Contracts Outline

1/20/2013 2:01:00 PM

I. The Parol Evidence Rule + Interpretation Is the document in fact a record of the agreement? There is a possibility that the doc doesnt reflect the entire agreement. Parol Evidence Rule gives us the circs when extrinsic evidence to supplement an agreement may and may not come in. o This rule asks How do we know if it is the final embodiment of the agreement? A. Complete Integration A writing that the parties intend to be a final and complete version of their agreement that cannot be contradicted or supplemented by contemporaneous agreements or negotiations. o This rule DOES NOT address things that were made after the final agreement o We are assuming that the extrinsic evidence relates to the transactions. (Not two diff Ks about two diff transactions) o A court will not look at any extrinsic evidence if it was a complete integration TEST FOR COMPLETE INTEGRATION: o Examine

Writing + In Light of surrounding circs B. Partial Integration A writing that the parties intend to be a final version of part of their agreement cannot be contradicted, but can be supplemented by, extrinsic evidence of prior or contemporaneous agreements or negotiations. o There were other parts to the agreement that were not written down. You can supplement a partial integration by showing what the other parts to the agreement were, but you cant contradict it. C. Distinguishing Between Final and Partial Integrations Hypos: o 1. We make a K for a house painting. Price @ 500$. We assume a final complete integration. After you paint house, I allege a separate oral agreement where I will only pay you $300. Evidence is NOT admissible because it contradicts the

writing. Here, it doesnt matter if the integration was partial or final because PE can never contradict an agreement. o 2. Painter will paint your house. I agree to pay for transportation costs. Price to pay at $5000 but our K never mentions anything about transportation. A dispute arises, and assuming its a complete integration, Oral evidence of transportation costs is not admissible. CASES: Mitchell v Lath: P agrees to buy property as long as the D would see to it to remove an unsightly ice house. Written K does not include this, agreement of ice house was an oral agreement. D later alleges no such agreement was ever made. TEST for Complete integration: Examine writing in light of surrounding circumstances This is an objective test: Does it look like it manifests a final and complete set of terms, or is something missing? Holding: The writing seemed complete, it contained all the customary terms. Thus, PE cannot be admissible. A reasonable observer would expect for this to be in the K if it was that important to P, she should have put it in the K! Suburban Leisure Center v AMF: P and D make two separate agreements, one oral and one written. D claims that the written K is a complete integration and that the oral K is not admissible because PER precludes evidence of prior agreements. Court holds that the two Ks were collateral agreements (Separate Ks) so that the PER does not apply; oral K is admissible. Masterson v Sine: Masterson owned a ranch. Sold it to family. Asserted a right to repurchase the property in 10 years. Masterson goes bankrupt. Trustee in Bankruptcy is appointed to divide and sell the assets to pay off the creditors. Trustee tries to buy back the house to he can sell it and pay the creditors. Defendants argue that the option to repurchase was limited to family members, so this option was reserved for the Mastersons. The only problem was...this was not in the written contract!! Ds are trying to submit

evidence of a contemporaneous oral agreement. They are trying to supplement the writing. Was this a complete or partial integration? If complete- evidence cannot be entered. If it is partial, then the parties can introduce evidence. Does the writing look complete? The Mitchell court would hold that it is complete, the terms were full enough to seem complete. This court, however, holds that this evidence is admissible. Is there a complete integration? NO Examine writing in light of surrounding circs Does the writing look complete? Maybe, but its a form document what could be hard to alter (Mitchell) (A form document is like a standard form that is hard to add things in) Surrounding Circs: Family transaction; parties may not have understood Parol evidence rule. RULE: Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. AKA- the judge will allow the evidence of alleged negotiations unless they will mislead the trier of fact.

D. Policy Reasons for Parol Evidence Rule Makes people making Ks more careful to make sure everything is in the K Unclogs the courts and decreases litigation costs Prevents people from falsely asserting there was an oral agreement Protects the reasonable expectations of the parties Con: Allows you to deny an oral convo that DID happen E. Exceptions to the Parol Evidence Rule You cannot use the PER for evidence that goes to the invalidity of the K (that contradicts a writing) PE is admissible to show the existence to an oral condition to the K o Condition: an event that must occur before performance PE is admissible if you are trying to reform a K *PE is always admissible to interpret or explain a writing PER does NOT apply to evidence about a complete different agreement or transaction.

 2-202. Final Written Expression: Parol or Extrinsic Evidence. Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) by course of dealing or usage of trade (Section 1-205) or by course of performance (Section 2-208); and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement .

F. Interpretation: How do you tell the difference between contradicting a writing and interpreting a writing? Alaska Northern Development v Alyeska Pipeline Service: The price term was left open, and after negotiations, a letter of intent was signed saying that closing the deal was contingent upon the approval of Alyeskas owner committee. When the owner committee denied the deal, P sued because they interpreted the contingent on the owner term as meaning they could only reject if they didnt agree to the price. Is this an attempt to contradict the language of the agreement? Is it contradicting to say that there is a limitation on it? The court says yes. How do we know if a writing is contradicting rather than explaining a writing? o TEST: 1. A contradiction is where you negate the document 2. Is there an absence of reasonable harmony with the Ks term? PER is admissible to explain a writing, not contradict it! G. Plain Meaning Rule - Formalist Rule (Interpreting Terms) Interpretation assumes that the writing is not clear; clear writing would not need interpretation

Plain Meaning Rule: Courts should look to past evidence just to justify what words mean and only if the words are not clear to a reasonable person reading the doc. Hypo: parties negotiate for a long time over installation of fiberglass. Parties enter into written agreement that calls for installation of the stuff. Tuesday 10am, $5000. Stuff is a vague term. Its not plain what it means. The parties can introduce evidence that shows stuff refers to fiberglass. o Cant bring in evidence that stuff means nonstuff because thats a contradiction *If the writing is CLEAR and UNAMBIGUOUS on its face, and a reasonable person would understand it, its NOT allowed to enter under the PER. *NY Has a Plain Meaning Rule Policy: if someone is trying to introduce evidence to interpret a writing that is clear, the persons motive could be to create an ambiguity that isnt there so they can change the K. Promotes Certainty, predictability, fairness, efficiency Goal: will assure people that they know what their rights and obligations are, and that courts will rightfully enforce them. If language is proven not to be plain, then PE will be admissible H. The Context Approach (Realist Alternative to the Plain Meaning Rule) PE and Extrinsic evidence are much more easily admitted here. This approach takes the stance that even language that seems plain on its face may have latent (hidden) ambiguity. We should always (in theory) accept PE. Pacific Gas: Language in K was that D agreed to indemnify P for any damages that occur. As D repairs Ps property, he ends up damaging it. P sues for damages, but D argues that he was promising to pay for damages to 3rd parties property. o Under the Plain meaning rule: No extrinsic evidence can come in, D is purposely creating and ambiguity (Prof likes this argument better)

o Under Context Approach (method taken by court): writing can never be plain just by looking at it, even if it is apparently clear, so we must interpret the language, and PE may be admissible. BUT there is a limit: ***As long as the parol evidence proves a meaning to which the language of the writing is reasonably susceptible*** you cannot bring in PE to support a meaning that is not reasonable o Rationales: Objective Theory of K- The plain meaning rule is really the objective theory of K. But this theory also has a notable exception: when the parties both share the same subjective intent, we look at the subjective intent. The context approach is consistent with this exception. o Notes: Isnt the interpretation of indemnify contradicting the writing? Remember, we are assuming that indemnify is not plain its an ambiguous term that could or could not include the P. You cant contradict something that looks plain. Explain this in office hours. o Is this really that different from the plain meaning rule? If there is more than one meaning to a word, then maybe its not plain after all. Plain meaning rule still allows PE if you show that the language is not actually plain. Why do these problems arise? The optimism bias: people think they are expressing everything they subjectively want; maybe the parties are contracting over something that is difficult to explain. RULE: We interpret according to objective meaning in most cases. What would a reasonable person understand in the circs? EXCEPTIONS: if you show parties share the same subjective intent, than that controls. If you have two equally reasonable interpretations of the K, and the parties had two diff understandings, then there is no K. I. The Hierarchy of Sources

(page 643) 1. Look at contract language in the circs. (A bakers dozen means 13) (plain meaning rule) 2. The surrounding circs o 2(a) Course of performance (conduct of parties under this K we assume that when they were performing they were going by the K) 2(b) Course of dealing (the word means what they meant in prior Ks) (less relevant than course of performance because course of performance is what is actually happening in the current K) 2(c) Usages of trade (the conduct of other parties in this industry, assumption is that parties must have intended the same thing). 3. Canons of construction (ex contra proferentem- the meaning is favored that goes against the drafters interpretation to give him an incentive to be more clear only when the terms are AMBIGIOUS) o In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds. Restatement 2d section 206. o This gives parties an incentive to be clear. o This implies that ONE of the parties and ONLY one of the parties is responsible for the language. If both parties made the K, then this doesnt apply. This goes to adhesion Ks or where the bargaining power is in favor of one party. 4. Gap fillers supplied by law (UCC) 5. Good-faith standard Parol evidence should be on this list somewhere, but prof isnt sure. See professor to explain. Parol evidence is evidence of prior or contemporaneous negotiations or agreements. It doesnt refer to course of performance or trade usage.

Frigaliment Importing Co v BNS Intl Sales Corp The what is chicken case

This case is important because it shows us how courts use the hierarchy of sources/types of sources used to interpret a term. Court looks at the cables sent between the parties, then to the trade usage, then to the K language, then to the course of dealing.

