Cool Contracts Law Outline for Law School

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					                                 Remedies for Breach

Specific Performance/ Equitable Relief

        court directs the promisor to perform on the promise made
        common law courts did not generally grant SP
            o usually money damages were the appropriate relief
            o party’s right to specific performance is limited
            o Modern trend is in favor of the extension of specific relief at the
                 expense of the traditional primacy of damages

Personal Service Contracts
       Court will not grant specific performance when the contract provides a service
          that is personal in nature.
              o Difficult to pass judgment on the quality of performance
                       Lumley v. Wagner
                               Court will not grant an injunction unless the remedy in
                                  damages would be inadequate
                                      o P sued for an injunction to stop D from singing
                                        at another theatre
                                      o Inunctions are common in the world of sports
                                        where the availability of such relief may be
                                        enhanced by the belief that the requirement that
                                        the player be an athlete of exceptional talent

      Walgreen v. Sara Creek
       Court granted injunction to Walgreen that disallowed Sara Creek Property Co.
          from leasing out the building to another pharmacy
       Court found it would have been too costly to project the future earnings lost
          by the added competition

           Benefits of Injunction
          shifts the burden of determining the cost of the defendants conduct from the
           court to the parties
               o the effect of upholding the injunction would be to substitute for the
                    costly processes of forensic fact determination the less costly
                    processes of private negotiation
          Fits with the free market system
               Costs of Injunction
          require continued supervision by the courts
          impose costs on third parties
               o bilateral monopoly
                         two parties can only deal with each other is what the injunction
                         Creates a bargaining range
                              Walgreen waives the right for injunctive relief for a
                                 price between the range
                              Costs of injunctive process can be avoided by
Money Damages
      efficient
      avoids dealing with the relationship between parties
            o there can be an end to the contract and frustrated parties can go their
               separate ways
      can be costly to prepare and present evidence of damages
      determining the value of the contract
      battle of experts
      uncertainty

      Klein v. Pepsi Co.
Whether the court’s ordering of specific performance of the contract
       buyers can seek specific performance of the contract if the goods sought are
          unique or in other proper circumstances
              o UCC 2-716(1)
       it is not appropriate where damages are recoverable and adequate
              o Price increases alone are no reason to order specific performance
              o there were several substitute jets P could have purchased
                       jet was not unique under the Code

       Laclede Gas Co. v. Amoco Oil Co.

Uniqueness does not only rest on the good or service but also whether or not the contract
was unique
       Party could not find another long term supplier of propane to enter in to a contract
              Therefore the contract was unique to the parties and specific performance
              was the proper remedy
        there is no requirement in the law that both parties be mutually entitled to the
           remedy of SP in order that one of them be given that remedy by the court
        How easy is it to get an altenative similar contract elsewhere?
              o If difficult then the court may grant SP

       Laredo Hides
        D breached contract
        Laredo Hides was forced to purchase hides on the open market in order to
          satisfy its contract with a 3rd party
              o 2-712 Cover
                         It is not necessary the buyer establish market price
                         Once a buyer effect cover it is up to the Seller to show that
                          cover was improperly obtained
                                Wasn’t reasonable
                                Price is too high
2-712 Cover

         A buyer may cover by making in good faith and without unreasonable delay
          any reasonable purchase of or contract to purchase goods in substitution for
          those due from the seller
         Buyer may recover from seller as damages the difference between the cost of
          cover and the contract price + any incidental damages
              o Failure to cover does not bar other remedy

         allows the wheels of commerce to keep moving
              o a breached party can continue their supply chain
         decreases litigation

UCC 2-713 Market Price

         measure of damages for non-delivery or repudiation by the seller is the
          difference between market price at the time the buyer learned of breach and
          the contract price
              o M – K = Damages
                      + incidentals
         when the breached party does not have to fulfill a 3rd party contract
         damages can be assessed by using a spot market price – K price
             o price from a subsequent sale is also probative of a property’s fair
                 market value

         benefit of his bargain by being put in as good a position as he would have
            been in had the contract been performed
         interest in having restored to him any benefit that he has conferred on the
            other party
         being put in as good a position as he would have been in had the contract not
            been made

Unjust Enrichment
        one party is enriched by another party w/o reciprocating a benefit
The importance in contracts is to uphold the value of the promise
       These interests are available to the breached part
In a profitable contract expectation will be the best measure
       Party cannot receive expectation and restitution


1-106: Remedies without special or consequential damages
2-713: market price – contract price = damages

        Davis v. Diasonics
A lost volume seller who is reselling is free to reject the damage formula prescribed in 2-
706 and use the formula in 2-708

       -- where the resale is made in good faith and in a commercially reasonable
       manner the seller may recover the difference between the resale price and the
       contract price together with any incidental damages less expenses saved as a
       result of the buyers breach

       -- 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 which the seller would have made from full performance by
       the buyer
       2- 718(2)
       -- damages for breach either by either party may be liquidated in the agreement
       but only at an amount which is reasonable in the light of the anticipated or actual
       harm caused by the breach, the difficulties of proof of loss and the inconvenience
       or non-feasibility of otherwise obtaining an adequate remedy. A term fixing
       unreasonably large liquidated damages is void as a penalty.

Diasonics argues they could have sold another unit as well as the unit to davis and
therefore should be granted the profit from both sales as damages of the breach

A lost volume seller has to prove, in order to recover under 2-708(2) that it has a definite
market to sell to and has the capacity to make the additional sale

Personal Service contracts cannot claim to be a lost volume seller.
       A person cannot work two jobs at once theoretically

       Tongish v. Thomas
When there are policy implications and the courts want to deter future breaches in kind 1-
106 is inadequate because it does not allow for special damages.

In this case awarding only the lost profit to P from the breach would encourage breaches
of contracts in the marketplace.

2-713 does not reflect the actual damages from the breach but it encourages a more
efficient market while discouraging the breach of contracts

       Parker v. 20th Century Fox
Whether a secondary employment offer was sufficient to force non-breaching party to
mitigate the breach.
       No. The secondary offer has to be adequately similar to the original for the non-
       breaching party to take it and mitigate the breach
       Otherwise the breaching party owes the other party the expected benefit from the
       original contract

       Jacob & Youngs v. Kent
The buyer specified a type of pipe to be used in his house called Reading pipe and the
builders neglected to follow this instruction
       Breach was not known until the house was nearly completed
               Should the non-breaching party get his full expectation?
                       A house built with reading pipes?
                               This would mean tearing down the current house and
                               starting over
The measure of damages in this case is the difference in value which would be nominal
between what the buyer wanted and what the builder built
       Most cases the damages would be the cost of replacement. The owner is given the
       amount needed to finish the job correctly unless the cost of completion is grossly
       and unfairly out of proportion to the good to be attained
               The measure of allowance must be within the ideas of justice

What is substantial performance?
What damages come out of non-exact performance?

