to be a contract have not agreed with respect to a term that is essential to a determination of their rights and duties, a term that is reasonable in the circumstances is supplied by the cts 1. The reasonably omitted term may be supplied even if the writing is completely integrated (Parol Evidence Rule) 2. Although extrinsic evidence may be inadmissible to supply the omitted term, it may be used to determine what is "reasonable" iii. Implied terms: terms that are "implied in law" rather than "implied in fact" 1. Default Rules: Most implied terms are subject to agreement by both parties. Rules that the parties are powerless to alter by agreement are often called "mandatory rules" or sometimes "immutable rules" iv. §2-305: If there has been no price term agreed upon, the ct will determine a reasonable price. v. §2-306(2): A lawful agreement for exclusive dealing, unless otherwise agreed, imposes a return obligation to use best efforts to promote the product. vi. Nanakuli Paving & Rock Co. v. Shell Oil (1981) (p.651): "asphalt price protection" Trade usage case. In the past they had given then price protection. Evidence of custom and trade usage can be used and the jury can find that the parties knew or should have known of the practice at the time of the making the contract. Put forth 2 theories: Interpretation of contracts based on course of performance and good faith requirements. vii. Columbia Nitrogen Corp v. Royster Co. (1971) (p.660): "contracted to order large quantities of mixed fertilizers but ordered less after prices dropped." Even though there might be a stated term in the contract, course of dealing and trade usage can be used to show that it has a diff meaning. Contract was silent about adjusting price and therefore neither permits or concedes anything. If the ct finds that the writing was intended to be a viii. ix. x. xi. xii. xiii. xiv. complete and exclusive statement of the terms of the agreement, then evidence of additional terms must be excluded. 1. Can use trade usage, course of dealing, and course of performance even when there is a merger clause or a boilerplate clause. Good Faith §1-203 1. Negotiations: American law does not require good faith in negotiations. But you are limited by other mechanisms, e.g. duress, dishonesty, etc. 2. Contracts: Every contract carries an implied duty of good faith and dealing a. Act in good faith as you perform your duty b. Act in good faith as you enforce your rights in a contract. Bad Faith & Performance in duties: 1. Evading the spirit of the deal 2. Lack of diligence and slacking off 3. Deliberately rendering imperfect performance 4. Abusing your power to specify 5. Interfering with the other party when he tries to perform. Bad Faith enforcement: 1. Conjuring up a dispute 2. Deliberately failing to mitigate damages 3. Perhaps contract gives you options and you abuse them, i.e. abusing your power to terminate Dalton v. Educational Testing Service (1995) (p.605): "SAT test scores" Didn't use a good faith std in applying their own rules. The ct will not order the release of his score, b/c its not the cts job to determine whether he actually took the test. But ETS does have to make a good faith effort to consider his appeal. Burger King Corp v. Weaver (1999) (p.609): Unless there is an express term in the contract that says no competition there is no case. You don't have to be nice but you can't be mean. Cts have refused to allow a c/a for breach of the implied covenant of good faith and fair dealing in 2 circumstances: 1. Where the party alleged to have breached the implied covenant has in good faith performed all of the express contractual provisions. 2. Where the implied duty of good faith alleged to have been breached would have varied the terms of the contract. Market Street Associates v. Frey (1991)(p.613): "JC Penny's case." There is no good faith requirement to point out and flag important paragraphs in an agreement, but you can't take advantage of them. Eastern Air Lines, Inc. v. Gulf Oil Corporation (1975) (610): "Gulf accused Eastern of manipulating prices, Eastern said everyone is doing it" §2-103 course of performance and course of dealing is important. Gulf had never complained about it in the past. §2-306 prevents manipulation by saying that output must be in good faith. xv. Dickey v. Philadelphia Minit-Man Corp. (1954)(p.617): "lease specified the business to be done on the land" there is nothing in the contract that discontinuance is not allowed. The discontinuance was done in good faith b/c otherwise he would've lost money. The LL already adopted his own measures to minimize the negative impact so the court doesn't have to do it for him. D can change his business practices as he deems fit as long as he intends to continue the contract. D had no intention of discontinuing the lease, he simply made adjustments that he thought were sound business decisions. xvi. Bloor v. Falstaff Brewing Corp. (1979)(p.619): "hired to promote beer sales" obligation is to use a good faith and best efforts to promote high volume of sales. D was not expected to go bankrupt trying, but needed to try his hardest. Best efforts are determined in terms of the trade practice and usage. d. Article II Warranties i. 2 types of Warranties: 1. Warranty of Title 2. Warranty of Quality a. Express b. Implied ii. Title 1. §2-312: a. Warranty by the seller that: i. The title conveyed shall be good and rightful transfer ii. Goods free from any security interest or other lien or encumbrance b. Warranty can be waived, excluded, or modified, only by specific language, or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a 3rd person may have. 2. Warranty of title also includes: a. A warranty that there are no security interests (or other liens) on the goods other than those of which the buyer knows and b. A warranty given by merchant sellers against claims based on patent infringement of the like 3. It doesn't matter whether or not the owner thought he had a good title, he has to actually have it. Can't have good title if someone who doesn't have good title gave it to you iii. iv. 4. Principle of derivative title: A purchaser of goods acquires all title which his transferor had Express 1. When the seller does something affirmative to create buyer expectations about the characteristics or performance of the goods. 2. Oral & written representations. Have to be more than "puffing" and must "relate to" and become part of the "basis of the bargain." Need to be aware of trade usage terms. 3. Affirmation of fact v. Opinion 4. §2-313: Any of the following will make an express warranty: a. Affirmation b. Promise c. Description d. Sample Implied 1. Automatically a part of the contract unless the seller (or the circumstances) does something affirmative to get rid of them. a. Merchantability i. §2-314: Implied warranty of merchantability: item must be saleable and conform to the normal expectations of the parties. 1. (2)(c): to be merchantable the goods must be "fit for the ordinary purpose for which such goods are used" 2. (2)(e): Goods are adequately contained, packaged, and labeled as the agreement may require 3. (2)(a) - (2)(f) must all be satisfied ii. Shaffer v. Victoria Station, Inc. (1978): "Glass of wine broke in ptf's hand." The drink sold includes the wine and the container both of which must be fit for the ordinary purpose for which used. iii. Daniell v. Ford Motor Co. (1984): "ptf locked herself in trunk" Purpose of the trunk is to store things and to shelter objects from the elements, not used as a tool for suicide. Her use was unforeseeable. There was also no express warranty. When she purchased the car she did not ask abt whether or not it was possible to exit from the trunk. iv. b. Need to consider whether or not the person giving the warranty is in that business, is a merchant or is an agent who has special knowledge considering the goods. Fitness for A Particular Purpose i.§2-315: implied warranty that the goods be fit for such a purpose. 3 elements need to be satisfied: 1. That the seller had reason to know of the buyer's purpose 2. That the seller had reason to know that the buyer was relying on the seller's skill or judgment 3. Buyer did in fact rely on the seller's skill or judgment. ii. v. vi. Webster v. Blue Ship Tea Room, Inc. (1964): "fish bone found in fish chowder" Foreign substances which are occasionally found within a particular cuisine do not constitute a breach, as the consumer should anticipate the potential presence of such substances. Burden of Proof 1. Ptf has the burden of proving: a. The creation of the warranty b. Its breach c. Its causal connection of the ptf's injury (proximate cause being the usual measure) d. The fact and the extent of the injury 2. Flippo v. Mode O'Day Frock Shops of Hollywood (1970): "bit by spider while trying on pants" The spider was not a part of the pants; the goods were not defective in any manner. They were fit for the purpose of wearing. This whole discussion shifts the focus from what is or is not merchantable to what is causing the damage (3rd prong). Disclaimers and remedy limitations 1. Disclaimers a. Express warranties cannot be disclaimed. Implied warranties are easily disclaimed. b. §2-316: If parol evidence contradicts the warranty in the writing, the disclaimer is inoperative. As a matter of policy, don't want companies to make promises and then slip in a disclaimer. In order to disclaim a warranty of merchantability, it must mention the word "merchantability" and must be conspicuous. In order to disclaim fitness for a particular purpose, you don't have to mention any specific words, but you do have to put it in writing and make it conspicuous. c. Doctrine of Apparent Authority: A person may be bound by the acts of an agent to the extent that person appears to have authority to make the contact or make the deals. d. Cate v. Dover Corp. (1990): "disclaimer is hidden in ad in small print" To be enforceable, a written disclaimer must be conspicuous to a reasonable person. And an inconspicuous disclaimer is unenforceable unless the buyer has actual knowledge of the disclaimer. e. Bowdoin v. Showell v. Growers, Inc. (1987): Postsale disclaimer is not effective b/c it did not form a part of the basis of the bargain between the parties to the sale. "Basis of the bargain" rule. f. §2-316(3): Implied limitations (disclaimers). (a): Language of sale, e.g. "as is". (b): Examination of sample or model. Examination must be demanded by the seller (and not simply that the goods are made available for inspection) and then declined by the buyer. (c): Course of dealing, course of performance, or usage of trade. 