Contracts, Hadfield, Spring 2012 visiting at Harvard From USCTextbook: Epstein, Markel, Ponoroff Selections on Contracts

Contract basics checklistMonday, April 30, 201212:46 PM 

Was a contract formed? Was a legally-enforceable contract formed?

Intent to be bound Consideration Sufficient definiteness

Was there any problem at the time of formation that makes the contract voidable? Mistake Misrepresentation/Fraud Duress

Unconscionability Assuming that a contract was formed, what are the consequences?

What obligations did the contract create? Was there a “breach”? Interpretation Implied terms

Is an ostensibly breached obligation excused? Conditions Waiver Material Breach Impossibility, Frustration

Okay, the contract was breached and is actionable. Now what? If the contract is breached, what remedy?

Specific performance Damages

o Expectation (put promisee in position as if contract performed) ORo Reliance (put promisee in position as if contract never made) ORo Restitution (compensate promisee for any benefits conferred on promisor)

What limits on damages?o Certaintyo Foreseeabilityo Mitigation

  

Public Policy, IllegalityMonday, April 30, 201210:17 AM Hanks v Powder Ridge Restaurant

Ski resort made customers sign waiver of rights to claim damages, even for negligence. Court ruled that on public policy grounds, that was not enforceable, since it was an adhesion contract, the resort controlled the safety, and they did not explain in their advertising that the waiver would be required. Verdict: Contract is voidable; Rule: Contracts that are against public policy are not binding. R.R. v. M.H.Parties contracted to have woman carry baby (carrier + real father’s baby) and they would pay her costs. Woman wanted to void contract and possibly keep baby. Court found that this arrangement was too close to the types of transactions that were forbidden under adoption and human trafficking laws. Verdict: Contract is voidable; Rule: Contracts that are against the law are not binding. Valley Medical Specialists v. FarberFarber, a doctor, signed a non-compete with the practice. Later, he wanted to compete. The lower court ruled that the non-compete was too broad and tried to impose their own terms based on severing some aspects of the non-compete. Appeals court said that the terms were too broad to even have terms imposed and voided the contract. Verdict: Contract is voidable; Rule: Non-competes are often against public policy, especially for doctors. While sometimes, a clause can be severable, if it is still to restrictive, the court can void the whole damn thing. 12. Legal capacity to contract: (1)Partial capacity is possible and dependent on the circumstances, (2) People have the capacity to contract unless they are under guardianship, infants, mentally defective, or intoxicated. 13. Persons Affected By Guardianship: of property for an adjudication of mental illness or defect. (Seems to be completely null rather than voidable. But not sure how that would work if both parties are happy with it – I guess the guardian would have to seek to void it rather than the mentally ill person, likely within reasonable time.)14. Infants: Until 18, people can only form voidable contracts. This means (comment) that he can refuse to perform, and if he’s already received the consideration it goes back. If he’s spent it, nothing can be done. 15. Mental Defect: such people can only incur voidable contractual duties he is unable to understand the nature (not smart) of the transaction, or he is unable to act reasonably (OCD shoe buyer?) in relation to the transaction when the other person has reason to know this. If the other person has no reason to know and the contract is fair, the voidability is limited to the parts that have not yet been performed, and parts where voidance would be unjust. In such cases, courts should grant relief in equity. 16. Intoxication: voidable where other party has reason to know that he’s intoxicated (hah, what if it’s by email?) and can’t understand the transaction or act reasonably towards it. 178. Public policy: unenforceable (voidable) when it contradicts legislation, or public policy clearly weighs against it. In weighing the interests of enforcing, account is taken of parties’ expectations, forfeiture, public interest in enforcement. In weighing the interests against enforcement, account is taken of strength of legislation or judgment against it, likelihood that enforcement will encroach on the policy, seriousness of misconduct involved, and connection between misconduct and the term. 179. Public policy defined: Legislation, and public interest like restraint of trade, impairment of family relations, interference with protected interests (Hanks v. Powder Ridge – negligence is a protected interest?)

186. Restraint of trade: (1)Unreasonable restraint of trade is not enforceable. (2) Unreasonable restraint includes stifling competition, and restraining someone from seeking employment. (Valley Medical Specialists) 187. Restraint of competition defined: A promise to refrain from competition is restraint of trade unless it is ancillary to an otherwise valid transaction. 188. Ancillary restraints on competition: Even if a non-compete is ancillary, it is unreasonably in restrain if the restraint is greater than needed to protect the promisee’s interest, or the promisor’s hardship outweighs the promisee’s interest. Examples of ancillary agreements include promises not to compete by sellers to buyers, employees to employers, and partners to partnerships. 191. Promise affecting custody: Not valid unless it’s in the best interests of the child. (RR v. MH)  

Intent to ContractMonday, April 30, 201211:56 AM Black letter contract law: There are three things that it takes to create a contract: Intent, consideration, and sufficient definiteness. The next two classes are on intent and consideration, and then after a bunch of technical formation stuff, we move on to definiteness. Lucy v ZehmerLucy said that he had bought the land, Zehmer said that he had been joking. Verdict: Binding contract. Rule: Objectively manifested intent is what mattered, not the hidden intent. Gives rise to prof’s constant question “Was it reasonable for Lucy to believe that Zehmer intended to be bound?” Leonard v PepsiPepsi advertised in a way that might have given the impression that they were willing to give away a plane. Leonard sued them for his plane. The court ruled that a reasonable person would not have thought that there was intent to be bound to award an airplane. Verdict: No binding contract; Rule: When there is clearly no intent to be bound, there is no contract. Restatements 1. A contract is: a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.2. Promise, promisor, promise, beneficiary: Promise manifests intention to act, made to justify understanding that commitment has been made. Promisor is maker of promise, promisee is addressed by it, beneficiary is third party who is supposed to benefit. 4. How a promise may be made: Oral, written, or implied wholly or in part by actions21. Intent to be bound: It is not necessary to have or to show intent to be bound, however, if you manifest intent not to be bound, may prevent formation of a contract. (I think the early part refers to people who mean to agree, but don’t think it’s binding – but it is. Or the opposite – a mock contract that people think is theoretically binding but won’t be enforced (in a play? A game?) actually isn’t binding at all. 26. Preliminary negotiations: Manifestation of willingness to enter into a bargain is not an offer if the recipient should have known that the offeror does not intend to conclude the agreement

without further assent. (E.g. advertisements, invitation for bids. Note that further language like “first come first served” and “lowest bid before Tuesday at 6 gets the deal” might make it an offer.)UCC2-102: Scope; Certain Security and Other Transactions Excluded From This Article: Doesn’t apply to sales that are intended to operate as securities. Also does not affect statutes that apply to specific buyers, sellers, and transactions. 2-105: Definitions: Transferability; “Goods”; “Future” Goods; “Lot”; “Commercial Unit”.Goods – things, including unborn animals, crops, investment securities. Must be existing and identified before they can be sold, otherwise they are future goods. Unidentified share of bulk fungible goods is goods. Lot means parcel or article, commercial unit means a single whole by a particular commercial usage. 2-106: Definition of contract: Agreement for sale or future sale of goods. Sale is exchange of stuff for money. 2-204:Formation: (1) May be made in any manner sufficient to show agreement, including conduct. (2) Moment of formation need not be determined. (3) Even if some terms are left open, a contract doesn’t fail for indefiniteness if there is a reasonable basis for giving a remedy. (So this is somewhat different from the contract to renew that a court found indefinite, although obviously the UCC would not have applied there anyway.)  

  

Consideration Monday, April 30, 20123:19 PM Consideration Hamer v SidwayUncle promised nephew that if he withheld from drinking, smoking, and chasing women, uncle would give him $5000. Nephew did so. Uncle died and estate claimed no consideration. Judge ruled that consideration is either giving something of value to the promisee, or giving up a right that the promisor was entitled to. Verdict: Binding contract; Rule: Consideration is either giving something of value to other person, or giving up a right that you had. Kirksey v KirkseyMrs. Kirksey was on her own out west, and Mr. Kirksey, her BIL, the brother of her deceased husband, told her to come live near him. She was hesitant, because she had a farm that she was maintaining, and didn’t want to give it up. But she left because he promised to support her. Then he changed his mind later and she sued. Verdict: No contract; Rule: An action that is necessary to claim benefit from a promise is not necessarily consideration. (E.g. if you come here, I’ll give you a dollar – you are not giving the dollar in exchange for ‘coming here’.(Note: Prof said that this came before there was a widely adopted doctrine of promissory estoppel, or she would have had an estoppel claim.) Hooters v PhillipsHooters instituted a new policy that their employees would have to submit to arbitration agreements. Phillips signed the agreement and later wanted to sue them in regular court. The

court said that since Hooters had maintained the right to change the format of the arbitration, there was no real consideration. Verdict: No contract; Rule: Illusory consideration is not consideration. (Note: Another case that has this angle is the Lady Something one, where there was no explicit promise to sell the clothes.) Restatement 17. Requirement of a bargain: 1. There is usually a requirement for a bargain that results in the exchange of the promise for the consideration. But 2. If there is no bargain, a contract may still be formed under Restatement 82-94. 71. Requirements of exchange, types of exchange: The exchange must be bargained for, which means that it must be sought and given in exchange for the promise. Performance may consist of an act, a forebearance; the creation, modification, or destruction of a legal relation. The performance may be given to the opposite party, or to another person. 73. Performance of a legal duty is not consideration, but a slight modification to that performance might be, if it reflects a real bargained for change. 74. Forbearance of claims that are invalid is not valid consideration unless there is some doubt as to the facts or the law, or the forbearing party believes that it’s valid. The execution of an instrument surrendering a claim or defense is consideration, even if the claim or defense has not been asserted, and the forbearer doesn’t believe it exists.77. Illusory or alternative promises: A promise that leaves the promisor alternatives is an illusory promise, and thus, not consideration, unless both alternatives would suffice for consideration, or there is a substantial likelihood that before the promise comes due, intervening circumstances will bind the promisor to the alternative that is consideration. 79. Adequacy of consideration: if consideration has been met, there is no requirement that it be detriment to the one offering it, or a gain to the opposite party. (One or the other is enough – Hamer v. Sidway) equal exchange, or “mutuality of obligation.” (Based on the comments it seems that that means equally binding obligations on both sides.) 81. Consideration as the motivation or inducing cause: It doesn’t have to be the sole motivating cause. Nor does the promise have to be the sole motivating cause of the consideration.  

  

Promissory Estoppel/RestitutionMonday, April 30, 20123:22 PMPromissory Estoppel Ricketts v Scothorn Ricketts was promised by her grandfather that he would give her a large gift so that she wouldn’t have to work. She quit her job, briefly, but he never got around to giving it to her, though, aside from a few interest payments, and then he died. The estate argued that there was no consideration, since she hadn’t done anything except quit her job, and that wasn’t a bargained for exchange for the gift – in fact, her grandfather hadn’t minded that she later worked. Verdict: promissory estoppel, so promise binding. Rule: There is a concept of promissory estoppel, which means that when someone makes a promise that is: Reasonably expected to induce reliance;

Does induce reliance; and Justice requires enforcement, it is enforceable to the extent justice demands. Promissory RestitutionGenerally, past consideration is not consideration. The one exception to that is promissory restitution. Webb v McGowinWebb was cleaning out second floor, and he was able to stop from dropping heavy load onto McGowin only by putting himself in danger. He was badly injured, and McGowin promised to support him. After McGowin died, the estate claimed no consideration. Verdict: Promissory restitution; Rule: A Promise, made in understanding of a material benefit previously received, is binding to the extent necessary to prevent unjust enrichment. Restatement 90. Promise reasonably inducing reliance (Promissory Estoppel): Promise, intended to induce reliance, that induces reliance, and justice demands enforcement, is enforceable insofar as justice demands. 86. Promise made in exchange for benefit previously received (promissory restitution): is binding to the extent necessary to avoid injustice. (But not if the original benefit was a gift, and not in a way that is disproportionate.) (Note that the benefit must be material. Prof gave the example of saving someone’s cow as opposed to saving their kid.)  

  

Preexisting duty/ModificationMonday, April 30, 20123:25 PMPre-existing Duty Alaska Packers v Domenico So these fishermen were hired to go to Alaska and fish, and when they got there, it turned out to be more work than they expected, on account of the low quality nets. So they went on strike. The company couldn’t get new workers, so they struck a new bargain – they would up the pay in exchange for the fishermen returning to work. After the season, Alaska Packers refused to pay the higher amount, reasoning that there was no consideration for the new agreement, since the fishermen were already bound by contract to perform. Verdict: New agreement not binding; Rule: When the only consideration is something that you had to do anyway, that’s not consideration. (Preexisting duty). Angel v MurraySo this guy had the contract to collect all the garbage from Newport, RI. He had a five year contract with the understanding that there would be some new construction. Then there was a huge amount of construction that no one, not even the city, had foreseen. So they negotiated a new contract, and paid him an extra $10,000 a year for the remaining few years. Someone sued the city, saying that they couldn’t pay him, since he was already bound and had not given any new consideration to the city. Verdict: New contract (modification) binding. Rule: It is possible to have a modification when neither party is finished performing, the intervening event is unforeseen by either party, and the modification is reasonable to both sides under the circumstances.

