LawtonSection 3

Contracts

What Is a Contract? An agreement between two or more people as to something that is to be done in the future by one or both of them. OR An agreement that has legal effect.

Offer1. Definite/Serious

a. Lucyb. Pepsi

2. Reasonable 3. Revocation

a. $$$ to create Option K Berryman

b. Unilateral K i. Common Law: revoke anytimeii. §45: start performance iii. Cook Jurisdiction: substantial performance

4. UCC §2-205 Firm Offer Rule (Goods) i. Merchant Offeror (2-104) and ii. Signed by Merchant and iii. Writing andiv. Assured held open (Distinguished deadline)v. 90 Days is the outer limit

5. §87(2) (Bilateral) a. Baird/Drennan b. Offer- substantial reliance, pre-acceptance c. Works in bids (outside of bids it’s harder)

6. §87(1) Minority Rulea. If there is a writing from offeror that purports to have consideration, then it becomes a

binding option k

Acceptance1. Definite2. Seasonable

UCC vs. Common Law1. Predominant Purpose Test (Majority Rule)

a. K languageb. Seller’s businessc. Price allocated

2. Gravamen of Action Test (Minority Rule) a. Look at specific count of the complaint at bar

3. Common Law Rule: Mirror Image Rule Rejection is termination of original offer, counter-offer is a rejection, so the original offer is off the table.

4. §2-207- When There are Additional Or Different Terms in the Acceptance Princess Cruise Lines

1. Purchase Order/Acknowledgement 1. Is there a K on the writings? (2-207(1))Offer/Acceptance a. Is acknowledgement definite?(Usually) Buyer/Seller b. Is acknowledgement seasonable? c. Is acknowledgement expressly conditional? If a is yes, b is yes, and c is no there is a K, go to §2-207(2) If a is yes, b is yes, and c is yes there is no K, counter-offer go to §2-207(3) If a is no, b is yes, and c is no there is no K, counter-offer go to §2-207(3)

2. §2-207(2): Purchase Order Acknowledgement that acknowledges a K or a written confirmation a. Different OR Additional TermsDifferent Terms=Knock-Out Rule (Majority Rule)

a. Purchase Order/Acknowledgementb. Oral K Confirmation #1 vs. Confirmation #2 When the confirmations

conflict (Comment 6) Additional Terms=Purchase Order/Acknowledgement: Purchase Order Silent, Acknowledgment TermWritten Confirmation: Confirmation (term)

2 Merchants? No, proposal. Out unless other party agrees Yes, in unless

a. (Applies to Purchase Order So, Doesn’t Apply) Offer is Expressly Limited

b. (Applies to Purchase Order and Confirmation) Material Alternation i. Surprise or Hardship

c. (Applies to Purchase Order and Confirmation) Prior Objection

3. §2-207(3): Contract Based on Conduct K=writings agree on + gap fillers

Written Confirmation Existing Oral K go to §2-207(2) (Ties to §2-201(2) Merchant’s Exception under Statute of Frauds)

ConsiderationBargained For Exchange 1. Detriment to the promisee2. Promise induced the detriment 3. Detriment induce promise(Detriment is not the reason why it was promised/Gift)

a. Sham/Nominal Consideration (Dohrmann) b. Courts Don’t Look at Adequacy of Consideration c. Illusory Promises

i. Termination Clauses (§2-309 Leibel)ii. Lady Duff Gordon

Reasonable Efforts/Best Efforts d. Pre-Existing Duty Rule [Modification] (Contractual or Legal)

(Pre-Existing Duty, Statute of Frauds and Economic Duress go together)

2

e. Past Consideration §86 Promissory Restitution

If you have a contract, you go to §90 Promissory Estoppel and then go to §86. Unjust Enrichment is Promissory Estoppel without a promise.

