K II- Powers

Introduction- General Info- Sources of K Law

o Common Law Case Law Restatement

Compilation of CLo Statutory Law

UCC Articles 2 (Sale of Goods)- law in every jurisdiction except for LA and 2A (Leases

of Goods) Other provision

o Article 1 (General Provisions) Other statutes Case Law

Cases about how to apply statutes- Must know which law is controlling: CL or UCC

o What is predominating in the transaction?o Goods- UCCo Services- CL

Ch. 3 Remedies- Contract Remedies

o Why do we enforce contracts? Expectations and planning Commercial context

o What is the goal of enforcement? Affect behavior or protect expectations?

Efficient breacho Breach of K because it is more efficient to breach than to perform

Benefit of the bargaino Put you in the same place where you would have been had the K been

performed (Expectation) Best way to do this would be Specific Performance

Usually get money though Compare to tort

- How to get the benefit of bargain?o Why not specific performance?

Historical Law and Equity

o Don’t get equity unless the law provides for it or legal remedy is inadequate

Modern Application Policy

Purpose of enforcemento Give someone the economic benefit

Could not do this with specific performance Which constrains instead of expanding

Ex. Catering

1

Efficient breach

I. Damages

A. Introduction

B. Measuring Expectation Damages

1. Hawkins v. McGee (S.C. of New Hampshire, 1929)- Dr. McGee, D., performs surgery on Hawkins, P., who in turns pays for surgery- Cause of Action

o Breach of an alleged K/warranty or guarantee- Expectation Damages

o Restatement (2nd) of K 347 Expectation is measure by

Loss in value of other party’s performance + any other loss - cost or loss avoided

- Expectation damage elements?o Cost of Operation?o Pain and Suffering? (additional?)o Embarrassment?o Worsening of condition?o Failure to improve?o Total difference in value?

- Expectation elementso Loss in value - Value of expected improvemento + Other loss - Worsening of condition

- Additional costs- Additional pain and suffering

o – Cost/loss avoided - Dr. fee (if not pd.)- Problem 65 (p.232)

o Roderick sells family house, Rose buys for $280,000o Expectation Measure

“Loss” in value $560,000 + other loss 0 - cost/loss avoided $280,000 Damages $280,000

2. Peevyhouse v. Garland Coal and Mining Co. (S.C. of OK, 1962)- Peevyhouse leased their farm to Garland for coal strip mining operations, Garland violated the lease terms

by failing to perform the work necessary to restore the farm- How to measure expectation

o What is the loss in value? Possibilities for measurement

Cost to repair--$29,000/$25,000 Diminution in value--$300

o Diminution The difference between the present value of the farm, and what is

value would have been if D. had done what it agreed to doo Which one is expectation???

2

There are many different ways of getting hereo Which one does the court choose?

The court chooses the $300- Rationale

o Incidental to K Construction contract comparison

o Cost disproportionate to value Economic waste argument

Why is it wasteful to do clean this up?o $29k for only a $300 improvement

Right to do what want with own property Court says there not inferring with a person’s right to something with there

propertyo Is diminution going to leave someone without a remedy?

Ex. Cotton candy pink sidingo Effect of willfulness, public policyo What went wrong here???

Poor application of rules Tactical errors

P. “put all its eggs in one basket”o No real backup

3. Council of Unit Owners of Sea Colony East v. Freeman Associates (Superior Court of Delaware, 1989)- The Unit Owners, P., of a condo and the companies, D., which constructed the building disputed the correct

method for determining the damages due for construction defects in the building- P seeks judgment as matter of law that evidence inadmissible:

o Diminution in Value evidenceo Useful Life Theory evidence

- Evidence held inadmissible. Why?- Diminution in value

o Diminution in value v. cost of repair Cost of repair--$13-$15 mil Diminution in value??? (less)

o D’s argument for diminution in value: No decrease in appreciation; disproportionate

o P’s response: Not disproportionate Not wasteful/ need to repair/ must bear cost

o Court- Cost of repair- Useful Life Theory

o What is it??? Idea that damages should be prorated to account for the useful life of the subject matter

already enjoyed by the P.o Why not appropriate here?

Not clear that added to useful life Need to deduct for “not-so-useful” life Complexity- avoid under compensation

o Ex. Roof had a useful life of 20 years and after 15 years it was found to have been defective and D. was required to restore to its original value, then the owner/P. would be provided with a clear windfall, extending the useful life, since the repair would entitle the P. to an additional 15 years of utility

3

Argument then is that repair or replacement cost, if used, should be pro-rated for the already-expired useful lives of the already-expired useful lives of the allegedly defective building components

- Cost to repair when repair is too costlyo Use actual cost to repair if reasonable and in good faitho If repair is an upgrade:

Give cost to repair for same quality- P. pays for upgrade May get entire amount if

No other option available Upgrade of no real benefit to P.

- Problem 66o Helen builds horse for city Troy for $24ko Helen’s cost= $20ko Troy fires Helen-

Helen has spent $15k Troy has paid her $5k Salvage value $2k

o What are Helen’s expectation damages? (Expectation formula) Loss in value $24k (+) other loss 0 (-) cost/loss avoided $5k not spent

$5k already paid$2k scrap

Total: $12ko Alternate Calculation

Helen’s profit $4k (+) reliance cost $15k (+) other loss 0 (-) loss avoided $5k paid

$2k scrapTotal: $12k

C. The Reliance Interest- Reliance Damages

o An alternative to expectation damageso Based on “reliance interest,” including

Expenditures Made in preparation for performance or In performance,

Less any loss the party in breach can prove with reasonable certainty (Rest.2K 349)

1. Sullivan v. O’Connor (Supreme Judicial Court of Mass., 1973)- Dr. O’Connor performs three surgeries on Sullivan, an entertainer- What was the result of the surgery?- What was the causes of action?

o Tort Court tosses it because there is no negligence

o Breach of K Court finds that there is a guarantee

- Who prevailed?o Sullivan on breach of K

- What are the possible ways to measure damages?o Expectation, Reliance, and Restitution

4

- Purposes of Remedies (R2K 344)o Interests protected: (Hierarchy)

Expectation Interest Benefit of the bargain- position the P. would have been in if K had been performed

Reliance Interest Reimbursement for losses caused by reliance on the K

Restitution Interest Restoration of benefits conferred on the other party

- Sullivan Damages- Expectation, Reliance, Restitutiono Nose promised-Nose had (Expectation) o Nose had-Nose have (Expectation), (Reliance)o 1st and 2nd operations (Reliance)o 3rd Operation- $, Pain and Suffering (Expectation), (Reliance)o Dr. fee (Reliance), (Restitution)

2. Anglia Television, LTD v. Reed (Court of Appeals, Eng. Civ. Division, 1971)- Reed, an actor, enters into a K with Anglia to perform in a play for TV but then repudiates the K- Anglia wants to collect for expenditure incurred before and after the K was made- Did Reed breach the K?

o Yes- Reliance Damages

o Amount spent before K 1895o Amount spent after K 855o Total amount spent 2750

- Problem 67 (p.256)o Rogette drafting a 14th ed. guide and White Publishing was to pay royaltieso She could possibly prove what the royalties would have been because there were 13 other editionso Have to move her forward

So expectation is the most likely rewardo What would reliance damages be in Trojan horse case?

Reliance expenditures $15k (-) loss avoided:

amount paid $5k salvage value $2k

Total: $8K

D. Limitations on the Recovery- Limitations on Recovery

o Certainty P. cannot recover damages that P. cannot prove with reasonable certainty

o Foreseeability P. cannot recover damages that D. did not have reason to foresee at the time the K

was enteredo Avoidability

P. cannot recover damages that P. could have reasonably avoided

1. Certainty- P. is generally denied any relief that is too speculative

a. Freund v. Washington Square Press (Court of Appeals of NY, 1974)- WSP breach its K by failing to publish and pay royalties on Freund’s book

5

o P delivers book, D. pays advance, D failed to publish, P sues for specific performance and damages, and T Ct. says no specific performance but gives $10k in damages

- Freund damageso Where did T Ct. get $10k?

That’s how much it would cost for Freund to publish his book on his owno What is wrong with that amount?

Not the way we consider damages We care about putting the P. in the right place

o What is awarded on appeal? Six cents, basically just to show he won

o Why so low? P. did not really prove any damages

o Would reliance or restitution have worked here? Reliance

P. wrote the book and then tried to K to publish ito So not really in reliance of a K

Restitution D. did not keep the book, he gave it back so the D. was not unjustly enriched

- Ruleo The amount of damages claimed must be measurable with a reasonable degree of certainty and

adequately proven Typically, you will see this in lost profits

- Problem 68o Susie participates in contest involving Big Winner that paid $25k, Big Winner withdraws, and

Susie sues for prize moneyo Can she prove damages with sufficient certainty?

Not really, only has a 1 out of 4 chance, so it is more likely than not that she would lose, not sufficiently certain

b. Humetrix, Inc. v. Gemplus S.C.A (U.S. Court of Appeals, 9th Cir., 2001)- H enters into K to market a smart card and G is to supply and co-operate- What is P. claiming?

o Two breach of K claims (Focus is on these) Sales Agreement Partnership Agreement

o Breach of Fiduciary dutyo Trade Marko Tort

- Is there a breach of K?o Court holds that they have a K, so there is a breach of K

- What are the damages for breach of K?o $15 million

- Does the award hold up on appeal?o Yes

- Certainty requiremento P. cannot recover damages that cannot prove with reasonable certainty

Here, the case demonstrates that one can recover future damages as long as reliable evidence such losses would occur can be presented

o New Business Rule: If claim is for profits for a new business, cannot prove lost profits with reasonable certainty Profits too uncertain, no track record

- New Business Rule Applicationo Per se/Normative rule

6

Traditional approach If new business, cannot recover lost profits

Do not consider evidenceo Evidentiary/Empirical

Gaining favor with courts Fact that new business indicates likelihood cannot prove with sufficient certainty

Still consider evidence to prove otherwise- D’s objection to expert testimony on lost profits:

o If use per se rule, no reason to admit. Cannot get lost profits as matter of lawo If using evidentiary rule, still arguing that testimony cannot support lost profits recoveryo Are the arguments successful?

- Certainty Requirement:o (1) Certainty as to Causation

Required. Cannot recover damages if cannot prove with reasonable certainty they were caused by the breach

o (2) Certainty as to Amount Get to the extent can prove with reasonable certainty Some flexibility. D’s breach, after all, caused uncertainty

2. Foreseeability

a. Hadley v. Baxendale (Court of the Exchequer, 1854)- Carrier, D., was to deliver a crank shaft for the Millers, P. but did not do it in a timely fashion and the

Millers incurred some loss profits- Elements of expectation- Benefit of the Bargain (Both should be foreseeable)

o General Damages Arise naturally from the breach under ordinary circumstances

o Special/Consequential Damages Arise as a consequence of the breach due to circumstances of the particular case

These will not necessarily happen in every case- Foreseeability requirement (R2K 351)

o Not recoverable if D. did not have reason to foresee as probable result when K entered.

o Applies to both general and special damages, but need info for specialo May also limit damages in the interest of justice (Ex. Sullivan)

- Foreseeability requirement (UCC 2-715[2])o Consequential damages include

Loss from general OR particular requirements seller At time of K Had reason to know…AND

Injury to person or property proximately resulting from breach of warrantyo Different causation standard for UCC

Higher standard than proximate cause- Problem 69 (p.271)

o Private courier was to deliver a package for Gilbert by Oct. 12 but on the way the couriers plane crashed and Gilbert’s play was not delivered and he lost out on $50k

o Is at least a “tacit agreement” for liability for consequential damages required for recovery? No, it just has to naturally flow

There need only be mere knowledge, awareness, or that it might flowo Does it make a difference as to damages if the plane crash was unforeseeable?

No, the breach does not have to be foreseeable

7

b. AM/PM Franchise Assn. v. Atlantic Richfield Co. (Penn. Supreme Court, 1990)- ARCO, D., is supplying gasoline to Am/Pm, who claimed that the gas they were required to sell did not

conform to ARCO’s warranties for the product- Breach of Warranty Damages

o General damages (UCC 2-714) Difference in value between value of goods as warranted and value as delivered

o Consequential damages (UCC 2-715) Losses from “the general or particular requirements and needs of which the seller…had

reason to know” at K time- General damages

o Tire example Tires warranted to be worth $2500

Actually worth nothing—damages $2500o ($2500 warranted—0 value = $2500)

Actually worth $1500—damages $1000o ($2500 warranted—$1500 value = $1000)

(These numbers assume P. has paid for the goods –acceptance requires payment)- Consequential Damages—Lost Profits

o Primary Profits—Those from sale of goods under K: Cant sell tires—would have made $2000 profit on sales--$2000 damages caused by breach Must sell for less due to defect—would have made $2000 profit—must sell for profit of

only $1000-- $1000 damages caused by breach Could be combination of no sales and sales at discount MUST still prove losses caused by breach

o Secondary Profits—those lost from lost related sales If often sell hubcaps when sell tires, lose sales when do not sell tires Again, must prove number of sales lost with reasonable certainty

- Categories of lost profitso Past Future

Primary Profits Primary Profits (Good will)o Past Future

Secondary Profits Secondary Profits (Good will)- Problem 70

o Parents K with funeral home to prepare their daughters body. Funeral home misplaced the bodyo Emotional Distress Damages (R2K 353)

Not recoverable in K unless: Breach causes bodily harm

o Distinguish physical manifestation Breach is of a kind that serious emotional distress was especially likely

o Burial cases classic exampleo Generally not ordinary commercial losses

- Problem 71o Andrew buys a sports car, car breaks down many times, he brings it back and sues for $5k mental

anguisho Can he recover?

Not for mental anguish This kind of breach is not of the kind that SED is especially likely

3. Avoidability

a. Rockingham County v. Luten Bridge Co. (U.S. Cir. Court of Appeals, 4th Cir., 1929)- Luten Bridge Co. to build a bridge for RC, but RC stops them before LBC builds it

8

- Avoidability (R2K 350)o P. cannot recover damages that could have avoided without undue risk, burden or humiliationo “Duty to mitigate”o Why are damages limited by Avoidability?