Contra Proferentum: Against the Drafter When Language Is Unclear: o In choosing among the reasonable interpretations of a promise or term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom writing otherwise proceeds. Used only when language is unclear. If language is unclear, the intereperation of that language will be construed in favor of the party who did not draft it. This is important in insurance and adhesion Ks, because one of the parties sets the terms and the other cannot bargain/has less knowledge Sometimes called the Reasonable Expectations doctrine- A reasonable expectation of an insured is that he is covered thats why he bought insurance to begin with! Limitation: This does not apply where the parties are both knowledgeable. Rationale: if one of the parties is responsible for the language, then only one of the parties is responsible for the ambiguity. This encourages people to draft Ks more responsibly. In Re Katrina Canal Beaches Litigation: Flood damage case K language held that flood is not covered. Insureds tried to argue that flood via government negligence was not covered in that portion of the K. Court held Reasonable interpretation of Flood included both

definitions. The court said it didnt matter that the term isnt defined; thats not what makes something ambiguous. Ps could not show that the term was really ambiguous. THE DUTY OF GOOD FAITH IN PERFORMANCE I. Good Faith, Generally A. Definition: o Good Faith is somewhere between fraud and complete altruism toward your business partner. o UCC 1-201(b)(20) Good faith means honest in fact and the observance of reasonable commercial standards of fair dealing This is both subjective and objective. Honest in fact is subjective the person is really being sincere Reasonable Comm. Standards is objective trade/industry standards The duty to act in good faith is implied, it need not be expressly described. A failure to act in good faith is a breach. A K CANNOT take away the duty to act in good faith B. Good Faith in Performance, as Opposed to in Formation o There is NO duty to negotiate in good faith Before a K is made, you do not reasonably expect that the other party is on your side or will work for your interest. o There is, however, a duty to perform in good faith. Performance is about conduct once the K is enforced, after the K is made. C. Duty of Good Faith in Exercising Discretion o A. Rule: If a K involves some sort of exercise of discretion, there is an implied duty of good faith! o B. Centronics Corp v Genicom Corp: P claimed there was a breach of the duty to act in good faith when D did not release

a portion of the escrow funds. The court held that there was no discretion here to begin with! No violation of GF. Two tests given: 1. Look to reasonable commercial standards in light of the purposes the parties had in making the K. it was still good faith because if he gave the money quick, there would have been less of an incentive to cooperate. 2. Burton Test of Bad Faith: When two parties make a K, each party gives up something. Here, they gave up a right to early release of the funds. Bad Faith is when you attempt to recapture what you gave up in the K! D. Duty of Good Faith in Cooperation o A. Rule: Good faith included the implied duty not to hinder the performance of the other party. o B. Patterson v Meyerhofer: D agreed to buy property from P, but then outbid the P at the auction. It was thus impossible for D to perform because he physically couldnt- D bought the property first. o C. Market Street Associates v Frey: Judge Posners very economic (not moral) outlook on good faith. D tried to take advantage of another parties oversight in the K. (there was not enough evidence to determine this). Rule from this case: you cannot deliberately take advantage of another party. To not act in good faith is uneconomical: without GF, Ks become very expensive. It means that the parties must monitor each other very closely higher attorney costs, takes a lot of time. Each party has an interest in good faith, therefore the parties expect that each party will act reasonably they will not rationally have to spend more money than they have to. Professor stressed this point heavily. Not about morality. E. Duty of Good Faith in Satisfaction of a Condition o A. Rule: If there is a condition in the K, the party must make a good faith effort to try and fulfill the condition.

o Billman v Hensel: Getting financing for the house was a condition of the K. D needed to act in good faith to try and get the financing. Buyers only contacted one bank. Bad Faith. F. Good Faith in Satisfaction Clauses o A. Rule: Satisfaction is a matter of discretion, but there is an implied duty to use good faith in exercising that discretion o B. Numiller v Cornett: Chipping Potatoes Case D claimed potatoes wouldnt chip properly and were unsatisfactory, but in reality the price went down and the D wanted out of the K because he could now be free from the K and purchase them cheaper on the market. Buyer acted in subjective bad faith (he was not honest- P gave him potatoes from another farm that he knew D bought from, and said those were bad too) and in objective bad faith expert said potatoes were fine. We judge satisfaction by an OBJECTIVE standard! Not what the buyer liked, but what a reasonable buyer would expect to be satisfied. But...Items like a portrait painting must be a subjective standard.

G. Good Faith in Output and Requirement Ks o A. Rule: Seller cannot get out of output K merely because production has become inconvenient, can only get out of K if losses are more than trivial. Side note: Potential consideration problem with these Ks- I will sell you all I can produce what if you dont produce anything? o B. Feld v Levy & Sons: party making bread did not want to continue in K because it was not profitable. Court held that he cannot get out of K unless he proved he would go bankrupt otherwise. It wouldnt be good faith for bread man to leave K Also wouldnt be good faith if he wanted 80 boxes normally but all of a sudden asks for 8000 boxes he cant produce that much.

TERMINATION OF A K FOR REASONS OTHER THAN A BREACH

A.

B.

Many Ks provide that parties may terminate a K in case of certain events. A party must exercise its discretion in good faith to terminate a K. i. Zapatha v Dairy Mart: D acted in good faith when it offered a clause that they would buy back inventory at 80%, both parties had right to exercise discretion. Employment Contracts Usually specify grounds for dismissal. i. Employment at Will Ks- American Employment Ks come with the presumption that they are all at will unless otherwise specified. 1. Rationale: People would be much less likely to hire a lot if they couldnt fire for any reason! There is no duty of good faith in firing an at will employee. (Besides exceptions based on sex, gender, religion, etc) Public policy reasons for getting fired are not ok ex getting fired for committing perjury against employer. Hillesland v Federal Land Bank: if K is silent, can be terminated for any reason! Employee handbook is not binding. Optimism bias plays a role here because people dont think bad things will happen to them when they take on an at will employment.

WARRANTIES (only for sale of goods) A. Definition: An express or implied agreement that certain facts about the goods are true Doesnt have to be formal It is NOT an expression of opinion (puffing or appraisal of the goods by seller doesnt count) Not about future acts o Its a representation about past or present fact Its kind of like a promise- a promise that the representation is true If the warranty is not true, it is a breach of implied warranty that all representations are true. B. Express Warranties (professor says these are not that interesting)

UCC 2-313 o Any affirmation of fact made by the seller which relates to the goods and actually becomes party of the basis of the bargain. Ex. Description of goods. this desk is mahogany Goods must conform to the affirmation of factotherwise its a breach of warranty Express warranties CANNOT be disclaimed Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole

of the goods shall conform to the sample or model C. Implied Warranty of Merchantability UCC 2-314 o Unless excluded or modified under 2-316 (shows its a default rule), a warranty that the goods shall be merchantable is implied in the K for their sale if the seller is a merchant with respect to goods of that kind. (not just any merchant!) Merchantability = fit for the ordinary purposes for which such goods are used (this is the warranty) Merchant pretty much covers all business parties, but of the kind that deals with those goods. If he is a seller of this kind of goods, then it is warranted to think he can give a warranty that the goods are acceptable. Default rule unless otherwise stated by parties D. Implied Warranty of Fitness for a Particular Purpose UCC 2-315 o Seller at the time of contracting has reason to know any particular purpose for which the goods are required and that B is relying on sellers skill or judgment to select or furnish suitable goods. Unless excluded or modified under 2-316 This signals its a DEFAULT RULE Can be preempted by the parties o This applies to ALL sellers, not just goods of the kind. If I am a seller and I know why you want the goods and you are

relying on me, then I am guaranteeing that the goods are fit for your purpose. E. Limitation of Warranty Issues arise if the warranty has been limited or disclaimed. Ex: I am selling you my 10 year old car. I dont want to be in a position for you to sue me later because you are not satisfied. UCC says if youre a merchant of cars, there is an implied warranty it is good. How can a merchant avoid this? o Implied warranties are a part of every UCC contract unless disclaimed by the seller. Disclaimer necessary for the types of warranties: UCC 2-316 o Slightly different rules for different warranties: Implied Warranty of Merchantability: Limitation MUST mention Merchantability must use this actual word, put it in caps, or bold, must be noticeable! It can be oral, but if it is written it must be conspicuous. Implied Warranty of Fitness: Limitations must be by a writing and be conspicuous. You dont need to mention the word merchantability. Comes up in adhesion mass consumer products All implied warranties (including for merchantability) can be disclaimed by using words like with all faults or as is. Doing this disclaims ALL IMPLIED WARRANTIES< not EXPRESS!

CONDITIONS (In Contract Performance) Definition: An event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a K is due. o Restatement 2d 244 If the event does not occur, then the party need not perform. They parties failure to perform is not a breach.

A promise can be absolute I promise to let you have my boat I promise to let you have my boat on Saturday o Passage of time is not a condition. We assume the sun will rise on Saturday, so its not an event that not certain to occur. Or a promise can be conditional I promise to let you have my boat on Saturday if the water is below X feet. o Make a promise if some even occurs o The event is if the water level is X o If the tide doesnt reach X, you cant sue me for breach o This not illusory because it is not within my control. Only if I were able to control it would the circ be illusory Rationales for why parties make their promises conditional: If the tide is low, Im happy because my boat wont get ruined. If the tide is high, Im happy because I can let you use it and make money. The risk goes to the other guy: if the tide is high, he cant use the boat, but if the tide is low, he has to pay. RULE: If a promise in a K is conditioned EXPRESSLY, the condition must be strictly complied. Substantial compliance does not matter! Can be arbitrary. Dove v Rose Acre Farm o Doesnt matter that the condition was ridiculous, P had a choice and voluntarily accepted job with the condition that he can never be late. Rule: A promise needs to be substantially performed. Differences between a promise and a condition: A promise creates a duty on the promisor A condition modifies that duty. It does not create a duty or obligation. Provided that or only if usually hints at a condition if unclear between a promise or condition, courts are inclined to say its a promise, because they want to avoid forfeiture.