2. Remedy Limitations a. §2-719: if the circumstances caused this exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this act. In other words, if its failing then the entire panacea of remedies in Article 2 are suddenly available to you. b. Ways to limit remedies: ii. By expressly stating limitations in the writing. (E.g. replacement of defective goods or parts) iii. Code limitations 1. Failure of essential purpose §2719(2) 2. Unconscionability §2-719(3) c. Wilson Trading Corp. v. David Ferguson, Ltd (1968): When time constraints fail, you take away the time constraints so that there is an available remedy. The contract created an unlimited express vii. II. warranty of merchantability, and in another clause tries to modify the warranty without expressly mentioning the word merchantability. When there is such ambiguity, the language of the unlimited warranty of merchantability will prevail. d. Goddard v. General Motors Corp. (1979): The Court decided that the purpose of exclusive repair or replacement remedy is to ensure that the purchaser receives a product, which conforms to the express warranty. But in this case the vehicle did not do so and kept breaking down and the buyer needs to pursue other remedies. Notice and Privity 1. Notice a. A buyer loses all UCC rights if there is a failure to give the seller notice of the breach within a reasonable period of time after the breach should have been discovered. This is to preserve the right to inspect and cure the defect on the part of the seller 2. Privity a. Vertical: Distribution chain of the buyer b. Horizontal: Chain of the other owners of the good c. Who can sue? §2-318 ii. Alternative A: Most strict. Limits to the household iii. Alternative B: Broader. Anyone reasonably expected to use the good. iv. Alternative C: Broadest. Also covers property and personal injury. Has the Contract Been Performed a. Conditions i. ii. iii. iv. §224: A condition is a fact or event, the happening or not happening of which creates or extinguishes a duty to perform on the part of the promisor. General Rule: If courts have a change of taking something ambiguous and taking it, they would rather say that it is a promise leading to a duty, rather than an express condition. Duty allows the person who is on the receiving end to get damages if the duty is not performed, whereas 3 types of conditions: 1. Express Conditions: A condition is expressed if the language of the contract, on its face, and without reference v. vi. vii. viii. ix. to extrinsic evidence articulates the intent to make performance contingent to the event. Cts look at: a. Language ("provided that", "when", "as soon as", "after") b. Intent of the parties (determined by looking at the contract, circumstances surrounding its formation, and the parties' conduct subsequent to its formation) c. Control (If occurrence of the event is within the control of one of the parties, it is more likely to be a condition) 2. Conditions implied in fact: even if there is no express language creating a condition, contextual evidence may support the inference that the parties intended a performance to be conditional. 3. Conditions implied in law: This is also called Constructive Conditions of Exchange. One way to distinguish a promise from a condition: if one party has control over the performance then it's most likely a condition. Lutinger v. Rosen (1972): Language in the contract was unambiguous and clear, the condition was not met and therefore deposit should be refunded. The only way to satisfy express conditions is through strict compliance. Due diligence does not require the parties to commit futile acts. Peacock Construction Co. v. Modern Air Conditioning, Inc. (1977): The Court interpreted a provision as setting a time for payment and not as a condition where the contract stated that final payment would be made to the subcontractor. Third Party Satisfaction: Duty is conditional on the satisfaction of an independent, third party, usually an expert. It's a subjective test. You can protect yourself by a clause for a third-party certificate. There is always a good faith standard applied in the party's actions. The usual test is one of honest, not reasonable satisfaction. 1. Gibson v. Cranage (1878): Both agreed that the def had to find the picture satisfactory before accepting the picture and making payment. Subjective test. 2. Objective standard of reasonableness is used where the condition calls for satisfaction as to commercial value or quality, operative fitness, or mechanical utility. 3. Subjective satisfaction is required where the condition involves fancy, taste, or judgment (dissatisfaction can be unreasonable as long as it is in good faith). Hicks v. Bush (1962): Parol evidence is admissible to prove a condition precedent to the legal effectiveness of a written agreement if the condition does not contradict the express terms of such written agreement "in a real sense." x. Mitigating Doctrines: 3 ways in which cts mitigate the harsh effect that the non-occurrence of a condition may otherwise have: 1. Prevention: One who prevents the occurrence of one's own duty may be precluded form later asserting the nonoccurrence of that condition. 2. Waiver, Estoppel, and Election a. Waiver: Intentional relinquishment of a known right. A party may waive performance of a condition inserted for his benefit. A party cannot, by waiver of a condition precedent, create an obligation where none previously existed. b. Estoppel: precludes retraction of a waiver of a condition if there is reliance and retraction would be unjust. c. Election: Once the time has passed for the occurrence of the condition, the party whose duty is conditional has 2 options: i. Taking advantage of the non-occurrence and treating the duty as discharged ii. Disregarding the non-occurrence and treating the duty as unconditional d. McKenna v. Vernon (1917): Def had already made 7 payments not in accordance with the contract. By waiving repeatedly, the def waived the last certificate as well. 3. Interpretation and Avoidance of Forfeiture a. Cts prefer an interpretation of contracts that avoids forfeiture. b. Miscalculations are referred to as constructive fraud even though there is no bad faith, dishonesty or deliberate wrongful conduct. b. Constructive Conditions of Exchange i. Constructive conditions = Implied conditions. Used to supply conditions in the interest of fairness and justice. The commitments exchanged by the parties are "dependent covenants" ii. Kingston v. Preston (1773): When parties exchange promises, which are not independent, each party's substantial performance of its promise is a constructive condition to the other party's performance of any subsequent duties. iii. Time for performance: Fixing the time for performance under a contract has the important effect of allocating the risk that one party will perform but will not receive the other party's return performance. iv. Stewart v. Newbury (1917): Where a contract is made to perform work, and no agreement is made as to time of payment, the work must be substantially performed before each payment can be demanded. 1. Modern Law: Each party's performance, or tender of performance, is deemed a constructive condition to the other's obligation to perform. 2. Concurrent conditions & Tender a. §2-507(1): Tender of delivery is a condition to the buyer's duty to accept the goods and . to pay for them b. §2-511(1): Tender of payment is a condition to the seller's duty to tender and complete any delivery. c. Seller doesn't have to actually hand the deed over to buyer, he has to be there ready to perform, able to perform, offering to perform. c. Mitigating Doctrines i. Substantial Performance 1. With constructive conditions, the rule is substantial performance, not strict compliance. This excuses the condition of complete performance if the work is substantially performed. a. Elements i. Minor Breach: the breach must be minor ii. Nonwillful b. Damages are generally measured by the diminution in value of the breacher's performance rather than the cost to complete or cure the defects i. Jacob & Youngs v. Kent (1921): When a party breaches a contract in a nonmaterial manner the measure of damages will be the difference in value between the specified and the actual performances rather than the cost to correct. To determine whether a contract should be adhered to strictly the ct says: "We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal fulfillment is to be implied by law as a condition." c. Plante v. Jacobs (1960): The test for substantial performance is whether the performance meets the essential purpose of the contract. Contract recovery will be determined by the cost of replacement rule for small defects or by the diminished value rule to avoid unreasonable economic waste for defects, ii. iii. correction of which is expensive but adds little or nothing to the value. Divisible and Separate Contracts 1. If the part to be performed by one party consists of several distinct items, and the price to be paid by the other is apportioned to each item to be performed, such contract will generally be held to be divisible. 2. Divisible contracts are exceptions to the general rule that there will be no recovery until the contract is fully performed 3. Gill v. Johnstown Lumber Co. (1892): Consideration to be paid was not an entire lump sum, but was apportioned among several diff items, making the contract severable and ptf can get paid for the logs delivered. But with the logs that were swept past the delivery point, the contract is like that of common carriage, and the carrier cannot recover if he does not deliver the goods. Restitution for a defaulting Plaintiff 1. Majority Rule: Where a breaching party has rendered only part performance under a contract (and it doesn't fall under substantial performance) no recovery for such part performance will be allowed. 2. Minority Rule: Where a breaching party has rendered part performance under a contract (and doesn't fall under substantial performance) recovery will be allowed to the extent of the reasonable value of the benefits conferred less any damages arising out of the breach 3. Britton v. Turner (1834): "ptf quit employment after 91/2 months on a 12 month contract" To deny recovery would place the party committing the earlier breach in a better position than one who substantially completes the contract (employer would be unjustly enriched by getting free employment), thus defeating the policy of encouraging fulfillment of contracts. The employer should not be allowed to receive a windfall at the expense of the employee. If the def was willing to accept labor on a dayto-day basis, then the def should have to pay for it too. 4. Kirkland v. Archbold (1953): This was a negligent breach, not a willful breach. Ptf should be awarded the value of the work less the damages suffered by def through the improper and incomplete work performed by ptfs. §2718(2): gives a defaulting buyer a right to restitution. d. Breach in the Course of Performance iii. Has there been a material breach? 1. If no, then the victim has to continue with her own performance, she does not have the right to bring the contract to an end but can bring damages. Treat the breach as a partial breach. 2. If yes, the injured party has 2 options: a. Either continue performance and treat the breach as a partial breach b. Stop performing and treat the breach as a total breach, which discharges the injured party's remaining duties and gives rise to a claim for damages for a total breach. 3. Walker & Co. v. Harrison (1957): Here the breach was irritating but not so material as to justify repudiation. A party must prove that the other party committed a material breach of the contract before the contract can be repudiated. Repudiation is "fraught with peril," for should the court not find that the other party materially breached the contract, the repudiator himself will have been guilty of material breach. 4. K & G Construction Co. v. Harris (1960): Covenants are construed as dependent or independent according to the intention of the parties and good sense of the case. It would be unreasonable to require ptf to make the monthly payments regardless of whether def performed in a workmanlike manner. ii.Has the breaching party been given an adequate opportunity to cure? 1. If the delay was there, how much will the delay affect the person? Our period of cure is going to be a lot shorter. if we wait too long its going to be harder for the victim to come up with a remedy. 