WAYNE LAW SPRING 2012

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CONTRACTS B-OUTLINE
CONTRACTS B-OUTLINE................................................................................................................................................ 1 DAMAGES FOR BREACH OF CONTRACT .................................................................................................................. 2 LIMITATIONS ON DAMAGES ........................................................................................................................................ 5 CONTRACTING AROUND THE DEFAULT RULES OF DAMAGES ....................................................................... 9 OTHER REMEDIES AND CAUSES OF ACTION........................................................................................................ 10 RESTITUTION DAMAGE INTEREST AND CAUSE OF ACTION ....................................................................... 12 DISCERNING THE AGREEMENT ................................................................................................................................ 14 WRITTEN MANIFESTATIONS OF ASSENT............................................................................................................... 19 PERFORMANCE............................................................................................................................................................... 21 BREACH............................................................................................................................................................................. 27 OBTAINING ASSENT BY IMPROPER MEANS ......................................................................................................... 33

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Damages for Breach of Contract

- Specific relief is the exception rather than the rule o Usually the court grants the promisee substitutional relief by awarding a sum of money intended to compensate for the harm to the promisees interests caused by the promisors failure to perform the promise

(1) Expectation: the benefit of the bargainthe court attempts to put the promisee in the position in which the promisee would have been had the promise been performedtypically promises that are enforceable because supported by consideration (2) Reliance: the court attempts to put the promisee back in the position in which the promisee would have been in had the promise not been madetypically if the promisee changed its position to its detriment in reliance on the promiseordinarily reliance < expectation as recovery does not take into account promisees lost profit (3) Restitution: the court attempts to put the promisor back in the position in which the promisor would have been had the promise not been madetypically if the promisee conferred a benefit on the promisor in the course of the transactionordinarily restitution < reliance < expectation as recovery does not take into account promisees lost profit or reliance by the promisee that produces no benefit to the promisor Hawkins(P) v. McGee(D) P sued D for not making his hand perfect after D operated on it ISSUE: Is the true measure of a buyers damages the difference between the value of the goods as they would have been if the warranty as to the quality had been true and the actual value at the time of the sale? YES RULE: Including any incidental consequences within the contemplation of the parties when they made their contracttrue measure of damages is the difference between the value to P of a perfect hand, such as promised by D, and the value of the hand in its present conditionpain and suffering is incident to a serious operation and not included in damages calculation as normal pain and suffering is foreseeable R2C 347. Measure of Damages in General
Subject to the limitation states in 350-353, the injured party has a right to damages based on his expectation interest as measured by (a) the loss in the value to him of the other partys performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform.

Nurse(P) v. Barns(D) P argued that D, in consideration of ten pounds, promised P the enjoyment of iron mills for six months; and it appeared the iron mills were worth twenty pounds per annum ISSUE: May special damages be awarded for breach of contract? YES RULE: Special damages may be awarded for breach of contractjury was not bound to give only ten pounds and may award damages for the loss of the stock laid in Sullivan(P) v. OConnor(D) D, a plastic surgeon, promised to enhance Ps beauty by performing an operation on her nose ISSUE: Where it is reasonably foreseeable that nonperformance of a contract will cause pain, suffering, and mental distress, are these proper measures of damage? YES RULE: Where an offer promises to enhance physical beauty, breach of the contract would permit recovery for pain and suffering, mental distress, and a worsening of the conditiona party may recover those elements of damages which flow naturally and foreseeably from a breachtypically not the case but a definite contractual relationship was intended rather than an alleged promise to cure

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J.O. Hooker & Sons(P) v. Roberts Cabinet Co.(D) D entered into a contract with P to tear out old cabinets and furnish and install new ones but a disagreement arose over who would be responsible for disposal of the old cabinets and D informed P that they considered the contract null and void ISSUE: Is a party only entitled to recover damages for expenses in storing goods that it would not otherwise have incurred absent the other partys breach? YES RULE: Since P was not forced to rent additional space to store the cabinets, but merely utilized storage facilities that it had already leased, his claim for storage costs are disallowedcontract was considered mixed transaction of goods and services and thus general contract law rather than UCC applied UCC 1-103. Supplementary General Principles of Contract Law Applicable
Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.

UCC 2-102. Scope; Certain Security and Other Transactions Excluded from this Article
Unless the context otherwise requires, the Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

UCC 2-105. Definitions: Transferability; Goods (1) Goods means all things (including specially manufactured goods) which are movable at the time of identification to the
contract for sale other than the money in which the price is to be paid, investment securities and things in action. Goods also includes the unborn young of animals and growing crops and other identified things attached to realty as described in goods to be severed from realty

UCC 2-106. Definitions: Contract; Agreement; Contract for Sale; Sale; Present Sale
(1) In this Article unless the context otherwise requires contract and agreement are limited to those relating to the present or future sale of goods. Contract for sale includes both a present sale of goods and a contract to sell goods at a future time. A sale consists in the passing of title from the seller to the buyer for a price. A present sale means a sale which is accomplished by the making of a contract

Tongish(P) v. Thomas(D) Decatur Coop Association intervened in a breach of contract action between P and Thomas, claiming that P breached its initial contract with Coop in failing to deliver the third installment under a contract to sell sunflower seedsPs breach was in bad-faith and took advantage of increased market price ISSUE: In an action for breach of contract for the sale of goods, is the proper measure of damages the difference between the market value of goods and the contract price agreed upon by the parties? YES RULE: The general rule for damages in a breach of contract action is to restore the injured party to the position he would have enjoyed had the contract been performedthe injured party may recover the difference between the market value at the time the contract was breached and the contract price, minus any losses avoided Reasoning behind Tongish v. Thomas (1) statutory construction (2) previous caselaw (3) discourages breach (4) avoids windfall UCC 1-106. Remedies to be Liberally Administered
(1) The remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this Act or by other rule of law

UCC 2-712. Cover; Buyers Procurement of Substitute Goods

(1) After a breach within the preceding section by the buyer may cover by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined, but less expenses saved in consequence of the sellers breach. (3) Failure of the buyer to effect cover within this Section does not bar him from any other remedy.

WAYNE LAW SPRING 2012 UCC 2-713. Buyers Damages for Non-Delivery or Repudiation

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(1) Subject to the provisions of this Article with respect to proof of market price, the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article, but less expenses saved in consequence of the sellers breach. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

UCC 2-715. Buyers Incidental and Consequential Damages

(1) Incidental damages resulting from the sellers breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, and commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. (2) Consequential damages resulting from the sellers breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty.

UCC 2-717. Deduction of Damages from the Price The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.

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Limitations On Damages
1. 2. 3. - Foreseeability Certainity Avoidability After calculated the expectancy interest, you must then take into a ccount several limitations in a warding the expectancy interest o When limitations on expectancy apply, courts may a ward damages measured by reliance o r restitution interests instead

(1) Remoteness or Foreseeability of Harm Hadley(P) v. Baxendale(D) Ps were engaged in the operation of a mill and claimed D breached its duty of care to promptly deliver a new crank shaft, thereby requiring them to close the mill and resulting in a loss of profits ISSUE: In an action for breach of contract, and Ps entitled to recover the measure of damages both parties may reasonably foresee as the result of the breach? YES RULE: Where special circumstances exist that would give rise to damages in excess of those reasonably foreseeable, in order for the injured party to recover such damages, the D must have been informed as to the special circumstancesP could not recover for lost profits as they were neither the natural result of the breach nor were they communicated to the D at the time the contract was entered into Hector Martinez and Co.(P) v. Southern Pacific Transportation Co.(D) When his machinery was delayed in transit, P sued D for delay damages ISSUE: Are special damages awarded only if actual notice was given to the carrier of the possibility of injury? YES RULE: Damage is foreseeable by the carrier if it is the proximate and usual consequence of the carriers actioncapital goods such as machinery have a use value that may equal the rental value of the equipment R2C 351. Unforeseeability and Related Limitations on Damages
(1) 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. (2) Loss may be foreseeable as a probably result of a breach because it follows from the breach (a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation

Morrow(P) v. First National Bank of Hot Springs(D) P sought damages from D for losses incurred by the burglary of their coin collection as a result of Ds failure to notify them as to the availability of three safety-deposit boxes ISSUE: In order to recover in an action for consequential damages, must the P demonstrate that the D expressly assumed responsibility for the Ps sustaining special damages as a result of the Ds breach? YES RULE: Mere notice given to the D of the possibility of special damages arising from his breach does not give rise to liability absent an express affirmation of such responsibility...court may impose consequential damages on a D where it determines that the D would have assumed such liability had the issue been negotiatedwhere damages are disproportionate to the consideration bargained for in the contract, the court cannot presume D assumed such liability absent an affirmative communication - Tacit Agreement Test o PROS (1) avoid unfair liability (2) more consistent with contracts being voluntary o CONS (1) hard to define

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Chicago Coliseum Club(P) v. Demsey(D) D contracted with P to fight Wills in an upcoming bout but later repudiated the contract whereupon P brought suit for damages ISSUE: May an aggrieved party recover for special damages for breach of a performance contract if the damages are definite and certain? YES May an aggrieved party recover for costs incurred in preparing the contract? NO May a party recover attorney fees when there is no provision in the contract for such recovery? NO May a party recover costs incurred in preparing for the performance of the contract? YES RULE: Profits from this boxing match are too speculativenegotiation costs which each party must bear do not naturally flow from a subsequent breach of the contractattorney fees are not costs which naturally arise from breachcosts incurred in preparing for the bout are recoverable as they naturally flow from the breach - Reliance interest comes into play: o (1) when expectation damages are uncertain (Dempsey) o (2) losing contracts (Mistletoe) R2C 346. Availability of Damages
(1) The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged. (2) If the breach caused no loss or if the amount of the loss is not proved under the rules states in this Chapter, a small sum fixed without regard to the amount of loss will be awarded as nominal damages.