Look at the circs: do they suggest that the parties understood that the term is a condition, not a promise? Objective test: what would the reasonable person in the circs of the parties understand the intent to have been? Did the parties manifest an intent that failure of the specified term would result in forfeiture?

Hypo: You own a ship. I am a merchant. I tell you I promise to pay the freight if you carry my cargo to Spain, provided you sail on the next wind. The next wind comes but you fail to sail. You sail on the second wind, and bring it to Spain. Do I have to pay you? o No! An express condition needs to be complied with strictly. o Condition: if you sail on the next wind o Ask: was sailing on the next wind SO IMPORTANT that the parties understood that the merchant would have no obligation to pay otherwise? What if instead I tell you this: I promise to pay the freight if you promise to carry my cargo to Cadiz on the next wind. This is a bilateral K, a promise for a promise. There is no condition. Therefore, if you miss the next wind, but sail on the second, must I pay? o It depends on whether you substantially performed. This is a breach, but a minor breach. I still will owe you something for what you did. You still performed.

Excuse of Conditions WAIVER A condition may be excused by a waiver. Waiver: The intentional relinquishment of a known right o Can be express or implied o This is when the Promisor waives or forgets the condition and may permit performance anyway. o Rationale for waiving a condition: sometimes it may be better to just waive the condition and get the good shipped instead of not having them shipped at all.

o Waiving a condition is sort of like modifying a K. Waiver is what courts look to when there is a problem with the modification doctrine (good faith in light of unanticipated circs no full performance by either side allowed. Clark v West: K held that D would pay P 6$ a page if he doesnt drink during the writing of the book. Abstaining for alchol was a condition. When it came time to pay, D did not give him 6$ a page because he claims that P was drinking. P argues that this drinking condition was waived because D knew he was drinking at a bar and told him to finish regardless. P relied on this promise that he would be paid 6$. How was this waived? By not insisting on the condition. D says that if he waived the condition, he reinstated it. But the court says that you cannot reinstate a waiver once someone relies on it. RULE 1: Once promisee relies on the waiver, condition cannot be reinstated. Rule 2: Some courts will allow the promisor to reinstate the condition if the promisee did not rely on the waiver. Condition Excused by reason of Public policy Rule: Condition if excused if enforcing the condition would be against public policy Forest Ferguson v Phoenix: insurance policy held that in order to recover for a safe-burglary, both doors needed to show marks of violence in order to be covered. Rationale was that this would prevent inside jobs. This was construed as not to be a condition, but as a rule of evidence. This was against PP because a reasonable person is going to assume its covered if there is a violent break in. the PP in this case is to protect the reasonable expectation of the insured. Compare this to the Katrina Case: There, it was not reasonable for the Ps to think that Flood DID NOT mean flood by negligent design, nor for them to think that he would be covered if the flood was caused by negligence. Rationales: reasonableness of enforcement o Disproportionate forfeiture: sometimes, the court will say that the condition is just not that important relative to the loss that the other party will suffer, and therefore the court might not enforce the K.

Constructive Conditions of Exchange Performance, Not Formation So far the above has been about express conditions. PRESUMPTION/DEFAULT RULE: Promises in a K are dependent, each promise is a constructive condition on the other. (unless K specifies otherwise). Do we think the promisors promise is dependent on the return promise? If so, there is an implied term that makes the promisors promise conditional on the return promise. If the promisee fails to perform, then the promisors own duty to perform never arises and promisor can sue for damages. (as opposed to being independent covenants, where each promise must be fulfilled regardless of the performance of the other) A court will look at a K and determine if one promise is dependent on the performance of the other. If so, the court will supply a term (will be implied by law) that makes performance of one conditional on the other. If performance of your promise is a condition to my promise, and you dont perform your promise, the condition has not been fulfilled and I dont

have to perform. This is the case in almost every bilateral K. RULE: Constructive conditions need to be complied with substantially. Jacob and Young v Kent: Reading pipe case. o Jacobs had to perform substantially before Kent had a duty to pay o Using a no-name pipe was substantial compliance Kent will have to pay what he promised MINUS the economic loss/damages he has suffered (nothing in this case) RULE: Order of performance: where the performance of one of the parties requires time, his performance is due first unless language of the circs indicate to the contrary (default rule) Ex: I promise to pay you if you paint my house. Painting goes first. Roles can be reversed, but this is the default rule. RULE: where performances can be rendered simultaneously, there are due simultaneously unless language or circs are to the contrary

Parties can make a K where the house owner will pay the painter first.

Jacobs and Youngs v Kent We could spend an entire course talking about this case Facts: Kent refused to make last progress payment when he found out that the P did not use Reading pipe, as specified by the K. D argues this was a condition, and thus required strict compliance P argues that this was a constructive condition, and thus only required substantial performance. This all turns on whether this was a condition or a constructive condition.

How to Tell if Something is a Condition (using Kent case for illustration) - Cardozo 1. Purpose to be served: Just to build a house that required plumbing. Whats the purpose of saying it has to be Reading Pipe? To just have working pipes! Not because he was obsessed with the brand. 2. Desire to be gratified: To have running water 3. The excuse of the deviation from the letter: It was not willful or fraudulent, just negligent. Its not like he was trying to hide something or that the non-reading pipe was cheaper. 4. The cruelty of forced adherence: Could the builder have reasonably expected that if he didnt use reading pipe he wouldnt be paid? They would have to demolish the entire house to rebuild the pipes! o The above categories suggest the parties reasonableness.

We look to the parties intention: If not revealed, we presume its what a reasonable person would want. We want to effectuate the parties intention, but if they dont tell us, we presume its what the reasonable person wants. If they want to avoid this presumption, they can use apt and certain words

Dissent: its no business of the court to say what is and isnt important to the parties. Thats what he wanted in the K, he could have been as arbitrary as he wanted. Reconciling this case with Dove v Rose Acre: The main difference between these two cases is the purpose of the condition. Cardozo would have not held there was a condition, and there were no damages because he didnt lose any work, the work was completed and the employer didnt lose any hours. Kent Case + Good Faith: Good faith is going to be the tie breaker in a close case. Was the contractor acting in a commercially reasonable way? Bad faith mistakes are treated worse than good faith ones. Cardozo suggests this is a factor. RECOVERY IN QUASI-K IF THE CONSTRUCTIVE CONDITION FAILS Traditional Rule: If someones promise is subject to an express condition, and its not fulfilled, then quasi K is not available. In Dove, it was not unjust for the promisor not to pay because the condition was express and the P knew it and voluntarily accepted. The Problem: contractors are in a worse position: if they fail to meet the condition, they get nothing for their labor thus far, because quasi-K is not available. The person who tries to perform is in a worse situation than the person who just quits from the onset and wouldnt lose anything because he never started work to begin with. Britton v Turner: P quit before his term with D was over. He cant recover under the K. P does not sue under the K, he sues for quantum meriut, which is the reasonable value for the services conferred. The P labored for 9 months and would receive nothing for his work. Its unfair for him to substantially perform and receive nothing. o This is different from dove because he there employer didnt put into the K something that he would not pay if he didnt full perform. Recovery: can recover the value of services rendered MINUS any damages D suffered as a result of the breach. Restitution cannot exceed the K price.

SEVERABLE AND DIVISBLE CONTRACTS A. Definition: If performances to be exchanged under a K can be apportioned into corresponding pairs of part performance, it is a divisible K. B. Underlying Question: Can the performance be apportioned into corresponding pairs of part performances so that the parts of each pairs are properly regarded as agreed equivalents? This doesnt deal with the parties intent, - its after the fact. ASK: Do the component exchanges/pairs of part performance have some independent econ value? o YES divisible EX: We have a K to build a three story house. Total K price is 300K. You build one floor and then seek payment for that one floor. This K is not divisible because a one story of a three story house has no independent value. BUT: If we have a K to build three separate houses, and the K price is 300K, and you build one house, that one house has an independent economic value and you can apportion the value, we know each house is worth 100K. There is a value of the substantial performance and still gives you an economic value. This is a device from preventing TOTAL forfeiture of the K. They dont get the whole thing, but they get something. ASK: Can you fairly apportion the K into a series of part performances? o If yes, then more likely to be divisible. Lowy v United Pacific insurance Co.: Contractor was to do street improvement work and excavating work. Did 98% of excavating, but not any of the street improvement. This was not a substantial performance of the entire K, but it was nonetheless divisible because:

o The K had set up two different payment schemes for each section of the excavating and street improvements o Was not a lump sum payment o The way the parties behave is also evidence of a divisible K, here they performed as if there were two separate Ks: they had two separate bonds! o Independent economic value test: Yes, the paved roads have a independent eco value. And the fact that it was only 98% is OK because you only have to substantially perform. Once it gets broken down into separate parts of the K, each part only needs to be performed substantially. Question?: Was it because this was not a condition but instead a constructive condition, thus not requiring strict compliance but substantial performance instead?

PERFORMANCE UNDER THE UCC Perfect Tender Rule UCC 2-601 The rule of substantial performance doesnt apply. Unless otherwise agreed, if the goods fail in ANY RESPECT to conform to the K, B may: o Reject the goods; o Accept the goods; o Accept some of the goods and reject the rest The buyer has free reign. The sellers tender must be perfect. Buyer has some responsibilities. The seller has the duty to make perfect tender. Buyers Responsibilities under this 2-601 The buyer must have to reject within a reasonable time. The Buyer must seasonably notify S B must hold the goods with reasonable care for a time sufficient for S to remove them, unless the K provides otherwise (like ship them back within 30 days) o Dont get too hung up on this, its kind of just intuitive.