2. Impact on the breaching party. The greater the potential forfeiture, the more likely we are to extend the period of care 3. Also look at whether the breaching party is willing to do it. The victim might still deserve some compensation. iii. iv. v. What are the rights of the injured party? This is if there is a material breach and no cure, then she can consider her own duty as discharged and moreover, she has the right to terminate the contract Hindrance & Prevention: The conduct of one party to a contract which prevents the other form performing his part is an excuse for nonperformance. 1. Iron Trade Products Co. v. Wilkoff Co. (1922): Mere difficulty of performance will not excuse a breach of contract. A seller's duty to supply goods is not excused if the buyer's additional purchases of the goods elsewhere makes them scarce and difficult to obtain. New England Structures, Inc. v. Loranger (1968): Loranger is not barred from asserting grounds not mentioned in its notification of termination unless New England can establish that it relied to its detriment upon the circumstance that only one ground was asserted. There was no opportunity for cure here, so the notice period was intended to give NE time to protect itself from injury by removing its equipment and releasing its employees. e. Anticipatory Repudiation iii. Repudiation: a party's language must be sufficiently positive to be reasonably interpreted to mean that the party cannot or will not perform. It should be shown that the announcement of an intention not to perform was positive and unequivocal. Anticipatory Repudiation: A repudiation that occurs before the time of performance has arrived. So the repudiation is not accompanied by a breach of performance iv. §2-609: Every party to a contract has a right that expectation of receiving due performance will not be impaired. If insecure, a party can ask for written assurance. Acceptance of improper delivery does not prejudice a party from demanding assurance of future performance v. §2-610: Aggrieved party has 3 options when a repudiation occurs prior to performance: 1. Await performance 2. Urge retraction 3. Suspend own performance or proceed under Article for a remedy vi. §2-611: Have until the next due performance to retract a repudiation unless the aggrieved party has cancelled or materially changed his position. Retraction can be communicated in any method that clearly state the retractors intent. vii. viii. ix. x. xi. xii. xiii. xiv. Majority of the courts hold that the repudiator's good faith makes no difference; it's still a repudiation. Does not apply to unilateral contracts, or contracts where one side has performed and all that remains is payment from the other side. The injured party must wait for the specified time for payment has come and gone before she can sue. Adopted in Rs(2d)253. USC season ticket holder who does not get Rose Bowl tickets, they lose because the subscribers had fully performed, all that remained on the other side was for USC to provide tickets (not an issue of installment payments), the injured party just had to wait for USC, doctrine of anticipatory repudiation does not apply because they have to wait until time of performance. The greater the level of in security, the more assurance you're allowed to ask for. 5 questions relating to the consequences of an anticipatory repudiation: 1. Is the recipient of a repudiation free to make other arrangements? 2. Can the recipient of a repudiation go to ct immediately, even before the time for performance has arrived? 3. Can the recipient of a repudiation ignore the repudiation and await performance? 4. What are the consequences if the recipient of a repudiation urges retraction of the repudiation? 5. Can a party that has repudiated withdraw the repudiation? Hochster v. De la Tour (1853): Renunciation of a contract to do a future act may be treated as a breach of contract, and the repudiating party can be sued before his performance is due under contract. If the injured party elects to wait to sue, then she has a duty to mitigate damages in the meantime. EXCEPTION: If, at the time of the breach, the aggrieved party has fully performed and the only remaining duty of performance of the party in breach is to pay money in independent installments, the failure to pay one or more installments, whether or not coupled with a repudiation, will not give rise to a claim for damages for total breach. Nor will repudiation alone give rise to such a claim. §243(3) & §254 Kanavos v. Hancock Bank & Trust Co. (1985): For a repudiating party to be liable for breach of a contract that calls for concurrent performances, the nonrepudiating party must prove that it had the capability to satisfy its contractual obligations. McCloskey & Co. v. Minweld Steel Co. (1955): Subcontractor hired to furnish all of the steel required in construction of one of the buildings. A mixed sale, furnishing goods (steel) and seem to be erecting steel (services). Might want to ask predominant purpose of the transaction. Going to apply common law here, to give rise to a renunciation amounting to a breach of contract, there must be an absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so. The contractor demands assurance that the steel will be delivered in a shorter time than indicated by the subcontractor, but there is no specified date in the contract. Minweld responded with the hardships they’ve faced, and they need more of McClosky’s help. Says they can’t assure they can obtain steel and deliver by a specific date, but they are anxious to perform. The court also stated that failure to take preparatory action before the time of performance is not an anticipatory breach. Minweld had flatly refused to reply with assurances. You just don’t have right to assurances to due performance at this time. Need to evaluate whether McClosky had actually overreacted, and repudiated the contract when the began to look to other subcontractors to do the work. McClosky seems to be in the wrong. But it’s not sure that Minweld would have met burden of proof under the time frame to have been able and willing to perform. xv. Pittsburgh-Des Moines Steel Co. v. Brookhaven Manor Water Co. (1976): Contract for tank, where the proposal calls for no payment to be made until tank is built and tested, but there§2-609 allows a party to ask for adequate assurances of due performance and suspend its own performance until it receives such assurance only when reasonable grounds for insecurity arise with respect to the other party's performance. Rumors do not constitute reasonable grounds for insecurity. PDM was essentially trying to redraft the contract, should have negotiated those assurances into the beginning agreement itself. Generally no right to demand assurances at common law. f. Impracticability and Frustration of Purpose Mistake: Impracticality: RS(2d) 152, 153, 154 UCC: 2-615, 2-616, RS: 261 RS 265 i. Frustration Impracticability 1. Discharge of obligation by supervening Impracticability events subsequent to the formation of the contract which make performance of the bargain by one party so far beyond the parameters of its gamble that it seems to discharge the party's obligation without liability of breach. 2. If you’re talking about existing impracticability, the party must show he either didn’t know, or 3. CL: that if you had a K, you had to enforce and there were three basic exceptions to enforcement: 1. governmental action prohibiting performance 2. death or disability of 4. 5. 6. 7. 8. someone whose performance is essential and 3. subject matter has been destroyed. Performance will be excused. Modern Rule: No hardship, no unforeseen hindrance, no difficulty short of absolute impossibility, will excuse him from doing what he has expressly agreed to do. R.2d 261 - DISCHARGE BY SUPERVENING IMPRACTABILITY - Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. UCC: §2-615: EXCUSE BY FAILURE OF PRESUPPOSED CONDITIONS: Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance (doesn’t speak directly to buyers, but it has migrated into the restatement 261): a. Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under contract for sale if performance as agreed has been impracticable by the occurrence of a contingency and non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable. (c) The seller must notify the buyer seasonably that there will be delay or nondelivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer. UCC: 2-616: PROCEDURE ON NOTICE CLAIMING EXCUSE Test for Impracticability (This is what Prof wants us to use on the test): a. after the contract is made, an event or contingency occurs and it makes that parties performance impracticable. Not looking for impossibility, but it does have to be something more than an additional inconvenience or expense. A contract is fundamentally a way of allocation risk for price fluctuation. (Transatlantic essentially loses case here). b. whatever this event is, non occurrence of the event must be a basic assumption on which u contracted. Taylor case and example, when the parties contracted to rent out the music hall, the acted on the assumption that the hall would continue to exist. c. This impracticability has to result without the fault of the parties seeking to be excused d. The party who is looking for an excuse must not have assumed a greater obligation than the law would otherwise impose. (keep in mind trade usage, course of dealing, course of performance, custom, could have effectively assigned the risk to one side or the other). i. The law does not excuse the party who has assumed the risk of this event. What if the event was foreseeable? If the party entered into the contract anyway, the court might find that he assumed the risk anyway. Many courts do emphasize foreseeability in trying to excuse performance. Another important factor is probability, the more probable it is that the event will arise, the greater the assumption of risk. 9. Force majuere clauses – excuse parties from enumerated risks. Be careful how you go about it (boiler plate), depends on how it’s written. when a party knows that there might be an impediment, it may well introduce a term intended to excuse it from performing if the impediment arises. Too much of this is called ejusdem generis (of the same kind). 10. There is a condition that the seller must notify the buyer that the delivery won’t be coming. 11. In dealing with the sale of goods, there is a condition that the seller must notify the buyer that the delivery wont be coming (2-616) and the other side is also excused from performance. 12. Foreseeability or even recognition of a risk does not necessarily prove its allocation. However, Rs suggests that the nonoccurrence of the impeding event was a basic assumption on which the contract was made. 13. Economic analyses: Ct determines who the superior risk bearer is. Some basic assumptions in this determination: a. If the parties had had the mischance of mind during their negotiations, as a possibility, they would have assigned the risk to the superior risk bearer possibly adjusting the price or another term to balance this assignment b. For the court to make the same assignment would spare the parties the cost, time and effort of negotiating to the position they would prefer. 14. Taylor v. Caldwell (801) - there was a contract which provided that the existence of the hall in a state fit for a concert was essential. Before the concerts could given, the hall was destroyed by fire for which neither party was responsible. The contract depended upon the existence of the hall. Thus, both parties were excused from their contractual obligations. 