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I.

DEFENSES TO ENFORCEMENT.

IS
a.

A SIGNED WRITING NECESSARY?

Statutes of Fraud: certain types of agreements must be in writing in order to be enforced. Is the agreement of a type that falls within a states statute of fraud? (note: a K may be subject to a choice of law clause).

IS

THE AGREEMENT

WITHIN

THE STATUTE OF FRAUDS?

i. Restatement 2nd, 110 Classes of Contracts Covered (p. 53) 1. Marriage; 2. Ks that are not fully performed until a year after creation. a. However, that the K could be performed within a year is sufficient to escape the rule (evidence of gen. policy to enforce agreements). 3. Land sales; 4. Executor K (though not required that the will itself is in writing); 5. Sale of goods > $500: a. UCC 2-201, subsections i. (1) general rule ii. Exceptions 1. (3)(a): note the built in exception to this. 2. (3)(b): confession rule a. DF v. Brown: party swore in affidavit to not having sold chair. wants to depose in hopes that will change testimony. Held: remote possibilities do no warrant subjecting the parties and the judiciary to proceedings almost certain to be futile. (p.333). iii. (2) For Merchants. 6. Suretyship: a surety is one who steps in to pay the debt of another; to enforce this payment, K must be in writing. ii. Relief against hardship of statutes of fraud can be found in prom. estoppel, e.g. McIntosh v. Murphy. [outline 1]

WAS
b.

THERE A MISREPRESENTATION?

Silence, Concealment and Misrepresentation: are these ground for rescission, if so, when? i. MA: Swinton v. Whitinsville Bank (Mass. 1942) 1. owner never disclosed that there were termites 2. traditional view of misrepresentation 3. buyer beware 4. Silence: no. 5. Concealment, i.e. failure to reveal: no. The law has not yet, we believe, reached the point of imposing upon the frailties of human nature a standard so idealistic as this (p.350). 6. Misrepresentation: yes. ii. NJ: Weintraub v. Krobatsch (NJ 1974) 1. concealment of cockroaches 2. modern view of misrepresentation 3. Focuses on material item of contract 4. Silence: yes, if... 5. Concealment: yes, if... 6. Misrepresentation: yes, if 3 factors are met: 1) materiality (defined in relation to reasonable seller and buyer); 2) not observable; and 3) deliberate. Apply: (seller) kept lights on when visited for observation. The house was infested with cockroaches. This was a (1) material, (2) latent, and (3) deliberate concealment or nondisclosure. Held: rescission allowed. iii. Restatement 2nd, 164 1. Silence: 161 (when non-disclosure equivalent to an assertion) 2. Concealment: 160 (when action equivalent to an assertion) 3. Misrepresentation: 162 (on materiality) a. For relation between misrepresentation and opinion, see 168 9. Note: unlike tort of fraud, K fraudulent misrepresentation does not require intent.

c.

DID AT LEAST ONE PARTY LACK THE CAPACITY TO CONTRACT? Capacity [lack of], Duress and Undue Influence i. Lack of Capacity: 1. Restatement, 2nd 12 WAS
IT A HIGH PRESSURE SITUATION OR UNEVEN BARGAINING POWER?

ii. Duress: 1. Economic Duress: Austin Instrument v. Loral Corp. (1974): re. sub-K for submarine parts. a. Factors necessary for rescission by econ. Duress: i) a wrongful threat (pertaining to underlying K), e.g. threaten to breach by non-delivery unless a further demand is met; ii) overcoming of other partys free will; iii) no other reasonable options, e.g. buyer cant obtain the goods from elsewhere; and iv) action for breach would be inadequate. 2. Physical Duress: Restatement, 2nd 174 iii. Undue Influence: Odorizzi v. Bloomfield: rescission allowed if agreement made under undue influence. 1. Rest 177 (p. 78) 2. 2 elements: a. total weakness of mind (e.g. no sleep for 40 hours); and b. application of excessive strength by a dominant subject against a subservient object. Overpersuasion is generally accompanied by i. discussion of the transaction at an unusual or inappropriate time; ii. consummation of the transaction in an unusual place; iii. insistent demand that business be finished at once; iv. extreme emphasis on untoward consequences of delay; v. the use of multiple persuaders by the dominant side against a single servient party; vi. absence of 3rd party advisors to servient party; vii. statements that there is no time to consult counsel.

IS
d.

THERE A LEGAL OR PUBLIC POLICY REASON TO PREVENT ENFORCEMENT?

e.

