Spring Contracts II Legal Outline by JohnMValentine

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									CONTRACTS

STATUTE OF FRAUDS
I. When is writing required to make an agreement enforceable? A. Introduction
1. The Statute of Frauds is a writing requirement , writing satisfies these 3 purposes a. Evidentiary Function - providing some evidence of the existence and terms of the K b. Cautionary Function – it says to an individual to be careful if you don’t really mean it becuace you will be bound c. Protective Function – protecting the individual who says he or she never agreed to do anything 2. Determination if within Statute a. Is the contract within the Statute of Frauds? b. If yes, is there memorandum sufficient to satisfy the requirements? c. If no, is there an exception that applies? 3. Courts are hostile to the doctrine 4. Complying to the statue of frauds does not make the contract ok but not complying to the statue of frauds might
make a breach of contract

5. MY LEGS – the old 6 categories of contracts that fell under the statue of frauds  Marriage, 1 year provisions, Contracts for sale or transfer of Land, Executer of administrator, Sale of Goods, Suretyships  WE have Kept Suretyships, and One year provisions B. Problems of Statutory Scope 1. Suretyship (“Collateral Undertaking”) a. Rules 1. Application: applies when there is a guarantee of another person’s legally enforceable debt or obligation, when the principle debtor can no longer pay an obligation that is due. A surety can also provide that it will perform other kinds of contractual obligations on part of the obligor 2. Promisor’s Role: it must be clear that the promisor is only secondarily liable 3. Knowledge of: a true suretyship relationship exists between the promisor and third person, and the promisee must know, or have reason to know of the suretyship relationship 4. Promise To: promise of suretyship must be to debtor, and not creditor 5. Responsibility: when a person assumes a portion of debt of another is does not necessarily follow that person is responsible for entire debt but only for past debt due b. Main Purpose doctrine (gratuitous element) 1. if the promisor’s chief purpose in making the promise of a suretyship is to obtain an immediate and direct economic benefit or advantage for himself, then the promise does not fall within the Statute of Frauds 2. Primary: the benefit must be the primary object of making the promise as distinguished from a benefit that is incidental, indirect or remote, if latter than within the statute Example: 3 parties the principal, the creditor, and the sureity
A promises to B that A will pay B if C does not pay what C owes B.  A- surety  B- creditor  C- principal  A’s promise is to C not to B, The suretyship does not have to arise at the same time as the underlying obligation 

Example: A subcontractor refuses to continue work because the general contractor has failed to pay the for work done. The owner as surety orally promises to pay the subcontractor for the general contractor’s debt if the subcontractor will go back to work 3. If there is consideration to furnish a direct benefit to the promisor, the main purpose doctrine applies- and the statue of frauds does not applu 4. Actual Promise - since there is a direct benefit there is the greater likelihood that an actual promise was made Novation – an agreement whereby a creditor releases the debtor, and acceots in exchange the obligation of another party (Case) Power v NFL  Power picks up prosets contract orally to be official NFL card. NFL does not honor it saying it is a surety and needs to be written. Power claims breach  Lower court says no cause of action because it is oral and they failed to comply with the statue of frauds.  Appellate court says we may have a contract under the Main Purpose doctrine or it might be a noviation and the statue of frauds would not bar it and it might not need to be in writing. Remand!! o Rules TX required for the Main purpose doctrine  the promisor must intend to become primarily liable to the debt,  need consideration  weather the consideration was the promisors main purpose in getting into the contract.
LANGMAN v ALUMNI

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Langman gives a gift to the alumni, property with an existing mortgage, contract is not written down. Property begins to operate at a loss Alumni claims it is a sureityship appellate court says this is true because a grantee who assumes an existing morguage is not a surety. There needs to be a 3 rd party, even if there was a 3rd person the main purpose rule would come in

2. One Year Provision a. Rules 1. Writing Required: if a promise contained in a contract is not capable of being fully performed within one year after its making, the contract must be in writing. 2. Possibility of Performance: the possibility of performing the contract is determined at the time the contract is made, to the time performance is completed and not the date performance is scheduled to begin a. Contingencies in Contracts 1. it there is any possibility to finish the contract in one year it is not within the Statute 2. if the contingency prevents or discharges the parties from performing their obligations under the contract within a year, contract is in within Statute b. Test: the critical test, is whether the contract“by its terms” can be performed within a year (i.e. it does not matter that it was unlikely or improbable that a $41 million plant would be constructed within one year) 3. Death - a contract that will be performed in the event of the death of a person is not within the one-year provision because death can occur at any time 4. Lifetime Employment - can be oral and does not fall within the SOF because when a person dies he would have fully performed 5. Full Performance: if the termination or discharge in question occurs, and the contract has fulfilled its principle purpose, than there has been full performance, and contract fulfills the Statute’s requirements

a. Employment Contract (infra) 1. an employment contract for an indefinite period may be performed within one year by exercise of option to terminate 2. Part Performance: part performance takes an oral contract out of the Statute of Frauds when conduct unequivocally refers to contract and not merely the possibility of some agreement (Land Contracts). Taking possession of property pursuant to an oral K together with making improvements or paying a substantial part of the purchase price is generally sufficient to avoid the bar of SOF Note: Many jurisdictions have departed from the narrower path of part performance to base their decision on grounds of estoppel whenever the equities are so great as to make a contrary decision unconscionable. 3. Contracts for the Sale of Land

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England kept this This does not deal with a contract for the use of the land(license) this is not transferring an interest in land How do we satisfy that statue of frauds o Contract must be in writing and it must be signed a letter head is ok in some jurisdictions and the signature must be the party against who the enforcement has sought o Usually this will be a memo but it can take any form it does not have to be a formal document o Can be multiple document can be made at any time, can be made before or after, and it does not have to be in existence at the time of the law suit, can be made before or after the contract

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2 approaches

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doctrine of incorporation by reference,- if a corp is going to require multiple documents you must have an actual reference from one document to another the other writing must be in existence

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and it must be properly identified other jurisdictions don’t require an actual reference to the other writing just both reference the same transaction  Standard is clear and convincing evidence

Memorandum May Consist of Several Writings a. memorandum may be pieced together out of separate writings, if by inspection, it is apparent that both documents refer to the same transaction 1. Reference: there must be a sufficient connection in reference to the same subject matter or transaction 2. Relationship; establishes a contractual relationship between the parties 3. Signature: must bear the signature of the party charged 4. Explicit: there must be at least one signed writing which need not make explicit reference to the unsigned writing 5. Oral Evidence: can use oral evidence to relate to unsigned document 6. Contemporaneous: there is no need to be contemporaneous, that is, the documents do not need to be all written at the time of the agreement 7. Terms- must include the essential terms of the agreement

a. Requisites of Writing and Signing
1. Common Law Interpretation (Restatement 131 - General Requisites of a Memorandum) a. memorandum is something less than a completed writing b. Unless the individual state imposes a different requirement, the Statute of Frauds requires: 1. Writing: writing signed by, or on behalf of the other party to be charged 2. Identifiable: the subject matter of the contract can reasonably be identified. In non-Code cases, like this, the omission of a material term renders a memorandum ineffective

3. Evidence: sufficient evidence exists that a contract had been made between the parties, or offered by the signor to the other party 4. Reasonable Certainty: the essential terms of the contract are stated with reasonable certainty IMPT- A new def of recorded- retrievable in perceivable form (CASE)
 (Acadia v Irving) o A written agreement that had and arbitration clause for any problems the contract ends and was extended orally. There is a NY statue that called for this contract in writing if it included a arbitrate clause. Irving was fired, the contract was terminated. The employer said since the contract was made orally it was not good. The lower court said that there was not the necessary writing because agreements to arbitrate must be in writing. The appeals reverse and said a oral extention to a already written K does not violate the statue of frauds provided that it does not materially alter it. THE PASSING THROUGH THEORY!!!!. The documentation of the prior contract will make the oral agreement ok.

3. Uniform Commercial Code Interpretation (UCC 2-201) - Sale of Goods a. ONLY involves the sales of goods over $500- new one is 5000 b. applies to both merchants and non-merchants c. generally requires less of a writing than the Restatement
d. applies to contracts where ownership of goods passes immediately to the buyer and also to a contract where ownership passes at some future time 1. goods - defined as all things which are moveable e. Policy - purpose of 2-201 is in favor of the general public policy to (1) reduce fraud and perjury, (2) curtail litigation and controversy and (3) encourage written K’s for sale of goods over $500 f. Remember the mere fact that a buyer has lost a bargain is not enough to estop a seller from relying on SOF e. Terms (UCC 2-201(1)) 1. What is Required. All that is required is the writing afford a basis for believing that other party offered oral evidence of a real transaction and the only term which must appear is the quantity term. There is no requirement that the nature of the goods be specified. 2. Recovery is limited to the quantity stated 5. Signing: includes any authorization which identifies the party to be charged(usually the P), that is, any symbol executed or adopted by the party with present intention to authenticate a writing(1-201(39)) a. One Way Street - a K is enforceable if it is evidenced by any writing signed by or on behalf of the party to be charged

f. Merchants’ Exception (UCC 201(2))
1. a merchant who receives a non-signed confirmation from the other party may under some circumstances be bound by it, just as the merchant had signed it 2. This applies only if the message amounts to confirmation of the alleged contract and occurs within a reasonable time. 3. The reason for this is that the Buyer will be prevented from playing the market 4. Unless the buyer objects in writing within 10 days after receiving the memo. Note: the sender of the writing still has the burden of proving the oral agreement that the writing intends to confirm g. Specially Manufactured Goods (2-201(3a)) 1. if goods are to be specially manufactured for the buyer and are not suitable for sale to others by the seller in the ordinary course of his business; and

2. seller has made either a substantial beginning on their manufacture or commitments for their procurement before notice of repudiation is received, the oral contract may be enforced. 3. If this were not true the seller would suffer hardship and the seller’s conduct further supplies some evidence that the contract asserted is a genuine one. 4. Example of detrimental reliance on the seller’s part h. Admission in Pleadings or Court (2-201(3b)) 1. if the party against who enforcement is sought admits in pleading, testimony, or other wise in court admits that the contract for sale was made, but the contract is not enforceable beyond the quantity of goods admitted i. Partial Payment or Delivery (2-201 (3c)) 1. when payment has been made and accepted, the contract is enforceable to the extent of the payment received and accepted 2. Similarly, when delivery has been made and accepted, the contract is enforceable to the extent of the goods received and accepted 3. Contract can not be enforced beyond the extent of payment or extent of goods Example: A contract is made for the sale of 1,000 yards of wool for $10,000 and the buyer receives and accepts 100 yards, the contract is enforceable against the buyer to the extent of 100 yards. (Part Performance)
Full performance takes the statue of frauds out completely

b. Ameliorating the operations of the statue of frauds (exceptions to the writing rule ) 1. Part performance  Pay contract price  Take possession of property  Make improvements to the property (Johnson Farms)  There is a land sale. Johnson buys land from Mcenroe there is a provision the land must be paid for or there will be a transfer of land. Johnson farms gets half the land and they build on their half of their land the relationship between the party deteriorates. Because it was for land it comes under the statue. Mcenroe claims it was not in writing and it needed to be so he should get the land back. Johnson will say although it is invalid because they started partial performance the ameliorating clause kicks in and they keep the land.  They remanded for further discovery Johnson partial payment alone is not enough but Johnson also made improvements, and his use of the land was consistent with the oral contract. (Monarco-P v Lo Greco- D)  (Reliance case and restitution) o Parent make deal with a D that if he moves in and helps them work the farm they will give it to him. Step father secretly wills the property to his half brother. D gave up moving to the city to work the farm. o With out any amelioration the property will go to P because it is an oral deal and does not meet the statue of frauds cause it is property o The court finds that because D relied upon oral contract and it would be unconscionable to disallow the oral K moreover it would unjustly in rich P. (Halstead v Murray)  P and D owned neighboring propertied. P wanted to buy D property. D authorizes his attorney to bring the deal and his attorney signed the papers. Then P signs the paper and D says he never signed there for the contract is no good.

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They held because of the special relationship the client and attorney, and you can get out of the SOF is unity theory. 2. Restitution - courts generally allow the injured party restitution of any benefit that the injured party has conferred on the other by part performance or otherwise, although, the SOF may prevent enforcement of K. The usual relief is money damages a. there must be a legally recognizable benefit to the other party (cash payment or services) b. to recover the party must not materially the def must act in accordance with the contract (do or provide something contrary to alleged agreement) c. if measure is not available then look to the reliance measure of equitable estoppels 3. Restatement § 139 Enforcement by Virtue of Action in Reliance a. Act or Forbearance: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or third person;and (i.e. expenditures the P has made in preparing to perform) b. Injustice: which does induce the forbearance or action is enforceable notwithstanding the S of Fs if injustice can be avoided only by enforcement of the promise c. Remedy: Remedy is limited to what justice requires d. Factors: Factors evaluated to determine whether enforcement of the contract is necessary to prevent against injustice: 1. the adequacy and availability of other remedies (cancellation and restitution) 2. the definite and substantial character of the action or forbearance in relation to the remedy sought (reliance) 3. Corroborate/Evidence: the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence (i.e., the reliance was substantial enough that it would not be done if the promise was not made 4. Reasonable: the reasonableness of action or forbearance 5. Foreseeable: the extent to which the action or forbearance was foreseeable by the promisor 3. Doctrine of Estoppel a. an agreement can fall outside the SOF under a theory of estoppel. Where one has acted to his detriment solely in reliance on an oral agreement, an estoppel may be raised to defeat the defense of SOF b. Test 1. Unconscionable Injury: unconscionable injury would result from denying enforcement after one party has been induced by the other to change his position in reliance on the contract; OR 2. Unjust Enrichment: unjust enrichment would result if a party who has received benefits of the party were allowed to rely on the statute c. Policy: the consequences of allowing a litigant to assert the Statute of Frauds defense would be fundamentally unfair, and the litigant should be estopped from hiding behind the Statute d. Misrepresentation: D misrepresented to the P that the Statute’s requirements had been complied with (example) e. Speculative: used since money damages would not suffice; too much speculation Example: D promised farm to P, if he would abandon plans to leave home and work on farm. P did. D secretly willed farm to grandson. D reaped benefits of contract (25 times value) and P received no offsetting benefit. Held, D can not rely on SOF to defeat enforcement of an oral contract which the D has relied on. The P was induced to change his position in reliance on the contract (unconscionable injury) and unjust enrichment to the D. (Monaco v. LoGreco)

F. Policy of Statute of Frauds
1. Pro: purpose of the statute is to encourage people to put contracts in writing since it (1) provides better evidence of the contract and thus, (2) do not have to rely on memory for the terms of the contract 2. Con: may lead to cancellation of agreements/contracts that were actually made

POLICING THE BARGAIN
A. Introduction
1. Policing the bargain involves bargaining abuses and the means of abating them. The different policies as following: a. Status – the disqualification of certain classes of people from committing themselves by contract b. Behavior – how contracts are bargained for (fraud, duress, misrepresentation, concealment, nondisclosure) If any of the following grounds exist the contract should be voided c. Substance – what is being exchanged. Common law courts have been most reluctant to view the substantive fairness of an agreement 1. Reasons for reluctance a. the efficient administration of the law of Ks requires that courts shall not be required to prescribe reasonable prices b. the test of enforceability should be certain and should not be beclouded by such vague terms as ―fair‖ or ―reasonable‖ test of validity

c. persons of maturity and sound mind should be free to contract prudently and imprudently Note: the court of equities did not share the traditional reluctance of common law courts to police agreements for substantive unfairness 2. Policy a. on the side of enforcing the bargain stands the policy of favoring the stability or security of transactions and the protection of parties expectations b. on the other side stands the policy favoring the prevention of unfairness and the protection of the parties from overreaching

B. Status
What classes of persons are considered by law to have less than full power to contract? 1. Intoxixation  Traditional view- must be so drunk to impair mental faculties to such an extent as to render the party  f.
non compos mentis for the time being Current view- not being able to act in a reasonable standard and the other person knows

 Lucy v Zimmer the standard is reflected in 15 1 a Intoxication 1. Person who voluntarily drink or take drugs to the point that they lose cognitive ability or volitional control will be permitted to avoid their Ks only where the other party knew or had reason to know of the degree of impairment h. The rule of disaffirmance and ratification are the same as minors. Older cases tend to hold Ks entered into by the mentally incompetent as void, modern authority’s overwhelming weight is to hold them voidable i. Generally a mental incompetent is generally required, as a condition of relief to make restitution in full to the extent of any benefit received. Courts have not required full restitution, it the other party acted unfairly and with knowledge of the incompetency  Note: An impairment of the cognitive or volitional type, may properly be considered as a factor in determining whether relief should be granted on the grounds of mistake, misrepresentation or duress. The presence of mental impairment is a significant factor in cases involving undue influence 2. Minors a. Minors 1. Contracts are violable until you turn 18 c. Disaffirm: A minor is permitted to disaffirm a contract not only during minority but also within a reasonable time after reaching the age of majority (age 18). 1. Disaffirmance must be within a reasonable time. Disaffirmance may be made by act or declaration disclosing an unequivocal intent to repudiate. Failure to disaffirm constitutes ratification. One cannot, during one’s minority, surrender one’s power of avoidance. You can’t radif when you are still a monor 2. this power can also be executed by the minor’s legal representatives (parent or guardian) c. Misrepresentation . Misrepresentation may impact the court’s decision concerning the obligation to make restitution d. any manifestation of an undertaking to be bound by the original transaction will suffice as a ratification e. Even if the K is voidable, the minor must restore any benefits received 1. the minor is expected to return anything that remain of what was received 2. traditionally, a minor is not responsible of loss or depreciation of goods and service conferred f. Exceptions That Are Not Voidable: 3. Necessity: If the subject of the purchase of goods or services is necessary then disaffirmance is not permitted. (i.e., necessaries is food, shelter, clothing etc.) 4. Duties Imposed by Law or Statutory Obligations (i.e. marriage, supporting children)

5. contracts involving bail bonds, military service, student loans and bank accounts a. Policy - the exceptions exist because society wants minors to be able to contract in these situations b. Is the Minor Rule a Benefit or Burden? 1. The benefit is the minor’s option to void almost any deal regardless of the situation. The burden is that a person may be unwilling to contract with the minor. Therefore, the minor can not obtain the good or service although they intend to abide by the contract g. Policy Rationale - Minors require protection from the pitfalls of the marketplace and level of inexperience. Today, the importance of minor protection is lessened by consumer protection laws (KIEFER v Fred Howe Motors) p 301  Keiffer(P) bought a car under the age of 21 through misrepresentation. He is a father and marry. He is successful in finding that there is no contract because he is a minor. The D says he is emancipated and close to 21 the court does not accept that argument. o If P would have made a payment after his 21 st he would have ratified the K

2. Mental Illness or Insanity a. Policy - the law must balance the interest in protecting the mentally ill with the interest in permitting them to pursue their right and freedom to K and the interest in protecting the rights of the other party to bargain b. Remember that when courts evaluate incompetence cases the substance of the case is important to the outcome of the case b. Restatement 15 - Mental Illness or Defect; Formation of Contracts - Parties and Capacity 1. A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect if: Test a. Subjective connigitive - 15(1a) he is unable to understand in a reasonable manner the nature and consequences of the transaction (He does not understand the contract) b. Objective Volitional -15(1b)What the other person saw. Person understands the nature and consequences of his or her actions, but lacks control of them: (1) the other party has reason to know of his condition and (2) whether the transaction is one in which a reasonable competent person might have made; If YES, unlikely to upset the transaction. If NO, transaction more likely to be unfair, then look to specific evidence. He understands it but acts irrationally and the other person knows he is acting irrationally 15(2). Fair Terms: Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. The right to avoidance may be lost to the extent that the K has already been performed. In such a case a court may grant relief on such equitable terms as justice requires. Unfair Terms: Where the K is not on fair terms or the other party has knowledge of the mental illness or defect the K can be disaffirmed at any time until completion
3 mental standards o Fit for trial o Must be able to understand the nature and purpose of the proceedings against him and assist in his own defense Legally insane o When def can’t appreciate the criminality of his conduct or conform you conduct to the requirements at lae Capacity to contract

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Sufficient mental ability to appreciate the effect of what you are doing and beable to put forth your will. o What is necessary to have capacity to contract  We need evidence that the individual new what was going on beyond the actual point that the contract was executed, something more than a transient surge of lucid interval (OLD RULE) is required Insane delusion o It is recognized in various jurist ions but different standard  In some their belief must be against all the evidence, in other jur if some evidence back up the delusion then it would be ok (what would a rational person do)  Most courts don’t require the delusion to be against all the evidence just most the question is could a rational person have drawn that conclusion.

