CONTRACTS II
FINAL EXAM
Fall 2021→ Professor Miller
Thursday, Dec. 13, 2021
2 pm
I. The Terms of the Deal (What did the parties promise to do in their contract?)
A. Express Terms
B. Implied Terms (1) Context (i) Course of Performance→ (ii) Course of Dealing (iii) Trade Usage - (2)
Reasonable Efforts (3) Good Faith and Fair Dealing (4) UCC Gap Fillers
C. Parol Evidence Rule (1) Common Law (2) UCC (3) Scope and Exceptions (4) Ambiguity
D. Maxims of Construction
E. Special Rules for Adhesion Contracts
F. UCC: Warranties (1) Express Warranties (2) Implied Warranties→ (i) Merchantability (ii) Fitness for a
Particular Purpose (3) Disclaimers of Warranties
II. Performance and Excuse (When is a party excused from doing what she promised to do in
the contract?)
A. Performance and Breach
B. Express Conditions
C. Covenants
D. Excuses: Ways to Avoid Performance (1) Non-Occurrence of an Express Condition (2) Modification
(3) Waiver or Estoppel (4) Impossibility (5) Frustration of Purpose (6) Avoidance of Forfeiture (7) Other
Party’s Material Breach (8) Other Party’s Anticipatory Repudiation→ (i) What constitutes a repudiation? (ii)
Retraction of a repudiation (9) Other Party’s Failure to Provide Adequate Assurances
III. How Does the Law Enforce a Deal?
A. Money Damages (1) Measuring Expectation Interest→ (i) Benefit of the Bargain (ii) Costs of Repair or
Completion (limitation: economic waste) (iii) Lost Profits and Opportunities (Direct v. Consequential
Damages) (iv) Incidental Damages (v) UCC (Buyer’s Remedies; Seller’s Remedies) (2) Limits on Money
Damages→ (i) Avoidable Loss and Mitigation (ii) Foreseeability (iii) Certainty (3) Measuring Reliance Interest
(4) Measuring Restitution Interest
B. Agreed Remedies (1) Liquidated Damages (2) Limit to Repair, Replacement or Return
C. Non-Monetary Remedies (1) Specific Performance (2) Rescission or Cancellation
IV. When Do Third Parties Have Rights or Duties under a Contract They Did Not Make?
A. Third Party Beneficiaries (1) When is a Third Party an “Intended” Beneficiary? (2) Cancellation or
Modification of the Rights of a Third Party Beneficiary
B. Assignment and Delegation (1) Consequences: Who Can Sue Whom? (2) Limits on Assignment or
Delegation
CONTRACTS II Miller
I. The Terms of the Deal (What did the parties promise to do in their contract?)
A. Express Terms→ terms are clear, parties stated (govern BUT)
B. Implied Terms→ can be supplied by context, statutes, intentions
● Context look into next in hierarchy, will look into context
● Course of Performance - same parties same contract
○ Sequence of conduct under contract, opportunity for repeated performance w/o objection
by same parties
○ Look at repeated performances over a period of time
● Course of Dealing - same parties, different transactions/contact
○ Sequence of conduct concerning previous transactions between parties
○ Look at previous transactions
● Trade Usage - different parties different contact
○ practice/method of dealing that justifies an exception that will be in a place, vocation or
trade that justifies an exception that will be observed w/ respect to the transaction in
question
○ Practice that has regularity in industry
● Reasonable Efforts→ infatuated intent
● Good Faith & Fair Dealing
● Every contract imposes upon each party a duty of good faith and fair dealing in its performance
and its enforcement
● Doesn’t deprive the other party of duties, the benefit of the contract
○ “Good Faith” → “honesty in fact” in the conduct or transaction, subjective
○ For Merchants, “good faith” → “honesty in fact” & “observance of reasonable
commercial standards”, subjective + objective
● UCC Gap Filler: Default rules (express terms dont don’t have a a term)
● Price: reasonable price
● Delivery Location: seller place of business or if parties know at time of contracting the goods are
at some other place, that place is the place for their delivery
● Delivery Time: reasonable time
● Quantity: *** UCC does NOT supply quantity term
○ Requirements/output contracts have quantity term??
