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Introduction
- General Info
- Sources of K Law
o Common Law
Case Law
Restatement
• Compilation of CL
o Statutory Law
UCC
• Articles 2 (Sale of Goods)- law in every jurisdiction except for LA and 2A (Leases
of Goods)
• Other provision
o Article 1 (General Provisions)
Other statutes
Case Law
• Cases about how to apply statutes
- Must know which law is controlling: CL or UCC
o What is predominating in the transaction?
o Goods- UCC
o Services- CL
Ch. 3 Remedies
- Contract Remedies
o Why do we enforce contracts?
Expectations and planning
Commercial context
o What is the goal of enforcement?
Affect behavior or protect expectations?
• Efficient breach
o Breach of K because it is more efficient to breach than to perform
• Benefit of the bargain
o Put you in the same place where you would have been had the K been
performed (Expectation)
Best way to do this would be Specific Performance
• Usually get money though
• Compare to tort
- How to get the benefit of bargain?
o Why not specific performance?
Historical
• Law and Equity
o Don’t get equity unless the law provides for it or legal remedy is
inadequate
• Modern Application
Policy
• Purpose of enforcement
o Give someone the economic benefit
Could not do this with specific performance
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• Which constrains instead of expanding
Ex. Catering
• Efficient breach
I. Damages
A. Introduction
2
The difference between the present value of the farm, and what is
value would have been if D. had done what it agreed to do
o Which one is expectation???
There are many different ways of getting here
o Which one does the court choose?
The court chooses the $300
- Rationale
o Incidental to K
Construction contract comparison
o Cost disproportionate to value
Economic waste argument
• Why is it wasteful to do clean this up?
o $29k for only a $300 improvement
Right to do what want with own property
• Court says there not inferring with a person’s right to something with there
property
o Is diminution going to leave someone without a remedy?
Ex. Cotton candy pink siding
o Effect of willfulness, public policy
o What went wrong here???
Poor application of rules
Tactical errors
• P. “put all its eggs in one basket”
o No real backup
3. Council of Unit Owners of Sea Colony East v. Freeman Associates (Superior Court of Delaware, 1989)
- The Unit Owners, P., of a condo and the companies, D., which constructed the building disputed the correct
method for determining the damages due for construction defects in the building
- P seeks judgment as matter of law that evidence inadmissible:
o Diminution in Value evidence
o Useful Life Theory evidence
- Evidence held inadmissible. Why?
- Diminution in value
o Diminution in value v. cost of repair
Cost of repair--$13-$15 mil
Diminution in value??? (less)
o D’s argument for diminution in value:
No decrease in appreciation; disproportionate
o P’s response:
Not disproportionate
Not wasteful/ need to repair/ must bear cost
o Court- Cost of repair
- Useful Life Theory
o What is it???
Idea that damages should be prorated to account for the useful life of the subject matter
already enjoyed by the P.
o Why not appropriate here?
Not clear that added to useful life
Need to deduct for “not-so-useful” life
Complexity- avoid under compensation
3
o Ex. Roof had a useful life of 20 years and after 15 years it was found to have been defective and D.
was required to restore to its original value, then the owner/P. would be provided with a clear
windfall, extending the useful life, since the repair would entitle the P. to an additional 15 years of
utility
Argument then is that repair or replacement cost, if used, should be pro-rated for the
already-expired useful lives of the already-expired useful lives of the allegedly defective
building components
- Cost to repair when repair is too costly
o Use actual cost to repair if reasonable and in good faith
o If repair is an upgrade:
Give cost to repair for same quality- P. pays for upgrade
May get entire amount if
• No other option available
• Upgrade of no real benefit to P.
- Problem 66
o Helen builds horse for city Troy for $24k
o Helen’s cost= $20k
o Troy fires Helen-
Helen has spent $15k
Troy has paid her $5k
Salvage value $2k
o What are Helen’s expectation damages? (Expectation formula)
Loss in value $24k
(+) other loss 0
(-) cost/loss avoided $5k not spent
$5k already paid
$2k scrap
Total: $12k
o Alternate Calculation
Helen’s profit $4k
(+) reliance cost $15k
(+) other loss 0
(-) loss avoided $5k paid
$2k scrap
Total: $12k
2. Anglia Television, LTD v. Reed (Court of Appeals, Eng. Civ. Division, 1971)
- Reed, an actor, enters into a K with Anglia to perform in a play for TV but then repudiates the K
- Anglia wants to collect for expenditure incurred before and after the K was made
- Did Reed breach the K?
o Yes
- Reliance Damages
o Amount spent before K 1895
o Amount spent after K 855
o Total amount spent 2750
- Problem 67 (p.256)
o Rogette drafting a 14th ed. guide and White Publishing was to pay royalties
o She could possibly prove what the royalties would have been because there were 13 other editions
o Have to move her forward
So expectation is the most likely reward
o What would reliance damages be in Trojan horse case?
Reliance expenditures $15k
(-) loss avoided:
• amount paid $5k
• salvage value $2k
Total: $8K
1. Certainty
- P. is generally denied any relief that is too speculative
b. Humetrix, Inc. v. Gemplus S.C.A (U.S. Court of Appeals, 9th Cir., 2001)
- H enters into K to market a smart card and G is to supply and co-operate
- What is P. claiming?
o Two breach of K claims (Focus is on these)
Sales Agreement
Partnership Agreement
o Breach of Fiduciary duty
o Trade Mark
o Tort
- Is there a breach of K?
o Court holds that they have a K, so there is a breach of K
- What are the damages for breach of K?
o $15 million
- Does the award hold up on appeal?
o Yes
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- Certainty requirement
o P. cannot recover damages that cannot prove with reasonable certainty
Here, the case demonstrates that one can recover future damages as long as reliable
evidence such losses would occur can be presented
o New Business Rule:
If claim is for profits for a new business, cannot prove lost profits with reasonable certainty
Profits too uncertain, no track record
- New Business Rule Application
o Per se/Normative rule
Traditional approach
If new business, cannot recover lost profits
• Do not consider evidence
o Evidentiary/Empirical
Gaining favor with courts
Fact that new business indicates likelihood cannot prove with sufficient certainty
• Still consider evidence to prove otherwise
- D’s objection to expert testimony on lost profits:
o If use per se rule, no reason to admit. Cannot get lost profits as matter of law
o If using evidentiary rule, still arguing that testimony cannot support lost profits recovery
o Are the arguments successful?
- Certainty Requirement:
o (1) Certainty as to Causation
Required. Cannot recover damages if cannot prove with reasonable certainty they were
caused by the breach
o (2) Certainty as to Amount
Get to the extent can prove with reasonable certainty
Some flexibility. D’s breach, after all, caused uncertainty
2. Foreseeability
a. Hadley v. Baxendale (Court of the Exchequer, 1854)
- Carrier, D., was to deliver a crank shaft for the Millers, P. but did not do it in a timely fashion and the
Millers incurred some loss profits
- Elements of expectation- Benefit of the Bargain (Both should be foreseeable)
o General Damages
Arise naturally from the breach under ordinary circumstances
o Special/Consequential Damages
Arise as a consequence of the breach due to circumstances of the particular case
• These will not necessarily happen in every case
- Foreseeability requirement (R2K 351)
o Not recoverable if D. did not have
reason to foresee as
probable result
when K entered.
o Applies to both general and special damages, but need info for special
o May also limit damages in the interest of justice (Ex. Sullivan)
- Foreseeability requirement (UCC 2-715[2])
o Consequential damages include
Loss from general OR particular requirements seller
• At time of K
• Had reason to know…AND
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Injury to person or property proximately resulting from breach of warranty
o Different causation standard for UCC
Higher standard than proximate cause
- Problem 69 (p.271)
o Private courier was to deliver a package for Gilbert by Oct. 12 but on the way the couriers plane
crashed and Gilbert’s play was not delivered and he lost out on $50k
o Is at least a “tacit agreement” for liability for consequential damages required for recovery?
No, it just has to naturally flow
• There need only be mere knowledge, awareness, or that it might flow
o Does it make a difference as to damages if the plane crash was unforeseeable?
No, the breach does not have to be foreseeable
b. AM/PM Franchise Assn. v. Atlantic Richfield Co. (Penn. Supreme Court, 1990)
- ARCO, D., is supplying gasoline to Am/Pm, who claimed that the gas they were required to sell did not
conform to ARCO’s warranties for the product
- Breach of Warranty Damages
o General damages (UCC 2-714)
Difference in value between value of goods as warranted and value as delivered
o Consequential damages (UCC 2-715)
Losses from “the general or particular requirements and needs of which the seller…had
reason to know” at K time
- General damages
o Tire example
Tires warranted to be worth $2500
• Actually worth nothing—damages $2500
o ($2500 warranted—0 value = $2500)
• Actually worth $1500—damages $1000
o ($2500 warranted—$1500 value = $1000)
(These numbers assume P. has paid for the goods –acceptance requires payment)
- Consequential Damages—Lost Profits
o Primary Profits—Those from sale of goods under K:
Cant sell tires—would have made $2000 profit on sales--$2000 damages caused by breach
Must sell for less due to defect—would have made $2000 profit—must sell for profit of
only $1000-- $1000 damages caused by breach
Could be combination of no sales and sales at discount
MUST still prove losses caused by breach
o Secondary Profits—those lost from lost related sales
If often sell hubcaps when sell tires, lose sales when do not sell tires
Again, must prove number of sales lost with reasonable certainty
- Categories of lost profits
o Past Future
Primary Profits Primary Profits (Good will)
o Past Future
Secondary Profits Secondary Profits (Good will)
- Problem 70
o Parents K with funeral home to prepare their daughters body. Funeral home misplaced the body
o Emotional Distress Damages (R2K 353)
Not recoverable in K unless:
• Breach causes bodily harm
o Distinguish physical manifestation
• Breach is of a kind that serious emotional distress was especially likely
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o Burial cases classic example
o Generally not ordinary commercial losses
- Problem 71
o Andrew buys a sports car, car breaks down many times, he brings it back and sues for $5k mental
anguish
o Can he recover?