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d. Wisdom not a Factor: The contracting parties must be able to understand the effect of the actions they are taking but no necessarily the wisdom of the action. Even if medical evidence alludes to a person incapacity, so long as, a person ability to understand the nature and effect of the transaction, the person is not undermined and the K is not voidable However, weak-mindedness is highly relevant in determining whether the deficient party was overreached or defrauded e. Burden of Persuasion 1. the party who seeks relief on the ground bears the burden or persuasion 2. the court will consider the party’s behavior in that and in similar transactions, the opinions of lay persons who observed the party’s behavior, the opinions of psychiatric experts, past records of treatment and hospitalization c. Limitations of a Competency Claim 1. There must be at least a medical diagnosis of condition or a pre-existing condition. This helps to distinguish between impulses that cannot be resisted and those that can g. Policy Rationale - The purpose of the test is to protect people who are unable to control their conduct although their cognitive ability seems unimpaired and also to protect the security of the transaction h. If a lawyer gets someone off for insanity  He can still collect under restitution CASES (Ortelere_)  School teacher on leave from job for mental illness and depression. Husband takes care of he. When they knew she was crazy she changed her retirement benefits, mean husband gets nothing. Husband want the alteration of he plan set a side because of insanity.  Trial court found it is violable because she did not understand the contract subjective test COGNITIVE STANDARD  The middle appellate court reversed said she knew what she was doing  The final appellate court changes the standard and found that a person incurs violable contractual duties by entering in to the transaction if by reason of mental illness or defect he is unable to act in a reasonable manor in relation to the transact and the other party has reason to know of his condition(RST)(OBJECTIVE) 15 1 (b) (Cudnick v. Broadbent) : P sold property and business at ½ its value. Medical testimony supported the P’s incapacity. Held: Court looks at behavior aspect. P may have been weak minded yet no indication the P was unable to conduct business. P was not overreached because the parties amended original offer by raising price. (subjective) 15 1(a)

Unfairness: conventional control
1. Generally a. the concept of undue influence is to give relief to victims of unfair transactions that were induced by improper persuasion b. undue influence was aimed at the protection of those affected with a weakness, short of incapacity, against improper persuasion, short of misrepresentation or duress, by those in a special position to exercise persuasion. c. Like duress, undue influence a makes a K voidable and may serve as a defense or as the basis of a claim in restitution 2. Elements a. Relationship of Trust and Confidence 1. a finding of undue influence is said to require a special relationship between the parties that make one of them peculiarly susceptible to persuasion by the other 2. the mere fact that the victim is weak, infirm, or aged does not suffice in the absence of such a relation, but t may be a factor in showing that such a relations existed (i.e. parentchild, husband-wife, clergy-communicant, physician-patient 3. Relationship of Domination a. weaker party is under the domination of a stronger party b. fiduciary status may exist in any circumstances in which it can be found that one party has imposed trust and confidence in another and come to rely upon the judgment of that other person c. Unfair Persuasion 1. Once the requisite relation is shown, it must be shown that the assent of the weaker party was induced by unfair persuasion on the part of the stronger 2. The ultimate question in determining unfair persuasion is whether the result was produced by means that seriously impaired the free and competent exercise of judgment a. look at the imbalance in the resulting bargain, unavailability of independent advice, the lack of time for reflection, and the susceptibility of the weaker party b. the weakened state of mind can result from illness, advanced age, immaturity of youth, recent death of a spouse, use of alcohol or drugs, or any other circumstances that tend to deprive a person of the ability to make sound decisions 3. Effects of Undue Influence a. unfair persuasion falls short of what is required for misrepresentation or duress, undue influence affords protection in some situations where these other doctrines do not b. the broad scope of duress has undercut the importance of undue influence

CASES
(McKinnon p 331)  Mckinnon P helped Bendidct D. P lent D 5000 and D promised not to knock down certain trees. Business did poorly. D repaid the loan and then knocked down the tress. P now brings suit against benidict. The issue was were there is evidence of overreaching by one party can the court consider consideration. The problem it there was a great hardship for something small. Court fount this court to be oppressive for 145 the interest on 5000 beidict would lose the use of the land for 25 year. The consideration was not adequate. P said D could not have done it with out him this is further evidence of overreaching. Also important that he was a smart business man and the other guy was dumb.  The P lose at equity no injunction because of the great disparity in consideration between parties. The contract did not meet the test of reasonableness. (Tuckwiller v Tuckwiller)  P lived in farm diagnosed with Parkinson’s. P Asks D to quit her job to take care of her in exchange for the farm. D performs she quits her job and then cares for her for 4 days most of which she was in the hospital and cared for by nurses, but D did all she could. The old woman has the ambulance sign the contract

Fairness must view this prospectively(looking at it when it was signed) the D wins because even though she died so quickly she agreed to care for her for the rest of her life this could have been for 20 years.  The P claimed it was unfair because she work for only 4 days we have t o look at this prospectively  Statue of frauds would come in because there was a transfer for land. (Black v bush)  The anvil case the middle man made tons of money 39 to 84 percent profit  Even if it was proven that the P received a far greater Profit than the D with much less contribution, it is ok. This is a contract between businessmen dealing at arms length with out fraud and as such if one gets a better deal that is the way it goes.  The fact that the government is the end user the court says it is impossible to govern these types of contracts  Illegal against public policy o Contract implicating collusive bidding o Contract for an illegal act o Paying off a government official

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OVERREACHING CONVENTIONAL CONTRACTS

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Duress
1. Generally a. Coercive behavior may take the form of physical compulsion(act of compelling) or a threat b. If a victim acts under physical compulsion the victim’s actions are not effective to manifest assent. The contract become void c. More difficult questions arise with coercive behavior by threats 2. Requirements For a Threat to be Duress a. Must be a Threat 1. a threat is a manifestation of an intent to inflict some loss or harm on another 2. it need not be in words but may be inferred from words or other conduct b. Threat Must be Improper 1. threat that is made to induce the victim to manifest assent to a K; courts look at the degree of wrongfulness of the offending party’s conduct and the state of mind or mental strength of the party who claims to be the victim 2. must distinguish between impermissible threats and legitimate offers 3. Types of Improper Threats a. threat arising out of torts and crimes b. threat to commence a civil action in circumstances where the use of the civil process of the courts would be characterized as an abuse of process c. threat of criminal prosecution 1. even if person believes the victim is guilty and even if victim is in fact guilty 2. if there is a sum due, relief for duress will be given only for the purpose of restoring the excess over what is reasonably and justly due c. threat to break a K 1. a threat by a party to K not to perform a K duty is not by itself, improper, and an agreement or modification induced by such a threat may be binding on both parties 2. However, the parties to a K are bound by a duty of good faith and fair dealing, if the party seeking modification is using the other vonribility to extract an unfair advantage duress works, on the other hand if the request for modification if for unsee difficulties the duress might fail. 3. Over time we shifted from focusing on the THREAT to focusing on the EXCHANGE- was the
result unfair o RSMT 176(1) (p. 216) – traditional kinds of threats that historically held improper  Threat so improper to the court they wouldn’t even focus on the exchange – fundamental unfairness

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RSMT 176(2) (p. 216) – illustrates the train of thought that maybe shouldn’t focus on the threat itself should look at it in combination w/ some kind of resulting unfairness  We talk about duress but are not saying that we are trying to discourage hard bargaining by experienced advisories  If someone gets taken advantage of in this situation that’s too bad  If k shaped by prevailing forces – TOUGH When is a threat going to be sufficiently grave to justify assent?? o Common Law - Need to overcome the will of a person of ordinary firmness o More lenient standard evolved – need only deprive one of free will o Finally – leaves no person a reasonable alternative o RSMT 175 (p.213) – person no reasonable alternative the k is avoidable by the victim  Subjective evaluation when making this determination…did the threat actually induce the assent for the particular D?  RSMT 175 (1) – threat comes from the other party to the K  RSMT 175(2) – comes to from party not part of the k; the k is still voidable by the victim in this case if… o The other party is not aware of threat  Would still be voidable if other party knew of threat  RSMT 174- if physically coerced into an agreement the assent is not effective and no K o

Pre-Existing Duty Rule
 Pre-Existing Duty Rule o Common law concept – Performance of a pre-existing duty is not consideration for a promise!!! o Only doing what you are bound to do under the existing k o Def – if a party does or promises to do what he is already legally obligated to do or if he forbears or promises to forbear from doing something which he is not legally entitled to do he has not incurred a determent for purposes of consideration

1. Pre-Existing Duty Rule a. Today, modifications are analyzed by the doctrine of duress which has been broadened to encompass such situations as economic duress b. Traditionally, the analysis of modifications was done in terms of the doctrine of consideration 1. if all a contractor did in return for a new promise was to perform a duty that the contractor owed under an existing K, under the pre-existing duty rule, performance of a pre-existing duty is not consideration 2. because the promisee was already under a duty to render the performance, there is no legal detriment c. Application of Pre-Existing Duty Rule 1. promises of owners to pay contractors more for construction, promise of employers to pay employees for their work, promises of buyers to pay sellers more for their goods 2. applies to modification under which the promisee gives in return only a promise to perform a pre-existing duty and not the actual performance of it (i.e. contractor agrees to construct a building and after work has begun make a threat to stop unless owner pays more) 3. rule applies if the pre-existing duty is one imposed by law, instead by K (i.e. police officer, under legal duty to catch criminals, cannot claim a reward for doing so.

B. Reform of the Pre-Existing Duty Rule
1. An exception to the pre-existing duty rule is restricted to where the refusal to perform was equitable and fair, and the difficulties were substantial, unforeseen and not within the contemplation of the parties when the original K was made 2. UCC 2-209
 UCC 2-209 (1) – no consideration necessary for the modification of a k for the sale of goods

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(Packers v Domenico)

UCC 2-209 (3) – still have to comply w/ the statue of frauds if the contract as modified falls w/in the statute of fraud  Modifications made there under this must meet the test of good faith…and the extortion of a modification w/out legitimate commercial reason is ineffective as a violation of the duty of good faith  We are governed by duty of good faith  Good faith – honesty in fact in the conduct of the transaction

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Alaska packers working for Domenico. Once in up there they know he is shit out of luck if he does pay them. He agrees but says he does not have the authority. He refuses to pay back at sure o Found for domenico under pre-existing duty rule- they already agreed to do the work for the origonal pay, there was no consideration for additional pay. Performance of a pre-existing duty is not consideration for a promise. o UNDER the UCC consideration would not have been need, just needs to be in writing and signed by the person against whom enforcement is sought.

RECESSION-imposition of a way to get around pre-existing duty rule
1. An agreement of rescission is limited to the discharge of contract duties 2. the parties on each side may agree to a discharge of all remaining duties of performance on both sides 3. under an agreement for rescission, consideration is provided by each party’s discharge of the other’s remaining duties, regardless of the fairness of exchange 4. If one party has fully performed, so that he owes no remaining duties, no agreement of rescission is possible 5. For an agreement of rescission, the parties need not use the word rescission, and the agreement may be inferred from conduct if indicates mutual abandonment 6. if parties agree to recind a contract and enter into a new contract those acts can be consideration. The agreement of recinding the contract is the consideration- a way around the common law pre-existing duty rule 7. Talking about the mutual understanding of the parties- don’t need to tear off signatures
(Rescission & Modification – imposition of a way to get around pre-existing duty rule  Bauman Bauch case – agreed to work for $90/wk, got another offer for $115/wk – told employer that he got other offer & then original offeror offered $100/wk o He started working in nov o Was discharged in dec  Need to figure out if he recovers $90 or $100  Terminated 1st K when tore off signatures of 1st k, so employer is bound to new agreement of $100/wk  If a k is partially executory on both sides (tore off signatures – ended the k) act of rescission and the duties they mutually agreed to forgive in original k can be consideration for the new k o Three agreements here  Original agreement  Agreement to tear off signatures & enter into new agreement  New agreement RST 89 A promise modifying a duty under a contract not fully preformed on either side is binding if (a)- unexpected stuff (b) statue (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise

(Watkins v Carrig)  excavator k to do work in cellar, rock encountered (2/3rds rock), wanted more $$$ to do work (9 times more) – resistance to paying that price  Initially the referee found for excavator – the agreement to pay nine times as much superceded original agreement o DEF appeals – did it supercede? Or was did he not have consideration?

  

Ct says that oral modification superceded the k and was bound Generally speaking parties can mutually agree to change things, changes to changes in circumstance should be carried out in the interest of business & commerce There was a change in circumstance , unlike Alaska there were no other options

(Foakes)  Payment of a lesser sum on the day cannot be any satisfaction of the whole. (PAYMENT IN FULL)  In common law if you have a dispute I owe you 50 and you pay me 40 and write payment in full then the other party has accepted it.  We did not like this the ucc 1-207(1) o What remedy does the UCC give us  You can say on the check ―under protest‖ or other language such as that and then you still preserve your rights for the rest of the money (Schweizer)  This is a cardoza opinion o They were engaged to be married and dad agrees to pay them 2500 dollars a year for a period of time and he stops. Dad says that the contract is not enforceable because to form a contract with someone not to break something they are already obligated to do(get married) is not enforceable Cardoza says even though one of them could not breach together they could breach so there is consideration. The 2 of them agreed not to jointly rescind the contract so there was consideration. DURESS IN BUSINESS (Austin v Loral)  Loral was awarded a navy contract to make radar sets, L then solicited a bids and Austin got the job, A got the first contract o A then only got part of the second contract but refused to finish the first contract unless L would higher them for the entire rest of the 2nd contact and payed they more there were no other real options for L. o The court says this is a good case for economic duress and find for L  Immeadiate possession of needed goods is threatened, or  Threating to breach the agreement by withholding goods that are needed and the threatened party must not be able to get the goods from another source This is a classic case of economic duress

UNDUE INFLUENCE (Odorizzi) o Both duress and undue influence o Guy resigns because school if he did not the school said they would fire him and publicize the fact that he is gay. The criminal charge was dropped after the dismissal of the charge he wants to rescind his resignation. o The court finds no duress because the school could fire him at any time o But they do find undue influence the court says the it is possible that his will was overborne by the threat  Coercive in nature and over comes persons will  Taking unfair advantage  Tagging unfair advantage of another weakness Patterns usually involves the following elements p 351

Concealment and misrepresentation
A. Misrepresentation - Misrepresentation may be used as a defense against enforcement in a suit brought
by the misrepresented party or as a ground for rescission or damages by the misrepresented party. It may be necessary for the P to establish that the D made the misrepresentation knowing it was false or at least with reckless disregard of the truth. 1. Generally a. 2 kinds of misrepresentation, inducement and execution
 Misrepresentation in the inducement o Normally makes a contract violable o There becomes a point when you can no longer void or raise misrepresentation—affirmance- by stating or acts Misrepresentation in the execution o Makes a contract void normally o Goes to the very essence of the document itself o The party must sign something radically different then what they thought they were signing and there must not be negligence

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b. The misrepresentation is said to go to the inducement when a seller misrepresents the quality of goods. This has the effect of making the contract violable at the instance of the recipient c. Where the parties are in an equal bargaining position with equal access to legal advice, the doctrine of misrepresentation is inapplicable. d. If you don’t disclose with the intent of the other party not finding out and they rely your screwed e. Proof of misrepresentation  1st other parties state of mind p does not have to show it was intentional negligent or innocent is sufficient to void the contract  Justifiable reliance the party asserting the claim must show he justifiably relied on the misrepresentation  It must be a fact not an opinion f. Cases where failure to disclose act as misrepresentation  Half truth- part of truth is told but rest is not to create and overall misrepresentation.  Positive concealment – if a party takes action to conceal the truth  Failure to correct past statement  Fiduciary relationship- relationship where one believes another someone is looking out for them  Failure to correct mistake- if one party know the other is making a mistake as to a basic assumption g. (Swinton)  No liability for bare non-disclosure , we have a privilege to remain silent during the bargaining process  court says no disclosure necessary there is no fiduciary relationship, no false statements were made about the condition of the house, did not try to keep inspectors out
(Kannavos v Annino)  the def bought a 1 family home and converted it into a apt building against building codes. She then sold it to the plaintiff. The township then said you can use it for this not he is trying to rescind the sale  the trial court rescinds and the def appeals  court said they can rescind because the defendant took affirmative steps(advertising it as apt building) to mislead in the advertising, even though he should have looked this stuff up  this was a half truth- because she advertised it as an apt building (Vokes v Murry)

 

Widow stats taking dance lessons and her instructor keeps leading her on and she ends up spending 31 grand She asserts o She was lured into the contractual obligation because of fraud and misrepresentation o The def says a misrepresentation must be one of fact and this was just there opinion o The courts  Says there are exceptions to just opinion and that is where there is one party in a possession to have superior knowledge to the other  When the is a fiduary relationship and so on…..

Unconscionability and problems with Adhesion contracts
A. Standardized Contracts - Adhesion Contracts 1. Generally a. today, in routine transactions the typical agreement consists of a standard printed form that has been prepared by one party and assented to by the other with little or no opportunity for negotiation (i.e. purchase orders of automobiles, credit card agreements, insurance policies b. Sometimes, basic terms relating to quality, quantity, and price are negotiable but the boilerplate - the standard terms printed on the form are not subject to bargain c. if the adhesion con tract does not fall with in the reasonable expectations of the party or if it is unduly oppressive or unconscionable c. Advantages - The advantages of the use of standard form contracts are: 1. takes advantage of lessons of experience and enables a judicial interpretation of one contract to serve as interpretation of all contracts 2. reduces uncertainty and saves time and trouble 3. simplifies planning and administration 4. makes risks calculable 5. increases the real security which is the necessary basis of initiative and the assumption of foreseeable risks Note: the benefit of this type of K makes it possible to conduct all daily transactions d. Disadvantages: the problems with standardized contracts: 1. bargaining over terms may not be between equals 2. may be no opportunity to bargain over terms at all 3. one party may be completely or at least relatively, unfamiliar with the terms Note: the cost is that one party may be able to impose terms over other party (bargaining power not equal); there are not alternatives since it is an accept or reject situation therefore the party with stronger bargaining power will force another party to adhere to demands and conditions of the agreement Remember, The fact that a K is one of adhesion is not, of itself regarded as fatal (unconscionable), especially where there is no element of surprise in the term 2. Courts Response to Adhesion Contracts a. Traditionally 1. courts have not been receptive to parties that have sought to be relieved of this agreements 2. the law presumes that a person knows the contents of a document that he executes and understands at least the literal meaning of its terms b. Modern Approach 1. courts refuse to hold a party to a writing on the ground that is was not a type that would reasonably appear to the recipient to contain the terms of a proposed K a. compelling argument with respect to tickets, passes, stubs 2. courts refuse to hold a party to a term on the ground, that although the writing may plainly have been an offer reasonably to have understood to be part of that offer a. easy to reach if the term is on the reverse side of the form and the reference, if any to the terms is itself in fine print or otherwise inadequate b. same reasoning has been used when the term was in a separate document, not attached to the signed writing but incorporated by a reference regarded by the court as insufficient



c. the size of type and other factor affect legibility of both the reference and the term itself play an important part in determining whether such a term is part of the K 3. courts avoid holding a party to a term by interpreting the language of the term to favor the party (i.e. sidewalk - lawn hypo) 4. The UCC requires that a term be ―conspicuous‖ which it defines as being written in a manner that a reasonable person against whom it is to operate ought to have noticed it 5. With standardized agreements there is no assent to be bound by the writing, no assent to be bound by particular terms of the writing, or no assent to meaning of the term advance by the author Note: Freedom of contracts is not unlimited since there is a refusal to destroy a standard of care and to protect the needs of people from having their goods and services being overreached with the power to drive unconscionable bargains

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Contracts of Adhesion
o o o o o o o Standardize form a take it or leave it Though to be embodied in the standardized form Basically you could fill in the blanks but not change anything else The contracts are everywhere now These contracts were drafted to the advantage of the draftor Originally the courts would engage in strict construction this meant they would strictly construe the language against the drafting party Standardization is a cost saver and a time saver Traditional response, Is there consideration-Yes In the 20th century the courts of law not only the courts of equity have begun giving relief for unconscionable contracts (2-302 UCC) Restatment 211  (2) such A WRITING IS INTERPERATED WHEREEVER REASONABLE AS TREATING ALIKE ALL Thoes SIMILARLY SIDUATED , WITHOUT REGUARD TO THEIR KNOWLEDGE OR UNDERSTANDUNG OF THE STANDARDS TERMS IN THE WRITING  (3) if you know there is something in the agreement that you know the other party would no go along with it will be no good

o o
o

(O’Callagahan)
o o Plaintiff fell walking across the parking lot There was a clause in the lease that absolves the Landlord of liability o She alleges that the contract was invalid and if she wanted an apartment she had no choice but to sign o The court says that the relationship between her and her LL is one of private concern and did not find the lease unconscionable o She was claiming it was against Public policy and the court said take it to the legislature o The court points out places where these exculpatory clauses were no good  Shippers, public employees, master/servant o Dissent says is an issue of public policy because you would not argue over a lease clause like this.

