Contracts II - Cross

I. GenerallyA. CISGa. Article 1(1a): Applies to the contracts of sale of goods between parties whose places of business are in different countries (states) and both are parties to the CISGi. 1(1b): If the contract says that the contract is to be governed by the law of a contracting State, CISG applies because it is a treaty and trumps state lawsb. Article 6: parties can opt out of the CISG c. Article 10: If a party has more than one place of business, the place of business is the one that has the closest relationship to the contract and its performancetaking into consideration what the parties knew at the time of the contracti. If a party doesnt have a place of business, then you look to the parties habitual residence. d. NOT CISG: Many foreign companies set up US subsidiaries and a contract between a US subsidiary of a Chinese company and a US company would not be subject to the CISGe. UCC vs CISG: UCC applies to the sales of goods to consumers and the CISG excludes consumer transactions (goods for personal, family, or household use)i. Ex: buy a car in another country for personal use, does not fall in the CISG B. Restatements-Common Law

C. UCC- Article 2: Sale of goodsa. 2-105-Goods Defined

i. Includes all moveable items other than money (crops, livestock, unborn young of animals)ii. Not covered: service agreements, real estate/propertyiii. Goods have to be identified and existing or else they are future goods and not coveredthat is a contract to sell and a contract to sell is not included in the UCCiv. There can be a sale in a part interest of goodsv. Money is included if it is being treated as a commodity D. Princess Cruises v. GE

Facts: Princess hired GE to do some work on a boat; it was to fix things but included a large order of parts. GE says that UCC doesnt apply bc it was a contract mainly for services and not goods Held: UCC does not apply General Rule: Bone Break/predominant purpose test: To decide if a contract is for services or goods you must look at (1) the language of the contract (2) the nature of the business of the supplier and (3) intrinsic worth of the materialsa. Gravamen Test: Under this test the court does not try to classify the contract as a whole one way or the other but applies Article 2 UCC if the controversy in question relates to the sale component and plies common law is the issue arises out of the services component. E. Asante Technologies v. PMC-Sierra

Facts: P is a Delaware Corporation with primary place if business in Cali. Plaintiff purchased equipment from D. D says his place of office and work space is in Canada but sells everything in Cali. P says forms opt out of CISG and that bc one company that distributes Ds products is in Cali, the UCC should apply. Held: CISG applies, place of business is in Canada bc postage was sent from Canada, goods manufactured there, and P had knowledge that this was happening all in Canadaa. Opt out didnt work in this contract bc it just said they wanted California law to apply and under California Law the CISG would applyb. D wanted this in federal court and the CISG always goes to federal courtc. Doctrines such as unconscionability, duress, etc are not governed by the CISGF. Hypo on Slide: HYPO: A has a computer store and has a contract with Lenovo (foreign

company) computers to purchase 100 computers. Delivery is

scheduled for September 1. A agrees to make a payment for

the computers. September 1 comes and the computers dont

arrive. A wants to bring a breach of contract against Lenovo.

Clause said that Illinois law would govern the contract. What

would the court look to to determine if there is a contract and

if there is a breach and so on?

ANSWER: The court would look to the CISG because as a treaty, it

pre-empts Illinois law

II. Remedies: Measuring Expectations Restatement ApproachA. Three kinds of damages contract damages: (can only claim 1)(Fuller and Purdue)1. Restitution Interest (Exception): defendant must pay for the benefit received2. Reliance Interest (Exception): plaintiff relies on a promise and must be put back to their original positionsimilar to promissory estoppel, there does not have to be a benefit received; usually out of pocket costsa. The key is as good a position as they were before the contract, not if the contract were fully performed3. **(Focus of this section) Expectation Interest (RULE): put the plaintiff in the position he would have been had the defendant made good on his promise (specific performance or money damages) Give P the benefit of his bargaina. Profit is awardedgive the plaintiff the benefit of her bargainb. Contract law does not take into account non-economic damagesc. If contract does not qualify for specific performance and there are no economic losses, then there is usually no liability.4. Justifications for expectation damages rule:a. Plaintiff has relied substantially, insubstantially, psychologically on a contract and has been deprived of something (attitude of expectancy)

b. Will theory views contracting parties as exercising legislative power, making basic rules regarding their agreement which should be upheld.

c. Barnes theory damages should be measured by the net expectation interest of the injured party.

d. Bargain principle both fairness and efficiency are served by full enforcement of the defendants promise rather than mere restitutionary award to plaintiff.

A. If unconscionability, fraud, duress, undue influence, knowingly taking advantage of others ignorance may justify only partial enforcement or no enforcement

B. 3 policies identified may justify full bargain enforcement:

III. Surrogate-Cost theory: Assured protection of the full cost of reliance

IV. Facilitation of planning (by deterring breach)

V. Protection of risk-allocation (contract to control price changes in future)

B. Restatement Approach Defined: put the injured party in as good of a position as he would have been in had the contract been performedGeneral Measure = Loss in value + other loss cost avoided loss avoided

a. Loss in Value (partial and total breach): difference between the value to the injured party of the performance that should have been received and the value to that party of what was actually receivedi. Look at the actual loss in value to the injured party and not a hypothetical reasonable person on the marketii. Exception-Partial Breach: seller delivered the wrong goods, that would be a partial breach and injured party would be awarded the difference between the actual goods they wantedb. Other Loss (partial and Total breach): loss other than loss in value, subject to limitations such as that of unforeseeability i. Incidental Damages: additional costs incurred after the breach in a reasonable attempt to avoid loss, even If the attempt is unsuccessful1. Ex: injured party pays a fee to a broker to obtain a substitute, that expense is recoverableii. Consequential Damages: items such as injury to person or property caused by the breach1. Ex: services furnished to the injured party are defective and cause damage to the partys property***The first two components apply to partial and total breach. The next two only apply to total breach. c. Cost Avoided (total breach only): Injured party terminates and results in a total breach, save the injured party further expenditure that would have otherwise been incurredi. Ex: injured party is a builder that stops work after terminating a construction contract bc of the owners breach, additional expenses the builder saves is cost avoidedd. Loss Avoided (total breach only): injured party salvages or reuses some or all of the resources that would have been devoted to the performance of the contract i. Ex: builder sells some of the material on his next jobC. Limitations of the restatement approach:a. Damages must be reasonably foreseeable (i.e breaching party had reason to foresee the harm as a probable result at the time of the contract)b. Harm must be measured with reasonable certainty (i.e. amount of damages cannot be speculative)c. Duty to mitigate damages (i.e. damages cannot be recovered to the extent that they could have been avoided or minimized by reasonable efforts)d. Recovery only for loss that would not have occurred but for the breachif it still would have occurred doesnt count e. R347 illustration 15f. Fixed costs/overhead are not included in damages (electricity bills, things that you would normally pay regardless) D. Lost Volume Seller:a. Defined: injured party could and would have entered into the subsequent contract even if the one in question wasnt broken and could have had the benefit of both. E. Crabbys Inc v. Hamilton

Facts: D contracted to buy Crabbys restaurant; loan commitment had to be given within 30 days and had to use reasonable diligence; buyer made other arrangements like pushing back closing date, putting utilities in their name, etc; July 30 everything is set and buyer backs out and buys another property. Seller cant sell again until May of next year. Buyer says there was no contract bc it was supposed to expire if they didnt give the loan commitment within 30 days, cant have fair market value as of 11.5 months later, and it was a distress sale. Held: Damages to seller based on the price they sold at 11.5 months later being fair market value; 11.5 months was reasonable to establish fair market value

Restatement approach applied: Loss in value (290k contract price) + other loss (40k, interest, cost to maintain property) loss/cost avoided (235k market value)

