Table of Contents
Defenses.................................................................................................................................................................................. 2
Misrepresentation .............................................................................................................................................................. 2
Mistake................................................................................................................................................................................ 3
Unconscionability ................................................................................................................................................................ 4
Public Policy ........................................................................................................................................................................ 5
Public Policy and Standard Form Contracts ........................................................................................................................ 5
Contract Interpretation........................................................................................................................................................... 6
Parol Evidence Rule............................................................................................................................................................. 6
Interpretation and Parol Evidence Rule – Textual Flow Chart ........................................................................................ 6
Parol Evidence Rule ......................................................................................................................................................... 8
U.N. Convention on Contracts for the International Sale of Goods (CISG), Art. I & 8 ...................................................... 10
UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (1980) [CISG] ................. 10
Interpretation.................................................................................................................................................................... 10
Implied Duty of Good Faith and Fair Dealing .................................................................................................................... 13
Express and Implied Warranties ....................................................................................................................................... 13
Conditions and Excuses ..................................................................................................................................................... 15
Substantial Performance and Material Breach ................................................................................................................. 17
Excusing Conditions: Prevention, Waiver, Divisibility, and Restitution ............................................................................ 17
Impracticability ................................................................................................................................................................. 18
Remedies........................................................................................................................................................................... 21
The Foreseeability Requirement ....................................................................................................................................... 22
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Defenses
Misrepresentation
1. Misrepresentation – was the party deceived in some way?
a. An assertion that doesn’t square with the facts (§159) (Swinton v. Whitinsville Savings Bank, Weintrab
v. Krobatsch)
i. An assertion is:
1. Trying to prevent someone from learning a fact (§160)
2. Non-disclosure, if: (§161)
a. The party knows it’s necessary to prevent misrepresentation (§161(a))
b. The party knows it would correct a mistake regarding a basic assumption, and
nondisclosure breaches the duty of good faith and fair dealing (§161(b))
i. Stambovsky v. Ackley
c. Party knows it would correct a mistake about the writing of the agreement
(§161(c))
d. The other person is entitled to know because of a relationship of trust and
confidents (§161(d))
3. Opinion, if:
a. It expresses only a belief, without certainty, as to the existence of a fact or
expresses only a judgment as to quality, value, authenticity, or similar matters.
§168
b. The recipient may treat opinion as assertion saying that:
i. The facts known to that person are not inconsistent with the opinion
(§168(2)(a))
ii. He knows facts sufficient to justify him in forming it (§168(2)(b))
c. Reliance on an assertion of opinion is NOT justified UNLESS:
i. The recipient is in a relation of trust and confidence with the person
whose opinion is asserted, to the extent that the recipient is justified in
reliance (§169(a))
ii. The recipient reasonably believes that, as compared with himself, the
person whose opinion is asserted has special skill, judgment, or
objectivity with respect to the subject matter (§169(b)), or
iii. The recipient is particularly susceptible to misrepresentation of the type
involved (§169(c))
1. Vokes v. Arthur Murray
b. A misrepresentation is fraudulent if: (§162)
i. The maker intends to induce the other party to manifest assent, and
1. Knows or believes the assertion doesn’t square with the facts (§162(1)(a))
a. Stroup v. Conant
2. Is not confident that he states/implies the truth of the assertion (§162(1)(b))
3. Knows he doesn’t have a basis for stating/implying the truth of the assertion
(§162(1)(c))
c. A misrepresentation is material if:
i. It would likely induce a reasonable person to manifest assent, or the maker knows it would likely
induce the recipient to do so. (§162(2))
d. Misrepresentation prevents the formation of a contract (no contract formed) if: §163
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i. It concerns character/essential terms of a proposed contract, and
ii. Induces conduct that appears to be a manifestation of assent
iii. The one who manifests assent doesn’t know, and doesn’t have reasonable opportunity to know,
about the character and essential terms of the contract.
e. Misrepresentation makes a contract voidable if:
i. The party’s manifestation of assent is induced by: §164(1)
1. Fraudulent or material representation
2. By the other party
3. Upon which the recipient is justified in relying
ii. Or, the fraudulent/material misrepresentation is induced by: §164(2)
1. Someone who is not a party to the transaction, and
2. The recipient is justified in relying on it
3. (This doesn’t work if the other party to the transaction in good faith and without reason
to know of the misrepresentation either gives value or relies materially on the
transaction)
Mistake
2. Definition: A belief not in accordance with the facts (§151)
3. When mistake makes a contract voidable:
a. Mistake by both parties: (West Coast Airlines, Inc. v. Miner’s Aircraft & Engine Service, Inc.)
i. When, at the time the contract was made, the mistake:
1. Was a basic assumption to the contract, and
2. Had a material effect on the agreed exchange of performances
ii. The contract is voidable by the adversely affected party, unless this party bore the risk of the
mistake as noted in §154 (§152(1))
1. City of Everett v. Estate of Oddmund Sumstad
2. Wood v. Boyton
3. Smith v. Zimbalist
4. Beachcomber Coins v. Boskett
iii. In determining whether the mistake had a material effect, account is taken of available relief by:
1. Reformation
2. Restitution
3. Otherwise (§152(2))
b. Mistake by one party: (§153)
i. The contract is voidable by the affected party if the mistake was made:
1. As to a basic assumption of the contract, and
2. Which had a material effect adverse to him
3. And the party did not bear the risk of the mistake under §154, and
a. The effect of the mistake is such that enforcement of the contract would be
unconscionable, (§153(a)) or
i. Donovan v. RRL Corp.
b. The other party had reason to know of the mistake or his fault caused the
mistake (§153(b))
i. Donovan v. RRL Corp.
