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CONTRACTS OUTLINE
Professor Crespi
I. ENFORCEABILITY DEFENSES
A. Statute of Frauds
 Rationale for Statue of Frauds:
 Why have a statute of frauds?
 (1) evidentiary function: less fraud when contracts are in writing
 (2) channeling function: minimizing disputes in contractual terms
 (3) cautionary function: keeps people from doing impulsive things.
 Why not?
 (1) burdens: makes casual/basic deals more difficult.
 (2) fraud: legally sophisticated people can use it for fraud
 (3) categories: it is the old categories plus the sale of goods. (better categories may be long term, size of deal). It needs to
be grouped differently.
 Restatement Section 110

 Parliament passed "An Act for Prevention of Frauds and Perjuries" more commonly referred to as the Statute of Frauds in
1677. Any contract that fell within the statute of frauds had to be in writing and signed by the party against whom the action
was raised. The original Statute of Frauds referred to the writing as a "memorandum." It dealt with five types of agreements:
 (1) Executor-administrator agreements: when the executor of a will personally agrees with the creditor that he will pay
for the estate/ difference himself
 (2) Suretyship agreements: primary debtor doesn’t pay, a third party pays.
 (3) Marriage agreements:
 (4) Land contract agreements: contract for transferred interest in land (can include: easements, leases, etc.) [Exceptions
for oil and minerals]
 (5) One-year agreements: It has to be impossible for the contract to be completed in one tear.
 Writing Requirement (Common Law)

 Don't have to have a copy of the contract (how much less can you have?)
 Don't have to have it in one document (can be several letters)
 Document timing is not important -- did not have to happen simultaneous to the contract
 Document doesn't have to be delivered. (no physical possession by both parties agreement)
 Document need not still be in existence at the time of the lawsuit if it can be proven that it existed .
 Has to identify the parties to the contract
 Has to identify the nature and the subject matter of the contract
 Has to state the essential terms of the required performance (doesn't have to be complete, but must have the core terms)
 Must be signed (See UCC -- courts are liberal in defining a signature)
 Has to signed by the party against whom enforcement is sought.
 In Litigation:
 Stage 1: It is the plaintiff's burden of proof to prove beyond a preponderance of the evidence that a contract was formed.
The plaintiff may also use any evidence he has (to prove the elements of contract formation). The plaintiff doesn't have to
prove all the terms of the contract, just that there was a contract.
 Stage 2: Defendant can raise the statute of frauds defense. The plaintiff has to, then, show that if the statute of frauds does
apply to the contract, he has to come up with a signed, sufficient writing to indicate there was a contract. Now, the only
evidence he can use is a writing signed by the other party.
 Stage 3: If the plaintiff overcome s the statute of frauds, the plaintiff has to prove if he performed and the courts will
determine remedies.
 (IN PRACTICE: Courts will commonly raise the statute of frauds issue first since that issue is outcome determinative. )
 UCC: 2-201 – for any transaction for the sale of goods over $500 (proposed UCC $5,000)
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2-201(1) Enforceable if there is:

 (a) some sufficient writing to indicate that a contract for sale has been made
 Courts are split as to whether an offer is a sufficient signed writing.
 1-201(46): Writing includes printing, typewriting or any other intentional reduction to tangible form.
 (b) signed by the party against whom enforcement is sought
 1-201(39): Signed includes any symbol executed or adopted by a part with present intention to authenticate writing.
 (c) not insufficient if it omits/ incorrectly states a terms.
 Must include quantity and contract is only enforceable up to the quantity listed.
 Can leave out the price
 2-201(2): Merchant Confirmation Exception.
 Between merchants only.
 If you put it in writing and there is no rejection in 10 days, then it functions as a signed writing.
 Other party can send a rejection letter
 Four issues: (1) What is a written confirmation? (2) What’s a reasonable amount of time? (3) Written notice of objection
within 10 days? 10days from what? Mailbox rule? What about a phone call? (4) What’s an objection to its contents?
 2-201(3): Other Exceptions for contracts that do not satisfy 2-201(1) are valid if:
 (a) “Custom-tailored Goods”
 Use divisibility when possible.
 Rush orders?
 (b) “Formal Admission” (in court)
 Admitting to a contract just waives your S/F defense.
 (c) If payment has been made and accepted and goods have been received and accepted.
 Comment 2: Partial performance can validate the contract but only for goods which have been accepted or for
which payment has been made and accepted
 Estoppel for S/F?
 CL: Yes, if you can show reasonable reliance 87(2) & 90. Also S. 139 (definite and substantial character
 UCC: UCC: Courts are split as to whether you can even use estoppel under the UC
 Consider the 139(2)(a)-(e) to determine reliance.
 Double Dipping Issues. 139 applies to the enforceability context, but 90 applies to the contract formation context.
Could you use both? The courts are split on this
 CASES:
 Monarco v. Lo Greco: Orange Orchard Case.
 Holding: Led to 139. You can invoke estoppel when there is: (1) unconscionable injury or (2) unjust enrichment to the
other person. (He could not use quasi-contract was in$ufficient because the value of land was much more than the benefit
conferred in his improvements.)
B. STATUTE OF LIMITATIONS
 RATIONALE: Memories fade. Limit defendants “period of anxiety.” (Why not shorter? Allow parties to take care of it outside
the adversarial context.)
 COMMON LAW: Look to statutory limitations by jurisdiction. Generally around 4 years.
 Tolling:
 Incapacitation (coma, military service): courts are unwilling to do this, but will allow for it. (note: UCC 2-725 expressly
says it does not interfere with tolling)
 Minority: minors have tolling until 18. (Some question into whether an adult responsible for them should’ve raised it.)
 Estoppel: Usually doesn’t happen. Argument for special situations are addressed in tolling.
 Revival Issues: S.82 for gratuitous promise to pay indebtedness.
 UCC: 2-725
 2-725(1): Length of S/L
 Must be commenced within 4 years after the cause of action
 Parties can reduce (minimum of 1 year), but not expand the time.
 2-725(2): Commencing of the S/L
 No discovery rule. Accrues when the breach occurs (regardless of lack of knowledge)
 Exception: where a warranty explicitly extends to future performance (doesn’t work for implied warranties)
 To decide if it is an exception: look under 2-314, 2-315 for warranties.
 2-725(3): Refiling

 If your claim is dismissed in a way that allows you to refile, you have six months to refile under a different liability
theory.
 2-725(4): Defer to Local Law (1-103)
 Preserves the local jurisprudence.
C. LACK OF CAPACITY DEFENSES (Minority and Mental Infirmity)

MINORITY
 Rationale: Encourage people to enter into contract with minors for necessary things. Protects minors from rash decisions.
 Common Law:
 RS. 14: Infants:
 Voidable at the minor’s discretion.
 The minor can raise the defense at anytime within reasonable time.
 Can disaffirm it up to couple of months after turning 18 (depends)
 Minor can ratify contract (by words, deeds, or lack of deeds). Cannot ratify until s/he reaches majority.
 Irrelevant if minor misrepresents himself.
 Exception: Necessities. (Keifer v. Fred Howe Motor)
 “Adult Certification” doesn’t exist. (Crespi-ism)
 Remedies: Minors required to give back whatever benefit to the extent that it still exists. Most courts hold that the other
party doesn’t have to return cash payments, and for credit, then the credit is wiped clean.
 UCC: Go to 1-103
MENTAL INFIRMITY
 Rationale:
 Common Law:
 RS.15 Mental Illness or Defect
 Voidable by the person.
 15(1)(a) Traditional cognitive test (lack of understanding)
 15(1)(b) Volitional Impairment test (lack of self-control) and the other party has to have knowledge/reason to know.
 Note: “certification standard” in most states.
 15(2): if the contract is made fairly and other party has no reason to know of the impairment, then the crazy party is only
liable for the part that has been performed.
 QUOTE: Mere craziness is not always enough to establish a capacity diminished to the point of inability to contract. As
noted by the Supreme Court of Arkansas, simply because a man is "filthy, forgetful, and eccentric, . . . believed in
witchcraft, and had dogs eat at the table with him . . . does not establish lack of capacity." So, thank Zenu that Tom
Cruise can still contract.
 Others:
 Grief: Courts undecided.
 Manic-Depression: (the man that bought the Gulf Course) No.
 Voluntary Intoxication: Most courts allow it, but the defendant has the burden of proving that they were intoxicated.
(Plaintiff has to know.) Some courts say “no” because they don’t want to encourage drinking.
 More of a contract formation problem b/c no mutual assent.
 UCC: Go to 1-103
D(1). FRAUD & MISREPRESENTATION

 RATIONALE: Want to encourage people to research their deals before entering into them. A duty to disclose everything you
know encourages people not to do research. Tension between Getting Disclosure v. Keeping Incentive to Research.
 FRAUD – RS.159-169
 (1)False assertion
 (2)The assertion is "fraudulent" (i.e. made with "scienter," which means either consciously false or made with reckless
disregard of the truth, and made with intent to deceive)
 Note: hard to prove b/c can't know his state of mind. If the defendant denies it, then it can be hard to prove, so this is
where you go to the misrepresentation defense instead.
 (3) the false assertion was relied upon
 (4) the reliance was justified (by the non-reckless reliance standard)
 MISREPRESENTATION – RS. 159-169

 (1)False assertion
 (2)the assertion is "material"
 Doesn't deal with the mental state as in fraud
 The assertion influenced the transaction
 (3)the false assertion was relied upon
 (4)reliance was justified (by the non-negligent reliance standard) *tougher standard
 What is a "false assertion"?