Illegality and Public Policy: i. Illegality: e.g. failure to comply with a licensing statute. 1. Restatement 2nd, 181(p. 79): note the balancing provision at subsection (b). ii. Public Policy: 1. Hanks v. Power Ridge (Conn. 2005) [4/3 split]: at snow tubing facility, signed waiver of liability, then was injured. Held: waiver unenforceable on grounds of public policy. a. Rule: Freedom to K on whatever terms is limited by public policy. Whether a K is against public policy depends on totality of circumstances against backdrop of societal expectations. b. Apply: [significant factors] 1. Facility open to public, i.e. not just experts; 2. Family activity; 3. provided gear and supplies; 4. K of adhesion; and 5. Facility in a better position to ensure safety at resort. 2. Restatement 2nd, 178 (p. 78) Unconscionability: looks to both the manner of the agreement and the terms of the agreement. Roots found in i. Williams v. Walker-Thomas (US Ct.App. Dist. of Columbia 1965): K for payment plan which divided payment pro-rata among purchased items. Held: though no statutory basis, adoption of UCC 2-302(p. 257) persuasive; payment plan unenforceable, remanded for further proceedings. 1. Rule: unconscionable K generally understood to include a. (1) absence of meaningful choice on part of one party, and b. (2) contract terms which are unreasonably favorable to the other party. 2. Significant factors: i) inequality of bargaining power; ii) manner the agreement is presented, e.g. small print; and iii) content of the agreement.

WAS
f.

THERE A MISTAKE?

Mistake: i. Sherwood v. Walker 1887: re. Rose the cow. Rule: to rescind a K, a mistake must be (1) mutual, and (2) go to the root of the matter. 1. Restatement 2nd, 151-8 (p.64 74) lots of illustrations! 2. 154 When a Party Bears the Risk of a Mistake (p. 71) 3. 151, 152 (mutual), 153 (one party), 154,

WHAT
II. TERMS.

WERE THE TERMS OF THE DEAL?

LOOK ARE

TO THE PARTIES WORDS AND ACTIONS: IS THERE A WRITING?

THERE ALSO CONTEMPORANEOUS OR PRIOR WRITTEN OF ORAL EXCHANGES/AGREEMENTS?

i. Parole evidence: course of dealing and business practice do not pertain, i.e. these will come into K regardless of full integration. 1. Traditional rule: courts cannot look beyond the four corners of the K. 2. Modern rule: where the K is partially integrated (not intended to be a full & final expression of the agreement), can look beyond four corners of K to evidence from before the agreement was struck. See Restatement 2nd, 213. a. Whether a K is fully integrated is a question of law. b. Re. merger clauses: i. Majority: this is indicative of fully integrated agreement. ii. Minority/modern approach: merger and integration clauses are to be afforded varying weight depending on the circumstances (see Nelson v. Elway dissent). 3. Applied: a. Nelson v. Elway (Co. 1995)(p.441): K with merger clause precluded consideration of parole evidence. It was significant that both parties were sophisticated parties represented by counsel and the K was the product of extensive negotiation and numerous drafts. 210 (comment b) b. Rogers v. Jackson (Me. 2002)(p. 449): defaults under written agreement. alleges he was not to pay until if and when he could. i. 213, 214, 215, 216, 2-202 ii. Rest 217 applies integrated agreement subject to oral requirement. iii. And, oral evidence does not contradict written agreement, merely provides condition. c. Re. UCC gap-fillers: (output, place, price and time) (2-305-309) (p. 260) i. Not fully integrated agreement missing date of delivery. UCC will not fill gap if parole evidence can establish instead. ii. Evidence of new term after K created does not fall under scope of parole evidence rule; moreover, allowed by UCC 2-209(1). iii. Fully integrated agreement, but date of delivery not addressed. UCC gap filler applies, however ct. will look to side-agreement between parties to help determine reasonable time. 4. Meaning of writing: another exception to parole evidence rule is that parole evidence can be used to interpret the agreement to establish the meaning of the writing, whether or not it is integrated. a. However, cannot prove a mere private convention between the two parties to give language a different meaning from its common one. (Goode v. Riley, Holmes, J). b. Frigaliment v. International Sales: sale of chicken. Ct. looked to (i) K itself; (ii) communications between parties; (iii) trade usage; (iv) govt regulations which incorporated by reference; (v) effect on price according to different meanings. i. Apply: trade usage unhelpful because had just entered the trade and s witness controverted himself. Govt regulations significant. And if chicken meant alleged then would be trading at a loss. ii. Held: , having raised the issue of breach, did not discharge burden of proof that chicken = young chicken.

