Contracts 2 Outline2

7/30/2019 Contracts 2 Outline2

1/16

4/9/2005Revision 0.1

Author: Philip Larson

Contracts II: Outline


2/16


Table of Contents

TRACTS II: OUTLINE...................................................................................................3

EGULATING THE BARGAINING PROCESS................................................................31 UNCONSCIONABILITY..............................................................................................3STAKE & EXCUSE.................................................................................................... ....41 MISTAKEN FACTS: EXCUSE BASED ON MISTAKE.............................................42 MISAKEN FACTS: MUTUAL MISTAKE & REFORMATION.................................43 IMPOSSIBILITY: TRADITIONAL IMPOSSIBILITY ................................................54 COMMERCIAL IMPRACTICABILITY: MODERN EXCUSE DOCTRINE..............65 FRUSTRATION OF PURPOSE....................................................................................7

ONDUCT CONSTITUTING BREACH............................................................................81 ANTICIPATORY BREACH.........................................................................................8

EMEDIES............................................................................................................... .........101 REMEDIES: EXPECTATION DAMAGES................................................................102 REMEDIES: SPECIFIC PERFORMANCE.................................................................113 REMEDIES: RELIANCE DAMAGES........................................................................124 REMEDIES: RESTITUTION......................................................................................12

5 REMEDIES: PUNITIVE DAMAGES.........................................................................136 LIMITATIONS ON COMPENSATION: CERTAINTY.............................................137 LIMITATIONS ON COMPENSATION: FORESEEABILITY...................................138 OTHER........................................................................................................................ 13

Philip Larson Page 2


3/16


1. CONTRACTS II: OUTLINE

REGULATING THE BARGAINING PROCESS

UNCONSCIONABILITY

Adhesion Contract: an imprecise term used to describe a document containing non-bargained for clauses in fine print, complicated, andxceptionally favorable to drafter. Non-drafter typically has little bargaining power.

Contract can be avoided if

a. 1. contract is an adhesion contractb. 2. contract is unconscionable

Procedural vs. Substantive Unconscionability

a. Procedural: party is induced to enter Kwithoutmeaningful choice, orhidden, deceptive terms.b. Substantive: K itself is unduly unfair not the process of arriving at the K. Usually unreasonably favorable and shocks the consci

i. NOTE: some Cts find that extreme Sub. Unc.proves Proc. Unc.

Unconscionability Elements

a. 1. Unreasonable terms (taking advantage of consumer; shocks the conscience)

b. 2. Injusticec. 3. Absence of choiced. NOTE: Unc. is often a losing argument. Know how to defend against it.

Remedies for unconscionability

a. Refuse to enforce clause:just strike the offending clauseb. Reformation: modify offending clausec. Refusal to enforce whole contract: rare.

UCC 2-302: if ct. finds K or clause in K is so unfair as to be unconscionable, it may enforce remainder of K, or limit K as to avoid uncoesult.

Cases

a. COMMON LAW: Williams v. Walker-Thomas Furniture Co. (poor woman must pay for all Ks before she owns anything)i. FACTS: Ms Williams cant read and on welfare enters into rent-to-own K where she owned nothing until shed paid for e

ii. RULE: Ct. found K was unconscionable under common law because there was absence of meaningful choice (limited coptions, semi-monopolistic power) and the K terms were unreasonably favorable to one party (e.g.shocks the consciencsurprise terms)

b. UCC: Seabrook v. Commuter Housing Co. (apartments not complete rent starts when building is ready)

i. FACTS: P agrees to rent apartment. Building construction is late and P tries to get out. Construction clause says he canii. RULE: Ct. finds clauses unconscionable and says 2-302 (protecting against unfair surprise) applies by analogy. Landlo

affirmative duty to set forth a reasonable time limit and to bring the construction clause to Ps attention.

c. UCC: Henningsen v. Bloomfield Motors, Inc. (car dealers in semi-monopoly have limited warranty clause)

i. FACTS: P bought car and signed pre-printed order form limiting warranty. Any other warranties express or implied wer

disavowed.ii. RULE: Clause found to be unconscionable. Buyer unjustly taken advantage of. Buyer could not negotiate for better prSemi-monopoly. Clause was hidden and deceptive.

EXTRINSIC EVIDENCE

i. CASE: Frigaliment Importing Co. v. B.N.S. International Sales Corp. (meaning of chicken)

1. FACTS: P and D enter into K for chickens but each has a diff meaning (stewing vs. broiling chickens). K saidbe gov. inspected chickens, so ct. uses regulations as dictionary.



4/16


2. RULE: Stands for proposition that you allow in usage of trade to define ambiguous terms. However, this case likePeerless in which there probably wasnt a meeting of the minds.