Classic formal schema
       Breach = damages
       No Breach = no damages

Cardozo Progressive modern View
      Breach = damages
      ?      =?
      No Breach = no damages
Cardozo says there is a middle area where the role of law judge is to use just prudence to
apply rules not mechanically but logically to fit the case at hand

       Wunder & Peevyhouse
Each of these courts cites J&Y with varying results

Cost to perform v. increase in the value of property
        When the courts find the value increase is too insignificant they do not force
               1) Was it willful?
               2) Was it material?

             This is the Jacob and Youngs Cardozo view which critics have said gives
             too much discretion to judges and destroys uniformity in the law
       How do you keep judges from legislating from the bench?

       Hadley v. Baxendale

How do you find the “where you would have been”?
     Forseeability of damages
             - would the breaching party foresee the consequences

The damages which the one party should receive from the breach should be such as may
fairly and reasonably be considered either arising naturally, according the usual course of
things from such breach of contract itself or such as may reasonably but supposed to have
been in the contemplation of both parties at the time contract was made
        If special circumstances were made apparent to both parties then damages from
        the breach could be taken into account with those special circumstances

When you are a buyer you want to communicate as much information as possible
       use “whereas” clauses
       sellers want to strike these things from contractual language
             o reduces their potential liability

Restatement 351(3): court can limit foreseeable damages

EX.) Rent a locker and place a diamond in it
       is it foreseeable the locker will be broken into?
               o Yes
               o Is it likely?
                       No
                       If the value of the damages are so different from the value of
                          that contract the court can limit them
                         The closer the damages are to the heart of the K then the court
                          will not as quickly limit damages
Consequential: When a contract is breached, the recognized remedy for an owner is
recovery of damages that result directly from the breach, such as the cost to repair or
complete the work in accordance with the contract documents, the loss of value of lost or
damaged work. Consequential damages include loss of product and loss of profit or
revenue and may be recovered if it is determined such damages were reasonably
foreseeable or "within the contemplation of the parties" at the time of the contract

Incidental: are a seller's commercially reasonable expenses incurred in stopping delivery
or in transporting and caring for goods after a buyer's breach of contract, (UCC Sec. 2-
710) or a buyer's expenses reasonably incurred in caring for goods after a seller's breach
of contract. (UCC Sec. 2-715(1).

Stipulated Damages: The sum agreed by the parties to be paid, on a breach of a contract,
by the party violating his engagement to the other. It is difficult to distinguish, in some
cases, between stipulated damages and a penalty. The effect of inserting stipulated
damages, either at law or equity, appears to be that both parties must abide by the
stipulation and the prescribed sum must be given.

       Emotional Damages:
        difficult to get
             o must be substantial
                       two situations
                            contract breach that is also a tort
                            when the contract is not for commercial gain or

       Courts are not in favor of penalties for contracts and therefore drafters have to be
       careful not to create them when attempting to write in stipulated damages

       Are most useful when there is a difficulty in proving losses
               - non-compete
               - reputation
               - emotional
       Setting damages up front makes it more efficient
               The easier it is to calculate damages courts will say the stipulated damages
               are a penalty
        control exposure to risk
        avoid uncertainty
        fashion a remedy consistent with economic efficiency in a competitive market
        correct inadequate judicial remedies
        promote freedom of contract
       Kenford v. County of Eerie

P is not entitled to recover damages when there is no evidence to support a determination
that the parties contemplated prior to or at the time of the contract, assumption by the D
of liability for the damages

Damages which may be recovered by a party for breach of contract are restricted to those
damages which were reasonably foreseen or contemplated by the parties during their
negotiations or at the time the contract was executed

Determining the reasonable contemplation of the parties, the nature, purpose, and
particular circumstances of the contract known by the parties should be considered, as
well as what liability the defendant fairly may be supposed to have assumed consciously
or to have warranted the P reasonably to suppose that it assumed when the contract was

More uncertainty and speculation in damages will lessen the likelihood the courts will
grant damages for loss of downstream profits

Certainty and Forseeability
       Contract formulation attempts to shrink the uncertainty in damages
       Damages need not be calculable with mathematical accuracy, but rather
       reasonable certainty

Fera Case
        Courts are going to limit the damages when they are less certain
              o Expectation: uncertain
              o Reliance: certain
              o Restitution: certain
        Fera wants the future profuts lossed
              o Brought experts to prove damages
                      Ds argue that a new business cannot show loss of personal
                              Too speculative
                              Courts say there is no difference between new and old
                                 businesses when looking at loss of future profits
Expectation damages are rewarded in the absence of restitution and reliance
        but to minimize total damages the courts tend to squeeze expectation because
              o too speculative
              o difficult to calculate
              o disproportionate

Liquidated Damages and Penalties
       Wasserman’s Inc v. Township of Middleton
Courts decided the damages being a percentage of “gross receipts” was a poor measure of
damages because gross receipts are not an accurate depicition of the lose by the P.

