Is there a contract? 1-2; RS § 1. CONTRACT DEFINED A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. RS § 2. PROMISE; PROMISOR; PROMISEE; BENEFICIARY (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. (2) The person manifesting the intention is the promisor. (3) The person to whom the manifestation is addressed is the promisee. (4) Where performance will benefit a person other than the promisee, that person is a beneficiary. RS § 3. AGREEMENT DEFINED; BARGAIN DEFINED An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. RS § 4. HOW A PROMISE MAY BE MADE A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct. Hawkins (2-4); enforceable contract created when doctor told patient that he guaranteed to make his scarred hand “one hundred percent good.”

Words sufficient to establish giving a warranty Bayliner (4-8); enforceable contract NOT created when printed materials of boat manufacturer stated that its boats could attain a maximum speed of 30 miles per hour because materials referred to a boat with a different propeller size than plaintiff’s and sales brochure was only an opinion.

Rule—a description of goods that forms a basis of the bargain constitutes an express warranty o Exception—seller’s opinion or commendation of goods does not create warranty

UCC § 2-314. IMPLIED WARRANTY: MERCHANTABILITY; USAGE OF TRADE. (1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. … (2) Goods to be merchantable must be at least such as

(a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promises or affirmations of fact made on the container or label if any.

(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade. Which Promises are Enforceable?

Consideration as a basis for enforcement 31-33 §75. DEFINITION OF CONSIDERATION (1) Consideration for a promise is an act other than a promise, or a forbearance, or the creation, modification, or destruction of a legal relation, or a return promise, bargained for and given in exchange for the promise.

o Promises as consideration

RS §2. PROMISE; PROMISOR; PROMISEE; BENEFICIARY (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. (2) The person manifesting the intention is the promisor. (3) The person to whom the manifestation is addressed is the promisee. (4) Where performance will benefit a person other than the promisee, that person is a beneficiary.

Illusory Promises? 71-73; Mattei (76-80); Mattei P planned to construct shopping center adjacent to land owned by Hopper D. P entered into agreement with D for purchase of D’s land. Parties reduced agreement to

writing: P required to deposit $1K of total purchase price of $57,500, and was given 120 days to examine title and consummate purchase. At expiration of 120 days, balance was due and payable upon tender of good and sufficient deed of property sold. Agreement was made subject to Coldwell Banker & Co. obtaining leases satisfactory to purchaser. P paid $1K deposit. While P was securing leases, D notified P that D would not sell P land under terms of the agreement. Satisfactory leases were obtained and P offered to pay balance. D failed to tender deed. P sues D for breach of contract. DC judges for D. P appealed. Court holds contract enforceable (neither illusory nor lacking in mutuality of obligation, because satisfaction clause made plaintiff’s performance dependent on his satisfaction with leases to be obtained by him).

Rule: Consideration in Bilateral Contracts requires: o Mutuality of obligation—Where promises are exchanged as the consideration,

the promises must be mutual in obligation. Both must have assumed some legal obligations.

Without mutuality of obligation, it’s an illusory contract—a contract where one of the promises leaves a party free to perform or withdraw from the agreement at his own unrestricted pleasure. It is without consideration, unenforceable.

Rule: Satisfaction Clause Approaches o Objective Standard: Satisfaction to commercial value, quality, operative fitness,

mechanical utility—dissatisfaction cannot be claimed arbitrarily, unreasonably, or capriciously. The “reasonable person” standard is used. Factor test: duration of leases, provisions for renewal options, covenants and restrictions, amounts of rentals, financial responsibility of the lessees, character of lessees’ business.

o Subjective Standard: Satisfaction in cases involving fancy, taste, or judgment. “good faith” dissatisfaction may be a defense—promisor’s duty to exercise his judgment in good faith is an adequate consideration to support the contract

o 1 RS (1932) §265: a promise conditional upon the promisor’s satisfaction is not illusory since it means more than that validity of the performance is to depend on the arbitrary choice of the promisor… dissatisfaction must be genuine.

o Lawrence Block Co. v. Palston/Pruitt v. Fontana both invalidated a satisfaction clause because it gave the purchaser unrestricted discretion in deciding whether to be bound by the contract.

RS §77. ILLUSORY AND ALTERNATIVE PROMISES A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless

(a) each of the alternative performances would have been consideration if it alone had been bargained for; or (b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.

80-81; Structural (81-86); Z entered ten-year requirements contract to supply S’s carbon fiber. S had no requirements at time. Agreement covered large-tow carbon fiber product called Panex 33, which is lower cost and quality than small-tow carbon fiber. Contract gave S option to buy from different suppliers if Z could not meet lower prices. In 2002, Z stopped making Panex 33 and started making similar product called Panex 35. S did not buy any carbon fiber for two years, but did order Panex 35 in 2004. Later, S ordered two shipments of Panex 35 that were never filled. S sued Z for breach. Z argues no mutuality of obligation. Court holds there is (implied duty of good faith). UCC § 2-306. OUTPUT, REQUIREMENTS AND EXCLUSIVE DEALINGS. (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale. Wood (86-90); Defendant entered into an exclusive agreement with Plaintiff allowing him to place her endorsement and market defendant’s designs and keep half of the profits. P claims breach of contract because D placed endorsements without his knowledge and withheld profits. Court holds there is enforceable contract (promise by implication (duty of good faith)). Termination Clause

If termination clause gives a party power to terminate at any time at will, without more, it will be held illusory.

o Distinguish Wood v. Lady Duff-Gordon—here terminates AFTER one year, so not at any time

§ 2-309. ABSENCE OF SPECIFIC TIME PROVISIONS; NOTICE OF TERMINATION. (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time. (2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. Dyer (43-48); D loses foot in job-related accident. Employer places him on leave of absence. He returns to work. Employer lays him off. D sues that discharge was a breach of oral contract. He claims forbearance from litigating his claim was made in exchange for a promise from employer that he would have lifetime employment. Court remands (was D’s forbearance in good faith?)

Rule (Corbin): Forbearance to press a claim … may be a sufficient consideration even though the claim is wholly ill-founded. RS §74: Settlement of Claims—forbearance to assert, surrender claim, defense which proves to be invalid not consideration UNLESS: (1) claim, defense doubtful due to uncertainty in facts, law OR (2) forbearing, surrendering party believes claim, defense may be fairly determined valid. Commentary: requires good faith.

RS §74. SETTLEMENT OF CLAIMS (1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless (a) the claim or defense is in fact doubtful [i.e. of uncertain validity] because of uncertainty as to the facts or the law, or (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid. (2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.

o The Bargain Theory of Consideration Hamer (35-41); a contract (promise and sufficient consideration) was found in an agreement between an uncle and his nephew. Uncle offered $5,000 in exchange for nephew refraining from drinking, using tobacco, swearing, playing cards or billiards for money until 21.

Holmes Bargain Theory—Reciprocal conventional inducement: “it is the essence of consideration, that, by the terms of the agreement, it is given and accepted as the motive or inducement of the promise.” In other words, “The promise and the consideration must purport to be the motive each for the other, in whole or at least in part.”

Holmes—pretense okay, 2 RS—pretense not okay RS § 71. REQUIREMENT OF EXCHANGE; TYPES OF EXCHANGE (1) To constitute consideration, a performance or a return promise must be bargained for.

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of

(a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation.

(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

Gifts and Sufficiency 41-42;

Gratuitous transfer—recognized by law

Gratuitous promise—not recognized by law (must find consideration) Congregation Kadimah Toras-Moshe (Canvas)—no contract (no consideration, no reliance, against public policy) was found when a decedent made an oral promise to give congregation $25K. Congregation planned (but did not bargain) to transform storage room in synagogue to a library named after decedent. Schnell (Canvas); no contract was found when Schnell agreed to pay $200 to named beneficiaries of his decedent wife’s estate.

3 possible considerations rejected by the court: o (1) P’s promise to pay one-cent. Court says it’s unconscionable, thus void.

Rule—usually don’t look to adequacy of consideration

Unconscionable Exception—unconscionable (trading 1 cent for $600)

o Possible exception—a “special” penny o (2) Schnell loved his wife, she was industrious. This was his legal obligation as a

husband, not consideration. o (3) Wife’s will. Wife had no property to give, no legal obligation.

Further refinements on the bargain theory of consideration Feinberg (48-52); D proposes to raise P’s salary from $350 to $400 per month, then $200 per month for life upon retirement. Court finds continued employment is not consideration (lacks mutuality of obligation—pension not predicated on continued employment). Court finds reliance supplies consideration (due to P’s change in position).

Promise based on past services not consideration. Kirksey (58-61); D tells P “if you will come down and seem me, I will let you have a place to raise your family.” P moves, D gives her land for 2 years, later moves her to the woods, then kicks her out. Court says D’s promise was mere gratuity. Ormand (dissent) thinks moving is sufficient consideration. Rewards (70-71)

Broadnax v. Ledbetter—L offers reward for capture of V. B captures V but does not know about reward. He later sues for the reward. Court says there is no contract because B’s services were not given in exchange for L’s promise because he didn’t know about it (no

bargainno considerationno contract). RS §71. REQUIREMENT OF EXCHANGE; TYPES OF EXCHANGE (1) To constitute consideration, a performance or a return promise must be bargained for. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of

(a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation.

(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. RS § 51. EFFECT OF PART PERFORMANCE WITHOUT KNOWLEDGE OF OFFER

Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance. RS § 81. CONSIDERATION AS MOTIVE OR INDUCING CAUSE (1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise. (2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.

The Bargaining Process: Offer and Acceptance

Bargain = offer + acceptance

Offer—an offer is manifesting intent to give someone the power to seal the deal, 125-126; o Objective Theory (Learned Hand)—look at acts of parties, usually words; reasonable man standard o Subjective Theory (Frank)—look to intent, meeting of the minds, will

Lucy (126-131); Z offers to sell L a tract of land for $50K. Z retracts. L sues. Z says offer was a jest. Court says L entitled to specific performance of contract.

o Objective Manifestation Rule—look to outward expression rather than secret unexpressed intention. Law imputes intention according to reasonable meaning of words.

139-141; Bargain=offer by one party + acceptance the other

RS §24; OFFER DEFINED An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. Owen (142-143); O asks T to buy property for $6K. OFFER TO NEG: T says it would not be possible to sell UNLESS he were to receive $16K cash. O accepts. T notified O he did not wish to sell property. Court holds there is no contract. T’s remarks are an intent to open negotiations, not an offer, no bargain, no consideration, not enforceable, not a contract. Fairmount Glass (145-147); C requests quote for lowest price they could make an order. F responds with quote, subject to contingency clause. C enters order per quotation. D says impossible to book order, output all sold. C sues F for damages in breach of contract. Trial and COA say there is a contract.

o General Rule—transaction not completed until order is made and accepted

Exception: Subjective Intent Rule—C wanted to know what price FG would sell and FG could not fail to understand that intent.

148; Advertisements—generally not an offer, rather an invitation by seller to buyer to make an offer to purchase Lefkowitz (148-151); store publishes ad—D ran two newspaper advertisements, one stating that Defendant would sell three fur coats, valued at $100 each, first come, first served, and the other, stating that D would sell three fur stoles, valued between $89 and $139.50 for one dollar a piece. P arrived first on both occasions, and presented $3. D refused to sell the items to P, citing a “house rule” which limited the bargains to women. Court holds it is an offer.

o General Rule—ads are not offer, but are invitations by seller to buyer to make an offer.

Exception—when offer is clear, definite, explicit, and leaves nothing open for negotiation, it constitutes

Acceptance o Corbin—acceptance is a voluntary act of the offeree whereby he exercises the power conferred to him by

the offer, and thereby creates the set of legal relations called a contract. Int’l Filter (157-162);

o (1) OFFER TO NEG: I submits to C proposing to furnich one No. 2 Jr. Int’l Water Softener and Filter. Price is $1230. Becomes contract upon acceptance by purchase AND I’s approval. Modification made by supplementary agreement of both parties. (2) OFFER: C accepts. (3) ACCEPT: I acknowledges order. (4) C wants to revoke order. (5) I denies revocation and insists upon performance of the contract. I sues for breach of contract. Court holds there is a contract, President/Veep’s approval is sufficient + notification is not required.

