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					     Class 36, Thursday, April 20
Announcements
  F   779-804; handout on conditions

Today’s agenda
  No Oral Modification Clauses
       Brookside Farms v. Mama Rizzo’s
  Problem 8-3
  Consequences of nonperformance
       Material breach
       Jacob & Youngs, Inc. v. Kent
       Sackett v. Spindler
  Anticipatory Repudiation
       Truman L. Flatt & Sons Co. v. Schupf
       Hornell Brewing Co. v. Spry


4/20/2006                     Class 36        1
    Today is a good day to cover
         a lot of material.




4/20/2006       Class 36           2
 Brookside Farms v. Mama Rizzo’s
• NOM clause
     – common law approach
     – UCC approach
            •   2-209(2)
            •   2-209(3)
            •   2-209(4)
            •   2-209(5)


     – no waiver clause
4/20/2006                  Class 36   3
                        Problem 8-3
• sale of goods?
• changed circumstances excusing Waller Bros.
  from having to perform
• Modification
     –   UCC 2-209(1); good faith
     –   Restatement 73 & 89(a) and (c)
     –   Duress
     –   no-oral-modification clause
            • UCC 2-209(2), (4), (5)
            • common law—generally ineffective

4/20/2006                         Class 36       4
            Note 4, p. 703
• accord and satisfaction

• “payment in full” check

• point of emphasis—amount in question
  must be unliquidated for a payment in full
  check to be effective

4/20/2006           Class 36                   5
    Justifications for nonperformance
•   A sues B
•   K
•   A asserts that B breached a duty owed under K
•   If K existed, and B owed this duty, and B did not do the
    duty, B will be liable unless B was justified in not
    performing because of ____________

• this chapter—justifications include material breach by the
  other party; anticipatory repudiation by the other party;
  and the operation of express conditions



4/20/2006                    Class 36                          6
             Typical Executory K
prelim.                executory
negotiations           period                         breach
-----------------|-------------------------|--------------|------- t
               K formation                performance due
                 (1) mutual assent
                 (2) consideration




4/20/2006                      Class 36                            7
        Jacob & Youngs, Inc. v. Kent

               New York Court of Appeals
            230 N.Y. 239, 129 N.E. 889 (1921)




4/20/2006                 Class 36              8
• Who is suing whom? For what kind of
  damages? What is the legal basis for the
  claim?

• What duty does the plaintiff claim that
  defendant has breached?

• On what basis does the defendant justify
  his failure to pay the balance?
4/20/2006            Class 36                9
                       K duties
• J & Y’s duties                • Kent’s duties
     – build country                  – make progress
       residence to                     payments
       specifications                 – make final payment
     – “All wrought iron pipe            • subject to express
       must be well                        condition of Architect’s
       galvanized, lap welded              final certificate
       pipe of the grade
       known as ‘standard-
       pipe’ of Reading
       manufacture.”

4/20/2006                  Class 36                               10
• Are duties in a K independent?
  dependent?

• What’s the difference between the two?




4/20/2006          Class 36                11
• Cardozo, p. 746, middle
• “From the conclusion that promises may not be
  treated as dependent to the extent of their
  uttermost minutiae without a sacrifice of justice,
  the progress is a short one to the conclusion that
  they may not be so treated without a perversion
  of intention. Intention not otherwise revealed
  may be presumed to hold in contemplation the
  reasonable and probable. If something else is in
  view, it must not be left to implication.”
4/20/2006              Class 36                   12
            substantial performance
• bottom of 746-747

• “We must weigh the purpose to be served, the
  desire to be gratified, the excuse for deviation
  from the letter, the cruelty of enforced
  adherence. . . . The willful transgressor must
  accept the penalty of his transgression.”

• Is this an elements or factors analysis?

4/20/2006               Class 36                     13
 Cardozo’s factors, reformulated
• 1. effect of breach on non-breaching
  party’s expectations given the purpose of
  the K
• 2. excuse for deviation/good faith on part
  of breaching party
• 3. forfeiture suffered by breaching party

BUT—willful transgressor cannot utilize this
 doctrine
4/20/2006           Class 36                   14
• What does the doctrine of substantial
  performance achieve?