P was losing money every quarter even though gross receipts were very high
       -- net profits are more accurate to measure damages to future business loses

In liquidated damages problems the courts ask what the actual damages are and then
decide whether or not to use the liquidated damages provision in the contract

Gustafson v. State
        a provision for payment of a stipulated sum as a liquidation of damages will
          ordinarily be sustained 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
               o that there is a reasonable endeavor by the parties as stated to fix fair
                   compensation and that the amount stipulated bears a reasonable
                   relation to probably damages and not disproportionate to any damages
                   reasonably to be anticipated

                                Policing the Bargain
3 policing measures
        -- Status of the parties/Capacity
                Some parties cannot enter into contracts
                        -- minors
                        -- mentally infirm
        -- behavior
                How the parties bargained
                        -- duress
                        -- coercion
        -- substance
                Looks to the nature and subject of the bargain
                         fraud
Courts will not look into the adequacy of the consideration but the courts have found
ways to treat particularly lopsided bargains with disfavor

Courts balance the principles of freedom of contract and individual autonomy versus
protecting parties that have unfairly entered into an unfavorable agreement



       Kiefer v. Fred Howe Motors
General Rule:
         the contract of a minor, other than for necessaries is either void or voidable at
            his option
         Should an emancipated minor over eighteen years of age be made legally
            responsible for his contracts
                o Classic thought was minors did not have the mental capacity to make
                     contractual decisions
Court says that even an emancipated minor due to marriage still does not own the
requisite faculties to make contractual decisions

Court also says the legislature should change the law to allow an emancipated minors to
contract because it is not up to the courts to legislate from the bench

       Common law allows for minors to contract for necessities and an automobile is
       now a necessity for living

Mental Infirmity

       Ortelere v. Teacher’s Retirement

The Ins. Co. should have made a rational judgment about the conduct of P

Court here overtly changed the Rule
        there is a more sophisticated range of mental incapacity
               o need for the law to chance accordingly
Move from “so affected to render wholly and absolutely incompetent to comprehend and
understand the nature of the transaction


Restatement: A person incurs a voidable contractual duty by entering a transaction if by
reason of mental illness of defect he is unable to act in a reasonable manner in relation to
the transaction and the other party has reason to know of his condition

       This was a rational a decision by the party
       Had enough sound mind to handle forms and questions
Majority saw a lack of signals and formalities to create contractual liability

Ins. Co. now force more formalities
       What if because of a formality is not followed by simple mistake the Insurance Co.
       rejects request?
   1.) rule is bad but not the courts problem (Kieff Maj)
   2.) yes we need a new rule but only subtle changes (Kieff Dissent)
   3.) we need a new rule so lets change it (Ortelere)

                               Pros                            Cons
Kieff Maj.     - courts are not to legislate from bench        - does not help current case
                                                                       Slow process

Kieff Diss.    - does not disrupt the law                      - undermines, too much
                                                                Discretion and argument

Ortelere       - courts can alter in the interest of justice   - where is the separation of
               Clear for future decisions                      Power? Too much judicial

Intoxicated Person
       Lucy v. Zehmer
        to render a transaction voidable the party has to have been so drunk as to erase
           memory reason and judgment so to render the party non compos mentis
       Cundick v. Broadbent
    1. Modern rule:
           a. The contractual act by one claiming to be mentally deficient, but not under
               guardianship, absent fraud, or knowledge of such asserted incapacity by
               the other contracting party, is not a void act but at most only voidable at
               the instance of the deficient party; and then only in accordance with
               certain equitable principles
    2. Mental capacity to contract depends upon whether the allegedly disabled person
       possessed sufficient reason to enable him to understand the nature and effect of
       the act in issue
           a. Even average intelligence is not essential to a valid bargain
           b. Mere weakness of body or mind, or of both, do not constitute what the law
               regards as mental incompetency sufficient to render a contract voidable
                    i. Weak-mindedness is, however, highly relevant in determining
                        whether the deficient party was overreached and defrauded
    3. How could it be that Cundick was incapable of transacting his business affairs
       while such condition was unknown to his family and friends, especially his wife
       who helped with the transaction

   1. Unfairness
         a. Inequality of exchange as manifested in the terms of a bargain
         b. Court’s view:
                 i. Parties of sufficient mental capacity for the management of their
                    own business have the right to make their own bargains
                        1. The core consideration is the fact of the bargain, not its
                     2. If the requirement of consideration is met, there is not
                         additional requirement of equivalence in the values
       c. Limiting principles that serve to prevent the routine enforcement of
          unequal bargains
              i. A duty of good faith and fair dealing in contract performance and
                 enforcement, thought not in contract formation

   McKinnon v. Benedict
1. A court may choose not to enforce a contract in equity when the consideration
   was grossly inadequate and enforcement will lead to disproportionate loss.
2. Considering the inadequacy of consideration, the small benefit that would be
   accorded respondents, and the oppressive conditions imposed upon appellants, the
   court concluded that the contract failed to meet the test of reasonableness that was
   the sine qua non of the enforcement of rights in an action in equity.
3. Injunctions should not be granted where the inconveniences and hardships caused
   outweigh the benefits.
       a. It is frequently stated that an injunction will not be granted where to do so
           shocks the conscience of the court.
                i. These rules are equally applicable whether the right which the
                    plaintiff seeks to enforce arises out of a conveyance, a use of
                    property which would be detrimental to the plaintiff's interests, or
                    whether it arises out of a simple contract.
4. There are three bases for a court of equity to refuse specific performance of a
       a. where the consideration for the contract is grossly inadequate or its terms
           are otherwise unfair;
       b. its enforcement will cause unreasonable or disproportionate hardship or
           loss to the defendant or to third persons; or
       c. it was induced by some sharp practice, misrepresentation or, mistake.

   Tuckwiller v. Tuckwiller

1. To determine whether the contract is unfair, the transaction must be view
   prospectively, not retrospectively
      a. Plaintiff gave up her employment and undertook an obligation of unknown
              i. Viewed from the standpoint of Mrs. Morrison, the contract cannot
                  be considered unfair
                      1. She was appreciative of the care and attention
      b. Morrison’s insistence that the contract be witnessed prior to her
          hospitalization is clear evidence of her satisfaction with the bargain
2. Contract was supported by adequate consideration
3. Defendant’s argument:
      a. In view of the brief duration of plaintiff’s services and their value in
          comparison with the value of the farm, plaintiff should be obligated to
               accept the offered payment of the reasonable value of her services and
               denied the relief of specific performance.

       Black v. Bush

   1. Voiding a contract with the government for public policy reasons will be
      constrained to 3 narrow circumstances:
                          1. Contract to pay an official to act;
                          2. Contract to do an illegal act; and
                          3. Contract which contemplates collusive bidding on contract.
                               If the government wants to regulate price then it needs to
                               be done up front by the legislature, not ex ante by the
   2. Defendant’s argument:
          a. Defendant contended that his price quotes were only tentative and denied
              a contract existed because the company cancelled.
   3. The court found judgment for plaintiff, holding that the consideration stipulated in
      a contract between business men dealing at arm's length without fraud will not
      affect the validity of the contract and to declare a contract void as against public
      policy, the contract must be invalid on the basis of recognized legal principles.