R2C 349. Damages Based on Reliance Interest

As an alternative to the measure of damages stated in 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.

R2C 352. Uncertainty as a Limitation on Damages

Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.

Angelia Television Ltd.(P) v. Reed(D) P entered into a contract with D whereby D would perform in a play for television but because of a booking error D repudiated the contract and P claimed wasted expenditures ISSUE: In a breach of contract action, can wasted expenditure be recovered when it is wasted by reason of the Ds breach of contract? YES RULE: P must claim either loss of profits or wasted expenditures but cannot claim bothP can also claim expenditures which happened both before and after the contract was concluded as long as expenditures would reasonably be in the contemplation of the parties as likely to be wasted if the contract was broken Mistletoe Express Service(D) v. Locke(P) P entered into contract with D in which P would run a pickup and delivery service for D for one year, after which the parties would operate on a month-to-month basis and if either party wished to terminate the agreement thirty days written notice was required ISSUE: Where one party to a contract makes expenditures in preparation for performance under the contract, does the proper measure of damages for breach include the recovery of her investment? YES RULE: Injured party may elect for expectation damages or alternatively P may recover expenditures made in reliance on the execution of the contract, minus any loss the breaching party can demonstrate the injured party would have suffered even though the contract had been performed - (1) In cases of losing contracts, the v ictim of the breach gets his reliance interest. - (2) But if the breaching party can p rove exactly how much the victim would have lost overall, that loss is deducted from the victims recovery. - (3) If the breaching party can do this, it will mean that the p laintiffs recovery will be reduced from the reliance interest to the expectation interest.

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Rockingham County(D) v. Luten Bridge Co.(P) D contracted with P for construction of a bridge which D later repudiated and P proceeded to construct the bridge anyway ISSUE: After repudiation of performance by one party to the contract, may the other party continue to perform and recover damages based on full performance? NO RULE: D gave notice while the contract was still executory that it did not desire the bridge built and would not pay for it and P proceeded to build the bridge in an attempt to recover the full contract price Shirley MacLaine Parker(P) v. Twentieth Century-Fox Film Corp.(D) P entered into agreement with D to star in a musical called Bloomer Girl which D later decided not to produce and offered P a role in a western film called Big Country instead ISSUE: Do projected earnings from other employment opportunities offset damages for breach of an employment contract? NO RULE: Only offset damages if the other employment was substantially similar to that of which the employee has been deprivedduty to mitigate damages by the nonbreaching party R2C 350. Avoidability as a Limitation on Damages
(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation (2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss

Neri(P) v. Retail Marine Corp.(D) P contracted with D to purchase a specific model boat but later rescinded the contract due to hospitalizationD had already ordered and received the boat and refused to refund the deposit and also sold the boat to another buyer ISSUE: In an action for breach of contract based on repudiation by the buyer, may the seller receive damages based on his lost profits where he subsequently sells the item at issue to another buyer? YES RULE: UCC 2-708 permits the seller to recover as damages the difference between the market price and the contract price plus any incidental damages incurred, but minus any expenses avoided, so long as this amount is sufficient to place the seller in as good a position as performance would have done; otherwise, the seller may recover his lost profit plus any incidental damages and reasonable costs UCC 2-706. Sellers Resale Including Contract for Resale
(1) Under the conditions stated in Section 2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. (2) Except as otherwise provided in subsection (3) or unless otherwise agreed, resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence or that any or all of them have been identified to the contract before the breach. (3) Where the resale is at private sale, the seller must give the buyer reasonable notification of his intention to resell. (4) Where the resale is at public sale: (a) only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and (b) it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and (c) if the goods are not to be within the view of those attending the sale, the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and (d) the seller may buy. (5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. (6) The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of Section 2-711).

WAYNE LAW SPRING 2012 UCC 2-708. Sellers Damages for Non-Acceptance or Repudiation

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(1) Subject to subsection (2) and to provisions of this Article with respect to proof of market price, the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article, but less expenses saved in consequence of the buyers breach. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.

UCC 2-710. Sellers Incidental Damages

Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyers breach, in connection with return or resale of the goods or otherwise resulting from the breach.

UCC 2-718. Liquidation or Limitation of Damages; Deposits

(1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. (2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds (a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller. (3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes (a) a right to recover damages under the provisions of this Article other than subsection (1), and (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract. (4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706).

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Contracting Around the Default Rules of Damages

- The liability for breach specified by the default rules governing contract damages can either be expanded or contracted by express clauses o May disclaim liability for consequential damages even though foreseeable o Damages may be either limited/expanded by use of liquidated damages clauses

(1) Express Limitations on Consequential and Incidental Damages UCC 2-719. Contractual Modification or Limitation of Remedy
(1) Subject to the provisions of subsections (2) and (3) of this Section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyers remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be held as provided in this Act. (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

(2) Liquidated Damages vs. Penalty Clauses - Switch from penalty to liquidated damage clauses after acceptance of theory that a contracting party should only be permitted to recover compensation for loss actually suffered through default o Balance between courts enforcing agreements to be performed and courts providing compensation for loss suffered by failure to perform agreements Kemble(P) v. Farren(D) D agreed to perform in Ps theater and contract provided that if either party breached the contract, he would pay 1,000 damages and that this was not a penalty ISSUE: Where a contract provides that a very large sum is to become immediately payable for any breach, however minor, will the court direct the jury to assess the real damages sustained as a result of the breach of the contract? YES RULE: Clause needs to be sufficiently restricted to breaches of certain terms or conditions Wassenaar(P) v. Towne Hotel(D) D terminated his employee P prior to their employment contracts expiration date and P sued for damages under a liquidated damages clause in the contract ISSUE: Is a stipulated damages clause valid if it is reasonable under the totality of the circumstances? YES RULE: Where the stipulated damages clause is a valid provision for liquidated damages, the doctrine of mitigation of damages is not applicable to determine the damages awarded the non-breaching partythus Ps subsequent earnings do not reduce the damages awarded R2C 355. Punitive Damages
Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.

R2C 356. Liquidated Damages and Penalties

(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. (2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence

Lake River Corp.(P) v. Carborundum Co.(D) Penalty clauses may inhibit efficient breaches of contract ISSUE: Does applicable state law require a liquidated damages clause to contain a reasonable forecast of damages that are difficult to estimate? YES

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RULE: In order to be enforceable, the liquidated damages clause must be a reasonable estimation at the time of contracting of the probable damages from breach, and the need for estimation must be based on the likely difficulty of assessing the actual damages suffered in the event of the breach; otherwise, such clause is void as a penalty.

Other Remedies and Causes of Action

Specific Performance and Injunctions - Money damages is the normal o r p resumptive remedy for b reach of contract - extraordinary remedies are a lso available o Available in courts of equity and thus equitable reliefavailable when legal relief is inadequate Contracts for Land - One accepted reason for inadequacy is that property in question is unique o In land sales contracts the presumption shifts in favor of specific p erformance o Sales of p ersonal p roperty have no such p resumptionthe v ictim of the b reach must show uniqueness o r some other reason why damages a re inadequate Loveless(D) v. Diehl(P) D leased a farm to P for three years with an option to purchase at the end of the rental period for $21,000P took possession and made subsequent expenditures on improvements to the property and were later unable to exercise the option and thus attempted to sell the property to a third party but D refused to sell to P ISSUE: In a contract for the sale of real property, may the court award the remedy of specific performance as a matter of course? YES RULE: Court can do so irrespective of the adequacy of the remedies at lawwhere a written contract specifically delineates its conditions, provides for adequate compensation, is equitable in all of its terms, and may be readily enforced, the court of equity may decree specific performance Contracts for Goods Cumbest(P) v. Harris(D) P and D entered into two agreements, one for the sale of stereo equipment belonging to the P and an option allowing P to repurchase the equipment by a specified date ISSUE: Will the court order specific performance for the sale of an item of personal property? NO RULE: Generally, the court will not order specific performance for the sale of an item of personal property unless there is no sufficient remedy at law, the property is unique or has sentimental value, or the item is not otherwise readily obtainable Scholl(P) v. Hartzell(D) D advertised the sale of a 1962 Chevy Corvette for $4,000 and P responded and the two agreed to a sale price of $4,000P paid D a $100 deposit but D later informed P that he would not accept the balance and returned the deposit ISSUE: Where a contract is executory, does the tendering of a deposit give rise to an action in replevin to enforce the contract? NO RULE: The injured party must seek relief based on breach of contractP has available adequate remedies at law including the ability to cover by purchasing alternative goods Sedmak(P) v. Charlies Chevrolet, Inc.(D) P sought specific performance of an oral agreement to purchase a limited edition Corvette from D ISSUE: May specific performance of a contract be granted where the subject matter of the agreement is of a sufficiently unique nature? YES RULE: P has no adequate legal remedies and no substitute item could be obtained without substantial cost and delayalso, the Corvette was one specifically tailored to the Ps requests UCC 2-716. Buyers Right to Specific Performance or Replevin
(1) Specific performance may be ordered where the goods are unique or in other proper circumstances (2) The judgment (decree) for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just (3) The buyer has the right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under

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reservation and satisfaction of the security interest in them has been made or tendered. In the case of goods bought for personal, family, or household purposes, the buyers right of replevin vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.