General Rule: damages for breach of a sale of land is the difference between the contract price and the fair market value of the property at the time of the breach (date the sale should have been completed and one year is not too long to determine fair market value) a. Fair Market Value: the price property will bring when it is offered for sale by an owner who is willing but under no compulsion to sell and is bought by a buyer who is willing to purchase but is not compelled to do so.i. Can be found by real estate appraisers, others who are qualified by education, training, or experienceb. English Rule: where the seller is in breach, courts restricted (only allowed) the plaintiff purchaser to restitution of any payments made on the purchase price unless the defendant seller acted in bad faith. c. American Rule: awards expectation damages for any unexcused failure to convey regardless of the good faith or bad faith of the sellerF. Hyposa. Seller agrees to sell computer for $450. Market value is $600 Buyer breaches. What are the sellers damages? $450 i. Seller breaches. Buyer has paid the money but the seller hasnt given her the computer. Damages? She would get the market value of the computer--$600ii. Nobody has paid anything yet. But the seller says that she isnt going to deliver the computer. The seller has breached. Damages to buyer? Difference between the market price (loss in value) and the contract price--$150 b. Owner hires builder to construct a building for $200k. Cost of construction is $180,000. The owner breaches by terminating the contract when the work is partly done. At the time of termination the owner has paid the builder $70,000 for work done, and the builder has spent a total of $95,000 for labor and materials. After the owners breach the builder is able to resell $10,000 of materials purchased for the projecti. ANSWER: (loss in value = $200,000 - $70,000 = $130,000) + (other loss = $0) (cost avoided = $180,000 - $95,000 = $85,000) (loss avoided = $10,000) = $35,000c. Employer hired employee under a two-year employment contract for a salary of $50,000 per year, payable in installments at the end of each month. Six months after the employee starts work, the employer wrongfully discharges her. The employee looks for other work for three months, but is unable to find a job. Finally, she hires an employment agency, paying it a fee of $1,000. Three months later she obtains a job (similar to the one from which she was fired) paying $45,000 a yeari. ANSWER: (loss in value = $100,000-$25,000= $75,000) + (other loss = $1,000) (loss avoided=$45,000) = $31,000.III. Measuring Loss in Value: Construction ContractsA. Restatement Rule: if loss in value to the injured party is not proved with sufficient certainty, damages can be measured by (a) diminution in market value or (2) reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to himB. Two ways to measure loss in value

1) Cost to Complete: reference to cost in removing the green paint and painting it blue ($300 or more). 2) Diminution in value: difference in value that would have been if the contract had been performed. D cant have breached the contract intentionally and must show substantial performance made in good faith

**General Rule for damages is cost to complete but in some cases the difference in market value is awarded when there is unreasonable economic waste, breach is of a covenant which is only incidental to the main purpose of the contract, and completion would be disproportionately costly, good faith, innocent oversight.C. Factors to decide Diminution in Value or Cost to Complete:

a. Nature of breach (good faith v bad faith)purposely breach to avoid costs then court will be less likely to award diminution in valueb. Economic wastec. Disproportionate difference between amounts of damages under the two measuresd. Idiosyncratic value attached to performance (value that cant be reflected in the market value of the property) e. Whether the breach is incidental to the main purpose of the contract (Peevyhouse)f. Economic Waste: courts will rarely award cost of completion where the defect is minor and completion would involve economic waste (have to destroy whats already done) D. Jacobs and Youngs: built mansion with the wrong pipes, the pipes were still sufficient, Held: damages to compensate for builders use of comparable pipe should be measured by the difference in market value. E. Peevyhouse v. Garland Coal and Mining Co

Facts: P owns a farm and D wants to mine coal from the property. The lease states that D must put the property back to its original condition after they are done mining. D does not do this, and it would cost $29k. The value of the farm is only $300 less than if the $29k work is done. Held: plaintiffs are only awarded $300 bc the provision requiring the additional work was remedial to the main purpose of the contract and the economic benefit from full performance would be grossly disproportionate to the cost of performing the work.

General Rule: if the cost is clearly disproportionate to the probable loss in value to the plaintiffs then the court should not award the cost of remedying the defects just the change in value or the economic benefit should be awarded. ($30k work to increase the property by $20k is not unreasonable and they would be awarded the $30k)F. Handicapped Childrens Education Board v. Lukaszewski

Facts: Luk hired at the school but found another job closer to home at Wee Care, school wouldnt let her out of her contract; she resigned from the job and the only replacement they could find had more teaching experience than Luk and cost $1000 more. Board wants the additional compensation to find a replacement Held: Damages to the school board; they lost the benefit of their bargain, only expected to pay a certain price and took reasonable efforts to find a replacement and there was only one applicant.

General Rule: damages for breach of an employment contract include the cost of obtaining other services equivalent to that promised but not performed, plus any foreseeable consequential damages. a. The issue in this case is how to measure the value of Lukaszewskis servicesshould it be what they were paying her or what it would cost for a substitute? The court ruled that it should be the cost for a substitute because otherwise the school wouldnt be getting what it bargained for. G. American Standard v. Schectman

Facts: P contracted to sell D equipment and buildings on his property if D promised to excavate the property. D did not do so and argues measure of damages should be the diminution in property value without the excavation which was only $3k Held: P gets $90k, cost to complete. The contract was not substantially performed

General Rule: diminution in value test is only applicable when the defects are irremediable or may not be repaired without substantial tearing down (substantial performance is already done) however, courts have applied the diminution of value even with no tearing down if the breach is only incidental to the main purpose of the contract and completion would be disproportionately costly.

II. Remedies: Measuring Expectations UCC ApproachA. Buyers Remedies

a. Two ways a seller can commit a breach:1. deliver goods that fail to conform to the contract in some way (quality of goods) OR

2. fail to make proper tender of goods (failing to deliver on time, delivering too few or too many, or failing to deliver at all)

b. Cover Formula: 2-712

i. Buyer has the option of the cover rule or market value ruleii. Defined: a buyer is allowed to cover by making in good faith and without reasonable delay, any reasonable purchase or contract to purchase goods in substitute and recover the difference between the cover price and the contract price, plus incidental and consequential damages, less expenses saved bc of the breach1. Buyer doesnt have to buy identical goods, just commercially reasonable substitutes2. Can be more than one contract or sale; 3. This rule applies to merchants and non merchantsiii. Ex: price of substitute was $650, contract price was $450. Buyer is entitled to $200iv. Ex: B bought a different type of computer than the one that A contracted to sell her. She got a Mac instead of a Dell. It was fancier and she spent more money on it. Can she still recover the difference between the c ontract price and the substitute price?ANSWER: Depends on if her purchase was done in good faith and without unreasonable delay. It is immaterial that hindsight may later prove that the method of cover used was not the cheapest or the most effective.c. Market Formula: 2-713

i. This only applies when the buyer decides not to buy substitute goods i.e. the buyer has decided not to coverii. Defined: Damages would be the difference of the market price at the time the buyer learned of the breach and the contract price plus incidental and consequential damages, less expenses saved bc of the breachiii. Market Price: should be determined by the place of tender (delivery), or in cases of rejection after arrival or revocation of acceptance, as of the place of arrival. 1. Price of goods of the same kind and in the same branch of trade

2. When market price is difficult to prove, you can show comparable market price

3. If you cant show market price bc the scarcity of these goods on the market, then usually u want specific perf.

iv. Ex: Market value at the time buyer learns of breach is $600, contract price is $450. Buyer is entitled to $150.

v. 2-714 damages for accepted goods: amount owed is the difference between what was accepted and the value they would have been or should have been.

B. Sellers Remediesa. Cover Formula: 2-706(1)i. Defined: Seller resells the goods after buyer breaches and can recover the difference between the resale price and the contract price plus incidental damages, less expenses saved bc of the breach1. Resale must be made in good faith and in a commercially reasonable mannerii. 3 steps seller must take to recover damages:1. identify the goods being resold as the same ones under the contract that was breached2. give buyer proper notice of resalea. Private sale: give buyer reasonable notification of intention to resellb. Public sale: give buyer reasonable notice of the time and place of the resale except in the case of goods which are perishable or may quickly decline in value3. Resale must be in good faith and in a commercially reasonable manner