Not for mental anguish
This kind of breach is not of the kind that SED is especially likely
3. Avoidability
a. Rockingham County v. Luten Bridge Co. (U.S. Cir. Court of Appeals, 4th Cir., 1929)
- Luten Bridge Co. to build a bridge for RC, but RC stops them before LBC builds it
- Avoidability (R2K 350)
o P. cannot recover damages that could have avoided without undue risk, burden or humiliation
o “Duty to mitigate”
o Why are damages limited by Avoidability?
Inefficient
• Not going to make people waste money
• We want people to act rationale
- Problem 73
o Balloons of America K with Cuba to build a balloon in the shape of a cigar, and halfway through
Cuba repudiates
o UCC 2-715(2) Consequential Damages
Buyer’s consequential damages include
• “any loss…which could not reasonably be prevented by cover or otherwise.”
o UCC 2-704(2)
If goods are unfinished at the time of the breach/repudiation the seller may
• Using “reasonable commercial judgment,”
• For purposes of avoiding loss:
o Complete the goods and ID to the K OR
o Stop manufacturing and resell for scrap OR
o Proceed “in any other reasonable manner.”
o Seller’s remedies (preview)
2-706 Resale K-resale
2-708(1) Market K-market
2-708(2) Profit
2-709 Action for the Price
• Accepted goods
• Conforming goods for reasonable time after risk of loss passed to buyer
• ID’d goods cannot be resold
o Complete the balloon
Resale K $13k
- “resale” $1k
$12K
Price $13k
- credit for scrap $1k
$12k
o Stop now
Profit measure 2-708(2):
$2500 Profit
9
+ 0 incidental das
+ 8000 costs incurred
- 120 proceeds resale
$10, 380 damages
o Either way you go its make the P. whole, D. would pay less because it is more efficient
4. Damages by Agreement
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a. Lake River Corp. v. Carborundum Co. (U.S. Court of Appeals, 7th Cir., 1985)
- Lake River had a distribution agreement for a bagging system with Carborundum that was breached and
LR is suing for liquidated damages
- Liquidated Damages (R2K 356)
o Damages for breach by either party may be liquidated by K,
o Only in reasonable amount in light of
The actual or anticipated loss and
The difficulty of proof
o If amount is too large, the clause is unenforceable as a penalty on public policy grounds
- Liquidated Damages (UCC 2-718(a))
o Damages may be liquidated in K
o Only in reasonable amount in light of
Anticipated OR actual harm
Difficulties of proof of loss
Inconvenience or nonfeasability of getting adequate remedy otherwise
o If unreasonably large, void as a penalty
- Enforceability of clause providing for $100k in liquidated damages:
o Actual damages = $100k (yes)
o Actual damages = $10k (possibly…as long as $100k or $10k was a reasonable forecast for
damages at the time the K was entered into)
Same for any amount…could be $100 or $10
- Additional questions
o What does J. Posner think of the rule on LD?
o If a LD clause is invalid, how are damages calculated?
Simply the clause just goes away
o How is this situation different from a “take or pay” clause, or from alternative performance?
- Problem 76
o Contractor to build bridge by 8/10 or pay LD of $500 a day for each day late, bridge was not
completed by 8/10
Neither was the road on other side and bridge was eventually finished before the road was
o Does the contractor owe LD?
Can he get LD when there is no actual damage?
o Liquidated Damages when NO damages:
Some courts still allow LD as long was reasonable forecast
R2K 256: No LD if no actual damages. Why not???
• What was purpose of LD?
o If there are no damages, there are no damages to liquidate
• Race track example
o Builder finished on time but the owner couldn’t open on time bc he could
not secure the proper permits
• Does that apply here?
o No, because there were essentially two breaching parties pointing the
finger at one another
- Problem 77
o Lessor rents an apartment to Portia who as to pay $600 LD if cause any damage, bother other
tenants, put holes in wall, cause a disturbance, keep at pet, fail to give 30 days notice, fail to pay
$600 rent and also pay any actual damages lessor can prove
o Liquidated Damages or Penalty
“Shotgun” clause
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• If applies to both minor and important breaches, looks like penalty as to minor.
Could invalid.
“Have your Cake and Eat it Too”
• If provides a minimum, but not a maximum, does not really liquidate damages.
Looks like a penalty as to those under the minimum. Likely not valid.
o Avoidability in R/E lease:
Penalty of remaining rent? What are damages for breach of R/E lease?
CL: All of remaining rent.
No duty to mitigate. Why?
• Lease is a conveyance. Own leasehold estate. Must pay.
• P. risk of termination or loss of rights if reenter.
o Austin Hill Country Realty v. Palisades Plaza (TX 1997)
Palisades Plaza (Lessor) had lease K with Hill Country (Lessee) (Hill, Smith, Jones). Hill
Country breached. Lease terminted. Smith and Jones offered to lease space. Hill and 3
people offered to lease space. Use of property unchanged. PP refused and sued for full
amount of rent.
Should it collect?
• No
• Mitigation in lease agreement
o No duty to mitigate if treat entirely as a conveyance. No reentry or right to
reenter.
o Duty to mitigate if have or exercise K rights.
Modern lease is more like K
Encourages productive use of property
Prevents destruction/damage from vacancies
Consistent with disfavor of K penalties
Not if financial risk or unacceptable use of space.
Burden on lessee to prove could (or did) lease
- Problem 78
o Health Spa to provide service to Portia who would pay for $3500 for 3 year, Portia quits, P sues for
entire amount.
o Is it entitled to it? Is this a penalty?
- Clause that produces an amount lower than actual damages:
o Clause calls for damages of $10k
o Actual damages are $100k
o Is the clause a penalty?
o Is it enforceable?
o What is the test?
Is it unconciousable?
o What if parties knew damages were likely to be $100k?
5. Punitive Damages
a. Hibschman Pontiac, Inc. v. Batchelor (Supreme Court of IN, 1977)
- B purchases a new car from H that contained many problems
- Batchelor damages
o $1500 general damages (breach of warranty—difference in value between car as warranted and as
accepted.)
o $15,000 punitive damages
o Are punitive damages available in a breach of contract action?
Generally, no
- Punitive Damages (R2K 355)
o NOT recoverable for breach of K unless
Conduct is also tort for which punitive damages recoverable
o What was tort in this case?
o How are punitive damages to be measured?
- Punitive Damages—Bifurcated Trial
o Option 1:
Stage 1:
• Liability—compensatory
• Amount—compensatory
Stage 2:
• Liability—punitive
• Amount—punitive
o Option 2: (TX)
Stage 1:
• Liability—compensatory
• Amount—compensatory
• Liability—punitive
Stage 2:
• Amount—punitive
- Texas Statutes of Interest
o Chapter 41 of Civil Practices and Remedial Code
Limits availability and amount of punitive damages
o Occupations Code 2301.601 et seq.
“Lemon Law”
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o TX DTPA
Provides for exemplary damages by use of statutory multiplier
1. Buyer’s Damages
- Buyer’s Damages (Remedies)
o UCC 2-712 Cover price K Price
You go out and get replacement goods but you have to pay more than you would have
under K price…you get damages of cover price minus K price
o UCC 2-713 Market value K Price
You don’t have to gout and get goods but if you would have benefited from the market
price, you can still recover
o UCC 2-714 Accepted Goods (value warranted—value accepted)
o UCC 2-716 Specific Performance/Replevin
- Problem 79
o R agreed to purchase 40 new computer workstations from S
o UCC 2-712 (Cover measure)
(1) Buyer may cover
• In good faith, without unreasonable delay
• Buy goods in substitution for K goods
(2) Recover
• Cover price—K price
• + incidental or consequential damages
• - expenses saved due to breach
(3) Do not have to cover for remedy
o Cover measure in Problem 79
Cover Price $4k
K price $3k
Difference $1k * 40 =
Damages $40k
(No incidental consequential das, no expenses saved.)
What about the built in mouse?
What would incidental/consequential include?
• (see UCC 2-715)
- Problem 80
o Same facts as Problem 79 plus a couple of other things
o What would P. recover under UCC 2-713?
o UCC 2-713 (Market Measure)
Buyer may recover
• Market price
o When buyer learned of the breach
o At the place for tender (or arrival if reject/revoke acceptance later)
• - K Price
• + incidental/consequential damages
• - expenses saved due to the breach
o Market Measure in Problem 80
Market Price (Lewiston) $5k
K Price $3k
Difference $2k * 40 =
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Damages $80k
(No incidental/consequential das, no expenses saved.)