Inefficient Not going to make people waste money We want people to act rationale

- Problem 73o Balloons of America K with Cuba to build a balloon in the shape of a cigar, and halfway through

Cuba repudiateso UCC 2-715(2) Consequential Damages

Buyer’s consequential damages include “any loss…which could not reasonably be prevented by cover or otherwise.”

o UCC 2-704(2) If goods are unfinished at the time of the breach/repudiation the seller may

Using “reasonable commercial judgment,” For purposes of avoiding loss:

o Complete the goods and ID to the K ORo Stop manufacturing and resell for scrap ORo Proceed “in any other reasonable manner.”

o Seller’s remedies (preview) 2-706 Resale K-resale 2-708(1) Market K-market 2-708(2) Profit 2-709 Action for the Price

Accepted goods Conforming goods for reasonable time after risk of loss passed to buyer ID’d goods cannot be resold

o Complete the balloon Resale K $13k

- “resale” $1k$12K

Price $13k- credit for scrap $1k

$12ko Stop now

Profit measure 2-708(2): $2500 Profit + 0 incidental das + 8000 costs incurred - 120 proceeds resale $10, 380 damages

o Either way you go its make the P. whole, D. would pay less because it is more efficient

b. Parker v. Twentieth Century-Fox Film Corp. (Sup. Ct. of CA, 1970)- Parker was to star in Fox movie and be paid $750k, but the movie was cancelled however Fox offered her

another role (but different) in a movie for the same amount of money- Damages for breach of employer

o Amount due under K less Income actually earned by substitute employment, OR Income could have earned with reasonable diligence

o D. has burden of proving could have earned income through substitute employment- Factors in Parker

9

o Location Originally, in LA the other in Australia

o Musical v. Westerno Approval of director/screenplayo What is dissent’s argument

The difference between the two jobs in the same field should not be sufficient to release the EE

- Substitute employmento Not of inferior ranko Not at reduced salaryo Not at unreasonable distanceo Recall basic principle- Could P. have avoided loss without unreasonable risk, burden or

humiliation?o Are there other factors to consider???

Additional considerations How do we know she could have had another job?

o Fox offered it to her Would an offer of another Hollywood musical meet D.’s burden?

- Problem 74o Alice Chalk is a teacher, who is fired in front of her students due to a report that she was a drug

dealer, principal offered her job back but she refusedo Has Alice failed to mitigate damages?

Is her refusal a failure to mitigate? Does it matter that it was offered by breaching party? Do her earnings in her job as a waitress in the all-night diner reduce damages?

o Substitute employment Not of inferior rank Not at reduced salary Not at unreasonable distance Recall basic principle- Could P. have avoided loss without unreasonable risk, burden or

humiliation? Are there other factors to consider???

o The fact that she did take the job does mitigate the damages But it was something that she could have done anyway then it doesn’t mitigate

4. Damages by Agreement

a. Lake River Corp. v. Carborundum Co. (U.S. Court of Appeals, 7th Cir., 1985)- Lake River had a distribution agreement for a bagging system with Carborundum that was breached and

LR is suing for liquidated damages- Liquidated Damages (R2K 356)

o Damages for breach by either party may be liquidated by K,o Only in reasonable amount in light of

The actual or anticipated loss and The difficulty of proof

o If amount is too large, the clause is unenforceable as a penalty on public policy grounds- Liquidated Damages (UCC 2-718(a))

o Damages may be liquidated in Ko Only in reasonable amount in light of

Anticipated OR actual harm Difficulties of proof of loss Inconvenience or nonfeasability of getting adequate remedy otherwise

10

o If unreasonably large, void as a penalty- Enforceability of clause providing for $100k in liquidated damages:

o Actual damages = $100k (yes)o Actual damages = $10k (possibly…as long as $100k or $10k was a reasonable forecast for

damages at the time the K was entered into) Same for any amount…could be $100 or $10

- Additional questionso What does J. Posner think of the rule on LD?o If a LD clause is invalid, how are damages calculated?

Simply the clause just goes awayo How is this situation different from a “take or pay” clause, or from alternative performance?

- Problem 76o Contractor to build bridge by 8/10 or pay LD of $500 a day for each day late, bridge was not

completed by 8/10 Neither was the road on other side and bridge was eventually finished before the road was

o Does the contractor owe LD? Can he get LD when there is no actual damage?

o Liquidated Damages when NO damages: Some courts still allow LD as long was reasonable forecast R2K 256: No LD if no actual damages. Why not???

What was purpose of LD?o If there are no damages, there are no damages to liquidate

Race track exampleo Builder finished on time but the owner couldn’t open on time bc he could

not secure the proper permits Does that apply here?

o No, because there were essentially two breaching parties pointing the finger at one another

- Problem 77o Lessor rents an apartment to Portia who as to pay $600 LD if cause any damage, bother other

tenants, put holes in wall, cause a disturbance, keep at pet, fail to give 30 days notice, fail to pay $600 rent and also pay any actual damages lessor can prove

o Liquidated Damages or Penalty “Shotgun” clause

If applies to both minor and important breaches, looks like penalty as to minor. Could invalid.

“Have your Cake and Eat it Too” If provides a minimum, but not a maximum, does not really liquidate damages.

Looks like a penalty as to those under the minimum. Likely not valid.o Avoidability in R/E lease:

Penalty of remaining rent? What are damages for breach of R/E lease? CL: All of remaining rent. No duty to mitigate. Why?

Lease is a conveyance. Own leasehold estate. Must pay. P. risk of termination or loss of rights if reenter.

o Austin Hill Country Realty v. Palisades Plaza (TX 1997) Palisades Plaza (Lessor) had lease K with Hill Country (Lessee) (Hill, Smith, Jones). Hill

Country breached. Lease terminted. Smith and Jones offered to lease space. Hill and 3 people offered to lease space. Use of property unchanged. PP refused and sued for full amount of rent.

Should it collect? No Mitigation in lease agreement

11

o No duty to mitigate if treat entirely as a conveyance. No reentry or right to reenter.

o Duty to mitigate if have or exercise K rights. Modern lease is more like K Encourages productive use of property Prevents destruction/damage from vacancies Consistent with disfavor of K penalties Not if financial risk or unacceptable use of space. Burden on lessee to prove could (or did) lease

- Problem 78o Health Spa to provide service to Portia who would pay for $3500 for 3 year, Portia quits, P sues for

entire amount.o Is it entitled to it? Is this a penalty?

- Clause that produces an amount lower than actual damages:o Clause calls for damages of $10ko Actual damages are $100ko Is the clause a penalty?o Is it enforceable?o What is the test?

Is it unconciousable?o What if parties knew damages were likely to be $100k?

b. Schurtz v. BMW of North America (Utah S.C., 1991)- Shurtz bought a BMW for $14, 500 that turned out to be a lemon

o K warranty limits BMW responsibility to repair or replace defective parts. No other warranty.o K also excludes incidental or consequential damages for breach of warranty.

- What does P. want? What is D. response?o Consequential damages

- UCC 2-719o (1) K may

provide for additional or substitute remedies, limit or alter measure of damages (return and repay or repair and replace)

o (2) If exclusive/limited remedy fails of its essential purpose, P. is entitled to UCC remedyo (3) May limit or exclude consequential damages, unless unconscionable.

Prima facie unconscionable to limit if personal injury in consumer goods case- Two View

o 1st

If alternate/limited remedy fails or its essential purpose (2), limitation or exclusion of consequential damages (3) also fails.

[(2) and (3) are dependent.]o 2nd

If alternate/limited remedy fails of its essential purpose (2), must still examine limitation or exclusion of consequential damages (3) for unconscionability

[(2) and (3) are independent.]o Which one is the court’s view in Schurtz?

2nd

5. Punitive Damages

a. Hibschman Pontiac, Inc. v. Batchelor (Supreme Court of IN, 1977)- B purchases a new car from H that contained many problems- Batchelor damages

12

o $1500 general damages (breach of warranty—difference in value between car as warranted and as accepted.)

o $15,000 punitive damageso Are punitive damages available in a breach of contract action?

Generally, no- Punitive Damages (R2K 355)

o NOT recoverable for breach of K unless Conduct is also tort for which punitive damages recoverable

o What was tort in this case?o How are punitive damages to be measured?

- Punitive Damages—Bifurcated Trialo Option 1:

Stage 1: Liability—compensatory Amount—compensatory

Stage 2: Liability—punitive Amount—punitive

o Option 2: (TX) Stage 1:

Liability—compensatory Amount—compensatory Liability—punitive

Stage 2: Amount—punitive

- Texas Statutes of Interesto Chapter 41 of Civil Practices and Remedial Code

Limits availability and amount of punitive damageso Occupations Code 2301.601 et seq.

“Lemon Law”o TX DTPA

Provides for exemplary damages by use of statutory multiplier

E. Damages under the UCC

1. Buyer’s Damages- Buyer’s Damages (Remedies)

o UCC 2-712 Cover price K Price You go out and get replacement goods but you have to pay more than you would have

under K price…you get damages of cover price minus K priceo UCC 2-713 Market value K Price

You don’t have to gout and get goods but if you would have benefited from the market price, you can still recover

o UCC 2-714 Accepted Goods (value warranted—value accepted)o UCC 2-716 Specific Performance/Replevin

- Problem 79o R agreed to purchase 40 new computer workstations from So UCC 2-712 (Cover measure)

(1) Buyer may cover In good faith, without unreasonable delay Buy goods in substitution for K goods

(2) Recover

13

Cover price—K price + incidental or consequential damages - expenses saved due to breach

(3) Do not have to cover for remedyo Cover measure in Problem 79

Cover Price $4k K price $3k Difference $1k * 40 = Damages $40k (No incidental consequential das, no expenses saved.) What about the built in mouse? What would incidental/consequential include?

(see UCC 2-715)- Problem 80

o Same facts as Problem 79 plus a couple of other thingso What would P. recover under UCC 2-713?o UCC 2-713 (Market Measure)

Buyer may recover Market price

o When buyer learned of the breacho At the place for tender (or arrival if reject/revoke acceptance later)

- K Price + incidental/consequential damages - expenses saved due to the breach

o Market Measure in Problem 80 Market Price (Lewiston) $5k K Price $3k Difference $2k * 40 = Damages $80k (No incidental/consequential das, no expenses saved.) Compare to cover damages -- $40k Since covered—use cover measure. Did B have to cover to limit loss?

- Market and Cover Measureso Cover is complete alternative to market measure

Do not have to covero Recover of incidental and consequential damages under both 2-712 and 2-713o Incidental damages are those expenses involved in dealing with the breacho Do not get consequential damages if could avoido Subtract???

- Damages: Accepted goods (UCC 2-714)o (1) Determine in any reasonable mannero (2) Recover:

Difference in value between goods as warranted and goods as accepted UNLESS special circumstances show different amount

o (3) May recover incidental and consequential damages- Damages: Accepted Goods

o What is value as warranted?o What is value as delivered?o What kind of “special circumstances” change the way of calculating?o What would be another way to prove damages?

- Cost to Repairo Could get cost to repair instead of difference in value

14

Taste/aesthetics Safety Usability

o Could be combination—idea is flexibility to achieve full compensation

2. Seller’s Damages- Seller’s Remedies (Reprise)

o 2-706 Resale K—resaleo 2-708(1) Market K—marketo 2-708(2) Profito 2-709 Action for the price

Accepted goods Conforming goods lost/damaged for reasonable time after risk of loss passed to buyer ID’d goods that cannot be resold

- Problem 81o M sold 3k plates to CS, plates delivered when promised, but CS sent the plates backo Plates sold to CS for $20 but M resold for $18, without notice

(Market value = $14/plate)o Seller’s Resale (UCC 2-706)

May resell in good faith; commercially reasonable manner Recover K price—resale price May recover incidental damages Subtract expenses saved due to breach

Public (ex. Auction) or private Must be in reference to K If private, must give notice of resale Not accountable to buyer for profit on

o Problem 81 Resale Damages: K price $20 Resale $18 Damages $2 * $3k = $6k (OR $60k - $54k = $6k) Is the resale measure appropriate?

No…because they did not give notice of the resaleo Problem 81 Market measure

K price $20 Market $14 Damages $6 * $3k = $18k Which one does seller want?

Market Can it recover $18k using the market measure?

a. Teradyne, Inc. v. Teledne Industries (U.S. Court of Appeals, 1st Cir., 1982)- P. to sell transistor system to D., D. canceled K, offered to but FET instead, P. declined, then sold- Rule: If a seller resells goods after a breach by a buyer, the proceeds of the resale are not credited to the

buyer if the seller (absent the breach) would have made both the original sale and resale- Resale damages

o K price $98,400o Resale $98,400o Damages 0o (But get incidental damages of $614)o Is this the appropriate measure?o Is there another alternative?

15

- Lost Profit (UCC 2-708(2))o Available if 2-708(1) inadequate:o Profit (including reasonable overhead)o + incidental damageso + costs reasonably incurredo – payments or proceeds of resaleo Does that get us back to 0???

- Lost Profit (2 Scenarios)o Lost volume dealer

Profit (w/O/H) + incidental das - payments made

o Unfinished goods Profit (w/O/H) + incidental das + costs incurred - payments or proceeds of resale

o Don’t subtract proceeds of resale when lost volume dealer… Statutory interpretation- Additional Terdayne questions

o What is D. objection?o Is the damage calculation correct?o What is the significance of variable v. fixed costs? Why is overhead included?o Was P. required to “mitigate” by selling D. the FET?

