contracts outline I by gegeshandong

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									    Consideration
    Defined –Consideration is a legal detriment suffered by the promisee in exchange for
the promisor’s promise.

   Exam tips
   Consideration will manifest itself in one of the following four situations.

       1. promise to make a gift: D promies to make a gift, usually to a relative or
          charity. There’s no consideration supporting D’s promies, so it’s not
          enforceable (unless it falls under one of the exceptions i.e. promissory
          estoppel.)
       2. Promises to pay for past services: D promise to pay for past services which
          P rendered to him. Most commonly, P is a good Samaritan who saves D, an
          unconscious person, who later promises compensation and then reneges.
              a. No compensation reasonably expected: a promise to pay for past
                  services isn’t supported by consideration where the services were
                  performed with no reasonable expectation of compensation. Fact
                  patterns may trick you into thinking that under certain circumstances
                  consideration has in fact been offered. Don’t be fooled if:
                       i. the unconscious person regains consciousness immediately
                          after the rescue and then promises to pay the savior
                      ii. the savior happens to be someone with medical expertise such
                          as a retired doctor.
                     iii. A relative of the party who was saved promises after the fact
                          to pay the savior (still no “bargained for exchange”)
                     iv. the promise to pay is made in writing and/or is promise “in
                          consideration” for services rendered.
                              1. In all four of the above scenarios, there is no
                                  consideration for the promise to pay for the past
                                  services
       3. pre-existing duty: P promises to pay (or perform services) that P is already
          legally obligated to pay/perform – D’s return promise is not supported by
          consideration.
              a. Contract modifications: the most common scenario is a contract
                  modification. Here, you must distinguish between the UCC and non-
                  UCC situation.
                       i. NON UCC: if P merely promises to do what P already
                          promised to do under the contract, and there are no
                          unanticipated circumstances, D’s new promise (eg more
                          money) given in return is not supported by consideration
                              1. Substitute performance by P: but if P changes his
                                  own duty, however slightly, in response to D’s



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                                  promised modification, then D’s counter promise is
                                  supported by consideration.
                             2. Unanticipated circumstances: also, if the modification
                                  is a response to new circumstances unanticipated by
                                  the parties when they made their original deal (a well
                                  driller hits rock and asks for a higher price to finish job)
                                  remember that most modern courts will find that the
                                  modification is binding.
                     ii. UCC: under the UCC, the pre-existing duty rule simply
                         doesn’t apply to the contract-modification scenario – under
                         article 2 “an agreement modifying a contract within [article 2]
                         needs no consideration to be binding”
       4. Settlement of claim: similarly, if a party who has a contractual claim for
          money agrees to take less in a ‘settlement”, the promise to take less is
          supported by consideration, so long as the other party disputed in good faith
          the amount or validity of the claim.
              a. Invalid claims: this is true even if the claim is not valid, so long as
                 the holder of the claim believes in good faith that the claim is valid.

   Elements of consideration

promisee. N. A person who receives a promise.
promisor. N. A person who promises something.

    1. Detriment
          a. The promisee gives up something of value, or circumscribes his liberty in
              some way (i.e. he suffers a legal detriment)
                   i. Could take the form of (1) an immediate act (doing or giving up
                      something), (2) a forbearance (refraining from something), or (3)
                      the partial or complete abandonment of an intangible right.
          b. Detriment could equally be a promise to act, forbear, or abandon a right in
              the future.
                   i. Consideration does not discriminate between the immediate
                      suffering of detriment and a commitment to suffer that detriment at
                      a later time.
          c. Non-economic detriment – even a non-economic detriment will suffice.
          d. Pre existing duty rule: if a party does or promises to do what he is
              already legally obligated to do, or if he forebears or promises to forbear
              from doing something which he is not legally entitled to do, he has not
              incurred a “detriment” for purposes of consideration
    2. Benefit
          a. Simply means that P got what he bargained for. Motive is not a central
              concern. A gain or advantage to the promisor is not a requirement for
              consideration, but if they can be identified, this bolsters the argument that
              he did in fact bargain for the detriment.
    3. Bargained-for-exchange



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         a. Bargain - A bargain is an exchange in which each party views his promise
            or performance as the price of the other's promise, performance or
            promised of performance. As a general rule, a bargain constitutes
            consideration. Each party views what she gives as the price of what she
            gets.
         b. Objective test – it’s not what D understood, but what he has reasonably
            understood. We measure D’s interpretation of P’s words and conduct
            from the perspective of a reasonable person in D’s position.
         c. Existence of condition – even if the person promising to make a gift
            requires the promise to meet certain conditions in order to receive the gift,
            there will still be no consideration if the meeting of the conditions is not
            “really bargained for” by the promisor. (P gives money to D on condition
            D uses it for X. this is not consideration)
                i. Occurrence of condition is of benefit to promisor: but if the
                    promisor imposes a condition, and the occurrence of this condition
                    is of benefit to him, then the bargain element probably will be
                    present.
                        1. Altruistic pleasure not sufficient – but the fact that one who
                             promises to make a gift expects to derive altruistic
                             pleasure, or love and affection, from making the gift is not
                             sufficient to constitute a “bargain”.

    Bargains that are not consideration

    Nominal consideration (transactions that are bargains in form but not in
     substance.)
    Promises to surrender or forbear from asserting a legal claim that is
     unreasonable (or, under some authorities, that is neither reasonable nor held in
     good faith)
    Apparent bargains involving an illusory promise
    Bargain in which one party promises to do only what she is already legally
     obliged to do.

1.   Nominal consideration
    A transaction is said to involve nominal consideration when it has the form of a
     bargain, but not the substance of a bargain, because it is clear that the promisor
     did not view what she got as the price of her promise.

    the courts will generally not consider the adequacy of the consideration. If the
     problem involves nominal consideration, this would be the counter-argument.

        Can take the form of non-monetary bargain.
             Ex. Minister and parishioner both believed the church would never ask
                for the retired ministers sermons, this would be nominal consideration.


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     Don't assume that low monetary value means nominal consideration.

         Schnell v. nell (wife left will to friends and husband. she made contract where
          the promisee's paid 1 cent in consideration for $200, sham contract, nominal
          consideration)
               Rule - A contract will be vitiated (invalidated) for lack of
                 consideration where the consideration given by one party is only
                 nominal and is intended to be so.

     Donative promise (a gift from family or friends. The general rule is that a simple
      donative promise is unenforceable because there is a lack of consideration. )
              No thanks test - You can tell the difference between a mechanical
                 (sham) prereq and a bargain by using the "no thanks test". if the
                 person responds by counter-offer it looks like a bargain, but if they
                 walk away then it looks more like a donative promise.

     Executed gifts: it is only the promise to make a gift, not the actual making of a
      gift that is unenforceable for lack of consideration. Once the promisor makes the
      gift, he cannot rescind it for lack of consideration.

     Dougherty v. Salt (aunt promised boy $$ on note with "value received" printed
      on it. (she liked his smile))
           Rule - Nothing is consideration that is not regarded as such by both
               parties.
                    The note was the voluntary and unenforceable promise of an
                        executory gift.