Contracts for Personal Services The Case of Mary Clark, A Woman of Colour Mary Clark (P) claimed she was illegally detained by D pursuant to a contract for indentured servitude ISSUE: May the court order specific performance of a contract for personal services? NO RULE: Enforcement of such services pursuant to a contract renders that service involuntary, and equal to a condition of slavery. Upon filing of the initial petition for relief, the services are no longer considered voluntary and the court may not constitutionally compel her to continue to perform. Lumley(P) v. Wagner(D) P sought enforcement of a negative injunction restraining D from performing for another competitor employer ISSUE: May the court grant a negative injunction restraining the party rendering the service from performing for any other employer during the contract period? YES RULE: Both agreements in this case comprise one contract requiring the D to perform for three months exclusively at Ps theatre which was the true intention of the agreement. Good faith prohibits individuals from breaching their contracts at will. Dallas Cowboys Football Club(P) v. Harris(D) The P sought to prevent the D, under contract with the P for one year with an option for a one-year renewal, from playing for a team in a rival football league ISSUE: When one having a special skill agrees to perform a service, may he be enjoined from performing services for another? YES RULE: If a party to a personal services contract is a person of exceptional and unique knowledge, skill, and ability in performing the service called for, injunctive relief will be granted to restrain violation of negative covenants in that contracttypically occurs in the instances of sports or entertainment - To be enforceable, a covenant not to compete must: o (1) serve a valid interest o (2) be reasonable in time o (3) be reasonable in scope o (4) no undue hardship

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Restitution Damage Interest and Cause of Action

- Legal concept or restitution generally p ertains to situations where one p erson has without intending to make a gift conferred a b enefit on another

Restitution for Breach of Contract Bush(P) v. Canfield(D) P contracted with D for delivery of certain quantity of flour in which the P paid $5,000 in advanceD failed to deliver and contract price was for $7/barrel but at the time of delivery price dropped to $5.50/barrel ISSUE: Is the measure of damages for a failure to deliver goods the amount advanced by the buyer, plus interest? YES RULE: Though the promisee may have suffered a great disappointment and loss by failure to fulfill the contract, such remote consequences cannot be taken into consideration by the courtspurpose of contract law is to make the aggrieved party whole, and ONLY by returning the amount advanced can this be done. (restitution is proper measure of damages because actual loss373(1) R2C 371. Measure of Restitution Interest
If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either (a) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant's position, or (b) the extent to which the other party's property has been increased in value or his other interests advanced.

R2C 373. Restitution When Other Party is in Breach

(1) Subject to the rule stated in Subsection (2), on a breach by non-performance that gives rise to a claim for damages for total breach or on a repudiation, the injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance. (2) The injured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance.

Restitution to the Party in Breach Britton(P) v. Turner(D) P contracted to work for D for 12 months after which P was to receive $120 for his laborP quit after 9 months without Ds consent and without good cause ISSUE: Where labor is performed under a contract for a specified price, can the party who fails to perform the whole of the labor contracted for recover in quantum meruit the value of the labor performed to the degree it is greater than the damage done to the other party? YES RULE: In construction contracts, if a building is built with minor variations from the plan, the owner still receives the benefit of the labor and materials and must pay for their reasonable worthshould also apply to employment contractsfor benefit received over the damage done by employers breach, the labor actually done and value received furnish a new consideration upon which the law raises a promise to pay to the extent of the reasonable worth of such excess Vines(P) v. Orchard Hills, Inc.(D) P contracted to purchase a condominium and paid $7,880 as a down payment which was liquidated damages in event of buyers breachP was transferred to another state and reneged on the contract ISSUE: May a party breaching a land sale contract recover the down payment if he can prove that no damages were inflicted upon the seller at the time of the breach? YES RULE: Formerly not the rule, but more recent cases recognize the right when to do so will prevent unjust enrichmentunjust enrichment occurs when the non-defaulting party suffers no damages as a result of the breach and is permitted to keep the deposit as liquidated damages

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(1) Subject to the rule stated in Subsection (2), if a party justifiably refuses to perform on the ground that his remaining duties of performance have been discharged by the other party's breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach.

(2) To the extent that, under the manifested assent of the parties, a party's performance is to be retained in the case of breach, that party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. Restitution and Quasi-Contract Cotnam(D) v. Wisdom(P) P, a physician who rendered emergency aid to Ds decedent sought to recover the value thereof despite the absence of any contractual relationship ISSUE: May a person rendering emergency services to a person collect reasonable fees therefor? YES RULE: Law recognizes a form of relationship that, while not being contractual in nature, is similarwhen one party benefits from the acts of another and it would be unfair not to compensate that other, it is held that a quasicontract was formed which is measured by the value of the services rendered Martin(P) v. Little, Brown and Co.(D) P sent a letter to D informing it that one of their books had been plagiarized and offering to send evidence thereof which it later did at Ds requestP demanded one-third of whatever D recovered from the offending publisher but P at no time conditioned the provision of information on any compensation ISSUE: Has one who volunteered information to another to the others benefit formed a contract? NO RULE: A true contract has not been formed as the requisite offer-acceptance never occurredthe party performed gratuitously and restitution would not be just because no unjust enrichment took place

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Discerning the Agreement

- Once mutual assent, there remains task of ascertaining the t erms that will b ind the parties o (1) Interpreting the m eaning of the words the parties used o (2) Issue of gap-filling when a situation arises that is not explicitly handled by the t erms of the parties agreement o (3) Problem of identifying which term is adopted by the parties when the terms of the offer differ from the t erms of the a cceptance

Interpreting the Meaning of the Terms - Ambiguous terms o Have more than one m eaning and the challenge is to find which meaning was intended by the parties - Vagueness o Question is whether the t erm was meant to apply b eyond its clear core meaning o Scope of the t erm - Objective approach with a subjective t wist Ambiguous Terms Raffles(P) v. Wichelhaus(D) P contracted to sell cotton to D to be delivered from Bombay at Liverpool on the ship Peerlessunknown to the parties was the existence of two different ships carrying cotton each with the same name Peerless but arriving at different times ISSUE: Did a latent ambiguity arise showing that there had been no meeting of the minds, hence, no contract? YES RULE: Contract did not show which particular Peerless was intended and a latent ambiguity arose which allowed admission of parol evidence to determine both parties intentionsdifferent meanings were intended and thus no contract if the ambiguity relates to a material term Oswald(P) v. Allen(D) P negotiated to purchase two sets of rare coins from D who believed that her Swiss Coin Collection alone was being purchased rather than both sets of rare coinslanguage barrier as the P spoke almost no English ISSUE: When any terms used to express an agreement are ambivalent and the parties understand it in different ways, can there be a contract? NO RULE: Unless one of the parties should have been aware of the others understandingif no sensible way to choose between conflicting understandings mental assent of the parties is required for the formation of a contract R2C 200. Interpretation of Promise or Agreement Interpretation of a promise or agreement or a term thereof is the ascertainment of its meaning. R2C 201. Whose Meaning Prevails
(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. (3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

R2C 202. Rules in Aid of Interpretation

(1) Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight. (2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together. (3) Unless a different intention is manifested, (a) where language has a generally prevailing meaning, it is interpreted in accordance with that meaning; (b) technical terms and words of art are given their technical meaning when used in a transaction within their technical field.

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(4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement. (5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.

UCC 1-205. Course of Dealing and Usage of Trade

(1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. (3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. (4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. (5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance. (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.

UCC 2-208. Course of Performance or Practical Construction

(1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1205). (3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.

Vague Terms Weinberg(P) v. Edelstein(D) P entered into a lease in which the landlord covenanted not to rent to any other store in the same building for the retail sale of ladies dresses, coats, and suitsD later entered into lease authorizing him to sell retail ladies hosiery, gloves, lingerie, brassieres, girdles, bathing suits, etcP brought suit for injunction to restrain D from selling matched skirts and blouses ISSUE: Will a restrictive covenant be strictly construed against the person seeking its enforcement when the intent of the restriction is not clear? YES RULE: Whether or not the combinations sold by the D constituted dresses depended upon practices and customs of the tradeD was not selling dresses in violation of the restrictive covenant but was selling skirts and blouses originating in the sportswear industry Frigaliment Importing Co.(P) v. B.N.S. International Sales Corp.(D) P ordered large quantity of chicken from D intending to buy young chicken suitable for broiling and frying but D believed the order could be filled with older chicken suitable for stewing only and termed fowl by the P ISSUE: Does the party who seeks to interpret the terms of the contract in a sense narrower than their everyday use bear the burden of persuasion to so show? YES RULE: D could not be expected to sell at a loss as it quoted the chicken price at $33/100lbs. for larger birds which was $2 to $4 less than for broilersD believed it could comply by supplying stewing chicken which conformed with the dictionary definition and definition in department of animal regulations

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Filling Gaps in the Terms - Courts must sometimes supply terms when contracts are silent on a particular issueknown as gap- filling o Implied-in-fact Parties have actually, albeit implicitly, a greed to o Implied-in-law Terms thought to b e imposed on parties without their consent - Two types of judicially supplied gap-fillers o (1) default rules which refer to legal rules that the parties can avoid or vary by means of an express clause that differs f rom the t erm a court will otherwise supply by d efault o (2) immutable rules may not be varied by consent and will o verride any express clause to the contraryONLY some implied-in-law terms coming from immutable rules a re imposed on parties without their consent - Issues in these cases concern BOTH o (a) when a manifestation of assent is sufficient to justify concluding that a legally enforceable contract exists and o (b) how to interpret the assent that has b een manifested Agreements to Agree Sun Printing & Publishing Assn.(P) v. Remington Paper & Power Co.(D) P entered into agreement with D to purchase 16,000 tons of paper for a yearfor first four months of agreement the price and length of time that price would apply were clearly established and remaining time in the contract called for price to be determined by the parties but not to exceed price charged by Canadian Export Paper CompanyD refused delivery after four months claiming contract was incomplete ISSUE: Is a contract invalid due to incompleteness if the agreement does not establish the length of time the terms of the agreement, such as the price, shall apply? YES RULE: Contract, after the first four months, did not specify the price or length of time that the price shall apply to the parties and both elements are essential to the contractcourt cannot take that active of a role in determining what the parties intended when such terms are left out of the agreement R2C 34. Certainty and Choice of Terms; Effect of Performance or Reliance
(1) The terms of a contract may be reasonably certain even though it empowers one or both parties to make a selection of terms in the course of performance. (2) Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed. (3) Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed.