Promissory Estoppel (§90)1. Promise2. Promisor reasonably expects to induce reliance 3. Detrimental Reliance 4. Injustice

a. Reasonableness of Relianceb. Formality of Promise Madec. Evidentiary/Cautionary d. Policies of Unjust Enrichmente. Definite/Substantial Reliance (balancing test)

Remedy: Expectation or Reliance

§86: Promise made in recognition of benefit received already by promisor 1. Injustice

A promise can solve the issue of an officious intermeddler and/or intent to charge because it can show it wasn’t forced on you, and you valued it. *Look at proportionality

I. Offer & Acceptance Common Law or UCC? Offer & Acceptance

1. Common Law or UCC? UCC : Sale of Goods Common Law : Services (Princess Cruises, Inc. v. General

Electric Co.) 1. Mirror Image Rule : If offer & acceptance doesn’t match

(or “mirror” each other) then it’s a counteroffer. Predominant Purpose Test or How to Decide If Contract is for

Goods v. Services (Majority Rule-Common Law or UCC): 1. Language of the Contract2. Nature of Seller’s Business3. Intrinsic Worth (Price)

Gravamen of Action Test (Minority Rule): (Ray v. William G. Eurice & Bros., Inc.)

2. Offer & Acceptance in Bilateral Contracts (Lonergan v. Scolnick) Bilateral Contract: promise for a promise1. Preliminary Negotiation2. Offeror Makes an Offer

3

3. Offeree has “power of acceptance”, thus offeree can make a “counter-offer” or reject the offer Revocation effective when it is received Acceptance is enforceable when it is sent/posted in the mail

(Mailbox Rule) Rejection voids original offer Generally, an advertisement is an invitation to make an offer, not

an offer (Izadi v. Machado (Gus) Ford, Inc.) 3. Option Contracts (Normile v. Miller)

Option Contract1. Consideration (usually money to keep the offer open)2. In-Writing3. Fair Terms for Reasonable Time4. Reasonably Expect to induce action

4. Offer & Acceptance in Unilateral Contracts Unilateral Contract: promise for performance In a common law jurisdiction, you can revoke at any timeIn Rule 45 of the Restatement, you cannot revoke after performance has startedIn a Cook Jurisdiction, you cannot revoke if there has been substantial performance 1. Contract is formed when the performance is complete2. When can you revoke an offer for a unilateral contract? Common law

says anytime3. Once you have substantial performance; however, it becomes an

option contract (Cook v. Coldwell Banker/ Frank Laiben Realty Co.) 4. For unilateral contracts, there can be a significant amount of time

between offer & contract 5. Illusory Promise (Sateriale v. R.J. Reynolds Tobacco Co.)

1. Not a real promise2. Can terminate at any time

II. Offer and AcceptanceUniform Commercial Code Rule §2-204 of the Restatement: Contract for sale of goods may be made in

any manner sufficient to show agreement and an agreement may be found even if moment of making is undetermined and the contract isn’t invalid due to indefiniteness if parties intend to make contract and there is a reasonable basis for giving appropriate remedy. (Jannusch v. Naffziger and E.C. Styberg Engineering Co. v. Eaton Corp.)

If the response to a sale of goods adds or changes terms, you must look to Battle of Forms/Rule 2-207 of the Restatement (Brown Machine, Inc. v. Hercules, Inc.) SEE FLOW CHART1. The Gateway : Definitive and seasonable expression of assent shall

constitute an acceptance even though it contains additional or different terms

2. Conditional vs. Unconditional : Even a definite and seasonable expression of assent won’t get through the Gateway if the offeree makes explicit that

4

her assent is expressly made contingent on the offeror’s further assent to the additional or different terms contained in the acceptance

3. Additional Terms : Additional terms are proposals that only become part of the contract on the assent of the offeror. EXCEPTION: When it is between to merchants. In that case, the additional terms will become part of the contract, unless:1) The offer expressly precludes additional terms2) The additional terms materially alter the offer3) The offeror objects to them with reasonable time

4. Agreement by Conduct : If there is performance and payment this takes us to §2-207(3) which essentially say that if a contract was not formed under §2-207(1) & (2), but the parties conduct nevertheless demonstrates that some contract does exist, then the terms of that contract consist of the terms on which the two writings agree, and such other terms supplied by default under Article 2.