  2. Illusory Promise / Mutuality of obligation

Exam tips
     Total discretion by one party: when you spot a contract that gives one party
      total discretion on whether to perform, that party’s promise is illusory, because
      the party hasn’t committed to anything. Therefore, the other party isn’t bound
      either.
     KEEP IN MIND THAT CONTRACTS WITH APPARENTLY ILLUSORY
      PROMIES MAY NONETHELESS BE WHOLLY OR PARTLY
      ENFORCEABLE. SOME SITUATIOINS TO WATCH FOR.
           A divisible contract: if there is a long-term agreement in which the
              seller’s promise is illusory, but the buyer places individual orders, the
              seller’s promise will be interpreted as an offer for a series of unilateral
              contracts, and each order will be an acceptance of a unilateral contract
              (which the seller is then bound to fill)




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              An implied promise by a party: in certain circumstances a promise
               may be implied, thus making that party’s duty not illusory.
               1. Exclusive distributorships: where buyer has exclusive rights to
                  distribute (resell) seller’s product, buyer has an implied duty to use
                  her reasonable efforts to sell the product. This implied duty will
                  furnish consideration for seller’s return duty to sell to buyer.
               2. Requirements contracts: similarly, in a requirements contract,
                  buyer’s promise of exclusivity supplies consideration for seller’s
                  return promise to supply buyer. (good faith requirements needed)
                                  a. A requirement contract is one in which the
                                       term of quantity to be delivered is measured by
                                       the needs of the buyer. In such contracts, the
                                       buyer is not permitted to buy from a third-party
                                       supplier; the seller must deliver the required
                                       amount of product to the buyer but any excess
                                       produced may be sold to third parties.
                                  b. An output contract measures the contract
                                       quantity by the output of the seller. The seller is
                                       not permitted to sell any of its products to a third
                                       party; the buyer must purchase all of the seller's
                                       output but may purchase from third party
                                       suppliers any excess it needs beyond the seller's
                                       output.
               3. Personal satisfaction of party: look for a contract where a party’s
                  duty to pay arises only if he’s personally satisfied with the work done
                  by the other party. His promise to pay isn’t illusory because of the
                  requirement that dissatisfaction, if it occurs, be in good faith.
               4. Notice of cancellation: lastly, if a party can cancel the contract at any
                  time, but only on some period of notice, the obligation to give the
                  notice (and to perform or be bound till then) supplies consideration for
                  the other party’s promise.

   Illusory Elements to consider:
           a. Can one side terminate its contract at any time?
           b. Can one get out of performing without cost?
           c. Is one side not committing?

    Illusory promise test -
    yes must be answered to #2 and #3 to establish illusory promise.

   Are there mutual promises? (is it bilateral? If not don’t go on)
    1. Can one person get out of performing?
    2. If yes, can they get out with no cost (if on test analyze cost for a sentence or two)




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    Illusory promise defined –
        A statement, which appears to be promising something, but which in fact, does
        not commit the promisor to do anything.

Comparison: A real promise is a commitment that limits one's future options as a
compared to one's options immediately before the promise was made. An illusory
promise does not limit one's future options. Rather, an illusory promise is an apparent
commitment that actually leaves a 'free way' out.

       Common illusory promises
          Promise to "do if I want to"
          Right to terminate without notice

Right to terminate: if the contract allows one or both parties to terminate the
agreement at his option, this right of termination might make the promise illusory and the
contract therefore unenforceable.

   Unfettered right may be consideration: if the agreement allows one party to
    terminate simply by giving notice at any time, the traditional common law view is
    that the party with the termination right has not furnished consideration. But the
    modern trend is to hold that as long as the terminating party has the obligation to give
    notice (even if this obligation is an implied one) this duty of notice itself furnishes
    consideration.

       o   Scott v. Moragues lumber co. (1918)(A promised B to transport wood if he
           bought a boat, he bought boat and didn't transport)
              Rule - a contract is NOT void at its inception for lack of mutuality of
                 obligation if one party conditions his promise upon the occurrence of an
                 event solely within his control

       o   Wicham and Burton coal co. v. farmers' lumber co. (1920)(coal and lumber
           co agreement the coal agreed to provide all of the coal that the lumber co
           should want to purchase at a specified price) (“such coal as I may wish to
           order from you”) the word need is important because they limited their
           options
              Rule - A contract to sell personal property is void for want of mutuality
                if the quantity to be delivered is conditioned entirely on the will, wish, or
                want of the buyer.

       o   Lidner v. mid-continent petrol corp (1952) (lease dispute between the parties
           began when the lessees removed the lessor's advertising from its filling station
           and began purchasing fuel from other suppliers)
              Rule - mutuality does not require mirrored privileges in a lease. It is
                enough that the duty unconditionally undertaken by each party be
                regarded by the law as a sufficient consideration for the other's promise.




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        Wood v. Lucy, Lady Duff-Gordon (1917)(fashion designer made exclusive deal
        with marketer and broke it by selling clothes on the side) good faith effort to sell
        clothes
           . Rule - While an express promise may be lacking, the whole writing may be
              instinct with an obligation - an implied promise - imperfectly expressed so
              as to form a valid contract.



4. Duty to perform / PREEXISITING Legal duty
       Rule – the performance of, or promise to perform, a pre-existing duty is not
        consideration.

       Pre existing duty rule: if a party does or promises to do what he is already
        legally obligated to do, or if he forebears or promises to forbear from doing
        something which he is not legally entitled to do, he has not incurred a
        “detriment” for purposes of consideration

       Official duty - performance of an official duty is not consideration.

        Agreement to accept part payment of debt: some courts apply the pre-existing
         duty rule to render unenforceable a creditor’s promise not to require the
         payment by his debtor of full debt. Foakes v. Beer Rule


Exceptions

    Exam tips (modification)

UCC: a modification of a contract for goods is enforceable even if it isn’t supported by
consideration
     Look for a one-sided change in terms of a sales agreement – even though the
        change benefits only one party, it’s still enforceable.
     Watch out for the following traps
            o A modification of an agreement for services. Such a modification must
               normally be supported by consideration, and modification in which only
               one party’s duty changes (and there are no unanticipated circumstances)
               does not qualify.
            o A modified agreement violates the statute of frauds (ie the sales price is
               greater than $500 and the modification is not in writing) the modified
               contract will be unenforceable, not because of consideration problems but
               because of the lack of a writing reflecting the change.




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Modification (consideration needed for service K’s) (littlest things can be
modifications!!)
        Exam tip: on a modification for services, argue pre-existing legal duty
        a contract within the original contract (common practice in construction
           contracts)
        Only needs to be a slight variation from the original contract to have
           consideration. Ex. Price of goods go up, different construction materials
        If the modification is coerced, the court can employ the pre-existing duty rule.

Valid modifications
        One’s not the result of economic duress
        Oral modifications (limited by statute of frauds)
        fair and equitable modification in light of unanticipated circumstances
              must be good faith (Rest.89)
        Modification of contract for the sale of goods- no consideration needed
               UCC 2.209 good faith required (modifying for Sale of goods is binding
               without consideration) look out for statute of frauds violations.

Waiver

          A party who owes a conditional duty may indicate that he will not insist upon the
           occurrence of the condition before performing. A court will often take the party at
           his word, and enforce that party’s willingness to forego the benefit of the
           condition. In this event, the party is said to have waived the condition.
          Right to damages lost: when a party continues his own performance after breach,
           or otherwise waives a condition, he has not necessarily lost his right to recover
           damages for breach of the condition.

          Enforceable without consideration if
                 Waived condition is not a material part of the contract

       o   Rule - S. 84 - waiver and modification restatement

       o   Difference between a modification and a condition waiver - A owes B $150 a
            month. A Condition is to mail the money, he can bring it by if need be (waive),
            a modification would be to change the $150 to $200.
                    A buys a fridge for $2500, with delivery, from B.
                         1. A modification would be "I will come pick it up myself if you
                            drop the price $250” a condition would be "I will just pick it
                            up"

          Foakes v. Beer (P made new financial pay back agreement with no interest and
           monthly payments, but initial contract was enforced and not this new one)
           iv. Rule - The court cannot pass on the adequacy of the consideration , and if
               any consideration is present, it is sufficient to support the contract (there was
               no new consideration on the new K).