   Ex Post v. Ex Ante

After event v. Before Event

Retroactively v. Prospectively

Contracts are version of lottery tickets
        its better to contract to limit susceptibility to fluctuation in price
               o or
        Contract when you know the price is going UP

Parties have equal uncertainty in markets

        Ortelere
            o Retro
                     Unfair at time of performance
        McKinnon
            o Retro
                     Unfair at time of performance
        Tuckwiller
            o Pro
                     Would be fair
                          When contract was made
        Bush
                o Pro
                      It was fair because Price was unknown
Bush and Tuckwiller both parties were uncertain and allocated risks in the contract
        lottery ticket analogy
Ortelere and McKinnon
        when K is unfair courts use the ex post theory

Depending on the method the decision can change

         Pressure in Bargaining
        Promise obtained by duress may not be enforced against the victim
        duress of goods
            o threats to a person’s property
            o economic coercion
        requirement of some resistance
            o cannot yield to pressure too easily
        substance of the threats
            o an offer one couldn’t refuse is not duress
            o it is not duress to threaten what one is legally allowed to do
                     Cannot, however, use any legal threat
                             Has to have an underlying claim

         Preexisting Duty Rule
          performance of a legal duty owed to a promisor which is neither doubtful nor
            the subject fo honest dispute is not consideration

         Alaska Packers v. Domenico

D won because the P had a pre existing duty to perform the initial contract
      -- The agreement by D to pay more during the contract performance was made
      under duress and therefore voidable

         Watkins v. Carig

The basic rule is a promise without consideration for it is invalid leads to its logical
application that a promise to pay for what the promisor already has a riht to receive from
the promise is invalid

Changes to meet chances in circumstances and conditions should be valid if the law is to
carry out its function and service by rules conformable with reasonable practices and
understandings in matters of business and commerce
Court upheld the renegotiated contract because the party had options unlike the D in
Alaska Packers

Rescission and Modification
        an existing contract is terminated by consent of both parties and a new one
          executed in its place and stead
              o a rescission followed shortly afterwards by a new agreement in regard
                 to the same subject matter would create the legal obligations provided
                 in the subsequent agreement

Scope of Pre-Existing Duty Rule
        consideration is only a test of the enforceability of an executory promise
              o when a payment has already been made or some other performance
                  already given the recipient cannot be required to make restitution on
                  the simple ground that nothing was given in exchange
              o Foakes v. Beer
                       Payment of a lessor sum on the day of the due date for money
                          owed cannot be any satisfaction of the whole
        whether rule applies to cases where a contractual duty pre-exists but is owed
          not to the promisor but a 3rd party
              o Di Cicco v. Schweizer
                       A promise to B to induce him not to break his contract with C
                          is void
                               Neither one individually could rescind the contract but
                                  mutually could do this
Duress in Business
       Austin v. Loral
              o a contract is voidable on the ground of duress when it is established
                  that the party making the claim was forced to agree to it by means of a
                  wrongful threat precluding the exercise of his free will
                       existence of economic duress
                               possession of needful goods is threatened
                               proof a party threatens to withhold goods
                               mere threat does not satisfy economic duress
                                     o must appear the threatened party could not gain
                                         those goods from another source
Undue Influence
        relationship between bargaining and the relative status of the parties
              o persuasion which tends to be coercive in nature
                       persuasion which overcomes the will without convincing the
              o what degree of disparity is necessary before the parties are unable to
                  bargain with one another at arms length
       Odorizzi v. Bloomfield School District
        statutory definition
              o taking unfair advantage of another’s weakness of mind or taking a
                grossly oppressive and unfair advantage of another;s necessities or
                     looked at through circumstances and context around the
                         relationship between parties
              o undue influence cannot be used to escape a bad bargain

Concealment and Misrepresentation
       the charge is concealment and nothing more and it is concealment in the
         simply sense of mere failure to reveal with nothing to show any peculiar duty
         to speak
             o Swinton v. Whitinsville

               Unconscionability and Problems with Adhesion Contracts
Standard Form Contracts
              - mass production contract that serves both parties
              - reduce uncertainty
              - save time and trouble
              - calculable risks
              - increase security
              - used by stronger party to dictate terms
              - no opportunity to bargain
                      o take it or leave it
              - used by the party who has advantages of time and resources
                      o against one who does not have the means to comprehend it
Courts are concerned with whether a party who has signed a standardized contract can
reasonably be held to have seen understood and assented to its unfavorable terms

O’Callaghan v. Waller
       whether a tenant has released its rights under an exculpatory clause from suing
         after injury on landlord property
       contracts by which one seeks to relieve himself form the consequences of his
         own negligence are generally enforced unless
             o it would be against public policy
             o special relationship between parties militating against it
       whether a warranty clause was unconscionable
       one who does not choose to read the contract cannot later relieve himself of
         his burdens. This is the essential element of freedom of contract
       court is to protect the ordinary layman against the loss of important rights
         through what in effect is the unilateral act of the manufacturer
       courts keep in mind the principle that the best interests of society demand that
         person should not be unnecessarily restricted in their freedom to contract
               o they do not hesitate to declare void as against public policy contractual
                 provisions which clearly tend to the injury of the public in some way

Legislative Protections
              - require particular information be conspicuous
                     o visible
                     o intelligible
                     o written clearly and coherently
                     o using everyday language
                     o divided
                     o captioned

Carnival Cruise Lines
        was the forum clause enforceable
              o party claiming unfairness has a high burden of proof
              o forum clause was standard and routine
              o do not agree that a non-negotiated forum selections clause in a form
                  ticket contract is never enforceable simply because it is not the subject
                  of bargaining
              o public policy
                       reducing litigation locations for the cruise line ends up creating
                          cheaper fares for customers
              - UCC 2-302
                      o Authorizes a court to refuse enforcement or to limit the
                          application of a contract or clause that it determines to have
                          been unconscionable
                      o Prevent manipulation
                      o Oppression
                      o Unfair surprise