 Predictions?
 Minority opinion: a prediction is an assertion like any other, but you should know better. Reliance on opinion-like
assertions is not justified reliance.
 RS.2d $ 168, 169:
 Non-verbal conduct?
 Doesn't have to be an express statement:
 Nodding your head.
 Silence. (Tell me know if there is something wrong with the car.)
 Affirmative Concealment?
 Ex. Has there ever been termite damage? The buyer never asks. The seller tries to conceal it to avoid the topic from
coming up.
 Trying to improve your chances that the topic will not come up is an assertion.
 Simple Non-Disclosure?
 Simply not volunteering information.
 Laidlaw v. Organ: no duty to disclose.
 Exception: RS 161(a) You do have a duty to update.
 Exception: RS 161(d) Special relationship for fiduciary relationships (higher duty to disclose)
 Exception: RS 161(b) and 168: Duty to disclose when you know the other party is making a mistake.\
 Summary of Exceptions: (Treatise p.239) (1) relation of trust and confidence (2) need to correct (3) mistake in
basic assumption.
 True but Misleading Assertions?
 It is misrepresentation if it invites a false inference.
 How Info is Acquired: Kronmen Problem

 “Deliberately Acquired Information” – Don’t have to disclose
 “Casually Acquired Information” – Have to disclose as it facilitates informed bargaining.
 CASES:
 Laidlaw: No duty to disclose. (You cannot lie, but you don’t have to volunteer info)
 Swinton: No duty to disclose termites case.
 Kannavos: Duty to disclose b/c they affirmatively misrepresented the situation.
D2. DURESS & UNDUE INFLUENCE

 RATIONALE:
 COMMON LAW: DURESS RS. 175, 176
 (1) a "threat"
 Doesn't have to be in words
 Polite, no threatening language -- "I predict you will not live 'til sunset if you don't buy this car." :o) ha ha
 (2) the threat is "improper"
 Threatening to withhold performance if you don't make the deal doesn't count.
 Modern Test: liberalized. The threat only has to be improper -- includes unlawful and wrongful things, but there is a
broader class of threats that are considered improper.
 Classical History: Threat needs to be "unlawful" and "wrongful" -- interpreted narrowly: couldn't threaten crimes
or torts, but all other threats were acceptable.
 Restatement:
 176(1)(a) -- crime or tort
 176(1)(b) -- threaten criminal prosecution (I'll turn you into the police) -- blackmail. Even well-founded criminal
prosecution is not allowable.

 176(1)(c) -- threat of civil process if the threat is made in bad faith (suit for harassment purposes). You can threaten
a legitimate suit.
 176(1)(d) -- threat is a breach of duty of good faith and fair dealing under a contract with the recipient
 Ex. You are in a contract with someone. During performance, the other person tells you they will breach unless
you renegotiate the terms now, or demand a new contract or you'll breach.
 (3) the threat induces assent
 It was a factor, but not the main factor -- courts typically do not think this was enough.
 Use a "but-for" causation test. [differs from misrepresentation/fraud where it just has to be a substantial factor]
 (4) the threat was serious and credible enough to justify the victim's assent
 Accords with the court's expectation that you will disregard weak threats.
 Modern: liberalized it by:
 Parallel to the Thin Skull Rule. If the threatener makes a threat that a person of average firmness would've resisted,
it doesn’t matter. We base it on whether the person felt threatened. Subjective test!!!
 Threat of serious to your interest (not just major physical injury)
 Historically: had to show the threat created an objectively reasonable threat (a person of reasonable firmness)
 DAMAGES: If you have not performed, you can get out of the Kx. If you have partially/fully performed, you can get
rescission. You cannot get quasi-contract because they have unclean hands. Some courts say both parties get restitution.
Other courts say there is no Kx b/c lack of mutual assent.
 COMMON LAW: UNDUE INFLUENCE RS. 177

 Elements:
 Relationship of Trust and Confidence
 Ex. elderly person relying on your advice.
 They are suspending their critical judgment because they trust you.
 NOTE: used to be more important because the duress defense was very narrow. Under modern law, the courts are
more liberal with duress, so another approach is not needed.
E. UNLILATERAL MISTAKE AND MUTUAL MISTAKE

 RATIONALE: We want people to do their research/ homework.
 COMMON LAW: MUTUAL MISTAKE RS 152, 154
 Mutual Mistake Elements (R.2d SS 152, 154)
 Typical case: Sale of goods. Buyer and seller enter into Kx. Common understanding of the value of the good; roughly the
same understanding. They can discover after the contract was entered into (before or after performance), they find out it is
worth much, much more than the parties envisioned. Ex. Picasso that was not a Picasso. Usually it is the seller that wants to
avoid the contract. ELEMENTS:
 (1) Both parties have the same mistaken belief as to existing facts
 Doesn't have to be the EXACT same mistake. They just have to undervalue or overvalue it similarly.
 (2) Mistake goes to a basic assumption of the Kx
 Has to be the core items of the deal, not peripheral things.
 (3) Mistake has a material effect on the exchange
 Can it be a deal that you would've gone through with anyways, but not the awesome deal you thought it was? Here, the
mistake has to be more than a small mistake. Some courts hold that it has to have "but for" causation. More like super-
materiality.
 (4) The risk of mistake is not allocated to the person seeking avoidance
 Most difficult issue. See section 154 for when a party bears the risk of mistake. You just have to show that the risk was
not allocated to you.
 RESTATEMENT: RS.2d $ 154--
 (a) in provision of the contract: if an agreement covers the chance of mistake in the agreement's provisions. (in the
case of mistake, the deals off…etc., then the courts defer to that.)
 (b) if you know that your knowledge is limited and you enter into the contract anyways, then the risk is allocated to
you. Section 157 will not bar you from doing this if done in good faith and in accordance with reasonable standards
of fair dealing.
 (c) If the court thinks it is reasonable that you bear the risk of mistake, then you cannot avoid it/ raise the defense.
 RS.2d 154(c)? "reasonable possibilities" -- How could the courts make a clear rule?
 (1) Always to person seeking avoidance.
 Harsh rule: You screw up, you live with it. If you are upset, be more careful next time and do more
research.
(2) "Cheapest cost avoider/ cheapest insurer"

Economic p.o.v. rule: Mistake are bad/ cause problems. We would like to avoid cost effective mistakes.
Rationale: the parties did not expressly allocate the risk. If they had allocated the risk during negotiations,
then the sensible thing would be to put the risk on the person who can better able to bear it (and then they
split the costs). If not a mistake that anyone could avoid, then the cheapest insurer. This is a gap filler
theory (fill in gaps with whatever rational parties would've done if they had negotiated it). *Note: more
complicated, have to replicate negotiations.
 (3) Other Allocation Criteria
 Look to case law [p.797]: (a) before/ after the contract; (b) expertness; (c) cost/value ratio
 RESTATMENT: RS.2d 157:
 Undoes 154(b) a lot. Only holds a party responsible when they act in bad faith.
 CASES:
o Sherwood v. Walker [p.797]: Pregnant Cow Case. The seller gets to keep the cow, even though the seller is in a better
position to determine the pregnancy.
o Wood v. Boynton [p.797]: Dollar Diamond Case. She doesn’t get it back, but isn’t the jeweler in a better position to
know if real or not.
o NOTE: The courts tend to look at whether the goods have been transferred or not.
o The "Mislabeled Rare Book" Hypothetical: Usually the risk is allocated to the seller, the exceptions are for when the
buyer has much more information than the seller. [bumbling employee example vs. dishonest employee example
--different]
 COMMON LAW: UNILATERAL MISTAKE RS. 153

 RATIONALE: Jurisprudence Problem: Marshall/Laidlaw case -- want to preserve the incentive for people to do research, get
information. Other Cases -- want to encourage to speak up when they see a mistake; want to encourage disclosure. [As a lawyer,
you are more likely to win if you characterize the case as a unilateral mistake case.]
NOTE: Most successful in contract cases. Modern courts usually don’t look at whether they should know or did know, but
rather that there was a mistake, but the party still loses it deposit. [Treatise]
 DEFINITION: One person is mistaken and the other party knows the truth. Only the party that wants to avoid the contract is
mistaken.
 RESTATEMENT: § 153: Same elements as Mutual Mistake: (basic assumption, material effect, if he does not bear the risk of
the mistake) of mutual mistake with an extra hurdle:
 (1) the effect of the mistake makes the Kx unconscionable
 (2) other party had reason to know (not actual knowledge) of the mistake
 (3) the other parties' fault caused the mistake.
 CASES:
 Painting Case [handout]: Hearde painting unknown by the seller, but the buyer knew it was worth more. The seller sold
for $100, the buyer was a sophisticated art purchaser (might not have known worth a million, but did know it was worth more
than $100).
 Nolan Ryan Baseball Card Case: Problem: Allocation of risk. Storeowners are usually responsible for their employees
and monitor the people who work there. The kid was the cheaper cost avoider (could've spoke up about the price value). The
kid knew the mistake (unconscionable). (Case settled out of court.)
 How to Resolve? If you work to get that information, you may choose not to disclose. If you did not, then you must
disclose.
 Painting Case: His knowledge of paintings was not casually acquired.
 Baseball Card Case: This could be casually acquired.
 Fraud by non-disclosure claim generally lose. Generally, no duty to disclose.
 Jurisprudence Problem: Marshall/Laidlaw case -- want to preserve the incentive for people to do research, get
information. Other Cases -- want to encourage to speak up when they see a mistake; want to encourage disclosure. [As
a lawyer, you are more likely to win if you characterize the case as a unilateral mistake case.]
 UCC & COMMON LAW: UNCONSCIONABILITY RS. RS. 208, UCC 2-302, 2-719(3)
 RATIONALE: With outrageously unfair contracts, it gives the courts a mechanism to deal with them. Critique: no due
process/notice. OTHER SOLUTION, not majority, but popular: Epstein -- A more restrictive use (procedural only, not
substantive use). Best used for a back-up way to police for fraud, duress, or misrepresentation. It is difficult to prove someone's
state of mind under those defenses. If a judge feels that something was going on, but cannot prove it, then this allows the judge to

have a back-up to avoid coercer from getting away with it. Therefore, this is about policing procedural abuses. This is not a
doctrine to review proper contracts that you just think are unfair.
 WHEN USE: Contracts of Adhesion Problems