• lawnmower hypo—A promises to mow B’s
  lawn; B promises to pay $10. A mows the
  lawn but misses a small portion of it. May
  B assert A’s failure to provide full
  performance to excuse B from her
  performance obligation (paying $10)?
4/20/2006           Class 36               15
• A has a duty to mow             • B has a duty to pay
     – this duty is a
       constructive condition
       of B’s obligation to pay
     – in other words, B’s
       duty to pay under the
       K doesn’t come due
       until A has fully
       performed
     – without the substantial
       performance doctrine,
       this could have harsh
       results

4/20/2006                    Class 36                     16
• A has a duty to use             • B has a duty to pay
  Reading Pipe
     – this duty is a
       constructive condition
       of B’s obligation to pay
     – in other words, B’s
       duty to pay under the
       K doesn’t come due
       until A has fully
       performed
     – without the substantial
       performance doctrine,
       this could have harsh
       results
4/20/2006                    Class 36                     17
• if there is substantial performance by one
  party, the result is that the other’s
  performance obligation is due; however,
  the non-breaching party is entitled to an
  offset for the breach

• issue then turns to damages


4/20/2006           Class 36                   18
             cost to remedy
                    v.
    difference or diminution in value

• Which is the standard remedy in
  construction cases where there has not
  been full performance?
• Does Cardozo apply the standard
  remedy?

4/20/2006          Class 36                19
• Why not?

• What test does Cardozo come up with?




4/20/2006         Class 36               20
• Does the dissent disagree with the
  doctrine of substantial performance or with
  its application in this case by the majority?




4/20/2006            Class 36                 21
• If there isn’t substantial performance, even
  though the non-breaching party’s payment
  obligation under the contract may not be
  due, the non-breaching party may owe
  restitution to the breaching party for the
  benefit that the non-breaching party
  received from the breaching party’s
  performance.

4/20/2006            Class 36                22
   restitution for the breaching party
• hypo—lawnmowing hypo—A agrees to mow B’s
  lawn; B agrees to pay A $10. A mows half the
  lawn then runs out of gas. A goes to get gas but
  then is delayed by one thing after another.
  Assume that B is justified in hiring someone else
  to finish mowing the lawn. B pays substitute
  mower $7 and incurs no other transaction costs.
• 1. May A recover under the K?
• 2. If not, is A entitled to any recovery?

4/20/2006              Class 36                   23
• the notes following Jacob & Youngs are
  quite good

• note 8, p. 752—restitution and divisibility—
  we’ll do more on this in a later class




4/20/2006            Class 36                24
              Sackett v. Spindler

         California District Court of Appeal
        248 Cal. App. 220, 56 Cal. Rptr. 435
                       (1967)




4/20/2006               Class 36               25
• Sackett’s duties                 • Spindler’s duties

     – pay $6000 by July 10              – deliver all shares of
     – pay $20,000 by July                 newspaper
       14
     – pay $59,000 by Aug.                 when does Spindler’s
       15                                  performance obligation
                                           become due?




4/20/2006                     Class 36                             26
• Did Sackett fulfill his performance
  obligations?




4/20/2006            Class 36           27
• If his failure to make the final payment is
  breach, what effect does this have on
  Spindler’s performance obligation?

• What argument does Sackett make based
  on Spindler’s Oct. 5 letter?



4/20/2006            Class 36                   28
• What is a repudiation?



• When is a repudiation lawful? Or its
  corollary—when is a repudiation unlawful?




4/20/2006           Class 36              29
            Characterizing breach
• total or partial
     – partial and material
     – partial and immaterial
     – total

     Why is it important to characterize the severity
      of one party’s breach of a contract?



4/20/2006                 Class 36                      30
• What are the options of the non-breaching
  party in the following scenarios?

                                    non-breaching
            breach                  party’s options
     – partial and immaterial
     – partial and material
     – total

4/20/2006                Class 36                     31
• How did this court characterize Sackett’s
  breach?

• Was the repudiation in the Oct. 5 letter
  lawful?

