ENFORCEMENT DEFENSES
1.
STATUTE OF FRAUDS - C/L: must be in writing
if:
a. Executor/Administrator
b. Debt of another (suretyship)
c. Marriage
d. Real property
e. Over one year PTP - If any promise of either
party cannot be fully performed w/in one year of
the making of the agr., the entire K is w/in the
statute, and it cannot be enforced against either
party unless it is satisfied to that party. Begins
date K is made, not when performance
is promised; Exceptions: i. Lifetime
employment because could die within a year; ii.
Full performance on one side of the K (out of
fairness).
The writing must contain:
a. Identity of contracting parties
b. Description of subject matter in the contract
c. Terms and Conditions of the agreement
d. Recitals of Consideration (not needed if it's
already been given)
e. Signature of the party being charged (initials
or seal or letterhead)
B Under the UCC:
a. PTP - A K for the sale of goods [2-205(1)] for the
price of $500 or more must be in writing,
otherwise
it is unenforceable in its entirety. (UCC §2-201)
b. Must be included in a signed writing: PTP - The
required writing need not contain all the material
terms of the K. All that is required is that the
writing afford a basis for believing that the
offered oral evidence rests on a real transaction.
The only term which must appear is the quantity
term which need not be accurately stated but
recovery is limited to the amount stated. The
price, time, and place of payment or delivery, the
general quality of goods, or any particular
warranty may all be omitted.
§2-201, comment 1.
i.
Quantity of Goods - PTP - K is not
enforceable beyone the quantity of
goods in writing, but even if the writing
understates the quantity, you can only
recover the quantity stated.
ii.
Signature (exception - PTP - 2-201(2)
If K is between merchants, and a
confirmation of the K arrives in
reasonable time, and is recipient does
not object to it w/in 10 days, then it
suffices as a writing. )
iii.
ID of parties PTP - Any authentication
which ID's party sought to be charged
is acceptable -- See Comment 1
iv.
Omission of Terms OK PTP - A K
under the UCC will not be found
insufficient because of omission of
terms of time or price (§2-305) because
UCC gap fillers may be used and the
court may infer a reasonable time and a
reasonable price.
c. SOF Exceptions:
i.
buyer received and accepts all or part
of goods.
ii.
Buyer gives partial payment
iii.
Specially manufactured goods
iv.
Between merchants and a written
confirmation
v.
K is admitted
CASES
1. Suretyship - Langman v. Alumni Ass. of UVA
(grant to UVA, grantee to assume mortgage)
LAW: A grantee who accepts a deed becomes
contractually bound by its provisions. A grantee
who assumes an EXISTING mortgage is not a
surety
RATIONALE: B/c grantee received a direct benefit,
this is an original undertaking, not merely acting as
surety for grantors.
2. Multiple Documents Pieced Together to Satisfy
Writing Requirement - Crabtree v. Elizabeth
Arden
(Court allowed P to piece together salary memo w/
payroll requirement)
stubs to satisfy writing
LAW: Can piece together documents to satisfy
writing requirement of SOF: MUST HAVE
a. Relationship w/ signed writing
b. must refer to the same transaction as the signed
writing.
c. some courts require referral to signed writing.
RATIONALE: People shouldn't be able to use SOF
defense to get off on a technicality
3. The UCC Position - Harry Rubin & Sons v.
Consolidated Pipe Co.
(hula hoops)
LAW: A writing in the confirmation of a K may
Satisfy the SOF if it uses the term "order" in
referring
To the K
RATIONALE: Even though the letters and purchase
Orders referred to the oral Ks as orders, the
circumstances reveal the true meaning
4. Mitigating Doctrines
a. Monarcho v. Lo Greco (lead to R2d §139)
(Christie gave up his life to work on ranch b/c he
expected to inherit joint tenancy)
LAW: Some courts will permit restitution or
even reliance recovery for a person who is
injured by relying on a promise which turns
out to be unenforceable under the SOF.
RATIONALE: Courts will estop D's from using
SOF defense when it would result in the
unconscionable injury that would result from
denying recovery.
b. What is not part performance! Chevron
U.S.A. Inc. v. Schirmer (Not §139)
Admission not an exception under C/L
LAW: Continuing negotioations do nto
constitute part performance (R2d §139)
sufficient to take an oral K outside SOF
RATIONALE: Because P let its option
expire, the option could not be modified
except in wiritng, and continuing
negotiations should not constitute partial
performance.
c. Estoppel applied in UCC case - Warder &
Lee Elevator, Inc.
(Farmer estopped from using SOF in
backing out of an oral agreement to sell
corn when prices rose)
LAW: Court applied estoppel to SOF in
UCC case
RATIONALE: The UCC does not
eliminate equitable and legal principles
traditionally applicable in K actions.
d. Signature required fulfilled by agent's
signature - Halstead v. Murray.
(Attorney bound client in real estate
transaction w/out written authorization.)
LAW: Where both parties negotiate
through counsel, an attorney may bind a
client without written authorization.
RATIONALE: B/c Ds attorney clearly had
authority to enter settlement negotiations, to
apply SOF under these circumstances would
allow D to escape the consequences of a
bargain fairly made, not protect him from
loss of property through the fraud of
another.
2.
3.
ENFORCEMENT DEFENSES
CAPACITY OF PARTIES
Legal capacity of both parties is essential to formation
of K. If parties lack capacity, they cannot give the
required legally binding mutual assent.
1. K are voidable (may be enforced only by the
favored party) if entered into by the following:
a. Infants (not yet majority)
b. Insane Persons
c. Convicts deprived of their civil rights
d. Intoxicated persons
Minors PTP - There is a bright line rule that the
K's of a minor are voidable at the option of the
minor, but a minor may nevertheless enforce the
K against the adult. However, a minor is always
liable for the reasonable value of necessaries
furnished to him. (NOTE: that a minor can sue
for any excess over the reasonable value of
necessaries). But if the minor paid cash, he can't
get it back.
a. Right to restitution: The minor is expected
to return what remains of anything that was
received from the other party, but the minor
is not accountable for any loss or
depreciation. A minor who receives
services is not accountable for anything.
b. No exception for emancipated minors-Kiefer v. Fred Howe Motors, Inc.
(emancipated minor contracted for a car)
LAW: The K of a minor, other than for
necessaries, is either void or voidable at
his option.
RATIONALE: That minor persons, possess
certain legal disabilities.
NOTE: In this case, it is arguable that the
car purchased by the 20-year-old (married
w/ child) was a necessity.
c. Affirmation (ratification) PTP - If a person
enters a K while still a minor, they may
affirm or ratify the K upon maturity and it
will become binding. A minor has a
reasonable amount of time to disaffirm a K
after reaching maturity. If he maintains
silence, he may be held to have ratified.
Actions, such as making car payments, may
be construed as ratification.
d. Real property -- PTP - A bona fide
purchaser of real property is subject to
disaffirmance by minors before them in the
chain of title.
Mental Infirmity -- PTP - There are two
approaches to mental infirmity.
a. Cognitive Test (trad.) -- Did the person
understand the nature and consequences of
what he was doing? (Makes it difficult to
dissaffirm). R2d §15(1)(a).
b. Non-Cognitive (modern) -- This is a
limited volitional test. The K is voidable if
the infirm party cannot act in a reasonable
way toward the transaction and the other
4.
party has reason to know (or should have
reason to know) of his condition. R2d
§15(1)(b) Ct. said they were using this
approach in Cundick v. Broadbent, but R
questioned this.
c. Exception: Power of Avoidance terminates
to the extent that the K has been partially
performed or that other circumstances have
so changed that the avoidance would be
unjust. R2d §15(2); See also Ortlere v.
Teachers' Retirement Board
d. Restitution - Party generally required to
make full restitution to the extent of any
restitution received.
e. Weakness v. Incapactiy - Cundick v.
Broadbent
(Cundick agreed to sell land for way below
value)
LAW: Mental capacity to contract depends
upon whether the disabled person possessed
sufficient reason to enable him to understand
the nature and effect of the act in issue.
(noncognitive approach)
RATIONALE: Mental disability may not
keep someone from being able to reasonably
understand what his K entails.
Intoxication. -- PTP - The inability to understand
by reason of intoxication makes a K voidable
only if the other party has reason to know of his
inability, but the behavior of the intoxicated party
will ordinarily satisfy the requirement. R2d §16
(At C/L had to completely drown reason,
memory, and judgment in order to avoid K)
UNFAIRNESS: GOOD FAITH AND CONSID.
1. Good Faith
a. R2d §205: every K imposes each party a
duty of good faith and fair dealing in its
performance and enforcement
b. UCC §1-203: every K or duty within the
UCC imposes an obligation of good faith in
its performance or enforcement
2.
Consideration
a. Requirement of a bargain
b. Legal detriment or benefit
c. R2d §79
i.
adequacy of consideration;
mutuality of obligation
d. UCC - does not require consideration for
modification
CASES
1. overreaching - McKinnon v. Benedict
(people built trailer park on adjacent property)
LAW: If there is evidence of overreaching by
one party, the court may examine the adequacy
of consideration
RATIONALE: the law does not favor restrictions
on the use of land, and in this case the restrictions
impose a significant burden on D's property while
the potential damage to P's property is slight.
2. Consideration is viewed at the time the K was
made (prospectively) - Tuckwiller v.
Tuckwiller
(P gave up job to care for D in exchange for
promise of farm; D died before could change will)
LAW: A K to provide personal care in return
for an inheritance is sufficiently fair and
equitable and is supported by adequate
consideration to permit specific performance.
RATIONALE: P bargained for a detriment
(giving up her job and moving to farm) in
exchange for the promised inheritance.
3. Public Policy re: "Excessive" Consideration Black Industries, Inc. v. Bush
(middleman sold parts from P to government at a
high mark-up)
LAW: A K is not void as against public policy
merely because one party's profits are
excessive. R2d §178 - when a term is
unenforceable b/c of public policy.
RATIONALE: If profits are legitimate, the
relative values of the consideration in a K where
there is no fraud or deceit won't affect its validity.
ENFORCEMENT DEFENSES
MISTAKE
PTP - Current Affairs not Poor Predictions - The law of
mistake deals only with the risk of error relating to the
factual basis of agreement - the state of affairs at the time
of the agreement. The party seeking relief must convince
the court that a mistake and not a poor prediction is
involved, the party must also convince the court that the
mistake justifies relief. The law differs as to whether the
mistake was "mutual" or "unilateral".
PTP - R2d Analysis - The R2d allows for
avoidance on the basis of mutual mistake when the
adversely affected party shows (1) the mistake goes to a
basic assumption on which the K was made; (2) the mistake
has a material effect on the agreed exchange of
performances; and (3) the mistake is not one of which the
party bears the risk. R2d §152
1. Mutual mistake - both parties made the same
mistake.
(courts are likely to void the K if there is mutual mistake)
2. Unilateral mistake - one party is mistaken (hard to
win)
3. Mutual mistake (elements of defense R2d §152)
a. both parties had some mistaken belief at the time
the K was made
b. mistake was as to a basic assumption
c. mistake has a material effect
i.
must show more than a lost benefit
ii.
must have "but for" causation; material
enough that you wouldn't have
contracted
iii.
risk of mistake not allocated to the
party seeking relief
4. when the mistake of both parties makes the K
voidable; R2d §152
5. when party bears risk of mistake; R2d §154
a. risk allocated to him by agreement; or
b. he had is aware that he has only limited
knowledge when K was made, but didn't use
"reasonable diligence"
c. risk is allocated to him by the court on the ground
that it si reasonable under the circumstances
6. Unilateral Mistake
a. When the mistake of one party makes the K
voidable; R2d §153
Where the mistake of one party at the time the K
was made as to a basic assumption on which he
made the K has a material effect on the agreed
exchange of performances that is adverse to him,
the K is voidable by him if he does not bear the
risk of mistake under R2d §154 AND
i.
the effect of the mistake is such that
enforcement of the K would be
unconscionable; or
ii.
the other party had reason to know or
should have known of the mistake.
CASES
1. Stees v. Leonard - Court enforced hard line rule of
accepting risk, "if a man binds himself in a K, he must
perform unless prevented by an act of God.
2.
3.
4.
Dover Pool Club v. Brooking - court allowed