Compare to cover damages -- $40k
Since covered—use cover measure.
Did B have to cover to limit loss?
- Market and Cover Measures
o Cover is complete alternative to market measure
Do not have to cover
o Recover of incidental and consequential damages under both 2-712 and 2-713
o Incidental damages are those expenses involved in dealing with the breach
o Do not get consequential damages if could avoid
o Subtract???
- Damages: Accepted goods (UCC 2-714)
o (1) Determine in any reasonable manner
o (2) Recover:
Difference in value between goods as warranted and goods as accepted
UNLESS special circumstances show different amount
o (3) May recover incidental and consequential damages
- Damages: Accepted Goods
o What is value as warranted?
o What is value as delivered?
o What kind of “special circumstances” change the way of calculating?
o What would be another way to prove damages?
- Cost to Repair
o Could get cost to repair instead of difference in value
Taste/aesthetics
Safety
Usability
o Could be combination—idea is flexibility to achieve full compensation
2. Seller’s Damages
- Seller’s Remedies (Reprise)
o 2-706 Resale K—resale
o 2-708(1) Market K—market
o 2-708(2) Profit
o 2-709 Action for the price
Accepted goods
Conforming goods lost/damaged for reasonable time after risk of loss passed to buyer
ID’d goods that cannot be resold
- Problem 81
o M sold 3k plates to CS, plates delivered when promised, but CS sent the plates back
o Plates sold to CS for $20 but M resold for $18, without notice
(Market value = $14/plate)
o Seller’s Resale (UCC 2-706)
May resell in good faith; commercially reasonable manner
• Recover K price—resale price
• May recover incidental damages
• Subtract expenses saved due to breach
Public (ex. Auction) or private
• Must be in reference to K
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• If private, must give notice of resale
• Not accountable to buyer for profit on
o Problem 81 Resale Damages:
K price $20
Resale $18
Damages $2 * $3k = $6k
(OR $60k - $54k = $6k)
Is the resale measure appropriate?
• No…because they did not give notice of the resale
o Problem 81 Market measure
K price $20
Market $14
Damages $6 * $3k = $18k
Which one does seller want?
• Market
Can it recover $18k using the market measure?
a. Teradyne, Inc. v. Teledne Industries (U.S. Court of Appeals, 1st Cir., 1982)
- P. to sell transistor system to D., D. canceled K, offered to but FET instead, P. declined, then sold
- Rule: If a seller resells goods after a breach by a buyer, the proceeds of the resale are not credited to the
buyer if the seller (absent the breach) would have made both the original sale and resale
- Resale damages
o K price $98,400
o Resale $98,400
o Damages 0
o (But get incidental damages of $614)
o Is this the appropriate measure?
o Is there another alternative?
- Lost Profit (UCC 2-708(2))
o Available if 2-708(1) inadequate:
o Profit (including reasonable overhead)
o + incidental damages
o + costs reasonably incurred
o – payments or proceeds of resale
o Does that get us back to 0???
- Lost Profit (2 Scenarios)
o Lost volume dealer
Profit (w/O/H)
+ incidental das
- payments made
o Unfinished goods
Profit (w/O/H)
+ incidental das
+ costs incurred
- payments or proceeds of resale
o Don’t subtract proceeds of resale when lost volume dealer… Statutory interpretation
- Additional Terdayne questions
o What is D. objection?
o Is the damage calculation correct?
o What is the significance of variable v. fixed costs? Why is overhead included?
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o Was P. required to “mitigate” by selling D. the FET?
- Lost Volume Seller
o A seller who can accommodate more than one buyer for whom a buyer’s breach does not release
the goods for sale to another customer
In such a case, the appropriate measure of damages is the net profit the seller would have
earned pursuant to the sale
o Things to look at
Would have sought another sale
Could have found another buyer
Could have performed under another K
- Attorney’s fees
o Not available at Common Law (American Rule)
o Can recover if provided by
Contract
Statute
• TX Civil Practices and Remedies Code 38.001
o May recover for services rendered, labor performed, martial furnished…a
sworn account, or an oral or written K
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No
- Relief for Consumers
o § 17.50 consumer action if any of these are producing cause of damages (economic or mental
anguish):
Reliance on act/practice from laundry list
Breach of express or implied warranty
Unconscionable action or course of action
Certain Insurance Code violations
- Sorokolit v. Rhodes
o Cannot “recast” negligence claim as DTPA claim
o Warranty claims allowed
o What about effect of statute of frauds?
o (Also could sue under DTPA, for example, for unconscionable acts.)
- Professional Liability under DTPA
o 17.49(c) No claim based on professional service based on advice, judgment, opinion except for:
Express misrepresentation of material fact
Failure to disclose info (17.46(b)(26))
Unconscionable action or course of action
Breach of express warranty…
- Other Limitations
o No claim for bodily injury, death, or mental anguish except as specifically provided
o No claim out of written K IF
Consideration > $100k
Consumer represented by counsel, and
Not involving consumer’s residence
o No claim where consideration paid is > $500k unless consumer’s residence
- There is a notice requirement for DTPA claims
- Protection of the D.
o If you refuse a reasonable settlement offer, then you could stop the running of attorney fees and
punitive damages
II. Restitution
- Separate body of law
- Substantive or remedial
o Comes up as a remedy in many different contexts
- Legal or equitable
- Prevents (and compensates for) unjust enrichment
o D. has received benefit from P.
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o Unjust to retain without compensating P
- Terminology
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2. De Leon v. Aldrete
- Land sale K – installment K
- P stopped paying after paid $1070, D took possession. Sold to 3P for $1300, P sued for restitution
of the $1070 paid.
- Is P entitled to recover this amount?
- Problem 87
o P star, publicity tour D
Howard Teeth Movie Producers
$50,000
o P refused to go on tour, P has not been paid. Movie made millions. P sues for $1,000,000
– value of services.
o Will he recover?? If so, what amount?
o Does it matter if he refused due to injury?
- Problem 88
o D maps P
Montgomery King
$2,000 ($750 down payment)
o King repudiates. King seeks return of his $750 down payment. Montgomery’s actual
damages = $250.
o Is King entitled to the $750? To anything?
o What law controls?
o UCC 2-718(2)
Buyer breach – Goods not delivered – Buyer gets restitution of $ paid minus:
• Liquidated damages, if any, OR
• *Smaller of 20% of K or $500
*Restitution is subject to offset by:
• Seller’s right to damages
• Benefits received by buyer under K
o Problem 88 Calculation
20% of K price ($2,000) = $400 (less than $500
$750 - $400 seller keeps = $350
$350 - $250 (seller’s damages) = $100
Buyer gets $100 back. Seller keeps rest.
If buyer had received $100 worth of maps, he would recover 0.
o Variation #1:
$100,000 K with
• $10,000 down payment,
• $5,000 damages,
• $2000 goods received:
20% of $100,000 = $20,000 ($500 is less)
$10,000 - $500 - $5,000 - $2,000 =
$2500 to buyer (Seller keeps $7500).
o Variation #2
$1,000 K with
• $100 down payment
• No damages
• No goods received
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20% of $1,000 = $200 ($200 is less)
$100 - $200 = -$100.
• Buyer gets nothing back. Seller keeps the $100.
• BUT no affirmative claim for the “extra” $100.
• NOT a damage claim.
b. City Cenre One Associates v. Teachers Insurance and Annuity Assn. of America (U.S. Dis. Court, Dis. of
UT, 1987)
- Teachers Insurance sought specific performance of a K under City Centre was to borrow money from
Teachers to construct an office building
- P. seeks declatory J that it can void loan commitment
- D. seeks specific performance and damages
- P. seeks partial SJ, saying D. has adequate remedy at law
- Rule: Specific performance is not an appropriate remedy for lenders when a borrower has breached a loan
agreement.
- Is remedy at law inadequate?
o Is agreement to repay loan unique?
NOT unique because its only money
What about the security interest in land?
o Can damages be measured with reasonable certainty?
o Would borrower be entitled to specific performance if lender breached?
o What is the usual remedy for a breach by the lender?
c. Laclede Gas Co. v. Amoco Oil Co. (U.S. Court of Appeals, 8th Cir., 1975)
- In a propane delivery K, L had the right to unilaterally to terminate the agreement
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- D. tried to increase the price, then “terminated” K, P. sued for breach of K and sought injunction against
breach
- T Ct. said K unenforceable, no mutuality
- Rule: A provision in a K giving one party the right to terminate unilaterally does not render the K
unenforceable
- Laclede questions
o Was there an enforceable K?
o What is the appropriate remedy?
o Who decides whether to grant specific performance?
o What are D. arguments that SP is not appropriate?
- D’s arguments:
o No mutuality
Is this the same as mutuality for K?
o Difficult to supervise
Why is this a concern?
o K indefinite and uncertain
Does K need extra certainity for S/P?
o Remedy at law is adequate
This the best ARGUMENT
- UCC 2-716
o Available when goods are unique, or “in other proper circumstances.”