4. A party bears the risk of a mistake when:
a. The risk is allocated to him by agreement of the parties (§154(a))
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b. He is aware when the contract is made that he has only a limited knowledge of the facts related to his
later mistake but treats the limited knowledge as sufficient (§154(b)), or
i. Rose 2d. of Aberlone
c. The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do
so. (§154(c))
5. A mistake of both parties regarding a written expression justifies reformation where:
a. A writing that evidences or embodies an agreement in whole or in part fails to express the agreement
because of a mistake of both parties as to the contents or the effects of the writing. Here, the court
may, at the request of a party, reform the writing to express the agreement, except to the extent that
rights of third parties such as good faith purchasers for value will be unfairly affected. (§155)
Unconscionability
6. If a contract or term is unconscionable at the time the contract was made, the court may: §208
a. Refuse to enforce the contract
b. Enforce the remainder of the contract without the unconscionable term, or
c. May so limit the application of any unconscionable term so as to avoid any unconscionable result
7. Unconscionable contract or clause (U.C.C. §2-302)
a. If the court as a matter of law finds the contract or any clause of the contract unconscionable at the
time it was made, the court may: (§2-302(1)) [Unconscionable “as a matter of law” – Ex., contract to kill
someone. The contract is valid, but courts won’t enforce it.]
i. Refuse to enforce the contract, or
ii. Enforce the remainder of the contract without the unconscionable clause, or
iii. So limit the application of any unconscionable clause so as to avoid any unconscionable result
b. When it is claimed or appears to the court that the contract or any clause may be unconscionable, the
parties shall be given reasonable opportunity to present evidence regarding its commercial setting,
purpose, and effect to aid the court in making the determination. (§2-302(2))
8. Substantive vs. procedural unconscionability
a. Procedural (i.e., how did we get here?) (Williams v. Walker-Thomas Furniture 1 & 2)
i. Negotiability (“oppression”)
1. Bargaining power disparity between the parties
a. “Oppression” – the other side has the power to force something onto you
b. “Contract of adhesion” – Basically, a form contract with no negotiability. “Take it
or leave it.”
i. However, just having a contract of adhesion is not itself unconscionable.
ii. Understandability (“surprise”) (Zapatha v. Dairy Mart, Inc.)
1. Whether one party has little to no knowledge of the contract terms
a. Are the individuals involved particularly unlikely to understand what was going
on?
b. Subjective to the individual, but objective to the industry
2. Whether this is this a market outlier, or something common to the industry
a. If it’s more likely on the “shady” edges of the industry, it’s less anticipated
b. Substantive (what was unfair?) (Frostifresh Corp. v. Reynoso)
i. Terms of the contract are unreasonably favorable to one party
1. Ex., “so one-sided as to be unconscionable” (§2-302) or “unreasonably favorable to one
side (Williams v. Walker-Thomas)
2. Armendariz v. Foundation Health Psychcare Services, Inc.
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Public Policy
9. (§178(1)) A promise or term of an agreement is unenforceable per public policy if:
a. Legislation provides that it is unenforceable, or
b. The interest in its enforcement is clearly outweighed by public policy against the terms’ enforcement
10. (§178(2)) To determine the interest of the enforcement of a term, courts look to:
a. The parties’ justified expectations
b. Any forfeiture that would result if enforcement were denied, and
c. Any special public interest in the enforcement of the particular term
11. (§178(3)) In weighing a public policy against enforcement of a term, the court accounts for:
a. The strength of the policy as shown by legislation or judicial decisions
b. The likelihood that a refusal to enforce the term will further the policy
c. The seriousness of misconduct involved and the extent to which it was deliberate, and
d. The directness of the connection between that misconduct and the term
12. Bases for public policy against enforcement
a. Relevant legislation (§179(a))
b. Need to protect an aspect of public welfare (§179(b))
i. Restraint of trade (§179(b)(i))
1. Healthcare Services of the Ozarks v. Copeland
ii. Impairment of family relations (§179(b)(ii))
1. In the Matter of Baby M.
2. Johnson v. Calvert
iii. Interference with other protected interests (§179(b)(iii))
Public Policy and Standard Form Contracts
13. Approaches to standard form contracts:
a. Formation
i. Healy v. N.Y. Central & Hudson River R.R. Co.
ii. Specht v. Netscape Communications Corp.
b. Interpretation
i. Alack v. Vic Tanny International of Missouri, Inc.
ii. Easly v. Gray Wolf
c. Unconscionability
d. Public policy
i. Carnival Cruise Lines v. Shute
ii. O’Callaghan v. Waller & Beckwith Realty Co.
iii. Tunkl v. Regents of the University of California
1. Tunkl factors (decide when a case relates to the public interest:
a. Suitable for public regulations
b. Service is of great importance/practical necessity
c. Open to the general public
d. Essential; the party seeking exculpation has a decisive advantage in bargaining
strength
e. The person or property of the purchase is placed under control of the seller,
subject to risk of carelessness by seller or agents
f. No provision whereby a purchaser may obtain protection against negligence
14. Standard form contracts generally
a. When there is an unfair term, courts can either
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i. Strike down the provisions
ii. Modify/mess with them in some way
Contract Interpretation
Parol Evidence Rule
Interpretation and Parol Evidence Rule – Textual Flow Chart
Issue: the two parties have two competing versions of the meaning/interpretation/content of the contract.
15. Level One
a. IF:
i. there is a WRITTEN VERSION OF THE AGREEMENT
ii. and you want to bring in outside evidence as to the meaning of the CONTRACT,
b. THEN:
i. The COURT must determine (as a matter of law) whether the term, clause, or contract
as a whole is ambiguous with respect to the meaning proffered by the two parties.
1. To determine if the contract is ambiguous (a preliminary question of law), the
court will look to:
a. Text of the agreement
b. Course of Performance/Course of Dealing/Trade Usage
c. Parol Evidence
16. Level Two
a. IF CONTRACT OR TERM IS AMBIGUOUS:
i. THEN: Contract Interpretation: what is the meaning of the contract?