UCC - UCC 2-202: rejects common law PMR and ambiguity requirement for admission of extrinsic evidence of the meaning of a term. ven a fully integrated document may be explained or supplemented by usage of trade, course of performance and course of dealing as longonsistent with the terms of the final writing.

a. UCC 2-202 (comment) - Certain Inclusion Test - Under UCC almost all Ks are partially integrated

b. CASES

a. Columbia Nitrogen Corp. v. Royster Co. (K with ceiling but no floor; argument over minimum)

i. FACTS: P was long-term customer of D but in this K D was a customer of P. D agreed to buy a minimum at set pricclause that price would escalate with market but no de-escalation clause (no floor). Prices plummet and D buys less minimum. P sues and D wants to introduce prior dealings evidence showing that minimum means that amount or

ii. RULE: As long as evidence doesnt contradict written terms, it is admissible so Ct. admits it. However, this seemsCt ignores a merger clause saying it doesnt expressly state that course of dealing and usage of trade cant be used towritten K.

MISTAKE & EXCUSE

MISTAKEN FACTS: EXCUSE BASED ON MISTAKE

Definition: 151 2nd Restatement : a mistake is a belief that is not in accord with the facts. The doctrine is applicable only to mistakenn existing fact, not an erroneous belief about what will happen in the future.

Mutual mistake: parties are mistaken about the same belief.Unilateral: only one party has the mistaken belief.

a. Anderson Brothers Corp. v. OMeara (dredge doesnt work for Ps purpose)

i. FACTS: D had dredge for sale. P purchased dredge for purposes that it turns out dredge couldnt do. D didnt know whfor. P finds out his unilateralmistake and sues D.

ii. RULE: There was no mutual mistake, at best two unilateral mistakes. Knowledge by one party to a K that other is laborimistake concerning subject matter of K renders it voidable but here D does not know. It was Ps fault for not making sur

would work and he assumes the risk.iii. RULE2: The party with the unusual desire bears the risk. If you want something out of the ordinary, and you dont spec

buyer, you bear the risk.

b. ***************Raffles v. Wichelhaus (PROVIDED IN CLASS)************************i. FACTS:

ii. RULE:

MISAKEN FACTS: MUTUAL MISTAKE & REFORMATION

Definition: 152 2nd Restatement where a mistake of both parties at time a K is made as to a basic assumption on which K was made haffect on the agreed exchange of performances, the K is voidable by the adversely affected party unless he bears the risk of the mistake.

Three Requirements for Avoidance: Three requirements must be satisfied before adversely-affected party may avoid the Kon account ofmistake.

a. 1) Basic Assumption: mistake must concern a basic assumption on which the K was made.i. CASE: Sherwood v. Walker (cow is w/ calf)

1. FACTS: P and D think Ds cow is barren. They agree on sale for $80. Turns out cow is with calf and worth ~$to hand over.

2. RULE: Both parties were mistaken about the same thing, that the cow was barren and farrow. This is a basic ashas a material effecton the K price. No one was assuming the risk that it was not.



5/16


3. DISSENT: P didnt buy the cow for beef. He was gambling on it being able to breed. Risk allocated to D. ThisTest is above elements

ii. Atlas Corp. v. United States (uranium is dangerous. who knew?)

1. FACTS: P sells uranium to D. Later uranium is discovered to be bad and P has to pay more than expected to clenew laws. P sues D for clean-up costs that werent in K b/c of mutual mistake (that Uranium was not dangerous

reformation.2. RULE: When neither party is aware of existence of a fact (that uranium is bad), they cant have a belief about it

be mistaken about this belief. This is not a basic assumption so there is no mutual mistake.3. RULE2: Reformation is available only to modify existing Ks to make them conform to parties intent. Parties co

intended anything here b/c facts were unknown.

b. 2) Material effect: mistake must have a material effecton the agreed exchange of performance.i. CASE: Sherwood v. Walker (cow is w/ calf) - above

ii. CASE: ALCOA v. Essex Group, Inc. (Greenspan formula fails b/c OPEC)

1. FACTS: P enters into K w/ D where they intend to keep price within narrow range per Greenspans formula. Foduring OPEC and D gets a windfall. P sues on mutual mistake and asks for reformation.

2. RULE: Intent of parties was a narrow price range and Ct. finds there was a mutual mistake about whether the fowork to keep the price in that range. P didnt assume the risk b/c it didnt enter into the K in a state of consciou(like the dredge guy in Anderson). It didnt ask for price floor b/c both parties thought the formula would workK w/ new price formula that sticks to original intent.

c. 3) Risk: adversely-affected party must not be the one on whom the K implicitly imposed the riskof the mistake. Often the K doeclear the party who bears the risk of the mistake so the Ct. allocates this risk in the way in finds reasonable. 154 2nd Restatementallocated 1) in agreement; 2) if party is aware he has limited knowledge about mistake but treats it as sufficient; 3) court allocates on grounds that it is reasonable to do so)

i. Anderson Brothers Corp. v. OMeara (dredge doesnt work for Ps purpose)

1. FACTS: above. RULE2: The party with the unusual desire bears the risk. If you want something out of the oryou dont specify it as a buyer, you bear the risk.

ii. ALCOA v. Essex Group, Inc. (Greenspan formula fails b/c OPEC)1. FACTS: above: RULE: Intent of parties was a narrow price range and Ct. finds there was a mutual mistake abouformula would work to keep the price in that range. P didnt assume the risk b/c it didnt enter into the K in a stconscious ignorance (like the dredge guy in Anderson).