 UCC:
 2-302: Aggressive Defense
 Court can (1) strike the term (2) strike the contract (3) fill in with a new term
 (1) Must be unconscionable at the time of the contract
 (2) Not tight definition because: (1) if they’re wrong, they can’t change it (2) it takes away discretion from the judges (3)
road map to bad guys, don’t want the line to be that clear.
 (3) Definition: (Websters) “shockingly unfair or unjust” This gives judges a lot of leeway.
 (4) Official Comments: Procedural abuse + imbalance of bargaining levels must be greater than or equal to
unconscionability
 2-719(3): REMEDIES
 No limit on damages if it is unconscionable. “Consequential damages” for personal injury is prima facie
unconscionable. Usually a retail case where there is a disclaimer not to cover medical expenses which would be
unconscionable.
 RESTATEMENT: RS. 208
 Like 2-302: Court can (1) strike the term (2) strike the contract (3) fill in with a new term.
NOTE: Other statutes are more prohibitory and designed for specific consumer protection.
 CASES:\
 Williams v. Walker-Thomas Furniture Co. 350 F.2d 445 [p.403]:
 Facts: She defaults on the stereo. Defendant tries to repossess the stereo AND everything else she'd ever bought from
them.
 Clause in Contract (Cross-Collateral Clause): "the amount of each periodical installment payment to be made by
(purchaser) to the Company under this present lease shall be inclusive of and not in addition to the amount of each
installment payment to be made by (purchaser) under such prior leases, bills, or accounts; and all payments now and
hereafter made by (purchaser) shall be credited pro rata on all outstanding leases, bills and accounts due the Company
by (purchaser) at the time each such payment is made." (Clause: the items have a lien on everything as long as you still
have the item.)
 Holding: Where the element of unconscionability is present at the time a contract is made, the contract should not be
enforced.
 Analysis:
 DEFINITION OF unconscionability [p.405-6]
 "Absence of meaningful choice"
 OR a gross inequality of bargaining power
 Contract terms which are "unreasonably favorable" to the other party
 Also consider the manner in which the contract was entered (Fullness of Disclosure Q's)
 Consider obvious education or lack of it
 Reasonable opportunity to understand the terms of the contract
 Were the important terms hidden in a maze of fine print and minimized by deceptive sales practices?
 Also: Corbin says test as being whether the terms are "so extreme as to appear unconscionable according to the mores
and business practices of the time and place."
 JONES v. STAR CREDIT CORP, N.Y. Sup. Ct. 1969: Overpriced freezer Case.
 COURT'S SOLUTION USUALLY: Typically, cost is not enough. Plaintiffs have the opportunity to check around.
However, the courts look at 3x/4x the fair market value as being too much; courts more likely to avoid/change terms
then.
 RECOVERY: Typically courts allow you to recover all the amount paid and you give back the good. Usually, the courts
do not cancel the payments at that point.
 Crespi prefers a quasi-contractual remedy. Reproduce a fair-price sale
 REASONABLE EXPECTATIONS DOCTRINE 211(3)

 WHEN USED: Usually for insurance contracts.
 RESTATEMENT: Any fine print terms that were not discussed/brought to the attention of the other party do not go into the
contract. If you want the term, you have to tell people. Rationale: people have a right to reasonably expect that the terms of the
contract are what they discussed, and no sneaky backdoor clauses.
 Therefore, this forces the party to disclose any terms they want into the contract.

 Problem: When people have no meaningful alternatives OR that they just don't understand.
 Other Solutions -- statutory provisions!!!
G. ILLEGALITY & PUBLIC POLICY CONSIDERATIONS

 RATIONALE:
 Classes of Contracts with Limitations
 (1) Contracts made unenforceable by statute
 Examples: usury statutes, anti-gambling debt statutes
 (2) The nature of the contract involves illegality
 Example: Contract to require a party to do illegal/tortious conduct.
 Courts are very harsh on these, but still do a balancing test.
 (3) Contracts that are tainted by illegality.
 Example: I want to sell Wal-Mart my crappy products, so I bribe someone. The contract with Wal-Mart is legal, but the
way that I got it is not legal. (Commercial Bribery Cases)
 Example: Not illegal to sell a mj pipe, but I know what you are going to do with it.
 Example: Builder builds house with illegal immigrants as employees.
 (4) Contracts that seem to run contrary to other public policies.
 Example: Contracts that indemnify against courts, surrogate motherhood, clauses with no tort liability.

 COMMON LAW: ILLEGALITY RS
 (1) Kx's Involvement "Necessary" Illegality
 Illegality Example: Illegal alien works for farmer. Verbal contract to pay $x/ hr. At the end of the season, the grower refuses to
pay the worker.
 Should we enforce this? Balancing test:
 Public policy is clear: immigration restrictions (discourage these contracts).
 BUT Other penalties out there for illegal immigrants already -- criminal, deportation, etc. This is too much punishment,
we don't want high sanctions for this type of conduct.
 (Look to what law already addresses this!!!)
 OR Does this encourage growers to higher illegal aliens (courts will protect them from paying them)? [While you may
create a disincentive for the workers, you may be creating an incentive to the growers.
 How do courts deal with this? (NOTE: none work in illegal worker case)
 Use Divisibility. Contracts that are partially legal/partially illegal: courts can carve it up and use divisibility in order to limit
the consequences of the illegality in order to make the contract work. (In illegal worker case, it doesn't work.)
 Modify the Offending term. If courts think it is more peripheral or unintentional illegality.
 Refuse to enforce the contract (allowing the other party to raise a quasi-contract claim, but the problem is unclean hands
(unless it is the other party's illegality)).
 (2) Kx's "tainted" by Illegality (Question: what are sensible limitations as to how near to the illegality the contract has to be?)
 Illegal Post-Contractual Actions:
 COMMERCIAL BRIBERY CASES:
 ILLEGAL PROCUREMENT: Sirkin v. Fourteenth Street Store, 108 N.Y.S. 830 (App. Div. 1908)
 FACTS: Three contract situation. Fourteenth Street Store hired McGuinness (purchasing agent). Terms of the
employment contract are 'no bribery', work in interest of the store. Sirkin wants to sell shirts to the store, so he
makes a deal with McGuinness 'I'll agree to bribe you if you will ignore the competition." The store finds out about
the bribe. Sirkin sues, store refuses to pay Sirkin, and McGuinness wants to keep the bribe.
 Court held: Strong public policy against bribery. So, if the bribe comes to light, the contract that you entered due
to bribery will not be enforced. Even though the contract was not illegal, the procurement was.
 Problematic Consequences of Decision: encourages stores to do this because they get to keep the shirts and don't
pay.
 Note: Russian solution -- shirts go to the State
 PERFORMANCE ILLEGALITY: McConnell v. Commonwealth Pictures Corp., 166 N.E.2d 494 (N.Y. 1960)
 FACTS: Commonwealth want movie contracts. McConnell will get movie contracts for a percentage of the profits
(and an additional $10,000 and don't ask any questions). It is clear that he will be using that money to bribe other
producers in order to get them to enter into contract with Commonwealth. The bribe comes to light.
Commonwealth fires McConnell, but wants to keep the contract with the movie producer. Commonwealth sues for
the money --
 Court held: the court confused this with Sirkin. This was litigating the contract between McConnell and
Commonwealth. (If the problem litigated had been between the movie producer and Commonwealth -- better
standing.) How much illegality does McConnell have to do before problems with the contract with commonwealth.
 KEY LANGUAGE: Court wants a "direct connection" between the illegal act and the contract. It needs to be
"gravely immoral and illegal conduct". It has to be "central to or a dominant part of the contract".
 Problematic Consequences: Performance illegality is different.
 Ex. You hire me to build a house. I park my cement truck to close to a fire hydrant and get a ticket. Do I not
get paid then because of the illegality? PROBLEM illustrates where is the line of illegality? How serious does
it have to be?
 Ex. You hire me to build a house. I want to cut some corners. I tell the electrical wiring guy I will bribe him to
next inspect the house, then put in unsafe/cheap wiring. This could burn down the house. The bribe comes to
light. Most people would agree this is conduct we would want to discourage.
 Ex. I am a housing builder contracted with you. I need an inspection certification and it looks like it will be
delayed. I bribe you to move me to the head of the list, but for a full, rigorous inspection. The bribe comes to
light. (Note: other builders are giving nice gifts, etc. in order to keep them in the forefront of the mind.)
Harder case.
 Ex. Builder has illegal workers who work on the house in violation of the Federal immigration laws. The
workers are still paid. This is a good case for divisibility. You can show me the illegal immigrants worked on
just PART of the house, then that work can be avoided. ???ask
I. SOVEREIGN IMMUNTIY
 Sovereign Immunity: government can discharge debts that others can't. No government agency can be sued unless it consents.
 Basis for Doctrine:
 (1) King is above the law and can do no wrong. Attribute of divine right.
 (2) If the government is paying out judgments, it has to tax its citizens. So, government sovereign immunity is just a
guard against taxing themselves. (Protect the treasury from depletion)
 (3) In a democracy, the government is representative of the people, so letting the people sue the government is the
people suing themselves.
 Modern Trend:
 Tort Claims: this makes sense. Sometimes there are tort claims for police officers, etc that can be problematic.
 Contract Claims: Immunity from contract breach seems unfair and illogical. In Texas, statutes adopted that Texas
waives any sovereign immunity for contracts.
 Can always use a Constitutional Argument. Takings Clause/ no Due Process, etc.
J. DISCHARGE IN BANKRUPTCY
 BANKRUPTCY
 Bankruptcy trumps the usual contract law and remedies.
 Two major objectives of bankruptcy code:
 (1) Orderly reorganization/liquidation of businesses Policy
 Even if the company cannot pay their bills (operating costs) -- keep business open while we are deciding how to
restructure/ liquidate etc. If their was not bankruptcy code, the creditors would not have to hold off taking all their
assets. Prevents a rush to take everything they can. Sometimes, it is better to simply reorganize the company.
 (2) Fresh Start Policy (allows debtors a fresh start)
 Three Way to deal with Bankruptcy:
 (1) "Automatic Stay": once a company files for bankruptcy, everything stops so that everything can be resolved in
bankruptcy court. Note: if you represent a client who want to collect on their debts, then you need to quickly get a
judgment and get it executed (get the money). Even if you have the judgment, it stops as soon as bankruptcy claim filed.
You have to have executed the judgment as well.
 (2) Secure v. Unsecure Debts
 Secure -- ex. mortgage, lien on car (collateral pledge). You can get that collateral first before the unsecured creditors.
 Note: In a liquidation, courts allow the secured creditors to collect their collateral, then allow the unsecured
collectors to take what's left. In a reorganization, there is a negotiation.
 (3) Discharge of Bankruptcy: start from scratch. BUT some types of debts cannot be discharged by bankruptcy:
student loans (at least government guaranteed loans, but maybe not private loans?).
 NOTE: RS. 82 & 83: Gratuitous Promises (against the background of preexisting debt discharged in bankruptcy) -- you
may still have to pay.
II. LAW OF CONTRACT ANALYSIS

