Contracts Final Approach

I. Consider what are the terms of the contract?a. Parole Evidence Rule i. When parties intend that a writing is the final expression of their bargain, no prior or contemporaneous expressions (oral or written) are admissible to vary the terms of the writing. No Parole Evidence if the contract is fully integrated.ii. Integration final and complete expression 1. If incomplete (partial integration), evidence admitted to supplement2. Merger clause (states agreement is complete on its face) is evidence of full integration iii. Evidence outside scope of the rule may be admitted1. Evidence concerning validity (e.g. formation defects, conditions precedent)2. Evidence used to interpret (words used are uncertain or ambiguous)3. Evidence showing true consideration paid4. Evidence in action for reformationiv. Corresponding Restatement and UCC1. RS 209-210, 212-2182. UCC 2-202v. Elements1. Agreement must be collateral 2. Cannot contradict the contract3. Must be one that parties would not ordinarily be expected to embody in the writingvi. Approach1. Is the contract completely integrated? Y then no PE; N-Consistent?a. Four Corners Test what is written within 4 corners of the pageb. Contextual Approach consider what the parties say and the context in which the contract was developed (relationship between parties, tendencies of those relationships, etc.)2. If not integrated, is the K consistent with what is recorded in writing? 3. Is it within the scope of the original K?vii. Cases1. Mitchill v. Lath Four Corners approacha. Facts: Mitchill contracted to buy the Laths property. They discussed a provision where the Laths would remove an icehouse across the street that Mitchill found unsightly, but this stipulation was not put in the purchase contract. The Laths did not remove the icehouse. b. Holding: the requested change to the property would have been so clearly connected to the sale that it was part of the deal if true. Therefore, it should have been in the explicit sellers duties listed in the sales contract. If it was so vital to the purchase, it would have been in the writing. Parol Evidence not permitted.2. Masterson v. Sine partly about the familial relationshipa. Facts: Masterson deeded land to his sister, with an option that he could buy back the land. He then went bankrupt, his creditor tried to force Masterson to buy it back to sell it off. Sister argued the grant was to keep land in family, made by oral agreement.b. Holding: Evidence of an oral agreement that would not ordinarily be part of the deed should be admitted.3. Alaska Northern v. Alyeska Inconsistent writing a. Facts: Pl. wrote up a letter of intent to purchase industrial parts from Def., left the price blank. Def. responded with a similar blank-price letter of intent that required the owner committee to make a final approval. The owner committee rejected the proposal. Pl. argues that there was a contract based on the matching letters of intent, and the final approval was only regarding the price negotiations.b. Holding: The letter was integrated, but only partially so. Pl.s claim is inconsistent with language of letter. Parole evidence excluded because it contradicts the language of the integrated portion of the contract.4. Suburban Leisure v. AMF Bowling K for parole evidence fell outside the scope of the original K (Ks werent collateral)a. Franchise: Suburban could use AMFs brand name to marketb. E-Commerce: AMF equipment sold in Suburbans region would be delivered by Suburban. Clauses in E-commerce agreement - supersedes all prior agreements, & disputes must be arbitrated in VA, using VA lawi. AMF violated the Oral Franchise agreement. Suburban sued in Missouri, AMF argued that they needed to use arbitration in VA. c. Holding: Franchise K is independent to and collateral of E-Commerce K. The arbitration terms in the E-Commerce K do not apply to the Oral Franchise K. R.2d 213(2): discharges prior agreements to the extent that they are within its scope. Oral Franchise K was not within scope of E-Commerce K.b. Rules of contract interpretation courts use some general rules such as contracts are construed as a whole, words are generally given their ordinary meaning, written or typed terms prevail over printed, customer and usage in business and locale is considered, court will try to find contract valid, and ambiguities are construed against the contracts prepareri. Pecking Order to Review Intent1. Language of agreement wordsa. Courts want to allow the intention of the parties as expressed to stand2. Express intent of parties what did they want3. Negotiations leading to K that may express intent what were they trying to get4. Course of performance how did they perform5. Course of dealing how did they perform in the past6. Trade Usage how does the industry define terms of clauses of the contractii. Ambiguity1. Can be extrinsically interpreted if more than one meaning for a particular word or phrase2. The phrase or word must be interpreted reasonably (determined by industry custom, prior cases, expert testimonyiii. Good Faith Covers performance and enforcement both RS and UCC1. UCC means honesty in fact and observance of reasonable commercial standards of fair dealing in the trade 2-103(b)2. Restatement performances due at the same time unless noted otherwise 2343. Cannot prevent party from fulfilling the terms of the contractiv. Conditions only enforceable if the circumstance arises1. RS 224-2282. UCC 2-3063. Must perform in good faithv. Cases1. Pacific Gas v. GW Thomas Using extrinsic evidence to interpret intentiona. Facts: PGE hired GW Thomas to replace a metal cover of a steam turbine. Terms of the contract indemnified PGE against all loss, damage, expense and liability During performance, the cover fell and caused $25K in damage to PGE equipment. GW Thomas argued that, as shown in previous contracts with PGE, the indemnification term was only meant to indemnify PGE against third parties.b. Holding: Words are not statically defined, thus a contract should not just be interpreted from its four corners because different interpretations may exist. If the evidence shows that the intentions of the parties was not the same as the words of the K, the evidence is permissible to show the interpretation of the parties motives, but not to alter the terms of the K. Since the clause was reasonably susceptible to a different meaning, the offered evidence is admissible to prove that meaning.2. Frigaliment Importing v. BNS International Trade Usagea. Facts:Pries contracted for sale of small and large chickens. The larger birds sent were older, (lower quality) chickens. The purchaser argued that by contracting for chicken, they meant broiler chicken. The seller claims that the term chicken is broader in meaning, and should encompass all kinds of chicken. b. Holding: The term chicken refers to the broad meaning of a classification of a bird, not the narrower meaning of a young broiler chicken, versus a stewing fowl. Looked at common usage of word chicken, trade usages, usages in English & German (purchasers language), USDA definition, price-per-pound (lower for heavier chicken).3. Stolt-Nielsen v. Animal Feeds International Corp Arbitration Agreementa. Facts: AFIC used SNSA to ship goods. At AFICs choice, the parties used a standard contract, which included an arbitration clause. SNSA was charged with price-fixing, for which AFIC and other companies sued. In NY, AFIC initiated the arbitration proceeding. While the contract required arbitration, it was silent on class action arbitration. b. Holding: In an arbitration agreement, the parties intentions control. Both parties must agree to the arbitration, which is the case here, but the parties did not reach an agreement as to class arbitration (silent). While sometimes it can be implied that parties who agree to enter arbitration implicitly agree to allow the arbitrator to adopt certain procedures to give effect to their intentions, the agreement to arbitrate cannot alone lead to such procedural questions by arbitrator. 4. Centronics v. Genicom Good Faitha. Facts:The parties agreed to arbitration if a price was not agreed upon. An Escrow acct. was set up, to be paid out appropriately with discretion. Ultimately, the parties did go to arbitration, and it took longer than expected. Genicom sued, claiming that during the arbitration, Centronics should have paid out some of the escrow and withheld it in bad faith, thus violating the entire contract.b. Holding: Good faith only extends to properly carrying out agreed-upon terms, not to terms that do not exist. There were no terms that required partial payment during arbitration. Genicom asks the court to add terms to a contract that do not currently exist. This the court cannot do.5. In re Katrina Extrinsic Evidence for Interpretationa. Facts: Plaintiffs insurance policies did not cover flood. They argue that the word flood is ambiguous - the policy does not specify that it does not cover sudden inundations of water from negligence, only floods, which are the result of natural disasters. They contend that the levee breakage was not a natural disaster, but was caused by the negligent design, construction, and maintenance of the levees.b. Holding: Even if the flooding was due to negligence regarding the levees, the policies are unambiguous with regard to not covering for flood of any kind. The term flood is not isolated to natural disasters. It is Louisiana state law that unambiguous terms of a contract must be upheld. The homeowners cannot recover from their policies.c. A term in only ambiguous is there is a reasonable chance there is more than one interpretation/definition. Lack of definition alone does NOT make a term ambiguous. 