1. This is a question of fact.
2. Use the same types of information/evidence to determine the meaning:
a. Text of the agreement
b. Course of Performance
c. Course of Dealing
d. Trade Usage
e. Parol Evidence
f. Canons of contractual interpretation
i. Contra proferentum (interpret K to disfavor the drafter)
ii. Do not construe to reach an absurd result
g. Default Rules
h. Reasonable meaning
ii. IF TWO SEPARATE AND DISTINCT AND REASONABLE MEANINGS:
1. NO K under the Peerless (Raffles v. Wichelhaus) doctrine
a. See also Oswald v. Allen
b. IF CONTRACT OR TERM IS NOT AMBIGUOUS:
i. AND if you have an addition or change to make to written agreement, then:
ii. PAROL EVIDENCE RULE APPLIES:
1. Q: Is the contract completely, partially, or not integrated? Q of Law
6
a. Courts generally begin with and focus on the text of the agreement in
determining integration. (Some will say they “solely” focus on the text.)
b. Masterson v. Sine (C.J. Traynor): courts need to look at all evidence in
determining level of integration. A contract is only completely integrated
if the outside terms would certainly be included in the written
agreement, or if the additions/changes would not naturally be part of an
outside arrangement.
c. If written agreement is incomplete, that is evidence that it is only
partially integrated.
d. If written agreement has an integration or merger clause, that is evidence
that it is completely integrated.
2. Complete Integration:
a. IF written agreement is completely integrated (AKA a full and final
expression of agreement (Res. § 209)),
b. THEN: any evidence of additions or changes that are “within the scope”
of the writing will not be allowed in
c. UCC Version: A party cannot provide parol evidence of terms that explain
or supplement the written agreement if that agreement is a “complete
and exclusive statement” of the terms of the agreement.
d. BUT: Course of performance/course of dealing/trade usage evidence may
be permitted in to explain or supplement the terms of the agreement.
3. Partial Integration
a. IF written agreement is partially integrated (AKA final as to some parts (§
210)),
b. THEN any evidence of additions or changes that are “inconsistent” with
the writing will not be allowed in.
c. UCC Version: Parol evidence may explain or supplement written contract
through evidence of consistent additional terms BUT may not contradict
written terms if the written contract is the final expression as to such
terms.
4. No Integration
a. IF written agreement is not integrated, parol evidence rule does not
apply.
17. Res § 203 – Hierarchy of Interpretation of Particular Terms
Contract
- Text - Plain meaning
- Structure – how does it fit together (“K interpreted as a whole”)
↓
Extrinsic evidence
- course of performance
- UCC § 2-208 – “accepted or acquiesced in”
“Parol” evidence?
7
- course of dealing
- UCC § 1-303: “common basis of understanding”
- trade usage
- UCC § 1-303: “regularity” “expectation”
- factual Q BUT if written, for the court
↓
Canons of construction
Including:
- Contra proferentum
o BUT: Beanstalk exception for sophisticated parties with counsel?
- No superfluous parts
- Not an absurd result
- [public policy?]
↓
Legal default rules
- specific
- general
↓
Reasonable meaning filled in by the court
Parol Evidence Rule
18. §209: Integrated agreements
a. §209(1) A writing or writings constituting a final expression of one or more terms of an agreement
b. §209(2) Whether there is an integrated agreement is to be determined by the court
i. As a question preliminary to determination of a question of interpretation or
ii. To application of the parol evidence rule
c. §209(3) Where the parties reduce an agreement to a writing that appears (per specificity and
completeness) to be a complete agreement, it is assumed to be integrated unless other evidence shows
that it was not a final expression.
19. Completely vs. partially integrated agreements
a. Whether the agreement is completely or partially integrated is to be determined by the court as a
question preliminary to determination of a question of interpretation or application of the parol
evidence rule (§210(3))
i. Completely integrated agreement: Adopted by the parties as a complete and exclusive
statement of the terms of the agreement (§210(1))
ii. Partially integrated agreement: Any integrated agreement other than completely integrated
(§210(2))
20. Interpretation of Integrated agreements
8
21.
22.
23.
24.
a. (§212(1)) Directed to the meaning of the terms of the writing or writings in light of the circumstances
b. (§212(2)) Questions of interpretation are determined by triers of fact, if they depend on:
i. The credibility of extrinsic evidence, or
ii. A choice among reasonable inferences to be drawn from extrinsic evidence
(§213) Effect on previous agreements
a. (1) A binding integrated agreement discharges prior agreements to the extent it is consistent with them
b. (2) A binding completely integrated agreement discharges prior agreements to the extent they are
within its scope
c. (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a
prior agreement. But an integrated agreement, even though not binding, may render inoperative a term
that would have been part of the agreement if it hadn’t been integrated.
(§214) Cannot admit evidence of agreements or negotiations prior to or contemporaneous with the adoption
of a writing, if:
a. Trying to establish:
i. (a) That the agreement is/is not integrated
ii. (b) That the integrated agreement is completely or partially integrated
iii. (c) The meaning of the writing (integrated or not)
iv. (d) Illegality, fraud, duress, mistake, lack of consideration, etc.
1. Davis v. G.N. Mortgage Corp.
v. (e) Ground for granting or denying rescission, reformation, specific performance, or other
remedy
b. Trying to contradict a term of the writing (§215)
§216 Consistent Additional Terms
a. (1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless
the court finds that the agreement was completely integrated.
i. Gianni v. R. Russell & Co.
b. (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term
which is
i. (a) Agreed to for separate consideration, or
ii. (b) Such as term as in the circumstances might naturally be omitted from the writing.
1. Masterson v. Sine
§217. Integrated Agreement Subject to Oral Requirement of a Condition
Where the parties to a written agreement agree orally that performance of the agreement is subject to the
occurrence of a stated condition, the agreement is not integrated with respect to the oral condition.
25. U.C.C. §2-202. Final Written Expression: Parol or Extrinsic Evidence
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth
in a writing intended by the parties as a final expression of their agreement with respect to such terms as are
included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral
agreement but may be explained or supplemented
(a) By course of performance, course of dealing, or usage of trade (Section 1-303); and
By evidence of consistent additional terms unless the court finds the writing to have been intended also as a
complete and exclusive statement of the terms of the agreement.
9
U.N. Convention on Contracts for the International Sale of Goods (CISG), Art. I & 8
UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (1980) [CISG]
***
Article 1
(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different
States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a Contracting State.
(2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does
not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any
time before or at the conclusion of the contract.
(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be
taken into consideration in determining the application of this Convention.
***
Article 8
(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted
according to his intent where the other party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted
according to the understanding that a reasonable person of the same kind as the other party would have had in the
same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had, due
consideration is to be given to all relevant circumstances of the case including the negotiations, any practices
which the parties have established between themselves, usages and any subsequent conduct of the parties.
26. MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino, S.P.A.
Interpretation
27. Definition of Interpretation: Ascertainment of something’s meaning (§200)
28. Meanings attached:
a. Parties attached same meaning: Interpreted according to that meaning. (§201(1))
b. Parties attached different meanings: Interpreted by the meaning of one party if at the time –
i. That party did not know of any different meaning attached by the other, AND the other knew
the meaning attached by the first party, (§201(2)(a)) or
ii. That party had no reason to know of any different meaning attached by the other, AND the
other had reason to know the meaning attached by the first party. (§201(2)(b))
Party A
Party B
Did not know the other party
Knew how Party A had actually
interpreted the term differently
interpreted the term
Had no reason to know of a different Had reason to know of the meaning
meaning attached by Party B
attached by Party A
c. Except as noted here, neither party is bound by the meaning attached by the other, even if the result is a
failure of mutual assent. (§201(3))
i. Oswald v. Allen
29. Rules in aid of interpretation
a. Words and other conduct are interpreted in the light of all the circumstances. If the purpose of the
parties is ascertainable, it is given great weight. (§202(1))
b. Writings are interpreted as a whole. All writings that are part of the same transaction are interpreted
together. (§202(2))
10
30.
31.
32.
33.
34.
35.
36.
c. Unless a different intention is shown:
i. If language has a generally prevailing meaning, courts follow this meaning (§202(3)(a))
ii. Courts use the technical meanings of technical terms and words of art when the words are used
in a transaction in the technical field (§202(3)(b))
d. Course of performance is given great weight in interpretation of agreements where an agreement
involves repeated occasions for performance by either party with knowledge of the nature of the
performance. (§202(4))
e. Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are
interpreted as consistent with each other and with any relevant course of performance, course of
dealing, or usage of trade. (§202(5))
Standards of Preference in Interpretation
a. Reasonable, lawful, and effective meaning > leaves a part unreasonable, unlawful, or no effect (§203(a))
b. Express terms > course of performance > course of dealing > trade usage (§203(b))
c. Specific/exact terms > general language (§203(c))
d. Separately negotiated/added terms > standardized terms/terms not separately negotiated (§203(d))
Duty of good faith and fair dealing (§204)
a. If the parties have not agreed on an essential term, the court will supply one that is reasonable.
Usage is a habitual or customary practice. §219
Usage relevant to interpretation
a. (§220(1)) An agreement is interpreted in accordance with a relevant usage if:
i. Each party knew or had reason to know of the usage, and
ii. Neither party knew or had reason to know that the meaning attached by the other was
inconsistent with the usage
b. (§220(2)) The other party is treated as having known or had reason to know the meaning attached by
the first party when:
i. The meaning attached by the first party accorded with a relevant usage and
ii. The other knew or had reason to know of the usage
Usage supplementing an agreement
a. An agreement is supplemented or qualified by a reasonable usage with respect to agreements of the
same type if each party:
i. Knows or had reason to know of the usage and
ii. Neither party knows or has reason to know that the other party has an intention inconsistent
with the usage
Usage of trade
a. A usage having such regularity of observance in a place vocation or trade as to justify an expectation
that it will be observed with respect to a particular agreement
i. Can include a system of rules regularly observed, even if they’re changed from time to time
(§222(1))
b. The existence and scope of a usage of trade are questions of fact. §222(2)
i. If a usage is embodied in a written trade code or similar writing, the interpretation of the writing
is to be determined as a question of law.
c. Unless otherwise agreed, a usage of trade in the vocation or trade in which the parties are engaged, or a
usage of trade of which they know or have reason to know, gives meaning to or supplements or qualifies
their agreement. (§222(3))
Course of Dealing
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a. §223(1) A sequence of previous conduct between the parties to an agreement which is fairly to be
regarded as establishing a common basis of understanding for interpreting their expressions and other
conduct.
b. §223(2) Unless otherwise agreed, a course of dealing between the parties:
i. Gives meaning to the agreement, or
ii. Supplements the agreement, or
iii. Qualifies the agreement.
37. Analysis of textual language. If there is ambiguity, look to:
a. Text vs. context (there is a big debate between these two):
i. Text – is there plain meaning?
1. If yes, the plain meaning governs. No outside evidence admissible.
a. W.W.W. Associates, Inc. v. Giancontieri
ii. Context – how does the contract fit together as a whole?
iii. Based on this view, extrinsic evidence is admissible to prove the term’s meaning only if the
contractual language itself is ambiguous.
iv. The modern contextualist view, supported by the Restatement, is that words have no fixed,
intrinsic meaning; they are symbols ascribed meaning by particular communities under
particular circumstances.
1. In re Soper’s Estate
v. If terms lack a plain meaning, the context in which the language is situated is always relevant in
determining whether the term could have had either of the competing interpretations.
1. Pacific Gas & Electric v. G.W. Thomas Drayage & Rigging Co.
b. Extrinsic evidence
i. Course of performance
1. U.C.C. 2-208 – Better evidence than course of dealing. This is how parties have actually
acted in regards to the contract in question.
ii. Course of dealing
1. U.C.C. 1-205 – How the parties dealt with previous contracts
iii. Trade usage
1. U.C.C. 1-205 – “Regularity.” How have other parties in the industry interpreted the
language? The U.C.C. is very pro-trade usage. Big question to keep in mind: Who
constitutes the industry, and are both parties equally familiar with it or have an equal
opportunity to be familiar with it?
a. Frigaliment Importing Co. v. B.N.S. International Sales Corp.
b. The Case of the Sandwich Shop
c. Canons of construction (Amtel Corp. v. Vitesse Semiconducter Corp.)
i. Contra proferentum – The contract should be construed against the drafter
ii. No superfluous parts
iii. Not an absurd result
1. Beanstalk Group, Inc. v. AM General Corp.
iv. Public policy – Courts may sometimes use this to some extent. Often, it’s not overt.
d. Legal default rules
i. Specific
ii. General
e. Reasonable meaning filled in by the court
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38. When interpreting terms, the judge normally determines the legal significance of a term as a matter of law.