A. Parol Evidence Rule RS. 209-214
 RATIONALE: Doctrine designed to control juries. Juries will favor the underdog, leaving the more powerful parties vulnerable.
This avoids getting into evidentiary issues.
 DEFINITION: Given that a written contract was formed by agreement by the parties, what prior or contemporaneous
agreements that parties reached during negotiations also count as part of the contract? What is precluded from inclusion in the
agreement?
 RESTATEMENT:
 (1) Was the agreement an integration? RS 209(1) and (2)
 Integration: a writing or writings constituting a final expression of one or more terms of an agreement. 209(2) says
this is determined by the court.
 (2) Is it partial or complete? RS 210
 COMPLETE:
 No contradicting (RS. 213(1)) or supplementing (RS 213(2))
 Explaining is OK (can argue what you meant by the words -- can bring in other documents to show prior meanings)
(RS 214(c))
 Evidence about formation OR enforceability issues is OK (RS 214(d))
 Guidance as to Separate Kx's in OK
 PARTIAL:
 No contradicting
 No supplementing is OK **different!!!
(Gianni could bring in supplemental right to sell soft drinks)
 Explaining is OK
 Evidence about formation or enforceability issues is OK
 Evidence as to Separate Kx's is OK
 (3) What is the status of the parol evidence?
 Contradicts? RS 213(1)
 Supplements? RS 213(2)
 Explains? 214(c)
 Relates to formation or enforceability defenses?
 Relates to defendant’s separation Kx?
 UCC: 2-202 (codifies the restatement)
 Evidence may be explained or supplemented.
 It looks like the UCC says that you can supplement even with a complete integration, although the case law seems to come
out the same as the restatements.
 CASES:
 Gianni Rule: You only look at the words of the document to decide if its partial or complete. No evidence at that point.
 Traynor Approach: Look at all the evidence first and then decide whether or not to allow it. Traynor upholds that you can
always introduce parol evidence in order to explain the terms of the contract [p.562]. (From MASTERSON V. SINE, 436
P.2d 561 [p.560]
 CASES:
 Bollinger v.Central Penn. Quarry Strippling and Construction Co. [p.567]
 Agreement to use land to place gravel while working on the road. Oral agreement to replace topsoil. It was not in Kx,
BUT every other property owner’s Kx did include it.
 KEY WAYS To get around PAROL EVIDENCE RULE:
 (1) written agreements only a partial integration and I want to supplement it
 (2) complete integration and I only want to explain it
 (3) separate contract
 (4) reform the agreement on the basis of mutual mistake
 (5) unconscionability
 MERGER CLAUSES…see the significance of merger clauses below.
 MERGER CLAUSES
10 | P a g e C o n t a c t s O u t l i n e S p r i n g ‘ 0 8
 Most courts will consider it a complete integration w/o question. Although, it is not always determinative because one party can
claim that they did not see this in fine print at the back of the contract…. However, it is highly probative evidence that the intent
was to preclude any prior agreements.
 ARGUMENT: Enforceability defenses -- one party tells the other there are other terms and doesn't mention that there is a
merger close…you can attack it as an unconscionable abuse of the bargaining process …which would allow supplementation.
 BAD EXAMPLE: "There are no promises, verbal understandings, or agreements of any kind, pertaining to this contract other
than specified herein." (bad example -- other party can say that's not true, here it is…better to have a merger clause that says even
if there were prior agreements, this is the final one and supersedes all others.)
 GOOD EXAMPLE: (contains both merger and no oral modification clause: Entirety and Modification. This Agreement
constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes any and all
prior agreements and understandings, whether oral or written, between the parties hereto relating to such subject matter. No
modification, alteration, amendment, or supplement to this Agreement shall be valid or effective unless the same is in writing and
signed by all parties hereto.
 COLLATERAL AGREEMENTS
 (Mentioned before -- seller promises to remove unsightly buildings when brought property, they argue that they are separate deals,
but the court found for the seller.)
 For evidence of a contemporaneous oral agreement to be admissible (1) the agreement must in form be a collateral one; (2) it
must not contradict express or implied provisions of the written contract; (3) it must be one that the parties would not ordinarily
be expected to embody in the writing.
B. Subsequent Modifications of Contracts RS. 89

 Classical doctrines: the R.2d S. 73 pre-existing duty rule limitations on the enforceability of contractual modifications
 Modern doctrines: the R.2d S. 89 position, and UCC S. 2-209(1)
 RESTATEMENT: Section 89:
 Broader -- you make a gratuitous promise and then revoke it before they have a chance to rely on it. Here, it is broader --
the courts will enforce it even before reliance under 89(a).
 89(c). Even if you have reliance, you can modify that contract “to the extent that justice requires.” But, it has to be a
material change.
 THIS IS LIKE S 90.
 NOTE: Most courts only go as far as S 89, not UCC.
 COMMON LAW: The most recent modification trumps for subsequent oral modification.
 UCC 2-209:
 2-209(1): no consideration needed to be binding.
 2-209(2): Between merchants Rule: If a merchant and non-merchant, the clause has to be a separate form or evidence
that they showed them what the clause meant. If it’s two merchants, the clause can be buried in the fine print.
 2-209(3): Look to 2-201(1) You have to satisfy the statute of frauds.
 2-209(4): If you agree to modify even though you have a no oral modification clause, you can still waive your rights to
written modifications (and allow oral modifications).
 MODIFICATION BY CONDUCT: By not complaining about the first shipment, then you have waived your
rights. So, advise clients to send a letter of complaint.
 2-209(5): You can retract the waiver if you do it fast enough by reasonable notification unless the retraction would be
unjust.
 INTERPLAY OF CONTRACTUAL MODIFICATION WITH PAROL EVIDENCE RULE: If the modification(s) are big
enough, you can argue that it is a new final agreement if the new agreement is an attempt to cover everything.
C. Interpreting Contract Language: Ambiguous Contracts

 (1) Vagueness:
 Ex. "Large load of firewood," a color
 (2) Ambiguity of Term
 (3) Ambiguity of Syntax
 Grammatical problems (which subordinate clause modifies which nouns, comma placement?)
 Words are not ambiguous
 CB, page 572: A health insurance policy excludes any "disease of organs of the body not common to both sexes." Does this
policy cover a fibroid tumor (which can occur in any organ) of the uterus?
 How to address problem? Intent of party, place burden on insurance company because they drafted it…
 CB, page 573, 1(a): A contract for the sale of a photography studio provides that the seller will not compete with the buyer
"for the school photography work in any school in Grant County, with the exception of Marion High School." May the seller
compete with Marion College student??
 CB, page 573, 1(b): A lease of premises for a drug store for a minimum of monthly rental plus a percentage of the "gross
sales" of the business. Must the lessee pay a percentage of what it is pai by customers for lottery tickets?
 CB, page 574, 1(c): CNC "within 50 miles of the company office." Is he prohibited from competing at a location that is a
distance of 45 miles but a 55 mile drive from the Company office?
 CB, page 574, 1(d): A construction contract provides that "All domestic water piping and rainwater piping installed above
finished ceilings under this specifications shall be insulated." Must the contractor insulate domestic water piping installed
below finished ceilings? If there had been commas afterwards, it would be clearer (All domestic water piping ,and rainwater
piping installed above finished ceilings under this specifications, shall be insulated.)
 (4) Gaps in Coverage
 Restatements SS 201-204 (fixing a misunderstanding, instead of mutual mistake)

 201: Whose Meaning Prevails
 201(1): If two parties have their own weird, private understanding, then we allow that (NOT a reasonable person
standard, we defer to the subjective minds of the parties.) Ex. They contract for "white" meaning "black." The courts
uphold it (but usually in ct. they have diff meanings). Courts don’t like this.
 201(2): Who could've seen it coming (trying to stay quiet rather than speaking up)? -- If you are the one in the position
to see it coming, then the other guy gets his meaning.
 (b)when nobody knows, but one party should have known/ in a better position to know, then that party does not get
their meaning.
 201(3): Nobody's fault -- (except as stated in this section: both parties agree, or one party duped the other), then neither
party is bound by the terms.
 202: Rules in Aid of Interpretation
 202(1): Contract considered in context.
 202(2): "Writing is interpreted as a whole" --- you can look at other sections of the contract for definitions or clues to
the meaning.
 202(3): Assume that words are being used in the usual way, unless there is a specific term defined. Technical terms are
given that interpretation for that business.
 202(4): One way to understand what the words mean is to look at their conduct to help determine what they meant by
the words. If you have a contract that has repeated occasions for performance (in the course of performance) -- if one
party is acting a certain way and the other party does not complain, then you interpret the language to make that ok (i.e.
anything that is being done in a harmonious way ought to be part of the Kx.)
 203: Standards of Preference in Interpretation
 203(a): Interpret the language to have reasonable, lawful meanings.
 203(b): "Express terms" are at the top of hierarchy. So, if in one part of the contract the parties talk about rights and
duties and another part they talk broadly and generally, then the more specific terms govern the broader terms.
(Hierarchy of interpretive guidance: (1) expressly in the contract, (2) what their conduct in saying (course of
performance), (3) earlier performance in other contract (course of dealing), (4) other people in the business (usages of
trade))
 204: Supplying an Omitted Essential Term
 When there is a gap?? Parties never thought/discuss it. If there is a gap that is not so big that it fails for indefiniteness,
then you fill it in a reasonable way. Look at the conduct of the parties and try to come up with interpretations that fit
what you see.
 CASES:
 Fragaliment [p.574]: What is a chicken case? Pre-UCC. Court relies on trade usage.
 Raffles v. Wichelhaus (1864) [p.582]: I bought cotton to be on the ship, Peerless. By the time Peerless gets here, it will be
too late. No one knew there were two ships. Judgment is for the defendant. The seller did not get ruling that the contract
was for the December shipment. Rationale…off.
 Possible rationales:
 (1) there is no contract because there is no mutual assent (fundamental misunderstanding, too big of a hole in the
Kx, so failure by mutual assent) RS. 201(3) approach.
 (2) A contract was formed but it was more the seller's fault than the buyer's fault. Buyer not in a good position to
know about this. The seller should have known and was in a better position to know. RS. 201(2)(b) approach.
 Depends on whether you think the buyer is in a better position, really. Is it always that the seller knows more
about shipping?? Need to be more fact specific.
 (3) The court heard the arguments and decided that the buyer's interpretation was a little more reasonable than the
sellers. So, since it is a preponderance of the evidence, then buyer wins.
 (4) Tie goes to the defendant ruling.
 Oswald v. Allen (1969) [p.584]: Rare coin buyer and dealer. Am. woman has a collection of coins (she has more than one).
A buyer from Switzerland comes to look at them. The two types of collections get lost in the exchange b/c language issues.
She agrees to price based on only ONE collection, but he thinks the deal is for ALL the coins in both collections. Court says
this is a Raffles v. Wichelhaus mutual assent problem. So, there is no contract, therefore she doesn't have to deliver.
 Other possible outcomes: 201(2)(b): Different meanings, but she is in the better position to know. She should be able
to see the mistake coming since she knows he doesn't speak the language, knows about her tow collections, etc.
 PLAIN MEANING RULE (Cousin to Parol Evidence Rule)