ARE
b. Court added terms.

THERE TERMS THE COURTS IMPOSE?

i. Special construction of K of adhesion: has been defined as one that is drafted unilaterally by the dominant party and then presented on a take-it-or-leave-it basis to the weaker party who has no real opportunity to bargain on its terms (Meyer v. State Farm quoting R 2nd of Conflict of Laws 187). 1. Meyer v. State Farm: buyer contends dispute resolution clause. (p. 501) a. Rules: i. The fact that a K is one of adhesion does not necessarily mean it is unenforceable. Ct. will construe ambiguities against the draftsman (206); but will not simply excise or ignore terms merely because they operate to perceived detriment of weaker party. ii. Waiver of constitutional rights not ordinarily valid unless made knowingly and voluntarily. b. Apply: nothing ambiguous about the term, nor anything unconscionable about it. And the protection of constitutional rights must be measured against value of dispute resolution clauses. c. Held: term valid. 2. Lauvetz v. Alaska Sales: rented car with insurance policy; condition in policy was that it would be invalidated if drove drunk. a. Rule: Restatement 2nd, 211 + comment f: customers under K of adhesion are not bound to unknown terms which are beyond the range of reasonable expectation. i. Though Alaska hadnt adopted the R 2nd, it had adopted the reasonable expectation test in analogous situations, i.e. for other K of adhesion. b. Apply: argues term was reasonable as no reasonable person would think they could drunk drive a car that didnt belong to them. Ct. believed the proper Q. was whether purchaser of damage waiver reasonably expected waiver to be subject to exclusions. c. Held: as a K of adhesion, the policy must be construed according to principle of reasonable expectations. This term failed and therefore severed. ii. To effectuate assumed intent: 1. Wood v. Lady, Lucy Duff-Gordon: argued agreement is not an enforceable K because the does not bind himself to do anything (i.e. no consideration). Held: a promise is implied as the whole agreement is instinct with an obligation. Significant factors: a. Agreement rendered exclusive agent accepting this role requires the assumption of duty; b. The agreement provided terms for compensation.

ARE
a.

THERE TERMS THE LEGISLATURE IMPOSES

(STATUTES)?

b.

Product of the parties bargain. iii. The written document: first place to look. 1. Recall imperfect acceptances: [outline 1] a. mirror-image rule; and b. UCC 2-207. 2. Express warranties: a. For SoG: UCC 2-313 Express Warranties by Affirmation, Promise, Description, Sample i. (2) BUT, an affirmation merely of the value of the goods or a statement purporting to be merely the sellers opinion or commendation of the goods does not create a warranty. ii. Leal v. Holtvogt: Puffing, or merely stating the sellers opinion, cannot amount to an express warranty. Following statements about a horse were mere puffs: 1. A national top ten champion in three categories; 2. All-around winning stallion; 3. Earns $20,000/year; 4. Capable of attaining national shows again; and 5. Foals selling for $6-10,000/each. Legislature added terms. iv. UCC gap-fillers: 1. 2-305: price 2. 2-308: delivery 3. 2-309: time 4. 2-306: output & requirement K v. Implied warranties: 1. These are default warranties; for exclusion see UCC 2-316. 2. UCC 2-314: Merchantability 3. UCC 2-315: Fitness for Particular Purpose (note, once established, must then led evidence of breach to recover). a. Leal v. Holtvogt: Ohio Ct. used following test to determine whether such a warranty existed: i. 1) Seller must have reason to know of buyers particular purpose; ii. 2) Seller must have reason to know that buyer is relying on sellers skill or judgment: Applied: relationship between seller and buyer was like that of a teacher and student; iii. 3) Buyer must in fact rely on sellers skill or judgment: Applied: Ct. reads in a requirement of reasonable reliance. 4. UCC 2-312: Title

ASSUMING
III.

THERE IS A MATERIAL BREACH, WHAT REMEDIES ARE AVAILABLE?

REMEDIES: Restatement 2nd, 360: general guidelines for determining adequacy of damages.

SPECIFIC PERFORMANCE
a.

WHAT IS IT?