RS §30; FORM OF ACCEPTANCE INVITED

(1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. Ever-Tite (164-166); (1) OFFER: G executed/signed written offer for E to re-roof G’s residence. (2) ACCEPT: E loaded its trucks with the materials required for Green’s project and dispatched laborers for the job to G’s residence. E intends to accept G’s offer by performance. (4) G hired another contractor to perform the work E contracted to do & notifies E it had hired others to perform the work two days earlier, and forbade E from beginning the work. (5) E sues G for breach of contract. Court holds there was a contract.

o Rule—Offeror may revoke offer before acceptance but not without allowing reasonable time as from the terms of the offer he has given

RS § 54. ACCEPTANCE BY PERFORMANCE; NECESSITY OF NOTIFICATION TO OFFEROR (UNILATERAL—NOTIFICATION NOT NECESSARY) (1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification. (2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless

(a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or (b) the offeror learns of the performance within a reasonable time, or (c) the offer indicates that notification of acceptance is not required.

RS § 56. ACCEPTANCE BY PROMISE; NECESSITY OF NOTIFICATION TO OFFEROR (BILATERAL-MUST NOTIFY) Except as stated in §69 or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably. Allied Steel (167-170); (1) F orders machinery from A (with narrow indemnity clause) (2) F amends order, proposing to purchase additional machinery (with broad indemnity clause). (3) ACCEPT: A executes amended order. (4) employee injured, but before A executes amended order. Employee sues F, F impleads A (per indemnification clause). A says indemnification wasn’t in effect. Court holds it was.

o Rules

Offeror prescribe method of accept—offeree must accept in accordance UNLESS meeting of the minds

Offeror suggest method of accept—other methods not precluded

Return promise—promisee may accept by performing return promise

May imply accept from acts UCC § 2-204. FORMATION IN GENERAL. (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. UCC § 2-105. DEFINITIONS: TRANSFERABILITY; "GOODS"; "FUTURE" GOODS; "LOT"; "COMMERCIAL UNIT". (1) "Goods" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107). (2) Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are "future" goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.

(3) There may be a sale of a part interest in existing identified goods. (4) An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller's interest in the bulk be sold to the buyer who then becomes an owner in common. (5) "Lot" means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract. (6) "Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole. A Note on Mixed Contracts (Canvas);

o Goods—installation of water heater, franchise/dealership agreement for sale of goods, computer software, leasing equipment (trend is good)

o Services—contract with artist for painting, roof, grain storage system, supply structural steel and build bridge, blood transfusion

UCC §2-206; OFFER AND ACCEPTANCE IN FORMATION OF CONTRACT. (1) Unless otherwise unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances; (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

(2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. Corinthian Pharmaceutical (170-175); (1) OFFER: C orders 1K vials of vaccine (sale of goods—UCC) from L at $64.32. (2) NOT ACCEPT: (a) tracking number from computer (automated) and (b) L gave a non-conforming response (agreed to sell 50 at old price and 920 at new price). Seller’s shipment of goods in response to buyer’s order is acceptance if it conforms. Court holds this shipment is not an acceptance because it’s non-conforming. RS § 32. INVITATION OF PROMISE OR PERFORMANCE In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. RS §62. EFFECT OF PERFORMANCE BY OFFEREE WHERE OFFER INVITES EITHER PERFORMANCE OR PROMISE (1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. (2) Such an acceptance operates as a promise to render complete performance. Silence—generally not acceptance RS §69. ACCEPTANCE BY SILENCE OR EXERCISE OF DOMINION (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:

(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. (b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.

(2) An offeree who does any act inconsistent with the offeror's ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.

Gentlemen’s Agreements—an agreement which is not an agreement, between two persons neither of whom is a

gentlemen, whereby each expects the other to be strictly bound by the agreement without himself being bound at all. 136-138

Terminating the Power to Accept an Offer: Options and Firm Offers o Option Contracts

Terminating the power of acceptance: (1) Lapse of offer (except firm offer or option contract), (2) revocation of offeror, (3) Offeror’s death/incapacitation, (4) Offeree’s rejection RS § 25. OPTION CONTRACTS An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer.

Creation of option contract: (1) Promise to hold the offer open which is supported by consideration (2) Firm offer under Article 2 of UCC (3) Offer seeking performance rather than return promise, which generates the beginning of the performance by offeree (4) Reliance by the offeree

Dickinson (178-184); (1) John Dodds (D) drafted a document which stated his willingness to sell a piece of property to George Dickinson (P). The document stated that the offer would be open until 9AM on June 12, 1874. (2) Dickinson was informed by his agent that Dodds changed his mind and actually intended to sell the property to Thomas Allen (defendant). (3) Dickinson dropped off a document expressing his intent to accept Dodds’ offer. Dodds never received this document. Dickinson and his agent both found Dodds at a train station and provided him with duplicate copies of the document accepting Dodds’ offer to sell. (4) Dodds stated that it was too late and he had already sold the property to Allen. Dickinson brought suit against Dodds and Allen seeking specific performance. Court holds there was no contract

because the option was unsupported by considerationno bargain. RS § 36, METHODS OF TERMINATION OF THE POWER OF ACCEPTANCE (1) An offeree's power of acceptance may be terminated by

(a) rejection or counter-offer by the offeree, or (b) lapse of time, or (c) revocation by the offeror, or (d) death or incapacity of the offeror or offeree.

(2) In addition, an offeree's power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer. RS § 42, REVOCATION BY COMMUNICATION FROM OFFEROR RECEIVED BY OFFEREE An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. RS § 43, INDIRECT COMMUNICATION OF REVOCATION An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect. RS § 46, REVOCATION OF GENERAL OFFER Where an offer is made by advertisement in a newspaper or other general notification to the public or to a number of persons whose identity is unknown to the offeror, the offeree's power of acceptance is terminated when a notice of termination is given publicity by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available.Ragosta (Canvas); RS § 25, OPTION CONTRACTS An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer. RS § 45. OPTION CONTRACT CREATED BY PART PERFORMANCE OR TENDER (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. (2) The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

RS § 87; OPTION CONTRACT (1) An offer is binding as an option contract if it

(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or (b) is made irrevocable by statute.

(2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

o UCC § 2-205. FIRM OFFERS An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. UCC § 2-104. DEFINITIONS: “MERCHANT”; “BETWEEN MERCHANTS”; “FINANCING AGENCY”. (1) “Merchant” means [1] a person who deals in goods of the kind or [2] otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or [3] to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. Definition of Merchant (Canvas)

Merchant—one who deals in goods of the kind or otherwise holds oneself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction. A person is a merchant only when acting in a professional capacity.

o Other termination issues RS §48; REVOCATION BY DEATH OF OFFEROR Offeree’s power of acceptance is terminated by the offeror’s death or supervening incapacity. RS § 37, TERMINATION OF POWER OF ACCEPTANCE UNDER OPTION CONTRACT Notwithstanding §§ 38-49, the power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty. Mailbox Rule—assume dispatch of acceptance, not receipt, as the moment of acceptance and the moment when the contract is made and when offeror’s power to revoke/reject is terminated. Wilson (197-199); G (insured) forgets to pay premiums. Policy expired. OFFER: I sends G application for reinstatement (31 days after grace period (GP—7/14, last day to reinstate 8/14). G sends check in full amount on 7/23 via online banking. G killed in accident on 7/28. Court holds life insurance policy effective at time of G’s death.

7/23 sent via online banking

ACCEPT: 7/25 bank mails check (time of dispatch—mailbox rule triggered, this is the acceptance)

7/30 I in physical possession RS §40, TIME WHEN REJECTION OR COUNTER-OFFER TERMINATES THE POWER OF ACCEPTANCE Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer. RS §63, TIME WHEN ACCEPTANCE TAKES EFFECT (OFFEREE’S ACCEPTANCE—TIME OF DISPATCH) Unless the offer provides otherwise, (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree's possession, without regard to whether it ever reaches the offeror; but (b) an acceptance under an option contract is not operative until received by the offeror. RS §42. REVOCATION BY COMMUNICATION FROM OFFEROR RECEIVED BY

OFFEREE (OFFEROR’S REVOCATION—RECEIPT OF REVOCATION) An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. RS §30. FORM OF ACCEPTANCE INVITED (1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.

Liability before offer and acceptance Reliance and revocability Question: Can a promisee’s reliance on an offer, in contrast to reliance on a promise, make the offer irrevocable?

o James Baird Co. v. Gimbel Bros., Inc. (Learned Hand) (reliance on promise); Subcontractor sends general contractor a bid. General contractor used subcontractor’s bid in making his own bid. Subcontractor realized a clerical error and wants to revoke the bid. General contractor had not accepted. General contractor argues his use of the subcontractor’s bid was reliance that made the subcontractor’s bid irrevocable at least until general contractor’s bid was accepted or not. The court held there was no contract.

General Rule: Promissory estoppel is inapplicable to bargain promise seeking a promise in return, even if the promise occasioned reliance by the promisee.

Drennan (reliance on offer)(188-193); D wants to bid for contract. It looks for subcontractors. S submits to D a bid of $7,131.6 for paving work. D relies on S’s figures for its bid. D gets bid. D awards S subcontract. S tells D it made a mistake in computing. D hires third party to perform for $10,948.60. Court holds (1) not option contract (no consideration), (2) not bilateral contract (no evidence of irrevocability INE for P’s use of figure), but (3) finds reliance on an offer, and (4) no mistake (not reasonable for D to know of S’s mistake). RS § 87(2); OPTION CONTRACT—Reliance Exception (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. What happens if negotiations fail? Does the disappointed party have a claim against the other?

o Claim in restitution (unjust enrichment?)—if during negotiation one party has conferred a benefit upon the other, the recipient may be required to restore the benefit or its value

o Misrepresentation—a negotiating party may not misrepresent with impunity its intention to come to terms. Liability for misrepresentation includes reliance losses.

Substitutes for Consideration: Reliance and Promissory Estoppel o Diff btw Reliance and Promissory Estoppel? o Reliance

Reliance—a change in position by the promisee. Reliance is a basis for enforcement of the promise that is separate and distinct from consideration.

Ricketts (92-95); S quit job and left profession as a bookkeeper after grandfather gave her promissory note promising to pay her $2,000 on demand and 6% annual interest. Grandfather paid one year’s interest on the note, but had not paid the balance by time of his death. S sued R, the executor of her grandfather’s estate, for breaching terms of promissory note. Court holds no consideration, but there is reliance.

Estoppel in pais defined—a right arising from acts, admissions, or conduct which have induced a change of position in accordance with the real or apparent intention of the party against whom they are alleged.

Pomeroy: Equitable estoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded … from asserting rights as against another person who in good faith relied upon such conduct.

o The Iowa court looks at the “good faith” element from the standpoint of the promisor, finds reliance under “equitable estoppel”: “he contemplated such action as a reasonable and probable consequence of his gift.”

o Promissory Estoppel 95-97;

Common Law (Holmes): it would cut up the doctrine of consideration by the roots if a promisee could make a gratuitous promise binding by subsequently acting in reliance of it.

Equitable vs. Promissory Estoppel

Youngblood v. Auto—Owners Ins. Co. o Equitable Estoppel: (1), statement, admission, act, or failure to act by one party

inconsistent with claim later asserted; (2), reasonable action or inaction by other party taken or not taken on basis of first party's statement, admission, act or failure to act; and, (3), injury to second party that would result from allowing first party to contradict or repudiate such statement, admission, act, or failure to act.

o Promissory Estoppel necessitates a showing that (1) P acted with prudence and in reasonable reliance on promise made by D; (2) D knew that P had relied on promise which D should reasonably expect to induce action or forbearance on part of the P or third person; (3) D was aware of all material facts; and (4) P relied on promise and reliance resulted in a loss to P.

Feinberg (97-98); P argues D promised to pay P $200 per month upon her retirement. P retires. D does not pay. Court finds promissory estoppel based on P’s reliance.

99-100;

RS1 §90 PROMISE REASONABLY INDUCING ACTION OR FORBEARANCE A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

RS2 §90. PROMISE REASONABLY INDUCING ACTION OR FORBEARANCE (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

Cohen (104-106); Ctells reporters of arrest for unlawful assembly and conviction for shoplifting of opposing candidate for governor. Reporters promised to keep C’s identity confidential. Editors overruled promises. Stories published. C fired. C sues publishers for breach of contract. Court finds C had promissory estoppel.

Reasonable expectation prong: the Court asks whether Cohen’s expectations were reasonable, but according to 2nd RS, shouldn’t this be analyzed through the question of whether the papers had a reasonable expectation that the promise would induce Cohen to speak? Williams says Courts look at both expectations.

Possible exception to promissory estoppel: “compelling need

D&G Stout (106-112) B & G are in an at-will contract. B promised G it would continue to be B's distributor for Northern Indiana. Based on that representation, G turned down an offer to purchase company. B subsequently withdrew its account and G was forced to accept substantially lower offer. G sues B in promissory estoppel. Court remands question of reasonable reliance re. at-will contract.

Expectation damages—puts parties in position had promise been kept; i.e. Future profit. This is not actionable.