 Classical formulation: The classical rule is a lot like the Gianni rule -- very preclusive, literalist kind of rule. WHA T IS IT?
Court looks at the contract and the meaning seems nice and clear, then it bars the use of any intrinsic evidence. (Unlike parol
evidence rule where it doesn't apply, you cannot even explain here.)
 GENERAL RULE: If the contract is "plain on its face", then you CANNOT bring in any more evidence. Don't probe into
the intent of the parties even to explain.
 CASES:
 Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.: Modern Application [p.592]: Under Traynor, no plain
meaning rule. KEY: **The test of admissibility of extrinsic evidence…is whether the offered evidence is relevant to prove a
meaning to which the language of the instrument is reasonably susceptible. [p.593] (He overrules the plain meaning rule.)
 Note 3, page 596: Judge Alex Kozinski (9th Cir.) opinion: economy of resources approach. (If we go with Traynor's
position, that opens the door to huge, expensive disputes.) It is not worth the trouble and unpredictability.
 Problem, page 598: Steuart v. McChesney (Pa. 1982): Tied market value to county assessment value and the county never
updated the records. Court used the plain meaning rule!!
 UCC: INTERPRETIVE HIERARCHY, UCC 1-205, 2-208

 Bulleted list in RS 203
 (1) Express Terms UCC 2-208(2) & 1-205(4)
 (2) Course of Performance: 2-208(1)(definition)
 2-208(1): comes close to a definition. -- if you perform in a certain way and the other party acquiesces or doesn't complain,
only look at the conduct under this contract to help understand the deal you thought you had.
 NOTE: This section has been repealed in 29 states that as of July 13, 2007, have enacted the 2001 text of Article 1. [p.42]
 For course of performance, you need repeated occasions (at least 2).
 (3) Course of Dealing: 1-205(1)
 1-205(1) definition: “a sequence of previous conduct between the parties to a particular transaction which is fairly to be
regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
 Prior contract show course of dealing. The contracts need to be similar. One prior contract will not be enough – need many
or one contract for several performances.
 (4) Usage of Trade
 1-205(2): “any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify
an expectation that it will be observed with respect to the transaction in question.”
 (5) All other interpretative Guidance
 RESTATEMENT: 202, 203(b) [list]
 GAP FILLERS
 Gap-filling: implied-in-fact and implied-in-law terms distinguished, mandatory implied terms

 RS S 204: If the gap is too big, then there is no contract or you have to go to quasi contract. (Courts do not like to do this.)
Parties prefer to work it out.
 "Implied-In-Fact" Gap Fillers
 Attempt to determine the actual intentions of the parties. Gap will be filled with the court's interpretation of your
intentions (not necessarily what are good rules of law…just what the parties intended). (This is your contract and you
did not make yourself clear, but we will look to the spirit of the contract and stretch the language of what you did say to
cover what you did not.)
 "Implied-In-Law" Gap Fillers
 As a matter of law, we will apply a term because it seems like a good, fair term for parties. Based on general social
policies
 Mandatory Implied Terms: UCC gap-fillers: SS. 1-203, 2-306(2), 2-314, 2-315
 UCC:
 1-203 Imply Obligation of Good Faith
 2-306(2): Imply Best Efforts. You enter into an exclusive dealings contract, and then you do nothing. The
contract never says that I have to work hard to get you endorsement (sititng by the pool). This provision
provides an implied duty that you will use your best efforts.
 2-314: Implied Warranty. (unless there is another deal, i.e. as-is, then these are the warranties that are implied)
 2-315: Implied Warranty. (unless there is another deal, i.e. as-is, then these are the warranties that are implied)
 CASES:
 Eastern Air Lines, Inc. v. Gulf Oil Corporation case; UCC SS. 1-203, 1-201(19), 2-103(9)(b), 2-306(1)
 NOTE: you have a duty of good faith at all times. It is an override (as well as gap filler).
 2-103(b): Special duty for merchants. Have to be honest in fact and observe reasonable commercial standards. Much
tougher standard than merely being honest. (Here, they are both merchants, clearly.)
 This is a requirements contract where eastern agrees to buy all oil from places from airports with Gulf Stations. Gulf
agrees to always have fuel for them there. (Standard industrial req't contract).
 Under 2-306: the requirements need to be within the reasonable range that everyone is expecting.
 PROBLEM: Oil markets prices went up for Gulf after OPEC. Gulf wants to get out of the contract (try to find
something that Eastern has done wrong…find some breach) and do a new contract for market price. Eastern has been
doing "fuel freighting" -- taking more than you need to get to the next airport. You need a little more for margin of
safety. Eastern could deliberately overload so as to not buy Gulf at a higher price and buy at the next airport for a
cheaper price w/o a Gulf station. Gulf says you are acting in bad faith (manipulating the terms in an unreasonable, unfair
way).
 STATUE ANALYSIS:
 Eastern has duty of good faith. Gulf says its honest, but unreasonable (under merchant standard.)
 How to decide if fuel freighting is in line with reasonable commercial standards? Courts look at course of
performance, and course of past performances/ conduct, usage of trade. Then, the courts look at the hierarchy to
rank those sources of info. Court looks: (1) no express terms (2) you never complained in the Course of
Performance (3) never complaining in the course of conduct (4) everyone does this in the usage of trade ---
everything points to Eastern Airlines' win. (Easy case.) [More interesting case -- usage of trade says it is bad faith,
but the course of performance is in line with what they should do.]
 Nanakuli case (see also the handout that I have given you here) [p.651]
 FACTS: Nanakuli has a requirements contract to buy all the asphalt from Shell instead of other companies and Shell has
to supply it all. Shell's contract price is the posted-price.
 Nanakuli claim: Nanakuli makes a bid to the government, and when they figure their bid they make a bid based on
asphalt price. Then, after the contract the asphalt price goes up, then they have to eat the rise in $. The industry has
price-protection: whatever the price was the day that you committed to the state contract, that will be the price that we
commit to. (But, there is nothing in the contract that says this.) [Should Kx be interpreted to have an exception to the
posted-price.]
 Shell's Claim: Express Terms. The contract does not expressly include a price protection term.
 ISSUE: Should "posted price" be interpreted to include "price-protection"?
 PROCEDURE: Trial court gives j.n.o.v. to Shell. Nanakuli appeals. Ct of appeals reverse the jnov and reinstated the
jury verdict (ct app. did not say that they agree with Nanakuli or that they embrace the logic, just that a reasonable jury
could've found for Nanakuli's win.)
 ANALYSIS:
 Nanakuli Theories: (1) price protection is in the contract because it is implied in fact from the intent of the parties.
(2) price protection is included as a matter of law (public policy).
 Theory 1: Implied in fact./ Trade Usage Argument. (Parties legitimately intended to include price
protection)
 TRADE USAGE:
 Shell's Argument: Everything depends on how you define the trade. The trade we are in is just asphalt
trade business. Who is in the asphalt business (just Shell and Gulf.) They want to define it as two
guys and we do not give it, so half the people don't do it, it can't be trade usage.
 Nanakuli claims the trade is people who sell rocks, pebbles, etc. (Therefore, 19 out of 20 give price
protection and Shell is the only one that doesn't). **Court sides with Nanakuli.
 Nanakuli: Trade usage is implicitly implied in the Kx (everyone knows this.) If you did not intend to
keep it, then you would've said something.
 COURSE OF PERFORMANCE:
 Nanakuli says you always gave us price protection before. Shell says that it was okay and we were
being nice guys when it was a small deal, but not on a big deal like this. Q: one time waivers or
course of performance.
 Shell did it before AND did it during the contract.
 [EXPRESS TERMS: argument doesn't work. It is a waiver or modification. ]
 Court looked to 1-205(3): Default rule: when express terms contradict course of performance, then
express terms control. BUT 1-205(3): Posted-price is only qualifying the term. It is not a contradict.
The statute says you can qualify the term (you can argue that it may change the language some, but it
is a minor qualification.)
 Theory 2: Implied in law
 Shell has a duty to act in good faith in accordance with reasonable standards because they are a merchant.
Not interpreting "posted price" as including a limitation to price protection is unreasonable. Therefore,
regardless of intention, you are out of line with the rest of the industry, so you lose despite intent. [Ct. App.
said the jury could've embraced this theory.
III. JUSTIFIED NON-PERFORMANCE:

Doctrine of Conditions and Related Issues
A. Express, Implied-in-Fact, and Constructive Conditions
 GENERAL EXPLANATION: When conditions arise:
 (1) Express conditions. I promise to do x if something occurs. [Old term: dependent covenants]
 (2) Implied in fact Conditions. Contractual language is not clear, but looking at the context and the evidence of intent of the
parties, then you can imply those conditions.
 (3) Implied in Law Conditions. There is nothing in the contract making it conditional, no evidence of intent, but the court
feels as a matter of law (based on social policies) that it should be in the contract.
 Rationale:
 Conditions As Tool of Risk Allocation Between Parties: (1) It allows you to shift the risk of certain events to other parties.
(2) Allows parties to have flexibility to allow for circumstances where they want to perform the obligation.
 Restatement:
 RS 225(1): Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-
occurrence under a contract become due.
 “Conditions” defined in RS 224: “A condition is an event, not certain to occur, which must occur, unless its non-
occurrence is excused, before performance under a contract becomes due.
 Typical Language that Creates Conditional Duties:
 I promise to do x for you on condition that something first occur.
 I promise to do x if something occurs.
 I promise to do x subject to something else occurring.
 HYPOTHETICALS:
 Q1: "A promises to pay B $500 in exchange for B's promise to paint A's house, and A's promise is made on condition that
B paint A's house on or before April 1."
 Expressly conditional (“on condition that”) [dependent covenant]
 Note: If A sues B for breach on April 2nd, B has not breached the contract to paint the house. B has only breached the
condition for payment. B only breaches if he never paints the house. If B paints it later than April 1st, then A doesn’t
have to pay, but B can sue under quasi-contract for unjust enrichment.
 Q2: "A promise to repair B's car. In exchange, B promises to mow A's lawn. Each party's obligations are
unconditional."
 Unconditional [independent covenant]
 Any party can sue for damages if someone breaches, but, because it’s unconditional, all parties still have to perform.
Remedy, therefore, is only in court.
 Asymmetrical Relationships.
 Q3: "A promises to repair B's car. In exchange, B promises to mow A's lawn. Each party's obligations are conditional
upon the party complying with his obligations."
 Conditional [dependent covenant]
 If the other party does not perform, then you can sue AND you have the right to terminate your own performance. Who
has to perform first, though, is unclear.
 Q4: "A promises to pay B $500 in exchange for B's promise to paint A's house on or before April 1st"
 Not Express Conditions, so rely on implied in fact conditions.
 How do the courts determine it when there is little/poor evidence?
 DEFAULT RULE (CONSTRUCTIVE CONDITIONS OF EXCHANGE/ KINGSTON DOCTRINE): Unless there
is evidence to the contrary, you can presume a conditional relationship. (Court usually decide as a matter of law,
that they will regard it as conditional and assume that each party intend to say I promise to do x on the condition that
you do x.) *NOTE: Kingston Doctrine has a substantial compliance standard. (Express conditions are strict
compliance)
 Typically, for gap filling, courts want to imply that there is a conditional relationship.
B. Substantial Performance/Material Breach Standard (“Kingston Doctrine”)