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         Ingenfelder v. wainwright brewery (1891) (D building X, but P got refrig from
         another Co. and D decided not to finish project unless P got frig from him)
            o Rule - A new employment contract made to keep an employee from
                quitting in the middle of a job he has contracted to complete is not
                supported by consideration.

        Consideration can be established if there is a reliance on the chance to perform
         satisfactorily. Did B Bargain for a chance to perform??!!



Past performance (consideration)
        Traditional Rule - a promise based on moral or past performance is simply a
         donative promise and therefore, unenforceable. (Wyman)

        Modern rule - if promise is based on material benefit (usually meaning economic
         benefit) and if this benefit gave rise to an obligation it is enforceable (McGowin)

     *   If a person makes a promise to compensate another for some prior
         performance, that prior detriment cannot be consideration for the promise.

     o   3 exceptions to the traditional rule

         Promise to pay barred by The statute of limitations
               o A had contract with B and SOL ran out (unenforceable) HOWEVER,
                   A promised B to pay $ after SOL ran out there is consideration

         Promise to perform voidable obligation (infancy, fraud)
                   o A promises B (16 YO) to pay him $ (unenforceable) HOWEVER,
                      A promises B (now an 18 year old) to pay (enforceable)

         Bankruptcy (A promised B to pay debt after Bankruptcy)
                    A had contract with B but files for bankruptcy (unenforceable)
                     HOWEVER if after bankruptcy A promises to pay B there is
                     consideration.

o Mills v. Wyman (1825) (woman took care of man's crazy (dead) son father promised
  to pay bill)
          o Rule - A moral obligation is insufficient as consideration for a promise.

o   Webb v. McGowin (1935) (D saves P. P promises to pay him for the rest of his life)
           o Rule - A moral obligation is a sufficient consideration to support a
              subsequent promise to pay where the promisor has received a material
              benefit.



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Reliance / promissory estoppel / donative promise
Exam tips
        Intra-family promises: when one family member promises something to the
         other, the latter may materially change this position in reliance, making the
         promise enforceable under PE
        Oral promise to convey land: an oral promise to convey land may become
         enforceable by the promisee’s reliance. (eg the promisee gives up a job and moves
         on to the property, plus improves it.
        Promise of pension: if an employer promies an employee a pension that is
         effective as soon as the employee should decide to retire, the promise will be
         enforceable if an only if employee relies on it in some objective way.
        Sub-contractor’s bid: if a subcontractor’s bid is relied upon by the general
         contractor when he submits his overall bid to the customer, the subcontractor is
         promissorily estopped from revoking the bid for the time necessary for the general
         contractor to receive the job and accept the subcontractor’s bid.
        Some courts find that promissory estoppell is a consideration substitute and will
         enforce the K as having consideration despite reliance. Argue this for extra point.
        Remember to argue the equitable aspect of this doctrine. Meaning, mention the
         balancing function of equity and analyze who would be more served by justice.

    Elements of promissory estoppel.
         o   To prove reliance you must prove:
                 A promise was made.
                 The person who makes the promise should reasonably expect the
                  promise to induce action or forbearance by the promisee.
                 And the promisor must have induced justifiable action or forbearance by
                  the promisee to the promisee’s detriment
                 The promise is binding if injustice can be avoided only by it’s
                  enforcement.

You must prove that:
     1. Actual reliance: the promisee must actually rely on the promise
     2. Foreseeable reliance: the promisee's reliance must also have been reasonably
     foreseeable to the promisor.

    Reliance damages only to prevent "injustice".

    Restatement definition
      o A promise which the promisor should reasonably expect to induce action or
          forbearance on the part of the promisee or a third person and which does
          induce such action or forbearance is binding if injustice can be avoided only
          be enforcement of the promise"



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       Possible applications of PE doctrine

          Promise to make a gift
                     The PE doctrine is most often applied to enforce promises to make
                      gifts, where the promisee relies on the gift to his detriment.
         o Charitable subscriptions
                   A promise to make a charitable contribution will generally be
                      binding without consideration, under the PE doctrine.
         o Promise of an "at-will" job
                   If an employer promises an at-will job to an employee, and then
                      revokes the promise before the employee shows up for work, PE
                      may apply.

         Possible applications for PE doctrine in commercial promises

              o A promise made for good consideration is not enforceable because of
                noncompliance with legal formality such as the statute of frauds.
              o PE may be used to hold a party to a promise made during negotiations
                for an abortive contract.
              o PE may afford relief for reliance on a promise that falls short of becoming
                contractual because of some defect or omission in the agreement
                formed by the parties (ex: fatal vagueness, escape clause that negates
                commitment, yet there is enough of a commitment to justify reliance

         o Kirksey v. kirksey (Traditional approach) (B. in law asked sister to move over
           to his land to live where she can raise her family, she had to move to get there.
           He kicked her out)
              Rule- To be legally enforceable, an executory promise must be supported
                 by sufficient, bargained for consideration. (A contract that has been fully
                 performed by one party but not by the other party is classified as an
                 executory contract)

         o   Feinberg v. Pfeiffer Co. (modern approach) (woman relied on her pension
             when she retired)
               Rule- Under the doctrine of promissory estoppel, as stated in Section 90
                  of the restatement of contracts "A promise which the promisor should
                  reasonably expect to induce action or forbearance of a definite and
                  substantial character on the part of the promisee and which does induce
                  such action or forbearance is binding if injustice can be avoided only by
                  enforcement of the promise." and it is not necessary that such a promise
                  be given for consideration to be enforceable.

         o   Walters v. Marathon oil co (gas station, they were awarded $$ based on profits
             they would have made if the promisor followed through)




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               Rule - it was reasonable to assume that they anticipated a return of profits
                from the investment of time and funds that they made in reliance on
                appellant's promise to supply them with gasoline and that they
                relinquished the opportunity to make an alternate investment.

       o   Hayes v. plantation steel co. (man who was ready to retire was told he would
           get a pension. Different from feinberg bc the pension didn't shape his idea to
           retire.)
              Rule-there was no consideration (voluntary employee/retirement and for
                 past work)and this case was not a case for promissory estoppel (no
                 reliance upon promise)

      Grouse v. Group health plan inc.(A was told by B that he got the job, A relied on
promise and B didn't fulfill) detrimental reliance
                  Rule - One resigning employment in reliance on a job offer may
                      recover damages if the offer is withdrawn.
                              To some extent, you may be able to rely on a chance to
                               perform satisfactorily.

       Hamer v. sidway (uncle to pay him if he quit smoking)
        Rule-Forbearance (of a legal right) is valuable/sufficient consideration.(Any
         damage, or suspension, or forbearance of a right is sufficient to sustain a
         promise.)
              ARGUMENT FOR THE OTHER SIDE - unless the promisor has
              benefited, the contract was without consideration.


UNCONSCIONABILTY
       Different than duress which is applicable when contract is induce by threat.

      Exam tip - when deciding whether a contract is unconscionable, remember that
unconscionable ability must exist at the time the contract was made.

       Equal value not required, BUT gross disparity can be used as evidence of no
consideration that would lead to unconscionability.

      As long as a legal detriment has been suffered in exchange for the promise, the
       court does not inquire into its value in relation to the promise.

