Contracts Outline Fall 2024 PDF

**Contracts Outline Fall 2024** OFFER + ACCEPTANCE + DEFINITENESS + CONSIDERATION = **CONTRACT** **STEPS TO FOLLOW** - **What Body of Law Applies?** - UCC - Common Law - Statute of Frauds - **Mutual Assent?** - Valid offer - Valid acceptance - Wa...

**Contracts Outline Fall 2024** OFFER + ACCEPTANCE + DEFINITENESS + CONSIDERATION = **CONTRACT** **STEPS TO FOLLOW** - **What Body of Law Applies?** - UCC - Common Law - Statute of Frauds - **Mutual Assent?** - Valid offer - Valid acceptance - Was the mode of acceptance appropriate? - Contract formed (at any time was a verbal contract formed) - **Consideration? (or Promissory Estoppel?)** - **What are the terms of the agreement?** - Interpretation - Performance - **Has either party unjustifiably failed to perform those terms (breach)?** - **Are there any defenses for the breach?** - Duress - Undue influence - Mistake - Capacity - Public Policy - Statute - Unconscionability - **Was there ambiguity in the written agreement?** - Parol evidence - Industry customs - Good faith - **Did the breaching party have an excuse for doing so?** - Condition precedent - Impracticability/impossibility - Frustration of purpose/efficient breach - Anticipatory repudiation - **Remedies to the aggrieved party** - Specific performance - Liquidated damages - Expectation damages - Reliance damages - Restitution damages 1. **MUTUAL ASSENT** - an agreement by all parties to a contract - **Objective Theory of Contracts** - There is mutual assent if a reasonable person judging outward acts of parties and associated circumstances believes an offer has been made and accepted - You cannot accept an offer you do not know about - **Subjective Component of Objective Theory** - Contract not formed if offeree subjectively (actually) knows that the offeror is not serious in making the offer - *Lucy v. Zehmer* - D claims offer of farm was a joke - Court holds it is enforceable because a reasonable person would have believed this was an act in good faith - ***HYPO***: Fly on the Wall - there is mutual assent if a reasonable person judging outward acts of parties and associated circumstances believes an offer has been made and accepted - *Kolodziej v. Mason* - reasonable person would not accept million-dollar TV offer - Outward expression of assent constitutes entering a contract - *Morales v. Sun Constructors, Inc.* - P did not have arbitration clause translated - D did not try to conceal the clause, so it was up to P to ask for help - Court held they have to go to arbitration 2. **OFFER** - **RST 2d of Contracts § 24:** Offer Defined - proposal showing intent to form a contract if understood and accepted by another - An invitation for an offer is not an offer itself - *Lonergan v. Sclonick* - invitation of offer for land in newspaper - **U.C.C. Article 2** (sale of goods): Formation of Contract - Any manner of assent is sufficient to show agreement - **Advertisements as Offers** - *Leonard v. PepsiCo, Inc.* - Harrier jet prize - Advertisement alone does not constitute an offer. - The language must be explicitly clear to be considered an offer. - **RST 2d of Contracts § 26**: Preliminary Negotiations - A manifestation of willingness to enter into an agreement is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude the agreement until he has made a further manifestation of assent 3. **DESTROYING THE OFFER** - **Rejection** - **Express** - Offeree rejects offer - Once an offer is dead, it is dead. - **Implied** - **RST 2d of Contracts § 39:** Counteroffer - Proposing a substitute bargain differing from proposed original offer - Counteroffer indirectly rejects initial offer unless otherwise intended by offeror - **Revocation** - **BLL**: an offer can be terminated at any time before it is accepted - **Direct** - Offeror's statement to offeree expressly withdraws the offer - **Indirect** - Learning from reliable third party that offeror is negotiating with others - *Dickinson v. Dodds* - P learns from real estate agent D is negotiating with outside party for land - **Lapse** - Offer lapses after the period that is stated in offer - No duration stated: after a reasonable time - **Death (or Incapacity)** - Offeree dies before acceptance - Cannot still accept offer - Offeror dies - Automatically terminates offeree's power of acceptance - Exception to Objective Theory 4. **PRESERVING THE OFFER** - **RST 2d of Contracts § 25**: Option Contract - a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer - requirement = form of consideration - "Offer to keep offer open" - **U.C.C. § 2-205**: Firm Offer - Written and signed offer by merchant is binding for a certain amount of time - No consideration required - Logos & letterhead count as signatures - **RST 2d of Contracts § 87(1)(a)**: Firm Offer - Binding option contract is - In writing and signed by offeror - States purported consideration - Proposes an exchange on fair times within reasonable time - Don't have to pay the consideration, just have to write you will - **Traditional Law** - Offer to keep an offer open is NOT binding absent consideration 5. **ACCEPTANCE** - **RST 2d of Contracts § 50(1)**: Acceptance of Offer Defined - offeree's manifestation of assent to offeror's terms in the manner required - **BLL**: the offeror dictates the terms of acceptance - **Offeror's Control Over Manner of Acceptance** - *Davis v. Jacoby* - letter asking family to care for writer and wife - Unilateral contract: Contract that can be accepted by performance - In this case, no offer and acceptance - Bilateral contract: a promise made in exchange for another promise - in this case, there is offer and acceptance - **RST 2d of Contracts § 31**: Bilateral When in Doubt - In case of doubt, there is a presumption there's an offer to enter into a bilateral contract - **U.C.C. § 2-206(1)(a)**: Manner of Acceptance - Any reasonable manner of acceptance is intended to be available unless offeror makes explicitly clear it is not - **Effectiveness of Promissory Acceptance** - *Hendricks v. Behee* - accepted offer but did not inform offerors or their agent - There has to be notice of acceptance to form a contract - **Mailbox Rule**: acceptance in a manner invited by an offer is valid as soon as it is properly addressed and placed in the mail - Acceptance does not have to reach offeror - Applies to emails - Acceptance under an option contract is not operative until received by the offeror - Rejection by mail does not terminate the power of acceptance until it is received - **Effectiveness of Acceptance by Performance** - Acceptance may occur by performance as well as promise - *Carlill v. Carbolic Smoke Ball Co.* - used smoke ball as directed in ad - **RST 2d of Contracts § 51**: Offer Mid-Performance - can still accept offer if learned about the offer mid-performance - **RST 2d of Contracts § 54:** Acceptance by Performance and Notification - Offer to accept by performance requires no notification of acceptance unless specifically requested by offer - If offeror has no adequate means of learning of acceptance, offeror has no contractual duty unless - offeree diligently notifies offeror of acceptance, - there was notification within reasonable time, or - notification is not required - **RST 2d of Contracts § 45:** Option Contract Created by Part Performance - Creates an implied option contract once an offeree has begun performing and gives her a reasonable time to complete performance - **Acceptance by Silence** - **BLL**: silence or inaction alone are not sufficient to constitute an acceptance - Exceptions - *Laredo National Bank v. Gordon* - no response to lawyer's fees - When a party remains silent after receiving an offer and knows it could be misinterpreted, they are bound to accepting the offer. - **RST 2d of Contracts § 69**: Acceptance by Silence or Exercise of Dominion - Silence and inaction operate as acceptance when - Offeree takes the benefit of offer with opportunity to reject it and known expectation of compensation - Offeree has reason to understand silence or inaction is acceptance - Known to be acceptance based on previous dealings - **Imperfect Acceptances** - *Gresser v. Hotzler* - changes made on commercial property agreement - **Mirror-image Rule**: an acceptance must be coextensive with the offer and may not introduce additional terms or conditions - **Immateriality exception** - Minor changes reasonable person would not object to - **Modification exception** - Clear indication of original deal acceptance, regardless of changes, can still result in contract on original terms - **Traditional Law**: does not follow imperfect acceptance; mirror image is essential - **RST 2d of Contracts § 59:** Purported Acceptance Which Adds Qualifications - A reply to an offer which purports to accept it but is conditional upon offeror's assent to additional or different terms is a counteroffer - **RST 2d of Contracts § 59 & § 61 = BLL**: an acceptance that requests a change is NOT a rejection, unless the acceptance is made to depend on agreement to the changed term - Contract is formed on original terms - **U.C.C. § 2-103(1)(k)**: Definition of "goods" - All things that are movable at the time of identification to a contract for sale - **U.C.C. § 2-207:** Additional Terms in Acceptance or Confirmation - \(1) Do we have a contract at all? - Yes: go to (2) - No but act like yes: go to (3) - *Ionics, Inc. v. Elmwood Sensors, Inc.