MPOSSIBILITY: TRADITIONAL IMPOSSIBILITY

Generally: If Ct. concludes performance of K has been rendered impossible by events occurring after K was created, Ct. will generally darties.

Three classes: 1) destruction of subject matter; 2) failure of the agreed-upon means of performance; 3) death or incapacity of a person.

a. 1) Destruction of Subject Matter: if performance involves goods (e.g. building) essential to performance of K and through no faparty it is destroyedthe contract is discharged.

i. Specifically referred to: if property performing party expected to use is destroyed, party is discharged only if destroyed pspecifically referred toin the K. 263 2nd Restatement : if the existence of a specific thing is necessary for the performanitsdestruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was assumption on which the K was made.

1. CASE: Taylor v. Caldwell (Concert hall burns down)

a. FACTS: D agrees to rent music hall to P for concert but it burns down before concert



6/16


b. RULE: In Ks where performance depends on continued existence of a person or thing, a condition is imassigned) that the impossibility of performance (assuming it is without fault) excuses performance.

2. CASE: Howell v. Coupland (potato farm undersupplies)

a. FACTS: P enters into K to buy 200 tons of potatoes from Ds land. Through no fault of D his land onlytons. The express condition was from Ds land.

b. RULE: applying Taylorrule, D wins.

ii. Construction K vs.Repair of Buildings:builder in K to construct a buildingthat burns down when partially completedimpossibility whereas party w/ K to repair an existing buildingcan use the defense to discharge K.

1. CASE: Carroll v. Bowersock (house burns down in the middle of reflooring)

a. FACTS: P is reflooring Ds warehouse which burns down before completion. P sues for impossibility.b. RULE: Impossibility as a sword b/c P wants D to rebuild the warehouse so it can performstrange. C

only portion of the work that had already provided value to D.

iii. Sale of Goods: UCC 2-615(a) unless otherwise agreed, delay in delivery or non-deliveryis not a breach of duty unif performance as agreed has been made impracticable by occurrence of a contingency the non-occurrence of which was assumption on which the K was made

1. Seitz v. Mark-O-Lite Sign Contractors (diabetes sign guru gets sick)

a. FACTS: D agrees to sell P a neon sign but his neon sign maker falls ill from diabetes and cant work.

b. RULE: P wins b/c D didnt contract for a particular person to do it, just to deliver the sign. It is not impto perform, just more expensive. Diabetes guy being healthy was not a basic assumption of the K.

b. 2) Impossibility of essential mode of performance: it an essential and intangible aspect of the K becomes impossible, K can be i. Impossibility due to failure of third parties: where a middleman Ks to supply goods he is procuring from a 3rd party an

fails to deliver, middlemans use of impossibility depends on the situation

1. Source Not Specified in K: if K does not specify source, seller whose source doesnt pan out cannot use impos2.

3. Sellers Supply K is breached: many Cts will allow impossibility if seller has K with 3 rd party and 3rd party br

a. CASE: Canadian Indus. Alcohol v. Dunbar Molasses (middleman fails to deliver b/c supplier red

production)

i. FACTS: P agrees to buy molasses from D on condition that they be from Refinery X. X cuts production so D cant deliver as promised.

ii. RULE: No impossibility b/c Dunbar assumed the risk. Dunbar should have Kd with refinery tamount of molasses. If he had, many Cts would have found impossibility.

4. 3rd party excused by impossibility: similarly, if seller makes K with supplier andsupplier is excusedb/c of impseller probably also will be discharged.

c. 3) Death or Illness: If K specifically provides performance done by particular person, that persons death or incapacity will dischparties.

i. Death or illness of 3rd party: K may similarly be discharged by death or illness of 3rd party necessary to perform K evenparty to K.

1. CASE: Seitz v. Mark-O-Lite Sign Contractors (diabetes sign guru gets sick) NOT APPLICABLE b/c P didiabetes guy to do the work, just for the completed sign.

COMMERCIAL IMPRACTICABILITY: MODERN EXCUSE DOCTRINE

Test for Impracticability



7/16


a. 1. Contingency occurred

b. 2. Risk not allocated by agreement or custom and was not foreseeablec. 3. condition must have rendered performance commercially impracticable because it is excessively costly

Modern View: courts generally equate extreme impracticability with impossibility. Therefore, if performance would be infeasible fromommercial viewpoint, promisor may be excused.

a. UCC: UCC 2-615(a) provides that sellers non-delivery is excused if performance as agreed has been made impracticable by a contingency the non-occurrence of which was a basic assumption on which the K was made Complete cut-offs of supplies crop failure, strike, etc. are often found to be covered under this.

i. Eastern Air Lines v. Gulf Oil Corp. (requirements K for jet fuel screwed up by OPEC)1. FACTS: P and D enter into long-term K for jet fuel. They fix price to index but OPEC screws it up. Gulf gets s

is selling at less than it could be. Commercial impracticability was one of Gulfs claims.