What kind of goods”
• Heirlooms, gems
K can be what is unique
Output and requirement Ks
Inability to cover
o May include other terms and conditions
- Other Laclede factors:
o Remedy at law inadequate
Inability to cover
Difficulty of measuring damages
o Public Policy
- Application of Factors
o Adequacy of remedy at law
Difficulty of measurement
K cannot be replaced
o Discretion of court—justice of remedy
Difficulty of supervision
Indefiniteness
Mutuality (tailor remedy)
Public policy/Other factors
- Other UCC Provisions:
o NOTE: UCC does not provide for specific performance for seller—Action for the Price is a
damages remedy
26
Decide if other reasons not to grant (Second stage)
• Balance factors
• Discretion, within established parameters
o Factors to consider (At second stage)
Will D. get return?
Possible to enforce?
Difficult supervision?
Personal service?
• If yes, the no SP
Uncertainty?
Damages collectible?
Public Policy
• If SP goes against public policy, likely not to be granted
Hardship to D?
Hardship to 3P?
Fairness of K
Clean hands?
• Court follow a clear conscience…court will not help if P does not have clean
hands
Laches
• Unreasonable delay
• Prejudice to D
Other factors
o Effect of specific performance
Prevents efficient breach
• May create wasteful costs
• May prevent “highest and best” use
Creates “bilateral monopoly”
• May reach true measure of loss
• May create windfall or penalty
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A. Meaning of “Parol Evidence”
- Problem 106
o Jane to build dock/use copper nails, have written K, construction begins, Hiram tells Jane
she can use galvanized nails??? PAROLE EVIDENCE RULE DOES NOT BAR LATER
OR SUBSEQUENT AGREEMENTS. ONLY PRIOR.
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o If not separate K, can answer by asking other questions.
o What were the other questions?
- ***Application of PER:***
o Does the offered agreement contradict the written K?
If yes, evidence not admitted
If no, ask the next question
o Is the written K complete?
If yes, evidence is NOT admitted
If no and no contradiction, evidence is admitted
• Was this the question the court asked???
- Does the agreement contradict K?
o Majority says maybe
Don’t need to decide. Why?
o Dissent says no.
Does not change anything in the K
If contradicts, contradicts idea of completeness. So reall boils down to Q3—is it
complete?
o Why do we ask this question?
o R2K 215—If final agreement, no evidence to contradict
- Is the K complete?
o What do we mean by this question?
Does the agreement contain everything agreed to by the parties?
Is the agreement complete as to the subject of the offered agreement?
Is the offered agreement within the scope of the written K?
o Why do we ask this question?
o R2K 216—Can supplement, unless court finds complete
- Approaches to completeness
o 4 corners—Does it look complete?
o “Traditional”—Objective
Would similarly situated parties naturally omit it from the writing?
o “Modern”—Subjective
Did the parties intend the writing to be complete?
o (Look at UCC rule in next case)
- Polices and Effects of PER:
o Why do we have such a rule?
o Was a just result reached in this case?
o What happens if evidence is barred>
Judge/jury (fact finder) distinction
o What happens if evidence is admitted?
Still must prove happened
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o Was the K full integrated (complete) as to the warranty?
o Did trial court admit evidence of the warranty?
Yes
o What happens on appeal?
Rev.
- Is agreement complete?
o Question of intent
o Consider circumstances, negotiation, sophistication of parties, agreement itself (is it obviously
incomplete?)
o Is there an integration (entirety, merger) clause?
What’s that?
• A provision in a K stating that the document represents the total and final
expression of the parties agreement
If there is, is that dispositive? Is it here?
- UCC approach to completeness:
o Would terms “certainly have been included” in the writing?
If so, inadmissible
o Let more evidence in—more liberal
o Courts remands to determine if intended to be complete, using this test
o Completeness is question of law, but can depend on facts. Need more facts here
- Betaco continued
o What happened after remand?
D. Ct found not (fully) integated. Warranty evidence admissible
7th Cir. rev.
- UCC PER (UCC 2-202)
o Terms in writing intended as final—may not contradict by prior agreement or contemporaneous
oral agreement but may explain or supplement
By course of performance, course of dealing, or usage of trade; and
By evidence of consistent additional terms unless court finds writing intended to be
complete
- Warrant Evidence
o Was there a warranty disclaimer in the agreement?
o Does warranty “outside” of K contradict the disclaimer?
o UCC 2-316 on exclusion of warranties—“subject to the provisions…on parol…evidence.”
- Warranty Exclusion
o If you make a warranty in a document, you cannot exclude it in the same document…if it is in the
document, it is there?
o If you have a warranty on the face of the document and the seller makes an oral statement
disclaiming the warranty, then it still valid in the document (PER excludes oral testimony)
o If you have an exclusion on the face of the document but the seller gives an oral warranty then still
no warranty (PER excludes oral testimony)
3. Luria Bros. and Co. v. Pielet Bros. Scrap Iron (U.S. Court of App., 7th Cir., 1978)
- PB attempted to introduce testimony that a K calling for an unconditional sale of goods was in fact
contingent upon their receipt of the goods
- Rule: Testimony may not be introduced that a K calling for an unconditional sale of goods was in fact
contingent upon the seller’s receipt of the goods.
- What is a contradiction?
o Limitation of absolute, right to cancel
Right of unilateral rescission not in K
Right to cancel not in K—not admissible
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o Only “head-on” contradiction: night v. day, up v. down, red v. green—limitations limit, not
contradict
Limitation on option not in K admissible
Quantity “qualification” not in K admissible
- Application of UCC PER
o Does evidence contradict the writing?
Court says yes. What if it had said no???
o If had made this agreement, would they certainly have included it in the K?
Court answers this question also. Yes. Still bars evidence.
o What if the K included “per our conversation”?
4. Lee v. Joseph E. Seagram and Sons (U.S. Court of Appeals for the 2nd Cir., 1977)
- Ps allege D promised to relocate them in a new distributorship if sold Capitol City. Ps sue for
breach of that agreement. D says promise barred by PER.
- Lee questions:
o Does the evidence contradict the writing?
o Is the writing complete? (Is the agreement something the parties would ordinarily be
expected to put in the writing?)
If is, and didn’t, unlikely made agreement. Don’t allow evidence.
- Would parties ordinarily put in writing?
o Complex contract.
o No identity of parties.
Sale of corporate assets, promise to only certain individuals.
o Relationship of trust and confidence.
o Negotiated by different parties.
o No integration clause.
Does this matter? What if had one?
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Condition to performance of entire written agreement and
Condition to performance of obligations within K.
o What is effect of entirety clause?
o What if there is a conflict with writing?
o Is there a contract at all?
- Mitchill v. Lath redux
o Assume that when Laths told Mrs. Mitchill that they could and would remove the ice
house if she would buy the property, they in fact had no right or ability to do so, and they
knew they did not.
Does the PER bar evidence of this agreement?
- R2K 214(d)
o Evidence of prior agreements and negotiations admissible to show
Illegality
Fraud
Duress
Mistake
Lack of consideration
Other invalidating cause – Not K
- R2K 214 – other provisions:
o Also admissible to show
Writing not integrated (not final)
Whether complete or partial integration
Ground for remedy
• Rescission, reformation, specific performance
Meaning of the writing
III. Interpretation
A. Admissibility of Evidence Surrounding Circumstances and Evidence of Intent
- PER and Interpretation
o PER deals with what agreements or understandings make up the agreement
Is it part of the K?
o Interpretation deals with what the words or terms of the contract mean
We know it’s part of the K
What does it mean?
- Why do we need to interpret K?
o Imprecise or even sloppy drafting
Draft early and proofread!
o Ambiguous terms, structures
Wife, summer, middle of the month
Cut the grass and trim the shrubs in the front yard
o Parties want flexibility
o Parties can’t agree on term
1. Pacific Gas and Electric Co. v. G.W. Thomas Drayage and Rigging Co. (S.C. of CA, 1968)
- During the work, the cover fell. Injured P. property
- P sued for damages under indemnity provision
- What is the interpretation issue?
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- Rule: The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not
whether it appears to the court to be plain and unambiguous on its face but whether the offered evidence is
relevant to prove a meaning to which the language of the instrument is reasonably susceptible
- Pacific Gas Questions:
o Does the clause mean indemnify
Against all loss, even to P. property (P) or
Just loss to property to 3Ps (D)
o What did the trial court do?
o What is trial court’s approach to interpretation?
o What happens on appeal?
o What does the CA S.C. think of the trial courts approach? Why?
- Plain meaning rule
o If the K has a plain meaning on its face—
That is the meaning of the K
Do not admit evidence to interpret
o S. Ct. says assumes words have one true meaning—but meaning can vary
Does a thousand = 1,000?
Can 49.5% = 50%?