(Parcel Room)  Parcel room lost his package he paid 10 cents to put it in there for this he got a ticket on the back of the ticket there was a written agreement that they would not be liable for more than 25 dollars  Court found this is not a contract , since the P was not informed of the fine print provisions.  You must make sure the other party know it is part of the deal. Disclosure is the best route

(Gram v Scissor-tail-inc)- 377

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Gram signed a form that had an attribution clause Gram claimed breach of contract there was an arbitration clause

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Gram claims unenforceable because contract of adhesion and unconscionable This did fall in Grams reasonable expectation but, Contract was unconscionable because the arbitration clause would cause the arbitrator to be presumptively bias

(Henningsen v Bloomfield)

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 o o

H bought a new car from B, the steering wheel feel off and H tried to sue B but be B claims that the disclaimer on the warranty made no liability. There was find print disclaimer on back and over the signature line was something saying I read everything on the back. Court found this contract of adhesion was unconscionable o Disclaimer not effective  1st changes in society no longer allow for absolute freedom of contract  he had no choose big 3 monopolized auto industry all have form contracts UCC 2-314- warranty of merchantability - We say there is an implied warranty for the sale of goods if you are a
merchant that the goods will work for the use they are sold for. UCC 2-315- implied warranty of fitness of particular purpose-if the seller has reason to know the particular purpose, and the buyer relies on the judgment UCC 2-313- expressed warranty o No magic words. o (A) remote purchasers, shrink wrap purchases o (B) talks about those statements made to the public and the expressed warranties that go along with that UCC 2-316(2)-Limiting implied warranties o you had to mention the word mercerantability and if it was in writing it had to be conspicuous old one now new wording What constitutes conspicuous  what a reasonable person against whom it is to operate ought to have a notice

o

UNCONSINABILITY

B. Unconscionability
1. If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause as to avoid any unconscionable result 2. Remedies for Unconscionability a. the court may refuse to enforce the entire contract or it may refuse to enforce or limit the application of an unconscionable clause b. courts usually have contented themselves with refusing to enforce or limit the application of an unconscionable clause c. courts have declined to entertain damage suits based on Unconscionability d. the remedies for unconscionability are cast in terms of withholding relief instead of avoidance 3. Substantive Unconscionability a. Unconscionability includes (a) an absence of meaningful choice of one of the parties together with (b) contract terms which are unreasonably favorable to the other party. What is meaningful choice is determined by the circumstances surrounding the transaction 1. inequality of bargaining power 2. understanding terms of agreement (manipulation of rules of offer and acceptance) 3. important terms hidden in fine print (adverse construction of language) 4. contrary to public policy b. Substantive is fault or unfairness in the bargaining outcome, that is, unfairness of the terms of the contract. Usually involves either an excessive price or an unfair modification of either the seller’s or the buyer’s remedies 1. when a court declares a contract to be substantive unconscionable the court is forced to substitute its own valuation of the goods contracted by the parties involved Note: Excessive price is two or three time market price to goods in same area

4. Procedural Unconscionability - is fault or unfairness in the bargaining process because their is no meaningful choice a. Includes: employment of sharp practices, use of fine print, use of convoluted language, lack of understanding, inequality of bargaining power b. When a contract is found to be unconscionable at the time it was made, the contract should not be enforce c. Clues: K; stronger party know that weaker will be unable to receive substantial benefits from K; weaker party is unable to reasonably protect his interests due to physical or mental infirmities, illiteracy, unable to understand the language of the agreement Note: Most cases of unconscionability involve a combination of the two types of unconscionability and it is generally agreed that for the court to relieve a party from K there must be procedural unconscionability 5. Extrinsic Evidence a. When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting (trade or usage), purpose and effect to aid the court in making the determination (Seller can provide evidence that K or clause was bargained for, not mere boilerplate language while the buyer can show vice) 6. Public Policy Rationale Rst 178 a. Freedom of contract is overridden by public policy. b. Tendency now is to strike particular provisions instead of getting rid of the whole thing c. Illegal contracts Rst 178  Contracts that violate specific laws- murder contracts would be illegal  Contracts that are contrary to social and legal norms and my touch on the subject matter of something controlled by statue 8. Clauses Limiting Remedies by such a clause a party, rather than trying to exculpate itself from liability altogether, purports to limit the remedies available to the other party in the event of such liability. 9. Courts are less likely to find unconsionability in commercial settings o One area in which it is found with some regularity is franchise agreements (cambells soup vs lentz)
o o Campells soup have a contract with NJ farmers for carrots, The price of carrots went up, The farmers started selling their carrots to other people and the soup company says breach The court says that this contract is so 1 sided in favor of campells soup and signed they pushed so hard to get the contract the court would not enforce it o One provision was the farmers had to sell all there carrots to cambells and the cambells did not have to buy them all but they could not sell to any one else o When we think of unconscionable we think on party has a lack of a reasonable choice o UCC 2-302- rst 208 applies this to all other no goods cases  the basic test for unconsionability it  weather in light of general commercial background the clauses are so one sided to be unconscionable under the circumstances present at the time of the making of the contract o normally we will talk about unreasonable terms and lack of meaning full choiceprocedural

o o

o Unreasonable favorable terms- substantive Common laws courts did not recognize unconsionability, then they started to recognize it when there is a fiduciary relationship – ie. The terminate people no fid relationship. fiduciary relationship- def where one person places complete confidence in another in regard to a particular transaction

(Willians v Walker Thomas furniture)  the furniture store had something written in their contract that was a cross collateral policy that meant you never paid off anything until you have paid off everything

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consumer defaulted, the merchant knew she was on well fair

Was it a Luxury or a necessity
the final court says contract terms unreasonable favorable to one party and meaninglessness of choice can lead to unconsionability- meaningless choice here is she is really did not understand the terms of the contract

(Jones v Star Credit Corp.)

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P tried to buy a frizzed from D she financed it and Paid 1200 when it was worth 300 Court said unconscionable not just because of the price but because she was on well- fare and they knew this o Exorbandant profit margin and gross and gross inequality in bargaining power. P only spoke Spanish and they signed a contract in English. Lack of meaningful choice.

(Armendariz v Foundation)  Agreement contained an arbitration clause. The D employees were forced to cooperate and the employer was not  Courts overturn the clause because there was a lack of mutuality. You need bi-lateness of arbitration.  Like scissor-tail because if the contract is adhesive you must then further look to see if it is unconscionable o Does not fall within expectation of the weaker party o unduly oppressive or unconscionable  Procedural-(process of getting there) and Substantive- (outcome ) unconsionsibility must be present for refusal to enforce but they need not be present in the same degree  This is a contract of adhesion (Marin v Marvin) Public policy  In this situation there was a stable and meaningful relationship  Should we recognize cohabitation agreement as regular contracts or contracts of adhesion- this is take it or leave, live with me or not. – does not have to be in writing. – Finally public policy is not against cohabitation

Judicially created Public Policy
(Hopper v. All Pet animal Clinic)  Pet doc worked at a clinic quit to open her own, had signed a non-competition clause to not practice small animal medicine within a 5 mile radius of the town for 3 years  For a no-compete agreement you consideration there must be a separate consideration in this case she got a raise that was it  Found unconscionable they can only protect against unfair competition not normal competition. Duration was too long 3 years too long – one year period probably good.  For a non-competition clause in Wy and most states o Must be in writing o Has to part of contract of employment o Has to be based on reasonable consideration o Has to be reasonable in duration and geographic limits o Not against public policy  Restriction for small animal medicine –  Restraint of trade is reasonable if it o Protects employer o Doesn’t put undue hardship on employee o Doesn’t harm the public (Howard v Babcock note 3 p 441) Public Policy  No non-competition clause for lawyers but there can be compensation when they take clients from the firm

o

A client can fire a lawyer for any reason but they still have to pay the lawyer for Quantum merwit- for services rendered

(Ingram v CAB)  Can chandler modify the contract o Old rule all or nothing o Trend rule judicial modification  BLUE PENCIL RULE- if you can physically eliminate words and it still makes sense you can do
that.

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The Rule of reasonableness-this is what they followed here unless the circumstance indicate bad faith by employer court will enforce the covenant not to compete to the extent that they are REASONABLY NESSARY TO PROTECT THE EMPLOYERS INTREST WITH OUT IMPOSING UNDUE HARDSHIP ON THE EMPLOYEE, WHEN THE PUBLIC INTRESTS IS NOT ADVERSLY EFFECTED  Problem is this the employer be try to get away with whatever they can Non-competition clause 2 years and a large part

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REMEDIES FOR BREACH
 
Expectation damages-The point of remedies is to make the injured party whole. Put the injured party in the position he would have been had the contract been performed as promise, nothing more or less Reliance = If expectation damages cannot be proven or have not been proven, the non-breaching party may recover reliance damages. Reliance damages are measured by the amount of money necessary to compensate the innocent party for expenses or loss incurred in reasonable reliance on the K that was breached. (That is the change in position in reliance on the K by incurring expenses in preparation or in performance) The reliance interest is ordinarily smaller than the expectation interest because while the expectation interest t akes into account the injured party’s lost profit as well as reliance, the reliance interest does not include lost profits) Restitution = Recovery in restitution is designed to compel the D to disgorge the money value of the benefit that the D received from partial or full performance of the K. The P is asserting that the D will be unjustly enriched if not required to disgorge its ill-gotten gain. The goal of restitution is prevent unjust enrichment SPECIFIC RELEIF – we don’t like this only given when the standard form of relief will not compensate is specific
performance going to be given

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Measuring Expectation- expectation measures the puts the party injured in a place it would have been had the promise been performed. (The loss must be foreseeable and proved with reasonable certainty 1. A breach may affect a party in four ways: a. Lost Value = the difference between the value of performance which the injured party should have received and the value, if any, that the party has already received (P’s loss opportunities) 1. the loss in value should be the loss to the injured party itself, not some hypothetical reasonable person or on some market b. Other Loss (residual category)(incidental and consequential) c. Cost Avoided = the breach may have a beneficial effect on the injured party by saving that party further expense that would have been incurred had performance continued(cost of complete performance – cost of reliance)- Further expense. d. Loss Avoided = the breach may have a beneficial effect on the injured party by salvaging and relocating some or all of the resources that otherwise it would have to devote to the performance of the contract 5 General Measure of Damages = (Loss in value + other loss) - (cost avoided + loss avoided) P.484&486 a. Costs avoided = cost of complete performance - cost of reliance

b. Expected Profit = loss in value - cost of complete performance 6. Alternative Measure of Damages = cost of reliance + profit - loss avoided + other loss 7. To attempt to put a value on the condition that would or might have resulted would be too speculative. If this was a situation that was in a commercial realm dealing with goods it is easier to calculate. 8. Overhead - in a claim for loss profits, overhead expenses should be treated as a part of gross profits and recoverable as damages. a. Overhead should not be treated as part of sellers cost b. Overhead is fixed and constant (regardless of the layout of a particular contract) so nonperformance would not result in no cost savings therefore no deduction in profits should result c. Overhead as a loss incurred because overhead can be spread over transactions, therefore, each transaction will bear a higher cost
(Klein v. PepsiCo)

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Klein wants to by a jet from Pepsi co. Janus is the middleman they agree on 4.6 Janus and Pepsi. Then Janus was going to sell to Klien for 4.75. 2 issues o was there a contract- yes, court says they were bound, he made a payment. o Is specific performance appropriate  This state adopted the UCC specific performance is last resort 2-716 governs this.
The fact that there were 21 other plane and Klien had bid on other plane show this was not the only G2 out there- Klien did not cover he made an unreasonable delay o When we say cover we mean similar products being available 2-712 UCC  Specific performance is available when there are not similar goods out there  Price increase – is not enough for specific performance just money damages is higher After no specific performance if not cover then what damages do we give  2-713 – market price damages, in old 2-713 you can have the dif between the contract price at the time of the breach and the market price plus incidental and consequential damages the minus any savings. 

o

Seller’s Breach (buyer has the obligation to cover) a. UCC 2-712 Cover (in a market economy it is presumed that parties can cover easily) 1. A buyer may in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution of those to be due from a the seller. 2. The buyer may recover from the seller as damages the difference between the ―cover‖ price and market price plus inconsequential damages. 3. It not is necessary for the buyer to establish market price rather the burden is on the seller to prove that ―cover‖ was not properly obtained. b. UCC 2-713 - Buyers Damages for Non-Delivery or Repudiation 1. Market price is an appropriate measure of damages when a seller breaches a contract. 2. Market price differential = the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of breach and the contract price together with incidental and consequential damages provided in 2-715, but less expenses saved in consequences of the seller’s breach. 3. Purpose = The purpose of 2-713 is to award expectation damages in accordance with the parties allocation of risk as measured by the difference between contract price and market price on the date set for performance. This may result in a windfall for the buyer yet the market damages rule discourages the breach of contracts and encourages a more efficient market. If not, then sellers would be encouraged to breach the contract if the market fluctuates to their advantage. Note: The argument against is that we are not measuring actual loss with this measurement. The argument for is that these damages serve as a penalty to discourage breach of contracts 4. UCC 2-715- Buyer’s Incidental and Consequential Damages  Consequential damages resulting from the seller’s breach include:

1. incidental- money you spend to cover  any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason (foreseeability) to know and which could not reasonably be prevented (avoidability) by cover or otherwise; and 2. Consequential- money you spent because the deal did not go through and covering would not have prevented 1. injury to person or property proximately resulting from any breach of warranty

Note: 2-712 is evaluated first as remedy. If relief is denied under 2-712, relief can still be granted under 2-713. Relief would be denied if there is an unreasonable delay, no effort to cover or party asked for specific performance

Note: A breach may result in loss in value or other loss regardless of whether the injured party chooses to continue performing or to stop performing and treat the contract as terminated.

(Laclede v Amoco) 2. Contract for propane gas distribution, this was a requirements contract 3. the contract was for propane gas distribution the plaintiff agreed to maintain distribution , gas price goes up A
wants to charge more and supply less. L demands Specific performance.

4. Dist court no contract because there was no mutuality of remedy for contract, appellate court said you don’t need
that

5. Appellate court says there is a contract, because . Court says specific performance is appropriate
(Notherern V. Bliss)

o o o

Building contract P tries to get the specific performance for building a contract A court of equity should not order specific performance unless there is special interest or public interest involved.
If they have a problem if it is not done in time the court says go to the courts of law

(Wallgreens v Sarah Creek)  Substituting an injunction for damages o In this case because damages would be too hard to find out o You can’t know how much wall greens is really losing

MEASEURING EXPECTATION
  3 limits availability , forseeability, certainty

(Vitex)  Overhead be part of the damages calculations only as a different loss not as a cost avoided  You must incur overhead as a result from preforming
(Hides)

  

P agreed to buy all of D’s hides for a 10 month period. P put check in the mail D said you have only a few hours. D cancels contract. P had to pay more to get hides for the Mexicans they were selling to. Trial Court said breach by P and ended contract the appellant court reversed. Delay immaterial P chose to cover D does not show it is improper 142,000 difference, 3,000 shipping, incidental and consequential damages are included 2-712,

(Davis v Diasonics)

  

 

Loss volume seller – even though I covered yours I could have sold it to another unit 2-708 o Not only weather the seller could have made the extra volumes and they would have been profitable Davis wants their deposit 300 grand – wins at the trial court Under 718(2)b davis is entitled to deposit – 500, davises right to restitution is qualified under 718 3 (a) to the extent that D can establish a right to get damages under any other provision in article 2. o 4 provisions concerned with general damages  706, 708(1)(2), 709  1 (view) you can’t get to 708 until you go through 706 and 709  709 not applicable  appellate court says that the illonis court would follow there other jurist ions and allow them to follow 708 because they are a lost volume seller we want to put them is as good of a position if they would have preformed Dia wants lost Profits- wins at appellate court Lost volume seller can recover its lost profits under 708 A lost volume seller can skip from 706 resale to 708 damages. But 708 1 and 706 take precedence over 708 (2), can’t get lost profits if losing the sale makes another sale possible

(USA v Algernon)



 

Contractor said to subcontractor I am not going to pay you the money you pent for renting the crane. Contractors breach. Sub contractor started performance because did 28 percent of contract and terminated when the contractor refused to pay. Sub Contractor wants money for what they have done. Blair retained benefit without having paid for them therefore subcontractor is entitled the 28 percent restitution(Quaintim merwit) It does not matter if they would have lost money on the contract. They would have lost money ( loss+other loss-cost avoided- loss avoided) They will get the reasonable price not what they spent.

Avoidability
  You can’t recover for a loss that you could have avoided rst 350 Rst 45- once you start performing you can’t revoke

(Rockingham v Luten)  Luten building a bridge after they spent 1900 they were told stop. They kept working and spent 18 grand more  Court says they had a remedy stop working and sue for breach. And Luten loses.  If goods then UCC 2-704
o 2-704(2) – if you are making goods and they are unfinished we give options  you can complete the manufacturing of the goods and idenfy them and try to resell them  you can stop manufacturing and try to sell for scrap  or you can proceed in any other manor

What if your reasonable commercial judgment is wrong, even if they are wrong if it is reasonable then they will not be penalized  once the contract has been breached you must treat it as it has been breached (2)704(2) Forseeability  we cannot recover for damages that were not forseeable

(Toungish v Thomas)  Trial court awarded Coop $455 in damages based on loss of handling charges, represented their actual loss. (UCC 1-106)profit damages. Coop appealed and Court of appeals reversed for determination of damages based on market price under UCC 2-713.



455 was Thomas actual loss. Where as 713 encourages people to honor contracts and gives them the difference between mkt price and the contract price 4000

(PARKER v. 20TH CENTURY-FOX FILM CORP.)

 
    

Constructive service Actress was supposed to be in a singing movie, fox canceled it and offered he a western in Australia. The contracts were for the same amount of money but it took away director approval rights
She has a duty to mitigate fox says they offered he a movie for the same pay, the court finds that there are to many differences and this is not a substitute to the contract Appellate court says this substitute should not mitigate these damages. Make new standard for substitute: comparable or substantially similar o not need to take inferior employment anticipatory repudiation- means time of performance is not yet due , but one party says they will not move forward w/contract. 2-610, if you know someone is going to breach you don’t have to wait ready willing and able UCC §2-610 – refers to material breach o Aggreieved party can wait for a reasonable time for breached party to perform- try to convince them o You can still pursue any remedy available to you (even if trying to convince them to perform, while urging)  Can get another buy/seller  Can still urge  But no cause of action till performance due date passes o Your duties exempt under contract UCC §2-611 –retraction of repudiation o If you repudiated and due at x and repudiated earlier, we let you change your repudiation and retract that UNLESS other side has cancelled, changed position or considered repudiation final (i.e. gotten other contract) o Goes back to common law premise that you haven’t really breached till due date of performance passes.



Avoidability and Cost to Remedy Defect  Incomplete work- cost to complete that work might be v. small as difference in value between work you got and work completed- cost to complete  Defective work- cost to complete might be very expensive b/c could constitute tearing something out and replace it- cost to repair o These should be done in the same method not an alternative method unless it is unreasonable economic JACOB & YOUNG v. KENT  the builder used the wrong pipes not reading but an equal value substitute  Issue- what damages measure should we use? cost of replacement vs. difference in value (difference between what house is worth vs. how much it would have been worth w/Reading pipes) o -typically apply cost of replacement o But court says difference of pipes was trivial and unsubstantial  Said cost of replacement would be grossly out of proportion to good to be obtained (p. 509).  Substantial performance- an omission both trivial and innocent will be attoned for resulting damage and will not always be breach for forfeiture  Normally you get cost to repair or complete unless grossly out of line and unjustified for good obtained and in that case used value diminution (2) Security services conctracted to provide 20 guards for $18,000 to prevent riot. No riot. No problems, but found out only 14 guards. Does hiring guards party have claim for damages- NO- there are no damages. You contracted for security so there would not be unrest, there was no unrest, thus no damages. What about restitution. I paid for 20, you gave me 14. I should have unjust

enrichment conferred back to me- NO- no damages no coverage. You just contracted for safe environment and that’s what you got. They should have tried to recover off contract w/ restitution approach.