2. RULE: Ct says UCC2-615 (excuse for commercial impracticability) to apply there must be a failure of a presucondition, that was unforeseeable, and that the risk was not allocated. The excess cost must also be more than onerous or expensive. It must be positively unjust. Not the case here.

b. Cost Increases: most impracticability cases relate to extreme cost increases suffered by sellers who have signedfixed-price contrheregenerally lose because they have implicitly assumed the riskof cost increases. It is especially likely seller will lose where theincrease wasforeseeable.

i. CASE: Eastern Air Lines v. Gulf Oil Corp. (requirements K for jet fuel screwed up by OPEC)1. FACTS: above. RULE: Ct says the excess cost must also be more than merely onerous or expensive. It must b

unjust

ii. CASE: Transatlantic Financing Corp. v. United States (suez canal closed so K more costly)

1. FACTS: P agrees to take Ds cargo from TX to Iran. Best route is through Suez Canal, but when P got there it wso it went around Africa at extra cost of $44k for which it sues.

2. RULE: D wins b/c risk was foreseeable to P and the extra cost was not excessively costly for P to perform.

iii. CASE: ALCOA v. Essex Group, Inc. FACTS: above. RULE: above.

FRUSTRATION OF PURPOSE

Generally: where a partysjoint purpose in entering the K is destroyed by supervening events, most courts will discharge him from perfornd Restatement where, after a K is made, a partys principal purpose is substantially frustrated w/o his fault by the occurrence of an evenccurrence of which was a basic assumption on which the K was made, his duties to perform are discharged.

a. Distinguished from impossibility: In frustration cases, person seeking discharge is not claiming he cannot perform. Rather, shthat it makes no sense for her to perform, because what she will get in return does not have the value she originally expected at timformation.

i. CASE: Krell v. Henry (coronation of king)

1. FACTS: P leases D room w/ view to coronation. King gets ill and coronation is canceled. D couldstill sit in em(performance not impossible), but purpose is frustrated b/c no coronation. D is excused.

2. RULE: Kings coronation was a basic assumption on which K was made that was unforeseeable to both partiesdidnt assign the risk. P got to keep the deposit.

Factors to be considered: two main factors should be considered to determine when to use doctrine of frustration:

a. Foreseeability: the less foreseeable the event, the more likely Ct. will allow frustration defense.b. Totality: The more totally frustrated the party is, the more likely he is to be allowed to use the defense.

i. CASE: Krell v. Henry (coronation of king) kings illness was unforeseeable and Ds purpose was totally frustrated.

ii. CASE: Lloyd v. Murphy (selling cars during war)



8/16


1. FACTS: P leases D a locale to be used only for selling cars. Wartime restrictions on car sales come into effect. good intent, P waives the car sale purpose and subleasing restrictions. D still leaves the premises and claims fruCourt doesnt buy it.

2. RULE: Ks value had not been completely frustratedfor D b/c he still could have used the locale commerciallyrestrictions were foreseeable to both parties.

CONDUCT CONSTITUTING BREACH

ANTICIPATORY BREACH

General Rule: If party makes it clear, even before performance is due, that he cannot or will not perform, he has anticipatorily repudiatedtates but Mass. Allow victim of repudiation to sue before repudiators time for performance has arrived.

a. CASE: Hochster v. De La Tour (travel job canceled P can mitigate sue)i. FACTS: P agrees to be Ds travel companion. D cancels trip. P mitigates by getting work during time of cancelled trip.

anticipatory breach.

ii. RULE: Rather than have to continue to prepare for a non trip, P can mitigate and sue for damages (from which mitigationsubtracted) without waiting for time of performance.

f other party repudiates you can?a. 1) Wait until breach and sue for full damages(must mitigate to ensure she does not aggravate her damages)

b. 2) Treat K as repudiated and sue for damages immediatelyc. 3) Seek reassurance from the other party and if you dont get it, change your position in the interim.

TYPES OF REPUDIATION

a. Express Repudiation by Statement: sometimes repudiation takes form of a statement. However, stating vague doubts about perform is not enough. You must show unwillingness to perform.

i. CASE: Taylor v. Johnston (K for stud to service mares) facts below: sending letter canceling K was repudiation.

ii. CASE: Truman L. Flatt & Sons Co. v. Sara Lee Schupf (rezoning application retracted)

1. FACTS: D sells land to P in K that has option for P to cancel if city council rejects rezoning. P retracts rezoningoffers less money to D. D says no. P says OK, well pay original amount. D says P had anticipatorily repudiatwont sell. P sues for specific performance.

