1. Damages for Breach of Contract a. Remedies i. Substitutionary Relief - Preferred in US 1. Common Law a.

Expectation Damages - Put the nonbreaching party where they would have been if the contract had been performed. R2d 347 Expectation damages can be difficult to determine. Profit margin? What costs are incidental? Warehouse fees? i. Loss in value of the other party's breach by its failure or deficiency ii. Any other loss, incidental or consequential caused by the breach. This includes any reasonable costs incurred in an attempt to avoid loss. iii. LESS, Any cost or loss that he has avoided by not having to perform. b. Reliance Interest - Put the nonbreaching party where they were have been before the contract c. Restitution Interest - Put the breaching party where they were before the contract. 2. UCC - Always tries to do expectation damages Plus some, maybe. a. Breach by the seller - Two options for buyer when seller breaches. Sellers tend to breach when prices go up i. Cover - Buy from another seller - 2-712 1. May recover difference between cover price and contract price 2. May recover any incidental or consequential damages 3. LESS anything saved. 4. Not barred from other remedies. 5. Must meet certain requirements: Seller 1. Good faith 2. Reasonable substitute goods 3. No unreasonable delay ii. Do Not Cover - Do not buy from another seller. 2-713 Tongish v. Thomas 1. Market Price - Contract Price + Inc/Cons - Expenses Saved 2. If a windfall is unavoidable, better that the nonbreaching party get it. ii. Specific Relief - Injunctive Relief 1. Rarely given. 2. Never given in UCC iii. Expectation Damages - 346, 347. 1. Definition: Give the injured party the benefit of the bargain 2. Test a. The standard b. Must be reasonably certain 3. Formula

a. Loss in value + Incidental or consequential damages - Costs saved = expectation interest iv. Reliance Interest - 349 1. Definition: Put the injured party back where he was before the contract. 2. Test: a. Certain b. Only what counts for what is paid after contracting c. Expectation damages are not reasonably certain OR losing contract 3. Formula: a. Amount of money spent - costs saved = reliance interest 4. Breaching Party: a. Can rebut "uncertain" expectation interests. If it can prove a losing contract, then injured party will look to Restitution Interest v. Restitution Interest - 371 - quantum meruit 1. Definition: Put the party who was unjustly enriched back where he was before the contract. 2. Test: a. Injured party's expectation/reliance interests are both lower than breaching party's profit b. EXCEPTION: Profit does not flow from injured party's loss. I.e. resale to a third party 3. Formula: a. Reasonable value of benefit received OR increase in value b. Limitations on Damages i. Foreseeability - Hadley v. Baxendale - The shaft. This is a DEFAULT RULE 1. Consequential Damages are only recoverable when reasonably foreseeable. a. How do we make them foreseeable? Tell them what will result if they breach. 2. Why do we have foreseeability limitations? a. Fairness i. Unreasonable to impose unlimited liability ii. Contracts are voluntarily created legal obligations, we want to encourage them. iii. Limitation of knowing what someone's risk are when they enter into a bargain b. Efficiency i. If there were unlimited amounts of liability - no one would enter into contracts ii. Put the burden on whoever knows what the consequences of the damages are - to either tell, or bear the loss c. Tradition i. Its arbitrary ii. We need objective manifestations - Cardozo 3. Default Rule that can be contracted around. 4. The type of breach matters - crankshaft may not necessarily be usable, draglines that could immediately put to use/sold/rented can create foreseeable consequential damages.

