Daddy’s Contracts II Finals Outline

Three main issues in determining what is required under a K:1) what are the terms? (parole evidence rule)2) what do the terms mean? (rules of interpretation)3) what if the parties omit a term? (rules for omitted terms)

Parole Evidence Rule Analysis:If there is a writing that reflects the final agreement, then we begin this analysis:

1) Did parties intend the writing to be an integrated expression of an agreement? (final)?

a. If YES, go to 2b. If NO, the parole evidence rule is non-applicable

2) Is the writing completely or partially integrated?a. If it is complete, then no parole evidence is admittedb. If partial, then go to 3

3) If partial integration, is the proffered term consistent or inconsistent with terms of writing?

a. If consistent, then parole evidence is admissable.b. If inconsistent, then parole evidence is inadmissable.

How do we determine if the writing is final? Analyze the character:Does the writing appear to be a final agreement or is it marked “draft” or referred to as a letter of intent or a memo of understanding?Would this document normally be considered a final written agreement?Receipt/bill of sale – limited purpose (so usually considered partial integration)

(If the parties acted like a document like this was their contract, even though its a draft it is adopted by the parties as their contract by their conduct)

Complete or partial integration?Traditional view – four corners test – look within the writing itself to determine if it is a complete integration or partial integration.

Willeston’s view – ask the question “would the terms that you’re trying to prove with parole evidence have naturally been included in the agreement?”(problems – not a lot of guidance)

Restatement/Modern view – 5 factors based on the context:1 – character of writing2 – extrinsic evidence3 – does the agreement contain a merger clause?4 – might the term naturally have been omitted (i.e. is there a legitimate reason why the term was not in the document?)5 – was the agreement on separate consideration?

merger clause – boilerplate that says that the writing reflects the final agreement. These create the presumption that the writing is a complete agreement (you have to rebut this presumption with evidence).

Gianni case – Gianni rented store and agreed not to sell tobacco. He assumed that he would be the only seller of sodas. They used the tradition rule – i.e. would the terms have been naturally included in the K? Once we had complete integration it doesn’t matter if the terms are consistent or inconsistent – the parole evidence was barred.

If you have a writing that embodies a contract, and someone is claiming a side agreement that wasn’t included – the law will be skeptical as to why the term wasn’t written in.

UCC Special Quirks: UCC 2-202:1 – harder test for determining complete integration – would the term certainly have been included?2 – even if complete integration – trade usage or course of dealing evidence IS admissable to prove consistent implied terms. (effect of a merger clause?)

Exceptions to Parole Evidence Rule:When offering parole evidence to:

1) show agreement invalid, voidable, or unenforceable (misrep, duress, etc)2) show mutual mistake in written expression of agreement (you will be allowed

to admit prior agreements and the court will reform the K and fix it.)3) interpret meaning of written K terms

If an extraneous agreement is contemporaneous, the parole evidence rule will still bar the evidence. If the agreement was made after the writing, then it might be ok. Subsequent agreements don’t matter for the parole evidence rule. The parole evidence rule says nothing about subsequent agreements.

If there is separate consideration then it is a partial integration – but the term will still have to be consistent with the writing before it will be admissable.

UCC Special quirks – purpose is to make sale of goods easier to engage in and make between businessmen. The UCC has a general presumption in favor of partial integrations, which means that you can show evidence of other terms. The test is would they certainly have included the term. Also under the UCC, even if you have complete integration, if you are trying to prove that the parties agreed on certain implied terms – meaning implied by trade usage or course of dealing.

Trade usage evidence – generally or commonly prevailing trade practices within an industry, profession/trade or locality.

Course of dealing – refers to parties past dealings. Historical dealings before the K at issue – what did the parties do when they did business with each other prior to the particular contract. UCC – sequence of previous conduct between the parties which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions/conduct.

Merger clause – in order for a merger clause to apply (in a UCC setting) – you have to carefully negate the admissability of trade usage / course of dealings – meaning expressly state that – can’t just be boilerplate.

No Oral Modification Clauses – Traditional common law – NOM clauses are ineffective. (rationale: inhibit freedom of contract)Modern trend and UCC – NOM clauses are generally enforceable unless there was reasonable and substantial reliance on the agreed oral modification. (rationale: allow parties more contractual flexibility. Influenced by the UCC philosophy)(these are attempts to prevent parties claiming side agreements – saying that any oral agreements after the K formation must be in writing, signed by both parties before they will be effective)

So we’ve done PER and NOM – what if there is a dispute about the meaning?