2. RULE: P never repudiated b/c it did not make a clear statement that it wouldnt perform, just offered less mondid, it retracted it timely by assuring it would pay the full amount once D rejected the lower offer. D never matechanged its position in reliance of Ps repudiation until after the retraction.

b. Implied Repudiation by Voluntary Acts: repudiation may occur by means of an actby promisor that makes his performance Must be impossible not just difficult.

i. CASE: Taylor v. Johnston (K for stud to service mares) facts below: selling the stud was implied repudiation

c. Prospective inability to perform: something analogous to anticipatory repudiation occurs when it becomes evident promisor wilperform, even though he desires to do so. Cts typically allow promisee to suspend her performance but courts are split about wh

promise may immediately sue for breach.i. Insolvency: promisors insolvency usually is notconsidered to be anticipatory repudiation. However, promisee probably

assurances (UCC 2-609(1) reasonable grounds for insecurity) and if promisor doesnt give them, then that is anticiprepudiation.

RETRACTION of Repudiation: Repudiation may normally be retracteduntil some event occurs to make the repudiation final. UCC2-6until the repudiating partys next performance is due that party can retract the repudiation unless the aggrieved party has since the repudiarmaterially changed position orotherwise indicated that the repudiation is final.

a. Final acts: in most courts, repudiators time to retract ends as soon as the party does one of the following.



9/16


i. 1. sues for breach

ii. 2. changes her position materially in reliance of repudiationiii. 3. States that she regards the repudiation as final

b. CASE: Taylor v. Johnston (K for stud to service mares)

i. FACTS: D books stud to service Ps mares. D sells his stud (1st repudiation), then writes to P saying K is cancelled (2nd R

P demands performance (rejection of repudiation). D arranges for it (retraction). D jerks around P and P ultimately doesperformance. D wins b/c he retracted and ultimately didnt breach.

ii. RULE: This case is about retraction and how it can suck. P should have sued for anticipatory breach when D repudiated

c. CASE: Truman L. Flatt & Sons Co. v. Sara Lee Schupf (rezoning application retracted)

i. FACTS: above

ii. RULE: P never repudiated b/c it did not make a clear statement that it wouldnt perform, just offered less money. Even iretracted it timely by assuring it would pay the full amountonce D rejected the lower offer. D never materially changein reliance of Ps repudiation until after the retraction.

MITIGATION REQUIRED: after repudiation, aggrieved party may not simply ignore the repudiation if this will aggravate damages. Thmitigate their damages by securing an alternative K, if one is reasonably available.

a. UCC2-610 (a) expresses this mitigation requirement saying that party may for a commercially reasonable time await performrepudiating party

i. Meaning:by choosing the time to have to mitigate, the Ct. affects damages and therefore affects the incentive structure fbreaching party.

REPUDIATION DAMAGES

a. UCC Damages for Repudiation:i. UCC2-713 (1) measure of damages forrepudiation by the seller is the difference between market price at the time w

buyer learned of the breach and the K price, together with any incidental and consequential damages.

1. Meaning: this meaning is ambiguous. Most courts hold that this means time when the buyer learned of the repcommercially reasonable time. This is consistent w/ UCC2-610(a).

b. Two Incentive Structures

i. Time of Performance: If damages are set at time of performance, aggrieved party has no incentive to cover at what mighefficient time.

ii. Time of Repudiation: If damages are set at time of repudiation, seller could turn buyer into the breacher by vaguely repumaking it cover.

c. Buyer vs. Seller

i. Seller repudiates and buyer has to cover: If buyer chooses to cover in commercially reasonable way, they will get damon how they covered (Price they paid to cover K price). If cover price is less, they may get nominal damages.

ii. Seller repudiates and buyer doesnt cover: If buyer doesnt cover in a proper way, then difference of price when buyerbreach and K price. learned of breach usually means repudiation + comm. reasonable time.

iii. Buyer Repudiates and seller is left with goods: Depends on whether what is sold is fungible or unique.

d. CASES

i. CASE: Cosden Oil & Chemical Co. v. Karl O. Helm Aktiengesellschaft (polystyrene buyer)

1. FACTS: Seller repudiates sale of goods K. Buyer wants mitigation time set at time of performance. Seller wanrepudiation time.

2. RULE: Ct. says it is time ofrepudiation + comm. reasonable time. UCC2-713 referenced.

ii. Roye Realty v. Arkla, Inc. (gas take&pay vs. pay)



10/16


1. FACTS: Buyer had sequential alternative K with seller to take a minimum amt of gas (take & pay) or, if not, to pminimum amt of money (pay). Buyer repudiates. Seller wants damages calculated on minimum cash payment,market-based minimum (take & pay).

2. RULE: In sequential alternative K, if buyer rejects first option the K is now only for the 2nd option. So if buyer damages are based on the 2nd option (pay). EXCEPTION: When the 2nd option is just money, this turns it into a damages clause. To prevent this (b/c it would make giving damages the same as giving specific performance), t

situation uses the cheaper option.3. RULE2: Once buyer repudiates its obligation to take & pay, sellers inability to physically deliver gas has no be

measure of damages.

a. Liquidated Damages cts dont like because 1) give someone an incentive not to breach when it wouefficient; 2) overcompensation will prevent efficient breach; 3) more litigation b/c there is more incentibreach.