5. R2d 351 Unforeseeability and related limitations on damages a. Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made b. Loss may be foreseeable i. Direct damages (terminology) ordinary course of events ii. Consequential damages (terminology) follow as a result of special circumstances. c. Limited as justice provides. 6. MINORITY RULE OF FORESEEABILITY - Tacit Agreement Test a. Impliedly or expressly agree that it would bear the risk of the damages. i. Pros Test avoids unfair liability Test is more consistent with contracts being voluntary Cons Test is hard to define Very difficult to find "Tacit assent." Certainty - Two major principles Requirement of Certainty - Damages awarded (particularly expectation damages, i.e. profit) must not be overly speculative. Chicago Coliseum Club v. Dempsey Proof of profits - old profit numbers can be sufficient - well established business. Conceptually: Better to undercompensate than overcompensate. Better to fail to remedy injustices rather than create injustices. Liquidated damages clauses - will speak about later. Wasted Expenditure Rule - Precontractual liability sorta. Rejected by American Courts. Damages prior to a binding contract Creates extensive liability - which is why it was rejected. Says that any expenditures reasonably contemplated by the parties is recoverable. Losing Contracts - If the contract had been completed, the nonbreaching party would have lost money. (Mistletoe Case) 349 Give the nonbreaching party reliance damages - put them in the position prior to the contract. Three step process Victim of the breach gets reliance interest But if the breaching party can prove the losses, that loss is deducted from victim's recovery - Doubts are resolved in the nonbreaching party's favor. Essentially reduces plaintiff's recovery from reliance interest to expectation interest. Imperfect Remedies -What role does R2d play. Remedies are imperfect. Not exactly calculable many times.

Mitigation - Nonbreaching party must take reasonable steps to avoid more damages. 350 Duty to Mitigate: Not a real duty - contractual obligation, sort of. Only penalty is lack of recovery for extra damages. Burden of proof Lies with defendant Doubts fall against breacher Only has to be a reasonable effort. No extreme effort necessary. Tort Law Analogy Comparative -> Contributory Negligence Level of fault in terms of damages determines the amount of recovery possible. Basically allocates fault/risk between parties. No undue risk, burden, or humiliation. Need only be reasonable Unsuccessful mitigations are recoverable too - as long as they are reasonable Common Law Generally, Profit that would've been made + expenditures up until breach + reasonable costs = damages R2d 350 - 1. Damages not recoverable for loss that could've been avoided without undue risk, burden, or humiliation. Subsection 2: Injured party is not precluded as long as the attempts to mitigate were reasonable. Similar goods - what is similar? Actress Case. Apples -> Apples are easy. Film -> Film is hard. UCC Buyer Breach - 2-706, 2-708 2-706 - Cover. Good faith requirement Difference between resale price and contract price. 2-708(2) - ( 2-708 - noncover) Lost Volume Seller Conceptually - has enough to sell to every buyer. Lost sale = lost profit. Even if he "covers" Allows recovery of profit for breached contracts for a lost volume seller. Seller Breach - 2-712, 2-713 2-712 - Cover - buying similar/same good. Good faith requirement Difference between rebuy price and contract price are damages 2-713 - Non-deliver/Repudiation. Difference between market price and contract price are damages. Market price determined at either time of tender or, at the time of arrival.

UCC - 2-719 - Contractual Modification or Limitation of Remedy Agreement may provide for remedies in addition or in substitution of UCC. And the resort to the remedy provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy If the remedy agreed to fails in its essential purpose, go to UCC Art. 2 Consequential damages may be limited or excluded unless the limitation is unconscionable. Damages in personal injury is prima facie unconscionable. Liquidated Damages - What happens when parties contract around the default rules. Definition - A clause in the contract that specifies the damages to be paid in the event of a breach. Common Law - Courts were historically extremely skeptical Modern Rule: Much more likely to uphold liquidated damages. R2d 356 Damages may be liquidated in the agreement but only at an amount that is reasonable in light of the ANTICIPATED OR ACTUAL LOSS and difficulties of proof of loss. Too large = unenforceable based on public policy. This is different than the test. More open, free, allows for one or the other to be reasonable, not requiring both. TEST: Did the parties intend to provide for damages or a penalty? Punish the breacher? Is the injury caused by the breach difficult to determine? The more uncertain the damages, the more likely to enforce the liquidated damages clause Are the stipulated damages reasonable? MINORITY RULE: Must be reasonable based on both the forecast, at the time of contracting, and at the time the damages are doled out. MAJORITY RULE: Must be reasonable based on the forecast, at the time of contracting, OR the time the damages are doled out. Mitigation Under Liquidated Damages The duty to mitigate DOES NOT EXIST if there is a valid liquidated damages clause. The point of the clause is to fix the amount of damages. EXCEPTIONS TO ENFORCEABILITY When the party protected acts in bad faith. Bargaining power inequality When the transaction involves the public interest. Damage Theories with MATERIAL BREACH - Different Ways of Measuring the Expectation Damages