Specific Performance/Injunction: i. Specific Performance: The point at which breach of a K will be redressable by SP thus must not lie in any inherent physical uniqueness of the property but instead in the uncertainty of valuing it. (Wagner v. S&M (Ct. App. NY 1986). Ct. didnt abandon traditional uniqueness test, rather interpreted other courts use of word unique to mean that the court cannot obtain, at reasonable cost, enough information about substitutes to permit it to calculate an award of money damages without imposing an unacceptably high risk of under-compensation on the injured promissee. 1. Applied: Wagner v. S&M: subject matter not unique because money could be fixed with reasonable certainty without imposing unacceptably high risk of under-compensation. challenges valuation on following grounds: a. Too speculative: Denied it is hardly novel in the law for damages to be projected into the future, especially where subject matter value can be determined by comparison. i. Moreover, contingencies raised by (sale of the building in which the lease, the subject matter, was bought) do not, as a practical matter, render calculation speculative. b. Too conjectural: Denied . c. If either of above two arguments generated enough uncertainty, SP would have been granted. 2. traditional rule: always available for sale of real property. ii. Injunction: efficient breaches are good for society (at least, under economic theory of Posner, J), therefore injunctions are not granted as a matter of course, but only when s damages remedy is inadequate. 1. Walgreen v. Sara Creek: Posner, J: injunctions to enforce exclusivity clauses are quite likely to be justifiable by just the considerations present here (1) damages are difficult to estimate with any accuracy and (2) the injunction is a one-shot remedy requiring no continuing judicial involvement. iii. Both: 1. Restatement 2nd, 364: Effect of Unfairness. a. Wagner: SP found unfair because harm to would be disproportionately worse than gain to . Significant factor: would be forced to comply with 3 yr. lease with options (potential total of 7 yr. lease).

AGREED
b.

UPON

REMEDIES

Liquidated Damages: generally, first avenue sought. i. OBrian v. Langley: two part test to allow liquidated damages: 1. Actual damages contemplated at time of agreement are uncertain & difficult to determine with exactness; and 2. The amount must not be disproportionate to the actual loss (thereby becoming a penalty). a. Restatement 2nd, 356: subsection 2 prohibits penalties and defines these via proportionality. ii. The party opposing the imposition of liquidated damages is entitled to conduct discovery and present relevant evidence that the damages resulting from the breach are susceptible to exact definite measurement or that the damages are grossly in excess of actual damage suffered by non-breaching party (OBrian v. Langley). iii. Note: if a liquidated damage clause severed, non-breaching party may still pursue normal avenues for damages. iv. UCC 2-718: a reasonableness test with three indicators. 1. Kvassay v. Murray: applying UCC provision a. Inappropriate to measure reasonableness by balancing non-breaching partys income prior to K against liquidated damages sought.

b.

Appropriate method is to balance actual lost profits caused by breach against liquidated damages sought.

JUDICIALLY DETERMINED DAMAGES


c. Money Damages Decided by Court i. Non-breaching party entitled to the benefit of the bargain (Hawkins v. McGee) = direct damages + incidental damages + consequential damages avoided costs (Restatement 2nd, 347). 1. Direct Damages: a. Market value test: difference between market price and K price. b. Cost of Performance: i. In K for construction, injured party may recover cost of completing performance if the cost is not clearly disproportionate to loss in market value; if clearly disproportionate, damages = loss in market value. 1. Grovers v. Wunder (MN 1939): breached. Cost of performance = $60,000, and difference in market value = $12,000. Held: remand for evidence on what actually promised to do; suggests that if truly promised what alleged, then cost of performance will = damages; cr. 2. Peevyhouse v. Garland (OK 1962): breached. Cost of performance = $29,000, and difference in market value = $300. Held: market value difference = damages. 3. Note: if breaching party provides no evidence of diminution of value or cost of repair, then non-breaching party may choose cost of performance provided it is not clearly disproportionate to the probable loss in value to him (Panorama v. Golden Rule and R 2nd, 348(2)). c. Cost of Repair: same test as for cost of performance, R 2nd, 348. d. Lost Volume Seller Exception: if non-breaching party a lost volume seller, then can recover lost profits under UCC 2-708(2). Whether one is a lost volume seller is a Q. of fact for the jury; three factors i. Seller possessed capacity to make an additional sale; ii. It would have been profitable to make an additional sale; and iii. An additional sale would probably have been made if not for the buyers breach iv. Note: almost universally, seller is in business of specialized goods, NOT generic goods. 2. Incidental Damages: loss in dealing with breach. a. UCC 2-710: Sellers incidental damages. b. UCC 2-715: Buyers incidental and consequential damages. 3. Consequential Damages: loss resulting from breach. Three limitations a. Mitigation: non-breaching party does not have a duty to mitigate, but if they dont, in circumstances this will lead to damages being reduced (R 2nd, 350(1)). i. Parker v. 20th Century Fox: non-breaching party is entitled to reject different OR inferior opportunities. Apply: Ct. decided there was no material Q. of fact that two K werent comparable; perhaps it was significant that under 1 st K, non-breaching party had near complete control. ii. Mancouchehri v. Heim: [applying UCC 2-715] non-breaching was entitled to recover lost profits for month long period because breaching party had made assurance that breach would be remedied, i.e. reasonably for non-breaching party to rely on breaching partys assertions thereby extending period over which damages result. b. Foreseeability: i. Hadley v. Baxendale 1854: where K has been broken, non-breaching party ought to receive such damages as may fairly and reasonably be considered either (1) arising naturally from the breach; or (2) in the reasonable contemplation of both parties at the time the K was made. 1. 7th Circuit, Judge Posner, restatement of the law: Hadley bars consequential damages for breach unless (1) was on notice of what consequences of the breach would be; AND (2) gave consent to to compensate for these consequences (Leister v. Dovetail). ii. Mancouchehri v. Heim (Ct. App. NM 1997): [applying UCC 2-715) The law does not require those who enter into contracts to disclose to other parties the profits they expect to make from the contract. Held: recovery of profits not unforeseeable. Significant that this was not a sale of a mass-produced item to an anonymous buyer. Ct. recognizes that reasonableness will demarcate outer limit of foreseeability. c. Certainty: i. ESPN v. Baseball: 1. seeking compensatory damages bears the burden of proof. 2. The damages alleged must be susceptible to ascertainment and cannot be the product of mere guesswork or conjecture.