avoidance on mutal mistake
Wood v. Boyton - diamond case, individual who
brought stone to jeweler assumed the risk of not
knowing it was a diamond.
Sherwood v. Walker - Court allowed avoidance on
mistake as to the fertility of a heifer named Rose.
DURESS - PTP - Duress occurs when a party's
manifestation of assent is induced by an improper threat by
the other party that leaves the party no reasonable
alternative. The K is then avoidable by the victim. The
threat is serious enough to justify assent if the threat is one
that leaves the particular victim with no reasonable
alternative. The victim is entitled to restitution. §175 and
§176; See also Austin v. Loral
1. Elements of duress:
a. some kind of threat
b. threat is improper
c. threat is what induced the victim's assent to the K
d. the threat was serious enough to justify assent
2. R2d §176 (When a threat is improper) A threat is
improper if what is threatened is:
a. a crime or tort;
b. criminal prosecution;
c. use of civil process made in bad faith;
d. breach of duty of good faith and fair dealing
under a K w/ the recipient; or
e. if the resulting exchange is not on fair terms and:
(i)
threatened act would harm the recipient
and would not really benefit
threatening party
(ii)
effectiveness of threat in inducing
manifestation of assent is sign.
Increased by prior unfair dealing by
party making the threat; or
(iii)
what is threatened is otherwise a use of
power for illegitimate ends.
3. R2d §175 (When threat makes a K voidable) --If a
party's manifestation of assent is induced by an
improper threat by the other party that leaves the
victim no reasonable alternative, then the K is
voidable by the victim. Duress may be raised as a
defense to the K or brought as an action based on
recission. The victim is barred, however, if the victim
has been silent for a reasonable time or ratified the K.
4. Def'n of threat -- A threat is a manifestation of
intent to inflict some harm or loss, which a reasonable
person would believe, and the ability to carry it out.
The threat is improper if what is threatened is a crime
or tort, a breach of good faith and fair dealing, or
criminal prosecution.
5. Remedies
a. assert the defense to avoid performance of K
b. if partial performance, seek recision and get
restitution for benefit conferred
CASE
1. Austin Instrument, Inc. v. Loral Corp.
(radar components to gov't)
LAW: A K modification executed under threat of
economic duress is not enforceable
RATIONALE: A K is voidable on the ground of
duress when one party is forced to agree to the
modification by means of a wrongful threat precluding
the exercise of its free will.
**Why the preexisting duty rule is not relevant in
this case:
Not a unilateral modification of 1st K b/c there is new
consideration (performance of the 2nd K qualifies of
consideration)
**UNDUE INFLUENCE - PTP - Undue influence is a
defense which may be allowed to give victims relief from
unfair transactions that were induced by improper
persuasion. The effect is to make the K voidable at the IPs
option and may serve as a basis of defense or restitution.
R2d §177
1. Elements required - R2d §177
a.
Special relationship
b. unfair persuasion - assent of weaker party
induced by stronger party. Was the result
reached by seriously impairing the free and
competent exercise of judgment;
c. OR (instead of 2) B/C of relationship, fair to
assume that IP will not act in a manner
inconsistent w/ his welfare.
ENFORCEMENT DEFENSES
OVERREACHING - PTP - IF a K results from
unfairness in the bargaining process, it is generally
voidable. Ex: fraud, duress, and mistake
I.
PreExisting Duty Rule
Ask: Is there consideration for the K modification? If yes,
then it's not preexisting duty rule situation.
a. C/L R2d §73 - "Performance of a legal duty owed to a
promissor which is neither doubtful nor the subject of
honest dispute is not consideration; but a similar
performance is consideration if it differs from what
was required by the duty in a way which reflects more
than a pretense of bargain." See also Alaska Packers
v. Domenico and Jockey Case.
b. UCC §2-209(1) Consideration is not necessary for a
unilateral sale of goods! PTP - UCC §2-209(1)
completely abrogates the PEDR as to K's for sale of
goods -- "a K w/in this article needs no consideration
to be binding. Note: The SOF must be met as to the
modification.
c. When PreExisting Duty Rule doesn't apply:
i)
a agrees to perform an act similar to, but
different from, the action he was
contractually obligated to perform. §73
(Could be a peppercorn)
ii)
A owes the preexisting contractual duty to
someone other than B (But see Jockey
Case). (inferred from R2d §73 - duty owed
to a promissor)
iii)
A had a valid defense under the original K
iv)
Unanticipated circumstances arise that
make modification of the terms of the first K
fair and equitable. Watkins & Son v. Craig
where the court allowed for an exception to
the preexisting duty rule when parties agree
that the original price should not control in
order to make the K fair and equitable.
(Applied R2d §89(a) re: modification of
executory K)
v)
Recission: Both parties may agree to
rescind the original K and form a new one,
as long as neither party has fully performed.
See Schwartzreich v. Bauman-Basch, Inc.
(principle" freedom from K; freedom to K)
But see Arzani v. People (where the court
said the so-called recission was really a
modification and held that because the
general depends on the sub to form his bid,
he should not be forced to pay the sub more
without adequate consideration.
PTP - The parties to a bilateral K that is at least
partially underperformed on each side may agree
to a discharge of all remaining duties. R2d §283
d. UCC Application of PreExisting Duty Rule
PTP - UCC 2-209(1) completely abrogates the
preexisting duty rule as to Ks for the sale of goods ("a
K w/in this article needs no consideration to be
binding"). The SOF must be met as to the
modification.
1. Good faith standard for modification - PTP Although the Code abandons the requirement of
considertion, a modification must still meet the
test of good faith, implied by the Code. Extortion
of a modification w/o legitimate reasons is
ineffective as a violation of the duty of good faith
(UCC 2-209 cmt. 2)
a. Good faith std. Does two things:
(i)
allows the victim to unravel the
transaction by avoiding the
modification and seeking
restitution for performance
rendered. (Austin Instruments v.
Loral);
(ii)
gives the victim the rt. To recover
damages if the other party's breach
resulted in failure to arrive at a
modification.
2. UCC §2-209 - Modification, Recission, and
Waiver - An agreement modifying a K w/in this
Article needs no consideration to be binding, but
a signed agreement which excludes modification,
or recission except by a signed writing cannot be
otherwise modified or rescinded, but except as
between merchants such a requirement on a form
supplied by the merchant must be separately
signed by the other party.
II.
Accord and Satisfaction - PTP - An accord is a
K btw a creditor and debtor ofr the settlement of
the claim btw them by some performance other
than that which was originally contracted for.
Satisfaction occurs upon performance for the
accord.
C/L rule of Foakes v. Beer -- rigidly applied approach
that payment of a sum less than the whole cannot be
satisfied for the whole, and that consideration is needed for
any discharge. This is regarding undisputed debts.
a. Disputed (unliquidated) v. Undisputed
(liquidated) Debts
Where the claim is in dispute and the amount owed
is uncertian, a compromise in which the creditor
accepts a partial satisfaction of the amount
claimed is sufficient to discharge the claim.
b.
c.
d.
(Creditor must be on notice that he is being offered
a full settlement. See Kibler v. Frank L. Garrett
& Sons, Inc.: and R2d, cmt. C; R2d §281 cmt.
E)
holding that fine print on a preprinted check may
not serve as notice that an accord and satisfaction
is offered, because there must be a meeting of the
minds to have an accord and satisfaction. D has
the burden of showing this.)
UCC §1-207: Explicit reservation of rts (i.e. "w/o
prejudice" or "under protest" does not apply to
accord and satisfaction)
UCC §3-311: Accord and Satisfaction by use of
instrument (Instruments with conspicuous notice
of full payment will suffice)
(i)
states that acceptance of a disputed debt,
with notice, provides for discharge of
debt
(ii)
this reflects C/L rule that notice must be
conspicuous
(iii)
Subs. (c) says that the claimant may
return the payment w/in 90 days and still
sue for the whole and the claimant may
require that the partial payment be made
to a designated person, and if it is not
then the debtor is not discharged.
Fiduciary Relationship: Hudson v. Yonkers
Fruit Co.
(fiduciary relationship is not the same as a debtor)
ENFORCEABLE DEFENSES
FRAUD/MISREPRESENTATIONS
1. Requirements of a fraud defense
a. a false assertion
b. assertion is fraudulent
(i)
must have scienter either consciously
false or reckless disregard for the truth
AND
(ii)
intent to deceive
c. assertion is relied upon
d. reliance is justified
2. Differences btw fraud and misrepresentation
a. fraud is higher std
b. action in tort, w/ greater damages available
c. misrepresentation usually asks for recission or
equity (to undo the deal)
3. Misrepresentation - PTP - Misrepresentation is
typically said to go to the inducement of the K. The
four elements of misrepresentation are (1) a false
assertion is made (2) the misrepresentation is material
or fraudulent (3) the assertion is relied upon, and (4)
the reliance on the misrepresentation is justified.
PTP - The effect of misrepresentation is that if
the party's manifestation of assent is induced by a
fraudulent or material misrepresentation by the other
party, upon which the recipient isjustified in relying,
the K is voidable by the recipient. (Recipient can
disaffirm K and then assert misrepresentation as a
defense to an action brought to enforce the K, or bring
an action based on avoidance & get restitution (courts
have allowed incidental or consequential damages as
well (eg. Lost billable hours))
NOTE: If the party is negligent in relying, there is no
relief. Misrepresentation of opinion (puffing) is not
rescindable.
1. Elements of Misrepresentation
a. False Assertion - A statement about present or
past facts which is not true.
(i)
must be a fact at the time the
assertion is made- can be spoken or
written or half-truths w/o qualification
to prevent false inference (See R2d
§161)
(ii)
Concealment qualifies as a false
assertion PTP - An affirmative act that
is intended or known to keep another
from learning a fact. (ex. Painting over
a hole in the wall or reading aloud only
a part of a K)
NOTE: The burden of discovery and
inquiry are on the buyer (caveat
b.
c.
d.
emptor) As long as no affirmative
representations are made, the seller is
not liable for failure to disclose
material facts (bare non-disclosure)
(iii)
Bare disclosure does not count as a
false assertion (Kanzmeir A/C case)
unless
special relationship
need to correct - (if what was once
true is no longer true)
mistake as to basic assumption - a
party should disclose special
knowledge not generally
avoidable to those in his position.
Assertion must be material or fraudulent
(i)
material - a material assertion must be
sufficient (a substantial factor) to
induce a reasonable person to make the
K OR the particular maker of the
misrepresentation knew it would make
the particular recipient make the K)
(ii)
fraudulent - consciously false
(scienter) and intended to mislead
The assertion is relied upon in manifesting
assent (substantial contribution to decision ok)
The reliance on the misrepresentation is
justified: R2d §164(1)
(i)
Reliance on assertions of law will often
be justified b/c recipients are likely to
rely on matters of law and not draw
independent conclusions
(ii)
Not justified if misrepresentation was
obviously false
(iii)
Mot justified if misrepresentation was
pure opinion (R2d §169) unless party
asserting was in a special relationship,
had special knowledge (i.e. doctor,
lawyer), or had special reason to know
the recipient was particularly
susceptible.
CASES
1. Concealment - Swinton v. Whitinsville
(concealment of termites from prospective buyer)
LAW: A seller is not liable for bare nondisclosure
of material facts affect the value of property sold.
2. Misrepresentation - Kannavos v. Annino
(house sold as improperly zoned apartment building)
LAW: When a seller makes a representation, he
incurs a responsibility to disclose the entire truth
about the matter represented.
RATIONALE: D's representation created the
confusion and D cannot take advantage of that
confusion at the expense of P.
ENFORCEMENT
UNCONSCIONABILITY AND ADHESION Ks
Unconscionability refers to a K w/ terms so one-sided
as to be unfair or even oppressive. R2d §208 and
UCC §2-302 allow a court to decline to enforce all or
part of an unconscionable K. The K must be judged as
of the time the K is made (UCC §2-302 cmt. 1)
I.
Two Step Test: There is a two step test the
court will use to decide whether a K is
unconscionable:
A. Is there unfairness in the bargaining? (procedural
unconscionability)
B. Does this unfairness result in unfair or oppressive