15. Transatlantic Financing Corp v. United States (805) - the traditional route was blocked and thus greater costs for transportation were incurred due to taking another route. T says that their duty was to transport via the canal and then when it was closed, the duty became impossible and therefore was excused. The duty in this case was to bring goods, rather than going through some strict route. The court defines the problem to be added expenses rather than impracticability. The court finds that T also knew the canal was in crisis, but the court don’t think it is exactly foreseeable, but even if it were it doesn’t indicate they assumed the risk because they don’t always provide for the risks. But if blockage was foreseeable, they don’t need to worry about it, but some courts say you do assume risk, depends on the court. The shippers are in the best position to calculate the costs and are undoubtedly sensitive to economic troubles. If there is a loss, look to who is in the best position to ensure or prevent against the risk. 16. Canadian Industrial Alcohol v. Dunbar Molasses (819) molasses output case. The court thinks that the molasses supplier did not do enough because they should have entered into a binding contract with the subcontractor. Essentially Dunbar should not be excused when the problem is a reduction in output. It puts its faith in the mere chance that the output of the refinery would be the same from year to year, and finding its faith in vain, it tells us that its customer must have expected to take a chance as great. The duty will subsist if the output is reduced b/c times turn out to be hard and labor charges high. ii. 17. Mineral Park Land Co. v. Howard: "gravel was there but it was only able to be removed at a prohibitive cost" Where the difference in cost is so great as here, and has the effect, as found, of making performance impracticable, the situation is not different from that of a total absence of earth and gravel. Condition that existed at the time the contract was made. 18. Mutual Mistake – if you are seeking to invalidate a contract for a mistake, look to Rs(2d) 152, mistake is easier, because you don’t have to show the extreme degree of difficulty. If you look at cases though, courts tend to find more assumption of risk in Mistake, making that a little harder, but it hinges on foreseeability. Frustration of Purpose 1. RS 265: DISCHARGE BY SUPERVENING FRUSTRATION: Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. 2. Elements: In impracticability cases, one party cannot perform or can perform only in a more burdensome way than had originally been contemplated. In frustration cases, performance is practicable, but the purpose of at least one of the parties is frustrated to the extent that the performance contracted for has become valueless (guy could still rent apartment, but the value is gone because there is no longer a coronation). a. An event that frustrates the purpose of one of the parties and the occurrence of this event must be the basis on which both parties entered into the contract; b. The frustration must be total or nearly total c. The party who asserts the defense must not, expressly or impliedly, have assumed the risk of this occurrence nor be guilty of contributory fault. 3. Krell v. Henry: Krell advertised his apartment as available for use for viewing the coronation process of King Edward VII. Henry rents but king falls sick. There is no impossibility as Krell can rent and Henry can pay and Krell has not promised that the coronation would take place. Yet it is clear that the coronation was the basis on which both parties entered in the contract. 4. If you’re talking about frustration of a condition that existed when the contract was entered into, you must also talk about mutual mistake. 5. B was about to be married and ordered a wedding gown from C, but B dies. The occurrence of the wedding was not the basis upon which both parties entered into the contract. C's enrichment is earned by labor and material expended in the ordinary course of business. 6. Swift Canadian Co. v. Banet: We do not think this is any more than a shipping direction, which the buyer could have changed to any other destination in the world, had it so desired. The seller, having performed or being ready, able, and willing to perform, was entitled to the value of his bargain. Principle purpose was somehow frustrated, must determine what the principle purpose was. Look at the facts, to determine what this is. But court thinks that this is not a substantial frustration because the pellets can go somewhere else, and the purpose of the contract is simply to sell the pelts. Buyer must absorb the effect of the event because they were not excused from performance. 7. Young v. City of Chicopee - Plaintiff contracted with defendant city to repair a bridge, the contract providing that plaintiff's compensation should be a certain sum per thousand feet for the lumber used, and that no work should be begun until material for at least one-half of the repairs should be upon the job. In compliance with this requirement, plaintiff distributed lumber along the bridge, and had used a part of it in making repairs, when the bridge and all the lumber was destroyed by fire. Held, that plaintiff was entitled to recover for the lumber which had been used, but not for that which had not. Framework for fact patterns: Overall goal is to try to figure out if one party has committed a breach or repudiation that is actionable? 1. Define the terms of the contract 1. What has been promised? 2. What duties flow from the promise? 3. look at parole evidence rule (determine impact on extrinsic evidence) 4. think about implied terms (course of dealing, course of performance, good faith) 5. think about rules of interpretation 2. Look at facts and see whether defendant failed to do what he promised to do? Or perhaps has there been a failure to perform/repudiation? 1. Assess statement in question very carefully. 3. Does the failure to perform amount to a breach? (repudiation) 1. Was the duty subject to an express condition? If there was, then you must adhere to contract. If it is not, then failure might be ok. 2. What if duty is subject to a constructive condition? Only if answer is yes would a defendant’s own duty be triggered. 1. Did this plaintiff in fact commit the first material breach? If so D has every right to suspend first performance. 3. Ask about waiver, estoppel and election. 4. Prevention + failure to cooperate 5. Impracticability + frustration of purpose, which might be enough to get D off the hook (excused or discharged). 4. If there was an actual breach, what strategies are available to injured party? III. WHAT REMEDIES ARE AVAILABLE FOR BREACH OF CONTRACT? a. Expectation, Restitution and Reliance i. ii. Expectation - Expectation damages are the usual measure of damages for breach of contract. The court tries to put the plaintiff in the position he would have been in had the contract been performed by the defendant. The plaintiff should end up with a sum equal to the profit he would have made had the contract been completed. Example – Contract Price: 5 million Payments Made: 2 million Cost of Complete Performance: 4 million Labor/materials spent: 2.5 million Labor/materials saved: 1.5 million Profit: 1 million 2. Formula A – Loss in value (3 million, from 5 million minus two million) – cost avoided [-loss avoided] (1.5 million) + other loss (incidental and consequential damages) = DAMAGES (1.5 million) 3. Formula B – Cost of Reliance (labor and materials spent so far 2.5 million) + Profit [-loss avoided] (1 million) + [other loss] – Payments made (2 million) = Damages (1.5 million) 1. Laredo Hides co. v. H & H Meat: UCC § 2-712. 2. Formula for calculating: P's expectation damages are equal to the value of D's promised performance (generally the contract price), minus whatever benefits P has received from not having to complete his own performance. a. Overhead: The plaintiff's cost of completion (the amount he has saved by not having to finish) does not include any part of his overhead b. Cost of completion or decrease in value: Where defendant has defectively performed, plaintiff normally can recover the cost of remedying defendant's defective performance. But if the cost of remedying defects is clearly disproportionate to the loss in market value from the defective performance, plaintiff will only recover the loss in market value c. Can only recover losses that P establishes with reasonable certainty. ii. Restitution - The plaintiff's restitution interest is defined as the value to the defendant of the plaintiff's performance. (Money D earned). Restitution's goal is to prevent unjust enrichment. 1. Applies usually when a. a non-breaching plaintiff who has partly performed before the other party breached may bring suit on the contract, and not be limited by the contract price (as she would be for the expectation and reliance measures); and b. a breaching plaintiff who has not substantially performed may bring a quasi-contract suit and recover the value that she has conferred upon the defendant 2. Recovering value rendered to the defendant 3. Not limited to the contract price 4. Not available where P has fully performed and D only owes money. 5. Restitution may even be awarded where P has partly performed, and would have lost money had the contract been completed iii. Reliance -are the damages needed to put the plaintiff in the position he would have been in had the contract never been iv. v. vi. vii. made. (Money P spent) Therefore, these damages usually equal the amount the plaintiff has spent in performing or in preparing to perform. They are used either where there is a contract but expectation damages cannot be accurately calculated, or where there is no contract but some relief is justifiable. 1. The main situations where reliance damages are awarded are: a. Profit too speculative b. Land contract and D fails to convey land c. Promissory estoppel 2. Limits to reliance damages a. Where D's only obligation under the contract is to pay a sum of money (the contract price), reliance damages will almost always be limited to this contract price b. Expenditures prior to signing Damages can arise in four different circumstances 1. May cause the injured party a loss by depriving it at least some of the expected return performance. Loss in value difference between the value to the injured party of what should've been received and what was actually received 2. The breach may cause the injured party loss other than loss in value, such as physical harm. Other loss 3. The breach may have a beneficial effect on the injured party by saving that party further expense that would have been incurred had performance continued. Cost avoided 4. The breach may have a further beneficial effect on the injured party by allowing that party to avoid some loss by allocating and salvaging some or all of the resources that otherwise it would have to devote to performance of the contract. Loss avoided United States v. Algernon Blair: Quantum meruit - allow a promisee to recover the value of services he gave to the def irrespective of whether he would have lost money on the contract and been unable to recover in a suit on the contract. Rule here applies in very limited circumstances. Some courts say contract price is a ceiling. Formula A: Loss in value - cost avoided [-loss avoided ] + other loss = damages Formula B: cost of reliance + profit [-loss avoided] + other loss payments made = damages. b. Limitations: Avoidability, Foreseeability, certainty i. Avoidability - (aka Duty to Mitigate Damages) - one cannot recover for damages that could have been avoided with reasonable effort and without undue risk 1. Avoid by stopping your own performance a. Rockingham County v. Luten Bridge Co. – Case where the contractor building the bridge did not stop when the county told them they no longer wanted the bridge. County had already given Luten notice that they did not wish to continue with the contract. Luten should have stopped and sued for breach of contract then instead of continuing work and increasing the amount of damage. Rule – if they could have mitigated damages, they should have done so by stopping performance. 