Cost of Completion - Cost to complete the contract R2d 346 - Groves v. John Wunder Co. - removal of sand & gravel from property. Judges dislike the R2d preference for Diminution of Value. Resist it. Policy: More consistent with parties expectations Allows parties to set their own values - allows parties to be inefficient. Prevents breaching parties from receiving windfalls Deters opportunistic breaches Recognizes that there are non-monetary costs. Diminution of Value - Loss in value because of the breached contract. R2d 347 - Diminution of Value Preferred. R2d prefers Diminution of Value - Law and Economics movement. Allow for more "efficient breaches" One caveat - the words "to him" in R2d 347 - allows for a small window in the Diminution of Value. Courts avoid R2d 3 ways: Clearly disproportionate - Courts will fudge the language towards giving the cost of performance Swimming pool busted, $900 diminution of value, $18k for cost of performance. Not "clearly" disproportionate Willful Breach Section doesn't apply in a willful/opportunistic breach Willful breach entitles a party to cost of performance Adopted the "to him" language Look at subjective, rather than objective value. Policy: Avoids windfalls Avoids economic waste Contract damages are supposed to be compensatory Consistent with the principles of efficient breach. Policy Section Pros Freedom of Remedy - Parties get to choose/bargain. Allows for strengthening of contract and allocation of risk. Save on expense, uncertainty, and risk of litigation. Creates incentives to settle quickly if both parties know what the damages will be in court. More uncertain damages, the more sense it makes to have liquidated damages. Cons Allows for parties to "evade the law" that courts should decide remedies Parties can take advantage of liquidated damages clauses Contract law has never been about punishing. About allowing parties to bargain. Penalty Discussion - Posner

Penalties discourage "good" or "efficient" breach. Counterarg: Rational actors won't allow too many unreasonable penalty clauses. Other Remedies and Cause of Action Injunctive Relief/Specific Performance Only common with Land/Real Property - Why? Land is unique Land is hard to value Tradition & History - Lund's preferred reason. Loveless v. Diehl - gave specific performance despite the fact that the amount of damages were very easily quantified. Goods - extremely rarely to receive specific performance as a remedy Generally - do not give specific performance for personal property EXCEPTIONS - Cumbest v. Harris - stereo equipment case. Uniquely built. There is no adequate remedy at law (monetary damages) The specific articles are of peculiar, sentimental, or unique value Due to scarcity, the chattel is not readily available. UCC 2-716 - Buyer's Right to Specific Performance or Replevin. Goods are unique - then its OK Specific performance order may include any terms the court deems necessary for relief. Right to get goods if its not reasonable for the buyer to find them. COMMENT: Uniqueness is not a major factor. Examples: Heirlooms Works of Art Businesses Patents Copyrights Shares in a closely held corporation (but not publicly traded corporation). Services - referring specifically to services that are nondelegable Rarely enforced through specific performance - Why? 4 reasons Difficult to Ensure Quality - How do you force an Opera singer to sing "well" at the Opera house? Requires constant monitoring - Will be forced to check up on the opera singer - also very expensive. Compliance Issue - What counts as performance? What if the Opera singer gets a sore throat? Or messes up? General Moral Concern -Issues in relation to servitude Positive vs. Negative Injunctions - Opera House probably can't force Opera Singer to work at their house but can prevent Opera Singer from working ELSEWHERE. Negative Injunctions require explicit mention in the contract. Policy Pros