6. Omni v. Wells Fargo Reasonable Expectation (requesting party to get coverage)a. Facts: WF lent Omni $50m, Omni offered 5 hotels as collateral. Contract required the hotels to have comprehensive all-risk, flood, & earthquake insurance, and that WF could make reasonable requests for additional coverage. After 9/11, WF requested terrorist insurance. At the time, it was very expensive. Omni claimed it was an unreasonable request. b. Holding: It is reasonable in the post-9/11 society to be concerned about terrorist attacks in major cities. Since the filing of the suit, the cost of terrorist insurance has dropped significantly. It has become industry custom to obtain terrorism insurance. The insurance would benefit Omni as well.7. Palmer v. Fox - Reasonablenessa. Facts: Palmer sold Fox a subdivision of houses. In the contract, it was agreed that Palmer would finish street construction within a reasonable time. Fox paid Palmer in Installments. After several years, Palmer had not completed all of the improvements it had promised. Palmer refused to pay the last $709 because Fox had violated the contract by not completing the work.b. Holding: Courts will construe stipulations of contracts to be dependent unless a contrary intention is clearly shown. A party should not be forced to pay out money unless he is getting what he paid for. Palmer materially breached the terms of the contract when he did not perform in a reasonable amount of time. Therefore, Fox does not owe Palmer the remaining debt. (See RSd 234, Comment (a))8. Market Street v. Frey Good faitha. Facts: GE and Market Street agreed upon a sale / lease with the following terms: MS (lessee) can request GE (lessor) pay for certain improvements to the premises. Upon receiving the request, GE is required to give a reasonable consideration to it, and the parties are to negotiate in good faith to determine a solution. If negotiations fail, MS is entitled to re-purchase the land. MS wanted to buy the land, so it sent GE an offer. GE refused. MS then sent GE a letter asking for $2m in improvements. GE refused. MS claimed it wished to exert its buy-back clause b/c negotiations has failed. b. Holding: It is entirely possible that Market Street was acting in bad faith to trick GE, but when viewed in another light it is possible they were acti gon good faith. To determine good faith, one must look at the CEO of Market Streets frame of mind when they asked for improvements. Remanded to be reviewed by lower courts with a focus on determining the CEOs state of mind.9. Patterson v. Meyerhofer Good Faitha. Facts: Patterson and Meyerhofer contractually agreed that Patterson would purchase a block of 4 houses at an auction, and then sell the block to Meyerhofer for a flat price of $23K. Patterson also told Meyerhofer that he planned to purchase a fifth house in the block and keep it as his own. Meyerhofer showed up at the auction and outbid Patterson on all 5 houses. She got the 4 in contract for $620 less than the contract price.b. Holding: Meyerhofer had no contractual agreement regarding the 5th house, so she was free to purchase it. By entering into the agreement, Meyerhofer implicitly agreed that she would do nothing to prevent Patterson from being able to purchase the other 4 houses at auction. She violated this implicit agreement when she purchased the homes herself. Patterson is owed $620.i. Where a party stipulates that another shall do a certain thing, he thereby impliedly promises that he will himself do nothing which may hinder or obstruct that other in doing that thing.10. Billman v. Hensel Reasonable effort for Good Faitha. Facts: Hensel entered into contract to sell Billman his home. Included in the contract was a subject to financing clause that stated Billman needed to get mortgage approval for 35K. Billman never applied for a mortgage. He claimed he was $5K short for the down payment, so Hensel waived the $5K. Billman said he was still 1.5K short and stopped payment of earnest money. Hensel sued for earnest money (1K deposit). b. Holding: The subject to financing clauses imposes upon the buyer an implied obligation to make a good faith effort to obtain financing. Billman did not make a reasonable effort to secure the necessary funding. Hensel wins.11. Neumiller Farms v. Cornett Using expert standard for determination of satisfaction or reasonableness a. Facts: Contract stated Neumiller would sell Cornett 12 loads of chipping potatoes for set price, stipulated the potatoes must chip to buyers satisfaction. Buyer accepted 3 loads, then price of potatoes dropped. Buyer claimed 4th load did not chip well. Seller verified that potatoes chip properly through testing & tricking buyer with other potatoes, but buyer still claimed they were unsatisfactory. Seller sued. b. Holding: Because there was evidence that showed the potatoes would chip properly, the claim of dissatisfaction was unreasonable, made in bad faith, and constituted a breach in contract. Seller wins.12. Feld v. Henry S. Levy & Sons loss of profits does not excuse from terms of contract being fulfilleda. Facts: Output K for breadcrumbs for 1 yr. Before the year was up, D stopped producing breadcrumbs and dismantled machinery because the process was very uneconomical due to the nature of the production equipment, but took no steps to get better equipment. b. Holding: While no amount was specified, there was still a requirement to make crumbs (UCC 2-306). Defendant can only stop making bread crumbs if the cessation was done in good faith.vi. Restatement and UCC Provisions1. RS 200-204, 206-207, 205, 234, 224-228 (conditions)2. UCC 1-102, 1-103, 2-101, 2-102, 1-303, 1-304, 1-102, 1-201(19), 1-203, 1-205, 2-103(1)(b), 2-208, 2-301, 2-306c. Article 2 Provisionsi. Gap-fillers if missing, Article 2 provides: price (reasonable at time of delivery), place of delivery (sellers business), time of shipment (reasonable), time for payment (receipt of goods), and assortment (buyers option), and assortment (buyers option)ii. Delivery Terms and Risk Loss1. Noncarrier casesa. Merchant seller risk passes to buyer upon taking physical possessionb. Nonmerchant seller risk passes upon tender of delivery 2. Carrier cases3. Shipment risk passes on delivery to career4. Destination risk passes on tender at destination5. F.O.B. risk passes on delivery F.O.B. locationiii. Warranties in sales of goods1. Types title, against infringement, merchantability fitness, expressa. Implied warranty of merchantability (goods are fit for ordinary purpose) implied in every contract by merchant of goods of kind sold b. Implied warranty of fitness for particular purpose implied whenever any seller has reason to know particular purpose implied whenever any seller has reason to know particular purpose for which goods to be used and that buyer is relying on the sellers skill and judgment to select goods, and does does in fact rely2. Disclaimers a. Title specific language or circumstances putting buyer on notice that seller is not claiming titleb. Merchantabilityi. Specific disclaimer must mention merchantability and if in writing, must be conspicuousii. Also can be disclaimed by as is refusal to examine or course of dealingiii. Fitness for a particular purpose only by conspicuous writing or general disclaimer (as is, refusal to examine, course of dealingiv. Express disclaimer not given effectc. Damages difference between goods tendered and as warrantediv. Modifications of Terms1. Common Lawa. Additional consideration neededb. Written contract can be modified orally even if contrary provision2. UCC Article 2a. No consideration needed so long as in good faithb. Must be in writing if, as modified, contract is for $500 or morec. Gives effect to provisions prohibiting oral modificationII. Has performance been excused or discharged?a. Has the condition (precedent, concurrent, subsequent) been excused?i. Hindrance or failure to cooperateii. Breach of contractiii. Anticipatory repudiation party unequivocally indicates he will not perform before time of performanceiv. Prospective inability or unwillingness to perform doubts as to partys performancev. Substantial performancevi. Divisibility of contractvii. Waiver or estoppelb. Has absolute duty been discharged?i. Performance or tender of performanceii. Occurrence of condition subsequentiii. Illegality of subject matter after contract was madeiv. Impossibility, impracticability, or frustration of purposev. Rescission of contractvi. Modification of contractvii. Novation (replacing parties) or substituted contract (replacing contract)viii. Accord and satisfactionIII. Have the terms of the contract been breached?a. Material or Minor Breach (Common Law)i. Minor Breach obligee gains the substantial benefit of bargain so aggrieved party must perform but right to damages ii. Material Breach obligee does not gain substantial benefit of bargain so no duty to perform, immediate right to damages and other remediesb. Perfect Tender Rule (UCC) if goods or delivery fail to contract in any way, buyer generally may reject all, accept all or accept any commercial units and reject the restIV. Defenses to Execution or Enforcement of Contracta. Voidable Contract RS 7; Unenforceable Contract - RS 8b. Incapacity to Contract RS 12-15i. Infancy/Minors1. Normally can void until the age of 182. Exception can enforce contract if for a necessity (determined by judge and then jury)3. Quanum Meruit allows major party to collect for any performance rendered even if minor disaffirms4. Casea. Bowling v. Sperryi. Facts: Bowling (16 years old) purchased car from Sperry for $140. Put $50 deposit down, returned later with aunt and grandmother. Aunt test-drove car, lent Bowling remaining $90. 