Restatement73. (entered in consideration tab) Performance of a legal duty is not consideration, but a slight modification to that performance might be, if it reflects a real bargained for change. 89. Modification of executory contract: can be binding when it has not been fully performed by either side, if it’s fair and equitable, in light of circumstances not anticipated. (Or, to the extent required by statute, or to the extent that justice requires enforcement based on material change of position in reliance on the promise.[looks like a promissory estoppel rationale in modification])  UCC2-209: Modification, rescission, waiver: (1) Modification in general works (unlike restatement). (2) If the agreement requires modifications in writing, then they need to be in writing. (3) Statute of Frauds applies to modification (4) Even if it doesn’t work under subsection 2 or 3, it can be a waiver. (5)Waiver can be retracted by reasonable notification, unless the other party has materially changed their position and it would be unjust. (Dynamic v. Machine). In short: modification is much easier on sale of goods than on regular contract which is regulated by the restatement. The UCC simply requires no consideration for modification.    

Statute of fraudsMonday, April 30, 20124:10 PM110. Statute of Frauds: The following contracts are subject to the statute of frauds: contract in execution of estate, contract to answer for duty of another (surety), contract in consideration of marriage, contract for land, contract for period beyond a year. The following are now under UCC statute of frauds: Sale of more than $500 (2-201), sale of securities (8-319), personal property over $5,000 (1-206), security signed by debtor for claims in his personal property. Other common ones include waiver of statute of limitations, state by state requirements as necessary. 139. Promissory estoppel in statute of frauds cases: Promise which should reasonably be expected to induce reliance, and did, is enforceable notwithstanding statute of frauds requirements, if it’s necessary to avoid injustice. Remedy is limited as justice requires. (2) In determining whether justice demands enforcement, the circumstances to be weighed are other possible remedies, particularly cancelation and restitution; definite and substantial character of the action in relation to the remedy sought; extent to which the reliance corroborates the making and terms of the contract or the general establishment of the evidence for the promise; the reasonableness of the reliance; and the extent to which it was foreseeable to the promisor. UCC2-201. Statute of Frauds: Requires writing down sales of more than $500, or else there is no contract. Also must be signed by the party against whom enforcement is sought. Between merchants, it is sufficient if the writing comes within a reasonable time, unless it is objected to within ten days. (3) Even if it doesn’t meet the statute of frauds, it may still be valid if the requirements of this section are met. (The first one is if the goods are tailored specifically for the buyer and the seller has begun manufacturing them, but it seems complicated. Look it up.) One of them is if the party admits that he signed, another is if payment has been made and accepted, or delivery of goods has been made and accepted (See 2-206).  

 

Formation 1 (Negotiation)Monday, April 30, 20124:14 PMRestatement 26. (also under intent to contract) Preliminary negotiations: Manifestation of willingness to enter into a bargain is not an offer if the recipient should have known that the offeror does not intend to conclude the agreement without further assent. (E.g. advertisements, invitation for bids. Note that further language like “first come first served” and “lowest bid before Tuesday at 6 gets the deal” might make it an offer.)(See Lonergan v. Scolnick)27. Oral agreement where written contract is contemplated: That parties intend to create a written contract does not preclude a contract being formed orally, but it is evidence that the discussion was intended as negotiation rather than agreement.  

Off/Acc 1 Carlill, Lonergan, RestatementMonday, April 30, 20126:17 PMCarlill v Carbolic Smoke BallCompany advertised that they would pay anyone who took their remedy for two weeks and still got the flu. Someone did, and sought payment. The company offered various defenses, one of which was that even if it was an offer, she didn’t accept. Verdict: Binding; Rule: In the manner that the offer was presented, notification of claim was sufficient for notification of acceptance.Lonergan v Scolnick Scolnick advertised his land for sale, and he and Lonergan exchanged several letters afterward. The first letter was an inquiry about the location, which Scolnick answered, and noted that it was a form letter. Lonergan’s second letter was more about the location, and some questions about the payment arrangement. Scolnick responded that the location was correct, that the payment suggestion would hypothetically be fine, but that Lonergan should move fast, because Scolnick was planning to sell the land within a week. By the time Lonergan managed to respond, which was as soon as he got the letter, the land had been sold. He sued. The lower court ruled that while Scolnick’s second letter was an offer, the acceptance wasn’t fast enough for the terms of the offer. The appeals court upheld on different grounds, saying that it was not an offer at all. Verdict: No binding contract; Rule: Not every expression of willingness to sell is an offer. In this case, it was just a discussion/negotiation, not an offer. 22. Mode of assent: Offer and acceptance: Normally, the mode of assent is by one party offering and the other accepting. But it is possible to mutually assent to an agreement without a specifically identifiable offer and acceptance or moment of concurrence. 24. Offer defined: An offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent is invited and will complete the bargain. 26. (also under other headings) Preliminary negotiations: Manifestation of willingness to enter into a bargain is not an offer if the recipient should have known that the offeror does not intend to conclude the agreement without further assent. (E.g. advertisements, invitation for bids. Note that further language like “first come first served” and “lowest bid before Tuesday at 6 gets the deal” might make it an offer.)

32. Invitation of promise or performance: “In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.” (Basically codifies the presumption of bilateral contract, except it gives offeree the choice. 50. Acceptance defined; by performance and by promise: Acceptance is manifesting assent to the terms of the offer, in a manner invited or required by the offer. Acceptance by performance means that it needs to be done by performing or beginning to. Acceptance by promise means… acceptance by promise. 58. Acceptance must comply with terms of offer: The acceptance must comply in performance or in promise with what the offer laid out. (This is different, it seems, from manner of acceptance.)63. When acceptance takes effect: As soon as the expression of acceptance has left the offeree, it is valid. The exception is in option contracts, in which case it needs to get to the promisor. 69. Acceptance by silence or by exercise of dominion: Silence is sufficient for acceptance when the offer is expressed by giving over something, and the understanding is that if one accepts it, one that is the purchase and requires payment; or if silence is expressed as a method of acceptance and the offeree intends to accept with silence, or where prior dealings show that that is how they do things. Exercise of dominion also works as acceptance. The example that Restatement gives is if someone mails a product and says if you want it, forward payment, otherwise, I’ll send postage for you to send it back, and the recipient doesn’t pay but he does give the book as a gift. That’s acceptance and he must pay.   

O/A 2 Dodds, Davis, Hotzler, R, U, CISGMonday, April 30, 20128:49 PMDickinson v Dodds (Revocation, Option contract)Dodds offered to sell a piece of land to Dickinson, and promised to hold the offer open until Friday. By Thursday, Dickinson heard that Dodds was talking to someone else about buying the land, so he rushed to get an acceptance to Dodds, although he only succeeded in getting it to Dodds’s mother in law. Friday morning, he rushed to meet Dodds, but that land had already been sold. Dickinson sued for breach of the promise to hold the offer open. The question of whether the offer was revoked was whether there was a binding contract to keep the offer open – was there intent to be bound, and was there consideration? Verdict: No binding offer; Rule: As long as no consideration is given, the offer is subject to withdrawal at any time. In this case, Dickinson knew that the land was being sold to someone else, so he had notice that the offer was withdrawn. Davis v Jacoby (Unilateral v. Bilateral)Mr. Whitehead and his wife were going through difficult times. They were getting old, and they were not well. Mr. Whitehead called their niece, Caro Davis, and told her that if she and her husband would come take care of them, he would will his property to her. Caro and her husband agreed to come, but needed some time before they could leave. During that time, Mr. Whitehead first agonized over whether they should come, then killed himself. The Davises found out that he had died, and immediately set out. They followed through with the promise and took care of his wife until she died a few months later. It turned out that Whitehead had not changed his will, and

the Davises had to sue for it. The estate claimed that the offer was unilateral – that they could accept it only by performance, and since he was dead before they performed, there was no contract. Verdict: Binding Contract; Rule: There is a presumption for bilateral contracts rather than unilateral ones. (Cites Restatement, then also looks at some evidence, because restatement wasn’t binding law in that state.)Gresser v Hotzler (Mirror image rule)Gresser and Hotzler were discussing the purchase of a property. They had exchanged a number of offers and counteroffers (which also function as rejections) for a few weeks. As the closing date that they had been discussing approached, Gresser returned a proposed contract that they’d given him and he had signed, but because the closing date was so close, and they would need to have an inspection done, he changed the closing date to a later time. Along with the contract, he sent a deposit. The Hotzlers did not sign that contract, and thereafter sold the land to someone else. Gresser sued them for breach, saying that he’d signed their contract, and therefore it was binding. Although the term was changed, he didn’t care if they signed earlier, he was just proposing a change that he thought would work for them. Alternatively, he claimed that the changes weren’t material anyway, so the acceptance should be valid. (He also made other claims, like that the agent had assured him that they would agree, although he knew the agent wasn’t authorized.) They countered that he had changed a term, and therefore it wasn’t an acceptance, rather it was a rejection and counteroffer, since it violated the mirror image rule. Verdict: No contract; Rule: It is the objectively manifested intent that matters, not the thought inside Gresser’s head that he only meant the change to the contract as a suggestion. Furthermore, the mirror image rule applies with the sole exception of very minor changes to the contract. This was not a very minor change. 36. Termination of the power of acceptance: Rejection, lapse of time [note that lapse of time means specified deadline, or if there wasn't one, it means reasonable time, which is a question of fact according to Rest. 41 which was not assigned. (Cite Carlill?)] revocation, death or incapacitation of offeror act as revocation. Also, a non-occurrence of a condition of acceptance. 43. Indirect communication of revocation: An action that the offeror takes that is inconsistent with intention to keep the offer open, that the offeree finds out about, terminates the offer. 45. Option contract created by part performance or tender: When an offeree begins performance on a unilateral contract, that creates an option contract which means that the offeror is bound to perform if the contract is completed. 87. Option contract: An offer is binding as an option contract if it is in writing and signed by the offeror, recites a purported consideration, and proposes an exchange on fair terms within a reasonable amount of time. It can also be binding if it is made binding by statute. It can also be binding with a promissory estoppel rationale, if it was reasonably expected to induce reliance, and did in fact induce reliance. In such instances, it’s enforceable to the extent necessary to avoid injustice. UCC2-204: (also in other sections) Formation: (1) May be made in any manner sufficient to show agreement, including conduct. (2) Moment of formation need not be determined. (3) Even if some terms are left open, a contract doesn’t fail for indefiniteness if there is a reasonable basis for giving a remedy. (So this is somewhat different from the contract to renew that a court found indefinite, although obviously the UCC would not have applied there anyway.)

2-205: Firm offers: (Unlike restatement, doesn’t require consideration) A signed writing with the promise that the offer will be held open is not revocable until the stated time, but it is limited to three months. 2-206: Offer and acceptance: Unless there is some clear indication otherwise, an offer to make a contract invites acceptance in any manner reasonable. CISG:15. Offer: effective on reaching offeree; always revocable before or concurrent with reception of offer (even if offer itself is irrevocable, it can be revoked before reception.)16. Offers can be revoked before acceptance, unless they are irrevocable by explicit term, or implication that is reasonable for promisee to rely on and promisee has relied. 17. Offers, even irrevocable ones, are terminated upon rejection reaching offeror. (Different from Restatement 63, in which acceptance needs to leave promisee.)18. Acceptance: Statement or conduct indicating assent is acceptance. Silence or inactivity is not. Acceptance is valid upon reaching the offeror (unlike Rest. 63). Oral offers require immediate acceptance. If the offer itself, or course of practice has indicated that acceptance by performance is possible, beginning performance is sufficient.   