Parol Evidence
C. Restatement §213 Effect of Integrated Agreement on Prior Agreements
(1) binding integrated agreement discharged prior agreement to the extent that it is inconsistent with them
(2) binding completely intergrated agreement discharges prior agreements to the extend that they are within
its scope.
(3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior
agreement but and intergrated agreement even though not binding, nay be effective to render inoperative a
term which would have been part of the agreement if it had not been integrated.
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Parol Evidence Rule⇒ governs the extent to which parties to a case may introduce into court evidence of
a prior or contemporaneous agreement in order to modify, explain, or supplement the contract at issue.
​The rule excludes the admission of parol evidence. This means that when the parties to a contract have
made and signed a completely integrated written contract, evidence of antecedent negotiations (called
"parol evidence") will not be admissible for the purpose of varying or contradicting what is written into
the contract.
**PER**
(1) Is there a writing? MUST HAVE A WRITING
(2) Parol Evidence: communications/discussions that come prior to or contemporaneous w/ writing
(a) Contemporaneous = existing or occurring in the same period of time
(3) Integration: final as to the terms reducted to writing
(a) Is it PARTIAL or COMPLETE?
(i)
Partial integration→ final as to what is written, but not an exclusive statement of
the parties agreement
(ii)
Complete integration→ final & exclusive statement of partis agreement
1) Merger clause?
2) 4 Corners approach?
(b) The Rule:
(i)
Partial integration = court WILL consider parol evidence that does NOT
contradict the writing
(ii)
Complete integration= court WILL NOT consider any parol evidence within the
scope of the writing
(4) Exceptions:
(a) Fraud, mistake, misrepresentation ect.
(b) Ambiguity = language susceptible to more than one reasonable interpretation
(c) Condition = oral condition to the effectiveness of the agreement
● **WATCH FOR**
○ Exceptions
○ Evidence that is not parol evidence → discussions after agreement
○ scope→ “collateral agreements” (PER usually not)
○ integration / merger clause
Common Law:
● Majority/Modern Approach = Standard that takes into account what is taking place between the
parties, conduct, discussion, etc. Look to the circumstances AND beyond the four corners of the
document
● Minority Approach = Four Corners Approach
○ Look to the document to see the intent of the parties, so a merger clause would be
completely integrated
○ Benefits of this approach:
■ Less time spent litigating
■ More efficient
■ More certain
○ Drawbacks to this approach→ if something happens outside of the parties’ control, there
is no room to change things
2. UCC - PER: UCC § 2-202 basically says that: Parol evidence cannot contradict what is in writing Final
Written Expression: Parol or Extrinsic Evidence
● Terms … which are … 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 dealing or trade usage, or by course of performance; and
b. by evidence of consistent additional terms UNLESS the court finds the writing to have
been intended also as a complete and exclusive statement of the terms of the agreement
3. Scope & Exceptions: PER does NOT apply if any of the following exceptions exist: Using Parol
Evidence and Other Extrinsic Evidence to Discover the Meaning of the Terms Used
● Formation Defects→ Extrinsic evidence may be offered to establish a defense to the formation or
enforcement of a contract
○ (incapacity, mistake, duress, lack of consideration, etc.)
● Condition Precedents→ Extrinsic evidence may be offered if a party asserts that there was an
oral agreement that the written contract would not become effective until a condition occurred.
● Ambiguity and Interpretation→ Extrinsic evidence may be offered for the purpose of interpreting
or clarifying an ambiguity in the agreement.
● Separate Deals→ Extrinsic evidence may be offered if it represents a distinct and separate
contract.
● Frigaliment Importing v. International Sales
● Facts: D agreed to sell P chickens. D shipped stewing chickens – P rejected them, claiming that
contract referred to fryer chickens
● Held: Judgment for D
● Reason: Trade usage is binding on D only if D had actual knowledge of usage or usage was so
generally known in community that D’s actual knowledge could be inferred. Here, D was new to
poultry business and accountt show that trade usage was well-established
D. Maxims of Construction
E. Special Rules for Adhesion Contracts
● Adhesion contract→ a contract made by one party that doesn’t allow for any bargaining or flexibility –
one-sided is problematic because they can write something very much in their interest. = cts don’t always
refuse to enforce adhesion contracts – there is no clear rule against adhesion contracts and whether there
is any special concern for them – if the terms are totally unconscionable if there is any ambiguity it is read
against the drafter.