terms? (substantive unconscionability) (See R2d
§208 and UCC §2-302)
II.
Rationale: Public Policy - There ought to
be some limit to the power of parties in
superior bargaining positions to dictate
unfair terms. NOTE: in reaching decisions
based on this doctrine the courts often allude
to duress and fraud as well.
III.
C/L
A. R2d §208 If unconscionable, the ct may
1. refuse to enforce the K
2. enforce the remainder of the k
3. limit the application of any
unconscionable term as to avoid any
unconscionable result
B. R2d §211 Standardized Agreements/
Boilerplates
1. Sub§ (1) speaks to the writings, stating
that if you sign the agr. (standardized
form), you must manifest assent to the
writing
2. Sub§ (3) states an exception where the
other party has reason to believe that
the party manifesting such assent
would not do so if he knew that the
writing contained a particular term, the
term is not part of the agr. (case of the
lost wedding film)
IV.
UCC
A. §2-302: Court's Options - If a court as a
matter of law find a K or clause therein to
have been unconscionable at the time the K
was made, it may:
1. refuse to enforce the K
2. enforce the remainder of the K w/out
the unconscionable clause
3.
limit the application of the
unconscionable clause so as to avoid
any unconscionable result.
B. §2-316: Express Warranties -allows
express warranty to replace implied
warranty
C. §20718: Fixed Damages for Breach -- Any
liquidated damages clause that fixes
unreasonably large damages in the event of
breach as a penalty is void
D. §2-719: Limitation of Remedy -- Parties by
agr. may limit or exclude consequential
damages unless such limitation or exclusion
would be unconscionable. Also, the
limitation of consequential damages for
personal injury from consumer goods is
prima facie unconscionable. Henningsen v.
Bloomfield
V.
Burden of Proof- under §2-302
unconscionability is a question of law to be
determined by the ct. Ct may raise question,
but party asserting it bears the burden of
pleading and establishing it.
THE STANDARD FORM OF THE Ks -- Standard
Form of Ks are often used because they are efficient,
and they help control "irrational factor" in litigation,
cut down on transactional costs, and help maintain
predictability in law.
I.
Adhesion Ks - An adhesion K is one where
the parties occupy substantially unequal
bargaining positions and the inferior party,
in order to obtain some essential item or
service, is forced to "adhere" to the terms
dictated by the superior party.
Cts will often rule against such Ks on the basis of
public policy, and will either (1) strictly construe
the K against the oppressive party, or (2) require
actual assent to the terms (R2d §211)
A. Factors to determine if an adhesion K
1. bargaining power
2. amt of free choice
3. competition in the mkt place
B. Standard form Ks (car dealerships)
C. Tickets, passes, and stubs
1. Parcel Ticket Case -- Klar v. H& M
Parcel Room, Inc. (Ct held that a
person checking a parcel at $1000 and
charged a fee of 10 cents was not
responsible for not knowing that the
stub contained fine print re: maximum
$25 liability.)
**Needed to be more conspicuous: but blanket limitations
against liability (i.e. ski areas) are not effective for active
negligence.
2. Carnival cruise Lines - forum
selection clause Ok (Congress
overturned by prohibiting such clauses)
D. Incorporation by reference
CASES
1. Exculpatory Clause - O'Callaghan v. Walker &
Beckwith Realty Co. (lessee injured in courtyard;
lease contained exculpation clause)
LAW: A lease clause exculpating the LL from
negligence is enforceable
RATIONALE: An exculpatory clause in a lease is
enforceable unless against public policy and the LL/T
relationship is a matter of concern
NOTE: Most states now have statutes that make
clauses exculpating a party from negligence
unenforceable
2. Warranty disclaimers and limitations - Henningsen
v. Bloomfield Motors, Inc (explicity warranty in fine
print on back negated implied warranties)
LAW: A provision in the sales K exculpating D
from liab. Under implied warranty will not be
upheld
RATIONALE: Although there is normally freedom
from K btw parties, cts will declare void as against
public policy any contractual provision that tends
toward injury of the public.
NOTE: Although UCC §2-316 allows express
warranty to replace implied warranties, this warranty
was too skeletal. Also UCC §2-719 says no limits
allowed on personal injury. "Boilerplate Clause" here in fine print; also, a lay person wouldn't
understand its meaning.
3. Insurance Boilerplate Clauses - Darner Motor
Sales v. Universal Underwriters (insurer's limit. Of
liab. Clause knocked out)
LAW: Insurance clauses always read in favor of
insured.
RATIONALE: Contra Profertum The affirmative
representation was reasonably relied on. Insurer's
reputation. R2d §211(3)
NOTE: This is different from air force case where
businessman should have read K and was expected to
know the terms. Also, no affirmative representations
were made.
4. Limitation of express warranty of merchantability
- Wilson Trading Corp. v. David Fergusen Ltd.
(yarn sold w/ provision disallowing claims for shading
w/in 10 days- not long enough to knit & wash)
5.
6.
7.
8.
9.
LAW: The notice (10 days) provision here was
unreas in view of express warranty of
merchantability
RATIONALE: Ct applied §2-607 which allows buyer
a "reas time" after delivery of goods to notify the
seller of BOC. Also, Ct relied on §2-719(3), which
says unconsionability is monitored wrt consequential
damages.
Repossession - Williams v. Walker Thomas
Furniture Co -an example of a "dragnet" clause.
(Welfare recip defaulted on furniture bought on credit)
LAW: K provision which allowed repossession of
all furniture bought on credit was found
unconscionable.
RATIONALE: D is in poor econ class where the
inequal of bargaining position makes it easy to exploit
D by K provision such as one here, which is
unconscionable
Excessive price - Jones v. Star Credit Corp.
(Freezer worth $300 bought for $900)
LAW: A Ct will refuse to enforce a K as
unconscionable on basis that price is excessive
compared to actual value.
RATIONALE: UCC §2-302 allows the ct to reform a
K, totally void the K, or void only the portion which is
unconscionable.
NOTE: Allowing the ct to substitute its J on price for
that of the parties is potentially dangerous
Hell or High Water Clauses - Merchant gives credit
rts to bank, & bank will pay them immediately,
leaving consumer resp to bank, & often w/out a way to
redress BOC problems. Consumer may be required to
cont pymts after it's realized that merchant gave
defective goods. Consumer must then sue merchant.
These are considered unconscionable. Exception- Btw
merchants. (See UCC §9-206)
Forum Selection Clauses- Carnival Cruise Lines,
Inc. v. Shute (Wash couple buy tickets from co. w/
HQ in Florida)
LAW: A forum selection clause contained in a
ticket for passage on a ship is enforceable.
RATIONALE: The cruise line had a special interest
in limiting the forum in which it could be sued. Ct.
also arg. that the clause allowed for the lower ticket
prices. Such clauses are now void for lack of mutual
assent.
Franchises - The Shell case required that termination
of a franchise must be for good cause. Why the higher
std. For a franchise than emplymt at will? B/c (a)
more reliance in a franchise, & (b) more objective
measurement than in emplymt rel
10. Cooling off period - Buyer has 3 days to cancel any
home - solicitation sale.
ENFORCEMENT DEFENSES
ILLEGALITY AND PUBLIC POLICY
ILLEGALITY - Public pol is protecting us against such
parties, as opposed to protecting them from each other
1. Subj Matter Illegality - there are three types:
a. legal at time of offer, but before acceptance.
(Offer terminates as a matter of law)
b. legal at time of offer and acceptance (K is
discharged under imposs of perf)
c. at all times illegal
2. Effect of Illegality
a. Illegal pt is severable. Only legal part enforced
b. Culpability of parties - in pari delecto: D prevails
when parties are equally guilty
If the parties are in pari delecto, both are culpable, &
the cts will usually leave them where they find them.
This aids D who is defending the unenforceable K.
However, this does not bar rest relief when claimant is
less morally & legally responsible for the illegality
(Goldberg) Illegal Ks are either entirely void or can
lead to recovery on a quantum meruit basis (restitu)
- leaves the case as it finds it;
- the law favors the party in possession (usually D)
- Restitution is sometimes allowed (Goldberg v. Sanglier)
- Can be overriden by public policy (Liebman v.
Rosenthal)
3. R2d §178 - When a term is unforceable on the
grounds of Public Policy
a. In weighing interest in enforcement, look at
parties justified expectations, any forfeiture that
would result if enforcement were denied, and any
special public interest in the particular term.
b. In weighing public policy against enforcement,
look at the strength of policy as manifested by leg
or jud decisions, likelihood that refusal to enforce
K will further that policy, the seriousness of any
misconduct involved, & to what extent it was
deliberate, & the connection btw the misconduct
& the term.
CASES
1. Commercial Bribery - Sirkin v. Fourteenth St.
Store (bribe offered to place orders w/ P)
LAW: D is relieved from paying b/c P bribed D's
agent even though D has retained the benefit of the
agr. (the goods).
RATIONALE: The K viol penal code, & was
therefore illegal & unenforceable.
2.
Illegality in Performance of the K - McConnel v.
Commonwealth Pictures Corp. (P bribed 3d party to
obtain the K)
LAW: A K that is legal on its face is unenforceable
b/c of an illegality in perf
RATIONALE: Where there is a direct connection
btw the illegal transaction and the obligation sued
upon, illegality in the perf of an otherwise legal
transaction will deprive the doer of all rts.
Modern cts view McConnel as too aggressive.
3. Comparative Guilt- Goldberg v. Sanglier (all
parties deceived Ds finance co, including P & D)
LAW: If the parties to a K are both guilty of some
degree of fraud, but 1 party is guilty of more
serious fraud than the other, the less guilty party
may obtain judicial relief for the fraud committed
by the more guilty party.
RATIONALE: In pari delicto only provides that D
prevails when the parties are of equal guilt.
4. Antitrust Violation as a Defense- X.L.O. Concrete
Corp v Rivergate Corp (organized crime bid rigging)
LAW: A P may have recourse to cts for nonpymt of
a K that was awarded in violation of antitrust law.
RATIONALE: Antitrust defenses in K aren't favored
b/c they're too likely to enrich parties who benefit
from K
COVENANTS NOT TO COMPETE- In gen an emplyr
may be protected against improper & unfair competition of
frmr emplyee, but not against ordin competition. As stated
in Hopper v. All Pet, a noncompete cov can only be
enforced if it is:
a. in writing
b. part of K of employment
c. based on consideration (C.A.B. v Ingram)
d. reas in duration and geographical limitation
e. not against public policy
1. Hopper v. All Pet Animal Clinic (vet agreed not to
practice small animal medicine for 3 years)
LAW: A cov not to compete is enforceable as long
as it does not create an unreas restraint of trade.
RATIONALE: An employer should be protected
against improper & unfair competition of a former
employee, but not against ordin. competition. Can be
modified to be reas.
2. CAB v. Ingram (Ct modifies non-compete cov)
LAW: Ct has authority to modify noncompete cov.
which is otherwise unreas. broad.
RATIONALE: Cts should enforce whatever is reas
under circum to ensure that emplyrs are prot. From
former emplyees taking advan of the know. & contacts
gained from their emplymt
BREACH - STEP 1
1.
DETERMINE THE LAW OF THE K
A. The parol evidence rule - Where an agr has
been reduced to writing that the parties intend as
the final and complete expression of their agr,
evid of any earlier oral or written expressions is
not admissible to vary the terms of the writing
B. RATIONALE: The law favors written Ks (as
more reliable). Works as a rule of E (what I may
be admitted), and as a rule of K law (indicating
what constitutes the K btw the parties)
C. OVERVIEW: The PE Rule creates a means for
people to est. a final, authoritative agr by placing
limitations on what prior or contempoaneous agrs
become pt of the K. It can preclude prior oral &
written agrs.
If the ct decides that the K is the
complete agr, it will conclusively presume it is
complete w/ respect to anything of the same subj
matter & will not hear any other evid, no matter
how good the evid is. Even if a party admits a
prior agr, the PER trumps. The PER does NOT
block E of fraud, duress, or formation disputes
(can still arg. No K)
Note: A good way to try to get around
the PER is to arg than the E is a separate K,
rather than a supplement to the present K. This
will only work if the E is not the same subj
matter as the present K; it must be something you
would contract separately for.
Parol evidence overview a. Determine the nature of the agr?
i.
integrated of not? R2d §209
ii.
if so, completely or partially? R2d §210
b. Determine nature of the evid sought to be intro
i.
contradictory
ii.
supplementary
iii.
explanatory (interpreting)
c. Apply the PER analysis i.
completely integrated agrs