* - each had own terms and conditions forms but performed - **Battle of Forms**: when two businesses are negotiating the terms of a contract, and each party wants to contract on the basis of its own terms - \(2) Are the two parties to the deal merchants? - No: additional terms are treated as proposals to contract - Yes: terms are part of the contracts unless - Offer says acceptance can only be mirror-image - New terms materially alter contract - Object within reasonable time - \(3) A contract for sale can be formed by conduct, even if the parties\' writings don\'t fully agree, with terms based on their agreements and supplementary provisions. - If different terms: - **"Knock out" rule**: both terms cancel each other out, U.C.C. default fills in - Majority view - **"Fall-out" rule**: the different term proposed in the acceptance falls out and the term supplied in the offer stays - *Klocek v. Gateway, Inc.* - terms shipped in box with computer - Rolling Contract: "pay now, terms later" - U.C.C. 2-207 does not usually apply with only one form - **Electronic Acceptances** - Online transactions require manifestation of agreement between parties - Adhesion Contracts - A contract on a printed standardized form that is offered on a take-it or leave-it basis - Browsewrap -- usually not enforceable - Clickwrap -- enforceable - Scrollwrap -- enforceable - Sign-in wrap - *Berkson v. Gogo LLC* - one-month WIFI subscription - Reasonable user must have at least been put on "inquiry notice" of the terms of an internet agreement - **RST 2d of Contracts § 212(3):** Interpretation of Integrated Agreement - If seller knows buyer would not agree to a term if it were contained in the writing, the term is not part of the agreement 6. **DEFICIENT AGREEMENTS** - Represents some sort of agreement but not complete agreement on all terms - *Raffles v. Wichelhaus* - two ships Peerless - No contract because both parties had different things in their minds - Subjective approach - **RST 2d of Contracts § 20**: Effect of Misunderstanding - \(1) there is no contract if the parties attach materially different meanings to their manifestations and - \(a) neither party knows nor has reason to know the meaning attached by the other - \(b) each party knows or has reason to know the meaning attached by the other - \(2) there is a contract, but the meaning that is attached to the term is one that 1 party attached to it - \(a) the party does not know of any different meaning attached by the other and the other knows the meaning attached by the first party - \(b) That party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party - **Indefinite and Incomplete Terms** - **RST 2d of Contracts § 33**: Indefiniteness - Terms of contract must be reasonably certain - Terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy - Open or uncertain terms show not an offer or acceptance - *Varney v. Ditmars* - parties agreed to "fair share of profits" which was too vague - For a contract to be valid, the agreement made must be definite and explicit enough to permit the full intent of the parties to be ascertained with a reasonable degree of certainty - Holding follows **Traditional Law** - parties' intentions have to be clear - *Community Design Corp. v. Antonell* - architect overtime bonus - When determining whether a contract is unenforceable for want of certainty, the court will look to whether the complaining party conferred a benefit upon the party in breach - Courts are now more willing to review unclear terms - **More modern application** - Long-Term Agreements - Involve a complex series of performances over time - Circumstances change due to necessity - Adjustments made during course of performance because it is impossible to anticipate all changes at the beginning - Relational Contracts - Sets forth general standards to govern the relationship - Will serve more as a private constitution for parties - **U.C.C. § 2-204**: Gap Fillers - Terms left open does not mean contract is too indefinite if the court can conclude that - \(1) parties intended to make the contract - \(2) there is reasonable basis for awarding remedy - **Default Rule**: applies when parties have not agreed, so it reflects what parties would have agreed to - **U.C.C. § 2-306**: Quantity in Default Rule - No default rule for quantity, but parties can agree without using actual numbers (i.e. "all") - **Postponed Agreement** - "Agreements to agree" - Deliberately leaving key terms open or vague to determine in future - **U.C.C. § 2-305**: Undetermined Price - Can still conclude a contract with no price established. Price is reasonable if - Nothing is said as to price - Price was left open and there was failure to agree - Agreement to agree is unenforceable - *Walker v. Keith* - property owner refuses to release tenant whose previous lease had option to renew but no rent price - **Traditional Law**: No clear rent price means owner has no obligation to re-rent - *Moolenar v. Co-Build Companies, Inc.* - farm rent increase - Court established reasonable price - **More** **modern** **application** 7. **CONSIDERATION** - Used to distinguish between contracts and gifts - **RST 2d of Contracts § 17:** Requirement of Bargain **& § 71:** Consideration - Promise is only legally enforceable with consideration or substitute - Consideration is either some performance or forbearance, or promise of either, "bargained" for by the promisor. - **RST 2d of Contracts § 81**: "Bargained for" - Consideration is the exchange of promises, but does not need to be the link to motivation for contract - **Illusory Promise** - **RST 2d of Contracts § 77 comment e:** Illusory Promise - Words of promise which by their terms make performance entirely optional with the promisor do not constitute a promise - "If I so desire." - *Service Corporation International v. Ruiz* - funeral arbitration agreement - Arbitration agreement **stands alone** - agreement is illusory if it binds one party and not the other - Arbitration agreement **part of larger contract** - The consideration supporting the underlying contract may also support the arbitration clause - *Hamer v. Sidway* (uncle and nephew deal) - **RST 2d of Contracts § 79:** Adequacy of Consideration & Mutuality of Obligation - Courts do not probe into the adequacy of consideration - Mutuality of obligation: either both parties are bound or neither are bound - **RST 2d of Contracts § 86 comment a:** Past Consideration - Past consideration is not consideration at all - **Modifying a Contract** - **RST 2d of Contracts § 89**: Executory Contract - A promise modifying a duty under a contract not fully performed on either side is binding, even without new additional consideration, - \(a) if modification is fair and equitable in unforeseeable circumstances (unanticipated on both sides) - \(b) to the extent provided by statute - \(c) to the extent justice requires due to reliance on promise - *Angel v. Murray* (additional money for city cleanup) - **Preexisting duty rule**: obligation to perform from prior terms - Prevents the "**hold-up game**": when one party can take advantage of another party for more favorable terms - **Traditional Law** would have viewed no new consideration as coercion - **U.C.C. § 2-209(1):** Modification - An agreement modifying a contract for the sale of goods needs no additional consideration to be binding - **Moral Obligations** - Morality and Consideration are not the same - *Harrington v. Taylor* - neighbor saves abuser from axe - More traditional -- no contract - **RST 2d of Contracts § 89**: Material Benefit Rule - enforces promises made for past benefits, unless they were gifts or disproportionate to the benefit received - *Webb v. McGowin* - P fell with wood block and saved D's life - **More** **modern** -- if act was unsolicited, a benefitting party's subsequent act can "ratify" the act if presumed the act would have been requested - **Promissory Estoppel** - **RST 2d of Contracts § 90** - Agreement is enforceable if a party justifiably relied on a promise even without consideration - *Ricketts v. Scothorn* - grandpa pays granddaughter to not work - Satisfied -- change in position - *Pettersen v. Monaghan Safar Ducham PLLC* - attorney wanted partner and raise - Not satisfied - No change of position in reliance on claimed promise - *Weitz Company LLC v. Hands, Inc.