R2C 204. Supplying an Omitted Essential Term

When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court. - Gap-filling under the UCC o Can fill in price ( 2-305) reasonable price a t the time of delivery o Can fill in place of delivery ( 2-308) sellers place of business o Can fill in time of delivery ( 2-309) a reasonable time o Can fill in time a nd place of payment ( 2-310) time a nd place a t which buyer is to receive the goods

Texaco(D) v. Pennzoil(P) P entered into merger negotiations with Getty Oil Co. after which a memorandum of agreement was worked out in which P would pay $110/share plus certain inducements subject to approval of Gettys boardD later agreed to pay $125/share and P sued for interference with contractual rights ISSUE: For a contract to be enforceable, must the terms of the agreement be ascertainable to a reasonable degree of certainty? YES

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RULE: Agreement between the parties must be sufficiently complete so that the parties may, in good faith, find that the words used will fairly define their respective duties and liabilities Illusory Promises New York Central Iron Works Co.(P) v. United States Radiator Co.(D) P contracted with D for the latter to supply all of the formers radiator needs for the year 1899turned out the needs of P exceeded by a large margin its needs for prior years and D was unable to fill all of Ps orders ISSUE: May a buyer in a supply contract enforce the contract even if its requirements increase beyond the parties contemplation? YES RULE: Buyer obligates himself to purchase materials from a particular vendor in a rising market he is entitled to profit from his good prognostication regarding the marketso long as the needs are genuine and he is not merely speculating in the material, the contract is enforceable Eastern Air Lines, Inc.(P) v. Gulf Oil Corp.(D) D was to furnish jet fuel to P based on an alleged five-year requirements contractD demanded P meets its demand for a price increase or be shut off from its supply of jet fuel ISSUE: Is a requirements contract binding where the purchaser has an operating business? YES RULE: Any complaints regarding lack of mutuality or indefiniteness are easily resolved, since the court may determine the volume of goods under the contract by examining objective evidence of the volume of goods required in good faith to operate the specific business

Is the seller obligated to supply what the buyer wants? Is Buyers Demand in Good Faith? No NO yes Stated in Estimate? yes Was Buyers Demand Proportionate? No NO yes NO Buyer happy In graph at right, can contract Around location of green lines YES market Price _____ Seller happy Quantity Court will recognize=reasonably prop=contract enforceable yes YES

No Was Buyers Demand Disproportionate to Past Requirements?

Wood(P) v. Lucy, Lady Duff-Gordon(D) P received the exclusive right for one year, renewable on a year-to-year basis if not terminated by a 90-day notice, to endorse designs with Ds name and to market all her fashion designs for which she would receive one-half the profits derivedD broke the contract by placing her endorsement on designs without Ps knowledge ISSUE: If a promise may be implied from the writing even though it is imperfectly expressed, is there a valid contract? YES RULE: While the contract did not precisely state that P had promised to use reasonable efforts to place Ds endorsement and market her designs, such a promise can be implied from the circumstancesP promised to make monthly accountings and to acquire patents and copyrights as necessary which showed P had dutiesUCC 2306(2)

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UCC 2-306. Output, Requirements and Exclusive Dealings (1) A term which measures the quantity by the output of the seller or the requirements of the buyer 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. (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

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Written Manifestations of Assent

Interpreting a Writing The Parol Evidence Rule - Breadth of the parol evidence rule o Applies to previous oral a greements, previous written agreements, contemporaneous oral agreements - FIRST QUESTION: Is there a final writing? o IF YEScall it an integrated a greementR2C 209(1) Effect is that it supersedes (and bars evidence relating to) a ny prior a greements inconsistent with written a greements t erms...R2C 213(1) o IF NOcall it not integrated Admit even if it contradicts existing t erms - SECOND QUESTION: Is the f inal writing complete and exclusive? o IF YEScall it a completely integrated agreementR2C 210(1) Effect is that it supersedes (and bars evidence relating to) n ot just inconsistent t erms, but even additional t erms that would b e consistentR2C 216(1), 213(2) o IF NOcall it partially integrated Admit only if it does not contradict existing t erms o How to t ell if completely integrated? NOT completely integrated if the additional t erm was agreed to for separate consideration, or the additional t erm was such as in the circumstances might naturally be omitted from the writingR2C 216(2) Thompson(P) v. Libbey(D) P and D entered into written agreement in which P would sell logs to D for $10/1000 ft. but D refused to pay after determining the logs were of poor qualityD argued that there was an oral warranty made in reference to the logs quality ISSUE: Is parol contemporaneous evidence inadmissible to contradict or vary the terms of a valid written instrument? YES RULE: When parties deliberately put their promises into writing in such a way as to create a legal obligation, it is conclusively presumed that these promises have been reduced to writingdoes not apply when the writing is incomplete on its face and does not purport to contain the whole agreement Brown(P) v. Oliver(D) P bought land from D which had a hotel on itpossession of the hotel and its furniture was surrendered by D but after which D removed the furniture at night while he had a lease on the propertyP contended that D had verbally agreed to sell the furniture ISSUE: May parol evidence that bears upon the question of the intent of the parties to integrate their transaction into a writing be admitted when the writing does not conclusively establish the intent? YES RULE: Whether a particular subject of negotiation is embodied by a writing depends completely on the intent of the partiesintent may be found in conduct and language of the parties and surrounding circumstances R2C 209. Integrated Agreements
(1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement. (2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule. (3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.

R2C 210. Completely and Partially Integrated Agreements

(1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement. (2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement. (3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

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R2C 213. Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)
(1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

R2C 214. Evidence of Prior or Contemporaneous Agreements and Negotiations

Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish (a) that the writing is or is not an integrated agreement; (b) that the integrated agreement, if any, is completely or partially integrated; (c) the meaning of the writing, whether or not integrated; (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; (e) ground for granting or denying rescission, reformation, specific performance, or other remedy.

R2C 216. Consistent Additional Terms

(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated. (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is (a) agreed to for separate consideration, or (b) such a term as in the circumstances might naturally be omitted from the writing.

UCC 2-202. Final Written Expression: Parol or Extrinsic Evidence

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) by course of dealing or usage of trade (Section 1-205) or by course of performance (Section 2-208); and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement .

Pacific Gas and Electric Co.(P) v. G.W. Thomas Drayage & Rigging Co.(D) D contracted to replace the upper metal cover on Ps steam turbine and agreed to perform all work at its own risk and expense and to indemnify P against all loss, damages, expense, and liability resulting from injury to property arising out of or in any way connected with performance of the contractcover fell and caused damages but D alleged that the indemnity clause was meant to cover injury to third-persons property only ISSUE: Was Ds offered evidence relevant to proving a meaning to which the language of the instrument was susceptible? YES RULE: Extrinsic evidence for the purpose of showing the intent of the parties could be excluded only when it is feasible to determine the meaning of the words from the instrument alonerequires at least an initial consideration of all credible evidence to prove intention of parties Trident Center(P) v. Connecticut General Life Insurance Co.(D) P entered into a loan agreement with D providing that P would borrow $56 million to construct an office buildingthe loan was to be paid off over time but precluded full repayment within the first 12 yearsbecause of drop in interest rates, P sought to repay to the loan in full after four years ISSUE: Is parol evidence admissible to show an ambiguity in an otherwise unambiguous contract? YES RULE: Language cannot infallibly communicate the true meaning or intent of parties to a contract and parol evidence must be allowed where such intent is in issue