can explain (interpret) R2d
§214(3)

cannot supplement R2d § 216

cannot contradict R2d § 215
ii.
Partially integrated agrs

Can explain (interpret) R2d §
214(3)

Can supplement R2d §216

Cannot contradict R2d § 215
PER ESSAY
A. Is the K integrated? This depends on whether the
parties intended the writing as a final expression of the
terms it contains, even if the writing wasn't intended
as a complete & exclusive statement of all terms on
which the agr was reached.
Always check to see if there is a merger clause!
Note that the document is an integrated document
(agr). Such clauses prot the K from being attacked by
prior oral agrs (PE). These clauses are gen enforceable
1. How to determine integration?
Test Used (only used where the parties intended
the writing as a full expression of their agr)
a. 4 CORNERS TEST (Face of the agr test)
(Gianni) If the written agr appeared to be a
complete & final written expression of the
parties' intent, then no PE could be admitted
b. TRAYNOR TEST (Reas Susceptibility)
from Pacific Gas Read the writing and
look at the E
i.
Would these parties have naturally
included the term
ii.
If there is good reas they would
have, then the PE is barred
B. Is the K completely or partially integrated? The
answer depends on whether the parties intended the
writing as a complete & exclusive of all terms, as
distinguished form merely a final expression of the
terms that it contains.
Integrated v partially integrated - A K that
expresses the full & complete intent of the parties is an
integrated K. Parties are therefore prohibited from
varying or supplementing the contractual terms
through PE
1. Full Integration; R2d §210 (a): Writing is
complete & final wrt all aspects of the deal (bars
E of consistent add'l terms & conflicting terms)
2. Partial Integration; R2d §210(b): Writing is
complete & final wrt terms in the writing, but
there is not an intent for the writing to be
complete (bars E of conflicting terms but not
add'l consistent terms)
Ques to consider when making this determination 1. R2d §216(2)(b) - naturally omit? If the parties
would naturally omit the term then the agr is
partially integrated
2. UCC - Certain Inclusion (§2-202 cmt 3)
Would the certainly have been included in the
writing? If the answer is no, than the K is
partially integrated
Is there a collateral agr? Separate consideration is
not mandatory to find a collateral agr, it is enough if
the agr is one in which might be naturally omitted
from the writing.
C. R2d §214 - Evid of Prior Contemporaneous Agrs &
negotiations - Agrs & negotiations prior to or
contemporaneous w/ the adoption of a writing are
admissible in evid to est
1. that the writing is or is not an integrated agr
2. that the integrated agr, if any, is completely or
partially integrated
3. the meaning of the writing
4. illegality, fraud, duress, mistake, lack of
consideration, ground for denying recission,
reformation or specific perf
Effect of Prior Agrs; R2d §213
1. Discharges prior agrs to the extent they are
inconsistent w/ the writing
2. Completely integrated binding K discharges to
the extent it is w/in scope
Voidable integrated agr does not discharge prior
agrs (but a term may still be rendered
inoperative)
D. Nature of the Evid to be admitted (or not)
1. Always admitted - terms that give meaning or
define; R2d §214. Admissible whether or not
the writing is integrated
2. Sometimes admitted - consider add'l terms;
R2d §216: Admissible unless the ct finds that the
agr was completely integrated
3. Never admitted - conflicting terms; R2d §215;
§213: Not admissible if the K is completely or
partially integrated
E. Merger Clauses - note that the document is an
integrated document (agr). Such clauses prot the K
from being attacked by prior oral agrs. These clauses
are generally enforceable.
F. When the term sought to be admitted in parol evid
is omitted from the writing - both tests are
favorable to admission.
1. R2d §216(2)(b) - asks whether the term is such
as "might naturally by omitted" from the writing.
2. UCC §2-202 Cmt 3 - asks whether the term
"certainly would have been included in the
document"
G. UCC §2-202 - Final Written Expression: Parol or
Extrinsic Evid
1. E of a previous agr or a contemporaneous oral
agr may not contradict the terms on which
confirmatory memoranda of the parties agree.
However, the terms may be explained or
supplemented by E of:
a. course of dealing (how parties dealt w/ like
Ks)
b.
c.
usage of trade or (objective test)
course of perf (how parties acted in this K)
and
i.
noncontradictory add'l terms
unless the ct finds that the writing
was intended as a complete,
exclusive statement of the terms of
agr
ii.
integrated ques: ct looks to E of
previous agr or representation or
of a contemporaneous oral agr or
representation
TEST:
i.
would the parties have certainly
included it in the writing?
ii.
E is only barred if it would have
certainly been included in the
writing
2. UCC §2-202 (cmt 3) - excludes PE in fewer
instances - Consistent add'l terms not reduced to
writing may be proved unless the ct finds that the
parties intended the writing to be a complete &
exclusive statement of their agr
3. UCC §2-209 - Prevents oral modifications of
Ks that exclude oral modifications
H. Exceptions to PER - Also apply to UCC through
§1-103
1. Fraud - R2d §214(d)
2. Illegality - R2d §214(d)
3. Duress - R2d §214(d)
4. Accident 5. Mutual Mistake - R2d §214 (d) - (See Bollinger
v. Centeral Penn. Quarry) - (A clause to bury
topsoil after dumping was left out an agr. The
parties performed the K as agreed to & then one
day Central Penn stopped burying the topsoil &
said that burying was not in the K) holding that
mutual mistake has a heavy burden of proof
which Bollinger met with partial perf. This evid
was admitted despite the PER
6. No oral modification clause - not necessarily
an exception but rather a different situation
a. C/L - PER does not exclude testimony
relating to agrs after writing. In the event
the aprties include a clause not allowing
"oral modifications" of the existing K, it is
usually not enforced for public pol reas
(freedom to K). Any prior agr, including the
no-oral modification clause, can be modified
by a mater agr.
b. UCC §2-209 - states that such clauses are
effective, however, a modification may still
I.
occur under the guise of a waiver of rts & is
binding in the event that one party has
detrimentally relied on such waiver.
7. Evid attacking the validity of the agr - R2d
§214(d) a. Evid showing lack of consideration
8. Collateral Agrs - Seagram's Case - Collateral
agrs are often set forth in separate agrs.
Advisedly an exception, the ct will check to
determine if the parties would have ordinarily
included the agr in the writing. The ways to
prove an agr is collateral is w/ separate
considertion & separate subj matter. Upon, est
that agr is collateral, there is a burden of proof
issue & potential SOF problems
PER CASES
1. Prior Oral Agr - Gianni v. Russel & Co.
(Gianni claimed he had a verbal agr of exclusive
rt to sell soft drinks - Dsaid not in the writing)
LAW: P is not allowed recovery on an oral
agr when no mention of the oral agr is made in
the subsequent written agr
RATIONALE: P could not reform the written K,
which was an integrated agr. The only time PE
does not apply in such situations is when there is
fraud, accident, or mistake
2. Partially Integrated Agr - Masterson v. Sine
(transferred prop w/ rt to purchase)
LAW: If a term is such that it must be
included in the agr, then the K is not
integrated wrt that term
RATIONALE: PE should be admitted to explain
the meaning of terms not clear on the face of the
K. The K was only partially integrated because
the terms meaning was contested by the parties &
was unclear.
3. Contemporaneous Oral Agrs - Lee v. Joseph E.
Seagram & Sons, Inc. (sale of business w/ oral
promise to relocate)
LAW: A contemporaneous oral agr, not
integrated into the K, may be enforced if it is
separate, independent, and complete.
(COLLATERAL - based on separate
consideration)
RATIONALE: The ct must look to see whether
the oral agr was one that the parties would
ordinarily be expected that relocation would be
part of the sales K
4. Fraud, Duress, or Mistake - (PE may be admitted
to show fraud duress, or mistake in the formation
of the K)
Bollinger v. Central Penn. Quarry (sandwich
procedure for burying trach on land)
LAW: Act of equity may reform a written K
when provision is excluded by mutual mistake
RATIONALE: Evid of previous performance
indicates that th eprovision was initially intended
to be included. The fact that one of the parties
changed his mind after the mistake is made is
immaterial to Ps rt to reformation
SUBSEQUENT MODIFICATION ISSUES
Not governed by the PER. Viewed the same as
forming a new K.
A. Modification of Executory K: R2d §89; A
promise modifying a duty under a K is not
fully perf on either side is binding if:
1. the modification is fair and equitable
(broader than mere reliance) in view of
unforeseen circumstances at the time of
K formation
2. if provided by statute
3. if justice requires enforcement due to
material change of position in reliance
on the promise
B. SOF and Subsequent Oral Modifications
1. Does the K as modified fall under the
SOF?
a. Yes - modification is under SOF
b. No - oral modification is enough
C. Consideration and Modifications
1. Ususally modern cts do not require
separate consideration if the parties
relied upon the modification
D. No Oral Modification Clauses
1. Under UCC needs to be in writing
2. C/L - need consideration to trump.
(some cts require reliance)
E. UCC §2-209 Modification, Recission, and
Waiver
1. An agr modifying a sales K needs no
consideration
2. Signed agr w/ no-oral mod. Clause
cannot be modified otherwise
3. Requirements of SOF must be met as to
modification
4. An attempt at a modification may
represent a waiver of rts under the K &
the party relying on such a waiver may
enforce it as binding
5. If you have waived your rts, you may
retract the waiver if you notify the
other party before he/she relies.
K INTERPRETATION AND GAP FILLING ISSUES
(PE Rule does not apply to the admissibility of extrinsic E
for interpretation)
Traditionally, cts applied the plain meaning rule
to bar the use of any extrinsic E to interpret the K if it is
clear on its face. This rule was rejected by J. Traynor, in
Masterson, & is no longer typically used. Traynow said
that explanatory E should be included to enable the ct to
understand that the parties' intent was.
Often the K will leave gaps in determining the rts
& duties of parties. Terms may be supplied by the ct
(implied in law) or supplied through interpretation of the
parties' wds or conduct (implied in fact).
1. The Test of Admissibility - Is the offered E relevant
to prove a meaning to which the lang of the instrument
is reas susceptible? If yes, then you can bring in E
a. See Hurst, where ct held that b/c there was no
plain meaning for term in K, & looked to trade
usage
b. But, see Stewart v. McChesney, where ct
applied the plain meaning rule to K which was
clear on its face
2. ID the Three Common Problems: There are three
common problems needing interp: vagueness,
ambiguous terms, & ambiguous syntax
a. vague terms - usually focuses on application of
part. Term according to trade usage (eg. Hurst v.
Lake - vagueness of one term "50% & extrinsic
E is let in to look at trade usage)
b. ambiguous terms - ambiguity issues arise where
the parties' expressions are susceptible to more
than one interp & thus there is uncertainty as to
the meaning of the espressions
i.
Latent Ambiguity; Raffles (2 peerless
ships): The terms appear certain, but
b/c of extrinsic facts, more than one
interp is possible
ii.
Patent Ambiguity: the uncertainty is
obvious. Ex. A agrees to sell "my
prop" to B. (No K b/c too uncertain)
iii.
If one party knows or has reas to
know that wds used are ambiguous,
but other party does not know, then
there is a binding K according to
interp of innocent party.
c. ambiguity of syntax - grammatical problems:
commas, subordinate clauses, etc. making the
meaning unclear
3. interpretation of the K is the first step in process. The
ct will only supply a term after it has been dtermined
that the lang in K does not cover case at hand.
a. Factors considered
i.
ii.
iii.
4.
lang of the K
amt of detail in K
forseeability of issue (the more
foreseeable, less likely ct is to supply a
term) (But see R2d §261 cmt c stating
that practical difficulty of reaching agr
on complex issue may excuse a failure
to deal w/ foreseeable situations)
Whose Meaning Prevails; R2d §201:
a. Elements
(i)
objective (minority) or subjective
(majority)
(ii)
party w/ actual knowledge §202(2) or
reason to know §201 loses
(iii)
if know actual knowledge or reason to
know - no mutual assent & no binding
K or a gap to be filled
At this point, you can have either (a) no mutual
assent & no K or (b) a fight over whose interp to
use - continue analysis
(iv)
If not - P must prove Ds actual
knowledge or universal usage
b. Standards of Preference in Interp - UCC or
C/L - R2d §203; UCC §1-205;
(i)
Express K terms
(ii)
Course of perf - look at the parties'
conduct in same K. Repeated
occasions (at least 2x)
(iii)
Course of dealing - conduct btw same
parties to K; sequence of conduct (at
least 2x)
(iv)
Usages of trade - applicacble if parties
are in trade or know of trade; must
show knowledge or constructive
knowledge (should have known (by
being in the trade)
c. Course of Perf or Practical Construc; UCC
§2-208
(i)
can poss supplement agr
(ii)
hierarchy
(iii)
waiver of modification