Words can be susceptible to different meanings. Typical disputes are based on vagueness and ambiguity. Vagueness – general imprecision in terms of describing what we mean. (like a blue car – what is blue? Million different shades of blue) – can be used to the client’s benefits, with respect to arguing/determing later.Ambiguity – more narrow

Rules of Interpretation – Restatement 201: whose meaning prevails(1) Where parties attach same meaning at K formation – that meaning prevails.(2) Where parties attach different meanings at K formation

a. If one party knew/should have known that the other party was attaching a different meaning, use the other party’s meaning.

b. If not (a) and the term is material, then the K likely fails for mutual assent.

General Rules of Interpretation:Restatement 202(1) – K terms are to be interpreted in the context of the entire K and surrounding circumstances. If ascertainable, the principal purpose of the K is given great weight.

In determining the principal purpose of the K, look to see if there are any recitals. Recitals start with ‘whereas’ and try to describe the purpose of the contract (from the drafter’s perspective)

Intrinsic Aids of InterpretationPresumption regards generally prevailing meaning unless there is an agreement or special meaning of word.Latin maxims:Of the same kindIt is known from its associatesExpression of one thing excludes others

K to be interpreted holistically where all terms given effect and same meaning thoughout the K. If they cannot be:1) specific terms over general terms2) negotiated terms over standard terms3) handwritten > typewritten > printed

Frigaliment – chickens –

When doing interpretation:1) start with intrinsic evidence (words of K) – holds the most presumptive weight

trade usage – when one party is charged with trade usage knowledge and trying to prove it against a new entrant – there is a higher bar --- that a particular meaning was so notorious as to be universal – the presumption is violent that the parties contracted with reference to it.

Raffles case – Peerless ship –

Start first with the words of the K then go to extrinsic evidence and meaning.

Rules regarding whose meaning prevails:Shared – if evidence shows shared meaning then use it (usually in this situation one party is acting in bad faith and saying they didn’t share the same meaning)Fault – if there is dispute --- is there enough objective reasonable evidence to say that one party should have known better what meaning the other party was attaching? Is there enough evidence to say that one meaning should prevail?No-fault – if there’s not enough objective information to assign a meaning (relatively rare situation)

Analysis:Which rule of decision most reasonable in light of all circumstances/context and principle purpose of contract?

- K language given greatest weight- Extrinsic evidence is still important

Tools to limit asserted interpretations considered by the court:- K language: intrinsic aids of interpretation- Extrinsic evidence limitation: extrinsic aids of interpretation

o Plain meaning ruleo Trade usage, course of dealing, course of performance

Plain Meaning Rule: If K language is clear and unambiguous on its face, then evidence of prior negotiations is generally inadmissable to interpret it.How do we determine clear and unambiguous?

- majority: consider all evidence except evidence of prior negotiations- minority: consider all evidence including evidence of prior negotiations

Intrinsic Aids of Interpretation –Basic principle: Unless parties have indicated otherwise, where a word has a generally prevailing meaning there is a strong presumption that the parties have used that word in accordance with that meaning.Exception – if a word has a technical or special meaning in a given trade or locality, the presumption is that the word is being used in this sense.Also parties can agree on certain meanings in either oral/written definitions or “incorporate by reference”

Latin maxims useful to K interpretation:“expression of one thing is exlusion of another” – if a contract lists specific items, then the parties intended to exclude similar unlisted items (cats and dogs – argue gerbil is not included)“of the same kind” – if list specific items, followed by more general terms, then general term only includes items similar to specific ones (sheep, cows, pigs, and other animals – argue NOT tiger).“is is known from its associates” – the meaning of a word may be gathered from its accompanying words (farm can have sheep, cows, pigs – argue not a wild boar, even though it says pigs)

Other rules of K interpretation – holistic terms:- an interpretation is favored that gives effect to all the terms of an agreement- corollary – words have the same meaning thoughout a contract- BUT if all K terms cannot reasonably be given full effect due to a conflict in

meaning:o Specific terms trump general termso Negotiated terms trump standardized oneso Handwritten terms trump typewritten terms trump preprinted terms

General rules of K construction based on considerations of fairness and public policy:General tools – NOT dispositive:

- interpretations resulting in ‘fair bargains’ are favored- interpretations more consistent with public policy are favored- interpretations against drafter is favored, especially for standardized contracts –

this is a principle of last resort – simply resolve against the drafter

Plain meaning rule: Plain meaning rule only applies to attempts to introduce prior negotiations.

- if facially ambiguous, then prior negotiations go to the factfinder- if seems clear and unambiguous on its face

o majority – ambiguous after considering all evidence except PN?o If yes, PN to factfindero If no, PN not to factfinder

Minority – if ambiguous after considering all evidence including PN?