       Williams v. Walker
        the seller created a contract that in effect was to keep a balance due on every
          item purchased until the balance due on all items whenever purchased was
              o the result is significant debt accrued
              o each new item purchased became subject to a security interest arising
                  out of the previous dealings
                       cross collaterization
                               unconscionable
                                     o consumers need things like furniture etc
                                     o in determining reasonableness and fairness the
                                         courts should use the objective test to look at the
                                         circumstances around the formation of the
         this case demonstrates the height of the court’s desire to implement legal
          protections for consumers in the economy
         Courts are balancing
              o Protecting consumers from predatory sellers
                       Vs.
              o Protecting businesses who service risky consumers

         courts in determining unconscionability should look at the profit margin and
          not price
              o a business entering a risky market will have to raise prices but their
                  margins may be reasonable (Star Credit)

Factors of Unconscionability
        necessity
        alternatives
        negotiable
        importance of rights
        one sidedness
        bargaining power
        clarity
        government regulation
        context

                                 Parole Evidence Rule

Agreement: terms and circumstances around a dealing or usage of trade or couse of
       May or may not be enforceable
Contract: total legal obligation of parties

Parole Evidence Rule:
        oral evidence rule
             o cannot bring in prior agreements to effect a contract even if there were
                 previous drafts

       Gianni v. Russell
P seeks to insert a clause that would have made him have exclusive rights to sell soda on
the property
       -- this agreement was made orally and is not in the K

         cannot add a term where one would expect that term to be in the contract if it
          was truly agreed upon and the intent of the parties was to have it be there
             o “if it was supposed to be in there then it would have been in there”
             o When you reduce an agreement unto writing that writing is final
                     Any oral negotiations prior do not apply
        Parole evidence rule only applies to integrated written contracts
            o Integrated v. non-integrated
                     Did the parties intend for the K to be 100% binding and final

Interpretation of K v. Adding terms
        adding terms can mean changing the terms of the K

       Masterson v. Sine

Sine tries to add a term that says the option to re purchase to land was solely and
exclusively to the family

        nothing in the record shows this term or clause
            o court says the contract was partially integrated and the term was
                      Unlike Gianni which was a commercial contract the family
                         agreement likely did not include all terms

                                                  Written Contract

                               Integrated                               Not Integrated

                Partial                           Full                 No PER/ allow

                          No contradictions but              No Additions

How do you differentiate between partial and full?
      circumstances
      parties
            o weaker or stronger positions

Parole Evidence wants to prevent ex post a weaker party from changing a K
        decision to view the K either broadly or narrowly is whether the courts want
           to strengthen a party’s position
        value judgment
               o duty to protect help weaker parties by allowing more extrinsic
               o the more likely we are that someone would never have left it out the
                 court would not allow it if it is not in the K

       Bollinger v. Gianni
        Gianni rule states “if it was supposed to be in the K, then it would be there”
        In Bollinger the D acted w/ the terms of the oral agreement
              o Parole evidence doesn’t apply
        In Bollinger there was a mutual mistake whereas Gianni was an individual
        Bollinger claims the oral agreement terms were supposed to be in the K
        Gianni wasn’t surprised the term wasn’t there, but the courts did not support
          oral agreement
              o Masterson and Bollinger chip away at PER

         PER is not concerned with truth
         Just whether we have to bar evidence
                o Bars evidence from prior agreements not in K
                o Does not say anything about negotiations during the K
                o Even if parties agree to an additional term prio to K signing the parole
                   evidence rule bars it if the term is not in the K
If a party can show an accepted modification then even an expressly written clause
barring modification can be defeated
        Cannot deny an agreement if one has acted on it

Merger/ Integration Clause: says the agreement is fully integrated and there is no
extrinsic evidence valid to alter agreement
         this bolsters the PER

What is chicken?
       Evidence was brought in to understand what the term meant
       Clarification not modification or addition

Used various types of evidence
       expert industry testimony
       industrial manual
       course of performance

Gianni: did not allow evidence
Masterson: not an integrated K/ allowed evidence/ NO PER
Bollinger: allowed evidence
Frigaliment: Clarification not modification
       Raffles v. Wichelhaus
       Peerless and Peerless
Disagreement about which ship was to deliver court held there was no “meeting of
minds” contract was founded on a mistake and therefore invalid

Defendant has no right to contradict by parole evidence a written contract good upon the
face of it
        He doe not impute misrepresentation or fraud but only says that he fancied the
        ship was a different one.
               Intention is of no avail unless at the time of contract
There was no consensus and thus no binding contract

        WWW v. Giancontieri
P wants to insert evidence that would prove that the “out” clause in the contract was only
for their benefit and not the D

D does not deny the truth of the extrinsic evidence but rests on the letter of the rule
       -- PER denies use of evidence
              o YES
                       Determine the meaning and include evidence
              o NO
                       Exclude extrinsic evidence

This rule puts pressure on drafters to cut out ambiguity because they may not be granted
review by the courts to determine the meaning

       PGE v. Thomas

               -   disputed language concerned an indemnity clause
               -   P was to furnish labor for D
                       o P incurred 25K in damages
                       o D argues the indemnity clause usually only protects the work
                          of 3rd parties
                       o P wants to insert extrinsic evidence to prove the clause protects
                               Court allows evidence to interpret the meaning of the
                                  indemnity clause

                                       Filling the Gaps
What does the court do when there is no term?
       Good faith
        Is there an implied term of good faith which attaches to all contracts?
              o Varies greatly
              o Courts view this differently

Conservative limited implied good faith v. liberal expansive view
       the more duties of implied good faith the less freedom of contract
       you assume that even though its not in the contract it is there

Whether ETS followed the process it said it would in the contract
       ETS can challenge a test score but has to allow the test taker the opportunity
         to prove the score was valid
       P claims ETS did not in good faith review evidence
       Court grants Ps right to a good faith effort in the summary process of the score
             o Court does not tell ETS what the score should be

       Gulf Oil
P argues Ds fuel freighting activity breached its implied good faith and fair dealing
       D is committed to the framework of a requirements contract
Court defines good faith as
        course of performance
               o how parties interact over several contracts
        course of dealing
               o how parties have formed contracts
        trade usage
               o industry standard practice
                        Fuel freighting is an industry norm
                        Is an implied term of dealing within the K

       Burger King
        can use good faith to insert a claim ex ante that a party wanted
              o claim to not interfere with the business by adding another business
       Market Street
        Posner says one party can take advantage through personal knowledge but not
          through deliberate oversight
        If a party can prove the other intentionally hid something then good faith is

Courts do not want to give a lessor or property owner power to micromanage

        even thought there were no gross sales from car wash reasonable rent was
         being paid

Obligation to keep beer brand alive and viable
         good faith efforts
               o best efforts with the overall framework of the business
                        does not mean efforts to the detriment to the business as a
                        but cannot completely ignore the brand
        Bal v. Alcoa
Parties have a duty not to harm the other party’s business
         court imposes a term of notice for changes in the contract

        Lockewill v. Bal
If the party has time to recoup investment from agreement the agreement termination is
valid and the terminating party does not have to pay damages

      Sheets v. Frosted Flakes
To what extent does the discretion of one party have to be tempered by good faith?