ASSURANCES: RIGHT TO DEMAND a partys speech or conduct will sometimes not constitute an unequivocal repudiation, but willther party reasonable grounds forinsecurity about whether there will be performance. In this situation, party who is insecure has the righssurances from the other party that they will perform. If they fail to provide insurances, this will be considered anticipatory repudiation

a. 251 2nd Restatement: (actually asuggestion not a restatement slowly being adopted) the obligee may treat as a repudiation the

failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstancesb. UCC2-609 (1): when reasonable grounds for insecurity arise wrt the performance of either party the other may in writing deman

assurance of due performancec. Common Law: Under traditional common law, you could not seek assurances. Your uncertainty was your own burden.

d. CASE: National Farmers Organization (NFO) v. Bartlett Grain (multiple existing Ks 4 future Ks)

i. FACTS: Seller and buyer have multiple Ks. Seller begins to fall short on some of them. Instead of asking for assurancesbegins to default on those Ks saying that they wont go through with future Ks unless they get delivery on current onescondition precedent and counted as repudiation.

ii. RULE: Buyer was allowed under UCC2-609(1) to take bad performance on existing Ks as reasonable insecurity of othcould have demanded assurance. He did not have the right to modify future Ks with a condition precedent.

e. CASE: Norcon Power Partners v. Niagara Mohawk Power Corp ($610 million at end of K)

i. FACTS: Under strange K, P (seller) would have owed D $610 million at the end of K. D requests assurance that P would(probably trying to trigger breach) and P sues saying D cant ask for one.

ii. RULE: Ct says P could request assurance and that UCC2-609 applies by analogy (even though this is service). He saysoil (goods) and therefore should work for electricity (service). This is the minority view b/c D didnt do enough to create

grounds for insecurity.

REMEDIES

REMEDIES: EXPECTATION DAMAGES

General: In most breach cases, P will seek and receive protection for herexpectation interest. Here, the Ct. tries toput the P in the posiwould have been in had the contract been performed. This would include anyprofits she would have made.Calculation: Ps expectation damages are equal to value of Ds promised performance (usually K price) minus whatever benefits P has rec

ot having to complete his own performance.

a. Cost of Completion vs Decrease in Value: When D has defectively performed, P can recover the cost of completion. Cost of cothe default. However, if the cost of remedying performance is clearly disproportionate to the loss in market value, P will only rein market value.

i. Economic Waste: the reason for this rule is to prevent economic waste.1. If someone has in bad faith done something that will require economic waste to fix, they cant use economic wa



11/16


ii. In general, if K is commercial and injured party intends to buy and sell the thing, their object is profit so they should getvalue and not cost of completion. Whereas, if one party is not commercial and they intend to keep the thing, you cant mvalue to them so the rule should be cost of completion.

iii. Peevyhouse v. Garland Coal & Mining Co. (company doesnt clean up familys land as promised)

1. FACTS: P leases farm to D so it can strip mine it. D promises to put land back like it was. P isnt commercial p

probably wants to live on the land. D doesnt return land to normal. Cost of completion is $29k and diminutionjust $300. D wins. B: probably decided wrong.

2. RULE: Ct says cost of completion is defaultbut that there is an exception when the breached K provision was mincidental to the main purpose. NOTE: this could be bad b/c it could encourage fraud and misrepresentation oncommercial entities King with ordinary ppl.

REMEDIES: SPECIFIC PERFORMANCE

pecific Performance vs. Injunction: specific performance orders the promisor to render the promised performance whereas an injunctioarty to refrain from doing a particular act. Both are equitable remedies.

Test:

a. 359 2nd Restatement: specific performance or an injunction will not be ordered if damages would be adequate to protect the exinterest of the injured party.

i. Determining Adequacy of Damages: 360 2nd Restatement : in determining adequacy of damages vs specific performalook at 1) difficulty of proving damages with reasonable certainty; 2) difficulty of procuring suitable substitute performeans of money awarded; 3) likelihood that an award of damages could not be collected. Therefore, factors include:

1. Object is Unique

2. Damages are uncertain

3. Money cant buy substitute (e.g. patents; controlling interest in Company)4. Land

5. Damages cant be recovered b/c party is insolvent

b. UCC2-716 (1): Specific performance may be decreed where the goods are unique or in other proper circumstances

i. CASE: Sedmak v. Charlies Chevrolet, Inc. (corvette seller reneges)

1. FACTS: P orders special edition Corvette from D and gives deposit. Later D gives deposit back and says marke

gone up and it can bid with the others. P wins specific performance.2. RULE: Ct. allows specific performance saying UCC2-716(1) applies because although car is not unique, its m

condition, ownership, and appearance would make it difficult to replace w/o considerable expense and delay. (difficult to cover).

ii. Klein v. PepsiCo, Inc. (CEO reneges on sale of jet)

1. FACTS: P buys jet from D. Ds CEO thinks twice and reneges. P sues for specific performance and loses.2. RULE: Jet wasnt unique b/c there were others on the market. P was just buying to resell so damages are adequ

UCC2-716 does not abrogate the maxim that specific performance is inappropriate where damages are recoveadequate.