(GROVES v. JOHN WONDER)

    Dissent 

Groves was supposed to grate land after they took soil Cost to complete = 60,000 diminution= 12,160
D willfully breached the K by removing only the best gravel and leaving the rest on the land. It was determined that it would cost $60,000 to complete the project but the increased value of the property of will only be $12,160

D willfully breached we don’t want to reward for this. The majority is giving punitive damages

(PEEVYHOUSE v, GARLAND COAL AND MINING)

 
 

Peevyhouse lease to coal in lease was at the end of the contract they had to move dirt they did not It would have cost 29,000 to move the dirt but only increased the value by 300 They sued for 25,000
Court decided to award diminution value- $300. typical measure of damages is cost to complete, however when have unreasonable economic waste, if awarding cost to complete would result in unreasonable economic waste we will go with diminution value Economic benefit to PL would be grossly disproportionate if awarded cost of performance (cost to complete) to value of what property would be worth if work done (diminution value) Here coal was not as malicious as grove

 

FORSEEABILITY
      Contemplation test- was this loss w/in contemplation of parties at time of agreement. Do we have facts/ circumstances that have been relayed that would make loss foreseeable. Tacit agreement test- need more than facts relayed, parties must have consciously assumed the liability. This can be inferred (need not be expressly assumed) it is a tacit agreement to assume the risk of liability. UCC 2-715 – incidental and consequential damages ???? R § 351(3)- a court can limit damages by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance or otherwise if it concludes that in circumstances so justice so requires in order to avoid disproportionate compensation - we permit courts to limit the foreseeable loss UCC 2-710(3)- in a consumer contract a seller may not recover consequential damages from a consumer. (formerly seller could not recover consequential damages at all) Foreseeabilityo judged at time contract is made. o All that must be foreseeable is that loss would result if contract is breach. Breach does not have to be foreseeable or way breach occurred need not be foreseeable, just foreseeable that loss would occur if breach occurred. o Just need to be foreseeable by party in breach (need not foreseeable by both parties) and loss must be ―probable‖ (not certain, not possible)

(HADLEY v. BAXENDALE)

 


Mill shaft breaks they take it to a delivery guy to get it repaired. He was late bringing it back the mill sues for 300(profits and wages) delivery says just 25 Mill was shut down for 5 days asking for profits
When 2 parties make a contract, breaching party is only liable for damages that they could have anticipated that would naturally arise. Or for special circumstances where PL told DEF what would have happened.



New Rule o ―such as make fairly and reasonably be considered arising naturally from breach OR o can reasonably be supposed to be in contemplation of both parties at time contract was made as the probable
result of the breach, here Baxendale did not communicate the special circumstances



(KENFORD CO. v. COUNTY OF ERIE)

   

Stadium case Can the P recover damages against the D for the loss of anticipated appreciation of the surrounding land. And how about lost profits
Appellate division says lost profits are not recoverable because they were not foreseeable and they were not in the contemplation of the parties when they entered into the contract. There is no evidence on record to demonstrate that the parties reasonably contemplated or would have contemplated that the D was undertaking a contractual responsibility for the lack of appreciation in the value of P’s peripheral lands in the event the stadium was not built. Therefore, P cannot recover for such damages.

EMOTIONAL DISTRESS
  R § 353 Recover for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result Often goes along w/ consent, and redress and undue influence.

CERTAINTY **limitation on expectation damages** R § 352 – damages are not recoverable for loss beyond an amount that he evidence permits to be established w/ reasonable certainty. Usually a question of law (not fact) Chance- many times value can be placed on chance (i.e. if you didn’t interfere I would have won lottery) R § 348(3)- if a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no conditional right at the time Compensation may be do for loss of chance in proportion to the probability of it happening Damage to reputation- much too speculative, usually very hard to recover. Vanessa Redgrave case –allowed to recover for roles she actually lost but not reputation, too uncertain to put dollar amount on Loss of profits reasonably certain of what one would have made had not been for this breach. Historically if you were new business, could not get loss of profits b/c too uncertain, but if established one could b/c thought you could make certain projection

(FERA v. VILLAGE PLAZA INC.)

   

Fera went to move into their lease space and it was given away , they sued for lost profits District court for fera 200,000 over turned by appellate supreme reveres back The new business rule suggest lost profits can’t be as damages for a new business. Court decides that just b/c
new business does not mean you cannot get lost profits Court here says we might not have found exact same way as jury, ok, we have new standard of review if jury thinks profit certain, give it.

(LIQUIDATED DAMAGES AND PENATLY)

C. Liquidated Damages and Penalties 1. Penalty: 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 punishment, the threat of which is designed to prevent the breach. Penalties are unenforceable 2. Liquidated Damages: the sum a party to a contract agrees to pay if he breaks some promise, and which, having been arrived at by a good faith effort to estimate in advance the actual damages that will probably ensue from the breach, is legally recoverable as agreed damages if the breach occurs. a. Provisions for liquidated damages are enforceable if they are a reasonable forecast of just compensation for the breach. b. Presumption is that the clause is reasonable c. Totality of Circumstances Test: The overall single test of validity is whether the clause is reasonable under the totality of circumstances test. 1. The greater the difficulty of estimating or proving damages, the more likely the stipulated damages will appear reasonable. The more uncertainty the more speculation, there greater likelihood of acceptance of the damages by the court. The easier to prove the loss, the more like provision would be view as unreasonable. 2. The modern trend is towards assessing reasonableness either at the time of contract formation or at the time of the breach 3. .If the damages provided for in the contract are grossly disproportionate to the actual harm sustained, the courts usually conclude that the parties original expectations were unreasonable. d. UCC 2-718 - Liquidation of Damages 1. Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by breach and the difficulty of proof of loss. 2. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. 3. The purpose of stipulated damages is to compensate the promisee for non-performance e. Common Law -courts generally looked with suspicion on such clauses. This was because such provisions often constituted a penalty and were more or less forced upon the party having lesser bargaining power. f. Policy reason in support of liquidated damages - Page 557 a. controls exposure of risk b. useful when damages are remote or uncertain c. allow parties to fashion a remedy consistent with economic efficiency g. Disadvantages are that they could be unconscionable h. A provision for the payment of liquidated damages will be sustained: TEST 1. if it appears that at the time the contract was made the damages in the event of a breach will be incapable or very difficult of accurate estimation 2. that there was a reasonable endeavor by the parties as stated to fix fair compensation, and 3. the amount stipulated bears a reasonable relation to probable damages and not disproportionate to any damages reasonably to be anticipated. i. companies will try to get the most in liquidates damages because if they are rules as damages they will just get reasonable damages Note: The amount stipulated in the contract bears a reasonable relation to probable damages and is not disproportionate to any and all damage reasonably to be anticipated from the unexcused delay in performance.

Subterfuge- something is a bonus. Here is the price its 500,000 buts it’s a 1000 bonus everyday you are early. Seen a lot in construction contracts. If it operates as penalty it will not be enforced,. If it acts as bonus then it will be enforced (WASSERMAN v. TOWNSHIP OF MIDDLETOWN)

   

Township breached lease there was liquidation damages that were construction cost + 25 percent of the average profits for the last 3 years Court found that the receipt compensation clause seems to give the plaintiff more than he suffered for the breach if this is true then it will be a damage and that part of the clause will be unreasonable Was this a good faith effort to estimate damages or not it will be looked at in a totality of circumstances 2-718(1), 356(1)

(GUSTAFSON v. STATE)

 

construction contract 210 dollars per day late. Courts found for the state reasons o Damages are impossible to measure o The amount in K seemed reasonable to the amount of the loss o The damages were not disproportionate

a. seller shall pay buyer a penalty—uses word penalty. Chances are this would be penalty b. seller shall be liable to buyer for 10,000—probably ok here. Might be penalty. c. seller hereby aggress to either deliver machine or pay buyer 10,000. – here at inquiry would find out if it were is this assessment at time of contract or at time of breach. (take or pay, or alternative performance) is this penalty or alternative performance contract. Assess where it will fall. d. buyer shall be entitled to keep 10,000 deposit seller has made to secure performance of this contract.—here formerly got to keep deposit no matter what. Not case today. Restatement discusses this. R§374(1) If a party justifiably refuses to perform you have SHOT of getting back your deposit. (at common law you automatically incur loss) (2) if considering liquidated damages, will be treating this differently.

Chapter 6

FINDING THE LAW OF THE CONTRACT PAROL EVIDENCE RULE
No applicable to interpretation

I. Determining the Subject Matter to be Interpreted
To what extent may one party later try to prove in court that earlier or written discussions are part of the contract, despite their absence in writing? A. Generally 1. It is a general principle of substantive contract law that a later agreement usually supersedes an earlier one, if the parties intended so 2. The parole evidence rule is applicable when the latter agreement is in writing and the judge is the one who determines whether the parties intended the written agreement to supersede any earlier agreement 3. Parole evidence issues can arise where parities to a K have reduced at least part of their agreement to writing or writings and one party seeks to use evidence of prior agreements to add or modify the terms of the writing. The party who wishes to exclude this extrinsic evidence will attempt to invoke the PER to establish that the prior agreement is not as a matter of law part of the legally enforceable K between the parties
Steps: 1) Look at see if final 2) If final, then see if complete or incomplete 3) If incomplete, permitted to submit extrinsic evidence to that writing. We can supplement but not contradict

Merger Clause – we are merging everything in this contract ―this contract is final expressions that this contract contains entire agreement of these parites and nothing else here in.‖ it is evidence that it is a completely integrated document (final and complete document). Not dispositive, but it is evidence you can use to say it is final and complete.

B. Integration
1. Is the agreement integrated? a. the answer depends on whether the parties intended the writing as a final expression of the terms it contains. Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression. The parole evidence rule applies only to document which are integrations (final expressions of agreement) b. must be final c. 3 ways to determine integration


  2. Once it is determined that a document is an integration is must be determined whether the parties intended that the integration contain all the details of their agreement, or only some of these details a. Not Integration- can use parol evidence to supplement and contradict b. Partial Integration - If the document is not intended by the parties to include all details of their agreement, it is considered partial integration. Then evidence of prior agreements or negotiations is admissible to supplement the writing but not to contradict it c. Complete Integration - If the document is intended by the parties to include all the details of their agreement, it is considered to be totally integrated. If an integration is total, evidence of prior or contemporaneous agreements or negotiations is not admissible to contradict writing or supplement the writing 3. Parole Evidence Rule - the parole evidence rule provides that evidence of prior agreement (oral or written) may never be admitted to contradict an integrated writing, and may furthermore not even supplement an integration which is intended to complete ( Common Law View - Rest. 213) a. the parole evidence rule protects the sanctity of final written documents, even at the expense of fulfilling the parties actual intentions b. Writing Occurs at Same Time 1. If an oral agreement occurs at the same time as the writing is signed, some courts treat as they would treat a prior oral statement (bar it from being introduced to contradict the writing, or to supplement the writing if it is total integration 2. Corbin View - If an oral agreement occurs at the same time as the writing is signed, this fact proves that the writing was not intended to be a total integration. Therefore, Corbin would allow evidence of the oral agreement to supplement the writing c. Subsequent Agreements - The parole evidence rule never bars consideration of subsequent oral agreements. A written contract may always be modified after its execution by an oral agreement 1. construction K’s generally contain a provision providing that no request for extra work will be effective unless made in writing; yet this clause is often ineffective d. UCC View - Same as common law view except the writing may be explained or supplemented by (a) course of dealing or usage of trade (custom) or by course of performance and (b) by evidence of consistent additional terms unless the court finds the writing to have intended to be integrated (Applicable to only sale of goods) 1. Evidence relating to these terms usually do not provide the substance of the agreement, but aids in the interpretation of the meaning of the parties own words. This is why the parol evidence does not apply here. 2. Patent and latent ambiguities

confine selves to writing-look at writing itself and if in view of its thoroughness specificity, etc. and it if appears to be final expression or not final. (look at definitions, terms, etc) look at writing plus surrounding circumstances, but exclude prior negotiations look at writing and surrounding circumstances plus evidence of prior negotiations

 Patten - Ambiguous on its face(ONLY IN COMMON LAW) changed over time  Latent – ambiguous when you try to apply it 4. Separate Contract a. if the separate K was entered into before the execution of the integrated writing and is inconsistent with its terms, the execution of the writing will discharge the prior K b. if the subsequent K is found to be a complete intergration, it will be found to indicate the parties intent to discharge all prior agreements involving subject matter within its scope

GIANNIE v. R. RUSSELL & CO.

 


the P leases space from D lease says cant sell tobacco. P said lease also gave him exclusive right to soda this was never written just an oral agreement. Another store sells soda. P brings suit trying to get around the Parol evidence rule by saying this is a separate deal not trying to reform a written contract Court said written contract is the only evidence of an agreement and must be relied on and all oral agreement are superseded by a written contract RULE- unless fraud accident or mistake are alleged parole evidence can add or subtract to a contract.
The court looks at the written agreement to see if it appears to be complete and then look at the oral agreement and see if it comes ―within the feel that is embraced by the written agreement ― Would the parties naturally and normally include what the P claims as the oral argument in the written argument the court says yes if there were part of the deal it would have been in there therefore we will not consider the evidence of the oral contract because the court views the contract as complete This is a completely integrated contract

     

MASTERSON v. SINE



Partially integrated contract, P transferred to Brother and reserved an option to purchase for the same price they gave it + deprecations. P filed for bankruptcy. His trustee and wife want to exercise the option that he had. The trial court would not admit parol evidence for the option contract- that is that the property was to be kept in the family. The appellate court reverse saying this should be allow because it might not necessary be included 2 standards for allowing extrinsic evidence o UCC 2-202 standard – the terms that are agreed upon would certainly be in the agreement, are allowed ino Rst 213 – might naturally or normally flow from the agreement are allowed----Ex. Less things are defiantly flowing from a contract then naturally flowing from a contract ????????????????????????????????????????????????????????????????????????????

Bolinger v. Central PA Quarry  topsoil sandwich – take off soil on prop put waste & put top soil back. Assumed this had been put in the writing. Central followed plan in the beginning. B’s complained & Central said nothing could do  PL want us to reform the k to include the provision o Inadvertently not in there – should be reformed  Course of performance- they started doing it this way  Mutual mistake – reform the k o Rely on the evidence – that central had began to perform at the beginning & then later stopped  Course of performance  Doing this on neighbor’s property too  Why don’t we have an issue w/ the PER? o It’s a mistake!!! o When we talk about the applicability of PER we are assuming a valid document o Evidence that tends to show we are not dealing w/ valid doc is allowed  No problem w/ PER – showing that there is a mistake  This should’ve been part of the deal o Typical case – scribiner’s error  Mistake in transposing the document



Refrarmation if the k does not reflect what the parties agreed upon

Mistake  Mutual Mistake = At common law if the parties were operating under mutual mistake the cts were willing to give relief o Mistake went to the basic assumption on which the k was made o Mistake has material effect on agreed exchange performances o Mistake isn’t one which one of the parties bears the risk = sometimes the k says who bears the risk  If one of the parties bears the risk, they bear the risk  If you entered k w/out complete knowledge of the fact – called this consciously ignorant  You bore the risk in this case  Ex. Sherman v. Walker – p. 798 (poem at the bottom) o K for a cow $80 – thought it was sterile  Sold for value of the meat  When time to deliver cow she’s pregnant – menas that she would be worth $700 o Ct said a barren cow is substanitlly different than a breading one  Rose was not the animal that the PL intended to sell or the DEF intended to buy  Both parties under same mistake of facts  Went to essential assumption of the k  Unilateral Mistake – cts much less willing to give relief unless the other party knew or had reason to know of mistake o Became a little more lienient w/ this – started w/ contractor bidding cases o In order to find unilateral mistake:  Goes to basic assumption of k  Material effect on the agreed exchange of performance  Performance would be unduly burdensome on one party & the other party hasn’t relied  Unconsionablity – enforcing k would be unconscionable  Would result in degree of hardship so severe that would be unconscionable  Can seek relief for Mutual & Unilateral Mistake!

FRAUD-parol evidence rule does not apply NO ORAL MODIFICATION CLAUSE  In common law this did not work unless you can show relaince
 At common law it was not effective because you could later chose to modify the clause o Any prior agreement could be changed by a later agreement so it was not effective o If thee was a reliance you could get around the no oral modification clause The person that makes an oral contract to do work watched it be done the work has reliance the UCC takes a contrary position to common law and do recognize the no oral modification clause



o

as long as they are in writing

Zipper clause- combo of a merger clause and a no oral modification clause

Interpreting contract language  ambiguity – a term can have different definitive meanings, - unintentional o of term o of syntax  vagueness – if a words applicability in marginal situations is uncertain – can be intentional

(Chicken Case)- Objective  def had 2 contract for sale of chickens. After the def got one shipment of stewing chickens the received and then received a second chicken.  Def says wants broader interpretation of chicken def o they use grade a standards in the contract o they accepted the 2 nd shipment

o the use the fact that the word hun was used o and the fact that the price of the chicken would lose – major thing  Plaintiff says chicken does not mean stewer o 3 witness and trade usage Court – P did not met burden of proof necessary to advance the narrow def of the word chicken
What would the objective person think- common law Rst 201 – where parties attach the same meaning that is what we use, would not work this way in common law

(Raffels v Wichelhaus)- subjective(RST)
     contract for cotton premium on cotton D would by the cotton and it was guaranteed to arrive on the peerless they waited for the first boat in October it did not arrive. In dec a second boat came called the peerless with cotton and the buyer would not take the cotton P says it arrived on the Peerless so they preformed D says we wanted the cotton from the 1st peerless and court finds for D This seems like 20(1)a o If the attach materially means to their manifestations and neither party knows or has reason to now the idea of the other- then no mutual assent and no contract

(Oswald v Allen)- subjective  Coin collection case. She though Swiss coin meant her collection. He though it meant all swiss coin  The court uses Raffels and rst 20(1)  No sensible basis to chose between the thoughts of the parties  \Courts like to leave party in the position they find them  20(1)- no manifestation of mutual assent If neither party knows or has reason to know what the other is thinking, or  If each party knows or each party has reason to know the meaning attached by the other

Meaning of words:  Language is question of fact, what language did they agree upon- for jury  Interpretation is question of law, what does this mean – for judge, not jury.

(WWW ASSOCIATES v. GIANCONTIERI)  D was selling P was buying, P wanted to close and D backed out. P would not take back the down payment and said the cancellation clause was only for him.  Trial court dismisses, Appellate court reverses, Upper appellate court re-reverses Plain Meaning Rule- interperating a way aroung the parol evidence rule o whether document is clear or whether ambiguous (4 corners test) - For JUDGE , question of law o If clear, exclude extrinsic evidence. If not clear, admit extrinsic evidence in step 2 to help us come up with the meaning of the document- for JURY , question of fact. (some jurisdictions, both question of law both for judge) o There was a merger clause in this case not dispostive but good evidence  Step 1: look at what is in document, 4 corners test: look at document to see if it is clear and complete, not an ambiguity.  Step 2: if ambiguous, look at extrinsic evidence. if clear and complete do not use alternative evidence, just use terms in writing. Cannot use extrinsic evidence to create an ambiguity.  HERE, this court found at step one, this provision was clear and complete and specifically said it went to both parties. Go back to trial court decision o Since this case some Jur have gone to the context rule a. 4 corners + context = to find meaning of document.

(PACIFIC GAS & ELECTRIC CO. v. GW THOMAS DRAYAGE & RIGGING CO)  Df was fixing the Pl mill. Df agreed to perform the work at its own risk and expense AND to indemnify(reimburse) PL against all loss, damage resulted, Def cased 25 grand in damages to Pl stuff  Def is saying they don’t have to pay because it was a classic 3rd party indemnity clause. Also D argues prior in dealing they only indemnify 3rd parties So : Plain meaning rule in CA 1) step 1: bring in all extrinsic evidence, look at that evidence to find it is susceptible to more than one meaning then.. (if only susceptible to one meaning, then don’t use it) (QUESTION OF LAW) If susceptible to more than 1 meaning, can use extrinsic evidence 2) use all extrinsic evidence to prove any of the interpretations and find what parties actually meant with that language (QUESTION OF FACT)  This case tells us if there is any chance of an ambiguous meaning – then no parol evidence rule and you can allow extrinsic evidence (NOT MAJORITY)

(DELTA DYNAMICS v. ARIOTO)  Delta selling trigger locks deal is Pixy will sell at least 50,000. They only sell ten delta tries to terminate.  Pixy want extrinsic evidence, to show delts only remedy was to terminate and not get reasonable damages  Court said allow evidence because the clause could either a termination clause or a remedy for damages and such is ambiguous.- (bringing in extrinsic evidence to create a ambiguity)  We are in CA. SO ….we can look at all this evidence. If this evidence is reasonably susceptible to that meaning that was advanced by Pixey then we should bring it in.