• If it wasn’t lawful, would that have affected
  the outcome in this case?
4/20/2006            Class 36                 32
       § 241. Circumstances Significant In
    Determining Whether A Failure Is Material
    In determining whether a failure to render or to offer performance is
    material, the following circumstances are significant:

•   (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 the part of that benefit of which he will be deprived;

•   (c) the extent to which the party failing to perform or to offer to
    perform will suffer forfeiture;

•   (d) the likelihood that the party failing to perform or to 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 to
    offer to perform comports with standards of good faith and fair
    dealing.
4/20/2006                           Class 36                                 33
     § 242. Circumstances Significant In
   Determining When Remaining Duties Are
                 Discharged
   In determining the time after which a party's uncured material
   failure to render or to offer performance discharges the other
   party's remaining duties to render performance under the rules
   stated in §§ 237 and 238, the following circumstances are
   significant:

• (a) those stated in § 241;

• (b) the extent to which it reasonably appears to the injured
  party that delay may prevent or hinder him in making
  reasonable substitute arrangements;

• (c) the extent to which the agreement provides for performance
  without delay, but a material failure to perform or to offer to
  perform on a stated day does not of itself discharge the other
  party's remaining duties unless the circumstances, including
  the language of the agreement, indicate that performance or an
  offer to perform by that day is important.
4/20/2006                      Class 36                          34
   Truman L. Flatt & Sons v. Schupf

              Appellate Court of Illinois
        271 Ill. App. 3d 983, 649 N.E.2d 990
                        (1995)




4/20/2006               Class 36               35
• What’s the subject matter of this
  transaction?

• What duty does the plaintiff claim that
  defendant has breached?

• On what basis do the defendants justify
  their failure to perform?
4/20/2006            Class 36               36
                   chronology
• March 1993 K
     – clause 1
     – clause 14
•   public meeting re: rezoning
•   May 21    letter from P
•   June 9                      letter from D
•   June 14 letter from P
•   June 23 letter from P
•   June 30 performance due by P and D??????
•   July 6    letter from P
•   July 8                      letter from D

4/20/2006                Class 36               37
             Typical Executory K
prelim.                executory anticipatory
negotiations           period    repudiation

-----------------|---------------------|----|--------------------- t
               K formation                performance due
                 (1) mutual assent
                 (2) consideration



4/20/2006                      Class 36                           38
• what is an anticipatory repudiation?

• under early common law, was anticipatory
  repudiation recognized as breach of
  contract?

• the doctrine’s origins—1853 British case,
  Hochster v. De La Tour
4/20/2006           Class 36                  39
• was the May 21 letter from P a
  repudiation?




4/20/2006           Class 36       40
• if the May 21 letter had been a
  repudiation, was there a valid retraction of
  the repudiation?

• until when may an anticipatory repudiation
  be retracted?



4/20/2006            Class 36                41
            Hornell Brewing Co. v. Spry

        Supreme Court of New York County
        174 Misc. 2d 451, 664 N.Y.S.2d 698
                      (1997)




4/20/2006              Class 36              42
• What contractual relationship does Hornell
  Brewing Co. create with Spry?

• Are the duties embodied in a writing?

• Are these agreements by Hornell usually
  embodied in a detailed writing?

• Why do you think Vultaggio didn’t follow normal
  business procedure?
4/20/2006              Class 36                     43
• What problems ensued for Hornell
  Brewing?

• Did Spry breach the contract?




4/20/2006          Class 36          44
• What was the severity of the breach?



• Did Spry cure the breach at some point?



• What did Spry do next?

4/20/2006          Class 36                 45
• How did Hornell Brewing respond to
  Spry’s large order?



• How does the court characterize this
  demand?



4/20/2006           Class 36             46
• Under traditional common law, would
  Hornell have been entitled to make such a
  demand?




4/20/2006          Class 36               47
• Which UCC section authorizes Hornell to
  make such a demand?

• What conditions must arise before you can
  make a demand for assurance of due
  performance?



4/20/2006          Class 36                 48
• Then, assuming that reasonable grounds
  for insecurity arose that justify the making
  of a demand for assurance of
  performance, what counts as sufficient
  assurance?




4/20/2006            Class 36                    49
             End of Class
   Friday 779-804; handout on conditions




4/20/2006           Class 36               50

				
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