- PG and E approach to interpretation:
o Admit all evidence provisionally
Decide if the language in the K is reasonably susceptible to the interpretation suggested
If not, do not admit for interpretation
If so, admit. Still decide what K means
o 2 steps
Admissibility and interpretation
- Plain meaning compared
o Plain meaning: look first for ambiguity in K
Use interpretation rules
If not ambiguous, don’t admit evidence
o PG and E: consider evidence to find ambiguity
Always admit provisionally
Don’t consider for interpretation if not reasonably susceptible to meaning
- Plain meaning defended
o J Mosk quoted:
“The written word…is not at all times subject to alteration by self-serving recitals based
upon fading memories of antecedent events.”
o J. Koszinsky:
While we have our doubts about the wisdom of Pacific Gas, we have no difficult
understanding its meaning, even without extrinsic evidence to guide us
- Ambiguities
o Patent ambiguity—apparent on the face of the document
A is making a payment on behalf of B. All notices should be sent to “his” address
o Latent ambiguity—not apparent until look at extrinsic evidence
Notices should be sent to the Houston office—in fact, there are 2 Houston offices
2. R and P Enterprises v. LaGuarta, Garvel, and Kirk (S.C. of TX, 1980) (SEE HANDOUT)
- D. defaulted on note on first anniversary
- Trustee sold and R & P bough at public sale
- Promissory Note
o If is expressly agreed that the maker shall have personal L for payment for the first two years
o After which time, all prior payments having been made, the maker shall have no personal L, and
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the payee will look only to enforcement of the liens,
o It being expressly agreed that the maker shall have no L for any deficiency
- Is the K ambiguous?
o Question of law for the court
o Give effect to the parties intent as expressed in the instrument
o Consider the entire instrument—so none of the provisions are meaningless
o If court can give it certain meaning—not ambiguous
o Apply rules of interpretation first. Admit extrinsic evidence only if still ambiguous
3. Alba Tool and Supply Co. v. Industrial Contractors (S.C. of TX, 1979)
- D. excluded right to sell
- I.C.I cancelled the K
- Alba sued claiming 5% commission
- ICI said Alba breached the K
- Ambiguity of Agreement:
o Trial court said unambiguous
o No evidence admitted to explain
o Court of Appeals found ambiguous in two ways:
Limited on areas of representation unclear
Exclusive agent/right to sell ambiguous
o Supreme Court rev.
- Exclusive Agency/Right to Sell
o Both terms used, but have different meanings
Exclusive agency—principal can sell
Exclusive right to sell—only agent can sell
o Meaning is clear in K
Clearly gave exclusive right to sell
Handwritten provision, w/ initials
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cover McKee’s family
1. Nanakuli Paving and Rock Co. v. Shell Oil Co. (U.S. Court of App., 9th Cir, 1981)
- N entered into long term supply K with Shell to buy asphalt and objected when Shell raised the
price from $44 to $76
o Prices went up dramatically, P sought “price protection,” Shell refused, N sued for breach,
and a jury found for N, then court granted JNOV for D.
- Rule: Under the UCC, an agreement goes beyond the written words to mean the bargain of the
parties in fact, as found in their language or by implication from other circumstances, including
course of dealings, usage of trade, and course of performance.
- Nanakili questions:
o What happens on appeal?
o What law governs this transaction?
The UCC
o Does the K require “price protection?”
No
o If so, how?
- UCC 2-202
o Terms in writing, intended as final—many not contradict…But may explain or supplement
By course of performance, course of dealings or usage of trade and
By evidence of consistent additional terms unless the writing is complete
- Trade Usage (1-303/205)
o Practice of dealing
o Regularly observed in place, vocation or trade, such that
o Justifies expectation will observe in this transaction
o Existence is fact question
o If in writing, interpretation of writing is for court
- Trade Usage questions:
o Why is trade usage part of interpretation?
Helps us better define the terms of the K
o What if only one party is in the trade?
Both parties should be in the trade because it is easier to prove that both parties
understand the usage
o What was Shell’s trade usage argument?
- When trade usage is relevant:
o Both parties are in the trade
o One party is in the trade and the other
Has actual knowledge of the usage
The usage is common knowledge
o Objective standard—should know
o What is the trade? Define broadly or narrowly? (D. wants to limit)
- Course of dealing (1-303/205)
o Sequence of conduct
o Between the parties
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o Concerning previous transactions
o Establishes common understanding for
o Interpreting expressions or conduct
- Course of performance (1-303)
o Sequence of conduct in particular K
o Between the parties
o Repeated occasion for performance
o The other party accepts the performance without objection, with
Knowledge of the performance and
Opportunity to object
- Course of performance questions:
o How many performances are required?
More than one, so two
o How many performances were there in Nanakuli?
Two
o Does the court find course of performance (of price protection) here?
o What additional argument does Shell have?
- Course of performance v. waiver
o Course of performance helps interpret the K
K: deliver in the middle of the month
Performance: always delivered on the 18th, without objection
Interpretation: the middle of the month includes the 18th
o Waiver excuses performance of a duty required in the K
K: deliver on the 15th
Buyer allows delivery on the 18th
The requirement of delivery on the 15th is waived
- Hierarchy
o Express terms
Cannot contradict K—express terms control
o Course of performance
Good evidence regarding this very K
o Course of dealing
Good evidence regarding these parties
o Usage of trade
Often important factor in interpretation
- UCC and contradiction
o Why doesn’t D win?
Doesn’t K clearly say pay posted price?
Doesn’t the evidence contradict this?
o What is a contradiction?
Head on contradiction? Limitation?
o Mixed signals in statute:
Express terms control
Trade usage used unless carefully negated
- UCC 2-202 redux
o Terms in writing, intended as final—may not contradict…But may explain or
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supplement
By course of performance, course of dealing or usage of trade and
By evidence of consistent additional terms unless the writing is complete
o Is Nanakuli an explaining or supplementing case?
2. Columbia Nitrogen
- P sells nitrogen to D., prices drop dramatically, D. asked P. to renegotiate price, P. refused, D.
refused to buy, P. sues, D offered: trade usage—required to renegotiate and course of dealing—D.
renegotiated when D. was seller
- Procedure
o Trial court did not admit evidence
o 4th Cir. rev.
Not carefully negated
No ambiguity requirement
o How to keep evidence out?
Make clear. (Here, couldn’t agree)
Carefully negate known terms
C. Rules of Interpretation
- Interpretation Rules
o Consider circumstances/parties’ purpose
o Interpret writing as a whole
o Use general and technical meanings, unless a different intention manifested
o Consider manifestations of intent, course of performance, course of dealing, usage of trade
- Interpretation Standards
o Prefer reasonable, lawful, and effective meaning to all terms
o Order: Express, course/performance, course/dealing, trade usage
o Specific terms over general terms
o Separately negotiated or added terms over standardized terms
o Interpret against the draftsman
o Interpret favoring public policy
- Interpretation continued
o A plain meaning court will apply the forgoing rules first
o If no ambiguity, will not admit evidence
o Note UCC and trade usage conundrum
o If find two plausible meanings, which one controls?
- R2K 201- Whose meaning prevails?
o Whose meaning prevails if there are 2 meanings and each party says meant something
different?
o (1) If both meant the same thing, that is the K meaning
Then why are we in court?
This actually what the evidence is generally intended to show
- Each party has different meaning:
o Choose A’s meaning over B’s if:
A only knew A’s meaning, and B knew both meanings, or
A had no reason to know B’s meaning, and B had reason to know both meanings
o If does not fit any of the foregoing, there is no K
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Impossibility
a. Taylor v. Caldwell (Queens Bench, 1863)
- P. contracted to use Caldwell’s, D., music hall for four days, the Music hall burns down before
performances, P sues for damages
- Does the D. have to pay damages?
o If not, why not?
- Rule: In contracts in which the performance depends on the continued existence of a given person
or thing, a condition is implied that the impossibility of performance arising from the perishing of
the person or thing shall excuse the performance
- Impracticability (Supervening- R2K 261)
o After K made
o Party’s performance becomes impracticable
o W/o fault of that party
o By occurrence of event
o The non-occurrence of which was a basic assumption of the K (foreseeability ???)
o Duty to perform is discharged
o UNLESS the language or circumstances indicate the contrary (Assumption of risk)
- Problem 69
o D. to deliver play by 10/12, but plane crashed, and the play was not delivered
o D. guaranteed to deliver the next day…he assumed the risk
Thus this would not apply to him
- Problem 129(a)
o Behemoth to build an office building for Jordan, the building was 95% complete,
destroyed by a fire, K does not address potential destruction
o Is Behemoth excused from further performance due to impracticability?
No one expected the building was going to burn
Apply the test impracticability…MUST meet all elements
• Here, assumption of the risk falls on the contractor
- Problem 129(b)
o Job to paint meeting room for Jordan for $20k, job is 75% completed, building is destroyed
by an earthquake
o Is Job excused from performance?
Yes, because how can a painter paint a room that does not even exist
o Is Job entitled to payment? Is so, how much?
Yes…unjust enrichment
• But the building is gone so do they have anything?
• He conferred a benefit because of his time
b. Nissho-Iwai Co. v. Occidental Crude Sales (U.S. Court of Appeals, 5th Cir., 1984)
- O, oil producer, failed to supply oil drilled to Libya to N, a Japanese oil distributor, for eight
months, N sues for a breach of K (and fraud). D says excused by force majeure clause due to:
Government embargo on exports and pipeline breakdowns
- What’s a force majeure clause?
o Clause pursuant to an oil and gas lease, relieving the lessee from L for breach of the lease
if the party’s performance is impeded as the result of a natural cause that could not have
38
been prevented
- Rule: A party relying on a force majeure clause to excuse nonperformance under a K must prove
it did not exercise reasonable control over the excusing event
- Force Majeure Clause
o Enumerates “excusing” events
o May include others not listed
o Here, includes embargo and pipeline breakdown
o So, isn’t D excused?
o If not, why not?