Gives victim of the breach something. Encourages performance indirectly Cons More injurious to the breacher. Negative injunction might deprive someone of freedoms. Can also be less beneficial to the non-breaching party Covenants Not to Compete Employment Contracts that bar former employees from other employment. TEST: Reasonableness Serves a valid Interest -must be valid AT THE TIME SIGNED and WHEN ENFORCED Employee has unique skills a competitor might want. Employee has special knowledge of the employers business. Must be reasonable in time. Couple years. Some IP exceptions for longer time periods. Reasonable in Scope Limited to reach of employers business. Can't compete with the old employer. Some will do, say, 5 mile radius. Courts will impose this kind of limitation rather than throw away the noncompete. No undue hardship Can't be overly severe. Restitution - 3 forms - Restitution interest is about who bears the extra loss in a breached contract. Remedy for Breach of Contract - R2d 373 Injured Party should be paid restitution for any benefit conferred upon the breaching party. Part Performance Policy Considerations Expansive - We don't always give the expectation interest. This is about punishing breachers. We want to encourage deposits, etc. Limited - This is about allowing for efficient breaches. Breaching Party Remedy to Breach as Quantum Meruit (Deposit Return) R2d 374 Returns any benefit that has been conferred to the breaching party. Can be trumped by liquidated damages. Refusing Benefit removes liability for restitution damages. Housekeeping - cleaning is very poor quality. Default Rule - can be contracted against. Policy Considerations We want to encourage fairness. We want to encourage efficient breaches. If this is limited, we are encouraging employers/nonbreachers to force breach. Restitution without a Contract Proper

Allow for payment when a reasonable person would pay. I.E. Surgeon on the side of the road. TEST Emergency - no time/ability to bargain. Where the party giving the services is not doing so purely out of self interest (painter provision) There have to be circumstances that create a reasonable expectation of payment. Measure of Restitution Interest R2d 371 Amount of money to prevent any benefit from being conferred from the nonperforming party. But CANNOT confer more benefit than would have been conferred in the contract price. Discerning the Agreement Ambiguity in the Terms - Chickens case. Broilers vs. Fowl Test for how ambiguous terms govern: R2d 201 Same meaning? It governs. Different meanings? 1 party aware of 1 meaning, other party aware of multiple, including the 1 meaning. 1 party had no reason to know of any other meanings, other party had reason to know of first party's meaning Except as above: mutual assent fails. Test for determining if one should have been aware of the meaning used by another party: R2d 202 Contract itself Plain Meaning Course of Performance -The conduct of the parties within a single contract that has repeated occasions for performance. Course of Dealing - Similar to course of performance, but over previous contracts instead of this specific contract. Usage of Trade - Usages of trade are the conduct of outside parties that have such regularity of observance so as to justify an expectation that it will be observed with respect to the transaction in question. All parties are bound by the usages of trade - even if you aren't a common participant. Gap - Filling - 3 methods, 1 modern Theories of Gap Filling Counterfactual What is the term the parties most likely would've agreed on? Problem: Can be extremely difficult to discern sometimes. Penalty Method Fill gaps to punish one party - creates an incentive to fill gaps. Problem: Parties will try and over-fill gaps. Objective Method - MODERN CONSTRUCTION What is a reasonable term under the circumstances? This is the modern way. Have the court fill in a reasonable term of the agreement.

Gap Filling - Common Law 204 Term which is reasonable in the circumstances is filled by the court. UCC 2-300s. Fills in when there is a gap. Cannot fill quantity terms. Requirement/Option Contracts are an exception to the UCC Gap-Filling 2-306 UCC 2-306 A term which measures the quantity by the output of the seller [output contract] or the requirements of the buyer [requirements contract] means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. Two Essential Requirements Good Faith Reasonably proportional Implied Promise of Good Faith - Wood v. Lucy, Lady Duff-Gordon Now pretty standard. Courts imply promises of good faith in almost all contracts. Parol Evidence Rule Written Contract Controls Four Corners Rule - Old Rule Look only at what is written down on the piece of paper. Theory: It is assumed that parties introduced every material item into the contract and oral testimony will not be brought in to add another term to the agreement. Parol Evidence Rule - Modern Rule Final written agreement supersedes the things that come before it. Applies to: Previous oral agreements Previous written agreements Contemporaneous oral agreements Question/Test: Is there a final writing? If YES: it is called an "integrated" agreement Effect: Supersedes (and bars evidence relating to) any prior agreements inconsistent with the written agreement's terms. R2d 213(1). Writing clearly wins any conflict with prior agreements. If NO: Rule does not apply Effect: Oral evidence admissible. The writing may not be final. If there is a final writing, is it complete and exclusive? If YES: "completely integrated agreement"