Trade Usage, Course of Dealing, Course of Performance evidence- for UCC and C/L Ks – factfinder may generally consider in resolving

interpretation disputes- COP evidence given great weight where both parties knowingly acquiesce to it.- BUT, if K terms/COP/COD/TU cannot reasonably be interpreted as being

“consistent” then K terms>COP>COD>TU

Course of performance – dealings under existing contract at issueCourse of dealing – course of the parties’ prior dealings under prior contracts

Trade usage – surrounding commercial industry practices or practices under a certain locality.

Course of Performance – buying Widgets “free of defects” – say there is a 2% defect rate – after you have accepted a number of shipments before and knew about defect rate – “knowing acquiesced in a certain course of performance” – conduct suggests that “free of defects” means 98% defect-free rate. COP evidence is only useful if both parties have knowingly acquiesced. (if they have never opened then the COP would probably not be held against the buyer)

When there is a true irreconcilable conflict, and its impossible because the terms are susceptible to a plain meaning that conflicts with the evidence. So then express K terms > COP > COD > TU.

What is the interpretation issue here?What kind of evidence are the parties offering?Apply Intrinsic Aids of Interpretation

Words of KExtrinsic Evidence – Prior negotiations, commercial usages, general circumstances.PN – Plain meaning ruleCommercial usages – COP/COD/TUWhich party’s interpretation is the most reasonable under the totality?

1 – ID issue2 – what type of evidence3 – extrinsic: prior negotiations, commercial usage, circumstances4 – apply rules5 – what is the most reasonable paradigm – shared meaning, fault, no-fault6 – whose meaning do I pick?

Supplying Omitted TermsRestatement 204 - when parties to a sufficiently defined bargain (K) – have not agreed on a term essential to resolving K disputes, a term reasonable in the circumstances will be supplied by the court.“reasonableness” – 1st – mutual expectations of parties (purpose of K) – is there a purpose we can discern from a recital or whatever – pick a term that is most consistent with their expectations.2nd – justice and fairness

Why do parties omit terms?Tough to foresee every contigencyImpractical to address every conceivable iteration of possible occurrences

Questions:1 – can I interpret the express terms in some way to reasonably solve this?2 – if there is no reasonable interpretation of the express terms? Ask the court to supply a term.When a court supplies a term – these terms are implied by law (meaning not based on the parties’ conduct, just the courts assessment in light of the K)

3 commonly implied terms:good faithbest effortstermination provision

good faith and fair dealing – common law/SOG contractsrestatement 205/UCC 1-203 – basically every K requires good faith and fair dealing in performance and enforcement of K.what does it mean to act in good faith and fair dealings? Minimums: honest dealings – cannot act pretextually/deceitfully – subjective honestyMerchants/commercial parties – observance of reasonably communicated standards

You cannot engage in unreasonable or unfair conduct that impairs the other party’s right to their benefit of the bargain.

2 recurring situations:sharp dealing – behave opportunistically to take advantage of another party’s vulnerabilities – usually happens when one party has performed and then the other has to perform. (lots of sunk costs)or one party refuses to cooperate – won’t specify, etc.

Best efforts – make reasonable efforts to render a performance in light on one’s means and abilities and expectations of parties.

3 most common terms that are implied BY LAW (by law is similar to restitution – means its not on the contract)

good faith and fair dealing – general definition: honesty (if merchants – then act fairly, reasonably, cooperatively, honestly – always defined in context)

best effortsnotice provisions regarding termination

3 points with regard to good faith – 1 – court uses terms that may be laid out by legislation (particularly UCC gapfillers)2 – duty is a mandatory implied term – meaning that parties cannot generally disclaim a duty of good faith by express agreement.3 – 2 main situations:

1 – party looks to express terms and argues that in performing the express term the other party violated the duty of good faith by not performing in a certain way.

2 – say the contract contained an additional term above and beyond

1-102 – UCC says that although parties cannot disclaim the duty of good faith and fair dealing, they can define the standards by which it shall be assessed (as long as the standards aren’t unreasonable).

Merchants must comport with commercially reasonable standards. (look at TU, COP, COD)

If an independent term you’re trying to imply is inconsistent or in tension with the terms then you have a heavy presumption against you in attempting to convince a court.

Best efforts – NOT mandatory – general definition: a party generally has a duty to make reasonable efforts to render a performance in light of that party’s means and abilities to do so. And also inlight of the parties’ purpose and expectations under the contract.Generally arises in:

1) lease agreements that base the rent on a percentage of sales (may have to operate unprofitably because of best efforts – if you have a substantial minimum rent then the court assumes that was to protect against changes in business – Dalton car wash case) – if you imply a duty of best efforts – you have to work even if you are going to lose money, up to the point where you incur substantial losses and perhaps drive the company into insolvency. Duty of best efforts to sell another company’s products – you must incur substantial (more than trivial) losses – but probably not bankruptcy.