* - general contract and subcontractor - Satisfied -- reliance on work 8. **UNENFORCEABLE AGREEMENTS** - Every element of a contract is satisfied, but there is some reason it cannot be enforced. - **Statute of Frauds** - Some kinds of agreements are not legally enforceable unless set out in signed writing - **RST 2d of Contracts § 110**: Classes of Contracts Covered - Required to be in writing by Statute of Frauds: - Executor-administrator provision - Suretyship provision - Marriage provision - **Land contract provision** - *Radke v. Brenon* - offer to each neighbor for 1/10 of land in typed letter - Description of land and ability to determine price in typed letter with typed signature is sufficient for Statute of Frauds - **One-year provision** - *McIntosh v. Murphy* - worker moved to Hawaii for oral one year contract was fired - there was reliance on the job - If a contract can be performed in exactly one year, it is not subject to the Statute of Frauds - **RST 2d of Contracts § 139**: Enforcement by Virtue of Action in Relief - If justice requires and standard promissory estoppel exists, the court will ignore Statute of Frauds requirement - Governed by Statute of Frauds provision in **U.C.C. § 2-201** - **Contract for sale of goods for \$500 or more** - *DF Activities Corporation v. Brown* - buyer suing had Frank Lloyd Wright chair agreement in writing, but seller did not - Writing must come from the party against whom enforcement is sought - **U.C.C. § 2-201(3):** Statute of Frauds - Contract does not satisfy subsect. (1) but is still valid in other respects is enforceable if - Goods are specifically made for buyer and cannot be sold elsewhere - the party against whom enforcement is sought admits in a legal document that they entered into an oral agreement can satisfy the Statute of Frauds - Payment for goods has been made/received and accepted 9. **REASONS FOR NOT ENFORCING AGREEMENTS** - **Fraud:** act + intent to deceive - **Material misrepresentation:** act + negligence - **RST 2d of Contracts § 164**: When a Misrepresentation Makes a Contract Voidable - Three prongs to determine whether agreement should be voided - Importance/materiality of representation - "If it would have influenced a rational person's decision to go through with the deal" **§ 162** - Whether the harmed party relied on that misrepresentation - If the harmed party's reliance was reasonable - *Halpert v. Rosenthal* - seller's agent represented house had no termites - **RST 2d of Contracts § 470(2)**: Innocent Misrepresentation - An innocent misrepresentation can be the basis for a contract rescission action - Advice: don't make representations one way or another - *Swinton v. Whitinsville Savings Bank* - seller never represents termites in house - You can only void the contract when the seller says something that is untrue (misrepresentation) - **Non-disclosure:** nonaction - *Weintraub v. Krobatsch* - showed house with lights on to hide cockroaches - **RST 2d of Contracts § 161**: When a Non-Disclosure is Equivalent to an Assertion - Parties in a transaction have a good faith obligation to disclose material facts that they know the other party is ignorant of - **Lack of Capacity** - **RST 2d of Contracts § 12**: Capacity to Contract - Cannot be contractually bound if lacking capacity - A person has full legal capacity unless he is - Under guardianship - An infant (minor) - Mentally ill or defective - Intoxicated - **Duress** - **RST 2d of Contracts § 175**: When Duress by Threat Makes Contract Voidable - If a party's manifestation of assent is induced by an improper threat by the other party leaving the victim with no reasonable alternative, the contract is voidable by the victim. - **RST 2d of Contracts § 176**: When a Threat is Improper - Threat is breach of duty under good faith and fairness - The resulting exchange is not on fair terms, the act would harm the victim and not significantly benefit the threatening party - Physical Duress - **RST 2d of Contracts § 174**: Duress by Physical Compulsion - Conduct physically compelled by duress where a party does not intend it is not effective as a manifestation of assent - Economic Duress - *Austin Instrument, Inc. v. Loral Corporation* - contractor forced to pay subcontractor raised prices since no one else could make items necessary on short notice for Navy - Contract is voidable due to economic duress if it is established that the party making the claim was forced to agree to the contract by means of a wrongful threat precluding the exercise of free will - **U.C.C. § 2-209 comment 2**: modifications must meet test of good faith; extortion of modifications without legitimate commercial reasons is ineffective as a violation of duty of good faith - **Undue Influence** - **RST 2d of Contracts § 177**: Undue Influence - "Undue influence involves unfair persuasion, a milder form of pressure than duress." - *Odorizzi v. Bloomfield School District* - superintendent overpersuaded teacher to resign after arrest - Two elements of undue influence - The susceptibility of the weaker party - The over persuasion of the stronger party 10. **CONTRACT LAW REASONS FOR NOT ENFORCING AGREEMENTS** - **Illegality** - An agreement's illegal subject matter makes the agreement unenforceable by either party - Failure to Comply with Licensing - **RST 2d of Contracts § 181**: Effect of Failure to Comply with Licensing or Similar Requirement - A promise in consideration of an act that failed to comply is unenforceable on the grounds of public policy if: - The requirement has a regulatory purpose, and - The interest in the enforcement of a promise is clearly outweighed by the public policy behind the requirement - **Public Policy** - **RST 2d of Contracts § 178**: Unenforceable on Grounds of Public Policy - a promise is unenforceable on the grounds of public policy if - Legislation provides that it is unenforceable, OR - The interest in its enforcement is clearly outweighed by a public policy circumstance against the enforcement - **Surrogacy Contracts** - *R.R. v. M.H.* - contract was void on public policy grounds - cannot "sell" a baby - **Exculpatory Contracts/Contracts of Adhesion** - This agreement is signed in advance of an activity or use of something - An agreement in which the parties expressly agree that the P will relieve the D of its legal duty towards the P - *Hanks v. Powder Ridge Restaurant Corp.