 KINGSTON DOCTRINE RS. 237-238
 Substantial Compliance Standard
 If there is substantial performance (from no breach to non-material breach), then you have to perform, but you can sue for the
little breaches.
 If there is less than substantial performance (material breach to total breach), then you do not have to perform, and you may
sue.
 Potential Problems: One party claims the other breached, but the courts determine that it is non-material.
 EXCEPTIONS:
 Time Conditions: Even if they are express, the court will apply a substantial compliance standard unless you can pove there is
some reason why the date is essential.
 Construction Contracts: Even if there a express condition that it follows the blueprints perfectly, this is impossible, so the
court applies a substantial compliance standard (Plante v. Jacobs, Jacob v. Youngs)
No breach non-material breach material breach total Breach

______________________________________________________________________________________________________
Full Performance Complete Non-Performance
Substantial Performance Less than Substantial Performance

Breach does not justify non-performance Breach Does Justify Non-Performance
Breach justifies a lawsuit Breach Justifies a Lawsuit
 RESTATMENT: 237, 238
 237: Kingston Doctrine: A condition of your obligations is that the other guy does all his obligations. If he has fallen
materially short, you can call off the deal. Performance can be terminated if the other person fall materially short.
 238: Concurrent Conditions/ Simultaneous Exchange
 Deals with a concurrent condition. (Everything is being exchanged at one time.) If one person is not ready to do
everything right then, then you don't have to do what you are supposed to do.
 UCC:
 BUYER AND SELLER CONDITIONS UCC: 2-507, 2-511
 2-507: The buyer payment is conditional on the seller's delivery of the goods. *unless otherwise agreed in the Kx.
 2-511: The seller's delivery is conditional on the buyer's payment. *unless otherwise agreed in the Kx
 PERFECT TENDER RULE:
 UCC 2-601: (seems out of place in the UCC). Provides for a hair trigger rule for rejecting goods. The buyer may (a)
reject the whole (b) accept the whole (c) accept any commercial unit or units and reject the rest.
 THE "CURE" PROVISION: Go to 2-508
 (1): BEFORE THE DEADLINE: Seller has to give the buyer a chance to fix the goods before the deadline is up.
The seller doesn't have to fix it, but the buyer has to give him the chance to. [No mailbox rule. It has to be there
before the deadline.]
 (2) AFTER THE DEADLINE: You get more time if (a) acting in good faith/trying to perform, then you get
"reasonable" time. It is tied to when the buyer needs the item. It can't inconvenience the buyer more than a little.
 2-612: imposes a divisibility. For installment contracts, we will treat them as separate contracts and imposes a
divisibility by statute rather than giving the judges discretion. *substantial compliance standard/
 Installment contract: a contract with multiple shipments and multiple payments.

 2-612(3): If it is the type of contract that cannot be divided, then this statute doesn't apply.
 2-612(2): Imposes a substantial compliance standard. If the seller does not substantially comply, then the buyer
MAY reject it.
 2-612(1): If not material and it can be divided, then the statute imposes a divisibility standard.
 NOTE ON TEST: the UCC substitutes the Kingston doctrine. For UCC issues, you have to apply the UCC
statutes. (Points docked for using the Kingston Doctrine for UCC problems)
 Condition Precedent and Conditions Subsequent

 Conditions precedent: a conditions that when it occurs, triggers a duty
 Conditions subsequent: duty terminating events. Once that condition is met, then there is not more duty.
 CASES:
 Luttinger [p.665]: Conditons in contract (1) buyer gets financing (2) defendant gets the rest of the money. If thew buyer
doesn’t get financing, then the defendant has to return the deposit.
 Here, plaintiff did satisfy the duty of good faith and due diligence requirement and therefore, did not breach (even
though he did not get the loan).
 DETERMINING MATERIAL BREACH

 Restatements
 241: Circumstances Significant in Determining a Failure is Material
 (a) extent to which the injured party will be deprived of the benefit which he reasonably expected
 (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be
deprived
 (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture
 (d) the likelihood that the party failing to performance or to offer to perform will cure his failure, taking account of all
the circumstances including any reasonable assurances.
 (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with the standard of
good faith and fair dealing *willfulness is important!!
 UCC:
 UCC 2-609: Forcing a material breach with a letter seeking declaration to perform
 If the other person is making you nervous (signals from others, non-materialbreach -- think they may not perform), you
can send them a written letter saying they need to declare themselves "will you perform or not?"
 If they do not reply in 30 days after sending the letter, then you an consider it a material breach.
 You can say, until I hear from you, I will not pay you. You can suspend your performance.
 SATISFACTION CONDITIONS
 Three tests: (1) objective (2) subjective (3) middle ground
 Type of test depends on the nature of the performance.
 Objective: Reasonable Person Standard (painting a barn)
 Subjective: That Specific Person’s Standard (art)
 Middle Ground: Good Faith Standard
 RESTATEMENT: 228
 There is a presumption for objective criteria standard, but it can be overcome by clear contractual language.
 For matters suitable to objective assessment, there is a reasonable person standard.
 For matters suitable for subjective assessment, there is a good faith standard.
 RESTATEMENT: 229: Excuse of a Condition to Avoid Forfeiture
 Courts will not give a right to terminate performance even if it’s an express condition if it is too harsh on the other party.
 Techniques to Get Around Forfeitures:

 (1) Read it as not conditional language when possible.
 When they see where the doctrine of conditions is heading, they can read it as not being conditional language. Read it as
unconditional language. (You can only sue for the difference.)
 (2) Read contract as imposing a conditional relationship, but interpret it in a way that the condition has already been
satisfied. (Interpret the scope of the conditions differently)
 Ex. Satisfaction conditions: "satisfied" means a reasonable person has been satisfied, and he would be.
 (3) For implied in law conditions, the Kingston Doctrine says close is good enough. So, if you can show a non-material
shortcoming, then that would avoid the forfeitures.
 (4) For time/ construction Kx, courts have built in the substantial compliance standard (for being a little late or a little
off of the condition).
 (5) Hair Trigger Waiver Doctrine. If my performance is not enough to satisfy the condition, but you did not terminate your
performance immediately, then you have waived your rights to terminate your performance. (Wasting resources).
 Courts usually only do this with minor conditions.
 (6) Finding an earlier breach.
 Ex. Luttinger case -- the court could've said you breach your obligation of due diligence up front, so you already
breached.
 (7) Divisibility. Divide one contract up into numerous contracts. Pair up the performances.
 Ex. You can have a contract with duties between both parties. You can argue that if the reciprocal duty for A was not
performed by B. My conditions are impliedly connected…
 BUT…under divisibility, the court will pair up the performances and instead of one contract, we have many contracts.
Ex. One sale of good contract and five shipping contracts.
 (8) (SEE ABOVE) RS. 229 --"court may excuse the non-occurrence of a condition" if that would cause
disproportionate forfeiture.
 Courts will not give right to walk away even with express conditions if the results are too harsh on the other party.
 (9) Quasi contract.
 UCC:
 1-203 Obligation of Good Faith
 1-201(19) defines good faith.
 Good faith implies reasonable commercial standards between merchants. (????)
 Objective standard are built into the UCC.
C. Divisibility Issues
REMEMBER: Divide one contract up into numerous contracts. Pair up the performances.
 RESTATMENT
 R.2d S. 240: Part Performance As Agreed Equivalents
 UCC
 2-612: “Installment Contract” Breach
 CASES:
 Johnstown
 Penn. Exchange Bank Case: Limitations of Divisibility. The court will do a fact sensitive inquiry to determine if it makes
sense to divide up the performances.
 K&G Construction Co. v. Harris [p.727]: The contract calls for progress payments. You can argue that it is many
contracts. Contract #1, send in, pay on the 10th. Contract #2, etc. etc. Could it be divided up into a series of contracts?
Therefore, the SC has done everything up until then. August 10th links back to the other time. SO, he'd only have to not pay
on Sept. 10th. (It may not make sense to divide it up because it is one big job, but he can argue it for paying.)
D. Waiver Issues
 You waive your rights if you do not do it quick enough. Examples:
 Minors
 K & G Construction: SC could say, when I ran the bulldozer into the wall, that was unworkmanlike performance. You
could've told me to stop then and call the deal off. HOWEVER, you allowed me to keep working for 2 months, stringing
someone along is like a waiver. (Pretty good argument).
 Hair Trigger Waiver Doctrine: If my performance is not enough to satisfy the condition, but the other party does not
terminate performance immediately, then they have waived their rights to terminate performance.
 Anticipatory Repudiation Waiver: UCC 2-611:
E. Anticipatory Repudiation
 UCC:
 2-610: Anticipatory Repudiation
 If the anticipated breach will substantially impair the contract. The aggrieved party can:
 (a) wait a commercially reasonably time for performance
 (b) resort to a remedy (even though he said he’d wait)
 (c) suspend performance as justified non-performance
 IF YOU DON’T KNOW if they will breach, you can ask for Adequate Assurances.
 UCC 2-609: You can demand in writing adequate assurance and suspend your performance for reasonably time. The
other party has 30 days to reply.
 RS. 253(1): same as 2-609 [RS.250: Definition of Repudiation]
 If you want to retract your repudiation,
 RS. 256: you can as long as the other party has not materially relied on that repudiation.
 UCC 2-611: you can retract until the other party changes their position.
 NOTE: you don’t have to tell them that you relied, it is the repudiating party’s duty to determine if you
relied.
F. Prevention of Performance
 General Rule: There is an implied duty of good faith. That includes (1) Duty to Cooperate (2) Duty to Not interfere with the
other party.
 QUESTIONS:
 What if you prevent performance? (See Peck – you cannot prevent the performance)
 What if you prevent performance as a practical matter?
 What if you merely hinder performance? (See Iron Trade)
 Rule: Hindering is OK, so long as you do not prevent performance
 Does the severity of hindering matter?
 Does your knowledge and/or motive matter?
G. Assurance of Performance (Adequate Assurances Doctrine)

 IF YOU DON’T KNOW if they will breach, you can ask for Adequate Assurances.
 NOTE: There must be reasonable grounds for insecurity.
 UCC 2-609: You can demand in writing adequate assurance and suspend your performance for reasonably time. The other
party has 30 days to reply.
 RS. 251 [RS.250: Definition of Repudiation]
 What are “Reasonable Grounds for Insecurity”?