Effect: Supersedes inconsistent terms, as well as all additional terms that may or may not be consistent with the writing. 216(1), 213(2). Writing is not completely integrated if the additional term was completed for separate consideration or was such as was in the circumstances that might naturally be omitted from the writing. Who determines? A judge - can consider any evidence when making these decisions. Called "Bulletproof writing". If NO: "partially integrated agreement" Evidence is admitted only if it doesn't contradict existing terms. "Not a bulletproof writing." Exceptions where Extrinsic Evidence is permitted R2d 214 Examples Illegality Fraud Duress Mistake Lack of Consideration Rescission Reformation Specific Performance Justified? Extrinsic Evidence to the Meaning of Terms in the Contract Plain Meaning Rule: Does the contract have ambiguity? Extrinsic evidence is not allowed to show that there is an ambiguity Ambiguous - "Reasonably susceptible to more than one meaning" If there is an ambiguity - extrinsic evidence is allowed to help resolve the ambiguity Extrinsic Evidence - Other writings (early drafts), emails, documented conversations, oral evidence/testimony, usage of trade, course of dealing, course of performance. Extremely powerful standard - first inquiry could end the determination before we ever get to evidence. Policy Issues: Positives 1. All we need is the contract 2. Courts can decide a lot on summary judgment/motion to dismiss 3. Encourages people to get everything in writing b/c the writing is the only thing that matters

Negatives 1. Unintended consequences 2. True agreement may not be reflected in the contract - true agreement could be lost 3. Courts won't even get here because they can choose to stick to the terms of the contract if they desire. Modern Rule: If there is an ambiguous clause, then evidence will be heard in order to determine if it is ambiguous. If it is not ambiguous, the words of the text are binding. If it is determined to be ambiguous, jury can hear the evidence.

Performance Duty of Good Faith Implied Duty - applied to every contract. Not written into the contract Implied in law duty. It does not arise because the parties intended it, the law states that every party to every contract has this duty. Cannot waive the implied duty of good faith. Test of Breach Looking at the actual motives Why did the party breach? Business decision? Getting around the contract? If the sole purpose of the breach was illegitimate, then the duty of good faith is breached. There is no duty to negotiate in good faith Court's Hesitation in expanding Implying promises makes contracts hazier. Court is literally making up terms to the contract - what action is "good faith" for any one particular party. Warranties - UCC Centric Implied - UCC 2-314 - Warranty of Merchantability Implied Warranty - arises automatically Seller has to be a merchant. The only real requirement that has to be met. In order to be "merchantable" Good must pass without objection Fungible good - average quality Fit for ordinary purposes Run within the variations permitted by the agreement of even kind quality Adequately contained/packaged Conform to the promises or affirmations of fact made. Test Implied Warranty of Merchantability: Implied automatically Seller is a merchant