Test to determine unconscionability

   o   For relief to be granted on grounds of unconcionability, the transaction must
       exhibit both (1) bargaining unfairness (referred to as procedural



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         unconscionability) AND (2) resulting unfair or oppressive terms (called
         substantive unconscionability)

o   "Meaningfulness of the choice" (procedural unconscionability)
        This occurs where one party is induced to enter the contract without having any
        meaningful choice.
        Here are some possible types:
             • Inconspicuous print in the writing
             • unintelligible legal language
             • Lack of opportunity to read the contract or seek clarification of terms
             • Illiteracy
             • Imbalanced bargaining positions (such as in adhesion contracts)

     o   One-sided nature (substantive unconscionability)
                Occurs when the clause or contract itself (rather than the process used to
             arrive at the contract) is unduly unfair and one-sided.
                  Excessive price: an important example of substantive unconscionablity
                   is where the seller charges an excessive price. An excessive price
                   clause only comes about when there is also some sort of procedural
                   unconscionability, since otherwise the consumer will usually simply
                   find a cheaper supplier.

     o Contract is unconscionable if there is:

         o there is a lot of procedural unconscionable (so no meaningful choice) and
         o substantive unconscionable so they got a bad deal, or combination of both
         o If bad substantive unconscionable there may be some procedural
           unconscionable

     o   Remedies for unconscionability

             Refusal to enforce clause
             Reformation (aka novation)
             Refusal to enforce entire contract

         Predominant factor test to decide if good or service.
         if for goods use the UCC, if for services use Restatement.

         Differences between the UCC and restatement rule of unconcscionability

         Restatement 208
           You evaluate unconscionability at the time the contract is made
           If unconscionable, they can refuse to enforce it or refuse to enforce one term
             or they can limit the contract

     o   UCC 2-302


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           Evaluated at the time it was made (same as above)
           If unconscionable, same as above
           Main difference - If the court is going to find the cont unconscionable, it
            must provide the opportunity to each party to present evidence of
            unconscionable of commercial setting, purpose, and effect. (stronger
            indication to allow each party a chance to explain their reasons for the
            contract)

   Novation - you may be able to rewrite an unconscionable contract and have it be
    binding, but it must be on different terms.

      o    Batsakis v demotsis (nazi occupied greece. $25 for $2000 contract was made)
           Equal value not required.)
             Rule-Mere inadequacy of consideration will not void a contract. The
               totality of circumstances need to be taken into consideration.

      o    Maxwell v. Fidelity Financial Services inc (1995)(solar water heater, loans
           etc)
             Rule - A claim of unconscionability CAN be established with a showing
                of substantive unconscionability alone

      o    Post v. jones (whale ship unfair auction seamen's custom)
             Rule- When the contract is induced by duress, and there is no other
                reasonable alternative, the contract is not enforceable (note: restatement
                S.175.2)

    Limits of Contract

   Court will usually stay out of contracts between married couples (ie. Cleaning
    dishes).

   R.R. v. M.H. (1998)(contract to carry his baby)
      o Rule- Surrogacy contracts are invalid and unenforceable because they conflict
           with statutory law and state public policy.

   In re the marriage of witten (2003)(embryos, divorce)
       o Rule - the court will apply either Contemporaneous mutual consent
           model, Each person must agree wholeheartedly to the action, Contractual
           approach, Contract made originally is enforceable Balancing test Original
           contract is enforced, but any action will be balanced upon the interest of the
           parties




                                                                                            14
Statute of frauds
   Most K’s are valid despite the fact that they are only oral. A few are unenforceable
    unless they are in writing. Contracts that are unenforceable unless in writing are
    said to fall “within the statute of frauds”.

   The over $500 requirement is for goods only, not for services.

   Contracts for the sale of goods: an oral contract for goods at a price of $500 or
    more is unenforceable under the UCC. 2-201(1)
      1. Specially manufactured goods: no writing is required if the goods are to be
          specially manufactured for the buyer, are not suitable for sale to others, and
          the seller has made “either a substantial beginning of their manufacturer or
          commitments for their procurement. 2-201(3)(a)

   Memorandum / letter will suffice for a written agreement (can come at a later time
    (hammer v. sidway case))

   Oral rescission and modification
        Oral rescission: where a contract is in writing, it can be orally rescinded
           even though the original was required to be in writing because of the statute.
           That is, a rescission does not have to satisfy the statute of frauds, in non-
           UCC cases, this is true even if the original written agreement contains a “no
           oral modifications or rescissions” clause.
                Sale of goods: a signed agreement which excludes modification or
                   rescission except by a signed writing cannot be otherwise modified or
                   rescinded. 2-209(2)

              Modification: UCC requires modifications in writing if they are for goods
               over $500.

You need writing when:

             The amount is over $500 (goods only)
                     Exception - unless it is special order and can't be sold to another.
             If the contracts can't be performed in year (services included)
              o Will be enforceable if one side fulfills promise in one year.
             And if the contract is concerning land. (exclude leases)

    Examples of exceptions to the one-year element (does not fall within the statute
    and thus doesn't need to be signed)
     o A promise to take care of another person until she dies
      A promise to pay pension until death
      A promise to service and maintain equipment "as long as you need it"



                                                                                             15
         A promise of "lifetime" employment

Remedies
     Restatement second § 344

      o   Reliance damages (gets you back to where you were before) (promissory
          estoppel) Reliance damages compensate the injured party for expenses or loss
          incurred in reasonable reliance on the contract that was breached. Reliance
          damages are only awarded when expectation damages cannot be proven, and
          may not exceed the anticipated benefit of the bargain.

      o   Expectation - the compensation is the amount required to make the promisee
          whole as if the contract had been performed.

      o   Restitution - the plaintiff's restitution interest is designed as the value to the
          defendant of the plaintiff's performance. Restitutions goal is to prevent
          unjust enrichment

EXPECTATION DAMAGES (if not applicable use reliance or
restitution)
   Defined: expectation damages are the usual measure of damages for breach of
    contract. The court tries to put the plaintiff in the position he would have
    been in had the contract been performed by the defendant. The plaintiff
    should end up with a sum equal to the profit he would have made had the
    contract been completed.

   Sale of houses are unique goods in the flow chart.

   Formula for calculating: P’s expectation damages are equal to the value of D’s
    promised performance (generally the contract price) minus whatever benefits
    P has received from not having to complete his own performance.
           1. Overhead: the plaintiff’s cost of completion (the amount he has saved
               by not having to finish) does not include any pat of is overhead
           2. Cost of completion or decrease in value: where the defendant has
               defectively performed, plaintiff normally can recover the cost of
               remedying defendant’s defective performance. But if the cost of
               remedying defects is clearly disproportionate to the loss in market
               value from the defective performance, plaintiff will only recover the
               loss in market value.
                   a. Economic waste: this principle is often applied where the
                       defect is minor, and remedying it would involve “economic
                       waste” such as the destruction of what has already been
                       done. (plumber installed wrong piping in house, so they won’t


                                                                                               16
                        make him repipe the whole house)

        “reasonable certainty”: the plaintiff may only recover for losses which he
         establishes with reasonable certainty. Mainly, this means that a plaintiff
         who claims that he would have made profits had the defendant not
         breached must show not only that there would have been profits, but also the
         likely amount of those profits.
             1. Profits from a new business: courts are especially reluctant to
                 award lost profits from a new business, that is, a business, which at
                 the time of breach was not yet in actual operation.
             2. Cost of completion unknown: also, the reasonable certainty
                 requirement may fail to be met where the plaintiff cannot show
                 accurately enough what his cost of completion would have been. (if
                 house contractor builds house for 100K and owner repudiates, half
                 way through if the contractor cannot demonstrate what the cost of
                 completion would be he must be content with reliance or restitution
                 damages.