- Lost Volume Sellero A seller who can accommodate more than one buyer for whom a buyer’s breach does not release

the goods for sale to another customer In such a case, the appropriate measure of damages is the net profit the seller would have

earned pursuant to the saleo Things to look at

Would have sought another sale Could have found another buyer Could have performed under another K

- Attorney’s feeso Not available at Common Law (American Rule)o Can recover if provided by

Contract Statute

TX Civil Practices and Remedies Code 38.001o May recover for services rendered, labor performed, martial furnished…a

sworn account, or an oral or written K

Texas Deceptive Trade Practices Act- §17.42- Waiver by consumer is void as against public policy, unless:

o In writing, signed by consumer,o Consumer not in significantly disparate bargaining position, o Consumer is represented by counsel

- Ineffective if counsel selected by D.- Must be conspicuous, in statutory form- Ineffective against attorney general- Texas DTPA

o 17.44- To be liberally construedo 17.45- Definitions (selected)

16

(1) Goods- “tangible chattels OR REAL PROPERTY purchased or leased for use.” (2) Services- includes services in sale or repair of goods (4) Consumer- “individual, partnership, corporation, this state, “who seeks or acquires

goods or services. Not business consumer with assets > $25,000,000, or owned by such.- Relief for Consumers

o 17.50- Consumer action if any of these are producing cause of damages (economic or mental anguish):

Reliance on act/practice from laundry list (17.46) Breach of express or implied warranty Unconscionable action or course of action Certain Insurance Code violations

- Consumer Remedyo Damageso Injunctiono Order to restore money or propertyo Any other relief “the court deems proper”

- Kind of violationso Knowing

Actual awareness at time committed that act false or deceptive or constitutes a breach of warranty

May be inferred from manifestations o Intentional

Actual awareness + specific intent that consumer rely to his detriment May be inferred from facts

o Everything else- Kinds of damages

o Economic damages Compensatory damages/pecuniary loss Includes cost of repair and replacement NOT exemplary, physical pain, mental anguish, loss of consortium, etc.

o Mental anguish- Damages for Consumer

o Economic damageso If knowing: economic damages (up to three times the amount) + mental anguisho If intentional: economic damages + mental anguish (up to three times the total amount)

- Attorney fees/Court costso Prevailing consumer shall recover court costs and reasonable attorney feeso D. shall recover court costs and reasonable attorney fees IF action groundless, in bad faith or for

harassmento Attorney fees, costs, and pre-judgment interest are not included in additional damages

- Damages Exampleo Assume Economic damages = $10k and Mental Anguish = $20ko “Innocent” violation: $10ko Knowing violation:

($10k to $30k) + $20k = $30k up to $50ko Intentional violation:

$10k + $20k = $30k up to $90k (treble damages)o Court costs and reasonable attorney fees are added to ALL of the above calculations

- Other damage provisionso Punitive damages statute does not apply to DTPAo P. is not limited to economic damages if have right to other damages under other law

a. Gormley v. Stover (S.C. of TX, 1995)17

- Stover pays Dr. Gormley for oral surgery, Stover sues for malpractice and DTPA violationo Stover filed suit more than two years after the surgery was performed but less than two years after

Gormley last treated her- Result?

o Trial Court: SJ- D, P. barred by SOLo Court of Appeals:

Negligence (surgery) barred by SOL Need finding RE negligence in post-op care Need finding on discovery for DTPA

o TX Supreme Court No allegation of negligence in post-op care No DTPA claim- negligence claim if any

- Medical Liability under DTPAo Texas Civil Practices and Remedies Code 74.004- DTPA does not apply to:

Negligence claims against Physicians or health care providers For personal injury or death

o Does not apply to pharmacistso Does this mean DTPA does not apply to physicians and heath care providers?

No- Relief for Consumers

o § 17.50 consumer action if any of these are producing cause of damages (economic or mental anguish):

Reliance on act/practice from laundry list Breach of express or implied warranty Unconscionable action or course of action Certain Insurance Code violations

- Sorokolit v. Rhodeso Cannot “recast” negligence claim as DTPA claimo Warranty claims allowedo What about effect of statute of frauds?o (Also could sue under DTPA, for example, for unconscionable acts.)

- Professional Liability under DTPAo 17.49(c) No claim based on professional service based on advice, judgment, opinion except for:

Express misrepresentation of material fact Failure to disclose info (17.46(b)(26)) Unconscionable action or course of action Breach of express warranty…

- Other Limitationso No claim for bodily injury, death, or mental anguish except as specifically providedo No claim out of written K IF

Consideration > $100k Consumer represented by counsel, and Not involving consumer’s residence

o No claim where consideration paid is > $500k unless consumer’s residence- There is a notice requirement for DTPA claims- Protection of the D.

o If you refuse a reasonable settlement offer, then you could stop the running of attorney fees and punitive damages

a. Arthur Anderson v. Perry Equipment- Perry sued AA based on audit- D. said P. not consumer- did not pay

18

- Said attorney fee award improper- Arthur Andersen

o Perry was consumer Required audit, relied on it AA aware that P. required and would rely

o Attorney’s fees must be dollar amount Not percentage of recovery Based on “lodestar” method

II. Restitution- Separate body of law- Substantive or remedial

o Comes up as a remedy in many different contexts- Legal or equitable- Prevents (and compensates for) unjust enrichment

o D. has received benefit from P.o Unjust to retain without compensating P

- Terminology

A. Contract Applications (p.326)- Recovery when no K (“quasi-K”)

o Quasi-K in not a K at all- Alternate damage measure or independent remedy for breach of K- Remedy for breaching party- Recovery when K not enforceable—no writing, impossibility, mistake…

B. Restitution for Breach of Contract

1. U.S. v. Algernon Blair, Inc. (U.S. Court of Appeals, 4th Cir., 1973)- U.S. contracted with Blair who then contracted Coastal- Costal sues Blair and its surety—breach of K- Did Blair breach the K? If so, how?- What measure of damages does P. seek?- Measure of restitution (R2K 371)

o Reasonable value “would have cost” to get from someone else—cost to replicate (what someone else would charge)

o Increase in value of D.’s property or other value Which one is generally greater? Which one is appropriate here? Is recovery based on P.’s expenditures?

No, not a reliance measure- Problem 84

o WCC agreed to build a parking garage for MAo WC will spend $100k building airport (losing K)o MA repudiates (B/R) when WC has spent $50k (halfway finished)o Example for profitable K:

Assume P will spend $60 on K, and has spent $30k when D repudiates Damages (expectation):

Loss in value $80k - cost avoided $30k (no payments made) Damages $50k

19

OR profit + costs incurredo ($20k + $30k = $50k)

o Expectation for Losing K Lost value $80k Profit -$20k - cost avoided $50k + cost $50k Damages $30k Damages $30k

But spent $50k Same result Losing $20k Lose agreed $20k But that was the bargainSame as reliance

o Restitution as Damages in Losing K What is the benefit conferred?

Not limited by proportion of K completed Not on the K “cost to replicate”

What if finished the job, spending $100k? Still only get the $80k because that was what was agreed upon

What if spent $90k but still not finished? K price is typically the outside limit but may not be in some cases

2. Rosenberg v. Levin (S.C. of FL, 1982)- Levin hired R to perform legal services, R was discharged without cause- Rule: A lawyer discharged without cause is entitled to the reasonable value of his services on the basis of

quantum meruit, but recovery is limited to the maximum fee set in the fee contract- Rosenberg Damages

o Trial Court awarded $55k Restitution for benefit conferred Reasonable value of services (quantum meruit)

o Appellate Court limited to $10k Amount owed under K was $10k Restitution limited by K recovery

o Is this just an application of rule just discussed?- Approaches in Attorney Cases

o Contract Rule- traditional K damageso Quantum Meruit Rule

Accrue immediately, or after case over Could be contingent on recovery

o Quantum Meruit limited by K No C/A unless and until awarded damages Greatest protection of client

- Questions in Attorney Caseso Why is there a different rule for attorneys?o Is it a breach of K to wrongfully discharge an attorney?o In what kind of case does the question generally arise?

Contingent fee agreement caseso How is reasonable value calculated?o What is the approach in TX?

Contract Rule Can recover the contract rate

- Problem 85o Amos to do a merger negotiation for Client for $50ko Client wrongfully fires Amos halfway througho Amos had already done work worth $50ko Will Amos recover $50k?

20

o Is that question answered by the prior case?- Problem 86

o Joe purchased new Nyet from Sally’s Auto for 1997 Cambo and $5k down payment, car was defective

o Is Joe entitled to return of the car and the down payment?o Can he also recover damages?

C. The Breaching Plaintiff

1. Britton v. Turner (S.C. of NH, 1834)- P left after 9½ months, w/o consent or cause, D has not paid P for any of work, P sues for $100 for

value of work done (quantum meruit)- Can breaching party recover?- Arguments against recovery:

o Do not deserve it if breached K.o Encourages breacho Imposes new K on non-breaching party.

Is the court persuaded? What does the court decide? Why???

- Arguments in favor of recovery:o Forfeiture of breaching party –

Increases as extent of breach decreaseso Non-breaching party receives benefit –

Should expect to pay o Policy concernso Effect of “forfeiture” result

- Measurement of benefito What did P recover?o Is recovery based on K price?o What if services were worth $50?o What if services were worth $200?o Does the contract affect the recovery?

- Measure of Restitution – R2K 371o Reasonable value “would have cost” to get from someone else – cost to replicateo Increase in value of D’s property or other value

Which one is generally greater? Which one is appropriate here? Is recovery based on P’s expenditures?

- Limitations on recoveryo Breaching party cannot recover more than ratable portion of K price.

K rate is ceiling on recovery.o All doubts resolved against breaching party.

Choose lower measure of restitution.o K damages are subtracted from the value of the benefit {net benefit}

Do not subtract if already considered.o Recovery barred if not allowed under K.

Terms/conditions control.

21

- Swimming Pool Exampleo P install 20-year pool Do P intentionally installs 15-year pool. Otherwise as K required. Assume material breach.o “Worth” $16,000 (cost to replicate).o Adds $10,000 in value to property.

- Swimming Pool Questions:o Does it matter if the breach was intentional? In bad faith?o What will P recover?o What would P recover if substantially performed?o Are damages subtracted?o What if P caused $1000 in damage to D’s garage while working?

2. De Leon v. Aldrete - Land sale K – installment K- P stopped paying after paid $1070, D took possession. Sold to 3P for $1300, P sued for restitution

of the $1070 paid.- Is P entitled to recover this amount?- Problem 87

o P star, publicity tour DHoward Teeth Movie Producers

$50,000o P refused to go on tour, P has not been paid. Movie made millions. P sues for $1,000,000

– value of services.o Will he recover?? If so, what amount?o Does it matter if he refused due to injury?

- Problem 88o D maps P

Montgomery King$2,000 ($750 down payment)

o King repudiates. King seeks return of his $750 down payment. Montgomery’s actual damages = $250.

o Is King entitled to the $750? To anything?o What law controls? o UCC 2-718(2)

Buyer breach – Goods not delivered – Buyer gets restitution of $ paid minus: Liquidated damages, if any, OR *Smaller of 20% of K or $500

*Restitution is subject to offset by: Seller’s right to damages Benefits received by buyer under K

o Problem 88 Calculation 20% of K price ($2,000) = $400 (less than $500 $750 - $400 seller keeps = $350 $350 - $250 (seller’s damages) = $100 Buyer gets $100 back. Seller keeps rest. If buyer had received $100 worth of maps, he would recover 0.

o Variation #1: $100,000 K with

22

$10,000 down payment, $5,000 damages, $2000 goods received:

20% of $100,000 = $20,000 ($500 is less) $10,000 - $500 - $5,000 - $2,000 =

$2500 to buyer (Seller keeps $7500).o Variation #2

$1,000 K with $100 down payment No damages No goods received

20% of $1,000 = $200 ($200 is less) $100 - $200 = -$100.

Buyer gets nothing back. Seller keeps the $100. BUT no affirmative claim for the “extra” $100. NOT a damage claim.

III. Equitable Remedies- Equitable Remedies

o Best for benefit of bargaino Extraordinary Remedy

Historical K theory

o In personamo Injunctive Relief

Mandatory (specific performance) Prohibitory

a. Centex Homes Corp. v. Boag (Superior Court of NJ, 1974)- Boag contracted to purchase a condo from Centex, and put down a $525 deposit, then a check for $6870,

Boag transferred to Chicago and repudiated the K by stopped payment on check.- P sued for specific performance (or liquidated damages of $6870)- Rule: Specific performance is available to a seller of real estate where the seller will suffer economic

damage for which his remedy at law is inadequate- Specific Performance

o Available only if remedy at law (damages) not adequate Not adequate if property unique

o Damages generally not adequate in sale of interest in real property Land is considered unique Does this apply to sale of condo? Does this apply to sellers?

b. City Cenre One Associates v. Teachers Insurance and Annuity Assn. of America (U.S. Dis. Court, Dis. of UT, 1987)

- Teachers Insurance sought specific performance of a K under City Centre was to borrow money from Teachers to construct an office building

- P. seeks declatory J that it can void loan commitment- D. seeks specific performance and damages- P. seeks partial SJ, saying D. has adequate remedy at law- Rule: Specific performance is not an appropriate remedy for lenders when a borrower has breached a loan

agreement.- Is remedy at law inadequate?

23

o Is agreement to repay loan unique? NOT unique because its only money What about the security interest in land?

o Can damages be measured with reasonable certainty?o Would borrower be entitled to specific performance if lender breached?o What is the usual remedy for a breach by the lender?

c. Laclede Gas Co. v. Amoco Oil Co. (U.S. Court of Appeals, 8th Cir., 1975)- In a propane delivery K, L had the right to unilaterally to terminate the agreement- D. tried to increase the price, then “terminated” K, P. sued for breach of K and sought injunction against

breach- T Ct. said K unenforceable, no mutuality- Rule: A provision in a K giving one party the right to terminate unilaterally does not render the K

unenforceable- Laclede questions

o Was there an enforceable K?o What is the appropriate remedy?o Who decides whether to grant specific performance?o What are D. arguments that SP is not appropriate?