● Special Interpretive Rules for Contracts of Adhesion
● Meyer v. State Farm Fire & Cas. Co.
○ Facts: Meyer’s home damaged by fire. Appraisal clause in contract, Meyer’s sue and say
that they should be able to sue for damages because it was an adhesion contract, they
were unware the contract contained and appraisal provision and there was no effective
waiver of their constitutional right (ability to have trial by jury)
○ Held: Arbitration is very commonly used, there is nothing really problematic about the
appraisal provision.
○ Reason: Policy argument – if they were to find for Meyers it would dismantle all cases
involving arbitration
● Restatement § 211: (3) 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 agreement
F. WARRANTIES
● a promise about a term of the contract that explicitly shifts risk to the party making the promise
● Warranties can be disclaimed “as is basis”
● May be expressed or implied
●
○ Mere puffery in form of opinion or recommendation does NOT create express warranty
○ Implied warranty is created at sale & may be based on merchantability or fitness for a purpose
3 Warranties in UCC:
(1) Express Warranty→ promise affirming or describing the goods, that is part of the goods, that is
part of the basis of the bargain *no intent needed
● Use of a sample or model creates an express warranty
● Based on a sellers guarantee or affirmation
● May only be explicitly disclaimed
● Daughtrey . Ashe
○ UCC 2-313 = Express warranties by affirmations, promise, description, sample
● Express warranties by seller are created as follows:
a) expression of fact
b) Description of goods
c) Sample or model is basis of bargain
(2) Implied Warranty of Merchantability→ merchant makes implied warranty that the goods are
fit for ordinary commercial purposes
1. Merchant can disclaim warranty: very conspicuous CLEAR language
2. Automatically created when seller is a merchant
3. May only be explicitly disclaimed by word “merchantability”
● Webster v. Blue Ship
○ UCC 2-314 = Express warranty of Merchantability= arises when seller is a merchant
■ Unless excluded or modified (2-316) a warranty of the goods shall be
merchantable shall be implied in a contract for their sale if seller is a merchant
(w/ respect to goods of that kind)
■ Goods to be merchantable:
i.
pass without objection in the trade under the contract description; and
ii.
in the case of fungible goods, are of fair average quality within the
description; and
iii.
are fit for the ordinary purposes for which such goods are used; and
iv.
run, within the variations permitted by the agreement, of even kind,
quality and quantity within each unit and among all units involved; and
v.
are adequately contained, packaged, and labeled as the agreement may
require; and
vi.
conform to the promise or affirmations of fact made on the container or
label
(3) Implied Warranty of Fitness for a Particular Purpose→ buyer relies on seller expertise to
select a type of good that will be used for a special purpose
○ Nonmerchant can extend this warranty (relies on expertise)
○ Can be disclaimed… Seller must know of buyers purpose in reliance
■ Disclaimed by written language
○ Krell v. Henry
■ Facts: D contracted to rent P’s flat to watch coronation parade. After contract was
entered into, but before coronation parade, parade was cancelled. D did not pay
rent
■ Held: Contract NOT enforceable
■ Reason: While it was still possible to perform contract, D was excused from
renting flat because of frustration of purpose (which was mutually understood to
be to watch parade)
II. Performance and Excuse (When is a party excused from doing what she promised to do in the contract?)
A. Performance and Breach
B. CONDITIONS
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Is an act or event, other than a lapse of time, that, unless excused must occur before a duty to perform a
contractual promise arises (Condition Precedent), or that discharges a duty of performers that has already
risen (Condition Subsequent)
An uncertain event that must occur before a party can be required to perform
○ Express⇒ condition to which the parties explicitly agree
○ Strict compliance
○ Constructive⇒ implied by law to avoid injustice
Effect of a condition: obligor MUST perform only if the condition occurs
○ If condition excused→ obligor must perform regardless of condition
○ Nonoccurence excuses:
■ Estoppel
■ Waiver
■ Disproportionate forfeiture
○ Consequences of Express Condition
■ Occurrence of an express condition requires strict compliance with the contract language
■ Non-occurrence of the condition excuses obligor’s performance
■ Non-occurrence of the condition does not equate to a breach of contract
■ Luttinger v. Rosen
○ Facts: P contract to buy D’s property is conditional upon him obtaining a
mortgage financing in the amount of $45k for interest rate not more than 8.5%
per annum. P promised to use due diligence. P’s attorney handled the financing
process and he only knew of one lending institution that met P’s rq’s. He applied
for loan at institution and loan was offered but above 8.5% -- refused loan asked
d for a deposit, offered to fund the interest rate difference but P refused.