        “for any reason” and “sole discretion”
             o Is good faith implied in a clause like this?
        employee was fired after acting in good faith to report a public health issue
             o courts do not want to force people to choose between upholding public
                health laws or their jobs
                     at will employees have the right to judicial protections
                            Courts are hesitant to give this ruling
                                   o May allow employees to misuse this exception
                                   o Creating a good faith claim in hiring and firing
                                        of at will employees creates an additional
                                        middle area which requires interpretation

Requirements K
       Market shifts so Columbia buys less than K term

Courts are not trying to define a term
        evidence simply to clarify
        even thought the K may appear to be clear
               o prior dealings and course of performance evidence can be used to
                   supplement the ambiguous terms
               o Courts always have the ability and discretion to bring in additional
                   evidence to clarify ambiguous terms
                        Drafters can make is very difficult, however, for the court to

       Nanakuli (TEST MODEL QUESTION)
P argues they are entitled to the same price through the duration of the K
D had offered price protection previously
       This practice is an industry norm

Structure of issues
    1.) was price protection trade usage
           a. what is trade usage?
                     i. Is it industry specific?
                    ii. Is it widespread
    2.) were previous PP waivers or course of performance
    3.) can TU and CP countermand express terms
    4.) was there a duty of good faith
    5.) concurrence

                             Waiver v. Course of Performance
D argues it’s a waiver to price protect in the previous times
P argues it is course of performance
       -- defines what future practice should be
Court says the evidence proves CP
       Can CP or TU defeat express terms
        cannot negate but supplement
        express terms do not constitute entire agreement
                o insert other things
                         CP etc
Royster says everything can come in with usage and performances unless expressly stated
        merger clause/ integration clause
                o clause prohibiting extrinsic evidence

In Columbia the evidence about the provision was not clear they intended it to be in the

In Nanakuli the price protection was implicit in the dealing between the parties

                                  Conditions and Duties

Conditions give parties more flexibility to structure the deal
Shift risk to the other party
                            1. uncertainties
                            2. risk allocation
                            3. timing of performance
Also makes contracts more complex and confusing

Restatement Second 224
        a condition is an event not certain to occur which must occur unless its
         nonoccurrence is excused before performance under a contract becomes due
       Luttinger v. Rosen

Contract was subject to the buyers obtaining mortgage financing under specific
guidelines set out

Buyers could not obtain the financing and therefore were not responsible to complete
performance and purchase the house

        express conditions are construed very precisely
            o the buyers performed due diligence under the conditions
            o did not have to accept alternative financing
                     seller cannot induce the condition
                            it is a right of the buyer and the condition can be
                               waived if desired

Condition vs. Duty

Express Condition:
       ties one party’s performance to another
Constructive Condition
       understood condition although the contract does not say it
       a consumer buys a case of beer
       not express the person gets the beer buts it is implied or understood

Courts use policy arguments to retreat from the express terms principle
        ascertain the intent of the parties
        can prove a condition
               o evidence of past usage or performance

breach of duty = contract damages

breach of condition = don’t have to pay the premium

       Ex.) A pays B $50 to go to the store and buy him apples
       Ex.) A pays B $50 + $5 premium for going to the store and buying a special type
       of apple

                                    Peacock v. Modern
“within 30 days after the completion of the work included in this subcontract written
acceptance by the Architect and full payment therefore by the Owner

The provision can be interpreted to be either a condition precedent or as fixing a
reasonable time to pay
        whether this provision should be interpreted by the factfinder or as a matter of
        the general is that interpretation of a document is a question of law rather than
           of fact
        intentions of parties are a matter of law
               o the reason is that the relationship between the parties is a common one
                   and usually their intent will not differ from transaction to transaction
                   although it may be differently expressed
        Court did not want to put the risk on small subcontractors
               o Unless the contract unambiguously and clearly shifts the burden and

                                   Gibson v. Carange
The D was not satisfied with the painting under the agreement and thus was not required
to pay for it
         Subjective satisfaction clauses
              o The party with the satisfaction clause has complete discretion to reject
                  or accept proposal

3rd party satisfaction
         high standard of deference
                 o difficult to prove bad faith in the rejection of plans
                 o 3rd party is usually a neutral party
                        Placed into contracts to give balance and fairness

The more Strictly courts uphold express conditions the easier it is to find forfeitures
       there are attempts by the courts to mititagte the instances of forfeiture by
          denying express conditions that would nullify the contract in the situation of

                 Mitigating Doctrines: Prevention, Waiver, Estoppel
       the duty of good faith performance that is usually imposed requires at least
          that one do nothing to prevent the occurrence of such a condition

        an obligor whose duty conditional may promise to perform despuit the
         nonoccurrence of a condition or despot a delay in its occurrence
             o Restatement Second 84

Once a party has performed their step they cannot complain about a failure before
        cannot go back after you have acted
        or if there was reliance on the waiver
        without reliance a waiver can be reatracted before the next performance

Anti-waiver clause
       no action or inaction causes a waiver
              o courts are not in favor of these

        when the time of performance of a condition has expired the party whose duty
         is conditional has a choice between taking advantage of the nonoccurrence of
         the condition and treating the duty as discharged or disregarding the
         nonoccurrence of the condition and treating the duty as unconditional

       Waiver v. Course of Performance
        courts prefer a waiver
        needed to preserve the flexibility in contracts and to prevent surprise and

                                   Mckenna v. Vernon
The work was to be done under the direction of an architect whose certificate of work
done was to be the condition of each payment by D

All payments were to be made only on certificate but the work and payments progressed
without the certificate

P cannot complain if he be held to have waived it when he seeks to defend against a final
payment for work shown to have been honestly and substantially performed

Interpretation and Avoidance of Forfeiture

        language that does not clearly make a promise conditional may be interepreted
         as not imposing a condition at all as when a clause is read as a pay when paid
         rather than a pay if paid provision
        interpretation cannot prevent forefieture if the parties expressly draft that