5. Different Terms (Rather Than Additional) : Courts have three approaches to the question of what are the terms of the contract based on response to an offer containing different terms:1. Treat different terms like additional terms for the purpose of §2-207(2)2. “Fall-Out” Rule meaning that conflicting term in the offeree’s

acceptance is knocked out 3. (Majority Rule) “Knock-Out” Rule: the conflicting terms knock each

other out, and neither becomes a part of the contract. This leaves the parties with the remaining terms

Term in The Offer Term in The Acceptance Term in the ContractVersion A Version A Version AVersion A (Silent) Version A

(Silent) Version A (Add. Term) In; unless 2-207(2) (a)-(c)Version A Version B (Diff. Term) Knock-Out Rule

Term Agreed to Before

Confirmation(s) Sent

Term in Confirmation from

First Party

Term in Confirmation from

Second Party

Term in Final Contract

(Silent) Version A (Silent) Version A(Silent) Version A Version B Version C

Version A (Silent) (Silent) Version A

6. Materially Alter the Contract Official Comments or Surprise/Hardship Criterion (Paul Gottlieb & Co., Inc. v. Alps South Corp.) 1. Hardship : Courts look for big economic hit that is a consequence of

surprise 2. Surprise and hardship as consequence3. Surprise or hardship as consequence (Comment 4)4. Surprise must presuppose hardship

5

III. Consideration What is Consideration? Something given in exchange for the promise that is

bargained-for. Test:

1. Legal detriment to promisee? (Hamer v. Sidway) 2. Bargain for exchange/Bargaining Theory of Consideration (Need both of

these) (Pennsy Supply, Inc. v. American Ash Recycling Corp. of Pennsylvania)1. Promise induced detriment2. Detriment induced promise

(Keep in mind why the promisor made the promise) Past consideration is insufficient to establish consideration (Dougherty v. Salt

and Plowman v. Indian Refining Co.) Duty or employment obligation is not consideration (Slattery v. Well’s Fargo

Armored Service Corp.) Nominal consideration (pretense of consideration) is not consideration Donatory or Executive gift is not consideration (Dougherty v. Salt) Moral obligation is not consideration Illusory promise is not consideration (Marshall Durbin Food Corp. v. Baker) Court’s will also look at fundamental fairness of the contract and look for

undue influence (Dohrmann v. Swaney) Option contracts have to have consideration (normally money) to keep them

open (Berryman v. Kmoch) IV. Promisee Reliance and Restitution

Promisee Reliance/Protection or Promisee Reliance Promissory Estoppel (Takes Place of Consideration)

1. Promise2. Promisor Reasonably Expects Reliance3. Reliance: An Action or Forbearance4. Injustice

a) Reasonableness of Reliance b) Formality of Promise Madec) Evidentiary/Cautionaryd) Policies Unjust Enrichmente) Definite/Substantial Reliance on Remedy (Balancing Factor)

6

Expectation

Reliance

Restitution

Detrimental Reliance? (Harvey v. Dow) The promise must induce the reliance, not any other factor (Katz v. Danny

Dare, Inc.) Injustice? (Aceves v. U.S. Bank, N.A.) THERE MUST BE A PROMISE TO INDUCE PROMISSORY

ESTOPPEL (James Baird Co. v. Gimbel Bros., Inc and Drennan v. Star Paving Co.)