Point of the perfect tender rule: o To protect the buyer. o The buyer has to rely on the seller. The PT rule has its own problems: o Business cannot function without a PT rule: I am a grain dealer you are a buyer. I contract to sell you grain for 1000$ on March 1. When the grain arrives on March 1 the grain price drops to 750. You have the incentive to say its not perfect tender and then you want to send it back. It gives too much power to the seller. We dont have a perfect perfect-tender rule, but there are exceptions. This is a violation of the good faith too. o The Seller has the Right to Cure under UCC 2-508(1) Where time has not expired (seller has delivered the goods early) Where tender of goods is rejected b/c nonconforming and time for performance has not yet expired, Seller may Seasonably notify B of his intention to cure Then within the contract time make a conforming delivery o It is an incentive for the seller to send early! If he sends them early and they are off, the seller has a right to cure and within the K time cure the messed up batch. We are assuming there is still time under the K ex K

to send my March 1, I send by Feb 20, I still have 10 days to send you a cure. Where time HAS expired: UCC 2-508(2) Where the Buyer rejects a non conforming tender, the seller may have a further

reasonable time to substitute a conforming tender if: S has a reasonable grounds to believe tender would be acceptable o The circs where this would apply is, lets say, if two parties have been dealing with each other for a long time, and the quantities has always been +/- 10 and accepted, then the seller has a reason to think they would be acceptable. o S Seasonably notifies buyer of intent to cure. This is hard to do when time expires. I make a K with you to send you 100 bushels of US Grade A on March 1. On Feb 15, I send 95 bushels. Can I cure? Yes, under

2-508(1) time has not expired yet. Buyer cannot reject the goods and must wait until march 1 for the goods to be fixed. What happens if seller says he will cure and he doesnt? This leads us into Revocation, but to understand this, we must understand acceptance. o UCC 2-606 Acceptance occurs when B After a reasonable opportunity to inspect the goods the buyer signifies to S that goods are conforming or that he will take them in spite of their non-conformity OR Fails to make an effective rejection OR Does an act inconsistent with Ss ownership (uses them or sells them)

The above all constitute acceptance under the UCC What happens when a buyer accepts goods, but later finds out that there is a problem? o UCC 2-608 Revocation of Acceptance of Goods Buyer may revoke his acceptance of goods whose nonconformity substantially impairs value of the goods and B accepts those goods On the reasonable assumption that the nonconformity would be cured and it has not been cured, or Without discovery of non-conformity if acceptance was reasonably induced by the difficulty of discovery before acceptance or by Ss assurances. Latent Defect Concept: o Ex: you buy a mobile home, and when it rains 2 months later, you realize there are hairline cracks in the rood. You will not discover it until it rains.

Buyer also must revoke within a reasonable time. Rationale: perhaps the buyer himself damaged the goods and wants to return them Warranty vs. Revocation: o Non-conforming goods are a breach, and not are consistent with the warranty. The buyer can revoke acceptance and put the parties back to status quo, or the buyer can keep the goods and get damages for breach of warranty. Hypo: I promise to cure a bad batch of grain I sent you, so you therefore accept the goods. Suppose of never send cured goods: o The buyer can return the goods, because he was under the reasonable assumption that the non-conformity would be cured. Thats the reason why you kept the goods.

The main question: Have the non-conforming goods substantially impaired the value of the goods to the buyer?

IMPRACTICABLITY AND FRUSTRATION The parties make a K one of the parties realizes that the situation is not what he thought it would be. It is now less advantageous for that party. Costly, inconvenient, absurd. Must that party perform? If he does not, is this a breach of K? May he be excused from performance? The law handles this under two doctrines: Impracticability and Frustration

IMPRACTIABILITY Definition: A doctrine relieving the parties to a K from liability for nonperformance of their duties thereunder, if the subject matter of the K ceases to exist The Early View: Pacta sunt servanda: Agreements must be observed Rationales for this view: o Inherent in the concept of a promise o If promisor failed to protect himself, thats too bad, should have added a force majeure clause: Ex: Seller shall not be deemed to be in default on account of delays in this agreement due to causes beyond sellers control Modern View: Impracticability is a rare excuse, if anyone could claim this, there would be no security in contracts. Restatement 2d Section 261 o Where, after a K is made, a partys performances is made impracticable without his fault by the occurrence of an event the non-occurrence of which was basic assumption on which the K was made, his duty to render that performance is discharged, unless the language of the circs indicate to the contrary. The circs that change are the ones AFTER the K is made.

If you are talking about facts that existed at the TIME of the K, that is under the Doctrine of Mistake. When a duty is discharged, we say the duty is excused. Thus, the failure to perform is not a breach. The other party cannot sue for damages. Why? o Because the first parties performance is a constructive condition to the other parties performance! Taylor v Caldwell o There is a K for renting out a music hall which later burns down by no ones fault. P nonetheless brings suit for breach of K. o Held: the D is excused, failure to give over music hall is not a breach. There are two assumptions here: first, It was implied in the K that the parties assumed the hall would exist when it came time to perform. Why didnt the parties write this down? Because common sense would suggest that it would exist! Second assumption: (less apparent) If the hall didnt exist, the D would be excused. FOUR REQUIREMENTS Parties assumed the event would not happen Not the fault of either party No language that indicates that the excuse is unavailable

Rule: A mere increase in cost is generally not enough to make something impracticable! o This is a risk you assume, every K is a bet about the future! o Ks will never be secure if just because the price increases, I dont want to perform Rule: If it is still possible but burdensome it is still not enough to make the K impracticable. Rule: The party who seeks to be excused CANNOT be at fault Rule: An event occurred, the non-occurrence of which was a basic assumption on which the K was made. The parties assumed the event would not occur the event was a surprise.

o BUT- courts will ask if the event was at least foreseeable. What is the likelihood of the event occurring? Was it so small the parties reasonably didnt think it would happen? If the likelihood is very small, then the non-occurrence of the even sounds like a basic assumption, and that the parties assumed it wouldnt happen. o If the K makes reference to the event, you cant argue that it was unforeseeable. The likelihood was high enough that they wrote it down in the K! If you can show that the parties actually did foresee it, then thats an easy case. Dills v Town of Enfield o Parties anticipated that there would be a possibility that the contractor could not secure financing and what would happen if this were to occur. The parties foresaw it, therefore contractor couldnt be excused for not getting financing. Illegality: Performance will be excused if subsequent changes in the law make performance illegal. Centex Corp v Dalton: When the time came to perform, it was illegal. Centex was excused from performing.

FRUSTRATION OF PURPOSE Where after a K is made, a partys principal purpose is substantially frustrated (1) without his fault and (2) by the occurrence of an event, the non-occurrence of which was a basic assumption on which the K was made, his remaining duties to render performance are discharged, unless the lang or the circs indicate the contrary. o It must be a PRINCIPAL purpose and SUBSTANTIALLY frustrated. o It must make the K virtually worthless o If it makes it less attractive or profitable, its not sufficient.

Impracticability v Frustration: Impracticability suggests an impediment to performance, while frustration relates to a situation where an event has occurred where performance is absurd and meaningless. Its not that performance cant be done, its that it doesnt make sense to do it. Developed as a response to changed circs events that happen after the K is formed. This is different from impracticality which suggests some impediment to performance, rendering it more burdensome. Something happens in the K that renders the exchange meaningless. Its not that the obligor cannot perform anymore, its that the K no longer makes sense. The purposes the parties had in making the K have been substantially frustrated.

Krell v Henry Man rents out apt for the viewing of the coronation of the new king. Rents to Henry for 75 pounds. Terms = Henry could use apt to see the parade, only during the day. This is NOT a lease (impt because this goes to the purpose of the K). The parade gets suspended because the king is sick. Henry wants his security deposit back, Krell refuses and sues for the balance. o There are two assumptions: 1. The parade is going to take place The K never stated that the rental of the apt was to see the coronation. So we look at the negotiating history the advertisement in the window comes in under parole evidence rule. 2. If the parade doesnt take place, the T is excused. The K is not express about this, but court determines that if the parties thought about this, this is what they would have agreed to. If the parade doesnt take place, then the LL would have had to eat the loss. This is what the parties would have expected.

Both parties would have understood that if the coronation doesnt happen, the K doesnt make sense. This case is totally different from the following hypo: You hire a cab to drive you to the derby for 10 pounds. At the last minute, the race is cancelled. Totally different here because there is nothing special about the cab you hire, could have taken any cab. Change in Market Conditions: The fact that the price of something goes up or down, is (generally speaking) not enough for excuse. o Washington State Hop v Goschie Gov had a license for hop base, then regulation changed- no license required. Its not impracticable for the parties to pay for the license anymore, but its frustrated because it is absurd to do it if law no longer requires it. In this case, the price for the hops dropped down 98% the event that excused the parties was not the decline in price. The decline in price was only evidence used to justify the event that the gov doesnt require the license anymore. The price drop is relevant in showing that the license is irrelevant. REMEDIES AVAILABLE FOR IMPRACTICALITY AND FRUSTRATION Quasi K after impracticability o Lets say P performs, but it cost him a lot more than agreed. P demands the excess money from D. He claims he performed, should have been excused, and wants to be compensated in some way. o Some courts say yes, others say no. Yes: The obligor has conferred a benefit which is more valuable than the parties anticipated

No:

Other courts say P is out of luck must eat the loss. If performance was impracticable then he should have stopped and asked for a modification. if he went off on his own hook that was a risk he took.