2) contract for exclusive dealing arrangements

Best efforts – Courts are likely to find that someone has assumed a higher duty to perform than good faith – With books – doesn’t imply a duty of exclusivity (like in marketing), but it does give you a duty to push the product fairly well.

Terminating contracts – 2 arrangements where requirements are implied:Distribution and franchise KEmployment K

Traditional rule – when a K was silent on its duration and how it can be terminated, it was considered to be at will – any party could cancel at any time.The opposite would be perpetual duration.

Franchise Distributorship Ks – traditionally courts would reject the argument that these were perpetual and imply at will. Modernly – courts imply a requirement of reasonable notice to end a K.

UCC – 2-309(3) – unless the parties specified otherwise, they can only be terminated on reasonable notice by a party.

Termination provisions are not default / not mandatory – parties can alter/contract out of them. However 2-309(3) builds in – the termination provision Can NOT be

unconscionable (philosophy – prevent powerful parties from using their power unconscionably)

Genl rule for franchise/distributor – if a K is silent – courts imply reasonable notice – how much notice is reasonable? In Backalack (7 months) – questioned 1) how much time to make substitute arrangements, 2) time to recoup their investment.

Employment Ks – generally “Wood’s rule” – means that there is a strong presumption of at will termination in employment contracts that are silent on duration

- allow employer flexibility- this presumption is so strong that even if you are hired for a permanent provision

meaning that it’s not temporary – still terminable at will.3 main limitations on an employer’s ability to terminate at will1) modern trend – view employee handbooks/policies (if they demonstrate sufficient commitment) – call them implied in fact terms.2) duty of good faith and fair dealing – modern rule – look to see if employer abused their termination rights in an opportunistic/disreputable way (but the court will not imply a for cause termination)3) If the court believes that an employer terminated an employee in order to retaliate – maybe they can sue in tort. If the employee is alleging misconduct – was the employee qualified to speak to that issue? Would the employee be liable if the govt went after the employer? Did their conduct violate public policy? Must be a specific violation of a crime alleged.

When is nonperformance of a contract obligation a breach?

2 main doctrines for determining when non-performance constitutes a breach of contract:1 – dealing with express conditions to insure that certain things will occur before a duty to perform arises.2 – implied conditions (judges use to say what the required order of performance under a K is.)

express conditions v. duty v. promissory conditions- if K language creates an express condition which does not occur, then the

obligor’s duty never arises and K obligations are discharged.- If K language only creates or clarifies a duty of performance and duty of non-

performance, the other party’s K obligations may or may not be discharged under rules governing material breach.

- If K language creates a promissory condition and the condition does not occur, then the obligor’s K duties are discharged and he can sue for breach.

Restatement 224 – Condition defined – A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a K is due. (understand that a condition must be uncertain to occur before it qualifies a performance under a K)

Luttinger – express condition of financing for 45K at 8.5%. Law allows parties to stand on their express conditions even though the purposes for which the conditions were inserted in the K have gone away. We don’t care if they are abusing the condition, we require strict compliance of the condition.

Excuse by breach – buyer had a duty to use best efforts – they breached that duty so the court will excuse the condition.Excuse by waiver – excuse a condition because the party who benefitted by the condition waived it.

Analysis:1 – start with the words of the parties in the K2 – look at extrinsic evidence

How do we determine when time is of the essence in a particular K?Through words and circumstances – if the parties clearly want to make time of the

essence then it becomes an express condition. If it is just boilerplate then that will not be dispositive. Typically courts will look at the type of contract, the market, etc. and absent contrary evidence the court will find that time is of the essence (not in land Ks though)

Express Conditions v. Duty v. PC- If K language creates EC which does not occur, obligor’s duty never arises (K

obligations are discharged)

- If K language only creates or clarifies duty of performance and duty of non-performance, other party’s K obligations may or may not be discharged under rules regarding Material Breach

- If K language creates a Promissory Condition (condition of one party’s performance with a duty of the other party) and condition does not occur, obligor’s K duties are discharged and can sue for breach (obligor gets best of all possible worlds – walk away and sue)

Express conditions v. duty v. promissory conditionCourts use the following devices to mitigate harshness/forfeiture when a condition fails to occur (particularly when the other party will suffer some particular hardship)

1) use of interpretive preferences where reasonablea. general preference for duty over EC or PCb. satisfaction clauses – preference for standard of objective reasonableness

versus subjective good faith2) excuse of condition

a. by breachb. by waiverc. to avoid forfeiture

duty – unqualified – you shall do this, you shall do thata condition on the other hand qualifies a duty.