However, if its proper meaning turns on extrinsic evidence and is reasonably subject to alternative
interpretations, the court defers to the triers of fact.
Implied Duty of Good Faith and Fair Dealing
39. Obligation of good faith and fair dealing:
a. §205 – All contracts impose on each party a duty of good faith and fair dealing in its performance and
enforcement
b. U.C.C. §1-304 – Every contract or duty within [the U.C.C.] imposes an obligation of good faith on its
performance and enforcement
40. Definition – Good faith U.C.C. §1-201(b)(20)
a. Honesty in fact, and
b. The observance of reasonable commercial standards of fair dealing
i. Eastern Air Lines, Inc. v. Gulf Oil Corp.
41. Duty of good faith
a. The duty is immutable; parties cannot disclaim, but they do have some control over how it is applied in
particular circumstances, as a result of the interpretive convention that the duty cannot trump explicit
contractual entitlements.
i. Good faith is the spirit of the agreement – what the parties really intended. It goes back to what
the parties actually thought they were doing when they got into the deal.
b. The duty is a broad standard rather than a bright-line rule, so it is difficult to predict when and how a
court will invoke it in particular cases. The duty is invoked most often:
i. When one party acts in a way that appears to deprive the other of its legitimate expectations
under the contract, or
ii. When one party exercises discretion allocated to it by the contract in a way that is
1. Arbitrary, or
2. Exploitative.
c. Duty of good faith is required by parties in their:
i. Exercise of discretion
1. Dalton v. Educational Testing Service
ii. Duty of cooperation
1. Brunswick Hills Racquet Club v. Route 18 Shopping Center Associates
42. Breach of the duty of good faith
a. Opportunistic intentions (subjective/motive) + defeat of reasonable expectations (objective)
i. Jordan v. Duff & Phelps, Inc.
ii. (It’s not necessary to find motive, but it helps)
b. One way to frame good faith: Intention to violate “spirit” + defeat of reasonable expectations
i. Here, the big debate is, do we look to the context (the bigger picture of the contract)?
What is the bigger societal picture – what would the culture think is reasonable?
Express and Implied Warranties
43. U.C.C. §2-313: Express warranties are created by the seller as follows:
a. §2-313(a) Any affirmation of fact or promise made by the seller to the buyer creates an express
warranty that the goods shall conform to the affirmation or promise, if the affirmation:
i. Relates to the goods, and
ii. Becomes part of the basis of the bargain
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b. §2-313(b) Any description of the goods which is part of the basis of the bargain creates an express
warranty that the goods shall conform to the description.
c. §2-313(c) Any sample or model which is made a basis of the bargain creates an express warranty that
the whole of the goods shall conform to the sample or model
d. §2-313(2) To create an express warranty, it is not necessary for the seller to use words such as “warrant”
or “guarantee,” or even to have specific intention to make a warranty; however, an affirmation merely
of the value of the goods, or a statement purporting to be merely the seller’s opinion or commendation
of the goods doesn’t create a warranty.
44. Implied warranty of Merchantability; Usage of trade
a. Definition: Warranty of merchantability
i. Impliedly or expressly says that the goods will reasonably conform to the buyer’s expectations
1. Ordinary purpose
a. Says that if you’re a merchant in this area, you have to conform with what most
merchants are doing. It is implied that the merchant conforms to the
expectations of merchants in that area.
2. Specific purpose
a. Two things have to happen:
i. Seller has to have reason to know of any particular purpose for which
the goods are acquired, and
ii. Have to have a buyer who is relying on the seller’s expertise
ii. However, opinions do not create warranty; a little bit of puffery is okay.
b. U.C.C. §2-314(1): A warranty that sells the goods shall be merchantable is implied in a contract for sale if
the seller is a merchant of that particular type of good.
i. Serving food or drink for consumption in exchange for a value, on the premises or elsewhere, is
a sale.
c. U.C.C. §2-314(2): Goods to be merchantable must be at least such as:
i. (a) Pass without objection in the trade under the contract description
ii. (b) In the case of fungible goods, are of fair average quality within the description
iii. (c) Are fit for the ordinary purposes for which goods of that description are used
iv. (d) Run, within the variations permitted by the agreement, of even kind, quality and quantity
within each unit and among all units involved
v. (e) Are adequately contained, packaged, and labeled as the agreement may require
vi. (f) Conform to the promise or affirmations of fact made on the container or label, if any
d. U.C.C. §2-314(3) Unless excluded or modified, other implied warranties may arise from course of dealing
or trade usage
e. Exclusions or modification of warranties
i. U.C.C. §2-316(1) Words or conduct shall be reasonably construed as consistent with each other
if they are:
1. Relevant to the creation of an express warranty, or
2. Tending to negate or limit warranty (unless such construction is unreasonable)
ii. U.C.C. §2-316(2) To exclude or modify:
1. The implied warranty of merchantability, or any part of it:
a. The language must mention merchantability and, in the case of a writing, must
be conspicuous.
2. The implied warranty of fitness:
a. The exclusion must be in writing and conspicuous
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b. It is sufficient if the exclusion states, for example, that “There are no warranties
which extend beyond the description on the face hereof.”
iii. U.C.C. §2-316(3)
1. (a) Unless circumstances indicate otherwise, all implied warranties are excluded by
expressions like “as is,” “with all faults,” or other language which in common
understanding:
a. Calls the buyer’s attention to the exclusion of warranties, and
b. Makes plain that there is no implied warranty
i. Harper v. Calvert
2. (b) When the buyer, before entering into the contract, examines the goods or sample or
model as fully as he desired, or has refused to examine the goods, there is no implied
warranty with regard to defect if
a. An examination under the circumstances ought to have revealed it to him
3. (c) implied warranties can also be excluded or modified by course of dealing, course of
performance, or trade usage.
iv. U.C.C. §2-316(4) Remedies for breach can be limited in accordance with the provisions of this
Article on liquidation or limitation of damages and on contractual modification of remedy.