b. Market Formula: 2-708(1) i. Defined: Damages is the different between the market price at the time and place for tender and the unpaid contract price plus incidental damages, less expenses saved bc of the breachii. Lost Profits: (alternative to market value) If damages based on this formula are inadequate to put the seller in as good a position as performance would have done, then the measure of damages is the profit which the seller would have made from full performance plus incidental damages. iii. Three cases that should apply lost profits:1. Lost Volume Seller: 2. Seller who is in the process of assembling a product for sale when the buyer breaches (personalized items)3. Jobber: (middle person who purchases goods for resale) buyer from a jobber breaches before the jobber has acquired the goodsiv. When seller can recover the price of goods for damages:1. Buyer has accepted the goods then the seller may recover the price2. Goods are damaged after the risk of loss has passed to the buyer3. Seller is unable to resell the goods with reasonable effortv. Ex: contract price that was not paid is $450, the market value of the laptop at time of tender is $300. Seller gets $150. IV. Limitations of Expectation DamagesA. Foreseeability a. Two types of damages that can be awarded:i. General Damages: Damages that arise naturally from the breach of contractdont need to make a special showing to recover these1. Ex: difference between contract price and market priceii. Consequential/Special Damages: damages flowing from special circumstances communicated at the time the contract was formed. 1. Loss profits arising from collateral contracts (note: lost profit on the actual contract that was breached would be general damages)2. Injury to person or property caused by goods that fail to comply with contractual warranties3. Recoverability of consequential damages depends on whether they were in contemplation of the parties at the time the contract was made4. Type of loss must be foreseeable, not the way that it occurs5. Can use objective analysis: if they had reason to knowb. Restatement Approach: Cant recover for damages that the breaching party didnt have reason to foresee as a probable result of the breach when the contract was made. Loss is foreseeable when it follows from the breach (a) in the ordinary course of events (reasonable person should have foreseen) or (b) as a result of special/unusual circumstances, beyond the ordinary course of events, that the party in breach had reason to know (party had actual notice)i. A court can decide to limit the damages for foreseeable loss by excluding recovery of loss of profits, by allowing recovery only for loss incurred in reliance or to avoid disproportionate compensationii. Objective testiii. If there are several contributing factors to the loss the party would have had to foresee all of them. iv. If it is foreseeable that one party will not be able to cover or get substitute goods, then that will be taken into acct for damagesc. Special Situations under the second rule (actual knowledge)i. Contract to Lend money: if the contract is for D to lend money to P, courts presume money is an available commodity that can be obtained elsewhereborrower can only recover the difference between the market rate of interest and the interest amount in the contract even if borrower cant borrow elsewhere (if lender was aware borrower cant borrow elsewhere then other damages can be awardedii. Liability to third parties: third party liability had to be foreseeable at the time of the making of the contractbreacher is responsible for reasonable litigation expenses and settlement the non breaching party has to payd. Parties can allocate their own risksi. P gives notice to D about the special circumstances (part 2 of Hadley rule) ii. Parties can say D will not be liable for reasonably foreseeable circumstancese. Tacit Agreement Test: (for recovery of consequential damages): Injured party has to show special circumstances were brought to the attention of the breaching party and the breaching party consciously assumed the liability in question. f. Epstein Rule: (default rule):When the contract is silent on the matter of damages the court should award the damages that the parties would most likely have agreed on had they considered the issue of damagesg. Eisenberg Rule: Allows recovery of all losses that are proximately caused by a breach, subject to contractual allocation of risk and principles of fair disclosure of contractual limitations on liability (essentially a tort standard) h. CISG: Damages for breach may not exceed the loss that the party of the breach as a possible consequence of the breach (even broader)i. Hadley v. Baxendale

Facts: P had a mill that stopped operating bc the crank broke; hired D to transport a new shaft and D said it would take a day but took longer which made P lose profits for those days Held: for D, they didnt know that P did not have another shaft and it would cause P to stop business General Rule: (1) Non breaching party is entitled to damages that arise naturally from the breach itself (Direct/general Damages) or (2) those from special circumstances that were communicated or known by the parties when the contract was entered into (Special/Consequential Damages) (Have to know about the special circumstances to be liable for damages)B. Certainty/Causation

a. Restatement Rule (352): can only recover damages which are established with reasonable certainty (also have to show amount of losses with reasonable certainty; profits and the amount of those profits) i. Have to show that you had losses but also amount of lossesii. Profits from a new business: usually too speculative; courts will allow it if plaintiff can show that he ran a similar business in the past and show those profits iii. Have to be able to show what the actual cost of completion is or else you wont be able to offset what your damages should beb. Fact of Damages v. Amount of Damagesi. Fact: It is established that there was some damage (even if exact amount isnt established) and jury is given large leeway as to how much they can awardonly need a general idea of the actual amount once its proven there were damagesii. Amount: the actual amount of damages that were sufferedc. Reputation: US courts are unwilling to award damages for loss of reputation even if it can be established with reasonable certaintyd. Foreseeability vs. certainty:

i. Foreseeability has to do with whether the possibility of the damages was sufficiently likely at the time the contract was madeii. Certainty relates to how clear it is at the time of suit that the alleged losses in fact occurred and were caused by Ds breache. Redgrave v. Boston Symphony

Actress could recover consequential damages for loss of professional opportunities (different than harm to reputation) bc the symphony cancelled her appearance bc of political statements she made. Other orchestras cancelled her appearances and it is reasonably certain it was from Boston Symphonys actions. f. Florafax International Inc v. GTE

Facts: Florafax hired GTE to answer calls from flower orders; GTE knew that Bellerose was one of its main clients. Florafax had one year, then month by month contract w Bellerose but could be terminated by either w 60 day notice. GTE argues no lost profits from third party contract and loss of Bellerose profits were not in contemplation at the time of the contract Held: Damages to Florafax; GTE knew/it was reasonably certain the consequences of breach and dont have to be limited to 60 day period bc it is reasonably certain that their contract with Bellerose would have continued longer General Rule: Lost profits are recoverable as long as they are (1) foreseeable when the contract was made (2) they directly or proximately result from the breach and (3) they are capable of accurate estimation (certainty) i. Can only recover net profits and not gross profits C. Duty to Mitigate

a. Restatement Approach (350): Damages arent recoverable for loss that could have been avoided without undue risk, burden or humiliation i. Not precluded from recovery if the injured party made reasonable but unsuccessful efforts1. Only need to make reasonable effortsnot expected to incur considerable expense or inconvenience, disorganize business, damage reputation, break other contractsii. Lost Volume Seller: If the seller would have entered into both contracts and received benefits from both, the one is not a substitute for the other. iii. Personal Service/Employment Contracts: Courts wont make someone take a position that is at all different than the one beforemust be completely comparable (Shirley McClain)D. Duty to Mitigate under UCC

a. UCC Lost Volume Seller2-708(2): If measure of damages is inadequate to put the seller in as good a position as performance would have, then damages is the profit (including overhead) that the seller would have made from full performancei. Has to be able to have entered into both contractsb. UCC 2-715(2): party has to cover when it is possible to do so and if they do not where it was possible they cant recover those damagesi. i.e. buyer doesnt get goods at all or gets defective goods, buyer has to try to purchase substitute goods from another supplierii. once buyer rejects the goods, they have to follow any reasonable instructions form the seller concerning how to get rid of the goods, without instructions buyer must make reasonable efforts to sell them if they are perishable or threaten to decline in valuec. What seller can do:i. Resell the goods and can recover contract/resale difference orii. Seller can choose to not resell the goods and get the difference between the contract price and the market price at the time and place for tenderiii. Sometimes seller can hold onto the goods and sue for the contract priceonly allowed where seller is unable after reasonable effort to resell the goods at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.iv. Lost profits if none of the others workd. Rockingham County v. Luten Bridge Co

Facts: County hired Luten to build a bridge, county repudiated and Luten continued to build the bridge Held: Luten only gets damages from the time of the breach, should have stopped working General Rule: once a party breaches or repudiates a contract, the other party cannot continue on with the contract and expect damages for full performancei. Approach: damages to injured builder = expenses incurred + expected profit (same result as R347 approach, just a different way to calculate it) e. Maness v. Collins

Facts: P sold business to D w agreement that he would be manager for 3 years; they fired him for not fulfilling his duties bc the son/nephew of D told employees not to listen to him, verbally abused him, selling drugs out of the company building, so P just stayed in his office more and more. P built himself a new house and did not seek other employment, says non compete agreement should be void. D claims he had to mitigate Held: Damages to P; there was no evidence at trial that there was comparable work out there for P, and failure to mitigate damages doesnt preclude damages completely General Rule: defendant has the burden of proving that there was suitable alternative employment available, employment is comparable, and employee failed to use reasonable diligence to obtain such alternate employment. i. Employee needs to mitigate with comparable work: Parker v. 20th century Fox Case: D promised P (Shirley McClaine) to be in a major musical motion picture then took her out but offered her a non musical motion picture for the same pay. The second is not comparable to the first bc it is a different motion picture and different directors, etcii. Fair v. Red Lion: Employee fired and then offered job back and she said no bc she had apprehensions about working there again. This is a failure to mitigate1. It would not have been if they were previously harassed on the job and there was a hostile work environment2. Would not have been if when compensation and duties were difference and employee would report to his replacement f. Jetz Service v. Salina Properties

Facts: Jetz supplies coin operated laundry machines, has a warehouse with 1500 machines. 6 yr lease with Salina; Salina pulled Jetz machines out and put their own and says jetz failed to mitigate and should only be awarded cost to move the equipment Held: jetz is a lost volume seller; had enough machines to rent out more