○ Held: P is entitled to return of his deposit
○ Reason: Under the contract, P used due diligence. P didn’t have to apply to
lending institutions where he knew his loan was not going to get approved. “Law
does not required the performance of a futile act” Contract clearly stated the
condition upon which the parties promised to purchase.
Prevention Doctrine
○ Condition will be excused if the party benefitted by the condition wrongfully acts in a way that
“substantially contributed to the non-occurrence of the condition”
Restatement § 224:
○ A condition is an event, not certain to occur, which must occur, unless its non-occurrence is
excused, before performance under a contract becomes due
C. Covenants vs. Conditions
● Difference between an express condition & a promise is critical. While failure to perform a promise,
unless excused is a breach, failure to comply w/ an express condition is not a breach
○ Covenants→ have an obligation
○ Condition→ no duty until condition occurs
D. Excuses: Ways to Avoid Performance
○ Non-Occurrence of an Express Condition
■ Effect of nonoccurrence Restatement § 225(1):
a. Performance of a duty subject to a condition cannot become due unless the
condition occursor its non-occurrence is excused.
○ Modification
○ Waiver or Estoppel
● Estoppel→ focuses on party performing
○ Conduct of one party (Party A), induces cognizable reliance by the other (Party B) so that justice
requires that (Party A) be precluded from contradicting its earlier conduct
○ An obligor must perform if :
■ Obligor promised to perform despite the nonoccurrence
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Obligee changed his or her position in a reasonable, foreseeable & detrimental reliance
on that promise
■ Enforcing the condition would unfairly harm obligee
Waiver→ focus on party waiving to perform
○ Unilateral, intentional, relinquishment of a known right
○ An obligor can waive a condition by:
■ Making an express statement to that effect OR
■ Acceptance performance despite knowing of the nonoccurrence
■ Exception: waiver doesn’t excuse nonoccurrence if the condition is a material part of the
contract
○ Clark v. West
■ Facts: Contract for book – if you write it sober we will pay you $6/page if you write it
drunk we will give you $2/page. P argued that they had waived this condition (past
experience with company – paid him $6 last time even though they knew he was
drinking) while he was writing West knew he was drinking and said we are going to give
you $6 anyways.
■ Held: Court sides with drunk law professor – this is west’s discretion this only effect’s
west’s duties under the contract so they have the right to waive this
■ Rule: A “waiver” is the voluntary and intentional relinquishment of a known right, and
implies an election to dispense with something of value or forego some advantage which
the party waiving it might at its option have demanded or insisted upon.
Modification→ changes existing obligations
○ Bilateral agreement to change the parties existing obligation
○ Consensual, bilaterally
Rule of Disproportionate Forfeiture
○ Obligor must perform despite nonoccurrence if:
■ Condition is not a material part of contract
■ Obligee has substantially relied on the expectation of the parties exchange
■ Obligees loss if the condition were enforced would be much greater than the obligors loss
if the nonoccurrence were excused
○ Avoidance of Fortfeture
■ A condition may be excused w/o other reason if its requirement
a. Will involve extreme forteure or penalty AND
b. Its existence or occurrence forms no essential part of the exchange for the
promisors performance
■ Avoidance of Forfeiture as a Reason for Eliminating a Condition
a. Acme Markets, Inc. v. Federal Armored Express, Inc.
i.
Facts: P grocery chain and D armored car service entered into contract
for amored car service and the agreement was later amended to provide
for timely reimbursement of service related issues. P brought breach of
contract after it allged robber stole one of Ps cash bags in D’s possession
and d refused to reimburse P. P claims D was in possession of bag when
stolen but there was no receipt issued – this is immaterial and d claims
that although they were in possession they were not responsible for the
bags until “the bags had been accepted and rexipted for but its
employees”
ii.
Held: Receipt provision was a condition precedent, but it could be
excused if it was not a material part of the contract.
iii.