* - snow tubing accident at resort with signed limited liability waiver - This "take it or leave it" adhesion contract was in violation of public policy - This case is an outlier for not enforcing agreement - Most jurisdictions enforce exculpatory clauses - **Covenants Not to Compete** - Non-competes are unreasonable if: - Broader than needed to protect against hardship to employer's interest, and - If employer's interest is outweighed by hardship to employee and injury to the public - *Valley Medical Specialists v. Farber* - specialist's non-compete was unenforceable because it was not in the patients' best interest who specifically needed to see that specialist - *Jimmy John's & Employees* - JJ employees had non-competes for a fairly large scope and were therefore illegal - California has ruled not to allow non-competes - Trade secrets are entirely separate from non-competes - **Unconscionability** - **BLL**: for a contract to be invalid due to unconscionability, it must be both: - procedurally unconscionable - looks to the process of contract formation and asks whether there was an "absence of choice" for the disadvantaged party - substantively unconscionable - looks at the terms and asks whether the terms unreasonably favor the advantaged party - **U.C.C. § 2-302:** Unconscionable Contract or Clause - If court finds a contract or clause to be unconscionable, it may: - Refuse to enforce the contract - Enforce the remainder of contract without unconscionable clause - Limit application of any unconscionable clause as to avoid any unconscionable result - **RST 2d of Contracts § 208:** Restitution When Contrary to Public Interest - *Williams v. Walker-Thomas Furniture Company* - Procedural Unconscionability - Selling door to door and knowing P could not afford stereo but selling it anyways - Substantive Unconscionability - Terms were hard to interpret and hidden in fine print - Customers did not own furniture or appliances they bought until every item was fully paid off - *State of New Mexico ex rel. King v. B&B Investment Group, Inc.* - Procedural Unconscionability - Unreasonably high interest rates for payday loans if not paid back in short amount of time - Substantive Unconscionability - Some people only had access to this kind of loan and could not pay back before high interest rates hit - **Arbitration Agreement** - Difficult to conclude unconscionable - **Mistaken Factual Assumptions** - Mistake: a contract was formed but the court should not enforce it - It is unfair to hold parties to a contract when one party's assumption is presumed to be false - **BLL**: the contract can be voided for mistake if there is confusion about a matter that goes to - "the substance of the thing bargained for" or - "the thing actually delivered or received is different in substance from the thing bargained for and intended to be sold" - **Mutual/Bilateral Mistake** - **RST 2d of Contracts § 152**: When Mistake of Both Parties Makes a Contract Voidable - K is voidable by the adversely affected party if: - \(1) a mistake as to a basic assumption on which the K is premised was by **BOTH** parties at the time the K was made; - \(2) the mistake has made a material effect on the agreement; AND - \(3) the adversely affected party does not bear the risk of the mistake - *Sherwood v. Walker* - barren cow sold but was not actually barren - **Unilateral Mistake** - **RST 2d of Contracts § 153:** When Mistake of One Party Makes a Contract Voidable - K is voidable by the adversely affected party if: - \(1) A mistake as to a basic assumption on which the K is premised was made by **ONE** party at the time the K was made; - \(2) the mistake has made a material effect on the agreement; - \(3) the adversely affected party does not bear the risk of the mistake, AND - \(4) the effect of the mistake makes the enforcement of the K unconscionable, the other party had reason to know of the mistake, OR his fault caused the mistake - **Traditional Law** is reluctant to allow a party to void a contract if mistake was not shared by other party, but relief has been given when other party knew or had reason to know of mistake - *Grenall v. United of Omaha Life Ins. Co.* - woman bought insurance plan and got cancer and died shortly after - She should have assumed the risk of death - **Bearing the Risk of Mistake** - **RST 2d of Contracts § 154:** When a Party Bears the Risk of Mistake - the risk is allocated to him by agreement of the parties, or - express allocation - he is aware, at the time the contract is made, that he has only limited knowledge of facts to which the mistake relates, but it is treated as a sufficient amount of knowledge, or - implied allocation - *Estate of Nelson v. Rice* - paintings sold for way less than valued - the risk is reasonably allocated by a court - court imposed 11. **HOW TO FILL A GAP (INTERPRETATION)** - **Party-Supplied Terms** - The words used in the contract by parties - **Context-Supplied Terms** - Trade Usage - **RST 2d of Contracts § 222(1):** Usage of Trade - Having such regularity (custom) to justify an expectation for a particular agreement - Course of Dealing - several contracts over time - Course of Performance - there is only one contract but multiple opportunities for performance - **U.C.C. § 1-303(e):** Course of Performance, Course of Dealing, and Usage of Trade - If such a construction is unreasonable - Express terms prevail over context (implied) terms - Course of performance prevails over course of dealing - Course of dealing prevails over trade usage - ***HYPO:*** using dirty water to make an ice sculpture is not industry standard - **Court-Supplied Terms** - Terms necessary to effect intent - *Wood v. Lucy, Lady Duff-Gordon* - LDG breached contract when she found her own client - Overstepped employee's obligations to find her clients - terms were **implied** in contract - Terms to effect policy such as the implied covenant of good faith and fair dealing - **Good Faith and Fair Dealing** - *Locke v. Warner Bros Inc.* - Warner Bros was supposed to review Locke's scripts before deciding to use them or not, but did not - Implied in every contract - **RST 2d of Contracts § 205 & U.C.C. § 1-304** - If one party to the contract has discretion in the contract, they have to exercise that discretion in good faith - **U.C.C. § 1-201(b)(20)**: Good Faith Definition - Honesty in fact and the observance of reasonable commercial standards of fair dealing - When there is a good faith and fair dealing issue, ask which party has discretion (determines how terms apply) - *Enhanced Athlete Inc. v. Google LLC* - Terms of Use say Google can take down videos that violate their terms under their discretion - Opposite of Locke v. Warner Bros - **Modern Approach** - To the extent that it appears to the court that the parties intended to enter into a deal, the court applies those terms - **Legislature-Supplied Terms** - Default and gap-filling terms from the U.C.C. - A contract for sale can be concluded even if no price is settled. - **U.C.C. § 2-305:** Open Price Term - A price is reasonable at time of delivery if - Nothing is said as to price, - The price is left to be agreed by parties, and they fail to agree, or - The price is to be fixed in terms of some agreed market or standard as set or recorded by third party and it is not so set or recorded - **U.C.C. § 2-308:** Absence of Specified Place for Delivery - Unless otherwise agreed - The place for delivery of goods is the seller's place of business, or if none, the seller's residence, but - In a contract for a sale of identified goods that are in another place, that place is the place for their delivery. - **U.C.C. § 2-309:** Absence of Specific Time Provisions - Must be a reasonable time 12. **PAROL EVIDENCE** - Any agreement that is not contained within the written contract - **Basic Parol Evidence Rule** - Extrinsic evidence (pre-formation) may not be used to modify or supplement a written contract - Parol evidence only applies to written contracts that are integrated agreements - **Prior Contemporaneous Agreements** applies when there is a - Written agreement - Side agreement - Prior oral or written agreement or a contemporaneous oral agreement to a written agreement - **RST 2d of Contracts § 213:** Parol Evidence Rule - A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them - **Partial -- final but incomplete** - If anything prior contradicts the written agreement, it cannot be entered as evidence - If anything else that you can discuss does not come up in the written agreement and does not conflict with it, then that can come in as evidence - A binding completely integrated agreement discharged prior agreements to the extent that they are within its scope - **Fully -- final and complete** - Anything discussed prior to the written agreement cannot be introduced as evidence because it is a complete deal - *Cole v. JNO M. Oakes, Inc*. - both urns given to stepdaughter where contract was fully integrated - funeral home breached no duty - **RST 2d of Contracts § 209:** Integrated Agreements - An integrated agreement is a writing(s) constituting a final expression