O/A UCC 2-207Monday, April 30, 201210:41 PMDorton v Collins & Aikman Complicated because 2-207 is complicated. Dorton bought carpet from Collins and Aikman for years. Eventually, he realized that they’d been cheating him, and he sued them. They claimed that there was an arbitration agreement, since the sales documents that they sent out all had arbitration agreements on them. The lower court applied 2-207, and jumped to 2-207(3), which assumes that there was no offer and acceptance, and the acceptance of the goods is what made the contract, and its terms are the ones that match, together with UCC defaults. However, the lower court was mistaken. The appeals court looked at the story and determined that the offer was likely usually during the conversations with Collins and Aikman employees, and the acceptance therefore was the sales form. Therefore, the first thing to find out on remand is whether there was any mention of the arbitration in the sales discussion, such that there would be no battle of the forms to begin with. Then, assuming that there was no such arbitration condition mentioned and the sales form was introducing a “different or additional term”, the appeals court continued figuring out if acceptance was expressly conditioned on those terms. If it was, the contract is dead(until course of conduct sends us back into 2-207(3). If acceptance was not expressly conditioned on the new or additional terms, they are proposals for additional terms that become binding between merchants, if they are not material. The court concluded that the acceptance was not expressly conditioned on these terms (using interpretive tools) and therefore, remanded the case to determine if proposed additional terms altered the contract in any way. If they materially altered the contract, then they are not binding, if they didn’t, then they are binding. Verdict: Remanded to determine Rule: Utilization of UCC 2-207. Is the acceptance introducing new terms? If it is, the court concludes that the answer to the next question – is acceptance expressly conditional on those terms? is no. But then the following question is

remanded – is the change, i.e. the arbitration clause, a material change? If it is, the changes are not included. If it isn’t material, then the changes are included, unless there was an explicit objection, which there doesn’t seem to have been. Klocek v. Gateway; Hill v. Gateway: Same case, different circuitsKlocek v. Gateway:Klocek bought a computer from Gateway, and wanted to complain about it, but the return period had expired. So he went to court. Gateway said that there was an arbitration clause in his contract. The court weighed whether there was one based on the way the contract was formed. At the outset the court noted that there were wildly divergent approaches, although they seemed to hinge on whether the agreement was formed before the product was shipped. Court notes that in Hill (coming up next!) the Seventh Circuit didn’t see this as a battle of the forms and therefore didn’t use UCC 2-207. The Court found this to be a mistake, since 2-207 applies on the one hand even when there was an agreement beforehand, and on the other hand, there is no reason to assume that the offer is the store shipping and the acceptance the customer receiving, which would give the store the right to institute whatever terms they want. Because the best interpretation is that the plaintiff offered to buy, and the store accepted that offer, (or alternatively, that they agreed to the contract over the phone, and the written document merely confirms that) we apply 2-207. Under 2-207, since the plaintiff was not a merchant, he needed to expressly assent in order for the “different or new” terms to become part of the agreement. He did not do so. Therefore, the arbitration term is not added to the agreement. Verdict: New term is not binding; Rule: When new or different terms are added to a contract, and one party is not a merchant, the new terms need express assent and without it, they are not part of the agreement. Hill v. GatewayThis was the same case as the one above, except that in this case, Judge Easterbrook decided that 2-207 doesn’t apply. Since there was no battle of the forms, there was no 2-207. He saw the offer as being the box arriving in the Hills’ house, and the terms of acceptance were clear – hold onto the computer, and you’ve accepted. Since the Hills conceded that they noticed the statement of terms, they were held to the arbitration agreement. (It is unclear what Easterbrook was thinking when he decided that this is not a battle of the forms. It seems possible that he was justifying the decision to not consider it a battle of the forms because this is the way that sales work – you can’t be said to be discussing, offering, or assessing terms when you are buying a product out of a catalog on the phone. Therefore, the parties defer that process to such time as the store makes the terms of the “offer” known when the product is received, and the buyer can make an assessment thereof.) Verdict: Binding arbitration clause; Rule: There needs to be two forms to invoke 2-207. Otherwise, it only makes sense for the store to be the master of the offer, and make the terms and method of acceptance known upon receipt of the product. 38. Rejection ends the offer, unless the offeror specified otherwise 39. Counteroffer is an offer that is different from the original. It is a rejection, unless the offeror specified otherwise in the offer, or the offeree specifies otherwise in making the counteroffer. 59. Purported acceptance which adds terms and is conditional on those terms, is actually a counteroffer (i.e. rejection)(But what if it’s not conditional? Is it seen as a proposal for new terms like 2-207(1)?)60. Manner of acceptance: If an offer states a time, place, or manner of acceptance, that is binding.

63. (also in other sections) When acceptance takes effect: As soon as the expression of acceptance has left the offeree, it is valid. The exception is in option contracts, in which case it needs to get to the promisor. UCC2-206: (also in other sections) Offer and acceptance: Unless there is some clear indication otherwise, an offer to make a contract invites acceptance in any manner reasonable. 2-207: Battle of the forms (Not!): If there is an original offer (or oral agreement), and this (written) acceptance contains different or additional terms, the following analysis commences (with the help of handy flowcharts!): If the acceptance is conditional on the new terms, it dies here in 2-207(1). If the acceptance is not expressly conditional on the new terms, then the acceptance is valid and the contract goes into force. Then we (using 2-207(2)) need to think about whether the new terms are included. Between merchants, the new terms are included if they are not material, and are not objected to, and if the original offer did not limit acceptance to the terms of the offer. If one of those three things happened, the contract is binding without the new terms. Between non-merchants, the contract is binding without the new terms unless there is a clear acceptance of the new terms. If the contract or term died in 2-207(1), but the parties continued doing bidness as though there was an agreement, the agreement is valid insofar as the terms agree, and the parts they don’t agree on are filled in by the UCC defaults.  

FlowchartSunday, May 06, 201211:38 AM

  

IndefinitenessTuesday, May 01, 201210:43 AM Note: Incompleteness can also show that there was no intent to be bound by agreement. See Restatement 33 (3).Judges can deal with incompleteness in different ways. They can say that this contract is too indefinite to remain standing, or they can say the contract stands, and fill in the terms with implied reasonable terms, terms interpreted into the contract, or default gap fillers. Common law said that they wouldn't enforce indefinite contracts (Walker v. Keith), but there is some movement the other way, like the UCC, Moolenar, and the lower court in Walker. Varney v Ditmars Varney worked for Ditmars. At one point, Ditmars said that he wanted Varney to take on extra responsibility, and if he would, Ditmars would pay him a bit more per week, and a bonus “share of the profits” at the end of the year. In the interim, Varney did something that made Ditmars upset, and he also got sick and stopped showing up to work. He got fired. He sued for the $40 per week salary that he was getting, from the time he stopped working till the end of the year, and also for a fair share of the profits that he was promised. The court said that he didn’t work after he got sick, so he obviously wasn’t entitled to that. The share of the profits was not sufficiently defined to have any meaning, so he had no claim on that. The court cited another case where the claim was based on a promise that “I’ll make sure you get a satisfactory amount,” and that was deemed indefinite. In this case, the court noted that if he actually did extra work in pursuit of that unspecified bonus, he should get paid for that (in equity, it seems – an unjust enrichment type claim.) Dissent: The terms are not per se indefinite because they are not specified. Perhaps there is some data that can show how the damages should reasonably be computed. Furthermore, he should be entitled to the salary until the end of the year, since that was the promise – that he’d be there till the end of the year. Verdict: No binding contract; Rule: When someone makes a general promise without specifying what the details are, it may be insufficiently definite to be binding. Incompleteness/indefiniteness Community Design v. AntonellAntonell worked for Community Design. They had a project they’d been working on, and the boss made an announcement that he would give a bonus to anyone who was still on the project if it got done before Christmas. Antonell and his coworkers finished their draft before Christmas, and the project dragged along for another few years. Eventually, Antonell wondered where his bonus was, and he sued. CDC said that the contract was unenforceable since it was indefinite. There was no agreement on the amount of the bonus, the degree of completion, and the division among employees. Court says that uncertainty and indefiniteness is not a great outcome, especially when one party has benefitted from the agreement. In this case, there was some uncertainty, but some things were clear – the general pool, the number of employees that could possibly get the bonus, and that Mrs. Wooster would make recommendations for amounts. That recipe was enough to make the damages sufficiently definite. Verdict: Binding agreement; Rule: When an agreement (especially one in which one party has already benefitted) is

somewhat indefinite, but has a recipe to determine the terms, that is sufficiently definite to be enforced. Walker v Keith; Lessor was given an option to renew his land at the end of ten years at a rate “to be agreed upon”. They could not agree. The lower court figured out what they thought was a reasonable rent, and assigned it to the renewal contract. The defendant lessor appealed, claiming that an agreement to agree is to indefinite to be binding. The court noted that it is simple to set a criteria for agreement, and it should generally be done to avoid uncertainty. Furthermore, the agreement to agree was in fact indefinite. Court notes that other courts have disagreed, assigning reasonable terms as the lower court did, to substitute for the indefinite terms. However, this Court felt the indefiniteness is a black or white preposition – and if it’s not definite, it’s void and you can’t assign reasonable terms. Even if the contract specified they’d agree on reasonable terms, that wouldn’t be enough, since all numbers are hypothetically reasonable. Verdict: No contract; Rule: When parties agree to later reach an agreement, without specifying terms, or a “recipe”, the contract is indefinite, and the court cannot validate an invalid contract by inserting reasonable terms. Moolenaar v Co-BuildBasically the same case as the one before. The lessee had a renewal agreement on terms that they would “agree on”. In the interim, the land was zoned for industrial use, and the lessor wanted about twenty times the rent that the lessee had been paying. The question was if there was a contract at all, since the term might have been indefinite, and the second question was, if there was a contract, what were the terms? The judge ruled that there was an enforceable renewal clause, that required the lessor to renew at a “reasonable” rate. On the second question, the judge ruled that the “reasonable” rate was one that was reasonable for goat husbandry – the use that it was put to when the contract was signed, which was a few dollars more than the old rent, and a tiny fraction of what the land was currently worth. Verdict: binding renewal agreement; Rule: Opposite of Walker v. Keith – an agreement to agree means an agreement to agree reasonably, which in this case the court interpreted as a reasonable rent for a goat farmer. (Note: This is a terrible verdict. The judge looks at the case from the eyes of the farmer, and determines what is reasonable. But maybe the whole point of the agreement is that they will agree on something that is reasonable at the time which covers the contingency that the land is worth a lot. If this verdict is defensible, it might be because of risk allocation and economic analysis of the renewal term – if the judge gave all the risk of the land going up in price to the farmer, meaning that if goat-farm rent is unreasonable after ten years, the farmer is SOL, then he has no options – he needs to relocate with no money. But if the risk is allocated to the landowner, i.e. if the rent is unreasonable for a goat farm, then the lessee still has the right to renew, then the owner can still get the rent he wants, he just has to pay the farmer enough to make him agree to leave.)Restatement33. Certainty: (1)An offer can’t be accepted unless the terms are reasonably certain. (2)Terms are certain if they give a basis for determining existence of breach, and the appropriate remedy. (3)If one or more terms are left open, that may show that the intention wasn’t meant to be an offer or acceptance. UCC2-204: (also in other sections) Formation: (1) May be made in any manner sufficient to show agreement, including conduct. (2) Moment of formation need not be determined. (3) Even if some terms are left open, a contract doesn’t fail for indefiniteness if there is a reasonable

basis for giving a remedy. (So this is somewhat different from the contract to renew that a court found indefinite, although obviously the UCC would not have applied there anyway.)2-305: Price not decided: (1)A contract can be concluded if the price hasn’t been set, and the price will then be “reasonable price at time of delivery” if nothing was said about price, or they fail to agree, or it was set to be recorded by a market or third person, but wasn’t. (2) “Price to be fixed” means to be fixed in good faith. (3) When deal called for agreement and they can’t agree because of the fault of one, other can treat the contract as cancelled, or fix himself a reasonable price (can’t see that one going wrong…) (4) If the parties intend to be bound only upon agreeing on a price, and they never do, there is no contract. Shipped goods must be returned if possible, and if not, paid for reasonably, and payment on account must be refunded.

  

InterpretationTuesday, May 01, 201211:38 AM Frigaliment v BNSFrigaliment ordered chickens from BNS, and they had some disagreement about the meaning of the word “chicken”. Frigaliment said that it meant higher quality chicken, and BNS said lower quality. The court said that since it was ambiguous, the first step is to look at the contract for clues to interpretation. Next the court looks at the negotiations leading to the contract. Plaintiffs contended that they used the English rather than the German since both parties knew that they were talking about young chickens (higher quality) and the German word meant both. But that is unconvincing, since they did also say “Huhn” at least once and specified also “any kind of chicken. Plaintiff then claimed that in the trade, the word Chicken meant young chicken. Defendant countered that they were just starting out, and therefore, the common law puts the burden on the other party to show that he knew. It was also debatable in the trade what the word meant. Analysis then turns to “meaning of the word” evidence. Defendant claimed that Dept. of Agriculture regulations called all chicken chicken, and the contract included reference to the regulations. Furthermore, the price showed that it must have referred to lower quality chicken. The debate continues, and here’s the Verdict: Chicken means any chicken; Rule: When a party uses a word according to the regular objective use, the other party bears the burden of showing that the intended definition was actually something else. Random House v Rosetta BooksRosetta Books was a publisher of ebooks. They bought the rights to publish ebooks from people who had already sold the rights to publish the actual books, and license them, and gain from them, to Random House. Rosetta claimed that the rights to ebooks had never been sold. Random House sued, and said that they owned all the rights to publishing, and ebooks was one of those. Court cited Bartsch, which said that the intent of the parties was beyond reach, and it was left to the language of the contract, which indicated that rights to display and license a movie also included the rights to show it on TV. In Boosey the court said something similar. In this case, the court said, the language indicates that there was a perception of difference between publication rights and other rights. This is based on the fact that the authors reserved some rights for themselves, and saw the “book” as the paper copy, separate from other editions, and reprints and

Braille editions. Therefore, the language is not ambiguous, and it does not include ebooks. Because it’s not ambiguous, it doesn’t get to a fact finder – ebooks are not in the contract as a matter of law. Restatement 202. Interpretation: (1)Words and other conduct are interpreted in light of all the circumstances, and the principal purpose, if ascertainable, is given great weight. (2) A writing is interpreted as a whole, and all documents from a transaction are interpreted together. (3) Unless it’s clear otherwise, (a) Language is assumed to have its general meaning, and (b) technical terms and terms of art are interpreted with their technical meaning, if the transaction was in that field. 203. Preference in interpretation: In interpreting a contract preference is given to interpretations that (a) give a reasonable, lawful, effective meaning, over an interpretation that leaves something unreasonable, unlawful, or of no effect. (b) Express terms are weightier than course of performance, course of dealing, and usage of trade, and course of dealing is given greater weight than usage of trade. (c) Specific and exact terms are given weight over general language, and (d) negotiated terms are given more weight than standardized terms. 206. Interpretation against the draftsman: In choosing among reasonable meanings, it is preferable to choose a meaning that goes against the one who put that term in the contract or the writing that it’s from. (I’ll try a weird example – an no subletting clause that tenant says has a reasonability requirement from the landlord. Since the landlord supplied the term, it is better if we go against him, since he was looking out for himself, and if he didn’t mean this, he would have specified further. Honestly, I don’t see this coming up, but maybe it will be a bonus.)207. Interpretation favoring the public: should be chosen. (Example: a contract is ambiguous about the rights it gives an inventor vs. his former employer. Finding in favor of the inventor encourages innovation and should be chosen.)219. Usage: Is habitual or customary practice220. Interpretation by usage: Agreements are interpreted by usage, if each party knew of the usage, and neither knew that the other intended it differently. (See Frigaliment). When the meaning attached by one party accorded with relevant usage, and the other knew of that usage, the other is treated as having known the meaning that the first party intended. 221. Usage supplementing agreement: Reasonable usage can also add terms that were not clear into the contract. (I think that’s what it means.) E.g., if there is no specification, and this is the way things are done in the industry, this is the term. (It’s different from interpretation, since it doesn’t reflect on words in the contract, it reflects what missing terms are. 222. Usage of trade: Customs of an industry that are expected to be observed with this agreement. The existence and scope of such usages is a question of fact, unless there’s a code for the industry, in which case it is an issue of law. Such usages can be used for interpretation or supplementation of an agreement. (See 220 and 221)223. Course of dealing: is the sequence of conduct between the parties which establishes a common basis of understanding the terms. It can be used to interpret or supplement an agreement. (The way we’ve always done business?)UCC1-205: Reasonableness, seasonableness: Time frames are judged by reasonableness, depending on nature, purpose, and circumstances. Seasonableness is within the time specified by agreement, or, if there’s no specification, by reasonableness. 2-208: Course of performance, practical construction: (1)When the parties do business regularly, and this is what they’ve been doing without protest by either party, that can be used to

determine the meaning of the agreement. (2) When the different interpretive tools don’t agree, express terms trump course of performance, and course of performance trumps course of dealing and usage of trade. (3) Waiver can be shown by course of performance.  