Section 45 Section 87(2) Section 90Option contract created by part

performance or tender

Option Contract(Offer Irrevocable)

Promise Reasonably Inducing Action or Forbearance*Promissory Estoppel

Unilateral k offers “options”

Bilateral K offers “options”

No consideration

Offer Offer Promise Substantial Character No Required “Substantial”

Start Performance Preparations to Perform

Possible Remedies:A) Expectation=what

promise saidB) Reliance=what was spentC) Restitution=spent money

& enrichment on other side

Restitution “A Fairness Concept” Unjust Enrichment: (Restitution without promise)

1. Did promisor derive a benefit? (Credit Bureau Enterprises, Inc. v. Pelo)

2. Officious intermeddler? 3. Intent to charge person providing the benefit?

Promissory Restitution Section 86 of the Restatement: (Restitution with promise) (Webb v. McGowin) 1. Promise2. Benefit Previously Received by Promisor 3. Injustice

When you’ve received a benefit, and promise to pay for it, but don’t pay for itPast consideration can work here if you received a benefit (a thing is done and then you make the promise) Not-reliance based

7

Officious Intermeddler: 1. The man outside your window playing music, when you didn’t

ask him to, and he comes in and asks for money Material Benefit Rule: §86 Benefit you receive from person and you

promise to pay that person and it would be unjust to do otherwise. Contract Implied in Fact: Contract by conduct (Common Law version

of 2-207(3)) Contract Implied in Law: No contract; can get restitution

Quasi K not a contract Two Problems: 1. Officious Intermeddler 2. Intent to Charge

V. Statute of FraudsSection §2-201 of the Restatement Statute of Frauds

1. Is there a contract? (SoF isn’t a defense if you don’t have a contract. If both parties acknowledge a contract in their pleadings, then you can’t invoke SoF)

2. Does the contract fall within the Statute of Frauds?1. §2-201 Goods greater than or equal to $5002. Land3. Impossible to perform in less than one year

3. Is the contract in writing within the statute? (Writing, Quantity, & Signature) (Crabtree v. Elizabeth Arden Sales Corp.) 1. Yes; enforceable under SoF2. No; but may fall under exceptions

1. Is K within Statute of Frauds? 2. If yes, do you have a writing that satisfies the Statute of Frauds?

a. Signed by party versus whom enforcement sought (writing definition is flexible)

b. Content c. Suffice to show parties had K If no:

Exceptions: 1. Part-Performance Exception (Land) (Beaver v. Brumlow)

i. Possession of Landii. Substantial Valuable Improvements

2. 2-201(3)(c) (Buffaloe v. Hart) Part Performance Exception 3. 2-201(2) Merchant’s Exception4. Unique/Special Goods 5. Restatement § 139 (Alaska Democratic Party v. Rice)

o Section 139 promissory estoppel is used to enforce it. Whereas Section 90 has promissory estoppel take the place of consideration.

139(2)(c) Evidence of Promise VI. Interpretation and Parol Evidence Rule

Interpretation Rule 201 Whose Meaning Prevails (For the Fact Finder/Jury): Where the

parties have attached different meanings to a promise or agreement or a

8

term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made. (Joyner v. Adams)a) Actual Knowledge : that party did not know of any different meaning

attached by the other, and the other knew the meaning attached by the first party OR

b) Constructive Knowledge: that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party

Corbin Test Step #1: (Judge) Consider extrinsic evidence (contradictory evidence drops out) It is ambiguous (under explanatory)? Is the phrase/word reasonably susceptible to two meanings/fully or partially integrated (under supplementary) (Taylor v. State Farm Mutual Automobile Insurance Co.) Step #2: YesFact Finder looks at extrinsic evidence; NoExtrinsic evidence not in (Frigaliment Importing Co. v. B.N.S. International Sales Corp. or “Chicken Case”)

Four Corners Test (Thompson v. Libby)Step #1: (Judge) Look at the four corners of the document. Decide if its ambiguous(under explanatory)/fully or partially integrated (under supplementary)Step #2: Yes; ambiguousbring in extrinsic evidence & jury/fact finder interpret; No; not ambiguousno extrinsic evidence