of one or more terms of an agreement - The court determines whether an agreement qualifies as integrated before interpreting it or applying the parol evidence rule - A written agreement that appears complete and specific is presumed to be final unless evidence proves otherwise - If there is an **integration or merger clause**, the agreement is fully integrated - Writing always wins against oral agreement if they are conflicting - **U.C.C. § 2-202:** Parol or Extrinsic Evidence - A written agreement that reflects the parties' final expression of terms cannot be contradicted by prior or contemporaneous oral agreements but may be explained by - Course of dealing, trade usage, or course of performance - Evidence of consistent additional terms unless the court determines the writing was intended to be a complete and exclusive statement of the agreement - *Qwinstar Corp. v. Anthony* - purchase agreement with merger clause did not include previous inventory - no prior evidence of inventory could be used - **Exceptions** - **RST 2d of Contracts § 214:** When Prior or Contemporaneous Agreements are Admissible - Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish: - Whether the writing is or is not an integrated agreement - Whether the writing, if any, is completely or partially integrated - The meaning of the writing, whether or not integrated (**ambiguity**) - *Frigaliment Importing Co. Ltd. v. BNS Int'l Sales Corp.* - chicken vs. fowl - parol evidence was used to describe the correct meaning of the word - Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause - *Poeppel v. Lester* - Contract was fully integrated - Parol evidence allowed because of fraud - Ground for granting or denying rescission, reformation, specific performance, or other remedy - **Four-Corners Rule:** a contract that is complete and unambiguous on its face must be interpreted according to the terms of the written agreement - **Provisional Admission Approach:** parol evidence can be used to show unambiguous language in a contract does not mean what it appears to mean - **Interpretation** - **RST 2d of Contracts § 203:** Rules of Interpretation - In the interpretation of a promise, agreement, or a term, the following standards or preference generally apply: - An interpretation which gives reasonable, lawful, and effective meaning to all terms is preferred - Express terms prevail over context (implied) terms, course of performance prevails over course of dealing, course of dealing prevails over trade usage - Specific and exact terms are given greater weight than general language - Separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated - **RST 2d of Contracts § 206:** Interpretation Against Draftsman - In choosing the reasonable meaning of a promise, agreement, or term, the one that operates against the party who supplies the words or from whom a writing otherwise proceeds - Any ambiguity in the agreement means the drafter had ample opportunity to make it as clear as possible and didn't, so the way the other party interprets it is used 13. **WARRANTIES** - A warranty is an allocation of risk - **Express Warranties** - Something the seller is promising about the goods to the buyer - Ex: "This is made of 100% titanium." - **Objective Test** -- Would a reasonable person view this as becoming part of a contract? - **U.C.C. § 2-313:** Express Warranties - An express warranty may be created by - Any affirmation of fact or promise that relates to the goods - Any description of the goods - Any sample or model - Not necessary to use formal words such as "warrant" or "guarantee" - *Daughtrey v. Ashe* - D specifically described and classified diamonds to a higher grade than they were valued - Puffery is not an express warranty - Ex: "You won't find a better deal anywhere in town!" - Once made and admissible into evidence, they are impossible to disclaim - **Implied Warranties** - Something in contract based on societal norms - **"In unless taken out"** - **U.C.C. § 2-314:** Warranty of Merchantability (only given by merchants) - Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for sale - Goods to be merchantable must be at least such as - Pass without objection in the trade under the contract - In the case of fungible goods, are of fair average quality within the description - Are fit for ordinary purposes for which they are used - Run, with variations permitted, of even kind, quality, and quantity within each unit and among all units involved - Are adequately contained, packaged, and labeled as required - Conform to the promise of affirmation of fact made on the container or label if any - Unless excluded or modified (**§ 2-316**) other implied warranties may arise from course of dealing or usage of trade - **U.C.C. § 2-104:** Definition of Merchant - A person who deals in goods or by his occupation holds himself knowledgeable of the goods involved in a transaction - *Webster v. Blue Ship Tea Room, Inc.* - no breach of implied warranty of merchantability because P should have known of the possible presence of a bone in fish chowder - If merchant is a seller, look to **§ 2-314(2)** - **U.C.C. § 2-315:** Warranty of Fitness for a Particular Purpose - If a seller knows a good is being bought for a particular purpose, there is an implied warranty that that good is fit for that purpose - **Disclaimer of Warranties** - Sometimes the seller is in no better position than the buyer to avoid the loss - **U.C.C. § 2-316:** Exclusion or Modification of Warranties - Words or actions creating express warranties must be interpreted consistently - Implied warranties - Must mention merchantability - Must be written and conspicuous - Automatic Exclusion Scenarios - "As is" / "With all faults" language also counts - Inspection by the buyer - Trade practices - Remedies can be restricted - *Office Supply Co. Inc. v. Basic/Four Corporation* - P claimed their system sold by D was defective and caused substantial loss - The court determined software warranty disclaimers were neither unexpected nor bargained for and should be enforced 14. **EXCUSES FOR NONPERFORMANCE** - **Conditions** - **RST 2d of Contracts § 224:** Condition Defined - A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance is due - **RST 2d of Contracts § 225:** Effects of Non-Occurrence of a Condition - Performance of a duty subject to a condition cannot become due unless the condition occurs or its nonoccurrence is excused - If a condition excuses a person from performance, then their non-performance is not a breach. - *Luttinger v. Rosen* - due diligence was used, but a loan for house fitting requirements of agreement could not be found - performance was not necessary, therefore there was no breach - **Condition Precedent** - A fact or event which the parties intend must take place or exist before there is a right to performance - If the condition precedent is not fulfilled, the contract is not enforceable - **Condition precedents = strictly construed** - *Oppenheimer & Co. Inc. v. Oppenheim, Appel, Dixon & Co.* - no sublease between parties unless and until P delivered landlord's written consent for tenant work to D before specific deadline - Not delivered so D did not have to perform - **Waiver** - The intentional relinquishment of a known right - *Municipal Authority of Westmoreland County v. CNX Gas Company LLC* - P leased to Dominion - Dominion waived postproduction cost and paid - D subleased from Dominion, but did not want to pay costs - **A party's waiver of rights can be retracted unless retraction would be unjust due to the other party's reliance on the waiver** - P did not rely on D's payment - **Estoppel** - The conduct induces another contracting party to act in a manner contrary to the agreement's terms, and - The other party justifiably relies on this conduct to its detriment - **Impossibility** - (Old Standard) Parties are excused from contractual duties if performance of those duties is actually impossible due to a change in circumstances not anticipated by the contracting parties - *Taylor v. Caldwell* - P contracted with D to use their music hall - The hall caught on fire and was destroyed - The court excused everyone's performance - The hall was essential to their performance - **RST 2d of Contracts § 262:** Death or Incapacity of a Person Necessary for Performance - If