1 week after purchase, Bowling discovered engine failure. Attempted to return car, but Sperry refused. ii. Holding: Bowling is not bound. He was a minor and lacked capacity and the contract was therefore voidable. A car is not necessary for a teenage boy who has gotten along fine without one before the purchase.ii. Mental Incompetence1. Voidable if at the time of the contract:a. Unable to understand in a reasonable manner the nature and consequences of the transaction Cognitive Testb. Unable to act in a reasonable manner in relation to the transaction AND the other party has reason to know of his condition Volitional Test2. Burden on party claiming incompetence3. Casea. Heights Realty v. Phillipsi. Facts: Mrs. Gholson contracted with Heights Realty to sell her house for $250K. She declined an offer for $255K. Heights sued. Family testified that over the past 5 years Gholsons mental health had severely declined. Gholsons Dr. stated that she was suffering from a degenerative mental disease and was likely incompetent within reasonable medical probability. Heights testified that during the K signing, Gholson understood everything and corrected a misspelling in her name. ii. Holding: Mrs. Gholson was mentally incompetent to enter into a contract. Between family witness, testimony and a doctors testimony after examination, there was sufficient evidence to overcome the presumption of mental capacity.iii. Intoxicated person1. Contract voidable if other party has reason to know that by reason of intoxication:a. He is unable to understand in a reasonable manner the nature and consequences of the transaction b. He is unable to act in a reasonable manner in relation to the transaction2. Being drunk will not get you of K. sober person must know the other party is drunk.3. Casea. Ervin v. Hosanna Ministryi. Facts: Ervin sued Hosanna for sub-standard facilities in their rehab center. Hosanna requested summary judgment, claiming that upon check-in Ervin had signed a contract which released Hosanna from liability. Ervin claimed she was highly intoxicated when she checked into the facility and had no recollection of the agreement. ii. Holding: There is a material dispute as to whether Ervins signature was made freely and with full comprehension, thereby demonstrating the capacity to contract. Summary judgment denied.c. Changed Circumstances: i. Impracticability/Impossibility 1. Elements R 216:a. After the contract was made, an event occurred, the non-occurrence of which was a basic assumption of the contractb. The effect of the even is to render the partys performance unduly burdensomec. The party seeking relief was not at fault in causing the occurrenced. The party seeking relief must not have borne the risk of the event occurring (force majeure clause)2. Consider:a. What was the nature / impact of the risk event? Pre-existing?b. Was the party seeking relief at fault/cause the event?c. Did the parties allocate the risks of such an event?d. If there was no agreement in regard to the risk, how should the court fill the gap?e. What is the nature / scope of relief when R 261 and UC 615 are satisfied?f. Would a modification make the contract enforceable?3. Increased costs not enough4. Does not affect entire K, just the impractical clause as long as it does not effect the substantial performance of a contract5. Force Majeure Clause frees parties from obligaton in some extraordinary event (act of God clause)a. Does not apply market price changing unless it is unforeseen contingency6. Casesa. Taylor v. Caldwell Unexpected event occurredi. Facts: Parties contracted for Taylor to provide a music hall for 4 concerts by Caldwell. At no fault of either party, the music hall burnt down before performance. ii. Holding: There is an implication in the contract that the space must be there in order for the parties to perform. If the parties has contemplated such a risk, they would have included this stipulation. Therefore, it will be implied, and the parties are free from the obligations of the contract.b. US v. Wedgematic Impossibility does not excuse the Fault of one of the parties (should have had the technology before the due date)i. Facts: Wedgematic won a Govt contract for computer equipment based on its advertised revolutionary magnetic core system. The govt stressed prompt delivery by June, with a $100/day penalty for late delivery. Wedgematic did not deliver, and in October admitted that its revolutionary technology was not working, and would cost several million dollars in development costs. Wedgematic claimed it should be excused b/c performance was practically impossible. ii. Holding: Wedgematic is liable. A purchaser does not assume the risk of development when it orders a product. It is assumed the development process is completed. Wedgematic should not have contracted before development was complete.c. Canadian Industrial v. Dunbar Molasses cannot hold a third party responsible for its inability to procure the needed material when you contract (bad business precedent)i. Facts: Parties contracted to buy / sell 1.5 million gallons of molasses. Seller was acting as a middleman, but never made a contract with the source to guarantee the amount needed. The source could not supply the seller with enough molasses. Seller argued that he should be released from his contract for unforeseen hardship.ii. Holding: The buyer did not assume such a risk. The seller did not act to secure its end of the contract. The court will not allow this kind of business precedent to be set. Failure of a sellers supplier does not amount to impracticability.d. Kaiser Francis Oil v. PGC force majeure clause does not apply to market fluctuations i. Facts: Contract for gas with a force majeure clause. Market price fell, Buyer didnt pay, and claimed the market price falling was included under FM clause. ii. Holding: A decline in the market does not constitute a force majeure event. This would allow one side to back out of a contract when it is not convenient for it. The other side would be stuck with all the risk of production. Such a one-sided interpretation is not ii. Frustration of Purpose R 265-272 (NO UCC)1. Contract can be performed but the purpose of the contract is no longer there so it makes no sense to hold the parties responsible for contract2. Casea. Krell v. Henryi. Facts: Henry rented an apartment from Krell for 1 day to watch the kings coronation parade. Krell knew this was the purpose of the K. The king got sick and the coronation was delayed. Krell insisted on payment for the apartment. ii. Holding: The purpose of renting the space was frustrated, thus there is no contract obligation to pay.iii. permitted.b. Washington Hop Procedures v. Goschie Farmsi. Facts: USDA mandated hop sales to be allotted through hop bases. The WHP trust regulated these bases, which became a valued commodity. In 1985, after WHP allotted its annual hop bases, the USDA lifted its requirement, rendering the hop bases useless. The trust insisted that the growers pay for the bases they were allotted.ii. Holding: Growers not obligated to perform. The purpose of the contract had clearly been frustrated. This frustration does not stem from the drop in price, but from the fact that the growers were purchasing the hop bases because they were necessary, and that basic inference of the contract had become null by the USDAs actions.d. Duress - R 174-176i. Voidable by threatened party or automatically void if threatening party physically mandhadles partyii. There needs to be a threat threat goes beyond the legitimate rights of the party applying the pressure, or that constitutes an abuse of those rightsiii. Subjective standard to determine if there was duress reasonable person standardiv. Economic Duress when party is forced into a transaction as a result of unlawful threats or wrongful or oppressive or unconscionable conduct on the part of the defendant which leaves the plaintiff no reasonable alternative but to acquiesce, the plaintiff may void the transaction and recover any economic lossv. Cases1. Rubenstein v. Rubenstein Physical Threata. Facts: Husband owned property outside of marriage. Wife convinced husband to sign property over to joint ownership by threatening gangster violence, arsenic poisoning, and