2. Avoid by taking some kind of affirmative actions a. Parker v. Twentieth Century-Fox Film Corp. - Ptf does not have to act reasonably in turning down an offer. The reasonableness effort pertains to efforts. In this case, the two films were not the same. The second was inferior to the first, so she was justified in turning it down. If you have an employee, the measure of recovery is amount agreed upon for period of service, less the amount the employer affirmatively proves the employee has earned or with reasonable effort may have earned from other employment. However, employer does not need to take different or inferior employment. b. Measure of loss in value/Cost to remedy defect unfair forfeiture- Jacobs v. Kent (507): Ptf used different pipes than were specified in the contract. No real harm done by the use of the different brand pipes. To determine whether or not the contract must be adhered to, we must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. In general, the owner can get cost of repair as long as it’s not a gross amount. Worried here about overcompensation. c. Peevy v. Garland Coal and Mining (518): In general when the contract is fully performed and all that remains is remedial work, which is not done, then the measure of damages for breach of contract is reasonable cost of performance for the work. However, where the part breached is merely incidental to the main purpose of the contract and where the economic benefit from performance is grossly disproportionate to the cost of performance, the cost of damages will be limited to the diminution in value to the premises due to the nonperformance. ii. iii. c. 1. Groves v. John Wunder Co (513): contract to remove gravel. Def did not do what he promised to do and was paid upfront in full for the work. Just because the value of the land isn't that great, doesn't mean that def can get away with a willful breach of K. This is not an economic waste case because there is no structure and therefore nothing to tear down. Shows courts can be offended, when you’re not sure which measure is best. 2. Foreseeability - objective. Damages are available when, at the time of making the contract, the party who ultimately breached reasonably should have realized that those damages would be a likely consequence of the breach. Look to extend of information conveyed. If you’re looking at foreseeability you must pin point the moment of formation because you must determine what was known at the time the contract was formed. 1. Hadley v. Baxendale - mill, failure to deliver part. Held that damages for breach may only be recoverable if one of two conditions is satisfied: either the loss must be one that may fairly and reasonably be considered to arise naturallyin the ordinary course of things from the breach, or it must be one that may reasonably be supposed to have been contemplated by the parties at the time of contract as a reasonable consequence of breach = § 2.715, RS § 351. Certainty - the plaintiff by preponderance of the evidence must prove the fact and extent of her loss. First prove injury and then prove the amount of loss. Reasonable profits or reasonable losses must be proved. 1. Griffin v. Clover: damages for breach of contract must be shown, by clear and satisfactory evidence, to have been actually sustained and be shown with certainty, and not left to speculation or conjecture. 2. Fera v. Village Plaza, (537): Difficult to determine lost profits if it's new business. Cts have allowed juries to determine lost profits on a new business if there is a significant amount of evidence supporting the claim. Evidence must be more than speculation. In this case, the jury had ample evidence to make a decision. Punitive Damages i. Punitive damages - deliberately and maliciously injured the plaintiff. Intended to punish. ii. iii. d. UCC § 1-106 - Punitive damages granted for tortuous conduct that is sufficiently outrageous to justify punishment. Fraudulent conduct or by an independent tort sufficiently outrageous to justify such damages. Generally you do not get damages for NIED. But there are special cases where emotional distress is likely, then only can you get damages. Case says that sometimes it might be better to get better damages. That is very misleading because Idaho is a very rare jurisdiction that where the circumstances are truly damages, you might get punitive damages. Liquidated Damages i. ii. iii. iv. Liquidated Damages - setting in advance what damages will be due in the event of a breach. Recovery limited to the amount agreed. Discourage breach by penalty. Cannot be a forecast of probable loss. This sometimes ensures there is a set remedy, benefit to the parties and Courts in being able to uphold clauses that set damages. Damages are very hard to measure or uncertain, so parties insert this clause into the K that has the beneficial purpose of ensuring that the injured party will have some remedy. Three prong test to see if it is an invalid penalty clause v. a valid liquidated damages clause UCC 2-718 1. Is there a need for liquidated damages? 2. Parties make a reasonable effort to fix compensation. Goes to the motive. They're not trying to penalize, they're trying to come up with something that is fair. 3. Amount estimated is not disproportionate. Needs to be a pretty good estimate that is a reasonable relation to what the damages probably would be in the event of a breach. Need some ability to figure out what actual damages might look like - - do this in your analysis – explain what actual damages might be. Traditional view - the reasonableness of the clause is to be viewed as of the time of contracting. Two consequences of this 1. if the clause is a reasonable forecast viewed as of this time, the clause will be enforceable even though it turns out that the Ptf has actually suffered must less damage than the liquidated amount 2. if the clause sets an amount which is viewed as of the time of contracting, unreasonably large, the clause will not be saved by the fact that Ptfs damages have turned out to be very large. a. Dave Gustafson & Co. v. State (552): Case where the highway construction has been delayed 67 days, the provision in the contract is 210 per day, thus the v. vi. vii. viii. ix. x. xi. e. contractor owed damages of 14k+. This is reasonable, as damages were hard to measure. The provision in question must be considered to be one of liquidated damages rather than a penalty clause for the follow reasons. 1. damages for delay in constructing a new highway are impossible for measurement. 2. The amount stated in the contract as liquidated damages indicates an endeavor to fix fair compensation for the loss, inconvenience, added costs, and deprivation of use caused by delay. Hypo regarding Gustavson Case – things you should have asked for: the difference between what they pay for substitute rental & Contract rental, moving expenses and cost of finding new location (incidentals) and lost profits (consequential damages). UCC § 2-718. Modern view - only an amount that is reasonable that is anticipated or actual harm. You have two chances to meet this prong of the test by looking at the time of contracting OR in light of actual damages that have occurred. Slight easing up of the test (RS§ 356 takes this same provision). anticipated harm - evaluation of the liquidated damages as at the time of contracting (the more easier to calculate damages, the stricter the scrutiny by the court). Or actual harm - comparisons between anticipated and actual loss (if actual damages are not capable of relatively definite assessment, then tends to reinforce the validity of liquidated damages. So under the modern view, a clause which is an unreasonable forecast (viewed at the time of contracting) can still be saved if it turns out that the Ptfs damages are unexpectedly high, and therefore in line with the clause. Whether liquidated damages clause overcompensate the tenant. Technically there is no reason that you couldn't apply the test. However, you look at 2-718 which adds the sentence that if its unreasonably large its void. Does that mean one that is unreasonably small is ok? The word "penalty" does not automatically mean a penalty clause. Legal v. Equitable Remedies i. ii. Matter of history, for the distinction between legal and equitable remedies. Most likely to get a legal remedy now, judgment for damages that substitutes for actual performance. Specific Performance- best for unique property or contracts. Reasons not give specific performance 1. easier to award damages 2. harsh to force the defendant to perform 3. personal services could equal to involuntary servitude 4. practicality of iii. iv. v. vi. enforcement/supervision 5. contract is not definite enough 6. may be a partial remedy. 6. The plaintiffs return performance Injunctions - negative order prohibiting 1. Walgreen Co v. Sara Creek Property (465): Def promised not to lease to another store owner. Def was about to lose its anchor store, so def thought that Phar-Mor was going to be a good anchor. Start with a temporary injunction and work your way up to a permanent injunction. Std of proof gets to be tougher as you go up. This could be an efficient breach if there was enough money coming in for Phar-Mor to offset the loss to Walgreen and still be profitable to def. This is why you don't get an injunction when damages are adequate. Damages allow the efficient breach to go forward. Injunction stops the efficient breach and may lead to an inefficient outcome in the end. Eventually Posner decides on an injunction because damages are so hard to calculate and really aren't going to provide the best remedy in this case. For sale of goods, UCC §2-716 because goods are fungible and so most of the time damages are adequate. UCC §2-716 is very vague. What is unique? Not many goods are unique, so you have to go to other proper circumstances. Laclede Gas Co. v. Amoco Oil Co. (458): In this case, the ptf could cancel only after one year, that's enough consideration for it to not be an illusory promise. Amoco that argues that mutuality makes the contract invalid, this is not a valid K rule, but the trial court rules that it’s an illusory promise, appeals court reverses because Laclede is bound for at least a year. Appellate court says an injunction is appropriate here because one of the standards is you can recover the goods. L has the means of getting the gas from somewhere else. But with alternative suppliers is that they can run out, you have to look whether the substitute is good enough and the court says that it is not. There is no guaranty that the substitute companies would supply on a regular basis. Requirements contract and say that it is unique because you can’t get that deal anymore when