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Performance
The Implied Duty of Good Faith Performance - Requirements contractsquantity d emanded must have been incurred in good faith o Duty to use b est effortsWood v. Lucy, Lady Duff-Gordon - in every contract there is an implied covenant that n either party shall do anything which will have the effect of d estroying or injuring the right of the other party t o receive the f ruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair d ealing. Goldberg 168-05 Corp.(P) v. Levy(D) P entered into lease agreement to rent property to D for nine years at $13,800/year plus 10% of gross receipts of Ds businessif business did not gross in excess of $101,000, D had the right to terminate the leaseD did not gross in excess of $101,000 and notified P of intention to terminate lease ISSUE: Must a tenant under a commercial lease providing that the payment of a portion of the rent be based on the gross profits earned from the business conducted thereon utilize his best efforts in generating such earnings? YES RULE: A covenant of good faith and fair dealing is present in every contractD conducted business in manner such that gross receipts were kept below level stipulated so as to avoid additional rental payments Mutual Life Insurance Co. of New York(P) v. Tailored Woman(D) P and D entered into ten-year lease agreement providing for rental of premises for sale of womens apparel at fixed minimum payment plus 4% of gross receipts in excess of $1.2M/yearD leased additional space and later moved its fur department into the new space but lease did not specify that it would be based on portion of gross sales ISSUE: In the absence of fraud or deception, may the tenant to a commercial lease agreement conduct its business in accordance with the general lease provisions in any manner it deems appropriate? YES RULE: As long as consistent with its rights under the contract. Stop & Shop, Inc.(P) v. Ganem(D) P and D entered in lease agreement for fixed rental payment plus 1.25% of gross sales in excess of $1,269,230.60P leased other property from D but eventually had to close its market but continued to pay minimum rent payments after which D counterclaimed seeking to compel P to operate a market on premises and pay % of gross sales ISSUE: Does a commercial lease agreement have an implied covenant to continue operations? NO RULE: The court will not imply a covenant to continue operations for a specific purpose, or for any purpose at all, into a commercial lease agreementnot agreed upon by the parties, nor would a reasonable person in the parties position assume such covenants were included in the agreementWhere a lessee tenders substantial minimum lease payments approximately equivalent to the premises fair rental value, then no such covenant of continued operations is implied into the lease agreement R2C 205. Duty of Good Faith and Fair Dealing Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. UCC 1-203. Obligation of Good Faith Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. (1) In this article unless the context otherwise requires (b) Good faith in the case of a merchant means honesty in fact and the observance of reasonable standards of fair dealing in the trade. Implied and Express Warranties - Scope of performance is often d efined by a warranty - UCC supplies t wo d efault warrantied o (1) warranty of m erchantability o (2) implied warranty of fitness for a particular purpose - May contract around by (a) adding an express warranty in a ddition to o r in p lace of an implied warranty or (b) by expressly disclaiming the implied warranties

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Step-Saver Data Systems, Inc.(P) v. Wyse Technology(D) P brought suit against D alleging breach of warranty of merchantability and for fitness for a particular purpose as Ds terminals were incompatible with several of the software programs that P utilized ISSUE: Does the implied warranty of merchantability require that the goods in question be specifically suited for the buyers purposes? NO RULE: Must be fit for the purposes for which they are ordinarily usedparty alleging breach must demonstrate that the warranty was in fact breached and that the breach was the proximate cause of the buyers loss UCC 2-314. Implied Warranty: Merchantability; Usage of Trade.
(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. (2) Goods to be merchantable must be at least such as (a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promise or affirmations of fact made on the container or label if any. (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade.

UCC 2-315. Implied Warranty: Fitness for Particular Purpose.

Where the 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.

UCC 2-714. Buyer's Damages for Breach in Regard to Accepted Goods.

(1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable. (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered.

Express Warranties - Entail a promise to make good for losses within their scope, whether or not such losses were foreseeable, uncertain, or avoidable Royal Business Machines, Inc.(D) v. Lorraine Corp.(P) P and D entered into series of transactions where P bought copying machines from DP brought suit alleging breach of warranties and fraud because of assurances that goods were of high quality, few repairs would be needed, replacement parts were readily obtainable, maintenance costs were low, etc. ISSUE: Do representations made by a seller to a buyer regarding the quality of goods provided pursuant to a contract constitute express warranties giving rise to an obligation on the part of the seller to provide conforming goods? NO RULE: Determinative question in resolving whether a particular promise constitutes an express warranty is whether the sellers assertion constitutes a fact or is merely an expression of the sellers opinion UCC 2-313. Express Warranties by Affirmation, Promise, Description, Sample.
(1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

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(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

CBS, Inc.(P) v. Ziff-Davis Publishing Co.(D) Goldman Sachs acted as agent for D in sale of business publications to Pagreement provided that all financial statements had been prepared in accordance with GAAP and all representations and warranties by D were accurate ISSUE: Where a buyer expresses his disbelief as to the express warranties made by the seller prior to the completion of the sale, is the seller relieved from its duties in respect to such warranties? NO RULE: Such warranties constitute a promise as to the verity of the proffered information, thereby relieving the promisee of the need for further investigation and constituting an indemnification if the representations should later prove to be false. - Elements of Express Warranties: o (1) An affirmation of fact o r a promise o (2) That relates to the goods o (3) That b ecomes a part of the basis of the bargain (i.e., reliance) o (4) Thats not a statement of opinion (i.e., puffery) Express Disclaimers of Warranty - Enables parties to contract around default rules Schneider(P) v. Miller(D) P entered into contract to buy Impala SS from Dafter test-drive, the P questioned about noises in the car and D responded saying brakes needed repair and sold car AS IS to the PP later took the car to a mechanic and attempted to rescind the contract because unfit for driving ISSUE: Does the buyers signing of a bill of sale that he accepts delivery of an automobile as is relieve the seller from any obligations in respect to implied warranties under the contract? YES RULE: If buyer accepts AS IS or where the buyer has had opportunity to inspect the goods, no implied warranties exist and all risk is transferred to the buyer. UCC 2-316. Exclusion or Modification of Warranties.
(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof." (3) Notwithstanding subsection (2) (a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and (b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. (4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719).

Morris(P) v. Macks Used Cars(D) ISSUE: Does a provision providing for the disclaimer of all implied warranties under a contract for the sale of goods relieve a seller from liability under alternative causes of action pertaining to commercial transactions? NO RULE: Both the UCC and Consumer Protection Act provide that they are supplementary to other statutory rights and remediescannot dispense with the implied covenant of good faith and fair dealing that exists in every agreement

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Conditions - Sometimes p erformance is due only if something happens o r does not happen o Unless the condition is satisfied, nonperformance is not a breach o Subsequent to a cceptance and prior to discharge - Condition p recedenthappening of the condition precedes t he companys duty to pay - Condition subsequentoccurs subsequent to the companys duty to pay and discharges that duty o P has the burden of pleading and p roving conditions p recedent o D has the burden for conditions subsequent The Effect of a Condition Internatio-Rotterdam(P) v. River Brand Rice Mills(D) P contracted to buy 95,600 pockets of rice from D at $8.25/pocket to be delivered by ship at one of two ports with two weeks notice from PP made its first delivery within the time frame but failed to deliver the rest and D rescinded the contract for remaining rice ISSUE: Must a condition, which is an act or event, other than a lapse of time, be literally complied with? YES RULE: Notice was a condition precedent to shipment which could not be made until ship and location to which D was to deliver was identifiedtime was of the essence for shipment within December 1952 What Events are Conditions? - An event that is uncertain to o ccur that is, an event other t han the passage of t ime may b e a condition, a p romise, or a promissory condition - R2C 224. Condition Defined o A condition is an event, not certain to o ccur, which must o ccur, unless its non-occurrence is excused, b efore p erformance under a contract becomes due. - R2C 225. Effects Of The Non-Occurrence Of A Condition o (1) Performance of a duty subject to a condition cannot b ecome due unless the condition o ccurs or its non-occurrence is excused o (3) Non-occurrence of a condition is not a breach by a party unless h e is under a [separate] duty that the condition occur. Is the Event a Condition, a Promise, or Both? Howard(P) v. Federal Crop Insurance Corp.(D) P suffered loss to his tobacco crop to alleged rain damage and notified D of the lossbefore an agent of D could inspect, P plowed and planted rye to preserve the soil which was in violation of the insurance policyP argued it was a promise rather than a condition precedent in order to recover under policy but might still be sued by D for damages ISSUE: Where it is doubtful whether words constitute a promise or express condition, should they be interpreted as constituting a promise? YES RULE: The law abhors a forfeitureoffending clause did not specify that Ds agreement not to destroy evidence of an asserted claim constituted a condition precedent to Ds obligation to pay R2C 227. Standards of Preference with Regard to Conditions
(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. (2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control.

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WAYNE LAW SPRING 2012 Is the Event a Condition, a Promise, or Neither?

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Chirichella(P) v. Erwin(D) D contracted to buy a new home and agreed to sell old home to Pcontract was amended to read that settlement would coincide with settlement of New Home Approx. Oct. 71.new home was not completed in workmanlike manner and D refused to settle on sale of their old home ISSUE: Is the question whether a stipulation in a contract constitutes a condition precedent one of construction dependent on the intent of the parties? YES RULE: Language in controversy did not meet the definition of a condition precedentresult of provision was not to allow the D to avoid the contract but rather to delay settlement for a reasonable period of time while the new house was completed Avoiding Conditions - (1) waiver (2) estoppel (3) excuse o Each one d eveloped to avoid the effect of a conditionoperation of a condition is sometimes harsh Waiver and Estoppel Clark(P) v. West(D) D entered into contract with P whereby P would write corporations treatises and abstain from alcohol$6/page if abstained from alcohol and only $2/page if he drankD became aware of Ps drinking during the contract but made no objection ISSUE: May a condition precedent to performance be waived? YES RULE: Mere silence and acceptance of performance does not constitute a waiverbecause P alleged an express waiver of the condition, he should be allowed to prove it at trial R2C 84. Promise to Perform a Duty in Spite of Non-Occurrence of a Condition
(1) Except as stated in Subsection (2), a promise to perform all or part of a conditional duty under an antecedent contract in spite of the non-occurrence of the condition is binding, whether the promise is made before or after the time for the condition to occur, unless (a) occurrence of the condition was a material part of the agreed exchange for the performance of the duty and the promisee was under no duty that it occur; or (b) uncertainty of the occurrence of the condition was an element of the risk assumed by the promisor. (2) If such a promise is made before the time for the occurrence of the condition has expired and the condition is within the control of the promisee or a beneficiary, the promisor can make his duty again subject to the condition by notifying the promisee or beneficiary of his intention to do so if (a) the notification is received while there is still a reasonable time to cause the condition to occur under the antecedent terms or an extension given by the promisor; and (b) reinstatement of the requirement of the condition is not unjust because of a material change of position by the promisee or beneficiary; and (c) the promise is not binding apart from the rule stated in Subsection (1).