1. Remember to consider Consequential (or special) damages (foreseeability)
   arise from the special facts and circumstances of the case and are not deemed to
   be within the contemplation of the breaching party unless he was made aware of
   such specific facts and circumstances. A party seeking consequential damages
   must demonstrate that the damages were foreseeable at the time the contract
   was formed.

       Hawkins v. McGee (1929) (hairy hand)
         Rule- The purpose of awarding damages for breach of contract is to put the
           plaintiff in as good a position as he would have been in had the defendant kept
           his contract.
              What you would have under contract - what you have now = expectation
                 damages awarded.

United States Naval Inst. v. Charter Communications, Inc., (john grisham book, pub.
Released early)
       Rule-Damages for breach of contract are generally measured by a plaintiff's
          actual cost.
                   Court figured the actual loss through mathematical analysis of
                       what the early publishing cost the company.

Coppola Enters. v. Alfone (P couldn't finance house right away so D sold it to another)
      Rule - where a vendor is unable to perform a prior contract for the sale of the
         lands because of a subsequent sale of the same land, he should be held, to the
         extent of any profit in the subsequent sale, to be a trustee for the prior vendee
         and accountable to such vendee for any profit.
            If A had sell of land contract with B and B sold land to C, A should
               get all profits of B's sale to C.


                                                                                         17
Limitations on expectation damages

Foreseeable consequences and certainty of damages/lost profits
Would we have known? Would we have guessed?

       Hadley v. baxendale says that courts will not award consequential damages
for breach unless the damages fall into one of two classes

        1. Arise naturally: the damages were foreseeable by any reasonable person,
        regardless of whether the defendant actually foresaw them: or
                If there is an extreme disproportionate value between the item and
                   the damages, then a court will not enforce the Foreseeability rule.
        2.Remote, unusual, or special consequences: the damages were remote,
        unusual, or special, but only if the defendant had actual notice of the possibility
        of these consequences.

       Foreseeability will be measured as of the time the contract was made.

Parties may allocate the risks themselves: the rule of hadley may always be modified
by express agreement of the parties.

   Hadley v. Baxendale (the only axle broke, they didn't communicate it)
        Rule - The injured party may recover those damages as may reasonably be
          considered arising naturally from the breach itself and, second, may recover
          those damages as may reasonably be supposed to have been in contemplation
          of the parties, at the time they made the contract, as the probable result of a
          breach of it.
          o Look specifically to the facts on whether it is reasonable or not. Argue for
               both broad and narrow contract arguments.
          o If there is a disparate amount between (1)the item and the subsequent
               breach and (2)the damage, then courts will usually not enforce it.

Certainty (lost profits analysis)
   how many and how much?

o   to recover damages they need to be able to reasonably calculated, if they can’t be
     reasonably calculated then they are considered speculative and not recoverable

   Apply certainty with consequential damages analysis.




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        existing business: profits for an existing business generally are not treated as
         speculative and are recoverable, since future profits can generally be estimated from
         past profits

        new business rule: if the result of a breach is to prevent the nonbreaching party from
         setting up a new business, the courts in the past were reluctant to award lost profits on
         the theory the profits of a new business are inherently speculative. Today, the
         tendency is to examine each case on its own merits and to allow recovery of lost
         profits even in the case of a new business if the profits can be determined with
         reasonable certainty – for example, by comparison with similar businesses in the
         community.

o       When there is a lot of uncertainty about damages, you can ask for reliance damages.

o       Kenford Co. v. County of Erie (counties litigate over stadium)
               Rule - To establish loss of future profits as damages for breach of contract, a
              party must demonstrate with certainty that such damages have been caused by
              the breach, and the alleged loss must be capable of proof with reasonable
              certainty.
                 the damages may not be merely speculative, possible or imaginary, but
                    must be reasonably certain and directly traceable to the breach, not remote
                    or the result of other intervening causes.

    Duty to Mitigate / Cover (services and goods)

          Exam tips
                o look for a terminated employee, who fails to make reasonable efforts to
                  find a suitable replacement job.
                o Look for a disappointed buyer or recipient of services.

         an injured party is not able to recover damages that could have been avoided by
          reasonable efforts

               Mitigating contracts for sale of goods-
                    Buyer: if a seller fails to deliver the buyer has a right to cover; if the
                       buyer fails to cover intentionally she will be barred from recovering
                       consequential damages that she would have prevented by covering.
                       Conversely,
                    Seller: if the buyer repudiates a contract the contract prior to delivery
                       the seller has the duty to mitigate the potential damages incurred in
                       freight, storage, delivery costs as much as possible.
                            **If the goods are still being manufactured the time if
                               repudiation then the seller must stop manufacture at the time
                               cancelled, unless finishing would further resale possibilities



                                                                                               19
    o Mitigation in employment contract- if an employer wrongfully terminates an
      employee then the employee is under the duty to mitigate by searching for a
      comparable job (does not have to take a lesser job)

        Mitigation in Construction/ Service contracts- a contractor is under a duty
         to not increase the owner’s damages after they cancel a contract (Rockingham
         v. Luten Bridge, Co.) But, a construction firm is not under a duty to find
         another construction job, and if the construction firm does find another job,
         this will normally not lessen their award because it is more than likely that
         they would have taken on this new work anyway.

        Losses incurred in avoiding damages: if the aggrieved party tries to mitigate
         his damages, and incurs losses or expenses in doing so, he may recover
         damages for these losses or expenses. As long as plaintiff acted reasonably
         in trying to mitigate, it does not matter whether his attempt was successful.

    o Rockingham County v. Luten Bridge Co. (county approved building of bridge
      and the breached contract, P kept working)
         Rule - When notice of cancellation is received while a contract is still
           executory, the party cannot complete it and claim the contract. If the
           party can mitigate damages, then they should.

    o Parker v. Twentieth Century-Fox Film Corp (employer breached actress didn't
      take other part, no need to mitiagate not comparable work)
         Rule - The general measure of recovery by a wrongfully discharged
            employee is the amount of salary agreed upon for the period of service
            less the amount which the employer affirmatively proves the employee
            has earned or, with reasonable effort, might have earned from other
            employment. the employer must show that the other employment was
            comparable, or substantially similar, to that of which the employee has
            been deprived; the employee's rejection of or failure to seek other
            available employment of a different or inferior kind may not be resorted
            to in order to mitigate damages.
               An employer must hire someone who may be inferior or not
                  comparable to the prior employee (must meet minimum standard
                  for the job). The rule above is for employees only,

Equitable remedies (specific performance / injunction)
Exam tips
        Specific performance is the most important equitable remedy for test
         purposes. when reading a fact pattern, remember that the most important
         issue is whether money damages would be adequate to protect the injured
         party
             o Unique good: look for a rare or unusual object that’s the subject of
                 the contract – money damages are less likely to be adequate, because


                                                                                    20
                exact substitutes can’t be found (examples – antique car unusual ring,
                work of art)
              o Speculative damages: look for case where damages would be hard
                to measure. This is especially likely where the contract involves a
                new business or new product.
              o Land contract: in a straight contract for the sale of land in return for
                money, specific performance will normally be granted to the buyer,
                because courts consider each piece of land to be unique, so that the
                buyer can’t adequately be compensated by a money-damage award.
                     if the suit is brought by the seller (ie it’s the buyer who refuses
                        to close), not in your answer the possibility of several
                        outcomes:
                                a. some states allow specific performance to be
                                    ordered on behalf of the seller
                                b. of those who don’t, some permit the seller to collect
                                    only the out of pocket expenses incurred in making
                                    the arrangement. Others permit the seller to recover
                                    only the difference between the contract price and
                                    the market price, which is often zero.
               Employment contract: an employment contract is not usually
                enforceable on either side by specific performance.
               Liquidated damages available: remember the majority rule that the
                existence of a liquidated damages award does not bar the remedy of
                specific performance.