REMEDIES THE BASICS Restitution in impracticality or frustration o A party whose duty of performance does not arise or is discharged as a result of impracticability or frustration is entitled to restitution for any benefit he has conferred on the other party Quasi-K recovery Ex: Costs the obligor incurred on relying on the K K to build you a house. Hurricane comes and I cant build it for you anymore. But I built you a foundation. I deserve compensation. If I also purchased a bunch of material for your house, I could recover that through reliance damages. You have to pay me for the benefit that I conferred on to you. But what was the benefit? The value of my services or the increase in property value?

Specific Performance o An injunction that the promisor (breaching party) must perform as promised. o Suitable in a situation where money damages do no compensate. o Used especially in cases involving real estate. This is unique land with nothing else like it in the world. Contract Remedies: COMPENSATORY DAMAGES o Expectation Measure: Standard measure

Put the promisee in as good as a place as a position as if the K had been performed. Ex: I build you a house for your promise of 100k. House costs me 80K. you refuse to pay I sue for breach. Expectation damages are 100K. there are two ways to measure expectation damages: Expectation is lost profits + reliance this is what you would have expected if the K was performed. Ex: I agree to build you a house for 100K. it costs me 80K to build. Expecting 20K profit. I start building house, I spent 50K and then you breach. o Lost profits 20,000 (what I was expecting) + Reliance 50,000 (what I spent) = 70,000$. Can also be measured by subtracting the K price from the cost of the injured parties avoidance in not having to complete the K. K price minus cost avoided o Ex: I agree to build you a house for 100K. it costs me 80K to build. Expecting 20K profit. I start building house, I spent 50K and then you breach. K price 100,000 cost avoided 30,000 = 70,000 What if I had not begun to work yet, and

then you repudiated the K? o First method: Lost profits (20K) Reliance (0K) = 20K o Second Method: K price (100K) costs avoided (80k) = 20K [we are talking about material breaches, not minor breaches here] o Reliance Damages:

Put the promisee in a good as position if the K had not been made. Why Reliance Damages? Because expectation damages might be too speculative OR reliance was greater than expectation You can never really get more than your expectation Ex: same hypo costs me 80 to build house. My reliance damages are 80K. had I never made the K, I would have never spent 80K. Reliance damages do not include lost profits.

o Restitution Damages (Quasi-K): Restore any benefits that promisee has conferred on the other part Can be measured various ways Such as o Increase in property value o Or value of my services Limited by the amount/value of benefit conferred The K price might be the best evidence of this Efficient Breach: the law tries to reach an economically beneficial outcome. to so do, the law allows a party to breach and still come out ahead. No one is worse off and no one is better off. No worse off than as if the K was performed because the breaching party would have had to pay that amount anyway if the K was completed. o This is not a doctrine of K law it explains why it is that we give compensatory damages Hypo: I own a house that is worth 120K at market value. I make a K to sell it to you for 100K. before I convey it to you, someone asks me to pay 150k for it. Naturally, the seller wants to breach. So the seller sells the house (worth 120k) and the third party gives me 150k. But I breached a K with the first buyer. What will his damages be? 20K. that is the buyers expectation interest. House was worth 120k, buyer was going to pay 100K, and market value would have been 20k

higher than what he was going to pay. Put another wayL if the house was worth 120K, the buyer would receive NO damages. He only gets 20K because the buyer was going to pay 100k but it was really worth 120k. the seller pays off the buyer, no one is really at loss, because the seller was losing 20k to begin with, and buyer is better off money wise. RULE: Damages are not recoverable for loss that breaching party did not have reason to foresee as probable result of breach when the K was made. Damages are foreseeable if: o Its in the ordinary course of events o There are special circs that the breaching party had reason to know Hadley v Baxendale P hired D to deliver a shaft for Ps mill needed to be repaired. Ds delivered it late. But P never told the D that it was urgent and they needed it quickly. Because of the delay, P sued for lost profits. Held: the Ds never knew of this special circumstance. If the Ds knew that there was no other shaft to replace the one being delievered in the meantime, and that they could be liable for the lost profits of the Ps, they would have had the opportunity to protect themselves by putting a clause in the K saying that they are not responsible for any delays. They had no reason to foresee that there would be consequences resulting from the delay. Thus, consequential damages are not recoverable here. we have to put a limit of these types of damages, otherwise, parties can be liable for anything. We only are concerned with a loss in the NORMAL course of events.

As long as you can foresee it, you can contract it out!

Consequential: The breaching party is liable only for damages that are the result/consequence of the breach! These damages need to be foreseeable. o How far out can the losses go? When does it stop being foreseeable? Reasonableness Rule: Damages are not recoverable for damages that the breaching party did not foresee as a probable result of breach when the K was made! NOT WHEN THE BREACH OCCURRED! Very important distinction. If the loss was reasonably foreseeable when the K was made, they could have done something about it. If the carrier knew the delay would have led to lost profits, the carrier could have denied

the job, charged more to protect himself, put a force major clause, or got insurance. o When does a breaching party have reason to know that a loss was foreseeable? When the loss would arise in the ordinary course of events (aka general damages) Special circumstances that the breaching party had reason to know -mill would shut down, but carrier had no reason to know this. Non Pecuniary Damages: Emotional damages/harm. These damages are not commercial. Things like emotional distress, pain and suffering, mental anguish. o These damages are usually not recoverable because they are not foreseeable. Not foreseeable that someone will have a mental break down from a breach of K.

o We have objective standards, we dont think its reasonable to be so upset over money. o Recovery for emotional disturbance will be excluded unless: Breach caused bodily harm The K or breach is of such a kind that serious emotional disturbance was a particularly likely result (Technically, non-pecuniary damages are still compensatory damages, we are trying to compensate the injured party for her loss.) Sullivan v OConnor When pecuniary damages ARE foreseeable, they will be recoverable. It was reasonable foreseeable that ruining the Ps nose an entertainer would lead to psychological anguish. Bohac v. Dept. of Agriculture Are non-pecuniary damages included in consequential (foreseeable) damages? o NO. Consequential damages are only for PECUNIARY damages. Punitive Damages: These are NOT compensatory damages. These are to punish the breaching party because they acted badly. In some contexts, damages might increase if there was a bad faith breach. o Boise Dodge v Clark D set back odometer to 0 sold P a car that he thought was new. Sued for value of the car as it and as warranted- but also for punitive damages. Generally, these are not recoverable but here, there are tort elements we have to worry about third parties in this case. The man is a car salesman and could potentially keep on scamming new customers. There is an interest in regulating this type of behavior. o Restatement S 355 Presumptive Rule

Punitive damages are not recoverable for breach of K unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. Remember, its the conduct which lead to the breach, not other actions after the breach! o (General rule: if you see unless this means that this is a presumptive rule and unless the words after unless are met, the presumption is not rebutted.)

Breach in Contract Law o A breach is any failure to render performance when performance is due. o Whether substantial or miniscule, willful or innocent, whether promisee suffers injury or not. It will always be a breach, and can always at least recover nominal damages. Consequences of breach: o Injured party can recovery damages caused by the breach. o Injured party is excused from performance (if its a material breach) Material Breach: Do you see how this fits in with conditions? In a bilateral K, performance of one promise is a constructive condition to performance of the other promise. If the constructive condition is not fulfilled, the other duty of performance does not arise. When is the constructive condition not fulfilled? o WHEN THERE IS A MATERIAL BREACH! Aka when there is not substantial performance! So if there is no material breach, the other duty

doesnt arise. A failure of substantial performance = other duty doesnt arise. Material Breach vs. Minor Breach Material breach = no substantial performance (failure of a constructive condition) Non-breaching party is excused from performance and they sue for damages. o A breach is material if the failure or deficiency in performance is so central to the K that it substantially impairs its value to the promisee. Minor breach: there was substantial performance, the constructive condition was fulfilled. Non-breaching party is not excused from performance, but may sue for damages.

DOCTRINE OF ANTICIPATORY BREACH The time of performance has not yet arisen. It anticipates breach. Repudiation: A statement by the obligor to obligee that the obligor will commit a major breach. It is voluntary conduct that renders obligor unable to apparently be unable to perform without a major breach. Consequences of Repudiation: Obligees duty under the K are discharged Obligee can immediately bring suit for breach Can Repudiation Be Retracted? Retraction of repudiation nullifies the repudiation if notification comes to the attention of the obligee before o a. Obligee (to whom the obligation is owed to, Hochester in case below) materially changes his position in reliance on the repudiation o b. Obligee indicates to obligor that he considers the repudiation to be final. Ambiguous Statements:

Is the obligors language reasonably interpreted to mean that the party is repudiating? Mere expression of doubt by the obligor is NOT a repudiation. Repudiation Must Be: Clear, unequivocal Must be unquestionably so inconsistent with an intent to perform Hochester v. De La Tour P and D had a K where P would travel as Ds courier on a tour of Europe. K entered on April and performance would commence June 1st. in May, D repudiated K and refused to compensate P. after K was cancelled, P got employed to another man for employment on July 4th. In the meantime, P brought suit against D for damages in breach of his K. o How could there be a breach if the date of performance didnt even commence yet? What was breached? The law needed to come up with a way to classify this as a breach: Anticipatory breach was created. o Consequence: P can sue immediately. D promised that trip would begin on June 1st. the implied promise is that D will not do anything to prevent performance by the other. This wasnt in the K because its implied that the parties wont do anything to hinder performance.