General Rule: duty to mitigate does not apply to lost volume sellers; To be a lost volume seller you must prove that (1) possess the capacity to make an additional sale; (2) it would have been profitable to make an additional sale and (3) it probable would have made an additional sale absent the buyers breachi. Fixed costs: cant get damagesii. Variable costs: can get damagesg. Hypo: Professor is hired by JMLS under 2 year contract to teach contracts at $50,000 a year. Fired 6 months after beginning but she was paid for 6 months. She looks for a job for six months and then finds a job at Marquette law school at $45,000/year. She incurs $1,000 in expenses in looking for a new job.What if she doesnt find another law school job but gets one at the wee-care day care center. Damages? V. Non-Recoverable DamagesA. R353: When damages for emotional distress can be recovered

a. Breach of contract also causes bodily harm:i. Sullivan v. OConnor: Dr. did nose job on patient and promised it to look a certain way and it came out bad; has to get another operation; damages can include emotional distress of having to undergo additional operationb. Emotional distress is a particularly likely consequence of breach: i. Contracts of carriers and innkeepers with passengers and guests, contracts dealing with carriage or disposition of dead bodies, contract for delivery of messages concerning death, anxiety over death, birth of a crippled unwanted child, ii. Does not include the loss of money c. ED not recoverable when:

i. loss of money unless left destitute

ii. loss of relationship with child (custody battle)

iii. ED from miscarriage when Dr didn't return calliv. construction delays/departure

v. not for nervousness or emotional distress

vi. doesn't matter if given notice that person is "delicateB. R355: When punitive damages are recoverable:

a. Can recover punitive damages if the conduct constituting a breach is also a tort for which punitive damages would be appropriatei. In a tort an injured party can recover punitive damages when the conduct is outrageous. ii. Ex: D a car dealer sells a used car to P. d states the car Is nearly new with only 3000 miles on it. D set back the odometer from 33,000 miles. P discovers Ds misconduct a few months after the purchase and sues. P is entitled to punitive damages since Ds conductfraudis a tort. b. Two types of breach (Professor Dodge): punitive may apply. i. Opportunistic breach involves an attempt by the breaching party to gain at the expense of the non- breaching party. (to prevent opportunistic breach bc dont increase social wealth.

ii. Efficient Breach occurs when breaching party seeks to engage in another transaction more profitable (incentive to negotiate for release from contract and improve efficiency and less transaction costs)

c. Exceptions:i. Bad Faith Breach of Insurance Contracts: bad faith refusal to honor claims brought by third parties against their insured parties and also first party claims 1. Damage for a fire (first party claim)2. Only limited to insurance contracts (get punitive damages)3. Factors: for insurance co breach:a. Insurance is protection against calamity

b. Unequal bargaining position

c. Claimant especially vulnerable economic position

d. Whole purpose of insurance is defeated if Ins. Co can refuse/fail, without justification, to pay a valid claim.

e. Rationale to encourage fair treatment and penalize corrupt practices by insurers. 4. If insured party makes valid claim and they refuse to pay = bad faith. Then both compensatory and punitive damages

5. Standard must show absence of reasonable basis for refusal to pay policy or reckless/unreasonable reason for non-payment. ii. Can claim bad faith for all breaches of contracts, not just insurance contracts; example is if someone breached voluntarily to make a better deal somewhere else. d. Note: although punitive damages for bad faith breach of a noninsurance contract is unlikely, punitive damages can be recovered if the defendants conduct goes beyond bad faith to amount to an independent tort for which punitive damages are recoverablei. Usually cases that involve fraud or breach of fiduciary dutyii. Allowing punitive damages for other actions would end in a windfall for the plaintiff and goes against the expectations principlewould put plaintiff in a much greater positionVI. Efficient BreachA. Policy for Efficient Breach: If makes one person better off without making anyone else worse off then it is 1) socially beneficial 2) efficient breach

B. Justification for the Expectation Damage Rule

a. Executory Contract: Contract that has been neither performed nor relied on i. However, just bc the contract wanted performed doesnt mean that one party didnt rely on the contract to make other arrangementso most contracts are not purely executoryb. Why do we always pay the injured party his expected profit?i. May compensate for less tangible elements of reliance that dont always get calculated in damages. There is a fear of under-compensating.ii. Encourages reliance on contracts, want to award a full measure. Rely on the institution of contracts.iii. Deter the decision to breach.iv. Psychological Argument: the injured party has a property like interest in that performance and the better approach is to not limit the injured party to out of pocket expenses; he has an expectancy once he enters into the contract1. Ex Doctor: you cancel an apt and they still charge you bc they could have seen another patient at that time. c. Hypos

i. A agrees to sell corn to B for $2/bushel for corn. B is planning to resell the corn to C for $3/bushel. The market price at the time of the breach went up to $4/bushel. Suppose A has better opportunities and sells the corn to another person1. UCC Market Formula: Bs damages are the difference between the market price and the contract price 2. UCC Cover Formula Variation: B went out and spent $4.50/bushel to keep the contract with third person. With good faith and without unreasonable delay-he can recover the price differential which is the difference between the cover price and the contract price.3. What if C releases B from the obligation to perform under the contract? B now wouldnt have an obligation anymore. Could the farmer make an argument that damages should be limited to less than $2/bushel?4. ARGUMENT: At the end of the contract, he would have only been getting $1/bushel because that was what the expectation was under the contract.5. ARGUMENT AGAINST THIS: Recognize that one function of contracts is that it is a mechanism by which parties allocate risk. If it shifts in ones favor, then he should be entitled to the market price. You take a risk when you contract!C. Theory of Efficient Breach

a. Rule: If breaching would be more profitable or efficient for the breaching party, then it is efficienti. Posner: breaching a contract is good if its efficient-Economic Insight 1. Sometimes better for a party to breach a contract because he gets a better deal out of it2. Rules of contract remedies are good from a policy perspective, because breach of contract might not be considered a socially bad thing3. Perato Superior: Some parties are better off without some party being worse offii. Holmes: breaching a contract is amoral- when you breach a contract you either pay damages or you honor your contract-there is no morality involvediii. Basic Idea: efficient breach is that no one is worse off but some are better off. b. Arguments against the theory:i. doesnt take into account the transaction costs to litigate and to actually get the damagesii. Doesnt take into account the emotional distress and other damages that arent usually compensated for.iii. It isnt fair. The injured party is under compensated and stressed out.iv. Doesnt capture idiosyncratic value-the value the plaintiff has attached to the contract.v. The value of contractual relationships-there is an intangible value of the contract.c. Note: Make sure to argue the Lukaszweski approach and the Roth approach d. Roth v. Speck

Facts: P owns hair salon, hires D for $75 a week or 50% of commissions, whichever is greater. D stops working after 6.5 months. P tried to hire two other people but he was making no profit. Held: couldnt measure against Ds replacement bc D was irreplaceable so used the difference between what D was actually worth ($100 being paid at new job) and the difference of salary at Ps salon ($75) General Rule: Value of an employees services may be an appropriate measure of damages resulting from breach of an employment contract so long as these damage can accurately be proven. (Had to use this approach bc there was no replacement) i. Disgorgement Principle: recovering beyond damages and also getting the profits that the breaching party incurred from the breach1. S/B used in 2 types of cases:

a. Those involving appropriation of some property or quasi-property interest rightly belonging to plaintiff

b. Those in which deterrence is a major factor

i. Reprehensibility of defendants conduct

ii. Importance of duty he breached

iii. Extent of defendants contribution

iv. Justification for granting plaintiffs windfall

ii. Policy Argument Against this Approach: the jobs could have been different, in Lukaszewski the two jobs could have been different; why would anyone go to another job if you would have to pay the extra money that you are making at your new job; it punishes the breaching party and provides a disincentive for an efficient breachiii. Breaching Party bares the burden of showing the mitigation of damagesiv. Exception: This case is an exception to the rule in Lukaszewski; requires employee to give up earnings they got at the new job1. Policy Argument : this approach to measuring damages overly deters the choice to breach. However, court justifies it bc it was the only way to make the injured party whole. VII. Reliance DamagesA. R90 Promissory Estoppela. Elements1. Promise made