- D’s arguments:o No mutuality

Is this the same as mutuality for K?o Difficult to supervise

Why is this a concern?o K indefinite and uncertain

Does K need extra certainity for S/P?o Remedy at law is adequate

This the best ARGUMENT- UCC 2-716

o Available when goods are unique, or “in other proper circumstances.” What kind of goods”

Heirlooms, gems K can be what is unique Output and requirement Ks Inability to cover

o May include other terms and conditions- Other Laclede factors:

o Remedy at law inadequate Inability to cover Difficulty of measuring damages

o Public Policy- Application of Factors

o Adequacy of remedy at law Difficulty of measurement K cannot be replaced

o Discretion of court—justice of remedy Difficulty of supervision Indefiniteness Mutuality (tailor remedy) Public policy/Other factors

- Other UCC Provisions:o NOTE: UCC does not provide for specific performance for seller—Action for the Price is a

damages remedy

24

d. Lumley v. Wagner (Lord Chancellor’s Court, 1852)- Lumley, who had K with Wagner for the latter to perform at his theater, Wagner refused to perform,

Lumley sought to enjoin her from performing at another location- Rule: A court may enjoin a performer from engaging in employment when the performer is under the K

with another employer- Why was SP not available?- Personal Service

o Specific Performance not available to enforce personal service in K: Involuntary servitude Strained personal relationships Difficult to enforce

o Applies to the service part of Ko May not grant against employer due to nature of relationship or K

- Injunctiono Effect of injunction

Prevents competition May encourage performance (Should it?)

o When granted Inadequate legal remedy—uniqueness Do not enforce undesirable personal rels Still enforceable way to make a living

- Injunction or Damageso May prefer damages if

Cannot prove need for injunction Too late for injunctive relief Injunction unlikely to help

o Injunction can only apply to the K termo Cannot get both injunction and damages for same breach/time frame

- Problem 89o Hammer was to build out and lease a store to Jane’s, Hammer repudiated, and Jane’s sued for

specific performanceo Should it be granted?o What factors should the court consider?

Are money damages going to suffice?o Application of discretion

In favor of SP: Lease of real property Damages difficult to measure

o Would you have made money with the store? Cannot replace situation with money

o Store might have been more popular/made more money in this location Against SP:

Construction aspects of Ko

Difficult to supervise Uncertainty of K

o Balancing Factors Not like usual construction K Is irreplaceable Certainty can added through K construction/interpretation Parties must deal in good faith

25

City Stores v. Ammerman had additional factor—P ad cooperated with D. in getting right to build—D should not be allowed to take that benefit and refuse to perform

o Availability of Specific Performance Is the legal remedy adequate? (First stage)

Is yes, specific performance is not available If no then…

Decide if other reasons not to grant (Second stage) Balance factors Discretion, within established parameters

o Factors to consider (At second stage) Will D. get return? Possible to enforce? Difficult supervision? Personal service?

If yes, the no SP Uncertainty? Damages collectible? Public Policy

If SP goes against public policy, likely not to be granted Hardship to D? Hardship to 3P? Fairness of K Clean hands?

Court follow a clear conscience…court will not help if P does not have clean hands

Laches Unreasonable delay Prejudice to D

Other factorso Effect of specific performance

Prevents efficient breach May create wasteful costs May prevent “highest and best” use

Creates “bilateral monopoly” May reach true measure of loss May create windfall or penalty

Ch. 5 The Parol Evidence Rule and Interpretation of the Contract

I. Introduction- Problem 105

o MH Computers to develop a computer system for WWW, have a written K, which was negotiated over for two years by teams of lawyers, D. cancelled purchase, P sues and D. says oral understanding can cancel any time

o Should judgment allow evidence? NO

II. Parol Evidence Rule- Parol Evidence Rule

o Bars evidence of prior agreements that are inconsistent with the written K

26

o If the writing is complete, bars evidence of prior agreements that are “within the scope” of the written K

o Note: may include contemporaneouso Rule of substantive law—not evidence

A. Meaning of “Parol Evidence”- Problem 106

o Jane to build dock/use copper nails, have written K, construction begins, Hiram tells Jane she can use galvanized nails??? PAROLE EVIDENCE RULE DOES NOT BAR LATER OR SUBSEQUENT AGREEMENTS. ONLY PRIOR.

B. Exceptions to the Rule

1. Mitchill v. Lath (Court of Appeals of NY, 1928)- Mitchill bought some property from Lath pursuant to a full and complete written sales K. She sought to

compel Lath to perform on his parol agreement to remove an ice house on neighboring property- Rule: An oral agreement is permitted to carry from a written contract only if it is collateral in form, does

not contradict express or implied conditions of the written contract, and consists of terms which the parties could not reasonably have been expected to include in the written contract

- Mitchill questions:o Would SP be an appropriate remedy?

Is the remedy at law adequate?o Did Ds promise to remove the ice house?

Do we care? Why or why not?o What is the basis of D’s objections to the evidence?

- More Mitchill questions:o What if the ice house agreement had been in writing?

Doesn’t matter…even if it was in writing, it would still be barred by the PER Bars ANY prior evidence

o Does the PER always bar evidence of prior agreements? NO, because we assume that since it is not part of the final agreement, negotiations were

still going on when it was createdo What is the test for whether evidence is admitted?

- ***When PER applies:***o Is the agreement in writing?

Does not require a writing Applies if there is a writing

o Is the agreement final (integrated)? Integrated means final (R2K209) Can be fully or partially integrated In other words, is it a K?

o Ask these questions first. If NO, not PER.- Mitchill questions continued:

o Why didn’t the court ask these two questions?o What questions did the court ask?

Collateral in form?

No contradiction Not closely connected to original transaction/would have been naturally included in the

writingo What does it mean to be “collateral in form?”

27

- Collateral agreementso If separate agreement, supported by separate consideration, evidence is not barredo Not really parol evidence rule application—just different Ko If not separate K, can answer by asking other questions.o What were the other questions?

- ***Application of PER:***o Does the offered agreement contradict the written K?

If yes, evidence not admitted If no, ask the next question

o Is the written K complete? If yes, evidence is NOT admitted If no and no contradiction, evidence is admitted

Was this the question the court asked???- Does the agreement contradict K?

o Majority says maybe Don’t need to decide. Why?

o Dissent says no. Does not change anything in the K If contradicts, contradicts idea of completeness. So reall boils down to Q3—is it

complete?o Why do we ask this question?o R2K 215—If final agreement, no evidence to contradict

- Is the K complete?o What do we mean by this question?

Does the agreement contain everything agreed to by the parties? Is the agreement complete as to the subject of the offered agreement? Is the offered agreement within the scope of the written K?

o Why do we ask this question?o R2K 216—Can supplement, unless court finds complete

- Approaches to completenesso 4 corners—Does it look complete?o “Traditional”—Objective

Would similarly situated parties naturally omit it from the writing?o “Modern”—Subjective

Did the parties intend the writing to be complete?o (Look at UCC rule in next case)

- Polices and Effects of PER:o Why do we have such a rule?o Was a just result reached in this case?o What happens if evidence is barred>

Judge/jury (fact finder) distinctiono What happens if evidence is admitted?

Still must prove happened

2. Betaco, Inc. v. Cessna Aircraft Co. (7th Cir. 1994)- Betaco contracted to buy a new jet airplane advertised to have a greater range than it predecessor, but later

became convinced that it would not have a greater range and canceled the purchase, alleging breach of an express warranty

- Rule: Absent an ambiguity, the intent of the parties is tone determined from the face of the K, without resort to extrinsic evidence

- Betaco questions:o Who prevails at the trial?

Betaco28

o What is the PER issue?o Was the K full integrated (complete) as to the warranty?o Did trial court admit evidence of the warranty?

Yeso What happens on appeal?

Rev.- Is agreement complete?

o Question of intento Consider circumstances, negotiation, sophistication of parties, agreement itself (is it obviously

incomplete?)o Is there an integration (entirety, merger) clause?

What’s that? A provision in a K stating that the document represents the total and final

expression of the parties agreement If there is, is that dispositive? Is it here?

- UCC approach to completeness:o Would terms “certainly have been included” in the writing?

If so, inadmissibleo Let more evidence in—more liberalo Courts remands to determine if intended to be complete, using this testo Completeness is question of law, but can depend on facts. Need more facts here

- Betaco continuedo What happened after remand?

D. Ct found not (fully) integated. Warranty evidence admissible 7th Cir. rev.

- UCC PER (UCC 2-202)o Terms in writing intended as final—may not contradict by prior agreement or contemporaneous

oral agreement but may explain or supplement By course of performance, course of dealing, or usage of trade; and By evidence of consistent additional terms unless court finds writing intended to be

complete- Warrant Evidence

o Was there a warranty disclaimer in the agreement?o Does warranty “outside” of K contradict the disclaimer?o UCC 2-316 on exclusion of warranties—“subject to the provisions…on parol…evidence.”

- Warranty Exclusiono If you make a warranty in a document, you cannot exclude it in the same document…if it is in the

document, it is there?o If you have a warranty on the face of the document and the seller makes an oral statement

disclaiming the warranty, then it still valid in the document (PER excludes oral testimony)o If you have an exclusion on the face of the document but the seller gives an oral warranty then still

no warranty (PER excludes oral testimony)

3. Luria Bros. and Co. v. Pielet Bros. Scrap Iron (U.S. Court of App., 7th Cir., 1978)- PB attempted to introduce testimony that a K calling for an unconditional sale of goods was in fact

contingent upon their receipt of the goods- Rule: Testimony may not be introduced that a K calling for an unconditional sale of goods was in fact

contingent upon the seller’s receipt of the goods.- What is a contradiction?

o Limitation of absolute, right to cancel Right of unilateral rescission not in K Right to cancel not in K—not admissible

29

o Only “head-on” contradiction: night v. day, up v. down, red v. green—limitations limit, not contradict

Limitation on option not in K admissible Quantity “qualification” not in K admissible

- Application of UCC PERo Does evidence contradict the writing?

Court says yes. What if it had said no???o If had made this agreement, would they certainly have included it in the K?

Court answers this question also. Yes. Still bars evidence.o What if the K included “per our conversation”?

4. Lee v. Joseph E. Seagram and Sons (U.S. Court of Appeals for the 2nd Cir., 1977)- Ps allege D promised to relocate them in a new distributorship if sold Capitol City. Ps sue for

breach of that agreement. D says promise barred by PER.- Lee questions:

o Does the evidence contradict the writing?o Is the writing complete? (Is the agreement something the parties would ordinarily be

expected to put in the writing?) If is, and didn’t, unlikely made agreement. Don’t allow evidence.

- Would parties ordinarily put in writing?o Complex contract.o No identity of parties.

Sale of corporate assets, promise to only certain individuals.o Relationship of trust and confidence.o Negotiated by different parties.o No integration clause.

Does this matter? What if had one?

5. Pym v. Campbell (Queen’s Bench, 1856)- Ds do not purchase. P sues for breach of K. Ds say do not have a K. But P produces copy of

written K. How can D say do not have K???- Oral condition precedent

o What is a condition precedent?o R2K 217 – If parties agree orally that performance of K is subject to condition, K is not

integrated with respect to the condition.o Does this mean it is not a contract?

- PER application:o Is the K written?o Is it final?o Does the evidence contradict the writing?o Is the writing complete (as to the evidence)?

- Pym questions:o Does this case conflict with Luria?o Would the Luria court have reached a different result in Pym?o Did the parties intend to be bound when signed agreement in Pym?o Did the parties intend to be bound when signed agreement in Luria?

- Oral condition precedento Distinguish:

Condition to performance of entire written agreement and

30

Condition to performance of obligations within K.o What is effect of entirety clause?o What if there is a conflict with writing?o Is there a contract at all?

- Mitchill v. Lath reduxo Assume that when Laths told Mrs. Mitchill that they could and would remove the ice

house if she would buy the property, they in fact had no right or ability to do so, and they knew they did not.

Does the PER bar evidence of this agreement?- R2K 214(d)

o Evidence of prior agreements and negotiations admissible to show Illegality Fraud Duress Mistake Lack of consideration Other invalidating cause – Not K

- R2K 214 – other provisions:o Also admissible to show

Writing not integrated (not final) Whether complete or partial integration Ground for remedy

Rescission, reformation, specific performance Meaning of the writing

III. Interpretation

A. Admissibility of Evidence Surrounding Circumstances and Evidence of Intent- PER and Interpretation

o PER deals with what agreements or understandings make up the agreement Is it part of the K?

o Interpretation deals with what the words or terms of the contract mean We know it’s part of the K What does it mean?

- Why do we need to interpret K?o Imprecise or even sloppy drafting

Draft early and proofread!o Ambiguous terms, structures

Wife, summer, middle of the month Cut the grass and trim the shrubs in the front yard

o Parties want flexibilityo Parties can’t agree on term

1. Pacific Gas and Electric Co. v. G.W. Thomas Drayage and Rigging Co. (S.C. of CA, 1968)- During the work, the cover fell. Injured P. property- P sued for damages under indemnity provision- What is the interpretation issue?- Rule: 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

31

- Pacific Gas Questions:o Does the clause mean indemnify

Against all loss, even to P. property (P) or Just loss to property to 3Ps (D)

o What did the trial court do?o What is trial court’s approach to interpretation?o What happens on appeal?o What does the CA S.C. think of the trial courts approach? Why?

- Plain meaning ruleo If the K has a plain meaning on its face—

That is the meaning of the K Do not admit evidence to interpret

o S. Ct. says assumes words have one true meaning—but meaning can vary Does a thousand = 1,000? Can 49.5% = 50%?