Reliance damages—puts promisee in as good a position had promise not been made (the “undo” switch); i.e. moving expenses, wages forgone in preparation to move. This is actionable.

Substitutes for Consideration: Unjust Enrichment Restitution—all the grounds for recovery based on unjust enrichment. Unjust enrichment does not require a promise. Unjust enrichment (John P. Dawson): the principle is that “gains produced through another’s loss are unjust and should be restored.” RS3 OF RESTITUTION AND UNJUST ENRICHMENT: liability in restitution derives from the receipt of benefit whose retention without payment would result in the unjust enrichment of the defendant at the expense of the claimant. Callano (117-121) O contracts to sell lot with house to P. C delivered and planted shrubbery in accordance to contract with P. P never paid C (invoiced $497.95). P died. O and P cancel contract of sale. O sells house to G. C sues O for unjust enrichment. Court says there is no unjust enrichment because there is no direct relationship or mistake between C & O. C may sue P’s estate.

o Recovery on Quasi-Contract: P must prove (1) D was enriched and (2) retention of the benefit without payment would be unjust. Applies when there is direct relationship between the parties or mistake on part of person conferring a benefit.

RS §371. MEASURE OF RESTITUTION INTEREST If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either:

(a) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant's position, or (b) the extent to which the other party's property has been increased in value or his other interests advanced.

Statutes of Frauds 273-281 Is the contract enforceable under the Statute of Frauds?

What is under SOF? o Act for Prevention of Fraud and Perjuries: (1) Executor-administrator (2) Suretyship (3) Marriage (4) Land

contract (5) One-year (6) Sale of goods o Farnsworth: Arbitration, Cohabitation, Security interest in nonpossessory property, Borrow, Lease,

Guarantee a medical result, Waive statute of limitations, Ratify contract by infant, Provide for property distributions upon divorce, Modify franchise agreements, Pay brokers for arranging sale of real estate

Judicial exceptions to statute of Frauds o General Rule: Duration of performance, one-year and lifetime clauses—An agreement that cannot

be performed within the year following its making is unenforceable unless circumstances persuade a court otherwise.

CR Klewin (281-287); D had dinner meeting with P, and fee was agreed for project subject to timing of different phases of project. Meeting ended with handshake and “You’ve got job. We’ve got deal.” Construction began and parties entered into written agreement for first phase. Five months later first phase was finished. The D did not like P’s work and contracted with another construction manager five months after that to complete project. P sues for: (1) breach of oral contract; (2) quantum meruit damages (3) reliance on D’s promise to pay for preconstruction services. D says contract is under SOF and unenforceable because not in writing. COA submits questions for certification.

CT Rule: Unless it appears from the agreement itself that the contract is not to be performed explicitly within one year, the statute does not apply.

CT Rule: A contract is not within this clause unless its terms are so drawn that it cannot by any possibility be performed fully within one year.

RS §130. CONTRACT NOT TO BE PERFORMED WITHIN A YEAR (1) Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance. (2) When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties. Comments:

d. Full performance on one side. If either party promises a performance that cannot be completed within a year, the

Statute applies to all promises in the contract, including those which can or even must be performed within a year. But unlike other provisions of the Statute, the one-year provision does not apply to a contract which is performed on one side at the time it is made, such as a loan of money, nor to any contract which has been fully performed on one side, whether the performance is completed within a year or not. This rule, by permitting an action for the agreed price, avoids the problem of valuation which would otherwise arise in an action for the value of benefits conferred; but the rule goes further and makes available the usual contract remedies.

RS §131. GENERAL REQUISITES OF A MEMORANDUM Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which

(a) reasonably identifies the subject matter of the contract, (b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and (c) states with reasonable certainty the essential terms of the unperformed promises in the contract.

290-292; RS §125(1): INTERESTS IN REAL PROPERTY The land contract provision of SoF encompasses contracts “to transfer to any person any interest in land.” 299-303; Contracts for the Sale of Land

What contracts are covered under “contracts for sale of land”? o (1) Standard contract to sell real estate, (2) Conveyance of land as a gift (Waddle v. Elrod), (3) Contract

between partners for the sale of land by one to the other (Filipi v. Filipi) (4) Contract creating a joint venture in which one venture conveys land to the enterprise (Dobbs v. Vornado)

What contracts are NOT covered under contracts for sale of land? o (1) A contract creating a partnership for the purpose of buying and selling real estate (Malaty v. Malaty), (2)

Although the partnership is expected to engage in transactions, the contracts forming it do not therefore convey any interest in real property (3) A contract to apportion the profits from a sale of land (Sewing v. Bowman) (4) Does not convey interest in real property

What types of interests are included? o “contract for sale of land: encompasses all contracts that have the effect of conveying real property o “interest”—per RS §127 covers “any right, privilege, power, immunity, or combination thereof” o This includes (1) Right of way (Machado v. Ryan), (2) Mortgage (In re Whatever, LLC), (3)

Leases/Subleases of real property (Berdick v. Costilla) EXCEPT short term leases of real property (CA, NY)—SoF governs long contracts; if it’s short term, it wouldn’t apply anyway

What interests are NOT included? (1) Lender who sells mortgage to someone else (this is a transfer of debt, not a realty)

Crabtree (303-308); P wants three year employment contract with D. P was leaving a secure job to enter a new field and wanted agreement to be for a definite term. D instead offered P a two year employment contract with an annual salary of $20,000 for first six months, $25,000 for next six months, and $30,000 for second year. D had offer written down on a telephone order. Later, P accepts offer. P began working and received the first increase in income after six months, but did not receive subsequent increase. D’s comptroller and general manager each signed a payroll change card to attempt to remedy situation. However, increase was not approved and P left his employment with D and sued for breach of contract. Court holds contract satisfied SOF. (1) Under SOF (contract cannot be performed in under a year), (2) has sufficient memo signed with (a) intent to authenticate terms and (b) evidences terms of the contract. Memo does not have to be one document, may be multiple documents if they are linked together expressly or internally by evidence of subject matter and occasion. 308-310; UCC §1-201(B)(37): SIGNING—Signed includes using any symbol executed or adopted with present intention to adopt or execute a writing. 312-315; Exceptions to the Statute of Frauds

Reliance—in cases involving performing the contract in full or in part on the belief that it was enforceable, breaching party is estopped to deny that it has made a contract if the other party has in some manner relied on the

statements of the breaching party

UCC § 2-201(2) those who deal with merchants may expect them to read their mail

UCC § 2-201(3)(b) anyone who admits entering into a contract should be bound by that contract Reliance-based exceptions

Part-performance exception—whether there is an exception varies depending on what provision of the SoF is relevant

o Suretyship—no exceptions for contracts. o Sale of goods

UCC §2-201(3)(a) Exception if

goods are to be specially manufactured for the buyer AND

goods cannot be sold to others in the ordinary course of the seller’s business AND

the seller has substantially begun making the foods or making commitments to get the goods.

UCC §2-201(3)(c) Exception if

Goods for which payment has been made and accepted or which have been received and accepted

o Both parties must act in a way consistent with the existence of a contract o Real-property

A seller might let a buyer improve the property before title has passed, which could raise problems if the seller second guesses the deal.

A buyer who has started paying does not intend to give the seller a gift. o Land contract

Applies only when breached-against party seeks specific performance of the contract

Requires express reliance—heightened evidence standard—“clear and convincing evidence”

Specific performance is only available when there are no reasonable alternatives. If contract is not enforceable, restitution is the main alternative.

Inquiry under land contract provision of SoF: (1) Is the putative performance actually performance of the contract at issue or is it consistent with another type of contract? (2) Is it both possible and necessary to give an equitable remedy or should the breached-against party instead be relegated to restitution?

Richard (Canvas); P entered in oral agreement with D to purchase a residence. P claim agreed purchase price was $70,000. D claims it was much higher, but the trial court did not find him credible. At time of entering agreement, P already occupying residence as renters. Following oral agreement, P began making payments to Norman in excess of rent payments. Norman recorded additional payments in separate ledger and deducted payments from balance of $70,000. Gregory and Jennifer also made improvements to property that were permanent and not easily removable. Family Court ordered D to convey the residence to P. D appeals arguing P did not satisfy part-performance exception to SOF. Court holds part performance exception applies to SOF.

RI SOF: “No action shall be brought: “(1) Whereby to charge any person upon any contract for the sale of lands, tenements, or hereditaments, or the making of any lease thereof for a longer time than one year … “unless the promise or agreement upon which the action shall be brought, or some note or memorandum thereof, shall be in writing, and signed by the party to be charged therewith, or by some other person by him or her thereunto lawfully authorized.”

o Part-performance exception: When a party seeking enforcement of an oral contract “has performed to such an extent that repudiation of the contract would lead to an unjust or fraudulent result, the court will disregard the requirement of a writing and enforce an oral agreement.” Elements: A court generally will enforce an alleged oral contract pursuant to the doctrine of part performance only if a party can adequately demonstrate, in reliance on said agreement, possession of the property, improvements thereon, or payment of a substantial part of the purchase price.

UCC § 2-201: FORMAL REQUIREMENTS; STATUTE OF FRAUDS (1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or

broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. (2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606).

310-312; The Statute of Frauds and the Sale of Goods, Article 2 of the Uniform Commercial Code is the statute of frauds 326-329; Estoppel and UCC§ 2-201 Does Estoppel apply to Article 2 of the UCC?

UCC says unless displaced, principles of law and equity supplement. o Suggests estoppel may be used to enforce some contracts whose enforcement would be otherwise barred

under SoF o May be limited. 2-201(1) suggests only exceptions to Article 2 must be found in that sections—no

reference to estoppel

Majority view—favoring estoppel o B&W Glass, Inc. v. Weather Shield Mfg.—except does not displace general principles of law such as

estoppel (refer to Comment 1 of UCC §1-103)

Minority view—UCC displaces estoppel o Lige v. Dickson Co. v. Union Oil Co.—court points to listed exceptions under UCC §2-201(3) and

concluded they were exclusive. UCC § 2-201(2): Silence

Memorandums of the agreements do not satisfy SoF unless they are signed by the party against whom enforcement is sought.

Read your mail exception o Between merchants if within reasonable time a writing in confirmation of the contract and sufficient

against the sender is received and the party receiving it has reason to know its contents, it satisfies requirements of subsection (1) against such party UNLESS written notice of objection to its contents is given within ten days after it is received.

o Elements (1) Recipient of message has to let 10 days go by without having responded to it or writing objection to the contents (2) Recipient had reason to know contents of message (3) Message was a writing in confirmation of the contract (4) Message sent within a reasonable time (5) Sender/recipient were merchants

2-201(2) allows a writing to satisfy SoF even though recipient did not sign the writing. Sending the contract has a salutary effect of moving the contract along—if no response, it satisfies SoF. If there is a response, there is opportunity for parties to resolves points of disagreement.

Restatement 2d Contracts § 139. Enforcement By Virtue Of Action In Reliance (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires. (2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant: (a) the availability and adequacy of other remedies, particularly cancellation and restitution;

(b) the definite and substantial character of the action or forbearance in relation to the remedy sought; (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; (d) the reasonableness of the action or forbearance; (e) the extent to which the action or forbearance was foreseeable by the promisor. Duress, Modification & Pre-Existing Duty 356-359; Classical equity condemns overreaching. Common law defenses: duress, fraud, and mistake

Duress—impermissible pressure exerted by one party over another either during pre-contractual bargaining or during the attempted renegotiation of an existing deal.

o When person uses compulsion to obtain benefit, victim can sometimes compel restoration.

Limitations (1) reasonable degree of temerity in face of threat (2) substance of the threat [threats of unlawful action]

Misrepresentation and Fraud (deliberate trickery) —partys’ obligations to make accurate representations to each other during process of bargaining. Party possessing information material to exchange must disclose it or refrain from exploiting ignorance of the other.

Mistake (see below) Alaska Packers (359-363); A contracted with group of sailors to sail between San Francisco and Alaska, and en route perform regular duties as well as other duties requested by the captain or agents of A. A agreed to pay each sailor $50 for season and two cents per salmon they assisted in catching. After arriving in Alaska, sailors stopped working and demanded $100 for season in order to resume their work. Being unable to hire replacement sailors, an A representative in Alaska signed new contract agreeing to higher pay. However, A paid only original contract price of $50. Sailors sued A to recover the amount under new agreement. Court says no consideration for new contract, so it’s not enforceable.

Pre-existing Duty Rule: a promise to pay a man for doing that which he is already under contract to do is without consideration.

UCC § 2-209. MODIFICATION, RESCISSION AND WAIVER. (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. RS § 73. PERFORMANCE OF LEGAL DUTY Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain. RS § 89. MODIFICATION OF EXECUTORY CONTRACT A promise modifying a duty under a contract not fully performed on either side is binding

(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or (b) to the extent provided by statute; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.