the existence of a particular person is necessary for the performance of a duty, his death or incapacity excuses the performance - **Impracticability** - Where performance is physically possible but would entail a much higher cost than originally expected - **RST 2d of Contracts § 261:** Discharge of Supervening Impracticability - If after contract is made, a party's performance is made impracticable by an unforeseen event, the party's duty to perform is excused - Applies unless the language or the circumstances in contract indicate otherwise - **BLL**: after a contract is made, - One party's performance is made impracticable without his fault by the occurrence of an event, and - The non-occurrence of the event was a basic assumption on which the K was made, - Then the obligation to perform is discharged - ***HYPO:*** Ruby Tuesday argued it was impractical to pay rent during recession, but court ruled they still have to pay - **Frustration of Purpose** - **RST 2d of Contracts § 265:** Discharge by Supervening Frustration - If, after a contract is made, a party's principal purpose is substantially frustrated by an unforeseen event, the party's duty to perform is excused - Performance remains possible but the expected value of the performance to the party seeking to be excused has been destroyed by the supervening event - One of the promised acts no longer holds any value to the recipient - *Krell v. Henry* - P sued D for deposit on hotel room which was rented for the purpose of watching coronation of the King - Coronation never happened - Implied condition in contract that coronation would take place - Both parties were excused from performance - **BLL:** - if a party's principal purpose is frustrated by the occurrence of an unanticipated event; and - the non-occurrence of the event was a basic assumption upon which the K was made; - then that party's obligation to perform is discharged - UNLESS the parties' language or other conduct indicate a different result - **Force Majeure Clause** - Express term in a contract which defines a class of events that might excuse non-performance within the contract period - *A/R Retail LLC v. Hugo Boss Retail Inc.* - D had to pay rent because force majeure clause in lease addressed the risk of government restriction (stores closing due to COVID) - D's performance was not objectively impossible - **Avoidance of Forfeiture** - **RST 2d of Contracts § 229:** Excuse of a Condition to Avoid Forfeiture - A court may excuse non-occurrence of a condition that would cause disproportionate forfeiture unless its occurrence was a material part of the agreed exchange. - **RST 2d of Contracts § 227:** Standards of Preference for Conditions - To minimize forfeiture, courts interpret conditions to reduce the obligee's risk unless the event is under their control, or they assumed the risk - If unclear and the contract involves mutual duties, courts prefer interpretations where: - \(a) a duty is imposed on an obligee that an event occurs, or - \(b) the event is made a condition of the obligor's duty, or - \(c) the event is made a condition of the obligor's duty, and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control - When in doubt, an interpretation where the event is a condition of the obligor's duty is preferred over discharging the duty - **Anticipatory Repudiation** - Nonperformance of a party is justified if: - There is an unequivocal manifestation that the other party to the contract will not uphold their end of the deal - *Hochster v. De La Tour* - D changed his mind about hiring P as courier before date of performance - P sued D to recover damages in anticipation of future breach - When one party to an agreement is informed by another party - **RST 2d of Contracts § 250:** Repudiation Defined - A repudiation is - \(a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would give the obligee a claim for damages of total breach under **§ 243**, or - \(b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach - **RST 2d of Contracts § 253:** Effect of a Repudiation - If an obligor repudiates their duty before breaching it and before receiving the agreed exchange, the repudiation itself allows a claim for damages for total breach. - In an exchange of promises, if one party repudiates their duty, the other party is no longer obligated to perform. - **RST 2d of Contracts § 256:** Nullification of or Basis for Repudiation - The effect of a repudiation statement is nullified by a retraction of the statement if notification comes to the attention of the injured party before he materially changes his position in reliance on repudiation or indicates he considers it as final - The effect of events other than a statement as constituting repudiation is nullified if the injured party knows those events have ceased to exist before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers it as final - **U.C.C. § 2-609:** Right to Adequate Assurance of Performance - If one party doubts the other can perform the contract, they can ask for assurance in writing, and until they get it, they can stop their own performance if reasonable to do so. - If a party requests assurance of performance and the other party fails to provide it within 30 days, this is considered a breach of contract - **RST 2d of Contracts § 251:** When a Failure to Give Assurance May be Treated as Repudiation - If an obligee reasonably believes the obligor will not perform resulting in total breach, they can demand assurance and suspend their own performance until adequate assurance is provided. - The obligee may treat the obligor's failure to provide adequate assurance within a reasonable time as repudiation 15. **BREACH** - **Breach Summary** - **RST 2d of Contracts § 235(2):** Effect of Performance as Discharge and of Non-Performance as Breach - When performance is due, ANY non-performance = BREACH - Several types of breach - Material - Total - Partial (Substantial Performance) - **Material Breach** - Curable (fixable) or not (but see election of remedies)? - If **curable (partial)**, non-breaching party can: - Suspend performance - Wait for cure - Seek monetary damages for any loss - If **not curable (total)**, non-breaching party can - Withhold further performance - Terminate contract - Seek full monetary damages - **Substantial Performance** - NOT material - Not perfect performance - Non-breaching party can seek monetary damages - **Material Breach** - **RST 2d of Contracts § 241:** Factors in Determining Whether a Failure to Perform is Material - In determining whether a failure to render or to offer performance is material, the following are significant: - \(a) how much the injured party will be deprived of the reasonably expected benefit - \(b) how much the injured party can be adequately compensated for the benefit he will be deprived of - \(c) how much the party failing to or to offer to perform will suffer forfeiture - \(d) the likelihood that the party failing to or to offer to perform will cure his failure, including any reasonable assurance - \(e) how much the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing - *Jacob & Young's Inc. v. Kent* - Wrong pipe brand was used in house construction - P argue pipes are virtually the same and don't want to tear down work - D argues they do not have to pay for material breach - Court holds there could have been certain words in contract to make material breaches clear - Court said they substantially performed (so did not materially breach), but D has to pay - More modern approach - Dissent: because the specific pipes were asked for, those should have been used - Formalist approach - Looking to exact words in contract - *BS Foods Co. v. Cimco Refrigeration Inc.