- PG and E approach to interpretation:o Admit all evidence provisionally

Decide if the language in the K is reasonably susceptible to the interpretation suggested If not, do not admit for interpretation If so, admit. Still decide what K means

o 2 steps Admissibility and interpretation

- Plain meaning comparedo Plain meaning: look first for ambiguity in K

Use interpretation rules If not ambiguous, don’t admit evidence

o PG and E: consider evidence to find ambiguity Always admit provisionally Don’t consider for interpretation if not reasonably susceptible to meaning

- Plain meaning defendedo J Mosk quoted:

“The written word…is not at all times subject to alteration by self-serving recitals based upon fading memories of antecedent events.”

o J. Koszinsky: While we have our doubts about the wisdom of Pacific Gas, we have no difficult

understanding its meaning, even without extrinsic evidence to guide us- Ambiguities

o Patent ambiguity—apparent on the face of the document A is making a payment on behalf of B. All notices should be sent to “his” address

o Latent ambiguity—not apparent until look at extrinsic evidence Notices should be sent to the Houston office—in fact, there are 2 Houston offices

2. R and P Enterprises v. LaGuarta, Garvel, and Kirk (S.C. of TX, 1980) (SEE HANDOUT)- D. defaulted on note on first anniversary- Trustee sold and R & P bough at public sale- Promissory Note

o If is expressly agreed that the maker shall have personal L for payment for the first two yearso After which time, all prior payments having been made, the maker shall have no personal L, and

the payee will look only to enforcement of the liens,o It being expressly agreed that the maker shall have no L for any deficiency

- Is the K ambiguous?o Question of law for the courto Give effect to the parties intent as expressed in the instrument

32

o Consider the entire instrument—so none of the provisions are meaninglesso If court can give it certain meaning—not ambiguouso Apply rules of interpretation first. Admit extrinsic evidence only if still ambiguous

3. Alba Tool and Supply Co. v. Industrial Contractors (S.C. of TX, 1979)- D. excluded right to sell- I.C.I cancelled the K- Alba sued claiming 5% commission- ICI said Alba breached the K- Ambiguity of Agreement:

o Trial court said unambiguouso No evidence admitted to explaino Court of Appeals found ambiguous in two ways:

Limited on areas of representation unclear Exclusive agent/right to sell ambiguous

o Supreme Court rev.- Exclusive Agency/Right to Sell

o Both terms used, but have different meanings Exclusive agency—principal can sell Exclusive right to sell—only agent can sell

o Meaning is clear in K Clearly gave exclusive right to sell Handwritten provision, w/ initials

4. Grain Dealers v. McKee (Not assigned)- P., Mckee is president and sole shareholder of Future Investments

o Bought automobile insurance policy- Insurance Policy

o Coverage for you and designated person and family member of eithero Coverage for you or any family member while occupying or struck by autoo Any other person in covered autoo You refers to name insured

- Insurance claim:o McKee’s 11 year old daughter Kelly was injured in an accident while riding as a passenger in a car

driven by her step-sistero Neither the car nor the step sister were covered by the insuranceo McKee made a claim for injuryo D. denied the claim McKee sued. Result?

- Grain Dealers v. McKee proceduralo Trial granted SJ for McKee—Kelly entitled to coverageo Court of Appeals affirmed—

Policy ambiguous Resolve ambiguity in favor of insured

o Supreme Court granted review. Result? Plain meaning—she is not covered Future investments was the one named on the policy not McKee himself and thus does not

cover McKee’s family

B. Admissibility of Evidence of Usage of Trade, Course of Dealing, and Course of Performance

1. Nanakuli Paving and Rock Co. v. Shell Oil Co. (U.S. Court of App., 9th Cir, 1981)

33

- N entered into long term supply K with Shell to buy asphalt and objected when Shell raised the price from $44 to $76

o Prices went up dramatically, P sought “price protection,” Shell refused, N sued for breach, and a jury found for N, then court granted JNOV for D.

- Rule: Under the UCC, an agreement goes beyond the written words to mean the bargain of the parties in fact, as found in their language or by implication from other circumstances, including course of dealings, usage of trade, and course of performance.

- Nanakili questions:o What happens on appeal?o What law governs this transaction?

The UCCo Does the K require “price protection?”

Noo If so, how?

- UCC 2-202o Terms in writing, intended as final—many not contradict…But may explain or supplement

By course of performance, course of dealings or usage of trade and By evidence of consistent additional terms unless the writing is complete

- Trade Usage (1-303/205)o Practice of dealingo Regularly observed in place, vocation or trade, such thato Justifies expectation will observe in this transactiono Existence is fact questiono If in writing, interpretation of writing is for court

- Trade Usage questions:o Why is trade usage part of interpretation?

Helps us better define the terms of the Ko What if only one party is in the trade?

Both parties should be in the trade because it is easier to prove that both parties understand the usage

o What was Shell’s trade usage argument?- When trade usage is relevant:

o Both parties are in the tradeo One party is in the trade and the other

Has actual knowledge of the usage The usage is common knowledge

o Objective standard—should knowo What is the trade? Define broadly or narrowly? (D. wants to limit)

- Course of dealing (1-303/205)o Sequence of conducto Between the partieso Concerning previous transactionso Establishes common understanding foro Interpreting expressions or conduct

- Course of performance (1-303)o Sequence of conduct in particular Ko Between the partieso Repeated occasion for performance

34

o The other party accepts the performance without objection, with Knowledge of the performance and Opportunity to object

- Course of performance questions:o How many performances are required?

More than one, so twoo How many performances were there in Nanakuli?

Twoo Does the court find course of performance (of price protection) here?o What additional argument does Shell have?

- Course of performance v. waivero Course of performance helps interpret the K

K: deliver in the middle of the month Performance: always delivered on the 18th, without objection Interpretation: the middle of the month includes the 18th

o Waiver excuses performance of a duty required in the K K: deliver on the 15th

Buyer allows delivery on the 18th

The requirement of delivery on the 15th is waived- Hierarchy

o Express terms Cannot contradict K—express terms control

o Course of performance Good evidence regarding this very K

o Course of dealing Good evidence regarding these parties

o Usage of trade Often important factor in interpretation

- UCC and contradictiono Why doesn’t D win?

Doesn’t K clearly say pay posted price? Doesn’t the evidence contradict this?

o What is a contradiction? Head on contradiction? Limitation?

o Mixed signals in statute: Express terms control Trade usage used unless carefully negated

- UCC 2-202 reduxo Terms in writing, intended as final—may not contradict…But may explain or

supplement By course of performance, course of dealing or usage of trade and By evidence of consistent additional terms unless the writing is complete

o Is Nanakuli an explaining or supplementing case?

2. Columbia Nitrogen- P sells nitrogen to D., prices drop dramatically, D. asked P. to renegotiate price, P. refused, D.

refused to buy, P. sues, D offered: trade usage—required to renegotiate and course of dealing—D. renegotiated when D. was seller

35

- Procedureo Trial court did not admit evidenceo 4th Cir. rev.

Not carefully negated No ambiguity requirement

o How to keep evidence out? Make clear. (Here, couldn’t agree) Carefully negate known terms

C. Rules of Interpretation- Interpretation Rules

o Consider circumstances/parties’ purposeo Interpret writing as a wholeo Use general and technical meanings, unless a different intention manifestedo Consider manifestations of intent, course of performance, course of dealing, usage of trade

- Interpretation Standardso Prefer reasonable, lawful, and effective meaning to all termso Order: Express, course/performance, course/dealing, trade usageo Specific terms over general termso Separately negotiated or added terms over standardized termso Interpret against the draftsmano Interpret favoring public policy

- Interpretation continuedo A plain meaning court will apply the forgoing rules firsto If no ambiguity, will not admit evidenceo Note UCC and trade usage conundrumo If find two plausible meanings, which one controls?

- R2K 201- Whose meaning prevails?o Whose meaning prevails if there are 2 meanings and each party says meant something

different?o (1) If both meant the same thing, that is the K meaning

Then why are we in court? This actually what the evidence is generally intended to show

- Each party has different meaning:o Choose A’s meaning over B’s if:

A only knew A’s meaning, and B knew both meanings, or A had no reason to know B’s meaning, and B had reason to know both meanings

o If does not fit any of the foregoing, there is no K

Impossibility

a. Taylor v. Caldwell (Queens Bench, 1863)- P. contracted to use Caldwell’s, D., music hall for four days, the Music hall burns down before

performances, P sues for damages- Does the D. have to pay damages?

o If not, why not?- Rule: In contracts in which the performance depends on the continued existence of a given person

36

or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance

- Impracticability (Supervening- R2K 261)o After K madeo Party’s performance becomes impracticableo W/o fault of that partyo By occurrence of evento The non-occurrence of which was a basic assumption of the K (foreseeability ???)o Duty to perform is dischargedo UNLESS the language or circumstances indicate the contrary (Assumption of risk)

- Problem 69o D. to deliver play by 10/12, but plane crashed, and the play was not deliveredo D. guaranteed to deliver the next day…he assumed the risk

Thus this would not apply to him- Problem 129(a)

o Behemoth to build an office building for Jordan, the building was 95% complete, destroyed by a fire, K does not address potential destruction

o Is Behemoth excused from further performance due to impracticability? No one expected the building was going to burn Apply the test impracticability…MUST meet all elements

Here, assumption of the risk falls on the contractor- Problem 129(b)

o Job to paint meeting room for Jordan for $20k, job is 75% completed, building is destroyed by an earthquake

o Is Job excused from performance? Yes, because how can a painter paint a room that does not even exist

o Is Job entitled to payment? Is so, how much? Yes…unjust enrichment

But the building is gone so do they have anything? He conferred a benefit because of his time

b. Nissho-Iwai Co. v. Occidental Crude Sales (U.S. Court of Appeals, 5th Cir., 1984)- O, oil producer, failed to supply oil drilled to Libya to N, a Japanese oil distributor, for eight

months, N sues for a breach of K (and fraud). D says excused by force majeure clause due to: Government embargo on exports and pipeline breakdowns

- What’s a force majeure clause?o Clause pursuant to an oil and gas lease, relieving the lessee from L for breach of the lease

if the party’s performance is impeded as the result of a natural cause that could not have been prevented

- Rule: A party relying on a force majeure clause to excuse nonperformance under a K must prove it did not exercise reasonable control over the excusing event

- Force Majeure Clauseo Enumerates “excusing” eventso May include others not listedo Here, includes embargo and pipeline breakdowno So, isn’t D excused?o If not, why not?

- “Fault” of party seeking excuse:

37

o No excuse if at fault If caused the event If failed to act reasonably to prevent it

o Why is this a requirement? Because we are letting someone out of what they were supposed to do

o Was D at fault here? Regarding the embargo? Regarding the pipeline problems?

o Does the fault limitation apply here?- Force Majeure Clause

o Excuse if embargo, pipeline breakdown or other events not within D’s controlo Excuse if embargo, pipeline breakdown or other events not within D’s controlo Excuse if embargo, pipeline breakdown or other events not within D’s control

- Problem 130o Edison to fix cracking in barges (guaranteed), Edison had submitted only bid, they were

unable to fix problem after two years, gave up, said impossible, and submitted a bill to the government, government said no payment, breach of K

o Is Edison excused based on impracticability?o Impracticability (Existing- R2K 266)

At time K made Party’s performance becomes inpractiable W/o fault of that party Due to fact he had no reason to know The non-existence of which was a basic assumption of the K (foreseeability???) No duty to perform arises UNLESS the language or circumstances indicated the contrary (Assumption of

risk)- Problem 131

o HW K to sell TC a cow, Rose of Aberlone, prior to the date of delivery, Rose died.o Is HW in breach of K?

No…seems it just happened and was out of people’s control Risk was not assumed

o What if Rose is very sick?o What law governs this transaction?o UCC 2-613

K requires goods identified at time K made Goods suffer casualty Without fault of either party Before risk of loss passes to buyer

If loss is total, K is avoided If loss is partial, or goods deteriorated:

o Buyer may avoid K ORo Accept goods with allowance- no other claim

- Problem 132o Mona K with Naby to supply it with chicken pot pies, Mona always bought chicken from

the Chick Ranch, did not have K with them, Chicken Ranch unexpectedly closed, Mona’s claim excused due to impracticability

o Problem 132 Questions:

38

Can Mona still perform? Does he K require chicken from the chicken ranch? What if it did? Is it Mona’s fault that the chicken was not available? Could she have protected herself? Were the goods identified to the K at the time it was made? What section controls this case?

o UCC 2-615 Unless assumed greater obligation, seller’s Delay or non-delivery In whole or in part Is not breach If performance impracticable

By occurrence of contingency, if non-occurrence is basic assumption of K Or by good faith compliance with government order

o Identification of goods/source Are goods identified at the time K is entered?

Is so, look to UCC 2-613 Is source identified at the time K is entered?

If so, performance is likely impracticableo Must still consider rest of test

If not, must decide if performance is still impracticable for other reasons Look to UCC 2-615 for both

- Problem 133o Farmer K to sell potatoes to Grocery store, K does not desiganate a source, both parties

know Farmer plans to supply potatoes he grows. A tornado destroys the potato crop OR rabbits destroy the crop

o Is Farmer excused? Tornado- likely yes, cannot control it Rabbits- likely no, could do something about it

o Potato K Does 2-613 or 2-615 control? Is the source identified? What if only half of the potato crop had been destroyed? What if half of the crop is destroyed, &

Farmer M has other buyers under K, Another buyer not under K, and/or Normally uses some of his own potatoes?

o UCC 2-615(b) If seller’s capacity only partially affected He must allocated among customers In a fair and reasonable manner May include regular customers not under K May include own requirements ***Buyer’s option to accept modification or not- but no claim against seller***

c. Sunflower Electric Cooperative, Inc. v. Tomlinson Oil Co. (KS Ct of App., 1981)- Tomilson K to supply natural gas to Sunflower from an as-yet-unproven gas field, D. failed to

deliver the gas required by the K, P. sued for breach of K, D. says excused due to impracticability because there is insufficient gas in Stranger Creek field. Tr.Ct: J/D-impracticable. P. appeals.

39

Result?- Rule: When a party K to supply a product form an unproven source, that party may not invoke

impossibility as a defense if the source fails.- Sunflower questions:

o Did something happen at Stranger Creek field to make the gas go away?o What law governs this transaction?o Is existing impracticability an excuse in a case like this?o What are P. defenses?

- Subjective Impracticabilityo Subjective impracticability is not an excuse: “I cant do it.”o Must be objective for excuse: “It cant be done.”o Inability to pay is subjective, thus never an excuse-

There’s money in the world, just not in my bank account (And one generally assumes risk of ability to pay)

o Is the impracticability here objective or subjective? How can we tell?- Source of gas

o Gas is not identified at time of Ko Source of gas is identified in K:

Court finds K required gas fromo There is insufficient gas in Stranger Creek fieldo So nobody could deliver gas from Stranger Creek field. Or could they?

- Faulto P. says D is at fault

Should have developed field more expeditiously Not excused due to fault

o Was D. at fault?- Recap

o P loses objective impracticability argument- court finds is obejectiveo P loses fault argument- court finds D not at faulto What’s P’s last argument, and what is the result?

- Foreseeability and Assumption of Risko Was insufficiency foreseeable?