45. Implied warranty of fitness for a particular purpose
a. Guarantees fitness for a specific purpose
b. U.C.C. §2-315 There is an implied warranty that the goods are fit for a specific purpose if the seller, at
the time of the contract:
i. Has reason to know of the particular purpose for which the goods are required, and
ii. Has reason to know that the buyer is relying on the seller’s skill or judgment to select or furnish
suitable goods
Conditions and Excuses
46. §224 – Definition - Condition: An event, not certain to occur, but which must occur, unless its non-occurrence is
excuse, before performance under a contract becomes due.
a. Ordinary: Events beyond the control of either party and, thus, not obligations of either
i. When an ordinary condition is not satisfied, the conditional duty never becomes due, but
neither party has a legal cause against the other.
1. Ex., a fire does not destroy the insured’s home, so the insurer has no duty to pay, but
neither the insured nor the insurer can sue the other.
2. Irving v. Town of Clinton
b. Promissory: The duty of one party as well as a condition of the other part’s duty
i. The failure of a promissory condition constitutes a breach of contract, which means that the
conditional duty is not triggered and also that the non-breaching party has a cause for action
1. Ex., if the tenant does not provide the required security deposit, the landlord not only
has no duty to hand over the premises, she may also sue for damages caused by the
tenant’s breach, such as the income lost during the time period it takes to re-let the
premises to another tenant.
47. Condition vs. term/promise
a. Conditions are if/then situations; breach is more serious.
i. Types of conditions:
1. Independent
2. Dependent
a. Dove v. Rose Acre Farms
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48.
49.
50.
51.
52.
b. Kingston v. Preston
3. Concurrent
a. Goodisson v. Nunn
b. Breach of a term is less serious, and only subjects to damages
c. Conditions are more bright-line rules/text; terms are more flexible standards/context.
i. There is a tension between these two; they’re at the opposite of the spectrum.
1. Maxton Builders, Inc. v. Lo Galbo
2. Sahadi v. Continental Illinois National Bank & Trust Co. of Chicago
ii. Courts tend to push towards the middle.
Outs
a. Throughout these themes, there is the idea that we shouldn’t penalize parties for just barely failing to
meet a term or condition.
i. “Not a condition”
1. Main Electric, Ltd. v. Printz Services Corp.
ii. No material breach
iii. Substantial performance + forfeiture
Effects of the non-occurrence of a condition
a. §225(1) Performance of a duty subject to a condition cannot become due unless:
i. The condition occurs, or
ii. Its non-occurrence is excused
b. §225(2) Unless it has been excused, the non-occurrence of a condition discharges the duty when the
condition can no longer occur.
c. §225(3) Non-occurrence of a condition is not a breach by a party, UNLESS he is under a duty that the
condition occur.
How an event is made a condition
a. §226 – An event may be made a condition either:
i. By the agreement of the parties, or
ii. By a term supplied by the court
Standards of preference with regards to a condition
a. §227(1) In resolving doubts as to whether an event is made a condition of an obligor’s duty, and as to
the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of
forfeiture, unless:
i. The event is within the obligee’s control, or
ii. The circumstances indicate that he has assumed the risk
b. §227(2) Unless the contract is a type under which only one party generally undertakes duties:
i. when it is doubtful whether:
1. A duty is imposed on an obligee that the event occur
2. The event is made a condition of the obligor’s duty, or
3. The event is made a condition of the obligor’s duty and a duty is imposed on the obligee
ii. The first interpretation of the event if preferred IF the event is within the obligee’s control.
c. §227(3) In case of doubt, an interpretation under which an event is a condition of an obligor’s duty is
preferred over an interpretation under which the non-occurrence of the event is a ground for discharge
of that duty after it has become a duty to perform.
Satisfaction of the obligor as a condition
a. §228 An interpretation is preferred under which the condition occurs if such a reasonable person in the
person of the obligor would be satisfied, if:
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i. It is a condition of an obligor’s duty that he be satisfied with respect to the obligee’s
performance, or with respect to something else, and
ii. It is practicable to determine whether a reasonable person in the position of the obligor would
be satisfied
Substantial Performance and Material Breach
53. When parties create an ordinary condition to allocate the risk of an uncertain event, the failure of the condition
typically imposes no hardship on the party who otherwise would have been entitled to performance. In the
typical case, the purpose of the parties was to use the condition to allocate risk.
54. When parties create an ordinary condition to allocate the risk of an uncertain event, the failure of the condition
typically imposes no hardship on the party who otherwise would have been entitled to performance. In the
typical case, the purpose of the parties was to use the condition to allocate risk.
a. For example, in the case of an insurance contract requiring the insurer to rebuild the customer’s house if
it burned down, the parties’ clear intent is that, in the absence of a fire, the insurer will keep the
premium paid by the homeowner and the homeowner would receive nothing. In the absence of fire, the
homeowner receives exactly what she bargained for: Her home in its condition at the time of
contracting.
55. In some circumstances, though, the failure of a relatively minor condition – often but not always a promissory
condition – may threaten to impose a significant hardship on the party expecting a subsequent performance.
a. Jacob & Youngs v. Kent
56. If the failure of the condition means that the insurer need not provide coverage (ex., the insured pays one day
late), the cost suffered by the customer may be viewed as incommensurate with his oversight.
57. When the material breach doctrine applies, the breach of a promissory condition is treated as the failure of the
condition only if the breach is material.
58. If the breach is not material, the non-breaching party retains the right to sue for any damages caused by the
breach, but subsequent conditional duties must be performed.
59. Similarly, under the doctrine of substantial performance, substantial but incomplete performance satisfies the
constructive condition, although the injured party may still demand compensation for harm caused by the
breach of duty.
a. O.W. Grun Roofing & Construction Co. v. Cope
60. Both doctrines are designed to avoid disproportionate forfeitures that might result in the case of a relatively
minor breach if the non-breaching party is allowed to suspend performance.
61. The traditional rule is that these doctrines apply only to constructive conditions while express conditions are
strictly enforced, but as a comparison of the first trio of cases.
62. The U.C.C. takes a somewhat different approach than the common law on the performance required to satisfy a
condition. Under what is known as the “perfect tender” rule, the U.C.C. grants the buyer the right to reject
goods that do not conform to exact contractual requirements. However, the U.C.C. allows the seller an
opportunity to correct any breach if time remains for performance on the contract.