HURST  350 tons of horse meat for 50 lb per ton if less then 50 percent the 45 per ton. Lakes says he can pay less for meat 49.5349.96, Hurst says not look at trade usage. Usage is 49.5 and above = 49.5  The court said we can use trade usage because 50 meant 49.5 and above.  The court found that 50 percent is ambiguous and that is why they let in trade usage

2-202old  Even if final expression. You can supplement a contract with course of performance , past dealing, course of trade Hierarchy of evidence  Express terms  Course of performance  Course of dealing  Usage of trade

III. Gap Fillers - Omitted Terms Supplied by the Court
The modern tendency if four courts to supply missing terms when an offer and acceptance are not completely definite as to all the essential terms. The UCC allows the courts to supply a reasonable price (2 305(1)); a place for delivery (2-308); a time for shipment or delivery (2-309(1); and a time for payment (2310(a)
 we are implying terms in a contract that might not be definitively states o good faith- honesty in fact in the conduct or transaction concerned o fair dealing

o

best effort

Policy - When the court supplies missing terms, it is almost always dealing with questions that the parties
never even though of, and therefore did not address in the K

Restatement Rule
1. When parties to a bargain sufficiently defined to be a K have not agreed with respect to a term which is essential to a determination of their right and duties, a term which is reasonable in the circumstances is supplied by the court. (R-204)

(Eastern airlines v Gulf oil)

   

Eastern and Gulf had an exclusive dealing contract. Gulf said eastern breached by fuel lifting, only bought cheap gas from gulf when it was cheap, or if it was expensive would only buy enough to get to the next city where they could get it cheap. The court went to see if this should be part of contract Gulf sues saying not good faith 1-201- defines good faith and between merchants it include, relevant commercial practiced, courses of dealing and course of performance they passed this test

(Market Street Associates v Frey)  JC pennies  Do I have to tell you about things that are written in the contract  Good faith is gap filler  If you believe other party would find out about what you have superior knowledge about then good faith other wise no, (can’t take deliberate advantage about there lack of knowledge  You do not have to tell the other party about every unfavorable clause in a contract
(Dickey v Philadelphia)

  

D leased land from P that had to be use as a car wash. Rent was 1800, or 10 percent of sales. D stopped car wash and changed to a polishing business. P tried to make D use the as a car wash. P said D had to use best effort because P got paid from D money and saying car wash was best efforts Court said no implied obligation of D to continue the washing business even if it ended in lower rents to the lesser, strengthened by the minimum rent requirement – this decision was done in good faith.

(Bloor v. Falstaff)  The brewing company sold its name to Falstaff with an EXPRESSED best efforts clause that said ―use best efforts to promote and maintain high volume of sales‖  In order to not go bankrupt Falstaff dropped production  D at least had to explore weather steps not involving substantial losses could have been taken to stop or at least lessen the rate of decline of sales. Instead D acted in total disregards to Ballentine’s volume of sales  Falstaff Has the burden to show it could have done nothing that would not have been financially disastrous (Zilg v. Prentice) o Zilg wrote a book and Hall published. Hall picked it up originally was going to print 15000 copies and put 15,000 dollars o o o o
into it. The book of the month club did not go for it and instead the only made 10,000 and spend 5,500 on advertising Zilg sued saying breach of best efforts (implied) There was no best effort clause they just had to act in good faith For there too be breach Zilg would have to show that their initial efforts were inadequate to give the book a reasonable chance to catch on(implied best efforts to mkt), or that there was a reason other than good faith for not printing more Anti-best efforts clause like the one in this contract must be expressed, but if the clause violates good faith no good.???????????????????????????????????????????????????????????????????????????????????????????

(Bak-A-Lum v. Alcoa) o Bak was the exclusive distributor of Alcoa. They went ahead and build a lager warehouse and Alcoa who knew they were going to drop them watched them build the warehouse o Under good faith an output contract can be terminated after a reasonable period of time and with reasonable notice, however when one stands by and watches the other in good faith do something in reliance if may increase the time of notice enough that it allows sufficient opportunity to recoup its investment (Nanakuli v Shell)  Shell did not follow the normal trade usage and did not price protect Nanakuli when there was a big price jump  We could also look at course of performance  Trade usage o Trade- narrow than Nanakuli wanted but wider than what shell wanted definition just asphalt and its component o Usage- 2 time times was enough  Even had the court agreed with shell that they did not have to price protect they breach good faith by failing to give a reasonable period of notice  When we are talking about trade usage we look at the time the contract is made.  The trade usage did not totally negate and they let it in that is very lenient
(COLUMBIA NITROGEN v. ROYSTER CO)  DEF- Columbia argues that evidence of trade usage was improperly excluded. They claimed in mixed fertilizer industry there is much price fluctuation, and in contract price terms are mere projections- not held to them.  Dist. Court had excluded b/c- not admissible to contradict unambiguous language (said we have clear price terms, this evidence contradicts this)  COURSE OF DEALING AND TRADE USEAGE CAN SUPPLIMENT OR EXPLAIN THE WRITTEN CONTRACT  THE FINDING OF AN AMBIGUITY IS NOT A PREREQUISTE TO THE ADMISSION OF SUCH EXTRINISIC EVIDENCE  The test of admissibility is not weather the contract appears to be complete, but weather the evidence of course of dealing and trade usage can reasonable be viewed as consistent with the expressed terms of the agreement.

PERFORMANCE AND BREACH
I. Condition
A. The Meaning of Condition 1. a condition is an event, not certain to occur, which must occur unless occurrence is excused, before 2. 3. 4. 5.
performance under a contract becomes due Identification of the parties - Obligor is the party who owes the duty and the obligee is the party to whom the duty is owed a condition need not be material, if both parties agree, they can make an apparently insignificant event a condition. Their are some limitations, however, see supra. Something can be a duty, promise and a condition Reasons for Conditions a. most common reason is to shift to the obligee the risk of nonoccurrence of the event b. the obligor may have made it a condition to induce the obligee to cause that event to occur c. they are asserted by obligee’s to show the duty that the obligor breached d. they are asserted by the obligor to demonstrate that their duty to perform never arose

B. Types of Conditions 1. Express conditions are conditions that are agreed to by the parties; common language that is used is
―if,‖ ―on condition that,‖ ―provided that,‖ ―in the event that,‖ and ―subject to.‖ A court determines whether an agreement makes an event a condition by the process of interpretation. 2. Implied condition terms that can be suppliedas a matter of law, in order to insure fairness a. If an obligor’s duty cannot be performed without some act by the obligee, the court will supply a term making that act a condition of the obligor’s duty
Restatement § 2-224

4. Condition- - condition must occur unless excused 5. The distinction between an express and a constructive condition is extremely important in relation to performance of the condition. Strict compliance with express conditions is ordinarily necessary before the other person’s duty of performance arises. By contrast substantial (performance) compliance is ordinarily adequate to satisfy constructive conditions

C. Classifications of Conditions
1. Condition Precedent is a fact or event which the parties intend must exist or take place before there is a right to performance, and if the condition precedent is not fulfilled the K is not enforceable a. a party to whom a duty is owed must prove the occurrence of all conditions precedent to that duty in order to compel the party owing that duty to perform, to show that the later has breached by not performing 2. Condition Subsequent is the occurrence of an event, such as the failure of a party to commence an action within a prescribed time, will extinguish a duty after performance has become due along with any claim for breach (i.e. insurance Ks stating that suit on a claim must be brought within a certain time or it will be discharged) a. if the duty owed is a condition subsequent, the party owing the duty bears the burden of proving that the condition subsequent has occurred and discharged him 3. In determining whether a condition is precedent or subsequent, the courts have looked to the language by which the parties characterized their transactions, rather than their actual intent 4. Second Restatement a. eliminates the terms condition precedent and condition subsequent. Condition precedent is treated as a condition. Condition subsequent is treated as an event of discharge b. provides that where there is doubt as to whether an event is a condition (condition precedent) or an event of discharge (condition subsequent) it is to be treated as a condition 6. Affects of Non-occurrence
  Unless condition has occurred, you have no duty to perform and once the time has passed (time when condition can no longer be performed), you no longer have to perform and contract terminated. Protects someone’s expectation- not making you do anything until this event happens

D. Distinction Between Conditions and Promises 1. Rules for distinguishing promises from conditions a. Intent of Parties 1. intent may be indicated by choice of words ―on condition that,‖ ―provided that,‖ ―unless,‖ etc. usually indicate that parties intended a condition 2. Words such ―I covenant that‖ or ―I stipulate that‖ generally indicate an intent to make an event a duty rather than an event a duty rather than a condition 3. If the actions of the parties or the circumstances of the case make it clear that a promise was meant, contractual language using terms such as ―conditional‖ will be ignored b. Interpretation as Promise Preferred 1. an interpretation is preferred which makes a term a promise creating a duty on the obligee that an event occur rather than a condition of the obligor’s own duty, if fulfillment of the term is within the obligee’s control

a. if a party’s performance of an act is treated as a condition to another’s duty, a nonperformance of that act completely discharges the latter from his obligation, even though the failure of the condition to occur has damaged him little or not at all b. a party who breaches a promise, on the other hand is liable only for whatever damage he causes by the breach c. Therefore, in order to avoid forfeiture the court will attempt to find a promise, and not a condition. Fairness interpretation.

(Luttinger v Rosen)  P wanted there down payment back and def would not give it back, and offered to make up the difference.  If the condition precedent is not met even if the D offers to make up the difference the P does not have to accept it, the P did not have to go to other banks because you do not have to do a futile act.  Conditions require STRICT compliance: o Sellers trying to make up difference in mortgage, but buyers not forced to take that b/c condition said x% for %year from x-institution  If don’t comply w/ condition- subject to forfeiture  If don’t comply w/ duty- subject to damages, but cant just terminate and move on  usually If unclear if whether duty or condition, court will usually try to make it duty rather than condition

(INTERNATIO-ROTTERDAM v. RIVER BRAND RICE MILLS)  Shipping of rice, had to specify a delivery time by the 17 th but they did not and the rice shippers canceled. The buyer sued for breach  Court considers this a conditions precedent  Condition precedent- promissory condition- giving instructions, - receipt of shipping instructions by Dec. 17. Necessary notice is a condition precedent. Referred to as ―promissory condition‖- meaning that it is the subject of a promise made by the party (not just a condition, promise duty as well)  They did not meet the condition therefore the contract was canceled (PEACOCK v. MODERN AIR CONDITIONING)
   Builder said they would pay the subcontractor within 30 days of completion. Owner went bankrupt. Modern finished work. Peacock did not pay- argued it was condition that had to be fulfilled before it was obliged to perform under contract. Modern the subcontractor sued Court disagrees- payment by owners is not condition precedent- just fixes time when this payment will be forthcoming.. Says promise to pay was absolute promise to pay.- it was not clear and ambiguous language for there to be this kind of condition i. Facts: Subcontractor for air conditioning, contractor refused payment because the owner had yet paid ii. Analysis: 1. Peacock’s argument: payment by owner is an express condition- did not happen, therefore duty is discharged 2. Court shifts risk to contract and not to subcontractor; a. Small subcontractors usually need to be paid to stay in businessb. would assume the risk of nonpayment- but because a subcontractor does not have a contract with the owner, a contract is in a better position to protect themselves because they are b. Shifting Risk to Subcontractors i. Drafting- can shift risk by clear and unambiguous language 1. Should include clause that it is conditioned by payment by owner

(Peacock Construction Co. v. Modern Air Conditioning, Inc. )

c.

ii. However, overwhelming majority opinion is against putting risk on a subcontractor iii. In reality, almost impossible to shift all risk to the subcontractor- may border along line of Unconscionability Brokers and Conditions i. Broker’s right to condition- agreement conditioned on closing title

ii. Forfeiture’s loom is NOT as large because brokers do not have to lose as much iii. Also, No benefit either; ex. still do not have buyer for home

Waiver, estoppel, election  Waiver- intentional relinquishment of a known right (traditional definition) o excuse of the non-occurrence of a condition [of a duty] o If a waiver is made before time of performance of a condition- you can retract that waiver provided the other side has not relied  Election o If party waives condition after time of performance is due- election- cannot retract election whether or not reliance on other side o You have made choice to disregard non-performance of that condition, you are waiving non-occurrence of that condition, and cannot retract that. o Instead of taking advantage of non-occurrence, you waived it, and we will not let you change your mind

2. The Process by Which a Court Supplies a Term 1. These terms are called ―implied‖ or occasionally ―constructive‖ terms

2. Steps a. Interpretation - court will only supply a term after it has determined that the language of the
agreement does not cover the case at hand 1. Nature of Agreement a. courts rely on common practices in the use of language in deciding what parties might be expected to say in the circumstances (It would have been natural for the parties to include this) b. the more detailed and comprehensive the agreement, the less likely it is that the court will conclude that the case before it was omitted. The parties in such an agreement the parties probably had the opportunity to spell out their obligations 2. Role of Foreseeability a. Unforeseeable 1. If the court is convinced that the parties could not have foreseen it, and therefore could not have intended their agreement to cover it, the court may refuse to apply the contract language despite it applicability and may find the case to be an omitted one (i.e. long term contract) b. Foreseeable 1. if the court is convinced the situation was foreseeable, it may conclude that the parties intended their apparently applicable language to cover the case 2. Although the dispute was foreseeable, court should recognize that it is faced with an omitted case

b. Implication - once the court has determined through interpretation that it is faced with an
omitted case, it must supply a term to deal with that case - process of implication 1. Expectation as a Basis - what is the actual expectation of the parties a. If the court is persuaded that the parties shared a common expectation with respect to the omitted case, the court will give effect to that expectation, although the parties did not reduce it to words b. if the parties expectations are significantly different or if one party had no expectation will ask whether one party should reasonably have known of the other’s expectation 1. look to the agreement itself 2. intention may be deduced form a course of performance, course of dealing, or usage or from negotiations that led up to the agreement if the parol evidence permits Note: In most cases no reliable indication of expectation can be found

2. Justice as a Basis
a. look at fairness of exchange (i.e. justified in supplying term on the ground that the term prevents one party from being in a position of economic servility and completely at the mercy of the other b. try to resolve the case in a way the yields a convenient rule or that promotes certainty

3. Burden of Expression
a. Although the parities can by express provision derogate from any term that the court would supply, the party that would do this bears the burden of having the provision added to the agreement b. Therefore, a court may consider the realities of negotiating and drafting processes and supply a term that will put the burden of expression on the party that can better cope with it because of bargaining power and drafting skill

C. Parole Evidence Rule
1. the parole evidence rule plays only a limited role in the process by which a court supplies a term to govern an omitted case 2. The PER may play n0 role at all in the step of implication, because it is often unnecessary to resort to extrinsic evidence 3. If it is necessary to resort to extrinsic evidence, the rule should not bar such evidence for the limited purpose of showing the circumstances on which a court must rely in deciding whether to a supply a term. Evidence should be admissible for this purpose even if the agreement is completely integrated a. if the agreement is completely integrated, the PER will bar evidence for the purpose of showing additional promises or agreements of the parties, even if that evidence would enable the court to avoid having to supply a term

D. Examples of Terms Supplied by the Courts 1. Duty of Good Faith
a. Minimal Std - good faith as ―honesty in fact in the conduct or transaction concerned.‖ b. Merchant Std - Good faith in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade c. examples of application 1. When the parties have an existing K, the obligation of good faith and fair dealing applies to
negotiations to modify a K

2. When the parties have a general K pursuant to which they negotiate specific K (i.e. K for deliveries
or shipments) there is an obligation of good faith and fair dealing to these subsequent transactions

3. When parties have reached an agreement in principle in which they have agreed to attempt to
negotiate a valid enforceable K, courts have found an obligation to meet and negotiate in good faith (i.e. good faith in obtaining a lease)

a. Output and Requirement K’s 1. Unless the parties have provided otherwise, the court will define the obligation to maintain output or requirements in terms of good faith 2. Any reduction in output or requirements, including the extreme case of complete cessation on going out of business, must be in good faith 3. Any increase must also be in good faith e. a court will supply a term only if an agreement is already in existence. Therefore the duty of good faith is not imposed on parties until they have reached agreement and does not bind them during earlier negotiations f. however, wen parties to K negotiate for its modification, they are bound by a duty of good faith

2. Duty of Best Efforts
a. Such a duty requires a party to make such efforts as are reasonable in the light of that party’s ability and the means at its disposal and of the other party’s justifiable expectations b. the duty of best efforts is more onerous then that of good faith c. Exclusive Dealing K’s 1. courts often supply a term calling for best efforts under exclusive dealing arrangements

2. courts have supplied terms requiring best efforts by parties with exclusive rights under various kinds of exclusive dealing agreements, including K’s for sale of goods and K’s of real estate brokerage 3. the court will not supply a term if the rights given are not exclusive, since the grantor o f the rights does not diable itself form further activity or from granting rights to others d. Percentage Leases - a lease where the lessor typically gives the lessee an inherently exclusive right to land in return for a stated & of the lessee’s gross receipts, rather than a fixed rental 1. If the lease is silent on the matter, the court will supply a term requiring the lessee to use best efforts, in addition to the normal obligation of good faith. 2. Many & leases, however, provide not only for some fraction of receipts but also for a fixed minimum rental 3. If the minimum is substantial, the court will not impose on the lessee a duty of best efforts, although the rental is also is in part dependent on the lessee’s efforts 4. The substantial minimum coupled with the normal obligation of good faith is regarded as fair compensation for the grantor of the right 5. To impose a duty of best efforts, the grantor must then add an express provision to the agreement.

3. Termination
a. A party that seeks to terminate an agreement that is silent with respect to duration or termination will ague that since nothing is said about duration, the agreement is terminable at will b. the other party will claim that since the agreement says nothing about termination, it admits of no termination c. the court may reject both and fashion a term appropriate to the omitted case d. many courts attempt to determine what is a reasonable time to find a solution between the two extremes of termination at will and perpetual duration e. courts have traditionally applied the rule of termination at will to exclusive agency and distributorship agreements. Franchise cases (check if applicable see Farnsworht P556) f. Employment Cases 1. Some employees have succeeded on traditional grounds by establishing an implied in-fact K to limit the employer’s power 2. if an employee is discharged without good cause the obligation of good faith and fair dealing imposed on an employer requires that the employer be liable for the loss of compensation that is clearly related to an employee’s past service 3. other courts have held the employer is responsible in damages if the former employee can prove a demonstrably improper reason for dismissal, a reason whose impropriety is derived from some important violation of public policy 4. the law of at-will employment is likely to remain for something in a state of flux.

C. The Roles of Judge and Jury
The principal differences between the Code rule and non-Code common law relate to how the judge determines the existence of an integration, and how the judge determines whether it is partial or complete 1. Purpose of Rule - one of the principal reasons for the parol evidence rule was the fear that juries would not recognize the superior trustworthiness of a written document, as compared to oral testimony about alleged oral agreement 2. Most courts hold that a determination of whether a writing is intended as an integration, and if so, whether the integration is partial or total is to be made by the judge. Also, most courts hold that the judge decides whether particular evidence would supplement the terms of a complete integration 3. Three Conflicting View on How Judges Should Decide a. Williston View - Four Corners Approach 1. The question is whether reasonable men in the position of the contracting parties would have naturally put the terms of the alleged oral agreement into final writing, or would instead have left them out 2. Steps of Williston’s Analysis - ―Reasonable Man Standard‖ a. First, the judge examine the writing itself for a ―merger clause‖ (a clause indicating that the writing constitutes the sole agreement between the parties) b. If YES, the clause will conclusively establish that the document is a total integration, unless the document is obviously incomplete, or the merger clause was included as the result of fraud or mistake or other reasons to set aside the K c. If no merger clause, the writing as a whole is examined 1. Incomplete - if the writing appears to be incomplete on its face or if it expresses the duty of only one of he parties, the writing is treated as partially integrated. Thus, additional terms may be demonstrated through oral evidence 2. Complete - if the writing appears to be a complete expression of rights and duties of both parties, should be deemed to be a total integration unless the alleged oral additional terms were one which might naturally have been made as a separate agreement by reasonable parties in the position of the actual parties to the K b. Corbin View 1. Corbin place more emphasis on the actual intent of the parties and less emphasis on the writing itself 2. In determining whether integration is partial or complete the actual intention of the parties should be analyzed 3. If all the evidence by the parties shows that they in fact did not intend the written contract to contain all terms of their agreement, and that in fact did not intend the written K to contain all terms of their agreement, and that other oral agreements were made and were intended to be binding, this evidence would then be given to a jury 4. Policy - The Corbin view comes close to emasculating (weaken) the parole evidence rule. Since the court uses all available evidence to determine whether the parties intended the writing to replace previous oral agreements, the court follows the general rule that a later agreement supersedes an earlier one, if the parties intended that it do so c. UCC Approach 1. the UCC states the judge is to determine whether a partial or total integration exists. The Code seems to take a middle view between Williston and Corbin’s view (probably closer to Corbin) 2. Evidence of consistent additional terms may be given unless the court finds that the writing was intended as complete and exclusive statement of the agreement (total integration)

3. If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact 4. Distinction Between Williston, Corbin and UCC a. Williston would not allow evidence of consistent terms if they might naturally have been included in the writing by reasonable men b. Corbin would look to the actual intention of the parties c. The UCC would bar consistent terms only if they would certainly have been included in the document 5. Partial - Oral Evidence Contradicts or Supplements a. if a judge determines that the writing is only a partial integration, he must then determine whether the oral evidence contradicts or supplements the writing

C. No Oral Modification Clause
1. When one of the parties seeks to provide that the provisions of a carefully drafted written K were varied by a conversation between the parties after the K was made 2. Effective - For a waiver of the no oral modification clause to be effective, the party trying to escape form the clause must generally show that he relied such that he materially changed his position in reliance upon the waiver 3. Ineffective - For a no oral modification clause to be rendered ineffective, it is usually required that something more occur than a mere oral agreement to overlook it