2. Promisee should reasonable expect to induce action or forbearance

3. Does induce action or forbearance

4. Injustice can only be avoided by enforcement of the promise

a. Remedy can be limited as justice requires

b. Changes between 1st and 2nd restatement versionsi. 1st required that the promise be of definite and substantial characterii. 2nd gives the court discretion to limit the remedy as justice requires 1. Old Rule: Uncle promises nephew $1000 to buy a car and nephew relied by purchasing a $500 car. Nephew is still entitled to the $10002. New Rule: Nephew would only get $500 bc that is all justice requirese. Promissory Estoppel: if plaintiff actually sues on promissory estoppel they cant get damages but can get reliance damagesB. Situations Reliance Damages would be sought:a. Pre contractual reliance scenario (Walser)b. Employment contract setting (i.e. reliance on an offer of at will employment)

c. Where expectation damages cannot be proven with reasonable certainty i.e. lost profits cant be proven or other damages cant be proven (then can go to out of pocket with reliance)

i. Under reliance damages P can get compensated for expenses in preparing to perform and those made in actually making part performance

d. No legally enforceable contract

e. Plaintiff is a buyer under a land contract and seller does not want to convey the property

f. P would be able to recover what she has paid on the purchase price plus expenses that she reasonably incurred in connection with the transaction (however P can get the benefit of his bargain if seller did so in bad faith or it was fraud in refusing the conveyance)g. NOTE: the breaching party is allowed to try and offset the damage award by proving loss that the injured party would have suffered had the contract been full performed. C. Limitations on Reliance Damagesa. Cant be more than the contract price

b. Most courts also refuse to allow reliance damages to exceed expectation damages but place the burden of proof on the defendant to show what the plaintiffs loss would have been. i. If D proves that P would have actually lose money on the contract, that lost profit will be subtracted from the reliance damages PG 314 Emanuels reliance is compensation for the harm and reliance on the promiseD. Hypo: P applies to D, a radio distributor, for a franchise to sell radios. D erroneously tells P that the franchise has been approved, that P can proceed to employ salespeople and solicit orders and that an initial shipment of thirty radios will be made. P spends $1150 in preparing for the business but doesnt receive the franchise or radios. P sues on promissory estoppel. Cant get lost profits but can get reliance damages i.e. expenses in preparing E. Walser v. Toyota Motor Sale USA

Facts: P applied to open and run a Toyota dealership, district manager told P that they were their dealer and the letter of intent was formally approved. In mean time P bought land for dealership and then found out they werent getting it. Awarded out of pocket expenses but P claim they should also be awarded lost profits and the limit of out of pocket expenses shouldnt just be the difference of the market value and contract price, they should also get all their other investment expenses which is more than $1 million Held: only gave them difference between the value of the land now and what they bought it for bc that was reasonable reliance based on the promise

General Rule: damages from a promissory estoppel claim may properly be limited to out of pocket expenses; damages may be limited to what justice requires and that can just be to the extent that the plaintiff relied based on what is reasonable for the promise made i.e. compensation for what they actually lost. a. Can limit damages less than full expectation damages to go only as far as justice requiresthink pre contractual reliance

b. At will employment: offered a job by law firm in NYC, sell house, get apartment in NY, week into employment you are let go: if the contract is an at will contract cant recover expectation damages. Courts will sometimes award reliance damages insteadc. If expectation damages cant be proved with reasonable certainty: lease agreement to open a book store, make some out of pocket investments, furniture shelves inventory; then landlord breaches and says you cant rent; bc its a new business cant show lost profits with any degree of certainty so maybe you can recover out of pocket damages i. RULE: where expectation damages cant be proved with reasonable certainty the court will go to out of pocket expensesVIII. Restitution DamagesA. Generally:a. Defined: restitution interest is the value to the defendant of the plaintiffs performance; want to give damages to plaintiff for however much the defendant was enriched. b. Goal: To prevent unjust enrichment c. Trying to award the value rendered to the defendant regardless of how much the cost to the plaintiff and how much the plaintiff was injured by the defendants breach. d. If the performance has no value to the defendant then it has no restitution damages (regardless of how much it cost P) B. Restitution when the other party is in breach:a. R373: When there is either a breach by non performance that gives rise to damages for total breach OR a breach by repudiation, the injured party can get restitution for any benefit that he has conferred on the other party by part performance or reliancei. Non Performance: Must be a total breach and cant be a partial breach (i.e. you accept performance w knowledge of defects then you cant claim total breach) b. Exception: Cant claim restitution if the contract is complete and all that is left to be done is a sum of money paidthen have to claim expectation theory and just get contract price plus interestC. Restatement 371: Measure of Restitution:

a. Damages award is the lesser of i. The reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from P or someone exactly like P (essentially the benefit D receivedusually calculated by market price) ORii. The increase in property value or how much the breaching partys interest has advanced. iii. Limitation: Not limited to contract priceD. Restitution as a remedy for breach of contract

a. If one party commits a material breach, the other party can rescind and recover in restitution.b. Usually where expectation damages cant be calculated with reasonable certaintyc. Ex: Contractor does part of the work and the owner breaches, contractor may be unable to show what his cost of completion would have been. Contractor will normally be permitted to recover restitution damages, calculated as the market value of the partially completed performance. E. Restitution is not limited to the contract price

a. Work done by P prior to Ds breach has already enriched D in an amount greater than the contract priceF. Restitution not available where P has fully performeda. If at time of Ds breach, P has fully performed (and D owes only money) most courts dont allow P to recover restitutionary damagesmust go to expectation damagesb. P can sue if it is based on non performance or repudiationi. If the breach is based on non performance it has to amount to a total breach and not just damages for a partial breach in order to be able to get restitution damages. G. Restitution for the breaching party a. R374: Breaching party is entitled to restitution for any benefit that he has conferred in excess of the loss that he has caused by his own breachi. If the contract explicitly says that performance should continue if there is a breach, the party cant get restitution if the value of the performance as liquidated damages is reasonable in the light of anticipated or actual loss caused by the breach ii. Note: if a party purposely gives services that are different than what was promised that person acted officiously and will be denied recovery H. Losing Contractsa. Defined: if a party would lose money under the contract if it were completed, they can still sue under restitution and get the reasonable value of their work regardless. b. Party in breach is only liable to the extent that he has been benefitted from the injured parties performancesimilar work donec. If all is left is the to pay a certain sum, then that would be the expectation damages and cant get restitution damagesI. Impracticability: you can recover under restitution if the contract is rescinded on grounds of impracticabilitya. Ex: hire someone to paint house, they bring equipment, painted half the house, and then the house is destroyed by fire. Contract is rescinded on grounds of impracticabilityeven if the house has been destroyed he did confer a benefit and would be entitled to damages measured by the value of the benefit conferred. J. Lancellotti v. Thomas

Facts: P bought Ds business and D agreed that he would make an addition or else the rent would go down. P made $25k down payment and only operated the business for one summer. P wants his $25k back and D wants $52k for the rent for the summer and compensation for damages to business, good will, physical operation Held: it has to be determined if $25k is actually what D lost and if they should keep that money, if not actual damages it would be a windfall

General Rule: a breaching party is entitled to restitution in excess of the loss caused by the breach (r374)a. Breaching party cant sue under expectation theoryb. Britton v. Turner: laborer agreed to work for 12 months on employers farm for $120 to be paid at the end. Laborer quit at 9.5 months and sued in quantum meruit for labor performedK. Maglica v. Maglica

Facts: Couple lived together for 20 years, not married but acted as husband and wife; worked at husbands company and both built it up and it is worth hundreds of millions when they split; business boomed largely bc of her; Held: only can be awarded reasonable value of her services bc otherwise it would give her ownership in the company and that was not bargained for; in quantum meruit it only matters that there was a benefit received General Rule: For a restitution claim the damages are measured by the reasonable value of the services so long as there was an actual benefit received by the defendant; cant measure by the value of the benefit to defendant L. US ex rel. Costal Steel Erectors v. Algernon Blair Inc

Facts: Blair had contract w US to construct a naval hospital and subcontracted Coastal for steel work. Coastal started working and Blair wouldnt pay for the crane rental after 28% of the work was done. Coastal stopped working and Blair hired another. Coastal brought action for labor and equipment and claims quantum meruit (reasonable value of services); D claims P shouldnt get reasonable value of services bc P would have actually lost money on the contract Held: can recover quantam meruit (reasonable value of services) bc under restitution damages are the reasonable value of the performance and not diminished by loss if there was complete perf. General Rule: When recovering under restitution, a party can recover in quantum meruit regardless of whether they would have lost money on the contract and not been entitled to recover for a suit on the contracta. Injured party can choose to sue under restitution or expectation theory or relianceb. If there is complete performance then it is not a restitution claim, it is expectation damages i.e. contract pricec. Restitution is not to put the injured party in the position it would have been but to give the party the value of the benefit conferreddamages are the reasonable value of services determined by what those same services could be purchased form one in the plaintiffs position at the time and place services were rendered. d. Constantino: P had to clean 33 grain storage tanks for $30k to be paid by D. D breached and P had cleaned 24 of the 33 tanks. P claimed reasonable value of services was $69k. Held: Damages are 24/33 x $30k so about $22k. Used contract price to figure out how muchi. Pro rata: use contract price to determine the damagese. Majority Approach: Algernon: in a losing contract the party can choose either restitution or expectation theoryf. Minority Approach: Constantino: sometimes can get a prorated portion M. Hypos

a. A and B enter into a contract. A agrees to pay B $300 if he paints the house. After he paints the house, B sues in restitution and the reasonable value is $500. The market value is $500. Can he do this?ANSWER: No because he bargained for it. If there is a contract, he cant bring a cause of action for restitution, for something the parties have already agreed to. He can only get the value under the contract.

b. Corey paints house for me and I pay him $300. Total estimated costs for Corey are $360 so it is a losing contract. Costs incurred at time of breach are $120.