- “Fault” of party seeking excuse:
o No excuse if at fault
If caused the event
If failed to act reasonably to prevent it
o Why is this a requirement?
Because we are letting someone out of what they were supposed to do
o Was D at fault here?
Regarding the embargo?
Regarding the pipeline problems?
o Does the fault limitation apply here?
- Force Majeure Clause
o Excuse if embargo, pipeline breakdown or other events not within D’s control
o Excuse if embargo, pipeline breakdown or other events not within D’s control
o Excuse if embargo, pipeline breakdown or other events not within D’s control
- Problem 130
o Edison to fix cracking in barges (guaranteed), Edison had submitted only bid, they were
unable to fix problem after two years, gave up, said impossible, and submitted a bill to the
government, government said no payment, breach of K
o Is Edison excused based on impracticability?
o Impracticability (Existing- R2K 266)
At time K made
Party’s performance becomes inpractiable
W/o fault of that party
Due to fact he had no reason to know
The non-existence of which was a basic assumption of the K (foreseeability???)
No duty to perform arises
UNLESS the language or circumstances indicated the contrary (Assumption of
risk)
- Problem 131
o HW K to sell TC a cow, Rose of Aberlone, prior to the date of delivery, Rose died.
o Is HW in breach of K?
No…seems it just happened and was out of people’s control
• Risk was not assumed
o What if Rose is very sick?
o What law governs this transaction?
o UCC 2-613
K requires goods identified at time K made
Goods suffer casualty
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Without fault of either party
Before risk of loss passes to buyer
• If loss is total, K is avoided
• If loss is partial, or goods deteriorated:
o Buyer may avoid K OR
o Accept goods with allowance- no other claim
- Problem 132
o Mona K with Naby to supply it with chicken pot pies, Mona always bought chicken from
the Chick Ranch, did not have K with them, Chicken Ranch unexpectedly closed, Mona’s
claim excused due to impracticability
o Problem 132 Questions:
Can Mona still perform?
Does he K require chicken from the chicken ranch? What if it did?
Is it Mona’s fault that the chicken was not available?
Could she have protected herself?
Were the goods identified to the K at the time it was made?
What section controls this case?
o UCC 2-615
Unless assumed greater obligation, seller’s
Delay or non-delivery
In whole or in part
Is not breach
If performance impracticable
• By occurrence of contingency, if non-occurrence is basic assumption of K
• Or by good faith compliance with government order
o Identification of goods/source
Are goods identified at the time K is entered?
• Is so, look to UCC 2-613
Is source identified at the time K is entered?
• If so, performance is likely impracticable
o Must still consider rest of test
• If not, must decide if performance is still impracticable for other reasons
• Look to UCC 2-615 for both
- Problem 133
o Farmer K to sell potatoes to Grocery store, K does not desiganate a source, both parties
know Farmer plans to supply potatoes he grows. A tornado destroys the potato crop OR
rabbits destroy the crop
o Is Farmer excused?
Tornado- likely yes, cannot control it
Rabbits- likely no, could do something about it
o Potato K
Does 2-613 or 2-615 control?
Is the source identified?
What if only half of the potato crop had been destroyed?
What if half of the crop is destroyed, &
• Farmer M has other buyers under K,
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• Another buyer not under K, and/or
• Normally uses some of his own potatoes?
o UCC 2-615(b)
If seller’s capacity only partially affected
He must allocated among customers
In a fair and reasonable manner
May include regular customers not under K
May include own requirements
***Buyer’s option to accept modification or not- but no claim against seller***
c. Sunflower Electric Cooperative, Inc. v. Tomlinson Oil Co. (KS Ct of App., 1981)
- Tomilson K to supply natural gas to Sunflower from an as-yet-unproven gas field, D. failed to
deliver the gas required by the K, P. sued for breach of K, D. says excused due to impracticability
because there is insufficient gas in Stranger Creek field. Tr.Ct: J/D-impracticable. P. appeals.
Result?
- Rule: When a party K to supply a product form an unproven source, that party may not invoke
impossibility as a defense if the source fails.
- Sunflower questions:
o Did something happen at Stranger Creek field to make the gas go away?
o What law governs this transaction?
o Is existing impracticability an excuse in a case like this?
o What are P. defenses?
- Subjective Impracticability
o Subjective impracticability is not an excuse: “I cant do it.”
o Must be objective for excuse: “It cant be done.”
o Inability to pay is subjective, thus never an excuse-
There’s money in the world, just not in my bank account
(And one generally assumes risk of ability to pay)
o Is the impracticability here objective or subjective? How can we tell?
- Source of gas
o Gas is not identified at time of K
o Source of gas is identified in K:
Court finds K required gas from
o There is insufficient gas in Stranger Creek field
o So nobody could deliver gas from Stranger Creek field. Or could they?
- Fault
o P. says D is at fault
Should have developed field more expeditiously
Not excused due to fault
o Was D. at fault?
- Recap
o P loses objective impracticability argument- court finds is obejective
o P loses fault argument- court finds D not at fault
o What’s P’s last argument, and what is the result?
- Foreseeability and Assumption of Risk
o Was insufficiency foreseeable?
Know amount of gas is never certain
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Know the tests are not certain
o Did D assume the risk?
Made absolute promise knowing risk
Guaranteed maximum amount
Required expenditures by P
Cant gamble at expense of other party
- “Foreseeability”
o Why is the foreseeability result different here from that in the potato crop case?
o Are tornados foreseeable?
o Are fires foreseeable?
o Both UCC and R2K use “the non-occurrence of which was a basic assumption” of K
o Why are courts reluctant to grant the defense of impracticability?
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o Is this condition a
o Condition or Promise
Problem 136- Condition
Problem 137- Promise
Problem 138- Condition and Promise
• The craftsman’s promise is a promissory condition
• Moot’s promise is a conditional promise
1. Howard v. Federal Crop Insurance Corp. (U.S. Court of Appeals, 4th Cir., 1976)
- FCIC claimed that Howard violation of a condition precedent negated its obligation to pay
- Rule: Where it is doubtful whether words create a promise or an express condition, they are
usually interpreted as creating a promise, thereby avoiding a forfeiture
- Condition or promise?
o Trial court found for D
Not destroying crops was a condition
A condition that something not happen
o Reversed and remanded on appeal
Not destroying crops was a promise
K dury not to destroy crops
Destruction is breach but return is till due
o Why did court find promise?
o Condition or promise
Can be both
Based on intent
Here, it is a promise
• Language does not make condition here, but know how to do it- did in other
parts
• Construe against the draftsman/insurer
• When in doubt, interpret as a promise
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o Isn’t K clear?
Not condition, just timing provision
Doesn’t address non-payment by owner
Fill gap- reasonable time
o Can parties put risk on sub if clear?
Some courts say yes
Others, and some statutes, say cannot
• Public policy- defeats mechanic’s liens
- Problem 140 (p.682)
o A borrows $200 from J and says he will repay when his Aunt next arrives, Aunt usually
gives him A $1000 when she visits, She dies suddenly
o Must A repay John?
John expects repayment…it is not about whether Aunt will arrive, its about when
he will be repaid
o Is his Aunt’s arrival a condition to his duty to pay?
Not a condition more of a timing provision
- Recap
o Effect of Conditions
Operation of condition can be harsh- failure can eliminate right to return
performance
Courts (and legislatures) may find ameliorate this harsh effect:
• Interpretation
• Statutes
• Construction
• Excuse
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o Court supplied condition of dependency here to do justice and fulfill presumed intent of
parties
o Condition is implied in law or constructive condition
o There is a strong presumption that promises are dependent- that K has conditions
o R/E leases traditional were considered independent- not generally so now. K, not
conveyance.
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R2K 234(1): prefer interpretation that concurrent if can be concurrent
Tender: “valid and sufficient offer of performance”—ready, willing and able to
perform
o What happens if no one shows up?
Kinda just goes away
- Problem 143
o Travis to sell houseboat to Meyer for $35k, now Travis to deliver 8/1, Meyer to pay by
check: $1k per month until all paid, first check due 9/1, Travis fails to deliver the boat, M
sues 8/10
o Can Meyer recover without tendering payment?
o Is there any condition to Travis’ duty to deliver?
- Problem 144
o Caria to sell M 12k fancy bricks for $6k, C delivers half the bricks 5/5, demands $3k
o Must M pay now?
o Can C withhold next delivery if no payment?
o UCC 2-307: unless otherwise agreed (or indicated by circumstances)- single delivery and
payment. If deliver in lots, pay by lot.