Rules of material breach –

Gibson case – express condition that purchaser had to be satisfied by the portrait of his daughter.Satisfaction clauses regarding good taste/aesthetics – you only need good faith – otherwise however they prefer an objective reasonableness standard.

Neumiller farms (how potatoes chip and flake) – in SOG cases between merchants we almost always use the objective reasonableness standard.

Doubleday/book – when the nature of the contract is really subjective – and it’s clear that the parties intended to use subjective good faith and honesty – use that standard.

There is a compromise between subjective/objective – predicate the satisfaction clause on satisfying a third party (like an architect) – when you use this you go with the architect/3rd

party’s subjective judgment.

If a party (1) breaches the duty of good faith by failing to cooperate wtih the other party to achieve K objectives, or (2) breaches the duty of good faith by preventing a condition from happening – Excuse by waiver – party has the right to waive a condition that is for their benefit and let their duty to perform arise. Waiver of a condition by definition is when a party whose

duty is subject to a condition promises to perform whether or not the condition is satisfied. Can be waived either (1) expressly, or (2) impliedly.

If a waiver occurred prior to the time that a condition was supposed to occur, then there is generally a right to retract the waiver, as long as the party wouldn’t be unduly prejudiced by the retraction. (meaning as long as they haven’t relied on the waiver)If a waiver occurs after the time for performance has occurred – if you waive then then you are stuck with the waiver.

Non-waiver/anti-waiver clauses (boilerplate) – meaning that if a party waives once they don’t waive for the rest of the contract (like every other payment or whatever) – designed to protect against waiving for the entire duration.If the court believes that the parties actually considered the non-waiver clause then it will probably consider the clause effective (considered is the main requirement)If the court believes the clause is just boilerplate then look at the parties’ conduct – did the parties disregard it?

Last resort: Excuse of conditions to avoid forfeiture – (in order to prevent a windfall) – excuse the condition by law because the result would be unjust. Like where an architect dies. Or if they don’t excuse then there will be a disproportionate or severe forfeiture, BUT the condition has to be a non-material component of the contract.

1 – when introducing evidence of an express condition, it must be consistent with the writing itself2 – conditions do not have to be cofined to one party’s performance – they can agree on a condition that conditions both of their performances.

Restatement discards the distinction between conditions precedent and condition subsequent.

From Kingston – Independent – both parties must perform regardless of the performance of the other partyDependant - breach of one party’s duty breaches the K, discharging the other party’s dutyConcurrent – both must perform at the same time – if one party is ready to perform and the other is not, then the one who is not is in breach.

When performance of a duty under a contract is due, then any non-performance is a breach.

Constructive Conditions of Exchange – material breachOrder of Performances in Absence of Agreement

- performances (or duties) that can be performed simultaneously / concurrently must be so performed.

- Corollary – if one party’s performance will require time to perform, then that performance is due first

Constructive Conditions of Exchange – Mitigating Doctrines1) substantial performance2) divisibility3) restitution

Substantial Performance – If non-performance of other’s duty is a material breach (i.e. no substantial performance), then the party can withhold their own performance based on failure of CCE.If non-performance of other’s duty is not material (i.e. have substantial performance), then the party cannot withhold own performance (CCE is satisfied), but can get damages for partial breach.

Who has to perform first –Unilateral contracts – bargaining for full performanceBilateral contracts – both can lose if they fail to perform their promises

Constructive conditions of exchange – my duty to perform may depend on whether you have performed. (independent promises are usually in employment contracts with a covenant not to compete)

Who was expected to perform first?In most cases order of performance issue will be answered by the K itself 1 – look at K terms2 – if silent – use default rules:

can they be done concurrently? Then they must be so performed.If one party’s performance takes time – they must perform first

Service contracts – doing must precede givingGoods contracts – when two parties are giving – i.e. thing for money – they must be done at the same time – concurrently

Cannot sue for failure to perform unless:1 – i have either offered/tendered my performance at the required time2 – i have manifested a present ability to perform (objective)

If performances can be reasonably and equally apportioned (so that givings can be given in little groups) then that’s what the parties have to do.

Was a breach material? Restatement 241 – 5 factors1 – extent to which the injured party would be deprived of their expectation interest (most weight)2 – extent to which the injured party can be adequately compensated<talk about breaching party>3 – extent to which the breaching party will suffer forfeiture4 – likelihood that the party failing to perform/offer to perform will cure5 – extent to which their behavior fails to comport with standards of good faith and fair dealing.---this is a factorial analysis

Responses to BreachNon-material – consider it a partial breach and continue performance and sue for breach.Material – consider it a partial breach and continue performance and sue for breach

Or consider it a total breach but provide a reasonable opportunity to cure

Reasonable Cure Period – period of time that’s reasonable under circumstances given reasonable expectations of K parties.