Personal Services Ks: Cts almost neverorder specific performance of a K for personal services.a. Peevyhouse v. Garland Coal & Mining Co. (company doesnt clean up familys land as promised)

i. FACTS: above. RULE: this is a service K so it is difficult to get specific performance. However, they should have gottencompletion not diminution in value.

ale of Goods: specific performance will sometimes be granted in Ks involving the sale of goods. This is especially likely in the case of oequirements Ks, or where the item is unique and not in ready supply.



12/16


REMEDIES: RELIANCE DAMAGES

General: Sometimes P receives protection for herreliance interest. Here the Ct puts P in as good a position as he was in before the K waDamages dont include profits but do include the amount P spent out-of-pocketin performing or preparing to perform.

a. When Used: Reliance interest is used when:i. 1) Profit too speculative: it is impossible to measure expectation interest accurately because lost profits are too speculat

1. CASE: Sullivan v. OConnor (bad nose job)a. FACTS: P got bad nose job from D who promised to make her beautiful.

b. RULE:Expectation damages too speculative so Ct. prefers reliance damages (e.g. cost of operation, sucare, cost of operation, lost wages

2.

ii. 2) Promissory Estoppel: Where P successfully wins on Promissory Estoppel. Here the court is trying to reduce injusticemore than nothing but less than expectation damages.

Limits on Reliance Recovery: Ps reliance damages are sometimes limitedto a sum less than actual expenditures.

a. K price as limit: Where Ds only obligation under K is to pay a sum of money, reliance damages will almost always be limited to

b. Recovery limited to profits: Courts dont allow reliance damages to exceed expectation damages.c. Expenditures prior to signing: P usually cant recover reliance damages for expenditures made before the K was signedbecausewerent in reliance of the K.

REMEDIES: RESTITUTION

General: Courts sometimes protect Ps off-Krestitution interest. That is, it is the value to the D of the Ps performance. Restitution is derevent unjust enrichment.

a. When used: Restitution is most commonly used where:i. 1) non-breaching P has partly performed (on-contract but in restitution she wouldnt be limited to K price as she would

expectation and reliance damages)ii. 2) breaching P has not substantially performed, but is allowed to recover the benefit of what he has conferred on D. (off-

b. Market Value: Restitution is based on value rendered to D, regardless of how much conferring that value costs P. This is usuallywould have to pay to acquire Ps performance not the subjective value to D.

i. 371 2nd Rest.: restitution interest may be measure by either reasonable value to the other party of what he received in teit would have cost him to obtain it from a person in the claimants position or extend to which the other partys propertincreased in value or his other interests advanced.

c. CASE: United States v. Zara Contracting Co. (bad soil D uses Ps equipment to finish)

i. FACTS: P agrees to do grading work for D. Work turns out to be more difficult and costly because of soil and P askmoney. D denies request and gets fed up with Ps delays and cancels K (breach). Therefore, D breached even thougpain in the ass. D finishes job using Ps equipment. P gets expectation damages for work they had done and restitutvalue of their requipment.

ii. RULE: P bore the risk of bad soil under K. if it had breached it could not recover restitution. However, since D brerestitution. Calculation is not increase in value to Ds land but how much it would cost P to pay 3rd party to do this.

Not limited to K price: The main use of restitution is that, in most courts, it is not limited to K price for the non-breaching party.a. CASE: United States v. Zara Contracting Co. (bad soil D uses Ps equipment to finish) facts above: Susi could get damage

price for extra work done because they are not the breaching party.

Breaching P: A P who has materially breachedmay normally bring an off-K suit and recover his restitution interest, less Ds damages foThis is sometimes called quantum meruit. (as much as he deserves).

a. CASE: Britton v. Turner ($120 K for 12 months of work)



13/16


i. FACTS: P agrees to work for D for one year for $120 and right to stay on land. After 10 months, he leaves and doesnt c(breach). P (breacher) sues for restitution for the work he performed.

ii. RULE: Breacher can sue for restitution. P gets the value of the work minus damages to D (zero here). Value of the workas actual value to D, not the market value. K price cannot be exceeded.

REMEDIES: PUNITIVE DAMAGES

Casesa.

LIMITATIONS ON COMPENSATION: CERTAINTY

Certainty: 2nd Rest. 352 : damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonertainty.

a. 1. the amount of loss with reasonable certainty.b. 2. D had reason to foresee the damage would occur if he failed to keep his promise.