If c of perf contradicts w/ an
express term = modification, so it
may wipe out express term or
serve as waiver, rather than as a
basis for interp. This prevents
express term from trumping
d. Modif, Recission, and Waiver; UCC §2-209
(i)
If no oral modification is allowed, then
no oral modification
(ii)
Can argue that c of perf operates as
waiver of no oral modif clause
5.
C/L - IF there is a hole in the K left by the omission of
an essential term, ct will fill it w/ reas gap fillers. R2d
§204
UCC - Under the UCC, evid regarding course of perf,
course of dealing, usage of trade can be used to
explain a fully or partially integrated K. (However, if
there's a merger clause, you can bring in usage of trade
b/c its not PE, but it may be blocked if it's use is to
supplement the K.
a. Gap filling terms
(i)
Duty of good faith - C/L requires
contradicting parties to exercise "good
faith" (R2d §205) and the UCC
provides that every K governed by it
imposes an obligation of "good faith"
on its perf. (UCC §1-203) This duty
arises only when the K is in existence
& therefore doesn't cover negotiations.
(Market Street Ass. v. Fry)
(ii)
Terms imposing a duty of best efforts such a duty requires a party to make
such efforts as are reas in light of the
parties ability. (Wood v. Lady DuffGordon)

See also UCC §2-306 - there is an
implied duty of best efforts in a
requirements K, unless otherwise
agreed to different terms. See
Eastern Airlines v. Gulf Oil.
(iii)
Implied warranties - UCC §2-314;
§2-315
(iv)
Terms of Providing for the
Termination of the Agr - A party that
seeks to terminate an agr that is silent
wrt termination/ duration will arg that
since nothing is said, the agr is
terminable at will, but the other party
will claim that the silence on the issue
means no termination.

Franchise - trad., the rule of
termination at will is applied to a
franchise w/ the added
requirement of reas notice. (UCC
§2-309(3); Bak-a-lum) The
length of notice is often tailored to
give the franchisee enough time to
seek substitute arrangement.
(UCC §2-309 cmt 8))

Why different std than empmt
@ will - b/c the franchise relies
more on the K - bigger investment