- Problem 145
o Bill Gilbert agreed to write lyrics for producer who would pay, Bill wrote half the lyrics-
demanded half the money, Producer refused to pay, Bill refused to continue, Producer
hired someone else, Bill sued. Result?
o Here, the producer is protected because he should receive the lyrics before he pays
o Order of performance
Prefer concurrent if can be done—can’t always be done
R2K 234(2) If only one performance happens over time, that performance must
occur first (it is a condition of return), unless language or circumstances indicate
otherwise
If want “progress payments” put it in the K
• Court wont infer payment schedule
• K can, and often does, address payment schedule
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o Do we know how it is to be fulfilled based on the words of the K, or through construction
of the K?
- The condition to payment
o The condition to return performance (final payment) is performance by P.
o What kind of performance fulfills the condition?
The performance defined in the K as the condition of return performance, OR
Substantial performance
o What is required here?
Substantial performance is all that is required here
- Condition or promise
o Why does the court use substantial performance here?
Substantial performance is implied in law
Isn’t the K clear regarding Reading Pipe?
o The use of Reading pipe is a promise, not a condition
K is clear that will use, not that not using will result in forfeiture of return
- Substantial Performance
o What is substantial performance?
Perfect performance?
A “stab” at performance?
o Why is substantial performance the standard?
Need to protect both the performing party
Need to protect the bargain
Presume reasonable intent of parties
- Effect of Substantial Performance
o If no substantial performance, no return performance is due under the K
The party that did not substantially perform may still be entitled to restitution for
the benefit conferred.
o If have substantial performance, the K return performance is due
Subtract any damages from the breach
- Substantial performance in Jacob and Youngs?
o P substantially performed.
The breach was trivial compared to the entire K
The breach was innocent
o Does the dissent agree?
o Do you?
o Was the Reading pipe a promise or a condition?
o NOTE: Conditions fail – promises are breached
- Damage options
o Cost to replace
D. (owner) wants this as offset (or more) against payment owed to P.
Requires tearing out a lot of good work
o Difference in value
P. wants this
Virtually nothing. Cohoes pipes as good as Reading
- Result
o Court awards difference in value
Cost to replace involves economic waste
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Unlikely to actually replace
o Does this adequately protect owner’s expectations?
o Could he have changed result by clearer K? Are there other factors at work?
- Problem 146 (p.695)
o Specs call for Reading pipe
o Contractor intentionally orders Cohoes
Its cheaper and basically the same
o Does his willfulness change result?
According to Cardozo?
• YES
According to the current law?
If not, does contractor have a remedy?
What is willfulness?
2. O.W. Grun Roofing & Construction Co. v. Cope (TX Court of Civ. App., 1975)
- Grun K to intall a new roof on Copes house but used shingles that were not of uniform color, Cope
refused to pay.
- Rule: In order to establish
- Substantial performance and Material breach
o Two sides of same coin
Substantial performance is “good enough” to merit return performance
Material breach is significant breach
o One precludes the other.
If have substantially performed, have not materially breached, and vice versa
Cannot have both (but can have neither)
- Application in Grun
o Isn’t it good enough if will last 15 years? Keep out rain?
o Appearance of roof is very important
“Russet glow”
Home is castle
o What if had been roof on warehouse?
- Condition or promise
o Is right color a condition or a promise?
Condition – so return performance ($648) is not due when it fails
Promise – so damages are due for breach (extra $122 need to replace)
o If is condition, and accept, what happens to condition?
Did P give up right by accepting roof?
- Restitution???
o Is D. entitled to restitution for benefit of roof installed?
o No. No value. Need new roof.
o Structural work did not add value
o P. did not accept roof
- Compare Jacob and Young
o What if the roof in H and Y had been the wrong color? Would that change the result?
As to substantial performance>
• Contractor would still get paid
As to damage?
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• Now it would be cost to replace
o What if, in either case, would not replace the roof?
- When is a breach material?
o R2K 241- Circumstances to consider:
Extent injured party is deprived of reasonable expected benefit
Extent injured party can be adequately compensated
Extent breaching party will suffer forfeiture
Likelihood of cure
Extent of good faith and fair dealing
- Material Breach
o If material breach, other party can suspend performance (R2K 241)
o Remaining duties discharged (R2K 242) if
Indicated by 241 factors
Delay may prevent/hinder substitute
K indicates time is of the essence
(Stated time for performance does not mean time is of the essence)
- Time for performance
o Timely performance is a condition to return performance if K makes it one
“Time is of the essence”
Not likely condition in construction Ks, R/E sale. Always condition in Option K
Liquidated damages for late performance may indicate not a condition (Carter)
o If not by K, factor as to materiality of breach, right to cancel
If not condition, still promise. Right to damages
- Problem 148(a) (p.697)
o Tracthouses k with Newtown to build 10 identical houses for $25k each, TI built 3 houses,
Newtown could not pay.
o Should Tracthouses stop building? Keep building? Sue for 3 houses, or for all?
o Is nonpayment a material breach?
o Is building a condition of payment?
o Conditions and material breach
It is a condition of each party’s remaining duties is that there be no uncured
material breach. (R2K 237)
Non payment after 2 houses is a material breach here
Tracthouses can suspend performance and sue for total breach now
- Problem 148(b)
o Tracthouse to build 10 identical houses for Newtown for $25k each, Newtown agreed to
pay when all 10 finished, Tracthouses built 9 houses perfectly, did not finish the 10th house
(half finished)
o Is Tracthouse in material breach of K?
o If so, can it recover for the work completed?
If so, on what basis?
o Divisibility
Breaching party can be paid for the part of the work done if
• Promises can be seen as “corresponding pairs of part performances”
• That are “agreed equivalents”
This is a recovery on the K
• It must be for performance in a “pair”
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• Damages are recoverable for any breach
o Tracthouse K
House 1 $25k
House #2 $25k
...
House #9 $25k
House #10 $25k
9 houses complete Recover $225k on the K
o Divisible or ....Entire
K provides for way Part performance is not
to divide. useful, or defeats K purpose.
The divisions represent No way to divide
agreed equivalents. performances, or divisions do
do not match return.
If parties had thought about Intent that entire.
need, would likely divide.
o The 10th house:
Is Tracthouses entitled to payment for the 10th house?
• If so, on what basis?
• Are construction Ks generally dvisible?
Assume Newtown must pay another contractor $30k to finish the last house. How
will this affect Tracthouse’s recovery?
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Pages were crooked , wrinkled, color off...
o Does K say no crooked or wrinkled pages?
Implied warranty of merchantability, express warranty of sample, trade usage
What if one page had been crooked?
• Just because it was not perfect does not mean that it cannot be perfect tender
o Was the rejection in bad faith?
NO
o What would the result be under R2K?
Under substantial performance, likely the same result
- Problem 150 (p.706)
o Douglas to produce 500 split rails of 12 delivery/shipments per month
o Installment Ks- UCC 2-612
K requiring or authorizing separate lots
• Even if K says each is separate K
Buyer may reject installment if
• Value of installment substantially impaired
• Cannot be cured
Buyer may cancel k if
• Value of whole K substantially impaired
• Reinstate if accept installment, sue for past installments only, demand
future performance
o Installment K questions
What constitutes substantial impairment of one delivery? The whole K?
• What if first delivery only 400 rails?
o Doesn’t seem to affect the whole K...might impair it for this month
and could not accept this delivery but not cancel the K
• What if first delivery 500 rails, but arrived late?
o If it were a perfect tender rule, then time always applies...this is not
that type of K
o
• What if several deliveries are late?
o At some point it becomes a breach of the whole K
• What if the first delivery is of extremely poor quality?
4. Capitol Dodge Sales v. Northern Concrete Pipe, Inc. (Mich. Court of App., 1983)
- CD sold truck to NC, D. picks up truck- gives P. check, truck overheats, D. calls P. and tells it to
pick up the truck, stops payment on the check,
- Capitol Dodge questions
o What law applies?
The UCC
o Did D. accept the truck?
o Didn’t D. know about the overheating problem?
o Didn’t D. have an opportunity to inspect the truck?
- Acceptance and rejection
o UCC 2-607 Must reject before accept. If accept unit, must pay at K rate
o UCC 2-606 Accept when buyer
After time to inspect, says goods are conforming, or will take them anyway.
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Fails to reject after time to inspect.
Does any act inconsistent w/ seller’s ownership
- Capitol Dodge continued
o What if Buyer had clearly accepted?
o Could Buyer still return the truck and avoid payment?
o Does the seller have any rights?
o What UCC provision controls?
o What happens if it is too late to return and avoid payment?
- Revocation of Acceptance UCC 2-608
o Buyer may revoke acceptance if nonconformity substantially impairs the value to him and
accepted
Assuming non-conformity would be cured, and it has not
Without discovering nonconformity if either
• Difficult to discover or
• Accepted due to seller’s assurances
o Must revoke with a reasonable time
- Right to Cure UCC 2-508
o Buyer rejects when K time not expired
Seller may notify buyer and
Cure w/in K time
o Buyer rejects when K time has expired
If seller reasonably believed goods acceptable w/ or w/o $ allowance and
Notifies buyer-
Further time to get conforming tender
- Non-conforming goods
o Reject before accept – no $ due
Perfect tender rule or Installment K rule
Subject to right to cure where applies
o May still revoke acceptance if meet 2-608 requirements
Substantial impairment standard
Probably subject to right to cure
o If accept, must pay at K rate
May subtract damages for non-conformity
Must notify seller of non-conformity
V. Excuse
A. Prevention and Cooperation
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B. Forfeiture as an Excuse
- Disproportionate Forfeiture
o R2K 229: Court may excuse condition IF
Non-occurrence of condition causes disproportionate forfeiture UNLESS
Martial part of exchange
o Prevents harsh operation of condition
Compare forfeiture with importance of condition
Do not use to prejudice of D.