If an obligee has reasonable grounds to believe that obligor will commit a serious breach, obligee can demand adequate assurance of performance Failure to provide such assurance is a repudiation o This can be used in a shady way, an obligor can seek assurance, and when he doesnt like it, he can construe it as a repudiation Assurance has to be objectively assuring

2-609. Right to Adequate Assurance of Performance. (1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be

impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. o youre fine, dont worry about it this is not reasonable! Thus not adequate, and that is a repudiation, thus the other party does not have to pay. (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance. (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. o March 21 before April 21. A reasonable time not exceeding thirty days, its not saying that 30 days is a reasonable amount of time, just sets the absolute limit. o Look at the circs is it a fast moving business? Is it slow? For McDonalds, a comp breaking down ever 15 days is not reasonable!

2-610. Anticipatory Repudiation. When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may o (a) for a commercially reasonable time await performance by the repudiating party; or o (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and

o (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704). 2-611. Retraction of Anticipatory Repudiation. (1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-609). (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation

Repudiation of K to pay Money on a Future Date: Mutual Life Insurance v Cohen o Insurance repudiates K at year 15, even though it had a K to perform 20 years of payments. P sues, calling this a repudiation. She wants all the payments for the next 5 years now. Court rules that she only gets money that is due now. She will receive the remainder of money owed to her as they are due. Why not give her all the money at once? The amount she would get does not account for inflation Present Discounted Value Theory The present value of a future payment is less than the full amount. You have to take into account the time value of money: If I promise to pay you 100K 10 years from now, what is the present value of my promise? If we assume a 10% interest rate, then $61,000 at a 10% rate for 10 years = 100,000$.

You have to discount to reach the present day value- the 100K that I will pay in 10 years is not 100K if I pay you RIGHT NOW. Right now its actually worth 61,000, in 10 years it will be worth 100K. o YOU CANNOT HAVE A LUMP SUM IN AN INSTALLMENT K. o The court will not give the upfront payment of 61K anyway, because the interest rate is never certain. They will issue an injunction to pay the installments.

Contracts for the Sale of Real Property When the buyer breaches, the remedy of specific performance is not available. When the seller breaches, the remedy of specific performance is used. American Mechanical Corp v Union Machine o K for the sale of real property, breach, bank forecloses. P makes a K to sell to D (bank). D knows that P is financially troubled. The K price is for 135k. the D breaches. The property is foreclosed on and then the bank pays 90k (less than the market value). The P loses 45k. breach by the buyer what is the remedy? Standard for a case like this is the difference between the K price and the fair market value as of the date of breach. The problem with using this measure is that it is not adequate, in this case the property was foreclosed on, so he received less than the fair market value. It is the k price the foreclosure price. Here, the traditional measure would not compensate the seller. (the book doesnt tell you what the market value of the house was, it could have been 135K meaning that standard measure of K price minus fair market value would be 135k-135k = 0 seller would get nothing. Or the market value could be 130K, so it would be 135(k price) 130k (market) = 5k. This does not compensate the seller! What are the sellers actual losses?

They are 45k. So, in order to compensate him to give him his expectation damages we look to allow him to recover his actual loss of 45k. so the measure is k price minus foreclosure = 135k 90k = 45k. Remember, the general rule is to put the parties in as good as a position as if the K was performed! (expectation)! Rule: can award alternative measure when the standard measure is inadequate to put the party at loss in as good as a position had the K been performed + when damages had reason to be foreseen. Here, the parties had reason to know of these damages because they knew that the foreclosure sale would be likely. o Duty to mitigate damages: the amount of damages in this case could have been reduced to the extent that P could have mitigated its damages. The breaching party (D) has the burden of proving that certain losses could have been avoided. Here, however, it was proven that P was unable to secure another purchaser. Construction Contracts and Breach by Payor (buyer) New Era Homes v Forster P makes a K with D for construction on his home. Payment was set up to be when certain tasks were completed. P begins rough work asks for appropriate payment- D refuses. The rough work is not substantial performance of the K. The homeowner (payor) breached before the K could render performance. (ps this is not a divisible k) Standard Remedy for Construction Ks = K price cost of completion minus any payments already received.

BREACH BY THE BUYER: UCC REMEDIES FOR THE SELLER

UCC 2-703 - Seller's Remedies in General Where B wrongfully rejects or revokes acceptance or fails to pay or repudiates, Seller may (a) withhold delivery of such goods; (b) stop delivery by any bailee as hereafter provided (Section 2705); (c) proceed under the next section respecting goods still unidentified to the contract; (d) resell and recover damages as hereafter provided (Section 2 706); (e) recover damages for nonacceptance (Section 2-708) or in a proper case the price (Section 2-709); (f) cancel.

Recovery for Lost Profits -- UCC 2-708(1) Subject to 2-708(2) (lost profits) Damages for buyers non-acceptance or repudiation K price mkt price at time and place of tender o Tender = time and place of performance of the K Plus incidental damages (2-710) Minus expenses saved because of Bs breach o Assumption: K price is more than the market price, otherwise a rational buyer would NOT have breached Subsection 2: if the measure of damages above is inadequate to put the seller in as good a position as performance would have, then the measure of damages is: The profit (including reasonable overhead expenses associated with running that business) which seller would have made from full performance by B o Plus any incidental damages o Minus any payments received The profit is defined as the K price the profit he would have made on the sale. o Ex: I own a camry. Sell to you for 25k, but you breach. As a seller, I should resell to someone else and get the difference

from the K price and resale price. If I dont resell, I can get the K price market value for the car. either way would make me whole. I only have one car. I couldnt resell to buyer 2 if you, buyer 1, did not breach. You are using Resell formula (k price resale price) OR 2-708(1) K price mkt value. o Contrast with this: I am a car dealer with thousands of cars at my disposal. Enough inventory to sell to anyone who walks in the door. You agree to buy a car from me for 25K and you breach. I can simply resell the car to the next person, and collect resell damages. But do you see how this does not make me whole again? I have lost the first sale! To make me whole, you have to give me the profits on the first sale. This is the Lost Volume Seller. If Buyer 1 did not breach, seller could have sold car to both of them.

RESALE OF GOODS -- UCC 2-706(1) This allows the seller to resell the goods under the K when a buyer does not pay. Where the resell is made in good faith and in a commercially reasonable manner (note these two requirements) seller may recover K price minus the resale price. Assumption is that resale price is less than the K price. Plus incidental damages and expenses saved because of buyers breach. If the resale price is higher than the K price, the seller would be making a profit. We are saying that the seller has an option to resell, not a duty to resell. What if the seller decides not to resell? He cant get resale damages. The seller gets 2-708(1)damages o K price mkt price at time and place of tender o Plus incidental damages (2-710) o Minus expenses saved because of Bs breach

Gets these damages if didnt resell in a commercially reasonable and good faith way.

What are incidental damages? UCC 2-710 Damages that occurred from Stopping delivery Transportation, care, and custody of the goods o Ex: maybe now seller has to re-advertise the goods Return or resale of the goods Or Otherwise resulting from the breach These are NOT consequential damages. These are two very different things.

PRICE UCC 2-709(1)(b) When buyer fails to pay the price as it becomes due, seller may recover the price of goods identified to the K. (Means that seller identified that certain goods are going to a certain buyer). If S is unable, after reasonable effort, to resell them at a reasonable price, or The circumstances reasonably indicate that such effort will be unavailing. S may also recover incidental damages The K price is the damages award if there is not a resell market o If I order 100 shirts with my name on them no one else will want these goods I can get the K price.

EMPLOYMENT K BREACH BY EMPLOYER

Employee who has been fired has a duty to mitigate damages Employer can reduce damages by showing that employee failed to avoid damages by not taking other work. Employer has the duty of showing employee failed to mitigate o Movie star signs a deal with company to be lead star in Bloomer Girl the company breaches and never films the

movie. They tell her that she will instead be the lead in another movie called big country big man in Australia. The movie argues that she failed to mitigate damages by not taking comparable employment. But this was not comparable a musical v a country western film. Damages: (salary agreed for period of service) (amt the employer affirmatively proves employee has earned or with reasonable effort could have earned from other employment (failure to mitigate)) (payment employee already received)

BREACH BY THE PERFORMER

Up until now weve been doing breach by the purchaser. But what about breach by who supplies goods or services (performer)? BREACH BY SELLER: BUYERS REMEDIES AT COMMON LAW 1. Construction Ks with a breach by the Contractor General Rule: standard measure: cost to complete or repair the faulty construction o How much would it cost you to complete the job? o Rivers v Dean: D contracted to build addition to Ps home. D breached. There is no contest that the breach was pretty bad. o This is the measure unless there has been substantial performance [think Read Pipes case] Alternative Measure: Diminution on Market Value of Property o Apply where where contractor has substantially performed and completion/repair damages would be grossly disproportionate this results in economic waste it would be unreasonable for Jacob and Youngs v Kent instead of knocking down the entire house, the contractor substantially performed. Willie Peeveyhouse v Garland Coal and Mining Company o P owned farm and Ked with D, a coal mining company, to strip coal off the Ps land. K had a term where D would

perform all remedial and restoration work after lease. Restoration work was valued at 29K. This is a construction K- odd way to think of this as one but it is the Ps want the Ds to complete the work, and D does not want to pay this. D argues that this is a case where the alternative measure of damages applies diminution of property. Would equal 300$, because that is the difference between the property unfixed and the property fixed. The court awards this measure of damages because no reasonable property owner would pay 29K to fix his property to increase its value by only 300$. No specific performance because this was not a land K. The promise to use Reading Pipe in Jacob and Young is as the promise to fill the land in Peeveyhouse. They are both incidental aka not important to the K. When its

incidental and the cost of completion is disproportionate, we use the alternative measure. American Standard v Harold Schectman o Opposite of Peevey o D contracted to grade on Ps property. Ds performance substantially deviated from grading specifications in the K. American sued for breach and was awarded cost of completing the grading. D appealed courts refusal to admit evidence that P sold property for only 3k less than its full market value and therefore suffered no appreciable loss due to the breach. As a result, D argued that measure of damages was 3k diminution in value due to breach, rather than cost of completion. o Held: This was not incidental to the K, as it was in Peeveyhouse. Ds in Peeveyhouse case argued it was not economically sensible to do it, but understood they had an

obligation to do so. Here, the Ds just ignore it completely and say they have no obligation no argument on eco basis. So court deems this as bad faith and willful. This case just shows that the rule is the standard measure, and alternative measure is given if there is substantial performance, and we must look to see if there was a good faith attempt to perform and look to see if it was incidental to the K.