Reason: Remanded for a determination of the materiality of the receipt
provision. Court also remanded to determine whether the forfeiture (not
enforcing the receipt condition) would be disproportionate
iv.
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Rule: to the extent that the nonoccurrence 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 (restatement §229)
Restatement § 229
a. To the extent that the 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.
Force Majeure Clause
○ Clause in a contract that orders the parties obligation/ liability upon the occurrence of an event or
circumstances beyond the parties control
■ Did the parties order the risk of unforeseen events
■ Did clause address event or no clause at all
Death of Obligor
○ Where the obligor dies & the obligor is necessary for performance, the parties are excused from
performance
■ Both excused
Impossibility/Impracticability
○ Where the parties contract does not address the circumstances, impossibility excuses performance
where:
(1) A parties performance is made impossible by a supervening event
(2) w/o his fault AND
(3) occurrence/nonoccurrence of the event is basic assumption of which the contract was
made
○ Ex. Music Hall
Frustration of Purpose
○ Frustration of purpose will excuse performance where the parties have not addressed the
circumstances AND:
(1) After the contract is made a principal purpose is frustrated by the
occurrence/nonoccurrence of the event
(2) w/o his fault AND
(3) the event is basic assumption on which the contract was made
Performance and Breach
○ Breach→ failure to perform as promised. NO EXCUSE
○ Material Breach→ a breach gives rises to an argument for damages
● A material breach excuses the other parties performances
● Justifies cancellation
■ To determine if a breach was material, the following factors are relevant:
○ Extent & amount of benefit which the non breaching party received
○ Possibility of adequately compensating the non breaching party for damages
○ Extent to which the breaching party’s ability performed contractual obligations
○ Hardship which affected the breaching parties ability to perform
○ Whether the party who breached the agreement was willful or negligent
○ Likelihood that the party who breached the agreement (part of contract) will
perform the remainder of the contract
○ Perfect Tender Rule (UCC)
■ Before accepting the goods, a buyer may reject goods for any nonconformity
○ Divisible Contracts
■ A contract is said to be divisible if performance by a party is divided into 2 or more parts
& the other partys performance is also divded so that the second parties performances are
agreed exchanges for the corresponding parts by the other party
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Divisible Contracts Restatement (2d) § 240
○ If the performances to be exchanged under an exchange of promises can be
apportioned into corresponding pairs of part performances so that the parts of
each pair are properly regarded as agreed equivalents, a party's performance of
his part of such a pair has the same effect on the other's duties to render
performance of the agreed equivalent as it would have if only that pair of
performances had been promised
Anticipatory Repudiation & Adequate Assurances
○ Anticipatory Repudiation
■ Statement or actions of anticipatory non performance must be definite & unequivocal to
constitute a repudiation
○ Common-Law→ AR occurs when promisor unequivocally repudiates BEFORE
performance is due
○ UCC→ if reasonable grounds for insecurity arise, nonrepudiating party may
demand adequate assurances
■ Repudiation that is not accompanied by breach by nonperformance and occurs before
time for performance has arrived.
○ Ex. “I will not perform” is anticipatory repudiation if made before performance is
due
○ Ex. “I doubt I will be able to perform” is NOT repudiation, so suit CANNOT be
brought immediately under doctrine of anticipatory repudiation
■ UCC 2-610
○ (1) When either party repudiates contract with respect to performance not yet
due, agrrieved party may
○ Await performance by repudiating party for commercially reasonable
time
○ Resort to any remedy for breach, even though he has notified repudiating
party that he would await performance and has urged retraction
○ Suspecnd own performance or proceed in according with UCC for
seller’s right to identify goods to contract notwithstanding breach or to
salvage unfinished goods.
○
Retraction Repudiation
■ A repudiation may only be retracted if the other party has not taken steps in reliance on
the repudiation
■ Norcon Power Partners, L.P. v. Niagara Mohawk Power Crop
○ Facts: D contract to purchase electricity generated at P’s facility for 25 years –
had 3 pricing periods. During 2nd period, D gave P letter stating substantial
credits in D’s favor would accrue and P would not be able to satisfy escalating
credits in 3rd period. D demanded assurance that P would perform all future
repayment obligations
○ Held: D had right to demand adequate assurance of future performance because
D has reason to believe P will breach by nonperformance
○ Rule: A party to a long-term commercial contract has the right to demand
adequate assurance of future performance when reasonable grounds arise to
believe that the other party will breach the contract, even though the other party
is solvent and the contract is not governed by the UCC.