II. Interpreting Contract Language
Interpretation deals with how parties may show the meaning of terms contained in a writing

A. Williston View, Plain Meaning Rule & Corbin View 1. Williston View
a. If the court concludes that the writing was an integration, the parties would not be allowed to give oral testimony as to what they intended the words of the K to mean b. If the writing is not an integration, the parties would be permitted to give such testimony as to their own subjective understanding of the words used in the writing 2. Plain Meaning Rule a. this rule provides that the meaning of any writing which appears to be complete, clear and not ambiguous on its face will be determined without resort to any extrinsic evidence at all b. accepted by a large majority of jurisdictions c. Reason for not Applying Rule 1. The rule limits the determination of the meaning of a written instrument to its four corners merely because it seems to the court to clear and unambiguous, would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision and stability our language has not attained

3. Corbin View - Modern Rule
a. oral evidence showing the meaning of words should be allowed to the same extent whether or not the parties thought the writing was a final expression of their agreement b. Procedure - a party, rather than trying to introduce oral evidence as to consistent additional terms or terms contradictory to the writing, will instead try to prove that neither he nor his adversary intended that the terms of the writing mean what the normally mean. This device will not allow a party to introduce evidence of terms that are wholly unrelated to anything in the writing c. However, it will give a party an opening through which to introduce evidence of much of the parties preliminary oral negotiations thus weakening the position of the writing as the sole embodiment of the agreement

4. Burden of Persuasion

a. a party who is allowed to give testimony about what the parties intended by a term, bears the burden of persuading the court that the meaning favorable to him was in fact the one intended by the parties may be substantial B. Determining Whether There is a Contract
1. Under Willison’s view, the parties to an integration may not testify about what they felt the K meaning was. Therefore, it will not happen too often that either party shows that was a lack of mutual assent because of any misunderstanding as to the meaning 2. Under Corbin’s view, the parties may always give testimony as to what they thought the agreement meant. This will enable one party to show that he meant one thing in the agreement , and allow the other to show that he meant something else. The court may then be compelled to find that because of the lack of subjective agreement, there was no mutual assent, thus on K. The finding of no K, is more common under the modern, Corbin view, than Williston view. 3. Effect of Misunderstanding a. If one party’s understanding of the K’s meaning was unreasonable, or if he should have known of the disagreement and the other party had no reason to know of it, the court will find that there is a K on the terms understood by the non-negligent party 4. Maxims of Interpretation that court will use to decide which two conflicting interpretations of a term should be followed a. if the primary purpose of the parties in making the K ascertained, that purpose is given great weight b. all terms will be interpreted where possible, so that they have a reasonable, lawful and effective meaning c. a term that is negotiated between parties will control over the one that is part of a standardized portion of the agreement that is not separately negotiated (i.e. boilerplate language)

C. Trade Usage, Course of Performance, and Course of Dealing
1. Remember, to look for the distinction between broad customs, such as customs existing throughout a particular industry, and narrower customs, such as those historically in existence between tow particular contracting parties

2. Three Measures of Custom
a. Course of Performance - A course of performance refers to the way the parties have conducted themselves in performing the particular K at hand. The idea is that the parties’ own actions in performing the K supplies evidence as to what they intended the K terms to mean. (2-208(1)) b. Course of Dealing - A course of dealing refers to how parties have acted with respect to past K’s. Thus, if a particular term had been used in previous K’s between the same parties, and had been interpreted by them in a certain manner, this interpretation would be admissible to show how the term should be interpreted. (2-205(1)). An established course of dealing will control a usage of trade where the two are in conflict c. Usage of Trade - Usage of trade is any practice or method of dealing that has such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observes with respect to the transaction in question. (1-205(2)) 1. Usage of trade is determined by evaluating community practices; a usage of trade must be a specific usage or meaning and must be observed with regularity

3. Effect on Parole Evidence Rule
a. These 3 customs may be introduced to help interpret the meaning of a writing even if it is a complete integration b. However, the writing itself may bar introduction if these measures are carefully negated in the writing

4. Addition or Subtraction From the Agreement
a. The measures are admissible not only to help interpret a particular phrase, but also to add or subtract terms to or from the K

b. The UCC state that the measures may not be used to contradict the express terms of the K. The Code provides that these items must be construed as consistent with the express terms whenever it is reasonable to do so. Express terms shall control both course of dealing and of performance and usage of trade. So if there is no way for a court to a harmonize a custom asserted by one party, the express terms are treated as controlling c. However, some courts have gone to great lengths in order to find that a particular custom or usage merely supplements and does not contradict an express term d. Courts may stretch to harmonize the custom or usage with the express term by holding that the custom or usage merely removes part of the express term, rather than negating the express term completely. Therefore, the court can find that the two can be reasonably construed to co-exist so long as the express term is not construed. If the measure of custom are inconsistent with one another, then this is the hierarchy in which the court will make its analysis (1) express terms; (2) course of performance; (3) course of dealing; (4) trade usage

PERFORMANCE AND BREACH
II. Condition
B. The Meaning of Condition 6. a condition is an event, not certain to occur, which must occur unless occurrence is excused, before
performance under a contract becomes due 7. Identification of the parties - Obligor is the party who owes the duty and the obligee is the party to whom the duty is owed 8. a condition need not be material, if both parties agree, they can make an apparently insignificant event a condition. Their are some limitations, however, see supra. 9. Something can be a duty, promise and a condition 10. Reasons for Conditions e. most common reason is to shift to the obligee the risk of nonoccurrence of the event f. the obligor may have made it a condition to induce the obligee to cause that event to occur g. they are asserted by obligee’s to show the duty that the obligor breached h. they are asserted by the obligor to demonstrate that their duty to perform never arose

C. Types of Conditions 3. Express conditions are conditions that are agreed to by the parties; common language that is used is
―if,‖ ―on condition that,‖ ―provided that,‖ ―in the event that,‖ and ―subject to.‖ A court determines whether an agreement makes an event a condition by the process of interpretation.

4. Implied condition are found in Ks where the terms of the K clearly indicate that one party must do
something to permit or facilitate the performance by the other. If an obligor’s duty cannot be performed without some act by the obligee the court will supply a term that makes an event a condition of the obligor’s duty 5. Constructive Conditions - a condition which is not agreed on by the parties but which the court imposes as a matter of law, in order to insure fairness b. If an obligor’s duty cannot be performed without some act by the obligee, the court will supply a term making that act a condition of the obligor’s duty 7. The distinction between an express and a constructive condition is extremely important in relation to performance of the condition. Strict compliance with express conditions is ordinarily necessary before the other person’s duty of performance arises. By contrast substantial (performance) compliance is ordinarily adequate to satisfy constructive conditions

D. Classifications of Conditions
2. Condition Precedent is a fact or event which the parties intend must exist or take place before there is a right to performance, and if the condition precedent is not fulfilled the K is not enforceable b. a party to whom a duty is owed must prove the occurrence of all conditions precedent to that duty in order to compel the party owing that duty to perform, to show that the later has breached by not performing 3. Condition Subsequent is the occurrence of an event, such as the failure of a party to commence an action within a prescribed time, will extinguish a duty after performance has become due along with any claim for breach (i.e. insurance Ks stating that suit on a claim must be brought within a certain time or it will be discharged) b. if the duty owed is a condition subsequent, the party owing the duty bears the burden of proving that the condition subsequent has occurred and discharged him 5. In determining whether a condition is precedent or subsequent, the courts have looked to the language by which the parties characterized their transactions, rather than their actual intent 6. Second Restatement c. eliminates the terms condition precedent and condition subsequent. Condition precedent is treated as a condition. Condition subsequent is treated as an event of discharge d. provides that where there is doubt as to whether an event is a condition (condition precedent) or an event of discharge (condition subsequent) it is to be treated as a condition 5. Concurrent Conditions a. a concurrent condition is particular kind of condition precedent which exists only when the parties to a K are to exchange performances at the same time b. concurrent conditions are found commonly in Ks for sale of goods and conveyances of land E. Distinction Between Conditions and Promises 2. Rules for distinguishing promises from conditions b. Intent of Parties 4. intent may be indicated by choice of words ―on condition that,‖ ―provided that,‖ ―unless,‖ etc. usually indicate that parties intended a condition 5. Words such ―I covenant that‖ or ―I stipulate that‖ generally indicate an intent to make an event a duty rather than an event a duty rather than a condition 6. If the actions of the parties or the circumstances of the case make it clear that a promise was meant, contractual language using terms such as ―conditional‖ will be ignored c. Interpretation as Promise Preferred 2. an interpretation is preferred which makes a term a promise creating a duty on the obligee that an event occur rather than a condition of the obligor’s own duty, if fulfillment of the term is within the obligee’s control d. if a party’s performance of an act is treated as a condition to another’s duty, a nonperformance of that act completely discharges the latter from his obligation, even though the failure of the condition to occur has damaged him little or not at all e. a party who breaches a promise, on the other hand is liable only for whatever damage he causes by the breach

f.

Therefore, in order to avoid forfeiture the court will attempt to find a promise, and not a condition. Fairness interpretation.

E. Express Conditions
1. Strict Compliance a. if the occurrence of a condition is required by the agreement of the parties, rather than as a matter of law, a rule of strict compliance traditionally applies. The courts will generally enforce the will of the parties b. courts prefer the flexible doctrine of substantial performance than the rule of strict compliance c. Avoidance of Forfeiture 1. courts will avoid applying the strict compliance rule where a forfeiture would result 2. a forfeiture would occur when one party has relied on the bargain (either by preparing to perform or by actually making part performance) and insistence on strict compliance with the condition would cause him to fail to receive the expected benefits from the deal 3. if one party’s duty to act is made expressly conditional on the performance of some act by the other, the latter’s performance, while deviating slightly form the terms of the condition renders a benefit to the former, the court will apply refuse to apply strict compliance rather imply substantial performance doctrine Note: The reason is the extreme hardship to the party who has performed (forfeiture) will result 4. Excuse of Condition a. rather than finding that an express condition has been fulfilled through substantial performance, a court may instead find the fulfillment of the condition is excused where extreme forfeiture would occur b. the condition will only be excused if it relatively minor; the court will not excuse a condition if its occurrence was a material part of the agreed exchange 2. Interpretation in Light of Parties Intentions a. in express conditions language which appears to impose an express condition is always interpreted in light of the parties intentions b. If because of circumstances surrounding the case, parol evidence, industry custom, or anything else, it appears that the parties did not intend to impose a strict express condition, this will not be admitted c. but the use of industry custom, parol evidence, etc. can help the judge resolve the case in favor of finding that language is an express condition 3. Satisfaction Clauses a. a contract may make one party’s duty to perform expressly conditioned on that party’s being satisfied with the other’s performance b. Objective or Subjective Test 1. Objective Test a. When there is doubt as to which standard the clause implies, the court will usually presume that an objective standard of reasonable satisfaction was meant b. where the performance of a K relates to mechanical fitness, utility or marketability, as in a building K, or in sale of goods, the K is usually construed to require the objective standard of satisfaction 2. Subjective Test a. where the object of the K is to please the tastes or convenience of a person, on a matter for which there is no real objective standard, subjective satisfaction is normally required b. if a condition clearly calls for the subjective satisfaction of a party, the condition does not occur if he is honestly, even though unreasonably, dissatisfied 1. However, the party’s dissatisfaction must be in good faith c. Satisfaction of a Third Person 1. the duty of performance of a party to a K may be expressly conditioned on the satisfaction of some independent third party

2. the third party’s subjective judgment usually controls, largely because the courts are unwilling to substitute their judgment for that of a professional whose abilities the parties have agreed to rely on 3. However, proof of dishonesty, fraud, collusion with the obligor, or similar bad faith will excuse the condition

D. Constructive Conditions
1. Generally a. Constructive conditions are conditions which are not agreed on by the parties, but which are supplied by the court for fairness b. where each party makes one or more promises to the other, each party’s substantial performance of his promise is generally a constructive condition to the performance of any subsequent duties by the other party 2. Order of Performance a. the parties to a bilateral K do not always make clear the order in which performance is to occur b. If there is order, then that order applies, and substantial performance of the duty which is due first is a constructive condition of the other party’s later duty c. Periodic Payments or Alternating Performance 1. parties can agree that their performances should alternate 2. this is common when payment on a K is to be in installments, each installment to represent payment for work previously done 3. each party’s duty to perform his duty is constructively conditioned on the other’s having performed the prior duty 4. it becomes important to decide who was the first to fail to substantially perform, since the failure of substantial performance is the non-occurrence of a constructive condition of the other party’s subsequent duty d. Materiality Difficult to Determine 1. a party that takes the position that there has been such a material breach, and he cancels his own performance, he runs the risk of later being held to have responded merely to an nonmaterial breach, and therefore that party is the first to breach 2. on the otherhand if the party continues the performance, this performance may turn out to have costly and unnecessary. 3. Where No Order of Performance is Agreed Upon a. where performance of one requires a period of time, and the other does not, the performance requiring time must ordinarily occur first, and its performance is a constructive condition to the other party’s performance b. Services - A party who is perform work will be held obligated to substantially complete that work before he may receive payment unless contrary to agreement c. Wage Earners - periodic payment will usually be implied in the case of wage earners; court usually hold that employees should be paid weekly or monthly 4. Simultaneous Performance a. if each party’s promised performance can occur at the same time as the other’s, the court will normally require that the two occur simultaneously. b. The two performances are called concurrent conditions, which means that that each party’s duty to perform is constructively conditioned upon the other’s manifestation of an ability and willingness to perform c. each party must tender (conditionally offer) performance to the other d. the presumption in favor of simultaneous performances gives each party maximum protection, since he avoids the risk of performing and then having the other party breach e. UCC - the UCC expressly provides for buyers and sellers 1. UCC 2-507(1) provides ―tender of delivery is a condition to the buyer’s duty to accept goods and unless, otherwise agreed, his duty to pay for them.‖ 2. UCC 2-511(1) provides ―unless otherwise agreed tender of payment is a condition to the seller’s duty to tender and complete any delivery

Tender - A party ―tenders‖ performance if either he performs or else offers to perform with a present ability to do so (R-238) A seller tenders delivery under the UCC even if he does not actually hand over the goods to the buyer, as long as he holds the goods at the buyer’s disposition and gives the buyer any notification reasonably necessary to enable him delivery 5. Dependent Promises and Independent Promises a. Dependent Promises - in a normal bilateral K, the court will presume that the promises are in exchange for each other. The court will treat the promises as mutually dependent and will make each party’s duty of performance constructively conditional upon the other’s substantial performance of all previous duties b. Independent Promises - the court will not apply the theory of constructive conditions 6. Divisible Contracts a. a divisible contract in one in which the both parties have divided up their performance into units or installments, in such a way that each part of performance is the rough compensation for a corresponding part performance by the other party b. If a K is found to be divisible, it will for purposes of constructive conditions be treated as a series of separate Ks c. Test for Divisibility 1. ―Whether, had the parties thought about it as fair and reasonable people, they would be willing to exchange the part performance in question irrespective of what transpired subsequently or whether the divisions made are merely for the purpose of requiring periodic payments as work progresses d. Construction Contracts - in most construction contracts the owner is required to make progress payments, but this does not mean that the K is divisible into a number of components e. Service Contracts - most service contracts are divisible. The K will be divided into lengths of time equal to the time between payments. (i.e. employee one week payments - annual sal. $52,000) f.

E. Substantial Performance
1. it is a constructive condition to a party’s duty of performance that the other party have made a substantial performance of the latter’s previous obligations under the K. That is, if one party fails to substantially perform, the other a party’s remaining duties do not fall due 2. Non-Material Breach - when a party breaches the K by deviating from its terms, but nonetheless performs well enough that the breach is not material, the other party always has a claim for damages resulting from the breach 3. Suspension - If a party fails to substantially perform, but the defects in the performance could be fairly easily cured, the other party’s duty to give a return performance is merely suspended. The defaulting party then has a chance to cure his defective performance 4. Discharge - If the defect is so substantial that it cannot be cured within a reasonable time, or if the defaulter fails to take advantage of a chance to cure it, the other party is then completely discharged from any duty to perform, he may also sue for breach 5. Factors Determining Material Breach a. Deprivation of Expected Benefit - the extent to which the non-breaching party is deprived of the benefit which he reasonably expected from the K is a crucial factor. In determining how greatly the non-breaching party has been injured, the principal reason why the K was entered into must be examined b. Adequacy of Compensation for Loss - the extent to which the non-breaching party may be adequately compensated for his loss by the awarding of damages. If the calculation of damages at the time of breach is impossible because the injury is too speculative, a court will be less willing to find substantial performance and will let the non-breaching party to discharge of obligations c. Part Performance - the greater the part of the performance which has been rendered by the breaching party, the less likely it is that a breach will be deemed material 1. the more a breaching party has done on a K, the greater will be the resultant forfeiture if recovery is denied because he has materially breached

2. a breach which occurs at the very beginning of the K is highly likely to be deemed material d. Likelihood of Cure of Breach - if the breaching party seems likely to be able to and willing to cure the breach, the breach is less likely to be deemed material e. Willfulness of Breach - A willful breach is more likely to be regarded as a material than a breach caused by negligence or other factors. Willful breach is found in cases where the breaching party abandons the K, deliberately substitutes inferior materials, or otherwise acts in bad faith f. Delay in Performance - a delay in performance will generally constitute a material breach only if it operates to significantly deprive the other party of the benefit of the K 1. parties to a K are always free to make performance by a certain time an express condition of their agreement, in which the rules of strict compliance will apply 2. If the delay is likely to hinder the non-breaching party from making substitute arrangements, the delay is more likely to be considered material 6. Material Breach In K’s for Sale of Goods a. as long as the K does not involve installments if the goods or the tender of delivery fail in any respect to conform to the K, the buyer may (1) reject the whole; (2) accept the whole; or (3) accept any commercial unit or units and reject the rest b. courts have generally allowed buyers to reject the seller’s tender only if the defect was a substantial one c. in order to prevent buyers from slipping out of trivial defects the courts look at these factors: 1. trade of usage, course of dealing, and course of performance in determining whether the tender was defective at all 2. did the buyer follow procedures for rejecting tender 3. seller usually has a right to cure a defect d. Installment Contracts 1. a buyer may reject an installment which is nonconforming if the non-conformity substantially impairs the value of that installment and cannot be cured 2. to determine what substantially impairs the value look at factors for material breach, supra 3. the buyer may sometimes have the right to cancel the entire K if the defect in the installment is grave enough - substantially impairs the whole value of the K 4. a defect will impair the whole value when: a. if the later installments are valueless without a cure of the defective installment, and the defect can not be cured b. the defect in the early installment may give the buyer reasonable fears that the seller will not adequately perform on the later installments d. Process of Rejection 1. Rejection of the goods must be within a reasonable time after their delivery or tender 2. the buyer loses right to reject if he accepts the goods e. Cure - buyer’s right to reject is limited by the seller’s right to cure 1. where any tender or delivery by the seller is rejected because nonconformity and the time for performance has not expired, the seller may reasonably notify the buyer of his intention to cure and may then within the K time make delivery 2. notice must be seasonable 3. if the seller substitutes that goods that completely conform to the K, this is an effective cure 7. Buyers Obligation After Rejection a. Cover - the buyer may purchase conforming goods form a 3 rd party and recover from the seller the difference between the K price and the cover price b. if the buyer does not cover, he may recover form the seller the difference between the K price and the market price at time the buyer learned of the breach c. the buyer may recover consequential and incidental damages