Developed in K for deed situations. Expanded.
- Problem 153 (p.733)
o Fibber McGee and Molly lived in apartment 10 years, signed new lease every two years
under option to renew. Must exercise by 5/31. One year sought to renew 6/1. Landlord
refuses, says plans to raze building
o Considerations:
Forfeitures of party failing to fulfill condition
• Purchase v. lease
• Residential v. commercial
Importance of condition – option here
Reason for deviation
Extent of deviation
Prejudice to other party
D. Election
- Problem 155 (p.745)
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o NoRisk Insurance gives life insurance to M/M America, Condition: give written notice
within 10 days, Mr. A died. Mrs. A called the next afternoon, Rep expressed sympathy, 2
weeks later, adjuster had her fill out forms – suggested settling. NoRisk denied coverage.
o Problem 155 continued
Does NoRisk have to pay?
Did it waive its right to deny payment based on failure of the condition?
If so how?
o Waiver
Waiver before the failure of the condition can result in estoppel
Waiver after the failure of the condition is an election
Cannot waive material part of K
No consideration is required for waiver
Condition waiver without consideration can be reinstated with reasonable notice
Can only waive conditions for own benefit
E. Impossibility
- Problem 156
o Beverly Pipes hired to sing in new opera, rehearsal begins in May, open 9/1, Ms. Pipes
gets pneumonia in August- misses all the rest of the rehearsals, show opens with new
soprano, after first week, Ms. Pipes reports for work, manager refuses
o Is she in breach? Is manager?
o Was the condition excused?
No...other party does not still have all his obligations to her even thought she did
not uphold her end of the bargain
- Problem 157
o Luciano Uvula hired to sing series of operas, Rehearsals to begin 5/1, Luciano got a cold,
didn’t show up until 5/15. Season to begin 7/1, Manager fired him.
o Is the manager in breach? Is Luciano?
o Excuse of conditions/ Impracticability
Impracticability excuses performance.
Impracticability does not excuse conditions, unless it is a minor condition.
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- H to give service for 3 months to D for $10/month, P. to act as courier for D. for 3 months
beginning 6/1/1852
- Did P. perform?
- Is P. in breach?
- When does P sue D?
- Can P recover for breach of K against D?
- Hochester questions
o Why is P able to recover when D’s performance is not yet due?
P. dilemma
D. duty not to harm the K relationship
- P dilemma
o P needs to act now to protect self by getting other job
o P does not want to accept “rescission” or be sued for breach
Would this have happened?
o Better if P mitigates damages
- K relationship
o Implied duty not to damage K relationship – duty of good faith
Importance to K that can depend on return
Does performance of K have to be impossible for the doctrine to apply?
o Is there precedent for this decision?
Sales of goods
Marriage Ks
- Variations
o What if D had said to P...
“I may not be able to go after all.”- NO
“Would you like to call this off.”
“I wish I had never agreed to this.”- NO
“I couldn’t book the hotel I promised, but have arranged a comparable substitute.”-
NO, not material
What if D. says nothing but gets on a boat to Australia?- YES
- Repudiation R2K 250
o Statement that will commit breach
Clear statement
Material breach
o Act making him apparently unable to perform
Voluntary, affirmative act
The act makes a statement
- Retraction
o R2K 256 – retraction reinstates K if give notice of it before
Material change of position in reliance or
Indicates considers repudiation final
o UCC 2-611 – can retract before next performance due unless
Material change of position/consider final
Reinstates rights with allowance for delay
- UCC 2-610
o Requires substantial impairment
o Options when repudiation
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Await performance for commercially reasonable time
Resort to any remedy for breach
Suspend own performance or proceed under 2-704
- Problem 160 (p.750)
o Venture to build a gravity scooter for NASA for $32 billion, Entered K in 2012. Delivery
to be in 2020, In 2016, VV sends letter to NASA saying it cannot perform under the
contract, NASA buys substitute for $56 billion
o May NASA recover damages now, or must it wait until the 2020 delivery date?
o Demand for assurances
R2K251 UCC 2-609
Reas grounds/insec Reas grounds/insec
Demand adeq arrur Demand in writing
Suspend perf unless Suspend perf unless
rec’d return rec’d return
Provide adeq assur Provide adeq assur
Within reas time reas time within 30 days (could be less)
If not = repudiation If not = repudiation
o Problem 160 assurances
“We’re sorry we worried you. We will deliver.”- Maybe, might take there word for
it
“We have solved the problem and will deliver. You may come by and inspect our
plans and schedules.”- Yes, reasonable to rely on
“Our bank will issue a letter of credit for damages in event of default.”
2. Hope’s Architectural Products v. Lundy’s Constr. (U.S. Dis. Ct., Dis. of KN, 1991)
- When Hope’s was late in delivering windows to L, L threatened to withhold partial payment as
damages, prompting H o demand payment in full before delivery
- Rule: A party who has breached the K may not demand assurances from the other party before
suspending performance
- Hope’s v. Lundy’s
o Saying will withhold liquidated damages likely not “material”
o Even if “material,” no action was taken RE statement. If repudiation, K reinstated
o P. is then late with delivery
o D. “threatens backcharge”
o P demands assurances
- P’s demand for assurances
o Is P. entitled to demand assurances?
No. Not reasonably insecure
Already in breach
o Is the assurance sought reasonable?
Sought too much
Not entitled to demand that D. give up its claim for damages
- Alternative analysis:
o When P. demands assurances P says
“We will not perform unless you agree to new terms.” In other words....
“We refuse to perform the K we have.”
o Therefore, P repudiates the K
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P’s repudiation is the first breach, even if not yet entitled to cancel for late delivery
o Look for first “material” breach
- Problem 161 (p.758)
o Venture to build gravity-free scooter for NASA for $32 billion, N to make progress
payments of $1 million per month beginning 1/2002, made payments through Oct., learned
V insolvent, defaulted on similar job.
o May NASA treat as repudiation? Stop paying?
It may suspend payment swhile it waits for the assurance
- Problem 162
o BB to perform at Music Hall, manager to turn on heat by 4, theres a blizzard, sure BB wont
show up, so doesn’t turn on heat, they arrive, show is cancelled, they sue for payment,
Result?
They are entitled to payment per the K
o Prospective Inability to Perform
BB apparently cannot perform, although they did not repudiate
Manager reasonably acts (here, fails to act) in response to that inability
Had BB not showed up, M would not be in breach for not heating hall
Because they showed up, they were ready, willing and able to perform. Must be
paid.
Better to find out if will be there (if could have held concert)
- Problem 164
o Travis to build a houseboat for Meyer for $35k, parties to meet on boat 8/1 to close sale, M
call T 7/15 to cancel, T sues M 8/10, M defends on basis that T never tendered houseboat.
Result?
o What if T had promised to paint boat prior to delivery? Is it a defense that he didn’t?
o Problem 164
Travis need not tender, just show would have been ready, willing and able to
perform but for the repudiation.
• If promised to paint, don’t have to paint, if would (and could) have but for
the repudiation
• If boat is destroyed by lightening before performance due, cannot sue.
Could not perform.
• Repudiation moves up C/A in time. Same C/A.
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No C/A for total das, even if repudiate
o Preserves K – Don’t expand anticipatory repudiation
o Can award damages/injunction if still doesn’t pay
Will pay here
o TX does not follow
Reduce payments to present value
o Can have K provision to accelerate
- Problem 165
o V to buid scooter for NASA, entered into K 2012, delivery to be in 2020, V repudiates
4/5/2016, market price is $45b, NASA Ks for substitute 9/10/2016 for $48b, Market price
in 2020 will be $55b
o Must NASA sue now? Must it mitigate?
o Can it wait until 2020?
o Problem 165
Actually, NASA covered. Damages will be measured by the cover measure:
• $48 billion cover price - $32b K price = $16b
• Seems to be within reasonable time
• If not code cover, or no cover at all...
Sue for market measure (2-713)
• Difference between market and K price at time when buyer learned of the
breach
Learned of the Breach...
• At time of repudiation
o That’s when the other party knows
o Avoid loss (mitigates damages)
o BUT undercuts right to await performance
• At time of performance
o Not a breach until accepted
o Could have reinstated until then
o BUT allows speculation at expense of other
th
5 Circuit
• A reasonable time after repudiation
o Preserves UCC right to “await performance” for a commercially
reasonable time”
o Avoids unnecessary loss
o Protects both parties
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Generally promisor and promisee retain right to change K until rights of 3PB vest.
Rights vest when the 3PB “accepts,” relies on the promise, or sues on the K.
Promisor and promisee can agree to immediate vesting (Ex: life insurance).
Once rights have vested, promisor and promisee cannot change K w/o 3PB.
Vesting does not change effect of defenses.
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