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Adequate Assurances (UCC)
■ If reasonable grounds for insecurity about the other parties performance exists, a party
may request adequate assurances that a party is forthcoming
Material Breach
● Jacob & Young, Inc v. Kent
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Fact: P build house for D—reading pipe was supposed to be used. After house was complete, D learned
that pipes were not reading, but were of equal quality. P refused to change pipes so D refused to pay him
Held: D must pay P
Reason: Failure to install reading pipe was breach but was not sufficient enough to allow D to pay.
Measure of damages should not be replacing all pipes—too grat. Instead, should be difference between
swelling as specified and dwelling s constructed, even though it may be nominal or nothing.
III. How Does the Law Enforce a Deal?
A. Money Damages
● Monetary Damages→ available money remedies for breach of K
● Expectation damages→ most common, based on P’s loss expectation
Expectation Damages (measure) & limits on Damages
Determining Expectation Damages §347
“Loss in value” to nonbreaching party
+ Any other loss (incidental or consequential)
- Avoidable cost and /or loss
= DAMAGES
Example: Revenue = 100K, Expenses= 90K, Amount spent= 20K
(100K) + (0) - (70K) = 30K in expectation Damages
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Loss in Value→ difference between the value of the promised performance & the performance the non-breaching
party received
● Value P should have received under K
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Alternate Measure→ cost of repair or completion of performance
○ Not an appropriate measure if it constitutes “economic waste”
○ Ex: Value of making pool deeper (from 4ft to 6ft)
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Under UCC, for buyer:
○ Cover differential→ the difference between the cover price (mitigating) & the contract price
■ UCC 2-712→ (cover differential)
● (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..., but less expenses saved in consequence of the seller’s breach.
● (3) Failure of the buyer to effect cover within this section does not bar him from any
other remedy.
○ Market differential→ the difference between market price & contract price
■ UCC 2-713→ (market differential)
● (1) Subject to the provisions of this Article with respect to proof of market price. . ., 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..., but less
expenses saved in consequence of the seller’s breach
Under UCC, for seller:
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Expected Gain→ profit, if goods not yet delivered or purchased price if goods already delivered OR
Resale Differential→ the difference between the contract price & resale price
Resale v. Cover
● RESALE: (2-706): Seller’s measure of damages: if the buyer fails to take delivery of the goods, the seller may (in
good faith and without unreasonable delay) sell goods to another. May claim DAMAGES as the difference
between the contract price and the resale price
● COVER (2-712): Buyer’s measure of damages: if the seller fails to deliver the goods, the buyer may, in good
faith, “cover” by purchasing substitute goods in without unreasonable delay. May claim damages the difference
between the cover price and the contract price.
Incidental Damages→ reasonable expenses incurred by one party to a contract as a result of the other partys breach of the
contract. Cost of coping w/ the breach
Consequential Damages→ (or “special damages”) are losses that do not flow directly & immediately from the other
party’s breach by result indirectly from breach
Avoidable Cost/Loss→ value P saves by NOT having to perform any further/ value P recovers by salvaging resources
that would have been used to perform K
Limits on Damages
(1) Avoidability
● Mitigation→ damages are not recoverable for losses that could have been avoided w/o under risk, burden
or humiliation
(2) Foreseeability
● Only foreseeable losses are recoverable
● A loss is foreseeable if it is a probable consequence of the breach
(a) An ordinary course of events OR
(b) As a result of special circumstance that the party in breach had reason to know
(3) Certainty
● Only damages that can be proven w/ reasonable certainty are recoverable
● Non-breaching party must have evidence documenting the loss or expected loss
Reliance & Restitution
● Reliance Damages→ what P spent in reliance to K
○ Putting the nonbreaching party in as good a position as he would have been in had the contract not been
made
○ Pre-contract condition
● Restitution→ restoring to the nonbreaching party any benefit that he has conferred on the breaching party
● Often coupled w/ recision of contract
● Equitable Relieve→ compel D to perform
Liquidated Damages
● Enforceable only if the agreed damages are reasonable in light of (1) the anticipated OR (2) actual loss caused by
breach, taking into account the difficulties of proof of loss
○ Contract law does not enforce penalties
○ Purley compensatory damages NOT punitive damages
● Liquidated Damages RS 356
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Damages for breach by either party may be liquidated in the agreement but only at an amount that is
reasonable in the light of the anticipated or actual loss caused by the breach & the difficulties of proof of
loss. A term fixing unreasonable largely liquidated damages is unenforceable on grounds of public policy
as a penalty
○ Kvassay v.. Murray, UCC 2-718(1)
■ “Damages for breach by either party may be liquidated in the agreement but only at an amount
which is reasonable in the light of the anticipated or actual harm caused by the breach, the
difficulties of proof of loss, and the inconvenience or unfeasibility of otherwise obtaining an
adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
Limitation of Remedy
Limitation of Remedy to Repair or Replacement – UCC 2-719
● Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and
limitation of damages, of damages,
○ the agreement may provide for remedies in addition to or in substitution for those provided in this Article
and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer’s
remedies to return of the goods and repayment of the price or to repair and replacement of
non-conforming goods or parts; and
○ resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which
case it is the sole remedy.