To qualify Reasonably fit for usual or ordinary use Passable of reasonable quality as judged in the relevant field of the relevant trade Doesn't need to be great quality, just not defective. UCC 2-315 - Warranty of Fitness for a Particular Purpose - Blommer Chocolate Co v. Bongards Creameries, Inc Clear what the purpose of the purchase was. Seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is, unless excluded or modified under the next section, an implied warranty that the goods shall be fit for such purpose. TEST Express Warranty of Merchantability: Seller knows the buyer's particular purpose Buyer has to be relying on the seller's skill in selecting the goods OLD RULE: Required reliance BEFORE it became a warranty - the buyer would not have bought the good in the ABSENCE of the warranty. UCC Rule: All statements of the seller become part of the basis of the bargain 1. VERY low standard 2. ASSUME the buyer relies 3. Ambiguity - can buyer RELY on statements they/think or know are false? 4. Can use it as a basis Seller has to have a reason to know of the reliance. Express Elements of an Express Warranty 2-313 - no need for the words "warrant" or "guarantee": Affirmation of fact, or promise THAT relates to the goods THAT becomes part of the basis of the bargain (reliance) THAT is NOT a statement of opinion (puffery) Waiving Warranties - UCC 2-316 Waiving Implied Warranties - Test - requires this kind of language Magic words: "As is" "With all faults" Waiving Implied Warranty of Merchantability Mention the word merchantability If a writing, the word has to be conspicuous. Same font and style as the rest of the writing Exclusion does NOT have to be in writing If it IS in writing, it must be conspicuous. Waiving the Implied Warranty of Fitness for a Particular Purpose

A writing Conspicuous Language Need not mention the implied warranty of fitness Conditions - R2d 224 Definitions 224 "Event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due." 225 Effects of the Non-Occurrence of a Condition Performance of a duty subject to a condition cannot become due unless the condition occurs or its nonoccurrence is excused Unless excused, impossibility of a condition discharges the duty to perform Non-occurrence of a condition is not a breach unless under a separate duty that the condition occur. Condition Precedent vs. Subsequent Condition Precedent Condition that occurs before the duty is engaged (fire insurance) Plaintiff has the burden of pleading and proving conditions precedent Conditions that have to be met in order for the duty to arise Burden on the party alleging that there are rights under the contract Must be put in the complaint Condition Subsequent Condition that occurs after the duty is engaged, and discharges that duty (unable to bring a suit after 1 year) Defendant has the burden of proof Conditions must be met AFTER the duty arises Burden on the party denying that there are rights under the contract Must be raised in the answering complaint, or else it will waive the affirmative defense. Restatement Second does not make the distinction between subsequent/precedent. Policy for Conditions Trying to encourage reliance. Conditions create greater flexibility in contracts, allowing for parties to "opt out" Promise, Condition, or Promissory Condition? Differences Promise - has to be performed as part of the contract. Nonperformance will become a breach. Other party is still obligated to perform Condition - Failure to comply is not a breach, it simply means that the other party is relieved from performance. Promissory Condition - has to be performed as part of the contract and the other party is relieved from obligation to

perform. Other party has no obligation, and also has a breach of contract suit. Key Difference is in the RECOVERY Creating a Condition - Obligee - one receiving performance Express Parties can create conditions if they please. Must be explicit. They become bargained for. Implied (Implied-in-Fact) Court can imply a condition - Internatio-Rotterdam v. River Brand Rice Mills Parties conduct says that there is a condition. 2 week delivery notice, December deliver "of the essence", December 18th, no notice given. Court implied the condition because of price fluctuations delivery dates change the risks that each party entered into in the contract. Constructive (Implied-in-Law) Finding a constructive condition requires looking backward into the presumed intentions of the parties at the time of formation. Material breach depends on a forward-looking inquiry into the likelihood of performance occurring in the future. Old Rule: Court will imply a condition when such a task is an essential part of performance. Modern Rule: Has become the doctrine of material breach. Rules of Construction for Conditions R2d 227: In resolving ambiguity in conditions - interpretation is preferred that will reduce the obligee's risk of forfeiture, unless it is under the obligee's control or he has assumed the risk Unless Contract is one in which one party generally undertakes duties, if there is DOUBT, then #1 takes effect Duty imposed on an obligee that an event occur, or The event is made a condition of the obligor's duty, or The event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur Interpretation under which an event is a condition of an obligor's duty is preferred where a met condition will discharge duty after it has become a duty to perform. Avoiding Conditions Waiver - Intentional, voluntary relinquishment of a known right. Happens when the party now asserting the failure of a condition, earlier indicated that a condition did not need to be met. Test/Things to keep in mind: Waivers are valid, without consideration Conditions that are a material part of the original agreement, however, cannot be waived. MINOR conditions can be waived Waivers are intentional statements by a party that the condition need not be complied with. They cannot be implied.