Empmt @ will - there is no good
faith std in termination of empmt
@ will (See Sheets v. Teddy's
Frosted)
If gap is so big, then there is no mutual assent & no K
INTERPRETATION CASES
1. Subj Meaning of K Term - Frigaliment Importing
Co. v. B.N.S. Internat'l Sales Corp. (chicken soup)
LAW: To enforce a particular meaning of common
term used in K, P must prove either Ds actual
knowledge of particular meaning or a widespread,
universal usage in the particular manner asserted.
RATIONALE: What the parties say, & not what they
mean, is essence of K
2. Latent Ambiguity - Raffles v. Wichelhaus (Two
"Peerless" ships)
LAW: Where K is subj to 2 equally poss interp &
parties contradicted w/ different interp in mind
(neither knowing of other's interp, nor having reas
to know thereof), there is no mutual assent
RATIONALE: When term used to express an agr is
ambivalent & parties understand differently, & neither
is aware of other's understanding, there can be no K.
Ct here used objective test (what a reas person in
position of each of the respective parties would have
been led to believe by wds or conduct of other party.)
3. Oswald v. Allen (fails for lack of mutual assent) Used
subj approach of R2d §201(2), there can be no K
when parties understand term's meaning differently, &
nether party knew of other's understanding. ct is
leaving parties where it finds them, as in Raffles.
4. Extrinsic Aids (mod. Liberal view) - Pacific Gas v.
Thomas Dravage & Rigging (liab insurance on steam
turbine for 3d party prop)
LAW: A D may offer PE to show meaning of
terms of K where lang of K is susceptible to more
than one meaning
RATIONALE: Extrinsic E should be admitted if lang
of K is reas susceptible to meaning argued for by the
E. TRAYNOR TEST DIFFERS FRIM 4
CORNERS/ PLAIN MEANING RULE
5. Refusal to Consider PE Despite Unfairness Steuart v. McChesney (rt of 1st refusal)
LAW: A ct must apply plain meaning of lang in K
even if it results in unfairness to 1 party
RATIONALE: When the wds of a written K are clear
an unambiguous, the parties' intent is to be discovered
only from the express lang of the K. In such a case,
there needs no basis for inquiring into the possibility
of silent intent.
6. Custom or Usage- Hurst v. W.J. Lake Co.
(horsemeat case w/ dispute over protein %s)
LAW: Trade usage may be used to interp the
meaning of K terms
RATIONALE: In dealing btw tradesmen, the
meanings of terms of trade should take precedence.
Parol evid is admissible in order to explain trade
meanings.
OMITTED CASES
1. Failure to Object - Eastern Air Lines, Inc. v. Gulf
Oil Corp. (prices tied to std & others went sky high)
LAW: An est course of perf & dealing btw the
parties, which is also an est usage of the trade,
becomes part of terms of K when not objected to
RATIONALE: The practical interp D gave to K
during perf before the dispute arose is best indication
of the intent of parties. The ct found that Eastern
didn't deviate from implied good faith std.
2. Minimum Lease Pymts and Lessee's Duty - Dickey
v. Philadelphia Minit-Man Corp. (car washing lease
w/o forfeiture clause)
LAW: there is no implied obligation for lessee to
cont. to conduct a business specified in lease if its
failure to do so results in less rental payable to
lessor
RATIONALE: B/C there's a min rental amt here, the
lessor does have some prot.
3. Duty to Remind Other Party of a K Term - Mkt St
Assn v. Frey (lease w/ option to buy; pension fund
lessor)
LAW: There is no good faith requirement for a
party to alert the other party to a K of any terms of
the K that might be unfav to the other party
RATIONALE: The duty of good faith doesn't require
complete candor
4. "Best Efforts" Clause - Bloor v. Falstaff Brewing
Corp (Brewery, D to use "best efforts" to promote
sales)
LAW: In a suit for BOC of a "best efforts" clause,
the performing party must show that there was
nothing sig it could have done to perf that would
not have been financially disastrous
RATIONALE: Once P shows D didn't care about his
volume & let it fall, D bears the burden of proof to
show that it couldn't have done anything that wouldn't
have been financially disastrous.
5. Publishers Obligation to Author - Zilg v. PrenticeHall, Inc. (failure to promote book)
LAW: A contractual agr to publish a book,
reserving the rt to the publisher to exercise its
discretion, doesn't include an implied obligation to
aggressively promote the book (best efforts).
6.
7.
8.
9.
10.
RATIONALE: P didn't meet his burden of proof to
show that D didn't exercise good faith in promoting
book.
Exclusive Dealership - Bak-a-lum v. Alcoa
(exclusive dealership - others added; reas notice?)
LAW: A party to a K has an implied duty not to do
anything which will have the effect to destroying rt
of other party to receive fruits of K
RATIONALE: The implied cov of good faith & fair
dealing required D to notify P of the future
termination if D knew that P was to incur add'l
expenses in reliance on the existing agr
(Ct held that it would be reas for P to have ample
opportunity to recoup his investment)
Reas Time for Exclusivity Agr - Lockewill, Inc. v.
US Shoe Corp (Pappagallo shoes)
LAW: Where the term on an exclusivity agr is not
spelled out, the cts may infer a reas time
RATIONALE: The parties in exclusivity agrs must
have a sufficient opportunity to recoup the initial
investment, which P had here
Public Policy Limitations on At-Will Emplmt
(emplyee fired b/c talked about illegality of
packaging)
LAW: The empyr may not discharge empee for
calling emplyr's att'n to poss crim viol
RATIONALE: Public pol places some limits on an
emplyr's rt to terminate an @will emplyee
Implied Duty to Act in Accordance w/ Trade Usage
- Nanakuli Paving & Rock Co v. Shell Oil Co
(asphalt paving in Hawaii; price prot)
LAW: A K term that specifically provides for a
price to be est as of the date of delivery may be
modified by the trade usage & course of perf of the
parties
RATIONALE: Under the UCC, the parties' agr may
be more than the written wds; it may include other
circum such as course of perf & usage of trade. The
latter aren't binding only if they cannot be reasonably
reconciled w/ the express K terms.
a. Express terms
b. Course of dealing; course of perf
c. Usage of trade
Usage of Trade - Columbia Nitrogen Corp v.
Royster Co (buying phosphate)
LAW: Evid of usage of trade & course dealing
may be admitted to show that a specific K price
wasn't to be binding on the parties.
RATIONALE: The test of admissibility of
interpretive extrinsic E is not completeness of the K
but whether the E can reasonably be construed as
consistent.
BREACH - STEP TWO
A.
B.
If perf, no breach. Consider quasi K
If non-perf, go to step three
BREACH - STEP THREE
A.
Doctrine of Conditions Analysis
1. Are the cov dependent upon each other? Is
there lang in K, which may or may not be a
condition?
2. What is applicable std of compliance? If it is
a condition, has it been satisfied? -- If the
condition is not met, the result is that the
contractual duty is discharged & they have
no obligation to...pay, purchase, paint,
etc..B/c the condition precedent is not met
a. Is there a statisfaction clause?
(i)
objective
(ii)
subjective
b. Is there strict compliance?
c. Is there subs perf?
3. Are there mitigating doctrines that apply?
a. Is there subs perf?
(i)
if yes, there is no material
breach - condition is satisfied
(ii)
if no, then there is a material
breach - condition is not
satisfied
b. Divisibility?
c. Waiver?
d. Undue burden?
DOCTRINE OF CONDITIONS ANALYSIS
def'n of condition
Condition - A condition is a duty-creating event, which
must occur before perf under a K is due. R2d §224. If the
condition fails to occur, then the duty is discharged, and
non-perf may be justified. R2d §225
Effects of non-occurrence of a condition; R2d §225
A. perf of a duty subj to a condition cannot become due
unless its occurrence occurs or its non-occurrence is
excused
B. unless it has been excused, the non-occurrence of a
condition discharges the duty when the condition can
no longer occur
C. non-occurrence of a condition is not a breach by a
party unless he is under a duty that the condition
occurs
Types of Conditions
Express conditions - an express condition is one explicity
found stated by the parties in the K
A. strict construction - Luttinger v. Rosen (restitution case) party must obtain financing, as
specified, or if this is not satisfied...the buyer may opt
to not purchase the home.
B. Example of legal impact of failure to satisfy
condition precedent - Internatio-Rotterdam, Inc v.
River Brand Rice - Notice that was required was not
met
1. Issue - Is the time of the essence? If so, the ct
reads the ct strictly interp the K. Similar to
Luttinger v. Rosen.
2. Rule - failure to meet condition is not breach,
seller can walk away, no K
C. Two Step Test 1. Is there a condition precedent? yes
2. Is the condition met?
Implied conditions - gap fillers
A. in fact- inferred from intention of the parties, strict
compliance required
B. in law - subs compliance is required, gen we intend to
make our cov conditional. Where each party makes
one or more promises to the other, each party's subs
perf of his promise is gen a constructive condition to
the performance of any subsequent duties by the other
party.
C. Example - Peacock Construction v. Modern Air
Conditioning - Here, full pymt by the owner was the
event.
1. issue - Is an event in the K, a condition
precedent?
2. Rule - The ct determined that b/c interp is a
matter of law, it should mot go to the jury & in
this case the ct ruled that practice in the trade
ruled the sub-contractor does not norm assume
the risk that the owner pay the gen. This
condition contradicts trade practice & must be
EXPLICIT if the ct is being asked to recognize it.
In this case, it was not explicit enough.
The ct filled in w/ implied condition of reas
time.
Are the promises independent or dependent
cov? If independent, non-perf is not justified.
If dependent, cont analysis.
Independent v. dependent covenants
A. Dependent - Kingston Doctrine - In the normal
bilateral K, the ct will presume that the promises are in
exchange for each other. The ct will therefore treat
promises as mutually dependent & will make each
party's duty of perf constructively conditional upon the
others substantial perf of all previous duties. One
promise under a bilateral K is "dependent" on a return
promise in the sense of being conditional on the return
performance, & in such cases nonperf of the return
B.
C.
promise , in addition to being actionable as breach, is
an excuse for the nonperf of the first promise. If there
are no express terms indicating otherwise, the ct will
presume that the covenants are dependent.
Independent - One promise under a bilateral K is
"independent" of a return promise, in the sense of its
not being conditional on the performance of the return
promise. In such cases nonperformance of the return
promise was no excuse for nonperformance of the first
promise (ex: RE Ks, insurance policies, and leases)
If there is not perf of a material condition, then the
other party does not have to perf.
What is the applicable standard of
compliance?
Enforcement of conditions - B/C the present condition is
(express/implied in law) the ct will (strictly enforce/ require
substantial compliance or perf)
If Sales of Goods, UCC Approach - Perfect Tender Rule
- The requirement of perfection covers not only the
quantity & quality of goods, but also the details of
shipment.
A. Substantial perf does not apply to sale of goods
(Moulton Cavity)
B. UCC §2-601 - perfect tender rule: the buyer may
reject "if goods or tender of delivery fail in any respect
to conform to the K"
C. UCC §2-609: K for sale imposes obligation that others
expectation will not be impaired.
D. UCC §2-610: Anticipatory Breach - gives injured
party remedy for breach & discharges further duty
E. UCC §2-508: Softening of the perfect tender rule. If
seller delivers defective goods before date due, he may
cure such defects before time expires.
F. UCC §2-608: If buyer accepts goods & then discovers
they are defective, he may revoke w/in a reas time if
defects subs impair the value of goods to him.
G. UCC §2-611
H. UCC §1-103
Express Conditions: Is there strict compliance or a
satisfaction clause?
A. Satisfaction Clauses - subjective or objective
1. Subjective Test - K is to please the tastes or
convenience of a person. If the subj matter of K
is personal, cts hold that personal satisfaction is
required even though it may not be stated.
a. Portraits, artistic perf, interior decoration
b. The condition doen't occur if the person is
honestly, even unreas, dissatisfied
c. Good faith std applies
Architects' Certificates: Laurel Race Course,
Inc v. Regal Contruction Co. - widespread use
B.
is made of such terms in construction Ks, where
the owner's duty to pay the contractor is often
conditional on satisfaction of the architect. So
long as no fraud or bad faith occurs.
Personal Satisfaction: Gibson v. Crannage Subjective approach to satisfaction clause portrait under the K required that the buyer be
"satisfied" Rule -Ct ruled that the std was purely
subj. Example of personal std.
Good Faith Satisfaction: Doubleday & Co. v.
Curtis - K included a satisfaction clause for a
manuscript. The publisher refused the manuscript
& D sought a reasonable std. Rule - The ct
maintained that b/c of the personal nature of K,
subj (subject to good faith) was the std
2. Objective Test - satisfaction of the reas man in
position of obligor
a. Reasonable Std - R2d §228 - Satisfaction
of the Obligor as a Condition - When it is
a condition of an obligor's duty to be
satisfied wrt the obligee's perf or wrt
something else, & it is practicable to
determine whether a reas person in the
position of the obligor would be satisfied, an
interp is preferred under which the condition
occurs if such a reas person in the position
of the obligor would be satisfied.
b. May often relate to the mechanical
fitness, utility, or marketability of
something - NOTE - Mattei v. Hopper
(R2d §265) - Condition precedent applied to
both parties, giving buyer/seller satisfactory
clauses. In this case, ct chose the good faith
std over the reas person std.
Forfeiture - anything falling short of an express
condition is breach - Forfeiture is the loss of a rt b/c of
a neglected duty (for not strictly complying w/ and
express condition). Forfeiture party loses expectation
& reliance interests. If ct finds forfeiture, the
forfeiting party can recover in quasi K (Holiday Inn
v. Knight - ct allowed forfeiture).
1. R2d §229 - Excuse of a Condition to Avoid
Forfeiture - Excuse the condition if it is not
material to contract
2. Courts do not like forfeitures b/c of harsh
consequences & will try to construe K terms so
as to avoid them
a. Construe so that condition has been satisfied
- EX: use the obj test for a satisfaction
clause instead of a subj test, or impose good
faith std
(ii)
c.
3.
Say that it was not really a cond precedent,
but an uncond duty
d. Excuse the non-occurrence of a cond by
finding that there was an implied waiver
e. Excuse the non-occurrence of a cond b/c of
prior breach or non-perf on your part - (a)
cts will excuse b/c of something the
individual asserting it did (b) EX - owner
locked gate, & this is why the painter could
not work
f. Divisibility
Constructive Conditions (Implied at Law,
Kingston v. Preston Doctrine) - Substantial
Perf - If one party's perf is a constructive cond of
the other party's duty, only subs perf is required
of the 1st party before that party can recover
under the K (Jacob & Youngs v. Kent). As long
as the other party has subs perf, you cannot term
your duties. (R2d §237)
a. Does not apply to UCC sale of goods
(Moulton Cavity)
b. EX: If a builder can meet the test of subs
perf, the perf, the builder can recover on the
K the full price, less any damages to which
the owner is entitled b/c of the breach
c. Was the breach material or nonmaterial? Fact - specific determination. The answer
depends on the circum, the R2d, looks to the
injured party & asks to what extent that
party will be deprived of the benefit it reas
expected. (R2d §241)
(i)
Material Breach - According to
R2d §237, the injured party may
only suspend perf if the breach is
material. The breach must be
significant enough to amt to the
nonoccurrence of a constructive
cond of exchange & is always
measured against the perf of the
Ks (R2d §241). Cts also
encourage parties to keep the deal
together by allowing the injured
party to terminate the K only after
an appropriate time has passed, the
owner can treat the perf is "fraught
w/ peril" b/c if a ct later
determines this action to be
choose to cont perf & claim
damages for partial breach.
(Walker v. Harrison)
(iii)
(iv)
(v)
Immaterial Breach - If the
breach is immaterial, the injured
party has no choice but to treat it
as a partial breach and cont to
perf. The only remedy available is
to claim damages for partial
breach. The fraught w/ peril
doctrine allows that not every
trivial non-perf is a breach.
If there is not subs perf, then
material breach exists

Material breach justifies the
termination of duties.

Jacob & Youngs v. Kent Bldg K called for Reading
Pipe which was not installed.
Even though express cond
called for Reading Pipe,
breach is insig to the whole &
ct found subs perf
If there is subs perf, then no
material breach exists

Non-material breach does not
justify termination of duties

Plante v. Jacobs - Builder
made lots of little mistakes &
misplaced a wall. Owner
refused to pay. Ct held that
there was subs perf & buyer
must pay but can sue for
damages
Reas. Time for Cure: Total
Breach= Material Breach (no subs
perf) + reas amt of time

Even though a breach is
serious enough to justify the
injured party's suspending
perf, the party in breach often
can "cure the breach" by
correcting the deficiency in
perf. If the party in breach
does cure w/in that period,
the injurde party is not
justified in further suspension
of its perf.