● (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had
as provided in this Act.
Specific Performances
● No “adequate remedy at law” - monetary damages inadequate
● factors for when monetary damages are adequate:
○ Damages are difficult to prove w/ reasonable certainty
○ Difficulty of procuring a suitable substitute performance
○ Likelihood that an award of damages could not be collected
● Specific Performance
○ Alternative to Damages (i.e., $ award)
○ Can be in form of:
■ Positive performance
■ Negative injunction
○ RS 359(1): no adequate remedy at law
○ RS 360: factors affecting adequacy of damages (a) difficulty of proving damages w/ certainty
● Oliver v. Ball: If a seller breaches a contract for the sale of land, the court will order specific enforcement of the
agreement, unless hardship or injustice would result.
● Van Wagner v. S&M Enterprises: Specific performance is not a proper remedy if damages are adequate and
equitable relief would impose a disproportionate burden on the breaching party.
○ Facts: Leased eastern exterior wall of building for 2 years with an option for 7 years. Erected illuminated
sign there leased to Asch Advertising for 3 year period. Michaels sold building to D, d sent letter to p
canceling the lease pursuant to a section that said the lessor (or its successor) could terminate and cancel
the lease on no less than 60 days notice if the even of the bona fide sale of the building to a third party. P
abandoned space and sued for specific performance and damages
○ Held: Trial court was correct in awarding damages instead of specific performance
○ Reason: ct not convinced by uniqueness of wall – it is possible to determine the value of the billboard.
There is preference for damages over specific performance – trial court said that specific performance
would help the P and unequally hurt D. D wanted to renovate the entire area and keeping the billboard
would keep them from doing this.
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Buyer's Right to Specific Performance→ UCC 2-716
○ (1) Specific performance may be decreed where the goods are unique or in other proper circumstances.
○ (2) The decree for specific performance may include such terms and conditions as to payment of the
price, damages, or other relief as the court may deem just.
§ 359. Effect of Adequacy of Damages
○ (1) Specific performance or an injunction will not be ordered if damages would be adequate to protect the
expectation interest of the injured party.
○ (2) The adequacy of the damage remedy for failure to render one part of the performance due does not
preclude specific performance or injunction as to the contract as a whole.
§ 360. Factors Affecting Adequacy of Damages
○ In determining whether the remedy in damages would be adequate, the following circumstances are
significant:
■ (a) the difficulty of proving damages with reasonable certainty,
■ (b) the difficulty of procuring a suitable substitute performance by means of money awarded as
damages, and
■ (c) the likelihood that an award of damages could not be collected
Recission⇒ voids contact & restore the parties to pre-contract position. If there has been partial performance, ordinarily
couple w/ restitution
Termination⇒ either party pursuant to a power created by agreement or law puts an end to the contracts otherwise than
fortis breach. On “termination” all obligations which are still executory on both sides are discharged but any right based
on prior breach or performance survives
Cancellation⇒ either party puts an end to the contract for breach by the other & its effect is the same as that of
“termination” except that the canceling party also retains any remedy for breach of the whole contract or any unperformed
balance
IV. When Do Third Parties Have Rights or Duties under a Contract They Did Not Make?
Third-Party beneficiary (3PB)
3PB→ a person who is not a party to the contract (not in privity of contract) and did not provide the consideration for the
contract but claims enforceable rights under a contract
● Ex. Life Insurance
● Intentional v. incidental beneficiary
● Rights vs. no rights
● 3PB Hypo→ Otto contracts with Bart to erect an expensive building on Bart’s land. Flanders’ adjoining land will
be enhanced in value by Otto’s performance of the contract with Bart.