BREACH BY THE SELLER: UCC REMEDIES FOR THE BUYER

Two Categories: A. Where seller has breached by failing to deliver goods or repudiating the K B. Where seller ships nonconforming goods Buyer Remedies in General UCC 2-711 Where Seller fails to deliver or repudiates, or Buyer rightfully rejects the goods or justifiably revokes acceptance, B may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid A. Cover and get damages under 2-712 B. recover damages for non-delivery in 2-713

Cover; Buyers Procurement of Substitute Goods UCC 2-712 1. After a breach within 2-711 the buyer may cover by making in good faith and without unreasonable delay any reasonable purchase of K to purchase goods in substitution for those due from the seller. ASK: Given the realities of the market and realities of the business, did I do a reasonable job in covering? 2. The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages, but less expenses saved in consequence of the sellers breach. Cover price K price Presumably, cover price is higher than K price, if not, not worth it to sue

UCC 1-106 put in as good a position but not in a better position, no windfall (bonus) for buyer 3. Failure of the buyer to effect cover does not bar him from any other remedy. Cover is an option, not a requirement. Buyers failure to cover will affect buyers ability to get consequential damages If the buyer doesnt cover? Get other remedies from 2-712(3) Seller never gets incidental and consequential damages Seller is likely to breach if the price of the product is going up gives him incentive to breach because he wants to get out of the K so he can sell for a higher price. Cover price will usually be higher than the K price. Hypo: If I have a K for widgets with you for 1500$, and you repudiate. I order similar quality for 1700$ over internet. Is this a good faith cover? o I did it right away, purchase price not all that different from K price. Damages would be 200$ + any consequential/incidental damages What if the same price, but I ordered it right away from the first source I could think of. 1700$ is price I pay. Good faith cover? o It has to be a good faith cover not the cheapest you can find. No heroic efforts are required from the buyer. The seller is the one who breached!

Buyers Damages For Non-Delivery & Repudiation UCC 2-713 Market price at time Buyer learns of breach K price Plus incidental and consequential damages 2-715 Less expenses saved because of sellers breach

Market price is to be determined at the time of breach, not at the time of tender, because we dont want buyer to wait around before covering. Implicit mitigation requirement incentive to cover, or else he only gets above damages, he is not going to be able to get something better by not covering.

Rule: if you cover at a great deal below market value, you CANNOT get 2713 damages, because this would be a windfall for the buyer. Cant get more than you would have gotten for full performance. What if the buyer gets nonconforming goods but decides to keep them. Is it possible to still get damages? Yes. The rule in the UCC is a perfect tender rule, the goods must conform to the K!

DAMAGES FOR BREACH OF WARRANTY [GOODS DO NOT CONFORM] UCC 2-714 THE STANDARD MEASURE: Value of goods as warranted (not the K price!!! - the fair market value of the goods had they been at the time of delivery (will be pretty close in most cases, but still) minus value of goods as accepted o The fair market value is not what is being warranted, its the specifications of the product. The seller is not warranting that the sellers price is the value of the product. He is just giving a price for his product. Peppercorn theory, you can charge whatever you want for something. Under the UCC consequential damages are not allowed unless specifically authorized. THEY ARE NOT AUTHORIZED WITH RESPECT OF SELLERS. SELLERS NEVER GET CONSEQUENTIAL DAMAGES. The rule is different with respect to the buyer: UCC 2-714 o Standard value o Buyer accepts goods that dont conform Value as warranted value as accepted Unless special circs show proximate damages of a different amount B may also recover consequential damages (2-715)

UCC 2-715(2) o Bs consequential damages include Any loss resulting from general or particular requirements and needs of which S at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and What does which could not reasonably be prevented by cover or otherwise mean? Incentive to mitigate, because the wont be recoverable if the losses could have reasonably been prevented There is no duty to recover under the code, but if the buyer doesnt cover, it may limit the recovery of consequential damages by the buyer. Injury to person or property proximately resulting from any breach of warranty

Hypo to tie this all together: S and B enter into a K to manufacture ovens. B is a baker and informs S that he needs oven right away, competitors have this and he doesnt want to lose his customer base. Seller agrees to deliver by May 1 for 30,000$. Seller breaches and does not deliver. Buyer can get a comparable oven on the market for 35k, but will take 6 months to make. What should the buyer do? o Should he still attempt to cover? Yes- because if he does not, he will lose consequential damages. He can at least recover difference in K price and cover = 5k. o What if the buyer wanted to wait longer to see what happens? He will lose consequential damages, and will be limited by the market price he learned at the time of the breach anyway. o What if buyer proves that he would have lost 10k because of the 6 month delay?

What can you get from going out of business? This comes down the to certainty of damages: An injured party cannot recover for damages that are not reasonably certain of computation. They cannot be speculative. o This is for fairness to the breaching party. RULE: You MUST calculate damages to a reasonable certainty. but not mathematical exactitude.. [ new businesses cannot get lost profits because it cannot be reasonably certain that there would have been profits to begin with]

SPECIFIC PERFORMANCE
MAKE THE PROMISOR DO WHAT SHE PROMISED! Rule: Specific performance is available only in exceptional circs where damages are inadequate to protect the expectation interest of the party. Circumstances when Specific Performance is Available Unique subject matter of the K Difficult to calculate damages Difficult to obtain a substitute performance o Because cover market is thin o Curtis Brothers v Cats P Ked with D to buy Ds tomato crop P was in the biz of canning tomatoes. D repudiates and P is unable to find cover anywhere else. Market it too thin. It would severely hurt Ps business if D failed to perfom. o Could argue that one could find out to a reasonable certainty what the money damages would have been instead of SP, but there are other intangibles that the buyer lost- an entire year of biz, biz rep will be harmed, might lose suppliers, etc. Judgment proof D

When SP is NOT available

Clean hands doctrine: people who seek SP must not have done anything wrong you cant come to a court of equity with dirty hands K is unconscionable (just not enforceable)

UCC 2-716 1. Specific Performance may be decreed where the goods are unique or in other proper circs where damages would be inadequate to compensate for the loss o a money damage would not be adequate for unique goods because you can never find them o a good may be unique because its the only kind in the world [i.e. land] or because it has sentimental value. 2. The decreemay include such terms and conditions as to payment of the price, damages, and other reliefs that the court may deem fit. Discretion + fairness call by judges SPECIFIC PERFORMANCE AND PERSONAL SERVICE KS A. Personal Service K: A person is hired b/c they have particular attributes B. General Rule: SP NOT allowed why? o a. too complicated, difficult, and expensive: to difficult to supervise and monitor compliance with injunction o b. dont want to compel personal relationships that are likely to be hostile. Lumley v Wagner- W agrees to sing in Ls theater, but the repudiates because she accepted another offer. L sued for SP but court denied this: Difficult and expensive to enforce: Ct will have to hire a special master opera expert to make sure she is performing and not doing a lousy job There is probably hostility between W and L, dont want to make them work together because they dont like e/o

C. Negative Injunction: Prohibits an employee from working for someone else, since you cannot make them work for you. American Broadcasting Company v. Wolf o Court doesnt want to stop people from going out and competing and closing down the labor market. ABC can still sue for damages. K expired so Wolf had no duty to them anymore Injunction infringes on free market society has an interest in having wolf work somewhere else.

LIQUIDATED DAMAGES
A. Definition: Damages that the parties have stipulated in the K fixed, determined in the K B. Traditional View: Cts do not like LD, reluctant to enforce Concerned about unequal bargaining power powerful party will punish weaker party Worry that the damages will be too high an inefficient penalty on breach C. Modern View: More willing to allow for LD It makes sense as a business matter to avoid cost of litigation and plan ahead Also might be beneficial so companies can reassure firms esp new firms. D. A Liquidated Damages Clause will be enforced if its not a penalty How do we know if its a penalty or not? o Southwest Engineering v US At the time the K was made: 1. Did the amount reflect a reasonable forecast of just compensation for the harm that is caused by the breach? 2. The harm that is caused by the breach must be one that is incapable or very difficult of accurate estimation

it was estimated before the breach not known for sure if they are difficult to estimate, then they are just trying to get rid of unpredictability problem. This shows Good Faith. why is this the test? It screens out if the parties were trying to punish or not [which is generally not allowed in K law] If they were making a reasonable effort to forecast loss it will be ok. Must meet both prong of test for LD clause to be enforceable. This case: is a LD clause that makes you pay 100$ a day punitive? No, because they are also losing money everyday, if P is late by 7 days than loss is longer and bigger for D. P argues that the Ds never even lost any money! But the LD clause was made at the TIME OF THE K. this is what was reasonable when they made the K the rule is NOT what was reasonable in hindsight which you already know what happened.