* - Fridge did not function as it should have until defrosters bought - P refused to continue payments for nonmaterial breach - D sued for nonpayment & P sued for defroster cost - **If a contract party commits a nonmaterial breach, the other party can't terminate its own future performance but can sue for damages** - **Only a material breach excuses a party from future performance** - **A material breach doesn't excuse the other party's past failure to perform** - **Election of Remedies** - When faced with another party's material breach, a non-breaching party has to choose between two remedies: - \(1) terminate the K and recover damages for complete breach - \(2) continue under the K and recover damages for partial breach - Once a party chooses one, it cannot change its mind - **This is only for material breaches** - *ESPN Inc. v. Office of Commissioner of Baseball* - 1996 Agreement - P pays D to broadcast 10 games/year for 5 years - P won't enter into other Ks that interfere with full performance - 1998 - P enters K with football to broadcast on 3 of D's broadcast nights after D denies request - D complains but continues to accept payment - 1999 - Same as before - D sends letter terminating K after 1999 season - P sues for D unreasonably withholding approval - D counter-sues for breach - P affirmative defense: election of remedies - **U.C.C. § 2-601:** Buyer's Rights on Improper Delivery (Perfect Tender Rule) - If goods or tender of delivery are less than perfect in any way, the buyer may: - Reject the whole - Accept the whole - Accept any commercial unit or units and reject the rest - Not only applicable between merchants - *Panike & Sons Farms Inc. v. Smith* - P tries to give D onions from field D did not pick - D rejects goods, P sues for breach - D wins because U.C.C. says buyer has right to reject imperfect goods - **U.C.C. § 2-508:** Cure by Seller of Improper Tender or Delivery; Replacement - If buyer rejects any tender or delivery by seller and time for performance has not expired, the seller can notify the buyer of intention to cure and may do so within the contract time - If a buyer rejects a nonconforming tender that a seller reasonably believed was acceptable, the seller can seasonably notify the buyer and have reasonable time to make a substitute - *T.W. Oil v. Consolidated Edison Co.* - P entered into a contract with D for oil with less than 1% sulfur - P reasonably believed the oil was 0.5% after testing - Oil was actually 0.92% after testing - D rejected oil, P was surprised because oil was still conforming - P offered to cure and offer price reduction one day later - D still rejected to take advantage of better market price - Court held a seller may offer to cure within reasonable time beyond contract if seasonable notice is given, seller acted in good faith, and reasonably believed original goods would have been accepted - **RST 2d of Contracts § 237:** Effect on Other Party's Duties of a Failure to Render Performance - It is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. 16. **REMEDIES** - **Expectation Damages** - Put the non-breaching party in the position that they would have been in had the contract been fully performed - **Two ways to calculate** what will make the non-breacher "whole": - **(1)** **Diminution in Value** - award the difference in value between promised performance and actual performance, or - *Hawkins v. McGee* - "Hairy Hand Case" - Doctor guarantee to make burned hand "perfect" with surgery - Surgery made hand burned and hairy, not what was promised - Damages awarded were the difference between the value of perfect hand and the value of hand in present condition - **(2)** **Replacement Cost** - award the amount it would cost for the non-breacher to purchase full performance - *Lewin v. Levine* - P paid D to renovate their house - P fired D after paying them and were dissatisfied with the work - In a breach action arising from construction contract, the proper measure of damages is the plaintiff's cost of completion of the work - Injured party must show proof of actual damages to recover for breach of contract - *Groves v. John Wunder Co.* - D could dig up P's land for 7 years but had to level it out; D did not level the land - Leveling now cost **\>** (value of the land if it had been leveled) minus (value of the land in its current condition) - Court held if someone breaks a contract willfully, they have to pay for the cost of finishing the job, not just the difference in the land's value - Damages for willful breach of a construction contract, even if there has been substantial performance, are awarded as the cost of **completing the failed performance** - **Economic Waste Doctrine** - Where the economic benefit the non-breacher would gain by full performance of the K is grossly disproportionate to the cost of performance, damages are limited to the diminution of value - *Peevyhouse v. Garland Coal & Mining Co.* - D leased from P to coal mine on their property - Contract provided D would perform restoration at end of lease - P sued when D refused to perform restoration - Court held restoration was only incidental, and performance would be disproportionately costly, so the proper measure is **diminution in value** - **Incidental Damages** - Damages represented by costs necessary to obtain recompense - Damages awarded for the cost of obtaining substitute performance - **Attorney Fees as Incidental Damages** - "American Rule" - Attorneys' fees are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor - Not followed worldwide - Parties may agree by contract to permit recovery of attorneys' fees - **General/Market Damages** - Difference in value of good - **Consequential Damages** - Additional losses -- like lost profits - **If Seller Breaches and Buyer is Harmed** - **U.C.C. § 2-711:** Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods - If the seller fails to deliver, repudiates the contract, or the buyer rightfully rejects or justifiably revokes acceptance, the buyer can cancel the contract. In addition to recovering any amount already paid, the buyer can: - \(a) "cover" by buying substitute good and claim damages for all affected goods, even if not specifically in contract - \(b) recover damages for non-delivery, based on market price - If the seller fails to deliver or repudiates, the buyer can: - \(a) recover the identifies goods, or - \(b) in certain cases, demand specific performance or reclaim the goods (**§ 2-716**) - If a buyer rightfully rejects or revokes goods, they can hold and resell them to recover payments and reasonable expenses - *Gebbia v. Schulder* - P claims D sold her a genetically defective dog - P did not notify D of dog's condition until after the dog died - You have to **notify the breaching party** of their breach in order to successfully sue for damages later - **U.C.C. § 2-712:** Buyer Can Cover - \(1) After a breach, a buyer can "cover" by quickly and reasonably buying substitute goods - \(2) The buyer can recover the difference between the cover cost and the contract price, plus incidental or consequential damages, minus any expenses saved due to breach - **Cover -- K price + Incidentals/Consequential -- Expenses Saved** - \(3) Choosing not to cover does not prevent the buyer from pursuing other remedies - **U.C.C. § 2-713:** Buyer Can Get Market Damages - \(1) If the seller fails to deliver or repudiates, the buyer's damages are the difference between the market price and the time buyer learned of breach and the contract price, plus incidental and consequential damages, minus saved expenses - **MP -- KP + ID/CD -- SE** - \(2) Market price is based on the place of tender or, if goods are rejected or revoked after arrival, the place of arrival - **U.C.C. § 2-714:** Buyer Can Get Difference in Value - The measure of damages for breach of warranty is the difference between the value of goods accepted and the value they would have had if they had been as warranted, unless special circumstances show different damages - **If Buyer Breaches and Seller is Harmed** - **U.C.C. § 2-703:** Seller's Remedies in General - If the buyer wrongfully rejects or revokes acceptance of the goods, fails to pay on time, or refuses to fulfill part or all of the contract, the seller may: - \(a) hold back delivery of the goods - \(b) stop the delivery by a third party holding the goods - \(c) treat the goods as not being part of the contracts - \(d) resell the goods and seek damages - \(e) seek damages for non-acceptance or, in certain cases, demand the price (**§ 2-709**) - \(f) cancel - This applies to the affected goods or, if the entire contract is breached, to the entire undelivered balance - **U.C.C. § 2-706:** Seller's Resale Including Contract for Resale - If the buyer breaches, the seller can resell the goods. - **Resale (in good faith and commercially reasonable) Damages = Contract Price -- Resale Price + Incidental Damages -- Expenses Saved