Extrinsic Evidence

Writing Partially Integrated

Fully Integrated

Taylor/Frigaliment Explain Yes Yes

ThompsonSupplement

(Section 213)Yes No

X Contradict No No

In Thompson: Is k fully integrated?Step #1: Is fully integrated? Four Corners Step #2: Yes: No, on EE No: Partially integrated/Admit extrinsic evidence so fact finder/jury look for breachResult: No extrinsic evidence on warranty, lawsuit dismissed (cause of action goes away if there is no warranty to sue on) Warranty was parol evidence

Parol Evidence Rule §213 Can you introduce extrinsic evidence once a term is fully integrated? NO Integration has nothing to do with explanatory evidence, rather

supplementary evidence. What is Extrinsic Evidence? (§2-202)

1. Trade Usage (§1-303)2. Course of Dealing (§1-202) (before k)

9

3. Course of Performance (§1-303) (under current k) 4. Negotiations

If you have a merger clause & you want to add supplemental evidence: Corbin Test=Won’t Change because EE before FF Four Corners=Will Change because no EE before FF

If you don’t have a merger clause & you want to add supplemental evidence: Corbin Test Four Corners

Fully v. Partially Integrated Terms Riverisland Cold Storage, Inc. v. Fresco-Madera Production Credit

Association: The court stated that litigant may offer evidence of prior oral agreement that contradicts written contract (normally you can’t bring in contradictory evidence), because there was fraud in the formation of this contract. (Fraud in the Inducement v. Fraud in the Execution [narrower]) Fraud Is An Exception to the Parol Evidence Rule

Step 1: Adhesion Ka. Form Kb. Unequal Bargaining Powerc. Take It or Leave ItStep 2: Reasonable Expectations Test (Insurance K): If this test works, you apply what was reasonably expected, not what was written in the k. 1. Bizarre or oppressive (or)2. Eviscerates non-standard (dickered) terms (or)3. Eliminates dominant purpose

§2-202(a). Supplemental Evidence §2-202(b)

(You can always bring in explanatory evidence)

10

CP>CD>TU

Paper +Extrinsic Evidence

Other consistent additional terms

You can bring this in unless it is fully integrated

Nanakuli Paving & Rock Co. v. Shell Oil Co.

§1-303(e): Expressed Terms of an Agree. Govern Over Everything Else

§1-303(e)(1): express terms (on paper) prevail over CP, CD, & TU because it is unique to that situation

§1-303(e)(2): CP>CD & TU §1-303(e)(3): CD>TU

Usually terms in the contract rule over anything else, but not in Nanakuli Paving & Rock Co. v. Shell Oil Co. because they found that the price protection became part of the usage of trade. Thus, it is possible that CP, CD, & TU can negate terms in k. If the terms are not carefully negated, they are in!

There is no parol evidence rule if CD, PD, & TU are already in there. Under Common Law, if it is fully integrated, you do not need to

establish extrinsic evidence to supplement. Under Common Law, if it is not fully integrated you can introduce

extrinsic evidence to supplement. Don’t automatically assume merger clauses don’t let CD, PD, & TU

in. What Are You Doing with Extrinsic Evidence?

1. Adding2. Explaining3. Contradicting

VII. Implied Terms, Avoiding Enforcement Implied Terms

Implied in Fact: (Common Law Version of § 2-207(3)-K By Conduct) Wood v. Lucy, Lady Duff-Gordon: Lady Duff Gordon says that there

was no consideration when forming the k with Wood, so no k. Implied promise on Wood’s part to “use reasonable efforts”) to market her dresses and dress designs.

§2-306: In this case, the parties defined an express obligation in terms of “best efforts” or “reasonable efforts”

Implied by Law: Leibel v. Raynor Manufacturing Co.: Garage Door Case having to

do with Implied Obligation of Good Faith & Fair Dealing §2-309(2): Terminate at any time with other party §2-309(3): (above) with reasonable notification In business cases, they can set a metric before ability to terminate (i.e.

if you don’t sell 10 garage door a month, we terminate the k) The rule here is made in order to protect other party from suffering

loses from an unexpected termination. The Implied Obligation of Good Faith

Types of Cases:1. Business Efficacy; k where court has to imply a term to have k

make sense

11

WARNING: In these cases, look for two contracts because if they prove their duress, undue influence, or misrepresentation claim then the contract would be rescinded, and if there is only one contract, they would not be able to recover for breach.