Know amount of gas is never certain Know the tests are not certain

o Did D assume the risk? Made absolute promise knowing risk Guaranteed maximum amount Required expenditures by P Cant gamble at expense of other party

- “Foreseeability”o Why is the foreseeability result different here from that in the potato crop case?o Are tornados foreseeable?o Are fires foreseeable?o Both UCC and R2K use “the non-occurrence of which was a basic assumption” of Ko Why are courts reluctant to grant the defense of impracticability?

d. Krell v. Henry (Kings Bench, Ct. of App., 1903)

40

- Henry paid a deposit of $25 to Krell for the use of his apartment for the purpose of a viewing sight for King Edwards VII coronation procession. The King became ill, causing a delay of the coronation upon which Henry refused to pay a $50 balance for which Krell sued

- Looked to the surrounding circumstances to figure out what the contract was all about- Could still pay for the rooms, but he just does not want to – thus not an impracticable case- If this K were a lease it would not entail the same outcome because a lease conveys ownership of

that property interest. A court might say that if you own the lease then you assume the risk but a modern court might be more likely to use basic contract analysis and allow recovery.

- Rule: Where the object of one of the parties is the basis upon which both parties K, the duties of performance are constructively conditioned upon the attainment of that object

- Court’s questions in this case:o What was the foundation of the contract?o Was the performance of the contract prevented?o Was the event which prevented the performance of the contract of such a character that it

cannot reasonably be said to have been in the contemplation of the parties at the date of the contract.

- Frustration of Purpose (Supervening – R2K 265)o After K madeo Party’s principal purpose is substantially frustratedo Without his faulto By occurrence of an evento Non-occurrence was a basic assumptiono Remaining duties are dischargedo UNLESS language or circumstances indicate the contrary

- Key difference between frustration of purpose and impractability: what it takes to get out of it is different

- 2 ways of subjectively looking at this:o Based on if the purpose was frustrated or o The whole contract does not make economic sense any longer

- Note: courts are reluctant to grant impracticability and very reluctant to grant frustration of purpose – IS A TIGHT RULE BECAUSE IF NOT IT WOULD SWALLOW EVERYTHING ELSE. Make sure to keep it in the confines of the rule

- Frustration of Purpose and the UCCo No frustration of purpose section in the UCC.o Impracticability sections excuse SELLERS.

All the buyer has to do is pay – can pay If can’t pay, that’s not an excuse anyway

o Is common law excuse available? BUYERS generally assume risk – thus, the common law excuse generally does not

apply May have an excuse based on understood conditions in K – cmt. 9

- Increases in costo Generally, emphatically NO

Not an excuse under 2-615 Purpose of K is to allocate that risk

o Might be if: Due to unforeseen contingency (or???) Increase is extreme – “alters the essential nature of the performance”

41

o Inability to make a profit is not a frustration of purpose If it is a defense it is an impracticability defense and not a frustration of purpose

defense- Anytime we give an excuse, if some stuff has already been done then we may have to grant

restitution.

Ch. 7 Conditions and Promises: Performance and Breach

I. Basic Concepts- Problem 136 (p. 651)

o Insurance policy required 10 days notice before insured procedureo Condition precedento R2K 224 – Condition

Event Not certain to occur

Note: a timing provision is never a condition - it is merely a timing provision because all time is certain to occur

Which must occur Before performance is due Unless excused

o Note: do not sue for conditions that do not happen, sue for performances that do not happen

- Problem 137 (p.651)o Hanging Gardens to build a terrace for N, payment made in installments, one installment is

$50 shorto Can Hanging Gardens sue?

Probably not since part of the money is retained until the completion anyway- Problem 138 (p.652)

o Craftsmen to make a leather case for Moot for $400, the craftsmen does not make the case, Moot has case made elsewhere for $600

o Does Moot have to pay the craftsmen?o Can she sue for breach?o Is this condition a o Condition or Promise

Problem 136- Condition Problem 137- Promise Problem 138- Condition and Promise

The craftsman’s promise is a promissory condition Moot’s promise is a conditional promise

II. Express Conditions and Implied-In-Fact Conditions

A. The Policy Concerns

1. Howard v. Federal Crop Insurance Corp. (U.S. Court of Appeals, 4th Cir., 1976)- FCIC claimed that Howard violation of a condition precedent negated its obligation to pay

42

- Rule: Where it is doubtful whether words create a promise or an express condition, they are usually interpreted as creating a promise, thereby avoiding a forfeiture

- Condition or promise?o Trial court found for D

Not destroying crops was a condition A condition that something not happen

o Reversed and remanded on appeal Not destroying crops was a promise K dury not to destroy crops Destruction is breach but return is till due

o Why did court find promise?o Condition or promise

Can be both Based on intent Here, it is a promise

Language does not make condition here, but know how to do it- did in other parts

Construe against the draftsman/insurer When in doubt, interpret as a promise

2. Jones Associates v. Eastside Properties (Court of Appeals of WA, 1985)- Jones to do a feasibility study for Eastside, Jones performed services, Eastside paid $15k, Jones

sued for rest- Eastside says 2 conditions to payment not met:

o 1) Feasibility studies not satisfactoryo 2) Final plat approval not obtained

- Rule: Ambiguous contractual language will be construed as a promise rather than a condition where the event conditioning performance is out of the control of the oblige

- Condition or promise?o T Ct: approval is condition to paymento Ct. App.: Rev. and remandedo Getting approval is promise, not condition- question of intent/interpretation:

No words of condition/construe v. drafter Filing, not approval, focus on K D paid part of fee, amended K Resolve doubts against forfeiture

- R2K 227- Condition or promiseo When not clear if condition:o (1) If not within the obligee’s control

Prefer interpretation that reduces risk of forfeiture UNLESS assumed risk

o (2) If within the obligee’s control: Prefer interpretation that promise, Unless only one party undertakes duties

- Events within obligee’s control 227(2)o Only one party undertakes duties

Insurance K example- insured pays, but as no duty to pay- payment is condition, not promise

o If control, could have promised43

o If condition, forfeit entire return performance- don’t assume thato If promise, pay damages, but don’t forfeit return

- Events not w/in obligee’s control 227(1)o If you don’t control it, you probably didn’t promise it would happeno Prefer interpretation that reduces forfeitureo Does that mean that it’s a promise?o Is that what court says here?

Seems to be, but is that right?- Reducing forfeiture 227(1)

o If P. promised to get approval, what is his potential L? (Here, P will argue that D. cause failure to get approval)

o Is that the correct interpretation of the K? What did he promise?o How is forfeiture best reduced here?

- Reducing forfeiture, continuedo We know event could be condition, promise, or botho If could also be neither. So what is it?o It could be a timing provisiono This would not apply if the performing party assumed the risk of non-occurrence

- Express and Implied Conditionso Express Real condition Strictly enforceo Implied

In fact Real condition Strictly enforce In law Constructive condition

o Restitution May or may not be available where no K payment Depends on K/intent

B. Conditions Precedent v. Conditions Subsequent

1. Gray v. Gardner (Supreme Judicial Court of Mass., 1821)- Garnder promised to pay and extra 25 cents a gallon for whale oil if a certain amount of oil cam

into port by October 1.- Rule: If a party to a K can avoid his duties under the K on the happening of a certain event, that

party has the burden of proof as to the happening of that event- GET SLIDES

III. Some Types of Express Conditions, Including Conditions of Satisfaction

1. Chodos v. West Publishing (U.S. Court of App., 9th, 2002)- Chodos to write a thesis on fiduciary duty for West who would pay royalties and publish it,

Chodos writes the book- much time and effort, West refuses to publish, Chodos sues- Dist. Ct. holds that not entitled to payment. Why? What happens on appeal?- Rule: A publisher does not retain the right to reject an author’s manuscript written pursuant to a

standard industry K if the manuscript is of a quality contemplated by both parties.- Chodos Questions:

o Did West promise to publish book?

44

o Did West reserve any discretion not to publish the book?o SEE SLIDES

- Condition in Chodoso Manuscript must be acceptable (Condition of satisfaction)o Chodos arguments:

Condition makes K illusory. Does it? Is there a “free” way out?

o No Why does P. argue this????

o Condition was fulfilled

Was the manuscript acceptable?o Yes

- Conditions and illusory Kso Does a condition of satisfaction make the K illusory?

Is it a free way out? Are there limits on the kind of dissatisfaction required here?

Yes…only dissatisfaction with form and content of manuscripto Did West terminate for a reason allowed in the K?

No…terminated because of a change in the marketing schemeo What is Chodos’ remedy?

Reliance/Restitution- Problem 139(a) (p.677)

o Whistler to paint a portrait for Wilde, Whistler painted a masterpiece, Wilde wasn’t satisfied, and refused to pay

o Must he pay? Is the K illusory?

o Who has burden of proof? What is the standard?

o Conditions of Satisfaction Subjective- sole discretion of party

Personal taste, aesthetics, clear condition Limited by good faith- must be dissatisfied with performance, not with K-

must prove Objective- reasonable person standard

Utilitarian, measurable, not clear condition Good faith + objective evaluation

- Problem 139(b)o Scarlett to give a 10% commission to Mitchell Realty if they find a satisfactory buyer,

Mitchell finds a cash buyer- Millionaire John Doe, Scarlett think he’s too quiet and shy- turns him down as unsatisfactory.

o Is S in breach?- Problem 139(c)

o Four star to build a building for ONB for $4 mil (retainage if architect approves), built according to specs- in industry mag, architect says unsatisfactory- no reason given

o Is P entitled to $?o Does architects’s motive matter?o Conditions of satisfaction

45

Where satisfaction is subjective, chance of forfeiture is greater Limit by good faith, but may be hard to prove

Use objective standard if not clear subject intended If satisfaction is of third party, generally limited only good faith

NOT free way out for party to K BUT if 3P not objective, may indicated bad faith

2. Gulf Construction Co. v. Self (Court of Appeals of TX, 1984)- G, a general contractor, entered into subcontracting agreements with Self and another

subcontractor, which provided that the general contractor would not be obligated to pay the subcontractors until he had been paid by the owner, but when the owner failed to pay Gulf and Gulf refused to pay the subcontractors, Self sued

- Rule: It is a rule of construction that a forfeiture, by failing a condition precedent, is to be avoided whenever possible under another reasonable reading of the K

- Gulf Construction questions:o Is D. required to pay under the K?o What happens at trial? On appeal?o Is payment by the owner a condition of payment to the subs?o How do we decide? What rule applies?

Courts put risk of loss on general contractor not sub contractors because general contractors are better able to bear the cost

o Is the K clear?- Policy that risk of non-payment on general:

o Has privity with ownero Greater ability to assess owner financial abilityo Greater ability to protect self in K and performanceo Greater bargaining powero More likely drafted Ko Trade usage

- Why does 227 apply?o Isn’t K clear?

Not condition, just timing provision Doesn’t address non-payment by owner Fill gap- reasonable time

o Can parties put risk on sub if clear? Some courts say yes Others, and some statutes, say cannot

Public policy- defeats mechanic’s liens- Problem 140 (p.682)

o A borrows $200 from J and says he will repay when his Aunt next arrives, Aunt usually gives him A $1000 when she visits, She dies suddenly

o Must A repay John? John expects repayment…it is not about whether Aunt will arrive, its about when

he will be repaido Is his Aunt’s arrival a condition to his duty to pay?

Not a condition more of a timing provision- Recap

o Effect of Conditions

46

Operation of condition can be harsh- failure can eliminate right to return performance

Courts (and legislatures) may find ameliorate this harsh effect: Interpretation Statutes Construction Excuse

IV. Performance and Constructive Conditions

A. Need for Constructive Conditions of Exchange

1. Kingston v. Preston (Court of King’s Bench, 1773)- Preston agreed to sell his business to Kingston, and Kingston agreed to, but did not, give security

payments, P sued for failure of D. to give up his business, D said P did not offer sufficient security- Is giving security a condition to the duty to deliver the business? Does the K say it is?- Rule: Breach of a covenant by one party to a K relieves the other party’s obligation to perform

another covenant which is dependent thereon, the performance of the first covenant being an implied condition precedent to the duty to perform the second covenant

- Kinds of Covenantso Mutual and independent

Non-performance is a breach, but Return performance is still due

o Dependant conditions- Precedent If condition fails, no duty arises

o Dependant conditions- Concurrent Still no duty if fails, but cannot sue other if not ready, willing and able to perform

- Constructive Conditionso Court supplied condition of dependency here to do justice and fulfill presumed intent of

partieso Condition is implied in law or constructive conditiono There is a strong presumption that promises are dependent- that K has conditionso R/E leases traditional were considered independent- not generally so now. K, not

conveyance.

2. Shaw v. Mobil Oil Corp. (OR Supreme Court, 1975)- Shaw and Mobil entered into a service station lease agreement whereby Mobil agreed to sell Shaw

the amount of gasoline ordered by Shaw, not to exceed 500k gallons per year, and Shaw agreed to pay Mobil as rent, 1.4 cents per gallon delivered, but no less than $470 per month

- Rule: A party has no obligation to perform a promise that is conditioned upon the other party’s performance, when the other party fails to perform, even though the other party’s failure is excused and does not constitute a breach of K.

- Shaw v. Mobil Oilo Trial Court: P must pay minimum amounto Supreme Court says not requiredo Is there a condition on duty to pay minimum?o If so, where do we find it?o Is there a condition on Mobil’s duty to deliver the gasoline?

47

o If so, where do we find it?- Shaw and conditions

o Mobil’s duty to deliver gasoline is subject to an implied condition of its ability to deliver (no impairment by government reg).

Delivery of gasoline (Mobil’s duty) is excused due to impracticability.o Shaw’s duty to pay the minimum is subject to an implied condition of delivery of gasoline

ordered. The condition is not excused due to impracticability.

- Impracticability and conditionso Impracticability excuses performance

Not a breach if the music hall burnso It generally does not excuse conditions

The “lessee” doesn’t have to pay for a music hall that was not providedo It may excuse minor conditions

If architect’s approval is required for payment, and architect dies, may excuse

B. Ordering Performances through Constructive Conditions- Problem 142 (p.688)

o Travis to sell a houseboat to Meyer for $35k, parties meet at noon, 8/1 to close sale, Meyer to pay be check, neither party shows up to complete the sale, Meyer sues Travis for breach of K

o Is there any conditions to Travis duty?o Concurrent conditions

UCC 2-511: tender of payment is condition to seller’s duty to deliver (unless otherwise agreed)

UCC 2-507: tender of delivery is condition to buyer’s duty to accept and (unless otherwise agreed) to pay.