  

Interpretation slidesTuesday, May 01, 201211:46 AMHere are the slides from interpretation, included because the Restatement is convoluted and this is simple. When using, though, find a source in the Restatement for each tool.  

Interpretation: Determining the content (terms) of agreement Principles/considerations

Reasonableness In light of all circumstances Principal purpose given great weight Interpret agreement as a whole Avoid surplusage (all terms reasonable, effective) Consistency across documents, sources

PreferencesGoal is to get as close as possible to intent of these parties in this contract

Specific weighed more heavily than general Negotiated weighed more heavily than standardized Hierarchy:

o Express termso Course of performanceo Course of dealingo Trade usage

Sources of evidence of meaning of a term

Express language of term Verbal Written

Other terms Context/purposes Course of performance

On this contract, these parties Course of dealing

In previous contracts, these parties Trade usage

In similar contracts, parties in the ‘trade’/industry

  

Parol evidence

Tuesday, May 01, 20122:01 PMParol EvidenceParol evidence rule, or extrinsic evidence rules, apply when there is a written document that is intended as an expression of (at least some of) the terms in the agreement. Because it’s been reduced to writing, that writing is now privileged over other expressions of the agreement. Parol evidence rule has traditionally been strict. As other formalities have weakened, this has too, somewhat. Extrinsic evidence means things like purpose of the contract, verbal agreements, course of dealing, course of performance, etc. There are two instances when you might want to use extrinsic evidence.

To interpret a term that is in the writing, or To introduce a term that is not in the writing.

Here are the details of those two employments for parol evidence: To interpret a term that is in the writing,

You may only introduce parol evidence for interpretation purposes when the written terms are ambiguous.

California lets you use extrinsic evidence to show that it’s ambiguous in the first place (See Trident Center). Other states do not (See Elway, Random House).

UCC 2-202 allows the introduction of Course of performance, course of dealing, and trade usage to show ambiguity in the first place. Once that ambiguity is shown, other extrinsic evidence can be used. (Unclear if the UCC believes in complete integration.)

To introduce a term that is not in the writing. Terms that are not in the writing are not enforceable if

The writing is fully integrated, or The term contradicts something in the writing (even if the writing is only

partially integrated.) Exceptions: Can always introduce extrinsic evidence to prove misrepresentation, fraud,

duress, lack of agreement, lack of consideration and (in some jurisdictions) integration. Integrated means reducing a term to writing. Fully integrated means reducing the whole agreement to writing and limiting the agreement to this writing. “This shall constitute the whole agreement,” etc. Nelson v ElwayJohn Elway bought a car dealership. In the contract, it said nothing about future payments to the seller, but the seller claimed that they’d agreed to make the payments. There were previous writings that were assembled but never signed that had a payment of $50 per vehicle from Elway to the original owner. Eventually, they signed a buy-sell agreement that had an integration clause, and they also signed a sales agreement for the real estate. The buy-sell agreement had a merger clause. The seller sued for the payment per car, claiming that it was part of the agreement. Verdict: Nothing outside the integrated contract admitted; Rule: Straightforward parol evidence rule – there was an integration clause, and this was not in the agreement, so it couldn’t be introduced. Dissent: It’s not so straightforward. In fact, there were many documents signed, even though there was a merger clause. The court should not give summary judgment, it should allow the parties to at least present evidence.Trident Center v Connecticut

Trident had a deal with Connecticut General to borrow $56m to construct an office building. The contract had clear merger clauses, and clear clauses that said that the loan was not under any circumstances to be paid before 12 years. Then interest rates went down, and Trident wanted to refinance. They claimed that the contract was ambiguous on its face, and also that even if it wasn’t, under California law, they could bring evidence to show that the clear language was actually not the agreement. The court denied Trident’s claim that the acceleration clause that allowed the bank to call the loan in case of default made the contract ambiguous, since that was a tool for Connecticut, not for Trident to pay early. But the court was forced to agree that under California law, Trident was allowed to at least show evidence that the words of the contract were not in fact what the agreement was. Verdict: Parol evidence admissible even to contradict the clear terms in an integrated contract; Rule: In California, there is no parol evidence rule, after Pacific Gas. Since the contract flows from the agreement of the parties rather than the words, you can’t stop them from showing evidence of the agreement. Restatement:209. Integrated agreement definition: Writing constituting expression of one/more of terms. Whether there is integration is a threshold question for the parol evidence rule. A writing that appears to incorporate the entire agreement is taken to be integrated unless there is contrary evidence. (Is any parol evidence of a conflicting term per se contrary to the presumption?)210. Complete and partial integration defined: (It is possible that it’s completely integrated even without a written clause.) And whether an agreement is fully or partially integrated is also a threshold question relating to the parol evidence rule. 211. Standardized agreements: Signing a standardized agreement is integration for the terms in the contract. It includes all of the terms that are written, unless the party who proffered it knew that the other party wouldn’t have signed if he knew all the terms. 212. Interpretation of integrated agreement: is based on the meaning of the writings, in light of the circumstances. If it depends on credibility or inferences of extrinsic evidence, it become a question of fact. Otherwise, it is a question of law. 213. Evidence of integrated agreement on prior agreements: (parol evidence rule) A binding integrated agreement discharges prior agreements on the same issue (more or fewer terms?), and if they are inconsistent (changed terms). An integrated agreement that is voidable or not binding does not discharge other prior agreements. But it might be able to change the terms. 214. Evidence of prior or contemporaneous agreements/negotiations: can be used to show that a writing is not integrated or that it’s partially integrated(Really? See Elway.); the meaning of the words, illegality, fraud, duress, mistake, etc. or grounds for granting rescission, reformation, specific performance, etc. 215. Contradicting integrated terms: parol evidence may not contradict integrated terms, even partially integrated only. 216. Consistent additional terms: can be added to partially integrated agreements but not completely integrated ones. An agreement is not completely integrated if it is missing an agreed consistent additional term. (Second part is unclear, check if necessary)217. Integrated agreement subject to oral condition: Is not integrated with respect to that condition. UCC 2-202 (also in other sections) allows the introduction of specifically course of performance, course of dealing, and trade usage to show ambiguity in the first place. Once that ambiguity is

shown, other extrinsic evidence can be used. (Unclear if the UCC believes in complete integration.) 

  

Implied termsTuesday, May 01, 20127:08 PMImplied Terms Wood v LucyWood promised to sell clothes for Lucy (she was a designer) and if he sold them, he would give her a percentage of the profits. In exchange, she would only sell exclusively to him. Eventually, she wanted to sell to others, and she claimed that that there was no consideration, since he could always not sell if he wanted to not sell. Therefore the consideration was illusory. Cardozo ruled that it would have made no sense to have a deal without a commitment to sell the clothes. Verdict: There was consideration because; Rule: You can imply a term into a contract, and in this case, the term was only reasonable. Locke v WarnerLocke was an actress and director who had a deal with Warner Bros. that she would develop scripts and they would consider them. The problem was that she was the ex of Clint Eastwood, and they were not going to develop her pictures and upset him. She had evidence that they had no intention of ever developing them, so she sued. They countered that they never promised to produce them, so she could have no claim. Verdict: breach; Rule: Even though they had no obligation to produce the scripts, they did have an obligation to examine them in good faith. Hobin v ColdwellHobin was a real estate agent, and he wanted to become a Coldwell Banker agent. He was worried about the competition and he wanted them to reassure him that they wouldn’t let another office open. They refused to contract to that term, and in fact the contract said that they reserve the right to open offices nearby, but they said verbally that their protocols wouldn’t allow it. As it turned out, another agent moved in, and since he was a prior agent for them, their protocols didn’t block it in that instance. Hobin claimed that they had breached the covenant of good faith and fair dealing. They countered that the contract allowed it. Verdict: No breach, Rule: When the contract specifically allows something, you cannot claim that it is against the good faith and fair dealing. 204: When parties have agreed in a way that’s sufficient to be a contract, and there is some of it missing, the court supplies the term using reasonableness. 205: Every contract imposes on the parties a duty of good faith and fair dealing. Implied terms can be Implied-in-fact

Intended by the parties but not expressedImplied-in-law

Externally imposed, not derived from parties’ intent default (can contract out) mandatory (cannot contract out)

Sources of implied-in-law terms

Statute, e.g., UCC 1-203 (good faith) UCC 2-305 (reasonable price) UCC 2-306 (best efforts in exclusive dealing contracts) UCC 2-314 (merchantability) UCC 2-315 (fitness for particular purpose) Partnership statutes Corporate law Consumer protection regulation

Common law Omitted essential term otherwise sufficiently definite (Rest 204) Good faith (Rest 205)

Good faith: Every contract imposes upon each party a duty of good faith and fair dealing in

its performance and its enforcement (Rest 205) Not an independent obligation Attaches to the exercise of discretion in carrying out contractual obligation Cannot be used to generate obligation in conflict with express terms (including

express absence of obligation) What is good faith?

Exercising discretion in performance so as not to deprive other of opportunity to reap the benefits of the bargain

Choosing how to perform in a manner that remain faithful to intended and agreed expectations

Futility is not required. Tzu-shtell from Luttinger v. Rosen, where court said that since his lawyer told him other banks wouldn't give the loan, it was enough that he only applied to the one that might.

Examples of bad faith (bad reasons/motivation): Lying to contracting partner (after K formed) Deliberately acting under contract to harm contracting partner

Good faith in the UCC: UCC 1-203

Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement

UCC 1-201(19) Good faith means honesty in fact in the conduct or transaction concerned

UCC 2-203(1)(b) Good faith in the case of a merchant means honesty in fact and the observance of

reasonable commercial standards of fair dealing in the trade UCC 1-203, 1-201(19), 2-103(1)(b), 2-306, 2-305, 2-314, 2-315 

   

Misunderstanding, Mistake

Tuesday, May 01, 201210:00 PMRaffles v WichelhausPlaintiffs were to sell cotton that arrived on the ship Peerless to defendants. Then they arrived, and defendant refused the cotton. Defendants claimed that they were only willing to take the cotton from the Peerless that sailed in October, not the one that sailed in December. Plaintiff didn’t offer the one in October, only the one in December. The court ruled that there was a mutual mistake and therefore no binding contract. Since there was no binding contract, the defendant could not be forced to take his cotton. Verdict: No contract Rule: When they think there’s an agreement but there really isn’t, there’s no agreement and therefore no contract.Sherwood v Walker Walker had this cow which he sold on the understanding that she was barren. The price was that of a meat cow. However, he was mistaken, and the cow was with calf. When he found that out, he refused to deliver the cow at the agreed on price of $80, wanting instead to sell her or keep her at a higher value. Sherwood sued. Court looks at difference between essential aspects of the contract and other aspects of the contract, and concludes that the fertility of the cow is enough to make this whole thing a mutual mistake, and therefore there was no contract. Verdict: no binding contract; Rule: When there is a mutual mistake as to the essential nature of the article in question, the contract is void. Dissent: The purpose of this agreement was not undermined by this mistake. True, the defendant thought that the cow wouldn’t breed, but all along, the reason that the plaintiff was buying (or, actually, had bought) the cow was because he believed that it would breed. It was a gamble on his part, and that is why he was doing the deal. His judgment turned out to be correct, and the defendant’s judgment wasn’t and that was why they were refusing to turn over the cow. Gives example of a horse that the owner thought was slower, and sold him for a certain amount, and then the buyer succeeded in making the horse go faster, that would obviously not allow the seller to go back and claim mutual mistake. Misunderstanding Nelson v Rice

Rice bought an expensive painting from Nelson without knowing that it was an expensive painting. Then he had it appraised and made a million bucks on it. Nelson sued.