○ Who is in privity of contract?
■ Otto & Bart
○ Is Flanders a 3PB?
■ No, incidental
● 3PB Hypo→ Acme Corp operates a chicken processing and fertilizer plant. Acme Corp contracts with Bayville (a
municipality) to use Bayville’s sewage system. With the purpose of preventing harm to landowners downstream,
Bayville obtains from Acme Corp a promise to remove specific types of waste from its deposits into the sewage
system. Cal is a landowner downstream.
○ Who is in privity of contract?
■ Acme & Bayville
○ Is Cal a 3PB?
■ Yes, intended
Restatement (2d) § 302 Intended and Incidental Beneficiaries
(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if
recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and
either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary;
or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised
performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.
Ex. Lawerence v. Fox
● Contract 1: Plaintiff (Lawrence) loans $ to Holly.
○ Holly promises to repay Plaintiff (Lawrence)
● Contract 2: Holly loans $ to Defendant (Fox)
○ Defendant (Fox) promises Holly that he (Defendant/Fox) will pay $ to Plaintiff (Lawrence)
● Intended v. Incidental
● Where one person makes a promise to another for the benefit of a third person, that third person may maintain an
action upon it. Here, there was sufficient consideration because Fox promised to repay Lawrence for Holly in
return for the loan. On the issue of privity, since Fox promised Holly he would repay Lawrence, it was
unnecessary for Fox to expressly make a promise to Lawrence.
● A promise to repay a debtor's obligation to a creditor in consideration for a sum of money received from the
debtor is valid.
Midwest Grain v. CMI
● A party will only be considered a third-party beneficiary under Oklahoma law if the parties to the contract
intended to confer contract benefits on that party. A third-party beneficiary does not have to be named in the
contract. Nevertheless, the contract must clearly have been created for the benefit of the person seeking
third-party beneficiary rights. There is no Oklahoma case that holds that a buyer is the third-party beneficiary of a
contract between a seller and a manufacturer.
Assignment & Delegation
● Assignment of Rights
● Delegation of Duties/ Obligations
● “Delegation occurs when a party to a contract transfers the authority and responsibility for fulfilling a particular
contractual duty to another party. ... An assignment occurs when the original party to a contract transfers the
rights and duties of the contract to another party.”
● Restatement § 317 Assignment of a Right
(1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the
assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires
a right to such performance.
(2) A contractual right can be assigned unless
(a) the substitution of a right of the assignee for the right of the assignor would materially
change the duty of the obligor, or materially increase the burden or risk imposed on him by
his contract, or materially impair his chance of obtaining return performance, or materially
reduce its value to him, or
(b) (b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy,
or
(c) assignment is validly precluded by contract.
● Restatement (2d) § 318 Delegation of Performance of Duty
(1) An obligor can properly delegate the performance of his duty to another unless the delegation is contrary
to public policy or the terms of his promise.
(2) Unless otherwise agreed, a promise requires performance by a particular person only to the extent
that the obligee has a substantial interest in having that person perform or control the acts
promised.
(3) Unless the obligee agrees otherwise, neither delegation of performance nor a contract to assume the duty
made with the obligor by the person delegated discharges any duty or liability of the delegating obligor.
Assignment
● Obligor has the obligation
● Obligee receives benefit
●
By default, assignment is permitted unless it would materially change the duty of the obligor, or materially
increase the burden or risk imposed on the obligor
● Effect of Assignment:
○ Assignor CANNOT sue obligor
○ Assignee CAN sue obligor
Delegation
● Delegator delegates duy
● Delegee expects duty
●
●
By default, a promise requires performance by a particular person only to extent that obligee has a substantial
interest in having that person perform or control that acts promised
Effect of Delegation:
○ Obligee CAN sue delegator
○ Obligee CAN sue delegee