the world has experienced the energy crisis. Equitable Relief is discretionary with the court. Discretion regarding adequacy of consideration (all it has to be is a bargain, even if consideration is next to nothing), but court has the right to say they don’t like the deal. Must come to court with clean hands, you have to look like a good person with respect to this particular contract, regarding how you’ve behaved with your contract partner this time. If contract looks at all one sided or oppressive, you don’t have clean hands. Also issues of practical problems: certainty (must know what was promised), Supervision, if you’re talking vii. IV. about having a court issue an order to operate over a period of time, then you’re talking about ongoing court supervision. Can’t contract into equitable relief if usual requirements weren’t satisfied. However, if you put the provision Into the contract, after foreseeing that it might be a problem, or if you can’t estimate damages with certainty, you might want to include this as well. ARTICLE TWO PERFORMANCE AND REMEDIES a. Perfect Tender Rule i. ii. iii. iv. v. vi. vii. viii. Rule: Obligation of the seller: The seller must tender goods conforming in every respect to the contract. If tender is not perfect, unless otherwise agreed, the buyer may reject the whole, accept the whole or accept any commercial unit or units and reject the rest. Exceptions to the Rule: 1. "unless otherwise agreed" - the express terms of the contract may restrict the perfect tender rule; for example, it may provide that the seller's obligations are limited to replacement of defective items. A trade usage that constitutes an implicit term of the contract may be inconsistent with the perfect tender rule. If the contract makes time of the essence, ordinarily any lateness will be considered a material breach. Otherwise, a reasonable delay will not be considered a material breach. In the case of contract for the sale of goods, however, the UCC makes time of the essence except in the case of installment contracts. If the goods were rejected, and the time for performance has not expired, the seller may cure the defect. §2-508 §2-508: Cure by the seller of Improper tender or delivery; replacement. Cure (UCC §2-508(1)) within the contract time - if non conforming goods delivered and time for performance not yet expired, S may notify B the intention to cure and make a conforming delivery. A further reasonable time (UCC 2-508(2)) - B rejects non conforming goods which the seller had reasonable grounds to believe would be acceptable with or without a money allowance, the S may notify the buyer, and have a further reasonable time to substitute conforming goods. §2-513: Buyer's right to Inspection of Goods, (1) buyer has a right to inspect goods, (2) buyer bears the costs of inspection. "Perfect tender" rule: UCC § 2-601 says that as long as the contract does not involve installments (i.e., multiple deliveries), "Unless otherwise agreed ... if the goods or tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject ix. x. xi. xii. the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest." On its face, this section seems to impose the "perfect tender" rule - that is, it seems to give the buyer the right to cancel the contract, and refuse to pay, if the goods deviate from the contract terms in any respect, no matter how slight. In this area, rejection is in and of itself a remedy. If there’s a part of the contract that stipulates that the seller can have a chance at replacing items, etc. Then rejection might not be an option. §2-612: Installments Contract: Breach - (1) installment contract means separate lots, (2) buyer can reject any non conforming lot if it substantially impairs its value (3) whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. Hard to know when there has been a breach of the whole. But the aggrieved party reinstates the contract if he accepts a nonconforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments. The perfect tender rule does not apply to installment contracts. When a non-conformity with respect to one or more installments substantially impairs the value of the whole contract the buyer is justified in rejecting the delivery in question and canceling the whole contract. However, if the non-conformity of an installment substantially impairs the value only of the installment, the buyer must accept the installment if it can be cured and seller gives adequate assurance of its cure. If the seller cannot or does not assure its cure, the buyer may reject the installment. Improper shipment (§2-504) - in a shipment contract, the seller is obligated to make a reasonable contract with a carrier for transportation and give prompt notice of shipment to the buyer. These obligations are not subject to the perfect tender rule. A buyer may reject because of breach of these obligations only if material delays or loss ensues. When dealing with a goods problem: 1. Know what the terms of the contract are (as to what are or are not conforming), 2. Once you decide what is or is not conforming, you might be in a position to walk away. 3. Worry about prospect to cure (2-508 analysis) because seller does not always have a universal right to cure. Issues also as to what type of cure you have to accept. 4. Finally, if you do look at a fact pattern and realize you have an installment contract, then 2-612 applies, and think of it in conjunction with 2-609. xiii. xiv. xv. Cherwell-Ralli, Inc, v. Rytman Grain Co. (241W): Seller to make installment of goods each month except buyer doesn't pay, he defaults. Then buyer thinks that seller is not going to give goods no more so he asks for assurance and then cancels payment on its own check. At all times the buyer had received all the goods which it had ordered. The buyer could not rely on its own nonpayments as a basis for its own insecurity. Wilson v. Scampoli (214, whaley): color television, minor repairs or reasonable adjustments are frequently the means by which an imperfect tender may be cured. "The seller then should be able to cure the defect under 2-508(2) in those cases in which he can do so without subjecting the buyer to any great inconvenience, risk or loss. The seller was never given the adequate opportunity to make a determination. Shaken faith doctrine - once faith is shaken, loses not only its real value in their eyes, but becomes an instrument whose integrity is substantially impaired and whose operation is fraught with apprehension. b. Rejection or Acceptance – of goods, event which, if it occurs, triggers consequences. Must determine accurately whether acceptance has occurred. i. §2-602: Manner and Effect of Rightful Rejection. (1) Rejection of goods must be within a reasonable time after their delivery or tender and with prompt notice to the seller. (2)(a) After rejection any showing of ownership by the buyer with respect to any commercial unit is wrongful as against the seller and (b) If buyer has physical possession of goods before rejection he is under a duty after rejection to hold them with reasonable care, (c) buyer has no further obligations with regard to goods rightfully rejected. ii. The buyer may "reject" any non-conforming delivery from the seller. As noted, in theory this right exists if the goods deviate in any respect from what is required under the contract. But the buyer's right of rejection is subject to some fairly strict procedural rules. 2-604 – gives options for a (merchant) buyer regarding what they can do with non conforming goods. iii. §2-605: Waiver of Buyer's Objections by Failure to Particularize. (1) Buyer's failure to state in connection with rejection a particular defect, which would have been reasonably ascertainable by inspection, precludes him from relying on the unstated defect to justify rejection to establish breach (a) where the seller could have cured the it if stated seasonably; or (b) between merchants when the seller has made a request in writing for full and final written statement of all defects. iv. Acceptance (UCC §2-606) - once goods have been accepted, rejection is no longer possible, although revocation of acceptance may be an available alternative. Three ways to have acceptance: 1. express acceptance 2. failure to make an effective rejection 3. acts’ inconsistent with the seller's ownership (change the goods in any way). v. §2-606: (2) Acceptance of a part of any commercial unit is acceptance of that entire unit. vi. §2-607: Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over. 1. Buyer must pay at the contract rate for any goods accepted. 2. Acceptance of goods precludes rejection of the goods accepted. 3. Buyer must notify seller of a breach within a reasonable amt of time. 4. Burden is on the buyer to establish any breach with respect to the goods accepted (acceptance shifts burden of proof to buyer). 5. Where buyer is sued for breach of warranty or other obligation, he may give seller written notice of the litigation, if the claim is for infringement the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement. vii. If the goods are defect in any respect, the buyer is entitled to reject the entire shipment, reject only the defective goods, or accept the whole. Cts have often applied the doctrine of substantial performance to limit a buyer's right to rejection. viii. The parties can "otherwise agree" i.e. provide an arrangement other than rejection for defective goods ix. §2-601: distinguishes rightful v. wrongful rejection x. §2-602: distinguishes effective v. ineffective rejection xi. A buyer is entitled to a reasonable trial-use period to see if the goods conform. xii. On acceptance, the burden of proof as to defects shift 1. Ramirez v. Autosport: The UCC preserved the perfect tender rule to the extent of permitting a buyer to reject goods for nonconformity. Nonetheless, that rejection does not automatically terminate the contract. A seller may still effect a cure and preclude unfair rejection and cancellation by the buyer. c. Revocation i. Revocation of acceptance: Even if the buyer has "accepted" the goods, if he then discovers a defect he may be able to revoke his acceptance. If he revokes, the result is the same as if he had never ii. iii. iv. v. vi. vii. accepted - he can throw the goods back on the seller and refuse to pay Revocation vs. rejection: The buyer who wants to revoke an acceptance must make a stronger showing of non-conformity than the buyer who rejects - the revoker must show that the nonconformity "substantially impairs" the value of the goods, whereas the rejecter must merely show that the goods fail to conform "in any respect." On the other hand, a buyer probably gets more time to revoke than to reject Revocation of acceptance (UCC §2-608) - the buyer may revoke acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to the buyer provided 1. the goods were accepted on the reasonable assumption that the seller would cure and has not been seasonably cured (grounded on material breach) or acceptance was reasonably induced by the difficulty of discovery or by the seller's assurances. After the buyer has accepted under §2-606 1. There is no right of rejection 2. Revocation of the acceptance is valid only if the nonconformity substantially impairs the value of the goods to him and takes place within a reasonable time. §2-608 If the buyer does not want the goods, but wants the return of the price, the proper UCC method is called revocation of acceptance. Buyer not only recovers price, but may recover consequential damages as well. Can only be used when the