Rules: when there’s a mutual mistake about the basic assumption upon which the parties made the contract; it has to have such a material effect as to upset the basis on which the contract was made.

Section 154b in Restatement: when someone has a limited basis of knowledge, but deems that limited base of knowledge sufficient, he bears the risk of mistake. “in such a situation there is not any mistake, there is an awareness of uncertainty and conscious ignorance of the future.” (Wash. supreme court)

Comment in restatement – if he knew that his knowledge was limited but chose anyway to perform in the face of that uncertainty, he bears the risk of mistake.

Since seller knew knew that there was a chance of some amount of art, and they chose to rely on their appraiser, even though they knew that she was not an expert on fine art. Therefore they chose to live with the risk.

Notes that the risk acceptance doesn’t apply when the buyer doesn’t know about something because that doesn’t allocate risk among the parties.

The court can allocate responsibility Under Restatement 154 C, and in this case, seller had ample opportunity to determine what the painting was worth, therefore it is reasonable to allocate the responsibility to them.

Unconscionability is not an issue here because there was no bargaining, they just named a price and the buyer paid it. Verdict: Contract valid, and therefore no compensation to estate sellersRule: It is not a mutual mistake if a party knew about the vulnerability and chose to ignore it. Also, the court can allocate responsibility for knowing the state of things among the parties. Misunderstanding and Mistake are formation defenseProblems at formation that allow one to avoid obligation of otherwise validly formed contract

Problems of consent (goes to legitimacy of enforcement)Remedy is rescission (So don’t use if you want damages.)

Voiding contract Cannot sue for reliance/expectation damages Either party can claim restitution (non-contract claim)

Misunderstanding Failure of mutual assent: parties did not intend to agree to the same deal (Modern) objective theory: both have objectively reasonable basis for believing that other

intends the same thing Restatement 20. Effect Of Misunderstanding (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and

(a) neither party knows or has reason to know the meaning attached by the other; or(b) each party knows or each party has reason to know the meaning attached by the other.

When the two parties have different meanings, and one know or should know about it: 201. Whose Meaning Prevails? (2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

Mistake v. Misunderstanding:Misunderstanding doctrine concerns errors about what other intends in terms/content of deal, while Mistake doctrine concerns errors in beliefs about facts in existence at time of contracting (R151)

Mistake is not errors in predictions or opinions § 152. Bilateral Mistake

(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.

 § 153. Unilateral Mistake (one party knew about the fact, and the other didn’t) Where a mistake of one party at the time a contract was made as to a basic

assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and

(a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or

(b) the other party had reason to know of the mistake or his fault caused the mistake.

154. When A Party Bears The Risk Of A Mistake  A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited

knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. 

There's also restatement 157: Effect of party at fault seeking relief - he can void, as long as his fault was not in bad faith.

  

Fraud, misrepresentationTuesday, May 01, 201210:27 PM

Halpert v Rosenthal Rosenthal was going to buy a house from Halpert, and while they were negotiating, he asked several times whether there were termites. Halpert said that there were not. They entered into a contract to buy the house, and then afterward, the inspection turned up termites. Defendant notified plaintiff that he was not going to buy the house, and didn’t show up for the closing date. Plaintiff sued for performance or monetary damages. Defendant counterclaimed for his deposit. After jury returned verdict for defendant, plaintiff appealed. Plaintiff, (seller) claimed that there was no fraud because he didn’t know that there were termites. Court weighed whether honest mistake was fraud. Court said yes. But it should be referred to as misrepresentation rather than fraud. Verdict: Voidable on grounds of misrepresentation; Rule: A contract can be voided on grounds of misrepresentation even when the statement by the misrepresenting party is made in good faith and to the best of her knowledge. Swinton v Whitinsville

Swinton bought a house from Whitinsville Savings Bank, which neglected to tell him that the house was infested with termites. Swinton sued for damages. The court ruled that just because bank knew about the termites, they were not obligated to inform the buyer. They didn’t stop him from performing an inspection, they didn’t lie about it, they just didn’t tell him, etc. If we were to render the seller liable, we would be forcing sellers all over to relate any non-apparent defect to buyers. That is bad. There was also no duty for the bank such that they had to volunteer the information. Verdict: no

remedy; Rule: sellers are not required to inform buyers of defects that are not apparent and that the buyers did not ask about. (this is not the rule anymore.)

Weintraub v KrobatschWeintraub owned a house that Krobatsch was looking to buy. They put down a deposit in escrow of 4,250 which was a 10% portion of the sales price. After they did so, they went to inspect the house. This time, they came into a dark house and turned on the lights. When that happened, they noticed that the house was infested with roaches. They sought to rescind the contract of sale. Mrs. Weintraub refused to accept the rescission, and sued them for the amount of deposit that was in escrow. Attorney for Krobatsch claimed that it was impossible to live in such a house and not know that there was such an infestation. It would be evident every time the lights were turned on. They claimed that they were entitled to a trial on the question of whether there was a fraudulent concealment or nondisclosure. Weintraub relied on the above case, Swinton v. Whitinsville, which showed that there was no duty to disclose. The court addressed that and discarded it, saying that that was then and this is now, and there is some expectation that the seller disclose information like that. The trial court should therefore examine whether the concealment was of such a significant nature as to allow for rescission. Verdict: Possible rescission, remanded to see if concealment was intentional. Rule: Concealment of a material fact by nondisclosure can be fraud. There may be equitable grounds for rescission if the concealment was significant. There needs to be a failure to disclose, a non-apparent defect, where good faith requires disclosure. (Prof says that more than just overturning Swinton, it is instituting a rule, and also finding that this is a case where good faith requires disclosure.)Fraud can involveTort action for fraud/deceit

—entitlement to tort damagesContract action for rescission

—no K damagesRestatement 164: When A Misrepresentation Makes A Contract Voidable: If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.Elements of misrepresentation (4):

1. Assertion not in accord with facts2. Fraudulent OR material3. Reliance in fact4. Reliance justified

Evaluating reliance: Reliance in fact

Assertion in fact substantially contributed to decision to assent Justifiable

Can’t be obviously false or in jest Not necessarily obligated to take steps to discover facts Reliance on opinion not justified unless (R 169)

Relation of trust and confidence Reasonable belief that maker has special skill, judgment

“Special reason” for susceptibility The elements of misrepresentation are in R 159-164, 168, 169

159: Misrepresentation defined as assertion not in accord with facts160. Concealment: When an action is equivalent to an assertion: When it’s likely to prevent another from learning a fact.161. When non disclosure is equal to assertion: 162. When misrepresentation is fraudulent or material: If he knows it’s not true, he doesn’t know what he claims to know, or he knows that he doesn’t have the basis that he states. It’s Material if he knows that it’s likely to induce assent. 163: When misrepresentation prevents contract formation: If it was about the character or essential terms and it induces conduct by someone who doesn’t know or have reason to know about it, the assent is not effective as manifestation of assent. 164: When misrepresentation makes a contract voidable: If assent was induced by fraudulent or material misrepresentation, by other party on whom he was justified (see 169) in relying, it’s voidable 169: Reliance on opinion not justified unless Relation of trust and confidence; Reasonable belief that maker has special skill, judgment; “Special reason” for susceptibility  

  

Duress, Undue influenceTuesday, May 01, 201210:46 PM

Undue influence vs. Duress: Usually, Duress involves threats, especially illicit ones. But Undue influence is pressure to get into something. Sign now, don’t consult a lawyer – even if there’s no threat or the threat is valid, it can be undue influence. Prof says that duress is creating bad alternatives, undue influence is exploiting bad alternatives. (But it does seem that it would be possible to unduly influence without threats at all) Totem v Alyeska Totem and Alyeska contracted to have materials shipped from Houston to Alaska. Many things went wrong, which began with Alyeska misleading Totem about the shipment. Later, Alyeska terminated the contract, and they settled with Totem for a fraction of the amount that was agreed to. Totem later wanted to void the settlement, and enforce the earlier amount, which was about $300,000. The basis of their claim was economic duress – they had to assent in order to stay in business, but they really didn’t want to. (This is shades of Angel v. Murray and Alaska Packers). The test the court set out was 1. Involuntary acceptance, 2. No alternatives, and 3. Circumstances resulted from coercive or wrongful acts of party.Verdict: No settlement contract on grounds of duress; Rule: When a party is forced to accept something involuntarily, had no alternatives, and it was caused by opposing party, the agreement is voidable. Undue Influence Odorizzi v Bloomfield Facts: Plaintiff (P) was and elementary school teacher and he was arrested for homosexual activities.  District superintendent and school principal visited P’s house and told him that he should resign or otherwise he will be dismissed and his arrest will be made public.  The

charges against P were dismissed and now P wants to rescind his resignation by arguing that it was obtained by duress and undue influence.

Issue: Was the resignation attained by 1. duress? 2. Undue Influence?Holding: 1. No 2. Yes

Rationale:  The court ruled that there was no duress because the school’s threat to dismiss was “not only their legal right but their positive duty.”  But P does have a case under undue influence.  “ The representatives of the school board undertook to achieve their objective by overpersuasion and imposition to secure plaintiff’s signature but not his consent to his resignation through a high pressure carrort-and-stick technique…”  P was left no time to seek legal advice and excessive pressure was placed on the P to make the hasty decision.

Verdict: no contract because of undue influenceRule: Undue influence usually involves several of the following 7 elements:

1. discussion of the transaction at an unusual or inappropriate time2. consummation of the transaction in an unusual place3. insistent demand that the business be finished at once4. extreme emphasis on untoward consequences of delay5. the use of multiple persuaders by the dominant side against a single servient party6. absence of third party advisers to the servient party7. statements that there is no time to consult financial advisers or attorneys

174. Physical compulsion is not assent.175. Duress by threat: Voidable if it leaves the party no alternative. If it was induced by a third party, it’s voidable unless the other party didn’t know, and has already relied on the contract. 176. Threat is improper when it’s a crime or tort, if it’s the threat of criminal prosecution, if it’s a threat to make bad faith use of the justice system, breach of good faith and fair dealing. These threats are only improper when the resulting exchange is improper: Harm to the recipient without benefit to threatening party (even if the damage is not high, I guess?); if the effectiveness is increased by prior unfair dealing, or it’s the use of power for illegitimate ends. 177. Undue influence: Either someone under domination or someone who trusts party. Such contract is voidable. If it’s a third party, it’s voidable unless the contracting party already relied on it, and wasn’t aware of the undue influence.

 

UnconscionabilityWednesday, May 02, 20129:31 AMUnconscionability Williams v Walker-ThomasWilliams was a poor woman subsisting on welfare. She bought things from Walker-Thomas which was like a Rent a Center place. They had a clause in the contract that said that each time you bought something form them, the previous debt joined the current purchase, and it was all backed by all the things that you'd bought. So if you bought 1,000 worth of stuff over ten years, and you owed ten bucks at the end on the last pot, you could have all the stuff seized. Williams sued on "meeting of the minds theory, but the lower court ruled that she supposedly read the

contract, so that was not a viable claim. Court noted that selling expensive TV to woman who had no reported income was bad but not actionable. Appeals court said that this specific case might be new, but there's a concept of unconscionability - absence of meaningful choice by one party and that depends on the totality of the circumstances, including education and relative position of the parties. Verdict: Voidable contract Rule: an absence of meaningful choice by one party, based on the totality of the circumstances, can void a contract. Brower v GatewayAs we know, Gateway had these arbitration clauses. In this one, the arbitration was to be conducted in Chicago using the ICC rules. Plaintiff claimed 2-207, but was struck down, as this was New York, the site of the Klocek decision. Plaintiff also claimed unconscionability because the required forum was in Chicago and cost a huge amount of money. Court notes that there is usually a requirement for substantive and procedural unconscionability, but in this case, although there was no procedural unconscionability, the substance of the contract was so unconscionable that it was enough to make this contract problematic. Now the question arises what to do about the unconscionable clause. Should they void the term entirely? Find another arbitration body with better prices? The court decided in favor of remanding to the lower court to determine whether an alternate arbitration body was better. Verdict: Term is problematic because of unconscionability. Rule: When a term is really unconscionable, it cannot be enforced, even if there was no procedural unconscionability. The court can void it, or substitute its own term. o Unconscionability notes: Requires absence of meaningful choice. o Usually requires both substantive and procedural unconscionability (Brower v.

Gateway)o Related to undue influence and restatement 177.

208. Unconscionability: If a term is unconscionable, a court may refuse to enforce the contract (entirely voidable) enforce the remainder without this clause, or limit the term so that it's reasonable. UCC 2-302. Unconscionable contract or clause: part (1) is almost verbatim the restatement. (2) Parties can show evidence as to the term's commercial setting, purpose, and effect to help the court determine.   