F. Excuse of Conditions

1. Hindrance or Wrongful Protection - If a particular party’s duty is conditional on an event and that same party’s wrongful conduct prevents the occurrence of the condition, the non-occurrence of the condition is excused and the party must perform despite the non-occurrence a. In determining whether a party has wrongfully interfered with the occurrence of a condition of his duty, the intent of the parties controls b. If the court finds that one party assumed the risk that the other might act in such a way as to make the occurrence of a condition more difficult or impossible, that condition will not be excused c. the court determines whether one party has wrongfully prevented the other from performing by good faith 2. More Difficult But Not Impossible a. If one contracting party make the other’s performance more difficult but not impossible it usually treated as an ―impossibility.‖ Therefore if one party’s actions dramatically raise the cost of performance (i.e. causing the market price of contracted goods to soar), this would probably be treated as excusing the condition, even though the other party’s performance is impossible 3. Implied Promise of Cooperation a. a buyer must not hinder the seller’s performance, the buyer must do whatever is necessary to enable him the seller to perform b. failure to cooperate it a breach, and if it is material, it relieves the other party from performing and entitles him to damages 4. Waiver - a party who owes a conditional duty may indicate that he will not insist upon the occurrence of the condition before performing a. Waiver Before or Contemporaneous With the Contract 1. During K negotiations a party may agree that a condition that is placed in the written K will not be enforced 2. Parol Evidence Problem a. A party who seeks to show that the other party promised orally before or during the execution of the K to forego the benefit of a condition in the K would present a parol evidence problem b. PER prevents the introduction of evidence about oral statements made before or at the same time as a written K is executed, which contradicts the terms of the written K c. Most court permit proof that a party has orally agreed not to insist upon a certain condition, if the other party can show that he changed his position in reliance on the promise b. Waiver After Contract 1. willingness to forego the benefit of a condition that occurs after a K is formed, but before the condition occurs 2. Since the party waiving the condition has in effect modified the K, consideration for the waiver would normally be required a. Exceptions 1. If the condition was not an important part of the original bargain, the courts will usually find that a party’s subsequent waiver of the condition is binding on him, even without consideration 2. Promissory Estoppel - if the party’s manifestation of waiver induces the other party to change his position in reliance on the waiver, the courts will hold the waiver binding even without consideration 3. UCC - no consideration is necessary in a K for sale of goods, since UCC 2-209 provides that an agreement modifying a K needs no consideration to be binding. The SOF frauds will apply if the waiver is for more than $500. If the SOF of frauds is not met, however, the attempt at modification may operate as waiver (2-209(4)). Although, the waiver may be retracted unless the restriction would be unjust in view of a material change of position in reliance on the waiver (2-209(5)). 4. If there has been no consideration given for the waiver, the party receiving the benefit of the waiver may reinstate the condition

c. Waiver After Non-Occurrence - after a condition has failed to occur, the party whom the condition was intended to benefit may choose to ignore the non-occurrence, and continue with his performance 1. when made by express language the waiver is binding 2. Implied Waiver a. Continuation of Performance 1. If a promisor continues his own performance after learning that a condition of his duty has failed to occur, his conduct operates as a waiver of the condition. It will only be a waiver if the party voluntarily continues to perform, with knowledge that such performance is not required given the non-occurrence of the condition 3. Election - When a condition fails to occur the beneficiary of that condition can: a. Waive it expressly or impliedly. If so the K continues in force but the party would be still able to sue later for damages if the nonoccurence of the condtion also constitutes a breach b. Rather than waiving the condition the party can terminate his performance (cancel the K) and sue for total breach 4. Waiver of Subsequent Conditions a. if a K contains a series of similar condition, waiver of one condition by acceptance of benefits will not excuse later conditions b. However, if one party accepts several similar defective performances without objecting, his conduct may lead the other party to justifiably conclude that all conditions were intended to be excused. If so, these later conditions are waived 5. Insufficient Reason for Rejection a. In non-code cases a party who receives a defective performance is not ordinarily under an obligation to specify how the performance was defective b. so long as the defective performance constituted the breach of an express condition, or material breach of a constructed condition, the party may simply refuse to perform, without giving any reason at all c. If the reason given is something other than the non-occurrence of the condition, the party may rely on the unstated failure of the condition unless the breaching party would have been able to cure the failure had he been notified of it, and the non-breaching knew or should have known of the failure d. Under the UCC if a buyer fails to specify a particular defect which is ascertainable by reasonable inspection he will be unable to rely on that defect to justify his rejection of goods, or to establish breach under two different situations 1. where the seller could have cured the defect if stated reasonably 2. between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely G. Anticipatory Repudiation 1. a party may make it unmistakably clear, even before performance is due under a K, that the party does not intend to perform 2. Total Breach - if the breach is relatively severe, it will have the effect of suspending or discharging the other party’s obligation to perform under the K; it also has the effect of allowing the wronged party to sue immediately for damages based on an entire K 3. Partial Breach - does not relieve the aggrieved party from continuing to perform under the K but the injured party has a right to sue for damages resulting from the partial breach 4. Hochster v. De La Tour a. this court stated that a victim of an anticipatory repudiation may sue before the repudiator’s time for performance has arrived b. Policy Reasons 1. the courts have an interest in disposing of the matter promptly (memory of parties is fresh) 2. the aggrieved party has an interest in having a judicial determination as promptly possible so the party can make substitute arrangements and there will be no uncertainty whether the K has been legally repudiated 5. What Constitutes a Repudiation

a. as long as the promisor(obligor) makes it reasonably clear that he will not perform 1. statement by the promisor that he intends not to perform a. must appear the promisee that the promisor is quite unlikely to perform because he does not wish to or because he is unable to b. it is not enough that the promisor states vague doubts about his willingness or ability to perform - this may be a request 2. an action by the promisor making his performance under the K impossible a. the act must make the act impossible, not merely difficult or less likely to occur. The act must be voluntary 3. an indication by the promisor or via some other means that the promisor will be unable to perform 4. Retraction of Repudiation (R-256 & 2-611) a. until the repudiating party’s next peformance is due a repudiation may be retracted unless the aggrieved party has either sued for breach, cancellled or in some other way changed his position materially in reliance on the repudiation b. the repudiation becomes non-retractable if the repudiatee states that he regards the repuditation as final c. Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, however, the retraction must include assurances of performance that the other party has justifiably demanded. (demands of assurance by a party who has reasonable grounds for insecurity about whether the other will perform) 2-609 5. Repudiatee’s Options (R-350) a. where a repudiation either anticipatory or after the beginning of performance occurs, the repudiatee may, as we have seen sue immediately for breach b. the repudiatee may not ignore the repudiation and continue the K, if to do so would aggravated damages, there is an obligation to mitigate damages or be disallowed from recovering for those damages which could have been avoided c. The UCC simiarly requires the repudiatee to attempt to minimize his damages. 1. The repudiatee may for a commercially reasonable time await performance by the retracting party 2. If the repudiatee awaits performance beyond a commercial reasonable time he cannot recover resulting damages which he should have avoided 3. The aggrieved party may resort to any remedy for breach although he has notified the repudiating party that he would await the latter’s performance and has urged retraction a. this does not bar the party from telling the other party at any time that the repudiaton will be treated as a breach. Not a conclusive action. b. it is an attempt to save the deal but does not amount to an election 6. Repudiation of an Unilateral Obligation to Pay Money a. where the aggrieved party does not owe any performance, either because the K was originally unilateral, or because he has already rendered all performance required of him under a bilateral K, courts have generally refused to allow an immediate suit for breach based on anticipatory repudiation where the P owes no duties under the K b. However, the court may issue a declaratory judgment that the repudiator must pay the money on a specified date c. Also, a party may at the time of negotiation protect himself against such a problem by inserting an acceleration clause where in the event of non-payment or repudiation of one installment, all future installments become immediately payable H. Damages for Repudiation under The UCC 1. UCC 2-713 provides that the measure of damages for repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price, together with any incidental and consequential damages 2. Three Approaches a. Learned of Breach

1. when the buyer learns of the repudiation 2. if the buyer’s damages are the difference betwenn the K price and the market price at the time of repuditation, then the buyer (at least one who does not cover) would have suffer recovery any further loss occuring if the market price continued to rise between the repudiation and the end of the commercially reasonable period 3. In Cosden the courts stressed that this approach not only prevents the buyer from waiting for a commercially reasonable time, but also in a rising market induces breach by making a breach more palatable for the seller because he will know exactly what he damages will be b. Commercially Reasonable Time 1. measurement of damages is taken as of the last day of the commercially reasonable time which the buyer could have waited for the seller to perform 2. this approach has the merit of not stripping the buyer of his right to wait, a right given under 2610(a) c. Measurement at Time for Performance 1. a merit of this approach is that is does not deprive the buyer of his chance to wait a commercially reasonable time before covering 2. Yet during rising markets this will dissuade the buyer from covering, in hopes that market price will continue upward until performance time 3. The buyer should be encouraged to limit his risks as soon as possible by covering, not to enlarge risks by specualting that the market price will become more favorable to him if he waits until the time for performance

I. Right to Demand Assurance of Performance
1. R-251 a. a party’s speech or conduct will sometimes not constitute an unequivocal repudiation, but will give the other party reasonable grounds for insecurity about whether there will be performance b. where reasonable grounds arise to believe that the obligor will commit a breach by nonperformance that would itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance of due performance and may if reasonable, suspend any performance for which he has not already received until he receive due assurance c. the obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as adequate in the circumstances of the particular case 2. UCC 2- 609 a. a K for sale imposes on each party an obligation that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performanca dn until he receives such assurance may, if commercially reasonable, suspend any performance for which he has not already received the agreed return 1. Examples of actions which give rise to ―reasonable grounds for insecurity‖ a. the buyer has fallen behind in his account with the seller, even though the items for which he already owes are part of Ks completely separate from the one in question b. the seller under a K for precision parts makes defective deliveries of the same kinds of parts to other customers, and the buyer finds out about these defective shipments c. a manufacturer gives a dealer an exclusive franchise for the sale of his product but breaches the exclusive dealing clause in isolated situations, although there is no default in orders, deliveries or payments d. the buyer under a K for the sale of real estate learns that the seller does no t have present tiltle to the property, and there is no indication that the seller has a reasonable prospect of gaining title by the scheduled closing date e. The UCC requires that the reasonable grounds ―arise‖ which seems to say the reasonable grounds must be based on facts unknown to the insecure party at the time of King. Therefore, a party that has second thoughts about his deal, but not based on any new information or developments, may not use the demand for assurances as a means for rewriting the K f. Consequence of Refusal to Give Assurance

1. if such a request for assurance is given, the party receiving the request must either satisfy it or be held to have repudiated the K 2. the UCC provides that after receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days (in non-UCC situation, with a ―reasonable time‖) such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the K 3. the aggrieved party will have the right to cancel the K, refuse to perform, and sue for breach g. What Constitutes Adequate Assurance 1. Between merchants the reasonable grounds for insecurity and the adequacy of any assurance offered should be determined according to commercial standards 2. Examples a. if the seller is a repudiatable merchant, and there is no evidence that he has frequently delivered defective goods in the past, his statement to the buyer that he is aware of the recent defects, and is sure that the buyers delivery will no be similarly defective, will be sufficient assurance b. However, if there is evidence that the seller is a known corner cutter, verbal guarantees will not be enough and the seller will have to post a performance bond 3. A party who has grounds for insecurity must be careful that his demand for assurance does not insist on much more than the K calls for 4. A party’s right to adequate assurance exists not only where performance on the K has not yet begun, but also where performance has already been partially and defectively made

Fraudulent or Material misrepresentation 1. Fraudulent - In order for a misrepresentation to be fraudulent it must be both consciously false and intended to mislead a. Consciously False 1. if the maker of the assertion know, or even believes without actually knowing, that the facts are otherwise than stated 2. if the maker lacks confidence in its knowledge of the fact but chooses ―recklessly‖ to assert them as his own knowledge, rather than confine the assertion to opinion 3. the mere fact that a person of ordinary intelligence and care in the position of the maker would have recognized the assertion if false is not enough 4. maker is aware that he does not have the basis for its assertion b. Intent to Mislead 1. this requirement is met if the maker acts either with the desire to mislead another or in the belief that other is substantially certain to be mislead 2. it is not necessary that the maker have any particular recipient in mind at the time the misrepresentation is made 3. Material - the requirement of mutuality is usually met by a showing that the misrepresentation would have been likely to induce a reasonable recipient to make the K a. If supra cannot be shown, the requirement can be met by showing that the maker knew for some special reason, the misrepresentation was likely to induce the particular recipient to make the K (susceptible qualities of a particular person)

c. Reliance - A party cannot avoid a K on the ground of misrepresentation unless the party relied on it in manifesting assent 1. If the misrepresentation is material, it is assumed that the misrepresentation substantially contributed to the party’s decision, unless there is a contrary showing 2. If it appears that the recipient made an investigation and relied solely on the misrepresentation, the recipient is not entitled to relief. If recipient relied on misrepresentation and investigation, the recipient is not barred from avoiding 3. Question of Detriment a. the recipient has the obtained the thing expected, but has found that it is worth less then what the recipient was led to expect b. the recipient has obtained something of equivalent value that is substantially different from what is expected c. even if the recipient obtains what was expected and it is as valuable as the recipient was led to expect, courts have found detriment d. Reliance Must be Justified - In order to avoid a K on the ground of misrepresentation, the recipient must show not only reliance on the misrepresentation, but also that reliance was justified 1. the recipient may be barred from avoiding the K if the misrepresentation was obviously false or it could not be expected to be taken seriously 2. the failure to take steps to discover the facts before making a K, generally, will not bar avoidance 3. Failure to Read Writing - some trickery has been used to prevent the recipient from reading the writing 4. Opinion or Knowledge a. the extent to which an assertion will be regarded as a maker’s opinion, and not one of the maker’s knowledge, is essentially a question of interpretation, depending on the language that was used b. when the subject of the statement is not susceptible of knowledge or that points of view may be expected to differ on the matter, the statement is more likely to be one of opinion c. a seller’s statement of quality is more likely to be taken as one of opinion than is a seller’s statement of quantity; a seller’s statement of value is more likely to be so understood than a sellers statement of market price 5. Facts Implied From Opinion a. sometimes a statement of opinion implies that the maker knows facts that justify holding that opinion, or at least that the maker knows of no facts incompatible with it b. such a statement is made to some extent as based on the maker’s knowledge c. if the facts are other than as impliedly asserted, the statement may be grounds for avoidance 6. Opinion Only a. statements of opinion that carry no implied assertions of fact are generally regarded as not to be taken seriously, and the recipient is not usually justified in relying on them b. Exceptions 1. maker stands in relation of trust and confidence with recipient 2. recipient reasonably believes, as compared with the recipient, the maker whose opinion is asserted has special knowledge, skill, judgment 3. recipient is for some special reason particularly susceptible to a misrepresentation of the sort involved 3. Effects of Misrepresentation a. Misrepresentation in the inducement makes the resulting K voidable at the will of the recipient

b. The recipient may disaffirm the K and assert misrepresentation by either raising it as a defense to an action brought as a K or by bringing a action based on avoidance (―rescission‖) of the K c. Affirmance may be express or by conduct inconsistent with disaffirmance d. the recipient is also barred from avoiding the K by failing to disaffirm within a reasonable time after discovering the falsity of the misrepresentation e. avoidance may also be barred if, after the misrepresentation is made, the facts come in accord with it, so that it is cured f. Remedies on Avoidance 1. the recipient is entitled to restitution, either in kind, if it is possible to return what the recipient has given the other party or in the form of a money judgment based on the benefit that the recipient has conferred 2. courts have allowed incidental and consequential damages 3. the recipient is required to make restitution of what the recipient has received by either payment in sum of money or what was received 4. Other Consequences a. misrepresentation may have other consequences other than avoidance b. misleading conduct that falls short of misrepresentation may be considered as one factor in connection with some other aspect of a court’s power to police the agreement for unfairness

C. Undue Influence
2. Generally d. the concept of undue influence is to give relief to victims of unfair transactions that were induced by improper persuasion e. undue influence was aimed at the protection of those affected with a weakness, short of incapacity, against improper persuasion, short of misrepresentation or duress, by those in a special position to exercise persuasion. f. Like duress, undue influence a makes a K voidable and may serve as a defense or as the basis of a claim in restitution 3. Elements b. Relationship of Trust and Confidence 4. a finding of undue influence is said to require a special relationship between the parties that make one of them peculiarly susceptible to persuasion by the other 5. the mere fact that the victim is weak, infirm, or aged does not suffice in the absence of such a relation, but t may be a factor in showing that such a relations existed (i.e. parentchild, husband-wife, clergy-communicant, physician-patient 6. Relationship of Domination d. weaker party is under the domination of a stronger party e. fiduciary status may exist in any circumstances in which it can be found that one party has imposed trust and confidence in another and come to rely upon the judgment of that other person f. Unfair Persuasion 3. Once the requisite relation is shown, it must be shown that the assent of the weaker party was induced by unfair persuasion on the part of the stronger 4. The ultimate question in determining unfair persuasion is whether the result was produced by means that seriously impaired the free and competent exercise of judgment c. look at the imbalance in the resulting bargain, unavailability of independent advice, the lack of time for reflection, and the susceptibility of the weaker party d. the weakened state of mind can result from illness, advanced age, immaturity of youth, recent death of a spouse, use of alcohol or drugs, or any other circumstances that tend to deprive a person of the ability to make sound decisions 4. Effects of Undue Influence

c. unfair persuasion falls short of what is required for misrepresentation or duress, undue influence affords protection in some situations where these other doctrines do not d. the broad scope of duress has undercut the importance of undue influence

Policing of Modification and Discharge
9.

Adequacy of Consideration
A. Generally 1. courts of equity, as opposed to courts of law, have been more willing to examine the adequacy of consideration for a K 2. More commonly, the courts have manipulated the doctrine of consideration to serve the ideal of fairness. 3. if court decides to police substance there is an evaluation of the doctrine of consideration, courts are reluctant to make this type of evaluation 4. Requirement of Good Faith - all contracts have the implied condition that the parties will act in good faith B. Consideration 1. bargain element must be present a. value element must be present 1. Test for Legal Sufficiency a. legal detriment; and b. legal benefit Note: Majority of courts require detriment as well as benefit. Some courts hold that either detriment or benefit is sufficient 2. Sufficiency of Consideration - the exchange need not be fair so long as there is some legal value that is bargained for Note: Equitable relief requires a showing of fairness before an equity court will enforce a contract. C. Specific Enforcement of Contract Is Refused When: 1. the consideration is grossly inadequate (gross as to unconscionable) or the terms are unfair. This is evaluated at the time the contract is made, and not at when K is legally breached a. benefits of the agreement are more than outweighed by the oppressive term 2. enforcement will cause unreasonable and disproportionate hardship to a party 3. contract was induced by misrepresentation or mistake a. Courts look to the inequality of experience, if there is a wide disparity, the court will view this as unfair. Rarely, will this make the arrangement unfair unless some other factor is included. Example: D made a $5000 loan to P, helped solve problem P had with a tenant and help bring business, in return for a restriction on land. Held: Restrictive covenant unreasonable. Consideration was so gross that it was unconscionable. Also restrictions on land are not favored by law. Court did not invalidate contract but did not grant specific performance. There is still the option for money damages. (McKinnon v Benedict) D. Prior Services - While prior services cannot provide the consideration essential to a binding contract, prior services and past relation of the parties may properly be considered in connection with the fairness of the contract and adequacy of consideration. Behavior Analysis E. Consideration Between Businessman 1. The difference in relative values of consideration in a contract between businessman dealing at arm’s length without fraud will not affect the validity of the contract. a. Courts are not required to prescribe prices since inefficiency will result b. test of enforceability should be certain and not based on tests of validity using vague terms such as fair or reasonable c. Persons of sound mind and maturity should be free to contract imprudently as well as prudently.