other things. Wifes father was in jail for murder via arsenic poisoning, so Husband was particularly fearful. b. Holding: Husband was induced to agree to the contract because of the threats made by his wife, whether a normal man would feel such a threat or not. Subjective duress, contract is voidable (because no physical compulsion) by Husband.2. Austin Instruments v. Loral Economic Duressa. Facts: Loral contracted with Austin to provide parts for a radar set Loral was building for the Navy. Navy then granted Loral a second K. Austin threatened to default on first K (causing Loral to lose both Ks) if Loral did not sign Austin to the second K. Loral requested parts from other buyers, but none could deliver. Loral agreed to Austins demands. Once Austin delivered on the first K, Loral brought suit to void second K, claiming economic duress. b. Holding: Contract is voidable by Loral. Loral did not contract with Austin out of its own free will, had exhausted its other options for suppliers, and did not want to face the possible cancellation of its contracts (and future contracts) with the Navy.3. Machinery Hauling v. Steela. Facts: Plaintiff was a steel salesman (middleman). A buyer refused to accept a load of faulty steel. Defendant told plaintiff he must keep the steel, or defendant would cease distributing to plaintiff. b. Holding: There was no contract threatening to be breached here. People are allowed to use harsh bargaining tactics. No duress.e. Undue Influence R 177i. When party has dominion of another person or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare. Renders a contract voidable. f. Unconscionability R 208, UCC 2-302i. An absence of meaningful choice on the part of one of the parties, together with contract terms which are unreasonably favorable to the other party. A question of law to be found by the courts. Allows courts to police contracts without there being a threat, if the agreements are totally unfair. Unconscionability is NOT strictly defined, as it is able to morph to undermine of creative thinkers looking for ways to scam people.ii. Almost always requires:1. Procedural unconscionability unconscionability in the process of reaching the bargain. 2 Factors: Oppression and Surprisea. Lack of knowledge (surprise) the extent to which terms are hidden. Lack of understanding of the K terms arising from inconspicuous print or the use of complex legalistic language and lack of opportunity to study the contract and inquire about contract termsi. Comes about from disparity of sophistication of partiesb. Lack of Voluntariness (oppression) inequality in bargaining power which results in an absence of meaningful choice. Simple disparity of bargaining power is not enough party with more power must have abused its positionc. Factorsi. Belief by stronger party that there is no reasonable probability that the weaker party will fully performii. Knowledge of the stronger party that the weaker party will not be able to receive substantial benefits from the contract.iii. Knowledge of the stronger party that the weaker party is unable to reasonably protect his interest because of infirmities, ignorance, illiteracy, age, inability to understand the language of the agreement, etc.iv. Business Acumen and Experience / Relative Bargaining Powerv. Whether the Terms were explained to the weaker partyvi. Sharp practices and high-pressure tactics.2. Substantive Unconscionability focuses on the content of the terms and whether the are so one sided as to shock the conscience. Terms that are harsh, unfair, or unduly favorable to one partyiii. Sliding Scale Need both Procedural and Substantive but more of one means less of the other is needediv. The more sophisticated you are, the less likely you are able to use unconscionability as a defensev. Fees usually fine unless so high to shockvi. Contract of Adhesion may make it more like to find unconscionability R 211vii. Makes contract VOIDABLEviii. Cases1. Williams v. Walker Thomas Furniturea. Facts: Williams was a single mother of 7 with limited education on govt assistance ($218/month), which Walker Thomas knew. Walker Thomas sold Williams several items over a 5-year period. The terms of the contracts merged the payments of each item into one payment, thus the title to every item was held by Walker Thomas until the entire debt was repaid (cross-collateralization). Williams did not understand this concept. She had paid down a significant portion of her debt and only had $164 in payments left, when Walker Thomas sold appellant a $514 stereo system. Williams went into default on the payments, and Walker Thomas repossessed all the items. Williams sued claiming that the contract was against public policy. The trial court found for Walker Thomas.b. Holding: -Lower Court: The lower court affirmed the trial court decision because while Walker Thomass conduct was irresponsible and exploitive, there was no legislation or legal ground to find the contract against public policy. The lower court suggested Congress consider corrective legislation.c. Holding -Court of Appeals: Between the lower courts decision and the Court of Appeals decision, Congress adopted the UCC. The court uses the UCC as persuasive authority (ex post facto concerns), and finds that the lower courts should have considered the element of unconscionability. d. (The court says that to determine reasonableness or fairness, the contract must be viewed in light of the circumstances existing when the contract was made, including whether the terms are so extreme as to appear unconscionable according to the standard business practices of that time and place.)2. Ferguson v. Countrywide Sliding Scalea. Facts: Ferguson signed a mandatory employment contract that included a severely limiting arbitration clause. She later brought suit for sexual harassment and discrimination. Countrywide petitioned for enforcement of the arbitration clause. b. Holding: Procedurally, Ferguson had unequal bargaining power and could not negotiate the contract Countrywide presented her. Substantively, Countrywides arbitration agreement is extremely one-sided. Therefore, the clause is unconscionable, thus unenforceable.3. Zapatha v. Dairy Marta. Facts: Zapatha (educated businessman) ran a Dairy Mart franchise. K included a clause that allowed either party to terminate without cause after 90-day notice. Dairy Mart explained terms to Zapatha and suggested he review them with a lawyer. Zapatha stated they seemed clear and explanatory, and signed the K. Later, Zapatha refused to sign a new term of agreement. Dairy Queen gave him 90-day notice.b. Holding: Not unconscionable. Zapatha should not have been surprised by the clause because it was unexplained to him and not written in unclear language. It is not oppressive because there is not unequal bargaining power. Either party could terminate.4. Coursey v. Caterpillara. Facts: Caterpillar sold Coursey machinery. K terms included a standard exclusion for sellers liability of consequential damages. b. Holding: No procedural or substantive unconscionability. (UCC 2-719(3)). Limitation of consequential damages is not prima facie unconscionable for commercial goods (as opposed to consumer goods).5. Jones v. Star Credita. Facts: Jones were welfare recipients, bought a home freezer unit from a door-to-door salesman. The purchase price was $900, and they were also charged time credit charges, credit life insurance, credit property insurance and sales tax for a total of $1,234.80. The retail value of the freezer was approx. $300. They paid off $619.88 and Star claimed that $819.81was still due as a result of additional charges for late fees, etc. Jones claims the inflated price is unconscionable. b. Holding: Procedurally & substantially unconscionable. This body of law recognizes the importance of a free enterprise system but at the same time will provide the legal armor to protect & safeguard the prospective victim from harshness. Having already been paid more than $600 toward the $300 refrigerator, Star had already been justly compensated.6. Fleet v. US Consumer Counsela. Facts: The USCC advertised that it could help people who were at risk of bankruptcy. It then charged $195-$260 to simply refer clients to attorneys, a service provided by the bar association for free. b. Holding: Unconscionable. Price is an element to consider when deciding unconscionability. If the price charged is grossly excessive in relation to sellers costs and if the goods could have little or no value for the purpose persuaded to buy, the price becomes a major factor.g. Illegality and Public Policy Violations - R 178-186i. Courts usually hesitant to strike down contact on public policy groundsii. Court can raise defense sua sponte on its own accordiii. Court unlikely to enforce contract that has illegal component iv. Over=Broad Terms, and Terms that violate public policy1. Court more likely to rule provision public policy and not enforce as opposed to voiding the entire contract 2. For over-broad covenants, courts can apply: (also for unconscionable Ks)a. Strict View contract wont be enforced at allb. Blue Pencil View editing words out of contract to make it reasonable. c. Reasonably alteration View court can alter