UCC 2-209. Modification, Rescission and Waiver

(1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

Excuse to Prevent Forfeiture J.N.A. Realty Corp.(P) v. Cross Bay Chelsea, Inc.(D) P executed commercial lease to Ds predecessor which was later assigned to Dhad a 24-year renewal option on six-month notice to D and P did not remind DP demanded D vacate after D had already spent $15,000 in improvements

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ISSUE: Will equity protect a tenant who negligently fails to exercise a renewal option if failure to do so will result in a forfeiture? YES RULE: Courts have recognized an equitable interest against forfeiture where a tenant has made improvements, and the failure to give notice was not willful, and the landlord is not harmed by equitys intervention - Considerations To Reflect in Determining Excuse (taken from JNA Realty) o (1) The party who failed to adhere to the condition was their mistake excusable? o (2) The party who benefited f rom the condition d id they a ct exploitatively? o (3) How much forfeiture is there (i.e., how much would the party under the condition lose if the condition were enforced?) o (4) Would the party who b enefited from the condition b e unfairly prejudiced if the condition were waived? R2C 229. Excuse of a Condition to Avoid Forfeiture To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.

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Breach
- (1) constructive conditions (implied), (2) anticipatory repudiation, and (3) material b reach o Circumstances that justify one party unilaterally putting an end to the contract

Constructive Conditions - When Courts fill gaps in a greements that lack an express condition o The b reach of a constructive condition by one party can relieve the other party of its duty of performance o Backward-looking inquiry into the p resumed intentions of the parties at the time of formation o Whereas finding a material b reach d epends on forward-looking inquiry into the likelihood of performance o ccurring in the future If Party A Fails To Comply: PROMISES Party A can be sued for breach. But Party B still has to p erform. Independent EXPRESS CONDITIONS Party A cannot b e sued for b reach. But Party B no longer has to perform. Dependent

Parties Promises: -

Presumed to be a promise unless unambiguously clear it was a condition

Kingston(P) v. Preston(D) D agreed to sell his business to PP agreed to give sufficient security for his payments which he later failed to do and D refused to sell ISSUE: When one party agrees to sell and a second party agrees to give sufficient security for his payments, are those covenants mutual and independent so that it is no excuse for nonperformance by the first party for him to allege breach of covenant by the second party? NO RULE: Covenants are dependentP must show that he has provided or is ready and willing to provide sufficient security as a condition precedent to Ds duty to selldependence or independence of covenants is to be determined from the intention of the parties, normally determined by the order of time in which the intent of the transaction requires their performance Morton(P) v. Lamb(D) D agreed to deliver corn to P for payment at time of deliveryD did not deliver because P did not say he was ready to pay for it ISSUE: Where two concurrent acts are to be done, must the party who sues the other for non-performance aver that he had performed, or was ready to perform, his part of the contract? YES RULE: Both things, the delivery of the corn by one, and the payment by the other, were to be done at the same time, so there was no condition precedent here. Jacob & Youngs(P) v. Kent(D) P built D a home but failed to use Reading pipe as specified by D in the contract$3,483.46 was still owed and D refused to pay after finding that the pipe used was not Reading ISSUE: Where there is a substantial performance with defects of trivial or inappreciable importance, is the measure of damage the difference in value? YES RULE: Substitution of equivalents is more significant in fields of art than in utilitya change will not be tolerated if it is so dominant or pervasive that it frustrates the purpose of the contractthe purpose to be served, the desire to be gratified, the excuse for deviation, and the cruelty of enforced adherence must be weighed in order to determine if literal fulfillment of the contract is to be forced Prospective Nonperformance - Things That End a Contract: (More Precisely: Things That Free A Party From Having to Perform) o (1) Failure of an Express Condition o (2) Failure of an Implied Condition (becomes #4) o (3) Anticipatory Repudiation o (4) Material Breach (formerly #2)

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Anticipatory Repudiation - Enables a party to cancel a contract if, before the t ime for p erformance a rrives, the other party indicates that she does not intend to perform and thereby repudiates the contract Albert Hochester(P) v. Edgar De La Tour(D) P contracted to serve as Ds employee beginning on June 1on May 11, D wrote to P that he had changed his mind and declined Ps services ISSUE: When the time for performance has not arrived, but one party nevertheless indicates his intention not to perform, must the other party wait until the performance should have occurred before bringing action for breach of contract? NO RULE: Breacher cannot complain if he is immediately sued for damages by the injured partyinjured party may either sue immediately or wait till the time when the act was to be done Harrell(P) v. Sea Colony, Inc.(D) P contracted with D to purchase a condo and paid $5,000 down with a forfeit of the deposit if P breaches the contractP sent letters requesting the contract be cancelled and the D sold the condo to another party and kept the $5,000 ISSUE: Does a mere request to cancel a contract constitute anticipatory breach thereof? NO RULE: In order to for an anticipatory breach to occur, there must be an unequivocal manifestation of intention on the part of the repudiator that he will not render the promised performance at the appointed time. UCC 2-610. Anticipatory Repudiation.
When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).

UCC 2-611. Retraction of Anticipatory Repudiation.

(1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-609). (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

Adequate Assurances of Performance - Occurs when one party wishes to withhold p erformance because h e suspects, for some reason, that the other party may not perform Scott(P) v. Crown(D) P suspended shipments of wheat which D had ordered because P learned from Department of Agriculture that there were active complaints against D from other farmers and D failed to respond to Ps inquiries about timely payment for previous deliveries ISSUE: When reasonable grounds for insecurity arise with respect to one partys performance under a contract, may the other party demand in writing adequate assurances of due performance and if commercially reasonable suspend any performance for which he has not received the agreed return? YES RULE: Party must demand in writingin this case there were problems with Ps timing, form, and content of his request for performance UCC 2-609. Right to Adequate Assurance of Performance.
(1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.

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(4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

Material Breach - In deciding whether the promisee can unilaterally put an end to the contract o Courts may find a constructive condition o OR Courts may t ry to d etermine whether the breach by the promisor was material - In the absence of an expressed o r constructive condition to the contrary, ONLY if a breach is material does it relieve the nonbreaching party of its duty of performance under the contract B & B Equipment Co.(P) v. Bowen(D) D, a discharged employee, alleged that the P could not rescind his contract because the major purpose of the contract was the purchase of stock and not his employment ISSUE: Must a rescission of a contract for breach by the other party relate to a vital provision going to the very substance or root of the agreement? YES RULE: It cannot relate to a subordinate or incidental mattermajor purpose of the agreement was for Ds services and not in order to obtain needed capital Lane Enterprises, Inc.(P) v. L.B. Foster Co.(D) P failed to make full payment for part performance on a construction subcontract to coat metal bridge components to prevent corrosionD argued P breached the agreement ISSUE: Is the ratio of the part performed to the part to be performed an important question in determining material breach? YES RULE: P had only withheld 5% of the total contractDs failure to give P adequate assurance of performance of the second stage of the agreement amounted to an anticipatory breach R2C 241. Determining Materiality of a Breach
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for that part of the benefit of which he will be deprived; (c) the extent to which the part failing to perform or to offer to perform will suffer forfeiture; (d) 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; (e) 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

The Perfect Tender Rule: Cure and Rescission Ramirez(P) v. Autosport(D) P sought rescission of their contract to purchase a camper with defect from D, and the return of a trade-in van they had tendered pursuant to the sales agreement ISSUE: May a buyer reject defective goods that do not conform to the requirements of the sales agreement? YES RULE: Seller is required to furnish a perfect tender of the subject matter of the contract, and the buyer may reject the goods based on any nonconformity prior to acceptancedoes not terminate the contract and the seller has an absolute right to cure the defect within the time specified for performance under the contract UCC 2-106. Definitions: "Contract"; "Agreement"; "Contract for sale"; "Sale"; "Present sale"; "Conforming" to Contract; "Termination"; "Cancellation".
(4) "Cancellation" occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of "termination" except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance.

UCC 2-508. Cure by Seller of Improper Tender or Delivery; Replacement.

(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

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WAYNE LAW SPRING 2012 UCC 2-601. Buyer's Rights on Improper Delivery.

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Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest.

UCC 2-602. Manner and Effect of Rightful Rejection.

(1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. (2) Subject to the provisions of the two following sections on rejected goods (Sections 2-603 and 2-604), (a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and (b) if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection (3) of Section 2-711), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but (c) the buyer has no further obligations with regard to goods rightfully rejected. (3) The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this Article on seller's remedies in general (Section 2-703).

UCC 2-606. What Constitutes Acceptance of Goods.