R2K 234(1): prefer interpretation that concurrent if can be concurrent Tender: “valid and sufficient offer of performance”—ready, willing and able to

performo What happens if no one shows up?

Kinda just goes away- Problem 143

o Travis to sell houseboat to Meyer for $35k, now Travis to deliver 8/1, Meyer to pay by check: $1k per month until all paid, first check due 9/1, Travis fails to deliver the boat, M sues 8/10

o Can Meyer recover without tendering payment?o Is there any condition to Travis’ duty to deliver?

- Problem 144o Caria to sell M 12k fancy bricks for $6k, C delivers half the bricks 5/5, demands $3ko Must M pay now?o Can C withhold next delivery if no payment?o UCC 2-307: unless otherwise agreed (or indicated by circumstances)- single delivery and

payment. If deliver in lots, pay by lot.- Problem 145

o Bill Gilbert agreed to write lyrics for producer who would pay, Bill wrote half the lyrics- demanded half the money, Producer refused to pay, Bill refused to continue, Producer hired someone else, Bill sued. Result?

48

o Here, the producer is protected because he should receive the lyrics before he payso Order of performance

Prefer concurrent if can be done—can’t always be done R2K 234(2) If only one performance happens over time, that performance must

occur first (it is a condition of return), unless language or circumstances indicate otherwise

If want “progress payments” put it in the K Court wont infer payment schedule K can, and often does, address payment schedule

C. Substantial Performance of Conditions; the Effects of Material Breach on Performance

1. Jacob v. Youngs, Inc. v. Kent (Court of Appeals of NY, 1921)- Jacob to build a house for Kent for $77k, work stopped in June 1914, D. learned in March that

some of the pipes were not Reading pipes, as required in K, Architect refuses to certify that final payment of $3,483.46 due, P sues for unpaid balance

- Rule: An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage and will not always be the breach of a condition to be followed by forfeiture. For damages in construction K, the owner is entitled merely to the difference between the value of the structure if built to specifications and the value it has constructed.

- Jacob and Young Questions:o What is the condition in Jacob and Young?

NOTE: The condition of the architect’s approval is not the focus hereo How is the condition to be fulfilled?o Do we know how it is to be fulfilled based on the words of the K, or through construction

of the K?- The condition to payment

o The condition to return performance (final payment) is performance by P.o What kind of performance fulfills the condition?

The performance defined in the K as the condition of return performance, OR Substantial performance

o What is required here? Substantial performance is all that is required here

- Condition or promiseo Why does the court use substantial performance here?

Substantial performance is implied in law Isn’t the K clear regarding Reading Pipe?

o The use of Reading pipe is a promise, not a condition K is clear that will use, not that not using will result in forfeiture of return

- Substantial Performanceo What is substantial performance?

Perfect performance? A “stab” at performance?

o Why is substantial performance the standard? Need to protect both the performing party Need to protect the bargain Presume reasonable intent of parties

49

- Effect of Substantial Performanceo If no substantial performance, no return performance is due under the K

The party that did not substantially perform may still be entitled to restitution for the benefit conferred.

o If have substantial performance, the K return performance is due Subtract any damages from the breach

- Substantial performance in Jacob and Youngs?o P substantially performed.

The breach was trivial compared to the entire K The breach was innocent

o Does the dissent agree?o Do you?o Was the Reading pipe a promise or a condition?o NOTE: Conditions fail – promises are breached

- Damage optionso Cost to replace

D. (owner) wants this as offset (or more) against payment owed to P. Requires tearing out a lot of good work

o Difference in value P. wants this Virtually nothing. Cohoes pipes as good as Reading

- Resulto Court awards difference in value

Cost to replace involves economic waste Unlikely to actually replace

o Does this adequately protect owner’s expectations?o Could he have changed result by clearer K? Are there other factors at work?

- Problem 146 (p.695)o Specs call for Reading pipeo Contractor intentionally orders Cohoes

Its cheaper and basically the sameo Does his willfulness change result?

According to Cardozo? YES

According to the current law? If not, does contractor have a remedy? What is willfulness?

2. O.W. Grun Roofing & Construction Co. v. Cope (TX Court of Civ. App., 1975)- Grun K to intall a new roof on Copes house but used shingles that were not of uniform color, Cope

refused to pay.- Rule: In order to establish- Substantial performance and Material breach

o Two sides of same coin Substantial performance is “good enough” to merit return performance Material breach is significant breach

o One precludes the other. If have substantially performed, have not materially breached, and vice versa

50

Cannot have both (but can have neither)- Application in Grun

o Isn’t it good enough if will last 15 years? Keep out rain?o Appearance of roof is very important

“Russet glow” Home is castle

o What if had been roof on warehouse?- Condition or promise

o Is right color a condition or a promise? Condition – so return performance ($648) is not due when it fails Promise – so damages are due for breach (extra $122 need to replace)

o If is condition, and accept, what happens to condition? Did P give up right by accepting roof?

- Restitution???o Is D. entitled to restitution for benefit of roof installed?o No. No value. Need new roof.o Structural work did not add valueo P. did not accept roof

- Compare Jacob and Youngo What if the roof in H and Y had been the wrong color? Would that change the result?

As to substantial performance> Contractor would still get paid

As to damage? Now it would be cost to replace

o What if, in either case, would not replace the roof?- When is a breach material?

o R2K 241- Circumstances to consider: Extent injured party is deprived of reasonable expected benefit Extent injured party can be adequately compensated Extent breaching party will suffer forfeiture Likelihood of cure Extent of good faith and fair dealing

- Material Breacho If material breach, other party can suspend performance (R2K 241)o Remaining duties discharged (R2K 242) if

Indicated by 241 factors Delay may prevent/hinder substitute K indicates time is of the essence (Stated time for performance does not mean time is of the essence)

- Time for performanceo Timely performance is a condition to return performance if K makes it one

“Time is of the essence” Not likely condition in construction Ks, R/E sale. Always condition in Option K Liquidated damages for late performance may indicate not a condition (Carter)

o If not by K, factor as to materiality of breach, right to cancel If not condition, still promise. Right to damages

- Problem 148(a) (p.697)

51

o Tracthouses k with Newtown to build 10 identical houses for $25k each, TI built 3 houses, Newtown could not pay.

o Should Tracthouses stop building? Keep building? Sue for 3 houses, or for all?o Is nonpayment a material breach?o Is building a condition of payment?o Conditions and material breach

It is a condition of each party’s remaining duties is that there be no uncured material breach. (R2K 237)

Non payment after 2 houses is a material breach here Tracthouses can suspend performance and sue for total breach now

- Problem 148(b)o Tracthouse to build 10 identical houses for Newtown for $25k each, Newtown agreed to

pay when all 10 finished, Tracthouses built 9 houses perfectly, did not finish the 10th house (half finished)

o Is Tracthouse in material breach of K?o If so, can it recover for the work completed?

If so, on what basis?o Divisibility

Breaching party can be paid for the part of the work done if Promises can be seen as “corresponding pairs of part performances” That are “agreed equivalents”

This is a recovery on the K It must be for performance in a “pair” Damages are recoverable for any breach

o Tracthouse K House 1 $25k House #2 $25k . . . House #9 $25k House #10 $25k 9 houses complete Recover $225k on the K

o Divisible or ....Entire K provides for way Part performance is not

to divide. useful, or defeats K purpose. The divisions represent No way to divide

agreed equivalents. performances, or divisions dodo not match return.

If parties had thought about Intent that entire.need, would likely divide.

o The 10th house: Is Tracthouses entitled to payment for the 10th house?

If so, on what basis? Are construction Ks generally dvisible?

Assume Newtown must pay another contractor $30k to finish the last house. How will this affect Tracthouse’s recovery?

3. Printing Center of TX v. Supermind Publishing Co. (TX Court of Appeals, 1984)- MISSED Supermind to pay Printing Center to print books, P. rejected books- said did not

conform to K, sought return of $2900 deposit

52

- T Ct: J/P for deposit + atty fees. Appeal.- Did evidence support jury finding that books did not conform to K? What happens on appeal?- Rule: Under the TX Commercial Code, a buyer has a right to reject goods if the goods fail to

conform to either the express or implied terms of the K between buyer and seller- Performance and the UCC

o Does the UCC control here? Is this a sale of goods case? What law does the court use and why?

o Does the UCC use the substantial performance standard?o What is the UCC standard?o Why? How universal is the standard?

- Perfect Tender Rule UCC 2-601o Unless otherwise agreed o If goods OR tender of deliveryo Fail to conform to the K in any respecto Buyer may

Reject the whole Accept the whole Accept any commercial unit- reject rest

- Tender in Printing Centero Was the delivery a perfect tender?

Pages were crooked , wrinkled, color off...o Does K say no crooked or wrinkled pages?

Implied warranty of merchantability, express warranty of sample, trade usage What if one page had been crooked?

Just because it was not perfect does not mean that it cannot be perfect tendero Was the rejection in bad faith?

NOo What would the result be under R2K?

Under substantial performance, likely the same result- Problem 150 (p.706)

o Douglas to produce 500 split rails of 12 delivery/shipments per montho Installment Ks- UCC 2-612

K requiring or authorizing separate lots Even if K says each is separate K

Buyer may reject installment if Value of installment substantially impaired Cannot be cured

Buyer may cancel k if Value of whole K substantially impaired Reinstate if accept installment, sue for past installments only, demand future

performanceo Installment K questions

What constitutes substantial impairment of one delivery? The whole K? What if first delivery only 400 rails?

o Doesn’t seem to affect the whole K...might impair it for this month and could not accept this delivery but not cancel the K

What if first delivery 500 rails, but arrived late?

53

o If it were a perfect tender rule, then time always applies...this is not that type of K

o What if several deliveries are late?

o At some point it becomes a breach of the whole K What if the first delivery is of extremely poor quality?

4. Capitol Dodge Sales v. Northern Concrete Pipe, Inc. (Mich. Court of App., 1983)- CD sold truck to NC, D. picks up truck- gives P. check, truck overheats, D. calls P. and tells it to

pick up the truck, stops payment on the check, - Capitol Dodge questions

o What law applies? The UCC

o Did D. accept the truck?o Didn’t D. know about the overheating problem?o Didn’t D. have an opportunity to inspect the truck?

- Acceptance and rejectiono UCC 2-607 Must reject before accept. If accept unit, must pay at K rateo UCC 2-606 Accept when buyer

After time to inspect, says goods are conforming, or will take them anyway. Fails to reject after time to inspect. Does any act inconsistent w/ seller’s ownership

- Capitol Dodge continuedo What if Buyer had clearly accepted?o Could Buyer still return the truck and avoid payment?o Does the seller have any rights?o What UCC provision controls?o What happens if it is too late to return and avoid payment?

- Revocation of Acceptance UCC 2-608o Buyer may revoke acceptance if nonconformity substantially impairs the value to him and

accepted Assuming non-conformity would be cured, and it has not Without discovering nonconformity if either

Difficult to discover or Accepted due to seller’s assurances

o Must revoke with a reasonable time- Right to Cure UCC 2-508

o Buyer rejects when K time not expired Seller may notify buyer and Cure w/in K time

o Buyer rejects when K time has expired If seller reasonably believed goods acceptable w/ or w/o $ allowance and Notifies buyer- Further time to get conforming tender

- Non-conforming goodso Reject before accept – no $ due

Perfect tender rule or Installment K rule Subject to right to cure where applies

54

o May still revoke acceptance if meet 2-608 requirements Substantial impairment standard Probably subject to right to cure

o If accept, must pay at K rate May subtract damages for non-conformity Must notify seller of non-conformity

V. Excuse

A. Prevention and Cooperation

1. Sullivan v. Bullock (Court of Appeals of Idaho, 1993)- Bullock to remodel for Sullivan for $6780, P. sued for breach of K for doing unsatisfactory work,

D. counterclaimed for nonpayment, prevention and slander, J/D on both, P. did not allow access to D.

- Rule: To excuse a party’s nonperformance, the conduct of the party preventing performance must be outside what was permitted in the K or outside the reasonable contemplation of the parties when the K was executed

- Sullivan questionso Why doesn’t P win her claim that D. did unsatisfactory work?o Why doesn’t P win her claim based on D. failure to complete the job?

She would not grant him access to do the worko Does the K say that P. must give D. access?

Not specifically but it is implied o If not, why would that be required?

No other way the work gets doneo Did D. substantially perform?

No, because he wasn’t permitted too If not, how can he recover? Isn’t substantial performance a condition to payment?o Who committed the first material breach?

- Duty of Good Faitho Includes duty not to prevent

Breach to prevent performance Prevention excuses condition

o Includes duty to cooperate Same effect RE breach and conditions Don’t make performance more difficult Do what required (selections, access, etc.) NOT requirement to help other perform or refrain from doing things legally

allowed.- Problem 151 (p.722)

o Poindextre to do plumbing for S, K provision that D. could dismiss P. if P. became insolvent, During second year K, D had financial difficulties. Late on payments to P, causing P to become insolvent, D dismissed P under K provision. P sued.

o Problem 151 analysis P. solvency is condition of keeping job.

D. caused condition to fail – prevention Condition is excused

55

P. still entitled to job D. had duty to make timely payments

Failure to make payments was material breach – First material breach P. duties suspended, then discharged

- Problem 152o Scrooge and Marley hired Bob Cratchit without cause, permanently employed, Marley

died, Scrooge fired Cratchit without cause.o May C recover damages?o Duty of Good Faith

Prevention, non-cooperation, lack of good faith may excuse condition of performance

Prevent, non-cooperation, lack of good faith may constitute breach of a K duty Good faith does not require obligations beyond those imposed by K Some court have found bad faith breach of K to be a tort

Insurance, fiduciary relationships, lender L Generally not employment

B. Forfeiture as an Excuse- Disproportionate Forfeiture

o R2K 229: Court may excuse condition IF Non-occurrence of condition causes disproportionate forfeiture UNLESS Martial part of exchange

o Prevents harsh operation of condition Compare forfeiture with importance of condition Do not use to prejudice of D. Developed in K for deed situations. Expanded.