termsv. Cases1. Sinnar v. Leroy - Illegala. Facts: Sinnar was denied a liquor license by the state. He asked his neighbor Le Roy, who had friends in the city govt, if he could help in getting the license. Sinnar paid Le Roy $450. Le Roy did nothing. Sinnar sued for the return of his money.b. Holding: LeRoy would have had to procure the license illegally through bribery or some other illegal method. The court will have no part in upholding an illegal transaction and leaves the parties where they lie. R.2d 1812. Homami v. Iranzadi - Illegala. Homami lent Iranzadi $250K for real estate ventures. The note of the loan explicitly stated No Interest. Homami claimed that the parties had made a verbal agreement of 12% annual interest, and this agreement was left out of the note was so that Homami would not have to declare the interest as income on his taxes. Iranzadi did not pay the interest. b. Holding: Homami purposely entered into this agreement in this manner in order to commit tax evasion. The court will not reward him for underhanded and illegal business dealings.3. Broadley v. Mashpee Neck Marinaa. Facts: Broadley leased a ship at the Marina. He signed a boilerplate waiver that released the Marina from any claims, demands, causes of action of any kind or nature... arising out of any damage, loss, personal injury or death suffered by him. Broadleys foot got caught in a gap between the main dock and the floating dock, broke his ankle. The marina denied any liability, claiming that Broadley waived liability.b. Holding: Boilerplate form is vastly overbroad and against public policy. Marina cannot excuse itself from gross negligence, recklessness, or intentional wrongdoing.4. Data Management v. Greenea. Facts: Greene signed a 5-year non-compete agreement at the beginning of his employment at Data Management. After he left the job, Data Management sued him for violating the non-compete.b. Holding: The non-compete is overly broad, thus limiting the free flow of trade (against public policy). If the overbroad covenant can be reasonably altered to render it enforceable, the court should do so unless it determines the covenant was not drafted in good faith.h. Mistake - R 151-158 (No UCC equivalent)i. A belief not in accord with the factsii. Elements: Material and who bears the risk?iii. Mistake must have been when the contract was formediv. MATERIALITY not enough to show party would not have contracted had it not been for the mistake, but also needs to show that the resulting imbalance is so severe requiring enforcement would be unjustv. Errors that are outside the scope of mistake:1. Errors in judgment2. Incorrect predictions of future events3. Mistake of meaning / understanding4. Market conditions or financial abilityvi. Two kinds of mistake: Unilateral v. Mutual1. Mutual Mistakea. Mistake by both partiesb. Elementsi. At the time of contracting, the parties shared an erroneous belief concern a factii. The erroneous fact was a basic assumption on which the contract was made. It was so fundamental to the shared intent and purpose of the parties that it is reasonable to conclude that they would not have made te contract at all or on the present terms had they known the truthiii. The mistake had a material effect on the agreed exchange of performanceiv. The adversely affected arty must not have borne the risk of the mistake2. Unilateral Mistakea. Mistake by oneb. Elements same as the Mutual except:i. Bearing risk falls out if:1. Effect of the mistake is such that enforcement of this contract would be unconscionable2. The other party had reason to know of the mistake of his fault caused the mistakevii. REMEDIES FOR MISTAKE:1. Voidable may move for unjust enrichment - 52. Rescission fixes a mistake in agreement. 3. Reformation rewriting of the contract to reflect mistake in the writing of temsa. Fies mistake in writing not agreement - 155viii. Bearing the risk of mistake, consider:1. Have parties allocated the risk via a term of the contract?2. Is the party aware that he has limited knowledge, and treats this as sufficient?3. Is it reasonable because of the circumstance of the contract, that the risk is naturally allocated? ix. Cases1. Boise Junior College District v. Mattefs Constructiona. Facts - Ds (Mattefs) erroneously omitted an item representing 14% of its total bid submitted to P. P had expected to pay $150,000 for the work and ended up paying another contractor $149,000.b. Holding: Court allowed recission based on 5 factors:i. Mistake was material: because it greatly adjusted the costii. Enforcement of the K would be unconscionable: substantial hardship on bidder where cost more to comply with K than the profit gained from K, and substantive unconscionability where is was harsh, oppressive, and one sidediii. Mistake didnt result from violation of a legal duty or culpable negligence iv. Party accepting the bid wont suffer any real harm: no substantial hardship, and other bid offersv. Prompt notice of mistake is given: you cant accept an offer that you have reason to belief is suspicious and then claim mistake. 2. Sherwood v. Walkera. Facts: Walker agreed to sell a barren female cow to Sherwood for a discounted price. Upon examination, both parties firmly believed the cow was barren. Before delivery, it was discovered that the cow was pregnant. As a breeder, the cow was worth ten times more money. Walker refused to sell. b. Holding: The contract is voidable by the seller upon discovery of a mistake in fact. Neither party would be damaged by canceling the contract, each would achieve the status quo. The whole substance of the agreement hinged on the fact that she was being discounted off because she was barren. The material substance of the K has changed.3. Beachcomber Coins v. Bosketta. Facts: Boskett sold Beachcomber what was believed to be a rare dime minted in Denver in 1916 for $500. Both parties believed the dime to be authentic. The dime was later proven to be a forgery. Beachcomber sued for rescission. b. Holding: A classic case of mutual mistake of fact. R.2d 152(1). Failure of a party to uncover the true facts does not preclude rescission. The plaintiff could only assume the risk of purchasing a forgery if the plaintiff had some doubts as to the authenticity of the coin. Here, both parties were sure that the coin was authentic. 4. OneBeacon Insurance v. Travels Indemnity Reformation of Ka. LAI (rental company) gave renters a choice of using their insurance company (OneBeacon), or choosing their own company. The K between OneBeacon and LAI stated an insured driver to include anyone else while using with your permission a covered auto you own. A client (Capform) chose to use their own insurance (Travelers), and was involved in an accident. Travelers learned of LAIs policy with OneBeacon and sued, claiming the terms meant that OneBeacon was liable for coverage of all customers, even those who chose to use their own insurance. One Beacon sought reformation. b. ii. Holding: OneBeacon showed a thorough and consistent line of evidence that proved that both OneBeacon and LAI assumed that coverage did not include lessee vehicles that were independently insured. Reformation should be provided as an equitable remedy against Travelers attack, and to ensure the K reflects the intent of the parties.5. Lenawee County Board of Health v. Messerly term of contract allocated risk to buyera. Messerlys sold to Pickles a property with 3 rental units as is. The previous owner had unlawfully installed a faulty septic system. Soon after purchase, the Pickles discovered raw sewage seeping from the ground. The County subsequently condemned the property until the sewage system was repaired. b. Holding: This was a mutual mistake, neither party was aware of the condition of the land. Both parties are blameless, however the Pickles assumed the risk of the property when they purchased it as is. The Pickles cannot void the contract.i. Misrepresentation R 159-173i. Definition assertion that is not in accord with the facts. ii. Types:1. Concealment intentionally conceal a fact2. Non-disclosure when:a. It is known that the disclosure is necessary to correct a previous misrepresentation or mistake in writingb. It is known that the disclosure is necessary to correct a mistaken belief or assumption, and non-disclosure would be a failure to act in good faithc. When non-disclosure violates a fiduciary relationshipd. A statutory regulation requires disclosureiii. Can be negligent or innocent misrepresentation negligent is subject to parole evidence ruleiv. New Rule Reasonable standard the reliance on non-disclosure must be reasonable in light of the circumstances and context of the casev. Old Rule - Caveat Emptor Rule Buyer Bewarevi. Is Misrepresentation Material:1. If it would be likely to induce a reasonable perform to manifest his assent or if the make rknows that it would be likely to induce the recipient to do sovii. WHEN MISREP = FRAUD - 1621. Party must have bad motive 2. When party acts with either the intention or gross negligence. Need guilty state of minda. Knows / believe the assertion is not in accord with factsb. Isnt confident he asserts the truthc. Knows his statements have no basis3. Types of Frauda. Fraud in inducement