nonconformity substantially impairs the value of the goods to the buyer. (so you have to look at the particular needs of the buyer) §2-608: Requirements for revocation of acceptance 1. Burden of proof is on the buyer 2. Buyer must prove an "excuse" for the acceptance of the goods which can be either that he accepted the goods on the reasonable assumption that the nonconformity would be cured and it has not been or that his acceptance was reasonably induced by the difficulty of discovery of the defects or by seller's assurances 3. Buyer must prove that there was a nonconformity in the goods which substantially impairs their value to him 4. Buyer must give notice of revocation of acceptance within a reasonable time after the buyer discovers or should have discovered the grounds for revocation and before any substantial change in the condition of the goods that is not caused by their own defects. Similar to rejection, buyer in essence disclaims the goods. However in rejection, you can reject if the goods "fail in any viii. V. respect"; to revoke an acceptance, the buyer must show that the defect "substantially impairs the value" of the goods. Rester v. Morrow: Rester's entitlement to revocation, however, turns upon whether, under the totality of the circumstances temporarily and structurally - the automobile failed to be what the seller said it was by what public and private law obligated to provide Rester and whether that aggregate nonconformity substantially impaired the value of the automobile to Rester. Substantial impairment is determined by reference to the particular needs of the buyer, even though the seller may have no knowledge of those needs and even though those needs may change after the acceptance of the automobile. REMEDIES UCC: a. Remedies available at common law: i. ii. iii. iv. v. vi. vii. Expectation Damages - damages which would have been received if the K had been performed. Reliance Damages - measured by the amount of money necessary to compensate the innocent party for expenses or loss incurred in reasonable reliance upon the K that was breached. Restitution - required the defendant to disgorge the money value of the benefit that the defendant received from partial performance of the contract. (value conferred on the D). Stipulated Damages - (liquidated damages) - the fixed amount specified in the K. Interest - if the contract provides for interest and the sum specified does not violate local laws relating to the usury, interest will be calculated in accordance with the K terms and added to the damages awarded. Punitive Damages - (exemplary damages) - designed to punish and make an example. Specific Enforcement - order compelling the breaching party to complete the K performance. b. §2.703 Seller's Remedies in General i. Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract, then also with respect to the whole undelivered balance, the aggrieved seller may 1. withhold delivery of such goods 2. stop delivery by any bailee as hereafter provided (2-705) 3. proceed under the next section respecting goods still unidentified to the contract 4. resell and recover damages as hereafter provided (2-706) 5. recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2-709) 6. cancel VI. Seller's Pre-Litigation Remedies a. §2-703 Seller's remedies in general, §2-706 Sellers Resale including contract for resale, §2-708 Sellers damages for non-acceptance or repudiation, §2-709 action for the price, §2-710 seller's incidental damages. b. right to withhold delivery or demand cash - UCC: 2-703(a) - when the seller has not been paid for goods she has in possession, she may withhold delivery if the buyer i. wrongfully rejects ii. rescinds iii. fails to make payment when due or iv. anticipatorily breaches the contract. c. right to resell goods - when the seller is in possession of goods which the buyer has refused to accept, she may resell them and then sue the buyer for any loss sustained by such resale. The code provides that the seller can recover in such instance as damages, the difference between the resale and the contract price, less any expenses saved in consequence of the buyer's breach. UCC: 2-706(1). d. cancellation - the seller may cancel the contract for the buyer's breach (UCC: 2-703(f)), retaining any remedy for breach of the whole contract or any unperformed balance. UCC: 2-106(4). VII. Seller's litigation Remedies a. action for full purchase price - if the seller has delivered possession of the goods (buyer must have accepted them) and the buyer has failed to pay, the seller may sue for the full purchase price. If the seller has possession and the buyer breaches, the seller is generally limited to her action for damages, ex, she must resell the goods and then sue the buyer for any on the resale. If buyer has rejected the goods, even where rejection is wrongful, seller cannot sue for entire purchase price because seller is in better position to take care of the situation/resell items. Some question when you have acceptance and then revocation of acceptance, so that revocation is wrongful. Fact that it is wrongful, does not mean seller can get the price because of 2-709(3). UCC: 2-709(1)(a) i. ii. Risk of loss: Second, if the risk of loss has passed to the buyer, and the goods are lost in transit, the seller may sue for the entire contract price. (Example: As per the contract, Seller ships goods "F.O.B. Seller's plant." The goods are destroyed while on the trucking company's truck. Seller can sue for the whole price; Buyer's remedy is against the trucker.) Buyer can be made to pay for goods even though they’ve been destroyed. Unresaleable goods: Lastly, if the seller has already earmarked particular goods as being ones to be supplied under the contract, and the buyer rejects them or repudiates before delivery, seller may recover the entire contract price if he is unable to resell them on some reasonable basis. Most commonly, this applies to perishable goods and custom-made goods b. Contract/resale differential: Normally, the seller will resell the goods to a third party. Assuming that the resale is made in good faith and in a "commercially reasonable" manner (either private or public sale will do as long as every aspect is commercially reasonable, unreasonable is too low resale price. If private sale just give buyer notice you’re reselling. If public sale, i.e. auction, this often drives up the price with other bidders, so notice to buyer is required including time and place of resale), seller may recover the difference between the resale price and the contract price, together with incidental damages. §2-706(1) c. Contract/market differential: If the seller does not resell the goods, he may recover from the breaching buyer the difference between the market price at the time and place for delivery, and the unpaid contract price, together with incidental damages. § 2-708(1). (Probably a seller who has resold the goods may not use this contract/market differential, but must use the contract/resale differential.) Most contracts are shipment contracts. Where fact pattern gives you d. Kprice - resale price + incidentals -expenses saved 2.706 e. Kprice - market price - Incidental -expenses saved 2.708(1) f. Lost profits: The contract/resale differential (for a reselling seller) and the contract/market differential (for a non-reselling seller) may not make the seller whole. Where this is the case, § 2-708(2) lets the seller recover his lost profits instead of using either of these differentials. g. Profit + Incidentals + Cost Incurred – Payments – Proceeds of Resale = i. Profit is: K Price – Expenses = Profit ii. When you’re thinking about expenses, do not subtract prorated overhead, because profit would be going down, because it’s difficult to ascertain what overhead is, typically it’s the fixed expenses. iii. In lost volume issue then you do not subtract proceeds of sale otherwise you will negate the UCC section. iv. "Lost volume" seller: Most importantly, this means that the "lost volume" seller may recover the profit he has lost by reason of the h. i. j. k. VIII. breach. In the usual case of a seller who has resold the item, a "lost volume" seller is one who 1. had a big enough supply that he could have made both the contracted-for sale and the resale (could they have made this sale); 2. probably would have made the resale anyway as well as the original sale had there been no breach; and (have solicited this person that would have bought) 3. would have made a profit on both sales. Where the goods are standard items, both measures 2-706 and 2-708 will generally be the same; a large disparity between the two methods of measuring damages may indicate that the seller has not acted reasonably in reselling the goods and she may be precluded from recovering anything beyond the difference between the K and the market price. Where the damages determine under either of the above methods are inadequate to place the seller in as good a position as she would have been if the buyer had performed, then the seller may also recover lost profits and incidental damages. UCC: 2-706(1), 2-708(1), 2-708(2). However, the seller must always deduct from her damages any expenses saved in consequence of the buyer's breach. Where seller does not comply with 2-706, they don’t have the right to ask for the remedies under 2-706. Rational though is to go to the amount actually damaged. Compensation is the general idea, not overcompensation or punishment. §2-710 - seller's incidental damages - incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach. Where seller resells for less money, the seller can recover under 2-706 so long as they’ve complied with everything else. If Buyer has accepted goods, he has to pay to contract price under 2-709. If seller has breached the contract, they can recover under 2-714. Buyer's Pre-litigation Remedies a. §2-711 Buyer's remedies in General, 2-712 Cover Buyer's Procurement of Substitute Goods, §2-713 - Buyer's damages for non-delivery or repudiation, §2-714 Buyer's damages for breach in regard to accepted goods, §2-715 Buyer's incidental and consequential damages, §2-717 deduction of damages from the price, §2-719 contractual modification or limitation of remedy. 1. 2-714 – 1. Where the buyer has accepted goods and given notification (subsection 3 of 2-607) he may recover as damages for any non conformity of tender the loss resulting in the ordinary course of events from the sellers breach as determined in any manner which is reasonable 2. The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been warranted, unless special circumstances show proximate damages of a different amount. 1. Goods as warranted – goods accepted + incidentals + consequentials = 2. 2-715 – describes consequentials and incidentals – 1. Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expenses incident to the delay or other breach 2. Consequential damages resulting from the sellers’ breach include 1. any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise and 2. injury to person or property proximately resulting for any breach of warranty. b. Revocation of Acceptance - where goods delivered fail to conform to the contract, the buyer may reject them §2-601, though when the buyer accepts nonconforming goods, he must pay for them at the K price. However, if the defects are substantial, the buyer may revoke his prior acceptance §2-608(1). c. Sales of non-conforming goods - the buyer may sell nonconforming goods to recover prepayments. The Code gives the buyer a security interest in the goods for his prepayment and provides that if the buyer offers to restore the seller's goods and demands repayment of the price paid, and the seller refuses, the buyer may sell the goods. §2-711(3). d. Cover - the buyer has the right to go into the market and purchase substitute goods if the seller delivers non-conforming goods or fails to deliver. The buyer may then (after covering) sue the seller for any excess of the cover price over the K price, even if the cover price is more than the market. §2-712(1). 