2. Bad Faith Performance of expressed terms…but no breach of expressed term (PRETEXT) (Seidenberg v. Summit Bank)

3. Exercise of discretion (BAD FAITH/ILL MOTIVE) (Seidenberg v. Summit Bank)

Duress (Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline S.C.)1. Wrongful/Improper Threat2. Alternative?3. (Inducement)

Kelsey Hayes adds prior objection! Undue Influence (Odorizzi v. Bloomfield School District and Syester v.

Banta) 1. Undue Susceptibility 2. Overpersuasion/Excessive Pressure

1. Time (Unusual/Inappropriate)2. Unusual Place3. Immediacy4. Consequences Delay5. Multiple Persuaders-single 6. No 3rd Party Advisor7. No Time to Consult

VIII. Misrepresentation (Syester v. Banta and Stechschute v. Jennings)1. Material2. Intent to Deceive3. Reliance (reasonable)4. Damages

Types: 1. Intentional Fraud (Affirmative/Doing Something)

I. Fraud in the Inducement (Quicken and Jennings) 1. False Statement of Fact (to prove if it’s true or false at the

time)2. Knowledge 3. Material4. Reliance (Justifiable)5. Intent6. Injury/Damages

II. Fraud in the Execution (rare) (Park 100) 2. Concealment (Affirmative/Doing Something) 3. Nondisclosure/Fraud by Silence (Being Quiet/Not Doing Something)

(Quicken Loans, Inc. v. Brown)1. Obligation to Disclose (based on a duty/statutory/good faith

and fair dealing)2. Failure to Disclose

When Nondisclosure Is Equivalent to An Assertion (§161)1. Assertion-false/contrary to fact2. Misrepresenter Knowledge

12

3. Intent to Deceive-induce4. Reliance5. Material- if it would likely induce a reasonable person to manifest his

assent (You Also Need Damages)

IX. Avoiding Enforcement (Cont.); Justification for Non-Performance Unconscionability (Williams v. Walker-Thomas Furniture Co. and Quicken

Loans, Inc. v. Brown) 1. Absence of meaningful choice2. Unreasonably favorable to one party

1. Procedural Unconscionability (Higgins v. Superior Court of Los Angeles County)Adhesion ContractHiddenSharp Practices

2. Substantive Unconscionability (§2-302 Comments) (Higgins v. Superior Court of Los Angeles County)Commercial BackgroundCommercial Needs of Trade

Public Policy (Valley Medical Specialists v. Farber)1. Scope of the Work2. Duration3. Geographical Area

Remedies: Blue Pencil Rule: The court can revise the covenant if it is possible or get rid of the whole covenant

Mistake, Impossibility, Impracticability & Frustration of PurposeI. Mutual Mistake (Sherwood v. Walker)

When Mistake of Both Parties Makes K Voidable (§152)1. Basic Assumption on Which K Is Made and 2. Material Effect on Agreed Exchange and3. Party Avoid Because Mutual Mistake-not have risk (§154)(Remember “As Is” clause in Lenawee County put the buyer at risk)

II. Unilateral Mistake (DePrince v. Starboard Cruise Servs.) When Mistake of One Party Makes K Voidable (§153) 1. Basic Assumption on Which K is Made and2. Material Effect on Agreed Exchange and 3. Party Avoid Because Mutual Mistake-not have risk4. a) the effect of mistake such that enforcement would be

unconscionable or b) the other party had reason to know orc) other side caused the mistake