Must be deliberate and explicit. Not merely accepted. Retraction of Waiver For a waiver to be successfully retracted There must be a reasonable time to cause the condition to occur There cannot be reliance on the waiver Anti-Waiver Clause Generally effective - according to Lund Can you waive the waiver clause? Excuse could come up. Test: Must appear Need not be open/obvious. Estoppel - Waiver + Reliance Here the one benefitting from the condition explicitly said that it did not need to be met, and the party who is subject to the condition relies on that. Test: Waiver Reliance upon the waiver by the waived party Retraction No retraction Excuse - 229 Recognition that some conditions are so harsh/punitive that they will not be enforced. Test: Party who failed to adhere - was their mistake excusable? Party who benefited - did they exploit their position? How much forfeiture is there? Would the party who benefited from the condition be unfairly prejudiced if the condition were waived? Excuse is the court's way of preventing forfeiture and conditions from occuring frequently Options - Leases Options are not effective if proper notice is not given within the time specified. In Breach - Before & After Performance has Begun Anticipatory Repudiation - Who repudiated first in most modern cases? Recognizing an Anticipatory Repudiation Clarity - Must be clear and unequivocal. Clear statement or affirmative act that makes the party unable to perform those obligations Materiality - Has to be a material part of the contract that is being breached. Effects - UCC 2-610 & Common law are the same. Await performance for a commercially reasonable time. ( 2-610(a)) OR Can sue immediately for breach ( 2-610(b)) Can Cancel the contract

MUST MITIGATE DAMAGES SOMEHOW. Cannot take advantage of the anticipatory repudiation Retracting - 2-611 Test for POSSIBILITY for Retraction Time for performance has not come due AND Other party has not relied upon the repudiation. Similar to retracting a waiver. A mere request for a change in the terms does not itself constitute a repudiation. Anticipatory Repudiation under the UCC - 2-609 2-610, 2-611 2-609 - Right to Adequate Assurance - Scott v. Crown - other wheat farmer had issues getting payment from buyer. Reasonable grounds for insecurity arise - party may demand adequate assurance of performance, and until he receives such assurance, may suspend performance that has not yet been paid for Test/Elements: Must be REASONABLE Demand must be in WRITING Demanding party may suspend performance while awaiting response, IF it is commercially reasonable. Party receiving demand has to respond within 30 days/reasonable time OR is deemed to have repudiated 2-610 - Anticipatory Repudiation - Same as Common Law: Test for Anticipatory Repudiation Await performance for a commercially reasonable time. ( 2610(a)) OR Can sue immediately for breach ( 2-610(b)) Can Cancel the contract MUST MITIGATE DAMAGES SOMEHOW. Cannot take advantage of the anticipatory repudiation 2-611 - Retracting Test for POSSIBILITY of retraction Time for performance has not come due AND Other party has not relied upon the repudiation. Similar to retracting a waiver A mere request for a change in the terms does not itself constitute a repudiation Material Breach - 2 major concepts Effect of Material Breach Material breach has consequences beyond a normal breach. Material breach relieves the nonbreaching party of its duty to perform Essentially the same as anticipatory repudiation, only AFTER performance has begun. Distinguish between Material and Non-Material breach - Unclear TEST OF MATERIAL BREACH 241 Equitable Test: Extent to which the injured party will be deprived of the benefit which he reasonably expected; Nonbreaching party deprived of benefit