What does P get if he doesnt get liquidated damages? Actual damages. To say that an LD clause is not enforceable does not mean that the P gets no damages- just actual damages. UCC 2-718 (1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. The UCC is more lenient > LD clauses are enforceable if damages were reasonable either when the parties made the K OR after the breach.

Cellphone Termination Fee Cases o Sprint made no attempt to forecast damages in charging termination fee

LIMITATION AND EXCLUSION OF DAMAGES What if a party tries to limit available remedies in a K? UCC 2-719(1) (obvious but applies to sale of goods ONLY) Agreement may limit or alter the measure of damages recoverable as by (for example) limiting Buyers remedies to return the goods and repayment of the price OR to repair and replace the nonconforming goods Agreed remedy is optional unless expressly agreed to be exclusive, in which case it is the sole remedy. o Parties could never agree to there being no remedies.

When exclusive/limited remedy fails.. UCC 2-719(2) A. where circs cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. a. i.e. if a party specified a remedy and it fails, we can go back to the UCC remedies. i. Lewis V Sawyer Fruit: Freezer didnt work, buyer claimed breach. Remedies provided for were rescission and replacement. ii. The remedies failed in their essential purpose because 1. Remedy to repair failed because seller could not repair/replace 2. Cancellation of K failed because it was too late buyer is already in a bad position, he has commitments to other companies, and this is not compensating buyer for the loss he is suffering. Limitation of Consequential Damages UCC 2-719(3)

Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of Consequential Damages for injury to the person in the case of consumer goods is prima facia [means this is presumptive] unconscionable but limitation of damages where the loss is commercial is not. If there is a personal injury in a consumer good its almost like a mass tort case. In a commercial case you are not really going to have a personal injury case- we just want to make sure that companies dont product a dangerous and cheap product and then not be held responsible for injury. Consumer also has less bargaining power.

ASSIGNMENTS
Definition: The transfer of a right of performance under a K. Party Designations: Assignor: Party who makes the transfer Obligor: Party whose performance is transferred/the party who owes the duty under the K Assignee: the third party who receives the transfer/person whose performance is due An assignment is kind of like an intangible property; it is transferrable. Ex: Gift Assignment o I want to make a gift to S of 1k cash. I dont have it, but C owes me 1k from a previous K we had, where I worked for him and he promised to pay me 1k. I assign my right to the payment to S. As a result, S gets the money previously due to me. S is the assignee, I am the obligor, C is the Assignor. Ex: Commercial Setting (more common) o I make a K with A to do work for him payment due 30 days after completion of the work. I do As work, and acquire a right to payment from him in 30 days. This is called an account receivable. What if I need the money in the meantime? I assign my right to payment to a bank, in return for immediate payment of 1000$ from them minus whatever

fee they take. When payment from A is due, A must pay the bank. This is called an assignment for value. o Bank is the assignee; I am the obligor; A is the assignor Exceptions to Assignment Material Adverse Effect (not for payment) Contractual Anti-Assignment Clause (not for payment) Public Policy Exception Complications with Assignments An assignment is a transfer, not a promise. Because its not a promise, you dont need consideration to have it be enforceable. An assignment is good even if party didnt give up anything in return. This is the point of the gift hypo But, a promise to assign must be supported by consideration. The distinction really turns on whether the assignment is revocable or irrevocableand this depends on whether or not something has been given in exchange.. RULE: Gratuitous assignments are revocable. o I can revoke a gift for which the assignee gave nothing up o (technically, this is the concept of consideration but we dont call it that) UCC 2-210(2) (this applies to sale of goods technically, but in this area this is the general rule that applies via analogy) Unless otherwise agreed all rights of either seller or buyer can be assigned except where o Assignment would materially change obligors duty, or o Increase materially the burden or risk imposed on obligor by K, or o Impair materially obligors chance of obtaining return performance Extrapolated Rule: Assignment not allowed where there is a significant/material adverse impact on the obligor.

Rationale: the obligor now has a duty to deal with someone that he never did business with. Maybe original assignor is more forgiving; maybe obligor hates assignee; and now new assignee can sue obligor if he fails to pay- opened himself up to new liability Rule: The right to payment under a K almost never has a material adverse affect on the obligor. Why? Because you are just writing a check you just have to change the name that its going to. Anti-Assignment Clause Assignment made for painting of a house. But the K had clause that prohibited the assignment. Without written consent of the general contractor, D assigned it to assignee. When assignee tried to recover from obligor, obligor (contractor) says he will not pay because of the anti-assignment clause. Court enforces the clause. Generally, many courts will enforce anti-assignment clauses. BUT NOT if there is a statute that prohibits people from prohibiting assignments.and there is! o UCC Article 9

Anti-assignment clause is not effective to prohibit the assignment of a right to payment. --. You cannot prevent the assignment of the right to payment Basic principle: If a party wants to transfer its right to payment under a K, even if the K says you cannot, you still may. Why? Because people need money! Preventing Assignment of rights are allowable; just not preventing assignment of payment. Public Policy Exception Not allowed to assign wages where you have a right to payment from your employer and you assign that right to someone else. Why? Because then what is the point of the employer hiring you? Also, claims against the United States are barred

The Notice Requirement If the obligor pays the assignor before being notified of the assignment, his duty to pay the actual assignee is discharged.

o He had no notice, how would he have known? If the obligor pays the assignor after notice of the assignment, then he still owes the money to the assignee regardless. o Hypo: Assignor assigns his right to payment under a K. Obligor is unaware of the assignment. He instead pays the Assignor, who accepts. Now assignee approaches obligor for the money. Obligor does not have to pay both assignor and assignee. Informal notice of the assignment is OK, as long as it reasonably identifies the assignment. After notice of assignment, obligor owes duty to assignee as if the obligor made the original K with the assignee. o This is useful for the assignee because she has whatever rights I had against the Obligor. o This is useful for the obligor as well, because assignee must take subject to any defenses obligor had against assignor. Assignee stands in the shoes of the assignor

Assignors Liability to the Assignee If assignee tries to enforce her rights against obligor, but he successfully resists because he had a defense against assignor, the assignee may then have an action against the assignor. Why? o Because when the assignor makes an assignment, he is implicitly warranting that the obligor has no claims against the assignor. This DOES NOT apply to gifts.

DELEGATION OF DUTIES
(The mirror image of assignment) Definition: Transfer of duty under a K. (where as assignment is the transfer of a right) Party Designations: Delegating Party: Party with the duty (aka Obligor)

Obligee: Party that is owed the duty Delegate: Person to whom the duty is transferred to

Effect of a Valid Delegation From the perspective of the delegating party: o Performance by delegate, not the delegation itself, discharges the duty. Just because I delegate my duty does not mean I am automatically off the hook only when delegate performs am I released From the perspective of the obligee: o Obligee now has a duty to accept the performance from the delegate o More risky than assignment Principle of Non-Delegable Duties There are some duties which you cannot transfer When are duties non delegable? o 1. When there is a materially adverse impact on the obligee Duties are not delegable when obligee has substantial interest in having performance from the delegating party comes up most frequently in personal service Ks o 2. The K provides that duties are non-delegable o 3. Public Policy Reason: cannot assign claims against the government ex duties in public works sector UCC 2-210(1) A party may perform his duties through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract.

THIRD PARTY BENEFICIARIES

Definition: Parties other than the promisor and promisee who are benefitting from a K.

Designations: Promisee: Person promise is made to Promisor: Person making the promise Third Party Beneficiary: Person who will benefit from the performance of the promise Difference: the assignee and the delegate are people that turn up after the parties have already made the K; the third party beneficiary has been there from the beginning. Ex: I owe 1k to L, but I do not have the cash. So I make a K with S in exchange for his promise to perform for L. So Ss promise is: I promise you that I will perform for L. I make the promise to L but S promises performance. ?? Ex: L and I are friends, and I happen to know that L loves pies. S is a baker I K with him to ship pies once a week to L, in exchange for my promise to pay him. L is now the third person other than me who benefits from the performance of this K. L is the (donee) beneficiary. L can now enforce the K against S and sue for breach of K if he does not perform. Also, he takes subject to the same defenses the promisee is subject to; assumes legal obligations as well as rights of the promisee. The Line between who is a beneficiary and who is not Ex: Is footlocker a third party beneficiary to a referee who makes deciding call at a game his call will determine which things sellout and which do not Ex: are the tenants to a building that is being constructed third party beneficiaries to the K between real estate owner and construction corp? Test: Were the parties claiming to be third-party beneficiaries intended to be such or are just incidental beneficiaries? recognition of the beneficiaries right to performance is appropriate to effectuate the intention of the parties and either o performance will satisfy an obligation to promisee to pay money to the beneficiary, or

o circs indicate that promisee intends to give the beneficiary the benefit of the performance (Did the parties INTEND for the third party beneficiaries to be the third party beneficiaries or was this just incidental?) KMART v Balfour Beatty Inc. TPL makes a K with BBI for design and construction of shopping center. KMART is one the the Ts. Shopping center gets damaged by a hurricane and the subsequent construction is faultily repaired. KMART sued as a 3rd party ben breach. Court holds that KMART was a third party ben because they were planning their schedule around them, clearly they were ethinking of KAMRT as a 3rd party ben.

MODIFICATION: Can parties modify a K in a way that eliminates the benefits going to the third party? In the pie hypo o Can we change the K so that its 1 pie a month? Depends on whether Ls rights as a third party ben have vested or not. There are three different approaches: 1. Rights vest as soon as the K is made, whether or not the third party ben knows about it 2. Ben learns about the K and consents to it 3. Third party rights vest when he materially changes his position in justifiable reliacnce OR brings suit or manifests assent.

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