1. Material (Size of Mistake) and

13

2. Consequences Grave and 3. Due Care on the Part of Mistaken Party and4. Return Non-Mistaken Party

*Courts don’t like to give relief for unilateral mistakes EXCEPT in bids

III. Impossibility v. Impracticability §261 Discharge By Supervening Impracticability: After k is made, a

party’s performance is made impracticable without him fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the k was made, his duty to render the performance is discharged, unless language or circumstances indicate the contrary. (Force Majeure Clause) (Waddy v. Riggleman)1. Impracticable and2. Person Seeking to Avoid: without fault and3. Basic Assumption and4. Unless language indicates to contrary

IV. Frustration of Purpose (Mel Frank Tool & Supply, Inc. v. Di-Chemo Co.) 1. Principle Purpose2. Substantially Frustrated3. Without Fault4. Basic Assumption5. Unless Language Indicates to Contrary

X. Modification; Conditions & Material Breach Modification

1. Alaska Packers Rule : Pre-Existing Duty Rule, Need consideration to enforce K#2

§89: Does not require consideration to enforce K#2 if fair and equitable based on unforeseeable circumstances at the time of contracting a. non-anticipated circumstanceb. extent provided by statute (§2-209)c. justice requires the enforcement (good faith on both sides)§2-209: UCC does not require consideration to enforce K#2

2. SOF Problem 1. Signed2. Must Meet Requirements of Statute of Frauds (§2-201) (Brookside

Farms v. Mama Rizzo’s Inc.) *Note: SoF Exceptions Could Apply to Satisfy #2

3. If it doesn’t meet #1 or #2, then it operates as a waiver 4. The party who makes the waiver can retract the waiver with

reasonable notification, unless the retraction would be unjust

3. Economic Duress (When §89 and §2-209 don’t solve the Duress issue)

14

Kelsey-Hayes Test1. Wrongful/Improper Threat and2. No Reasonable Alternative and3. Objection/Protest by Person Who Doesn’t Want Modification ORTotem Test1. Wrongful/Improper Threat and2. No Reasonable Alternative(#3 Not Present Here)

Conditions and Material BreachExpress Conditions (No Substantial Performance)1. Forfeiture2. Harm to Other Party3. Reason-Venial Attention (EnXco, JNA, Morin) *EnXco and JNA the courts were EXCUSING the condition

Personal Satisfaction Clause (Morin)1) Reasonable Person Test

Commercial Quality, Operative Fitness, Mechanical Utility2) Subjective Test−honesty in fact

Aesthetics (artwork, interior design, etc.)

Constructive Conditions (Substantial Performance)(Precedent and Concurrent)a. Purpose/Desire

i. Forfeitureii. Unjust Enrichment

b. Forfeiturec. Reason for Deviation Venial Inattention(J&Y)

XI. Conditions and Material Breach (Cont.); Anticipatory Repudiation

Conditions PrecedentConditions Subsequent

Material Breach §241a. Deprived of Expected Benefitb. Adequately Compensatedc. Forfeitured. Likelihood of Curee. Good Faith?

15

*No substantial performance in Express Conditions (so other party’s performance obligation is never triggered) and Goods

Partial Breach v. Material BreachPartial Breach: Substantial performance, so you still have to pay but you can sue for damages listed below(Measure of Damages is either: 1. cost to complete or 2. diminution in value which also needs a. substantial performance b. good faith c. economic waste American Standard) Material Breach §241: No substantial performance so duty to perform/pay is suspended (so there can be substantial forfeiture) You can’t sue at material breach if you don’t give time to cure it because then YOU WILL HAVE BREACHED! Total Breach §242: No substantial performance, discharged of duty to perform/pay and you can sue them for everything

Anticipatory Repudiation (Goods §2-609)*IT HAS TO BE CLEAR THAT THE OTHER PARTY WON’T PERFORMIf it was clear, then you can retract unless:1. The agreed party has cancelled2. The agreed party had materially changed position3. The agreed party has otherwise indicated that he considers the repudiation

final

XII. Expectation Damages Computing Expectation (*Restitution is bundled into reliance)

Π + URE (profit + unreimbursed expenses) *can’t use on employment k

LV + Other – CA – LA (loss in value (expected – what you got) + other (after breach) – cost avoided (what you would have spent if the breach hadn’t have happened) – loss avoided (what you can resell) )