                                     Hicks v. Bush
Parole testimony is admissible to prove a condition precedent to the legal effectiveness of
a written agreement……..if the condition does not contradict the express terms of the
        Exception to PER
         Hicks Rule
               o Condition before a contract
               o Why isn’t the PER used
                       Evidence of condition
                               Its not a condition of the K
                               It’s a term before the K is effective
                               Condition for all parties

                                  Kingston v. Preston
P argued the covenants were mutual and independent therefore a plea of breach of one of
the covenants to be performed by the P was no bar to an action for a breach by the D of
one which he had bound himself to perform

Three kinds of covenants
       1.) mutual and independent
               a. either party may recover damages from the other for injury from a
       2.) Covenants which are conditions and dependant
               a. Performance of one depends on the performance of the other
                       i. Courts will construe conditions to be dependent
                              1. if one doesn’t perform the other is released
       3.) Mutual condition to be performed
               a. Simultaneously
                       i. If one party fails the other can sue for the default of the other

Evidence should be gathered to ascertain the dependence or independence of covenants
       meaning of the parties
              o intent from the circumstances

If you want a condition to happen, make it express as possible in the agreement
        make it very difficult for the court to overturn it
               o or create a constructive condition

                   Plante v. Jacobs TEST QUESTION/ZONE CASE

2 types of problems
       Kitchen Cabinets (cost of repair)
       Living Room Wall (pay for the diminution of value)

Look at the differences in damages, conditions, and duties
        some failures are different
               o wall v. cabinets

               Suspending Performance and Terminating The Contract

The question is whether a breach justifies the injured party in exercising a right to self
help by suspending performance or by refusing to render performance and terminating
the contract

       1.) ask whether there is an uncured breach by the other party
       2.) ask whether it is a breach of a duty of performance that was to be exchanged
           under an exchange of promises as opposed to a duty under a promise on which
           the injured party’s promise does not depend
       3.) is the breach material or partial?

After Acquired Evidence
        a terminating party subsequently finds evidence that justifies the termination
              o Can it be used?
                      Yes, in most cases ignorance of evidence can provide a
                        complete defense

                                  Walker v. Harrison
Whether the defendant was valid is repudiating the contract because of the Ps failure to
maintain the sign in accordance with the lease contract

       Was the breach of this clause material?
Condition v. Promise
        there is some softening effect or play in the process of describing a condition
          from a promise
                                          Is there a breach?

                              Yes                                 No.

       Is it partial?                           Is it material?

                   Aggrieved party has NO                   Continue performance
                   CHOICE but to continue
                   performance and treat the breach          and treat as partial
                   as a partial breach

                                                                           Stop performance and
                                                                               treat as a total

        Breaching party can recover if……..
             o work done for benefit of owner
             o cannot be different than what was contracted for
             o cannot abandon work and leave unfinished
                    why was there a breach
                            good reason v. abandonment

                              Anticipatory Breach
    announcement of an intention not to perform
        o positive and unequivocal
               party’s language must be positive and sufficiently positive
               reasonable person would interpret it as a repudiation

Five questions relating to anticipatory breach
       1.) is the recipient of the repudiation free to make other arrangements
       2.) can the recipient go to court immediately
       3.) can the recipient ignore the repudiation and await performance
       4.) what are the consequences if the recipient urges retraction of the repudiation
       5.) cant he repudiation be withdrawn
The party committing the 2nd breach in response to the first can still be held for the
complete and entire breach
    the first breach was partial and not material then the other party cannot sever

                                Hochester v. De La Tour

D and P agreed for P to work for D for 3 months
D wrote the P that he had changed his mind and no longer needed his services

    it cannot be laid down as a universal rule that where but agreement an act is to be
     done on a future day no action can be brought for a breach of the agreement till
     the day for doing the act has arrived
          o there is an implied agreement between the two parties that hold a contract
             in the future in which both parties will do nothing to prejudice of the other
             inconsistent with that future relation
          o the man who renounces a contract cannot complain when the breached
             party immediately takes legal action to gain compensation for the breach

                      Kanavos v. Hancock Bank & Trust Co.
    does A’s right to recover depend on whether A had the financial ability to
     purchase the stock during the relevant time
    does A have the burden of proving his financial ability to perform or is the burden
     on the repudiating former stockholder to prove As inability to perform

We have taken the view that even where promises were not concurrent a P could only
recover nominal damages where it could have been impossible for the P to perform
arising after the Ds breach

P did not have to show that he was willing and ready to perform when the D repudiated
       - but this ability to perform is not irrelevant
The burden to prove the ability is on the jury
       - this party has the best knowledge of the alleged ability

                         McCloskey & Co. v. Minweld Steel Co.
P claims D letter’s explaining his difficulty in obtaining supplies constituted a repudiation
and breach

Failure to take pre-action before the time when performance is promised is not an
anticipatory breach
       D did not unequivocally breach because before performance was due they had not
       obtained all the supplies necessary to complete the agreement
                                       Cosden Oil
Do you have to accept the repudiation immediately?

                                 Repudiation: When
                                     to Accept

  AT THE TIME OF                Breach + reasonable           Time of Performance
   REPUDIATION                         time

Common Law says time of performance
UCC 2-713
   preferred remedy for UCC is generally cover
         o at the time you learn of breach + reasonable commercial time to cover
         o UCC assures substitute contracts
                 If there are none you cannot cover

                              Assurance of Due Process

                                 PDM v. Brookhaven
       Relied on UCC 2-609
               Right to Adequate Assurance of Performance
                    o Obligation of each party to not impair the other party’s
                    o When reasonable grounds for insecurity arise to performance a
                        party may demand assurances

Court concluded that PDMs demand for assurances lacked the necessary predicate of
reasonable grounds for insecurity having arisen

                                   Norcon v. Mohawk
Does a party have the right to demand adequate assurance of future performances when
reasonable grounds arise to believe that the other party will commit a breach by non
performance of the contract governed by NY law, where the other party is solvent and the
contract is not governed by the UCC?
                 YES.
Court moves to implement the widely accepted UCC provision 2-609
               does not have to deal with solely sale of goods
               puts commercial parties in these kinds of disputes at arm’s length
                 equilibrium in terms of reliability and uniformity
                    o could decrease potential litigation if parties can resolve on their

                material mistake as to basic assumption allows for voidability unless
                 party bears risk of mistake
                material mistake as to basic assumption allows for voidability unless
                   party bears risk of mistake
                and
                       o in light of the mistake, enforcing the contract would be
                       o the other party had reason to know of the mistake or had a hand
                           in causing it
Generally easier to rescind a mutual mistake