ANSWER: he wouldnt want to sue under expectation damage bc its a losing contract and the costs are higher than the contract pricehe wants to sue under a restitution theory bc the reasonable value of the services rendered would be more than $120.c. Corey paints my house and charges me $300. Corey completes the work, spending $250 on labor and materials, but his work is defective. Costs me $100 to hire Daniel to fix the defects. Coreys work increased the value of my house by $200

ANSWER: the reasonable value of Coreys services to me are $200; since Corey is the breaching party we have to subtract the damages suffered by the breach which was the $100 I paid Daniel. So corey gets $100.

i. If its the breaching party seeking restitution you should use the lesser of the two measures

VIX. Specific PerformanceA. Factors of Specific Performance:1. Contract is sufficiently definite

a. Rights and obligations of the parties be specified with greater definiteness than if it were for just money damages to allow the court to frame an adequate order 2. Money damages would be inadequate or they would be impracticable

a. Speculative or hard to calculate damages; may involve matters of taste or sentiment i.e. contract to sell a work of art which has sentimental value to the purchaserb. There is no substitute available; Ex is P having contract with D for propane for subdivision and D repudiates, P wins specific performance bc we cant predict the future of P finding propane bc of the unpredictable world supply, also evidence P cant find another supplier to enter into a long term contract

c. Land bc its unique

i. Seller refuses to convey can award specific performance even buyer has already contracted to resell

ii. If the buyer breaches specific performance will be awarded to seller

iii. If the seller has already conveyed then damages can be awardeddifference in market value.

d. Patents and copyrights; sale of a business; forbearance (not to compete)

e. Forbearance: damages usually no adequate when someone says they will not compete

f. Sale of business: unlikely to find a comparable business

3. Enforcement would not require excessive court supervision

a. Construction contracts usually require thisdifficult to judge complex work and judge the results b. Personal service contractsalmost never award specific performance for this (Goes for both sides of the contractif employer or employee repudiates)

4. Performance would not create undue hardship to defendants

B. Injunctionsa. In employment contracts: courts will not force the person to work for their employer but will prohibit them from working for a competitor b. In order to get an injunction three things must be met: i. Unique Skills: employer has to show employees services are unique or extraordinary (either she has a special skill or has acquired special knowledge of the employers business)usually found for athletes or starsii. Other way to make a living: injunction wont be granted if it will likely leave the employee without other reasonable means of making a livingcant satisfy this if the only alternative is for the employee to perform the contractiii. Employers willingness to perform: if there are other ways to make a living, but its probable that the employee will choose to just perform the contract, the employer should be prepared to continue employment in good faith so that the personal relations where the enforced continuance is undesirable. C. UCC Approacha. 2-716: Specific performance can be awarded when the goods are unique (in terms of the total situation which characterizes the contract)i. Rare, sentimental valueii. Piece of art, family heirloomb. Just bc the price of an item has risen doesnt mean anythingc. Even if the goods were not unique, if the party can show they were not able to cover or find substitute goods within a reasonable amount of time then they can get specific performance. d. Ex: Contract to sell 1933 renovated unique automobile. Seem that it wouldnt be able to find it on the market.-Could be seen as a unique good.e. Ex: Contract to sell a corporate jet. Suppose that there are 2 or 3 on the market for saleMonetary damages over specific performance would be awarded.f. Ex: Contract to sell a shipment of steel. 5 tons of steel for $500 a ton. Dramatic shift in market for steel. $500 a ton to $1200 a ton. Can buyer seek specific performance for the contract?Doesnt seem like steel isnt available. Monetary damages should be awarded as opposed to specific performance.g. Ex: Contract is between the star pitcher for the Cubs for the 2009 season and he is going to break the contract to play for the St. Louis Cardinals. Can they get specific performance?Courts will not affirmatively issue an injunction for a personal services contract. D. Liquidated Damages: Generally has to be a reasonable amounta. In order for a liquidated damages clause to be enforceable it must be (1) reasonable in light of the anticipated or actual loss from the breach AND (2) must be reasonable in light of the difficulties of proof of loss (has to be uncertain or difficult to calculate accurately) i. Large damages that act as a penalty are not enforceable bc of public policy. ii. If there turns out to be no actual loss then the liquidated damages clause will not be enforcedb. How to decide if liquidated damages are a penalty:i. (1) Amount is reasonable to the extent that it approximates the actual loss that has resulted from the particular breach (even though it doesnt anticipate losses from other types of breach); according to the anticipated amount at the time of contracting. ii. (2) the greater the difficulty in proving the loss has occurred or of establishing its amount with certainty, easier it is to show the amount fixed is reasonable.iii. If there is no loss at all then there a liquidated damages clause will not be enforced. c. Damages computed by gross revenues, etc: If damages are calculated by Ps lost gross revenues, lost gross profits, or something similar, courts will view it as a poor estimate of actual losses and deem it unenforceable if it greatly deviates from actual lossesi. Examples pg 340-341 supplement E. City Stores Co. v. Ammermanspecific performance

Facts: D wants to open strip mall, needs Ps help to write a letter to convince the board for rezoning; letter proves there was an agreement that if P helped get the rezoning approved P would get a spot in the mall on terms at least equal to those granted to other major tenants; D argues the it is not an option contract bc it is not sufficiently definite in the terms; Held: P gets the option contract bc there are other stores in the mall already so that can be used for the terms of this contract

General Rule: Even if a contract contains some terms that are subject to further negotiations, there can still be specific performancea. D also says it would cause hardship bc they would get sears in that spot otherwise and that would make them more money and they can only have 3 dept. stores in the mallmajority says it would not ruin them so it is not hardship, D is the one who agreed to only have 3 dept. stores in the mall so P shouldnt be punished for thatb. Court supervision: the fact that there is no other adequate remedy bc this is a unique piece of property trumps the notion that there might have to be a lot of court supervision of the verdict. F. Reier Broadcasting Co v. Kramer - cant apply specific performance Facts: Reier paid Kramer (head coach of MSU) for exclusive rights to broadcast MSU athletics. Kramer then gave the rights to another company. Reier says this is a negative covenantdont want to make them give the rights to Reier, just want to make them not give the rights to anyone else. Held: cant enjoin Kramer from performing services w another company bc then it is essentially forcing them to give the services to Reir bc they wont have another option. a. Lumley v. Wagner: Agreed to sing only at Lumleys opera for a specified time and then went against that and sang at another. Judge said that he could tell her not to sing at the one but could not tell her to sing at Lumleys. If she chose to since at Lumleys instead that was not his faultG. Barrie School v. Patch liquidated damages

Facts: D enrolled daughter at school; liquidated damages clause said if they didnt ask for a refund before May 31 they had to pay full tuition. Didnt ask for a refund in time; D wants down payment back and wont pay remainder of tuition. D says school had to mitigate by finding another student Held: liquidated damages is reasonable bc there was no way to find actual damages and it was not so large to be a penalty; no reason to find actual damages bc it is a valid liquidated damages clause therefore not requiring us to consider mitigating damages. Ds must pay the tuition General Rule: A liquidated damages clause means that the non breaching party does not have the duty to mitigate damages. a. Barrie Approach: Assessing the liquidated damages clause should be done at the time of the conclusion of the contract and not later, only has to be valid at that time (different than restatement bc R says you can use the actual losses and how that effects the clause) b. Assess liquidated damages from barrie approach and R approachc. Wassenaar v. Panos: employee had 3 year agreement with employer and liquidated damages clause stated if employer breaches, he will still pay the entire financial obligation. Employee fired with 21 months remaining and then found a job within 3 months. Clause was upheld, taking into consideration harm to reputation and emotional distressH. Hyposa. Paul makes a down payment and then decides not to buycan the seller keep the $10k down payment? Paul is the breaching party but will argue restitution to prevent unjust enrichment on Sally; she would argue they agreed to liquidated damagescourt would say that retaining the $10k would be unreasonable.X. Interpretation of Terms and MisunderstandingA. Restatement approach R201: Objective Approacha. Defined: What a reasonable person would have interpreted the contract to mean, sometimes neither party intended the reasonable result. b. Modified Objective Approach court should answer two questions: MUTUAL ASSENT

i. Whose meaning controls the interpretation of the contract?

ii. What was that partys meaning?

iii. Corbin based this on premise that it was absurd for a court to give a contract a meaning that neither of the parties intended.