Moreover, damages for loss of goodwill, business reputation or future profits the proof requirements are much more stringent, i.e. the damages may not be merely possible speculative or imaginary but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening forces. 4. Apply: s own witnesses could not provide a figure. Held: consequential damages DENIED. ii. Manchouchehri v. Heim: non-breaching partys only evidence on as to how exact damage figure was reached was his own testimony. Rule: when it is possible to present accurate evidence on the amount of damages, the party upon whom the burden rests to prove damages must present such evidence. HOWEVER, what is it possible to present in a suit for a million dollars may be an excessive burden for a small claim, i.e. possible = economical. Held: though evidence was minimal, it was adequate in the circumstances. 4. Avoided Costs: only specific overhead expenses will be deducted, i.e. those directly and uniquely connected to completion of K (Leingang v. Mandan Weed Board). ii. UCC: apply above equation for benefit of the bargain, but also consider following unique remedies 1. Buyers remedies, generally: 2-711 a. 2-712 Cover remedy: damages = cost of cover cost under K. Applied in KGM v. Fresh: i. irrelevant that buyer that cost plus K with another party (thereby passing portion of cost onto 3rd party yet recovering that portion from the breaching seller). ii. Ct. supplements subsection 1 to include following considerations 1. Did buyer act in good faith? 2. Did the goods in substitution differ substantially from the goods K for? 3. Did buyer unreasonably delay in purchasing substitute in mistaken belief that price would go down? 4. Did buyer pay too much for the substituted goods? b. 2-714(2): direct damages. c. 2-715: incidental and consequential damages. 2. Sellers remedies, generally: 2-703 a. 2-706(1): Sellers resale. b. 2-708: Sellers damages for non-acceptance. c. 2-709(1)(a-b): Sellers action for price.

3.

IF

NO CONTRACT/BREACH, OR IN COMBINATION WITH A BREACHED CONTRACT, ANY OTHER CHOICES?

d.

Alternatives i. Restitution: money either party has received under K (unjustified enrichment). Both breaching and non-breaching party entitled. 1. Restatement 2nd, 371? ii. Reliance: non-breaching partys out of pocket reasonable expenses spent in reliance on K. 1. Restatement 2nd, 349. iii. Recession

Exam Notes: - emphasis indicated on Prof.s checklist will dictate substance of exam. - Restatement: illustrations o Pg. 56: statutes of fraud o Pg. 66: mistake o Pg. 96: parole evidence. o Pg. 178: damages loss of value v. cost of performance/repair. o Pg. 351: Unforeseeability. o Pg. 187: uncertainty. o Pg. 356: liquidated damages and penalties. o Pg. 195: Restitution o Pg. 257-8: unconscionability (explained) o Pg. 262-5: warranties. - ESSAY QUESTION: o Choose a doctrine/rule. Critique. Offer new approach than one taken by courts, R 2nd, or UCC. - Offer and Acceptance will only come up in mirror image type issue.