- restatement 242 – 3 minimum factors to assess:- 1) Restatement 241 factors- 2) extent to which delay prevents cover arrangements- 3) extent to which agreement provides for time being of the essence- material breach may consist not only of violation of express contract, but also

violation of implied duty of good faith and fair dealing.

Underlying philosophy – if there is a minor breach, then continue performance. If there is a major breach, then give them time to fix it. (philosophy – keep the deal from falling apart – give a party time to cure the breach)

A party that breaches is not barred from getting restitution simply because they breached. Aren’t barred from obtaining restitution in excess of any damage they caused the opposing party.

Some jurisdictions allow a right of setoff when you’re treating a partial breach. (meaning you can deduct the amount in your payment)Other jurisdictions say if there is a partial breach, then you have to make the full payment and sue for breach.UCC – 2-717 – allows for setoff after notifying the other party

If you believe another party has materially breached and you supply them with reasons why – you are not later estopped from asserting other reasons as to why the performance was defective.

Anticipatory BreachWhat is the doctrine? What is a repudiation?

General rule: to have suffered repudiation of a contract for anticipatory breach, the breaching party must clearly manifest to injured party that it will not perform or cannot perform the K.

Potential responses to repudiation:Treat as a total breach

- right to retract?Await time for performance

Responses to Post-K insecurity: UCC 2-609/Restatement 251

Issues raised by Anticipatory Breach – 1) alternative arrangements – when there is a repudiation, is the duty to perform

discharged so that the injured party can pursue alternative arrangements?a. Common law – as long as the other party has clearly repudiated the

contract – this will operate to discharge duties of performance.2) Can the injured party sue for damages before the performance has come due?

a. Generally accepted except in Mass. That P can sue for damages before the time of performance has come due. (Hockster Rule)

Rule – if a party clearly repudiates prior to their time for performance, then the other party can both suspend their performance and make alternative arrangements, and sue for damages. Important condition for suing on breach of contract – you have to prove that you would have been able to perform as well.

Hockster rule – generally accepted except for 1 general exception – does not apply when the injured party has fully performed their side of the K. Idea being that when the injured party has fully performed and the other party indicates that they will breach, the IP does not need to make substitute arrangements.(in a unilateral contract no contract is formed until full performance – so this would not apply)

This is most common when one party has fully performed their side and all they are doing is awaiting payment of money. Full performance exception kicks in so you cannot use anticipatory breach to sue – have to wait for each installment payment to come due and then either sue. But it must be full performance – IF there are continuing obligations, like maintenance or something, then the full performance doctrine will not apply. You can use the theory of anticipatory breach.(usually parties put an accelleration clause in a contract to counteract the full performance thing – meaning should you default or repudiate then all of your payments come due immediately.)

What is a repudiation?General rule – to have suffered a repudiation of a K for anticipatory breach, the breaching party must clearly manifest to injured party that it will not perform or cannot perform the K.

Some repudiations will be sufficient to constitute a repudiation for anticipatory breach and some will not – basically it must (1) clearly manifest that the other party (2) will not or cannot perform.

Minweld Steel – mere expressions of doubt about a party’s willingness or ability to perform is not sufficient to constitute a repudiation and sue at an earlier date.

An attempted unilateral contract modification can clearly manifest a repudiation.

1 – the repudiation must be directly communicated (not through a 3rd party or the grapevine)2 – nonperformance must constitute a material breach3 – good faith of the BP in saying that they believe they have the right to breach is IRRELEVANT – if they are wrong then they are breaching.

Repudiation can be implied, but there is a higher standard: a voluntary and affirmative act.

Potential responses to a repudiation?1) treat the K as terminated either by notifying the BP (words) or making substitute

arrangements (conduct)2) don’t treat as terminated and wait the actual date for performance

The law doesn’t require actual reliance to make a repudiation irrevocable because they want to encourage injured parties to make alternative arrangements.A party can set a date/time frame for retraction and at the end of that date, the repudiation is unretractable.

If you don’t treat the K as terminated and simply await the actual date – you are in tension with the duty to mitigate damages. The court says that you can wait a reasonable period of time and then you have to treat the K as terminated. What would be a reasonable period of time? SOG – not too long. Land – prices are stable – so it would be longer.