by Seller due to Buyer's Breach** - **U.C.C. § 2-708:** Seller's Damages for Non-Acceptance or Repudiation - \(1) If the buyer refuses to accept or repudiates the contract, the seller's damages are calculated by: **Market Price at the Time of Tender -- Unpaid Contract Price + Incidental Damages -- Expenses Saved by Seller due to Buyer's Breach** - \(2) If this calculation does not fully compensate the seller, damages is the profit (including reasonable overhead) which the seller would have made from full performance + any incidental damages + reasonable costs + credit for payments or proceeds of resale - **Lost Volume Seller Provision** - **Contract price -- Seller's Direct Costs for this item + incidental damages** - **U.C.C. § 2-709:** Action for Price - When the buyer doesn't pay on time, the seller may recover any incidental damages, as well as the price of - \(a) goods accepted or conforming goods lost or damaged within a reasonable time after buyer took on the risk of loss; and - \(b) goods identified to the contract if the seller is unable to resell despite reasonable efforts or if reselling them is clearly not feasible - The non-breaching party who was harmed is the one who gets to choose damages (which U.C.C. provision to follow) - **Reliance Damages** - Put the non-breaching party in the position they were in before the contract - **Other Reasons to Turn to Reliance** - When expectation damages are too uncertain - When expectation damages can't be calculated - Promissory Estoppel - *Corbett v. Bison Boys* - P was to develop and promote tv series for D - D stopped providing content - P couldn't make pitch decks to make network deal - Court held that expectation damages were too speculative, but P was harmed, so P should be able to try to prove he is owed reliance damages - **Limitations on Money Damages** - **Avoided Costs** - **RST 2d of Contracts § 347:** Expectation Interest Damages - Subject to limitations in **§ 350-53**, the injured party has a right to damages based on his expectation interest as measured by - \(a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus - \(b) any other loss, including incidental or consequential loss, caused by the breach, less - \(c) any cost or other loss that he has avoided by not having to perform - **Loss in Value + Other Loss -- Cost Avoided -- Loss Avoided** - **Avoidable Losses/Mitigation** - **RST 2d of Contracts § 350:** Avoidability as a Limitation on Damages - \(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation - \(2) the injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss - *Parker v. Twentieth Century Fox* - P was going to star in D's first movie - D decided not to produce first movie - D offered different role to P in second movie - P rejected offer - Court held P was excused from having to mitigate and accept second role because the parts were not comparable - If it is a comparable opportunity, and you have an opportunity to mitigate your damages, you do have to take it - If the payment is less, you are still expected to mitigate, but you get the difference in payment - *R.R. Donnelley & Sons v. Vanguard Transport Systems* - P contracted with D to transport brochures for Macy's - D breached but brochures were left 20 miles away from delivery site - D told P it would attempt to deliver them, but they were delivered late - Macy's did not pay, P sued D, but D claims P did not attempt to mitigate - The court says P did have an obligation to mitigate damages, and because mitigation would have been such a small cost, they are not able to recover - **Foreseeability/Consequential Damages** - **RST 2d of Contracts § 351:** Foreseeability on Damages - \(1) Damages aren't recoverable for losses the breaching party couldn't foresee as likely when the contract was made - \(2) Losses are foreseeable if they arise naturally or from special circumstances the breaching party had reason to know about - \(3) Courts may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery for loss only from reliance, or if required to prevent excessive compensation - **Consequential damages recoverable** - Damages follow ordinary course, or breaching party had reason to foresee damages - **Consequential damages NOT recoverable** - Damages do not follow ordinary course, or breaching party did not have reason to foresee damages - *Hadley v. Baxendale* - Ps were millers with one shaft which was necessary for operating entire mill - Ds were supposed to deliver replacement shaft, but it was delayed - Ds were unaware this shaft operated entire mill, thought they would only lose delivery fee payment - Court held damages were not recoverable because it was NOT foreseeable the one part not delivered on time would result is loss of profits - **Requires damages to be foreseeable, not the breach itself** - *Sunnyland Farms v. Central New Mexico Elec.* - Sunnyland failed to pay CNMEC for electric bill - CNMEC shut off power - Electricity powered - Sunnyland employee started fire at farm - Firefighters had no water to put it out - FFs called CNMEC and asked them to turn on power but they said not - Court said CNMEC would have needed to know that Sunnyland depended on the electricity for access to water, but also that there was no backup power/water source - CNMEC had not reason to know fire would start - Key is foreseeability at the time of entering into K - **Rule of Certainty** - Damages for breach are recoverable to extent that the injured party's loss can be established with reasonable certainty - *ESPN v. Baseball* - Baseball never set forth specific amount of monetary damages, only an estimate of millions - Court held there was a breach, but Baseball could not prove with substantial certainty the amount owed, so they are only entitled to nominal damages (symbolic amount) - **Liquidated Damages** - Parties agree in advance (at time K is formed) about the amount to be paid as compensation for loss or injury from a breach - Cannot be a penalty - must be a reasonable estimate of what damages would be - **RST 2d of Contracts § 356:** Liquidated Damages and Penalties - \(1) Damages can be liquidated only at an amount that is reasonable in light of anticipated or actual loss caused by the breach and the difficulties of proof of loss - \(2) A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty - *Dobson Bay Club v. La Sonrisa* - P defaulted on balloon loan payment - D claimed P owed a large late fee per liquidation provision - Court held provision was unreasonable and would be a penalty - **U.C.C. § 2-718:** Liquidation or Limitation on Damages - Damages for breach by either party can be liquidated if the amount is reasonable based on expected or actual harm, the difficulty of proving loss, and the challenge or finding another remedy. - Unreasonably high damages are invalid as penalties - *Kvassay v. Murray* - P contracted with D to sell baklava - D was P's only client for a year - D refused to purchase more product - P knew exact amount he would lose per case but put in K higher damages amount - Court held you P could not get amount in K because it would be a penalty - **Specific Performance** - Courts disfavor specific performance - Efficient breach - Everyone is just as well off, if not better off, even though there was a breach - Specific performance is proper remedy when: - Money damages = inadequate - Subject matter of the contract is rare, unique, or has no established market value - **BLL**: specific performance/injunctive relief is only used when awarding money damages would be inadequate - **RST 2d of Contracts § 359:** Effect of Adequacy of Damages - \(1) Specific performance or injunction isn't used if damages can protect the injured party. - \(2) Inadequate damages for part of a contract may justify specific performance for the whole. - \(3) Other remedies don't bar specific performance but may affect the court's decision. - *Oliver v. Ball* - P contracted to buy land from Ds - Ds failed to convey property - P filed for specific performance - Court held real estate is per se special enough that you cannot compensate without specific performance - **SP Category examples** - Ks for sale of art - Heirlooms - Franchises - Patents, copy rights - Contracts for purchase of land - Only when it comes to buying, not selling - For Stock? - Need to know if it is marketable