 If you demand to early, then can be in trouble for violating the duty of good faith.
 CASE: Brookhaven Case.
 What are “adequate assurances”?

 What if you ask too much? (DICTA NOTE in Brookhaven: even if had reasonable grounds, you blew it because you
demanded too much)
 How far beyond contractual assurances can you go?
IV. EXCUSED NON-PERFORMANCE

A. IMPOSSIBILITY DEFENSE
 It has to be really impossible to do. (The item has to be destroyed and irreplaceable.)
 UCC: Modern UCC S. 2-613 application

 This allows for the excuse of the seller. ONLY a default rule. A buyer can put it in the contract that the seller has to replace
the goods … you can contract around it.
 These goods already exists -- they can be identified.
 The goods are destroyed w/o fault of either party.
 Then, the seller is off the hook for delivering the goods.
NOTE: There is no excuse for the buyers (i.e. someone embezzles his $$)…doesn't seem like there is a parallel for buyers
losing their money.
 RESTATEMENTS: RS.2d 262-264
B. IMPRACTICABILITY DEFENSE
 Judge Wright’s 3-step analytical framework:
 1) expected or unexpected contingency?
 It has to be unexpected. (What percent chance would be too much? Crespi thinks that it is likely enough to be a really
possibility, then you need way, way less than 50% possibility.)
 2) risk allocated to party seeking excuse?
 Foreseeability or even recognition of a risk does not necessarily prove its allocation [p.809]. We want to see more than
evidence that you know about the risk, but that you've accepted that risk.
 3) performance rendered commercially impracticable?
 "To justify relief, there must be more of a variation between expected cost and the cost of performing by an available
alternative than is present in this case, where the promisor can legitimately be presumed to have accepted some degree of
abnormal risk and where impracticability is urged on the basis of added expense alone." [p.810]
 RESTATEMENT:
 261: Discharge by Supervening Impracticability
 Very very similar to 2-615 to tract it more closely.
 Where, after a contract is made, a party's performance is made impracticable without his fault . Etc.

 UCC
 2-615: Excuse by Failure of Presupposed Conditions.
 (Where are the elements of impracticability defense in the UCC?)
 Intro: Except so far as a seller may have assumed a greater obligation…
 (a) if performance as agreed has been made impracticable by the occurrence of a contingency…
 Official Comments:
 (1) Uses "foreseen" instead of Wright's "unexpected": we need to look at why the prices went up and how that
changed the world.
 (8) you can have an express risk allocation in the contract.
 (Q: What if the impracticability was temporary? You cannot do it now w/o extreme costs, or you could do it in 2
weeks when the Suez Canal reopens. Courts will apply the excuse defense for a period of time or divisibility
reading…like two separate contract where the first three were ok, but the last two have a temporary excuse defense
for the two weeks. Use divisibility to make NOT ALL the contract impracticable. TEMPORARY/ PARTIAL
IMPRACTIBILITY.)
C. FRUSTRATION OF PURPOSE DEFENSE

 ANALYSIS:
 1) Expected or unexpected contingency?
 If you did not know and you couldn’t know, then we’ll treat your supervening knowledge like a supervening event.
 2) Risk allocated to party seeking excuse?
 3) Was the principal purpose actually frustrated?
 RESTATEMENT 265: “Discharging by Supervening Frustration”
 UCC: Doesn’t have it. Go to 1-103 to RS.2d 265
Broader Risk-Allocation issues:

 Risk allocation issues: What if they thought about it, but no one talked about it because they thought it wouldn't happen, so
slight a chance?
 Approach 1: Never. You have to take care of putting in the contract terms you wanted.
 Approach 2: Always. People aren't going to put in remote conditions. How can you discuss floods, wars, etc. Let's just say
we will excuse it every time.
 Approach 3: Sometimes.
 Consider the circumstances.
 Do a balancing test.
 Broader Risk Allocation issues for 3rd Approach:
 (1) Foreseeable? Rely on the foreseeability of the event. Just foreseeable enough that a reasonable person could think that
they may happen.
 Problem: most things are foreseeable. So, if you deny the excuse based on foreseeability or reasonably foreseeability, it
would be close to never.
 Unfair because, typically, it is foreseeable to both parties.
 (2) Economic Efficiency/ Cheapest Cost Avoider?
 Under this approach, risk is allocated to which of the two parties is in the better position to better prevent the event OR
who is in a better position to insure against it. (The cheapest cost avoider)
 Rationale: two rational parties will try to minimize the cost and maximize the profit.
 (3) AND FOR ANY DEFENSE: Optimal Default Rule Analysis
 Choose the rule that if we could go back, what would the parties have put into it.
 Problem: skinny contracts lead to gaps and disputes in litigation. So, you allow for gaps and the court will fill in the
gaps at the risk allocation with the opimal default rule to max profit and min costs.
 You want to replicate the hypothetical burden of the parties which would put the burdens of risk on the cheapest cost
avoider.
 Consequences of Application of Excuse Doctrine: What rights and duties are created by an excuse defense?
 For the excused party: Main consequences:
 (1) No further duties for performance (you get to stop and it is not a breach of contract…it is excused non-performance
for this supervening event. [NOTE: The excuse could be temporary instead of permanent)
 (2) You are still liable for prior breaches.
 (3) Has a quasi-contract claim for what you did up to the point when the event happened that excused the performance
after that.
 For the other party:
 (1) cannot sue for damages
 (2) can terminate their own performance. By justified non-performance doctrine.
 (3) Has quasi-contract rights for all the things that have happened up until the supervening event.
 BASIC IDEA: Parties have to settle up that value of what each did for the other guy before whatever happened.
GAP FILLING ISSUES

Ayres & Gertner
Why? Transaction costs

1) Information costs figuring out exactly what will happen, then
2) Negotiation costs contracting who will deal with what
Not worth it to deal with the costs?
Common gaps:
Gaps in conditionality what happens if one party doesn’t perform (independent or dependent covenant) this is easy,
but a lot of parties don’t address this
Gaps with regards to excuse defenses
Gaps as to remedies, because parties typically don’t address breach
How to fill gaps:

1) go back to contract formation law if it’s too indefinite, there’s no Kx clearly, you didn’t specify agreement
enough  this would make you put in the clauses (but this is so expensive!)
2) fill in the gaps, but what’s the proper role of judge?
a) retrospective focus focus on the two parties in dispute, general rules are for legislators don’t think
about what incentive structures your decision is creating for future parties this is the traditional view
of the judiciary
b) like legislators how your ruling is going to influence future parties
Things to remember:
1) Parties can always figure this out themselves, so courts are a little more aggressive in deciding things, because
those parties always have escape clause
1) Optimal default rule/hyptothetical bargaining rule approach fill in gaps with what they would have put in had there
been no transaction costs
So, what you’re going to get is

Skinny Kx leave the rest to the courts if it comes up
UCC embraces this approach (it’s full of default rules) what would parties agree to? (generalization of this principle)
*has some mandatory gap-fillers (good faith, etc.)
What would parties typically negotiate?

Allocation of risk (a lot of gap-fillers deal with this)
2) Ayres – Should courts fill gaps with tailored default rule or with untailored default rule (one that sort of fits in
most circumstances)
 to create optimal incentives for perspective parties, then you obviously want tailored
 Are there efficiencies created by judges filling gaps with something you know one/both parties don’t like?
Q: Does this mean “tailored” default rules, or “untailored” default rules? Which is more efficient in terms of facilitating low-cost
contracting?
 tailored are fairly expensive
 If we pick an untailored default rule, which one do we pick? It’s clearly a much cheaper rule
 occasionally use a tailored rule?
 Kingston doctrine untailored
Q: Might a “penalty” default rule actually create more efficient incentives for prospective contracting parties, under some
circumstances?
 Is it worth the cost of forcing all parties to put terms in?
V. REMEDIES FOR BREACH OF CONTRACT

Overview/Purpose:
 rejects the compulsion of promisor as a goal. Our system of contract is aimed at relief to promise.
 By protecting the expectation that the injured party had when making the contract
Types of Remedies:
1) Specific: intended to give the injured party the very performance it was promised
2) Substitutional: intended to give the promise something in substitution for the promised performance (damages)
Other remedies: replevin of a chattel, cancellation or reformation of a writing, issuance of a declaratory judgment,
nonperformance.
Substitutional:
Expectation Damages: putting that part in as good of a position as it would have been if the contract had been
performed
 it’s not based on the injured party’s hopes at the time of the contract, but on the actual value the contract would
have had
Reliance Damages:
Goal: protecting the promisee’s reliance attempt to put the party back in the position in which that party would have
been had the contract not been made.
1) essential reliance preparation for and performance under the contract in question
2) incidental reliance preparations for collateral transactions that a party plans to carry out when the Kx is
performed.
 The reliance interest is usually smaller than the expectation interest, because, while the expectation interest
takes account of the injured party’s lost profit as well as reliance, the reliance interest includes nothing for profit.
 Reliance is usually supposed to cause fewer proof problems.
Restitution Damages:
Goal: the prevention of unjust enrichment attempt to put the party in breach back to where it was had the Kx not
been made
Ordinarily smaller than either the expectation or reliance interest
Punitive Damages:
Some courts require it to be linked to a tort
Other courts are not that strict (there just needs to be poor behavior)
Why would you use one kind over another?