Excuse of performance based on failure of basic assumptions ---MistakeImpracticabilityFrustration

Mutual MistakeRestatement 152 – A party adversely affected by a mutual mistake can obtain an avoidance of a K if it can prove:

1) mutual mistake – both parties share2) mistake concerns a basic assumption on which the K was made3) mistake materially affected fairness of exchange4) party did not assume risk of mistake by

a. K languageb. Procedural or limited knowledge (concious ignorance)c. Court reasonably allocates risk

Unilateral mistake:1) unilateral mistake – only one party makes2) mistake concerns a basic assumption on which the K was made3) mistake materially affected fairness of exchange4) enhancement is unconscionable OR other party shared responsibility for the

mistake

Assurance – when there is insecurity regarding reasonable expectations, but not enough insecurity to constitue an anticipatory breach – when can you ask for assurance?

Traditional – McCloskey – if they give you reason to believe that they won’t perform, but they haven’t repudiated – you cannot demand assurances from the other party unless the parties contracted for that right.Traditional exception to this common law rule – insolvency exception – if a company went bankrupt or insolvent (unable to pay their debts as they come due) – if the other party has become insolvent then the other party can demand that the insolvent party be able to perform under K (demand guarantee / letter of credit – or simply demand cash right now – pay up)

UCC – philosophy facilitating transactions – basically broadened the insolvency exception into 2-609UCC 2-609 – parties can demand assurances where it seems that the other party would be unwilling/unable to perform their obligations. Demand in writing. Idea is that 2-609 gives a party the right when they have become insecure to demand adequate assurance and if that assurance is not forthcoming then the law treats that insecurity as a repudiation.

So there are three types of repudiation: express, implied, and third under 2-609.

This deals with insecurity after the time of contracting. If there is any insecurity present during contract formation then the parties have assumed the risk of that insecurity. What we need for 2-609 is a change of position or adverse situation that arises after K

formation to give the party insecurity that the other party is not performing. Reasonable time you can treat as repudiation (less than 30 days)2-609 writing requirement – most courts say even if you have orally made your demand for adequate assurances known to the other party – then that is ok. Have to ask for reasonable assurances – those are basically determined under applicable commercial standards.

Number of ways to become insecure:Defective goods – will the rest be defective?Change in commercial strategy?

Restatement 251/modern trend – basically identical to UCC 2-609 – different courts have adopted to different degrees – like NY in the Norcon case – only applying to long term contracts similar to a sale of goods contract. Courts are split between Restatement 251 and the traditional rule.

Mistake provides a way for a party to get out of a contract when the parties have made an assumption/belief that turns out to be false EXISTING at the time of the contract.Impracticability and frustration deal with future events/conditions dealing with future performance.

Mistake – 2 forms of the mistake doctrine:1) mutual mistake – both parties shared an erroneous assumption or belief regarding

facts EXISTING at the time of the contract. ***more common than unilateral2) unilateral mistake – only 1 party has made an erroneous assumption or belief

regarding facts EXISTING at the time of the contract. *** higher bar to get out

General (Restatement 152): A party adversely affected by a mutual mistake can obtain avoidance of the K if can prove:

1. both parties share erroneous assumption/belief re facts existing at the time of the K.

2. mistake concerned basic assumption on which K made.3. mistake materially affected fairness of exchange4. AND party did not assume risk of mistake by

Stees case – historic common-law attitude – if you assume a non-qualified duty to do something then your duty to perform is absolute.

Wood v. Boynton – sold a rock for a dollar that turned out to be a diamond – under the common law both parties made a mistake but it doesn’t matter. She assumed an unqualified duty to sell for a dollar.

Sherwood v. Walker – Rose 2d of Aberlone – thought the cow was sterile – court said that the cow that they sold wasn’t the cow they contracted for – the mistake was enough to excuse performance.

So that leads into the Restatment – 4 basic factors:Basic assumption – what does that mean? Something that’s fundamental, central, or important to the purpose of the contract.Other basic assumptions – generally deal with subject matter of the K (like existance of goods), identity of goods, or the quantity or quality of goods.Second form of basic assumption – nature of performance required under for example a service contract – this is illustrated by the Watkins case – where the contractor had agreed to excavate and hit rock (priced on easy excavation) – that kind of mistake – that is a mistake about a basic assumption – dirt would be easily removable when in fact it wasn’t. Materially affected the fairness – so if hitting rock increased performance cost by 5% - court wouldn’t think that’s materially unfair. If hitting rock increases performance by 50% - clearly the fairness of the exchange is affected. Now the contractor has to do more work for the same amount of work (1.5 times the work).

Rough rule for whether it affects fairness of exchange – if you have a situation like Sherwood or Wood, where it affects the value of exchange – gives one party a windfall and makes the other party a big loser – court more likely to find that it interferes. In a case where it only makes one party lose out, and doesn’t give the other a windfall – when it only affects one of the parties.