(1) Acceptance of goods occurs when the buyer (a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or (b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or (c) does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. (2) Acceptance of a part of any commercial unit is acceptance of that entire unit.

UCC 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over.
(1) The buyer must pay at the contract rate for any goods accepted. (2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity. (3) Where a tender has been accepted (a) the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and (b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation. (4) The burden is on the buyer to establish any breach with respect to the goods accepted. (5) Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over (a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound. (b) if the claim is one for infringement or the like (subsection (3) of Section 2-312) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. (6) The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection (3) of Section 2-312).

UCC 2-608. Revocation of Acceptance in Whole or in Part.

(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it (a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or (b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.

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(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

UCC 2-709. Action for the Price.

(1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price (a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold. (3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.

UCC 2-711. Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods.
(1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid (a) "cover" and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or (b) recover damages for non-delivery as provided in this Article (Section 2-713). (2) Where the seller fails to deliver or repudiates the buyer may also (a) if the goods have been identified recover them as provided in this Article (Section 2-502); or (b) in a proper case obtain specific performance or replevy the goods as provided in this Article (Section 2-716). (3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2-706).

Cost of Completion v. Diminution in Value: The Expectation Interest Revisited - If substantial p erformanceparty must still perform but may sue for damages f rom the other partys breach o Owner is entitled to the money which will p ermit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attainedWhen that is t rue, the measure is the d ifference in value Groves(P) v. John Wunder Co.(D) A provision in a lease for land which stated that the sand and gravel were to be removed to a uniform grade was breached by the D ISSUE: Where the contractor willfully and fraudulently varies from the terms of the construction contract, may he sue and have the benefit of the equitable doctrine of substantial performance? NO RULE: Ds breach of contract was willful and lacked good faithAbsent such waste, as it is in this case, R2C 346, is that the cost of remedying the defect is the amount awarded as compensation for failure to render the promised performance. Peevyhouse(P) v. Garland Coal Mining Co.(D) D promised to perform restorative and remedial work on the Ps farm at the end of the lease period, but then argued that the cost of repair work would far exceed the total value of the farm ISSUE: Where a contract provision breached was merely incidental to main purpose, and where economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, are the damages which lessor may recover limited to the diminution in value resulting to the premises because of the nonperformance? YES RULE: Damages recoverable are to be a reasonable amount that is not contrary to substantial justice and that prevents the P from recovering a greater amount for breach of an obligation that would have been gained by full performance

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R2C 348. Alternatives to Loss in Value of Performance (2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on (a) the diminution in the market price of the property caused by the breach, or (b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.

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Obtaining Assent by Improper Means

- Assent of competent p ersons is obtained by m eans that are considered improper o There assent was alleged to have b een induced by conduct on the part of the p romisee that undermines the normal significance of a manifestation of assent

Misrepresentation Halpert(P) v. Rosenthal(D) D refused to go through with an agreement for the purchase of Ps termite-infested house ISSUE: Is rescission available for an innocent misrepresentation of a material fact? YES RULE: It does not matter if the misrepresentation is innocent or fraudulentbecomes material when likely to influence the conduct of a reasonable man with reference to a transaction with someone else R2C 159. Misrepresentation Defined A misrepresentation is an assertion that is not in accord with the facts. R2C 162. When a Misrepresentation is Fraudulent or Material
(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker (a) knows or believes that the assertion is not in accord with the facts, or (b) does not have the confidence that he states or implies in the truth of the assertion, or (c) knows that he does not have the basis that he states or implies for the assertion. (2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

R2C 164. When a Misrepresentation Makes a Contract Voidable

(1) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient. (2) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.

R2C 167. When a Misrepresentation is an Inducing Clause A misrepresentation induces a party's manifestation of assent if it substantially contributes to his decision to manifest his assent. Byers(P) v. Federal Land Co.(D) P brought suit to have a land sale contract canceled due to misrepresentations by DP argued that D fraudulently represented themselves as owner of the land, misrepresented value of land, and misrepresented delivery of possession (material) ISSUE: Is an honest opinion as to the monetary value of property, stated as an opinion, fraudulent misrepresentation? NO RULE: Must be special reliance placed upon it and superior knowledge on the part of the maker Vokes(P) v. Arthur Murray, Inc.(D) P was continually cajoled into purchasing thousands of hours of dancing lessons at D ISSUE: May a party reasonably rely on opinions as assertions of fact when given by a party of superior knowledge on the subject? YES RULE: Ds efforts went beyond mere sales puffing and intruded into area of undue influenceD also had superior knowledge R2C 168. Reliance on Assertions of Opinion
(1) An assertion is one of opinion if it expresses only a belief, without certainty, as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters. (2) If it is reasonable to do so, the recipient of an assertion of a person's opinion as to facts not disclosed and not otherwise known to the recipient may properly interpret it as an assertion (a) that the facts known to that person are not incompatible with his opinion, or (b) that he knows facts sufficient to justify him in forming it.

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WAYNE LAW SPRING 2012 R2C 169. When Reliance on an Assertion of Opinion is NOT Justified

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To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient (a) stands in such a relation of trust and confidence to the person whose opinion is asserted that the recipient is reasonable in relying on it, or (b) reasonably believes that, as compared with himself, the person whose opinion is asserted has special skill, judgment or objectivity with respect to the subject matter, or (c) is for some other special reason particularly susceptible to a misrepresentation of the type involved

Duress - R2C 174. o If conduct that appears to b e a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent. - physical duress and economic duress Hackley(D) v. Headley(P) P cut and delivered logs to D and claimed compensation of $6,200D refused and would only pay $4,000 which P was forced to accept to avoid financial ruin and then sued for the balance ISSUE: May a transaction be set aside for duress by a party who entered into it willingly, albeit reluctantly? NO RULE: Transaction is voidable because of duress only when one of the parties is forced to act in a manner inconsistent with his own free will Austin Instrument(P) v. Loral Corp.(D) D was under contract to produce radar sets for the govtD subcontracted with P to supply parts but P later threatened to cease delivery of parts unless D consented to substantial increases in the subcontract priceD acceded after failing to procure the parts from other manufacturers ISSUE: Is a contract modification acceded to by one party under circumstances amounting to economic duress enforceable against that party? NO RULE: Existence of economic duress/business compulsion is demonstrated by proof that immediate possession of needful goods is threatened or by proof that one party to contract has threatened to breach agreement by withholding goods unless the other party agrees to some further demand United States(P) v. Progressive Enterprises(D) P proposed to supply D with necessary machinery for govt project requiring acceptance within 15 daysD did not accept within 15 days and did not seek extensionP informed D he would have to pay $7,350 rather than previously designated price but D only paid $5,550.88 ISSUE: In a contract for the sale of goods, does an agreement modifying the contract require additional consideration in order to be enforceable? NO RULE: UCC 2-209 provides an agreement modifying a contract for sale of goods does not require additional consideration in order to be enforceable as long as it is executed in good faithadjusting terms to reflect fluctuations in marketplace R2C 175. When Duress by Threat Makes a Contract Voidable
(1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. (2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.

R2C 176. When a Threat is Improper

(1) A threat is improper if (a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property, (b) what is threatened is a criminal prosecution, (c) what is threatened is the use of civil process and the threat is made in bad faith, or (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient. (2) A threat is improper if the resulting exchange is not on fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat, (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair ealing by the party making the threat, or (c) what is threatened is otherwise a use of power for illegitimate ends

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WAYNE LAW SPRING 2012 Undue Influence

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Odorizzi(P) v. Bloomfield School District(D) P was arrested for homosexual activity and later resigned from his employment with D after representations that there would be no publicity and P would be able to obtain employment elsewhereP sought to rescind his resignation on basis it was procured wrongly ISSUE: Is undue influence exerted where the injured partys independent will is overpowered by that of a superior party, or his agents, at a time at which the victim was particularly vulnerable? YES RULE: Exerted where dominant party possessed an unfair advantage in the bargaining processdeterminative factor is whether the victims independent volition has been overpowered - Seven Factors to consider: o (1) unusual or inappropriate t ime (2) unusual place (3) insistent d emand that business b e f inished at once (4) emphasis on untoward consequences of delay (5) use of multiple p ersuaders by dominant side against a single servient party (6) absence of third-party advisers to servient party (7) statements that there is no t ime to consult advisers or attorneys R2C 177. When Undue Influence Makes a Contract Voidable (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare. (2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim. (3) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction. Failure of a Basic Assumption - occasionally the unexpected o ccurs and contracting parties must decide who between them b ears the risk of these d evelopmentsmay justify excusing parties from p erformance Mistakes of Present Existing Facts - the existence of a mistake, coupled with other circumstances, can sometimes constitute a d efense - R2C 151defines a m istake as a b elief that is not in accord with the facts Mutual Mistake Sherwood(P) v. Walker(D) D agreed to sell P a certain cow, Rose 2nd of Aberlone for $850D believed the cow to be barren while P believed the cow might be able to bear a calfD discovered the cow was pregnant and refused to deliver the cow to P ISSUE: Does a mutual mistake of a material, underlying fact afford a basis for rescission of a contract for the sale of personal property? YES RULE: Where the thing actually delivered or received is different in substance from the thing bargained for and intended to be sold, there is no contractmutual mistake must be as to some material fact AND affect the substance of the whole consideration Nester(P) v. Michigan Land & Iron Co.(D) P and D negotiated for purchase of pine landP was granted an option to purchase timber on the lands for $35,000 to which the parties later agreed on a price of $27,000P made only one payment of $6,750 but cut and carried away all the pine and sought to compel D to accept half the purchase price on basis that both parties were mutually mistaken as to the quality of the timber ISSUE: May a party seek to modify an agreement based on mutual mistake as to the quantity or quality of the goods being exchanged, absent a guaranty in the contracts provisions assuring their acceptability? NO RULE: Virtually impossible to ascertain the quality and quantity of timber to be harvestedD made no representations or assurances as to the quality and P made an independent examination of the goods