Excusing Conditions: Prevention, Waiver, Divisibility, and Restitution
63. Promise to perform a duty in spite of a nonoccurrence of a condition
a. §84(1) A promise to perform all or part of a conditional duty under contract in spite of the
nonoccurrence of the condition is binding, whether the promise is made before or after the time for the
condition to occur, unless:
i. (a) Occurrence of the condition was a material part of the agreed exchange for the performance
of the duty and the promisee was under no duty that it occur; or
1. Stark v. Parker
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ii. (b) Uncertainty of the occurrence of the condition was an element of the risk assumed by the
promisor
b. §84(2) if such a promise is made before the time for the condition’s occurrence has expired, and the
condition is within the control of the promisee or a beneficiary, the promisor can make his duty subject
again to the condition by notifying the promisee or beneficiary of his condition to do so, if:
i. (1) The notification is received while there is still a reasonable time to cause the condition to
occur under the antecedent terms or an extension given by the promisor; and
ii. (2) Reinstatement of the requirement of the condition is not unjust because of a material
change of position by the promisee or beneficiary; and
iii. (3) The promise is not binding apart from the rule in Subsection 1
64. Excuse of a condition to avoid forfeiture
a. §229- To the extent that a non-occurrence of a condition would cause disproportionate forfeiture, a
court may excuse the non-occurrence of that condition unless its occurrence was a material part of the
agreed exchange
65. Outs
a. Prevention doctrine
i. Also called the hindrance doctrine
1. Cantrell-Waind & Associates, Inc. v. Guillame Motorsports, Inc.
ii. Courts will consider a condition excused, and the duties dependent on the condition triggered, if
the obligor of a duty interferes with the satisfaction of a condition
b. Waiver/Modification
i. Clark v. West
ii. Restatement 84
iii. Can be retracted if no reliance
iv. In order to modify the contract, there has to be consideration on both sides.
c. Divisibility
d. Restitution
i. Britton v. Turner
ii. Talking about how to get out of conditions
iii. Courts are often confronted by bright-line rules
iv. This is an independent cause of action. It’s an out because it can mitigate the effects of a breach
of contract that can help deal with forfeiture.
e. Impracticability/Frustration of purpose
i. This is an out, but it’s also an independent defense. It tries to reflect what the parties would
have wanted to do.
1. What would the parties have under extreme condition? Will depend on the situation.
2. Rules (O.W. Grun) vs. standards (Jacob & Youngs)
Impracticability
66. Casualty to identified goods
a. U.C.C. §2-613: Where the contract requires for its performance goods identified when the contract is
made, and the goods suffer casualty without fault of either party before the risk of loss passes to the
buyer, then:
i. (a) If the loss is total the contract is avoided; and
ii. (b) If the loss is partial, or the goods have so deteriorated that they no longer conform to the
contract, the buyer may nevertheless demand inspection and at the buyer’s option either:
1. Treat the contract as avoided or
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2. Accept the goods with due allowance from the contract price for the deterioration or
the deficiency in quantity but without further right against the seller.
67. Excuse by failure of presupposed conditions
a. U.C.C. §2-615: Except so far as a seller may have assumed a greater obligation and subject to the
preceding section on substituted performance:
i. (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs
(b) and (c) is not a breach of his duty under a contract for sale if:
1. performance as agreed has been made impracticable by the occurrence of a
contingency, the non-occurrence of which was a basic assumption on which the contract
was made, or
2. by compliance in good faith with any applicable foreign or domestic governmental
regulation or order whether or not it later proves to be invalid.
ii. (b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to
perform, he must allocate production and deliveries among his customers but may at his option
include regular customers not then under contract as well as his own requirements for further
manufacture. He may so allocate in any manner which is fair and reasonable.
iii. (c) The seller must notify the buyer seasonably that there will be delay or non-delivery and,
when allocation is required under paragraph (b), of the estimated quota thus made available for
the buyer.
68. Impracticability and frustration
a. Impracticability: Unforeseen difficulties have made performance prohibitively expensive or otherwise
extremely burdensome.
i. Mistake vs. impracticability
1. Mistake doctrines concern facts that were in existence at the time of contracting but
were unknown
2. Impracticability arises from an unexpected change in circumstances that occurs
subsequent to contracting and renders performance by one party (usually the seller)
actually impossible or far more difficult (“Impracticable”) than anticipated at the time of
contracting.
ii. Requirements
1. (Must be after the contract is made)
2. Performance is made impracticable
3. Without fault by the party seeking to get out of his/her duties
a. Impracticability comes up because a party is trying to get out of duties
4. By occurrence of an event assumed by the parties not to happen
5. No language or circumstances to the contrary
a. This is an important proviso, because contracts are about allocation of risk. If a
party assumes the risk, then they’re not going to get out of it.
b. There are some risks which are so unlikely to happen, but devastating when
they happen, that we have to let the parties out of the contract.
b. Frustration of purpose: A contingency occurs that dramatically reduces the value of performance to
receiving party
i. Frustration of purpose vs. impracticability
1. If you’re unable to pay, you’re not going to get out of it by impracticability. So, look at, is
performance now impossible, or could I still pay the money but not get what I wanted?
ii. The purpose for which the parties entered into the agreement to procure a good or service no
longer exists.