      Specific performance
            A Decree for specific performance orders the promisor to render the
               promised performance.
                  Can be gotten when (1) damages are inadequate and (2) there isn't a
                     great deal of babysitting required. (exception public policy)
                  The non-breaching parties can elect to get money damages instead
                     of specific performance.

Injunction:
    An injunction directs a party to refrain from doing a particular act.

*Element test* Limitations on remedies (specific performance / injunction)

       1. Inadequacy of damages
             Equitable relief for breach of contract will not be granted unless damages
               are not adequate to protect the injured party. Two reasons why
               damages might not be adequate in a contracts case are (1) because the
               injury cannot be estimated with sufficient certainty, (2) because money
               cannot purchase a substitute for the contracted-for performance (Ex of
               #2, each piece of land is unique…)
             AND (turn page)



                                                                                      21
       2.Difficulty of enforcement (babysitting)
           The court will not grant equitable relief where there are likely to be
               significant difficulties in enforcing and supervising the order.
               This element is by the discretion of the court if the public welfare/interest
               is affected by the contract (Laclede gas case)

Land-sale contracts
        The most common situation for specific performance is where defendant
           breaches a contract under which he is to convey a particular piece of land to
           the plaintiff
Breach by buyer
       Courts also often grant specific performance of a land-sale contract where the
          seller has not yet conveyed, and it is the buyer who breaches.
Breach by seller
       Courts can give money damages if the buyer demonstrates and calculates
          damages specifically, but otherwise the buyer can get specific enforcement.

Personal services contracts (employee/employer)
       No specific performance
            Courts almost never order specific performance of a contract for
               personal services. This is true on both sides: the court will not order the
               employer to resume the employment nor will it order the employee to
               perform the services.
       Injunction
            But where employee under an employment contract breaches, the court
               may be willing to grant an injunction preventing him from working for a
               competitor. The employer must show that (1) the employee's services are
               unique or extraordinary; and (2) the likely result will not be to leave
               the employee without other reasonable means of making a living.

Sale of goods
         Specific performance will sometimes be granted in contracts involving sale of
           goods. This is especially likely in the case of output and requirements
           contracts, where the item is not in ready supply.

          London Bucket Co. v. Stewart (furnace installed incorrectly, P wanted specific
           performance)
             Rule - Specific performance of a contract will not be decreed unless the
                ordinary common-law remedy of damages for breach would afford
                inadequate and incomplete relief.
                   Contracts for building construction will not be specifically enforced
                     because ordinarily damages are an adequate remedy and, in part,
                     because of the incapacity of the trial court to superintend the
                     performance.




                                                                                           22
         Laclede Gas Co. v. Amoco Oil Co. (gas company breached serving gas to
          community, public policy)
            Rule - While specific performance will not be ordered when the party
              claiming breach of contract has an adequate remedy at law, a remedy at
              law adequate to defeat the grant of specific performance must be as
              certain, prompt, complete, and efficient to attain the ends of justice as a
              decree of specific performance.


Reliance damages (when expectation damages are uncertain)

   Exam tip: reliance damages come into play when expectation damages would not
    adequately compensate the plaintiff, or where there is no enforceable contract, but
    plaintiff is entitled to some protection anyway. Most commonly, reliance damages
    generally appear on exams in questions involving promissory estoppel.
        Pay attention to what you would have gotten (next best option) if you didn’t
           rely on the contract (construction bid hypo).

   Reliance damages are the damages needed to put the plaintiff in the position he
    would have been in had the contract never been made. Therefore, these damages
    usually equal the amount the plaintiff has spent in performing or preparing to
    perform. They are used either where there is a contract but expectation damages
    cannot be accurately calculated, or where there is no contract but some relief is
    justifiable. The main situations where reliance damages are rewarded are:
        Profit too speculative
             Where expectation damages cannot be computed because plaintiff's
                lost profits are too speculative or uncertain.
                   At a minimum you can expect to break even, but you can
                      always challenge that.
      o Vendee in land contract
             Where the plaintiff is the vendee under a land contract, and the
                defendant fails to convey. Some states do not allow expectation
                damages, in this situation, so plaintiff can recover his reliance damages.
      o Promissory estoppel
             Where the plaintiff successfully brings an action based on promissory
                estoppel. Here the suit is usually not truly on the contract, but is rather
                in quasi-contract. The court is trying to reduce injustice, so it gives
                plaintiff a half way measure, less than expectation damages, but better
                than nothing.

Limits on reliance recovery

      o   Contract price as limit
            Where D's only obligation under the contract is to pay a sum of money
              (the contract price), reliance damages will almost always be limited to
              this contract price.


                                                                                        23
         o   Recovery limited to profits
               Also, most courts do not allow reliance damages to exceed expectation
                 damages, however, the defendant has to bear the burden of proving
                 what plaintiff's profit or loss would have been.
                    Subtract amount of loss
                          Another way to express this idea is that there will be,
                            subtracted from plaintiffs reliance recovery, the amount of
                            the loss which defendant shows plaintiff would have suffered
                            had the contract been performed.

         o   Expenditures prior to signing
               The plaintiff will not normally be permitted to recover as reliance
                 damages expenditures made before the contract was signed, since these
                 expenditures were not made in reliance on the contract.

         o   Cost to plaintiff, not value to defendant
               When reliance damages are awarded, they are usually calculated
                  according to the cost to the plaintiff of his performance, not the value to
                  the defendant.

         o   Security Store & Mfg. Co. v. American R. E. Co. (carrier didn't ship all items,
             P couldn't show his stove)
                Rule - Where a carrier has notice that a delay will cause a shipper an
                  unusual loss, and where the notice was such that the carrier will be
                  presumed to have contracted with reference thereto, he is responsible for
                  the actual damages occasioned by his delay.

Restitution damages
       Not available if you are doing expectation damages.

       Generally: the plaintiff's restitution interest is defined as the value to the defendant
        of the plaintiff's performance. Restitution's goal is to prevent unjust enrichment.

         o   When used
             o the main uses of the restitution measure are as follows: (1) a non-
                breaching plaintiff who has partly performed (plus conferred benefit)
                before the other party breached may bring suit on the contract, and not be
                limited by the contract price (as she would be for the expectation and
                reliance measures); and (2) (no valid K) a breaching plaintiff who has not
                substantially performed may bring a quasi-contract suit and recover the
                value that she conferred upon the defendant.

         Market value



                                                                                             24
               o   restitution is based on the value rendered to the defendant, regardless of
                   how much the conferring of that value costs the plaintiff and regardless of
                   how much the plaintiff was injured by the defendant's breach. This value
                   is usually the sum which the defendant would have to pay to acquire the
                   plaintiff's performance, not the subjective value to the defendant.

        Not limited to contract price: the main use of the restitution measure is that, in
         most courts, it is not limited by the contract price. If the work done by P prior to
         D's breach has already enriched D in an amount greater than the contract price, this
         entire enrichment may be recovered by P. This makes restitution sometimes very
         attractive, compared with both reliance and expectation measures.
                o Not available where the plaintiff has fully performed: if at the time of
                    D's breach, P has fully performed the contract (and D only owes money,
                    not some other kind of performance) most courts do not allow P to
                    recover restitution damages.