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Wood(P) v. Boynton(D) D purchased an uncut stone from P for $1; neither party realized the stone was a diamond worth $700 ISSUE: Where both parties to a sale are mistaken as to the nature and value of the article sold, but the thing sold was the same thing as the thing delivered, and the vendee has committed no fraud, may the vendor rescind the sale? NO RULE: In the absence of fraud or warranty, the value of the property sold, as compared with the price paid, is no ground for a rescission of a sale. Lenawee County Board of Health(P) v. Messerly(D) Pickleses sought rescission of a land sale contract they had entered into with Messerly(D) following the condemnation of the property by P ISSUE: Where both parties to a contract are mutually mistaken as to a basic supposition upon which the agreement was predicated, thereby affecting the parties obligations pursuant to the contract, may the court grant the equitable remedy of rescission? YES RULE: First, determine whether one or both parties to the contract were mistaken as to a material element of the bargain at the time of formation?...mistake must relate to the essence of the bargain and not merely to the quality of value of the subject mattersold AS IS, and thus the Pickleses accepted all defects known and unknown existing on the property R2C 151. Mistake Defined A mistake is a belief that is not in accord with the facts R2C 152. When Mistake of Both Parties Makes a Contract Voidable
(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. (2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

R2C 154. When a Party Bears the Risk of a Mistake

A party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

R2C 157. Effect of Fault of Party Seeking Relief

A mistaken party's fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation under the rules stated in this Chapter, unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.

R2C 158. Relief Including Restitution

(1) In any case governed by the rules stated in this Chapter, either party may have a claim for relief including restitution under the rules stated in 240 and 376. (2) In any case governed by the rules stated in this Chapter, if those rules together with the rules stated in Chapter 16 will not avoid injustice, the court may grant relief on such terms as justice requires including protection of the parties' reliance interests.

Unilateral Mistake and the Duty to Disclose - To establish a defense of m istake the m istake must b e shared by both partiesmistake by one party is offered as a defense to p erformance o Close relationship b etween unilateral mistake and the defense of misrepresentation Tyra(P) v. Cheney(D) P submitted an oral bid to D to perform roofing and sheet metal work for $4,025P sent D a written bid but omitted an item of value of $963 and sued to recover the amount of the oral estimate ISSUE: Where one party to a contract is unilaterally mistaken as to an essential contract term, and the other party is aware of his error, is the resulting agreement enforceable? NO RULE: Burden is on the proponent of the error to demonstrate by a preponderance of the evidence that the other party knew of the mistake and attempted to take advantage of the error

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WAYNE LAW SPRING 2012 R2C 153. When Mistake of One Party Makes a Contract Voidable

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Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in 154, and (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to know of the mistake or his fault caused the mistake.

Laidlaw(D) v. Organ(P) P purchased tobacco from D after P was informed the War of 1812 had endedP did not disclose this information to D and D later repossessed the tobacco and P sought damages ISSUE: Is one party to an agreement who has exclusive knowledge of extrinsic circumstances that might influence the price of the commodity in question under a duty to disclose such information to the other party? NO RULE: If such knowledge is equally available to both, then no duty to discloseeach party must take care not to say or do anything tending to impose on the other R2C 160. When Action is Equivalent to an Assertion (Concealment)
Action intended or known to be likely to prevent another from learning a fact that is equivalent to an assertion that the fact does not exist

R2C 161. When Non-Disclosure is Equivalent to an Assertion

A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only: (a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material. (b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. (c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part. (d) where the other person is entitled to know the fact because of a relation of trust and confidence between them

Changed Circumstances
- Occur after formation and which might diminish the utility of the contract to one party o (1) unforeseen increases in the costs of performance by one party (impossibility/impracticability) o (2) reductions in the value a party attaches to the performance to be received from the other party (frustration of purposes)

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SUMMARY OF TYPES OF MISTAKES

TYPE MUTUAL MISTAKE DEFINITION A mistake by both parties to a contract concerning a basic assumption of fact on which the contract was based. RESULT The contract is voidable by the adversely affected party if the mistake has a material effect on the contact and the adversely affected party did not bear the risk that the assumption was m istaken. If the non-mistaken party knew o r should have known about the mistake, the contract is voidable if the m istake has a material effect on the contract and the adversely affected party d id not b ear the risk that the assumption was m istaken. Otherwise, the contract is enforceable. The writing is reformed to conform with the oral a greement. No Contract.

UNILATERAL MISTAKE

A mistake by one party to a contract concerning a basic assumption of fact on which the contract was based, usually involving a mechanical k ind of error.

MISTRANSCRIPTION MISUNDERSTANDING

MISTAKE IN TRANSMISSION BY INTERMEDIARY

A mistake by the person writing out the t erms of an oral a greement. A mistake in which both parties to a contract have different but equally reasonable interpretations of expressions creating the contract. A mistake by an intermediary in transmitting the t erms of an offer to the offer.

If the offer knew o r should have known of the m istake, no contract is formed. Otherwise, under the majority v iew, a contract based on the intermediary's t erms is formed.

Impossibility and Impracticability Paradine(P) v. Jane(D) P landlord sought payment of rent which was past due for three yearsD tenant sought to be excused from payment on basis that he had been ousted from possession of the premises by invading army ISSUE: Where a party to a contract agrees to perform certain obligations, is he relieved of his contractual duties by the occurrence of an extraneous event rendering the other partys performance thereunder impossible? NO RULE: Common law rationale was that the D tenant could have provided for such circumstances in his agreement and one party should not bear the entire risk of losscurrent law requires party seeking relief on basis of impossibility to show circumstances were neither foreseen nor reasonably foreseeable Taylor(P) v. Caldwell(D) D lessors and the P lessees entered into a contract for a lease of a music hall for a series of concertsprior to the concerts, the music hall burned down and P brought suit ISSUE: In a contract where performance depends on the ongoing existence of a specific person or chattel, is there an implied condition that the destruction of the subject matter rendering performance impossible may excuse the parties from executing their contractual obligations thereunder? YES RULE: General rule is that parties are liable for performance or damages for breach even when subsequent events render performance impracticable or impossiblebut where circumstances unforeseen to the parties at the time of formation render performance thereunder extremely difficult or impossible AND parties relied on existence of a basic fact essential to its satisfaction, contract subject to an implied condition that parties should be excused from obligations where performance becomes impossible through the fault of neither party

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WAYNE LAW SPRING 2012 R2C 261. Discharge by Supervening Impracticability

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Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. Impracticability means more than impracticality.. A mere change in the degree of diffucutly or expense due to such cases as increased wages, prices of raw materials, or costs of construction, unless well beyond the normal range, does not amount to impracticability.

R2C 263. Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for Performance
If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

UCC 2-613. Casualty to Identified Goods

Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale" term (Section 2324) then (a) if the loss is total the contract is avoided; and (b) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller.

CNA & American Casualty(P) v. Arlyn Phoenix(D) Case involves the death of actor River Phoenix from an overdose of illegal drugs and subsequent issues with two films he had contracted to appear inP paid policyholders for claims after movie productions were delayed or abandoned against D, the actors estate ISSUE: Does the defense of impossibility of performance due to death apply even when the death is the fault of the person obligated to perform the personal services contract? YES RULE: Personal services contracts contain an implied condition that death shall dissolve the contract Transatlantic Financing Corporation(P) v. United States(D) P contracted to carry full cargo of wheat to a safe port in Iranwar between Egypt and Israel broke out and the Suez Canal was later closed due to the conflict which resulted in an increased voyage by 3,000 milesP sought added expense of $43,972 over the contract price ISSUE: Was the contract legally impossible, that is, only able to be done at an excessive and unreasonable cost? NO RULE: When determining impossibility, court must construct condition of performance based on changed circumstances involving (1) a contingency, something unexpected must have occurred (2) the risk of unexpected occurrence must not have been allocated either by agreement or custom (3) occurrence of the contingency must have rendered performance commercially impracticablein this case, the risk was on P and impracticability cannot be based on expense alone UCC 2-615. Excuse by Failure of Presupposed Conditions
Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance: (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable. (c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buy2er.

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5 Types of evidence to consider when interpreting contract terms: 1. Words of the contract 2. Course of negotiations 3. Course of performance UCC 2-208: Where the contract for sale involved repeated occasions for performance by either party any course of performance accepted to acquiesced in without objection shall be relevant to determine the meaning of the agreement. 4. Course of dealing UCC 1-205: A course of dealing is a sequence of pervious conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. 5. Usage of trade. 1-205: A usage of trade is any practice or method for dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.

The Hierarchy 1. 2. 3. 4. Plain Meaning of the Term Course of Performance- conduct of parties within a contract that has repeated occasions for performance. How you acted last week. Course of Dealing. How you worked last year Usage of trade- conduct of outside parties that has such regualirty of observance in place or trade to justify an expectation that it will be observed with respect to the transaction in question

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