Prove they did NOT assume the risk of the mistake – you must meet all 4 elements. How does a court find whether or not a party has assumed the mistake – 3 basic ways: K language – can the K reasonably be read to allocate the risk of the mistake to the other party – 2 main ways to allocate: a clause such as B buys house AS IS. Another common way to allocate risk of mistake is where one of the parties expressly warranties or guarantees something to the other party. Where there is a strong guarantee or warranty of result – if the patient lacks sufficient cartilege – court might say that the K language allocated the risk of that mistake because of the express guarantee.

3 ways to assume risk:K language allocates – e.g. AS IS, etc.Court finds that the party knew or should have known about uncertainty surrounding the transaction and proceeded with the transaction anyway. (conciously decided to be ignorant about a fact they knew they didn’t have full information about – like where they sold the stone in Wood).--- Under all of the surrounding circumstances it’s fair to place the burden of the mistake on the party that’s seeking relief. (reasonable allocation of risk to one party)2 main situations

1 party has particular expertise (contractor, etc)OR based on public policy considerations – typically in sale of and/ real estate – public policy to foster the finality of these sales.

Renner – jajoba farm – B buying farm for jajoba farm – not enough water – in this case all the parties could get was restitutionary relief – they wanted reliance interest too – but the court said.

ImpracticabilityGeneral Rule (Restatement 261/UCC 2-615) – A K party’s duty to render a performance may be excused if she can prove: the performance is deemed to be excused under the contract.

1) occurrence of a supervening event (between K formation and performance) that either prevented or hindered performance

a. are there reasonable alternatives? If so – then this element is not satisfiedb. how much did cost of performance increase based on the supervening

event? Parties bear some risk – UCC essentially says that increased costs

do not exclude performance unless they are so great that they alter the essential nature of the performance that is required.

2) non-occurrence of the event was a basic assumption of the partiesa. parties assumed that whatever happened wasn’t going to happenb. how forseeable was this event? (more forseeable – shared responsibility)c. destruction – so unforseeable that parties assumed they wouldn’t occurd. financial troubles/fluctuations – court probably won’t say its a basic

assumptione. was the party seeking relief in a better position to guard against the

occurrence of the event?3) impracticability not her fault4) did not assume a heightened duty to perform from K language or surrounding

circumstances:a. 3 common situations where there is a duty:

i. K language – party expressly assumed the riskii. If there is something that addresses the occurrence – like a price

escalator clause – the court says – you though about it – so you assumed a heightened duty to perform

iii. Forseeability – how forseeable was it that a certain contingency would occur – the more forseeable – the court will say you knew and you didn’t do anything – so you had a heightened duty to perform

Common law rule – your problem when you promised to do something – limited doctrine of impracticability:1 – supervening illegality made your promise impossible2 – personal contract and the person died or became disabled3 – existance of a necessary thing for performance was destroyed through no fault of the parties.

Impracticability1- supervening event preventing/hindering performance2- non-occurrence of a basic assumption of a K3- not claimant’s fault4- no heightened duty to perform

FrustrationGeneral: Restatement 265 – A K party’s duty to take a performance may be excused if she can prove:

1) occurrence of a supervening event that caused her principal purpose to be substantially frustrated

2) non-occurrence of a basic assumption of a K3) frustration not claimant’s fault4) no heightened duty to perform

Transatlantic – seeking contract price and restitution – thats on the contract and off the contract – you cannot do that. Supervening event – increased costs need to be great.

Selland – school bus bodies – specifically stated bankrupt source of suply – If the K specifies the source of supply then they will place the risk on both parties.

Force majeure clause – excuse clause – specifies certain contingencies that the parties thought about (could be boilerplate) – courts don’t generally require these. If there is a force majeure clause then you do not apply impracticabilty. What is the issue? Meaning and scope of the clause. Use rules of interpretation.Ambiguity – intrinsic aids of interpretation/extrinsic aids.If it’s too ambiguous – just apply impracticability.(parties when they are listing stuff will try to avoid the intrinsic aids specific then general by saying including by not limited to)

Impracticability – typically a defense for a seller (rare that a buyer whose obligation is usually payment is excused from impracticabilty).

Crop failure – farmer contracts to sell peanuts – did he contract to sell HIS peanuts, or just any peanuts – commercially reasonable alternatives.

Frustration – Krell v. Henry – king coronation – king got sick – the purpose of the contract was to watch the coronation – Restatement 265 – “Where after a K is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurence of which was a basic assumption on which the K was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.”UCC has no analogue for frustration – so Buyers have to invoke the common law – since it has not been expressly displaced by the UCC.