Condition precedentWednesday, May 02, 20129:56 AMLuttinger v Rosen; Luttinger made a deal to buy land from Rosen on the condition that he could get a loan at less than 8.5% from a bank. His lawyer told him that the only chance was Bank of New Haven. They ended up offering only 8.75% and Luttinger wanted to back out of the deal. Rosen offered to make up the difference out of his pocket, but Luttinger said that that was not meeting the condition of getting a loan. Rosen also claimed that he had not acted in good faith, since he only tried that one bank. Verdict: No obligation on Luttinger; Rule: If a condition precedent has not been met, then the following terms to not come into effect. In this case, the condition wasn't met by Rosen offering to fill in the gap. (Also, there was no breach of good faith, since he had no duty to attempt futile things just to look like he was trying. Peacock v ModernPeacock was a construction company that hired Modern to do some work on one of their projects. The contract said that Modern would get paid upon approval and when Peacock has been paid by the customer. Peacock had trouble getting paid at all, and Modern sued for their

payment. The question was whether the requirement that Peacock get paid was a condition precedent, or simply a time frame. Verdict: Peacock must pay; Rule: Because of the nature of the transaction between contractors and subcontractors, the default rule is that when there's a clause that says the contractor must be paid, it should be interpreted as a time frame, not as a condition precedent. Therefore, if the time becomes unreasonable, contractor has to pay even if he hasn't gotten paid yet. Notes on condition: Some are express: The ones in these cases; force majeure clauses that are common, etc. o Some are implied in fact, if the parties intended a conditional obligation, and the

obligation is conditional. o Implied in law: payment in local currency, impossibility, frustration. (apparently they

work with the same mechanism as condition.)o Things can be conditions without being terms, or terms without being conditions, or both

a term and condition. 224. Condition defined: Something that must occur in order for performance under the contract to come due. 225. Effects of the non-occurrence of a condition: Performance cannot become due without the condition being met or its occurrence is excused. If it is not possible to occur anymore, the conditional duty is discharged. Non-occurrence of the condition is not a breach, unless the contract specifies performance of the condition. 226. How an event may be made a condition: By agreement of the parties, or by a term supplied by the court. 229. Excuse of a condition to avoid forfeiture: To the extent that the non-occurrence of the condition causes disproportionate forfeiture, the court may excuse the non-performance, as long as it is not a material part of the agreement. (What is a material part? How would it relate to not getting paid for installing a swimming pool on a roof?)   

Waiver (v. Modification)Wednesday, May 02, 201210:15 AM Waiver is a performance excuse. Can defeat condition as performance excuse. "I didn't build the house because you didn't get me the materials as promised" "Oh yeah? Well you said that you would get them yourself, so you waived that condition!"Can be express or implied. Can be retracted if it wasn't relied on. (2-209(5)Compare and contrast to modification: Modification is changing the contract. It is a contract theory claim. Waiver is not - it is an equity issue claim. In Dynamic, the two are similar, but often, they won't be. In May v. Paris, you'd have a harder time saying that the course of dealing modified the contract. Dynamic v Machine & ElectricalDynamic ordered a machine from Machine, and they had certain requirements for delivery and when it would be operational. The deadlines kept getting pushed back, and eventually,

Dynamic's CEO sent an email to Machine saying that he would agree to one last drop dead date and at that point, he would call in the troops and end the deal if it wasn't ready yet. Then he got information that indicated there was no way that they'd even be done by that extended date. So he called back immediately, and rescinded his extension. That led to a suit for breach, which Machine defended by saying that they didn't have time, to which Dynamic claimed they missed the deadline, to which Machine said that they waived, to which Dynamic claimed that they rescinded the waiver. The debate hinged on whether this was a modification or a waiver. If it was a waiver, it was reversible, if it was a modification it wasn't. Since there was a question of fact, the court ruled that it should go to a jury to decide. Verdict: Waiver not enforceable, but modification enforceable. Rule: If you waive, and the other party has not relied on the waiver to put himself in a worse position (2-209(5), then you can retract the waiver with notice. But if you modify, then it is binding. So you often need to determine whether something is a waiver or modification. May v ParisParis was a shop that rented a storefront from May. The owners of Paris were the co-signers on the Loan that Paris took out. If they paid the rent for two year on time, then they were no longer guarantors, but if they were in default at the end of two years, then the guaranty would be extended. The story is obvious from here on out: They paid rent late-ish for two years, and shortly after their two year anniversary started to get even more sporadic. Eventually they went into default and closed. The business alone wasn't enough to pay May. May claimed that they were in default at the end of two years, and therefore were personally responsible for the debt. The court determined that the due date for the rent meant that Paris was not in default, but even if they had missed the date, they were no longer in default as of the end of two years, since their rent check had been accepted without a disclaimer, and when you accept performance that is somewhat different from that ordered without protest, then the duty is discharged. Verdict: No guaranty invoked, because default was in any case waived. Rule: When you accept a different performance than the required one without protest, the other party's duty to perform the particular term is discharged. 2-209: Modification, rescission, waiver: (1) Modification in general works (unlike restatement). (2) If the agreement requires modifications in writing, then they need to be in writing. (3) Statute of Frauds applies to modification (4) Even if it doesn’t work under subsection 2 or 3, it can be a waiver. (5)Waiver can be retracted by reasonable notification, unless the other party has materially changed their position and it would be unjust. (Dynamic v. Machine).  

F 523-527

  

Material Breach (election of remedies)Wednesday, May 02, 201210:32 AM

Note: Breach need not be material to claim damages. Material breach is only relevant as a performance defense.

Risks inherent in material breach analysis: You are basically telling your client that they can now proceed to breach, so you better be right about it. If you say to keep performing because it's not material, you can be waiving, potentially. So you have to keep them informed of all the risks. Jacob & Youngs v. KentPlaintiff built a house for defendant, and installed pipes that were not made in the factory that the contract specified. Defendant, after living in the house for about ten months, learned that the pipes did not meet his specifications. He demanded that Plaintiff replace the pipes, but plaintiff did not want to do that, since it would have meant wrecking a good portion of the work that had been done, and re-doing it. Plaintiff then sued for the remaining payment, which defendant had refused.Cardozo notes that the omission was not willful or fraudulent. It was an oversight by the subcontractor. Plaintiff showed evidence that the pipes were of the same quality, and the trial court did not allow the evidence. The appeals court overturned and remanded. Cardozo for the majority wrote that sometimes it doesn’t make sense to look at particular things as significant and in this case, since it would be unjust to make the guy rebuild the whole house in order to install piping of the same quality, it should not be looked at as an unperformed contract, but as a breach that causes damage – and the value of the damage is nothing. Verdict: For Plaintiff – breach was not material, substantial performance was enough, damages would have been insignificant. Generally such questions are for the jury. Rule: Iunno, see restatement 241. Factors (circumstances analysis, not elements to be checked off)

a. Extent injured deprived of benefit reasonably expected (e.g. in Jacob & Youngs the homeowner wouldn’t lose much)

b. Extent injured can be compensated (There are different ways to calculate this, you can argue whether the difference in value should be paid in cash, or if you should tear down the house to replace the pipe.)

c. Extent breaching party will suffer forfeiture (i.e. how much is the builder losing by not getting paid for the pipe – it was $3,500 and the damage was not that large)

d. Likelihood breaching party will cure (if it can still be fixed, it is less material of a breach. The pipes were not getting fixed.)

e. Extent breaching party acted with good faith and fair dealing (e.g. in the pipe case, the builder did not act in bad faith.)

 

ESPN v Baseball ESPN signed a deal with Baseball that would allow them to broadcast Sunday and Wednesday games. They promised to broadcast the games, and would only preempt them with the approval of Baseball and only up to ten games a year. Baseball would approve requests within reason. A few years later, ESPN bought the rights to Sunday Night Football. They wanted to preempt baseball on three nights in September. Baseball denied them the request, and denied them the rights to broadcast the preempted games on ESPN 2. ESPN simply didn’t broadcast the games, and then repeated the same thing a year later. The following year, Baseball sought to terminate the contract, saying that it had been materially breached by ESPN. ESPN sued in response, saying that Baseball had materially breached by not allowing them to preempt, not allowing them to broadcast the games on

ESPN 2, and terminating the contract. Baseball countersued, saying that ESPN breached by entering into conflicting agreements with NFL, preempting games without approval, and using too much highlight film.

Baseball sought election of remedies. That meant that they could either choose to terminate the contract and get damages, or they could choose to keep the contract running and claim damages for the breach.

ESPN countered that they had already kept the contract going, and they couldn’t now terminate it for those breaches.

Baseball counters that there was a “no waiver” provision in the contract. Court discusses the principles of “no waiver” and common law election of

remedies. Waiver means that if there is a provision in the contract that one side

doesn’t fulfill, the other side can protest it or waive it. Waiving it means they will not pursue it further, and the contract continues.

Court says that election of remedies does not compete with waiver. If Baseball wanted to complain about the material breach, they could do so. All that election of remedies says is that once they choose to react to the breach, they can either keep the contract going, or end it, in enforcement of their complaint.

Rule: Waiver and election of remedies operate in different ways. Waiver is that once you've accepted a performance, or said that you won't require it, the other party has discharged its obligation. Election of remedies is that when you are claiming breach, you can choose to keep the performing and ask for damages, or you can choose to end the contract and sue for damages. I guess that election of remedies only kicks in once you haven't waived.

Restatement 235: Performance and breach: performing discharges obligation. Failure to perform is breach. 236. Claim for damages for breach: Is the value of the remaining missing performance. (See damages, though)237: Material breach: Failure to render material performance is an implied condition, which means that the other party can breach.

See above in Jacobs & Young case After breach, at what point is the other person's duty discharged? The factors that

are relevant are those in 241, and also look at the extent to which waiting around can cause loss, and the extent to which timely performance was necessary for the contract. (This could be a big question!)

  

  

Impossibility/FrustrationWednesday, May 02, 201211:02 AM

Impossibility: Performing obligation impossible or very expensive/burdensome Related to risk allocation issue. If it has not been contracted around, there is a condition implied

in law that this undertaking needs to be possible in order for the parties to be bound. Can obviously be contracted around.

Frustration: Benefit from contract eliminated or very reduced. Taylor v. CaldwellSo these people planned to “rent” a venue for four evenings for the purpose of holding a series of “fetes” and concerts. Unfortunately, the place burned down before the events could happen. The question was basically who would be responsible for the losses to the “lessee” because of the unavailability. The court said that obviously, someone who was supposed to make sure that something happened, and didn’t come through, would bear the damages for it not happening. That was the case in a “positive contract”. But in this case, they were asking for the use of the facility, and the implied assumption was that it would be usable. Since it wasn’t, through the fault of neither of them, it was like if someone guarantees personally to perform some act, and then dies, in which case the executors are not responsible for the losses. This developed the doctrine of impossibility, an excuse for performance. Verdict: Breach is defensible Rule: Because it was impossible to perform an inherent assumption under which the contract was made. Wisc. Electric v Union PacificThis case has nothing to do with impossibility. It is about an agreement in which if Union Pacific couldn't fill up the cars going back, Wisconsin Electric would pay more going forth. For some reason, Posner discusses impossibility.

Impossibility is when something happens, the non-happening of which was a basic assumption of the contract. o It's better to understand this as what the parties would have agreed on had they

thought of it, rather than a contingency for lack of foresight. o Therefore, the correct question is whether the party's non-performance should be

excused, because if they had thought of this, they would have assigned the risk of this event, it would have been borne by the promisee. (The implication is that there is no impossibility if they would have assigned the risk to the promisor.)

o Essentially, it is choosing the promisee as the one that bears the risk of this occurrence.

o It's like a limit on the "insurance coverage" that breachers are required to offer.o Can be contracted around

 Verdict: (in case you care) The railroad was allowed to raise the rates. Rule: Discussion of impossibility is what's important.

Frustration Mel Frank Tool v Di-ChemDi-Chem entered into a three-year agreement with Mel Frank to lease a storageand distribution facility. Roughly one year into the lease, the fire chief, for the City of Council Bluffs, inspected the property and informed Di-Chem that it was in violation of a city ordinance prohibiting the storage of hazardous materials. Because Di-Chem was a chemical company, Di-Chem felt the ordinance (which was enacted after the signing of the lease) frustrated its business needs for the facility, and vacated the premises. MelFrank brought suit for breach of lease and property damage, which Di-Chem answered, asserting several defenses including mutual mistake, illegal contract, failure to mitigate damages, fraud in inducement and impossibility. The court found that Mel Frank could not have known that the chemicals were classified as hazardous, and found for Plaintiff. Defendant appealed.

Issue.Is a contract subject to rescission, under the rationality of frustration of purpose, when only part of the contractual performance is made unlikely by a supervening cause?Held. No. Affirmed.

1. In upholding the lower court's judgment the Iowa Supreme Court found that the doctrines of impossibility and frustration both stand on the premise that a contract was made with a specific purpose in mind.

2. In this case, a lease was made for the storage of chemicals; however, the purpose to store hazardous chemicals was never discussed between the parties. The Court based its holding on the fact that non-hazardous chemicals could still be stored on the premises and held for the Plaintiff.Discussion.When a party asserts the defense of frustration of purpose, they must also be able to prove that their particular purpose was encompassed in the making of the agreementRestatementRest

261. (Impossibility) Discharge by Supervening Impracticability:Where, after a contract is made, a party’s performance is made impracticable 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 duty to render that performance is discharged, unless the language or the circumstances indicate the contrary

262. Death: of a person who was necessary for the performance of a contract undermines the basic assumption under which the contract was made.

263. Destruction, deterioration, or failure to come into existence of something necessary for the contract, undermines the basic assumption under which the contract was made.

264. Government regulation: if something is forbidden by new government regulation, that undermines the basic assumption, yada yada.