        Losing contract
          o Restitution may even be awarded where P has partly performed, and would
              have lost money had the contract been completed.


Breach of services
    breach by owner / buyer of services
       Breach by Owner-if the owner (buyer) commits a breach of a construction contract,
        the contractor is entitled to recover the contract price minus the out of pocket costs to
        be incurred by contractor to complete the job at the time of the breach, with an offset
        for the amounts already paid out to the contractor

           o   Aiello Constr. v. Nationwide Tractor Trailer Training & Placement
               (constructing big gravel pit for trucking co.)
                  Rule- A builder in a construction contract may recover damages for
                     breach measured by the builders expenditures to the date of the breach,
                     less the value of material on hand, plus the profit that the builder proves
                     with reasonable certainty that he would have realized from full
                     performance.
                        damages = K price - cost of completion - amounts already paid


Breach by contractor / performer (abandonment and Defect)
o       Include consequential and incidental damages for abandonment.

       abandonment
o       Cost to completion / Cost of performance / (used in abandonment)



                                                                                               25
               Cost of performance - If the contractor commits a material breach, the owner
                can usually recover damages based on the difference between the contract price
                and the cost of completing contract by contracting with substitute contractor.
                        Damages = cost of completion -amount owed under K

                if cost of completion >> market value and there is no unique/provable
                 value then use the MKT value
                                 (e.g. a house built with the wrong door knobs, or a faulty
                                    built stairwell)
                                 i.e. painting of personal portrait for someone mkt value
                                    would not be sufficient.

    Louise Caroline Nursing Home, Inc. v. Dix Constr. Corp (nursing home not built)
        . Rule - The proper measure of damages for breach of a construction contract is
           the amount of the reasonable cost of completing the contract and repairing the
           defective performance less such part of the contract price.
             1. Policy rule - we don't award damages that put the plaintiff in a better
                position.

Defect
o Diminished value (used in defect) (Market Value)
      where the economic benefit which would result by full performance is 'grossly
       disproportionate; to (i.e. much less than) the cost of performance, damages are
       limited to the 'diminution in value' to the premises because of
       nonperformance.
          the value of what the owner would have received if the contractor had
             performed the contract in full minus the value of what the owner actually
             received.
                Damages = MKT value

        o   Peevyhouse v. Garland Coal & Mining Co (coal market value damages)
               Rule - The measure of damages for breach of a contract obligation to
                  perform construction or excavation work is usually the reasonable "cost of
                  performance" of such work; but where the economic benefit which would
                  result by full performance is 'grossly disproportionate; to (i.e. much less
                  than) the cost of performance, damages are limited to the 'diminution in
                  value' to the premises because of nonperformance.

Breach of Goods

Exam tips
    o Buyers damages:
          Standard “contract/market” differential: if a buyer returns defective
            goods (or fails to receive any shipment of goods from the seller) and doesn’t


                                                                                               26
          purchase replacement goods elsewhere, she is entitled to the difference
          between the contract price and the market price at the time of breach.
       Cover: if a buyer returns defective goods )or fails to receive any shipment
          of goods from the seller) and purchases them elsewhere, she is entitled to
          the difference between the contract price and the cover price.
                The buyer’s cover price paid by the buyer must be reasonable In
                   the circumstances. Look at the buyers’ attempts to find a good price
                   (or at least to verify the true “market price”) if these are absent,
                   discuss the possibility that the buyer may have behaved unreasonably
                   and should be denied the full contract/cover differential.
       Remember that if the market price (or the cover price) and the contract price
          are the same, there are no damages to collect, except consequential or
          incidental ones.
       Breach of warranty: if a buyer accepts defective goods the damages are
          calculated as the difference between the value which the delivered goods had
          at the time of acceptance and the value which conforming goods would have
          has at the time.
       Specific performance: the buyer can only get specific performance if the
          goods are unique.
o Sellers damages:
       the most testable issue in this area is whether a seller can be compensated for
          lost profits. TRICK- the seller appears to have suffered no damage because
          he resold the item or items for the contract price or for an amount in excess
          of the contract price. Your inquiry should not end there, however.
       “lost volume” seller: look for a seller who has a supply of goods in excess
          of the level of demand (the “lost volume” seller). He has lost a sale and is
          entitled to his lost profits. – even if he resold the goods in question –
          because he could have had both sales but for the breach.
                Limited supply: but if the seller resells all the available goods of the
                   type that is the subject of the contract, then he is not a lost-volume
                   seller and cannot collect profits for the breach.
o Deduct costs: remember to deduct from all recoveries the costs that the aggrieved
  buyer or seller didn’t incur as a result of not having to complete his performance.

   Incidental Damages- cost of shipping goods if wrongfully rejected or sent, costs of
   storing goods if wrongfully sent or damaged, cost of going to the market to buy
   substitute goods

   Consequential Damages- typically consist of lost profits, what would have been
   earned if products had been furnished


Where goods not accepted




                                                                                      27
   if the buyer has not accepted the goods (either because they weren’t delivered, or
    were delivered defective, or because the buyer repudiated), the UCC gies well-
    defined rights to the injured party.

Buyers rights (seller breaches)
      o cover: the most important is her right to cover. I.e. to buy the goods from
        another seller, and to recover the difference between the contract price and
        the cover price from the seller. The buyer’s purchase of substitute goods must
        be reasonable and must be made in good faith and without unreasonable
        delay. 2.712(2) and (1)

      o contract/market differential: if the buyer does not cover (either because she
        can’t or decides she doesn’t want to ) she can instead recover the
        contract/market differential (ie the difference between the contract price and
        the market price “at the time when the buyer learned of the breach” 2.713.(3)
                  ex- X buys piano for $500 (contract price) sells them for $1000
                    (market price) thus, his damages are market (1000) minus contract
                    price ($500) = $500
                  time of breach: typically, the buyers learns of the breach (setting
                    time for measuring market price) at the time the breach in fact
                    occurs (either through non-delivery or through receipt of defective
                    goods). But if the breach takes the form of a repudiation in
                    advance of the time for performance, most courts hold that the
                    market price is to tbe measured as of the time the buyers learns of
                    the repudiation
                  buyer contracts to resell at fixed margin: notice that the
                    contract/market differential may not correctly compensate the
                    buyer where the market is rising and the buyer has already made a
                    fixed price of fixed margin contract to resell the goods. If the
                    market price increase times the quantity is greater than the profit
                    margin on the buyer’s resale contract, giving the buyer the
                    contract/market differential will put the buyer in a better position
                    than she would have been in had the contract been fulfilled.
                         Minority view: a few courts limit the buyer to the
                            profits the buyer would have made under the resale
                            arrangement
                         Majority view: but most courts hold that the buyer is
                            entitled to the full contract/market differential even
                            where this would put her in a better position than has the
                            contract been fulfilled, because limiting damages to the
                            buyer’s lost profits would incentivize the seller to breach.
                  Probably not available to covering buyer: probably the buyer
                    may recover the contract/market differential only where she did
                    not cover.




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      o    Consequential and incidental damages: the buyer, regardless of whether he
           covers, may recover for incidental and consequential damages.
               Incidental- expenses reasonably incurred by inspection, receipt,
                   transportation, and care or custody of goods
               Consequential- any loss resulting from the breach that the seller would
                   have reason to know or foresee at the time the contract was made, and
                   which could not reasonably be prevented by cover-plus injury resulting
                   from breach to person or property

      o    Rejection: all of the above are judicial remedies. But the buyer who receives
           non conforming goods can also exercise the self help remedy of rejecting the
           goods.

o Damages for late performance- if the seller breaches by late performance and the
  goods were to be resold by the buyer, and the seller knew that these were to be resold-
  the buyer can recover the damages for the reduction in the mkt. value of the goods at
  the time of the due performance and the time that the performance was actually
  rendered-i.e. the time the goods were delivered late and the time that they were
  supposed to be delivered.