UCC: Replacement k – k + Other (ID + CD *go through analysis) – ES

Resale (Employer Breach): k – Replacement + Other – ES

Diminution in Value (American Standard and J&Y)1. Cost to Complete

OR

2. Substantial Performance and3. Good Faith and4. Economic Waste

a. Irremediable or

16

b. Substantial Tear Down Structure (*If you can’t satisfy one of the three, you get cost to complete)

Foreseeability, Certainty, Causation & Mitigation

1. Foreseeable (Consequential Damages) (Hadley) (reason to know) 2. Certainty or Speculativeness

a. Certainty of Fact orb. Certainty of Amount (Experts)

3. Causation: Breach Caused Harm4. Mitigation (Non-Breaching Party) (*only lose what you could have

avoided)

(For Mitigation for Employees, Employee would have to show (1) they did reasonable diligence to find a new job and (2) suitable/comparable employment that they didn’t take)

If you take a job that’s not comparable money comes off If you take a second job and could do 1st and 2nd jobs money does

not come off Even if fired employee does not try to find work, they would still

get full payment because there is no suitable/comparable employment

XIII. Non-Recoverable Damages: Justifications for the Expectation Damage Rule; Reliance and Restitutionary Damages

“Lost Volume Seller” (Jets Case/2-708(2))Supply>Demand, Profitable and Make More than One Deal

+ Fixed Cost (Reasonable Overhead) + ID

OR

K Price – Variable Costs

Fixed Costs1. Rent/Mortgage2. Property Taxes3. Insurance

Variable Costs1. Parts2. Utilities3. Labor4. Transportation

17

Non-Recoverable Damages:1. Attorney’s Fees2. Emotional Distress (unless causes great bodily harm or the breach is

likely to cause emotional distress)

Justifications for Expectation Damage RuleEfficient Breach (Handicap’s Children) Encourages a party to breach if one is worse off, and some become better off If you can breach and cover other party’s cost and make money, then breach!

Reliance and Restitutionary DamagesReliance Damages (Wartzman) 1. Causation2. Mitigation3. Foreseeable4. Reliance: not speculative

Basis of LiabilityContract Promissory

EstoppelQuantum Meruit

Expectation The Norm Yes; can recover

Reliance Wartzman Walser

Restitution 1) Quasi K2) Losing K (§373)

(Algernon Blair)

3) Breaching Party §374 & Lancellotti

4) K rescinded: Ventura

XIV. Specific Performance and Agreed Remedies/Liquidated Damages1. Specific Performance

Common Law: When a remedy at law is inadequate §2-716: Specific performance may be decreed where the goods are unique or in

other proper circumstances When do you get specific performance?

1. Land2. Unique Goods/Chattels

18

Measure of Damages

Often, there is an issue of court supervision over specific performance when it is granted, but if the benefits outweigh the detriment, courts may overlook it

2. Liquidated Damages Once you agree to what the damages will be, can’t raise them and can’t

lower them General Test :

1. Reasonable in light of . . . andi. anticipated loss at formation of k ii. anticipated at formation of k or actual at breach of k

2. Cannot be penalty and 3. Damages are uncertain in amount/difficult to prove

§356: anticipated or actual loss§2-718: anticipated or actual loss

Test #1 (Traditional/Berryman Majority): Anticipated Loss

Test #2 (Modern Trend/Berryman Dissent): Anticipated Loss or Actual LossIf not reasonable for either-----clause is INVALID (Both must be reasonable)

Test #3 (9th Circuit): Anticipated Loss or Actual LossIf reasonable for either-----VALID (Only one must be reasonable)

*Party suffering the loss does NOT have a duty to mitigate damages here

19