1. Cover: The most important is her right to "cover," i.e., to buy the goods from another seller, and to recover the difference between the contract price and the cover price from the seller. § 2-712(2). The buyer's purchase of substitute goods must be "reasonable," and must be made "in good faith and without unreasonable delay." § 2-712(1). 2. Cover price – contract price + incidentals + consequentials – expenses saved (if there are any) e. Setoff - the buyer has the right to deduct from his payments any damages incurred as a result of the seller delivering nonconforming goods. UCC: 2-717. f. Capture - if the buyer has paid for goods and the seller is or has become insolvent, the buyer may capture the goods for which he has paid (in a manner similar to the seller's reclaim remedy) UCC: 2-502. Also, where the seller is solvent but repudiates the K, the buyer may, by tendering the full price of goods identified to the K, demand that the seller turn them over to him. UCC: 2-711(2)(a). This is similar to replevin and specific performance; if the seller refuses to turn over the goods, the buyer obviously will have to resort to litigation. g. 2-713 – Buyer’s Damages for Non-delivery or repudiation 1. Market Price – Contract Price + incidentals + consequentials – expenses saved 1. Subject to the proof of the market price (2-723), the measure for damages for non-delivery or repudiation by the seller is the difference between the market price, this is the price at the time the buyer learned of the breach, and the contract price together with any incidentals and consequential damages provided in this Article (section 2715), but less expenses saved in consequence of the seller’s breach. 2. Market price is to be determined as of the place for tender (most contracts are shipment contracts, and tender would be point of shipment) or in case of rejection after arrival or revocation of acceptance, as of the place of arrival. IX. Buyer's litigation remedies a. action for damages for non-delivery or repudiation - when the seller fails to deliver the goods asked for, the buyer who has covered may recover the difference between the cover price and the K price UCC: 2-712(2) or if the buyer does not cover, as an alternative, may recover the difference between the K price and the market price at the time and place the buyer learned of the breach UCC: 2-713(1). In addition, the buyer may recover incidental and consequential damages UCC: 2-715. i. Time of breach: Typically, the buyer "learns of the breach" (setting the time for measuring the market price) at the time the breach in fact occurs (either through non-delivery or through receipt of defective goods). But if the breach takes the form of a repudiation in advance of the time for performance, most courts ii. hold that the market price is to be measured as of the time the buyer learns of the repudiation. Probably not available to covering buyer: Probably the buyer may recover the contract/market differential only where she did not cover. This means that if the market price declines between the time the buyer learns of the breach and the time he covers by buying substitute goods, the buyer can't get a windfall - limiting him to the contract/market differential puts him in the same position he would have been in had the contract been fulfilled, not a better one. b. damages for breach of warranty - where the seller breaches the warranty applicable to the goods, the buyer may recover for the loss in value of goods because of the breach, plus incidental and consequential damages. c. limitation of remedies - the UCC provides that the parties may by agreement alter or limit the remedies otherwise provided in the Code. Typical of such provisions are liquidates damages clauses, clauses limiting or excluding incidental and consequential damages, and clauses disclaiming or limiting express and implied warranties UCC: 2-718, 2719. Such clauses are subject to strict construction by the courts and, if they prove unconscionable or cause the contract to fail of its essential purpose, will be held of no effect, restoring to the aggrieved party under the contract all the remedies which otherwise would have been available under the UCC with the objectionable clauses. X. What Roles do Third Parties Play in Contract a. Assignment: When a party to an existing contract transfers to a third person her rights under the contract, she has made an assignment. i. ii. iii. Present transfer: An assignment is a present transfer of one's rights under a contract. Thus a promise to transfer one's rights in the future is not an assignment, even though it may be a contract. No consideration: Because an assignment is a present transfer, no consideration is required for it (just as no consideration is required for a present gift). An assignment is a three-part transaction. The "assignor" assigns to the "assignee" the performance due the assignor from the "obligor." iv. b. Delegation: When an existing party appoints a third person to perform her duties under the contract, she has made a delegation. c. Combination: Frequently, an existing party will both assign and delegate. That is, she will both transfer her rights to a third person, and appoint the latter to perform her duties. But don't presume that where there is an d. e. f. g. h. assignment, there is necessarily a delegation, or vice versa - there will often be just an assignment, or just a delegation The most important question about third party beneficiaries is: When may the third party beneficiary sue the promisor on the contract? The modern rule, exemplified by the Second Restatement, is that "intended" beneficiaries may sue, but "incidental" beneficiaries may not sue Intended beneficiaries may sue: "Intended beneficiaries" fall into two categories i. Payment of money: First, a person is an intended beneficiary if the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary. This is sometimes called a "creditor beneficiary." ii. Intended beneficiary: Second, a person will be an intended beneficiary if the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. A person may fall into this class even if the purpose of the promisee is to give a gift to the beneficiary (in which case the beneficiary is sometimes called a "donee beneficiary"). But intent to make a gift is not necessary - a beneficiary may fall into this "intended beneficiary" class even if the promisee's purpose is not to make a gift, but rather to fulfill some other business objective Incidental beneficiaries: A beneficiary who does not fall into the above two classes is called an "incidental" beneficiary. An incidental beneficiary may not sue the promisor. Public contracts: When government makes a contract with a private company for the performance of a service, a member of the public who is injured by the contractor's non-performance generally may not sue. (Example: City contracts with Water Co. to supply water for fire hydrants. P's house burns down when Water Co. does not give adequate hydrant pressure. Held, P is not an intended beneficiary of the City-Water Co. contract, and therefore may not recover. [H.R. Moch & Co. v. Rensselaer]) Exceptions: But there are two exceptions - a member of the public may sue: i. if the party contracting with the government has explicitly promised to undertake liability to members of the public for breach of the contract; or ii. if the government has a duty of its own to provide the service which it has contracted for. (Example: City contracts to have its street-repair duty picked up by Contractor. A member of the public who is injured when the street is improperly maintained may sue Contractor). XI.What Roles do Third Parties play in Contract? i.Third Party Beneficiaries 1. Rs(2d)s302 – 1. Unless otherwise agreed between promisor and promisee, and a beneficiary of a promise is an intended beneficiary of recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either a. The performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary or b. The circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. 2. An incidental beneficiary is a beneficiary who is not an intended beneficiary. Lawrence v. Fox – establishes a simple example regarding diagramming transactions. 1. SEE DIAGRAM iii. Olson v. Etheridge – Court held Olson was a third party beneficiary, but they were an incidental beneficiary. iv.Assignment and Delegation 1. Assignment – contract rights are assigned for value, occasionally as gifts. This is the present transfer of an existing right to a third person. It is a completed transaction, a property transfer. You must make it clear, that you’re assigning your right so people have sense of what you’re doing. 1. Must be the intent to transfer 2. Must be present intent to transfer (because many purported assignments are only promises). 3. Contract right being assigned has to exist now. 2. Rs(2d)s 317 – Assignment of rights – 1. An assignment of a right is a manifestation of the assignors intention to transfer it by virtue of which the assignor’s right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance. 2. A contractual right cal be assigned unless ii. a. the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, (if it could increase the burden, i.e. or b. the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or c. assignment is validly precluded by contract 3. Rs(2d)s 318 – Delegation of Performance of Duty – 1. An obligor can properly delegate the performance of his duty to another unless the delegation is contrary to public policy or the terms of this promise. 2. Unless otherwise agreed, a promise requires performance by a particular person only to the extent that the oblige has a substantial 4. UCC 2-210 – Delegation of performance, Assignment of Rights – 1. A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach. 2. Except as otherwise provided in Section 9-406, unless otherwise 5. Consequences of Assignment – 1. C/L Rule – unless or until A get notice that performance should be rendered to C, he can obtain a discharge as against C (if he’s contracted with B, B assigned right to C, A pays B, if there’s been no notice, C cannot collect against A, if there has been notice, then they can collect against A, depending on the rule). 2. C is subject to the same defense as B would, thus, if B commits fraud in an agreement with A, and the contract is voidable at A’s option, then it is voidable if assigned to C. 6. Delegation – you give someone else the power to perform your duty for you. Delegation, is where there’s a promise to perform the obligation, delegate has assumed the obligation and they have the duty. Delegor still owes the duty, he’s just counting on the delegate to perform for him. Novation can take the delegor off the hook, but oblige must agree to release delegor from the original agreement. Must be more than just consenting to delegates performance, you must agree to release delegor. You don’t need magic words, but you need language that is clear and easy, use assign words delegate. If you intend both, make sure documents say that explicitly. 7.