Fraud based on elements of Kb. Fraud in execution Fraud based on getting someone to sign or perform entire K is voidviii. Inducement can be justifiable if:1. A fiduciary relationship justifies the recipient of the opinion to reasonably rely or where the parties do not deal at arms length2. The recipient reasonably believes that the opinionated party has special skill or judgment with regard to the subject matter3. The recipient is insome other special way particularly susceptible to misrepresentations of the type involved 4. Opinions: in general, one is permitted to express ones opinion without assuming the other party will materially rely on it. A certain amount of puffery is permitted in negotiationsix. REMEDIES1. K 164 Voidable if fraud rescission (avoid contract) and be awarded restitution. Can also sue for damages2. Void 163 if misrepresentation to essential term3. Reformation4. Cure 165 if the facts come into accord with the assertion before the injured party notifies of his intent to avoid, the contract is no longer voidable 5. UCC 2-721 remedies for material misrepresentation or fraud include all rememdies available under this article for non-fraudulent breachx. Cases1. Hill v. Jones Hiding material facta. Defendant sold plaintiff a house without disclosing to the realtor, inspector, or buyer of a past termite inspection. Upon moving in, the buyers discovered an ongoing termite issue, costing $5K in repairs. b. Holding: Withholding material information is an assertion that the fact does not exist. Thus, nondisclosure is equal to fraud and misrepresentation. A termite infestation is a material fact because it's disclosure could reasonably induce someone to refrain from entering into contract.2. Laidlaw v. Organ Acceptable under buyers bewarea. A peace treaty was unexpectedly made during the war of 1812. The treaty allowed for lifting of the embargoes on New Orleans. Early in the morning after the treaty had been announced, the defendant went to the plaintiffs shop and requested to purchase 111K lbs. of tobacco. The lifting of the embargo would cause the value of tobacco to rise significantly. The plaintiff was not yet aware of these changes to the trade market. He asked the defendant if there was any reason why the market would have fluctuated, but the defendant remained silent. The plaintiff then sold the defendant the goods at a rate much lower than the post-embargo rate. b. Holding: Established Caveat Emptor as the standard for trade dealings. Organ was not required to disclose the information he had, despite his advantage by having it. However, each party must take care not to say or do anything tending to take advantage of the other.3. Vokes v. Arthur Murray old woman dancing a. Plaintiff was a 51-yr-old woman who had no rhythm. She enrolled in dance classes through Defendant's school. For a 16-month period, the instructors falsely flattered and advanced plaintiff through the program, in an effort to sell her enormous amounts of dance courses at exorbitant costs. No true improvement or ability existed. b. Holding: This was not simply opinion, this is fraud. The instructors had the ability to make qualified judgments regarding the plaintiff's progress, and lied to her to induce further purchases. (R.2d 169(b))c. Note: The amount of money was a key issue. If this were a casual hobby and the instructors were giving her compliments, this would likely be excusable sales puffery.j. Assumption of the Risk 154i. A party bears the risk of a mistake when:1. The risk is allocated to him by agreement of the parties2. He is aware at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient3. The risk is allocated to him by the count on the ground that it is reasonable in circumstances to do soV. What remedies are available if contract has been breached?a. RESTATEMENT Analysis of materiality (none for UCC)b. What is breach?i. Definition failing to honor a promise of performance when the performance falls due. ii. Ways to breach1. Fails to perform, or deficiently performs without justification (non-performance is breach)2. Repudiates an unperformed obligation by words or conduct3. Violates the duty of good faith by preventing ot hindering performance of the other party or by failing to cooperate in performing the agreed exchangeiii. Scope of Breach

iv. Breach is material if the failure or deficiency in performance is so central to the contract that it substantially impairs its value and deeply disappoints the reasonable expectations of the promise. Goes to the essence of the contract. 1. R 241 one must consider the entirety of the facts and decide if the defective or absent performance forms a significant party of the consideration bargained form. 2. Factorsa. Extent that injured party will be deprived of reasonable expected benefitb. Extent that injured party can be compensated for the deprivation of benefitc. Extent to which party failing to perform will suffer forfeitured. Likelihood that party failing to perform will cure his failuree. Extent that party failing to perform actions comport with standards of good faith and fair dealingv. Total Breach 243 material and uncured / uncurable1. Nonperformance 2352. Substantial impairment substantially impairs the value of the contract to injured party3. Repudiation4. Payment only if the duties performed but not paid, NOT TOTAL BREACHvi. Claim for damages 2361. Total Breach for damages based on injured partys remaining rights to performance2. Partial for damages based on only part of the injured partys remaining rights to performance

If breach is total and materialPromisee may-Withhold performance-Terminate-Claim full damages for breach

Breach is material but not totalPromisee may-Suspend performance-Await cure-Claim compensation for any loss suffered

If breach is not material (substantial performance)Promisee may--Claim compensation for any loss suffered-BUT, still has duty to perform his/her part of the bargain.

vii. Can breach by repudiating contract Anticipatory repudiation (R 250-257) (UCC 2-610)1. When a party clearly indicates that he will not perform the contract party can treat this as a breach2. Elementsa. The prospective action or inaction indicated by the promisor must be serious enough to qualify as a material and total breach of the contract 250 comment Di. Advanced repudiation only gives the promise the right to terminate if the threatened deviation is material and totalb. The promisors statement or conduct must clearly indicate to the reasonable promise that the promisor intends to breach materially when the time for performance arrivesi. The promisors statement must be analyzed objectivelyc. The promisors statement or conduct in repudiating must be voluntary i.e. deliberate and purposeful rather than inadvertent or beyond the promisors controli. Promisor should be given th opportunity of trying to overcome obstacles to performanceii. If it appears such obstacles are insurmountable, the promisees remedy is to demand assurance of performanceiii. Commends made to a third party are not clear repudations3. If you repudiate too early you can breacha. Can go to court to see your rights under the contract before repudiating4. Unequivocal Repudiation clear and unequivocal no queston about it 250 comment b5. Assurances and Suspending Performance UCC 2-609, RS 251a. If concern whether party will perform, party can request assurance of due performance and suspend performance until assurance is made6. Casea. Hochester v. Edgar De La Tour - Repudiationi. Parties contracted for Hochster to go on tour with DLT. Before start date of tour, DLT wrote that he changed his mind and would no longer need Hochsters services. Hochster sued to recover damages in anticipation of future breach.ii. Holding: As soon as De La Tour informed Hochster of his intent to breach, Hochster was entitled to seek damages for breach. When one party to an agreement is informed by another party to the agreement that the second intends to breach, the first party has an option to file suit for damages immediately in anticipation of the breach, or to wait until the act was supposed to be done. (R.2d 253(1)) b. Taylor v. Jonsoni. Facts: Pl. and Def. contracted for Def.s stud to impregnate 2 of Pl.s mares. Before performance, Def. sold the stud and repudiated the K. Pl. rejected repudiation and demanded performance. Def. arranged for mares to be boarded at new stable and bred. Breeding season ran through July. Because mares were previously pregnant, they were unable to breed until late spring. Several heat periods passed, but the stud was unavailable at each time. New owners assured Pl. his horses would be bred., but Pl. assumed the new owners would not breed the horses before end of season and had his horses bred with another stud. ii. Holding: There was no repudiation. Plaintiff breached contract. Original repudiation was nullified. Second repudiation was not clear and unequivocal. When plaintiff requested assurances, the new owner promised performance. Performance was still possible in the window of time available.c. AMF v. McDonalds i. Facts: McDonalds agreed to buy 23 cash register systems from AMF, delivery in June 1969. AMF pushed delivery back to Jan. 1970. Installed