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iii. Central issue: Whether the risk of the unanticipated event that disappointed a party’s
expectations is implicitly allocated to the adversely affected party by the circumstances in which
the contract was formed (if not by express language).
iv. Requirements:
1. Nonoccurrence of the event was a basic assumption of the contract
2. Claimant bears no fault for the occurrence of the event
3. Language and circumstances do not indicate otherwise
69. Discharge of duties
a. Via impracticability
i. By supervening impracticability: §261
1. If, after a contract is made, a party’s performance is made impracticable without his
fault by the occurrence of an event, the non-occurrence of which was a basic
assumption on which the contract was made, his duty to render that performance is
discharged, unless the language or circumstances indicate the contrary.
a. U.S. Bancorp Equipment Finance Inc. v. Ameriquest Holdings LLC
b. Sub-Zero Freezer v. Cunard Line Ltd.
ii. By death or incapacity of the person necessary for performance: §262
1. If he existence of a particular person is necessary for the performance of a duty, his
death or such incapacity as makes performance impracticable is an event the nonoccurrence of which was a basic assumption on which the contract was made.
iii. Destruction, deterioration or failure to come into existence of thing necessary for
performance: §263
1. If the existence of a specific thing is necessary for the performance of a duty, its failure
to come into existence, destruction, or such deterioration as makes performance
impracticable, is an event the non-occurrence of which was a basic assumption on which
the contract was made.
a. Taylor v. Caldwell
iv. Prevention by governmental regulation or order: §264
1. If the performance of a duty is made impracticable by having to comply with a domestic
or foreign governmental regulation or order, that regulation or order is an event the
non-occurrence of which was a basic assumption on which the contract was made.
a. Bush v. ProTravel International, Inc.
b. Via frustration
i. By supervening frustration: §265
1. Where, after a contract is made, a party’s principal purpose is substantially frustrated
without his fault by the occurrence of an event, the nonoccurrence of which was a basic
assumption on which the contract was made, his remaining duties to render
performance are discharged, unless the language or the circumstances indicate the
contrary.
a. Krell v. Henry
c. Via existing impracticability or frustrating
i. Impracticability
1. §266(1): Where, at the time a contract is made, a party’s performance under it is
impracticable without his fault because of a fact of which he had no reason to know,
and the non-existence of which is a basic assumption on which the contract is made, no
duty to render that performance arises, unless the language or circumstances indicate
the contrary.
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ii. Frustration
1. §266(2): Where, at the time a contract is made, a party’s principal purpose is
substantially frustrated without his fault by a fact of which he has no reason to know
and the non-existence of which is a basic assumption on which the contract is made, no
duty of that party to render performance arises, unless the language or circumstances
indicate the contrary.
Remedies
70. Purpose of remedies
a. §344: Judicial remedies serve to protect one or more of the following interests of a promisee:
i. Expectation interest §344(a)
1. The interest in having the benefit of the bargain by being put in as good a position as he
would have been in had the contract been performed
2. §347: Measure of damages: The injured party has a right to damages based on his
expectation interest as measured by:
a. (a) The loss in value to him of the other party’s performance caused by its
failure or deficiency, PLUS
b. (b) Any other loss, including incidental or consequential loss, caused by the
breach, LESS
c. (c) Any cost or other loss he has avoided by not having to perform.
3. Egerer v. CSR West, LLC
4. Groves v. John Wunder Co.
ii. Reliance interest §344(b)
1. Interest in being reimbursed for loss caused by reliance on the contract by being put in
as good a position as he would have been in had the contract not been made (status
quo ante)
a. Sullivan v. O’Connor (mix between reliance and expectation)
iii. Restitution interest §344(c)
1. Interest in having restored to him any benefit that he conferred on the other party
71. Remedies available
a. §345: Judicial remedies available for the protection of the interests in §344 include a judgment or order:
i. (a) Awarding a sum of money due under the contract or as damages
ii. (b) Requiring specific performance of a contract or enjoining its non-performance
iii. (c) Requiring restoration of a specific thing to prevent unjust enrichment
iv. (d) Awarding a sum of money to prevent unjust enrichment
v. (e) Declaring the rights of the parties, and
vi. (f) Enforcing an arbitration award
72. U.C.C. §703
a. Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on
or before delivery or repudiates with respect to a part or the whole, then with respect to any goods
directly affected and, if the breach is of the whole contract (Section 2-612), then also with respect to the
whole undelivered balance, the aggrieved seller may
i. (a) withhold delivery of such goods;
ii. (b) stop delivery by any bailee as hereafter provided (Section 2-705)
iii. (c) proceed under the next section respecting goods still unidentified to the contract;
iv. (d) resell and recover damages as hereafter provided (Section 2-706);
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v. (e) recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2709)
vi. (f) cancel.
73. U.C.C. §711
a. (1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably
revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach
goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so
may in addition to recovering so much of the price as has been paid
i. (a) "cover" and have damages under the next section as to all the goods affected whether or
not they have been identified to the contract; or
ii. (b) recover damages for non-delivery as provided in this Article (Section 2-713)
b. (2) Where the seller fails to deliver or repudiates the buyer may also
i. (a) if the goods have been identified recover them as provided in this Article (Section 2-502); or
ii. (b) in a proper case obtain specific performance or replevy the goods as provided in this Article
(Section 2-716).
c. (3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods
in his possession or control for any payments made on their price and any expenses reasonably incurred
in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in
like manner as an aggrieved seller (Section 2-706).
74. U.C.C. §712
a. (1) After a breach within the preceding section the buyer may "cover" by making in good faith and
without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution
for those due from the seller
b. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the
contract price together with any incidental or consequential damages as hereinafter defined (Section 2715), but less expenses saved in consequence of the seller's breach.
c. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy
75. U.C.C. §713
a. (1) Subject to the provisions of this Article with respect to proof of market price (Section 2-723), the
measure of damages for non-delivery or repudiation by the seller is the difference between the market
price at the time when the buyer learned of the breach and the contract price together with any
incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in
consequence of the seller's breach.
b. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or
revocation of acceptance, as of the place of arrival.
The Foreseeability Requirement
76. §351. Unforeseeability and Related Limitations on Damages
a. (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a
probable result of the breach when the contract was made.
i. Hadley v. Baxendale
ii. Jackson v. Royal Bank of Scotland
b. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach
i. (a) in the ordinary course of events, or
ii. (b) as a result of special circumstances, beyond the ordinary course of events, that the party in
breach had reason to know.
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c. (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing
recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice
so requires in order to avoid disproportionate compensation.
77. U.C.C. §2-715
a. (1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in
inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially
reasonable charges, expenses or commissions in connection with effecting cover and any other
reasonable expense incident to the delay or other breach.
b. (2) Consequential damages resulting from the seller's breach include
i. (a) any loss resulting from general or particular requirements and needs of which the seller at
the time of contracting had reason to know and which could not reasonably be prevented by
cover or otherwise; and
ii. (b) injury to person or property proximately resulting from any breach of warranty.
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