363-365; Avoiding the pre-existing duty rule: Rescission and modification

Are parties to a contract ever free to disavow their agreements and bargain with one another anew? o Schwartzreich v. Bauman-Basch, Inc. cites Williston—a rescission followed shortly afterwards by a new

agreement in regard to the same subject-matter (modification) would create the legal obligations provided in the subsequent agreement.

RS §89. MODIFICATION OF EXECUTORY CONTRACT A promise modifying a duty under a contract not fully performed on either side is binding:

(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or (b) to the extent provided by statute; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.

Watkins (365-368); W and C executed written contract. W agreed to excavate a basement for C. C agreed to total contract price calculated according to agreed per unit price for excavation. W commenced work but encountered solid rock. Written contract provided only that basement would be excavated and did not account for removal of rock. However, W requested modification of the contract due to solid rock and parties orally agreed that C would pay substantially higher unit price for excavation that required removal of rock. W relied on oral agreement and proceeded with excavation, the majority of which required removal of rock at higher per unit price agreed to in oral agreement. W brought action against C to enforce payment according to terms of the oral agreement rather than written agreement.

“promise in adjustment of contractual promise already outstanding”—changes to meet changes in circumstances and conditions should be valid if the law is to carry out its function and service by rules conformable with reasonable practices and understandings in matters of business and commerce.

368-310; Yielding to Threat

Denbow v. Tesch—a brother threatened his sister unless she signed an agreement dividing their parents’ estate, he would “law and law it” in court and she would get nothing. Sister signs and later sought to have agreement cancelled.

o Court upholds agreement—it’s a threat, but it does not mean consent was procured through duress and menace.

Duress—must deprive person of will 419-420 “No Oral Modification” Clauses

No Oral Modification Clause Rule—clauses are not effective

Some states (NY)—enforce the no-oral-modification clause

Article 2 of Uniform Commercial Code §2-209(2): A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded.

Avoiding the Contract

Mutual Mistake Renner (853-856); R entered into a contract to purchase leaseholds on land owned by K. It was understood by, before they entered contract that R intended to use property to grow jojoba which needed adequate water supply. Soil and climate were good for jojoba cultivation and both parties believed there was adequate supply of underground water for this purpose. R made down payment, took conveyance of leaseholds and drilled five test wells. Test wells indicated there was insufficient quantity or quality of water for commercial jojoba cultivation. R brought action against K for rescission of contract. Court holds contract may be rescinded on mutual mistake.

o Rescission based upon mutual mistake—neither party is at fault. Without fraud or misrepresentation, a party who rescinds a contract may not recover consequential damages

o RS §376 when a party rescinds a contract on the ground of mutual mistake, he is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance

856; Sale of Goods Wood v. Boynton (Rough Diamond Case): Buyer and seller contract to sell a stone. They think it’s a topaz. It turns out to be a rough diamond. Seller sues Buyer. Trial court dismisses action. Seller appeals.

o Rule: Absent fraud or mistake, no recovery. Mistake means a mistake made by the vendor in delivering the article which was not the article sold (delivered the wrong item)

Sherwood v. Walker (Pregnant Cow) Cattle breeder agrees to sell cow of distinguished ancestry for $80. Both believe cow is sterile. Later cow is discovered pregnant and is now worth ($750 to $1K). Breeder refuses to deliver the cow. Buyer sues for replevin. Buyer wins at trial. Seller appeals and wins.

o A barren cow is a substantially different creature than a breeding one. The cow was not the animal or the

kind of animal D intended to sell or P intended to buy. 858-862; Limited Knowledge

o Nelson v. Rice—Court holds estate bears risk of mistake under RS §154(b)—party bears mistake when he is aware at time contract is made that he has only limited knowledge with respect to facts at time contract is made, but treats his knowledge as sufficient.

Mistake and Restitution—to what extent should a court readjust the parties legal relations to account for performances, expenditures, and lost opportunities prior to their discovery of the mistake? Should it matter whether discovery was a pleasant or unpleasant one?

o Kull—strong inclination in cases to make adjustment stronger in loss cases than in gain cases. o RS §158—support for monetary reparations in cases of rescission. Attitudes differ as to appropriate

computation. RS §151. MISTAKE DEFINED A mistake is a belief that is not in accord with the facts. RS §152. WHEN MISTAKE OF BOTH PARTIES MAKES A CONTRACT VOIDABLE (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in RS §154. WHEN A PARTY BEARS THE RISK OF A MISTAKE A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

Misrepresentation: concealment and nondisclosure Concealment Italian Cowboy (Canvas); Powell tells Secchis (own IC) that building is new and had no problems. Secchis sign lease and start remodeling. Guy stops by to tell them to be careful: there used to be place called Hudson’s here … and there was bad odor. Secchis contact Powell to ask whether Hudson’s had odor problem. Powell says never had problem, this was first time she heard something was wrong. Secchis learn from former Hudson’s Grill manager (Darla Wahl) that odor was present during Hudson’s tenancy and Powell was aware of odor at time. Secchis cease paying rent and close restaurant. IC sues Prudential (Powell's insurer) for fraud, misrepresentation, breach of implied warranty. IC wants to rescind contract. Court holds there is fraud, misrepresentation.

o Rule of Fraud (1) Material representation was made [Material—a reasonable person would attach importance to and would be induced to act on information in dete4rmining choice of actions in transaction. Opinions—not representations of material fact. Special/one-sided/superior knowledge may lean toward statement of fact. Ultimate question is whether statement is actionable as fraud] (2) Representation was false (3) When representation was made, speaker knew it was false OR made it recklessly without any knowledge of truth and as a positive assertion (4) Speaker made representation with intent that other party should act upon it (5) Party acted in reliance on the representation (6) Party suffered injury

396-398; Promissory Fraud—promise that at time of its making the promisor never intended to perform

o What damages? Traditional breach gets expectation damages. Here promisee might receive punitive damages

Non-Disclosure (Canvas) To what extent must a contracting party share information with the other party when that information bears on the relative exchange of values?

o Laidlaw v. Organ—P calls D seller and contracts to purchase large quantity of tobacco. P knows of a treaty that would increase price of tobacco later on. This happens. D wants to avoid the sale. P sues to enforce contract. Court says intelligence of extrinsic circumstances which might influence price of commodity and was within knowledge of vendee not required to have been communicated by P to the vendor

o General rule: no duty to disclose.

o Exceptions to the rule: (1) Statute/regulation requires disclosure (2) Concealment—non-disclosure is okay, but active concealment crosses the line (3) Where partial disclosure is made, a lack of full disclosure may constitute misrepresentation (4) Where party has made a true statement in good faith, but supervening events make it no longer true. There is duty to disclose if representor knows other is relying on it. (5) In sale of goods cases—usually not an issue; UCC has implied warranty doctrine. Only issue when warranties have been disclaimed. (6) Real property [Common law—no warranties to sale of real property. Modern trend—recognize implied warranty of merchantability] (7) Nature of transaction—suretyship/insurance require broad duty of disclosure (8) Relationship of parties [ Fiduciary/confidential relation—duty to disclose material facts; Attorney’s duty to disclose certain information to adversary; Medical malpractice—rule of informed consent— require disclosure of all facts which if known would affect patient’s decision]

Impracticability 870; UCC § 2-613. CASUALTY TO IDENTIFIED GOODS. Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale" term (Section 2-324) then

(a) if the loss is total the contract is avoided; and (b) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller.

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:

(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 a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the 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 non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.

UCC § 2-614. SUBSTITUTED PERFORMANCE. (1)Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted. (2) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer's obligation unless the regulation is discriminatory, oppressive or predatory.

Transatlantic Financing Corp. (870-877) US (defendant) chartered T (Transatlantic) (plaintiff) to transport shipment of wheat from US to Iran. Charter did not indicate route, but T’s vessel departed on course that would have taken it through Suez Canal. Israel subsequently invaded Egypt and Canal was closed, so T sailed around Cape of Good Hope to arrive at Iran. T brought suit, claiming it was owed additional compensation for longer voyage because planned route was impracticable. Court say’s impracticability not met.

o Alternative performance does not constitute impracticability. o Damages: Transatlantic wants quantum meruit damages. If contract is impossible, it’s a nullity and

quantum meruit damages would be appropriate. Impracticability without fault (Corbin §1321) law seeks

equitable solution; quantum meruit may be used. Contract here was advantageous enough for T to assume risk.

What are the terms of the contract?

Mirror Image Rule 199-205; Mirror Image Rule—acceptance must be on exact terms proposed by the offeror

Mitigations to Mirror Image Rule: (1) implied term OR (2) suggested/precatory o Two types of disputes

One party claims contract, other claims no contract

Some performance has taken place, following exchange of messages showing parties believed they had reached contract

Last shot rule—the party that sent last message before performance usually prevails.

Battle of the Forms

UCC § 2-207. ADDITIONAL TERMS IN ACCEPTANCE OR CONFIRMATION. (TRANSCENDING MIRROR IMAGE RULE) (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon [acceptance with different/additional terms], unless acceptance is expressly made conditional on assent to the additional or different terms [i.e. counteroffer]. (2) [Non-merchants] The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless [conditional acceptance]:

(a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act [i.e. gap-filler]. Brown Machine (Canvas); (1) H requests price quote from B. (2) B sent quote. (3) OFFER: H submitted purchase order (expressly limited to terms of order, no indemnity provision). (4) ACCEPT, ADD TERMS: B sent H an order acknowledgement which contained an indemnity provision. (5) Equipment was shipped and agreed upon price was paid. (6) H employee injured and sues B. B settles with employee. (7) B wants H to honor indemnity provision. (8) H refuses. B sues H for breach of indemnity provision. Court holds that the indemnification provision is not part of the contract (buyer’s purchase order is offer, seller’s acknowledgement was acceptance with additional terms, under 2-207(2)(b)). Dorton (206-210); D purchased carpets from C for three years. D brings action against C for fraud/misrepresentation re. quality of carpets. C wants to enforce arbitration clause (“subject to terms”) on all of its sales acknowledgement forms (D makes telephone orders, C sends acknowledgement forms). D accepted each of the shipments without objection to terms of acknowledgement forms. Court holds (1) “subject to terms” did not expressly condition acceptance and (2) remands question of whether arbitration clause materially altered the offer to DC. Itoh (210-212); Itoh sent purchase order to Jordan to buy steel coils. Jordan replied conditionally accepting offer in purchase order: “Seller’s acceptance is, however, expressly conditional on Buyer’s assent to additional/different terms and conditions set forth below and printed on reverse side.” On reverse side was arbitration clause. Itoh never formally accepted or objected to arbitration clause, but both parties commenced performance. On account of poor steel coil quality, Itoh brought suit. Jordan filed motion under arbitration clause in its acceptance to stay lawsuit pending arbitration. 2-207(1) no contract, J’s form is counteroffer. 2-207(3) performance recognizes contract. Parties did not agree on arbitration. Arbitration is not supplementary term (not gap in filler provision) 212-213; Contract Terms Under UCC

o Common Law—exchange of non-identical terms did not create a contract (unless there’s an acceptance of the “last shot”)

o Additional Terms o Between merchant (within UCC) additional terms are automatically part of the contract

Exceptions: (1) Express limit (2) Material alteration (3) Objection o Between non-merchants: additional terms are proposals for addition to the contract.

Bayway (213-217); OMT (D, buyer) sends an offer to buy MTBE from Bayway (P, seller). Bayway’s response functions as acceptance included additional term “Tax Clause” OMT did not object to Bayway’s acceptance or Tax Clause. Bayway pays tax, then bills OMT for the amount $464,035.12. OMT denied it agreed to Tax Clause and refused to pay. Bayway sues to enforce Tax Clause. Court holds tax clause is a term of the contract because it’s between merchants (per 2-207(2) automatic included)

o Per Se Materiality—arbitration clause, waivers of warranties of merchantability or fitness for a particular purpose, clauses granting seller power to cancel upon buyer’s failure to meet any invoice.

o Materiality—would cause hardship or surprise 217; Different Terms Northrup (218-221); OFFER: Litronic (offeror) offered to sell to Northrop printed wire boards. Offer contained 90-day warranty. ACCEPTANCE: Northrop’s (offeree) return invoice contained a warranty period unlimited in duration. 90 days pass, Northrop tries to return defective wire boards. Litronic refused to accept them arguing 90 day period had lapsed.

o MAJORITY VIEW: Knockout Rule—discrepant terms (both in nonidentical offer and acceptance) drop out and default terms elsewhere in the UCC fill the resulting gap.

o MINORITY VIEW: Offeree’s discrepant terms drop out, offeror’s term becomes part of the contract o CALIFORNIA: Different=Additional; we ask whether different terms of the acceptance are materially

different from the terms of the offer. Terms of offer prevail over terms of acceptance only if latter are materially different.