265. Supervening frustration: When after the contract is made, something happens that undermines the underlying purpose of the contract, the remaining duties are discharged unless the contract states otherwise.     

  

Repudiation/assurancesWednesday, May 02, 201211:33 AM

Repudiation is a statement, an action (or series of actions), or a failure to provide assurances, which justifies the other person in believing that you are in breach. Must be clear and unequivocal evidence of intent not to performAnticipated breach must be material Repudiation may be retracted unless other has materially changed position or otherwise indicated repudiation is final“Must” stop performing if clear breach by repudiation (mitigation of damages)

Repudiation v. Breach: repudiation doesn't really give you election of remedies, since you know he won't perform. Therefore, you proceed straight to mitigation of damages. Repudiation has risks like material breach, though. If you were wrong when you said it's repudiation, your client will be in breach. If you were wrong when you said that it wasn’t, your client will be liable for not mitigating damages. Hochster v De la TourPlaintiff was hired as a courier for three months to begin on June 1st. Defendant wrote in May to cancel the contract and shortly thereafter plaintiff sued. Plaintiff also got another job that started on July fourth. Plaintiffs theory was that the repudiation was immediate, and therefore he could both look for another job and sue for damages in the meantime, and be entitled to the month + of damages. Defendant would argue that all he did was talk, and therefore he couldn’t be in breach until June 1 when they were supposed to leave. Court ruled that since if someone contracts to someone to lease them land, and then they lease it to someone else, the breach of the first contract is immediate, and if someone is contracted to marry one person and they marry another the breach is immediate, so too here, where the De La Tour said that he’s not going to perform his part of the contract, the contract is repudiated and De La Tour was liable for the damages until July fourth. Verdict: Defendant repudiated contract, and therefore plaintiff correctly sought to mitigate damages and sue for damages. Rule: When someone repudiates a contract verbally, it is just like if he did something that would make performance impossible. Other party can then begin to mitigate damages and sue for breach. Norcon Power v Niagara MohawkNorcon had a deal that they would supply Mohawk with energy, and Mohawk would pay a certain rate. Under certain circumstances, they would pay more than they actually were supposed to, and that extra money would build up and be subtracted from their liability in a later stage of the contract. They overpaid so much that they were worried that Norcon would not be able to meet their liabilities when the next stage of the contract would come around. So they sued for adequate assurance that they would be paid. The court weighed the question of whether to adopt this new doctrine, which was in the restatement and UCC, for non-sales of goods transactions. They discussed assurances in cases of long term, corporate entities, commercial, complex, not susceptible to other security features. They were sophisticated parties who could have put in a escrow clause or something. Verdict: Yes, parties may seek assurances. Rule: Even in non-UCC contracts, parties may seek assurances, and if they are not provided, then the other party is held to have repudiated the contract, and thus was in breach first. Restatement

250. Repudiation is statement or affirmative voluntary action indicating that obligor will breach totally.

251. Failure to give assurance: Where reasonable grounds exist to suspect total breach, obligee may demand assurances and suspend performance until assurance is received. Failure to provide assurance is also repudiation.

253. Repudiation gives rise to claim for total breach damages, and discharges obligations by other party.

254. Retraction of repudiation: can happen if other party has not found out, or has not materially relied on the repudiation, or has not indicated that he considers the repudiation final. Action based repudiation is withdrawn if the circumstances that indicated repudiation have changed before the finding out, reliance, or indication. UCC 2-609: Right to seek assurances: When reasonable grounds for insecurity arise. Assurance is judged based on commercial standards. Acceptance of improper delivery or payment doesn't take away right to seek assurances. Assurances must be provided within reasonable time, not to exceed thirty days.2-610: Anticipatory repudiation: In response to repudiation, a party may continue to await performance for a reasonable time, or resort to any remedy for breach (even if he's notified the other party that he would await performance, and has urged retraction) and suspend his own performance. 2-611: Retraction of repudiation: is possible (before breach) unless the other party has materially relied on the repudiation, or said that he considers it final. Retraction can be any way of indication, but must contain assurances as demanded. Retraction reinstates the contract, with reasonable excuse to the other party for delay, etc. as a result of the temporary repudiation.  

  

Specific PerformanceSunday, May 06, 201211:25 AM

Van Wagner v. S & MVan Wagner had bought the rights to advertise on this wall that directly faced the Midtown Tunnel. They then leased out the space to another company at a set rate for seven years. Shortly thereafter, the building was sold, and the new owners didn't want the contract to continue - they wanted to knock the building down. They wanted to give damages only for sixty days, since at that time, Van Wagner could have ended the lease, so damages beyond that point were conjectural. The lower court admitted that the property was unique, and the only way to get the full value of the damages was by specific performance, however, the court refused to award specific performance of relatively little value at such a huge expense to S & M. Instead, the court said that the actual damages were estimable enough, and the amount was the amount of the contract that they'd have to breach - the lease for the advertising space. The appeals court said that the court had a lot of discretion, and that they chose wisely in this case, noting that if S & M had been correct that the damages were vague, the court would have had no choice but to award specific performance. Verdict: No specific performance, Rule: Even when the contested performance is unique, the court has discretion to not enforce it at too heavy a cost to the party in breach. Factors that weigh in favor of specific performance include hard to estimate damages, and damages that cannot be recouped with monetary payments because the performance is unique. Factors that weigh

against specific performance are hardship, easily estimable monetary damages, and easy to replace breaches. Walgreen's v Sara CreekSara Creek (Shopping Center) had a contract with Walgreen's that they would not allow anyone to rent property who would be in competition with Walgreen's. Then, Sara Creek lost their anchor tenant, and wanted to rent to someone who would compete partially with Walgreen's. Walgreen's protested, and sued for an injunction to stop them - essentially, specific performance. The judge weighed whether to listen to Sara Creek's claim that they could have experts decide what the actual damages were, or whether to listen to Walgreen's and award specific performance. In the end, he ruled that there was a risk of experts making a mistake, and that it was inefficient to estimate the damages that way, since awarding specific performance was guaranteed to figure out exactly how much the clause was worth, when Sara Creek came and attempted to buy out that provision. Verdict: Specific performance; Rule: When specific performance can be used as a tool to more accurately figure out what damages should be, specific performance can be warranted. (Also may contain some things about deference to lower courts.)Restatement: R 344-346, 355-369

344. The purpose of remedies: Expectation interest, reliance interest, restitution interest345. Remedies available: Money due under contract, or as damages, specific performance or non-

performance, restoration of a specific thing (to prevent unjust enrichment), awarding a sum of money (to avoid unjust enrichment), declaring the rights of the parties, and enforcing an arbitration award.

346. Damages: Injured party has a right to claim damages for any breach, unless performance has been suspended or discharged. (2) If the breach caused no loss, or if the amount is not proved, a small sum will be awarded as nominal damages.

355. Punitive damages: Not available in contract, unless it's through a tort claim. 356. Liquidated damages: (1) Must be reasonable in the light of anticipate or actual loss, and the

difficulty of proving the actual damages. (2) A term in a bond providing for an amount of money as a penalty is unenforceable if the amount exceeds the damage.

357. Specific performance: available at the discretion of the court. (not sure about part two. Seems to just say that injunction can be given to stop breach of a contract).

358. Specific performance: drawn so as to best effect the purpose of the contract. Need not be absolute, and need not be identical to contract. (2) Can be granted on part of the contract, (3) Specific performance and damages can be awarded for the same contract, and also indemnification against future harm.

359. Specific performance guidelines: Will not be awarded where damages are sufficient to protect expectation interest of parties. (2) adequacy of damages for one part of the contract doesn't mean that there can't be specific performance on the rest of it. (3) Specific performance will not be denied merely because there is a remedy for breach other than damages. Court has discretion.

360. Determining adequacy of damages: The following things help determine whether particular monetary damages are adequate: Difficulty of proving the proper amount, difficulty of procuring substitute performance, likelihood that damages would not be able to be collected.

361. Specific performance may be granted even if there is a liquidated damages clause. 362. Specific performance will not be granted unless the contract is sufficiently certain to provide a

basis for that order. 363. Specific performance may be denied if the agreed upon exchange is unperformed and

performance is not guaranteed to the satisfaction of the court. 364. Specific performance and unfairness: Specific performance will be denied if it would be unfair

because of mistake, because relief would cause unreasonable hardship or loss (Van Wagner),

exchange is grossly inadequate. (2) But it will be granted in spite of that, if it would otherwise cause unreasonable hardship to the party seeking relief (or third persons).

365. Specific performance will not be granted if it's contrary to public policy. 366. Specific performance will not be granted if enforcing it will cause hardship to the court

disproportionate to the gains of the order and the hardship of its denial.367. Specific performance of personal services: Promise to render personal services will not be

specifically enforced. (2) Seems like non-compete clause rule: It will not be enforced if it will compel personal relationship which is undesirable, or if it would deprive the party of a chance to earn a livelihood.

368. Specific performance and the power of termination: Specific performance will not be granted in cases where the party in breach had the right of termination which will in effect nullify the order of specific performance. However, (2) it will also not be denied simply because he has that power, unless it could be used in spite of the order to deprive the other party of reasonable security for the agreed upon exchange.

369. Specific performance may be granted even if the party seeking it is also in breach, unless the breach was serious enough to discharge the other party's remaining duty of performance.   

  

Liquidated damagesSunday, May 06, 201211:38 AM

O’Brian v Langley;O’Brian wanted to back out of a commitment to send their child to the Langley School. The school notified them that according to the contract they had signed, they had to pay full tuition for the year. The O’Brians refused. The lower court ruled that they did have to pay the tuition although Langley had not shown evidence that they tried to find another kid. This was because it was a liquidation clause damages claim rather than expectation damages. The O’Brians were assessed full tuition plus legal costs. The appeals court said that just because there is a liquidation clause, doesn’t mean that there is nothing to discuss. Liquidation damages can be judged as unfair, and the lower court judge didn’t even allow evidence to show that they were unfair. Therefore, the case should be remanded to determine whether the damages were grossly in excess of the actual damages (and the other question – whether the damage is susceptible to accurate measurement) The O’Brians bear the burden of proving it, but if they do prove it, then the school must prove its actual damages. Verdict: The trial court incorrectly excluded evidence that it was grossly in excess of actual damages. Rule: Liquidation damages can be enforced, but defendants can contest whether it is grossly in excess of actual damages, since it is susceptible to actual damages.

356. Liquidated damages: (1) Must be reasonable in the light of anticipate or actual loss, and the difficulty of proving the actual damages. (2) A term in a bond providing for an amount of money as a penalty is unenforceable if the amount exceeds the damage. UCC Liquidated damages (2-718)

Limited to amount reasonable in light ofo Actual or anticipated harmo Difficulty of proofo Difficulty of obtaining adequate remedy otherwise

Contractual modification/limitation (2-719) Can contract out of UCC formulas and principles Consequential damages can be limited or excluded only if not unconscionable

o Limiting consequential damages for injury to person in consumer goods in prima facie unconscionable

 

  

Expectation damagesSunday, May 06, 201212:20 PM 

Hawkins v McGee;It seems that what happened was that McGee wanted to give Hawkins skin grafting on his hand, and therefore promised him that the results would be guaranteed. The surgery didn’t work out, and his hand was rendered worse than it had been. The essential conflict for our purposes was that the court awarded damages after a jury instruction that said that he could get damages for pain and suffering as well as for positive damage on the hand that made it worse than it had been before. The court ruled that he could not get pain and suffering damages, because the undertaking of the surgery was part of the deal, and he was therefore limited to the warranty in the contract which was a perfect hand, so that should have been the jury instruction. Verdict: RemandedRule: Expectation damages award the party seeking relief damages to the point that he would have ended up had the contract succeeded. There is no pain and suffering damages in contract. Contract damages are limited to compensation for a breach. (Although if there was more pain and suffering because of a breach, there may be room for a claim that way?)Panorama v Golden RulePanorama hired Golden Rule to install roofs in their association buildings. Golden Rule promised them warranties, and a certain quality of roofing. They did not provide the warranties, and the installation was defective. On the issue of damages, the lower court assessed them the (prorated) cost of replacing the roofs. Golden Rule appealed. It seems that the issue was that Golden Rule wanted to simply repair the roofs the way that they were. The court said that if performance is defective as opposed to incomplete, it is better that the damaged party be entitled to slightly more damages, (even if it’s a minor windfall) rather than being faced with a diminution in value to their property. This is true so long as there is not a disproportionate difference between the damage to the damagee and the cost to repair it. In this case, Panorama showed that the cost to repair the damage was XYZ and Golden Rule did not contest

it with a hugely lower diminution in value. Therefore, the rule in restatement 348 is binding and the damages should be the repair cost. Verdict: Higher damages to completely fix roofs affirmed. Rule: When the amount it would take to fix a defect is not wildly disproportionate with the diminution in value to the property, the damagee is entitled to such damages, even if they’re higher. When the damagee shows how much the cost to meet expectations is, the damager then has to contest it by showing that it’s disproportionate. Restatement

347. Expectation damages: Injured party has the right to expectation damages, which consist of the loss in value to him of the other party's breach, added incidental or consequential losses, minus costs or losses that he did not incur because he doesn’t have to perform anymore.