Extent to which the injured party can be adequately compensated for that part of the benefit of which he will be deprived; Can the nonbreaching party be adequate compensated? The extent to which the party failing to perform or offer to perform will suffer forfeiture. Forfeiture for Breacher The likelihood that the party failing to perform or offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; Ability to fix the problem The extent to which the behavior of the party failing to perform or offer to perform comports with standards of good faith and fair dealing. Good Faith Perfect Tender Rule - Common Law: Buyer can reject goods that failed to meet contract specifications, regardless of how minor the breach was. Perfect Tender Rule - UCC Prior to Acceptance - Ramirez v. Autosport - RV case. Buyer can reject goods that failed to meet contract specifications, regardless of how minor the breach was. PRIOR to acceptance Seller has a right to cure defects within a reasonable time. Seller has the burden to prove that the non-conformity was corrected. If the seller DOES NOT cure defects, buyer can cancel or sue for damages. After Acceptance Buyer may revoke accepts only if the nonconformity substantially impairs the value of the goods to him. Burden - once accepted, the buyer has the burden to prove defect. Defenses R2d 151 - Mistake: Mistake is a belief that is not in accord with the facts Failure of a Basic Assumption or Mutual Mistake R2d 151 - mistake is "a belief that is not in accord with the facts" Sherwood v. Walker Test: Mistake made by both parties at the time the contract was made Mistake has to go to a basic assumption on which the contract was made Mistake has to have a material affect on the agreed upon performance 151 The adversely affected party can't bear the risk of the mistake in the terms of the contract 154 Express allocation of risk 154(a) - comment b Conscious ignorance 154(b) - comment c Court allocation 154(c) - comment d Old Rule Distinction: Intrinsic - mistakes that go to the substance of the thing bargained for Identity or Existence of the thing bargained for

Can be the basis for one party rescinding the contract Extrinsic - mistakes that go to the value of the quality of the good. Can't be the basis of claims in mutual mistake Not a valid basis for one party to rescind the contract Problem: Is there really a difference? Unilateral Mistake - Mistake in question is by only 1 party. R2d 153 Test for Making Contract Voidable: Mistake has a material effect on the contract, the contract is voidable by the mistaking parties if he does NOT bear the risk of mistake under 154 AND Effect is such that Enforcement would be unconscionable OR The other party had reason to know of the mistake or his fault caused the mistake. Exception: 90 - Reliance, Promissory Estoppel - Drennan Star Paving Duty to Disclose Laidlaw v. Oregon - Tobacco in NOLA, War case. No general duty to disclose When can nondisclosure become a misrepresentation? TEST Concealment (R 160) An act that will PREVENT another from learning a fact Incorrect Earlier Representation (R 161(a)) Previous assertion was wrong Breach of Duty of Good Faith and Fair Dealing ( 161(b)) Disclosure would correct a mistake that the other party has about a basic assumption Mistake as to a writing ( 161(c)) Was anything written wrong? Relationship of Trust and Confidence ( 161(d)) Spouse, child/parent, fiduciary? Problematic Example: Baseball Card Case Has the seller assumed the risk of mistake? Difficult to tell - pricing mistake. Typically, mistake of value Changes After the Contract has been entered into Impossibility and Impracticability, R2d 261, R2d 263 Substantial increase in the cost of performance. Test for Impossibility: Something unexpected occurs Risk of the unexpected occurrence must NOT have been allocated either by agreement, OR by custom Occurrence of the contingency must have rendered performance commercially impracticable. Force Majeur Clauses? Frequently creates forfeiture problems Frustration of Purpose - Krell v. Henry - coronation case Substantial decrease in the value of performance Modern Test: 265 - Dairy Farm in Hawaii, Lindner v. Meadow Gold Dairies, Inc.

Event occurs that parties assume would not occur, and was a basic assumption of the contract that it would not occur Parties principal purpose is substantially frustrated Frustration was not the parties fault (least important) Krell Test: Was the failure of purpose material? Was performance prevented? Was the event which prevented performance outside the contemplation of the parties at the date of the contract? Old Rule: Essentially a "lie where it falls standard" - Criticized because it punishes those that deposit. Policy about both: Confusion about rights/responsibilities Increase in litigation Recognizing these defenses will create downsides to the other contracting party