Step-Saver (221-227); Step-Saver purchased software from TSL for incorporation into system Step-Saver sold to law and medical offices. (WT, co-defendant, was successful at trial court and on appeal.) While documents exchanged during order process had identical terms, licensing agreement printed on top of each software box (box-top license) contained disclaimer of warranties and stated that opening box constituted acceptance of the licensing agreement terms. Step-Saver stopped selling its system due to problems with TSL’s software. Stepsaver sues TSL for breach of warranty and indemnification. TSL argues conditional acceptance.

o Conditional acceptance under 2-207(2)(a) “express limit acceptance”—must be clear unwilling to proceed unless additional terms are incorporated.

o Repeated writings of terms do not satisfy 2-207(3)’s course of conduct. o Disclaimer of warranty is a material alteration as a matter of law. o Remands question of whether original contract included implied/express warranty.

ProCD (2227-230); ProCD (plaintiff) sells software product known as SelectPhone database. Product consists of detailed address directory and is sold to both commercial and non-commercial users. To make more profit, ProCD engages in price discrimination by charging higher price for commercial users. It enforces its price discrimination scheme by including license within software package that limits use of SelectPhone to non-commercial purposes. License terms are printed in manual located inside SelectPhone software packaging, and also pop up on computer screen whenever product is run. Zeidenberg purchased SelectPhone and ignored license agreement. He started his own company to sell information contained in SelectPhone to commercial users at cheaper price than ProCD. ProCD sued Zeidenberg in federal DC for breach of contract. Court hold buyer is bound by terms.

o Easterbrook says §2-207 inapplicable because it governs battle of forms. §2-204 applies: OFFER—Pro CD proposed a contract + ACCEPTANCE—buyer accepts by using software after having opportunity to read license at leisure

Gateway (230-234); Hill, purchased computer from Gateway 2000, Inc. Included in the box with computer was list of terms. List of terms included provision requiring that disputes be resolved through final and binding arbitration. Court holds arbitration clause part of contract.

o A contract can be effective even if it is not read. Those who accept without reading the terms of a contract assume the risk that the terms will be unfavorable. Even though P did not read terms, P accepted the terms by not returning computer within thirty days.

Klocek (Canvas)—K (P), purchased computer from Gateway, Inc. (D). Inside box containing instruction manuals

was copy of D’s Standard Terms and Conditions Agreement: it is accepted by purchaser if purchaser keeps computer longer than five days. Provision in agreement requires arbitration. Court says arbitration clause not term in contract.

o D’s agreement an acceptance with additional terms. Not counter offer (did not expressly condition acceptance to P’s assent). Since P not merchant, P must expressly agree. Court says keeping computer past 5 days is not express agreement of arbitration term.

Parol Evidence Rule—may preclude a determination that an agreement made prior to or contemporaneously with the writing is part of the contract. RS §209(2), RS §210(3)—application of parol evidence rule involves two steps

o [Integration] Whether a writing has been adopted by the parties as a final expression of one or more terms of an agreement

o If none, rule does not apply.

o If there is such writing it’s an integrated agreementevidence or prior agreements or negotiations is not admissible in evidence to contradict a term in the writing (RS §209, §215)

o Whether the writing has been adopted by the parties as a complete and exclusive statement of the terms

o No—partially integrated agreement

o Yes—completely integrated agreementevidence of a consistent additional term is not admissible to supplement the written agreement (§210, §216)

Gianni (407-411); G rented room in office building where he conducted business selling tobacco, fruit, candy and soft drinks. After R acquired office building, agents entered into leasing negotiations with G with regard to G's continued rental of room. Lease signed for three-year term and provided G could use premises only for sale of fruit, candy and soda water, but could not use it to sell tobacco. No stipulation in the lease that G had exclusive right to sell soft drinks in building, but G claims oral contract. Shortly after lease signed, R leased room, adjoining G's room, to drug company without restricting its right to sell soda water and soft drinks. G sues R for breach of alleged oral contract. Court holds oral agreement not enforceable under Parol Evidence Rule.

o Martin v. Berens—writing [is] the only evidence of agreement; if it’s not in the writing, it’s inadmissible o Exceptions: Union Storage Vo. V. Speck—UNLESS fraud, accident, or mistake

Masterson (411-416); M owned ranch as tenants in common. M conveys ranch to S through grant deed which reserved option forto purchase within ten years of date of conveyance. Deed stated that M could exercise this option by paying same amount of consideration as provided by S, minus any depreciation in value of property. M declared bankruptcy, and a bankruptcy trustee took over his estate. The trustee and M brought a declaratory relief action to establish their right to enforce the option to repurchase the property conveyed to the S. Trial court held that parol evidence rule prohibited introduction of evidence offered by S that parties intended property to be kept within M family and thus option was personal to M and could not be exercised by bankruptcy trustee. Court holds that evidence should have been admissible (agreement was only partially integrated).

o Parol Evidence Rule—when parties to a written contract have agreed to it as an integration (complete and final embodiment of the terms of agreement) parol evidence cannot be used to add or vary its terms. If only agreement is only partially integrated, rule applies only to that part; evidence may be used to prove elements of the agreement not reduced to writing.

UCC § 2-202. FINAL WRITTEN EXPRESSION: PAROL OR EXTRINSIC EVIDENCE. Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

(a) by course of performance, course of dealing, or usage of trade (Section 1-303); and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement

UCC § 1-303. COURSE OF PERFORMANCE, COURSE OF DEALING, AND USAGE OF TRADE. (a) A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if:

(1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and

(2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.

(b) A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (c) A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law. (d) A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance. (e) Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:

(1) express terms prevail over course of performance, course of dealing, and usage of trade; (2) course of performance prevails over course of dealing and usage of trade; and (3) course of dealing prevails over usage of trade.

(f) Subject to Section 2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance. (g) Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party. Columbia Nitrogen (456-459) C sold its products to R for several years. In 1966, R began to manufacture phosphate. C agreed to purchase a minimum amount from R for three years. The contract set price per ton and contained merger clause that excluded any “verbal understanding” from terms of contract. When phosphate prices dropped steeply in first year of contract, C failed to purchase agreed amount and R was forced to sell remaining phosphate at a lower price. R sues C.

o UCC—evidence of usage of trade and course of dealing should be excluded whenever it cannot be reasonably construed as consistent with the terms of the contract.

o VA. Code §8.2-202—allows evidence of course of dealing or usage of trade to explain or supplement terms intended by the parties as a final expression of their agreement

o Trade usage should not be conclusively rejected from consideration under Parol Evidence Rule + Merger Clause. Distinguish between “additional terms” and “evidence of trade usage”

Interpretation o 421; Plain meaning rule—looks at whether the language in the written agreement, with respect to the

dispute in question, admits of only one plausible meaning OR is ambiguous

One Plausible Meaning—extrinsic evidence as to meaning will be excluded

Ambiguous—extrinsic evidence as to meaning will be admitted to inform court’s determination of the meaning of the contract language.

PGE (421-425); California Approach—“The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.” Look to the intent of parties. WWW (428-430); New York Approach—Extrinsic evidence as to what the parties to a contract intended but did not state or misstated is generally inadmissible to add to or vary the terms of the agreement. However, if the terms of a contract are ambiguous, extrinsic evidence may be used to interpret the agreement. 433-436; Methods of Interpreting Ambiguous Contracts

Vague—when a word’s applicability in marginal situations is uncertain

Ambiguous—a word that has two entirely different connotations so that it may be at the same time both appropriate and inappropriate

Hurst (446-448); Oregon Approach—Evidence of custom should be admissible. “Three Weeks” (Canvas); UCC § 1-303. COURSE OF PERFORMANCE, COURSE OF DEALING, AND USAGE OF TRADE. (a) A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if:

(1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and (2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.

(b) A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (c) A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law. (d) A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance. (e) Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:

(1) express terms prevail over course of performance, course of dealing, and usage of trade; (2) course of performance prevails over course of dealing and usage of trade; and (3) course of dealing prevails over usage of trade.

(f) Subject to Section 2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance. (g) Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.

459; Objective Interpretation—Where parties have attached different meanings to their language, an objective standard should prevail. Problems: may apply unintended obligations. Raffles (459-461); where the parties are in disagreement as to the terms dictating shipment and delivery, contract is still enforceable. Parties did not state intention as to which ship, but contract was for sale of cotton—immaterial unless fraud. Oswald (462-463 note 1); Oswald thought he was buying all “Swiss coins” and Allen thought she was selling the “Swiss Coin Collection.” Court finds no contract.

o RS §7(a)—when any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the other’s understanding.

Colfax Envelop (463-467) term in question is “4C 60 Press-3 Men.” Colfax—it means four-color presses printing sheets 60 inches and over. Union—it means four-color presses printing sheets 60 inches and under. Here: Colfax should have realized contract unclear. Reasonable person in Colfax’s position would have realized that its interpretation of term might not coincide with other party.

Filling Gaps 467-471; Filling Contractual Gaps Generally

What happens when a dispute arises about which there has been no agreement between the parties, either explicit or implicit?

o Implication—Court’s findings as to the actual expectation of the parties o Filling Common Contractual Gaps by Statute

Some issues where parties tend to omit agreement occur with such frequency that law has

developed off-the-rack default terms—terms that courts imply in the absence of agreement between the parties—to address those issues.

See Article 2 of UCC

Avoiding the gap—UCC §§ 1-302(a) and 1-302(c)

How wide the gaps—UCC §§ 2-305(1) o Gap Filling with respect to Product Quality—Implied Warranties in Article 2

In contracts for sale of goods, it is common for agreement to be silent about whether goods must meet particular standard of quality to fulfill seller’s obligation under contract.

Ways to deal (1) caveat emptor—let the buyer beware; no minimum standard (2) “Implied warranties”—the more recent approach is for the law to supply a default term with respect to the standards that a contracting party’s performance must fulfill, even when the parties’ agreement could easily be interpreted and enforced without such term. They are implied—parties can contract to contrary.

See UCC Article 2 o Implied warranty of merchantability UCC§2-314 o Implied warranty of fitness for particular purpose UCC §2-315 o Warranty of title and warranty against infringement UCC §2-312

o The Implied Warranty of Merchantability When does the implied warranty of merchantability come into existence?

UCC §2-314(1)—a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of the kind. UCC §2-205 promise to hold offer open irrevocable without consideration

Merchant defined (1) UCC §2-104 and (2) UCC §2-314 qualifies the term by requiring that the seller be a merchant with respect to goods of the kind that are being sold.

Merchantability (UCC §2-314(2)) UCC § 2-305. OPEN PRICE TERM. (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if

(a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account. UCC §2-308, (HOW DOES UCC RESOLVE THE GAP IN THE CONTRACT?); ABSENCE OF SPECIFIED PLACE FOR DELIVERY. Unless otherwise agreed:

(a) the place for delivery of goods is the seller's place of business or if he has none his residence; but (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and (c) documents of title may be delivered through customary banking channels.

UCC §2-310; (WHEN MUST A PARTY PAY?); OPEN TIME FOR PAYMENT OR RUNNING OF CREDIT; AUTHORITY TO SHIP UNDER RESERVATION. Unless otherwise agreed:

(a) payment is due at the time and place at which the buyer is to receive the goods …; and (b) if the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such

inspection is inconsistent with the terms of the contract (Section 2-513); UCC § 2-314. IMPLIED WARRANTY: MERCHANTABILITY; USAGE OF TRADE. [Ordinary Use] (1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. … (2) Goods to be merchantable must be at least such as

(a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promises or affirmations of fact made on the container or label if any.

(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade. UCC § 2-315. IMPLIED WARRANTY: FITNESS FOR PARTICULAR PURPOSE. [Non-standard Use] Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose. Lewis (474-477); L says M supplied him with oil warranted fit for use, but the oil wasn’t suitable for that use. Court finds there was an implied warranty of fitness. 477-478; Excluding Implied Warranties from the Contract § 2-316. EXCLUSION OR MODIFICATION OF WARRANTIES. (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2)Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof." (3)Notwithstanding subsection (2)

(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer'sattention to the exclusion of warranties and makes plain that there is no implied warranty; and (b) when the buyer before entering into the contract has examined the goodsor the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.