- Problem 153 (p.733)o Fibber McGee and Molly lived in apartment 10 years, signed new lease every two years

under option to renew. Must exercise by 5/31. One year sought to renew 6/1. Landlord refuses, says plans to raze building

o Considerations: Forfeitures of party failing to fulfill condition

Purchase v. lease Residential v. commercial

Importance of condition – option here Reason for deviation Extent of deviation Prejudice to other party

C. Waiver and Estoppel- Problem 154 (p.738)

o Swank Motors sold car to Mr. and Mrs. America for $20k, K states “time is of the essence.” Failure to pay on time = default = right to repossess, Ps frequently as much as 10 days late, After 7 months, D repossessed w/o warning, Ps sued for conversion and breach of K.

o Problem 154 continued Does the K make timely payment a condition? YES Does the failure of the condition trigger a default and right to repossession? Is there a “course of performance” here?

56

If so, does it affect the meaning of the K? NO, the K states that payment must be made on the 1st, so that is when it

must be paid See UCC 1-303(f) (revised Art. 1) – Subject to 2-209, “a court of performance is

relevant to show a waiver of modification” of an inconsistent term.o Problem 154 – variations

(a) What if S vigorously protested against the late payments each month? (b) What if the K provided that accepting late payments is not a waiver of rights as

to the timeliness of future payments? (c) What if S has waived the condition of timeliness in the past, but wants to get it

back? Can it? If so, how?

D. Election- Problem 155 (p.745)

o NoRisk Insurance gives life insurance to M/M America, Condition: give written notice within 10 days, Mr. A died. Mrs. A called the next afternoon, Rep expressed sympathy, 2 weeks later, adjuster had her fill out forms – suggested settling. NoRisk denied coverage.

o Problem 155 continued Does NoRisk have to pay? Did it waive its right to deny payment based on failure of the condition? If so how?

o Waiver Waiver before the failure of the condition can result in estoppel Waiver after the failure of the condition is an election Cannot waive material part of K No consideration is required for waiver Condition waiver without consideration can be reinstated with reasonable notice Can only waive conditions for own benefit

E. Impossibility- Problem 156

o Beverly Pipes hired to sing in new opera, rehearsal begins in May, open 9/1, Ms. Pipes gets pneumonia in August- misses all the rest of the rehearsals, show opens with new soprano, after first week, Ms. Pipes reports for work, manager refuses

o Is she in breach? Is manager?o Was the condition excused?

No...other party does not still have all his obligations to her even thought she did not uphold her end of the bargain

- Problem 157o Luciano Uvula hired to sing series of operas, Rehearsals to begin 5/1, Luciano got a cold,

didn’t show up until 5/15. Season to begin 7/1, Manager fired him.o Is the manager in breach? Is Luciano?o Excuse of conditions/ Impracticability

Impracticability excuses performance. Impracticability does not excuse conditions, unless it is a minor condition.

F. A Short Drafting Exercise- Problem 158 (p.746)

57

o SF hired to build bobsled run by 10/1, Fargo wants to guarantee timely completiono Which clause should be used?

Use (c)

Ch. 8 Anticipatory Repudiation- Problem 159

o Venture builds a gravity free scooter for NASA for $32 billion, entered K in 2012, delivery to be in 2020, in 2016 VV sends letter to NASA saying it cannot perform under the K, NASA buys substitute for $56 billion

o May NASA recover damages now, or must it wait until the 2020 delivery date?

1. Hochester v. De La Tour (Queen’s Bench, 1853)- H to give service for 3 months to D for $10/month, P. to act as courier for D. for 3 months

beginning 6/1/1852- Did P. perform?- Is P. in breach?- When does P sue D?- Can P recover for breach of K against D?- Hochester questions

o Why is P able to recover when D’s performance is not yet due? P. dilemma D. duty not to harm the K relationship

- P dilemmao P needs to act now to protect self by getting other jobo P does not want to accept “rescission” or be sued for breach

Would this have happened?o Better if P mitigates damages

- K relationshipo Implied duty not to damage K relationship – duty of good faith

Importance to K that can depend on return Does performance of K have to be impossible for the doctrine to apply?

o Is there precedent for this decision? Sales of goods Marriage Ks

- Variationso What if D had said to P...

“I may not be able to go after all.”- NO “Would you like to call this off.” “I wish I had never agreed to this.”- NO “I couldn’t book the hotel I promised, but have arranged a comparable substitute.”-

NO, not material What if D. says nothing but gets on a boat to Australia?- YES

- Repudiation R2K 250o Statement that will commit breach

Clear statement Material breach

o Act making him apparently unable to perform Voluntary, affirmative act

58

The act makes a statement- Retraction

o R2K 256 – retraction reinstates K if give notice of it before Material change of position in reliance or Indicates considers repudiation final

o UCC 2-611 – can retract before next performance due unless Material change of position/consider final Reinstates rights with allowance for delay

- UCC 2-610o Requires substantial impairmento Options when repudiation

Await performance for commercially reasonable time Resort to any remedy for breach Suspend own performance or proceed under 2-704

- Problem 160 (p.750)o Venture to build a gravity scooter for NASA for $32 billion, Entered K in 2012. Delivery

to be in 2020, In 2016, VV sends letter to NASA saying it cannot perform under the contract, NASA buys substitute for $56 billion

o May NASA recover damages now, or must it wait until the 2020 delivery date?o Demand for assurances

R2K251 UCC 2-609 Reas grounds/insec Reas grounds/insec Demand adeq arrur Demand in writing Suspend perf unless Suspend perf unless

rec’d return rec’d return Provide adeq assur Provide adeq assur Within reas time reas time within 30 days (could be less) If not = repudiation If not = repudiation

o Problem 160 assurances “We’re sorry we worried you. We will deliver.”- Maybe, might take there word for

it “We have solved the problem and will deliver. You may come by and inspect our

plans and schedules.”- Yes, reasonable to rely on “Our bank will issue a letter of credit for damages in event of default.”

2. Hope’s Architectural Products v. Lundy’s Constr. (U.S. Dis. Ct., Dis. of KN, 1991)- When Hope’s was late in delivering windows to L, L threatened to withhold partial payment as

damages, prompting H o demand payment in full before delivery- Rule: A party who has breached the K may not demand assurances from the other party before

suspending performance- Hope’s v. Lundy’s

o Saying will withhold liquidated damages likely not “material”o Even if “material,” no action was taken RE statement. If repudiation, K reinstatedo P. is then late with deliveryo D. “threatens backcharge”o P demands assurances

- P’s demand for assuranceso Is P. entitled to demand assurances?

No. Not reasonably insecure59

Already in breacho Is the assurance sought reasonable?

Sought too much Not entitled to demand that D. give up its claim for damages

- Alternative analysis:o When P. demands assurances P says

“We will not perform unless you agree to new terms.” In other words.... “We refuse to perform the K we have.”

o Therefore, P repudiates the K P’s repudiation is the first breach, even if not yet entitled to cancel for late delivery

o Look for first “material” breach- Problem 161 (p.758)

o Venture to build gravity-free scooter for NASA for $32 billion, N to make progress payments of $1 million per month beginning 1/2002, made payments through Oct., learned V insolvent, defaulted on similar job.

o May NASA treat as repudiation? Stop paying? It may suspend payment swhile it waits for the assurance

- Problem 162o BB to perform at Music Hall, manager to turn on heat by 4, theres a blizzard, sure BB wont

show up, so doesn’t turn on heat, they arrive, show is cancelled, they sue for payment, Result?

They are entitled to payment per the Ko Prospective Inability to Perform

BB apparently cannot perform, although they did not repudiate Manager reasonably acts (here, fails to act) in response to that inability Had BB not showed up, M would not be in breach for not heating hall Because they showed up, they were ready, willing and able to perform. Must be

paid. Better to find out if will be there (if could have held concert)

- Problem 164o Travis to build a houseboat for Meyer for $35k, parties to meet on boat 8/1 to close sale, M

call T 7/15 to cancel, T sues M 8/10, M defends on basis that T never tendered houseboat. Result?

o What if T had promised to paint boat prior to delivery? Is it a defense that he didn’t?o Problem 164

Travis need not tender, just show would have been ready, willing and able to perform but for the repudiation.

If promised to paint, don’t have to paint, if would (and could) have but for the repudiation

If boat is destroyed by lightening before performance due, cannot sue. Could not perform.

Repudiation moves up C/A in time. Same C/A.

3. Greguhn v. Mutual of Omaha Insurance Co. (S.C. of Utah, 1969)- Omaha to insure G, P. was injured on job, injury worse due to preexisting condition, D. made

payments, then stopped on basis that the back problems was due to illness not injury- Rule: The doctrine of anticipatory breach does not extend to unilateral K- Greguhn

o P. is entitled to past due payments

60

o P. is not now entitled to future payments, even though repudiationo Unilateral K

Only one side has to perform- Greguhn continued

o R2K 243(3) If total breach, When only breaching party still has duties, And only to pay $ in unrelated installments, No C/A for total das, even if repudiate

o Preserves K – Don’t expand anticipatory repudiationo Can award damages/injunction if still doesn’t pay

Will pay hereo TX does not follow

Reduce payments to present valueo Can have K provision to accelerate

- Problem 165o V to buid scooter for NASA, entered into K 2012, delivery to be in 2020, V repudiates

4/5/2016, market price is $45b, NASA Ks for substitute 9/10/2016 for $48b, Market price in 2020 will be $55b

o Must NASA sue now? Must it mitigate?o Can it wait until 2020?o Problem 165

Actually, NASA covered. Damages will be measured by the cover measure: $48 billion cover price - $32b K price = $16b Seems to be within reasonable time If not code cover, or no cover at all...

Sue for market measure (2-713) Difference between market and K price at time when buyer learned of the

breach Learned of the Breach...

At time of repudiationo That’s when the other party knowso Avoid loss (mitigates damages)o BUT undercuts right to await performance

At time of performanceo Not a breach until acceptedo Could have reinstated until theno BUT allows speculation at expense of other

5th Circuit A reasonable time after repudiation

o Preserves UCC right to “await performance” for a commercially reasonable time”

o Avoids unnecessary losso Protects both parties

Ch. 9 Third Party Beneficiaries

I. Types of Third Party Beneficiaries61

- Problem 166 (p.767)o Judge H promises son Andy a new car from MGM if he goes to law school, Andy goes to

law school- loves it, Dad doesn’t buy him car, MGM sues dad- claims to be 3PBo Is it?

NO, not a 3PB- Problem 167

o Judge H put payment down for new car from MGM for Andy, MGM fails to deliver car, dad’s deceased

o Dutton v. Poole MISSED

o Third Party Beneficiaries Missed

o Third Party Terminology Promisor – Promise will benefit 3rd party Promisee – Bargains for that promise Third Party Beneficiary – will benefit from performance of underlying K NOTE: Must have valid underlying K 3PB does NOT have to be specifically ID’d at time of K – description enough

A. The Historical Development of Beneficiary Rights

1. Lawrence v. Fox (Court of App. of NY, 1859)- Fox promised Holly for consideration that he would pay Holly’s debt to Lawrence- Rule: A third party for whose benefit a K is made may bring an action for its breach- Fox’s defenses:

o Evidence was hearsay No – competent evidence

o No consideration No – consideration can run from and to other (Farley v. Cleveland)

o No privity Still K obligation Trust analogy

- Intended Beneficiarieso Standing to sue on Ko Intent of parties (or intent of promise and knowledge of promisor) – may be

Donee (Dutton) Creditor (Lawrence) Other intended beneficiary (R2K)

o If no intent: incidental beneficiary – no standing to sue on promise- Problem 168 (p.772)

o Fox decides to sue Holly...can he still do this? Yes, still has to pay the debt

o Creditor 3PB can still sue promise on original debt Debt owed to 3PB does not go away because someone else agreed to pay it Only if parties agree to a novation (release promise and substitute promisor) will

the 3PB be unable to sue. So, creditor 3PB can sue promisor, promisee, or both, but can only collect one total

recovery of obligation.

62

o Donee beneficiary: Cannot sue promisor Underlying K is supported by consideration, but no consideration has been given to

the promisee by the 3PB. Donee beneficiary can sue only promisor.

o Government Ks R2K 313(1) – 3PB rule applies to gov. Ks unless against public policy Consider whether K...

Provides direct benefit to citizen (3PB) or Provides direct benefit to government, and indirect benefit to citizen; Provides for direct L to 3P; Provides for performance of gov’t duty

o UCC Warranties – UCC 2-318 A: Warranty extends to any natural person

In family, household or quest Reasonably expected to use, consume, or be affected by the goods Injured in person May not exclude or limit

B: Warranty extends to any natural person Reasonably expected to use, consume, or be affected by the goods Injured in person May exclude or limit (Now any natural person – could include, for ex., employee)

C: Warranty extends to any person Reasonably expected to use, consume, or be affected by the goods May not exclude or limit (Can be a legal person (ex.. corporation) and the injury could include

property damage – May or may not also include economic loss.)o Effect of choices

State choose option Option chosen sets minimum standard – courts can expand L TX leaves entirely to courts

Has been extended to employee Has been extended in implied warranty situation to remote seller and

included economic damageso Attorney/Client Ks

Non-clients are generally not 3PBs of atty-client K Majority of state have an exception for wills

Intended will beneficiary has standing to sue attorney for malpractice in drafting will

Attorney has not duty other than to do what client wanted Difficult to enforce without this exception

TX Supreme Court has rejected this exceptiono Defenses (R2K 309)

Must have valid underlying K to have 3PB K Any defenses related to formation (mistake, incapacity, etc.) are good against 3PB Right of 3PB subject to defenses arising after formation (impracticability, non-

occurrence of condition, failure of performance, etc.)

63

Parties can agree at formation that rights of beneficiary not subject to same conditions as those promisee

o Vesting (R2K 311) Generally promisor and promisee retain right to change K until rights of 3PB vest. Rights vest when the 3PB “accepts,” relies on the promise, or sues on the K. Promisor and promisee can agree to immediate vesting (Ex: life insurance). Once rights have vested, promisor and promisee cannot change K w/o 3PB. Vesting does not change effect of defenses.

o GET THE SLIDES

64