348. Other ways to determine expectation value lost: Delay in use of property which is not provable with reasonable certainty may be claimed as loss of fair market rent for that period of delay. Defective or unfinished construction may be estimated by diminution in market value, or the reasonable cost of completing performance, if it's not completely disproportionate to the probable loss in value to him. (Jacobs & Young; Panorama). Breach of conditional obligation that may never have come to fruition is based on the value of the conditional promise at the time of the breach.

349. Reliance damages: As an alternative to expectation damages, the injured party has a right to damages based on reliance interest, including expenditures made in preparation for performance, or in performance, minus whatever loss he would have incurred had the contract been performed.   

  

Mitigation of damagesSunday, May 06, 20121:13 PM

Parker v Twentieth CenturyParker, AKA Shirley Maclaine, was an actress who was to act in a film called Bloomer Girl. There was a contract signed and everything. Then, the film fell through. The studio didn’t want to pay her for nothing, and therefore cast her in a different movie called Big Country. The contract for Big Country was very similar to the contract for Bloomer Girl, but there were small differences, such as that it was to be filmed in Australia rather than California, it was not a dance movie, and she couldn’t choose the director. She didn’t want to be in Big Country, and therefore sued for her contractual fee and damages. The studio countersued, claiming that her refusal was unreasonable, and was therefore a failure to mitigate damages. Parker/Maclaine moved for summary judgment. The court considered whether there was a triable issue of material fact that was yet to be determined. Rule: Measure of recovery is the amount of salary agreed upon for the service, less the amount that the employer affirmatively proves the employee has earned or could have earned with reasonable effort (thus mitigating the damages). But the employer

must show that the alternative employment was substantially similar and not different or inferior in kind. In later analysis, the court adds that there is no requirement that the refusal to take a particular alternative be reasonable. Applying it – since in this case, there was no claim that she failed to seek further employment, the entire defense is based on the claim that she should have taken Big Country. Big Country was not similar for a female lead to the role in Bloomer Girl, since it was produced in Australia, was a drama rather than a musical, etc. Also, the alternative contract took away certain rights that Parker had under the original contract. Therefore, the alternative role was for inferior employment. \Verdict: Not a failure to mitigate damages, therefore Studio was liable. See rule above. Dissent: There is a reasonableness requirement, and that is a factual issue which should have gone to a jury. Generally, the standards of fairness dictate that there be a reasonableness standard. The mere existence of differences does not give the employee an excuse to refuse alternative employment. Deciding whether the difference was substantial is what should require a trial. R.R. Donnelley v VanguardDonnelly was a printer who had been hired to do brochures for Macy’s. They hired Vanguard, a trucking company, to deliver the brochures. Vanguard blew it, and Donnelly sued them for the cost of the brochures, which were useless after the time of the promotion had passed. Vanguard contended that Donnelly failed to mitigate damages. Failure to mitigate is an affirmative defense, for which Vanguard has the burden of proof. Generally, the plaintiff should act to mitigate the damages, but Donnelly claimed that defendant acted to assuage the plaintiff’s apprehension, and thereby led to the plaintiff not mitigating, so defendant can still be liable. But court said that plaintiff cannot rely indefinitely on assumptions. At some point, he needs to realize that it’s just not happening. In this case, when Vanguard said on the morning of the drop dead date that they would attempt delivery, Donnelly should have realized that it was time to take matters into their own hands. Therefore, rather than talking about how easy it was for Vanguard to make alternate arrangements, Donnelly should have been making those same alternate arrangements. Verdict: failure to mitigate, damages therefore lowered. Rule: When a party sees that the other party is probably going to be in breach, they have the duty to mitigate damages, reassurances notwithstanding. Restatement

350. Mitigation of damages: Damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation. (2) But if the injured party has made reasonable efforts, he does not lose damages, even if the efforts are unsuccessful.  

  

Foreseeability in damagesSunday, May 06, 20121:20 PM

 Hadley v BaxendaleHadley was a miller who had some sort of damage to a motor. He was to send the part to a machinist for duplication. The fixer-man said that if he would send it in before noon, it would be done that day. Eventually, the part was delivered, but because the delivery guy was delayed due to neglect, the mill lost days of profits. They sued the delivery guy for all the money that they lost because of the delay. (It does not matter whether it was neglect, since contract is strict liability). These damages are “consequential damages”, as opposed to direct damages. The court said that plaintiff was not entitled to damages that were not reasonably supposed to be in the contemplation of both parties at the time of contracting. The great multitude of cases where millers send axles to repairmen would not involve such damage, and therefore these damages were not fairly and reasonably considered as arising naturally . Therefore, they could not recover the consequential damages here.

Note: the case incorrectly says in the beginning that the miller told the carrier that he was desperate for it to be fixed. In fact, the miller had not told that to the carrier. If he had, that would have been a “known special circumstance” at the time of formation which would have made the carrier liable.

Verdict: not entitled to consequential damagesRule: Plaintiff is only entitled to damages that are reasonably foreseeable at the time of contracting. Restatement

351. Unforeseeability and related limitation on damages: damages are not recoverable when the party in breach had no reason to foresee them at the time the contract was signed. (2) Loss may be foreseeable when it follows as a probable result of the breach in the ordinary course of events, or as a result of special circumstances that the party in breach had reason to know about. (3) A court may limit damages for foreseeable loss by excluding loss of profits, by limiting damages to reliance, or as justice requires to avoid disproportionate compensation.

352. Uncertainty: Damages are not available for loss beyond an amount that can be proved with reasonable certainty.

  

Certainty in damagesSunday, May 06, 20121:53 PM

ESPN v Baseball (p.777)Now they’re arguing about damages. The damages were for ESPN’s breach for preempting the baseball games without approval. At this point, it had already been determined that they were in breach, so the question was just how much the damage was. Baseball claimed that the amount should exceed millions of dollars. ESPN filed a motion in limine, to stop the jury from hearing baseball’s claims, since the claims were vague and uncertain.

The question was whether baseball set forth specific facts to show that their damages were reasonably certain. They alleged that they lost national TV exposure, promotional opportunities, damage to the value of the Sunday night TV package, prestige, potential sponsorship, future value of all BB TV packaging. The court said that the rule is that

1. The factual loss needs to be certain, 2. Amount needs to be certain1. Not merely possible, speculative, or imaginative2. Susceptible of ascertainment in a manner other than guesswork or conjecture.

Since baseball had not shown either the fact of damages or the amount of damages, and continually refused to do anything more than speculate about the amount of damages, they were not entitled to ask for damages in a particular amount. The judge did note that if they proved that there were some damages, they could have gotten nominal damages. (Note – this would have been a good place to enforce the specific performance, which was actually written into the contract. Another option would have been liquidated damages in the contract, since this was inherently not the type of damages that were given to estimate.) Restatement

352. Uncertainty: Damages are not available for loss beyond an amount that can be proved with reasonable certainty.  

  

UCC remedies (compendium)Sunday, May 06, 20121:59 PM 

Manouchehri v HeimManouchehri contracted to buy an X ray machine from Heim, with a particular strength. Heim deliberately sold him one that was weaker, without telling him. The price was $1900. Manouchehri sued for breach of contract, and was awarded $4400 dollars by the lower court. The appeals court reviewed the damages claim. The $1900 was for cost of direct damages - the difference between the item as promised and the item as delivered. The claim was that direct damages could be estimated as the cost of repair, since that would make the item as delivered the same as the item promised. In this case, the machine was inherently different, so it couldn't be repaired. Nevertheless, the court upheld that part of the damages. The court said that the machine was not worth much as it was, and if Manouchehri could get anything for it, that would just cover his cost of getting it off his property. Therefore, the $1900 was warranted as the direct damages. The next part of the claim was an additional $2500 in consequential damages. Manouchehri claimed that he lost that amount since he didn't have an X ray machine that he could use to give the X Rays that he wanted to give, and he lost that much money by not being able to give all those x rays. Heim claimed that he hadn't presented any evidence of that, and he also hadn't attempted to mitigate his damages. Manouchehri claimed that he would have

mitigated damages by getting another machine, except that Heim kept saying that he would fix this one. (Hah. See RR Donelly!). The court said that whether it was reasonable for Manouchehri to take his word for it was a question of fact, and it was a reasonable conclusion by the trial court that he had reasonably taken Heim's word for it. Although his proof wasn't totally certain, the burden of certainty in a small case such as this one is not the same as the burden in a million dollar case. Verdict: affirmed, damages of $4400. Rule: Direct damages can be estimated by repair cost, but also in other ways. Consequential damages that are foreseeable are allowed. It is a question of fact whether party seeking relief reasonably relied on party in breach when waiting to attempt mitigation. Certainty in a small case is not as big a deal as in a larger case. UCC 2-703, 2-706(1), 2-708 through 2-719UCC 2-703Seller's remedies: when a buyer rejects or revokes acceptance of goods or fails to make a payment due on time, the seller may withhold delivery, stop delivery, (proceed under the next section respecting goods still unindentified to the contract), resell and recover damages, recover damages for non-acceptance, or in a proper case - the price, or cancel. 2-706(1)Seller's resale: Seller may resell goods after a breach, as per 2-703. When the resale is made in good faith and in a commercially reasonable manner, seller may recover the difference between the resale price and the contract price, along with incidental damages, but minus any money he saved by getting out of the contract.  UCC remedies from slides:UCC remedies: sellerWhat happens if...Buyer refuses to take/keep deliverySeller’s options

Resell goods, collect resale damages (2-706)o Quantity x (Contract Price – Resale Price) + incidentals

Claim market price damages (2-708(1)) [maybe resell?]o Quantity x (Contract Price – Market Price) + incidentals

Claim lost volume seller damages (2-708(2))o Quantity x (Contract Price – Costs)o Must prove market price damages inadequate to put seller in same position as

performance What happens if… Buyer doesn’t paySeller’s damages (2-709): Action for the price - seller can claim in damages

Contract price timeso Quantity taken by buyero Quantity “identified to contract” that the seller is still holding onto, and not reasonably

able to resell “Identified” means ‘marked’ or ‘set aside’ as goods demonstrably intended for this buyer; it’s more complex than that but don’t worry about this UCC Remedies - BuyerWhat happens if… Seller does not deliver goods?Buyer’s options

cover (good faith, no unreasonable delay) and claim damages based on cover (2-712)

o Quantity x (Cover Price – Contract Price) + incidentals + consequential damages

Claim damages based on market price (2-713) (without actually covering)o Quantity x (Market Price – Contract Price) + incidentals + consequential

damages  

What happens if … Seller delivers “non-conforming” goods or goods in breach of warranty? (Manouchehri)Buyer can claim damages based on expectation principle (2-714)

Difference in value between goods as promised and goods as received Including incidental + consequential as appropriate

 Consequential damages (2-715)

Buyers only (?) Limited to losses resulting from general or particular requirements and needs of which

seller at time of contracting had reason to know and which could not be reasonably prevented by cover

Injury to person or property proximately resulting from breach of warranty  

Liquidated damages (2-718) Limited to amount reasonable in light of

o Actual or anticipated harmo Difficulty of proofo Difficulty of obtaining adequate remedy otherwise

Contractual modification/limitation (2-719) Can contract out of UCC formulas and principles Consequential damages can be limited or excluded only if not unconscionable

o Limiting consequential damages for injury to person in consumer goods in prima facie unconscionable

  

  

 

BuyerSunday, May 06, 20122:46 PMKGM Harvesting v Fresh NetworkSo Fresh Network used to buy lettuce from KGM Harvesting at 9 cents a pound. Then lettuce shot up, and KGM refused to honor the contract. Fresh Network instead had to go out and find lettuce at a more expensive price. They did, and sued for damages under the UCC. According the to the UCC, they are allowed to cover and claim the difference in price from the seller in breach. However, in this case, the seller claimed that Fresh Network did not lose that much, since they had a cost plus agreement with their buyers. Because of that, when the price of lettuce rose, they were able to meet the demand at the higher price, and expectation damages were not the entire difference between the agree upon price and the cover price - expectation damages were just the amount of money that they couldn't make up from their own customers. The court decided that

that wasn't a valid defense - the UCC remedies was not the same as expectation damages, it was the cover price minus the contract price, no matter what Fresh Network was able to do to make a profit off the deal later. Verdict: UCC dictates that cover price minus contract price is valid damages when seller refuses to supply agreed upon goods. Rule: Actually, that was the rule. The application of the rule to cases where the seller is not made worse off is the point of this case.   

Lost volume seller (&liquidated damages)Sunday, May 06, 20122:54 PM

Rodriguez v Lear JetRodriguez put down a deposit and signed a contract to buy a jet from Lear Jet. The deposit was $250,000. Later, he backed out of the sale. Lear Jet resold the jet for more profit than they would have made off him. He wanted his deposit back, and they said that it was damages for breach of the contract. He said that although the contract called for liquidated damages, in this case, they were disproportionate, since he hadn't caused them nearly that much damage - in fact, they had made more off the replacement buyer. But Lear Jet claimed that they were a lost volume seller - i.e. they would have been able to sell another jet if he hadn't backed out of the contract, and therefore the damages were not disproportionate. The court set out the rules for lost volume sellers as the following:

1. The seller possessed the capacity to make an additional sale2. That it would have been profitable to make an additional sale, 3. That it was probable that it would have made the additional sale, absent the buyer's

breach.  Under that analysis, the district court had reasonably concluded that Lear Jet was a lost volume seller. Furthermore, even if they hadn't been, the liquidated damages of 250000 on a plane that cost four million was reasonable in light of the damages that were likely to flow from a cancelation.