As a p, you generally want expectation damages, because they are larger
A lot of courts won’t go higher than expectation dam,ages
One type of damages might be easier to prove (that’s typically the only reason you’d argue for another type of damages)
--
R.2d §347 expectation damages:

Loss in value + any other loss, including incidental or consequential – avoided cost
R.d2 §349 reliance damages:

Alternative to §347 expenditures made in preparation or performance or in performance – any loss that the party in
breach could prove the injured party would have suffered had the contract been performed (avoided cost?)
R.2d S. 347 restitution damages
R.d2 §355 punitive damages:

Not recoverable unless the breach is also a tort for which punitive damages are also recoverable
UCC §1-106: remedies shall be liberally construed so that aggrieved party may be put in as good a position as full
performance (expectation) but neither consequential or special or penal damages may be had except as specifically
provided by this Act or by other rule of law (common law?)
UCC §2-708(2): lost volume sellers If the measure of damages in (1) is inadequate to put the seller in as good of a
position as performance would have done, the measure of damages is profit (including reasonable overhead), together
with incidental damages, costs reasonably incurred, and due credit for payments or proceeds of resale.
e.g. If you have multiple lawnmovers, the buyer breaches, the next person will come and buy that lawnmower, but that’ll
leave you with one more at the end
UCC §2-713:
Damages for buyer:
1) Market price- Kx price + incidental and consequential damages- saved costs
2) Market price determined at place for tender
UCC §2-710:
Incidental damages to a seller: any commercially reasonable charges, expenses or commissions incurred in stopping
delivery, or in resale, transport
UCC §2-712 (2):

Buyer may recover (Cost of cover- Kx price + incidental or consequential damages as hereafter defined- avoided costs)
---
Equitable Relief (specific):
Forms: Specific performance and injunction:
The most direct form of equitable relief for breach of contract is specific performance will not order something that
has become impossible, unreasonably burdensome, or unlawful, nor will it issue something that can become frustrated
by the defendant
Injunction direct a party to refrain from doing a specific act.
Adequacy Test:
Equitable test will not be granted if the legal remedy of damages was adequate to protect the injured party
Justified on economic grounds promotes efficiency by reducing the cost of negotiating contracts??
Tendency is to liberalize by enlarging the classes of cases in which damages are regarded as an inadequate remedy.
1) if the loss caused by breach cannot be estimated with sufficient certainty
whether money can buy a substitute for promised performance (if so, this will be adequate)
2) In common law system, land was viewed with particular esteem
3) Traditional attitude towards contracts for sale of goods is opposite “substantially similar” goods were
available elsewhere.
4) Even if damages are adequate remedy in other respects, they are not effective if they can’t be collected
Other limitations:
1) indefiniteness of terms
2) insecurity as to the agreed exchange a court will not compel performance if a substantial part of the return
performance has not been rendered, unless the rendering of that part can be secured to the court’s satisfaction.
a. A party in breach should not be compelled to perform unless assured of receiving what it bargained for
in exchange.
3) difficulty in enforcement or supervision e.g. of a contract to provide a service that is personal in nature
4) unfairness
5) public policy e.g. if to do so would imposes a disproportionate burden, if it s a personal service contract, if it
would give the injured party a preference over other creditors with respect to the assets of an insolvent party in
breach
AVOIDABILITY:
 an important limitation on expectation an aggrieved promisee is not allowed to recover loss that it could
reasonably have avoided.
 It’s important to remember that there is not a duty to mitigate, but you just can’t recover the damages
*Burden generally on breaching party
* What steps injured party should take depends on the circumstances
* The injured party is NOT expected to guard against unforeseeable risks nor to take steps that involve undue burden,
risk, or humiliation .
* anything that seemed reasonable at the time
Restatement: party generally expected to stop performing in order to avoid further cost
UCC may resell
**Loss avoided: take reasonable affirmative steps to make appropriate substitute arrangements to avoid loss.
**Supposed to be within a reasonable time and bears risk of any adverse change in the market during the period of
delay.
**One is not supposed to act after a breach by repudiation if one is still reasonably trying to get the other party to
perform or to retract the repudiation.
Employment general rule: measure of recovery by a wrongfully discharged employee is the amount of salary agreed
upon for the period of service, less the amount which the employer proves the employee has earned or with reasonable
effort might have earned from other employment
What about cost to remedy defect?

It depends on which is more expensive cost to remedy defect or loss in market value
Jacob & Youngs v. Kent departed from Kx specifications regarding pipe.

 difference in value was nominal or nothing.
*central importance of reasonableness
R.2d 350 1) damages Not recoverable for avoidable loss

2) not precluded if made reasonable but unsuccessful efforts to avoid loss.
UCC §2-709 (2):

When seller sues, he must hold any goods still in his control, except he may resell them. Net proceeds of the resale must
be credited to buyer.
§2-704(2):
Unfinished goods seller may exercise reasonable judgment for the purposes of avoiding loss, and may either
1) complete the manufacture
2) cease manufacture and resell the scrap or salvage value;
3) proceed in any other reasonable manner
FORESEEABILITY:
General rule: Damages

1) should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual
course of things, from such breach of contract itself; or
2) as may reasonably be supposed to have been in the contemplation of both parties at the time they made the
contract, as the probable result of the breach of it.
R.2d §351
1) Damages must be foreseeable as a probable result of the breach WHEN the Kx was made
2) ordinary course of events OR as the result of special circumstances, that the party in breach had reason to know
3) may limit if justice requires in order to avoid disproportionate compensation
UCC §2-715 (2):

Consequential damages resulting from seller’s breach INCLUDE:
1) any loss resulting from requirements that seller at time of Kx had reason to know and that could not be
reasonably prevented
2) injury to person or property resulting from any breach of warranty
CERTAINTY:
Certainty in common law, the standard was substantial certainty

Used to keep juries in check
Modern courts are less worried about this reasonable certainty
UCC comment very liberal standard a good try is good enough most courts will not go this far
Lost profits difficult because they’re hard to prove courts tend to be difficult on “new businesses” Fera case
Value of a chance quiz show situation statistical probability? You can’t prove with certainty that you would be a
winner
One way to deal with thisfile a class action
Generally, they just take a statistical chance and get recovery
Lost reputation Shirely MacLeane situation how do we know if it would boost her reputation?  most courts don’t
give this because it is so hard to measure (if there are specific losses, though, that’s fine)
Fera case more fact specific inquiry in this case, would have recovered, even though it’s new business
n.1 p. 541 stricter view drive-in movies looked at other drive-ins in the area; also looked at how much they made
the next summer
 Court said that this is NOT good enough
Royalties from artistic creations distributor/publisher breaches (rock opera virgin priest case had already sold)
Court rejects this, domino theory too speculative
R.2d §352 uncertainty as a limitation on Damages
R.d2 § 348(3) “value of a chance”
Injured party may recover damages based on the value of the conditional right at the time of breach
UCC §1-106: damages need not be “calculable with mathematical accuracy”
LIQUIDATED DAMAGES:
LD clause specific damages awarded for breach
Arguments in favor of enforcing:

1) we ought to defer to parties’ agreement
2) possible advantages security, you know where you stand simple/predictable!
3) Allows people to guarantee performance (you can put your money where your mouth is)
Arguments against:
1) set too low (sneak it by) can’t you just use unconscionability doctrine?
2) If they are set really high, as a penalty, this is going to discourage efficient breachesmandating specific
performance
R.2d §356 liquidated damages clause

1. amount that is reasonable in the light of anticipated or actual loss
2. caused by the breach
3. difficulties of proof of loss
4. no penalty
UCC §2-718 (1) liquidation or limitation of damages

1. reasonable in light of anticipated or actual harm
2. caused by the breach
3. difficulties of the proof of loss
4. inconvenience or non-feasability of otherwise obtaining an adequate remedy
5. no penalty
*also, can’t be too small, but this is just assumed
Issues:
Sometimes, this is hidden as premiums or alternative performances

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 Restatement Section 110

 Writing Requirement (Common Law)

1|Page Contacts Outline Spring ‘08

2-201(1) Enforceable if there is:

2|Page Contacts Outline Spring ‘08

C. LACK OF CAPACITY DEFENSES (Minority and Mental Infirmity)

D(1). FRAUD & MISREPRESENTATION

 MISREPRESENTATION – RS. 159-169

3|Page Contacts Outline Spring ‘08

 What is a "false assertion"?

 How Info is Acquired: Kronmen Problem

D2. DURESS & UNDUE INFLUENCE

4|Page Contacts Outline Spring ‘08

 COMMON LAW: UNDUE INFLUENCE RS. 177

E. UNLILATERAL MISTAKE AND MUTUAL MISTAKE

(2) "Cheapest cost avoider/ cheapest insurer"

 COMMON LAW: UNILATERAL MISTAKE RS. 153

6|Page Contacts Outline Spring ‘08

 WHEN USE: Contracts of Adhesion Problems

 REASONABLE EXPECTATIONS DOCTRINE 211(3)

7|Page Contacts Outline Spring ‘08

 Other Solutions -- statutory provisions!!!

G. ILLEGALITY & PUBLIC POLICY CONSIDERATIONS

II. LAW OF CONTRACT ANALYSIS

 MERGER CLAUSES…see the significance of merger clauses below.

B. Subsequent Modifications of Contracts RS. 89

C. Interpreting Contract Language: Ambiguous Contracts

 Restatements SS 201-204 (fixing a misunderstanding, instead of mutual mistake)

 PLAIN MEANING RULE (Cousin to Parol Evidence Rule)

 UCC: INTERPRETIVE HIERARCHY, UCC 1-205, 2-208

 RESTATEMENT: 202, 203(b) [list]

 Gap-filling: implied-in-fact and implied-in-law terms distinguished, mandatory implied terms

III. JUSTIFIED NON-PERFORMANCE:

B. Substantial Performance/Material Breach Standard (“Kingston Doctrine”)

No breach non-material breach material breach total Breach

Substantial Performance Less than Substantial Performance

 Installment contract: a contract with multiple shipments and multiple payments.

 Condition Precedent and Conditions Subsequent

 DETERMINING MATERIAL BREACH

 Techniques to Get Around Forfeitures:

G. Assurance of Performance (Adequate Assurances Doctrine)

 What are “Reasonable Grounds for Insecurity”?

 What are “adequate assurances”?

IV. EXCUSED NON-PERFORMANCE

 UCC: Modern UCC S. 2-613 application

C. FRUSTRATION OF PURPOSE DEFENSE

 RESTATEMENT 265: “Discharging by Supervening Frustration”

 UCC: Doesn’t have it. Go to 1-103 to RS.2d 265

Broader Risk-Allocation issues:

GAP FILLING ISSUES

Why? Transaction costs

Not worth it to deal with the costs?

How to fill gaps:

b) like legislators how your ruling is going to influence future parties

So, what you’re going to get is

What would parties typically negotiate?

V. REMEDIES FOR BREACH OF CONTRACT

Why would you use one kind over another?

R.2d §347 expectation damages:

R.d2 §349 reliance damages:

R.2d S. 347 restitution damages