iv. No longer use subjective approach Peerless case (what parties meant) or objective approach (words and conduct interpreted by reasonable person standard)c. If parties share the same meaning, that meaning prevailsd. A party that knows or has reason to know of the other partys meaning is held to that meaninge. If there is no sensible basis for choosing between the parties conflicting meanings, there may be a failure of mutual assent if the misunderstanding is material to the contract. B. Omitted Terms supplemented by the court

a. Restatement Approach R204: when the parties have made it clear they intend to be bound by a contract but havent agreed to a term that is essential to determine their rights and duties, a term which is reasonable is supplied by the courti. Usually the courts have to add in in good faith C. Policy: a. Contra Preferendum: ambiguity in contract terms must be construed most strongly against the party that drafted the contractb. Policy Reasons:i. Drafter is more likely to have provided for the protection of his own interestsii. Likely to have had a reason to know if uncertaintiesiii. Could have been deliberately obscurec. Repeated course of performance is given great weight, d. Usually try to give a reasonable, lawful meaning to the interpretation of termse. Look to whether they were separately negotiated rather than standardized termsD. Joyner v. Adams

Facts: P leased property to Brown. The property was to be subdivided and the rent would increase over the term of the lease. Adams would get discounted rent as long as he developed and divides the property into lot leases. Difference in meaning of develop and divide the lots. Joyner thinks it means the lots must have complete buildings and Adams thinks it means lots must be ready for constructiongraded, w roads, water, and sewer lines installed. Held: Remanded to decide whether one or both knew about the others meaning

General Rule: the rule that an agreement should be construed most strongly against the party who drafted the contract applies to contract construction but not contract interpretation (no indication here who wrote or chose the language of the contract) (Contra preferendum not applicable) a. Burgess v. JC Penney Life Insurance Co: Burgess bought a $100k life insurance policy from JCP. Policy excluded benefits if the loss (of life) occurred while the covered persons BAC was .10% or higher. BAC at time of accident was .12%. BAC at time of death was below .10%. Court ruled in favor of beneficiaries bc JCP wrote the clause and they should have written it better. E. Frigaliment Importing Co v. BNS International Sale Corps

Facts: P (in Switzerland) ordered chickens from NY and thought they would be broiling and frying chickens but they were fowls, suitable for stewing. BNS thought they meant any type of chicken. Evidence considered: express contract terms, negotiations, trade usage, course of performance (parties conduct under the contract at issue) Held: BNS bc Frigaliment did not meet its burden of showing that trade usage indicates chicken mean broiling ones

General Rule: The party that asserts that there is a trade usage of a term undefined in the contract has the burden of proving that the party in the trade had actual knowledge of the usage or that the usage is so generally known in the community that his actual individual knowledge of it may be inferred. a. Bc the word chicken is ambiguous on its face, the court allows in evidence of negotiations between the partiesb. Course of performancec. Hurst v Lake: Steven sells horsemeat to Peter for $50 a ton. Peter is entitled to a discount if a given shipment is analyzed at less than 50% protein. Peter gets the shipment and pays Steven the discounted price and Steven sues for the difference. Shipment was 49.5% protein. Can Steven bring in trade usage evidence that 49.5% should be rounded up to 50%? Trade usage is objective evidence; F. Hypos:

a. I ask Corey to paint my house. I know I have two homes but he only knows that I have one. I think my home in Wisconsin and he thinks my home in IL: Corey would prevail because I know that I have two homes and that I should specify which one. XI. Parol Evidence RuleA. Generally

a. Defined: bars the fact finder from considering evidence of preliminary agreements that are not contained in the final writingB. Integrationa. Defined: b. Partially integrated v. completely integrated: Once you decide that a document is a final expression of the agreement (i.e. integrated), you have to decide if it is partially or completely integratedi. Partially Integrated: document is not intended by the parties to include all details of their agreement1. You cant supplement if it contradicts the terms of the agreement ii. Completely Integrated: document is intended by the parties to include all the details of their agreement1. You cant supplement the writing at all. iii. Judge decides whether it is partially or completely integrated; first considers all the evidence leading up to the agreementiv. If you want to supplement a term, you would argue that it is ambiguous and needs additional evidence. v. Ex: Pg 173 supplementvi. Policy: the final writing should be given greater weigh since the parties negotiated and came to a final decision c. R216: Completely or partially integratedi. An agreement is not completely integrated if the writing leaves out a consistent additional agreed term which is1. Agreed to for separate consideration OR2. That type of term in the circumstances would naturally be omitted from the writing. C. Parol Evidence Rule Exceptions

a. Interpretation of ambiguous termsif a term is found to be ambiguous (capable of more than one meaning), evidence is allowed to clarify, or just to allow the court to interpret an ambiguous term and not supplementi. Ex: Pg 184 Supplement ii. Used to show that the writing is or isnt integratedthis is allowed (completely or partially) b. Post-contract modifications (statements made after contract is concluded)c. Oral conditions precedent (parties premise their agreement on something occurringfinancing condition like in Crabbys)d. Contract defenses (mistake, fraud, etccant prevent a party from trying to prove that there is not a valid contract at all)e. Equitable reformationf. Collateral agreements g. **PER Doesnt apply to statements made after the written agreementD. Exception: Fraud, Mistake or Other Voidability a. Rule: Even if a contract is completely integrated, a party can always introduce evidence of earlier oral agreements to show illegality, fraud, duress, mistake, lack of consideration or any other fact would make the contract void or voidable i.e. parol evidence rule doesnt bar evidence that would show no valid contract exists. i. Even if there is a merger clause, can still show fraudii. Ex: Buyer buys apartment from Seller and contract has a merger clause. Later Buyer finds out seller lied about the profitability of the building. PER will not prevent buyer from showing seller made fraudulent misrepresentations. (Doesnt matter there was a merger clause) b. Collateral agreement supported by separate consideration: if there is an oral agreement that is collateral to the main agreement and is supported by separate consideration, you can show proof of this even if the contract is completely integratedi. Ex: A and B, in an integrated writing, promise that A will sell a car to B. They orally agree that B may keep the car in As garage for the next year at a rent of $50 a month. Can show evidence of this oral agreement despite parol evidence rule bc it has the $50 a month separate consideration in there. c. Sherrod v. Morrisoni. Facts: Sherodd was a subcontractor and D (general Contractor) stated that the job would involve excavating 25,000 cubic yards. Job based on that number then P discovered that the job would involve more than 25,000 cubic yards, but signed the contract anyway because work had already been started and D threatened not to compensate P for the work that had already been performed. P claims D said he would be paid more. The contract included a provision that it could not be modified by a verbal agreement.ii. Holding: Written contract governsiii. Sherrod Approach: Fraud exception WILL NOT APPLY if it pertains to a major term of the contractthe statement the plaintiff is trying to introduce is completely contradicting the agreement. (different than regular approach) d. Conditions: If the parties make a condition to performance or the existence of the contract and then dont put it in the written contract, courts will allow proof of the condition despite the PERE. Contemporaneous and Subsequent Expressions

a. If an oral agreement occurs at the same time as the writing is signed it proves that the writing was not intended to be a total integration and would allow evidence of the oral agreement to supplement (not contradict) the writing. b. Two documents/Ancillary: If two documents are signed at the same time they are said to just make one document c. Subsequent Agreements: a written contract can be modified afterwards by an oral agreement, parol evidence rule does not apply to this situation F. How to decide whether a contract is partially or completely integrated: Classical vs. Modern Approach to PER

a. Merger Clause: a clause indicating the writing constitutes the sole agreement between the partiesi. This conclusively establishes that it is completely integrated, unless the document is obviously incomplete or it was included bc of fraud or mistakeii. If there is no merger clause, then the writing as a whole should be examined: 1. If, for example, the writing is a lease with no mention of price or only expresses the duty of one person, it will be treated as partial integrationthe consistent additional terms can be added through oral evidence 2. If, on the other hand, it seems to be a complete expression of the rights and duties of both parties, it should be a total integration. b. Whether a contract is completely integrated:i. Classical: four corners approachonly look at the document and decide if it is ambiguousif a reasonable person would have put the other terms in or would have left them out. (Thompson)ii. ModernRestatement approach: All extrinsic evidence is relevant to decide if the parties intended the document to replace oral agreementsc. Contract Interpretation:i. Classical: Plain meaning rule: exclude evidence unless the contract is ambiguous on its face (court will not hear evidence about parties preliminary negotiations) ii. Modern: admit evidence unless it contradicts the express terms (admissible to reveal if there is a latent ambiguity) (Taylor)first have to look at the evidence they want admitted and if it shows something is ambiguous and if it contradictsG. UCC Parol Evidence Approach