TEST: Lost Profits? (Drews Co., Inc. v. Ledwith-Wolfe Associates, Inc.)a. 1. Profits must have been lost as a natural consequence of the breach of the Kb. 2. Foreseeability lost profits were probable result of breach of Kc. 3. Lost profits established with reasonable certainty both in terms ofexistence and amount.

Cases

a.

LIMITATIONS ON COMPENSATION: FORESEEABILITYnd Rest. 351 : damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breac

K was made.UCC 2-714 : says you can recover for goods already accepted from seller.UCC 2-715 : says buyer can recover for any loss resulting fromgeneralorparticularrequirements and needs which the seller at the timontracting had a reason to know

a. Particular needs must be made known to sellerb. General needs rarely need to be made known to charge seller w/ having the knowledge

Allocation of Risk: in addition to telling other party of particular needs, they must take on the additional risk. (Fed Ex)

Cases

a. Hadley v. Baxendale (shaft of mill being fixed damages dont include lost profits)

i. FACTS: P (miller) sends shaft to D for fixing. Ds courier returned it late. What are damages?ii. RULE: P cannot recover for lost profits. Foreseeability requires that you explain the special circumstance to the other p

they take on the additional risk.1. Two options for damages

a. 1.Arising naturally out of the breach.b. 2.In contemplation of parties at time K was formed

b. Spang Industries v. Aetna Casualty and Surety Co.i. **************FACTS: p1041 & 1042 explains the rule well; READ THIS PART OF THE CASE

ii. RULE:

c.

OTHER

Duty to mitigate a. Aggrieved party has to make sure existing damages arent increased as long as it is costless for it to mitigate. You have a duty to

raise damages, but not to actively reduce damages.



14/16




15/16


t. 151.............................................................................ake..................................................................................4t. 151 - Mistake...........................................................4t. 152.............................................................................al Mistake.....................................................................4

t. 152 - Mutual Mistake...............................................4t. 154.............................................................................Allocation.....................................................................5

t. 154 - Risk Allocation...............................................5t. 251.............................................................................rances..........................................................................10t. 251 - Assurances....................................................10t. 263.............................................................................mercial Impracticability................................................5t. 263 - Commercial Impracticability..........................5t. 265.............................................................................

ration of Purpose...........................................................7t. 265 - Frustration of Purpose....................................7t. 359.............................................................................fic Performance..........................................................11t. 359 - Specific Performance....................................11t. 360.............................................................................fic Performance Adequacy of Damages..................11t. 360 - Specific Performance Adequacy ofges...............................................................................11

cy of Consideration................................................10, 11ous Terms..................................................................4, 9

atory Repudiation.................................................8, 9, 10ess..................................................................................8ed..................................................................................8ssumption..........................................................4, 5, 6, 7ency............................................................................4, 9offer...............................................................................5s.......................................................................................ctation......................................................5, 7, 10, 11, 12ctation Cost of Completion................................10, 11ctation Diminution in Value..............................10, 11ive...............................................................................13nce.......................................................................8, 9, 12tution.....................................................................12, 13fic Performance............................................5, 8, 10, 11....................................................................................10ic Theory.....................................................................10........................................................................................mercial Impracticability............................................6, 7ration of Purpose.......................................................7, 8

Impossibility.......................................................5Mistake..................................................................Mutual Mistake....................................................

Fraud..........................................................................Insecurity...................................................................

Insolvency..................................................................a.Integration...............................................................Full........................................................................Partial....................................................................

Material......................................................................Merger Clause...........................................................Misrepresentation......................................................Nominal consideration...............................................Offer...........................................................................Output Contracts.......................................................Plain Meaning Rule...................................................

Promise......................................................................Promissory estoppel..................................................Promissory Estoppel.................................................Repudiation................................................................

Mitigation..............................................................Retraction..............................................................

Requirements Contracts............................................Risk Allocation........................................................4Statute of Frauds.......................................................

One Year Provision..............................................Time of Performance................................................Time of Repudiation.................................................UCC2-202................................................................

Parol Evidence Rule.............................................UCC2-202 - Parol Evidence Rule...........................UCC2-202(comment)..............................................

Certain Inclusion Test..........................................UCC2-202(comment) - Certain Inclusion Test.......UCC2-302................................................................

Unconscionability.................................................UCC2-302 - Unconscionability..............................UCC2-609................................................................

Assurances............................................................UCC2-609 - Assurances..........................................UCC2-610................................................................

Mitigation..............................................................UCC2-610 - Mitigation...........................................UCC2-611................................................................

Retraction..............................................................UCC2-611 - Retraction...........................................



16/16


615..................................................................................mercial Impracticability............................................6, 7615 - Commercial Impracticability..........................6, 7713..................................................................................diation Damages...........................................................9

713 - Repudiation Damages.........................................9716..................................................................................fic Performance..........................................................11716 - Specific Performance........................................11

cionability......................................................................3edural.............................................................................3tantive............................................................................3al....................................................................................4Promises........................................................................4


Documents

Contracts 2 Outline2