F. Public Policy Violations 1. A contract entered freely, without evidence of fraud, is void against social policy when: a. contract induces a public official to act in a certain manner b. contract calls for the performance of an illegal act c. contract which is aimed at promoting collusive bidding on a public contract. Example: D sold parts to P who sold to another person who sold to gov. P was a middleman who was receiving exorbitant profits. Held - If the parties are of sound mind and there is no overreaching, parties can prudently make any agreement. there is no fraud between the two businessman so this does not effect the validity of the contract. Policy - to rule otherwise would force the court to perform a price regulatory function (Black Industries v. Bush) 7. an agreement to rescind even if it is merged into one transaction is valid 8. Rescission in full or modification by mutual assent that results in a benefit to one party and a burden to another party is effective. Parties to a valid contract that mutually assent to changes in circumstances and condition should be valid. Example: P agreed to perform service but then during performance confronted with an unanticipated situation. Held: The D intentionally and voluntarily yielded to the demand for a higher price. By yield to the demand, the D gave up right to the price in the original contract. (Watkins & Sons v. Carrig) Note: P had to abide by original unless there is a modification or rescission like this case P could have checked the situation more closely in the beginning and/or could have had contingency clauses

Unconscionability and Adhesion Contracts
B. Standardized Contracts - Adhesion Contracts 2. Generally d. today, in routine transactions the typical agreement consists of a standard printed form that has been prepared by one party and assented to by the other with little or no opportunity for negotiation (i.e. purchase orders of automobiles, credit card agreements, insurance policies e. Sometimes, basic terms relating to quality, quantity, and price are negotiable but the boilerplate - the standard terms printed on the form are not subject to bargain c. Advantages - The advantages of the use of standard form contracts are: 6. takes advantage of lessons of experience and enables a judicial interpretation of one contract to serve as interpretation of all contracts 7. reduces uncertainty and saves time and trouble 8. simplifies planning and administration 9. makes risks calculable 10. increases the real security which is the necessary basis of initiative and the assumption of foreseeable risks Note: the benefit of this type of K makes it possible to conduct all daily transactions e. Disadvantages: the problems with standardized contracts: 4. bargaining over terms may not be between equals 5. may be no opportunity to bargain over terms at all 6. one party may be completely or at least relatively, unfamiliar with the terms Note: the cost is that one party may be able to impose terms over other party (bargaining power not equal); there are not alternatives since it is an accept or reject situation therefore the party with stronger bargaining power will force another party to adhere to demands and conditions of the agreement Remember, The fact that a K is one of adhesion is not, of itself regarded as fatal (unconscionable), especially where there is no element of surprise in the term 2. Courts Response to Adhesion Contracts b. Traditionally 3. courts have not been receptive to parties that have sought to be relieved of this agreements

4. the law presumes that a person knows the contents of a document that he executes and understands at least the literal meaning of its terms c. Modern Approach 2. courts refuse to hold a party to a writing on the ground that is was not a type that would reasonably appear to the recipient to contain the terms of a proposed K b. compelling argument with respect to tickets, passes, stubs 3. courts refuse to hold a party to a term on the ground, that although the writing may plainly have been an offer reasonably to have understood to be part of that offer d. easy to reach if the term is on the reverse side of the form and the reference, if any to the terms is itself in fine print or otherwise inadequate e. same reasoning has been used when the term was in a separate document, not attached to the signed writing but incorporated by a reference regarded by the court as insufficient f. the size of type and other factor affect legibility of both the reference and the term itself play an important part in determining whether such a term is part of the K 6. courts avoid holding a party to a term by interpreting the language of the term to favor the party (i.e. sidewalk - lawn hypo) 7. The UCC requires that a term be ―conspicuous‖ which it defines as being written in a manner that a reasonable person against whom it is to operate ought to have noticed it 8. With standardized agreements there is no assent to be bound by the writing, no assent to be bound by particular terms of the writing, or no assent to meaning of the term advance by the author Note: Freedom of contracts is not unlimited since there is a refusal to destroy a standard of care and to protect the needs of people from having their goods and services being overreached with the power to drive unconscionable bargains

B. Unconscionability
3. If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause as to avoid any unconscionable result 4. Remedies for Unconscionability e. the court may refuse to enforce the entire contract or it may refuse to enforce or limit the application of an unconscionable clause f. courts usually have contented themselves with refusing to enforce or limit the application of an unconscionable clause g. courts have declined to entertain damage suits based on Unconscionability h. the remedies for unconscionability are cast in terms of withholding relief instead of avoidance 4. Substantive Unconscionability b. Unconscionability includes (a) an absence of meaningful choice of one of the parties together with (b) contract terms which are unreasonably favorable to the other party. What is meaningful choice is determined by the circumstances surrounding the transaction 5. inequality of bargaining power 6. understanding terms of agreement (manipulation of rules of offer and acceptance) 7. important terms hidden in fine print (adverse construction of language) 8. contrary to public policy c. Substantive is fault or unfairness in the bargaining outcome, that is, unfairness of the terms of the contract. Usually involves either an excessive price or an unfair modification of either the seller’s or the buyer’s remedies 2. when a court declares a contract to be substantive unconscionable the court is forced to substitute its own valuation of the goods contracted by the parties involved Note: Excessive price is two or three time market price to goods in same area 5. Procedural Unconscionability - is fault or unfairness in the bargaining process because their is no meaningful choice

d. Includes: employment of sharp practices, use of fine print, use of convoluted language, lack of understanding, inequality of bargaining power e. When a contract is found to be unconscionable at the time it was made, the contract should not be enforce f. Clues: K; stronger party know that weaker will be unable to receive substantial benefits from K; weaker party is unable to reasonably protect his interests due to physical or mental infirmities, illiteracy, unable to understand the language of the agreement Note: Most cases of unconscionability involve a combination of the two types of unconscionability and it is generally agreed that for the court to relieve a party from K there must be procedural unconscionability 6. Extrinsic Evidence b. When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting (trade or usage), purpose and effect to aid the court in making the determination (Seller can provide evidence that K or clause was bargained for, not mere boilerplate language while the buyer can show vice) 10. Policy Rationale d. On the whole judges have been cautious in applying the doctrine of unconscionabiltiy, recognizing that the parties often must make their K quickly, that their bargaining power will rarely be equal, and the courts are ill-equipped to deal with problems of unequal distribution of wealth in society e. the doctrine of unconscionabiltiy is intended to prevent oppression and unfair surprise and not to relieve a party from the effect of a bad bargain 10. Clauses Limiting Remedies a. by such a clause a party, rather than trying to exculpate itself from liability altogether, purports to limit the remedies available to the other party in the event of such liability. C. Limitations on Warranties 1. Under 2-313 - Express Warranties by Affirmation, Promise, Description, Sample a. seller can give an express warranty by 1. Affirmation: affirmation of a promise or fact by seller to buyer that become an express warranty; becomes the basis for the agreement, because buyer relies on promise 2. Description: description of good becomes the basis for express warranty that all goods shall conform to the description 3. Sample or Model: sample or model made as part of the bargain becomes the basis for an express warranty that all goods shall conform to sample or model b. Using the words warranty or guarantee is not needed to create an express warranty, but a statement regarding the value of goods or that is held out merely as the seller’s opinion is not a warranty 2. UCC 2-314 - Implied Warranty of Merchantability a. a warranty that goods shall be merchantible is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind 1. goods reasonably fit for ordinary purposes that are used 2. passed without rejection under the contract description 3. fungible goods (non-special) are of fair average quality within description b. Under 2-316 warranty of merchantability can be modified or excluded by a writing that is conspicuous; courts determine what is conspicuous 1. Conspicuous- written so that a reasonable person against whom it would operate would notice. The language is larger or other contrasting type or color to that in the form 2. certain language such as ―as is‖, ―with all faults‖ or other language which in common understanding calls the buyer’s attention to the exclusion of warranties is permissible 3. if the buyer has inspected good as much as desired or refused to inspect 4. also excluded by course of dealing, course of performance, or usage of trade c. 2-316(4) - consequential damages can be limited or excluded so long as they not unconscionable 1. parties may provide for more extensive remedies than under the code

2. parties may provide for less extensive remedies then under the code 3. parties may provide for exclusive remedies d. Understandingly Consent - consumer be able to understandingly consent to the exclusion or limitation 1. if the clause is hidden on the back in fine print, no attention was called to the clause and it is not clear as to what is being given up in the clause then the exclusion or modification is not permissible 3. Under 2-315 -Implied Warranty: Fitness for Particular Purpose - warrants that good are fit for a particular purpose 4. UCC 2-719 Contractual Modification or Limitation of Remedy (consequential damages) a. Subject to the provisions of subsection (1) and (2) of this section 1. the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages under this Article, as by limiting the buyer’s remedies as to the return of goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and 2. resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy 5. Limitations on seller’s right to alter the buyer’s remedies a. Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy from this act may be applied b. (1)Consequential damages may be excluded or limited unless the limitation or exclusion is unconscionable. (2) Limitation for consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not. Note: a & b are ways to get out of an exclusive remedy Example: P was injured by a defect in car under a contract where dealer intended to disclaim all implied warranties of merchantability. Held: Although freedom of contract is an important and guiding concept in law, provision which clearly tends toward injury of public will be declared void as against public policy. Due to the gross disparity of bargaining power between the consumer and essentially the automobile industry there can be no arms-length bargaining on the subject of warranty. D. Miscellaneous Defenses 1. Payment in Full Options Deals with a tender by the debtor of a payment that the debtor designates as conclusive settlement of the account between the parties. a. In some circumstances, if the creditor accepts the tender of payment the account is effectively settled and the debtor is discharged of further liability on the account. b. In some cases the result is indicated by common law and other cases by the commercial code. c. Common Law Interpretation: where the payment is not to be considered in full. There has to a showing that the defendant(debtor) manifested to the plaintiff (creditor) his intention to pay no more than the amount paid. In this scenario the creditor has to return the payment if it does not constitute full payment. If the creditor fails to send back the check, the payment is considered to be in full. d. Partial payment does not constitute full payment e. The tender is the offer and an acceptance would occur if an individual/company cashes instrument. Consideration is the claim is wiped out. 2. Confidential Relations a. Exists whenever the relative position of the parties is such that one party has power and means to take advantage of or exert undue influence over the other. b. The claimant is required to show that the bargain is fair, honest and beyond the reach of suspicion. c. Bargaining not at arm’s length

d. Some factors relevant to identifying a confidential relationship are disparity of age, education and business experience between the parties. e. Also, where one party has the trust and confidence in another party. Have to evaluate whether this party uses these qualities to take advantage of the other party. f. Consequences - if found, the burden is shifted to the party who acts are in question 3. Exculpatory Clauses - All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent are against the policy of the law. They are designed to shift the risk of injury or property damage a. The following factors are evaluated to determine whether the clauses should be void 1. physical and economic well being of the party agreeing to the release 2. the parties bargaining power 3. the amount of free choice actually exercised in agreeing to the exemption 4. the existence of competition among the group to be exempted. b. Exculpatory provisions may stand only if it does not involve the public interest. Most courts have agreed to invalidate exculpatory clauses the common carrier have attempted to use c. Generally, a party may not enforce a K term that would relieve that party from liability for harm caused intentionally or recklessly 4. Tickets, Passes and Stubs a. Common to find a provision on a ticket that purports to limit the liability if the issuer for injury or loss b. Usually are not signed c. court is asked to evaluate whether the person receiving the ticket, pass or stub should have known about the limitations on the documents d. parties that receive these documents do not think they are entering a contract by taking a ticket e. Generally, even if the statements absolving liability are obvious it is usually not enough to limit liability when an issuer is negligent 5. Hell and High Water Clauses a. the terms of the contract may require the consumer to continue making payments after learning that the goods are seriously defective, that the merchant misrepresented their quality, or that for another reason the merchant could not have required payment. b. This is avoided by legends, which is a rule designed to compel creditors to absorb seller misconduct costs or seek reimbursement from the seller of those costs. 6. Home Solicitation Sales and ―Cooling Off‖ Periods a. The buyer may cancel a home solicitation sale until midnight of the third business day after the day on which the buyer signs an agreement or offer to purchase. 7. .Franchise Relations a. Relationship: The franchisee usually purchases some products from the franchisor and makes royalty payments on the basis of units sold, in exchange for the right offer products for sale under the trademark. b. Agreement: The franchise agreement establishes the relationship between parties and regulates the quality of products, sales territory, the advertising and other details. c. Self -Interest: Either party may be aggrieved by self-interested action by the other: The franchisor may contend that the franchisee has provided substandard service, damaging to the reputation of the product or services which the royalties depend. The franchisee may contend that the franchisor has skimped on advertising or has siphoned off revenues through a competing franchisee. d. Form: Generally, franchise agreements are in a standard form prepared by the franchisor, containing terms that are not open to negotiation and are strikingly favorable to the franchisor. The franchisor may reserve the power of termination on short notice. e. Termination: This power of termination has been held to be unconscionable. The reasoning supporting unconscionabiltiy is the gross disparity in bargaining power, gross unfair contract provisions at issue and the tendency to injure the public.

Example: Shell Oil Co. - no legal right to terminate unless good cause; The factors that were evaluated is the disparity in bargaining power leading to Shell dictating the terms of the contract, grossly unfair contract provisions and the clear tendency to injure the public d. 2. 7. Seller’s Breach (buyer has the obligation to cover) b. UCC 2-712 Cover (in a market economy it is presumed that parties can cover easily) 4. A buyer may in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution of those to be due from a the seller. 5. The buyer may recover from the seller as damages the difference between the ―cover‖ price and market price plus inconsequential damages. 6. It not is necessary for the buyer to establish market price rather the burden is on the seller to prove that ―cover‖ was not properly obtained. Note: 2-712 is evaluated first as remedy. If relief is denied under 2-712, relief can still be granted under 2-713. Relief would be denied if there is an unreasonable delay, no effort to cover or party asked for specific performance c. UCC 2-713 - Buyers Damages for Non-Delivery or Repudiation 4. Market price is an appropriate measure of damages when a seller breaches a contract. 5. Market price differential = the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of breach and the contract price together with incidental and consequential damages provided in 2-715, but less expenses saved in consequences of the seller’s breach. 6. Purpose = The purpose of 2-713 is to award expectation damages in accordance with the parties allocation of risk as measured by the difference between contract price and market price on the date set for performance. This may result in a windfall for the buyer yet the market damages rule discourages the breach of contracts and encourages a more efficient market. If not, then sellers would be encouraged to breach the contract if the market fluctuates to their advantage. Note: The argument against is that we are not measuring actual loss with this measurement. The argument for is that these damages serve as a penalty to discourage breach of contracts 5. UCC 2-715- Buyer’s Incidental and Consequential Damages a. Consequential damages resulting from the seller’s breach include: 3. any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason (foreseeability) to know and which could not reasonably be prevented (avoidability) by cover or otherwise; and 4. injury to person or property proximately resulting from any breach of warranty 8. Buyer’s Breach (seller has obligation to cover) a. UCC 2-706 Seller’s Resale Including Contract for Resale (in market economy presumption is that its easy to cover) 1. if the seller resells in good faith and in a commercially reasonable manner... the seller gets the difference between the original contract price and the resale price, plus incidentals, minus any money saved because of breach Note: good faith means you can not resell at law price to punish the buyer 2. When a lost seller can not mitigate damages by a resale, 2-706 is not applicable. Resale does not reduce a lost volume seller’s damages because the breach has resulting in the losing of one sale and a corresponding profit

b. UCC 2-708 Seller Damages for Non-Acceptance or Repudiation 1. Subject to subsection(2), ...damages for non-acceptance or repudiation by the buyer is the difference between the market price and contract price at the place for tender and the unpaid contract price together with any incidental damages but less expenses saved in consequence of the buyer’s breach 2. If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit including reasonable overhead which the seller would have made had full performance by the buyer, together with an incidental damages... Note: A seller can recover under 2-708(2) only by establishing its status as a lost volume seller.. 2-708(2) applies only if 2-207(1) is not applicable c. Lost Profits - An aggrieved seller may recover, after resale, lost profits from the original sale if he can show that the (1) subsequent sale would have occurred, (2) he had the capacity to make the sale to the original buyer and the resale buyer and (3)it would have been profitable to make both sales Note: Loss profits can be recovered only by a lost volume seller 1. Loss Volume Seller = predictable and finite number of customers; has the ability to expand and sell to additional customers (i.e. builder will claim that had the first K not been broken, the builder could and would have made both contracts - that the builder has ―lost volume‖ as a result of the breach 2. Test for Lost Volume Seller a. second contract would have been done regardless of the breach b. did the seller have the capacity to supply breached units and what was actually sold c. would the seller have been profitable in doing both Example: Construction contracts - under a contract for construction another comparable opportunity is not viewed as a substitute. It is assumed that the contractor could have expanded its business to undertake additional jobs so the breach of the original contract is viewed as lost volume that can not be recovered by a second similar contract 9. Damages for Services a. General Rule: Under the normal rule of contract damages a promisee can not recover if complete performance would result in a loss b. A promissee can recover the value of services given to a defendant regardless whether the promisee would have lost money on the contract and had been unable to recover in a suit on the contract. Recovery is the reasonable value of performance. Therefore, recovery is not diminished by any loss which would have been incurred by performance. c. The contract price may be reasonable evidence but it does not measure the value of performance or limit recovery. d. Standard: The standard for measuring the reasonable value of the services rendered is restitution. 1. Restatement 371 - Measure of Restitution Interest a. the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position, or b. the extent to which the other party’s property has been increased in value or his other interests advanced Note: The restitution interest involves a combination of unjust impoverishment with an unjust gain. B. Limitation on Damages 1. Avoidability - injured party has a duty to mitigate a. Restatement 350 - Avoidability as Limitation on Damages 1. Except as stated in subsection (2), damages are not recovered for the loss the injured party could have avoided without undue risk, burden or humiliation (reasonable efforts)

b.

c.

c.

e.

2. The injured party is not precluded recovery by the rule stated in subsection (1) to the extent that the party has made reasonable but unsuccessful efforts to avoid loss 3. the economic justification of the rule is to encourage the injured party to act so as to minimize the wasteful results of breach 4. If a parties fails to take steps to mitigate damages the injured party is barred from recovering damages for the loss that one could have avoided had appropriate tests been taken 5. The injured party is not expected to guard against unforeseeable Employee 1. Measure: The measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period agreed upon, less the amount which the employer affirmatively approves the employee earns or reasonably would have earned from other employment. 2. Comparable: The employer must show that the other employment was comparable, or substantially similar to that of which the employee was deprived. 3. If the other available employment is different or inferior it does not matter whether the employee acts reasonably or unreasonably in rejecting the offer. 4. Mitigate: The person with the duty to mitigate need not expose himself to undue risk, expense, or humiliation. In mitigating the employee does not have to accept a position of lower rank or salary Avoidability and Cost to Remedy Effect 1. If the breach consists of incomplete performance: a. The injured party can usually arrange to have someone else complete the work at less than the loss in value of the injured party b. The limitation of avoidability then has the effect of restricting the injured party to damages based on that lesser cost to complete the work rather than on the loss in value Example: Can not close the factory and sue for damages. Have to go out and hire someone else to complete the job. 2. If the breach consists of defective performance: a. part of the cost to remedy the defect and complete performance as agreed will be the cost of undoing some work already done and this cost may be very high b. The total cost to remedy the defect may exceed the loss in value to the injured party, so that an award based on cost would to that extent be a windfall to the injured party. Construction Contracts 1. Restatement 328 Section 2 a. If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on 1. the diminution in the market price of the property caused by the breach, or (Diminution (drop in mkt. Price) 2. the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him (Complete performance or remedy defect) Relevance in Diminution in Value 1. Lower Limit: Diminution in market price is useful in fixing a lower limit for recovery, since the value of the property to its owner is usually no less than the net price at which the owner could sell it 2. Upper Limit: Cost to remedy the defect is useful in fixing an upper limit for recovery since even if that cost is less than the loss in value to the owner, the lesser sum will enable the owner to complete and avoid any loss 3. The fact finder is in the best position to determine whether the owner will actually complete performance or whether he is only interested in obtaining the best immediate economic position he can

4. Where the property is held solely for investment, the court may conclude as a matter of law that the damages can not exceed diminution value 5. Where the property has special significance to the owner and repair seems likely, the cost of repair may be appropriated even if it exceeds the diminution in value. 6. The rule generally is where the contractor willfully and fraudulently varies for the terms of a construction contract, he can not sue nor have the benefit of the equitable doctrine of substantial performance. 7. Damages for the breach of a construction contract should give the injured party, as much money as what was promised. The level from which to figure damages is the hypothetical point of accomplishment rather than value which would have been reached had the work been done as contracted. An owner’s right to improve his property is not limited by its small value. 8. If it is shown that the owner’s purpose was to satisfy some personal taste or fancy, damages equal to the cost of completion will be awarded even if economic waste results. 9. cost performance rule -The true measure of damages should be what it will cost P’s to

obtain performance of the work that was not done due to the D’s default 10. value rule -The measure is the cost of damages limited to the total difference between the market value before and after the work was to be performed.
f. Once a party has reason to know that the other’s return performance will not be forthcoming, the former is expected to avoid further cost by stopping performance

2. Foreseeability - Restatement 351
a. Damages are not recoverable for less that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made b. Hadley v. Baxendale - Loss may be foreseeable as a probable result of a breach because it follows from the breach 1. in the ordinary course of events, or a. Direct or general damages(natural)- arise naturally in the usual course of events from a breach of a K which are generally recoverable b. The breaching party could contemplate being liable for such damages when the K was made c. Remember to distinguish between what is consequential and what is general 2. as a result of special circumstances beyond the ordinary course of events, that the party in breach had reason to know a. Special damages (consequential, unusual, unnatural) - arise out of particular situations or circumstances of parties; damages are recover if the circumstances were foreseeable to other party when the K was made b. If the special circumstances under which the contract was made were known to both parties, the resulting damages upon breach would be those reasonably contemplated as arising as those communicated and known circumstances. But if the special circumstances were unknown, the damages can only be those expected to arise generally from the breach Note: Substantial loss on another K is not a natural and probable result of a breach of a K for goods. c. A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation d. If the consequences of the breach are foreseeable, the party which breaches would be liable for the lost profits and expectation damages e. Restatement 53 - Loss Due to Emotional Disturbance 1. Recovery for emotional disturbance will be excluded unless the breach caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result

2. Sometimes emotional disturbance is not foreseeable. Even if emotional disturbance is foreseeable, the resulting damages are often particularly difficult to establish and measure 3. Certainty a. Restatement 352 - Uncertainty as a Limitation 1. Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty a. Time: length of time over which performance takes place; the longer period of time left for performance the more speculative the price becomes b. Nature: nature of damages claim (loss of good will, emotional damages and reputation damages) c. speculative nature of the enterprise (royalties on books- P.552 note 2) past performance does not help measure d. the newness of a business affects damages since you can not reasonably predict damages Note: These factors raise issues but does not necessarily mean there is uncertainty b. New Business: a new business can recover damages for loss profits as long as there is reasonable certainty 1. there must be sufficient proof usually shown by a reasonable extent of damages incurred 2. the jury should not be allowed to speculate or guess on the question of loss profits a. testimony can be sufficient proof If the subject of the K involves matters of taste or sentiment, it may be impossible to value the injured party’s expectation in money


								
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