a. Terms:i. Merchant: a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.ii. Merchant Good Faith: honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. iii. Good Faith for non merchant: Honesty in factb. Defined: A final agreement (Integrated) can never be contradicted by prior agreements, written or oral or by any writing that was signed at the same time as the writing (must show that it supplements and doesnt contradict) c. HOWEVER, a final agreement can be explained or supplemented by:i. Evidence of course of dealing, trade usage, and course of performance (applies to completely and partially integrated contracts) andii. By evidence of consistent additional terms unless the court concludes that the writing was intended not only as a final statement but also as a complete and exclusive statement of the terms of the agreement (can only do this if its partially integrated and not completely integrated.) d. Course of Performance: a sequence of conduct between the parties to a transaction that exists if :i. The agreement of the parties with respect to the transaction involves repeated occasion of performance by a party ANDii. The other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection. iii. Defined: refers to the way the parties have conducted themselves in performing the particular contract at handhelps to supply evidence as to what they intended the contract terms to mean.1. Ex: if the contract calls for repeated deliveries of highest grade oil, evidence as to the quality of oil delivered and accepted in the first installments would be admissible as a course of performance to help determine whether the oil delivered in a later installment met the contracts standardiv. Policy: Parties best know what they meant by their wordse. Course of Dealing: a pattern of performance between the two parties to the contract with respect to past contracts i. Only applies to conduct before the agreement, after or under the agreement is course of performance f. Usage of Trade: any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question.i. Meaning attached to a particular term in a certain region or in a certain industry would be admissible. ii. Existence and scope of usage must be proved as factsg. They cannot contradict each otheri. Express terms prevail of course of performance, course of dealing and usage of tradeii. Court of performance prevails over course of dealing and usage of tradeiii. Course of dealing prevails over usage of tradeiv. Express terms ( course of performance ( course of dealing ( usage of tradeh. When those things are barred

i. If a contract specifically bars introducing evidence of the three things above then they cannot be admitted i.e. specifically say you need 1000 of something regardless of what trade usage says. i. Nanakuli v. Shell Oili. Facts: Nanakuli contracts to buy asphalt from Shell under a long term contract. Written contract says the price will be Sellers posted price at time of delivery. Years later Shell increases its price by 75% and refuses price protection (locking in prices for orders already placed) Shell has given price protection on prior occasions. Nanakuli says trade usage granting price protections should be part of the contract. ii. Holding: the trade usage was enough evidence to only supplement the express term and not swallow it entirely. If it would have tried to set the exact price then the express term would have prevailed) iii. Good Faith Requirement: Shell was bound by the observance of reasonable commercial standards of fair dealing in the trade (did not give Nanakuli advance notice of no price protection) j. Policy: a standard merger clause is not enough bc course of performance, etc will still be allowed in. Also cant just say that course of performance etc wont apply, have to specifically say which course of performance, or trade usage will not apply (In Nanakuli had to explicitly say price protection didnt apply) H. CISG Parol Evidence Approach

a. Article 8(3): in determining the intent of a party, 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. b. MCC-Marble v. DAgostino:i. Facts: MCC is a US buyer and DAgostino is an Italian Seller. MCC says they had no intention of being bound by the terms on the back of the contract and want to introduce evidence of oral agreement and DAgostinos reps who can give testimony of this. ii. Holding: considers the evidenceiii. General Rule: CISG rejects the parol evidence rule and extrinsic evidence will always be permissible, only way to allow parol evidence rule is to opt out of the CISG. (Merger clause still wouldnt have made a difference bc that is an aspect of the PER)I. Thompson v. Libby(Classical Approach)

Facts: P owns logs and D contracted to buy the logs. D says that there was an oral warranty as to the qualities of the logs and is trying to introduce evidence to show that there was an oral warranty and says its not against the parol evidence rule bc it is collateral to the contract; this case is about supplementing and not contradicting. This is a completely integrated contractwe only look at the 4 corners at the writingit looks like it covers everything. (no gaps) Held: parol evidence cannot be admitted to prove there was an oral warranty bc this is a completely integrated contract a. Thompson Approach: Classical view: only look to the four corners of the writing to distinguish if it is completely integratedif there are not gaps and it all makes sense then its completely integrated. b. Merger Clause: language in the contract that states this is the entire agreement between the parties w respect to the subject matter of the contract and trumps anything that may have come before itagreement that it is a completely integrated contract. i. BUT, just bc there is a merger clause doesnt mean a court willalways say that its completely integrated (when the parties are not at equal bargaining power or there are gaps in the document and it is clearly not integrated) J. Taylor v. State Farm (Modern approach) a. Facts: This claim arises from a three-car accident involving Plaintiff. Defendant is Plaintiffs automobile insurance provider. Plaintiff received a judgment against him in excess of his policy limits. Defendant argues that the claim is barred by a release Plaintiff signed. P says the release relinquished D from contractual rights and P is bringing a bad faith suit and that should be allowed. Holding: court used the modern view and decided, and the extrinsic evidence was allowed for reasons of interpretation. General Rule: Used modern view: to determine the intent of the parties and the extent of integration in the written document and looks at all extrinsic evidence, then the court applies the parol evidence rule to exclude any extrinsic evidence that varies or contradicts the written document.K. Hypos:a. Sally sells her apartment to Paul for $100k. As they are talking, Paul notices a stereo system built in to the wall and asks if that comes with the apartment, Sally makes verbal promise to throw in the stereo system within the sale. In writing the verbal promise isnt in there. So is the verbal promise enforceable? They wrote out and signed the contract so it is a final agreement. Would the language of the stereo agreement contradict the contract? i. If the contract said no fixtures are included in the contract of sale then it would directly contradict the contract if the stereo is a type of fixture XII. Implied Terms

A. Restatement Approacha. Rule: if its a condition that the obligor has to be satisfied with the obligees performance, and we are able to determine whether a reasonable person in the position of the obligor would be satisfied, then we should interpret it by deciding whether a reasonable person in the position of the obligor would be satisfiedi. Good Faith: Every contract imposes a good faith requirement and satisfaction must be in good faith. ii. Non Merchants: Held to a standard of honesty in factb. Objective Test: When reasonable person standard applies: when the contract involves commercial quality, operative fitness, or mechanical utility which other knowledgeable persons can judge, then the courts will decide it based on whether a reasonable person would be satisfied1. Good Faith: Even under this test, the partys dissatisfaction must be in good faith, even though it is unreasonable if he is honestly not satisfied thats ok2. If satisfaction depends on a third party, like an architect, the court will usually take that opinion as controlling. 3. Fraud, bad faith will excuse the condition.c. Subjective Test: When the good faith standard applies: when the contract involves personal aesthetics or fancyi. Person is held to a duty of good faith and honesty1. Ex: to Paint a painting2. Ex: hire a band to play at your inn, A occasionally objects when B is absent and a guitar is substituted for Bs string bass. A says he is dissatisfied. B has no claim bc it is not practicable to apply an objective test d. Employment Contractsi. Help to decide when an employer may terminate an employment agreement. ii. At will employment: most employment is at will, without a contract specifying length of employment and does not contain a good faith requirement1. Either party may terminate employment for any reason or no reason at all unless:

a. Theres an express statement in the as to termination or duration ( which wouldnt make it at will anymore) e. Morin v. Baystone Construction Inci. Facts: Baystone subcontracted Morin to erect aluminum walls and the contract said what is customary in erecting other buildings does not matter, approval regarding quality and type of work done lies within GM. GM rejected the walls, removed them, hired someone else and didnt pay Morinii. Holding: Morin prevails and gets paid, reasonable person standard applies bc it was not an aesthetic issuecontract was ambiguous and didnt suggest approval was subject to aesthetic approval. iii. General Rule: If common product, then personal aesthetic isnt applicable, only if specialized or specific product (art, specific type of marble, photo, etc). B. UCC Approach

a. Merchant: Subject to honesty in fact and observance of reasonable commercial standards of fair dealing in the trade. b. Good Faith: Every contract imposes good faith requirement, UCC/R2dc. Output or Requirements Contracts: limits contract to such actual output or requirements as may occur in good faith i. Best Efforts: An agreement for exclusive dealing imposes, unless otherwise agreed, an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote the sale1. Buyer cannot buy from another seller while under the contract. ii. Output and requirements contracts automatically instill a good faith and best efforts standard. iii. Also applies to exclusive dealings contractsiv. This prohibits a party from doing things to try and escape the contract v. What if the market goes up and now they want to order a whole lot more than they normally order in an output or requirements contract? Can demand any quantity that is unreasonably disproportionate to prior contracts that are similar, prior dealings become the benchmark. vi. What if the market shifts so that they dont want to p