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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.