(4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719). S.C. Electric (478-481); SC entered into contract with C to purchase boiler unit and ancillary equipment manufactured by C. Contract contained warranty section which provided for one-year express warranty and disclaimer clause excluding any other warranties, whether express or implied (except for warranty of title). Over year after boiler and equipment became operational in SC's power generating plant, flexible metal hose ruptured causing fire that damaged SCE & G's plant. SC sues C for breach of implied warranty of merchantability and fitness for a particular purpose. Court finds this was a valid disclaimer of warranty. § 2-313. EXPRESS WARRANTIES BY AFFIRMATION, PROMISE, DESCRIPTION, SAMPLE. (1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or

promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. UCC § 2-103. DEFINITIONS AND INDEX OF DEFINITIONS. (1) In this Article unless the context otherwise requires:

(b) “Good faith” in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

UCC 1-201(10) GENERAL DEFINITIONS (10) “Conspicuous”, with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is “conspicuous” or not is a decision for the court. Conspicuous terms include the following:

(A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and (B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.

Express vs. implied warranty o Express Warranty—a product of bargaining between parties o Implied Warranty—implication by law

§ 2-313. Express Warranties by Affirmation, Promise, Description, Sample. (1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

Is there a performance or a breach of the contract?

Express Conditions 725-726; UCC §2-609 cmt. 1—one who has committed oneself in exchange for a return performance is entitled to a continuing sense of reliance and security that promised performance will be forthcoming when due RS §224 Condition: A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due. Event may or may not be within control of parties. If the event is not within control of parties, it is fortuitous—aleatory. RS §224 (comment e) Conditions Subsequent—when the occurrence of an event (such as failure to commence an action within a prescribed time) that will extinguish a duty after performance has become due, along with any claim for breach. Note—restatement abandons subsequent/precedent distinction. RS §230 the occurrence of a condition subsequent is called termination. Luttinger (726-728); Ps agreed to buy Ds’ premises for $85,000 and paid $8,500 deposit. Contract was “subject to and conditional upon buyers obtaining first mortgage financing on said premises from bank or other lending institution in amount of $45,000 for term of not less than twenty (20) years and at interest rate which does not

exceed 8 1/2 per cent per annum.” Ps agreed to use due diligence in obtaining financing. Parties also agreed that all sums would be refunded in event Ps could not obtain financing. P's attorney only attempted to obtain financing through one lending institution. He was familiar with lending practices in area at time and knew institution was only one that would possibly lend money within contract parameters. Ps unable to obtain financing at agreed-upon interest rate and Ds initiated suit, averring a lack of due diligence on Ps’ part in obtaining financing. Court finds P used due diligence, condition met, there is performance.

o A contract is not binding where a condition precedent to performance of the agreement was not met. 733-734 (section B, note, and problem); Separate Contracts: A party’s breach of contract does not allow the other party to terminate a different contract subsisting between the two, or even suspend performance of the other contract, unless parties have otherwise agreed. Peacock (735-738) M and O each subcontracted with P to perform work on condominium project. When the owners of the condominium did not pay P, P did not pay the subcontractors (M and O). M and O sue P for breach of contract. Court holds P is obligated to pay M and O.

o The meaning of language is a factual question, but the interpretation of a document is a question of law rather than of fact.

o It is not generally intended that payment by the owner of a building to the general contractor be a condition precedent to the general contractor’s duty to pay subcontractors, because small subcontractors cannot afford to assume the risk of nonpayment by the owners to the general contractor.

Implied Conditions 749-750; Devices under Implied Conditions: (1) constructive conditions [In the interest of fairness, courts will sometimes imply certain events (performances) to be conditions that must be fulfilled prior to the rendering of future performance.] and (2) material breach [a material breach is a breach that reaches to the heart of the contract’s subject matter and negatively affects the outcome of the agreement. The essential requirement for a material breach is that the non-breaching party did not receive the “substantial benefit” of the bargain.] Failure to render performance—a possible excuse for non-performance of duty undertaken by other party Prospective failure to perform—a possible excuse for non-performance of duty undertaken by other party Traditional view—commitments exchanged by parties are dependent covenants (denying these effects would be independent covenants) Kingston [constructive conditions](750-751); P covenanted with D to serve him for one year and quarter in his trade of silk mercer at 200 a year and in consideration of premises D covenanted that at end of year and a quarter he would give up his business to P and give up his stock and deeds would be executed for fourteen years. Another covenant stated that payment was to be made in installments out of proceeds of the business by P. P promised to post security bond, which guaranteed payment of installments if business did not generate enough proceeds before sale. P did not post such bond. D refused to consummate sale. P sues D for breach of contract. P argues D's obligation to convey business independent of P’s obligation to post security bond and D's remedy was breach of contract, not to refuse to sell. Court holds these are not independent covenants, D within rights not to sell. Court cites interest of fairness.

o Three types of covenants: (1) those that are mutual and independent where either party may recover damages from the other for the injury he received as a result of the party’s breach and it is no excuse for the Defendant to alleged breach of a covenant on behalf of Plaintiff; (2) covenants which are conditions and dependent in which performance of one depends on the performance of another, till the prior condition is performed the other party is not liable to an action on his covenant; and (3) those that are mutual conditions to be performed at the same time and if one party readily performs and the other refused to perform and the party who was ready to perform may maintain an action for the default of the other.

751-752 Time for Performance: How to set time for performance (1) Parties may fix times for performance or (2) Contract silent—default rules [Coletti v. Knox—when performance of contract consists of doing (faciendo) on one side, and in giving (dando) on the other, doing must take place before the giving. RS §234 cmt. E—principle is that where work is to be done by one party and payment made by another, performance of work must precede payment UNLESS contrary intention showed.]

o Material Breach and Substantial Performance 756-757; Substantial Performance

Luttinger—strict compliance with express condition

Constructive conditions use the substantial performance standard (West Indies Coone v. Eyre) Plante (Canvas); Jacobs contracted with Plante to construct house for them according to specifications set out in their written agreement. Total price for building house was $26,765 and Jacobs paid $20,000 during construction. Jacobs, who had concerns about the quality of construction and perceived flaws in work refused to continue paying Plante. Plante ceased building the house. Plante sought to place lien on property to collect balance of contract price. Court finds substantial performance met.

Substantial Performance Rule: There can be no recovery on the contract as distinguished from quantum meruit unless there is substantial performance. Substantial performance means performance that meets the essential purpose of the contract.

Damages under Substantial Performance

Should the defect fall under cost-of-replacement rule or under diminished-value rule? o Under cost of replacement rule—does not involve unreasonable economic waste

Cost of repairing plaster cracks in ceilings

Cost of mud jacking and repairing patio color

Cost of reconstructing non-weight-bearing wall and nonstructural patio wall o Under diminished-value rule—involves unreasonable/unjustified economic waste

Cost of repairing misplaced living room wall O.W. Grun Roofing (Canvas); P and D entered into written contract, which required D to install new roof on P’s home for $648.00. The contract specified that color of roof was to be russet glow. After roof was installed, P noticed that roof had yellow streaks. D agreed to remedy situation and removed nonconforming shingles. However, replacement shingles did not match remainder, even after time color was different. Therefore, it can be reasonably assumed that only way to have uniform roof would be to install completely new roof. P sued D to set aside mechanic’s lien and to recover damages as result of D’s failure to perform contract to install new roof on P’s home.

A promisor, who has substantially performed is entitled to recover although he has failed in some particular to comply with his agreement. Doctrine of Substantial Performance: to determine if there has been substantial performance, one must weigh (1) the purpose to be served, (2) the desire to be gratified, (3) the excuse of deviating from the letter of the contract and (4) the cruelty of enforcing strict adherence or of compelling the promisee to receive something less than for which he bargained. To constitute substantial performance, the contractor must have in good faith intended to comply with the contract and shall have substantially done so in the sense that the defects are not pervasive, do not constitute a deviation for the plan and are not so essential to the object of the parties in making the contract that its purpose cannot be accomplished by remedy.

779-781; Suspending Performance and Terminating the Contract

Substantial performance—deals with cases where party in breach has finished performing and injured party refuses to pay due to defective/incomplete performance

Earlier stage of performance implicates different question—whether breach justifies injured party in exercising right to self-help by suspending or terminating contract?

o Whether there is an uncured breach by the other party?

If yes, then whether uncured breach is breach of duty of performance that was part of an exchange of promises

RS §232 cmt. A presumes this is the case unless contrary intention is clearly manifested

o Whether breach went to performance that was to take place before that of the aggrieved party?

If no, then we have to determine which breach happened first. Under constructive conditions of exchange, first material breach may excuse later breached by other party

o Is the breach material?

RS §241. Material breach—serious enough to justify self-help in the form of suspension/termination

Not material—there has been substantial performance; aggrieved party must continue performance and treat breach as a partial breach

Right to damages

No right to suspend or terminate

Material breach

Continue performance and treat breach as partial breach

Stop performing and treat breach as total breach o Under constructive conditions of exchange, breached-against party

has right to terminate performance (RS § 237), may collect damages for breach of entire contract, not just defective part of performance (RS § 236(1))

RS § 237. EFFECT ON OTHER PARTY'S DUTIES OF A FAILURE TO RENDER PERFORMANCE Except as stated in § 240, it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. RS § 241. Circumstances Significant In Determining Whether A Failure Is Material In determining whether a failure to render or to offer performance is material, the following circumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

RS § 242. CIRCUMSTANCES SIGNIFICANT IN DETERMINING WHEN REMAINING DUTIES ARE DISCHARGED In determining the time after which a party's uncured material failure to render or to offer performance discharges the other party's remaining duties to render performance under the rules stated in §§ 237 and 238, the following circumstances are significant:

(a) those stated in § 241; (b) the extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements; (c) the extent to which the agreement provides for performance without delay, but a material failure to perform or to offer to perform on a stated day does not of itself discharge the other party's remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important.

UCC § 2-612. "INSTALLMENT CONTRACT"; BREACH. (1) An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent. (2) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. (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. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if h brings an action with respect only to past installments or demands performance as to future installments. UCC § 2-508. CURE BY SELLER OF IMPROPER TENDER OR DELIVERY;

REPLACEMENT. (1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. After-acquired Evidence Rule—When a party terminates contract without justification, but later discovers facts that, had they been known, would have justified termination. Prevailing view is that a party may use those facts to avoid liability.

Arizona Rule—employer can use after-acquired evidence if it can demonstrate that it would have fired an employee had it known of prior misconduct, but even then the employee can recover for lost earnings for the period between the time of discharge and time employer discovers misconduct.

Walker (782-786); H operates dry-cleaning business. W sells, rents, and services advertising signs and billboards. H and W entered into agreement: W agreed to build and install neon electric sign on H’s property that would be leased to H for term of thirty-six months at $148.50 per month. Lease also provided that W would maintain sign during lease, and that title to sign would revert to H at end of lease. W completed and installed sign. H made one payment for August, but noticed maintenance issues with sign: sign was hit with tomato, and H complained of rust and cobwebs. H contacted W to request maintenance of sign he believed he was due under contract, but W did not perform requested maintenance. H informed W it would make no further payments on sign. W sent a letter to H stating that if this was the case, matter would be turned over for collection to W’s attorney. H made no additional payments. W sued for the entire balance due under contract, or $5,197.50. H argues W’s failure to maintain the sign is a material breach. Court holds that W’s breach is not a material breach. 1 RS §275. MATERIAL BREACH OF CONTRACT In determining the materiality of failure to fully perform promise, we consider factors: (1) Extent to which injured party will obtain substantial benefit he could have reasonably anticipated (2) Extent to which injured party may be adequately compensated in damages for lack of complete performance (3) Extent to which party failing to perform has partly performed or made preparations for performance (4) Greater or less hardship on party failing to perform in terminating contract (5) Willful, negligent, innocent behavior of party failing to perform (6) Greater or less uncertainty that party failing to perform will perform the remainder of contract

o Sale of Goods, Perfect Tender, and Assurances 762-763, Perfect Tender Rule—buyer entitled to reject goods unless seller made a perfect tender. UCC §2-601. BUYER'S RIGHTS ON IMPROPER DELIVERY. Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may

(a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest.

UCC softens rule in three ways:

UCC § 2-508. CURE BY SELLER OF IMPROPER TENDER OR DELIVERY; REPLACEMENT. (1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

UCC § 2-608. REVOCATION OF ACCEPTANCE IN WHOLE OR IN PART.

(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it

(a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or (b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.

(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

UCC § 2-612. "INSTALLMENT CONTRACT"; BREACH. (1) An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent. (2) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. (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. But the aggrieved party reinstates the contract if he accepts a non-conforming 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.

What remedies?