prototype had massive issues and failed. AMF had massive problems, and as of May 1969 did not have a single working machine. In July 1969 the parties agreed to cancel the order. AMF then sued for breach. ii. Holding: AMF did not provide adequate assurance of performance in its dealings with McDonalds. Under UCC 2-609 and 2-610, the buyer had reasonable grounds for insecurity, thus had a right to cancel under 2-711.iii. NOTE: If you ever question whether actions amount to repudiation, you can always go to the court and ask for a declaratory judgment before you do anything. d. Reliance Cooperage Corp. v. Treati. Facts: Defendant contracted to deliver 300K oak bourbon staves by the end of the year. In October, the Plaintiff expressed concern and asked for assurance of performance. The defendant did nothing. Plaintiff waited until January, and then sued. Trial court claimed that plaintiff should have mitigated in October. ii. Holding: A party need not accept repudiation. Thus, the contract is binding until the time of performance expires and there is no duty to mitigate before that time.e. John Hancock v. Cohen i. Facts: Cohen was beneficiary of a life insurance policy that was to be paid out monthly over a 20-year period. After 15 years, Hancock claimed there had been a mistake and stopped paying. Court found there was no mistake, thus Hancock had committed an anticipatory breach. Ordered Hancock to pay the entire 5-year value as a lump sum at judgment.ii. Holding: The K will be upheld. Hancock must immediately pay back-payments plus interest, but then may resume monthly payments for the remainder of the time. The insurer made the breach in good faith, believing there was an error.f. New Era Homes v. Forsteri. Facts: Plaintiff contracted to perform renovations. Full price of $3075 and 4-payment installment plan were agreed to. Third installment of $1500 was due when rough-ins were completed, final installment was due upon completion. Upon completion of rough-ins, defendant refused to pay. Plaintiff stopped work and sued for total remainder, then reduced claim to $1500 for the third installment. They showed no proof of damages other than the fact that $1500 was due when rough-ins were complete. Defendant conceded breach, but claimed that the Plaintiff was only due value of damages proven to have incurred.ii. Issue: Did the staggered payments create 4 small contracts fully due upon full performance of that step, or one large K susceptible to payment of value of part performance upon breach?iii. Holding: The total price was the single consideration for the whole of the work. The language of the K, agreeing to a total price of $3075, shows the understanding of 1 K with 4 installments of payment convenient to each party. This is reasonable when considering the standard renovation project is expected to be done completely by one party. Thus, discovery for actual damage is necessaryc. Specific Performance nonmonetary damagesi. If legal remedy is inadequate, court may order breaching party to perform (land and rare or unique goods cases)ii. Cases1. Northern Indiana Public Service v. Carbon Coal contract only for those who enter. Any party (i.e. employees effected fall outside scope)a. Facts: Parties contracted for NIPSCO to purchase 1.5 million tons of coal from Carbon Coal for 20 years at a price of $24/ton, subject to upward escalation. By 1985 the price had escalated to $44/ton, and NIPSCO was able to buy electricity for cheaper than the cost of generating power from coal. They sought efficient breach. The trial jury awarded Carbon $181m, but Carbon filed an appeal to seek specific performance instead.b. Holding: NIPSCO has the right to exercise efficient breach, i.e. to pay damages, rather than performing the contract because its uneconomical. The court rejects Carbons argument that specific performance is necessary to protect its workers. Carbon is trying to win specific performance to use it as bargaining leverage. Specific performance denied.2. ABC v. Wolfa. Facts: ABC and Wolf entered into negotiations to discuss renewing Wolfs contract. Wolf agreed to a period of exclusive negotiations with ABC and granted ABC a right of first refusal of offers, but violated these terms and made an agreement with CBS. ABC sued, requesting an injunction to delay Wolfs start date with CBS and requiring specific performance for right of first refusal.b. Holding: Though Wolf breached the agreement, ABC is not entitled to equitable relief. Courts do not desire to restrict an unfettered job market unless there is a compelling reason to do so. The court will not force involuntary servitude (13th Amendment). ABC is free to pursue monetary damages.d. Injunctive Relief - preventing a party from engaging in can action that would result in damage to the other party. Party requesting injunction has burden of proofi. Criteria1. Suffered irreparable harm2. Remedies (legal) not adequate3. Considering hardship, remedy is warranted4. Public interest not disserved by injunctionii. Cases1. Walgreen v. Sara Creeka. Facts: Walgreen rented retail space in a mall from Sara Creek. The lease terms included a clause where Sara Creek could not to rent another space in the mall to another pharmacy. Sara Creeks anchor store went out of business, and Sara Creek began negotiations to lease the space to Phar-Mor, a deep-discount pharmaceutical store. Walgreens requested an injunction. b. Holding: Walgreens damages would be very hard to calculate. Business projections and projected harm over a 10-year span is too speculative (R.2d 352). Injunctive relief is more definite and would not require intense court supervision to be maintained. Injunction granted.2. Bertholet v. Stefanko Noncompete clausea. Facts: Stefanko is a bail bondsman for Bertholet, whose contract included a non-compete clause and provided for an injunction in the event of breach. Stefanko left voluntarily, started working for competitor. Bertholet sued for injunctive relief. Trial court rejected Bertholets claim.b. Holding: The court rejected Bertholets argument that the contract provision forced the trial court to grant an injunction. Such decisions are at the discretion of the trial court. Here, Bertholet failed to satisfy the four requirements for injunctive relief. Injunction denied.e. Damagesi. Monetary Damages1. Compensatory R 346-350, UCC 708-710, 713, 715a. Necessary to replace what was lost 2. Expectation damages (benefit of the bargain) 347a. Harmed party being granted the benefit of the bargain by being put in as good a position would have been in had the contract performedb. Injured party may recover for damages that are foreseeable and directly related to the K 351/2-715c. Casei. Sullivan v. OConner1. Facts: Plaintiff, a professional entertainer, brought suit against her surgeon for a botched nose job. She brought a complaint for tortious malpractice, as well as a complaint for breach of contract. The contract count claimed that the doctor had entered into a contract in which he promised to enhance her beauty through 2 rhinoplasty procedures, but failed to do so. After 3 procedures, the nose was asymmetrical and looked worse than before surgery. A jury found for the plaintiff on the breach of contract count.2. Holding: The plaintiff is not limited to out-of-pocket recovery (the expenses of the surgeries). A plaintiff may recover for pain and suffering from a breach of contract suit if such a remedy seems warranted. The emotional suffering from a botched surgery is something a doctor may reasonably foresee. The pain endured from the last surgery is expected and not necessarily a result of the breach, but it was pain endured by the plaintiff for naught and can be compensated. Compensation for additional surgeries to repair the issue may also be permitted.3. Diminution in Value 348a. Available where there has been substantial performance in Good Faith but defects exist or where breach is incidental to purpose of K and correction would result in unreasonable economic wasteb. Calculating Damages alternative measure where breach results in defective / unfinished performance and loss is not proved with certainty may recover on diminution of market price or reasonable cost of completeing performance or remedyingc. Remember Court will consider economic waste (the destruction of substantially completed building)d. Casesi. American Standard v. Schectman ECONOMIC WASTE1. Plaintiffs leased a factory to defendants upon agreement that defendants would pay lump rent sum and remove equipment, demolish structures, and grade property to specifications. Defendant did not perform and sought judgment stating they were only liable for diminution value. 2. Holding: Diminution is not a valid remedy. The parties agreed to the performance as part of the consideration for the contract, meaning it was not incidental. The defendant has no right to decide that contracted-for performance would be of no value to the plaintiff. There is no economic waste - there is nothing to be undone, there is only that which has been left undone. The fact that the job may cost more than the defendant expected does not constitute economic waste.ii. Peevyhouse v. Garland Coal ECONOMIC WASTE (company contracted to clean up and didnt do it)1. Facts: Peevyhouse leased land to Garland for 5 years to perform strip mining. Garland agreed to remedial work to restore the land at the completion of the lease, but failed to perform this restoration. The cost for remediation was $29K. Defendant argued that damages were limited to diminution value, and the difference between market price of farm now and if remediation had been performed was $300. 