       Frustration of Purpose/ Impossibility

Car dealer is the classic loss volume seller

       Breach of contracts is generally a strict liability process
               does not have to be fault
               breaching with fault is something different

What does impossibility mean?
              everything is possible
                     o do not look at possible
                             look at who bears the risk
                             is the K about a specific performance
                                    can the performance be substituted

frustration of purpose
                 could you have contracted around this risk

       International Harvester

                exclusivity clause
                    o harvester wants to terminate the deal with the local franchise
                        because it was impracticable and they had to
                      o 261
                              Where a contract is made, a party’s performance is
                               made impracticable without his fault b the occurrence
                               of an event the non-occurrence of an event the non-
                               occurrence of which was a basic assumption on which
                               the contract was made his duty to render that
                               performance is discharged unless the language or the
                               circumstances indicate the contrary
               there was no termination agreement in the franchise contract
                    o Harvester is losing money
                            Because the K is not working out

Typically liability is strict
                 risk must be contracted around
                 what was the center of the deal
                         o is that frustrated?
                                 Was it foreseeable

               principal purpose is substantially frustrated without fault by an
                occurrence of an event the non-occurrence of which was a basic
                assumption on which the contract was made, his remaining duties to
                render performance are discharged unless the language or the
                circumstances indicate the contrary

Total v. Partial Frustration
                 as long as the K can be performed to some or part of the goals then the
                    court will not rescind the deal
                        o however, if the deal could not be satisfied at all
                                 court may be more likely to grant the termination
                                 if events occur during the middle of a K
                                         courts are more sympathetic to the parties

 a.    If a party / the parties expectations are thwarted by circumstances that existed at
   the time the contract was formed, but were unknown to both sides.
 b. Elsinore(Rescission allowed)
    i.          For his submitted building contract bid, Kastroff bid $89,944 instead of
            $99,494 (a $9,500 error) by forgetting to factor in some plumbing work. He
            called the school when he realized his error, but the school accepted his bid as
            is. When they had to hire the next lowest contractor to do the work, they sued
            Kastorff for the difference. They won in trial court, and the appeals court

           Requirements Of Rescission:
         1.     The mistake was material to the contract and not the result of a neglect
         of legal duty.
         2.     Enforcement would be unconscionable
         3.     Elsinore could have been placed in the status quo because it had time to
         accept other bids.
         4.     Karstoff gave prompt notice of his election to rescind, and no offer of
         restoration was necessary because he had received nothing of value to
         restore. (no reliance, no injury)

   ii.Thus, all the requirements of rescission had been met and it would be unfair and
          unjust to require Elsinore to take advantage of Kastroff’s mistake.
c.     Lenawee(Recission not allowed)
    i.         Plaintiff bought land from the defendant "as is." Plaintiff later found out
          that there was a septic tank on the property which made it
          uninhabitable. They sued to rescind their K out of mutual mistake and the
          court did not allow it.
   ii.         A mutual mistake that is the prerequisite for rescission is one that relates
          to a basic assumption of the parties upon which the contract was made and
          which materially affects the agreed performance of the parties.
            1.         Where both parties are innocent, as in this case, the court exercises
                 its equitable powers to determine which blameless party should assume
                 the loss. Here, the “as is” clause suggests it should be the Pickles.
d. Wil-Fred's vs. Metro Sanitary(Rescission allowed: Construction)
    i.         Rule: A contractor may obtain rescission of a contract formed by a bid
          which was mistakenly priced too low.
   ii.         A contractor may obtain rescission of a contract formed by a bid which
          was mistakenly priced too low. A unilateral mistake may afford ground for
          rescission where there is a material mistake and such mistake is so palpable
          that the party not in error will be put on notice of its existence.

a.    The major difference between impossibility and impracticability, however, is that
  while impossibility excuses performance where the contractual duty cannot
  physically be performed, the doctrine of impracticability comes into play where
  performance is still physically possible, but would be very burdensome for the party
  whose performance is due. Thus, impossibility is an objective condition, whereas
  impracticability is a subject condition for a court to determine.
b. Karl Wendt v. International Harvester
   i.        Facts – IH sold farm equipment to Case/Tenneco (competitor) because it
         was losing so much money ($2B in 4 years). Case/Tenneco, in purchasing the
         equipment, received access to previous IH dealers. However, in only 2/3rds
         of the “conflicting areas” (where there was both a IH and Case/Tenneco
         dealership) the Case dealer received the IH franchise. Wendt was not offered
         a Case Franchise (therefore, he ultimately had no supplier of farm equipment,
         as he was one of the 3rd that got completely cut off). Wendt subsequently
         sued IH for breach of K.
   ii.        Frustration of purpose occurs when an unforeseen event undermines a
          party's principal purpose for entering into a contract, and both parties knew of
          this principal purpose at the time the contract was made.
   iii.       Issue – Whether IH’s utilization of impracticability (which was granted
          via jury) was valid.
   iv.        Impracticability Rule: Where, after a K is made, a party’s performance is
          made impracticable w/o his fault by the occurrence of an event the non-
          occurrence of which was a basic assumption on which the contract was made,
          his duty to render that performance is discharged, unless the language or the
          circumstances indicate the contrary.
    v.        Frustration of Purpose – Rule– Where, after a K is made, a party’s
          principal purpose is substantially frustrated without his fault by the occurrence
          of an event the non-occurrence of which was a basic assumption on which the
          contract was made, his remaining duties to render performance are discharged,
          unless the language or the circumstances indicate the contrary.
c.      Mel Frank Tool v. Di-Chem
     i.       Di-Chem signed a lease with Mel Frank whereby Di-Chem would store
          "chemicals" with Mel Frank. Di-Chem was subsequently not allowed to store
          hazardous chemicals and tried to get out of the lease. They claimed
          frustration but the court wouldn't allow it. They didn't know that a significant
          portion of their chemicals were hazardous, they had others as well. There was
          not sufficient frustration or impracticability.