UCC Approach to Cure - The
Code allows cure in two
situations. When the time for
perf has not yet expired or
when the seller had reas
grounds to believe the goods
(vi)
would be accepted. UCC 2508(1). Softening of the
Perfect Tender Rule
Exception to Breach by Non-Perf If, at the time of the breach, the
injured party has totally perf & the
oly remaining duty of perf of the
party in breach is to pay money in
installments, the failure to pay one
or more installments does not amt
to a total breach that will
accelerate the time for pymt of the
balance of the debt
ANTICIPATORY REPUDIATION
Roger's Anticipatory Breakdown:
A. Was there an anticipatory repudiation? McCloskey
B. Is the injured party discharged?
C. Can the injured party treat the K as broken & sue
immediately? Hochster
D. Can the injured party ignore the anticipatory
repudiation & await perf?
E. Can the repudiator repent & retract?
F. When is the time for measurement of damages
regarding the anticipatory repudiation? Cosden
General - A constructive cond exists that the parties have a
duty of good faith to perf & should not create uncertainty to
the other party, if a party announces they are not going to
perf, this duty of good faith is breached.
Definition - Anticipatory repudiation discharges any
remaining duties of perf of the injured party. Once there
has been a repudiation, the injured party is no longer
expected to hold itself ready to perf & is freely to make
substitute arrangements. (Hochster v. De La Tour holding that the courier should be "at liberty to consider
himself absolved from any future perf")
What constitutes a repudiation?
A. C/L: If either party to an executory (not fully perf, on
either side) bilateral K in advance of the time set for
perf repudiates the K by wds manifesting his apparent
intent not to perf as he has promised, the other party
may treat such an anticipatory repudiation as a
present, material BOC & bring an immediate action
for the entire value of the promised perf.
B. UCC 2-610: repudiation as to a perf...the loss of
which will subs impair the value of the K of another
C. R2d §250 - a statement...indicating that the obligor
will commit a breach that would itself give the obligee
a claim for damages for total breach.
D.
Repudiation by Conduct - A promisor's voluntary
affirmative act that renders the promisor unable to perf
w/o breach is a repudiation
E. Repudiation by Wds - Usually a repudiation consists
of a statement that the repudiating party will not or
cannot perform. A party's expression of doubt as to its
ability to perf will not constitute a repudiation
(McCloskey v. Minweld)
Responses to Repudiation - If a party repudiates before
the time for its perf has arrived, the injured party might
respond several ways, (1) the injured party might treat the
K as terminated & claim damages; (2) the injured party
might attempt to save the deal by insisting that the other
party perf by urging it to retract; (3) the injured party may
ignore the repudiation & await perf
A. Treat K as Terminated
1. The injured party is entitled to treat its remaining
duties to render perf as discharged & bring suit
immediately for damages for total breach. But to
recover damages, the injured party must show
that, had there been no repudiation, that party
could have perf as required in the K. See
Kanavos v. Hancock Bank. This is frought with
peril. He should instead urge retraction & seek
adequate assurance.
B. Urge Retraction
1. The injured party may prefer to save the deal
rather than to treat the K as terminated. The
injured party may then insist or urge the
repudiating party to retract. If the repudiating
party fails to retract, the injured party can still
treat the K as terminated & claim damages. The
injured party is not precluded from reconsidering
at any time before retraction & consid the K as
terminated. UCC 2-610 (b); R2d §257
2. UCC 2-610 (b) - injured party may resort to any
remedy for breach...even though he has notified
the repudiating party that he would await the
latter's perf & has urged retraction.
3. R2d §257 - injured party does not change the
effect of a repudiation by urging the repudiator to
perform...or to retract his repudiation
C. Ignore Repudiation - An injured party that ignores the
repudiation & awaits the time for the return perf
remains in a state of vulnerability. The repudiating
party can at any time retract the repudiation on
deciding that it is in its best interest to do so. If the
repudiation is not retracted before the time for perf
comes, a failure to perf at that time will amt to a
breach by nonperf.
RETRACTION
Definition - The injured party can prevent the injured party
from treating the K as terminated by retracting teh
repudiation before the injured party has acted in response to
it. The injured party does not have to "accept" the
repudiation or notify the repudiating party that the K is
terminated, as soon as the injured party has materially
changed its position in reliance on the repudiation it is too
late to retract. (U.S. v. Seacoast Gas Co; UCC 2-611 (1);
R2d §256).
1. UCC 2-611(1) - power of retraction cut off if the
injured party has "cancelled or materially changed his
position or otherwise indicated indicated to the other
party that he considers the repudiation final. Locus
poenitentiae - the point at which it is too late to
change your legal position.
2. R2d §256 - power of retraction cut if injued party
"materially changes his position in reliance on the
repudiation or indicates to the other party that he
considers the repudiation final.
Effect of Retraction - According to R2d §256(1), a
retraction nullifies a repudiation, however the Code
provides that a retraction reinstates the repudiating party'a
rts under the K in light of any delay caused by the
repudiation. UCC 2-611 (3).
ARE THERE ANY MITIGATING
DOCTRINES THAT APPLY? IS NONPERF JUSTIFIED?
Election: Decision after K is made. The non breaching
paryt can elect to (a) treat the failure as a partial breach
& cont the K - seeking damages later; (b) treat it as a
material breach & terminate the K, or (c) waive the
cond altogether.
A. The concept of election arises when a party elects to
waive a cond & the time for occurrence has expired,
the party can take advantage of the condition & treat
the duty as discharged or can disregard the non
occurrence & treat the duty as uncond. The party is
bound by the decision to treat the occurrence as
uncond. R2d §84
B. Election of Partial or Total Breach - Problem arise
when an injured party indicates that he will treat a
breach as partial, rather that total, & then reconsiders
& seeks to treat it as total. The injured can choose
both to terminate the K & claim damages for total
breach, or not to terminate the K & claim damages for
partial breach. This choice, or "election", is binding.
(K&G Construction v. Harris).
Waiver
A. Waiver - A common ground for excuse of a cond is
that the obligor promised to perf despite the
nonoccurrence of the cond or a delay in its occurrence.
Such a promise is called a waiver.
B. Modification v. Waiver - By characterizing conduct
as a waiver rather than a modification, a ct may avoid
the requirement of assent, the requirement of a writing
under the statute of frauds, &the requirement of
consideration or detrimental reliance.
C. Retraction of Waiver - A requirement that a cond
occur may be eliminated by agr btw parties, but a
party that w/o consid has waived a cond that is w/in
the other party's control before the time for occurrence
of the cond can retract the waiver & reinstate the
requirement that the cond occur unless the other party
has relied to such an extent that a retracdtion would be
unjust. R2d §84(2); UCC 2-209(5). After the time
for occurrence, waiver cannot be retracted. But see
reliance.
D. R2d §84 - promise to Perf a Duty in Spite of non
occurrence of a cond - A promise to perf a cond duty
in spite of non occurrence of the cond is binding,
whether the promise is made before or after the time
for the cond to occur, unless
1. occurrence of the cond was a material part of the
agreed exchange & the promise was under no
duty that it occur, OR
2.
uncertainty of the occurrence of the cond was an
element of the risk assumed by the promisor.
Power to Suspend Perf & to Terminate the K: See,
material breach v. partial breach, fraught w/ peril &
election abaove
Estoppel
Divisibility: Test - If the consid can be apportioned to
each item. (ex: $55 a log). It's not the pymts that are
divisible, it's the object of the K that's divisible.
A. If a party's perf falls short of that required by the
doctrine of subs perf, a ct can avoid forfeiture & allow
recovery by holding that the K is divisible. A K is
said to be divisible if the perf to be exchanged can be
divided into corresponding pairs of part perf. (Gill v.
Johnstown Lumber, R2d §240).
B. R2d §240 - Part perf as Agreed Equivalents - The
R2d lays down 2 requirements: it must be possible to
apportion the parties' perf into corresponding pairs of
part perf; & it must be proper to regard the parts of
each as agreed equivalents
C. Gill v. Johnstown Lumber Co - The fundamental
ques is whether the part perf are of roughly equivalent
value to the injured party when viewed against the
background of that party's expectations as to the whole
agr. The ct determined that the K for lumber could be
apportioned by lumber received.
Restitution as means of avoiding forfeiture:
A. Minority of cts have tended to grant restitution to the
party in breach. A party that is precluded from
recovering on K b/c of not having perf subs can at
least recover for any benefit conferred, less damages
for which that party is liable b/c of breach. (Britton v.
Turner, R2d §374). This is the leading case for the rt
of recovery.
B. A - [ B + C ] = plaintiff's recovery
1. A= reas value of service
2. B = pymt received by P
3. C = cost of completion
C. RS - in these cases you are not suing on the K b/c you
breached, the suit relies on quantum meruit not any
amt in the K
D. Kirkland v. Archbold - a defaulting contractor who
has by his labor & materials materially enriched the
estate of another party should be afforded relief to reas
value of his work done, less whatever damages the
other party has suffered.
ADEQUATE ASSSURANCES
UCC Approach
A. Elements:
1. reas grounds for insecurity
2. demand in writing
3. commercially reas to suspend perf
4. 30 day waiting period after assurance
B. UCC 2-609 - (1) When reas grounds for insecurity
arise wrt the perf of either party the other may in
writing demand adequate assurance of due perf & until
he receives such assurance may, if commercially reas,
suspend perf. (4) After receipt of a justified demand,
failure to provide assurance w/in 30 days, is a
repudiation of the K.
C/L Approach
A. Elements:
1. reas grounds to believe
2. breach that would justify nonperf
3. may demand perf & suspend
B. R2d §251 - When a Failure to Give Assurance May
Be Treated as a Repudiation
1. Where reas grounds arise to believe that the
obligor will commit breach by nonperf, that
would justify a total breach under §243, the
obligee may demand adequate assurance of due
perf & may suspend any perf
2. The obligee may treat as a repudiation the
obligor's failure to provide w/in a reas time such
assurance of due perf as is adequate in the circum
of the part case.
Reasonable Grounds for Insecurity
A. You can look to everything for insecurity
1. even at the other party's dealings w/ 3d parties
2. fact-specific inquiry, case by case
3. rumors don't have to be true, just so long as a reas
person would believe them
B. Grounds must arise after the K is made
C. Cts tend to give the insecure party the benefit of the
doubt to encourage such assurances
Effects of Not Having Reas Grounds By Mistake.
A. If you suspend your perf you may be repudiating
B. If you actually suspend, you may be in breach
C. RS: Play it safe, keep perf & sue for partial breach
IMPOSSIBILITY
IMPRACTICABILITY
Impracticality/Impossibility - C/L allowed no excuse for
impossibility & doctrine of impracticability evolved from
exceptions to impossibility.
A. Three C/L exceptions to strict approach that K
must be perf & impossibility is no excuse.
1. Illegality - Supervening illegality or gov't action
2. Death or Disability - If a particular person's
existence is necessary for perf of a duty, & perf is
prevented by that person's death or disability, the
duty is discharged
3. Destruction of a Thing - If the existence of a
particular thing is necessary for a party's erf, the
party is excused if the destruction or deterioration
of that thing prevents perf. (Taylor v. Caldwell)
B. UCC 2-613 Casualty to Identified Goods - Where
the K requires for its perf goods identified when the K
is made, & the goods suffer casualty w/o fault of
either party before the risk of loss passes to the buyer,
or in a proper case under a "no arrival, no sale then...
1. If the loss is total the K is avoided; and
2. If the loss is partial or the goods have so
deteriorated as no longer to conform to the K the
buyer may nevertheless demand inspection & at
his option either treat the K as avoided or accept
the goods w/ due allowance from the K price for
the deterioration or deficiency in qty but w/o
further rt against the seller.
C. Roger's Interp to 2-613 - What happens when the
goods are lost?
1. If the goods are not identifiable the seller must
provide more widgets.
2. If the goods are identifiable, the seller has an
excuse.
When a ct excuses a party on the ground of
impossibility, it is supplying a term to deal w/ an
omitted case, to fill a gap. The excuse is rationalized
on the grounds of impossibility by saying that it is an
"implied condition" of the duty that perf remain poss.
(Caldwell v. Taylor). The doctrine of impracticability
is based on the events occurring after the formation of
the K. The implied cond creates an excuse from perf,
therefore there is not breach.
D. Modern Approach under UCC
1. UCC 2-615 - Excuse by Failure of Presupposed
Cond
2. UCC 2-613 - Casualty to Identified Goods
3. UCC 2-614 - Substituted Perf
4. UCC 2-616 - Procedure on Notice Claiming
Excuse
R2d §261 - UCC 2-615 - Approach - Under the R2d/Code
approach, the party that claims that a supervening event or
"contingency" prevented must meet four requirements.
A. Contingency Occurred - the event must have made
"perf as agreed...impracticable"
B. Basic Assumption of K - The non-occurrence of the
event must have been a "basic assumption on which
the K was made"
1. Trad excused categories according to basic
assumption
a. parties normally assume that the gov't will
not directly intervene & prevent perf
b. they assume that a person who is necessary