Specific Relief 617-618; Remedies for Breach: Presumption is that the remedy for a breach of contract is compensatory or substitutional relief in the form of a judgment awarding money damages to be paid to the aggrieved promisee rather than specific relief in the form of a court order directing promisor to perform promise. UCC § 2-716. BUYER'S RIGHT TO SPECIFIC PERFORMANCE OR REPLEVIN. (1) Specific performance may be decreed where the goods are unique or in other proper circumstances. (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. Klein (621-626); P wants to buy used jet. He contacted Janas, who informed him of aircraft owned by D. After inspection by pilot and mechanic, P had jet flown to Arkansas for personal inspection. P gave Janas $200K and told Janas to offer $4.4 million for aircraft. Janas telexed $4.4 million offer to Welsch, who served as broker for D. Welsch counter-offered with $4.7 million. After negotiation, Janas and Welsch settled on $4.6 million, and Janas planned to sell aircraft to P for $4.75 million. D failed to deliver aircraft in breach of contract. P sues for specific performance. D claims no contract. Court holds specific performance is not appropriate.

o Specific performance is appropriate where the goods are unique “in other proper circumstances.” Laclede (630-634); L and A entered into natural gas distribution agreement. Individuals or developers would apply to Laclede for gas systems, which would request Amoco to supply gas. Laclede’s right of cancellation: “this Agreement shall automatically continue in effect for additional periods of one (1) year each unless L shall, not less than 30 days prior to expiration of initial one year period or any subsequent one year period, give A written notice of termination.” There was no right of cancellation granted to Amoco under contract. A later notified Laclede that its price of propane had been increased by three cents per gallon. L objected to this increase and demanded full explanation. Instead A sent letter informing L that it was terminating agreement because agreement lacked “mutuality." L sued A for specific performance or in alternative, damages. Court holds L can get specific performance.

o Specific performance is appropriate when the terms of the contract are express, so that the court can determine what specific performance should be, the contract has a definite end, and remedy at law is

inadequate. Walgreen (636-638) W signed lease with S to occupy space in Southgate Mall in Milwaukee. S owned mall. In clause in lease, Sara promised not to lease space in mall to any other company seeking to operate pharmacy or store containing pharmacy. In 1990, Sara’s largest tenant in mall faced bankruptcy, and Sara informed Walgreen it was buying out tenant and replacing it with Phar-Mor store. Phar-Mor is “deep discount” chain that contains pharmacy same size as the Walgreen pharmacy. Walgreen filed action for breach of contract against Sara and Phar-Mor and asked for injunction against Sara’s lease of space to Phar-Mor. Court held specific performance was appropriate in this case.

o Damages are the norm UNLESS they are inadequate, in which case specific performance may be a remedy.

Measuring Expectation and Reliance: the Basics 9-10; Remedying Breach

o RS §1 defines contract in terms of legal duty to perform AND provision of remedy if performance does not occur.

o How does the law determine appropriate remedy?

Two assumptions made by courts in development of remedies (1) Law is primarily concerned with relief of aggrieved promisees and not with punishment of promisors. (2) Primary purpose of the remedy is to give promisees the benefit of the bargain by protecting expectation interests [RS § 344(a)—objective of protecting a promisee’s expectation interest is to put the promisee in as good a position as he would have been in had the contract been performed.]

USNI (10-14); Tom Clancy, author of The Hunt for Red October, assigned his copyright for book to Naval. Naval entered into agreement with Charter Communications (Charter) and Berkley (defendants) that granted Berkley exclusive license to publish paperback edition of book “not sooner than October 1985.” Berkley planned to ship books early. Naval filed suit for breach of contract, seeking to enjoin early shipments

Compensatory damages—Damages for breach of contract designed to compensate for loss. Measured by plaintiff’s actual loss. (RS §347). Punitive damages—an award of D’s profits where they greatly exceed P’s loss and where there has been no tortious conduct. These are not part of contract law. (RS §356)

Rule: Damages for breach of contract are calculated by the actual loss sustained and uncertainties are generally resolved against the wrongdoer.

14-15; Three protected interests: (1) Expectation—Make the promisee as well off as actual performance would have made her, (2) Reliance—applicable if there is a change in position to party’s detriment by relying on promise. Make the promisee in as good position as he would have been in had the contract not been made. RS §344(b), (3) Restitution—Applicable when promisee conferred a benefit on the promisor. This is the promisee’s interest in having restored to him any benefit that he has conferred on the other party. RS § 344(c) [Unjust enrichment, Rescission of contract, Disgorgement of profits made as result of breach] Sullivan (15-21) Sullivan contracted with O’Connor to perform two operations on her nose to make it more attractive. O’Connor performed two surgeries but failed to improve her nose and instead worsened her appearance. After two unsuccessful surgeries, O’Connor performed third surgery which failed to correct Sullivan’s disfigurement and further surgeries could not improve her appearance either. Sullivan sued O’Connor for negligence and breach of contract. Court holds P entitled to out of pocket expenditures, also recovery for worsening of her condition and for pain and suffering and mental distress involved in third operation.

Expectation interests, restitution interests and reliance interests are used in measuring damages to put the promisee in the position in which she would have been had the promise been performed.

o Hawkins v. McGee (New Hampshire): (1) Compensatory (expectation) damages—an amount intended to put the P in the position he would be in if the contract had been performed OR “Restitution” damages—at P’s election, an amount corresponding to any benefit conferred by P upon the D in performance of the contract disrupted by D’s breach.

No recovery for pain and suffering—would have resulted even if operation successful o Robins v. Finestone (New York): Reliance damages—Plaintiff is to recover any expenditures made

by him and for other detriment following proximately and foreseeably upon D’s failure to carry out his promise. This measure puts P back in the position he occupied just before the parties entered

upon the agreement and compensates him for detriments he suffered in reliance upon the agreement.

Damages for pain and suffering or mental distress? o Case law—suggests pain and suffering not compensable in breach of contract actions. o RS §341 suggests mental anguish in breach actions would be shut down on grounds it wasn’t

foreseeable. o But no rule absolutely barring these items of damage either. o Court says: suffering or distress resulting from breach beyond that which was envisaged by

treatment as agreed should be compensable on the same ground as the worsening of the patient’s condition because of breach.

Further challenges to measuring damages UCC § 1-305. REMEDIES TO BE LIBERALLY ADMINISTERED. (a) The remedies provided by [the Uniform Commercial Code] must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in [the Uniform Commercial Code] or by other rule of law. (b) Any right or obligation declared by [the Uniform Commercial Code] is enforceable by action unless the provision declaring it specifies a different and limited effect. 639-643; Measuring expectation: Usual remedy for breach of contract is an award of damages, typically expectation. Expectation damages—a sum of money that will put the promisee in a position he would have been in had promised been performed. Purpose is to give promisee benefit of the bargain, to make him/her whole.

o Poses counterfactual difficulty: what value would promisee have received had the breach not occurred?

RS §647 cmt. 1—injured party simply pays an additional amount to arrange a substitute transaction and can be adequately compensated by damages based on the amount.

If promisee does or cannot act affirmatively to address the defective/incomplete performance, court must find monetary award to supplement the received nonconforming performance to make injured party whole.

“difference in value”—based on difference between market value contracted for and market value of what was received

“cost of completion”—based on costs of completing or curing the partial or defective performance

RS §347—three broad factors for measuring party’s expectation interest: Damages = (a) loss in value + (b) other loss – (c) cost and loss avoided.

UCC § 2-712. "COVER"; BUYER'S PROCUREMENT OF SUBSTITUTE GOODS. (1) After a breach within the preceding section the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller's breach. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. UCC § 2-713. BUYER'S DAMAGES FOR NON-DELIVERY OR REPUDIATION. (1) Subject to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller's breach. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival. Laredo Hides (647-652); L contracted with H to purchase animal hides, a by-product of H’s meat processing and packing business. L agreed to purchase all hides generated by H’s business between March and December 1972 and then contracted with a tannery in Mexico to sell all of the hides it expected to purchase from H. After L and

H executed their contract, the price of hides increased substantially. When L’s payment after the first two deliveries was delayed in the mail, H demanded payment within a few hours and then declared the non-payment a breach of the contract and provided no further hides to Laredo. To meet its obligations to the tannery, L was forced to purchase substitute hides at market price. The difference between the contract price and the price of the substitute goods was $142,254.48. L also incurred increased transportation and handling costs of $3,448.95. Court says this is repudiation of contract by seller, not breach of contract by buyer.

UCC §2.711. REPUDIATION OF CONTRACT BY SELLER: when there is repudiation of the contract by the seller or a failure to make delivery of goods under contract, buyer may recover

Measure of damages o UCC §2.712—difference between cost of cover and contract price PLUS incidental/consequential

damages

If pursuing cover damages, no need to establish market value at time of breach. o UCC §2.713—difference between market value at time when buyer learned of breach and contract

price PLUS incidental/consequential damages UCC § 2-706. SELLER'S RESALE INCLUDING CONTRACT FOR RESALE. (1) [When Buyer breaches the contract], the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article [such as the costs of setting up a new sale], but less expenses saved in consequence of the buyer's breach. (2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell . . . but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. … (3) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell. (4) Where the resale is at public sale… (b) it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale… (5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. (6) The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of Section 2-711). UCC § 2-708. SELLER'S DAMAGES FOR NON-ACCEPTANCE OR REPUDIATION. (1) Subject to subsection (2) . . . the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article [such as the costs of stopping a shipment or the costs of storing goods], but less expenses saved in consequence of the buyer's breach. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. UCC § 2-709. ACTION FOR THE PRICE. (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages . . . , the price … (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. UCC § 2-718. LIQUIDATION OR LIMITATION OF DAMAGES, DEPOSITS. (1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. (2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds

(a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.

(3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes (a) a right to recover damages under the provisions of this Article other than subsection (1), and (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.

Diasonics (652-657); (Davis) contracted with (Diasonics) to purchase medical equipment for a new facility that Davis had contracted with two physicians to establish. When the physicians breached their contract with Davis, Davis breached its contract with Diasonics and refused to accept delivery of the medical equipment. Diasonics sold the contract equipment to another purchaser for the same amount as the contract price. Davis then sued Diasonics to recover its $300,000 down payment, less $500 as provided by the Uniform Commercial Code (UCC). Court holds Diasonics could be lost volume seller entitled to damages equal to lost profits provided it can prove that it had the capacity to produce both the device it contracted to produce and the device it would have produced for the resale buyer and that it would have been profitable to produce both.

A lost volume seller may recover for lost profits if it can prove not only that it had both the capacity to make the sale on the contract and to the resale buyer but also that it would have been profitable to make both sales.

UCC § 2-718. Liquidation or Limitation of Damages; Deposits. (1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. (2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds

(a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.

(3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes (a) a right to recover damages under the provisions of this Article other than subsection (1), and (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.

(4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706). Article 2 UCC provisions concerning seller’s general damages: (1) 2-706 contract price less resale price, (2) 2-708(1) contract price less market price, (3) 2-708(2) profit, (4) 2-709 price UCC § 2-706. SELLER'S RESALE INCLUDING CONTRACT FOR RESALE. [contract price - resale price] (1) Under the conditions stated in Section 2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. (2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence or that any or all of them have been identified to the contract before the breach. (3) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell.

(4) Where the resale is at public sale (a) only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and (b) it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and (c) if the goods are not to be within the view of those attending the sale the notification of sale must state the place where the good are located and provide for their reasonable inspection by prospective bidders; and (d) the seller may buy.

(5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. (6) The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of Section 2-711). § 2-708. SELLER'S DAMAGES FOR NON-ACCEPTANCE OR REPUDIATION. (1) [contract price – market price] Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. (2) [profit] If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. UCC § 2-709. ACTION FOR THE PRICE. [price] (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price

(a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.

(2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold. (3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section. 657-658; Losing Contracts—a contract where the aggrieved party would have sustained a loss had it been performed.

If a lottery operator failed to deliver a purchased ticker, purchaser could get his money back whether or not he eventually would have won the lottery or not.

Can an aggrieved party be entitled to restitution under a losing contract? o L. Albert & Son v. Armstrong Rubber Co.—proper solution is that promisee recovers outlay in

preparation for performance, subject to privilege of promisor to reduce it by what he can show promisor would have lost had contract been performed.

o UCC §2-718(2) provides some restitution when party has “pre-paid” Algernon Blair (658-661); Coastal brought suit under Miller Act against Blair. Blair had entered into contract to construct hospital and had contracted with Coastal for steel erection and equipment supply. Coastal supplied its own cranes for handling and placing steel. Blair refused to pay for crane rental, claiming it was not obligated to do so, and Coastal stopped work. Blair then hired new subcontractor to complete job. Coastal brought suit to recover for labor and equipment furnished. Even though he would have lost money had the contract been performed, the

court says he may recover in quantum meruit (value of performance already completed)

A plaintiff has the option of recovering damages for a breach of contract (which is a losing proposition here since completion of performance would have resulted in a loss) or in quantum meruit for the value of the performance already completed.

o Expectation damages (typical) o Quantum meruit—reasonable value of performance; as much as deserved; a type of action in

enforcing duties of payment for services; NOT diminished by loss that would have been sustained by complete performance

For unjust enrichment and unjust gain o Quantum valebant—as much as they were worth; used in action for worth of goods

Jacob & Youngs (661-664) P Jacob & Youngs, built a house for D Kent for a price of $77,000, and sued to recover the balance due of $3,483.46. D specified that all pipe in the house must be Reading pipe, but inadvertently, P installed pipe that was not Reading pipe. When D discovered this defect, he demanded that the work be redone, which would have required the demolition and reconstruction of substantial parts of the house, but P refused. D refused to pay. P sues D. Court holds D is not entitled to cost of replacement of the pipe.