2. Holding: Peevyhouse only entitled to diminution value. Remediation was not material to the contract.4. Reliance Damages (349) interest in being reimbursed for loss caused by reliance on the contract5. MITIGATE DAMAGES (350/2-712)a. Lost Volume Seller if you have unlimited supply, no duty to mitigate 6. If damages unforeseen at the time of the contract, cannot recoverii. Liquidated damages 356 / 2-7181. Actual damages difficult to calculate at the time of the contracting2. Amount is reasonable forecast of the likely damages3. Court can strike down if too high4. Court may strike if easy to find the damages incurred5. Cannot be punitive6. Casesa. Southwest Engineering v. USi. Facts: Parties contracted for 4 projects that included liquidated damages of $100-to-$150/day for delays beyond agreed completion date. Exceptions to the liquidated damages clause included where acts of god or the govt caused the delay. Each project was completed behind schedule, at a total of $8400 liquidated damages. ii. Holding: No showing of unreasonable estimation has been shown. The parties freely agreed to the stipulations. They took a calculated risk. This risk allocation is not wrongful.iii. iii. Sale of goods contracts 1. Buyers damages a. Cover (difference between contract price and cost of replacement goods)b. Difference between contract price and market pricec. Warranty damages (if accepted nonconforming goods)d. Consequential damages (if seller knew of buyers needs)e. Perfect Tender Rule 2-601 buyer has a right to inspect and reject any good that does not conform precisely to what buyer ordered. Distinct from Restatement substantial performance doctrine (no difference between material and trivial breach). Both inspection and rejection must be within a reasonable time. i. Buyer can reject whole, accept or, or accept some and reject restii. Inspection buyer has right to inspect goods at reasonable place and time in any reasonable manneriii. Rejection must be made in reasonable timeiv. Acceptance of Goods:1. Occurs after reasonable time signifies to the seller the goods are conforming or that he will take or retain despite2. Fails to make effective rejection 3. Does any act inconsistent with the sellers ownershipf. After Acceptance 2-714 bouyer can recover for non-conformity of what was expected. Measure of damages was difference between what was accepted and what would have been the value of warranty. g. CASESi. Neumiller v. Cornett1. The rejection must be in good faith. If the goods conform, buyer is liable / seller has remedies2. Sellers damagesa. Difference between contract price and resale priceb. Difference between contract price and market pricec. Lost profits (lost volume seller)d. Cure 2-508 permits seller to avoid final rejection of nonconforming goods by curing the deficient tender i. Mitigates the harsh effect of perfect tender rule ii. Have to consider whether seller can complete cure before deliveryiv. Land sale contracts difference between the contract price and fair market value v. Employment contracts 1. Employer breached full contract price2. Employee breached cost to replace employeevi. Construction Contracts1. Breach by ownera. Before construction builders prospective profitsb. During construction contract price minus cost of completionc. After completion full contract price plus interest2. Breach by buildera. Before or during construction cost of completion plus compensation for delay b. Late complete value of lost usevii. Avoidable damages nonbreaching party has duty to mitigateviii. Restitution 370-3771. Prevents unjust enrichment measure is value of benefit conferred 2. Contract will be disaffirmed3. For unjust enrichment a. The defendant received a benefitb. An appreciation of knowledge by the defendant of the benefitc. Circumstances that would make it unjust for the defendant to retain the benefit without paying for it.4. When is it inequitable for a defendant to retain a benefit conferred by a plaintiff without the defendants request?5. Did the plaintiff confer a measurable benefit on the defendant retained the benefit, did the plaintiff five the defendant opportunity to decline the benefit before it was conferred? 6. If so, and if the defendant retained the benefit, did the plaintiff give defendant opportunity to decline the benfit before it was conferred?7. If so, the defendant did not object, the defendant is likely liable based on the theory of consent. If not, plaintiff cannot likely recover.8. Measuring Restitution 371a. Damages are not the grantors loss of expectation, but the recipients gain. They are meant to approximate the monetary value of what has been given to the recipient. There are two principle ways in which enrichment can be benefittedi. Market Value generally a standard measure1. Quantum Meruit as much as he deserves. The reasonable market value of services Restatement 2. Quantum Valebant As much as they are worth. The reasonable market value of goods UCC 3. Net gain the actual amount by which the recipients wealth is created4. Used when the circumstances make recovery of market value either excessive or inadequate5. No gain = no relief 3709. Casea. Britton v. Turneri. Parties entered into an employment contract that provided the plaintiff would work for 1 year and at the end of that year be compensated $120. Plaintiff worked for 9.5 months, and then left the job for no just reason. Defendant claimed breach, paid nothing. ii. Holding: The plaintiff can recover the value of the services he actually performed through quantum meruit. The value of the plaintiffs damages is the expected rate of the services rendered ($10/month for 9.5 months = $95), less whatever damages the defendant suffered because of the plaintiffs breachb. Bernstein v. Neymeyeri. Facts: Plaintiff invested in renovating apartment. Defendant agreed to pay difference in negative cash flow. They both invested money. Despite good faith agreement, defendant defaulted on its loans to financiers of project, and could not pay Plaintiff its negative cash flow guaranty. Plaintiff sued for restitution of their interest. Holding: Restitution damages are to keep the defendant from unjust enrichment at the expense of the plaintiff. When the breaching party does not enjoy unjust enrichment (i.e. the breaching partys increase in value of property or the advancement of their interests), restitution damages are not proper. Whether or not the breach of the guarantee agreement was material to the contract is irrelevant and has no bearing on whether the Plaintiffs are entitled to restitution damages.ii. Note: The objective [of unjust enrichment] is not to put the injured party in as good a position as he would have been in if the contract had been performed, nor even to put the injured party back in the position he would have been in if the contract had not been made; it is, rather, to put the party in breach back in the position he would have been in if the contract had not been made.f. Rescission and Reformationi. Rescission contract voidable/rescinded if mutual mistake of material fact, unilateral mistake that other party knew or should have known or extreme hardship, misrepresentation of material factor, or duress, undue influence, illegality, incapacity, or failure of consideration 1. Public works contract if:a. Mistake is materialb. Enforcement of contract pursuant to the terms of the erroneous bid would be unconscionablec. The mistake did not result from violation of a positive legal duty or from culpable negligenced. The party to whom the bid is submitted will not be prejudiced except by the loss of his bargaine. The prompt notice of the error is givenii. Reformation writing changed to conform to parties original intent if mutual mistake, unilateral mistake and party knows of it and does not disclose or misrepresentation g. ECONOMIC WASTEi. Cost of performance is the proper measure of damages if this is possible and does not involve unreasonable economic wasteii. The diminution in value caused by the breach is the proper measure if construction and completion in accordance with the contract would involve unreasonable economic wasteiii. REMEMBER HOUSE ABOVE SEA LEVEL HYPOiv. Diminution of value usually considered for construction casesh. Consequential Damagesi. When parties enter into a contract which, by its terms provides that the time of performance is to be fixed at a later date, the knowledge of the consequences of a failure to perform is to be imputed to the defaulting part as of the time the parties agreed upon the date of performance Spang Industries v. Aetna Casualty 1. Failure to pour concrete in time so party should know the conseqnecesii. Mental Anguish and Punitive Damages1. Wont get mental anguish unless it causes serios emotional disturbance R 353VI. HOW COULD THE PROBLEM BE AVOIDED