for perf will neither die nor be deprived of
the necessary capacity before the time for
perf
c. they assume that a thing that is necessary for
perf will remain in existence & in such cond
that perf can take place
C. No fault of party seeking excuse - The
impracticability must have resulted w/o the fault of the
party seeking to be excused.
1. Ex: a seller that is unable to deliver goods b/c
they have been destroyed due to the seller's
negligence is not excused neither is a party
excused if unable to perf personal services b/c of
a disability.
D. No assumption of risk (note foreseeability - if an
event is foreseeable, a party makes an unqualified
promise to perf assumes an obligation to perf). - That
party must not have assumed a greater obligation that
the law imposes. If a party expressly undertakes to
perf, even though perf becomes impracticable,
impracticability will not be an excuse, & the party will
ne liab for damages for nonperf. Furthermore, whe
surrounding circumstances will sometimes justify an
inference that a party assumed the risk of
impracticability.
Transatlantic v. US Approach/Wright's 3 Part Test - ct
refused to find "that the parties contemplated or agreed
that the Suez passage was to be the exclusive method of
perf." J Wright articulated a three-step test to
determine impracticability. Although the UCC was not
applicable, it was persuasive.
A. Was the supervening event unexpected? - A
surprise to both parties beyond basic assumptions
B. Was the risk of the occurrence allocated to the
party seeking to be excused? - Not necessary to
show that risk was allocated to the other party, just
C.
not to you. Trade usage or course of dealing may
come in.
Was the perf rendered commercially
impracticable? - This means the perf must be
imposs or poss only at excessive & unreas cost. (in
Seuz, 15% cost increase not enough)
EXISTING IMPRACTICABILITY &
FRUSTRATION
Elements of Existing Impracticability & Frustration - In
order to be excused on the ground of existing
impracticability or frustration, a party must meet the four
requirements that are imposed in cases of supervening
events, in addition the marty must show that it neither knew
nor had reas to know of the facts that made perf
impracticable.
Impracticability/Frustration v. Mistake - A party
claiming excuse on the ground of existing impracticability
or frustration may also claim excuse on the ground of
mistake. A party that relies on the ground of
impracticability or frustration must show that it was
impracticable for the party to perf, or that the party's
purpose was subs frustrated. By contrast, a party that relies
on the ground of mistake need only show that there was a
mistake as to an existing fact, not merely a poor prediction
of the future. Furthermore, it is more likely that a party
will be regarded as having borne the risk in the case of
mistake than in the case of impracticability or frustration.
FRUSTRATION OF PURPOSE
Frustration of Purpose - The doctrine of frustration of
purpose operates to the advantage of parties that are to pay
money in return for perf
Wright's 3 Part Test as applied to Frustration of
Purpose
A. Was the supervening event unexpected? - A
surprise to both parties beyond the basic
assumptions.
B. Was the risk of the occurrence allocated to the
party seeking to be excused? - Not necessary to
show that risk was allocated to the other party, just
not to you. Trade usage or course of dealing may
come in.
C. Was the perf rendered commercially valueless? This means the perf has little or no value. (See
Krell v. Henry), where renting the flat would have
no value since coronation wasn't going to happen.)
1. Krell v. Henry - Henry contracted a for a
window in Krell's flat to view the coronation.
The coronation was postponed due to an
operation on the King, & Henry refused to pay
the K.
a. Issue - Is the K enforceable?
b. Rule - No. "the coronation procession was
the foundation of this K, & the object of the
K was frustrated by the non-happening of
the coronation & its procession on the day
proclaimed. Cancellation of the procession
did not make the perf of either party
impracticable, rather its effect was to
deprive one party entirely of the benefit he
expected from the other's perf.
R2d §265 Approach A. The party that claims that a supervening event
frustrated its prupose must meet four requirements
1. the event must have "subs frustrated" that party's
principle interest
2. it must have been "a basic assumption on which
the K was made"
3. the frustration must have resulted w/o the fault of
the party seeking to be excused
4. that party must not have assumed a greater
obligation than the law imposes
The frustration must be subs - Cts have raised two
obstacles to a party est the frustration was subs.
A. They have viewed the affected party's principle
purpose in broad terms. The mere fact that some
exceptional event has prevented a party from taking
advantage of the transaction in the particular way
expected may not suffice to satisfy the requirement of
subs frustration if the party can turn the bargain to its
advantage in some other way.
B. Cts have insisted that the frustration be total. The fact
that what was expected to be a profitable transaction
has turned out to be a losing one is not enough.
Foreseeability - Sometimes a ct concludes that a party
assumed the risk of the occurrence of the frustrating event
merely b/c the event was foreseeable.
Swift Canadian v. Banet - An American buyer of lamb
pelts that were to be delivered in Toronto by a Canadian
seller unsuccessfully urged frustration as an excuse when
his planned importation of the pelts into the US was
prevented by the issuance of stricter import regulations.
Issue - Is the K voidable?
Rule - No. The ct said "the rest of the world was
free to the buyer, so far as we know, as destination for the
shipment."
Chase Precast Corp. v. John J. Paonessa - Th Ct excused
a general contractor under K w/ subcontractor that was to
provide median barriers when highway dpt decided not to
install barriers.
EFFECTS OF IMPRACTICABILITY &
FRUSTRATION
Excused party
A. Effect of Supervening Impracticability or
frustration on the excused party - usually a
discharge of that party's remaining duties of perf.
B. Effect of Existing impracticability or frustration on
the excused party - usually prevents any duty of perf
on that party's side from arising
Effect on the Other Party - The excused party's failure to
perf b/c of impracticability or frustration affects the other
party's duties of perf in teh same way as if the excused
party has broken the K. If the failure is material, the other
party can suspend perf. If an appropriate time for the
excused party to cure has passed, the other party can
terminate the K.
Termination by Excused Party - The temporarily excused
party will be permanently excused if that party can show
that perf at the later time would be materially more
burdensome than the perf to which party originally agreed.
Divisibility - If the K is divisible, the return perf will be
apportioned, & the excused party will recover accordingly.
Restitution - If excused party has rendered part of its own
perf before remainder has become impracticable, & K is
not divisible, excused party is entitled to restitution of any
benefit that it has conferred. The other party is also entitled
to restitution for any benefit conferred upon the excused
party, by pymt or otherwise.
REMEDIES
Q: 4: GIVEN A BREACH OF K, WHAT
REMEDIES ARE AVAILABLE?
Remedies - REMEMBER, IP CAN CHOOSE THE
TYPE OF REMEDY!
I. Specific Perf - Ct order to perf the obligation
A. Not the usual remedy. Must make a special showing
that damages won't make whole/ are inadequate - that
promise is unique.
1. Real Estate K (land is unique)
2. Hope diamond
3. Where damages are too uncertain or unsuitable
4. Where damages are uncollectable - other party is
insolvent
B. UCC §2-716 Buyer's Right to Specific Perf or
Replevin
1. Usually, the UCC calls for damage to be
measured by cover or mkt price at the time of the
breach, but specific perf may be issued to the
injured buyer when the goods are unique.
2. Sellers don't get specific perf
Damages - Pay a sum of $$ to the injured party. Can be
expectation, restitution, or reliance.
A. Expectation Damages - P expectation interest. Puts P
where he would have been if the K had been perf.
1. Normally awarded for BOC
2. Formula A - Loss in Value - Cost Avoided +
Other Loss
a. (cost avoided = the amt of $ not pd to
breaching party/ or in perf of the K)
b. overhead costs are notincluded in costs
avoided. See Laredo Hides.
3. Formula B - Cost of Reliance (on the K) + Profit
+ other loss
a. (Cost of reliance = the part perf that the
injured party undertook)
b. Formula B is most helpful when the injured
party is the supplier of goods
c. UCC Roadmap Under Formula B
[difference btw cover & K price +
incidental damages (other losses)]
(i)
§2-712 Cover
(ii)
§2-713 Mkt Price - K price
(iii)
§2-706 Resale Provision (Seller's
version of cover)
Cover & Resale are substitute transactions,
& are Code's preference for measurement of
damages, b/c damages are very accurate.
The burden of proof is on the seller (for
cover)/ buyer (for resale) to show that cover/
resale was not reas. (ex. Undue delay)
4.
5.
6.
Lost Volume Seller (Diasonies Case); UCC §2718(2)(b)
a. If a buyer breaches the K & the seller sells
the item to a 3d party. The following
criteria must be met to be consid a LVS:
(i)
The seller has the capacity to
produce 2 instead of 1
(ii)
The seller would have produced
both at a reas profit
b. There is still a lost sale (b/c seller could
have sold 2 instead of 1). LVS can recover
from the breaching party the profit lost on
the 2d unit.
c. Roadmap
(i)
§2-706 (K price - Resale)
(ii)
§2-708(1) (K - mkt)
(iii)
§2-708 (2) (profit)
Cost to Complete
a. Jacobs & Young v. Kent (reading pipe)
Where econ waste is involved, the ct will
award the injured party dimunition in value,
rather than cost to complete.
b. Groves v. John Wunder Co. (gravel
replacement)
Where there is a (1) willful breach, (2) that
does not involve econ waste, then the ct may
award cost of completion rather than
dimunition in value.
R-S This sounds a lot like punitive
damages, w/ the focus on willful breach!
Duty to Mitigate Damages
a. There is an implied duty for an injured party
to make reas efforts to mitigate his damages.
But see Parker v. 20th Century Fox, where
P was not requierd to mitigate by taking a
substanially different offer of employment
from the breaching party - the ct here,
however, should have included the fact that
P had an affirmative obligation to mitigate
her damages.
b. There is no duty for contractors & subs to
mitigate, however, b/c it is assumed that
they have the resources to do more than one
job at a time.
c. A party cannot recover for a loss it could
have avoided. See Rockingham, where the
P was building a bridge when D breached &
cancelled the job. P continued bldg - failing
to mitigate its damages. See Formulas.
Under A, IP's required to maximize cost
avoided, & under B, IP's required to
minimize the cost of reliance.
UCC §2-704 If the buyer breaches, the
seller can either (a) complete manufacture &
sell the goods, or (b) sell the goods as
scraps. This is different than the
Rockingham Rule, b/c it doesn't do any
good to complete the bridge.
7. Limitations on Expectancy Recovery.
a. Foreseeability. (See Hadley v. Baxendale,
where the ct held that special circum
flowing from BOC can't be recovered if they
weren't communicated before the breach b/c foreseeable.)
Typically foreseeability is a problem w/ any
type of middleman transaction.
b. Avoidability (See Rockingham)
c. Mitigation
Restitution
1. Focus on the D & protection of society's interest
2. Make D who breached give up what he received
& put him back where he was before K was
formed
3. Disgorgment of benefits received by D. Not
limited to the benefits conferred by P.
4. Cts will allow P to choose restitution based
recovery in a BOC action. See US v. Algernon
Blair (where P would have lost money on the K
had he completed the perf) Some cts would place
a ceiling at the K price.
5. Breaching Party's Right to Restitution - See §2708(2)(b)
a. This is the Code's version of Britton v.
Turner
Reliance Damages
Parties can seek damages to the extent they reas relied
on the K.
d.
B.
C.
MULTIPLE CHOICE K QUESTIONS
1. Forum selection clause: The Smiths live in Vermont, purchase tickets w/ a forum selection clause which ties them to trial a suit in Washington state.
a. against public policy
b. unconscionable
c. lack of notice/ no assent
d. concealment
ANSWER: C
(1) Why not A? SC stated forum selection clause is not void against public policy in Carnival Cruise
(2) Why not B? Not overreaching, according to Carnival, rt to limit where they are sued.
(3) Why not D? This includes covering something up, like the termites' case. Relates to misrepresentation in the bargaining process.
2.
Parol Evidence Rule: Which is generally not true about the parole evidence rule?
a. prohibits supplementary evidence to completely integrated Ks
b. prohibits contradictory evidence to completely integrated Ks
c. prohibits supplementary evidence to partially integrated Ks
d. prohibits contradictory evidence to partially integrated Ks
ANSWER: C
3. Parol Evidence Rule: Parole evidence rule does not apply to...
a. merger clauses
b. collateral agrs
c. integrated agrs
d. Ks supported by consid
ANSWER: B
4.
Omitted Term Cases: Which of the following categories would not afford relief from franchisee termination at will clause?
a. unconscionability
b. breach of good faith
c. promissory estoppel
d. lack of consid
e. statute of frauds
ANSWER: D. no consid necessary for such illusory agrs, just like employment at will.
5.
Satisfaction Clause: (Mattei v. Hopper): If M tells H "not satisfied w/ leases & the next day changes his mind & tells H that leases are alright..."
a. Ks not enforceable b/c refection terminates power of acceptance
b. Ks enforceable b/c rejection of offer in option Ks does not terminate power of acceptance
c. Ks not enforceable b/c H's duty is discharged by initial communication
d. Ks enforceable, H's duty not discharged unless he can show detrimental reliance.
ANSWER: D
6.
Anticipatory Repudiation: Which of the following is not true regarding retraction?
a. injured party must give notice to terminate power to retract
b. a material change in position by injured party terminates power to retract
c. definite action by injured party indicating he considers retraction to be final terminates power to retract
d. filing suit by injured party terminates power to retract
ANSWER: A