          Neri v. Retail Marine Corp.(bought boat got sick, seller sold to someone else)
             Rule- A seller may recover his lost profit from a sales contract when the
                buyer defaults on the purchase if the contract market differential measure
                of damages is inadequate to put the seller in as good as a position as
                performance would have done.

Buyer breaches (seller’s remedies) (goods not accepted)
o   When it is the buyer who breaches, by wrongfully refusing to accept the goods (or by
    repudiating the contract before shipment is even made) the seller has several possible
    remedies

o   Contract/resale differential: normally, the seller will resell the goods to a third
    party. Assuming that the resale is made in good faith and in a “commercially
    reasonable” manner, seller may recover the difference between the resale price and
    the contract price, together with incidental damages.
         Example: contract price for piano is $750, resale price is $550. Damages are
           $200 per piano.

o   Contract/market differential: if the seller does not resell the goods, he may recover
    from the breaching buyer the difference between the market price at the time and
    place of the delivery, and the unpaid contract price, together with incidental
    damages. 2-708(1). Probably a seller who has resold the goods may not use this
    contract/market differential, but must use the contract/resale differential.
           o buyer orders pianos for $500 (unpaid contract price) market price is
                $1000. The seller gets $500 per piano.


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           o Be aware of changing commodity prices.

o   Lost profits- If the market price/contract price formula is inadequate to put the seller
    in as good a position as performance would have (e.g., if the contract price is equal to
    or less than the market price) then the measure of damages is the profit (including
    reasonable overhead) that the seller would have made from full performance of the
    buyer.
               Profits-if the seller is a dealer, “profits” under the formula means the
                 contract price minus the sellers cost of purchasing the goods. If the seller
                 is a manufacturer, “profits” under the above formula means contract
                 price minus the manufacturing costs.
               Application-the lost profits or lost volume measure normally is available
                 for the seller only where the goods are relatively homogenous and in
                 relatively deep supply. (i.e. replenishable)
                             If you are selling indistinguishable items then you should
                                 be able to recover the lost profit if the buyer breached the
                                 contract.
             o Lost volume seller: most importantly, this means that the “lost volume”
                seller may recover the profit he has lost byy reason of the breach. In the
                usual case of a seller who has resold the item, a “lost volume” seller is on
                who (1) has a bid enough supply that he could have made both the
                contracted for sale and the resale; (2) probably would have made the resale
                anyway as wel as the original sale had there been no breach; and (3) would
                have made a profit on both sides.

o   Action for contract price: in a few situations, the UCC allows the seller to sue for
    the entire contract price.
            o Accepted goods: first, if the buyer has “accepted” the goods, the seller
                may sue for the entire contract price (thought the buyer has a counterclaim
                for damages for non-conformity).
            o Risk of loss: second, if the risk of loss has passed to the buyer, and the
                goods are lost in transit, the seller may sue for the entire contract price.
            o Unresaleable goods: lastly, if the seller has already earmarked
                particular goods as being ones to be supplied under the contract, and the
                buyer rejects them or repudiates tbefore delivery, seller may recover the
                entire contract price if he is unable to resell them on some reasonable
                basis. Most commonly, this applies to perishable goods and custom-
                made goods.

    ***Incidental Damages***- in many cases the seller can recover incidental damages
    from the buyer, these include any commercially reasonable charges: expenses,
    commissions, possible resale of the goods (as long as the resale charges are
    reasonable)

    o   No consequential damages for the seller.




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Accepted goods:
If the buyer has accepted the goods (and has not rightfully revoked this acceptance), then
the remedies given to the buyer and seller are different.

    o   Sellers action for price: if the buyer has accepted the goods, the seller may
        recover the full contract price. (but if the goods are non-conforming, buyer may
        counterclaim for breach of warranty)

    o   Buyers claim: if the buyer has accepted the goods, and they turn out to be
        defective, the buyer’s remedy is to sue for breach of contract.

              Breach of warranty: most importantly, buyer may sue for breach of
               warranty. These may be either express or implied warranties from the
               UCC. 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.”
                     Breach of warranty Defined: An infraction of an agreement as to
                        the quality, title, content or condition of a thing sold; may also be a
                        failure to perform as promised.
              Non-warranty damages: buyer may also be able to recover for non-
               warranty damages. For instance, damages resulting from seller’s delay in
               shipping the goods, or his breach of an express promise to repair
               defective goods, may be recovered on top of or instead of breach of
               warranty damages.



o   Egerer v. CSR W., L.L.C. (shoulder excavation for land fill)
      Rule - A court is granted a "reasonable leeway" in measuring market price
         under UCC 2-723.
                   Court used reasonable market rates for the gravel at the time of
                      the breach.

    Delchi Carrier Spa v. Rotorex Corp (air conditioning co. sold bad parts)
      Rule - a contract plaintiff MAY collect damages to compensate for the full loss,
         which includes, but is not limited to, foreseeable lost profits (UCC 2-715).




Liquidated damages


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o   A liquidation damage clause is a provision, placed in the contract itself, specifying
    the consequences of breach.

    Exam tips
       1. Reasonableness: remember that the liquidated damages amount will be
          deemed (in most courts) reasonable if it is a reasonable estimate as of either
          the time of contracting or the time of the actual loss. Normally, you should
          try to analyze the reasonablness as of each time frame.
       2. Pay attention to what the clause remedies. Even where the clause is
          enforceable, other types of damages can still be awarded to address
          problems not covered by the clause.
       3. Look for a “if a breach occurs, then…” clause. This may be a liquidated
          clause


o   A penalty is the sum a party agrees to pay in the event of a breach, but which is
    fixed, not as a pre-estimate of probable actual damages, but as a punishment, the
    threat of which is designed to prevent the breach.

o   General rule: courts will enforce liquidated damages provision, but only if the court
    is satisfied that the provision is not a penalty. Must pass one or both tests below.
    Use the K price in analysis.

Difficult calculation of loss is needed to enforce
  the harm caused by the breach must be uncertain or very difficult to calculate
      accurately, even after the fact.
  The greater the difficulty of estimating or proving damages, the more likely the
      stipulated damages will appear reasonable.

Reasonable forecast
  The amount fixed must be reasonable relative to the anticipated damages or actual
    loss for breach (at the time of contracting or if its reasonable estimate after the fact)
       Make an obvious assertion connecting the damages and their reasonableness.

       If the damages are unreasonable in light of the actual harm, the remedy will be
remedied under the court's equitable powers.

   Reasonableness of the amount: all courts refuse to enforce liquidated damages
    clauses that do not provide for a reasonable amount.
        Modern view (UCC)
         Timing: Most courts today will enforce the clause if either (1) the clause is
           reasonable forecast when viewed as of the time of contracting; or (2) the
           clause is reasonable in light of the actual damages which have occurred.

No loss at all


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       Courts are split about whether to enforce a liquidated damages clause where P
        has sustained no actual loss at all. The restatement does not enforce the clause
        if it turns out that no actual damage has been sustained.

        Wasserman's v. Twp. of Middletown (Parties agreed to lease and one breached)
              Rule - Provisions for liquidated damages are enforceable only if they are
                a reasonable forecast of just compensation for the harm caused by the
                breach.




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