The measure of damages for a trivial and innocent omission is not the cost of replacement but the difference in value.

Limitations

Mitigation 674-675; There are three limits on a party’s expectancy damages. (1) Mitigation—victim of a breach must take reasonable steps to limit the accrual of damages. (2) Foreseeability—limits damage awards to damages that are reasonable foreseeable by the promisor. Often this implies limits on recovery of sentimental value and damages for emotional distress. (3) Certainty—restricts a party’s recovery only to those damages that can be proven with sufficient certainty. Avoidability

o Virtue v. Bird—P contracted to carry goods from Ipswich and deliver them to a place to be appointed by the defendant. When P arrived in Ipswich, D delayed by six hours so much that horses died. Court denied him loss because it was P’s folly to let horses stand, when he could have taken his horses out of the cart.

o RS §350—an aggrieved promisee is not allowed to recover loss that could reasonably have been avoided. o UCC § 2-713—Where there is a market for goods, buyer’s damages based on assumption that buyer could

reasonably have avoided greater risk by obtaining substitute goods on the market. The measure of damages is difference between market price and contract price

Luten Bridge (675-677); County hired Luten to construct bridge. Three commissioners voted to go forward with bridge project, and two opposed. After contract was formed, one of commissioners voting in favor of bridge project resigned, and was replaced by new commissioner who opposed bridge project. Commissioners passed resolution holding that bridge contract was not enforceable, and informed Luten that County would not honor contract. County directed Luten to not proceed with building bridge, and stated that any further work completed by Luten would be done at company’s own risk and expense. At time Luten was informed that County would not proceed, it had performed approximately $1,900 worth of work on bridge. However, Luten continued construction and finished bridge project. Luten then brought suit against County for contract price.

o American Rule (Williston): after an absolute repudiation or refusal to perform by one party to a contract, the other party cannot continue to perform and recover damages based on full performance. General rule: P cannot hold D liable for damages which need not have been incurred. P must as far as he can without self-loss mitigate damages caused by D’s wrongful act.

o Remedy is to treat contract as broken when P receives notice, sue for recovery of damages as he may have sustained from the breach including profits he would have realized upon performance as well as other losses resulted to him.

UCC §2-704(2) seller that has to manufacture goods may proceed to complete manufacture upon buyer’s repudiation, instead of halting manufacture and salvaging them while in process in exercise of reasonable commercial judgment for purpose of avoiding loss and of effective realization. RS § 350. AVOIDABILITY AS A LIMITATION ON DAMAGES (1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have

avoided without undue risk, burden or humiliation. (2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss. Mitigation and Contracts for the Sale of Goods

o Luten Bridge—injured party cannot recover for cost that could have been avoided by simply stopping performance.

o Second step would be to say injured party cannot recover for loss that could have been avoided by taking affirmative steps to arrange a substitute transaction.

Assume injured party can generally arrange substitute transaction.

UCC §2-712 If seller fails to deliver goods, buyer can go into market and cover by obtaining substitute goods to buyer’s damages should be based on difference between price buyer will have to pay on market (assume greater) and contract price (assume lower)

UCC §2-706 If buyer fails to take and pay for goods, seller can go into market and resell to substitute buyer so that seller’s damages should be based on the difference between the presumably greater contract price and lesser price it will receive on the market

o Parties that do not take advantage of available substitute transaction—principle of mitigation results in formula based on difference between contract price and market price at which it could have arranged a hypothetical substitute transaction.

UCC §2-713—If seller fails to deliver goods and buyer fails to go to market and cover, damages based on difference between market proce and contract price

UCC §2-708—If buyer fails to take and pay for goods, seller fails to go to market and resell, damages based on difference between market and unpaid contract price

UCC §§ 2-723, 2-724—proof of market price UCC §2-712. "COVER"; BUYER'S PROCUREMENT OF SUBSTITUTE GOODS. (1) After a breach within the preceding section the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller's breach. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. UCC §2-713; BUYER'S DAMAGES FOR NON-DELIVERY OR REPUDIATION. (1) Subject to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller's breach. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival. 682-683; Principle of mitigation to contracts of employment is troublesome.

o Gandell v. Pontigny—court refuses to apply principle. o Howard v. Daly—Commissioner rejects doctrine of “constructive service”

Parker (683-664); MacLaine entered into contract with Fox. MacLaine to play female lead in Fox’s musical film Bloomer Girl, guaranteeing her compensation of $750,000. Fox decided not to produce film and offered MacLaine the female lead in Western film Big Country, Big Men. MacLaine did not accept offer. MacLaine brought suit to recover guaranteed compensation under original contract. Court holds Fox must pay MacLaine because substitute employment not comparable/substantially similar.

o General Rule—measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. Employer must show other employment was comparable/substantially similar. Employee’s rejection of other employment of different/inferior kind may not be resorted to mitigate damages.

Foreseeability Hadley (688-692); P operated a mill, and component of their steam engine broke causing them to shut down the

mill. P then contracted with D, common carriers, to take component to W. Joyce & Co. to have new part created. When delivery was delayed due to D’s neglect, causing P’s mill to remain closed longer than expected, Ps sued to recover damages (including lost profits). Court holds P cannot recover lost profits because they did not communicate special circumstances, and it was not foreseeable to D.

o When two parties make a contract and one of them breaks it, damages that the party of breach should receive should be calculated as what is fairly and reasonably considered to have either (1) occurred naturally OR (2) could have been reasonably contemplated by both parties at the time of the contract as a probably result of the breach.

“Special circumstances” known—if there are special circumstances and they are communicated and known, damage resulting from contract that can be reasonable contemplated would be amount of injury that would ordinarily follow from breach of contract under special circumstances.

“Special circumstances” unknown—damages are what can be supposed to have been contemplated generally from breach of contract.

RS §351 (& illustrations 1,3,6,8,9); Unforeseeability And Related Limitations On Damages (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach

(a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.

(3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. 698-699 (note 2) Jury Instructions Redgrave v. Boston Symphony: Damages allowed for consequential harm to Redgrave’s professional career ONLY IF harm was foreseeable consequence within contemplation of parties to contract when it was made. Harm as a foreseeable consequence—must be of kind that was foreseen or foreseeable by a reasonable person in position of party now sued. RS § 353. LOSS DUE TO EMOTIONAL DISTURBANCE Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result. 700-703 Sentimental Value

o Mieske v. Bartell Drug Co.: Rule—compensation for sentimental or fanciful values will NOT be allowed

Sentimental value—governed by feeling, sensibility, or emotional idealism; indulging in feeling to an unwarranted extent or being affectedly or mawkishly emotional

Emotional Distress o RS § 353. LOSS DUE TO EMOTIONAL DISTURBANCE

Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.

o Rule of Punitive damages should be awarded only in the most unusual and compelling circumstances and will be sustained only when D acted in manner that was extreme deviation from reasonable standards of conduct and act was performed by D with understanding of or disregard ot likely consequences.

o Emotional distress—When damages sought for breach of contractual relationship, there can be no recovery for emotional distress suffered by plaintiff. If conduct of D has been sufficiently outrageous, proper remedy is punitive damages.

o Lamm v. Shingleton: General rule—damages for mental anguish are not recoverable in contract action. Exception: Compensatory damages may be recovered: (1) Where contract is personal in nature AND contractual duty/obligation is so coupled with matters of mental concern/solicitude or with sensibilities of party whom duty is owed AND (2)Breach of that duty will necessarily/reasonably result in mental anguish/suffering, AND (3)Parties know that suffering will result from breach

Employment Contracts

o Francis v. Lee Enterprises—Court held that though damages for emotional distress not generally recoverable, they may be awarded where contract is of such kind that serious emotional disturbance is a particularly foreseeable result if breach occurs.

o Recent decisions have allowed emotional distress damages when employees discharged following harassment by fellow employees or supervisors; cases involve tortious behavior by employer, but courts hint tortious behavior is not necessary for recovery of damages for emotional distress

o Most courts—exclude emotional distress damages for breach of employment contract Religious observance cases. Sometimes lead to damages for emotional distress. See Gupta v. Asha Enters.—damages for emotional/spiritual injury awarded under UCC2-313/2-715 UCC § 2-313. EXPRESS WARRANTIES BY AFFIRMATION, PROMISE, DESCRIPTION, SAMPLE. (1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. UCC § 2-715. BUYER'S INCIDENTAL AND CONSEQUENTIAL DAMAGES. (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 expense incident to the delay or other breach. (2) Consequential damages resulting from the seller's breach include

(a) 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 (b) injury to person or property proximately resulting from any breach of warranty.

Liquidated Damages and Penalties, 709-710; Liquidated Damages—relief of promises to redress breach. Default. Penalty—punishment of promisors to compel performance. Not ordinary. Lake River (712-718); The Plaintiff, Lake River. Corp (the "Plaintiff"), contracted with the Defendant, Carborundum Co. (the "Defendant"), to distribute "Ferro Carbo" an abrasive powder used in making steel manufactured by the Defendant. The Plaintiff was required to bag and ship the powder. The Defendant guaranteed the Plaintiff that it would ship a minimum of 22,500 tons of powder, and if that minimum was not met, the Defendant would still be obligated to pay "the going rate for bagging and shipping of the unshipped quantity." Demand for the powder diminished, and the Defendant could not ship the 22,500 tons and based on the agreement would have had to pay the Plaintiff $241,000 Is the clause a penalty for breach or liquidated damages? The court holds that IL would classify this as a penalty.

o Common law—hostile to penalty clauses o IL liquidation of damages (distinguishes between liquidated damages and penalties): (1) Must be

reasonable estimate at time of contracting of the likely damages from breach (2) Need for estimation bust be shown with reference to likely difficulty of measuring actual damages from breach of contract after breach occurs (3) If damages easy to determine OR if estimate greatly exceeds reasonable upper estimate of likely damages, it is a penalty.

o When a contract specifies a single sum in damages for any and all breaches even though it is apparent that all are not of the same gravity, the specification is not a reasonable effort to estimate damages; and when in addition the fixed sum greatly exceeds the actual damages likely to be inflicted by a minor breach, its character as a penalty becomes unmistakable.

Wasserman (718-722); Plaintiff entered into a commercial lease with Defendant. The contract contained a liquidated damages clause that provided that if Defendant cancelled the lease, it would pay Plaintiff a pro-rata reimbursement for any improvement costs and damages of twenty-five percent of Plaintiff’s average gross receipts for one year. Subsequently, Defendant cancelled the lease. When Defendant refused to pay, Plaintiff sued to recover under the agreement. The court remanded the question as to whether the damages fixed by the contract were reasonable.

o Liquidated (or stipulated) damages clauses are enforceable if the amount of damages fixed by the contract is a reasonable prediction of the actual harm caused by the breach.

Gustafson (710-712); G surfaced a new state highway. $530,724.14 is due for the work. State withholds $14,070 it claims as liquidated damages for delay of 67 days. Contract provided for graduated scale of liquidated damages per day. Damages are $210 per day for contract of amount over $500K but less than $1 million. $210 multiplied by 67 days gives the $14,070 figure. G sues for breach of contract. The court holds liquidated damages should be considered here over penalty.

o Modern rule—not to look with disfavor upon liquidated damages when they are fair and reasonable. (Priebe & Sons v. US)

o Anderson v. Cactus Heights Country Club: Liquidated damages: Does amount stipulated in contract bear reasonable relation to probable damages and is not disproportionate to anticipated damages? Consider impossible of measurement, Attempt to fix fair compensation for loss, inconvenience, added costs, and deprivation of use

RS § 356. LIQUIDATED DAMAGES AND PENALTIES (1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. (2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence. UCC § 2-718. LIQUIDATION OR LIMITATION OF DAMAGES, DEPOSITS. (1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. (2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds (a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller. (3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes (a) a right to recover damages under the provisions of this Article other than subsection (1), and (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.